THE INTERRELATIONSHIP OF IPR AND COMPETITION LAW

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“Innovation leads to more creations and this, in turn, bring more competition, but it gives exclusive rights as well to the one who comes up with that innovation, contrary to the competition law.”

 This one line is giving the crux of the story of the interplay of Competition Law and IPR. But the question arises, whether these two are contrary to each other or they complement each other. We will try to address this in this paper by seeing the multi-dimensions of these two.

INTRODUCTION

According to the WIPO[1], there were less than 20 countries that had a competition law in 1980. Now, more than 100 countries and regional organizations have adopted the competition law regime. This change has brought the competition law and policy as a matter of interest for many developing countries.

This rise of the competition law has brought IPR into conflict with the Competition Law. But, seeing the broader perspective, IPR provides a chance for technological innovations, which, in turn, creates more products and results in the massive growth of the products, fulfilling one of the main objectives of the Competition Law. 

IPR AND THE COMPETITION LAW

Intellectual Property Rights gives privileges in the form of legal rights to the intangible property owner, making the said owner acquire the monopoly to utilize his innovations commercially. On the other hand, Competition Law regulates the competition to save the market from any adverse effect.

IPR grants a time-bound monopoly on the creations, which prevents creating an unlimited monopoly in the market by the Intellectual Property owner. 

The Competition Law aims to prohibit the abuse of the dominant position in the market, formations of anti-competitive agreements, and combinations and mergers’ regulations. At the same time, IPR is necessary for keeping the zeal of Research and Development alive to make people come up with innovations for the benefit of the country and the world.

IPR plays a vital role by encouraging innovations, technology, creation, promotion of new ideas etc. So, there is a dire need for both the IPR and Competition Law to have a society beneficial for all.

OBJECTIVES OF IPR AND COMPETITION LAW

IPR and Competition Law are closer to each other when it comes to striking a balance between the interests of the right holders, the consumers and the society. It is pertinent to mention that the laws related to both fields try to prevent the abuse of the dominant position in the markets related to their respective fields.

IPR seeks to grant monopoly power which is against the policy of Competition Law. IPR is required for innovations, but competitiveness in the market should also not be ignored. So, if we see, there is not a conflict between the two, but they are more complementary to each other in certain areas.

So, as stated in the beginning only, IPR, while creating more innovations, will result in the product’s dynamic growth, which is one of the competition policy’s aims.

A regulated market economy is necessary for excellent competitiveness, but it should not be crowded with regulations, which will result in stagnating the economy. So, to strike a balance between the Competition Law and the IPR, there is a requirement of the proper co-existence of both. That’s why the laws of different countries and even TRIPS and other Conventions try to strike a balance between the both.

FREE AND REGULATED MARKET ECONOMY

  • Free Market Economy:- There is no regulated supply and demand in this economy, making the economy operates automatically and the entrepreneurs commanding the market. There is the absence of regulatory measures in the basic needs, which ultimately harm the consumers. Here the manufacturer identifies that what should be the number of the products to be manufactured and how much capital will be invested for innovation. 

The Government has no role in determining the price of the product. Through this system, the entrepreneurs quickly take unfair advantage of the consumers, which can abuse the competitive interest in the market.

  • Regulated Market Economy:- It is more efficient than the free market economy. This economy aims to ensure that the consumers are given all the basic needs, and the manufacturer’s advantages also get fulfilled. The laws are the chief components of this regulatory market economy, which tries to balance the monopoly rights and society’s interests in the concerned areas.

Here business and trade have a regulatory mechanism and governed through different regulatory bodies controlled by the state. This system is required to    prevent unfair trade practices and to prevent monopoly.

But there should not be excessive restrictions imposed on the economy.

CONNOTATION OF WORD COMPETITION IN IPR AND COMPETITION LAW

The connotation of the word ‘competition’ is different in both IPR and Competition Law.

The main aim of licence permit in IPR is to encourage competition among the innovator, and concurrently, it restricts the competition through several means.

After a specific period, ending the monopoly, the rights provided under IPR on innovation go to the public domain.

The Competition Law’s primary aim is to stop the abusive practices in the market to encourage competition and make sure that customers are provided with the right product at an affordable price.

TAKE OF DIFFERENT INTERNATIONAL AGREEMENT AND CONVENTION TAKE

  • Article 31 of the TRIPS [2]Agreement:- It provides for the grant of compulsory licenses in the following situation:-
  • In the interest of public health.
  • In the case of a national emergency.
  • Anti-competitive Practices.

This compulsory licensing is a preventive measure available by the TRIPS to use in the scenarios mentioned above, even when the Intellectual Property owner holds the rights on his intangible creations.

2. Article 10(B) of the Paris Convention[3]:- It defines unfair competition as “any act of competition which is in contradiction to the honest practices in industrial and competition matters”.

3. Article 40 of TRIPS:- TRIPS is an international agreement formed by WTO, and it sets down minimum standards for IP regulation which is to be applied to nationals of WTO members. This Article states that the licensing practices or conditions related to the IPR may hurt trade and may become a hurdle in transferring the technology.

Article 40.2 permits the members to specify any kinds of abuse of IPR, which have an adverse effect and adopt measures to counter them. Some of the anti-competitive practices are provided in Article 40.2 of the TRIPS, but that list is not exhaustive.  

The provisions related to the anti-competitive agreement practices in TRIPS (especially Art. 40) are generally permissible rather than prescriptive.

DIFFERENT COUNTRIES ABOUT COMPETITION AND IPR

1. UNITED STATES:- 

The IPR Laws carry a notion that they create monopolies exclusively in the market, and that’s why it is antithetical to anti-trust practices. But with time and advancement of the jurisprudence on IPR Laws, it was concluded that the revolt given in the form of rights under IPR for the creations provide substitute product and newer technologies to the people.

The Department of Justice has created a “Safety Zone” for providing no imposition of any kinds of restriction on IP licensing agreement until and unless it is creating any appreciable adverse effect in the market by using the way of patent pooling which leads to the coordinating prices or refusal of licenses as a result of competitive harms.

The US has an open market system with minimum regulation, and this helps the country to regulate its market in such a way that no monopolistic behaviour get abuse and if any entrepreneur abuses or engages himself in unfair competitive activities, stringent laws will control him by either charging colossal lump sum amount of compensation or driving him out of the market.

Section 2 of the Sherman Act discusses (1) The possession of monopoly (2) The willful acquisition of power as distinguished from the power growth.

Sec. 2 (9) says that abuse of dominant position, aiming at the prohibition of unfair competition.

Sec. 13 prohibits prices discrimination when the same product is being sold to different consumers.

Clayton Act, 1914 provides some additional provisions regarding exclusive dealing agreements, mergers and combination.

US Laws on competition and IPR are far more developed than many other countries.

Famous Microsoft Case

This is considered one of the landmark cases on competition law vs IPR policy during the TRIPS regime. The case has its roots in 1998, where Microsoft was accused of abusing its power of monopoly by tying its operating system with the web browser and selling this in the market. This resulted in the restriction of the market for the other competitors in this field of web-browser. The reason for the restriction is that Windows operating system users were already having a copy of the Internet Explorer; this was the browser with which Windows tied its browser. The competitors stated that Internet Explorer was a different and separate entity altogether as a separate version of it is found for other Operating Systems. 

The Court gave the judgement, and in this, it stated that Microsoft had altered its dominant position in the market, and through this, it wanted to suppress the other operating systems. It was held that Microsoft had committed monopolization through its actions, and tying violates the Sherman Anti-Trust Act. 

2. EUROPE:-

The EC Treaty has article 81, which explicitly mention the conflict between both IPR and Competition Law. There has been a shift from a liberal approach to an intervening approach in the licensing agreement related to IPR in European Courts.

Art. 82 deters the abuse of the dominant position created by the IPR licensing agreement. There are two blocks exemptions provided regarding IPR licensing agreement that concerns anti-competitive activities.

The first block exemption was related to “specialized agreement”, which discourses on the IPR dispensed in 2000.

The second block exemption relates to “Technology Transfer”, which came in the year 2004. it regulates the matter related to patent, the know-how of the copyright concerned with the rule of anti-competitiveness with certain compliances. It means that The combined share of all the parties should not be more than 20% in relevant markets, and in the case of individuals, it should not be exceeding 30% in terms of its share.

CONDITION IN INDIA

It is not required that every subject matter of IPR needs to be contrary or in derogation with competition law. The IPR creates dominance, but it is not necessary that it leads to the abuse of the dominant position.

INDIAN LAW RELATED TO THE COMPETITION AND IPR POLICY

Section 3 of the Indian Competition Act states that:-

“No enterprise or association of an enterprise is allowed to make any agreement about production, distribution, supply, acquisition, storage, controls of goods or provision of services, which will have a significant adverse impact on competition within India”.

It means that it puts a restriction on the enterprise or a group of enterprise to enter into an agreement relating to any activity which will harm the competition. 

Section 3(5) provides an exception. It says that the competition law does not affect the IPR rights. But this exception, when combined with another section, i.e. Section 4 of the Competition Law, then it is found that this also restricts the IP owners or holders to abuse the dominant position they have, and if that position gets misused by them, the competition law will prevail.

This inter-linkage makes it clear that they complement each other rather than being contrary to each other. 

India is at the developing stage in this Competition law and IPR. But still, it is trying to maintain a balance between both of them so that there should not be any disadvantage to anyone and promotion of both innovations and the competition keeps prevailing in the country.

CASE LAWS

  • Aamir Khan Production Private Limited v. The Director-General[4]:-

In this case, the Hon’ble Bombay High Court stated that the “Competition Commission of India has jurisdiction to decide into the matters related to the competition as well as IPR.

  • Entertainment Network (India) Limited v. Super Cassette Industries    Limited[5]:-

The Supreme Court, in this case, emphasized once again on the issue related to the conflict between the two laws, i.e. the Competition Law and the IPR. The Court believes that the copyright holder has a monopoly, but it is limited, in the sense that if this kind of monopoly creates a disturbance in the easy functioning of the market, this will violate the competition law and lead to the refusal of license. The royalty option will always be there with the copyright holder for the work he created by issuing the licenses, but it is not absolute. 

  • Union of India v. Cyanamide India Limited & Anr[6]:- 

In this case, it was held that “Charging excessive prices on life-saving drugs is within the ambit of price control and Competition Commission of India has jurisdiction over these kinds of matter. Where there is a scarcity of substitutes, there is always a peril of creation of monopolies, and this disturbs the economic efficiency in the market.”

  • Kingfisher v. Competition Commission of India[7]:-

The Court held in this case that “Section 3(5) of the Competition Law does not limit the right of the IP holder to sue for infringement of copyright, trademark, patent etc. CCI (Competition Commission Of India) has conferred with the powers to deal with all the cases that come before the Copyright Board. So, competition law does put the bar on the application from the other laws.

  • FICCI Multiplex Association of India v. United Producers Distribution Forum[8]:-

The question that came before the Court, in this case, was whether the competition in the market affects the right of the copyright holder.

The Court held in this case that the right granted to the copyright holder is not absolute; it is a statutory right under the copyright Act, 1957. The European Courts of Justice also held that the objective of IPR is to encourage innovation and further have commercial gain.

PREVENTIVE STEPS

There are two renowned methods that are in use to prevent the abuse of IPR are:-

1. Compulsory Licensing:- 

 Under Article 31 of the TRIPS Agreement, the grant of compulsory licenses is provided under the following situations:-

  •  In the interest of public health
  •  In case of national emergency 
  • ·Anti-competitive practices

Through this compulsory licensing, the IP holder’s monopoly can be removed in the interest of society at large. Even when the rights are there to the IP holder, but under a specific royalty, this can be exploited by others.

2. Parallel Imports:- It is a type when the goods are brought into another country once they have been made their presence in the market elsewhere without the patent or copyright owner’s permission. 

CONCLUSION

A right being granted to the patent owner is not the infringement of anti-trust, but the abuse of the rights will violate anti-trust policies. The rights related to IP are given for a particular duration, not for forever. If these rights are given for an unlimited period, that will result in the misuse of the power of monopoly, and it will restrict the competition by bringing the invention and innovation of products to a halt. Competition Law comes into the picture when the patent holder gets the exclusive right to exclude the others from entering the market. Competition Law comes with the abuse of the rights, not in the ordinary course of IPR.

IPR is rewarding the inventor who has gone for rigorous research and came out with something new for the society that is a gift to the society by the inventor. Both the competition and IPR laws promote consumer welfare and innovation. Competition Law was enacted with the motto to avoid the misuse of the dominant position or monopoly granted under the statute. The Competition Act, 2002 broadly accepted the intentions of IPR while framing the provisions, and it did not come up with eliminating the dominance achieved by an individual due to IPR.

Therefore, a balance must be maintained between both the laws, and the different jurisdictional opinions need to be considered for it. There is a harmonious construction between the two are required rather than the contradictory approach.  


[1] World Intellectual Property Organization

[2] Trade Related Aspects of Intellectual Property Rights

[3] Paris Convention for the Protection of Intellectual Property signed in 1883 in Paris, France

[4] Aamir Khan Productions vs Union of India, writ petition No. 358, 2010

[5] Entertainment Network (India) Ltd. Vs Super Cassette Industries Ltd., AIR 2008

[6] Union of India vs Cynamid India Ltd & Anr, AIR 1987

[7] Kingfisher Airlines Ltd. Vs CCI, AIR 2012

[8] FICCI Multiplex Association of India vs United Producers/Distributors Forum, AIR 2011

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