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IPR under Competition Act, 2002 - By Divya Bhargava PDF Print E-mail
Written by Hanumant's Law Journal   
Monday, 23 November 2009 03:05

 

An intellectual property right (IPR) is, according to Black’s Law Dictionary, an intangible right “protecting commercially valuable products of the human intellect”; it may comprise patents, copyrights, trademarks and other similar rights. An IPR includes the right to exclude others from exploiting the non-corporeal asset.

The main intention behind granting IPR is to give an incentive for innovation, research and investment. In today’s world IPR protection is the main concern otherwise the other firms would be able to take a free ride on the R&D investment made by the inventor firm. In a way, IPRs also create competition in innovation. According to Professor Valentine Korah, in Competition Law Today, competition in the sphere of innovation is regarded as more important than competition from someone providing the same product in the same way. Society at large places a premium on innovation, on which progress in many arenas of human endeavour is predicated. However, most IPR laws do agree by the fact that patent protection is not for an unlimited period as after some time it will be available for the people in public interest. There are still certain purposes where the protection cannot be given such as non-commercial purposes like research and training etc. Moreover in some laws there are few provisions which deal with compulsory licensing whereby the IPR holder is forced to give up exclusive control of the intellectual asset.

 

We can see that in the Indian Patents Act, a compulsory license may be granted after three years of the sealing of the patent on three grounds: non-satisfaction of reasonable requirements of the public, non-availability of the patented invention at a reasonable price, or patented invention not being worked upon in India. It is seen that both IPRs and competition law create tensions as IPRs can create market power/monopolies, depending upon the extent of availability of substitute products. Where IPRs maintains less competition, the competition laws creates more.

 

THE POSITION ABROAD:-

In the UK, US and in other countries as well, there are a lot of cases which illustrate the contradictory views that draw competition law and IPRs apart. In both countries, the courts recognise that firms that enjoy a dominant position due to the IPR might in exceptional circumstances have a duty to supply or license the IPR. But, the requirements of novelty and inventive steps are perhaps stricter than in the US. Let’s examine few recent cases. In the Commercial Solvents case, a company which had a monopoly over a raw material was obliged to supply it to Zoja, a competitor. In the Volvo case, while recognising the company’s copyright over spare parts, the court pronounced that in three circumstances, the refusal by a dominant firm to supply a dealer on fair terms may amount to abuse of its power: charging unfair prices, refusing to supply spare parts to dealers to whom it refused a license, and failing to supply spare parts for old models. In the Magill case, the company wanted to produce TV for viewers a comprehensive guide to the programmes of three existing TV stations. The TV stations refused to let Magill publish their programmes, citing copyright infringement. The court held this to be abuse of dominance arising from the copyright. In the Microsoft case, the company’s refusal to give its competitors complete information on interoperability between their software systems and Microsoft Windows was held by the European Commission to be a violation of its competition law. (The case is under appeal).

 

INTELLECTUAL PROPERTY RIGHTS AND MARKET

POWER/DOMINANT POSITION:-

Intellectual Property Rights (IPRs) provide exclusive rights to the holders to perform a productive or commercial activity. But this does not provide the right to exert restrictive or monopoly power in a market. An Intellectual Property Right generates market power. The potential pejorative character of the power may be unjustifiably greatly because of public policies like the encouragement of inventions. If investment of resources to produce ideas or to convey information is left unprotected, the competitors may take advantage and benefit by not being obliged to pay anything for what they utilize. This may result in lack of incentives to invest in ideas or information and the consumer will be left poor. The need of the hour is to strike a balance between abuse of market power and protection of the property holders' rights. In other words, during the exercise of a right, if a prohibited trade practice is visible to the detriment of competition in the market or consumer interest, it ought to be assailed under the competition law.

 

INTELLECTUAL PROPERTY RIGHTS IN COMPETITION ACT:-

The Indian Competition Act, 2002, deals with IPRs such as patents, copyrights, trademarks, geographical indications, industrial designs and integrated circuit designs. Where Section 3 prohibits anti-competitive agreements, sub-section (5) thereof says that this prohibition shall not restrict “the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights” enjoyed under the statutes relating to the above mentioned IPRs Therefore unreasonable conditions imposed by an IPR holder while licensing his IPR would be prohibited under the Competition Act. This provision is quite very similar to the laws in other countries.

In some countries, restrictions that have been regarded as unreasonable and anticompetitive include agreements restricting prices or quantities of goods that may be

manufactured, or curbing competition between the licensee and the licenser, stipulating

payment of royalty after the license period, certain types of exclusivity conditions,

Patent pooling, tie-in arrangements, and so on. Thus, in the case of unreasonable restrictive practices by the IPR holder, relief is available to the affected parties under the Competition Act. The Commission can pass a variety of orders, including penalties up to 10% of the turnover, cease and desist Orders, direct modifications of the (license) agreement, and any other orders or directions that it may deem fit.

Intellectual Property can be regarded as a single generic term that protects applications of novel ideas and information that are of commercial value. The Indian Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, (the Act) deals with the applicability of section 3 prohibition relating to anti-competitive agreements to IPRs. An express provision [section 3 sub section(5)] is incorporated in the Act which states the reasonable conditions as may be necessary for protecting IPRs during their exercise would not constitute anticompetitive agreements. By implication, unreasonable conditions in an IPR agreement that will not fall within the bundle of rights that normally form a part of IPRs would be covered under section 3 of the Act.

 

APPLICABILITY OF COMPETITION LAW ON INTELLECTUAL

PROPERTY RIGHTS STATUTES:-

In the Competition Act, 2002, as amended by the Competition Amendment Act, 2007, section 3, sub section 5, clause (i) in chapter II relating to Prohibition of certain agreements, states that: -

"Nothing contained in this section shall restrict -

(i) The right of any person to restrain any infringement of,

Or to impose reasonable conditions, as may be

Necessary for protecting any of his rights which have

Been or may be conferred upon him under: -

 

(a) The Copyright Act, 1957 (14 of 1957);

(b) The Patents Act, 1970 (39 of 1970);

(c) The Trade and Merchandise Marks Act, 1958 (43 of

1958) or the Trade Marks Act, 1999 (47 of 1999);

(d) The Geographical Indications of Goods (Registration

And Protection) Act, 1999 (48 of 1999);

(e) The Designs Act, 2000 (16 of 2000);

(f) The Semi-conductor Integrated Circuits Layout-

Design Act, 2000 (37 of 2000).'

 

An enterprise, which enjoys dominant position by virtue of the IPR, if it engages in conduct considered abuse in terms of section 4, shall not enjoy any immunity. These abuses are in terms of section 4:

(i) Directly or indirectly, imposes unfair or discriminatory condition or price;

(ii) Limiting or restricting production of goods or provision of services or market;

(iii) Limiting or restricting technical or scientific development to the prejudice of consumers;

(iv) Denies market access in any manner;

(v) Makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;

(vi) Uses its dominant position in one relevant market to enter into, or protect, other relevant market.

Section 3 sub section (5) of the Act declares that "reasonable conditions as may be necessary for protecting" any IPR will not attract section 3. The expression "reasonable conditions" has not been defined or explained in the Act. Licensing arrangements likely to affect adversely the prices, quantities, quality or varieties of goods and services will fall within the ambit of competition law as long as they are not reasonable with reference to the bundle of rights that go with IPRs. Let’s take an example, a licensing arrangement may include restraints that adversely affect competition in markets by dividing the markets among firms that would have competed using different technologies. Similarly, an arrangement that effectively merges the Research and Development activities of two or only a few entities that could engage in R&D in the relevant field might harm competition for development of new goods and services. Exclusive licensing is another category of possible unreasonable condition. Examples of arrangements involving exclusive licensing that may give rise to competition concerns include cross licensing by parties collectively possessing market power and grant backs. A few such practices are as follows:-

1) Patent pooling is a restrictive practice. This happens when the firms in a manufacturing industry decide to pool their patents and agree not to grant licenses to third parties, at the same time fixing quotas and prices. They may earn supra-normal profits and keep new entrants out of the market. The disadvantage of such a pooling is that, if all the technology is locked in a few hands by a pooling agreement, it will be difficult for outsiders to compete.

2) Tie-in arrangement:-. A licensee may be required to acquire particular goods solely from the patentee, thus foreclosing the opportunities of other producers. There could be an arrangement forbidding a licensee to compete, or to handle goods which compete with

those of the patentee.

3) Royalty: - An agreement may provide that royalty should continue to be paid even after the patent has expired or that royalties shall be payable in respect of unpatented know-how as well as the subject matter of the patent.

4) R &D: - There could be a clause, which restricts Competition In R & D or prohibits a licensee to use rival technology.

5) A licensee may be subjected to a Condition Not to Challenge the Validity of IPR in question.

6) Know-how:- A licensee may require to grant back to the licensor any Know-how or IPR acquired and not to grant licenses to anyone else. This is likely to augment the market power of the licensor in an unjustified and anti-competitive manner.

7) A licensor may Fix the Prices at which the licensee should sell.

8) The licensee may be Restricted Territorially or according to categories of customers.

9) Package licensing: - A licensee may be coerced by the licensor to take several licenses in intellectual property even though the former may not need all of them. This is known as Package Licensing which may be regarded as anti-competitive.

10) A Condition Imposing Quality Control on the licensed patented product beyond those necessary for guaranteeing the effectiveness of the licensed patent may be an anticompetitive practice.

11) Restricting the Right of the Licensee to sell the product of the licensed know-how to persons other than those designated by the licensor may be violative of competition.

12) Imposing a Trade Mark Use Requirement on the licensee may be prejudicial to competition, as it could restrict a licensee's freedom to select a trade mark.

13) Indemnification Of The Licensor to meet expenses and action in infringement proceedings is likely to be regarded as anticompetitive.

14) Undue Restriction on Licensee's Business could be anticompetitive. For instance, the field of use of a drug could be a restriction on the licensee, if it is stipulated that it should be used as medicine only for humans and not animals, even though it could be used for both.

15) Limiting the Maximum Amount of Use the licensee may make of the patented invention may affect competition.

16) A Condition to employ or Use Staff imposed on the licensee designated by the licensor is likely to be regarded as anticompetitive.

The list is only the instances and is not exhaustive.

 

PENALTY PROVISIONS:-

The Competition Act comes with penalty provisions as well to keep a check on unreasonable conditions attached to IPR. The Competition Commission is empowered to inquire into any unreasonable conditions attached to the IPR agreements and can impose penalty upon each of such right holder or enterprises which are parties to such agreements or abuse, which shall be not more than ten percent of the average turnover for the last three preceding financial years. For instance, In case an enterprise is a 'company' its directors/officials who are guilty are liable to be proceeded against and punished. In addition, the Commission has the power to pass inter alia any or all of the following orders (Section 27):-

 (i) Direct the parties to discontinue and not to re-enter such agreement;

 (ii) Direct the enterprise concerned to modify the agreements;

 (iii) Direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any; and

 (iv) Pass such other order or issue such directions as it may deem fit.

In case of abuse of dominant position under section 4 by virtue of an IPR by an enterprise, in addition to the above penalties, the Commission has the power to order division of enterprise under section 28.

 

CONCLUSION:-

At last it can be said that Competition Act, 2002 and IPR goes hand in hand. Where certain privileges are being given under the IPR it’s taken away in Competition Act. Without the one, the other has no existence. It is rightly said in Indian laws nothing (right) is absolute, every right comes with restrictions/limitations/liabilities.

 

References:-

  1. www.financialexpress.com/news/intellectual-property-and-competetion (last visited the website on 19th July, 2009)
  2. www.bussiness.gov.in/legal_aspects/competition_protection (last visited the website on 19th July, 2009)

Divya Bhargava is a LLB III yr student from Sheshadripuram Law College, Bangalore. She can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Comments (2)
  • vallabh shah  - law for availiailty of spares
    I would like to know if any law exists in IPC or otherwise for any manufacturer to provide for spares for a period after the model or equipment has been discontinued for production or marketting
  • Corrina Mckanic  - IPR under Competition Act, 2002 - By Divya Bhargav
    check out what this girl did link:"https://twitter****/TheTweeterDeals"

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Last Updated on Friday, 04 December 2009 02:42
 

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Hanumant Deshmukh
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