Abstract
Patent rights came into existence in India as a means to incentivize innovation and creativity by granting exclusive rights to inventors for a limited period of time. Patents protect inventors from others copying, manufacturing, or selling their inventions without permission. This protection fosters a conducive environment for inventors to share their ideas without fear of exploitation. However, these exclusive rights can sometimes lead to monopolistic practices, particularly within industries such as pharmaceuticals. When Monopolies are formed the healthy competition in the market reduces thus bringing into the Competition Act of 2002.This Act prohibits anti-competitive agreements, abuse of dominant positions, and regulates combinations that have adverse effects on competition in India. While patents grant exclusive rights to inventors, they do not confer a license to engage in anti-competitive behaviour. The Competition Act ensures that companies with dominant positions do not abuse their patent rights to engage in practices such as, pre-determined pricing, excessive pricing, refusal to license essential patents on fair, reasonable, and non-discriminatory (FRAND) terms, or engaging in patent thickets to block competitors. By preventing the abuse of dominant positions in the patent space, the Competition Act fosters an environment conducive to innovation. It ensures that companies cannot use their patent rights to unfairly dominate markets or stifle competition, thereby encouraging competition and innovation in the market, for example,
In the, EU v, Microsoft case (2005), withholding copyright-protected interoperability information has been adjudged an abuse of dominant position in breach of Article 102 since it hampered production, markets, and technological progress. Article 102 of the Treaty on the Functioning of the European Union (TFEU) governs dominant firms’ behaviour to maintain fair competition.
The PUBL v. CCI case dealt with alleged abuse of dominance by Ericsson in demanding excessive royalty charges for patented technologies from its licensee competitors within the telecom sector. While owning a patent is not abuse per se, its usage can lead to illegal exploitation
This paper talks about how big companies or monopolies use restrictive trade practice with their patented technology and abuse their dominant position in the market and what can be done to prevent them.
Key Words
Intellectual Property, The Competition Act of 2002, Abuse of Dominant Position, Monopolies, Restrictive trade practices
Introduction
The last several decades have seen a dramatic change in India’s economic environment, marked by the quick rise of creative sectors and the growing significance of intellectual property rights (IPR). At the same time, the country has kept a competitive market alive with a strong system of competition laws.
Intellectual property rights include trade secrets, trademarks, patents, and copyrights. By granting artists and inventors the sole right to their creations for a predetermined amount of time, these rights encourage innovation. These rights are protected in India under a number of statutes, such as the Trade Marks Act of 1999, the Copyright Act of 1957, and the Patents Act of 1970.The nation is committed to stopping anti-competitive behaviour, as seen by the competition law framework and pertinent case legislation.
According to Section 3 of the Competition Act of India, agreements involving intellectual property (IP) rights are prohibited if they have the potential to significantly harm competition in India. This includes relevant provisions of the Competition Act of 2002 and significant laws pertaining to intellectual property. Significantly, the Competition (Amendment) Act of 2023 introduced Subsection (g) of Section 3(5), which protects people’s rights under any existing laws pertaining to the protection of various types of intellectual property rights. Section 4 deals with the abuse of dominant position and includes situations in which dominant companies utilize their intellectual property rights, including patents, to participate in anti-competitive practices. Moreover, Section 19(3) lists criteria that are applied for identifying cases of abuse, some of which involve intellectual property rights.
The exclusive right of the patent holder and antitrust protections are important features of both patent and antitrust law. Patents give their owners the only authority to create, utilize, and market their inventions for a predetermined amount of time—usually 20 years from the day the application was filed. The fundamental component of a patent award is the exclusive right, which gives the patent holder the ability to bar others from utilizing their patented technology without authorization. Furthermore, these anti-competitive activities may be made worse by the deliberate use of patents to increase monopolistic control over medication formulas or production methods. For example, in the pharmaceutical industry the awarding of patents on life-saving treatments can occasionally result in excessive prices, rendering necessary medications out of reach for specific demographic groups. This puts the goals of preserving intellectual property rights and guaranteeing access to reasonably priced healthcare at odds.
It becomes essential to effectively enforce competition laws in order to stop the infringement of intellectual property rights, which has the potential to restrict consumer choice, hinder competition, and ultimately harm the public interest. Pharmaceutical corporations may participate in “evergreening,” a strategy whereby they make slight changes to already-approved medications in an effort to prolong the patent life of those products. This may make it more difficult for generic producers to compete, raising consumer costs. When pharmaceutical corporations secure patents for critical medical innovations or important medications, they frequently have a great deal of market power, which gives them the ability to set prices and restrict access to medicines that can save lives.
Research Methodology
This paper is of descriptive nature and the research is based on Primary and Secondary sources for the deep analysis of Patent rights and Competition Act with reard to Monopolies and restrictive trade practices in India their adverse effect on the Indian Economy.
Review of Literature
In this research paper I have taken reference from the following primary and secondary sources,
The Primary Sources- The Competition Act, 2002, (the bare act), The Patents Act,1970, Patent (amendment)Rules, 2017, IP.India.Gov.in
The Secondary Sources-The Institute of Company Secretaries of India – Intellectual Property Rights- Laws and Practices (Text Book),
Articles-
- Yatinder Garg-1st page, Balancing Act: Competition Law and Intellectual Property Rights in India – Saikrishna & Associates,
- 3 Jus Corpus L.J. 558 (2022-2023) -Convergence of Competition Law and Patent Law: Dominant Position Monopoly and Evergreening of Patent.
- Abuse of Dominance in Case of Intellectual Property Rights- Kunal Kaushik Kally
- India: Patents And the Indian Pharmaceutical Industry- by Renu Bala and Johny Solomon Raj
- Coaction of Competition Law and IPR in the Indian Pharmaceutical Sector- By Krisha Thakkar and Krishna Garg (Research & Editorial Team)
- https://www.wto.org/english/tratop_e/trips_e/intel2_e.htm#:~:text=The%20TRIPS%20Agreement%20requires%20Member,novelty%2C%20inventiveness%20and%20indu
- Competition Commission of India (CCI) initiated an investigation against Max Super Specialty Hospital for alleged abuse of dominance in the year 2015
- In-House Pharmacies: Abuse of Dominance & Distortion of Competition, By Sanidhya Bajpai & Akash Gulati,
The authors are students of Dr. Ram Manohar Lohiya National Law University, Lucknow.
WEBSITES
- https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/AOD.pdf
- http://www.legalservicesindia.com/article/729/Abuse-o-Dominant-Position.html
- http://docs.manupatra.in/newsline/articles/Upload/49B54588-42DE-4173-A967-90790B35ED50.pdf
TRIPS Agreement
According to Section 2(ta) of the Indian Patents Act, a pharmaceutical patent is awarded for a pharmaceutical substance, which is any new entity involving one or more inventive steps. Regarding patent protection, the pharmaceutical sector was largely unregulated prior to the establishment of the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement. People’s health situation varied from person to person, and most of their medical demands went unmet. Pharmaceutical enterprises were solely protected by Process patents; however, TRIPS agreement article 27(1) now covers all technological domains and products with patent protection. On January 1, 1995, the TRIPS Agreement went into force. It is an international agreement on intellectual property rights that is incredibly detailed. The Agreement specifies the minimal levels of protection that each Member nation’s domestic legal system must offer. The primary requirement of the TRIPS agreement is that patents be granted for inventive steps in all technological domains, regardless of whether the innovation is a process or a product, as long as it satisfies the three requirements for patentability- novelty, inventive step, and industrial applicability.
The TRIPS Agreement provides flexibility for promoting public health by allowing the nation to issue a compulsory license on certain grounds under Article 31. A compulsory license is a license granted by an administrative body to a third party to exploit an invention without the patent holder’s authorisation. This license is generally referred to as a non-voluntary license connoting the lack of consent by the patent holder. The main aim behind issuing compulsory licensing is the promotion of research and development of new drugs. However, such licenses are subject to payment of reasonable royalty in India. Compulsory licensing allows the licensee to produce a generic copy of the drug to be made available in the local market at a lesser price than that of its competitor on the condition that the owner/manufacturer has made enough efforts to obtain a voluntary license from the patent holder on reasonable terms within a reasonable time.
There has been an urgent demand for medicines and vaccines in India ever since the emergence of the COVID-19 pandemic in 2019. We have witnessed an exponential surge in the number of cases but the disbalance in the equilibrium of demand and supply of covid drugs and vaccines has been an issue of concern for the past two years now. In the last year, India’s crude death rate was around 7.3 per 1000 people of which roughly around 5.07 Lakhs lost their lives due to covid infection. Compulsory licensing of covid drugs and vaccines seem to have emerged as a boon to meet the inadequacy of supply of the vaccines much more proactively, whereas the government may force vaccine makers to share their intellectual property with other pharmaceutical companies and ensure much faster production of the vaccines.
Hospitals Abuse Dominance via In-House Pharmacies
Some mega-hospital chains have implemented unjust practices in their quest to maximize profits, and patients frequently bear the brunt of these actions. These private super specialty hospitals have continued to increase their earnings while the patients take the hit thanks to their many strategies. As an example, Max Hospital (“Max”) was initially determined to be abusing its dominant position in order to take advantage of the in-patients. The Competition Commission of India (henceforth referred to as “CCI”) directed the Director General to look into the situation in 2015. The CCI has not yet rendered a final decision on the subject. This article explores the ostensibly anti-competitive actions taken by Max and certain widespread actions taken by other hospitals to take advantage of in-patients and stifle competition, particularly with regard to their internal pharmacies and the resulting monopoly over the limited options of in-patients and it also suggests changing the current situation.
Let’s understand this with the help of a case law
The market for “provisions of healthcare services/facilities for in-patients by private super specialty hospitals in Delhi” was deemed relevant by CCI in order to examine Max’s apparent abuse of dominance.
According to Section 19(4), private super specialty hospitals, such as Max, hold a dominant position in the relevant market. They have allegedly abused this position through their in-house pharmacies, which charge exorbitant prices for medications, engage in collusion with pharmaceutical manufacturers, and appear to have exclusive supply agreements. Max has complete control over the in-patients; once they are admitted to these facilities, they are required to use their treatments going forward, even if they may be obtained elsewhere for less money. This amounts to a violation of Section 4(2)(a)(ii) of the Act since it gives the hospitals the ability to abuse their dominating position and locks in the in-patients. In the Max Hospital case, the DG made the same observation.
Furthermore, because hospital pharmacies require in-patients to purchase their medications from on-site pharmacies, they are completely shielded from retail competition, according to CCI’s market assessment on the pharmaceutical industry (2021). Hospitals find it simpler to misuse their position in the aftermarkets as a result of this exclusion of competition. These healthcare facilities cede their market dominance in order to “make a buyer do something that he would not do in a competitive market,” which is to acquire less expensive alternatives of various brands—in our instance, even the same brand—from an outside drugstore. Abuse of market power is evident in this fashion, as it excludes competition from other pharmacies and subjects in-patients to outrageous costs. Similar claims of aftermarket abuse were made in the Max Hospital case as well, and they were referred back to the Director General for a more thorough inquiry. The CCI’s final decision on this matter will determine its fate, and if it is decided in a way that is abusive toward private hospitals, it could mark a turning point in the history of such practices.
PRINTING OF HIGHER MRPS FOR MEDICINES TO BE SOLD BY THE IN-HOUSE PHARMACY
By charging exorbitant fees for the drugs, they obtain at a lower price than the market—often through exclusive supply agreements—from the pharmaceutical companies, the hospitals take advantage of their dominant position. By giving pharmacies large retail margins, pharmaceutical companies compete with one another to get their drugs and other products stocked in pharmacies. The hospital’s in-house pharmacies, where in-patients are required to purchase their medications, serve as a breeding ground for these kinds of anti-competitive agreements because they shield patients from the retail competition and, as a result, enable the pharmacies to charge exorbitant prices and make enormous profits.
As previously stated, pharmaceutical manufacturers offer hospitals a larger retail margin in exchange for being stocked with their products. larger M.R.P.s secure these higher retail margins for non-scheduled pharmaceuticals, which are not subject to regulation. According to an investigation conducted by the National Pharmaceutical Pricing Authority (N.P.P.A.), the most reputable private hospitals are profiting 1,737% from prescription medications, consumables, and diagnostic procedures. The earnings on pharmaceuticals that are not subject to price control range from 160% to 1200%, on consumables (which are also not subject to price control) from 350% to 1700%, and on drugs that are subject to price control from 115% to 350%. These profits are collected by imposing inflated M.R.P.s. Hospitals stand to gain the most from this trade because they both force manufacturers to pay them large retail margins and charge patients overpriced MRPs. This clearly demonstrates that retail margin competition at the manufacturing level helps hospitals make astronomical profits through anti-competitive agreements and abuse of dominance, but it does not promote competition at the retail level or lead to competitive prices for consumers.
EXCLUSIVE SUPPLY AGREEMENTS AMONG HOSPITALS AND MANUFACTURERS
Exclusive supply agreements are often in place between high-end hospitals like Max and manufacturers. These contracts prevent patients from using the hospital’s other services, which makes matters worse if you’re an inpatient and have no choice but to use the services that are offered. In the “Hiranandani” case, the commission determined that the exclusive contract violated Section 3(1) of the Act since it significantly harmed competition. The COMPAT challenged the same, stating that since there were alternative suppliers and patients may freely use their services, such exclusive arrangements are not anti-competitive. But in the case of in-patients, the current situation is different since they are not free to use services outside of hospitals. Hospitals are able to abuse their dominating position and the exclusive supply agreements become anticompetitive. The hub-and-spoke cartels and the most recent modifications to Section 3(3) guarantee that the selling side bears responsibility for these kinds of anti-competitive arrangements.
Exclusionary such as a denial of market access- Activities that are considered exclusionary are those in which the dominant entity uses its power to restrict competition’s ability to enter the relevant market. Such activities were held to be anti-competitive because they restricted the entry of new firms.
For example, in the case of Re Shri Shamsher Kataria v. Seil Honda, Case No. 03/2011, there was an existing agreement between the dominant entities and the overseas suppliers of unique vehicle parts that prohibited the overseas suppliers from providing parts to free repairers.
Suggestions
To an undertaking held to the abuse of dominant position, the Commission can do several things on its parts-
Order the undertaking to stop any actions that accumulate to be misuse. Cases such as Re Shri Shamsher Kataria v. Honda Siel Cars India Ltd, Case No. 03/201, and Atos Worldline v. VeriFone India, Case No. 56 of 2012, are examples of instances in which the Commission has used this approach to prevent charges arising from actions that were thought to violate Section 4. Impose fines equal to no more than 10% of the average turnover for the three fiscal years prior.
Enhancing the Process of Grant and Examining Patents:
Efficient Examination – To cut down on backlogs and speed up patent issuance, streamline the patent examination procedure. Improve the standard of patent examination to guarantee that only really original and non-obvious innovations are granted protection. This is known as quality control.
Encouraging Licensing and Technology Transfer -To guarantee that vital technologies are available to the general public, promote the application of compulsory licensing regulations.
Offices for Technology Transfer – Create technology transfer departments in academic institutions and research facilities to help with patent licensing and product sales.
Public Interest and Patent Rights in Balance – Fair Royalties -Establish criteria for fair royalties to stop patent holders from abusing their position of dominance.
Exceptions in Public Health- Make sure that patents don’t prevent people from accessing vital medications or other important technology. Competition Authorities- the Competition Commission of India (CCI) to more effectively probe and prosecute abuses of dominant positions in the areas of monitoring and enforcement.
Encouraging Research and Innovation
Patent Pools -Promote cooperative patent pools to lower transaction costs and enable cross-licensing. Research Exemptions- To enable experimentation and innovation without concern about patent infringement, clarify and broaden research exemptions. IP Literacy- Include instruction on intellectual property (IP) in curriculum at universities and schools.
Clear Guidelines for Addressing Abuse of Dominant Position – Give precise instructions on what behaviours, such as exploitative pricing, denying access to markets, and leveraging, are considered abuses of dominant position.
Effect-Based Methodology- Keep evaluating abusive behaviour using an effects-based methodology, taking into account impact to rivals and customers.
Conclusion
Despite appearances, the link between patent rights and competition law is not intrinsically incompatible. Instead, by restricting static rivalry, both legislative tools encourage dynamic competition. By allowing holders to utilize the patent for a certain amount of time, patent rights provide them an advantage over rivals. It goes without saying that the patent holder will hold a monopoly and a dominant position throughout this time. It is true that competition law has never demanded that monopolistic powers be outright forbidden; yet, abusing such rights will be considered an antitrust law violation. Competition laws are not inherently violated by the dominating position provided by patent law; rather, it is when that advantage is abused. In summary, the goals of the two statutes are similar, however, they go about doing it in various ways.
This research paper discusses the use of dominating positions in the market that are caused due to patent monopolization, particularly in the pharmaceutical industry, and how the government should strive to raise awareness, strengthen regulations, and oversee the industry.