ABSTRACT
The primary object of this paper is to analyse & expound the intrinsic relationship between the Patents & the Competition Law, under the context of the persisting Indian legal framework. It’s essential to elucidate the legal position on the interplay between the two, in light of the growing antitrust concerns arising out of the exercise of the Patent Rights.
KEYWORDS
Intellectual Property Rights (IPRs), Patents, Patentee, Patent Rights, Competition Law, Competition Commission, Compulsory Licenses (CLs), Infringement, Abuse.
INTRODUCTION
The general assumption; regarding the relationship between the Intellectual Property Rights (IPRs), including the Patent Rights, & the Competition Law; is that they’re in loggerheads with each other because of their seemingly contrasting goals. However; an in-depth study; based on facts, knowledge, logic & understanding; of the same; results in finding the reality being different altogether. The system of IPRs is based on the assumption that grant of exclusive rights, for a limited term, is desirable to promote dynamic competition enhancing the scope of innovation & increasing the number of options available to the consumers; which is in contrast to the adversarial perception of IPRs & Competition Law. In reality; even the most stringently regulated right is susceptible to abuse at the hands of a determined & motivated right-owner to the detriment of healthy competition. This entails the existence of a safety valve, in the form of Competition Law. The goal of Competition Law, with respect to IPRs; is to ensure that the said species of rights are exercised, within the limits prescribed by law, in a fashion which is beneficial to consumers & which promotes competition. An IP-owner runs into conflict with Competition Law only in case of an infringement, in his capacity as an IP-owner, if such infringement distorts competition. The legitimacy of this general proposition, in the Indian context, will be examined & tested in specific relation to Patent Rights, in the course of this paper. The aim is to ascertain if the Competition Act, 2002 (hereinafter referred to as ‘the Competition Act’) has indeed been vested with the power to check restrictive & abusive trade practices resorted to by a Patentee, & if so, then to what extent.
RESEARCH METHODOLOGY
This paper has been made by an extensive research; using the conventional principles of statutory interpretation to the relevant provisions of the Patents Act, 1970 (hereinafter referred to as ‘the Patents Act’) & the Competition Act to arrive at the conclusions; with various Expert Committee Reports playing a corroborative role.
TREATMENT OF PATENT RIGHTS BY THE PATENTS ACT
The purview of a Patent Right is governed by Section 48 of the Patents Act whose language makes it clear that the right so granted under the statute isn’t absolute. In fact, the provision expressly states that the right granted by & under Section 48 is ‘subject to other provisions’ of the Patents Act & the conditions enshrined in Section 47. These ‘other provisions’ include exceptions & defences to the infringement of Patents under Sections 107 & 107A, & the right of the Central Government to use & acquire Patented inventions under Section 100. Apart from the aforementioned provisions, Section 140 enumerates those restrictive covenants which could render Patent-related agreements unlawful. Section 140 doesn’t specify the authority having the power to invalidate such restrictive covenants or agreements containing any of the proscribed restrictive covenants. It doesn’t vest the Controller of Patents with the express power to invalidate such restrictive covenants.
Chapter XVI of the Patents Act provides for grant of Compulsory Licenses (CLs) under various circumstances, subject to certain conditions spelt out therein. The general principles applicable to the practice or working of the Patented inventions are enumerated in Section 83. These principles serve as guiding lights in understanding the purpose behind the grant of both Patents & CLs, under the statute. Section 83 sets out not only the obligations of a Patentee, but also the broad considerations going into the grant of CLs by the Controller. The abuse of the Patent Rights & the adoption of restrictive trade practices by the Patentee are express considerations in the grant of CLs, as mentioned in Sub-Sections (6) & (7) of Section 84. Further; Section 83 imposes a positive obligation, requiring the Patentee to make the Patented invention available to the public at ‘reasonably affordable prices’. These provisions of Chapter XVI only go as far as to state that in granting a CL, the Controller shall have regard to anti-competitive practices resorted to by the Patentee. However; these provisions don’t specify as to who has the power to adjudicate & conclude that a certain practice of a Patentee is anti-competitive or amounts to abuse of the Patentee’s position of dominance. Section 90(1)(ix) envisages the grant of a CL to remedy a practice determined after judicial or administrative process to be anti-competitive. It doesn’t expressly speak of the Controller as having the power to adjudicate on the competitive or anti-competitive nature of the Patentee’s conduct, as the case may be. In fact, it appears to refer to a body other than the Controller of Patents. It could be argued that the reference to a judicial or administrative process in this provision is a reference to adjudication by the Competition Commission either under Section 3 or Section 4 of the Competition Act which deal with anti-competitive agreements & abuse of dominance respectively. Pertinently; such an interpretation would be consistent with the recommendations of Justice N. Rajagopala Ayyangar in the Report on the Revision of the Patents Law submitted in 1959 (popularly known as the Ayyangar Committee Report); which constitutes the foundation of the Patents Act.
In Paragraphs 190-203 of the Report; Justice Ayyangar has identified 3 kinds of abuses which are as follows:-
- Abuse of Patent Rights through non-working & importation,
- Abuse of Patent Rights to extend monopoly through insertion of conditions for sale, lease or License of the Patented Processes or Products, &
- Use of Patents or a group of Patents to form monopolistic cartels & combinations to control production & distribution.
Grant of CLs has been identified as the measure to counter the 1st kind of abuse. To deal with the 2nd kind of abuse, a provision on the lines of the current Section 140 was recommended. However; for the 3rd type of abuse; which he rightly recognized as being engendered by excessive concentration of economic power; Justice Ayyangar recommended the creation of a separate legislation & constitution of a separate Commission. His observations & recommendations reveal that the Patents Act was never meant to deal with market distortion because the nature of the enquiry is beyond the pale of the Act. He struck a distinction between the abuse of Patent Rights by non-working & the abuse of economic power accrued by virtue of holding of a Patent or a group of Patents. While the former is dealt with by the CL mechanism, the latter was meant to be looked into by a separate Commission having the necessary mandate & wherewithal to deal with anti-competitive behaviour, which unambiguously points to the Competition Commission. In light of this vital distinction, it becomes essential to examine the treatment of Patent Rights & Patent-related abuse under the Competition Act.
TREATMENT OF PATENT RIGHTS UNDER THE COMPETITION ACT
Section 3 of the Competition Act expressly forbids any enterprise or association of enterprises or person or association of persons from entering into any agreement regarding production, supply, distribution, storage, acquisition or control of goods or provision of services; which causes or is likely to cause an appreciable adverse effect on competition within India. The 2 exceptions to this statutory injunction are as follows:-
- Section 3(3) permits agreements entered into by way of joint ventures if they result in increasing efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services; &
- Section 3(5) permits action taken by an IP-owner to restrain infringement of his or her right, or ‘reasonable conditions’ imposed by the IP-owner which are necessary for the protection of any of his or her bundle of rights comprising the IPR.
The limited window provided for by Section 3(5) is with respect to action taken or ‘reasonable conditions’ imposed regarding the protection of the IPRs. There must exist a real & reasonable nexus between the condition imposed on a 3rd party by an IP-owner, such as a Patentee, & the object of preventing infringement of the IPR. Hence; if the condition fails to pass the test of reasonableness regarding the object of preventing infringement; it would run in loggerheads with the proscription under Section 3, & would fall under the jurisdiction of the Competition Commission. The recommendations of the High Level Committee on Competition Policy & Law (also known as the S.V.S. Raghavan Committee Report), published in 2000, upholds this position as Section 3(5) strikes a balance between the protection of IP & the prevention of anti-competitive practices employed under the purview of IP protection. This position was reiterated in the erstwhile Planning Commission’s Report of the Working Group on Competition Policy, published in 2007, according to which; although; the CLs under the Patents Act may be granted to remedy an anti-competitive practice of a Patentee, the Competition Act retains the power to adjudicate on the legality of the Patentee’s conduct. This observation also hints at the application of the Competition Act to the conduct of an IP-owner who enjoys a position of dominance in the relevant market. This observation is emboldened by the diction of Section 4 & the framework of the Competition Act. Section 4 mandates that no group or enterprise shall abuse its dominant position. It’s quite astounding that, unlike Section 3, there’s no reference to a ‘person’ in Section 4 since an individual Right-owner too could enjoy a position of dominance which is unaffected by the market-forces. Section 19(4) lists the factors, the Competition Commission shall have regard for, in inquiring if an enterprise indeed enjoys a position of dominance for the purposes of Section 4. Clause (g) of Section 19(4) expressly speaks of the monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government Company or a Public Sector Enterprise or otherwise. Further, Clause (m) speaks of ‘any other factor which the Commission may consider relevant for the inquiry’. Based on these 2 clauses; it becomes clear that the expression ‘acquired as a result of any statute’ encompasses exclusive & exclusionary rights like IPRs, within its broad purview. The conduct of a Patentee, enjoying a dominant position by virtue of his or her ownership of a Patent or a portfolio of Patents, unequivocally falls within the realm of inquiry by the Competition Commission. It gets clear & unambiguous from the above discussion that the Competition Act expressly deals with anti-competitive practices & abuse of dominance by a Patentee. The issue which requires to be addressed next is the practical distribution of adjudication between the Competition Act & the Patents Act.
DEALING OUT ROLES BETWEEN THE COMPETITION COMMISSION & THE CONTROLLER OF PATENTS
The Controller of Patents regulates & tempers the exercise of Patent Rights in granting a CL under Section 84 of the Patents Act. However, this enquiry doesn’t take into account the distortion of competition in the market. That question is the exclusive preserve of the Competition Commission, as per what’s evident from Section 18 of the Competition Act. While the Controller of Patents is seized of an inter partes or in personam proceeding under Section 84 of the Patents Act which leads to the grant of a License; the Competition Commission, under Sections 3 & 4 of the Competition Act, has a broader purview which addresses a Patentee’s market practices & the conduct of a dominant Patentee with a view to preserve the market’s competitive landscape. Undoubtedly, the latter proceeding isn’t & can never be treated as adversarial in the conventional sense because of being an in rem inquiry. This in personam nature of a CL proceeding is further emphasised by the fact; that only a ‘person interested’ may apply for a CL under the Patents Act & under Section 93 of the Act, a CL is deemed to be a Licence deed executed by the parties; which is in stark contrast with the proceeding under the Competition Act which may be initiated by any person or even by the Commission suo motu.
Apart from the fundamental distinction in the nature of inquiry, the Competition Act contains express provisions which clarify its position in relation to other legislations. There’re 2 particular provisions, as follows, in which the Competition Act presents its positions with respect to legislations which aren’t & are in loggerheads with it respectively. The 1st provision is Section 62 which expressly states that the provisions of the Competition Act shall be in addition to & not in derogation of the provisions of any other law for the time being in force. Hence; assuming that there’s indeed an overlap between Sections 3 & 4 of the Competition Act on one hand, & Section 84 of the Patents Act on the other; the former shall be available to an aggrieved party in addition to the remedies available under the latter. The 2nd one is Section 60 of the Competition Act which states that the Act shall have overriding effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. If Section 84 of the Patents Act is interpreted as being in conflict with or inconsistent to the Competition Act, it’s the latter which shall prevail by virtue of Section 60. There’s not a single provision of the Patents Act which is comparable to these 2 sections of the Competition Act. Hence, the Competition Act is undoubtedly the more specific & appropriate legislation in as far as a market-related inquiry into the conduct of a Patentee is concerned.
Now; if the Competition Act is treated as prevailing over the Patents Act by virtue of Section 60, it follows that an inquiry into an anti-competitive practice of a Patentee or abuse of dominance by a Patentee is the sole preserve of the Competition Commission. If the Commission were to arrive at an adverse finding regarding the Patentee, such finding may be relied upon by an aggrieved party to either seek consequential reliefs under Sections 27 & 28 of the Competition Act, or to apply for a CL under Section 84 of the Patents Act based on the findings of the Commission. If the aggrieved party opts for the latter, the Controller of Patents is required to have due regard to the findings of the Commission in prescribing the terms & conditions of the CL under Section 90(1)(ix) of the Patents Act. Alternatively; subsequent to the Commission’s finding of contravention of Sections 3 or 4 by the Patentee, the aggrieved party or the Commission may invoke Section 21A of the Competition Act & refer the matter to the Controller of Patents for grant of a CL. Subsequent to the grant of the CL by the Controller, the Commission may pronounce a final decision based on the Controller’s decision in the CL application. Similarly; if an aggrieved party were to approach the Controller of Patents for a CL under Section 84 of the Patents Act, as opposed to informing the Commission of the alleged violation of Sections 3 or 4 of the Competition Act by the Patentee; it’s possible for the aggrieved party to seek a reference under Section 21 of the Competition Act or for the Controller of Patents to refer the matter to the Commission for a finding regarding the Patentee’s conduct under Sections 3 or 4 of the Competition Act. Receiving the Commission’s findings, the Controller of Patents may grant a CL based on them. The Competition Act envisages & facilitates interactive regulation between the Competition Commission & other statutory authorities, as per the necessities. Hence, it would be too simplistic to treat the Competition Commission & the Controller of Patents as mutually exclusive authorities operating in silos.
DEALING OUT ROLES BETWEEN A CIVIL COURT & THE COMPETITION COMMISSION
The issue of allocation of roles between a Civil Court & the Competition Commission assumes importance since it poses a different practical concern altogether. It begs the question whether the initiation of a civil suit for infringement instituted by the Patentee or a proceeding for revocation of a Patent by the defendant may result in preclusion of the jurisdiction of Competition Commission, on issues regarding the Patentee’s conduct, or not. The jurisdiction of an authority over a subject-matter is decided on the basis of the provisions of the legislation governing it & the prima facie satisfaction of jurisdictional facts in a given case which cloak the authority with jurisdiction over the subject-matter. Hence; if the conduct of the Patentee prima facie warrants the assumption of jurisdiction by the Competition Commission, the institution or pendency of a civil suit or any other proceeding can’t result in ouster of the Commission’s jurisdiction.
Significantly, the nature of inquiry again differs between a Civil Court seized of a suit for Patent infringement under the Patents Act & the Competition Commission seized of an action under Section 3 or Section 4 of the Competition Act. The Civil Court’s primary mandate is to examine the validity of the asserted Patent, test the Patentee’s claim of infringement & assess if the Patentee is entitled to the reliefs available under the Patents Act. Except for the limited window available under Section 140(3), of the Patents Act; permitting the defendant to raise, as a defence, a restrictive covenant imposed on it by the Patentee; the defences available to the defendant are limited to invalidity & non-infringement of the Patent. The Civil Court isn’t empowered to look into the effect of the conduct of the Patentee on the competition in the market because the Patents Act doesn’t provide for such an inquiry &, as per what’s explained earlier in the course of this paper, it’s the exclusive domain of the Competition Commission. This is further corroborated by Section 61, of the Competition Act, excluding the jurisdiction of civil courts regarding any matter which the Commission or the Competition Appellate Tribunal are empowered by the Competition Act to look into. Hence, the initiation or pendency of suit proceedings can’t come in the way of initiation of proceedings against the Patentee, under the Competition Act, by the defendant in the suit.
It’s definitely possible to conceive of circumstances where the Civil Court may have to await a finding by the Competition Commission before adjudicating on issues before it. For instance, a Patentee may sue a Licensee for infringement of its Patent, based on a breach of a contractual obligation. In response; the defendant could invoke Section 140(3) of the Patents Act & allege that the obligation, cast on it, was unlawful within the meaning of the said provision & hence, transgression of an unlawful obligation wouldn’t amount to infringement. The defendant may raise the said defence in the suit proceeding & simultaneously approach the Competition Commission for adjudication on the legality of the obligation under Sections 3 or 4 of the Competition Act. In such a situation; since Section 140(3) is unclear regarding the Civil Court’s power to adjudicate on the legality of the contractual obligation, the defendant could legitimately rely on Section 61 of the Competition Act & seek suspension of the suit proceedings pending an outcome from the Competition Commission under Sections 3 or 4. Alternatively, the defendant may request the Civil Court to proceed with adjudication of other outstanding issues & take up the issue of infringement subsequent to a finding by the Commission.
Thus; it becomes clear & unambiguous even if there’s an overlap in the issues before a Civil Court & the Competition Commission, the Civil Court can’t assume jurisdiction over such issues & must await the findings of the Commission on issues which the latter is exclusively empowered to deal with. Since neither the Patents Act nor the Competition Act formally recognizes a distinction between a ‘Normal Patent’ & a Patent claimed to be ‘Standard Essential’; it would be reasonable to argue that even in the case of Standard Essential Patents (SEPs), the exclusive power of the Competition Commission to preside over market-related or competition-related inquiries can’t be seized by any other authority. In fact; it could be argued that the competition-related concerns arising of the assertion of SEPs lend themselves better to the jurisdiction of the Competition Commission considering the implications of enforcement of SEPs for other stakeholders, including the end consumers, in the relevant market.
SUGGESTIONS & CONCLUSION
IP statutes undoubtedly provide for the internal corrective mechanisms to address the inequities arising out of non-use or abuse of IPRs. However, the scope of analysis undertaken under such mechanisms is limited to verification or examination of achievement of the specific objectives of IP statutes. No IP Regulator is charged with the duties of the Commission as reflected in Section 18 of the Competition Act, or is vested with the vast powers of the Commission to deal with market mischief. Hence; considering the specific object of the Competition Act being the fostering of sustainable competition in the market, the protecting of the interest of consumers & the ensuring of freedom of trade; the Competition Commission must be allowed to fulfil its mandate unhindered.
Author:- Koustuv Maitra; Department of Law, University of Calcutta