Section 4a: Abuse Of Dominant Position And IPR
In this article titled ‘Section 4a: Abuse Of Dominant Position And IPR’ the author focuses on how the introduction of Section 4a Draft Competition (Amendment) Bill, 2020 opens the floodgates of abuse of dominance via IPR. The proposed legislation will bring a paradigm shift in IPR Litigation with respect to anti-trust concerns. I. Introduction: Abuse Of Dominant Position… Read More »
In this article titled ‘Section 4a: Abuse Of Dominant Position And IPR’ the author focuses on how the introduction of Section 4a Draft Competition (Amendment) Bill, 2020 opens the floodgates of abuse of dominance via IPR. The proposed legislation will bring a paradigm shift in IPR Litigation with respect to anti-trust concerns.
I. Introduction: Abuse Of Dominant Position And IPR
Intellectual Property Rights and Competition Law operate in a complementary manner with each other. While the former grants exclusivity rights to a party in a particular market, the latter comes into the picture, in the cases where the exclusivity rights are misused to gain undue advantage over other players in that market.
In this paper, the author shall be delving into instances where IPR holders have abused their rights to cause an adverse effect on competition in the market. The author shall focus on how the introduction of the proposed Section 4A in Draft Competition Law (Amendment) Bill, 2020[i] will bring a paradigm shift in IPR Litigation with respect to anti-trust concerns.
II. Interface between Competition Law and IPR Laws
In order to understand the anti-competitive nature of IPR protections, it is important to understand the underlying logic behind granting such protections. IP Laws operate on “reward theory”[ii], i.e. they grant exclusive monopoly rights over a product to its “inventor”, as a reward for his/her innovation, which is essentially non-excludable in nature. Thus, other players in that market are deterred to offer the same product, thereby reducing competitiveness in the market generally.
While, this system is not anti-competitive per se, cases where this right is misused to gain undue advantages in the market, come under the purview of Competition Law. In this regard, IPR rights have manifested anticompetitive behaviour mainly in two ways: exorbitant pricing and denial of market access to other players.
In this regard, the Delhi High Court[iii] has opined that both statutes operate in different spheres in the same continuum since the remedies for abuse of patent rights are different.
While the Patent Act provides for a remedy in personam in the form of Compulsory Licensing, the Competition Act envisages punitive remedies like penalties etc. (remedy in rem) as a remedy for abuse of dominance by patent holders. Hence, although both the statutes seem to operate exclusive of each other, however, at the same time, their complementary objectives cannot be overlooked as both the laws seeks to promote consumer welfare, encourage competition and innovation[iv].
In this regard, courts in the USA have formulated the concept of patent misuse[v]. Patent misuse serves as a good example of an interface of is an affirmative defence that recognizes that it is possible for a patent owner to abuse the exclusive right enjoyed as a result of the issuance of a patent. As an affirmative defence, patent misuse cannot be used as a sword, but can only be used by an alleged infringer if and when the patent owner seeks to enforce the exclusive right of the patent in a patent infringement suit.
III. Cases of abuse of dominance due to IPR rights
In PUBL v. CCI[vi], the Competition Commission of India was hearing complaints by Micromax and Intex about alleged abuse of dominance by Ericsson in demanding excessive royalty charges for its patented technologies from its licensee competitors within the telecom sector in India.
It was held that the dominance exercised by Ericsson within the mobile telecom (manufacturing) sector, due to its patents on several quintessential technologies, is permissible under the Competition Law regime in India. However, the same could not be used to arm-twist fellow competitor manufacturers into accepting unfavourable terms under patent licensing agreements, as it cannot be deemed as a “reasonable use” of the patent right. Hence, the protection granted under Section 3(5) to patent holders from liabilities under anti-competitive agreements was not extended to the exercise of abuse of dominance.
Similarly, in Shamsher Kataria v. Honda Siel Cars[vii] case, CCI was examining the practice by passenger vehicle manufacturers’ practice of selling their patented spare parts to only authorised dealers, as being “abuse of dominance” against independent repairers in the automobile repair market. It was held that there was no abuse of dominance due to IPR rights, as although the said practice resulted in denial of market access, it was nevertheless, a “reasonable use” of IPR rights.
Furthermore, in NATCO v. Bayer[viii], the Intellectual Property Appellate was adjudicating upon a compulsory licensing application for an anti-cancer drug. It was noted that Bayer, which had originally produced the aforementioned drug, had caused had severely restricted its availability in the market by a reduction in supply and overinflating prices.
The Board relied upon Section 83(f) of the Patents Act, 1970[ix]and held that patent right cannot be abused by the patentee and the patentee should not resort to practices which unreasonably restrain trade flow in the market. It was held that the patentee had failed to sufficiently balance their rights with obligations, consequent to which they did not satisfy the “reasonable use of IP rights” test.
Recently, the Delhi High Court had held in the case of Monsanto Holdings v. CCI[x], that “reasonable conditions” under Section 3(5) do not extend to including any clause in the licensing agreement which put an unfair burden on the licensee, in order to protect the rights of the patent holder.
In the present case, Monsanto Holding had licensed its Bollgard-I technology to certain companies for the development of genetically modified cotton plant seeds. The license agreement required the licensees to destroy all parent lines or cotton germplasm, which had been modified to contain Monsanto Technology after the sub-license is terminated.
This clause was challenged as an anti-competitive agreement and abuse of dominance by Monsanto Holdings. The Court held that the clause does not fall within the ambit of “reasonable conditions imposed to protect IP rights”.
From the abovementioned examples, it is clear that the concept of “reasonable use of IP Rights” has no prescribed boundaries in Competition law jurisprudence in India. Every incident of such nature is being dealt with on a “case to case” basis, which can be problematic, as discussed in the next section.
IV. Section 4A- A game-changer?
From the abovementioned section, it is quite clear that monopoly achieved by IPR rights have a strong potential to result in abuse of dominance cases. In light of the same, the proposed introduction of Section 4A within the Competition Law regime in India can prove to be a catastrophe.
The Ministry of Corporate Affairs has recently prepared the Draft Competition (Amendment) Bill, 2020 on 20 February 2020, which inter alia seeks to expand the umbrella of IPR exemptions to anti-competitive behaviour. In this regard, Section 4A has been introduced which protects infringement of IP rights of a company, in case it faces any dispute regarding anti-competitive behaviour under Section 3[xi] and Section 4[xii].
While the provision itself is not entirely new, as similar protection has been granted under Section 3(5) for anti-competitive agreements, the draft bill now envisages extending the same exemption to abusive conduct by dominant entities done to protect their IP rights.
A combined reading of Section 4 and Section 19 of the Competition Act[xiii] makes it clear that an enterprise will be deemed to abuse its dominance, by CCI if it imposes
- discriminatory pricing
- restrictions on technical developments required for the production of goods
- denying market access in any manner
Clearly, IPR holders in any industry can resort to this behaviour, under the garb of protection of their legal rights. However, with the introduction of Section 4A, the applicability of abuse of dominance under Section 4 on IPR holders will be severely restricted, the only recourse being “unreasonable use of IPR rights”.
The author is of the opinion that with a lack of authoritative jurisprudence on this concept, Section 4A will open the flood gates to severe competition violations by market-dominant IPR holders. Hence, providing a clear definition of “reasonable conditions” will go a long way in clearing the air around cases involving IP rights and anti-trust concerns on crossroads.
The provision of excessive IPR protection to a dominant entity will ultimately result in the monopolisation and holding a strong control over the downstream market. The Draft Bill will require a stronger framework if it seeks to extend the said IPR exemption without undermining the objectives of competition law.
[i] Section 4A, Draft Competition (Amendment) Bill, 2020
[ii] Steven Shavellet al, Rewards versus Intellectual Property Rights, Journal of Law and Economics, Vol. XLIV, October 2001
[iii]Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India, 2016 SCC Online Del 1951
[iv]Atari Games Corp v. Nintendo of Am Inc, 897 F.2d 1572, 1576 (Fed Cir 1990)
[v]Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502
[vii]Shamsher Kataria v. Honda Siel Cars, 2015 SCCOnline CCI 114
[viii]Bayer Corporation v. NATCO Pharma Ltd., Order No. 45/2013, 2013 SCC Online IPAB 25
[ix] Section 83(f), Patents Act, 1970
[x]Monsanto Holdings v. Competition Commission of India, 2020 SCC Online Del 598
[xi] Section 3, The Competition Act, 2002
[xii] Section 4, The Competition Act, 2002
[xiii] Section 19, The Competition Act, 2002