17 Apr 2016

Intellectual Property and Competition Law: HC examines competing considerations

Owners of Intellectual Property (IP) are under law permitted to restrict others from utilizing the IP for commercial benefit. This is directly at odds with the competition principle which obligates free market and no undue restriction. Whether patent holders (and the ensuing compulsory licence regime) can indirectly ensure against new players in the market was a question recently considered by the Delhi High Court. While it was essentially a dispute between Ericsson and Micromax, the issue attained very wide significance in view of the various competing considerations at play. 

Micromax had taken Ericsson before the Competition Commission of India (CCI) alleging abuse of dominant position in the wake of its insistence to pay higher royalty for using the Ericsson softwares etc. The indulgence granted by the CCI to Micromax was challenged before the High Court by Ericsson principally claiming that IP disputes cannot be determined at a competition forum as essentially IP represents a special law and is not amenable to competition law. This dispute has recently been adjudged by the High Court in favour of Micromax holding that IP principles cannot restrict a competition inquiry. 

It is a very crucial decision for it is perhaps a first of its kind in India and sets the stage for evolution of competition inquiry in the IP stage. Some important observations of the Delhi High Court in TELEFONAKTIEBOLAGET LM ERICSSON (PUBL) Vs. COMPETITION COMMISSION OF INDIA AND ANOTHER [Writ Petition (Civil) No. 464/2014, decision dated 30.03.2016] are reproduced below;

A. On the scope of intervention by High Court in Writ Petition against CCI preliminary orders;
78. In terms of Section 26(1) of the Competition Act, a direction to cause an investigation can be made by CCI only if it is of the opinion that there exists a prima facie case. Formation of such opinion is sine qua non for exercise of any jurisdiction under Section 26(1) of the Competition Act. Thus, in cases where the commission has not formed such an opinion or the opinion so formed is ex- facie perverse in the sense that no reasonable person could possibly form such an opinion on the basis of the allegations made, any directions issued under Section 26(1) of the Competition Act would be without jurisdiction and would be liable to be set aside.
79. Any direction under Section 26(1) of the Competition Act could also be challenged on the ground - as is sought to be contended in the present case - that the subject matter is outside the pail of the Competition Act. However, it must be added that a challenge to the jurisdiction of the CCI to pass such directions under Section 26(1) of the Competition Act must be examined on a demurrer; that is, the information received under Section 19 must be considered as correct; any dispute as to the correctness or the merits of the allegations - unless the falsity of the allegations is writ large and ex facie apparent from the record - cannot be entertained in proceedings under Article 226 of the Constitution of India. Equally, in cases where the direction passed is found to be malafide or capricious, interference by this Court under Article 226 of the Constitution of India would be warranted. 
B. On the issue whether CCI examine complaints for violation of IP terms;
106. The next issue to be addressed is whether the CCI would have the jurisdiction to entertain complaints regarding abuse of dominance in view of the specific provisions under the Patents Act enacted to address the issue of abuse of dominance by a patent holder. It is contended on behalf of Ericsson that the Patents Act provides for an adequate mechanism to prevent any abuse of patent rights granted under that Act. It is urged that any issues regarding abuse of patent rights including abuse of dominance as contemplated under Section 4 of the Competition Act, are required to be addressed under the provisions of the Patents Act and, thus, the applicability of the Competition Act in certain matters regarding patents is ousted. It is contended that the Patents Act is a special Act which contains comprehensive provisions relating to grant of patents rights as well as for remedying any abuse thereof; and, on the other hand, the Competition Act is a general law enacted with a view to ensure freedom of trade and to promote and sustain competition in the market. It is, thus, urged that the Patents Act would prevail over the Competition Act and the CCI would have no jurisdiction to entertain the complaints in question.
110. Thus, whereas patent laws are concerned with grants of rights enabling the patent holder to exclude others from exploiting the invention, and in that sense promoting rights akin to a monopoly; the competition law is essentially aimed to promote competition and, thus, fundamentally opposed to monopolization as well as unfair and anticompetitive practices that are associated with monopolies.
137. Insofar as the allegations contained in the complaints are concerned - that is, demand of excessive licence fee, unreasonable and anti-competitive licensing terms, and breach of FRAND obligations - the Patents Act does provide a remedy by way of compulsory grant of licences. The question is whether provision of such remedies excludes the applicability of the Competition Act to certain abuse of patent rights - such as demand for excessive royalty and imposition of unreasonable terms for grant of patent licences.
148. Thus, in my view Section 60 of the Competition Act, which provides for the provisions of the said Act to have an effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, must be read harmoniously with Section 62 of the Competition Act and in the context of the subject matter of the Competition Act. As discussed earlier, the Competition Act is directed to prohibit certain anti-competitive agreements, abuse of dominant position and formation of combinations which cause or are likely to cause appreciable adverse effect on competition. Plainly, agreements which may otherwise be lawful and enforceable under the general law - such as the Indian Contract Act, 1872 - may still be anti-competitive and fall foul of Section 3 of the Competition Act. Similarly, a practice or conduct which may be considered as an abuse under Section 4 of the Competition Act may otherwise but for the said provision be legitimate under the general law. Equally, mergers and amalgamations that are permissible under the general law may result in aggregation of market power that may not be permitted under the Competition Act. Section 60 of the Competition Act must be read in the aforesaid context.
172. It follows from the above that whilst an agreement which imposes reasonable condition for protecting Patent Rights is permissible, an anti competitive agreement which imposes unreasonable conditions would not be afforded the safe harbor of Section 3(5) of the Competition Act and would fall foul of Section 3 of the Competition Act. The question as to whether a condition imposed under the agreement is reasonable or not would be a matter which could only be decided by the CCI under the provisions of the Competition Act. Neither the Controller of Patents discharging his functions in terms of the Patents Act, nor a Civil Court would have any jurisdiction to adjudicate whether an agreement falls foul of Section 3 of the Competition Act. This is so because the Controller of Patents cannot exercise any powers which are not specifically conferred by the Patents Act and by virtue of Section 61 of the Competition Act, the jurisdiction of Civil Courts to entertain any suit or proceedings in respect of any matter which the CCI or the COMPAT is empowered to determine, stands expressly excluded. Thus, in so far as the scope of Section 3 of the Competition Act is concerned, there does not appear to be any overlap or inconsistency with the Patents Act.
174. In my view, there is no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act. And, in absence of any irreconcilable conflict between the two legislations, the jurisdiction of CCI to entertain complaints for abuse of dominance in respect of Patent rights cannot be ousted.

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