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INDEX
S. No Topic Page No.

Week 1
1 Concept of Intellectual Property Law Patents 1
2 Trademark 32
3 Geographical Indications 54
4 Copyright 96
5 Industrial Designs 115
6 Integrated Circuits Layout Designs 137
7 Trade Secrets or Undisclosd Information 143
Week 2
8 Information Competition Law 158
9 Introduction to Cmpetition Law (Contd) 178
10 Introduction Competieion Low Anti-Competitive Practices 203
11 Bid- Rigging 234
12 Introduction Competition Law - Vertical Agreements 248
13 Abuse of Dominance, Combinations 272
14 Regulation of Combinations 297
Week 3
15 Economic Theory of Ip And Competition 317
16 Interface Between Ip And Competition 346
17 The United States Anti-Trust Law 375
Tying Arrangements And Intellectual Property Under Sharman
18 Act 408
Week 4
Unites States Jurisprudence Unilateral Refusal To License Or
19 Deal 429
20 Price Fixing And Antitrust Law 447
21 Market Allocation And Ipr 467
22 Vertical Restraints 495
23 Vertical Restraints (Contd) 512
24 Enforcement of anti-Trust Law in United States 529
Week 5
25 Introduction To EU Competition Policy And IPR 568
26 IP Based Conduct under Article 101 586
Week 6
29 Technology Transfer Agreements 638
30 TTBER and safe harbor provisions 659
31 Standard Essential Patents and FRAND Terms 684
Week 7
32 Introduction to Competition Law in India contd.. 715
35 IP Licensing and Indian Competition Law 774
36 IP Licensing and Indian Competition Law Contd.. 794
37 IP Licensing and Indian Competition Law Contdâ€¦ 822
38 IP Licensing and Indian Competition Law Contdâ€¦ 845
Week 8
39 Patent and Competition Law 867
40 Trademark, Copyright and Competition Law 886
41 TRIPS and Competition Law 903
42 TRIPS and Competition Law Contdâ€¦. 928
Comparative analysis of IP and competition law across US, EU
43 and India 938
Intellectual Property Rights, and Competition Law
Prof. K D Raju
Rajiv Gandhi School of Intellectual Property Law
Indian Institute of Technology, Kharagpur
Lecture - 01
Concepts of Intellectual Property Law Patents
Good morning all, I am Professor K. D. Raju, Professor of law, Rajiv Gandhi School of
Intellectual Property Law, IIT Kharagpur. In this NPTEL course, Intellectual Property
Rights and Competition Law; this week we are going to discuss the Concept of
Intellectual Property Law and different categories of intellectual property rights.
(Refer Slide Time: 00:50)
We know that the concept of intellectual property law is very simple.
1
It actually says that it is a creation of human mind or an incentive for innovation or it is a

statutory right given by the government to the innovator or the inventor. Or, we can say
that it is the fruits of creativity or it is an incentive given to the inventor by the
government for a limited period of time. At the same time, we can see the different
categories of intellectual property law.
2
And in this particular week, we are going to deal with patents, trademarks, copyrights,
geographical indications, designs, integrated circuits and trade secrets. These are the 7
categories of intellectual property rights described in one of the WTO agreement dealing
with intellectual property law i.e. Trade Related Aspects of Intellectual Property Law.
And you can see in this particular picture what they are saying, they say “All I ask was,
Can I patent my copyrighted trademark?”
So, these fellows do not understand, what is a copyright? what is the trademark? what is
a patent? So, in most of the cases, people have this misconception, what is the patent?
what is the trademark? or they could not find any distinction between the different
categories of intellectual property law. So, if you are not able to understand ,definitely
you require this class. So, this week we will discuss the categories of intellectual
property law.
The IP philosophy, which we already talked about, is the incentive for innovations. The
present entire regime of intellectual property law is in the TRIPS agreement, one of the
WTO agreement which provides minimum standards of intellectual property, but not
uniform. Each and every WTO members, presently 164 World Trade Organization
members, have intellectual property laws in their domestic countries.
3
They have to follow the minimum standards prescribed by this WTO agreement which is
known as the Trade Related Aspects of Intellectual Property Rights, popularly known as
the TRIPS agreement.
And, we already discussed that the nature of intellectual property is of human creation of
intellect; it is an intangible property. Earlier, every company survived with tangible
properties. But now, every knowledge base companies survive with intangible properties.
It is an exclusive right given to the inventor or the innovator or the artist or the writer or
the author for a limited period of time. Under the TRIPS agreement presently, uniform
protection is given to patents for 20 years.
This is very simple because the objective of giving this limited period of protection is
that after this particular period of time everybody i.e. the public would be able to use this
particular technology or this innovation. So, the exclusive right is given to the inventor
for a limited period of time, for it is an exclusionary use.
4
So, intellectual property is; there are lot of definitions for intellectual property, but it is
clearly the application by someone using their mind or intellect to create something new.
And we will see and later on discuss, what are the requirements of these criteria of
intellectual property.
But it is very clear, it is the invention which is mostly appreciated under the intellectual
property Law and it is under a legal protection. Now, it is obligation of every country to
provide legal protection under the TRIPS agreement to this kind of innovations and
inventions.
5
So, if we look into the history, we can see that the concept of intellectual property is not
new at all. And, we can find prolific inventors in the past centuries and one of such
bright mind is none other than the Thomas Alva Edison, who contributed thousands of
inventions, thousands of patents to the knowledge. And, we can find his some of the
inventions, which are still relevant especially in the case of lights and other machineries.
6
The purpose is very simple of intellectual property law. It is actually a reward or an
incentive to the author. It is an incentive to the sweat of the inventor to do more and
more innovations in the future. It is a simulation to the artist; it is an incentive to the
writer or the author.
So, it is a recognition of scientific creativity. So that is why we can find number of

innovations in the market now. Now, the entire society is run on innovations. So, for each
and every company, if you do not innovate; you perish that is the present situation of all
the knowledge based companies.
So, the rational is very simple, which we talked about, one is the incentive theory;
incentive for creativity and the other one is the monopoly right; limited monopoly right
granted to people those who innovate. This is an incentive for further innovation to the
society and there are criticism also of the protection of intellectual property. They say
that each and every knowledge belongs to the society.
So, nobody can make it monopoly rights, but protection of intellectual property is also
contributing to the society because, this monopoly right is granted for a limited period of
time. The society, what it gets out of it? The inventor discloses this particular innovation
7
to the society from the day one. So that when the limited period of protection is over, the
society can use this particular knowledge for further innovation.
And, if you look into the Indian scenario; India has complied with the TRIPS agreement
and enacted or amended its laws in accordance with the obligations under the TRIPS
agreement. So, we have Patent Act, we have Copyright Act, we have Designs Act, we
have Trademarks Act.
We have Geographical Indications of Goods Registration and Protection Act, 1999; Semi
conductor Integrated Circuits Layout Designs Act, 2000; the Protection of Plant Varieties
and Farmers Rights Act, 2001. So, most of these acts came after the TRIPS agreement,
i.e., came to existence after 1995. We amended our laws in accordance with it.
8
So, the pertinent question is that why should you protect the intellectual property? I will
give you some of the examples: I won’t say bio piracy, it has toughen our intellectual
property and one is the Basmati case and other one is Haldi and the third case is Neem
case.
So, the basmati case is simple and basmati is rice which is grown in many parts of India
especially, some of the northern states of India. And, it has huge export market all over
9
the world and Pakistan is also claiming that the basmati rice belongs to them as well. So,
apart from the conflict of interest between India and Pakistan. One of the American
company Rice Duck in 1997, they filled a number of patents with the US Patent Office
based on the bio genes taken from the original Indian basmati rice.
And, they want to patent it in many names and sum of them were Kasmati, Texmati
etcetera. So, it is nothing, but the theft of Indian knowledge, India’s intellectual property,
which will come under one of the categories of intellectual property i.e. the geographical
indication.
And this company was trying to patent it in the US and the Government of India had to
fight the case in the United States and finally, the US Patent Office revoked it and the
second case is on haldi. And, haldi everybody knows that it has medicinal qualities and it
has wound healing qualities.
10
In 1995, another US Patent Office has granted a patent for “The Use of Turmeric in
Wound Healing”. So, again we see this Indian traditional knowledge being stolen by
these US companies. Then, again India fought this case in the US courts and finally, this
patent also was revoked.
And the 3rd case is on Neem and we know that the neem is used by Indians for many
medicinal purposes for time immemorial period.
11
And here, also we can see another US Company, W. R. Grace. They want to actually
patent different products of neem, involving neem and get monopoly for them. In 1985,
onwards you can find a number of patents. Patents that are neem based products like
tooth paste and other products. And the patents were filed in the USPTO as well as the
Japanese Patent Office.
In 1992, W. R. Grace, this particular company came out with pesticide emulsion based
on the neem products. And, once they made this, they patented this particular product
and started suing the Indian firms those who were making this emulsion using the neem
seeds, specifically the neem seeds. So, because everybody knows that the bio pesticides
can be made from neem and this particular knowledge is in India for time immemorial
period. So, India had to fight this case as well.
12
Not only in US, but in other jurisdiction as well. In 1997 this patent was rejected and
also in others jurisdiction like Germany, the European Patent Office has accepted the
arguments of Indian scientist that this particular knowledge exist for time immemorial
period and in India and Indian knows this particular knowledge.
So, what does it mean by all these cases? What is specifically meant by fighting all these
cases?
13
If you do not protect your intellectual property locally, somebody is going to take away
your intellectual property and are going to make it their own and make money out of
this. And, due to the patent protection they are going to have a monopoly right over your
intellectual property. So, it is now your duty to protect your intellectual property and for
you to look into different types of intellectual property, which I have already explained to
you.
So, under the TRIPS agreement, there are 7 categories of intellectual property which is
mentioned in the TRIPS agreement. I am starting with patents, then you can find
copyright, then trademark, geographic indications, then integrated layout designs,
industrial designs and then finally, the trade secrets or undisclosed information. And in
today’s class, we are going to discuss about the patents.
14
Everybody has heard about patents. But actually most of them are not aware of what
constitute the patent, what are the requirements of a patent? Why you should take patents
? why you should protect your inventions through patents?
So, if you look into some of the old technologies. We know that the flying technology or
the first flying machine is invented by the Wright brothers. So, the Wright Brothers, you
15
can find the patent protection for their machine. They have patented some of these
machines and you can also find some of the very old patents.
So, the first ever old patent was granted to John of Utynam by King Henry VI and that
was in 1449. So, remember the first patent was granted in 1449 that is centuries back; so,
the concept of intellectual property or patent protection, is not new at all. It is a centuries
old concept of protecting intellectual property. So you can find the coincidence that the
first patent also was granted for a period of 20 years.
And, after many centuries TRIPS agreement also limited the protection to 20 years of
monopoly rights. And here you can find the first case the incentive theory. So for giving
a monopoly rights he had written, he has to teach his process to the English man that was
the condition put by the kind on the first incentive. So, in the first invention itself he got
the incentive and then the first patent system, the India patent system started from that
onwards.
16
So, you can see that the first US patent also was granted for Pot ash that was in 1790 to
this patent number 1, which was signed by the President of the United States at that point
of time for making Pot ash and Pearl ash by new apparatus and process. You can see the
certificate granted by the United States of President at that point of time.
So what I want to say is that the concept of intellectual property is not new at all. It is not
the invention of the 21st century it is centuries old, the concept at all.
17
So, we use a very simple clip, the gem clip which is patented in the year 1899. So, the
patented clip, it was invented by a Norwegian person, Johan Vaaler in Germany in 1899.
So, you can see that even a small thing, a simple thing can get a monopoly right only for
limited period of time. But the inventions; the innovations are spread over many
centuries and we still use the same gem clip, after centuries. So, it means that even a
small invention can go for centuries and centuries.
And, if you look into the first ever patent granted in India it is in 1856; in 1856 the
Britisher who was serving in Kolkata, whose name is George Alfred De Penning. So,
who belongs to Kolkata at that point of time has invented a machine, a mechanised
system for moving a manual punkha.
18
So, he is with his invention i.e. George Alfred De Penning. Earlier, before the fans which
we use in the present state, there were manual punkhas.
So, this is how you know, you can see the manual punkha on the roof and some people
have to manually operate this. So, he made an invention to operate this particular punkha
that was the first invention.
19
So, you can see the transformation of the present fan from the punkha, which is the
manual punkha to the innovation; different innovations and which reach to the present
level of the fans which you see nowadays.
20
I can explain a number of patents. Let us skip through all these inventions. You can find
“n” number of inventions for example the sewing machine. The sewing machine,
everybody gives the present day, which was invented at that point of time in 1855
onwards. It is a patented machine at that point of time. Now, you can find new
innovations to the sewing machines.
21
Earlier also I talked about this Thomas Alva Edison, who had thousands of patents on
different innovations. So, if you innovate, a prolific innovator, who was a class drop out.
Will come to the prerequisites of the patentee.
So, as I told you, in many of the jurisdictions inventions are patentable and in India
discoveries are not patentable. But, the criteria, as I already told you, is that the TRIPS
agreement only put minimum standards; not the maximum standards. So, some of the
countries are very liberal in the inventions and incremental innovations are also
permitted in some of the countries.
And so, the first criteria is patentable subject matter; and also has to prove the basic three
minimum criteria i.e. novelty, then non-obviousness or inventive step and third is the
industrial application.
22
So, if you look into these three criteria, the novelty criteria is very simple criteria. In
layman’s language if I say that it should not be known to the public prior to the claim by
the inventor; that is a very simple criteria of novelty. And the second criteria is the
inventive step; that means, the invention would not be obvious to a person who is
ordinarily skilled in the art.
So, if the mechanic; if it is a mechanical invention a mechanical engineer or a person,

who is conversant with the technology should not have heard about it before, that is the
simple language, that is the inventive step, or non-obvious to a person.
And, the third criteria is the industrial application i.e. the invention cannot be abstract.
Invention must be useful or it must be practical activity or there must be an intellectual
industrial application. So, the intellectual creativity must have an industrial application.
These are the three conditions which is put forward.
23
And, under article 27 of the TRIPS agreement, there are many things which are excluded
from patentability, i.e., patentability criteria is mentioned. For example, the naturally
occurring substance or elements are excluded, then, secondly the diagnostic, therapeutic
and surgical methods for treatment of humans or animals are also excluded. Then, plants
and animals and other than micro organisms. But there are controversies with regard to
the plants and animals produced with the help of biotechnology.
So, genetically modified organisms, in some of the countries it is patentable and in some
of the countries these are non-patentable. Then fourthly, the essentially biological
processes for production of plants or animals are also excluded. Then, again most
importantly the inventions, which are contrary to the public order, public ordre or
morality is excluded from patentability. And lastly, the mere ideas or methods for
business, playing games, performing mental acts are not patentable in most of the
countries, but you can find business method patents are available in the countries like the
United States.
24
And the most important requirement of the invention is the disclosure of the invention to
the public. As I already told you the inventor gets an incentive for a limited period of
time for disclosing his invention to the public at large.
So, the disclosure must be sufficiently complete. So that a person skilled in that
particular art can duplicate that particular invention once the protection period is over; he
should be able to practice. So, we can see that these inventions disclosure should be
complete; so, that we can make this.
25
And, you can also find the non-patentable subject matter and so, frivolous matter are not
inventible; so it is not patentable. And also the established laws. A machine which is
made for opening of locks. So, contrary to established natural laws are also non-
patentable. Also other than commercial exploitation. So, a machine which you invent
contrary to public order and morality or which causes serious prejudice to the human or
animal or plant life or health or to the environment is excluded from patentability.
26
Then, again as I already told you that the mere discovery of scientific principle is non-
patentable in most of the jurisdictions and abstract theory again is non-patentable. Then,
the discovery of any living things or non-living substance occurring in the nature is non-
patentable.
But in some of the countries, which you can find there is a distinction between non-
living substance and living substances in some of the jurisdiction.
If you look into this particular picture you can find that the most important inventions are
in, which are the areas where the most important invention are. Whether it is in the
automobile sector; whether it is in the lamps; whether it is in other areas like telephone
or it is in areas like microwave or in the computer.
So, you can find some very specific areas where, there is lot of innovations happening
especially, 60 percent innovations happening in the automobile sector, in car. So, this
concentration of innovation can be found in some of the specific sectors.
27
I think this is a panoramic view of trends of the patents, which you can find it in all over
the world and which are the areas where, it is happening, where the filing are happening
and the grant is, the grant of the total number of patents in different jurisdictions which
you can find.
So, these are the data, which is created by specific people who clearly say that the
innovations are happening in the developed world not in developing countries. I think the
developing countries also have to now look upon the innovations more and more.
28
And If you look into the data some of the companies are prolific innovators like the
famous companies like Qualcomm, who is the major in the telecommunication sector
and General Motors. And, these numbers are representative numbers which may change,
but clearly it shows that other than CSIR, which is the Government of India organization,
you could not find even a single Indian company in this long list.
So, it means that the countries like India or the developing countries should more and
more concentrate on innovation and innovation, not only innovations but filing patents.
So, all these companies are foreign companies; why the foreign companies? So, the
Indian companies also should come up and innovate and they should file the patents.
29
If you look into some of the institutions, they are also majors in filing patents; definitely,
Indian Institute of Technology: IITs are the majors in filing number of patents. And most
importantly, you can find some of the private institutions are also in this particular figure
and these private institutions are also actively now coming up with patent filings and
they want to become the majors in this particular field. I hope that these institutions
specifically the industry and institutional partnerships can make the number of filing in
India very high.
30
And these patent trends, which specifically shows that the number of patent filings in
India are going up; definitely it is going up if you take into account from 1995 onwards.
And now, the filing procedure are also very simplified by the Indian Patent office. So,
these patent trends, when we compare it with the other countries, number of obligations
in other countries are very small.
So, we have to innovate. We not only have to innovate, but the number of patent filings
also has to go up. And then only we can say that we are an innovative country.
And we will stop this particular class here, this is about the patents and we will go to the
other categories next.
Thank you.
31
Prof. K D Raju
 
Lecture - 02
Trademark
Dear students, we will discuss Trademark in this particular class. This is second category
of intellectual property law and we will see the basic principles of trademark.
As I already told you that we are going to discuss it out of these seven categories of
intellectual property law.
32
And what is the trademark? Trademark is nothing, but a unique mark which identifies a
particular company or a service and distinguishes it from its competitors. And also this
particular intellectual property has to be registered or by usage they get the trademark
registration. And, it provides exclusive right to use, to license, to sell this particular mark
and again this particular mark is protected for a limited period of time i.e. 10 years and
which can be renewed from time to time.
33
So, these are some of the trademarks which you can find and in which you can easily
identify the company which it belongs to and even the products or services which they
are offering.
And, when we are looking specifically into these registered trademarks, it is a matter of
reputation of each company, at the same time it even points to the category of goods
which they sell. For e.g., the Nike everybody knows that it is sports goods and sports
apparels which they are specialised in. So, it means that if you can identify a particular
service or particular goods or particular company with the registered trademark that is
the objective of the trademark.
34
And, you can find a number of trademarks; registered trademarks which belongs to
different companies and these trademark, the registration of the protection of this
particular category of intellectual property add to the reputation, add to the intellectual
property of those goods companies. For e.g., Coca Cola says its trademark is worth about
60 billion US dollars($). So, the trademark valuation can add value to your company, add
value to reputation of the company, add value to the reputation of your product.
35
And, definitely we can find some of them. There are different kind of trademarks which
you can find, the products you can brand in such a way.
At the same time why we have to register the trademark? So, you can see these two
pictures and phrase. “Coca Cola” is a famous brand, is a soft drink. But, you can find
these we call it its “duplication” or “deceptively similar” which the other companies can
come up with, the trademarks which are similar, “deceptively similar” and so that they
can leeway the reputation of “Coca Cola”, the existing product.
And the second picture you can see that the “Starbuck” the famous coffee you know
changes all over the world. So, it can be you know “Chica cola” or it can be these other
coffee, the Starbucks can be some other bucks. So, the similar appearance is, once it is a
registered trademark you protect your intellectual property, deceptively similar or similar
trademarks are not allowed under the trademark law.
36
So, you can find what is the menace of the famous brands once your brand become
famous. Others also want to take economic advantage of your brand, branded product.
So, whether it is a water bottle or whether it is a famous brand, whether it is a product it
depends upon market of the product as well. So, once it is registered it is your
So, simply by registering its trademark you can avoid these kind of duplication by
“deceptively similar trademark” by others and also sue others for “Damages” for using
the deceptively similar trademarks.
37
So, you can see why the similarity between these two trademarks? So, everybody knows
about “adidas” and what is the brand all about, but you can see the abibas as well.
So, always people would want to take advantage of the famous brands. So, if it is a
registered trademark then definitely you can file suits against those who are duplicating
your trademark and trying to get economic benefits out of your trademark.
38
So, I am just showing some of them and it is interesting to see all these, all these are
happening in the markets. So, in order to avoid you have to register your trademark.
So, what can be registered as a trademark? Basically trademark can be letters, it can be
numbers, it can be words, it can be colours, it can be phrase and it can be a sound, it can
be a smell and it can be a logo, it can be a shape, it can be a picture and also it can be an
aspect of packaging or any combination of all these whether it can be letters, pictures
and smell and sound and all combination also can be a trademark.
Then you can see that these trademarks can be registered for Goods or Services. So, the
generic terms are not permitted to be trademarked. For e.g. , the names of the places are
prevented from being trademarked. So, registering names are prohibited to this class
trademarks.
39
And, we can see the kinds of trademarks. There are different kind or different categories
of trademarks which you can find, i.e. the marks on Goods, then you can find Service
marks, you can find certification marks, you can find collective marks and you can find
well known marks and also you can find trade names. All these are the subcategories of
trademarks.
40
You can see the example of different service marks. Definitely these marks shows the
service which they provide, for e.g. VISA. Everybody knows what service VISA
provides. These are specifically known as the service marks.
Then you can see the certification marks, for e.g., the BIS marks, the BIS hallmark.
Everybody knows that it is a certification mark for gold. Also you can find the ISI marks
for different products. The food products order mark, it is AGMARK for agriculture
products. All these are certifications, subcategory of certification marks.
41
And, you can see the collective marks which includes for e.g., the collective marks of
lions club which you can find. And, then wool mark which you can find it as a
certification marks.
And then the other category is the well known marks, it is so because that particular
products are well known in the market, for e.g. Coca-Cola and Toblerone i.e. the
triangular chocolates. Then names also you can find. The famous trade names of Godrej
42
which is very famous for furnitures, refrigerators, storewell. And also the GE, we can
find the electric products of GE. So, all these are well known marks which is known as
well known marks. And you can find sound marks.
So, the famous mark, the sound mark. So, you can find it as another category of
trademarks.
43
Then, the new categories are also coming up which is smell marks. So, for e.g., the
perfumes. Perfumes you know are identified specifically on some smell marks. So, these
are also subcategories of the trademarks.
Then, you can find some of them in the name of trade names, i.e. the distinctive symbols
names. So, that helps the consumer to distinguish between the competitor goods and
services and the trade name. So the enterprise name is always in consumers mind for
example, the name of Tata. So, always the company’s name is in the consumers mind.
So, this has actually nothing to do with the quality, but it is directly connected with the
name of the company which holds the reputation in the market. At the same time the
consumers expect a particular quality of products from these particular companies as
well.
44
At the same time if you look into these forms which we have already said that we can
find it in form of visual marks, you can find in the words, letters, numerals or a
combination of all these together in the form of 2D as well as in the form of 3D signs.
I already said that even though audios in the sound mark and musical notes can become a
part of trademark. Olfactory is a subcategory on smells which you can find as a smell
marks.
45
And, also what is actually protected in trademark? The trademark which gives an
exclusive right to the trademark holder of Goods or Services which are registered and
protected. So, this can be licensed, this can be sold, this can be assigned. So, from any
other intellectual property you can make economic benefits out of this protection of these
particular marks. And there are exclusions as well. You can find it as, the state emblems,
official hallmarks, emblems of intergovernmental organisations, these cannot be marked,
these cannot be registered as the trademarks.
And then you can find some of the criteria of the protectability, the basic functions. And
also the trademark need not be always registered, but it can also be acquired by use as
well. And the trademark should not be deceptive, it must be non-deceptive. It simply
means that it should avoid misleading. It should not be misleading and not contrary to
the public order or morality.
And, There are special requirements as to the specific categories of trademarks as well
for example, in the case of smell marks. So, there is a specific requirement there.
46
And, you can find that the functions of trademark is to source the origin of Goods or
Services or to the reputation of the company which shows its trademark. And, Also
trademarks assures the consumers of certain quality of goods by that particular mark.
Because in the consumers mind particular trademark belonging to a particular company
produces certain quality of products. So, the expectation is pretty high by the consumers.
And in a period of time it creates the business goodwill and also the brand awareness. It
is the tool of marketing as well. The trademarks is a tool of marketing as well. So,
trademark is an intellectual property of multifarious functions. It performs. It not only
directly relates with the reputation of the company product, its goodwill, its brand but
many more is related with the trademark.
47
Now, the companies have started innovative branding with the humour sense for
different products. So, you can find these some of the marks with which the companies
have started new marketing strategies with pictures. So, you can find like cartoons, they
are using it with different trademarks as a tool of marketing. So, it means that all these
intellectual property is contributing to the trademark and contributing to the company.
48
And, some of the companies like Ozgene’s, one of the advertisement they give with a
matter of humour, they advertise their trademark, they are advertising it with a sense of
humour.
So, now the companies are using trademark in different ways to market their products as
well as for innovative advertising in different publications so that they can promote their
particular products with a touch of trademark. And, So you can find this particular
company Ozgene. How they advertise the trademarks in different ways, they can
advertise their trademarks.
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So, if you look into these some of the cases. There are, you can find a number of cases in
different jurisdictions. I thought that I will cite some of the cases from India. So, you can
find these cases. SONY; SONY is a trademark for, everybody knows that SONY makes
Good for different categories of products, but what about other products? For example,
the name is put for somebody or the SONY name which is not related to that particular
product at all. For example, the SONY for nail polish or SONY name for the frames or
spectacles or goggles or so, the other names, whether it is the name actually, whether it is
a surname. It is the common surname in India. Whether SONY can sue?
So, in most of the cases the court said that SONY cannot sue the Indian, other products
with the name SONY this is mainly because this particular company is producing a
category of products, various specific products. If it(SONY) has nothing to do with it
they cannot claim that particular name as such because once it(“Sony”) has become a
generic name and if it is a generalised name, it is very difficult to preserve it as a
trademark but they can preserve it.
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But, the advantages you can see from these particular pictures. What are advantages of
trademark if it is a registered trademark? So, many “fair and lovely” will be produced by
the competitors with similar names, deceptively similar names.
So, if your trademark is registered, so you can protect your intellectual property against
others and claim a huge Damages. So, it is very important that you should register your
trademarks. So you can find a number of products.
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So, once if there is any kind of confusion in the mind of the consumer then definitely you
can sue the other, your competitor’s product by protecting the trademark as intellectual
property.
So, trademark is a very important category of intellectual property to be protected

because it protects your company from the deceptors, it protects your companies
reputation of your brand, it protects economic benefits and you can assign it, you can sell
it, you can lease it. You can say that a bundle of rights are associated with the
trademarks. This is another case which has come up before the Indian court.
So In India you can see one of the undergarment put their name as “Benz” and you know
that the Benz is very famous for what? it is definitely a very luxurious vehicle. So, the
Benz has sued this particular company, the undergarment manufacturing company. What
happened in this particular case is that the Delhi high court very clearly said that this is
deceptively similar.
Because you can find the similarity in their appearance, the products, it has absolutely
nothing to do with the original Benz, but it is used for an undergarment. So, the court in
this particular case said that this is deceptively similar and the company, its products
cannot use this particular trademark for marketing this particular undergarment.
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So, you can see these cases also tells and you can find a number of cases, but these cases
shows the jurisprudence, the resembled jurisprudence from India and other jurisdictions
on trademarks. It clearly says that the trademarks are territorial in nature and the
trademark protection, like any other intellectual property law, is not global in nature,
every intellectual property is territorial in nature not global in nature at all. So, the
protection is confined to the territory, the specific territory and so it means that the courts
will give/grant injunctions very specific to the territory at question.
So, what I want to say is that the trademarks are very important category of intellectual
property and definitely it contributes to the business and it contributes to the reputation
of the company, it contributes to the whole economic benefit to the company. So, I hope
that the trademark protection is also as important as in protecting the general intellectual
property.
And, definitely we will stop here and in the next class we will go to the next category.
The next category is the geographical indications.
Thank you.
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Prof. K D Raju
 
Lecture - 03
Geographical Indications
Dear students, we will discuss in this class another category of Intellectual Property Law
i.e. Geographical Indications. You may have heard about geographical indications. And
so, you can see the Darjeeling tea, that is the first geographical indications which is
registered from India. And all other parts of the world’s registered geographical
indications are there.
So, what is this geographical indications? And, Geographical indications are indications
relating to Goods, not services. So, indication which identifies such goods, it can be
agriculture goods, it can be natural goods, it can be manufactured goods and originating
from a particular part of the territory, a particular region of the territory.
And that territory which gives that particular product a quality, a reputation and other
characteristics which is essentially attributable to that particular product because, of that
origin and, such goods manufactured goods, whether it is a manufactured goods and such
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production, processing, preparation of goods takes place in that particular territory or
region or locality which gives that particular reputation or quality to the product. Then it
is known as geographical indication.
So why we should protect geographical indication? Most importantly geographical

indication is a community right, it does not belong to a particular individual and it is
owned by a group of individuals, group of producers or group of people those who are
interested in that particular product; they can register it as a GI. And, you can say that
geographical indications are name and it can be a symbol as well.
So, It strongly relates to a particular region or the name of a particular place in any
particular country. So, this particular product has a close relation with the reputation of
the product which is very important. So, if you want to protect Darjeeling tea it must be
important. For example, the tea board says that they produce every year approximately
10 tons of tea, every year from the particular designated plantations of darjeeling in West
Bengal.
But, all over the world almost double quantity of Darjeeling tea is sold. Where is this
another 10,000 tons of tea coming from? Definitely the fake Darjeeling tea is coming
from other parts of the world. So, in order to protect your Darjeeling tea you have to
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register it as a geographical indications so that you can protect it in other parts of the
world.
And I will show you a series of geographical indications which are registered in India
from different parts of different states, belonging to the different states. Aranmula
kannadi this is a specific mirror, kannadi means mirror, mirror made up of metal. And,
this is also a trade secret which belongs to a particular group of people, only a small
group of people from Kerala.
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And you can see the alleppey coir which belongs to again the state of Kerala.
The rice products
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Another rice which is red in colour palakkadan matta
And the pepper the famous Malabar pepper
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And then cardamom green cardamom or ilaichi, which is known as the Alleppey
cardamom.
Then there is instrument which we can see is a manufactured products; maddalam.
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And, then the brass products
And, then again rice specific qualities of rice
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Pineapple, there is one famous pineapple which is known as the Vazhakulam pineapple
and which is now, all these are registered GI’s from the Kerala specifically.
Then furnishings
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Then you can find the textile products, different qualities of textile products.
And then sarees you can find.
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Then different other products
Then again the Ayurvedic rice which is known as jeerakasala rice, belongs to another
state in Wayanad of Kerala.
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Then another rice which you can find, gandasala rice.
Then this pavithra ring, payyannur pavithra ring. Again, there is a dispute on the
registration of this particular product and which will we discuss later.
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Because, as I told you GI can be registered only by a group of people those who either
are the artisans or a group of traders or those who are interested in that particular product
or goods. So, this is registered GI in 2004 but this is not only made by the artisans which
belongs to Payyannur in Kannur districts, but other artisans also claim that they also
make this.
So, there was a dispute before the Intellectual Property Appellate Board, the IPAB. You
can see that the registered proprietor of this particular geographical indication is the
Subhash jewellery actually filed case against these Payyannur pavithra ring artisans. So,
what this case shows is that there will be always a conflict of interest between different
group of people who owns what? That is most important thing.
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And, will come back to the disputes later.
And, you can find I will quickly show you all other GIs which is registered in India.
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And you can find different kind and different qualities of product.
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Whether it is a textile or it is a manufactured product or which is a Nilambur teak. The

teak wood, which is a naturally existing and that is also registered as a GI.
And, also most of the majority of the products registered GI’s in India are either textiles
or handicrafts items.
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So, simply you can see that these are the goods, known goods because of their reputation
which belongs to a particular region. So, it can be agriculture goods, it can be
manufactured goods and it can be naturally existing goods which belongs to a particular
region of the country.
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And, most important thing is that the GI is not owned by a single owner, it is always
owned by a group of people. So that is why the geographical indications are known as
community rights and it is not owned by a particular person, a single person.
Why should we protect geographical indication or these reputed products? So, you can
see the Darjeeling logo or the registered logo of Darjeeling or a certification mark of
Darjeeling tea or you can see a similar tea is Mongoji tea, Mongoji tea. So, you can see
these are the marks which are registered in other countries.
So, tea board has to fight, tea board has to file disputes in other countries and fight
against these deceptively similar products in other jurisdictions and in other countries for
protecting the intellectual property which belongs to India i.e. the geographical
indications of the Darjeeling tea.
So, if it is a registered geographical indications you can very well fight the case in other
countries otherwise this kind of you can see the similarity of the logos, only the lady
changes and her attire changes. So, its deceptively similar. So, you can protect the
intellectual property law.
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You can see in this particular picture, there is, one is the handloom and other one is the
power loom, which you cannot distinguish. The consumers have always this in their
mind, which one is original and which one is the duplicate.
So, who can apply for a geographical indications? Already told you, an individual cannot
register for a geographical indication. It must be an association of persons, association of
producers, association of organisations or authority established by law also can apply. It
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means that the other agencies, governmental agencies can also file geographical
indications. But, the only condition is that the applicant must represent the interest of the
producers, that is the most important factor, interest of the producers.
Then the questions comes: how the government represents the interest of the producers?
If there is 1 lakh or 2 lakh of producers, it will be always difficult to make all these
producers come under the same umbrella of an association. So, I would argue that in that
case, state is the best person to represent the interest of these huge quantity of producers.
And, the application must be in writing and in a prescribed format which is in the
geographical indication rules and the application must be addressed to the registrar of
geographical indications.
And, the geographical indications registry is in Chennai, that is the only registry in India
which is in Chennai. And who is a producer?
And this is always a question which comes before the registry that who is a producer.
The producer is always a person who deals with these categories of goods and also as far
as agriculture goods are concerned he can be a producer, he can be a processor, he can be
a trader who is dealing with this particular product. And, in the case of natural goods it
can be he who exploits the particular products, who deals, who trades the particular
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products, he can register it. In the case of handicrafts, manufacturing the dealers also can
approach for registration of the particular product.
And, what are the rights given to geographical indications? The geographical indication
rights as I told you which gives a community right, right to use the indication and also to
prevent others, the third parties from using this particular product or producing this
particular product which is not in conformity with the applicable standards, which is
prescribed in the GI application. And, also the standards prescribed by the producers at
the time of registration of the GI.
And the jurisdiction for example, the Darjeeling tea, Darjeeling tea cannot be, it can be
cultivated in Nilgiris, it can be cultivated in Munnar and it can be cultivated in any other
high ranges. But, it cannot be called as Darjeeling tea because the Darjeeling tea belongs
to Darjeeling because of the quality and reputation of the product which belongs to
Darjeeling. So, it can very well be cultivated in any parts of India, but it cannot be called
as Darjeeling tea.
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And, let me show you some more geographical indications which are registered. There is
as I told you the Darjeeling tea is the first geographical indications registered by India.
Darjeeling tea is the first registered geographical indications in India along with its logo.
Then other products which you can find are, Kangra tea.
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Kotpad saree.
Then Orissa ikat.
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Then Pochampally ikat.
Chanderi saree.
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Kota doria.
Then Kanchipuram saree, very famous in Tamil Nadu.
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Then Bhavani jamakalam.
Salem fabric
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And also Solapur chaddar or towel.
And Mysore silk
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Kullu shawl
Madurai sungudi
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Then a series of products, which is Mysore agarbathi.
Then, Also, we can find industrial products, manufactured products from again Mysore.
Mysore sandal soap is very famous, oil.
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This aranmula kannadi which I already talked about.
Then natural products, Nagpur orange
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Coorg orange
Nanjanagud banana
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Then bidriware
Channa pattna toys
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Then rose wood, rosewood belongs to the Mysore rose wood furnitures.
Then industrial products: Coimbatore wet grinder.
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Then Kasuti embroidery.
Then Mysore traditional painting.
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Then the famous Agra petha.
Then, The Rajiv Gandhi school also registered 6 GIs from Orissa, specifically belongs to
Orissa and the first one is Sambalpuri bandha saree and fabrics.
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Then Berhampur patta phoda kumbha saree and joda
And Bomkai saree.
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And, then also we can find other products which we registered from Orissa. And, you
can find the Darjeeling tea here sold by many people; Darjeeling tea is sold by many
people, but they never use the logo of Darjeeling. And, logo belongs to the tea board of
India which is a Government of India enterprise. But you can see the product, on which
they never use this logos.
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And, this is also Darjeeling tea which is beautifully packed, but Darjeeling logo is not
used.
Here also you can see this Lipton Darjeeling, but again the Darjeeling logo is not used.
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And, if you look into why? what it shows? so when you come out with this kind of
protection which is for the public, which is for the protection of a particular product and
which is supposed to benefit the groups, those who register it. And in our Act and in our
Rules there is no specific provision for the mandatory use of logos in the products which
you can definitely see from these particular packages. There is no provision so far. These
provisions has to be included in the rules for mandatory use of logos.
And, you can find one of the legislation where we can find punishments for the violation
of the provisions of the Geographical Indications Act. And, section 39 of the Act and 40
of the Act which provides different penalties for violation of the Act and even repeated
offences there is an enhanced penalty. So, this is one of the intellectual property
legislations where punishment is prescribed.
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And, it clearly and specifically says that there can be jail time for the violation of the
specific provisions of the Act.
And, most important is the part B registration. And there are two parts of registration; the
part A registration and part B registration. Part A registration of the geographical
indications means that part A is for the proprietor and part B is for the beneficiaries. Part
A registration which we already said that a group of people can register, a small group of
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people can register in part A as proprietor. And, part B any indefinite number of people
can be registered in part B registration as beneficiaries.
For example, if a Sambalpuri bandha saree is registered by the Department of Textiles,

Government of Orissa, in part B registration all the weavers even if in thousands or in
lakhs, those people can be registered under the part B registration as beneficiaries. So, all
these beneficiaries can produce this particular product and they will be the beneficiaries
under part B registration. So, there is a part A registration and part B registration.
If you look into the part B registrations, part B registration as I told you, beneficiaries or
authorised users, only the authorised users are supposed to manufacture the product, the
registered geographical indication products, otherwise no other people are supposed to
make the products.
But, the authorised users registration, if you take the case study of India there are only
few thousand authorised users registered for around 336 products which is registered so
far in India. That means, around more than 300 products are registered as part A
registration, in the part B there must be lakhs of registrations. It must be, is supposed to
happen, but it has not happened. Few products, few part B registrants are registered as
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authorised users so far. So, the authorised users, number must increase then only they are
going to get some kind of benefits out of these part B registrations.
As I told you the part B registration is very simple. Very simple applications to be filled
along with a fees. So that anybody can become, with the consent of the proprietor, they
can become an authorised user.
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So, the part B registrations are now slowly starting because lack of awareness among the
weavers or among the producers is a hindrance to the part B registration. Slowly it is
starting, the part B registration of authorised users. So, as I told you the geographical
indications is one of the very important category of intellectual property as far as rural
India is concerned. There are thousands of products which we can identify all over India
as a potential registration of geographical indications.
But, the number of registration in India is not so encouraging mainly because of the
complexities involved in the part A registration and or filling the applications. So, it must
be, simple applications to be introduced to increase the number of registrations or online
platforms can be used for hassle free registration of geographical indications.
So, as I told you earlier also I have mentioned that this is the only one so called
community right which belongs to a group of people and all other intellectual property
rights are privatised, exclusively privatised and this is a community right. So, we have to
protect Darjeeling tea, we have to protect our all other products and it can also be used as
a tool of good marketing all over the world. So, we have to protect geographical
indications from fake products.
Thank you.
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Prof. K D Raju
 
Lecture - 04
Copyright
Dear students, we will continue with the next category of Intellectual Property Rights
that is Copyright. As you know this is one of the important intellectual property right in
writings, books. And also a series of rights are bundled in copyrights.
And copyright is one of the important intellectual property law in the recent times in the
sense that now everything is digitalised. So, in the digital era, copyright is very important
as far as all the information and databases are concerned.
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So, earlier it will be considered as the author’s rights or performers rights. And you can
see this is the book which I recently published on intellectual property rights and
competition law. The copyright is with me, but in most of the cases the copyright owner
may be somebody else, the publisher can be the copyright owner. So, in this case, I am
the author and the copyright owner as well.
So, what are the differences between these author’s rights, the performer’s rights? The
paid person who is writing a song, a person who is singing a song, the person who is
giving music, all these are very important to look into, because mostly the violations are
happening in the copyright.
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So, we will see one by one. So, you can see the pictures, on the left side is a poet and
right side is a college lecturer. And recently there was a controversy that the professor
has copied the poem of the author. And then later on she said that yes I copied. And some
time back the Delhi University Vice Chancellor was jailed for violation of copyright.
So, the allegation was that he copied some of the parts of his student’s thesis. So, what I
want to say is: copyright is not the right to copy. So, copyright may end you up in jail.
And copyright is another intellectual property law where the imprisonment is prescribed.
So, it is very important to look into these copyrights.
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And copyright is not a right to copy. So, it is a bundle of rights. And you can see that it is
in different formats. It can be: the works in recorded format; it can be in a written format.
And you need not even register the copyright, once you have written it down, the
copyright is with you. And it means that the copyright is automatic when you create a
piece of poem or when once you write down a book, once you write down an article.
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So you can see that the copyright gives automatic protection to specifically the “authors”
and the original expression of ideas and also the information which is captured in
different medium. The medium can be even digital medium like whether it is pen-drive
or it is in a computer disk or in any other format. So, you can see it is copyright which
protects books, films, music, any sound recordings, newspapers, magazine, artwork etc.
That means once you put the idea onto the paper, it can be protected as a copyright.
And also it protects the originality created i.e. typographical arrangements, databases,
media broadcast, computer programs, and even compositions of other peoples work such
as academic journals or CDs and compilations. So, the copyright protects a different kind
of intellectual property works or different kind of the literary and artistic works. All are
covered by the copyright.
As I told you, it covers literary and artistic works. So, in different formats, it can be in
the format of photographs, it can be in the format of books, it can be any other literature.
Illustrations, maps or even plans and sketches can be copyrighted. That means, that the
automatic right is created once you complete the work.
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And what are the things that can be copyrighted? Basically all literary works can be
copyrighted if it is original and musical works including any accompanying words. So,
musical works, musical works includes poems, it can be the songs of cinemas, the songs
for the film industry or in any other format. The musical works can be included.
Then it is the dramatic work, dramas. And also the dramatic works plus music can also
be protected; then the pantomimes and the pictorial graphic and sculptural works can
also be protected under the copyright. Then motion pictures and all other audio visual
works can be copyrighted, even architectural works also can be copyrighted. So,
copyright protects a wide variety of works. The works can be included for copyright.
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Then what are the rights covered? Not only the rights covered are the original rights, the
moral rights are also covered. So, you can see that the author’s rights or the paternity of
the author is inalienable, non-alienable. What does it mean? It means that you can assign
the copyright to the publisher, but you will continue to be the author of that particular
work. The owner may be the publisher, but you continue to be the author of that
particular book. Then economic rights, always the economic rights are with the owner of
the copyright. It is the right to exploit the work; the economic exploitation.
So, the rights of translation, and rights of performance for e.g., in the case of dramas, the
rights of performance. And then right of reproduction, etc., all these are with the
economic rights, all these will come under the category of economic rights. So, these
rights can be transferred like any other property, it can be assigned, it can be licensed
absolutely for economic benefits. Because we know that the music industry, if you take
the film industry or the music industry is surviving mainly because of the stronger
protection of copyright in these industries.
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And who is the author? It is a very pertinent question with regard to the copyright is
concerned. Usually as I told you as far as book is concerned, the writer or writers of the
book, or the authors, the painter if you take the question of a picture, it is the painter, he
is the author. And the music composer is the author, translator is the author; and
cinematographer is the author, and photographer is the author as far as the copyright law
is concerned.
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And, what is the duration of the protection? And the duration of the protection as
prescribed in the TRIPS agreement is the life of the author plus 50 years. But the Indian
law which gives a longer protection i.e. the life of the author plus 60 years that means,
these rights can be even transferable or to the successors. So, as I told you basically in
some of the countries it is 50 years to 70 years. So, the TRIPS agreement prescribes only
the minimum period of 50 years. And for photographic works it is 25 years from making
the works. So, you can see there is a difference in the case of books and other works of
arts and photographs.
And for cinematographic works also, it is 50 years after making the works available to
the public, that is the duration of protection. So, when compared to other intellectual
property like patents, in patents it is 20 years, in trademarks it is 10 years, in
geographical indications it is 10 years which can be renewed successfully from years to
years. Here the duration of protection is much, much longer than when compared to
other intellectual property rights.
And if you want to sell your work, you require the permission of the copyright owner. It
is mandatorily required to make copies. So, it is in this background, it is very pertinent to
mentioned here one of the Indian case i.e. Rameshwari Photocopy Services & Ors. vs.
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The Chancellor, Masters & Scholars of the University of Oxford & Ors. (DU
Photocopying Case)
In this particular case, these well known multinational publishers sued a small photocopy
centre in the Delhi University premises which used to make study materials.
And these study materials are prescribed by the teachers of the Delhi University from
time to time, and these materials are taken from different books and other journals. And,
the photocopy centre which photocopies these materials and compiles it together and
sells it to the students for a minimum price. So, these publishers argued that it is the
violation of their copyright, but ultimately Delhi High Court said that the extent of
copying for educational purposes is not the violation of copyright.
So, in India to what extent you can copy from a particular copyrighted work is not
mentioned within the Act or there isn’t any policies of the government which shows. In
other countries each and every educational institution has a policy of how much you can
copy, whether it is 10 words or 10 pages or it is 10 percent of the work or 5 percent of
the work.
But India still is in the developing stage, and there is no hard and fast rule for how much
you can copy. But one thing is very clear; under the Act you require a permission from
the copyright owner for copying the works, whether it is copying in any format whether
it is digital format or in the hard format or copies to the public, whether it is free or not.
So, the question of whether you are charging or not is not important. But the question is
whether you are copying it or not? And then also you require the permission of the
copyright owner in order to translate the work to another language, that is also is a part
and parcel of the copyright. The permission can generally be implicit, and it may be
explicit. The implicit permission is not considered. It must be an explicit permission in
the particular agreement for transfer of copyright, required from the owner of the
copyright.
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And The only exception which is mentioned in the Copyright Act/Copyright law are the
fair deal. What do you mean by fair deal? I just mentioned about the Rameshwari
Photocopy Case in the Delhi University. The fair trial is discussed by the Delhi High
Court at length, and they said that educational purposes is a fair deal. And to what extent
you have copied is not the question, but for what purpose it is copied is the question to
be answered.
For example, if you are quoting for commentary. So, if you are writing a commentary for
a particular copyrighted work, again it can be copyrighted. And also illustration for
teaching is also exempted. And also the news reporting are also exempted. So, it means
that if you are quoting from a particular book or a somebody’s work you can
acknowledge that particular work. It is an exception to the protection, exception to the
copyright or the rights which are embedded in that particular work whether it is a book
or an article.
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And ownership rights are something different from authorship rights. As I told you in the
beginning itself the ownership rights, the copyrights generally goes to the author, but the
author can assign to the owner which may be another person. So, the product or the
copyrighted works can be given to another person. If an employee works in a company,
the employee may assign it to the employer i.e. to the company.
And it depends upon what kind of agreement between the employer and employee exists.
So, it means that if somebody is working upon something the ownership of the copyright
will depend upon what type of contract between the employer and the employee exists
on the intellectual property produced by the employee. So, the employer may earn the
copyright of the work, but still the employee is the author.
But in the case of freelance works or the independent contractor, the ownership differs.
And in the usual course of contracts, usually it is with the person who is hired in the
contract, that means, who is hired for the work for money, who is supposed to engage,
who is engaging the work will be the owner of the copyright. In the case of independent
contractor usually independent contractor is copyright owner.
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But this will depend upon the agreement between the parties: who owns, who authored.
And when you publish with the publishers, there is a publishing agreement which clearly
talks about who owns the copyright.
Another subcategory of copyright is the related rights. As I mentioned you in the

beginning that a person, a composer of song composes the song and he directs the song,
but somebody else is singing the song for example, most of the songs in Philips the
singers are different. So, what are their rights? They also have some kind of rights which
are a bundle of rights which are known as the related rights.
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And related rights are known as the neighboring rights. Neighboring rights are always
rights related with the copyrights. This protect the performers those who do the
performance of work, and the producers of phonograms and the broadcasting
organizations. So, it means that the related work or neighboring rights are related to these
copyrights, I mean they also have some kind of rights.
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Once it comes to the software patents because it is very important to discuss the
copyright in the digital era. India never provides software patents and software per se is
not patentable in India. The software must be attached with hardware, then only it is
patentable in India. So, software can get only a copyright in India. In most of the
jurisdictions it is not software patents it is copyright in softwares.
So, softwares in India cannot be patentable, but the US position is that they give the
software patents. So, in the digital era, the patenting of software is very important in the
sense. So, there are two side arguments, some scholars argue that it is not required,
software cannot be patentable and only copyright is required.
And another group of scholars argue that, you must provide patent to software because it
will come under the purview of very strict implementation of the patent implementation.
So, the softwares can be protected which will very quickly change from time to time
with the change of technologies.
So, this is one of the markets. And India and China is in the radar of the US. And very
recently the US have released their 301 list. The 301 list, watch list, is nothing but the list
which US will prepare every year of the countries those who are not implementing the
intellectual property rights honestly or completely at the domestic level. So, we are in the
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list. India is in the list of 301 list of the US from the very beginning of WTO from 1995
onwards.
And in 2019 also they put us under the 301 watch list for not implementing or honestly
implementing the intellectual property obligations at the domestic level. So, if you go to
some of the markets you can get the pirated, the so called “the pirated CDs”. So, it is the
duty of the implementing authorities or enforcement officers to implement the
intellectual copyright in toto. So, copyright has to be implemented under the WTO
TRIPS obligations.
And remedies as I told you in the beginning that copyright is one of the law where there
is the punishments both type: damages as well as the jail time is prescribed. So, the civil
remedies, criminal remedies and administrative remedies are available for the
infringement of copyright.
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And civil remedies include injunction, damages and accounts and also cost. So, this can
be claimed by the copyright owner from the infringer.
And the criminal remedies as I already mentioned that even a Vice-Chancellor can be
sent to jail for a period of 3 years. So, it is a cognizable offence and any person who is
infringing copyright can be sent to jail, and also there is a fine of up to two lakh rupees.
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So, it is a serious offence in India. Also it is considered a serious offence of copyright
violation.
So, we have to be very careful about when we are taking materials from others, whether
it is from books or whether we are dealing with CDs or whether we are dealing with
even teaching materials. We have to be careful when we are taking the materials from
other sources.
So, as I already mentioned the offence of the infringement of copyright has a very
stringent punishment, but the question is how many people are punished under the
copyright act or sent to jail under these particular provisions. But it is very clear that
under the TRIPS obligations, the copyright provisions, it is the duty of the Government
of India to implement the provisions at the domestic level in its toto.
As it is WTO obligation, otherwise other members can take India to the WTO dispute
settlement body for non-implementation, as accused by the United States. But India
always claims that India honestly implements the TRIPS obligations at the domestic
level and has passed appropriate legislations from time to time and the enforcement
authorities enforces, and they conduct raids at different places every year for
implementing these intellectual property rights.
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So, I already told you that the copyright is one of the important intellectual property law
and not only it affects the ordinary people, affects intellectuals, affects students, affects
teachers. So, everybody has to understand that copyright is not the right to copy, you
require the permission from the copyright owner for copying anything.
And we will wind up and we will go to the next category in the next class.
Thank you.
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Prof. K D Raju
 
Lecture - 05
Industrial Designs
Dear students, let us discuss the next category of Intellectual Property Law and Property
Rights i.e. Industrial Designs.
What do you mean by Industrial Designs? Whether designs can be registered as part of
intellectual property law?
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You can see some of the industrial designs and how they look like. All these designs can
be registered and can be protected as intellectual property rights.
Let's look into the definition of design. What do you mean by design? Section 2(d) of the
Indian Designs Act, 2000 defines and gives an inclusive definition of design. The act
says that the design means only the features of shape, configuration, pattern, ornament
or composition of lines or colours applied to any article whether in two dimensional or
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three dimensional or both the forms, by any industrial process or means, whether
manual, mechanical or chemical, separate or combined, which in the finished article
appeal to and are judged solely by the eye.
This is the first part of the definition. It mentions that the design is judged solely by the
eye. Solely by eye means that it is the visual appearance which gives you the design.
And, the definition clearly says it can be shape, it can be configuration, it can be the
pattern in the material and also it can be the composition of even the colours. All these
can be registered as a design. And in the second part of the definition it clearly excludes
or we can say that it does not include any mode or principle of construction or anything
which is in substance a mere mechanical device.
For mechanical device, if new, you go for patenting. And it does not include any
trademark defined under the trademark act or section; any property mark defined under
section 479 of the Indian Penal Code or any artistic work as defined in clause (c) of
section 2 of the Copyright Act. Because for artistic work you go to the Copyright Act and
you register it as Copyright and for trademark you go to the Trademark Act and you
register it as a trademark not under the Designs. So, design is exclusively the visual
appearance or it is solely judged by the eye.
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And you can see the different shapes. It can be different shapes, it can be 2D patterns or
it can be 3D patterns, it can be lines, it can be composition, it can be colour and it can
even be the combination of both 2D and 3D so that it is aesthetic to the eye. The
aesthetic appearance, the aesthetic aspect if new can be registered as a design.
And, you can find n number of materials, industrial materials, industrial designs so,
which can be registered. These can be a design of a vehicle, it can be even design of a
bottle, it can be design of a chappal(sandal). Where it is 2D or it is in the medium of 3D
it can be registered as a design. So, I would say that n number of materials which can be
even small, the design of a clip also can be registered so that it can be protected as an
intellectual property. Protection is for a minimum period of 10 years which is the
statutory period it can be protected.
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You can see this definitely beautiful bike. But the design is registered. It means that as
far as the vehicles are concerned the design gives an aesthetic, the complete aesthetic
look to that particular model and these vehicles are sold mainly because of its models
and its aesthetic aspect and the design. So, this can be registered as a design, as an
industrial design.
And, we can find that some of the industries like for example, the bike industry or car
industry is entirely surviving on the protection of designs. If the designs are copied by
competitors it would result in a lot of economic loss.
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!
If you look into the designs, we can simply say that it is the overall appearance of that
particular product to our eye. So, the overall appearance must be new then only it can be
registered. And it can be the shape, it can be the pattern on that particular product and it
can be the ornamentation and the visual appearance must be unique, then it can be
registered as a design.
Whether the product can be manufactured or it can be handmade?
Patterns can be there, ornamentation in that particular kind of product can be there which
can be registered. These designs can be registered and the designs is not concerned with
the operation of the work, because the operational aspect of the materials, the goods is to
be considered by the patent law, not by the design law and the design law actually looks
into the aesthetic aspect or look of that particular product.
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For example, you can see this beautiful cycle. This cycle is entirely going to be sold
based on its new design which we have not seen in the market. So, if it is copied then it
is a complete economic loss to the one who made this particular design. So, the entire
aesthetic aspect is the crux of the design registration.
The Industrial designs on the article always enhances the visual appearance. It
differentiates between the products. The visual appearance, if it is the same product,
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differentiates that particular product. That means, a new pattern or a new visual
appearance if it differentiates then it can be registered as a design.
If you go to the market you can find the perfume bottles are of different designs. So,
these bottles also can be registered. It can be 2D patterns or it can be 3D patterns.
For example: we will talk about these 2D patterns. So, you can see a series of materials,
these can be electrical, these can be non-electrical, it can be a writing pen or it can be a
timepiece or even the designs of chappal(sandal), all these consumer products can get a
design registration. So, once the design is registered nobody else can copy it for a limited
period of time.
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What are the things required? When it can be registered a design? It must be ‘new’ it
means that it must not be identical to any design previously published anywhere which is
previously available in the market. That means, because of the advantage of technologies
the internet and other things the examiners can search and find out whether this is
already published anywhere in the world. So, it means that it should not be earlier
published or previously published then only it would be considered as new.
And, the second criteria for design registration is the distinctiveness. The distinctiveness
means it must not be substantially similar in overall impression. It means that the goods
can be the same. If you put a different pattern or a different overall look to the already
existing material that particular design can be registered, but it should not be published
earlier anywhere in the world. So; that means, it must be new, it must be distinctive, and
substantially different, then only it can be registered as a design.
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And if you take pharmaceutical products or some industrial products, even the syringes,
the designs of syringes also can be registered, the designs of capsules can be registered.
Now most of the pharmaceutical companies are going for registration of the shape of
their tablets, because it may have an aesthetic with which the people, the consumer
identifies that particular tablet, based on the colour of the tablet or the shape of the tablet.
So, the consumer easily identifies that particular product. So, there are different varieties
of products. Even pharmaceutical products are not devoid of design registrations.
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It means that the criteria for design protection is: it must be new, it must be distinctive, it
must be original and the most important criteria is that it must be capable of mass
production or application to an article of utility. If you can make only one prototype it
cannot be registered as a design. There must be mass production, industrial mass
production of that particular product then only it can be registered as a design.
And the design should not be contrary to public order or morality as well. This is one
criteria applicable to all intellectual property rights, all intellectual property laws. The
invention or the design or the copyright should not be contrary to public order or
morality. So, if you want to get a protection it should not be contrary to the public order
or morality, but public order and morality changes from place to place, society to society
and countries to countries.
So, what is the standard of public order or morality is not defined in any of the Indian
intellectual property law. The court may interpret it according to case by case or
circumstance of each case. That means, the functionality of the goods are not the concern
of the design, it is the aesthetic aspect which is the subject matter of design registration
in India.
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And, we have talked about the 2D products as well as the textiles and jewellery.
Nowadays if you go to the market for jewellery we find that the jewellery entirely
depends upon the designs. There are so many designs which are available. If it is new it
can be also be registered as a jewellery design whether it is a chain, or it is an earring, or
it is a ring. It can be registered as a design particularly when design will preserve the
shapes.
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So, you can find some unique shapes which gives to you these aspects. These can also be
registered as a design if this can be recognised as a design.
So; that means, the patterns in a vessel can also be registered as a design and you can see
this is a 6 piece coaster set. Here everything is a coaster set, but this is the shape of
pineapple. So, this can be very well registered as a design, because it gives the aesthetic
aspect. It is very important as it give you an intellectual property right on designs.
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Designs registrations can be end up in high value suit. So, here one designer accused
another designer of a plagiarism of design. So, the news item says, the plagiarism of
design which is used in one of the famous movies. Ultimately that case has been settled
by the designers mutually.
But, what I want to say is that a design which is a famous one, if it is used in movies and
other things, it can become famous very quickly and can quickly become viral. So, it
means that you will end up in trouble. There can be a huge suit you may be facing for
violation of designs even in textile items.
And most importantly you can see that in a single item there can be multiple intellectual
property rights protection. For example, you can see this particular picture, where you
can find some of the copyrightable materials, you can see the trademark registrations,
you can see the design rights and also you can see the licensing, license material.
So; this means multiple intellectual property rights can be found in a single thing that are
used on a day to day basis by the human beings.
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And if you look into some of the disputes you can find some interesting disputes.
Whether copyright protection can be for designs as well? If something is already

copyrighted can you protect it by designs? Our Designs Act says other way around that if
it is registered as a design you will get an automatic copyright protection but not the
other way around. That means, for copyrighted material you are not going to get design
protection but design registered materials are going to get a copyright protection as well.
So, it means that there can be multiple protection for the same products if you register it.
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And if you compare the industrial designs with trademarks, designs are always an
integral part of the product, but trademarks are applied on the product and need not be
embedded on that particular product. Industrial designs also must be original, new, but
need not be distinctive, since in the case of distinctiveness distinction should be proved
but for the trademark it must be distinctive as well.
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If you compare patent, copyright and industrial designs, you can say that the only
exception is that if the mass production of article is not there, the designs cannot be
granted. And even though it is a useful article the design would be for aesthetic work or
it is protectable under copyright. If it is an aesthetic work it can be protected under the
copyright as well. And here you can see that even engineering designs also can be
protected under copyright act.
So, you can see some of the apparel works which you can get designs for. So, it can be
for jackets, it can be for the aesthetic aspect. Asthetic aspect is always looked into for the
registration of designs.
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And we have registered some of the textile products from Orissa. So, you can see the
certificate for that.
So, this is actually a wall hanging. So, this particular design was registered by Rajiv
Gandhi School on behalf of the Sambalpuri Bastralaya or Sambalpuri Bastralaya
Handloom Co-operative Society in Sambalpur in Orissa.
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The peculiarity of this wall hanging is that usually the clothes are made up of weft and
warps. And this is only one, it is made up of one side, this is only on one side not both
the sides. We registered this wall hanging, you can see the tribal motifs, the specific
motifs which is very particular to Orissa. So, it is registered and we registered it in the
year 2010 and we got the certificates. You can see the others as well. All these are textile
products and these designs, these specific designs have motifs in the designs.
So, the aesthetic aspect is clearly written here. What is new in it? The novelty resides in
the surface ornamentation and color combination of the wall hanging as illustrated.
Anybody can make this, but this design is now already registered. The design registration
is for the surface ornamentation and the color combination which is claimed in this
particular wall hanging.
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And, this is the third one. Again you can see the specific motifs and also the surface
ornamentation very specifically.
So, we registered this on behalf of the Sambalpuri Bastralaya from Sambalpur, Orissa.
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!
So, there are some exclusions as well from the registration of designs. So; that means,
any mode or principle of construction or anything which is in substance mere mechanical
devices are non-registrable. A trademark cannot be registered as a design, property mark
cannot be registered as a design and artistic works cannot be registered as a design, all
these can get appropriate protections under the Copyright Act, Trademarks Act and even
Patent Act.
And piracy of designs is one of the important menace which is in the market. So; that
means, for the registered proprietor of the designs damages are also prescribed in the act.
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So, the registered owner can ask for an injunction, ask for damages which is prescribed
under this particular act. So, for piracy remedies are available in the act itself.
Industrial Design, as I told you, is the commercial exploitation of the design or the idea
or the creativity which is coming from the author which can be protected under this
particular Designs Act.
So, I want to say that design registration protection is very important for some of the
industries, industrial products and can make a lot of economic benefit out of it. And this
is one of the important category of intellectual property protection hence this should be
taken very seriously by the government and implemented strictly in India.
So, I hope that the student got an idea about the broad aspects of design registration.
Thank you.
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Prof. K D Raju
 
Lecture - 06
Integrated Circuit Layout Designs
We will next look into a very small piece of legislation i.e. Integrated Circuit Layout
Designs. I hope that you may have heard about the layout designs and also about the
integrated circuits.
You can see the layout design. What is the integrated circuit layout designs? The TRIPS
agreement provides for protection of these integrated circuit layout designs. These are
very complex boards prepared by companies.
So, they require protection because otherwise they can be easily copied by other
manufacturers. And these materials are not independent materials, these are mostly used
in other hardwares for as I told you IC; Integrate Circuits are used in most of the
electronic goods. So, they require protection that is why they are included in the TRIPS
agreement.
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And what is this circuit layout rights? What are the rights? And what is protected in these
particular boards? Circuit layouts are the layout designs or plans, topographies of
integrated circuits used for computer generated equipments. And these are the
assembling of many items in a single board. The board as such is considered; as it will be
a circuit, as protectable under this particular intellectual property category.
So; that means, the layout is registrable under this circuit layout act. And they are
sometimes referred to as computer chips or semiconductors or ICs or designs. It can be
that these designs are two dimensional representation or the three dimensional location
of electronic components in the integrated circuits. It is in an integrated way. So, these
layouts are usually highly complex and are the intellectual effort of people which runs
the hardwares. These have a greater value for each and every hardware electronic
equipment.
So, an integrated circuit or chip made from layout is vital to the kinds of devices as you
can see that in all the electronic goods these layout designs are very important and these
can be registered as intellectual property under this particular category of intellectual
property of law.
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And all these can be layout of circuit elements. This is the set of elements, set of
electronic materials combined together in a circuit, which can be registered. So, it can be
semiconductor integrated circuit that’s why its known as semiconductor integrated
circuit.
So, all these together form a circuit and it can be registered and its definitely a creation
of human mind for running different hardwares, different materials, different electronic
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goods. So, lots of investment is required for making this particular layout designs and
copying is very easy and very cheap as well. So, you require the protection in order to
minimize copying. The novel applications should come or innovations will come from
protection of intellectual property.
So, you require protection of these designs as well. Why a special protection is required?
You can take a copyright; you can put in a paper and you can take a copyright of this, but
in the board as such there is no novelty because these boards are used in all electronic
goods, all hardwares.
So, the circuits are not going to pass the novelty criteria. So, that is why it requires
special protection, but at the same time these boards requires special protection. And also
the copyright protection is not going to serve the purpose that is why you require a
special protection for these integrated circuits.
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And basically, the protection is against reproducing the layout designs fully or in part.
Because; you can copy half a part of it, which can end up in a particular work or ending
in a particular end result.
So, if you use it fully or half of the design, which may give entire different results. So,
this is prohibited you cannot use it fully or in half of any of these layouts without the
permission. And importing and selling, distribution commercially also is prohibited
under this particular protection law. So, you cannot simply import the boards and use it
for making the goods. And also you can see that, identical designs created independently
by third party is not prohibited, but it practically never happens that identical designs are
created independently.
So, always you refer to the earlier box whichever is available. Whether, it is layout
designs or it is any other things. So, you require a special protection for the integrated
layout designs.
This is a very small act which gives protection to a single industry that is the integrated
layout designs which requires special protection mainly because there is no hardware.
No electronic goods are available without these specially layout designs or integrated
circuits.
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I would not say that this is insignificant, but this is a special kind of an intellectual
property protection which is available to the layout designs.
Thank you.
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Intellectual Property Rights, And Competition Law
Prof. K D Raju
 
Lecture - 07
Trade Secrets or Undisclosed Information
Dear students the last category which is mentioned in the TRIPS agreement of
Intellectual Property is the Undisclosed Information or Trade Secrets. What do you mean
by trade secrets? Whether all the secrets are trade secrets? They are not. There must be
some prerequisites for something, some information to be considered as a trade secret.
And we will look into what are the criteria for informations to become trade secrets and
what are the measures to be taken to keep trade secrets and why it is considered as an
intellectual property and what are the advantages and what are the disadvantages of trade
secrets and also some of the case studies like Coca Cola which is the best kept trade
secret so far in the world.
So, you can see the one of the best kept secret till date. For centuries it is kept as a secret.
Why it is kept as a secret? Because it is trade secrets. The moment it is disclosed to the
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public or to anybody else it is no more a trade secret. It must be kept a secret forever then
only it is going to be a trade secret.
And why the trade secrets are important in the present day context? Very few days back
the economic times reported that one of the Indian giant, Indian IT giant has been
accused by one US company of data theft.
And they asked for a huge amount as compensation and they are going for suits in the
United States against the countries. This is not knew. The Indian companies face these
kind of cases in the United States and other jurisdictions where the trade secret is
considered as a very important intellectual property. And sufficient legislative measures
are taken by countries like United States for protecting trade secrets.
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And if you see some more examples you can find in all these cases either there Indian
people are involved or the Chinese people are involved or other people are involved in
theft of trade secrets from the companies, the American companies or other companies.
They are involved and heavy penalty or punishment is prescribed in the legislations of
those countries.
For example, the uniform trade secrets act of United States prescribes and other state
legislations prescribe heavy penalties for theft of trade secrets. So, you can even jailed be
jailed for 20 years of time which is more than life imprisonment in India.
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So, there is heavy penalty in other countries. And I am not going to elaborate upon. I
want to tell that a lot of cases have been filed in the United States and other countries
where the trade secret is considered as an important intellectual property and remedial
measures have been taken by the authorities for the theft of trade secrets.
And so there is a saying that women are the best people to keep the secrets.
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So, we will see some of the cases later with regard to this.
But if you look in India, the trade secrets are not protected under any specific
legislations, no specific legislation is available for the protection of trade secrets rather in
India the common law protection is following. So, there are contractual protections,
contractual law protections and other law protections are available in India for
maintaining the Data.
So, the maintaining of data is exclusively by contract between people. So, whether it is
an employer-employee or it is a contractor and employee, these are exclusively based on
the agreements, the confidentiality agreements or non disclosure agreements between the
parties. So, the remedies also will be depend upon what kind of agreements is entered
into between these parties.
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And you can see the purpose of these contractual agreements: in terms of disclosure of
confidential information; evidence of whether it is a theft or this is voluntary or
involuntary protection of trade secrets, whether there is any obligation on the part of the
employees to protect the trade secrets.
If we say that legislatively there is no obligation on the employee to protect the trade
secrets of the employer, then the appointment orders or the non disclosure agreements
compel or the common law compels the employees to protect the trade secrets of the
employers which includes all the people whether business partners or business associates
or research academics or the people those who deal with number of secrets, trade secrets
and it is their duty to protect it as trade secrets. But the only problem is that in the
absence of an agreement taking remedial measures will be very difficult.
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So, we will look into the advantages and disadvantages of trade secrets. As I already
stated that the Coca Cola is one of the best kept trade secret so far along with Pepsi Cola.
So, whenever there is an attempt in the Coca Cola or attempt to sell some of the formulas
to the Pepsi Cola either the Pepsi Cola informed the Coca Cola or Coca Cola informed
the Pepsi Cola and there is a cooperation between the two companies in protecting their
trade secrets. So, as I told you these companies never applied for a patent. So, they are
never required to disclose the formula to the public, one, at the same time for the trade
secrets you never have to go for a patenting process at all.
But the problem is that it is never available to the public at large. So, any trade secret
will be considered as secret forever unless and until it is disclosed. And also there is no
legal scrutiny or legal security against independent competitors; that means, the moment
trade secrets are leaked, trade secrets are disclosed to somebody they are no more a trade
secret. That means, there is no monopoly protection available to them for a limited
period of time. That means, the protection is forever unless and until it is kept as a trade
secret.
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So, trade secret is not the protection or the invention of 21st century or 20th century. It is
mentioned that the famous painter Leonardo Da Vinci when he used to make his
paintings he never allowed anybody to enter into the hall. He kept it a secret. How the
method of painting is that was kept as a secret. It means the application of trade secrets
are from the very beginning or it is from time immemorial period. The secrets are kept,
but trade secrets are kept only for some of the products mainly because of its uncertainty;
uncertainty of its security; uncertainty of security once it is released it is no more a trade
secret.
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There is a lot of discussion as to why it is a neglected sibling, trade secret is considered

to be a neglected sibling in some of the countries like the developing countries, but in
developed countries this is considered to be one of the best legislations to protect the
trade secrets.
Because the value of trade secrets are very much important to the companies like
whether it is Coca Cola or it is Pepsi Cola. The moment trade secrets are released or
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whenever there is an attempt to release these products or if you look into the history of
production of these particular products it is always kept as a secret.
And the cooperation between competitors is also very important in keeping the secrets
and the best examples are as I already mentioned that the cooperation between Coca
Cola and Pepsi Cola is best example of how they prevented others from the theft of trade
secrets of each other’s companies.
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And here I can say that the protection of every data is not trade secret, then what is trade
secret? The trade secret, definitely the name itself says that, some secret which has to be
kept as confidential are the trade secrets. For example, it may be an idea, it may be a
database, it may be any kind of information which can become a trade secret, it may be a
clinical formula or it can be a database of clients, it can be the financial strategies of a
company. Anything can become a trade secret, but a mere data is not going to be a trade
secret. It must depend upon what value that data has to that particular company.
When the trade secrets are preferred? If you look into the Coca Cola; the Coca Cola
could have gone to the market with patenting then it would have been only valid for
limited period of time and would have lost the entire value of the company after that
period of time. But now it is kept as a secret forever and so the value of the company has
increased and they have always keep it as a secret. So, for unlimited period of time the
trade secrets can be kept. So, there is no limited period at all.
Even the cost of the patent protection is prohibitive. From time to time you have to go
for renewal of the patent protection and it is only for a very limited period, but the trade
secret protection is for, it can be for centuries, it can be for years. And you can go for
trade secret protection when a product is very difficult to reverse engineer, if it is very
easy to reverse engineer then it is better to go for patent protection rather than trade
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secret protection because once it is a reverse engineered a particular product is no more
going to be a trade secret.
And what are the measures to be taken to guard the trade secrets? So, for example, in the
case of every company you restrict people from accessing these kind of information.
There will be some employees having access to these particular information but all the
employees should not have access to this kind of information.
And signing confidentiality agreements with business partners, with employees will
always help to keep the trade secrets. You can say that the protective techniques, the new
techniques, the digital data security tools can be used for protecting these particular data
and different people accessing the data.
So, restrictive measures can be in the form of passwords to the systems which are
accessible to the employees. In many countries national legislations protects trade
secrets, but unfortunately India does not have a trade secret protection law as such.
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And I mentioned about this particular Aranmula mirror in the geographical indications
class that this is registered geographical indication form Kerala. The mixing of these
particular metals are only known to a few people for centuries. The alloy, what kind of
metal alloy is used for making this particular mirror is considered and kept as a trade
secret.
So, it is a trade secret, but always is going to be considered as a GI:Geographical

Indication. So, there is double protection as a trade secret as well as a geographical
indication of the same product. So, you can limit the access of information to the secrets.
Whether it is formula or particular information to make that particular product it can be
keep as a trade secret.
But if you are not taking sufficient means to protect that particular information as a trade
secrets then it is no more going to be trade secret. So, everything will depend upon to
what extent you take precautionary measures to limit the access to that information. This
will decide whether it is going to be a trade secret or not.
And secondly, you have to take sufficient means to keep it as a secret in the ordinary
course of trade and thirdly it should be kept away from the people. If people have
ordinary access to that particular information then it is not going to be a trade secret. But
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in India you can find a number of cases where the courts, Indian courts are in favour of
protecting the trade secrets. You can find number of cases where the Delhi High Court
and other high courts have held that. It is the duty of employees to protect the trade
secrets of the employer and whenever there is a theft the court has taken the common law
remedies. Remedies like Injunction or Damages under the common law are available to
the parties in India.
So, as far as the trade secret is concerned it is one of the important category of
intellectual property law and in developed countries there are specific legislations to
protect trade secrets. But developing countries like India have so far not come out with
specific legislations. But still it is protected through the common law remedies which is
available to parties like non disclosure agreement and other kind of mutual agreements
between the parties.
Even in the absence of any kind of agreement between the parties the courts have held
that it is the duty of employees to protect the trade secrets and whenever there is a theft
of trade secrets the court has taken a note of it and provided the remedies which is
available in common law.
So, I think we have covered all the seven categories of intellectual properties covered
under the TRIPS agreement starting from patent, then the trademarks, then geographical
indications and copyrights and then we have covered industrial designs then integrated
layout designs and also we have covered the trade secrets law, the seven categories.
So, the objective of this class is to know, before we go into the interface between
intellectual property and competition law, what are the categories, the basics of
intellectual property law. My objective is not to give an elaborate discussion on the
provisions of intellectual property protection, but the limited objective of this week class
is to give an idea about what are the different categories of intellectual property law.
The next week we will go to the basics of competition law and before that you must
understand the basic categories of intellectual property law. I hope that this will help you
to understand the interface between intellectual property law and competition law. And
in 2015 I have published a book on competition law and intellectual property law which
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mentions about the interface between these two. So, the next week we will deal with the
basics of competition law.
Thank you.
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Prof. K D Raju
 
Lecture - 08
Introduction to Competition Law
Dear students this week we are going to see the basics of Competition Law and its
application, what is actually the competition law and also its components of competition
law.
Then we will see the Indian scenario and then the different aspects of competition law
starting from anti competitive agreements, abuse of dominance position and regulation of
combinations. We know that the competition law is a new branch of law, which is added
to the entire realm of law mainly because of international trade.
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What is this concept of competition actually? There is a confusion between competition

and competitiveness. Competition is defined by many scholars. Competitiveness is
something different from competition. Strigler defines the competition as “it is a rivalry
between individuals or groups or nations and it arises whenever two or more parties
strive for something that all cannot obtain”. It means that for limited resource if some
competitors strive for capturing the market it is a competition.
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The competitiveness is something different. What is the object of competition? You can
see that the objective of competition is very clear in the market to make profit. Each and
every company in the market is working with an objective of making profits. Economist
basically says that there are three components to be looked into for the objective of
competition. The first one is the underlying variable of competition i.e. price, quality and
quantity and secondly, the end level of achievement what competitiveness you want to
achieve, then third the entire competitive process, which is facilitated by legislation and
the competitive or competition policies.
Again you can see that the history says that the competition law or competition in the
market is not new at all. So, the first form of anti competitive practices you can find in
the form of cartels in time immemorial period. And also in 483AD, the constitution of
Zeno punished price fixing in clothes and the fishes, sea urchins etcetera with perpetual
exile and usually to Britain at that point of time a colony.
It means that the competition law and this practice is not the invention of 20th or 21st
century. So, regulating the competition in the market is a time immemorial law which
has prevailed in many countries at certain point of time.
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See the authentic portion of the competition law is given by the famous economist Adam
Smith in 1776 in his book the Wealth of Nations. He says “people of the same trade
seldom meet together even for this merriment and diversion, but the conversation ends in
a conspiracy against the public or some contrivance to raise prices”.
So, competition in the market is not prohibited. So, the competitors are not prohibited.
So, the competition in the market is promoted, the process of competition is promoted,
not the competitors So, Adam Smith very clearly says there must be competition in the
market.
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When we look into the history you can see that, during the 1800 there were huge
business firms especially in the United States which are famous in the name of trust
since they controlled the whole economy at that point of time and they controlled the
important businesses like railroads, oil, steel and sugar.
Actually these companies had monopolies over these businesses and no competition in
the market and nowhere to go, no choice and the consumers had to avail their services
without any competition. At this point of time all these are the competitive practices of
these trust collecting amazing, massively amazing wealth which is against the public
interest or the public welfare which worried the governments at that point of time in the
United States.
The president of the United States at that point of time the president Roosevelt actually
wanted to curb the monopolistic practices of these trust which were against the consumer
welfare. They planned for an antitrust law in the United States. The laws synonymously
uses antitrust laws as well as the competition law.
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And at this point of time you can very clearly say that the first authentic formal
competition law came into existence in the United States in the name of Sharman Act of
1890. So, basically this is to regulate the activities of the trust which came into play. You
can see Section 2 of this particular act very clearly says that, every person who has
monopolize or attempt to monopolize or combine or conspire with any other person or
persons to monopolize any part of the trade or commerce among the several states or
with foreign nations shall be deemed guilty of a felony and conviction thereof shall be
punished by fine as well as imprisonment not exceeding 10 years.
Remember this particular legislation made the “restraint of trade” as a felony. There is a
huge fine and there is a jail term for indulging in such kind of activities. And later on
these trust again in order to avoid the Sharman Act found mergers, mergers between
different trust in order to avoid the provisions of the Sharman Act. Then these group in
order to curb the loopholes passed the act which is known as the Clayton Act of 1914
which made curbs for the stopping of mergers. In order to implement, enforce the
competition law very strictly in the United States or the Sharman Act, the antitrust law
very strictly the Tariff Act of 1894 was passed and agency i.e. the federal trade
commission was formed to enforce the antitrust law in the United States. So, you can see
the formation of trust by the American companies for amazing massive wealths were
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curbed by this particular law. And we can say that this is an authentic, the new generation
competition law which was passed first time in the United States. And this particular law
promotes free enterprises in America and it held all ‘restraint of trade’ or attempt to make
monopoly illegal under this particular act.
From the inception of this particular act, huge jurisprudence has emerged in the United
States on the antitrust law or the competition law and which we will study in detail in the
next week class.
If we look into Europe, Europe also wanted to come out with the legislation during the
1980s because of the monopolistic activities of huge business firms. They come out with
a draft law, but the political turmoil in the Europe prevented them from passing any law
at that point of time. But actually the momentum was made immediately after the world
war was over, the II World War. Then the formation of the European economic
community (EEC) in the 1957 formed by the treaty of Rome in 1957 included specific
provisions to deal with anti competitive practices and abuse of dominant position in the
Europe.
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So, originally it was in Article 81 and 82 of the Rome Treaty. Presently the law is in
Article 101 and 102 of the Treaty which clearly curbs the anti competitive practices or
the abuse of dominance or the agreements between two or more independent market
operators which restraint competition.
So, in Europe as well the competition in the market is promoted, the competitive process
is promoted and also the Article 101 clearly covers both horizontal agreements
(horizontal agreements actually means a potential competitors operating at the same
level of supply chain) as well as the vertical agreements (that between the firms
operating at the different levels i.e. agreements between manufacturers and distributors is
vertical agreements). And both the horizontal and vertical agreements are included under
article 101 of the treaty forming the European Union.
Again you can see that under the European law, cartels are considered to be most illegal
conduct infringing these provisions and we will see what is cartel in the coming classes
in detail. And the Article 102 of the treaty very clearly prohibits firms that hold a
dominant position and using their dominant position in the market and exploiting the
market for example, by using the dominant position they charge unfair prices.
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And by limiting production and then bundling products and tying agreements and trying
to refuse to innovate which is absolutely prejudicial to the consumers. So, we can see
that in similar provisions the concept is one and the same in the United States and the
European Union. What about the agreements? what are the type of agreements prohibited
which curb the competition in the market?
In the modern economic era which is known as liberalization or liberal economies or

opened up economies presently more than 110 countries have the competition law, which
shows that every country promotes competition in the market.
This is considered to be revolutionary in nature because most of the countries never

heard of competition law in their market for example, India until 2002 India never talked
about the competition, promoting competition in the market rather they were
concentrating on curbing monopolistic activities and restrictive practices with the
legislation in 1969 which we will see later. We can see that the competition law which is
in its advanced state of law is presently administered by many countries now.
Mostly the markets are controlled or guided or regulated by these particular competition
laws and there is a close connection between these competition laws and innovations. We
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saw in the beginning classes of intellectual property classes that, all innovators are
supposed to get a limited period of monopoly for a period of time.
But if they started exploiting that particular monopoly which they got through a patent
protection or any other intellectual property protection, then the competition law will
step in. And the competition law will step in into their monopolistic activities even
though it is protected by intellectual property rights.
And again we can see that the whole activities of competition in the market are regulated
through the competition act. For example if the market fails when these kind of activities
are not curbed or not regulated, these anti competitive practices such as the collusion
between firms, the collusion between firms and companies which form cartels and
market dominance, the giant companies like Microsoft or Google we will see these cases
later on. If they abuse their market dominance and market dominance for exploitation of
the consumers then the competition law will step in.
So, simply we can see that when we look into the objective of competition law, it is
efficiency in the market as well as fairness in the market. So, efficiency and fairness are
the two pillar stones of competition law or objective of competition law. So, we know
that the efficiency is a concept that can be measured objectively at the same time fairness
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cannot be measured, but fairness can be different from country to country. So, the
measurement of fairness will be different in developing countries. Developing country
parameters will be different, developed countries parameters may be absolutely different.
And open economies like India the parameter may be different, but closed economies
like China where everything is controlled by the state the parameter of efficiency may be
very high, but the parameter of fairness may be very low. So, there is a closed connection
between competition, fairness and efficiency in the market.
So, when you look into the competition policy actually what competition policy does?
The competition policy actually tries to make a balance between the competitors and the
market and it can be said that government directly interferes into the behaviour of the
firms and tries to control their behaviour which is against the market. And we can see
that the structure of industries and their behaviour and their attitude towards the
economy is controlled through the competition policy.
So, we can see that these regulations and trade policies of governments includes tariffs,
quotas and anti dumping agreements, anti dumping measures taken under the anti
dumping agreement of WTO, investment measures, investment policies or regional trade
agreements and preferential tariff agreements and all labour market, and all these policies
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actually affect the competition in the market. So, all these components are to be taken
into consideration when we calculate the fairness and when we calculate the
competitiveness of the market.
And the very objective of the competition law is clearly to encourage the process of
competition not the competitors. And to promote efficient use of resources while
protecting the freedom of economic action of various market participants; that means,
the competition in the market is not prohibited; competitors are not prohibited to
compete in the market.
What actually is prohibited is their behaviour, it is actually regulated by this particular

competition law. We know that the decentralization of economies is very important for
the development of any country. Decision making cannot be concentrated and the
economic concentration will lead to the abuse of economic power and complete
destruction of small businesses.
So, the big businesses and the small businesses should go hand in hand and there must be
a harmonious relationship between the big business firms and small business firms. So,
there is a conflict between economic efficiencies and policies. They always fight each
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other. So, if there are more regulations and policies it will severely affect the economic
efficiency of working of the companies
So, the policies may distort the market and competitive process. The competitive policies
in the market directly interferes into the competitive process itself. So, there must be
competition policies as well as competition law in order to directly interfere in the
competitive process to promote the competitive process.
So whether it is for the welfare of industry? Yes it is, there must be welfare of industry,
the industries must grow otherwise no economy can grow, but when we talk about
welfare here it is the welfare of consumers, the ultimate goal of a competition law is the
welfare of the market not only the consumers, consumers is one variable or one
component of the competition law or one player in the entire competition law.
So, it includes the consumer and also at the same time the producer as well. Price
increases, the difference in prices or monopolistic prices is definitely going to affect the
consumers and it is directly going to affect the market. In the ideal situation in a market
whenever the supply goes up the prices are not supposed to go up. The so called
practices which leads to the increase in prices are not to be allowed it has to be curbed or
it has to be controlled.
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So, the “welfare” should be looked from a dynamic point of view; that means, the future
welfare of the market should be the objective of any competition law.
And we can see that the competition law or competition policies are required for the
welfare of small firms. One group of scholars say that if you do not try to control the big
business houses, then they are going to eat rather they are going to kill the small business
firms.
So, there must be a harmony between the big houses and the small business firms then
there will be an ideal competition in the market. So, the defence of small firms is one
justification for the competition law. On the contrary you can see that helping small
firms to survive even though they are not operating efficiently or at a sufficient scale or
efficient scale encourages inefficient allocation of resources.
But every government protects small scale businesses because it provides a lot of
employment especially in the rural areas. So, they have to protect even though there is
inefficient allocation of resources in rural areas. Also it is wise to invest. It is wise to
invest in these neglected areas and also in the small scale industries for the greater
economic welfare of the society, greater economic welfare of the consumers.
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So, that is why I said that the big business houses have sufficient allocation of resources
infrastructure, but the small scale industries have a lack of sufficient infrastructure and
also they have lot of limitations on marketing their products so, their involvement in the
market will be very limited. So, the process of competition will increase their the
presence in the market.
And as I told you that the competition law always looks into promoting the market
integration. So, the political objective are not necessarily consistent with the welfare
maximization. So, it is very easy to go for welfare maximization by promoting big
companies, but the societal setup requires integration of small scale industries as well.
You can call it open markets or jargons like liberalization privatisation globalisation, all
these are the contribution of the opening up of economies all over the world during the
1990s and the opening up of these markets opened up a new Pandora box of limiting the
activities of multinational companies or big business firms. So, for example, these big
companies which allocate resources very efficiently can sell their product much cheaper
than the small scale industries.
So, the price discrimination between the markets are curbed by other legislations, other
laws, international trade laws like anti dumping or safe guard measures or countervailing
duties. So, the price discrimination is handled by using different measures at the same
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time as the competition law. If you take a relevant market the competition law will take
care of the competition process as such in the market.
So, when we talk about economic freedom there may be contrast between economic
freedom and efficiency. The economic freedom leads to economic efficiency and the
allocation of resources will decide the efficiency.
So, if there is a disparity between these allocation of resources or economic efficiency,

the firms go for different kind of practices: it can be vertical restraints or it can be
horizontal restraints. For example, the resale price maintenances are actually prohibited
under the competition laws. Territorial restraints maybe efficient to use and simulate the
efforts of retailers and the wholesalers. So, again we can see that any curb on the
territorial activities or the price activities are against the economic freedom.
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We can see that there is a close relationship between the economic freedom and
efficiency. So, free and fair competition should be assured which we talked about earlier
as well. The free and fair competition will depend upon the market size and also the
market quality and the economic efficiency of markets.
Competition law says that its ultimate objective of competition law is consumer welfare,
protect the interest of consumers and its a means of reducing the cost and welfare to the
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society at large and then it accelerate the growth and development of the society and
preserves the economic and political activities in a market. So, finally and ultimately it
promotes efficiency and promotes the welfare in the market.
We already talked about the fairness and equity. When it comes to fairness and equity it
is the small shopkeepers versus the large supermarkets or the large business firms versus
the small scale industries, and the cost differences and allocation of resources.
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The industrial policies are making a very crucial role in the allocation of resources as
well as the competitive process in the market. So, every country has come out with
liberal economic policies and industrial policies and some countries have exemptions to
the business activities.
For example, the United States law gives exemptions to the cartels and if the cartels are
curbed the purpose is only to engage in export trade and no to restrain trade in the US
and not to retrain the trade of expert competitors. So, there are limited activity. It means
that the big firms have more freedom within the framework of the Sharman Act to
promote their businesses abroad or beyond the territories.
And the state policies, the competition policy can be used to achieve the protectionist
goals of domestic firms as well. Some countries go for strict implementation of the
competition policy, which may lead to promoting the domestic industries. For example,
in order to promote the domestic industries, international trade law within the WTO
framework allows the anti dumping law which promotes the domestic industries by
imposing additional duties on exports, which are not good for the competition in the
market but the international trade law allows it.
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So, this competition law and trade law must go side by side and the industrial policies
and trade policies should not be an obstacle to the competition policy for example, the
subsidies, state aid, countervailing duty. So, trade law should not be an obstacle to the
competition policy and the competition law in the countries.
So, the public interest and economic freedom is one of the important topic of discussion.
So, without public interest no competition law is required. So, providing equal
opportunities for small businesses, medium businesses and the big businesses is the ideal
scenario which we can make in the market.
So, I hope that the concepts of competition are clear, the ultimate objective is
achievement of welfare of the market and welfare of the consumers.
Thank you.
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Prof. K D Raju
 
Lecture - 09
Introduction to Competition Law ( Contd. )
Dear students in this class we will discuss about the development of Competition Law in
India especially in the post independence scenario.
India, as you know, was under the rule of British upto1947.
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Much of the competitions were actually restricted or you can say that, the competition in
the market was absolutely absent. This happened mainly because of the raw materials
which were transported to Britain in order to increase the efficiency of the British
companies rather than promoting the Indian companies at that point of time. Presently
we can find provisions in the Indian constitution for promoting economic efficiency and
the division of labour or division of economic, the concentration of economy is banned
in the constitution.
So, relevant provisions says that the state will secure a social order for the promotion of
welfare of the people. We have already talked about the welfare of consumers and Indian
constitution clearly says that in order to achieve that objective the state shall strive to
promote the welfare of the people by the securing and protecting as effectively as it may
a social order in which justice, social, economic and political shall inform all the
institutions of the national life.
So, it means that the constitution will always look into the economical and political life
and the state shall particularly strive to minimize the inequalities in income and
endeavour to eliminate inequalities in status, facilities and opportunities not only
amongst the individuals, but also amongst groups of people residing in different areas or
engaged in different vocations.
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This is actually the reflection of the division of economic resources among the people
and especially Article 39 of the Indian constitution directive principles of state policy
clearly says that, the state must take into account in particular directive policies towards
securing the ownership and control of the material resources of the community
distributed as best to sub-serve the common good.
So, it means that the material resources should be divided among the communities so
that there should not be any concentration of economy in the market. Again it says that
the operation of the economic system should not result in the concentration of wealth and
means of production to the common detriment.
So, we can say that there is a parallelism between the objective of the antitrust law and
this particular provision of the Indian constitution which says that there should not be
concentration of wealth. Actually the enactment of the antitrust law was against the
concentration of wealth among the trust. So, our constitution also says that there should
not be concentration of wealth and the means of production should not be detrimental to
the society at large.
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If you look into the scenario post independence time the government was going massive
on the nationalization process. The nationalization process was rampant immediately
after the post independence scenario and the government was going with planned
economies through the 5 year plans.
Again this was based on the 1956 resolution on social justice and self reliance of India.
And India enacted the industrial policy in 1948 and all these nationalization and planned
economic policies were based on these industrial policy of 1948. And the government
told that the industrialization should be subject to the government regulations.
Because equal distribution of resources will ultimately lead to the societal welfare. The
government has given more importance to the public enterprises and also through the
nationalization process the government wanted to distribute the resources among the
societies at large or through the equal distribution which they propounded. The
government wants to restrict the overall economic activity.
For example even the size of the plant, the production, its location, sectors, allocation of
finance and even allocation of loans from financial institutions. It followed a Licence Raj
System and high tariff walls in order to prevent the imports, intrusion of the foreign
companies into the Indian market was successfully prevented by high tariff walls.
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And there were severe foreign direct investment restrictions and the quantitative
restrictions were put on all imports. So all of this coming together, it was impossible for
any foreign company to operate in the Indian market. So, the Indian market was
artificially made which completely says that there was no competition in the Indian
market. Everything was controlled or regulated by the government through the various
regulatory measures.
If we look into the competition law it was not an easy task to move to a competition law
at that point of time, rather the government had come out with a legislation which was
more restrictive in nature and known as the Monopolies and Restrictive Trade Practices
Act,1969 which is popularly known as the MRTP Act, 1969. The most planned economic
development happened in accordance with the Industrial Development and Regulation
Act, 1951.
So even though there was an industrial growth, it was completely a restricted Licence
Raj System which prevailed in the market until the 1990s.
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But the government was actively considering the various reports prepared by the experts
in order to distribute. The government thought that there should not be any concentration
of economic power with few in the India in the post independent India.
So, the first such committee was constituted which was chaired by Mr. Hazari which is
popularly known as the Hazari committee. And the Industries Development and
Regulation Act, 1951 played a very crucial role in the development of industry, rather
restricting the industrial activities at that point of time and the committee came out with
its recommendations in 1965.
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The Hazari committee gave a lot of recommendations. The Hazari committee studied the
Indian market with two objectives and they looked into or reviewed the operation of
licensing under the Industries Development and Regulation Act, 1951. And secondly
considered and suggested in the light of the present stage of economic development what
should be the direction or what are the modifications to be made to the licensing policy?
This was the very confined agenda of this Hazari committee.
And if we see the recommendations of this particular committee we know that the entire
resource allocation happened through the planning commission and the 5 year plans in
different states of India at that particular point of time. For example, the planning
commission recommended that the planning commission should come out with the plan
and policy to distinguish between the conclusive targets and indicative targets as a
priority area.
What should be the priority areas of investment and economic concentration? In a

developing country like India at that point of time or immediately after independence,
the regional allocation was very important for the distribution of a resources or efficient
use of a resources. For each plan period, the 5 year plan period the allocation of
industries should be reviewed every two years: this was another recommendation of the
committee.
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Then the most important recommendation of the committee was that large industrial
houses should not be given licences for capital goods industries. Because the committee
thought that this is going to lead to more concentration of wealth in the big industries at
that point of time. That is why the committee recommended again for a curb, again there
was a hurdle on licensing to the big industries on the capital goods.
And another recommendation was the access to finance. It was not only post the
independence scenario even today the financial institutions always favour the large
business houses and they have a step motherly attitude towards small scale industries.
The British period policy is followed by the financial institutions in India, even though
there are a lot of changes in the present days, but this was one of the recommendation of
the Hazari committee also. And the government should prioritize the industries and a
series of products which are exclusively reserved for small industries.
In the last class we discussed about the resource allocation to the large industrial houses
and a harmonization between the large industrial houses and small scale industries, this
exactly was recommended by the Hazari committee in 1956 in India.
And then major fiscal policy and the tax concessions for the major industries as well as
the small scale industries. There will be tax holidays and tax rebates. There is a close
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connectivity between the resource allocation and efficiency of the industries which is
connected with the fiscal policies. So, the fiscal policy also should promote the market
and competition in the industry.
We will look closely into the licensing system and the entrepreneurial aspect of the
licensing system. So, the committee thought that the excessive curbs on the licensing
system will reasonably assure the small scale industries to grow, more curbs or more
restrictions or regulations may lead to the promotion of small scale industry this is what
the committee actually recommended.
And the cost of the products and the cost of imports. So, the committee recommended
for domestic production rather than import of most of the goods even though it is
uneconomical. This is mainly in accordance with the policy of self reliance at that point
of time. The government followed the self reliance policy at that point of time.
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And if we look very closely into the specificities of the recommendation, the committee
also recommended certain exemption limits, the committee put certain exemption limits
for the existence on capital equipments. So, they put certain restrictions on the capital
equipments and also the project management.
And we can see that the first committee recommendations lead nowhere. The second
committee was constituted in 1964 even though it was set parallel in 1960. This basically
and mainly concentrated on the level of income disparity in the country.
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So, the committee found that the entire wealth in the country was in the top 10 percent of
the population and I do not think the scenario has changed so far and still the wealth in
India is with the top 10 percent of the population. And the 40 percent of the income was
with the 10 percent of population at that point of time and now it is a much more.
And this committee was known as the Monopolies Enquiry Commission. This
commission was headed by Justice K.C.Dasgupta. So, this was popularly known as the
Dasgupta Commission. Basically this committee looked into the economic power, the
economic power product wise or industry wise concentration.
And the committee also noted that the industrial houses are controlling large number of
companies and also the large scale restrictive and monopolistic activities of these
particular companies.
So, the committee looked basically into the large business houses and their behavioural
aspects which compelled the committee to look into the trust aspect which was in the
United States mainly because there were policies for the distribution of resources.
Similar aspect prevailed at that point of time in India as well. So, the committee was
given this particular task.
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So, this particular committee came out with a particular bill which is recommended for
the control of monopolies as well as the prohibition of monopolistic and restrictive
activities of these big companies that are prejudicial to public interest.
So, definitely there is a close similarity or a parallelism between the antitrust act and this
proposed legislation to control the monopolies and also the monopolistic activities or
restrictive trade practices of companies big business houses.
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The monopolistic practices which were pointed out by this committee are every practice
whether it is by action or understanding or agreement between companies or whether it is
a formal agreement or informal agreement or persons enjoying monopoly power resorts
to exercising the same to reap maximum benefits or to have a power in the market,
understanding or agreement tending to calculate to preserve, increase or consolidate
power to exploit market. All this will be considered as the monopolistic practices.
And if you look into the two types of practices: one is the monopolistic practices and
second is the restrictive trade practices. And there are a series of restrictive practices
generally adopted by these particular companies in preventing, distorting or restricting
competition.
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And there is a series of activities which you can find in the form of refusal to trade, tie up
sales, tie up agreements or tieing up of products and then the full line forcing, then
exclusive dealing agreements, then concerted practice; then price discrimination, then
resale price maintenance, then area wise i.e. the territorial restrictions or area restrictions,
then discriminatory pricings. All these are considered as restrictive trade practices by the
commission at that point of time.
And you can see that ultimately this committee was successful in drafting a bill as well
as the government converted it into the law in the form of Monopolies and Restrictive
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Trade Practices Act, 1969 which is popularly known as the MRTP Act which came into
existence from 1970 onwards. And this act has been in power for a long period of time
and its objective have nothing to do with promotion of competition, but to restrict the
monopolicies and restrict the trade practices; restrictive trade practices.
You can see that monopolistic effects are always a disadvantage to the weaker sections of
a business especially the small scale industries. And we know that these monopolies
basically absorb the small companies and become giants. It may lead to monopolies and
to an economic disparity due to the concentration of these economic power.
These monopoly basically leads to the growth of inequalities in the market and also the
power balances in the system increases and these power imbalance leads to corrupt
practices or restrictive practices. And these corrupt practices can influence the economic
policies of the governments. And also you can see that the monopolistic or oligopolistic
activities are always responsible for misdirection of resources. This happens mainly to
control the power as well as to control the market by these particular companies.
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Particular objective of the act was to ensure the operation of the economic system, so
that it does not result in concentration of economic power in hands of few. It clearly says
that there should not be concentration of economic power and to provide for control of
monopolies. Making monopolies is not illegal, but the monopolistic activities or
prohibitive activities when it affects the market is to be controlled actually. Prohibiting
monopolistic and restrictive trade practices was also one of the objective of the MRTP
Act.
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If we look into the unfair trade practices: they made an amendment in 1984 to include
unfair trade practices. So, as we have already talked about when the Sharman Act came
the companies wanted to avoid the provisions of the Sharman Act and they went for
mergers.
And then the Clayton Act was passed in order to curb the loopholes in the Antitrust Act.
Here they came out with an act for curbing the monopolistic activities, then the
companies went for unfair trade practices. So, they were forced to come out with the
amendment in 1984.
There are many activities which were considered as unfair trade practices which falsely
suggest that services are of particular standard, quality, quantity, grade and again falsely
suggesting rebuilt, second hand renovated recondition, the representation of goods and
services, sponsorship performance, characteristics, accessories. So, we can see a bundle
of unfair trade practices which were mentioned in the act.
So the unholy relationship between the sellers and suppliers is again false or misleading
representation concerning the need for the usefulness of goods and services. And then
again there is an unfair trade practice in guarantee and warranties of products,
performances and efficacy of product, their length of life.
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And these misrepresentation on the goods without adequate or proper test,
misrepresentation to the public, warranties and guarantees, promises of replacement and
repair of goods. All this will come under the purview of unfair trade practices.
Misleading in nature about the prices, misleading about the warranties and guarantees,
misleading about the services and misleading about the goods and services are mostly
unfair practices. I would say that all this will be considered as illegal practices.
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What is the effect of monopolistic practices? we know that all these monopolistic
practices prevents the efficient allocation of resources, are more favourable to the big
business houses and disadvantageous to the small business people.
That is why these practices will be considered as monopolistic practices. There is a close
connectivity between the market allocation and the production, the prices, price
maintenance and the cost of production.
We already said that the small scale industries allocate resources very less. So, their cost
of production will be more than when compared to the big business houses; the big
business houses allocate more resources. So, their production cost will be very less. So,
in the prices, the sale prices there will be a disparity between the sale prices of big
business houses and the small business houses. So, this should be balanced.
So, the profit of big business production houses will be very high and if these big
business can control the supply chain and supply and distribution of goods and services,
then there will be more profit and which will be disadvantageous to the small business
people, the small scale industries especially.
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We call it unfair trade practice because these trade practices are for the purpose of
promoting sale, any kind of promotion of sales which is related to the goods, supply of
goods, warranties and then unfair method or deceptive practices whether it is the
warranties which is oral in nature or written or visible representation. All this will come
under the purview of unfair trade practice.
In 1978 Justice Rajinder Singh Sachar was appointed in one committee to study. The
committee submitted its report in 1978. And you can see that there was no consumer
welfare provision at all at that point of time.
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And on false or misleading representations. It was mainly on the restrictive trade

practices at that point of time. In 1991 you can find amendments which were necessary
in order to open the economy in 1991 in India.
So, the liberalisation or globalisation or the opening up of economy, liberal economies

mandated to amend our competition policies. And also we saw that the monopolies and
restrictive trade practices act was not contributing to this competition in the market
rather lead to more and more cartelization, collusions and price fixing and abuse of
dominance. More importantly bid rigging and predatory pricing happened under the
MRTP Act.
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!
So, we can see that the 1991 opening up of economy was compelled or facilitated by the
IMF conditionalities which India faced at that point of time due to the crunch. India was
compelled to take the IMF loan due to the balance of payment problems at that point of
time which compelled India to end the Licence Raj System in 1991.
So, the conditionalities of the IMF compelled India to take away the Licence Raj System
and abolish levy. The entire market has made a transformation due to these IMF
conditionalities and has removed the hurdles in doing business in India like quantitative
restrictions and preferential treatment to the domestic industry and also restrictions on
the foreign direct investment. The government was compelled to take away all these
restrictions in the Indian market.
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!
There was no other choice for India than to come out with a competition law at that point
of time after the Singapore ministerial declaration, a WTO ministerial conference.
WTO ministerial conference in Singapore came out with the declaration in 1996 which
emphasises on a competition law in each and every country. The union government set
up a committee in 1997 to study the Indian scenario, the interaction between the trade
and competition policy, the anti competitive practices, mergers and acquisitions and
competition. Identifying these within the framework of WTO compelled India to appoint
an expert group in 1999 which came out with recommendations.
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And in 1999 Raghavan committee was appointed to study the Indian market and to come
out with a competition law in the country.
This is mainly on the background of many cases. Also India become a founding member
of WTO which compelled India to come out with the changes in the policies like India
amended its old intellectual property laws and most of the legislations India was
compelled to amend and moreover India faced WTO cases like Indian agriculture case.
India was forced to eliminate all quantitative restrictions, India was forced to amend its
intellectual property laws, India was forced to change its investment policies in the auto
case.
So, all these combined together made India to think of a competition law and finally, and
ultimately the committee came out with a bill which is in the form of competition
provisions like any other developed country and you can find more parallels in the
European Union which we will study in our other modules of the class. And you can find
that even after enacting the 2002 act it was not operational mainly because of some of
the disputes which were continuing in the different courts of India.
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And you can find some of the very recent amendments in 2018 on “combinations”, the
business relating to combinations in the Indian competition act. We will study about the
Indian competition act in detail in the coming classes.
I would say that the journey from 1950 to 2002 was turbulent. Indian perspective
changed from monopolistic and restrictive activities towards competition in the market
and India enacted the Competition Act in 2002 which was operational from a later stage
and which compelled India to a competitive economy and to adopt the competition
policies in the market.
In the next class we will talk in detail about the act as well as the different policies which
are adopted by India.
Thank you.
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Prof. K D Raju
 
Lecture - 10
Introduction to Competition Law - Anti - Competitive Practices
Dear students, today we will discuss about the Indian Competition Act, various
provisions and especially about the Anti Competitive Practices
as well as the abuse of dominance and regulation of combinations. It is divided into three
parts. Today we will start with the Indian scenario of Indian Competition Act and also the
anticompetitive practices especially the horizontal agreements.
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We know that the Indian Competition Act was passed in 2002, which I mentioned in the
last class, and came into effect in 2003. But yesterday also I mentioned that due to court
cases and other legal problems it was not enforced completely.
And finally, in 2007 the amendment act was passed and the Act became operational. And
the Competition Commission of India took another two years and became operational
from 2009 onwards and the Combination Rules were actually notified in 2011.
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We will see these notifications in detail. If you look into the Indian Competition Act it
basically is to prevent practices having adverse effect on competition. And to promote
and sustain competition in the markets and to protect interest of consumers, to ensure
freedom of trade carried on by other participants in the markets in India. We will see
elaborately what is this adverse effect on competition. The preamble very clearly states
what it wants to achieve in commentariat with the modern competition laws of United
States and European Union.
And the mandate of the Indian Competition Act is very clear. It prohibits anti-
competitive agreements and we will see in detail what are those anti-competitive
agreements. Then it prohibits abuse of dominant position, regulates combination and we
will also discuss about the Indian competition authority and what are the duties.
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And let's look into the important provisions of the Indian competition act: Section 3 talks
about anti-competitive agreements, Section 4 talks about the abuse of dominant position,
Section 6 talks about the regulation of combinations and the competition advocacy of the
competition commission of India is in Section 49.
And today the focus of our class is on the anti-competitive agreements which are
classified into two important categories; one is horizontal agreements and the second one
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is vertical agreements. In the last class I have mentioned what are horizontal agreements
and vertical agreements.
Horizontal agreements are amongst companies who are in the same area, the same plane,
and in the vertical agreements are at different levels of their business. Within the
horizontal agreements we will seek elaborately what are those anti-competitive
agreements which are prohibited agreements under the competition law.
These are agreements to limit production or supply, the agreements to allocate markets,
agreements to fix prices, then bid rigging or collusive bid rigging or collusion between
parties. And the vertical agreements include tie-in agreements, arrangements, exclusive
supply or distribution arrangements, then resale price maintenance, refusal to deal and
other concerted action and practices which we will see in the coming classes.
And today our focus is on the horizontal agreements and what are basically the anti-
competitive agreements? Anti-competitive agreements are certain behaviour which
yesterday we talked about: the behaviour of firms, behaviour of companies, behaviour of
huge business firms. The anti-competitive agreements happens when two or more
companies or two or more competitors specifically in the same market agree to co-
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operate each other for fixing prices. And they may divide the geographical market into
different areas with the ultimate objective of reducing competition in the market.
In 1958 in one of the United States cases i.e. Northern Pacific Railway Company versus
the United States, the court said that “there are certain agreements or practices which
because of their pernicious effect on competition and lack of any redeeming virtue are
conclusively presumed to be unreasonable. And therefore, illegal without any elaborate
inquiry as to the precise harm, they have caused or the business excused for their use”.
So what are anti-competitive agreements? The answer is very clear. It basically means
that those agreements which have a pernicious effect on competition are known as the
anti-competitive agreements.
And we will see these agreements. As I told you the Indian competition act is divided
into two categories; one is horizontal agreements and the other one is vertical agreement.
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Basically the horizontal agreements are to control production, supply, markets, technical
developments, investment or provisions of service. And also to share the market, source
of production and allocation of geographical market, then limiting customers. All these
are against the basic principles of competition in the market, so these will be considered
in detail under these horizontal agreements.
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So, it is already mentioned that these are in the pernicious category of activities of
business firms which are considered to bring an adverse effect on competition or are
otherwise anti-competitive in nature because all horizontal agreements are considered to
be the per se anticompetitive. The per se rule is very important to be understood.
All horizontal agreements are presumed to be pernicious in nature and are considered to
be anti-competitive in nature. So, Section 3(3) very clearly says that it is presumed that
such an agreement is anti-competitive and has an appreciable adverse effect on
competition under Section 19 of the Indian Competition Act which you will see later.
I already said that the per se rule is applicable to the horizontal agreements, but the per
se rule is not applicable to the vertical agreements (but not all vertical agreements which
we will see in later class, which are those applicable vertical agreements). So, vertical
agreements are not per se anti-competitive, but horizontal agreements are considered to
be per se anti-competitive.
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So the vertical agreements includes the enterprises or business firms at different level of
production or in the chain or in different markets. And these includes tie-in agreements,
exclusive distribution agreements, refusal to deal and resale price maintenance which we
will see later.
If some kind of activity of a business firm does not have an appreciable adverse effect on
competition then it cannot be prohibited. But what can be prohibited, if any activities
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which have an appreciable adverse effect on competition, is explained under Section 19
of the Indian Competition Act which states whether an agreement has an appreciable
adverse impact or effect on competition or not.
Under this particular section certain factors are taken into consideration to determine
whether there is an appreciable adverse effect on competition or not. These are: creation
of barriers to new entrant in the market, driving existing competitors out of the market
i.e. predatory in nature, then foreclosure of competition by hindering entry into the
market, prevention of the accrual of benefit to consumers, then improvements in
production or distribution of goods or provisions of services, then promotion of
technical, scientific and economic development by means of production or distribution of
goods. So, illegal collaboration for any of these kind of activities will be considered as
an appreciable adverse effect on competition which is prohibited under the competition
act.
The companies which are operating already in the market can create new barriers in the
market, so that the new entrant cannot enter the market because of these barriers. So, the
hindrances in full freedom to enter or exit the market, allowing competition to prevail
and substitutes to remain in the market.
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So, if these companies do not allow the substitutes to remain in the market then it will be
considered as an appreciable adverse effect on competition. And the second category is
predatory in nature, what do you mean by predatory in nature? It is driving the existing
competitors out of the market, so that you can capture the market completely.
So, the firms in order to drive competitors out of the market or into their monopolistic
advantages maintain favourable prices due to efficiency of large scale production
because of their dominant position in the market. So, they can drive out the small players
from the market, which will have an adverse effect on competition.
And the foreclosure of competition refers to the ability of firms to singularly or jointly
prevent the entry of firms in the market including potential entrants. So, the large firms
or the large players can prevent the small firms from entering into the market. Such
foreclosure of competition also is considered to have an appreciable adverse effect on
competition.
Then preventing the accruing of benefit to consumers. Because of these anti-competitive

agreements, anti-competitive activity the price may escalate which will lead to the
enhancement of profit. But it will adversely affect the consumers and it will have an
appreciable adverse effect on competition in the market which is prohibitive in nature.
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Then improvement in production and distribution of goods or provision of services,
promotion of technical, scientific and economic development by means of production of
distribution of goods. So, these factors are also taken into consideration for calculating
whether there is an appreciable adverse effect on competition.
And the most important category of the pernicious effect on the market is cartelization.
Cartelization and cartels are known to be pernicious to the market. Because the concept
of the entire modern competition law itself is based on to take action against the cartels
which are known as trust (in the last class we talked about the history in the united
states). So competition law is for taking action against the cartels.
And the cartels are basically agreements between enterprises or persons or the
government associations or an association of persons or against an agreement not to
compete on price, product, service or customers. These are considered as cartels. And
these cartels are considered to be the most pernicious form of anti-competitive practice
which always results in higher prices.
The choice for consumers is not going to be present and the quality of the product is
going to be very less, then limited choices for the goods and services because of the
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cartels. So there can be import cartels, there can be export cartels, there can be
production cartels and different kind of categories of cartels.
So, for the formation of cartels there are certain conditions which are high concentration,
high entry and exit barriers, homogeneity and dependence of consumers on a particular
product. These can be considered to find whether the cartels are working or not.
And Section 2 of the Indian Competition Act clearly says the cartel includes an
association of producers, sellers, distributors, traders or service providers who by
agreement amongst themselves limit, control or attempt to control the production,
distribution sale or price of trade in goods or provisions of services. It means that the
cartels can happen at any level of production or any level of distribution or in between
market factory to the consumer. Anywhere else the cartels can happen.
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And basically the cartels is considered to be the most pernicious because it directly
affects the market and it directly affects the consumer welfare in general. It is a harm to
the consumers, the prices will go up and the cartel even try to restrict the market, not
only the market even the supply. And even when there is less supply, they can raise the
prices, they can increase the prices and thus get more and more profit out of it.
And the cartels may be the sellers, those who are producers as well as sellers,
distributors, traders, service providers and all these people may be involved in a cartel
including distribution, sale or price. So, the direct effect of cartel is that the consumers
pay more for the respective goods or services for which otherwise they pay less in a
competitive market, in an ideal competitive market.
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And again the cartels are the most distortive in any market. Because they form price
collusion, their price collusion will be between the participants and this leads to the
reduction of choices of the products and the consumers will be at a disadvantage. Most
importantly the highest penalty is imposed on cartels and we will see the case law at the
end of this particular class.
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And the cartels are considered to be of 4 types, I would say 4 conducts. These are price
fixing, market sharing, output restricting and bid rigging. These are the 4 type of cartels
which can be formed.
We will see these one by one. What is the price fixing? Price fixing is the most easy way
of cartelization, because there will be printed or maximum retail prices onto which the
sellers stick the maximum consumer prices or maximum retail prices. So by this they
may enter into increasing the prices, they may increase by a standard formula for fixing
the prices or computing the prices.
Then again agreement to maintain a fixed ratio between the competing prices, but not for
identical products. There can even be cartel for fixing prices for known identical
products, substitutive products. Then agreement to eliminate discounts or established
uniform discounts among all the producers. Then agreement on credit terms. The credit
terms will be uniform amongst all the participants in cartels for what will be executed to
the customers.
And then removing the low priced products from the market, so that cartels can impose
their products into the market, enforce the sale of their products into the market. So, they
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remove the low priced goods from the market, and also cartels can form agreement not to
reduce prices without notifying the other cartel member.
And also they can agree upon to adhere to the published prices, the same published
prices and that they have to consult each other for any kind of changes in the prices. So,
it means that it is almost impossible for the customer to get a product for a competitive
price from different producers or from different distributors. And so all these categories
are price fixing and price fixing is considered to be very pernicious to the market
because the consumers are going to pay a higher price for the products. There is no
consumer choice at all.
We can say that the purpose is very clear to fix or control and maintain the price of the
goods or services, so that the producers can make more and more profit. And then there
can be agreements to eliminate or minimize or restrict other terms and conditions of such
sales or discounts so that all the participants in the cartel offer the same level of
discounts.
So, price fixing is per se considered to be illegal because price fixing is the most
distortive in nature and which is harmful to the customers at large. So, the effective price
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fixing agreement for eliminating competition from the market will be considered as
pernicious or distorting and it is anti-competitive in nature.
And one case we have to discuss if you want to understand the cartel i.e. the Builders
association of India versus Cement Manufacturers Association which is popularly known
as Cement Cartels case in India. The facts of the case are very simple the Competition
Commission of India initiated an investigation and finally passed an order in 2012 on the
Cement Manufacturers in India for entering into different kind of cartels. You can see
that a huge sum of money around 1.1 billion US dollars were imposed as fine on the
Indian cement manufactures holding them guilty of running a cartel in cement industry.
The penalty is imposed at the rate of 0.5 times the net profit of such manufactures for 2
years from 2010 to 2012. So, it means that it is an additional penalty. The cement
manufacturers association has been fined 10 percent of its total receipts for the 2 years
period in which they engaged in the cartel activity.
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This is a huge fine on the cement industries and all the big players, the manufacturers
were included. All of them were involved in this cartelization and huge fine was imposed
on these companies.
But ultimately these huge fines on the companies, these companies always try to pass
this burden to the consumers and the cement prices in India has increased for the last 10
years. We know there is a huge increase and there is no match in the percentage increase
with their production prices.
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The competition commission has elaborately discussed each component of the

cartelization and the market structure of the cement industry. So, the competition
commission of India has observed that no player can be said to be dominant in India as
per the prevailing market structure, because each and everybody is part of the cartel, so
there is no market dominance rather market distribution by the companies.
So, 12 cement companies are having about 75 percent of the total capacity in India and
about 21 companies are completely controlling 90 percent of the market share in terms of
capacity in India. It means that the total control is with these 21 companies.
So, it gives an oligopolistic or a monopolistic market for each company to exploit. So the
decisions as part of the cartel are final. So, the collusion between the companies are
possible if there is no dominant position, so the CCI very clearly said that the market
structure of the cement industry is very prominent or prone to cartelization.
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We can see that the statistics of the production dispatch of the companies are also very
important. So, it is said that the sharing of price production and dispatch data makes co-
ordination easier amongst the cement companies. So, each and every company share
their data with one another, so that they can control the market very well.
And most importantly the competition commission has discussed elaborately on price
parallelism so what is this price parallelism? This is an economic analysis of price data
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which indicated that, there is a strong positive correlation of prices of cement of different
companies. So, it does not matter which are the company, the prices, there is a huge
correlation between the prices of these companies.
So, the DG found a price parallelism between the cement companies which leads to this
particular cartelization. And the CCI did not accept the arguments of these cement
companies and the data exchanged between the parties confirmed this price parallelism
which has happened between these manufactures.
And limiting and controlling of production: The CCI also found that these cartels have
taken a decision to limit and control the complete production. Market Control itself can
happen due to the scarcity of cement in the market, so that they can increase the prices.
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Not only production, they control the supply also. And in this particular matter the CCI
observed that force of demand and supply should be depend upon the market. But if the
manufacturer or the producer controls or limits the supply then the prices will increase
will dictate the dispatch of figures and dispatch. It is a dictatorship on the market that
how much to be consumed by the consumers in a period of time, within a period of the
previous years, so the data shows that they have controlled the dispatch as well.
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And most importantly the production parallelism: We talked about price parallelism, we
talked about the supply, now we will talk about the production parallelism. The
production figures shows that there is a positive correlation among all these
manufactures on production level as well, because it is very well coordinated behavior of
the cement industry leading to cartelization.
We talked about production parallelism. Dispatch parallelism: which shows that how
much cement is to be dispatched in the market.
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All these are done mainly for increasing the prices, so there is a deliberate shortage in
production and supplies by the cement companies. So that they can justify the price
increase but they say that they have lower capacity which is not true.
And there is a price leadership, so price parallelism between all the companies are found.
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The competition commission of India found that there is a high profit margin among the
companies even though they claim that they could not use their complete capacity of
production.
And you can see the what were the penalties? Huge penalty was imposed on these
particular cement companies.
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Then what happened is that these companies appealed to the COMPAT i.e. competition
appellate tribunal in 2012. So the case was remanded back to the CCI for adjudication
and the CCI issued the order in 2016 with minor changes.
Again there was an appeal, in the appeal most of the findings of the competition
commission of India were confirmed again.
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And the fine was imposed, so again the competition commission discussed about the
price parallelism which happened in this particular cartelization.
And again the producers went with their appeals to the competition appellate tribunal,
now it was replaced by the national company law appellate tribunal in 2017. All these
legal fines started in 2012 and even in 2018 the new tribunal i.e. the national company
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law appellate tribunal imposed a heavy fine of 67 billion Indian rupees which is almost
equal to the 784 million Euros and the 11 members of the cartel were fined.
But ultimately what happened is that the cement prices for a long period of time remains
the same. And presently it is reported that 6 new other companies are under the scanner
of CCI for cartelization. So, the cartelization continues to be very pernicious to the
industry. I have shown only one industry i.e. a cement industry. The cartel is a problem
in airline industry as well which the competition commission has investigated into and
found the cartel in that.
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So, cartel is pernicious, cartel is most distorting of the market, so this is highly anti-
competitive in nature.
So, a concentrated market, demand supply, homogeneous products, entry barriers, active
trade associations: these are all the cartelization factors which were found to be positive
in the cement industry.
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The defences are very less in cartels i.e. the joint venture, agreements relating to
intellectual property, export cartel exemption and leniency regimes. So, we will stop this
class here and we will go to the bid rigging another form of anti-competitive practice in
the next part.
Thank you.
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Prof. K D Raju
Indian Institute of Technology, Kharagpur 
 
Lecture - 11
Bid - Rigging
Dear students, we already talked about cartelization-one of the anti competitive practice,
and in this class we are going to talk about Bid Rigging. You may have heard about bid
rigging. Presently all the government purchases or other purchases use online bidding.
Bid rigging is again considered to be anti-competitive in nature; and we will see How it
is anti-competitive? Why it is anti-competitive in nature? And what is the purpose of
these bidding? The purpose of bidding is to get best prices. You purchase on best prices
and that is why bidding is required so that different producers can offer different prices
for the similar goods which you want to purchase. And the bid rigging, the entire bid
rigging process vitiates the entire process of these bidding itself. The bid rigging means
that, any agreement between enterprises or persons engaged in identical or similar
production or trading of goods of provision of services which has the effect of
eliminating or reducing competition.
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So ultimately, bid rigging has a direct impact on eliminating competition or reducing
competition in the market and is considered as anti-competitive in nature. And there are
different forms of bid rigging i.e. one is bid separation i.e. all the people are refrained
from bidding so that any one of them can bid for the same. And Secondly,
complementary or cover bidding in which you are submitting bids at too high prices with
unacceptable terms. So that, you go to the negotiating table and negotiate with them and
fix the prices.
And thirdly bid rotation where competitors agree to take turn, one by one as the lowest
bidder. So, this time I will be the lowest bidder the next time you will be the lowest
bidder; there is an arrangement like cartel, there is an arrangement between the suppliers
for supplying the lowest bid. Then subcontracting, i.e. there is a collusion between the
competitors and they get sub-contracts from the successful bidder. So, you go for the
bidding and we will also get a pi of the entire cake that is subcontracting. And all these
are considered to be pernicious to the market and also to the price of it.
And bid rigging is explained in section 3 of the Act, it is defined as any agreement
between enterprises or persons referred to in sub-section 3 engaged in identical or similar
production or trading of goods; provision of services which has the effect of eliminating
or reducing competition for bids or adversely affecting or manipulating the process of
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bidding. So, the definition simply says that it is an arrangement between a group of
people for fixing the prices.
So, bid rigging or collusive tendering is the practice where the firms agree amongst
themselves to collaborate or co-operate with each other for the tender. So, you can see
that again like cartel there is a collaboration or agreement between the participants of the
bid. We are not going to the cases.
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And some of the factors are mentioned by the US Antitrust Division very clearly i.e.
fewer sellers as it is easier to collude, if you know few number of sellers then it is easier
to collude in bed rigging. And then if the products are not so easily substitutable they can
rig the bid. Then highly standardised product easier to agree on a common price. Then
again repetitive purchases involving the same firms as bidders, they become familiar
with each other and in future contracts allow competitors to share work easily. So, these
are some of the examples of factors favouring bid rigging, favourable to the bid riggers.
Again the US Antitrust division has set some illustrative indication of this. So, the same
company always wins a particular procurement contract, then they can go for rotation or
they can go for subcontracting and the same suppliers submit bid on each company
seems to have taken turns.
We talked about this that they take turns. And then on the higher prices from time to
time. Then, the bid prices drop whenever a new infrequent bidders submits a bid, so that
they can eliminate that new bidder and they can continue with the bid rigging process.
And then there are irregularities for example, identical calculation or spelling errors,
handwriting. But now you see computer is used. So, there is no question of identical
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handwriting but the same kind of forms used, all these give a suspicion on the bid
rigging. These are the evidences of bid rigging to look upon.
How the process of bid rigging takes place? The bid rigging are always an agreement
between a group of bidders to eliminate competition in the procurement, the entire
procurement process of any goods. And to ultimately fix the prices, so definitely the
prices will be going high because then only they can make the maximum profit.
So, one competitor submits the bid and the another one agrees to submit a non-
competitive bid which is too high or which is unacceptable to the buyer. Then competitor
agrees not to bid or to withdraw a bid from the consideration and this is also part of a bid
rigging.
Then the competitors agree to submit bids only in certain geographical areas or only to
certain public organizations so that they can divide the public organisations. You submit
in these public organizations and I will submit on these public organizations. They divide
amongst themselves these particular organizations so that they can always fix the prices.
They have one thing in common: the bidders agree to eliminate competition and fix the
prices these are the two conditions which is always present in any kind of bid rigging.
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It is illegal in most of the countries. The price fixing and market allocation is illegal in
almost all the jurisdictions. And the collusion of firms in procurement and bidding is
always in a predetermined level and they collude with each other.
If you look into the forms of bid rigging, you can see the bidding may take in different
forms, they may be bid suppression. Bid suppression schemes include one or two bidders
who are supposed to submit their bid or have previously bided and who has the most
chance of getting the bid, he agrees to the refrain from the bidding or withdraws from
previously submitted bid so that the designated winning competitor’s bid will be
accepted so that means, even though the lowest bid is submitted, later on they can come
to an agreement that the other person will withdraw from the bidding process so that a
particular bidder can get the bid in his favour and so that they can fix the prices.
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The second category is the complementary bidding, and complementary bidding is for
cover up, it is courtesy bidding. It is to cover up the main bid; that means the competitors
agree to submit bids, but actually there is no competitor. Because, even though he submit
the bids, he will put very high prices which would not be acceptable to the buyer. It is not
a genuine bidding. So, the complimentary bidding is not going to be genuine at all, it is
always going to be very high prices, which are not acceptable to the purchaser.
This is one of the most common type of rigging, because it seems to be that there are
bidders but actually these are bid rigging and so they can defraud the purchasers by
putting, creating various barriers to the competition and inflate the prices. So simply
there is a group of bidders but there is actually one designated bidder because of these
complimentary bidding or bid rigging.
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And then bid rotation which I already talked about. In rotational schemes all parties
participate in the bid, but always the lowest bidder will be the designated person. So, that
the next time another person can be given on rotation basis. The objective is very clear, it
is fixed whom to be given the bidding, who is going to be the bidder and also to fix the
prices.
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Then another form is the market allocation. The market allocation can be territorial
allocation or a particular market allocation. So, for example, the entire market is divided
into maybe south, north and east and west. And one company is designated for one
region and another company is designated for another region. And market allocation is
also considered to be a bid rigging process.
And market allocation can happen. Basically it is sheltering from competition. Because,
in this particular market I have various kind of advantage so you do not bid in this, you
give me this particular region and you operate in that another region.
So, he may not have any production of goods in that particular area. And also he is not
going to sell that particular product in other particular geographical territories and not
soliciting or selling to the existing customers of each other, not to disturb the customers
by the competitors. So, there is an agreement amongst the suppliers not to disturb the
market, not to disturb the regionality, not to disturb the existing customers and this is
known as market allocation.
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And market allocation is also considered to be, it is a part of bid rigging. Then another
form is the output control and limiting production, absolutely considered to be illegal as
per the per se rule.
The exemptions you can find is joint ventures. And all horizontal agreements are
considered per se to be a harm to the competition and illegal. So, the exemption is
offered to one category of association that is known as joint venture in order to enhance
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efficiency. But, this is not an exception actually and they have to show certain
advantages to the society and benefits to the society, ultimately benefits to the consumers
then only these exemption will be applicable.
So if the enterprise can show certain advantages, then only it will be exempted from this
kind of anti-competitive practices.
Then, usually intellectual property protection, which we will discuss when we discuss
about intellectual property versus competition, under section 3 is exempted from the
competition provisions.
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And export cartel exemptions; so, here again the Act provides restrictions relating to
anti-competitive agreement cartels. So, in the case of exporting goods from India the
agreements relate exclusively to production supply, distribution and other things;
because, other countries will take care of the competition issues in their markets.
And the leniency regime: there is a prohibition in the Indian Act. The CCI provides
leniency regime for the enterprises. This is nothing but that the competition commission
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imposes a lesser penalty, based on the regulations in 2009, for those who co-operate and
those who share confidential information and data to the competition commission.
According to this provision any one of these cartel participant can co-operate with the
competition commission of India and provide information. So, they will be punished less
under these leniency regime or leniency regulations of 2009.
In the leniency regime, the applicant should not have any further participation, that
means certain conditions to be fulfilled for participating in this particular program. They
should not be any more with the cartel and the second condition is that the information
provided by the member of the cartel should be vital disclosure. And thirdly, the
applicant should completely cooperate to the fullest extent with the Competition
Commission of India.
And the relevant evidences should not be concealed, destroyed or manipulated nor
removed by the applicant after they participate in the leniency program. If all these
conditions are fulfilled, they can participate in this program and get a lesser penalty
when compared to the other participants in the cartel program.
So, in this particular class I tried to explain what is bid rigging as another common anti-
competitive practice. First we discussed about cartelization, different cartelization, this
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class is on various forms of bid rigging in a common form, which are adopted by the
business enterprises.
Ultimately the purpose of bid rigging is to fix the grant of bid as well as fix the market,
fix the prices based on markets, regionality and other conditions. So, this will always
affect the market and ultimately it is harmful to competition, it is harmful to the
consumer interest. So, it is anti-competitive in nature. And so, the anti-competitive
agreements which we discussed is complete. And in the next classes we will go to the
abuse of dominant position and other activities which are prohibited under the
Competition Act.
Thank you.
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Prof. K D Raju
 
Lecture - 12
Introduction to Competition Law - Vertical Agreements
Dear students in this class, we will discuss about the Vertical Agreements and in the last
class we talked about Horizontal Agreements and what is prohibitive in nature under the
Competition Law. And in this class we will discuss about another category of agreements
which are known as Vertical Agreements. In the last class also I have mentioned about
vertical agreements.
Basically the vertical agreements are nothing but agreement between the enterprises
working at different stages of production chain and at different manufacturing level or at
different distribution level. Horizontal agreements are at the same level and vertical
agreements are at different levels, that is the only difference.
Also the per se rule is not applicable to the vertical agreements but per se rule is
applicable to the horizontal agreements. So, in the vertical agreements the question is
whether they are causing appreciable adverse effect on competition(AAEC) determined
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by the rule of reason. That means, rule of reason is also applicable to the vertical
agreements, but it will depend upon if there is an appreciable adverse effect on
competition.
What are these vertical agreements? The vertical agreements are nothing, but these
agreements at the different stages or level. You can divide it into different stages or
different categories of agreements.
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So, these vertical agreements work at different level and affecting the market. And we
will see how these agreements affect the market. So, there must be an agreement
amongst the enterprises or persons like in any other combinations. So, the parties to such
agreement must be at different stages this is the second condition to fulfil vertical
agreement. And their level of production must be different or they are in the chain in
respect of production, supply, distribution, storage, sale of price, trade or goods, or
provision of services. They must be at different level this is the second condition.
And the agreeing parties must be at different markets; this is the third condition to fulfil
the vertical agreements. And the agreement should cause or likely to cause an
appreciable adverse effect on competition which is mentioned under section 19 of the
Indian Competition Act. Then it will be considered as a vertical agreement.
Then we can see that vertical agreement will be always evaluated based on the
presumption of appreciable adverse effect on competition. We can see the resale price
maintenance and different categories of it starting from the tie-in agreements; and ending
up with the resale price maintenance. And so, we will see these agreements one by one.
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So, the categories of agreements were mentioned under section 3(4) of the Indian
Competition Act and the first one is the tie-in arrangement. So, in tie-in arrangement
there is an agreement requiring a purchaser of the goods, as a condition of such purchase,
to purchase some other goods which the purchaser does not want.
So that means; the tie-in arrangement is an arrangement pair. I want to purchase

something, but I will be forced to purchase something else also along with that particular
product i.e. the tie-in arrangement. Then the second category of agreement is the
exclusive supply agreement. So, this includes the agreements restricting the purchaser in
the course of his trade form acquiring or otherwise dealing in any goods of any other
person other than those of the seller. So, the distributor will be prevented from taking
distribution agency of any other company.
Thirdly exclusive distribution agreement this is similar to the supply agreement which
includes the agreement to limit, restrict, withhold output, supply of goods, allocation of
market or any market, disposal or sale of goods. So, tie in arrangement, exclusive supply
agreement and exclusive distribution agreement are considered as the vertical agreement.
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Then Refusal to deal: refusal to deal is one of the another pernicious form of anti-
competitive practice which restricts or likely to restrict, the class or classes of persons
whom goods are sold or from whom goods are bought. So you agree that I am not going
to sell to this particular class of persons that is a refusal to deal.
And the last form of vertical agreement is the resale price maintenance, which includes
agreements or goods on condition that the price has to be changed on resale by the
purchaser which shall be stipulated by the seller; that means, the resale price will be
stipulated by the seller unless there is an agreement between these parties. So, resale
price maintenance also is considered as a vertical agreement, which is distortive to the
market.
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We will start with them one by one. What is this tie-in arrangement? So as I already told
you, the tie-in arrangement requires a party to buy more than one product; one product
he wants to purchase, but he can purchase only in addition to the purchase of another
one.
So, they tie the products. Tying one product with another one is the tie-in arrangements.
So, it is very simple that I do not want another product which I will be forced to
purchase, that is the tie-in agreement.
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And tie-in agreement intends the purchaser of particular product to purchase some other
product required by the supplier. So, even though I do not require that particular product,
I will be forced to purchase that particular product then only I can get the services or can
get the other product.
The famous case of the Microsoft Media Player; which we will discuss on later stage.
So, if you want to purchase the operating system, you have to purchase the media player
as well. And so, you are forced to purchase some other product which you do not want.
So, that is basically known as the tie-in arrangement.
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So, how it is going to affect the market; definitely it is going to affect the market and it is
directly affecting the consumer welfare, because I do not want to purchase a particular
product, which I am forced to purchase. Because I want that one product which is
essential for me, but the other one is tied product or service which I do not want actually,
I am forced to purchase that one. So; that means, it accrues unnecessary costs to me. So,
it is distorting the market.
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So, these agreements are considered as distorting particular market and there is a tradeoff
between the parties. So, they try to capture the market through one product while one
company wants to sell some of their other products which the consumer does not want.
For this tying, these companies use their market power as well. For example, the
Microsoft softwares, the operating systems and the office, they are holding more than 90
percent of the market; and they impose that you should purchase another product of ours
then only you can get the operating system.
Jefferson Parish Hospital case is one of the US cases. The court found that whoever uses
the hospital, whoever is availing the service of the hospital operating rooms is tied with a
product, what is their product? Their anesthesia service. So, if you want to use my
operation theatre, you must take my anesthesia service also. So, they tied the anesthesia
service along with their hospital operating rooms. So, this was held to be per se illegal;
by the US court. So, even though the per se rule is not applicable to the vertical
agreements, but the Court used this test and held that it is illegal per se.
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So, the tying can be pernicious to the market, distorting to the market and which is an
unnecessary burden on the consumer. So, it is anti-competitive in nature. I will go to the
second one i.e. exclusive supply agreements; and exclusive supply agreements basically
prohibits the downstream party in dealing with the products other than that of particular
party. So, it means there is no competition. So you are not going to take the dealership of
somebody else, you are not going to deal with a particular competitive product of the
upstream supplier.
So, the exclusive agreement is the agreement restricting the purchaser in any manner in
the course of his trade from acquiring or otherwise dealing in any goods other than those
of the seller or any other person. So, it means that you are restricting a particular seller to
deal with your product only, not the competitor’s product or anybody else’s product. So,
these exclusive supply agreements are also going to directly affect the particular market.
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The upstream party is always going to impose these restriction and conditions on the
downstream purchaser. But you can see that it is always a closed group; the downstream
purchaser will be always a closed group and so there can be collusion as well with all the
downstream parties. The exclusive agreement thus always restricts, always puts
restriction on the market and so is anti-competitive in nature.
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And exclusive distribution agreement; exclusive distribution agreement is another form
of agreement which is market distorting and anti competitive in nature. So, the exclusive
distribution agreement is an arrangement where company grants exclusive rights to the
producers or services to another party for example single brand showrooms or exclusive
territory rights; the state distributors and single distributor, exclusive distributor. They
cannot take the distribution business of any competitor company or any other company.
So, it becomes exclusive distribution agreements. So, this also is to promote product or
services to the customers and the distributor is prevented from availing the services of
anybody else or the market power is limited by inter brand competition.
So, if there is inter brand competition, then there will be competition in the market and
the consumers will get better products and better services; but this inter brand
competition will be limited by this exclusive distribution agreements and that it is why it
is anti-competitive in nature.
And the main features which we can see is that: agreements to restrict or withhold the
output or supply of goods or allocate any area, geographical area or market for the
disposal of the sale of goods.
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Section 3(4) of the Competition Act says that allocate any area or market for the disposal
of sale of the goods, this is a terminology which is used. So, the geographical distribution
of goods includes regional distribution or state distribution or specific area can be
demarcated by the upstream supplier which will affect the competition in the market.
And, then another form of anti-competitive practice is the refusal to deal with customers
or suppliers ultimately which is directly going to affect the market. For example I refuse
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to deal with you if you deal with my competitor. So, I put a condition that if you deal
with my competitor, I refuse to deal with you. This is going to ultimately affect the
market at large. So, it is considered to be anti-competitive in nature.
So, in antitrust law this refusal to deal is considered anti-competitive in nature. Because
every firm has a duty to the public, every firm has a duty to offer their services to
everybody and you cannot refuse the services. And imposing additional obligations on a
firm to do some business with its rival is not possible at all. So, the antitrust rules look
into this refusal to deal as an unreasonable restriction which restrict competition in the
market.
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So, refusal to deal happens in certain circumstances with the competitors. For example,
Micromax and the Ericsson case in India; can you really refuse to deal with your
competitor? The answer is no.
In a perfect competition market you cannot refuse to deal with anybody, you cannot
refuse to license with anybody. We will discuss about the standard essential patents and
the concept of standard essential patents, how it has emerged from this refusal to deal. A
monopolist cannot refuse to sell a particular product or service to its competitors. And if
the monopolist is doing a business with the competitor, monopolist needs legitimate
business reasons for such policies.
So, if you want to refuse, there must be very strong reasons to refuse such kind of
services; otherwise it will be considered as anti-competitive in nature.
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In some of the cases even though it is a vertical agreement the activities are per se illegal.
For example, restraint of trade, which we were discussing in the last classes, especially
under the US law restraint of trade is considered to be a felony.
But in Indian Competition Act it is not considered to be a felony. For the vertical
agreements, as I told you earlier, the per se rule is not applicable, but in certain
circumstances the court can declare it is as per se rule, especially when refusal to deal
exists.
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And if you look into one of these cases, it is almost the same case which we discussed
about the hospital case. In 2014 the Indian Competition Commission has discussed about
this particular case. So, here the Xcel Healthcare, the stockist for pharmaceuticals in Goa
were violating the CCI order and they continued to control the supply.
And these particular companies continued to control the supply of pharmaceuticals in

Goa through a stipulation. All stockist in Goa must obtain a no objection certificate from
it; and this pressurised the pharmaceutical companies in not to supply or stockist with
any other company. So, exclusive agreement is also considered to be market distorting
and anti-competitive in nature.
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All the big pharmaceutical companies refuse to deal and they give exclusive marketing
rights and also distribution agreements. Now the watch dog in the Competition
Commission of India is there to look into these kind of violations.
So, you can find that heavy fines will be imposed by the Competition Commission of
India in such kind of cases and whether it is in Foreign jurisdictions or in the Indian
jurisdictions.
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And the last form of vertical agreement is the Resale Price Maintenance. In the Resale
Price Maintenance the manufacturers set the prices at which the retail shop person will
sell his particular product, and there is no freedom to the retail shopkeeper to have a
competitive price in the market.
So, price maintenance is for the wholesale business as well as the retail business. So, this
will be known as the Resale Price Maintenance. And resale price maintenance is also
considered to be anti-competitive in nature.
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The manufacturer through a system of distributors and towards the retailers, the retailers
agree for a resale price maintenance fixed by the manufacturer; so the minimum retail
price are fixed by the companies so that they can exploit the particular market, but this is
considered to be exploitative in nature.
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We can find a number of cases whether it is in Foreign markets or in the Indian markets
resale price maintenance are the usual anti-competitive practices which is managed by
the Indian companies as well.
So, the price fixing is also within the purview of the Competition Law.
And under 3(4) of the Indian Competition Act, all vertical restraint are to be evaluated
under the rule of reason, then this anti-competitive nature can be established.
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We can look into the pro-competitive benefits. What are the pro-competitive benefits in
order to calculate whether it is per se illegal or not? So, you can have all these practices
without any harm to the competitive process in the market. But I think this argument is
not a valid argument because all these practices have an anti-competitive effect on the
market, then how can you practice this without affecting the competitive process in the
market.
Then again, sale support to the retail is extended by the manufacturers which may not be
exploited by the free riders. So, there is a connection between the seller and the company
and the retailers. The company will see that their product is sold in the market; then the
question of free riding in the market is not going to happen. Then full service retailers
and product requiring retail service though very rare, then incremental sales, all these are
considered to be pro-competitive benefits. So, if you can prove the pro-competitive
benefits, then it would not be considered as anti-competitive in nature.
But it is unlikely to happen, and very unlikely to prove these pro-competitive factors.
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So, you can find a number of other factors.
This resale price management, usually induces the cartels as well. So, you can find a
number of examples of the International vitamin cartel which is one of the best example.
And there is no mechanism to monitor this international cartels, other than territorial in
nature. So, controlling these cartel agreements is also very difficult in nature.
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So, in this class we were trying to discuss about all the vertical agreements which are
anti-competitive in nature and the different levels of market and different levels of
competition. So, horizontal agreements and vertical agreements, are the anti-competitive
practices that are distorting the market and thus anti-competitive in nature; and
competition provisions of each and every country and the Indian competition act also
prohibits these kind of activities.
So, we will stop this particular class here on the horizontal agreements and vertical
agreements; and in the next class we will talk about the Abuse of Dominant Position.
Thank you.
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Prof. K D Raju
 
Lecture - 13
Abuse of Dominance Combinations
Dear students today we are going to discuss Abuse of Dominance and Combinations as
part of our Competition Law class.
And in the last class we discussed about the Anti-Competitive Agreements.
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And today, we will discuss in detail, what is abuse of dominance and also the other areas
of the Competition Law. And, you may have heard about the abuse of dominance, but
what is this abuse of dominance actually? And abuse of dominant position is basically
the strength enjoyed by any enterprise, any corporate enterprise which enables them to
act independently in the market and also to influence the market.
And these enterprise position is to disregard other market forces in order to eliminate all
kind of competitions. So, these business enterprises, use their market power to eliminate
the competition from the market, then they will be abusing the dominance in market.
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And we can see this abuse of dominance in various forms; which is price fixing,
nondiscriminatory pricing practices; predatory pricing, limiting supply of goods and
services in the market which will make a scarcity in the market; then denial of market
access like refusal to deal.
What do you mean by the elements that constitute the dominant position and when an
enterprise, business enterprise is going to be in a dominant position in the market?
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It is a position of strength accumulated in a period of time due to the technology, due to
market conditions and due to certain homogenical conditions which are available in the
market. And such position is enjoyed by the enterprise in the Indian market and in the
product market and geographical market; both the markets. We will see later on, what is
this geographical market and product market. These enterprises, these companies can act
in the market irrespective of the competitive process in the market. And these companies
and enterprises are a force in the market, which uses its dominant position, irrespective
of the competition process in the market.
And also, they can impose other trading conditions which are not acceptable to others,
but there is no other choice for them but to avail these services or the goods. Actually,
the abuse of dominant position in the market is considered to be a threat, a strong threat
to the free market. Basically, these firms have the ability to raise the prices to an
unreasonable extent and can charge the customers. Also they can go for alternative
source of supplies. The firms using its dominant position will affect the market forces
and ultimately eliminate the competitors from the market.
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The monopolization or the dominant position in the market per se is not illegal under the
Competition Act; but the abuse of such position is illegal under the Competition Act.
And especially when the big industrial houses or enterprise which use their market
power to eliminate others from the market or eliminate competition from the market or
eliminate the rivals from the market, then only it will be considered as a violation of
competition law. When can such behaviour become abuse of dominance we will have to
see in detail.
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The competition act of India under Section 4(2) prevents certain activities resulting in
the abuse of dominant position. Imposing unfair and discriminatory conditions or prices
in sale and purchase of goods and services, limiting or restricting production of goods
and services will be considered as abuse of dominant position.
Then technical or scientific development relating to goods or services to the prejudice of

consumers also will be considered as the abuse of dominant position. Then most
importantly denial of market access i.e. refusal to deal; tying agreements, refusal to deal
and tying agreements, using the dominant position of an enterprise to enter into another
market will be considered as abuse of dominant position.
We will look into some of the examples of a dominant position. These are predatory
pricing, granting loyalty rebates or allowing royalty rebates, then tying and bundling,
refusal to deal, margin squeeze and exclusive agreements. All these are considered as
abuse of dominant position. And we will elaborately see these one by one.
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And predatory pricing is one of the prominent form of abuse of dominant position; it is
when you reduce the prices below the cost of production in order to eliminate, in order to
send out the competitor from the market. So the objective or the intention of the
prominent player in the market is predatory. And predation is something which wants to
eliminate the competitors from the market; so that later on they can capture the market
and become more and more strong in the market.
In this particular case of Neeraj Malhotra, Advocates versus North Delhi Power Limited;
the Competition Commission of India very clearly said that, Section 4 of the
Competition Act does not prohibit any enterprises from holding dominant position in the
market. So, it means that, the dominant position in the market per se is not violative of
any competition law. But if they abuse their dominant position in the market, then only it
is actionable under the competition law of India.
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And predatory pricing is forcing somebody out of the market; because of the market
conditions, because of the lower price imposed by the market major or the one who plays
a dominant position in the market. So, here also we can see that the once the dominant
company has successfully excluded all competitors from the market, then they can
capture the entire market. So, there is a free riding in the market. So, it means that, in the
initial times if the company is not making profits, once you send out all the competitors
from market, the company can impose higher prices and make profits out of the market.
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Loyalty rebates are considered to be another form of abuse of market position or abuse
of dominant position. The loyalty rebates are a refund given to the customers once they
pass certain threshold limit of quantity or threshold limit of the total purchase amount; so
that these customers will be compelled to go to these particular suppliers. So, these
loyalty rebates prevents other companies from entering into the market or prevents the
customers from going to them.
So, it means that this is a kind of incentive given to the customers to go to a particular
supplier, who may be a major or a prominent player, in the market. Such arrangements
are basically very much prevalent in the e-commerce market as cash back. So, cash back
policies are nothing, but loyalty rebates once you avail services or purchase goods.
Then tying and bundling. Tying is nothing but tying of two products, i.e. one you require
and another one you do not require. So, the goods and services tied with each other will
be also considered as abuse of the dominant position. So, here you sell some of the
product as a package which customers may require, or may not require. So, you tie a
wanted product with an unwanted product and that is the tying and bundling which will
be considered as abuse of dominant position.
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Then, refusal to deal, and unreasonable conditions. The dominant firm have the freedom
to choose or conduct the business according to their choice. In the last class we talked
about the horizontal and vertical agreements and what are the type of agreements. And
these vertical and horizontal agreements ultimately eliminate the competitors from the
market; so that the dominant firm can charge whatever they want to charge or exploit the
market beyond the competition process in the market.
In the western countries, the concept of essential facilities doctrine has been evolved in a
period of time, where you are forced to license your technologies to a person for a
limited time, for a royalty which is determined by them and it must be very reasonable
royalty. So, you cannot simply refuse to deal in if you apply the essential facilities
doctrine. And this essential facilities doctrine jurisprudence is evolving not only in the
developed countries; but also in the developing countries like India and was applied in
the Micromax versus Ericsson case. So, you can see that these concepts facilitates the
market conditions.
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And another is a margin squeeze. In vertically integrated undertakings there is an

upstream market, downstream market, distributors and retailers. So, the dominant firm,
will try to control this. The government undertaking squeezes the downstream
competitor margins; that means, the gap between the cost and the price. So the
achievable profit in the downstream market is very less. So, charging a high wholesale
price and a low retail price or a combination of both will be considered as margin
squeeze.
There is no question of competition here because you are forced to purchase this, even
though there is a very limited margin in the particular products.
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Then, exclusive agreements which we talked about in the last class. So, it is prohibiting
one party to enter into a similar contracts with other competitors and third party to allow
dominant company to foreclose competition in the upstream and downstream markets.
So, it prevents others from entering into any kind of contract with the competitors and
will be considered as the abuse of dominant position in the market.
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So, monopolization can happen in many ways. The element of monopolization in the
market is the monopoly power, itself. This power is acquired for a period of time due to
different conditions. One important condition is the allocation of resources. The huge
firms spend a lot of money for acquiring markets. Then wilful acquisition or
maintenance of that particular power using superior product due to business acumen or
maybe just an accident in the market.
You can see the anti-competitive conduct of these bigger firms and the elements of
conspiracy to monopolize, like cartelization. So, there will be a combination of
conspiracy, combination or conspiracy or agreements between different parties. All these
are the symptoms of monopolization in the market.
In the Section 4 there is a connectivity between Section 19(4), which states the factors to
be taken into consideration for considering abuse of a dominant position or abuse of an
enterprise or a group of people. So, it directly imposes unfair or discriminatory
conditions on the purchase of goods or services. Then secondly, the price or purchases or
sale; that means, the price may be predatory price that may be much lower than the cost
of production, in order to acquire a new market or to eliminate a competitor from the
market.
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So, acquisition of dominant position is absolutely legal under the competition law, but its
abuse is actually prohibited.
So, the abuse of this dominant position may be exclusionary or exploitative in nature. So,
exploitative abuses are basically on the consumer, exploitation of the market as such and
the exploitation of the monopoly power gradually leads to monopoly profits, exorbitant
profits which directly affects the consumer welfare. So, these are absolutely prohibited
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under the competition law; and excessive pricing may be one of the main reason of the
abuse of or considered as one of the main category of abuse of dominant position.
It has an effect on the interstate trade as well. So, there must be effect on trade between
member states, implies that impact on cross border economies. And now in a globalized
world this can, not only happen within a single economy or a single market, single
geographical market it can happen in many geographical markets, many parts of the
world, because they are integrated; now the world is integrated with international trade.
So, this relevant geographical market definition is very relevant for considering the
dominant position.
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Section 2(r) defines what is the relevant market? So, the relevant market means the
market which may be determined by the commission with reference to the relevant
product market or to the relevant geographic market. It is not with regard to the whole
market, but where that particular product has a dominant position or whether such a firm
is using its power to have an absolutely dominant position in a particular market.
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So, this relevant market we have already talked about, there can be a product market or
geographical market. So, the product market comprises of the products, services which
are regarded as interchangeable or substitutable in nature. That is the product market.
And the geographical market is the relevant geographical market, the area in which the
concerned undertaking are involved in the supply and demand of the products and
services. So, geographic market is very specific in nature and in cases there is
interchangeable products are available.
It is simply not the physical territory, but the only territory. The conditions of
competition are severely affected by the activities of this dominant firm in this
geographical market. So, the complete India may not be geographical market, but it can
be a group of states or a region can be taken into consideration for this particular relevant
market consideration of relevant market. So, uniformity of composition must be present
in the relevant geographical market for consideration of abuse of dominant position.
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So, the relevant market considerations are mentioned under Section 19(6). These are the
factors which the Competition Commission of India is going to take into consideration:
regulatory barriers, local specification requirements, national procurement policies,
adequate distribution facilities, transport cost, the language, the consumer preferences,
the need for secure regular supplies.
These kind of factors will be taken into consideration for considering whether it is a
relevant market or not. Then the physical characteristics and end use of goods are also
one of the criteria for considering the relevant factor under Section 19(6) and the prices
are definitely one of the important factor.
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And Section 19(7) also enlists some of the factors to be considered for relevant product
market. These are the physical characteristics and end use of products; then prices of
goods or services; then consumer preferences, exclusion of in-house production; then
existence of specialized producers; then classification of industrial product. These are
relevant for consideration of the abuse of dominant position.
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So what do you mean by abuse in the strength? MCX Stock Exchange Limited versus
NSE India Limited In this particular case it was decided very recently that the position of
strength in the market is not some objective attribute that can be measured along with the
prescribed mathematical index or equation. So, it is not a straight jacket formula rather it
has to be a rational consideration of the relevant facts mentioned under Sections 19.
And also a holistic interpretation of statistics, information, application of several aspects

on the Indian economy is to be taken into consideration for the determination of
dominant position and the abuse of dominant position.
If independent competitive forces are prevailing in the market, then you can say that the
competitive forces are available in the market or exist in the market being evidence of
non-abuse of dominant position. If there is no competitive force in the market, it shows
there is a dominance in the market, that means, the competitive process is absolutely
absent from the market. It is an evidence of dominant position by an enterprise in the
market.
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So, how it is going to affect consumers or the markets in favour? So, if the enterprise has
a higher degree of strength and then there will be lot of pressures on the competitors as
well as on the consumers. It is absolutely a loss to the consumers and the competitors
will be eliminated from the market. And it may create an environment, a market situation
or an environment which would severely affect, distort the market conditions and the
competition in the market.
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So, Section 4 of the Indian Competition Act provides certain limitations or restrictions.
And these are the type of abuse of dominance; that means, the production, limiting the
production of goods or services and markets, then preventing technical or scientific
development relating to goods or services.
And you are preventing some kind of benefits to the consumers, then indulging in
practices in the access, denying the market access and then prevent entering into
contracts with the competitors, constraint of trade, restraint of trade and the control of
relevant market and geographical market.
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The group is mentioned in Section 4 of the Competition Act. It is two or more enterprises
directly or indirectly, in a position to exercise 26 percent of the more of voting rights or
able to appoint more than 50 percent of the members on the board of directors of the
other enterprises to control the management in the affairs of the other enterprises.
So, next we will discuss about these combinations. If you summarize the factors to
determine the dominant position, it is definitely the market share, size and resource of
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the enterprises, then economic power of the enterprise, allocation of resources, larger
allocation of resources, dependence of consumers on the enterprise. All these are the
factors should be taken into consideration for the dominant factor.
And some of the other factors are the market structure and size of the market, the source
of dominant position, the social factors, the social cost. There is a social cost attached
with all dominant positions and those who are operating in the market.
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So, as a conclusion we can say that, the dominant position directly or indirectly imposes
unfair or discriminant trading condition, discriminatory conditions on the supply of
goods or services. Then secondly, they impose prices, unfair prices or discriminatory
prices on the supply of goods or services including even predatory prices; that means, the
prices which are lower than the cost of production; then limiting supply supply of goods
and services to the market; and also preventing the technical or scientific development
relating to that particular goods or services.
Then fourthly you can see the denial of market access i.e. a refusal to deal with the other
companies; even though there are prescriptions like the standard essential patents to deal
with this kind of situations. And then making the conclusion of contracts, subject to the
acceptability of the market dominant power is also considered as the abuse of dominant
power; then using the existing dominant position to enter into another market. So, in toto
you can see that all these activities are considered to be prohibitive in nature in a market
and that is why it is known as the abuse of dominant position. And abuse of dominant
position are prohibitive under the competition law.
Thank you.
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Prof. K D Raju
 
Lecture - 14
Regulation of Combinations
Dear students, in the last part of the class we will discuss about the Regulation of
Combinations.
This is the third and last part of the competition law.
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What are the combinations? And combinations are described in the section 5 of the
Indian Competition Act, i.e. with reference to combination of companies. Basically the
combinations of entities happens in order to completely eliminate the competition from
the market. If two enterprises are joining together for eliminating competition from the
market, then it will be considered as violative of the Competition Act and competition
provisions, it is against the competition in the market. The Competition Commission of
India (Procedure in regard to the transaction of business relating to combinations)
regulations was passed in 2011 under the Competition Act of 2002.
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And specifically the business combinations are mentioned under Section 5 of the Indian
Competition Act. Acquisition of one or more enterprises by one or more persons or
merger or amalgamation of enterprises shall be a combination of such enterprises and
persons or enterprises. Amalgamation or merger are per se not illegal under the
Competition Act.
So, the companies can merge for different reasons, their amalgamation also will be there
for business purposes, all these are not violation of the Competition Act, but we have to
look into what kind of business combinations are violating the Competition Act and
competition law.
If you look into merger you can see that two companies merge together to form a new
entity. So, it means that one company completely loses its character, its legal character,
and it merge with another company. So, it means that the competition can be between the
competitors, it can be subsidiaries, it can be with some other business competitors.
Especially if mergers are happening between business competitors, then definitely it has
to be under the scanner of the Competition Commission of India to see what are the
objectives of this particular merger. So once merging companies are merged, their
autonomy is completely lost or ends. And the acquiring company is going to take charge
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of the affairs of that particular company. So, basically if the acquisition is for eliminating
competition from the market, then it is definitely against the provisions of Competition
Act or competitive process in the market.
So, the interest of the society always has to be examined in business combinations. In the
first class I mentioned the objective of the Antitrust Law in the United States which was
mainly to eliminate the trust which has become huge entities. To have a monopoly power
they undergo mergers and acquisitions again and again for making huge business entities
in order to eliminate competition from the market.
We can say that it is basically to acquire control of another company, it can be through
the share purchase, it can be through the voting rights, it can be purchase of assets, it can
be the acquisition, it can be various methods of the acquisitions controlling power of a
particular company elaborately mentioned under the Companies Act. At the same time,
our point of discussion is that whether these mergers or acquisitions or amalgamations
are affecting competitive process, this we have to look very closely.
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And the competition regulations, 2011 regulations put certain threshold limits of mergers
and acquisitions. Beyond those threshold limits if there is a merger or acquisition, one
has to inform the Competition Commission of India and the Competition Commission
will look into the merger and you have to take a prior permission.
So the basic objective of why you should inform Competition Commission to take a
clearance from Competition Commission is that Competition Commission will very
closely look into whether it is going to affect the society at large or whether the
consumers are going to be benefited. And also these threshold limits prescribed by the
2011 regulations will be revised every 2 year by the Competition Commission of India.
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And Section 6(2) of the Act clearly says that acquisition, merger and amalgamations
beyond these threshold limits must get a notified approval from the Competition
Commission of India.
There is a notice period within which you can inform to the Competition Commission.
So, for proposed combination within 30 days of approval by the board the board of
directors have to inform the Competition Commission of India.
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The combination conditions must be for a definite period of time which will benefit
society at large, benefit the consumers at large. That means, the parties of combination
have to report to the Competition Commission of India.
Otherwise the Competition Commission will look into or investigate if the Competition
Commission of India has a prima facie opinion that this combination is likely to cause or
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has caused an appreciable adverse effect on competition of the market. They can start an
investigation into such kind of combinations.
And this inquiry into the combinations involves evaluations of certain factors, these
factors include identification of the relevant market, consisting of the relevant product
market, and relevant geographical market, then whether these combinations have an
appreciable adverse effect on competition in the relevant market i.e. in India. According
to the approval of the Competition Commission of India modifications can be made by
the enterprises for the mergers or acquisitions.
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And how to make these relevant market and product market.
The relevant product market as well as the geographical market and the product market
are very important because the product may not be available in other parts of the
geographical area.
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Section 19(7) of the Competition Act provides an indicative list of factors that has to be
take into consideration by the Competition Commission while determining the definition
of the product market. And these factors are physical characteristics, the end use of the
products, then price of the goods and services, consumer preferences, then exclusion of
in-house production and exclusion of existence of specialized producers, then
classification of industrial products. All these are the factors to be considered by the
Competition Commission of India when considering the combination.
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Also it is the duty of the Competition Commission of India to look into the appreciable
adverse effect on competition. Under Section 6, it is very clearly said that no person or
enterprise shall enter into a combination which causes or is likely to cause an
appreciable adverse effect on competition within the relevant market in India and such a
combination shall be void. So, it is very clear that if there is any appreciable adverse
effect on competition in India, then it is going to be a void combination.
Regulation 9(4) provides that the parties can file a single notice in case of multiple
business transactions which are interdependent or interconnected to each other in the
case of mergers or amalgamations. And definitely we must ask why there should be
combinations or amalgamations.
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So, there will be different reasons for merging. This may be to acquire a new market,
may be to eliminate a competitor in the relevant market. These mergers and acquisitions
may be expanding strategies of the dominant player.
These entities can be considered as a joint organization, the merged one and the merging
one. Takeover of this entity by the other, if it is for elimination of competition from
market, will be considered as affecting the market, violation of the competition
provisions.
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The purpose of the appropriate legal structure essentially is to ensure the combination.
That means, if it is exclusively following all the legal parameters then it cannot be
considered as anti-competitive in nature. But forward looking analysis has to be done by
the Competition Commission of India in every case and look into each and every factor
involving in particular mergers whether these combinations are anti-competitive in
nature or not.
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So, if you look into the combination, it can be horizontal combination, it can be non
horizontal combinations and it can be vertical combination and also it can be
conglomerate combination as well.
So, horizontal combinations is the combination between firms at the same level of
production and will be always at the same level of production or distribution. And the
implication is that one firm, one enterprises will be going out of the market by this
horizontal combination so post merger firm has a larger market, larger size and a larger
influence on the market.
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And the negative effects of the horizontal agreements is a coordinated effect. So, the
coordinated effect increases the probability of less competition in the market. It can raise
the competition between the products of the combining firms and allows the combined
entity to unilaterally exercise the market power, that means, the product choices will be
eliminated from the market.
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And in the case of non-horizontal combination, it does not entail the loss of direct
combination and it is generally not anti-competitive in nature.
The vertical combinations and conglomerate combinations are also important case of
combinations. We saw that the vertical combination will be always operating at different
levels, but complimentary combination can be at complimentary levels in the chain of
production or distribution.
So, vertical combinations maybe at different stages, they may operate at different stages
and generally between parties that do not currently compete in the same relevant market.
They may be in the different market product market or geographical market. Generally in
vertical combinations you do not have any kind of objections.
But if these vertical combinations affect the markets or try to eliminate competition from
the market then this kind of combination may result in the foreclosure of the market or to
eliminate the competitors from the market, then definitely vertical combination also will
come under the purview of the competition law.
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So what are the objections to the vertical combinations? The Raghavan Committee
instrumental in drafting this particular law identified three problems with a vertical
integration that is the fear of foreclosure, entry blocking and price squeezes.
And the fear of foreclosure can create captive distribution channels. This may foreclose
the rival from the market and ultimately they may go out of market. Then entry blocking:
so by entry blocking through vertical integration the firms are able to internalize different
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level of production, and the artificial barriers can be put in the market for the entry of the
new entrant. And price squeezes: the firm always looks into reducing the cost. So, this
will result in the reduction of output prices and will be considered as eliminating the
competitors from the market.
In the case of conglomerate combination, it is a combination between firms that operate

at the different markets without any vertical relationship. And these kind of combinations
or firms produce different, but related products or purely conglomerate combinations.
And we can look into these conglomerate combinations. There are three ways of
classification i.e. the combinations between complimentary products, combination
between neighbouring products and combination between unrelated products. All these
can be different categories of conglomerate combination.
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And what are the objections or the negativity about conglomerate merger. They create
deep pockets which enable the firm to devastate the rivals. They have a deep impact in
the market. Then lower cost, they can push the industry through very marginal cost. They
can make barriers to the entry of new entrants. Then reciprocal dealings to the
disadvantage of the rivals also can eliminate the potential competition. So, the
combination can be merger, acquisition or amalgamations.
But if it is for the purpose of eliminating competition from the market, it is definitely
going to be under the purview of the Competition Commission of India. And the
threshold in India under the Competition Law are mentioned under the 2011 Regulations.
Each and every merger, acquisitions, amalgamations and other form of joining entities
are under the purview of Competition Commission of India, especially if it is for the
purpose of eliminating competition from the market, if the objective is to eliminate the
competition from the market.
So, if you summarise the whole week we were talking about the basics of Competition
Law which we started from the historical perspective especially in India, then how it
started, where it started. And the developments in the post independent India, the
constitutional provisions and various committees appointed by the government leading to
the formation of a bill and then that bill become an Act in 2002 and the enforcement
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from 2007 onwards. And then we looked into the developments of the court, the cardinal
principles of the Competition Law, all the three cardinal principles we covered in this
particular week.
So, in the first week we talked about the introduction to intellectual property law, we
looked into all categories of intellectual property. The second week we looked into the
basics of competition law. And the third week we are going to look into the interface
between competition law and intellectual property law, and then we have to look into the
US jurisdiction as well.
So, in order to understand the interface properly, the students have to complete these two
realms, one is intellectual property and other one is the Competition Law, then it will be
easy for you to understand the interface between these two areas in the coming classes.
So, we will come with the interface area from next week onwards.
Thank you.
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Prof. K D Raju
 
Lecture - 15
Intellectual Property v. Competition Law
Dear students this week we are going to discuss different portions altogether, i.e. first we
may start with economic theories of IP and competition, then the interface between
intellectual property and competition law. Then in the third part, we will discuss the US
law completely. So, as you know that there are various theories on Intellectual Property
protection as well as the Competition Law.
Today specifically we are going to discuss why we should protect intellectual property
and what are the economic theories propounded by various people, then what are the
ownership rights of intellectual property and the difference between the property rights
and intellectual property rights; that means, tangible and intangible property rights.
Then what is the social value of protecting intellectual property, then the incentive theory
of intellectual property, prospect theory and ultimately objective of competition law
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which is consumer welfare and the innovation and competition that are going to
contribute to the consumer welfare in the market.
And you can see that the theoretical arguments of protecting intellectual property and
competition policy are one and the same; that means, it shares the common objective to
protect a competitive market and the economic efficiency in the market.
There are lot of discussions on intellectual property versus competition law, whether
there is any conflict between the two concepts of intellectual property protection and
competition law or whether the competition law prohibits or is a hindrance to innovation
in the market and if it leads to the intellectual property protection, whether these are
contradictory or whether these are complementary in nature.
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First let us come to the property rights. Each and every enterprise earlier owned
properties in terms of tangible property and in the earlier times intangible property was
unknown to enterprises. The property right is always considered as a private right. For
bringing the property right to the intellectual property realm we have to discuss the
probability and possibility of the property right into the intellectual property rights.
The private property rights into intellectual property can be seen from the day one.
Economist like Harold Demsetz was of the view and argued that the property rights
convey the right to benefit or harm oneself or others. So, there is a close relationship
between the property rights and the externalities. That means, there is every probability
or possibility in the property right of excluding others, it is a private right and it is not a
public right at all.
So, the external effects always affect the protection of intellectual property law when
compared with the property rights. So, the comparison between the property rights and
intellectual property laws to some extent is synonymous with the protection of private
property.
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So, here you can see that when it comes to the property rights the ownership is the core
substance in protecting property. According to Demsetz: there are three types of
ownership rights which we can see is the communal rights, private ownership and the
state ownership. There is a lot of difference between the rights in communal ownership,
private ownership and state ownership.
In a communal ownership a society or a group of people own the rights. So, the members
of the society can exercise the rights in communal ownership. When we compare it with
the intellectual property law, one intellectual property right which I can relate communal
ownership is with the protection of geographical indications and geographical indications
are not owned by a single person or a private person, it can only be owned by a group of
people. So, we can relate it with the community rights, the communal ownership.
If you take patent or trademark it is mostly connected with private ownerships. I would
say that all other intellectual property law are connected with private ownerships and
they are not even talking about communal ownership except the protection of
geographical indications. When it comes to private ownership, it implies the whole rights
are with a private person excluding all other people and excluding the whole world. So,
the entire rights are with the private person. So, private ownership is very strong when
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we compare in any of the constitutions. And if you look into the united states the private
ownerships are very much prevalent in property rights.
When it comes to the state ownership, the state may exclude others from exercising the
rights for political reasons or other reasons. So, definitely the private ownership is not
absolute in nature anywhere in the world.
Intellectual property protection also is not an absolute right, the state can always go for
compulsory licensing after paying a reasonable royalty. So, the state exercises ownership
with regard to state properties as well as there is a control of state on intellectual property
rights as well.
So, the property regimes actually are opposed to open access. The two groups of scholars
or two schools of thought think that, one school thinks that the knowledge should be
open and available to everybody and rent seeking must not be permitted. On the other
side, the other school says that if there is no incentive for innovation, no incentive for
invention then nothing is going to be generated because the private people do not have
any incentive to innovate.
So, in the open access you can see that there is no net gain to anybody rather nobody is
interested in conserving and improving on the existing technologies. Open access is
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more open in nature and there is no incentive for innovation at the same time. If you look
into the intellectual property protection nowadays: there are open access softwares and
their further innovation is also available.
Open access softwares are not free softwares, their source code is open that’s all and
anybody can innovate upon it and own that particular property. So, there is a conflict of
interest between open access and the proprietary intellectual property rights. So, open
access intellectual property rights are open to everybody at the same time the closed
doors i.e. the proprietary intellectual property rights are absolutely private rights.
So, when we look into the crucial legal protection, the nature of legal protection on
intellectual property it grants exclusive right to the innovator for a limited period of time.
So, the incentive for the public is that it is published to the public from day one and once
the protection period is over they can further innovate upon the excising invention which
will be beneficial to the society at large.
So, it means that there is no trade-off between tangible property and intangible property.
In the earlier enterprise’s books we could only see value of tangible property, but when it
comes to the present knowledge economy the value of intellectual property rights or the
value of intangible property is much higher than the tangible property.
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So, it is much worthy than the regular property now-a-days. For example, in the case of
the famous brand Coca Cola, the value are to the extent of the brand value, the total
brand value of Coca Cola is valued more than 60 billion US dollars which is nothing, but
the intellectual property valuation. So, the IP rights are now more and more prominent
than the property rights.
And if you look into the market, the economist always say that the market works on
supply and demand theory, if the supply is less then the demand increases. There are lot
of empirical studies to prove this particular theory. So, what actually intellectual property
does? The intellectual property actually limits the supply of particular product or a
particular innovation to the market as a limited release.
The supply is restricted so that the proprietor can reap maximum benefit from his
invention. The market always responds to the demand and the innovator can benefit out
of the demand from the market. When the intellectual property which may be related
with a new invention or a new technology is compared there may be high demand for a
new technology. And with that particular technology and a high demand the intellectual
property owner or the innovator can make benefit out of this particular higher demand
from the market.
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The consumption need not increase, the consumption may be stable or constant, but the
new technologies can make a lot of changes in the market. The establishment of the
property rights we can say is always connected with externalities. These externalities
may be the demand and supply in the market or the more efficient use of the market, the
more efficient use of technologies available.
People say that if there is no social value for intellectual property you need not go for
innovations or that intellectual property must have a social value. What is this
connectivity between the social value and intellectual property? For example, In the
pharmaceutical sector the giant pharmaceutical companies always go for inventions on
new diseases.
So, it is the social value, it increases the social welfare. If the companies do not have an
incentive to invent new drugs then there will be no drugs in the market for diseases
especially pandemics. So, the incentive or the social value of intellectual property has to
be measured.
These property rights are actually nothing but informations, if these informations are
kept secret. For example, one category of intellectual property law is trade secret and
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trade secret is actually about keeping the information secret. The moment it is released to
the people, it released to the market, released to anybody, it is no more a trade secret.
So, actually the intellectual property protection is an information which is given to the
society at large from the day 1 of filing of the patents. So, it there is a difference between
physical property and intellectual property. These information which is connected with
intellectual property can be transferred or further more innovations can be made by the
people once the term of protection is over. So, there are a lot of economic theories which
finds the specific characteristics of property rights and information, and information
connected with tangible property and innovation.
The valuation depends upon circumstances. What circumstances the intellectual property
is used, but the legal concepts of property, of intellectual property are one and the same
to protect innovation, to protect intellectual property, to protect the private rights. So, the
generation of intellectual property gives a return to the inventor in legal protection. So,
we can see the in any commercial valuation of intellectual property, the value is based on
certain theories the valuation is done on certain specific theories one of which is the
social value.
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So, we can say that the social value of intellectual property protection depends upon
circumstances and what kind of invention it is. So, an electronic invention is different
from a pharmaceutical invention, a pharmaceutical invention is different from a
mechanical invention. To what extent it contributes to the social value or social welfare
depends upon the circumstances of the category of intellectual property protection.
So, the intellectual property protection school, intellectual property protection scholars
argue in favour of intellectual property protection and one argument is the free riding
argument. So, this group argues that if there is no protection there will be free riding in
the market and no investment will come for further innovation. The justification is not
actually self-evident and the empirical evidences also do not prove this exclusively.
The idea of overuse or free rider argument usually creates the tragedy of commons
argued by the scholars. So, the free rider argument is theoretically correct sometimes and
sometimes not correct at all.
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Second is the scarcity argument. Economist like Arnold plant says that so, “it is the
peculiarity of property rights in patents or copyrights that they do not arise out of the
scarcity of the objects which become appropriated”. No intellectual property rights is
arising out of a scarcity, rather it is always or mostly arising out of the existing
innovations. So, it is a continuation of the process of innovation.
Protecting the intellectual property creation of a statue is not connected with scarcity.
You can say that this the scarcity argument is only to protect one’s own use; that means,
to protect the intellectual property right owner’s interest.
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The most prevalent theory is the reward theory or the incentive theory. So, the Plant’s
argument is on scarcity argument but the rationale of creation of intellectual property
relating to the scarcity argument is not always true.
So, we can start from the assumption that if there is no future reward nobody is going to
invest in ideas, nobody is going to invest in innovation and nobody is ready to further
renovate and further innovate and further release the information to the public. They are
going to keep their innovations with them if there is no prospect of future reward.
So we can see that it is a conscious decision of the public authority to create an artificial
scarcity in the market through the protection of intellectual property rights or partly
releasing the information to the market by protecting intellectual property law.
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This artificial scarcity created by the public authority is adding an additional value to the
market or additional value to the intellectual property protection. Because every
intellectual property protection is a controlled release of the technologies or the products
to the market or if the intellectual property owner does not have the resources to
manufacture that particular product he can license it to somebody who can invest in that
particular product.
We can see that there is a price mechanism working along with the production of any
goods or the consumption of information. So, if there is a controlled release of this
information to the market this free rider problem can be solved and that is the
prescription of the authority to protect innovation through intellectual property rights
protection.
The intellectual property creator or the innovator can always appropriate the property by
licensing or through other means of assignment etcetera He can always reap benefits,
economic benefits through the protection of intellectual property.
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The incentive theory focuses on consideration of the standalone invent innovation, so;
that means, the incentive theory is an incentive to the innovator for a limited period of
time. In the absence of efficiency created through particular intellectual property law the
inventors effort would not have been made in first place. So, actually this incentive is a
recognition of the efforts or the intellectual effort of any individual who creates
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This incentive is not given to everybody, but only to the first inventor. Now in most of
the world the first filing theory is applicable in case of patents or all intellectual property
rights. So, it is first come first serve. There may be thousands or lakhs of people
innovating on the same product or on the same concept, but the first person who comes
to the intellectual property office with his innovation is rewarded.
Why everybody doing innovation do a search of the existing innovations? For further
innovation. This will help because incentive given by the authorities, by the governments
is only to the first inventor.
Getting property rights on information requires a tradeoff between the need to encourage
innovation and the protection of interest of the consumers. So, there is a fundamental
difference between these the physical property rights and the instrumentalism of
Because the incentive is given to only the first inventor which invents a new invention. A
new inventor or new innovator is only rewarded. So, there is a cost of information, the
cost of information which is related to any intellectual property protection.
So, these information can be commercialised. I would say that every invention is
information. These transactions can ultimately lead to economic benefit, not only the
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economic benefit to the inventor, but to the society as well and it creates larger markets;
with commercially viable products, innovative products where the consumers are going
to be benefitted.
A high transaction cost is related to the intellectual property protection. The creation of
intellectual property requires investment, it requires a lot of allocation of resources. At
the same time once the intellectual property is produced the transaction cost is added to
the consumer. All intellectual properties are not going to create wealth. There is a cost
allocation and the transaction cost must be adjustable and ultimately should benefit the
consumer.
So, there is an asymmetry in the information as well as the cost analysis in the
intellectual property assessment of intellectual property rights or valuation of intellectual
property rights. So, if you look into the prospect of the incentive theory it says that it is
not only an incentive to the inventor but it is an economic stimulus to the innovation
which ultimately contributes to the economy, which increases the social welfare, which
increases the social value of intellectual property rights. But the risk of rent seeking
behaviour is more pronounced in the case of intellectual property rights than the physical
property rights. This is because intellectual property creation and protection requires
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more cost allocation. So, definitely there will be rent seeking behaviour more prevalent
in the protection of intellectual property rights.
And somehow they argue that the risk of rent seeking behaviour does not question the
existence of intellectual property rights, but we can see the argument for granting
property rights or information at an earlier stage of the incentive process. Definitely the
objective is to allow patent holders to coordinate innovative efforts as well as the
prospect of future research that means they have to further develop and innovate.
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This is for avoiding inefficiencies as well because if a new innovator comes out with a
solution to the existing problem it can be considered as a further innovation.
The prospective patent owner is always under the threat of duplication; duplication of his
goods and duplication of his investments. So, the information exchange to the society
must be restricted through the protection of intellectual property rights. The initial
inventor makes the necessary investment for incurring the risk for getting the fruits of his
investment as well as the fruits of his innovation. It should not be appropriated by the
competitors that is why the intellectual property protection is there.
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The prospect theory of patents assumes that the initial inventor is best suited for
accelerating the second generation invention as well because he has the full information
on the existing innovation. So, he can go for further innovation or a second generation
innovation. So, an innovator is considered to be always an innovator if he innovates
further or come outs with second generation of innovations.
This hypothesis is very difficult to prove empirically unless the studies insist the
independence of competition and innovation. So, innovation in the same sector or
innovation in the same technology have to do proper empirical research then only we can
see whether the prospect theory is empirically proved.
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The exclusive right justification is nothing but an extra profit to the innovator. The
consumers always bear the cost, but the consumers are always looking into the
innovation, the consumer always look into the benefit of the new product. And is ready
to pay an additional cost for that particular innovation, but the consumer should not be
exploited, if he is the role of competition law comes into picture.
That means, for any kind of intellectual property protection which is exploiting the
market, the competition law is going to step in for the consumer welfare, for example
overpricing.
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An innovator cannot put his price on a very higher footing and exploit the market and
exploit the consumer which is not in accordance with the intellectual property protection.
The philosophy of intellectual property protection does not allow over-exploitation of the
market. And then comes the role of the competition law.
So, the assumption of intellectual property rights is that the consumers would be
benefitted from innovation. And if the innovator is going to over-exploit the market, then
the competition law is going to step in and act against the intellectual property
protection. Here comes the interface between intellectual property law and competition
law.
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So, the theory of intellectual property focuses more on long term effects and the
competition law is looking into the short term effects of business practices or consumer
welfare. So, there must be a parallelism or there must be a balance between the long term
effects of intellectual property protection and the short term effect of this competition
law.
As I told you most of the competition law in the world whether US competition law,
which we are going to see in the next classes or the European competition law examines
specifically the effects of these intellectual property law protection on innovation as well
as the interface with the competition law.
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This is inevitable because there must be a balancing act between intellectual property
protection and the competition, the process of competition in the market. Then only the
consumers are going to be benefited or the consumers are going to be compensated. If
there is no competition law, consumers are not going to be paid because of the anti-
competitive practices of technology owners. So, it is necessary to look into the interface
between intellectual property law and competition law.
So, the anti-competitive effects are not good for the market. It is going to affect the
dynamic efficiencies of the market or the cost benefit is going to be severely affected by
the anti-competitive practices of the intellectual property owners.
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The competition law always takes into account these commercial practices of innovation
markets. One may say that the ultimate goal of intellectual property protection and
competition law is one and the same i.e. consumer welfare. For these concept the
understandings may be different. For example, the competition law economists
distinguish between the total welfare and the consumer welfare with the welfare of the
society. But at the same time the alternative standard evaluating these business practices
is the competition law.
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So, the competition law always has an eye on the business practices of monopolies. Even
though the intellectual property rights grants monopoly rights, the competition law has
an eye on the activities, whether it is competitive practice or anti-competitive practice of
these monopoly rights enterprises. So, the total welfare measure aggregates the welfare
or surplus of different groups in the economy.
So the welfare of consumers increases the welfare of producers and the welfare of
economy in total. So, the intellectual property adds value to the society, adds value to the
economy and most importantly adds value to the society at large.
The economic efficiency theory very well works under intellectual property law. For
example, we can see that Kaldor and Hicks talks about efficiency: as the situation is
economically efficient it thus increases total welfare after the situation has occurred.
Either both producer and consumer surplus increases or one of them increase in such a
way that it could potentially compensate the loss suffered by the other.
The efficiency theory may not always work well with the intellectual property protection
but if the practice is economically efficient, if the technology is a superior technology
than the existing one then the consumers may like the product and ultimately this
innovation would help the society to increase the efficiency of the market.
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The welfare theories always hang around the intellectual property protection as well as
the competition law. So, the effect of consumer welfare depends upon the question of
how monopolist is going to behave in a market. If he behaves in accordance with the
competition law there is no interference of competition law, but if the IP owner or the
intellectual property holder is going to behave monopolistically and exploit the market
then the competition law is going to step in.
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So, here you can see that if an innovation is going to reduce the prices, lower the prices
or better the quality, then the product and services are going to enhance the choices of
consumers.
So, the cumulative effect of innovation in an economy as well as on economic welfare

and the relation of innovation in the market structure is correlated. There is a direct
connection between innovation and the market structure. And this monopolistic
interference in the market structure is also one of the criteria.
So, we can find two types of innovation; one is standalone innovation and the other one
is a cumulative innovation. In the first one IP rights will not be used as an input to
another invention. Mostly standalone innovations are very much prevalent in the market.
Second is the cumulative innovation which refers to the situation where successive
innovations build up on earlier innovations and most of the innovations are on this
cumulative innovations theory.
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So, the cumulative innovation is widely accepted as substantially increasing the social
value and we can find three different varieties: either the second innovation could not be
invented without the first one or either the first innovation reduces the cost of achieving
the second one or the innovation accelerates the development of the second by providing
new research tools.
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So, existing innovations always contribute to the society and reduce the cost. So, again
the question of social value comes: whether really the innovation is contributing to the
society at large, whether it is increasing the social value. So, it is important to find out by
this incentive mechanism and also look into the interface between intellectual property
and competition law.
So, we can very well say that the original design or the objective of intellectual property
is to enhance the social welfare and incentivise the innovator. So, in the next class we are
going to see very specifically the tussle between the intellectual property protection and
competition law.
What is the level of interface, whether this level of interface is good to the society or it is
going to increase the economic welfare to increase the potential of the market or whether
the monopolist should be controlled with intellectual property rights. These are the issues
which we are going to discuss in the next class.
Thank you.
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Prof. K D Raju
 
Lecture - 16
Intellectual Property v. Competition Law (Contd.)
Dear students, in this class we are going to look into the interface between intellectual
property law as well as the competition law and what is this interface and whether there
is really a conflict or whether it is supplementary or whether it is complementary and
what is the relations between these two branches of law i.e. the intellectual property and
competition law.
WIPO says that, intellectual property allows consumers to make choices between
competing entrepreneurs and goods and services they sell. Does intellectual property
really allow or whether the innovative products gives a choice between the products in
the market or services between the market? Whether there is an inherent pro-competitive
effect of intellectual property in the market on intellectual property or intangible business
assets or whether intangible business assets have a direct correlation or connectivity with
pro-competitive effects in the market?
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It is said that, without IP the market is going to be highly non-efficient. The efficient
manufacturers and service providers are not going to innovate, they are not going to give
very good services, they are not going to be very good competitors unless intellectual
property is provided. To what extent this argument is correct?
So, if there is an incentive to improve, there will be more number of products and more
number of services available. So, if nobody is going to innovate in the market, the
society is going to lose. But whether IP has a role of ensuring competition in the market.
Whether the intellectual property protection really differentiates between products or
whether the intellectual property protection really stops duplication or a free rider in the
market?
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WIPO says that, IP is unduly extended when it is granted exclusivity over non-
differentiating features and beyond certain limits, it become anti-competitive. And when
efficient enforcement means are not available, when genuinely differentiating features
cannot be protected then imitation or duplication follows. There is too little IP. So, too
much IP is also harmful to the market, too little IP is also harmful to the market. So, the
WIPO studies say that, there must be a balance between these two.
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So, there must be a balance between the intellectual property protection and the
competition law restrictions put on intellectual property protection. So, the objective of
intellectual property protection is to induce the innovators so that they provide better
products for a better price, better quality and diversity of product and availability to the
consumers.
What the competition law actually does? The competition law actually looks into the
market and promotes competition not the competitors. So, the competition law basically
promotes the process of competition, and ultimately promotes the welfare.
And competition policy sets out tools used by the state for increasing or achieving
allocative efficiency. The efficiency of the market decides the choice of products and
also the availability of products and prices. When competition is absent there is no
equilibrium in the market. If there is no equilibrium in the market for prices there is no
equilibrium of the marginal cost as well. It ultimately leads to allocative inefficiency in
the market which is not good for the market, which is ultimately not good for the welfare
of consumers.
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So, competition is always considered as an important source of productive efficiency.

When the firms produce the maximum output for a minimum input, that shows the
productive efficiency. At the same time the dynamic efficiency occurs when the society
takes full benefit out of the innovations that are economically viable.
So, there is a connectivity between productive efficiency and dynamic efficiency. Are
these two concepts: intellectual property and competition contradictory or whether these
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are complementary goals? Whether these have supplementary goals? Whether these have
one and the same goal? We are going to look into this.
Some argue that there is an inherent conflict between intellectual property protection and
competition law. There must exist a tradeoff between competition for a short run
allocative efficiency and innovation; considered to be long run dynamic efficiency. And
the IP, intellectual property always induces innovation by granting market power to the
innovator for a limited period of time. At the same time the competition policies aim to
restrict the use of the market power, it restricts it. In the earlier classes I said that
dominance of a firm is not per se anti-competitive, dominance is allowed.
But when they start abusing the market power or abuse the dominant market power, then
it is anti-competitive in nature and the competition law has to step in. So, in some cases
when the intellectual property is started using its monopoly power to an oligopoly power,
transition from monopoly to oligopoly is definitely going to be per se anti-competitive in
nature. And is going to be contradictory in nature. So, in some places we can find a
conflicting interest between these two concepts.
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But these two concepts always supplants or are supplementary to each other or
complementary to each other. So, if the firms or enterprises are under stronger
competitive pressure they innovate rapidly and come out with a product to the market
first because they have the pressure from their competitors to innovate.
So, if there is a competitive pressure in the market it is definitely going to be beneficial;

the market is going to benefit from the competitive pressure and come out with new
innovations. So, the existence of more competitive rivals leads to more benefits, to more
intellectual property protection and ultimately benefits the market at large.
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Scherer and Ross in the 1990 study say that “Schumpeter was right in asserting that
perfect competition has no title to being established as a model of dynamic efficiency”.
The economists have different definitions of economic efficiency, but they said “less
cautious followers were wrong when they implied that powerful monopolies and tightly
knit cartels had any stronger claim to the title”.
“What is needed for technical progress is a subtle blend of competition and monopoly
with more emphasis in general on the former than the later”. They want to establish that
when there is more technical progress the monopoly is curtailed with competition or the
monopoly is regulated by competition, thus there will be more innovation in the market
at the same time there is more competition in the market that is the ideal solution which
leads to the dynamic efficiency.
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So, we can see that the interface sometimes leads to two distinct results. The competition
authorities should always look into these two branches and the intellectual property.
Every country under the WTO agreement (164 countries) has to protect intellectual
property under the TRIPS agreement.
So, there is an obligation on each and every member to protect intellectual property.
Remember the importance of intellectual property, the WTO agreement, the TRIPS
agreement is that, these 164 countries controls around 99 percent of the world trade
which includes all these so-called innovative countries as well those who export the
products.
So, everybody should get intellectual property protection under every jurisdiction. So, if
there is a tradeoff between intellectual property protection, if the standard of intellectual
property protection is lower in some countries, it is directly going to affect the TRIPS
agreement. Violation of the TRIPS agreement under the WTO agreements is a problem
and the other countries will take those countries providing less standard of intellectual
property protection to the WTO dispute settlement system. And they have to pay for their
violation of their commitments in WTO.
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So, we can say that in most of the countries the standard of protection of intellectual
property is according to the TRIPS agreement which provides only minimum standards
not the maximum standards. It provides minimum standards. So, these minimum
standards have to be provided by each and every country at the domestic level. At the
same time if you look into the competition law, there is no common standard other than
the popular OACD standards or OACD guidelines which are made by group of some of
the countries. So, there must be a balance of outcome between the intellectual property
protection and the competition law.
Immense jurisprudence has come out from the United States and from the European
Union rather than from the developing countries. So, developing countries are very new
to the interface between the intellectual property and the competition law.
They are very new in the sense that it is mandatory to implement the minimum standard
of protection of intellectual property from 1995 onwards and the developing countries
got a 10 years of transition period to implement the WTO obligations. So, by 2005 that
particular period was over. Only the exemption is given to the least developed countries.
Now all developing countries like India or Brazil have to fully comply with the TRIPS
agreement which they say they have complied with.
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So, there is a standard of intellectual property protection and we have to look into to
what extent the multinational companies or the patent holders or the holders of
technology exploiting the market especially in developing countries. So, these conflict
not only comes in developing countries, but also in developed countries. Because in a
perfect competitive market for example, like United States most of the intellectual
property cases and competition law cases are between technology giants. The technology
giants are fighting each other to put their claim or one company claims that the other
company is exceeding the limits of the Sharman Act, exceeding the limits of competition
provisions.
And the authorities have to decide. There must be certain standard of deciding these
particular cases. Here we can see that the interface of intellectual property gives certain
kind of exclusivity to the owner of the intellectual property. At the same time the owner
can decide to produce them himself or he can license that particular right to somebody
for excluding all others leading to a monopoly even for a limited period of time.
And on the same scenario we can see that due to the lack of resources to produce these
may be granted to another business or to another trader, he may license his technology to
somebody else to produce in terms and conditions fixed by the patent owner that may be
restrictive in nature. If these are restrictive in nature the authorities have to look into to
what extent these are restrictive in nature? Whether it is violating any competition law
provisions?
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So, there is definitely a link between the intellectual property protection and the
competition regulations in the market. So, this close link is characterised by two factors.
On the one hand the patent aims to prevent. The intellectual property does prevent
copying or limits the patented goods to complement their competition policies or
contribute to the fair market behaviour. So, the objective is very clear that the intellectual
property protection is supposed to contribute to the fair market. At the same time if the
monopolist is going to exploit the market then the scenario is absolutely different. Then
the competition law steps in and tries to limit the patent rights or the patent holder and
bars him from abusing his rights, abusing or exceeding his rights.
So, in short we can see that too much protection, too high protection or too low
protection leads to trade distortions in the market. So, this is to be avoided. There cannot
be trade distortions in a perfect market. The market works when there is a harmonious
relationship between intellectual property protection and competition law.
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So, this interface in the sense that the protection of intellectual property or the monopoly
granted by the intellectual property is harming consumer welfare. Whether there is any
kind of chilling effect on the innovation, which discourages further competition in the
market or which is harmful to the consumer policies, then there is a role of the
competition regulations.
These concerns practices anti-competitive in nature or blocking patents or patent ambush

cases, standardisation process, violation of standard essential patents. New concepts are
coming up. What are the rules and regulations for the standard essential patents. We have
enough jurisprudence from different jurisdictions which we’ll see later. There are anti-
competitive practices or restrictive practices in licensing agreements, which we have to
very closely look into.
And we can always see that the effective competition leads to an effective market
performance and to a welfare market or a welfare society. We can say there is a
harmonious coexistence between the two branches of law i.e. the intellectual property
protection and competition law.
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So, if you look into the objectives of these two laws it is the societal welfare and the
interest of the society prevails. To maintain that particular interest there must be
competition and competition must prevail or the competitive process must prevail in the
market. So, it is said that competition puts a lot of pressure on the innovators, on the
product manufactures. And the consumers also respond to these innovations.
These innovations may reduce prices which will be ultimately benefitting for the
consumers. And most importantly the efficient allocation of resources is an important
economic factor for economic welfare in any perfect market. So, in that case it is
possible to be better off than anyone being worse off; that is what the economists say. So,
if the society is better off then the market is going to be perfectly alright.
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So, the competition policy and competition laws have primary aim to bring a perfect
competition in the market and efficient functioning of the market and the market
mechanism working perfectly. And the market mechanism includes the price mechanism,
the price systems, the pricing systems distribution systems. The competition is always
going to be a driving force of efficiency, the efficiency in the market and the market
structure. So IPR is supposed to control or regulate free riding in the market.
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And the right balance between these two is needed. So, the protection as well as
regulation leads to greater innovative products in the market and consumer welfare. So,
there is more relevance of the theory of complementarity. The theory of complementarity
has more relevance when it comes to the interface between intellectual property rights
protection and competition law.
So, In the last class we talked about private property owner. The private property owner
has every right to sell or license or whatever he wants to do. When it comes to intangible
property, he has similar rights, but the similar rights are always restricted or regulated by
the competition law. So, certain regulations are put on his rights mainly for the consumer
welfare.
The famous Adam Smith’s Wealth of Nations. His argument is very pertinent every time
we discuss this particular topic of intellectual property and competition. He talked about
the perfect market, he talked about the economics of competition law, Adam Smith very
clearly says “the people of the same trade can meet each other, seldom meet even for
merriment or diversion. But the conversation ends in a conspiracy against the public or
in some contrivance to raise prices”.
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So you have to control such conspiracies against the regulations, you must have
provisions against any kind of activities against public welfare, you must have provisions
to control the enormous price rising. There the question of competition law comes. The
idea was very clear. The output of the firm should be able to take advantage, to add
productivity from specialised labor in the form of innovation.
The sweat of the brow-labor theory is also very much prevalent for the justification of
intellectual property along with the famous incentive theory. This is a specialised labor.
Presently the firms allocate the market and some firms go for monopolization.
Monopolization is not against any law, but it is necessary to put control or regulate the
misuse of such monopolization for the welfare of the society and welfare of the
consumers. So, you require the tools of competition law in order to control the
intellectual property protection.
If you look into the whole history of competition law, we can see some of the countries
have competition law from the very beginning. So, the United States came out with the
antitrust law in 1890. Canada came out with similar provisions in 1889 itself and some of
the countries even before. But the present evidences show that more than 120 countries
have competition law presently in the world. It shows that the countries require the help
of competition law in order to curb over-exploitation of intellectual property rights.
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As I earlier mentioned that more than 164 member countries have intellectual property
rights but at least 120 countries have come out with competition provisions in order to
curb these monopoly rights.
We already saw the objectives of intellectual property law. The objective is very clear: to
protect the competitive process in the market not the competitors and the second
objective is the economic efficiency and thirdly it is the objective of the competition law
to prevent harmful effects of monopoly in the market and to ultimately secure consumer
benefits.
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The competition law wants to control the market power derived from the application of
intellectual property rights and abuse of intellectual property rights and also tries to put
curb on unreasonable conditions in licensing of intellectual property agreements. These
are also the application of competition law to intellectual property rights.
So, I can always say that there is no clash between competition law and intellectual
property rights rather both are converging to the same objective. So, these are the two
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law tools to promote competition in the market and competition law always fight against
the monopolies or exploitative practices of monopolies.
And also you can see that these are two separate systems of rules applied to market. For
example, the competition and Intellectual law are two branches with specific objectives
and work hand in hand to discipline the market and the objective is primarily consumer
welfare. There is no question of clash between the two branches of law in the case of
consumer welfare.
The ultimate objective is the convergence between these two branches of law.
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IP licensing is always considered as one of the way of producing new products. The
owner has every right to license, but the question is whether he have the right to put
unreasonable conditions.The answer is no. These conditions are subject to the market
regulations. Market regulations are nothing but the competition law regulations. So,
these conditions should not be unreasonable and these conditions should not be unfair,
these conditions cannot be against the consumer welfare, these conditions should not be
against the market conditions, the market welfare.
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So, the competition law has an upper role to play in regulating intellectual property
rights. The technology holders can put lot of restrictions on technology, which may have
ultimate effect of distorting the market. There is a requirement of long term contract with
the technology licenses or the rival technology licenses is market feasibility.
So; that means, you cannot put conditions in a licensing agreement, which are financially
unfeasible. Then non-compete clauses for an unreasonable period of time is also against
the existing laws. Then geographical or territorial restrictions, then banning and
preventing licensees from selling their products into certain geographical markets which
we discussed in the classes the preliminary introductory classes on competition law.
Confining to specific geographical areas are against the competition provisions; then
unreasonable royalties are also considered to be anti-competitive in nature or against the
market.
The royalty payments are also under the purview of competition law and other limitation
is the use clauses. Limiting the use of patents or limiting the use of the technology to
specific scientific field, license allowed only in certain areas for example, in the case of
pharmaceutical medicinal or confined to specific industrial areas or industrial products
are unreasonable in nature.
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Then imposition of minimum retail price, minimum resale prices, retail prices, wholesale
prices and veto powers in case of future licenses; these also have to be regulated with
competition law. Then imposition of penalty clauses where the patentee or patent has to
pay cost if it does business with the another firm. All these provisions, which we will
deal with examples in the US jurisdiction in the coming classes, are considered to be
restrictive provisions for which the competition law has to find solutions.
Then grant back clauses; grant any kind of developments to the existing technology. The
grant back clauses are sometimes anti-competitive in nature. Then exclusive grant back
clauses. So, exclusive grant back clauses, non-exclusive grant back clauses and the right
to use the patented improvements and exclusive time and buying clauses, tying
arrangements and arrangements or mandatory package licensing are considered to be
anti-competitive in nature.
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We can see that the compulsory IP licensing provisions are antidote; antidote to the
excessive use of monopoly rights. For oligopoly rights the governments can always
invoke the compulsory licensing provision which are an antidote for the exploitative use
or the abuse of the dominant positions.
So, here we can see some of the examples where compulsory licensing happened. So, the
compulsory licensing is, as I already told, an antidote to the intellectual property
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protection. Once the compulsory licensing is issued by the government against any one
of the technologies then the market is going to respond to that. The prices are going to be
down because the monopoly right is no more a monopoly right, the monopoly right has
gone.
The compulsory licensing to any other people is possible. The perfect competition in the
market is going to be balanced by the government through the compulsory IP licensing
provisions. So, the government can always play a very crucial role in controlling or
regulating the intellectual property rights.
We you look into some of the cases like the Microsoft case and discuss in detail in the
coming classes. These are very famous cases. We can see that when some of these
technology giants try to exploit the market, the competition authorities step in. So, the
federal authorities step in. The response of these authorities in markets is absolutely
different. So, if you look into the Microsoft case in the US or in EU, in both the
jurisdictions the authorities imposed heavy fines on this technology giant.
But when it comes to India the situation is different. So, one of the example is the recent
case of Micromax, Ericsson versus Micromax. The courts are very slow in India and the
authorities in India are very slow to respond to these kind of cases. Even though similar
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situations in US and India took place, but the Indian courts are very reluctant to grant
injunctions or very fast in granting injunctions and very slow in taking remedies. So, the
remedies are not correlated with the developed countries.
So, that is why I said in accordance to the jurisdictional circumstances, the responses
may be different. So, we already said that there is a common objective of these two
branches of law, but there are different perspectives. So, these perspectives are to
enhance the welfare, the societal welfare. And IP may be used as a weapon to restrict
competition between licensees which it should not. The competition law should play a
very crucial role in anti-competitive behaviour or the appropriation of intellectual
property.
So, the IP law and competition law share the same economic objectives i.e. the welfare
of society, welfare of the market. I would say that these are complementary, both are
aiming at encouraging innovation, industry and competition and innovation in the sense
that the intellectual property protection complements the research and development of
every company, which ultimately leads to innovation and product verification, product
specification and product choice.
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Antitrust or the competition law always recognises the critical role of IPR. It tries to
regulate anti-competitive practices of innovators or the monopolist. So, in both these
areas there are common objectives, but they act differently.
So, there is a freedom of every country to plan their competition acts based on their
economic policies, but it should be in accordance with the modern practices. So, it must
be for increasing the process of competition in the market. It must be for the efficient
market performance and it must be for the interest of consumers and economy in general.
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So, incentive theory of intellectual property works very well for diversity of products and
which ultimately helps the market to find out more and more innovative products.
So, we require intellectual property protection, at the same time we require the
competition law in order to curb the activities of the monopolist. And the competition
commissions all over the world usually always have a watch upon these oligopolistic
activities or the monopolistic activities of the technology giants.
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So, usually everybody knows that IP creates monopoly even for a small period of time
and the competition battles monopolies to the extent of a framework. That framework
every country can make for the enhancement of the economy or for the welfare of the
consumers.
So, I would say that there is no conflict of intellectual property protection and
competition law rather they are very complementary in nature, they are supplementary in
nature, they serve the same purpose of the society, enhancing innovation, enhancing the
welfare of the market, enhancing competition process in the market so, there is no
conflict rather they are supplementary and complementary in nature.
In the next classes we are specifically going to look into the US jurisdiction, the US
antitrust law and the practices especially the immense jurisprudence which has emerged
for a more than century in the US jurisdiction.
Thank you.
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Prof. K D Raju
 
Lecture - 17
The United States Anti - Trust Law
Dear students, in the coming class we are going to discuss the Anti-Trust Law in the
United States. So, why we should look into the United States? Because, United States is
the one country where the Competition law or the Antitrust law are synonymously used.
In the United States Antitrust law is known because there is a history to it. Because the
law was originally enacted to curb or control the trust, the huge enterprises having
massive assets in the nature of trust.
They enacted this particular law to control these trusts that is why it is known as
Antitrust Law in the United States; in the modern era it is called Competition Law. So,
we have to look into this particular law and mostly the jurisprudence emerged in the
United States to look into various aspects of the competition law as well as the interface
with IPR. Specifically we are going to look into, in the beginning classes, in the initial
classes, into the law, the Antitrust law.
And today we are going to look into the antitrust law, from next class onwards we are
going to look into the specific interface between this antitrust law and intellectual
property. And we are elaborately going to discuss the jurisprudence emerged in the US
jurisdiction; so that we can identify and we can understand the veracity of the interface
between Intellectual Property Law and Competition Law.
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So, as I said the Antitrust law was passed in the name of Sherman Act.
Because it was propounded by one of the senator at that particular point of time. The US
Congress passed this particular act in response to the growing fear of accumulation of
capital by the trusts. The trusts were business enterprises at that point of time in the
industrial age controlling the market, monopolising the market and exploiting the
market. So, the US Congress was forced to pass this particular act, because mostly these
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trusts formed cartels and were trying to control the steel sector, the rail sector, the
petroleum industries and other industries.
So, the Sherman Act, 1890 was actually passed because of the compulsions, compulsions
on the US Congress.
Because of the exploitative nature, in order to curb the exploitative practices of these
particular trust. The Senator John Sherman of Ohio at that point of time was the
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propounder of this particular act. That is why you can see the name of the Act is
Sherman Act. I would say that he was a good economist who could envision the bad
effects of monopolisation and he advocated and argued that there must be competition in
the economy.
So that the small enterprises, small business firms should grow and compete with the
large enterprises like trust. And Senator John says, “if we will not endure a king as a
political power we should not endure a king over the production, transportation and sale
of any of the necessaries of life”. The king can do no wrong, but business firms, business
enterprises can do wrong. They can monopolize the market, they can exploit the market
against the consumer welfare, against the necessary day to day life of people. This is
exactly the feeling which was expressed by Senator John Sherman at that point of time
and the end result is the Sherman Act of 1890.
The Antitrust law, the law is not against trust, but the practices of the trust at that point of
time. This law is still considered to be very important component of economic
enterprises or free enterprises in America. This Antitrust law of 1890 is considered as the
Magna Carta of free enterprises because the Competition law, the competition
provisions in order to curb the monopolies is starting from this particular Act. The roots
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of this particular law can be traced back to the common law principles of tort law of
unfair competition.
Any common man can understand unfair competition is harmful to the market, unfair
competition is harmful to the life of people, unfair competition is harmful to the society
at large, unfair competition is harmful to economy. So, there must be certain principles to
regulate the monopolisation.
You can see that the objective of the Act is primarily to attack the trust, the huge
oligopolistic or monopolistic cartels, those who act collusively to form huge cartels and
run it parallel to completely control the market. So, over the years the United States
Government created a comprehensive series of statutes which are supplementing the
Sherman Act to control and regulate the marketplace.
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So, if you look into the Sherman Act, it is very important to look into the provisions.
Hardly there are few provisions, few sections in the Antitrust Act, in the Sherman Act
which controls the entire jurisprudence, which control the entire competition, which
promotes competition in the entire US market.
So, Section 1 says that trust etc. in restraint of trade illegal, this is the heading which is
given to Section 1. Section 1 of the Sherman Act says that every contract, combination in
the form of trust or otherwise or conspiracy in restraint of trade or commerce among the
several States or with foreign nations is declared to be illegal.
Every person who shall make any contract or engage in any combination, conspiracy
hereby declared to be illegal shall be deemed guilty of a felony, and on conviction
thereof, shall be punished by a fine not exceeding. You can see that there is a huge
amount in the penalty, there is a lesser amount in case of persons and huge penalty in
case of corporation.
Not only the damages, there is imprisonment not exceeding 3 years or by both. The said
punishments are in the discretion of the court. This Section 1 of the Sherman Act says
many things; Section 1 gives the complete plethora of activities or antitrust activities so
it talks about contracts, it talks about combinations, it talks about restraint of trade and
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commerce, the restraint of trade between states, the restraint of trade between nations. It
talks about the kind of the restrictions, it talks about the conspiracies, the conspiracy to
do these above activities and also it talks about penalties, huge penalties, damages and
even imprisonment for and punishment for violation of this particular provision.
If you look into Section 2, again it says that monopolising trade a felony and penalty.
What do you mean by monopolising? Section 2 of the Sherman Act says every person
who shall monopolise or attempt to monopolise or combine or conspire with any other
person or persons, to monopolise any part of the trade or commerce among the several
States or with foreign nations shall be deemed guilty of a felony, and on conviction
thereof, shall be punished by fine not exceeding, the fines are same in both the
provisions.
There is a huge fine for corporation and lesser fine for the individuals and imprisonment
of 3 years, the same punishment which is given in the Section 1. So, if you look into
Section 1, restraint of trade is illegal and Section 2 talks about monopolising trade and
both are considered to be a felony. You can see a huge amount, 10 million US dollars is
not a small amount, so the damages are very huge, its consequences are very huge.
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Specifically Section 3 for Districts of Columbia; this portion was added to include the
state activities. It says that its the combination of Section 1 and 2, every contract
combination in the form of trust or otherwise or conspiracy in restraint of trade or
commerce in any Territory of the United States of the District of Columbia or in restraint
of trade or commerce between any such Territory and another between any such territory
or territories. It is the combination of Section 1 and 2, specifically applicable to the
District of Columbia.
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The Sherman Act outlaws every contract, combination, or conspiracy in restraint of
trade. In section 2 monopolisation or attempt to monopolisation or conspiracy or
combination to monopolise is illegal. And it prohibits not every restraint of trade, it only
prohibits the one which are unreasonable. Every activity which are unreasonable are
considered to be in restraint of trade and violative of the provisions of the Sherman Act.
So, it can include plain arrangements, competing individuals, business to fix prices,
divide markets or bid rigging. All of these will come under the purview of these
particular provisions. And these activities are considered as per se illegal by the Sherman
Act, so you can say that no justification, no defence is allowed. So, these activities are
considered to be per se violation of the Sherman Act.
The penalties are actually severe, very severe and considered as felony, and there are
civil damages as well as there are punishments, prescribed jail term. The competition law
is in the realm of civil law, but you can find it in criminal law as well. It rarely happens,
but there is a provision to send somebody to jail for a term of 3 years.
Typically the criminal prosecutions are limited to intentional violations. If competitors

fix prices or bid rigs or intentional activity is there, then only they are prosecuted
otherwise the civil law will take care of it by huge damages.
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100 million US dollar for the corporation and 1 million for individuals. You can see that
there is a huge difference. 100 million amount is a huge amount as far as the business
enterprises are considered. It means that the US Congress intend to curb these practices
very severely and to thrash these kind of activities with their hammer. And so, there are
huge financial implications, cost implication involved for any violation.
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And the Federal Trade Commission in 1914 Act bans unfair methods of competition and
unfair or deceptive acts or practices. It says that it is a violation of the Sherman Act. US
Supreme Court says these are the violation of the Sherman Act. The enforcement is with
the federal trade commission.
Trusts find it very difficult to operate under the Sherman Act, so what they did is that
they formed mergers, many mergers and acquisitions happened after the Sherman Act
came into existence. They want to evade the provisions of the Sherman Act by mergers
and acquisitions with other firms. Then the Clayton Act of 1914 was passed,
The provisions of the Clayton Act includes relating tying other activities, other anti-
competitive activities, activities of trust like tying, price discrimination, then the
enforcement of civil laws, statute of limitations, mergers and acquisitions, then pre-
merger notification required to the FTC and interlocking of directorates.
So, section 3 of the Clayton Act specifically prohibits the sale of goods or commodities
on a condition; that means, tying one product with the other unwanted product resulting
in lesser competition or the creation of a monopoly.
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It addresses unfair practices not clearly prohibited by the Sherman Act; for example, the
mergers or predatory mergers and acquisitions or interlocking directorates. In such
arrangements the same person makes business decisions for several competing
companies.So, a person may be a director in many companies and he may be
contributing or taking decisions of many companies which is addressed by the Clayton
Act.
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And if you look into the critical component of Antitrust law: the jurisdiction is very
important. All these harmful activities are forbidden under the Antitrust laws. The federal
courts have the jurisdiction to deal with anti-competitive practices. Section 6 of the
Clayton Act specifically exempts labour unions and agricultural land, horticulture
cooperatives from Antitrust laws or proscriptions against illegal combination or
conspiracies. So, these co-operatives are not considered to be combinations.
Then Section 7 focuses on forbidding mergers and acquisitions in any line of commerce
or in any activity affecting commerce in any section of the country. The effect of such
acquisition may be substantially to lessen competition or to tend to create a monopoly
forbidden under Section 7. So, it severally puts restrictions on the mergers and
acquisitions for curbing competition in the market.
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The department of justice and the federal trade commission work hand in hand for
enforcing the Antitrust laws in the United States. So, these two agencies separately issues
guidelines for mergers and acquisitions and joint ventures. Forming joint ventures per se
is not illegal, but if they are not in conformity with the Antitrust laws then it is going to
be considered not in accordance with the Clayton Act and considered to be anti-
competitive in nature.
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If we look into the merger guidelines, we can see that the ultimate purpose of merger is
to create a bigger entity for the welfare of the society or welfare of that particular
industry or to enhance the market power or to facilitate the exercise. But if it is for
curbing the market then it is definitely anti-competitive in nature.
So, the merger guideline acknowledges that mergers can create efficiencies if not
inefficiencies in the market. So mergers can increase the efficiencies in the market, the
mergers can reduce the prices as well. Because the allocation of resources can be
effectively done through a merger, and the efficiencies can increase which leads to lower
prices, improved quality and enhanced services or even to new products. So, mergers and
acquisitions can be pro-competitive as well.
But you can see the competing circumstances which we can find under Section 8 which
prohibits anyone from serving as a director or officer in a decision making power in
many corporate enterprises, many corporations. Section 12 of the Clayton Act also
allows an antitrust suit to be brought against the corporation, whenever it may be found
or transact business and process served whenever it may be found or is an inhabitant. So,
it means that the Clayton Act is specifically focused on mergers, acquisitions and the
activities of the officers, those who are taking decisions in many companies.
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Some of the other section which you can find are guilty of criminal violation of Antitrust
laws and the officers and directors those who are found to be guilty of a misdemeanour.
Section 14 talks about misdemeanour, but sending some director or responsible officer to
the jail rarely happens because the United States is pro-enterprise in nature.
So, sending high officials to jail may send a wrong impression, a wrong message to the
industry. The authorities, the department of justice and the FTC takes decision very
prudently. Section 15 of the Clayton Act gives the federal court jurisdiction to prevent
restrain violations of this particular Act.
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FTC i.e. the enforcement authority was also formed under this particular act. Section 14
outlaws unfair methods of competition, unfair deceptive acts or practices affecting
commerce.
The enforcement authority created through this particular law from 1914 onwards is
effectively working to prevent anti-competitive activities in the United States markets.
The Act also provides procedure for filing complaint and other things which are not the
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matter of subject for our discussion. The FTC is the agency that looks into the anti-
competitive practices or to deal with the antitrust provisions or to enforce the antitrust
provisions.
The department of justice is a part of the executive branch. The FTC is an independent
regulatory authority, which looks into all anti-competitive practices or violation of the
antitrust provisions. So, these two agencies act hand in hand and look into the consumer
protection, the entire market economics.
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Clayton Act supplements the Sherman Act of 1890, which gives provisions for merger,
acquisitions as well as for the creation of the enforcement authorities and the
responsibility of the officers are also fixed through this particular provision.
We have talked about this particular subject, the enforcement of unfair provisions and the
deceptive practices.
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Then comes the Robinson-Patman Act which was passed in 1936. This Act was enacted
mainly to prohibit anti-competitive price discrimination and allowances in dealings
between merchants, for there are many allowances which the merchants can provide to
the consumers, which are anti-competitive in nature.
So, the Robinson-Patman Act basically amended the Clayton Act to include the anti-
competitive practices. It is basically to protect the small retail shops against unfair
practices, unfair competition from the large chain of huge firms like Walmart and the so-
called discount stores like Walmart or Spencer, by establishing minimum prices for
certain retail products. So, there must be a fair play in the market between huge
enterprises and small enterprises that is the objective of the Robinson-Patman Act. If
there is no fair play between the large enterprises and small enterprises then the market is
going to be distorted.
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So, the Robinson-Patman Act dded these particular provisions on price discrimination. It
actually forbids sellers from selling identical goods to similarly situated customers on
different terms and conditions. So, the Act also provides for criminal sanctions for its
violations.
And the Act also puts several restraint or strictures such as the seller may not pay or
receive from a buyer, certain commissions, brokerage fees or other compensations. So, a
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seller may not provide or pay for a producer’s handling, promotion, advertising unless he
does the same for all similarly situated buyers. A buyer may not knowingly induce or
receive an illegally preferential price or other treatment.
So, these are the old strictures put in this particular Act. What are the defences available?
So, if a complaining buyer makes out a prima facie case of discrimination, the Act places
the burden of proof on the seller.
It is the duty of the seller to prove that he has not discriminated. So, the burden of proof
is always with the seller and the Act also provides several defences, for example, the cost
justification defence. So, the seller can charge different prices to different customers in
different markets. This is basically the price justification because of different
manufacturing, sales or delivery cost. It depends upon the market, the potential of the
market as well as the transportation, sales and delivery cost which are involved.
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And also there can be changing conditions of defence. So, the price differentials, price
discrimination happens mainly due to the market conditions, different market conditions.
These market conditions are in response to changing conditions of the market or
marketability of the products. So, if there is a high demand and there is an increase in
price which is considered to be unreasonable price, then the provisions of the Act will
come into play.
This act also allows the seller to defend a claim of price discrimination by showing that,
the lower price was a good faith attempt to meet an equally low price or similar
treatment offered by the competitor. So, these are some of the defences available to the
enterprises for justifying their action.
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In the post World War scenario, the scenario of the US enterprises has completely
changed. After the World War, US enterprises have an advantage over the world market
and they used some of the practices which were banned under the Sherman Act, Clayton
Act and Robinson-Patman Act as well.
These American corporations had a high advantage, the business advantage or economic
boom happened after the Second World War. During the 1950s and 1960s the
government started criminal prosecutions against major corporations for price fixing
conspiracies, cartels and such other anti-competitive activities. This is because suddenly
if the market conditions become favourable these market corporation, these big
corporations will start exploiting the market.
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They made huge combinations during the 1970s and these agencies are basically firms,
mergers and acquisitions. The aggressive theories as well as the policies of the
government will affect the business policies.
In the Supreme Court decisions, the courts came heavily upon these particular
corporations or their anti-competitive practices. And in 1960s the government took
measures to enforce. Increased enforcement mechanisms took place, for example actions
were taken against big corporations like IBM and AT&T under this particular provisions.
It means that in the post war scenario from 1950s to 1980s we can find a sizeable
number of jurisprudence in the United States, actions were taken by the FTC as well as
the DOJ against huge corporations.
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Then comes the 1976 Hart-Scott-Rodino Act. The Clayton Act got amended in 1976 by
this particular improvement which requires the companies planning major mergers and
acquisitions to notify both the federal trade commission as well as the department of
justice for their plans well in advance before mergers and acquisitions.
So, it means it extended the Clayton Act for a pre-approval of mergers and acquisitions.
Because the business advantages got by these American firms after the Second World
War were immense. Once they got the advantages, they started abusing it or exploiting it.
So an amendment was required in Clayton Act which came in 1976.
The Clayton Act allows private parties including the consumers to sue companies for
triple damages or when they have been harmed by the action of company, that violates
any one of the provisions of either the Sherman Act or the provisions of the Clayton Act
to obtain a court order prohibiting anti-competitive practices in the future.
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So, under the new Act, individuals or companies with specified minimum assets or
annual sales must report their proposed acquisitions and mergers and assets to the FTC
and as well as the DOJ. So, that they can use due diligence, the FTC can do the due
diligence and allow or permit or not permit such mergers or acquisitions. And this Act
also lists twelve classes of transaction that are exempt from this reporting requirement.
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This is to ease the business because each and every merger or acquisition is not going to
be a harm to the market. But there must be prudence and due diligence should be used
for the mergers and acquisitions.
This Act also issued extensive set of rules that provide necessary definitions and
additional exemptions, explaining procedures and also the practices to be adopted for
mergers and acquisitions. This Act does not give the regulators themselves the power to
block the proposed transactions. Civil litigations are also proposed.
The response on this particular Act, the amendments from the Clayton to the Robinson-
Patman to this particular Act are very quick. There are different schools of thought on the
economics of market regulation. One of the very famous school is the Chicago school of
law and economics. This group of academic lawyers and economists and judges argue
for application of economic principles, pure economic principles in legal decision
making. So, that it is a prudent legal decision making leading to prudent judgments on
the control of markets.
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All economic parameters should be taken into consideration of each and every case and
the legal judgment should be based on economic prudence; that is what the Chicago
school propounded. Still the Chicago school is very strong in their arguments. And they
preach that two principal should control all antitrust enforcement and judicial decisions.
They are the one and the only goal of antitrust law which are the enhancement of
consumer welfare which are primarily defined as lower prices. And the market is better,
efficient, fairer, wiser in punishing anti-competitive behaviour than government
regulators or the courts.
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So, you can see that the school argument is very clear. Consumer welfare, the society
welfare, the cost to the society should be taken, the economic parameters should be taken
into consideration in all judgments, all the antitrust judgments.
United States president’s policies will severely affect the business practices in the United
States. Ronald Reagan in the 1980s, the president of United States, signalled major
changes in the government antitrust enforcement efforts. So, they acted on the belief of
Chicago school and liberalised the antitrust provisions and said that the antitrust
provisions facilitate business rather than curb or put hurdles on the business especially
on the areas of enforcement of mergers and acquisitions.
So, here you can see that these companies, the business of the companies mergers and
acquisitions are required to form a big enterprises for ease of business. So, they eased the
business in the sense that the Reagan government has eased the provisions, regulations in
favour of the corporations at that point of time, but unfortunately the global meltdown or
the depressions happened.
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So, the depressions in world, depressions in the economy, the world economy will have a
complete impact on the activities, these policies. So, here you can see that the lack of
regulatory oversight always leads to economic failure in markets and the lack of
enforcement also will lead to the prevention or the failure of the market. So, this will
lead to the monopolies and monopolistic or oligopolistic activities which leads to the
economic failure in the market which may lead to the depression in the markets.
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We have already seen that huge penalties are imposed, these penalties are not based on
the Chicago school.
So whether it is 1 million or 10 million or 100 million US dollars, this will depend upon
the activities, the amount of activities of these corporations. So, in the Clayton Act also
we can find civil damages as well as treble damages in the place of class actions. So, the
damages include even the attorney fees, court cost and other cost which are involved in
the treble damages in the case of class action. The class action rules are allowed under
the Clayton Act. So, I would say that if you look into the Antitrust Act in general, we can
see that the Antitrust Acts are the bone or very cardinal cornerstone of the American
enterprise system.
So, the American enterprises are based on the anti competitive laws especially starting
from the Sherman Act.There are severe stringent penalties for the violation of any of the
provisions, the competition provisions and the monopolies. The intellectual property
rights, intellectual property laws are the modern laws of the American law in accordance
with the TRIPS agreement, but the antitrust provisions are very old in nature.
And we have to see in the next classes the interface between these modern laws of
intellectual property law versus old laws of Antitrust laws time to time improved or
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amended. How these interface happens? Whether the Antitrust laws are liberal in nature
or whether the Antitrust laws are very severely meeting the requirement of monopolies
or severely enforcing the monopolistic provisions of the intellectual property law?
Whether they are liberally approaching? What is the correlation between these two laws?
We will see in the next coming classes and we will divide the next classes into different
areas, we will do theme wise. We will look into these anti-competitive practices;
different anti-competitive practices which we have discussed in the earlier classes, the
horizontal as well as the vertical agreements.
Then we will look into the jurisprudence and what all the enforcement authorities do?
And what the courts judgments and the court decisions are? And what is the
jurisprudence? What are the awards which is very important to look into, because the
developing countries are actively depending upon the jurisprudence from other countries;
especially, the rich jurisprudence from the United States.
Thank you.
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Prof. K D Raju
 
Lecture - 18
Tying Arrangements and Intellectual Property under Sherman Act
Dear students, in this class we are going to discuss mainly the US jurisprudence on
various interface between intellectual property rights and competition law. And in
today’s class specifically we are going to discuss the Tying Arrangements and
Intellectual Property under the Sherman Act.
And, in this class we will see the interface in the case of tying of technology with one or
more than one product; then licensing provisions and then block booking then copyright
and softwares and how the intellectual property softwares are mingling with Competition
Law, then trademark and tying, and the interface of tying.
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!
Tying agreement is nothing, but two products: one is a tying product and the second one
is the tied product. Companies try to sell these two products at a time compulsorily to the
consumers. Tying agreements include get-back provisions and restrictions on resale of
patented products and this tying can be in the nature of restrictions on licensee’s ability
to sell un-patented product. So, patented product is tied with an un-patented product.
Then again licensees entering into future license with other patentees; then mandatory
packaging licensing along with the patents; then royalty provision to collect royalty on
the sale of un-patented products; resale price restrictions. All these we can see under the
purview of tying.
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And, we will see today the case laws from the US on tying. Intellectual property rights
interact with the competition law through the famous cases that has come before
different courts in the US. As we already said that the tying arrangements, tying, tie-in
arrangements or sale on condition of taking another product all violate antitrust laws. In
tying agreements the seller agrees to sell a highly usable product along with not so
important product or on the condition that he will give a product or give a service only
when the buyer will purchase a less important product or less marketable product.
And, you can see that this is a burden on the consumers, they want to purchase only one
product, but the seller says he will only give that particular product if you purchase the
tied product which is an unwanted product. The antitrust laws always consider these
tying agreements as a violation of antitrust laws. In the case of Northern Pac Railway
Company versus United States it is said that tying is unlawful according to the provision
of Sherman Act and Clayton Act. And, we can see that the patent holders compel the
customers to agree to a purchase of un-patented product along with their patented
product.
In Henry versus AB Dick, the court said that if one product is useful along with another
product then this is allowed, but the Clayton amendment came to overrule this Henry
case. The Clayton Act amended and overruled this particular decision and said that tying
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is illegal, tying is violation of the antitrust laws. Again in the Tele-direct case, which is
one of the most discussed tie-in cases in Canada, it was alleged that selective refusals by
the respondent to license its trademark constituted an abuse of dominant position.
But here the court said that the refusal to license is sometimes within the legal bounds
and you have to look into the circumstances under which you are selling one product
along with another product. So, there was a lot of confusion in the earlier times that
whether tying one product with another product is good or bad for the consumers.
So, we will see the different cases. First of all if you look into the concept of tying: a
patented product, a very useful product with a not much important product or non-usable
product, when the consumers only want the first product, but do not want the second
product. It occurs when the tying product is patented and the tied product is un-patented,
but the tying product and the sale of patented product is conditioned. So, the sale of the
patented product is conditioned on the purchase of an un-patented product. Here the
circumstances are something different.
If two products are useful then the scenario is absolutely different, but if one product is
forced on the consumers then the circumstances are different. So, we have to look into
the circumstances through different cases.
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It can be products, it can be services. One of the famous cases we will start with
Microsoft case. Microsoft in the earlier times tied their Microsoft Media Player along
with their Windows. In the US jurisdiction as well as in the European jurisdiction the
competition authorities held that tying of Windows products with Windows Media Player
is a violation of competition provisions.
Here you can see that sometimes the seller bundle one product with other or service, the
product plus service or product plus product. All this will come under the purview of
bundling and here the consumers are not allowed to purchase one product alone or
purchase the product or avail the services. It is problematic. So, here we can see that the
goods are sold separately. If it is in combination: goods plus services it will come under
the preview, it will come under the definition of tying.
In a mixed bundling, you can see that the goods are tied with goods, goods are tied with
packages, goods are tied with services. So, this can also come under the definition of
tying.
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One of the famous cases is the Eastman Kodak company versus Image Technical
Services. This is 1992 case, one of the famous cases on tying. Here Eastman Kodak, a
well known company at that point of time, is in all photographic goods. Eastman Kodak
always conditioned all their licenses on one or more items of intellectual property and
the licensees purchase another item of intellectual property or goods or service.
So, in this particular case it was held illegal per se. So, these are illegal terms. Eastman
Kodak’s defence was of increasing efficiency and pro-competitive benefits. So, if tying
of one product with another increases efficiency in the market then the scenario is
different, but it is the duty of the seller to prove how it increases the efficiency and how
it has pro-competitive effects or pro-competitive benefits in the market, it is the duty of
the seller to prove that these are beneficial or pro-competitive in the market, then the
scenario will be different.
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So, when you tie one product with another product you have to fulfil certain conditions.
Here the seller has market power in the tying product; if there is no market power then it
would not come under the purview of tying. The second condition is that the
arrangement has an adverse effect on competition in the market with the tied product. So,
if there are no adverse effect on the market, then the competition provisions would not
be attracted.
Thirdly, the market efficiency justification. The efficiency means the market efficiency;
if the tied product and tying product are going to increase the efficiency in the market,
increase the competition then it would not come under the particular of tying or it
outweighs the anti-competitive effects. It means that if the efficiency justification
outweighs the anti-competitive effects, then it is allowed in the market.
But the competition authorities and the agencies always presume different intellectual
properties confer market power upon the owner. So, that is the first condition: market
power of the tying product. If the market power is not proved, then tying cannot be
proved that is one of the conditions of tying.
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The case of package licensing: the licensing of multiple items of intellectual property in
a single license or a group of related licenses together. This must be tested under the
purview of tying arrangements and licensing of products; conditioned on the acceptance
of license of another separate product. So, you can only accept these licenses at a time or
together. In such situations this must pass the test of time.
Usually package licensing is supposed to promote efficiencies in the market, must have a
pro-competitive effect, but if it does not have a pro-competitive effect on the market it
will come under the tying arrangement and consequently violate the Sherman Act and
the Clayton Act.
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The famous case of International Salt Company versus United States, the 1947 case.
This is one of the first cases where tying was discussed elaborately by the US courts.
Here you can see that salt was mostly distributed by this International Salt Company and
they tied most of the machineries used for the utilisation of salt products. So, they own
machines as well as the utilisation of salt products. One such machine was lixator which
dissolves rock and salt into brine using various industrial processes. And the second one
is saltomat; saltomat injects the salt in the form of tablets mainly used in the canning
processes, in the canned food.
So, it means one is patented and another one is non patented item. But this can only be
purchased together. So, the International Salt Company sold these products together and
it was held in 1947 that this is a violation of Section 1 of the Sherman Act and Section 3
of the Clayton Act by the court. So, the International Salt Companies case, still holds a
valid decision in the United States with regard to tying agreements. It is one of the
famous judgment.
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We will come to another concept of block booking. Block booking happens in the
cinema in India, there are multiplexes which show cinemas and these multiplexes are
owned by different groups. In Paramount Pictures case, in 1948 same thing happened.
Paramount Picture is one of the biggest producers of films.
The licensing practices and the licenses offered by them was in such a way that you have
to purchase all the films, all the movies of Paramount Pictures. It means that some
movies may be very good, but also are forced to purchase the movies which are not so
good, may be running or may not be running. So, here the execution of the license had
group features. So, that means, you have no other way, you have to take all the movies
produced by paramount pictures for a period of time during the contractual period.
So, here it is mostly copyrighted pictures. The copyrighted pictures must be taken and
exhibited in order to secure the first. So, here high quality films are also licensed, but
you are forced to take an inferior one.
It is nothing, but block booking. Block booking is nothing, but when you are forced to
take an inferior quality film. You are forced to show an inferior quality film in your
multiplexes along with a good quality movie even though you do not want to show it but
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otherwise you are not going to get a license for the particular movie. So, the court also
said that this kind of block booking is a violation of the Sherman Act.
It is something different from what we discussed earlier i.e. one product is tied to the
other. There is a component of coercion here. Coercion is always an ingredient, a non-
separable ingredient of tying claim and you are forced to take what you do not want to
take.
Block booking compels the theatre owners to accept movies that they do not want to
show. Here the actual coercion is an indispensable element of block booking which is
ultimately the violation of the Sherman Act and the Clayton Act. So, the block booking is
considered to be an anti-competitive conduct.
There is a price reflection of tying and a price discrimination because one movie may be
priced very high, but you are ready to pay a higher price for a good movie, but you are
not ready to pay another movie, yet you are forced to take it along with the highly valued
high quality movie. So there is a reflection of tying between a good quality movie and a
bad quality movie. This will be considered as tying.
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When we come to the softwares, I already mentioned about the Microsoft case.
Everybody knows that software in India is non-patentable, but in the United States it is
patentable. So, most of the companies like the huge companies, IT companies like
Microsoft, Intel, all other companies own thousands of patents on softwares in other
jurisdiction. In India softwares are protected under Copyright Law.
We will discuss here, the intellectual property component i.e. the copyright vis-a-vis the
softwares in the particular case of Digidyne Corporation versus Data General
Corporation in 1984. Its a clear case of tying i.e. a product is tied with service. Here the
issue was data general corporation’s refusal to license operating system. If you purchase
the NOVA CPU then only you will get the software otherwise you are not going to get
the softwares.
So, the court said that this is nothing but tying arrangement between the machine as well
as the software which is a violation of section 1 of the Sherman Act as well as section 3
of the Clayton Act. So, here if you want to purchase one particular machine then you are
forced to take the software or other way around if you want to take for example,
Microsoft operating system, you want to purchase and put it in your machine, you have
to purchase the software as well as the machine from Microsoft, then only you are going
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to get the license. So, the court clearly said that this is the violation of competition
provisions.
Here the operating system is clearly tying product with the CPU which is a tied product.
There are two separate products purchased as one i.e. the tying product and the tied
product. Secondly, the market power of the tying product is also very important. So, if
you want the software to be there in your CPU you have to purchase the CPU from me,
that is the condition.
So, here economic power with respect to the tied product is also important. So,
substantial amount of commerce is in the tied product; i.e., the software tied with the
CPU. There is definitely a substantial amount of commerce. So, whatever number of
softwares you want to sell the same number of CPU also will be sold.
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And, you know very famous case of Siegel versus Chicken Delight. As I have said,
pictures have copyright, the original owners have the copyright of these pictures.
Chicken delight is a famous brand and has shops in many parts of the United States. So,
they have chicken delight franchise in lots of shop with a standard form of franchising
agreement. So, the condition chicken delight put is that all franchisees should purchase
the cooking equipment, certain dry-mix food specifically bearing trademark packaging
exclusively from chicken delights as a condition of obtaining the trademark license.
Here the condition is something different when we compare it to a software or when one
product is tied with another product. Here is a service, there is a product, here is a
trademark because trademark contains the reputation of the company. Here the company
chicken delight says that, if you want to get franchise of my brand, if you want to use my
trademark then you have to purchase certain cooking equipment from me and certain
mix or packaging from me then only I am going to license it to you. This is the
condition.
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Here the situation is something different. Here the contractual requirement constituted
certain requirement of purchasing certain equipments. So, the argument is that these
equipments are necessary for keeping not only the value but the reputation of the product
or the quality of the product.
Chicken delight’s name, symbol, operation has the economic power but it was alleged
that the franchise is tying arrangements. Why should I purchase all the cooking
equipments from chicken Delight? So, the question is these arrangements whether are
justified or not? In this particular case all the franchisees filed a class action against the
chicken delight. So, the possible defence of chicken delight was essential component
theory.
These equipments are essential to keep the quality of the product in order to use the
trademark of chicken delight. If they can prove the essential component theory, that these
are essential to keep the quality of the product then the argument of tying is not going to
serve. Tying arrangement is not going to be justified in the case of essential component
theory.
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But, the question is again whether they can compel the companies. Like whether
Kentucky Fried Chicken KFC can compel the franchisees to purchase equipments from
them?
I would say that whether it is chicken delight or KFC they have certain equipments trade
secrets, these equipments or fryers are necessary to keep the taste of the food. The
equipments are a necessary component of the reputation of the product, necessary
component of the quality. So, it is justified. So, the tying is not going to serve.
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You cannot claim that the sale of car along with the tires is tying. Tires are essential part
of a car. Without tires you cannot run a car. So, if you can prove that these equipments
are necessary part of the other product then the argument of tying is not going to
convince, not justifiable. So, the other question is shoe, there is no left leg shoe or right
leg shoe. There is only shoe; two shoes are necessary because they are single component.
So, the question is if these are single component or different components. So, whether
these are separable items or not separable items, whether the functions can happen in
aggregation or it is separable, whether the amalgamation of products can happen or
segregation of products can happen.
But whenever amalgamation happens or segregation happens the question of tying

comes. If there is a very strong justification for tying i.e. the essential component theory
if you can prove it then the argument of tying is not going to there, tying is going to be
justified.
So, I strongly believe that if the chicken delight or KFC or company can prove the
essential component with the help of essential component theory, they can compel their
franchisees to purchase that particular equipment from them because the reputation of
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the product especially the food products are very important. So, but if you can prove that
these are separable items then the argument will sustain.
The Tele-Direct 1997 case, the selective refusals. Selective refusals by the respondents to
license the trademark constituted an abuse of dominant position. But, whether it is within
the legal bounds, whether I have any right to refuse to deal with anybody, this was the
question. We will see the refusal to deal in the next classes.
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In the Eastman Kodak case in 1992 very strong tying comes up and the seller
conditioned the sale of one product or service on the purchase of the second one. We can
see that the two products or the services are in fact separate and not part of a single
product because selling the product along with the post sale services are separate
product, not a single product but separate product and service.
The seller has sufficient power in the market for tying product, to enforce the tying
because the tying affects substantial amount of commerce. Tying affects the commerce as
well. If it is beneficial for the market then the argument of tying is not going to sustain.
In the famous ice cream case which is known as Krehl versus Baskin Robbins Ice Cream
Company the question of franchising came. These companies always insist that they
should only use our products. If you closely look into this particular case they operate in
three levels. Baskin Robbins is a world famous brand of ice creams.
One: they franchise; second they operate themselves, a huge number of manufactures, 8
independent manufacturers, all of them are licensees. Then, third is the franchise stores
owners. So, there is a condition that these franchise store owners will only purchase ice
creams from their area franchisees; that means, geographically they divided the market.
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So, per se geographically dividing the market is a violation of the competition
provisions, but here the company as a policy of the company divided their business into
three parts. Their own show rooms would make these ice creams and there are 8
independent manufactures which are the licensees of the company and then franchise
store owners will purchase ice creams only from these particular manufactures and that
also area-wise.
The question is whether this violates the Sherman Act. They said that their product ice
cream is closely tied with trademark; here we have to very closely look into the
principles of tying and tied product. Here the allegation is that the ice cream, the product
is tied with the trademark. Whether these are inseparable, I do not believe that a
particular product is separable from its trademark because the trademark is very closely
related with the reputation of that particular product.
So, Baskin Robbins ice cream trademark cannot be separated from that particular
products. Here the franchisees failed to establish that Baskin Robbins ice cream products
are unlawfully tied with their trademark. The trademark is non-separable from the
particular product because the trademark contains the quality of the product and many
other things. It contains the reputation and quality of the particular product and
trademark.
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So, we talked about product, product and services, we talked about one product with
softwares, we talked about hardware with software, we talked about products with
trademarks. In all these cases there is inseparable tying.
The court said that whenever you try to tie one product with the other one it definitely
affects the market. The only question is whether it is justifiable to the extent of tying and
the tied product with certain specific recommendations. But, the agencies, the
competition authorities always consider tying and tied product is going to affect the
market in violation of section 1 of the Sherman Act and section 3 of the Clayton Act. In
some of the cases in the next classes we will see how the market is responding to these
kind of activities.
In conclusion, I would say that whenever there is tying of two products for selling
together when one product is connected with another product or purchase of one product
is forced along with another product then the competition provisions will definitely come
into play. The courts have amply held that these are violation of the competition
provisions.
Thank you.
In the next class, we will look into some other components of Intellectual Property
versus Competition Law.
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Prof. K D Raju
 
Lecture - 19  
Unilateral Refusal to License or Deal
Dear students, in this class we will discuss the unilateral refusal to license or deal. Whether
as a producer I have the right to unilaterally refuse to license or deal with anybody. In
contract law, you are free to contract with anybody. You can very well refuse to deal with
somebody, but the question is in the case of intellectual property rights, whether you have
that right?
You have a bundle of rights given through the intellectual property. Where the state given
particular right is an absolute right. In the previous classes, we said that intellectual
property rights are not absolute rights. They are subject to restrictions, they are for the
betterment of the society. When it comes to intellectual property versus competition law,
these intellectual property should be used only for the purpose of the benefit of the market,
benefit of the society at large.
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So, in this class we will see the monopolization of service market. How some of the
companies are monopolising service market and how the competition law is taking care of
this. Then the tying of service with product which is also one of the problems. And we will
see how the competition law is taking care of the monopoly or a monopolist, where the
monopolist is dominating the market with his technologies. Then the new doctrine, which
is essential facilities doctrine. If I refuse to license on reasonable terms, then what is it that
the authorities can do under the essential facilities doctrine. We will see these.
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So, unilateral refusal, refusing to license maybe due to business reasons, maybe due to
market reasons, maybe due to other reasons. Here market power is the most important
thing. Market power is control over the market absolutely where you can dominate the
market and also increase the profitability of the company and control the output as well as
control the competitors in the market for a significant period of time.
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So, here you can say how these patents, copyright or trade secrets necessarily confer
market power upon its owners. Unfortunately, intellectual property law never confers
market power, but because of these intellectual properties, some of the big companies and
mostly the knowledge driven companies dominate the market. In that particular case how
the competition law is going to deal with these kind of situation?
As I told you the concept of antitrust itself is to open up the market, and the market should
be benefitted and the market consumers should be benefitted, out of the technological
revolutions and innovations even though the technology is illegally acquired or maintained.
If it is legally acquired or maintained then always there is an eye of competition law on that
particular technology.
The question is whether the intellectual property owner, who acquired the intellectual
property legally, have the right to harm the competition in the market. That means any
unreasonable interference, any unreasonable condition is going to affect the market whether
I have that particular right.
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But in a number of cases, the court said that the owners of the intellectual property do not
have any right to exploit the intellectual property in such a way to affect the market. The
famous case of 1994 Data General Corporation versus Grumman System Support. Here
two companies, the software companies in the 80s fought each other for the market because
the softwares and the technologies were developing at that particular point of time.
In this particular case Grumman uses a complex computer program which is known as the
ADEX. A computer program is developed by the Data General Corp to diagnose the
problems of computers, the problems in DGS, the data general MV computers. That means
one company produces computers and the other one is the service provider, which is using
a software to identify the problems in computers. Here, Data General claimed that
Grumman infringed DGS, the copyrights and misappropriated the trade secrets embodied
in ADEX. And if you look into this particular case, the facts of this case are very clear that
the Grumman Systems and their operators and their service personnel widely used this
particular software which is owned and whose copyright is with the Data General. So, here
you can see that an intellectual property acquired through copyright owned by Data general
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has absolutely violated by Grumman System’s IP when they were servicing the computers.
The district court awarded damages but what did the upper court say?
Grumman argued that DG is illegally maintaining its monopoly power in the market for
servicing of the DG computers. Not only they but I also must get a piece of the pie of that
particular service. So, DG unilaterally refusing to license this ADEX i.e. the particular
software used to identify the problems in this particular computer. Grumman alleged that
DG is refusing to license this particular software to not only Grumman but other
competitors as well. So, it is a violation of competition law.
But DG’s argument is that I am the copyright owner of a particular software which I
developed for a computer and these are protected by intellectual property and whether to
license or not to license is with me. So, the question is if you have complete rights can you
refuse to license to anybody. The software was very necessary for repair of the computers.
It was alleged that the DG misused and tied this particular software with their computer
services.
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They also said that consumer’s agreed in the agreement either to purchase DG support
services or not to purchase support from third parties. Whenever they sold their machines
they said to take the service from them, support services from them and also not to take any
third party services. So, in this case you monopolize the product, you monopolize the
services and you do not allow anybody else to do the services as well. So, other business
people will be completely out of the purview.
So here the court very clearly said that it is an absolute refusal to license which is a violation
of the Sherman act and this particular company is a monopolist, it is completely exploiting,
constituting and exclusionary conduct of everybody else. So the question is whether the
exclusionary conduct is affecting the market.
The single company is a monopolist, who is controlling the absolute market as well as the
services. So, all other people will be out of business. So, it means that once monopolist
starts harming the competitive process in the market, then it is a violation of competition
law. For example, the earlier decision in Aspen Skiing Company. If you do not have a valid
business justification for tying two things, then it's going to be a violation of the
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So, legitimate competitive reason for refusal must be given by the companies and in this
particular case the court held that these companies are monopolist and its a violation of the
What do you mean by business justification? Business justification is a valid justification, it

must relate directly or indirectly to the enhancement of consumer welfare or competitive
process in the market. It is a defence of the competition provisions. So, it means that if a
particular process is for the pursuit of efficiency and quality control it might be legitimate
competitive reason and it is not going to attract the competition provisions.
Otherwise, the competition provisions are going to be attracted. Also, the court in this
particular case held that this exclusionary conduct of all others and a monopolist’s
unilateral refusal to license the copyright and then again, author’s desire to exclude others
from use of his copyrighted work is a presumptively valid business justification for any
immediate harm to consumers.
So, there is no harm, if I am keeping the particular product as well as the copyrighted
product, the software, if the market is not going to affect. But if the market is going to be
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affected and the competitive process in the market is going to be affected maybe from
higher price then the provisions of the competition provision are going to visit those
particular actions. Here, you can see that effective competition co-operation is
indispensable to effective competition in the market.
So, you have to co-operate even with your rivalries. If you look into the service market
Eastman Kodak case comes. In, Image technical services versus Eastman Kodak, 1997 case
an independent service organisation sued the Eastman Kodak for violation of the provisions
of Sherman Act. This was with regard to their photocopy machines and micrographic
equipments.
So, here also the machine was tied. The allegation was that the machine, the photocopy
machine is tied with the post sale services of photocopy machines. Here, you can see that at
that particular point of time, the Kodak repairs 80 percent of the machines manufactured by
them so; that means, 80 percent of the service market is controlled by the Kodak here.
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In the 1980s, Kodak restricted access to its photocopying and micrographic parts. They
simply said that we are not going to sell the parts to independent service organisations. So,
what is going to happen? If you do not have spare parts, you are going to be out of the
business. Eastman Kodak took the decision not to sell spare parts to the independent
service organisations.
It means they are going to kill the competition in the market and take over all the services
of these photocopy machines themselves. These service providers do not have access to
parts. Once they do not have access to the parts or there is a deficiency in the parts these
independent service organisations will be out of business and so they alleged that there is a
violation of section 1 of the Sherman act.
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We can see that this is an attempt by the Eastman Kodak to monopolise, attempted
monopolization of sale and services of Kodak machines. This is also a violation of the
Sherman and Clayton Act. The district court gave the judgment in favour of Kodak because
they have the copyright, so the court thought that the machine as well as the service is
protected by intellectual property law. So, there won’t be any violation at all.
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But here the independent service organisations were awarded damages, because you are
tying the product with the services and absolute monopoly is formed by it. You can increase
the prices to whatever you want in a particular situation. The higher courts awarded the
damages to the tune of 71 million US dollars. It was very clearly said by the court that,
Kodak’s objective is to monopolize the market, not only the product market as well as the
service market. And the court ordered Kodak to supply the parts for next 10 years;
independent supply to independent service organisations for a period of 10 years on
reasonable and non-discriminatory terms and prices.
This is very important, because even though I am a monopolist I am not permitted to sell
any products on discriminatory terms and prices. And here specifically court said that all
tools and devices essential to servicing Kodak equipment must be sold, must be made
available to the independent service organisations for the next 10 years. As I told you
Kodak was actually trying to create a monopoly market; not only in the product market but
the service market as well, which the court ruled against. It was going to affect the
competitive process in the market as well as the competition provisions of the Sherman
Act.
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Then we come to the essential facilities doctrine. This is very recent in origin. The
technologies, newer technologies are coming into play. For example, mobile phones. A
mobile phone is, I would say that it is a bundle of patents. Thousands of patents are in a
mobile phone which are owned by different companies. So, if a company for example,
Ericsson refuses to a license this particular new technology to Indian company or Chinese
company or any other developing country companies, what would the developing countries
do for manufacturing a lower priced hand set, mobile hand set.
Remember, all these technologies are protected by the intellectual property rights; so, what
are you going to do in this situation? In this particular situation the court considered the
case of Intergraph corporation versus intel corporation.
So, here you can see that Intergraph is an original equipment manufacturers(OEM) with
Intel microprocessors. Everybody knows that Intel’s microprocessors are used in each and
every equipment. Intergraph used a particular technology in computer workstations during
1987 to 1993.
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In 1993, Intergraph discontinued this clipper technology and switched to Intel
microprocessors. There was a very warm relationship between Intel and Intergraph and
they co-operated with each other and certain concession were given to Intergraph
corporation from 1993 onwards. In 1996 Intergraph charged several intel original
equipment manufacturers and customers with infringement of clipper based technology on
intel microprocessor.
So for three years from 1993 to 1996 the relation was good until 1996 when the terms
changed between these two companies and they started suing the original equipment
manufacturers. In 1999 Intergraph sued Intel for infringement of the clipper patent, the
clipper technology which was earlier used.
You know the two companies, their relationship can be good and after sometime the
relation can be bad, but intellectual property violations are always intellectual property
violations.
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Here the question was whether Intel is a monopolist. Certain benefits were given to
Intergraph which were withdrawn by Intel, because intel said that Intergraph is filing suits
against me, why should I give any kind of benefits.
Intergraph said these withdrawal of benefits are violation of section 1 and 2 of the Sherman
Act and they sited another very old case of 1912 US versus the Terminal Rail Association.
The association was controlling all railroads, terminals, bridges, yards and all the facilities
of competing railroads that there was no competition at all for others at that point of time.
In this particular case, it was said that the railroad association was controlling the entire
business. So, it is a violation of the Sherman Act. So, they cited this particular case.
Here comes the essential facilities. So, if you think that this particular technology is
essential for manufacturing, it is essential for manufacture of a particular product and the
owner of the intellectual property refuses to license, then what you will do? As I told you it
is necessary to compete in the market here.
So, it is very clear that in order to apply the essential facilities doctrine the facility must be
controlled by one firm and there is an obligation to make facility available at non-
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discriminatory terms to everybody. So, the essential facilities doctrine facilitates the
licensing of the technologies, the facility even to the competitors so that there is a fair
competition in the market of newer technologies otherwise the new technologies will be
only given to certain people, those who can pay more and the developing countries will be
out of technologies.
But certain conditions are to be fulfilled for applying this essential facilities doctrine. First
of all the control of the essential facility must be with the monopolist and second, the
competitors inability, practically or reasonably to duplicate the essential facility and third,
the denial of use of the facility to the competitor and fourth, the feasibility of providing the
facility and fifth is if you are using particular technology for eliminating the competition in
the downstream market. Then the essential facilities doctrine will be applicable to your
technology and it will be given to others on reasonable and non-discriminatory terms.
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So, essential facilities doctrine clearly facilitates others to get a license of an intellectual
property on a technology. So, this may deal, may arise in antitrust concerns. Refusal to deal
may always raise antitrust concerns. Also when the refusal is directed against the
competition and the purpose is to create, maintain, enlarge and to create a monopoly or a
monopolist then definitely the provisions of the Sherman Act are going to be attracted.
Intel, a big company with microprocessors, has engaged its coercive measures to compel to
agree to the terms and conditions because the Intel microprocessors are used in every
technology.
So, coercive reciprocity is when if you do it, then only I am going to give you my
technology. This is a pernicious effect on the market, on economic similarity. This is
nothing, but illegal tying. Definitely, it is going to affect the market. The court said that it is
a violation of section 1 and 2 of the Sherman Act. This kind of coercion, coercive
reciprocity by using intellectual property is a restraint of trade and ultimately violates the
antitrust law.
So, no company can use coercive reciprocity as the owner of a higher technology. I cannot
refuse it, because the essential facilities doctrine will be used and it will be made available
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to others. So, the newer technologies are available to all and the all players in the market
should be made available the newer technologies. If you are refused to deal with these new
technologies, then the essential facilities doctrine is going to be applicable in such cases
and these technologies will be made available to such kind of people on reasonable terms,
on fair terms and non-discriminatory terms.
So, even if I have a higher technology protected by intellectual property, it is not my sweet
will to give or not to give. So, I cannot refuse a particular technology to my competitors,
because this is very essential to keep the competitive process in the market as well as
competition in the market and for the survival of the competitors by this.
We will see in the next classes, the continuation of this class, how the intellectual property
interacts with competition law through a number of cases decided by US courts.
Thank you.
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Prof. K D Raju
 
Lecture - 20
Price Fixing and Antitrust Law
Dear students, yesterday we were discussing about tying arrangements and intellectual
property. Today we are going to discuss about the Price Fixing and Antitrust Law. How
prices are fixed of say intellectual property on products and how it is interacting with the
competition law and the Sherman Act, what the Sherman Act provides for and what are
the restrictions under the Sherman Act on price fixing. Today we have enough
jurisprudence available under the Sherman Act.
And we will discuss, especially the price fixing by cartels and also about the effects of
patent pools and price fixing then how it is interacting with the Sherman Act.
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Price fixing is basically in different modes. In the beginning classes we were discussing
about what is a cartel. Cartel is nothing, but combination of two or more enterprises or
two or more persons, they come together to the same table and fix the agreements, fix the
terms and conditions, fix prices either to limit the production or supply or to allocate a
geographical market, sales quotas and engage in collusive bidding, bid rigging of one or
more markets or even international markets.
It need not be within the premises of one country, it can cross over to other country’s
borders as well. Cartels are always considered to be pernicious and considered to be not
good for the market so the competition law will always act upon cartels and even the
Sherman Act, Antitrust Act itself was formed to curtail or to limit or to control the trust
which was formed by those who were controlling the entire business in the United
States.
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So, cartel is absolutely against the competition law. We can see how the price fixing is
done in one of the famous cases the United States versus United States Gypsum
company, 1948. Unlike India, in United States Gypsum is one of the building
construction product, one of the most important building construction product in the US
which constitutes almost 90 percent of the building materials.
So, this particular material is very important for the construction of each and every
building in the United States and this Gypsum extracted and used for these buildings
were controlled by this particular company United States Gypsum company from day 1.
From time to time they developed different technologies. The main allegation was that
the United State Gypsum company was controlling the market as well as violating the
Sherman Act’s Section 1 and 2 and conspiring with its dealers and other licensees and
then price fixing. They had a patent and they were tying up the patented product with the
non-patented product, Gypsum products.
Thus they controlled entire production, distribution, resale prices and everything was
fixed in the market. This was the allegation in the case of United States Gypsum
company. They even decided the minimum prices for the patented Gypsum boards to be
sold by the distributors.
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Here you can see that, there are two types of Gypsum boards mainly produced by this
particular company, i.e., the closed-end and the open-end; two boards. So, the closed end
is very superior in quality, cheap and non-breakable and the other one is the open-end.
So, in 1912 this particular company, very old company, got a patent which is known as
the Utzman patent. Utzman patent is for the closed-end board which is very cheap and
also superior in quality. So, it has a larger market in the United States. This company was
licensing to two different people and they fixed the prices for the patented board.
But the allegation was that through this particular Utzman patent which is owned by this
particular company, they tried to control, regulate the prices of non-patented boards as
well. This was the allegation.
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So, here mainly the price fixing is by the licensor, the Gypsum Company through the
license agreements. So, the main allegation was that the licensor and the licensees
conspired together to eliminate the production of open-end board and fix the prices of the
patented board. We know that through the patent protection, you can protect the
technology for a limited period of time, but at the same time for the non-patented
products you do not have any control.
If you tie up the patented product with a non-patented product, in the last class we saw
that tying is against the Sherman Act. So, through this price fixing, you, the company is
going to monopolize the market of two different boards; patented as well as non-patented
board. So, it will have a pernicious effect on the market and consumers are going to be
affected and the prices are going to be fixed by these particular companies.
And so, the price fixing is always considered to have evil consequences on the
consumers, on the public and specifically the cartel’s main objective itself is to not only
control the market, but to increase the prices or fix the prices. And cartels are considered
to be always less productive and that they fix very high prices, which are always
considered to be against the Sherman Act.
451
So that means, Gypsum company produces boards with a patent and through this
particular intellectual property protection, through this particular patent, the company
tries to control the entire market of Gypsum board which is a very important material in
the American market.
The court found evidence against this particular company, that they are trying to control
the particular market through this particular intellectual property protection. Here the
again, the distribution, the plan, the complete conspiracy to protect the market is not
within the purview of patent protection at all.
The monopoly power through the intellectual property protection is only given for a
limited period of time, which we have seen in the incentive theory. So, this is only for a
short period of time. So, the court very clearly said that the conspiracy to control the
prices are against the Sherman Act while referring to an earlier case United States versus
general electric company. It is absolutely against the Sherman Act. So, the licensing
agreements and the terms always cause or play a very crucial role in controlling the
market.
Because the licensees can never violate these license provisions so that the company
takes action against them. So, through these licensing agreements, the conspiracy of
452
controlling the prices and the methods of distribution prescribed by this particular
company, it was established that there is a prima facie case of conspiracy to control this
particular market. We know that the intellectual property protection is given only for a
limited period as it is only an incentive, it is not to exploit the entire market. Whenever
the exploitation of this intellectual property crosses the limits, then the competition law
will come into play. Here the motives are absolutely different.
So, there are two theories, which we will see later on, i.e., the prima facie evidences as
well as the per se rule. And here it is for the company to take the defence or to justify
their action, then the per se rule as well as the other rule will be applicable but no
intellectual property owner can exploit the market beyond the limits of intellectual
property protection. So, the Gypsum company cannot control the non-patented Gypsum
boards market through the patent which they owned. So, the court very clearly held that
the company violated the provisions of the Sherman Act.
If you look into this particular case, many principles emerged, i.e., a group of
competitors enter into a series of separate but similar agreements with the competitors.
So, definitely there is some smell of competitors coming to the same table, there is a
smell of cartel. Cartels are against the competition provisions. So, there is an inference of
cartelization or concerted action to control the market or fix the prices.
453
Then again, the provision in the patent licensing agreement on payment of royalties for
the patented board as well as the non-patented board is again an indication of agreement
not to manufacture that particular board, not to manufacture the non-patented board as
well. So; that means, a company who owns the intellectual property tries to extend the
protection of their intellectual property to a non-patented product as well through a
licensing agreement which is absolutely against the competition provisions, against the
Sherman Act.
To increase the competition in the market is the purpose of competition law, but these
kind of activities are absolutely preventing it. Then the rule of reason. The rule of reason
principle is applicable to efforts to monopolize through patents. So, the rule of reason is
one principle where you can analyse whether the action of this particular company is
violating the competition law or not. So, if the company is found to be violating, abusing
the market power, then definitely it will come within the purview of the provisions under
the Sherman Act.
This is the first case and we come to another famous case of 1998. I have selected some
old cases, some new cases so, that we can understand the attitude of the courts, how they
have taken different stands. Addamax corporation versus open software foundation, a
454
1998 case. Here also, this one company used to make security software for Unix
operating systems.
Unix, at that particular point of time, monopolised with sun-microsystem, another

company. Other 2-3 companies came together and formed open software foundation. The
main sponsors of this open software foundation was HP, Picard.
Addamax which was making B1 security software were phasing out this particular
software from 1991 and they were developing a higher version of the security software
in 1991. In the same year they filed a case against this open source foundation because
they found that this open source foundation was in parallel making these software, the
security software which is going to be a threat in the future.
As I told you this open source foundation was founded by Hobart Picard and digital
equipment corporation in 1988 to make these security softwares.
And they claimed that there is a price fixing, there is a horizontal price fixing boycott.
So, the allegation was that there is horizontal price fixing boycott, unlawful joint venture.
Whether the joint venture itself has the behaviour of cartelization, this is one question.
455
So, is forming a joint venture company per se illegal? Absolutely not. Any company,
companies or any person can come together and form joint venture which is absolutely
within the purview of the law to form new products, new processes and new innovations.
So, but it is alleged that this particular open source foundation and these companies came
together and formed this particular company as a cartel to fix the prices. We know that in
the market boycotting a company, boycotts and concerted refusal to deal is also a
violation of the Sherman Act. But terms like cartel, boycott do not convert a rule of
reason claim into a per se one, this is the court's finding.
That means, boycott itself or converting the rule of reason claim to per se, per se forming
a foundation or a joint venture per se is not violation of competition law. The joint
venture per se is not illegal, it is legal. The cloud of doubts will come only after activities
are analysed. So, we can condemn such foundations only when foundation is going
ahead with any anti-competitive effects. We will see this particular case for other
activities.
So, the main allegation by this company is that this new open source software foundation
is a joint venture and their activities are anti-competitive in effect. Every time we were
talking about companies who are selling and their anti-competitive practices and here for
456
the first time the question arises about purchasing. The purchasee comes together and
form a cartel in order to fix the prices or in order to bargain the prices.
So, here the consortium has a monopoly purchase power. This was another deviation in
this particular case. And they said that the defendants conspired to force down the price
for security software below the free market level because of their purchasing power.
Then the question is you have to analyse the balance of harms and benefit; what is the
harm and what is the purchasing power. So, if it is beneficial to the society as we saw in
the earlier cases that the main objective of the competition law is the welfare of the
market, welfare of the consumers.
So, you have to analyse when the defendants, purchasers came together whether it was
good for the consumers, good for the society, good for the market or whether it had an
effect on the particular market. Concentration of purchasing power is also one of the
important factor which was raised in this particular case. But unfortunately in this
particular case the plaintiffs Addamax did not succeeded because the conduct of the
defendants was only to come together for some kind of research. The court found that
you cannot allege forming a joint venture itself is per se illegal. You have to prove the
illegality or anti-competitive practices.
! .
457
And here the court found that the naked price fixing cartels run by sellers of goods or
devices are per se illegal. So, if anybody has formed cartels for price fixing and selling
goods that is per se illegal. Then buyers cartel not only sellers cartel is, the court held
that, per se illegal. If you look into this particular case, to find the anti-competitive
impact rule of reason analysis or application of rule of reason is done to find whether it is
good for the analysis of the beneficial effects on the society.
So, the court found that here because of the activities of the defendant i.e., open source
software foundation, the plaintiff have suffered no damage. The antitrust law suit cannot
be filed because there is no damage to the plaintiff at all. The plaintiff failed to prove the
alleged injuries to their particular company.
If your company is not doing very well you cannot allege that the other company is
abusing the market power or that your failure cannot be attributable to conduct of the
defendant and you absolutely fail in that particular term. Price fixing cartels are always
held to be illegal and buyers cartels are also held to be illegal. Unfortunately in this
particular case it is the Addamax who wanted to prevent the open source foundation from
their research activities which have a future impact on Addamax but failed because of all
the court findings and the court ruled against Addamax.
The rule is very clear that if somebody is your competitor, is doing your business, you
cannot stop them by filing antitrust cases, you have to prove the antitrust violations of
Section 1 and 2 of the Sherman Act. There must be restraint of trade and abuse of the
market power, fixing of prices or tying arrangement. So, there are no circumstances
under which this was proved by Addamax and the case was rejected by the court.
458
Next we will see another concept which is known as patent pooling i.e., many patent
owners coming together with their own patents and pooling their patents in order to
maybe capture the market, the smooth functioning of the product.
So, the question is whether the patent pooling itself is for price fixing or patent pooling
itself is per se illegal or patent pooling is good for the society or patent pooling is good
for making innovations. So, we will discuss licensing, cross licensing, whether they have
anti-competitive effects or competitive effects on the market and integrating
complementary technologies.
So, many people come together in the complementary technologies, they come with their
complementary technologies and their product, their innovation and pool it together and
form a particular product and they divide the royalties, is that good for the consumers or
not? These are integrating complementary and supplementary technologies.
The economists say that this reduces the transaction cost. This clears blocking positions
or blocking patents and avoids costly infringement litigation between companies and is
pro-competitive in nature.
459
We will see some of them. So, collective price; collective price whether this is a restraint
of trade, whether it is anti-competitive in nature? Then output restraints, joint marketing
of pooled IP with price setting. I would say that pooling is none of these, but if it has any
conduct of cartelization then the scenario will be different because many people come
together and pool their technologies, supplementary technologies or complementary
technologies, and they come out with the product and fix prices. Whether this is per se
anti-competitive? The answer is no.
So, here again we have to look into the transactions whether there is a collective pricing,
whether there is any output restraints, whether there is a joint marketing of pooled IPs by
setting the prices. In singer manufacturing company versus United States it was very
clearly said that cross licensing agreement was part of broader combination to exclude
competitors.
Cross licensing may not be always anti-competitive in nature. Cross licensing may be
good for both the companies in order to avoid litigation in the modern times. Again the
question is if five people come together and they exclude two other collectively,
exclusion from pooling, exclusion from cross licensing. Then we have to look into the
market power; market power of the people those who came together, whether they can
harm competition.
460
If these people, those who came together, can harm competition in the market then this
pooling can violate or attract the provisions of competition law. So, the pooling should
non-discriminatory and whoever would like to join, anybody who wants to join should
be allowed to join the pool. It should be non-discriminatory.
It is not going to violate any of the competition provisions. Exclusion clause is when
exclusion of competitor from being in the cooperative. In cooperation of competitors
they come together and they become the market power. So, if you can show that the
market power is absolutely controlled by this pooling of these particular innovators, the
pooling of intellectual property and you have to prove it is unlawful and violating the
competition law provisions or the antitrust provisions.
If you can prove that there are pro-competitive effects, it is helping the economies and
integrating supplementary and complementary technologies and the pool members are
benefited as well as the society is benefited out of the patent pooling, then there is no
violation of the competition provisions i.e. the Sherman Act.
461
But if the excluded firms cannot effectively compete in the relevant market of good for
incorporating the licensed technologies and when the participants collectively possess
the market power in the relevant market then the case will be different. Then efficient
development and exploitation of pool technologies is one of the justification. Then any
kind of pooling retarding innovation; is going to affect the market and is going to be
violative of the Sherman Act.
462
So, then another is excess royalties. The patent owners, with their combination of patents
in pooling, if they dominate the particular market, if the quantity is fixed, if the price is
fixed, if the marketing terms are fixed, if the condition, terms are fixed, and if they
divide the territory then all the conditions constitute the controlling of the particular
market, then there is an inference or evidence of elimination of competition from the
market to fix higher prices which will be considered as unlawful combination.
It will be violating the provisions of the Sherman Act and this was held in 1931 in the
standard oil company versus United States case. So, if you look into all these parameters
you have to prove that, the patent pooling is violative, it is pernicious or it is against the
market. The symptoms are very clear for that.
So, then you can prove the violation of Sherman Act, Section 1 and Section 2. I told you
that the licenses, licensing agreement and contracts play a very crucial role in patent
pooling. It may control the entire industry. The royalty rates control the prices, if the
royalty rates are very high, then the prices are going to be very high.
Many writers like Roger B Andewelt and others argue that patent pool may have a
positive effect on the consumers and a negative effect on consumers.
463
It will depend upon the objective. What is the objective for which people came together?
What is the objective of this patent pool? Are they originally for reducing the
competition in the market or are pro-competitive in effect. We have to analyse that.
We can say that cross licensing are mostly pro-competitive in nature unless and until you
have to prove certain conditions because those companies who are cross licensing can
use IP effectively and avoid litigation because there is a huge cost involved in litigation.
You can very well reduce the litigation cost through cross licensing.
There is a possibility of collusion in the collective pricing, the pricing may not be fair in
the market, there may be higher prices. So, you have to very closely look into the
collusion, what is the objective of the collusion and pooling is nothing, but collusion, but
all collisions are not against competition, all collusions are not anti-competitive in
nature.
If there are a larger number of market participants and there is a pro-competitive effect in
the market then this pooling has a welfare effect on the market. And bundling; bundling
of patents or pooling of patents reduces transaction cost. This was held in the US
Microsoft case, but Microsoft lost this particular case. The court held that bundling must
be for reducing the transaction cost, it should not increase the transaction cost. So, that is
464
why I said in the Microsoft case that tagging an unwanted product with another product
is against the competition law.
Pooling benefits: the consumers may benefit from combining different technologies
which is the objective of pooling. The consumers must get the benefit out of the
particular pooling. The joint sale of compliments will reduce the price than independent
sale. So, if 10 people come together and sell, the prices are going to reduce compared to
independent sale where there is a possibility of increase in the particular price. Blocking
patents.
You have to always look into what exactly is happening on a case to case basis. If you
can prove that there is a pro-competitive effect then it is not going to be against any
competition law, no Sherman Act provisions will be attracted by it. If the patent pooling
benefits are being passed on to the society then definitely it is pro-competitive in effect.
So, in this class we saw that the patent pooling may have a pro-competitive effect. If you
can prove that there is a pro-competitive effect then it is not violative of any competition
law provisions, it is not violative of any of the provisions of the Sherman Act. But if
there are no pro-competitive effects, it is only for making cartelization and fixing prices
then it will attract the provisions of the Sherman Act.
465
So, in the interaction between intellectual property and competition law, the border line
is very thin. So, you have to prove the anti-competitive effects on the market in whatever
you do; whether it is pooling or the cartels because cartelization per se is not illegal, you
have to prove the ingredients of cartelization i.e. for increasing the prices or fixing the
prices or limiting the market or limiting the sales. So, intellectual property is providing
you a protection for a limited period of time.
Monopoly is given to you only for a limited period of time and if you exceed that
particular limit, then the competition law is going to come into play, then competition
law will visit you with the provisions of the Sherman Act Section 1 and 2. You can very
well act within. You can pool your technologies together, if your objective is good, if it is
good to the market, if it is good for the consumers and good to the society then the
competition law is not going to visit you otherwise the anti-competitive effects will be
proved and the Sherman Act is going to be in place and you are going to be fined
accordingly.
Thank you.
466
Prof. K D Raju
 
Lecture - 21
Market Allocation and IPR
Dear students, We will discuss in this particular class Market Allocation and IPR, how
the market allocation is affecting competition in the market. Whether the patent holders
or patent owners are using their intellectual property to control the geographical market,
whether the big stores controlling or dividing the geographical market and putting
unnecessary conditions on the distributors or the retailers. We will see different examples
even some of the cases on “study materials” where you combine together some of the
very good study materials and then you increase the prices.
Market allocation is one of the very important part of controlling the market and the
competition law takes allocation of the markets very seriously.
So, if any of the companies want to allocate market; for example, this particular dealer
can deal only in that particular market and nobody else can do the same business. They
restrict it through different licensing agreements, then the court looks into the licensing
provisions for violation of any of the provisions of the Sherman Act.
467
In this class we will look into the market allocation and IP, then some of the horizontal
agreements affecting the competition law.
The first case of market allocation is Hartford empire company versus US case in 1945.
One of the early cases. Here the companies combined together to exploit the patents for
automatic glass making machinery, these two companies owned around 94 percent of the
complete glass manufacturing.
468
Glass manufacturing means not only the glass, but glass bottles as well. These two
companies were responsible for all the materials which were made using glass in these
machineries, these two companies had the patents for automatic glass making
machineries. So, if anybody wanted to engage into this particular business they had to
take license from this particular company, Hartford empire company.
In 1938 this particular company controlled 100 patents. Remember in 1938 they
controlled 100 patents, they pooled it together and they cross-licensed many of these
technologies and thus they effectively controlled the particular market. Remember during
1938 intellectual property was not developed as of today.
So, they effectively controlled 100 patents and completely controlled 94 percent of the
market, they controlled the glass containers manufacturing, the entire glass
manufacturing industry was controlled, the machinery was controlled by this particular
company.
So one company through pooling and cross licensing controlling 100 patents, they do not
want anybody to come to their business. So, the question is whether they are
discouraging anybody from coming into the market in glass making machinery. At the
same time through these licensing agreement whether they are allocating the markets?
Whether these licensing agreements are anti-competitive in nature?
469
The court looked into these issues and came to the conclusion that the appellants agreed,
conspired, combined together to monopolize and restrain interstate trade and also the
foreign commerce by acquiring patents. As I told you in the earlier class that patent pools
can have a pro-competitive effect and anti-competitive effect as well.
Here the court found that these patent pools have anti-competitive effects as far as the
manufacturing of glass making machinery is concerned and they are excluding all others
from this particular business and no fair opportunity is being given to anybody in these
machinery manufacturing and distribution of glass products. So, the court finally held
that this is absolute violation of Sherman Act Section 1 and 2 and the Clayton Act
Section 3.
You can see that this company is controlling 100 patents, it means that the competition
authorities will look into such situation. Because unless and until it has a highly pro-
competitive effect, the authorities are going to look into this with a suspicious eye of
competition law.
470
Here the market allocation happened through licensing agreements. So, here you can see
that these licensing agreements are with restrictive conditions.
We can find that these restrictive conditions definitely violate the Sherman Act. We come
to another case i.e. Timken Roller Bearing Company versus United States 1951 case.
Here a civil action was filed against this particular company, a domestic corporation for
alleged violation of the Sherman Act.
471
The two corporations conspired with the British corporation and French corporation to
control the market. So, what they did is that they divided the territorial market all over
the world; the world market. They were making bearings, anti-friction bearings. So, they
divided the whole world market geographically. So, the question is can you sitting
somewhere in the United States or India or somewhere in China control the world market
by allocating particular markets? We will see some of these cases, very interesting cases.
Here we can see that every company has a financial interest and the objective of every
company is to increase the profits, whether it is in the domestic market or it is in the
foreign market. Now, the markets have become very small and everybody is looking into
international trade. So, the globe became very small and everybody is exporting their
materials, manufacturing.
So, here they divided the complete market. The district court found that the agreement
between these corporations to allocate trade territories all over the world violates the
Sherman Act.
472
So, here the allocation of territories happened through these licensing agreements and
they fixed the prices according to the geographical markets, non-uniform prices. Prices
were fixed according to geographical markets and they co-operated the licensing
agreements, through the licensing agreements they co-operated each other to protect
other markets and eliminate outside competition. So, other people, other competitors
cannot enter the particular market of bearings and more over they entered into cartels to
restrict imports and exports from United States.
So, whether you do business within the territories or outside the territories it does not
matter, they are going to look into the activities where any of the particular provisions
are violated. Here fixing world territories clearly violated the Sherman Act.
473
So, if there is no trade restraint then there is no violation of Sherman Act. Joint venture;
you can very well make a joint venture, but the objective must be very clear and “this is
just incidental” argument is not going to work every time. And also we can, the agencies
can look into the decision making of the companies ,who is the director and what kind of
decisions he is taking and common ownership and control of different corporations,
different corporations can form cartels.
That is why I said if two corporations form a joint venture, whether it is a cartel or not
will be decided by the competition authorities. So, the common ownership and control of
corporations is also not prohibited, but their activities must be very clear, the competition
authorities can very well look into what are the activities of this corporation after and
before the merger or acquisition that has happened.
474
So, if you look into the United States we can find big supply chain, big stores like
Walmart or Spencer or KFC or other marts. This is a supply chain case United States
versus Topco Association Inc.,1972. Here we can see that an association of dealers Topco
association which is its brand name, it is a corporative association of 25 small and
medium size independent regional super market chains operating in 33 states of Unites
States.
They have a lot of customers and more than 1000 items. This brand is always owned by
Topco. The stores are all over 33 states of the United States. So, if it is a chain of stores
then definitely the franchising or the licensing agreements are going to be very strict.
475
In 1967 their market share was 2.3 billion, so; that means, they are fourth, only three
other national grocery chains have more than their business. So, definitely they have a
market power under the competition law. And also their average market share is 6
percent and competitive position is very strong because it is a chain of stores.
And the Topco stores common stock, voting stock, selection of directors, selection of
managers. They completely control the association’s operations as well of the people
those who are involved in this. They control the activities and take decisions as well.
476
The Topco bylaws very clearly said that the agreement are exclusive category territorial
licenses. Why there is territorial licenses? Topco says that if there is no territorial
licenses they cannot continue with their business, because if too many Topco stores are
going to be allowed in a particular region, then the business is not going to be profitable.
So, they divided different geographical markets, and so territorial licenses were issued.
As I told you two other membership categories are also there, their exclusive
membership categories. So, one person cannot sell any product outside this particular
territorial market and expansion of one member to the other member’s territory is
absolutely prohibited. So; that means, if you want to extend your business to the other
member’s territory you have to take a prior consent.
So it means that a new member cannot enter into the territory of another member and
start business. You require a prior permission of Topco and the other member because the
members itself control this particular association. So, here the competition is severely
curtailed within the territorial limits because this association will decide, they will make
sure that this one person is not encroaching upon the territory of the other person. So, the
territorial market restrictions are put.
477
Topco put restrictions on the whole sale business as well as the retail business. Retail
business is specific to that particular geographical area and the Topco members are
completely prohibited from selling any products supplied by the association at whole
sale. And also special permission is required, they cannot use the Topco trademarked
product without securing special permission.
So; that means, without consent nobody can do business in the name of Topco. And a
new member entering into the retail business must agree to the restrictive licensing
provisions of Topco and Topco product can be only sold in that particular geographical
area under the terms and conditions put by the Topco association. So, it means they
geographically distributed and operated in all the states and one dealer cannot overlap
into the other dealer, there is a restriction on whole sale business as well, so there are
restrictions all over.
478
So, the market power restrictions are there. So, the government alleged that dividing the
market was violative of the Sherman Act because it prohibits competition, Topco brand
competition, Topco brand products among grocery items. So, no person can enter into
this particular grocery, Topco grocery business where already there is a Topco shop
unless until Topco is giving a permission.
And also there are restrictions on retail as well as whole sale business. So, this is a
violation of the Sherman Act, this was the allegation. But the Topco contended that the
entire business depends upon the geographical division and if exclusive geographical
division goes, if this exclusively goes their businesses are going to be in loss and they are
going to lose the business. Topco, as I told you, is very specific with regard to the Topco
brand.
So, the Topco brand enabled these stores to sell these particular products and that these
restrictions are necessary to compete with larger stores. This was the justification by the
Topco.
479
But the court held that the Topco scheme of allocating territories and minimising
competition to virtually no competition at the retail level as well as at the whole sale
level is a horizontal restraint. So, it is per se violation of Section 1 of the Sherman Act.
And the court also held that the district court has erred in its decision to restrict the
practices which involves the rule of reason application. So, Topco’s limitation upon
reselling, retailing, wholesale is per se the violation of Sherman Act. So, even if you are
selling under a single brand you cannot put restrictions, the market must be competitive.
Even if the same brand products are being sold the market should be open. So, the
conditions about dividing the geographical markets are absolutely against the
competition law or the Sherman Act.
480
The restrictions in the name of competing with the larger stores are not going to be
sustainable. These are going to increase the competition is also not sustainable. The court
never accepted these particular arguments of Topco. The area divisions are also prima
facie considered to be per se violation of the Sherman Act.
Very importantly the court said that if the members are not adequately promoting Topco
brands then you can terminate the members. Most importantly this district court
judgement was affirmed by the Supreme Court in 1973. So, once you give the franchise
or if you are entering into exclusive licensing agreement of any brands, any top brands,
any top trademarks then you have to be very careful, there must be pro-competitive
provisions, there cannot be anti-competitive provisions.
481
We talked about trademark now we will see copyright, how the copyright intellectual
property protection is going to cross with the competition law. Earlier I mentioned about
the reading material, palmer versus BRG of Georgia is a 1990 case. Here the respondents
are BRG of Georgia Inc, Harcourt Brace Jovanovich Legal and Professional Publications
These people entered into an agreement.
An exclusive license to publish and market HBJ i.e. publisher’s trade name. And at the
same time publisher agreed not to compete with BRJ in Georgia and BRG agreed not to
compete with HBJ outside the state. So, it was mutual, that you do not come here and we
will market your products so that I have the exclusivity in this particular region and
outside the state you can go and market and we do not have any problem. So, this was
discussed in this particular case.
482
If you look into the transaction, the licensing agreement immediately after the parties
entered into the agreement the prices of course material increased from 150 dollars to
400. It means more than double. Whether this violates any of the competition provisions?
If two people come together and fix the prices very high then there is no competition.
So, they argued that the price for the course materials was enhanced by reason of
agreement. The main allegation was that the prices increased from 150 to 400 dollars are
violation of the Sherman Act, violation of Section 1 of the Sherman Act. The district
court held that the agreement was lawful because this is a copyrighted material and even
the court of appeal affirmed that you can sell the copyrighted material according to your
prices because the material is a copyrighted material protected by intellectual property
law, so you can put your own price.
483
But the provisions of the agreement to divide the geographical area for example I am not
going to come to your region, but at the same time you do not come to my region. The
provisions of the agreement are revenue sharing formula to increase the prices, to fix the
prices. So, these are very suspicious in nature because the prices went up. So, the
question is whether this is a violation of the Sherman Act? The court referred to other
cases.
484
The agreement between competitors to allocate territories to minimise competition is
illegal. Whether it is your copyrighted material or whether you have a trademark if it is
limiting or allocating the territories for limiting the competition it is a violation of the
Sherman Act. So, the earlier decision in Topco whether the parties split the market,
whether doing the business, whether reserving the market. So, these are absolute
violation because the prices went up and the conditions of the competition provisions are
violated.
Every law is territorial in nature but the question is whether the competition law
provisions are extra territorial in nature. If you do business outside the territory of United
States whether the United States Sherman Act have a control over the activities you do
outside your territory.
Metro Industries inc versus Sammi corporation, a 1960 case, here the Metro Industries is
an importer of wholesale kitchenware products from Korea and Sammi is South Korean
exporting company. Remember this is an international market. Can you do an
international market allocation, whether it is a violation of the domestic law? This was
considered by the US authorities.
485
The American subsidiary, the Metro industries alleged that the Korean design registration
system gives holloware producers an exclusive right to export the particular holloware
design for 3 years.
So, the Korean law permits holloware producers an exclusive right for a period of 3
years to export the particular product, whether this is a market division and whether this
is a per se violation of Section 1 of the Sherman Act? This was the allegation because it
gave 3 years exclusive right to export the holloware design products. So, it was
considered by this court in this particular case.
The main the allegation was that the registration system was used by the kitchenware
importers, the US people. So, the stainless steel steamers from any of the Sammi’s
competitors in Korea cannot be imported because there is an exclusive right.
486
So these US importers alleging that there is a violation of the Sherman Act because of
the Korean law which permits a 3 year exclusive right, here comes the two principles:
the rule of reason as well as the per se rule. So, we will see these two rule because if you
apple either of these rule, the result will be different.
So, the legal approach of rule of reason says that the competition authorities or the courts
should make an attempt to evaluate the pro-competitive effects, but in the per se rule the
court need not apply. The rule of reason gives an opportunity to the court or the
authorities to look into the competitive features, whether the restrictive business is pro-
competitive in nature or whether it is anti-competitive in nature.
And then decide whether the practice should be prohibited or not, the authorities will get
a chance to decide, but in the per se rule the authorities are not going to get a chance to
decide in between pro-competitive effect and anti-competitive effects.
487
Ordinarily we can say that if the defendant can justify or can prove the pro-competitive
effects, then the rule of reason will be applicable. Because if the facts and circumstances
clearly prove that these restrictions are necessary to continue with the business and they
are pro-competitive in nature, but most of the time it never happens. If a reasonable
restraint is there, reasonable restraint plus pro-competitive effect on the market then the
rule of reason will be applicable otherwise per se rule will be applicable.
488
So, if it is per se anti-competitive behaviour, that anti-competitive behaviour is
considered to be per se illegal under the Sherman Act; that means, unreasonable restraint
on trade is considered as anti-competitive as well as illegal per se under the Sherman
Act.
The per se rule clearly says that certain categories of agreements are per se illegal. So,
case by case evaluation is not required. So, those which tend to restrict competition are
per se illegal in nature. So, with reference to United States versus brown, another case
the court very clearly said that if restrictive provisions are there, then it is the per se rule
which will be applicable. Market allocation agreement is per se illegal and any restraint
on trade is per se illegal.
489
In deciding whether to extend the per se rule to the previously unexamined business
practices. According to the words of the court “the practice facially appears to be one
that would always or almost always tend to restrict competition and decreases output. Or
instead one designed to increase economic efficiency and render markets more rather
than less competitive” in Broadcast Music Inc versus Columbia broadcasting. So, which
rule is applicable? It will give an opportunity for the authorities to look on a case by case
basis whether it is pro-competitive or anti-competitive in nature.
490
So, here in the rule of reason the plaintiff must establish antitrust injury, the conduct at
issue has actually caused injury to competition beyond the impact on the claimant within
the field of commerce in which the claimant is engaged; that means, here the rationale
should be proved.
This particular case went in favour of metro; that means, if a particular rule outside the
premises is effecting your market you can always look into it, but which rule will be
applicable whether the per se rule or rule of reason you have to look into the type of
transactions. In this case the court concluded that as a matter of law there was
insufficient evidence in the vollrath record concerning the relevant product and
geographical market and Sammi’s economic power in that particular market.
491
So, you can see that in this particular case the court held the rule very clearly, but certain
questions arises regarding the conduct of incidents happening outside your jurisdiction.
So, the Korean law permits 3 years exclusive exporting. By using your law can you say
that this is against your law, which is an extra territorial application of your competition
law.
The discussion is very clear, do you have an applicability of extra-territorial jurisdiction

to your competition laws. The Sherman Act is only applicable in the United States, if
there is anything happening outside the territory, but which has an effect on your
commerce in the United States then only there is an application of the principles of
competition law or the Sherman Act.
If the Korean registration system permits something you do not have any jurisdiction, but
whether it divides the market, the world market and has a pernicious effect on your
market, then definitely your competition law can look into such kind of transactions. But
if such market allocation increases economic efficiency and render market more
competitive then these competition law provisions cannot be applicable.
492
If there is a restraint of trade, restraint of licensing agreement that affect parties in a

horizontal relationship but does not necessarily cause the agreement to be anti-
competitive in nature, you have to look into each and every case. Joint ventures are very
well permitted and they are not always going to form cartels.
Licensing agreement among horizontal competitors may promote rather than hinder
competition and which results in integrative efficiencies. That is why I said in the case of
joint ventures specially in the case of horizontal competitors you have to look into the
pro-competitive effects. So, per se rule and rule of reason we have to apply both and look
very closely into the type of transactions. So, the supplementary technologies and
integrative technologies may increase the efficiencies as well.
So, here you can see that the courts very clearly said that market allocation whether it is
domestic in nature or international in nature is absolutely violating the Sherman Act this
legal point is very clear. In the case of supply management, you manage many stores in
the country, you can have provisions with pro-competitive effects and also with anti-
competitive effects and then it is going to be violation of the Sherman Act. You cannot
put highly restrictive provisions in the licensing agreement to divide the geographical
market, it would be a violation of the Sherman Act. If there is a restraint of trade and you
493
are not allowing anybody to enter into the market that would be a violation of the
relevant provisions of the Sherman Act and Clayton Act.
So, the application of per se rule and the application of rule of reason gives the
competition authorities a chance to evaluate if there is any justification for the pro-
competitive nature of their activities. If it is pro-competitive in nature, if it is not anti-
competitive, then there is no application of the Sherman Act in the United States.
More over, we discussed the extra territorial application of the Sherman Act. So, if there
is any effect in the United States then there is an application of the Sherman Act. So, we
will continue with the market allocation in the next class.
Thank you.
494
Prof. K D Raju
 
Lecture - 22 
Vertical Restraints and IP
Dear students, today we are going to continue with our discussion on the last class, we
were discussing about the horizontal restraints and today we are going to discuss on
Vertical Restraints. In the last classes we have discussed what is the vertical restraints
and horizontal restraints. Horizontal restraints are on the same level of trade and vertical
restraints are on different level of trade. For example, the distributor, the manufacturer,
then retailer, on the same level of trade and if one person tries to control the entire
system of supply chain.
In the vertical restraints we are going to look into how the intellectual property interacts
with or whether it is conflicting with the competition law in certain cases.
Especially with regard to the vertical price restraint. Almost all the jurisprudence, cases
are on patents or trademarks or copyrights, but this particular case that came before the
court is on trade secrets. The distributors or the manufacturer put restraints in the
495
licensing agreements, contracts, to what extent these are conflicting with the competition
law. Today we are going to discuss this in detail, and maybe on the last class of the first
part of this course.
And this was very important case but now it is overruled. Dr. Miles Medical company
versus John D. Park and Sons company was decided in 1911. This case set the
jurisprudence for a long period of time, you can see that it got overruled only in 2007.
So, for a long period of time this was the jurisprudence set by the united states of
Supreme Court. In 2007 this decision, Dr. Miles decision was overruled in Leegin
decision. So, our subject of discussion today is these two decision and vertical restraints,
and how the intellectual property is interacting with the competition law, the Sherman
Act through these two cases.
496
The vertical restraints are basically on the contracts. The manufactures always enters into
contracts with wholesale merchants, retail merchants and tries to control the prices. The
prices from manufacturing, to the wholesalers, to the retailers and ultimately to the
consumers, and they put restrictions on prices on all levels. So, what is the price of these
particular products when available to the consumers? There is no choice for the
wholesaler or the retailer to fix prices or to give some kind of leeway; these are entirely
fixed by the manufacturers.
So, the question raised in this particular case was whether this amounts to restraint of
trade. If this is restraint of trade then it is definitely a violation of the Anti-Trust Act of
1890.
497
We will see detail. Here the complainant was a medical company i.e. Dr. Miles medical
company, an Indiana corporation which manufacturers and sells proprietary medicines.
Most importantly, they were not holding any patents for these proprietary medicines
rather they had trade secret protection which was again in the united states protected
under legislations. So, it is a branch of intellectual property law which we saw in our
earlier classes. They kept all the formulas and products as well as the process as trade
secret; and they have packages, labels and trademarks.
So, there a bundle of intellectual property was protecting these particular medicines from
trade secrets to the packages and labelling and also trademarks. They had trade
extensively throughout the United States. Their practice was to sell the medicines to the
jobbers, wholesalers, wholesale druggist and retail druggist and ultimately the medicines
goes to the consumer and at all levels of trade the manufacturer used to fix the prices.
498
When we look into the intellectual property protection the trade secrets are protected
under the intellectual property legislations. But the question is whether there is a
correlation between the intellectual property protection and controlling the market
forces. Dr. Miles said that this is a proprietary medicine and different intellectual
properties are owned by me. So, I have a right to protect the prices in the market.
So, you know that the processes were protected by the trade secrets. So, whether
intellectual property protection grants any kind of rights to fix the prices. The answer is
controversial. We have to look into whether intellectual property protection gives the
patent owner or the copyright owner or the trade secret owner an absolute freedom to fix
the prices, not only at one level but at every level.
499
We will discuss this in detail. So, whether at any point of time this is a restraint of trade.
So, here the same medical company manufactures non-patented articles also, but there is
no statutory right on fixing prices for future sales or to put restrictions on the purchasers
through a set of contracts.
The manufacturers set, fix conditions through a set of contracts from wholesale to retail
and ultimately to the consumers. This is applicable not only in the case of the intellectual
property protected medicines, but in the case of the non-patented medicines as well. So,
the question is with regard to whether these agreements entered between these people are
unlawful. Our point of discussion is that: these restrictive conditions put in the
agreements are violative of any of the provisions of the Sherman Act. That is the
question of our discussion, whether it is a restraint of trade.
500
There is an arrangement between the wholesalers, manufacturer, wholesalers and

retailers through a set of agreements. So, the sole purpose is to control the entire market.
The manufacturer fixes the prices. The question is whether these practice are injurious to
public because if any kind of agreements put restraint of trade or are injurious to the
public then they are void. So, if the public interest is hurt, these kind of agreements are
held to be void.
And no other legislations can save such kind of agreements. So, the argument is that this
is only to enhance the prices or only to control the entire market.
501
The manufacturers along with the distributors agreed to fix the prices. MSPs are fixed.
The court in this particular case applied the per se rule which is there in section 1 of the
Sherman Act and held that these activities are illegal. The vertical agreements between
the manufacturers, distributors and retailers, and ultimately reaching to the consumers,
all the prices, were held to be per se illegal. The court has taken a very tough stand and
held that these kind of agreements are not going to benefit the consumers rather they are
going to benefit only the manufacturers and so are per se illegal.
502
It was also further alleged that the purpose was of protecting trade, sales and business.
This was one of the justification given by Dr. Miles. He said that it is to protect the sales
and business and for conserving its goodwill and reputation. I am not able to understand
how the reputation of a company is directly connected with the prices! Another argument
was that all these were known to the defendants, through the agreement and they agreed
earlier, they are part of this agreement. The defendant in this particular case co-operated
with the plaintiff earlier and they knew the terms and conditions of the agreement.
Then second argument was; it is very necessary to regulate and control the sales and
marketing of the company to protect the interest of the company. And thirdly the
contracts are in writing, they are required to be executed by the jobbers or the retailers or
the wholesalers and they knew these terms and conditions of these particular agreements.
This was one of the argument.
The court looked into each and every argument. Every company wants to protect its trade
and business, but not through exploiting the market, not through combinations, not
through abuse of dominance. And every company wants to protect its goodwill and
reputation but not by fixing prices and thirdly it is necessary to control the marketing.
Yes, every company wants to control the market, but not by fixing the prices and the
prices should be determined by the market forces. And if every company imposes
restrictions on the wholesalers and retailers. So, the argument that the defendant knew
the terms and conditions is not going to be sustainable.
503
The defendant i.e. the Kentucky corporation, the wholesale drug business, they were
earlier into the business. So, they dealt with the complainant, they had full knowledge of
the terms and conditions and they also trade in medicines. This argument is not going to
be sustainable that they knew the terms and conditions; because even though they know
the terms and conditions, it is still a restraint of trade and a violation of the Sherman Act.
You know that in pharmaceuticals, everybody knows that from the manufacturer to the
consumer there are a lot of chains in the supply, there are lot of actors in the supply
chain.
504
So, here there was a combination and a conspiracy with regard to the whole sellers,
retailers and jobbers in the case of proprietary medicines. Even in the case of proprietary
medicines, the rights are limited to the order of the intellectual property. Once the
intellectual property is used to exploit the market, to violate any of the provisions of the
competition law, the competition law will prevail over the intellectual property
protection.
505
And Mr. Justice Hughes in this particular case has taken a very strong stand. He said that
there is no doubt that proprietary medicine are protected under the legislations. And they
prepare these particular medicines under the trade secret formulas, it is protected under
legislations and they can fix certain prices for retail or wholesale. But the purpose is to
establish minimum prices at which sales shall be made by its vendors and by all
subsequent purchasers who traffic in these medicines. So, the companies can only fix
prices to that extent.
But can you put conditions on restraint of trade? The answer is no. No manufacturer can
put conditions in the agreement in restraint of trade. So, these restrictive agreements,
restrictive agreement conditions are void whether it is the consignment contracts or the
retail contracts or the price fixing contracts, basically the retail agency contract.
So, the argument that there are 25,000 retailers are all over the United States, is not a
justification to put unreasonable conditions. The conditions must satisfy the test of
Sherman Act section 1 and 2, if any kind of restraint of trade provisions are put they
would be a violation of the Sherman Act.
506
We are not going to discuss elaborately on the actionable wrong. The allegation by Dr.
Miles that, the defendant has maliciously compelled other parties, other retailers and
wholesalers to break the contract, that is not the question of our discussion. Our
discussion is whether the intellectual property protection gives a complete freedom to the
owner of the intellectual property to violate competition law?
The answer is that intellectual property protection has a limited role when it comes to the
market forces.
507
The moment you exceed the intellectual property rights in the name of intellectual
property protection you cannot do whatever you like to do in the market. For example,
the patent law, the objective of the patent law is to stimulate innovation or to give an
incentive to the innovator, but not to exploit the market.
There can be exclusive manufacturer, but if these exclusive manufacturer adopt unfair
means and refuse to deal then, as we discussed in the last class, the essential facilities
doctrine will come into play. So, the competition law is to take care of the market or
competitive process has to continue in the market so that there will be welfare in the
market. And if the public is not going to yield any benefit, if they are not going to get
any kind of benefits because of the practices of the company then definitely it is going to
attract the provisions of the Sherman Act.
508
So, whether a condition in the contract is a restrictive practice or not, we have to look in
from the purview of intellectual property as well as the competition law. And there can
be an exclusive agreement according to the intellectual property law because you have a
monopoly for a limited period of time, but that does not mean that you refuse to deal.
So, the refusal to deal i.e. to be dealt under the competition law, competition law will
come into play and will look into the details of why you refused, whether you are
charging enormous royalties, whether you are fixing the prices, whether you are going to
be making cartels. So, all these ingredients are to be checked under the competition law.
509
And if we look into Dr. Miles it is very clear. The court has, remember this particular
case was in 1911, very clearly applied the doctrine of per se rule and they said we are not
even going to look into the other doctrines, the opposite doctrines.
The next case we will look into is in 2007. In 2017, the Department of Justice and the
Federal Trade Commission has issued new guidelines by looking into the new
jurisprudence. The new guidelines of 2017 has accepted these particular principles and
the first principle says that: “the agencies apply the same antitrust analysis to conduct
involving intellectual property as to conduct involving other forms of property taking
into account the specific characteristics of a particular property right”.
So, they have to consider what kind of intellectual property protection is available, to
what extent it is available to the owner. But at the same time “the antitrust agencies do
not presume that intellectual property creates market power”. So, they have changed
their philosophy of the competition issue, because Dr. Miles was overruled in Leegin
case. So, we are going to see that particular case.
Thirdly, “the agencies recognise that intellectual property licensing allows firms to
combine complementary factors or production”. Yesterday we talked about the
complementary technologies and supplementary technologies and the agencies will
510
consider it as pro-competitive. So, the per se rule is not going to be applicable. So, the
rule of reason is going to be applied from 2017 in the cases, so the shift has happened.
So, we talked about how in Dr. Miles, the court said that the per se rule will be
applicable, fixing vertical agreements are per se illegal. But, in 2007 another case came
before the supreme court of the united states i.e. Leegin Creative Leather Products Inc.
verses PSKS, Inc.. Almost similar circumstances, similar facts. In Leegin the court
reconsidered Dr. Miles case regarding resale price maintenance.
Whether the resale price maintenance is per se illegal. This question was evaluated. If
you apply Dr. Miles principle then you need not re-evaluate, so blindly you can say that
if you apply Dr. miles, resale price maintenance are per se illegal. But, in this particular
case the court again looked into and evaluated very thoroughly whether these are per se
illegal, resale price maintenance are illegal at the vertical level? Whether it has an anti-
competitive effect or pro-competitive effects. So we will discuss this particular case.
Thank you.
511
Prof. K D Raju
 
Lecture - 23
Vertical Restraints - Change in Jurisprudence
Dear students we are discussing Dr. Miles. Dr. Miles has served for a long period of time
as the jurisprudence of the per se rule from 1911 to 2007. Now the jurisprudence has
changed, the entire jurisprudence has changed, in the vertical restrains, in this particular
case which we are going to discuss.
512
So, we are going to discuss vertical restraints in the Leegin creative leather products. In
this particular case, the court has reconsidered Dr. Miles case. The result was exactly
opposite to the decision in Dr. Miles. Here again the practice was of refusing retailers
discounts below suggested prices. The petitioner was Leegin creative leather products
and the defendant was PSKS, one store who sold some of the products of Leegin below
the prices fixed by Leegin.
513
Whether this violates contract, whether this violates any intellectual property law,
whether this violates any competition law, these are the questions considered and what is
the rule to be applicable in this particular case. Here, PSKS filed a suit alleging that
Leegin has violated antitrust laws by entering into vertical agreements with its
wholesalers, retailers to set minimum resale prices. So, the same scenario arose in Dr.
Miles, the entire pricing was done by the manufacturer, entire pricing was controlled by
the manufacturer and they entered into agreements with the wholesalers and retailers and
also the ultimate price to the consumers was fixed.
Here Leegin are the manufacturers of women accessories and they entered into vertical
agreements with their wholesalers and retailers and these agreements required retailers to
charge not less than minimum prices fixed by Leegin. According to Leegin these
minimum prices are necessary; necessary to encourage competition among the retailers
and to give best customer service and for the product promotion of Leegin creative
leather products. These are the arguments of Leegin to fix resale price maintenance.
514
Here again the question comes whether the doctrine applied in Dr. Miles was outdated or
is based on outdated economics. So, the court reconsidered the decision of Dr. Miles
which applied per se rule. They contended that it is better to analysis the rule of reason
so as to look into the objectives. Whether the practice adopted by Leegin is anti-
competitive or pro-competitive?
So, if it is pro-competitive, then definitely the antitrust rules cannot be applicable. But if
it is anti-competitive then definitely the rules will be applicable. That means, there is a
leeway in rule of reason for the manufacturers to prove that they are pro-competitive.
515
When Leegin product was sold below the minimum prices fixed by Leegin they
terminated the agreement with the retailer i.e. the PSKS. So, PSKS sued alleging the
violation of antitrust law, Section 1 of the Sherman act that these are anti-competitive
practices. By applying Dr. Miles it is per se anti-competitive.
The district court has given judgment in favour of PSKS and they said that it is per se
illegal under Dr. Miles, as well as under Section 1 of the Sherman act. So, if the
516
manufacturer fixes prices with the wholesale distributor, retail distributors and jobbers,
all these are considered to be illegal; per se illegal when you apply the doctrine of Dr.
Miles.
So, the district court gave the judgment in favour of PSKS and in the trial PSKS argued
that the pricing policy of Leegin was absolutely violating Section 1 of the Sherman Act
and the jury found the case in favour of PSKS, because if you apply Dr. Miles then
definitely it is per se illegal. Price fixing is absolutely pernicious to the market and
considered to be anti-competitive in nature.
On appeal in the fifth circuit, the court declined to apply the rule of reason because Dr.
Miles is considered as the best doctrine for a long period of time, for many years. So,
price fixing is considered to be against the Sherman Act and applying Dr. Miles principle
they rendered the judgment. So, all the justifications given by Leegin for the rule of
reason were refused and it was held in favour of PSKS.
517
The pro-competitive argument was not at all taken into consideration by the court at that
point of time, even at the circuit court. So, the main argument of Leegin was that you
have to consider all the circumstances and you cannot simply hold that this is per se
illegal, whether the price fixing is pro-competitive or anti-competitive was the argument
put forward by Leegin.
518
District court as well as the circuit court rejected, refused to apply the rule of reason. So,
there is a standoff between the per se rule and rule of reason. District court refused to
apply the rule of reason and circuit court also refused to apply the rule of reason, which
was raised by Leegin and they stuck on to the per se rule from the Dr. Miles.
Here the role of the court is to very closely look into the competition law. Whatever the
methodologies adopted by the manufacturer or distributor or the retailer if there are pro-
competitive effect in the market or if it is for the best interest of the consumers then the
competition authorities has to hold it valid, no violation of Sherman Act.
They discussed whether it is unlawful per se. The reasonableness of these individual
restraints or reasonableness of this particular business practice. So, I think that the per se
rule was very strongly applied by the courts for a long period of time. Outlawing this
particular principle is not so easy at any point of time. It is per se illegal and these kind
of restraints almost restrict competition and decrease output in the market and no welfare
to the consumers.
519
Anybody would think that the per se rule is very strong and in favour of the consumers.
But, the question is if I arranged business at the manufacture level, at the wholesale level
and retail level and if the product is reaching to the consumer at a fair minimum price
and not only to keep discipline but looking into the business policy they are keeping it
which will have pro-competitive effects. Any policy, any business policy or any business
method either has a pro-competitive effect or it has an anti-competitive effect.
If anybody can prove that it has an anti-competitive effect then, the competition law will
come into play and no intellectual property protection can be a justification to violate the
competition law.
520
So, Leegin has raised the pro-competitive effect justification very strongly. Even if there
is a vertical price restraint, it has a pro-competitive effect in the market that means, the
minimum resale price maintenance can stimulate interbrand competition, among the
manufactures selling different brands of the same type of product. So, if Interbrand
competition is there the price will be lowered in the market.
So, among the retailers if there is a strong interbrand competition the retailers can sell it
for a lower price which is going to be beneficial to the consumers. So, even if you apply
the same circumstances, in certain cases you have to look into the market. What are the
prices at which the manufactures are selling it to the wholesaler, selling it to the retailer
and then ultimately whether the consumers are getting the particular products, especially
medicines at a lower price?
521
So, Leegin very strongly argued about interbrand competition. So, interbrand price
competition reduces the prices and increases the service. Low prices are always
beneficial to the customers. But if there are high prices the brand fails and if there is an
interbrand competition it leads to low pricing then, definitely the brand value increases,
the service increases and the consumers are benefited by the lower prices.
522
As I told you see in order to overturn a judgment which is there for almost a century, for
a long period of time you have to very thoroughly analyse the market and the
justifications. There is no doubt that vertical restraints are per se illegal; no doubt, but
you have to actually probe into the vertical restraints, the price maintenance, the
minimum price maintenance, the minimum sale price. So, if the inter-brand competition
argument succeeds, then the argument of pro-competitiveness succeeds.
The free riding in the market will be completely avoided by inter-brand competition.
These two very strong arguments are on one side of the per se rule and the second side is
the rule of reason and they strongly clash with each other. The court has to very seriously
and very cautiously look into the pro-competitive effect and anti-competitive effect and
its consequences on the price restraints.
523
Finally, we can see that the court adopted the rule of reason in this particular case and
rejected the per se rule. So, Dr. Miles was overruled in Leegin case. The per se rule is the
rule and rule of reason is an exception. It is the duty of the defendants to prove, the duty
of the claimant to prove that it is pro-competitive in nature. It is per se anti-competitive,
but if you can prove the pro-competitive nature then it is not going to be the violation of
the Sherman Act. This was the judgment in Leegin.
524
Finally, Dr. Miles was overruled. So, the vertical restraints has to be looked from
applying the rule of reason and if you can prove that these vertical restraints are pro-
competitive in nature and the competition law is not going to be applicable and it is not
going to be violation of the Sherman Act. Definitely the rule of reason is an exception.
And the pro-competitive effects have to be proved beyond doubt.
525
!
It should be for the best interest of the consumers and all other reasons are rejected. So,
if it is a restraint of trade, if it is proved to be a restraint of trade then definitely it is a
violation of the Sherman Act. So, the pro-competitive effects should be proved beyond
doubt and the consumer welfare should be proved. Resale price maintenance at the
vertical level if it is pro-competitive and if it promotes interbrand competition it is not
violation of the Sherman Act.
526
!
This was the judgment in Leegin. Definitely this is a shift from the earlier position of per
se rule. So, these two cases i.e. Dr. Miles and Leegin are very important for the
intellectual property versus competition law, because in the beginning of 1911, the court
ruled in favour of per se rule, but in 2007, after long period of time, the court has
analysed the pro-competitive effect. They changed their mind and said that it is not
always per se rule that will be applicable. So, Section 1 of the Sherman Act need not
always be applied.
Appling the rule of reason to find out whether there is any pro-competitive effect on the
market as well as whether the consumers are benefitted. If the consumer is benefitted,
then definitely the rule of reason will be applicable. Dr. Miles from 1911 was overruled
in this particular case.
As I already told in the last class that, in 2017 the department of justice and FTC came
out with new guidelines overruling 1995 guidelines. It adopted Leegin principles and
included the rule of reason and now the US agencies are not going to presume the per se
illegality.
So, this is historical, historical in the sense that the mindset of the manufacturers
changed, the mindset of the cartels, the entire combination of cartels changed because if
you look from the very beginning, the objective of the Sherman Act, the objective of the
Sherman Act was to completely demolish the trust which formed cartels. They were
527
doing bid rigging, completely controlling the market, resales, bundling, tying. So, the
Sherman Act as well as the Clayton Act was successful in controlling these.
With the new realities, the new business realities and new business methods, opening up
of markets, opening up of international trade and the enforcement of the intellectual
property law through TRIPS agreement implemented among 164 WTO member
countries. So, if a judgment is taken wrongly then the other WTO members are going to
take you to the WTO dispute settlement system for the violation of WTO agreements,
restraint of trade.
So, you have to very cautiously apply the competition law. Intellectual property
protection is has prime importance in the present day, innovation area. If intellectual
property is not protected, it is very difficult, there is no incentive for innovation. So,
intellectual property should be protected, but the protection, the limit of intellectual
property rights should be within the parameters of the competition law.
So, the rich US jurisprudence clearly proves that consumer welfare is supreme. So, even
ruling from Dr. Miles to Leegins, the objective was very clear: consumer welfare,
welfare of the market, welfare of the pro-competition in the market, pro-competitiveness
should be promoted. So, the objective of competition law is to promote competitiveness
in the market, competition in the market, not the competitors.
Thank you.
528
Prof. K D Raju
Lecture - 24
Enforcement of anti-Trust Law in United States
Dear students, today we are going to discuss the Enforcement of the Anti-Trust Law vis-
a-vis IP Law in the United States. In the last classes, we were discussing the entire provi-
sions and implementation of the Anti-Trust Law vis-a-vis intellectual property law in the
United States.
And today, specifically we are going to discuss the various agencies involved in the im-
plementation of the intellectual property law as well as the competition law. There is a
Department of Justice(DoJ), there is a Federal Trade Commission(FTC) and there are
various programs to implement the Anti-Trust Law and different areas of enforcement
which we will be discussing.
529
What is the objective of anti-trust law? Anti-Trust Law is specifically to protect the eco-
nomic freedom of the market as well as to promote competition in the market and there
must be free and fair trade, or free and fair competition in the marketplace. This is the
objective of the anti-trust law.
The ultimate objective of the competition in the free market is to enable the entire market
for consumer welfare. And this will enable to lower the prices, better the quality, better
the consumer choice and will also lead to the welfare of the consumers ultimately. And
moreover, it provides business opportunities for the new entrants to compete in quality,
in price. In an open market, there must be a level playing field in the market for the new
entrants.
So, if there is no competition in the market, if there is only monopolies or oligopolies in

the market, the market is going to be distorted. These anti-competitive restraints restrict
new entrants. There must be competition in the market.
530
If you look into the provisions of the Sherman Act which we have already covered, Sec-
tion 1 of the Sherman Act prohibits contracts, combinations and conspiracies in restraint
of trade. And also it restraints and prohibits unreasonable restraint of trade which impacts
the economy, affects the economy of the United States.
And thirdly we can see the agreements. A certain category of agreements such as busi-
ness agreements is held to be per se illegal, without any further analysis. There is a pre-
sumption in favour of the per se illegal rule. When the competitors engage in price-fix-
ing, division of markets including vertical as well as horizontal markets, bid rigging,
group exclusions etcetera it becomes per se illegal. So, Section 1 prohibits these combi-
nations and conspiracies to restrain trade.
531
If you look into the penalties which are imposed, there are criminal penalties as well as
civil penalties. And the United States is one of those countries where criminal penalties
were imposed and if one is in violation of these prohibitions, the Sherman Act will attract
10 years of imprisonment for individuals. This is very harsh punishment which is im-
posed under the Sherman Act.
If you look into India, you can find that there is no jail time, there are no criminal penal-
ties which are provided in the Competition Act. There(in the United States) the fine is
also very huge amount. The criminal fines are up to 100 million for corporations or twice
the loss or gain from the violation, whichever is greater in quantity.
In the case of an individual, criminal fines can be up to 1 million or twice the loss or gain
of the violation, whichever is greater and will be imposed as criminal penalties. If you
look into the civil penalties, then we can see that there are treble damages available to
the successful plaintiff which includes the attorney fees and the cost of litigation and
there are several joint liabilities imposed on the defendants in case of civil penalties.
532
The enforcement of antitrust law in the United States is by two agencies. The first one is
the department of justice, which is the law enforcement arm of the executive branch and
the second is the federal trade commission which is construed under the federal trade
commission act, which is an independent regulatory authority created by the Congress.
The third category, which we see there are lot of individual attorneys, attorney generals,
all over the states playing a role in enforcing the anti-trust law. The fourth category is
that of the private persons and non-governmental organisations, civil litigants and others
those who file cases against big companies, those who engage in anti-trust violations.
533
If you look into both the agencies, both the agencies FTC and the department of justice,
they work with each other, meaning that in some areas their works overlap with each
other, but the two agencies complement each other. They will always try to see if there is
overlapping of initiations by both the agencies. So, both the agencies are experts in cer-
tain areas or industries and markets and so, they cooperate with each other and transfer
information, share information with each other, so that there is no overlapping of en-
forcement.
534
If you look into the FTC, the FTC is the independent regulatory authority which spends
their resources in certain segments of the economy or they specialise in certain areas of
the economy which is a lot of spending in the American market.
For example, the healthcare sector, like pharmaceuticals, professional services, food, en-
ergy, and high-tech industries, like the computer giants, internet services. So, this agency
specialises in these areas and they consult with the department of justice before initiating
any investigation in order to avoid duplication of their investigations.
And on the other hand, in the department of justice there is a division on the anti-trust
law. Those who bring criminal charges against individuals and companies, who harm
American market or who harm the American consumers, like fixing prices or bid rigging
allocating markets or tying or meddling other and other categories of offences, which we
will discuss it later will be dealt by this department.
535
The department of justice is headed by an assistant attorney general for anti-trust. They
focus or they initiate civil and criminal provisions under Section 1 of the Sherman Act,
Section 2 and Section 7 of the Clayton Act. They enforce these provisions virulently in
the American market or in the company or with individuals who are violating the anti-
trust provisions, they also initiate prosecution in the court.
536
The department of justice is exclusively responsible for the criminal enforcement of fed-
eral antitrust laws. In some of the cases like the United States versus US Gypsum, the
court held that the government must prove criminal intent to obtain a criminal anti-trust
conviction. So, a greater quality or greater quantity of evidence or greater evidence is
required to initiate the criminal investigations. The court said that, the criminal intent
must be proved then only they can initiate the criminal action against the violation of the
Sherman Act. They work in the jury system.
Lets look into the criminal enforcement in almost the last 10 years, the department of
justice releases these data every year. We can see that the corporations have been less
prosecuted than individuals and in almost every year for the last 10 years the individuals
prosecuted are very high in number, in terms of the cases or charges levelled against in-
dividuals than the corporations.
It means that the corporations are either complying with the anti-trust law or the com-
plaints against the American companies are very less. For example, in the year 2018
there are only 5 charges, i.e. only 5 corporations were charged with anti-trust violations.
This is the case in most of the years, the number is approximately 20. It means that cor-
porations are more complying with anti-trust provisions than individuals. So, it is very
537
clear that more individuals are involved in the violation of the anti-trust provisions in the
United States.
Grand jury system prevails in the case of this act as well as the Sherman Act. The grand
jury is convened under the authority of the court and is run by the prosecutor and then
finally, they come to the conclusion. The department of justice runs two programs for
settling disputes, settling disputes with corporations and settling dispute with individuals.
And with corporations it is known as the corporate leniency program and with individu-
als it is known as the individual leniency program.
538
These programs are to settle the disputes with a lenient mind. This program is applicable,
to those who are co-operating with the investigation or those who voluntary come up and
disclose anti-trust violations to the department of justice. It is basically to investigate, it
is a tool, it is used as a tool for detecting cartel activities. The people those who are giv-
ing information will be considered leniently.
So, here the corporations and individuals those who report their anti-competitive activity
to the department of justice and co-operate fully in the division’s investigation of a cartel
can avoid criminal conviction, fines, prison sentences, if they meet the requirements or
preconditions of the program.
539
If you look into this program you can see certain conditions. The leniency programs are
availed by the corporations as well as individuals. Their activity must be reported to the
department of justice at an early stage. And it is must that the information must not be
reported by anybody else, so they must be the first person to report that particular activi-
ty to the department of justice.
Only in these cases leniency will be shown to the informer along with report on others
those who are doing this particular activity. Leniency will be shown to the people those
who disclose or give information to the authorities. This policy is also known as corpo-
rate amnesty or corporate immunity policy. This is in line with the famous criminal ju-
risprudential system, those who give information on the commitment of crime will be
leniently considered.
540
Corporations reporting activity must do so before the investigation begins. Those who
are giving information to the DoJ must do so before starting the investigation, not after
the investigation has started, this is one of the conditions.
The corporations, upon the discovery of illegal activity being reported, must take prompt
and effective action to terminate that part of activity. So, they must promptly terminate
that particular activity and this confession of wrongdoing should be a truly corporate act,
as opposed to the individual confessions by the executives and other officials of the
company. These are some of the pre-conditions to come under the corporate leniency
program.
541
The individual leniency program has been extended to the individual suspects. It applies
to all the individuals who approach the department of justice on their own behalf to vol-
untarily disclose information to the department of justice. The conditions are: it must not
be as a part of the corporate offer of confession to seek leniency in reporting anti-trust
activity. This must not have been previously made aware of to the department of justice
by anybody else. He should be the first person to report this particular matter to the de-
partment of justice.
542
The other conditions are that the leniency will be granted to an individual, reporting ille-
gal anti-trust activity before the investigation has begun. They must meet minimum three
conditions. The first condition is that the individual comes forward to report the illegal
activity, and the division has not already received the information about the illegal activi-
ty from any other source.
The second condition is the individual reports or wrongdoings, complete candour and
completeness, provides full, continuing and complete co-operation to the department of
justice, throughout the investigation. That is the second condition to avail this individual
leniency program. Thirdly, the individual did not coerce another party to participate in
the illegal activity and clearly was not the leader or originator of that particular activity.
That is the third condition to avail the individual leniency program.
When it comes to the civil enforcement, the department of justice has the power to attack
anti-trust violation through civil enforcement as well, this is usually initiated in the case
of less serious, clearly illegal or harder to prove activity than the hardcore activities. In
the case of hardcore activities, criminal prosecutions will be initiated. The civil actions
will be initiated against less severe activities.
543
The department of justice has enforced merger enforcements as well. The companies
may merge, the companies may acquire another company, mergers and acquisitions
along with joint ventures are not illegal per se. But the department of justice, the anti-
trust division has the authority to look into each and every activity, each and every merg-
er. Each and every merger of companies is not illegal.
But they can look into the activity whether it is for avoiding or whether it is for fixing the
prices, whether it is for dividing the market or whether any other illegal anti-trust activity
is taking place or not. Because the responsibility of investigation is shared between the
federal trade commission and the department of justice.
544
So, if we look into the merger enforcement, we can see that, the major provisions which
are applicable to mergers are Section 7 of the Clayton Act, Section 1 of the Sherman Act
and Section 5 of the FTC Act.
Section 7 of the Clayton Act proscribes a merger the effect of which may be substantially
to lessen competition. The per se rule is not applicable here, the rule of reason is applica-
ble here. So, if the merger is for substantially lessening competition in the market, then
the competition authorities or the anti-trust authorities, the department of justice and
FTC are going to look into this particular activity under Section 7 of the Clayton Act.
If we look into Section 1, it specifically prohibits any activity, agreement that constitutes
an unreasonable restraint of trade. Under section 5, the federal trade commission en-
forces or proscribes unfair methods of competition. So, there are three Acts, one is the
Sherman Act, second is the Clayton Act and third is the FTC Act. The enforcement
agency can look into the mergers of companies under any of these provisions.
545
Another method is the business review letters. The companies can go to the authorities,
department of justice or FTC and take their views on the activities. The business review
letters are nothing but advises from FTC or law enforcement agencies on competition.
So, here the people are concerned about the legality. The companies or individuals them-
selves make sure that they are not entering into any kind of illegal anti-competitive activ-
ities. So, they can approach the department of justice or the FTC. These are the proposed
business conduct, particular business which they are going to carry out and current en-
forcement intentions with respect to the conduct of that particular business.
The department of justice and the FTC can look into that particular business, review the
entire process and issue a business review letter which makes it sure before starting the
business that the businessmen are not entering into any illegal activities under the Sher-
man Act or the Clayton Act or the FTC Act.
546
These business review letters gives an important opportunity to the businessman to get
guidance from the department with respect to the scope, interpretation and application of
the anti-trust laws to particular proposed conduct.
So, it gives, in advance, the advice from the department of justice or FTC with regard to
particular business activity. So that the companies or the individuals can make sure that
the activity which they are going to or the business which they are going to start or the
business method is not anti-competitive in nature. The authorities issue business review
letters in the form of advance advice to conduct a particular business which will be bene-
ficial to the industry as well as beneficial to the enforcement agencies.
547
You can see the process is simple and this is in response to a written request, outlining
the parties proposed business conduct and then the anti-trust division will issue a busi-
ness review letter. So, the party seeking such letter must provide a detailed description of
the planned activity along with the concerned documents. And in response to the infor-
mation which is disclosed to the department, the division may state its present enforce-
ment intention, take such other position or action it considers appropriate. So, the de-
partment of justice advises on the particular activity whether it is going to violate any of
the provisions of the competition law.
548
These are the activities of the department of justice. And now we will look into the activ-
ities of the federal trade commission. Federal trade commission is an independent regula-
tory body which is constituted under the Federal Trade Commission Act. It is led by five
commissioners appointed by the president for a 7-year term. They have a much higher
responsibility.
The FTC has three bureaus; the competition bureau, consumer protection bureau and the
economics bureau. They have a larger role to see whether the competition authorities are
harming consumer interest and economy in general, whether the economy is harmed or
the market is harmed.
549
The federal trade commission’s mission is prescribed on their website “to prevent busi-
ness practices that are anti-competitive, deceptive or unfair to consumers”. The second
objective is consumer protection. They clearly say that the Federal Trade Commission
Act under the FTC Act, unfair or deceptive acts or practices affecting commerce are de-
clared unlawful. And thirdly, they look into the competition, the FTC Act also prohibits
unfair methods of competition, any kind of conduct which violates the Sherman Act or
the Clayton Act.
FTC has a larger role. They look into all the legislations and they are involved in the en-
forcement of all the anti-trust legislation. But they will always try to see that it is over-
lapping with the department of justice. They work hand in hand and consult each other in
order to avoid duplication of actions.
550
FTC administers the FTC Act and principally Section 5 to enforce the Clayton Act and
the Robinson-Patman Act and also they enforce Sherman Act as well as the Clayton Act
indirectly under the Section 5. So, there is a broad mandate which is given to the FTC
Act under Section 5. They can interfere, they can enforce any of the provisions of FTC
Act, Sherman Act and Clayton Act. They can look under the various provisions, they
have jurisdiction to look into specific conduct of the industry.
551
At the same time, the FTC shares its responsibility with the department of justice for
merger enforcement for promulgating and enforcing pre-merger notifications which are
implemented under the Hart-Scott-Rodino Anti-trust Improvements Act of 1976. It is an
independent agency. They have the power to pass cease and desist orders in the case of
violations of the FTC Act under Section 5. So, they have wider powers under the FTC
Act than in the other legislations.
If we look into some of the enforcements provisions which they put on their website, we
can see various categories of cases dealt by the FTC. For example, the case of settlement
of in-app purchases, it was a 32.5 million settlement with regard to apple. And all major
companies such as Honeywell, merger of barcode scanner companies in the case of com-
petition. Honeywell, Nielsen and Wise Media, Jesta Digital, TRENDnet, all these are dif-
ferent categories of dispute cases dealt by FTC.
They will look into different kind of activities involving the latest technologies, the tech-
nology companies, they will look into different kind of cases and take action against
companies those who violate the provisions.
552
When it comes to the enforcement of the intellectual property involved competition law
cases, the FTC is very active. These cases are very technical in nature, very complicated
in nature, but the FTC deal with these kind of cases in a series of areas like cross-licens-
ing, patent pools, refusal to deal, tying and bundling, market divisions and all these have
been dealt by us in detail in the last classes. The FTC looks into these activities and en-
force the particular provisions.
Specifically the FTC looks into whether these companies/the patent owners are going
beyond the rights conferred under patents or copyrights or trademarks. And they look
into the anti-trust angle of their dealings especially in the case of licenses or cross-licens-
es or agreements or franchise agreements etc.. So, the FTC has a dual role; they have to
look in from the intellectual property protection perspective as well as they have to look
into the competition law perspective.
553
They usually look into the price-fixing and the coordinated output restrictions, foreclo-
sure of innovations, prohibited other anti-trust activities very closely and these will be
always controversial in nature.
We can find that intellectual property is present in merger control as well. So, innovation
is the mantra of success for any particular company. Innovation can be purchased from
another company, innovation can be acquired through mergers from another company.
554
This will increase the competitiveness of the company or increase the firm’s ability to
compete with its competitors in the market and also put pressure on the competitors to
innovate, so that there will be a fair competition in the market.
But these mergers must be approved by the anti-trust authorities. It must get the signature
of the anti-trust authorities. Because the merger rules very clearly say that none of the
mergers should be for violating any of the provisions of the Sherman Act or Clayton Act
or FTC Act. So no mergers can violate these provisions. If it is found later then these law
enforcement agencies will enforce these particular provisions.
We can see that in the case of mergers there can be structural as well as behavioural as-
pects. The structural remedies are related to the selling of the activity, a line of business,
in order to immediately restore competition in the market and the behavioural remedies
are to modify or constrain the market conduct of the merging firms. So, the mergers have
always had an angle of anti-trust. So, they should get the signatures of the anti-trust au-
thorities in order to merge companies.
555
And there are a lot of controversies especially in the case of technology licensing agree-
ments, so the licensing practices like technology grand back or tie-ins, territorial market
limitations and field of use restrictions and all these restrictions will be addressed in the
case of technology licensing. The FTC is to look into these kinds of activities very close-
ly and sometimes these kind of activities cannot be declared per se illegal. The FTC has
to look into these activities specifically under the rule of reason standard and check
whether it is for the welfare of the market or not.
556
The FTC looks into these agreements by applying the rule of reason. This can be poten-
tial or competitive and have existed without an agreement, it may be considered restric-
tive in nature. That means the rule of reason is a basic criterion to look into these particu-
lar agreements by FTC.
Intellectual property rights are given for a limited period of time and the enforcement
agencies always look into whether these owners of the intellectual property are exceed-
ing their rights conferred under the patents or trademarks or copyrights. This is the main
duty of the enforcement agencies, and this is very complex in nature.
In the case of patent rights, patent rights give monopoly for a limited period of time and
the patent holders license, cross-license and even assign their rights to other companies
that may be competitive companies. But the agencies, the law enforcement agencies al-
ways look into the purpose of the mergers or purpose of the transactions, purpose of the
cross-licensing, whether it is for stopping or restraining competition in the market. This
is the duty of the agencies to look into the cross-licensing agreements.
557
Even the smallest IP(intellectual property), the smallest patent can yield big quantities of
royalties because the competitive companies may want that particular patent to compete
in the market along with their rival companies.
Portfolio cross-licenses and patent pools can solve this particular problem, in those cases
pooling cross-licensing and pooling of patents are not per se illegal. The rule of reason
will be applicable in those particular cases. This will reduce the transaction cost, this will
be mitigating hold up problems and this will be good for the market. The FTC will look
into these pro-active conditions to determine whether they are anti-competitive in nature
or not.
558
We already discussed that, licensing and licensing activities are not at all prohibited. If
any kind of activity is anti-competitive in nature, then only the FTC will consider them
as violation of the anti-trust provision.
Let us look into these individual activities which FTC looks into, for example, in the
case of refusal to license, competition law imposes on firms a duty to deal. Refusal to
license is considered to be a violation of the competition act. But when a firm refuses to
559
deal with a customer, in most of the cases, there is an intervention by the competition
authority, intervention by the federal trade commission or department of justice. And in
all those cases the activities are not justified ones. The only question, which the en-
forcement agencies look into is whether such refusal of such opportunity is fair or ratio-
nal on the part of the firm or not.
Refusal to deal with a competitor may be abusive. Usually refuse to deal will be consid-
ered as anti-competitive in nature, but when we apply the rule of reason it may be pro-
competitive as well. So, it is the duty of FTC to look into the pro-competitive effects on
the market.
There is another area which is the tie-in arrangements and bundling, which we have dis-
cussed elaborately earlier. Tie-in arrangements are considered to be per se illegal under
the provisions of anti-trust law. In these cases one is compelling a customer to purchase
something which he does not want to purchase, along with an item that may be patented
or that may have some intellectual property on that product.
Bundling, when two or more products bundled together, is always considered as anti-
competitive in nature, otherwise it is the duty of the defendant to prove that the bundling
560
of such products has a pro-competitive effect in the market otherwise tie-in arrangements
are always considered as per se illegal.
We saw a number of cases visited by the US courts which clearly said that in the case of
tying and bundling if the firm lacks market power then the tying is not considered as
anti-competitive in nature. So, it is the duty of the complainant to prove that the tie-in
arrangements or bundling arrangements which are abusive in nature are against the mar-
ket. The purpose has to be analysed very closely in the case of tying arrangements.
561
The bottom line is that if the tying and bundling are abusive in nature they are not going
to increase the efficiency of the market or demand, they will be considered as anti-com-
petitive in nature.
If we look into the price-fixing, which we have discussed earlier, we can find various
type of price fixings. It is not only confined to the prices as such in technical terms. The
price-fixing includes the future prices, pricing policies, promotional aspects or promo-
562
tional programs, bids, cost, capacity, the terms or conditions of sale, especially the credit
terms, scale back or credit back, discounts, identity of customers, allocation of customers
in geographical ways, production quotas, R&D plans.
All these headings will come under price-fixing. It is not just about fixing the prices. All
these agencies tend to look very closely into the objective of price-fixing.
Then comes the bid-rigging. We discussed bid-rigging and cartels very elaborately. Bid
rigging is considered to be pernicious to the market as it is considered as illegal in nature
because if two or more people or two or more firms come together on a prior agreement
and if they are bidding there would be no competition in the market as such because the
competitors will agree to take turns of being the lowest bidder. They will sit out of the
bidding round and will be sitting for the next round of bidding. This is unacceptable, this
is absolutely unacceptable to the market because these bid-rigging agreements are in the
form of subcontracting and are also considered as cartelization.
Forming joint ventures for bid-rigging will also be considered as a violation of the anti-
trust provisions. The federal trade commission or the department of justice very closely
looks into the cartelization or the forms of cartelization, in the form of bid-rigging, the
reasons for forming the joint ventures.
563
The most important thing is the geographical distribution of markets or customer alloca-
tion. We saw some of the cases and the courts always said that these are per se illegal. It
is the duty of the party to prove that this is not for curtailing the competition in the mar-
ket. Generally geographical allocations are considered as per se illegal under the compe-
tition act, under the anti-competitive provisions in nature. Market allocation, customer
allocation, geographical allocation will be considered as per se illegal under the Sherman
Act.
564
Another form is the refusal to deal, boycotting or refusal to do business with another
firm. You can see that one competitor cannot be compelled to do business with another
competitor, but the purpose has to be looked into.
If the refusal to deal has a pro-competitive effect in the market then that would not be
illegal. But in most of the cases we can see that those are illegal. The boycotting or re-
fusal to deal with a particular competitor will be considered as illegal especially when
there is a group of competitors working together to capture the market or to capture some
of the objectives which we mentioned earlier, then the refusal to deal will be considered
as violative. This also has to be looked into by the department of justice and the federal
trade commission.
If you look into some of the other arrangements, any other kind of arrangements which
are going to affect the market, will be considered by the department of justice and FTC.
Whether they are harmful to the consumers, harmful to the market or anti-competitive in
effect or nature will be considered by these law enforcement agencies but they will apply
they will always apply the rule of reason. So, these two agencies work in tandem to look
into all these kind of activities in the market, to see that everything in the market is to
provide pro-competitive benefits to the consumers.
565
The law enforcement is very complicated for these two agencies in the United States.
When enforcing intellectual property related anti-trust cases, these agencies find chal-
lenges or tensions, between the anti-trust enforcement and intellectual property protec-
tion. This exclusionary conduct or the conduct which we mentioned above whether it is
tie-in or it is geographical location, etc. these violations coupled with intellectual proper-
ty protection makes the determination very difficult and challenging for these particular
agencies.
We discussed in this class, specifically, the enforcement agencies of the United States i.e.
the department of justice and federal trade commission, their mandate and that these
agencies look into different areas of the enforcement. These agencies are very important
for enforcing intellectual property related competition cases because these are the two
agencies engaged on a day-to-day basis to deal with both, corporations and individuals in
intellectual property related competition cases.
I would say that United States is the one country, that is very liberal in nature in the case
of doing business, at the same time it is very strict in enforcing the anti-trust laws, espe-
cially the anti-trust involved intellectual property protection cases. The best example is
the Microsoft case. Microsoft involved a series of cases, in which tie-in arrangements
and bundling was involved.
566
Whether it is the United States or the European Union, the anti-trust provisions are con-
sidered very serious legislation, that is why you have enforcement agencies strictly im-
plementing these particular legislations.
If you look into India, we have to learn many things from these particular agencies as far
as the enforcement is concerned, because we are in a very nascent stage of enforcement
of the competition law. Our market is not a mature market. Our market is still develop-
ing. And we opened our economy in 1991 and the market is still not mature enough to
accommodate all the provisions of the competition law.
But I would also say that, we have examples like that of the cement industry, the airline
industry and other industries. We can see lot of cartelization in the Indian market and the
enforcement with the competition commission. The competition commission requires a
lot of expertise to deal with these ordinary cases, and especially when it comes to the en-
forcement of intellectual property related cases, they require a lot of expertise such as
in the Microsoft case, the Singhania case and the latest Micromax case.
You require a lot of expertise in the enforcement agencies, you require a lot of expertise
in judiciary to deal with these competition involved cases. In the United States these two
agencies play a very crucial role. Our competition commission has to look into the oper-
ation of these agencies in enforcing the anti-trust competition law.
I hope that, this comparison will help you to learn many things from other jurisdictions.
Thank you.
567
Prof. Niharika Sahoo Bhattacharya
Rajiv Gandhi School Of Intellectual Property Law
 
Lecture - 25
Introduction to EU Competition Policy and IPR
Hello all, welcome to this module on European Competition Policy and Intellectual
Property Rights. In this module, we are going to briefly discuss the European
Competition Policy.
The main provisions under this European competition policy, which we can relate with
the various aspects of intellectual property rights and their commercialisation in the
market, particularly are the Article 101 and Article 102 of the treaty of the functioning of
the European Union. In this we would discuss the various scopes and application of
those articles.
We would discuss a bit about the competition policy and intellectual property rights, and
at a great length in the next modules.
568
The competition policy in the European Union is a vital part of their internal market. The
European competition policy aims at providing a healthy and fair competition amongst
the players in the market, to the companies which are offering different goods and
services in the market.
So that, the people of the European Union can get better products and services at a
reasonable price. There are a set of rules and regulations within European competition
policy, which regulates the European market. Thereby providing better quality material
or substances to the consumer as well as offering more choices to the consumer. If you
look into the basic objectives of the European competition policy, the major objectives
are as follows:
One of the major objective is to provide goods and services at a lower price. To gain any
market one of the easiest or important things the market operators or the companies think
is to provide the goods and services at a better price or better quality. So, reducing the
price of these substances along with maintaining quality is an important aspect. The EU
competition policy ensures this. They also ensure that the companies operating within
European market provide better quality products. And, since there is a fair and healthy
competition, the companies would definitely try to come out with different kinds of
products which are different from the existing products.
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The consumer would get more choice of products and in this process of making a
different product comes the part of innovation. The European competition policy further
ensures innovation. All this together, not only leads to a good competition in the internal
market of the European Union but it also leads to better competition in the global market.
All these are achieved with a set of rules and regulation. The European Union’s antitrust
policy arises from the two sets, two central rules, which are set out in the treaty on the
functioning of the European Union and the Article 101 and Article 102.
So, in this module, we will discuss these Articles one by one. We will discuss these in the
context of the competition policy. In the latter part of this section, we would try to
correlate the sections along with the aspects of the intellectual property rights.
Article 101 prohibits agreements between two or more independent market operators,
restricting the competition. These provision covers both the horizontal agreements as
well as the vertical agreements. So, what are those horizontal agreements? Horizontal
agreements are the agreements between the actual or the potential competitors operating
at the same level of the supply chain.
Means, if there are two manufacturers which are manufacturing two similar kinds of
products, they can be said to operating at the same level of the supply chain.
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And, vertical agreements are those agreements between the firms or the companies,
where the companies are at a different level of the supply chain. For example, the
agreement between a manufacturer and it’s distributor. Article 101 prohibits agreements
between these kind of firms or the companies, which may restrict the competition in the
market.
There are few exceptions provided under this article. One of the prominent example for
Article 101 is the prohibition over the creation of cartels between the competitors. The
cartels are the group of the companies operating at the same or different levels so that
they may involve themselves in price-fixing or market sharing.
If we look into Article 101, there are four important things, which needs to be taken into
consideration. For example, the Article 101 directly prohibits the agreements between
the company which inhibits competition in the market, but there are certain exemptions
provided under this Article 101 under sub-section (3).
It talks about undertakings and the association of undertakings, also about the status of
the companies between which agreements are taking place, what kind of company can be
liable for violation of the competition rules.
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The concept of undertakings and the association of undertaking is also very important to
understand. There is de-minimis doctrine, object or the effect of restricting or distorting
the competitions, which we will discuss later. There are four important aspect of Article
101, which are very important and which we will discuss one by one.
Article 101 prohibits agreements, which directly or indirectly fix: purchase or selling
prices or any other trading conditions. Secondly, they limit or control the production,
market, technical development, investment or any agreement which shares the market or
sources of supply. It also prohibits agreements, which apply dissimilar conditions to
equivalent transactions with other trading parties, thereby placing them at a competitive
disadvantageous position.
It also prohibits the agreement that makes the conclusion of the contracts subject to the
acceptance by the other parties of certain supplementary obligations, which by their
nature or according to the commercial usage have no connection with the subject of such
contracts.
These are the few things which have been stated directly under Article 101.
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However, sub-section (2) of Article 101 also says that “any agreements or decisions
prohibited pursuant to this Article shall be automatically void”. So, any agreement or any
decision which is directly mentioned under sub-section (1) of Article 101 will stand
automatically void.
However, sub-section (2) of the treaty is silent about the concerted practices and only
talks about the agreements.
As you know the agreements and decisions may create rights and obligation whereas the
concerted practices do not create any rights or obligations. It remains silent about other
things.
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Under sub-section (3) of Article 101, there are certain provisions given where the
provisions of paragraph 1 may stand inapplicable. For example, in the case of any
agreement or category of the agreements between the undertakings or any decisions or
concentrated practices between the undertakings, which contributes to improving the
production or distribution of or promotion of technical or economic progress.
If any of these agreements are leading improvement in production or distribution of the

goods, or promotion of the technical or economic progress, then it would not be
considered as a violation of competition policy because the European competition policy
aims at promoting a fair and healthy competition in the market, which promotes
consumer welfare and which enhances innovation.
Consumer welfare and promotion of innovation or technical advancement is the basic

objective of the European policy. So, whenever there is an agreement, it is looked from
two dimensions, whether it is promoting the innovation, or whether it is promoting
competition or not. These things are looked into and then it is decided whether the
agreements are anti-competitive or pro-competitive in nature.
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The balancing of the anti-competitive and pro-competitive effect is conducted within the
framework laid down in sub-section (3) of Article 101. As I mentioned earlier four
conditions are taken into consideration: if there is any gain in the efficiency of the
process, if the consumers are getting any fair shares or any benefit at the end of the
agreement or all those restrictions which are placed in the agreement are really
indispensable to the whole process, or is there a better way of achieving all these things,
is there an elimination of competition or not.
These four aspects are looked into and accordingly the decisions are made, whether the
agreements are anti-competitive or pro-competitive in nature.
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While judging the anti-competitive agreements the court looks into various case laws.
The court has evolved the de-minimis doctrine, which states that the negative effect of
the agreement on the competition is so small that, they have no appreciable impact either
on the competition within the purview of the Article 101 sub-section (1) in the market,
nor in the interstate trade.
All these process may have a positive and a negative aspect. The pros and cons are
weighed against each other. If the negative effects of the agreement are very small or if
they do not have any substantial effect on the competition within the market, then they
would not be considered as anti-competitive practice.
This doctrine was first formulated by the court of justice in the case of Volk versus
Vervaecke, in 1969.
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One of the other important aspect of European competition policy is Article 102.
Article 102 prohibits the firms; that holds a dominant position in a given market to abuse
that position. It talks about the abuse of dominant position. One firm or a company can
abuse the dominant position either by charging unfair prices, or by limiting the
production, or by refusing to innovate, which is prejudice to the consumers.
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Both the Article 102 and Article 101 are important parts of the treaty of the functioning
of the European Union. Article 101 deals with the agreements, decisions and concerted
practices, which are harmful to the competition. Article 102 is directed towards the
unilateral conduct of the dominant firms, which act in an abusive manner. Article 102
prohibits certain forms of unilateral market behaviour.
The text of the Article 102 says that “any abuse by one or more undertakings of a
dominant position within the common market or in a substantial part of it shall be
prohibited as incompatible with the common market. In so far as it may affect the trade
between the member states”.
The abuse may in particular consist of directly or indirectly imposing unfair purchase or
selling prices or other unfair trading conditions, by limiting production, markets, or
technical development, to the prejudice of the consumers; applying dissimilar conditions
to the equivalent transactions with other trading parties, thereby placing them into a
competitive disadvantage, making the conclusion of the contracts subject to acceptance
by the other parties of the supplementary obligations, which by their nature or according
to the commercial uses have no connection with the subject of such contracts.
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These are as per the standard text of the Article. If you look into the major elements of
Article 102 we can come out with this understanding that it applies only to the
undertakings. And, these undertakings must hold a dominant market position.
The undertaking must abuse their dominant market position in the relevant internal
market or a substantial part of it. These abusive practices can be of various types, for
example, exclusionary abuse, exploitative abuse and discriminatory abuse. The abuse of
the dominance affects trade between the member states, this is the important point that
comes out of Article 102.
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The Article 102 expressively says that the provision is not only applicable to the abuse of
the dominant position by one firm, but it is also applicable in the cases of collective
undertakings, where two or more undertakings come together and hold the dominant
position.
This Article does not say that dominant position is bad or dominant position per se is
prohibited, but it is only the abuse of the dominant position which is prohibited. The
abuse of the dominant position is determined, when there is an Appreciable Adverse
Effect on the Competition in the market. And, this is prohibited under the article 102.
There are certain criteria by which the court or the commission decides, whether these
practices are creating an appreciable adverse effect on the market or not, based on their
investigation they come out with their own observations and accordingly it is decided,
whether there is an abuse of the dominant position or not.
The decision of the European Commission may be challenged in the court, at the General
Court or the European court of Justice.
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These are the two important provisions of the European competition policy. As we are
discussing Article 102, there is a question that what can be considered as a dominant
position.
The dominant position can be defined as a position of the economic strength enjoyed by
an undertaking which enables it to prevent effective competition being maintained in the
relevant market by giving it the power to behave to an appreciable extent independently.
Meaning thereby that if a company is enjoying a reputation in the market by which it can
affect the competition, by exercising one of its monopoly power or exercising any
activity then it may be considered to have a dominant position. The dominant position
per se is not prohibited, if the company abuses its dominant position then only it comes
under the provisions of Article 102.
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The abuse of the dominant position is always looked into in the relevant market.
The relevant product market comprises of all the products, all the services, which are
regarded as interchangeable or substitutable by the consumer. While considering the
relevant market we may look into whether this kind of service can be replaced by any
other service or not.
All the interchangeable or substitutable services by reason of the product’s

characteristics and their price and the intended use are considered as relevant. These
three factors are taken into consideration and supply-side substitutability may also be
taken into account, while defining the market, for example if the product is manufactured
in one place, can a supply chain fill the void or not?
All these things are considered while considering the relevant market and the behaviour
of a dominant player is judged in the relevant market, whether it is an abuse of its
position or not and then the decision is taken.
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Article 101 and Article 102, tells us or gives a fair idea about what kind of agreement or
what kind of behaviour of a firm or a company is or will be considered as anti-
competitive. So, with this background information let us discuss a little bit about the
interface between the competition law and the intellectual property law.
We know that intellectual property rights are monopoly rights, which are given to the
inventor for his or her innovative creations, it may be in the form of a patent, a
trademark, a registered design or unregistered design, know-how’s, trade secret, all these
are essential part of the intellectual property rights and since it is a kind of monopoly
right.
When we talk about the monopolistic right, we have the monopoly or the inventor has
the monopoly over the right. It is a kind of exclusionary right. We exclude or the inventor
excludes others from using that right.
In a strict sense or in the first instance it seems to be anti-competitive, in the sense that
from the very beginning we are removing any kind of competition, but we need to look
deeper into the aspect of the intellectual property and also into the competition policy. At
first it sounds like these are completely two different forms of laws, but they share the
common goal or objective, i.e. creation of or promotion of the innovation and consumer
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welfare. Consumer welfare and technical promotion of innovation are the two major
aims of both the competition law and the IP law.
In this respect, both of these laws are quite synergistic and go side by side. However,
while judging the various overlapping dimensions of the competition law and intellectual
property law it is generally looked from two perspectives.
The aim of the competition policy is to increase the market efficiency. Theoretical
scientists came up with two kinds of efficiency; one is known as the static efficiency and
the other one is the dynamic efficiency. Static efficiency is how the product is being
marketed. When we decrease the price of a product when there is more competition there
is more marketability of the product, it comes under static efficiency.
Dynamic efficiency is the promotion of the innovation or technical know-how, so that

more market player come to the market, and new products come to the market which
directly or indirectly promote consumer welfare.
When we deal with the questions of intellectual property right and competition law, the
practices associated or the conduct based on the IPR are calculated or analysed, in terms
of both static efficiency and dynamic efficiency. When the sum total of the static and
dynamic efficiency is positive, then it is not anti-competitive, but when the sum total of
the static efficiency and dynamic efficiency is negative, then the conduct of IPR is
considered to be contrary to Article 101 and 102. And, the firm’s or the company’s
practices may be considered as anti-competitive in nature.
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The guidelines on the technology transfer of Article 101 and Article 102 mention the
theory of complementarity which means that the competition law and the intellectual
property shares the same objectives i.e. promoting consumer welfare and efficient
allocation of the resources.
By virtue of the intellectual property, the company operating with the help of intellectual
property are not immune from the competition law aspect. Both the competition law and
the intellectual property law goes side by side.
This was a brief introduction to IPR and EU competition policy. In the next modules, we
will discuss the licensing agreements under Article 101 and various agreements under
Article 102 with respect to intellectual property rights and how it is decided whether
some agreements or some arrangements are contrary to Article 101 or Article 102 and
how they are considered to be anti-competitive in nature.
With this, I will stop here and we will start with the next module. Thank you.
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Lecture - 26
IP Based Conduct Under Article 101
Hello all. In the last discussion, we discussed about the various provisions mentioned
under Article 101 and Article 102 in the treaty of functioning of European Union. We
looked into the provisions laid down as per this regulation. Article 101 specifically talks
about the various associations amongst the undertakings which may be in terms of
vertical or may be in terms of horizontal agreements which if reduces or tries to distort or
tries to restrict the competition, will be considered as an anti-competitive agreement.
Article 102 talked about the abuse of the dominant position.
In this session I would like to take you through the assessment of IP based conduct under
Article 101. In this section we will look into the principles for assessment under Article
101 and in particular, we will look through case laws and analyse assessment of IP
licensing or agreements under Article 101.
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Article 101 talks about the restriction of the agreements by the undertakings, which in
any way restricts, distorts or reduces the competition in the European internal market. To
consider whether any agreement falls under this category of anti-competitive nature,
there are two principles under which the cases are analysed. The assessment under
Article 101 consists of two steps. Under Article 101 sub-section (1), the first assessment
is regarding whether an agreement has an anti-competitive object or actual or potential
restrictive effect on the competition or not. It means that, whether it is directly aimed at
achieving anti-competitive object or in some way it will lead to actual or potential
restrictive effect.
And in the second step, under the provision of sub-section (3) of Article 101, the
European commission determines the pro-competitive benefits produced by the
agreement. And then they outweigh the pro-competitive effects with the restrictive
effects. If the pro-competitive effects outweigh the restrictive effects, then the agreement
is not considered as anti-competitive and if the vice-versa happens, then the agreement is
considered as an anti-competitive agreement.
These are the basic principles which are also mentioned in the slides. So, at first it is
assessed whether the agreement is having any anti-competitive object or actual or
potential restrictive effect on competition and in the second step, it is determined that
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whether the pro-competitive effects outweigh the restrictive effects on the competition or
not. And as you know in the sub-section (2) of Article 101, it has been stated that if any
agreement is as per the sub-section (1) of Article 101 then, it will automatically stand
void.
Article 101 is regarding the vertical arrangements or horizontal arrangements. For

example, the formation of cartels or mergers. So, cartels are a group of independent
undertaking that come together by the way of agreement, they try to restrict the price or
they try to share the common market, if in any way they restrict the competition; then, it
is considered as an anti-competitive agreement. The Article 101 prohibits the agreements
whose object or effect is to restrict competition. How is it assessed whether the
agreement is having an object of restricting competition or not?
The European commission looks into the agreement and particular attentions are paid in
the three aspects. First what is the content of the agreement, meaning thereby that is the
agreement directly telling the restrictive nature of the agreement; second what are the
objectives that agreement seeks to attain. The main objective of the agreement is
analysed and third, the economic and the legal context of the agreement is looked into
because when an agreement finally comes to the market, the economic activity will be
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the final decisive factor to understand or analyse if the agreement is anti-competitive or
not.
For an agreement to have restrictive effects on the competition within the meaning of
sub-section (1) of Article 101, it must have or is likely to have an appreciable adverse
impact on at least one of the parameters of the competition. In what terms the
appreciable adverse effect can be judged? It can be judged on the basis of certain
parameters such as the competition in the market, the product pricing, the output of the
agreement and the impact on the product quality, product variety or total impact on the
innovation. The appreciable adverse impact may be judged on any of these parameters.
If it is having an appreciable adverse impact, then it will be considered as anti

competitive agreement under the sub-section (1) of Article 101. These agreements can
have such effects by appreciably reducing the competition between the parties; meaning
thereby that the agreement can be between the parties directly dealing with each other or
it may be with third parties. This means that, the agreement must reduce the parties
decision making independence i.e., if certain parties or undertakings are part of an
agreement they cannot independently make any decision and all the decisions will have
an adverse impact on the market in terms of pricing or product output or quality of the
product or on the innovation of the product.
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As per Article 101 sub-section (1), if an agreement is found to be anti-competitive in

nature; then the commission will move into sub-section (3) of the Article 101. There are
certain exemptions placed by the European competition commission, for research and
development or for R&D activity or specialised research, they allow certain kind of
agreements between the undertakings or between the companies.
Apart from these exemptions, sub-section (3) of Article 101 is looked into and the
exception rules are applied under Article 101 sub-section (3) which lays down certain
exceptions. If the agreements fall under these exceptions then it may be considered as
pro-competitive in nature. There are 4 cumulative conditions; 2 positive conditions and 2
negative conditions.
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What are these four conditions? First one is, the agreement must contribute in improving
the production or distribution of the product or it should contribute in promotion of
technical or the economical effect. We can say that there should be an efficiency gain by
this agreement and the restriction placed in the agreement should be indispensable to the
total process or for the efficiency gain. The third and most important is that if certain
kind of restrictions are placed, then the consumers must get a benefit from these kind of
agreements. They should receive a fair share of the resulting benefit.
The fair share may be through high quality of the product or product of a lower price or
product with technical advancement in theoretical sense, if it is more innovative or
technologically better. All these are indirect benefits for the consumer. The agreement
must not afford the parties possibility for eliminating competition in respect of essential
part of the products in question, i.e. it should not restrict the competition. These are the
four cumulative conditions which must be judged under sub-section (3) of Article 101
before deciding whether agreement is pro-competitive in nature or not.
As I told you earlier, now it must be weighed against the anti-competitive or the
restrictive conditions as per the Article 101. If the pro-competitive aspects are heavier or
weighs higher than the anti-competitive or the restrictive effects, then the agreement will
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not be considered as anti-competitive in nature and it will be considered as a normal
agreement in the market.
Under Article 101 several cases have been decided or assessed, whether the agreements
are anti-competitive or not. Now, let us discuss some of these cases which involve
intellectual property rights. There are certain case laws through which doctrines have
evolved. You know that there are various forms of intellectual property rights, such as
patents which are more technical in nature; designs which are different from the patents
in that they do not involve any technical advancement; only the exterior shape or
configuration is being protected.
Then, there are trademarks which are not true form of invention like patents, but are also
very important for any company or enterprise. There are plant variety protection, there
are geographical indication. So, there are different forms of IP. Each of these cases
involved different forms of IP that have their own merits and the cases were decided
based on the facts associated with the IPR. There is a general trend or general overview
over how the cases are being dealt in the European Union.
How these transactions involving intellectual property rights or agreement’s involving

intellectual property rights are considered should be looked through the eyes of
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competition policy in the European Union. In this direction, we will discuss certain cases
which would shed light on how the IPR and competition law are associated and how they
establish the complementarity nature which we discussed in the earlier module. One of
the landmark cases with respect to intellectual property rights was Maize Seed Case or
the Nungesser versus Commission of the European community. This case is one of the
landmark cases, where the issue of exclusive licenses and territorial protection in
conjunction with intellectual property rights were dealt with.
The facts of the case are, the French agriculture research institute INRA developed a
specialized hybrid maize seed. They had plant variety rights or the breeders right. They
transferred all the rights to the seed distributor company in the France the Nungesser.
Nungesser got the exclusive license with territorial protection to take this brand as well
as to sell the seed and cultivate the seed exclusively in Germany and no third party
including the INRA was allowed to cultivate or sell the seed in the German territory.
It excluded all the third parties including itself. In Germany, Nungesser was the only
company who was supplying the seeds and cultivating the seeds. The prices were higher.
Since it did not allow any third parties, the European commission looked into this case as
a violation of the competition law and violation of Article 101 of the treaty on
functioning of European Union and this case was registered. Aggrieved by this decision
of European commission, Nungesser approach the European court of justice. The
European court of justice partly allowed the decision. The issue here was the exclusive
license and territorial protection.
As you know intellectual property rights gives us the right of exclusivity. In any of the
intellectual property, the inventor invests money, resources in the research and
development of it, also a long period of time is invested. To gain benefits, it is essential
to provide the inventor with certain exclusivity or certain benefits because he has to recur
the cost which he has invested in the research. The inventor wants some profit out of his
invention, for which some exclusivity, is granted to the inventor as per the norms of the
intellectual property rights.
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But, the competition law looks into the static dimension: for example the lower pricing
and availability to the consumer, equal competition between the market players. With
this context, in this case, the European Court of Justice looked into the aspect of open
exclusive license and exclusive license with closed territoriality.
Through this case, a doctrine has developed which is popularly known as the maize seed
doctrine. The doctrine distinguishes between open exclusive license, which are necessary
for the protection of patents or any other IPR per se, and absolute territorial license that
prohibits parallel import. As per the European court of justice, the exclusive license with
absolute territorial protection infringes the competition rules; whereas, open exclusive
license does not infringe the competition rules.
They looked into the case with two rationals. First: whether there is an integration of the
integral market or not; whether the clauses are creating an artificial separation in the
national markets and whether the aim, which both competition law and the intellectual
property law share is to promote innovation and technology, is being satisfied or not.
With these two rationals, the European court of justice has looked into this case.
The European court of justice stated that in an open exclusive license, the licensor
merely undertakes not to grant other license in respect of the same territory and that he
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will not compete with the licensee in that territory. However, it does not restrict any third
party in selling or importing the seed or exporting the seed from that territory. It is the
contract between the licensee and the licensor and no third party is involved. But when
there is an exclusive agreement with territoriality, the way it was in this case, then third
parties are also prevented from exporting or importing the seed or selling the seed in the
German territory.
The court held that open licenses were necessary for dissemination of the new
technologies and to encourage acquisition. Open license emanates from the contractual
relationship between the parties. As long as they do not affect the position of the third
parties, they do not interfere with the Article 101 sub-section (1).
On the other hand, the exclusive licenses with absolute territoriality infringe the Article
101 sub-section (1) because they extend the provision of exclusivity to the third parties
who are not bound by the contract itself. Thereby any agreement which prevents parallel
imports or which results in a creation of an artificial market or the separation of the
internal market will be considered as violation of Article 101. This case settled that any
agreement that prohibits or limits parallel trade will infringe the Article 101 sub-section
(1).
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This is one of the important decision in the history of the European competition policy.
The court looked at IPR on one hand, the inventor should enjoy the monopoly and he
should gain the benefits or profit because he has invested money and time in the
invention, on the other hand; it should not prevent any third party; it should not include
other parties from selling or getting benefit from that invention.
On similar lines, the next doctrine is the exhaustion of rights doctrine.
As you know, the intellectual property rights are given for a limited period of time like
any other IPR right. In line with the competition policy, the exhaustion of right doctrine
has evolved through this classic case of Consten and Grundig versus the Commission.
Grundig was a German distributor of electronic goods. He chose Consten to distribute
the electronic goods in France and Consten was chosen as an exclusive distributor in
France and no third party were allowed to distribute this electronic good. Grundig had
transferred all the trade name and brand of the electronic good to Consten.
But, there was another company which started parallel importation of the goods from
Germany and started selling it in the France. Consten and Grundig together complained
about this third company to the commission. However, the commission said that the
agreement between Consten and Grundig is in violation of Article 101. Through this case
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the court of justice has come out with this doctrine known as the exhaustion of right
doctrine.
As per this doctrine the exclusive right cannot be used to artificially split up the common
market along the national borders. Therefore, the holder of an IPR in a member state
cannot oppose the import of a product protected by an IPR into that member state. Even
though, you have an IPR associated with some product and you already have a channel
to sell that product in a market, you cannot oppose the import of that product from other
market into that market because you are selling in that market.
It is applicable throughout the European Union and it plays a significant role in

protecting the free movements of the good. As per this doctrine, once you have sold the
article you do not share any other right with that product. So, now, the third party is free
to sell that product or use that product in any way. This is exhaustion of right doctrine.
This is in line with the competition policy.
Another important case is Pronuptia case, where the court has analysed whether the
franchise agreement can be judged on the basis of Article 101 sub-section (1) or not.
In a franchise agreement, the business name, trademarks, know-how, etcetera are

transferred to the franchisee and the franchisee is supposed to maintain the trademark in
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such a way that there should not be any compromise on the quality or brand name of the
franchise and also there should not be any leakage of the know-how or other secrets
which are being transferred through this agreement. In this case, the European court of
justice, stressed that the franchise agreements are not a typical distribution system, but it
is a way by which the undertakings derive financial benefit from their expertise without
investing their own capital.
Even though in a franchise agreement, the business transfers its trademark, which is a
kind of intellectual property, but it should not interfere with the competition law. In some
of the franchise agreement there are terms: such as the franchisee cannot start his own
business until certain period of time, yet these clauses, in general, do not interfere with
the competition laws. As I mentioned earlier, the cases are looked from different angles,
depending upon the nature of intellectual property right involved, when we talk about the
competition law or competition policy in the European Union.
I also mentioned earlier that there is a complementarity between the intellectual property
law and the competition law in the fact that they share common goal of consumer benefit
and promotion of innovation and technical know-hows. But still there is a difference,
difference in the sense that the competition law generally looks at the agreements in
terms of static benefit i.e. whether there is equal competition amongst the competitors or
not; whether the consumers are getting the product on a lower price or not. But when we
look at the cases from the angle of intellectual property right, we generally think about
the benefit for the inventor, along with the consumer, in the sense that the consumer is
getting a new product, better quality product with technical advancement and it also
promotes innovation.
IPR focuses on dynamic innovations or dynamic efficiency; whereas, the competition

law focuses on the static efficiency. So, depending on the merit of the case, it is static
efficiency versus the dynamic efficiency. In case of agreements which involve the
intellectual property right, equal weightage should be given to the static efficiency as
well as the dynamic efficiency i.e. whether there is a technical advancement or not;
whether the inventor or the proprietor of the intellectual property right is getting due
benefit or not, should be taken into consideration. And as we know that it is a kind of an
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exclusive right, so in the agreements, there is a certain chance that restrictions may be
put in place, but as mentioned in Article 101 sub-section (1) and sub-section (3), they
should be judged on a case to case basis.
Through these cases, we now have a brief idea about how Article 101 is assessed in case
of dealings involving intellectual property right. In continuation to this, we will discuss
the assessment of Article 102 with respect to various intellectual property right
agreements in the next section.
Thank you.
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Lecture – 27
IP Based Conduct Under Article 102
Hello. Let us start the next module. In this module, we are going to discuss about the
Intellectual property based conduct under Article 102.
In this module, we will be discussing the principle for assessment under Article 102 of
the treaty of functioning of European Union and in particular we will look into how the
intellectual property related licensing or agreements are evaluated under Article 102.
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As we discussed in the earlier classes, the Article 102 of the treaty of functioning of
European Union prohibits abuse of dominant position. In particular, the Article states
that “any abuse by one or more undertaking of a dominant position within the internal
market or in a substantial part of this market shall be prohibited”, if it affects the trade
between the Member State.
These kind of abuses may be created in four particular ways; first: if the agreement or the
contract directly or indirectly imposes unfair purchase or selling prices and imposes
unfair trading conditions on the third parties or the parties involved in the agreement.
Second: if it limits the production market or technical development, which are
prejudicial to the consumers.
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Third: if it applies dissimilar conditions, to equivalent transactions, on other trading

parties, which may place them in a competitive disadvantageous position. And, fourth: if
the contract has certain supplementary obligation which are not directly related to the
subject of such contracts and are required to be accepted by other third parties. All these
may be an abuse of dominant position.
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If we look critically into Article 102, there are two critical things; first: it does not talk
about the abuse of dominant position by a single undertaking, one or more undertaking
may come together and may have dominant position in the market. And, so, it is not only
applicable to one undertaking but two or more undertaking can also be liable for the
abuse of dominant position as well.
And second, the dominant position per se is not prohibited under Article 102. It is the
abuse of dominant position which is and the European commission judges the abuse of
dominant position based on its evaluation of appreciable adverse effect on the
competition in the market i.e., they look into for fair and healthy competition, which is
the objective of European competition policy. They look into, whether the practices are
creating a divide between the internal market or whether the practices are having certain
adverse effect on the total competition in the market such as in terms of product
generation, product supply or related things.
If we critically look into the statements or the regulations of Article 102, there are two
things; first: a dominant position and second is the abuse of dominant position. In order
to decide any case related to abuse of dominant position, the commission has to establish
first that the entity or the undertaking is having a dominant position in the European
market or in the member state.
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Through case laws there are conditions laid down which the undertaking must satisfy to
be regarded as a dominant undertaking. There are also certain guidelines which have
been developed in due course, which states how a company or a firm or an undertaking
can be considered as a dominant undertaking. One of the earlier and critical case law is
Hoffman-La Roche decision of European court of justice.
The court held that, the dominant position referred relates to a position of economic
strength enjoyed by an undertaking, which enables it to prevent effective competition
being maintained in the relevant market by affording the power to behave in an
independent manner from its competitors, i.e. if an undertaking is having a strong
position in the economic market and if it can behave independently of its competitors, if
it can define or can dictate how the company or the market should behave, then it may be
regarded as a dominant position. So, the independent behaviour of a firm or an
undertaking in the market is very critical for determining, whether a company is holding
a dominant position or not.
In assessing the dominant position, there are two or three more criteria which may be
looked into. First: the dominant position is always looked into a relevant market. So, if
we are talking about the total European internal market then the relevant market
comprises of maybe a market in a member state, or wherever the products are being sold
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or manufactured. And, the elasticity of the offer or the demand, the substitutability
aspect, are also looked into which we will discuss in the later section.
The geographical scope i.e. the geographical boundary as well as the product nature and
quality and the substitutability of the product are very important in deciding the relevant
market. One of the first landmark case, a critical case, which decided the relevant market
is United Brands Case given in 1978. It gave a clear idea about what can be considered
as a relevant market. We will discuss this case after some time.
Apart from this case law, in 1997 the commission gave a notice regarding “market”
definition, where the commission emphasised on the demand side substitutability. The
commission said that for the purpose of the market definition demand substitutability is
of a great significance than the supply side substitutability and the potential competition.
There are two parts; a demand and a supply, the manufacturers are on the supply side,
and the consumer is at the receiving end of the demand.
The consumer’s decision or the consumer’s viewpoint, has to be taken into account while
deciding whether the product can be substituted or not. In particular, in the paragraph 14
of this notice, the demand substitutability is measured by the range of products which
can be taken as an option, or to substitute other products, by the consumers i.e. they have
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clearly specified that the consumer’s opinion regarding the substitution of a product is
very critical while deciding the market.
In this regard, the European commission has adopted a test, which is known as SSNIP,
that stands for small, but significant non transitory increase in price test. This is an
American test, and has been imported from United States. It is a hypothetical monopolist
test which ascertains that, the level of demand and demand substitution are the instances
when a consumer will shift their allegiance to another product as a result of price
increase.
SSNIP is designed to analyse, whether the increase in price would be profitable or would
lead to customer preferring substitute product rather than buying the first product. For
example, if there is a product which is available at 50 rupees per unit, and there are two
related and similar products which are available for 30 or 20 rupees respectively. If the
price of first product is increased by(Say) 5 or 10 percent, then whether consumer will
prefer to buy the first product or consumer will shift their allegiance to the product “b” or
“c”. The SSNIP test determines whether the consistency of the product sales in the
market after price increase can be retained or not. It is very essential, in determining the
relevant market, while deciding abuse of dominance cases.
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So, we talked about, firstly to decide about the dominant position and the scope of
relevant market as well as geographical market. One of the critical thing is, the share of
market held by the company. The European commission has developed certain
guidelines, which say that, if an undertaking is holding a share of 40 percent or less, it
does not come under the purview of Article 102. The second aspect of Article 102, which
is the most critical aspect, is the abuse of dominant position.
Dominant position per se is not prohibited, it is the abuse of dominant position which is.
The finding that an undertaking has a dominant position itself is not a recrimination but
simply means that irrespective of the reasons because of which it has such a dominant
position, the undertaking has a special responsibility not to allow any conduct that
impairs or distorts genuine competition i.e. if a company or an undertaking is having a
dominant position it has certain duties. So, they should not hamper the healthy
competition in the common market in the European Union. It has been laid in Michelin
case in 1983. This is one of the landmark decisions, which gave an idea regarding abuse
of the dominant position.
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United Brands versus Commission is another landmark decision, which gave a definition
regarding “relevant market” as well as laid down the test for dominance. United Brands
Company was the main supplier of bananas in the European Union.
The commission found that United Brands Company(UBC) is holding a dominant

position in the market and it has abused its position, because UBC prohibited the
distributors from reselling bananas, which were still green. It also prohibited and it did
not give a license to another distributor named Olesen, because Olesen at certain point of
time advertised for a competitor company for the reason of which UBC did not give
license to Olesen. Olesen filed a complaint against UBC in the European Commission.
The Commission’s view was that UBC holds a dominant position and it violated and
abused its position.
Aggrieved by this decision UBC appealed to the Court of Justice. UBC said that, the
European commission has erred while considering the relevant market, because UBC is
only supplying the bananas in the European market. From the point of view of UBC,
solely bananas should not be taken as the relevant market. The whole fresh fruit market
should be taken into consideration for deciding whether UBC is holding a dominant
position or not.
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The issue was whether UBC holds a dominant position in the relevant market or not. The
court held that the dominant position in the market relates to the position of economic
strength. Here it was regarding “banana”. The court looked into the aspect of
substitutability of the product. The court looked into whether the interchangeability
parameter has been met or not.
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In this case, the court held that, whether banana could be singled out by such special
features that distinguishes it from other fruits or not, will be judged from the consumer
point of view. Suppose there are no raw fresh banana in the market. Will the consumer
who has a preference for raw banana buy any other type of fresh fruit to mitigate their
demand or they will only rely on the fresh banana?
With this question, they found that the consumers will only rely on raw banana. Hence,
only banana market is the relevant market itself and not the whole fresh fruit market. The
European Court of Justice also held that UBC held a dominant position and it had abused
the dominant position by not giving the license to its competitor or other distributor.
This is one of the landmark cases, where the definition of the relevant market has been
judged by interchangeability parameter. On the geographical extent, the market is
spreading. Another important factor is for how long the company has been operating in
the market. Time also plays a critical role in deciding these matters.
The court considered many factors including the seasonal substitutability in general
between banana and other seasonal fruits. And, it concluded that a very large number of
consumers having a constant need for bananas are not noticeably, even appreciatively
enticed away from the consumption of the product by the arrival of the other fresh fruit.
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Banana market is a market which is sufficiently distinct from other fresh fruit market.
Hence, the relevant market is not only restricted to banana but includes other fresh fruits
also.
But, it is not always the case that the European court of justice agrees with the decision
given by the commission. In Continental Can Case the court disagreed with the opinion
of the commission on relevant product market. The case was about light metal can which
is used for packaging of fish and meat.
The court held that, in order to be regarded as constituting a distinct market, the products
in question must be individualised, not only by the mere fact that they are used for
packaging of certain product, but by particular characteristics of the production, which
makes them specifically suitable for this purpose.
The court held that a dominant position on the market for light metal containers for meat
and fish cannot be decisive as long as it has not been proved that the competitors from
other sector of the market cannot enter the market by simple adaptation.
So, the different case histories show that it depends upon the nature of the very product.
In the earlier case it was regarding raw banana, it is simply a kind of fruit, but here it is
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about a produced item in which a particular metal has been taken into consideration to
create a container.
It not only depends upon the nature of the product but at the process of the product as
well, in terms of how it is affecting the market, whether it can be adapted by other person
or not all these are critical in deciding a relevant market.
We discussed about two parameters, first is the relevant market, second is the dominant
position. There are also specific guidances given on Article 102 regarding enforcement,
specifically in para 2 of the guideline on the assessment of Article 102 three step test has
been laid out.
To determine the dominant position in the relevant market, three test or three parameters
must be examined, first: constraint imposed by the existing suppliers and position of the
actual competitor on the market i.e., the market position of the dominant player and its
competitor.
Second: constraint imposed by the credible threat of future expansion by actual

competitor or by entry of the potential competitors i.e., whether it is hampering the
competition or promoting the competition.
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Third: constraint imposed by the bargaining strength of the undertaking’s customer i.e.,
how it is affecting the purchasing power of the buyer’s. These three parameters must be
taken into consideration before enforcing Article 102 in the case of any of these
conducts.
All these case laws, all these directives and guidelines can be summed up in that there
are three kinds of abuse, first is exploitative abuse, second is exclusionary abuse and
third is the discriminatory abuse. The exploitative abuses are practices which exploits
customers directly and is directly harmful to the consumers. For example, sub-section (a)
of Article 102 which prohibits directly or indirectly imposing unfair selling prices or
unfair condition i.e., if there is only one manufacturer for per product and if he is not
sharing his technology or intellectual property and selling the product at a higher price, if
it is directly affecting the consumer then it would be a kind of exploitative abuse.
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Second is the exclusionary or anti-competitive abuse. This includes all those practices
that excludes the competitors from the relevant market and restricts the competition. It
may be beneficial for the consumer in the short run, but it may have long detrimental
effects due to the reduced competition. For example, tying, refusal to supply, exclusive
dealing agreements, predatory pricing, price discrimination, all these are the forms of
exclusionary or anti-competitive abuses.
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Third is the discriminatory abuse which are the practices that discriminate between
various customers. As per the Article 102 sub-section (c) applying dissimilar conditions
to equivalent transactions with other trading parties and placing them in a competitive
disadvantageous mode is prohibited.
This maybe in different geographical locations, selling of a product at different prices

and critically binding third parties or other contracting parties in undue agreements,
which are not directly related to the object of the agreement. These kind of things will be
termed as discriminatory abuse.
We will look one by one at all these kinds of abusive practices. In Hoffmann-La-Roche
case, a broad definition regarding exclusionary abuse was given which states that the
concept of abuse is an objective concept relating to the behaviour of an undertaking in a
dominant position, which is to influence the structure of the market. As a result of the
very presence of the undertaking in question, the degree of competition is weakened.
And, the recourse to methods, different from those with the condition of normal
competition or competition in the product or the services on the basis of the transaction
of the commercial operators, has the effect of hindering the maintenance of the degree of
competition.
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There are three things, influencing the structure of the market, the degree of competition
is weakened and it hindering the maintenance of the degree of competition and it
hampers the growth of the market with these practices.
In Hoffman-La Roche case, Hoffman-La Roche was one of the leading vitamin
manufacturers. It manufactured nearly 90 percent of the total vitamin segment and it was
one of the major distributor for one of the vitamin, which is used for industrial medicinal
purposes.
And, since it was the major manufacturer, it gave discounts and lucrative offers to other
distributors to buy vitamins from them. In the European internal market, it tried to have a
dominant position and by virtue of these action, it was said that Hoffman-La Roche
abused the dominant position for nearly 4 years for which the European commission
fined them heavily, around 1 million dollars as fine was imposed. For the first time, the
definition or the concept of exclusionary abuse was introduced here.
Let us discuss the intellectual property rights in the agreements. As you know,
intellectual property rights are monopolistic rights. These rights give the privilege to the
inventor or the proprietor to use his right for himself. By virtue of the existence of the
right, it is said that it can exclude other competitors from using that right which means it
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is hindering competition at the first place, but it is necessary to exercise the IPR rights by
the company that has developed a new technology and is giving a product of better
quality or maybe at lower prices. The company must get some benefit from their
technology. It is not per se hindering other competitors to further innovate or to come up
with other technologies, that may be better, that may be in an advantageous position or a
better position than the earlier inventor.
In this regard IPR, per se, does not give any company any right to be a dominant
company, because per se IPR is not restricting competition. Existence of an IPR and
exercise of the IPR are two different things. Existence of an IPR is when (say) one
company is having certain intellectual property rights, in the form of patents or any other
form, they may use it for their own purposes, but it should not hamper the competition in
the market.
One of the decision regarding the existence and the exercise of IPR was the Volvo versus
Wang case in 1988. It was about a protected design right. The Volvo, manufacturer of
Volvo cars; had certain design registered for the front hood of their car, which is very
specific to the car segment. Wang, another manufacturer of replacement part, infringed
their designs right without taking license. They started selling the front hood to damage
the consumer base. Volvo initially filed a case of infringement alleging that this is the
violation of their intellectual property rights. Wang said Volvo refused to give them
license and Volvo is abusing its dominant position.
The court held that the IP right grants proprietor exclusivity and there is an obligation to
license. If, in return of the royalty, it would lead to the proprietor being deprived of the
substance of his exclusive right i.e., whether to license or not to license solely depends
on the proprietor himself, the proprietor does not necessarily have to give the license to
any third party.
A refusal to grant such license in itself cannot constitute an abuse of the dominant
position. This is one of the critical case since it was related to car segment. In the car
segment there are two things; one is the manufacture of the car and other is the
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manufacturer of replacement part. When a consumer buys a car, they look into where can
they get the services if the car is damaged.
In this case, the relevant market has two segments, one is the total car segment and the
other one is the replacement part segment, both having some inter-linkage. In this case,
the court decided that Volvo has the right not to give the license to Wang, because
consumers are well aware that they are purchasing a car from a particular manufacturer.
If anything happens to the car, they may get the replacement from the manufacturer
itself. They do not necessarily have to depend on third party. In this case, the existence
versus the exercise of intellectual property right was dealt very beautifully, but some
critically argue that it was a narrow decision; however, this is one of the landmark cases
which laid down the concept of existence and exercise of IPR.
There are few critical things associated with the abuse of dominant position i.e. per se
IPR is not hampering the competition, but under certain exceptional circumstances, the
holder of intellectual property right, may be considered as abusing the dominant position.
This is known as the exceptional circumstances test. In the next series, we will discuss a
few more cases and continue with that.
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Lecture – 28
IP Based Conduct Under Article 102 (Contd.)
Till now we have discussed regarding abuse of dominant position and existence versus
exercise of IPR.
As I said, intellectual property right does not hamper the competition, but under certain
circumstances behaviour of the intellectual property right holder may lead to abuse of the
dominant position. In one of the landmark cases of Magill decision, the court went
further and extended the reading of Volvo case to the Exceptional Circumstances Test.
Magill, is an Irish TV programmer. They wanted to compile a TV program guide because

there are three TV channels which were broadcasting their programs. They used to come
up with a weekly magazine that listed out the timing of the various programs. Magill
decided to come up with a combined program guide for three TV broadcasters in Ireland,
however, the three companies did not give permission to Magill to compile their weekly
guide material because it was under the purview of copyright.
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They did not provide copyright to Magil to come up with a new guide. In this case, the
court ruled that the refusal of Irish TV programs to license their IP protected listings to a
company that tried to publish a comprehensive weekly television guide for Ireland, a
product that did not earlier exist at the time of the judgment, is an abuse of dominant
position.
Here, the court looked into the exceptional circumstances test and its three requirements.
First: the refusal to license something that involves an intellectual property right (say) in
terms of copyright. Has the refusal prevented creation of a new product, which in this
case was the weekly TV guide. Second: If there is sufficient justification from the
broadcasting or the publishers for the refusal and third: Is the license indispensable to
enter the downstream process, of making a market for new TV guides, which may lead to
a monopoly on the secondary market.
These three questions were considered by the European court of justice to come up with
Exceptional Circumstances Doctrine. In this case, because of the refusal of the license by
three broadcasters, the development of a new product into the market was prevented. The
motto of the competition policy in the European Union is to promote innovation and
promote healthy competition. It prevented the appearance of a new product, which was a
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weekly combined TV guide, which would have contained the information from all the
three broadcasters.
Was there a justification? The court did not find any suitable justification for the refusal.
Was the license indispensable for creation of a new downstream market or not? Was the
license for copyright needed to create new TV guide? Yes, of course, because all the
three broadcasters had copyright over their program listing.
The license was essential to come up with a new program guide. Since, they refused the
license, a new type of product was prevented from coming to the market and it may lead
to monopoly on the secondary market because this new product was dependent on the
copyright holders.
This case laid the basic provision for the exceptional circumstances test i.e. under what
circumstances the act or the behaviour of the undertakings may lead to abuse of
dominant position. There is another doctrine which is known as the Exceptional
Circumstances Doctrine, it came up with IMS health case in 2004.
This case was about the licensing which is known as the brick structure. IMS health, in
France, created a brick structure which is known as the 1860 brick structure. It divided
the whole pharmaceutical market depending on the nature of the sales and the
pharmaceutical prescription.
It made a map, a kind of structure, which gave a clear insight to the pharmaceutical
manufacturers to understand what kind of sales and what kind of medicine is being sold
at various parts in France. Certain other companies sought for a license from IMS health
so as to come out with similar kind of brick structure, so that they can enter the market.
But IMS health refused to give them license saying that this is their copyright and they
are not willing to share the technology. Further, IMS also said that, they are infringing on
the technique which the IMS is adopting for creation of their pharmaceutical brick
structure. The brick structure was critical at that point of time. All the pharmaceutical
firms relied on the brick structure to afford market analysis. In this case, the exclusive
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right to reproduction forms parts of the copyright holder’s rights. A refusal to license
cannot in itself constitute an abuse.
In general, refusal to license does not constitute an abuse of dominant position; however,
in some exceptional circumstances, the refusal may lead to abuse of dominant position or
may lead to abusive conduct. In this case, the European court of justice said that, when a
copyright holder refuses to give access to a product or service which is indispensable to
carrying out business, this would be considered as an abuse and three parameters would
be taken into consideration.
First: the undertaking, which requested the license, intends to offer new products or
services not offered by the owner of the copyright and for which there is a potential
consumer demand. Second: the refusal cannot be justified by objective considerations.
Third: the refusal is such as to reverse the undertaking, which owns the copyright and the
relevant market, by eliminating all competition in the market.
These three conditions were laid down by European Court of Justice. These conditions
look into the circumstances, where the intellectual property is critical for development of
a new product or a service, and it also looks into the whether there is a potential demand
from the consumer side for the creation of the new product in this segment or not and
whether this kind of agreement may lead to elimination of all competition in the market
or not.
These circumstances should be taken into consideration while deciding an abusive

conduct. After the Magill case one of the important cases in the history of European
competition commission was IMS health case in the year 2004. This case was about
copyright related protection and under what circumstances the denial to license
copyrighted material can lead to abuse of dominant position.
This case gave the concept of exceptional circumstances doctrine or in other words we
may say that, it has re-emphasised the Magill judgment. IMS health had a copyright over
a structure, which is known as the brick structure, named as 1860 brick structure. It
divided the total German pharmaceutical market into 1860 bricks, like compartments,
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which was developed taking the area code into consideration. It gave data regarding
pharmaceutical sales data and prescription medicine data for those areas.
The brick structure was important for all the pharmaceutical manufacturers and
distributors in Germany, because it gave them an idea regarding the sales and distribution
of medicines. Two companies NDC and AGX wanted to get a license on this copyrighted
material from IMS to develop another database which would show the pharmaceutical
sales data and pharmaceutical medicine supply information.
But, IMS health refused to provide the license regarding copyrighted 1860 brick
structure and this led to a complaint being filed at the European commission regarding
the denial of the license from IMS to NDC and AGX. This case was being prosecuted in
the German court. Simultaneously it was referred to European Court of Justice. This case
was going on at two places side by side.
The question was whether the denial of a license by copyright holder or intellectual
property holder would lead to abuse of dominant position or not. As we have already
discussed that the intellectual property right gives an exclusive right to the owner of the
intellectual property. It is the discretion of owner of that property whether he would want
to give the license or not. However, mere existence of IPR is not an issue, but how
intellectual property right is exercised becomes an issue which may lead to abuse of the
dominant position.
In the 1860 brick structure, the court considered whether IMS has the exclusive right to
reproduction. It does have the right to refuse license but the way it has exercised this
exclusive right to license may in exceptional circumstances give rise to abusive conduct.
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The court has took into consideration three-prong approach. First it looked into whether
the product or service in question is really essential for the development of a new
product or a service in the market? Whether there are justified conditions for the refusal
of the license or not? And whether by refusal the right holder is trying to limit the
competition from the market and trying to primarily retain his position?
The European Court of Justice considered this particular situation and tried to find out
whether the copyrighted brick structure is essential or indispensable for the development
of a new product or service or not. The 1860 brick structure is a kind of map which
provides pharmaceutical sales data and pharmaceutical prescription medicine distribution
data to other vendors. NDC and AGX were trying to seek license for the development of
a new brick structure. Without the permission from copyright holder it is not possible on
the part of NDC or any other company to create a new database. So, it was held that the
copyright in question is really indispensable for the creation of the new product.
Now, Can refusal be justified by objective consideration? The brick structure became a
standard in the market and all the pharmaceutical companies were relying on the data of
the brick structure. It set its own standards. So there was no justification which EC could
find in denying the license. And since IMS health is denying the license, it is stopping
the development of a secondary market. The judge also looked into two kinds of market;
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first one is known as the upstream market i.e. the 1860 brick structure that provided the
data regarding pharmaceutical sales and prescription medicines which the companies
were taking into consideration for doing businesses in the Germany. And second is the
downstream market which would be created by licensing of the database structure, where
companies like NDC or AGX can take the information from the 1860 brick structure and
create a new kind of database which may be used for other pharmaceutical segments.
So, in this case, by denial of the license of the copyrighted material, IMS health was
indeed retaining its monopolistic power in the market and in some way trying to
eliminate all the competition from the market. So, in this case the ECJ decided that under
these exceptional circumstances, the refusal to license may lead to abuse of dominant
position.
This is one of the landmark decision which laid down a three-prong approach for
determination of abuse of dominant position after the Magill judgement. There are a
series of case laws under article 102 which laid down the development in the European
commission and how they look into abuse of dominant position.
One of the other important case in the history of European competition policies is the
Microsoft case and it has in a way redefined how European competition policy looks into
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intellectual property as well as abuse of dominant position. In the earlier case laws, like
Magill and IMS, we have seen that the three prong approach has been followed and they
have recognised exceptional circumstances under which the behaviour of a dominant
player can be regarded as abuse of dominant position.
In the Microsoft case, the European commission look into two aspects, first: regarding
the refusal to supply information and second: regarding the tying of two different
products. In this case, Sun Microsystems requested Microsoft to provide critical
interoperability information or the detailed interoperability information for operating
their operating system with Microsoft Windows. This case happened during 1998.
During that time Microsoft had more than 90 percent of share in the operating system
market and it had established itself as a de-facto standard for client operating systems.
The Sun Microsystems was based on a Linux operating system and hence windows and
sun operating system were not compatible. In order to operate in the windows operating
system servers as well as the clientele computers, Sun Microsystem required certain
critical information by which they can program or they can run in the windows operating
system also. The sun wanted to get a license and requested Microsoft to give the
information regarding interoperability data, but after 4 months Sun Microsystems
complained in the European commission alleging that Microsoft is abusing its dominant
position by denying the access to the interoperability data.
This led to an investigation by the European commission in 1998 and the first decision
came in 2004 in which the European commission said that, Microsoft indeed is abusing
its dominant position and this abuse is taking place in two ways. First: the abuse by
denying or refusing to supply information to Sun Microsystems which is initiated by the
complaint by Sun Microsystems and second: is by tying two products i.e. windows
media player with the client operating system. The European commission found that
Microsoft is trying to tie two different products and sell them in the market. In the
judgment, court looked into these two aspects.
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It was said that Microsoft has abused its dominant position by refusing to supply critical
information to Sun Microsystem. The refusal to supply was about the computer networks
that linked the client computers used by the employees for their daily works with the
server computers that performed specialised tasks including managing network, printing
a material or transferring data.
The question which the commission considered was, Whether the information requested
by sun was indeed needed by the rival server operating system vendors to enable their
work group server operating system to interoperate with the Microsoft client computers
as well as Microsoft work group server operating system in the same network or not? i.e.
Whether the interoperability data is critical for operation of the Sun Microsystem or any
other competing company or not?
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The court of first instance i.e. the European commission concluded that the
interoperability data was essential for functioning of the operation of other competitors
and in this regard Microsoft was abusing its dominant position.
The European commission directed Microsoft to license the interoperability data and
provide critical information at a fair, reasonable and non-discriminatory terms known as
the FRAND terms. Still Microsoft did not agree to it readily and this led to another
investigation later on. Ultimately, Microsoft agreed to license the protocols at three
different terms.
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If you look critically into the decision, the court had again followed the Magill judgment
or the IMS or the Bronner case. And it tried lay down the conditions required by a
company such as whether the product or service in question is really indispensable for
getting the competitors in business or not.
As we know in the Magill case, the TV channel listing by BBC and other player was
critical for Magill to come out with a weekly guide for the customers. In the Magill
judgment, the weekly TV guide was the new product in question and copyrighted
material by three broadcaster companies was essential for the formation of the weekly
guide. Since they denied to supply the information, Magill could not develop a new
product.
Similarly in the Bronner case, which does not directly relate to intellectual property, the
court has looked into the question of indispensable service. Bronner wanted to associate
with the media print who were the leading supplier of the newspaper in the region with a
home delivery system. Bronner wanted to get involved in the home delivery system so
that newspaper can be delivered to the customers. The court looked into, the question of
whether the product or the service in question is really indispensable for carrying out
business of the competitor company or not?
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The home delivery system of the newspaper distribution system is not the single way by
which newspaper can be delivered to the consumers, it may be delivered through shops
or by post offices or by other means. The court decided that because this service in
question is not indispensable for the business of the competitor firm, the denial to license
or denial to tie or tag with Bronner is not an abuse of dominant position from the point of
view of media print.
Similarly in the IMS case, as we discussed, the 1860 brick structure was critical for
development of new pharmaceutical market map. Because of the denial to license,
generation of a secondary or downstream market was stopped. Also, IMS having the
leading position in the upstream market, may indeed stop competition in the European
Union.
In all these three cases, it was clear that the condition necessary for requiring a company
to share their property is that: the property must be indispensable for carrying out the
business in as much as there is no actual or potential substitute in existence. The
indispensable nature of the property is essential to find out whether there is abuse or not.
The property maybe any property i.e. an intellectual property or any other kind of
property.
In the Microsoft case also, the court looked into whether the interoperability data by
Microsoft is indispensable on the part of Sun Microsystem or any other competing
microsystem or not? The Sun Microsystem and others operated in a different operating
system. Hence, it was essential. The interoperability code was required by Sun
Microsystem without which Sun Microsystem could not enter into or cannot operate in
the windows operating system.
The court ruled that the interoperability data was indeed indispensable and the refusal to
supply the information is an abuse of the dominant position.
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Second is the case of tying. Tying is association of two different products where a
company tries to forcefully sell a complimentary (second) product with the main
product. The European commission found that, Microsoft is selling the computers i.e. the
client operating system with media player software i.e. Windows Media Player or WMP
which enables the computers to play audio as well as video content.
At that point of time there were separate software for streaming audio from the radio and
streaming videos from other sources, but with the advent of broadband during the late
1990s, Windows came up with Windows Media Player software which could play audio
as well as video directly from the server.
There were other players also in this kind of business, but during this case Microsoft was
one of the leading company which had developed windows media player system and
started selling Windows media player system along with Microsoft operating system.
The commission’s concern was that, given the fact that Windows had more than 90
percent of all the PCs market, the bundling of windows and windows media player
guarantees Microsoft windows media player a unique position in the market. In this case,
the court looked into whether these two products in question are really inseparable or not
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and what will be the consequence if the company tries to sell or complement products
together.
The Commission found that, Microsoft had abused a dominant position in the client
operating system by making its client operating system available only with its media
players since May 1999. The commission did not object to Microsoft’s making windows
available for the windows media player, but it objected to Microsoft’s making windows
available with this WMP without also making available windows without windows
media player. From 1999 onwards Microsoft started selling the windows operating
system along with WMP. Earlier, both Windows Operating System and WMP were
available separately but after May 1999 bundling the products led to the question of
tying up.
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After the prosecution of this case, the commission ordered Microsoft to make available a
version of windows that did not include windows media player. And it prohibited
Microsoft from charging more for the unbundled version than it charged for the bundled
version. But, it also did not require Microsoft to charge less for the unbundled than the
bundled version.
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There were many criticisms for this case. We will discuss in the context of two points i.e.
refusal to supply information as well as tying. The criticism in the first instance, in the
IMS health case or the Magill case was looked from four-prong test approach, where the
court looked into whether the denial to supply information leads to stoppage of the
development of a new product or not.
The new product condition was satisfied in both the IMS health as well as the Magill
case. But in the Microsoft case per se the question of new product is not addressed
because the Sun Microsystem during the time when the case was filed, was also having
nearly 60 percent Micro-market share in the open operating systems. By windows
operating system, windows was gradually increasing the market share, but while the
decision was being taken, Sun Microsystems had nearly 12 percent of the share in the
market.
So, there is no question of a new product. The Sun Microsystem wanted to operate
within the area of windows operating system, but the refusal to license per se is not
prohibiting Sun Microsystem to operate in the market because although the market-share
was less yet it had limited share, it was existing in the market. There was no question of
the development of a new product.
But in this case, the court held that the circumstance relating to the appearance of a new
product as envisaged in Magill and IMS health cannot be the sole parameter which
determines whether a refusal to license an intellectual property right is capable of
causing prejudice to the customer within the meaning of Article 102 of the treaty of
functioning of European Union.
Further the CFI added that it was sufficient for the commission to prove that the refusal
to supply interoperability information gave rise to the limitation of technical
development. This judgment, was the first landmark judgment where requirement of
anew product has been substituted with technical development. According to some
critics, it was a vague judgment for intellectual property right because intellectual
property right is for promoting technical developments and gain exclusivity of the
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intellectual property rights, to gain the right to monopolise. Denying technical innovation
or technical development is the abuse of dominant power which is not justified.
In the European policy, the behaviour of a dominant firm or the refusal to license by a
dominant firm is taken to be per se an abuse of dominant position which was highly
criticised.
In the second case, where Microsoft was held for tying windows media player to
windows operating system, the court followed the judgment of Hilti and the Tetra Pak
case. In the Hilti case, the supplier tried to sell construction material, some of which
were binding material used in the construction along with the sale of nails used for
construction. They denied to sell the substance to the customer who were not buying the
second product. They tried to sell both the products. They tried to sell the first product
only on the condition that the customer takes the second product.
In the Tetra Pak case, a packaging machine was used for packaging of antiseptics. The
Tetra Pak was complemented with another product which was manufactured by the same
company. In both the cases, the products which were sold were complemented or two
different products were sold.
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Taking the cue from those judgments, the EC held that tying was subject to per se
prohibitive condition under the European commission law and it is triggered by a finding
of dominance in the market. Tying product and tied product are two separate products.
First: it is to be established that there is a dominant market for the tying product.
Whether the two products are separate or not? Whether any element of coercion towards
the customer is used or not i.e. are the customers forced to take the two product or not?
This approach in European Union differs from the United States’ approach because in the
European Union the per se rule of illegality is given importance rather than the rule of
reason approach. Tying under the EC law is closer to a strong per se rule of illegality i.e.
a dominant firm commits abuse of dominant position if because of its dominant position
and commercial success, it requires the consumer to take another product as a condition.
If a dominant firm is commercially successful and is tying one product, it is considered

as per se illegal, whereas in the US, they takes more of an economical approach and
considers the consumer point of view as well as the manufacturer’s point of view. They
look into whether there is any economic significance of the tying or not? What effect
would it have on the consumer market or on the consumer psyche? What options do the
consumers have? Is it beneficial for the consumer or not? In the United States, they not
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only look into the competition in the market, but also from the point of view of the
consumer. But the European Commission differs in this respect from United States. They
look more into the static influence, the way we discussed about the static and dynamic
innovations.
Static innovation talks about the difference in pricing and dynamic innovation is more
relatable to the technical development. So, instead of looking into the dynamic approach
the European commission looks more into the static approach. This case is one of the
critical cases in the history of European commission because this case has blurred the
line between abuse of dominant position and tying i.e. between Article 101 and Article
102.
In the cases where intellectual property rights are involved, to judge a new product or
new innovation or the stoppage of a technical innovation or the behaviour of the
competitors in the market a bit of different approach, which not liberal per se, is applied.
Some critics say that, European Commission follows an approach where no market per
se can have a dominant position. If one company has the majority of share in the market,
still the European commission’s policy is such that it will never allow anyone to get a
dominant position.
This was all about Article 101 and Article 102. In the next sessions, we will discuss
about various provisions given by European Commission such as block exemptions
particularly free space where companies can operate, what are these, how the guidelines
have been placed. With this we end this session on Article 101 and 102.
Thank you.
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Lecture - 29
Technology Transfer Agreements
Hello all. In this module, we are going to discuss about the IP licensing and the European
Union competition rules.
In this module, we will be dealing with the technology transfer agreements and the
Technology Transfer Block Exemption Regulation(TTBER), which are in place in the
European Union governing various technology transfer agreements and assessment of
various technology transfer agreements dealing with intellectual property right. We
would also discuss the different steps of analysis of IP licensing regulations assessment
for their probable violation of the competition law and we will deal with the assessment
outside the scope of TTBER.
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In the earlier modules, we have discussed that intellectual property rights give a
monopoly right to the owner, by which the owner is unilaterally, able to control his rights
and his innovations from the exploitation by others. It sounds directly opposite to the
main principle of European competition law, which tries to maintain a uniform
competition in the European market.
Various agreements, which deals with intellectual property, under the European
regulation these dealings or these agreements involving intellectual property rights are
governed by two sets of regulation. First is the various rules and regulations of the
European competition law, specifically, the Article 101 and Article 102 of the treaty of
functioning of European Union which we have discussed at great length in the earlier
modules.
Article 101 prohibits various anti-competitive agreements and Article 102 restricts the
abuse of dominant position. Since IPR is a monopolistic right, it becomes necessary to
place certain restrictions so that, the IPR owner can get maximum benefit out of his
innovation, but sometimes these restrictions may lead to anti-competitive behaviour.
The competition rules checks whether the agreement is falling under the European
competition rules or not. There are certain rules for the free movement of the goods,
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specifically Article 34 to 36 of the treaty of functioning of the European Union. These
Articles prevent the undue restriction placed on the cross border trades. Article 36 allows
the member states to enact legislation regarding intellectual property rights. These
articles are guided by the principle of free movement of the goods. The exhaustion
principle related to IPR is applicable on this rule i.e. once the property or technology or
goods has been sold, the intellectual property rights owner cannot restrict the movement
or the sale of that good in the secondary market, in the same member state or in different
member state.
These are the two set of regulations, which deal with and which regulates the agreements
related to intellectual property right within the European Union.
Intellectual property rights are associated in licensing, exclusive licensing agreement or

licensing agreement dealing with intellectual property particularly patents, utility
models, software and copyright etcetera. For those cases the European Union and the
European Commission has adopted certain guidelines and certain rules for the
assessment of technology transfer agreements and these guidelines are known as the
Block Exemption Regulation for Technology Transfer Agreement or TTBER.
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The latest revised version of TTBER came into force on 1st May 2014. These guidelines
of block exemptions are a safe harbour or safe zone for the firms and companies who are
involved in technology transfer agreements.Certain standards have been laid down, if the
agreements are falling within those specified blocks, then it is considered to be per-se
free from anti-competitive practices, but if it is not falling or not meeting the criteria laid
down in the TTBER then assessment can be made to judge whether these are competitive
or anti-competitive in nature.
In order to simplify the assessment of the agreements, the commission has defined
certain categories of the agreements which are unproblematic from the competition law
point of view, based on its market and case experience. These are set out in the various
Block Exemption Regulation or BER.
If an agreement fulfils all the criteria in the block exemption regulation it is exempted
from the prohibition under Article 101 of the treaty of functioning of European Union.
Article 101 is all about the prevention of anti-competitive practices. When we talk about
the various technology licensing agreement, these are agreements between a licensor and
a licensee i.e. agreements between two parties where when one party is giving the license
to the second party.
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In majority of the cases, these agreements may be in the form of exclusive licensing. If
there are any agreements related to IP, the concern under Article 101 is more comparable
to Article 102.
The revised TTBER guidelines have been in place since May 2014. Earlier to the
revision TTBER guidelines were in place, by the European Commission. The general
structure and most of the provisions of both the versions of TTBER are similar. There are
certain changes, in particular regarding the restriction on the passive sales to the
territories reserved for new licensee, grant back obligations for non-severable
improvements and termination rights provided for a non-exclusive license which may
challenge the validity of the licensed IP. We will discuss these later in this section.
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There are certain challenges to the revised regulation. The main challenge is in the form
of the applicability of block exemption regulation. They have defined certain hardcore
restrictions and specified certain excluded restriction under Article 5.
Before discussing the technology transfer and TTBER, first let us understand what is a
technology transfer agreement? As per the EU competition law, a technology transfer
agreement is a licensing agreement where one party i.e. the licensor, authorises another
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party i.e. the licensee, to use the technology which may be in the form of patents, know-
how’s, software or a combination of these, for the production of goods or services.
The technology licensing agreement includes utility models, patent rights, know-how’s,
software or design rights. Other forms of IPR like trade mark, plant variety protection or
geographical indications are not considered under TTBER unless and otherwise they are
directly associated with the production of goods or services in question, in line with the
technology.
The technology transfer agreement covers the licensing agreements between two parties,
the one who is providing the license i.e. the licensor and the other licensee.
There may be more than one licensee, but generally the technology transfer agreements
are between two parties, which is otherwise known as bilateral agreement. It may
involve several parties, which is known as patent pools, where all the IPR owners they
come together at a place and share their IPRs and cross license with each other, so that
there is involvement of more than one parties.
However, the TTBER covers only the bilateral agreements and the guidelines mentioned
above mentions about the multi party agreement in the form of patent pool and how to
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assess those kind of technology transfer agreements, but the block exemptions are only
specified for the bilateral agreements.
The technology transfer agreements may be concluded between competitors i.e. those
companies which are providing similar goods or technologies, particularly those which
are involved in horizontal agreements. In this type of agreement, both the competitors
are having similar type of technology and produce similar type of goods or services.
The technology transfer agreement may also take place between non-competitors. Non
competitors are those entities which are not having similar intellectual property and they
exist in different levels of the supply chain. For example, a manufacturing company and
a distributor company for the manufactured goods.
Technology transfer agreements can happen between, two set of companies depending
on the nature of the agreement, whether it is happening between a competitor company
or a non-competitor company, the block exemption regulations and safe harbours
provisions are specified.
There are three major functions of a technology transfer agreement. First: it involves IPR
i.e. it involves either a patent or a utility model or a design right or a know-how or a
trade secret or combination of these various forms of intellectual property. It does not
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involve trade mark or other IPR unless and until it is directly associated with the
manufactured product in question.
These agreements are different from assignment. So, what happens in the case of
assignment? The patent owner or the intellectual property right owner assigns all of his
rights to a second person. The original owner does not retain any liability or any
responsibility for the IPR in question. Whereas in the case of technology transfer
agreements, in general, the licensor retains certain power over his technology and may
regulate the functioning of the IPR, which he has licensed.
The third important feature of the technology transfer agreement is that it may bring
about the cross fertilisation of ideas, that means, if a licensee has taken certain
technology from a licensor, it may in the due course of practice generate certain new
ideas which the licensor may think of licensing to other parties or which the licensee
may think of cross licensing to the licensor.
Hence, in the case of a technology transfer agreement, cross fertilisation of ideas is

possible. Understanding of the nature of technology transfer agreement is very essential
before deciding whether they fall within the purview of Article 101 or Article 102.
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If we look into the scope of technology transfer block exemption regulation, TTBER
applies to those licensing agreements that are between two undertakings, concerning a
whole range of IPRs of which most commons are patents, know-how’s and software
copyright. Only the bilateral agreements are covered under the scope of TTBER
multilateral agreements. Patent pools are, in general, not covered and the assessment is
outside the scope of TTBER. Generally, patents, know-how’s and software copyrights
are considered to be the main intellectual property rights in question.
Trademarks and other forms of IPR are not under the scope of TTBER unless directly
linked with the product or the process in question. It also applies to the assignment of the
technology rights, provided the licensor retains part of the risk exploitation i.e. the
licensor has not given all the rights to the other party. The technology transfer in question
must be for the purpose of production of goods or services.
Only when the technology is used for the production of the goods and services, the block
TTBER exemptions are applicable. The use of the technology for R&D purpose or for
supply agreements are not covered under the TTBER. So, if a technology is licensed or a
technology is given for the mere research and development purpose, for the development
of another technology, it is outside the scope of TTBER. If it is only for the supply
agreement or other related form, then again it is outside the scope of TTBER. Only when
the product or service as mentioned in the technology is being manufactured or
produced, then the TTBER exemption guidelines can be applied.
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Trade mark or other related IPRs are concerned, only to the extent that those provisions
are directly related to the production and sale of the contracted product. Multiparty
agreements are excluded from the scope of TTBER. TTBER, will not normally apply to,
patent pool arrangements, but the guidelines sets out that such agreements could be
assessed under TTBER guideline on certain conditions, which we will discuss in the later
section of this module.
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Now let us understand what are the other provisions in the TTBER? There is an
important provision regarding market share threshold, unless and until the competitor
companies are having certain percentage of share in the market, they will not be covered
under the exemption. So, in order to benefit from the safe harbour provisions provided in
the TTBER, the parties must satisfy the relevant market share threshold.
We have already discussed definition of the relevant market, relevant technology market
and relevant product market. Relevant technology markets are those where the
technology has been licensed and the relevant product markets are those where the
manufactured products are being sold. So, both the relevant technology market and
relevant product market together makes the relevant market. Before a company can
benefit from the safe harbour provision, as mentioned in the TTBER, it must satisfy the
relevant market threshold.
When the agreement is between two competing companies i.e. those which are dealing in
the same kind of product or services, the TTBER will apply if the parties’ combined
market share is 20 percent or less in either the relevant product market or the
geographical market or in the relevant technology market i.e. taken together both the
competing companies’ market share should be less then 20 percent or at best 20 percent.
But when the technology licensing agreement is between two non-competitive

companies, the TTBER will apply if the parties have a market share of 30 percent or less
individually either in the relevant product market or the geographical product market.
Hence, for the competitive companies it is 20 percent or less and for the non-competitive
companies it is 30 percent or less.
It is very difficult to assess how much market share is there with each company because
it is the company’s responsibility to assess their relevant market share. One may question
how it being decided. As of today, this is the threshold provision as specified in the
TTBER.
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Once provisions of the safe harbour or TTBER have been applied to a technology
transfer agreement, it is possible that the company’s market share may change; it may
increase or decrease. And so, the TTBER also allows for a 2 year lag-period for a party
exceeding the relevant market share threshold, thereby the agreement losing the
protection of TTBER i.e. 2 years lag period is provided within which if there are
fluctuations, they can be considered.
A company’s market share may wobble around the threshold. It may exceed in a year and
again may fall back to within the threshold the next year without losing the benefit of
exemptions. These are the salient features of the TTBER regarding market threshold,
under which companies can enjoy safe harbour.
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Article 4 of the revised TTBER guidelines specifies certain hard core restriction
technology. The transfer of agreements concerning the hard core restriction will not
benefit from the safe harbour provisions of the TTBER; i.e. if there are certain hardcore
restrictions in the technology licensing agreement then the safe harbour provisions are
not applicable to those agreements. Now, let us understand what is a hard core
restriction.
The hard core restrictions are defined differently for agreements between competitive
companies and for the agreements between non-competitive companies. In relation to the
agreements between competitive companies, the TTBER classifies hard core restrictions
as first: price fixing or any other restriction on the party’s ability to determine its price
when selling to a third party or third parties i.e. if there are certain clauses that allow the
licensor to define the price or fix the price or place any other restriction such as the cases
where the licensee has to take the permission or consent from the licensor to fix the price
when he wants to sell the products to third parties, then it would be fall under hard core
restrictions.
Second: if there are certain clauses regarding limitations on how much a party may
produce and sell. If in an agreement the licensor puts a clause that only such and such
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amount can be produced or such and such amount can be sold in the market, then it
would be considered a hard core restriction.
Third: any restriction on the territories into which or the customer to which the licensee
may sell the contracted goods or services. If the licensor specifies the geographical
market or location where the products may be sold or if he defines the list of customers
to whom the licensee can sell goods, such are considered as hard core restrictions.
Fourth: any restriction on the licensee’s ability to exploit his own technology or
restrictions on either party’s ability to carry out research and development, are also
considered hard core restriction. As we discussed earlier, it is possible that a new
technology may be developed during the exploitation of the licensed technology. If the
licensor places certain restriction by which licensee is unable to reap benefit from the
new technology which he has developed in the due course of license, then it will also be
considered as a hard core technology restriction.
If these kind of restrictions are present in technology transfer agreement, then the
TTBER does not grant those agreements protection under safe harbour provisions.
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In agreements between non-competitive companies, TTBER classifies hard core

restrictions into the following three kinds. First: price fixing other then imposing a
maximum price or recommending a retail price.
Second: Any restriction on the territories or to whom the licensee may sell the contracted
goods or services, Third: any restriction on the active or passive sales to the end users by
licensee including member of a selective distributor system operating at retail or supply
level. These are the three kinds of restriction similar to the restriction placed on the
competitive agreement between competitive companies.
In case of agreements between non-competitive companies, if any of these three

restrictions are put then it would fall under the hard core restrictions.
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Article 5 of the TTBER specifies certain excluded restriction. Excluded restriction means
any obligation on the licensee to grant an exclusive license to the licensor or to a third
party designated by the licensor in respect of its own improvement or its own new
application of the licensed technology.
So, the new technology which was developed in due course by the licensee, if the
licensor regulates the transfer of those technologies to himself or to a third party, it is an
excluded restriction. Any obligation on a party not to challenge the validity of an IP
right, which the other party holds in the European Union, is a kind of excluded
restriction.
Sometimes during licensing of the agreement, more than one technology is being
transferred and if there is a dispute the licensee generally questions the validity of those
IP rights. Before technology transfer, the licensor initially sets a clause that the licensee
cannot challenge the validity of the intellectual property right. These kind of restrictions
are excluded restrictions.
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The TTBER provisions covers these. In agreements between non-competitors,

restrictions on the licensee’s ability to exploit its own technology or restrictions on either
party’s ability to carry out research and development comes under the excluded
technology. We have seen the scope of the TTBER, the minimum market threshold
which the competitive company or a non-competitive company must retain in order to
enjoy the safe harbour provisions, the exception regarding hard core restrictions and the
excluded restrictions. TTBER means the Technology Transfer Block Exemption
Regulation which gives a safe harbour to the companies entering into a technology
licensing agreement.
If the companies meet the criteria, as mentioned in the TTBER or the block exemptions,
then they are free from any kind of scrutiny, because an IP licensing agreement involves
two parties that are entering into an agreement and it may be looked into whether the
agreement is anti-competitive in nature under Article 101 or not. So if the agreement is
under the safe harbour provisions then the European commission will not look into it
with regard to the anti-competitive practices.
However, if the agreements do not satisfy or if the market threshold is higher or if there
are certain excluded restriction or hard core restriction then, in those cases the European
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commission may undertake separate assessment to determine whether the behaviour is
anti-competitive or not.
In order to determine, whether these kind of technology transfer agreements are falling
under the TTBER exemption or not, the European commission follows a three stage
analysis. In the three stage analysis, the European commission first looks into whether
the parties to the agreement are competitors or not. There are two kind of competitors;
those who are in horizontal agreement i.e. dealing with the same type of product or
service or the one that has similar IPR. These are known as competitor companies.
Non-competitors are those which are in vertical agreements i.e. a manufacturer and a
supplier. They do not have same kind of intellectual property right or same kind of
technology. One needs the licensor to give certain technologies by which he can enter
into the market within a small period of time i.e. by acquiring the license within 1 or 2
year, the new company wants to enter into the market and if it has a substantial presence
in the relevant market then it will become a competitor afterwards.
First stage of the analysis is to look into whether the parties to the agreement are
competitors or not. If they are competitors then the second stage would be to assess how
much market share do the competitive company or the non-competitive hold. If they are
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competitor companies and if their share holding is 20 percent or less individually or if
their share holding is 20 percent or less combined then they fall under the safe harbour
provisions. If the companies are non-competitive in nature, then their share holding
should be less than 30 percent individually so that they can fall under safe harbour. This
is the second stage.
In the third stage of analysis it is checked whether the agreement contains any problem
clause or not. Suppose there are two competitive companies and their combined share is
less than 20 percent which means they have satisfied two requirements. So, the third
requirement which the European commission would look into is whether the technology
transfer agreement contains any restriction or not.
It may be a hard core restriction or it may be an excluded restriction. Let's suppose there
are no hard core restrictions, then it will look into whether there are any excluded
restriction or not. If the commission finds that there are certain excluded restrictions then
there is a possibility of removing those restrictions so that, it can be a normal technology
licensing agreement.
If that is possible then the agreement between the competitive companies will fall under
the TTBER or the safe harbour zone and if not then individual assessment has to be
made. This is the three stage analysis, which the European commission and the national
competition authorities undertake before adjudging, whether the technology transfer
agreement containing or involving an element of intellectual property right, can be
provided a safe harbour in the European member states or not.
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Apart from these there are certain assessment criteria for the agreements falling outside
the block exemption regulation. If an agreement falls out of the block exemption
regulation, it does not necessarily mean that it is anti-competitive. It means that an
individual assessment is to be made.
If it is not anti-competitive then there is no problem, but suppose there are certain
elements which seems to be anti-competitive then individual assessments have to be
made. Restrictions can be justified on the basis of improved production or improved
distribution of goods or services or promotion of technical or economical progress in the
European member state or that it has provided a fair share of the resulting benefit to the
consumers. Restriction which it contain are indispensable for the achievement of the
benefits or that the restrictions do not allow substantial elimination of competition from
the market concerned.
If these points can be justified, it may not be considered as anti-competitive. There are
other agreements such as the settlement agreement, patent pooling cases and pay for
delay cases, which we will be discussing in the next module.
Thank you.
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Lecture -30
TTBER and Safe Harbour Provisions
Hello. Let us take forward our discussion regarding TTBER principles and the Safe
Harbour Provisions for various technology transfer agreements.
Let us discuss about the agreements that fall outside the block exemption. As we
discussed, the TTBER provisions are applicable for technology transfer agreements
particularly for intellectual property related technologies if the market shares is less than
20 percent for the competitive companies or less than 30 percent for non-competitors
companies.
But what if there are certain agreements which do not fall under the criteria of the safe
harbour or the TTBER block exemptions? Those kind of agreements, where either
parties have a larger market share or when the agreement is between more than two
parties, the TTBER principles are not directly applicable. However, the technology
transfer guidelines provide various guidelines for those agreements.
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When an agreement is between two or more non-competing entities, then the European
Commission looks into various anti-competitive effects for those agreements. But, when
an agreement is between competitors, i.e. those companies which are involved in
producing similar products or technologies and have similar IP in the same technology
then there are chances that the anti-competitive factor can be raised.
In the technology transfer guideline, it is directly stated that the Article 101 is unlikely to
be infringed, where there are four or more independently controlled technologies in
addition to the technologies controlled by the parties to the agreement that maybe
substitutable for the licensed technology at a comparable cost to other users, i.e. when
there is an agreement between two or more parties and the parties are in control of four
or more independent technologies, then it is less likely that there will be an anti-
competitive effect.
The term “substitutable license technology” means, the competitors have certain
technologies which maybe substitutable by any other related technologies. So, there is a
less chance that the agreement will lead to anti-competitive effect. Further, while
assessing the technologies it should be taken into account whether the technologies are
sufficiently substitutable.
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The relative commercial strength of the technology in question must be taken into
account, i.e. while looking into the agreement, the European Commission assesses the
strength of the technology, i.e. Is the technology really substitutable by related or
alternative available for that technology or not? If certain alternatives are available then
there is a less chance of anti-competitive effects.
When the agreement is between non-competitors; unless there is a specific query; the
European Commission does not look into it. But when the agreement is between
competitors, the EC looks into the agreement and the following factors.
It looks into the nature of the agreement and what is the market position of the parties
involved, what is the market position of the competitor; even though they might not be
directly involved in the technology transfer agreement, what is the market position of
other competitors, what is the market position of the buyers of the product, whether there
is any existence of or the extent of entry barrier for new technologies, how mature is the
market.
These individual factors are looked into at greater detail to understand the anti-
competitive effects of the agreement. For example, the nature of the agreement: whether
it is an exclusive agreement, whether any reciprocal clauses are involved, whether there
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is any non-compete clause associated with the development of a new technology which
may further inhibit the development or which will may lead to price fixation of the
product, market position of the parties, i.e. if the parties involved have a greater share or
are having a larger market share then there is a higher chance that it would lead to
competitiveness. Market position of the buyer’s means, the buyers are willing to pay
such amount of money to buy the technologies. It depends on the buyer’s purchasing
power or the acceptability of the technology from buyers end.
Whether there is any entry barrier or not, if there is any reciprocal arrangement by which
the new technology is not being taken outside or the innovation is being hampered. The
maturity of the market means, whether the technology is such that the people are really
not willing to give up the old technology or is there any acceptability for the newer
technology in that domain. Greater the maturity of the market, greater would be the
market share of the competitors.
All these factors are taken into account to look into the technology transfer agreements,
to find out whether it is abusive or whether it is against the provisions of Article 101 sub-
section (1) or not.
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There are certain negative effects of restrictive license agreements. The negative effects
on the competition or on the market resulting from restrictive technology transfer
agreement may include: the reduction of inter-technology competitiveness between the
companies operating on a technology market or on a market for the products
incorporating those technologies in question. This may lead to facilitation of collusion,
both explicit and tacit, i.e., if there are already certain restrictive provisions mentioned in
the agreement, no new product or no new technology can come to the market, there is
already a barrier. If the licensee has put a clause, where the licensor cannot perform
R&D on the licensed technology, in that case it reduces the inter-technology
competitiveness.
Only the IP which is associated in the technology licensing agreement is being given
priority. It may lead to foreclosure of competitors by raising their cost, restricting their
access to essential inputs or otherwise raising the barriers to entry. These kind of
restrictions in the agreement may lead to foreclosure of competition.
It may lead to price fixation and increase in cost, since third party licensing is also not
allowed. There are high chances that the product price may increase. And it may lead to
lack of access to essential input because no third party is involved. If Sub-licensing or
involvement of other parties is not allowed as per the agreement clause; then, it is a
restriction on the essential inputs and may lead to raising the barriers to entry.
It is possible that the technology may not be accessible to other relevant product market,
relevant geographical location. It may lead to reduction of intra-technology competition
between the undertakings that produce the product on the basis of the same technology.
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These are the primary negative effects which may exist as a result of restriction in the
agreement. In technology transfer agreement, particularly dealing with the IP, there are
certain restrictive provisions always present. There are guidelines that lists out certain
restrictive conditions generally found in the technology transfer agreement which are as
follows. First: the confidentiality obligations-In most of the IP related licensing
agreements, the confidentiality clause is one of the very important clause where the
licensee, licensor are not allowed to disclose or talk about the technology which they are
licensing.
Second: the obligations on the licensee not to sub-license. So, without the permission of
the licensor, the licensee cannot sub-license the technologies associated with the
agreement.
Third: obligations not to use the licensed technology after the expiry of the agreement
provided that the licensed technology remains valid and in force. As you know, patent
rights or other intellectual property rights are of limited durations. Hence, the IP
agreements are also for a limited period of time. There are obligations on the party to not
to use the licensed intellectual property after certain period of time. But when these
clause extends to not to use or not to further improve upon, this may lead to anti-
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competitiveness. But, per se, the obligation not to use the IP after the duration mentioned
in the technology transfer agreement, is not restrictive in nature.
There are obligations to assist the licensor in enforcing the licensed intellectual property
rights which are also not restrictive in nature.
There are obligations to pay minimum royalties or to produce minimum quantity of

products incorporating the licensed technology. Sometimes, the licensor puts forward an
obligation, where the licensee can only produce a limited quantity of the product in
question for a limited geographical location. In case of high end technology it becomes
somewhat essential to restrict the technology in a time frame or in a geographical
location. Depending on the merits of the case, it is not considered as restrictive in nature.
There are also obligations to use the licenser’s trademark or to indicate the name of the
licensor on the product. As the licensor is giving his technology to the licensee, it
becomes desirable on the part of the licensor to expect his trademark or name or logo to
be put on the product which is being manufactured. In majority of the cases it may
happen, unless and until, the licensor does not have the capability to produce the product
or the infrastructure to produce the product involving those IP. Except for situations
where (Say) a scientist or a researcher has developed certain technology which he may
give to some company where it may not be necessary. But, when big companies are in
possession of certain intellectual property rights, they generally insist that their
trademark or name should be put on the product.
These six conditions, in general are not considered as restrictive in nature, unless
extended to other related clauses.
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The technology transfer guidelines have specified various restrictive clauses which may
exist in a technology transfer agreement. For example, the restrictions in a licensing
agreement, the royalty or a non-compete agreement. In general, in the IP related
technology transfer agreements, the royalty is decided by the licensor, either in the form
of lump sum payment or instalments.
These do not attract the European commission’s attention. But, when it extends to other
non-compete agreements, for example, restrictions on not to use any third party
technology along with their technology, restrictions on R&D for certain period of time.
These clauses raise the question of violating Article 101. Other clauses related to
exclusive licensing, sales restrictions, the field of use restriction, captive use restriction,
the tying agreement, settlement agreement and patent pools are generally assessed.
Field of use restriction means if there is a technology which may be used in

manufacturing of two or more than two products, which product would be manufactured.
For example, if there is a mold which may design a glass bottle and may also design a
plastic bottle. In a technology transfer agreement, the licensee can only prepare a plastic
bottle and not the glass bottle. Here, the technology can be used only for one particular
product. This is known as the field of use or technical field of use restriction.
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Sometimes if such a technology is crucial for the development of other products and the
licensor has not allowed the licensee to use the technology which the licensee is already
producing then it may raise the question of violation of Article 101.
Captive use restriction means that the licensor gives certain timeline within which the
licensee can prepare or provides the geographical location only for which the product
can be prepared or he list outs the customer to which the product can be sold. These are
captive use restriction and in these cases the European Commission looks into the details
to find out whether it is an abuse or in violation of Article 101 or not.
A tying agreement: when the licensor is in a strong position and has high market share, it
is possible that they may bundle technologies when somebody asks for a license to a
single technology. The licensor may tie up certain related products along with it. It is
mostly seen when the licensor is having a high market share and there is no alternative is
available. In such cases, it may lead to anti-competitive practices.
Then there are settlement agreements: these agreements are seen in generic
pharmaceutical industries, where the pay for delay tactics or various co-promotional
agreements, which delays the entry of a new product or generic product or a cheaper
product to the market, exists. The innovator company retains its market exclusivity. It
hampers the competition and the prices increase and may lead to anti-competitive
behaviour.
Patent pools: Patent pools are a single platform where numerous technologies can be
found or licensed. This is very essential and very helpful, but sometimes may lead to
anti-competitive behaviour.
We would look into the two: settlement agreements and patent pools, in more details and
how the guideline on the technology transfer agreements has emphasised on these two.
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The settlement agreements are a measure, by which two parties can resolve a dispute or
licensing issue. Per se, settlement agreements are not-anti competitive because these are
like out of court settlement. They are by mutual consent between two or more parties
involved. Per-se these are not anti-competitive, but there are certain individual terms,
which are covered under the sub-section 1 of Article 101. The technology transfer
guideline addresses three major issues. First, the pay for delay restrictions; second, the
cross licensing; third, the non-challenge clauses.
The pay for delay restrictions: In the case of generic pharmaceuticals, some payment or
lump sum money is given to restrict the entry of a new product or a generic product into
the market. By cross licensing it means that the two parties in questions should cross-
license the technology with each other and no third party is allowed to receive the license
of the technology or give the technology. This, in turn, is a limitation in the technology
development. The innovation is hampered and hence is considered as anti-competitive
behaviour.
The non-challenge clause: sometimes an IP in a technology transfer agreement is

wrongfully given based on certain misleading facts. In such cases, the licensor generally
puts a clause wherein the licensee cannot challenge that IP in question, which is against
the European competition policy and is considered as anti-competitive behaviour.
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These three: pay for delay restrictions, cross licensing and non-challenge clauses, have
been dealt elaborately in the technology transfer guidelines.
The Commission considers that, the so-called pay for delay type of settlement
agreements, in general do not involve the transfer of technology, but these are based on
value transfer from one party, in return for a limitation on the entry or expansion of the
market of the other party. It is not the technology transfer of technology per se, but it is a
payment method such as lump sum payment, which is made to stop the expansion of the
market or entry of a product.
The guideline notes that, if the parties to such settlement agreement are actual or
potential competitors and there is a significant value transfer from the licensor to the
licensee, the commission will be particularly attentive to the risk of market allocation
and market sharing.
The pay for delay tactics is more likely to come under scrutiny, when it is between two
competitors, potential competitors i.e. when two parties are in a position of nearly similar
technology, since it may create an anti-competitive effect or affect the market structure.
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There are various cases, which lead to inclusion of these guidelines in the latest TTBER
guideline, which we will be discussing one by one. These cases are, Lundbeck decision
Servier, Johnson and Johnson and Novartis case. All of these cases raised the concern for
pay for delay. Particularly, in the Lundbeck decision, the court has confirmed the
commission’s approach, in the year 2016. The court stated that entering into an
agreement with an actual or potential competitor to delay entry into a market in exchange
for a monetary payment is a by object infringement.
There can be two types of infringement: by object or in effect. By object means, if the
object of the agreement is to stop the entry of a product or expansion of the market, then
by object it will be considered to be an infringement of Article 101. Certain clauses may
lead to certain results that affect market structure, such would be in effect infringement.
This guideline also refers to the 2012 ruling case of AstraZeneca; where it was noted that
the non-challenge clauses in settlement agreement can be problematic where IPR is
granted following the provision of incorrect or misleading information.
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In the Lundbeck decision, the Lundbeck subsidiary company was a pharmaceutical

company in Netherlands. Proceedings against the company were initiated in 2010.
Certain unilateral practices and the agreement with the object or effect of preventing the
entry of generic citalopram into the market, particularly European market, was in
question. It was suspected that the agreement or this practice is infringement of Article
101 and Article 102. And it infringes Article 53 and 54 of the European Economic Area
(EEA) Agreement.
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Citalopram was a blockbuster anti-depressant medicine and it was the Lundbeck’s best
selling product. Lundbeck had a number of patents on citalopram anti-depressant
medicine but when the main patent on citalopram expired Lundbeck only had a few
ancillary patents. One of the patents was regarding the preparation of crystallized salt
form of this medicine.
These ancillary patents were not effective in holding the market or for holding stronger
position for Lundbeck. It was becoming difficult for Lundbeck to stop other generic
manufacturers to produce generic citalopram, which will be available at cheaper cost.
During that time, Lundbeck approached other potential generic competitors. And the
generic competitors agreed to enter into an agreement with Lundbeck in 2002, for not
entering into the market, in return for a substantial payment from Lundbeck. It means
that Lundbeck gave certain lump sum amount of money (in millions of Euros) to other
potential generic manufacturers and stopped them from entering into the generic segment
of citalopram.
Lundbeck also offered guaranteed profits in distribution agreements. Lundbeck also

bought back all stocks of these genetics citalopram from the generic manufacturer and
destroyed it.
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In both the way, by destroying generic medicine as well by stopping generic
manufacturer from directly entering into the market by paying lump sum amount;
Lundbeck successfully retained its market position. It came to the radar of the European
Commission and the European Commission imposed a fine of 93.8 millions on the
Danish pharmaceutical company and other generic pharmaceutical companies were also
fined nearly 52 million Euros.
The notable generic companies were Alpharma, Merck, Generics UK, Arrow and
Ranbaxy. All these companies i.e. both the parties were fined because both the parties
readily agreed to enter into anti-competitive agreements.
The European Commission has different departments, which look into various cases
belonging to different technology. The Commission’s pharmaceutical sector enquiry has
identified that the competition between the originator company and the generic company
is not a very simple and straight-forward.
And so, it has to be scrutinised very carefully to understand whether the behaviour is
anti-competitive or not. In this context, the Commission has started looking into various
instruments in which, the originator company or the innovator company resorts to their
strategies to confront the entry of generic drugs.
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Those strategies are: the patenting strategy such as patent clusters i.e. having more than
one patent in a particular drug segment/drug molecule, dispute and litigation strategy
against potential competitors by filing or by initiating disputes or litigation against the
potential competitor thereby delaying the entry of generic product into the market. Patent
settlement strategy with generic company.
All these four major tactics from innovator companies are looked into by the European
Commission to check whether these behaviours are anti-competitive or not.
The Commission found that the agreements by Lundbeck constituted restriction of

competition by object, which were in breach of the prohibition on anti-competitive
agreements under Article 101 of TFEU. The Commission gave a theory of harm and this
theory of harm can be summarised in three points.
First: Lundbeck and generic undertakings were at least potential competitors i.e.
Lundbeck had the technology and as the patent expired, generic manufacturers had the
potential to enter into the same domain, hence, they were potential competitors.
Second: the generic undertakings committed in the agreement to limit, for the duration of
the agreement; their independent efforts to enter one or more European Economic Area
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market with their generic products. So, with that agreement, they agreed to not to enter
into the market and stopped the introduction of cheaper products into those market.
Third: the agreement related to the transfer of value from the originator undertaking
reduced substantially the incentive of the generic undertakings to pursue independently
their efforts to enter into the European market, with a generic product. Without supplying
the product to the market, generic companies were receiving money. The generic
companies did not make any independent effort to enter into the European market.
This is the theory of harm, which the European Commission came out with, in this
decision. This is one of the landmark decision, where the pay for delay tactics was
considered to be in violation of Article 101.
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Another important case in this direction is Johnson and Johnson and Novartis case.
Janssen Cilag, which is a subsidiary of Johnson and Johnson was supplying a painkiller
drug, known as fentanyl, in Netherlands and it concluded a co-promotion agreement with
a generic competitor Sandoz, a Novartis subsidiary, in 2005.
In 2005, there were no regulatory barriers to develop generic versions of fentanyl

patches. Therefore, Sandoz was free to enter into the Dutch market. However, Janssen
Cilag offered certain monthly payments to Sandoz; so that no generic product of fentanyl
patches can be launched by Sandoz in the Dutch market.
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Consequently, Sandoz abstained from entering into the market with generic fentanyl
patches. The duration of the agreement was from June 2005 to July 2006. In December
2006, another third party was about to launch generic fentanyl. Sandoz raised objections
and thence it came into the eyes of the European Commission.
The European Commission found that the co-promotional agreement between Johnson
and Sandoz has delayed the entry of generic medicine for 17 months. The price of the
fentanyl patches was kept artificially high, in the markets of Netherland during this time
from June 2005 to July 2006. Janssen Cilag paid approximately 5 million Euros to
Sandoz, in monthly instalments for the un-defined agreement.
This agreement stopped Sandoz from entering into the market as well as from carrying
out any promotional activities. In 2010, the European Commission concluded that this
agreement was a restriction under Article 101 and both Johnson and Johnson as well as
Novartis were heavily fined. Around 10 million Euros fine was imposed on Johnson and
nearly 5.5 millions Euros was fined on Sandoz.
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This is one of the important case where an innovator pharmaceutical company stops the
entry of generic pharmaceutical companies. Another important case was AstraZeneca
where not only the pay for delay tactics was used but non-challenge clause or misleading
ground was also used by which IP rights were tried to be extended.
AstraZeneca had a blockbuster product called Losec which was an omeprazole based
medicine used for the treatment of gastrointestinal conditions linked with hyper acidity.
This was a new technology at that time which involved a proton pump.
In 1999, generic companies from UK and Scandinavian pharmaceutical generic AB

complained to the Commission regarding AstraZeneca’s conduct and they said that
AstraZeneca’s conduct is aimed at preventing generic manufacturers from introducing
the generic version of omeprazole, in a number of markets, in the European economic
area.
The commission found that, AstraZeneca’s conduct was abuse of dominant position and
was infringing Article 102, Article 82 and Article 54 of the European Commission.
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There were two abuse of dominant position. The first abuse is classified into two types.
The first abuse was concerned with when AstraZeneca made representation, in 1993.
Instructions were sent to the patent agents through whom supplementary protection
certificate application were filed.
Supplementary Protection Certificate are provisions by which the patent term can be
extended for 5 more years. In case of biologic drug molecules, getting marketing
authorization takes a long period of time. To get effective benefit from the intellectual
property laws, there are provisions by which patent rights can be extended to certain
period of time and which can be achieved by supplementary protection certificate.
It was found that AstraZeneca made representations for getting supplementary protection
certificate on misleading grounds. Subsequently, it made representations to various
national patent offices and national courts.
The second abuse was regarding the submission of request for de-registration of
marketing authorization of Losec capsules in Denmark, Sweden and Norway and the
launch of Losec MUPS tablet, a new form of tablet where multiple micro-granules were
released at a time. So, AstraZeneca tried to take away all the existing Losec capsules
from the market and introduced a new tablet.
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The basic intention for this was to prevent parallel importers from supplying Losec
capsules. All these actions, taken together, the commission found that this was an abuse
of dominant position and violation of Article 102. AstraZeneca strategically implemented
the regulatory framework in order to artificially protect products from competition which
were no longer protected by patent and for which the data exclusivity period had expired.
This was taken into consideration by the European Commission and with respect to these
two abuses, the Commission imposed a fine of nearly 46 million Euros on AstraZeneca
AB and a separate fine of 14 millions.
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These were the major cases which lead to the incorporation of guidelines regarding
settlement agreements or pay for delay tactics in the technology transfer guidelines.
One of the other important thing in this guideline is regarding technology pools and
restraints. As you know, TTBER applies to licensing agreements concluded between the
pool and third party licensees.
In those kind of assessment, the commission is guided by three main principles. First: it
is of the belief that the stronger the market position of the pool, the greater will be the
risk of anti-competitive effect. Second: the pools that hold a strong position on the
market should be open and non-discriminatory. Third: the pools should not unduly
foreclose third party technologies or limit the creation of alternative pools.
In assessing the technology pools, the Commission assess the position of the market, the
position of the pool, what kind of technologies is being incorporated and how it is
dealing with the third party technologies.
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One kind of technology pool is patent pool. Patent pools give the companies cheaper and
easier access to necessary intellectual property rights; such as the standard essential
patents. These are one stop shop for intellectual property licensee. By recognising the
pro-competitive nature of patent pools, the creation and licensing from patent pools is
given benefit in the safe harbour guidelines. This is a kind of arrangement where one can
easily get many technologies at a go. So, it is generally given a safe harbour position in
the guideline.
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However, the commission also lists a number of factors which will be considered when
they assess, whether a patent pool can generally benefit from safe harbour or not. They
look into whether the participation is open for all or not, whether there is any restriction
on the entry of firms or parties to the pool. They also look into what kind of safeguards
are in place to ensure that only essential technologies are pooled.
The technology area is very complicated such as wireless communication or ICT. It

becomes very difficult to assess what is essential and what is non-essential. Unless there
is a strict scrutiny that the patent pool consists of only essential patents, one may end up
paying more for less number of technology. There should always be safeguards to ensure
that only essential technologies are pooled.
Third, the pooled technologies are licensed into the pool on a non-exclusive basis. The
non-exclusivity of these pooled technology is also an essential factor in determining
whether it can get a safe harbour or not. Also whether the pooled technology is licensed
on FRAND terms (fair, reasonable and non-discriminatory) or not, which we will discuss
in the later segments. The parties contributing technology to the pool and the licensee are
free to challenge the validity and the essentiality of the pooled technology.
There should be no challenge clause associated with these kind of pools. And the parties
contributing technology to the pool and the licensee are free to develop competing
technologies. The participants should be free to develop further technology by using the
pooled technology. There are safeguards against the exchange of sensitive information
also.
These are the few criteria which the European Commission looks into before giving a
safe harbour provision to such agreements. So far, we have discussed about technology
transfer, block exemption regulation and safe harbour provisions; and how the European
Commission looks into the technology transfer agreement involving intellectual property
rights, safe harbour for different kind of agreements; the scope for the agreements which
fall outside of TTBER. In subsequent modules, we will discuss about standard essential
patents and how technology defines standard essential patents.
Thank you.
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Lecture - 31
Standard Essential Patents and FRAND Terms
Hello, welcome to this new module on Standard Essential Patents, FRAND Terms and
various issues emerging out of the anti-trust regulations of European Union. In the earlier
modules, we discussed various safe harbour provisions laid down in TTBER guideline
for IP licensing agreements where the licensee as well as the licensor can get a safe
harbour which will be free from antitrust issues as laid down in the Article 101 or Article
102.
In a technology transfer agreement, there may be one or more IP involved, which may be
in the form of patents, industrial designs or software copyrights. But, the case becomes
difficult when the patent is an essential patent. Essential patent means necessary to
define a technical standard. For example, in smart phones different networks have
different technology such as 2G, 3G, 4G, even 5G. These are different standards of
wireless communication. Other example includes DVD format, which all of us have used
at certain point of time.
So, these are known as technical standard which all the operators, all the players in the
respective segment use in order to be compatible to users on different devices or in
different fields of use such as smart phones, smart homes, internet of things(IoT).
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With the emergence of technology, industry standards are being set. So, when a patent
comes under an industrial standard or a particular standard relevant for any technology, it
becomes important to technology licensing agreement. The case becomes somewhat
different in comparison to other IP licensing agreements. So, before looking into
standard essential patents and FRAND terms, let us discuss what are standards and how
the standard essential patents are being defined.
A technical standard is defined as a document established by consensus and approved by

a recognised body that provides for common and repeated use, the rules, guidelines and
characteristics of various activities and aimed at achievement of an optimum degree of
order in a given context. There are various standard setting organisations, for example,
ISO, which stands for International Organization for Standardisation; ETSI, the
European Telecommunications Standards Institute, IEEE, etc.
There are various standard setting organization which define a particular technology to
be a standard. These standards are very important in terms of inter-operability of a
particular technique or an invention. The commonly used example for technical standard
include GSM technology, 3G technology, 4G technology, DECT technology, Smart
cards, wireless, Wi-Fi, MPEG formers, DSL.
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The standards are set by not only one technical institution, it is a work of more than one
technical institute which develops various techniques which is further given the
definition of a standard because of their importance in the relevant area of use.
Once a standard has been defined, the technology becomes the new standard to be used
in the field of use, but when there is a patent for that technology, then the patent is
known as the standard essential patents. A patent that protects the technology essential to
a standard is called a standard essential patent or the SEP.
The patent holder contributes the technology for developing standard. Once a standard is
established the holder gives the standard patents to the standard setting organization and
in turn, they agree to license those technologies to all those potential users who want to
use them on FRAND terms, which is reasonably favourable to both the parties or which
is known as the fair, reasonable and non-discriminatory terms.
Once a technology has been set as a standard, the technology is named as essential
technology or standard essential patent and by virtue of the right given by the patent
owner, the organisation is ready to give this technology to potential users on FRAND
terms. FRAND terms should be economically favourable to both the parties so that it
will further help to innovate, so that fair use and fair competition in the market can exist.
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But, the situation is not so simple as it appears. The technology users, accuse the SEP
holders for charging excessive licensing fees based on weak patent portfolio. Also there
are continuous threats coming from SEP holders to the technology users for the
infringement of their technology and the claim of SEP holders that the technology users
want a free ride on their innovation and they consciously infringe their intellectual
property rights without engaging in good faith licensing negotiation.
The issues are from both the sides, because the SEP holder have a valuable asset with
them. So, they try to assert their monopolistic power by charging high licensing fees and
if someone does not agree with the licensing fees, they may get threatened by litigation
charges. Simultaneously, the technology users use the technology without permission.
When licensing negotiation fails technology users start using the technology without
permission which may result into litigation. These are the two main issues of both the
parties. So, let us see how the European Commission deals with these issues.
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When such a situation arises, the standard itself becomes a barrier to the entry of new
technology and also controls the service market or product market in which the standard
applies. In this way, it leads to anti-competitive behaviour amongst the parties in the
market. There are other phenomenon like holding up, patent thickets which may arise
and stop the development of new technology and effective access to standards.
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So, in order to avoid these hassles FRAND terms have been defined. The FRAND
commitments are designed to ensure that essential technology protected through these
standard essential patents should be accessible to all the users on fair, reasonable and
non-discriminatory terms and conditions.
The FRAND commitments can prevent IPR holders from refusing to implement the
standard or from refusing licensing request or charging unfair fees or excessive fees.
Sometimes IPR holders try to license SEP along with non-SEPs i.e. those technologies
which are non-essential or non-essential patents.
For example, in smart-phones, Wi-Fi, 4G, 3G are a part of standard essential patent, but
sometimes several non-essential patents are also included along with the main
technology such as swiping activity in the screen or screen resolution patent or other
non-SEPs. So, when there is a licensing negotiation IP holders try to bundle up IP rights
which may lead to disagreement between parties, failure of the agreement and anti-
competitive behaviour in the market.
This is also known as portfolio licensing. SEP holders are holders of a number of patents.
So, they at a time try to license their technology together. They force the potential
licensee to take license of the entire licensor portfolio. The licensee may think that all the
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patents are not essential for its technology development process or product development
process and are not required for him to get license of and that becomes the main reason
of dispute in many of the cases.
In the European Union, there are many cases regarding standard essential patents and
FRAND terms; notably, Huawei versus ZTE, Samsung and Motorola decisions. These
have set the european economic area with regard to antitrust issues arising out of the
standard essential patents.
In the Huawei case, the European court of justice has confirmed that the potential
licensee has the right to challenge, in parallel to the negotiation for a license, the validity
of those patents or to contest the essential standards or their actual use or reserve the
rights to do so in future.
It does not mean that once the patent holder has SEP in hand, he is immune from all the
aspects of competition law and the licensee may challenge the negotiation or the grant of
the license deals. This has been clarified by the court that the exercise of such right
cannot be interpreted as a sign of un-willingness. We will discuss all these cases in detail
in the later part.
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Samsung versus Apple and Motorola versus Apple, both the cases were decided during
the same time and the commission reached the same conclusion in those cases and found
that Motorola’s restrictions on Apple’s ability to challenge the validity of its patent was
capable of having a number of anti-competitive effects.
Let’s go into detail of it. The court has given certain obligations that the SEP holder must
follow to avoid action for a prohibitory injunction. The SEP holder must give notice or
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otherwise consult within the alleged infringer prior to initiating any such litigation and it
should alert the alleged infringer by the designating the SEP the infringement of which is
complained of and by specifying the way in which the party is infringing the technology
in question.
In Samsung versus Apple, Samsung had many standard essential patents related to
various mobile technologies. The technology which was in question in this case was
ETSI, 3G UMTS standard which is a key industrial standard for mobile and wireless
communication. This technology was given the status of a standard essential patent.
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In April 2011, Samsung started to seek injunctions against Apple on the basis of its
standard essential patent on 3D technology. After investigation by the commission, the
commission posed question that whether Samsung failed to honour the irrevocable
commitment which they had given to ETSI, the European Telecommunication Standard
setting organization, of providing the technology on FRAND term basis and whether it
was a violation of Article 102 or the abuse of the dominant position as per the treaty of
functioning of the European Union.
In December 2012, the commission informed Samsung of their preliminary view that
that they considered Apple a willing licensee on FRAND terms for Samsung’s SEP and
alleged that against this background seeking injunction against Apple was an abuse of
dominant position and breach of the Article 102.
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When the technology was given the status of a standard essential patent, Samsung
committed to the standard setting organization that it will provide technology on a
FRAND term basis. Apple was willing to take the license on fair and reasonable terms. It
is a separate issue that their negotiation did not materialise, but Apple was willing to take
the technology on certain conditions.
To deny Apple a license was an abuse of dominant position. To address the commission’s
concern, Samsung has committed not to seek injunction against Apple company for 5
years in European economic area in the present or in the future when it relates to
technologies implemented in smart phones as well as in tablets. It agreed to not seek
license against companies that agree to a particular framework of licensing for the
relevant standard essential patents.
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It provided the condition that the licensing framework should be provided for a
negotiation period of upto 12 months i.e. negotiation can be carried out for a period of 12
months and if no agreement is reached in that time period a third party determination of
FRAND terms, by the court or by any other party which the two parties choose or by an
arbitrator if both the parties agree, can be done.
The court tried to settle the dispute by giving them reasonable amount of time to reach a
consensus for the licensing agreement and in case there was no consensus between the
two parties, a third party can decide what will be favourable licensing term and condition
for these kind of licensing agreement. Further, an independent monitoring trustee will be
advised by the commission to oversee the proper implementation in the commitments.
So, this is one of the landmark decision, in the history of the European Union where the
court tried to achieve a settlement between the parties, either by the parties themselves or
through mediation by third party.
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In Motorola versus Apple, the European Commission found that Motorola was seeking
an injunction and also trying to enforce the injunction against Apple before the Court of
Mannheim district and district court in Germany. These were related to standard essential
patent in a smart phone and the standard essential patent in question was related to GPRS
standard otherwise known as the GSM standard which is a key industrial standard for
mobile and wireless network.
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In all the cases of abuse of dominant position, the court tries to find out what is a
relevant market and what is a geographical market. So, in this case, the court tried to
identify the relevant market. The market for licensing of the technology specified by the
the technical’s specification was Motorola’s Cudak GPRS standard essential patent.
The market for the downstream products i.e. smart phones on which the GPRS standard
compliant products are sold, was not considered relevant in this case because the
turnover achieved with the licensing of GPRS and SEP technology was different from
the turnover achieved with the GPRS standard complaint products. Only the licensing of
GPRS technology was considered to be the relevant market in this case and the
geographical market was the European economic area.
Next, the court looked into whether Motorola held a dominant position in the market or
not. For this, both the demand side and the supply side substitutability was analysed and
the European Commission concluded that Motorola does not have any substitute in the
European economic area and Motorola holds 100 percent share in the market and it is the
dominant player in the market for GPRS standard.
The court considered two important factors while assessing the dominant position. First,
the indispensability of the GPRS standard on which Motorola’s Cudak GPRS SEP was
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read for manufacturing a standard compliant product. Second, the industry locked-in to
the standard i.e. the court tried to find out whether there is any substitutable technology
available in the European economic area for Cudak GPRS standard essential patent or
not and it found that there is no substitute. The product was popular in the market and
people were used to this technology and it gained a popular demand.
It was really indispensable or un-substitutable in the market and all the industries are
which are operating in that field were trying to use and adopt the technology. The
industry had locked-in to the standard. Both the factors were satisfied and for that reason
the court also decided that Motorola is holding a dominant position in this particular
GPRS standard. Once the dominant position was established, now the second question
arises whether there is an abuse of dominant position or not.
The commission came to the conclusion that seeking an enforcement of an injunction by

a patent holder including SEP holder is a legitimate course of action. Because, as a
holder of intellectual property right, one has the very right to seek an injunction against
any unwilling or any user which has not taken permission from the intellectual property
owner.
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In this case also, the SEP holder can seek the enforcement of the injunction as a
legitimate course of action, but when the FRAND terms are associated with SEP then the
situation becomes different from the normal cases. In this case particularly, Apple’s
willingness to enter into a licensing agreement with Motorola and Apple already allowed
Motorola to set the royalties according to its equitable discretion. In lieu of these
evidences, the situation became critical.
Further, Motorola was allowed to review the amount of FRAND royalties whereby both
Motorola and Apple could submit their own evaluations, calculations and reasoning for
the consideration by the competent court. So, according to the commission the
assessment of Motorola’s conduct as an abuse of dominant position strikes a fair balance
between the three interests at issue; First: the rights linked with intellectual property,
Second: the right of access to the tribunal and Third: the freedom to conduct business.
In this case no fine was imposed on Motorola; however, the court tried to strike a balance
between these two parties and tried to settle a favourable licensing condition between the
two parties.
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These two antitrust decisions of Motorola as well as Samsung provides a path for patent
peace. In both these cases the commission clarified that, in standardisation context, when
the SEP holders have committed to license their standard essential patents on fair,
reasonable and non-discriminatory terms, it is anti-competitive to seek to exclude the
competitors from the market by seeking injunction on the basis of SEPs if the licensee is
willing to take a license on FRAND terms.
In certain circumstances, seeking an injunction can distort the licensing negotiation and
lead to unfair licensing terms with a negative impact on the consumer choices as well as
the prices. Since, in both the cases, Apple was willing to enter into licensing negotiation
and it offered the best FRAND terms possible from its end, Apple initiated an action,
although it did not materialise, that does not mean that it is infringing IP rights. Both the
parties should try to achieve a harmonisation in the selection of royalties or other
condition as laid down.
But merely seeking or enforcing an injunction over SEP is not the solution and it may
lead to anti-competitive effect in the market and also hamper the innovation in the
market and limit consumer choices.
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Motorola and Apple judgment are recent decisions where the court tried to favour the
licensee or tried to achieve a harmonious situation between the two parties, but in the
earlier judgments more favourable approach was given to the patent owners. For
example, in the Orange Book Standard case, the German Federal Court of Justice has
adopted a more favourable approach for the patent owners.
The court stated that in order to avoid an injunction, the license seeker should meet two
specific conditions which has not been mentioned by the ECs decision. First: to make an
unconditional binding offer for the conclusion of a license which the patent owner cannot
refuse without being in breach of its obligation i.e. the licensor would have to provide
the best offer to the licensee to get the technology in place and the licensing offer should
be such that the patent owner could not refuse it. And Second: satisfying in advance the
obligations to ensure that the license agreement is being concluded.
These criteria have been further specified by the German lower courts, which are \ very
strict conditions for the license seekers. All the burden is on the license seeker rather than
the patent owners. With the Samsung and Motorola decisions, the burden shifted to the
patent owners. This is a gradual shift as the standards are developing in the European
market and in the global market. The gradual shift in the approach of the court can be
seen in these cases.
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In Huawei versus ZTE, Samsung and Motorola cases, the European Court of Justice and
the European Commission has clarified the limits of the SEP holder’s right to seek
injunction against a prospective licensee, who has allegedly infringed their patents.
These three cases are landmark decisions, where the court has given various guidelines
and clarified the limits of the SEP right holders.
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In the Huawei case, both the parties were Chinese manufacturer of smart phones.
Huawei had a patent on LTE technology, which is one of the important technology for
mobile communication. This patent was conferred the status of standard essential patent.
ZTE company, one of the leading Chinese company tried to enter into a cross licensing
negotiation with Huawei on FRAND terms, but the licensing agreement did not
materialise. The technology in question was for synchronising signals sent out by a
transmitter to a receiver in the mobile communication environment, it transforms signals
in an efficient way by defining Fourier frequency coefficient which is centrally
symmetric.
The technology related with LTE technology and ZTE wanted to have a cross-license on
it. ZTE had certain patent which they thought would be relevant for Huawei for
implementation of their production. This is the reason why ZTE tried to have a cross
licensing negotiation with Huawei.
As the licensing negotiation did not materialise Huawei tried to enforce an injunction
against ZTE. In this case, the main issue raised was whether the injunction against ZTE
by SEP holder i.e. Huawei was in violation of Article 102 of treaty of functioning of
European Union or not. The patent in question was filed in the year 2008 and granted in
2011.
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ZTE used to produced LTE base stations. The negotiation started in the year 2010. After
6 months of negotiation they could not reach a settlement and the negotiation failed. In
April 2011, Huawei filed a patent infringement action against ZTE in district court of
Germany and filed for an injunction against ZTE.
The district court of the Germany, the Dusseldorf court, asked five questions, out of only
the first question was answered by the European court of justice. The first question was
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does the proprietor of an SEP, who informed the standardisation body that it is willing to
grant any third party licensing on FRAND terms, abuses its dominant market position if
it brings an action for injunction against any patent infringer, even though the infringer
has declared that it is willing to negotiate a license.
As we know, when a patent is declared as a standard essential patent by a standard

setting organization, after this declaration, the patent owner agrees to provide license to
any potential users on FRAND terms. So, when patent owners have agreed to this clause,
is it going against that declaration when they are seeking an injunction against the
alleged patent infringer.
The second part of this first question was: is an abuse of the dominant market position to
be presumed only where, the infringer has submitted to the proprietor of the SEP an
acceptable unconditional offer to conclude a licensing agreement, which the patent
owner cannot refuse without unfairly impeding the infringer or breaching the prohibition
of discrimination and, the infringer fulfils their contractual obligations in anticipation of
the license.
When the infringer has given the proprietor the offer for licensing agreement which the
patent owner cannot refuse, only after that condition can we ascertain the abuse of
dominant position. When can the dominant position be considered to be an abuse of
dominant position?
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The second question asked by the district court was: if abuse of dominant market
position is already to be presumed as a consequence of infringer’s willingness to
negotiate does the Article 102 lay down any particular qualitative or time requirement in
relation to the willingness to negotiate i.e. is there any timeline defined in the Article 102
within which the licensing agreement should be negotiated?
Can the willingness to negotiate be presumed where the patent infringer has merely
stated, for example, orally, in a general way, that they are prepared to enter into
negotiation. Is an oral agreement valid in these cases or, there should be specific
condition that, the licensee, the wilful potential user, should show his willingness to enter
into the license. Is oral willingness acceptable or whether there is any written
requirement, specification requirement.
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The third question was: if the submission of an acceptable, unconditional offer to
conclude a licensing agreement a prerequisite? Does Article 102 lay down any particular
qualitative or time requirement in relation to the offer? How long would an offer be valid
and should the offer contain all the provisions which are normally included in the
licensing agreement, in that field of technology.
What should be the clauses laid down in the licensing agreement? Should there be any
particular conditions which should be specified in the agreement, which will show
whether the agreement is valid or not?
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The fourth question: if the fulfilment of the infringer’s obligation arising from the license
that is to be granted is a prerequisite of the abuse of dominant market position? Is there
any requirement with regard to these act of fulfilment under Article 102 or is the
infringer required to render an account for the past act, use or pay royalties? For
example, if the user has already used in the past, will there be any accountability for
that?
Can the obligation to pay royalties be discharged if necessary by depositing a security?

Will there be any security deposit for entering into licensing negotiation? Under which
condition, it will be considered as an abuse of dominant position, what will be the
criteria for licensing negotiation on the part of the licensor as well as the licensee?
The last question in this relation was: Do the conditions under which the abuse of
dominant position by the proprietor of an SEP is to be presumed apply also to action on
the ground of other claims arising from patent infringement or not? These were the five
questions, which the district court asked and the European court of justice answered only
the first question.
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The court defined two conditions for the assessment of abuse of dominant position when
the plaintiff is seeking an injunction. First: whether the alleged infringer unconditionally
offered to enter into a licensing agreement with the SEP holder with a royalty offer
sufficiently high that the patent owner cannot deny the offer or cannot refuse the offer or
where the alleged infringer behaved as if the license has been given i.e. rendered an
account of its act of use of the patent and paid respective royalties.
The court placed the burden of fulfilling those conditions on the defendant. The court
deviated from earlier judgments of Samsung and Motorola. The court tried to settle down
the matter, where both the parties can further negotiate the agreement and come to a
mutually beneficial licensing negotiation.
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Even though a middle ground was taken by the court, in this case, there were few
questions which remain unanswered. First, it was unclear that under which
circumstances the ownership of SEP confers dominance. Second, while voluntary
portfolio licensing is not illegal, SEP holders force to take either all the portfolio or none.
For example, in Huawei versus ZTE, there was nearly 450 LTE related technologies that
Huawei was offering to ZTE and there were nearly 40 SEP holders.
You may imagine, entering into a licensing agreement for 450 technologies with 40
holders is not an easy task. It is difficult to reach into a settlement on mutually beneficial
terms. Also, in such cases, whether license to the whole patent portfolio is required? If
ZTE does not want to take the license for 450 standard essential patent, why should it
give money on account of all those patents?
SEP owners try to give or bundle the number of SEPs which they are having, and try to
license all of them to the potential user. In such cases, the dispute arises. Although the
European Commission is yet to scrutinise the refusal to license at its component level, it
is not clear if such refusal is contrary to FRAND commitment and Article 102 of the
treaty of functioning of European Union, as it may amount to discriminatory refusal to
deal or lead to excessive royalties.
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So, who decides what is a FRAND term? Fair, reasonable and non-discriminatory term
may be different in the eyes of the licensee and the licensor. If the agreement is not on
FRAND terms then who will decide what is FRAND term and will there be any defined
time period under which FRAND term be defined or negotiated? These are the questions
which are still unresolved.
There is no official view, whether SEP holder’s transfer of SEPs to a Patent Assertion
Entity or the PAE, may breach EU competition law.
Patent pools, Patent thickets and Patent portfolio licensing, all these issue arises out of
the SEP context. It may appear simple, that the SEP holder must agree to FRAND terms
and conditions, but to reach FRAND terms and condition is very difficult, given the
situation that the licensor tries to negotiate for all the SEPs or tries to associate non-SEPs
with SEPs, while at the same time the licensee tries to free ride the technology and use it
for his benefit.
All these led to the recent debates in licensing of SEP technologies. In the month of June
2019, guidelines were set for the use of 5G technologies and other IoT SEPs. Similarly,
in April 2016, the communication on the standardisation priority for single digital
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market, the commission identified three main areas where the SEP licensing environment
could be improved.
First: There should be opaque information on SEP exposure i.e. what is the SEP? Under
what conditions the SEP is regarded as a standard or a technical standard? Second:
Unclear valuation of the patented technologies reading on the standards and the
definition of the FRAND and Third: the risk of uncertainty in the enforcement of SEPs.
In addition to these three criteria, the role of open source communities in the
development of standards is also being taken as a major area where more work is
required so that the SEP environment can be improved.
In the recent guidelines, they gave certain emphasis on what principal terms are included
in a patent SEP license. The license should cover: the standards covered and therefore,
the SEPs licensed; product and services and field of use under which field the SEP can
be used; what territory should be covered; the term of the license should be dealt; the
royalties, payments and auditing rights to whom such rights should be given must be
clear in the licensing agreement; the dispute resolution clauses, which may also cover the
future licensing agreements if agreed and if both the parties agreed then the inclusion of
non-standard essentials patents in the licensing agreement.
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One of the main disputes arises in how to set the royalty on FRAND terms in the SEP
license. There is no single rule by which a royalty can be decided. There are various
common royalty calculation terms depending on the SEPs which the owner practices, or
depending on the circumstance of the technology. Royalty is either decided on per unit
cost or as a percentage of the net selling price of the licensed product or service or as
lump sum payments.
If there are no previously calculated method, any recent examples can be taken in the
technology area and may calculate the royalty accordingly. The calculation might include
a cap or a floor and the percentage, rate per unit or lump sum cost may be adjusted
depending on the total sales volume.
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The question “what is a fair and reasonable license” was also included in the latest
guideline. The courts look into various case laws that have emerged in similarly situated
companies. In the absence of such examples the potential licensee can look into the
publicly available market data, which can provide a guidance on whether the license
offer is on FRAND terms or not. For example, Public announcements on royalties by
SEP owning companies, patent pools or information on royalties and licensing terms and
available court decisions. There are certain guidelines, which has been provided for
licensing of SEP related to 5G and IoT.
The documents will be shared in the link of the video. Please go through the documents.
It would give you latest insight into how the guidelines are helping the standard essential
patent owners as well as potential licensee. This is a controversial area, and the cases are
being decided depending on the merits of the case.
Hope these few examples would give you an idea of SEP. We will discuss more about it
in our next sections. We will deal with how the competition rules and intellectual
property rights interact in the Indian competition law context.
So, stay tuned for the next module. Thank you.
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Lecture-32
Introduction to Competition Law in India
Hello all, welcome to this module on Indian Competition Law and Intellectual Property
law aspects. In this session, we will discuss about the various provisions of Indian
Competition Law. Let us understand, what is Indian Competition Law. In the earlier
classes, we have discussed the various anti-competitive provisions mentioned in the
European competition policy, particularly the anti-competitive agreements, abuse of
dominance in the context of the European Union, how these are perceived, the
jurisprudence, how it has developed and with the latest technological advancement how
the IP and competition policy are playing important roles in the globalised era. Bringing
the discussion forward, let us discuss the Indian Competition Law.
In this module, we will look into the brief history of competition law in India, what were
the earlier provisions, when was the Indian Competition Law enacted. We will look into
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the provisions relating to anti-competitive agreements and abuse of dominant position
with regard to India.
Before the enactment of the Indian Competition Law, the provision relating to the
economic power with respect to the market players were controlled by the MRTP Act
which is otherwise known as the Monopoly Restrictive Trade Practices Act of 1969.
After the economic liberalisation in 1991, the need for a separate competition policy was
felt. After various deliberations, finally, in the year 2002 the Indian Competition Law
was enacted which came into force in the year 2003.
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The purpose of the MRTP Act was to inquire, investigate and pass remedial measures
against restrictive trade practices. Earlier, the concept of anti-competitive practice was
not clear in the Indian market. It was, the concentration of the economic power with
certain entities, either government or private, because it was agricultural based growth.
India has developed its history from kingdom based system. The economic power were
concentrated with one or few organisations. To prevent those, that may lead to anti-
competitive behaviour MRTP Act was passed in 1969. But that may not be per se anti-
competitive, however, it was regulated by the Act. There were no specific provisions
regarding the anti-competitive practices or mergers or acquisitions.
After the economic liberalisation in 1991, when India became a signatory to the WTO
agreement in 1995, the Indian economy was opened to the players in India as well as
those outside India. There was a need for a level playing field, where the foreign entities
or the Indian entities can compete with each other in a fair manner, which would give an
inclusive growth to all the players operating in the Indian market as well as provide
benefit to the population of India as a whole.
Looking at the liberalisation, the Raghavan committee was constituted in the year 1999
to address some of the changes that might be needed in view of the liberalisation,
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particularly in combating the trade related anti-competitive practices. The Raghavan
committee looked into various aspects and gave the recommendation based on which the
MRTP Act was repealed, and the need for a new modern competition law was proposed
on the basis of which the Indian Competition Law was enacted in the year 2002.
The preamble of the Indian Competition Act of 2002 has four major objectives. First: to
prevent the practices having an adverse effect on the competition, Second: to promote
and sustain competition in the markets, third: to protect the interest of the consumers,
fourth: to ensure freedom of trade carried on by other participants in the markets in India.
These are the four major objectives, which the preamble of the Indian Competition Act
puts forward.
One of the interesting thing is that, in the preamble itself the economic growth was
considered to be inclusive with competition in the market. Earlier competition was never
thought to promote economic growth or advancement in the market. However, with the
Competition Act, it was proposed that the economic growth is proportional to good or a
fair competition in the market. As we discussed earlier, one of the major advantage of
intellectual property is that we are getting new innovations. At the same time, it is also
motivating others to innovate. Similarly, the Indian Competition Act has mentioned four
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major objectives and the motto of the Competition Act is to provide a fair competition,
for the greater good of the society, with respect to India.
With these objectives, the competition law proposed the creation of a Competition
Commission of India. The role of competition commission of India is to prohibit the non-
competitive agreements, abuse of dominance and to regulate various combinations such
as mergers, amalgamations or acquisitions, through a process of enquiry. It also gives
opinion on competition issues when reference is received from any authority established
under the law.
It is mandated to undertake competition advocacy, create public awareness and impart

training on competition issues. As we mentioned earlier, the MRTP Act was silent about
anti-competitive practices. With the commencement of the new act, one of the provisions
included was the advocacy of competition law to the general public to create awareness
regarding anti-competitive behaviour and competitiveness of a player, in the market.
These are the major functions of the competition commission of the India.
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Let us look into, the basic differences between Competition Act of 2002 and MRTP Act
of 1969. First: the aim of the MRTP Act was prevention of concentration of economic
power whereas the aim of the Competition Act is to promote and sustain competition.
In the MRTP Act, the monopolistic or restrictive and unfair trade practices were
considered illegal per se and there was no rule of reason approach. So, if there was
monopolistic behaviour or if a behaviour is found to be restrictive in nature, it was
considered illegal. However, in Competition Act anti-competitive agreements between
the enterprises, abuse of dominance by the enterprise, combinations or mergers or
acquisitions hampering good competition in the market, are prevented. Here
monopolistic behaviour is not anti-competitive per se, in the Competition Act whereas,
the MRTP Act was silent about anti-competitive behaviour.
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In the MRTP Act dominance was per se bad, but in Competition Act abuse of dominance
is bad. There was no provision for regulating mergers or acquisitions under the MRTP
Act of 1969 whereas, separate provisions have been made in the Competition Act, for
regulating mergers and acquisitions.
There was no competition advocacy in the MRTP Act, competition advocacy is statutory
mandate under Section 49 of the Indian Competition Act. In case of the MRTP Act, cease
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and desist order was the only remedy with the final appeal before the supreme court
under Section 55 and no individual liability provisions existed in that law. Whereas, in
the Competition Act, pecuniary fines, division of dominant undertaking besides cease
and desist order, two-tier appeal with penalty against an individual found to be guilty of
breach of law, provision for individual penalty is present.
The Director General enjoyed the suo moto powers for initiating investigation
concurrently with the MRTP commission whereas, in Competition Act there is no suo
moto powers available with the DG. These are few of the differences between MRTP Act
and the Competition Act.
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Let us look into the major provisions of Indian Competition Act. There are three kinds of
provisions; first: the enforcement provisions, second: advisory provisions and third:
advocacy provisions. Indian Competition Act is unique in the sense that it is having an
advocacy provision.
The enforcement provision deals with prohibition of anti-competitive agreements.

Section 3, deals with agreements which can be considered as anti-competitive. Then,
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there are provisions relating to abuse of dominant position, Section 4 of Competition Act
talks about abuse of dominant position. Section 5 and 6 talks about regulation of various
combinations; the conditions under which combinations or mergers or acquisition
agreements can be considered as anti-competitive. These are the three enforcement
provisions.
The advisory provision are applicable on the reference by a statutory authority; Section
21 and subsection (1) of Section 49 are the relevant sections for this. There are advocacy
provisions as mentioned under subsection (3) of Section 49 to promote awareness
regarding competitive aspects of market behaviour. These are the three major provisions
of the Indian Competition Act.
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We will now look into the details of these various enforcement provisions. We discussed
Article 101, 102 of the treaty of functioning of European Union, how they consider
agreements as anti-competitive or abuse of dominant position. Similarly, in Indian
Competition Act, Section 3 talks about anti-competitive agreements. It prohibits anti-
competitive agreements, both horizontal as well as vertical agreements under Section 3.
Section 3 says that no enterprise or association of the enterprise or person or association

of persons shall enter into any agreement in respect to production, supply, distribution,
storage, acquisition or control of goods or provision of services which cause or is likely
to cause an appreciable adverse effect on competition within India. We will also discuss
what can be considered as an appreciable adverse effect.
It also specifies that any agreement entered into in contravention of this provision
contained in subsection (1) shall be void, further it has specified, what kind of
agreements can be considered as anti-competitive.
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Subsection (3) says that any agreement entered between the enterprise or association of
enterprise or person or association of persons or between any person and enterprise or
practice carried on, or decision taken by, any association of enterprises or association of
persons, including cartels engaged in identical or similar trade of goods or provision of
services, shall be presumed to have an appreciable adverse effect on competition: shall
be void. It talks about cartels, formation of cartels, in general all the horizontal
agreements, including enterprises which are dealing with identical or similar trade of
goods.
We have already discussed in the European Union provisions that when all the market
players or any firms or entities are dealing with similar kind of goods and services, the
agreement they enter into are known as horizontal agreement, when they are at the same
level of supply chain. Subsection (3) tells us that, if any association or enterprise or
association of the enterprise and including cartels are engaged in identical or similar
trade of goods or provision of services, horizontal agreements shall be presumed to have
an appreciable adverse effect on the competition.
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And, it shall be void if it directly or indirectly determines the purchase of the sales price,
limits or controls the production, supply, markets, technical development, investment,
provision of services or, if it shares the market or source of the production or the
provision of services by way of allocation of geographical area of the market or types of
goods or services or the number of customers in the market or in any other similar way
or directly or indirectly results in bid rigging or collusive bidding.
If any of the agreement is performing any of these four act mentioned in the section, it
will be considered as anti-competitive and shall be presumed to have an appreciable
effect on competition. The per se rule will be applicable on horizontal agreements and
the agreement will be considered as anti-competitive. In the per se rule, there is no
reasoning required. The agreements are per se considered to be anti-competitive. One of
the important thing about anti-competitive behaviour in case of horizontal agreement is
that they are considered to be anti-competitive per se.
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Indian competition commission analyses agreements in two ways of analysis for finding
whether any of the agreements are anti-competitive or not. One is known as per se
analysis, wherein there is no need to prove anti-competitive effects and the second is the
rule of reason analysis, wherein they will analyse whether the behaviour is leading to
any anti-competitive effect or not. Enough proofs would be taken into consideration, and
if they outweigh the anti-competitive effect with pro-competitive effect then the
agreement will be considered as an anti-competitive. Horizontal agreement is considered
per se anti-competitive. There is no rule of reason approach used in case of horizontal
agreements.
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While analysing through rule of reason approach, the commission looks at the nature of
the restraint and several parameters such as what restrictions have been put in the
agreement, what is the effect on the price or output, on the product and is there any
potential benefit of the restriction. They also look into whether there is product or
process efficiency achieved by this kind of restriction in the agreement? Whether there is
an increase or decrease in the competition? The rule of reason approach, considers all
these parameters and outweighs the positive and negatives effects of the restraint, then
they decide whether the agreement is anti-competitive or not.
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Let us look into the appreciable adverse effect on competition. What is it? Indian
competition law has, in detail, put forward what can be considered as Appreciable
Adverse Effect on the Competition or AAEC. As per Section 3, appreciable adverse effect
on competition will have the following parameters. First: whether it is creating any
barriers for new entrants in the market i.e. restrictions in a certain agreement.
Whether it is creating any barrier for the entry of a new player, in the same product
category, in the market or not? Whether it is driving the existing competition out of the
market. The other parameter which is considered is the foreclosure of competition by
hindering the entry into the market, accrual of benefits to the consumer i.e. whether for
the price increase consumers are getting any direct benefit or not. Improvement in the
production or distribution of goods or availability of provision of services. Promotion of
technical, scientific and economic development by the means of production or
distribution of goods or provision of services.
All these effects are taken together, and are considered to analyse, whether any
agreement is having an appreciable adverse effect on the competition or not. So, it may
be possible that something may promote scientific endeavour while at the same time
restricting competition. Not a single parameter, but all the parameters are taken together
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to consider the appreciable adverse effect of the agreement or restriction put in an
agreement.
So far, we have discussed subsection (3) of the Section 3, about the horizontal agreement
and the conditions under which it will be considered as anti-competitive. And also
subsection (4) of the section 3, about vertical agreements and the conditions under which
vertical agreement can be considered as anti-competitive. We also discussed, in the
earlier sessions, that vertical agreements are agreements between players which are
operating at different levels of the supply chain.
For example, there is a manufacturer, a distributor or a promoter, these are players at

different levels of the supply chain. Any agreement among the enterprise or the persons
at different stages or level of production chain, in different market, in respect of
production, supply, distribution, storage, sale or pricing or trade of goods, provision of
service, shall be an agreement in contravention of subsection (1); if such agreement
causes or is likely to cause an appreciable adverse effect on the competition in India.
One of the important distinction from horizontal agreement is that, it is not per se anti-
competitive; it is anti-competitive only when it is causing or likely to cause an
appreciable effect on the competition. In case of vertical agreement, in general, the rule
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of reason approach is applicable to find out whether the agreement is having any
appreciable effect on the competition or not. This is an important distinction between
horizontal and vertical agreement.
This section specifies all kinds of vertical agreements i.e. the tie-in arrangements, the
exclusive supply agreement, the exclusive distribution agreement. It also deals with the
refusal to deal aspect and resale price maintenance. Any of these provisions in an
agreement may lead to anti-competitiveness in the vertical agreement.
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This act is applicable to the obtainment, grant, acquisition and exercise and transfer of
intellectual property rights. Sub-section (5) of Section 3 of the Act provides a limited
exemption, which states that the provisions with respect to anti-competitive agreement
under Section 3, will not be applicable to the agreements entered into by a person for
restraining infringement or to impose reasonable conditions, as may be necessary for
protecting any of his rights guaranteed under the IPR statutes in India. This is one of the
important provisions with respect to intellectual property and interplay of intellectual
property and competition law. It states that, any of the rights which are guaranteed by
various intellectual property laws in India, will be said to impose reasonable conditions.
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This act also specifies, what are the exceptions to anti-competitive agreements. It says
that, the right of any person to restrain any infringement or to impose reasonable
condition as may be necessary for protecting any of his right which has been considered
upon him under Copyright Act or the Patent Act or the Trademark Act or Geographical
Indication of Goods Registration Act of 1999, Designs Act, Semi-conductor and
Integrated Circuit and Layout Design Act of 2000, will be preserved and necessary
reasonable condition may be granted and, it will not be considered as infringement or it
will not be considered as anti-competitive agreement.
This is a one of the important provision with respect to intellectual property and
competition law aspect, which we will discuss in more detail by analysis of case laws.
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It also says that, the right of any person to export goods from India to the extent to which
the agreement relates exclusivity to the production, supply, distribution or control of
goods or services for such export is also exempt from anti-competitive practices. This
provision is with respect to anti-competitive agreements under Section 3.
In the next module, we will discuss about various provisions about the abuse of
dominant position. Stay tuned.
Thank you.
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Lecture – 33
Introduction to Competition Law in India (Contd.)
Hello. Earlier, we discussed about the various anti-competitive agreements related

prohibitions; anti-competitive agreements related clauses vis-a-vis Indian competition
act.
In this section, we will discuss about the provisions regarding the abuse of dominant
position. As you know, Being in a dominant position per se is not anti-competitive, the
anti-competitiveness comes into picture when someone abuses their dominant position.
Section 4 of the Indian competition act per se prohibits the abuse of dominant position
and it has categorised what behaviour can be considered as an abuse of dominant
position and what practices can lead to abuse of dominant position.
The first thing is imposing any unfair or discriminatory price. These unfair or
discriminatory pricing can result due to the condition in purchase or sales of the goods or
services or they may also result due to following a predatory pricing for the goods and
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services. Predatory pricing means placing the product at such a low price that it
eliminates the competition. So if there is a company which is having dominant position
in the market and it starts selling the goods at a predatory price, then it may also lead to
abuse of dominant position. So, imposing unfair or discriminatory pricing, either directly
or indirectly, may lead to abuse of dominant position.
The second point specified in sub-section (b) of section 4 is the abuse of dominant
position. It may result by limiting or restriction of the production of goods or provision
of production of goods or provision of services or market thereof. So, if there is a
condition by production of the desired product or service is limited, it will also be a kind
of abuse of dominant position. If the condition has prevented the development of a new
scientific or technical advancement or new goods or services to the consumers, it may
also be considered as an abuse of dominant position.
The practices which may result in the denial of market access to other market, access to
other consumers or other competitors are also a kind of abuse of dominant position.
Conclusion of the contract subject to acceptance by other parties of supplementary
obligations which by their nature or according to the commercial usage have no
connection with the subject of the contract, are abuse of dominant position. So, if there
are certain conditions in the contract which has nothing in relation to the commercial
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usage and does not have any connection to the product or the process in question then
they are a kind of abuse of dominant position.
If the dominant position is used to enter into or to protect the relevant market, then it also
a kind of abuse of dominant position. These are the five clauses, which have been
specified in sub-section (4) of the Indian competition act, which gives us an idea of when
enterprise or a group of enterprise and what behaviour can be considered as an abuse of
dominant position.
They have defined what is a dominant position. In the European context, we have gone
through TTBER agreements and their provisions regarding market players having market
share less than 20 percent or when the market players are in similar kind of goods or
services and also when they are producing different goods and services and the market
share is less than 30 percent in total, then they are exempted from any scrutiny regarding
anti-competitive behaviour.
In India, so far, we have not defined any kind of guidelines; however, there is a definition
of dominant position. As per the definition, the dominant position means a position of
strength enjoyed by an enterprise in the relevant market in India which enables it to
operate independently of the competitive forces prevailing in the relevant market or it is
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able to affect its competition or consumers or the relevant market in its favour. The
behaviour of the player has allowed to operate independently or affected his competitors
or they have affected the consumers in the relevant market in their own favour, then it
may be considered as a dominant player.
And also, the inclusion of predatory pricing, which means the sale of goods or provision
of services at a price which are below the cost; as may be determined by the regulations
of production of goods or provision of services, with a view to reduce competition or
eliminate competitors, may also allow the company to operate independently.
If something is sold at a very low price or cheaper price, by virtue of the player having a
dominant position, which is not possible on the behalf of other players, then it is a kind
of predatory pricing. It eliminates the competition because of the predatory pricing.
Predatory pricing and other behaviours are specified under which a company’s behaviour
or a dominant company’s behaviour can be considered as an abuse of dominant position.
Earlier, it was not specified for example, what kind of approach should be followed to
judge whether a company’s behaviour is abuse of dominant position or not, whether one
should apply the per se rule or the rule of reason approach. Since it was not clear and not
clearly specified, the Raghavan committee set in 1999 gave a report in 2000 and stated
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that there are certain key questions which needs to be asked before deciding how the
behaviour can be adjudicated to be an abuse of dominant position.
They have listed six questions which should be taken into consideration; first: how is the
practice is harming the competition i.e. reducing the competition either through
predatory pricing mode or by restriction on further innovation or restriction on sales of
goods and services? So, which is the practice that is hampering the competition needs to
be looked at?
Second: Is the practice adopted by the dominant player really deterring or preventing the
entry of new player in the market? Third: Will it reduce the incentives of the firm and its
rivals to compete aggressively? Is the practice adopted by the player in dominant
position preventing other competitors from making similar products in a level playing
competition or not? Fourth: Will it provide the dominant firm with an additional capacity
to raise the prices? i.e. does the dominant firm has certain added advantage such as in
terms of IP or any technical advancement. Does it enable them to raise the price of a
product which is not possible on part of the other players, do they have monopoly over a
particular technique or a product by which they can raise the price of that thing or not?
Fifth: Will it prevent investment in research and innovation? i.e. Is the dominant player
in such a powerful position that other players are not willing to enter into that product
segment thereby preventing the research and innovation in that area or is the dominant
player applying certain clauses that are restricting further innovation by the licensee?
These things have to be questioned before adjudicating on whether the dominant player
is abusing its position or not.
Sixth: Do the consumers benefit from the lower prices or greater product or services
availability? Is the behaviour of the dominant player helping the consumers in terms of
price or nature or quality of the product or not? All these six questions must be taken into
consideration before deciding whether it is an abuse of dominant position or not. All
these are effect based approach under section 4 of the act.
These are the recommendations of the Raghavan committee. In the Indian competition
act, there are certain provisions or certain conditions already laid down by which the
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competition commission follows those clauses to determine the abuse of dominant
position.
As per the Indian competition law, the competition commission looks into the market
share of the enterprise to determine whether a player is a dominant player or not. They
first look into the market share of the enterprise. Then the size and resources of the
enterprise, then size and importance of the competitor, how the product market is spread
by virtue of the firm or the entity in question or the surrounding competitors.
Then the economic power of the enterprise including the commercial advantages over
competitors, what extra advantage the competitor is having in terms of IP or know-how
or technical advancement. Then vertical integration of the enterprise or sales or services
networks of such enterprise. Then dependent consumers on the enterprise, how many
consumers are dependent on the enterprise, whether they would shift their loyalty to
other company or not. These are looked into to determine whether it is a dominant player
or not.
Earlier, we have discussed that if a company A is selling a product at 10 rupees and

company B is selling the product at 12 rupees or 8 rupees. Whether a consumer may
change base from company A to company B or not, what percentage or what is the
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probability that a consumer will purchase things from the second competitor or second
firm.
Then vertical integration of the enterprises or sales, monopoly or dominant position

whether acquired as a result of any statute or by virtue of being a Government company
or public sector undertaking or otherwise, what kind of enterprise is it. These things
should be taken into consideration to understand the economic power and what added
advantage a competitor is having.
These are the things which are to be taken into consideration, primarily to determine
whether a company is a dominant player or not. Further the entry barriers, regulatory
barriers, financial risk of the product, marketing, technical and economical factors,
substitution of the goods for the consumer, is also looked into determine the dominant
position. Then people’s purchasing power, how many consumers are willing to buy the
product if it is available at certain price.
Then market structure and size of the market, what are the additional competitive
product in that category to which people may get attracted. Then social obligations,
social cost, relative advantage by the way of contribution to the economic development.
These are the few parameters which have been listed, but may vary.
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The commission may take into account all these provisions or may take few of these
which are relevant for the product in question or the company in question. These are
variables. All these are taken into consideration to determine whether a company is
having a dominant position or not. So, first thins is to prove that the company is having a
dominant position and second is to analyse whether there is an abuse of dominant
position or not.
This is similar in line with the European commission’s competition policy, where first
step is to establish the dominant position and then to establish the abuse of dominant
position. In both the country, European Union and in India the structures remain the
same. Depending upon the nature of the market, the considerations may vary, but the
basic analysis remains the same in both the cases.
We have dealt with section 3 and section 4. Section 3 specifically dealt with the anti-
competitive provisions and various agreements which may affect the competition in the
market. And also, it has stated that prima facie intellectual property rights are not anti-
competitive, even though they give monopoly power to the owner of the intellectual
property right, but it is not anti-competitive. And it has mentioned all the intellectual
property laws which are giving certain rights to the owner and by virtue of the
competition act it will not be considered as anti-competitive.
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As per subsection (5) of section 3, it removes the jurisdiction of the competition
commission of India over IPR related cases. So, when any case is related to IPR, the
competition commission of India does not directly come into picture unless there are
specific conditions. And further, the competition commission of India has created very
strict standards so as to consider what kind of arrangement is necessary to protect the
intellectual property rights for the purposes mentioned under section 3 sub-section (5) of
the act.
The particular provisions which are not falling under the protection per se given by
section 3 sub-section (5) are patent pool agreements, the tie-up arrangements, the
agreements related to payment of royalty after the term period of the agreement is over,
the agreements on restricting research or development such as when the licensor puts the
condition that licensee perform research and development on the technology transferred
to them.
Or when there is an agreement which limits the usage of the patented invention such as
the number of times or how many numbers of product can be prepared using the
technology which has been licensed. All these things are out of the purview of the
section i.e. out of the protection per se.
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Undue restrictions on the licensee’s business shall be considered to be anti-competitive.
All these provisions, even though there are immunity related to intellectual property
rights, are not immune from the provisions laid down under sub-section (5) of section 3.
So, these are the basics of section 3 and 4, in line similar to the European Union. In the
next section, we will discuss about various mergers, acquisitions and combination
agreements which can be considered as anti-competitive and what is the status of those
kind of mergers or acquisitions in the Indian competition law. Stay tuned.
Thank you.
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Lecture – 34
Introduction to Competition Law in India (Contd.)
Hello all. Welcome to this module on Introduction to Indian Competition Law.
In continuation to our earlier discussion on various provision of Indian Competition Act,

2002, we will discuss other provisions of the Act with respect to intellectual property
law. We would focus on the combination of various enterprises and how Competition
Act, 2002 deals with regulation of combination; what are the provisions and steps
associated with the regulation of combination.
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Through the earlier classes, we have an idea of anti-competitive agreements, cartels or

the like. Specifically, section 3 talks about anti-competitive agreements. Then, section 4
talks about the abuse of dominant position. Related provisions deal with practices by
firms or industries that may lead to anti-competitive environment in the Indian market or
appreciable adverse effect on Indian market.
The nature of any agreement or nature of any combination or the behaviour of a firm is
determined on the basis of whether the activities done by an enterprise is leading to any
appreciable adverse effect on the competition in Indian market or not. The next
important provision mentioned in the Indian Competition Act, 2002 is the regulation of
combination.
Indian Competition Act has defined combination as any acquisition of one or more
enterprises or one or more persons or merger or amalgamation of enterprises to be
regarded as combination of such enterprises or the persons or the firms. There are
mergers or amalgamation between two or more persons or enterprises or in simpler terms
firms. Combination of the firm or a big company may acquire a small company. This is
called an acquisition. This is one kind of combination.
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Combination can happen between two companies, of different sizes; small company, big
company, more than two firms may also come together to create a combination. Section
5, lays down the threshold limit till which combinations are free or exempted from anti-
competitive practices or which will not come into the eyes of competition commission of
India.
If a company is having market share of ₹1000 crore or a total turnover of suppose ₹3000
crore, and then it enters into any combination, then the company has to give information
to the competition commission of India before entering into any such combination.
Section 5 lays down the threshold level for different kind of companies operating in
India or outside, when the combination comes under the scrutiny of competition
commission of India.
Combination can be defined or divided into two main categories. First, horizontal
combination and second, non-horizontal combination. Horizontal combination is the
merger or the amalgamation of two companies operating at the same level of the supply
chain or two companies which are producing similar goods or two companies which are
providing similar services or two companies nearly of same size or companies whose
products are substitutable.
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If two companies are producing substitutable products and the two companies are
competitor per se and if they enter into (say) a joint venture or any combination and
merge into a single entity, then, it would be a kind of horizontal combination. In
horizontal combination, one of the drawbacks is the reduction of competition because
two substitutable products now get combined.
The combined firm, which emerges, will have total monopoly over the substitutable
products. There are chances of price increase, because all the technologies and
innovations regarding their product will be under control of one firm. It may also lead to
reduction in innovation or product innovation.
There are other effects, there maybe reduction in employment status because there may
be a staff cut since two big companies have merged. All these comes under, horizontal
combination and it has possibility of being anti-competitive in the Indian market. This
type of combination is particularly important from the viewpoint of Indian competition
law. The second category of combination is known as non-horizontal combination. It can
be classified in: vertical combination and conglomerate combination.
Vertical combination is a combination between firms or enterprises which are operating

at different level of the supply chain or at different levels. But it does not in the true
sense reduces competition. Such kind of combination results in more product efficiency
or process efficiency. Suppose there is a company A which is in manufacturing of final
machinery and there is company B which supplies spare parts or parts related with the
machinery. Amalgamation or merger between these two company may lead to process
efficiency.
In one way, people may get cheaper product by this combination, but there are chances
of anti-competitiveness depending on the nature of how technology has been procured or
how technology will be suppressed or how further innovation will happen. More
reasoning, more analysis is required to understand vertical combinations.
The second one is conglomerate combination, where two or more different kind of
companies or firms come together and give rise to a combination. There are chances of
reduction in competition, in the sense that, a product and its service may come together
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to create monopoly in the relevant market. This also requires the rule of reasoning and
analysis on how the market structure has altered or how the competition has changed.
For each kind of combination, the competition commission of India follows a different
approach to understand the nature of the combination and the appreciable adverse effect
which the combination may have on the Indian competition market.
Our Competition Act, has laid down various provisions for regulation of combination
because big companies while they overtake the small companies or acquire the small
companies, they may overshadow them. Bigger companies may acquire small companies
in order to take their technology. The smaller companies have a really tough time in
competing with them because the big companies will overshadow them or even swallow
them.
All these combinations, are very important from the point of view of competition in the
market, to provide the consumer with a cheaper and more effective product. This is why
the Competition Act, 2002 has different provisions to regulate different kinds of
combination.
Not all combinations are in the eyes of competition commission as anti-competitive. As I

mentioned, section 5 specifies the threshold limit. So, if a company is having certain
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threshold in terms of their market turnover or assets, then only such companies will
come under the scrutiny of the competition commission.
Per se, the competition commission will not look into the combination, unless and until it
finds that the combination of such person or enterprise may cause or is likely to cause an
appreciable adverse effect on the competition, within the relevant market, in India and if
that happens, then the combination will be considered as void under the provisions of the
competition act. Section 5, gives a threshold level for various combinations, for the firms
or the enterprises and section 6 lays down various provisions or regulation on how a
combination should be regulated. We will discuss these in the coming slides.
If certain firms or companies, want to enter into a combination, the very first step they
should take is that they should check if they fall under the limit or the defined threshold
level as specified in section 5. Then, the person or the enterprise who or which proposed
to enter into a combination should give notice to the competition commission of India,
within 30 days of approval of such proposal.
So, if any two company or two enterprises, decide to enter into a combination, they
should give notice to the competition commission of India, within thirty days of such
decision or their approval or the final decision between the companies, on the proposal
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relating to merger or amalgamation or execution of any agreement or other document for
such acquisition. This is the first step, as specified in section 6 of the Competition Act.
After the first step, no combination shall come into effect until 210 days have passed
from the day on which the notice was given to the commission. This is a time period. A
combination approved by a company, takes 210 days to be approved by the competition
commission of India. The minimum time limit for a combination to be effective is 210
days, if it meets the criteria as laid down in section 5 of the Competition Act.
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The detailed provisions regarding the procedure for investigation of combination is

mentioned in section 29, 30 and 31 of the Competition Act. It has laid down a step by
step procedure on how a combination should be investigated. As per section 29, when the
commission has a prima facie opinion that a combination may cause an appreciable
adverse effect on the competition in the relevant markets of India, it would issue a show
cause notice to the parties and the parties are given thirty days time period to respond as
to why there should not be any investigation regarding combination.
The competition commission of the India, on its own may initiate any investigation or it
may on information received from other relevant party or persons, initiate an
investigation. So, if the CCI is of the opinion that some combination may cause an
appreciable adverse effect on the markets in India, it has the power to suo-moto start an
investigation. After it gives a notice to the relevant parties to the combination and the
parties are given thirty days time period to respond to the notice stating the reasons why
there should not be any investigation. The CCI may directly start the investigation or the
CCI may ask the Director General to initiate an investigation to determine if the
combination is causing any appreciable adverse effect or does it have any chances of
causing such effect.
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These two things have to be considered carefully before combination can be named as an
anti-competitive combination. The steps include first, notice to the parties of the
combination; second, the investigation initiated directly through the CCI or through the
help of DG.
Thirty days time period is given to the parties to respond, after the receipt of the response
from the parties, the commission may call for a report from the director general. When
the commission receives the report or the response from the parties or report from the
director general, within 7 working days of receiving such report, the CCI would direct
the parties of the said combination to publish all the relevant details of the combination
to the public, within 10 days. So, that it would be in the public domain, to understand the
very nature of the combination.
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Once it has been published within 10 days, the commission has the power to also ask for
individual assessment or ask from the members of the public or affected persons or
parties which have higher chance of getting affected from this combination, to file their
written objection within 15 working days from the date on which the details of the
combinations were published.
So, once the parties publish the details of the combination agreement, in the public
domain, the CCI may ask for third party objections from affected parties or from general
public to raise their objections. They may be given an additional time period of 15 days
to file such objections. Once the CCI receives such objections from third parties, then it
should deal with such cases within 45 days.
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Within 45 days, CCI starts dealing with the cases. CCI has certain time limit, but it may
be extended depending on the complexity of the cases. If the commission does not pass
any order within 210 days of the date of notice to the parties, then the combination shall
be deemed to be approved by the commission. So, if there is no information from CCI,
then it is a good information and the combination can be thought of as approved. These
are the basic steps, laid down in section 29 of the Competition Act, 2002 by which the
competition commission of India analyses combination agreements.
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One of the important feature of the combination agreement is that, not only the
combination agreements taking place in India are scrutinised or investigated by the CCI,
even any of the party not residing in India or any of these enterprises residing outside
India can also be investigated. So, the CCI has the power to investigate not only
combinations, but also the anti-competitive agreements or abuse of dominant position
agreements even though the parties are not residing in India.
If we look into section 32 of the competition act, it says that the commission shall have
power to enquire about the appreciable adverse effect on competition in India not
withstanding that an agreement referred to in section 3 has been entered into outside
India or any party to such agreement is outside India or any enterprise abusing the
dominant position is outside India or a combination has taken place outside India or any
party to combination is outside India or any other matter or practices or action arising out
of such agreement or dominant position or combination is outside India.
So, whenever there is an agreement, which is affecting the competition in India,

irrespective of the geographical location of the parties to the combination or agreement
or abuse of dominant position; the CCI has the power to investigate into all those
matters. This is very important with respect to competition in the market, because today
more than 200 countries have adopted the competition provisions in their laws. So, it
becomes very important to maintain competitiveness amongst the companies in India to
have an effective or a productive market.
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We have discussed about various anti-competitive provisions, which are laid down in the
Competition Act such as section 3, which is about anti-competitive agreement, section 3
sub-section (5) which deals with exemptions when certain intellectual property rights are
in involved or certain exemptions given to the company, then section 4 which talks about
the abuse of dominant position, section 5 and 6 which talks about combination
agreements and various procedure associated with it.
We have also seen how the competition commission of India deals with the cases and
takes into account various questions to understand what is appreciable adverse effect on
the competition. I would like to shed a light on competition advocacy, which is one of
the important provision laid down in Competition Act of India. One of the important as
well as one of the unique provisions is section 49 which talks about competition
advocacy.
So, what is competition advocacy? As you know, the MRTP act was repealed, then
Competition Act was passed in the year 2002, but it came into force in the year 2009.
One of the important provisions, as laid down in this act is competition advocacy, which
promotes the very nature of competition i.e. it create an awareness among the companies
or masses about competition law provisions.
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As per section 49, the central government and the state government while formulating
any policy on competition matter or while reviewing any laws should take the opinion of
the competition commission of India because any modification or any changes in law or
policy might have certain implication on the competition within India. So, before making
any changes to the competition related laws or any law other than competition law, they
should get an opinion from the competition commission of India.
Once requested the competition commission of India will give its opinion within sixty
days of such request but the opinion is not binding in nature. The opinion is not binding
on the central government or the state government, but it may take into consideration
such points. The provision which is laid down in section 49 is that the commission shall
take suitable measures for the promotion of the competition advocacy, creating
awareness and imparting training regarding various competition issues.
The competition act is new in India. Competition advocacy is one of the important
provision, which should be propagated to all the stakeholders. Competition advocacy
remains one of the unique feature of the Competition Act, 2002.
Once the competition commission reviews any agreement, whether it is horizontal or

vertical or a cartel, merger, amalgamation, the competition commission then issues its
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decision. The decision may be that it finds the agreement to be anti-competitive. It may
abort the agreement or if it thinks that the agreement is likely to cause appreciable
adverse effect which can be prevented by certain modifications in the agreement clauses,
then, it may suggest such change. It may ask the companies to change certain criteria in
the agreements. Depending on the nature of the final decision, the companies should
abide by the decision of the competition commission of India.
If the companies or the parties to an agreement or combination do not abide by the final
decision of CCI and director general, then they are generally penalised. If the person fails
to comply, without reasonable cause, with the direction given by the commission or the
direction given by the director general, they may while exercising their power by virtue
of sub-section 2 of section 41, punish such person with fine, which may extend to rupees
one lakh for each day during which the course till which the failure continues, subject to
a maximum of rupees one crore.
So, a company may be fined by the amount of one lakh rupees per day to a maximum
cap of rupees one crore, as may be determined by the commission. The penalty is
decided depending on how much profit a company is making; how much share or asset a
company is having. The competition commission takes all the financial matters into
account and decides the amount of fine or the amount of penalty, which will be imposed
on the companies.
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When the first notice is given to the parties of a combination and after the report from
the DG, the competition commission ask the companies to publish all their relevant
information on the public domain. If the parties to the combination, do not furnish the
information about the combination, they can be penalised and the penalty may extend
upto one percent of the total turnover of the assets of such combination. This is an
essential requirement that the companies abide by all the rules and the procedures laid
down in the Competition Act of India.
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There is also penalty for making false statement or omission to furnish material
information. If a company furnishes false statement or do not furnish complete
information; they may be given a penalty of rupees fifty lakhs and it may extend to
rupees one crore, as determined by the commission.
The commission can give penalty for any of the cartels or like anti-competitive
agreements in the form of cartels. There are four kind of effects which a cartel or any
combination agreement may bring about, as laid down in section 27. The commission
has the power to pass any order such as the commission may pass the order directing the
parties to discontinue and not to enter into such agreements. If the commission thinks
that appreciable adverse effect is visible, it may direct the parties to discontinue or not to
enter into such kind of agreements or it can ask the parties to modify the agreements or it
can ask the parties to abide by the orders of the commission and comply with the
direction; including the payment of costs and it may issue certain other direction as deem
fit for the situation. The CCI and the DG has these powers to direct the parties, regarding
change or modification or even cancellation of the agreement.
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One of the important provisions in the Indian Competition Act is the leniency program.
We have seen, in the European Union, there are whistleblower immunity. Similarly, in
India, we have a provision called the leniency provision. This leniency program has been
started to incentivise the cartel members to come forward and share the secret
informations, so that the commission can investigate the matter in a better way.
As you know cartels or anti-competitive agreements are kind of secrecy agreement. It is

very difficult to get any substantial proof to establish that a cartel is ongoing and that it is
affecting the price or the market structure or the competition. So, in order to get relevant
information, the Competition Act has included the leniency provision in the year 2009 by
an amendment. This provision was not there initially in the 2002 Act.
This provision tries to incentivise the cartel members to come forward; not only cartel
members, any third party can also come forward if they have certain information to give
to the competition commission of India.There are confidentiality provision as well as
incentive provision. These are a kind of whistleblower protection and encourages and
incentivises the actors of the competition infringement to disclose anti-competitive
agreements, in lieu of immunity or leniency treatment.
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The leniency treatment is in terms of reduction in penalty. Confidentiality clause is also
there, but the main attraction is reduction in penalty. The penalty waiver can be as much
as up to 100 percent or depending on the nature or type of disclosure. It may vary from
100 percent, 70 percent, 30 percent depending on the fact that at what stage is the
information is given and how relevant are those information.
The leniency program covers the infringement, which directly or indirectly determines
purchase or sale price, limits or controls production, supply, markets, technical
development, investment or provisions of services or the infringements which share the
market or the source of production or provision of services by allocation of geographical
area or type of goods or services, number of customer allocation, market share
allocations, geographical region allocation or bid rigging provision or collusive
tendering.
So, if any agreement is covering the above mentioned points, the whistleblower
immunity or the leniency provisions can be applied there. All these cartelization and
competitive agreements can be a part of leniency program.
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Section 46, gives the power to impose lesser penalty. Lesser penalty shall be imposed by
the commission only in respect of a producer, seller, distributor, trader or service
provider included in the cartel, who has made full, true and valid disclosure. The most
important thing is that the disclosure should be complete, true and vital.
Non-relevant information cannot be considered as vital information and for that reason, a
company or whistleblower cannot be provided immunity. So, this immunity is not
applicable if the disclosure is made after the investigation has been published. We have
learnt that the competition commission of India follows certain steps to understand the
very nature of an agreement. If certain companies makes disclosure after the commission
has initiated the discussion and the final report has been published, in those cases, the
leniency will not be applicable.
Leniency is also not applicable, if it does not comply with the regulation or false
evidence has been given. The evidences are not true, in the sense that they are not related
to the agreement and the disclosures are non-vital. In those cases, a company or a
producer, seller, distributor cannot ask for leniency.
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As I was discussing, the quantum of immunity maybe 100 percent for the first applicant
revealing vital information. It is on a first come first served basis. Those parties which
come forward after the first informant, such as the second or third parties can also get a
reduction up to 50 percent or 30 percent.
The first informant coming for disclosure, gets a higher reduction in penalty and then,
subsequently the percentage decreases. One of the important thing here is that, if a
company wants their name to be kept confidential, that arrangement is also available in
the leniency provisions.
So, this was all about combination agreement and the basic provisions laid down in the
Indian Competition Act. We have learnt the very nature of section 3, section 4, section 5,
section 6 and related procedure, leniency provision. This gives us a basic idea about what
the Competition Act of India covers. Now let us look into, how the agreements related to
intellectual property rights are looked into from the purview of Indian Competition Act
and how these sections are applicable or relevant in the case of intellectual property
related agreements.
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So far, there have been only five decisions on the leniency provisions. The first one to
get a leniency decision by the competition commission of India was the Brushless DC
Fan, in 2014, where the director general initiated the investigation on the input received
from the CBI.
As per the report, a cartelization between the manufacturers and the suppliers of
brushless fans in relation to the tenders floated by Indian railways and Bharath Earth
Movers Limited for the supply of the brushless fans and other electrical items, existed.
The CBI gave an input to Competition Commission, after which an investigation was
started by the director general. It was found that there is a cartel like structure going for
the tender for brushless fan. During the investigation, one of the parties applied for
leniency.
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In the final decision of the case, CCI acknowledged that the disclosures made by the
applicant were of significant and added value to the determination on the existence of
cartel. The information were vital for the case and for that reason immunity was granted.
But complete immunity was not granted, since the party came forward to disclose the
information after the case investigation had started. This is why, in this case the
reduction in penalty was 75 percent of the fine.
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This was the first case, where leniency provisions were applied. The second case was
Zinc Carbon Dry-Cell Battery case of 2016. The leniency application was filed by the
battery company Panasonic energy India limited, when it gave information to the CCI
about a cartelization of the dry cell batteries between Panasonic, Eveready industries or
the Eveready batteries company and the Indo National or the Nippo companies.
Subsequently, the association of the dry cell manufacturers, where these three companies
were members, was also included within the scope of the investigation. After input
received from Panasonic, the Director General conducted search and seizure operation in
the premises of all these three companies and also looked into their communications,
emails, etc. to understand the nature of the cartelization.
For this reason, CCI gave full immunity to Panasonic, from the administrative penalties.
100 percent reduction in the fees was given because the first information was given by
Panasonic which led the CCI to investigate into this matter and find out the existence of
a cartel. After Panasonic: Eveready and Nippo also came forward for the leniency
program and they were granted 30 percent and 20 percent immunity, respectively, for
their cooperation in the case.
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The third case was related to Pune Municipal Corporation regarding waste management.
In this case also, the investigation was initiated on the basis of an information by Nagrik
Chetna Manch, which alleged that there is a bid rigging process going on between six
parties for a tender issued by the Pune Municipal Corporation for municipal organic and
inorganic solid waste processing plants. Initially, during this investigation, one applicant
filed for leniency and subsequently, five other parties also filed for leniency at different
stages of the investigation. There were certain issues, regarding confidentiality of the
very disclosure and the nature of the statements they made. They asked for
confidentiality of their statements.
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They asked to not to reveal their name and not to reveal what kind of information they
are disclosing, regarding which the CCI explained that the confidentiality granted under
lesser penalty regulation did not extend to the evidence collected by the DG as part of the
evidence. Their names can be kept as confidential, but not the evidences. Because the
judgment would prima facie be based on the evidences collected. Hence, the evidences
cannot be kept confidential; even though, such evidence is obtained from a leniency
applicant. They also held that, unless and otherwise directed by the CCI, the proceedings
are not open to public, including the contents of investigation by the DG. DG’s
investigation reports are not public, unless and until CCI decides to make them public.
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These things were made clear to the leniency applicants. Full immunity was not granted
to the six leniency applicants who approached CCI. However, penalty was reduced and
based on the information, the CCI further investigated into two more cases; two more
tenders.
There was another case in 2016, where the CCI received a leniency application from one
of the parties and followed by two more. Out of these four applicants, 50 percent
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leniency was granted to the first applicant. Another case was investigated in the year
2016 where the CCI did not levy any penalty on the parties in consideration of the fact
that the penalty has already given in a related earlier case.
These were the five cases, where leniency provisions have been applied. This provision
helps the parties to come forward and reveal information so that the competition
commission can investigate into the matter, in a better way. This is a very important
provision, to understand, to maintain a good competitive environment in the Indian
market.
With this, we complete this module on the basic provisions of Indian Competition Act. In
the next modules, we will deal with the various licensing agreements and how the
interface of IP and competition law are dealt in India.
Thank you very much.
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Lecture – 35
IP Licensing and Indian Competition Law
Hello all. Let us start our discussion regarding the IP Licensing Agreements and the
Indian Competition Law. In this module, we will look into how the various IP licensing
agreements are dealt by the Indian competition commission with illustrations of case
laws and case analysis.
In this module, we will deal with the nature of IP agreements, various jurisdictional
issues to understand how the IP agreements are coming under the purview of competition
law. We will look into different cases to understand how the jurisdictional issues and
licensing issues were resolved by the competition commission of India.
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By our discussion on various provisions of the Indian Competition Act, 2002; we know
that various agreements maybe horizontal or vertical agreements. If they are having
certain appreciable adverse effect on the competition in India, then they may be
considered as anti-competitive agreements.
The licensing agreement can be a vertical agreement which is covered under the sub-
section (4) of Section 3, and it provides that the enterprise operating in the upstream
market i.e. the licensor licenses the intellectual property rights to another enterprise
operating in the downstream market i.e. the licensee. So these two are at two different
levels of the supply chain. This is a vertical agreement. It is one kind of licensing
agreement which is possible. There is another kind of licensing agreement between the
enterprises which are operating at the same level which are known as horizontal
agreements. For the consideration of IP licensing, such agreements will be perceived to
be vertical.
Suppose, there is a company A having certain procedure for packaging certain material
and another company B is having an advanced method for the packaging of material.
Since both of them are related to the packaging of material, they are at the same level,
since a licensing agreement is in existence related to an intellectual property right; for the
purpose of the competition law it will be perceived as a vertical agreement.
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And, when the licensor is having a dominant power or is a dominant player by virtue of
the market share or technology which it possesses in that relevant market then the
competition assessment will be regarding its abuse of the dominant position. Section 4 of
the Competition Act deals with the abuse of dominant position. We have already seen
and learnt all these.
Now, we will look into how the provisions of the Indian Competition Act are laid down
and how the competition commission of India deals with such issues. Not all agreements
are anti-competitive. An agreement will be considered as an anti-competitive agreement
when it has an appreciable adverse effect on the competition in India.
The agreements falling under sub-section (3) of Section 3 of the Act deals with the
horizontal agreements including cartels and such agreements are presumed to have an
Appreciable Adverse Effect on Competition i.e. they are presumed to be per se anti-
competitive. The per se rule is applicable here i.e. any horizontal agreement per se would
be considered as anti-competitive.
The vertical agreements which falls under sub-section (4) of Section 3 of the Indian
Competition Act are dealt on a rule of reason basis i.e. the details of deeds or the nature
of the arguments are looked into to understand whether they are causing or may cause an
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appreciable adverse effect in the competition in India or not. A rule of reasoning
approach or the ROR analysis is done to understand whether the vertical agreements are
anti-competitive or not.
We have seen that the sub-section (5) of Section 3 has laid down various acts related to
intellectual property rights which may be considered to be immune from the provisions
of Section 3. Sub-section (i) of 3(5) of the act specifically provides for an exemption for
the agreements falling under the sub-section (3) and sub-section (4) of Section 3 of the
Act.
In those cases, imposition of reasonable restriction for the protection of intellectual

property rights conferred under various statutes such as the Patent Act, Copyright Act,
Trademark Act, Semiconductor and Integrated Circuit Chip Protection Act, Geographical
Indication and Protection Act, will not come under the purview of the competition law.
But the conduct falling under the purview of Section 4 for possible abuse of dominant
position, are tested on the basis of the rule of reason approach. They are not considered
to be per se anti-competitive. The rule of reason analysis is followed in order to
understand the anti-competitiveness of the agreement. So, even though there are
exemptions provided under sub-section (5) of Section 3 of the Act, it does not directly
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relate to Section 4, i.e., if there is a dominant player having certain intellectual property
rights and abusing its power dominance with respect to those intellectual property rights;
section 3 sub-section (5) will not come into the picture and those cases will be dealt only
on the basis of the rule of reason approach.
In many of these cases, the IP holders consider that since these reasonable restriction can
be placed as per Section 3 sub-section (5), they are immune from the competition law,
but it is not the case i.e. reasonable restriction are only to protect the rights conferred by
various IP laws in order to prevent infringement of the right, but that does not mean that
IP holders can place any restriction to enjoy their rights.
IPR is a monopoly right, so you as an IP holder are free from any obligation or one can
enjoy the right the way he wants, but that does not mean one can place any kind of
restriction, which may even lessen the competition or raise the price of the product or
may give any anti-competitive feature in their agreements.
Before understanding how the IP cases are dealt under the competition law, we have to
understand whether IPR is coming under the purview of the competition law. I am asking
this question because many of the cases land in the courts like the Supreme court and the
High court, just to find out whether competition commission of India has the jurisdiction
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to analyse those cases or not. As I mentioned earlier, IP holders think that they have a
blanket exemption because they are having an IPR, a blanket exemption from the
competition law, but this is not true.
There is no blanket exemption provided to IPRs when it comes under the purview of the
competition commission of India. A landmark decision in this regard was the case
between Ericsson and the competition commission of India. In this case, a petition was
filed by Ericsson challenging the jurisdiction of the competition commission of India
with respect to certain cases related with patent.
It was a case related to standard essential patents. We will deal with the details relating to
standard essential patents and technology. The petition was regarding whether CCI has
jurisdiction to determine the cases involving patent rights or standard essential patents,
whether IP is under the purview of CCI or not.
The assertion made by Ericsson before the Delhi High Court was that, the orders passed
by the CCI were without jurisdiction as CCI lacked jurisdiction to commence any
proceeding in relation to the claims or royalty by a proprietor of a patent, covered by the
Patent Act of 1970. As per Ericsson, all the matters related to patents are covered by
Patent Act 1970.
The amount of royalty, how the royalty will be shared, what will be the conditions, all
these matters should come under the purview of the Patent Act only. So, the competition
commission of India does not have any jurisdiction for deciding or for passing any order
related to patent negotiations.
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After considering all the facts, evidences and the nature of remedies provided under both
Competition Act and the intellectual property statutes like Patent Act, 1970, the Delhi
High Court observed that, if there are irreconcilable differences between the Patent Act
and the Competition Act, in so far as anti-abuse provisions are concerned Patent Act
being a special legislation shall prevail. This means that, if there are differences between
the remedies provided by the Patent Act and the Competition Act, the Patent Act shall
prevail.
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They found that there are no irreconcilable differences between the two statutes but the
remedies provided by the Competition Act of 2002 for abuse of dominant position were
substantially different from the Patent Act of 1970 where there is no remedy for the
abuse of dominant position.
But these are not mutually exclusive, i.e., the grant of one remedy is not exclusive of the
other, i.e. if you sought for one remedy, it is not that you cannot seek for another remedy
under the Patent Act. These two remedies from two different acts are very different, but
are not mutually exclusive. The Delhi High Court said that these decisions are non-
overlapping decisions.
The prospective licensee may approach the Controller of Patents under the Patent Act,
1970 for the grant of compulsory license in certain cases. If a licensing negotiation fails
then we have the provision of compulsory licensing under the Patents Act.
The prospective licensee may also approach the Competition Commission of India to get
an appropriate order. Therefore, the application of the act to these cases involving IPR, is
not barred at all i.e. competition commission of India has the jurisdiction to solve or to
issue orders related to cases where intellectual property is involved.
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With this case, it was established that sub-section (5) of Section 3 is not a blanket
immunity. Sub-section (5) of Section 3 of the act provides that the Section 3 which
prohibits agreement having an appreciable adverse effect on Indian competition, Indian
market will not affect the right of any person to impose reasonable restrictions,
reasonable conditions as may be necessary for protecting any of his rights.
Reasonable restrictions, reasonable conditions for protecting rights; means protecting

rights from infringement. IPR holder cannot impose any restriction that he wants to put.
These restrictions should be reasonable, to enjoy rights or to prevent them from
infringement. The licensor, by the way of an agreement, can impose reasonable
restrictions for protecting any of his rights, recognised by any of the statutes mentioned
in the section.
Other provisions under Section 3 i.e. sub-section (1) and sub-section (4) of the section 3
are not applicable i.e. for those reasonable restrictions, the anti-competitive law
provisions will not be applicable. But when it is abuse of dominant position then the
court will look into the rule of reasoning approach and how it has caused appreciable
adverse effect in the competition market will be analysed.
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This misconception about blanket immunity related to IP was also dealt in another case
FICCI Multiplex Association of India vs. United Producer and Distributors Forum
(UPDF). It was alleged that United Producers and Distributor Forum, the association of
motion pictures & TV program producers and film & television producers Gild of India,
all these three were behaving like a cartel.
As we have seen, it is very difficult to get a proof regarding cartel and their functioning
underneath. In their complaints, they stated that all the respondents produce, supply and
distribute the films in India thereby exercising complete control over Indian film industry
i.e. these parties are in a dominant position and they are behaving like a cartel. This
complaint went to competition commission of India.
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FICCI alleged that the respondent UPDF the producer and distributor’s forum, had
issued a notice instructing all his members not to release any films to the member of
FICCI. Producer’s association sent notice to all multiplex theatres.
After a negotiation failure, UPDF asked all the multiplex theatres not to showcase any
movie to FICCI. A notice was also sent to the members by UPDF because the basic
conflict was between FICCI association of the Multiplex Association of the India and
UPDF on the point of royalty sharing or revenue sharing ratio.
In 2009, it was alleged that the producer and distributors started demanding unreasonable
amount of royalty sharing. Earlier the revenue sharing was around 40 to 44 percent of the
revenue for the first week, then with the subsequent weeks the revenue sharing used to
decrease to 30 to 35 percent. It depended on the nature of the movie. But in 2009, they
demanded 50 percent of revenue sharing for all weeks. Because of this demand, there
was a conflict between the association of multiplexes and the producers gild. This is
where the problem started.
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FICCI alleged that, the members of UPDF, who are the competitors controlled 100
percent of the market for the production and distribution of Hindi films in the
multiplexes. So, Multiplexes are the relevant market in this case.
Now all the parties, i.e. all the respondents have come together to fix the prices for the
revenue sharing and this is why they are behaving like a cartel and violating subsection
(3)(b) of Section 3 of the Indian Competition Act. The competition commission was of
the opinion that there exists a prima facie case of infringement of the provisions of the
Act and therefore it directed the Director General to investigate into the matter and bring
a report within 45 days.
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DG investigated into the case and found that, there is a cartel like conduct among the
respondents and there have been instances of anti-competitive conducts because, the
letters issued by the association AMPTPP as well as the producer’s gild to the members
‘with an appeal to not to release the films in the multiplexes’ was real.
The respondents conducted several meetings and sent letters to multiplexes to not to
release movies, and have threatened them of suspension or boycott if they release any of
these movies without their permission. DG, finally found that these behaviours are in
contradiction to sub-section (3) of the Competition Act, 2002.
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That’s where the commission’s enquiry started. The commission raised seven questions,
which it should enquire. First, what was the practice prior to the alleged agreement or
understanding in relation to profit sharing ratio between the producers, distributors and
the multiplex owners? What was the situation earlier?
As I mentioned, now they were demanding 50 percent of the revenue sharing. Earlier it
was nearly 35 to 45 percent, depending on different kind of movie. But now their
demand changed to 50 percent for all the movies, for all the weeks. The distribution
pattern was quite different during the enquiry.
Second question, what is the specific period of the alleged contravention of Section 3
and in what manner? From what time the alleged contravention has been continuing.
This complaint was made around March 2009, and it continued approximately till June.
So, it was for around a year. As you know, the movie business is a huge business, even
loss of one week is a substantial loss. So, that time period should also be taken into
account during the investigation.
The third questions, whether the alleged violator limited or controlled the supply of
Hindi films to multiplex owners? If so, in what manner? Are the respondents the only
party who are supplying movies to multiplex theatres? Whether the respondents are in a
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dominant position or not? Producer’s gild and AMPTPP is having all the main producers.
In the report of the commission, which is available on the competition commission of
India website, one may find all the relevant report regarding this case.
I will share the link in the reference section, where you can see that they have named all
starting from Amir Khan, Siddharth Roy Kapoor, Mahesh Bhatt, all the producers like
Karan Johar, Shahrukh Khan, Red Chilli Entertainment, Amir Khan Production allegedly
involved in this association. In the investigation, it was established that, yes, they were
the main supplier of Hindi films to the multiplex owners. And during this period only
one movie was released, which was a low budget movie that did not do well in the
market.
The fourth question, what were the specific activities of UPDF and other associations
that amounted to cartel like behaviour? The commission found that various meetings
were conducted and simultaneous boycott of multiplex theatre, for not supplying movie
or issuing letter, fixing the price, etcetera were to be regarded as cartel like behaviour.
The fifth question, what is the position after the settlement of the dispute on the point
relating to profit sharing ratio between distributor, producers and multiplex owners?
What is the actual or potential impact on the stakeholders due to the settlement? What
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will happen if the price is fixed? What will be the potential impact on the consumers or
stakeholders?
The sixth question, what are the relevant factors in view of section 19 of the Act to
establish appreciable adverse effect on the agreement or the arrangements carried out by
the alleged violators? And who were the main violators in the alleged cartel like activity
and in what manner? All these questions were raised and the above mentioned points
were investigated during this case.
After complete enquiry, the competition commission found out that, the behaviour
created entry barriers in the market for multiplexes which is indisputably a violation.
Because of the price fixing, there is not going to be any benefit to the consumers, nor
would there be any improvement in the distribution of the film or the promotion of the
scientific, technical or economic development in the industry.
This was a matter between the producers and the multiplex owners. It was not going to
enhance the user’s experience or technical experience or the economic development in
the industry, the profit will only go to the producer. The multiplex may not charge higher
and hence, there would be loss to the multiplex owners and the profit would be for the
producers or the movie suppliers.
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Responding to these, the respondents said that feature film is a subject matter of the
Copyright Act, 1957, which permits the owner of the copyright to exploit copyright in
any manner as they deem fit. So, it should come under the purview of copyright act,
1957 and not the competition commission of India.
UPDF brought sub-section (5) of Section 3 and claimed that the non-obstante clause
excluded such rights from the purview of the Act and accordingly it was asserted that the
UPDF members were within their rights to impose reasonable conditions, because the
films are under the purview of Copyright Act. The UPDF are free to impose any
reasonable restriction to enjoy their rights. This was the contention from the respondent’s
side.
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With this contention, they sited many cases such as Warner Brothers versus Santosh V.
G. They said that a copyright owner or a film producer can, at his sole discretion
determine the manner to communicate his films to the public. This includes, the
commercial terms on which the film is permitted to be communicated to the public. And
so, producer is free to communicate how much money he wants to release the movie.
Since the producers gild and UPDF are also copyright holder, they are free to negotiate
the licensing amount or whatever they deem fit for the deal.
They accused DG of failing to appreciate that a film, which is a bundle of copyright, is

per se not a good or a service. It is outside the scope of the act. They said, a movie
cannot be considered as a good or a service. It is a bundle of copyright. And hence the
DG erred in his decision.
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It was further pointed that, the DG has erroneously held that multiplexes are consumers
as they are taking the material from UPDF and utilising those as a consumer. But the
respondents submitted that multiplexes are not consumers and are merely exhibitors for
the film.
Films are copyright, they are not goods or services, the multiplex theatre, multiplex
owners are not consumers, under sub-section (5) of Section 3 a blanket immunity has
been provided to the producers association to use their copyright: These were the
contentions from the respondent's side.
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However, the CCI in its final submission observed that “it may be mentioned that the
intellectual property laws do not have any absolute overriding effect on the competition
law. The extent of non-obstante clause in the sub-section (5) of section 3 of the act is not
absolute as is clear from the language used therein and it exempts the right holder from
the rigours of competition law only to protect his rights from infringement. It further
enables the right holder to impose reasonable conditions as may be necessary for
protecting such rights.”
The right holders can place any reasonable restriction to enjoy the monopoly which they
get from intellectual property right statutes. The CCI gave its observation on sub-section
(5) of Section 3, regarding various intellectual property laws.
This is one of the case where the competition commission of India emphasised that IP
can come under the purview of competition commission of India and Section 3 sub-
section (5) does not provide a blanket immunity from other sections when it comes to IP
related agreements. With this decision, the jurisdiction established for the competition
commission of India to deal with cases involving IP licensing negotiation.
We will discuss more cases on IP licensing. Stay tuned. Thank you.
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Lecture – 36
IP Licensing and Indian Competition Law (Contd.)
Hello all. We will continue our previous discussion regarding IP Licensing and Indian
Competition Law. In the previous class, we dealt with the jurisdictional issues that were
raised in different cases. Whether CCI: Competition Commission of India is having the
power to deal with IP licensing cases or not, was the issue in several cases. We saw in the
Micromax case that CCI has the power to deal with IP licensing cases. In today’s
module, we will deal with IP licensing cases, and how they are dealt under the Indian
competition law.
In this module, we will focus on few cases, such as Shamsher Kataria case, ATIO versus
Verifone case, Justicket versus Bigtree and K Sera Sera case.
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These case will give us a brief idea on how different aspects of an IP licensing agreement
can create anti-competitive environment and how the competition commission of India
deals with such problems.
The first case was between Shamsher Kataria and the automobile players Honda,
Volkswagen, Fiat and other major players in the automobile sector. This is one of the
important case in private automobile industry, where the monopolistic power of these
private vehicle companies were questioned by Shamsher Kataria.
Shamsher Kataria alleged that the companies like Honda, Volkswagen and Fiat, which
are branded car companies particularly personal vehicle company, are creating a
monopolistic environment in the automobile segment of India. Shamsher Kataria alleged
that these companies are creating a monopoly over the supply of genuine spare parts,
repairing and maintenance services.
They are creating monopolistic or restrictive environment, by restricting the sales and
supply of genuine spare parts. Their diagnostic tools and various other equipments were
required for the servicing of vehicles and that they were not providing the technical
information required for maintenance service and repair of vehicles to other,
unauthorised or private car repairing service centres.
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According to the informant i.e. Shamsher Kataria, all these alleged anti-competitive
practices are taking place and the companies like, Honda,Volkswagen and Fiat are taking
higher charges for the maintenance of vehicles and they are indirectly determining the
prices of spare parts as well as maintenance and repairing services.
The informant Shamsher Kataria also alleged that, restrictive practices of not supplying
genuine spare parts or not supplying information regarding servicing of vehicles, the
company i.e. the Defendants are denying market access to independent repair workshops.
There are two segments: the companies which are Original Equipment Manufacturers
(OEM) and their authorised service centres. By denying, independent repair workshops,
which are not authorised from these companies, the companies have created a restrictive
environment and they are denying market access to private players or small players in
the Indian market. The informant has stated that the cost of getting a car repaired in an
independent workshop is generally cheaper than 35 to 50 percent as compared to
authorised service centres. The authorised service centre, since they are the only source
of getting supplies, in terms of equipment’s as well as services from OEM, charge higher
prices. They cited the example of Maruti Suzuki cars because Maruti Suzuki has given
access to their spare parts and other servicing requirements to private players.
796
So, a person can easily, at a cheaper price, get the car repaired or serviced in a private
repairing station, but in these cases of Honda, Volkswagen and Fiat getting a car repaired
or serviced costs more than 35 to 50 percent. Further, Shamsher Kataria also cited the
examples of European Union and US. The creation of a competitive environment in the
automobile sector has been given priority, in the European Union as well as the United
States.
TTBER has given certain exemption and mentioned certain criteria under which
automobile companies can give access to their spare parts or techniques. In some of the
states of United States, right to repair act has been enacted which curbs restrictive
practices by the automobile manufacturer.
The aim of the complainant was to bring to the notice of competition commission of
India that these private players like Honda, Volkswagen and Fiat are creating a
monopolistic as well as restrictive environment, by denying access to spare parts as well
as servicing, to other private players.
In this case, the informant has requested to hold an enquiry into the trade practices of the
respondent and, any other vehicle manufacturers, their authorised servicing centres,
which are indulged in similar activities, and to give a finding that such parties have
797
committed restrictive and unfair trade practices in contravention of the Act. He also
requested CCI to order a cease and desist order on such restrictive, unfair and
monopolistic trade practices. He claims that the companies are having a dominant
position, are misusing their power and abusing dominant position.
He also requested to pass appropriate direction for the respondents and that CCI should
ask the respondents to supply genuine spare parts and servicing manuals or ask them to
make it freely available in the open Indian aftermarket.
798
Taking cognizance of this case, the Competition Commission of India made a prima
facie opinion that it seems that something is not clear. CCI passed an order in 2011
asking the director general to conduct an investigation into this matter. We have
discussed the procedure for investigating a matter. After establishment of a prima facie
case, the competition commission of India asked the director general to investigate into
this matter. Meanwhile CCI also sought reports from the respondents as to why there
should not be an investigation. After getting the two reports, the commission would give
its decision.
799
Apart from the three respondents, the director general found that there are other
companies in the Indian automobile sector, which are involved in some such restrictive
practices in the area of aftersale service, procurement or sales of spare parts from
original equipment suppliers, setting up of dealerships.
Most of the automobile manufacturers do not allow private or third party repairers or
servicing station to sell their original spare parts and other materials required for the
maintenance and servicing of the vehicles.
This case involved a larger issue that there is a prevalence of anti-competitive conduct
which is making an effect on the Indian consumer, because the automobile sector is one
of the biggest industrial sector in India. The number of people using cars is increasing
day by day. And, since the maintenance and servicing costs are very high; it is affecting
the consumer at large. It was proposed by the director general that, there should be an
investigation into the anti-competitive trade practices for all car manufacturers in India,
maintained by the Society of Indian Automobile Manufacturers(SIAM). Not only these
three companies named in this case, but the investigation against all the car
manufacturers company part of SIAM was to be conducted.
800
The competition commission of India tried to find out what is the relevant product
market in this case and what is the geographical area in which the case can be dealt with?
In this case, there were two separate markets identified for the passenger vehicle sector.
First is the primary market, which is the manufacturing and sales of passenger vehicles
i.e. direct sales of cars to the passenger. And, second one is the secondary market,
otherwise known as aftermarket.
According to the Director General’s report, aftermarkets are the market for spare parts,
diagnostic tools, other technical manuals and after sales repair and maintenance services
which are required after a car has been purchased by a consumer or after buying the
primary product. So, primary market and secondary market are the two relevant product
market sector in this case.
801
The Director General classified these aftermarket segments into two sub-segments. They
are first, the supply of spare parts which includes diagnostic tools, technical manuals,
catalogues, and other things required for aftermarket usage.
The second sub-segment was the provision of after sale services, which includes
servicing of vehicles, maintenance and repairing services. If after accident or normal
repairing services are required by the vehicle, then the things necessary for servicing of
the vehicle will come under the purview of after sale services.
802
The next important criteria to investigate into any case is to find out what is the relevant
geographical market? The DG noted that whenever a person buys a car of any brand, he
can buy that car from any state of India, spare parts for that particular car brand will be
available in all the states. So, it is not necessary that if a person buys a car from some
state, he has to repair it or get the spare parts from that state only.
If the car can be repaired or serviced in any of the states, in that case, the relevant
geographical market would be the whole country. Two things were identified, first,
which is the relevant product segment? There were two market segments, the primary
market i.e. the original equipment manufacturer or the car itself, and second, the
aftermarket which includes spare parts and other technical manuals, which are necessary
for repairing or maintaining the vehicle after sales. Even though, these car companies not
located in India, still, since the products are sold in India, it was relevant to this case.
803
Let us discuss about the Director General’s report regarding the dominance of original
equipment manufacturer, in the market, for the supply of spare parts. Since the cars are
of a definite brand, these players who are selling them in the primary market are the
dominant player.
In order to better understand their dominance in the spare parts sector, DG further
investigated and found that, each of these original equipment manufacturer or the
branded car companies are a monopolistic enterprise or dominant player in the relevant
market of supply of spare parts. Not only spare parts, but also other diagnostic tools,
technical manuals, software, etc., which are required for the maintenance and the repairs
of a vehicle.
Apart from the original manufacturers, there are no other source from which a consumer
can get the required repairing or servicing equipments. For these reasons, it was
considered that the original car companies or the original equipment manufacturers are
having a monopolistic, dominant position.
804
The Director General concluded that the spare parts, diagnostic tools and manual etc. of
each of these original equipment manufacturers would constitute an essential facility for
independent repairers. In order to define or in order to label something as an essential
facility, they have taken into consideration some factors.
They have looked into four factors; first, the control of the essential facility by the
monopolist or the original equipment manufacturer. Is there any alternate source
available apart from the original equipment manufacturer for the spare part. Second, the
inability to duplicate the facility. Is there any other company which can duplicate the
same spare part, which will fit into that car or that vehicle. Third, denial of the use of the
facility. Can a consumer deny that he does not want to use the spare parts, and that he
will use different spare parts. Is there any alternate provision available? Fourth, the
feasibility of providing the facility. Is there any chance that any other supplier or spare
part manufacturer, can fill the gap or supply the same thing without the original
equipment manufacturer’s help.
These things were taken into consideration, and the Director General concluded that, the
diagnostic tools, the technical manuals are constituting the essential facility for
independent repairers. If the independent repairers are not getting those essential facility,
they cannot repair or provide services to such vehicles.
805
The dominance has been established, the relevant product market has been established,
the relevant geographical market has been established; it has also been proved that
several things constitute essential facility. The Director General looked into the
implications of refusing to provide essential facilities.
It was contended that the original equipment manufacturers or spare part manufacturers
or original equipment suppliers are having certain IPRs. Since IPR is involved, the
original equipment suppliers cannot share several things with third parties. They need to
get consent from original equipment manufacturers, in order to sell or give the product to
any third party.
The respondents contended that, the spare parts are manufactured by the original
equipment supplier, based on designs, drawings, technical specification, technology
know-hows, which were provided by the original equipment manufacturer. The original
equipment manufacturer or the brand or the companies are having certain intellectual
property rights. There are technology transfer agreement between the branded company
and the original equipment supplier, for that reason, they are prevented to share
equipments or tools to any third party. They also claim exemptions on account copyright
protection for the engineering drawings and technical manuals.
806
The technical manual and engineering drawings are a part of literary work and protected
by copyright. Under Copyright provision, patents act and designs Act, the respondents
claim exemption and express their inability to share these with any third party.
OEMs further relied on the exemption provided in sub-section (5) of Section 3. The
exemptions are thought of as blanket exemption by players. In this case also, they cited
sub-section (5) of Section 3, as an immunity from sharing IP, or as a ground for giving
reasonable restrictions to enjoy their monopolistic powers.
807
In this case, the competition commission considered two issues; first, whether the right
which is put forward by original equipment manufacturers is correctly categorised as
protecting an intellectual property. And, whether the requirements of the law granting
IPR are in fact, being satisfied or not. CCI investigates into these two questions.
CCI asked the original equipment manufacturers to provide the necessary information
regarding intellectual property rights, which they are claiming to have with them. It was
808
found that, the original equipment manufacturers could not provide any relevant
documentation, regarding their intellectual property right in India. As we know, patent
rights or designs or copyrights are jurisdictional i.e. territory based right.
So, if a person is applying for a patent in India, he can claim those rights in India only. In
this case, none of the original equipment manufacturers, could provide patent or any
other IP related information which was valid in India. Further CCI found that, even
though the parent corporation of the original equipment manufacturer is having certain
rights in other territories, But, since IPR are territory based rights, those rights cannot be
extrapolated to India i.e. they cannot claim of having those rights in India. Merely
entering into a technology transfer agreement with the parent company does not render
the intellectual property right to be valid in India.
The ground on which the respondents are arguing, that they are putting reasonable
restriction or that they cannot supply those things to the third party because of IPR,
proved to be wrong.
Further CCI decided whether original equipment manufacturer’s claim over IPR
exemption passes the reasonability test as engrained in the Section 3 sub-section (5)(i) of
809
the Act. The CCI looked into, can IPR holder protect his IPR, even if no restriction to
supply to third party existed.
Selling finished product like a bumper or hoods or bonnet or fog lights etc., used in the
cars, in the open market does not necessarily comprise IPR, because, the intellectual
property which the companies are having, can be protected by any technology licensing
agreement. In this case, if the original equipment manufacturers allow the original
equipment suppliers to sell their finished product to third party, there would be no
violation of any IP. This ground, on which the respondents relied for claiming immunity,
was found to be baseless.
810
It was proved that the branded companies like Honda, Fiat, or Volkswagen were
behaving in a monopolistic was. They were showing monopolistic nature and restricting
trade in the automobile sector. The competition commission of the India, directed the
original equipment manufacturers to allow the original equipment suppliers to sell the
spare parts in the open market i.e. now third parties can get spare parts from original
equipment supplier and use those for their own business. In cases where the original
equipment manufacturer had certain IPRs on parts, CCI allowed the original equipment
manufacturers to charge minimum royalty or fees through contracts on such parts.
Hence, IP can be protected by an agreement, they can claim royalty or fees for those.
However, competition commission of India did not decide what will be the quantum of
royalty or what will be the exact amount of royalty, because CCI is not a price fixing
authority. CCI only provides remedy, by which a problem can be solved and by which
private service provider can get spare parts or tools from original equipment supplier.
811
This is one of the important case, which showed that simply having an IPR does not
mean that one can put any clause or that one’s anti-competitive behaviour can be
tolerated. The exemptions provided under Section 3 sub-section (5) is put to prevent
infringements of IPR, so that one can enjoy intellectual property rights.
But, IPR does not mean that one can put any restriction which they want. Reasonable
restriction under necessary conditions can be placed. That was one of the important case
which dealt with IP aspects. But the case never concluded that technical manual or
drawings or tools can be protected by IPR such as patent. The commission did not deal
with those issues in detail, it only said that having an IP should not be the reason to stop
the supply of things which are essential facilities to other third parties.
There was another case of ATOS Worldline India Private Limited versus the VeriFone
India Sales Private Limited. ATOS was a third party processor, which tracked the flow of
intervening events between a card holder swiping his card and receiving the printed
charge slip at point of sales. Now-a-days when we go to any shopping mall, we can
easily use our debit or credit card and in turn it gives us a receipt saying how much
money has been spent. ATOS was a third party processor and the other company
Verifone was a supplier of point of sales terminal along with software development kit or
812
SDK, which enables POS terminals to function. In sum, Verifone supplied POS terminal
along with software which enables the third party processor to function.
ATOS alleged that Verifone had abused its dominant position through restrictive and
unfair conditions. Through the draft SDK agreement, it required a purpose clause
imposed a restriction on the licensee to use any third party information, for the
development of the application.
The application did not allow third party to develop any other application. Further, it was
observed that the license restriction clause relating to the disclosure mentioned in the
SDK agreement imposes three different disclosure requirement. The licensee had to
disclose, to the licensor, from time to time, the activities related to the license software
i.e. whatever activity licensee has done with the licensed software. Second: it had to
reveal what value added software it has created, Third: it had to also explain what it
intends to create using that software. These are the things which the licensee had to
reveal to the licensor under the purpose clause.
813
ATOS complained to CCI that these are unfair trade practices. CCI observed that, the
purpose clause restricted licensees to develop value added software and use the same as
those purchased directly from the licensor. In one way, it restricted the licensee’s activity,
thus the competition commission found that the SDK agreement was restrictive as well
as anti-competitive.
814
The commission was of the opinion that through thie SDK agreement, Verifone imposed
unfair conditions on value added services or third party service provider which was in
contravention of Section 4 sub-section (2) of the Act, and it also restricted technical and
scientific development in value added service segment. The conduct of Verifone with
respect to seeking disclosure of sensitive business information, such as the number of
value added services developed, the purpose for which such services was developed, the
consumer profiles, under purpose clause was a contravention of Section 4(2), because
revealing all the information in the downstream market may create trouble for licensee
company.
The competition commission of India, in this case, issued a cease and desist order from
indulging in the activities which were found to be in contravention of Section 4. It
imposed a penalty at a rate of 5 percent of the annual turnover of the company i.e.
verifone.
In this case, it was established that one cannot impose unreasonable restriction by
purpose clause or SDK agreement. The restrictions in the agreement, were unnecessary
restriction clauses in contravention of Section 4 of Indian Competition Act.
815
Another case is: Justicket Private Limited versus Big Tree Entertainment/Vista
Entertainment. Two companies were involved in online ticketing system. Justicket
alleged that big tree, which is another online ticketing system and a distributor of the
vista program was abusing its dominant position by way of creating barriers for online
movie ticketing portals in terms of getting access to vista API. The vista API is an
application programming interface, which is created by vista to enable online ticketing
portals to integrate with the vista software for data flow and information flow.
Vista API was necessary for creating online portal. It was submitted by Justicket that
vista had an arbitrary policy of not granting access of vista API, the Application
Programming Interface to another online ticketing portal. There was a denial to give
market access in contravention of Section 4 sub-section (2) of Indian Competition Act.
816
Big tree said that, when a third party like Justicket asks for access to the API, they must
sign a non-disclosure agreement with the first informant, because with the help of non-
disclosure agreement, vista can protect its IPR. As a supplier of vista, big tree
entertainment asked to sign a non-disclosure agreement. They never denied the
informant from giving access to the vista API. Both of the companies are having some
technical capabilities. By revealing all the information, it is possible that the licensee
company can develop more powerful tool by using the same API, which they have
received as a license. In this case, vista was taking some time before it gave access to the
relevant information. The access was provided, for all the cinemas, for at least with a
time lag of 6 months, which was quite reasonable.
817
In this case, the CCI determined that the case prima facie does not hold a ground. It was
not a violation of Section 4 sub-section(2), because big tree and vista provided Justicket
with access to vista API. It is a fact that they asked Justicket to sign NDA, which
Justicket did not want to sign. But there was no denial of access to the market. Hence,
the case was dropped.
818
One of the other important case was the K Sera Sera digital cinemas limited versus pen
India limited and others. K Sera Sera, which is a digital cinema service provider, used to
make movies into a compact digital form. It was alleged that the opposite parties, which
are producers or presenters of movies entered into an anti-competitive arrangement with
a view to only provide the content of movies to parties other than K Sera Sera. Several
companies except K Sera Sera entered into the anti-competitive agreement.
In the response to this allegation, pen India as well as other companies revealed that they
entered into an agreement, because they have a concern that if a movie is released to K
Sera Sera, it may result into a copyright violation. In this regard, they submitted evidence
of a press release note. In an earlier instance, K Sera Sera was alleged of copyright
violation for a movie produced by Viacom 18.
819
Viacom 18 had developed an internal security mechanism, in the form of a unique

identifier for each copy of the movie. Before the movie is made into digital content
package, it is distributed to digital integrators in order to stop online piracy and to
identify the source of leakage. One of the movie package leaked. When the case was
investigated, Viacom 18 revealed that, the pirated copies of the movie had originated
from the copy which was given to K Sera Sera. K Sera Sera was accused of giving the
copy for piracy and for copyright violation of the digital cinema. For this reason, they
thought of excluding K Sera Sera from giving digital cinema content.
820
In this case, the competition commission noted that, the informant i.e. K Sera Sera did
not refute the charges made against him i.e. the piracy of the movie by Viacom 18. The
allegations made by the opposite parties are not baseless, they had certain substance in
their allegation. The commission of India dismissed the case, by holding that the decision
of opposite parties to refuse to exhibit their movie from the informant i.e. K Sera Sera’s
digital service was a precautionary step to prevent any loss due to piracy. The so-called
anti-competitive agreement as alleged by K Sera Sera was not in contravention of
Section 3 of the Indian Competition Act. It was a precautionary measure as they did not
want to give their digital cinema content to K Sera Sera. But this was not a violation of
Section 3 of the Indian Competition Act.
All these cases, give us an insight on how the competition commission is dealing with
different aspects of intellectual property licensing. The reasonable restrictions put in a
licensing agreement, are they necessary or reasonable? The competition commission of
India, in each case, individually, depending on the merit of the case, tries to find out
reasonable conditions or the necessity of a restriction so that, the agreement cannot be
termed as an anti-competitive agreement and in cases where it is found to be anti-
competitive, CCI has given penalty or tried to modify the agreement or given applicable
directions to the parties involved.
These were few examples. In the next few classes, we will also deal with more
interesting cases.
Thank you for watching this video.
821
 
Lecture – 37
IP Licensing and Competition Law (Contd.)
Hello all. In connection to our previous discussion on various facets of IP Licensing and
the role of Indian Competition Commission, we will extend our today’s discussion where
we will look into how the IP licensing criteria can lead to anti-competitive behaviour?
And how they are looked from the point of view of competition commission of India?
In today’s class, we would look into one of the interesting case in the Indian competition
law area which is the Monsanto case where various clauses of the agreement lead to anti-
competitive behaviour and not only private seed companies but the ministry of
agriculture also got aggrieved by the behaviour and filed a complaint to the competition
commission of India. So, let us discuss this case in length to understand the intricacies.
822
Before going into the case, let me tell you a little bit about the company as well as the
technology involved herein. So, as you all might be aware of this Monsanto is one of the
popular companies. Monsanto incorporation of United States was the first company in
the world to develop as well as commercialise one of the Bt cotton variety. This is bio-
technologically derived cotton variety which is resistant to a kind of lepidopteran pest
which is popularly known as the Bollworm.
The Bt cotton involves a technology, it contains a gene from a particular bacterium

which is known as Bacillus thurgingiensis and this gene segment which is incorporated
into the cotton seeds imparts a resistant to lepidopteran pest or the bollworm. Earlier one
of the ways to prevent the plant from bollworms was to apply pesticides which is a
polluting way, it may lead to environmental pollution, but the use of Bt cotton not only is
a environmental friendly way, but also very much effective, it prevents the cotton crops
from the attack of bollworm.
So, Monsanto developed this Bt cotton variety first in the year 1992 and this variety was
known as BG-1, also known as the EVENT 531 variety. This was developed in United
States. Later on, this technology has been sub-licensed or licensed to many of the
company across the world.
823
BG-I was the first generation of Bt cotton variety which imparted resistant to Bollworms.
Later on, a second generation Bt cotton was also developed by Monsanto which involved
2 genes Cry1Ac or Cry2Ab and the variety is known as BG-II or the Bollgard-2 variety
and by the other name EVENT 15985. It protects the plant against another Bollworm
which is known as the ‘Pink Bollworm’ which has gradually become resistant to BG-I
variety.
So, the use of Bt cotton has resulted in the reduction as well as in some cases complete
elimination of the use of pesticides by farmers and has gained quite a popularity amongst
the farmers.
824
So, if you look into the technology, since it was developed in the United States, the
technology for BG-I was never patented in India. However, the second generation Bt
technology, which was licensed under the trademark of Bollgard-2 variety was patented
in India and Monsanto was granted Indian patent number 232681. You may find this
patent in the Indian patent website. It draws a priority form its US application and it was
granted in the year 2009 in India.
One of the claims read as “the patent claimed for a synthetic DNA molecule comprising
a particular genetic sequence consisting of a selected Bt genes which are inserted into the
genome of cotton seeds”. It has claimed a genetic sequence which is isolated from the
Bacillus thuringiensis and which is inserted into the cotton seed variety produced across
the world. So, it claimed the gene sequence.
So, as you know patent gives a monopoly over a technology. So, any company who is
entering into the licensing agreement with the Monsanto company and willing to insert
this gene in the cotton variety to make it resistant to the Bollworms will be regulated
under that terms and condition of the licensing agreement.
825
These were the basic facts about the technology, now coming back to the facts of the
case, Monsanto incorporation of the United State had licensed its patent to its Indian
joint venture Mahyco Monsanto Biotech India Limited or MMBL. Monsanto licensed its
technology to its joint venture Mahyco Monsanto Biotech Limited and then Mahyco
Monsanto Biotechnology limited entered into sub-licensing agreements with other seed
companies.
So, there were nearly 40 seeds companies which were in sub-licensing with Mahyco
Monsanto Biotech Limited. The 40 seed companies were producing their own seeds, own
cotton variety, which may be protected under the plant variety protection act. In those
varieties they were inserting the technology using technology patented by Monsanto, to
insert the particular Bt gene which gave resistance from the pest.
So, for the use of the technology, Monsanto was paid certain amount of royalty, not only
for the patented technology, but also the associated know-hows and trade secrets
involved. Monsanto was getting certain amounts of royalty and in the declaration filed
by Monsanto in the year 2013 it has shown an earning of annual revenue of 6.85 billion
rupees in the year 2013 which comes to approximate 110 million US dollars. The
technology was quite popular and many of the seed companies are using this technology,
according to the data submitted by Monsanto.
826
The basic issue was the pricing of this technology. The Bt cotton technology which the
Monsanto has patented and the charges for this technology were very high as per the
complaint filed by various seed companies. As cotton is one of the essential crops and it
is a part of the Essential Commodity Act of 1955, the price of the cotton seeds are
controlled by cotton seeds price control order of 2015.
The procedure for fixing the maximum retail price is as per this order. It also makes it
very clear that while the government is fixing the maximum retail price for cotton seed,
it will also fix and regulate the seed value as well as the licensing fee including the
royalty or the trait value. The licensing royalty or the trait value are parts of maximum
retail price for any seed variety. So, now, the government has the power to fix the
maximum sales value as well as the retail price as well as the royalty and the trait value.
The royalty or the trait value is defined as the amount which the licensor collects from
the licensee under the licensing agreement for granting the license, for the corresponding
technology. In this case it is the Bt technology or the genetic modification technology.
So, the fees charged by Monsanto for this Bt technology were known as royalty or the
trait value. The issue is with the pricing of this royalty or the trait value.
827
In 2015 many seed companies, those which were in the sub-licensing agreement with
Mahyco Monsanto Biotech Limited company, filed a complaint to CCI regarding the high
prices charged by Indian joint venture of Monsanto. All these seed companies which
entered into the sub-licensing agreement have procured the Bt cotton from Mahyco
Monsanto with an upfront payment of 50 lakhs rupees, which is non-refundable as well
as recurring fees also known as trait value.
All these companies were giving upfront 50 lakhs rupees non-refundable amount as well
as additional trait value and the trait value was decided per packet of the seed source. At
that time, one packet contained nearly 450 grams of seeds and Monsanto fixed the trait
value on the 450 grams of seed packets. The way I mentioned earlier this trait value is
the value for the technology.
Out of the total amount of trait value, which Mahyco Monsanto was charging from the
sub-licensees, some amount was dispersed as royalty to Monsanto incorporation of US,
the parent company but royalty paid to the Monsanto was very less, nearly 15 to 20
percent of the trait value. Rest of the money was used by MMBL.
828
The pricing of trait value was not a concern which started in the year 2015. Since 2005
there were certain concerns regarding the pricing of trait value and there were certain
disputes, litigations also for the same thing. In the year 2005 the trait value was decided
to be 1250/- rupees per packet for 450 grams. It was decided by Mahyco Monsanto.
This high trait value lead to, the total price of one packet of seeds which contains nearly
450 grams of Bt cotton seeds to be, nearly around 1700/- to 1800/- in Indian rupees,
whereas at that time the non-Bt cotton seeds were available for 300/- rupees. You can
imagine the gap from 300(non-Bt) to 1700 to 1800 rupees (for BG-I variety or Bt cotton
variety) only because they charged a licensing/trait value as 1250/- rupees per packet of
the seed.
829
Aggrieved by this, the farmers association Ryotu Sangham of Andhra Pradesh made a
representation to the Monopolies and Restrictive Trade Practices Commission, which at
that time regulated the competition, there was no competition commission at that time
and MRTP act was in force. The farmers association made a complaint to this
commission under the MRTP Act in 2005 against Mahyco Monsanto.
The commission looked into the case and asked Mahyco Monsanto to reduce the price of
BG-I from 1250/- to 900/- rupees per packet.
830
Through this order, MRTPC, in 2006, granted an order and it observed that “there is a
basic difference between royalty and trait value and they are not synonymous, royalty
and the trait values are different. In any case the lump sum payment of 50 lakh rupees
may be considered as a royalty for the same, but the future payments on the sales cannot
be termed as royalty.
As I said all these 40 company, gave upfront 50 lakhs rupees, and were giving every time
certain royalty value as the number of seeds were sown or as the seeds were harvested.
The Commission, by temporary injunction on Mahyco Monsanto Biotech Limited,
directed them during the pendency of this case to not to charge the trait value more than
900 rupees for a packet of 450 grams of Bt cotton seeds and that they should fix a
reasonable trait value, that is being charged by the parent company in other parts of the
world like in China.
The Indian seed companies were arguing that Monsanto was charging very high trait
value in comparison to our neighbouring countries like China. Prominent seed
companies like Nuziveeduseeds and others were party to it and they complained about
the high charges of Monsanto.
831
During that time, all the state governments were in power of fixing the retail prices or the
trait value prices. The State government of Andhra Pradesh also fixed the trait values.
The state government of Andhra Pradesh, through its order in 2006, fixed the maximum
sales price of Bt cotton seeds to 750/- rupees which included the trait value. This was too
low than the price which MMBL had fixed.
MMPL filed an interim injunction and gave an interim application to supreme court of
India and it prayed for a stay on this order of the state government of Andhra Pradesh.
Supreme court heard the prayer, but supreme court said that if MMBL was not
adequately covered by the sum of the 750 rupees per packet as fixed then MRTPC shall
decide from whom the balance (if any) shall be recovered.
It is not that MMBL will be in power to fix whatever amount it wants to fix, MRTPC
will come into picture and it will fix the amount and it will decide from where it will
adjust the amounts or recover the amount.
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After this MMBL entered into number of settlement and release of claim agreements and
consequently entered into supplementary and amendment agreement with the seed
companies in 2007 and started charging nearly 148/- rupees per packet and MRP of 750/-
per packet as trait value. The conditions were modified a little bit and in 2007 they
modified the agreement and charged trait value of 148.15/- rupees on a packet of 750/-
rupees.
During this time, competition act was passed and the case was transferred to competition
appellate tribunal or COMPAT. Now the competition appellate tribunal through its order
in 2009 gave a notice allowing one time change in the pricing of the trait value, however,
it said that any further modification in the prices may give rise to further cause of action.
So, basically it cautioned MMBL for further modification in the prices and if there are
any necessary modification they should inform the competition appellate tribunal.
833
Those were the series of events which were happening at the backdrop of this latest
complaint of 2015. The problem had started in 2005 itself. So, during this time Mahyco
Monsanto Biotech Limited has filed a number of writ petitions challenging the orders by
various state governments that fixed the price of the trait value and MRP for example
Gujarat, Andhra Pradesh, Uttar Pradesh, all the state governments had fixed the MRP,
MSP at different level.
MMBL filed writ petition challenging the fixation of those values and respective trait
values. During that time, it renewed the sub-licensing agreements in march 2015 for the
BG-II variety. For the BG-II, the trait value prices were a little higher. The trait value
was increased to 274/- on the MRP of 1100/- per packet because during 2015 BG-1
became a little bit obsolete. BG-II substituted BG-I variety and for the BG-II variety they
were charging a little bit higher price.
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Since the seed companies wanted to sell those Bt cotton varieties to the farmers, they had
entered into the sub-licensing agreement with Mahyco Monsanto, but since many
disputes were going on, Mahyco Monsanto also filed for arbitration petition against 8
domestic seed companies whose market were nearly 65 percent of the total cotton seed
market in India.
And it is alleged nearly 400/- crores rupees were due from these companies for the Bt
cotton technology which they have taken from Mahyco Monsanto.
In response, the Indian companies also filed a counter affidavit arguing that they have
already paid more than 1300/- crore rupees to MMBL over which they have also given
the trait value which was higher than the fixed trait value by various state governments.
From 2010 onwards, they want their money back instead of paying additional 400/-
crores to MMBL. You may understand the nature of litigation going on between these
parties.
835
In a counter affidavit, the seed companies alleged that the sub-licensing agreements
between MMBL and the seed companies are one sided, arbitrary and onerous, and they
had to abide by their condition because MMBL was threatening to terminate the license
and not give seeds to the company. The Indian seed companies alleged that there were
restrictive clauses in the licensing agreement and it restricts the ability of the Indian seed
companies or the informants to deal with new technology even if it is available on a
lower cost.
So, there were certain restrictive conditions in the licensing agreement which did not
allow the Indian seed companies to get any new technology even though it was available
at a lower price than Monsanto. They also contended that the trait value is very much
unfair and it is being unilaterally fixed by MMBL which is higher than those determined
by various state governments.
They alleged Mahyco Monsanto is charging high prices, putting restrictive clauses.
Among restrictive clauses: they were not allowed to take any new technology even if it is
available at lower prices. Further if they were taking any seeds from any competitor they
have to inform Mahyco Monsanto within 25 days or nearly 1 month and if they were
found in breach of the contract then they have to destroy all the seeds within 2 years of
time.
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So, the conditions were very much restrictive, not suitable for them and they were not
allowed to take any new technology. So, as per the competition act, as we have already
discussed, anything which is contrary to or which stops further innovation like higher
price setting practices are in general considered anti-competitive. However, let us see
how the competition commission had looked into this matter.
The seed companies were one party, at the same time many of the private farmer
association, NGOs had shown their concern to the ministry of agriculture. The ministry
of agriculture showed its concern in three points. First: the abuse of dominant position of
Mahyco Monsanto by charging unreasonably high fees for Bt cotton seeds as per Section
4 point sub section (2) of the act is an abuse of dominant position.
Second: it is exploitation of the permissions given by the government to market Bt cotton

technology by creating monopoly through restrictive agreements for unjust enrichment
by charging high trait value from its licensee and ultimately from the farmers. Any
permission given by a state body or a central body is to improve the societal conditions
so that farmers can get variety at cheaper price and new varieties can be introduced, so
that it will be helpful for the farmers as well as the society, but Monsanto was showing a
monopolistic attitude and it was charging high prices from the farmers involved.
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Third concern was regarding its sub-licensing agreements with the Indian seed
manufacturing companies which were considered to be anti-competitive as per the
provision of subsection (4) of Section 3 of this act.
This was one side of the story wherein objections and complaints were being placed
before the competition commission of India. The other way round, there is the state of
Andhra Pradesh which is the home to big seed companies as well as a major seed
producing market.
So, the state of Andhra Pradesh had written to the government of India asking its power
to invoke section 92 of the patents act. Section 92 of the patent act is for issuing
compulsory licenses. The state of Andhra Pradesh asked the government of India to issue
a compulsory license for Monsanto’s patents on the ground that Monsanto is showing a
monopolistic behaviour and through one sided sub-licensing agreement is completely
controlling the cotton seed firms and thereby collecting excessive royalties.
Under this provision the state government asked Indian government to issue compulsory
license for the patented technology of Monsanto.
838
As you know section 84 is the provision for compulsory licensing in case of non-
working of a patent or certain other grounds. In those cases, any person can ask for
compulsory licensing, but the burden of proof is on the person, who is asking for it, to
prove the substantial grounds that the patent is not worked in India or its not available at
reasonable prices or other conditions.
But Section 92 of the patent act is a provision which states that the central government in
case of national emergencies or in case of extreme urgencies or in case of public non-
commercial use can make a declaration that a certain patent will be available for
compulsory licensing. So, the benefit of this section is that the burden of proof is not on
the applicant.
The parties are relieved from the burden of establishing that the threshold required under
Section 84 is not met and they are only required to make an application to the controller
of the patents who is required to grant the compulsory license on certain terms and
condition. So since for the technology the trait value was very high and Monsanto was
showing monopolistic behaviour the state government of Andhra Pradesh asked to
invoke Section 92.
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They further requested, if possible, to revoke the patent under Section 66. These were the
plea to the controller general of patents, but we are more concerned here about the
competition commission of India.
All these complaints from seed companies were regarding the abusive conduct of
Mahyco Monsanto Biotech Limited. The abusive conduct were on the accounts of
imposition of unfair conditions in the sub-licensing agreements, we discussed about the
restrictive condition that they cannot take any new technology, cannot interact with other
competitive companies etcetera, these were restrictive conditions.
Second: charging unfair prices, third: discriminatory treatment such as the different
pricing of trait value in different countries. Fourth one is limiting and restriction of the
technical and scientific development related to Bt cotton technology and the cotton seed
markets. Next denial of market access and leveraging of the dominant position in Bt
cotton technology market to protect the cotton seed which are in violation of Section 4 of
the act and it was further stated that the sub-licensing agreements between the seed
companies and Mahyco Monsanto Biotech Limited were in contravention of Section 3
subsection (1) and subsection (4) of the act. So, these were the basic allegations of seed
companies against Mahyco Monsanto.
840
So, what is the relevant product market in this case? The commission found that the Bt
cotton technology by virtue of its effectiveness and characteristics is a distinct product,
because by the use of this technology people are not using harmful chemicals or
pollutants or pesticides.
The aim of choosing Bt cotton technology is to protect the cotton crops from pest i.e. the
Bollworm and in an effective and non-polluting manner by using the genetic variants.
The upstream product market in this case was considered to be the provision for Bt
cotton technology.
841
And the relevant geographical market was considered to be India because in India any
genetically modified plant is approved by GEAC committee, Genetic Engineering
Approval Committee which basically looks into all the field trial data, whether it is
harmful or not, what kind of results is it giving and this process takes a long period of
about 5 to 7 years.
So, only after GEAC’s approval any plant, seed variety, genetically modified seed can be
cropped in India. On the Mahyco Monsanto’s website, they have said that they got
approval for BG-I and BG-II variety from GEAC in the year 2002 and 2006 respectively.
Therefore the relevant market is India, because the market started from 2002 itself. So,
relevant product market was the upstream market for Bt cotton technology.
842
Now coming to dominance and abuse of dominance. First they have to establish whether
Monsanto is the dominant player or not because the relevant product market is the
upstream genetically modified Bt cotton technology. There were two types of cotton
technology, BG-I and BG-II, BG-I involved 1 gene modification and 1 gene and BG-II
involved 2 genes.
After a detailed analysis, it showed that Mahyco Monsanto was the only player in 2 gene
Bt cotton technology. In 1 gene Bt cotton technology there were some other research
institute and companies involved, but Mahyco Monsanto had a high market share, but for
2 gene technology Mahyco Monsanto was the only company. Out of the 1128 Bt cotton
hybrids approved by GEAC in the year 2012, 986 hybrids were incorporated with Bt
technologies sub-license given by the Mahyco Monsanto.
Nearly 99 percent of the market was under Mahyco Monsanto’s control. So, from this it
was ascertained that Mahyco Monsanto Biotech Limited holds a dominant position and
the relevant product market was decided, relevant geographical market was also decided
and it was held that Mahyco Monsanto is a dominant player.
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Now coming to the abusive practices. The commission held that the conduct of Mahyco
Monsanto prima facie appeared to be in violation of Section 4 and the agreements
entered by Mahyco Monsanto as well as sub-licensing during this agreement were found
to have appreciable adverse effect in the competition in India, because they were the only
company who were selling Bt cotton-II varieties.
So, if somebody was not abiding by the royalty rates or the restrictive conditions then
Mahyco Monsanto was not going to give the seeds any further and they would have to
destroy all the seeds which they have produced so far which is anti-competitive, it would
not be easy for a farmer to destroy the seeds or the crops and they cannot do any research
and development on the Bt cotton technology.
So, prima facie with all these investigations, Competition Commission of India
established that there is a contravention of the provision of the Section 3 subsection (4)
as well as section 4 of the act and it is a fit case for investigation by the Director General.
So, this is one of the important case where we can see that restrictive condition in a
licensing agreement and abusive behaviour by a dominant player may lead to anti-
competitive effect. So, we will continue our discussion further on the various IP
licensing and Indian competition act in the next classes. Stay tuned. Thank you so much.
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Lecture - 38
IP Licensing and Indian Competition Law ( Contd. ).
Hello again, let’s continue with our previous discussion on IP Licensing and Indian
Competition Law, we will today focus on one of the major challenging areas in the
recent time, which is SEP litigation or the Standard Essential Patent litigation. So, we
have already discussed the Samsung, Motorola as well as the Huawei case in European
Union.
India is also not immune to SEP litigations. Ericsson case is one of the prominent cases
in the area of standard essential patent litigation. Today we will see how the competition
commission has analysed and looked into the standard essential patent litigation in India.
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Today our discussion would focus on SEP licensing and Indian competition law, where
we will look into three cases which are related, as all these cases are against Ericsson.
We will discuss the aspects of Micromax versus Ericsson, Intex versus Ericsson and Best
IT world versus Ericsson or the iBall case.
The competition commission of India has initiated its proceeding against standard
essential patent owners in Ericsson case for their alleged abuse of dominant position
pertaining to the refusal to license under FRAND terms or fair, reasonable and non-
discriminatory terms to the other applicant licensees.
So, the Competition Commission of India has defined standard essential patents in this
Ericsson case. SEPs are the common global standard patent which are agreed by various
market players under the rubric of a standard setting organization, in order to set a
common technology standard. When a technology becomes a standard it means the
technology becomes indispensable for the development of a product.
So, in order to stop patent holding or the royalty stacking, the standard setting
organization has lead the development of standard essential patents by virtue of which
patent would be available to all the like applicant who wants to use the technology. So,
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once a patent is declared as a standard essential patent, the patent owner cannot refuse to
license the technology under FRAND terms.
FRAND terms are fair, reasonable and non-discriminatory terms, a sort of terms and
condition which are mutually beneficial to both the parties, both the parties should agree
to the conditions for that technology. The standard essential patent is a patent for which
there is no alternative non infringing technology available.
And it becomes obsolete only when some new technology comes in or the product is no
more in use. Standard essential patents are burning topics these days, because these are
used for telecommunication or internet or the latest things which we are using these days
like gadgets and everything else.
One of the important and one of the first litigation in the SEP area in India was
Micromax versus Ericsson. So, Micromax is an Indian company, world’s 12th largest
mobile headset manufacturer company and it started operation in India in the year 2008
and prepares affordable mobile phones for consumers and also prepares regulated mobile
accessories.
Whereas Ericsson is an older company which was established in 1876 in Sweden and is
one of the largest telecommunication companies in the world and has a global presence
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of 38 percent in terms of market share. Ericsson is engaged in the manufacturing of
network, base station equipments and telecommunication networks.
Ericsson claims to have nearly 33,000 patents out of which 400 patents are granted in
India and it claims to be the largest holder of standard essential patents. So, it is one of
the major player which is providing SEP technology. It has standard essential patents in
2G, 3G, 4G, GPRS technology, related things in the telecommunications sector.
In this case, Ericsson gave a notice to Micromax in the year 2009 for its alleged
infringement of the essential GSM patents. Ericsson demanded that Micromax should
secure the licenses for those technologies under fair, reasonable and non discriminatory
terms.
In the reply to this notice, Micromax asked the details of the patents, which Ericsson
thinks that Micromax is infringing but Ericsson did not reply and in the notice also it did
not mention the patents which they thought Micromax was infringing. First notice was
sent in 2009, second notice was sent in 2011.
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Micromax again asked for the details of FRAND licensing terms from Ericsson or the
opposition party(OP), but Ericsson again did not provide any of the details of FRAND
licences, which he had entered earlier or which they want Micromax to enter into.
Ericsson said they will reveal the conditions of FRAND licensing negotiation only after
Micromax signs a non-disclosure agreement with them and the conditions of the non-
disclosure agreement were also very stringent and cannot be revealed to any third parties.
Finally, Micromax agreed to sign this non-disclosure agreement and the terms of the
FRAND licensing were revealed to Micromax nearly after 16 months i.e. in November
2012 the conditions of FRAND license were revealed to Micromax, but the request was
in place since July 2011. Ericsson further said that Micromax has to sign the agreement
within 25 days of this notice or else it will be construed as a refusal to sign FRAND
agreement. There were very stringent conditions associated with the license.
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In the FRAND licensing terms, the royalty rates imposed by Ericsson were quite high,
for GSM it charged nearly 1.25 percent of the sales price of the product, GPRS 1.75
percent of the sales price of the product, for edge technology 2 percent of the sales price,
for WCDMA and for HSPA for phones and tablets 2 percent of the sales price, for
dongles USD 2.5 per dongle.
So, you can see Ericsson asked the royalty in terms of the sales price of the product, the
royalty is not set up on the technology itself. This is one of the important thing in this
case.
850
Even after signing the NDA, Ericsson instituted a civil suit against Micromax in 2013,
before the high court of Delhi, alleging that Micromax has infringed eight of its standard
essential patents. Since Micromax signed the NDA but did not agree to pay high rates of
licensing fees, Ericsson filed a civil suit in the high court of Delhi.
A single judge bench recorded the interim arrangement between the parties as per which
Micromax started the payments of royalties to the opposition party, i.e. Ericsson, from
2003 at the demanded rates. So they agreed to pay the royalty, then in the order passed in
2013 by the high court an arbitrator was appointed and it directed the parties to enter into
a kind of mediation talk.
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But during this mediation, Ericsson was asked to show all the other agreements, which it
had entered into with their other competitors, other parties, other licensees and the terms
and condition of such agreements should be revealed, which it had placed in other
jurisdiction should also be brought to the notice, during mediation talk.
However, Ericsson did not show any of their brand licensing agreements during
mediation talk. Hence, the mediation proceedings failed and the high court directed that
interim arrangement would continue, for the interim period, until the disposal of the
application. So, as per the interim arrangement, Micromax paid nearly 29.45 crores as a
royalty in the year 2013.
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Even though they were paying the case was still going on. During this time, Micromax
complained to Competition Commission of India. In its complaint Micromax alleged that
Ericsson is abusing its dominant position by imposing high royalty rates for the SEPs
and Micromax argued that the royalty rates which Micromax is imposing were not
product base, were not charged on the basis of the cost of the product licensed. But,
charged on the basis of the value of the phone in which the technology is being used.
For example, if Micromax is selling a phone in 100 rupees, then as per the contract it had
to pay 1.25 percent of the royalty. But if the Micromax is selling the phone in 1000
rupees then it has to give 12.5 rupees to Ericsson. So, Micromax alleged that Ericsson is
charging the royalty on the price of the final product which Micromax is selling. So, it is
not a technology licensing fee per se it is getting a share of the product which is sold.
As per Micromax, Ericsson is arbitrarily posting royalty on the basis of sales price of the
phone, while the royalty should be on the basis of the value of the technology or the
chipset used in the phone, but not on the price of the phone per se and Micromax alleged
that Ericsson is charging different licensing fee from different licensee. So, these
submissions were made to competition commission of India.
853
Replying to it, Ericsson said that Micromax is already paying royalty to Ericsson, and yet
they have complained to commission. This was one of the stand. Ericsson replied to
competition commission of India arguing that the present dispute is commercial and civil
in nature and the competition commission should not acquire the role of a price setter or
concern itself with excessive pricing.
Basically, they wanted to say that it is not in the purview of competition commission of
India to decide the price or the nature of this conflict. Ericsson also argued that seeking
injunction from the court does not constitute abuse of dominant position. So, these were
the two grounds on which Ericsson replied to competition commission of India.
854
While taking cognizance of the case, commission said that when any company, when a
patent owner declares its patent as standard essential patent they have to abide by certain
clauses and rules mentioned by the standard setting organisation. As Ericsson had the
SEPs declared by ETSI, as per clause 6 of ETSI IPR policy, an IPR owner is required to
give irrevocable written undertakings that they are prepared to grant irrevocable licences
on FRAND terms, to be applied fairly and uniformly to similarly placed player.
Once ETSI has declared a patent to be a standard essential patent, then as per the IPR
policy clause 6, the patent holder should give the licence on fair, reasonable and non-
discriminatory terms and it should be uniform for all the competitive players placed and
the patent owner has to grant irrevocable licence to the following extent, to manufacture
including the right to make or to have customised components, subsystems or the
licensee’s own design for using, manufacture, sell, lease or otherwise dispose off the
equipment so manufactured, repair, use or to operate equipment and use methods.
So, once the license has been given now the licensee has the independence or freedom to
use it for different purpose, which are already mentioned in the IPR policy of ETSI.
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As shown Ericsson was not abiding by all these clauses. So, the competition commission
of India wanted to analyse what is the relevant market in this case. The SEPs held by,
owned by Ericsson are in the 2G, 3G, 4G as well as GSM technology which falls in the
GSM technology domain.
Prima facie the relevant product market is the GSM compliant mobile communication
devices and Ericsson was considered to be a dominant player since there are more than
400 patents which were granted in India out of the total 33000 patents that it held, out of
which maximum number of patents are declared as standard essential patent. So,
Ericsson was considered to be a dominant player in the relevant market i.e. GSM
compliant smart phone devices and the relevant market was India.
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Finally, the competition commission decided that the royalty rates make it clear that the
practices adopted by Ericsson were discriminatory as well as contrary to the FRAND
terms, because it was not charging the same price from all the similarly placed
competitors/licensees. Also, the royalty has no linkage with the patented product since it
had charged royalty on the basis of the final price of the product sold, not on the
technology per se and also answering to the stand by the Ericsson, competition
commission of India mentioned that section 62 of competition act makes it clear that the
provision of the competition act are in addition to, not derogation to other existing laws.
So, the competition commission of India has the jurisdiction to decide all these cases,
even though it is a patent litigation or a civil suit. The commission was of the opinion
that there is a prima facie anti-competitive behaviour and it had asked for an
investigation by the DG. In the earlier classes we discussed about this case, for example
analysing the jurisdiction of IP cases in competition commission of the India and here we
now focused on both the jurisdictional aspect as well as the anti-competition clauses in
an agreement looked from the point of view of competition commission of India.
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One of the related case is Intex technology versus Ericsson. It was filed in 2013. Intex
technology is an Indian company, which supplies various desktops, LED, LCD, CPUs
and computer accessories. Intex technology alleged that Ericsson, by the way of its term
sheet for a global patent license agreement or the GPLA licensing agreement, demanded
exorbitant, royalty rates and unfair terms of licensing for its patent from Intex
technology.
In licensing agreement Ericsson made it clear that the jurisdiction and the governing
laws for licensing agreement would be Sweden and Ericsson also required Intex
technologies to enter into a non-disclosure agreement as a necessary precondition for
letting them know about the details of the alleged infringement. So, when Ericsson
notified Intex technology of their alleged infringement of certain standard essential
patents, then they sent a notice to Intex technology to sign the GPLA licensing
agreement.
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One of the clause in GPLA licensing agreement was that it would be governed by the
laws in the Sweden and that it had to enter into a non-disclosure agreement, before it can
know what kind of patents it had infringed.
Ericsson refused to share the commercial terms and royalty payments on the ground of
non-disclosure agreements. Intex asked about the general FRAND terms, which it was
entering into with Ericsson, but Ericsson did not provide any prior information and
denied to share any commercial terms, royalty rates and royalty payments.
That lead to the fact that different royalty rates are being charged by Ericsson from
potential licensee, also because Ericsson refused to share the commercial terms and
royalty payments on the grounds of non-disclosure agreements.
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Intex technology filed a complaint with the competition commission stating that they
repeatedly requested for the terms and condition of the licensing agreements, the royalty
rates, but Ericsson refused to give any details of the infringement or the details about the
royalty rates unless and until Intex technologies signs an NDA.
The commission held that, in similar line with the Micromax case, Ericsson is in a
dominant position as well as the relevant market is the GSM mobile technologies, related
technologies, relevant geographical market was India and the case can be looked along
with the Micromax case.
Therefore, competition commission of India, in this case also, found a prima facie case
and asked the DG for a further investigation and to submit a report in 60 days.
860
The third related case is Best IT world versus Ericsson which is popularly known as the
iBall company. This was a litigation in 2015, but it first started in 2011, when Ericsson
issued a letter to iBall or the best IT world company for its GSM and WCDMA
technology and requested Best IT World to discuss for the possible infringement of its
standard essential patent. In this letter again, Ericsson did not specify the number of
patents which were directly infringed by Best IT World or the probable patent that can be
licensed.
861
They asked for a meeting. During the meeting Ericsson asked the iBall company to enter
into GPLA agreement for all of its patents. Initially they said that iBall had infringed
some of the patents, but during the discussion Ericsson asked iBall company to enter into
the GPLA licensing agreement for all of the patents which Ericsson was holding or
owning. The iBall company expressed their willingness to enter into GPLA, if Ericsson
could identify the patents which were alleged to have been infringed and such patents
were valid and enforceable in India.
So, they asked for the list, which are the patents that were infringed, what are the patents
that were valid. They did not want Ericsson to stack up the royalties or hold the patents.
So, they asked the details first, then iBall was willing to enter into the negotiation, but
Ericsson has to give the details of the patent. Like the earlier cases Ericsson asked iBall
to enter into a non-disclosure agreement, then only they can proceed further in this
matter, however Ericsson would not share any information about the patent infringement
unless and until NDA is executed.
In 2011, another mail was sent by Ericsson to iBall with a draft of the NDA for further
discussion and in that draft Ericsson imposed very strict conditions. First, ten years of
confidentiality in relation to the disclosure of any information by either party,
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confidentiality information is to be shared only with the affiliated company and all
disputes will be settled by arbitration in Stockholm, Sweden.
These are very restrictive for any Indian company, but iBall was willing to enter into
FRAND licensing agreement with Ericsson, provided the jurisdiction be India and in
July 2012 Ericsson communicated to iBall that the proposed license would not only
cover the future sales, but also the prior sales which the company had notified to iBall
earlier.
So, now, iBall company alleged that despite repeated request for adopting lenient terms
and conditions in the NDA and to provide details about the alleged patent violations to
iBall company, Ericsson did not reply to any of these queries.
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iBall pleaded to competition commission of the India, regarding the abuse of dominant
position of Ericsson and said that Ericsson is abusing its dominant position by refusing
the license to iBall, by refusing to identify the standard essential patents infringed by the
company iBall and by giving threats for patent infringement suits and coaxing the
informants to enter into one sided and onerous non-disclosure agreements.
And, they are trying to tie and bundle patents irrelevant to informant's product by way of
global patent licensing agreement and they are charging unreasonably high royalty rates
for all these patents, which is a value of percentage of the handset other than the actual
cost of the patented technology, as was in the case of Micromax as well as world’s best
technology case.
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The competition commission found that there happens to be a prima facie case of
contraventions of the provision of section 4, and abuse of dominant position exists and
that this case is a fit case for investigation by the director general. So this case was also
placed in reference to the earlier two cases and the competition commission of India held
that these three cases should be dealt with reference to each other.
Cases are still pending, final decision has not come out yet, but this discussion would
help us to understand how the terms and conditions by a SEP holder may be considered
as anti-competitive fo example by not disclosing the allegedly infringed patents or by not
disclosing the terms and conditions, by charging excessive high royalty rates which are
not based on the product or the technology itself but based on the final sales price of
handset or other final product
All these activities would come under anti-competitive practices and the competition
commission of India is taking a very stiff position to all these behaviour since the
competition commission of India is very new in comparison to the European Union.
Still with cases like Micromax, India has already entered into the litigation of standard
essential patent and with the advent of technology many such litigation are likely to
come up. Competition Commission of India is keeping a close watch on all these
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technology area, not only the anti-competitive behaviour or abuse of dominance, but also
the combination of various big enterprises, which are holding major technologies.
So, for your reference, you may go to the competition commission of India website,
where you can find all these relevant case documents, the decision by competition
commission of the India. Please, go through it, it would give you a clear idea, how the
competition commission is looking into these IP licensing cases. Hopefully, this would
be helpful to you and if you have any query please let us know in the comment sections.
Thank you very much.
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Lecture – 39
Patent and Competition Law
Hello all. Welcome to this session on Patent and Competition Law.
So far we have studied various provisions mentioned in the European Union as well as in
India regarding the competition aspect. And we have seen Article 101, 102 which
specifically talks about various anti-competitive practices and the abuse of dominant
position and the conditions under which the practices or the methods adopted by the
firms may be regarded as anti-competitive in nature.
Similarly, in India we also dealt with various provisions for abuse of dominance and also
anti-competitive agreements and we read about the exceptions provided in the Indian
Competition Act relating to the IP rights conferred and the restrictions placed in the
dealings of IP provisions which cannot be considered as competitive per se. But it does
not mean that any restriction placed by a patent holder or IP holder would be immune
from the provisions of the competition law.
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So, we have in detail dealt with all these discussions. But in today’s module we would
focus in a summarised manner on how the behaviour of an enterprise or a firm
particularly a patent owner can lead to monopolistic behaviour or anti-competitive
behaviour. So, basically we would in this session cover the abusive practices by the
dominant enterprises relating to patents.
So, among the various important forms of intellectual property rights such as patents,
trademarks and copyright patent is one of the most studied form of intellectual property
right. So, there are many ways by which a patent owner can misuse his power conferred
by a patent right. So, among these processes are the refusal to license, unfair or
discriminate discriminatory licensing practices;
Then anti-competitive use of the standard essential patents which may lead to abuse of
dominant position via delaying the market entry of competitor’s product where the patent
owner is trying to misuse the regulatory processes through various supplementary
protection certificates or the patent extending mechanism available in specific countries.
Or by placing excessive price for the product, for the technology licensed and by
entering into the anti-competitive agreements with other competitor such as the generic
manufacture or other downstream processing companies.
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So, there are many ways by which anti-competitive behaviour may arise during the
transaction of a patent or a technology. So, in general we have seen from the earlier cases
that when somebody refuses to transfer a technology particularly a patent it may act as a
hindrance in the development of a new product in the downstream market. And if in
some cases it acts as an essential facility, then the practices or the restrictions placed by
the IP owner may be regarded as anti-competitive in nature.
So, in all these processes through which patent owner can abuse its position generally the
anti-competitive behaviour arises when the patent owner is in dominant position. Now,
we have seen what may constitute a dominant position for a particular firm i.e. the
amount of market share it is holding, the substitutability of the technology it is having.
So, there are various factors that are used to determine the dominant position of a firm.
So, when the firm is in a dominant position and the behaviour; listed in this slide; may
lead to an anti-competitive effect.
In general, in today’s world, the development of standard essential patents which are
basically the technology which are essential for the development of a new product and
the technology itself acts as a standard in these cases and denying or refusal to license by
the patent owner for the standard essential patents may lead to anti-competitive effect in
the market.
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What the standard setting organisations or the SSOs have done is that they have tried to
maintain an equilibrium by issuing, by maintaining a provision of compulsory licensing
of SEP by the patent owner on the basis of FRAND terms which we know as fair,
reasonable and non-discriminatory terms.
In the earlier classes we have seen how these denial or refusal of the license to the
standard essential patents by Samsung as well as by Motorola to Apple lead to anti-
competitive behaviour. The European Commission determined that these kind of
practices may be considered as anti-competitive behaviour and abuse of dominant
position.
Particularly in the Motorola case, we have seen that Motorola violated Article 102 of the
treaty of the Functioning of the European Union which tells about the abuse of dominant
position by seeking injunction against a willing licensee i.e. Apple incorporation and the
technology in question was the standard essential patent on 2G technology.
The European Commission found that it was an anti-competitive behaviour on the part of
Motorola, and they insisted that Apple should not challenge the standard essential patent
i..e. 2G technology if they entered into the licensing agreement. However, the European
Commission did not impose a fine on Motorola because at that time there were no
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particular case laws regarding the standard essential patents. So, European Commission
exercised its discretionary power.
Similarly, in the Samsung case the European Commission accepted that the legally
binding commitment offered by Samsung not to seek injunction in relation to any of its
present or future SEPs particularly which were related to the UMTS technology for the
mobile devices for a period of 5 years or more and against any potential licensee i.e.
those who are willing to enter into a negotiation under the FRAND terms.
European Commission ordered that Samsung cannot deny to give the license to any of
this potential licensee for a period of 5 years. And it was given a time period of 12
months for the negotiations with potential licensees and if some in cases where both the
parties could not reach any settlement then there will be a third party determination of
the FRAND terms by a court or by an arbitrator.
So, both of these cases show that refusal of license in case of the standard essential
patent can be considered as anti-competitive behaviour. Because when a patent is given a
status of the standard essential patent as per the standard setting organization say ETSI or
any of such standard setting organization, all these holder of SEPs commit to a clause
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where they cannot deny the licensing of patents on a fair, reasonable and non-
discriminatory terms.
If they do so, they have to show the justification. Just by saying that you are infringing
my rights by using the standard essential patents is not allowed per se and that is why he
cannot ask for injunction.
So, as per the European Commission seeking an injunction by the SEP holder would
constitute an abuse of dominant position under Article 102 of the treaty of functioning of
European Union when a potential licensee is willing to enter into the agreement under
FRAND terms. So, if the licensee is not willing or not ready for negotiation then,
obviously, as a patent right holder the SEP holder also has a right to ask for injunction.
But when licensee is agreeing for some kind of negotiation under FRAND terms then in
those cases asking for an injunction would be a violation of Article 102.
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This decision of the European Commission was also affirmed in the Huawei technology
case, Huawei versus ZTE, where the court stated that the Article 102 of TFEU must be
interpreted as meaning that the proprietor of a SEP or a standard established by a
standardisation body, has given an irrevocable undertaking to the body to grant license to
third parties on FRAND terms, does not abuse the dominant position within the meaning
of that article.
So, by bringing an action for infringement, seeking an injunction, prohibiting the

infringement of its patent, seeking the recall of products in which that patent has been
used as long as three conditions are also specified there
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Prior to bringing an action for infringement, the proprietor has to, first: should have
alerted the alleged infringer of the infringement complained about, by designating the
patents, such and such have been infringed and specify the way in which they have been
infringed. So, the first condition laid by the European Union court was that before
bringing an action of infringement the licensee must alert the alleged infringer about the
nature of the infringement, which patent has been infringed and the manner in which the
patent was infringed. So, the alleged infringer must be aware about his practices that he
is infringing the patents of the licensee or the SEP holder.
Secondly, after the alleged infringer has expressed his willingness to conclude a
licensing agreement under the FRAND terms, which has been presented in a specific
written offer or the conditions are suitable to both of them, which are calculated.
So, suppose the alleged infringer is willing to enter into a license, so only verbal
willingness will not help. There must be certain written agreement between the two
parties, under what terms and conditions both the parties will enter into the agreement
and license the technology in question.
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And third condition is, when the alleged infringer continues to use the patent in question,
the alleged infringer has not diligently responded to that offer, in accordance with the
recognised commercial practices in the field, in good faith, this must be established on
the basis of objective factors which implies that there are no delaying tactics.
So, once the potential licensor has been made aware of the terms and conditions of the
FRAND terms and also knows the fact that he is infringing the SEP holder’s patent in
those cases if the potential licensee deliberately try to delay the licensing negotiation or
deliberately does not respond to the offer made by the licensor, In those circumstances
asking for injunction will not be abuse of dominant position.
So, the three conditions, first: the potential or the alleged infringer should be made aware
of the infringing behaviour, conduct. And second: the licensor should have
communicated the terms and conditions to the potential licensee. In the condition, where
the potential licensee is not responding to the licensor’s condition deliberately and is
playing delayed tactics, in all those circumstances asking for injunction would not be a
violation of the Article 103.
These three cases were landmark in terms of dealing of the SEPs as well as licensing and
abuse of dominant position. In our last discussion, in the Indian Competition Law, we
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have seen in the Micromax and Ericsson case, how Ericsson refused to share the details
of the patents which were allegedly infringed by Micromax and asked for NDA, non-
disclosure agreement before revealing any terms and conditions for the FRAND terms or
before revealing the details of the patents which were said to be infringed by Micromax.
So, all these behaviour are also dealt as anti-competitive behaviour by the Indian
Competition Commission.
So, we may see that both, European Union as well as the Indian Competition
Commission, foresee that these kind of behaviour by the dominant players in the SEP
areas, or abuse of dominant position will be considered as anti-competitive behaviour.
SEPs are hot topic these days. Non-SEPs, particularly patents, for example, the
unlocking pattern of the smart phones in the mobile phones, to swipe the screen so that it
unlocks. So, this is not a kind of standard essential patents, but it is covered under certain
patent, but not standard essential patents.
So, the standard essential patents are related to various audio visuals and wireless
technologies, mobile GPRS technologies, 3G, 4G, 5G technologies, which have become
essential and all the companies, all the firms need to only follow those patents to produce
their product. So, these are very much essential for the companies operating in the
downstream market to take the SEP, so that they can give rise to a new product. So, that
becomes an essential facility per se.
So, denying any kind of right for those essential patents may lead to abuse of dominant
position as well as anti-competitive practices.
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Then the second and most prominent way by which patent holders try to misuse the
power, which they have by virtue of patent right, is by the misuse of regulatory
procedures. This happens in case of pharmaceutical sector because as you know a drug
development process takes a long time and it has to be approved by the corresponding
medical authority to give license for the product to come to the market.
So, the licensing procedure takes place after nearly 5 to 7 years and the patent right is for
20 years so when the product manufacturer gets the license to market its product nearly
half of the time period of the patent right has expired. So, in those cases, there are certain
mechanism by which the patent owner can extend its right. So, one of the mechanism is
SPC, Supplementary Protection Certificate for which extra 5 or 7 years time period is
given to the innovator firm apart from the normal grant of 20 years.
Some cases, the pharmaceutical companies misuse this regulatory procedure and try to
retain their market dominance power for additional period, even though they are not truly
in a position to deserve that thing. One of the example which we have also discussed
earlier is the AstraZeneca case or the Losec case, where AstraZeneca was found guilty of
delaying the market entry of the competing generic products.
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It has deliberately made misrepresentations to the patent offices as well as the regulatory
authorities and induced them to grant SPCs, supplementary patent protection for the drug
Losec. But the data was not valid and it was a misleading representation. So they tried to
persuade them to grant SPC. Secondly, they also prevented the parallel imports by de-
registration of Losec marketing authorization in many of the member states.
These two behaviours were regarded as anti-competitive practices. The European

Commission fined AstraZeneca heavily for these practices. And the third process by
which the companies or the dominant firm try to abuse the dominant position is by
excessive pricing. As you know patent owner has a definite new technology which has a
good market potential.
One way by which they want to leverage their patent right is by pricing, excessively
pricing that article. This is very much prevalent in the pharmaceutical industries, for
example, European Commission’s investigation into Aspen Pharmaceutical. There was a
case against the Aspen Pharma, where it was alleged that Aspen Pharma has raised the
price of five cancer drugs in 2017.
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So, the European Commission also investigated one of the other allegation that Aspen
Pharma threatened to withdraw cancer genetic drugs from some of EU member states.
And in Italy, Aspen Pharma was heavily fined in 2017.
However, the European court of justice has not taken into consideration the Italian
decision. They investigated the matter independently. It was alleged that the European
Commission is unofficially acting as a price regulator together with other authorities
which are the primary responsibility for drug procurement.
Sometimes investigating such cases where pricing is involved is not easy, because
European Commission is the only authority to investigate anti-competitive behaviour of
firms in the European economic area. So, when European Commission gives judgment
or decision about pricing, how the pricing is high, how much percentage hike is there
and how a company should try to regulate the pricing.
Then, it was alleged by the pharmaceutical companies that European Commission is

over-riding it’s boundary and it is acting as a price regulator. So this is one of the
criticism which the European Commission gained during this time.
While deciding these cases European court of justice held that the price can be termed as
excessive and unfair when it has no reasonable relation to the economic value of the
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product. So when a company is having a monopoly, having a patent on a standard
essential patent for a particular thing then it may charge little bit higher price. Most of
the consumers are willing to pay a bit more price for branded item or when a patent is
involved the price is generally higher than the other products. But when will it be termed
as excessive, the definition of excessive is quite difficult to determine. So, in this case,
the European court of justice held that the price is excessive and unfair when there is no
reasonable relation to the economic value of the product.
In one of the earlier United Brand cases during the 1970s the court has come up with a
procedure to determine the excessive pricing. The court gave a two-pronged test or the
two steps test, where the first step that should be taken into consideration was to
calculate the difference of cost incurred and the excessive price charged, how much
price, amount is required to produce that product and how much the company is charging
for that product.
And second, whether the price imposed is unfair in itself, when compared to the other
similar products is the price very high, in those circumstances price is considered to be
unfair. So, in the first step it is to be determined whether a price is excessive or not. The
court said that one must calculate how much price is required or how much amount was
incurred during the development of the product and how much the company is charging.
So, if the price comes to be excessive in the normal sense, the price will be considered
unfair in itself compared to other available products in the similar technology or other
competing products.
So, in 1978 this was the decision given in the United Brand case.
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However, during the recent AKKA and LAA case in Germany, court held that apart from
this two-pronged test there are other test available by which excessive pricing can be
determined, on the basis of the comparisons with other existing product which is known
as the comparator test.
Particularly in this case, building on the previous cases on copyright management

organization, the court confirmed that the methodology of comparison of price charged
by the dominant undertaking with the price charged for similar product or service in
several members. The court tried to compare how much the dominant firm is charging in
the questioned case and how similar companies with similar kind of rights are charging
in other member states.
While this kind of comparison is made between different member state, the comparators
must be selected in accordance with the objective, appropriate and verifiable criteria.
And the comparison should be made on a consistent basis. So, you cannot compare an
apple with an orange, but we need to know the nature of the product which is in
question, the nature of the market. So, while making such comparison it is very much
essential to determine the criteria of comparison.
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The price difference between the product in question and the similar comparable product
is appreciable then it will be indicative of abuse of dominant position. If some of the
dominant player is charging very excessive price, very little price or had excessive price
in certain member state while cheaper in other member state and the difference is
appreciable i.e. it can be demarcated, this may indicate an abuse of the dominant
position.
The price difference is appreciable when it is both significant and persistent on the facts
with respect to the market in question. So, the nature of the comparable product, the
condition in which the product is being sold or being used should be taken into
comparison to determine whether the price difference is appreciable or not. So, if the
price difference is appreciable then it is an indication of the abuse of the dominant
position.
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European Commission as well as various national competition authorities have come up

with four major cases related to unfair pricing in the pharmaceutical sectors. The first
was in 2001in United Kingdom where the national competition authority found that the
NAPP pharmaceutical or NAPP abused its dominant position in the market for the supply
of the sustained released formulation of morphine tablets. It was held that the high
excessive price charged by NAPP was nearly 1500 percent rise in pricing. So, it was
considered to be an abuse of the dominant position.
Similarly, later decisions were in 2016 and 2018. In 2016 Italian national competition
authority found that the Aspen Pharma has abused its dominant position in Italy by
imposing unfair prices for four of its off-patent generic anti-cancer medicines. In 2016,
in United Kingdom, NCA found that Pfizer and its distributor company Flynn, had
abused their dominant position by charging unfair prices for the phenytoin sodium
capsules, an anti-epilepsy medicine manufactured by Pfizer.
Again in 2018, the Danish National Competition Authority found that the CD Pharma
abused a dominant position in Denmark by charging Amgros, which is a wholesale buyer
public hospital, unfair prices for syntocinon, an oxytocin based medicine used after
childbirth for pregnant ladies. The price increase was nearly 2000 percent.
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These cases are the recent development where abuse of dominant position is done via
charging excessive pricing. These are just basics of how various methods can be adopted
by various firms. In most of the cases these are dominant firms and may lead with abuse
of monopoly or abuse of the dominant position.
One of the prominent method by which dominant player tries to restrict competitor’s
entry into the market is by paying off the competition. It is known as patent settlement
agreements. This is a normal tactics, that the patent holder will ask for injunction for the
probable infringement or the said alleged infringement by the generic manufactures or
they would try to enter into some kind of litigations, so that it will delay the entry of
generic medicines into the market.
So, the other way is through the patent settlement agreements, they deliberately try to
delay the entry of the generic manufacturers in the market. The prominent example
which we have already discussed in the earlier classes is the citalopram case where the
Lundbeck was fined heavily for delay tactics, it paid the generic companies to not to
launch the product into market, delaying the production of the generic medicines in some
of the member states of European Union for which it was heavily fined.
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It procured generic medicines which had already been produced for the purpose of
destruction. There was fentanyl case of the co-promotion agreement, where the
companies tried to enter into settlement agreements, where none of them were producing
generic drugs, generic medicines.
And for which they got heavy royalty, not to manufacture the generic medicines. The
perindopril case, the modafinil case, these are the examples where payment was given to
generic manufacturers to not to produce generic medicine. So, basically, the competition
was hindered and the end consumer was not able to get cheaper medicines. All these
were anti-competitive behaviour. Paying for delay tactics or the pay for delay tactics or
patent settlement agreements are one of the ways by which competitors or the dominant
players restrict the entry of competitors.
In this module so far we have discussed various ways by which dominant player or the
SEP holder or a patent holder tries to harm the competition by delaying the market entry
of the product or by stopping the development of new product or by raising the price
high, by charging high prices for the product.
Please go through all these cases in detail by which you can get a complete overview of
the processes and view point of various competition authority.
In the next module we will deal with trademark and copyright infringements and IP
licensing related to trademarks and copyright and how they lead to anti-competitive
behaviour. So, stay tuned for the next module.
Thank you.
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Lecture – 40
Trademark, Copyright and Competition Law
Hello all. Welcome to this module on Trademark, Copyright and Competition Law. So,
in the earlier section, we dealt about patent and the competition law. So, the other forms
of intellectual property right which are very important in a transaction of product are
trademark and copyright. So, in this section, we will deal about the licensing negotiations
regarding trademark and copyright and how the practices may lead to abusive behaviour
on the part of IP right holder.
So, we will deal with aspect of the trademark as well as the copyright in licensing in this
module.
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So, a trademark is a kind of intellectual property right which helps the consumer to
distinguish the product or service provided by one manufacturer from the other
manufacturer. Also it gives certain brand value to the trademark owner and ascertains
quality, reputation and a belief is associated with the trademark so that it helps in getting
more market for the trademark owner.
So, the common practices by which anti-competitive behaviour may arise in a trademark
transaction or trademark licensing negotiation are by anti-competitive restrictive
agreement clauses. Clauses in the commercial contracts, for example the prohibition to
sell on the online portals like Amazon or on auction-based profiles, auction-based portals
such as eBay. There may be certain restrictive agreements in the qualitative selective
distribution or there may be vertical restrictive agreements in the case of trademark.
And these kind of cases particularly happen in the luxury or the high technical product,
the branded product; so-called branded product. In the trademark licensing negotiation
when a trademark owner is giving its license or giving its product to some other
company for the purpose of selling or promotion, then in the licensing agreement it
places certain clauses by which the licensee is unable to sell the product at certain portals
or sell the product to certain customers.
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So, these are known as restrictive agreements. The restrictive agreements can restrict the
licensee to sell the product in the online portal. Online portal does not mean that any
online portal. It may be particularly those portals which are meant for selling everyone’s
products not only the trademark owner’s product. So, for example, Amazon, where we
can get all the related product. The company can sell there or allow to sell their product
from their own online domain, but not through selling sites like Amazon or eBay.
The contracts with the online sales restrictions may be claimed as anti-competitive due to
their restrictive nature, for example if someone is saying that I am selling, I am giving
you my branded product, but you are not supposed to sell it on an online portal. If this
condition arises, then the trademark owner relies on his right to protect the reputation or
the image of the brand to justify the restriction.
So, when certain clauses to not to sell on the online portals are given in the restriction
agreements in those cases, the IP owner or the trademark owner say that my reputation
and image of the product is in question or the quality may get damaged because of
counterfeiting product or other things. So, I would not allow to sell on the online portals.
So, he relies on trademark rights to not to allow to sell or give any other product.
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The selective distribution systems and the restriction in the competition arises when there
is a ban on the internet sale. The selective distribution system is considered as a hardcore
restriction on the competition. So, if you place a ban on online selling, then it is
generally considered as a hardcore restriction in the competition act. Even though, this
kind of restriction is present, the manufacturers remain free to organise their selective
distribution network and may require certain quality standards.
And such online sales restriction provides the supplier with a guarantee that goods in
questions will be exclusively associated with the authorised distributors. The conditions
in the selective distribution system can be justified by associating the product with its
quality or with its nature. So, the restrictive condition cannot be considered as anti-
competitive in all the cases.
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When the trademark owner considers that his product’s image will be damaged, he gives
the luxury image or the aura of luxury as the justification while putting such restrictive
clauses in the agreement.
This was first recognised in the Dior case when the CJEU, the court of justice in
European Union recognised that the proprietor of a trademark can invoke the rights
conferred by the trademark against a licensee who contravenes a provision in the
licensing agreement prohibiting him on the grounds of the trademark’s prestige, sales to
discount stores provided it has been established that the contraventions damage the allure
and the prestigious image which bestows on them an aura of luxury.
So, by the virtue of luxury image or aura of luxury a trademark owner can put restrictive
conditions. This was first established in the Dior case.
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In Coty Incorporation and Parfumerie Akzente case, Akzente was an authorised offline
distribution to Coty, Coty sued Akzente in the German court for violating the conditions
under selective distribution agreements that prohibit Akzente from selling Coty’s luxury
product which were available under the brand name of Marc Jacobs, Calvin Klein and
Chloe to third party online platforms like Amazon. Since Akzente started selling the
branded product on the Amazon platform, Coty sued Akzente for violating the selective
distribution agreement.
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Coty, as in Dior case, relied on the ‘Luxury image’ argument and the court of justice
referred the Pierre Fabre Dermo-Cosmetique case of 2009 for determining the criteria
for selective distribution systems that have to be observed or to be considered as outside
the scope of the Article 101 subsection (1) of the Treaty of Functioning of European
Union. In Pierre Fabre Dermo-Cosmetique case of 2009, three criteria were laid down.
First, the resellers were chosen on the basis of objective criteria of qualitative nature laid
down uniformly for all potential resellers and not applied on a discriminatory fashion.
Then, the characteristics of the product in questions necessitates such a network in order
to preserve the quality and ensure its proper use. The third criteria laid down is to not go
beyond what is necessary. So, these three criteria had to be observed to determine
whether a selective restrictive agreement is outside the scope of Article 101 subsection
(1) or not.
And so, it was determined that because these were branded products and Marc Jacob’s
branded products being sold on an online portal may lead to damage of their reputation
because the very nature of the online portals. The court found Akzente guilty of violating
the selective distribution agreement. But in Adidas case, the ‘luxury image’ justification
could not hold good and it was not accepted by the competition authority.
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It was not accepted by the competition authority in France and Germany. The
competition authorities came to the conclusion that the producers cannot prohibit the
authorised resellers from selling their product online by relying on the quality standards
justification. And consequently, Adidas was asked to modify the selective distribution
contracts and online sales policy accordingly.
So, unlike the Coty case where branded products were only available from
corresponding retailers; the quality image or the ‘luxury image’ which was shown by
Adidas was not accepted by the European court and it asked Adidas to modify the
selective distribution agreement.
There are few cases related to trademark selective agreement license and violation of the
competition policy from which we can infer that an absolute ban on the online sale
would be illegal; however, the trademark owner still has a chance to justify such
restriction by relying on the quality, brand, reputation, protection argument.
So, if a company, if a firm can show that it’s brand, quality or reputation is high and by
the way of online sales, it may damage it’s reputation; then, in that case it may put a ban
on the online sales so far as the restriction does not go far beyond the simple requirement
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of quality standards. So, these two things have to be kept in mind before a company
places certain selective or complete ban on online sales.
So, now moving on to the next important intellectual property right, i.e. copyright. We
know that copyright is given for any artistic or literary work. In the technological society,
all the technologically developed products are guided by certain programs or databases.
All of these come under the purview of copyright. This is becoming an important part of
technologically driven society and there are many cases which show how violation can
happen with respect to competition policy.
The copyright owner can abuse his dominant position by the way of tying a product or
by refusing the license which forecloses the competition or by charging excessive
royalties. Some prominent cases in the copyright violation are: the Microsoft case, where
there was a refusal to deal as well as tying.
Then the Intel case, where Intel was charged with asking high royalty and giving certain
loyalty rebates. And the latest one is the Google case, where Google was accused of
favouring its own content. So, these are few important cases with respect to the copyright
licensing that have emerged in the recent past.
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So, we know from the Microsoft case, that Microsoft refused to provide any information
on the interoperability of the software that would enable the competitors to develop
competing programs for the workgroup servers as well as which will be compatible for
Windows platform. So, they had the software, but they did not give the source code for
the software by which competitors can develop programs which may work in the
windows platform.
An investigation was conducted in this case and the European Commission fined
Microsoft about 497 million pounds for abusing its dominant position in the area of
personal computer operating system and workgroup; workgroup servers as well as in the
multimedia players.
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So, this abuse of the dominant position was done by the way of refusal to supply its
competitors with interoperability information for operating with windows PCs and to use
the information for the purpose of developing or distributing products Microsoft’s own
product. So, by refusing to give the copyrighted material, Microsoft has stopped or
created hindrance in development of the downstream products or the new products which
may operate in the windows platform and which will affect the competition with
Microsoft.
Again, Microsoft tried to tie the windows media player software together with the
Windows client PC operating system and hence, it did not allow the consumers to use
any other multimedia player in personal computers. So, it tried to foreclose the
competition in the multimedia player market for the smaller competitor. So, by these two
provisions, Microsoft showed certain anti-competitive behaviour and tried to abuse
dominant position.
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There is a risk of foreclosure in case of tying when the tied and the tying products are
distinctly two different products. How it is decided that it is distinctly two different
product? It depends on the consumer's demand. If the consumer is able to buy this
product separately, then these were considered as two distinctly different products and if
it is a lasting practice means it the practice has been carried for a long time and it is
implemented by the dominant undertaking.
So, if the player is a dominant market player and it is tying two different distinctive
product which is available separately and there are substitutes available for the tied
product. In those cases, it may be considered that there is a risk of foreclosure. So, for
that reason Microsoft was fined heavily and it is one of the landmark decisions, where
abuse of dominant position with regard to copyright licensing was discussed.
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The second case was the Intel case, where Intel was again imposed with a record fine of
1 million pounds by the European Commission and the decision was still pending with
the general court and it was transferred to European court of justice. But the European
court of justice has remanded the case back to general court for decision. The appeal is
under progress. So, in this case the Advanced Micro Devices or the AMD incorporation
filed a case against Intel in the year 2000.
The European Commission found that Intel has infringed Article 102 of the treaty of
functioning of European Union and abused its dominant position by granting rebates on
condition that original equipment manufacturers(OEMs) would purchase from it, all or
almost all of their CPUs for example x86 CPUs for the use in their computers. Intel
agreed to give certain rebates on the condition that the original equipment manufacturers
will buy all the CPU from Intel only.
898
Intel made payments to the largest desktop computer distributor in the European Union
which was Media Saturn Holding on the condition that it would be selling exclusively
computers containing Intel’s CPUs only. Thus it tried to enter into a negotiation with the
largest computer seller in European Union i.e. Media-Saturn-Holding to sell all the
computers with only Intel’s CPU.
And it also provided payments to the original equipment manufacturers for the
postponement or cancellation of the launch of AMD CPU based products and put a
restriction on the distribution. So, all these activities were considered as anti-competitive
behaviour and it was considered that it is a kind of abuse of dominant position and heavy
fine imposed on the nature of this dealing.
899
The court of justice judgment in this case also confirms that the anti-competitive effect
of the loyalty rebates should not be resumed, where the undertaking in question argues
that its conduct is not capable of restricting competition in the market. In such situations,
all the circumstances of the case must be analysed in order to correctly determine
whether competition rules have been infringed or not.
So, during the appeal in this court case, Intel argued that the loyalty rebates is a kind of
promotional scheme for the licensees. So, it should not be taken into consideration that it
would restrict the competition. So, the court held that all the conditions must be, all the
circumstances must be carefully analysed so as to understand whether the competition
rules have been infringed or not.
900
Coming next to one of the recent cases, i.e. the Google case, where EC penalised Google
for 2.42 billion dollar pounds for abuse of the dominance power by way of promoting its
own comparison shopping services for example its own content in the search results. We
know Google is one of the popular search engines which gives the search results in very
less time. It has many trade secrets associated with it. Also it has various programs like
software codes by the way of which it does the search and gives results.
By Google advertisement, which is distinct from Google, other sites/other companies /

other online shopping sites also advertise their thing. But when somebody looks for any
shopping thing, Google what it did was it showed its own content at the first place. We
all have done Google searches. So, when we do certain Google search, the first page
gives us the most relevant result.
So, here when somebody looked for the Google shopping things, the first page gave all
the information related to Google even though they were not the top-selling domains in
that region. The top-selling domain advertisement came in the fourth page or fifth page
or the subsequent pages, but not in the first few pages.
So, Google advertisement enjoyed a higher number of clicks as a result of this better
display or the visibility and Google’s own services appeared on the top of the search
901
results, while the most highly ranked rival’s services appeared on an average only on
page four or afterwards in the Google search engine.
So, according to the European Commission such practices significantly affect the
competition because as we normal consumer, we get assured by what is shown in the
first page. So, as per the European Commission, these kind of practices affect the
competition in the market and because such kind of comparison allowed Google to make
significant gains in the tariff at the expenses of its competitor that may act detrimental
for the consumer.
So, deciding on the software code which showed the result related to Google only in the
first page and their rivals contained in the fourth or the afterwards page, it was a kind of
abuse of this dominant position and the European Commission fined Google for about
2.42 billion dollars.
These were the three related cases for copyright infringement and copyright licensing
particularly, use of copyright and abuse of dominant position and showing anti-
competitive behaviour. So, with all these examples we may see how the IP holders can
be judged in the eyes of the competition law and under which conditions, the conditions
vary from case to case and it will be decided to be anti-competitive.
So, I hope this will be very helpful for you to understand the interplay and the
overlapping domain of the intellectual property and the competition law. So, please go
through all the cases, that is the best way to learn how things have evolved in the past. In
India there is very less development in the copyright and the trademark area, but we have
discussed cases related to the patent and anti-competitive practices therein. So, please
read through these things, it will help you to understand IP and competition in a greater
length.
Thank you so much. Looking forward to meet you in the next session. Thank you.
902
 
Lecture - 41
TRIPS and Competition Law
Hello all. In the last few weeks we have discussed extensively about the various
competition law provisions in India as well as in European Union. Now we all are aware
about what are the anti-competitive agreements, what practices may lead to abuse of
dominant position in India as well as in Europe. And, also in the previous classes, you
have seen lots of anti-trust issues in the United States also.
These were all country specific rules regarding competition laws and now we have to see
how this competition policy has been perceived in the international trade arena. So, in
this module we are going to read about the international trade and competition policy.
Particularly we would look into the various provisions of Competition Laws in TRIPS
Agreement.
903
So, in this module we will be dealing with the brief history of how this competition
policy has been incorporated in the international trade and particularly in TRIPS
agreement.
And what are the main provisions of the TRIPS agreement which talk about the
competition policy. So, there are three main provisions which directly point towards
competition policy or competition law issues. We would discuss one by one all three of
them.
So, let us start with the brief history of competition policy in international trade So, the
rules for investment as well as competition policy in the international trade Investment,
and how the competition policy and investment will go side by side has been deliberated
since 1940s particularly during the preparation of GATT agreement i.e. General
Agreement on Trade and Tariffs. So, during that time it was dealt about how the
competition policies can be incorporated in the GATT agreement, so that if certain
monopoly situation arises or monopolistic issue arises during these international trade
that can be dealt with.
But the formation of International Trade Organization did not materialise. So, these rules
particularly the aspects of trade and competition policy could not be finalised. However,
904
after the formation of the World Trade Organization, both GATT as well as WTO are
increasingly dealing with both the principles and the specific aspect of trade investment
and competition issues.
So, they have laid down specific rules regarding what if certain anti-competitive
situation arises, how to deal with those kind of situations as well as the GATT agreement,
the General Agreement on Trade Services. Both of them contain rules on monopolies as
well as exclusive service suppliers. Particularly the rules on monopolies has been
extensively dealt with in the commitments on telecommunications. The principles have
been elaborated in the commitments on the telecommunication.
Particularly the TRIPS agreement recognises the National Government’s rights to act
against any anti-competitive practices and their rights to work to limit these practices
which we will be discussing later in this module, how the national authorities have been
provided with competence, power to deal with the anti-competitive situation and what
are their rights to stop or limit those practices.
So, this is just to introduce brief history, where the competition policy was tried to get
incorporated into the International Trade Agreements.
905
Now, coming to the TRIPS agreement as you all know TRIPS is the agreement on trade
related to intellectual property rights. So, basically in the TRIPS agreement the mandate
of the agreement was to enact minimum provisions of the intellectual property right, so
that each member country, which is a part of the WTO agreement can formulate their
National IP laws keeping in view these minimum standards which are prescribed in this
TRIPS agreement.
So, that if certain IP issues arises all the member countries will be in a position to respect
or to balance the IP which each particular country gives. So, during 1970s and 1980s
particularly during the negotiation of the international code of conduct on technology
transfer, which did not materialise at the end, the developing nations per se showed their
reluctance and showed their concern regarding the effect of IP monopoly.
So, the developing countries in particular raised their issue that because the developed
nation has maximum number of IPs or major share of IPs, i.e. the IP belongs to the
developed nation. So, there is a chance of anti-competitive practices due to the IP
monopoly. So, based on concerns of the developing nation it was thought that there
should be some provision of competition policy in the TRIPS agreement, not TRIPS
agreement during 1970s but in the code of conduct on the technology transfer.
So, even at that time the developed nations were not in favour of bringing any
competition law clauses or competition law policy, competition policy in the agreement
because they had their own competition law at that time. But to have a balanced situation
or to create a form of negotiation, certain points on competition policy was incorporated
in the later, in the TRIPS agreement.
906
Particularly in Uruguay round of discussion, thereafter in the Doha declaration certain

provisions regarding the competition policy were incorporated in the TRIPS agreement.
So, these were not per se any policy, a stringent policy that national countries have to
adhere to, but these are kind of guidelines which the country has to take into
consideration before enacting their IP laws. Because we have to make it clear that the
TRIPS agreement is all about the intellectual property related trade.
And competition law does not per se include only intellectual property; it may include all
kind of trades. So, here the provisions for competition policy were only related to
intellectual property related trade. So, coming to the basic provisions of the competition
law in the TRIPS agreement, there are three main articles which talk about the
competition laws. First is the Article 8 sub-section (2), then the second one is the Article
31 sub-section (k) and the third one is the Article 40.
907
The Article 8 sub-section (2) reads as follows. “Appropriate measures provided that they
are consistent with the provisions of this agreement may be needed to prevent the abuse
of intellectual property rights by the right holders or the resort to the practices which
unreasonably restrain the trade or adversely affect the international transfer or
technology.”
So, here in this article like TRIPS acknowledges that the member states may take
appropriate measures to prevent the abuse of the intellectual property. So, here it did not
specifically elaborate what can constitute as an abuse of intellectual property right, but it
gives us three pointers which can be considered as an anti-competitive behaviour or the
abuse in anti-competitive behaviour from the perspective of the competition law.
908
It gives the members the power to adopt appropriate measures to prevent three
interdependent kinds of IPR related practice. First: the abuse of IPR by the right holders
as it was directly mentioned, second: practices that unreasonably restrain the trade, third:
practices that adversely affect the international technology transfer. So, these three have
been directly mentioned in the article. But again interpretation of this article should not
be restricted to these three.
909
Even though in WTO or in TRIPS the anti-competitive practices are not well defined,
however the WTO panel in the Mexico Telecom cases which was the first real
competition case in the WTO, the term anti-competitive practices has been interpreted
very broadly and it may include actions that lessen rivalry or the competition in the
market, any behaviour or any action that may lead to decreased competition in the
market, it may include the horizontal price fixing, market sharing agreements by the
suppliers which on national or international level are generally discouraged or
disallowed.
So, interpretation of the anti-competitive practices should not be restricted to those three
which are directly mentioned in Article 8 sub-section (2), but it should be interpreted
broadly. It depends in which situation it has to be interpreted how.
One of the drawbacks of this Article 8 sub-section (2) is as I mentioned the TRIPS
agreement is all about the practices of trade or trade related to intellectual property right.
So, the provision does not apply to other potentially anti-competitive practices which
primary are not directly related to the intellectual property rights. So, normal mergers
and acquisition or joint ventures where there is no IP per se involved cannot be regulated
by these provisions.
910
So, this was the first Article 8 sub-section (2) which talks about the members country’s
power to adopt measures to prevent the abuse of intellectual property right. Now, the
very next Article 31 gives other measures where in situation where a patent has not been
fully used or in case of national emergency or public health emergencies some patents
are required and it was not available or not being given by the patent holder. So, in those
cases the country may adopt measures such as the compulsory licensing system where
without the due permission from the patent holder, the country may authorise other firm
or company to produce the goods or substances which involves the intellectual property.
So one of the provisions of this Article 31, Article 31 sub-section (k) it reads as members
are not obliged to apply the conditions set earlier such as where such use is permitted to
remedy a practice determined after judicial or administrative process to be anti-
competitive. The need to correct anti-competitive practices may be taken into account in
determining the amount of remuneration in such cases.
911
This article tells us that if the conduct of a patent holder is judged to be anti-competitive
by a judicial or the administrative process, there should be a judicial or the
administrative process, due process that should determine whether a conduct is anti-
competitive or not. So, if any conduct is found to be anti-competitive, then the competent
authority of the member can authorise the compulsory licensing system neither with the
prior negotiation with the patent holder.
So, without prior negotiation of the patent holder the member country has the power to
authorise for the compulsory licensing. And, it does not have to supply the product which
involves the intellectual property to the domestic market necessarily. So, this clause
gives the power to member country to issue the compulsory licensing for the product
required and it is not necessarily that the product has to be supplied in the domestic
market.
And finally the determination of the amount of royalty or the remuneration is also
independent of patent holder’s discretion. So, the amount of remuneration may be
smaller than in the case of commercial transaction if in a situation the patent holder has
given a license for that technology, he may have asked for a higher amount, but when
member country is issuing a compulsory licensing, the remuneration amount is also
negotiated and it may be a smaller amount as the country thinks so.
912
So, one of the example for this kind of behaviour, the unilateral conduct particularly
where a patent holder refuses to give the technology or the IP. In one of the cases the US
Federal Trade Commission, FTC in the Rambus case there are four patents with which
the Rambus has deceived the standard setting bodies by the exclusionary conduct, by
monopolising the market with its four technologies.
So, for these four technologies the compulsory license were granted and the maximum
royalty rates were set which the Rambus could charge from the firm. So, basically in the
compulsory licensing negotiation the charges rates were decided as 0.25 percent to 0.5
percent for 3 years and after which the rate was dropped to 0, but Rambus claimed that
the average rate should be 1 to 2 percent. As you may see it hardly exceeded from 0.5
percent.
913
Rambus was dissatisfied with this, but the FTC held that the “royalty rates
unquestionably are better set in the market place, but given the anti-competitive conduct
of the IPR holder” i.e. the Rambus, it “has made impossible” to deal that in the open
market place. So, the FTC said that “although we do not relish imposing a compulsory
licensing remedy. The fact presented make the relief appropriate and indeed necessary to
restore competition” (emphasis added).
So, in order to restore the competition in the market and the monopoly which the
Rambus has executed by not giving the license for those four technology in question,
Rambus has created such a situation where the FTC is now bound to give the
compulsory licenses with the rate decided by them. So, again Article 31 sub-section (k)
is the measure by which compulsory licensing can be issued by the member country.
914
The next and one of the most important provisions are in IP and TRIPS agreement
related to competition policy is Article 40. So, now we have seen that the section 8 has
provided the power to the member countries to take necessary measures against any anti-
competitive practices in the contractual licenses. So, as a specialised provision for this
Article 18 now Article 40 stands as a specialised provision and it provides that members
agree that some licensing practices or conditions pertaining to the intellectual property
rights which restrain competition may have adverse effect on the trade and may impede
or transfer and for dissemination of the technology.
So, the sub-section (1) of Article 40 directly admits that the anti-competitive behaviour
of this IPR holder may have adverse effect on the trade as well as the dissemination of
the technology which we have seen in the competition law, it is generally considered as
anti-competitive and this article particularly acknowledges the fact.
915
And, it also goes on without saying that nothing in this agreement shall prevent the
members from specifying in the legislation licensing practices or conditions that may in
particular cases constitute an abuse of intellectual property rights having an adverse
effect in the competition in the relevant market. So, it has given the powers to the
member countries to include in their legislation or they can specify in their legislation
what may constitute as an abuse of intellectual property right, what kind of contractual
licenses may become a part of anti-competitive behaviour.
So, it says that a member may adopt consistently with the other provisions in this
agreement appropriate measures to control such practices, again it goes on defining the
practices which may lead to abuse of dominant position by giving some examples and
these examples were like exclusive grant-back conditions, conditions preventing the
challenge to validity of the patent or IP in question or the coercive package licensing.
So, in the relevant laws and regulation of the member, it gives an example of what may
constitute the practices which may lead to abuse of dominant position and member
country may adopt specific measures to put the details of what may constitute as
practices leading to abuse of intellectual property right.
916
If you analyse this section broadly again the list of anti-competitive behaviour here is not
exhaustive and it has given just few examples like the exclusive grant-back condition
which I have underlined in the slide, the conditions preventing the challenge to validity,
coercive package licensing. So, this is not an exhaustive list. The interpretation should
not be restricted to these three conditions or three practices.
Because as a part of the negotiation history of TRIPS agreement, the Brussels draft listed
14 anti-competitive licensing practices which are also listed in the draft of International
Code of Conduct on Technology Transfer, the 1985 version. So, there they have broadly
classified what kind of practices may lead to abuse of dominant position and 14 anti-
competitive licensing practices were listed in that draft.
917
So, Article 40 sub-section (1) and (2) gives the measures which we have gone through.
Now there are other provisions in this article like Article 40 sub-section (2) to subsection
(4). Apart from the substantive procedure these are the procedural rules. So, the Article
40 sub-section (2), (3) and (4) stipulates procedural rules for consultation and co-
operation between members who are enforcing its licensing related competition control
and another member whose national or the domiciliary is alleged under the law of the
former to be engaged in the licensing related to anti-competitive practices.
So, in situations where a member country when it is in trade with another member
country, if it is facing the anti-competitive behaviour which is regulated by the laws of
the particular country then in those cases what should be the procedure for the dispute
resolution is particularly laid in the sub-section (2), (3) and (4) of the Article 40.
918
So, now after going through all these provisions if you just read the Article 40 sub-
section (1) in connection with the other provisions, it seems to be an affirmative
obligation imposed on the WTO member. But, in reality it is not an obligation for the
WTO members. These are certain guidelines or the leeways which are given to the
member countries which they may adopt in their national legislation.
So, basically the national legislative bodies alone have the right to reasonably determine
which practices are anti-competitive or the forbidden practice. It is a kind of guideline
which has been given. Now it is upto the member countries to adopt or list out the
practices which may lead to anti-competitive behaviour or the forbidden practices.
919
So, as per this Article 40 for a WTO member to be able to complain before the WTO
dispute settlement body that IPR related anti-competitive practices has been adopted in
certain member countries and it has adversely affected the trade or impeded the transfer
of the technology, the member has to prove that such anti-competitive practices are the
effect of the action i.e. there is direct involvement of the company and the anti-
competitive practices has lead to this kind of situation.
And, it is not by mere non-action of the second member, in the private firm’s anti-
competitive conduct. So, now it has to be proved in the dispute settlement body that the
anti-competitive practices are the effect of action only. If there is in reality direct
involvement, then only the probable theoretical situation cannot be taken as a proof. So,
it has to be proved that anti-competitive practices are the effect of certain actions.
920
So far we have dealt with all the three provisions mentioned in the TRIPS agreement
which is directly talking about the competition policy. As we saw there are certain
specific example given that may constitute abuse of dominant position and that are the
anti-competitive practices, but again these are not exhaustive list. There are just few
example.
The WTO laws cannot be read in clinical isolation from the Public International Law.
The general rule for interpretation which is contained in Article 31 of the 1969 Vienna
convention on the law of treaties, the TRIPS agreement shall be interpreted in good faith
in accordance with the ordinary meaning to be given to the terms of their treaty in the
context and in the light of its object and the purpose. Therefore, the anti-competitive
practices which are mentioned in the TRIPS can be interpreted broadly.
921
Now, so all these provisions laid down in Article 8, Article 40(1) and 40(2) taken
together will be applicable for the anti-competitive practices relating to all the different
IPRs covered by the TRIPS agreement and as I mentioned earlier, it is not an obligation
on the member countries. So, the competition rules in the TRIPS agreement do not
contain precise obligation subjecting the exercise of the IPRs to the competition law
principles.
So, as we know the TRIPS agreement lays down the basic required minimum standards
for the intellectual properties which the member country should adopt. So, as per the
TRIPS agreement if the member country should adopt the minimum basic standards as
specified in the TRIPS, there won't be any competition issue per se. But if competition
issues arises, then it has certain provisions by which the national, the member may adopt
their own specific measures. So, this is not an obligation. Now, it is up to the discretion
of the member states.
And the Article 8, 31 as well as 40 of the TRIPS agreement recognise the powers of the
member to control the IPR related anti-competitive practices. So, it gives a pointer or
guidelines for the member countries to adopt specific measures to prevent the anti-
competitive practices.
922
As per the TRIPS agreement these are the basic provisions which member country may
adopt again. It is not so easy to enforce the competition policy flexibility in member
countries legislation because the Article 8 as well as sub-section (2) of Article 40 limits
the member’s sovereign powers to adopt competition legislation concerning the IPRs,
how does it limit?
The rules require that the measures adopted to control IPR related anti-competitive
practices to be consistent with the TRIPS agreement and should be appropriate. Please
take important note of the word “consistent and appropriate”. So, the member countries
are not free to take any measures as they wish. It should be consistent as per the TRIPS
agreement as well as appropriate. Now appropriate is a very broad word. In general it is
open ended where the member country may think fit. As it appears to be necessary, the
member country can take the appropriate measures.
923
These three sections which we discussed directly speak about all the relevant provision
related to the competition policy. However the competition rules preventing the anti-
competitive practices are also specifically addressed in note 3 of the TRIPS agreement
which says that, for the purpose of the article 3 and 4, the protection shall include
matters affecting the availability, acquisition, scope, maintenance and enforcement of the
intellectual property rights as well as matters affecting the use of the IPR specifically
address in this agreement.
In matters affecting the use of IPR comes the competition law, so those three sections are
quite relevant for a competition policy. Also Article 3 and 4 are where the protection has
been defined. So, there they have also taken the matter related to the competition issue.
924
Article 63 sub-section (1) deals with the transparency, also list the subject matters of the
TRIPS agreement and one of the subject is Prevention of Abuse of Intellectual Property
Right. So, the Article 63 as well as the Article 2, 3 and 4 indirectly talks about the
competition policy.
And the WTO member’s exercise of its right to adopt or enforce the domestic IPR
related competition should be in principle of good faith and must be consistent.
So, flexibilities of competition law is not easy to enforce. It should be consistent and
appropriate with the TRIPS agreement and appropriate as per the country.
925
So, briefly we have disused all the provisions of TRIPS agreement which is about the
competition law, however these are guideline or pointers to the national or the members
of the WTO, but there are certain unanswered questions for all these provisions. As we
saw there are certain examples of the anti-competitive practices, even though that was
listed in the draft negotiation bill, 40 anti-competitive practices were listed there. But, set
of other practices may constitute actionable abuse under the members competition law
are missing here.
As we have seen the European as well as the Indian perspective, how to determine
whether a behaviour is anti-competitive or not, whether we should go for a per se rule
approach like cartel formation like per se anti-competitive or rule of reason approach like
abuse of dominant position. So, we have to go by the rule of reasoning approach under
which standard, the practices should be reviewed here.
In subsection (k) of Article 31 where the compulsory licensing is in question like where a
process is found to be anti-competitive as per the judicial or administrative process what
will constitute an adequate judicial or administrative process, that definition or that
clarity is also missing. And, the appropriate remedies to be employed beyond general
requirement of the consistency with the provisions of the agreement is also missing here.
926
Again the detailed guideline to enact and apply the national competition law to the IP
related anti-competitive practices is also not here. A few pointers which the national, the
member countries may refer to, these condition and draft their or enact their national
legislation on the anti-competitive practices for IPR related matter. Again as this is for
the TRIPS agreement so, these are all restricted to the trade related to intellectual
property.
So, it is not applicable for the normal competition anti-competitive behaviour which are
unrelated to the intellectual property. So, these are the basic provision just to give you a
little bit awareness regarding how the TRIPS agreement has included the various
provisions of the competition law and apart from that how member countries are taking
this as a guideline or how member countries are adopting this.
So, I hope this should be quite useful to you to understand that a competition policy is
not only a national matter. International trade also involves the competition law policy
and the TRIPS agreement has also taken care of this. So, in the next section we will just
give you an example of how EU has taken stands in case of international trade like
TRIPS agreement and the IP issues from the EU perspective.
Stay tuned for that. Thank you.
927
 
Lecture – 42
TRIPS and Competition Law ( Contd. )
Hello again. So, in the earlier module we just discussed the various provisions mentioned
in the TRIPS Agreement related to the Competition Law and how the national member
states are free to adopt their own measures for prevention of these anti-competitive
behaviour.
So, we will be continuing that module in today’s class. We will just take an example of
this Microsoft case where the Microsoft has put an argument related to TRIPS
Agreement and competition policy and how the European Court of first instance has
given its point of view. So, we have already dealt with the case just to again reemphasise.
So, the European Court of first instance, CFI in the Microsoft versus commission, the
decision was given in 2007 and it was a landmark decision dealing with the interaction
between the competition law and intellectual property rights. And this is one of the first
judgment given by a court of the world trade organization member which invoked the
928
competition rules in the agreement of the trade related aspect of the intellectual property
rights.
So, this case becomes very important being the first, where the WTO member has
invoked the competition rules, TRIPS provisions has been raised as one of the
objections/argument from the Microsoft side.
So, going to the facts of the case again. The European commission has found Microsoft
to be guilty of two anti-competitive practices. First, the abuse of dominant position and
second was the tying of the product. The Microsoft appealed in the court of first instance
CFI claiming that it had not violated any provisions of the Article 82 of European
Commission nor had it abused the dominant position.
Basically, refusing the license for the interoperability information to its competitor is not
an abuse of dominant position and the bundling of the windows media player with the
windows client PC operating system is also not a part of the tying. And further Microsoft
contended that the compulsory licensing and the unbundling demands which were
imposed on the Microsoft as remedy for the two alleged abuse were incompatible with
the TRIPS Agreement.
929
So, after being held guilty by European Commission, the commission has asked for
compulsory licensing as well as the unbundling of the windows media player with the
client PC.
So, as per Microsoft these decisions were incompatible with the TRIPS Agreement. The
Microsoft appealed the case to CFI, but the CFI has reaffirmed the European Court of
Justice decision and its previous ruling that a firm holding a dominant position has a
special responsibility and irrespective of this position conduct to impair the genuine
distorted competition on the common market is not allowed.
So, when a firm is holding a dominant position by virtue of its intellectual property it has
a special responsibility and it is not allowed to distort the competition in the market. So,
now, again the court has looked into the Magill as well as the IMS health case and
looked into the four-pronged test which has to be confirmed to find whether there is
abuse of dominant position or not.
930
So, here based on this IMS as well as the Magill judgment the court of first instance,
contended that in this case the Microsoft’s interoperability information was indispensable
for the non-Microsoft group of server operating systems to be capable of interpreting
with the windows domain architecture. So, for the downstream operation of the other
competitors or the players, the Microsoft interoperability information was needed. So, it
is stopping the downstream market to operate and stopping the competition thereby.
The refusal to license entail the risk of elimination of all competition in the server
operating market. So, if the Microsoft is not giving the license, then no one can operate
in the similar market by the same interoperability information. There may be different set
of market for other operating system, but with this those cannot work with the Microsoft.
So, it is eliminating the competition.
Third the refusal prevented the appearance of new product incorporating genuine
technical development. As mere cloned product for which there is a potential consumer
demand. So, by denial of this license there will be no new product formation for which
there is a consumer demand. And there is no objective reasons to justify these kind of
refusal of the license.
931
So, all the four test based on Magill and the IMS decision were tested on the Microsoft
case. And Microsoft failed to satisfy the court with respect to all these four questions.
And it was held that Microsoft was a dominant player in the market and by refusing the
license or by refusing to provide the interoperability information Microsoft has abused
the dominant position.
With respect to tying, the CFI agreed with the commissions that the tying infringes the
Article 82 of the European Union as the five cumulative requirements have been met. So,
to decide whether a tying will be anti-competitive or not there are five tests for that and
here also the five requirements have been met.
First, the tying and the tied goods are two separate products. So, the windows media
player and the interoperability, the two windows operating system were two separate
product that were tied. So, not related to each other and that is why it is a kind of anti-
competitive practice.
Again, the undertaking concerned is dominant in the tying product market. Windows
media player, Microsoft was dominant for that market, more than 38 or 40 percent shares
were held by them. Again, the undertaking concerned does not give consumer the choice
932
of obtaining the tying product without the tied product. So, no one was able to get the
windows media player without obtaining the windows operating system.
And for that reason the tying forecloses the competition, it has the power to or power for
the foreclosure of the competition and this tying was not objectively justified. So, based
on these test, like the four-pronged test for the abuse of dominant position, five test for
the tying product or tying activity, the court of first instance concluded that Microsoft
has committed two types of abusive conduct each incompatible with the Article 82 of the
European Commission.
So, this is just a factual background. We have already seen the earlier cases also. So,
Microsoft has again argued against the compulsory licensing to be issued for the
interoperability information as well as it was asked to sell the product separately. So,
Microsoft alleged that this is against or incompatible with the TRIPS provision.
Now coming to the provisions in the TRIPS Agreement, how a member country can
adopt the TRIPS provision or how a member country can interpret the TRIPS provision,
there are two ways, there are two approaches for that. First one being the monist
approach and second one is known as the dualist approach. So, the country with a monist
933
approach, particularly it is followed by most of the country where civil law traditions
have been followed. Here what happens is that:
The international agreements are incorporated directly to the domestic laws i.e. they are
self-executing in nature. So, suppose there is a certain provision in the international law
then that is directly taken from there and inserted into the domestic law. And whenever a
case would be dealt, it will be self-executing in nature. Second one is the dualist
approach. So, in a country with a dualist approach, particularly for the most of common
law countries, the international agreements become national law only after passing
further national legislation, i.e. they are not recognised as self-executing.
So, they have to pass again second set of legislation to adopt international legislation.
Particularly countries like United States adopt this dualist approach, also to some extent
the European Union also adopts the dualist approach. But in the case of European Union
the member countries or the national may adopt the monist approach, but when it comes
to the European Union it is particularly the dualist approach which the European
Commission, European Union adopts.
And regarding this Microsoft versus commission, based on this argument that the TRIPS
Agreement does not have a direct effect on the community level, the court of first
934
instance held that the TRIPS Agreement does not prevail over the primary community
law. WTO agreements are not in principal among the rules in the light of which the
community judicature is to review the legality of measures adopted by the community
institutions.
It is only where the community has intended to implement a particular obligation

assumed under the WTO or where the community measures refers expressly to specific
provisions of the WTO agreement that the community judicature must review the
legality of the community measures in question in the light of the WTO rules.
The circumstances of this present case clearly do not correspond with either of these two
situation. So, here the court had made clear that the TRIPS Agreement is not above the
primary community law. So, community law has basically taken the member country’s
point, provisions as mentioned in the WTO agreement to judge whether any practices
will be anti-competitive or not.
And it is the prerogative or member country has the power to decide what may be
considered as an anti-competitive behaviour and what can be the punishment for that and
what can be the remedial measure for that, how the competition may be restored as we
have seen in the Article 8.2 or 31(k), the competition has to be restored again in the
market.
So, basically the member country has the power, European Union or European
Community has the power to adjudicate its own decision. And the WTO rules are there,
but it is not compulsory on the part of a member country or the European Union in this
case to directly adopt or follow the WTO rules.
It has taken the principles or provisions into consideration, the provisions as specified in
the WTO agreement, but again it is with respect to the domestic or it is on the part of
these member countries how to adopt those specific legislation. So, the argument that the
compulsory licensing or the untying of this product is not compatible with the TRIPS
Agreement did not hold ground in this case. So, this is one of the important case where
for the first time a decision was given by WTO member country and the TRIPS
provisions were invoked.
935
So, this becomes very important in this respect. And the provisions of the anti-
competitive practices, in the TRIPS Agreement become important more for the
developing nations, as these provisions were incorporated by the concerns, issue raised
by the developing nation because the developed country has more IP power and they
may create a monopolistic situation or they may refuse to transfer the licensing they may
refuse to, refuse for technology transfer of such IP in question.
So, to prevent them these provisions were adopted, now most of the member countries
have adopted the competition law provision, but when it was incorporated out of 80, 40
members only had competition law provisions. So, it has become important, but again
more guidelines or more specific guidelines have to be given, so that those countries
which have not adhered or which have not formulated their competition policy may also
adopt those.
Or those which have competition policy, competition law in place can also take specific
remedial measures for any action that may arise in the course of international trade
related to intellectual property rights.
So, coming back to this case. Regarding this unbundling remedy, the court of federal
instance reiterated that Microsoft could not rely on the TRIPS Agreement to support this
936
claim because of the lack of the direct effect. The CFI further stated that in any event
there is nothing in this provision of the TRIPS Agreement to prevent the competition
authorities of the member of the WTO from imposing remedies which limit or regulate
the exploitation of the IPR held by an undertaking in a dominant position.
So, the member countries or the country where the problem has arisen, has the power to
impose remedial measures. So, there is nothing in the TRIPS Agreement that may stop
the member country from taking remedial measures because the member countries are in
a better position to determine what is better for their country and how the anti-
competitive behaviour can be stopped and competition can be restored in the system.
So, this is all about the provisions of the TRIPS Agreement and competition law
provisions. So, I hope with this course we have got a brief idea about how competition
law and intellectual property are related, at what point we may consider these are
complementary to each other or support each other and required for the proper or smooth
functioning of both IPR. So, thank you for being with us. See you again.
Thank you.
937
Prof. K D Raju
 
Lecture - 43
Summary
Dear students this is the last part of this particular course, we were happy to offer this
particular course and there were a lot of objectives. Because, in India the IP and
competition law is a new area, a new branch of law and economics which came into play
very recently through a number of cases that came before the competition commission
and other relevant authorities.
So, the main objective of this course was to know about the interface, our focus of the
course was on the intellectual property versus competition law. So, what were the
different categories?In the beginning, in the first part of our course, it was introduction to
intellectual property law which contained all the 7 categories of intellectual property law;
starting from patents, trademarks, copyright and then geographical indications, integrated
circuits and undisclosed information and also the designs.
So, all 7 categories of intellectual property law were explained in the first part and in the
second part we discussed about the introduction to competition law. And, within the
competition law we tried to understand what are the two major domains of competition
law i.e. the abuse of dominance and anti-competitive practices. And after this particular
module which gave bare minimum of understanding of competition law, we moved to
competition law versus intellectual property law, that was the core of our course.
The core discussion of our course was on competition law and intellectual property law
and we discussed the different concepts of intellectual property law as well as the
competition law. So, simply we can see that in the interaction between intellectual
property and competition law the borderline is very thin. And intellectual property law
gives monopoly rights for a minimum period of time, at the same time the competition
law never prohibits monopolization, but it prohibits the abuse of monopolization.
938
And you can see the different categories of the competition law branch and different
prohibitions like in the areas of tying, cartelization and monopolization and the
geographical distribution of markets and so forth. And how these intellectual property
protection interfaces with the competition law, how the technology areas for example, in
the United States as well as in European Union the Microsoft was heavily fined. The
Microsoft was a major software company, not only software company. Because of the
technology, company was fined.
The reason was that the authorities in US as well as in the European Union found that
this company was engaged in different activities which were against the allowed
monopolization within the intellectual property framework. They violated some of the
provisions of the competition law. So, they were heavily fined, but when we come to
India, the branch of competition law itself is very new to the Indian authorities. And
according to the TRIPS agreement we fully complied with the intellectual property law.
So, we came out with a set of intellectual property legislations and then a new
competition law. So, the jurisprudence is simply emerging and the next part Niharika will
explain to you, in the second half, about the Indian law in detail. And, in the last part of
we were discussing about the different jurisdiction, a comparative jurisdiction of the US
as well as the European Union.
If you look into United States you can see that the antitrust law is considered as one of
the very important magna carta of business. Because, this is one of the first
country which came out with a law on competition. It promotes competition in the
United States. The antitrust law is very strong in the United States and is considered to
be one of the rich jurisprudence.
The rich jurisprudence which has emerged for a period of more than a century, is also
guiding principles to other countries as well. So, we discussed the pros and cons of the
antitrust law from the very beginning. And also in the module we discussed almost all
important cases with regard to competition law versus intellectual property law. And then
we switched over to the European Union as well as the Indian competition law.
939
So, these were the module which we covered. Actually entire course itself is modelled in
such a way that, the students of this particular course can understand the entire area of
intellectual property and competition law and whether they are really conflicting or
supplementing. And, we said many times that the competition law supplements the
intellectual property law rather than conflicting with each other.
And, my colleague Niharika will explain to you the next modules which we tried to
present before you.
Thank you sir.
Hello all. So, brief introduction was given by Professor Raju, after going through the
different fields of intellectual property law we are now in a position to understand that
the aspects of competition law are not restricted to patent per se, it is applicable
throughout all forms of the intellectual property law. And these are depending on the
jurisdiction whether it is US or European Union or India, the main motto of both IP and
competition law remains the same: to promote innovation and promote a fair competition
for the welfare of the society.
So, having set these two aims of IP and the competition law, in the Microsoft case
particularly the European court of justice has said that in case of these European Union
and particularly also in India, monopoly or dominance is per se not bad. However, abuse
of dominance is considered to be anti-competitive in certain cases. It is said that when
there is an IP holder, in addition to the intellectual property, there is a greater
responsibility for the dominant player or the IP holder.
And, further the case becomes much more complicated when this IP in the form of patent
or other than patent becomes the technological standard which becomes the standard
essential patent. So, the holder of the standard essential patent right has more
responsibility towards the society and towards the other probable licensees.
So that the development of the new products are not stopped or the consumer per se are
getting all the benefits as explained in the principles of the competition law. So, if you
look into the jurisprudence of India, India has basically followed the competition law
940
from the European jurisdiction. Earlier when there was MRTP Act, it basically got
inspired from the US Sherman’s Act and Clayton Act, where the act was basically to
control the monopoly.
But, when the Competition Act of 2002 came into practice, it is now more on the
following path of the European jurisprudence and law. And, if you compare US, India or
European Union; in India as well as the European Union, the European commission on
the competition or the Indian CCI; both are like administrative bodies which control the
anti-competitive behaviour of the various firms.
Whereas, in the US FTC Federal Trade Commission as well as the department of Justice
both of them take equal participation to determine the civil, the administrative as well as
the criminal sanctions on these things. But having said this, the main motto remains the
same to promote competition, fair competition and promote much more innovations. And
in the European cases we have dealt with many cases starting from the Microsoft, then
IMS and Magill, the jurisprudence was defined, the exclusionary abuse or exploitative
abuse has been taken into consideration.
And even the latest judgment in the Huawei versus Jetty took into account both the
Samsung and the Motorola decisions. And somewhere there is a responsibility from the
patent holder not to grant injunction or not to think about injunction when there is a
probable licensee who is willing to take your license under the FRAND terms. And, it is
not on the part of this licensee to say that the patents are not valid or invalidation claim
can be made.
So, as we saw through these cases, the jurisprudence is quite developing, also in case of
India the Micromax-Ericsson case was one of the landmark cases, where not only the
jurisprudential issue like a jurisdiction of the High Court has been challenged. So, these
are still in a developing phase and with the upcoming ICT technologies and this telecom
wars we are yet to see much more developments in this area; particularly in the Indian
system.
Since, in the European Union there are case laws as well as soft laws in the form of
guidelines whereas, the case laws has sometimes taken commission’s view point as well
941
as also taken into consideration the soft laws, but in case of the India our case laws are
just being developed.
So, much more developments are yet to be seen as the technology is developing and in
this course we just wanted to give you a basic understanding of this IP and competition
law, how these two fields of the study are complementary to each other. Individually IP
holder per se cannot enjoy all the right, when it is going against the principle of the
competition law.
We hope this course has been beneficial to you all and thank you for watching us
throughout this lecture series. And, we will wait for your comments and valuable
suggestions and we would be happy to answer your queries, if you have any.
Yes, I think the students have already completed half of the courses and the rest of the
courses are going on. And, we encourage all the students to read more on the issues. And
there is a one book available which I have written sometime back on IP and competition
law which you may read and also the reading materials are also uploaded. Please go
through that. So, the final question is not going to be too tough.
But definitely you have to complete the courses. And, we hope that this course is going
to get each one of you and when you will go ahead this is going to be an important area
of jurisprudence which is emerging between IP and competition law and this is a new
area of the course. As Niharika already said that our objective is only to give some basic
idea on the interplay between intellectual property and competition law.
So, we hope that this is going to be beneficial to all the students. And also we hope that
this is going to be in advance stage in sometime. And, we wish all the participants of this
course, all candidates of this course all the best for your remaining modules and also for
the exam.
So, thank you so very much.
All the best to you all. Thank you.
All the best to all of you. Thank you.
942
THIS BOOK IS NOT FOR SALE
NOR COMMERCIAL USE
(044) 2257 5905/08 nptel.ac.in swayam.gov.in

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INDEX

S. No Topic Page No.

(Refer Slide Time: 00:50)

We know that the concept of intellectual property law is very simple.

(Refer Slide Time: 00:59)

It actually says that it is a creation of human mind or an incentive for innovation or it is a

(Refer Slide Time: 02:48)

(Refer Slide Time: 03:35)

(Refer Slide Time: 06:07)

So, it is a recognition of scientific creativity. So that is why we can find number of

(Refer Slide Time: 06:54)

(Refer Slide Time: 07:59)

(Refer Slide Time: 09:18)

(Refer Slide Time: 10:29)

(Refer Slide Time: 11:24)

(Refer Slide Time: 13:26)

(Refer Slide Time: 14:24)

(Refer Slide Time: 14:47)

(Refer Slide Time: 15:12)

(Refer Slide Time: 17:24)

(Refer Slide Time: 18:06)

(Refer Slide Time: 18:55)

(Refer Slide Time: 19:28)

(Refer Slide Time: 19:53)

(Refer Slide Time: 20:07)

Will come to the prerequisites of the patentee.

So, if the mechanic; if it is a mechanical invention a mechanical engineer or a person,

(Refer Slide Time: 24:49)

(Refer Slide Time: 25:24)

(Refer Slide Time: 28:33)

(Refer Slide Time: 29:17)

(Refer Slide Time: 00:39)

(Refer Slide Time: 01:27)

(Refer Slide Time: 01:41)

(Refer Slide Time: 02:59)

(Refer Slide Time: 03:11)

(Refer Slide Time: 05:37)

(Refer Slide Time: 05:51)

(Refer Slide Time: 07:25)

(Refer Slide Time: 07:41)

(Refer Slide Time: 08:23)

(Refer Slide Time: 08:57)

(Refer Slide Time: 09:11)

(Refer Slide Time: 09:29)

(Refer Slide Time: 10:47)

(Refer Slide Time: 11:29)

(Refer Slide Time: 13:53)

(Refer Slide Time: 14:13)

(Refer Slide Time: 16:31)

So, trademark is a very important category of intellectual property to be protected

(Refer Slide Time: 17:17)

(Refer Slide Time: 00:48)

(Refer Slide Time: 01:50)

So why we should protect geographical indication? Most importantly geographical

(Refer Slide Time: 03:23)

(Refer Slide Time: 03:56)

The rice products

Another rice which is red in colour palakkadan matta

(Refer Slide Time: 04:03)

And the pepper the famous Malabar pepper

(Refer Slide Time: 04:13)

Then there is instrument which we can see is a manufactured products; maddalam.

And, then the brass products

(Refer Slide Time: 04:22)