INTRODUCTION

The relationship between intellectual property (IP) and disciplines regulating

competition has attracted growing attention, particularly as a result of the expansion
and strengthening of IP protection at the global scale. While IP law deliberately
subjects intellectual assets to the exclusive control of right owners, competition law
seeks to avoid market barriers and benefit consumers by encouraging competition
among a multiplicity of suppliers of goods, services and technologies. Dealing with
such a relationship poses unique analytical challenges to policy and Law makers.

Such challenges are particularly complex in developing countries, the majority

of which have little or no tradition in the application of competition law and policies.
In fact, in most of these countries IPRs have been broadened and strengthened in the
absence of an operative body of competition law, in contrast to developed countries
where the introduction of higher levels of IP protection has taken place in normative
contexts that provide strong defences against anti-competitive practices.
Competition law and Intellectual property rights have evolved historically as
two separate systems of law. Each has its own legislative goals and methods of
achieving those goals. There is considerable overlap in the goals of these two systems
of law because both are aimed at promoting innovation and economic growth. Yet
there are also potential conflicts owing to the means used by each system to promote
these goals. IP laws generally offer a right of exclusive use and exploitation to
provide an incentive to other innovators and to bring into the public domain
innovative information that might otherwise remain a trade secret. Competition
authorities regulate near monopolies, mergers and commercial agreements with the
aim of maintaining effective competition in the markets. This regulation occasionally
results in limits being placed on the free exercise of the exclusive rights granted by IP
laws.

Competition policy as opposed to competition law has important implication for the
analysis of the interactions with IP policies. Two such implications are of particular
relevance. First, different state agencies may assume important pro-competition roles,
independently of the interventions by specific competition law-enforcing agencies,
 Introduction

where they exist. Second, such roles are relevant not only with regard to competitive
distortions introduced by various government bodies but also by private entities.

The analysis of the relationship between IP and competition disciplines may

be limited to the interactions between laws relating to the acquisition and exercise of
IP, on the one hand, and competition law on the other. However, this perspective
ignores the impact of a number of regulations linked to the acquisition and exercise of
IPRs that directly influence market entry and contestability. This broad set of
regulations integrates what may be called a country’s “competition policy”. They
include, for instance, regulations dealing with the marketing approval of
pharmaceuticals and agrochemicals, inter-firm mobility of personnel, standard setting,
and other measures and policies applicable in sectors where IP is significant in
determining relationships among competitors.

The study of competition policy, as defined, requires the consideration of

various forms of state interventions affecting the acquisition and use of IPRs.
Although competition law can be an important instrument to limit the harmful effects
of IPRs, most developing countries do not apply such laws to correct anti-competitive
uses of IPRs, due to the lack of legislation, weak implementation or absence of
policies to deal with the IP-competition relationship. Hence, a broader competition
policy approach may be particularly useful in developing countries to ensure a pro-
competitive use of IPRs.

Competition policy can succinctly be defined as those government measures

that directly affect the behaviour of enterprises and the structure of industry. The
objective of competition policy is to promote efficiency and maximise welfare.
Competition policy essentially comprises two elements: the first involves putting in
place a set of policies that promotes competition in local and national markets, which
includes a liberalised trade policy, openness to foreign investments and economic
deregulation; and the second comprises legislation, judicial decisions and regulations
specifically aimed at preventing anti-competitive business practices and unnecessary
government interventions, avoiding concentration and abuse of market power and
thus preserving the competitive structure of markets. This element is referred to as
competition/antitrust law.

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A well designed and effective competition law is likely to promote the

creation of an enabling business environment, which improves static and dynamic
efficiency, and leads to efficient resource allocation in which the abuse of market
power is prevented by stimulating competition. In addition, competition law prevents
artificial entry barriers, facilitates market access and compliments other competition-
promoting activities.

A definition of IPRs says; they are a composite of ideas, inventions and

creative expressions plus the public willingness to bestow the status of property on
them. As in the case of tangible property, IPRs give their owners the right to exclude
others from access to or use of protected subject matter for a limited period of time,
and subsequently the right to license others to exploit the innovations when they
themselves are not well situated to engage in large-scale commercial exploitation.

The main legal instruments for protecting IPRs are patents, copyright (and
neighbouring rights), industrial designs, geographical indications (GIs), trade secrets
and trademarks. Special sui generis forms of protection have also emerged, which
addresses the specific needs of knowledge-producers, for example, utility models,
plant breeder’s rights, and integrated circuits rights. Moreover, many countries
enforce trade secret laws to protect undisclosed information that gives a competitive
advantage to its owner. These legal instruments are just one of the pieces that form a
national system of intellectual property (IP) protection. The institutions in charge of
administering the IPRs system, as well as the mechanism available for enforcing these
rights, are other crucial elements of the systems overall effectiveness.

The conventional economic rationale for IPRs protection is that they promote
innovation, including its dissemination and commercialization by establishing
enforceable property rights for creators of new and useful products; ensuring more
efficient processes and original work of expression; and preventing rapid imitation
from reducing the commercial value of innovation and eroding incentives to invest to
the detriment of consumers. This rationale is typically used to explain the economics
of patents and copyright laws. With respect to trademarks and industrial designs, the
basis for protection is frequently framed in terms of incentives for investments in
reputation (quality) rather than innovation per se. Trade secrets, in turn, are

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rationalized as a necessary supplement to the patent system, with the main positive
role being to foster .sub-patentable. or incremental innovations.

IPRs and competition laws have substantial interface in their regulation of

various issues of the business world. Briefly, their interface can be seen from two
main perspectives: (i) the impact of IPRs in shaping the disciplines of competition
law; and (ii) the application of competition law on the post grant use of IPRs. IPRs
policy can exert some restrictions on a pure prohibition of horizontal and vertical
restraints by competition law, usually as an exemption. Competition laws of most
countries often expressly or implicitly reserves its application on owners of exclusive
rights (recipients of intellectual property protection granted by the State).

On the other hand, IPRs are fully subject to general antitrust principles
because what is conferred upon its owner is precisely that autonomy of decision in
competition and freedom of contracting according to individual preferences those
results from any private property, no matter tangible or intangible, and that is the
object of and connecting factor for restraints of competition. Competition law, thus,
while having no impact on the very existence of IPRs, operates to contain the exercise
of the property rights within the proper bounds and limits which are inherent in the
exclusivity acquired by the ownership of intellectual assets. Broadly, IPRs-related
competition issues include:

• Exclusionary terms in the licensing of IPRs, specifically the inclusion in

licensing contracts of restrictive clauses such as territorial restraints, exclusive
dealing arrangements, tying or grant-back requirements;
• Use of IPRs to reinforce or extend the abuse of dominant position on the
market, unlawfully;
• IPRs as an element of mergers and cooperative arrangements; and
• Refusal to deal.
• Parallel Imports
• Compulsory Licenses
• Technology Transfer, etc.

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The incidence of IPRs-related anticompetitive practices can be treated as a ground

for granting a compulsory licence, the licence awarded by the State over a specific IP
without the willingness of the IP holder. This is a common practice in both the
developed and the developing worlds. Besides, competition concerns may also be
raised when the holders of IPRs resort to prevent parallel imports (i.e., goods brought
into a country without the authorisation of the patent, trademark or copyright holders
after those goods were placed legitimately into the circulation elsewhere). Many
competition authorities might be concerned to the extent that restrictions on parallel
imports increase the rents flowing to right owners; not to say other potential anti-
competitive effects of their market power. Compulsory license and parallel imports,
however, remain debatable issues which lie on the delicate interface between IPRs
policy and competition rules.

The development of proper frameworks to address the IPRs/competition interface

has been given considerable importance in many national jurisdictions, especially
developed countries. The situation in India, however, is rather less optimistic, due to
their level of economic development, the scope and implementation of the laws as
well as other specific local factors.

Competition law and Intellectual Property Rights (IPRs) policies are bound
together by the economics of innovation and an intricate web of legal rules that seek
to balance the scope and effect of each policy. IPRs protection is a policy tool meant
to foster innovation, which benefits consumers through the development of new and
improved goods and services, and spurs economic growth. It bestows on innovators
the rights to legitimately exclude, for a limited period of time, other parties from the
benefits arising from new knowledge, and more specifically from the commercial use
of innovative products and processes based on that new knowledge. In other words,
innovators or IPRs holders are rewarded with a temporary monopoly by the law to
recoup the costs incurred in the research and innovation process. As a result, IPRs
holders earn rightful and reasonable profits, so that they have incentives to engage in
further innovation.

Competition law, on the other hand, has always been regarded by most as
essential a mechanism in curbing market distortions, disciplining anticompetitive

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practices, preventing monopoly and abuse of monopoly, inducing optimum allocation

of resources and benefiting consumers with fair prices, wider choices and better
qualities. It, therefore, ensures that the monopolistic power associated with IPRs is not
excessively compounded or leveraged and extended to the detriment of competition.
Besides, while seeking to protect competition and the competitive process, which, in
turn, prods innovators to be the first in the market with a new product or service at a
price and quality that consumers want, competition law underscores the importance of
stimulating innovation as a competitive input, and thus also works to enhance
consumer welfare.

Indeed, the relationship between IPRs and competition law has been a complex
and widely debated one. It is not just one of balances between conflicting or
complementary systems/principles, but also one of different levels of market
regulation1 as well. Errors or systematic biases in the interpretation or application of
one policy rules can harm the other policy effectiveness. A challenge for both policies
is to find the proper balance of competition and innovation protection.

IP Laws can exert some restrictions on a pure prohibition of horizontal and

vertical restraints by competition law, usually as an exemption. Economic rationale
dictates that general antirust principles nowadays must frequently give way to
considerations like transaction cost minimization or precompetitive cooperation
whenever IP is central to collective arrangements or joint ventures on product
markets.

In this respect, IP Laws acts as an institutional regulatory framework for the

proper operation of markets for intangible subject matter, and is therefore exempt
from antitrust control. Competition laws of most countries, therefore, expressly or
implicitly exempt from their application the exclusive rights inherent in IP protection
granted by the state, which are considered to justify restrictions that would otherwise
be subject to antitrust scrutiny.

Meanwhile, the US law requires a rule-of-reason standard to be applied to all

antitrust actions concerning patent, know-how or copyright licensing; specifically
expressed in antitrust analysis of horizontal or vertical restraints. The US DoJ
published its Vertical Restraints Guidelines in 1985, which state that:

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These Guidelines do not apply to restrictions in licences of intellectual

property (e.g. patent, a copyright, trade secret, and know-how). Such restrictions often
are essential to ensure that new technology realises its maximum legitimate return and
benefits consumers as quickly and efficiently as possible. Moreover, intellectual
property licences often involve the co-ordination of complementary, not competing,
inputs. Thus, a rule of reason analysis is appropriate. Unless restrictions in intellectual
property licences involve naked restraints of trade unrelated to development of the
intellectual property, or are used to co-ordinate a cartel among the owners of
competing intellectual properties, or suppress the creation of development of
competing intellectual properties, the restrictions should not be condemned. However,
because the anti-competitive risks and the pro-competitive benefits of restrictions in
licences are somewhat different from the potential of typical vertical restraints, the
rule of reason analysis may also differ from (and be even more lenient than) that set
out in these Guidelines.

The Monopolies and Restrictive Trade Practices (MRTP) Act of India

exempted from its purview of application any monopolistic or restrictive trade
practice necessary to safeguard the rights of patentees under the Indian patents Act
with regard to certain infringements and conditions that may be laid down in the
licence (s) (section 15(a) & (b)). The Competition Act 2002 of India, under section
3(5), declares that its provisions will not restrict .the right of any person to restrain
any infringement of, or to impose reasonable conditions, as may be necessary for
protecting any of his rights which have been or may be conferred upon him under: (a)
the Copyright Act, 1957 (14 of 1957); (b) the Patents Act, 1970 (39 of 1970); (c) the
Trade Marks Act, 1999 (47 of 1999); (d) the Geographical Indications of Goods
(Registration and Protection) Act, 1999 (48 of 1999); (e) the Designs Act, 2000 (16 of
2000); (f) the Semiconductor Integrated Circuits Layout-design Act, 2000 (37 of
2000).

The relationship between IP and competition has not gone unnoticed in the
global scenario. As early as the 1948 Havana Charter for the International Trade
Organisation, imposed an obligation that Members prevent restraint on competition
and cooperate with the Organisation on such restraints. While between the 1960s and

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1980s, there was considerable discussion regarding the relationship between IPRs,
transfer of technology and competition, in 1980, the United Nations General
Assembly, adopted a resolution called the ‘Set of Multilaterally Agreed Equitable
Principles and Rules for the Control of Restrictive Business Practices’ containing
rules relating to abusive practices in the field of IPRs.

The TRIPs Agreement also contains certain safeguards in this regard and the
guiding principles are that firstly there is reservation of IPR-related competition
policy to national determination. Secondly there is a requirement of consistency
between national IPR-related competition policy and the TRIPs Agreement’s
principles of IP protection. Thirdly there is a concern to primarily target practices
restricting the dissemination of protected technologies.

Members have the right to act against the abuse of IPRs provided that such
action is consistent with the provisions of the Agreement.

Further compulsory license is available as a remedy to correct the abuse of

patents. In addition, fines and injunctions may also be sought. There is also discretion
available to the Members to specify abusive intellectual property practices in their
respective state legislations. Thus Member-states have substantial discretion under the
TRIPS in the development and application of competition law to the arrangements
and conduct in the field of IP.

The Anti-Competitive Guidelines for Licensing of Intellectual Property set

forth three guiding principles which are taken together to affirm the legitimacy of a
wide variety of intellectual property licensing terms and arrangements. Firstly, for the
purpose of anti-trust analysis, intellectual property is essentially comparable to any
other form of property; secondly, intellectual property rights are not presumed to
create market power for the purposes of anti-trust analysis and thirdly, intellectual
property licensing is generally pro-competitive as it allows firms to combine
complementary factors of production.

The Raghavan Committee made propositions regarding conflict between IPR

and Competition laws, “5.1-7 all forms of intellectual property have the potential to
raise competition policy/law problems. Intellectual property provides exclusive rights

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to the holders to perform a productive or commercial activity, but this does not
include the right to exert restrictive or monopoly power in a market or society.
Undoubtedly, it is desirable that in the interest of human creativity, which needs to be
encouraged and rewarded, intellectual property right needs to be provided. This right
enables the holder (creator) to prevent others from using his/her inventions, designs or
other creations. But at the same time, there is need to curb and prevent anti-
competition behaviour that may surface in the exercise of the intellectual property.

There is, in some cases, a dichotomy between intellectual property rights

and competition policy/law. The former endangers competition while the latter
engenders competition. There is a need to appreciate the distinction between the
existence of a right and its exercise. During the exercise of a right, if any anti-
competitive trade practice or conduct is visible to the detriment of consumer interest
or public interest, it ought to be assailed under the competition policy/law.

In order to deal with such a problem, the Competition Act incorporates a

blanket exception for IPRs under Section 3(5) of the Act, based on the rationale that
IPRs deserve to be cocooned since a failure to do so would disturb the all-important
incentive for innovation, which, itself, would have knock-on effects in terms of a lack
of technological innovation and reflect a lack of quality in goods and services
produced. However, equally, it does draw the line inasmuch as it does not permit
unreasonable conditions to be passed off under the guise of protecting IPRs.

However, this manifestation of Section 3(5) is far removed from the original
recognition given by the High Level Committee to the fact that all forms of IPRs have
the potential to raise competition policy problems, in effect recognizing the
existence/exercise distinction.

That apart, it has no mention of exhaustion, parallel importation or

compulsory licensing. Owing to the blanket exemption under Section 3(5), the square
peg of any anticompetitive practice tethered to the use of IPRs must now be brought
through the round hole of “abuse of dominant position” under Section 4.

In order to combat, IPR monopolies anti-competition laws often include two

major measures like parallel imports and compulsory licensing. A compulsory license

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is where an IPR holder is authorized by the state to surrender his exclusive right over
the intellectual property, under the provisions of TRIPs. A parallel import includes
goods which are brought into the country without the authorization of the appropriate
IP holder and are placed legitimately into a market.

The Indian competition law, namely, the Competition Act, 2002, as amended
by the Competition (Amendment) Act, 2007, (the Act) deals with applicability of
section 3 prohibition relating to anti-competitive agreements to IPRs. An express
provision [section 3 sub section (5)] is incorporated in the Act that reasonable
conditions as may be necessary for protecting IPRs during their exercise would not
fall within the bundle of rights that normally form a part of IPRs would be covered
under section 3 of the Act.

The right of any person to restrain any infringement of, or to impose

reasonable conditions, as may be necessary for protecting any of his rights which have
been or may be conferred upon him under:-

(a) the Copyright Act, 1957 (14 of 1957);

(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 o 1958) or the Trade Marks
Act, 1999 (47 to 1999);
(d) the Geographical Indications of Goods (registration and protection) Act, 1999
(48) of 1999;
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000).

An enterprise, which enjoys dominant position by virtue of the IPR, if it engages

in conduct considered to the abuse in terms of section 4, shall not enjoy any
immunity. These abuses in terms of section are:

(i) directly or indirectly, imposes unfair or discriminatory condition or price;

(ii) limiting or restricting production of goods or provision of services or
market
(iii) limiting or restricting technical or scientific development to the prejudice
or consumes;

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(iv) denies market access in any manner;

(v) makes conclusion of contracts subject to acceptance by other parties of
supplementary obligation which, by their nature or according to
commercial usage, have no connection with the subjects of such contracts
(vi) uses its dominant position in one relevant market to enter into, or protect,
other relevant market.

Section 3 sub section (5) of the Act declares that “reasonable conditions as may be
necessary for protecting” any IPR will not attract section 3. The expression
“reasonable conditions” have not been defined unreasonable conditions that attach to
an IPR will attract section 3. In other words, licensing arrangements likely to affect
adversely the process, quantities, quality or varieties of goods and services will fall
within the contours of competition law as long as they are not reasonable with
reference to the bundle of rights that go with IPRs.
The Act was part of the India’s economic reform and globalization process which
necessitate aligning the economic laws of the country with the new economic
scenario. The reasons for enacting this new law are reflected in the statements of
objects and reasons of the Act. In general, the aim and objective of the competition
law is to prevent practices having adverse effect on the competition, to promote and
sustain a healthy competition in the market, to protect the interest of the consumers or
potential users and to ensure freedom of trade and commerce. And in a specific way,
the competition Act, 2002 prohibits or regulates three kinds of activities namely anti-
competitive agreements, abuse of dominance (or monopolization), and anti-
competitive mergers.

In the light of foregoing matters the present research work undertakes an

analytical study of the legal implications arising out of the conjunction of Competition
law and Intellectual Property Rights. The study is focused on various aspects of IPRs
issues dealing with the existing Competition law of India. For the purpose of the
present research work implication means the challenges posed by IPRs before the
existing competition law as well as its wide range of effects on the various
stakeholder such as IPRs owners, consumers and public at large on one hand and
innovation, diffusion of knowledge, dynamic efficiency, investment, research and

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development, free and fair competition, and freedom of trade and commerce on the
other hand.

Objectives of the study:

• To examine in general the legal framework of the competition law of India

and its implications on intellectual property rights at various levels and
aspects.
• To examine the relevancy and capability of competition law in handling the
existing and possible IPR issues and practices such as licensing, patent pool,
parallel imports, refusal to deal cases, technology transfer, mergers and
cooperative arrangements etc.
• To make a comparative study of anti-trust laws and practices relating to IPRs
in the United states, European union, United kingdom and India in order to
collate the common issues of interface and differences.
• To examine the experiences of a number of countries in grappling with the
problems of reconciling the two systems and dealing with interface issues.
• To study and analyze the flexibility allowed by TRIPs agreement to determine
the grounds for granting compulsory licenses to remedy anti-competitive
practices relating to IPRs.
• To analyze the Essential Facilities Doctrine as required to address situations of
control of essential technologies, taking into account the relevant market
conditions and public needs.

Hypothesis:

i. The unique and specific challenges posed by IPRs are not adequately
addressed by the existing competition law in India.
ii. The mere adoption of a competition law is a necessary but not sufficient
condition for it to be a part of market reform.

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Research Questions:

i. To what extent and on what basis the competition authorities and the
courts have authority to limit the exercise of intellectual property rights.
ii. If the IPRs are granted by laws which have their own elaborate system of
checks and balances, why is it necessary for competition law to add a
second layer of legal regulation to the exercise of IPRs.
iii. To what extent do legislation and judicial decisions support the
competition authorities in the view that the role of the competition
authorities is a form of public law regulation while the exercise of an IPR
is essentially the exercise of a private property rights.
iv. To what extent could and should the various IPR laws themselves, the
Patent, Copy right, Trade Marks and Design laws be reformed in order to
reduce the extent of the ‘external’ regulatory role now played by
competition law.
v. What is and what would be the most appropriate relationship between
competition law and IPRs in a growing industrial economy.

Purpose of the Study:

The purpose of the study is not to arrive at a definite model of reconciliation between
the two systems of legal regulation or even recommend a ‘best practice’; rather attempt has
been made to make this fact clear that each system must determine and respect its own
appropriate accommodation.

Research Methodology:

An analytical approach of the study has been adopted to test the theoretical premise of
the thesis. The nature of the study is interdisciplinary, which focuses upon the relationship
between law and technology. Under this, attempt has been made to use facts and information
already available and analyze them to make a critical evaluation of the problem. While
analyzing specific controversial issues, which often arise, conceptual methodology has been
adopted which is generally used to develop new norms or to re-interpret existing ones.

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Framework of the Study:

The present study is divided into five chapters along with introduction and
conclusion part as well.

The “Introduction” part of the thesis draws attention towards the general
conception of competition law, the Intellectual Property Rights and their inter-
relationship with each other. Along with this, the part introduces the statement of the
problem; the scope of the study; the objectives; the hypothesis; the research questions;
the purpose of the study; the methodology of the research and the framework of the
study as well.

Chapter first entitled as “Evolution, Concept and Justification for the

Development of Competition Law in India”. This chapter is devoted to the origin
and development of the Indian competition law in its historical perspective; its
relevancy, its importance and justification alongwith a discussion of International
anti-trust law approach. Secondly attention has been given to explain and discuss the
salient features and special characteristics which has due relevancy as per the
requirement of the study as well.

Chapter second entitled as “Interfacing issues between Competition Law and

Intellectual Property Rights”. Under this chapter, emphasis has been given to the
general conception of competition law and competition policy; IP law and IP policy;
meaning of the interface between competition law and intellectual property rights;
rationale for the protection of intellectual property rights; rationale for the
competition law regulation of various IPRs related competition issues such as refusal
to deal, compulsory licenses, patent pool, parallel imports, technology transfer,
essential facilities doctrine etc; and current Indian scenario on the interface as well.

Chapter Third entitled as “Comparative Study of Interfacing

Jurisprudence”. Under this chapter attention has been given to analyze the anti-trust
law approach and practices relating to IPRs exclusively in US, EU, UK and India in
order to find out the common issues of the interface and differences. Apart from it a
critical evaluation has been conducted in relation to the experiences of the said

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jurisdictions in grappling with the problems of reconciling the two systems and
dealing with interface disputes.

Chapter Fourth entitled as “Economic Approach of the Interface”. Under

this chapter attempt has been made in analyzing the different and the dynamic role
played by the intellectual property rights such as intellectual property rights as an
instrument of development; intellectual property rights as human rights; the concept
of economic efficiency and property rights and their applications on the various
branches of intellectual property rights such as patents, copy rights, trade marks,
geographical indications etc.

Chapter Fifth entitled as “Related Provisions and Procedures Under TRIPs”.

Under this chapter various Articles such as Article 7, Article 8(2), Article 40, Article
6 and article 31 of the Trade Related Aspects of Intellectual Property Rights (TRIPs)
and which has the relevancy with competition issues has been discussed and analyzed
in its full length and depth. Further the chapter tries to justify the need of a
competition agreement under the TRIPs agreement as well as the need of an
international discipline on competition law. Along with this, under the ‘Indian
scenario of the interface’ heads of this chapter, attempt has been made to make clear
the Indian stand on the interface between competition law and intellectual property
rights in the light of Indian practice to handle and address the situations of such
interface cases.

And finally last part of the study which is entitled as “Conclusion and
Suggestions”, the concluding observations and possible submissions of the research
work are surfaced out as well.



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