Law

Intellectual Property
Intellectual Property and Competition Law: A
Primer

Development Team
Role Name Affiliation

Principal Investigator Professor (Dr.) Ranbir Singh Vice Chancellor,

National Law
University, Delhi
Paper Coordinator Mr. Yogesh Pai Assistant Professor of
Law, National Law
University, Delhi
Content Writer (CW) J. Sai Deepak Senior Associate, Sai
Krishna Associates
Content Reviewer (CR) Yogesh Pai Assistant Professor of
Law, National Law
University, Delhi
 Module Detail
Subject name Law

Paper name Intellectual Property

Module name/ Title Intellectual Property and Competition Law-a primer

Module ID Law/IP/#08

Pre- requisites Introduction to Intellectual Property; economics of IP and

competition law; competitive concerns related to patent
rights.
Objectives To understand the interplay between Intellectual Property &
Competition law.
To study the behavioral concerns arising out of IP Rights.
Principles of patent law.
Key words Patents, competition law, Intellectual Property, IP Rights,
co-relation of IP rights & competition laws .

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Introduction

Intellectual Property Rights are limited monopolies which, during their

term, prevent competitors of an IP owner from using the subject matter of
his right. Clearly the existence of the right, the manner of its exploitation
and market position of the IP owner have a bearing on competition in the
relevant market segment in which the owner and his competitors operate.
Consequently, Competition law has a significant role to play in regulating
market and behavioral concerns arising out of the existence and exercise of
IP rights. In the instant module, a brief analysis has been undertaken on
the interplay between intellectual property rights and competition law in
general, with a specific focus on the competitive concerns that patent
rights give rise to.

Learning Outcomes:
 To understand the need/ context of Patent Laws.
 To examine the implications of TRIPs & Competition Law on IP Rights
 To comprehensively study Abuse of Dominant Position in IP Rights
 To study in detail the concept of Standard Essential Patent
 To understand protections available to the patent licensee
 To explain the need for additional protections to patent holders apart
from infringement suits & counter claims
 To examine anti-trust investigation as another efficient method of
protection of IP rights.

1) TRIPS, Competition Law and Intellectual Property Rights

Article 40 of the TRIPS Agreement recognizes that certain licensing
practices or conditions relating to IPR are capable of having an adverse
effect on competition by creating barriers for transfer and dissemination of

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technology. With this view, the said provision of TRIPS permits Member
countries such as India, to identify specific licensing practices or
conditions which would constitute an abuse of IPR leading to an adverse
effect on competition in the relevant market. As part of this flexibility, a
Member country may prohibit anti-competitive practices including but not
limited to exclusive grant back conditions, conditions preventing
challenges to validity of IPR and coercive package licensing. It remains to
be seen whether the Competition Act 2002 and Indian IPR legislations are
consistent with India’s TRIPS obligations and adhere to the bounds of the
flexibility provided in Article 40.

On a perusal of the Competition Act 2002, it is pertinent to note that IPR

finds express mention in Section 3(5) and an implicit reference in Section
19(4) (g). The former is a provision which carves a limited exception to the
proscription laid down in Section 3. The latter is a provision which
mandates that in an enquiry undertaken with respect to alleged abuse of
dominance, the Competition Commission of India (CCI) shall have due
regard to the dominant position acquired by an enterprise as a result of a
statutory right/monopoly, which implicitly includes IPR.

Section 3 of the Competition Act forbids and renders void any agreement
which causes or is likely to cause an appreciable adverse effect on
competition within the territory of India. Sub-section (5) of Section 3
exempts from the scope of this general prohibition those
actions/transactions which have been taken/undertaken with a view to
restrain infringement of IPR, and when reasonable conditions are imposed
to prevent infringement. What is interesting to note is that this exception
extends to all forms of IPR except Protection of Plant Varieties and
Farmers’ Rights Act, 2001. It is unclear as to why this particular legislation

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was left out from the scope of the exception when the application of
Article 40 of TRIPS is not restricted to any form of IPR. Perhaps this
position needs to be revisited considering that there is further room for
exercise of flexibility under Article 40.

Coming back to Section 3 of the Competition Act, a cursory glance at the

provision could lead one to believe that the scope of the exception is
unduly broad and provides a carte blanche to IP owners. However, it is to
be pertinently noted that the scope of the said exception is limited to
prevention of infraction of IPR. Any condition which is imposed by an IP
owner on a third party to protect the former’s rights must pass muster on
the anvils of “reasonableness”, failing which the said exception shall cease
to be available to the IP owner. Such an approach strikes the necessary
balance between the legitimate right of an IP owner to impose reasonable
obligations on a third party with a view to secure his interest, and the
equally legitimate public interest in preventing abuse of IPR at the
expense of competitiveness of the market.

It would be banal to point out that what constitutes a “reasonable

condition” within the meaning of Section 3 (5) is a subjective analysis
which shall be guided by the factors enumerated in Section 19(3) of the
Competition Act. Critically, the exception provided for in Section 3(5) is
limited to Section 3 as is evident from the language of the provision itself.

Moving to Section 19 of the Competition Act, this provision enumerates

the factors that the CCI shall have regard to in inquiring into allegations
under Section 3 as well as Section 4. Sub-section (4) of Section 19 deals
with the latter. As stated earlier, sub-clause (g) of Section 19 (4) permits
the CCI to take cognizance of any position of dominance that an enterprise

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may enjoy by virtue of a statutory monopoly in its favour. The catholicism
of the provision ensures that it includes a statutory monopoly such as IPR.

Does this mean that every IP owner enjoys a dominant position in the
relevant segment of the market? Is such a scenario plausible? For instance,
in the realm of Standard Essential Patents (SEPs), it is conceivable that
every owner of an SEP holds the exclusive right of access to an “essential”
technology, the use of which in the absence of a license from the SEP
owner would constitute infringement. In such a situation, if there exist
multiple SEP owners on different aspects of the same technology, each
such owner could be said to enjoy a position of dominance since no player
in the relevant market segment can legally function without securing a
license from every such owner.

Consequently, the question as to whether or not the mere existence of a

statutory monopoly such as IPR gives rise to a dominant position, is
dependent on the subject-matter of the IPR, the nature and structure of the
market and other such factors.

2) Competition Act, 2002 and Patents Act, 1970

Patent litigation all over the world has gradually moved beyond its
standard template which typically involves suits for infringement,
counterclaims for patent invalidation or contractual disputes. Since the
conduct of warring parties has a bearing on competition and consumers,
competition law is gradually beginning to make its presence felt, even in
India in the context of patents. Although the Patents Act is typically
associated with patent grant and enforcement, Section 140 of the Act lists
those restrictive covenants whose presence in patent-related contracts is
forbidden for being unfair or discriminatory. The Section, among other
things, expressly proscribes any contractual provision that envisages

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exclusive grant-back or prevents challenges by a licensee to the validity of
a licensed patent or enables coercive package licensing by the
patentee/licensor. From the language of Section 140 of the Patents Act, it
is evident that the said provision is inspired from Article 40 of TRIPS. Of
relevance to the discussion is the fact that the presence of these restrictive
covenants in patent contracts/licenses could attract Section 4 of the
Competition Act, which deals with abuse of dominant position. In order
for the patentee to attract Section 4, it must first be evaluated as to whether
the patentee enjoys a position of dominance. In evaluating this, as stated
earlier, regard must be had to the factors enumerated in Section 19(4) of
the Competition Act.

The interplay between patents and competition law occurs in those

situations where the manner of patent exploitation and enforcement is
capable of having an adverse effect on the competition. For instance, a
patentee may be in a position to dictate license terms, including exorbitant
license fees, to others players in the market who seek access to his
proprietary technology. Such conduct is bound to attract the prohibition
under Section 4 of the Competition Act for abuse of dominant position.

However, does the Patents Act envisage a mechanism within its

framework to address such remedies? If yes, is there a conflict between the
Patents Act and the Competition Act?

It must be understood that the Patents Act does provide for mechanisms,
such as compulsory licensing under Section 84, to address issues relating
to the patentee’s behaviour which have a bearing on his obligations under
the Act. However, it does not provide a redressal mechanism to tackle
those aspects of the behaviour which affect market conditions adversely.

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Further, the Controller of Patents is not a market regulator or an anti-trust
watchdog. This is so because competition-related issues fall within the
domain of the Competition Commission. Even if it were to be assumed
that there exists a conflict of jurisdiction between the Controller under
Section 84 of the Patents Act and the Competition Act, Section 60 of the
latter must be given effect to since it categorically states that the
Competition Act shall prevail over any other legislation which is in
conflict with it.

Besides the issue of conflict, the other question that needs to be looked into
is whether an IP owner such as a patentee is expected to adhere to both
the Patents Act and the Competition Act in the event there is no conflict
between the two. To understand this, it is important to interpret Sections
60 and 62 of the Competition Act together. Reproduced below are the said
provisions:

60. Act to have overriding effect: The provisions of this Act shall have effect
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force.
62. Application of other laws not barred: The provisions of this Act shall be in
addition, and not in derogation of the provisions of any other law for the time
being in force.

While on one hand Section 60 proclaims the overriding effect of the

Competition Act over anything that is inconsistent with the Act, Section 62
states that the Act shall be in addition to, and not in derogation of other
laws. What this could mean is that so long as there is no inconsistency
between the Competition Act and other legislations such as the Patents
Act, both statutes shall apply simultaneously to the patentee. In the event

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the other legislation is inconsistent with or is in conflict with the
Competition Act, the latter shall prevail.

3) COMPETITION LAW AND STANDARD ESSENTIAL PATENTS

In the recent past, standard essential patent (SEP) litigation has come to
occupy centre stage given its implications for competition law. This is
because standard essential patents are a particular breed of patents which
differ significantly from normal patents in the manner in which they affect
third parties such as competitors and consumers.

If there exists a conflict of jurisdiction between the Controller under

Section 84 of the Patents Act and the Competition Act, Section 60 of the
latter must be given effect to since it categorically states that the
Competition Act shall prevail over any other legislation which is in
conflict with it.

For instance, Motorola claims that its patents cover video compression
standards and standards for Wireless Local Area Network (WLAN)
technologies. Therefore, according to Motorola, anyone who uses these
technology standards without the consent of Motorola infringes its SEPs
and is liable to pay royalty. It is evident that the treatment of a patent as
an SEP hands significant leverage to the patentee which is capable of being
abused to the detriment of market players and consumers.

In order to restrict the patentee’s ability to abuse his ownership of an SEP,

and to prevent him from extracting unreasonable amounts as royalty,
Standard Setting Organizations have evolved what is known as a FRAND
obligation, which casts a duty on the owner of an SEP to offer licenses to
interested parties on Fair, Reasonable and Non-discriminatory terms. The

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object of a FRAND framework is to strike a balance between the patentee’s
right to recover his investment in a manner which is proportionate to his
contribution to the technology, and the manifest public interest in
ensuring that adoption of technology standards and innovation are not
held hostage to the patentee’s greed.

A bird’s eye view of SEP litigation across jurisdictions would reveal that
there are two parallel tracks on which the litigation typically proceeds.
The first is a suit for infringement by an SEP owner against an existing or a
prospective licensee and the second is an anti-trust investigation by
competition regulators into alleged abuse of dominance by the SEP owner.
This is so because although the factum of ownership of a patent, including
an SEP, entitles the owner to sue for unauthorized use of his technology,
invariably the conduct of the SEP owner prior to the institution of the suit
and during its prosecution gives rise to competition concerns.

For instance, in stark contrast to a normal patentee’s legitimate entitlement

to injunctive/exclusionary remedies against alleged infringers, in the case
of an SEP, an owner’s access to such exclusionary measures is contingent
on satisfaction of several prerequisites by him in order to establish his bona
fides and the mala fides of the defendants. Should the owner of an SEP fail
to establish the satisfaction of such prerequisites, any attempt on his part
to invoke exclusionary measures, even in suit proceedings for
infringement legitimately instituted under the law, may amount to abuse
of dominance.

Competition regulators in Europe and US have taken the view that unless
the defendant in an SEP litigation shows no inclination or deliberately
evades securing a FRAND-compliant license from the SEP owner
(“unwilling licensee”), interim injunctions ought not to be granted against

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such a defendant since the grant of such an injunction would inevitably
lead to strengthening the bargaining position of an SEP owner vis a vis the
defendant with respect to the royalty payable by the latter. Simply stated,
the grant of an interim injunction would hasten the process of conclusion
of a license agreement in terms favourable to the SEP owner and to the
detriment of the defendant/licensee and consumers since the cost of the
transaction will have to be borne by the end consumers. Even going by the
principles of grant of an interim injunction in patent matters, an SEP
owner has an uphill task in establishing the need for an interim injunction
considering his claim is pecuniary in nature and hence not irreparable. In
other words, since the SEP owner’s claim is compensable by an award of
damages, should he succeed at trial, satisfaction of the requirements of
irreparable harm and balance of convenience in his favour at the interim
stage is bound to be onerous.

It must also be understood that in an SEP litigation, a defendant is not

precluded from challenging both the essentiality and validity of the
patents regardless of his status as an existing or a prospective licensee.
The mere factum of challenge to the essentiality and validity of the patent
does not ipso facto render the defendant an unwilling licensee, since a
potential licensee has the right to test the strength of the SEP owner’s
claims of essentiality and validity. This proposition flows from the fact
that it is illegal, in any license agreement for a patent, to include a clause
which prevents the licensee from challenging the validity of the licensed
patent.

Consequently, if it is permissible for an existing licensee to challenge the

validity of the licensed patent, it is all the more permissible for a
prospective licensee to test the validity of the patent before securing a

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license for it. A defendant would be an unwilling licensee only when he
refuses to secure a license for patents which have been adjudged valid and
essential, on terms which are decidedly FRAND compliant.

A defendant has enough and more remedies under the Competition Act
against an abusive SEP owner. In fact, the remedies provided for in
Sections 27 and 28 of the Competition Act provide a strong deterrent to
abusive behaviour since the reliefs include division of the abusive entity in
such a manner that it does not have the wherewithal to abuse its position.

Further, the reliefs also envisage transfer and creation of rights in favour
of third parties. Consequently, defendants in an SEP litigation would do
well to explore all available options under the Competition Act, in
addition to invoking the compulsory licensing mechanism under Section
84 of the Patents Act.

Conclusion:

It is to be understood that no IP right is absolute since every such right

comes with its attendant restrictions, not only under the legislation which
recognizes/grants the right, but also under the Competition Act.
Therefore, in evaluating the conduct of an IP holder, regard must
necessarily be had to the specific IP legislation and the Competition Act.

Importantly, the role of the Competition Commission in tempering the

exercise of IP rights must be taken cognizance of considering that the
mandate under the Competition Act is market-oriented and hence
comprehensive. Therefore, it is imperative to expeditiously resolve
perceived conflicts in jurisdiction between IP legislations and the

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Competition Act since such conflicts detract attention from actual issues
which are of consequence to market-players and consumers.

Further, despite the relatively nascent constitution of the Competition

Commission, it must endeavour to clarify and settle the position of the law
at every instance possible in order to minimize uncertainty in the
obligations of IP right holders and the rights of third parties. In doing so,
the Commission must evolve indigenous jurisprudence which is alive and
responsive to Indian circumstances/market conditions and legal
framework without seeking to mechanically import and apply principles
formulated abroad.

Ultimately, a robust competition regime is sine qua non to ensure that the
right balance is struck between incentivizing innovation and securing
public interest.

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 Points to Remember

 IP Rights are limited monopolies, for a limited term period.

 It prevents competitors of an IP owner from using the subject matter
of his right.
 Article 40 of TRIPS states that certain licensing practices or conditions
relating to IPR are capable of having an adverse effect on competition
by creating barriers for transfer and dissemination of technology.
 It is to be seen that IPR finds express mention in Section 3(5) and an
implicit reference in Section 19 (4) (g).
 With respect to alleged abuse of dominance, the Competition
Commission of India (CCI) shall have due regard to the dominant
position acquired by an enterprise as a result of a statutory
right/monopoly, which implicitly includes IPR.
 The Competition Act forbids and renders void any agreement which
causes or is likely to cause an appreciable adverse effect on
competition within the territory of India.
 Any condition which is imposed by an IP owner on a third party to
protect the former’s rights must pass muster on the anvils of
“reasonableness”, failing which the said exception provided to the IP
owners shall cease to be available to them.
 Section 140 of the Patents Act lists those restrictive covenants whose
presence in patent-related contracts is forbidden for being unfair or
discriminatory.
 When there exists a conflict of jurisdiction between the Controller
under Section 84 of the Patents Act and the Competition Act, Section
60 of the latter must be given effect to since it categorically states that
the Competition Act shall prevail over any other legislation which is
in conflict with it.

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Self-check Exercises

 Explain the relation between IP Rights & Competition Law.

 How does Competition Law curtail the Abuse of Dominant Position in IP Rights?
 In a conflict of Jurisdiction between the provisions of Patent Act & Competition Law ,
which law will have an overriding efffect & why ?
 What is the remedy for Abuse of IP Rights within the ramework of Competition Law?

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