DOMINANT POSITION & IPR: THE IMPLICATIONS OF SECTION 4A OF COMPETITION (AMENDMENT) BILL,2020
Updated: May 2, 2021
The Article has been authored by Abhishek Wadhawan, a student of third year at Gujarat National Law University, Gandhinagar.
Intellectual Property Rights and Competition Laws: The Indian Perspective
The Intellectual Property Law (“IPR Law”) and Competition Law are often seen in dichotomy to each other. While the objective of the IPR law is to provide protection to the rights of the inventors over their inventions, the objective of competition law is to ensure efficient competition in the market by avoiding anti-trust practices and the abuse of dominance. The IPR law tries to protect and reward the inventor and the competition law ensures better market access to the society which goes against the exclusivity provided to the inventors by the IPR law.
However, this dichotomy is predatory in nature and the IPR law and the competition law are now being reconciled with each other through legislations and the judicial decisions alike. The objective of IPR law is diverted from protecting the individual inventor to encouraging new inventions. Thus, the IPR law is now seen as a complementing feature of competition law policy.
In the context of Indian legislation, the Competition Act, 2002 also provides for a harmonious construction between IPR law and competition law. While Section 3 of the Competition Act, 2002 provides that no enterprise or association has the right to enter into any anti-competitive agreements, under Section 3(5) of the Competition Act, 2002, an IPR holder is protected even if he may enter into an anti-competitive agreement provided that he acts within the boundaries of his IPR rights. This blanket protection for the IPRs espouses from the rights of the IPRs to keep them protected and in isolation, for the purpose of development of innovation in the country.
The Indian jurisprudence on the relation between IPR law and competition law is further deliberated by the Indian courts in various judicial decisions. In Entertainment Network (India) Limited v. Super Cassette Industries Ltd, the Supreme Court of India noted that even when IPR holders have full monopoly over their inventions and innovations, the application of these rights are not absolute in nature. When the IPR holder uses his rights in such a manner that it harms the smooth functioning of the market and its competition, the judiciary should intervene. In Aamir Khan Productions Pvt. Ltd. v. Union of India, the High Court of Bombay had held that intellectual property rights are not absolute in nature and the Competition Commission of India (CCI) has the jurisdiction to hear the matters relating to the interface between IPR law and competition law. These decisions indeed reflect the proactive nature of the Indian judiciary for the purpose of harmonising the application of IPR law and competition law in India.
Introduction to the Competition (Amendment) Bill, 2020
The Ministry of Corporate Affairs came up with the Draft Competition (Amendment) Bill, 2020. Based on the Report of the Competition Law Review Committee’s recommendations submitted in July, 2019, the said Bill proposes many landmark amendments to the Competition Act, 2002, a few notable ones in relation to the present article being- widening of the scope of Section 3(4) of the Competition Act, 2002 and an extension of IPR Safe Harbour to dominant position cases.
Section 3(4) of the Competition Act, 2002 provides various types of arrangements in which the provision regarding anti-competitive practice can be applied by the Competition Commission of India or the Courts alike. The Competition (Amendment) Bill, 2020 proposes to include the term “any other agreement” so as to increase the ambit of the application of anti –competitive agreements which do not fall within any other categories as mentioned in Section 3(4) of the Competition Act, 2002.
As noted above, currently, the IPR Safe Harbour is applied in India only to cases related to anti-competitive practices. The Bill proposes to add Section 4A to the Competition Act, 2002 so as to extend the IPR Safe Harbour to the IPR holders in relation to the competition law even in cases of dominance of position. This additional provision is deemed to increase the protection of the rights of the IPR holders by protecting them from legal issues while exercising their legal intellectual property right holders in good faith and just manner.
Section 4A of Competition (Amendment) Bill, 2020: Boon or Bane?
The IPR Safe Harbour in relation to the cases of dominant power was not accorded to IPR holders under Section 3(5) of the Competition Act, 2005 as its implementation was only restricted to anticompetitive trade agreements. The Committee opined that within reasonable conditions and restrictions, the IPR holders should also be accorded protection for cases related to abuse of dominant position. It was believed that while the IPR holders were given protection against anti-competitive practices, there was no reason to not provide the IPR Safe Harbour in cases related to the abuse of dominant position as well.
In lieu of the recommendations of the Committee, the Competition (Amendment) Bill, 2020 provides for Section 4A which shall extend the application of the IPR Safe Harbour to IPR holders in cases related to abuse of dominant power as well.
However, since the government has released the draft Bill, the said section is being opposed by various industrialists on the grounds that this would give an unfettered right to the IPR holders to use their dominant position and would have a negative impact on the smooth functioning of the markets.
Taking note of the nascent stage of the developing competition law in India, it is pertinent to make reference to the international legal standards related to dominance position and IPR before making any conclusion regarding the implications of Section 4A of the Competition (Amendment) Bill, 2020. In the matter of Parke, Davis & Co. v. Probel, the European Court of Justice mentioned that though the grant of a patent to an inventor is not an unjust competitive practice, the use of the patent rights in an inappropriate manner can lead to exploitation of the smooth functioning of the markets as a whole. The Court indeed went on to observe that intellectual property rights are a valid point of consideration in cases related to dominant position. Further, in one of the most landmark case, Radio Telefis Eireann and Independent Television Publications Ltd. v. Commission of the European Communities, the Court observed that in certain exceptional circumstances, the intellectual property right holders may use their rights in such a manner that it leads to an abuse of dominant position. At the same time, a U.S. Court in the matter of Data General Corporation v. Grumman Systems Support Corporation, the Court rejected a business allegation of abuse of dominance on the grounds of a valid copyright of the subject matter with the defendant and hence the Court provided the IPR Safe Harbour to a IPR holder in relation to a case related to dominance of position.
Thus, in such situations, as could be concluded from the case laws discussed above, the Courts have at times allowed an IPR holder to get away from the allegations of dominant position in light of their intellectual property rights, but in some instances, the Courts have not entertained the overriding nature of the IPR law over the competition law. Thus, in the middle of such divergent views, the Ministry apparently seems to have taken the right decision to add Section 4A to the Competition Act, 2002 so as to give a clarity to the businesses that IPR holder can use the defence of his intellectual property in cases of abuse of dominant position.
However, at this juncture, it is important to note that the intellectual property rights are statutory rights and are not absolute in nature. This settled principle of law must be kept in mind by the Commission and other judicial bodies at the time of implementation of the IPR Safe Harbour in cases related to abuse of dominant position. Indeed, the Competition Law Review Committee has itself mentioned in its report that the application of the said IPR Safe Harbour in cases related to dominant position must be narrowly construed by the Judiciary and the Commission so as to ensure a proper balance between the objectives of the IPR law and the Competition law.
One of the most efficient ways to properly implement Section 4A of the Competition (Amendment) Bill, 2020 and to ensure an equilibrium between the IPR law and competition law is to follow the doctrine of exceptional circumstances as used in the famous Magill case. The doctrine as laid down in the Magill case provides that in cases where any of the following four factors are present, the intellectual property right holder will be deemed to have used unjust advantage of his dominant position
a. non-availability of a substitute product,
b. refusal to supply information led to hindrance in new product creation.,
c. refusal without any objective justification and/or
d. avoiding competition in another market and using such a secondary market for self-advantage.
Further, in Microsoft Corp. v Commission, it was held that the list of factors as provided in Magill case is not exhaustive and other factors may also be relevant for the application of the exceptional circumstances doctrine.
Thus, through the decision in the Microsoft case, the ambit of the doctrine of exceptional circumstances has been expanded and may be used by the Courts on the basis of the facts and circumstances of each matter. Indeed, by recognising that cases related to the interface of IPR and competition law may highly be based on the facts of the matter, the Committee had proposed to use the rule of reason, that is, base the decision on evaluation of the evidence of each case. Thus, if this doctrine is applied by the Commission or the Courts in India while dealing with cases related to Section 4A of the Competition (Amendment) Bill, 2020, reference and reliance may be placed on Section 19(4) (m) of the Competition Act, 2002 that enshrines the power on the Commission to look into any relevant factors for the purpose of determining the abuse of dominant position.
Conclusion: The Final Remark
With the introduction of Section 4A in the Competition (Amendment) Bill, 2020, the Ministry has in a positive manner cleared the dilemma that the IPR rights are a relevant consideration at the time of making decisions in relation to abuse of dominant power. However, the IPR holders should not be allowed to make an unfettered use of this apparent blanket provision as it would vitiate the objectives of the competition law. A holistic and harmonious implementation of the rule of reason, doctrine of exceptional circumstances and Section 4A of the Competition (Amendment) Bill, shall ensure a convergence of the objectives of IPR law and the competition law in a correct manner in the Indian jurisprudence.