IPR: Intellectual Property Rights and Competition Law

KeyNotes on IPR Article at end 

1. Introduction to Intellectual Property and Competition Law: 

Explores the global and Indian relationship between intellectual property (IP) and competition law, focusing on the balance between IP rights and the prevention of anti-competitive practices.

2. Refusal to License and Anti-Competitiveness: 

Discusses how refusing to license IP rights could be seen as anti-competitive, alongside topics like the Essential Facilities doctrine, exhaustion of rights, promotion of innovation through open source, and IP protection under India's Competition Act, 2002.

3. Competition Law Overview: 

Outlines competition law's role in preventing anti-competitive agreements and practices across jurisdictions, emphasizing the balance between granting exclusive rights through IP law and preventing abuse of dominance through competition law.

4. Complexities of IP in the Modern Age:

 Highlights the challenges in managing IP rights amid increasing creative works and the internet's role, stressing competition law's aim to ensure reasonable access to proprietary information for the benefit of consumers.

5. IP Licensing and Competition: 

Examines how the unilateral refusal to license IP rights, particularly patents, is addressed in various countries, potentially leading to compulsory licensing to mitigate monopolization and promote competition.

6. Open Source and Innovation: 

Discusses the role of open source in fostering innovation, questioning the impact of software patents on R&D and exploring the tension between open source and proprietary IP in market dynamics.

7. Specific Cases and Legal Principles:

 Provides examples of legal cases and principles from different jurisdictions that illustrate the interaction between IP rights and competition law, including the application of the essential facilities doctrine and compulsory licensing.

8. Competition Law in India: 

Summarizes key provisions of the Indian Competition Act, 2002, highlighting its approach to anti-competitive agreements, abuse of dominant position, and regulation of mergers and acquisitions, as well as its acknowledgment of IPRs.

9. IPRs and Competition Law in India:

 Details how the Indian Competition Act recognizes IPRs and attempts to balance IP-generated market power with the promotion of competition, noting the provisions for compulsory licensing under the Indian Patents Act.

10. Implementation and Impact of Indian Competition Law: 

Reflects on the practical implementation and utilization of the Indian Competition Act since its inception in 2003, considering its ambitious mandate to promote competition and protect consumer interests in India.

Article on Intellectual Property Rights and Competition Law

The objective of this paper is to increase understanding of the relationship between intellectual property (IP) and competition law globally and in Indian scenario. The paper verbiages all its statements, in its grammatical variations and cogent form, relates to IP Rights and Assets.

This paper seeks to discuss the extent to which the refusal to license an intellectual property right to a third party may be deemed anti- competitive. While the journey continues, we will also deal with (a) doctrine of Essential Facilities, (b) principle of exhaustion of rights, (c) use of open source to promote innovation and lastly (d) Intellectual Property Rights to the extent protected under Competition Act, 2002 in India

Competition law prohibits anti-competitive agreements and practices. The competition law adopted and prevailing in various jurisdictions like US, UK, Australia, Canada India etc, such agreements are declared void preserving the provisions severable. In context of IP Assets(IPA), IP Law deliberates to give exclusive rights and control to owners whereas competition law bounds the influenza of monopolistic nature and overconcentration of power resulting into abuse of dominancy by regulating and monitoring the practice like bid rigging, abuse of dominancy and controlling the merger and acquisition. In general, Competition law avoids market barriers and benefit consumers by encouraging competition among a multiplicity of suppliers of goods, services and technologies and works towards building a free market environment.

In present time, understanding of IP is indispensable, as there are too many derivative and creative works happening around the knowledgebase(especially after use of internet and search engines) with easy access to information and knowledgebase resulting into amalgamated and innovative IP and inventions increasing burden of IP organization to register or recognize such IP as patents, copyrights, trademarks, industrial designs, etc making issues more complex and non-compoundable. While complexity of usage of IP exists, the Competition law works to give reasonable access to the proprietary information to enable the competitors, to compete on the reasonable grounds for the interest of customers. Competition law may, in particular, address situations in which IP is used to charge excessive prices for or prevent access to protected technologies. Competition provides a strong incentive for developing new technologies in certain fields. In cases where IPRs are granted, governments or regulatory body or Commission office do adopt measures to mitigate the monopolization of technologies and promote competition.

In developed and developing countries, the unilateral refusal to license a patent, generally known as “refusal to deal”, is considered grounds for granting a compulsory license under various national laws. There is no infinity period of protection on copyrighted materials. In certain IP cases there are conditions imposed limiting the ownership rights by allowing access to such IP to remove monopoly and enable competition. The possibility of allowing third parties to use IPRs in cases of refusal to deal has also been considered in some countries under competition law by application of doctrine of “essential facilities”. This doctrine generally applies when one firm, which controls an essential facility, denies a second firm reasonable access to a product or service that the second firm must obtain in order to compete with the first.

Under European Community law, an “essential facility” may include an intellectual property right. An IPR holder is not entitled to exclude competitors from the use of his/her rights when a license is essential for competition, such as where the refusal to license prevents the introduction of a new product or allows the intellectual property holder to monopolize a secondary market.

In the area of software, non-appropriation mechanisms, such as “open source” schemes, have proven to promote a vibrant process of innovation. Some recent studies indicate that software patents are not associated with increased research and development, but rather those firms that increased patenting in software are showing a trend of reducing their research and development expenditures. In various IP Laws, patenting of source code are not allowed at all, making it difficult to capitalize the ownership of source code, except in the form of the patterns, undisclosed business studies and research, designs, etc. The software on which the Internet runs is largely open source. Should the competition law makers take advantage of open sources to enable competition and bring proprietary information into public domain to make service based markets instead of IP based markets? Is open source a threat to revenue of IP developing companies? In my view, with drastic change in technology, such change is foreseeable and inevitable. The current trends shows shift of customers expectation from IP based model to service based models, like SAAS, Cloud Computing, etc, which is to bring common length customers under the same technology roof which serves to protect the interest of customers at large and serves legislated purpose of the competition law. It is believed that such change will promote more innovation and improve the performance of the unaltered or unexplored strength of IP Assets. By use of open source, customer waives its legal right to claim damages arising out of, or legal injury due to, infringement of IP or warranty liability and also waives it inherited legal right to get uninterrupted maintenance of the IP Assets pursuant to license. While the above move seems to benefit the society at large with expectation that open source will encourage creativity and innovation and bring the unexplored and undiscovered IP under open pool but there is no guarantee of it continuity in real sense. While, the struggle of existence of open source vis-à-vis proprietary source continues, the IP based company will certainly continue losing the IP revenue generated from proprietary incorporeal assets.

A key issue in establishing the relationship between intellectual property and competition law is the extent to which a third party may be authorized to use protected subject matter without the consent of the intellectual property right holder. In Tele-Direct case (1997) where it was alleged that selective refusals by the respondent to license its trademark constituted an abuse of its dominant position – that Tele-Direct’s refusal to license its trademarks fell squarely within its legal prerogative: “Inherent to the very nature of the right to license a trademark is the right for the owner of the trademark to determine whether or not, and to whom to grant a license; selectivity in licensing is fundamental to the rationale behind protecting trademarks.” However, intellectual property is not absolute and in some circumstances a third party may obtain access to and use the protected subject matter in order to compete in an otherwise monopolized market. Thus, the unilateral refusal to voluntary license a patent can be sufficient grounds for granting a compulsory license under some national patent laws.

In the United Kingdom, a compulsory license may be granted based on a refusal to deal provided that such refusal causes some specific effects, such as due to refusal to grant a license, hinders or prevents the working of any other patented invention which makes a substantial contribution, or, the establishment or development of commercial or industrial activities in the country is unfairly prejudiced (Section 48.3.d of the UK Patent Act, as revised in 1977)

In the case of copyrights, US courts have admitted to investigate the reasonableness of a refusal by a copyright’s owner to license his/her rights. While a refusal to license is presumed to be legal, in United States v. Microsoft, the district court held that “copyright does not give its holder immunity from laws of general applicability, including the antitrust laws.” The possibility of permitting third party use of IPRs in cases of refusal to deal has been considered in some countries under competition law in the context of the “essential facilities” doctrine. In a four-step test for determining whether access should be granted to a particular facility on the basis of the essential facilities doctrine:

(1) control of the essential facility by the monopolist;

(2) a competitor’s inability, practically or reasonably, to duplicate the essential facility;

(3) denial of the use of the facility to a competitor; and

(4) feasibility of providing the facility.

The anti-competitive effects of copyright protection of software, particularly of interfaces (which allow the inter-operability of different pieces of software or hardware) have been essential in several cases, notably involving the dominant software provider, Microsoft. The main concern in these cases has been the possible leveraging of the monopoly power enjoyed in one market to other markets through the control of interfaces. Thus, on 24 March 2004, the European Commission concluded, after a five-year investigation, that Microsoft Corporation broke European Union competition law by using its near monopoly in the market for operating systems (OS) for personal computers (PCs) to take over the markets for operating systems for work group servers and for media players. The Commission ordered Microsoft to disclose to competitors the interfaces required for their products to be able to communicate with the Windows OS and to offer a version of its Windows OS without Windows Media Player to PC manufacturers (or when selling directly to end users). In addition, Microsoft was fined Euro 497 million for abusing its market power in the EU.

Further, acquiring patent rights for frivolous developments or with overly broad claims can provide grounds for anti-competitive intervention even in jurisdictions where IP is essentially seen as compatible with competition law.

The relationship between competition law and trademark law was tested in a case decided in 2005 by the Canadian Supreme Court, where it examined whether trademark rights relating to LEGO blocks could be extended on functional features, such as the geometrical pattern of raised studs on the top of the bricks. The last of LEGO’s Canadian patents on its blocks had expired in 1988. The Court held that “Trademark law should not be used to perpetuate monopoly rights enjoyed under now expired patents… The fact is... that the monopoly on the bricks is over and Mega Blocks and Lego bricks may be interchangeable in the bins of the playrooms of the nation – dragons, castles and knights may be designed with them, without any distinction.”

The principle of “exhaustion of rights” was extensively developed in the framework of European integration in order to avoid the fragmentation of markets and the exercise of discriminatory pricing by titleholders within the Community. It has been incorporated, with an international reach, in many national laws. However, WTO Members are free to establish a different solution and partially or totally ban parallel imports. This is the policy adopted in many developed and some developing countries.

Competition law – Indian Overview

· It prohibits anti-competitive agreements (including cartels) which determine prices, limit or control or share markets, or resort to bid rigging, etc. (Section 3)

· It prohibits abuse of dominant position through unfair or discriminatory prices or conditions (including predatory pricing), limiting or restricting production or development, denying market access, etc., (Section 4)

· It regulates combinations, (i.e., mergers, acquisitions, etc.) that cause or are likely to cause an appreciable adverse effect on competition. (Section 5 & 6)

· In addition, the Act gives the Commission the responsibility of undertaking competition advocacy, awareness and training about competition issues.

Intellectual Property Rights and Competition Law

· The Indian Competition Act, 2002 recognizes the importance of IPRs such as patents, copyrights, trademarks, geographical indications, industrial designs and integrated circuit designs. While Section-3 prohibits anti-competitive agreements, sub-section (5) thereof says that this prohibition shall 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” enjoyed under the statutes relating to the above mentioned IPRs.

· IPR creates market power and restricts competition whereas competition law engenders it

· IPR laws recognize that the protection cannot be for an indefinite period, as after sometime it should be available to the wider public and enterprise world in the general interest

· In the Indian Patents Act, a compulsory license may be sought after three years of the sealing of the patent on three grounds: non-satisfaction of reasonable requirements of the public, non-availability of the patented invention at reasonable price, or patented invention not being worked in India.

· Courts recognize that firms that enjoy a dominant position due to the IPR might in exceptional circumstances have a duty to supply or license the IPR.

While Competition law in India, tries to imbibe from the other competition laws of developed countries and the Act states that "it shall be the duty of the Commission to eliminate practices having adverse effect on competition, to promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in markets in India." Thus, it gives the Commission a heavy mandate.

Though the question still arises, to what extent the Act is practically been implemented and utilized even after the Act been in existence from January 2003 and the amendments thereof.