CompetitionLaw Project
CompetitionLaw Project
CompetitionLaw Project
ON
COMPETITION LAW POLICY AND
INTELLECTUAL PROPERTY LAWS
Project Submitted to: Md. Atif Khan
Project Submitted by
Pallavi Joshi
Roll No. 89
Semester VII
HYPOTHESIS
The author has taken the following as the hypothesis for the research paper:
Intellectual property laws are not anti competitive in nature
RESEARCH QUESTIONS
The author has formulated the following two research questions:
1. Whether IP laws come under the purview of Antitrust laws?
2. If so, then whether the two are in conflict?
CHAPTERISATION
The IPR and Competition Law Interface...7
Types of Restraints10
Competition Law Regulation of IPR across Jurisdiction...11
The TRIPS Agreement...14
The IPR and Competition Law Interface in India.20
Conclusion.22
Bibliography..24
MODE OF CITATION
An attempt has been made by the author to follow the Blue Book form of citation. Any
transgressions to the same is requested to be considered as typographical errors.
The interaction between intellectual property rights (IPR) and competition law is
predominantly created by the non-rivalrous and non-excludable nature of intellectual
property, which causes the problem of "appropriability". The creation of this prima facie
"inherent tension" is due to IPR holders being granted statutory rights to essentially
control access to the intellectual property and charging monopoly rents for the use of the
IPRs-something apparently in conflict with competition law, which attempts to curtail
such market power.
Historically, this conflict has been overplayed, right from the early days of the
20
th
century, when granting patents in particular brought about paranoia regarding monopolies
and patent licensing was heavily regulated. 2
There has been a well-rounded concern of competition law with IPR5 owing to two major
developments3- t h e expansion in functional coverage of IPR protection and its vertical
expansion to a new range of products, especially knowledge-based products and the
1 K. Maskus, COMPETITION POLICY AND INTELLECTUAL PROPERTY RIGHTS IN DEVELOPING COUNTRIES:
INTERESTS IN UNILATERAL INITIATIVES AND A WTO AGREEMENT,
http://siteresources.worldbank.org/DEC/Resources/84797-1251813753820/6415739-1251814020192/maskus.pdf
2 Motion Picture Patents Company v. Universal Film Manufacturing Company 243 US 502 (1917)
3 THE INTERFACE BETWEEN INTELLECTUAL PROPERTY RIGHTS AND COMPETITION POLICY (2007)
appreciable trend, especially in IPR-driven markets such as the US, EU and Japan, of
individual market leadership reinforced by IPR-protected industrial standards.4
However, it is now usually accepted that the two regimes are not so much at loggerheads
as they pursue the goals of consumer welfare and encouraging innovation through
different means. It is thus implicitly understood that the real issue that competition law
has is not with the existence but with the exercise of IPR. Striking this balance involves
walking the tightrope between over- and under-protection of innovators' efforts.
Three theoretical bases have been suggested for this reconciliation between IPR and
competition law regimes: 5
(a) the view that competition law should only interfere with innovation/IPR when
social welfare is at risk;
(b) the view that concentration and monopoly markets have the edge over competitive
markets in terms of innovation owing to greater capital and resources and
(c) the view that competition law only concerns itself with consumer welfare when
the effects of a proposed action on production and innovation efficiency are
neutral or indeterminate.
These theoretical underpinnings would suggest that a reasonability standard be applied,
taking into account the facts and circumstances of the case in question.
Two main concerns dominate this IPR/competition law interface. The first of these is the
potential abuse of monopoly pricing, especially in developing countries where effective
substitutes to IPR-protected products may not be readily available. Second, competition
law seeks to draw a line between permissible business strategies and abuse of IPR5-a line
which is often blurred by horizontal agreements, exclusionary licensing restrictions, tie-in
agreements, excessive exploitation of IPR5 and other selling practices
4 D. Evans and R. Schmalensee, SOME ECONOMIC ASPECTS OF ANTITRUST ANALYSIS IN DYNAMICALLY
COMPETITIVE INDUSTRIES, http://www.nber.org/books/innovation2/eva ns5-1-01. pdf
5 ABA Section of Antitrust Law, FEDERAL STATUTORY EXEMPTIONS FROM ANTITRUST LAW (2007), at 264
However, at a conceptual level, the lines are clear. The limited monopolies granted by
IPR are not per se anticompetitive or excessively exploitative-they only become
anticompetitive when the IPR holder looks to extend those rights beyond their intended
and proper scope.6
6 Gastle, M. Martyn, TRIPS, DOHA AND THE ROLE OF COMPETITION LAW IN COMPULSORY LICENSING,
http://www.dtn .go.th/vtl upload file//1256803453890/Lectu re%20V1 I,%20%2OTRIPS,%2ODoha,%2OCom pulsorv
%2oLicensing,%2009-10-19.ppt
TYPES OF RESTRAINTS
This interface between IPR and competition law has evolved several types of restraints on
competition. While no one has sought to contend that licensing agreements are per se
anticompetitive, the focus of these restraints is typically a licensing agreement which
could adversely affect competition by artificially dividing markets among enterprises and
possibly impeding the development of new goods and services.
licensing
agreements post-1984.
US law, under Section 33(b)(7) of the Lanham Act also pays special attention to the
entanglement of trademarks and competition law, based on the recognition of the fact that
trademarks become valuable property rights, as opposed to monopoly rights, which patent
law is based on. Several US cases in this area have emerged from corrective measures
adopted to set right old monopolistic/cartel arrangements. 11
The most recent legislative effort of note is the adoption of the US Antitrust Guidelines
for the Licensing and Acquisition of Intellectual Property Rights, 1995, under which very
few horizontal restraints as challenged as per se unlawful. Among those restraints which
have been held per se unlawful, price fixing, market division and output restraints and
certain group boycotts are most prominent. 12 The standard adopted to determine whether a
restraint in a licensing condition is given per se or rule of reason treatment is an
assessment of whether the restraint can be expected to contribute to an efficiencyenhancing integration of economic activity.
OTHER JURISDICTIONS
In Japan, the Guidelines for the Regulation of Unfair Trade Practices with Respect to
Patent and Know-How Licensing Agreements, 1989 placed five types of restrictions
including restrictions on domestic prices of patented goods, prohibitions on handling or
using competitors' goods/technology, R&D restrictions and exclusive grant-back
requirements. These have since been supplanted by Section 21 of the Anti-Monopoly Act
and the Guidelines for Patent and Know-How Licensing Agreements, 1999, the combined
10 Walker Process Equipment, Inc v. Food Machines & Chemical Corp 382 US 172 (1965)
11 Humble Oil & Refining Co v. American Oil Co 405 F 2d 803 (8th Cir, 1969)
12 ANTITRUST GUIDELINES FOR THE LICENSING OF INTELLECTUAL PROPERTY,
1995,http://www.iustice.gov/atr/public/guidelines/0558.htm
12
effect of which was that acts recognised as an exercise of rights under the Japanese Patent
Act or other Acts are no longer subject to the Anti-Monopoly Act. 13
Following the UK example, Australia now provides, under Section 144 of the Australian
Patent Act, 1990 that certain anticompetitive practices in furtherance of exercising patent
licenses are automatically deemed to be null and void. 14
13 J. Shibata, Patent and Know-How Licenses under the Japanese Anti-Monopoly Act, published in
J. DexI (ed.), RESEARCH HANDBOOK ON INTELLECTUAL PROPERTY AND
COMPETITION LAW (2008).
14
13
Despite the absence of mandatory character, it gives greater precedence to the obligation to
read the TRIPS in good faith and, accordingly, the term "anticompetitive practices" under
TRIPS may be read broadly.15
Thus, the competitive balances sought to be attained by TRIPS are contained in the
objectives and principles. First, Members may, in formulating or amending their laws,
adopt appropriate measures to prevent the abuse of IPR, restraint of trade or international
transfer of technology.16 Second, is an interpretive principle in favour of adopting
measures necessary for prevent monopoly abuse by IPR holders and anticompetitive
14
ARTICLE 7
These TRIPS objectives and principles which seek to attain competitive balances are
provided in Articles 771 and 8.2. These Articles set the framework for the TRIPS
Agreement and have been lauded as being consistent with developing country interests.
The real value of Article 7, therefore, is in providing valuable context for the
interpretation of other provisions-an obligation heightened by GATT/WTO jurisprudence,
which explicitly highlights the need to consider the underlying purpose of the concerned
treaty.17
ARTICLE 8.2
The other limb of the TRIPS objectives and principles relevant to competition law is
provided by Article 8.2. It is significant from a developing country perspective since it
affords room for justifying provisions of competition law to deal with areas on which
TRIPS is silent, such as IPR abuses arising out of dominant positions.
This provision suffers from the handicap that it does not mandate that WTO Members
have a competition policy, in addition to the fact that purely private enterprises
unsupported by the government cannot be proceeded against under WTO rules. 18
ARTICLE 40
17 D. Sha n ker, The Vienna Convention on the Law of Treaties, the Dispute Settlement System of the WTO
and the Doha Declaration on the TRIPs Agreement, 36 JOURNAL OF WORLD TRADE (2002), at 721
15
In an enabling sense, though, Article 40 gives Members the leeway to adopt "appropriate
measures" to control anticompetitive practices in addition to a provision for consultation
and request-based cooperation to deal with violation of competition laws.
Taking the basic minimum from these issues, Article 40.1 should not be read to imply
Members having passed up their right to control practices other than those covered by the
Article, such as export restrictions, which may limit the development impact of licensing
agreements.
Article 40.2 does not contain specific obligations but instead expressly allows Members to
adopt measures and unlike Article 40.1, there is reference to an "adverse effect on
competition" specifically. Thus, it appears to put the control of licensing practices more
20 C.M. Correa, TRADE RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS: A COMMENTARY
ON THE TRIPS AGREEMENT (2007), at 73
17
directly into the scope of competition law regulation and exclude the possibility of
considering effects on the transfer of technology as sufficient grounds to disallow a
practice if it is not abusive and does not affect competition in the relevant market.
The need to examine the effects of licensing practices/conditions requires a standard like
the US "rule of reason" doctrine, which requires weighing of circumstances to determine
whether a practice unreasonably restrains competition. However, Article 40.2 prescribes
no such substantive rule, instead only issuing a general indication about the method of
examination.
For a Member to activate the WTO Dispute Settlement Body under Article 40.3, it must
prove that such anticompetitive practices are the effects of a direct involvement and not
mere inaction of the second country in the private firms' anti-competitive conduct. This
was elaborated in WTO panel reports in Japan-Film 21 and Argentina-Hide and
Leather.22
The starting point for activating the Article 40.3 process is the intention of the first
country to secure compliance with its national legislation, though this is a problem in
itself, given that, until 1990 (when the substantive draft of the TRIPS Agreement on this
issue was near-complete), only sixteen developing countries had a formal competition
policy. Compounded by a lack of experience and resources to handle international
21 WTO Panel Report, Japan- Measures Affecting Consumer Photographic Film and Paper (Japan-Film),
WT/D544/R, adopted on April 22, 1998, at para 10.41.
22 WTO Panel Report, Argentina- Measures Affecting the Export of Bovine Hide and the Import
of Finished Leather (Argentina- Hide and Leather), WT/D5155/R, adopted on February 16, 2001, at
paras 11.49 and 11.51.
18
competition disputes, there has been no evidence of the Article 40.3 system having been
invoked to date.
Article 40.4 has been characterized as the "defensive" side of the Article 40.3 process,
which allows Members to request consultation when their nationals are subject to
procedures in foreign countries and requires the host Member to respond to such requests.
Much like Article 40.3, there is full judicial and administrative freedom for the home
agencies to decide the issue in accordance with law and much like Article 40.3, Article
40.4 has never been effectively applied either
Thus the full realization of Article 40 is only possible if all Members have effective
mechanisms and guidelines for quality and speedy adjudication of competition disputes.
Though efforts such as the first ministerial conference of the WTO in 1996 have served to
catalyze this process in developing countries, the progress in this field remains limited.
ARTICLE 31
Situations under which TRIPS deems the issuing of compulsory licenses to be a valid
exercise of Members' powers are listed in Article 31 [of which the competition lawspecific escape clause is Article 31(k)]23 and stands as a powerful counterbalance to the
potentially adverse effects of strong IPR protection.
The eleven conditions in Article 31 have been painted as "strict safeguards" but most are
dependent on the purposes for which use without authorization of the IPR holder is
granted in the first place. Thus, constructing grounds to ensure such conditions fall within
Article 31 (and the non-discrimination principle under Article 27.1 is not particularly
difficult.
23 Article 31(k) reads: "Members are not obliged to apply the conditions set forth in subpara graphs (b) and (f)
where such use is permitted to remedy a practice determined after judicial or administrative process to be anticompetitive. The need to correct anti-competitive practices may be taken into account in determining the amount
of remuneration in such cases. Competent authorities shall have the authority to refuse termination of
authorization if and when the conditions which led to such authorization are likely to recur."
19
DOMESTIC LEGISLATION
The process of initiating a new competition law in India was started by an Expert Group set
up to study trade and competition policy. 24 Noting that competition policy is a prerequisite
to economic liberalization, the Expert Group, in its report submitted to the Ministry of
Commerce in January 1999 recommended that a fresh competition law be drawn up.
October 1999, the government appointed a High Level Committee on Competition
Policy and Competition Law to draft the new competition law, which was submitted in
November 2000. The resultant Competition Act, 2002 coming into force mere months
before the expiry of the TRIPS compliance period for India can therefore be seen as
India's fulfillment of its TRIPS obligations.
Under Section 3, the Competition Commission is required to look into agreements which
are anticompetitive in nature and those found to be anticompetitive are declared void.
The Competition Act incorporates a blanket exception for IPR under Section 3(5) based on
the rationale that IPR deserve to be cocooned since a failure to do so would disturb the allimportant 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 IPR. 25
24 The Institute of Chartered Accountants of India, COMPETITION LAWS AND POLICIES
(2004), at 134
25 S. Jam and S. Tripathy, Intellectual Property and Competition Laws: Jural Correlatives, 12
JOURNAL OF INTELLECTUAL PROPERTY RIGHTS (2007), at 236-243
20
Thus, in principle, IPR licensing arrangements which interfere with competitive pricing,
quantities or qualities of products would fall foul of competition law in India.
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 IPR have the potential to
raise competition policy problems, in effect recognizing the existence/exercise
distinction.
Section 3 also remains puzzling, inasmuch as it goes against MRTP Commission
precedent under the old Act which held that the Commission (and, by extension, the
Competition Commission of today) had complete and unfettered jurisdiction to entertain a
complaint regarding IPR. Indeed, Manju Bhardwaj v. Zee Telefilms Ltd26 and Dr Vala
Peruman v. Godfrey Phillips (India) Ltd27 stand as authority for the view that unfair trade
practices [as understood under Section 36-A(1) of the old Act] could be triggered by the
misuse, manipulation, distortion, contrivance or embellishment of ideas generated by the
complainant.
Other grounds for critique of Section 3 in particular include the almost exclusive focus on
protecting the IPR holder, no adequate consideration of public interest and the absence of
any power to restrict an IPR holder from imposing reasonable conditions on licensees for
protecting such IPR.
While the Act does create categories of per se illegality such as price fixing, geographical
divisions and market divisions, the standardized treatment extended to these categories as
well as to tying arrangements, refusals to deal, re-sale price maintenance and exclusivity
agreements suggests that the standard of if "they cause an appreciable adverse effect on
competition28 would have to be very sound indeed.
CONCLUSION
The imperatives of unfettered competition and innovation are indispensable for
attaining sustained economic growth. As we have already seen, the balancing of
competition with innovation is an extremely difficult task since there is an apparent
tension between the tenets of IP law and Competition policy. While IP law aims at
providing protection to the creators and innovators of intellectual work, by conferring
exclusivity upon them; competition policy strikes at the exclusivity which hampers free
and fair trade.
This tension between IPRs and competition policy is sought to be resolved by the
competition authorities in major jurisdictions such as US and EU. The law in these
countries developed and matured over the years to accommodate the interests of both
innovation and competition. However, competition law and policy is in its nascent stage
in most of the developing countries and the interface between IP law and competition
policy poses a conundrum to these nations. There is also a realization among these
countries that innovation is the key for efflorescing of the economy. Therefore the
primary concern is the pro-competitive treatment and exercise of IPRs.
The Indian economy is bustling with a lot of energy and exuberance especially after the
dawn economic reforms in 1991. The focus on liberalization, globalization and
privatization made it expedient for us to concentrate on the aspects of competition and
innovation equally. Therefore, after 1991, law also kept pace with the shifting economic
paradigms as was reflected by the amendments brought about in the MRTP Act. To face
the newer challenges posed by a vibrant economy like ours, it was vital for us to evolve
new strategies of growth while cherishing the ideals of economic democratization
manifested in the constitution of India. The Competition Commission of India was
established with the aim of fostering competition, preventing practices having an adverse
23
BIBLIOGRAPHY
Articles referred:
1. Allan Gutterman, Innovation and Competition Policy (Kluwer Law International,
1997)
2.
3.
24