In this article, Kopal Tewary of Rajiv Gandhi National University of Law discusses abuse of Intellectual Property Rights.
Intellectual property (IP) is the intangible creation of the human intellect. The domain of Intellectual property is very vast, covering novel ideas, innovative creations, unique designs or methods of development, literary and artistic works etc.
Intellectual property Rights (IPR) are the rights assigned to the creators of intellectual property regarding its exclusive use. When conferred, IPR empowers the creators to prevent others from using or tampering with their products without their prior permission or authorization, by taking legal action against them.
Need and Emergence of IPR
The concept of IPR is not a recent one. Its emergence can be traced back to the Renaissance Era. A Venetian Law regulating trade protection and the conferment of copyright to Johannes Gutenberg for the first ever printing press can be cited as the rudimentary stages in the development of modern laws on IPR.
The 19th century saw a series of new discoveries and inventions, coupled with a rapid increase in the production of mechanised products with the help of new advanced technologies.
As competition in the market increased, a need was felt to curb the malpractices that emerged simultaneously such as to prevent the opportunists from benefitting from the creations of individuals, counterfeiting, taking unfair advantage of the goodwill of a business, etc., and, at the same time, to grant certain privileges to inventors so as to reward and encourage innovations.
The TRIPS (Trade Related Intellectual Property Rights) Agreement, signed under the aegis of the World Trade Organization in 1995, is by far the most comprehensive agreement on intellectual property rights. The areas of intellectual property that it covers are:
- Copyright and related rights
- Trademarks, including service marks
- Geographical indications
- Industrial designs
- Layout- designs (topographies) of integrated circuits
- Undisclosed information, including trade secrets
- Control of Anti-Competitive Practices in Contractual Licenses.
Abuse of Intellectual Property Rights
Intellectual property abuse, basically, is a defence for a suit of IP infringement. When such defence proves to be justified in a case, then the defendant is spared from the liability of granting immediate relief to the plaintiff. However, the misuse doctrine does not prevent the party to rely on the courts in case of any future infringement. The intellectual property owners may return to court once they have “purged” the misuse, for example, by striking anti-competitive provisions in their licensing agreements.
A transparent and somewhat definite legal and judicial take on abuse of intellectual property rights has largely remained limited to patent misuse, later extending to copyright misuse, which branched out of the former.
Both trademark and trade secret misuse are still subjects of academic debate and lack any practical application in courts.
Different forms of Intellectual Property Rights abuse have been elaborated under the following heads:
At times, patent owner wrongfully uses the patent surpassing its legitimate scope. Patent misuse is the unjustified use of the acquired patent rights. Examples of patent misuse include illegal tying of products and services to the patented invention, price fixing, fraudulently making the customers pay royalties on items the patent of which has expired, and the like.
The concept of patent misuse first surfaced in the case of Adams v Burke, decided by the US Supreme Court in 1873. The court held that after the first authorized sale of a patent product by the patentee, the product becomes the complete property of the purchaser, rendering the patentee devoid of his monopoly rights over the product. Subsequent purchasers acquire the same rights over the product as the seller had, and may use it in the same way the owner could have used. This came to be known as the exhaustion doctrine.
However, in the 19th century, not many facets of patent misuse were acknowledged by the judges. In the famous case of Henry v. A.B. Dick Co, the United States Supreme Court upheld the validity of licensing the use of tied or other related products along with the originally patented product. Usually known as the Inherency doctrine, this theory states that it was the inherent right of a patent owner, in lieu of his having exclusive rights over his product, to exercise the right to license the product on any terms and conditions he chose.
In 1917, the United States Supreme Court overruled the A.B. Dick case in Motion Picture Patents Co. v. Universal Film Mfg. Co. In this case the Supreme Court held that ‘the scope of every patent is limited to the invention described in the claims. The patentee can claim nothing beyond them.’ It condemned the licensing of materials which formed no part of the patented invention and were merely necessary for its operation.
In Brulotte v. Thys Co. (1964), the United States Supreme Court held that a patent holder’s attempt to collect royalties beyond the term of the patent constitutes misuse of the patent.
An essential condition for using patent misuse defence is that it must hamper the competition in the market.
When a company accuses a patent owner of misuse, then the allegation must fulfill 2 conditions:
- The valid patent was used as a way to change business outcomes
- The anti-competitive effects extended outside of the patent’s scope
The patent misuse doctrine requires that the alleged infringer show that the patentee has impermissibly broadened the ‘physical or temporal scope’ of the patent grant with anticompetitive effect. Patent misuse does not affect a patent’s validity.
Since the 20th century, there have been significant developments through various legislations and judicial decisions that have further broadened the scope and understanding of the patent systems so as to eliminate the loopholes and make it more user- friendly.
Copyright misuse occurs when a company or an individual makes unjustified use of a copyright which is beyond its legal capacity and in violation of the Copyright Act of the concerned country. A copyright owner could commit misuse by violating any public policy choices embodied in the Copyright Act, such as by using a license agreement to extend the length of its copyright monopoly. Copyright misuse can also occur when the assertion of copyright is aimed at suppressing speech.
It is believed that Copyright misuse derives its basis from patent misuse as, while patent abuse finds mention in various cases since the 19th century, copyright misuse found recognition in the legal fraternity only a few decades ago.
Morton Salt Co. v. GS. Suppiger (1942) case, decided by the United States Supreme Court, laid the foundation of the concept of copyright misuse. While the reasoning given by the court refers to patent misuse, the commentary and the dicta address the issue of copyright misuse.
In Alcatel U.S.A., Inc. v. DGI Technologies (1999), it was held that the defense of copyright misuse has its historical roots in the unclean hands doctrine, i.e, which means that the suit of infringement filed by the plaintiff, who himself has abused the privilege conferred upon him by the copyright, is not itself justified. In the instant case, the Court found copyright misuse where the holder of a copyright in software licensed its use on the condition that the licensee also use it only in conjunction with the copyright holder’s hardware. It prescribed the use of the copyright to secure an exclusive right or monopoly, which is not granted by the Copyright Office of a country and which is contrary to public policy to grant.
Upon the improper use of a copyrighted work, the work will provide no copyright rights to its owner. In order to retain the rights, it is important that the activity constituting the misuse must be ceased.
In the case Tekla Corporation v. Survo Ghosh, decided by the Delhi High Court on 16th May 2014, Justice Endlaw of the Delhi High Court held that “copyright misuse does not constitute a legitimate defense for copyright infringement in India.”
Patent Trolls, formally known as ‘Non-Practicing Entities (NPEs) or Patent Assertion Entities (PAEs)’, are companies which tend to earn a fortune from frivolous patent infringement lawsuits. While normal companies use their patents to protect their product from being counterfeited and sold in the market, patent trolls often acquire patents cheaply from bankrupt companies and, instead of using such patents in operations, these companies charge hefty licensing fees on other persons or businesses which appear to infringe any of their acquired patents.
Fees can range from ten to hundred thousand dollars, whereas patent lawsuits can cost the individuals or companies in millions. Hence, when such are the costs, many companies prefer to concede and settle, even if they believe there to be no patent infringement.
This practice is a lucrative option for making money with minimal risks. Small mobile and software companies, mostly startups, are most vulnerable in this case and an easy target of patent trolls.
According to the RPX Corporation (RPXC) “NPE Litigation Report,” around 4,500 patent infringement lawsuits were filed in 2014. Out of those, patent trolls were responsible for 2,791 cases, i.e. 63% of the total, whereas actual operating companies filed only 1,667.
A landmark case that came as a relief for companies in the United States, as it would mitigate the threat of phoney patent suits, was decided by the United States Supreme Court recently. The Court, in TC Heartland v. Kraft Foods (2017), unanimously ruled that patent cases should be tried where the defending company is based, rather than in a court of the plaintiff’s choosing. Until now, patent cases could be heard anywhere throughout the country, causing the companies to find the courts where the odds would be in their favour, often resulting in biased results and over burdening of certain courts.
However, not all the suits filed by patent troll companies are a hoax.
According to Bloomberg, Apple was ordered by a federal court in Texas to pay $502.6 million to a patent troll called VirnetX in April 2018, in an eight-year-old legal battle over FaceTime and iMessage patents. Apple and VirnetX had been fighting in court since 2010, when the patent-holding company alleged that Apple infringed on four of its patents related to internet-based communications.
Way to combat patent trolls
In order to allay the threat of patent troll litigation, companies can hire ‘patent-tracking companies’ on an annual-fee basis. They acquire information to track down the potentially disputable patent rights before their acquisition by patent trolls to be used against companies.
According to Prof. Andrew Blair-Stanek of University of California, Multinational Corporations use Intellectual Property (IP) to avoid taxes on a massive scale, by transferring their IP to tax havens for artificially low prices. Read more
He states that there are two main reasons which make acquired intellectual property rights ideal for tax evasion.
- First, unlike workers or physical assets like factories or stores, IP can easily be moved to tax havens via mere paperwork.
- Second, the uniqueness of every piece of IP makes a precise fair market value nearly impossible to establish, allowing multinationals to justify low valuations that result in the least tax. Virtually all IP-based tax-avoidance schemes involve assigning an artificially low price to a piece of IP at some point in time.
Competition policy consists of a set оf laws and regulations and policies that promotes free and fair competition іn markets and aims to prevent anti-competitive business practices аnd unnecessary government interventions, avoiding concentration аnd abuse оf market power. As such, competition laws and IPR may seem inherently contradictory to each other, as while Competition law prevents artificial entry barriers and seeks to remove monopolization оf thе production processes by encouraging entrance іnto industries by new players, IPR promotes the concentration of monopoly power in the hands of few.
However, when looked from a broader view, these two laws have always complemented each other in their implementation. In order to understand the complications in applying competition law and IPR simultaneously, it is important to analyse the laws adopted by several countries and how they have framed their legislation in order to counter these problems.
Harmonization of IPR and Competition Laws: TRIPS
While the negotiations over the TRIPS Agreement were going on, many countries expressed their serious concern over the regulation of unfair competition and abusive monopoly powers of the IP rights holder.
Subsequently, after much deliberations, Article 40 of the TRIPS agreement was inserted to address the issue of IPR misuse and combat it through necessary government intervention:
- Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology.
- Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grant back conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.
Article 40 of the Agreement empowers the member countries to specify any exploitation of monopoly rights and adopt such laws that may be necessary to curb the abuse of IPR.
According to World Trade Organisation,
Compulsory licensing is when a government allows someone else to produce a patented product or process without the consent of the patent owner or plans to use the patent-protected invention itself. It is one of the flexibilities in the field of patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.
The right over the product still rests with the owner, who is entitled to royalty by the users. This is an effective statutory measure to deter complete control of the owner over the unfettered use (or misuse) of the product.
Article 31 of the TRIPS agreement provides for the grant of compulsory licensing under certain exceptional situations such as national emergency or other circumstances of extreme urgency or inadequate exploitation of the patent in the country.
Intellectual Property Rights have so far proved to be a boon for mankind by promoting inventions and rewarding intellect, thereby spurring economic growth and by creating new jobs and industries. According to WIPO:
An efficient and equitable intellectual property system can help all countries to realize intellectual property’s potential as a catalyst for economic development and social and cultural well-being. The intellectual property system helps strike a balance between the interests of innovators and the public interest, providing an environment in which creativity and invention can flourish, for the benefit of all.
However, abuse of such rights may undermine the spirit and defeat the purpose of granting them. Their misuse yields nothing but increased costs, mental stress, tainted reputation and depleted growth of businesses.
- Indian Institute of Patent and Trademark Attorney (IIPTA)
- Katherine E. White, “A Rule for Determining When Patent Misuse Should be Applied”, 11 Fordham Intell. Prop. Media & Ent. L.J. 671 (2001). Available at: https://ir.lawnet.fordham.edu/iplj/vol11/iss3/2
- Brian Fung,The Supreme Court’s big ruling on ‘patent trolls’ will rock cbusinesses everywhere, Washington Post
- Nick Statt, Apple ordered to pay patent troll more than $500 million in iMessage case (10/4/2018), The Verge. URL www.theverge.com
- Abuse Of Dominant Position In IPR License Agreements: Ericsson-Intex Spat