IP law seeks to create monopolies while competition law seeks to prevent monopolistic behaviour. On one hand it is necessary to create monopolies through IP law to incentivize innovation and creation, on the other hand there is a necessity to keep the markets competitive. Is there a conflict between IP law and competition law?
What is intellectual Property?
In the real world, we are mostly acquainted with the tangible property i.e. a kind of property which is physically present around us, can be seen & touched. We are the owners of that property, having a sole possession over it & thus our exclusive right to exclude other people from having or enjoying it. However, Intellectual property is another kind of property. It cannot be felt physically as it does not have a physical form. For example, a brand name such as Nike, Reebok, Titan watch, Samsung, Nokia, Apple, Sony, Philips, etc has a value, even though you cannot actually see the value associated with the word. The value lies in the brand recognition, which is an intangible concept.
These intangible assets could be brand reputation, franchisees, human capital, goodwill, consumer sentiments and the like. So, Intellectual property is one of the forms of intangible property which commands a material value, which can sometimes run in millions of dollars. It can be defined as an intangible creation of the human mind, usually expressed or translated into a tangible form that is assigned certain rights of property.
Examples of intellectual property include an author’s copyright on a book or article, a distinctive logo design representing a soft drink company and its products, unique design elements of a web site, or a patent on the process to manufacture chewing gum. However, intellectual property not having a physical form is also often susceptible to copying or unauthorized use by others. If all of my creations, which are results of hard labour or even investment of time and resources, can be used by others freely without my permission, I may not be interested in investing either time or resources. Hence, the state makes law to protect such creations and grant the creator a monopoly, usually for a certain period of time, over the creation. Hence, for the protection of these valuable creations of the human mind, we have legal protection so that we can exclude other people from using our intellectual property without our permission. This is the fundamental of intellectual property and the body of law surrounding this kind of property.
Intellectual Property Laws & their Significance
Intellectual property is the area of law that deals with protecting the rights of those who create original works. It is the primary source of encouragement towards investment in development of new technology, innovation and even the hard work that results in books, films, music, plays and many such other things that we cherish and benefit from. It covers everything from original plays and novels to inventions and company identification marks. The intellectual property laws protects the rights of the inventor, author, or creator. Intellectual property laws are generally negative in nature and so they only grant the holder of IP the ability to exclude third parties from infringing on their monopoly.
For example, the owner of a registered trademark has an exclusive right to use their mark in relation to certain products or services, and can exclude others from using that mark in relation to those products or services. No other person other than the owner of a registered trademark can exclude others from using that mark. These intellectual property laws vary from jurisdiction to jurisdiction, such that the acquisition, registration or enforcement of IP rights must be pursued or obtained separately in each territory or country.
Purpose of intellectual property laws
The purpose of intellectual property laws are to encourage new technologies, artistic expressions and inventions while promoting economic growth. When individuals know that their creative work will be protected and that they can benefit from their labour, they are more likely to continue to produce things that create jobs, develop new technology, make processes more efficient, and create beauty in the world around us.
What is competition law & Why is it needed ?
Competition law is a law that promotes or maintains market competition by regulating anti-competitive conduct by companies. An efficient market will only emerge when there are many players, when there are no barriers to entry in the free market & when the information flows freely in the market.
Competition law has some main elements like
- Prohibiting practices that restrict free trading and competition between businesses.
- Banning abusive behavior by a firm dominating a market or anticompetitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal, and many others. All these practices are prohibited under the competition law.
- Supervising the mergers and acquisitions of large corporations, including some joint ventures.
The need for competition law arises because market can suffer from failures and various players may resort to anti-competitive practices to create monopoly and distort the free market. Competition law makes it easier for businesses and consumers to challenge firms they believe are acting anti-competitively.
What happens if there is no competition?
- Businesses that are not party to the anticompetitive agreement, will be adversely affected by the abuse of a dominant enterprise, & so they will have to cease operation as they will be priced out or otherwise driven out of the market.
- Consumers dissatisfaction as they will have less choice, prices will be high and products may not be of good quality.
- Enterprises which are consumers of goods and services in the course of their own business will also lose because the products they need to buy are denied to them or provided only on unfair terms like high prices, unfair payment terms, etc.)
Major drawback of not having a competitive and fair market is that the economy will not expand as new enterprises will be prevented from entering the market and existing enterprises will have no incentive to be innovative, creative or efficient.
Intersection of IP Law & Competition Law
Competition law and IP laws are important elements of the legal system that provides a framework for the modern economy. IP law seeks to create monopolies while competition law seeks to prevent monopolistic behaviour. On one hand it is necessary to create monopolies through IP law to incentivize innovation and creation, on the other hand there is an important necessity to keep the markets competitive. Is there a conflict between IP law and competition law?
IP laws and competition laws can be seen as complementary rather than conflicting because both the laws share the same fundamental goals of enhancing consumer welfare and promoting innovation. IP protection provides incentives for innovation and technological diffusion, which in itself is an important source of competition in the marketplace and therefore supports competition.
Lets examine the relationship of these two branches of law more carefully.
TRIPS in relation to IPR & Competition law
The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement administered by the World Trade Organization (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members. TRIPS Agreement provides scope for the enforcement of competition law vis-à-vis anti- competitive licensing practices and conditions.
Article 8.2 of TRIPS provides general recognition that appropriate measures may be needed to prevent the abuse of intellectual property rights by rights holders.
Article 31 of TRIPs provides for the grant of compulsory licenses, under a variety of situations, such as the interest of public health, national emergencies, nil or inadequate exploitation of the patent in the country, anti-competitive practices by the patentees or their assignees and overall national interests. However the drawback related with this provision is that the Agreements, however, do not restrict the freedom of members to determine the grounds for compulsory licenses other than those explicitly mentioned therein (with the only exception being semiconductor technology which can only be subject to compulsory licenses for public noncommercial use and to remedy anti-competitive practices). Diverse grounds are therefore to be determined by respective national laws.
Article 40 provides detailed conditions for the granting of compulsory licenses aimed at protecting the legitimate interests of rights holders.
“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.”
This sub-clause recognizes that licensing practices that restrain competition may have adverse effects on trade. This sub-clause permits members to specify anti-competitive practices constituting abuses of IPRs and to adopt measures to prevent or control such practices. Such practices may include exclusive grantbacks, clauses preventing validity challenges and coercive package licensing.
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.
Hence, 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.
Recognition of IPR in the competition law
The Competition Act, 2002 in India recognizes the importance of IPRs such as patents, Copyrights, trademarks, geographical indications, industrial designs and integrated circuit designs. Also, Section 3 of the Competition Act prohibits anti-competitive agreements, Section 3(5) lays down 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. Hence, this clearly implies that unreasonable conditions imposed by an IPR holder while licensing his Intellectual property rights would be prohibited under the Competition Act.
Relationship of Competition Law and Intellectual Property Law
Competition law maximizes social welfare by condemning monopolies while intellectual property law somehow also does the same by granting temporary monopolies. The rationale behind this approach is that the intellectual property law should provide economically meaningful monopolies. Otherwise, competition law which by itself does not condemn the mere possession of monopoly power, but rather certain exercises of or efforts to obtain it, might be allowed to interfere with the monopoly. Hence, there should be reasonable exercise of the monopoly power in order to protect the consumer’s interest, otherwise competition law would surely hinder the practices of the monopoly market.
International Journal in Multidisciplinary and Academic Research (SSIJMAR)) Vol. 2, No. 1, January-February (ISSN 2278 – 5973)