This article is written by Bhumika Dandona, from the School of Law, Sushant University, Gurgaon. In this article, she delves into the concept of competition law and IPR as well as their background. She further discusses the interrelation between both the laws and analyses Section 4a introduced by the Competition (Amendment) Bill, 2020 in this light.
The race to achieve the top position in any place of exchange is often accompanied by huge hurdles. To tackle them, resorting to actionable ways many a time seems like the only option. It is where the law comes into play and tries to maintain a safe harbour for everyone. But sometimes, legal contingencies develop such a relationship with one another that gives birth to long-running conflicts. Methods to counter the same are necessary. But what if these so-called corrective measures only lead to a disagreeable resolution? At these junctures, what may be embraceable are equitable or sound calculations. This article seeks to elucidate this situation more briefly in the context of abuse of dominant position and IPR.
The interrelation between Competition Law and IPR
Before proceeding with explaining the interrelation between both the laws, let us first understand them individually:
We know that competition exists in every field. Numerous companies or firms in every market compete with each other to reach a large base of consumers. Some of them indulge in illegal and unjust practices to achieve this. It gives an unfair rise to monopoly, which in turn threatens the position of other competitors. Thus, a law that regulates such practices is necessary. It is this general understanding that led to the emergence of the concept of competition law.
Evolution of Competition Law in India
After independence, India adopted the mixed-economy model (a combination of the capitalist and socialist economy model) to accelerate the growth of the Indian economy and promote social justice. However, despite being operational for more than a decade, the results that it produced were undesirable. Worried by the same, the Central Government set up the Mahalanobis Committee in 1960 to look into its causes. On the recommendation of the committee, the government then appointed the Monopolies Inquiry Commission in 1964. The commission, after making all the inquiries, found out that most of the economic power had been accumulated in the industrial sector. The Parliament then passed the Monopolistic and Review Trade Practices Act, 1969 to deal with these issues.
With the advent of privatization and liberalization in India, the government came across a need for change in the existing competition law. The MRTP Act was no longer appropriate concerning prevailing circumstances. It restricted competition, which the economy sorely needed. The government then appointed the Raghavan Committee to develop an adequate framework for the competition law. Thus, the Competition Act, 2002 came into being.
The Competition Act seeks to provide a legal structure to the competition amongst various firms and companies in a market and ensures no unfair practices in the trade. It encourages free and fair competition and secures the interests of consumers. It also keeps at bay the uncalled-for monopolies. The Competition Commission of India (CCI), set up on 14th October 2003, enforces and promotes the Act throughout the country.
Intellectual property rights or IPR
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Intellectual property refers to all those things that came into existence as a result of human intelligence. Examples of intellectual property include logos, inventions, literary creations, designs, symbols, etc. Earlier, individuals were fearful of unveiling their work to the public. They believed that someone might steal their ideas and make them their own. To prevent other people from copying or taking undue credit for these creations, the concept of intellectual property rights came into existence. These rights confer upon the creators, either individuals or companies, absolute and exclusive power over their work. In case anyone tries to copy off creators’ work and present it as their invention, they can exercise these rights to take action against such people.
There are several kinds of intellectual property rights seeking to grant protection to intellectual properties that include trademarks, copyrights, patents, geographical indication and industrial design. Each of them has a separate history of origin in India. But the overall history of IPR began with the entry of copyright law in the country in 1847. Other intellectual property laws gradually developed throughout the subsequent centuries. Presently, the Patents Act, 1970, the Copyright Act, 1958, the Trade Marks Act, 1999, the Design Act, 2000 and the Geographical Indication of Goods (Registration and Protection) Act, 1999 regulate all the legal matters associated with intellectual properties in India.
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The inevitable interrelation
What we can infer from the above-specified information is that there is an inevitable interrelation between both laws. While competition law prevents the rise of monopolies, IPR provides firms and companies control over their creation. It, in turn, gives life to what the competition law seeks to put a stop to.
Competition law encourages the prevention of abusive trade activities and aims at creating an atmosphere of healthy rivalry. On the other hand, the main objective of IPR is to promote innovation which tends to increase competition in the market, for the bad sometimes.
In such cases, contracts between those companies and firms that sell similar goods or services have a massive impact on competition. It may result in dominance by any of them or the downfall of any of them. Thus, this interrelation can have both positive and negative effects. One of these, which is perhaps the most common out of all is the abuse of dominant position under the garb of protecting intellectual properties.
The concept of abuse of dominant position
As per the Competition Act, a company enjoys a dominant position (or a position of strength) in a relevant market if:
- It functions independently of its competitors; and
- It creates an impact on the competitors, the consumers or the market, that is favourable for itself.
In layman’s language, dominant position refers to a ‘commanding status’ occupied by any company through which it controls the market where it operates.
The company is said to be abusing its dominant position when it uses the same in exploitative ways. Thus, such a practice is prohibited under Section 4(1) of the Act. In addition to this, Section-4(2) of the legislation identifies five ways in which companies abuse their dominant position. They are as follows:
- Direct or indirect enforcement of unjust conditions on selling or buying of goods and services as well as their prices;
- Limitations on the production of goods and services as well as technological developments that come up;
- Active participation in activities that lead to the denial of access to the market;
- Enforcement of acknowledgment of advantageous conditions by the parties to the contract to bring an end to it;
- Use of its status in the relevant market to mark an entry into another.
Case laws pertaining to abuse of dominant position and IPR
There are several instances in which many IPR holders have taken unfair advantage of their dominant position. The CCI has the jurisdiction to hear all such cases. Following are some of the important case laws in this respect:
Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors.
In this case, the complainant alleged that three automobile companies violated the provisions of the Competition Act. They had created a contract that imposed unfair prices on the selling of spare parts of vehicles. It also put restrictions on the free availability of these products. As a result, the Original Equipment Suppliers were unable to make sales to independent car buyers. Further, these companies did not provide any information to resolve the engineering defects of the vehicles. Thus, the complainant asserted that restricted trade activities were taking place.
The CCI ordered the three companies to abstain from indulging in anti-competitive activities and imposed a penalty of two percent of their total revenue in India. It also held that the three giants may mention provisions required to protect their IP rights in contracts.
Telefonaktiebolaget LM Ericsson v. Competition Commission Of India
The complainant, in this case, claimed that Ericsson demanded unfair royalty and threatened to take the matter to SEBI (Security Exchange Board of India) if the former fails to pay the amount. The CCI decided in favour of the complainant. Ericsson then filed a writ petition in the Delhi High Court against the decision of the CCI. But the Court reiterated what the commission upheld. Thus, Ericsson was guilty of violating Section 4 of the Competition Act.
Monsanto Holdings Pvt. Ltd. and Ors. v. Competition Commission of India and Ors.
In this case, the petitioners filed a writ petition challenging the CCI’s order in a dispute concerning some private companies and themselves. The petitioners had developed a technology that they sought to license to the manufacturers. The latter, unsatisfied with the amount of royalty demanded by the former, approached the CCI. The commission ordered an investigation into the alleged unfair practices conducted by the petitioners. The petitioners claimed before the Court that the CCI had no jurisdiction to make such orders. But the Court decided to not interfere in this matter.
An analysis of Section 4a of the Competition (Amendment) Bill, 2020
The Ministry of Corporate Affairs announced the Competition (Amendment) Bill in February 2020, which seeks to bring about significant changes to the Act. Based on the report made by the Competition Law Review Committee (CLRC), one of these is the insertion of a Section 4a just after Section 4. This section grants protection to all IPR holders who cannot exercise their rights in such ways that lead to abuse of their dominant position. It states that Section 3 (prohibition of Anti-competitive agreements) and Section 4 shall not restrict any person from imposing any such reasonable conditions and from restraining any infringement necessary to protect their intellectual property rights.
In simple words, in the name of safeguarding their rights, IPR holders are free to indulge in anti-competitive behaviour. The main reasoning that supports this statement is that the term ‘reasonable conditions’ creates a sort of ambiguity as to what amounts to the same. The Bill provides no clarity in this regard. Its applicability thus, has become a matter of deep contemplation for the judicial system and the CCI.
However, the CLRC suggests that they should interpret this provision narrow-mindedly while keeping in mind the principles of international jurisprudence. It also advises that the only way to achieve stability between the competition law and IPR is to use the doctrine of ‘exceptional circumstances’. Laid down in the case Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v. Commission of the European Communities, the doctrine states that – IPR holders will be said to have abused their dominant position if any of the following factors have their presence in a case in question:
- Unavailability of a substitute good;
- Hindrance in the creation of a new good due to denial of information supply;
- Denial without a justified reason;
- Keeping away from competition in another market and using that market for benefiting themselves.
Apart from this, the committee welcomes any approach that is correct and reasonable in its dealings with the above-stated issues.
The interplay between competition law and IPR creates situations that lead an individual either towards success or failure. But the use of specific practices by some gives rise to injustice to their rivals. Those who enjoy a dominant position sometimes take unfair advantage of the same to gain monopolistic power. Although competition law prevents such activities, IPR does the exact opposite. With the introduction of the Competition (Amendment) Bill, 2020, IPR holders could now have an upper-hand in cases relating to abuse of dominant position and IPR. It would cause others to lose their hold in the market. However, the suggestion of the CLRC to treat the provision in question as an exceptional power might be of great relief to them. Other than that, the committee has left the section open to reasonable interpretation.
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