IP licensing
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This article is written by Vatsal Bhargava, a student of Institute of Law, Nirma University, Ahmedabad.

Introduction

IP law and competition law are somewhat different in their fields. But the interplay between the two also seems to clash and at times seems contradictory. Whilst competition law restricts exclusivity and a monopoly on the preservation of the open and free market, IP law confers exclusive and monopolistic privileges. These two regimes essentially aim to maximize creativity and to ensure that the business economy runs smoothly in conjunction with consumer welfare. While the IP law promotes creativity through exclusive private property rights, competition law regulates the establishment by certain exclusive and monopolistic rights of viable competition within the economy and end the market exploitation.

Whilst competition law restricts originality and a monopoly on the preservation of the open and free market, IP law confers exclusive and monopolistic privileges. Intellectual property law and competition law are very different in their respective fields. At times, the interplay between the two really seems to clash and contradict.

Objective of innovation, how it is achieved & consumer welfare

The primary purpose of intellectual property is based on the theory of reward. According to the United Nations Conference on Trade and Development (UNCTAD), intellectual property rights are aimed at fostering creativity by providing incentives. This is achieved by granting individuals exclusivity over their inventions on which they can take advantage of their innovation and creativity.

The concept of competition law is to ensure the efficient and effective operation of the market economy that accompanies consumer welfare. To this end, competition law maintains, exclusive rights arising from any private property. Competition is perceived to be desirable for the industry as it inspires creators to invent more and update the current economy’s goods positively. Significantly, competition law uses this method by restricting exclusive rights to create an atmosphere of viable competition that stimulates creativity and weakens the market’s anti-competitive practices.

The market is unable to shy away from monopolies. In any market, there are elements of monopoly and it is the duty of the regulatory authorities to ensure that the maker in no way violates its control and that there is a sense of viable competition between producers and suppliers.

While IP law boosts innovation by bestowing exclusive private property rights, competition law governs the creation of viable competition in the economy and ends the market exploitation by these exclusive and monopolistic rights. However, the overarching aim of both establishments is to foster creativity and consumer welfare.

Laws and precedents

The Competition Act, 2002 is structured in a way that it does not interfere with intellectual property activities. According to Section 19(3), if, the Competition Commission of India (CCI) finds that intellectual property rights are creating an adverse impact on competition, the CCI can take action against such abuse.

In Aamir Khan Productions Pvt. Ltd. v. Union of India, the court held that in matters relating to both competition law and intellectual property rights, CCI has jurisdiction. It was also argued that intellectual property rights are not sovereign but statutory.

Section 3(5) of the Act makes detailed reference to the fact that IP holders are only authorized to “reasonable use” of their exclusive rights. The Act authorizes CCI to implement “reasonable restrictions” on the holders of IP if there is any digression from this defined “reasonable use” that occurs in competition law issues. In the case of Entertainment Network (India) Limited v. Super Cassette Industries Ltd., the Supreme Court has held that the copyright holder’s monopoly is not absolute and that if it disrupts the operation of the market economy, it would be liable for a breach of competition law resulting in the cancellation of a license. In limited circumstances, the CCI has given the privilege of this carving-out in cases where it has determined that the holder of the IP has valid grounds for enforcing such restrictions. To sum up, it is necessary to strike a balance between the lawful exercise of the intellectual property rights of the holder and the interests of the customer.

The competition law does not proscribe domination in any way, but rather controls it. Even the exception of reasonable use is limited by section 4(2) of the Competition Act by stating that “there is an abuse of the dominant position if the undertaking imposes unfair and discriminatory conditions or prices on the purchase and/or sale of the goods.” Hence, under the pretext of exercising its exclusive rights, IP holders in India cannot place arbitrary restrictions on their inventions.  However, there is no definition of what is fair and what is not. Depending on the matter, this is generally decided by the jurisdiction itself.

Every intellectual property right has the potential to create problems with competition laws. Intellectual property grants the authors an exhaustive right to pursue a profitable or economic operation, although this does not include the right to exercise restrictive or monopoly power. Therefore, if the reports conclude that intellectual property rights are instruments to prevent the exploitation of one’s production, it also means that the anti-competitive practices resulting from these extensive rights need to be monitored.

Conclusion

Intellectual property rights and competition law cannot be perceived to be isolated, but to be complementary. When it comes to the means by which these laws meet their objectives, there may be some scuffle. However, all of these regimes are seeking to optimize innovation and the proper functioning of consumer welfare with market economy.

References

  1. J M Clark, ‘Toward a Concept of Workable Competition’, THE AMERICAN ECONOMIC REVIEW (1940) 30(2) 241–56
  2. Section 19(3) of The Competition Act 2002
  3. Report of High-Level Committee on Competition Policy and Law, S. V. S. Raghavan Committee, Para. 5.1.7

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