December 10, 2014

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Intellectual Competition

- Debolina Partap, AVP & Head Legal [ Wockhardt Group ]

Debolina Partap

The article traces the evolution of intellectual property, going on to discuss the inherent dichotomy between IPR and competition laws

Intellectual Property (IP)

includes Industrial property, which comprises inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. IPRs (Intellectual Property Rights) can be expatiated upon by emphasising that the contemporaneous "knowledge driven economies" thrive on innovation, enterprise and industrial - technical progress and therefore, it is considered expedient to bestow upon, the innovators, creators and entrepreneurs certain "exclusive rights" so as to further encourage them to invest, invent and innovate. These exclusive rights allow them to recoup the costs of investments and research & development (R&D). The "exclusivity" of IPRs connotes that the owner has the right to make, use and sell the invention/creative work, to the exclusion of others. This provides sufficient leeway for recovering costs and for making further investments in R&D activities, thereby paving the way for increased dynamic efficiency.

Evolution of IP

Owing to the blanket exemption under Section 3(5), the square peg of any anti-competitive practice tethered to the use of IPRs must now be brought through the round hole of "abuse of dominant position" under Section 4

In the early 20th century, the demand for Intellectual property rights increased due to high-tech development and expansion of international trade. Meanwhile Intellectual Property transactions in the international market increased, which gave rise to contradictions regarding IPRs and regional restrictions. In order to resolve these contradictions, various international conventions were enacted. The "Paris Convention For Protection Of Industrial Property" was the first convention in 1883 established by Germany, France, Belgium and 10 other countries for the protection of Industrial Property, followed by the "Berne Convention For The Protection Of Literary And Arts," a first of its kind for the protection of Copyright.

It was in 1993 when the WTO (World Trade Organization) adapted these international conventions: WIPO (World Intellectual Property Rights Organization) was established in 1970 with the aim to promote innovation and creativity for the economic, social and cultural development of all countries, through a balanced and effective international intellectual property system; TRIPS (Trade Related Aspects of Intellectual Property Rights) Agreement in 1994 achieved the goal to link international trade with people's intellectual property rights. It succeeded in providing a more unified higher platform.

Further, the Patent Cooperation Treaty was passed in 1970, and made it possible to seek patent protection for an invention simultaneously in a large number of countries by filing a single "international application" with a single patent office. The Patent Law Treaty, 2000 aimed to harmonise and streamline formal procedures in respect of national and regional patent applications and patents. In accordance with such international instruments, various legislations dealing with multiple aspects of intellectual property were passed by the Indian legislature.

The India picture

In the nineties, India opened up its economy, removing controls and went for liberalisation. This led to the need for a strong legislation to dispense justice in commercial matters and the Competition Act, 2002 was passed. Healthy and fair competition has proven to be an effective mechanism which enhances economic efficiency. Competition laws involve formulating a set of policies which promote competition in the local and national market. These are aimed at preventing unfair trade practices and curbing abuse of monopoly in the market by the dominant company. Besides, competition laws prevent artificial entry barriers and aim to remove monopolisation of the production processes by encouraging entry into industries by newer players. The objectives of competition policy include maximisation of consumer and producer welfare, as well as maximising production efficiency. Well designed and effective competition laws lead to the creation of an enabling business environment, which improves static and dynamic efficiencies and leads to efficient resource allocation and in which, the abuse of market power is prevented mainly through competition.

The roots of Indian law on competition can be traced back to Articles 38 and 39 of the Constitution which lay down the duty of the State to promote the welfare of the people by securing and protecting a social order in which social, political and economic justice is prevalent and to distribute the ownership and control of material resources of the community in a way so as to best serve the common good, in addition to ensuring that the economic system does not result in concentration of wealth. The MRTP Act, 1969, stemmed from these duties and was influenced by US, UK and Canadian legislations.

Intellectual Property Rights And Competition Law

IPRs and competition are typically regarded as areas with conflicting objectives. The reason is that IPRs, by designating boundaries within which competitors may exercise legal exclusivity (monopolies) over their innovation, appear to be against the principles of static market access and level playing fields sought by competition rules, in particular the restrictions on horizontal and vertical restraints, or on the abuse of dominant positions. This conflict has been overplayed, right from the early days of the 20th century, when granting patents in particular brought about paranoia regarding monopolies and patent licensing was heavily regulated. However, following the expansion of IPRs to fill out the available market space and a gradual dissolution of the paranoia of automatically associating all IPRs with competition law violations, this view has been tempered.

Global Perspective

The relationship between IP and competition has not gone unnoticed in the global scenario. As early as the 1948 Havana Charter for International Trade Organisation, imposed an obligation that Members prevent restraint on competition and cooperate with the Organisation on such restraints. While between the 1960s and 1980s, there was considerable discussion regarding the relationship between IPRs, transfer of technology and competition, in 1980, the United Nations General Assembly, adopted a resolution called the 'Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices' containing rules relating to abusive practices in the field of IPRs.

The TRIPS Agreement also contains certain safeguards in this regard and the guiding principles are that firstly there is reservation of IPR-related competition policy to national determination. Secondly there is a requirement of consistency between national IPR-related competition policy and the TRIPS Agreement's principles of IP protection. Thirdly there is a concern to primarily target practices restricting the dissemination of protected technologies.

FTC vs Actavis Inc. (Pay for Delay)

This decision presented a challenge to what has been the prominent practice of "pay-for-delay" settlements in the drug industry. With this ruling, patent owners no longer maintain immunity from the "rule of reason" scrutiny of antitrust laws when making reverse payment settlements, even if the settlements are only for the terms of the patents. In effect, this limits patent owners' scope of power in holding their monopolies. In addition, as a result, using reverse payment settlements to resolve patent disputes now carries a greater risk of coming under litigation, and being ruled as infringing of antitrust laws.

Moreover, the implications of the decision could impact the effect of antitrust laws on general intellectual property cases, outside of the drug industry. Specifically, the outcome could be applied to general cases regarding "patent pools, cross-licensing arrangements, and more routine patent licensing decisions."

On the whole, it is considered that the outcome of this case will reduce the number of settlements with respect to patent litigation. However, the Court "did not set forth a clear structure for reviewing settlement agreements and left this job to the district courts," which still leaves the full effect of this case to be determined, even with respect to generic drug manufacturers.

Indian Scenario

The Raghavan Committee made propositions regarding the conflict between IPR and Competition laws, "5.1-7 All forms of intellectual property have the potential to raise competition policy/law problems. Intellectual property provides exclusive rights to the holders to perform a productive or commercial activity, but this does not include the right to exert restrictive or monopoly power in a market or society. Undoubtedly, it is desirable that in the interest of human creativity, which needs to be encouraged and rewarded, intellectual property rights need to be provided. This right enables the holder (creator) to prevent others from using his/her inventions, designs or other creations. But at the same time, there is need to curb and prevent anti-competition behaviour that may surface in the exercise of the intellectual property.

5.1-8 there is, in some cases, a dichotomy between intellectual property rights and competition policy/law. The former endangers competition while the latter engenders competition. There is a need to appreciate the distinction between the existence of a right and its exercise. During the exercise of a right, if any anti-competitive trade practice or conduct is visible to the detriment of consumer interest or public interest, it ought to be assailed under the competition policy/law.

In order to deal with such a problem, the Competition Act incorporates a blanket exception for IPRs under Section 3(5) of the Act, based on the rationale that IPRs deserve to be cocooned since a failure to do so would disturb the all-important 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 IPRs.

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 IPRs have the potential to raise competition policy problems, in effect recognising the existence/exercise distinction.

That apart, it has no mention of exhaustion, parallel importation or compulsory licensing. Owing to the blanket exemption under Section 3(5), the square peg of any anticompetitive practice tethered to the use of IPRs must now be brought through the round hole of "abuse of dominant position" under Section 4.

The Supreme Court of India in the case of Entertainment Network (India) Limited v Super Cassette Industries Ltd., observed that when the owner of a copyright exercises monopoly over it, any transaction with unreasonable terms would amount to refusal. It is true that the copyright owner has complete freedom to enjoy the fruits of his labour by charging royalty through the issue of licences. However, this right is not absolute. In Singhania & Partners LLP v Microsoft Corporation (I) Pvt Ltd & Others, the CCI considered the question of anti-competitive behaviour and abuse of dominant position in the selling of Windows and Office 2007 software by Microsoft which had control over 80 per cent of the market. Still, the CCI could not find any violation of competition provisions. The Commission observed that charging different prices for the same product under different kinds of licences was justified and common in the market. According to the Commission, there was no clear evidence to suggest that due to Microsoft's dominant position, any competitor had been driven out of the market. Hence, it was held that there was no violation of any competition provisions by Microsoft.

Thus, we see that though conflicting positions occur but so far, the industry has not as such faced any punitive situations where their rights are affected in either of the two laws. There has been "unity in diversity".


Disclaimer - This article is the author's research on the topic and not the views of Wockhardt Group.

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