Interplay Between IPR & Competition Law

    The main aim of the competition laws in an economy may be defined by the assurance of fair competition in the market by the use of the various regulatory mechanisms. The main intention of the competition laws is not to create any constrictions that may be detrimental to the growth of society but to avoid market domination by various methods such as price-fixing, market sharing cartels, and also undue concentration. It also sights at promoting competition as a means of the market response and also consumer preference so as to ensure efficient and effective allocation of the resources and to create and to further create an incentive for the economy in the sector of innovation.

    INTRODUCTION

    Intellectual Property Rights (IPRs) and the Competition laws have been evolved historically as the two systems of law. The traditional role given to the competition law has been in promoting the efficiency in the market system and whose main aim will be in preventing the market distortions. The primary objective of the intellectual property law is in protecting the innovative ideas which may be in the form of the invention which further creates a private monopoly right for the owner for a limited period of time which is 20 years under the TRIPS Agreement (for Patents) [1]. The general perception is that there are inherent tensions between IPRs and competition because IPRs protection gives monopoly rights and competition law fights against monopoly in the market. But monopoly per se in the market is not anti-competitive in nature, but abuse of monopoly is considered as anti-competitive.

    OBJECTIVES OF IPR AND COMPETITION LAW

    Intellectual Property is defined as the creation of a mind. These are the exclusive rights that are further granted to the inventor or the creator of that particular Intellectual Property. The laws relating to the Intellectual Property further offers a bundle of rights to the owner of that property for a specified period of time. Further, the term Competition has not been defined in the Competition Act but is generally understood as indulging in the process of rivalry so as to attract more customers or to enhance the profit. In some jurisdictions such as the US, the experts have defined Competition law as the law that promotes or maintains the market competition regulating anti-competitive conduct of the companies in general. At the outset it would seem that the Competition law and the IP laws work in different domains, having different objectives and functions. However, both Competition Law and IP law are just a means of achieving improved efficiency and consumer welfare in the long run. Competition may also motivate a drive for innovation.

    It is a common belief that the Competition law and IPR have conflicting goals, this perception has emerged from the traditional subject matter of the two domains. Going deeper into the legal regimes of both Competition Law and the IPR, one can notice that they are complementary to each other too.

    Their operational area is different. IPR laws deal with the grant of rights by the state whereas competition law aims at involving these rights.

    The rationale behind both the competition law and IPR laws meet at the same point that is for the welfare of the people in general.

    RATIONALE FOR IPRs

    The rationale behind the implementation and the existence of the IP regime is discussed below:

    INCENTIVE TO INVENT

    Grant of IP rights is a mode of providing incentives to the inventor for his or her invention. Without the presence of such an incentive, the inventor will not be able to realize the full value of the invention. This is primarily due to the problem of “free-riding” attached to the IPR regime due to its specific nature.

    ENCOURAGE DISCLOSURE

    In the absence of any incentive by the state, the inventor would keep the invention to himself only. Incentive in the form of temporary monopoly rights encourages the inventor to disclose his invention to the public. Else it would transform into a trade secret [2].

    The various advantages of disclosure are:-

    (a) It increases the common knowledge pool available to the public.

    (b) It increases the pace of economic development by making the information available to other investors and inventors.

    (c) In the case of Patents, the patent office specifies the details of the patents and the specifications which can be used by others for research and development purposes before the expiry of the patent.

    COMMERCIALIZATION OF TECHNOLOGY

    IP rights help in the greater commercialization of inventions. Intellectual Property further helps in licensing IPRs to the entities which can better exploit the rights for economic efficient reasons.

    RATIONALE FOR COMPETITION LAW

    Competition law is a tool for promoting social welfare by deterring practices and transactions that tend to increase market power. The aim of Competition law is of productive efficiency and allocative efficiency. The word productive efficiency here means that the output is produced at the lowest possible cost and allocative efficiency of resources to their valued use.

    The combination of both productive efficiency and the allocative efficiency together is called static efficiency which is necessary for establishing a free market.

    A perfect market under Competition Law is defined as the situation where there are numbers of sellers and there are further no entry barriers in the market. A perfect market system enables the widest choices at the lowest possible price. Monopolies in the market are generally considered to be destroying the competition.

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    INTELLECTUAL PROPERTY AND COMPETITION LAW: WORKING IN CONJUNCTION

    1. Both IP and CL aim at producing efficiency in the market.
    2. In the long run, both Intellectual Rights and Competition Law aims at consumer welfare and further complement each other.
    3. In case of works protected under the Intellectual Property regime the marginal cost of the products is quite less, a major portion of the cost is attributable to the research and development of the product.
    4. Absence of monopoly right will disallow the inventor and will discourage inventors to bring new inventions in the market. Further, it will not allow the inventor to recover the cost incurred.
    5. IP Regime is dynamically pro-competitive and is further statistically non-competitive.

    ECONOMIST’S PERSPECTIVE

    IP Laws are concerned with provisions of appropriate ex-ante incentives, i.e., increasing competition in the innovation market. However, on the other hand, the  competition market is concerned with ex-post incentive i.e. increasing competition in the product market. Various researchers and scholars have by various studies have been able to determine that both the Intellectual Property and Competition Law are divergent parts to the same goal [3].

    The important thing to note is that both the IP regime and the Competition Law both compliment each other only in the situation of equilibrium.

    INTELLECTUAL PROPERTY AND COMPETITION LAW: FRIENDS IN DISAGREEMENT

    As we have already discussed earlier, both the Intellectual Property and the Competition Law complement each other because they seek to maximize social welfare by one means or the other. Competition Law maximizes social welfare by prohibiting the abuse of dominance and by the use of anti-competitive behavior.

    On the other hand, Intellectual Property does the same thing but by the grant of temporary monopolies. The condition attached to this is that the IP rights should provide for only reasonable and meaningful monopolies in its practices otherwise Competition Law which by itself does not condemn the practice of monopolies but rather certain adjustments and improvement in these can certainly help in the flourishing of both these sectors [4]. Thus, the dominance of Competition Law over Intellectual Property Rights is considered to be justifiable.

    ANTI COMPETITIVE AGREEMENTS v/s IPR

    Along with the various laws, the competition laws also aim at making use and checks the applicability of anti-competitive arrangements in the field of Intellectual Property Rights. Section 3 of the Competition Act, 2002 deals with the provisions concerned with the prohibition of anti-competitive agreements relating to the IPRs. The Section 3 of the Competition Law which reads as “No enterprise or any association of the enterprises or person or any association of persons shall enter into any agreement with respect of the production, supply, distribution, storage, acquisition or the control of goods, which causes or is likely to cause an appreciable adverse effect on competition within India.”

    This further can be understood as restraining any enterprise or any group of the enterprise to enter in any activity which will hurt the spirit of Competition laws within the territory of India.

    Section 3 (5) of the Act further declares that the reasonable conditions as may be necessary for protecting any IP Rights would not attract Section 3, the word reasonable conditions however are not defined in the act. Along with this, the necessary thing to note is that Section 3 (4) of the same Act describes that the IP holders cannot abuse its dominant position and if they misuse this position then competition law would surely come into the picture.

    The Competition Commission of India recently had analyzed several cases that had an interface between the Competition Law and the nuances of IP rights.

    One of the most important cases which helped in the clarification of Competition Law and its relation with the Intellectual Property Rights is the case of Micromax vs. Ericsson [5] where the CCI had directed investigation against Ericsson. In this case, it was alleged by Micromax under Section 19 (1) of the Competition Act, 2002 that the royalty demanded by Ericsson was excessive in comparison to royalties charged by other patentees for similar patents for the GSM technology. The CCI after scrutinizing the facts presently before it concluded that:-

    1. Position of Ericsson is dominant in the relevant market of GSM and CDMA in India.
    2. Further, contrary to the market practices, Ericsson was charging royalty in derogation of the FRAND terms i.e Fair, Reasonable, and Non Discriminatory terms by imposing royalties linked with the cost of the product as opposed to the patented products.

    As requested on appeal, The Delhi High Court upheld the decision of CCI.

    CONCLUSION

    After reading all the necessary information it can be concluded that both the Intellectual Property Rights and the Competition Law are constructed so as to promote innovation and consumer welfare. The interplay between both tells us that these laws harmoniously try to construct a middle path for each other. The IP Rights are the rights given to the owner of Intellectual Property while the Competition Law is a regulating legislation. The detailed analysis of both also suggested that on pretext both the laws may seem to be contradicting in nature but both of these are supplementary to each other in the context when the other one is misused.

    REFERENCES

    [1]. Dr. S.C. Tripathi, Competition Law in India, (Central law publishers, 1st edn, 2015).

    [2]. Neeraj Pandey, Intellectual Property Rights, (PHI Learning Pvt.Ltd., 1st edn, 2014).

    [3]. “Journal of Intellectual Property Law & Practice”, 2, Issue 10, 666-681, (2007).

    [4]. Shambhavi Sinha, “The Interplay between the Intellectual Property Law and Competition Law“, (2019), https://www.mondaq.com/india/antitrust-eu-competition-/807608/the-interplay-between-the-intellectual-property-law-and-competition-laws.

    [5] Micromax v. Ericsson, W.P. (C) 464/2014 & CM Nos. 911/2014 & 915/2014.


    BY ASHISH NAGPAL| FAIRFIELD INSTITUTE OF MANAGEMENT AND TECHNOLOGY , NEW DELHI

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