The Patent law and the Competition law are ideologically at loggerheads as one provides for monopolization of rights whereas the other by and large negates monopoly and provides for competitiveness. The Patent law is individualistic in approach as it provides a cushion to the patentee for a period of 20 years to rule out the competition; whereas the Competition law is public orientated as it enhances competition amongst the business players in order to safeguard the interest of consumers for quality, quantity, and price. Therefore, an analysis of both regimes is significant in order to draw a harmonious construction of the statutes.
The Indian Patent law provides the exclusive rights to the patentee during the subsistence of the patent and nobody is authorized to make use of the patented invention without the permission of the patentee[1]. However, in exceptional situations, the Controller General of Patents can grant the compulsory license in favor of the interested person[2].
Furthermore, the Patent Act to some extent restricts the right of the patentee with respect to the imposition of conditions in the contract with the vendor, purchaser, or licensee restricting their right to deal with other articles or processes other than the patented article or process.[3]
In contrast, the Indian Competition Act provides for a regulatory agency in the form of the Competition Commission to check adverse effects on competition amongst business players in the market. It ensures the promotion and sustenance of competition in markets and safeguards consumers’ interests [4]. The Act ensures the prohibition of anti-competitive agreements[5], and abuse of dominance[6], and provides for the regulation of combinations[7]. In order to create awareness and impart training on competition law, it stresses the undertaking of Competition Advocacy[8].
It prohibits the anticompetitive agreements in all their manifestations including production, supply, distribution, storage, acquisition, or control, which have or are likely to have a significant adverse effect on competition in India[9]. Furthermore, the agreements which directly or indirectly determine purchase or sale prices are considered to be agreements having an appreciable adverse effect on competition.[10]
The Competition Act, further, prohibits the abuse of dominant position by an enterprise, hence restricting an enterprise not too imposing unfair or discriminatory conditions in the business chain in relation to purchasing or sale of goods and services or prices including predatory prices.[11] It also regulates the combinations which are likely to disturb competition including the merger and amalgamation without giving prior notice and permission from administrative agencies.[12]
The Competition Act draws a harmony with another enactment to the extent that if any statutory authority has been created and such authority feels any decision it has taken or is likely to take is or would affect competition law, then it can make a reference to such issue to the Competition Commission. Even such statutory authority has been given the power to suo moto refer the matter to the Competition Commission.[13] Therefore the Controller General of Patents can always refer the matter to the Competition Commission if he feels that the patentee is abusing its position of dominance.
The point of referring the case to the competition commission was deliberated in Vikash Trading Company v. Designated Authority, Directorate General of Anti-Dumping and Allied Duties, Ministry of Commerce and Industry[14]. In the case, the Hon’ble High Court while deliberating on the issue of reference to the Competition Commission opined that the reference is not mandatory in view of the phraseology of the relevant provision of the Act as it uses the term “may” which signifies discretion[15]. Moreover, the provision of the Competition Act is to read harmoniously with the provisions of another enactment as they are not in derogation to such other provisions.
Henceforth, the common understanding of both the Acts, i.e., the Patent Act and the Competition Act is that generally, both the Acts will come in conflict with each other. However, the statutory authorities under the Patent Act can always make a reference to the Competition Commission if they feel that the patentee is acting contrary to the spirit of competition law.
Judicial Approach
The Judiciary has played a significant role in echoing such concerns and in delineating the contours of both regimes as is highlighted by the following judicial decisions.
In-Plant Genetic Systems/Glutamine Synthetase Inhibitors[16], the invention related to the genetic engineering of plants and seeds in order to make them herbicide-resistant. The Board found that Patent Offices are generally placed at the crossroads between science and public policy. However the Patent Offices’ find themselves side by side to multiple bodies and authorities, whose function is, to ensure that technology exploitation takes place within the regulatory framework provided by laws, international treaties, administrative provisions, and so on, irrespective of the fact whether a patent protects it or not.
In United States v. Glaxo Group[17], the Supreme Court held that Glaxo Group and Imperial Chemical Industries Ltd. (ICI) were engaged in restraining the trade of the patented anti-fungal drug griseofulvin. Glaxo and ICI each owned patents covering various aspects of griseofulvin. They pooled their patents on griseofulvin, i.e., cross-licensed patents of one another, subject to express licensing restrictions that the drug must not be resold in the bulk form. The purpose of this restriction was to keep the drug out of the hands of small generic companies that might act as price-cutters. Consequently, the court ordered mandatory sales and compulsory licensing against Glaxo and ICI.[18]
During the patent protection, there is no competition from other companies as they cannot produce the drug, thus there is no effective threat for the price reduction, which if found exploitative can go against the spirit of the competition.
As a whole, the industry is prioritizing investment in non-essential comfort-oriented articles for the wants of the more affluent in developed countries, whilst neglecting the needs for essential articles especially drugs for poorer people, particularly in developing countries. The industries are investing heavily in litigation and patents to restrict competition from other companies, and enable control over the price and availability of articles, exploiting people in developing countries, and using persuasive advertising to make false claims. Motivated by profit, not service, there seems to be a direct conflict between the pursuit of service and the pursuit of wealth.
Furthermore, these patent rights give companies monopolies over articles and allow the companies to restrict competition, limit access, and increase prices[19].
Although there is doubt over the use of the number of patents as an index of inventive activity during the industrial revolution, the majority of inventors did protect their inventions. This was done because, in an era that marked the beginning of the truly cut-throat competition, the patent system provided security for inventors, which not only protected them against infringement but also granted them protection in dealing with potential industrial investors[20].
The process patent regime was very helpful with respect to food, medicine or drugs as patents were granted only for the process of manufacture of the substance but not for the substance itself. Therefore in the pharmaceutical industry, one had the advantage of getting a patent with a slight change in the synthesis of a molecule. Thus several companies can simultaneously produce the same drug, creating competition that drives down prices. However, it was viewed as a threat by multinational corporations who even after spending millions of dollars in research and development were at a serious disadvantage; therefore the TRIPS agreement was made operative to check the mushroom growth of the generic companies.
In Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India[21], the question of an interface between the patentee’s rights and the provisions of the Competition Act arose.
In this case, the orders passed by the Competition Commission were challenged before the high court by the Ericsson company. The orders were passed by the commission on the basis of information filed by Micromax Informatics Ltd. and information filed by Intex Technologies (India) Ltd. on the ground that Ericsson is abusing its position of dominance. Some of the patents held by Ericsson are Standard Essential Patents (SEPs). SEPs are patents essential to implementing a specific industry standard. Standards are technical requirements or specifications that seek to provide a common design for a product or process. Patents that are essential to a standard and have been adopted by a Standard Setting Organization (SSO) are known as SEPs. Therefore they are uniformly and globally accepted standards.
If the patented technology is a part of an essential standard, then it is mandatory to adhere to the standard using the patented technology after seeking the license from the holder of the SEPs.
Since in this case, Ericsson had the SEPs for the mobile handsets and network stations, therefore any other company which intends to use the technology had to seek a license from Ericsson. However, both Micromax and Intex alleged that Ericsson had abused its position of dominance and is demanding huge royalty which is unreasonable and will have an adverse effect on their trade-in India.
The matter was referred by the commission to the Director-General to initiate an investigation. Ericsson claimed that it made its best efforts to strike a deal with Micromax and Intex on fair, reasonable, and nondiscriminatory terms (FRAND) but its efforts were unsuccessful. Since they are using the technology without taking a license, hence they have violated their patent rights. Moreover, the determination of the reasonability of the royalty comes within the purview of the Patents Act, hence the Competition Commission does not have the jurisdiction to entertain the case.
The Competition Commission concluded that the practices adopted by Ericsson were discriminatory and contrary to FRAND terms. The royalty charged by Ericsson had no link to the patented product and that was contrary to SEPs policy. Therefore it directed the DG to investigate the matter under the provisions of the Competition Act.
In a writ petition before the Court, the Ericsson contended that:
- The Patents Act is a special act and whereas the Competition Act is a general law; hence Patent law will have primacy over the competition law.
- The Patent Act provides a monopoly for 20 years, therefore the issue of dominant position does not has relevance.
- The grant of compulsory license and determination of royalty is the domain of the Patents Act; and thus is outside the jurisdiction of CCI.
Contentions of the Competition Commission were as under:
- that the Competition Commission was ensuring compliance with the provisions of the Competition Act. There was no conflict between the Competition Act and the Patents Act as both were independent in their respective domain.
Intex maintained that the court can interfere in the determination by the commission only if the order of the tribunal suffers from a serious error of law apparent on the face of the record; and as per the provisions of the Competition Act, CCI can determine questions regarding its own jurisdiction.
Intex further claimed that Ericsson’s demand of royalty according to value is patently unfair as it amounts to Ericsson claiming part of the value of the product which falls within the scope of the patent and part which does not fall within the scope of the patent. It was further alleged that the products in question use several patented technologies and unreasonable demand for royalties by patent holders are nothing but ‘royalty stacking’. Such excessive demand for royalty amounts to a ‘patent hold up’ and, thus, restricts the supply of products to the consumers.
In view of the contentions of the parties, the Court held that there is patently no conflict between both the Acts as Patent Act does not oust the jurisdiction of CCI and vice versa. The Patents Act principally protects the rights of the patentee and as an incentive for his inventions grants a monopoly for a specified period to him. The idea of a patent grant is to encourage invention and to prohibit secret use. The right granted to the patentee is exclusive and others have to seek his permission before use of the patented invention; whereas the competition law’s focus is on the promotion of competition and regulation of fair trading practices; thus, fundamentally opposed to monopolization as well as unfair and anti-competitive practices that are associated with monopolies.
The non-obstante clause of the Competition Act expressly provides that the provisions of the Competition Act shall have an effect even if they are inconsistent with any provision in any other law[22]. However, the intention of the Parliament in enacting the Competition Act was not to whittle down the scope of any other law but to forward an interpretation that would further benefit.
The Competition Act has been formulated to regulate unfair trade practices which include anti-competitive agreements, abuse of dominant position, and formation of combinations if they antagonize competition. Even agreements that are otherwise lawful may fail to qualify the yardstick under the Competition law as they may still be anticompetitive or give an edge to a party who in turn may abuse the dominant position. Equally, mergers and amalgamations permissible under the general law may attribute to an aggregation of market power that may not be permitted under the Competition Act. Hence the non-obstante clause needs to be read in the context. In any case, in the event of an irreconcilable inconsistency between any two legislations, the later special statute would override the prior general statute, even though the earlier general statute contains a non-obstante clause.
The court in the instant case found that there is no irreconcilable inconsistency between any two legislations, hence the jurisdiction of the CCI to entertain a complaint concerning the determination of abuse of dominance is perfect and proper. Therefore, the High Court is unable to accept that the impugned orders passed by the Competition Commission are perverse and, therefore, without jurisdiction.
Concluding Observations
The Patent Act prescribes a procedure for seeking a patent with respect to the invention which is patentable under the provisions of the Act. The patentee has been given an exclusive right for a period of 20 years wherein he can exploit the patented invention and nobody else can use the invention without proper authorization from the patentee.
Ample provisions have been incorporated under the Indian patent law which restricts the rights of the patentee and primarily it is the compulsory licensing scheme that regulates the patentee’s inaction with respect to the patented invention. The patentee has to use the invention to best serve the people and if he uses any exploitative practice with respect to quantity or price, the compulsory license can be sought from the Controller General of Patents. The Controller is duty-bound to ensure that the patented invention best serves the interest of the Indian populace. Moreover, the patent law ensures that the patentee doesn’t abuse the dominant position and enforces conditions that can restrict the rights of the seller or supplier in any manner.
The Competition law also ensures that fair play in action is maintained in the business world; and no one abuses its dominant position, enforces anti-competitive agreements, or enters into combinations that adversely affect the business.
The cursory study of the interface between the two laws reveals that the purpose of both the enactments is to ensure fair play in action and reduce exploitativeness. There is no patent conflict between the two legislations as a monopoly under the patent law is never understood to mean exploitation of the people. In order to enjoy the patent, the public policy considerations have their effect on the continuation of the term of the patent and it is well within the jurisdiction of the controller and competition commission to further that end. Similarly, the Competition Commission has to ensure that monopolies are reduced if they had an adverse effect on trade; and competition is promoted. Therefore, the patentee has to grant licenses on fair conditions for the beneficial enjoyment of the patented invention by the consumers. If the patentee is himself producing and supplying the product, it is his duty to ensure effective supply, maintenance of quality standards, and fixation of a fair price. If he can’t perform these objectives then he should be liberal in the grant of licenses and ensure that he does not restrict the rights of the licensee or charge unfair royalties. In such a case, the Controller can use its powers and can grant compulsory licensees; also the role of the competition commission creeps in. Therefore, in view of the above submissions, there is no conflict between the two legislations and the role of the authorities is to maintain harmony between the two legislations.
This article has been written by Sanjay Gupta working as an Associate Professor, Department of Law, University of Jammu, and Raj Kumar working as an Assistant Professor, Department of Law, University of Jammu.
References:
[1] Patent Act, 1970, section 48
[2] Id., section 84
[3] Id., section 141
[4] Preamble, Competition Act, 2002
[5] The Competition Act, 2002, section 3
[6] Id., section 4
[7] Id., sections 5 & 6
[8] Id., section 49
[9] Id, section 3
[10] Ibid
[11] Id., section 4
[12] Id, sections 5 & 6
[13] Id., section 21 (1)
[14] (2013) 1 MLJ 907
[15] The Competition Act, 2002, sections 21 and 62
[16] 1995 EPOR 357
[17] 410 U.S. 52 (1973)
[18] D. Roy, In Search of the Golden Years: How Compulsory Licensing Can Lower the Price of Prescription Drugs for Millions of Senior Citizens in the United States. Cleveland State Law Review, 52: 467-498, 2004
[19] Sahar Asiz, “Linking Intellectual Property Rights in Developing Countries with Research and Development, Technology Transfer, and Foreign Direct Investment Policy: A Case Study of Egypt’s Pharmaceutical Industry”, 10 ILSA J. INT’L & COMP. L. 1, 5 (2003).
[20] Ibid. p. 202-203
[21] MANU/DE/0762/2016
[22] The Competition Act, 2002, section 60