Author: Hammad Siddiqui & Naman Pratap Singh
Third- year Law students at Jamia Milia Islamia, New Delhi
I. Abstract
This article examines the implications of the Competition (Amendment) Act, 2023 in India, particularly in relation to the absence of Intellectual Property Rights (“IPR”) protection as a defence against abuse of dominance. Drawing comparisons with other jurisdictions such as the EU, China, USA, and UK, it explores how these regions address the intersection of antitrust laws and IPR. Additionally, it has analysed the judiciary's approach in reconciling antitrust and IP laws, ultimately advocating for explicit provisions to address the IPR defence in cases of abuse of dominance.
II. Introduction
Recently, the Competition (Amendment) Act, 2023 was published in the Gazette of India. The Bill was first tabled in the parliament in August 2022, drafted mostly on the recommendation of the Competition Law Review Committee (“CLRC”). The Bill was sent to Standing Committee on Finance for review that submitted its report in December 2022. The Bill was reintroduced in the Parliament after taking into account the revisions made by the Standing Committee. The CLRC suggested in its report to include IPR protection as a defence against abuse of dominance.
Unfortunately, neither the Standing Committee’s report nor the recently enacted Bill has anything to that effect. The parliament has paid no heed to that recommendation and denied extending the IPR Safe Harbour to abuse of dominance. This comes as a disappointment as the parliament had a fair chance to make Indian competition and IPR law regime in tune with the more mature jurisdictions.
The problem is that the CCI has narrowly construed the defence provided under Section 3. The Competition Act of 2002 permits the IPR defence against anti-competitive agreements. Section 4 outlines abuse of dominance behaviours that can be accomplished by a company. One of them is entering into anti-competitive agreements. But, while IPR protection would save them under Section 3 of the Act, the same act would make them liable under Section 4.
In the Automobiles decision, the CCI observed that, unlike the provision in section 3(5) of the Act, there is no exemption to the provisions of section 4(2) of the Act. Consequently, if a business is identified as dominant under explanation (a) of section 4(2), and engages in actions that result in restricting market access for consumers in the relevant market, it cannot be argued that such conduct falls within the scope of IPR. The approach taken by the CCI is questionable. If the ordinary exercise of an IP right comes within the scope of abuse, the grant of that right and its exercise becomes undermined by section 4(2).
III. Position in More Mature Jurisdictions
Article 102 of Treaty on the Functioning of the European Union (“TFEU”) prohibits the abuse of a dominant position. In Microsoft v. Commission, the Court of First Instance, relying on the judgment in Magill and Volvo, held that a company holding a dominant position does not commit an abuse of dominance under Article 82 (now 102) EC by simply refusing to license an IPR to a third party.
Abuse of dominance through the exercise of exclusive rights by the owner of IPR is only considered in rare circumstances. For example, the Court of Justice of the European Union (“CJEU”) in the IMS Health case clarified 'exceptional circumstances' where refusal to allow a license to an IPR would amount to an abuse of dominance. The court identified three conditions that must be met together for a refusal to license to be considered abusive. First, it must impede the introduction of a new product in a prospective market. Second, the action must not be justified by objective considerations. Third, the refusal must be likely to exclude all competition in the secondary market. Consequently, the EU has tried to encourage innovation by limiting the liability of an IP holder exercising exclusive rights to exceptional circumstances.
Article 55 of the Anti-Monopoly Law of the People's Republic of China renders the law inapplicable companies that exercise their IPRs “in accordance with the laws and administrative regulations on IPR.” However, this does not give free rein to IP holders and they are not allowed to restrict or eliminate competition by abusing their IPRs. In 2015, China’s State Administration for Market Regulation (“SAMR”) had issued the ‘Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrain Competition’. A recent amendment to the regulation has included the ‘abuse of dominant market position’ among monopolistic acts.
In the USA, the exercise of IPR is subject to scrutiny under antitrust laws but is not inherently viewed with suspicion under them.(see s. 2.1 of Antitrust Guidelines for the Licensing of Intellectual Property). Under the US Patent Law, a mere unilateral refusal to license a patent is not misuse. However, IP rights misuse beyond the right of exclusion may result in the loss of in the loss of IP protection. It can be rightly inferred neither IPR nor Antitrust Laws has been made subservient to the other.
Similarly in the UK, the Office of Fair Trade (now Competition and Markets Authority) issued guidelines on assessing the conduct of dominant undertakings. Rule 5.4 says, 'The legitimate exercise of an IPR by a dominant undertaking is not abuse. It is, however, possible that the ways in which an IPR is exercised may give rise to concern if it goes beyond the legitimate exploitation of the IPR’.
IV. Indian Scenario
In the Indian Competition Act, 2002, there is no clear provision for defence of IPR protection against abuse of dominance. The Act does not provide for an objective justification defence either. However, in the Schott Glass case, the CCI held that terminating shipments to a customer to protect its trademarks was objectively justified by Schott Glass. In a sense, the CCI allowed both defences in this case, but this authority is not as firmly established and matured as the authorities of other jurisdictions discussed earlier. The reasonable exercise of IPR defence may be self-evident and may not require explicit articulation. But the exception mentioned under Section 3(5) and its narrow construction by the CCI renders its explicit expression necessary. This reasoning was adopted by the CLRC while recommending the addition of an IPR defence in Section 4 of the Act. Section 3(5) allows IP holders to make anti-competitive agreements as far as it is reasonable. There isn’t actually a logical answer to why the same cannot be done in Section 4.
In some cases, challenges to the CCI’s jurisdiction have been raised on its hearing of IPRs matters. In Aamir Khan Productions Pvt. Ltd. v. Union of India, the Bombay High Court held that the Competition Commission has the jurisdiction to determine whether their jurisdiction in a case exists or not. The contention was that the CCI lacked jurisdiction to initiate proceedings regarding films because the Copyright Act of 1957 provides comprehensive provisions regarding them. In a recent case of Monsanto Holdings Private v. Competition Commission of India, the question before Delhi High Court was whether the CCI has jurisdiction over issues related to the exercise of patent rights. Dismissing the appeal, the court determined that there was no fundamental conflict or irreconcilable inconsistency between the Competition Act and the Patents Act. Therefore, the jurisdiction of the CCI to entertain complaints regarding abuse of dominance with respect to patent rights could not be excluded. The courts have taken a progressive stand by holding that the antitrust laws and IP laws are reconcilable. They are not mutually exclusionary and they can work in harmony, complimenting each other.
V. Conclusion
Almost every mature competition law jurisdiction tries to strike a balance between IP exploitation and abuse of dominance through explicit regulations or solid case law. It is clear from the cases discussed that the Indian judiciary has proactively attempted to strike a balance between antitrust and IP laws. One has not been given an overriding effect over the other. While the purpose of these two laws may seem different at times, the result that they seek to achieve is the same: i.e., consumer welfare and the public good. However, conflicts are bound to arise when there would be a case of abuse of dominance in exercising IP rights. It is not wise to burden the judiciary with the task of extending or extrapolating the IPR defence given in section 3 of the Competition Act to section 4 (abuse of dominant position) of the Act. A legislative change to this effect would be a step forward.
Note: This article has been reviewed by Mr. Steve Levitsky (Merger Clearance and Antitrust Counselling Manhattan, New York, United States ), at the Tier II Stage.
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