The Competition Act, 2002 (hereinafter the Act) has reached the end of its first decade of enforcement. The Act has undoubtedly proven itself to be efficient due to the meticulous work by the Competition Commission of India (CCI) in framing regulations, creating advocacy programs etc. However, there exist some lacunae in the Act and it becomes imperative to address such lacunae for a dynamic market like India to progress. For this purpose, the central government constituted a Competition Law Review Committee (CLRC) in 2018, which gave its recommendations in August 2019. The government introduced a Draft Competition Law (Amendment) Bill, 2020 based on these recommendations. Several changes have been proposed in the bill including the provision for settlements, formation of a governing board etc.
In this piece, we will limit our discussion to the proposed Section 4A which seeks to replace Section 3(5) and to extend the exemption granted to IPR holders under the latter section to the cases of abuse of dominance. The aforesaid Section states that the IPR holders while imposing reasonable conditions in order to prevent infringement of their right, are exempted from Section 3 and 4 of the Act dealing with anti-competitive agreements and abuse of dominance respectively.
THE IPR AND COMPETITION LAW INTERFACE
The scrimmage between IPR and Competition law has been there since the very beginning of the Competition law regime. IPR law promotes innovation by rewarding the discoveries and inventions by granting an exclusive right to use them. In other words, it allows the owner of this right to prohibit others from using his property (patent, trademark etc.) without his permission. This power can be used to exclude and exploit the persons or entities who wish to use that property Competition law, on the other hand, abhors exclusionary and exploitative practices of the dominant players in the market to sustain competition and ensure consumer welfare.
There appears to be a conflict in the functioning of the IPR and competition laws. However, a closer look at them reveals that they are rather complementary to each other. IPR laws provide certain rights, and competition laws keep a check on the proper use of those rights. Further, the Act exempts reasonable conditions imposed by the owner of an IP right to protect infringement of his property. This exemption is applicable only with respect to anti-competitive practices and not to monopolistic practices by a dominant enterprise.
Even though it is not a blanket exemption on the reach of competition law upon the IPR holders, it raises unnecessary questions on the jurisdiction of competition authorities. In cases like Ericsson v. CCI and HT Media v. Super Cassettes, the courts have upheld the competition proceedings against the IPR holders. Anti-competitive agreements in competition law include horizontal agreements which are per se illegal and vertical agreements which are examined on the basis of rule of reason. The factors provided under Section 19(3) are used to determine the legality of vertical agreements. The existence of these factors further minimizes the use of the exemption as they can be used to determine the reasonability of conditions in the agreements involving IP rights. Thus, Section 3(5) seems to serve zero or negligible purpose to solve the conflict between the two laws.
EFFECT OF SECTION 4A
The proposed amendment intents to extend the reach of exemption given under Section 3(5) to abuse of dominance by the IPR holders. However, this extension will have a negative impact on the enforcement of competition law. The abuse of dominance under Section 4 is examined through the rule of reason approach and thus provides CCI room to analyze the anti-competitive effects of the practices of dominant market players. Thus, Section 4 in itself provides a ‘balance’ by allowing the dominant party to plead any reason to defend itself.
The introduction of Section 4A will create chaos, as every dominant IP holder will attempt to take the defence under this provision justifying the abuse of their dominant position. This practice will lead to serious consequences, especially in cases where the IP is an essential facility. As per the Doctrine of Essential facilities, the owner of an IP (essential facility) has to compulsorily license it to all the willing licensees on reasonable terms. In a way, this mandate is an infringement of his right and in such cases, the dominant IP holder will certainly take recourse to the exemption under Section 4A.
The enactment of this section would imply that the commission first has to apply the test of Section 4A in every case dealing with IPR and check if they can bring it within the bounds of the Act or not. It would open two ways of assessing abuse of dominance cases i.e. section 4 and 4A. Consequently, the application of Section 4A would hinder the balance provided in the existing provision.
CONDITION IN DEVELOPED NATIONS
It can be indubitably be deduced that our competition law is inspired from the practices of developed markets like the USA and EU. In the USA, there is no such explicit provision which provides a balance between IP rights and competition law. However, jurisprudence implies that the US is trying to develop a balance. A “SAFETY ZONE” has been constructed by Department of Justice, which provides no restriction on the IP Licensing agreement so long as it does not create any appreciable adverse effect on competition in the market by any way. The Supreme Court of the US made it clear in FTC v Actavis that in case of a conflict between patent laws and antitrust laws, both the laws must be harmoniously dealt.
Article 101 TFEU and Article 102 TFEU regulate competition mechanisms in the EU. There is no such balancing provision in the European competition law neither with respect to anti-competitive agreements nor with respect to abuse of dominance. The non-existence of such provision provides the EC sufficient room to apply its mind and ensure consumer welfare on a case to case basis. The classic example of creating balance by EC in case of conflict between IPR and competition law is Microsoft v Commission.
Section 4A is just an unnecessary extension to the already existing provision under section 3(5) for providing a balance between the two laws. Section 4A does not rescue the IP rights from the application of competition law but provides an escape route to the IP holder. Including section 4A in the Act will invariably cause a delay in the proceedings before the CCI and wipe out the scope of timely analysis. We should never forget that we take lessons from the developed nations in framing our policies and laws, which is one of the prudent reasons for our efficient legislative framework. We have already seen that countries like the US and EU do not have such a balancing provision. Furthermore, our CCI is in its salad days and it is difficult for it to ensure proper competition in a flourishing market. Presently, our CCI requires the law which does not have complex analysis in order to provide quick and effective enforcement. Henceforth, all these contentions lead us to the conclusion that the Act must not be amended to include Section 4A.
ABOUT THE AUTHORS
Ritvik Maheshwari is a second-year BA LLB student at National Law University Odisha.
Riya Thawani is a second-year BA LLB student at National Law University Odisha.