Category: Competition Law

Is Jio indulging in anti-competitive practices?

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Recently, Bharti Airtel has filed an information under Section 19(1) of Competition Act, 2002. This information is pertaining to the allegation against Reliance Jio, for providing services at predatory prices, by abusing its dominant position in the market. Abuse of Dominant position is prohibited under section 4 of Competition Act, 2002.

On the other hand Reliance Jio has already filed an information, against Vodafone, Idea and Bharti Airtel, and few other telecom service providers, two months earlier. It has alleged that these Companies were violating section 3 and 4, by forming a Cartel and Abusing their respective Dominant Position. The rationale for filing such an information was, that these companies refused to provide Point of Interconnection (POI) to Reliance Jio, as many of its calls were failing.

Reliance Jio has been providing its services to its customers, for free. It has been alleged that same amounts to abuse of dominant position, as they are predatory and no other telecom service provider is providing its services for free. There is no doubt in the fact that, other Telecom companies are suffering comparative loss due to such pricing policy of the Reliance Jio.

Vodafone, Idea, Bharti Airtel, have significantly, changed and reduced prices, for the services provided by them. It can be said that so far, the profits of these companies have gone down, but the prices have become reasonable. Furter, Airtel has bought Telenor and Vodafone is about to merge with Idea, for competition against Reliance Jio.

The question which arises here are that“Does refusal to provide a POI amounts to anti-competitive practices?”, and “Does Reliance has a Dominant Position in Indian Telecommunication Market, and if yes, then has it abused it?” To answer these question, a market has to be determined in which these companies operate. After that, it is to be seen, whether there isAppreciable Adverse Effect on Competition (AAEC). Section 19 of the Competition Act, 2002 provides for various factors which are to be considered for determining the market both, ‘geographical ‘ and ‘product’, and for determining AAEC and dominant, under section 3 and 4 respectively.

As far as allegation of Reliance Jio are concerned, by not providing POI, trio may be limiting the provision of services. Reliance Jio has alleged that Cellular Operators Association of India(COAI), is acting as platform for anti-competitive carried outby trio (Vodafone, Bharti Airtel, Idea). Recently, many of the Association have been found guilty of providing platform for cartel activities. If such allegation turns out to be true, then COAI may be held responsible for violation of Section 3 of the Competition Act, 2002.

Now, coming to the issue of predatory pricing, which has been raised by the trio. It is very clear that Reliance Jio is providing its services, such as voice calling, 4G unlimited Internet Datato its customers for free. Firstly, it must be seen, whether it is having a “dominant position”in the market, to determine abuse of the same.

In India, many customers have switched to Reliance Jio, temporarily, and they have not become fully dependent on its service, as far as voice calling is concerned. On the other hand, where the Internet services are concerned, many people have availed its services, and in this market it has gained market power to an extent. Dominance of Reliance Jio, is not quite established in the voice calling market, many people do not have compatible handsets, and its network in distant areas is not available.

Answering to the main question that “Is Jio indulging in anti-competitive practices?”, they have market power to quite an extent in some major cities, but not all over India. Therefore, it may abuse its dominance to quite an extent in future, but till now they have not shown such a conduct.

As far as allegations of Reliance Jio are concerned, they have more chances of convincing, CCI, that trio might be engaging in such anti-competitive practices, and colluding against Reliance Jio. While, allegations of the trio, regarding predatory pricing has less chance of convicing CCI of such alleged conduct.

ABOUT THE AUTHOR

dhruv-chandora

DHRUV CHANDORA

Dhruv Chandora is currently pursuing 4th year of BA LLB (Hons) course at Rajiv Gandhi National University of Law, Punjab. A voracious reader and a keen learner, Dhruv is also a moot court enthusiast.

FRAND Licensing: Bridging the gap between Competition Act and Patent Act

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Telefonaktiebolaget LM Ericsson (Public) (in short “Ericsson”) is a company having around 33,000 patents, and 400 of these patents have been granted in India. Most of these are Standard Essential Patents in the field of Mobile Communications like 2G, 3G and 4G which are used in the smartphones and such other devices, which are used for communication.[1]

Ericsson versus Micromax & Others

Lately, Ericsson filed a civil suit against many companies for infringements of its patents relating to the mobile communications, some of them were Mercury Electronics (Micromax),[2] Intex Technologies (India) Limited (Intex),[3] M/s. Best IT World (India) Private Limited (Iball),[4] Lava International Ltd (Lava),[5] Xiaomi Technology (Xiaomi)[6]. These companies in their defence asserted that Ericsson violated its FRAND commitment, made by Ericsson to the European Telecommunications Standards Institute (ETSI). ETSI made the patents of the Ericsson in the field of the mobile telecommunication as the Standard patents, and thus made them essential in nature. These patents are also recognised as standards within India by the Department of the Telecommunication, which recognises the standards adopted by ETSI.[7]

Most of the companies sell smartphones in India at a very reasonable price and common people who cannot afford the luxury of the Apple’s iPhone tend to buy such smartphones. Some of these companies being Intex,[8] Iball[9], and Micromax[10]and charged back on Ericsson by filing information under the Competition Act, 2002 against it, in which the investigations are pending.

Standard Essential Patents (SEPs) and FRAND Licensing

These disputes are becoming prevalent in the today’s market due to the lack of legal recognition of the FRAND Licensing in India. FRAND Licensing stands for Fair, Reasonable and Non-Discriminatory Licensing. They are sine qua non for widespread use of the Standard Essential Patents and hence, following the standards which are set by the Standard Setting Organizations (SSO).

The Jurisprudence of FRAND Licensing came to India with the filing of the civil suit by the Ericsson against Mercury and Micromax[11]. FRAND Licensing is a type of voluntary Licensing of the Intellectual Property, by the owner. The FRAND Licensing is done on the terms which are Fair, Reasonable and Non-Discriminatory. The Royalty set by such Licensing should be proportionate to the patented product and not exorbitant, it must be a reasonable one.[12]

The owner agree upon such terms to license the rights to the other persons, as the patent owned by the owner is a Standard Essential Patent (SEP) i.e. a patent which conforms to the standards set by the SSO, and without their compliance the products could not be sold in the market, because there are no non-infringing alternatives. Hence, SEPs are essential, to make a product conforming to the industry standards, and they face no competition unless and until that patent becomes obsolete.

These standards are set by a mutual agreement and consensus between the market players to reach upon compatibility between the services or products particular market under the aegis of the SSO.[13] These standards can also be fixed by statutory SSOs.

FRAND Licensing and Patents Act, 1970

FRAND Licensing tends to promote the objective for which patents are granted status of SEPS, as it allows the dissemination of the patent to the public, and fetches the appropriate amount of royalty to the companies who own SEPs. Section 83 of the Patent Act, which lays down the general principles which must be applicable to the working of the patented inventions, in its clause (a),(c),(f), and (g), includes within them certain objectives which are incorporates in the FRAND Commitment, which are as follows:

  1. that the inventions are worked on a commercial scale and to the fullest extent that is reasonably practicable without undue delay;
  2. that the protection and enforcement of patent rights contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations;
  3. that the patent right is not abused by the owner, and he does not resort to practices which unreasonably restrain trade;
  4. that patents are granted to make the benefit of the patented invention available at reasonably affordable prices to the public;

Further Section 84 which incorporates the provisions regarding the compulsory licensing, makes it a clear ground, that if the patented invention is not available to the public at a reasonably affordable price, one may apply for the Compulsory Licensing, after ascertaining, whether the applicant has made efforts to obtain a license from the patentee on reasonable terms and conditions and such efforts have not been successful within a reasonable period. Section 84 also provides for the Proviso to the above-mentioned condition that if any anticompetitive practices adopted by the patentee and same are established, then this condition shall not be applicable. Therefore, this section provides for the intersection with Competition Law, which is inevitable.

Competition Law Aspect of the FRAND Licensing

Section 3, of the Competition Act, 2002 which prohibits anti-competitive agreement, in its clause (5) clearly recognises “Reasonable” restriction which can be put on a party by the owner when a patent is being infringed or any of the rights which are conferred under the Patent Act, 1970. If the same is read with the Section 83 and 84 Compulsory License would be granted to the prospective Licensee if he is not getting License on FRAND terms.

Section 4 on the other side restricts the abuse of the dominant position. Once a patent gets the status of SEP, it is granted a dominant position in the particular market as, it hardly faces any competition, and enjoy such position of strength until it becomes obsolete. Clause (2), sub-clause (a) clearly, states that there would be the abuse of the dominant position if the enterprise imposes unfair and discriminatory prices on the consumers of its products. In the present case of Ericsson, it clearly has the Dominant Position in the market of the SEPs pertaining to the mobile telecommunications, and it abused it by charging unfair prices.[14] Hence, it was liable to grant a license, as compulsory license would have been granted after its establishment of Ericsson’s abusive conduct in the market.

Hence, FRAND Licensing is the combined product of the two aspects of the CompetitionLaw i.e. prohibition of anti-competitive agreement and prohibition of the abuse of the Dominant Position.FRAND Licensing, is a pro-competitive commitment by the SEP holders, as it provides irrevocable licenses to the market players, and in return, they tend to get a reasonable reward for their work. The persons owning the SEPs make FRAND commitment to the SSOs to License them on FRAND terms. FRAND Licensing protects the market from being exploited by the dominant player who owns the patent. It promotes the Standards as decided by the SSOs and demotes the Patent Hold-up.

Patent Hold-up

Patent Hold-up is another name for the abuse of dominant position by the SEPs owners.[15] They hold their patent with them after they are declared as SEP, unless the licensee does not give up to their conditions which may involve unfair pricing i.e. supra-competitive pricing, or more burdensome terms (as compared to previous licensing when they were not SEPs).[16] It undermines the competition in the market, by creating entry barriers and also subverts the authority of the SSO by playing fraud upon them i.e. gaining a status of SEP and committing to FRAND Licensing and then playing harsh upon the market player dependent upon such SEPs.

Conclusion

FRAND Licensing is field where the jurisdiction of Patent Act and Competition Act, intersect. They both have to be read in addition to each other, though Delhi High Court lately has held that Competition Act, is a general Act and Patent Act is a special Act in relation to it.[17] Though, the both Acts have to be read in consonance, and if necessary Competition Act, should given preference over the Patent Act in terms of Licensing Agreements, as Competition Act, represents “Public Interest”, which has been reflected in some instances, in Patent Act. FRAND Licensing is a softer version of the Compulsory Licensing, as it has all features of it, but lacks a legal backing. It is like mediation process in the era of litigation in court, which helps parties to decide terms on Fair, Reasonable and Non-Discriminatory terms. It is better this way as the prospective Licensee does not have to resort to the Controller unnecessarily and, he can approach to the SSO. A law should be brought in by the Legislature in India, which considers such situations.

Overall, there needs to be a co-ordination between, the statutory authorities especially between, Controller of Patents and Competition Commission of India, so that they could work towards the promotion of the “Public Interest” hence, implement the main objective of the Legislations and the Constitution of India.

[1] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[2] Telefonaktiebolaget LM Ericsson (Publ) v. Mercury Electronics & Anr, (2014) 206 DLT 423.

[3] Telefonaktiebolaget LM Ericsson (Publ) v. Intex Technologies (India) Limited, 2015 SCC OnLine Del 8229.

[4] Telefonaktiebolaget LM Ericsson (Publ) v. M/s. Best IT World (India) Private Limited (Iball), 2015 SCC OnLine Del 11684

[5] Telefonaktiebolaget LM Ericsson (Publ) v. Lava International Ltd., 2016 SCC OnLine Del 1354

[6] Telefonaktiebolaget LM Ericsson (Publ) v. Xiaomi Technology & Ors., 2016 SCC OnLine Del 2404

[7] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[8] Intex Technologies (India) Limited v. Telefonaktiebolaget LM Ericsson (Publ.), [2014] CCI 10

[9] M/s Best it World (India) Private Limited (iBall) v. M/s Telefonaktiebolaget L.M Ericsson (Publ) & Anr., [2015] CCI 104

[10] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[11] Telefonaktiebolaget LM Ericsson (Publ) v. Mercury Electronics & Anr, (2014) 206 DLT 423.

[12] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[13] Telefonaktiebolaget LM Ericsson (Publ) v. Intex Technologies (India) Limited, 2015 SCC OnLine Del 8229.

[14] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[15] Rambus, Inc., No. 9302, at 4 (F.T.C Aug.2, 2006)

[16] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[17] Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India and Another, 2016 SCC OnLine Del 1951

ABOUT THE AUTHOR

dhruv-chandora

DHRUV CHANDORA

Dhruv Chandora is currently pursuing 4th year of BA LLB (Hons) course at Rajiv Gandhi National University of Law, Punjab. A voracious reader and a keen learner, Dhruv is also a moot court enthusiast.

POACH ME NOT? – The Position of Antitrust Law in India and USA on poaching agreements between companies for employees

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On 20th October, 2016, the Federal Trade Commission and the Department of Justice of the Antitrust Division in USA issued guidance for Companies and Human Resource Professionals, relating primarily to wage-fixing and anti-poaching agreements, to enable them to follow practices conducive for the free and fair functioning of the market. The guidelines also express the intention of proceeding with criminal investigations on allegations of agreements between employers to not solicit or hire each others’ employees.

Prior to this guidance, the DOJ has brought forth several successful cases, primarily against hi-tech companies, recognizing agreements preventing ‘cold calling’ as prima facie illegal which cannot seek the justification of resultant procompetitive circumstances. In the case of U.S v. eBay Inc. the judgement prohibited companies from, “attempting to enter into, entering into, maintaining or enforcing any agreement with any other person to in any way refrain from, requesting that any person in any way refrain from, or pressuring any person in any way to refrain from hiring, soliciting, cold calling, recruiting, or otherwise competing for employees of the other person.”[1]

Similarly, in several other cases, such civil enforcement actions[2] were brought forth where both or either of the companies to the agreement agreed to not directly solicit each others’ employees. The DOJ opined that the agreement had the effect of diminishing competition to the disadvantage of employees by preventing access to opportunities. In 2013, the US Federal Trade Commission further observed that a provision in the Music Teachers’ National Association Code of Ethics which prevented soliciting competing music teachers was anti-competitive as it had the effect of detracting from the consumer benefits of competition. However, the difference made by this guidance is the element of criminal enforcement, while in comparison earlier, only money damages or conduct sanctions could be secured.

In the context of India, in the year 2015, IndiGo had been accused of poaching over 60 pilots from Air India and Jet Airways and the Competition Commission of India had been approached by Air India to prevent this ‘predatory recruitment’ of trained pilots. The CCI had rejected the complaint summarily by terming it as an ‘employment issue’ and had gone on to state that there was no restriction on an airline company to hire pilots who worked for other airlines. In this context, the Ministry of Civil Aviation has been contemplating since then to develop a framework for anti-poaching whereby airlines give informal commitment in furtherance of the agreement to not poach staff and pilots of other airlines. However, given the position of Indian law which we shall now evaluate, these are likely to be untenable.

Given that the Competition Act, 2002 is relatively more recent in legal developments, such aspects pertaining to the validity of such agreements were dealt with under S. 27 of the Indian Contract Act, 1872 prior to the Act of 2002. S. 27 of the Act holds that any agreement which restrains an individual from exercising a lawful profession, trade or business is void and a restraint will only be considered reasonable if it does not interfere with public interest and offers fair protection to the parties. In the case of Pepsi Foods Ltd. & Others v. Bharat Coca-Cola Holdings Pvt. Ltd. & Others[3] where the contract contained a negative covenant restraining employees, it was held by the Delhi High Court that such post-termination restraint was violative of S. 27 and thus, void. The Court held that such a restraint would be akin to ‘economic terrorism’ and an injunction could not be sought to create a situation such as “once a Pepsi employee, always a Pepsi employee.” The Court was of the opinion that an employee should have the right and freedom to change employment and seek an improvement in service conditions.

In the case of Desiccant Rotors International Pvt. Ltd. v. Bappaditya Sarkar & Anr.[4] it was observed that these agreements which are entered into by companies to shield themselves from competition are in conflict with the rights of the employees to seek employment of their choice and as the latter affects livelihood, it must prevail.

Under the purview of the Competition Act, 2002 now, S. 3 deals with anti-competitive agreements which are void abinitio, but non-poaching agreements are not mentioned under this section expressly. Thus, as long as anti-poaching agreements follow certain guidelines, they are not in contravention of S. 3- the agreement should not have an adverse effect on competition, should not un-promote competition and should ensure the freedom of trade such that no employee is restricted from working for a competing employer.

Even though not a lot has come from the Competition Authorities in India, not having been faced with a multitude of such cases, such actions have scope under the Act of 2002 as the ambit is wider than the Contract Act, especially in terms of remedies whereby while a contract can only be rendered void under the Contract Act, penalties can be imposed under the Competition Act and in terms of applicability as well, the Competition Act applies to agreements of any kind, which is a broader ambit.

What remains to be seen is whether the Competition Authorities of India continue to follow decisions similar to the slew of cases under the ambit of S. 27 of the Contract Act and as in the airlines summary rejection and whether they develop a framework such as the one in the US in the field of antitrust law.

[1] U.S. v. eBay Inc., No. CV12-58690-PSG (N.D. Cal. Sept. 2, 2014).

[2] U.S. v. eBay Inc., No. CV12-58690-PSG (N.D. Cal. filed Nov. 16, 2012); U.S. v. Lucasfilm Ltd., No. 1:10-CV-02220 (D.D.C. filed Dec. 21, 2010); U.S. v. Adobe Systems, Inc., et al., No. 1:10-CV-01629 (D.D.C. filed Sept. 24, 2010).

[3]  Pepsi Foods Ltd. & Others v. Bharat Coca-Cola Holdings Pvt. Ltd. & Others 81 (1999) DLT 122.

[4]  Desiccant Rotors International Pvt Ltd v Bappaditya Sarkar & Anr., Delhi HC, CS (OS) No. 337/2008 (decided on July 14, 2009).

ABOUT THE AUTHOR

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Currently pursuing her undergraduate degree from the Gujarat National Law University, Gandhinagar, Sanskriti Sanghi possesses a flair for writing and a yearn to learn. Being avidly interested in Antitrust law, Intellectual Property Rights, Children’s Rights and International Relations, she seeks to engage in and discuss multiple disciplines which keep her constantly discovering. She believes in immersing and involving herself in various activities and letting the passion for each of those interests allow her to deliver her best.