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Intellectual Property Law and Competition Law in India

 

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Written By: Anwesha Ghosh

Introduction

Intellectual Property Law and Competition Law are normally regarded as areas at odds with each other. The creation of this conflict is due to IPR holders being granted statutory rights to essentially control access to the intellectual property and charging monopoly rents for the use of the IPRs—something apparently in conflict with competition law, which attempts to curtail such market power.[1] In other words, on one hand, IP laws work towards creating monopolistic rights whereas competition law battles against it.

Intellectual Property Laws are monopolistic in nature. They guarantee an absolute right to the creators and owners of work which are a result of human artistry. Also, they prevent commercial exploitation of the innovation by others. This legal monopoly sometimes lead to market power and even monopoly as defined under Competition Law. When this advantage or dominant position is abused, it creates a conflict between IPR and Competition Law.[2]

The major concerns of Competition Law in regard to IPR are the market power that may result from granting such rights, and the detrimental effects caused by the anti-competitive exercise of IP rights. At its simplest, market power can harm consumers by setting prices higher than those needed to secure cost-effective production. Moreover, the harm caused by market power may extend beyond this, when the protection granted to firms allow them to slow or distort innovation. Under these circumstances, market power will limit the growth of productivity over time, and reduce the scope for sustainable increases in living standards.[3]

Intellectual Property Laws

Intellectual Property law deals with the rules for securing and enforcing legal rights to a person’s intellectual property. The word “Intellectual Property” means “an intangible right protecting a commercially valuable product.”[4] It refers to ideas of creative nature including works such as designs, music, written works, inventions, formulations, symbols, and phrases. Usually, the creator is given an exclusive right to the use of his/her creation for a certain period of time. The main reason behind this is to give an incentive for innovation, research, and investment. In the absence of IPR protection, other firms would be able to take a free ride on the R&D investment made by the inventor firm.

Competition Law

Competition law is a law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies.[5] The aims of competition laws are to ensure that consumers pay the lowest possible price coupled with the highest quality of the goods and services which they consume.[6] It involves formulating a set of policies which promote competition in the market. A dynamic competitive environment supported by effective competition policy and the law is considered to be one of the essential elements of a successful market economy. The benefit of having competition in the market are a lower price, better products, wider choice and greater efficiency than those existing under monopoly. Competition law is the tool through which the Government controls and regulates the producers/players in the market. So, the competition law relates to a matter of competition and competitiveness so that goods and services are sold at competitive prices and the consumers have a choice as to the products they wish. In addition, competition law prevents artificial entry barriers, facilitates market access and compliments other competition-promoting activities.

Interface between Intellectual Property Law and Competition Law in India

Competition law may be applied when particular IPRs have not been obtained in the proper manner or are not deserved, for instance, when patents have been obtained by deceiving the patent office.[7] However, it may also be applied, in certain cases, when IPRs have been granted.

There are two opposing views on the interface between a Competition Law and Intellectual Property Law.[8] The first contents that there is a tension between competition and intellectual property, arguing that competition law seeks to eliminate monopolies and encourage competition, while IPR laws reward creators and inventors with a limited monopoly. According to the proponents of this view, the main function of IPR laws is to properly assign and defend property rights on assets that have economic value. On the other hand, the main goal of competition law should be to minimize the adverse consequences of monopoly power arising from IPRs. However, this approach has become out-dated and not followed in modern times.

The second view contends that competition law continues to be a vital means of ensuring continued innovation and economic growth. The aims and objectives of IPRs and competition laws are complementary, as both aims to encourage innovation, competition and enhance consumer welfare. It is vitally important to preserve competition in innovation because competition ensures the best outcome for consumers.

Section 3

Under Section 3 of the Competition Act, 2002, the Competition Commission is required to look into agreements which are anti-competitive in nature and those found to be anti-competitive are declared void. The Competition Act incorporates a blanket exception for IPRs under Section 3(5). It preserves the rights of the IPR holder to prevent infringement and protect these rights, as long as the restrictions imposed by the agreement are reasonable, ensuring that competition policy does not interfere with the reasonable use of IPRs. However, this protection is not absolute. If the restrictions imposed are unreasonable the same can be tried under Competition law.

The wording of the section itself suggests that the section only protects reasonable conditions imposed by the IPR holder and any unreasonable condition imposed can be dealt under Competition Law. Hence, the exception is only allowed for the purpose of protection of the rights to the extent granted by the IP law; the requirement of reasonableness. The same has been held in various cases.

In FICCI Multiplex Association of India v United Producers/Distributors Forum[9], the CCI rightly observed that intellectual property laws do not have any absolute overriding effect on competition law. The extent of the nonobstante clause in Section 3(5) of the Act is not absolute as is clear from the language used therein and it exempts the right holder from the rigors of competition law only to protect his rights from infringement. In Aamir Khan Productions v.The Director-General[10], the Bombay High Court held that the CCI has the jurisdiction to deal with competition cases involving IPR. Further, in Kingfisher v Competition Commission of India[11], it was again made clear that all the issues that rose before the Copyright Board could also be considered before the CCI.

Conclusion

The interaction between IPR and Competition Policy is neither conflicting nor they aim to replace each other; in fact, they both complement each other. The common objective of both laws is to promote innovation. The advent of fresh innovations gives rise to healthy competition at macro as well as microeconomic levels which further leads to more competition for innovation, which eventually results in the economic development of the country. However, this should not be to the detriment of the common public. For this, the competition authorities need to ensure the co-existence of competition policy and IP laws since a balance between both laws would result in an economic as well as consumer welfare.[12]

Further Competition law and IP law pursue the same aim of consumer welfare. The law of property grants an exclusive right in the hope to induce people to make investments in things which are needed in society. Competition law aims to provide the consumers highest quality of goods and services that too at the lowest possible price. They both adopt different path to achieve the same goal of consumer welfare.

References-

[1] Eshan Ghosh, ‘Competition Law and Intellectual Property Rights with Special Reference to the TRIPS Agreement’ (2010) Research Paper for the Competition Commission of India, available at: http://cci.gov.in/images/media/ResearchReports/EshanGhosh.pdf (Last Visited: Dec 2 2017, 07:23 PM).

[2] Anthony F. Baldanza and Charles Todd, ‘Intellectual Property Rights: Friends or Foes’ (2006) Competition and Intellectual Property Rights Seminar of Ontario Bar Association, available at: http://www.fasken.com/en/intellectual-property-competition  (Last Visited: Dec 1 2017, 07:28 PM).

[3] Sachin Kumar Bhimrajka, Study on relationship of competition policy and law and Intellectual property rights, available at: http://www.cci.gov.in/images/media/ResearchReports/sachin_report_20080730103728.pdf, (Last Visited: Nov 29 2017, 07:28 AM).

[4] Black’s Law Dictionary (5th edn, 2010).

[5] Taylor, Martyn D, ‘International competition law: a new dimension for the WTO?’ (Cambridge University Press 2009).

[6] Sam Vaknin, ‘The Philosophy of Competition’.

[7] Salil Arora, ‘Does Commercial Exploitation of Intellectual Property Rights Inherently Result in Anti-Competitive Practices?’(2012) Research Paper for the Competition Commission of India, available at: http://cci.gov.in/images/media/ResearchReports/salil.pdf (Last Visited: Dec 2 2017, 11:45 AM).

[8]  Allan Asher , Public Lecture on ‘Interface between the Indian Competition Act 2002 and the IPR Laws in India’ (2009), available at: http://www.circ.in/pdf/Backgrounder Public_Lecture_By_Allan_Asher_29May2009.pdf. (Last Visited: Dec 3 2017, 07:32 AM).

[9] Case No 1 of 2009, CCI order dated 25 May 2011.

[10] 2010 (112) Bom LR 3778.

[11] Writ petition no 1785 of 2009.

[12] Poorvi & Madhooja, ‘Competition Law and Intellectual Property Laws’ (2009) Legal Service India, available at:http://www.legalserviceindia.com/article/l307-Competition-Law-and-Intellectual-Property-Laws.html (Last Visited: Dec 3 2017, 12:05 PM).

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