[Ansruta Debnath is a student at National Law University Odisha.]
Intellectual property rights and competition law have often been considered to be at loggerheads with each other. This is because, while intellectual property law involves providing exclusivity to companies with the aim of fostering innovation, competition law is all about preventing exclusivity, especially when it makes markets anti-competitive. In India, this conflict got accentuated in the judgement of Telefonaktiebolaget LM Ericsson (Publ) v. Competition Commission of India (2023). Here, a Division Bench (DB) of the Delhi High Court observed, through a combined order to appeals filed by Telefonaktiebolaget LM Ericsson (Publ) (Ericsson) and Monsanto Holdings Private Limited (Monsanto), that the Competition Commission of India (CCI) had no powers to inquire into actions of patentees i.e., the Office of the Controller General of Patents, Designs and Trade Marks (Controller) was the only authority with jurisdiction.
The appellants i.e., Ericsson and Monsanto had pending abuse of dominance cases in the CCI, who had directed the Director General (DG) to launch investigations under Section 26(1) of the Competition Act 2002. The allegations against Ericsson involved anti-competitive behaviour with regard to its standard essential patents (SEPs) and refusal to license them at mutually amicable rates. Further, Monsanto was being investigated for anti-competitive licensing agreements for their patented technology in the downstream market.
This article is solely focused on advocating for the CCI’s jurisdiction in SEP disputes. It first explains SEPs and their competitive concerns, then proceeds to enumerate the benefits of having the CCI exercise jurisdiction in abuse of rights by SEP-holders and suggests ways in which the same can be realised in a harmonious manner contrary to the DB’s exclusionary approach.
Understanding SEPs and its Competitive Concerns
SEPs are patents of technologies which are considered essential for manufacturing products in an industry. These standards are set by standard setting organizations after voluntary fair, reasonable and non-discriminatory (FRAND) commitments are made by the SEP-holder that they would provide licenses to their patents in a fair manner. These commitments also involve a prospective licensee to undertake that they not use SEPs until they pay a fair royalty to the licensor.
When a patented technology becomes a standard, all devices/equipment compliant with it would also be required to use the patented technology during its manufacture. The European Commission (EU Commission) in its no-opposition Google/Motorola merger decision had observed that each SEP can constitute a separate relevant market on its own. Accordingly, companies owning SEPs can develop significant power and dominance in the market within which the SEPs operate. The SEP-holders gain a position to skewer licensing agreements in their favour as the prospective licensees have no other alternative.
Generally, any unauthorised use of SEPs, amounts to patent infringement and gives the SEP-holder the right to claim injunctions against the infringer. This threat of injunction can also be used by a SEP-holder, to strong-arm the licensee into agreeing to non-FRAND terms. This is where the jurisdiction of the CCI kicks in as such threats can distort licensing negotiations and be detrimental to fair competition and consumers.
Tracing the Benefits of CCI’s Jurisdiction
Usability of the essential facility doctrine
Competition law principles, like the essential facilities doctrine, are quite capable of handling the specific issues that SEPs create on competition in the market. An essential facility, according to Shamsher Kataria v. Honda Siel, is controlled by a dominant entity and cannot be reproduced easily. However, the facility is such without access to which an entity cannot survive in the market. Accordingly, competition law regulators can direct the dominant entity to share this facility to its rivals.
Clearly, the criteria for qualifying for an essential facility is similar to the features of SEPs. Using this doctrine, the CCI can then compel that the SEPs be made available to rival entities under FRAND terms. While the usage of the doctrine for SEPs does not have specific precedence in India yet, recently, in Ketian v. Hitachi, a Chinese court found that Hitachi’s patents were essential and necessary, refusal to license which amounted to abuse of dominance.
Flexible remedies
In the present case, the DB observed that if any entity abused their dominance by imposing anti-competitive terms for licensing their SEPs, then the Controller was well equipped by the grounds under Section 84(7) of the Patents Act 1970 to decide whether a compulsory license (CL) had to be granted instead. Hence, the judgement was predicated on the presumption that in all such cases, granting CLs was the only appropriate remedy. However, the author submits that this is a very flawed presumption because FRAND commitments envisage a licensing mechanism quite different than that of CLs and the Competition Act 2002 is better equipped to handle such cases.
CLs involve “involuntary licensing contracts between a willing buyer and an unwilling seller imposed and enforced by the state”. They are granted in case of extenuating circumstances to satisfy public need, with governmental authorities determining the royalty rate for patent holders. FRAND negotiations, however, involve licensing through voluntary commitments based on market forces. They are much more conducive to the business environment as voluntary licensing mechanisms reduces opportunity costs and makes the process more economically efficient and hence, more pro-competitive. Thus, if ease of doing business is the goal, in cases of deviance, efforts should be first made to push entities into entering FRAND negotiations.
The Patents Act 1970, however, does not arm the Controller with mechanisms to ensure the conduction of FRAND negotiations. As it follows from the DB judgement, any SEP-holder found in violation of this portion of the Patents Act 1970 would be liable to have its patented technology riddled with compulsory licenses at pre-determined government rates. There is no flexibility in this entire process.
On the other hand, the Competition Act 2002 allows for more impactful, yet business-friendly remedies. The CCI may impose penalties, along with passing in rem orders ensuring that the entity does not indulge in such behaviour in the future. Most crucial is Section 48A and Section 48B, which have been introduced in the Competition Act 2002, allowing entities to voluntarily commit to act in a competitive manner. For example, entities found strong-arming prospective SEP licensees by CCI may undertake to enter into bona fide FRAND negotiations in exchange of a lesser penalty.
The feasibility of commitment mechanisms in SEP disputes has precedence. For example, in Samsung - Enforcement of UMTS Standard Essential Patents, the EU Commission had launched an anti-trust investigation against Samsung’s malafide action of seeking patent-infringement injunctions against willing-to-negotiate rival firms. However, under the commission’s watch, Samsung then offered commitments, involving negotiations as well as third party determination of FRAND terms along with a guarantee of not seeking any injunction. In India, the commitment procedures will soon become functional and aid in the easy resolution of the concerned disputes.
Free transferability
Section 21A of the Competition Act 2002 gives the CCI full flexibility of referring a case to an appropriate statutory authority. Hence, the DB could have retained the powers of investigation of the CCI, and direct for transfer of the case to the Controller if the investigation showed that coercive measures like CLs had to be taken. This would be in line with Section 62 of the Competition Act 2002 which establishes the latter to exist in addition and not in derogation of any law in force.
Way Forward
Simultaneous existence of both jurisdictions
The enumeration of benefits above show that when competition concerns cropped up, the CCI should be involved, at the very least in an advisory capacity. The fact that appeals from the CCI, and not the Controller, goes to the National Company Law Appellate Tribunal again displays the corporate friendly benefits of having the CCI exercise its jurisdiction.
The exclusion of competition authorities in SEP disputes also cannot find precedence in other jurisdictions. In the United States, the Federal Trade Commission (FTC) and the United States Patent & Trademark Office (USPTO) work in tandem, by issuing guidelines in these areas of overlap. American courts have time and again acknowledged the link between SEPs and competition like in Microsoft Corp. v. Motorola, Inc.
Further, In re Qualcomm Antitrust Litig., Qualcomm was successfully prosecuted by the FTC for anti-competitive and abusive behaviour for refusing to license its patents to rival chip-makers, its patents being akin to standard patents in cellular technology. Importantly, no objection was granted with regards to the involvement of FTC to what was clearly a patents dispute and hence, under the purview of the USPTO.
The EU Commission has also not shied from adjudicating on cases involving SEPs from an anti-trust perspective. In Motorola Mobility- Enforcement of GPRS Standard Essential Patents, the issue in contention was the imposition of injunctions on a potential willing licensee of Motorola’s SEPs. The Commission found this act to be a clear case of abuse of dominance due to Motorola’s non-compliance with its FRAND obligations. The purpose of such a finding was to discourage undertakings to engage in ant-competitive behaviour, in line with the goals of competition law.
Necessity of guidelines
In the United States, the FTC, the Department of Justice and other authorities have relied on the Antitrust Guidelines for the Licensing of Intellectual Property (2017) for navigating complex anti-trust cases involving licensing agreements etc. Other examples of such collaborative guidelines are the Intellectual Property Enforcement Guidelines (2000) of Canada, Guidelines on the Application of Article 81 of the EC Treaty to Technology Transfer Agreements of the European Union and the Guidelines for Patent and Know-How Licensing Agreements Under the Antimonopoly Act (1999) of Japan.
India has not issued any guidelines with regard to the matters involving Competition Act 2002 and Patents Act 1970, due to which matters were being settled on case-to-case basis. However, if the Supreme Court overturns the DB’s judgement in the appeal that is currently pending (SLP(C) No. 025026 - 025026/2023), the first step that the CCI must take would be to collaborate with the Controller and come up with guidelines that can server as a framework for all future cases.
Conclusion
Intellectual property law and competition law are two important legal regimes that aim to promote innovation, business and consumer interest. There is a need to interpret both laws in a harmonious manner, balancing the interests of the right holders and the public.
The DB judgement’s opening paragraph frames the issue in contention to be whether the CCI can exercise jurisdiction when a patentee “asserts their rights”. However, the fact circumstance which triggered the CCI to launch an investigation against Ericsson and Monsanto was because they were allegedly “abusing their rights”. The CCI would not have become involved had Ericsson and Monsanto been plainly asserting their rights. They intervened only because the said assertion was happening in any anti-competitive manner, contrary to law. Hence, the DB judgement, while meaning well, tackles a conflict between laws which need not be resolved in an exclusionary manner. Instead, a collaborative approach must be taken by the CCI and the Controller for SEP disputes involving anti-competitive behaviour.