[Suryansh and Sanskruti are students at National Law University Odisha and National Law University Delhi, respectively.]
The Parliamentary Standing Committee on Finance (Committee) published, on 13 December 2022, its Fifty-Second Report on the Competition (Amendment) Bill 2022 (Bill) after consultation with various advisory bodies which included inter alia the Ministry of Corporate Affairs, the Competition Commission of India (CCI), the Competition Law Review Committee (CLRC) and other stakeholders. The said report propounded practices such as settlement and commitment and primarily centred around optimizing and tailoring the regulatory framework so that it falls in with the changes in business models that have emerged over the last two decades.
This article, however, focuses on a particular recommendation of the Committee, regarding the Bill, which is to allow parties a reasonable exercise of their intellectual property rights (IPR) as a valid defence when contesting allegations of abuse of dominance under a newly proposed provision to be included in the Competition Act 2002 (Act). First, this article questions the refusal of the Centre to accept the recommendation of the Committee. Then, through a critical analysis of the Indian scenario, coupled with a comparative analysis of foreign jurisdictions, it tries to ascertain whether such a move by the Centre will have drastic consequences on the rights of technology firms and whether it will discourage their quest to innovate in the sphere of digital markets.
Deconstructing the Framework of IPR Defences in the Competition Act 2002
Under the Act, the only exemption for imposing reasonable conditions for the protection of IP rights is under Section 3 of the Act, as per which if an IPR holder stays within the framework of the IPR rights granted to them by virtue of the Copyright Act 1957, the Patents Act 1970, the Trade and Merchandise Marks Act 1958, the Geographical Indications of Goods (Registration and Protection) Act 1999, the Designs Act 2000, and the Semi-conductor Integrated Circuits Layout-Design Act 2000, they remain entitled to protection even after entering into an anti-competitive agreement.
In the case of K Sera Sera Digital Cinema Private Limited v. Pen India Limited, the CCI had particularly stressed upon the point that only reasonable conditions, as may be necessary for protecting IPR under various legislations provided under Section 3(5), can be imposed. As a consequence, the interplay between IPR and competition law hinges on the term 'reasonable conditions' as outlined expressly in Section 3(5). The logical corollary that follows from here is that the parties who have an IPR vested upon them under any of the legislations mentioned in Section 3(5) may impose any such reasonable conditions tailored to that particular legislation(s) only, leaving no room for any ambiguity, due to the boundaries being established by such legislations.
However, the IPR exception is only limited to anti-competitive agreements under Section 3. When it comes to the provision regarding abuse of dominance (Section 4), a corresponding IPR exception is missing. While there are similar provisions in Section 4 such as those against denial of market access (Section 4(2)(c)), or unilateral conclusion of contracts (Section 4(2)(d)), or restriction of technical or scientific development (Section 4(2)(b)(i)), such provisions are too broadly defined for the purposes of determining any specific reasonable conditions for protecting IPR, resulting in the authorities, and the CCI in particular, exercising their discretion howsoever they may see fit to arrive at a decision. So, the pertinent question to ask here is whether there is a need for an explicit IPR defence under Section 4.
The Absence of an Explicit Defence in Section 4: The Current Stand
It is pertinent to note that the mere use of IPR will not constitute abuse of dominance by the concerned party. Anderman and Schmidt, in Chapter 2 of their book, The Interface Between Intellectual Property Rights and Competition Policy, note that “a legal monopoly created by a patent or other IPR is not assumed to confer market power or dominance.” This inherent bias against IPR stems from the conception that since IPR creates monopolies, it naturally would tend to create an abusive dominance in the market. In A Comparative Note on Possible Approaches on Refusals to License IP Rights by the Secretariat of the World Intellectual Property Organisation, it was opined that such a notion is misguided and tends to hold the exclusionary exercise of companies with respect to IPR as “socially reproachable”.
Various stakeholders, who were involved in the making of the Fifty-Second Report, did not approve of such an ad-hoc approach by the CCI, due to it conferring too much discretion than is reasonable, which may result in regulatory uncertainty and potential bias against certain parties.
The Committee, which brought out the Fifty-Second Report, noted that in the absence of an explicit defence enshrined in the law, the CCI will not allow any “dominant entity to provide for reasonable protection of its IPR, while being investigated for alleged abuse of dominance”. Prior to this, even the CLRC had recommended that “this defence may be allowed in cases involving dominant position”, recommending in their report that for protecting IPR, a defence allowing reasonable conditions and restrictions may be provided in cases of abuse of dominance on the lines of international jurisdictions i.e., EU, US and UK which provide for such exemption. Further, it was discussed in the same report that a specific IPR defence should be provided under Section 4, under the umbrella of a new section to avoid any uncertainty as it is already explicitly outlined in Section 3(5)(i) of the Competition Act that deals with certain other categories of anti-competitive conduct, namely anti-competitive agreements.
Drawing Insights from Global Practices: Is the Absence of an Absolute Defence Constricting Innovation?
Globally, several jurisdictions have already acknowledged the necessity to ensure specific legislation dealing with the issue of abuse of dominance and considered the reasonable exercise of IPR in such cases, which in turn can streamline the already available remedies.
In this regard, in the case of Huawei Technologies Co. Ltd. v. ZTE Corp., the European Court of Justice (ECJ) has noted that it is imperative that a balance be struck between maintaining free competition and safeguarding the rights of intellectual property holders, when deciding if an IPR holder has abused its dominant position or not. The ECJ, in the case of Parke, Davis & Co. v. Probel, has further noted that ownership of an intellectual property should be considered as a factor while assessing whether a firm has abused its dominant position.
A similar approach, regarding the constricting of innovation in the sphere of technology, has been adopted by the courts in the United States, particularly noted in the case of Data General Corp. v. Grumman Systems Support Corp., where the US District Court for the District of Massachusetts analysed the situation regarding weak IPR defence, and how it strangles the workings of the market when viewed through a larger lens. It observed that anti-competitive acts cannot be “interpreted to require manufacturers to abandon their advantage in creating accessories to their systems. If manufacturers of complex and innovative systems were required to share with competitors the development of accessories, because they had a possibly absolute advantage through producing the system, the incentives of copyright and patent laws would be severely undermined. Not only would the manufacturer, who is in the best position to create these accessories, have less incentive to do so, but also the impetus for competitors to reverse engineer and produce competing solutions would be reduced.”
All of this boils down to the logical conclusion that innovation needs to have some amount of free rein to function efficiently in a competitive market, else the essence of intellectual property rights gets defeated when a governing body gets absolute control over deciding the fate of a party. On the other hand, when the governing body and the parties are bound by express legislations, it may help in fostering a collaborative and informed approach, where the CCI can foster a robust and effective materiality framework that balances transparency, corporate interests, and market power, while keeping the abuse of such dominance at bay.
Although the advisory bodies in India have displayed a remarkable vision by recommending the grant of protection to IPR holders while they are accused of abusing their dominant position, it is imperative to keep in mind the lessons that we can draw from foreign jurisdictions. In conclusion, this article has tried to analyse the situation in view of the current Indian landscape, but the jurisprudence with regard to anti-competitive practices and IPR is still at a very nascent stage. Addressing the core factors, such as constriction of innovation and unlimited discretion of the governing bodies, is extremely vital to strike the right balance between transparency at the legislative level and safeguarding the interests of the organisation at the corporate level while stabilizing market power to ensure that innovation forges ahead unimpeded.