The Nexus between IPR and Competition Law

This article aims to analyze the Nexus between IPR and Competition Law. Intellectual property rights aim to strike a balance between protecting the exclusive rights of the creator and public welfare. Competition Law, on the other hand, emphasizes restricting monopoly and unfair advantage so that consumers have a variety of choices and products of higher quality at affordable prices.

Competition Law attempts to facilitate greater competition efficiently, whilst intellectual Property Law tries to guarantee a monopoly of sorts by protecting the owner's exclusive rights at the cost of excluding others from using that particular good. Given the differing intents of both fields of law, it is easy to imagine the conflict that often arises between them. This article intends to introspect how the conflicting nature of the two laws can be reconciled.

I. Introduction

Intellectual property Rights prioritize the creator's interests and seek to protect his rights, while competition law values creating options for consumers through healthy competition amongst the manufacturers and sellers.

While it is essential to have incentives for innovation and creativity, which can be guaranteed by granting monopolistic rights to the owner, it is also important to encourage competition in the market for the sake of the common public. However, the question is not about how the laws seem opposing in their objective but about where the balance should be struck. In its own way, IPR encourages technological invention. A consequence of that is the availability of more products in the market and a wider choice for customers.

II. The Intent behind the two laws

The term ‘competition’ has different meanings in the paradigm of the two different fields of law. IPR tends to promote competitiveness amongst potential innovators and creators and eventually limits the competition by providing an exclusive right for a specific period of time. However, at the end of that time period, that product or service eventually enters the public domain. Competition Law intends to prevent unfair trade practices and encourage competition in marks.

Competition law prevents a company or business from using its dominant position in the market as an unfair advantage over all businesses. A business may earn a dominating position; for e.g. Android has a fairly large share of the smartphone market. That is not a problem, but the problem is if Android uses this dominant position in any unlawful manner to have a negative impact on the competing companies.

Article 10(b) is (2) of the Paris Convention defines unfair competition as –

‘Any act of competition contrary to the honest practices in industrial and competition matters.’
Essentially, in both laws, competition is a key influencing factor.

Patent laws are drafted in such a way that bootlegging can be avoided. In a way, Patent law and Competition law both try to prioritize fair market behaviour, which is the main objective of competition law. The concern in competition law arises only in a situation where the patent owner may use the patent in such a way that exceeds the objective of his rights and abuses it to cause a violation of anti-trust policies.

TRIPS

The World Trade Organization (WTO) formed an international agreement known as the Trade-Related Aspects of Intellectual Property Rights (TRIPS) to standardize the regulations for different aspects of Intellectual property Law. The members of the WTO signed up for this, including India. One of the primary concerns raised during the policy-making of TRIPS was the unjust competition created by granting the IP Rights holder a monopoly on their product.

Article 40 of the TRIPS agreement says that licensing practices regarding IPR can harm trade and hinder the transfer of technology. Article 40(2) allows members to shortlist IP Rights violations and develop mechanisms to counter those violations. However, this list is not exhaustive. The provisions with regard to the anti-competitive measures are suggestive and permissible instead of mandatory and binding.[1]

Compulsory Licensing

Compulsory licensing is a statutory mechanism adopted to prevent IPR Rights from getting concentrated in the hand of the right holder. This helps the government to ensure the non-voluntary transfer of copyright from the owner to an individual who may apply for permission to republish that work to the public in exchange for paying a royalty to the owner. Article 31 of the TRIPS agreement excludes compulsory licensing in times of national emergency or any urgent situation.[2]

III. The Conflict in the Indian Context

Given the progress of the jurisprudential school of thought that encourages the harmonious construction of two seemingly opposing laws, for an overarching objective, we must apply that ideological lens to understand the link between IPR and Competition Law. Every aspect of IPR is not necessarily in conflict with competition law.

Although intellectual property rights provide a monopoly to the owner or creator, they are always accompanied by reasonable restrictions and regulations to avoid exploiting that monopolistic power. To understand this in greater detail, one must analyse India's legislative framework.

The Competition Act 2002 was drafted on economic competence and liberal policies. The Act aimed for social, economic and political justice and progress for the common man. Competition Law was drafted to cover the loopholes found in the Monopolies and Restrictive Trade Practices Act. The Competition Act accommodated certain provisions and adhered to the TRIPS agreement.

IV. Indian Competition Act in relation to Intellectual Property Rights

As per Section 3 of the Indian Competition Act, 2002 –

‘No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India’

An exception is provided through Section 3(5) of the Act for intellectual property rights, which conveys that competition law usually does not intervene in matters of IPR law. However, the abuse of a dominant position, which may meddle with policies for IPR, is covered under Section 4 of the Act. Section 4 helps us see how the link between Competition Law and IPR can be complementary in nature.

As Section 3 referred to anti-competitive agreements, section 3(5) is in reference to the interaction between the laws, which culminates into an exception to IPR-related licensing agreement, in order to strike a balance between encouraging innovation in the market while enforcing regulations that lead to the Appreciable Effect on Market by the exploitation of the monopolistic power as per Section 4.

The law of IPR and Competition are both still evolving in our country. In the case of Aamir Khan Productions v. The Director General[3], the Bombay High Court held that the Competition Commission of India has the jurisdiction and authority necessary to manage the matters concerned with Intellectual Property rights.

The court also stated that rights associated with intellectual property are simply a statutory provision and not sovereign in nature Similarly, in the matter of Kingfisher v. Competition Commission of India[4], the court held that CCI has the authority to deal with matters that come before the Copyright Board. However, one must keep in mind that India is still at a nascent stage.[5]

Similarly to TRIPS, India may adopt programs like Compulsory Licensing in situations where product prices are exorbitant. The Competition Commission of India should come up with stricter regulations. The courts now prioritize the interest and rights of the consumer and believe that they should be guarded even at the cost of the right holder or owner. One way for India to further develop these laws and policies is by drawing parallels to American and European cases.[6]

V. Judicial Precedents

There is a multitude of cases that can be analyzed to understand the interaction between Competition law and IPR. In the Entertainment Network (India) Limited v. Super Cassette Industries[7] case, the Supreme Court reflected on the clash between IPR and Competition law.

It was held that even though the copyright holder has a designated and complete monopoly, it is essential that the monopoly is not used to exploit the functioning of the market. The abuse of that power will be seen as a violation of competition law and will lead to a refusal to grant a license. Although the IPR owners can derive royalty by issuing licenses, it is not an absolute right.

In the case of Union of India v. Cyanamide India Limited[8], the court stated that the issue of selling life-saving drugs for exorbitant prices is under the ambit of price control. The CCI has jurisdiction on matters of price control. In a situation where customers have the choice to select amongst limited options, there is always the concern of a particular product gaining hegemony, which interrupts the economic competency of the market. This principle was also reflected in the case of United States v. Microsoft.[9]

The landmark American Case

“It is a longstanding topic of debate in economic and legal circles – how to marry the innovation bride and the competition groom”[10]

The United States v. Microsoft Corporation case was a milestone judgment in this regard. This case started in 1998 when allegations arose against Microsoft for exploiting their dominant position by linking their operating system with their web browser for purchase. This limited the market for all other web browsers. Those who used the Windows operating system had a copy of Internet Explorer.

It was contended that Internet Explorer was a unique and distinct set-up since there is a different version in the other Operating Systems. The judgment held that Microsoft had abused its monopolistic power and intended to disadvantage other operating systems through an unfair practice. It was considered a violation as per Sections 1 and 2 of the Sherman Anti-Trust Act.

Microsoft challenged this verdict. However, the final decision said that Microsoft has to be categorized into two different components. One would be the browser, and the second one would be the operating system.

VI. Conclusion

To understand the relationship between Intellectual property Rights and Competition Law, one must understand that IPR provides rights while Competition Law is a set of regulations. IPR aims to protect the rights of the owner and creator, while Competition Law functions like a hand controlling the market. The government grants the innovator exclusive rights as an award and incentive.

The innovator can capitalize on his product for a specific time duration commercially. On a prima facie level, it may seem that IPR and Competition laws oppose each other. Still, through the analysis provided above, one can see that they have an overarching goal and complement each other to reach that objective.

Competition Law strives to provide many choices to the customers and balance it against the rights of the manufacturers and sellers. For the public good, consumers must have access to quality products at affordable prices and various options to select from. IPR intends to grant the manufacturer his due for being an innovator.

The hegemonic position granted by IPR is not necessarily in derogation from Competition law, but the exploitation of that position would be. Both laws are interested in encouraging innovation and public good simultaneously. The objective of both laws can be understood through a harmonious construction to define the balance between the two. Both these laws cannot achieve their objective separately but need to be understood through the lens of similarity to accomplish what they intended.

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[1] Parveen G, ‘The Interplay Between Competition Law And IPR – Available Here, accessed 11 July 2020

[2] Licensing Of IP Rights And Competition Law (Organisation for Economic Co-operation and Development 2019) Available Here, accessed 8 July 2020

[3] Aamir Khan Production v. The Director-General, 2010 (112) Bom L R 3778.

[4] Kingfisher v. Competition Commission of India, Writ petition no 1785 of 2009.

[5] Intellectual Property And Competition Law (Lex Mundi World Ready 2012) accessed 9 July 2020

[6] Supra, Note 1

[7]Entertainment Network (India) Limited v. Super Cassette Industries MANU/SC/2179/2008.

[8] Union of India v. Cyanamide India Limited, (AIR 1987 SC 1802)

[9] United States v. Microsoft, 38 1998 WL 614485 (DDC, 14 September 1998.

[10] Ibid

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