Competition Bill in India: The nexus with IP

At long last!! After being stuck for some years, the Competition Bill is finally passed by the Lok Sabha (lower house of Parliament in India) . It has yet to clear the Rajya Sabha (upper house) and signed by the President before it becomes law.

SpicyIP carried some interesting posts on the Iphone (thanks to Aysha) where we highlighted some of the possible ways in which the competition authority in India might intervene to correct IP abuses in India.

The Hindu Business Line reports:

“The Competition (Amendment) Bill, 2007, was passed by the Lok Sabha without any debate. The Bill, which seeks to give powers to the Competition Commission of India (CCI), would make it mandatory for the companies to inform the CCI about mergers and acquisitions above a prescribed threshold limit within 30 days. Those failing to do so would be penalised. For non-compliance with the orders of the Commission, the Bill empowers the CCI to impose penalty of up to Rs 25 crore or up to three-year imprisonment or both in cases of continued contravention of its orders if the Chief Metropolitan Magistrate of Delhi deems fit.

The Bill will now be tabled in the Rajya Sabha for approval. The Corporate Affairs Minister, Mr Prem Chand Gupta, said: “the Government has enacted the Competition Act 2002 so that Indian market may be geared to face competition from within the country and outside. The Act provides for establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect consumers’ interest and to ensure freedom of trade carried on by other participants in markets.”

The CCI could not be made fully functional till date due to filing of a writ petition before the Supreme Court against certain provisions of the Act. The Supreme Court in January 2005 closed the petition leaving it to the Government to make amendments to the Act as appropriate to address the legal issues as had been brought up during the proceedings of the petition. “Keeping in view the developments and the new ideas that have come to the notice of the Government, these amendments have been proposed so that the Act can be implemented in the country,” Mr Gupta said.

The CCI will ultimately replace the Monopolies and Restrictive Trade Practices Commission (MRTPC). The Commission was established way back in 2003. The Bill has a provision for a three-member quasi-judicial body — the Competition Appellate Tribunal — to hear appeals against any direction issued by the Commission. MRTPC will continue to deal with pending cases even two years after the establishment of CCI and will be dissolved thereafter. However, it would not entertain any new cases after the CCI is constituted. Cases pending with MRTPC after two years of setting up of CCI will be transferred to the latter.“

If the recent statements of Vinod Dhall, acting Chairman, CCI are anything to go by, the CCI promises to be very active on the IP front. Sample this news item, extracted below:

“MNCs going in for mergers and acquisitions will soon be required to divest some of their patented technologies to a third-party rival if the intellectual property rights (IPRs) of the combined entity undermine fair competition in the market.

While approving big mergers and acquisitions, the competition regulator will ensure the merged entity does not control the entire range of a particular product category through its combined intellectual property wealth. If the merging entities are the only two companies that have proprietary technology for a product category, they may have to agree to divest the knowhow to a third-party rival.

The guidelines on how to balance competition law with IPR, which the Competition Commission of India (CCI) is evolving, aims to protect consumers from the ill effects of big firms gaining further in size and market share. This is particularly true for MNC pharma companies that want to consolidate to resist the storming generics competition.

The move assumes significance as India recently started issuing patents on finished pharmaceutical products. Also, the merger of local arms of global majors would need CCI’s blessings. In the 1990s, Swiss pharma giants Ciba-Geigy and Sandoz – which merged to form Novartis AG – had to agree to such a condition to get the Federal Trade Commission’s nod for the deal. Novartis has been rumoured to be in talks with its rival at home F Hoffmann La Roche for a possible merger that would result in the largest pharma company in the world. Roche had bagged the first pharmaceutical product patent in India.

CCI will also work with the patents office and the government to ensure rigorous competition principles are followed in the grant of patents and, more importantly, their enforcement. It has identified nine areas where patents are globally abused by owners.

Pooling of competing patents by rival companies through cross-licensing, insisting that any improvement in the patented innovation that a licensee makes should be exclusively granted back to the licenser and condition in the licensing agreement that the licensee will not challenge the validity of the patent are some of the possible abuses that the commission wants to check.

Besides pharma and biotech firms, the move has major implications for telecom companies that often fight in courtrooms over IPR issues. The maker of a leading brand, say a computer operating system, not disclosing how rival companies could make their application software, say for Internet browsing, compatible to the market leader’s operating system is another form of abusing IPR rights. Broadening of patent claims to get monopoly for parts of the finished product other than the invention is yet another form of abuse that CCI would target.

Competition authorities find problems not in IPR per se, but the way it is enforced by some owners. If conditions introduced in the exercise of rights go beyond the protection of IPR and result in throttling competition, then it defeats the purpose of IPR, that is, incentivising innovation, CCI member and acting chairman Vinod Dhall told ET. The harmonious enforcement of the two legal systems to complement and strengthen each other’s purpose is needed, he said.

IPR laws are meant to encourage innovation, not stifle it. Abusing IPR rights can defeat its very purpose and, therefore, competition principles should be kept in mind while exercising such rights, Mr Dhall said.“

From the comments above, it appears that Mr Dhall will be actively looking for guidance from the EU competition commission, perhaps the most active competition authority in the world today. And one can be certain that even as I write this post, he must be savoring a recent decision in Europe that found that Microsoft abused its dominant position by “tying” its window media player to its operating system and by refusing to supply competitor’s with inter-operability information. A press release on the Curia website states that:

On 23 March 2004 the European Commission adopted a decision finding that Microsoft had infringed Article 82 of the EC Treaty by abusing its dominant position by engaging in two separate types of conduct. The Commission also imposed a fine of more than EUR 497 million on Microsoft.

The first type of conduct found to constitute an abuse consisted in Microsoft’s refusal to supply its competitors with ‘interoperability information’ and to authorise them to use that information to develop and distribute products competing with its own products on the work group server operating system market, between October 1998 and the date of adoption of the decision. By way of remedy, the Commission required Microsoft to disclose the ‘specifications’ of its client/server and server/server communication protocols to any undertaking wishing to develop and distribute work group server operating systems.

The second type of conduct to which the Commission took exception was the tying of Windows Media Player with the Windows PC operating system. The Commission considered that that practice affected competition on the media player market. By way of remedy, the Commission required Microsoft to offer for sale a version of Windows without Windows Media Player.

Since the abuse of a dominant position is confirmed by the Court, the amount of the fine remains unchanged at EUR 497 million”.

What is interesting for me is the court’s analysis re: when a refusal to license an IP amounts to an abuse of a dominant position.

“As regards the refusal to supply the interoperability information, the Court recalls that, according to the case-law, although undertakings are, as a rule, free to choose their business partners, in certain circumstances a refusal to supply on the part of a dominant undertaking may constitute an abuse of a dominant position.

Before a refusal by the holder of an intellectual property right to license a third party to use a product can be characterised as an abuse of a dominant position, three conditions must be satisfied: the refusal must relate to a product or service indispensable to the exercise of an activity on a neighbouring market; the refusal must be of such a kind as to exclude any effective competition on that market; and the refusal must prevent the appearance of a new product for which there is potential consumer demand. Provided that such circumstances are satisfied, the refusal to grant a licence may constitute an abuse of a dominant position unless it is objectively justified. “

Readers familiar with EC competition law will know that the court’s findings above related to what is popularly labeled as the “Essential Facilities Doctrine” —a doctrine designed to deal with the danger that a monopolist in control of a scarce resource will extend its monopoly power vertically from one level of production to another. Interestingly, neither the CFI nor the Commission has ever used the specific term “essential facilities doctrine” in any of their rulings.

An analysis of this doctrine formed part of my MPhil thesis at Oxford, where I discussed an application of this doctrine to gene patents. I had argued that the commission/courts ought to clearly define the contours of this contentious doctrine and step in only when the facility is truly an “essential” one. The abstract is as below. For those interested, the paper may be downloaded from the SSRN website: