Competition Law Patent

Ericsson vs CCI- The Future of Indian SEP Disputes?-I


In this post, Swati Muthukumar, our Spicy IP Fellowship applicant discusses the recent judgment of the Delhi High Court in Telefonaktiebolaget lm Ericsson v Competition Commission of India W.P.(C) 464/2014 & CM Nos.911/2014 & 915/2014.

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We have previously blogged about the recent Delhi High Court judgment, in which the court ordered the Competition Commission of India (“CCI”) to continue its investigation into Ericsson’s alleged anti-competitive practices. In this two part post, I will analyse the issues raised in the judgment in detail.

Why this case is important?

The patents in question pertain to Standard Essential Patents (“SEP”) held by Ericsson used in 2G and 3G devices which are standards in the mobile phone business and consequently must be accessible to all manufacturers in this field. As discussed in the judgment, SEPs refer to any patented technology which has been accepted as a standard to be uniformly accepted and implemented in order to ensure uniformity and compatibility.

The European Telecommunication Standard Institute (“ETSI) is one such body setup to lay down standards for the telecommunication industry.  According to the ETSI’s Intellectual Rights Policy, of which Ericsson is a member, patents which are essential to any standard must be licensed on a fair, reasonable and non-discriminatory basis.

It would thus be a huge concern if an essential patent holder was seen to be withholding licences, as this would make it impossible for manufacturers to comply with standards without causing an infringement of the intellectual property rights of the patent holder. But can the CCI be involved where there are such allegations of anti-competitive behaviour under patent law? This post examines Ericsson’s arguments on the CCI’s lack of jurisdiction and addresses each one below.

  1. Can a patent holder be an ‘enterprise’ under the Competition Act, 2002 (“Competition Act”) and can patents be ‘goods’ or ‘services’?

­Ericsson submitted that a patent holder would not amount to an enterprise as per S. 2(h) of the Competition Act nor would patents be considered as goods or services sold within the scope of the same definition. As a result, the provision that “no enterprise or group shall abuse its dominant position” as contained in S. 4 of the Competition Act would not apply. Here the court considered the definition of ‘enterprise’ as being sufficiently broad enough to include any person engaged in any activity relating to production, storage, supply, distribution, acquisition or control of articles or goods.

The court considered that Ericsson could potentially be an enterprise for the purpose of the Competition Act, since “Ericsson has a large portfolio of patents and is, inter alia, engaged in developing technologies and acquiring patents. Thus, if patents are held to be goods, Ericsson would indisputably fall within the definition of ‘enterprise’ within the meaning of Section 2(h) of the Competition Act, since it is admittedly engaged in activities which entail acquisition and control of patents.”

The court held that patents could be classified as ‘goods’, even though they could be differentiated from tangible property to the extent that a patent could only grant a right to exclude without a further right to use. The nature of patent rights i.e. the right to exclude without the right to use does not in any manner exclude patent rights from the scope of ‘goods’ as defined in the Sale of Goods Act, 1930.

 As a result, Ericsson was held to be an ‘enterprise’ under Section 2(h). However, the question of whether a licence would amount to goods was unclear, since the grant of a licence would not extinguish the right of the patent holder and thus may not amount to a sale of goods. The court left the question open for determination but held that at this threshold there would be no lack of jurisdiction of the CCI in the matter.

  1. Does the Indian Patents Act, 1970 (“Patents Act”) as a special act prevail over the Competition Act in matters of abuse of patent rights?

Ericsson argued that the Patents Act is a special act which exhaustively covers all matters pertaining to patent grants and related remedies. Thus, it was contended that the Patents Act provided adequate mechanisms to protect against abuse of patent rights, even in the instance of patent law related abuse of dominance under the Competition Act. In contrast, the Competition Act would have no application as it is a general law pertaining to competition in the market.

The court went into great depths to analyse the background and intent behind both acts. The intent behind the Patents Act, was to make it unlawful for the use of a patent without permission from the owner, in order to further innovation by protecting the property rights of inventors when they share their inventions with the public. The Competition Act, on the other hand, aims to protect fair trade and prohibit trade practices having an adverse effect on competition in the Indian market.

The court moved on to consider potential issues of overlap, such as whether the power to grant compulsory licences amounted to an exclusion of the Competition Act in dealing with abusive or unreasonable patent licence terms. With respect to the nature of the two Acts, it was determined that while both Acts are special to each of their fields, with respect to patents, the Patents Act would be a special Act vis a vis the Competition Act. The enactment of the Competition Act was not intended to whittle down the scope of any other law, thus S. 60 (non obstante provision) and S. 62 (stating that provisions of the Act will apply in consonance with other existing laws) should be read together and in the context of subject matter of the Competition Act. Further, the remedies available for abuse of dominance under S. 27 of the Competition Act and the remedy under S. 84 of the Patents Act are seen as materially different, implying that they are not mutually exclusive remedies and can be granted together. In other words, “it may be open for a prospective licensee to approach the Controller of Patents for grant of compulsory licence in certain cases. The same is not inconsistent with the CCI passing an appropriate order under Section 27 of the Competition Act.”

The court further looked to the matter of whether there is any real conflict between S. 21 and 21A of the Competition Act with the Patents Act. Since these provisions allow the statutory authorities to make references to the CCI and vice versa, this would imply that the Competition Act is meant to be implemented alongside existing laws such as the Patents Act, rather than to result in irreconcilable differences or their implied repeal. Secondly, the nature of the remedies granted would differ, as S. 84 allowed for a specific remedy to the person seeking it, while CCI orders are in rem. Seeking reliefs under the Patents Act would not automatically exclude the applicability of the Competition Act in such matters. The court finally held that the two legislations could be read together in a harmonious fashion, since on a deeper reading of the question it becomes apparent that there is no intrinsic conflict between the Acts, since “patent laws define the contours of certain rights, and the anti-trust laws are essentially to prevent abuse of rights.”

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One comment.

  1. AvatarRishab

    are there any cases which say that a company who has patents is not an enterprise under section 2(h) of the competition act?

    Reply

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