We’re pleased to bring to you a guest post by Abhilasha Nautiyal, analysing issues related to competition law scrutiny in patent licensing disputes in light of the Delhi High Court’s recent decision in Monsanto v. CCI . Abhilasha is an attorney at Ira Law, a firm that she co-founded with other colleagues. Prior to this, she was a partner at an IP law firm. Abhilasha graduated from the Army Institute of Law and then pursued a master’s in law from Harvard Law School. Her detailed bio can be found here.
Abhilasha has written a couple of guest post for us in the past as well, which can be viewed here and here.
Antitrust Scrutiny in Patent Licensing Disputes: An Alternative Approach to Delhi HC’s Decision in Monsanto v. CCI
Abhilasha Nautiyal
The issue of the Competition Commission of India’s (“CCI”) jurisdiction in a patent licensing dispute has been before the Delhi High Court since at least 2014. Justice Vibhu Bakhru has passed two judgments on this issue, Telefonaktiebolaget Ericsson v. CCI in 2016, (2016) 232 DLT (CN) 1 and Monsanto Holdings Pvt. Ltd. & Ors. v. CCI last month, judgment dated 20 May, 2020 in WP (C) 1776/2016 and WP (C) 3556/2017. Appeals against both decisions are pending before the Delhi High Court.
The scope of this piece is limited to an analysis of antitrust scrutiny in patent licensing disputes. It does not cover other intellectual property rights and conduct.
The questions assessed here are as follows:
- Whether both the Patents Act, 1970 and the Competition Act, 2002 regulate patent licensing terms that maybe anti-competitive?
- If so, is there a ‘sectoral regulator’ to decide patent licensing disputes and what is the impact of the Supreme Court’s 2018 decision in CCI v. Airtel on this?
- Need to avoid conflicting opinions from different bodies on the same legal and factual issues.
Whether both the Patents Act, 1970 and the Competition Act, 2002 regulate patent licensing terms that maybe anti-competitive?
Two parts of the Patents Act are relevant here – Chapter XVI on compulsory licensing and Section 140 on ‘avoidance of certain restrictive conditions’. These provisions were introduced in the Patents Act to, inter alia, check restrictive and anti-competitive practices of patentees emanating from licensing related issues. For instance, in Justice N. Rajagopala Ayyangar’s Report on the Revision of the Patents Law, 1959, it was recommended that a separate legislation may be considered for the area of ‘cartels and monopolistic combinations’ while a provision akin to Section 140 was recommended to deal with ‘using patent rights as a lever to obtain a more extended monopoly or one for a longer duration than what the law allows, by the insertion of conditions in sales, leases or licenses in relation to patented articles or processes’. The legislature balanced the rights granted with the limitations on such rights, including a check for anticompetitive conduct emanating from licensing of a granted right, within the Patents Act itself.
On the other hand, the Competition Act covers both concerted and unilateral conduct of market players in Sections 3 (anticompetitive agreements) and 4 (abuse of dominance). The provision of interest for this topic is Section 3(5) and proposed Section 4A.
Section 3(5) provides that nothing contained in Section 3 shall restrict the right of any person to:
- restrain any infringement of, or
- impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under, inter alia, the Patents Act.
The proposed Section 4A, if enacted, will extend the exclusion granted under Section 3(5) to Section 4 as well.
Therefore, only ‘unreasonable’ conditions in a patent license are scrutinized under Section 3.
The determination of unreasonableness of a patent license term, in my view, would be covered by Chapter XVI and Section 140 of the Patents Act. The legislature balanced the interests of all concerned stakeholders (i.e. patentees, licensees/ users of patented technology, and the public) and included a mechanism and criteria to check anticompetitive conduct pertaining to patents in the Patents Act itself.
Only once such a determination is undertaken and the concerned license term is found to be ‘restrictive’ under Section 140 by a court, or ‘unreasonable’ under Chapter XVI by the Controller should the term be scrutinized as being ‘unreasonable’ under the Competition Act.
In fact, not all restrictive terms may be anti-competitive. In other words, a violation of the provisions of the Patents Act may not lead to a violation of the Competition Act but for a license term to violate Section 3(4) of the Competition Act it must first be considered restrictive / unreasonable under the Patents Act.
If so, is there a sectoral regulator for deciding patent licensing disputes and what is the impact of the Supreme Court’s decision in CCI v. Airtel?
The above analysis is similar to that in the CCI v. Airtel dispute wherein the Supreme Court held that only after a jurisdictional fact is determined by a sectoral regulator such as TRAI can the CCI step in.
It must be noted that the Controller of Patents, though not a ‘sectoral’ regulator, may be viewed at least as a regulator under Chapter XVI of the Patents Act. However, the Controller does not have the power to determine whether a license term violates Section 140. Hence, a civil court is likely to decide disputes concerning Section 140 of the Patents Act. This is also evident from Section 140(3) which specifically contemplates such a determination in a patent infringement lawsuit.
Strictly speaking, in the absence of a sectoral regulator for patents such as TRAI for telecom, the decision in CCI v. Airtel may not apply. Having said that, in my view, the principal of a two-step process, i.e. determination of a jurisdictional fact under the Patents Act followed by the CCI exercising its jurisdiction, would apply even in the context of a patent license dispute.
Need to avoid conflicting opinions from different bodies on the same legal and factual issues
It is important that if more than one decision maker is seized of a common issue, conflicting opinions on law and fact are avoided.
In patent licensing disputes, it is likely that multiple entities will decide common issues which may give rise to conflicting opinions. What the Delhi High Court has not done so far in its two decisions on patent licensing and antitrust inquiry is to set in place a mechanism to avoid such a conflict. If the two-step approach as stated above is followed, it will solve this problem as well.
I don’t understand the second point at all. Doesn’t determining the reasonableness of conditions by the CCI automatically carve out what may be considered unreasonable? What is the role of the patent office then?
My view is that while the CCI’s jurisdiction in a case involving patent license terms is not ousted – like you said, the CCI may adjudicate whether the Competition Act is violated by such terms only if they are unreasonable.
The CCI should not be the body that determines the reasonableness of conditions of a patent license and must wait for such a determination under the Patents Act. This is borne out from the findings in CCI v. Airtel.
Reasonableness of the terms of a patent license should be determined under the Patents Act and not the Competition Act for the reasons that (i) The Patents Act contains provisions to check such conduct of patentees (ii) These provisions were included in the Patents Act to balance the interests of all stakeholders.
Only if a condition is found to be unreasonable/ restrictive under the Patents Act, antitrust scrutiny based on such an unreasonable condition may commence.
Section 140(3) appears to be a flawed provision. How can anti-competitive or abusive or both practices of patentee can be used as a defence in patent infringement cases? Is this section is indicating us that a person can infringe patents if he/she thinks patentee’s liceinsing terms and conditions are not pro-competitive or non-abusive? I don’t think that can be intention of the legislature.
I personally believe section 140 is nothing more than a guidance for a regulatory authority to interpret what can be abusive or anti-competitive practices in matters related to patents. (Irrespective of what courts have held in cases.)
I don’t think a controller should be competent authority to decide what is anti-competive or abusive. The controller’s powers are very narrow under the Patents Act. Issuance of compulsory license covers only three grounds and I beleive those three grounds can’t be called as abusive or anti-competitive practices for the purpose of competition law.