Can CCI decide whether a patentee, in exercising his exclusive rights under the Patent Act, has violated the provisions of Competition Act, 2002? Readers of this blog must be aware how hotly contested this question is (here, here, here, here and here). From initially holding that CCI does have jurisdiction to investigate, a DHC DB had ultimately ousted CCI’s power to investigate abuse of patent rights. Last year, disposing of a SLP against the DB judgement, the SC had refused to decide the above issue since the parties had reached a settlement.
Merely five months later, in a civil appeal from Swapan Dey v, CCI (NCLAT order), the SC has finally decided to hear the issue of CCI’s jurisdiction. It is unclear what prompted the SC to change its stance within a span of months.
After the SC’s order, there have been discussions that the CCI can now investigate violations of Competition Act by exercise of patent rights (here and here). The operation of the DB judgement which ousted CCI’s jurisdiction, however, has not been stayed. Rather, it continues to remain valid and binding on the CCI. I have my doubts whether the CCI, given the uncertainty, would investigate abuse of patent rights during the pendency of the appeal. It will be interesting to see how this plays out for CCI.
Was CL meant to address abuse of patent rights?
The following observations in the DB judgement need to be excerpted-
“the inquiry that the CCI proposes to conduct in respect of an assertion of patent rights is nearly identical to that which the Controller will conduct under Chapter XVI of the Patents Act…. Chapter XVI of the Patents Act is a complete code in itself on all issues pertaining to unreasonable conditions in agreements of licensing of patents, abuse of status as a patentee, inquiry in respect thereof and relief that is to be granted therefor.” (sic)
Praharsh had pointed out why this was an incorrect understanding- CCI’s investigation is not limited to the subject patent; the larger purpose is to maintain a fair and balanced market. The Controller, on the other hand, is concerned with whether the subject patent meets reasonable requirements of the public. (see sec. 84 on compulsory license) The nature of inquiries made, therefore, are far from being ‘identical.’ Their nature, purpose, as well as process are wholly different.
Ayyangar Committee report provides some context. Discussing compulsory licensing, the report had said-
“I will premise the discussion by endorsing and emphasising the observations of the Swan Committee that the concept of ‘abuse of monopoly’ as the justification for the provisions in regard to compulsory working and compulsory licensing is too narrow… In other words, these provisions though they might undoubtedly operate to counteract cases of deliberate ‘abuse’, must, on the other hand, be viewed as a necessary adjustment of the patent system to the demands of an under-developed economy.”
As is clear, CL was not inserted in the Patents Act to prevent abuse of patent rights. Rather, the primary purpose was to ensure wider availability and accessibility of patented inventions in an underdeveloped country like India. This, in the report’s view, would promote the national economy. To that end, the grounds for grant of CL were enlarged. Notably, abuse of patent monopoly was not originally a ground for grant of CL. The grounds included non-working of a patent, non-availability at affordable price etc. This would, the report said, would induce a patentee to grant voluntary licenses on reasonable terms to those desirous of using the patent. (pg. 56; para 140) As a result, the requirement of Indian public would be met.
CL was also never meant to be an exhaustive solution for abuse of dominance by patentees. The report acknowledged this and, in that vein, noted-
“patents might sometimes form a convenient nuclei on which monopolistic combinations (and restrictive practices which are the concomitant of combinations and to effectuate which the combination might come into existence) are based, the problem cannot be solved by any amendment of the Patents law but only by dealing with it comprehensively so as to touch the manifold forms which these combinations might assume and in which they could operate.”
Again, the Committee never intended Patents Act, 1970 to provide an answer to monopolistic combinations arising from exercise of patent rights. As a result, the report suggested appointment of a commission to investigate monopiles arising under the patent act. (Para 203)
CL was never intended to be a means to prevent abuse of rights.
Patent (Amendment) Bill, 2002: Addressing Anti-competitive conduct?
The DB judgement had also relied on the amendments made to the Patent Act in 2003. The 2003 amendments, among other changes, had added a proviso to sec. 84(6)(iv). The proviso said that in case it is established that the patentee has engaged in anti-competitive conduct, the applicant does not have to prove that it made reasonable efforts to obtain a license. Sec. 90(ix) further provides that a licensee can export the patented product if the patentee had engaged in anti-competitive practice.
My argument is that the insertion of the word ‘anti-competitive’ does not indicate an intention to make Patents Act the complete code to decide abuse of patent rights. Rather, it indicates an indication to utilize the flexibilities under TRIPS and further enlarge the grounds available for grant of CL. This would increasingly force Patentees to voluntarily license their patents in line with Ayyangar committee’s logic.
The parliamentary debates from 2002 support my contention. In LS, the Minster of Commerce while introducing the amendments said– “There are provisions in the Bill providing a wide-ranging and powerful weapon to the Government to extinguish the patentee’s exclusive right immediately and acquire it if the occasion warrants. Let any crisis situation be visualised; the present Bill covers all contingencies.” In RS too, the Minister listed out the various grounds they had added for CL, covering every contingency after the Doha Declaration.
Thus, the inclusion of ‘anti-competitive’ hints at an intent to bolster to the CL regime rather than making Patents Act a code to decide competition concerns.
Section 140- Avoidance of restrictive conditions
Does sec. 140 of the Patents Act indicate that it was meant to regulate abuse of patent rights? In LS, a question was asked if the government was enacting a law to avoid monopoly in exercise of patent rights. In reply, the Ministry of Commerce states: “(section 140) cover aspects relating to avoidance of certain restrictive conditions in contractual licences.” Sec. 140 is the Indian version of the patent misuse doctrine i.e. bar on infringement suit if a patentee has extended patent monopoly. (here) The DB, instead of CL, could have relied on this provision to hold that the Patent Act is a complete code to decide competition issues arising abuse of patent rights. Even Ayyangar committee report, on Sec. 140, said- “Such conditions are, however, agreed to by purchasers, lessees and licensees because of the superior bargaining powerwhich patentees enjoy by virtue of the monopoly conferred on them by law…. An unreasonable restraint on trade is not merely unfair as between the parties but is injurious to public interests.”
Since the DB never really relied upon this provision, it is an open question if Sec. 140 indicates an intent to make the Patents Act a complete code to decide abuse of rights.
“So what? I can still oust CCI’s Jurisdiction”
I have so far discussed the question whether CCI has jurisdiction to decide abuse of patent rights. Assuming it does, CCI’s jurisdiction can be challenged on another ground- settlement between parties and subsequent withdrawal of complaint.
A broader trend is being observed in the past decade- a complainant before the CCI, enters into negotiations with the other party, reaches a settlement and withdraws his complaint. Later, the settlement is leveraged to challenge the CCI’s authority to investigate. (see Ambika’s post)
For instance, in 2015, Ericsson had challenged CCI’s jurisdiction after reaching a settlement with the complainant. The Court set aside CCI’s order of investigation owing to the settlement. In JCB v. CCI (2024), a DB of the DHC had observed- “allowing CCI to proceed with an inquiry post-settlement would undermine this fundamental purpose by reopening issues that the parties have already agreed upon and resolved.” Even Monsanto (2023) had held that a settlement between parties results in loss of the “very substratum of the proceedings by the CCI.”
Why is this problematic? The major trouble is that it undermines the in-rem nature of proceedings before CCI. As pointed out here, CCI’s role is not limited to imposing penalties on the opposite party. Rather, it is expected to “eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.”(here) It further delays CCI’s attempt to bring corrective action to the market, allowing the opposite party to continue with its behavior.
MHC, in 2015, recognized this and had stated– “the Scheme of the Competition Act, 2002 allows the parties to enter into a compromise or settlement, but the same shall be subject to a scrutiny by the Commission, for examining whether public interest would continue to suffer and whether the object of the inquiry would stand defeated by the acceptance of the compromise.”
The present situation, after JCB, is favorable for patentees to avoid CCI’s investigation into their licensing practices. The patentee, upon receiving the DGs report, can simply reach out to the informant and reach a settlement. This allows it to also circumvent the Settlement regulations where a settlement needs to be approved by the CCI.
The SC, having stayed paras 8-10 of NCLAT’s order, is also expected to decide whether settlement reached between parties can oust CCI’s jurisdiction.
(Thanks to an anonymous reader for their input)
