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India: CCI fines car manufacturers

In a recent order, the Competition Commission of India (CCI) has fined almost all major car manufacturers in India, for restricting the expansion of the spare parts and independent repairers segment of the economy, at the cost of consumers, service providers and dealers. While similar decisions have previously been issued across the globe, this is the first in India and contains important analyses on the overlap between IP rights and competition law.

The Competition Act, 2002 of India contains an exception in favour of IP rights holders, albeit limited in its scope as a defence to claims alleging anti-competitive agreements. The Competition Act also prohibits abuse of dominant position and this prohibition carries no such explicit statutory exception for IP rights holders.

The complaint in this dispute alleged violations of both provisions. The crux of the complaint was that the authorised spare parts manufacturers were not permitted to sell those parts directly in the open market. It was alleged that arrangements made by car manufacturers restricted the sale of genuine spare parts only through certain distributors. The complaint also contained allegations that these spare parts were not made available to independent repairers by these distributors.

The CCI clarified that the safe harbour for IP rights cannot be claimed for IP rights not registered in India. Even in cases where IP rights have been registered in India or where no such registration is needed (such as copyright), the CCI emphasised the fact that the safe harbour applies only if the restriction under challenge is "reasonable" and "necessary" for the protection of the IP right.

While admitting to the possibility of copyright protection over spare parts (in the form of artistic works under copyright law), the CCI effectively held that the IP rights could be protected through other appropriate contractual arrangements; it was not "necessary" to prohibit the spare parts manufacturers from selling directly in the open market. In other words, the CCI seems to have applied a very strict test of what may be necessary to protect IP rights.

The CCI has also noted, in explicit terms, that it is not the competent authority to examine whether a given IP right has been validly granted or registered under the relevant law. This specific statement of law would have interesting implications in future cases, especially in the context of allegations of anti-competitive practice arising from acquisition of frivolous patents or acquisition of patents based on inequitable conduct. This order is, of course, subject to review/appeal and therefore one would have to await the full completion of the legal proceedings to appreciate the developments in law.

V Lakshmikumaran

Lakshmi Kumaran & Sridharan

B6/10 Safdarjung Enclave
New Delhi 110029
Tel: +91 11 41299800
Fax: +91 11 41299899


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