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Developing interplay of patent rights and competition law

Sharad Vadehra and Somitra Kumar of Kan and Krishme discuss the latest issues regarding the clash between patent rights and competition law in India, in view of the recent Ericsson judgment

Over the past decade, India has emerged as one of the fastest growing markets in the field of telecommunication technology. Apart from established players, new local players have also made their presence felt in the telecommunication market. This has given rise to the issues of licensing and infringement of patent rights, especially those of standard essential patents (SEPs). These issues brought to the fore conflict between the enforcement of patents rights and competition law which has a bearing on the willingness of the local players in the telecommunication market to abide by rules of the game as well as the inclination of the patent holders to negotiate with prospective licensees on fair, reasonable and non-discriminatory (FRAND) terms in licensing of standardised technology with new local players. Further, in view of the recent push from the Indian government to expand the manufacturing sector with the promotion of small and medium enterprises as well as start-ups, it is expected that said conflicts between holders of patent rights and the new enterprises would increase not only in telecommunication technology but in many other fields of technology.

Enhancing market efficiency

One of the aims behind the enactment of both set of laws – competition law and IP laws – seems to be enhancement of market efficiency and both set of legislations go about achieving this aim in manners unique to them. While IP law increases efficiency at the initial stage of the innovation, competition law enhances efficiency at the later stage of production and distribution of the product. However, the implementation of the aims of two branches of law seemingly conflict with each other.

The erstwhile legislation to control monopolies in the market – Monopolies and Restrictive Trade Practice (MRTP) Act, 1969 – became obsolete in view of international economic developments in the field of competition law in the last decade of the 20th century, and focus shifted from curbing monopolies to promoting competition. This resulted in the enactment of a new competition law in 2002: the Competition Act, 2002 (the Act).

"The Indian telecommunication services market has the potential to grow at more than 10% every year and is likely to reach more than $100 billion by 2020"

The Act has established an antitrust body the Competition Commission of India (CCI) to curb negative aspects of competition. As per Section 18 of the Act, it shall be the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect interests of consumers, and ensure freedom of trade carried on by other participants in the market, in India.

Section 3(1) of the Act states that no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Section 3(5) of the Act gives exemption from the operation of Section 3 to IP rights in terms of restraining any infringement and to impose reasonable restrictions and conditions in order to protect IP rights. However, in the quest to protect IP rights, an IP right holder cannot put any unreasonable conditions while licensing his intellectual property, which will be considered as violating the competition law. It includes any conditions agreed between the licensor and the licensee to restrict production, distribution, exclusivity conditions, conditions restricting quantities and prices, conditions relating to patent pooling and tie-in arrangement.

Thus, Section 3(5), in general, excludes protection granted to IP rights from the ambit of operation of the Act, but this is subject to conditions being "reasonable conditions". However, Section 4 of the Competition Act which provides for prohibition against abuse of dominant position does not provide any exemption to IP rights from its operation. Therefore, an unreasonable condition or abuse of dominant position by an enterprise will attract provisions of the competition law.

The mere fact that a firm or enterprise or undertaking is in a dominant position in the relevant market alone is not sufficient to attract the provisions of competition law. Section 4(2)(a)(i) of the Act states that if an enterprise or a group directly or indirectly imposes unfair or discriminatory conditions in purchase or sale of goods or services, it will be considered as abuse of dominant position in the market.

Since in India the interaction of IP legislation and competition law is a relatively new phenomenon, sufficient policy guidelines and jurisprudence are not available. Lack of sufficient policy guidelines along with lack of case law makes the issue even more complex.

In the recent past, it has been observed that competitors have approached CCI against IP rights holders in relation to some activities which were otherwise lawful under the IP legislation, but allegedly contravened some of the provisions of the competition law.

In the first case under the new competition regime, Aamir Khan v The Director General 2010(112) Bom LR 3778, the Court held that CCI has the jurisdiction to deal with all cases concerning competition law and IP rights including jurisdictional facts.

Patent rights and competition law conflicts

More recently, there have been several instances of conflict between patent rights and competition law especially related to SEPs, which have emerged as a conflict zone between patent protection and competition law. In these instances, after failure of the negotiations on licensing terms and conditions between the patent holders and licence seekers (or alleged infringers), the licence seekers took recourse to competition law provision and filed information (complaints) before the CCI.

Importantly, in the judgment in Telefonaktiebolaget lm Ericsson v Competition Commission of India & Anr WP(C) 464/2014 & CM Nos 911/2014 & 915/2014 delivered on March 30 2016, the Hon'ble High Court of Delhi has discussed the interplay between the Patents Act and the Competition Act.

The patents in question pertained to SEPs held by Ericsson and used in 2G and 3G devices. Therefore, all patents in question were required to be licensed on a FRAND basis.

On the complaints of the licence seekers (Micromax and Intex), the CCI found patent holder Ericsson prima facie guilty of abuse of its dominant position and ordered an investigation into anti-competitive behaviour of Ericsson. Ericsson filed writ petitions in the Delhi High Court against the CCI's orders.

The High Court of Delhi dismissed all the writ petitions and applications pertaining to the role of the CCI before it, and on the issue of jurisdiction of the CCI, laid down that determination of the issue of abuse of dominance is solely within the scope of the Competition Act and a civil court cannot decide whether an enterprise has abused its dominant position and pass orders as are contemplated under the Competition Act. Further, the court observed that there is no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act. In the absence of any irreconcilable conflict between the two legislations, the jurisdiction of CCI to entertain complaints for abuse of dominance in respect of patent rights cannot be ousted. The Court observed that the remedies as provided under two enactments are materially different and further remedies under the two enactments are not mutually exclusive.

The Court also rejected the contention of Ericsson that the dispute being subject matter of civil suit could not be entertained by the CCI. The Court held that this contention held no merit, since CCI proceedings are not in the nature of private lis but have a wider object of preventing adverse effect on competition in India. The Court further ruled that a potential licensee cannot be precluded from challenging the validity of the patents in question.

This judgment throws up many questions which need to be answered for clarity to emerge in the understanding of the interplay between the patent law and competition law. One such question is, when there is an overlap in the issues to be decided by CCI and a civil court, and final determination of the issues by a civil court may, in fact, have bearing on the determination of abuse of dominant position by CCI, would it not be advisable and practical for the CCI to wait for the civil court to decide those issues? This is all the more important in cases where a civil court in its interim order has fixed a royalty rate (which is outside the power of CCI) subject to the final outcome of the case. In such a situation, the effect of alleged abuse of dominant position of the patent holder has been removed by the interim royalty arrangement of the court, and one of the reliefs of cease and desist from continuing of abuse of dominant position, which CCI would possibly grant under the Competition Act, has already resulted from the interim arrangement ordained by the civil suit. Now, the only other relief which the CCI could grant is imposition of penalty and division of the enterprise, which can be done even at a later stage without any prejudice to the rights of the informant (that is, the complainant before CCI).

The practicality of allowing the civil suit to be disposed of first would avoid situations where the CCI holds that there is an abuse of dominant position but a civil court at a later stage determines that the patent is valid and royalty rates, as demanded by the patent holder during negotiation, are FRAND compliant. This would result in a very peculiar situation which may result in loss of reputation and goodwill as well as loss in market capitalisation for the patent holder for no apparent fault on its part. The practical solution, for the CCI to wait for the civil proceeding to be disposed of, would also be consistent with Section 62 of the Act, which requires that the provisions of the Act should be in addition to, and not in derogation of, the provision of any other law for the time being in force.

More clarity needed

It is also pertinent to suggest here that there is a need for more clarity from the higher courts on the jurisdictional issues in patent matters streamlining the rights of the patent holder and licence seeker to avail remedy under two different statutes namely the Patents Act and the Competition Act. An analogy may be drawn here to the landmark judgment in Dr Aloy Wobben & Anr v Yogesh Mehra & Ors (Civil Appeal No 6718 of 2013) wherein the Supreme Court of India streamlined the multiplicity of proceedings in patent cases with regard to opposition, invalidation and revocation. If the issue of multiplicity of proceedings before a civil court, IPAB and CCI is not suitably clarified, there is a risk that such a situation may be exploited by infringers to thwart the enforcement of valid patent rights as well as in the form of delaying tactics for prolonging the infringement proceedings. This is all the more important in cases where the civil court has been approached first by the patent holder and the suit is pending determination of the civil court, as in the case of dispute between Micromax and Ericsson.

"Lack of sufficient policy guidelines along with lack of case law makes the issue even more complex"

Micromax filed information under Section 19 of the Act before CCI after the failure of the mediation process with Ericsson to determine royalty rates and that too at the time when interim royalty arrangement was already in place. Here, the licence seeker (or alleged infringer) was already using the impugned patent, subject to interim arrangement for royalty, and the patent holder was not in a position to stop the alleged infringer from using impugned patented technology until the final disposal of the case. In such situations, approaching the CCI may amount to abuse of proceedings before the CCI even if the CCI has jurisdiction to entertain such proceedings.

Inadequacy of the present mechanism to deal with the issue of interface between enforcement of patent rights and competition law particularly in the field of SEPs is apparent from the issues raised in the discussion paper on availability of SEPs on FRAND terms released by DIPP inviting comments from all stakeholders. The issues ranged from adequacy of existing legislation namely the Patents Act and the Competition Act to address the issues related to SEPs, and their availability on FRAND terms; the basis for deciding the royalty rates in SEPs; the capping of royalty payment; appropriate mode and remedy for settlement of disputes in matters related to SEPs, especially while deciding FRAND terms; suitability of injunction as a remedy in cases pertaining to SEPs and their availability on FRAND terms and whether the practice of non-disclosure agreements (NDA) leads to misuse of dominant position and is against the FRAND terms.

All the above issues in the discussion paper indicate that the issue of interface of the enforcement of patent rights and competition law is far from settled.

Moreover, after the decision of the High Court of Delhi in the Ericsson case, licence seekers or alleged infringers can institute multiple proceedings by filing complaints before the CCI and at the same time challenging the validity of the patents before the IPAB as well as before the High Courts in infringement suits. This will require patent holders to be careful in negotiations with the licence seeker ensuring that their demands during negotiations are FRAND compliant as well as ensuring that their demands are based on valid patents.

To conclude, the telephone and internet subscriber base has grown at the rate of about 20% and 30% respectively over the past few years. India now has more than 1 billion telephone subscribers and approximately 300 million internet users. According to recent estimates, the Indian telecommunication services market has the potential to grow at more than 10% every year and is likely to reach a size of more than $100 billion by 2020. However, the recent developments relating to ambiguity on the licensing and enforcement of patent rights in standardised technology may not augur well for the future growth of the industry, particularly in terms of faster roll out of cutting-edge technology. Therefore, there is a need for all issues that relate to the conflict between competition law and IP law in general and patent law in particular to be clarified. The lack of well-developed jurisprudence would lead to many practical difficulties in implementing the provisions of the competition law as well as orders of CCI and may have adverse impact on overall sentiments in the high technology sector. The latest decision of the High Court of Delhi in the Ericsson case is the beginning of the development of Indian jurisprudence on the interplay between competition law and patent protection and in the future, as more and more disputes are agitated before the courts of law, it is hoped that law in this area gets crystallized.

Sharad Vadehra
  Sharad Vadehra is the managing partner at Kan and Krishme. He joined the profession in 1989, and is among the few attorneys in India with both technical and legal qualifications.

Sharad specialises in IP laws, media, entertainment, sweepstake and promotions, marketing, commercial disputes and litigation and has more than 26 years experience in these fields and in handling such matters for both domestic and international companies (including Fortune 500 companies) and research institutions. He has the prosecution of more than 20,000 patent and trade mark applications to his credit. He has been a speaker in over 500 institutions and corporate bodies in India and overseas, and is the author of the book Indian Patent Law and Practice published by Chosakai in Japan in Japanese.

Sharad has often been consulted by the government of India when any new guidelines or rules are being framed with respect to the Indian Patent Act and Rules.

Sharad, along with other colleagues, founded the FICPI India group in 2009 and has been closely associated therewith. He is the president of FICPI India. He has recently been appointed the coordinator for CET 9 in FICPI for all Asian countries including Japan, South Korea and China. He has recently been elected as vice president of APAA India and he will be playing a role in organising the APAA Congress to be held in New Delhi in 2018. He is one of the founding members of GALA and is the past president of its Asia Pacific branch. He is a member of FICPI; APAA; AIPLA; AIPPI; INTA; LES; CII and the Delhi High Court Bar Association.

Somitra Kumar
  Somitra Kumar has a masters degree in physics and a masters degree in law. He is a partner at Kan and Krishme and heads the litigation and contentious matters department. Besides being an advocate, he is a registered patent agent and has several years of experience in IP law particularly drafting and prosecuting patent applications in the fields of core electronics, telecommunications, electrical, electro-mechanical, instrumentation and computer-related inventions.

Somitra regularly provides opinions to clients on various aspects of IP law including invalidity and freedom-to-operate opinions. He also advises clients on media, entertainment, sweepstakes and promotions, marketing and commercial disputes. He is a member of APAA; INTA; and the Delhi High Court Bar Association.


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