How to use patent and competition law effectively in tandem

Patent litigation in India has gradually moved beyond its traditional approach, which typically involves suits for infringement, counterclaims for patent invalidation or contractual disputes. The conduct of warring parties has brought patent litigation under the scrutiny of competition law. The recent orders of the Competition Commission of India (CCI) asking its director-general to investigate alleged anti-competitive conduct raises issues lying at the crossroads of patent rights and competition. This article critically examines the interplay between the Indian Patent Law and Competition Law and the emerging jurisprudence, more particularly, with a focus on the telecoms industry.

Patent law and competition law are essentially two sides of the same coin, founded with a common purpose of economic development, technological advancement and consumer welfare. However, as patents are essentially a statutory monopoly, they inhibit competition to an extent; but when monopoly seeks to engage in abuse of its dominant position, competition law comes to regulate it. In other words, competition law strikes a fine balance between the market power vested by a patent right and abuse of such right resulting in market distortion.

Patents have become the critical element of global business operations in modern international trade, particularly driven by high-end technologies such as electronics, semi-conductors, software, and telecommunications. All major companies in the world rely heavily on patents, as patents are reflections of the technological innovation index of the company.

Due to the increasingly important role played by patents in emerging economies, it is quite natural that there may exist some exchange between patent law and competition law. In fact, as Martin Khor (in Intellectual Property, Competition and Development, 2012) puts it, a trade-off may exist between achieving static efficiency (short-term efficiency) through competition and achieving dynamic efficiency (long-term efficiency) through growth and innovation. The market dominance of the monopoly holder may seem to be anti-competitive, but it is a part of patent protection. There is no harm in dominance of market power as long as it is not abusive. It may be considered as an abusive action when a dominant company refuses or refrains from licensing its patent to competitors at a reasonable price. Therefore, the application of competition law to patent cases is regarded as one of the most complicated and critical fields of competition policy.

To understand the inherent difficulties in applying competition law and patent law, it is also essential to look into the evolution of these legal systems. India enacted its Patent Act as far back as 1970, and the same was amended many times, the last being in 2005 so as to fully comply with the commitments made to TRIPs in 1995.

The Competition Act was passed in 2002, to keep in line with India's economic liberalisation that created an open market policy in 1991. The Competition Act came into force in January 2003 and the Competition Commission of India (CCI) was established in October of that year, but enforcement only started in May 2009. After a hesitant start, the CCI has recently been enforcing the law vigorously, though without going into issues related to complex legal and economic considerations involved in patent matters.

Section 3 of the Competition Act 2002 states:

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 Indian Competition Act 2002 bestows a blanket exemption on patent rights, displaying the country's strong commitment to protect patent rights against competition. However, this protection is not absolute. If the restrictions imposed are unreasonable, the same can be tried under competition law.

Section 4 deals with the hate clause (abuse of dominant position) which provides ample room for interfering in IP matters. Noteworthy here is that no exception has been created for intellectual property rights. Such an exception has not been created for several reasons. First, patent rights may not confer a dominant position in the market; the legal monopoly conferred by patents may not necessarily lead to an economic monopoly. Second, even if patents do grant a dominant position, the mere existence of market power is not prohibited under section 4.

Licensing patents as a business strategy has been on the rise in India since 2005, as result of the stronger patent regime developed in India after the Patent Act (Amendment) 2005. More multinational companies, with a stronghold in technology and patents, have ventured into the Indian markets. The telecoms industry is one such industry greatly driven by innovations and patents, and India has emerged as an important market for these industries. Many big global telecom majors such as Ericsson, Qualcomm, Nokia, and Samsung have filed several patents in India. The proliferation of telecom technology in India has led to the aggressive enforcement of these patents.

A large amount of jurisprudence relating to patent enforcement has developed in recent years and is still evolving. However, recent CCI judgments, which discuss the issue of anti-competitive agreements and patents, pose a particular challenge for the telecom IP regime in India. At present, the Indian telecoms industry is totally dependent on imported technology, with the local players failing to own any patent portfolio or significant patents. They are simply engaged in importing, assembling and selling products. In such a scenario, the economics related to licensing or technology transfer of patents is bound to cause some friction, but it cannot be considered as abuse of dominant position by the patent holders.

Companies in information technology and telecommunications ensure the inter-operability of their products through voluntary standard setting organisations (SSOs) such as ETSI (the European Telecommunications Standards Institute). The SSOs publish technology standards which encourage the adoption of common platforms among rival producers, which in turn benefits consumers by increasing competition, innovation, product quality and choice.

When SSOs designate a particular technology as a standard essential patent (SEP), it is essential for such a patent to be implemented by the industry. All undertakings seeking to manufacture products based on the industry standards require access to and use of such SEPs. The undertakings that own these SEPs are required to license the same on Frand (fair, reasonable, and non-discriminatory) terms. SSOs do take into account that SEPs are licensed on Frand terms to a willing licensee. If the patentee refuses to license its patent on Frand terms, the SSO will not include such a technology in the standard.

In Micromax Informatics v Telefonaktiebolaget Ericsson, the CCI examined Ericsson's conduct and concluded that it was a prima facie case of anti-competition. It directed the director-general (DG) to institute a proper investigation into Ericsson's practices.

Micromax, an Indian mobile handset maker, filed a complaint with the CCI under section 19(1)(a) of the Competition Act 2002, alleging Ericsson demanded unfair, discriminatory and exorbitant royalty for its patents of mobile phone technology. This complaint was filed subsequent to Ericsson suing Micromax for patent infringement of its SEPs at the Delhi High Court and seeking an ad-interim injunction against Micromax for being an "unwilling licensee". In the case, the Court also issued an interim order asking Micromax to deposit a certain amount of money (apparently in a bid to protect Ericsson's monetary interests) while the negotiations were continuing. However, negotiations were unsuccessful and finally, Micromax approached the CCI.

Micromax alleged that Ericsson was abusing its dominant position by asking unfair and exorbitant royalty rates. The royalty rates were not being charged on the basis of cost of the lisenced product, but on the basis of the value of the phone in which Ericsson's patent was being used.

Another case was filed by Intex Technologies against Telefonaktiebolaget LM Ericcson. Intex also alleged that Ericsson demanded exorbitant royalty rates and imposed unfair terms for licensing its patent, as Ericsson refused to share the commercial terms on the grounds of non-disclosure agreements (NDAs). Further, the NDA provided the jurisdiction of Singapore, which made Intex seek redressal of its grievances in a local court. Intex further submitted that Ericsson, as a member of ETSI, was required to grant irrevocable licences on Frand terms, to be applied fairly and uniformly to similarly placed players as per clause 6 of the ETSI IP rights policy.

The CCI noted that Ericsson was the largest holder of SEPs in the GSM (global system for mobile communication) market, with 33,000 patents to its credit, and 400 of these patents granted in India. Further, it noted Ericsson was the largest holder of SEPs for mobile communications like 2G, 3G and 4G patents used, for example, for smart phones, and tablets. Since there was no alternative technology in the market, Ericsson enjoyed complete predominance and was acting contrary to the Frand terms by charging patent royalties based on the cost of the user product rather than the product being licensed (the chipset), which is discriminatory. Accordingly, the CCI found a prima facie case under section 26 (1) of the Act and directed the DG of the CCI to investigate both cases and submit a report within 60 days.

Following the CCI anti-trust probe, Ericsson filed a writ petition at the Delhi High Court challenging the CCI orders. Ericsson also challenged the CCI's jurisdiction on these patent royalty cases through a separate writ, following which, Delhi High Court directed the CCI to avoid passing any final order on these cases until the jurisdiction matter is resolved. It also restricted the DG from calling any foreign officers for the investigation without seeking permission of court.(an order which was later reversed).

The CCI orders discussed above raise some critical issues regarding the telecom IP regime and competition in India. The CCI has never adjudicated on issues involving SEPs and the determination of royalty rates. Nor has any competition regulatory body in the world discussed royalty rates. The CCI adjudicated on complex antitrust issues arising from SEPs and their royalty rates, when similar issues were pending for adjudication at the Delhi High Court in patent infringement proceedings involving the same parties.

The CCI's excessive reliance on circumstantial evidence has been a major area of concern for the telecoms industry and its intellectual property. The CCI failed to appreciate the very objective of SSOs and SEPs. SSOs were created as a means to enhance the pro-competitive character of the telecoms industry by developing standards. The beauty of the standard is that everyone competes, but not at the cost of technology reaching out to people. Not only are technical contributors party to the standards, even new entrants and non-contributors are allowed to use, make, import or sell products compliant with them.

The Frand regime allows a company to either become a contributor by innovating SEPs or own a relevant patent portfolio, which may bring licensing costs down. On the other hand, there are other companies which simply engage in importing or selling products without investing in research and development, resulting in a non-existent patent portfolio. Therefore, the Frand licensing fees would be higher for such a company that does not have patents to negotiate with, but it does give a new entrant an opportunity to offer the best technology to consumers by innovating at the product level. Micromax and Intex are such companies, which do not own patents, yet have grown extensively by providing attractive products at low cost. In fact, today Micromax and Intex own a much bigger market share than Ericsson.

So far, there has not yet been any final order from the CCI or any other higher authority, on sections 3 or 4 of the Competition Law. Therefore, to analyse and identify jurisprudential trends at this early stage of the development of competition law in India is difficult. However, certain key trends have been indicated in the CCI orders. Further, such disputes related to SEPs licensing will definitely shape India's Frand jurisprudence. If the CCI's powers are curtailed, the courts will decide on issues involving abuse of dominant position and Frand terms.

What also needs to be examined is whether the extension of the provisions for compulsory licences in the Indian Patents Act is a solution for dealing with the complex issues of licensing under Frand terms. Having said this, the Indian Patents Act has sufficient safeguards to also deal with "certain restrictive conditions" that might be included in contracts and licenses by patent holders (sections 84 and 140-141 of the Indian Patents Act).

The Competition Act represents a big step in India's competition law framework. It focuses on the curbing of monopolies to promote market competition by proscribing practices that have appreciable adverse effects on competition. Both Patent Law and Competition Law need to be applied in tandem to ensure that the rights of all stake-holders are protected, including the innovator, the consumer and the public at large. This will eventually help to promote innovation and economic development in the country. For this, it is also necessary for the authorities to develop guidelines to ensure the co-existence of competition policy and patent law. Moreover, a consistency in the CCI's approach will go a long way in enabling the industry players to plan pro-competitive business strategies within the framework of the Competition Act.

India has a huge domestic telecoms market and is expected to grow exponentially in the coming years. In order to ensure long-term competitiveness of the Indian telecoms industry, it is also essential for the government to improve incentives for research and development to catalyse technology and IP rights, with an emphasis on indigenous product development and manufacturing. The national telecoms policy should establish nationalised telecom standards and SEP licensing terms, so that investors finds a strong IP environment in India which keeps their investments protected.

Archana Shanker
		Archana Shanker is a senior partner at Anand and Anand, and heads the firm's patent practice. A graduate of the faculty of law at Delhi University, she went on to complete her postgraduate diploma in bioinformatics and pharmaceutical regulatory affairs. She is an active member of various international bodies, such as the Asian Patent Attorneys Association (APAA), the Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI) and the Federation Internationale des Conseils en Propriete Industrielle (FICPI). Archana's comprehensive repertoire enables her not only to represent clients in contentious matters in the pharmaceutical industry, but also to advise on protection and prosecution across a number of business sectors including bioinformatics, pharmaceuticals, biotechnology and chemicals, not only limited to India but also in USA, Europe, Japan and other key jurisdictions. She handles complex patent litigation issues before various judicial and quasi-judicial forums in India, such as the High Court and IPAB, and has been involved in advising her clients on patent strategies and regulatory affairs. Archana's unique and innovative approach has led to her clients winning important claims of significant commercial value in the area of software, mechanics and electronics. She is leading the firm's efforts in nascent legislation of geographical indications and plant variety. Archana is a regular speaker at various national and international forums; and she has written for international publications such as Managing Intellectual Property, Asia IP Magazine, IAM Magazine and Getting the Deal through – Patents. She has been ranked as a leading lawyer by several publications, including Asia Law Leading Lawyers 2013 and Chambers and Partners 2013.

Shraddha Singh Chauhan
		Shraddha Singh Chauhan has been with the firm for over six years and is a senior associate in the firm's patent group. She holds an engineering degree in electronics and communication, and is a qualified lawyer. Shradda's practice is generally focused on patent prosecution and litigation involving a range of technologies such as semiconductors, consumer electronics, telecommunication and renewable energy. She has supported representations at both the appellate board and the court. Shraddha handles patent essentiality evaluation for several telecommunication bodies, and she also advises on and drafts patent licence agreements and contracts. Shradda is a member of AIPPI.