2020-05-06 08:27:27

IPR and Competition Law Reconciliation

Intellectual Property Law and Competition Law are generally viewed as areas at odds with one another. The creation of this encounter is because of IPR holders being granted statutory rights towards controlling access to the intellectual property as well as charging monopoly rents for the usage of the IPRs, something seemingly in the clash with competition law, which tries to curtail such market power. In other words, while, IP laws work towards creating monopolistic rights on the other hand competition law combats against it.

Intellectual Property Laws are monopolistic in character. They assure an absolute right towards the creators and owners of work which are a consequence of human artistry. Also, they avert commercial exploitation of innovation through others. This legal monopoly at times leads towards market power and even monopoly as defined under Competition Law. When this benefit or leading position is neglected, it creates a clash between IPR and Competition Law.

The most important concerns of Competition Law relating to IPR are the market power that might result from granting such rights, and the unfavorable outcomes caused by the anti-competitive actions of IP rights. Market power could harm consumers through setting prices higher than those required to secure cost-effective production. Furthermore, the harm caused by market power may extend beyond this, when the protection granted to firms allow them to slow or distort innovation. Under these conditions, market power would limit the growth of productivity over time, and decrease the scope for sustainable increases in living standards.

Though, this method has been given up largely in favor of the view that both IPRs and Competition Law have like persistence that is, maximization of social welfare. IP protection offers inducements for innovation and technological diffusion, which in itself is an important source of competition in the marketplace and therefore supports competition. Likewise, competition arouses innovation, in that way contributing towards the development of the intellectual property. Competition law shields incentives in the direction of innovating from anti-competitive behavior that will create, improve or maintain market power or else harm strong competition amongst corporations.

There are two measures that have been taken by Competition Law towards combatting against IPR monopolies. They are compulsory licensing as well as parallel imports. A compulsory license is where an IPR holder is approved by the state to give up his exclusive right over the intellectual property, under the conditions of TRIPS. Parallel imports consist of products which are brought into the nation without the authorization of the proper IP holder and are positioned legitimately into a market.

Three theoretical bases were recommended for reconciliation amid IPRs and competition law regimes, they are:

(a) The view that competition law must only interfere with innovation/IPRs when social welfare is in jeopardy.

(b) The view that concentration, as well as monopoly markets, have the edge over competitive markets relating to innovation on account of greater capital and resources.

(c) The views that competition law only focusses itself with consumer welfare when the effects of planned action on production and innovation competence are neutral or indeterminate.

INTELLECTUAL PROPERTY LAWS

Intellectual Property law manages the rules for securing as well as enforcing legal rights towards an individual’s intellectual property. The word “Intellectual Property” implies “an intangible right protecting a commercially valuable good.” It denotes to concepts of creative nature which include works such as designs, music, written works, inventions, formulations, symbols as well as phrases. Generally, the creator is given an exclusive right over the usage of their creation for a certain period of time. The key reason behind this is to give an incentive for innovation, research as well as investment. In the absence of IPR protection, other corporations will be able to take a free ride on the R&D investment made through the inventor corporation.

Intellectual Property has two kinds: Industrial property, that consists of patents, trademarks, industrial designs, as well as geographic indications of source; and Copyright, which consists of literary and artistic works for example novels, poems and plays, films, musical works, artistic works for instance drawings, paintings, photographs and sculptures, and architectural designs.

Industrial Revolution in the 19th century provided motivation to the invention. Also, scientists, artists and literary writers resulted in the requirement for protection of intellectual creativity. The requirement for inclusive international agreements governing intellectual property was ardently realized. The first multilateral attempt was made through the Paris Convention for Protection of Industrial Property held on 20th March 1883 in Paris. It was followed through Berne Convention for Protection of Literary and Artist Works during 1886 in Berne. Together, these two initial international efforts could be named as the Magna Carta of IPRs. From then IPR regime has made a long journey and through the establishment of WIPO as well as TRIPs the IPR jurisprudence was firmly established at international and in national level.

Intellectual Property Right (IPR) in India has been introduced from the west. The Indian Trade and Merchandise Marks Act 1884, was the first Indian Law concerning IPR. The first Indian Patent Law was legislated in 1856 followed through a series of Acts being passed. They are Indian Patents and Designs Act in 1911 and Indian Copyright Act in 1914. Indian Trade and Merchandise Marks Act and Indian Copyright Act were substituted by the Trade and Merchandise Marks Act 1958 and Copyright Act 1957 respectively.

COMPETITION LAW

Competition law is regulation that endorses or pursues to maintain market competition through regulating anti-competitive conduct by corporations. The purposes of competition laws are to make certain that customers pay the lowest possible charge joined with the highest quality of the products and services which they consume. It includes formulating a set of strategies which promote competition within the market. A dynamic competitive setting supported through effective competition policy and the law is considered to be one of the important elements of a successful market economy. The profit of having competition within the market is a lower price, better goods, wider choice, and greater productivity than those existing under monopoly. Competition law is the tool by which the Government controls and sets the producers/players in the market. Thus, the competition law relates to the matter of competition and competitiveness so that products and services are sold at competitive charges and the customers have a choice as to the goods they wish. Additionally, competition law prevents artificial entry barriers, enables market access and compliments different competition-promoting actions.

The origins of Indian law on competition could be traced back to Articles 38 and 39 of the Constitution which set down the responsibility of the State to promote the welfare of the individuals by securing and protecting a social order in which social, political as well as economic justice is prevalent and its further responsibility to distribute the ownership and control of material resources of the community in a way in order to best sub-serve the common good, as well as ensuring that the economic system doesn’t result in the concentration of wealth.

During 1991, the MRTP Act, 1969 was amended for coping up with the new reforms of liberalization, privatization, and globalization. However, the act irrespective of several amendments incapable to effectively deal with anti-competitive practices like cartels, boycotts, and refusal to deal, predatory pricing, bid-rigging and abuse of dominance. Therefore, the MRTP Act became out of date in the light of international economic developments involving more particularly to competition laws. Under these conditions the Competition Act, 2002 came into force.

INTERFACE BETWEEN INTELLECTUAL PROPERTY LAW AND COMPETITION LAW IN INDIA

Competition law might be applied when particular IPRs have not been acquired in the proper manner or are not deserved, for example, when patents have been obtained through deceiving the patent office. However, it might also be applied, in a few cases, when IPRs were granted.

There are two contrasting perspectives at the interface amid a Competition Law and Intellectual Property Law. The primary contents that there is a tension amid competition and intellectual property, arguing that competition law attempts to eliminate monopolies and inspire competition, whereas IPR laws reward creators as well as inventors with a limited monopoly. However, the main function of IPR laws is to correctly assign and protect property rights on assets that have economic value. Then again, the main objective of competition law must be minimizing the adverse outcomes of monopoly power arising from IPRs. Though this approach has become outdated and not followed in currently.

The second perspective deal with that competition law remains to be a vital means of making sure continued innovation and economic growth. The goals and objectives of IPRs and competition laws are balancing, as both intend towards encouraging innovation, competition and improve consumer welfare. It is important to preserve competition in innovation as competition guarantees the best outcome for customers.

The Raghavan Committee in its report stated regarding the conflict of IPR with Competition Law. Clause 5.1.7 of the Raghavan Committee Report specified that “All forms of Intellectual Property have the potential to raise Competition Policy/Law problems. Intellectual Property provides exclusive rights to the holders to perform a productive or commercial activity, but this does not include the right to exert restrictive or monopoly power in a market or society. Undoubtedly, it is desirable that in the interest of human creativity, which needs to be encouraged and rewarded, Intellectual Property Right needs to be provided. This right enables the holder (creator) to prevent others from using his/her inventions, designs or other creations. But at the same time, there is a need to curb and prevent anti-competition behavior that may surface in the exercise of the Intellectual Property Rights.” Towards dealing with such kind of concerns provision was laid down in Section 3 and 4 of the Competition Act, 2002.

Section 3

As per Section 3 of the Competition Act, 2002, the Competition Commission is requisite to look into agreements which are anti-competitive and those found towards being anti-competitive are declared void. The Competition Act includes a blanket exception for IPRs under Section 3(5). It preserves the IPR holder rights to prevent violation and defend these rights, providing the limitations imposed by the agreement are reasonable, guaranteeing that competition policy doesn’t interfere with the reasonable usage of IPRs. Though this protection is not absolute, if the limitations imposed are unreasonable the same could be tried under Competition law.

Section 4

As per Section 4 of the Competition Act, 2002, it manages abuse of dominant position. The section forbids the abuse of dominant position and not its simple existence. It further states what is meant by abuse of dominant position and enumerates the practices which are to be considered abusive. However, no exceptions were created for IPRs under Section 4, for many reasons. Firstly, IPRs might not confer a dominant position in the market; the legal monopoly conferred by IPRs may not necessarily lead towards an economic monopoly and it is later that the competition law is concerned with. Next reason is, even if IPRs do grant a dominant position, just the existence of market power is not barred under Section 4; it requires to amount to an abuse of dominant position.

Penalty Provision

The Commission is authorized to inquire into any irrational conditions attached towards the IPR agreements and could impose a penalty on each of such right holder or corporations which are parties towards such agreements or abuse, which should be no more than 10% of the average turnover for the last 3 previous financial years. In case an entity is a ‘corporation its directors/officials who are guilty are legally responsible to be proceeded against and penalized. In addition, the Commission has the authority to pass inter alia for the following orders:

• direct the individuals to discontinue and not to re-enter such agreement.

• direct the corporations concerned for modifying the agreements.

• direct the corporations concerned to conform to such other orders as the Commission might pass and abide by the directions, which includes payment of costs if any.

• pass such other order or issue such directions as it might to be fit.

• Furthermore, regarding abuse of dominant position under section 4 through virtue of an IPR by a corporation, in addition to the above punishments, the Commission has the power to order division of corporations.

Therefore, IPRs are not absolutely excluded from the area of Competition Law. Moreover, Competition Law doesn’t have anything against granting of IPRs, what it intends is that no unreasonable condition is imposed on the customers in the garb of exercising IP rights.

CONCLUSION

The interaction among IPR and Competition Policy is neither contradictory nor they intend to replace each other; in fact, they both complement each other. The common intention of both laws is to promote innovation.

It is therefore important towards facilitating a balance amid IPR and Competition law to fulfill the objectives of widespread competition as well as consumers’ welfare, while at the same time guarding innovation through granting inventors sufficient protection to allow them towards recovering research and development investments.

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