IPR Protection under the Indian Competition (Amendment) Bill, 2020
– Yash Jain & Ayushi Dubey
Competition (Amendment) Bill, 2020
The Competition Law Review Committee [‘CLRC’] was set up on 1st October 2018 to suggest changes in the Competition Act, 2002 [the ‘Act’]. Further, based on the CLRC report, the Union Ministry of Corporate Affairs came with the first draft of Competition Amendment Bill, 2020 in February this year. The Ministry then before finalising the draft bill made it open for public opinions, comments and suggestion till 6th March 2020. The draft has proposed around 50 major changes in the existing Act primarily focusing on the constitution of the competition commission, inclusion of hub and spoke arrangement, the inclusion of buyer cartels, revision in Appreciable Adverse Effect on Competition [‘AAEC’] analysis and many similar changes. One of the most significant changes that the bill has proposed is the introduction of section 4A that talks about the inclusion of IPR exemption in cases of abuse of dominant position as well.
IPR Protection in case of Anti-Competitive Agreements
Section 3(5) of the Act provides an exemption to the Intellectual Property Rights i.e. the violation of competition provisions will not be applicable in cases where a person has acquired an Intellectual Property Right. The said exemption has been provided to promote innovation in the market. Owing to this section, there have always been controversy and power issues when it comes to the tussle between IPR and Competition Law. Though there have never been specific demarcations, it has been observed that in cases involving the tug of war between the two, competition law has prevailed. However, competition law and IPR have complementary functions and the competition law acts as a second layer of regulation. For that reason, competition law comes into play when there is a misuse of an IP right leading to the harm of market and consumers. On the other hand, an IP right holder can turn to competition law policies to protect themselves from unfair competition in the market.
IPR Protection in case of Abuse of Dominant Position
The intellectual property rights often grant a temporary exclusive property right to the holder to exclude others from using the property and thus, creating a monopoly or a degree of exclusivity. This legitimate exclusivity does not always confer the holder the ability to exercise market power. As noted by ECJ (European Court of Justice) in the case of Huawei Technologies Co. Ltd. v. ZTE Corp. that while deciding a case of an IPR holder abusing its dominant position, a balance must be struck down between IPR and Competition law. So far, the Act does not provide a defence of IPR in cases of abuse of dominant position. Further, India, in a note sent to OECD has acknowledged that the IPR exemption is only restricted to anti-competitive agreements and does not extend to abuse of dominant position, as there is no explicit mention of any such exemption under section 4. However, the Amendment Bill, 2020 proposes to solve this issue by adding section 4A in the Act which provides IPR exemption in cases dealing with abuse of dominant position in the market. The said amendment would bring the much-needed parity between the treatments of the two sections.
On the contrary, the IPR exemption to section 4 will create bigger problems in the current competition law regime. It is noted that though section 3(5) provides complete protection to IPR licensed agreement to promote innovation in the market but even then, in case of practices causing appreciable adverse effects by using a dominant position in the market section 4 can be approached. However, the addition of section 4A will protect IPR holders under section 4 as well, which will lead to misuse of the IP protection and will hamper healthy competition in the market. Secondly, the extension of IPR exemption to section 4 may also lead to enforcement problems due to the broader approach adopted in section 19(4). It allows assessing the dominant position of an entity unlike section 19(3) for anti-competitive agreement. Consequently, because of the broader approach of section 4, it grants the dominant entity an opportunity to jeopardize any reason to protect its IPR. Further, the introduction of Section 4A will assess abuse of dominant position, a question between Section 4 and Section 4A. In this situation, the dominant firms would take leverage, they will resort to Section 4A for denial of their IP right justifying their unreasonable act or conditions.
Conclusion
The IPR exemption under section 4 would act as a defence tactic to be used by dominant entities holding IP protection which will slow down or create obstacles in the procedure in cases of abuse of dominant position. More importantly, dominant entities working in the essential facilities sector, if given IP protection, will have an edge to stand in the market affecting consumer welfare. For example, in the current situation of COVID-19 pandemic, a lot of essential services have seen a price hike due to their higher demands. In this scenario, if dominant entities are given IP protection, it will create a leeway for the entities because of which consumers and market competition would be the worst sufferers. Therefore, to curb such analogous practices in parallel situations, IPR exemption to section 4 will not be of many benefits. Abuse of dominant position directly harms the consumers and other competitors in the market and to safeguard their interest, the addition of section 4A to the Act should be avoided.
This article is published by Yash Jain & Ayushi Dubey. They are students of law at Nirma University.