THE INTERFACE BETWEEN COMPETITION LAW & INTELLECTUAL PROPERTY RIGHTS

Manpreet KaurLLM (Business Laws)National Law School of India University,Bangalore.

PROJECT OVERVIEW

Intellectual Property Rights

IPRs are intangible property rights conferred for tangible fruits of innovative endeavour, creative expression and commercial goodwill.

Reward to creators Incentive to invest,

invent and innovate Information

dissemination Efficiency

Competition Law

Free and fair play of market forces

Freedom of trade Foster competition Consumer welfare Efficiency

AREAS OF CONVERGENCE

EfficiencyEfficiency

Economics growth

Economics growth

Consumer welfare

Consumer welfare

InnovationInnovation

Competition Law &

IPR

Competition Law &

IPR

AN INEVITABLE CHASMIPR confers Monopoly while Competition Law

curbs Monopoly

OBJECTIVES & DELIVERABLES

Objectives:Interplay between IPR & Competition Law in

major jurisdictions USA Canada European Union Japan Australia

Deliverables: Lessons For India

FINDINGS - The Position In US

The US constitutional mandate of “promoting the progress of Science and Useful Arts”, forms the

bedrock of copyright and patent laws.

S. 1 of the Sherman Act prohibits ‘every contract, combination…or conspiracy, in restraint of trade or commerce’

S. 2 of the same Act prohibits conduct that ‘monopolizes, or attempts to monopolize any part of trade or commerce’

The Clayton Act of 1914 declares such acts illegal ‘where the effect… may be to substantially lessen competition or tend to create a monopoly in any line of commerce’

S. 5 of the FTC Act, gives the FTC broad latitude to attack “unfair methods of competition” and “unfair or deceptive acts or practices”.

1995 Antitrust Guidelines for the Licensing and Acquisition of Intellectual Property

IPR treated like other forms of property Existence of IPR does not necessarily

confer market power Complementarities between IPR and

competition law “Innovation” markets Horizontal and vertical relationships The rule of reason The anti-trust safety zones

Judicial Precedents

Essential facilities doctrine

United states v. Terminal rail road

association

Lorain Journal case

Intergraph Case

Contd.

Verizon v. Law Offices of Curtis V. Trinko, LLP anti-trust laws cannot transcend beyond the normal statutory

duties to deal. the Sherman Act does not restrict a trader’s right to deal with

whomever he pleases Pre-requisites - defendant should possess monopoly power in the

relevant market and willfully acquire or maintain that power in a manner different from the market development of the monopoly power

Xerox Case

there is no violation of the Section 2 for mere refusal to license unless:

The patent was obtained through fraud on the Patent and Trademark Office.

The refusal was objectively baseless and the intent was to interfere directly with the business relations of a competitor,

The refusal was part of an otherwise unlawful tying strategy.

FTC v Dell Computer Abuse of standard setting.

The Position In Canada

At the root of IP law "lies a concern to avoid overextending monopoly rights on the products themselves and impeding competition"

An overview of the Competition Act 1986 Purpose – competition, efficiency & consumer

welfare Conspiracy Refusal to deal Price maintenance Abuse of dominance Remedial measures under S.32

Intellectual Property Enforcement Guidelines 2000 IPRs are at par with other forms of property Conduct – i. involving “mere exercise” of IPR or ii. “something more than mere exercise” of IPR

Judicial Precedents

Apotex Inc. v Eli Lilly and Co

Interrelation between S.45 of Competition Act and S.50 of Patents Act – harmonious construction

Tele-Direct case “the selective refusal to license a trademark is

not an anti-competitive act”

Kirkbi AG v. Ritvik Holdings Inc The law of intellectual property discourages

attempts to bring the monopoly position back in another guise

“Competition between the products using the same technical processes or solutions, once patent rights are out of the way, is not unfair competition.

Position in Japan

Law Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade

1947

private monopolization unreasonable restraint of trade unfair trade practices S. 21 – exception in favour of IPRs

The 1999 Guidelines

Interrelation between S.21 and AMA list of vertical agreements which are unlawful acts of prohibited private monopolization

Judicial precedents Nihon Record – attempt by manufacturers of audio

discs to prevent the shops from renting out these discs to customers was held by the FTC to be anti-competitive.

Sony Computer Entertainment – retail price maintenance

“Section 21 Antimonopoly Act is deemed to have been enacted for the purpose of confirming that even if acts are considered to be the ‘exercise of rights’ under the Copyright Act, if those acts are considered to deviate from or run counter to the purposes of the IP protection system considering their effect on orderly competition, those acts will no longer be regarded as acts considered the exercise of rights, and the AMA shall apply to them

Contd.

Pachinko Machine Manufacturers case – patent pooling

Microsoft case - bundling Word and Outlook with Excel

Asahi Electrics – unreasonable licensing conditions; an attempt to divide markets.

Hokkaido Shimbun - IPR as a tool to snub the entry of new competitors; flooding of trademark applications

Position in Australia – The Law

Section 45 of the Act prohibits anti-competitive agreements - price fixing among competitors (S. 45 A) or collective boycott and collective licensing etc., which are per se illegal and are deemed to lessen competition substantially.

Section 46(1) prohibits a firm with substantial market power from taking advantage of that market power for the purpose of -

damaging one of its competitors; preventing a person from entering a market; or deterring someone from engaging in

competitive conduct in a market.

Cont.

Section 47 strikes at anti-competitive vertical conduct while Section 48 deals with resale price maintenance which is also per se illegal.

Sections 88 and 90 of TPA provide for administrative exemption of conduct, that although may lessen competition, would be likely to result in a net public benefit.

S. 51(3) - exempts certain conduct (imposing of an IP licensing condition) from the application of several key prohibitions under Part IV of the TPA – S.45, 47, 50. But this exemption does not apply to S.46 & 48

Transfield v. Arlo – Scope of S.51(3)

Intellectual Property and Competition Review Committee

Interface between IPR and Competition law Recommendations – 1. Compulsory Licensing – “competition test” to

replace “public interest” test2. Section 51(3) – “substantial lessening of

competition test”; 3. Guidelines on enforcement Govt. Response – 1. “competition test” to complement “public

interest” test2. “substantial lessening of competition” to apply

to per se prohibitions under TPA

Judicial precedents

Queensland Wire Industries v. Broken Hill Pty Co Ltd

Application of S.46 to refusal to deal & fixing high prices – “unilateral refusal to deal can be ‘taking advantage’ of market power”.

Universal Music Australia Pty Ltd v. ACCC“if u want any CDs from me, you must not get

any that I can supply; from anyone else”… Held - Tying and substantial lessening of

competition

Position in EU – policy imperatives and the law

Policy objective – market integration and competition

Law – Article 81 – regulates joint conductArticle 82 – regulates unilateral conduct of large firms

with substantial market share Fixing of purchase and selling price Limiting production, markets, technical development Market sharing Supplementary obligations Dissimilar conditions to equivalent transactionsArticle 81(3) – innocuous agreements preclude 81(1)

The Block Exemptions The R&D block exemption – acknowledges that research and development

agreements do not generally give rise to competition concerns because such cooperation often gives rise to new, technologically superior products thereby enhancing technical progress and overall consumer welfare

IPR licensing block exemption – ‘Technology Transfer Block Exemption

Regulation’ (TTBER). It portends that Art.81 (1) shall not apply to certain types of licensing arrangements, which are entered into by parties with smaller market shares.

Judicial precedentsCases related to “Compulsory Licensing” A B Volvo v. Eric Veng Magill case IMS health v. NDC health1. The undertaking which requested the license

must intend to offer new products or services not offered by the owner of copyright and for which there is a potential consumer demand.

2. The refusal cannot be objectively justified3. The refusal must be such as to exclude

competition on a secondary market. Microsoft case – “abuse of dominance”

Conclusion – LESSONS FOR INDIA

1. Taking rescourse to flexibilities in TRIPS Article 8(1)(2) - to protect public health

and nutrition, and to promote the public interest in sectors of vital importance…to prevent the abuse of IPRs by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.

Article 30 – compulsory licensing Article 40 - specifying in their legislation

licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market.

2. The tool of “compulsory licensing” –

Refusal to enter into a voluntary licensing agreement on reasonable commercial terms (e.g. in the German and Chinese patent laws);

Public interest (e.g. in the Swedish law); Public health and nutrition (e.g. provisions in the

French law ) National emergency or situation of extreme urgency; Anti-competitive practices on the part of

patent holders Dependent patents; No or insufficient working of the invention in the

national territory

3. The “essential facilities” doctrine – US and EU judicial precedents; Retaining the flexibility of developing own model

4. Policy approach towards granting patents – strict implementation of patentability criteria

5. Guidelines for the application of competition law to cases involving IPRs

treating IPRs at par with other property rights IPR does not necessarily confer market power “competition on merits” and complementarities

between IP law and competition law “Per se” category – anti-competitive conduct (IPR) Exemptions – R&D, pro-competitive effects Static efficiency or Dynamic efficiency?

Thank You