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Published by Sthita Patnaik, 2019-10-31 07:15:11

Module_10

Module_10

MODULE 10

COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

PART I: OBEJECTIVES OF THE COMPETITION LAW AND IPR
OBJECTIVES OF COMPETITION LAW1:

• Economic welfare – consumer, social, public, or total welfare:

The question is whether one should emphasize consumer welfare (consumer surplus) or
something more expansive such as social welfare (consumer and producer surplus) or total
welfare (total value of output produced). Although social welfare is an important concept in
economics, in competition law and politics it is not often discussed. This is because it raises
complex problems of distribution. The notion of total welfare, the total value of output
produced and consumed in society, is less complicated. By deduction, one can say that since
consumer welfare is a subset of social or total welfare, when examining the effects of
business practices, the decision on which to focus can be analyzed as to whether there is a
need to look beyond consumer welfare.
In other words, if consumers are harmed and the producers ' efficiency gains exceed the
welfare losses of consumers – the result is not optimal. Hence, producers compensate
consumers for their welfare losses.

• Economic efficiency (allocative, productive, and dynamic):

Efficiency is another commonly stated objective of competition law. It may be a major
consideration in merger reviews, vertical agreements, and dominance abuse cases. Efficiency
is linked to welfare so as to maximize welfare by pursuing efficiency and vice versa.

• Free and fair competition

Competition is linked with maximizing society’s well-being. In view of the fact that
competition or competition between companies is seen as desirable and as a means of

1 Jones and Sufrin 2008; Whish 2001.

maximizing welfare, the concept of free and fair competition becomes more significant. The
term ‘free’ has a number of connotations. It could mean ‘free entry and exit’ from the market,
a necessary but insufficient condition for perfectly competitive markets. Another possible
interpretation of free has to do with the absence of any restrictions on buyers or sellers to take
action to enable them to compete more effectively with other firms. Examples of such
restrictions are vertical restraints.

More complicated is the term ' fair. ‘Fairness’ is relatively new to mainstream economics,
unlike the notions of welfare and efficiency. An economically developed concept of fairness
is based on the notion of envy-free. A fair distribution would be defined as one where the
allocation of another party is not preferred by a party. Another dimension of fairness relates
to other people's welfare.

In the context of competition between small and large firms, the term ' fair competition ' is
also often used. The concern here has to do with the lack of a level playing field between
small and large companies. To equalize the same, government intervention is always more or
less required.

OBJECTIVES OF INTELLECTUAL PROPERTY RIGHTS

• Financial incentive – IP rights provide financial incentives to IP creators.
• Economic growth – IP law can facilitate economic growth by giving the creators '

economic rights statutory expression and promoting economic and social
development by promoting fair trade.

PART II: COMPETITION AND PATENTS
Intellectual property rights are very closely linked to a country's competition laws or policies.
Where, on the one hand, intellectual property rights complement competition policies by
safeguarding the inventor's rights on the market from other competitors ' exploitation;
Competition policies, on the other hand, prevent any abuse of intellectual property owners '
rights. On the face of it, patents and competition laws, seem to be in conflict with each other.
However, both of these systems of law have the sole purpose of promoting innovation,
industry and competition in a customer welfare market.

Although patents are necessary in order to promote efficiency and development in a market,
in certain circumstances it also has great potential to have a negative effect on competition

and consumers. A patent proprietor may misuse and further strengthen his position in order to
expand and conquer the entire marketplace, thereby affecting free and fair competition. The
antitrust authorities are not concerned with the existence of patent rights in themselves, but
only when the exercise of patent rights is detrimental to competition. 2 Section 3 of the
Competition Act becomes relevant here. Section 3(5) of the Act provides explicitly for an
exemption from the operation of the Act to intellectual property rights, subject to reasonable
restrictions. Nevertheless, it is only when a patent protection results in more than what is
required to safeguard the invention, does it oppose the competition policy.

The interplay between patent rights and competition policies varies from country to country.
In the United States, the right of the patent holder to make full use of his patent is recognized,
restricted only by market demand.3

In contrast, EU competition authorities have a mandate to intervene when a company abuses
its dominance by engaging in excessive pricing in relation to its right to patent.

Hence, a balance has to be made between the interplay of these two policy decisions,
depending on the countries governance model.

PART III: COMPETITION LAW AND IPR LAW: A COMPARATIVE ANALYSIS

The protection afforded by intellectual property law protects exclusive rights granted as
patents for inventions, models, industrial designs, copyrights and others. Therefore,
Consumers want products and services that are protected by intellectual property rights, at
good prices and that can be distinguished from similar products on the market.

Whereas, the main function of competition is to promote economic efficiency ; preserving the
competitive framework as the most appropriate means of ensuring that economic resources
are allocated effectively.

If a careful observation is done, we see that the interplay between both of them work in a
parallel manner to enhance the efficiency of the other. The system of intellectual property
protection is needed, with the risks that this often entails, as a precondition for innovation.
The technical progress that this promotes in turn creates an increase in competition at the

2 Case 262/81 Coditel v Ciné-Vog [1982] ECR 3381; Kolstad (n 9). Property Righs, 2016,
3 Harry First, Exploitative Abuses of Intellectual

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2799682.

level of research and development. Competitors will therefore be encouraged to participate in
innovation.4

According to this point of view, intellectual property and the protection of competition are to
be regarded as equal and necessary elements of a dynamic legal and economic system, but
this does not imply that all such interactions are without dispute. It is important to understand
that there is no uniform approach to the relationship between competition law and intellectual
property law. Therefore, it is safe to say that while there is an interface between the defence
of free competition and intellectual property protection, this does not mean that there is a
collision between the two but that there are some areas where disputes can occur. These grey
areas can be numbered as follows:

a) the abuse of dominant position by the holder of an intellectual property right;
b) compulsory licenses when an abuse of a dominant position previously was

determinate;
c) For public necessity, urgency or national emergency.

Hence, if we try and search for stark differences between these two laws, it would depend
upon how the above three positions are clarified in that legal system. No such straight
forward difference exists apart from the nature that both of these laws exhibit.

PART IV: CASES
Several cases have emerged since the emergence of the MRTP Act and Competition Act,
2002, laying down principles related to competition law and IPR. Several landmark
judgments have been made concerning the conflict between IPR and competition law.
Various authorities and agencies discuss and discuss this contentious issue on an ongoing
basis.

Aamir Khan Productions Pvt. Ltd. v. Union of India5is a landmark judgment delivered by the
Bombay High Court wherein the Court while dealing with a matter pertaining to the issue of
IPR held that CCI has the jurisdiction to deal with all cases concerning competition law and
IPR. In Kingfisher v. Competition Commission of India6 also, the Court reiterated that the
CCI is competent to deal with all the issues that come before the Copyright Board. Such

4 Convergence between Competition Law and Intellectual Property, UNCTAD,
https://unctad.org/en/Pages/DITC/CompetitionLaw/ResearchPartnership/Intellectual-Property-and-Competition-
Law.aspx.
5 Aamir Khan Productions v. Union of India, 2010 (112) Bom L R 3778.
6 Kingfisher v. Competition Commission of India, Writ petitions no. 1785 of 2009.

cases enumerate the fact that the Indian Courts are ready for dealing with emerging cases of
competition law involving IPR.

United States v Microsoft corportaion7 is one of the landmarks in the TRIPS regime in
relation to this competition issue and IPR policy. The case originated in 1998, when it was
alleged that Microsoft abused its monopoly power by tying and selling its operating system
and web browser. This restricted the market for other web-browser competitors since
Windows operating system users already had a copy of Internet Explorer (the browser
Windows tied with its browser). The opposition stated that IE was a different and separate
entity altogether, since a separate version is found for other Operating Systems. Judgment
was given that Microsoft had altered its dominant position and by this, it wanted to crush
other operating systems and it said that Microsoft had committed monopolization, and tying
in violation of section 1 and 2 of the Sherman Anti-Trust Act. Microsoft had appealed this
decision and judgment was given that Microsoft would have to be broken into two different
components, one for the browser and the other for the operating system.

Cartel is yet another issue that the competition law deals with in detail. Recently, owners of
IPRs have indulged in the formation of cartels, thereby distorting competition in the
marketplace. From the film industry, an obvious example of the same can be traced as it
involves both IPR issues i.e. copyright as well as competition law provisions affecting the
industry. In the case of FICCI Multiplex Association of India v. United
Producers/Distributors Forum (UPDF)8, the petitioner (FICCI) filed a complaint against the
UPDF alleging the formation of market cartels in the film industry. This was deliberately
done by UPDF to boost their revenue, and thus, it had refused to strike deal with the
multiplex owners. This has direct and drastic effect on the multiplexes as their business is
wholly dependent on the film industry.

In addition, the Court observed in Microfibres Inc v. Girdhar & Co. that:

“The legislative intent was to grant a higher protection to pure original artistic works and
lesser protection to the activities that are commercial in nature. Thus, the intent of the
legislature is explicitly clear that the protection provided to a work that is commercial in

7 U.S. v. Grinnell, 384 U.S. 563, 570-71 (1966).
8 FICCI Multiplex Association of India v. United Producers Distribution Forum (UPDF), Case No. 1 of 2009,
CCI order dated 25 May 2011.

nature is at lower pedestal than and not to be equated with the protection granted to a work
of a pure Article.”9

In Hawkins Cookers Limited v. Murugan Enterprises10, The Delhi High Court held that by
indulging in incidental market control practices, a well-known mark on the pretext of being
prominent and well-known cannot be left unchecked in order to create a market monopoly.
The same would be forbidden and would fall under the category of abuse of dominant market
position.

The U.S. legal status is no different. The Court reiterated in Twentieth Century Music Corp v.
Aiken that the immediate objective of copyright law is to ensure that the author gets a fair
return, but the ultimate goal is to stimulate artistic work for the public good. The aim and aim
of both IPR and Competition law is therefore to promote innovation and public interest along
with furtherance of competition in the market for common good. A similar approach is
adopted by the ECJ which can be inferred from the case of HoffmannLa Roche11 and United
Brands.12

In Entertainment Network (India) Limited v. Super Cassette Industries Ltd., the long-standing
Hon'ble Supreme Court stated the interface between competition law and IPR's effect on
market competition. Refusal of dealing is one of those limbs of anti-competitive practices
covered by competition law.

The Court observing the same held that, though the proprietor of a copyright exercises
absolute monopoly over it, but the same is limited in the sense that any transaction with
unreasonably tainting or limiting competition would amount to refusal. Undoubtedly, IPR
owners can enjoy the fruits of their labour via royalty by issuing licenses but the same is not
absolute.

Excessive pricing and predatory pricing are another problem facing competition law. In
Union of India v. Cyanamide India Ltd. 13 and another, Hon'ble Court considered that
lifesaving drug overpricing is also banned, and the same does not extend beyond the scope of
price control.

9 Microfibres Inc v. Girdhar & Co., RFA (OS) no. 25/2006 (DB), decided on 28 May 2009.
10 Hawkins Cookers Limited v. Murugan Enterprises, 2008 (36) PTC 290(Del).
11 Hoffmann-La Roche & Co AG v. Comm’n, Case C-85/76, 1979 ECR 461.
12 United Brands Co & United Brands Cont’l BV v. Comm’n, Case C-27/67, 1978 ECR 207, 63-66.
13 Union of India v. Cyanamide India Ltd and another, AIR 1987 SC 1802.

CONCLUSION
IPR Law grants the property holder the right to enjoy the disclosure returns, whereas
competition law is required to deal with IPR in a manner that does not necessarily curtail it
but reconciles it with the objectives of competition law. But it can undoubtedly be inferred
now that both IP and competition law have complementary goals. Both are working towards
the ultimate goal of promoting consumer and economic welfare innovation and protection.

However, while reconciling IP law and competition law, some inferences must be taken into
account. The detailed analysis of the streams- IPRs as well as competition law leads us to the
conclusion that both have overlapping issues that cannot be dealt with in isolation. Despite
the fact that both are essentially poles apart, their goals and objectives converge rather than
conflict as they are generally understood. As far as, the fact that there are intricacies and
sensitive issues, both the streams have managed to reconcile and strike a middle path in order
to ensure the fulfilment of the ultimate objective of common good and protection of
consumer welfare.

Thus, the emerging jurisprudence in India and abroad at this initial stage of competition law
in India allays sufficient framework for the development of competition law and regulatory
scheme for IPR. The emerging jurisprudence had made the inclusion of gradual changes in
both laws ready to address new challenges and plenty of new cases & disputes.


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