Section 4A of the Draft Competition (Amendment) Bill, 2020: A Legislative Blunder Endorsing IPR Monopoly and Disrupting Balance

By Yash Raj and Smriti Shukla

The Ministry of Corporate Affairs [“MCA”] in February 2020, released in the public domain, the Draft Competition (Amendment) Bill, 2020[1] [“the Bill”] based on the report submitted in July, 2019 by the Competition Law Review Committee [“CLRC”][2]. The draft Bill proposes a series of changes to bring in the much needed clarity on various aspects of the Competition Act, 2002 and it also seeks to create a balance among the provisions for the development of a transparent, efficient and robust competition regime in the country. There have been some major proposed amendments with regard to addressing the competition law issues in the area of Intellectual Property Rights [“IPR”].

The Bill seeks to omit sub-section (5) of section 3 which provides an exception from the application of other provisions of section 3, which restricts anti-competitive agreements, to IPR holders from restricting infringement or imposing reasonable conditions necessary for protecting their IP rights. The Bill proposes to insert section 4A into the Competition Act which seeks to extend the protection provided under the existing section 3(5) to cases of abuse of dominant position under Section 4 of the Act. Moreover, apart from the six statutes mentioned under section 3(5) of the Act, the proposed section 4A also includes a residual clause (g) extending the protection to include IPR holders under any other law for the time being in force. Thus, it seems that the proposed amendment seeks to balance IPR with competition law and remove the disparity in relation to the treatment of anti-competitive agreements and abusive practices of dominant entities.

Relation between Competition Law and IPR

IPR is concerned about protection of an individual’s private right over his intellectual property such as a creation or an invention. On the other hand, competition law is concerned with the safeguarding of interest of the market and the broader community, and it seeks to limit an individual’s private right that may harm the community. IPR, thus, stands as an exception to the general rule of promoting free competition.

Competition Commission of India [“CCI”] has a vested jurisdiction in cases involving competition issues and it, therefore, has also asserted its jurisdiction in matters involving competition law and IPR[3] and the same has been reaffirmed by the High Courts.[4] The interface between IPR and competition law along with the need to restrict the anti-competitive behavior of IPR holders has been recognized by the S.V.S. Raghavan Committee Report[5] as well as the Supreme Court[6].

Anti-competitive agreements and IPR: Scope of section 3(5)

It has been stressed by the CCI that only reasonable conditions, as may be necessary for protecting IPR under various legislations provided under Section 3(5), can be imposed.[7] Consequently, the interaction between IPR and Competition law rests on the term ‘reasonable conditions’ as provided under section 3(5) of the Act. However, the Act has not defined the term and the necessary corollary follows that any unreasonable conditions on an agreement imposed by an IPR holder will not fall within the protection provided under the non-obstante clause of Section 3(5) of the Act. Courts have held that such unreasonable conditions include performance of a prohibited trade practice[8], tie-in arrangements[9], fixing of prices by the licensor at which the licensee is bound to sell[10], etc.

Abuse of Dominance and IPR: Need for 4(3) not 4A

The widespread distrust of IPR results from the misguided notion that IPR are monopolies and therefore, dominance in the market is a natural consequence of their position.[11] However, the mere use of IPR does not constitute an abuse of dominance.[12] In this regard, the European Court of Justice (ECJ) has noted that, it is imperative that when deciding if an IPR holder has abused its dominant position, a balance needs to be struck between maintaining free competition and safeguarding the rights of intellectual property holders.[13]

The Competition Act, at present, does not provide for a defense with regard to reasonable exercise of IPR in cases of abuse of dominance. In contradiction to Section 3, which provides for such a defense under the non-obstante clause (5)(i), Section 4 has no such provision. The need for such a defense has been brought before various judicial and quasi-judicial authorities, however, they have expressed their inability to extend the protection to IPR holders in cases of abuse of dominant position under Section 4 of the Act.

In Shamsher Kataria Informant v. Honda Siel Cars India Ltd.[14], the CCI expressed its inability to the defense of IPR in cases of abuse of dominance and stated, “Unlike section 3(5) of the Act, there is no exception to section 4(2) of the Act. Therefore, if an enterprise is found to be dominant pursuant to explanation (a) to section 4(2) and indulges in practices that amount to denial of market access to customers in the relevant market; it is no defense to suggest that such exclusionary conduct is within the scope of IPR.[15]

Many foreign jurisdictions have propounded and considered the reasonable exercise of IPR in abuse of dominance cases. The ECJ has noted that ownership of an intellectual property should be considered as a factor while assessing whether a firm has abused its dominant position.[16] A similar approach has been followed in UK[17] and US[18]. Thus, there is an imperative need to extend the defense, allowing reasonable conditions and restrictions for protecting IPR, to cases involving only abuse of dominance and not anti-competitive agreements, as there exists no reasonable basis for such a distinction.

The proposed Section 4A has, although, tried to get rid of this distinction and has extended the remedy to IPR holders in cases of abuse of dominance as well. However, the proposed section will face a lot of implementation issues as the existing balance will be lost which has been created by a conjoint consideration of Section 3 with 19(3) and Section 4 with 19(4). Sections 19(3) and 19(4) respectively require CCI to have due regard to certain factors while determining anti-competitive agreements under Section 3 and abuse of dominance under Section 4. Existing jurisprudence has made it clear that Section 4 provides for a broader scope of assessment to CCI and the proposed section will bifurcate the analysis of abuse of dominance between Sections 4 and 4A. Consequently, the defense of Section 4A in such cases will most probably be exploited by dominant entities for exerting their monopoly in IPR as no subsequent amendments have been made in Section 19 to empower the CCI to assess anti-competitive practices of IPR holders. Thus, one can justify his monopoly in IP without any restriction by resorting to Section 4A.

For instance, licensing of Standard Essential Patents [“SEP”] requires a particular sequence of acts as developed by Court[19] which balances the rights of a patentee and a licensee so as to avoid any abuse of dominance under Section 4, however, the proposed section would allow the patent holder to bypass the necessary steps and exert his monopoly by justifying denial of IP or requiring the licensee to accept unreasonable conditions. The Courts have categorically held that IPR holders cannot enforce monopolistic denials[20] and have developed certain balancing concepts under Section 4 to curb abuse of dominance such as the essential facilities doctrine[21] which could be circumvented by IPR holders by invoking the defense of Section 4A.

The CLRC recommended that a provision similar to section 3(5)(i) be added under section 4 of the Act, yet the proposed draft Bill provides for a distinct section 4A while seeking to omit Section 3(5) of the Act. Thus, instead of providing for a separate section, the draft bill should have provided for a clause similar to Section 3(5)(i) under Section 4 as well which may be labelled as section 4(3). Such a provision would allow the balancing of IPR with abuse of dominance by letting CCI duly consider the factors provided under Section 19(4) while assessing abuse of dominance by IPR holders. However, the addition of the residuary clause in the proposed section 4A is a much needed relief to other forms of IPR as earlier protection under Section 3(5)(i) could not be extended to intellectual properties like trade secrets.

Conclusion

Competition law and IPR are complementary to each other and their scope is largely susceptible to overlaps and conflicts. The need for a balance between the two has been acknowledged by various regulatory and enforcement authorities. The provision of Section 3(5)(i), although, provides for a protection to IPR holders, however, the same is subject to imposition of reasonable conditions and restrictions, and is applicable in cases involving only anti-competitive agreements. The proposed section 4A in the draft Bill has tried to extend the same protection to abuse of dominance cases based on the CLRC report, however, there has been a legislative blooper which may lead to a lot of implementation issues and consequently, add on to the problems of the authorities working to curb anti-competitive practices. Therefore, the draft Bill should be modified and instead of a separate section, a provision can be inserted in the existing section 4 of the Act, named 4(3). This will help maintain the existing balance between IPR and competition law, created through the hard-work of various stakeholders and judicial precedents encompassing such matters.

The authors are are third year students of National University of Study and Research in Law, Ranchi.


[1] Draft Competition (Amendment) Bill, 2020, http://feedapp.mca.gov.in/pdf/Draft-Competition-Amendment-Bill-2020.pdf (last visited May 14, 2020).

[2] Ministry of Corporate Affairs, Report of the Competition Law Review Committee, http://www.mca.gov.in/Ministry/pdf/ReportCLRC_14082019.pdf (last visited May 14, 2020).

[3] Aamir Khan Productions Pvt. Ltd. v. Union of India, (2010) 112 Bom LR 3378.

[4] Kingfisher Airlines Ltd. v. Competition Commission of India, 2010 SCC OnLine Bom 2186.

[5] Report of High Level Committee on Competition Policy and Law, S.V.S. Raghavan Committee, Para. 5.1.7.

[6] Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (2008) 13 SCC 30.

[7] K Sera Sera Digital Cinema Ltd. v. Pen India Ltd., 2017 SCC OnLine CCI 31 ¶11.

[8] Manju Bharadwaj v. Zee Telefilms Ltd., (1996) 20 CLA 229; Dr. Valla Peruman v. Godfrey Phillips (India) Ltd., (1995) 16 CLA 201.

[9] Ajay Devgun Films v. Yash Raj Films Pvt. Ltd., 2012 SCC OnLine Comp AT 233.

[10] FICCI Multiplex Assn. of India v. United Producers/Distributors Forum, (2011) CompLR 79 (CCI).

[11] WIPO, Refusals to License IP Rights – A Comparative Note on Possible Approaches, WIPO Secretariat, (Aug. 2013), http://www.wipo.int/export/sites/www/ipcompetition/en/studies/refusals_license_IPRs.pdf.

[12] Steve Anderman and Hedvig Schmidt, EC Competition Policy and IPRs, The Interface Between Intellectual Property Rights & Competition Policy 40 (2007).

[13] Huawei Technologies Co. Ltd. v. ZTE Corp., Case C-170/13, EU:C:2015:477 ¶42.

[14] 2014 CompLR 1 (CCI).

[15] Id. ¶20.5.85.

[16] Parke, Davis & Co. v. Probel, Case 24/67, EU:C:1968:11.

[17] Dᴀᴠɪᴅ Wʜɪsʜ ᴀɴᴅ Rɪᴄʜᴀʀᴅ Bᴀɪʟᴇʏ, Cᴏᴍᴘᴇᴛɪᴛɪᴏɴ Lᴀᴡ 828 (9th ed. 2018).

[18] Data General Corp. v. Grumman Systems Support Corp., 761 F. Supp. 185 (D. Mass. 1991).

[19] Telefonaktiebolaget LM Ericsson (PUBL) v. Intex Technologies (India) Ltd., 2015 (62) PTC 90 (Del).

[20] Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India, 2016 (66) PTC 58 (Del).

[21] Arshiya Rail Infrastructure Ltd. v. Ministry of Railways, (2013) 122 CLA 297.