On the surface, patent regimes seem to have antithetical objectives with that of competition forces in the market due to the fact that patent law via the concerned patent office (Controller General in India) gives the patent holder a monopoly right to commercially exploit their invention, while antitrust law and the bodies that regulate competition (CCI in India) are actively fighting against the creation of monopolies in the market to avoid abuse of power by these patentees.
However, this theory has been universally disproved many times, because patent holders are competing with each other to create the “better” product or process to gain higher monetary benefits so that they may be granted the benefit of exclusivity in the form of a patent. This indicates that the two have harmonizing goals, i.e. to promote development, innovation and competition in some form or another. They also ensure a sort of check and balance system because while competition law punishes those patentees who create restrictive agreements, such as price fixing for their inventions, patent law also denies the grant of patents that go against public interest or those which do not satisfy the patentability criteria and limit the term of protection of the monopoly right granted, thus promoting dynamic efficiency. In fact, patent laws have mandated compulsory licensing of those products by those companies which have exercised patent rights in an anti-competitive fashion.
But, when the two laws/authorities collide (Competition Act/CCI vs. Patents Act/Controller), the question of which prevails over the other in patent-related disputes under Sections 3 and 4 of the Competition Act has been deliberated in many judgements by the Indian courts for decades, including the most recent judgement by a division bench of the Delhi HC dated July 13, 2023 between agrochemical company Ericsson and telecom operator Monsanto against regulator CCI answering this question in the affirmative.
Statutory Position in Overlapping Acts
Section 3(3), proviso is often cited along with Section 3(5) [Section 3(1)(i)(b) for patents] as carve-out exceptions to activities causing Adverse Effect on Competition (AAEC) under Section 3 of the Competition Act, 2002, in regards to the treatment of exercise of IP/patent rights and exploitation agreements thereof. However, the incorporation of competition law strategies is also pervasive in the Patents Act, 1970, with Section 48 clarifying that any right granted thereunder is not absolute and subject to limitations beyond just the term of protection under Sections 47, 100, 107 and 107A.
Additionally, perhaps the most evident provision would be Section 140, which states that restrictive covenants or combinations in patent-related agreements (such as licensing of a patented technology) could render such agreements to be unlawful. However, Section 140 does not mention which administration can actually declare such invalidity – the CCI or the Patent Controller, which has caused greater confusion. Even though the Controller of Patents is designated as the authority to regulate and enquire into the exercise of patent rights in relation to compulsory licenses under Section 84 of the Patents Act, such scrutiny is understood to exclude the element of competition misuse as it is the exclusive domain of the CCI under Section 18 of the Competition Act. While Section 62 of the Competition Act seems to imply that remedies under Section 3 and 4 thereof can be claimed in addition to reliefs under Section 84 of the Patents Act, Section 60 of the Competition Act states that the Act would prevail over anything inconsistent with the Act, such as Section 84 of the Patents Act, depending on the interpretation one comes to, which causes further perplexity. There is also no equivalent provision to Section 60 or 62 in the Patents Act.
Pre-Ericsson (PUBL) Judicial Position on Jurisdiction – Trend in Favour of CCI
Thus, while their relationship in theory seems to have both laws on equal footing, the Courts have tried to intervene and solve the practical enforceability ‘dilemma’ of which law takes priority when the main issue in a case involves both IP and competition laws, especially in the light of the statutory inconsistencies highlighted above. The overlap of jurisdiction between IP authorities and CCI was first raised in the case of Aamir Khan Productions v. Union of India, wherein the High Court held that CCI had the competent jurisdiction to decide IP and antitrust matters, even over an IP regulator like the Copyright Board. In FICCI v. United Producers, the Court clarified that the non-obstante clause in Section 3(5) of the Competition Act in no way gives IP rights an absolute exception/bar on any aggrieved party bringing a claim alleging anti-competitive practices in the IP sector before CCI or constitutional courts. CCI also clarified that only those IP holders imposing reasonable conditions necessary for usage of the IP rights and not having detrimental effects on competition can avail the exemption under Section 3(5).
When it comes to patent and competition laws, the Delhi HC held in Ericsson v. Union of India that CCI’s jurisdiction cannot be ousted/assumed just because the matter also fell within the domain of the Patent Controller or any other civil court, even if a patent infringement suit is pending in the civil court. However, Delhi HC and other courts clarified that CCI’s power be limited to the extent of inquiry orders into whether there was abuse of dominant position by the patent applicant in usage of the benefits granted to them under the Patents Act.
A shift has taken place in recent years, with the same Court deviating from the liberal interpretation of CCI’s role and application of Competition Act in Ericsson (supra) and clarifying in a June 2023 judgement, that CCI cannot act as an appellate court against decisions taken by other regulators such as the Patent Controller deciding to not grant compulsory patent license by claiming that such decisions, which do not even involve matters of trade/commerce, impact competition in the “long run”. We can see that the same Court in Ericsson (PUBL) ratio maintained a similar line of thinking.
Summarizing Ericsson (PUBL)
This case arose out of an appeal against 4 orders – including Ericsson v. CCI, which held that CCI’s jurisdiction to examine anti-competitive exploitation of patent rights cannot be questioned when there is an overlap of both laws because Patents Act has no provisions which expressly/impliedly impose such a bar and even the Act contains “efficacious remedies” – and Monsanto v. CCI, which declared that there was “no irreconcilable repugnancy or conflict between Competition Act and Patents Act” and that CCI’s order in light of complaints regarding abuse of dominance in respect to patent rights could not be interfered with unless it failed the Wednesbury test of irrationality, arbitrariness and unreasonableness. Though the issue in this case also similarly deals with question of interference by the CCI in patent cases, the facts of this case are slightly different compared to some previous cases cited above by the author as the patent already been granted.
‘Everybody is Special’
The Delhi HC declared that both the Parliament-enacted Acts are special laws in their “respective fields” in light of the subject matter dealt therewith, intendment thereof and the regulatory scheme set up thereunder and that any perceived repugnancy should be resolved by applying principles of statutory interpretation, which the Court seemingly to mean following of the ‘literal rule’.
Application of maxim ‘lex posterior derogat priori’
CCI has the power to look into anti- agreements and cases involving abuse of dominant position in general, but its scope does not extend to patent-specific matters, evidenced by insertion of Chapter XVI in the Patents Act, which deal with such subjects in the context of patents (in this case, conducting inquiries in relation to patent licensing arrangements), subsequent to or because of the Competition Act, 2002 coming into force in India.
Patent Controller’s powers on par with CCI
By virtue of Chapter XVI and Section 62 of the Competition Act, the inquiry/assessment into anti-competitive allegations conducted by the Controller under Section 84(6) and (7), also being a statutory authority like CCI, was said to be “nearly identical” to that of the CCI under Section 19(3) and (4), also being a statutory authority.
Analysing Implications of Ericsson (PUBL)
• Ignoring ‘In rem’ – ‘in personam’ angle: Clarifying that Patents Act has overriding jurisdiction over Competition Act to the extent of patent-related anti-competitive matters seems to ignore the CCI’s contention that the nature of the powers granted under the two acts are enforceable against two different prisms. As deduced from the language of the respective statutes, CCI’s inquiries and consequent orders are against the public/society at large, while the Controller’s orders are only against that specific patentee engaging in undesirous practices. Even if we argue that license granted under Section 92 under Chapter XVI of the Patents Act do indicate somewhat an “in rem” nature, it does not lay down any requirement of not affecting any commercial or trade-related activities taking place across India or any other similarly worded condition.
• Mis-interpretation of legislative intent: The Court simply claiming that allowing the Patent Controller to preside over such cases “in personam” has been obviously derived from legislative intent of the Patent Act amendment which came into force in 2003 has not been well-substantiated with reasons, especially since the parliamentary debates relating to the Patent Act do not mention having an antitrust-like ‘arrangement’ within such Act.
• Restricting remedy to ‘compulsory licensing’ route: The literal interpretation employed by the Court in construing Chapter XVI to be the ‘patent’ equivalent to the Competition Act does not account for the fact that Chapter XVI only deals with issuing and revocation of compulsory licenses and not all, limiting the options available to an aggrieved party. The Delhi HC also did not consider Sections 60 and 21 of Competition Act, which allows authorities like Patent Controller to make a recommendation to the CCI in case any party feels that its findings are against the provisions of the Competition Act, which imply an overriding effect of jurisdictional competence over anti-competitive behaviour even in patent disputes, which also goes against the recent case of ICAI (supra).
We can thus see that patent holders have a vested interest in following negative competition policies – which do not tolerate unfairness or inequity in marketplace transactions, and positive ones – which boost up opportunities for small-scale patentees in the competitive market by ensuring big companies holding millions of patents do not have the majority concentration of market share. This obvious relationship between the laws does not mean there is no room for loopholes – in a tale as old as time, richer companies may exploit the advantage of paying huge fees for the registration of patent which poorer inventors cannot afford (Edison getting the patent for Tesla’s inventions!) and find ways to fall within the exceptions granted by competition law under the guise of “promoting innovation and research”.
Due to the above reasons, the author believes that the judgement has not clearly been able to clarify why they came to such a clear-cut demarcation of the laws. Since the Court tried to make both regulators ‘happy’ and deem both competent in handling competition law matters, this has also undermined the sectoral regulator argument outlined in CCI v. Bharti Airtel wherein CCI would be the one to intervene after the Patent Controller (being the “sectoral regulator”) established the “jurisdictional facts”.
Contributors: Sneha Makaria (Principal Associate) & Shreeya Sharma (Associate)