Thursday, September 5, 2013

The Overlap between Patents and Competition Law- I

Last month, I had written a two-part series on the intersection between competition law and patent litigation on Prof.Jeremy Phillips’s patent litigation blog PatLit. For the benefit of the readers of this blog, reproduced below is the first post in the series:

Patent litigation all over the world has gradually moved beyond its standard template which typically involves suits for infringement, counterclaims for patent invalidation or contractual disputes. Since the conduct of warring parties has a bearing on competition and consumers, competition law is gradually beginning to make its presence felt, even in India. In this post, I shall deal with some of the situations where there is interplay between the Indian Patents Act 1970 and the Indian Competition Act 2002. 

Although the Patents Act is typically associated with patent grant and enforcement, Section 140 of the Act lists those restrictive covenants whose presence in patent-related contracts is forbidden for being unfair or discriminatory. The Section, among other things, expressly proscribes any contractual provision that envisages exclusive grant-back or prevents challenges by a licensee to the validity of a licensed patent or enables coercive package licensing by the patentee/licensor. Such contractual clauses may also attract Section 4 of the Competition Act, which deals with abuse of dominant position, provided the ingredients of the Section are satisfied. 

In other words, in limited situations, the manner of patent exploitation and enforcement and its effect on the market is capable of attracting both the Patents Act and the Competition Act. For instance, a patentee may be in a position to dictate licence terms, including exorbitant licence fees, to others players in the market who seek access to his proprietary technology. Subject to certain conditions being satisfied, it is possible to invoke the compulsory licensing (CL) mechanism provided for under Section 84 of the Patents Act to moderate the terms of the licence. Here too, it is also possible to assess the fairness of the patentee’s terms through the prism of Section 4 of the Competition Act. 

 The difference between the two mechanisms is that Section 84 requires the applicant for a CL to wait for three years from the date of patent grant to move a CL application, whereas one need not wait for three years under the Competition Act to complain against abuse of dominance. Also, under the Patents Act, one needs to satisfy the requirement of being a “person interested” within the meaning of Section 2(1)(t) to move a CL application (I have written elsewhere in detail on the interpretation of the definition of a “person interested”), whereas anyone can file an information for abuse of dominance under the Competition Act. 

A question that may arise is whether the same relief may be granted by both the Controller General of Patents and the Competition Commission of India (CCI). Under Section 84(4) of the Patents Act, the Controller General has the power to determine the terms of a compulsory licence. Under Section 27 of the Competition Act, the CCI has the power, among other things to modify the terms of the hitherto abusive agreement, besides imposing a penalty. 

Further, Section 28 of the Competition Act empowers the CCI to divide the abusive enterprise to ensure that it is never in a position to abuse its dominance. Pertinently, Section 28(2) of the Competition Act envisages “transfer or vesting of property, rights, liabilities or obligations”. In other words, Sections 27 and 28 together allow the CCI to create an interest by way of a licence in favour of a third party on terms that the CCI deems fit. Clearly, the CCI has broader and much more lethal powers than the Controller General. 

What is critical to note is that Section 60 of the Competition Act states that the Act “shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force”. In other words, this Act has an overriding effect over all other laws, including the Patents Act. Critically, once the ball is set rolling under the Competition Act, the informant or complainant does not have the option of pulling back since if the CCI sees merit in the information or complaint, it takes over. The informant then merely assists the CCI. Therefore, the choice of the legal option to be employed depends entirely on the outcome desired by an aggrieved party.”

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