Compulsory Licensing of Intelletual Property Rights: a regulatory overlap between the powers of Competition authority and Intellectual Property authorities in India.

ABSTRACT

The utilitarian view of economists like Bentham and Mill advocates that it is important to maintain an optimum balance between the utility gains from increased incentives for inventions on one hand and the losses incurred from monopolization on the other hand. Today, keeping in mind the expansion of intellectual property (IP) regime, a strict adherence to such an approach is required for the promotion and sustenance of a healthy competition in the market. Such a view can be advocated with the help of a legal instrument called “compulsory license”. Compulsory license is an authorization imposed or enforced by the state to force the IP owners to license out their statutorily granted right to the interested third parties. Such license is usually issued to address anti-competitive practices and public health concerns. The authority of issuing compulsory license is generally of the concerned IP authority.

The main concern of this article is to determine whether the competition authority of India, use compulsory license as an anti-competitive remedy in an abuse of dominance case. An abuse of dominance situation arises in case of refusal to license or by imposition of unfair or discriminatory conditions or price in grant of such license by a dominant IPR holder. The scope of such refusal to license as an abusive conduct under The Competition Act, 2002 of India is also discussed. A comparative analysis with the EU and US approaches is drawn. The competition authorities of EU and US are empowered to provide an access to the IP right to the potential competitors by using compulsory license as an antitrust remedy. However, a strict test of “exceptional circumstances” is applied while exercising such authority.

Finally, the research will conclude that CCI being a more competent authority can order compulsory license if an abuse of dominance situation arises involving IP as a subject matter. It is acknowledged that the CCI can use such power only under exceptional circumstances on the basis of a ‘rule of reason approach’ and ‘essential facilities doctrine’ as followed in the US and the EU.

RESEARCH QUESTIONS

  1. Whether two or more authorities of different nature, such as competition authorities and Intellectual Property specialized agencies can be empowered to grant compulsory license?
  2. Whether the Competition Commission of India can issue compulsory license as an anti-competitive remedy under Section 27(g) of the Competition Act, 2002 within the terms “any other order as it deems fit”?

 INTRODUCTION:

A compulsory license is an involuntary contract between a willing buyer and an unwilling seller imposed and enforced by the state.The mandate of compulsory licensing of Intellectual Property Rights (IPRs) stemsfrom various international agreements like WIPO (World Intellectual Property Organization) in Paris, Convention for the Protection of Industrial Property and WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Broadly speaking, compulsory license is granted in two situations, namely, in cases involving public interest and where the exclusive rights are used in an anti-competitive manner. Other grounds include unreasonably exorbitant prices of an essential facility, Intellectual Property (IP) being not worked in the country, national emergency situations and cases involving public health and nutrition etc.

The interface between the IP laws and the Competition Laws is very delicate and complicated. Almost every country is trying to harmonize the two laws. One of the most debatable issue in this context is whether and to what extent the competition law can be used to force the compulsory licensing of the IPRs.[1] According to a survey on compulsory licenses granted by WIPO Member States to address anti-competitive uses of IPRs, it was observed that in many jurisdictions, the national authorities have the responsibility for examining licensing and/or technology transfer agreements whose subject-matter is an IP and/or uses (practices) of IP.[2] Another responsibility of the national authorities is to determine anti-competitive effects that can result from licensing agreements and/or uses of IPRs.[3] As a matter of fact, such a responsibility is attributed either to national IP authorities or national competition authorities and in some cases that responsibility is attributed to both authorities: National IP agencies and competition institutions.[4]It was also observed in the survey that each authority has its own functions, roles and attributions which are clearly defined in their respective statutes. As far as the power to grant or issue compulsory licenses is concerned, such a power is exercised by each one of the authorities according to their respective statutory goals and objectives.

It is evident from the survey that if more than one authority has the power to issue compulsory license in a particular country, it does not amount to an overlap of their respective powers and jurisdictions. Such a trend does not amount to an inherent conflict between the two laws because the competition authority, by virtue of issuing a compulsory license, is providing an access to an essential facility to a potential competitor which is important for the competitor to survive in the market.Thus, it is in turn important to achieve the goal of human welfare which is common to both the laws. This practice is further appreciated keeping in mind the lack of practical experience of IP authorities with respect to the assessment of anti-competitive uses of IPRs. Though such a case has not yet been witnessed in India, but there exists a dual authority (a competition and IP authority) to grant compulsory license in the country. This aspect has been discussed and explained in detail in the later sections of the paper by drawing a comparative analysis with EU, UK and US and by throwing light upon the relevant provisions of the IP and competition laws of India.

BACKGROUND

The IP laws and Competition Laws strive to promote innovation and efficiency in the functioning of the market. They do so by eliminating obstacles in the market. However, the different mechanisms that each one of the laws employ to achieve this goal sometimes become a potential source of tension between the laws.[5]Competition laws have traditionally tended to focus on the achievement of static allocative and productive efficiencies by preventing the inappropriate accumulation or exercise of market power with respect to existing products or services.[6] However, on the other hand, the IP laws seek to foster long-term dynamic efficiency gains through incentives to invest in the creation of valuable developments. Such development may involve the acquisition, perfection and protection of IPRs and, in some cases, confer an element of market power on the holder.[7] Conflicting interests give rise to the need to attain a balance between the two laws.

Today, there are many instances in which the exclusivity granted by the IPRs inhibits competition in the market. The dominant IPR holders often try to unlawfully monopolize their conduct towards their competitors in the relevant market by arbitrarily refusing to deal or refusing to license their protected IPR. These potential competitors who are dependent on the protected IP, become victims of the de facto monopoly of the IPR holders and face entry barriers in the relevant market. Compulsory licensing of IPRs is an important and a necessary tool in the present scenario to cure the anti-competitive behaviour of the dominant IPR holders. The countries like EU and US have been actively using this tool to dampen the effect of anti-competitive behaviour in their respective territories. However, such practice has never travelled beyond the requirements of indispensability and competition in the secondary market. The jurisprudence in the US and the EU suggest that compulsory license can be used and an appropriate remedy in antitrust cases in exceedingly limited circumstances.[8] Keeping in mind the Indian socio-economic conditions and the size of the Indian market, the need of the hour is to use compulsory license as an anti-competitive remedy which will help in the development and growth of the Indian industry.

INTERNATIONAL PERSPECTIVE:

There are many countries in which more than one authority share the responsibility of issuing the compulsory license. Such authorities include national IP agencies, competition authorities, courts, ministries and special institutions. They do so according to the goals and objectives laid down in their respective statutes. In other words, these authorities are divided on the basis of their different missions and policy perspectives. Some of the countries which follow this trend are discussed in detail below.

EUROPEAN UNION (EU)

The law relating to compulsory licensing in the EU is a blend of both the national laws of the twenty-seven Member States and the EU government.[9] The law is both national and international in the sense that the Member States are charged with defining protection of IP while the EU is responsible for competition law.[10]In other words, the Member States have their respective laws relating to the grant of compulsory license on one hand and on the other hand, European Commission (EC) and European Court of Justice (ECJ) primarily are responsible to ensure fair and free competition in the market by facilitating free movement of intellectually protected goods for which they may use compulsory license as an anti-competitive remedy.The Treaty on the Functioning of the European Union (hereinafter referred to as the “EC Treaty”) is uniformly applicable to all the Member States of the EU. Specifically, Articles 101 and 102 of the EC Treaty enumerateindividual restraints to address anti-competitive practice which can also envisage IP rights and thus define the scope and limitations of compulsory licensing in regard to both rights and remedies.[11]The agreements between commercial entities which interfere with the operation of a common market allowing for the free flow of goods, services, capital, and labor are prohibited under Article 101 of the EC Treaty.Furthermore, an abuse of dominant position, either directly or indirectly, by the successful market participants is also prohibited under Article 102 of the EC Treaty. The conditions constituting such abuse include directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage and making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.It is noteworthy that a mere unilateral refusal of an IP right holder to license his IP right to the competitors does notviolate the competition law of EU. There are certain exceptional circumstances under which such refusal constitutes an abusive conduct under the EU competition law which have been enumerated in various cases decided by the EC and the ECJ.Whenever a case of abuse of dominant position under competition law of EU arises, a right to access IP can be granted which is comparable with grant of compulsory license [12] and such a practice is subjected to the application of doctrine of essential facility by EC or the ECJ.

Essential facilities doctrine has its roots in the US antitrust law but is well recognized and applied in the EU.This doctrine requires the owner (a dominant undertaking) of an essential facility to provide access to such a facility to other undertakings which cannot pursue their own activity (and therefore will perish) without access to such a facility at a reasonable price. The application of the doctrine requires two markets, namely, an upstream market and a downstream market.Under the EU law, the development of the essential facilities doctrine has been based upon Article 102 of the EC Treaty. This treaty prohibits abuse of dominance in the common market and refusal to deal is one of the grounds of abusing the dominant position under the said article. But in Volvo v Eric Veng[13] case in which Volvo denied access to its design rights on models for car body panels to the independent repairers whichprevented the independent repairers from supplying the spare parts, the ECJ held that a mere refusal to deal is not an abuse of dominant position under Article 102 of the EC Treaty. EC did not specifically lay down the circumstances under which a refusal to sell will be abusive. On the other hand, the EC said that a refusal to license will amount to an abuse of dominant position only when there is an additional abusive conduct.The abusive conduct includesarbitrary refusal to supply spare parts to independent repairers, fixing sale or purchase prices for spare parts at unfair level or ending the production of spare parts for models still in circulation.

There is no straight jacket formula or method to define an essential facility, however, certain criteria have been evolved from various decisions of ECJ. These criteria include the following:

  • There must be a dominant firm or an enterprise controlling that facility;
  • The competitors lack an ability to reproduce the facility;
  • It is necessary to secure an access to such a facility in order to compete in the related market;
  • It must be feasible to provide access to the facility.[14]

The application of essential facility doctrine in the field of IP is very rare. Where refusal to license the IPR (an essential facility) results in denial of market access to the other competitors, compulsory licensing can be awarded as an anti-competitive remedy. This was verywell recognized in Magill’s[15] case in which theessential facilities doctrine in respect of IPRs was applied by the EC for the very first time. In this case, three Irish television broadcasters had a copyright protection over their own individual television program listings. Each broadcaster published its own television guide to intimate the viewers about its programs for the following week. Magill, a Dublin company (an Irish publisher), wanted to compile the television program listings of the three broadcasters into one weekly comprehensive television guide but all the three broadcasters refused to give Magill a license for their respective television program listings. EC[16] held that such refusal to license violates Article 102 of EC Treaty. The decision was upheld by Court of First Instance[17] (CFI, now the General Court) and ECJ. Again, in this case, for the first time, ECJ laid down the exceptional circumstances in which a refusal to license can constitute an abusive conduct. These circumstances include the lack of actual or potential substitute for the new product which was prevented a market access and for which a potential consumer demand existed, the lack of justification for a refusal to license and the fact that the broadcasters reserved the second market to themselves by excluding competition. It was further observed that although right to exclude is the substance of the exclusive right but refusal to license under the above stated circumstances violates the general obligation of a dominant firm to supply a downstream competitor. The ECJ held that mere ownership of IPR cannot confer a dominant position, but the broadcasters had a de facto monopoly over the information produced as they were the only source. The refusal to supply a license for use or reproduction of television program listings (an essential facility) was preventing the emergence of a new product for which there was apparently a market demand and finally there was no justified reason for the refusal.

More recently, in IMS Health v NDC Health[18] case, IMS Health had a copyright over a set of pharmaceutical sales data called ‘1860 brick structure’ and it refused to license it to a competitor, NDC Health. The EC in its interim decision held that IMS Health was obliged to license the brick structure as it is an essential facility because it had become de facto dominant industry standard.Furthermore, other competitors needed to use IMS’s standardised database structure else their services will have no value for the customers. Later on, the decision was withdrawn owing to the change in circumstances. However, the ECJ in its preliminary ruling stated that a refusal to give access to IPRs does not itself constitute an abusive conduct. The ECJ reiterated and confirmed the ‘exceptional circumstances’ test laid down in Magill’s case which need to be fulfilled for a refusal to license to constitute an abusive conduct. The ECJ clarified some of its aspects by saying that:

  • regarding the likelihood of excluding all competition on a secondary market, the ECJ held that it is sufficient if a ‘potential’ or ‘hypothetical’ separate market could be identified;
  • regarding the absence of objective justification, the ECJ highlighted that this assessment needs to be conducted on a case-by-case basis; and
  • regarding the requirement of bringing a new product to the market, the ECJ emphasised that it would not be sufficient if the potential licensee intended to merely duplicate a product or service that a potential licensor already sold in the secondary market.[19]

It is evident from the above discussion about EU’s IP law and competition law that a dominant enterprise’s refusal to supply license for its protected IPRs may fall within the ambit of the essential facilities doctrine. Thus, the EU’s approach to mandatean IP holder to license its IPR as a remedy for such a refusal on the basis of the doctrine and carving out exceptional circumstances under which only, a refusal to supply a license constitutes an abusive conduct is very much justified. This approach is useful in solving the problem of over protection of IP laws.[20]

When the balance between competitiveness and innovation is distorted and situation in which IP laws are over protected arises, the most suitable approach is that the competition laws should interfere ex-post to redress the balance.[21] This approach is more adjusted to the case-by-case situation.The ECJ has been very cautious in its approach of imposing competition provisions on IP rights. It is evident from the fact that ECJ has applied a strict test of proving an additional abusive conduct besides a mere refusal to license while deciding whether an enterprise’s refusal to license is abusive or not.

UNITED KINGDOM (UK)

In UK also, there is more than one authority which deals with the issue of grant of compulsory license, namely Intellectual Property Office (IPO), the Competition Commission, the Secretary of State and the Office of Fair Trading (OFT). Anybody can apply to the UK IPO for the grant of compulsory license and such a request will be considered by the IPO on the grounds that are mentioned in the Patents Act 1977 of UK. The Competition Commission or the Secretary of State may also request the IPO to take an action following a merger or market investigation which cannot be dealt with under the Enterprise Act 2002.[22]The exploitation of IPRs is a subject matter of competition law as well and hence it may give rise to competition concerns involving an abuse of a dominant position. In UK, such rules are governed by the OFT which may itself impose a compulsory license obligation in a competition case (if required), although this remedy is rare in practice.[23]

UNITED STATES (US)

The US Patent Law does not contain any reference to compulsory licensing as such, but the Copyright Law of the country requires a notice stating the intention to obtain a compulsory license to be sent to the Copyright Office.[24]The national IP authorities of US include the US Patent and Trademark Office which administers the examination and granting of patent rights and the Copyright office. Furthermore, the US competition law also does not specifically provide for the grant of compulsory license to address anti-competitive issues arising out of use of IPRs. However, the investigation into the antitrust practices involving the use of IPRs or refusal to license IPRs is carried out by the two federal antitrust agencies, namely, the US Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DoJ). Each one of them follows a different procedure.

IP licensing has been used as an anti-competitive remedy by FTC and DoJ in the following types of antitrust cases:

  • To maintain competition in the market which is likely to be lessened by a proposed merger;
  • To remedy the competitive harm arising out of some specific uses of IPRs and
  • To remedy the effects of an anti-competitive conduct that was not based upon the anti-competitive use of IPRs.

Although there is no general duty to deal with the competitors under the US antitrust law but the provisions relating to the abuse of dominance, that is, Section 2 of the Sherman Act, can be invoked when the refusal to deal by a dominant IP right holder constitutes an abusive conduct.Like EU, a unilateral refusal to license doesn’t itself amount to a violation of Section 2 of the Sherman Act but it is only ‘under certain circumstances’ such a refusal to cooperate with competitors constitute an anti-competitive conduct. Compulsory licensing is a well-established anti-competitive remedy in the US and such a remedy can be availed only on the basis of the essential facilities doctrine and the rule of reason approach which involves a case-by-case analysis.

In Eastman Kodak v. Image Technical Services,[25] the Eastman Kodak Company was the manufacturer and the seller of photocopiers and micrographic equipment. Kodak also sold service and replacement parts for its equipment. The Independent Service Organizations (ISOs) began servicing Kodak copying and micrographic equipment in early 1980s. Kodak subsequently adopted policies to limit the availability of parts to ISOs and to make it more difficult for ISOs to compete with Kodak in servicing Kodak equipment. The ISOs instituted an action against the refusal to deal in its patented replacement parts (needed for repair of the photocopiers) in the United States District Court for the Northern District of California under Section 1 and 2 of the Sherman Act. The District Court granted a summary judgment for Kodak requiring it to sell such parts on reasonable terms to the ISOs. However, the appellate court observed that there is sufficient evidence to establish Kodak’s market power in the service and parts markets and held that the power gained through some natural or legal advantage such as a patent, copyright or business acumen can give rise to liability if a seller exploits his dominant position in one market (equipment market) to expand his empire into the next (service and parts market). The Appellate Court concluded by saying that an antitrust liability for refusal to deal in protected IP may arise where the presumption of valid reason not to license is rebutted by the evidence of anti-competitive intention and such a liability for refusal to deal would, of course, include situations where the IP could be proven to be an essential facility.[26]

In Intergraph Corp. v. Intel Corp.,[27] the United States Court of Appeals for the Federal Circuit categorically observed that a mandatory access to a protected IPR may be imposed in a case where the refusal to license access to such IP demonstrates an anti-competitive intent.

Very recently, in the Matter of Rambus Inc., the Federal Trade Commission (FTC) held that Rambus’ false statements about its patent and pending patent applications related to dynamic random access memory from a standard-setting organization enabled it to monopolize the markets for four technologies incorporated into standards set by the Joint Electron Device Engineering Council (“JDEC”).[28] FTC found that Rambus Inc. has violated Section 2 of the Sherman Act and Section 5 of the FTC Act and ordered Rambus to license its SDRAM and DDR SDRAM technology at royalty rates not to exceed a maximum set by the Commission.

Though the decision was reversed by the US Court of Appeals for the D.C. Circuit but its decision is important for three reasons:

  • The FTC has an ancillary authority to impose compulsory license in an unlawful monopolization case apart from issuing cease and desist orders and can also establish reasonable rates;
  • The FTC, under the proper factual circumstances, may impose a royalty-free license to remedy anticompetitive conduct; and
  • The FTC can extend a compulsory license, including a zero royalty license, to next generation technologies if there is a sufficient causal link between alleged misconduct and the development of the standard.[29]

Thus, it is evident from the above discussion and decisions that compulsory licensing of IPRs is a well-established antitrust remedy in the US which can be availed only in cases involving an exclusionary conduct on the part of IPR holders with a significant market power.

Apart, from the EU, UK and the US, there are many other jurisdictions in which both the IP national agencies as well as the competition authorities share the responsibility of issuing compulsory license. However, since the nature of the authorities is different from each other, they don’t have to coordinate their actions and can issue compulsory license according to their respective statutory objectives and goals. For example, in Canada, the competition laws have authorized the transfer and confiscation of IPRs as a remedy to abuse of IPR.[30] This provision includes the Patents, Trademarks, Copyrights and all other kind of IPRs. Andean group of countries including Columbia, Venezuela,Ecuador,BoliviaandPerualsohaveprovisionssanctioning compulsory licensing as a remedy for anti-competitive practices.[31] Argentina[32]and Chile[33]also have similar provisions in their anti-trust laws.

INDIAN PERSPECTIVE

In India, no case dealing with essential facility doctrine or a case involving refusal to license IPRs has been decided by the Competition Commission of India (CCI), India’s competition authority, uptil date. But the Competition Act, 2002 (hereinafter referred to as “the Competition Act”) has been structured in such a way and incorporates various provisions by virtue of which the doctrine can be invoked under the said act and compulsory license can also be issued by the CCI to cure the anti-competitive practices of the dominant IPR holders. The preamble of the Competition Act reflects the objective of the act by providing that “it is an act to provide, keepinginviewoftheeconomicdevelopmentofthecountry,fortheestablishmentofa commissiontopreventpracticeshavingadverseeffectoncompetitiontopromoteand sustain competition in markets to protect the interest of consumers and to ensure freedom of tradecarriedonbyotherparticipantsinmarkets,inIndia,andformattersconnected therewith and incidental thereto.” Thus, it is evident that one of the objectives of the said act is protect the common man from anti-competitive trade practices.

The CCI in its decisions has placed a great emphasis on interest of common man, than on competitors or the competitive process.[34] Furthermore, the Hon’ble Supreme Court of India has held, “the main objective of the competition law is to promote economic efficiencies using competition as one of the means of assisting the creationofmarket responsivetoconsumerpreferences”.[35] Thus, common man welfare is the primary objective the Competition Act and the CCI exercises its powers under the act to achieve this objective.

Before carving out the power of CCI to issue a compulsory license by doing a critical analysis of the provisions of the Competition Act, let us first look into various grounds of compulsory license enumerated under the IP laws of India and the relevant IP authority empowered to issue such a license.

Section 84(1) of The Patent Act, 1970 allows any “interested person” to apply for grant of compulsory license to the Controller on the grounds that:

  • The reasonable requirements of the public have not been satisfied, or
  • The patented invention is not available at a reasonable affordable price or
  • The patented invention is not worked in India.

TheActalsoprovidesforgrantofcompulsorylicenseonnotificationbytheCentral Government in the following case:

  • Acircumstance of national emergency; or
  • A circumstance of extreme urgency; or
  • A case of public non-commercial use.

The Controller General of Patents supervises the working of the Patents Act, 1970 and is the license issuing authority as well.

Section 31 of The Copyright Act, 1957 provided that the Copyright Board is empowered to issue a compulsory license and lays down the following grounds for granting a compulsory license. It says that if the owner of copyright in the work:

  • has refused to republish or allow the republication of the work or has refused to allow the performance in public of the work, or
  • has refused to allow communication to the public by broadcast by broadcast of such work or in the case of a record, the work recorded in such record…

After carefully analysing the above mentioned provisions of the IP laws of India, we can say that such provisions do not address the anti-competitive practices adopted by a dominant IPR holderby arbitrarily refusing to provide an access to an essential facility, that is, refusal to license its protected IPRas one of their grounds to grant a compulsory license. In other words, such provisions do not deal with the unlawful monopolization which may be resorted to by a dominant IPR holder. Furthermore, the IP authorities and the competition authorities are of different nature and are restricted by their own goals and attributions. Hence, one cannot and should not encroach into the domain of the other. Also, unlike competition authorities, the IP authorities lack expertise to deal with cases involving anti-competitive behaviour even though the subject matter of such cases is a protected IPR. So, if a competition case involving the abuse of IPR arises, CCI being the competition and more competent authority, can intervene if such a matter is reported to it and can grant a compulsory license by virtue of exercising its ancillary power under the Competition Act,2002.

Let us now establish CCI’s implied authority to issue compulsory license under the Competition Act, 2002.

Section 4 of the Competition Act deals with abuse of dominant position by an enterprise or a group and one of the abuses of one’s dominant position is to indulge in any practice or practices that result in denial of market access in any manner. A refusal to license IP exclusively held by a dominant enterprise may also be considered as a constructive refusal to supply under the provisions of the Competition Act and such a refusal may be construed to limit the ‘production of goods or provision of services or market’, or restrict the ‘technical or scientific development relating to goods or services to the prejudice of consumers’, or result in the ‘denial of market access’, all three of which amount to abusive conduct under sections 4(2)(b)(i), 4(2)(b)(ii) and 4(2)(c) of the Competition Act, respectively.[36]It is evident that the law-makers have implicitly recognized the doctrine of essential facilities under this provision of the act. An essential facility in our context refers to a protected IP. A barrier to entry for new enterprises into the relevant market is a major restraint on the dynamics of competition.[37] When a dominant enterprise in the relevant market controls a facility that is necessary for assessing the market and which is neither reproducible at a reasonable cost in the short term not interchangeable with other products or services, the enterprise shall not refuse to share it with its competitors at a reasonable price except for a sound justification.[38] If such a practice is adopted by a dominant enterprise, the CCI may under the provisions of Section 4(2) (c) of the Competition Act (related to denial of market access by a dominant enterprise) pass a remedial order under which the dominant enterprise must share an essential facility with its competitors in the downstream markets.[39] Such a remedial order is comparable to the grant of a compulsory license.

Furthermore, Section 27(g) of the Competition Act empowers the CCI to pass “any other order’ as it deems fit besides imposing a penalty or awarding compensation, if it finds that a dominant enterprise has acted in contravention to Section 4 of the said act. By applying the Mischief Rule of Interpretation, we can say that the term “any other order’ includes the order issuing compulsory license to curb the mischief and advance the remedy if the situation so demands. Also, Section 28 of the Competition Act empowers the CCI to divide an enterprise enjoying dominant position to ensure that such enterprise does not abuse its dominant position and in exercise of such a power the CCI can order transfer or vesting of property, rights, liabilities or obligations from one enterprise to the other. In other words, Sections 27 and 28 together allow the CCI to create an interest by a way of a license in favour of a third party on terms that the CCI deems fit.[40]Last but not the least, it is pertinent to note that the Competition Act has an overriding effect over all the other laws including the IP laws of India by virtue of Section 60 of the said act. Section 60 provides that the act shall have an effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Thus, once the ball is set rolling under the Competition Act, the informant or complainant does not have the option of pulling back and if the CCI sees merit in the information or complaint, it takes over and the informant then merely assists the CCI.[41]

Although no case, involving the grant of compulsory license by the CCI, has come up so far. Recently, a case has been filed before the CCI by HT Media Ltd. alleging that the Super Cassettes (T-Series) is abusing its dominant position. HT Mediaoperates four FM radio stations under the Fever 104 brand. T-Series has an estimated 80% market share in music rights. It is alleged by HT Media that T-Series is charging Rs. 660 per needle hour which is 4 times higher than the 2%royalty rate. The complaint is based upon the Copyright Board’s order passed on 25th August, 2010 in Music Broadcast Pvt. Ltd vs. Phonographic Performance Ltd., in which it was held that, for sound recordings, a music company should charge not more than 2% of net revenue from radio broadcasts as royalty.

Initially, the complaint was filed before the Copyright Board under Section 31 of The Copyright Act, 1957. Due to the slow progress of the Copyright Board on the complaint, HT Media decided to lodge a complaint before the CCI. The jurisdiction of the CCI to hear the present matter was challenged by T-Series on the ground that an application for compulsory license filed by the HT Media is being considered by the Copyright Board which is also going to determine the reasonability of the royalty rates set by the T-Series. The application was dismissed by the CCI without a hearing and this was followed by filing of a writ petition by T-Series before the Delhi High Court. The Delhi High Court disposed of the writ petition on October, 2012 and ordered the CCI to hear the jurisdiction issue raised by T-Series as a preliminary objection before hearing the dispute on merits.[42] The CCI ruled that it has the jurisdiction to hear the complaint filed by HT Media because the nature of the proceedings for abuse of dominant position under competition law is different from the compulsory licensing challenges being heard by the Copyright Board.[43] The CCI further explained that HT Media’s complaint was much more than just unreasonable license fees being demanded by T-Series and that only the Competition Authority of India will have the jurisdiction to investigate these claims.[44]In an appeal filed by T-Series against the order of CCI, the Delhi High Court refused to stay the order of the CCI and upheld it.

In the investigation into this matter by the Director General of CCI, it has been found that T-Series has abused its dominant position and has thus violated Section 4 of the Competition Act. The Director General in his report stated that the conditions imposed on radio operators, such as mandatory payment of performance license fee by HT Media, bears no relation to the actual quantity of T-Series music broadcast by the FM channels. Therefore, the imposition of such conditions amounts to imposition of an unfair and discriminatory condition and is in violation of Section 4(2)(a)(i) and 4(2)(a)(ii) of the Competition Act.

As we can see that till today, the odds are against T-Series. Although the case has not been decided yet, but we can say that this case in an essential facility doctrine matter as it fulfills all the conditions for the application of the doctrine. This is explained below:

  • The requirement of a dominant firm or an enterprise controlling the essential facility is fulfilled as the T-Series owns 80% market share in music rights and thus controls the use of the music.
  • The requirement of competitors lacking an ability to reproduce the facility is also satisfied. The radio stations, including the radio stations operated by HT Media, are not capable of producing or creating music.
  • The requirement that it is necessary for a potential competitor to secure an access to such a facility in order to compete in the related market is also present in this case. Since T-Series owns 80% of the music market, HT Media will have to obtain rights from T-Series to compete in the radio broadcasting market.
  • The requirement of feasibility to provide access to the facility is also fulfilled. The new rate set by the Copyright Boardon 25th August, 2010 in Music Broadcast Pvt. Ltd vs. Phonographic Performance Ltd. Case was of 2% royalty rate. Presently, at Rs. 660 per needle hour, T-Series is asking four times the price of the current rate from the radio broadcasters. Although T-Series is not explicitly denying access to its music content, it is implicitly refusing access to its music by asking arbitrarily high price. This is derived from the Supreme Court’s decision in M/S Entertainment Network India Ltd v M/S Super Cassettes Industries Ltd[45], in which it was held that offering copyrighted works at extremely high prices is as good as refusal. An unreasonable demand if acceded to, becomes an unconstitutional contract which for all intent and purport may amount to refusal to allow communication to the public work recorded in sound recording.

Acknowledging the fact that the CCI has much broader and lethal powers as compared to the IP authorities of India, if it is able to successfully establish that T-Series has abused its dominant position by charging unreasonable license fee, it may impose a compulsory license obligation on the T-Series. However, this would be an ancillary remedy in such an unlawful monopolization case apart from issuing cease and desist orders or imposing a heavy penalty. Keeping in mind the global trend, it would not be anomalous if CCI passes an order of compulsory license under Section 27 (g) of the Competition Act to protect consumer welfare and fair competition on the basis of the essential facility doctrine.

DISCUSSION

The Competition Act, 2002 is well-structured and contains various provisions which incorporate the essential facility doctrine. Section 4 of the Competition Act deals with abuse of dominant position. One of grounds of abusing a dominant position by the IPR holder in Section 4 is to indulge in any practice or practices that result in denial of market access in any manner. It is evident that the law-makers have implicitly recognized the doctrine of essential facilities under Section 4. The Federation of Indian Chambers of Commerce and Industry (FICCI) has made and important observation that that though the Competition Act does not explicitly provide for the issuance of compulsory license as a remedy for anti-competitive practices. However, Section 27(g) of the Competition Act empowers the CCI to pass ‘such other order or issue such other directions as it may deem fit’. By applying the Mischief Rule of Interpretation, we can say that the term “such other order’ includes issuing compulsory license to curb the mischief and advance the remedy if the situation so demands. Section 27(g) and 28(2) of the Competition Act crown CCI with a power to incorporate compulsory license within its ambit. FICCI further observed that Section 90(ix) of the Patent Act, 1970 also recognizes that compulsory licenses can be granted to remedy a practice determined, after judicial or administrative process, to be anti-competitive.

Furthermore, it is more advantageous to file a complaint against abuse of dominance with respect to the use of IPR due to two main reasons. Firstly, anyone can lodge a complaint for abuse of dominance under the Competition Act without fulfilling the requirement of an “interested person” as is required under the Patent Act. Secondly, a person does not have to wait for the expiry of three years from the date of grant of patent to file a complaint before the CCI under the Competition Act unlike the Patent Act. Unlike competition authorities, the IP authorities lack expertise to deal with cases involving anti-competitive behaviour, even though the subject matter of such cases is a protected IPR. So, if a competition case involving the abuse of IPR arises, CCI being the competition and more competent authority, can intervene if such a matter is reported to it and can grant a compulsory license by virtue of exercising its ancillary power under the Competition Act,2002.

A better approach to issuing compulsory license by CCI would be that CCI may refer any case involving compulsory licensing of IPR to the relevant IP authority. Section 21A of the Competition Act also provides for the same power to CCI to make a reference to a concerned statutory authority. It is therefore recommended that compulsory licensing as an anti-competitive remedy should be used only in cases where exclusionary conduct is irrefutable or any other equitable remedy cannot be resorted to.

CONCLUSION

From the above discussion, we can conclude that both the laws, that is, the IP laws and the Competition Laws have a common goal of society welfare which they try to achieve via different mechanisms. Therefore, they must function parallel to each other. Whenever the exclusive rights of an IP holder are over protected, intervention of competition laws ex-post (which involves a case-by-case analysis) is essentially required to restrict the exclusivity. It is well established that refusing to license a protected IP by a dominant IPR holder may come within the purview of essential facility doctrine and will constitute an abusive conduct. Imposition of an obligation, to compulsorily license its IPR, on the dominant IPR holder by the competition authority is one such method that can be employed to curb such abusive conduct. Though, such obligation may raise a concern of losing the incentives to innovate, however, this concern can be addressed by applying “exceptional circumstances” test as applied by the European Union and the United States. It is only under limited circumstances that the compulsory licensing can be used as an anti-competitive remedy. Furthermore, such limited circumstances must involve a need to have an access to the essential facility (protected IPR) in order to enter, survive and compete in the relevant market.

By analysing the provisions and case laws of foreign jurisdictions, it is clear that there are and there may be more than one authority, both being of different nature, which can be empowered to issue compulsory license. These licenses can be issued according to each authority’s respective statutory objectives and also by explicitly following the essential facilities doctrine. In India, the same scenario exists where national IP agencies and the competition institution (CCI) of India are empowered to grant a compulsory license.If the power to issue a compulsory license is shared by these two authorities, it will not amount to an overlap of their powers because CCI will intervene only under “exceptional competition related circumstances” to remedy the anti-competitive practice which does not fall within the ambit of the IP authorities. Such power of the CCI will be further restricted by the necessary application of an essential facility doctrine.

BIBLIOGRAPHY

LEGISLATIONS

  1. The Treaty on the Functioning of the European Union
  2. The U.K. Patents Act, 1977
  3. The Enterprise Act, 2002
  4. The Sherman Antitrust Act, 1890
  5. The U.S. Copyright Act, 1976
  6. The Canadian Competition Act, 1985
  7. The Indian Patent Act, 1970
  8. The Indian Copyright Act, 1957
  9. The Indian Competition Act, 2002.

BOOKS

  1. Jayashree Watal, Intellectual Property Rights in the WTO Developing Countries (Oxford University Press, New Delhi 2001)
  2. V.K. Ahuja, Law Relating to Intellectual Property Rights (reprint 2010) (2007)
  3. Ananth Padmanabhan, Intellectual Property Rights Infringement and Remedies (LexisNexis 2012)
  4. M. Dugar, Commentary On The MRTP Law, Competition Law & Consumer Protection Law-Law, Practices And Procedures (Wadhwa Nagpur 2006).
  5. Shahid Ali Khan & Raghunath Mashelkar, Intellectual Property and Competitive Strategies in 21st Century (2nd ed., Kluwer Law International, The Netherlands 2009)
  6. William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law (The Belknap Press of Harvard University, Massachusets 2003)

ARTICLES

  1. Prashant Reddy, The Competition Commission tightens the ‘noose’ around T-Series, DeCoding Indian Intellectual Property Law(Apr. 16, 2013, 8:05 PM), available at http://spicyip.com/2013/04/the-competition-commission-tightens.html.
  2. Jeremy, The interplay between patent litigation and competition law in India, PatLit: The patent litigation weblog (Aug. 20, 2013, 7:47 PM), available at http://patlit.blogspot.in/2013/08/the-interplay-between-patent-litigation.html.
  3. Competition Commision of India, Abuse of Dominance (2012), available at http://www.cci.gov.in/images/media/Advocacy/AOD2012.pdf.
  4. Naval Sataravala Chopra, Dinoo Muthappa,The Curious Case of Compulsory Licensing in India, Competition Law International, Vol.8 No. 2 (Aug., 2012)
  5. Compulsory Licensing as an Antiitrust Remedy (Feb. 20, 2007), available at http://www.crowell.com/NewsEvents/AlertsNewsletters/Antitrust-Law-Alert/1351167#.UnfkfPmnp8i.
  6. Mayer, Brown, In the Matter of Rambus, Inc. Docket No. 9302 FTC Directs Compulsory License to Remedy Anticompetitive Conduct, available at http://m.mayerbrown.com/news/in-the-matter-of-rambus-inc-docket-no-9302-ftc-directs-compulsory-license-to-remedy-anticompetitive-conduct-02-09-2007/.
  7. Robert Pitofsky, The Essential Facilities Doctrine Under United States Antitrust Laws (2001), available at http://www.ftc.gov/os/comments/intelpropertycomments/pitofskyrobert.pdf.
  8. 8.      C. Ritter, Refusal to Deal and “Essential Facilities”: Does Intellectual Property Require Special Deference Compared to Tangible Property?, World Competition, Vol. 28 (2005).
  9. 9.      J. Turney, Defining the Limits of the EU Essential Facilities Doctrine on Intellectual Property Rights: The Primacy of Securing Optimal Innovation, Northwestern Journal of Technology and Intellectual Property, Vol. 3 No. 2 (2005).
  10. Elena Cortes, Adam Dawson, Catriona Hatton, Baker Botts, Squaring the Circle: The EU’s Quest for Balance between Antitrust and Intellectual Property, The European Antitrust Review, available at http://globalcompetitionreview.com/reviews/53/sections/177/chapters/2063/.
  11. OECD Policy Roundtables, The Essential Facilities Concept (1996), available at: http://www.oecd.org/dataoecd\/34/20/1920021.pdf CDIP/4/4 Rev./STUDY/INF/5.
  12. World Intellectual Property Organization, Survey on Compulsory Licenses Granted by WIPO Member States to Address Anti-Competitive Uses of Intellectual Property Rights (Oct. 4, 2011), available at http://www.wipo.int/edocs/mdocs/mdocs/en/cdip_4/cdip_4_4_rev_study_inf_5.pdf.
  13. Christopher Wadlow, Enforcement of Intellectual Property in European and International law: The New Private International Law of Intellectual Property in The United Kingdom and The European Community 257 (1998).
  14. Rita Coco, Antitrust Liability for Refusal to License Intellectual Property: A Comparative Analysis and the International Setting, 12 MARQ. INTELL. PROP. L. REV. 1, 7 (2008).
  15. Jarrod Tudor, Compulsory Licensing in the European Union, Kent State University(Sept. 2012), available at http://works.bepress.com/cgi/viewcontent.cgi?article=1000&context=jarrod_tudor.
  16. Richard F. D. Corley, Navin Joneja, Prakash Narayanan, The Competition/Intellectual property Interface – Present and Future Challenges, The Interface Between Competition and Intellectual property Law Report (Mar. 2006), available at http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02285.html.
  17. Mansi, Compulsory Licensing- Legal Issues- A Critical Analysis (2010), available at http://www.nalsarpro.org/PL/Projects/Model-Project-Module_2.pdf.
  18. World Intellectual Property Organization, Interaction of Agencies Dealing with Intellectual Property and Competition Law: Summary of Replies of Member States (Jun. 16, 2011), available at http://www.wipo.int/edocs/mdocs/mdocs/en/cdip_4/cdip_4_4_rev_study_inf_1.pdf.
  19. David W. Hull, James R. Atwood and James B. Perrine, Compulsory Licensing: A global Competition Review Special Report, The European Antitrust Review(2002), available at http://www.ftc.gov/opp/intellect/020522hulldoc.pdf.
  20. Dina Ansari, The EC Essential Facilities Doctrine, the Microsoft Case and the Treatment of Trade Secrets (Spring, 2009) (unpublished Masters’ Thesis, Linköping University).
  21. Jaivir Singh, Is there a Case for Essential Facilities Doctrine in India? (CUTS Institute for Regulation and Competition, Working Paper No. 04, 2013).

 


[1] David W. Hull, James R. Atwood and James B. Perrine, Compulsory Licensing: A global Competition Review Special Report, The European Antitrust Review (2002), available at http://www.ftc.gov/opp/intellect/020522hulldoc.pdf.

[2] World Intellectual Property Organization, Interaction of Agencies Dealing with Intellectual Property and Competition Law: Summary of Replies of Member States (Jun. 16, 2011), available at http://www.wipo.int/edocs/mdocs/mdocs/en/cdip_4/cdip_4_4_rev_study_inf_1.pdf.

[3]Id.

[4]Id.

[5] Richard F. D. Corley, Navin Joneja, Prakash Narayanan, The Competition/Intellectual property Interface – Present and Future Challenges, The Interface Between Competition and Intellectual property Law Report (Mar. 2006), available at http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02285.html.

[6]Id.

[7]Id.

[8] Mansi, Compulsory Licensing- Legal Issues- A Critical Analysis (2010), available at http://www.nalsarpro.org/PL/Projects/Model-Project-Module_2.pdf.

[9]  Christopher Wadlow, Enforcement of Intellectual Property in European and International law: The New Private International Law of Intellectual Property in The United Kingdom and The European Community 257 (1998).

[10] Rita Coco, Antitrust Liability for Refusal to License Intellectual Property: A Comparative Analysis and the International Setting, 12 MARQ. INTELL. PROP. L. REV. 1, 7 (2008).

[11] Jarrod Tudor, Compulsory Licensing in the European Union, Kent State University (Sept. 2012), available at http://works.bepress.com/cgi/viewcontent.cgi?article=1000&context=jarrod_tudor.

[12] World Intellectual Property Organization, Survey on Compulsory Licenses Granted by WIPO Member States to Address Anti-Competitive Uses of Intellectual Property Rights(Oct. 4, 2011), available at http://www.wipo.int/edocs/mdocs/mdocs/en/cdip_4/cdip_4_4_rev_study_inf_5.pdf.

[13]Judgment of ECJ of Oct. 5, 1988.

[14] OECD Policy Roundtables, The Essential Facilities Concept (1996), available at: http://www.oecd.org/dataoecd\/34/20/1920021.pdf CDIP/4/4 Rev./STUDY/INF/5.

[15]Magill’s case, Judgment of ECJ of Apr. 6, 1995.

[16] Magill TV Guide Case, OJ L78/43 (1989).

[17]RTE, ITP, BBC v Commission ECR II-485 (1991).

[18]IMS Health v NDC Health ECR I-5039 (2004).

[19] Elena Cortes, Adam Dawson, Catriona Hatton, Baker Botts, Squaring the Circle: The EU’s Quest for Balance between Antitrust and Intellectual Property, The European Antitrust Review, available at http://globalcompetitionreview.com/reviews/53/sections/177/chapters/2063/.

[20] C. Ritter, Refusal to Deal and “Essential Facilities”: Does Intellectual Property Require Special Deference Compared to Tangible Property?, World Competition, Vol. 28 (2005) at 286.

[21] J. Turney, Defining the Limits of the EU Essential Facilities Doctrine on Intellectual Property Rights: The Primacy of Securing Optimal Innovation, Northwestern Journal of Technology and Intellectual Property, Vol. 3 No. 2 (2005) at 286-7.

[22] World Intellectual Property Organisation, supra note 2, at 5.

[23]Id.

[24] U.S. Copyright Act, 17 U.S.C. Section 115 (1976).

[25]504 U.S. 451 (1992).

[26] Robert Pitofsky, The Essential Facilities Doctrine Under United States Antitrust Laws (2001), available at http://www.ftc.gov/os/comments/intelpropertycomments/pitofskyrobert.pdf.

[27] 195 F.3d 1346 (Fed. Cir.1999).

[28]Compulsory Licensing as an Antiitrust Remedy (Feb. 20, 2007), available at http://www.crowell.com/NewsEvents/AlertsNewsletters/Antitrust-Law-Alert/1351167#.UnfkfPmnp8i.

[29] Mayer, Brown, In the Matter of Rambus, Inc. Docket No. 9302 FTC Directs Compulsory License to Remedy Anticompetitive Conduct, available at http://m.mayerbrown.com/news/in-the-matter-of-rambus-inc-docket-no-9302-ftc-directs-compulsory-license-to-remedy-anticompetitive-conduct-02-09-2007/.

[30] The Canadian Competition Act, R.S.C. Section 32 (1985).

[31] Article 61-69 of the Decision 486 of 2000 of the Andean Community of Nations on Common Intellectual Property Regime, available at http://www.sice.oas.org/Trade/Junac/Decisiones/DEC486be.asp.

[32] Law No. 24.481 of 1995 on Patents and Utility Models (as amended by Law No. 24.572) of Argentina.

[33] Law No. 19.039 Establishing the Rules Applicable to Industrial Titles and the Protection of Industrial Property Rights (Jan. 24, 1991) of Chile.

[34] Naval Sataravala Chopra, Dinoo Muthappa,The Curious Case of Compulsory Licensing in India, Competition Law International, Vol.  8 No. 2 (Aug., 2012) at 37.

[35] Judgment by S.C. in Civil Appeal No. 7999 of 2010.

[36] Chopra, Muthappa, supra note 32.

[37]Competition Commision of India, Abuse of Dominance (2012), available at http://www.cci.gov.in/images/media/Advocacy/AOD2012.pdf.

[38]Id.

[39]Id.

[40] Jeremy, The interplay between patent litigation and competition law in India, PatLit: The patent litigation weblog (Aug. 20, 2013, 7:47 PM), available at http://patlit.blogspot.in/2013/08/the-interplay-between-patent-litigation.html.

[41]Id.

[42] Prashant Reddy, The Competition Commission tightens the ‘noose’ around T-Series, DeCoding Indian Intellectual Property Law(Apr. 16, 2013, 8:05 PM), available at http://spicyip.com/2013/04/the-competition-commission-tightens.html.

[43]Id.

[44]Id.

[45]Letters Patent Appeal NO. 448/2011.

By:- Aakshita Bansal

Amity Law School, Delhi

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