Column: Competition law versus IP rights

Updated: Apr 15 2014, 08:23am hrs
India was one of the last major economies to introduce a competition law. Its enforcement was further delayed by legal challenges, legislative processes and, if one might venture to say, the lack of competitive appetite in the government. The Competition Act came into force in January 2003, the Competition Commission was established in October that year, but the enforcement could commence only in May 2009! After a hesitant start, the Commission has recently been enforcing the law vigorously, though pragmatically. The road, however, continues to be mined with obstacles. The newest kid on the block is not exactly a welcome member of the regulatory family. The challenges to its jurisdiction have been multiple.

Ironically, an initial limitation on the Commissions jurisdiction came from the government itself, when in a move to mollify opposition from industry bodies it exempted smaller M&As from the Commissions ambit. However, a drafting devil in the notification has resulted in removing even major transactions, especially overseas ones, from the Commissions remit. Till date, the government has been unable to correct the defective notification.

In a scenario where multiple regulators exist, there have been several instances where sector regulators seem to resist any intervention by the Commission in their regulated sectors, failing to appreciate that the competition watchdogs oversight can actually be beneficial for their sector.

The Competition Appellate Tribunal, in a contentious decision, had sought to expand its appellate jurisdiction well beyond the intent of the law, which would have reduced the Commission to almost a front office. It took the Supreme Court to set aside the Tribunals order in a finely crafted judgment in the Competition Commission of India vs Steel Authority of India, which has been acclaimed by competition experts. But the message from the judgment seems to have got lost on some high courts.

It has been common for parties to proceedings before the Commission to seek judicial intervention on issues of due process. An important case awaiting final decision by the Commission, of deep interest to consumers of cars and auto parts, has been held up for over a year following a stay order given by the Madras High Court. A final disposal of the case still seems distant.

The Delhi High Court recently issued a directive to the Commission and its director general that has the effect of prolonging or stalling the Commissions investigation in a case relating to abuse of patent power by an IT major. The Competition Act (like similar laws elsewhere) strikes a fine balance between the market power vested by an intellectual property right and the abuse of such right resulting in market distortion. The Act exempts restrictions that an IP holder can place in an agreement for the use of its IP, but only as long as the restriction is reasonable to protect such right or prevent its infringement. Further, such exemption is not available for unilateral action by a patent holder, where the IP holder is in a dominant position. Volumes of literature are available on the interplay between competition law and IP rights, and enough judicial precedents exist on the subject. Nowhere is the position taken that a competition authority has no jurisdiction in matters related to abuse of patent rights.

In its judgment in the Steel Authority case, the Supreme Court while noting affirmatively the powers of the Commission also observed that the Commission, when forming a prima facie opinion in an antitrust case, should record its reasons for ordering a detailed investigation. However, in the above patent related case, the Delhi High Court has adversely noticed that the Commission has recorded (too) detailed and substantive reasoning while taking the prima facie decision, even though the Commissions prima facie order makes clear that nothing stated therein would tantamount to a final expression of opinion on the merit of the case, and the DG is not to be swayed in any manner by the Commissions prima facie order. The Commission would be hard put to decide in future how much of detail and reasoning in a prima facie order is too little or too much!

It is important for all to appreciate the objectives of the Competition Act, and the universally recognised economic principles that underlie its provisions. Competition law seeks to maintain and sustain competition in the broader interest of consumers and healthy competitive markets. In the case of IP rights, it respects these but only so far there is no abuse to unjustifiably restrict competition in the marketplace. The Competition Commission is statutorily charged with the responsibility to inquire into instances of abuse of market power. The courts and other authorities, through a fuller appreciation of the benefits of competition law, should allow the Commission to deliver on its mandate.

Vinod Dhall

The author was the first head of the Competition Commission of India and now heads a leading competition law practice jointly with TT&A