Unfair or abusive? IPR rhetoric in India must be echoed by CCI

India’s IPR rhetoric needs to be echoed by Competition Commission of India.

Prime Minster Narendra Mod, CCI, GST
CCI – India’s only economy-wide regulator—has a special role in fostering a pro-innovation economy.

During his recent US visit, prime minster Narendra Modi spoke and wrote an op-ed for The Wall Street Journal, assuring US CEOs that India would remain a ’business-friendly’ destination and will be committed to research and innovation. Modi urged them to continue to heavily invest in the Indian economy.

While a well-enforced GST regime would no-doubt be a business game-changer, however, there is another aspect of business-friendliness, which needs further government thought and action, especially in the context of US companies, ie, how India values the intellectual property rights (IPR) of its investors?

This question looms large, despite the government’s year old National IPR Policy. Although, being hailed as a good first move, the country’s overall IPR ranking has not improved much. This year’s global index of intellectual property rights, released by the US Chamber of Commerce, India ranked 43 out of 45 countries. Even in the recently released Global Innovation Index 2017, India ranks at 60, much below its BRICS peers of China, Russia and South Africa. The good rhetoric in India’s IPR Policy needs to be implemented through legislative reforms and most importantly by the country’s economic regulators, especially the Competition Commission of India (CCI).

CCI – India’s only economy-wide regulator—has a special role in fostering a pro-innovation economy. This is because CCI’s mandate, includes ensuring a fair functioning market where firms investing in innovation compete against each other to develop new products and processes and gain new markets. However, until now CCI has shown a policy in-consistency when dealing with IPR related cases.

For example, In a case dealing with abuse of dominance by 14 car manufacturers in the market of spare parts and repair services, CCI considerably watered down the IPR exemption available under the Indian Competition Act, 2003. The Act exempts firms to impose market-restricting clauses in their distribution/procurement agreements, which are necessary for such companies to protect their IPRs. However, CCI has interpreted this provision narrowly to mean that for the car manufacturers to avail of the IPR exemption, the IPRs need to be need to be registered and protected under certain specified Indian IPR statutes. Most of the international car manufacturers hold their proprietary information/rights as assets of the parent enterprise and typically license the use of such proprietary assets to their Indian subsidiaries via technology transfer agreements, which were inadequate to protect such car companies from a `25.4 billion antitrust fine. No IPR policy can rectify such a shell-shackling of industry sentiment. Chiefs of Honda and Skoda were quick to add that such decisions were making them re-think their future plans to invest in India. The ‘Make in India’ initiative will remain quixotic unless our regulators can demonstrate their commitment to protect the proprietary ‘ideas’ of foreign and domestic investors on Indian soil.

CCI in the past has initiated an in-depth investigation into the alleged exploitative pricing tactics and abuse of dominant position by Monsanto, T-Series and Ericsson overlooking the ability of an IPR-holding firm to determine the price of its product based upon the market. The ability to monetise an IPR based upon its market value is a key ingredient to the entire innovation process. Through its price signalling, the market is able to direct the efficient allocation of resources for the next round of the innovation process. If an investor’s right to exclude others from making, using and selling the patented goods does not include the right to fix the price of such goods as high as the market will permit, the IPR-holder would simply withdraw from the market—causing loss of consumer welfare. Further, determining if a royalty amount is “unfair” or “abusive” under the Act has been rendered problematic by CCI’s adoption of subjective benchmarks—based on standards of fairness and equity rather than those grounded in economics—while deciding antitrust issues of pricing by dominant firms.

Recently, CCI passed an interim order against the Roche ordering a detailed antitrust probe for allegedly abusing its dominant position by restricting market access to generic cheaper copies of its blockbuster cancer drug—Trastuzumab. Generic drug firms Biocon and Mylan had complained before CCI that allegedly Roche misled doctors and regulators to thwart competition to its trastuzumab drug. Roche had written to authorities including the Director Controller General of India (DCGI), National Pharmaceutical Pricing Authority (NPPA) and hospitals/potential buyers discouraging them from buying biosimilar versions of its cancer drug, given that requisite tests and approval protocol has not been followed. The Delhi High Court has later rebuked CCI for equating the legal right of a dominant company to sue its competitors or petition regulatory bodies as an exclusionary conduct itself and has termed CCI’s order as “anti-competition” and “anti-legal right”.

CCI’s policy inconsistency in IPR cases can have a major impact in the innovation process of the economy. The vision of India’s IPR policy will get lost in implementation as India’s IPR image has a regime that does not value or adequately protect IPRs would get further entrenched. For this CCI, like other antitrust agencies—including those of China, must adopt formal IPR guidelines on how it would enforce India’s antitrust regime with a view of balancing the innovation needs of the firms and those of other industrial and societal stakeholders.

-By Avirup Bose, Assistant professor, Jindal Global Law School and (former) expert consultant, CCI

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