Making Sense of the Interplay Between Intellectual Property and Competition Law
This post is authored by Siddhant Dubey and Tanya Kaushik; law students at Nirma University, Ahmedabad.
The field of intellectual property law (IP law) and competition law are very distinct. However, often the interplay between the two seems to overlap and at times conflicting. IP law grants exclusivity and monopolistic rights whereas competition law limits exclusivity and frowns at monopoly to uphold the open and free nature of the market.
Common objective of consumer welfare/innovation
Accordingly to Herzberg’s motivation-hygiene theory, everyone aspires for certain recognition or validation to further indulge in a particular activity. Similar is the primary objective of intellectual property which works on reward theory. The United Nations conference on trade and development (UNCTAD) asserted that intellectual property rights aim to encourage innovation by providing incentives. This is done by conferring exclusivity to persons over their creations which they can exploit and reap benefits of their innovation, creativity, research and investments.
The idea of competition law is to maintain the effective and efficient functioning of the market economy accompanying consumer welfare. For this purpose, competition law to some extent reins the exclusive rights stemming from any private property. Competition is regarded as desirable for the market as it positively motivates the creators to invent more and upgrade products of the existing economy. Pertinently, competition law uses this approach of limiting exclusive rights to create an environment of workable competition that promotes innovation and weakens the anti-competitive practices in the market.
As pointed out by American economist J.M. Clark[1], the market cannot shy away from monopoly. There are elements of monopoly in every market and it’s the responsibility of the regulatory authorities to ensure that the creator in any way does not abuse its dominance and there is a sense of workable competition among the producers and suppliers.
Thus, while IP law balloons innovation by conferring exclusive rights on private property, competition law regulates these exclusive and monopolistic rights to develop workable competition in the economy and to end-market abuse. However, the ultimate goal of both establishments is to promote innovation and consumer welfare.
Statutes and precedents
The Competition Act, 2002, is styled as to not interfere with the workings of intellectual property. However, if the Competition Commission of India (CCI) finds that intellectual property rights are bringing an appreciable adverse effect on competition [2], the CCI can take action against such abuse. The Bombay High Court in the matter of Aamir Khan Productions Pvt. Ltd. v. Union of India, held that CCI has jurisdiction in the matters relating to both competition law and intellectual property rights. It was also asserted that rights originating from intellectual property are not sovereign but statutory.
Peculiarly, Section 3(5) of the Act extensively mentions that the IP holders are only allowed for “reasonable use” of their exclusive rights. If there is any digression from this specified “reasonable use” which ensues in competition law issues, the Act authorizes CCI to impose “reasonable restrictions” on the IP holders. Same was observed by the Supreme Court in the matter of Entertainment Network (India) Limited v. Super Cassette Industries Ltd., that the monopoly of a copyright holder is not absolute and if it perturbs the functioning of the market economy, it will be liable for violating competition law resulting in cancelation of license.The CCI in limited circumstances has granted the benefit of this carve-out in cases where it found that the IP holder had legitimate reasons to impose such restrictions. In summary, striking a balance between the legitimate exercise of a holder’s intellectual property rights and consumer interest is important.
The competition law in no way proscribes dominance, but rather regulates it. Even the exception of reasonable use is limited by section 4(2) of the competition act by stating that “there shall be an abuse of dominant position if the enterprise imposes unfair and discriminatory conditions or prices in the purchase and/or sale of goods.” Thus, IP holders in India cannot lay unreasonable restrictions on their innovations under the pretext of exercise of their exclusive rights. However, there isn’t a list of what is reasonable and what isn’t. This is usually determined by the jurisdiction itself depending on the matter. For example, Section 83 of The Patent Act, 1970 stipulates that “the patentee should not indulge in practices that “unreasonably” restrain trade or negatively affect the international transfer of technology and also the patented invention should be made available at reasonable prices to the public.”
The report of High-Level Committee report on Competition Policy and Law stated that every intellectual property right has the potential to beget competition law problems. Intellectual property provides exhaustive rights to the creators to perform a productive or commercial activity, but this does not include the right to exert restrictive or monopoly power. Thus, where the reports agree to the fact that Intellectual property rights are tools to prevent the misuse of one’s creation, it also provides that there is a need to control the anti-competitive practices that arise from these exhaustive rights.
Intellectual property rights and competition law cannot be regarded in isolation but complementary to each other. There might be some scuffle when it comes to the means through which these laws accomplish their goals. But still, ultimately both these regimes strive for maximisation of innovation and smooth functioning of the market economy with consumer welfare.
References:
[1] J M Clark, ‘Toward a Concept of Workable Competition’, THE AMERICAN ECONOMIC REVIEW (1940) 30(2) 241–56
[2] Section 19(3) of The Competition Act 2002
[3] Report of High-Level Committee on Competition Policy and Law, S. V. S. Raghavan Committee, Para. 5.1.7
