Wednesday, May 13, 2015

Delhi High Court Dismisses Writ Petition by AIDS NGO Seeking Directions against Abuse of Divisional Patent Applications

In a crisp judgment dated May 7, 2015, the Chief Justice of the Delhi High Court dismissed a writ petition filed by a Delhi-based HIV/AIDS NGO, The Delhi Network of Positive People, in which directions were sought to amend the procedure under Patents Act, 1970 to prevent abuse of the process of filing divisional patent applications by patent applicants.

As our readers are aware, Section 16 of the Patents Act, 1970 permits filing a divisional patent application either suo motu by the applicant or in response to an objection raised or direction issued by the Patent Office, only when the basic patent application discloses multiple inventive concepts which are not cognate. The Petition (rightly) raises the issue of abuse of the process of suo motu filing of divisional patent applications by applicants who anticipate rejection of their patent applications, in the hope that they might get lucky the second time around, even when they are fully aware that they do not satisfy the requirement of Section 16 (this issue was dealt with in a post I wrote four years ago elsewhere).

To remedy the mischief, the Petitioner prayed for directions to the Ministry of Commerce requiring it to amend Form 1 of the Patents Act so as to include an undertaking by the patent applicant at the time of filing of a divisional application that the parent application discloses multiple inventions not constituting one single inventive concept and that the claims of the divisional application are not identical to those of the parent application. A second direction was sought which required the Controller of patents to take an ex parte decision on the maintainability of a divisional application before examining it for patentability. Finally, a provision for action against mischievous patent applicants was sought.

Although the Court recognized the validity of the concerns raised in the petition, it was dismissed on grounds that a Court could neither legislate nor issue a direction to the Legislature to enact in a particular manner. Further, in the absence of a constitutional challenge to the legislation, it would be equally impermissible for a Court to expand the scope of the legislation or recast it through interpretation. In this regard, reliance was placed on the Supreme Court’s decision in V.K. Naswa v. Home Secretary, Union of India (2012) 2 SCC 542. The High Court also observed that it could not direct the Controller of Patents to exercise his power in a manner contrary to the framework of the Act.

The other reason for dismissal of the petition was the Court’s view that it could not adjudicate on the issue in vacuum without their being a specific cause of action or without the impleadment of an errant patent applicant as a respondent to the petition. I am not sure the absence of these two ingredients is fatal to a writ petition which challenges the Patent Office's handling of divisional applications as opposed to targeting any patent applicant in particular. The Petitioner may seek consolation from the Court’s direction to the Ministry of Commerce and the Controller of Patents to treat the petition as a representation and consider taking appropriate measures to address the issue.

I agree with the Court on the impropriety of directing the Executive or the Legislature to amend a statute or to interpret it in a manner not envisaged by it. That said, I think that the current declarations sought from an applicant in Form 1 already have the effect of declaring that a divisional application is not identical in its claims or scope to the parent application. In Para 9 of Form 1, which is titled “Declarations”, a patent applicant is required to declare that there is no lawful ground of objection to the grant of the patent. Further, when a division application is filed, the applicant has to furnish the details of the parent application and declare that the divisional has been filed pursuant to Section 16 of the Act.

It could be argued that if an applicant knowingly files a divisional patent application which is identical to the parent, he is in violation of his own declarations in Para 9 for having knowingly filed an application which does not satisfy the ingredients of Section 16. If a patent is ultimately granted pursuant to the divisional, it may be revoked under Section 64 on the same substantive grounds on which the parent was rejected, apart from the ground of having obtained the patent on a false suggestion or misrepresentation under Section 64(1)(j) of the Act. Upon revocation, the IPAB or a Court in a counterclaim, as the case may be, could impose exemplary costs for having committed fraud on the Patent Office. That said, the issue remains that there is no mechanism as on date to address the issue right at the stage of examination of the divisional application. One possible solution may be for the Controller General of Patents to issue a practice direction requiring:
A.      patent applicants to submit a copy of the parent application when a divisional is filed;
B.      patent examiners to scrutinize the issue of maintainability of a divisional before examining it for patentability

Comments and corrections are welcome.

Saturday, May 9, 2015

Compensatory Costs for False or Vexatious Claims or Defenses in IP Disputes

Picture yourself as a new entrant to a field of business who intends to launch a product which strikes the right balance between performance and cost-effectiveness. Just a week before the launch of your product, you get sued for infringement of a patent or a design by a better-placed competitor (“X”) who succeeds in securing an ex parte ad interim injunction which kills the launch of your product. During the course of the litigation, you manage to establish before the Court that X’s suit was malicious and false/vexatious i.e. it was instituted with the specific object of thwarting the launch of your product despite his knowledge that he had no real cause of action against you. Does the law address this situation?

Now put yourself in the shoes of an IP holder, say a patentee, who discovers that a former licensee (“Y”) is continuing to sell the patented invention despite the termination of the license (which has not been challenged by the licensee). Upon being sued, the former licensee Y contests infringement knowing fully well that his product is identical to the product that was sold by him during the subsistence of the license. Further, Y challenges the validity of your patent on multiple substantive grounds despite having satisfied himself of its validity prior to obtaining the licensee from you. You, the patentee, ultimately convince the Court of the false/vexatious nature of Y’s defense of non-infringement and patent invalidity (notwithstanding the fact that Section 140 of the Patents Act does not prohibit Y from the challenging your patent’s validity). Does the law address this situation?

Section 35A of the Code of Civil Procedure, 1908, which governs the conduct of civil suits specifically provides a remedy. Extracted below is the provision:

35A. Compensatory costs in respect of false or vexatious claims or defenses.
(1) If any suit or other proceedings including an execution proceedings but excluding an appeal or a revision, any party objects to the claim of defence on the ground that the claim or defence or any part of it is, as against the objector, false or vexatious to the knowledge of the party by whom it has been put forward, and if thereafter, as against the objector, such claim or defence is disallowed, abandoned or withdrawn in whole or in part, the Court, if it so thinks fit may, after recording its reasons for holding such claim or defence to be false or vexatious, make an order for the payment the object or by the party by whom such claim or defence has been put forward, of cost by way of compensation.
(2) No Court shall make any such order for the payment of an amount exceeding three thousand rupees or exceeding the limits of it pecuniary jurisdiction, whichever amount is less:
Provided that where the pecuniary limits of the jurisdiction of any Court exercising the jurisdiction of a Court of Small Causes under the Provincial Small Cause Courts Act, 1887 or under a corresponding law in force in any part of India to which the said Act does not extend and not being a Court constituted under such Act or law, are less than two hundred and fifty rupees, the High Court may empower such Court to award as costs under this section any amount not exceeding two hundred and fifty rupees and not exceeding those limits by more than one hundred rupees:
Provided, further, that the High Court may limit the amount or class of Courts is empowered to award as costs under this Section.
(3) No person against whom an order has been made under this section shall, by reason thereof, be exempted from any criminal liability in respect of any claim or defence made by him.
(4) The amount of any compensation awarded under this section in respect of a false or vexatious claim or defence shall be taken into account in any subsequent suit for damages or compensation in respect of such claim or defence.

A reading of the provision makes it clear that the remedy of compensatory costs is equally available against a plaintiff’s false/vexatious claim and a defendant’s false/vexatious defense. However, what renders the remedy illusory is the paltry amount of INR 3000 prescribed as the upper limit. This defect in the provision has been pointed by the Supreme Court in several decisions and has been the subject-matter of cogitation by the Law Commission of India in its 240th Report.

What is also to be noted is that unless the affected party raises the objection of false/vexatious claim or defense, a Court cannot suo motu embark on such an enquiry or grant the remedy provided for under the provision. This aspect too has been addressed by the Law Commission which, among other things, has sought to rechristen ‘compensatory costs’ as ‘exemplary costs'. Following are the amendments to the provision recommended by the Commission:

(1)    Ceiling limit of Rs. 3,000/- prescribed in the year 1976 needs to be enhanced to Rs. 1,00,000/-.

(2)    Out of the costs awarded under Section 35-A (maximum being Rs. 1,00,000/-), part of the costs should be allowed in favour of the party who has been subjected to frivolous or vexatious litigation and a part of the amount of costs should be directed to be deposited in the Judicial Infrastructure Fund to be created by each High Court

(3)  The expression ‘exemplary’ should be substituted for the word ‘compensatory’ wherever it occurs in Section 35-A.

(4) Every Court, on its own, even without an application from one of the parties, shall be empowered to award exemplary costs under section 35-A if the Court is satisfied that the claim or defence is false or vexatious to the knowledge of the party. However, before passing such order, opportunity of hearing shall be given to the party against whom such order is proposed to be passed on the date of pronouncement of judgment

Tuesday, April 7, 2015

Intermediary liability regime- A Historic Opportunity Missed by the Supreme Court

Ever since the pronouncement of the verdict by the Supreme Court on March 24, 2015 in what I prefer to call the “IT Writ Petitions” (since they went beyond Section 66A of the Information Technology Act, 2000), a lot has been written on mainstream and alternative forums on the striking down of Section 66A. And rightly so because its draconian nature, vagueness and unreasonableness were writ large. The number of instances in which the now erstwhile provision had proven its susceptibility to abuse, bears testimony to the dangers it posed to free speech and hence its fundamental constitutional infirmity (readers may recall I have written on Section 66A earlier on the blog).

In stark contrast, the other provision of the IT Act, which has now been read down by the Supremes, namely Section 79(3)(b), has not received its due in popular discourse. This is perhaps because this provision required and still requires attention to nuances. The challenge to the provision was mounted on behalf of internet intermediaries solely by the Internet and Mobile Association of India (IAMAI) in W.P(C). 758/2014 in the same batch of IT Writ Petitions. This challenge was critical owing to the integral nature of intermediaries to the internet ecosystem and the role they place as disseminators of free speech and expression of internet users. With the internet increasingly becoming the medium of choice for expression of social, cultural and political views outside of the mainstream media, attention must be paid to the clamps imposed on intermediaries which facilitate free speech.

According to the IT Act, an intermediary means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web hosting service providers, search engines, online payment sites, online-auction sites, online market places and cyber cafes”. Clearly, any restrictions on the ability of intermediaries to host content would have an immediate, direct and adverse bearing on the the internet user’s freedoms under Article 19(1)(a). This is the pith and substance of IAMAI’s challenge to Section 79(3)(b).

Section 79(3)(b) which applies to internet intermediaries, prior to being read down by the Court, used intermediaries as proxies to impose constitutionally impermissible restrictions on free speech i.e. restrictions which are beyond Article 19(2).  Therefore, it was the contention of IAMAI that, if Section 66A is liable to be struck down for imposing direct restrictions on an internet user’s free speech and expression which are beyond the pale of Article 19(2), it stands to reason that such or similar restrictions imposed on the user indirectly through intermediaries under Section 79(3)(b), are equally ultra vires Article 19(2). In other words, what cannot be done directly, cannot be done indirectly either, the litmus test being the direct and immediate consequence of the restrictions under Section 79(3)(b) on curtailment of the internet user’s freedoms under Article 19(1)(a).

In order to lend perspective to the challenge to Section 79(3)(b), it is important to understand that the internet as we know it today, is increasingly driven by User Generated Content (the other UGC) which is monumental in sheer diversity and scale. Numbers perhaps tell the story better- every minute almost 360,000 tweets are published on Twitter, 30,000 edits are made to Wikipedia, Facebook users share 684,478 pieces of content and more than 100 hours of video are added to YouTube. These mind-boggling numbers are in fact responsible for contributing to an emerging area in information management systems, namely Big Data. Given these numbers, it is practically impossible for intermediaries such as Google, Twitter or Facebook to pre-screen content or exercise any kind of ex ante editorial control. This also means that intermediaries cannot vouch for or take responsibility for the legality of the content being uploaded or transmitted or published on their platforms. And yet in 2004, no less than the Chief Executive Officer of, Avnish Bajaj, was arrested for the offer of sale of an obscene video clip made on the portal by a user.

To address such instances and to ensure that intermediaries are not held liable for content created/published by their users, the definition of “intermediary” was effected (which is the current version) through the Information Technology (Amendment) Act, 2008 and Section 79 of the Act was amended to carve out a safe harbor for intermediaries from liability arising from User Generated Content.  As part of the amendment, in return for the safe harbor, a corresponding “takedown” (removal of content) obligation was cast on intermediaries under Section 79(3)(b), which was challenged by IAMAI in its petition that led to the provision being read down by the Court.

Section 79(3)(b) has two prongs- the first relates to a takedown notice upon receipt of ‘actual knowledge’ of the illegality of content hosted by the intermediary, and the second envisages a takedown notice issued by a Government or its authorised agency to the intermediary. Both prongs give rise to different but equally grave concerns. The problem with the first prong is that although it borrows the term ‘actual knowledge’ from the EU Directive on E-Commerce 2000/31/EC dated 8th June, 2000, it is nowhere defined in the Indian statute. Importantly, the legal and operational challenges with the use of the term have been clinically captured in a study undertaken in the European Union.  This study correctly notes that the term is capable of being interpreted and has been interpreted in a few jurisdictions to mean that intermediaries are expected to sit in judgment over the legality/unlawfulness of content impugned in a takedown notice. Clearly, this is beyond the wherewithal of intermediaries, which establishes the unreasonableness of this mandate. Echoing the validity of this contention, the Court read down ‘actual knowledge’ to mean knowledge of a court order directing the intermediary to expeditiously remove or disable access to the impugned content.

The second prong of Section 79(3)(b) firstly suffers from vestation of adjudicatory powers in the executive to determine illegality of content, which is problematic. Secondly, the use of the term “unlawful” in Section 79(3)(b) enlarges the scope of restrictions to beyond the specific categories identified in Article 19(2). In response to the second concern, the Court drew parity between the executive’s (only the Central Government) power to block content under Section 69A and the executive’s power to direct takedown on content under Section 79(3)(b) and implicitly noted that the limitation of Article 19(2) applied to the executive’s power under both provisions.

This is perhaps the most positive outcome on the issue of intermediary liability because by reading in Article 19(2) to restrictions imposed on intermediaries under Sections 69A and 79(3)(b), the Court has accepted the argument of the intermediaries that the test to be applied to any law is whether it directly impacts free speech, regardless of who such restrictions may be applied through (in this case through intermediaries). Importantly, even if such restrictions are imposed in return for immunity to intermediaries under Section 79(1), such perceived largesse to intermediaries does not legitimize the transgression of the boundaries set by Article 19(2). This position has received the thumping endorsement of the Supreme Court.

That being said, although the Court has encumbered the executive’s takedown power under Section 79(3)(b) by reading in Article 19(2), the fundamental question of the executive’s constitutional competence to direct such takedown was not addressed, perhaps because the Court was already convinced of such competence during its analysis of Section 69A. Be that as it may, the consistent thing to do would have been to include in Section 79(3)(b) the de minimis procedural safeguards provided for under Section 69A and the blocking Rules, or the safety vales under Sections 95 and 96 of the Code of Criminal procedure, 1973 (which deal with the Government’s power to ban books/publications). This is so because, unlike Section 69A, Section 79(3)(b) does not provide for a hearing either to the intermediary or the creator of the content prior to the takedown, nor is  there a provision for appeal under the Act from such a takedown (except for a Writ Petition).

It is surprising that after taking detailed cognizance of the procedure laid down for blocking under Section 69A, the Court did not apply the same yardstick and due process to Section 79(3)(b). Critically, having recognized the reader’s right to receive information/content in its analysis of Section 66A, the Court ought to have taken note of the adverse effect of a summary executive takedown on the right of the internet audience to receive content, even if such notice is within the metes and bounds of Article 19(2). Had these concerns been addressed, the verdict would have been far more comprehensive on Section 79(3)(b) is concerned.

All in all, although the Court has addressed some primary concerns of intermediaries relating to Section 79(3)(b), thereby rendering their immunity more meaningful, the Court could have dealt with the other equally important concerns which have a concrete and critical bearing on the intermediary liability regime in India. This would have made India a much more attractive destination for investments by intermediaries given the potential of the internet economy and e-commerce. Perhaps, the egregious language and consequence of Section 66A drew the Court’s attention much more than the layered issues posed by Section 79(3)(b) and the Intermediary Rules. After all, out of 122 pages of the judgment, 109 pages have been devoted to Section 66A and a like provision of the Kerala State Police Act. Only the final paragraphs of the verdict, paras 112-118, deal with the issue of intermediary liability.

It is undeniable that the judgement is a welcome one and is expected to further the cause of democratization of the internet in a tangible manner. However, given the opportunity the IT Writ Petitions represented in undertaking a comprehensive overhaul of the IT Act on a range of related issues, each of which has a critical bearing on freedom of speech and expression on the internet, it appears that the Supreme Court has passed up a wonderful opportunity, which may not present itself in the future.

Disclosure: I was part of the team that represented a consortium of internet intermediaries, namely the Internet and Mobile Association of India in the Supreme Court in W.P(C) 758/2014 which challenged Section 79(3)(b) and the Intermediary Rules. Mr.Saikrishna Rajagopal of Saikrishna & Associates argued the petition. All opinions expressed here are personal and academic.

Tuesday, March 10, 2015

A Review of the Competition (Amendment) Bill, 2012- II

In this post, I shall continue with my review of the Competition (Amendment) Bill, 2012 from the last post. Clause 6 of the Bill introduces Section 5A which empowers the Central Government to specify, by notification, different values of assets and turnovers based on the class or classes of enterprise for the purposes of Section 5 which defines a combination. The stated object of this proposed new provision is to provide the Government with a tool which is much more attuned to the dynamics of different market segments.

Unlike the current Section 20(3), which envisages a modification in the thresholds for Section 5 only once every two years, the proposed Section 5A is not encumbered by any such restrictions.  Also, the basis for change in thresholds as spelt out by Section 20(3), namely fluctuations in the wholesale price index or exchange rate of the Rupee, is absent in the proposed Section 5A. This perhaps could mean that thresholds may be altered with a specific view to address market anomalies and not merely to adjust the thresholds for inflation.

Critically, the proposed Section 5A retains the aspect of consultation by the Government with the CCI in altering the thresholds of assets and turnover. This raises an interesting question regarding the nature of the CCI. Since the Government is merely expected to consult the CCI and not seek its consent in changing the thresholds, could it be argued that Sections 5 and 5A in particular, and the Competition Act in general, are instrumentalities which further the economic policy/vision of the Government of the day (the Executive)? If so, is the CCI itself a part of the Executive despite performing several adjudicatory functions? Questions such as these were left open-ended by the Supreme Court in Brahmdutt v. Union of India and will hopefully be answered in the on-going Writ Petitions (W.P (C) Nos. 7638, 7087, 6634 and 6610 of 2014) before the Chief Justice of the Delhi High Court filed by auto majors BMW, General Motors, Mercedes Benz and other parties to the auto spare parts decision of the CCI. Among other things, the constitutionality of the CCI is under challenge in these petitions.

The next proposed amendment is the one to Section 26 by Clause 11 of the Bill. Here are the relevant extracts of  Section 26 as they read currently:

Procedure for inquiry under section 19
26. (1) On receipt of a reference from the Central Government or a State Government or a statutory authority or on its own knowledge or information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director General to cause an investigation to be made into the matter: Provided that if the subject matter of an information received is, in the opinion of the Commission, substantially the same as or has been covered by any previous information received, then the new information may be clubbed with the previous information.

(3) The Director General shall, on receipt of direction under sub-section (1), submit a report on his findings within such period as may be specified by the Commission.

(5) If the report of the Director General referred to in sub-section (3) recommends that there is no contravention of the provisions of this Act, the Commission shall invite objections or suggestions from the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be, on such report of the Director General.

(6) If, after consideration of the objections and suggestions referred to in sub section (5), if any, the Commission agrees with the recommendation of the Director General, it shall close the matter forthwith and pass such orders as it deems fit and communicate its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be.

(7) If, after consideration of the objections or suggestions referred to in sub section (5), if any, the Commission is of the opinion that further investigations is called for, it may direct further investigation in the matter by the Director General or cause further inquiry to be made by in the matter or itself proceed with further inquiry in the matter in accordance with the provisions of this Act.

(8) If the report of the Director General referred to in sub-section (3) recommends that there is contravention of any of the provisions of this Act, and the Commission is of the opinion that further inquiry is called for, it shall inquire into such contravention in accordance with the provisions of this Act.

A reading of Sub-section 6 reveals that if the CCI agrees with the finding of the DG that there is no contravention of the Act, it shall close the matter. The language of Sub-sections 7 and 8, however, seem incoherent and incomplete. Sub-section 7 alludes to a situation where the CCI does not agree with the DG that there is no contravention of the Act, in which case it may direct further investigation by the DG. The reference to “cause further inquiry to be made in the matter or itself proceed with further inquiry in the matter” is to a situation where the CCI may choose not to seek the DG's assistance for further inquiry. If such further inquiry does not yield results, Sub-section 7 does not explicitly empower the CCI to close the matter, but practically speaking one would think the logical consequence would be for the CCI to agree with the DG’s finding of no contravention under Sub-Section 6. After all, the CCI cannot endlessly enquire into the matter. However, if further enquiry reveals contravention of the Act, Section 26 and Regulation 21 of the CCI General Regulations are unclear if the CCI has the power to pass orders based on its findings.  

Similarly, under Sub-section 8 which deals with a situation where the DG finds contravention of the Act, it is unclear if the CCI may pass orders if it agrees with the DG although this appears to be logical conclusion. If, however, the CCI does not agree with the DG, Sub-section 8 does not appear to permit the CCI to close the matter.  Despite the absence of such power to differ with the finding of contravention by the DG and to close matters, the Standing Committee has observed that until February 2014, in 42 cases the CCI differed with the DG’s finding of contravention. In order to avoid such anomalies, the Bill proposed to insert “and make appropriate orders thereon after hearing the concerned parties” in both Sub-sections 7 and 8. Further, one of the recommendations of the Committee is to retrospectively provide a limited window of appeal to parties which have suffered as a consequence of closure of their matters by the CCI despite a finding of contravention by the DG. I am of the view that consequential amendments to CCI General Regulation 21 too must be effect to avoid any further voids.

In addition to the above amendments, the Bill also provides for a hearing to a party on which penalty is sought to be imposed by the CCI. Finally, the Bill seeks to empower the Chairperson of the CCI to approve search and seizure by the DG, who is currently required to seek the approval of Chief Metropolitan Magistrate. However, the Standing Committee has observed that such a change is premature considering that no flaws have surfaced thus far with respect to the existing mechanism. In its parting recommendation, the Committee has drawn the Government’s attention to the following questions/issues:

(i) Whether the Commission should be a body comprising of only retired persons or it should be a smaller multi-disciplinary body consisting of domain experts;
(ii) Whether more substantive amendments are required to enable the CCI to play a more vibrant and meaningful role in the economic development of the country like creation of robust data-base and formulation of coherent norms/principles in prevention/detection of cartels, price-manipulation/rigging and other market practices inimical to competition and orderly functioning of markets;
(iii) Whether the CCI should enhance its capacity to take cognizance of emerging trends and developments in industry relating to “unfair dominance” or “monopolistic practices”, such as cross-holdings in media ownership.
(iv) Protection of consumer interest through periodical studies/surveys on trends of consumer prices in different sectors.
(v) Whether the law should be designed in a manner that is unduly restrictive with rigid thresholds or should it be a facilitator for growth of business and industry while promoting fair play and freedom in competition and reasonable prices for consumers.

In my opinion, these are thought-provoking high-level issues which are worth ruminating over since they have a critical bearing on the role we expect the CCI to play in furthering its mandate under Section 18 of the Act. 

Sunday, March 8, 2015

A Review of the Competition (Amendment) Bill, 2012- I

The Competition (Amendment) Bill, 2012 was introduced in the Lok Sabha on December 7, 2012 and a report on the Bill by the Standing Committee on Finance was submitted to the Lok Sabha on February 17, 2014. However, the Bill has since lapsed due to the dissolution of the 15th Lok Sabha.

The Bill proposes significant changes to the Competition Act, 2002. For instance, the applicability of the current Section 3(5), which permits an IP owner to impose any “reasonable condition” to restrain infringement of his rights, is restricted to copyrights, patents, trademarks, GIs and semi-conductor design layout. The Bill proposes to add an omnibus clause to Section 3(5) which extends its application to any other law for the time being in force which relates to the protection of other forms of intellectual property rights. On a reading of the proposed amendment, it appears that the said provision still does not apply to reasonable conditions applied for the protection of trade secrets for it refers to “any other law for the time being in force”. Perhaps, this is something the new dispensation can look into.

Also, for the sake of abundant clarity and to avoid mischievous interpretations, it would help to clarify that restrictive covenants which Section 140 of the Patents Act frowns upon do not enjoy the safe harbour under Section 3(5) of the Competition Act. That said, even in the absence of such a clarification, it could be reasonably argued that proscriptions under Section 140 of the Patents Act do not qualify as “reasonable restrictions” within the meaning of Section 3(5) of the Competition Act, and are therefore anti-competitive.

Yet another critical amendment proposed by the Bill is the recognition of the concept of joint dominance i.e. position of dominance enjoyed by one or more enterprises, or one or more groups of enterprises. Industry groups have pointed to the complications this concept may pose for it appears to impugn joint conduct even if it does not satisfy the requirements/standards of Section 3 of the Act. It has also been suggested that the introduction of this concept in Indian conditions may even be premature. The CCI and the Ministry of Corporate Affairs have however justified the introduction of joint dominance on grounds that it provides the CCI with the necessary legal tool to deal with collusion between players in an oligopolistic market where cartelization is otherwise difficult to establish. The Standing Committee has recommended that in addition to amending Section 4, consequential amendments must be undertaken to the explanation to Section 4 and to Section 19(4) as well. The Committee has also rightly recommended that the definition of “group” must be shifted to Section 2 so as to avoid confusion regarding the applicability of the definition to the rest of the Act.  That said, given that the nature, scope and rigour of Sections 3 and 4 are yet to be understood with a reasonable degree of certainty, it is my personal opinion that the time is not yet ripe to introduce the concept of joint dominance.

Another amendment which is of particular interest to me is the amendments proposed to Sections 21 and 21A for it has a bearing on the interplay between the CCI and sectoral regulators. Sector 21, as it reads currently, is set out below:

Reference by statutory authority 21. (1) Where in the course of a proceeding before any statutory authority an issue is raised by any party that any decision which such statutory authority has taken or proposes to take is or would be, contrary to any of the provisions of this Act, then such statutory authority may make a reference in respect of such issue to the Commission:

Provided that any statutory authority, may, suo motu, make such a reference to the Commission.

Under the current version, a statutory authority may, on its own or upon an issue being raised by a party to a proceeding before it, refer the mater or issue to the CCI if the decision the authority proposes to take or has taken is contrary to the scheme and provisions of the Competition Act. In a way, this reinforces the overriding effect of Competition Act as spelt out in Section 60 of the Act. That said, under the current version, the decision to refer the issue to the CCI is left to the discretion of the statutory authority. Consequently, if the authority opts not to refer to the matter to the CCI and takes a decision which contravenes the Competition Act, the affected party can only raise the issue in appeal (if available and applicable under the relevant legislation which governs the authority) or may file a writ before the appropriate High Court. Although this appears to be an adverse consequence of the current version, this version does justice to the inherent power of the statutory authority to decide on aspects of conflict of jurisdiction.

The Bill proposes to alter this position by replacing the words “is raised by any party” with “arises” and by substituting “may” in the provision with “shall”. The amendment also proposes to delete the proviso thereby making it mandatory on the part of the statutory authority to refer the matter to the CCI if an issues arises that the decision taken or sought to be taken by the authority runs counter to the Competition Act. Similar changes are proposed to be effected to Sections 21A and 27 as well. Another proposed change is to render the decision taken under Sections 21 and 21A appealable under Section 53A of the Act.

These proposed amendments could give rise to several complications. First, I am of the opinion that the impact of such proposed changes on Sections 21 and 21A cannot be the same in light of Sections 60 and 62 of the Competition Act which set out the position of the Act vis-à-vis other legislations. Therefore, it would be incorrect to mechanically apply the same set of changes to both Sections 21 and 21A. Second, the consequences of mandatory reference on the inherent jurisdiction of a statutory authority to deal with conflict of jurisdictions and to address issues relating to its governing legislation must be considered. Third, to provide for an appeal under Section 53A for a decision taken by the statutory authority under Section 21 could result in undermining the position of the appellate authority which supervises the functioning and decisions of the statutory authority, besides giving rise to multiplicity of litigation. Fourth, by replacing “is raised by any party” with “arises”, it appears that parties may not have the right to raise this as an issue and it is left to the sole discretion of the statutory authority to decide if a reference to the CCI is necessary. This also leads to the conclusion that every statutory authority must have regard to the Competition Act in addition to the specific legislation that applies to it, which does seem onerous. Perhaps, the current version is best left untouched until more instances of jurisdictional conflict surface.

I will deal with the rest of the proposed amendments in the next post. Look forward to comments and corrections from readers.

Monday, February 16, 2015

Division Bench of the Delhi High Court Vacates Interim Injunction against Glenmark in Linezolid Patent Dispute

On February 5, 2015, a Division Bench of the Delhi High Court vacated the interim injunction granted on January 19, 2015 by a Single Judge of the Court against Glenmark Pharma in respect of Symed Labs’ process patents on Linezolid IN213062 and IN213063.

The reason for the ad interim vacation of the interim injunction of the Single Judge, according to the Division Bench, was the failure on the part of the Single Judge to take into account Glenmark’s contention that Symed Labs had failed to establish that the products of the parties were identical, which is a mandatory requirement under Section 104A of the Patents Act, 1970. Extracted below are the relevant portions of the DB’s order:

“According to Mr Chidambaram, a specific plea is taken in the written statement and he has drawn our attention to certain paragraphs thereof to show that the Linezolid API manufactured by the appellants/defendants is different from that of the plaintiff/respondent. Therefore, before the learned Single Judge could grant an injunction in favour of the respondent/plaintiff, it was incumbent upon the learned Single Judge to, prima facie, come to a conclusion that the Linezolid API manufactured by the plaintiff using its patented processes was identical to the Linezolid API manufactured by the defendants/appellants. This does not appear to have been done. It is in these circumstances that we are vacating the interim order for the time being and direct that the defendants/appellants shall maintain accounts and shall file the same in this Court as also supply a copy to the respondent/plaintiff”

Section 104A envisages reversal of burden of proof on the defendant in limited circumstances where the patentee is unable to establish that the defendant’s process is identical to that of the former’s patented process, but has established the limited fact that products of both parties are identical. In the facts of Linezolid case, unless the patentee sought to place reliance on Section 104A to seek reversal of burden of proof, I am not sure it is incumbent on it to establish the identicality of the products. Since I haven’t had the chance to read the Single Judge’s order of injunction, I shall reserve my comments on the issue.  

That being said, the vacation of the interim injunction by the DB is only ad interim since it is yet to dispose the appeal. The next date in the appeal April 6, 2015. 

Sunday, January 11, 2015

Delhi Patent Office Revokes Abbott’s Patent on the blockbuster drug Adalimumab (Humira)

On December 31, 2014, in a 30-page decision the Delhi branch of the Indian Patent Office set aside its order of grant of patent IN234555 to Abbott on its blockbuster arthritis drug Adalimumab (trade name “Humira”). The patent was revoked on grounds of lack of inventive step and insufficient disclosure.

The facts of the case make for interesting reading. The Patent Office granted the patent to Abbott on June 8, 2009, oblivious to the pendency of a pre-grant opposition filed by Glenmark in September 2008. When Glenmark brought this to the Controller’s attention, the letter intimating Abbott of the grant of the patent was cancelled, this time without hearing Abbott. Naturally, this peremptory decision was challenged by Abbott in a writ petition before the High Court of Delhi, wherein the Court directed the Controller to review the decision of grant by treating Glenmark’s challenge as a review petition under Section 77(f) of the Act. It is in this review petition that the decision of grant of the patent was set aside on December 31, 2014. That’s quite a way to start the New Year for both the parties concerned.

The Controller’s observations and findings start in Para 9 on Page 15 of the Order. Before dealing with the grounds of review, the Controller undertook a discussion on the subject-matter of the claims of the patent taking into account the amendment of claims undertaken by Abbott during the prosecution of the patent. Subsequently, the Controller rejected the contentions of Glenmark with respect to lack of novelty including the ground of prior claiming and ineligibility of subject-matter under Section 3(e) of the Act. However, the contentions relating to lack of inventive step and insufficient disclosure were accepted.

I will discuss the specifics of these findings in detail in a later post, but what is to be noted is that this decision again proves the need for and efficacy of the pre-grant opposition mechanism which is effectively the reason for the outcome in this case. Importantly, this also highlights the need to improve the procedure of examination of patent applications since examination, and not pre-grant opposition, is the first line of scrutiny. Therefore, it would help if details of examination of a patent including the search and analysis carried out by the Patent Office are captured clearly during its prosecution and are also available to the public, instead of the confidential treatment it receives now. After all, what is so confidential about the steps taken the examiner of a patent application to evaluate the patentability of the subject-matter?

Let’s hope these issues receive the attention that are due to them. Until then, we will have to repose faith in the opposition and revocation mechanisms.

I thank a good friend of mine for sharing a copy of the decision with me! The link to the Controller's decisions on the official website of the Indian Patent Office is as usual playing truant (even at the time of publication of this post).