Wednesday, October 19, 2011

Patents and Competition: "Arrangements"

Two days ago, I was at a moot court competition conducted by HNLU, Raipur to judge the penultimate rounds. The moot problem was an interesting one, for it presented a factual matrix that called for combined application of patent law and competition law. 

This is the second moot problem this year based on patents and competition law, the first was the problem statement of the moot conducted by NLU Jodhpur.

Student events like these turn out to be better platforms to address legal issues in a much more rigorous fashion than most conferences and presentations. One of the mooting issues was the interpretation of “arrangement” under the Competition Act, 2002 in a given situation.

In the moot problem, the situation was as follows:
1. X sells its patented drug P in Northern India. Another company Y’s subsidiary Z sells a similar drug in Southern India
2. X holds 10% share in Y and Y has a patent in Europe on its drug which is considered the closest prior art to X's patented drug P
3. X initially sold the drug P at INR 2.65 lakhs per month’s course, Z sold it at INR 2.62 lakhs per month’s course.
4. Thanks to a generic competitor, G’s low pricing tactics, Z is forced to cut down its price to INR 1.5 lakhs per month’s course. X too follows suit and brings down the price to INR 1.7 lakhs

Is there an arrangement between X and Y/Z? It’s possible to argue that since Y’s European patent came closest in terms of prior art to P, and yet Y chose not to challenge X’s patent on P, there appears to be a semblance of collusion between the two.

This combined with the fact that both X and Y/Z chose to divide the market among themselves without encroaching upon the other’s “territory” could further support the inference. And finally, the shareholding pattern of X along with “conscious parallelism” could lead a neutral observer could conclude that the whole thing smells fishy.

What this means is, one can call an arrangement an arrangement so long as the dots can be reasonably connected, even in the absence of a formal agreement or an overtly express behaviour between the parties.

Such reasonable connection of dots ought to give rise to a rebuttable presumption of anti-competitive behaviour since Competition law has a welfarist slant, since one of its objectives is to protect the customer from being taken for a ride.

This is different from stating that the Competition Act protects the consumer’s interest, since that would turn the Competition Commission into a Consumer Forum, which it is not. Stated otherwise, no player is expected to drive himself to sure extinction to extend a benefit to the consumer. Not just that, no player can push another player to extinction in the name of extending a benefit to the consumer.

I’ll discuss a few more issues concerning patents and competition in the coming posts. 

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