Friday, September 27, 2013

Section 68 of the Patents Act: Registration of “Interest Creation” and the meaning of “Use”

Section 68 of the Patents Act states that the following classes of documents shall be compulsorily registered in the register of patents:
1.       Assignment of a patent
2.       Entitlement to a patent by transmission or operation of law
3.       Assignment or transmission of a share in a patent
4.       Entitlement as a mortgagee
5.       Entitlement as a licensee
6.       Any other interest in the patent

The first 4 categories are relatively clearer compared to the 5th and the 6th categories. What qualifies as a “license” to a patent? When is a person a “licensee”? If one were to be guided by the spirit of the definition of a license under the Indian Easements Act, 1882, a license means the consent to do something in whose absence the action does not have the sanction of the right owner and would amount to infringement of the right.

Therefore, any agreement between a patentee and a third party which permits such third party to do something, which he could not have in the absence of grant of rights/consent under the agreement, may be treated as a “license” within the meaning of Section 68. In the context of the Patents Act, the scope of exclusive rights of the patentee is circumscribed by Section 48. Therefore, it could be said that any agreement with the patentee that permits a third party to do anything which is covered by Section 48 is a license.

Would every person in a product value chain necessarily need a license to the patent to deal with the patented product? For instance, if there is a patentee X who manufactures the patented product A, and X contracts Y to design the packaging for the patented product A in a certain fashion, does Y need a “license” to the patent as part of the contract? In other words, does Y’s handling of the patented product to design its packaging amount to “use” within the meaning of Section 48 of the Act, warranting the grant of a license?

The answer to this question would decide whether or not the agreement between X and Y needs to be registered under Section 68 of the Act. I’ll let readers think over the issue and write on the meaning of “use” in the next post.

Saturday, September 7, 2013

Sections 60 and 62 of the Competition Act- Are they Inconsistent?

In my last 2 posts, I had written on the interplay between the Competition Act and the Patents Act during the course of which I had said the following about Section 60 of the Competition Act:

What is critical to note is that Section 60 of the Competition Act states that the Act “shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force”. In other words, this Act has an overriding effect over all other laws, including the Patents Act....

How does one harmonize the interpretations of “unfair price” under the Competition Act and “reasonably affordable price” under the Patents Act?

Is harmonization necessary since, as stated in my previous post, Section 60 of the Competition Act states that the Competition Act shall prevail over all other legislations or provisions in other legislations which are “inconsistent” with it? Although the Patents Act may be treated as the “parent legislation” which governs patents and patentees, Section 60 of the Competition Act ensures that the latter prevails over the Patents Act. 

An exercise in harmonization is necessary because the overriding effect of Section 60 of the Competition Act can take effect only when it is established that two provisions are “inconsistent” i.e. they are in conflict with each other. If, however, harmonization is possible without distortion of the objects or language of either legislation, Section 60 must be the option of last resort. So how does one harmonize “unfair price” with “reasonably affordable price”? 

It must be borne in mind that both “unfair price” and “reasonably affordable price” judge the cost of the transaction through the prism of the effect of the price on the licensee, as opposed to the proportionality between the price demanded and the value of the technology being licensed. In other words, “fairness” of a price may be the same as its “reasonable affordability”, but it is distinct from “reasonable price”. 

Therefore, it could be said that both the Patents Act and the Competition Act are in harmony with each other when they require the cost of a licence to be fair/reasonably affordable. In fact, so long as there is no conflict between the two requirements, it could be said that what is “reasonably affordable” under the Patents Act would be “fair” under the Competition Act.”

To this analysis, let me bring in Section 62 of the Competition Act, which reads as follows:

62. Application of other laws not barred: The provisions of this Act shall be in addition, and not in derogation of the provisions of any other law for the time being in force.

Let’s reproduce Section 60 of the Competition Act to compare the language of both provisions:

60. Act to have overriding effect: The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

While on one hand Section 60 proclaims the overriding effect of the Competition Act over anything that is inconsistent with the Act, Section 62 states that the Act shall be in addition to, and not in derogation of other laws. What this could mean is that so long as there is no inconsistency between the Competition Act and other legislations such as the Patents Act, both statutes shall apply simultaneously to a situation to which both Acts apply. In the event the other legislation is inconsistent with the Competition Act, the latter shall prevail.

Therefore, if “reasonably affordable price” under Section 84 of the Patents Act and “unfair price” under the Competition Act are not inconsistent with each other, both these requirements shall apply simultaneously to a patent license or such other transaction. Simply put, one requirement need not be subsumed in or prevail over the other. Also, the question as to which of these requirements/statutes applies first may not be that relevant when both are to be satisfied by the transaction.

Friday, September 6, 2013

Patents and Competition Law- II

In my last post I had shared the first of the 2 posts I had written on the PatLit blog on competition law and patent litigation. Here’s the second post for the benefit of our readers:

In my previous post, I discussed certain situations under Indian law which could attract both the Patents Act and the Competition Act. Continuing in the same vein, this post discusses the interaction between the two sets of legislation in instances of abuse of dominance. 

Section 4 of the Competition Act recognizes abuse of dominance by an “enterprise” or a “group”. Section 2(h) of the same Act exhaustively defines an “enterprise”, which includes a person, natural or juristic. As for the definition of a “group”, this is provided for in the Explanation to Section 5. 

In order to establish abuse of dominance by a patentee, the first ingredient to be established is that the patentee enjoys a position of dominance in the relevant market. As to what constitutes “relevant market”, Section 19(5) states that the Competition Commission of India (CCI) could have regard to either the “relevant geographic market” or the “relevant product market”. 

In assessing whether a patentee enjoys a dominant position in the relevant market, Section 19(4) of the Competition Act lists a host of factors which the CCI must have due regard to. Some of the factors include the market share of the enterprise and the economic power of the enterprise including commercial advantages over competitors. Critically, Section 19(4)(g) also recognizes the following factor to establish the patentee’s dominant position:  

monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise” 

The above-underscored portion is wide enough to include a patent grant which could bestow a monopoly or a dominant position in the relevant market. Therefore, if an aggrieved party is able to establish that the existence of a patent on a particular technology has resulted in the patentee acquiring a position of dominance, that alone is sufficient to satisfy the first and basic ingredient of Section 4 i.e. position of dominance of the patentee. 

The second ingredient of abuse of dominant position is dealt with by Section 4(2) of the Competition Act, which lists a host of situations that could amount to abuse of dominance. For instance, imposition of an unfair or discriminatory price in purchase or sale (including predatory price) of goods or services amounts to abuse of dominance. What is important is that the Act recognizes and distinguishes between “unfair price”, “discriminatory price” and “predatory price”. Each of these clearly is capable of having distinct meanings. 

Since the interface between the Patents Act and Competition Act is being discussed, it is important to understand the position of these legislations on similar or identical or related issues. For instance, while the Competition Act refers to “unfair price”, Section 84(1)(b) of the Patents Act (Section 84 being the compulsory licence provision) refers to a “reasonably affordable price”. How does one harmonize the interpretations of “unfair price” under the Competition Act and “reasonably affordable price” under the Patents Act?

Is harmonization necessary since, as stated in my previous post, Section 60 of the Competition Act states that the Competition Act shall prevail over all other legislations or provisions in other legislations which are “inconsistent” with it? Although the Patents Act may be treated as the “parent legislation” which governs patents and patentees, Section 60 of the Competition Act ensures that the latter prevails over the Patents Act. 

An exercise in harmonization is necessary because the overriding effect of Section 60 of the Competition Act can take effect only when it is established that two provisions are “inconsistent” i.e. they are in conflict with each other. If, however, harmonization is possible without distortion of the objects or language of either legislation, Section 60 must be the option of last resort. So how does one harmonize “unfair price” with “reasonably affordable price”? 

It must be borne in mind that both “unfair price” and “reasonably affordable price” judge the cost of the transaction through the prism of the effect of the price on the licensee, as opposed to the proportionality between the price demanded and the value of the technology being licensed. In other words, “fairness” of a price may be the same as its “reasonable affordability”, but it is distinct from “reasonable price”. 

Therefore, it could be said that both the Patents Act and the Competition Act are in harmony with each other when they require the cost of a licence to be fair/reasonably affordable. In fact, so long as there is no conflict between the two requirements, it could be said that what is “reasonably affordable” under the Patents Act would be “fair” under the Competition Act. 

Having said this, it would be banal to state that to decide what is unfair or not reasonably affordable, it may be necessary to first determine what is fair or reasonably affordable, which probably calls for use of econometrics, and not just wordplay. In situations like these, the CCI has the power to farm out certain issues, such as licence fees, for the consideration of and determination by the Controller General of Patents.

Under Section 21A of the Competition Act, the CCI could refer the issue of determination of licence fees to the Controller General of Patents before taking a final call on the issue of unfair pricing. In the alternative, in certain situations, the CCI may first record a finding of unfair pricing and then refer the matter to the Controller General of Patents for determination of a fair price. 

The situation discussed in this post is but one possible scenario. However, the larger point being made here is that there exists a plethora of options outside of the Patents Act in patent-related matters, and it would help to consider them in bringing about the desired outcome, instead of restricting oneself to only the Patents Act.” 

Thursday, September 5, 2013

The Overlap between Patents and Competition Law- I

Last month, I had written a two-part series on the intersection between competition law and patent litigation on Prof.Jeremy Phillips’s patent litigation blog PatLit. For the benefit of the readers of this blog, reproduced below is the first post in the series:

Patent litigation all over the world has gradually moved beyond its standard template which typically involves suits for infringement, counterclaims for patent invalidation or contractual disputes. Since the conduct of warring parties has a bearing on competition and consumers, competition law is gradually beginning to make its presence felt, even in India. In this post, I shall deal with some of the situations where there is interplay between the Indian Patents Act 1970 and the Indian Competition Act 2002. 

Although the Patents Act is typically associated with patent grant and enforcement, Section 140 of the Act lists those restrictive covenants whose presence in patent-related contracts is forbidden for being unfair or discriminatory. The Section, among other things, expressly proscribes any contractual provision that envisages exclusive grant-back or prevents challenges by a licensee to the validity of a licensed patent or enables coercive package licensing by the patentee/licensor. Such contractual clauses may also attract Section 4 of the Competition Act, which deals with abuse of dominant position, provided the ingredients of the Section are satisfied. 

In other words, in limited situations, the manner of patent exploitation and enforcement and its effect on the market is capable of attracting both the Patents Act and the Competition Act. For instance, a patentee may be in a position to dictate licence terms, including exorbitant licence fees, to others players in the market who seek access to his proprietary technology. Subject to certain conditions being satisfied, it is possible to invoke the compulsory licensing (CL) mechanism provided for under Section 84 of the Patents Act to moderate the terms of the licence. Here too, it is also possible to assess the fairness of the patentee’s terms through the prism of Section 4 of the Competition Act. 

 The difference between the two mechanisms is that Section 84 requires the applicant for a CL to wait for three years from the date of patent grant to move a CL application, whereas one need not wait for three years under the Competition Act to complain against abuse of dominance. Also, under the Patents Act, one needs to satisfy the requirement of being a “person interested” within the meaning of Section 2(1)(t) to move a CL application (I have written elsewhere in detail on the interpretation of the definition of a “person interested”), whereas anyone can file an information for abuse of dominance under the Competition Act. 

A question that may arise is whether the same relief may be granted by both the Controller General of Patents and the Competition Commission of India (CCI). Under Section 84(4) of the Patents Act, the Controller General has the power to determine the terms of a compulsory licence. Under Section 27 of the Competition Act, the CCI has the power, among other things to modify the terms of the hitherto abusive agreement, besides imposing a penalty. 

Further, Section 28 of the Competition Act empowers the CCI to divide the abusive enterprise to ensure that it is never in a position to abuse its dominance. Pertinently, Section 28(2) of the Competition Act envisages “transfer or vesting of property, rights, liabilities or obligations”. In other words, Sections 27 and 28 together allow the CCI to create an interest by way of a licence in favour of a third party on terms that the CCI deems fit. Clearly, the CCI has broader and much more lethal powers than the Controller General. 

What is critical to note is that Section 60 of the Competition Act states that the Act “shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force”. In other words, this Act has an overriding effect over all other laws, including the Patents Act. Critically, once the ball is set rolling under the Competition Act, the informant or complainant does not have the option of pulling back since if the CCI sees merit in the information or complaint, it takes over. The informant then merely assists the CCI. Therefore, the choice of the legal option to be employed depends entirely on the outcome desired by an aggrieved party.”