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.” 

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