Suvarna Pandey and Ranjan Narula, RNA Intellectual Property Attorneys, think about FRAND licensing and the need for a fair balance between public interest and the commercial interest of the IP holder.
In the context of FRAND licensing in the telecom sector and payment of royalty fees for genetically modified Bt cotton seeds, the debate over India’s policy in encouraging innovation has sharpened. The overlap between competition law and IP laws in the context of balancing the commercial interest of IP holder and public interest has made the debate acrimonious and to an extent contrary to the purpose of Intellectual property (IP). It is commonly understood that IP by its nature is inherently pro-competitive as it ensures protection of differentiated, intangible business assets. In that context it encourages competition by promoting innovation.
In other words, the objective of both competition law and the IPR law is to promote innovation, consumer welfare and in fact offer more product choices, though the medium adopted by both of these laws may intersect with each other at some point while achieving the same objectives. The intersection of IPRs and the competition law is amongst one of the complex areas of law and economics. Whereas from an industry perspective the public benefit from research and development (R&D) of innovative products, consumers in any country would generally not consider IP protection beneficial as long as high prices reduce actual availability of the innovative products.
Patents and competition law
The Patent grant gives the holder right to exclude others from the use of his monopoly right, absolutely or on certain terms under a license. The exclusive right granted to a Patent holder, to exploit their invention for a limited period, does not necessarily imply a dominant position of the Inventor in the Market. The situation of dominance also depends upon the extent to which there are substitutes for the product, process or work to which the patent relates. Also competition law is more concerned with economic dominance (that threatens competition in the market) than IPR dominance.
Although the Patents Act is typically associated with patent grant, validity, and enforcement, still there are a number of provisions that has built checks and balances to promote fair competition. Some of these are outlined here:
a) Section 140 of the Indian Patent Act expressly declares void any contractual provision that prevents a challenge by a licensee to the validity of a licensed patent.
b) Section 84 of the Patents Act provides for a compulsory licensing mechanism to ensure that a patentee fulfils his obligations under the Act, one of which is to provide access to his patented technology at reasonably affordable rates. In fact, compulsory licences may act as one of the effective measures, both in the context of IPRs and of competition laws, to remedy anti-competitive practices.
Besides these safeguards, patent rights by their nature are monopolistic rights. They do offer commercial advantage to companies and opportunity to exploit the innovation at the price they deem appropriate; as a result an enterprise can extend the life of Patent or what is termed as ever-greening of a patent. In that sense there is a tension between access of a Patented product at a reasonable price, and protection of IP. However, mere existence of market power is not prohibited under Section 4 of the Competition Act unless it amounts to an abuse of dominant position. Further, Section 3 (5) of the Competition Act dealing with anti-competitive agreements, has made an exception for IPRs. It preserves the rights of the IPR holder to prevent infringement and protect these rights, as long as the restrictions imposed by the agreement are reasonable, ensuring that competition policy does not interfere with the reasonable use of IPRs.
"The Patent grant gives the holder right to exclude others from the use of his monopoly right, absolutely or on certain terms under a license."
Some of these issues have come up in recent Patent litigations concerning abuse of dominant position:
a) A series of cases concerning Standard Essential Patents (SEPs) of Ericsson in respect of telecom infrastructure equipment including 2G, 3G and 4G network, as well as mobile phones, tablets, data cards, etc. Essentially, these are technologies which have been accepted as standards to be uniformly implemented across various countries in order to ensure compatibility for a seamless transmission of voice and data across the world. The growing market for smart phone devices in India has led to Ericsson filing a number of lawsuits against Micromax, Intex, Lava, Gionee, Xia and iBall, and others at the Delhi High Court in order to have the companies pay royalties on “FRAND Terms”. A number of companies have resisted Ericsson’s royalty rates to be excessive. In addition, Micromax has objected to Ericsson’s use of the threat of injunctions and custom seizures, and has also claimed that Ericsson’s conduct results in a denial of market access for Indian handset manufacturers. Intex has alleged that it was forced into signing an onerous non-disclosure agreement by Ericsson and that it was forced to negotiate licensing terms without a complete disclosure of its patents by Ericsson.
"It is commonly understood that IP by its nature is inherently pro-competive as it ensures the protection of differentiated, intangible business assets."
b) In November 2013, Micromax filed a complaint before the Competition Commission of India (CCI) claiming that Ericsson had abused its dominant position in the market by imposing exorbitant royalty rates for licensing its GSM technology under FRAND terms. Intex Technologies also filed a complaint against Ericsson before the CCI alleging that Ericsson demanded exorbitant royalty rates in comparison to the cost of the product to the user, and used unfair terms to license its SEPs (GSM technologies). While ordering investigation, CCI held “there is no other alternate technology available in the market in India, Ericsson enjoys a complete dominance over its present and prospective licensees in the relevant market. Thus, Ericsson, prima facie, appears to be dominant in the relevant market.” Ericsson challenged the jurisdiction of CCI to investigate the matter before Delhi High Court. However, in its recent decision the Delhi High Court decided in the favour of CCI and allowed CCI to continue with the investigation.
c) In yet another case involving patent on gene modification technology, the dimensions of IP and competition law were examined. Monsanto, the owner of a patent on the technology of gene modification which involved incorporation of Bacillus thuringiensis gene (Bt gene), in a plant cell to render them free of disease/infection like Bollworm etc. had licensed the rights of patent to its joint-venture in India called the Mahyco Monsanto Biotech (India) Ltd (MMBL). The Mahyco Monsanto Biotech (India) Ltd further sub-licensed the technology to various Indian seed companies-which eventually developed seed varieties by using the licensed Bt Technology and supplied the genetically modified cotton seed to farmers.
The seed companies received several complaints from state governments and farmers about higher price of cotton seeds and royalty fees paid to Monsanto. Indian seed companies refused to pay outstanding royalties to MMBL and as a result MMBL ended the licensed agreement with the seed companies and commenced the arbitration proceedings before the Bombay High Court and infringement proceedings before the Delhi High Court. There was also set up an enquiry from Competition Commission of India (under the direction from agriculture ministry and complaint from Nuziveedu Seeds Ltd. ) over pricing of Monsanto’s pest-resistant cotton genes after a preliminary finding by CCI that MMBL abused its dominant position in the seed market by setting unfair and high trait fees.
In the sequence of events the order was passed by Ministry of Agriculture, regulating not only the maximum sale price of cotton seeds but also the possibility of government interference for controlling royalty fee in licensing arrangements and private agreements (through guidelines). The Agricultural Ministry decided to cut royalty fees by 70 percent on cotton seeds and has also put a cap on seed prices across all states. Though the guidelines were rolled back by the Ministry for the public feedback, still the decision caught too much attention and critics as well. Monsanto pleaded against Ministry’s Order before the Delhi High Court to quash provisions pertaining to the price control order and authorisation to determine royalty fees.
The whole controversy brought forth macro and micro IP issues that interface competition and IP laws:
- whether government should have a role to play in the private contract between parties (particularly regulating technology licensing fees) or it should be case specific and government should interfere under special circumstances (which should be defined).
- balancing of Intellectual Property protection and public interest and scope of Competition law in regulating monopolies is permitted by the Patent law.
"Existence of market power is not prohibited under Section 4 of the Competition Act unless it amounts to an abuse of dominant position."
It will be interesting to see the direction government moves while balancing the domestic compulsions and at the same time maintaining investor friendly regime.
In order to attract foreign investment and encourage technology transfer, the government needs to take both consumers’ and the private sector’s interests into account. There is no doubt that a balance is needed to ensure that exclusive rights are protected, but at the same time, should not lead to abuse of dominant position by the right holder. Taking cue from the decisions in patent litigation involving pharmaceutical products, one can reasonably conclude that public interest would be read into the test to be applied by the court when granting preliminary and/or permanent injunction.