IP & Antitrust

Last verified on Tuesday 2nd October 2018

India

Dhruv Gupta
Lakshmi Kumaran & Sridharan (New Delhi)
  1. 1.

    Applicable rules

    Does competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?

  2. Competition law in India is dealt under the provisions of the Competition Act 2002 (Act). The Act has three substantial provisions: (a) section 3 of the Act that provides that no person shall enter into any agreement that causes or is likely to cause an appreciable adverse effect on competition (AAEC) within India; (b) section 4 of the Act, which deals with abuse of dominant position; and (c) sections 5 and 6 of the Act, which deal with merger control.

    The Act applies to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights (IPR). In India, there is no relevant secondary legislation or regulations that applies specifically to the application of competition law to IPR.

    Section 3(5) of the Act provides for a very limited exemption, which states that the provisions with respect to anticompetitive agreement (section 3) will not be applicable to agreement entered into by any person for restraining any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his or her rights guaranteed under the IPR statutes in India. It is an established position of law that section 3(5) does not simply remove the jurisdiction of Competition Commission of India (CCI) over IPR-related cases. Further, the CCI has created a very strict standard for what is necessary to protect IPR for the purposes of application of section 3(5) of the Act.

    The CCI had dealt with the coverage of the IPR exemption mentioned under section 3(5) of the Act in the case of Shamsher Kataria v Honda Siel Cars Ltd and others (Automobile Spare Parts case). The case pertained to agreements entered into between original equipment manufacturers (OEM), ie, car manufacturers) and original equipment suppliers (OES) for procurement of components and spare parts by OEMs. For some of the spare parts, the design, drawing, technical specification, technology, know-how, tooling, dyes, jigs, etc, quality parameters, etc, were provided by the OEMs to OES. Based on the same, the OES were required to manufacture and supply such spare parts only to the OEMs according to the specified parameters. It was observed that under the agreement entered into between OEM and the OES, OES were prohibited to supply the spare parts in the aftermarket, unless they receive a prior consent of the OEM. It was argued, inter alia, by the OEMs that the said restriction placed on OESs would fall within the ambit of reasonable condition to prevent infringements of their IPRs as provided under section 3(5) of the Act.

    The CCI noted that section 3(5) of the Act allows an IPR holder to impose reasonable conditions to protect his or her rights, which ‘have been conferred or may be conferred upon him’ under the relevant IPR statues in India. Therefore, the CCI held that the before the exemption under section 3(5) could be applied, it would have to be determined whether the IPR is conferred or may be conferred under the relevant Indian IPR legislation.

    The CCI concluded that the OEMs were unable to provide documents to substantiate their claim as the details relating to the specific IPR that corresponds to each individual and specific spare part was not furnished.

    Further, some of the OEMs contended that the overseas parent corporation of the OEMs had held valid IPRs, which were thereafter transferred to the OEMs by means of a valid technology transfer agreement. The CCI, however, noted that the IPR claimed by the parent of the OEMs was territorial in nature and was vested upon the IPR holder only in a particular jurisdiction. Thus, in the event that the parent corporation of the OEM held such IPR rights in the territories where the IPR rights were originally granted, the said rights cannot be said to have been granted to the OEM operating in India because of a valid technology transfer agreement. Based on the observations of the CCI, for exemption of section 3(5) of the Act to be availed of, protection ought to have been granted to the IPR holder or a process ought to have been initiated for grant of such protection under the relevant IPR statutes in India mentioned in section 3(5) of the Act, namely the Patents Act 1970; Copyright Act 1957; Trade Marks Act 1999, the Geographical Indications of Goods (Registration and Protection) Act 1999, Designs Act 2000 or the Semi-conductor Integrated Circuits Layout-Design Act 2000.

    During the appeal, the Competition Appellate Tribunal (COMPAT) noted the following in respect to the necessity and reasonableness of the restrictions under section 3(5) of the Act and noted that protection of the intellectual property by itself cannot be considered as a reasonable restriction and noted that the restriction imposed by the OEMs preventing vendors producing with their own technology/IPR/equipment/tools but using OEM’s designs and dimensions from selling independently in the aftermarket without the OEM’s consent is not a reasonable restriction. However, pure sub-contracting arrangement may be considered reasonable based on the facts and circumstances of each case. Based on the above, the COMPAT passed a direction whereby the car manufacturers had to put in place an effective system to make the spare parts and diagnostic tools easily available through the open market, allows the OESs to sell spare parts in the open market without any restriction, including on prices. The OESs were allowed to sell spare parts under their own brand name and the car manufacturers were permitted to charge royalty if they held any IPR on such parts.

    This matter is now pending before the Supreme Court of India.

    Further, based on a narrow reading of the Act, the CCI noted, in the Automobile Spare Parts case, that the Act provides for an exemption only for section 3 and not practices covered under section 4 (Abuse of dominant position), since section 4 does not have a parallel exemption for IPR (along the lines of section 3(5), Act).

  3. 2.

    Competent authorities

    Which authorities are responsible for the application of competition law to intellectual property rights? What enforcement powers do they have? Are there any special procedures for conduct that concerns intellectual property rights?

  4. The CCI is a quasi-judicial authority responsible for the application of competition law. The Act does not provide for any criminal liability for breach of substantive provisions. While there exists no separate or special treatment for conduct that involves IPR, the CCI can pass orders under the applicable provisions of the Act, which do cover treatment of IPRs.

    The CCI is empowered to impose fines up to 10 per cent of average turnover of the three preceding financial years on every enterprise for abuse of dominance or for entering into anticompetitive agreements. Stiffer penalty is reserved for cartel activities where the penalty can extend up to three times the amount of profits or 10 per cent of the turnover during the period of the existence of the cartel, whichever is higher. The Hon’ble Supreme Court clarified that the penalty would be levied as a proportion of the relevant turnover as opposed to the total turnover. The CCI also has powers to modify terms of agreements, modify business practices, declare agreements to be void, direct division of an enterprise, or pass any other order that the CCI may deem fit in the facts and circumstances of the case. The CCI can also direct enterprises to change the manner of conducting their business operations.

    The CCI also has powers to block any combination if CCI is of the opinion that such combination will cause an appreciable adverse effect on competition. Further, the CCI has the powers to issue commitments or modification to the parties to the combination to allay any anticompetitive concerns. In this regard, the CCI imposed commitments to divest IPRs in the past.

    Further, the CCI can also impose personal liability on directors and officers in charge of and responsible for operations of companies when such companies violate the provisions of the Act.

    During the course of the inquiry, the CCI can pass interim orders, if CCI is satisfied that an act  committed by a person is in contravention of sections 3(1), 4(1) or 6 and such act continues.

  5. 3.

    Market definition

    How are markets involving intellectual property rights defined?

  6. Relevant market is defined in the Act as the market that may be determined by the CCI with reference to the relevant product or the geographic market or with reference to both. Relevant product market is defined in the Act as a market comprising all those products or services that are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use. Thus, as per the scheme of the Act one needs to look at consumer preferences to determine relevant product market and the said approach will also be applicable to antitrust markets where IPRs are involved.

    The starting point for determination of relevant product market in an abuse of dominance investigation is the product or service sold by such enterprise [See HT Media Ltd v Super Cassettes Industries Ltd, Case No. 40/2011 (Super Cassettes case) where CCI noted:

    since the allegation of the informant pertains to certain conduct of the opposite party in licensing its repertoire of songs to the informant, the market for licensing of music content (protect as intellectual property) is a good starting point for determination of the relevant market in this case.

    The CCI concluded in the Super Cassettes case that the relevant product market, based on consumer preference, was market for licensing of Bollywood music to private FM radio stations for broadcast. In the course of the determination of the relevant product market, the CCI held that each of the exclusive rights granted to a proprietor of a copyright, viz the right to perform in public, to communicate the work in public, to make any translation or adaptation of the work, etc, may constitute different markets based on the facts and circumstances.

    Based on the above, it can be seen that IPR may or may not itself be defined as the relevant market. It is essential to adhere to the substitutability test even for products that are protected by an IPR.

    In this regard, it is apposite to note that there are certain investigations being conducted by the Director General (DG) on Ericsson's conduct relating to the licensing terms of Ericcson's standard essential patents (SEPS). The CCI, in their prima facie orders, have held that SEPs owned by Ericsson are in respect of the 2G, 3G and 4G patents used in smart phones, tablets, etc, fall under GSM technology and therefore, the relevant product market would be ‘Standard Essential Patents for 2G, 3G and 4G technologies in GSM standard compliant mobile communication devices.

    It is apposite to note that the CCI, at least on a preliminary analysis, has held that SEPs can be the relevant market because there are no substitutes for such SEPs.

  7. 4.

    Acquisition and sale

    Does competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?

  8. Section 4(2)(c) of the Act provides that it shall be an abuse of dominant position if an enterprise undertakes any action which results in denial of market access, in any manner. The aspect of denial of market access in any manner is very wide and it includes all strategies adopted by the dominant enterprise to deter or defer competition. There is an investigation conducted by DG, where it is alleged that the dominant enterprise has engaged in denial of market access by engaging in bad faith litigation and abusing judicial process to defer entry. (For reference, please see M/s Bull Machines Pvt Ltd v JCB India and others) and Biocon Limited v Hoffmann-La Roche and others). It is apposite to note that the CCI has recognised that bad faith litigation initiated by a dominant player having the effect of denying market entry, will be regarded as an abuse. Applying the same principle, in case a dominant player obtains an IPR based on misrepresentation, it may be considered, in the facts and circumstances of each case, as an abuse. Further, since the Act has extra territorial jurisdiction, if a dominant player obtains an IPR or increases the exclusivity period of an IPR based on misrepresentations made to foreign authorities, the CCI can investigate the action of such enterprise, provided that enterprise enjoys a position of strength in India and such conduct causes an AAEC in India. As mentioned above, the scope of the IPR exemption is very limited and the said exemption exists only in section 3 and not in section 4. CCI opined (in the Automobile Spare Parts case and the Super Cassettes case) on the circumstances in which a transfer of IPR (by way of licence or not) can be held to be an anticompetitive agreement (discussed below). It is apposite to note that the approach of the CCI, as seen from some of its merger orders, is that a licence of IPRs would be covered under the ambit of transfer of IPRs.

    Further, since the substantive provisions of the Act have only been in existence for eight years, there has been very limited decisional guidance by the orders of the CCI on the issue of interface between IPR and competition law. As such, the CCI has issued an advocacy booklet on the interface between IPR and competition law (Advocacy booklet on Competition law, available at http://competitioncommission.gov.in/advocacyPP-CCI-IPR_7_12.pdf) highlighting certain enumerative (not exhaustive) cases of conditions attached with transfer of IPRs may considered as anticompetitive:

    • an agreement that provides that royalty will continue to be paid even after the patent has expired or that royalties shall be payable in respect of unpatented know-how as well as the subject matter of the patent;
    • tie-in arrangement where a licensee may be required to acquire particular goods solely from the patentee. There could be an arrangement forbidding a licensee to compete, or to handle goods that compete with those of the patentee;
    • a clause in the licence agreement that restricts competition in R&D or prohibits a licensee from using rival technology;
    • clause in the licence agreement subjecting the licensee to a condition not to challenge the validity of IPR in question;
    • the licensee being restricted territorially or according to categories of customers;
    • restricting the right of the licensee to sell the product of the licensed know-how to persons other than those designated by the licensor.

    Also, see question 10 for transfer of IPRs in a merger analysis.

  9. 5.

    Licensing

    How does competition law apply to technology transfer and licensing agreements?

  10. Competition law applies to technology transfer and licensing agreement. See questions 4, 7 and 14 for the decisional practice of CCI/guidance issued by the CCI in this regard.

    It is apposite to note that the CCI does not act as a price regulator and specify the royalty rates or a component thereof. In the Automobile Spare Parts case, the OEMs were directed to allow OESs to sell spare parts in the open market and in cases where the OEMs held IPRs on some parts, the CCI allowed OEMs to charge royalty or fees through contracts for such parts. The CCI's decision did not mandate the exact quantum of royalty that can be charged by OEM. Even in pricing abuse cases not involving IPRs, they have never delved into the exact quantum of prices that should be levied by the dominant enterprise in their directions. For instance, in the first unfair pricing case (it was a case of predatory pricing) between MCX Stock Exchange Ltd vs National Stock Exchange of India Ltd., CCI directed NSE to modify its zero price policy in the relevant market and ensure that the appropriate transaction costs are levied, without specifying what cost is appropriate. Also, the DG is presently investigating whether Ericsson is indulging in excessive pricing since they are charging the royalty based on the price of the phone and not on the technology involved. The prima facie order seems to suggest that using the downstream product's sales price as a royalty base is excessive and has no link to the value of the SEP.

    CCI in its advocacy booklet has noted that the practice of patent pooling where firms in a manufacturing industry decide to pool their patents and agree not to grant licences to third parties, and fix quotas and prices, will be considered anticompetitive. Such a practice will have an anticompetitive effect since the firms will earn supra-normal profits and keep new entrants out of the market. In particular, if all technology is locked in a few hands by a pooling agreement, it will be difficult for outsiders to compete.

    Further, the approach adopted by the CCI in its orders and the advocacy initiatives seem to suggest that while the CCI gives due importance to an IPR holder, the CCI would view practices as anticompetitive if an IPR holder misuses the right conferred upon it by the Indian IPR statutes.

  11. 6.

    Market power and dominance

    In what circumstances is the possession of intellectual property rights deemed to confer substantial market power on the holder such that the rules on unilateral conduct will apply?

  12. We have already discussed that IPR may or may not be considered as relevant market in itself. Having said that, possession of IPRs does provide a significant commercial advantage qua the competitors which is an essential analysis done by the CCI in a dominance investigation. The CCI, in their analysis, will evaluate whether the IPRs provide the enterprise being investigated has a position of strength that would allow it to operate independently of the competitive forces prevailing in the relevant market.

    In the Ericsson cases, the CCI in its prima facie order noted Ericsson is enjoying a dominant position because it has 33,000 patents to its credit, including 400 patents granted in India and because it is the largest holder of SEPs for mobile communications like 2G, 3G and 4G patents used in smartphones, tablets etc.

    Similarly, in the Super Cassettes case, CCI held that Super Cassettes was enjoying a dominant position in the market for licensing of Bollywood music to private FM radio stations for broadcast. CCI noted that Super Cassettes owned the majority of the music labels and it had a 58 per cent market share among the top 100 songs played on private FM channels and more than 50 per cent market share by terms of revenue from FM Radio to music providers. Further, since Super Cassettes owned the majority of the music labels of films that had bankable stars, CCI noted that it had significant advantage qua their competitors and hence enjoyed a dominant position.

    The underlying theme is to evaluate whether IPR confers the enterprise a position of strength which enables it to operate independently of the competitive forces.

  13. 7.

    Unilateral conduct

    In what circumstances may unilateral conduct involving the exercise of intellectual property rights be deemed to be anticompetitive (monopolisation, abuse of dominance, etc)?

  14. The Act prohibits abusive conduct including both exclusionary and exploitative practices as set under section 4(2) of the Act. A list of abusive conduct is mentioned under the provisions of section 4(2) of Act, which include cases of excessive pricing, differential pricing, imposing unfair terms and conditions and denial of market access etc.

    The CCI has passed certain orders which deals with both exploitative and exclusionary abuse with respect to exercise of IPRs by the dominant enterprise. The DG is presently investigating Ericsson to see if it had indulged in excessive and discriminatory pricing. Further, the DG is also investigating whether Ericsson had imposed any onerous terms in the licence agreement.

    In the Automobile Spare Parts case, the CCI held that the OEMs engaged in both (i) exploitative abuse, since they charged excessive pricing for the spare parts, and (ii) exclusionary abuse since it ensured, by way of its agreements with OESs, that spare parts are not made available to the independent repairers.

    Similarly, in the Super Cassettes case, the CCI held that imposition of minimum commitment charge (MCC) is both (i) exploitative abuse since it forces the consumers to pay for the music it may not play; and (ii) exclusionary abuse since the private radio station is contractually bound to pay Super Cassettes a minimum guaranteed amount, they are likely to broadcast the amount of music that they have already paid for. The CCI has noted that exclusionary abuse is characterised by improper strengthening of market power by the dominant enterprise. In both the Automobile Spare Parts case and the Super Cassettes case, it was shown that the conduct of the dominant enterprise had an exclusionary effect on the competitors and in the process, strengthening their own market power.

    Section 27(g) of the Act empowers the CCI to pass "any other order" as it deems fit besides imposing a penalty, if it finds that a dominant enterprise has acted in contravention of section 4 of the Act. As such, in the Automobile Spare Parts case, the CCI and COMPAT have passed orders to make the spare parts available in the market which have been discussed above and not repeated herein for the sake of brevity.

    The matter is now pending for adjudication before the Hon’ble Supreme Court of India.

  15. 8.

    Patent settlements

    In what circumstances may patent settlements be deemed to infringe competition law?

  16. It was reported in 2014 that the CCI was investigating certain cases of pay-for-delay settlements. However, the CCI has not passed any orders on this issue. Section 3(3)(b) of the Act provides that any agreement among companies at the same level of trade which limits or controls production, supply, markets, technical development, investment or provision of services will be presumed to cause an AAEC. Pay-for-delay settlements would be caught under section 3(3)(b) since the purpose of the settlement is to delay the entry of a generic drug, which would otherwise have competed with the patented drug.

    In the event such a settlement agreement has been entered into by an IPR holder during the exclusivity time period, the IPR holder may claim an exemption under section 3(5) of the Act. In such a case, rule of reason would apply to see whether exemption under section 3(5) will be available or not.

  17. 9.

    Merger control (jurisdiction)

    In what circumstances will the transfer of intellectual property rights constitute a merger for the purposes of competition law?

  18. The applicable merger control regulations in India provide that any merger or acquisition of shares, assets, control and voting rights that meet the applicable threshold limits would qualify as a combination for the purposes of the Act. A combination, which is not exempt either under the (a) provisions of the Act or (b) de minimis exemption or (c) any exemptions provided under the CCI (Procedure in regard to transaction of business relating to combinations), 2011 (Combination Regulations), is required to be mandatorily notified to the CCI for prior approval.

    Asset value has been defined in a very broad manner under the Act to mean assets as per the book value of the enterprise and this would include IPRs. Further, permitted use is also covered under the definition of IPR. Therefore, transfer of IPR (whether by way of acquisition or licence) would be covered under the merger control regulations and such a transaction would require a filing to be made before the CCI, provided it meets the specified thresholds.

    The Ministry of Corporate Affairs issued a notification which provided for the de minimis exemption, wherein it exempted from notification any enterprise whose control, shares, voting rights or assets are being acquired, that has either assets of no more than 3.5 billion rupees or a turnover of 10 billion rupees in India. This de minimis exemption is applicable both for acquisitions and mergers.

    The present thresholds are tabulated below.

    India

    Assets

    Turnover

    Either acquirer or target or both have

    20 billion rupees 

    60 billion rupees 

    Group to which the target will belong has

    80 billion rupees 

    24 billion rupees 

    Worldwide

    Assets

    Turnover

    Either the acquirer or the target both have:

    In the case of a merger, the enterprise after merger or created as a result of merger

    US$1 billion with at least 10 billion rupees in India

    US$3 billion with at least 30 billion rupees in India

    Group has:

    US$4 billion with at least 10 billion rupees in India

    US$12 billion with at least 30 billion rupees in India

    It is noteworthy that CCI had amended the Combination Regulations to include cases wherein assets, business unit or division of an enterprise is transferred to an enterprise and, subsequently, the transferee enterprise enters into an acquisition or combination with a third enterprise, the entire value of assets and turnover of the transferor enterprise (as opposed to only the assets and turnover of the divisions being transferred to the transferee enterprise), will be clubbed with the assets and turnover of the transferee enterprise for the purposes of calculating the threshold limits provided under section 5 of the Act. Based on this amendment, the CCI has approved a green field joint venture involving transfer of IP by one of the joint venture partners (by way of licence) to the joint venture entity. [For reference, please see Andhra Pradesh Gas Distribution Corporation Limited, GDF Suez Energy International Global Developments BV, Shell Gas BV and GAIL (India) Limited, Combination Registration No. C-2015/10/333)].

  19. 10.

    Merger control (substantive)

    In what circumstances will a merger involving intellectual property rights be deemed anticompetitive? Are there any special considerations for mergers involving intellectual property rights or innovation markets?

  20. Section 31 of the Act provides vast powers to the CCI to approve a combination, block a combination or approve the transaction, subject to commitments. The CCI considers the factors under section 20 (4) of the Act while analysing a combination. The decisional practice of the CCI suggests that their analysis is to see whether effective competition which will sustain in the market, post the combination. The same principle would also be adopted by the CCI in combination involving intellectual property rights or innovation markets.

    While there has not yet been a case where CCI has blocked a combination, there have been situations where CCI has suggested divesture packages involving IPRs. The approach taken by the CCI is to design a divesture package is to ensure that the divestment so designed consists of a viable business, which in the hands of the purchaser, is capable of competing with the combined entity. There have been commitments issued by the CCI that include IPRs. The divesture package (in CCI orders) provides in the detail the scope of the business to be divested and all tangible and intangible elements including know-how and goodwill, are clearly specified. Also, the manner in which IPR will be transferred forms form part of the divestment package. In the merger decision of Sun Pharmaceuticals Industries Limited and Ranbaxy Laboratories Limited (Combination Registration No. C-2014/05/170) the CCI discussed on the issue of IP remedies/commitments. Apart from the brands and assets that formed a part of the divestment package, the CCI noted that where intangible assets (including IPR) that contribute to the current operation or are necessary to ensure the economic viability, marketability and competitiveness of products in the divestment package (retained by the Sun/Ranbaxy for use in its other business), the parties will grant either a full assignment or an exclusive, irrevocable, assignable, royalty-free, perpetual licence to the purchaser.

    The CCI also has the powers to suggest behavioural commitments like access remedies, etc.

  21. 11.

    Standardisation

    How, in general, does competition law treat the development of standards in standard-development organisations (SDOs), and the exercise of intellectual property rights for technology that may be essential to a standard?

  22. The CCI recognises the importance of the development of standards by the standard development organisations. The CCI, while passing the prima facie order in the Ericsson cases, observed that the usefulness of complex products and services often depend on the interoperability of components and products of different firms and to enhance the value of these complex products, competing manufacturers, customers and suppliers participate in standard-setting practices to set technological standards for use in designing products or services. This principle has also been accepted by the Delhi High Court in the case of Telefonaktiebolaget LM Ericsson (Publ) v CCI and another (WP (c) No. 464/2014) wherein it was observed that setting industry wise standards is necessary in the field of communications as all market participants involved in the industry must necessarily work on technologies that are compatible for seamless communication and products and equipment used in the telecommunication industry must conform to the standard set to ensure interoperability. Therefore, the CCI and the courts recognise the importance played by the standard development process in sectors such as telecommunications, etc, and considers it pro-competitive.

    The Delhi High Court also recognise the fact that considering the rights of a patentee (ie, the right to refuse any third party from making, using, offering for sale, selling or importing any patented product), it is not easy to reconcile a patent holder’s refusal to grant a licence to use his or her patent as a violation of antitrust laws. However, Delhi High Court went on to hold that the exercise of IPRs (ie, seeking injunctive relief) by a SEP holder, may in certain circumstances, amount to an abuse of its dominant position. Thus, the Court recognises that a patent holder has a right to file a suit for infringement, but the exercise of such rights should not be abusive. In this context, the Delhi High Court observed that the position of a SEP cannot be equated with a proprietor of a patent that is not an essential standard since in the former a non-infringing patent may not be available while non-infringing options would be available in the case of the latter.  

  23. 12.

    Standardisation and anticompetitive agreements

    How do competition law rules on agreements, concerted practices, etc, apply to the standardisation process?

  24. Although no case has been initiated before the CCI relating to agreement, concerted practices etc, the rules under section 3 would be applicable in the case of the standardisation process too. Therefore, if the members of the standardisation process operating at the same level of trade engage in an activity that would result in determining prices, limiting markets or sharing markets, etc, then there is a presumption under the Act of an AAEC. Having said that, the CCI has observed that collective action of competitors may, in certain cases, not be considered as anticompetitive. For instance, the collective action by the members of the domestic tyre industry to meet the challenges faced from imports by making proper representation to the government through the industry association (viz Automotive Tyre Manufacturers Association) was not considered to be anticompetitive.

    Further, as already mentioned in response to question 11, the process of standardisation per se may not be considered as anticompetitive, unless there is a clear anticompetitive design that is demonstrated in the action or conduct of the parties.

  25. 13.

    Standardisation and unilateral conduct

    How do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?

  26. The Delhi High Court has categorically held that the rules of competition law would apply to SEPs. Rejecting a contention that the rules under the Patent Act would alone apply in so far as exercise of rights under the Patent Act is concerned to the exclusion of competition law, the Delhi High Court has held that the scheme of the Act permits the CCI to inquire into claims relating to abuse of dominance arising from SEPs. The Hon’ble Delhi High Court observed that it is well recognised that a patent holder for a technology accepted as standard would be in a position to hold up the other market participants and it is to mitigate against such conduct that a SEP holder is normally required to commit to license its patents on FRAND terms. It would also be relevant to note that the CCI too, in the prima facie orders in the Ericsson cases, observed that FRAND licences are primarily intended to prevent patent hold-ups and royalty stacking.

    Please refer to our response above for market determination and abuse from SEPs. Also, the Act provides that it shall be an abuse if the dominant enterprise engaged in any action that limits or restricts production of goods or technical development to the prejudice of customers or engages in action that results in denial of market access in any manner. As mentioned above, the scope and remit of denial of market access is very huge and it would cover situations where a SEP holder engages in vexatious litigation or obtains or enforces preliminary or permanent injunctive relief to protect SEPs.  

  27. 14.

    Recent cases and other developments


  28. Cases

    Automobile Spare Parts case

    It was alleged that the OEMs were not making available spare parts and diagnostic tools and equipment in the open after-sales market. Apart from the said exploitative abuse of excessive pricing, CCI noted that OEM had engaged in exclusionary abuse too. It was noted that OEMs had entered into various agreements with their overseas suppliers or OESs or both to ensure that they become the sole supplier of their own brand of spare parts and diagnostic tools in the aftermarket and the spare parts are not made available to the other independent repairers. Therefore, it was held the OEMs pursuant to such agreements had effectively shielded themselves from any competition in market for repair and maintenance of cars. It was noted by CCI that the denial of the availability of its genuine spare parts severely limited scope of the independent repairers in effectively competing with the authorised dealers of the OEMs in the aftermarket.

    The CCI held that it was no defence that the exclusionary conduct is within the scope of the IPR or as a result of the exercise of the IPR when there is a denial of market access. The CCI noted that while the legislators had crafted certain exceptions to IPR under section 3(5), this was limited to only issues relating to anticompetitive agreements and the legislation did not contain a similar exception under section 4 when assessing abuse of dominant position.

    From a substantive perspective, the CCI also held that under section 3(5) of the Act, the restraint should be such as would be “necessary” to protect the rights of the IPR holder. The CCI opined that merely allowing the open market sale of spare parts, which are manufactured end products, would not necessarily compromise the IPR held by car manufacturers in the spare parts. The CCI was of the view that it was very much possible for the car manufacturers to contractually protect their IPR and also permit the OES to sell their products directly in the open market.

    On the allegation of unfair pricing it was noted by the CCI that the OEMs were selling the spare parts at an average mark up of 100 per cent and in some cases, mark ups are high as 5,000 per cent above the cost of procurement and such profit margin were held to be disproportionate to the economic value of the spare parts. The said pricing was held to be unfair because there was no effective alternative for the consumer. The COMPAT also upheld the findings of the CCI and the matter is now pending before the Supreme Court of India.

    Super Cassettes case

    The CCI dealt with both exploitative and exclusionary abuse in the Super Cassettes case while deciding the issue of a minimum commitment charge. In the said case, the radio operators had complained to the CCI that Super Cassettes was imposing a minimum commitment charge to be paid per month by the radio operators to Super Cassettes irrespective of actual needle hour (each aggregate of 60 minutes of actual broadcast of sound recordings by an FM radio station excluding commercials, advertisements, voice over, anchor time, etc) of broadcast of the music content of Super Cassettes by the radio operators. Such kind of minimum commitment charge was not charged by any other music service provider.

    On review of the documents, the CCI held that imposition of minimum commitment charge is both exploitative and exclusionary in nature. It was held to exploitative since it forces consumers to pay for music they may not play. It was held to be exclusionary since the private radio station is contractually bound to pay Super Cassettes a minimum guaranteed amount, they are likely to broadcast the amount of music that they have already paid for. Therefore, a certain amount of music played on private FM radio stations is already fixed for Super Cassettes. This would inevitably result in other competitors in the music industry not being able to compete for and being foreclosed from broadcasting their music on this prefixed play-out of which 30–50 per cent was reserved already. Based on the above, the CCI noted that imposition of MCC by Super Cassettes was an abuse of dominance.

    Ericsson cases

    The validity of the terms under a licence agreement on SEPs and fixing of royalty rates for such SEPs are presently being investigated by the DG. While SEP has immense benefits, it is vulnerable to abuse of market power that it confers upon the SEP holder. In the cases instituted against the same licensor, CCI determined that, prima facie, the proposed licence terms were unfair and discriminatory:

    1. In a licence agreement covering SEPs, the licensor cannot charge different royalty rates or offer different commercial terms to licensees belonging to the same category. In light of this, CCI condemned the non-disclosure agreement that the licensor imposed upon the licensee based on which the licensee could not investigate into the unfairness of the terms of the licence as regards other potential licences.
    2. The royalty rates charged by Ericsson had no linkage to patented product since the technology resided only within the chipset but Ericsson calculated its royalty on the retail price of the entire phone. Therefore, while the technology remained the same, the royalty may vary for two manufacturers based on the pricing of their phones. Thus increase in the royalty for patent holder was without any contribution to the product of the licensee. Charging of two different licence fees per unit phone for use of the same technology prima facie was held to be discriminatory and also reflected excessive pricing as regards high-cost phones.
    3. Furthermore, licensor may not impose upon the licensee clauses onerous clauses, such as a jurisdiction clause, debarring the licensee from having disputes adjudicated in India (where both parties carry on business) and vesting jurisdiction in a foreign land prima facie. Such clauses represent abuse of dominance on part of the licensor.

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Questions

  1. 1.

    Applicable rules

    Does competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?


  2. 2.

    Competent authorities

    Which authorities are responsible for the application of competition law to intellectual property rights? What enforcement powers do they have? Are there any special procedures for conduct that concerns intellectual property rights?


  3. 3.

    Market definition

    How are markets involving intellectual property rights defined?


  4. 4.

    Acquisition and sale

    Does competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?


  5. 5.

    Licensing

    How does competition law apply to technology transfer and licensing agreements?


  6. 6.

    Market power and dominance

    In what circumstances is the possession of intellectual property rights deemed to confer substantial market power on the holder such that the rules on unilateral conduct will apply?


  7. 7.

    Unilateral conduct

    In what circumstances may unilateral conduct involving the exercise of intellectual property rights be deemed to be anticompetitive (monopolisation, abuse of dominance, etc)?


  8. 8.

    Patent settlements

    In what circumstances may patent settlements be deemed to infringe competition law?


  9. 9.

    Merger control (jurisdiction)

    In what circumstances will the transfer of intellectual property rights constitute a merger for the purposes of competition law?


  10. 10.

    Merger control (substantive)

    In what circumstances will a merger involving intellectual property rights be deemed anticompetitive? Are there any special considerations for mergers involving intellectual property rights or innovation markets?


  11. 11.

    Standardisation

    How, in general, does competition law treat the development of standards in standard-development organisations (SDOs), and the exercise of intellectual property rights for technology that may be essential to a standard?


  12. 12.

    Standardisation and anticompetitive agreements

    How do competition law rules on agreements, concerted practices, etc, apply to the standardisation process?


  13. 13.

    Standardisation and unilateral conduct

    How do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?


  14. 14.

    Recent cases and other developments