The Delhi High Court on a Test for “Sectoral Regulators”

[Karan Kamath is a 2020 B.A. LL.B. (Hons.) graduate from Symbiosis Law School, Pune]

The Delhi High Court in Monsanto Holdings Pvt. Ltd. v. Competition Commission of India (20 May 2020) ruled that the Supreme Court’s determination in CCI v. Bharti Airtel Ltd.(2018) is not applicable to the Controller of Patents. It also ruled that the Competition Commission of India (CCI) could investigate competition abuses related to patent licensing agreements directly, without any prior determination by the Controller. It distinguished the facts at hand, by holding that the Controller was not a “sectoral regulator”, unlike the subject-matter of Bharti Airtel, viz. Telecom Regulatory Authority of India (TRAI). While doing so, the High Court may have laid foundations of a general test for applicability of Bharti Airtel.

The Monsanto Holdings case

Monsanto Holdings rejected a plea against initiation of investigation by the CCI, related to patent sub-licensing agreements. The licensees had approached the CCI alleging contravention of the Competition Act, 2002 by Monsanto, in relation to the trait fee charged and other conditions imposed. The CCI concluded in its order that prima facie Monsanto’s conduct amounted to violation of section 4 of the Competition Act, and directed the Director General to actuate an investigation. Monsanto and its allied entities challenged the said CCI order, contending that the issue was essentially related to the Patents Act, 1970 and, therefore, beyond the jurisdiction of the CCI.

Monsanto’s arguments

Monsanto argued that the CCI could not investigate the alleged competition law violations unless a jurisdictional or foundational finding had been concluded by the appropriate patent authority, viz., the Controller of Patents. Reliance was placed on the Supreme Court’s judgment in Bharti Airtel, which holds that competition matters in telecom sector are under the jurisdiction of TRAI as well as the CCI. However, since the sector is specifically regulated by the TRAI Act, 1997, the telecom regulator in the first instance ought to determine foundational and technical aspects which can be handled by it and, then, once such findings are reported by TRAI and prima facie anti-competitive behaviour concluded, can the CCI investigate.

Further, Monsanto also cited the Delhi High Court’s ruling in Telefonaktiebolaget LM Ericsson v. CCI (2016), wherein it was held that the Competition Act and the Patents Act were not repugnant to each other and, thus, the CCI could not have been excluded from investigating abuse of rights by a patentee. Ericsson, Monsanto argued, had been effectively overruled by Bharti Airtel, and therefore could not be adhered to by the High Court.

Decision

The High Court rejected the arguments based on Bharti Airtel, holding that TRAI’s role as a sector regulator was “materially different” than that of the Controller of Patents. It based this holding principally on three grounds: (a) that patents are not an “industry” in themselves, i.e., it is not a sector and therefore its regulator cannot be deemed a “sectoral regulator”; (b) that although the Controller regulates patents, the manner of such regulation is not as “pervasive” as that of sectoral regulators like TRAI; and (c) that there is some sectoral “technical expertise” possessed by TRAI that is absent in the case of the Controller. This difference of nature between the two regulators further illustrated the Ericsson determination that the two mother legislations are not repugnant and therefore, the CCI’s jurisdiction was not ousted. Thus, the High Court refused to quash the CCI investigation into alleged competition law violations by Monsanto.

A test for ‘sectoral regulator’?

The Bharti Airtel decision makes frequent usage of the term “sectoral regulator” without defining the term; instead it merely refers to TRAI as a “sectoral regulator”. The same trend was visible when the Bombay High Court followed Bharti Airtel in Star India Pvt. Ltd. v. CCI (2019), wherein TRAI is referred to as a “sectoral regulator” as well, without a precise meaning being apportioned to the term. Perhaps, as the “sectoral regulator” under question in Star India was TRAI, the ratio of Bharti Airtel would have been applicable irrespective of the definition of “sectoral regulator”. The Delhi High Court in Monsanto Holdings, on the other hand, was pressed to compartmentalise some meaning to the term before it ruled on the precedential value of Ericsson.

The aforesaid distinguishing factors between the Controller and TRAI, utilised by Monsanto Holdings, could be further developed into a test for “sectoral regulators”, for determining whether the Bharti Airtel judgment applies to an authority or not. The three factors are: (a) existence of industry or a sector; (b) pervasive regulatory powers exercised by the authority; and (c) technical expertise possessed by the authority.

Industry or a sector

The purpose of the Competition Act is to promote and sustain competition and to ensure freedom of trade in “markets”. A crucial determination in competition law is that of “relevant market”, defined in the Competition Act as:

Means the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets”.

In CCI v. Coordination Committee of Artistes and Technicians of West Bengal Film and Television (2017), the Supreme Court held that “relevant market” was an economic concept, and relevant product or geographic market were factual questions to be identified based on “the nature of the buyers and suppliers concerned by the conduct under examination and their position in the supply chain.

The Supreme Court in Bharti Airtel categorically noted that the underlying dispute was concerned with the “telecom market”. The “sector” in “sectoral regulator” therefore ought to overlap with the “relevant market” while applying the Bharti Airtel judgment. Patents, by themselves, are not an industry. The aggrieved licensees who alleged anti-competitive practices before the CCI were not in the ‘patent industry’ (even if it existed), but instead in the agricultural industry. The relevant market of purchasing seeds is distinct from the jurisdiction of the Controller, viz. patents.

Pervasive regulatory powers

In Balmer Lawrie & Co. Ltd v. Partha Sarathi Sen Roy (2013), the Supreme Court applied the test of “deep and pervasive control” of the state, required to determine whether Article 12 of the Constitution is applicable to a company. It held that “pervasive” control has to be dominant and extensive or applicable through every part of something.

For application of the Bharti Airtel judgment, the Delhi High Court distinguished “pervasive” powers of TRAI. Once a dedicated sector or industry is identified, there is a need to assess whether the regulator in question has dominant and extensive powers touching all aspects of regulation. TRAI’s regulatory powers over the telecom sector are not only exhaustively wide-reaching, the Central Government is empowered under the TRAI Act to accord additional functions necessary for carrying out provisions of the Act. In Bharti Airtel, while nothing submissions of the parties, the Court notes that these powers are “vast”, and later notes:

…It [TRAI] is assigned the duty to achieve the universal service which should be of world standard quality on the one hand and also to ensure that it is provided to the customers at a reasonable price, on the other hand. In the process, purpose is to make arrangements for protection and promotion of consumer interest and ensure fair competition. It is because of this reason that the powers and functions which are assigned to TRAI are highlighted in the Statement of Objects and Reasons. Specific functions which are assigned to TRAI, amongst other, including ensuring technical compatibility and effective inter-relationship between different service providers; ensuring compliance of licence conditions by all service providers; and settlement of disputes between service providers.

Similarly, in Bharat Sanchar Nigam Limited v. TRAI (2013), after reviewing TRAI’s powers, the Court had remarked them as “wide and pervasive”. This overarching domain can be contrasted from other regulators. For example, Securities and Exchange Board of India regulates banks, when they act as bankers to an issue; however, it cannot be said to possess “pervasive” regulatory powers over the baking sector. Instead, the Reserve Bank of India would be deemed to possess such “pervasive” powers. The Controller of Patents does not pervasively regulate any agricultural sector concerned in Monsanto Holdings, negating the necessity to apply Bharti Airtel.

Technical expertise

The final point of differentiation between TRAI and the Controller in Monsanto Holdings is that TRAI has “domain expertise” in “certain technical aspects” vis-à-vis the telecom sector. This is crucial for applicability of Bharti Airtel, as it ruled that inter alia TRAI had to resolve technical issues before the CCI could commence an investigation. The disputes giving rise to Bharti Airtel were related to sufficiency of ‘points of interconnection’, a technicality firmly rooted in telecommunications. It was reasoned by the Court that such technicalities are within the expertise of TRAI and, therefore, it is better suited to settle them, compared to the CCI.

Whether “technical expertise” is limited to such technological expertise, or whether it includes any specialised expertise is unclear from Monsanto Holdings. In cases related to regulatory bodies in the education sector, such as in Maharashtra State Board of Secondary and Higher Secondary Education v. Paritosh Bhupeshkumar Sheth (1984), the Supreme Court has referred to expertise in educational matters as “technical expertise”. However, whether such (specialised) expertise is to be considered congruent to knowhow in technological matters such as telecommunications is unclear. For example, the authorities under the Electricity Act, 2003 surely require technological expertise related to electricity, but the Insurance Regulatory and Development Authority, alternatively, regulates with a specialised expertise in the insurance sector.

Monsanto Holdings and the future

The conflict between sectoral regulators and competition authorities exists across the world. The Supreme Court in Bharti Airtel attempted to read the concerned laws harmoniously to allow concurrent jurisdiction, with the sectoral regulator enjoying primacy for resolving foundational, jurisdictional, and technical issues. Nonetheless, Bharti Airtel is a specifically worded pronouncement for TRAI and related laws, and has not yet been applied to other sectoral regulators. The Delhi High Court, in Monsanto Holdings, while resolving such prospective application, may have devised a good test for “sectoral regulator” and therefore for application of Bharti Airtel. If not, its observations do certainly form a good basis for any such test to be crystallised in the future.

Karan Kamath

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