[Jishnudeep Kolay and Saumya Bapna are second-year B.A. LL.B (Hons.) students at the National Law School of India University, Bengaluru]
In July 2023, the Delhi High Court in Telefonaktiebolaget LM Ericsson v. Competition Commission of India (‘Ericsson II’) ruled that in an issue of abuse of dominance by a patentee in the exercise of their rights under the patent, the Patents Act, 1970 will prevail over the Competition Act, 2002. Therefore, it granted exclusive jurisdiction to the Controller General of Patents over the Competition Commission of India (“CCI”). Reversing its single-judge decision in 2016 (“Ericsson I”), the High Court held that it would be contrary to legislative intent to permit CCI to conduct inquiries in allegations of anti-competitive agreements concerning patents. Further, it posited that since the Patents Act provides for the powers to deal with such agreements and the fact that it is a special law in the field of patents, CCI cannot enjoy jurisdiction.
This post critiques the Court’s judgement under two grounds. First, it shows that the Court erred in its interpretation of the legislative intention. Second, it demonstrates that the Court failed to appreciate the object of the Competition Act and the powers of the CCI to ensure fair competition in India.
The Judgment
The Delhi High Court extensively compared the relevant provisions in the two statutes. It reasoned that the powers of the CCI under sections 19(3) and 19(4) of the Competition Act, for investigating anti-competitive agreements, are not different from that of the Controller under sections 84(6) and (7) of the Patents Act. Section 84 of the Patents Act stipulates conditions for an application for granting compulsory licence on a patent. Section 84(6)(iv) requires the applicant to make efforts to procure the licence on reasonable terms. However, the proviso to this clause carves an exception to the above requirement, when the patentee adopts anti-competitive practices.
Based on the comparison, the High Court posited that the Patents Act is a special statute in the field of patent rights. Therefore, even in anti-competitive issues related to patents, the Controller will have exclusive jurisdiction. Moreover, compulsory licenses under Chapter XVI were introduced by the 2003 amendment, after the enactment of the Competition Act. This was interpreted by the Court as conclusive legislative intent granting exclusivity of jurisdiction to the Controller. The same was reasoned to be confirmed by section 3(5)(i)(b) of the Competition Act. The section excludes ‘reasonable’ restrictions in agreements under rights granted by the Patents Act from the ambit of CCI’s investigations.
Therefore, the Patents Act was held to prevail over the Competition Act in anti-competitive issues of patent licenses. The Court’s reasoning was two-fold: first, the inclusion of section 84(6)(iv) in the Patents Act after the enactment of the Competition Act shows legislative intention in favour of the former. Second, since the powers of both the CCI and the Controller are similar, the latter shall have exclusive jurisdiction. A scrutiny of the provisions coupled with an analysis of the legislative intent dispel both assertions.
Legislative Intention: In Favour of Exclusivity?
Section 84 of the Patents Act provides for the grant of compulsory licenses. Section 84(6)(iv) states that the licensee must make efforts to obtain such a license on reasonable terms, before applying for a compulsory one. The proviso carves out an exception when the patentee indulges in anti-competitive practices. On the other hand, section 3(5)(i)(b) of the Competition Act allows the imposition of ‘reasonable conditions’ restraining competition, to protect the rights granted under the Patents Act. Ericsson II posits that since CCI is barred from examining ‘reasonable conditions’ and the Controller can take into account anti-competitive practices, exclusive jurisdiction lies with the latter. Such a position is, with respect, flawed.
The object of the proviso to section 84(6)(iv) is altogether different. While the provision requires a licensee to make efforts to obtain a license on valid terms, the proviso simply exempts such a requirement in case the patentee adopts anti-competitive practices. The same is not a substantive provision on preventing anti-competitive practices. On the other hand, section 3(5)(i)(b) of the Competition Act allows ‘reasonable conditions’ in agreements restraining Competition if such a condition is under a statutory right. Therefore, such clauses will not be regarded as anti-competitive. It is submitted that section 3(5)(i)(b) does not exclude the examination of such clauses by the CCI completely. The term ‘reasonable’ implies that the CCI will have to check for such reasonability. If it finds the term not to be reasonable, there is nothing to stop it from declaring it void under section 27 of the Act.
Further, the object of introducing section 84 under Chapter XVI of the Patents Act was not to ensure fair competition as a comprehensive measure. The Joint Parliamentary Committee Report specifically stated that the primary object of the amendment to the said Chapter is to make patents relating to the health sector more conducive and affordable. The speech of the Commerce Minister, introducing the bill, also clarifies the same. Section 84 simply allows the Controller to grant compulsory licenses to prevent the abuse of patents that are in the public interest. Moreover, section 89 clarifies that the general purpose of compulsory licensing is to attain proper utilisation of patent rights.
In this regard, section 83(b) of the Patents Act may also be considered. It states that patents are not merely to allow a monopoly to patentees. It can be argued that section 83(b) read with section 84 has been enacted to prevent anti-competitive practices. However, a few provisions targeting anti-competitive practices should not be equated to a comprehensive regime for guaranteeing fair competition. Furthermore, section 90(1)(ix) of the Patents Act uses the phrase “determined after judicial or administrative process to be anti-competitive”. This has been correctly interpreted by Ericsson I as the legislative intention of harmonising the Competition Act with Patent law. Ericsson II has not even considered the import of this section which directly goes against the exclusivity of the Patents Act. Therefore, the legislative intention is strictly not in favour of the Patent Act’s exclusivity.
Schemes of the Respective Statutes
Ericsson II analysed specific provisions of the two Acts and concluded that the Controller has similar powers as the CCI. Therefore, it can adjudicate on anti-competitive disputes concerning patents. This led to the conclusion that CCI would not have jurisdiction.
The preceding section has shown that the legislative intention was never to exclude the jurisdiction of CCI. This section will show how Ericsson II failed to appreciate the expansive powers of the CCI over the Controller in ensuring effective competition.
Certain provisions of the Patents Act do deal with the anti-competitiveness of Patents. Section 84, as discussed above, is one of them. Section 90(1)(ix) allows that licensee to export the product if such a license is granted to remedy a practice determined to be anti-competitive. Further, section 140 prohibits any license agreement from having anti-competitive terms. On a prima facie basis, it may seem that the Act does give the Controller wide powers to deal with anti-competitive practices concerning patents. However, such powers are limited. First, the powers of the Controller are in personem and not in rem unlike that of the CCI. Therefore, they are related to the specific patent or license. Second,checking for anti-competitive clauses in particular patents or licenses cannot be equated with prohibiting adverse effects on competition as a whole. While the Controller’s authority is limited to the former, the CCI’s role covers the latter. For example, CCI might be better equipped to keep a check on patent cartels and monopolistic combinations than the Controller. Sections 3 and 4 of the Competition Act not only deal with simple anti-competitive agreements but also with cartels, combinations and other kinds of restrictive practices. Further, section 19(3)(f) of the Competition Act requires the CCI to consider the promotion of market innovative practices in determining the anti-competitive effects of an agreement. Consequently, CCI’s regulation of anti-competitive practices promotes market innovation in the long run. Therefore, the CCI has wider powers and can better check such practices even in the field of patents.
The above contention finds support in the Ayyangar Committee Report as well. The committee suggested that restrictive practices in patents cannot be dealt with by simply amending the Patent Act, but requires more comprehensive tools to deal with the various types of restrictive combinations. Similar is the view taken by the Raghavan Committee. It has emphasised the distinction between the “existence of a right and its exercise”. It recommended that anti-competitive practices in the exercise of such a right “ought to be” checked under the Competition regime. Further, the Organisation for Economic Co-operation and Development (“OECD”) Report on ‘Competition Policy and Intellectual Property Rights’ also highlights the benefits of applying competition policy on licensing of intellectual property.
In CCI v Bharti Airtel (“Airtel”), the Supreme Court had to deal with a similar tussle of jurisdiction between Telecom Regulatory Authority of India (“TRAI”) and the CCI. It mentioned that the CCI has a distinct object to ensure fair competition. It went on to posit that CCI is better equipped to find whether an agreement can have adverse effects on competition. It held that TRAI cannot have exclusive jurisdiction, because even if TRAI finds the agreement anti-competitive, it cannot transcend the TRAI Act. On the other hand, CCI exclusively deals with these agreements, therefore a better choice. Ironically, this case was heavily relied upon by the Court in Ericsson II. Here, the court has clearly failed to recognise distinct mandates of the statutory bodies. Moreover, in Airtel, the Court had granted CCI a follow-on jurisdiction. It granted TRAI the original jurisdiction and CCI could investigate only after TRAI had concluded its inquiry. Interestingly, no such possibility was even considered by the Court in Ericsson II.
In Ashoka Marketing v. Punjab National Bank, the Supreme Court held the policy and schemes of the acts as a factor in determining if there exists a ‘conflict’ between two statutes. At the outset, the larger objectives of the two statutes may seem to be in opposition to each other. However, substantive scrutiny of the provisions, as conducted above points to the contrary. This shows that the scheme of the Competition Act is not in ‘conflict’ with the wider aim of the Patents Act. Therefore, the Court’s reasoning in Ericsson II is based on an erroneous presumption of “conflict” between the two statutes. An approach akin to this, by creating a hierarchy between the statutes, ignores the material distinctions between their substantive provisions. If the reasoning in Ericsson II is accepted, then combination anti-competitive arrangements in patents may remain unchecked.
Therefore, this post has shown that granting exclusive jurisdiction to the Controller was first, not the correct interpretation of legislative intent; and second, ignores the wide-ranging power vested with the CCI. The decision in Ericsson II calls for definite principles to demarcate the contours of the two regimes. Harmonising the two is not unheard of. Section 21 of the Competition Act allows other statutory authorities to refer a matter to the CCI. It has been argued that such a provision shows the intent to harmonise the Patents Act and the Competition regime. It remains to be seen how long the Ericsson II continues to hold ground. It would do well for trade if the Supreme Court settles this contentious issue through a well-reasoned judgment.
– Jishnudeep Kolay & Saumya Bapna