Balancing Intellectual Property and Competition Law: An Analysis of Abuse of Dominant Position

Introduction

The relationship between intellectual property (IP) laws and competition laws has proven to be the subject of debate and study for a long time. While intellectual property laws grant owners exclusive rights, competition laws aim to ensure free markets and prevent anti-competitive behavior. As a result, it appears that the goals of these two legal frameworks are at odds. Section 3 of the Competition Act gives certain exemptions for intellectual property rights, but Section 4 is hesitant on the question of dominant position abuse.

The Intersection Of Intellectual Property And Abuse Of Dominance

Section 3 of the Competition Act prohibits entering into anti-competitive agreements and states that any such agreement shall be void. However, Section 3(5)(i) exempts intellectual property (IP) laws from it, which states that using IP rights granted under certain laws is exempted from Section 3 if considered reasonable and necessary for IP protection. [SB1] [SJ2]  However, this exemption is not absolute and is subject to specific criteria and limitations. Importantly, this exception only applies to anti-competitive agreements under Section 3 and does not apply to abuse of dominant position requirements under Section 4. Despite the Competition Law Review Committee’s (CLRC) advice in 2019 for including an IP exception in Section 4, the Competition Amendment Act of 2023 has failed to do so.

How Do They Intersect?

Section 4 of the Competition Act defines a dominant position as a strong position in the specific sector of the market, held by a company, which enables it to: (a) operate independently of competitive forces prevailing in the market; and (b) affect its competitors or consumers or the relevant market in its favour. This position, as enumerated above, allows the corporation to operate with limited competition and to exert influence over competitors, consumers, and the relevant sector of the market. It is critical to understand that simply maintaining a dominant position is not unlawful; however, abusing it is. When deciding whether a corporation has a dominant position, the competition authority looks at the considerations specified in Section 19(4) of the Act. These considerations help determine whether a company has obtained a monopoly or dominance, whether as a result of a statute or otherwise. This forms the point of intersection between Competition law and IP rights. However, it is critical not to assume that intellectual property exclusivity immediately corresponds to market domination or strength. Other market elements and characteristics must be investigated to establish whether intellectual property plays a role in the creation of market power and dominance.

European Union Jurisprudence V. Indian Jurisprudence

EU Jurisprudence

• Article 102 of the Treaty on the Functioning of the European Union (TFEU) governs dominant firms’behaviour to maintain fair competition.
• The ECJ concluded in Parke, Davis & Co. (1968) that while owning a patent is not abuse in itself, its usage can lead to illegal exploitation.
• In the EU Microsoft case (2005), withholding copyright-protected interoperability information has been adjudged an abuse of dominant position in breach of Article 102 since it hampered production, markets, and technological progress.
• The Essential Facilities Doctrine can be used to examine the relationship between IP and dominant position exploitation.
• EU jurisprudence has evolved through judicial precedents such as Magill, IMS, Oscar Bronner, and Microsoft. It now considers four factors: 
  • Focusing on whether a company has a dominant position in an upstream market
  • The necessity of the product for downstream competition
  • The elimination of effective competition due to refusal to grant access
  • The analysis of objective justifications for the refusal

Indian Jurisprudence

• The Competition Commission of India (CCI) uses an effects-based approach in certain instances of abuse of dominance.
• Section 4 of the Competition Act, unlike Section 3(5)(i) for anti-competitive agreements, does not expressly exempt intellectual property.
• Decisions like Telefonaktiebolaget L.M. Ericsson(2016) by Delhi High Court have distinguished the focus of and remedies under IP laws like the Patents Act and the Competition Act, and hence, there is no question of repugnancy between the statutes which cannot be reconciled.
• The overlap between Section 3(4) vertical agreements and abuse of dominance clauses under the current statutory structure poses difficulties. While under section 3, one has to satisfy the test of appreciable adverse effect on competition, there is no such requirement under section 4 which on the face of it suggests a more legalistic approach.
• Certain IP-related restrictive conditions might breach the provisions of section 3 but not those of section 4 so long as the entity does not dominate the relevant sector of the market.
• Section 4’s lack of an excluding clause is seen as a technicality, given the reasonability analysis completely handles the subject at hand.
• The idea of the dominant enterprise’s special duty could be used to justify the exclusion of the IP defence under Section 4.

Overall, EU jurisprudence focuses on controlling dominant firms’ behaviour and analyzing product indispensability, whereas Indian jurisprudence takes an effects-based approach.

Recent Developments

The provisions in the Competition Amendment Act of 2023[1] do not include clear tests or standards for examining the impact on competition. However, the NCLAT’s interpretation of the Abuse of Dominance clauses has recently changed. The NCLAT ruled in the case of Google LLC v. CCI[2], issued in April 2023, that an “effect” analysis is essential for showing abuse of dominance under Section 4. The NCLAT’s view reflects a progressive approach to examining matters of this sort.

Conclusion

Abuse of a dominating position complicates competition law because acceptable practices may contribute to dominance while also having pro-competitive consequences. In its application of economic approaches, the CCI’s decision-making is conflicted. The 2023 ruling of the NCLAT in Google v. CCIis a significant step forward. However, an effects-based standard is required for consistent analysis. The difference in intellectual property protection under the Competition Act is a reason for worry due to the employment of different evaluation standards. It is difficult to provide assurance by amendments in dynamic IP markets. The interpretation of the Supreme Court will determine competition law and abuse of dominant position norms in India.

[1]https://egazette.nic.in/WriteReadData/2023/245101.pdf.

[2] Google LLC v. Competition Commission of India, Competition Appeal (Appellate Tribunal) No. 1 of 2023, decided on 29-03-2023.

[SB1]Explanation of Section 3 ought to come prior to illustrating the exemption carved out under the relevant section. [SB1]

 [SJ2]Done [SJ2]