The Intellectual Property and Antitrust Review | India
In the past few years, the debate on the interplay between competition law and intellectual property rights (IP) in India has continued to draw attention. In addition to dealing with questions of jurisdiction and addressing disputes dealing with fair, reasonable and non-discriminatory (FRAND) terms, the Competition Commission of India (CCI) has increasingly focused its attention on issues such as the impact of standard-setting on competition law; and the use (or abuse) of IP-related judicial processes by dominant enterprises to stifle competition.
The general prohibition on anticompetitive agreements and abuse of dominance under the Indian Competition Act, 2002 (the Competition Act) applies equally to IP-related business practices as it would to non-IP-related conduct. The only reference to IP rights in the Competition Act is by way of an express carveout that recognises the right of any person to impose reasonable and necessary conditions for protecting IP rights, specifically conferred under certain identified Indian IP statutes. This carveout does not, however, extend to unilateral conduct, thereby exposing IP holders to the risk of scrutiny under the abuse-of-dominance provision (Section 4) of the Competition Act.
In this chapter, we provide (1) a brief overview of the year in review; (2) issues surrounding antitrust and licensing in India; (3) the international debate surrounding the standard-selection process and the manner in which the CCI and Competition Appellate Tribunal (COMPAT) have interpreted competition claims arising out of standards while issuing prima facie orders; (4) the circumstances under which transfer of IP could be viewed as a transfer of assets under the merger control provisions (Section 5) of the Competition Act; and (5) finally we discuss, under ‘other abuses’, the emerging jurisprudence involving IP-related vexatious litigation leading to abuse-of-dominance claims before the CCI.
II YEAR IN REVIEW
The emerging discourse surrounding IP-linked antitrust issues in India is invariably tied to the application of the disciplines contained in Section 3 of the Competition Act (which deals with anticompetitive agreements) and Section 4 of the Competition Act (which deals with abuse of dominance).
The debate on IP-related antitrust issues in India came to the fore in 2014 when the CCI examined whether the practice of several domestic and multinational passenger vehicle manufacturers (PVMs) of selling spare parts and diagnostic kits only through authorised dealers resulted in ‘denial of market access’ to independent repairers and after-sales service providers, or constituted a ‘refusal to deal’. Without examining the larger question of the primacy of IP holders’ right to use and commercialise an IP-protected technology the way they deem appropriate, the CCI summarily held that PVMs’ decision not to supply spare parts and diagnostic kits to third-party or non-authorised dealers and after-sales repair and service providers results in denial of market access, and IP rights do not offer any protection from a finding of infringement under Section 4 of the Competition Act. Consequently, the CCI has opened the door for ‘compulsory licensing’ of IP protected technology to third parties, should it establish that the owner of the IP-protected technology is in a dominant position in a relevant market.
While examining the claim on refusal to deal, the CCI’s approach appears to give primacy to short-term foreclosure effects over the due deference that relatively more mature antitrust jurisdictions, such as the United States, extend to primacy of IP rights, which are essential for fuelling innovation and competition in the long run. Drawing simplistic analogies, the CCI summarily held that selling diagnostic tools in the open market would not compromise the IP rights of the PVMs in the diagnostic tools.
On appeal by certain PVMs, the COMPAT agreed with the CCI’s findings that PVMs’ decision not to supply spare parts and diagnostic kits to third-party or non-authorised dealers amounted to refusal to deal. Further, the COMPAT dismissed the arguments of the PVMs that restrictions requiring supply of spare parts and diagnostic tools only through authorised dealers were ‘reasonable’ restrictions to protect their IP and that the PVMs were simply trying to prevent the circulation of counterfeit spare parts in the aftermarkets. In this regard, the COMPAT observed that circulation of counterfeit parts would be curbed if the restrictions imposed by PVMs on sale of genuine spare parts in the aftermarkets were removed.
While coming to its decision, the COMPAT also observed that the PVMs did not have valid IP rights because (1) the PVMs’ copyright protection did not subsist under the copyright laws in India, as the article to which the copyrighted drawings pertained had been produced more than 50 times by an industrial process, and (2) the PVMs were not able to prove that the right under a patent registered by a parent outside India is available in India.
In another instance, the CCI held that a claim of alleged violation of the complainant’s (an animation company) registered title by the defendant company (another animation company) was not a competition-law concern, given that there had been a series of legal proceedings between the parties to claim ownership of the title ‘Picasso’ in various forums and courts.
More recently, the Madras High Court in a decision that could be more immediately relevant to competition cases initiated at the behest of IP implementers against the potentially anti-competitive practices of IP owners, has ruled that the scheme of the Competition Act empowers the CCI to consider settlement agreements between the complainant(s) and defendant(s).
The potential repercussion of this judgment of the Madras High Court on settlement in IP cases has been discussed in the subsequent paragraphs.
III LICENSING AND ANTITRUST
Antitrust concerns associated with IP licensing arrangements are relatively low on the CCI’s enforcement agenda. Where the CCI has dealt with complaints arising out of the unfairness or restrictions of licensing terms, it has done so fairly simplistically, without dealing, in any significant manner, with the interplay of IP and antitrust or balancing IP rights with the public interest.
i Anticompetitive restraints
Restrictive terms in licensing arrangements would be examined as vertical restraints under Section 3(4) of the Competition Act. In the absence of any specific provisions for assessing licensing arrangements, antitrust concerns arising out of licensing arrangements are treated within the same conceptual framework that applies to the sale of goods or services under the Competition Act. Simply put, restrictions accompanying IP licensing arrangements are prohibited if they can result in an AAEC, and the CCI is unlikely to reach a finding of AAEC unless the IP licensor enjoys significant market power. For instance, any attempt by an IP licensor to determine the pricing decision (for the licensed IP) of the IP licensee would be scrutinised as potentially anticompetitive ‘resale price maintenance’.
An IP licensor could also impose territorial or customer-specific restrictions as part of the IP licensing arrangement (e.g., the aforementioned broadcaster being forbidden from broadcasting the licensed video content outside a certain territory or from broadcasting to a specified group of potential viewers). Such territorial or customer-specific restrictions would be scrutinised as an instance of potentially anticompetitive ‘exclusive distribution’ or an anticompetitive refusal to deal. An IP licensor could also restrict the IP licensee from dealing with any competing IP licensor, a restriction that would be examined as a potentially anticompetitive ‘exclusive supply’ arrangement. Any attempt by an IP licensor to make the grant of the IP licence conditional on the IP licensee purchasing the IP licensor’s other products, services or licences would be treated as a potentially anticompetitive ‘tie-in’ arrangement.
Notably, the Competition Act provides a limited carveout allowing IP owners to impose restrictions, including restrictions accompanying their licensing arrangements, which are reasonable and necessary to prevent the infringement of their existing IP rights.
ii Refusals to license
Unlike in the United States and the EU, where refusal to deal is usually examined as unilateral conduct, in India, refusal to deal can also be scrutinised as an anticompetitive vertical restraint. Thus, a refusal to grant a licence altogether or imposition of unreasonably restrictive licensing terms can be examined as a potentially anticompetitive refusal to deal. For instance, in the Auto Parts case, the CCI viewed the car companies’ refusal to license their diagnostic (software) tools and repair manuals to independent repairers and workshops as an anticompetitive refusal to deal.
A ‘refusal to license’ can equally be scrutinised as an abuse of dominance under Section 4 of the Competition Act, to the extent that the refusal results in a denial of market access, restricts the production of goods or services, or restricts the technical or scientific development relating to goods or services. For instance, in the Auto Parts case, apart from holding the car companies liable for anticompetitive vertical restraints, the CCI also held that the car companies’ refusal to license the diagnostic tools to independent repairers and workshops was an abuse of their dominance.
However, in a recent decision, the CCI observed that a delay in licensing on account of plausible business justifications, namely minimising the imminent threat of reverse engineering, could not be considered as denial of market access, as every entity has a right to protect its own commercial interests.
iii Unfair and discriminatory licensing
Where an IP licensor is in a dominant position (e.g., the owner of a standard-essential patent (SEP), where dominance can flow from the patent being indispensable for complying with an industry or technical standard), the terms of its licensing arrangements could be scrutinised for being potentially ‘unfair’ or ‘discriminatory’ and thus, abusive. For example, charging excessive royalty rates or charging different royalty rates to similarly placed customers may be viewed as an imposition of unfair or discriminatory prices and thus, an abuse of dominance. For instance, in a complaint against Monsanto Inc, United States (MIU), the CCI reached a preliminary view that MIU had charged ‘unfair’ royalty rates since its trait value (a kind of recurring royalty fees) was a percentage (16–18 per cent) of the maximum retail price of the final seed packet in advance of each crop season. In turn Monsanto Technology LLC (Monsanto) filed a suit for infringement of patent, trademark and passing off before the Delhi High Court against the Nuziveedu group (sub-licensee of Monsanto’s BT cotton technology). The Nuziveedu group refused to pay license fee in terms of the agreements with Monsanto, claiming that Monsanto could not claim anymore than the “trait value” fixed by the State governments. Recently, a division bench of the Delhi High Court found against Monsanto by stating that plant varieties and seeds cannot be patented under the Indian Patents Act. The observations of the Delhi High Court in this case may have a bearing on the CCI’s investigation against MIU.The CCI has dealt with the issue of discriminatory or unfair licensing terms in a few cases. In Atos/Verifone, the CCI examined allegations that Verifone, a manufacturer of point of sale (POS) terminals, had imposed unfair and discriminatory conditions in the grant of licences for its software development kits (SDKs), a basic version of which was required to operate POS terminals, to value-added service (VAS) providers and third-party processors (TPPs) such as Atos. In its licensing arrangements with VAS providers, Verifone restricted the licensee from using any third party to develop or assist in developing any software using the licensed software, without first obtaining prior permission from Verifone and disclosing certain confidential information, including the names of its customers. Verifone contended that these restrictions were further to its IP rights pursuant to which it could legitimately restrict the grant of its licence to third parties without its permission. The CCI disagreed with Verifone’s plea and viewed the restrictions as simply the means to further Verifone’s entry and growth in the VAS market. The CCI also held that Verifone’s rationale for not allowing VAS developers to develop payment software (i.e., that it may damage the basic software of the POS terminal that was necessary for its functioning) was inconsistent with Verifone’s practices in other countries. The CCI also found the SDK licence agreement imposed ‘unfair’ disclosure requirements on VAS providers that were driven by Verifone’s desire to gain confidential commercial information from VAS providers and enable it to exploit the lucrative VAS market. Based on these findings, the CCI held that Verifone had imposed unfair and discriminatory terms in its SDK licence agreements with VAS providers and imposed a penalty of approximately US$670,000.
The CCI’s approach towards excessive pricing claims in the IP licensing context is consistent with its general approach on unfair pricing, where it has chosen to adopt a simple cost-plus approach for determining whether the price has a reasonable relation to the economic value of the product supplied. The CCI’s decisions on IP and antitrust issues are being contested before the appellate courts and it will take a while before definite guidance on these issues emerges.
IV STANDARD-ESSENTIAL PATENTS
i Standard-selection process and antitrust
Industry standards are widely acknowledged to be one of the fundamental drivers of the modern economy. Standard setting through stakeholder collaboration usually results in significant efficiencies; for instance, the interoperability of standards, consumer safety, technological innovation and the introduction of performance standards in the market. While antitrust authorities have recognised the pro-competition benefits of standardisation, the standard-selection process itself involves deliberation and communication between competitors that may raise potential antitrust concerns. For instance, coordination in a standard-selection process may lead not only to minimum price-fixing, but also to a buyers cartel in which the licensees (voting members of the standard-setting organisation) coerce patent holders to accept lower royalties in exchange for having their patents incorporated into a standard.
Apart from the coordination concerns involved in a standard-selection process, the adoption of industry standards involving IP may result in the creation of an SEP. Once a patent is included in a standard and is widely adopted, it grants absolute monopoly power to the SEP holder. The SEP holder is under an obligation to license on a FRAND basis and a failure to do so could be an abuse of dominant position. The task of an antitrust regulator is therefore not limited to adjudicating only violation of FRAND commitments by the SEP holder, but also extends to claims involving abuse of the standard-setting process. Globally, much of the antitrust litigation and controversy in relation to standard-selection processes has revolved around SEPs, and specifically patent hold-ups.
In India, the antitrust concerns surrounding standard-selection processes have also followed this trend, looking at issues surrounding FRAND terms for the Global System for Mobile Communications, or GSM standard, in the Erricson v. Micromax case and others. In March 2013, Ericsson sued Micromax, claiming damages worth INR 100 crore (~USD 15.2 million) alleging that Micromax had refused to enter into a licensing agreement covering Ericsson’s patented innovations across several wireless technology standards after three years of negotiations failed to yield a license agreement. Micromax, contested the claims, arguing that Ericsson was not licensing Its SEPs on FRAND terms. Micromax, with and subsequently Intex, approached the CCI aleging abuse of dominance by Ericsson. The CCI noting that the practices adopted by Ericsson were discriminatory and contrary to FRAND terms directed the Director General, Competition Commission of India (DG) to investigate Ericsson for any potential violation of the provisions of the Competition Act. This order of the CCI was challenged by Ericsson before the Delhi High Court. During the pendency of these proceedings, Ericsson and Micromax entered into a global patent license agreement and ended their dispute. Even though Micromax, apparently, has written to the CCI to withdraw its complaint, the Delhi High Court noted that notwithstanding such withdrawal, the CCI would be at liberty to proceed against Erriscon for any potential abuse of its dominant position.
In addition, the CCI has turned its attention more recently to the potentially anticompetitive effects arising out of voluntary non-SEP technical standards. Recently, the CCI considered whether the digital projection and screening of Hollywood movies in India, through Digital Cinema Initiative (DCI)-compliant servers – agreed and enforced between six Hollywood movie production houses (HMPs) by way of a joint venture – would lead to an anticompetitive horizontal agreement or abuse of dominant position. The HMPs, to protect their proprietary content from piracy, required the cinema owners and digital cinema service providers to comply with DCI technology. Arguably, the DCI-compliant servers provide better image quality to the viewers and protect HMPs from piracy of their proprietary content. The CCI considered protection from piracy as a reasonable defence under the Competition Act to require the projection of movies through DCI-compliant technology (for protection of HMPs’ copyright), and decided that the allegations did not merit investigation. On considering this issue on appeal, however, the COMPAT equated the requirement of DCI-compliant servers by HMPs with the process of private standardisation, and held that adoption of high standards could possibly have resulted in the creation of entry barriers for non-DCI-compliant service providers. Essentially, in its analysis, the COMPAT viewed the requirement of DCI-compliant technology introduced by HMPs as being a private standard-setting process (that may result in an abuse of dominance). Accordingly, it ordered the Director General to conduct an investigation into the matter. Interestingly, both the CCI and the COMPAT did not delve deeper into the protection available to efficiency-enhancing joint ventures under the Competition Act.
While the approach adopted by the COMPAT seems to suggest that a private standard-setting process involving non-SEPs can indeed be investigated under the Competition Act, it remains to be seen how the CCI will balance, on one hand, the need to protect IP developed jointly for the promotion of minimum cinematic ‘quality’ standards with, on the other hand, the competing claims that the IP is being misused to keep out ‘non-compliant’ film distributors and results in an abuse of dominance.
V INTELLECTUAL PROPERTY AND MERGERS
The Indian merger control regime requires the mandatory notification of all mergers and acquisitions that meet certain jurisdictional thresholds; these thresholds are assessed on the basis of the sum of the acquirer and target company’s assets and turnover collectively. However, the question of whether the licensing of IPs constitutes the ‘acquisition’ or ‘transfer’ of assets (and consequently requires notification) has been the subject of some debate. Since IPs can be transferred through many methods, including through their assignment, exclusive licensing, non-exclusive licensing, sub-assignable licensing, for a limited duration or perpetually, the CCI has been called upon to identify situations where such licensing might require merger notification. The CCI has now clarified through its decisional practice that the licensing of an IP will not in itself constitute a transfer or acquisition if the licence is demonstrably non-exclusive – both as a matter of law (de jure) and as a matter of fact (de facto). The licensor has to, among other things, establish that it itself continues to use the IP, or indeed license out the IP to others for wider use; and that the licence is not exclusive, irrespective of terminology used in the licence agreements. As a corollary, IP licences that do not meet this test, either de jure or de facto, will be treated as asset acquisitions that trigger merger notification to the CCI if no statutory exemption is available.
VI OTHER ABUSES (SHAM OR VEXATIOUS LITIGATION – IP AND ANTITRUST)
Sham or vexatious litigation as a tool to exclude competition is one of the important issues in IP and antitrust, since it involves the strategic use of IP infringement actions before courts with the ultimate objective of excluding a rival from the market. Globally, mature antitrust regulators have examined vexatious litigation as a strategy involving denial of market to a competitor. In the EU and the United States, the courts have laid down two broad principles that need to be satisfied when resolving an antitrust claim based on vexatious litigation: first, the lawsuit must be objectively baseless to the extent that no reasonable litigant could except success on the merits; and second, the IP holder’s utilisation of the court system must be conceived in the framework of a plan to eliminate competition.
While in India litigation in relation to both SEP and sham complaints are ongoing, the focus of this section is on complaints involving sham IP litigation. In the past eight years of antitrust enforcement, the CCI has received three complaints regarding sham litigation as a potential abuse of dominance. The CCI initiated an investigation into the first-ever complaint based on vexatious litigation in 2014. However, in the subsequent complaints, the CCI has refrained from directing investigations based on sham litigation, requiring the presence of exceptional circumstances. In all these cases, the CCI has effectively followed the principles laid down by the courts in the EU and the United States to examine claims involving vexatious litigation. The CCI’s approach in the first case of this nature involved a complaint against JCB India Ltd (JCB), where the complainant Bull Machines Private Limited alleged that JCB had, as patent holder, used an ex parte infringement injunction obtained from the High Court to strategically delay its own competing product launch. The withdrawal of the patent infringement suit by JCB soon after the product launch had been successfully delayed, formed the basis of the CCI’s investigation into whether JCB had engaged in sham or vexatious litigation.
In more recent cases, however, the CCI appears to be increasingly reluctant to view as abusive conduct the use of court proceedings to enforce legitimate IP rights. For instance, recently the CCI, in an initiation order in Biocon v. Roche, considered that Roche had been engaged in a long-drawn-out (and continuing) legal battle involving IP rights before the Delhi High Court and noted that recourse to legal proceedings is a right of every party and, as a general principle, cannot be viewed as being sham litigation except under exceptional circumstances. It seems the intensity of the underlying patent battle, as reflected by the time taken in arguments before the High Court, has weighed heavily with the CCI in determining that the patent litigation was not vexatious.
In sum, the jurisprudence on the point of vexatious litigation under the Competition Act so far has developed on the basis of the CCI’s prima facie orders. Since the prima facie orders of the CCI are not determinative of their final findings or meant to list detailed reasoning, the CCI’s approach to vexatious litigation remains a mater of some speculation.
VII OUTLOOK AND CONCLUSIONS
The Madras High Court’s observation in The Tamil Nadu Film Exhibitors Association v. Competition Commission of India that the Competition Act permits the parties to settle their dispute, subject to CCI’s satisfaction that the settlement would not lead to or help continue any anti-competitive practice in India. This observation opens the door for the CCI to consider the global license agreement between Micromax and Ericsson and the subsequent request by Micromax to terminate the proceedings against Ericsson while examining the allegations against Ericsson. While the Competition Act is designed to remedy instances of anti-competitive practice afecting the market as a whole and not just the interest of select competitors, the CCI may very well continue to examine the allegations against Ericsson, the very fact that the complainant Micromax no longer wishes to pursue its claims against Ericsson may likely weaken the CCI’s case against Ericsson.
To conclude, CCI has adopted a largely balanced and progressive approach in ensuring that the enforcement of competition law is not at odds with preservation of IPs. In doing so, it has taken cues from decisional practice in other jurisdictions, and has evolved its own jurisprudence on issues such as whether patent litigation is sham, or indeed on the role of private standards in the market. However, much of the future direction of the CCI’s decision-making in this area will be determined in appellate review, where the Indian Supreme Court is likely to have the last word. As with many other issues, the enforcement of antitrust law on questions involving IP is likely to continue to evolve in the coming years.