PATENT POOLING VIS-A-VIS COMPETITION ACT, 2002: ANTAGONISM OF IPR AND COMPETITION REGIME.

This article has been authored by Shaurya Shukla, a second year student at CNLU, Patna.

Introduction

The idea of Intellectual property Rights (“IPR”) promotes a sense of monopoly in the market which is against the ideals of Competition law but it cannot be conclusively said that both IPRs and competition law are at war with each other as they both are focused at the principle of maximization of wealth. The aim of the Competition law is to provide a free and fair market place in an economy by prohibiting all the anti-competitive practices and discouraging the power in the hands of one. IPRs on the other hand bestow incentives to the innovators by recognizing the efforts, money and time they invested in an invention by providing them with a restrictive monopoly on their product. The US Supreme Court recognized the co-existence of these opposite laws in the case of Atari Games Corp v. Nintendo of America Inc, where it held that a monopoly created by the IPR which is anti-competitive in nature can be restricted by the Sherman Act of 1890 which prescribes the rule of free competition among those engaged in commerce.

Now coming to the patent pools, what is a patent pool? Pool means “to accumulate” It is a mechanism by which two or more patent holders accumulate their patents in order to license them to the third-party users. A patent pool can be used to get through the patent thickets("a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology", or, in other words, "an overlapping set of patent rights") , to clear patent blockings and to cease patent hostilities. Patent pooling also has a downside i.e. to promote anti-competitive behavior by giving the competitors a chance to combine and collude. This article will expound on the concept of patent pooling and its scope in Indian as well as International perspective. Finally, this paper will analyze the efficacy of the essential facilities doctrine in comparison with the test of reasonability under Section 3 of the Competition Act, 2002 for determining the anti-competitive effects of a patent pooling agreement.

Patent Pooling Through Indian Perspective

Intellectual property is picking up steam everywhere. Earlier it was concentrated only in developed nations but now even developing nations are expanding their intellectual property resources. India too, does not lag behind in developing patents. This is a broad indicator, of growth but on the other hand this increases the risk of patent overlapping. This overlapping of patents is called as “patent thicket”. This becomes problematic as it increases the cost of licensing of patents for development of new products. This is why collaborative IP solution becomes important and patent pooling is an example of collaborative IP solution.

In India, patents are regulated under The Patents Act, 1970. This Act doesn’t provide for any provision related to patent pooling but it doesn’t even prevent any creation of patent pool as Section 102 of the statute acts as a helping hand for creation of patent pools. Although there is one barrier which handicaps this section i.e. Competition Act, 2002 that regulates anti-competitive policies. This act basically bars any agreement which restricts competition in the market. Recently, two Indian drug manufacturing companies, MedChem and Aurobindo Pharma Limited have joined Medicines Patent Pool (“MPP”), so that they can produce anti-retroviral medicines. This pool will help Aurobindo Pharma company to have access to the patented drugs of Gilead company which has been introduced in the pool and now, Aurobindo Company can manufacture and sell tenofovir and amedicine which are used to prevent and treat HIV/AIDS and Hepatitis B in many countries without paying royalty.

Patent Pooling Through Global Perspective

A lot of major organizations of the world are participating in formation of patent pools. It has shown striking development in the field of biotechnology, medicine and electronics. Big wireless industrialists have declared their participation in patent pooling as well because patent pools help them in eliminating the various problems related to blocking of patents or licensing cost. In the case of United States v. Line material, the Court opined that there is nothing wrong in the requirement that a licensee should pay a fee to the patentee for the use of the patent. What is wrong is the use of the control that such cross licensing renders to set prices. In the United States v. New Wrinkle Inc. the Court held that two or more patentees in the same field cannot unite their patent monopolies to ensure common gain. This shows that patent pooling has violated laws and is guilty of many anti-competitive practices which include price fixing, other restrictions.

The Erroneous Approach Adopted By CCI in Interpretation of Section 3 and 4 of The Competition Act, 2002

Section 3 of the Competition Act, 2002 determines the type of agreements which can be termed as anti-competitive as they can have chilling effect on competition like entry barriers , market foreclosure etc. as described in Section 19(3) of the statute. Section 4 of the Competition Act, 2002 prohibits a firm or enterprise to take a dominant position in the market. CCI has constantly taken an erroneous approach in these rules and maintaining their distinction from IPR perspective. If Section 3(1) of the Act is read with Article 101(1) of the Treaty on Functioning of European Union (“TFEU”), and §2(b) of the Act which defines an “agreement”, it can deduced that Section 3 of the Act applies only when it is proven that two or more parties have acted in collusion to lay an adverse effect on the competition of the Indian market.

In the case of Department of Agriculture, Cooperation & Farmer’s Welfare v. M/s Mahyco Monsanto Biotech India Ltd, the Competition Commission of India (“CCI”) held that the agreement entered between Mahyco Monsanto Biotech India Ltd. with the sub-licensees regarding the BT cotton technology was laying an adverse effect on the competition of Indian market as the Monsanto group was charging unfair trait value from the sub licensees and also it was limiting the scientific development that can be made in the BT cotton technology. Monsanto also decided to impose unreasonable and arbitrary termination conditions on the seed manufacturing companies which are beyond the ambit of protection which can be guaranteed under IP laws as per Section 3(5) of the Competition Act, 2002. The author wants to state that CCI had grossly erred while pronouncing this decision as there was a lack of agreement or “consensus ad idem” inspired by free will between the Monsanto and the seed manufacturers to qualify their relationship as an agreement as per Section 2(b) of the Competition Act, 2002.

The Mainstream Issue

The CCI has labeled the Patent Pooling agreements as restricted trade practice as they hamper the competition regime of India. However, Section 102 of the Indian Patent Act, 1970 provides for the setting up of patent pooling agreements which are capable of being administered, managed, and regulated by the government. The mainstream question is “whether Indian Competition regime is equipped to regulate such agreements?” The IPR empowers a right holder to use a particular product exclusively as per his/her own will up to a certain degree. Section 3(5) of the Competition Act, 2002 allows IPR owners to enter into any agreements so long as he imposes reasonable restrictions under such agreements which are necessary to protect his rights, and such agreements shall be permissible though they are otherwise restricted under Section 3(3) and Section 3(4) of the Competition Act, 2002. Section 3(5) provides for a scheme of reasonability of restrictions and if an inventor in the garb of that agreement imposes unreasonable restrictions on the other players, he/she will lose the immunity of exclusiveness given to them by section 3(5).

The Proposed Solution

The author proposes the “essential practices doctrine” as a solution for scrutinizing the reasonability of the patent pooling agreements. This doctrine was laid down in the landmark case of Terminal Railroad association. The term “essential” can be understood to connote a level of distinctiveness and “facilities” to mean any asset which holds some monopoly power and proprietorship due to its uniqueness. Prima facie, this may seem to be a test for dominant position however, it may be applied to the agreements between the patent pooling parties to ascertain whether assets having monopoly power are being used in an anti-competitive manner by their respective holders through collusion.

There are several factors in a patent pooling agreement that should be proved before application of this doctrine, which is as follows:

● Players are not able to duplicate the asset beyond the patent pool agreement.

● Competitors are not allowed to use the facilities.

● New product is not allowed to enter the market.

● The patents covered by the agreement are substitute patents

● Availability of substitutes to covered technology in the patent pooling agreement.

This approach is a more suitable approach as it clearly and uniformly defines the term “reasonability”. The previously highlighted CCI’s approach in dealing with cases involving IP and Competition interface highlights its tendency of sidelining the rule of reasonable approach which will have adverse impact on IPR regime especially when the CCI will be faced with the challenges of patent pooling agreements and competition law. Applying the “essential facilities doctrine” it may be argued that the conditions imposed in Monsanto’s patent licensing agreements were designed to meet the conditions of competition in the market for licensing of BT cotton technology, which is a market that thrives on dynamic efficiency driven by competition through innovation.

Conclusion

As of now, India lacks the approach to allow the IP law regime and Competition law regime to function in complement with each other. The Indian government and CCI lack the clarity in the approach for the interface of competition law and IPR. The essential practices doctrine would allow Patent Holders to function freely and within the scope of competition law without unwarranted intervention by CCI which plays a crucial role in discouraging patent pooling which in turn has an adverse effect on competition as well as innovation. It is important to ensure that the confluence of both IP and Competition regime is in furtherance of the economy which is the all-encompassing objective shared by both regimes in question.