Protection of IPR against unfair trade practices

Introduction

The importance of IPR was deliberated on  for the first time in the ‘Paris Convention for the Protection of Industrial Property’ (1883) and the ‘Berne Convention’ for the protection of Literary and Artistic work (1886). Both treaties are administered by WIPO. India is a member of WTO (World Trade Organisation) and therefore, a party to its TRIPS (Trade Related aspects of Intellectual Property Rights) Agreement. Also, India is a member of WIPO (World Intellectual Property) Organisation and hence a member to various WIPO-administered International Treaties and Conventions relating to Intellectual Property Rights such as ‘Patent Cooperation Treaty’, ‘Paris Convention’, ‘Berne Convention’, ‘Budapest Treaty’, ‘Madrid protocol’, ‘Nairobi Treaty’, ‘Marrakesh Treaty’, etc…, as well. India has enacted various laws in the past few years for the protection and development of IPRs of its citizens in compliance with various International Treaties and conventions.  There have been changes in India’s IPR policy regime from time to time in accordance with  International guidelines. 

“The present laws protecting IPRs in India are, 

  • Trade Marks Act, 1999; 
  • The Patents Act, 1970 (as amended in 2005);
  • The Copyright Act, 1957; 
  • The Design Act, 2000; 
  • The Geographical Indication of Goods (Registration and Protection) Act, 1999; 
  • The Semiconductor Integrated Circuits Layout Design Act, 2000; 
  • Protection of Plant Varieties and Farmers’ Right Act, 2001; 
  • Information Technology Act, 2000.”

The Protection of IPRs is important for various reasons. It is  essential to recognise the IPRs of the creators and provide them protection from infringement and exploitation to –

  • encourage innovations in the field of technology and culture; 
  • to boost the economic growth thereby creating new jobs and industries; 
  • for the safeguard of rights of creators; and 
  • to facilitate the transfer of technology in various forms to ensure ease of doing business.

However, the recognition of rights over Intellectual Property is not enough. A market economy allows and encourages competition between industrial and commercial organizations. As competitors are out to win, they may sometimes be tempted to use malicious means to gain an unfair advantage such as directly attacking a competitor or misleading the public to the detriment of a competitor.

Many instances have been reported where businesses have adopted unfair trade practices in order to take advantage of the work of other competitors. On one hand, unfair trade practices are being used for the unauthorized use of one’s Intellectual Property while on the other hand, the owners of the exclusive rights over particular Intellectual Property are abusing their dominant position in the market via pooling, refusal of a license, and other anti-competitive practices. In order to avoid market distortion and to regulate fair competition in the market by preventing unauthorized use of one’s Intellectual Property, there is a need to curb unfair trade practices. It is essential to maintain a healthy balance between Intellectual Property protection and Competition policy in the Indian market in order to have a level playing field for this emerging Industry.

The acts which are contrary to the honest practices are considered as the acts of unfair competition. The protection against these acts is basically to serve the interest of business competitors. Consumers might be the primary victim of the acts of unfair competition but the protection to the consumer is primarily incidental and not the only aim of unfair competition.

Now with development in various aspects the protection against unfair competition is not only limited to  business competitors but also serves  the interest of the public, which helps in consumer protection.

International perspective

The Paris Convention and, more recently, the World Intellectual Property Organization have given more meaning to the notion of minimum standards of protection for intellectual property rights. Article 10 (2) of the Paris Convention defines an act of unfair competition as any act of competition contrary to honest practices in industrial or commercial matters. Examples include confusing and misleading the public, as well as negatively affecting a business’s reputation and goodwill. Article 4 of the WIPO Model Provisions specifically refers to rules against misleading the public regarding the geographical origin of goods.

The Paris convention enumerated common rules regarding different intellectual properties  and also included common rules relating to protection against unfair competition. The rule states that the contracting state under the convention must provide effective protection against unfair competition. Article 1(2) of the convention also includes the repression of unfair competition among the objects of protection of intellectual property. Under Article 10 bis (3)3 of the Paris Convention, the countries of the Paris Union are supposed to  discourage indications or allegations likely to mislead consumers as to the nature, manufacturing process, characteristics or quantity of goods. This article argues legal development plays an important role in protecting the interest of consumers from various dishonest practices.

The intention behind the two laws

IPR is typically utilized as a tool to provide  exclusive monopoly rights to the holder and subsequently prevent  different players from offering the products in a  similar market which diminishes competitiveness and prompts conflict between objectives of both the law. IPR is based on the idea of remuneration theory meaning  the prize the inventor has disclosed to the general public which further strengthens the bone of contention. Notwithstanding, by observing the objectives there is an undisputed opinion that both the laws promote consumer welfare and innovation. Competition law is enacted to avoid the misuse of the monopoly power granted under the statute, which is broadly followed in various countries prior to establishing such enactment to control abuse of monopoly power. The Competition Act, 2002 has broadly acknowledged the intentions of IPR while framing provisions and it does not eliminate the dominance achieved by an individual due to such IPRs.

Competition law in India

The protection against unfair competition has been perceived as one of the principal goals of Intellectual Property system, which precludes any act of competition that is in opposition to fair practices in Industrial or business matters, referred to as “Unfair Competition”. The restrictions on Unfair Trade Practices protects the consumers against the exclusive right-holders of Intellectual Property by ensuring that they don’t abuse their dominant position in the market. Competition Act, 2002 and Consumer Protection Act, 2019 are the legislations that ensures fair competition in Indian markets by protecting the rights of the consumers against the exclusive right-holders of Intellectual Property. 

  • Competition Act, 2002

In India, the Competition Act was enacted, with the aim of the economic development of the country, for the establishment of a Commission to restrict practices having adverse effect on competition, to promote and sustain competition in markets, t0 protect the interests of consumers and t0 ensure freedom of trade carried on by different players, and for matters connected therewith or incidental thereto. The Competition Act, 2002 endeavors to shift the focus from restricting monopolies to promoting fair competition, so that the Indian market is equipped to compete with the market world-wide.

  • Consumer Protection Act, 2019 (repealed Consumer Protection Act, 1986)

The Consumer Protection Act, 2019 is an important legislation enforced to protect the consumers from business exploitation. It repealed the Consumer Protection Act, 1986 to expand the scope of the Act by enhancing the rights of consumers and liabilities of sellers.  In short, it protects the consumers from influences of the coercive power of sellers’ (marketer / manufacturer) by way of unfair trade practices to restrict competition.

Unfair trade practices

There is no specific or exclusive definition of “Unfair Trade Practice”. However, “Unfair trade practices” can be regarded as activities which use various deceptive, fraudulent, misleading or unethical methods to conduct business. Various activities such as misleading representation of a good or service, deceptive pricing, tied selling, acts causing confusion, fake prize or gift offers, refusal to grant license and other noncompliance with manufacturing standards, are included under the ambit of unfair trade practices. For example, misrepresenting the benefits, advantages, conditions, or terms of any policy is an unfair trade practice.

As a general rule, any act or practice carried out in the course of industrial or commercial activities contrary to honest practices constitutes an act of “Unfair Competition”; the decisive criterion being “contrary to honest practices”.

The WIPO Model Provisions on Protection Against Unfair Competition defines the “failure to correct or supplement information concerning a product test published in a consumer magazine, thereby giving a wrong impression of the quality of the product offered on the market, or failure to give sufficient information concerning the correct operation of a product or concerning possible side-effects of a product,” as an act of unfair competition.

“The World Bank (WB)” and “the Organisation for Economic Cooperation and Development (OECD)” Model Law, for example, lists the following trade practices to be unfair:

  • distribution of false or misleading information that is capable of harming the business interests of another firm;
  • distribution of false or misleading information to consumers, including the distribution of information lacking a reasonable basis, related to the price, character, method or place of production, properties, and suitability for use, or quality of goods; false or misleading comparison of goods in the process of advertising;
  • fraudulent use of another’s trademark, firm name, or product labelling or packaging;
  • unauthorized receipt, use or dissemination of confidential scientific, technical, production, business or trade information.

Provisions of the Paris Convention define “unfair competition” as – “Any act of competition contrary to the honest practices in industrial and competition matters.”

Article 40 of the TRIPS agreement says that licensing practices regarding IPR can have a detrimental effect on trade and may hinder the transfer of technology. Article 40(2) allows members t0 shortlist any IP Rights violations and develop mechanisms to counter those vi0lati0ns. However, this list is not exhaustive. The provisions on anti-competitive measures are suggestive  instead of mandatory and binding.

Interplay between IPR and Competition Cct, 2002

  • UNFAIR TRADE PRACTICES AND IPRs

There is no provision that specifically talks about Unfair Trade Practice in Competition Act, 2002, however, Section 3 of the Competition Act, 2002 prohibits Anti- Competitive Agreements. Section 3 sub clause (1) prohibits such trade agreements which are likely to cause an appreciable adverse effect on Competition within India. Any such Agreement, which is Anti-Competitive in nature, is void under the Competition Act, 2002 and cannot be entered into, by the parties, in India. Further, Section 4 restricts the abuse of dominant position by any enterprise or group and enumerates the acts that result in the abuse of dominant position.

The IPRs provided to the owner of the Intellectual Property are exclusive rights and hence, Monopolistic in nature. Therefore, the Intellectual Property Acts promotes Monopoly in the market. The Competition Act, 2002 does not prohibit Monopoly in the Indian markets but regulates the fair use of the dominant power in the market by restricting its abuse. Competition Act, 2002 ensures that the IPRs are not abused by its holder in order to regulate fair Competition in the market. Both the laws are contrary in nature and hence, opposite to each other. IPRs are an exception under the Competition Act, 2002.

  • ANTI-COMPETITIVE AGREEMENTS AND IPRs –

Agreements which cause or are likely to cause an appreciable adverse effect on Competition in India are termed as Anti-Competitive in nature. For an agreement to be an Anti- Competitive Agreement, the agreement must have its object in furtherance of or to prevent, restrict or distort competition in India.

Anti-competitive agreements can be entered int0 between ‘Enterprise and Enterprise; Pers0n and an Enterprise; Enterprise and Ass0ciati0n 0f Enterprises; Tw0 Ass0ciati0n 0f Enterprises; Tw0 Individuals; Individual and an Ass0ciati0n 0f Pers0ns; Individual and an ass0ciati0n 0f enterprise; Ass0ciati0n 0f pers0ns and enterprises; Ass0ciati0n 0f pers0ns and ass0ciati0n 0f enterprises. The trade practices like price-fixing, restraining supply 0f g00ds 0r services, dividing the market, etc. are anti-competitive practices and shall be restricted. The ambit 0f Secti0n 3 is wide en0ugh because it n0t 0nly includes th0se agreements that are expressly stated but als0 implied agreements that c0me under its purview.

“The agreement should be of one of the following kinds as defined in the Act to qualify as an Anti-Competitive:

  1. Tie-in arrangement;
  2. Exclusive supply agreement;
  3. Exclusive distribution agreement;
  4. Refusal to deal;
  5. Resale price maintenance.”

It is pertinent to mention here that such agreements do not include the IPR-holders in their  ambit. The IPR-holders enjoy the protection provided to them under various other Acts such as Trade Mark Act, 1999; Design Act, 2000; Copyright Act, 1957; Patent Act, 1970; etc. Also, Agreements which impose reasonable restrictions on the use of Intellectual Property to protect IPRs are not covered under such agreements. “A mere restriction on the use of the trademark would not be held as anti – competitive within the meaning of Section 3 or 4 of the Act.” Any agreement which is entered into by the parties, outside India but has an adverse effect on Competition in India comes under the preview of the Competition Commission of India.

  • “ABUSE OF DOMINANT POSITION” AND IPRs

Section 4 of the Act clearly specifies that no organisation or group shall abuse its dominant position. The Dominant position of an enterprise in the market is the position where the enterprise has the power to influence the prices of the products or decisions of the consumers in the market. Also, the enterprise has the power to operate independently, thereby affecting its competitors. Exercise of such power in an unfair manner to make unjustified gains, is said to be abuse of the dominant position. “Section 19(4)” enumerates various factors that are to be observed while determining dominance of a firm, such as, market share of enterprise; size and resources of the enterprise; size and importance of competitors; economic power of the enterprise; consumer dependence; entry barriers; commercial advantages, etc.

The widely prevalent anti-competitive activities in Monopolistic market are:

  • Tie-up Arrangements

The agreement between a buyer and seller, to sell particular goods on the term/condition that the buyer will buy some other goods as well. It falls under Unfair Trade Practice and is Anti-Competitive in nature. The tie-up arrangements involve tie-up of 2 or more goods by the seller. The seller must have sufficient market power; an exclusive supply and distribution agreement and a licensee to acquire the required goods from the owner who owns the patent.  It limits the transaction between certain classes of people and hence, is restricted.

  • Patent Pooling

Patent pooling is commonly done by the competitors in the Electronic sector and Pharmaceutical industries. In order to prevent new entrants from entering the market and make profits, the competitors exercise Patent Pooling, by promoting monopoly. Under Patent Pooling, the invention of two or more inventors are locked under a single license by way of an agreement. It encourages market exploitation.

  • Refusal to License

The owner of the Intellectual Property is the exclusive right-holder and can restrain others from using its Intellectual Property under Intellectual Property Laws. However, the refusal of a Patented technology prohibits entrance of new products into the market and is considered Anti-Competitive.

In the case of Entertainment Network (India) Limited v Super Cassette Industries Ltd, the Supreme Court of India observed that “when the owner of a copyright exercises monopoly over it, any transaction with unreasonable terms would amount to refusal. It is true that the copyright owner has complete freedom to enjoy the fruits of his labour by charging royalty through the issue of licenses. However, the right is not absolute.”

  • Cartelisation

The formation of cartels is an anti-competitive activity. It is widely prevalent in the Indian film Industry. There are reported cases of copyright infringement and anti-competitive activities. In FICCI-Multiplex Association Vs United Producers Distributors Forum, It was held by the Competition Commission of India that United Producers Distributors Forum (UPDF) entered into a cartel-like activity that since it had a 100 percent market share, therefore, the ability to control the release of films. The CCI decided that UPDF had restricted the supply of films to multiplexes and it was an anti-competitive act under Section 3(3) of the Competition Act 2002.

  • Excessive Pricing: 

The act of excessive pricing is witnessed in a monopolistic market when there are no substitutes available for any commodity. The Patented products can charge excessive prices as it is not restricted under provisions of competition act. However, there are certain commodities on which the government regulates price control. One of those commodities is a lifesaving drug. In Union of India vs Cyanamide India Ltd and another, it was held that Lifesaving Drugs do not fall outside the purview of Price Control. 

Research findings

The unjustifiable use of IPR can cause damage to the consumers and society at large. The imposition of high prices on the use of IP by the owner is not anti-competitive and hence, not covered under Competition Act, 2002. Compulsory Licensing should be imposed by the government on IPR holders in order to refrain them from eliminating competition in the market. Tying arrangements should be strictly dealt with. Cartelisation should be strictly prohibited. It is the responsibility of the Competition Commission of India to regulate fair competition and protect against market distortion. It should be ensured that there is no abuse of rights by the right-holders.

Conclusion

The protection of the IPR of an inventor is to encourage innovation and growth in the market. It does not aim to constrain the market competition. However, there are certain activities that take place in the market and are unfair for the competition, the Competition Act, 2002 aims to curb those activities and regulate competition in the market. It is still difficult  to decide whether the present Competition Act, 2002 is viable enough to ensure fair competition in the Indian market without intervening and restraining the exclusive use of IPR. It imposes regulatory measures to avoid abuse of Intellectual Property Rights. The two laws may be contrary in their purpose to promote and restrict monopoly in the market but they serve the common aim of promoting market innovation and development.  The IPR law is not an abuse of competition law. However,  there may be cases in future where the Intellectual Property Laws may overlap with the Competition Act, 2002. The present Competition Act, 2002 is outdated. It was last amended in 2009. It is not competent as per the growing market requirements and needs to be amended in purview of the arising deficiencies. 

References 

Aishwarya Says:

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