Is the enforcement of Intellectual Property Rights merely sham litigation with the hidden agenda of excluding a potential rival from the market? Or is anti-competition an easy means to feed out of the investment and innovation of others? Even as India takes its baby steps into the global arena of competition laws with the Competition Act, 2002, the growing tension between...
Is the enforcement of Intellectual Property Rights merely sham litigation with the hidden agenda of excluding a potential rival from the market? Or is anti-competition an easy means to feed out of the investment and innovation of others? Even as India takes its baby steps into the global arena of competition laws with the Competition Act, 2002, the growing tension between competition laws and IP rights still awaits being soothed
As the centuries old war between anti-competition laws and intellectual property rights (IPR) continues unabated, the million-dollar question staring innovators and investors in their face is whether to compete or not to compete? To tie or die? To invent and enjoy the fruit of one's skill, labour and capital or helplessly tolerate leeching rivals instead?
On the one hand, the legislation in respect of intellectual property grants innovators the exclusive monopoly and right to exploit the invented product; while on the other hand, competition law snatches the same away by casting it as an "unfair and restrictive trade practice". The overlap between competition law and intellectual property rights has always been a contentious issue. While both may share the fundamental goals of enhancing consumer welfare and promoting innovation, at first glance they are often perceived as being antagonistic rather than complimentary.
IPR owners are granted statutory rights to single-handedly exploit their invention or original work to the exclusion of others, including imposing exclusivity and territorial restrictions on distributors as well as price-restraints. Competition law, on the other hand, is directed at curtailing such market power, with market rivals indulging in restrictive practices like cartelisation, tying arrangements, collusion, predatory pricing, etc. A large number of these exploitative and restrictive practices often come under the scanner when giant companies are caught abusing their dominant market positions or exploiting their relevant market share. On numerous occasions, IPR holders have already been found guilty of unduly exploiting their monopoly by imposing unreasonable license terms, non-negotiable royalty rates and at times even refusing to grant licenses.
Supporters of an innovator's right to exploit his IPR argue that such IPR confers a legal monopoly over a product, process or work in order to safeguard the innovator's and investor's right to earn a return on the investments necessary to innovate; and that competition law aims at destroying such economic monopoly and instead protects unfair competition in the market place. On the other hand, those advocating the rationale behind competition law fervently urge that destroying such monopoly is essential to prevent it from being concentrated in the hands of the innovator and investor alone.
Those living in denial that competition laws and IPR are constantly at loggerheads, may continue to vainly argue that both tend to ultimately serve the common object of promoting competition and innovation for the larger benefit of the public. However, a host of landmark judgments pronounced in relation to various industries - ranging from Information Technology and Software to Pharma to the Copyright world in the Music industry - clearly indicate otherwise. In a variety of trend-setting judgments pronounced by leading judicial systems around the world, the incompatibility between competition laws and IPR is glaringly evident. However, the scales ultimately tend to weigh in favour of competition laws, thanks to its trump card - "Public Interest", which seems to supersede an innovator's exclusive right to monopoly over his invention as also a competitor's right to making the market a tougher place to live in for his rival!
Tie-n-Die
Tying transactions, frowned upon by Competition Laws in most countries, have often burnt a deep hole in the pockets of entrepreneurs who exploit their monopoly and abuse their dominant market position. Dominant market players often strategise and tie products for maintaining quality and ensuring effective pricing. This however tends to have an anti-competitive effect as it imposes the tied product on customers while simultaneously ruling out potential competitors selling similar products.
In what began as a series of complaints from competitors, Novell and Sun Microsystems in 1993 and 1998 respectively, over Microsoft's anti-competitive licensing practices and its lack of disclosure of some of the interfaces to Windows NT, finally ended with the European (EU) Commission ordering Microsoft to not only release a version of Windows without Windows Media Player but also divulge information necessary for competing networking software to interact fully with Windows desktops and servers. Microsoft's anti-competitive conduct came under the EU Commission's radar, thanks to its tying of Windows with Windows Media Player, which ultimately cost Microsoft $794 million as fine in March, 2004 - the largest fine ever handed out by the EU Commission at that time. In addition to the previous penalties, Microsoft was also directed to produce a version of Windows without Windows Media Player within 90 days and divulge the server information within 120 days.
Meanwhile, the U.S. Competition authorities also similarly charged Microsoft with an illegal tying of its own browser - Internet Explorer, with its Windows Operating System. It was alleged that Microsoft violated the U.S. antitrust laws by engaging in a variety of practices aimed at excluding potential rivals, most notably the Netscape Corporation's Navigator web browser. In fact, for a decade, Microsoft lived under the constraints of a consent decree with the U.S. Government that essentially compelled the company to allow for "unbundling" of its web browsing software from its flagship Windows operating system.
While Microsoft may have upset the EU and US competition authorities with its illegal tying and anti-competitive ways; another software company, Napster, notoriously known for its free song-swapping service, turned the tables around by spinning the anti-competition argument in its favour! The file-sharing network that debuted in 2001 and became emblematic of online piracy, was dragged into a high-stakes lawsuit filed by the record industry, which charged Napster with contributing to massive violations of copyrights. However, in a surprise move, Napster's attorney, David Boies, levelled charges that the record industry has abused its limited monopolies. He stated that “the record companies have created a copyright pool that dominates an industry," and have used that power to "disable the competition".
Napster, in support of its argument displayed the manner in which the five biggest and dominant records companies in the world, colluded in forming two online music subscription joint ventures, with the obvious aim of serving as an antidote to online music piracy. The two online ventures, namely - MusicNet, backed by AOL Time Warner, EMI and BMG, and Pressplay, formed by Sony and Universal BMG, were clearly a glaring evidence of the recording industry's giants' attempt at near monopolisation of the digital distribution market.
Napster strongly argued that the labels have violated antitrust laws by colluding to refuse to license their music to Napster for legitimate distribution. Napster not only urged the Court to consider whether the record industry committed antitrust violations in forming two ventures designed as antidotes to online music piracy, but also succeeding in winning a ruling in its favour, which gave Napster the opportunity to examine the record labels' ownership of copyrights and their alleged anti-competitive behaviour.
To Compete or Not To Compete?
The irreconciliable interplay between Anti-Competition and Intellectual Property has travelled far beyond the realms in technology, software, copyright, etc. and has escalated to new heights as even patents are being indirectly brought within the purview of competition laws. A series of judgments by Competition Commissions the world over have shocked and rattled investors and innovators alike, especially the Big Pharma. The global pharmaceutical industry, presently valued at approximately US$400 bn, is the latest victim of the friction between IPR and competition law.
In 2003, the South African Competition Commission found that GlaxoSmithKline South Africa and Boehringer Ingelheim contravened the Competition Act, 1998 by abusing their dominant positions in the anti-retroviral (ARV) drug market. Each of the firms had refused to license their patents in return for a reasonable royalty.
The Commission found that the firms particularly denied a competitor access to an essential facility, set excessive prices and engaged in an exclusionary act. Finally, the companies decided for out-of-court settlement, after the case was referred to the Competition Tribunal.
In June 2005, the European Commission (EC) imposed a 60-million euros fine on AstraZeneca for misusing national patent systems and national procedures for marketing pharmaceuticals to block or delay market entry for generic competitors to its ulcer drug Losec.
Even India, who took its baby steps into competition law only recently, seems to have taken a giant leap by giving away its first ever compulsory license early this year. In what is the crux of the matter, the Controller of Patents, India, in the Natco v/s Bayer case stated that the drug, Nexavar (Sorafenib tosylate), is "exorbitantly priced" and out of reach of most of the people.
The price of the patented drug was quoted as being '2,80,248/- per month and '33,65,136/- per year, as opposed to the price of '8,800/- per month from Natco. The Controller also noted that Bayer's worldwide sales increased from $165 M in 2006 to $934M in 2010 and account the same as demonstrative of the neglectful conduct of Bayer in so far as India was concerned.
For its part, Bayer made the patently correct argument that the cost of drugs supports the pipeline of future drug development and that Bayer "continued to invest major sums into further development of Sorafenib" for treating other cancer types. Bayer also noted that its investment in new drug development amounted to 8 billion Euros from 2007 to date, and that it takes more than 2 million Euros to bring a new drug to market.
Different Means to the Same End?
Indeed, the relationship between IPR and competition law is a complex and widely debated one. While IPR protection is a policy tool meant to foster innovation and reward the innovators with a temporary lawful monopoly to recoup the costs involved in the research and development; competition law ensures that the monopolistic power associated with IPRs is not excessively compounded or leveraged and extended to the detriment of competition. Errors or systematic biases in the interpretation or application of one policy's rules can harm the other policy's effectiveness.
Therefore, the key is in striking a balance between not only these conflicting or complementary systems principles, but also between different levels of market regulation as well. A challenge for both policies - IPR & Competition is to find the proper balance of competition and innovation protection.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.