Monthly Archives: February 2013

Competition Law and IPR- Friends or Foes?

An intellectual property right holder is granted legal rights to protect his intellectual property- here is where competition law plays a huge role by ensuring that such power and monopoly is restricted in the market.

Both intellectual property rights and competition law have co-existed separately and peacefully since a number of years. It was later understood that competition law can provide a boost to IPR since the market would be unpredictable, less complacent, more innovative and grow faster due to the impact of competition law. A plethora of cases[1] as held by the ECJ elaborated on the fact that the real concern that competition law has with IPR is not with the existence of IPR but with its exercise.

There are theories that imply usage of competition laws in IPR issues.

(i) Potential abuse of monopoly with respect to pricing, especially in developing countries where effective substitutes to IPR protected products may not be readily available.

(ii) With regard to business strategies and dominant abuse of IPRs, competition law provides a cushion in the form of anti competitive agreements. Section 3 of the Competition Act, 2002 deals with anti competitive agreements like horizontal agreements (agreements to limit production/supply, fix prices, bid rigging, allocate specific markets) vertical agreements (tie-in arrangements, exclusive supply/distribution arrangement, resale price maintenance, refusal to deal).  Cartels are further restricted under the domain of anti competitive agreements. Cartels are agreements between enterprises, persons, a government department and association of persons not to compete on price, product, services or customers.

Further, abuse of dominant position is dealt under Section 4 of the said Act. Such abuse is prominent by predatory pricing, limiting production of the goods, creating barriers to entry of such goods, denying market access, gaining advantage in another market by using dominant position in the present market.

It is pertinent to note that the Competition Act 2002 incorporates a blanket exception for IPRs under Section 3(5) based on the principle that IPRs deserve to be isolated and protected the essential element is innovation. If the Act interferes in technological or artistic or intellectual innovation, the resultant product would not reflect the novelty that it intends to provide. Hence, the Act merely does not permit unreasonable actions or methods from taking place under the pretext of protecting one’s IPR. To conclude, the Competition Act guards those IPR licensing, or other supply/distribution agreements which is governed by or for IPR products or services.

What is appalling is that the Act does not mention exhaustion, compulsory licensing or parallel importation. Also, an IPR holder would definitely resort to a complaint under Section 4 since his rights are curtailed under Section 3. Abuse of dominant position would albeit provide a much narrower scope as compared to proving an anti competitive arrangement, but nevertheless, all IPRs have the potential of raising an issue in competition policy perspective. Hence, this bar in fact, gives more power to the IPR holder and there is no consideration of public interest or licensees or assignees.

In the case of Dr. Vallal Peruman v. Godfrey Phillips (India) Ltd. (MRTP Commission 1994) and Manju Bharadwaj v. Zee Telefilms Ltd.  (MRTP Commission 1996) it was held that the view that unfair trade practices could be triggered by the misuse, manipulation, distortion, contrivance or embellishment of ideas, it would amount to trade mark misuse and the IPR holder would expose himself to an action.

In another interesting case, US v. S C Johnson & Sons (c iv. No. 4089 – 59 fed. reg. 43, 859, 25th August, 1994) Bayer AG was a major global supplier of insecticides except in USA. It developed a new unique and potent active ingredient for insecticides for household use and secured a patent for the technology. It licensed the new technology to S C Johnson & Sons, which was a dominant market leader in pesticides market, the market share being 50-60%. The Antitrust Division of the US challenged in the US Court, this licensing arrangement which reduced incentives of Bayer to compete with Johnson in manufacture and sale of household insecticides and which further helped Johnson to increase its dominance in the US market. The Court decided that Bayer should offer the patented ingredient to other pesticide manufacturers on reasonable terms. Further, Johnson’s competitors were allowed access to active ingredients that Bayer may introduce later. Through this decision, the court sought the maintenance of competitive markets while protecting the IPR.

Balance between Competition Law and IPR in India

In India, the IPR laws like the Patent Act or Copyright Act or Trade Marks Act have over riding powers over the Competition Act in matters related to any abuse of IPR. If an anti-competitive result arises from the exercise of the rights by the patent holder, the Patent Amendment Act (2005) provides for issue of licenses to stop such anticompetitive activity. It is abysmal that the role of Competition Commission of India is nil in this respect. Instead, an amalgamation of the two Acts can be made, where tie-in arrangements, prohibiting or revoking license in case of any infringed competing technology, patent pooling, royalty payment, measures to be taken after the patent has expired, and so on. Competition Law needs to override the IPR Acts when it comes to handling any market abuse of the later.

As mentioned earlier, the Competition Act exempts mergers and dominant abuse in the market. Such exemptions should be made with leniency and not arbitrary.

Despite the fact that IPR and Competition Law are seen as overlapping fields of law with conflicting purposes, it is prominent for them to work in tandem to maintain balance in the market. IPR, on one hand, allows IPR holders to exercise exclusivity over their work, whereas Competition Law on the other hand, restricts any kind of monopoly in the market by holding restrains as earlier mentioned.  Thus, in a way, it can be said IPR holders abuse their position by creating dominance in the market.

Leaving aside conflicting interests, there are other ways where IPR and Competition Law are in sync with each other. By creating and protecting an “idea” or “expression”, IPR has carved a niche in the market by introducing diverse products and services, which only enhances competition. This competition would involve creating the best product in the market in terms of innovation, price, consumer growth, to name a few.

Friends or foes, we cannot say. A dichotomy between IPR and Competition Law cannot be changed, but ensuring their co-existence is the only way forward.

[1] Consten & Grundig v. Commission [1966] CMLR 418 ; Deutsche Grammophon Gesellschaft v. Metro-SBGroβmarkte GmbH [1971] CMLR 631; Keurkoop v. Nancy Kean Gifts [1983] 2 CMLR 47 and RTE & ITP v. Commission [1995] 4 CMLR 718, at para 49.

About the Author: Ms. Madhuri Iyer, Trade Mark Attorney at Khurana & Khurana and can be reached at: Madhuri@khuranaandkhurana.com

Follow us on Twitter: @KnKIPLaw .

Analysis of the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007

The Customs Act, 1962 prohibits import of those goods that infringed intellectual property. Under Section 11, the Central Government can prohibit import or export of goods that infringed patents, trademarks or copyrights, by issuing a notification. It also covered prevention of contravention of any law for the time being in force. Further, Section 111 and 113 of the same Act empowered the Customs to confiscate such imported and exported goods, respectively.

Previously the Central Government made several endeavours at issuing notifications in this respect.  One such notification was released in 1960 that prohibited export through sea and land of goods that attracted Section 78 (Penalty for applying false trade marks, trade descriptions, etc.)  and Section 117 of the Trade and Merchandise Marks Act, 1958 (The Central Government may by notification require that any goods specified in the notification imported into India shall indicate the country in which they were made or the name and address of the manufacturer of the said goods)

In 1864, there came another notification that prohibited goods bearing false trade mark, false trade description or any kind of passing off.

On May 8, 2007, the Central Government issued Notification No. 49/2007-Customs (N.T.),  that prohibited the import of the following goods, subject to conditions and procedures as specified in the Intellectual Property Rights (Imported Goods) Enforcement Rules,2007:

1) goods having applied thereto a false trade mark as specified in section 102 of the Trade Marks Act, 1999 (Trade Mark conflicting with a geographical indication)

2) goods having applied thereto a false trade description within the meaning of clause (i) of sub-section (1) of section 2 of the Trade Marks Act, 1999;

3) goods made or produced beyond the limits of India and intended for sale, and having applied thereto a design in which copyright exists under the Designs Act, 2000;

4) the product made or produced beyond the limits of India and intended for sale for which a patent is in force under the Patents Act,1970;

5) the product obtained directly by the process made or produced beyond the limits of India and intended for sale, where patent for such process is in force under the Patents Act 1970;

6) goods having applied thereto a false Geographical Indication within the meaning of section 38 of Geographical Indications of Goods (Registration and Protection) Act, 1999;

7) goods which are prohibited to be imported by issuance of an order issued by Registrar of Copyrights under section 53 of the Copyright Act,1957. (Importation of infringing copies)

The Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 came into existence to strengthen the statutory and executive guidelines provided for the protection of intellectual property rights at the borders. These  Rules have been formed based on the line of TRIPS (Trade-Related Aspects of Intellectual Property Rights) and WCO (World Customs Organization).

Under the Rules, infringing goods are defined as “goods which are made, reproduced, put into circulation or otherwise used in breach of the intellectual property laws in India or outside India and without the consent of the right holder or a person duly authorized to do so by the right holder”. The rules define intellectual property law as “the Copyright Act, 1957, the Trade Marks Act, 1999, the Patents Act, 1970, the Designs Act, 2000 or the Geographical Indications of Goods (Registration and Protection) Act, 1999”.

Procedure

An intellectual property right holder shall give notice in writing to the Commissioner of Customs or any Customs officer authorized in his behalf by the Commissioner, requesting for suspension of clearance of goods alleged to be infringing intellectual property rights, accompanied by fees of Rs. 2000/-. This notice should be given in the format prescribed in the Annexure to the Rules prescribed and the data required  to be filed in the notification should be furnished within 15 days.

Further, the notice should be registered or rejected within 30 working dates from the date of receipt of the notice or date of expiry of the 15 days period provided for furnishing the data required to be filed with the notice. Once the notice is registered, the minimum validity period shall be one year unless the intellectual property right holder requests for a shorter period of customs assistance.

The notice shall be registered following the stipulated conditions:

1)  The right holder shall execute a bond with the Commission of Customs for an amount with the surety and security as appropriately deemed by the Commissions along with an undertaking to protect the importer, consignee and the owner of the goods and the competent authorities against all liabilities and to bear costs towards destruction, demurrage and detention charges incurred till the time of destruction or disposal.

2) The right holder shall execute an indemnity bond with the Commission of Customs indemnifying the Customs against all liabilities and expenses on account of suspension of the release of the suspected infringing goods.

The Custom Authorities can suspend clearance of suspected goods if the Deputy/Assistant Commissioner of Customs has a reason to believe that the imported goods are allegedly goods infringing intellectual property rights. Thereafter, the Deputy/Assistant Commissioner of Customs shall immediately inform the importer and the right holder of the suspension of clearance of the goods and shall state the reasons for such suspension. These suspended Goods, on the basis of a notice given by the right holder, can be released if the right holder fails to join the proceedings within a period of ten working days (extendable by another 10 days) from the date of suspension of clearance. In case the clearance of goods was suspended on Customs own initiative, then such suspected goods shall be released within five working days from the date of suspension of clearance, if the right holder fails to give notice or fails to execute the bond. In case of perishable goods, the period of suspension of release is three working days, extendable by another four days.

In a scenario where the Deputy/Assistant Commissioner of Customs determines that the goods detained or seized have infringed intellectual property rights, and have been confiscated under section 111 (d) of the Customs Act, 1962, he shall destroy such goods under official supervision or dispose them outside the normal channels of commerce after obtaining ‘no objection’ or concurrence of the right holder. The right holder can raise objection on the mode of disposal within 20 working days (extendable by another 20 days) after having been informed so.

The Department of Customs has a website for online recording of intellectual property where online IP recordation database with their risk management division has made it easier and effective to communicate with officers dealing with imported cargo. On this recordal, Customs has successfully made seizures. After seizure, the Enforcement Rules have also given the power of adjudication on related matter to Customs. Recently, in the case of S. Ram Kumar, Commissioner of Customs, Mumbai, decided on the question of patent infringement, holding against the patent holder.

It is pertinent to note that  the goods infringing intellectual property rights are not to be re-exported in unaltered state.  Further, where goods of a non-commercial nature contained in personal baggage or sent in small consignments are intended for personal use of the importer, such goods are exempted from the purview of the Rules.

Conclusion

Such infringing or counterfeiting goods have a drastic impact on the right holder and thus, on the market economy. It is important on part of the Government to extend the purview of the Rules to enforce controlling of all kinds of infringing goods. Not only should the law be stringent, but also complete co operation from the side of the right holders is necessary to eliminate the existence of counterfeit goods in the market.

About the Author: Ms. Madhuri Iyer, Trade Mark Attorney at Khurana & Khurana and can be reached at: Madhuri@khuranaandkhurana.com

Follow us on Twitter: @KnKIPLaw .