Tag Archives: Competition Law

Competition Law in India Vis-a-Vis Food Delivery Apps in India (Zomato/ Swiggy/ Foodpanda/ Uber Eats) and its Impact on Small Restaurants

In December 2018, Kerala Hotels and Restaurants Association (KHRA) went on a strike for 10 days on the account of high commission being charged by the food delivery apps. Subsequently to which a report was published stating that if this kind of practice is continued by the food delivery apps then it would definitely harm the dining out business in a long- run. Also according to statistics, there is a jump of 30% in the daily handling of daily order in the first quarter of 2018 when compared to the last quarter of 2017.

With emergence of competition being seen in very field it can be noted that the food business is also not protected from its coherence. After the complained filed by  the retailers and shopkeepers against the e-commerce sites we witnessed that 500- small restaurants owners also filed a petition in the CCI and PMO against unfair trade practices of the food delivery apps. They alleged that apps like Zomato, Swiggy, Uber Eats, Food Panda, etc were abusing their dominant position the market. The petition filed against them include allegations like deep- discounting, in- house kitchens and internal sourcing, because of which the small and medium enterprises. Many of us would not see this as a imminent threat but, this could actually have a grave impact on the dine-out/ restaurant industry in the long run.  Since the awareness about competition law in our country is less so in order to  understand  this concept lets us first  understand about the concepts :

WHAT IS DOMINANCE?

The Competition Act,2002 (the Act)  defines dominant position (dominance) in terms of a position of strength enjoyed by an enterprise, in the relevant market in India, which enables it to:

a. operate independently of the competitive forces prevailing in the relevant market;

b. or a affect its competitors or consumers or the relevant market in its favour.

It is the ability of the enterprise to behave/act independently of the market forces that determines its dominant position. In a perfectly competitive market no enterprise has control over the market, especially in the determination of price of the product. However, perfect market conditions are more of an economic “ideal” than reality. Keeping this in view, the Act specifies a number of factors that should be taken into account while determining whether an enterprise is dominant or not[1]. Thus, dominance per se is not bad, but the abuse of dominance which is the concern of CCI[2].

There are primarily three stages in determining whether an enterprise has abused its dominant position:

  1. The first stage is defining relevant market.
  2. The second is determining whether the concerned undertaking/enterprise/firm is in a dominant position has a substantial degree of market power in that relevant market.
  3. The third stage is the determination of whether the undertaking in a dominant position/having substantial market power has engaged in conduct amounting to the abuse of such dominant position[3].

ABUSE OF DOMINANCE

Dominance is not considered bad per se but its abuse is. Abuse is stated to occur when an enterprise or a group of enterprises uses its dominant position in the relevant market in an exclusionary or/ and an exploitative manner.

The Act gives an exhaustive list of practices that shall constitute abuse of dominant position and, therefore, are prohibited. Such practices shall constitute abuse only when adopted by an enterprise enjoying dominant position in the relevant market in India.

Abuse of dominance is judged in terms of the specified types of acts committed by a dominant enterprise. Such acts are prohibited under the law. Any abuse of the type specified in the Act[4] by a dominant firm shall stand prohibited.

Section 4 (2) of the Act specifies the following practices by a dominant enterprises or group of enterprises as abuses:

  • directly or indirectly imposing unfair or discriminatory condition in purchase or sale of goods or service;
  • directly or indirectly imposing unfair or discriminatory price in purchase or sale (including predatory price) of goods or service;
  • limiting or restricting production of goods or provision of services or market;
  • limiting or restricting technical or scientific development relating to goods or services to the prejudice of consumers;
  • denying market access in any manner;
  • making conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;
  • using its dominant position in one relevant market to enter into, or protect, other relevant market.

EXPLOITATIVE AND EXCLUSIONARY BEHAVIOUR

Abuses as specified in the Act fall into two broad categories: exploitative (excessive or discriminatory pricing) and exclusionary (for example, denial of market access). These are discussed here under.

Are current provisions of the Competition Act,2002 dealing with abuse of dominant position exhaustive in order to address the issue of abuse of dominant position?

Inquiry Into Abuse Of Dominance

In exercise of powers vested under section 19 of the Act, the Commission may inquire into any alleged contravention of section 4 (1) of the Act that proscribes abuse of dominance. Section 19(4) gives a detailed list of factors that the Commission shall consider while inquiring into any allegation of abuse of dominance. Some of these factors are market share of the enterprise, size and resources of the enterprise, size and importance of the competitors, dependence of consumers, entry barriers, and social obligations and costs in the relevant geographic and product market.

The Commission, on being satisfied that there exists a prima facie case of abuse of dominance, shall direct the Director General to cause an investigation and furnish a report. The Commission has the powers vested in a Civil Court under the Code of Civil Procedure in respect of matters like summoning or enforcing attendance of any person and examining him on oath, requiring discovery and production of documents and receiving evidence on affidavit. The Director General, for the purpose of carrying out investigation, is vested with powers of civil court besides powers to conduct ‘search and seizure’.

What form do Anti-competitive practices take when Dominant entities attempt to manipulate the market dynamics to their advantage?

There is a fine distinction between defending one’s market position in market share which perfectly legal and legitimate and may involve a certain degree of aggressive competitive behaviour and deliberate exclusionary and exploitative practices. A greater threat to competition lies majorly from the action(s) of dominant enterprises is inimical to future completion. Based on the definition and understanding of ‘abuse’. Abusive of conducts may classify into broad categories;

 (A) Exploitative practices

1. Excessive pricing- the Indian completion law condemns and prohibits imposition of unfair price by dominant firms.[1] While there is very less guidance as to unfair price so far the CCI is cognizant of the importance of evolving an appropriate analytical framework for treatment of unfair price cases that may come up in future so as to avoid the associated risk and cost to consumers, industry and economy.

(B) Exclusionary practices
Exclusionary practices are contracts, pricing strategies and more generally actions taken by dominant firms to deter new competitors from entering an industry, to oblige rivals to exit, to confine them to market niches, or to prevent them from expanding, and which ultimately cause consumer harm[2]. One class of exclusionary practices involve vertical agreements. Such arrangements are common business practices and infringe the law only if reduce competition. These could result from the following types of arrangements:

1. Predatory pricing– it refers to strategies adopted by a dominant undertaking whereby it offers low prices to consumers( below their cost of production) in the short term to insure the exit of competitors and then followed by higher prices in the medium and long run to recoup the losses. Thus we see that for predatory pricing to be proved two conditions must be fulfilled;

(a) Pricing below cost
(b)With a view to reduce completion and eliminate competitors

Thus we see that the Indian definition of predatory pricing focuses on both cost based approach combined with the intention to dominant undertaking to eliminate competition.

2. Rebates– Sec.4 (2) has been couched in an extremely wide manner and it includes cases when the dominant undertaking provides rebates with the intention of foreclosure of competition in market. Broadly speaking 3 forms of non- predatory price cuts which can be regarded as exclusionary include;

  1. Selective price cuts- price cuts that are offered only to certain selected customers.
  2. Fidelity rebates- discounts or rebates that are offered to customers who purchase products only from dominant undertakings.
  3. Threshold rebates- where the dominant firm offers its customers and across-the-board discounts of x percent if the total value of the customers purchase during a given period crosses a certain threshold.

Thus, it is this differential condition in sale of goods, which attracts liability under section Sec.4 (2)(a)(1).

3. Denial of Market Access- Sec.4(2)(c) suggests that any entry barriers created by the dominant enterprise, by its conduct which results in denial of market access, in any manner will be an abuse. The set clause will cover all acts done by dominant undertaking which will result in market foreclosure for the competitors in the same market or even the downstream or upstream market.

4.Refusal to deal– the term refusal to deal(refusal to supply) describes a situation in which one firm refuses to sell to another firm, is willing to sell only at a price that is considered too high or is willing to sell only under conditions which are deemed unacceptable.[1]

5. Exclusivity- exclusive dealing arrangement are commonly defined as arrangement, which require a buyer to purchase all of its requirements or a large extent thereof only from one (dominant) seller, or, respectively, as arrangements, which require a supplier to sell all of its products or services or a large extent thereof to the dominant firm.[2]

  • Exclusive dealing and purchasing- under such arrangements a retailer agrees to purchase or deal in good of only one manufacturer making entry difficult for new manufacturers
  • Exclusive/selective distribution- under such arrangements the manufacturers supplies one or a selected numbers of retailers making entry difficult for other retailers.
  • Tie-in sales- its makes the purchase one product conditional on the sale of another (tied) product.

LEGAL POSITION IN INDIA

There are a plethora of cases that have come up for consideration before the Competition Commission with respect to Abuse of Dominant position as it has become a rampant practice in the market for dominant enterprises to abuse their position of strength. And such abusive conducts cannot be overlooked as they have far reaching consequences. Hence it would be of immense importance to comprehend the position of this practice in India with the help of certain landmark cases handed down by the commission from various sectors of the market. Transportation sector Case: In Shri Shamsher Kataria[3]: Two levels of market were determined. One was the primary market for “sale of cars in India”, and two aftermarkets, at secondary level, are market for “sale of spare parts” and market for “repair and maintenance services”. Original Equipment Manufacturers (OEM’s) contended that there exists no such distinction as primary and secondary markets and that there is only one “system market”. The Commission observed that the two levels were distinguished so as to see the capability to affect competitors and consumers, market share and entry conditions. As regards market share, it was observed by the CCI that OEM’s have a 100 percent share in the aftermarket for their own brand of cars. This was solely because of the inter and intra brand non-substitutability of the spare parts of one brand with other, due to high degree of technical specificity. As a consequence of lack/absence of substitutability of their spare parts, OEM’s were protected from any form of competitive restraints in the aftermarkets from their competitors in the primary market. Furthermore, through a series of contracts, OEM’s became the only suppliers of their own brand of spare parts and tools in the aftermarket and protected themselves from any competition. This makes it abundantly clear that OEM’s had 100% share in their own brand of cars whereby being in a dominant position and also abusing the same.

Real- Estate Case: In Belaire Owners Association[1], the CCI in this case delineated the relevant market in the context of services of development or construction provided by the opposite party. While determining the relevant product market for the service of construction, the impugned assets were categorized as being of the “residential” and “high-end” assets category. Residential property, being different from the non residential ones, may be of various kinds, such as independent houses, builder-floors, apartments, row-houses, condominiums or studio apartments, et al. Irrespective of the presence of consumer preferences, these categories are substitutable to quite an extent, with respect to the price range, geography, facilities and amenities of these assets. On the basis of these factors the Commission held that DLF is in every sense capable of operating independently of competitive forces in the relevant market and thus, the requirement of conditions laid down in explanation (a) (i) to section 4 are fulfilled. DLF thereby has the ability to manipulate the market dynamics itself in its favour. On one occasion an announcement was made regarding several large projects by DLF Ltd. DLF possesses substantial market power to make its competitors react by withholding some of their own projects in order to avoid market saturation. Similarly, prospective consumers may shift or sustain their demand in expectation of availability of projects to be offered by the market leader. Thus, DLF would be in a position to influence both demand and supply of projects in the given relevant market. These possibilities prove that DLF enjoys a position of strength like none of its competitors as envisaged in explanation section 4 (a) (ii) of the Act.

The Competition Act, 2002 (as amended), follows the spirit and philosophy of modern competition laws regime and aims at fostering competition and at protecting Indian markets against anticompetitive practices by enterprises. The Act prohibits anticompetitive agreements, abuse of dominant position by enterprises, and regulates combinations (mergers, amalgamations and acquisitions) with a view to ensure that there is no adverse effect on competition in India.

Competition laws all over the world are primarily concerned with the exercise of market power and its abuse. The term “market power” is variously known as “dominant position”, “monopoly power” and/ or “substantial market power”[1].

 The Competition law denies the utilization of market controlling position to avoid singular ventures or a group from driving out competing organizations from the market and from managing costs. The idea of maltreatment of dominant position of market control alludes to anticompetitive business in which prevailing firm may take part with a specific end goal to keep up or increment its situation in the market.

Abuse of dominant position bears upon the unilateral behaviour of the enterprise or group thereof. Thus concurrence of wills of two or more parties is not a condition precedent to make out a case under Section.4 of the Act. Abuse of dominance being a unilateral conduct does not emanate from any agreement.

A finding of abuse of dominance-be it of an individual enterprise or that of a group essentially involves a three stage or a threefold process in the Indian jurisdiction- firstly it is the determination of relevant market based on relevant product market or relevant geographic market. Secondly, it is the determination of dominance in the relevant market and thirdly, it is the determination of “abuse” of that dominant position[2].

Conclusion

After understanding these basic concepts of Competition Law, we understand that the practices which Zomato, UberEats, Swiggy and Ola financed FoodPanda are following are  clearly a  case of Predatory Pricing, offering food at unsustainable discounts below the cost price which forces small eateries and restaurant to shut down owing to huge losses , as per reports, Zomato intends to serve meals for as low as 50-60 Rs. Therefore, they are in a manner, directly or indirectly, imposing unfair or discriminatory price in purchase or sale. Over and above this, they are also involved in Exclusive Sales Contract, Tie-in arrangements with restaurants and some like Swiggy have started their own kitchens like “The Bowl Company” and then drive traffic to their kitchens bypassing other restaurants. In this manner these big MNC’s crush small start-up kitchens and to an extent medium business restaurants who are not able to compete due to Predatory Pricing. In view of the above there is a strict need to put an end to this unsustainable pricing.

Mr. Anurag Katriar CEO of deGustiBus Hospitality ( Indigo, Tote on the Turf and Neem) stated

“ Deep Discounting by the online food delivery platforms is impacting footfalls and diverting the Customers Traffic to these platforms , besides the cost of doing business is also escalating because Commission are directly getting impacted, these are hurting us in the Long run”

Thomas Fenn, Founder of Mahabelly restaurant  said  “ We need to reach middle grounds on commissions and have more transparency in the system. The Delivery platforms are very good for the restaurant sector but the concequence cannot be detrimental for businesses. As for the … in house kitchens.[1]

Author: Mr. Shubham Borkar, Senior Associate – Litigation and Business Development  and Co- Author- Poulomi Goswami, at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at shubham@khuranaandkhurana.com or at www.linkedin.com/in/shubhamborkar.

References:

[1] Available at https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/AOD.pdf

[2] Roy Abir and Kumar Jayant, Competition Law in India, Eastern Law House, Second edition,2014,p.159

[3] Clauses (a) to (e) of sub section (2) of Section 4

[4] A combined reading sec. 4(1) along with sec. (2) which lays down the ingredients of unfair or discriminatory price.

[5] Available at  https://www.cambridge.org/core/books/exclusionarypractices/AC0652A15F36536280BAD10F8A2EBC25

[6] OECD Policy Rounds Tables, Refusal to Deal, 2007,(DAF/COMP(2007) 46) at page 11

[7] Reports on Single Branding and exclusive Dealing, The unilateral Conduct Working Group,7th Annual Conference, International Competition Network, April 2008,p.3

[8] Shri Shamsher Kaaria v. Honda Siel, MANU/CO/0066/2014:2014 Comp LR 1 (CCI)

[9] Belaire Owner’s Association v. DLF Ltd., Case no. 19 of 2010. Decided on 12 August 2011.

[10] Available at https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/AOD.pdf

[11] Bhatia G.R., Assessment of Dominance, Issues and Challenges under the Indian Competition Act,2002 Available at http://www.luthra.com/admin/article_images/Manupatra-CLR-Dominance-GRB.pdf



Advertisements

Intersection between Intellectual Property (IP) and Competition Law

With a growing buzz around how IP and Competition law interface with each other, instances when they can be coupled by Defendants to raise concerns/defense arguments, as to how and when investigations can be initiated through the Competition Commission of India (CCI), are becoming critical and hence need clarity at all ends. This piece is a small step towards the same.

Introduction

Covered under the Competition Act, 2002, a key objective of the CCI is to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. As its key areas of focus, the CCI aims to prohibit a) anti-competitive agreements, b) abuse of dominant position, along with c) regulating combination of enterprises (such as mergers and/or acquisitions) at large.

In order to initiate an inquiry, the CCI can either inquire into any alleged contravention of Section 3(1) or 4(1) on own its own or on receipt of relevant information from a person/consumer/trade association or based on receipt of information from Central Govt. Following step-wise flowchart helps explain, at a high level, the process followed by the CCI post receipt of potential anti-competitive activity information:

Step 1: Receive Potential Anti-Competitive Activity Information (Complaint)

Step 2: Understand Market Parameters Relating to Activity (Section 19(3))

Step 3: Understand Attributes of Enterprise under Scanner (Section 19(4))

Step 4: Understand Relevant Geographic Market and Product Market Factors (Section 19(6) and 19(7))

Step 5: Undertake Inquiry to determine whether the Activity Information causes adverse effect on competition in India

Step 6: Issue order directing discontinuance of agreement/imposition of penalty/modification of agreement/other appropriate orders

Intersection of IP and Competition law is observed when there is an imbalance between the exclusivity rights accorded by IP law and anti-competitive practices that the Competition law tries to protect, and therefore cases such as Ericsson vs. Micromax, where on one hand, Ericsson attempted to enforce its Standard Essential Patents (SEPs), and Micromax, on the other hand, contended anti-competitive practice by Ericsson based on the nature of royalty practices that Ericsson tried to impose on the Defendant (along with other issues of patent bundling, coaxing informant to enter into one-sided NDA), is just one among the growing number of examples where the interface between the two laws is strengthening.

But before coming to know of all that, as a background, in the Competition Act, 2002, as amended by the Competition Amendment Act, 2007, section 3, sub section 5, clause (i) in chapter II relating to Prohibition of certain agreements, states: -“Nothing contained in this section shall restrict -(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under: – (a) the Copyright Act, 1957 (14 of 1957); (b) the Patents Act, 1970 (39 of 1970); (c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999); (d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999); (e) the Designs Act, 2000 (16 of 2000); (f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000).’

In context of IPR’s, Section 4 of the Competition Act would be considered to be abused when an IPR holder is involved in:

(i) directly or indirectly, imposing unfair or discriminatory condition or price;

(ii) limiting or restricting production of goods or provision of services or market;

(iii) limiting or restricting technical or scientific development to the prejudice of consumers;

(iv) denies market access in any manner;

(v) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;

(vi) uses its dominant position in one relevant market to enter into, or protect, other relevant market.

As can be seen, relevance of points (i), (ii), and (iv) are compulsory licensing (CL) provisions of the Indian Patent Act, 1970, wherein among the three grounds for filing of the CL, one ground is non-commercialization/working of the patent in India, and another one being on restrictive pricing.

Understanding the Intersection

Standards being technical requirements or specifications aiming to provide a common design for a product or process, are adopted by Standard Setting Organizations (SSOs) (which can be governmental, quasi-governmental or private). These set up, develop, coordinate, interpret and maintain standards. The Bureau of Indian Standards (BIS) is India’s SSO. SSOs play a vital role in the interaction between standards and intellectual property rights and most of the times, the technology required to achieve a standard is protected by Patents. And the patents without which a standard cannot be achieved (in any way), are termed as “Standard Essential Patents” (SEPs). So in these cases, the patentees, already enjoying the usual exclusionary rights over the patented technologies, have an extra-added benefit by virtue of their technologies becoming essential to standards or SEPs. Thus, SSOs are seen implementing IPR Policies that require members to disclose all their IP related matters and to license their SEPs under FRAND Terms (Fair, Reasonable and Non-Discriminatory). However, the varied interpretation of “FRAND Terms” along various jurisdictions has led to expensive litigations world over. India too, has seen a recent rush of SEP litigations, with over ten lawsuits being filed over a span of two years.

In an aspect, Section 3 sub section (5) of the Competition Act declares that “reasonable conditions as may be necessary for protecting” any IPR will not attract Section 3, wherein the expression “reasonable conditions” has not been defined or explained in the Act per se. However, common sense may prevail in most circumstances to determine whether an act of a Licensor/Patentee is reasonable, wherein, for instance, if the royalty/upfront demanded is more than industry standards or is not based on rational logic, or is varied by the Licensor considerably across different geographies without any territory-based rational, or for that matter, if the Licensor removes any IP infringement liability falling on him/itself, among other like conditions, unreasonability of the agreement can be substantiated. Comparative assessment and difference in stands taken by a patentee/licensor across different jurisdictions can always be incorporated while making a complaint against the patentee for unreasonable terms.

Some exemplary IP (Patent) interfacing cases that have been handled by CCI and other courts of jurisdiction have been highlighted below for better appreciate of the current position.

Ericsson vs. Kingtech

In 2011, Ericsson, a Swedish multinational corporation, filed an application before the Commissioner of Customs, complaining about the import of goods by one Kingtech Electronics (India), claiming that the goods infringed several of their SEPs in AMR Codec (Adaptive Multi-Rate) technology. This was the beginning of all the SEP litigations in India. Subsequently, when consignments belonging to Kingtech were detained by the Customs Authorities, Kingtech approached the Delhi High Court challenging that the Commissioner had detained the goods with no appropriate reason to ascertain that the goods actually infringed the patents as claimed by Ericsson. It was also alleged that the Commissioner of Customs was not competent to make such determinations. In answer, the Delhi High Court ruled that while the Commissioner’s order did not show any application of mind with regard to the claims he made (regarding infringement), Ericsson had also failed to follow due procedure, which was to approach a court of law to assert claim to its patents. Thus the Commissioner’s order was set aside and the court ordered the release of Kingtech’s goods. Ericsson consequently filed an appeal challenging the order before the High Court, which on July 2012, directed the Commissioner of Customers to pass fresh orders in the case, containing adequate reason to believe that Kingtech’s goods infringed Ericsson’s patents. This was followed by Ericsson taking a patent infringement suit before the Delhi High Court asking for an injunction against Kingtech, preventing the use, sale of any mobile phone that incorporated their patented AMR Technology. Consequently, by an order dated August 2013, the High Court directed Kingtech to refrain from importing any devices incorporating Ericsson’s AMR technology patents.

Ericsson vs. Micromax

The second instance of SEP litigation in India involved a suit filed in March 2013, by Ericsson against Micromax Informatics Limited, one of India’s largest phone makers. Ericsson claimed that Micromax had infringed eight of it’s SEPs on AMR, 3G and EDGE technologies, by selling mobile devices compliant with standards issued by the European Telecommunications Standards Institute (ETSI) and recognized by the Department of Telecommunications (DoT) in India. It was said that Micromax had not obtained licenses for said technologies from Ericsson under FRAND terms. Ericsson wanted permanent injunction, damages up to Rs. 100 crores and that Micromax render its sales accounts of mobile devices for years 2008-2012. By its order dated March 2013, the Delhi High Court granted interim relief to Ericsson and directed Micromax to make interim royalty payments. The Court also in addition allowed Ericsson to inspect every consignment for Micromax that arrived at Customs. The parties were then directed to negotiate on FRAND licensing terms for the technologies in question on and an arbitrator was appointed for the same matter. Later in November 2013, Micromax filed a complaint before the Competition Commission of India (CCI) claiming that Ericsson had abused its dominant position in the market by imposing exorbitant royalty rates for licensing its GSM technology under FRAND terms. The CCI found the claim made by Micromax to be valid and ordered an investigation on November 2013, which was subsequently challenged by Ericsson before the Delhi High Court. The jurisdiction of the CCI to investigate the actions of Ercisson was asked in question. The court, in furtherance, in its interim order dated January 2014, ruled that the CCI had indeed entered into an adjudicatory and determinative role by recording a detailed and substantial reasoning at the very initial stage, which was to order the Director General to conduct investigation. The court disallowed the Director General from contacting Ericsson officials stationed abroad, but the officials in India could be contacted for the purpose of investigation, and also restrained the CCI and Director General from passing any final orders till the proceedings of the Court is completed. The Court also directed that CCI’s order should not interfere with Ericsson’s negotiations with other third parties. Thereafter, the Delhi High Court in the judgment dated November 2014, fixed new royalty rates as interim arrangements till the time the trial of the suit was pending. The court also set December 31 2015 as the deadline for a decision in the suit. However, recently Ericsson had approached the court stating that Micromax was not paying, and it was dodging the orders by selling the handsets through a separate company floated by it, and Micromax was arguing that the order pertained to Micromax and not the entity through which the devices were being sold. This contention of Micromax was rejected by the court, also issuing bailable warrants against the chief owners. Lawyers for Ericsson debated in detail in the court inDecember 2015 that Micromax was trying to defeat the orders through a new venture and the new firm was just a tool to keep infringing the patents. Micromax opposed the allegations, contending that YU Televentures was a separate legal entity and was not bound to pay royalty. However, as the situation stands now, Micromax will have to pay royalty on sale of phones through YU Televentures also (of which Micromax owns 99.98% stakes). Micromax co-founder Vikas Jain told that the company is going to pay in dissent, meaning it would pay, pending the final judgment on the dispute, which will be delivered by the court. The Delhi High Court will resume hearing on the case on January 11, 2016.

Ericsson vs. Gionee

The third SEP litigation yet again involves the suit filed by Ericsson against Gionee and claiming infringement of the same SEPs over which Micromax was sued earlier. In October 2013, the Delhi High Court ordered Gionee to make interim royalty payments for its sales in India. The royalty rates were set on the basis of the interim royalty rates awarded to Ericsson in March 2013 in the patent infringement suit against Micromax.

Ericsson vs. Intex

The fourth in the series of litigations involving Ericsson began with a complaint filed against Ericsson before the CCI in September 2014 by an Indian phone maker, Intex Technologies. It alleged that Ericsson demanded exorbitant royalty rates (in comparison to the cost of the product to the user) and used unfair terms to license its SEPs (GSM technologies) to Intex. On January 2014, the CCI ordered for a clubbed investigation into Ericsson’s actions, based on allegations made by Intex as well as Micromax. And just like in Micromax’s case, this order was also challenged by Ericsson before the Delhi High Court, who on February 2014 ruled that the CCI had entered into a determinative process at the initial stage of investigation and imposed restrictions on the CCI and Director General similar to those that were imposed in the Micromax case. Thereafter Ericsson filed a patent infringement suit against Intex for infringement of the same SEPs. During the proceedings, Intex told the court about a similar case which happened before the Court of Rome, where all of Ericsson’s claims against mobile manufacturer ZTE had been rejected by the court who challenged the very presumption of essentiality of Ericsson’s patents. The Court of Rome had observed in that case that in order to assess the claim of essentiality, it would be necessary to examine the patents, which was too complex an analysis for the purpose of interim proceedings. Then the Roman Court held that even if it were to be assumed that the patents asserted were indeed “essential”, Ericsson would not suffer irreparable harm since the primary issue between the parties was pecuniary or money-related in nature. Thus Ericsson had to drop all the suits instituted against ZTE and settle the matter. But in contrary, the Delhi High Court refused to accept Intex’s challenge to the validity of the SEPs as a ground for rejecting Ericsson’s request for injunction. The court said that Intex in spite of being notified of the SEPs way back in December 2008, never questioned their validity over the years and this was enough evidence of validity of the SEPs (on grounds of Estoppel). Further based on contradicting statements made by Intex before the CCI and Court, regarding the validity of the SEPs, the court concluded that the SEPs were prima facie valid. The court took the view that Intex had initiated proceedings before the CCI just to prolong litigation by avoiding to pay the royalty. While granting royalty rates (in line with those granted in the infringement suit against Micromax on November 2014), the Court directed Intex to pay 50% of the royalty due from the date of the lawsuit till March 1 2015, directly to Ericsson. The remaining amount was to be paid by Intex with a bank guarantee within four weeks. These terms were to apply every six months until the disposal of the suit is complete. Intex was also restrained from importing goods that were infringing Ericsson’s SEPs.

Ericsson vs. Xiaomi

In December 2014, Ericsson filed yet another suit against Xiaomi before the Delhi High Court, alleging infringement of the same 8 SEPs that Micromax and Gionee were sued over for. Ericsson contended before the Court that despite requesting Xiaomi to license the SEPs, Xiaomi launched their infringing devices in India in July 2014. Ericsson was granted an ex-parte injunction in December 2014 preventing the sale, manufacture, import and advertisement of Xiaomi’s devices. This injunction was subsequently challenged by Xiaomi before a Division Bench of the Delhi High Court, claiming that its latest devices sold in the Indian market used Qualcomm chips, which were in fact licensed by Ericsson. Accordingly, in a temporary order dated December 16 2014, the Court permitted Xiaomi to import and sell devices carrying Qualcomm chips, on the added condition that Xiaomi would deposit Rs. 100 as royalty for every device it imported to India from the date of the launch of the device in India to January 5 2015. The matter is still pending before the High Court of Delhi.

Ericsson vs. iBall

In November 2011, Ericsson issued a letter to iBall stating that the iBall mobile devices were infringing Ericsson’s patents, the same 8 SEPs (over which Micromax, Gionee, Intex, and Xiaomi were later sued). Ericsson also offered to discuss a FRAND licensing agreement with iBall. On Ericsson’s proposal of entering into a global patent license agreement (GPLA), iBall agreed, but on the condition that details of its alleged patent infringements be disclosed to it. Ericsson replied that it could reveal the details only after entering into a non-disclosure agreement (NDA) with iBall. In subsequent communication with Ericsson, iBall contended that it was only a vendor importing products from China and selling them in India, and thus an “innocent infringer”, if it was one. Upon receiving the terms of the NDA, iBall brought the matter before the CCI, claiming that Ericsson’s refusal to identify the allegedly infringed SEPs, the threat of infringement proceedings, the attempt to persuade iBall to enter into a “one-sided and burdensome NDA”, tying and bundling patents irrelevant to iBall’s products by way of a GPLA (known as Patent Stacking) and demanding unreasonably high royalties by way of a certain percentage value of handset as opposed to the cost of actual patented technology, used all constituted abuse of Ericsson’s dominant position under Section 4 of the Competition Act, 2002. In May 2015, the CCI found prima facie abuse of dominant position by Ericsson and asked the Director General to conduct an investigation within 60 days. In the month of May 2015, Ericsson challenged the CCI’s order before the Delhi High Court on the grounds that the order was “arbitrary in nature and without jurisdiction”. In September 2015, the court ordered that the Director General of the CCI shall not submit a report of the investigation or pass a final order in the case before the CCI. In the same order, the Delhi High Court observed that iBall had not entered into a licensing agreement under FRAND terms despite Ericsson’s willingness to do so. It also found that iBall was aware of Ericsson’s portfolio of standard essential patents pertaining to GSM, GPRS, and WCDMA standards. The court held that as the infringing technologies are “standards”, and there exists no substitute for them and thus these technologies are necessarily used by iBall’s telecommunication devices. Hence iBall’s plea of not being aware of the violations was dismissed. The court also passed an interim injunction against iBall in light of interim orders passed in the matters of Ericsson vs. Xiaomi (December 2014), Ericsson vs. Gionee (October 2013), and Ericsson vs. Micromax (March 2013). While the injunctions imposed on Xiaomi and Micromax were on the sale, manufacture, advertisement and import of their devices, iBall and its agents and affiliates have been restrained from only importing devices that are allegedly infringing in nature. The court also held that without an interim injunction, Ericsson would suffer irreparable losses. The injunction against iBall would last from September 9, 2015 to the date of the next hearing at the Delhi High Court. But as the recent developments are to be believed, iBall and Ericsson have settled the dispute outside the court, and the agreement directs iBall entering into a licensing agreement with Ericsson.  “The parties have executed a Global Patent Licence Agreement (GPLA), which settled the disputes in the patent infringement lawsuit. Under the terms of the GPLA, the parties consented to dismissal of the patent infringement lawsuit by the Court, which finally occurred in November,”.

Ericsson vs. Lava

The most recent litigation involves a case against Lava International Limited, where Ericsson once again claimed its SEPs relating to AMR, GSM and EDGE technologies. At the first couple of hearings, Lava International claimed that Ericsson refused to reveal information about its agreements with other parties. While the suit is still at its initial stage, the parties have been directed to make efforts towards resolving their dispute but have failed to do so and thus the matter is now scheduled to be taken up on merits.

In addition to the Ericsson lawsuits, other SEP infringement lawsuits include those filed during 2013 and 2014 by Vringo Infrastructure, a wholly owned subsidiary of the Vringo Corporation in USA. These are summarized herein.

Vringo vs. ZTE

Vringo Infrastructure Inc. and Anr vs. Xu Dejun and Others

Vringo filed a suit against ZTE, its CEO Xu Dejun and its Indian subsidiary ZTE Telecom India in November 2013 over the alleged infringement of its patents, which is engaged in the development and monetisation of intellectual property and mobile technologies. ZTE manufactures products and provides services in the telecom infrastructure, equipment, systems, mobile phone and telecom software sphere. The Delhi High Court granted an ad-interim ex-parte injunction on the manufacture, import, sale, use, or advertisement of ZTE’s infringing products. ZTE challenged the injunction, which was lifted by the court on December 2013. ZTE was directed to pay a bank guarantee of Rs. 5 crores, along with an affidavit containing details of devices sold in India. The Delhi High Court agreed for appointment of a Scientific Advisor from the list drawn by the parties.

Vringo Infrastructure Inc. and Anr vs. Indiamart Intermesh Ltd. and Others

Vringo and Vringo Infrastructure filed another patent infringement suit in the Delhi High Court in January 2014, against ZTE, ZTE’s Indian subsidiary and Indiamart, a distributor of ZTE’s products. In February 2014, the court granted an ad-interim ex-parte injunction restraining ZTE from importing, selling, advertising, installing or operating devices that comprise the infringing components. It also appointed local commissioners to inspect ZTE’s premises and instructed customs authorities to detain ZTE’s shipments that may contain such devices and to notify Vringo about them. In March 2014, ZTE appealed against the injunction, which was lifted on August 2015 with ZTE being ordered to deposit Rs. 17.85 crore to the court. The affidavit of Expert submitted by Vringo was rejected by the Delhi High Court and a Committee of three Professors was appointed by the Court.

Vringo vs. Asus

In April 2014, Vringo filed a third patent infringement suit against AsusTek Computer Inc., one of its distributors in New Delhi, Nuage Techsol Pvt. Ltd. in the High Court of Delhi. In this suit Vringo claims infringement of a Non-SEP by AsusTek. No interim Order has been passed in the matter till date.

Concluding Remarks

The motivation theory for the protection of IPR rewards the inventor by giving him a monopoly right for a limited period of time. Competition law on the other hand acts against monopoly rights which are abusive in nature. Competition law seeks to enhance the market conditions by more choice and competition in the market. Intellectual property rights appear to go against this principle leading to possible conflicts between these two areas of law. Competition law can play a proactive role in arresting the abuse of monopoly rights granted by IPR. At the same time IPR monopolies are meant to facilitate further innovation and thereby boost further competition in the market. A dominant position in the market per se is not prohibited, but its abuse goes against competition provisions. India can use the compulsory licensing provision in case of excessive pricing of any products including patented softwares and technology. Tying arrangements between the producers and dealers should be dealt with using the competition provisions. The CCI should come up with specific guidelines in dealing with cases involving both competition and intellectual property. The interaction between intellectual property and competition policy is neither conflicting nor is it aimed at replacing the other. Rather the two streams of law are complementary and supplementary to each other. The courts have now settled the principle that the ‘interest of the consumer and competition in the market’ is of supreme importance and cannot be sacrificed at the cost of the right holder, and thus should come up with some balancing universal solution to the rising issue between IP and Competition.

References

  1. K D Raju, The Inevitable Connection between Intellectual Property and Competition Law: Emerging Jurisprudence and Lessons for India, Vol 18, March 2013, pp 111-122.

Admin, An overview of Standard Essential Patent litigations in India, June 29, 2015.

About the Author: Mr. Tarun Khurana, Partner and Patent Attorney in IIPRD can be reached: Tarun@iiprd.com and Abin Sam, an intern at Khurana and Khurana, Advocates and IP Attorneys.

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 .