A ruling by the Delhi High Court in July that restrains the Competition Commission of India from probing into unreasonable conditions imposed in patent licensing agreements is a departure from settled legal principles and reduces legal remedies available to licensees, experts say.
The judgment stems from complaints made to the CCI alleging that telecommunications giant Ericsson and U.S. seed major Monsanto were licensing standard essential patents (SEP) on unfair terms in violation of the Competition Act, 2002.
Ericsson and Monsanto (now acquired by Bayer) contend that any dispute on patent licensing terms was to be taken up by the Controller under the Patents Act, 1970, and were beyond the scope of the CCI’s powers of investigation.
The question before the two-judge bench of the Delhi High Court, admittedly one with “far-reaching implications,” was whether, when a patentee asserts their rights under a patent issued in India, the antitrust regulator can inquire into such actions under the Competition Act. The court sided with Ericsson and Monsanto, finding that the provision of the Patent Act, being a special legislation to govern the rights and actions of patent holders, would prevail over those of the Competition Act, and the CCI does not have the power to probe into complaints concerning the reasonability of terms in a patent licensing agreement.
“This decision of the Hon’ble Delhi High Court has limited the CCI’s jurisdiction in relation to alleged anti-competitive conduct through patents,” says Nisha Kaur Uberoi, head of the competition practice at Trilegal.
While the decision is yet to be appealed before the Supreme Court of India, Uberoi believes that an appeal is likely.
Why should the CCI have jurisdiction?
Key to this ruling is the court’s finding that the inquiry proposed by the CCI regarding the assertion of patent rights is “nearly identical” to that carried out by the Controller under the Patents Act. But the court failed to consider that the remedies available to the CCI are far wider than those available to the Controller, notes Neelambera Sandeepan, antitrust partner at Lakshmikumaran and Sridharan.
“While the Patent Act is a specific legislation and the Competition Act general, the remedies available under the Patent Act are limited to compulsory licensing. On the other hand, the Competition Act provides several kinds of remedies such as penalties for violation, behavioural remedies such as modification of agreements, and follow-on damages to the affected parties to name a few,” Sandeepan says. “This is particularly relevant as the CCI can direct the patent holders to cease and desist from their anti-competitive actions; or direct change in the terms of the contracts/agreements/licenses when they are unfair or one-sided. In addition, the CCI can also impose penalty on the violating patent holder, and the licensees have an opportunity to claim damages. All these redressal measures are unavailable under the Patents Act,” Sandeepan explains.
She adds that the judgment is also in conflict with the Supreme Court’s decision in the Bharati Airtel case, “where the Supreme Court opined that the CCI and the Telecom Regulatory Authority of India (TRAI) – the telecom sectoral regulator, have concurrent jurisdiction in matters relating to anti-competitive practices.”
How does the judgement compare to the approach in other countries?
For Sandeepan, this judgment is a “clear departure from the practice followed in mature competition jurisdictions, where the authorities regularly investigate anti-competitive practices of patent holders.”
U.S. and EU antitrust regulators have, investigated patent licensing agreements involving Intel, Apple, Qual-comm and Harvard University in the last few years.
In Asia, Korea and Singapore’s competition authorities in the last decade have probed patent licensors for violations of antitrust law over allegations of unfair royalty claims and unreasonable restrictions on use.
What is the expected impact on patent licensees?
Ericsson, one of the top SEP licensors in India, has been in dispute with many telecommunication players, including Micromax, Intex, Gionee, iBall and Xiaomi, over unfair royalty claims and patent infringement over the last decade. The technology industry depends on patents that companies frequently license to competitors. Market reports suggest the global patent licensing market is worth anywhere between $60-$100 billion.
The Ericsson ruling cuts down on remedies available to patent licensees, especially in a market where a few players like Ericsson hold a dominant share of standard essential patents, notes Sandeepan.
She expects the order will have far-reaching implications for the “patent licensees who will be denied an entire set of remedies under the Competition Act for abusive or anti-competitive behaviour of patent holders.”