Striking the Balance: The Interplay between Intellectual Property Rights and Competition Law in India
- Jun 10
- 7 min read
Introduction
Many times the exclusive Intellectual Property Rights coexist with various sectors and industries like pharmaceuticals, technology and digital markets, often leading to clashes primarily between two demands, firstly to keep and maximise competitive pricing and secondly, to protect the welfare of consumers. In this fast changing and dynamic economic landscape, a blend of various regulatory mechanisms is needed for market control and governance, which are designed especially to ensure and maintain fair play, innovation, and stability.
Here, Intellectual Property Laws/Rights (“IPR”) and Competition Laws are the two major legal frameworks that play a larger role in shaping modern markets.
On one side, IPR encourages innovation by granting exclusive rights to inventors or creators of things. The Competition Law, on the other hand, aims to guarantee consumer protection, competitiveness in the market, and market fairness. The objectives and aims of these two legal frameworks might seem contradictory at first place, however, they align towards unified ends upon an investigation with a closer examination.
The blog tends to show how the IPR and Competition Laws develop a holistic system which allows the use of these laws to regulate the development of new things and different market forces that compete with them.
Purpose of the Intellectual Property Rights
Law protects the intellectual property rights of an individual (legal person) to support and safeguard the creative outcome of the intellect of the human mind. These outcomes include literary and artistic works, industrial designs, and trademarks, along with other innovations and inventions.
Through vesting exclusive rights and privileges for a limited period, IPR promotes innovation and creativity. Creators are assured that their efforts and inventions will be protected from unauthorised use and illicit appropriation, allowing them to recover costs and simultaneously gain commercial benefits.
The rights conferred under IPR are not totally exclusive and absolute. They come with some limitations and restrictions that ensure not to hamper public interest, along with technological development. This exclusivity granted through the rights must be reasonable and in coherence with macro socio-economic goals.
Objectives of Competition Law
The Indian Legal framework on Competition Law primarily governs through the Competition Act, 2002, whose objective is to prevent such practices that have an adverse effect on market competition. This ensures the promotion of a fair competition in the market while protecting consumer interest and guaranteeing freedom of trade. This act prohibits any abuse of dominant position, anti-competitive agreements, and governs the illegal combinations causing market distortion.
The role of the Competition Law becomes relevant when exclusive rights of IPR sheds in legal protection to result in unfair market practices, including denial of market access, excessive pricing, and exclusion of competitors, etc.
Conflict between Competition Law and IPR
This conceptual intersection between the two often turns into a practical conflict. The tension escalates when the Intellectual Property Rights create "a form of monopoly"; on the other hand, Competition Law is designed in a way that inhibits monopolistic behaviour for the creation of free market regulation.
Taking an instance, there may exist a case where a company holds a monopoly over a patent innovated by it, where there is no existence of any other substitute in the market. The company applies excessively high prices and an “exorbitant” royalty rate for the license, leading to inflated charges. This situation is problematic and creates difficulties, leading to “abuse of dominance” and restricting fair competition.
Crucially, the Competition Law does not punish or penalize the mere existence of monopoly power that arises from the IPR. It intervenes or takes action only when such power is abused. Thus, the conflict is between the “legitimate rights” and their “unreasonable exercise”.
Indian Legal Framework
The Indian Legal System recognises the conflict and issues like the creation of a monopoly by the exclusive IPR rights. To erode, it has harmonised Competition Law and Intellectual Property Rights, both by internal mechanisms in the IPR regime and by insertion of provisions in the Competition Act, 2002, a result of the 2000 Raghavan Committee. However, Section 3(5) of the Competition Act provides an exception which gives liberty to rights holders to impose reasonable restrictions to protect their Intellectual Property Rights, notwithstanding this being considered as anti-competitive. It concedes the legitimacy of IP protection, concurrently guaranteeing that it does not become a shield for anti-competitive practices. The Delhi HC, however, in the BT Cotton case in 2020, rejected it as a blanket exception and stated that in the guise of this provision, a patentee cannot impose an onerous condition of patent licensing.
The IPR regime internally gives recourse to the monopolistic behaviour of rights holders, created by the ownership of exclusivity over a certain product or process. Sections 83 and 84 of the Patents Act, 1970, erode impediments against the public welfare created by the monopoly of the patent rights holders. Section 83 of the Act restricts any abuse of patent rights and any impediment to the public interests. Whereas, Section 84 of the Act gives rights in general public to file for a Compulsory License after completion of three years from the grant of Patent on account of satisfaction of three stipulated conditions; (1) unsatisfied fulfilment of public requirement of patented invention; (2) non-availability of the patented invention at affordable price to public; (3) invention is not worked in India. Therefore, to prevent the monopolistic behaviour of IPR rights holders, the IPR regime contains an in-house safety mechanism where these provisions reflect that even the patent regime internally acknowledges the dangers of unchecked monopoly.
Moreover, as the report of the Raghavan Committee served as the basis for the Competition Act, 2002, by recommending the replacement of the outdated Monopolies and Restrictive Trade Practices Act (MRTP), it predicted the probable clash of exclusivity of IPR and Competition law. The committee highlighted and further pointed out that while Intellectual Property Rights are essential and necessary to reward and promote human creativity, they do not include the exercise of restrictive or monopolistic power in the market. It highlighted the necessity of preventing anti-competitive behaviour arising from the misuse of intellectual property, even while ensuring adequate protection for innovators.
Judicial activism on this Framework
The judiciary has played a critical role in defining the boundaries between legitimate IP protection and anti-competitive conduct. The scope of the Intellectual Property exception, under Section 3(5) of the Competition Act, 2002, has moreover been elucidated in the case of FICCI – Multiplex Association of India v. United Producers/Distributors Forum (UPDF). In this case, the producers’ association had issued a directive mandating and authorizing its members not to supply films to multiplex operators who were members of the FICCI. The producers vindicated their conduct by asserting that cinematic films and pictures constitute “copyright-protected” works under the Copyrights Act, 1957, and that copyright owners are authorized and empowered to leverage their entitlements and exploit them in the manner they want.
Further, the producers’ association relied on Section 3(5) of the Competition Act, 2002, arguing that the non-obstante clause excluded such conduct from the ambit or purview of the competition law and permitted the imposition of reasonable conditions for the protection of the intellectual property rights. The Competition Commission of India (“CCI”) rejected this contention, holding that the Intellectual Property laws do not enjoy absolute supremacy over the Competition Law.
This case law reiterates the fact that, though Intellectual Property Rights have legal protection, they cannot be used in such a way as to impact or to prejudice competition. The IPR protection is also under competitive examination. At the same time, Section 4 of the Competition Act, 2002, outlaws the use of a dominant position. Therefore, an intellectual property holder can be subject to liability in cases where the allegation to the exclusive rights has been made, and the effects are known to be unfair and discriminatory conditions, overpriced products, or non-admission to the market.
International Legal Framework
The issue created by the mutual co-existence of rights under IPR and Competition Laws have also been highlighted aggressively in the international arena. Primarily, Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) recognises the adverse effect on competition in the relevant market by certain conditions and practices of IPR licensing. Article 40 of the TRIPS calls out the issue of “[impediment in] the transfer and dissemination of technology” due to exclusivity of IP rights. This binding agreement allows its members to adopt appropriate measures to curb such practices (Article 40.2), while also permits to prevent the abuse of those IP rights or practices which illegally restrain trade (Article 8.2).
Moreover, there exist other international instruments which further reinforce this approach in a soft-law manner, such as 2010 UNCTAD Model Law on Competition, 1980 Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices, and other regional competition regimes such as the highly developed EU Competition Law, OECD Competition Policy, and Intellectual Property Rights, etc.
Conclusion
The Competition Law and the Intellectual Property Rights interact in a complementary manner instead of an antagonistic way. While Intellectual Property Rights incentivise innovation by granting “exclusive control” over creations, their exercise must remain and abide within reasonable limits to prevent market distortion and consumer harm.
Competition Law does not come in to ruin the safeguarding of intellectual property, it comes in to guarantee that the exercising of exclusivity does not turn into an abusive or exclusionary behaviour. The point of conflict does not arise from the mere existence of the monopolies created by the granted exclusive protection under IPR, but rather it arises due to abuse, misuse, and perversion of such monopolies, which inadvertently damages the competitive market structure.
The Indian legal system remains positive to this stance as a fair position and balanced approach. Collective demonstration through various provisions of the Competition Act, 2002, internal safeguards of Patents Act, 1970, and the judicial interpretations by the CCI and the courts exemplify that the IPR are safeguarded while not remaining immune from competition scrutiny. This approach also seems to comply with international regulations, such as those of TRIPS and other soft-law instruments.
The development of modern markets also expands their ability to innovate, and keeping this balance is very important to support creativity while protecting consumer welfare and fair competition from anti-competitive practices.
Author: Aishani Rautaray, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.
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