“In the case of Vifor International Ltd. v. CCI, we see the intersection of patent and antitrust laws in India…[and an upcoming decision should] explain how these laws can exist in tandem and provide relief to the aggrieved.”
Patent laws and antitrust laws (known as competition laws or anti-competitive laws in other jurisdictions), may seem antithetical to each other at first glance. Antitrust law is concerned with ensuring the existence of a free and fair market by promoting fair competition practices and discouraging monopolies, which often stagnate business innovation. In contrast, patent law grants inventors a limited period of exclusivity in exchange for disclosing their invention- i.e., a monopoly of sorts. These opposing objectives may not, however, be quite as conflicting as they initially appear to be. Both of these laws aim to balance individual interests with the greater public interest.
In the July 2022 case of Vifor International Ltd. v. CCI, we see this intersection of patent and competition laws in India. The case highlights how these laws can exist in tandem and provide relief to the aggrieved.
A Closer Look
The petitioner, Vifor, was engaged in selling a patented drug for the treatment of iron deficiency. A complainant, who submitted information anonymously, alleged that Vifor was engaging in anti-competitive practices. The alleged misconduct is of two types. Firstly, Vifor is alleged to have offered lower prices to public procurers than to individual consumers, harming the latter’s interests. Secondly, Vifor has been alleged to have denied licenses to some third parties, which under the given circumstances, may be seen as anti-competitive. To pursue these allegations, the complainants lodged a petition against Vifor under the Competition Act of 2002.
The body authorized to deal with issues under the Competition Act is the Competition Commission of India (CCI). Following CCI’s requests for information disclosure to probe deeper into the case, the petitioners submitted a writ petition to the Delhi High Court while it was still undergoing proceedings in the CCI.
The CCI probed into the matter and issued an order asking Vifor to disclose information such as number of licensees for the drug in India and the number of companies that had approached them for licensing. Vifor did not respond to the order within the prescribed time. After being given an extension, Vifor responded by challenging CCI’s jurisdiction. Without waiting for CCI’s reply, Vifor filed a writ petition before the Delhi High Court. The Court then ruled on the issue of CCI’s powers when dealing with patent-related competition cases.
Issue One: Jurisdiction
Vifor first challenged CCI’s jurisdiction. The petitioner argued that the accusations touch upon the rights of a patent holder under the Patents Act, which mean that CCI was exceeding its jurisdiction.
The Delhi High Court held that CCI does not lose jurisdiction simply because the dispute relates to patents. The Court affirmed the view that the complaints must be viewed in their entirety to check whether aspects of the allegations fall within the purview of CCI. Only when a complaint is solely concerned with patents can CCI’s jurisdiction be ousted.
The case Monsanto Holdings Pvt. Ltd. and Ors. v. Competition Commission of India & Ors. was also taken into account here. That case confirmed that when a patentee engages in anti-competitive conduct by excessive pricing, abuse of dominance, etc., the patentee will have to face the Patents Act and the Competition Act. Aggrieved persons can file for compulsory licensing under the Patents Act and complain to the CCI under the Competition Act simultaneously.
The Court also took into account Sections 60 and 62 of the Competition Act. These sections provide that the Act’s jurisdiction, while not superseding other laws, will have overriding effects on them. Essentially, the Court interpreted it to mean that provisions of the Competition Act and the Patents Act existed simultaneously and that CCI did not overreach its jurisdiction in this case.
Issue Two: Applicability of Section 3(5) of the Competition Act
Another allegation was that Vifor’s actions were illegal under Sections 3 (anti-competitive agreements) and 4 (abuse of dominance) of the Competition Act 2002. While the Court did not rule on the merits of this allegation, passing the baton back to CCI instead, it did address the question of rights granted to a Patentee with Section 3(5) of the Competition Act.
Often, it is noted that patent holders try to avoid such anti-competitive practices and their consequences by pleading protection granted to IP rights holders under Section 3(5) of the Competition Act. This section gives IP holders some immunity and allows them to impose “reasonable restrictions as may be necessary for protecting” any rights granted under Indian IP laws. The expression “reasonable restrictions” has not been defined or explained in the Act.
The Court, while acknowledging this section, noted that provisions to restrain infringement can’t include “unreasonable conditions that far exceed those that are necessary, for the aforesaid purpose.”
While the Court itself did not provide further commentary on the matter, we can gain additional insight from the 2014 case of Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors. Here, Original Equipment Manufacturers (OEMs) entered into agreements with Original Equipment Suppliers (OESs) for procurement of some components. The designs, technical specifications, tools, etc., were given by OEMs and the agreement prohibited OESs to trade in the outside market with third parties or aftermarkets without consent of the OEMs. The OEMs contended that this agreement fell within the ambit of “reasonable condition” under S 3(5).
CCI held that the OEMs enjoyed a dominant position in the market and were clearly abusing their position, so their practices would not qualify for immunity under Section 3(5) and were deemed as anti-competitive. When a writ petition was filed against the order before the Delhi High Court, the Court concurred with CCI’s decision and held it to be justifiable.
In the Vifor case, the petitioners (Vifor) claimed to be acting reasonably and within the reasonable restrictions of section 3(5). However, such reasonableness is judged on a case by case basis and Vifor’s acts may not fall within this category of protection.
What to Expect
The issue of what Vifor did and if they abused competition laws will now be judged by the CCI, as per the orders of the Delhi High Court. It is too early in the game to predict which way the decision will go, but Vifor does have a few safe harbors under the Competition Act.
The most relevant of these is the “reasonable restrictions” provision of Section 3(5), discussed above. Of course, the ambit of “reasonable” has not been defined by the Act, and it will fall upon the CCI to determine where Vifor falls on that scale.
While IP rights get a partial exemption from forming what would traditionally be anti-competitive agreements, there are signs of some global winds shifting away from that. Most notably, Australia in September 2019 repealed a provision that allowed IP holders to enter into cartel agreements. The provision was first enacted because IP was thought to be fundamentally antithetical to competition laws, but time has shown that this is not necessarily the case. Anti-competitiveness arises, Australia noted in the note it wrote to OECD, when these rights are used in a way that aggregates IP so as to create market power, or results in cases where there are few substitutes.
It has yet to be seen if the CCI will take these developments into account when deciding on what counts as “reasonable.” Either way, it is likely that this case will have repercussions on how IP rights can be exercised in India while not infringing on competition laws.