What is the Conflict Between IPR and Competition Law?

Minakshi Bindhani

04 Apr, 2023

The conflict between Intellectual property rights (IPR) and competition law arises because IPR laws grant exclusive rights to the intellectual property owner. In contrast, competition laws aim to prevent anti-competitive practices and ensure a level playing field for all market participants. This conflict is particularly evident in cases where the exercise of IPR by a dominant market player can lead to anti-competitive effects in the market, such as the exclusion of competitors or exploitation of consumers.

Intellectual property rights (IPR)

Intellectual property rights include Patents, Copyrights, Trademarks, and Trade Secrets. These rights grant the owner exclusive control over the intellectual property’s use, production, and distribution for a certain period. The rationale behind IPR is to incentivise innovation and creativity by providing a legal framework that enables the creators of intellectual property to earn profits from their work.

Competition Law

On the other hand, Section 3(5)(i) of the Competition Act, 2002^[1] deals with Intellectual property rights in Competition Law. The section excludes IPR from restrictive trade practices and attempts to resolve some contradictions. This is because intellectual property protection is, in fact, necessary as it is a prerequisite for innovation, which is why most laws, including Competition Law, give priority to IPR protection and seek to prevent anti-competitive practices that may harm consumers or restrict competition. The objective of competition law is to promote fair competition in the market, prevent the abuse of dominant positions, and ensure that consumers have access to a range of goods and services at competitive prices. Competition law applies to all market participants, regardless of size or market share.

Relationship

• The relationship between Intellectual property rights (IPR) and competition law is complex and often contentious. IPR laws grant exclusive rights to the owner of the intellectual property.
• In contrast, competition laws aim to prevent anti-competitive practices and ensure a level playing field for all market participants. It can lead to a conflict between Intellectual property rights and competition law when the exercise of IPR by a dominant market player leads to anti-competitive effects in the market.
• On the one hand, Intellectual property rights laws play an important role in incentivising innovation and creativity. By providing a legal framework that enables the creators of intellectual property to earn profits from their work, IPR laws encourage investment in research and development and help to drive economic growth.
• On the other hand, competition law seeks to promote fair competition in the market, prevent the abuse of dominant positions, and ensure that consumers have access to a range of goods and services at competitive prices. Competition law applies to all market participants, regardless of size or market share.
• It is important to note that the relationship between IPR and competition law is sometimes adversarial. In some cases, IPR promotes competition by encouraging the creation of new products and services. For example, a patent holder may license its technology to multiple competitors, leading to increased competition and innovation in the market.

Conflicts

The conflicts between Intellectual property rights and competition law arise when the exercise of IPR by a dominant market player leads to anti-competitive effects in the market. There are several ways in which this conflict can manifest itself:

• Abuse of dominant position: A dominant market player may use its IPR to prevent competitors from entering or driving them out of the market. For example, a patent holder may refuse to license their patent to a competitor, or a copyright holder may engage in copyright misuse to prevent the creation of competing works. It can lead to reduced competition and innovation in the market and higher prices for consumers.
• Patent thickets: In some industries, there may be a large number of patents that cover a particular technology. It can create a “patent thicket” that makes it difficult for competitors to enter the market, as they may have to obtain licenses from multiple patent holders. It can lead to reduced competition and innovation in the market and higher prices for consumers.
• Standard essential patents (SEPs): SEPs are patents that cover technologies that are essential to implementing a particular industry standard. For example, a patent may be essential for implementing a wireless communication standard. If a patent holder with a SEP refuses to license their patent on fair, reasonable, and non-discriminatory (FRAND) terms, this can prevent competitors from entering the market and lead to reduced competition and innovation.
• Patent trolls: Patent trolls acquire patents to extract licensing fees from other companies. Patent trolls do not engage in any productive activity themselves and can stifle innovation and competition in the market.
  Competition law seeks to limit the scope of IPR in cases where it leads to anti-competitive effects. For example, compulsory licensing provisions allow competitors to use patented technology under certain conditions, such as to address public health concerns. Another approach is to balance the interests of IPR holders with the interests of competition by adopting a rule of reason analysis, which involves an assessment of the anti-competitive effects of the IPR and the pro-competitive benefits.

In addition, a collaboration between IPR holders and competitors may be encouraged to promote innovation and competition in the market. For example, patent pools allow multiple patent holders to license their patents to each other, which can create new products and services. Similarly, cross-licensing agreements can allow competitors to share their intellectual property, leading to increased innovation and competition in the market.

Overall, the conflicts between IPR and competition law are complex and require a careful balance between the interests of IPR holders and the interests of competition. While IPR laws are essential in incentivising innovation, they can also lead to anti-competitive effects when exercised by dominant market players. Competition law seeks to limit the scope of IPR in cases where it leads to anti-competitive effects while also encouraging collaboration between IPR holders and competitors to promote innovation and competition in the market.

Examples

The conflict between Intellectual property rights and competition law arises when the exercise of IPR by a dominant market player leads to anti-competitive effects in the market. For example, a patent holder may use its patent rights to prevent competitors from entering the market, or a copyright holder may use its copyright to prevent the creation of competing works. These practices can harm competition by reducing consumer choice, increasing prices, and reducing innovation.

One example of the conflict between IPR and competition law is the case of Microsoft Corporation.

• In the late 1990s, Microsoft was found to have abused its dominant position in the market for PC operating systems by bundling its Internet Explorer browser with its Windows operating system. This practice was found to be anti-competitive, as it prevented other browser developers from competing on an equal footing. Microsoft argued that its actions were justified by its IPR in Windows and Internet Explorer, but the courts ultimately rejected this defence.
• Another example is the case of pharmaceutical patents. While pharmaceutical patents incentivise research and development of new drugs, they can also limit access to life-saving medicines in developing countries. It has led to debates about whether pharmaceutical patents should be subject to competition law and whether exceptions should be made for public health reasons.
• Several approaches have been proposed to address the conflict between Intellectual property rights and competition law. One approach is to limit the scope of IPR in cases where it leads to anti-competitive effects. For example, compulsory licensing provisions allow competitors to use patented technology under certain conditions, such as to address public health concerns. Another approach is to balance the interests of IPR holders with the interests of competition by adopting a rule of reason analysis, which involves an assessment of the anti-competitive effects of the IPR and the pro-competitive benefits.

Conclusion

In conclusion, the conflict between Intellectual property rights and competition law is a complex issue that arises from the tension between providing incentives for innovation and ensuring fair competition. While IPR laws are essential in incentivising innovation, they can also lead to anti-competitive effects when exercised by dominant market players. A careful balance can be made between the interests of IPR holders and the interests of the competition.

Also Read:
How to Transfer IPR (Intellectual Property Rights)?
All You Need to Know About Intellectual Property Rights