[Guest post] Competition Commission of India cannot decide on patent royalties in cases of abusive behaviours, says High Court of Delhi

The IPKat has received and is pleased to host the following guest post by Katfriend Vicente Zafrilla (University of Alicante) on a recent Indian decision. Here’s what Vicente writes:

Competition Commission of India cannot decide on patent royalties in cases of abusive behaviours, says High Court of Delhi

by Vicente Zafrilla

As SEP-aware Kat readers might know, on 13th of July the High Court of Delhi decided in a single
judgment four appeals and a written petition (LPA 247/2016 and connected matters):

- LPA 247/2016 and LPA 246/2016 – Appellant Telefonaktiebolaget LM Ericsson (Ericsson); respondent Competition Commission of India (CCI). Here, Ericsson appealed a judgment dated 30th of March 2016 (2016 judgment) which concluded that imposing non-FRAND conditions allows the CCI to act against the violation of sections 3 (collusive practices) and 4 (abuse of dominant position) of the Indian Competition Act.

- LPA 150/2020 - Appellant Monsanto Holdings Private Limited (Monsanto); respondents CCI and others. Impugning a judgment of 20th of May 2020 (2020 judgment). The court reached a conclusion similar to the 2016 judgment: charging excessive royalties and ‘not making its patents available reasonably’ is a violation of sections 3 and/or 4 of the Competition Act. Thus, the CCI can intervene in such cases.

- LPA 550/2016 - Appellant CCI; respondent Ericsson. Appealing a judgment issued on 14th of December 2015 (2015 judgment) that closed the proceedings between Ericsson and eBall after they had reached an agreement and subsequently withdrawn all the information. CCI was seeking to continue the proceedings. This was ruled out by the court, which, however, opened the possibility of a CCI’s suo motu action.

- W.P. (C) 8379/2015 - Appellant Ericsson; respondent CCI. Here, Ericsson challenged two letters from CCI in connection to the follow-up proceedings against Ericsson that resulted from one of the cases dealt within the 2016 judgment. The letters versed about the (alleged) violation by Ericsson of sections 3 and 4 of the Competition Act.

The core issue at hand is whether the CCI can intervene to define reasonable royalties on the basis of sections 3 and 4 of the Indian Competition Act – or if such matter must be reserved to the Indian Controller of Patents (or Civil Courts) according to Chapter XVI of the Indian Patent Act. The latter includes inter alia the attribution of mandating a compulsory license and defining reasonable royalties.

The conclusion – anticipated in para 11 of the ruling – is that ‘the CCI cannot exercise jurisdiction over actions of an enterprise that are in exercise of their rights as a patentee’.

There are a few aspects worth commenting.

First, although the abovementioned statement points clearly at a jurisdictional/competence matter, the legal reasoning behind this conclusion (paras 44 ff) focuses essentially on a conflict of applicable law. The court rules that patent law is lex specialis.

Not being an expert on Indian conflicts of law and jurisdiction/competence matters, I would not delve in the correctness of this decision (but the IPKat’s much learned readers are invited to illustrate me in the comments).

Yet, the practical consequences of addressing it as conflict of competences matter, differ substantially than those of affirming that sections 3 and 4 of the Competition Act are not applicable to the cases linked to the exercise of rights by a patentee (which is in essence what paras 53 to 56 say).

Second, this conclusion is quite surprising for a competition law scholar – and strongly differs from the approach in the European Union, United Kingdom or the United States, among others. There, even judicial patent decisions (let aside the decision of an administrative body, such as the Controller of Patents) might be subject to the scrutiny of competition/antitrust law.

Turning to the legal substance of the decision, the court briefly examines the ‘scheme and relevant provisions’ and the ‘legislative intent’ of the Competition and Patents Act. It concludes that the wording of section 3(5)(i)(b) of the Competition Act ‘is indicative of the legislature’s intendment as to the exclusive domain of the Patents Act regarding reasonable (licencing) conditions’ (para 51).

Section 3(5)(i)(b) reads as follows:

Section 3. Anticompetitive Agreements (…) 

5) 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- (b) the Patents Act, 1970 (39 of 1970).

Assuming the legislative intent from this section seems, however, quite circumstantial. This provision enables the Controller to decide on royalties, but, in my opinion, does not exclude CCI from deciding on them whenever anticompetitive effects arise. Moreover, there is no equivalent provision in Section 4, which deals with abuses of dominant position and, therefore, is more relevant when deciding on excessive royalties claimed by a patentee.

As for the ‘subject matter test’ the court concludes – with very little argumentation (paras 53 to 55) – that Competition Law is the general law and the Patent Act is the special statute. Hence, the latter prevails by speciality: ‘there is no scope of doubt beyond the pale of doubt that the Patents Act is the special statute, and not the Competition Act. It is also a fact that Chapter XVI of the Patents Act is a subsequent legislation as compared to the Competition Act’.

I generally agree with the conclusion that competition law is lex generalis and patent law is lex specialis (although it considers both to be special law in para 20). However, the ruling misses some further reflections on how to draw the boundaries between both legal bodies and the particularities of such interactions. The issue is far from being clear and simple, especially if we consider the long-standing doctrinal discussions on the IP-competition interface, and its practical consequences.

From a more doctrinal perspective, the court’s reasoning is tacitly rooted in the inherence doctrine. The inherence doctrine assumes that the pro and anticompetitive effects of patents are taken into account by the legislator when designing the patent provisions. Therefore, there is no need to apply competition law. The High Court of Delhi statements point in that direction. Specifically, the court mentions that Chapter XVI of the Patents Act was included after the amendment of the Competition Act (para 22) and that such Chapter explicitly includes anticompetitive agreements and abuse of dominant position, hence ‘there is no reason for Competition Law (…) to override the special law’ (para 44).

The main flaw of the inherence doctrine is an overly optimistic view of the capabilities of the legislature in exquisitely designing the IP provisions in a way that all current and future pro and anticompetitive effects are taken into account. This “optimism” is even more striking in a common law system.

Third, the consequences of this ruling are far from being merely theoretical. This particularly concerns FRAND-pledged SEPs – as opposed to Monsanto patents. One cannot forget that SEPs are inherently relevant for competition law because they are patents that protect technologies for which there is no possible substitute – hence conferring dominance.

In the case of SEPs FRAND licensing not all the anticompetitive concerns are connected to excessive pricing. A non-FRAND offer is just one concern: it usually goes hand in hand with the possibility of requesting a preliminary injunction or with patent ambush behaviours, amongst others. In none of these cases does a decision on FRAND royalties address all the anticompetitive effects, nor does it take into account the balance of pro and anticompetitive effects.

In a hypothetical ambush case, where a company conceals its patents during the creation of the standard to later claim non-FRAND royalties to a plurality of implementers, the Controller of Patents would only be able to define an inter partes FRAND royalty, whereas the CCI can arrive to a decision in rem – hence applicable to the licencing to all implementers affected by the ambush. While this point was raised by the parties (para 62) the High Court considered it irrelevant at the light of the ‘scheme of the provisions’, ’legislative intent’ and the ‘subject matter’ (para 63) which are only the relevant tests at the eyes of the court. Similar concerns may arise whenever the patentee seeks an injunction.

Fourth, from a litigation strategy point of view, although Ericsson (and Monsanto) have won their cases, the outcome is not very promising for patentees, notably in connection with SEPs FRAND licensing. Many implementers will be tempted to ask the Controller of Patents to define a reasonable royalty if they consider the offer not to be FRAND.

In this regard, the Controller of Patents has way less margin than competition authorities or courts to evaluate anticompetitive concerns beyond pure pricing issues (as it is customary in the European Union and UK).

Despite its flaws, the willing licensee/licensor test created by the Court of Justice of the European Union in Huawei v ZTE takes a more balanced stance and permits to evaluate a broader context – including pro and anticompetitive effects, the behaviour of both parties and its incentives. At the view of the High Court of Delhi’s ruling, it seems likely that SEP implementers have now less incentives to engage in negotiations – at least in India.

In conclusion, the judgment overlooks several key aspects from a substantive and doctrinal point of view. Its rather superficial assessment of the intersection of IP and competition can bear enormous practical consequences, including an eventual increase in litigation via the request for definition of reasonable royalties to the Controller.

In addition, this outcome will create a sort of bifurcation between cases which deal only with reasonable royalties (to be decided by the Controller of Patents on the basis of Chapter XVI), and cases dealing with the rest of anticompetitive concerns (to be decided by CCI). Both will need to achieve reconcilable outcomes, and it seems likely that the Indian IP/competition interface will suffer from an unneeded complexity.