What are anti-competitive practices in IPR

Last Updated at: November 04, 2019
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Intellectual property rights are the special rights given to the person who makes inventions or makes some technical innovations using his creativeness which are intangible in nature. These rights are exclusively given for a particular period of time to enjoy the benefit obtained from it. It restricts the others to use his property. IPR or Intellectual Property Rights are legal rights given to the creator that allow him to sue and claim damages if anyone uses it without his knowledge. So basically IPR promotes monopoly in the market. There are many competitors in the market. The Competition Act is a set of rules and regulations promoting competition in the market. The law aim at utmost consumer welfare and increase in productivity thereby suppressing the market forces made by the dominant forces. IPR creates monopoly in the market whereas competition law battles against monopoly. IP laws are exceptions to common rule of monopoly market under CA.

Anti-Competitive agreements:

Sec 3 of CA deals with anti-competitive agreements. The competitive agreements are those agreements which prevent the competition, domination of one company over another. These agreements are of two types, Horizontal and Vertical Agreements. Horizontal Anti-Competitive agreements [Sec 3(3)] are made between two or more direct Competitors which may affect competitive economy in market thereby limiting the rights and interest of the consumer. Vertical agreements [Sec 3(4)] are made between producer and middleman; this hinders the flow of supply in marketplace affecting the welfare of the consumer. This section prohibits any person or company or enterprise or any legal entity from entering into any agreement which will be the reason for creating competition in India.

The exceptions for this section are given in Sec 3(5), which says that CA shall restrict the person’s rights by imposing reasonable condition for protecting his rights mentioned under Copyright Act, Patent Act, Trade Marks Act, Geographical Indications of Goods Act, and Design Act.  Also it won’t interfere in the person’s right in exporting from India as per the agreement. However it is implied that Sec 3 governs the unreasonable restrictions imposed for exercising IPR. Here the reasonable conditions are not explained and defined under this Act.

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So the reasonable conditions that cause anti-competitive practices are enumerated below:

  1. Patent pool- Patent pooling means entering into an agreement between two or more patent owners to lock up their inventions under one license to promote healthy competition thereby preventing the market to be exploited. They prevent the new entries in the market and make super profit for long run and also help in building imperfect competition which are against the policies of government. This type of patent pooling is majorly done in Electronic sector and Pharmaceutical industries.
  2. Tie-Up Arrangement- It is one of the restrictive trade practices. Tie in arrangement means there should be an agreement stating that the purchaser of one good agrees to buy some other goods as a condition. The following are the essential for tie-in-arrangement. There must be two products so that the seller can tie together, the seller must have sufficient market power, and there must be exclusive supply and distribution agreement. There should be a licensee to acquire the required goods from the owner who owns the patent. Again this practice restricts competition in the market as the transaction will be carried between certain groups of people.
  3. Even after the expiry of the patent period, there should be continuity for paying the royalty
  4. If the market imposes certain condition which restricts competition in Research and development or prohibits the licensee from using technology, then automatically the exceptions granted under section would be seized
  5. Instead of subjecting to condition, if the licensee is challenged regarding the validity of IPR in question, such raising the questions are Anti-Competitive Practices
  6. It is said that the licensee is required to grant back only to the licensor and not to anyone else. If he does so, it increases the market power of the licensor thereby losing the privilege under Sec 3(5)
  7. If the licensor fixes the price and push the licensee to sell in the said price is an anti-competitive practice
  8. The licensee may be restricted to carry out the trade in certain territory; this practice is considered as Anti-Competitive practices.
  9. The licensor might have coerced the licensee to apply for more licenses even though the licensee doesn’t require it. Such coercion is a restricted trade practices.
  10. The quality control agreement imposed between the licensee and licensor goes beyond the necessary guarantee, then the effectiveness of such patent is anti-competitive practices
  11. If the licensee is restricted of his rights to sell the licensed products and asked to follow the licensor order regarding selling, it is considered as restrictive trade practices
  12. The restriction imposed by the licensor for the use of trademark by the licensee is regarded as unfair practices
  13. If the agreement imposes undue restriction to the licensee for carrying out the business, then it is restricted trade practices
  14. If the licensor limits the maximum use of patented invention, it may affect the licensee competition and immunity.

If the agreement contains any of the above-mentioned criteria, it is considered as Anti-competitive practices and they are exempted from the Sec 3(5) of CA and the privileges will be withdrawn. Sec 27 of the act says that these practices will enquired by Competition Commission of India and the holder or licensor will be penalised not less than 10% of average turnover for the last three previous financial year. If the licensor is the company or enterprise, its director is held guilty and will be penalised

What are anti-competitive practices in IPR

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Intellectual property rights are the special rights given to the person who makes inventions or makes some technical innovations using his creativeness which are intangible in nature. These rights are exclusively given for a particular period of time to enjoy the benefit obtained from it. It restricts the others to use his property. IPR or Intellectual Property Rights are legal rights given to the creator that allow him to sue and claim damages if anyone uses it without his knowledge. So basically IPR promotes monopoly in the market. There are many competitors in the market. The Competition Act is a set of rules and regulations promoting competition in the market. The law aim at utmost consumer welfare and increase in productivity thereby suppressing the market forces made by the dominant forces. IPR creates monopoly in the market whereas competition law battles against monopoly. IP laws are exceptions to common rule of monopoly market under CA.

Anti-Competitive agreements:

Sec 3 of CA deals with anti-competitive agreements. The competitive agreements are those agreements which prevent the competition, domination of one company over another. These agreements are of two types, Horizontal and Vertical Agreements. Horizontal Anti-Competitive agreements [Sec 3(3)] are made between two or more direct Competitors which may affect competitive economy in market thereby limiting the rights and interest of the consumer. Vertical agreements [Sec 3(4)] are made between producer and middleman; this hinders the flow of supply in marketplace affecting the welfare of the consumer. This section prohibits any person or company or enterprise or any legal entity from entering into any agreement which will be the reason for creating competition in India.

The exceptions for this section are given in Sec 3(5), which says that CA shall restrict the person’s rights by imposing reasonable condition for protecting his rights mentioned under Copyright Act, Patent Act, Trade Marks Act, Geographical Indications of Goods Act, and Design Act.  Also it won’t interfere in the person’s right in exporting from India as per the agreement. However it is implied that Sec 3 governs the unreasonable restrictions imposed for exercising IPR. Here the reasonable conditions are not explained and defined under this Act.

Ask for Free Legal Advice

So the reasonable conditions that cause anti-competitive practices are enumerated below:

  1. Patent pool- Patent pooling means entering into an agreement between two or more patent owners to lock up their inventions under one license to promote healthy competition thereby preventing the market to be exploited. They prevent the new entries in the market and make super profit for long run and also help in building imperfect competition which are against the policies of government. This type of patent pooling is majorly done in Electronic sector and Pharmaceutical industries.
  2. Tie-Up Arrangement- It is one of the restrictive trade practices. Tie in arrangement means there should be an agreement stating that the purchaser of one good agrees to buy some other goods as a condition. The following are the essential for tie-in-arrangement. There must be two products so that the seller can tie together, the seller must have sufficient market power, and there must be exclusive supply and distribution agreement. There should be a licensee to acquire the required goods from the owner who owns the patent. Again this practice restricts competition in the market as the transaction will be carried between certain groups of people.
  3. Even after the expiry of the patent period, there should be continuity for paying the royalty
  4. If the market imposes certain condition which restricts competition in Research and development or prohibits the licensee from using technology, then automatically the exceptions granted under section would be seized
  5. Instead of subjecting to condition, if the licensee is challenged regarding the validity of IPR in question, such raising the questions are Anti-Competitive Practices
  6. It is said that the licensee is required to grant back only to the licensor and not to anyone else. If he does so, it increases the market power of the licensor thereby losing the privilege under Sec 3(5)
  7. If the licensor fixes the price and push the licensee to sell in the said price is an anti-competitive practice
  8. The licensee may be restricted to carry out the trade in certain territory; this practice is considered as Anti-Competitive practices.
  9. The licensor might have coerced the licensee to apply for more licenses even though the licensee doesn’t require it. Such coercion is a restricted trade practices.
  10. The quality control agreement imposed between the licensee and licensor goes beyond the necessary guarantee, then the effectiveness of such patent is anti-competitive practices
  11. If the licensee is restricted of his rights to sell the licensed products and asked to follow the licensor order regarding selling, it is considered as restrictive trade practices
  12. The restriction imposed by the licensor for the use of trademark by the licensee is regarded as unfair practices
  13. If the agreement imposes undue restriction to the licensee for carrying out the business, then it is restricted trade practices
  14. If the licensor limits the maximum use of patented invention, it may affect the licensee competition and immunity.

If the agreement contains any of the above-mentioned criteria, it is considered as Anti-competitive practices and they are exempted from the Sec 3(5) of CA and the privileges will be withdrawn. Sec 27 of the act says that these practices will enquired by Competition Commission of India and the holder or licensor will be penalised not less than 10% of average turnover for the last three previous financial year. If the licensor is the company or enterprise, its director is held guilty and will be penalised

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