Competition Law Regime and Patent Pooling

By Vikrant Rana and Apalka Bareja

Introduction

The world of Intellectual Property (IP) thrives on a delicate balance. Patents, the cornerstone of IP, grant investors a temporary monopoly over their creations, incentivizing innovation. However, this very exclusivity can create roadblocks, potentially hindering competition and customer choices. Here’s where competition law steps in, aiming to ensure fair and healthy marketplace for technological advancement. The intersection/interplay of competition law and intellectual property rights, particularly in the context of patent pooling, present a complex and dynamic area of legal policy. These pools function as a collaborative effort, bringing together patents from various inventors under one umbrella. While seemingly beneficial by streamlining access to multiple inventions, patent pols raise concerns from competition law standpoint. Competition Act, 2002[1] aims to maintain market competition by regulating anti-competitive conduct among businesses. The primary objectives of the Competition Act, 2002 are to prevent monopolies, cartels and other anti-competitive behavior that could harm consumer welfare and hinder competition. Patent pooling, on the other hand, involves consolidating patents from multiple entities into a single depository, thereby allowing participants to access and use the patents without individual negotiation. This practice can streamline the process of technology sharing, reduce the litigation cost and foster new innovations by making it easier for new entrants to access new technologies. However, it can also pose significant challenges to the competition. If not carefully regulated, they have the potential to become tools for anti-competitive behavior such as price-fixing, formation of cartels etc. This article delves into the patent pooling in the Indian scenario, benefits of patent pooling and anti-competitive concerns of patent pooling.

Patent Pooling and Patent Act, 1970

India is a developing country where patent pools are still a relatively novel concept (for more information refer to Navigating Innovations: The Ins and Outs of Patent Pools). They are viewed as a potential solution to provide access to multiple inventions in various sectors including healthcare. The World Health Organization (WHO) has recommended using patent pool as an effective tool to offer easy access to life saving drugs and treatments.^[2] Moreover, patent pool have been effective in diagnosing breast cancer and developing drugs for various diseases such as HIV, malaria, COVID-19 etc. The Unitaid has established the Medicines Patent Pool (MPP), United Nation International Organization, which is actively involved in creating pools to ensure access of medicines in developing and underdeveloped countries. It enters into licensing agreements with several medicine developers to allow generic manufacturer’s to develop and sell generic versions of the medicine in poor countries.

MPP has also developed online database like MedsPal which contains information regarding intellectual property status of patented essential medicines, COVID-19 vaccines.

The WHO in collaboration with the Costa Rica also launched a voluntary patent pool known as COVID-19 technology access pool (C-TAP).[3] C-TAP provides a unified global platform where developers of COVID-19 vaccines, diagnostics and other health products can share their intellectual property, knowledge and data with the certified manufacturers.

In India, the Government of India has enacted the Patents Act, 1970[4] which regulate patents, but it does not explicitly mention patent pooling. However, Section 68 of the Patent Act, 1970[5] allows for assignment or licensing of patents, requiring that all the terms and conditions including the royalty rate and duration are written and signed by the concerned parties. Section 69 of the Patents Act, 1970[6], mandates that the assignment or transmission agreements must be registered and included in the patent register. If in case, any party is not successful to secure a voluntary license, Section 84 of the Patent Act, 1970[7], permits compulsory licensing (for more information refers to Compulsory License of Patents in India) subject to specific condition, thus enabling formation of patent pool. On the other hand, Section 140 of Patents Act, 1970[8], lays down certain conditions which cannot be included in a license agreement and imposes restriction on the parties involved. Thus, the Patent Act, 1970 although does not specifically mention patent pool, but indirectly provides the framework that support the formation of patent pool.

Pro-Competitive Effects of Patent Pooling

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1. Reduced Litigation: Patent pools can significantly decrease patent infringement lawsuits. By creating a clear licensing framework, companies avoid costly legal battles and can focus on developing new technologies.
2. Efficiency for Licensees: Instead of negotiating licenses with individual patent holder, companies can obtain access to a broader range of patents through a single pool. This saves time and resources for licensees.
3. Faster Product Development: By simplifying the licensing process, patent pools can accelerate the development and commercialization of new technologies.
4. Standardization: Patent Pool can play a vital role in establishing industry standards. By bringing together essential patents, they ensure compatibility and interoperability between different products.

Anti-Competitive Concerns of Patent Pooling

Although, patent pooling offers several benefits, but there are also anti-competitive concerns associated with them. Some of them are as follows:

1. Price Fixing: Patent Pools can lead to price fixing, whereby the participant firms agree on fixing the price, thereby reducing competition. This manipulative control over prices can harm the consumer keeping prices higher than they would be in a competitive market.
2. Market Control: Dominant firms may use patent pools to control market, by limiting the entry of new competitors. This will result in monopolistic market structure, where a few firms control the market, reducing the consumer choice and potentially leading to higher prices.
3. Collusion Risk: Patent Pool can facilitate collusion/conspiracy among the participating firms, leading to reduced competition and higher prices. Such collusion can undermine market dynamics, resulting in less competitive pricing and fewer choices for consumers.
4. Royalty Stacking: Multiple patents in a pool can lead to complex royalty structures. This complexity can deter companies from entering the market or developing new products due to high costs of compliance and licensing.
5. Limiting Technological Progress: The collective control over key patents can slow down technological progress by reducing competitive pressure to innovate. Firms might become easy-going, relying on patent pools rather than pushing boundaries of technology.

Patent Pooling and Competition Act, 2002

India’s Competition Act, 2002, aims to ensure fair competitive practices. Section 3 of the Competition Act, 2002[10] addresses anti-competitive agreements, including horizontal agreements (agreement entered between the enterprises engaged in identical or similar trade of goods and services) and vertical agreements (agreements entered between the parties at different level of supply chain). It is presumed that such agreements have adversely affected the competition and thus void. Section 3(5) of the Competition Act, 2002 allows imposing reasonable conditions to protect intellectual property rights (IPR), without being considered as anti-competitive. This provision incorporates the principle that reasonable conditions imposed to protect the IPR are not anti-competitive. However, the term “reasonable condition” has not been defined in the Competition Act, 2002.

Thus, the Competition Act, 2002 although provides a framework to address the anti-competitive concerns along with measures to prevent market dominance and ensure fair competition, but it can be used only when the patent holders in the patent pool abuse their dominant position and put unreasonable conditions which restrict competition in the market. The similar stance was taken by Delhi High Court in the case of Telefonaktiebolaget LM Ericsson vs CCI[11], wherein the Hon’ble High Court has clarified that the Patent Act, 1970 is the specialized legislation to deal with patent related matters (for more information refer to Telefonaktiebolaget LM Ericsson vs CCI).

Conclusion

In conclusion, the interplay between the competition law regime and patent pooling is essential for balancing innovation incentives and market competition. Patent pools, by aggregating patents from multiple holders and offering collective license fee can promote efficiency, reduce transaction cost, reduces litigation cost and ultimately facilitates widespread adoption of technologies. However, they must be carefully managed to avoid anti-competitive practices such as price fixing, market control, collusion risk etc. The Competition Act, 2002 plays a crucial role in overseeing and regulating patent pools to ensure that they do not affect the competition. However, a clear regulatory framework is necessary to ensure that patent pools operate transparently and fairly and licensing of patents is done on such terms that promote innovation and consumer benefits and do not have any adverse effect on the competition.

Ritvik Kashyap, Intern at S.S. Rana & Co. has assissted in the research of this article.

[1] Available at: https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf

[2] Available at: https://apps.who.int/gb/ebwha/pdf_files/A61/A61_R21-en.pdf

[3] Available at: https://www.who.int/initiatives/covid-19-technology-access-pool

[4] Available at: https://ipindia.gov.in/writereaddata/Portal/ev/sections-index.html

[5] Section 68 of Patent Act, 1970: Assignments, etc., not to be valid unless in writing and duly executed, available at: https://ipindia.gov.in/writereaddata/portal/ev/sections/ps68.html

[6] Section 69 of Patent Act, 1970: Registration of assignments, transmissions, etc., available at: https://ipindia.gov.in/writereaddata/portal/ev/sections/ps69.html

[7] Section 84 of the Patent Act, 1970: Compulsory Licenses, available at: https://www.ipindia.gov.in/writereaddata/Portal/ev/sections/ps84.html

[8] Section 140 of the Patent Act, 1970: Avoidance of certain restrictive conditions, available at: https://ipindia.gov.in/writereaddata/Portal/ev/sections/ps140.html

[9] https://ssrana.in/articles/navigating-innovation-the-ins-and-outs-of-patent-pools/

[10] Section 3 of the Competition Act, 2002: Anti-competitive agreements: https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00005_200312_1517807324781&orderno=3

[11] 2023 SCC Online Del 4078