Delhi High Court holds Patent Act to apply and prevail over the Competition Act
It is a settled principle of law that special laws prevail over general laws. However, when the dispute is between two statutes, and both are special statutes in their respective fields which will prevail over the other is to be determined on a variety of factors, including (i) the subject matter in question, (ii) the intention of the statutes, as well as (iii) whether the scheme and relevant provisions of the two statutes have any indication apropos which, the legislature felt must override the other, especially when both statutes have a non obstante clause
The Division Bench of the Delhi High Court recently dealt with a dispute regarding the powers of the Controller of Patents (“Controller”) and the Competition Commission of India (“CCI”) and the applicability of the ‘Competition Act, 2002’ in determining royalty based on FRAND assurances.
Brief Facts of the Case
‘Ericsson’ and ‘Monsanto’ filed different writ petitions against the Competition Commission of India (“CCI”) and third parties such as Micromax Informatics Limited and Intex Technologies (India) Limited, challenging the powers of CCI to start an inquiry into the activities of ‘Ericsson’ and ‘Monsanto’ based on third party allegations of anti-competitive agreements and abuse of dominant position by ‘Ericsson’ and ‘Monsanto.’
- The Single Judge of Delhi High Court 2016 observed that there was no bar in law to proceedings initiated by CCI against Ericsson for violation of Sections 3 and 4 of the Competition Act and dismissed the writ petition of ‘Ericsson’ (2016 judgment).
- In 2020, the Single Judge of Delhi High Court passed a similar judgment in the writ petition filed by Monsanto challenging the powers of CCI to investigate allegations of violation of Sections 3 and 4 of the Competition Act (2020 judgment).
Therefore, the Patentees (‘Ericsson’ & ‘Monsanto’) filed the appeals against the 2016 and 2020 judgments before Division Bench of Delhi High Court.
The present appeals and writ petitions were filed by Ericsson and Monsanto challenging the jurisdiction and powers of the CCI were heard together. The common issue before the Court was – “when a patent is issued in India, and the patentee asserts such rights, can the Competition Commission of India (CCI) inquire into the actions of such patentee in exercise of its powers under the Competition Act, 2002 (“Competition Act”).”
Submissions by Patentees
The patentees challenged the 2016 and 2020 judgments as unsustainable because the CCI cannot exercise jurisdiction over the patentees’ exercising rights under the Patents Act. The Patentees further argued that Chapter XVI of the Patents Act lays down detailed provisions and remedies against the anti-competitive agreements and abuse of dominant position by the Patentees. Therefore, the Patents Act is not subservient to the Competition Act and further contended:
- Licensing of patents results in the transfer of title in the patent and is not a sale or purchase of goods and services,
- CCI does not have the jurisdiction to enquire into the licensing of patents since it has been empowered by Section 2 (f)(ii) of the Competition Act to investigate complaints against the hiring of services by consumers.
- Section 4 of the Competition Act, as invoked by the third-party informants, only deals with the sale and purchase of goods or services, and the licensing of a patent is not covered under the same.
- The jurisdiction to decide whether the licensing of patents is anti-competitive lies with the Controller or the Civil Court as enumerated under Section 84(7) (c) read with section 140(1)(iii)(c) of the Patents Act, which deals with complaints pertaining to allegations of portfolio licensing and unfair rates.
- While deciding if a patent holder has abused their dominant position by asking for unfair rates, Civil Courts must first determine the Fair, Reasonable, and Non-Discriminatory (“FRAND”) rates.
- The CCI does not have the power, expertise or machinery to determine the FRAND rates. Moreover, the CCI does not have the power to either issue a license or decide the royalty based on the FRAND assurances by the patentees.
- The licensing and compulsory licenses of patents, along with anti-competitive activities of the patentees, has been covered under Chapter XVI of the Patents Act and the jurisdiction to decide the same has been conferred upon the Controller and the Civil Court. Therefore, the CCI does not have the jurisdiction to investigate or enquire into the licensing of patents.
- While dealing with the anti-competitive activities and use of a patent, Chapter XVI of the Patents Act is a complete code by itself.
- Since the Patents Act grants the power and jurisdiction to adjudicate the patentees’ anti-competitive activities, the CCI’s jurisdiction ceases to exist.
- Taking into account the legislative history while governing the anti-competitive and abuse activities of the patentee, it was always intended by the Legislature for the Patents Act to govern the same.
Submissions by CCI
- The powers of CCI under the Competition Act are not diminished merely due to an overlap with the Patents Act.
- Any person affected by the anti-competitive and abuse activities of the patentee may enforce their rights under the Competition Act, while the Patents Act has a limited scope while providing remedies to a licensee of the patent.
- While adjudicating upon the allegations of anti-competitive and abuse activities of the patentee, the Patents Act provides for an insufficient mechanism.
- The Legislature always intended for the CCI to have the power to adjudicate the anti-competitive and abusive activities of the patentee.
- Section 60 of the Competition Act prohibits complaints against anti-competitive agreements and abuse of dominant position before any Court or statutory authority apart from the CCI.
- CCI is the market regulator, whereas Controller of Patents is not a regulator but a mere authority to implement the Patents Act effectively.
- The Legislative intent behind Section 86(4) of the Patents Act was for the Controller to inquire into allegations of anti-competitive and abusive activities only after the same has been adjudicated upon by the CCI.
- The Competition Act is a special statute to adjudicate upon anti-competitive agreements and abuse of dominant position and the same will override the Patents Act.
The Court allowed the appeals and writ petition filed by the Patentees. It held that the CCI does not have the jurisdiction and power to investigate the activities of patentees while exercising their rights under the Patents Act.
The conflict before the Court was concerning.
- The Patents Act is a special law dealing with patents while the Competition Act being a special law dealing with competition.
- Chapter XVI of the Patents Act, as introduced in 2003 after the enactment of the Competition Act, will override the provisions of the Competition Act.
The Court observed that a statute must not be declared special merely because it deals with a specific subject. Instead, the Court outlined the following factors to be considered while deciding whether a statute/ law is special or not:
- “the subject matter in question,
- the intendment of the statutes in respect thereof, as well as
- whether the scheme and relevant provisions of the two statutes have any indication apropos which, the legislature felt must override the other, especially when both statutes have a non-obstante clause.”
The Court applied the aforementioned factors while comparing the provisions and remedies available under the Patents Act and Competition Act along with comparing the powers granted to the Controller and CCI under the respective laws and observed that while the Competition Act deals with anti-competitive agreements and abuse of dominant position generally, Chapter XVI of the Patents Act deals with anti-competitive agreements and abuse of dominant position by a patentee while exercising his rights under the Patents Act.
Therefore, the Patents Act is a special statute dealing with anti-competitive agreements and abuse of dominant position by a patentee while exercising his rights under the Patents Act and not the Competition Act.
The Court therefore held that “the Patents Act must prevail over the Competition Act on the issue of exercise of rights by a patentee under the Patents Act.”
This judgment from the Patent holder’s perspective clears the way for licensing negotiations to be simplified and not mired in multi-prong disputes and complaints. On the other hand, taking away CCI’s powers to enquire into competitive issues that stem from patent and other intellectual property law will be seen as the curtailment of CCI’s powers. CCI is likely to challenge the decision to the Supreme Court in a bid to harmonize the laws.