An Indian court has held that in cases of abuse of patent rights, the Competition Commission of India (CCI) could directly examine the complaints without any prior determination by the Controller of Patents (the Controller). In its judgement in Monsanto Holdings Pvt. Ltd. and Ors. vs. Competition Commission of India and Ors. (MANU/DE/1078/2020; 20 May 2020; Delhi High Court), a Single Judge dismissing a petition challenging an investigation order by CCI re-affirmed that there is no irreconcilable repugnancy or conflict between the Competition Act, 2002 (“Competition Act”) and the Patents Act, 1970 (“Patents Act”). Specifically, the Court said that CCI has jurisdiction to entertain complaints regarding abuse of dominance in respect to patent rights, and such complaints could be examined by CCI without the requirement of reference by the Controller.
Monsanto Holdings Pvt. Ltd., Monsanto Company, Mahyco Monsanto Biotech (India) Pvt. Ltd. (“Monsanto”) hold patent rights for the technology for producing genetically modified cotton seeds. This technology was sub-licensed by Monsanto to various seed manufacturing companies including Nuziveedu Seeds Ltd., Prabhat Agri Biotech Ltd. and Pravardhan Seeds Pvt. Ltd. (“seed manufacturers”). As a consideration for this sub-licensing, a non-refundable fee and a recurring fee (‘trait value’) was payable by the seed manufacturers to Monsanto. The royalty fee/ trait fee charged by Monsanto from the seed manufacturers has been a subject matter of disputes between them.
In opposition to the royalty fee/ trait fee charged by Monsanto, cases were instituted before the CCI against Monsanto pursuant to a “reference” made by the Department of Agriculture, Cooperation and Farmers Welfare, Ministry of Agriculture and Farmers Welfare, Government of India, and “information” filed by seed manufacturers. The seed manufacturers had alleged contravention of Sections 3 (anti-competitive agreements) and 4 (abuse of dominance) of the Competition Act in their complaint.
The CCI, which is India’s competition regulator, held that Monsanto had a dominant position in the relevant market. The CCI further held that, prima facie, Monsanto’s conduct violated section 4 of the Competition Act, and that the conditions imposed in the sub-licence agreements were harsh and not reasonable for protecting patent rights. Accordingly, the CCI issued an investigation into the matter.
Monsanto challenged the order for the investigation before the Delhi High Court on the ground that CCI did not have the jurisdiction to examine issues relating to the exercise of patent rights.
- Jurisdiction of CCI
Monsanto argued that the remedies against any alleged abuse of patent rights would fall exclusively within the remedies under the Patents Act, and that CCI had no jurisdiction in such disputes.
Relying on Telefonaktiebolaget L.M. Ericsson v. Competition Commission of India & Another (W.P.(C) 464/2014, decided on 30 March 2016, Delhi High Court) the Court held that the focus of the Patents Act and the Competition Act are different. The Court further held that there is no irreconcilable repugnancy between the two statutes.
In Ericsson, a Single Judge bench of the Delhi High Court had discussed various provisions of the Competition Act as well as the Patents Act, and held that the Competition Act was enacted in addition to other laws and not in substitution thereof. By corollary, the Court concluded that the jurisdiction of the CCI to entertain complaints regarding abuse of dominance in respect to patent rights could not be excluded.
- Circumstances under which the Competition Act applies to patent licensing agreements
Monsanto argued that a patentee could include any condition/obligation in an agreement for restraining patent infringement, and the examination of such an agreement or clause in the agreement for being reasonable or unreasonable was beyond the purview of the Competition Act.
The Court said that the Competition Act recognizes that a person has a right to restrain infringement of patent rights, and any agreement entered into for that purpose would fall outside the scope of the Competition Act. But the Court also observed that such rights are not unqualified. It said that only such agreements that are necessary for protecting patent rights are excluded from the Competition Act and only to such extent. The Court further said that in such agreements, the patent holder is also entitled to impose reasonable conditions. However, agreements which include unreasonable conditions that far exceed those that are necessary, would fall under the rigours of the Competition Act.
The Court further said that the question whether an agreement is based on reasonable conditions was one that had to be determined by the CCI.
- Forum for abuse of dominance complaints
Monsanto contended that in view of the decision of the Supreme Court in Competition Commission of India v. Bharti Airtel Ltd. and Ors.(Civil Appeal No. 11843/2018, decided on 05 December 2018, Supreme Court of India), the question as to whether patent rights have been abused will have to be determined by the Controller of the Patent Office, before any investigation by CCI.
In Bharti Airtel, the Supreme Court had held that CCI could exercise its jurisdiction only after the regulator, which in that case was the -Telecom Regulatory Authority of India (TRAI), had returned its findings on the complaint. The Supreme Court further held that TRAI had to examine the technical issues involved in the complaint before the CCI could commence an investigation.
In the current decision, the Delhi High Court held that Bharti Airtel was not applicable as the role of TRAI as a regulator was materially different from that of the Controller of the Patent Office. The Court further noticed that the functions of TRAI included the regulation of the telecom sector, in contrast to which the Controller of Patents did not regulate the exercise of patent rights in as pervasive a manner as TRAI, as patents were not an industry. Thus the nature of the regulatory roles performed by TRAI and the Controller of Patents could be easily distinguished. The principal function of the Controller is to examine the application for grant of patents, grant patents, and issue compulsory licenses, but does not extend to regulating the exercise of patent rights or the agreements that are entered into by patentees with third parties. Hence, the Court held that CCI could directly examine any complaint relating to abuse of patent rights, without any prior determination by the Controller.
In conclusion, the Court dismissed the petition saying that the order for an investigation issued by the CCI was an administrative order and, therefore, unless found to be arbitrary, unreasonable and failing the Wednesbury Test (the decision was so unreasonable that no reasonable authority would ever consider imposing it), no interference was warranted.
An appeal against this judgment is pending before the Delhi High Court. Until then, this decision stays on the record, and is arguably a welcome step towards resolving the conflict between the Competition Act and the Patents Act. It also clarifies that only in ‘unreasonable’ conditions is a patent license subject to scrutiny under the Competition Act. The judgment also prescribes the guiding factors which must be considered to determine if a complaint must be filed before a specialized regulator (the Controller of Patents, in the present case) or the CCI.