Student Advocate Committee

SECTION 3(5)(i) OF THE COMPETITION ACT – AN ANALYSIS

Author(s): Paramjeet Berwal
Source: National Law School of India Review, Vol. 27, No. 2 (2015), pp. 168-184
Published by: Student Advocate Committee
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 4
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SECTION 3(5)(i) OF THE COMPETITION
ACT -AN ANALYSIS

- Paramjeet Berwal

Bad laws are the worst sort of tyranny.

-Edmund Burke (1729-1797)

There is economy.1 There are people.2 There are conflicting interests and
ities.3 Then, there is competition in the system.4 Law is the only tool in the
of the state to manufacture and sustain any system.5

With the Kataria6 judgment rendered by the Competition Commissi

India interpreting some of the most important aspects relating to Secti
(i) of the Competition Act, it is crucial for the different stakeholders to ana
this decision, which would affect competition, innovation and consumer wel
The aim of this article is to analyse and understand the scope and the na

1 Karl Marx referred to the economic structure of the society as the real foundation on wh
and political superstructure arises. Karl Marx, Preface to A Contribution To The Cri
Political Economy (Moscow, Progress Publishers Moscow 1977).
2 Karl Marx, Critique of Hegel's Philosophy in General, in Economic And Philosophical
Manuscript Of 1844 ("That is to say, the objects of his [man's] instincts exist outside him, as
objects independent of him; yet these objects are objects that he needs - essential objects, indis-
pensable to the manifestation and confirmation of his essential powers."); In order to under-
stand the contemporary change in human behavior, see Robert D. Putman, Bowling Alone: The
Collapse And Revival of American Community (New York, Simon and Schuster 2000).
3 Friedrich Engels, Ludwig Feuerbach And The End Of Classical German Philosophy, 4 & 5 Die
Neue Zeit part 4, (1886) ("That which is willed happens but rarely; in the majority of instances
the numerous desired ends cross and conflict with one another, or these ends themselves are from
the outset incapable of realisation, or the means of attaining them are insufficient. Thus the con-
flict of innumerable individual wills and individual actions in the domain of history produce a
state of affairs entirely analogous to that prevailing in the realm of unconscious nature.").
4 See John Bellamy Foster, Robert W. McChesney and R. Jamil Jonna, Monopoly and Competition
in the Twenty-First Century Capitalism, 62(11) Monthly Review (April, 2011); see also Maurice
E. Stucke, Is Competition Always Good?, 1(1) J. Antitrust Enforcement 162,162 (2013).
5 Though, recently, the studies have proved that it really is the economically affluent people who
influence the law-making. See Martin Gilens & Benjamin I. Page, Testing Theories of American
Politics: Elites, Interest Groups, and Average Citizens, 12(03) Perspectives on Politics, 564, 575-
577 (2014).
6 Shamsher Kataria ,In re, 2014 SCC OnLine CCI 95 (" Kataria ").

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VOL. 27 SECTION 3(5)(i) OF THE COMPETITION ACT - AN ANALYSIS 169

relationship between Intellectual Property and Competition Law from a p

legal perspective entailing economic and social dimensions. It discusses q
tions arising in relation to the interpretation of Section 3(5)(i) of the Competi
Act; the interpretation afforded to the same by the Competition Commi
and other possible permutations and combinations that might serve the pu
behind the enactment of the said provision.

I. INTRODUCTION

Prof. John F. Duffy7 claims that competition law structures intel

erty rights.8 Whereas, the Competition Commission of India (hencef
to as "CCI") has maintained that intellectual property rights le
tion.9 The legislation does provide a mechanism to achieve the purpo
in.10 The application of competition law to the cases, predominan
to intellectual property rights is considered to be an extremely
critical issue of competition policy.11 This, perhaps, is the reason th
with the responsibility of formulating National IPR Policy, the I
of India has listed IP interface with Competition law and policy in t
areas of study and research for future policy developments.12 The C
framing the National Competition Policy of India also enlists int
erty laws as having one of the most important interfaces with the
Competition and intellectual property rights are very distinct i
form very intrinsic aspects of an economic system which is control
laws.14

7 Prof. John F. Duffy is Samuel H. McCoy Professor of Law and Armistead M. Dobie Professor of
Law, University of Virginia School of Law.
8 John F. Duffy's comments at National Lawyers Convention organized by The Intellectual
Property Practice Group of The Federalist Society for Law and Public Policy Studies, November
14, 2013, Yoi/I'jbe (Nov. 15, 2013) https://www.youtube.com/watch?v=TmBJknoGKSM; see also
Shubha Ghosh, Intellectual Property Law and Competition, International Scholars Conference on
Intellectual Property Law, University of Wisconsin Law School, 16-17th September,, 2014.
9 Competition Commission of India, Advocacy Booklet, Intellectual Property Rights Under the
Competition Act, 2002 ".
10 Paramjeet Singh Berwal, Articles 3(a) and 3(b) of the SPC Regulation - An Analysis , 36(1)
European Intellectual Property Review, 29, 33 (2014).
11 Joseph Drexl, Research Handbook On Intellectual Property And Competition Law (Edward
Elgar Publishing Limited, 2008); Jaoquin Almunia, Vice President, European Commission
Responsible for the Competition Policy, Speech at the IP Summit, Paris: Intellectual Property
and Competition Policy (Dec. 9, 2013).
12 National IPR Policy submitted by IPR Think Tank, First Draft, at p. 23, (19th December 2014).
13 Draft National Competition Policy Statement of India- 2011, drafted by the Committee consti-
tuted by the Ministry of Corporate Affairs.
14 This is true even in the case of 'free-market economy' because there is no such thing as a free
market. In fact, this is the very first truth Ha Joon Chang, Reader in the Political Economy of
Development at Cambridge University, reveals in one of his books. He writes that every market
has some rules and government is always involved. Ha-Joon Chang, 23 Things They Don't Tell
You About Capitalism (Allen Lane ed., London, Penguin, 2010).

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170 NATIONAL LAW SCHOOL OF INDIA REVIEW 27 NLSI Rev. (2015)

II. INTELLECTUAL PROPERTY -

MEANING AND PURPOSE

According to WIPO, "[Iļntellectual Property (IP) refers to creatio

mind, such as inventions; literary and artistic works; design; and symbo
and images used in commerce."15

The concerned international organisations highlight the purpose o

private economic benefits accruing to IPR holders16. WIPO states th
lectual property rights are like any other property right. They allow cr
owners, of patents, trademarks or copyrighted works to benefit from t
work or investment in creation. These rights are outlined in Articl
Universal Declaration of Human Rights, which provides for the right
from the protection of moral and material interests resulting from auth
scientific, literary or artistic productions."17 Per the WTO, "they usuall
creator an exclusive right over the use of his/her creation for a certain
time."18 According to OECD, "[TJhese property rights allow the holder t
a monopoly on the use of the item for a specified period. By restricting
and duplication, monopoly power is conferred, but the social costs of
may be19 offset by the social benefits of higher level of creative activit
aged by monopoly earnings."20 They are the rewards that an individual
efforts.21

15 WIPO, http://www.wipo.int/about-ip/en/.
16 IP holders can include people and corporations. However, corporations hold more IPRs than
people do. See 1 Wenche Barth Eide (Ed.) & Uwe Kracht (Ed.), Food and Human Rights in
Development - Legal and Institutional Dimensions and Selected Topics 434 (Intersentia 2005).
17 What is Intellectual Property ?, WIPO, available at http://www.wipo.int/edocs/pubdocs/en/int-
property/450/wipo_pub_450.pdf.
18 WTO, https://www.wto.org/english/tratop_e/trips_e/intell_e.htm.
19 The phrase 'may be' is very crucial in the context of understanding the importance of IPRs in
serving a larger interest, directly or indirectly.
20 R.S. Khemani & D.M. Shapiro, Glossary of Industrial Organisation Economics and Competition
Law , commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD (1993).
21 Cf. Justin Huges, The Philosophy of Intellectual Property Rights , 77 Georgetown Law Journal
287 (1988) (citing, Zacchini v. Scripps-Howard Broadcasting Co., 53 L Ed 2d 965 : 433 US 562,
576 (1977) "The protection [of publicity] provides an economic incentive ... to make the invest-
ment required to produce a performance. . . . This same consideration underlies the patent and
copyright laws long enforced by this Court"; Goldstein v. California , 37 L Ed 2d 163 : 412 US
546, 555 (1973) "to encourage people to devote themselves to intellectual and artistic creation,
Congress may guarantee to authors and inventors a reward"; cf. United States v. Paramount
Pictures Loew's, 92 L Ed 1260 : 334 US 131, 158 (1948) "It is said that reward to the author or
artist serves to induce release to the public of the products of his creative genius").

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VOL. 27 SECTION 3(5)(i) OF THE COMPETITION ACT - AN ANALYSIS 171

IPRs are private rights.22 The business houses across the world are increa
ingly becoming dependent on IPRs for profit-making.23 Though many claim
that IPRs act as incentive to innovate24, others say that they are merely a tool t
commercialise the innovation that would have been there, sooner or later, ev
if there were no IPRs.25 It is also often said that IPRs are ultimately direct
towards the welfare of consumers.26 Theories should be tested by the utilities th
afford in explaining the practical situations occurring in reality.27

III. COMPETITION LAW - MEANING AND PURPOSE

"Competition law provides the framework for competitive activity

the process of competition."28 The concept of competition in the ma
ered valuable and, therefore, worthy of being protected.29 It is argu
tition in international and domestic markets provides an impetus to
productivity by letting survive and sustain only those firms that are
the others in terms of catering to the demands of the market.30 The
law seeks to protect competition in the market encouraging innovati
moting price competition32.33 Consumer welfare and protection is co
the goal of the competition law.34

22 Keith Eugene Maskus, Private Rights And Public Problems: The Global E
Intellectual Property In 21st Century (Washington, DC, Peterson Institute Pr
Harms, The Enforcement of Intellectual Property Rights: A Case Book , (WIP
Christopher May, A Global Political Economy Of Intellectual Property Rig
Enclosures? (London, Routledge 2000).
23 William W. Fisher, Theories of Intellectual Property , New Essays In The Le
Theory Of Property (Cambridge University Press 2001).
24 Sunil Kanwar and Robert E. Evenson, Does Intellectual Property Protection Sp
Change?, Center Discussion Paper No. 831, Economic Growth Center, Yale Uni
(June 2001) available at http://www.econ.yale.edu/growth_pdf/cdp831.pdf.
25 See Innovation and Growth - Rationale for an Innovation Strategy , OECD, 10 (20
26 Pamela Samuelson & Suzanne Scotchmer, The Law and Economics of Reverse E
Yale Law Journal1575 (2002).
27 See Richard A. Posner, Economic Analysis of Law (Aspen, 8th ed, 2011).
28 Competition Bill (H.L.), H L Deb October 30, 1997, Volume 582 Column 1156.
29 Sandra Marco Colino, Introduction To Competition Law (Oxford University Press
30 Klaus Schwab, The Global Competitiveness Report 2014-15 (World Economic F
31 This is called 'dynamic competition'.
32 This is called 'static competition'.
33 Richard Whish, Competition Law (London, LexisNexis UK, 5th edn. 2003) 734;
Balancing Proprietory and Public domain Interests: Inside or Outside of Propr
Expanding the Boundaries of Intellectual Property: Innovation Policy for the Knowledge

Society (Rochelle, Cooper, Dreyfuss, et al eds. 2001) 312; Herbet Hovenkamp, et a

Antitrust: An Analysis Of Antitrust Principles Applied TO Intellectual Property L
York, Aspen Law & Business, 2002).
34 See Bork, R.H. (1978), The Antitrust Paradox: A policy at War with Itself, Basic Bo
R.A. (2001), Antitrust Law, University of Chicago Press, 2nd edition; Competition Pol
in the Consumer and Development Interest, Dr. S. Sothi Rachagan, United nations Con
Trade and Development 2-4 July 2003 p. 4 http://www.cid.harvard.edu/cidtrade/Pape
; Some Reflections on the Question of Goals of EU Competition Law, Ioannis Liano
2013, Centre for Law Economics and Society Working Paper Series, 3/2013; On th

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172 NATIONAL LAW SCHOOL OF INDIA REVIEW 27 NLSI Rev. (2015)

Generally, this, that the IPRs and Competition law seek to achieve c
welfare, is what the mainstream organisation and experts around the wor
pose.35 IPRs act as an incentive to innovate and, thereafter, cause the
ination and commercialization.36 On the other hand, competition laws
innovation and consumer welfare by prohibiting anti-competitive practic
regard to the existing and the new ways of serving consumers.37 How
text that immediately follows the definitions of IPRs as provided by vari
national organizations like WIPO, WTO, OECD etc.38 clearly highlights
or financial significance of IPRs for the IPR holders and not for the cons
the absence of any strong evidence39, attributing consumer welfare40 to
be said to be merely a distorted hindsight approach in a desperate attemp
tify IPRs in the context of overall consumer welfare.41

IV. THE RELATIONSHIP

Competition law is a legal framework of market supervisio

correct the problem of monopoly which is one kind of a mark
the other hand, IPRs grant monopoly rights to the IPR holders

Welfare Standards in the Competition Law, Louis Kaplow, Discussion Pape

Law School May 2011.
35 See Arutyun Arutyunyan, Intellectual Property Law vs. Essential Facility
vs. Commission , Balitic Journal of European Studies (earlier known as the
Institute for European Studies), IES Proceedings, No. 4 (December 2008), S
Institutional Environment: Harmonisation in the EU Countries of Baltic Sea Rim.
36 U.S. Department of Justice and Federal Trade Commission Antitrust Guidelines for the Licensing
of Intellectual Property (1995), reprinted in 4 Trade Reg. Rep. (CCH); also see United Nation
Economic Commission for Europe; Intellectual Property Commercialisation - Policy Options and
Practical Instruments 2011 esp. p. 6.
37 U.S. Department of Justice and Federal Trade Commission Antitrust Guidelines for the Licensing
of Intellectual Property (1995), reprinted in 4 Trade Reg. Rep. (CCH).
38 Refer to the discussion under the heading "Intellectual Property - meaning and purpose" of this
article.
39 See Carlos M. Correa, Intellectual Property and Competition Law: Exploration of Some Issues of
Relevance to Developing Countries , ICTSD IPRs and Sustainable Development Programme Issue
Paper No. 21, International Centre for Trade and Sustainable Development, Geneva, Switzerland,
at p. viii.
40 For more information about the realities of IPRs, read Joseph Stiglitz, Economic Foundations of
Intellectual Property Rights , 57 Duke Law Journal 1693 (2008).
41 To know more about the basics of such issues, see Doron Teichman, The Hindsight Bias and the
Law in the Hindsight , in The Oxford Handbook Of The Behavioral Economics And The Law,
354-376 (Eyal Zamir & Doron Teichman eds., Oxford University Press 2014); see also Ellsworth,
Phoebe C., Legal Reasoning and Scientific Reasoning , 63(1) Alabama Law Review , 895 (2011).
42 Niamh Dunne, Competition Law and Economic Regulation - Making and Managing Markets
14 (Cambridge University Press, 2015).
43 See Roger E. Meiners & Robert J. Staaf, Patents, Copyrights, and Trademarks: Property or
Monopoly? 13(3) Harvard Journal of Law & Public Policy 911, 911 (1990); N. Stephan Kinsella,
against intellectual monopoly 6 (Ludwog von Mises Institute, 2008); Steven Shavell and
Tanguy Van Ypersel, Abstract to Rewards vs. Intellectual Property Rights, 44 Journal of Law
and Economics 525 (2001); for another point of view, see John F. Duffy, Intellectual Property

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VOL. 27 SECTION 3(5) fi) OF THE COMPETITION ACT - AN ANALYSIS 173

believed that the two disciplines operate against each other.44 But the percep-
tion is considered to have changed now with a prevailing mindset that the goals
of competition law and intellectual property are similar.45 But the pseudo-shift
in the academic discourse is a common consequence of the conditioning of the
academia by the existing power structures 46 There is one school of thought that
seeks to separate the competition law from the intellectual property law and
maintains that the job of the competition law should only be limited to the "use
and abuse of property rights that are sources of monopoly power"47.

An argument is often advanced against subjecting the IPRs to competition

scrutiny that it will undermine the very certainty of the exclusivity that intellec-
tual property rights aim to provide in order to stimulate innovation.48 The pro-
tection of IPRs from the onslaught of competition law presumes the relevance of
IPRs in stimulating innovation that is considered to be the best for the public.
Recouping of investment is helped by IP regime and therefore, firms are incen-
tivized to innovate 49 The veracity of this argument has to be tested through the
sieve of the obscenities of truth. It is argued that innovation has been and will
always be there irrespective of the existence of IPRs.50 There exist contradictory
approaches in this regard.51 These different approaches not only create confusions

as Natural Monopoly: Towards a General Theory of Partial Property Rights , Paper at Fall 2004
Workshop of the Center of Law, Business, and Economics of the University of Texas.
44 See, eg, Image Technical Services, Inc. v. Eastman Kodak Co ., 125 F 3d 1195, 1215 (9th Cir 1997)
("[o]ne body of law creates and protects monopoly power while the other seeks to proscribe it.').
45 Atari Games Corpn. v. Nintendo of America Ine , 897 F 2d 1572 (Fed. Cir. 1990); Thomas C.
Vinje and Ashwin van Rooijen, Chapter 17: The Relationship between Intellectual Property
Rights and Competition Laws , in Overlapping Intellectual Property Rights 368 (Neil Wilkof
& Shamnad Basheer eds., Oxford University Press 2012); The competition law/IP 'interface'- an
introductory note , in The Interface Between Intellectual Property Rights and Competition
Policy 1 (Steven D Anderman ed., Cambridge University Press 2007); William K Tom & Joshua
A. Newberg, Antitrust and Intellectual Property: From Separate Spheres to Unified Field,
66 Antitrust Law Journal 167, 167 (1997); Mark A. Lemley, A New balance between IP and
Antitrust, 13 Southwestern Journal of Law and Trade in the Americas 237 (2007).
46 See Interview with Ha Joon Chang, Reader, University of Cambridge, Old economics, new stir-
rings , Frontline (March 6, 2015).
47 Pierre Regibeau & Katherine Rockett, The Relationship Between Intellectual Property Law and
Competition Law: An Economic Approach, Discussion Paper, University of Essex and CEPR
(June 2014).
48 See Ashwin van Rooijen, The Soft ware interface between copyright and competition laws, 104
(Kluver Law International, 2010).
49 Commission Notice Guidelines on the application of the Article 81 of the EC Treaty to technol-
ogy transfer agreements, European Commission, 7 Section Official Journal C-101/2 (2004).
50 Friedrich A. Hayek, The Fatal Conceit- The Errors of Socialism 6 (W.W. Bartely, 3rd ed.,
Chicago, University of Chicago press, 1991); see Robert P. Merges and Richard R. Nelson,
On the Complex Economics of Patent Scope, 90 Columbia Law Review 839; S.N.S. Cheung,
Property Rights and Invention , 8 Res. L. & Econ. 5, 6 (1986) (referring to F.W. Taussig,
Inventors and Money-Makers (1930)); see generally Rochelle Drey fuss & Susy Frankel, From
Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual
Property (New York University Public Law and Legal Theory Working Papers- 478, 2014).
51 Padraig Dixon & Christine Greenhalgh, The Economics of Intellectual Property: A Review to
Identify Themes for Future Research , at p. 31, University of Oxford, Discussion Paper Serious

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174 NATIONAL LAW SCHOOL OF INDIA REVIEW 27 NLSI Rev. (2015)

as to the real understanding of the issue from an unbiased point of v

enrich the public discourse by making available plethora of perspectives.

V. INTERFACE BETWEEN THE IP AND

COMPETITION LAW- GIVING ITA SHAPE

In the Indian context, as is everywhere else in the world, any

conundrum is put an end to, at least, in the realm of justice disp
tem, the moment a piece of legislation on the subject comes into the
same happened with the controversies that arose from the intera
competition policy and IPRs when many countries around the w
laws pertaining to the competition law.52 However, thereafter, furth
of interpretation of the law started to crop up.53 Though the broade
"whether and under which conditions the granting of IP protection m
ited, or whether an appropriate market regime- in the light of pursu
tion- could be established on the basis of competition law"54, the
between the two and the formal protocol gòverning the same hav
tised by Section 3(5)(i) of the Competition Act. Regardless, it is cruci
stand the nature and the scope of this relationship as has come to
the statute.55

In a common law country that India is, it becomes important

account the apprehensions that attach to any exercise of interpretati
taken by the courts, especially when the laws hailing from differ
come into conflict with each other at the time of their applicatio
cance of the dilemma intensifies in the absence of any formal hie
legal statutory structure.57 It is very difficult to say whether Co
will prevail over IP law or vice-versa; and, how will the compet

No. 135 (December 2002).

52 R. Shyam Khemani, Application of Competition Law: Exemptions and Exempt
DITC/CLP/Misc.25 (United Nations, 2002); For an overview of the competition
world, see Keith N. Hylton & Fei Deng, Antitrust Around the World: An Emp
the Scope of Competition Laws and Their Effect , 74(2) Antitrust Law Journal 27
53 Roger van den Bergh & Peter D. Camesasca, European Competitive Law a
Comparative Perspective 70 (London, Sweet & Maxwell, 2nd ed. 2006).
54 Max Planck Institute for Innovation and Competition, Intellectual property law
law- between the market place and the regulation , http://www.ip.mpg.de/en/pub
ing/ip/fields_of_research/marketplace_and_regulation.cfm#i26297.
55 See Jens Schovsbo, Fire and Water Make Steam- redefining the role of co
TRIPS , Intellectual Property Rights in a Fair World Trade System (Annette K
Elgar Publication, 2011).
56 Lord Seiborne, L.C., in Giles v. Melsom, 1873 LRHL Eng. Ir. App. 24, said th
can be more mischievous than the attempt to wrest words from their proper an
only because they are superfluous".
57 Grosse Ruse-Khan, Henning, Introduction to A Conflict-of laws Approa
Rationalities in International Law: The Case of Plain Packaging between IP, Tr
and Healthy 9 Journal of Private International Law 309, 309 ( 2013).

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VOL. 27 SECTION 3(5)(i) OF THE COMPETITION ACT - AN ANALYSIS 175

with IP issues.58 The Competition Commission of India (henceforth referred t

"CCI") in Shamsher Kataria, In re 59 did deal with the interpretation of Se
3(5)(i) of the Competition Act. The following discussion will conclude in
whether the way CCI dealt with the issue clarified the situation or obscur
further and that too in a wrong direction.

VI. SECTION 3(5)(I) OF THE COMPETITION ACT

Regardless of the fact that IP regimes should not be conceived and applied i
isolation to the competition law60, the existing IP laws do not protect competition
There is an argument that IP law promotes dynamic competition.61 But, doubts do
exist whether IPRs should take all the credit for being the champion of dynamic
competition.62

There is absolutely no reference to the term "competition" in the India IP stat-

utes. But, the competition law statute provides certain exemptions to protect the
IPRs.63 Any person who wants to go ahead with restraining someone else from
infringing his IPRs or with imposing certain restriction in order to protect h
IPRs under the Indian statutes has been given a free pass under the Competitio
Act. This implies that the overall mandate of the legal system is biased in favour
of IPRs that are private rights, at the cost of competition law, the most desired
general market phenomenon.64 Therefore, the objectives that are sought to b
served by the application of IPR laws are given preference and priority over the
objectives that are sought to be served by the application of competition law.

Section 3(5)(i) of the Act reads as follows:

58 See Copyright, Competition and Development, A Report By Max Planck Institute for Intellectua
Property and Competition Law, Munich, at p. 6 (December 2013), http://www.ip.mpg.de/files
pdf3/Report_Copyright-Competition-Development_December-2013.pdf.
59 Shamsher Kataria ,In re , 2014 SCC OnLine CCI 95.
60 Carlos Correa, A Competition Approach to the Intellectual Property Protection , Internation
Center for Trade and Development (November 1, 2007) available at http://www.ictsd.org
bridges-news/bridges/news/a-competition-approach-to-intellectual-property-protection.
61 Josef Drexl, Intellectual Property and Antitrust Law- IMS Health and Trinko- Antitrust Placebo
for Consumers Instead of Sound Economics in Refusal-To-Deal Cases' 35 IIC: Internationa
Review of Intellectual Property and Competition Law, 788, 802 -et sq (2004); Research
Handbook on Intellectual Property and Competition Law, 16 (Joseph Drexl ed., Edward Elga
Publishing Limited 2008); see also Josef Drexl, Do we always favor dynamic competition ove
static price competition when excluding Imitation ?, Presentation, 13th EIPIN Congress (March 3
2012).
62 See Keith E. Maskus, Conlcusion to Intellectual Property Rights And Economic Development ,
Prepared for the series "Beyond the Treaties: A Symposium on Compliance with International
Intellectual Property Law", organized by Fredrick K. Cox International Law Center at Case
Western Reserve University (Revised Draft: February 6, 2000).
63 Section 3(5)(i), The Competition Act, 2002.
64 "The existence of IP rights restricts competitive market forces for a set period", IP Australia,
http://www.ipaustralia.gov.au/understanding-intellectual-property/why-use-ip/value-of-ip-rights/.

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176 NATIONAL LAW SCHOOL OF INDIA REVIEW 27 NLSI Rev. (2015)

(5) Nothing contained in this section shall restrict -

(i) the right of any person to restrain any infringement of or to im

reasonable conditions , as may be necessary for protecting any
rights which have been or may be conferred upon him under -

(a) the Copyright Act, 1957 (14 of 1957);

(b) the Patents Act, 1970 (39 of 1970);

(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958)
Trade Marks Act, 1999 (47 of 1999);

(d) the Geographical Indications of Goods (Registration

Protection) Act, 1999 (48 of 1999);

(e) the Designs Act, 2000 (16 of 2000);

(f) the Semi-conductor Integrated Circuits Layout-Design Act

(37 of 2000);

The section regulates the effect of competition law on IPRs and is positive in
nature in the sense that it is only when the situation65 stated therein emerges that
the competition law, though not failing to follow its due course, will not bother
to restrict the happening of the said situation.66 However, this is not true.67 The
section will come into play only if the application of the Competition Act will
restrict the right68 of a person to restrain infringement of and to impose condi-
tions for protecting his rights69 that have been or may be conferred upon him
under the specific IP statutes70 mentioned therein.

Thus, technically, it is not the IPRs as such that are protected by the virtue of
Section 3(5)(i); rather, it is the right to protect IPRs that is protected.71 The right

65 The 'situation', here, refers to what has been provided for in the Section 3(5)(i) of the
Competition Act.
66 This highlights how the way a law is written serves the purpose that it doesn't expressly seek to
serve.

67 The following sections of the article will highlight and explain the point.
68 The words used in the section are "the right" of a person. It means that the se
particular right.
69 Here and until this stage of the flow of the section 3(5)(i), the Competition Ac
IPRs in a general sense. It is yet not talking about the source of these rights.
70 Here, it becomes clear that the rights that are sought to be protected by the r
unrestricted by the Section 3(5)(i) of the Competition Act are the IPRs that ha
conferred by the IP Statutes specifically mentioned therein.
71 But, this is merely a technicality of the language of section 3(5)(i). The conseq
ation of this section is inherently linked to the substance of the section.

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VOL. 27 SECTION 3(5)(i) OF THE COMPETITION ACT - AN ANALYSIS ill

that is unrestricted by the operation of this section is, in fact, the right to exe
cise72 the IPRs.73

VII. THE DISTINCTION BETWEEN

'EXISTENCE AND 'EXERCISE' OF IPRS - A

COMPETITION LAW PERSPECTIVE

The section is supposedly not meant to afford a blanket exem

under the Competition Act, 2002. Rather, it demarcates the operati
between competition law and IPRs where the transaction in question
aspects.74

Interestingly, CCI observes that existence of IPRs does not automatically

include the right to exert restrictive or monopoly power in a market.75 It fur-
ther, categorically, notes that a practical solution can be based on the distinc-
tion between the existence of IPRs and their exercise.76 Therefore, according to
CCI, if the exercise of IPRs leads to any prohibited anti-competitive trade prac-
tice, the same has to be assailed.77 This stance of CCI is totally against what the
Competition Act's Section 3(5)(i) puts forth. The said provision, in fact, takes the
exercise of the IPRs out of the domain of application of the Competition Act.

Per Section 3(5)(i), a person has a right to protect the rights that have been
or may be conferred upon him under the specific IP statutes mentioned there-
in.78 This he can do by restraining infringement of his IPRs or imposing certain
conditions as may be necessary for the protection of his IPRs. IPRs are, gener-
ally79, considered to be negative right i.e. the right to stop the third parties from
their commercial exploitation. The existence of IPRs, the negative rights, is the
exercise80 of the IPRs. Therefore, if one is trying to do any of the two things
- restraining infringement of IPRs or imposing conditions to protect them-
72 The right to exercise IPRs, here, refers to the right to do the things that come under the charac-
terization of the IPRs as negative rights.
73 It is the right to exercise IPRs that the CCI's official Advocacy Booklet on Intellectual Property
Rights claims to assailed if the same goes contrary to the principles of competition.
74 The legislative realities reflect the proposition.
75 CCI Advocacy Booklet Intellectual Property Rights under the Competition Act, 2002.
76 Id.
77 Supra note 74.
78 For the sake of brevity, let the rights, both, the conferred and those that may be conferred, be
called IPRs.

79 There are a few academicians who really think that the IPRs being considered as negative rights
is a matter of hyper-technicality that crops up from the language of the statutory instruments. In
my opinion, IPRs are positive rights when we notice the purpose they serve and the functions
they have when they are in operation.
80 Canada Competition Bureau, Competition Bureau, Intellectual Property Enforcement Guidelines,
paragraph 4.2.1 ("The Bureau defines the mere exercise of an IP right as the exercise of the own-
er's right to unilaterally exclude others from using the IP. The Bureau views an IP owner's use of
the IP also as being the mere exercise of an IP right.").

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178 NATIONAL LAW SCHOOL OF INDIA REVIEW 27 NLSI Rev. (2015)

mentioned in the section, one is deemed to be exercising his IPRs.81 T

section 3(5)(i) takes away the IPRs and their exercise completely from the
of competition law; and, this scenario contradicts what has been claim
in its IPR advocacy booklet.

VIII. SCOPE OF THE PROTECTION-

WHAT IS PROTECTED?

As we have seen, the right that has not been allowed to be restrict
of Section 3(5)(i) is only the right to restrain the infringement o
certain restrictions to protect rights that have been conferred or may
by the IP statutes; and, not the rights conferred or that may be con
IP statutes itself. Technically, a person has a right to restrain in
per the IP statute. Therefore, for a moment, the use of 'the' before
taken to mean that the right that is sought to be unrestricted is som
has been borrowed from the IP statutes by the Competition Act.
language of the section provides for is not this. Though the operatio
tion seeks to address the issue of exercise of IPRs and does recognize
cific right82 to restrain infringement and impose conditions, the la
section is silent about the source of the said right.

IX. POSITION OF IPRS UNDER SECTION 3(5)(I)

What rights can be protected by exercising the right that is allowed unr
stricted under the section have been left to the specific IP statutes by using
arrangement of words "have been or may be conferred upon him under" in
section. According to the Merriam Webster dictionary, the meaning of "con
ferred" is "to give (as property or characteristic) to someone or something".
implies that even if certain rights can, generally, be termed as "IPRs", they will
not be, for the purpose of this section, as long as they have not been or may no
be conferred under the specific IP statutes mentioned therein. Only the 'confer-
ment' has been subjected to the specific IP statutes. The subject matter - "a
of his rights" - in relation to which infringement can be restrained and the rea-
sonable conditions can be imposed is rooted in the IP statutes. Hence, per th

81 Illustration: In case of patents, the section 48 of the Patents Act provides for the right of
patentee and the same include the exclusive right to prevent third parties, who do not have h
consent, from the act of making, using, offering for sale, selling or importing for those purpo
Therefore, restraining the infringement of the patent rights under the Patents Act will include no
allowing third parties to make, use, etc. the product that is the subject matter of the patent. T
restraining the infringement is, thus, the exercise of the IPRs as the IPRs are negative rights
Therefore, technically, only restraining the infringement would amount to exercising the IPR
If the IPRs were positive rights, then their use by the IPR holder to produce his own goods a
services would have constituted exercise of IPRs. But, the later is not the case.
82 By using "the" before "right" in the language of Section 3(5)(i).

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VOL. 27 SECTION 3(5)(i) OF THE COMPETITION ACT - AN ANALYSIS 179

structuring of the section 3(5)(1), the list of the specific IP statutes mentioned
the section has a very limited purpose.

X. INFRINGEMENT

Infringement, though not defined but provided for in the IP statu

IPR holder exercise his negative rights. Therefore, if the 'infringeme
in the context of the Competition Act is considered to mean what th
ment is in the context of IP statutes, the right to restrain infringem
considered to be a negative right for that is what the IPRs are gener
However, per the language of section 3(5)(i), the right to restrain inf
not, in the context of the application of the section, rooted to the IP s

XI. IMPOSING REASONABLE CONDITIONS

Another aspect that is covered by the unrestricted right allowed

tion is the right of an individual to impose certain restrictions
Normally, imposition of reasonable terms and conditions are exp
statutes to be imposed in the context of licensing of IPRs. But,
the language of section 3(5)(i), the Section here is not specificall
those reasonable conditions. Therefore, the second subject matter of
imposition of reasonable condition is also not rooted in the IP statut

The basis of the aforementioned observations is that if the leg

was to ground the underlying purpose of everything contained i
in the specific IP statutes mentioned therein, the language would ha
provided for the same and the phrases like "may be conferred"
of reasonable conditions" would have been excluded. The syntax
sion categorically puts forth that the Competition Law did not w
IP Statutes totally out of the application of competition law; ra
to provide for its own arrangement pertaining to IPRs that it thou
excluded from the Competition Act's application.

XII. DISCUSSING CERTAIN ASPECTS OF KATARIA CASE

In the case, CCI noted that the Original Equipment Manufacturers

referred to as "OEMs") relied on Section 3(5)(i) to state that the
Original Equipment Suppliers (henceforth referred to as "OESs")
sales of the OEMs' proprietary parts to third parties without prior
fall within the ambit of reasonable condition to prevent infring
IPRs.83 The investment function of IPRs was also raised by the

83 Supra note 6, ■ 20.6.15.

84 Supra note 6, 1 20.6.15.

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180 NATIONAL LAW SCHOOL OF INDIA REVIEW 27 NLSI Rev. (2015)

according to CCI, contended that investment in research and development

ties by them lead to manufacturing of the products in question.85

CCI in order to determine whether the agreements entered between the

and OESs fell within the ambit of the provisions of Section 3(5)(i) o
thought it necessary to frame the following for considerations:

"a) whether the right which is put forward is correctly characterized a

tecting an intellectual property; and

b) whether the requirements of the law granting the IPRs are in fa

satisfied."86

A. 4 have been or may be granteď - Interpretation

CCI took into consideration the failure on the part of the OEMs to confirm
the status of the IPRs held by them in India along with necessary details to sup-
port their contention that Section 3(5)(i) is applicable to their case.87 There was
no documentary evidence afforded by the OEMs to establish the grant of IPRs in
relation to their spare parts, in India.88

According to CCI, the applications of Section 3(5)(i) was consequent upon the
fulfilment of the condition that IPRs have been conferred or may be conferred
upon the "IPR holder".89 It observed that: " The Commission is of the opinion
under section 3(5)(i) allows an IPR holder to impose reasonable restrictions
to protect his rights ' which have been or may be conferred upon him under '
the specified IPR statutes mentioned therein. The statute is clear in its require-
ment that an IPR must have been conferred (or may be conferred) upon the IPR
holder prior to the exception under section 3(5)(i) being available. Therefore,
before the OEMs are permitted to seek the exemption under section 3(5)(i) they
must establish that their IPRs have been granted protection (or that the OEMs
have initiated the process of being granted protection) under the specified IPR
statutes in India [Emphasis Added]

While interpreting ' which have been or may be conferred upon him under ,
CCI concluded that either the OEMS should prove that either their IPRs have
been granted protection or the OEMs have initiated the process of being granted
protection under the specified IP statutes in India90.

85 Supra note 6, ļ[ 20.6.15; It is not understandable what relevance the investment function of IPRs
has in the context of application of Section 3(5)(i) of the Competition Act.
86 Supra note 6, ļ 20.6.16.
87 Supra note 6, at ļ| 20.6.16.
88 Supra note 6, at ļļ 20.6.16.
89 Supra note 6, at ļ 20.6.16.
90 CCI imposed the geographical limitation on the characterisation of certain rights as IPRs, though
the relevant section was silent on this.

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VOL. 27 SECTION 3(5)(i) OF THE COMPETITION ACT - AN ANALYSIS 181

This observation is marred by the following two interpretational faults:

First , the word that has been used by CCI is the "IPR holder" which is total
absent from the language of Section 3(5)(i). Can a person upon whom the r
under a specific IPR statute have not yet been conferred and may be conf
be called an 'IPR holder'? No. A person becomes an IPR holder only after
rights have been conferred upon him under the specific IP law.91 The issue un
consideration here is not whether the IP has been registered for the creator or
owner to be declared as an IPR holder; the issue is whether IPRs have been
ferred upon a person by the application of any specific IP statute.

Second, CCI mistook the right that "may be conferred" to mean that
party seeking application of Section 3(5)(i) should have initiated the proce
being granted protection. This interpretation is inherently wrong as it provid
no line of thinking or argument that made CCI interpret "the right that may
conferred" into "therefore, before the OEMs are permitted to seek the exemp
under Section 3(5)(i) they must establish that their IPRs have been granted
tection (or that the OEMs have initiated the process of being granted pro
tion) under the specified IPR statutes in India." [Emphasis applied] The Se
does not, in any way, require that the person evoking Section 3(5)(i) must
initiated the process of being granted the protection under the IP statute to b
his rights under the purview of "may be conferred". The language of the prov
sion does cover a situation in which certain rights under the specific IP sta
may be conferred upon a person even if he hasn't applied for it. It is not a
cedural requirement; rather, it is a substantial requirement, in the context of
Competition Act.92

XIII. LACK OF EVIDENCE

CCI also differed from OEMs in relation to the latter's characteri

tain rights as IPRs.93 OEMs could not submit before CCI suffi
establish the former's claim over a particular type of IPRs. C
OEMs did not provide the details of the spare parts correspond
registration, done or pending, details were provided by them in r
and patents. CCI found it impossible to relate the rights claimed b
individual spare parts. Hence, the denial of the exemption seems v
perspective.

91 See the proviso to Section 11 A (7) of the Patents Act 1970 mentioning the t
92 CCI's only discretion, in this regard, is to acknowledge whether the said IPR
or may be conferred upon a person.
93 Supra note 6, at ļ 20.6.16.

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182 NATIONAL LAW SCHOOL OF INDIA REVIEW 27 NLSI Rev. (2015)

XIV. TERRITORIAL NATURE OF IPRS

CCI noted that the OEMs contended that the some of the I
tion were validly held by their overseas parent companies and wer
through technology transfer agreements. Responding to this su
OEMs, CCI stated that the IPRs were territorial in nature and the
be vested upon the IPR holder only in a given jurisdiction. Though, on
this observation of CCI totally discarded the relevance of those IP-
national instruments which mandated the internationalisation of c
pertaining to IPRs, it also highlighted that the contracts could not m
sal what is territorial in nature; especially, in the context of competi
specifically stressed on the need of the conferment of the IPRs as pe
IP statutes. CCI observed that the OEMs held, under a TTA, the r
mercially exploit IPRs that was held by their parent companies an
right itself.94 Therefore, also, the application of Section 3(5)(i) was de

If the Indian IP statutes provide for the recognition of IPRs v

a person abroad, it will be mandatory for CCI to consider it favou
purpose of application of Section 3(5)(i). CCI held that only the IPR
agencies in India, and not CCI, would be in a position to decide if
istered abroad would fulfil the legal and technical requirements of
statutes to be considered as an IPR worthy of being the subject o
(i). CCI, however, did, in theory and prospectively, usurp the jurisdic
evidence before itself with regard to the fact that the foreign-regist
question is validly recognized as per the Indian statutes or where
tion was imminent.

XV. CEASE TO SUBSIST

CCI, while considering whether the OEMs enjoyed copyright

after they did not register their engineering drawings and tec
their spare parts under the Section 2(o)95 of the Copyright Act96
copyright over the designs registered under the Designs Act97 or
are capable of getting registered under the Design Act, but were
shall cease to exists once the said design has been applied more
the application of industrial process by the copyright holder or its

CCI, in response to the contention of the OEMs that the p

tion 15(2) of the Copyright Act will be applicable to protect the c
OEMs in the spare parts because of the application of the Internat

94 Supra note 6, at ļf 20.6.17.

95 Definition of 'literary work' under the Copyright Act.
96 Supra note 6, ļ 20.6.18.
97 Designs Act, 2000.
98 Supra note 6, ļ 20.6.19.

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VOL. 27 SECTION 3 (5) (i) OF THE COMPETITION ACT - AN ANALYSIS 183

Order, 1999 implementing the provisions of the Berne Convention, read w

the section 33 of the Copyright Act", held that the CCI didn't need to vent
into the applicability of section 15 of the Copyright Act to the case of the OEM
in order to determine the applicability of section 3(5)(i) of the Competition
to the agreements between OEMs and OESs.100 CCI went ahead to interpr
"impose reasonable conditions, as may be necessary for protection of any of
rights " and held that the concept of protection of an IPR was qualified by
word "necessary"."101 This interpretation of CCI is not justified because it is no
the concept of the protection of an IPR that is qualified by the word 'necessary
it is the reasonable conditions that ought to be 'necessary' for the protect
which is an independently absolute concept under Section 3(5)(i). On the ba
of its interpretation of the phrase, CCI stated: " So the question that one sh
ask is: can the IPR holder be able to protect his IPR , even if such restrict
was not present".102 This question is also wrong because the phrase in the Sectio
does not read: "if necessary for the protection". Instead, the phrase is "as may b
necessary for protection". The protection is absolute in the context of the Secti
Therefore, the word 'necessary' doesn't qualify the word 'protection'; but, it doe
qualify the phrase "impose reasonable conditions" and thus, qualifying the word
'reasonable' and 'conditions', collectively. So, the questions that CCI should h
considered are: Are the conditions that are sought to be imposed by the per
wanting to apply Section 3(5)(i) reasonable? And, Are the reasonable condit
so imposed necessary for the protection of the IPRs?

XVI. PRODUCTS DID NOT COMPRISE THE IPRS

CCI observed that the products manufactured by OEMs and so

are finished products and the IPRs in them could be protected c
Interestingly, this is what the OEMs were allegedly doing impos
on sales to protect the IPRs; but, CCI failed to articulate it. Acc
OEMs were not to impose sale conditions on the OESs to protect
finished products. This observation of CCI is wrong for the reason
of Section 3(5)(i) does include such contracts and the issue bef
check the validity of such contracts that were imposing sale restric
pretext of protecting IPRs in the finished products.

CCI held that "selling a diagnostic tool in the open market doe
the IPRs of the OEMs in such tools and equipment"104 Regardless of
the Section does, technically, include within its scope the scen
sales restrictions can be imposed in order to protect IPRs, the h

99 Supra note 6, at ļļ 20.6.20.

100 Supra note 6, at f 20.6.21.
101 Supra note 6, at ļ 20.6.21.
102 Supra note 6, at ļ 20.6.21.
103 Supra note 6, at ļ| 20.6.21.
104 Supra note 6, at ļ 20.6.22.

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184 NATIONAL LAW SCHOOL OF INDIA REVIEW 27 NLSI Rev. (2015)

issue by the CCI is not understandable when it held that the restrictions
upon the OESs from selling spare parts directly into the were not w
ambit of exemptions granted by Section 3(5)(i). By the implication of the
if an agreement causes protection of IPRs and anti-competitive behaviour,
still be allowed to get into effect.

XVII. CONCLUSION

The limited analysis of Section 3(5)(i) of the Competition Act i

clearly shows that the highly uncertain contours through which the
law has been framed are atrocious and unable to regulate the ant
exercise of IPRs. It also highlights certain faults in the CCI's interpr
law. The aforementioned analysis also shows how skewed are the
the dynamics of the interface between competition law and IP law.

IPRs should not be used in a way that violates competition law

visions contained in the TRIPS also aim at preserving competitio
ket.106 Intellectual property rights have to take account of the publ
The judiciary has the responsibility to discharge the great burden of
tation of the law that has been formulated by law-makers and to ana
dimensions.108

105 Orange Book Standard case KZR 39/06 May 6, 2009 [BGH].
106 Articles 8.2 and 40 TRIPS.
107 Paramjeet Singh Berwal, Comment The Need to balance moral rights and public utility, in
WIPO Magazine Letters and Comments. (April 2008).
108 Paramjeet Singh Berwal, Articles 3(a) and 3(b) of the SPC Regulation - An Analysis , 36(1)
European Intellectual Property Review 29, 37-38 (2014).

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