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Business News/ Opinion / Intellectual property vs competition law

Intellectual property vs competition law

The competition cure may well be worse than the patent plague that it was meant to heal

For various reasons, the value of a patent will remain relatively indeterminate. Photo: AFPPremium
For various reasons, the value of a patent will remain relatively indeterminate. Photo: AFP

Given that we just celebrated yet another honorific day on 5 December—the World Competition Day—I want to pose a fundamental question on the interface between intellectual property (IP) and competition law. To what extent should competition law be permitted to intrude into the hallowed halls of IP?

IP purists argue that IP regimes are good enough to internally sort out the negative fallouts of excessive monopoly power typically engendered by avaricious IP owners. An egregious example is excessive pricing or a refusal to supply the patented invention in quantities sufficient enough to satiate the market. It is thus that the Indian patent regime (and many other similarly situated regimes) stipulates that in such situations of abuse, the IP owner could be hit with a compulsory licence.

India invoked this compulsory licensing provision (Section 84) some years ago in a controversial case pitting Bayer, a German multinational pharmaceutical company, against Natco Pharma Ltd, an Indian generic company.

Natco had petitioned the patent office arguing that Bayer’s price for its patented anti-cancer drug, Nexavar, was exorbitant at Rs2.8 lakh and unaffordable to a large segment of the patient population and that it was willing to supply the drug at less than 1/30th of the patented price, i.e. at Rs8,800. The patent office ruled in favour of Natco, holding in pertinent part that Bayer’s price was excessive.

However, the patent office did not showcase any metric to arrive at this conclusion of excessive pricing. It cleverly relied on Bayer’s own admission that the drug reached only 2% of the patient population; and took this to mean that the drug was unaffordable to the other 98% of patients. This, of course, begs the question of whether the others wanted the drug at all in the first place! After all, India is home to a large number of patients that never so much as see the insides of a decent hospital and/or others who put their faith in faith healers and traditional medicines.

But even assuming this handsome heuristic may have worked in this one instance, future cases will demand the formulation of a rigorous frame for determining “excessive" or “unaffordable" pricing; one built on a nuanced understanding of the healthcare market, purchasing power, insurance schemes and the like.

Are patent offices competent enough to make this complex evaluation?

Not quite, given the perennial problems with getting even basic patent examination right!

Which then leads us to: Is this complex evaluation better performed by a competition agency? Given their allegedly superior proficiency in economics and data crunching, one may be tempted to answer in the affirmative.

Except that there is many a slip between the cup of theory and the lip of practice. The jurisprudential worth of many a decision from the Competition Commission of India (CCI), particularly those that traverse the IP-competition interface, leaves much to be desired.

I speak in particular of the Shamsher Kataria case involving automobile spare parts, where the CCI confidently pronounced that there can be no copyright protection over industrial drawings that underlie spare parts, when our courts have been struggling with this very issue for years on end.

Effectively, we are stuck between devil and the deep sea. And the competition cure may well be worse than the patent plague that it was meant to heal; engendering an iatrogenesis of sorts!

So quo vadis? Perhaps we could begin by infusing our IP offices with in-house competence in economics by recruiting ad hoc experts. After all, an ex-post evaluation of a purported patent abuse has less to do with measuring the technical merit of an invention (requiring some competence in science/technology) and more to do with economics and the like.

As the innovation ecosystem undergoes cataclysmic changes and fragments itself into a diverse set of players in the value chain, old notions of absolutist IP protection through exclusivity are slowly yielding to a newer and more progressive sharing regime, where IP owners are denied injunctive relief against infringers and forced to contend with a mere right to share in the royalties that emanate from the infringers’ use of the IP.

No doubt, a determination of the appropriate sharing percentage (“reasonable" royalty) will require a serious engagement with economic frames.

But then again, given the inherent arbitrariness of valuing an intangible such as IP, do we really need to spend time and resources in getting this right? As a valuation expert once quipped: give me the price you want and I’ll work out the methodology!

And this is where the cookie crumbles. For in the end, patents are tricky tools of the trade; boasting uncertainty of an unusually high degree. They are largely luck-based (lottery like) and can be invalidated at any time owing to the discovery of a primal piece of prior art. For this and various other reasons, patent value will remain relatively indeterminate.

The best we can do is to pretend that there is some methodological rigour in our analytical framework. So long as we have a broad frame, one conclusion may well be as good as the other. Or to put it more bluntly, the legal realists may well have won the day!

Shamnad Basheer is honorary research professor of IP law at Nirma University and founder of SpicyIP and IDIA.

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Published: 07 Dec 2016, 04:16 AM IST
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