Delhi HC patents verdict may hit small-scale, mid-sized manufacturers

The court ruled that in the issues pertaining to rights of patentees, the Patents Act overrides the Competition Act and hence the anti-trust regulator cannot probe issues pertaining to rights of patentees.

This verdict was delivered in the appeals moved by global companies Ericsson and Monsanto against a Competition Commission of India (CCI) probe. Earlier, a single bench of Delhi High Court had ruled in favour of CCI—a verdict that has now been overturned.

Legal experts said the judgment implies that CCI cannot probe terms and conditions imposed by patent holders on those who seek licence of these patents. Instead, any grievances regarding patentee rights need to be taken up before controller of patents.

However, unlike CCI which has wide powers to summon documents and depose people, the controller of patents is not a full-fledged regulator, legal experts said. Patent licensing is an important means for some of the local manufacturing industries, especially in sectors like pharma or advanced electronics. Since the patent holders are usually big multinational corporations, there are often complaints about abuse of market dominance by such companies. Also, the royalties that the patent holder demands are often steep.

G R Bhatia, head of competition practice, Luthra & Lut-hra Law offices said unless the order is overturned by a higher judicial forum, it will prevail and would imply parties impacted by unfair clauses, be it competitors, intermediaries or end customers, put in by patent holders will not be able to seek CCI intervention.

“Director general (DG) of CCI has wide investigation powers including powers to call for information from all relevant parties in a case. On the other hand, the controller of patents does not possess such wide powers including required manpower to do so," Bhatia said. “Hence, the larger public interests would be better served if CCI probes such cases so that it can provide sumptuous remedies to correct the market distortions."

This two-bench judgement comes in contrast to previous verdicts of courts in similar matters, said legal experts. Generally, courts have ruled in favour of CCI in such cases, but with the new interpretation of the Delhi High Court, things could change, experts said.

“The interplay between IPR and competition law has been heavily contested in India in several cases, where the courts have always favoured CCI. Last week’s decision has set aside all previous orders and effectively barred the jurisdiction of CCI in examining patent-related disputes," said Vaibhav Choukse, head of competition practice, J Sagar & Associates.

“While the decision gives respite to IPR licensors, it will have major repercussions on the licensees. Hopefully, the issue will be finally settled by the Supreme Court on appeal," added Choukse.

Legal experts said even globally the courts have accepted the intervention of competition regulators in issues pertaining to abuse of market dominance by patent holders. In this regard, a judgement passed by the Court of Justice of the European Union (EU) in the matter of Huawei Technologies and ZTE Corp ruled that competition regulators could initiate enforcement action against holders of Standard Essential Patents (SEPs).