Competition Law and Intellectual Property Rights: Confronting Paradigms

Aviral Saxena


World has changed drastically after globalization. In other words, as coined by Thomas Friedman, the world is flat now. Among others, markets internationally could not have remained untouched. Markets have been affected drastically. Some have reengineered, some have revamped and some in a state of flux. What unfortunately has been observed in certain quarters is that unregulated markets have the tendency to assume monopolistic or near monopolistic character thereby affecting consumer welfare.

We all realize that Markets have an important role to play in any economy be it developed or developing. Economic theory brings out the clearly the benefits that flow from a market of competitive nature. A market where there is level playing field for players of all sort operates freely. Efficiency is associated with competition and the efficient functions of the markets could be achieved only when there is competition. Regulatory framework therefore becomes imperative to halt the degeneration of the markets to a monopolistic or a near-monopolistic situation.

A. What is Competition Policy?

It basically promotes efficiency and maximizes welfare. Competition Policy essentially comprises in place a set of policies that promotes competition in local and national markets, which includes a liberalized trade policy, openness to foreign investments and economic deregulation .

B. What is Competition Law?

It basically comprises legislation, judicial decisions and regulations specifically aimed at preventing anti-competitive business practices and unnecessary government interventions, avoiding concentration and abuse of market power and thus preserving the competitive structure of markets .


Competition law and IPRs policies are bound together by the economics of innovating and an intricate web of legal rules that seeks to balance the scope and effect of each policy.

IPRs protection is a policy tool meant to foster innovation, which benefits consumers through the development of new and improved goods and services, and spurs economic growth. It bestows on innovation the right to legitimately exclude for a limited period of time, other parties from the benefits arising from new knowledge and more specifically from the commercial use of innovative products and processes based on that new knowledge. In other words, innovators or IPR holders are rewarded with a temporary monopoly by the law to recoup the costs incurred in the research and innovation process. As a result, IPR holders earn rightful and reasonable profits so that they have incentives to engage in further innovation.

Competition law on the other hand, has always been regarded by most as essential mechanism in curbing market distortions, disciplining anti-competitive practices preventing monopoly and abuse of monopoly, inducting optimum allocation of resources and benefiting consumers with fair prices, wider choices and better qualities. It therefore ensures that the monopolistic power associated with IPR is not excessively compounded or leveraged and extended to the detriment of competition. Besides seeking to protect competition and the competitive process which in turn prods innovations to be first in the market with a new a product service at a price and quality that underscores the importance of stimulating innovation as a competitive input, and thus also works to enhance consumer welfare.


As a piece of individual property – IPRs are fully subject to general anti-trust principles because what is conferred upon its owner is precisely that autonomy of decision in competition and freedom of contracting according to individual preferences that recalls from any private property no matter tangible or intangible and that is the object of and connecting factor for restraint of competition.

Competition law, thus, while having no impact on the very existence of the IPRs, operates to contain the exercise of the property rights within the proper bounds and limits which are inherent in the exclusivity conferred by the ownership of intellectual assets. This starts the tussle when exercise of IPRs give rise to some competition concerns because of anti-competitive dimensions that it may embody.

Competition law is a framework of legal provisions designed to maintain competitive market structures. Competition laws in general seek to:-

a) prohibit anti-competition agreements

b) prevent abuse of dominant position and

c) regulate mergers and acquisition .

However Section 3(5) defines the very interface between the paradigm of Competition law and IPR. It states that nothing contained in this section shall restrict:-

1) The right of any person to restrain any infringement of or to impose reasonable conditions , as may be necessary for protecting any of his rights which have been or may be conferred upon him under:

a) The Copyright Act, 1957

b) The Patent Act, 1957

c) The Trademarks Act, 1957

d) The Geographical Indication of Goods(Registration & Protection) Act, 1999

e) The Design Act, 2000

f) The Semi-Conductor Integrated Circuits Layout Design Act, 2000.

Broadly speaking, IPRs related competition issues include:-

1) Exclusionary terms in the licensing of IPRs, specifically the inclusion of restrictive clauses such as territorial restraints, exclusive dealing arrangement, tying or grant back requirements in licensing contracts

2) Use of IPR to reinforce or extend the abuse of dominant position on the market unlawfully.

3) IPRs as an element of mergers and co-operative arrangements.

4) Refusal to deal

Case of Mahyco-Monsanto

Mahyco-Monsanto( a 50-50 joint venture between Maharashtra Hybrid Corporation and American Agricultural Company) was found guilty of price gouging ( price above the market price when no alternative retailer is available) in a Bt Cotton case filed by the Andhra Pradesh government and some civil society organizations before the MRTP Commission of India. Mahyco-Monsanto was charging an excessively high royalty fee for its Bt gene which made the seed too expensive for the farmers. As there was no competition due to their IPR on Bt cotton seeds, Mahyco-Monsanto had a monopoly and had acted arbitrarily .

The Competition law applies to IPR in relation to abuse of dominant position and combination. Therefore abuse of dominance due to an IPR is liable for action under the Indian Competition Act just as IPR- related dealings in combination leading to an anti – competitive effect.


The second view contends that competition law continues to be a vital means of ensuring continued innovation and economic growth. The aims and objectives of IPRs and competition laws are complementary, as both aims to encourage innovation (investment in research and development), competition (use of innovation in the economy) and enhance consumer welfare (protecting consumers from exploitation).


The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement administered by World Trade Organization (WTO) that sets down minimum standards for many forms of intellectual property regulation as applied to nationals of other WTO members. It was negotiated at the end of Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. India is a signatory for the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

The TRIPS agreement introduced intellectual property law into the international trading system for the first time and remains the most comprehensive international agreement on intellectual property to date.

TRIPS Agreement covers 9 categories of Intellectual Property: — they are Copyright rights, including the right of performers, producers of sound recordings and broadcasting organization, geographical indications, including appellations of origin , industrial designs, integrated circuit layout designs, patents, monopolies for the developer of new plant varieties, trade mark, trade dress, and undisclosed or confidential information .

TRIPS ensures protection and enforcement of all intellectual Property should result in social and economic welfare and balance of rights and obligations. Arising out of this, TRIPS does try to achieve a degree of balance between Competition law (protecting the consumers) and Intellectual Property Rights (protecting the innovators). Some of the tools provided to attain a degree of balance are parallel imports (Section 6), Compulsory Licensing (Section 31) and Control of anti Competitive Practices (Section 40).


A. Parallel Imports

Parallel Imports are imports of a patented or trademarked product from a country where it is already marked. For e.g.:- in Mozambique 100 units of Bayer’s CIPROFLOXACIN(500mg) costs US$ 740 but in India Bayer sells the same drug for US$ 15 (owing to local generic competition) Mozambique could import the product from India without Bayer’s consent.

According to the theory of exhaustion of IPR, the exclusive right of the patent holder to import the patented product is exhausted and thus ends, when the product is first launched on the market. When a state or group of states applies this principle of exhaustion of IPRs in a given territory parallel importation is authorized to all residents in the state in question. In a state that does not recognize this principle, however only the patent holder who has been registered has the right to import the protected product.

Sometimes referred to as “grey market” parallel imports often take place when there is differential pricing of the same product – either brand name or generic drugs—in different markets ( using owing to local manufacturing costs or market conditions). TRIPs agreement explicitly states that this practice cannot be challenged under the WTO dispute settlement system and so is effectively a matter of national discretion.

B. Compulsory Licensing

The TRIPS agreement allows compulsory licensing as part of the agreement‘s overall attempt to strike a balance between promoting access to existing drugs and promoting research and development into new drugs. Under TRIPS Article 31—a WTO member may in its domestic law provide for compulsory licensing of national or extreme emergency or in cases of public non-commercial use. Procedural safeguards require that the measure is used for essential products and that prior negotiations with the right holder have failed to obtain a reasonable result. TRIPs waive the requirement of prior negotiation in emergency cases or when the subject matter of the patent is required for public non-commercial use. The scope and the duration of the license shall be limited to the purpose for which it was authorized. The TRIPs Agreement does not specifically list the reasons that might be used to justify Compulsory Licensing. However, the DOHA DECLARATION on TRIPS and Public Health confirms that countries are free to determine the grounds for granting Compulsory Licenses. In Article 31, the TRIPS Agreement does prescribe a number of conditions which ought to have been fulfilled before issuing compulsory licenses. In Particular such conditions require that:-

a) Normally the person or company applying for a license must have tried to negotiate a voluntary license with the patent holder on reasonable commercial terms. Only if that fails can a compulsory license be issued and

b) even when a compulsory license has been issued the patent owner has to receive payment, the TRIPS Agreement says “the right holder” shall be paid adequate remuneration in the circumstances of each case , taking into account the economic value of the authorization but it does not define “adequate remuneration” or “economic value”.

Again, Compulsory Licensing must meet certain additional requirements:–

1) It cannot be given exclusively to licenses (e.g.—the patent holder can continue to produce)

2) It should be subject to legal review in the country.

Case of Natco Compulsory licensing in India

The first ever compulsory license application made in India was by Natco Pharma (Hyderabad based Indian Pharmaceutical Company) for the manufacture and exportation of Roche’s patented anti-cancer drug – ERLONITIB to Nepal, the Sub-Himalayan Kingdom. Besides ERLOTINIB, Natco Pharma had also applied for the issue of a second compulsory license to the IPO for manufacture and export of SUNITNIB also an anti-cancer drug .

C. Control of anti –Competitive practices in Contractual licenses

Article 40 of the TRIPS Agreement recognizes that some licensing practices or conditions pertaining to IPRs which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology.

Member countries may adopt consistently with the other provisions of the Agreement, appropriate measures to prevent or control practices in the licensing of Intellectual Property Rights which are abusive and anti-competitive.

The TRIPS provides for a mechanism where a country seeking to take action against such practices involving the companies of another member country can enter into consultations with that other member and exchange publicly available non-confidential information of relevance to the matter in question and of other information available to that member , subject to domestic law and to the conclusion of mutually satisfactory agreements concerning the safeguards of its confidentiality by the requesting member . Similarly, a country whose companies are subject to such action in another member can enter into consultations with that member.


The interface between competition law and IPRs protection is very complex and multifaceted. It needs to be handled very carefully.

There are certain similarities between IPR and Competition Law. IPR system promotes innovation which is a key form of competition,, on the other hand , competition policy by keeping market open and effective , preserves the primary source of pressure to innovate and diffuse innovation . But there are also conflicts such as when as IPR serves to entrench market power. A regulatory balance therefore should be maintained.

Current developments indicate that the enforcement of competition laws no longer begins with the assumption that restrictive use of IP is necessary anti-competitive. Current enforcement instead starts with three basic assumptions about intellectual property .

First, intellectual property is comparable to other forms of property so that ownership provides the same rights and responsibilities.

Second, the existence of IP does not automatically mean that the owner has market power.

Third, the licensing of IP may often be necessary in order for the owner efficiently to combine complementary factors of production and thus may be pro-competitive.

Raghavan Committee observed that Innovation has always been a catalyst in a growing economy resulting in more innovation. The advent of fresh innovation give rise to healthy competition at macro as well as micro-economic levels .IP laws help protect these innovations from being exploited unlawfully. In view of this IP and Competition laws have to be applied in tandem to ensure that the rights of all stakeholders including the innovators and the consumer or public in general are protected.

Competition Law Perspective



Most Favoured Customer (“MFC”) and Benchmarking clauses are the most important and critical clauses in any service agreement and the outsourcing contracts. The drafting and negotiation of these clauses are most onerous task requiring dexterity and expertise. MFC clause has virtually similar meaning to the Most Favoured Nation (MFN) treatment under the GATT Agreement and rather used interchangeably in the contracts.

MFC is synonymously called “Pricing Warranty”, “Preferred Pricing” or “Preferred Client”. The effect of an improperly drafted/negotiated MFC may have severe financial consequences to the business. Even if not formally invoked, the MFC’s mere existence in the contract can also be used as leverage by the client to the demand a price negotiation and may call for violation of Anti-Trust Laws.

MFC binds the contracting party to provide its most attractive pricing to the client. Although this can be sheltered under the maxim “Caveat Emptor”, it may trigger the basic soul of the competition laws i.e. promotion of competition in a way, as these provisions directly or indirectly limits the contracting parties to charge the lower price to the new customers. Depending upon how the language is drafted, it can be applied in a way that makes it virtually impossible to accept business from new clients unless the same pricing terms are offered to the existing clients.

Benchmarking is the practice of measuring the price of entity’s services against similarly situated competitors. Benchmarking is a risk management tool designed to overcome the risks of fixed price long-terms contracts. In its simplest format, a benchmarking process compares a contract price to a market price and the contract defines the legal obligations of the parties as a result of that comparison.

The quest for comparable price using benchmarking methodologies leads only to an approximation of a market price. In commercial transactions, approximations may result in legally binding changes in price, provided that the procedures are predictable and objectively verifiable and thus enforceable by the court.

Benchmarking provisions in outsourcing contracts requires a series of decisions, which inter alia includes listing of several issues in the use of benchmarking as a price adjustment technique like.

  • Prior determination of a third party that is to conduct the benchmarking process;
  • The contents of the data that is used to refer to “market” price;
  • The process by which that data base was collected;
  • The age of the data that are used for comparison purpose;
  • The definition of a comparable transaction;
  • The number of comparable transactions between the benchmarker and the parties to the outsourcing transaction;
  • The relationship of comparable transactions to the pricing structure of the comparable transaction;
  • Whether a change in price will become mandatory, and if non-mandatory, the process by which a non-mandatory change might occur;
  • The impact of a miniature or negligible discrepancy between the benchmarking results and the contract price;
  • The impact of a price discrepancy; and whether the degree of price discrepancy (miniature, average or outsized) has any binding legal impact upon the parties or their rights to change the agreement’s terms;
  • The scope of process (whether for individual SOW or the entire agreement);
  • The financial elements or payment, timing and time frames as to which may changes will apply;
  • The “due process” or “fairness” elements of the benchmarking overall

Benchmarking provisions are typically used by the clients to exert leverage on the service providers to reduce the cost of its services. Whether or not benchmarking exercise occurs, the mere existence of a benchmarking provision can have far reaching effect of forcing price negotiation.

The question is whether Benchmarking and MFC provisions will trigger the provisions of Anti Trust Laws/Competition Laws or not is required to be examined. The following discussion may throw some light on the same.

Position under Indian Laws:

The (Indian) Competition Act, 2002, provides that any agreement entered into between enterprises or association of enterprises or persons or associations of persons or between persons and enterprises or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade or goods or provision of services, which – (a) directly or indirectly determine purchase or sale price[1]. Further, any agreement amongst enterprises or persons at different stages or levels or the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, trade in goods or provisions of services, including inter alia – refusal to deal, shall be an agreement in contravention of sub-section (1) of Section 3. Further, as no enterprise or association of enterprises or persons or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of services, which causes or is likely to cause an appreciable adverse effect on competition within India[2]. For the purpose of this Sub-Section, “refusal to deal” include any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought; it further provides that the following arrangement shall not be affected by the above provisions i.e. the right of any person to restrain any infringement of or to impose reasonable conditions as may be necessary for protecting any of his rights which have been or may be conferred upon him under –

  • The Copyright Act, 1957 (14 of 1957)
  • The Patents Act, 1970 (39 of 1970)
  • The Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999)
  • The Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999)
  • The Designs Act, 2000 (16 of 2000)
  • The Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000)[3]

And the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provisions of services for such export[4]

The plain reading of Section 3 suggest that the benchmarking provisions and MFC provisions may trigger Competition Act provisions in India if its causes or is likely to cause an appreciable adverse effect on Competition in India and it does not fall within the purview of the exceptions set out in Sub-clause 5 of section 3. Till now no such issue on either the MFC or bench marking has been decided by the CCI. However, the literal interpretation of some terms used in the Act shall be given wide interpretation by the CCI in case any matter is referred to the Competition Commission.

Position under the United States Laws:

In U. S., Sherman Antitrust Act, 1890 regulates the restraint of trade or commerce among the several States or with foreign nations, is declared to be illegal[5]. Every person who shall monopolize or attempt to monopolize or combine or monopolize any part of the trade or commerce among several States or with foreign nations, shall be deemed to be guilty of felony and on conviction shall be liable for heavy fines[6]. The MFC and benchmarking provisions can be used to monopolize the trade.

Jonathann B. Baker, Director, Bureau of Economics, FTC (U.S.)[7], before Business Development, Inc. Antitrust 1996 conference observed that “Analyzing vertical restraints is complicated by the variety of forms they take. The most-favored-customer clause is a good example because it is familiar and common and it has frequently been subject to antitrust attention.

In applying rule of reason antitrust analysis to vertical restraints such as a most-favored-customer clause, the anticompetitive effects must be identified and compared with efficiencies. I will describe three anticompetitive mechanisms by which a most-favored-customer clause in vertical contracts could harm competition, one corresponding to each of the general vertical theories I have noted: practices facilitating coordination, raising rivals’ costs, or dampening competition. My broader purpose “of highlighting the many ways vertical practices can harm competition” is, in one respect, not well served by focusing upon most-favored-customer provisions: the distinction between the facilitating practices and dampening competition theories could be made more apparent by choosing some other vertical practice for study. On the other hand, my goal of encouraging careful analysis of individual practices rather than careless application of slogans is well served: I will explain why some, though not all, of the commonly-supposed efficiency benefits of most-favored-customer provisions are illusory”.

Whereas MFC clause is not completely banned under the USlaws, the courts have held that the MFC clauses should be examined on merits of individual cases and in the light of the unique factual circumstances surrounding the parties and its effect on the competition. (The U.S.court in UnitedStateof Americaand the State of Michigan V Blue Cross Shield of Michigan[8] and United States V Delta Dental of Rhode Island[9])

Position under German Laws:

The new German Act against Unfair Competition (UWG[10]) prohibits certain trade practices which are considered unfair, excluding cartel laws and merger control which are governed by a separate Act (GWB[11]). Under the old Act i.e. German Act against Restraints of Competition (“ARC”) has provided that the clauses like MFC to be problematic and specifically provided that “Agreement between undertaking which concerns goods and commercial services and which relates to markets within the area of application of this Act, shall be prohibited insofar as they restrict a party in its freedom to determine prices of terms of business in agreement which includes with third parties on the goods supplied, on other goods, or on commercial services”[12].

Position under U.K. and European Union Laws:

In U.K., the Competition Act, 1998 regulates the Agreements, practices and conducts that may have a damaging impact on competition. Chapter I of the Competition Act, 1998 provides that the Anti-competitive Agreements and concerted practices that have the object or effect of preventing, restricting or distorting competition in U.K.However in case if the effect of the anti-competitive agreement or the concerned practices agreement, the European Union has competence to deal with the problems, and exclusively EU laws would apply. The Office of Fair Trade (OFT) is the UK’s consumer and competition authority. Presently there are no recent OFT decisions regarding MFN largely determined by VBER and accompanying guidelines[13]. The European Commission has concluded in the number of case (such as gas pipelines, Opodo[14], Hollywood film distribution and copyright societies[15]) that MFN clause can give rise to competition concerns such as those referred to above i.e. Resale Price Maintenance and information exchange. However, in practice it has been observed, MFN clause when investigated at European Commission Level, have not given rise to fines but the parties have removed MFN clauses from their agreements so that the Commission can then close the case.


Largely, across the countries, MFC clause and the benchmarking clause should be used with great caution and diligence so that the provisions of anti-trust laws should not get attracted.

[1] Section 3 (1)  of Competition Act, 2002;

[2] Section 3 (4) of Competition Act, 2002;

[3] Section 3(5)(i) of Competition Act, 2002

[4] Section 3(5)(i) of Competition Act, 2002

[5] Article 1 ofSherman Antitrust Act

[6] Article 2 ofSherman Antitrust Act. Both these articles provides for fine upto US$ 100 Million for corporate and US$ 1 Million for individuals.

[7] Published in Antitrust Law Journal Vol. 64

[8] 2:10-cv-15155-DPH-MKM, E.D. Mich. (Complaint filed on 18th October, 2010) also available at

[9] Citation: 943 F. Supp. 172 (D.R.I. 1996)

[10] Gesetz gegen den unlauteren Wattbewerb

[11] Gesetz gegen Wettbewerbsbeschrankungen

[12] Article 14 of ARC

[13] EU Verticals Block Exemption Regulation and Guidelines 

[14] Available at

[15] Available at