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Patents and Competition

The relationship between patents and competition law has been debated and discussed for decades now, and the consensus that has emerged is that both areas of the law complement each other, and share a common goal of maximising innovation. While competition law operates by regulating the market in order to maximize static and dynamic efficiency, patent rights focus primarily on dynamic efficiency by serving as an incentive for firms to innovate.

However, despite extensive literature on this subject, a number of disputes arise that rekindle the tension between the exclusivity granted by patents on one hand, and competition law’s zest for perfect competition on the other. A broad overview of case law in the United States and the European Union suggests that there are two causes for this – on one hand, patent holders often transcend the boundaries of the right granted to them, in an attempt to leverage the patent and maximize their gains in the market; on the other hand, competition regulators have a tendency to focus on price competition, overlooking the fact that long-term dynamic efficiency may outweigh the benefits of short-term static competition. Competition authorities may also tend to harm innovation by placing undue emphasis on the rights of patent holders in markets where incentive balances are driven by a variety of other factors, including patents.

One of the primary propositions that have emerged from the initial literature review is that dynamic efficiency suffers when competition authorities, in order to promote static competition, adopt a narrow approach and intervene in markets where patent holders exercise their rights. This suggests that competition authorities must ideally refrain from interfering with exercise of patent rights in all but those cases where the concerns of dynamic efficiency are outweighed by the concerns of static and price competition.

However, in order to make this determination, the competition authorities would necessarily have to embark on an economic analysis of the relevant market. Leaving aside the concerns relating to the authorities’ competence to adopt such an approach, it is generally difficult to arrive at an ex-ante evaluation of the effects on dynamic efficiency.

To add to that, competition law in India is relatively still in its infancy, as the new Competition Act was enacted only in 2002. It replaced the erstwhile Monopolies and Restrictive Trade Practices Act, 1969, and adopted the concepts of abuse of dominance and regulation of anti-competitive agreements. While the Competition Commission has initiated investigation into a fair number of cases, there is still a lack of clarity on the best approach to dealing with allegations of anti-competitive or monopolistic conduct in the market.

This project aims to find the ideal approach that ought to be adopted by the Competition Commission while dealing with patent related matters. In doing so, we will distinguish between various forms of the exercise of patent rights that may raise competition concerns, and evolve a set of detailed recommendations that may guide the Commission’s approach while dealing with such conduct.

This brief presentation provides an extended overview of the project.

The Centre has produced a paper on Patents and Competition Law in India: CCI’s Reductionist Approach in Evaluating Competitive Harm as part of the project.

Principal Investigator: Mr Yogesh Pai
Research Fellow:  Ms Kavya Susan Mammen