ESTIMATING THE FUTURE OF IPR- WHEN WILL THE MONOPOLY END? BY REHAN AHMAD

Intellectual Property (IP) is defined in Black’s Law Dictionary as “a category of intangible rights protecting commercially valuable products of the human intellect. The category comprises primarily trademark, copyright, and patent rights, but also includes trade secret rights, publicity rights, moral rights, and rights against unfair competition” or in other words it includes any intangible creation of human intellect. The exclusive rights conferred to the inventor/creator of that intellectual property is called Intellectual Property Rights (IPR). The prime objective of IPR is to reward the inventor/creator for his invention and at the same time encourage true and innovative products in the market. However, in order to achieve the objective set, law guarantees property rights to the creator for a limited period of time which allows him/her to create profit from the good s/he has created. Intellectual Capital is certainly one of the key wealth drivers in the era of globalization where Indian economy is opening and expanding. The intangible nature of the intellectual property is very different from the traditional properties; the intangibility of a property arises many difficulties as the intellectual property is invisible which makes it open for all the consumers without any depletion. Every innovation must be guarded by strict laws to prevent it from suffering problems of appropriation.  Rights should be balanced so that they are strong enough to encourage the creation of intellectual goods but not so strong that they prevent the goods’ wide use is the primary focus of modern intellectual property law.[1]

India ratified the agreement which had the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) for the establishment of the World Trade Organization (WTO). It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) treaty in 1994. The TRIPS Agreement aims at harmonizing and strengthening standards of protection and providing for effective enforcement at both national and international levels. The TRIPS Agreement came in effect on 1 January 1995 and is the most comprehensive multilateral agreement on intellectual property till date. The following acts deal with the protection of intellectual property:

  1. Trade Marks Act, 1999
  2. The Patents Act, 1970 (as amended in 2005)
  3. The Copyright Act, 1957
  4. The Designs Act, 2000
  5. The Geographical Indications of Goods (Registration and Protection) Act, 1999
  6. The Semiconductor Integrated Circuits Layout Design Act, 2000
  7. The Protection of Plant Varieties and Farmers’ Right Act, 2001
  8. The Information Technology Act, 2000

The Law And Economic Principles Analysis

IPRs are designed in a way to protect the creator’s knowledge from getting exploited. These rights represent the legal mechanism for protecting many corporate assets. The main motive behind IPR is to exclude other people from taking decisions such as offering for sale, selling or importing the invention. It has been an ongoing debate that the owner of an intellectual property right also possesses an economic monopoly. However, many scholars believe that both these terms are very different to each other. Edmund Kitch in his book stated that ““From an economic point of view, “property” and “monopoly” have almost nothing to do with each other. A seller who owns his wares has property but no monopoly if many other people independently sell similar things in the market. A seller, who can control the price of what he sells, because no one seriously competes with him in the market, has a monopoly but not property if he does not own what he sells.”[2]The book further also sets a distinction between:

  1. AN EXCLUSIVE RIGHT ON AN IDEA ASSOCIATED WITH AN INTELLECTUAL PROPERTY RIGHT;

It prohibits the idea that is developed before by granting a patent to its first inventor by allowing him to use or sell or import through a valid contract. However, this is based on the assumption that creation of an idea from two different minds is impossible as it depends on the creator’s personality. On the other hand, in natural science it is considered to be possible as inventions are done by using laws of nature rather than the personalities of two different people.

  1. A MONOPOLY ON AN IDEA THAT IS ASSOCIATED WITH PROTECTION FROM COMPETITION

The protection from competition monopoly depends on demand and supply. This is associated with persistent profits for the monopolist and a welfare loss for the society. Monopolists raise barriers which prevent the competition to last long and if remained unnoticed then the society bears the deadweight social costs.

By analyzing the principles of Patent it is clear that it does not possess any economic monopoly. However, it is difficult to imagine practically. Law and Economics literature points out two conditions that is must in order to prove IPR to be a monopoly in product markets:

  1. Product’s characteristic depends only on the blueprint of the patent holder which means there should be a one-to-one mapping between the characteristics of the product and the blueprint or patent.
  2. However, even if there is a case like point number (i), there seems no reason to restrict or to control the market unless the product faces monopoly.

If the inventors who have the license of knowledge increase the price of the product which does not face any competition in the market i.e. is monopolistic and has a downward slope on demand curve then the monopolistic producer will not be driven out of business. Moreover, the producer has also a choice of increasing the cost on consumer prices. This gives the license holders a window of freedom to control the prices of both the patent license as well as the final product. This transfers the monopoly profits from the producer to patent owners. If the producer is unhappy with the licensing price, he can optimise his profit by substituting his factor input. However, it is not that easy to follow because of the problem of embeddedness; the producer will transfer much of the licensing costs on to the consumer prices to avoid squeezing off his profit instead of changing technology. Exclusive private rights is what mainstream law and economics literature focuses on, whereas evolutionary economists focus on evolution of productive knowledge. When in the products and production processes ‘embeddedness’ of a patented blueprint is applied then monopoly conditions are imposed.

Conflict Between Intellectual Property Law And Competition Law

Competition law regulates those practices which have anti-competitive effects on the market and thus hampering the smooth functioning of the market. On the other hand, IPR talks about the exclusive monopoly right to the holder.[3] The interface between the two laws is created by the non-excludable character in IPR which creates a tussle between the IPR and Competition laws. IPR reduces the competition by creating exclusive monopoly rights of the creator which raises a conflict between objectives of both the law. IPR encourages the concept of reward theory means the reward the inventor[4] and hence can be said that both laws favors consumer welfare and innovation. In the case of Best IT World India Private Limited v. M/s Telefonaktiebolaget L M Ericsson[5]it was stated that “The Competition Act, 2002 has widely accepted the intentions of IPR while framing provisions and it does not eliminate the dominance achieved by an individual due to such Intellectual Property Rights.” To analyze the issue of IPR leading to abuse of dominant position, we must have to analyze the statutory framework and judicial precedents thoroughly.

The Competition Act 2002 promotes social, economic and political justice and was passed on the pedestal of economic efficiency and liberalization. Due to the inclusion of vigorous provisions of MRTP act Competition law was passed in compliance with TRIPS. In the case of Aamir Khan Productions Pvt. Ltd. v. Union of India,[6] the court stated that “CCI has jurisdiction to hear all the matters vis-à-vis competition law and IPR”. Further it also stated that IPR related right is not sovereign in nature but merely a statutory right granted under a law. Again in the case of Entertainment Network (India) Limited v. Super Cassette Industries Ltd[7] the Supreme Court observed that if a copyright holder has full monopoly and that monopoly creates disturbance in smooth functioning of the market then it will be considered as a violation of competition law. It was also observed that the license issued shall not be absolute.

Competition law encourages by opening more and more choices and competition in the market whereas IPR is in against of it. Under Competition law the abuse of monopoly rights granted by IPR can be treated as violation of the Act and on the other hand these monopolies are granted by IPR in order to boost innovation and further competitions in the market. In India through the technology transfer guidelines, the acquisitions of IPR to strengthen monopoly power in the market should be regulated.

FOOTNOTES

[1] Goldstein, Paul; Reese, R. Anthony, Copyright, Patent, Trademark and Related State Doctrines: Cases and Materials on the Law of Intellectual Property (6th Ed.) New York (2008).

[2] Edmund W. Kitch, Elementary and Persistent Errors in the Economic Analysis of Intellectual Property, Vanderbilt Law Review, Volume 53, 2000.

[3] A. Jones & B. Suffrin, EC Competition Law: Text, Cases and Materials, 2008.

[4] Holyoak & Torreman, Intellectual Property Law, Oxford University Press, 2008.

[5] Best IT World India Private Limited v. M/s Telefonaktiebolaget L M Ericsson,  (Publ) CCI Case No. 04/2015.

[6] Aamir Khan Productions Pvt. Ltd. v. Union of India (2010) 112 Bom L R 3778.

[7] Entertainment Network (India) Limited v. Super Cassette Industries Ltd 2008(5) OK 719.

DISCLAIMER: The views and ideas mentioned are that of the authors and do not necessarily reflect that of Katcheri.in.

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