Overturning CCI's Jurisdiction: The High Court re-evaluates the role of CCI in Patent Cases

In a landmark decision adjudicating three appeals and one writ petition, a division bench of the Hon’ble Delhi High Court has overturned two single bench decisions that confirmed jurisdiction of the Competition Commission of India (CCI) to act in cases of abuse of dominant position by patentees and clarified that the power lies with the Controller and the Civil Court.

Background:

1. Ericsson filed two appeals against a common judgement (2016) which dismissed two writ petitions filed by Ericsson, one against CCI and Micromax Informatics Limited, and another against Intex Technologies (India) Limited.

Micromax and Intex had complained that Ericsson was imposing conditions for licensing certain standard essential patents (SEP) in the field of telecommunications not meeting the FRAND criteria and thus in violation of Sections 3 and/or 4 of the Competition Act. The 2016 judgement held that there is no legal bar in law to the CCI proceeding against Ericsson under the Competition Act for violation of said sections.

2. The writ petition was filed by Ericsson against CCI. In this writ petition, Ericsson challenged letters dated 16.7.2015 and 14.8.2015 issued by the CCI, which letters Ericsson terms as ―”Notices/Summons”. This was in continuation of action being taken by CCI on the information of Micromax as to Ericsson.

3. CCI filed an appeal against the judgement (2015) in a writ petition filed by Ericsson against CCI and Best IT World (India) Private Limited (iBall). The 2015 judgement recorded that since there was a settlement arrived at between Ericsson and iBall, and iBall wishes to withdraw its information, and disposed off the Petition, quashing the proceedings initiated by CCI under 26(1) of the Competition Act, though not on merit. It reserved liberty to CCI to take action suo motu or on the basis of information received against Ericsson for abuse of dominant position, and revive investigation from the same stage, subject to any other objections.

4. Monsanto filed an appeal against the judgement (2020) in a writ petition which had been filed by Monsanto against CCI and various informants. The 2020 Judgement relied extensively on the 2016 judgement and dismissed the writ petition.

Contentions of the Patentees (Ericsson and Monsanto):

The 2016 Judgement (concerning Ericsson) and 2020 Judgement (concerning Monsanto) are unsustainable, since the CCI cannot exercise jurisdiction over matters pertaining to exercise of rights by patentees.

1. CCI lacks authority over licensing agreements:

1. The licensing of patents is neither a sale nor a purchase of goods/services because by mere license or use of a patent, no property, right or title in a patent gets transferred.

2. If there is no sale or purchase of goods/services then the CCI would have no jurisdiction to enquire into the business of licensing of a patent.

3. The informants' complaint invokes Section 4 of the Competition Act, which only applies to the sale or purchase of goods/services, excluding licenses or patents.

4. The Indian Patents Act recognizes sale, lease, and license as the three modes of dealing with a patent.

5. The complaint of the informants essentially relates to licensing of patents and/or whether the same is anti-competitive. The power to enquire into this lies with the Controller or Civil Court under the provisions of Section 84(7) (c) read with Section 140(1)(iii)(c) of the Patents Act.

2. Reasonable conditions (rates) in a licensing agreement:

1. The CCI neither has power or machinery nor expertise to decide the rates. Allegations of anti-competitive practice by the patent holder are to be determined under Section 84(6) and Section 90(1)(ix) of the Patents Act, outside the scope of CCI’s jurisdiction.

2. Since the Patents Act covers anti-competitive practices by patent holders, there is no room for the CCI to intervene. As the licensing involves FRAND rates without a sale or purchase, the CCI's order is unsustainable.

3. Alternatively and without prejudice to the above, CCI has no power to issue license or decide royalty based on the patentees’ FRAND assurances. The jurisdiction of CCI, if any, can only commence after proceedings for infringement/revocation is considered and decided.

3. Powers already prescribed to the Controller and Civil Court:

1. The CCI is attempting to enter a field that is already covered by jurisdiction of Civil Courts and the Controller of Patents by way of issuing licenses, including compulsory licenses on FRAND terms.

2. Chapter XVI of the Patents Act fully covers the field and the CCI cannot inquire into these aspects. Section 84(4) of the Patents Act provides for ascertaining reasonably affordable price, which exercise is to be carried out by the Controller.

3. Once the power of inquiry is vested with the Controller as regards anti-competitive behaviour by patentees, there is no question of CCI inquiring into such matters.

4. There is no legislative intent to indicate that the Patents Act will be subservient to the Competition Act.

5. If the CCI is permitted to proceed in the matter, it will render the patentees’ rights nugatory. FRAND terms can only by determined by a Civil Court, or by the Controller in exercise of powers under Chapter XVI of the Patents Act.

6. The informants have sufficient remedies available to them under the Patents Act, both before Court as well as before the Controller. There is no reason to approach the CCI, other than to initiate vexatious litigation.

7. Legislative history shows that the legislature always intended for the Patents Act to govern anti-competitive practices and abuse of patent rights.

8. If in a matter the Court sets a royalty rate as appropriate or FRAND rate, the CCI admittedly cannot interfere.

9. The 2016 Judgement (concerning Ericsson) has wrongly applied tests of repugnancy and conflict in assessing the two statutes, when the test ought to have been of jurisdictional ouster, i.e., since the Patents Act has machinery to provide relief for anti-competitive and abusive conduct by a patentee, jurisdiction of the CCI is ousted in this regard.

10. Chapter XVI of the Patents Act, which was introduced by way of an amendment in 2003 after the Competition Act was enacted, is a subsequent enactment, and by application of the maxim lex posterior derogat priori, the Patents Act must override the Competition Act.

Additionally, Monsanto emphasised that there are significant differences between the case against Monsanto and that against Ericsson, given that Monsanto was not dealing with SEPs nor has Monsanto any FRAND obligations. Monsanto submitted that all allegations against Monsanto are completely subsumed within the Patents Act, and thus CCI cannot by any stretch of imagination claim jurisdiction over Monsanto.

Contentions of the Competition Commission of India (CCI):

CCI’s argued that there is no bar in law to the CCI exercising its powers of inquiry, especially when the inquiry is at such a nascent stage. A summary of CCI’s submissions is as follows:

1. Aspects Doctrine

It is apparent that the mere overlap between the Patents Act and the Competition Act does not detract from the power that is vested with the CCI under the Competition Act.

2. Public interest:

The CCI Act can be triggered by any person who is affected by anti-competitive and abusive behaviour of a patentee, and the decision of the CCI in such a situation will apply across the market to everyone, whereas the scope of the Patents Act is limited to assisting a licensee of a patent, and nothing more. Thus, it is in the interests of the general public and the nation as a whole that the CCI be permitted to continue its inquiry.

3. The mechanism under the Patents Act is insufficient to enable the Controller to effectively inquire into allegations of anti-competitive or abusive behaviour of patentees.

4. Legislative history:

The intent of the legislature is that CCI must have power to inquire into allegations of anti- competitive and abusive behaviour of patentees.

5. Jurisdiction of CCI (exclusively) over such disputes:

Section 60 of the Competition Act prohibits raising contentions of anti-competitive agreements and abuse of dominant position before any other statutory authority/court.

6. Varied authorities:

CCI is the regulator of the market, whereas Controller of Patents is not a regulator but a mere authority to effectively implement the Patents Act.

7. There is considerable material produced by the informants to demonstrate prima facie that the patentees are abusing their dominant position and compelling licensees to enter into anti-competitive agreements. These are not issues that the Controller can consider.

8. Private settlement between informants with patentees cannot oust jurisdiction of the CCI to inquire into anti-competitive and abusive behaviour by patentees.

Which is the special statute - Patents Act or Competition Act? – Court’s Observations

To decide which Act/ authority will have jurisdiction over anti-competitive patent cases, the Court assessed the issue of which of the two Acts is the special statute. The Court noted that both the Patents Act and the Competition Act are special laws in their respective fields, i.e., patents, and competition respectively.

The Court noted that locus classicus on this subject, is the Constitution Bench dicta of the Supreme Court in Ashoka Marketing Ltd & Anr. v. PNB & Ors., (1990) 4 SCC 406, where the Court held:

a) When two statutes are made by the same legislature, the question of whether one overrides the other will have to be considered in the light of principles of statutory interpretation applicable to laws made by the same legislature (para. 49).

b) One such principle is that later laws abrogate earlier laws. This is subject to the exception that general laws cannot override a special law.

The Court further noted that there is also extensive law on the question of ascertaining when a law can be considered as a special law and referred to various decisions including the Supreme Court’s decision in Gobind Sugar Mills Ltd. v. State of Bihar, (1999) 7 SCC 76 wherein it was held that:

“.... 10. While determining the question whether a statute is a general or a special one, focus must be on the principal subject-matter coupled with a particular perspective with reference to the intendment of the Act....”

Accordingly, the Court considered that it must not automatically uphold the subsequent law as overriding the earlier law when two statutes are special but consider the following:

(i) the subject matter in question, (ii) the intendment of the statutes in respect thereof, as well as (iii) whether the scheme and relevant provisions of the two statutes have any indication apropos which, the legislature felt must override the other, especially when both statutes have a non- obstante clause.

Accordingly, the Court devised the following three-step analysis:

(i) The laws to see what the schemes of the statutes are, and the nature of powers vested in the authorities they establish.

(ii) The question that must be considered by CCI to see what the subject matter of the inquiry by CCI is, which is being impugned by the patentees.

(iii) Whether the legislature intended for this inquiry to be conducted exclusively either under the Patents Act or under the Competition Act, or whether neither overrides the other.

On this issue, the stand of the patentees has been that the Patents Act is a special law dealing specifically with patents, and issues of imposition of conditions for licensing patents are provided for under Chapter XVI of the Patents Act, which includes anti-competitive agreements and abuse of dominant position explicitly. They contend that in view thereof, there is no reason for the Competition Act, which deals with anti-competitive agreements and abuse of dominant position generally, to override the special law.

Defending the 2016 Judgement, the CCI contended that the provisions of Section 3(5)(i)(b) and Section 4 of the Competition Act make it abundantly clear that the CCI, and that only the CCI can consider whether a condition imposed in an agreement licensing a patent is unreasonable, i.e., such as would cause an appreciable adverse effect on competition within India, or an abuse of dominant position.

The Court disagreed with CCI’s stand and noted as follows:

1. Powers of the Controller:

The question of whether an agreement under which a patent is licensed will cause an appreciable adverse effect on competition within India or will amount to an abuse of dominant position is not one that is reserved for the CCI. To the contrary, the factors that the CCI is required to consider under Sections 19(3) and 19(4) when assessing a potential violation of Sections 3 or 4 of the Competition Act are not very different from those that the Controller, in exercise of power to grant a compulsory license, will consider in terms of Sections 84(6) and 84(7), especially when read with Sections 83 and 89 of the Patents Act.

2. Chapter XVI of the Patents Act:

The inquiry that the CCI proposes to conduct in respect of an assertion of patent rights is nearly identical to that which the Controller will conduct under Chapter XVI of the Patents Act. The legislative intent is apparent in that the Patents Act was amended in 2003 to introduce Chapter XVI i.e. after the Competition Act was enacted. Said Chapter especially pertains to patents, unreasonable conditions in agreements of licensing, abuse of status as a patentee, inquiry in respect thereof and relief that is to be granted therefor are all to be governed by the Patents Act.

3. General law:

The Competition Act is a general legislation pertaining to anti-competitive agreements and abuse of dominant position generally. The inclusion of Section 84(6)(iv)11 in the Patents Act by way of an amendment after the Competition Act was passed with Section 3(5)(i)(b) is particularly instructive of the above legislative intent as regards anti-competitive agreements.

4. Specific provisions in the Patents Act to assess “reasonable conditions”:

For deciding an application for compulsory licensing, the Controller is empowered by the Patents Act to consider the reasonability of conditions imposed in a license agreement. The Competition Act makes provision for reasonable conditions being imposed in an agreement concerning exercise of rights under the Patents Act. Since such reasonable conditions are exempted from examination under section 3(5)(i)(b) of the Competition Act, it is indicative of the legislature‘s intendment as to the exclusive domain of the Patents Act regarding reasonable conditions.

Accordingly, Chapter XVI of the Patents Act is a complete code in itself on all issues pertaining to unreasonable conditions in agreements of licensing of patents, abuse of status as a patentee, inquiry in respect thereof and relief that is to be granted therefor.

5. In reconciling the two statutes, the subject matter that is in focus is not merely anti-competitive agreements and abuse of dominant position, which both the Patents Act (in Chapter XVI) and the Competition Act (in Sections 3 and 4) deal with. The subject matter that is relevant for this assessment is anti-competitive agreements and abuse of dominant position by a patentee in exercise of their rights under the Patents Act.

On this issue, there is no scope of doubt beyond the pale of doubt that the Patents Act is the special statute.

6. Therefore, when assessed, by the maxim generalia specialibus non derogant or by the maxim lex posterior derogat priori, the Patents Act must prevail over the Competition Act on the issue of exercise of rights by a patentee under the Patents Act.

Finally, the Court passed the following order (without expressing any opinion on the merits of the claims of any of the parties as to whether Ericsson or Monsanto have, in fact, imposed anti- competitive conditions, or abused their dominant position):

1. Sustaining the 2015 judgement quashing the CCI’s proceedings for want of power once a settlement has been reached between the informant and person against whom the information is filed.

2. Overturning the 2016 and 2020 judgements with the observation that the 2016 Judgement (and consequently the 2020 judgement) erred in its assessment of the provisions of Sections 21 and 21A of the Competition Act and the same cannot necessarily empower the CCI to exercise powers that the Controller would otherwise exercise under Chapter XVI of the Patents Act. The intention of said sections is to deal with situations where the powers of the Commission are not excluded by other statutes.

3. Noting that as set out above, the subject matter in the matter is an inquiry being conducted by a statutory authority, into allegations of anti-competitive agreements and allegations of abuse of dominant position. While the Competition Act deals with these subjects generally, the Patents Act deals with these subjects specifically in the context of patents. The legislature, in its wisdom, after enacting the Competition Act, amended the Patents Act to introduce Chapter XVI and has chosen to keep the effect of the orders of the Controller in personam.