IPR Regulations and Anti-Trust Practices Considerations for Consumer Welfare

This artricle was previousley published by the author in the Book, Global Thoughts and Opinions edited by Hon'ble Justice AK Sikri and Prof. Dr. NK Chakrabarti. It can be downloaded from here.

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I. Introduction

The modern era is marked as the era of consumers. Governments across the world cannot knowingly or unknowingly disregard the interest of the consumers. This safeguard of interests should be based upon globally and domestically the enactment of strong and effective consumer protection legislation. Both developed and developing nations are focusing on the laws that constructively protects consumer rights. India is not an exception to this rule. The Consumer Protection Act, 1986 was historical legislation enacted to protect consumers. Since its enactment it has been amended many times to accommodate the socio-economic and technological changes. The recent addition being the Consumer Protection Act, 2019.

One such change has been the introduction of legislations like IPR and Competition laws. Both the legislations have evolved as two distinct legislations with different objectives, yet both the regimes focus on one common objective i.e. how profoundly the rights of consumers can be protected, and this is the central aspect of both these legislations. This objective is compromised when IPR and competition law regimes interact with each other. The IPR gives strong and powerful rights to an individual and exercise of that rights by the IPR holder in certain circumstances may attract the provisions of competition law especially when it has an adverse effect on the consumer welfare and also amounts to an abuse of dominant position in the market economy. IPR holders can protect themselves against unfair competition by exercising their rights and available statutory remedies.

As a developing economy, India needs a strong IPR and Competition Law regime which work together like a piece of well-oiled machinery to achieve the ultimate goal which is to upheld consumer rights and interests. There is a gap which needs to be bridged (importantly in the digital economy) by introducing certain provisions in the Consumer protection act which will facilitate this intersection between IPR and Anti-Trust law for Consumer Protection and Welfare. The focus of this paper is to understand and delineate the policy goals and objectives of competition law and IPR with consumer law considering their common goal of attaining ‘consumer welfare’.

The Part- II of the paper will focus on the IP rights regulations which are in the interest of consumer benefit. This part will specifically highlight the provisions in the copyright law and trademark act which undermines rights of consumers and that even in some case weakens constitutionally granted fundamental right. Thereafter, the authors contend the need for strong GI protection that can make consumers more aware of their preferences which ultimately saves them from fake product and helps consumers in making appropriate choices.

Part III of the paper will deliberate upon Competition law and how it facilitates consumer welfare. Further, it will outline the nature of the market failure which the CCI failed to regulate and thus has resulted in the failure of consumer welfare.

The Part- IV will elaborate upon the nexus between IPR and Competition Law with specific reference to sectors like the pharmaceuticals, information technology and will make a case on how these two legislations can work together to uphold protect consumers with the help of Consumer Protection Act.

Finally, this paper aims to iron out the creases and provide a sound legal and economic basis for the application of competition law and IPR regime to upheld consumer rights. An attempt has been made to outline the changes that can be introduced in the current legislation to achieve the ultimate goal of consumer welfare.

II. IPR Regulations for Consumer Benefit

In a knowledge-based economy, one of the important factors behind the economic growth and consumer welfare is a strong Intellectual Property Rights (IPR) regime. Intellectual property rights as the word suggests is property right gained through a person's intellect. The main objective behind intellectual property protection is to grant a monopoly for a limited period or product by the State for the innovative or creative work but no monopoly is given for developing basic building blocks required for promoting creativity. There are different minimum standards for claiming the monopoly right such as in patent there must be an invention consisting of inventive step (non-obviousness) which has an industrial application. The requirements vary according to the various kinds of intellectual property like patents, copyright, trademark, geographical indication (GI), designs and trade secrets.

Intellectual property is that property which arises from human intelligence not only to protect the innovative and creative ability of the IP owners but also to greatly enhance the interests of the consumers in the economy. Strong IPR regime is achieved by large investment in the research & development (R & D) capacities which also improves the standard of living of the people thereby improving protection of consumer in the nation. Protection of consumers and safeguarding their interest is an obligation on the part of the State for the sustainable development of society which becomes the basis of economic & future growth. There is a greater need for safeguarding consumer interests in the world where exploitation happens in the name of free trade. IPR regime also aims at curbing unfair & dishonest trade practices[1] in the economy which can supplement Consumer Protection laws. But sometimes the IPR system is not as effective in fulfilling that mandate, so consumer protection law needs additional measures to effectively enforce & protect consumer rights.

II. a. Copyright and Consumer Protection in Digital World

In the digital era, the ability to do different things with the content is numerous, instantaneously and at negligible extra cost. It gives great opportunity for digital content creation, but it also impends the lawful content of the creator through the medium of digital piracy[2]. So, there was a requirement of such a technology which can provide safeguard to content, management and security to digital content in the digital world. So, the technology which came to rescue was Digital Rights Management (DRM) and Technological Protection Measure (TPM)[3].

DRM refers to a technology which has been developed particularly for managing digital rights or digital information[4]. In simple term, DRM is a tool which protects the copyright of digital content by only authorizing a user to do permittable acts with the content set out specifically by the owner of that copyrightable material[5] such as restrictions on the number of copies a user can make of DVD. Most of the time the terms DRM and TPM are used interchangeably but there is a fine distinction between the two as TPM means restricting copying[6] whereas DRM allows copying with the restrictions set out by the owner. The online content owner uses DRM for securing two purposes: -

a. its primary objective is to make unauthorized copying tough which can increase the piracy cost[7],

b. and to decrease the cost of getting legal digital content[8].

On the face value, it creates a situation where rights of the digital content owner and that of the user are secured but on close evaluation the scenario is different. In India, the concept was introduced through the 2002 Amendment[9] by introducing section 65A which provided the much-needed safeguard for digital copyright owner in conformity with the WIPO Copyright Treaty (WCT) 1996 and the WIPO Performances and Phonograph Treaty (WPPT) 1996 but it failed to address the consumer protection concerns. The issues revolving DRM came in light with two classic instances in Apple-iTunes case[10] in which Apple had to withdraw its fair-play restrictions policy in Europe and Sony BMG Rootkit case[11] where a class-action lawsuit was filed based on consumer law protection as a defense against DRM use, which the company settled after paying hefty $4.25 million in 39 US states.

The issue of consumer rights arises because of non-disclosures in two categories which are:

1. Right to Know – Right to know involves the disclosures on the part of the owner at the time of selling of DRM/TPM protected materials. Disclosures and transparency are the constructive tools for protecting the rights and interests of the consumer in case of information asymmetry[12]. User/Consumer has the right to know the permissible limit of access to digital content[13]. Disclosures are the paramount obligation on the owner and this right is considered as the grand norm of Consumer jurisprudence[14]. Failure on the part of the digital content owner deprives the consumers of their fundamental consumer right which can have serious ramifications in the digital world. In the US the Federal Trade Commission had challenged this kind of issue by different adware and software companies[15].

In the old act u/s 6(b)[16] there was a provision w.r.t. right to be informed but in the new Consumer Protection Act, 2019 there is no such provision and by interpretation, it can be said that it is left at the discretion of the Central Council to include or not such vital right in the ambit of Consumer Protection law. However, the new act also doesn't hold any provision for consumer protection from DRM.

2. Right to Privacy – it is the fundamental right recognized by various international human rights covenants & treaties[17] and also granted by the Hon’ble Supreme Court[18]. It is the primary serious concern in DRM technologies and consumer are not much aware of it because of the non-disclosures or limited disclosures by the content owner. The classic case of Microsoft Window Media Player[19] (WPM) can be seen for understanding how DRM violates the piracy of the user/consumer.

Each time a new DVD movie is played on a computer, the WMP software contacts Microsoft Web server to get title and chapter information for the DVD. When this contact is made, the Microsoft Web server is given an electronic fingerprint, which identifies the DVD movie being watched, and a cookie, which uniquely identifies a particular WMP player. With these two pieces of information, Microsoft can track what DVD movies are being watched on a particular computer. The WMP software also builds a small database on the computer hard drive of all DVD movies that have been watched on the computer. As of Feb. 14, 2002, the Microsoft privacy policy for WMP version 8 does not disclose that the fact that WMP phones home ‘to get DVD title information, what kind of tracking Microsoft does of which movies consumers are watching, and how cookies are used by the WMP software and the Microsoft servers. There does not appear to be an option in WMP to stop it from phoning home when a DVD movie is viewed. Also, there does not appear any easy method of clearing out the DVD movie database on the local hard drive[20].

Even the new proposed Data Protection Bill[21] (still need to get President’s assent) which is aimed at protecting data and privacy rights also bars such practices which only allows collection of data upon the full disclosures of its use and after the consent of the user. Therefore, the use of DRM technology by the digital content owner greatly jeopardize the consumer interest and fundamental right of the user. There is much greater need to address this concern while making a Digital India.

Therefore, by introducing section 65A in the Copyright Act, 1957 the rights of the digital owner have been effectively safeguarded but the user/consumer right has been compromised by the legislation in making of Digital India.

II. b. Trademarks and Consumer Welfare

Trademark and consumer law were evolved with the object of securing consumer interest and protecting consumers rights. Trademark is the bridge that can connect consumers with the product of the producers and helps them in buying genuine products. Consumers through an implied promise want assurances for the quality and safety of the product and trademark is the way to fulfil that promise and, in a way, enables the consumer to claim damages. Since the use of trademark enables the manufacturer to distinguish his product from that of others, the consumer becomes fully aware of the advantages of using that particular product[22]. So, the main crust of Trade Mark Act is to ensure that the trademarks don’t overlap in a manner that causes in the mind of consumers confusion about the source of the product[23].

Section 9 says about the refusal of registration if it is to deceive public or create confusion, likely to hurt the religious susceptibilities, or compromises or contains scandalous or obscene matter[24]. Every human being from cradle to grave remains a consumer[25]. Today’s digital world which is surrounded by various kinds of identical goods and services, the decision to purchase a particular good or service depends in large part on trademark [26]. The advertising of products helps the consumer in identifying a product with its manufacturer and creates an image which in turn can reduce the searching cost and creates goodwill for the manufacturer in the mind of an average consumer[27].

As stated earlier both trademark & consumer law have an underlying principle of protecting & promoting consumer welfare. But there are certain areas where trademark provision contradicts this objective through the principle of Honest Concurrent Use under section 12 of the Act[28]. According to this principle in case of honest concurrent use, a trademark will be registered even if an earlier registered trademark exists, provided that it does not conflict with an earlier trademark. In simple words, it allows registration of the same or similar trademark by more than one proprietor[29]. An applicant can also apply for an earlier registered trademark so long as applicant proves established goodwill in the market for that mark and applies in consonance with the provisions of section 11(1) and 11(2)[30]. Section 12 is an exception to the registration of the same or similar trademark.

The prima facie requirement for granting registration to such marks is the Honest use of the mark by the applicant in the market rather than just a concurrent use. The honesty of adoption is non-negotiable and is a mandatory requirement. If dishonest adoption is proved than no goodwill or reputation in the market will help the applicant in the registration. While determining the registration for a concurrent trademark the following consideration will be kept in mind: -

i. Whether there has been an honest concurrent use of the mark applied for and the earlier mark, and

ii. if the answer is in affirmative, whether after considering all relevant circumstances, including public interest, the discretion should be exercised to accept the application for registration of a mark, even though the use of the mark concerning the goods or services in question is likely to cause confusion on the part of the public[31].

The authors contend that this doctrine is not being looked upon based on the welfare of average Indian consumer and inconvenience caused due to the confusion develops in the mind of the consumers but the courts and trademark office consider this issue on basis of the inconvenience that will be caused to the earlier registered owner. The prima facie consideration and importance are not given to the consumer but to the owners. The public inconvenience or public confusion is always overlooked, though the issue lying at the heart of the matter should be the likelihood of confusion to the public if registration is allowed[32]. Lord Tomlin firmly held that “certain degree of confusion between the two marks is tolerable if the overall equitable considerations outweigh the risk of widespread confusion”[33] which was explained in the case of Dalip Chand[34].

The 'triple identity': same goods, identical or substantially identical marks, and the same area of use[35] of a similar trademark will always lead to a deception among the consumers when the confusion is unchecked. The problem arises because the likelihood of confusion is looked upon through a presumption that if the rival marks are conceptually similar it is not sufficient to give rise to a likelihood of confusion[36] and not through the eyes of an average consumer[37] who does not have the knowledge and expertise to differentiate between the products. The consumers are at a great disadvantage when they can’t find out the difference which can lead to deception, even of the earlier trademark which was registered in the market. The consumers will tend to perceive even honest product or brand with the lens of deceptiveness or misguidedness. Therefore, there is an inevitable need for incorporating such a provision in the consumer protection law to help and guide consumer with respect to similar trademarks.

II. c. Geographical Indication and Consumer Awareness

Geographical Indication (GI) is another kind of IPR whose objective is to identify a product based on the unique character to a specific geographical region and possess the quality that is identifiable to that region. The protection to GI in India is awarded through The GI of Goods (Registration and Protection) Act, 1999 relating to goods. The term 'goods' include agricultural, natural & manufacturing goods, and also goods of handicraft & foodstuff[38]. GIs are source identifiers as they help the consumers to identify the place of origin of the goods as well act as the indicator to the quality, reputation and other distinctive characteristics of the goods that are essentially due to that place of origin[39]. Weak protection to GI would mean that any imitation can seriously harm consumers and also producers. In a way, the consumer would get easily deceived and producers would also lose market which harms the reputation of a business. Therefore, strong GI protection is needed to ensure consumer protection as well as to benefit producers.

Unlike other forms of Intellectual Property, GIs are treated as public property and any established organization or authority can apply for it[40]. As GIs are public property they can be used as a medium of deceiving consumers. Generic name (lost their original meaning and used for a common name) GI cannot be registered under the Act which demands the need for consumer awareness. There is an efficacious relationship between the two as strong GI protection will ensure effective consumer rights enforcement. Concerns arise post-GI registration as only registration does not fulfil the objectives of the GI Act but effective enforcement and publicity of that GI are needed to make consumers aware of its value. The need is even more important in foreign jurisdictions where consumers can easily be deceived by producers with no remedy for the same.

Therefore, strong protection of GI must be looked upon through the prism of consumer protection law. Strong and recognizable GI can help consumers make the right choices while buying which can safeguard their rights & interests. GIs have an immense impact on the socio-economic aspect of developing countries like India, unfortunately, the GI Act,1999 is not comprehensive enough to screen the interest of artisans, craftsmen and its misappropriation[41]. There is a requirement to address the concerns of misappropriation through consumer protection legislation in India.

Jeremy Malcolm[42] rightly stated that “For too long, copyright and patent enforcement has been framed as an issue of ‘intellectual property rights’, with the implication that they have a similar status to human rights. But......the misuses of intellectual property rights are hampering freedom of expression, education, and participation in cultural life - and governments are beginning to agree with us. We want to re-frame Intellectual Property enforcement as an issue of consumer protection.”

III. Anti-Trust Practices Protection and Consumer Safety

The primary role of competition policy is to ensure consumer welfare by encouraging the optimal allocation of resources and granting economic agents’ appropriate incentives to pursue productive efficiency, quality and innovation.[43] It promotes and maintains competition in the market.[44] This aim is achieved by distinguishing legitimate business transactions from those practices that shall have an adverse impact on the functioning of competitive markets. In India, Competition Act 2002 (‘the Act’) plays this role by maintaining competition in the market through its provisions proscribing anti-competitive agreements[45] and abuse of dominance[46].

While examining the anti-competitive effects of an impugned action in a market, it can be concluded that ‘consumer welfare’ is an important goal of competition law. Section 19(3)(d) of the act states that while determining whether an agreement has an appreciable adverse effect on the competition under §3 one of the factors that shall be considered is the accrual of benefits to the consumers. This makes it very pertinent to understand the complex term ‘consumer welfare’ and its implication under Competition Law as it has often been misunderstood.[47] The legal and economic implications of consumer welfare may differ, and various combinations & permutations can be used for enforcement. These combinations have a direct impact on the way competition cases are decided and how competition policy is shaped by competition authorities.[48]

III. a. How does competition law achieve consumer welfare?

Every firm or company in the economy runs on the motto of profit maximization. It achieves this by competing with other firms in an economy. The profitability share depends on their ability to satisfy consumer demand[49]. Therefore, in a competitive market, the firms compete to provide the best possible goods and services to the consumer. This is where competition policy comes into play. It ensures that free and fair competition is maintained in the market so that the formation of a cartel or a vertical agreement that would limit the options of a consumer and sources of supply in the market is prevented.[50]

As the competition in a market increases so does the consumer’s choices. In such a market, the sellers will not risk their goodwill. As plenty of alternatives are available in the market, the consumers will immediately shift to another supplier in the market if any suspicion of quality arises. Therefore, it can clearly be stated that a competitive market ensures the sustenance of honest and scrupulous suppliers who would not make false claims about their product or its related services.[51]

Further, Competition Law also upholds the theory of ‘consumer sovereignty’[52]. Consumer sovereignty is achieved when two fundamental conditions are fulfilled. Through competition, the consumers must be presented with a range of options and consumers must be able to choose effectively among those options. Then the consumer protection laws ensure that the consumers can choose effectively from among those options, without their judgement being clouded by such violations as deception or the withholding of material information. This double layer of protection is important to ensure an efficient market economy.[53]

The United Nations Conference on Trade and Development (UNCTAD) study notes that Competition policy and consumer welfare play a direct role in promoting economic growth and reducing poverty. Competition ignites innovation, productivity and competitiveness, contributing to an effective business environment. Competition also delivers benefits for consumers through lower prices, improved services and greater choices. In this sense, competition grants total consumer welfare[54].

Recognizing this factor, the US and UK have the Federal Trade Commission and the Office of Fair Trading respectively, to enforce competition law as well as consumer law[55]. This unification of powers of enforcement in a single body is in stark contrast to the model in place in India. In India, there is a separation of adjudicating bodies as Competition Commission of India (CCI) deals with Competition Law issues and under CPA, the Consumer Disputes Redressal Forum, State Commission and the National Consumer Disputes Redressal Commission are empowered to deal with issues affecting consumers[56].

III. b. Understanding the Problem

In recent times, there has been a clash between Competition Law and its goal to achieve consumer welfare. The authors contend that there are gaps in the legislation which do not address the pertinent issues which leads to a failure in the consumer welfare programme. This can be understood through various industries pertinent issues.

The conundrum of redressal: Competition Law and Consumer welfare are intricately linked. Competition policy acts as an economic regulator to prevent practices which can adversely affect a competitive market. However, CCI is not a competent authority who can give redressal to aggrieved consumers as even though it helps with consumer welfare, it cannot provide a direct benefit to the consumers. This can be seen through the following cases.

In the case of Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors[57], a complaint was filed with the CCI against Honda, Volkswagen and Fiat alleging that these automobile companies were using anti-competitive practices. The complainant found it unfair that a consumer had to approach an authorized dealer to get a brand-new spare part of these three automobile companies because independent repairers had no access to branded spare parts and technical know-how pertinent to the brand. An investigation against 14 car manufactures was initiated and the CCI found them guilty on the accounts of, [1] entering into anti-competitive agreements with suppliers[58] [2] abusing a dominant position in relevant markets[59]. In all the situations related to maintenance and spare parts, the consumer felt forced to go back to an authorized dealer and pay the price determined by them. The CCI intervened and imposed a heavy penalty on account of unfair trade practices because they felt that the consumer’s choices were being restricted.

In another case, Belaire Owners Association v. DLF[60],CCI found DLF guilty of abuse of dominance in residential markets of Gurgaon. Therefore, a penalty of rupees 630 crores was imposed, this penalty was justified as it was 7% of DLF’s average annual turnover for the last three years.

In both the cases, consumers were directly affected by the actions of the dominant companies but the remedy by CCI only helped consumers indirectly. In both the cases, the huge penalty imposed upon the guilty party acted as a deterrent to other big corporates and dominant builders from imposing unfair conditions on individual consumers. Hence, fair competitive practices were promoted in the automobile and real estate markets which in turn lead to an improvement in consumer welfare and satisfaction.

There is a need to address these Competition law issues which affects the consumers and do not offer a direct redressal. Every act has some specific boundaries, jurisdiction and legislature intent. CCI can’t provide direct relief to the consumer and this is where the Consumer Protection laws needs to step in.

III. c. Pharmaceutical and Healthcare Sector

Since its establishment the CCI has received a number of cases pertaining to the pharmaceutical and healthcare sector. While adjudicating on these cases, the CCO observed that information asymmetry and supplier-induced demand in the pharmaceutical sector significantly restricts consumer choice. The absence of consumer sovereignty leads to the development of various industry practices which have the effect of choking competition and are detrimental to consumer interest. Such practices may not violate any provisions of the Act but they the create conditions in the market which goes against the objective of the act which is to ensure effective working of the markets with a healthy competition that drives market outcomes & efficiencies. There is a need for an effective solution to these issues which can take the form of appropriate regulations that can pre-empt market-distorting practices and help create pro-competition conditions. Main issues that need a closer examination to ensure consumer welfare are[61]:

1. Role of intermediaries in drug price build-up

The major issue behind the high drug prices in India is the unreasonably high trade margins. The price difference between the market price of the drug and the price at which it is procured from the State distribution centers is discernibly higher. These high margins work as incentives and are used as an indirect tool of marketing by the drug companiesSelf-Regulation is another reason which contributes towards high margins as trade unions control the markets, competition is censored.

2. Quality Perceptions behind Proliferation of ‘Branded’ Generics

Around the world, the biggest competition of the patent-expired brand name drugs marketed at monopoly prices are the generic drugs. Whereas in India, the pharmaceutical market is dominated by ‘branded generics’ which limit generic-induced price competition. The branded drugs enjoy a premium price because of the perception of them having a higher quality. In reality, there is little to no difference between the branded and unbranded drugs as both of them go through the same regulatory process.

3. Vertical Arrangements in Healthcare Services and Lack of Transparency

The biggest barrier in achieving consumer welfare in the pharmaceutical sector is the presence of information asymmetry and lack of agency that does not allow consumers to make an informed choice of service providers.

· The hospitals have deals with in-house pharmacies, diagnostic labs etc. and may provide multiple services in a bundle or a package. These deals when driven by efficiency are reasonable but when the guiding factor becomes the personal interest of the healthcare providers, results in vitiating the competitive market cycle.

· There compulsory in-house pharmacy and diagnostic tests need regulating as often the hospitals force the patients to consume the in-house service at MRP even when it is cheaper outside the hospital premises.

· In India there is no competition regulation between hospitals due to the lack of transparency and ethical practice on parameters of price, quality or choice.

· Transferability of patient date is another aspect which requires regulations. Without such regulations in place, the patients are constrained in switching from one hospital to another[62].

The commission’s objective of enforcing anti-trust rules in the pharmaceutical and healthcare sector was to ensure that effective competition is not undermined in these markets is not enough. Enforcement of competition issues is not enough to address all the consumer welfare problems in the sector. The lack of information is an issue which will not be resolved with just competition law scrutiny.

The market failure that competition law seeks to regulate implies impairment in the number of options available to the consumers whereas consumer welfare also includes the consumer’s ability to choose effectively. Consider the situation in which the seller is making deceptive and false statements in the market. When the consumer discovers this dishonesty, it becomes a consumer law failure. But what happens when the consumer never discovers this dishonesty? He will go on consuming the product from the same seller. This may lead to other consumers being misled as well. This will indirectly disincentivize the other sellers from competing on price and non-price factors as dishonesty will always win. No matter how good their product is, they cannot attract the consumers till the time the dishonesty continues to prevails and work in the favor of such sellers. This, in turn, would affect competition in the market[63].

The impact of information asymmetry on the workings of the market can be understood by the ‘market for lemons’ theory propagated by George Akerlof[64]. Defective used cars are called lemons. A potential buyer of a used car may not be able to ascertain its true value which is why they’ll be wary of paying a higher price for any car in the market, even if it is not a lemon. As a result, with the absence of incentive to develop good quality cars the market will only be left with lemons as over time the good quality cars would leave the markets. The same theory can be applied to the pharmaceutical industry as well[65].

Various activities being restricted by Competition Law such as misleading and false information, deceptive practices, provision of incomplete information and other unfair trade practices to ensure that competition is maintained in the market which indirectly ensures that consumers get to make an informed choice without a compromise on quality of the service which provides an incentive to the weak to improve[66].

From the above discussion, the authors contend that competition law is an effective regulatory tool in case of market failures such as limit on supply of commodity in market. However, there is also a need to identify the direct costs for the consumer in case of these market failures. The new Consumer Protection Act, 2019 does not have any provision which regulates the effect of the market failures on the consumers which can provide them a direct remedy.

IV. IPR and Anti-Trust Intersection: striking a balance for Consumer Welfare

Property rights are important in the free-market economy. Intellectual Property Rights provide an exclusive right to the holder for his creation. The main objective of intellectual property law is to encourage innovation and to provide incentives for innovation by granting protection to inventors and allowing them to recover research and development (R & D) investments and have the benefits of their inventions for a limited period (usually set out by the legislation). This part of this particularly focus on the area of intersection of patent and competition law.

In contrast, Competition Law aims to achieve fair competition in the market by way of regulatory mechanisms. The intent is to increase the competition and innovation in the market by ensuring to create regulations which drives business growth and does not put unrealistic restrictions. The main objective is to drive the competitor towards efficiency and consumer welfare. It also aims at promoting competition as a means of market response and consumer preference to ensure effective and efficient allocation of resources and to create an incentive for the economy for innovation[67]. IP protection gives a monopoly to the holder over a particular product, but it does not give a monopoly over the market. This practice becomes anti-competitive when companies abuse the dominant position and undermine the basics of competition law i.e. to provide a fair market for product growth and consumer welfare.

The grant of intellectual property rights to a business/company gives them exclusive right to produce or use the product and have the ownership of that product, say 20 years for patents. This means for a limited period it gives business/company access to tremendous market power to those businesses to control the market in respect to that particular product. This could result in anti-competitiveness in the market which may suppress competition, raise unreasonable prices and decrease output. Competition law policy aims to make market competitiveness which can enhance consumer welfare. Policy objectives of intellectual property and competition policy may contradict if IP rights owner takes part in transactions which restrict competition in the market. Still, at their core, both the legislations aim to uplift the economy and consumer welfare.

The interface between IPR and competition law may lead to different results. Due to exclusivity and rights of the patent owner, his product may develop a monopolistic market or if the patentee does not want to produce or sell his product, he may grant licenses to other business (licensee) to exclusively produce or sell that patented product or process on the terms and conditions set out by the patentee that may result in competitive restrictions. The bargaining power may be weak for a single inventor when the licensee is a large and powerful conglomerate such as Google or Microsoft or Apple. IP rights may create a barrier to entry which may hamper competition where small innovators can’t deal with large multinational patent holders. This kind of exercise is an abuse of exclusive right and opposed to the aim of competition law which promotes competitiveness, market access and open markets operations.

Other than being in conflict, another kind of interface where the two regimes complement each other is that both tend to promote innovation and consumer welfare. IP law’s objective is to drive towards innovative product and processes that may create new products and open new markets for the business. The monetary gains which are achieved through this can be invested for the creation of more innovative products, increase the reach to more markets and have dynamic efficiencies. This kind of exercise increases consumer welfare and gives them new advanced products from the available ones which ultimately increase their reach to high-quality products at a more reasonable price. Therefore, it is important to achieve a balance between IPR laws and competition laws to ensure fair market operations and encourage more innovative products for consumer welfare.

IV. a. Situations where IP rights develop Anti-Trust law concerns that affect Consumer welfare.

The era of Globalisation and digitalisation has posed many challenges and opportunities across many disciplines. New advances for example in information and communications technologies, in Pharmaceutical and healthcare and the creation of new materials, bring forth problems that need to be addressed to protect the Consumers. This can only be done by addressing the conflict between IPR and Anti-Trust Law. This section will outline the conflicts with the help of some of the sectors like Technology and Pharma industry.

Conflicts under Technology – Intra-technology restrictions are imposed by the patentee or licensee to minimise rivalry in the segment. Patentee gets his cost of research and development investment and licensee gets the license with less competition from the rivals in the same segment. It hampers anti-competitive practices when restrictions such as non-compete clause, territorial restriction clause, maximum-quantities clause which limits the production, fixing minimum retail prices which could impact selling price and exclusive tie-in and buying clause which requires the licensee to acquire all product or technology from the patentee. The most important restriction is in form of grant back clauses which requires the licensee to give back to the licensor the right to use any patented improvement that the licensee contributes to the original patented invention, it seriously hampers the innovative mind of the licensee and ultimately the licensee does not contribute to the improvement. All the rights, when given to the IPR holders, injures the concept of free-market operations and abuse the competition among different stakeholders. Compulsory licensing is one of the ways to reduce anti-competitive practices as it strikes a balance, but it is not a legal obligation on the IPR holders to license their patented product or process. When a patent holder adopts any kind of anti-competitive practices, governments can adopt measures like the compulsory licensing of such technologies under the provisions of the WTO Trade-Related Aspects of Intellectual Property Law (TRIPs) Agreement.[68]

The standard setting is the technical norms that businesses follow which are efficient, innovative, cost-saving, enhances health and safety which can ultimately increase consumer welfare. These standards are mainly set-up by standard-setting organisations (SSOs)[69]. Competition concerns arise when standard adopted involve patented product or process. Companies whose patent is adopted as standard-essential patent (SEP) technologies may use their position to have abusive dominant positions by imposing higher royalties or imposing favourable licensing terms for the patent holder which is also called patent hold-up. To prevent such abuse SSO requires the companies to disclose the existing IPRs that maybe infringed and requires licensing of the fair, reasonable and non-discriminatory terms (FRAND). Higher royalty payments can increase production and in the end harm consumer welfare by selling at a higher price.

Another kind of commercial arrangement that led to higher price and affects consumer interest is a “tie-in” agreement.[70] This is an agreement in which the seller only sells his/her product (tying product) on the condition that the buyer purchases another product which is known as tied product from the same seller or from third party recommended by the original seller. The US Supreme Court has laid down the factors on which the validity with competition law should be tested i.e., the tied item is a separate product or service from the tying item and other factor is the actual tie exists and not an insubstantial amount of commerce affected[71]. This practice is considered as a usual practice adopted by the licensor to restrict competition or limit the purchase from a rival company. Such kind of arrangement is regarded as per se illegal according to the Anti-Trust regulations as it tends to undermine competition and limits the right to choose available with the buyer.

Abuse of dominant position can be understood by the famous Microsoft[72] case where it was alleged that Microsoft was abusing its position by tying up its operating system with the preinstalled web-browser i.e. Internet Explorer (IE) and thus not giving other web-browser companies fair playground for the competition and restricted their market access. Microsoft was having a monopoly in the PC market; the user cannot uninstall the browser and use other search engines. It was held that Microsoft had abused its dominant position in the market by:

1. refusal to supply its competitors with interoperability information for operating PC Windows with other systems and to use that information for the purpose of developing/ distributing products competing with Microsoft's products

2. The tied sale of Windows Media Player software together with the Windows client PC operating system left no choice for consumers and foreclosing the multimedia player market to smaller competitors[73].

The district court ruled that Microsoft’s actions constituted unlawful monopolization under Section 2 of the Sherman Antitrust Act of 1890, and the U.S. Court of Appeals for the D.C. Circuit affirmed the district court’s judgments.

IPR seeks to promote innovation which provides consumers with different alternatives to choose from. Competition law seeks to regulate impairment in the number of options available to the consumers and consumer law promotes the consumer’s ability to choose effectively.

When the IPR are misused to create a monopoly in the market, it attracts Anti-trust regulations. Anti-Trust regulations ensure that the competitive spirit of the market is upheld and also ensures consumer welfare by protecting the options available to the consumers. In any event, rewriting IP law to serve consumers would require upending a good deal of history, producing a policy that is driven less by historical property rules and more by empirical economic study linking the benefits and costs of innovation to specific IP doctrines[74].

Conflicts under the Pharma and Healthcare Sector

One of the heavily dependent sectors on patents is the pharmaceuticals industry which has to keep developing innovative, effective and less costly drugs to keep up with the market and thus demands high competition. But sometimes original brand-name producers develop a particular patented drug and try to use pay-for-delay settlements (reserve payment settlement) strategy to keep off the generic drug manufacturer from introducing the cheaper drug in the market. Pay-for-delay settlements agreements are those whereby brand-name drug manufacturers pay generic drug producers that challenge their patents to delay the introduction of lower-cost generic drugs. This kind of settlements delays competition and harm consumer who has to pay a high price for brand-name drug for a longer duration of time. The US Supreme Court has recently held in FTC v. Actavis[75] that such reverse payment settlements shall be scrutinized in the pharmaceuticals industry in the United States. However, if there are valid reasons for such reverse payments, it may not be anti-competitive of competition law and the same is also being held by US Supreme Court in the above judgement that such reverse payment settlements shall be scrutinized under the rule of reason and that they are not per se anticompetitive[76].

Meanwhile in India CCI has taken the responsibility to regulate antitrust rules in the pharmaceutical and healthcare sector via its instruments of enforcement and advocacy. As discussed in the Part III of the paper, the focus area for enforcement will include activities of trade associations in the pharmaceutical distribution chain and the practices in delaying or hampering the introduction of generic medicines upon patent expiry.[77]

The CCI aims to fight the ‘information asymmetry’ and ‘supplier-induced demand’ in the industry which significantly restrict consumer choices. With the intervention of CCI, the pharmaceutical market will become competitive which is an effective means to enhance efficiency, reduce prices and improve quality. But it has rightly been stated that, as Competition Law has an indirect impact, it is suitable to deal with the failures external to the consumer whereas as consumer law provides a direct remedy, it is equipped to deal with failures internal to the consumer.[78]

The best example here is the health crisis that the country is currently facing. The health care system has proven to be a huge failure as many cases of negligence have come forward. The Consumer Protection Act, 2019 (COPRA) was expected to deal with the issues under this sector but no provision has been introduced to deal with the same. The Right to health is a fundamental right of an individual recognized by our Constitution.[79] The state in order to provide this fundamental right to the citizens forgot to introduce protective measures. This has resulted in many unfair practices being employed by a few in the private sector. The recent pandemic has exposed these dynamics widely.

In the case of Indian Medical Association v. V.P. Shanth[80] the Hon'ble Supreme Court included medical profession and medical negligence, within the scope of the Consumer Protection Act. Consequently, empowering the aggrieved (due to medical negligence) to sue for damages for deficiency in services by a medical professional or medical institution, in a Civil Court. But after the incorporation of the 2019 Act this has not been clarified. Moreover, a general application is not sufficient. Private hospitals tend to ask for diagnostic reports from in house labs and pharma which results in the consumer spending more than they ought to. To promote and protect consumer rights COPRA needs to be amended to include such IPR and competition law regimes considerations.

Promoting free market and protecting competition is of greater importance in the industry which provides healthcare. World renowned economist Amartya Sen has written: ‘... Health constitutes an important capability; in that it enables individuals to pursue things that they might value.’[81]

It can clearly be deduced that there is no conflict between the aims and objectives of both the laws. Both the regimes tend to promote innovation and consumer welfare. Domains of the two laws have been clearly defined to construct a middle path. But even though they run parallel to each other their objectives converge with each other. They need to be reconciled in a way that both laws will prevail resulting in promoting innovation, competition and consumer welfare.

V. Suggestions

From the above discussion it can be stated that that consumer welfare cannot be achieved in isolation by just the application of Consumer Protection Act. With the modern era, it is important to keep the IPR and competition law considerations to protect the consumers.

· Section 65A of Copyright Act should be amended to safeguard the rights of the consumers/users to effectively uphold consumer and fundamental rights.

· To protect consumers against similar trademarks which can be misguiding and confusing there is an inevitable need to form such a clause that can first protect consumer interest rather than that of the original manufacturer.

· Creating a strong ecosystem of GI protection that will help make consumers better choice and avoid falling prey for duplicate products.

· Introducing provisions related to Competition policy in the Consumer Protection Act to safeguard consumers and provide them with a direct remedy.

· Introducing provisions specific to the Pharmaceutical and Healthcare sector which deal with information asymmetry and protect consumers from excessive diagnostic investigations from specific in-house labs and pharma when the consumers can easily avail the cheaper service from outside the hospital.

VI. Conclusion

There is a need to strike a balance between the IPR protection and competition law to encourage the competition, innovation, economic growth and consumer welfare. IP rights legislation should ensure that exclusivity granted by the law does not restrict competition, innovation and take a harmful monopolist character in a free-market economy. It cannot be ignored that direct and immediate goals of these two legislations do conflict sufficiently that demands some mode of reconciliation. This reconciliation can be achieved by clearly separating the functions of the two and resolving the conflicts that arise by keeping Consumer Protection as the mediator. Consumer Protection Act is the best middle ground without placing one-act superior to the other as the end goal of both the spheres is to ensure Consumer Protection and Welfare.

Taking a cue from the WTO TRIPS Agreement[82], licensing practice should not affect trade and transfer of technology for consumer welfare. Competition law legislation should make sure that IP rights protect consumers from abusive and anti-competitive market practices. There is a need for reform in both the legislation to address some specific issues related to competition and innovation. The motive of consumer welfare helps in driving the innovation in the market which results in social and economic gains for the business. The paper has dealt with various issues that plague IPR and Competition Law which results in the failure of the consumer law and has attempted to provide a solution for the same.

“If the policy of the open market is to be achieved the benefit of the consumer must be kept uppermost in mind by the State”[83]

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