On 20-5-2020, in a significant competition law-related development, a Single Judge Bench of the High Court of Delhi (Delhi HC) passed a judgment[1] dismissing a petition filed by Monsanto[2] against the Competition Commission of India’s (CCI) investigation order. In the present matter, Monsanto approached the Delhi HC challenging the jurisdiction of CCI to investigate their licensing policies under Section 4 of the Competition Act, 2002 (Competition Act). It was argued that the issues arising out of their licensing arrangements should be subjected to the Controller of Patents (Controller) under the Patents Act, 1970 (Patents Act), and CCI does not have jurisdiction in this regard. However, the Delhi HC rejected the objections of the petitioners and upheld the jurisdiction of CCI to probe into such abusive conduct, despite the presence of a specific statutory regulator.
The judgment highlights certain overlapping and controversial issues between the Competition Act and the Patents Act, which have now been harmoniously settled by the Delhi HC. While dealing with the objections of the petitioners, the Delhi HC also clarified certain observations made by the Supreme Court of India (Supreme Court) in CCI v. Bharti Airtel Ltd.[3] (Bharti Airtel judgment.) In doing so, it particularly emphasised that the Bharti Airtel judgment is not an authority for extending the proposition that whenever there is a statutory regulator, the complaint must be first brought before the regulator and examination of a complaint by CCI is contingent upon the findings of such regulator.
Brief Facts
The genesis of the dispute is an information filed by certain cotton seed manufacturing companies[4] before CCI. Monsanto was the first company to develop and commercialise Bt cotton technology and registered its second generation of Bt cotton technology under the Patents Act. Monsanto had licensed this technology to its Indian joint venture company — MMBL, which sub-licensed it to various seed manufacturers in India (including the informants) on payment of certain non-refundable and a recurring royalty/fees (trait fee).
The informants inter alia alleged that MMLB and certain Monsanto group companies charged unreasonably high trait fee, imposed unfair terms and conditions through sub-licensing agreements, engaged in refusal to deal, etc., which resulted in denial of market access for the informants. CCI prima facie found merit in the informants’ allegations and accordingly passed an order under Section 26(1) of the Competition Act, thereby directing an investigation into the matter. Consequently, Monsanto approached the Delhi HC challenging CCIs investigation order.
Key Issues for Determination
The Delhi HC delineated the following issues for consideration: (i) whether there was any irreconcilable conflict between the Competition Act and the Patents Act, and whether both the enactments could be construed harmoniously; (ii) whether Section 3(5) of the Competition Act excludes the applicability of the Competition Act in respect of any agreement, which relates to restraining infringement of any patent rights; and (iii) whether Bharti Airtel judgment[5] confers primacy to statutory regulators over CCI.
Irreconcilable Conflict between the Competition Act and the Patents Act
The Delhi HC relied on the Telefonaktiebolaget L.M. Ericsson v. CCI[6] (Telefonaktiebolaget L.M. Ericsson judgment) and the relevant provisions of both the enactments to observe that there was no irreconcilable conflict between the Competition Act and the Patents Act.
It was noted that the provisions of the Competition Act (i.e. Sections 62, 21 and 21-A) clearly indicate that the intention of the Central Legislature was not to repeal any other statute by enacting the Competition Act, rather it was to ensure that the provisions of the Competition Act are implemented in addition to the provisions of other statutes. Further, the remedies available under the Patents Act and the Competition Act are materially different from each other. It was also observed that in certain cases, it may be open for a prospective licensee to approach the Controller for grant of a compulsory licence, however, the same would not be inconsistent with CCI passing an appropriate order under Section 27 of the Competition Act.
Accordingly, it was held that the jurisdiction of CCI to entertain complaints regarding abuse of patent rights could not be excluded.
Whether Section 3(5) of the Competition Act is a Blanket Exemption
With respect to the allegation reimposition of unreasonable conditions on the informants (through sub-licensing agreements), the petitioners contended that they were well within their rights to impose such conditions by virtue of Section 3(5)(i) of the Competition Act.
Section 3(5)(i) of the Competition Act provides that Section 3 (which deals with anti-competitive agreements) would not restrict the rights of any person to restraint any infringement of, or to impose reasonable conditions, as necessary for protecting any of his rights which have been or may be conferred upon him under, inter alia, the Patents Act.
The petitioners submitted that Section 3(5)(i) of the Competition Act has two limbs. The first, which provides a blanket exclusion in respect of rights to restraint infringement of intellectual property rights (IPR); and the second, which relates to imposition of reasonable conditions, that may be necessary for protecting the IPR. It was emphasised that the term “reasonable” under Section 3(5)(i) is a qualifier only for conditions relating to patent protection and not patent infringement. Accordingly, the petitioners submitted that CCI lacks jurisdiction to examine the alleged anti-competitive clauses of the sub-licensing agreement, as these were designed to restrain the cotton seed manufacturers (including the informants) from infringing their patents [re] Bt cotton technology.
The Delhi HC found the petitioners’ contentions bereft of any merit. It observed that while a patent holder is well within its rights to enter into an agreement restraining infringement of its patent rights, however, these rights are not unqualified. The words “or to impose reasonable conditions” under Section 3(5)(i) are placed between two commas and thus, must be interpreted as being placed in parenthesis that explains and qualifies the safe harbor of Section 3(5) of the Competition Act. The exclusionary provision to restrain infringement cannot be read to mean a right to include unreasonable conditions that far exceed those that are necessary, for the aforesaid purpose.
Therefore, the question whether an agreement is limited to restraining infringement of patents (and includes reasonable conditions), is required to be determined by CCI. Section 3(5) of the Competition Act does not mean that a patentee would be free to include onerous conditions under the guise of protecting its rights.
Whether Bharti Airtel Judgment Confers Primacy to Sectoral Regulators over CCI
Lastly, relying on the Bharti Airtel judgment[7], the petitioners contended that since issues in the present matter relate to patents, it would be essential for the specialised regulator in this case, the Controller to first determine whether the agreements (sub-licences) entered into by MMBL are an abuse of its rights under the Patents Act before CCI could investigate it.
In this regard, the Delhi HC clarified that the position taken by the Supreme Court in Bharti Airtel judgment[8], in favour of Telecom Regulatory Authority of India (TRAI), would not be applicable in the present case for the following reasons:
First, the Bharti Airtel judgment[9] did not confer primacy to sectoral regulators over matters that fell within the expertise and domain of CCI. Unlike the present matter, where the complaint filed before CCI pertains to anti-competitive conduct by the petitioners, the dispute in Bharti Airtel (which was sought to be placed before CCI) related to non-provision of points of interconnections (PoI) i.e. a technical telecom issue. The PoI issue clearly required a technical evaluation and therefore, the examination by CCI was deferred till the technical aspects (basis which the complaints were filed before CCI) were determined by TRAI.
Second, the Bharti Airtel judgment[10] pertained to the role and functions of TRAI which is materially different from that of the Controller. The TRAIs scope of regulation is pervasive in nature as it is entrusted with the formation and implementation of regulations. Therefore, the issue of non-provision of PoIs fell squarely within the scope of TRAIs regulatory powers. On the contrary, a Controller does not regulate the exercise of patent rights in such a pervasive manner. The principal function of the Controller is to examine the application of grant of patents and whether an applicant is entitled to such grant of patent rights. Although, the Controller also exercises other powers and performs other functions (including issuance of compulsory licences), the nature of role performed by the Controller cannot be equated to that of TRAI.
Therefore, the Delhi HC held that CCI has jurisdiction to investigate the abusive conduct of Monsanto.
Key Takeaways
Given the conundrum around the applicability of Bharti Airtel judgment[11] (as discussed above), the Delhi HC provided the much-needed clarity in relation to the jurisdiction of CCI in cases involving statutory regulators. The judgment reaffirms that CCI is entrusted with the function to deal with anti-competitive conduct (as set out under the Competition Act) and to that extent, CCI can assume jurisdiction even in matters involving a specialised statutory body. This observation of the Delhi HC will go a long way in restricting the abuse of legal process, where the parties attempt to escape CCIs investigation by raising frivolous jurisdictional issues.
In this judgment, the Delhi HC has taken the opportunity to re-emphasise that there is no irreconcilable repugnancy between the Patents Act and the Competition Act. Interestingly, it also construed Section 3(5) of the Competition Act in true spirit by clarifying that Section 3(5) of the Competition Act is not a blanket restriction, and therefore unreasonable conditions could not be imposed by an IPR holder under the garb of protecting its rights.
While the Delhi HC has established a progressive precedent through this judgment, it will be interesting to see how it plays out for CCI and other statutory regulators.
* Anshuman Sakle is a Partner with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at anshuman.sakle@cyrilshroff.com. Ruchi Verma, Associate, can be contacted at ruchi.verma@cyrilshroff.com and Nandini Pahari, Associate with the Competition Law Practice at Cyril Amarchand Mangaldas.
[1] Monsanto Holdings (P) Ltd. v. CCI, 2020 SCC OnLine Del 598.
[2] Monsanto Holdings Pvt. Ltd. (MHPL), Monsanto Company, and Mahyco Monsanto Biotech (India) Ltd. (MMBL); collectively referred to as “Monsanto”.
[4] Nuziveedu Seeds Ltd. (NSL), Prabhat Agri Biotech Ltd. (PABL), Pravardhan Seeds Private Ltd. (PSPL) (collectively referred to as the “informants”).
[7] Supra (Note-5).
[8] Supra (Note-5).
[9] Supra (Note-5).
[10] Supra (Note-5).
[11] Supra (Note-5).