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Name : Rohan Roy

Register No : 1216355
Class : VI BBA LLB A

Competition policy and intellectual property rights have evolved historically as two separate
systems of law. Each has its own legislative goals and each its own methods of achieving
those goals. There, however is a considerable overlap in the goals of the two systems of law
because both are aimed at promoting innovation and economic growth.1 However there arise
differences between the two owing primarily to the means adopted by each to achieve the
common goal. IP offers a right of exclusive use and exploitation to reward the innovator, to
provide an incentive to other innovators and to bring into the public domain innovative
information that might otherwise remain trade secrets. Competition on the other hand,
regulate near monopolies, mergers and commercial agreements with the aim of maintaining
effective competition in markets.
Exclusive rights protecting IP are sometimes regarded as inherently conflicting. However, the
better view is that these rights are essential to enable undistorted competition in factors such
as innovation and quality.2Since, in the absence of such protection, an undertaking could
appropriate the benefit of a rivals effort instead of striving to better them. Ip restrict some
forms of competition in order to enable and enhance others.3 To a large extent this balance is
provided by the rules of IP law which limit the availability and scope of protection according
to the subject matter in question and may also provide for compulsory licensing in particular
circumstances.4 The application of competition rules in these circumstances is consistent with
the economic functions of both the protection of IP and the prohibition of anti-competitive
At the outset, it does seem like both the concepts are at loggerheads with each other in their
areas of operation. However, anti-trust laws and patent laws co-exist as has been rightly held
by the US Supreme Court opinion which has described the boundaries of the immunity this
way the possession of a valid patent or patents does not give the patentee any exemption
from the provisions of the competition law beyond the limits of the patent monopoly. Hence,
efficient competition law can provide a solution by preventing anti-competitive agreements
and improving economic efficiency and consumer welfare. It can be concluded that the twin
objective of competition law is to protect consumer welfare as well as the economic freedom
of market players6. A study of competition policy reveals the requirement of various kinds of
1 Atari Games Corp v. Nintendo of America Inc F.2d 1572 (Fed Cir. 1990).
2 C-10/89 HAG II Judgment # 13,ECJ; MPA Pharma v. Rhone-poulene judgment #16, ECJ; C-206/01
Arsenal Football club v. Reed Judgment #47.
3 C-26/76 Metro v. Commission Judgment #21, ECJ.
4 Art 31, TRIPS agreement and directive 92/100, Art 8(2) (permitting within limits compulsory
licensing of patents and broadcasting of published recordings respectively);
5 Guidelines on technology transfer #7 EuC.

state interventions that affect acquisition and the use of IPRs7. 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) Agreement8.
Probably the best explanation of the frequent misunderstanding of the relationship between IP
and competition law is that it is based on profound uncertainty as to the optimal scope of the
IP protection and not only the appropriate duration of the protection, but how far the ambit
for the said protection should extend in general terms in the context of a particular case.9
In recent decades, competition law has prohibited certain activities which are rendered lawful
by IP law yet found to be in contravention with the principles enshrined under competition
law. First, cases brought to place limits on the anti-competitive commercial conduct of
individual owners of IPRs where they protect a market standard or de facto monopoly.10This
has been based on the exclusionary conduct delivered towards the innovators and potential
competitors on markets which are secondary to and dependent upon an IP protected industrial
standard. Second, Competition authorities have created a detailed framework or regulation
for certain terms of bilateral IPR licensing agreements, whether by means of official
guidelines or legislation. Thirdly, the practices of collecting societies, R&D agreements and
patent and technology pools have raised the issue of the appropriate treatment of co-operation
between competitors in IP related fields under competition rules.
Finally, in the field of mergers where the owners of IP have found that competition authorities
have intervened on occasion to limit IPR owners from acquiring competing technologies as
well as compulsory licensing.11
The EC treaty articles 8112 and 8213 protect the market mechanism from anti-competitive
conduct . If national legislation gives the right holders the possibility to restrict competition,
the logical response from the EC competition rules is to censor the anti-competitive conduct
based on IPs. The relationship between the EC treaty articles and IP law is not necessarily
one of conflict. It can be argued that competition law and IP law share the same economic
6 UNCTAD Secretariat, Objectives of Competition Law and policy: Towards a Coherent Strategy for
Promoting Competition and Development
7 United States v. Line Material Co., 333 U.S. 287, 308, 76 U.S.P.Q. (BNA) 399, 408 (1948)
8 Article 31(b) of the TRIPs Agreement
9 Herbert J. HovenKamp (2005), United states Anti-trust policy in an age of IP expansion Berkeley
centre for law and technology, Law and Technology Scholarship Paper .
10 Microsoft Corporation v United states 253 F.3d 34 (D.C Cir) cert. denied 122 S.Ct.350 (2001)
11 Tetra pack rausing SA v. commission (tetra pack I) [1990] ECR II-309.

objectives. In a world with scarce resources, a vital question is how to put the available
resources to the best set for society as a whole without wasting them. In a market economy,
the market mechanism has the task of allocating given resources through optimum efficiency.
In a market context, the benchmark for good use is consumer preferences. A more efficient
allocation of resources can increase the economic welfare up to a certain point. In a perfect
world, the market mechanism would lead to pareto optimality.14 However, even if the goals of
IP laws can be described in economic terms this does not mean that the goals of IP laws have
transformed into economic goals. There are still gaols that are not economic in character. 15
The exclusivity of an IPR may result in a dominant market position for the right holder. If an
IPR makes it possible to produce a product superior to other products, and other suppliers do
not have access to the knowledge protected by the IPR, the holder of the IPR can have a
12 The following shall be prohibited as incompatible with the common market: all agreements between
undertakings, decisions by associations of undertakings and concerted practices which may affect trade between
Member States and which have as their object or effect the prevention, restriction or distortion of competition
within the common market, and in particular those which:(a) directly or indirectly fix purchase or selling prices
or any other trading conditions;
(b) limit or control production, markets, technical development, or INVESTMENT;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a
competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations
which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
- any agreement or category of agreements between undertakings;
- any decision or category of decisions by associations of undertakings;
- any concerted practice or category of concerted practices, which contributes to improving the production or
distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of
the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the
products in question.

13 Any abuse by one or more undertakings of a dominant position within the common market or in a substantial
part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between
Member States.Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a
competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations
which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

14 Van der Bergh, Roger J and Peter D. Camesasca (2001), European Competition law and
economics-A comparative perspective, London : Sweet & Maxwell, p.64.
15 Bork, Robert H. (1978), The Anti-trust Paradox , New York : Basic Books, pp. 5-8.

dominant position in the technology markets in the product produced16 with the superior
technology. IPRs do not necessarily secure for the holder a de facto monopoly or dominant
position in the technology market or in the product market.
It was held in IMS health17 In the balancing of the interest in protection of the intellectual
property right and the economic freedom of its owner against the interest in protection of free
competition, the latter can prevail only where refusal to grant a license prevents the
development of the secondary market to the detriment of the consumers.18
The courts have more often than not, manifested their penchant for broad and expansive
interpretation in the realm of IPRs, resulting in patents being granted to live, human made
micro-organism19,computer software20 and business method21 are judged under the rule of
reason6 , which calls for evaluation of purpose, power and competitive effects.22Against the
backdrop of anti-trust laws, there seems to be a constant tussle between individuals
inalienable right to property (including IPRs which confer the right of monopoly and
exclusivity) and the general freedom of trade and commerce.
United States: 1995 Antitrust Guidelines for the Licensing and Acquisition of Intellectual
Property23.The essence of these guidelines was to accentuate the nexus between Intellectual
Property Law and Competition policy. The fundamental concepts as articulated by the
Department of Justice and Federal Trade Commission emphasized that - Intellectual property
and other forms of property should be placed on an equal platform, without being oblivious
of the inherent variances between IPRs and other property as far as the ease of
misappropriation is concerned. It should not be presumed that the existence of IPRs confer

16 Case 241-242/91, RTE and ITP v. Commission (Magill). 1995 ECR 1-743, para. 49.
17 Case 418/01, IMS Health,[2004] ECR I-5039.
18 Id para 42.
19 Diamond v Chakravarty 447 U.S. 303 (1980)
20 Diamond v Diehr 450 U.S. 175 (1981)
21 State Street Bank & Trust Co. v Signature Financial Group, Inc. 149 F.3d 1368 (Fed. Cir. 1998)
22 Rudolf Peritz, pg 190, The Interface between Intellectual Property Rights and Competition Policy, edited by
Steven Anderman (Cambridge University Press 2007)

23 Available at last visited on July 2,

2008Available at last visited on July 2, 2008

market power upon the owner.24 Competition policy and IP laws are intrinsic in the common
objective of encouraging innovation and consumer welfare, and the licenses that blend the
complementary factors of production produce pro-competitive results.
The concept of an innovation market includes those firms which possess the specialized
assets or characteristics which are deemed to be necessary in order to successfully conduct
research and development which might result in new or enhanced products or processes.
Partakers in an innovation market include not only firms which are currently contributing in
the relevant goods or technology markets, but other firms which while not active in such
markets, nonetheless have the assets necessary to enter the market at some point in the
In Hartford-Empire Co. v United States 26 The court asserted that a patent owner is not in a
position of a quasi-trustee for the public or under any obligation to see that the public
acquires the free right to use the invention. He has no obligation either to use it or grant its
use to others. However, there have been some decisions over the years sometimes termed
essential facility cases imposing duty to deal or decreeing compulsory licenses. In fact in
US the principle of granting involuntary compulsory licenses is inextricably interwoven with
the concept of essential facility which developed in relation to access to physical
infrastructure. Essential facility is a facility or infrastructure which is necessary for
reaching customers and/ or enabling competitors to carry on their business.27
Likewise in Lorain Journal case28, the Supreme Court considered whether the defendant, the
only local newspaper circulating news and advertisements in northern Ohio, violated the
Sherman Act by refusing to accept advertising from businesses that placed advertisements
with a small radio station. The Court approved an order requiring the newspaper to accept
advertisements as it was considered an indispensable medium of advertising. Therefore,
through the course of such decisions was born the essential facilities doctrine and the
accompanying remedy of compulsory access.29Hence, Where facilities cannot practicably be
24 2.0 (b) The Agencies will not presume that a patent, copyright, or trade secret necessarily confers market
power upon its owner. IP Guidelines, 1995

25 Allan Gutterman, pg 245, Innovation and Competition Policy, (Kluwer Law International, 1997)
26 323 U.S. 386 (1945)
27 H. McQueen, Charlotte Waelde, Graeme Laurie, pg 853, Contemporary Intellectual Property Law &
Policy, (Oxford University Press, 2007).

28 342 U.S. 143, 146-49 (1951)

29 Rudolf Peritz, pg 200, The Interface between Intellectual Property Rights and Competition
Policy(Cambridge University Press, 2007)

duplicated by would-be competitors, those in possession of them must allow them to be

shared on fair terms. It is illegal restraint of trade to foreclose the scarce facility.30
Section 2 of the Sherman Act has two elements: (a) the possession of monopoly power in the
relevant market,31 and (b) the willful acquisition or maintenance of the power as distinguished
from growth or development as a consequence of a superior product, business acumen or
historic accident.32 Section 13 prohibits discrimination in prices while selling the same
product to different customers with the view to lessen competition and to curb the tendency
to create a monopoly in any line of commerce, to do away with injury, destruction, and to
prevent competition or any person engaged in commerce, in the course of such commerce,
knowingly to induce or receive discrimination in price. The Sherman Act contained a blanket
prohibition of all contracts and combinations in the form of a trust in restraint of trade for
commerce among several states or with foreign nations.33
In Chicago Board of Trade v. United States,34 Brandies J. observed that every trade
association and board of trade imposes some restraint upon the conduct of its members. He
explained the rule of reason in the following words: the true test of legality is whether the
restraint imposed is such as merely regulates and perhaps thereby promotes competition or
whether it is such as may suppress or even destroy competition. This therefore puts a charge
on the court to determine what constitutes restraint of trade in each and every case according
to the nature of the restraint and its effect on the market. This particular doctrine developed
by the US Supreme Court has always taken the view that the court can in line with economic
progress of the country .
It is pertinent to note that in the case of United States v. Trans- Missouri Freight Association,
the US Supreme Court held that price fixing agreements were illegal35 and the US Court of
Appeals of the Sixth Circuit further confirmed this position in Addyston Pipe and Steel Co. v.
United States,36when it stated that that price fixing cannot be justified in any given
circumstance. The prohibition of price agreements are strongly dealt with under competition

30 Hecht v. Pro-Football, Inc., 570 F.2d 982, 992 (D.C. Cir. 1977).
31 Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 597 (1985); Intergraph Corp. v.
Intel Corp., 195 F.3d 1346, 1353 (Fed. Cir. 1999).
32 U.S. v. Grinnell, 384 U.S. 563, 570-71 (1966); see also Aspen Skiing Co., 472 U.S. at 595-96
33 Section 1, Sherman Act, 1890
34 (1918) 246 U.S. 231
35 United States v. Trans-Missouri Freight Association, 166 U.S. 290 (1897)

laws all over the world. Further in Dr. Miles Medical Co. v. John D. Park and Sons, the US
Supreme Court maintained that resale price maintenance between manufacturer and
distributor is per se illegal.37 The Standard Oil Co.,38case and American Tobacco Company
case39 further strengthened this position. In the latter case, the issue in question was a
combination of trade and an attempt to monopolize the business of tobacco in interstate
commerce within the prohibitions of the Sherman Act of 1890. The concept of price fixing
agreements are very pertinent to intellectual property law in the case of fixing of royalty
payments in the technology transfer markets which has been a recent trend and a massive
forum of discussion as to whether retailers and manufacturers entering into such anticompetitive cartel like agreements when it comes to the transfer of essential technology by
the developer is a legitimate practice considering the ancillary concepts of resale price
Abuse of dominant position. In the legal parlance dominant position is a position of
economic strength enjoyed by the enterprise which enables it to prevent effective competition
being maintained on the relevant market by giving it the power to behave to an appreciable
extent independently of its competitors, customers and ultimately of its consumers.40
In A&M Records, Inc. v. Napster, Inc.,41 case, it was held that one of the characteristic of
copyright is the right to curb the development of a derivative market by refusing to license
copyright. Although it is likely that unilateral refusal to license copyright may give rise to
misuse of claim but the broad assumption is that the desire to exclude is a presumptively
valid business justification. Likewise, unilateral refusal to license diagnostic software has not
been deemed to be an antitrust violation.42 However, in Blonder Tongue Labs. v. Univ. Illinois
foundation43., it was held that the patentee has the power to refuse a license but it does not
36 85 F. 271 (6th Cir. 1898)
37 Dr. Miles Medical Co. v. John D. Park and Sons, 220 U.S. 373 (1911)
38 Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)
39 Richard Gilbert and Carl Shapiro, Anti-trust Issue in the Licensing of Intellectual Property: The
Nine No-nos Meet the Nineties, Brooking Papers on Micro Economics.
40 United Brands Company and United Brands Continental BV v. Commission of the European
Communities, [1978] EUECJ C-27/76 (14 February 1978).
41 239 F.3d 1004, 1026-27 & n.8 (9th Cir. 2001)
42 Advanced Computer Servs. of Mich. v. MAI Sys. Corp., 845 F. Supp. 356, 369 (E.D.Va 1994)
43 402 U.S. 313 (91 S.Ct. 1434, 28 L.Ed.2d 788)

enable him to enlarge the monopoly of the patent by the expedient of attaching conditions to
its use.44 In Eastman Kodak Co. v. Image Technical Services, Inc45., also it was held that
power gained through some natural and legal advantage such as a patent, copyright, or
business acumen can give rise to liability if a seller exploits his dominant position in one
market to expand his empire into the next.
In copyright cases as well, courts have reaffirmed the right of intellectual property owners
and held that Nothing in the copyright statutes would prevent an author from hoarding all of
his works during the term of the copyright. In fact, this Court has held that a copyright owner
has the capacity arbitrarily to refuse to license one who seeks to exploit the work46.
In the Paramount Pictures case47, the court said that the ability of a licensee to license one or
more items of intellectual property on the licensees purchase of another item of intellectual
property or a good or a service has been held in some cases to constitute illegal tying.48 The
court also held that a copyright may no more be used than a patent to deter competition
between rivals in the exploitation of their licenses.49 The licensing of multiple items of
intellectual property in a single license or a group of licenses may be in the form of a tying
arrangement if the licensing of one product is conditioned upon the acceptance of a license of
another. Hence, theoretically a tying agreement can lead to a rule of reason violation if it can
prove that the tie-in fostered sufficient anti-competitive impact in the tied product market.50
Later in International Salt Co., Inc. v. United States51,the US Supreme Court held that tie-insales where a producer sells a product or service only if the customer also purchases another
product or service of the same producer is per se prohibited under the law. The anti-trust laws
always encourage competition in the market vis-a-vis innovation, efficiency, and low
pricing. Anti-trust laws discourage monopolies that resort to unfair or predatory methods and
44 402 U.S. 313, 344 (1971)
45 504 U.S. 451, 481-82 (1992)
46 Stewart v. Abend, 495 U.S. 207, 228-29 (1990)
47 334 US 131 (1948)
48 United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948).
49 Ibid.
50 White Motor Co. v. United States, 372 US 253, 262-263; Northern Pac. Ry. Co. v. United States,
US.1, 6-7 (1958).
51 332 U.S. 392 (1947)

those who seek to use monopoly power in markets to obtain such power in other markets.
The inherent tension between anti-trust law and intellectual property law is that, anti-trust law
tries to punish those who seek or maintain monopolies, but intellectual property law permits
limited monopoly for a limited period of time, as an incentive to the innovator. The result is
an inevitable clash and tension between anti-trust and intellectual property law.
The US Court of Appeals of Second Circuit in the matter of SCM Corp. v. Xerox Corp.
Opined that while the anti-trust laws proscribe unreasonable restraints of competition, the
patent laws reward the inventor with a temporary monopoly that insulates him from
competition, the patent and competition laws necessarily clash.52
Competition policy is an effective counterbalance to protecting intellectual property rights.
Even without legislative immunity for IPRS, the case laws interpreting the competition
legislation in the countries studied demonstrates that the competition rules create certain selfdenying ordinances to ensure that there is an extensive reconciliation between the two legal
systems. The effort is extended to read the always in conjunction as opposed to in conflict to
each other. Ip laws such as patents and copyright always confer an exclusive right to exploit
an invention or creation commercially for a limited period as an incentive to creation and
innovation. These rights are effective negative rights as they prevent the coping of the
protected subject matter. They do not ensure the profitability of the IP but the legal
exclusivity provides a stimulus by acting both as a reward as well as a deterrent.

52 645 F.2d 1195 (2nd Cir. 1981)