Introduction

It is widely believed that the presence of strong intellectual property rights spurs innovation, which in turn leads to higher economic growth and increasing benefits for all. The argument seems natural as securing property rights is basic for a well-functioning market economy. No economic agent exercises productive effort without the certainty of controlling its fruits.¹ What is true for physical effort must be true for the intellectual efforts also. Economic propositions justify that ideas should be protected and available for sale, just like any other commodity. There is a general rule that monopoly acquired by IPRs is not bad. There are certain exceptions to this rule. The 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 business. But “intellectual property” has come to mean not only the right to own and sell ideas, but also the right to regulate their use. Consequently, the IP owners tend to indulge inanticompetitive activities. This creates a socially inefficient monopoly, and what is commonly called intellectual property might be better called “intellectual monopoly.”

Developing countries and economies in transition like India tend to be more vulnerable to anti-competitive practices. This is due to high entry barriers, less diversified and smaller markets, relatively asymmetric firms, in addition to the general conditions which allow dominant firms to abuse their position. Some developing countries do not have competition laws in place and, in those that have laws; their competition authorities have limited experience and resources for effective enforcement. Fortunately India has enacted Competition legislation on par with international commitments and the CCI is doing a tremendous job within the limits of its legislative competence.

 In India Government monopolies exist because some services have to exist for everyone with their availability not being subject to market forces or the ability to pay. Other reasons include protecting the public welfare. However, there is argument that subsidizing some businesses creates inefficiencies and can risk producing an inferior product or service for all customers. There is no perfect answer to the issue; government monopolies will continue to be a work in progress subject to political and public interests. Most of these monopolies are utility monopolies. In countries like India, utility monopolies are the most influential of all monopolies, whether private or public. Because utilities are near absolute necessities, people have no choice but to pay in spite of unreasonable price hikes and weak service. As such, unless the economy collapses, utilities have little incentive to improve service and decrease price. To make things worse, the expenses and infrastructure required to provide a utility usually leave few options in terms of choice. This means the dangers associated with a utility monopoly are very real to our modern way of life and our economy while utilities monopolies represent the norm, not the exception.

Anti-competitive practices have implications for the economic growth and development of nations. Such practices restrict competition and deteriorate consumer welfare by creating entry barriers and price increases, which lead to efficiency and innovation concerns. Cartels are one of the most harmful anti-competitive practices and cause significant damage to the economy as well as to consumers. Abuse of a dominant position by firms owning Intellectual Property is another type of anti-competitive conduct, which can be exercised by large firms, both multinationals and state-created monopolies, such as utilities, transport and telecommunications, in relatively smaller markets. However, there are some practical difficulties in this regard. First, developing economies often have smaller markets and, hence, only a small number of firms can benefit from economies of scale and operate efficiently. That is why markets in developing countries are more likely to be concentrated. Secondly, the established large firms in developing countries play an important role in increasing investment. Therefore, these economies are likely to benefit from relatively lax rule son abuse of dominance. Thirdly, in countries where the priority is on equal income distribution, policies may be designed to support small firms representing poorer parts of the societyvis-à-vis large and dominant companies. These factors should be considered carefully by developing countries in designing their competition law and policy, in particular the rules on abuse of dominance. Economic efficiency concerns should be weighed against public interest concerns in the best way. The objectives of the competition law should be clearly reflected in the law. Further, there are different approaches to abuse of dominance in developed countries, such as the EU and US, arising from different assumptions as to which types of conduct are harmful and how difficult it is to distinguish harmful types of conduct from others. Regardless of the type of approach to abuse of dominance, the assumptions made and the economic factors dominant in a country should be analysed and grounded on economic reality.

IPR protection may endow companies with significant market power. While IPR policies increase incentives to innovate in an economy, they may cause efficiency losses due to abuse of market power by companies protected by IPR regime. This problem is more pertinent in developing countries considering the fact that innovating companies are usually situated in developed countries. Developing countries need to strike the right balance between competition and IPR policies, particularly patent policies, depending on their productive, imitative and innovative capacities as well as their openness to attract foreign direct investment from developed countries.

In an economic system based on free competition, monopoly rights are generally a bad thing. The term “Competition” refers to a situation in a market place in which firms/ entities or sellers independently strive for the patronage of buyers in order to achieve a particular business objective, such as profits, sales, market share etc. The competition is also seen as an ordering force which ensures efficiency of economic

processes, since resources are steered to the most productive supplier. So we find plethora of antitrust legislations in most of the developed world. But it must be acknowledged that without monopoly incentives a nation’s stock of intellectual property may suffer. What is therefore required is a balance between these opposing forces—the need for a free economy balanced against the need to stimulate innovation.

IPRs are, by definition, exclusive marketing rights (monopolies) which States grant for a limited or extendable period of time. Motives vary, but the tool essentially serves the purpose of stimulating innovation and investment by securing the potential of appropriate returns on the investment of time, financial and human resources. Exclusive rights, by definition, amount to a limitation of competition. They are therefore seen at variance with principles of market access and level playing fields sought by competition rules, in particular the restrictions on horizontal and vertical restraints, or on the abuse of dominant positions.The interface between IPRs and competition law has evolved several types of restraints on competition. While no one has sought to contend that licensing agreements are per se anticompetitive, the focus of these restraints is typically a licensing agreement which could adversely affect competition by artificially dividing markets among enterprises and possibly impeding the development of new goods and services.

More specifically, the phenomenon of exclusive licensing, manifested through several unilateral market tactics by enterprises such as tie-in arrangements, exclusive dealing, licensing restrictions (covering grant back clauses, extensions of IPR terms and field of use restrictions) as well horizontal agreements (like pooling and cross-licensing by parties collectively possessing market power), have attracted the attention of competition regulation authorities across the world.