Published on: The Financial Express, 13 June, 2001
By Pradeep S Mehta & Ujjwal Kumar
CUTS Centre for International Trade, Economics and Environment.
Apart from parallel imports (covered in our previous article) another area where the Competition Bill has failed to use the flexibility provided by TRIPs (Trade Related Intellectual Property Rights) is “compulsory licensing.” The agreement vide Article 31 allows compulsory licensing under certain conditions. One of them is to control anti-competitive practices by IPR owners.
Most importantly, even the licensee is allowed to export the protected product, which otherwise is meant predominantly for supply in the domestic market. This could be highly relevant to certain sectors in India, namely, the pharmaceutical sector, which would be able to export drugs to countries with national health emergencies.
Another condition for grant of compulsory licensing and where the competition authority has a role is in case of “refusal to deal”. An example of how a compulsory license can be based on “refusal to deal” is provided by a 1995 decision of the European Court of Justice in the Magill case. The Court held that Radio Telefis Eireann (RTE) and Independent Television Publications Limited (ITP), who were the only sources of basic information on programme scheduling, could not rely on national copyright provisions to refuse to provide that information to third parties. The Court opined that such a refusal constituted the exercise of an IPR beyond its specific subject matter and, thus, an abuse of a dominant position under Article 86 of the Treaty of Rome.
Even though the US patent law does not provide for compulsory licenses, this is probably the country with the richest experience in the granting of compulsory licenses to remedy anti-competitive practices. According to one study more than 100 such licenses have been granted.
The provisions of compulsory licensing should be used with utmost caution else it would have a negative impact on investment in R&D, evolution of new technologies etc. But the provisions should not remain unimplemented either, should the need arise. Interestingly, a statistical study by Scherer relating to 70 companies showed no negative effect on R&D in companies subject to compulsory licenses but, on the contrary, showed a marked rise in their R&D relative to those of comparable size not subject to such licenses.
That said, before any government can act on Article 31 of the TRIPs Agreement to grant a compulsory license, it has to follow due administrative or judicial process. A competent authority has first to determine that the anti-competitive practice is prevalent before the government can grant a license to others. Again the best-suited authority here would, of course, be the competition authority and hence this needs to be reflected in the new competition law.
But our draft Bill only says that for the purpose of determining whether enterprise enjoys a dominant position, the authority would take into account inter alia “technical advantages enjoyed by the firm, which could include patents, know-how and copyright.”
Clear provisions on IPR and competition must be implemented at the national level to take full advantage of the flexibility built into TRIPs, to stem the tide of anti-competitive arrangements.