Intellectual Property Rights, And Competition Law

Prof. Niharika Sahoo Bhattacharya

Rajiv Gandhi School of Intellectual Property Law
Indian Institute of Technology, Kharagpur

Lecture – 36

IP Licensing and Indian Competition Law (Contd.)

Hello all. We will continue our previous discussion regarding IP Licensing and Indian
Competition Law. In the previous class, we dealt with the jurisdictional issues that were
raised in different cases. Whether CCI: Competition Commission of India is having the
power to deal with IP licensing cases or not, was the issue in several cases. We saw in the
Micromax case that CCI has the power to deal with IP licensing cases. In today’s
module, we will deal with IP licensing cases, and how they are dealt under the Indian
competition law.

(Refer Slide Time: 01:19)

In this module, we will focus on few cases, such as Shamsher Kataria case, ATIO versus
Verifone case, Justicket versus Bigtree and K Sera Sera case.
These case will give us a brief idea on how different aspects of an IP licensing agreement
can create anti-competitive environment and how the competition commission of India
deals with such problems.

(Refer Slide Time: 01:50)

The first case was between Shamsher Kataria and the automobile players Honda,
Volkswagen, Fiat and other major players in the automobile sector. This is one of the
important case in private automobile industry, where the monopolistic power of these
private vehicle companies were questioned by Shamsher Kataria.

Shamsher Kataria alleged that the companies like Honda, Volkswagen and Fiat, which
are branded car companies particularly personal vehicle company, are creating a
monopolistic environment in the automobile segment of India. Shamsher Kataria alleged
that these companies are creating a monopoly over the supply of genuine spare parts,
repairing and maintenance services.

They are creating monopolistic or restrictive environment, by restricting the sales and
supply of genuine spare parts. Their diagnostic tools and various other equipments were
required for the servicing of vehicles and that they were not providing the technical
information required for maintenance service and repair of vehicles to other,
unauthorised or private car repairing service centres.
According to the informant i.e. Shamsher Kataria, all these alleged anti-competitive
practices are taking place and the companies like, Honda,Volkswagen and Fiat are taking
higher charges for the maintenance of vehicles and they are indirectly determining the
prices of spare parts as well as maintenance and repairing services.

(Refer Slide Time: 03:59)

The informant Shamsher Kataria also alleged that, restrictive practices of not supplying
genuine spare parts or not supplying information regarding servicing of vehicles, the
company i.e. the Defendants are denying market access to independent repair workshops.

There are two segments: the companies which are Original Equipment Manufacturers
(OEM) and their authorised service centres. By denying, independent repair workshops,
which are not authorised from these companies, the companies have created a restrictive
environment and they are denying market access to private players or small players in
the Indian market. The informant has stated that the cost of getting a car repaired in an
independent workshop is generally cheaper than 35 to 50 percent as compared to
authorised service centres. The authorised service centre, since they are the only source
of getting supplies, in terms of equipment’s as well as services from OEM, charge higher
prices. They cited the example of Maruti Suzuki cars because Maruti Suzuki has given
access to their spare parts and other servicing requirements to private players.
So, a person can easily, at a cheaper price, get the car repaired or serviced in a private
repairing station, but in these cases of Honda, Volkswagen and Fiat getting a car repaired
or serviced costs more than 35 to 50 percent. Further, Shamsher Kataria also cited the
examples of European Union and US. The creation of a competitive environment in the
automobile sector has been given priority, in the European Union as well as the United
States.

TTBER has given certain exemption and mentioned certain criteria under which
automobile companies can give access to their spare parts or techniques. In some of the
states of United States, right to repair act has been enacted which curbs restrictive
practices by the automobile manufacturer.

The aim of the complainant was to bring to the notice of competition commission of
India that these private players like Honda, Volkswagen and Fiat are creating a
monopolistic as well as restrictive environment, by denying access to spare parts as well
as servicing, to other private players.

(Refer Slide Time: 07:24)

In this case, the informant has requested to hold an enquiry into the trade practices of the
respondent and, any other vehicle manufacturers, their authorised servicing centres,
which are indulged in similar activities, and to give a finding that such parties have
committed restrictive and unfair trade practices in contravention of the Act. He also
requested CCI to order a cease and desist order on such restrictive, unfair and
monopolistic trade practices. He claims that the companies are having a dominant
position, are misusing their power and abusing dominant position.

(Refer Slide Time: 08:17)

He also requested to pass appropriate direction for the respondents and that CCI should
ask the respondents to supply genuine spare parts and servicing manuals or ask them to
make it freely available in the open Indian aftermarket.
(Refer Slide Time: 08:46)

Taking cognizance of this case, the Competition Commission of India made a prima
facie opinion that it seems that something is not clear. CCI passed an order in 2011
asking the director general to conduct an investigation into this matter. We have
discussed the procedure for investigating a matter. After establishment of a prima facie
case, the competition commission of India asked the director general to investigate into
this matter. Meanwhile CCI also sought reports from the respondents as to why there
should not be an investigation. After getting the two reports, the commission would give
its decision.
(Refer Slide Time: 09:36)

Apart from the three respondents, the director general found that there are other
companies in the Indian automobile sector, which are involved in some such restrictive
practices in the area of aftersale service, procurement or sales of spare parts from
original equipment suppliers, setting up of dealerships.

Most of the automobile manufacturers do not allow private or third party repairers or
servicing station to sell their original spare parts and other materials required for the
maintenance and servicing of the vehicles.

This case involved a larger issue that there is a prevalence of anti-competitive conduct
which is making an effect on the Indian consumer, because the automobile sector is one
of the biggest industrial sector in India. The number of people using cars is increasing
day by day. And, since the maintenance and servicing costs are very high; it is affecting
the consumer at large. It was proposed by the director general that, there should be an
investigation into the anti-competitive trade practices for all car manufacturers in India,
maintained by the Society of Indian Automobile Manufacturers(SIAM). Not only these
three companies named in this case, but the investigation against all the car
manufacturers company part of SIAM was to be conducted.
(Refer Slide Time: 11:50)

The competition commission of India tried to find out what is the relevant product
market in this case and what is the geographical area in which the case can be dealt with?
In this case, there were two separate markets identified for the passenger vehicle sector.
First is the primary market, which is the manufacturing and sales of passenger vehicles
i.e. direct sales of cars to the passenger. And, second one is the secondary market,
otherwise known as aftermarket.

According to the Director General’s report, aftermarkets are the market for spare parts,
diagnostic tools, other technical manuals and after sales repair and maintenance services
which are required after a car has been purchased by a consumer or after buying the
primary product. So, primary market and secondary market are the two relevant product
market sector in this case.
(Refer Slide Time: 13:10)

The Director General classified these aftermarket segments into two sub-segments. They
are first, the supply of spare parts which includes diagnostic tools, technical manuals,
catalogues, and other things required for aftermarket usage.

The second sub-segment was the provision of after sale services, which includes
servicing of vehicles, maintenance and repairing services. If after accident or normal
repairing services are required by the vehicle, then the things necessary for servicing of
the vehicle will come under the purview of after sale services.

(Refer Slide Time: 13:59)

The next important criteria to investigate into any case is to find out what is the relevant
geographical market? The DG noted that whenever a person buys a car of any brand, he
can buy that car from any state of India, spare parts for that particular car brand will be
available in all the states. So, it is not necessary that if a person buys a car from some
state, he has to repair it or get the spare parts from that state only.

If the car can be repaired or serviced in any of the states, in that case, the relevant
geographical market would be the whole country. Two things were identified, first,
which is the relevant product segment? There were two market segments, the primary
market i.e. the original equipment manufacturer or the car itself, and second, the
aftermarket which includes spare parts and other technical manuals, which are necessary
for repairing or maintaining the vehicle after sales. Even though, these car companies not
located in India, still, since the products are sold in India, it was relevant to this case.
(Refer Slide Time: 15:30)

Let us discuss about the Director General’s report regarding the dominance of original
equipment manufacturer, in the market, for the supply of spare parts. Since the cars are
of a definite brand, these players who are selling them in the primary market are the
dominant player.

In order to better understand their dominance in the spare parts sector, DG further
investigated and found that, each of these original equipment manufacturer or the
branded car companies are a monopolistic enterprise or dominant player in the relevant
market of supply of spare parts. Not only spare parts, but also other diagnostic tools,
technical manuals, software, etc., which are required for the maintenance and the repairs
of a vehicle.

Apart from the original manufacturers, there are no other source from which a consumer
can get the required repairing or servicing equipments. For these reasons, it was
considered that the original car companies or the original equipment manufacturers are
having a monopolistic, dominant position.
(Refer Slide Time: 16:52)

The Director General concluded that the spare parts, diagnostic tools and manual etc. of
each of these original equipment manufacturers would constitute an essential facility for
independent repairers. In order to define or in order to label something as an essential
facility, they have taken into consideration some factors.

They have looked into four factors; first, the control of the essential facility by the
monopolist or the original equipment manufacturer. Is there any alternate source
available apart from the original equipment manufacturer for the spare part. Second, the
inability to duplicate the facility. Is there any other company which can duplicate the
same spare part, which will fit into that car or that vehicle. Third, denial of the use of the
facility. Can a consumer deny that he does not want to use the spare parts, and that he
will use different spare parts. Is there any alternate provision available? Fourth, the
feasibility of providing the facility. Is there any chance that any other supplier or spare
part manufacturer, can fill the gap or supply the same thing without the original
equipment manufacturer’s help.

These things were taken into consideration, and the Director General concluded that, the
diagnostic tools, the technical manuals are constituting the essential facility for
independent repairers. If the independent repairers are not getting those essential facility,
they cannot repair or provide services to such vehicles.
(Refer Slide Time: 19:05)

The dominance has been established, the relevant product market has been established,
the relevant geographical market has been established; it has also been proved that
several things constitute essential facility. The Director General looked into the
implications of refusing to provide essential facilities.

It was contended that the original equipment manufacturers or spare part manufacturers
or original equipment suppliers are having certain IPRs. Since IPR is involved, the
original equipment suppliers cannot share several things with third parties. They need to
get consent from original equipment manufacturers, in order to sell or give the product to
any third party.

The respondents contended that, the spare parts are manufactured by the original
equipment supplier, based on designs, drawings, technical specification, technology
know-hows, which were provided by the original equipment manufacturer. The original
equipment manufacturer or the brand or the companies are having certain intellectual
property rights. There are technology transfer agreement between the branded company
and the original equipment supplier, for that reason, they are prevented to share
equipments or tools to any third party. They also claim exemptions on account copyright
protection for the engineering drawings and technical manuals.
The technical manual and engineering drawings are a part of literary work and protected
by copyright. Under Copyright provision, patents act and designs Act, the respondents
claim exemption and express their inability to share these with any third party.

(Refer Slide Time: 21:23)

OEMs further relied on the exemption provided in sub-section (5) of Section 3. The
exemptions are thought of as blanket exemption by players. In this case also, they cited
sub-section (5) of Section 3, as an immunity from sharing IP, or as a ground for giving
reasonable restrictions to enjoy their monopolistic powers.
(Refer Slide Time: 22:04)

In this case, the competition commission considered two issues; first, whether the right
which is put forward by original equipment manufacturers is correctly categorised as
protecting an intellectual property. And, whether the requirements of the law granting
IPR are in fact, being satisfied or not. CCI investigates into these two questions.

(Refer Slide Time: 22:32)

CCI asked the original equipment manufacturers to provide the necessary information
regarding intellectual property rights, which they are claiming to have with them. It was
found that, the original equipment manufacturers could not provide any relevant
documentation, regarding their intellectual property right in India. As we know, patent
rights or designs or copyrights are jurisdictional i.e. territory based right.

So, if a person is applying for a patent in India, he can claim those rights in India only. In
this case, none of the original equipment manufacturers, could provide patent or any
other IP related information which was valid in India. Further CCI found that, even
though the parent corporation of the original equipment manufacturer is having certain
rights in other territories, But, since IPR are territory based rights, those rights cannot be
extrapolated to India i.e. they cannot claim of having those rights in India. Merely
entering into a technology transfer agreement with the parent company does not render
the intellectual property right to be valid in India.

The ground on which the respondents are arguing, that they are putting reasonable
restriction or that they cannot supply those things to the third party because of IPR,
proved to be wrong.

(Refer Slide Time: 24:11)

Further CCI decided whether original equipment manufacturer’s claim over IPR
exemption passes the reasonability test as engrained in the Section 3 sub-section (5)(i) of
the Act. The CCI looked into, can IPR holder protect his IPR, even if no restriction to
supply to third party existed.

(Refer Slide Time: 24:45)

Selling finished product like a bumper or hoods or bonnet or fog lights etc., used in the
cars, in the open market does not necessarily comprise IPR, because, the intellectual
property which the companies are having, can be protected by any technology licensing
agreement. In this case, if the original equipment manufacturers allow the original
equipment suppliers to sell their finished product to third party, there would be no
violation of any IP. This ground, on which the respondents relied for claiming immunity,
was found to be baseless.
(Refer Slide Time: 25:46)

It was proved that the branded companies like Honda, Fiat, or Volkswagen were
behaving in a monopolistic was. They were showing monopolistic nature and restricting
trade in the automobile sector. The competition commission of the India, directed the
original equipment manufacturers to allow the original equipment suppliers to sell the
spare parts in the open market i.e. now third parties can get spare parts from original
equipment supplier and use those for their own business. In cases where the original
equipment manufacturer had certain IPRs on parts, CCI allowed the original equipment
manufacturers to charge minimum royalty or fees through contracts on such parts.
Hence, IP can be protected by an agreement, they can claim royalty or fees for those.

However, competition commission of India did not decide what will be the quantum of
royalty or what will be the exact amount of royalty, because CCI is not a price fixing
authority. CCI only provides remedy, by which a problem can be solved and by which
private service provider can get spare parts or tools from original equipment supplier.
(Refer Slide Time: 27:30)

This is one of the important case, which showed that simply having an IPR does not
mean that one can put any clause or that one’s anti-competitive behaviour can be
tolerated. The exemptions provided under Section 3 sub-section (5) is put to prevent
infringements of IPR, so that one can enjoy intellectual property rights.

But, IPR does not mean that one can put any restriction which they want. Reasonable
restriction under necessary conditions can be placed. That was one of the important case
which dealt with IP aspects. But the case never concluded that technical manual or
drawings or tools can be protected by IPR such as patent. The commission did not deal
with those issues in detail, it only said that having an IP should not be the reason to stop
the supply of things which are essential facilities to other third parties.

There was another case of ATOS Worldline India Private Limited versus the VeriFone
India Sales Private Limited. ATOS was a third party processor, which tracked the flow of
intervening events between a card holder swiping his card and receiving the printed
charge slip at point of sales. Now-a-days when we go to any shopping mall, we can
easily use our debit or credit card and in turn it gives us a receipt saying how much
money has been spent. ATOS was a third party processor and the other company
Verifone was a supplier of point of sales terminal along with software development kit or
SDK, which enables POS terminals to function. In sum, Verifone supplied POS terminal
along with software which enables the third party processor to function.

(Refer Slide Time: 29:47)

ATOS alleged that Verifone had abused its dominant position through restrictive and
unfair conditions. Through the draft SDK agreement, it required a purpose clause
imposed a restriction on the licensee to use any third party information, for the
development of the application.

The application did not allow third party to develop any other application. Further, it was
observed that the license restriction clause relating to the disclosure mentioned in the
SDK agreement imposes three different disclosure requirement. The licensee had to
disclose, to the licensor, from time to time, the activities related to the license software
i.e. whatever activity licensee has done with the licensed software. Second: it had to
reveal what value added software it has created, Third: it had to also explain what it
intends to create using that software. These are the things which the licensee had to
reveal to the licensor under the purpose clause.
(Refer Slide Time: 31:10)

ATOS complained to CCI that these are unfair trade practices. CCI observed that, the
purpose clause restricted licensees to develop value added software and use the same as
those purchased directly from the licensor. In one way, it restricted the licensee’s activity,
thus the competition commission found that the SDK agreement was restrictive as well
as anti-competitive.

(Refer Slide Time: 31:48)

The commission was of the opinion that through thie SDK agreement, Verifone imposed
unfair conditions on value added services or third party service provider which was in
contravention of Section 4 sub-section (2) of the Act, and it also restricted technical and
scientific development in value added service segment. The conduct of Verifone with
respect to seeking disclosure of sensitive business information, such as the number of
value added services developed, the purpose for which such services was developed, the
consumer profiles, under purpose clause was a contravention of Section 4(2), because
revealing all the information in the downstream market may create trouble for licensee
company.

(Refer Slide Time: 32:53)

The competition commission of India, in this case, issued a cease and desist order from
indulging in the activities which were found to be in contravention of Section 4. It
imposed a penalty at a rate of 5 percent of the annual turnover of the company i.e.
verifone.

In this case, it was established that one cannot impose unreasonable restriction by
purpose clause or SDK agreement. The restrictions in the agreement, were unnecessary
restriction clauses in contravention of Section 4 of Indian Competition Act.
(Refer Slide Time: 33:37)

Another case is: Justicket Private Limited versus Big Tree Entertainment/Vista
Entertainment. Two companies were involved in online ticketing system. Justicket
alleged that big tree, which is another online ticketing system and a distributor of the
vista program was abusing its dominant position by way of creating barriers for online
movie ticketing portals in terms of getting access to vista API. The vista API is an
application programming interface, which is created by vista to enable online ticketing
portals to integrate with the vista software for data flow and information flow.

Vista API was necessary for creating online portal. It was submitted by Justicket that
vista had an arbitrary policy of not granting access of vista API, the Application
Programming Interface to another online ticketing portal. There was a denial to give
market access in contravention of Section 4 sub-section (2) of Indian Competition Act.
(Refer Slide Time: 34:58)

Big tree said that, when a third party like Justicket asks for access to the API, they must
sign a non-disclosure agreement with the first informant, because with the help of non-
disclosure agreement, vista can protect its IPR. As a supplier of vista, big tree
entertainment asked to sign a non-disclosure agreement. They never denied the
informant from giving access to the vista API. Both of the companies are having some
technical capabilities. By revealing all the information, it is possible that the licensee
company can develop more powerful tool by using the same API, which they have
received as a license. In this case, vista was taking some time before it gave access to the
relevant information. The access was provided, for all the cinemas, for at least with a
time lag of 6 months, which was quite reasonable.
(Refer Slide Time: 36:35)

In this case, the CCI determined that the case prima facie does not hold a ground. It was
not a violation of Section 4 sub-section(2), because big tree and vista provided Justicket
with access to vista API. It is a fact that they asked Justicket to sign NDA, which
Justicket did not want to sign. But there was no denial of access to the market. Hence,
the case was dropped.

(Refer Slide Time: 37:04)

One of the other important case was the K Sera Sera digital cinemas limited versus pen
India limited and others. K Sera Sera, which is a digital cinema service provider, used to
make movies into a compact digital form. It was alleged that the opposite parties, which
are producers or presenters of movies entered into an anti-competitive arrangement with
a view to only provide the content of movies to parties other than K Sera Sera. Several
companies except K Sera Sera entered into the anti-competitive agreement.

(Refer Slide Time: 38:06)

In the response to this allegation, pen India as well as other companies revealed that they
entered into an agreement, because they have a concern that if a movie is released to K
Sera Sera, it may result into a copyright violation. In this regard, they submitted evidence
of a press release note. In an earlier instance, K Sera Sera was alleged of copyright
violation for a movie produced by Viacom 18.
(Refer Slide Time: 38:50)

Viacom 18 had developed an internal security mechanism, in the form of a unique

identifier for each copy of the movie. Before the movie is made into digital content
package, it is distributed to digital integrators in order to stop online piracy and to
identify the source of leakage. One of the movie package leaked. When the case was
investigated, Viacom 18 revealed that, the pirated copies of the movie had originated
from the copy which was given to K Sera Sera. K Sera Sera was accused of giving the
copy for piracy and for copyright violation of the digital cinema. For this reason, they
thought of excluding K Sera Sera from giving digital cinema content.

(Refer Slide Time: 39:47)

In this case, the competition commission noted that, the informant i.e. K Sera Sera did
not refute the charges made against him i.e. the piracy of the movie by Viacom 18. The
allegations made by the opposite parties are not baseless, they had certain substance in
their allegation. The commission of India dismissed the case, by holding that the decision
of opposite parties to refuse to exhibit their movie from the informant i.e. K Sera Sera’s
digital service was a precautionary step to prevent any loss due to piracy. The so-called
anti-competitive agreement as alleged by K Sera Sera was not in contravention of
Section 3 of the Indian Competition Act. It was a precautionary measure as they did not
want to give their digital cinema content to K Sera Sera. But this was not a violation of
Section 3 of the Indian Competition Act.

All these cases, give us an insight on how the competition commission is dealing with
different aspects of intellectual property licensing. The reasonable restrictions put in a
licensing agreement, are they necessary or reasonable? The competition commission of
India, in each case, individually, depending on the merit of the case, tries to find out
reasonable conditions or the necessity of a restriction so that, the agreement cannot be
termed as an anti-competitive agreement and in cases where it is found to be anti-
competitive, CCI has given penalty or tried to modify the agreement or given applicable
directions to the parties involved.

These were few examples. In the next few classes, we will also deal with more
interesting cases.

Thank you for watching this video.