Time to align

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Transfer of technology agreements run the risk of falling foul of India’s competition regime say Meenakshi Arora, Harvinder Singh and Sumedha Dutta at HSA Advocates

The rapid evolution of technology can in part be attrib­uted to protection given to innovators through intellectual property (IP) laws, which give IP owners an exclusive legal right to exploit their work. However, there are inherent ten­sions between IP and competition laws, as the latter strives to keep markets competitive by reducing barriers to trade.

Meenakshi Arora
Meenakshi Arora

Restraining competition

The transfer of technology and know-how typically occurs through licensing agreements. These agreements normally contain restraining clauses such as tie-in arrange­ments, grant-back provisions, exclusive supply arrange­ments and other restrictions, that limit how the licensed technology can be utilized. As a result, licensing arrange­ments may have a detrimental effect on competition.

Section 3 of the Competition Act, 2002, prohibits anti-competitive agreements that may cause appreciable adverse effects on competition within India. However, an exemption detailed in section 3(5)(i) is granted to ensure that “reasonable conditions” exist for the protection of rights granted under several IP laws, including the Patents Act, 1970, and the Copyright Act, 1957. As a result, tech­nology transfer arrangements that impose “unreasonable conditions” do not fall under this exemption and attract the provisions of the Competition Act.

Protecting public interests

The Competition (Amendment) Bill, 2012, which is pend­ing before the Indian parliament, proposes amendments which may affect technology transfer arrangements.

In its present form, the act focuses only on the sale of goods within vertical agreements. However, the bill proposes to expand the scope of vertical agreements to include the provision of services. Accordingly, restraining clauses in technology transfer agreements pertaining to the provision of services would come within the scope of verti­cal agreements. This is subject to the exemption granted in section 3 of the Competition Act, detailed above.

The bill also proposes to amend this exemption, by expanding it to make it applicable to IP rights granted through “any other law for the time being in force relating to the protection of other intellectual property rights”. The change would protect IP arrangements granted under foreign laws as well as Indian IP laws, whether currently in force or enacted in the future.

Section 3 of the Competition Act, which grants exemp­tions for IP laws and other “reasonable conditions”, has been criticized for not having a similar exemption based on public welfare. Other laws arguably balance this by including provisions that clearly protect the public interest. The Patents Act, for example, facilitates the compulsory licensing of patents. This was enforced yet again last year when the Controller General of Patents, Designs and Trademarks directed German pharmaceutical company Bayer to licence its anti-cancer drug Nexavar on public interest grounds.

Guidelines needed

The European Union’s attempts to align competition and IP laws have seen the prohibition of anti-competitive arrangements, while also providing exemptions for tech­nology transfers.

Harvinder Singh
Harvinder Singh

India, meanwhile, has only a blanket exemption from competition laws for the protection of IP rights. The Competition (Amendment) Bill proposes to widen the scope of this exemption, but there is a clear need for more specific regulations, particularly with regards to technol­ogy transfer agreements. In spite of the fact that the link between IP laws and competition law has been recognized in a report published in 2000 by the High Level Committee on Competition Policy and Law, no such regulations cur­rently exist. There are also no authoritative judicial pro­nouncements in this area.

As a result, the Competition Commission of India has been forced to rely heavily on US and UK competition jurisprudence when dealing with technology transfer agree­ments. In this regard, the 6 April 1995 antitrust guidelines for the licensing of intellectual property by the US Department of Justice and the Federal Trade Commission, and European Commission Regulation No 772/2004 of 7 April 2004 on the application of article 81(3) of the EU treaty to categories of tech­nology transfer agreements, are the most noteworthy.

Given the broad and somewhat ambiguous nature of the Competition Act (Amendment) Bill, 2012, specific guidelines will provide clarity to all.

Meenakshi Arora is a partner at HSA Advocates and heads its litiga­tion practice. Harvinder Singh is a partner at the firm and Sumedha Dutta is a senior associate – both are with the firm’s corporate M&A practice group. Rohan Dang and Vasav Anantharaman, associates at the firm, contributed to the article.