Delhi High Court Holds that Competition Authority Lacks Jurisdiction to Determine Reasonable Patent Royalties

As reported by Vicente Zafrilla on the IPKat Blog, last month the High Court of Delhi at New Delhi issued a decision in five joined cases holding that the Competition Commission of India (CCI) lacks jurisdiction to consider whether patent holders Ericsson and Monsanto abused their dominant position by charging excessive royalties, in violation of sections 3 or 4 of India’s Competition Act.  According to the court, sections 83 et seq. of the Patents Act should be read as conferring exclusive jurisdiction on the Controller of Patents to determine when and under what conditions a compulsory license should be granted.  I am no expert on India’s rules regarding statutory interpretation, so I won’t criticize the decision on doctrinal grounds.  Like Mr. Zafrilla, however, I am concerned about the implications of the decision, some of the language of which seems pretty broad:

11. In our opinion, WP(C) 464/2014, 1006/2014, 1776/2016 and 8379/2015 should be allowed on a finding in law that the CCI cannot exercise jurisdiction over actions of an enterprise that are in exercise of their rights as a patentee. This is being discussed below.

 

*                                                               *                                                              *

 

50. In our view, the Competition Act is a general legislation pertaining to anti-competitive agreements and abuse of dominant position generally. The inclusion of Section 84(6)(iv)¹¹ in the Patents Act by way of an amendment after the Competition Act was passed with Section 3(5)(i)(b)¹² is particularly instructive of the above legislative intent as regards anti-competitive agreements.

 

51. For deciding an application for compulsory licensing, the Controller is empowered by the Patents Act to consider the reasonability of conditions imposed in a license agreement. The CCI is empowered under the Competition Act to examine anti-competitive agreements and abuse of dominant position. However, the Competition Act makes provision for reasonable conditions being imposed in an agreement concerning exercise of rights under the Patents Act. Since such reasonable conditions are exempted from examination under section 3(5)(i)(b) of the Competition Act, it is indicative of the legislature‘s intendment as to the exclusive domain of the Patents Act regarding reasonable conditions. Similar, in our view, is the situation with the language of Section 83(f) of the Patents Act as compared with that of Section 4 of the Competition Act.

 

52. In our opinion, Chapter XVI of the Patents Act is a complete code in itself on all issues pertaining to unreasonable conditions in agreements of licensing of patents, abuse of status as a patentee, inquiry in respect thereof and relief that is to be granted therefor.

 

¹¹ 84. ***

 

(6) In considering the application filed under this section, the Controller shall take into account,—

 

***

 

(iv) as to whether the applicant has made efforts to obtain a licence from the patentee on reasonable terms and conditions and such efforts have not been successful within a reasonable period as the Controller may deem fit:

Provided that this clause shall not be applicable in case of national emergency or other circumstances of extreme urgency or in case of public non-commercial use or on establishment of a ground of anticompetitive practices adopted by the patentee, but shall not be required to take into account matters subsequent to the making of the application.

 

¹² 3. ***

 

(5) Nothing contained in this section shall restrict—

 

(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under—

 

***

 

(b) the Patents Act, 1970 (39 of 1970)

 

***

I agree with Mr. Zafrilla that the decision's consequences could be significant, particularly in relation to FRAND-committed SEPs (as in the Ericsson matters, though I assume not the Monsanto matter) which he notes “are inherently relevant to for competition law because” of their tendency toward dominance; moreover, as he notes, “not all the anticompetitive concerns are connected to excessive pricing.”  He also sees a possibility of bifurcation, with the Controller of Patents deciding all cases involving allegations of excessive pricing (which he thinks may increase, as a result of this ruling, contrary to the interests of the patent owners), and CCI retaining jurisdiction over others.   

Schnetzer on Third-Party Interests and Proportionality

As I noted on this blog a couple of months ago, there have been several commentaries recently on a July 2022 decision of the Düsseldorf Regional Court denying Gilead, maker of the hepatitis C drug Sofosbuvir, a stay of injunctive relief in a case brought by patent owner NuCana.  A new article by Karsten Schnetzer, titled Verhältnismäßigkeit und Schutz Dritter gem. § 139 Abs. 1 Satz 3 PatG—zum Urteil des LG Düsseldorf vom 7.7.2022—4 c O 18/21—Sofosbuvir (“Proportionality and Protection of Third Parties under Patent Act § 139 Para. 1 Sentence 3 PatG—on the Judgment of the Düsseldorf Regional Court of 7.7.2022—4 c O 18/21—Sofosbuvir”), Mitteilungen der deutschen Patentanwälten 3/2023, pp. 102-10, argues against the court’s holding that the relief afforded to third parties under the 2021 amendment to the German Patent Act is “subsidiary” to the compulsory licensing option under § 24.  Here is the abstract, in my translation from the German:

 In the course of the Second Patent Modernization Act (2. PatMoG), the claim for injunctive relief in § 139 Para. 1 Sentence 3 was supplemented in exceptional cases supplemented with the proportionality objection.  To the circumstances to be considered in assessing proportionality belong also the effects, which a successful claim for injunctive relief has on third parties.  The supplement was already hotly debated in the legislative proceedings in Parliament and in industry.  The Judgment of the Düsseldorf Regional Court of 7.7.2022—4 c O 18/21—Sofosbuvir appears to be the first trial court decision that expressly pulls together the legislative material with the proportionality of the claim for injunctive relief and with the aspect of hardship for third parties, and deals with the relationship between injunction and compulsory license claims.  The essay argues against the reasoning of the Regional Court.

The author argues that the court's holding that the provision at issue is "subsidiary" to the defendant's attempting to obtain a compulsory license, as well as its weighing of interests which effectively conditioned the availability of a stay for the benefit of third parties on the defendant’s attempt to obtain a voluntary license, contradicts the intent of the German Parliament as evidenced in the legislative record.

Some Additional Commentary on the German Courts’ Interpretation of Article 139 Regarding Stays of Injunctive Relief

In October, I published a post noting two recent articles discussing the “proportionality” defense to injunctive relief under the amended article 139 of the German Patent Act:  Peter Georg Picht & Jorge L. Contreras, Proportionality Defenses in FRAND Cases - A Comparative Assessment of the Revised German Patent Injunction Rules and US Case Law, and Martin Stierle & Franz Hofmann, The Latest Amendment to the German Law on Patent Injunctions: The New Statutory Disproportionality Exception and Third-Party Interests.  I also noted some two recent blog posts, one by Thorsten Bausch and one by Florian Mueller, which both discuss a July decision of the Düsseldorf Regional Court, in which the court denied hepatitis drug manufacturer Gilead a stay of injunctive relief in a case brought by patent owner NuCana.  In this case, which the two posts link to and which also is excerpted in 22/2022 GRUR 1665-68, the court concluded that the proportionality defense under article 139 is “subsidiary” to claims for compulsory licenses under article 24; and that a court must consider all of the relevant interests, including not only that of third parties but also that of the patent owner as well as the infringer’s conduct.  Here, the fact that the defendant had not first tried to negotiate a voluntary license outweighed the third-party interests.  Moreover, although Gilead had instituted an action for a compulsory license before the Patent Court, that action was still pending, and the court emphasized that article 139’s proportionality defense should not undermine article 24's compulsory licensing process.

Anyway, Marco Stieff recently published a short paper discussing the Gilead decision and expressing concern about some of its implications, titled Proportionality defence v compulsory licence: the decision of the Düsseldorf court, in Managing IP (available here).  A summary of Mr. Stieff’s article, in French, is also available in PIBD 1196-II-1.  In addition, Daniel Hoppe, Christian Holtz, and Christian Donle published an article titled Die Rechtsprechung der deutschen Instanzgerichte zum Patent- und Gebrauchsmusterrecht seit dem Jahr 2021 (“The Case Law of the German Courts of First Instance in Patent and Utility Model Law Since 2021”) in 12/2022 GRUR RR 517.  The article discusses some additional decisions on this topic rendered by German courts (including a June 30 decision also noted in the FOSS Patents post), following along much the same lines as in the Gilead case—with the Düsseldorf court reaffirming the subsidiarity of article 139 to compulsory licensing proceedings and its concern about infringers “hiding” behind the interests of third-parties, the consequences to whom are largely of the infringer’s own making (!).  Meanwhile, the Mannheim and Munich courts so far have shown no inclination to invoke proportionality in FRAND cases, since the infringer can demand a FRAND license, with the Munich court specifically noting the irrelevance of the patent owner’s status as a PAE.

WTO Ministerial Decision on the TRIPS Agreement

In case you haven't seen it yet, at the WTO's 12th Ministerial Conference last week, the members agreed to a limited COVID vaccine waiver.  Here is a link to the decision.  Although it is titled "Draft  Ministerial Decision on the TRIPS Agreement," it is, apparently, the final, approved version.  Key part is paragraph 1, which states that "Notwithstanding the provision of patent rights under its domestic legislation, an eligible Member . . . may limit the rights provided for under Article 28.1 of the TRIPS Agreement . . . by authorizing the use of the subject matter of a patent .  .  .  required for the production and supply of COVID-19 vaccines without the consent of the right holder to the extent necessary to address the COVID-19 pandemic, in accordance with the provisions of Article 31 of the Agreement, as clarified and waived in paragraphs 2 to 6 below."  

Article 31, as readers are probably aware, conditions the use of compulsory licenses.  The decision clarifies, or permits some limits on compliance with, articles 31(b) (relating to efforts to obtain authorization from the right holder), 31(f) (relating to licensing for the supply of the domestic market), and 31(h) (relating to adequate remuneration).

According to paragraph 6 of the decision, the waiver will apply for five years from the date of the decision.  Members are also tasked, under paragraph 8, with deciding on the waiver's "extension to cover the production and supply of COvID-19 diagnostics and therapeutics." 

I often find myself in respectful disagreement with some of the opinions stated on IPWatchdog, but I have to concede that Eileen McDermott has a point when she writes that "The final text has made almost no one  happy"--neither those advocating for a broad waiver, nor the pharmaceutical companies.