Sri Richgopinath and Natalie Lim examine the relationship between intellectual property and competition law.
Intellectual property rights (“IPRs”) and competition laws may be said to be complementary in their shared objective of promoting economic efficiency and innovation for the benefit of consumers. However, they also appear to be at odds as competition laws have the primary purpose of protecting competition in the markets and reducing trade barriers whereas IPRs confer exclusive rights on the owner to exploit his intellectual creation.
IPRs are monopolistic in nature in that the proprietor is given the exclusive right to exploit the IPR. The rationale behind this is to reward the proprietor for the efforts, time and money expended on his intellectual creation.
MALAYSIA
In Malaysia, most IPRs are governed by statutes. Section 35 of the Trade Marks Act 1976 confers the exclusive right on the owner to use, or license the use of, his trademark in relation to goods or services for which the mark has been registered. Section 36 of the Patents Act 1983 gives the owner of a patent the exclusive right to use and exploit the patent. Section 13 of the Copyright Act 1987 on the other hand, provides the exclusive right to the owner to deal with and control,
inter alia, the reproduction in any material form, the communication and distribution of the copyrighted work to the public, by sale or otherwise.
Competition in Malaysia is mainly regulated by the Competition Act 2010 (“CA 2010”), which prohibits two types of conduct:
(a) an anti-competitive agreement, whether a horizontal or vertical agreement between enterprises or an association of enterprises, which has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services (section 4(1) prohibition); and
(b) an enterprise engaging, whether independently or collectively, in any conduct which amounts to an abuse of a dominant position in any market for goods or services (section 10 prohibition).
In the context of IPRs, the prohibitions under the CA 2010 give rise to the following issues. First, whether IPR licence agreements, technology transfer agreements and other IPR pooling arrangements, being vertical agreements, will be prohibited under section 4(1) of the CA 2010 in absence of any exemptions. Second, whether IPR agreements will be prohibited under section 10 as an “abuse” of dominant position, given that IPR essentially allows the owner to be in a dominant position.
To-date, the Malaysian Competition Commission (“MyCC”) has only finalised the Guidelines on Market Definition, the Guidelines on Chapter 1 Prohibition (
Guidelines on Anti-competitive Agreements), and the Guidelines on Chapter 2 Prohibition (
Guidelines on Abuse of Dominant Position). The MyCC has stated in its Chapter 1 Guidelines that separate guidelines will be issued to address both IPR and issues relating to franchise agreements.
The Chapter 2 Guidelines include a statement that a refusal by a dominant enterprise to supply (which includes refusal to license IPR) may amount to an abuse of dominant position. The MyCC however recognises in its Chapter 2 Guidelines that forcing supply may reduce the incentive to invest in the product, IPR or essential facility. The MyCC will take into account the difficult trade-off involved in forcing supply which leads to a short-term increase in competition but which may harm longer term incentives for innovation and investment.
In the absence of specific guidelines that apply to IPR, we shall turn instead to other jurisdictions for an indication as to how concerns over IPRs have been addressed in light of competition law.
THE EUROPEAN UNION
The main prohibitions in the European Union (“EU”) are contained in Article 101(1) (
anti-competitive agreements) and Article 102 (
abuse of market power) of the Treaty on the Functioning of the European Union (“TFEU”).
Vertical Restraints Block Exemption Regulation
The Vertical Restraints Block Exemption Regulation provides for an exemption for vertical agreements that contain certain provisions relating to the assignment of IPRs to, or use of IPRs by, the buyer, subject to the following conditions being fulfilled: