In a major blow to the Big Tech, the Centre has refused to accept the recommendation of Parliamentary Standing Committee on Finance to incorporate intellectual property rights (IPR) defence in competition law provisions that deal with abuse of dominance.

This was a major demand of the high tech industry for protecting their IPRs. The current development would mean that tech companies cannot take refuge under IPR to justify their conduct while facing inquiry for any abuse of dominance.

Experts, however, feel the move may discourage innovation in digital markets.

The Cabinet had, on January 24, approved amendments to the Competition (Amendment) Bill after receiving report from the House panel. The Centre is expected to move these amendments in Parliament this week.

Exemption clause

In the current law, an IPR exemption is granted in the context of certain anti-competitive agreements.

However, similar dispensation is not provided in Section 4 that deals with abuse of dominant position and such pleas are considered by CCI on a case-to-case basis depending upon the reasonableness of the restrictions imposed by IPR holders.

Stakeholders negatively perceived such ad hoc approach of CCI as this conferred too much discretion upon CCI and thereby, creating regulatory uncertainty.

The Standing Committee on Finance headed by BJP MP Jayant Sinha had, in its report, said in the absence of an explicit defence enshrined in the law, the CCI will not allow any dominant entity to provide for reasonable protection of its IPR, while being investigated for alleged abuse of dominance.

Earlier, the Competition Law Reforms Committee (CLRC) had recommended that this defence may be allowed in cases involving dominant position. The current Competition (Amendment) Bill 2022, however, does not address this issue.

The CLRC report recommended that a defence allowing reasonable conditions and restrictions for protecting IPR may be provided in cases of abuse of dominance on the lines with the international jurisdictions that is, EU, US and UK which provide for such exemption.

While it was mentioned in the CLRC report that reasonable exercise of IPR may be an obvious defence and may not need to be stated expressly, it was discussed that a specific defence should be provided under Section 4 to avoid any uncertainty as it is explicitly mentioned in Section 3(5)(i) of the Competition Act that deals with certain other category of anti competitive conduct.

The House panel was of the opinion that as recommended in the CLRC report, it would be more desirable for the CCI to specifically take into consideration the rights that a party may have in relation to reasonable exercise of its IPR when dealing with abuse of dominant cases to avoid any uncertainty.

The committee, thus, recommend that a similar defence (as currently included under section 3(5) of the Act) be also added under section 4.

In its submission to the panel, the Corporate Affairs Ministry (MCA) had taken a view that IPR defence need not be explicitly included for Section 4 since in the era of new age economy, mention of IPR defence explicitly may allow a dominant player to abuse its position of dominance.

Moreover, CCI, while dealing with cases of abuse of dominant position, applies rule of reason approach and considers objective justifications offered by dominant entities.

The government has, however, not accepted the recommendation of CLRC as well as the House panel to explicitly introduce IPR defence in the abuse of dominance provision in competition law, sources said.