Over the last year, we have seen the world’s leading pharma companies racing ahead at a feverish pace to find a vaccine for COVID-19. Pharma laboratories typically face very heavy odds. Since only one in dozens of experiments succeeds, they load the costs of all failed trials on to the price of the one successful invention. And they hope to be able to do so by patenting their intellectual property which makes it illegal for rivals to copy their process and eat into their profit.
In granting such intellectual property rights (IPR), governments confront a public policy dilemma. The high cost of the product, in this case the vaccine, makes it unaffordable for low income households, and not covering them with a vaccine militates against the task of fighting the pandemic. On the other hand, if pharma companies are not offered monopolistic pricing power through protection of IPR, they will have no incentive to invest huge sums in what is a quintessentially risky endeavour. And that too militates against fighting the pandemic.
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Now juxtapose that with competition law. One of the first things that students of economics learn is that competitive markets maximise consumer welfare as they force businesses to cut costs through efficiency and innovation. It is now standard practice, therefore, for governments around the world to have laws that are aimed at curbing monopolies and encouraging competition. So governments simultaneously have on their statute books IPR laws that create monopolies and competition laws that curb monopolies. Isn’t that a conundrum?
It need not be. That is the thesis of this scholarly and well-researched book by Chakravarthy who argues that the apparent tension between IPR and competition laws is an interesting dichotomy, but a false one. It is neither feasible nor indeed advisable to jettison one for the other. The challenge is to marry the two such that, just like in a marriage, the harmony in the couple’s togetherness overrides the conflicts between the two. In Chakravarthy’s words: “The IPR Law must have a say, but the Competition Law must have its way.” In practical terms, IPR bestows market power but competition law ensures that such market power is exercised within limits.
If you go back to the basics, Chakravarthy’s central argument stems from the fundamental understanding that innovation has been the wellspring of human civilisation. In the Davos paradigm, it is now standard practice to view human progress through four industrial revolutions. The first industrial revolution was defined by the discovery of steam power; the second industrial revolution was triggered by the invention of electric power; the third took computers and information technology from manufacturing into service industries; and the fourth, the Digital Revolution, currently under way, is changing our lives in ways that we do not even fully comprehend. But central to all four revolutions is innovation.
Symbiotic relationship
It is motivating innovation that is at the heart of both IPR and competition law. In other words, two apparently conflicting regimes when joined in a harmonious marriage produce a symbiotic effect that drives progress and maximises consumer welfare.
The way to arrange such a harmonious marriage constitutes the nuts and bolts of this book. Chakravarthy delves into both Indian and international case law, including the WTO Dispute Settlement System, to illustrate the tensions and conflicts between the two regimes, the various options to resolve them and the emerging best practices. He emphasises that while countries should learn from broad international experience, they should shun copying. Every country is unique and must tailor its laws to suit its specific circumstances.
A question that should arise in an inquisitive mind is whether the IPR and competition laws written in the context of old technologies are equipped to handle the new and complex issues posed by digital technologies which are now all pervasive. We saw this question play out as dominant technology firms such as Apple, Amazon, Facebook and Google were interrogated by western country legislatures and regulators. We saw this play out in India too in several instances, illustratively in the recent skirmish between Paytm and Google.
‘New Age markets’
Chakravarthy dives into this question with characteristic gusto. Indeed the chapter ‘New Age Markets’ must rank as the pièce de résistance of the book where he examines how competition laws fan out in the evolving information society dominated by big data. The case studies he cites such as for example the David Topkins case illustrating the successful prosecution by the U.S. Department of Justice of an online conspiracy in algorithmic trading and the Eturas case where European regulators penalised a batch of travel agents for monopolistic behaviour not only illustrate complex issues but make for interesting reading.
Chakravarthy brings to this book impressive credentials both from the real world of practice and the scholarly world of law and academia. He had hands on experience in drafting and implementing competition laws while working at senior levels in the Government of India and later in India’s anti-trust regulatory body. He served on a host of prestigious Indian and international committees tasked with examining the interface between IPR and competition laws. This book is indeed a testimonial to his scholarship, experience and above all his child-like curiosity.
John Maynard Keynes famously said, “It’s better to be roughly right than precisely wrong.” That should be the guiding principle in understanding the apparent conflict and the latent harmony between IPR and competition law. Chakravarthy’s book reinforces that message forcefully.
IPR Bride & Competition Groom ; S. Chakravarthy, Administrative Staff College of India, Hyderabad, ₹599.
The reviewer is a former Governor of the Reserve Bank of India.
