An inquiry into the applicability of alternative dispute mechanism into competition disputes

Delhi High Court’s December, 2015 order in the iBall case Telefonaktiebolaget LM Ericsson v. Competition Commission of India(W.P.(C) 5604/2015 & CMs No.10097/2015 (for stay), 11248/2015 (for consolidation),16574/2015 (of R-2 for dismissal of petition) & 16577/2015 (of R-2 for vacation of stay), instead of resolving disputes, has further convoluted the jurisprudence of competition law. The Court held that averments made by the complainant after out of court settlement between the parties do not survive. Therefore, there remains nothing for the DG, CCI to investigate.

Source: eweek.com

The issue revolves around the patent infringement pertaining to Standard Essential Patents (SEP). SEP is an accepted standard to be uniformly followed in order to ensure compatibility between telecommunication networks all over the world. Ericsson a global telecommunication and networking equipments maker, holds SEPs in 2G and 3G devices, treated as standards in the mobile phone business. Therefore, it is expected to be accessible to all manufacturers in this field.

The European Telecommunication Standard Institute (ETSI) lays down standards for the telecommunication industry globally. According to the ETSI’s Intellectual Rights Policy, of which Ericsson is a member, patents which are essential to any standard must be licensed on a fair, reasonable and non-discriminatory basis (FRAND). Ericsson holds substantial number of patents in 2G & 3G technologies globally, including India.

In 2011, Ericsson issued a letter to iBall a handset maker, alleging infringement of its patents. Ericsson threatened iBall with patent infringement proceedings. In retaliation, iBall alleged that Ericsson is violating FRAND guidelines and coaxing it to enter into an unfair contract. On this basis contending violation of Section 4 of the Competition Act, 2002, iBall prayed for an investigation into abuse of dominant position.

The Commission found a prima facie dominance of Ericsson, where it ‘seemed’ to be acting contrary to the FRAND terms by imposing royalties linked to the cost of the manufacturing product. The Commission also labeled the terms of the Non Disclosure Aagreement proposed by Ericsson as being contrary to the spirit of applying FRAND terms fairly and uniformly to similarly placed players in the market. Accordingly, the Commission ordered the Director General to complete the investigation.

Like many other cases in the past, this one also ended up in Delhi High Court. Ericsson alleged that CCI lacks jurisdiction to investigate in the presence of competent regulator i.e. Patent Board. At the same time both the corporations were also engaged in negotiation proceedings outside the court.

After this something beyond ordinary routine happened. Court instead of going into the merits of issue held that out of court settlement between the

Parties takes the matter out of the ambit of CCI. Though CCI can take suo moto action but settlement in present case is akin to withdrawal of complaint.

Source: wikipedia

On the issue of conflict of jurisdiction between CCI and Patent Board, raised by Ericcson there is a recent judgment of single judge of Delhi High Court, delivered in march, 2016, in the case of Telefonaktiebolaget LM Ericsson v. Competition Commission of India W.P. (C) 464/2014 & CM Nos.911/2014 & 915/2014).It was held that there is no irreconcilable conflict between the Competition Act and the Patent Act as both have their respective field to work on.

Another issue which comes to mind is that whether matter pertaining to Competition Act can be settled out of court using any ADR mechanism.

Answer to this problem lies in the intention of legislature behind the formation of Competition Act, 2002. Preamble of the Act seeks to achieve sustenance of competition in the market with the prime objective of protection of consumers’ interest. This essentially means that Competition Act is formulated as a matter of public policy. It is important to note that the settlement arrived between Ericsson and iBall was kept confidential. To make things more comprehensible we will look into the issue of out of court settlement from the view of Arbitration and Conciliation Act, 1996.

Section 2(3), 34(2) (b) and 48(2) of the Arbitration Act deny the application of ADR method to the dispute which is not capable of settlement by arbitration under the law or if the award is in conflict with the public policy in India. Though these sections provide downright answer to the problem but it would be oversimplification of the complex issue. Foreign jurisprudence on the above mentioned issue points towards the opposite direction. Though initially, position held in US and Europe was also that antitrust laws were tool of public policy and therefore, cannot be settled outside the court. The change kicked in during late 1980s and early 1990s, beginning with the 1985 US Supreme Court judgment of Mitsubishi Motors Corp v. Solar Chrysler Plymouth, where court for the first time recognized the application of arbitration agreement in the competition law dispute. Similar changes took place in Europe with EcoSwiss China Time Ltd. v. Benetton International NV (1999).

As a result, now application of arbitration in competition dispute is an orderly practice in American and European jurisdiction.

Indian jurisprudence on this issue is not as developed as that of western countries but it is not without any guidance. In the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited(2011), Supreme Court held that all disputes relating to rights in personam can be resolved through arbitration (right in personam is an interest protected solely against specific individuals); and all disputes relating to rights in rem (right exercisable against the world at large) are required to be adjudicated by courts and public tribunals only.

Now taking a cue from Allen Booz case, it can be said that though major part of the Competition Act gives rise to right in rem in the form of prohibition of monopolistic tendencies and protection of consumer interest, there are certain rights in rem that carry right in personam in themselves. For instance, Section 53N and 53 under which an aggrieved party affected by anti-competitive conduct can approach to the Competition Appellate tribunal (COMPAT) and claim compensation for the loss suffered by them due to such behaviour. Compensation can also be claimed for losses suffered due to the failure of the other party to comply with the orders of CCI/COMPAT.

On the basis of above mentioned argument it can be said that application of out of court settlement and arbitration should only be restricted to damages claimed specifically by the aggrieved parties. Settlement should not be allowed when over all liability of the party under competition law is in question. The anti-competitive conduct affects economy and each and every player in the particular industry. They also carry penal consequences. Therefore it should be sole responsibility of CCI to prohibit such conduct as part of public policy.

Keeping in mind foreign jurisprudence and importance of arbitration in reducing backlogs, it can be argued that out of court settlement may be allowed, depending upon the case at hand. But this also require certain preconditions, as laid down in Mitsubishi Motors Corp v. Solar Chrysler Plymouth case itself i.e. selection of expert arbitrator and conciliator capable of dealing with complex issues of competition law.

When single judge order of Delhi High in Telefonaktiebolaget LM Ericsson v. Competition Commission of India is looked upon from the prism of aforementioned arguments, it can be said that court has erred in its December, 2015 order as it ignored the effect of probable abuse of dominance position on the market. Underlying assumption of court is that the dispute is private and do not affect the world at large. CCI has also appealed against this order at the Division Bench of Delhi Court. It would be interesting to see how the story unfolds. But one thing is certain, that upcoming decisions will further consolidate the jurisprudence of competition law in India and present confusion may prove to be a blessing in disguise.

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