Do The Competition Laws Protect Intellectual Property Rights?

By Maryanne Angumuthoo

Prior to the advent of the Competition Act 89 of 1998, intellectual property rights were shielded from falling foul of the competition legislation by virtue of being specifically excluded from the ambit of the conduct prohibited in that legislation. Although the Competition Act does not provide for such an exclusion, the practice of the competition authorities has been to accord protection to intellectual property rights in the context of agreements which might otherwise be considered to restrict competition.

In the words of the Competition Tribunal: “caution is particularly well-advised when dealing with the interface between anti-trust and intellectual property”, as there is a danger of disturbing the complementary balance struck between competition laws and intellectual property laws. The Competition Commission has aligned itself with the Tribunal’s views and has expressly indicated that “most competition authorities respect intellectual property rights and acknowledge the important roles these rights play in economic and technological progress” and further that “competition authorities will usually approach cases where there is an interface between intellectual property rights and competition law with a distinct bias in favour of the owner of the intellectual property right.” It is worth observing that our competition authorities have taken their lead from the approach adopted by their counterparts in the United States and the European Union.

The tension between competition law and intellectual property rights usually arises in the context of intellectual property licensing agreements, where the owner of the intellectual property imposes certain restraints on the licensee in return for the licencee’s right to use the intellectual property. These restraints may include output restrictions and market sharing. For example, the licensee may be restricted in relation to the volume of product it may produce or may only be permitted to exploit the licence in certain geographical markets. Usually the purpose of the restraint is to protect unlawful exploitation of the intellectual property by the licensee. Circumstances do arise, however, where the restraints surpass protecting the intellectual property rights and enter the realm of prohibited anticompetitive conduct. The competition authorities will intervene where the anticompetitive effects of exercising the intellectual property rights outweigh any pro-competitive benefits to consumers and society.

The nature of the relationship between the parties to the licensing agreement determines the severity of the competition concerns that may arise from the imposition of the restraints. The more significant concerns emerge where the licensor and the licensee are competitors or potential competitors. If so, the question the competition authorities will ask is whether the licensing agreement is aimed at preventing the parties from competing with each other – as the effect of the restraints may be to prevent the licensee, as a competitor or potential competitor with the requisite ability and capacity, from entering the market independently. In these circumstances, the agreement may contravene the outright prohibition against market division in the Competition Act and no defences can be raised to justify the anticompetitive effect of the agreement.

If the parties are in a vertical relationship (the licensee is a customer or supplier of the licensor), competition concerns are less likely to arise. Where the parties do not compete, no argument can made about the exclusion of a new competitor and accordingly no concerns can be raised about market allocation. The competition authorities are likely to view the vertical agreement as pro-competitive, as the licensing agreement will allow more parties to utilise the intellectual property and result in the intellectual property being shared, and so create the potential for further innovation and development of that property.

The South African competition authorities have acknowledged that intellectual property laws and competition laws have common objectives of promoting innovation and enhancing consumer welfare. In balancing any conflict that may arise, intellectual property owners may take comfort in the reasoned approach taken by the competition authorities – one that does not favour the enforcement of the competition laws over the rights granted to intellectual property owners.