"IPRs and Competition Law: a Nigerian Opportunity?
The essence of intellectual property rights (IPRs) and the need to protect them as far as practicably possible is well documented. Although these rights are recognised “monopolies”, they are good for society but, when misused, they are detrimental to consumers and to the public interest. There is an interface between IPRs and competition law and this is recognised in the TRIPS agreement. [nb this is a vast subject in itself, far too big for a single blog post. This article just addresses some salient points]
TRIPS and Anti-Competitive Practices
Article 40 of the agreement recognises that certain exploitation of IPRs (eg licensing and/or its conditions) may restrain competition and impede technology transfer. While it essentially allows Member States to legislate against anti-competitive practices, this is not a mandatory requirement. However, it is rather unusual for a country to have an IPR system without a competition regime acting as a counterbalance to limit IPRs.
In the context of IPRs, the sectors which normally come under competition scrutiny are pharmaceuticals, IT/telecommunications and entertainment & media, while patents, know-how and copyright are the usual corresponding suspects. Practices that have been considered anti-competitive include (a) grant-backs of improvements relating to a licensed technology (b) no-challenge clauses; (c) tying-in or illegal bundling; (d) refusal to license IPRs; (e) extending the life of an expired patent in order to stifle competition or unduly profit from it; (f) charging discriminatory royalty rates; (g) control or refusal to supply interoperability/compatibility information; (h) standard-setting/compliance organisations and “patent ambush” risks; (i) mergers resulting in concentration of IPRs and (j) over-zealous brand extension strategies. The anticompetitive consequences of any or a combination of these practices include price collusion, market foreclosure and competitor exit.
The Need for a Competition Regime in Nigeria
A competition regime in a free market benefits consumers through lower prices, better quality and greater choice. It drives economic growth, ensures that wealth is not concentrated in the hands of the few and lifts millions out of poverty. Crucially, it also provides businesses with the opportunity to compete on price and quality, in an open market and on a level playing field without anti-competitive restraints. The only available means by which businesses can compete and showcase the quality of their goods is by the use of trade marks (this is yet another interface).
A company (including an IPR holder) with significant market power and dominant position operating in a jurisdiction without standard competition law rules and an overarching competition authority can in effect engage in any of the above deemed anti-competitive practice(s) without fear. Unfortunately, Nigeria is one of those jurisdictions and according to sources there are “hard-core” cartels operating there at this very moment.
According to a Reuters news report last week, British Airways and Virgin Atlantic were fined a combined total of $235 million in Nigeria. The report adds: "We are charging British Airways $135 million and Virgin Atlantic $100 million for abuse of a dominant position, fixing prices, abusing fuel surcharges and taking advantage of passengers. We have been investigating for the last six months, Lagos to London has the highest route yield in the world. Our market is open for exploration, not exploitation." said Harold Demuren, Director General of Nigeria Civil Aviation Authority (NCAA).
According to The Nation, the NCAA in essence relied on the investigations/findings of the UK and US competition authorities in reaching its own decision. A statement from BA said: “We reject the allegations made by the Nigerian Civil Aviation Authority and we are vigorously defending our position….” while Virgin responded: “I don’t think we have violated Nigerian law in any way. We hold the Director-General of the NCAA and the agency in high esteem. We respect the laws of the land. A full response will be coming from our office later” (here). Is there a subtle message in both responses?
According to available information, the NCAA serves as the regulatory and competition body for the aviation sector in Nigeria. This is also similar in other sectors of the Nigerian economy. Perhaps, if it had a stand-alone competition authority, Nigeria might have had the benefit of information-sharing with its counterparts in the UK and/or the US since 2004 and could have acted swiftly on such information. At least, this would have avoided the inevitable suspicion that this was a politically motivated decision considering the fact that Nigeria and the UK had a recent dispute over their bilateral aviation agreement (here).
Now back to IPRs and competition law. Nigeria (like other African countries) needs foreign direct investment (FDI) in its key sectors -- for example, the oil and gas, pharmaceutical and telecommunications sectors. The players in these sectors rely heavily on IPRs (patents or know-how) which will be exploited (by way of licensing and/or technology transfer). Without a stand alone anti-competition law and a competition authority to deter the practices cited above, how can Nigeria expect to benefit effectively from FDI as well as encourage a healthy competition in its economy? How does it ensure that smaller indigenous firms are not unfairly excluded from a market by dominant firms?
An economy like Nigeria is now overdue for a competition regime: a dedicated law and a competent authority to enforce it judiciously. Most state-backed monopolies or state aid in key sectors are failing or have failed and it is the case that there is still inefficient allocation of resources in its economy. A competition regime will protect the interests of millions of consumers as well as create a level playing field for all kinds of businesses to flourish.
Looking to other developing countries, both India and South Africa have a competition regime and are taking significant steps in building their own unique jurisprudence by adapting this legal transplant to fit their socio-economic development needs. It is also impressive to see that they both follow best practices seen in Europe and the US, for example, the authorities have functioning websites packed with information about competition law/rules, their powers/jurisdiction, guidance for businesses and news updates.
If the lawmakers in Nigeria are not remotely convinced with the “IPRs argument” for a competition regime, then bribery and corruption must be obviously convincing. Anti-competitive practices can also be seen as a form of corruption (see United States of America v Abb Middle East & Africa Participations AG, CR-01-N-135-S, where the defendants pleaded guilty to conspiracy to rig contract bids on a United States-funded waste-water construction project in Egypt. Bribery and corruption in Nigeria is also well-documented.
Although sectoral regulatory authorities can enforce competition-like laws in their respective sectors, their competence and expertise cannot match those seen within a dedicated competition authority.
I can see the attitude of the parties (NCAA, BA and Virgin) involved and it is not remotely surprising to me. The benefit of putting one’s house in order is that, when you speak, you speak with authority and you command respect. Once your house is in order, only a fool would disrespect your authority or decision.
If this is the wake-up call for Nigeria to put in place a competition regime, so be it! It can only go hand-in-hand with the IPR system that it already has in place - according to TRIPS".
British Airways and Virgin Atlantic fined in the UK and the US here and here
Neat little list and summary of recent price fixing and contract bid rigging cases here
Monopoly in the power sector in Nigeria here
Monopoly and collecting societies in Nigeria here
Cartels in Nigeria and the need for anti-trust law in Nigeria here and here
Overview on the current state of competition in Nigeria here
Handy analysis of the interface between IPRs and competition law here
ECOWAS competition policy framework in West Africa here
Why Nigeria needs a competition regime here
Presentation on regulating the telecommunication sector in Nigeria and the need for competition law here