Patent Walls or Competition Void? Unpacking NCLAT’s Vifor Pharma Ruling

From time to time, judicial decisions transcend interpretation to profoundly reshape legal contours. That is precisely what the NCLAT's decision in Vifor Pharma accomplished whereby CCI jurisdiction was ousted over patented pharmaceuticals like Ferric Carboxymaltose whose pricing and supply limits threatened dialysis access. Section 3(5) of The Competition Act, 2002 carves out a safe harbour for patent holders to restrain infringement or impose reasonable conditions. This departs from Ericsson precedent which upheld due balance whereby the Patents Act prevailed in core licensing disputes but permitted CCI probes into abuse beyond statutory exclusivity. The blog critiques NCLAT's absolutist shift for collapsing Patents Act exclusion rights into Competition Act dominance presumptions thereby misapplying Bharti Airtel’s “first facts, then effects” doctrine and advocates a narrow approach to construe Section 3(5) as preserving CCI jurisdiction to assess overboard or exclusionary conduct.

Why this Decision risks Enforcement Vacuum?

In Vifor Pharma, the NCLAT set aside the CCI’s order directing investigation into allegations of excessive pricing and anticompetitive conduct relating to Vifor’s patented drug, Ferric Carboxymaltose, by placing reliance on the Delhi High Court’s observations in Telefonaktiebolaget LM Ericsson v. CCI (2016 SCC OnLine Del 1951) and by drawing from the Supreme Court’s sequencing framework in Bharti Airtel Ltd. v. CCI ((2019) 2 SCC 521).

The relevance of this holding lies in its immediate institutional consequence. By treating patent status as a threshold bar, competition scrutiny is prohibted at the point where the existence of a patent is invoked. Section 3(5) of the Competition Act is thus treated not as a limited defence on the merits, but as a jurisdictional shield. This risks turning IP title into a “passport” evading review of classic abuse claims like excessive pricing, discriminatory licensing, or refusals to deal, particularly in pharma where patents coincide with maximum market power and public health stakes.

A closer look at the statutory framework underscores the difficulty with this reasoning. Section 48 of the Patents Act confers upon the patentee the right to prevent unauthorised use of the invention. Sections 83 to 90 of the Act articulate public-interest considerations and provide for licensing interventions, including compulsory licensing. However, the Patents Act does not examine market definition, assess foreclosure effects, or evaluate exploitative pricing.

The Competition Act, by contrast addresses market conduct. Section 3(5) recognises a narrow safe harbour for reasonable conditions imposed to protect intellectual property rights. Section 4 governs abuse of dominant position regardless of whether dominance arises from statutory rights or otherwise. Sections 21 and 21A provide for institutional consultation between regulators, signalling coordination rather than exclusion of jurisdiction.

When read in tandem with each other, these statutes operate on parallel tracks: While patent status may inform the assessment of dominance and objective justification, it does not preclude the CCI from examining whether conduct exceeds what is reasonably necessary to protect the patent. Treating a patent as automatic lawful dominance collapses this distinction and short-circuits the inquiry under Section 4, which is concerned with market power and effects rather than title to intellectual property.

Section 3(5): a narrow safe harbour, not a bar

Section 3(5) shields only those “reasonable conditions” that are imposed for preventing infringement of an intellectual property right. The operative inquiry is whether the impugned restraint is necessary and proportionate to the protection of the right, not whether a patent exists. Indian doctrinal analysis reflected in early CCI practice and Delhi High Court observations in the Ericsson line has consistently treated Section 3(5) as a merits-stage defence, permitting competition scrutiny where conduct extends beyond what is required for patent protection. Restraints such as broad Most favoured nation (MFN) clauses, category-wide exclusivities, or refusal to license have therefore been viewed as falling outside the safe harbour. Construing Section 3(5) as a jurisdictional bar inverts this settled logic.

Concurrency, not ouster: Ericsson and beyond

The SEP/FRAND litigation involving Telefonaktiebolaget LM Ericsson provides an important doctrinal context for understanding concurrency between patent and competition law. Standard Essential Patents (SEPs) are patents that are indispensable for complying with a technical standard, and their holders commit to license them on Fair, Reasonable and Non-Discriminatory (FRAND) terms. In this setting, the Delhi High Court recognised that while questions of patent validity, infringement, and royalty adjudication fall within the patent law framework, allegations relating to discriminatory licensing, excessive royalty demands, or exclusionary access conditions raise distinct competition concerns. This framework therefore envisaged institutional concurrency rather than jurisdictional displacement: the patent system determines the scope of the right, while the Competition Commission of India assesses the market effects of its exercise. The NCLAT’s categorical view in Vifor Pharma “that patent law prevails over competition law” departs from this settled trajectory and creates an enforcement vacuum by excluding competition scrutiny even where the impugned conduct lies outside the patent’s legitimate scope.

Further, Bharti Airtel Ltd. v. CCI introduced a sequencing principle to avoid conflicting findings where a sectoral regulator, such as TRAI, must first decide technical issues before the CCI assesses competition effects. That principle did not extinguish the CCI’s jurisdiction. The patent regime has no authority tasked with examining competition effects: the Patent Office decides grant and validity, not market definition, foreclosure, or excessive pricing. In such cases, coordination through Sections 21 and 21A of the Competition Act is the appropriate institutional mechanism, allowing the CCI to proceed with market-effects analysis rather than being jurisdictionally ousted

Comparative guardrails: patents are context, not immunity

The EU’s pharma jurisprudence squarely rejects patent‑as‑immunity from competition law. In AstraZeneca AB v. Commission (Case C-457/10 P), the EU Court upheld findings of abuse of dominance where patent and regulatory procedures were strategically manipulated to extend exclusivity, affirming that the exercise of statutory IP rights may still attract liability under Article 102 TFEU. In Lundbeck v. Commission (Case T-472/13), the General Court confirmed that “pay-for-delay” settlements restricting potential competition around patent boundaries can infringe competition law even prior to patent expiry, emphasising competitive effects over formal title. Similarly, Servier v. Commission (Case T-691/14) held that value-for-exclusion agreements and lifecycle management strategies remain reviewable as anticompetitive conduct notwithstanding the existence of patents.

A comparable position is reflected in United States antitrust law. In FTC v. Actavis, Inc., 570 U.S. 136 (2013), the Supreme Court held that reverse-payment patent settlements are subject to antitrust scrutiny under the rule of reason, expressly rejecting patent validity as a shield against competition review.

The comparative lesson is therefore consistent: patents shape the merits but do not erase competition oversight.

Operational test for Section 3(5): patent‑aware antitrust

To reconcile Sections 3, 4, and 3(5), a three‑step screen can guide courts and the CCI:

1. Scope: Is the restraint strictly within the patent’s lawful scope as to product, claims, and field‑of‑use? Off‑patent restraints or collateral market restrictions fall outside 3(5).

2. Necessity: Are the terms reasonably necessary to deter infringement or do they sweep beyond what protection requires (e.g., broad MFNs, tying, category‑wide exclusivities)? Overbroad measures trigger full competition review.

3. Proportionality and effects: Even within scope, do conduct and terms cause foreclosure or exploitation disproportionate to the right’s protection (e.g., excessive pricing untethered to R&D recoupment; discriminatory access harming effective competition)? If yes, assess under Sections 3/4 with standard market‑effects tools.

Applying the test to Vifor‑type disputes

Vifor-type disputes involve patented pharmaceuticals where patentees allegedly abuse dominance through excessive pricing, supply restrictions via exclusive licensing, and refusal to deal as in Swapan Dey v. CCI, targeting Vifor’s Ferric Carboxymaltose injections priced several multiples higher than therapeutic alternatives, limiting production to licensees like Emcure/Lupin while rejecting others like WBCI, rendering treatment inaccessible under India's Pradhan Mantri National Dialysis Programme.​

These disputes typically feature: (1) exploitative pricing disconnected from R&D costs; (2) refusals to license beyond anti-infringement needs; (3) exclusive deals enabling foreclosure during patent life, raising Sections 3/4 Competition Act flags absent CCI jurisdiction post-Vifor.

The Way Forward: What Should the Supreme Court and CCI Do?

The path ahead requires careful but decisive doctrinal correction. As the controversy arises from a ruling of the NCLAT, the Supreme Court when seized of the matter in appeal will need to clarify the institutional boundary between patent law and competition law. It must affirm that patents affect the merits but not CCI jurisdiction thereby employing Section 3(5) as a narrow defence proven by the patentee under necessity–proportionality, not a threshold ouster.

The Competition Commission of India, in turn, will need to recalibrate its enforcement priorities in response to the jurisdictional constraints articulated in Vifor Pharma. Areas such as excessive pricing, discriminatory licensing, anticompetitive settlement agreements, and conduct occurring at or beyond patent expiry warrant prioritisation because they pose the greatest risk of consumer harm and market foreclosure while being least justifiable by reference to patent protection. Focusing on such categories allows the CCI to address the most acute competition concerns even where patent exclusivity is invoked.

A legislative clarification also remains a plausible corrective. Parliament could consider introducing an explanation to Section 3(5) of the Competition Act to clarify that neither the provision nor the Patents Act excludes CCI jurisdiction over market conduct involving intellectual property rights. Such an amendment could simultaneously reinforce the use of inter-authority references under Sections 21 and 21A for issues relating to patent validity or compulsory licensing, while preserving independent competition-effects review.

Conclusion

The Vifor ruling leaves Indian Competition law at a critical juncture. If patents become armour against antitrust scrutiny, we risk engineering a legal blind spot in markets where exclusivity and market power coincide. Patents are intended to incentivise innovation through time-limited rights, not to insulate all forms of market conduct from competition oversight. A single judgment can quietly harden into doctrine, inviting firms to wield IP rights not as incentives to invent, but as a jurisdictional defence against scrutiny of pricing, licensing, and access-related practices, thereby weakening the Competition Act’s ability to address exploitative or exclusionary conduct.

The responsibility for recalibration now lies with institutional actors. The Supreme Court and perhaps Parliament must redraw the line, ensuring patents drive progress without mutating into protective fortresses for market power.

“A patent confers a lawful monopoly, and competition scrutiny cannot override statutory exclusivity” - as upheld in Telefonaktiebolaget LM Ericsson v. Competition Commission of India