Evaluating the Role of IPRs in Mergers and Acquisitions: A Competition Law Viewpoint

When a large pharmaceutical company acquires a smaller biotech startup, or a tech giant buys out an emerging software firm, the deal is rarely just about money. More often, it is about patents, trade secrets, proprietary algorithms, and other intellectual property (IP) assets that can reshape entire markets overnight. This is precisely why competition law takes a close look at such transactions. In India, the intersection of intellectual property rights (IPRs) and merger control has become one of the most consequential areas of competition law – one that is still evolving rapidly as the digital economy grows and corporate deal-making becomes increasingly IP-centric.

What are “combinations” under the Competition Act, 2002? 🔗

The Competition Act, 2002 uses the term “combination” to describe mergers, acquisitions, and amalgamations of enterprises. Under Section 5 of the Act, a “combination” refers to a merger or amalgamation among enterprises, or an acquisition of control, shares, voting rights, or assets of one enterprise by another, provided that certain financial thresholds are breached and the transaction is not covered under any exemption notification. Once a transaction qualifies as a combination, it must be notified to the Competition Commission of India (CCI) for prior approval before it can be completed.

IP assets fit squarely within the scope of what is reviewed. Assets include not just physical items like buildings or equipment but also intangible assets like brand value, goodwill, copyrights, patents, and other commercial rights. Including intangible assets ensures that the law accounts for modern businesses where brand reputation or intellectual property are major competitive factors. In other words, a company’s patent portfolio or proprietary technology can tip a transaction over the notification threshold and bring it under the CCI’s scrutiny.

When does an IP transfer trigger merger notification? 🔗

One of the trickier questions in this space is whether a transfer of IP through licensing – rather than outright assignment – constitutes an “acquisition” of assets under Section 5. The question of whether the licensing of IPs constitutes the ‘acquisition’ or ‘transfer’ of assets, and consequently requires notification, has been the subject of considerable debate.

The CCI has clarified through its decisional practice that the licensing of an IP will not in itself constitute a transfer or acquisition if the licence is demonstrably non-exclusive – both as a matter of law (de jure) and as a matter of fact (de facto). The licensor must establish that it continues to use the IP itself, or license it to others for wider use, and that the licence is not exclusive, regardless of the terminology used in the licence agreements. As a corollary, IP licences that do not meet this test will be treated as asset acquisitions that trigger merger notification to the CCI if no statutory exemption is available.

This distinction is practically significant for businesses. A technology firm granting a non-exclusive software licence to a competitor need not worry about merger filings. But if that same licence is effectively exclusive – even if not labelled so – the transaction may need CCI clearance.

The review process: how the CCI evaluates IP-driven combinations 🔗

The CCI adopts a two-phase process when reviewing combinations. In Phase I, the CCI must issue a prima facie opinion on whether the transaction is likely to cause an appreciable adverse effect on competition (AAEC) within the relevant market in India within 30 working days from the date of notification. If the CCI finds that the transaction is unlikely to cause an AAEC, it will approve the transaction. Where concerns are identified, the matter moves into a detailed Phase II investigation.

In IP-heavy transactions, the CCI’s analysis typically focuses on whether the combined entity would control a concentration of patents, trade secrets, or data in a way that forecloses rivals from competing effectively. The Bayer-Monsanto merger is a strong illustration. In that case, the CCI asked Bayer to license on non-exclusive, FRAND (fair, reasonable and non-discriminatory) terms certain traits to eligible licensees for seven years after closing. The CCI also raised concerns regarding portfolio effects that would exclude competitors, and Bayer undertook not to offer bundled products to clients, farmers, distribution channels and commercial partners. The CCI was also concerned about cornering the emerging digital farming space and required the combined entity to provide access through licences on FRAND terms to their digital platforms and data of existing Indian agro-climatic subscriptions.

This case is a clear signal that the CCI is not passive when IP portfolios are involved. It will ask hard questions about licensing access, data exclusivity, and post-merger bundling practices.

IPR-driven mergers and the threat to innovation: the problem of “killer acquisitions” 🔗

The most serious competition concern in IP-driven M&A is what regulators worldwide now call a “killer acquisition” – where a dominant firm acquires a smaller, innovative company not to develop its technology, but to neutralise a potential future rival.

When a company eliminates an innovative firm by acquiring it at a nascent stage to prevent any future competition from that firm, it is seen as a killer acquisition. The acquiring company can either terminate the target’s innovative efforts or its development of an innovative product to stay ahead while avoiding competition. The result is that the market loses not just a competitor, but potentially a transformative product or technology altogether.

India has already seen this play out. One notable example of a potential killer acquisition that eluded the CCI’s scrutiny was the acquisition of Uber Eats India by Zomato in January 2020. At the time, Uber Eats India was operating at a loss and did not meet the turnover threshold under Section 5(a) of the Competition Act. Resultantly, the CCI was powerless to intervene in an acquisition which ultimately led Uber Eats India to discontinue its operations and Zomato to increase its market share significantly. The deal flew under the regulatory radar because traditional asset and turnover-based thresholds were simply not designed to catch asset-light, data-rich digital businesses.

The deal value threshold: India’s response to the regulatory gap 🔗

To address this enforcement gap, India introduced significant amendments through the Competition (Amendment) Act, 2023. The concept of a ‘deal value threshold’ (DVT) was introduced in the 2023 amendment, under which a notification to the CCI will be triggered – and CCI’s prior approval required – in cases where the value of the transaction exceeds INR 2,000 crore and the target enterprise has ‘substantial business operations in India’. This DVT is mainly meant for digital and new-age markets, where target entities may have minimal assets and turnover, but may possess significant potential in terms of data, technology, and innovation.

The DVT was enforced from 10 September 2024. It introduces an additional regulatory hurdle for investments that might otherwise have escaped merger review in India due to low asset values and revenues. The underlying rationale was revealed in the 2019 report of the Competition Law Review Committee, which flagged “an enforcement gap regarding the ability of the CCI to review transactions in digital markets.”

This reform is particularly relevant to IP-heavy deals. A startup with a breakthrough patent portfolio may have minimal revenues but a deal value far exceeding INR 2,000 crore. The DVT now ensures such a transaction lands on the CCI’s desk for review – even if the traditional asset and turnover thresholds are not crossed.

Limitations of the deal value threshold 🔗

The DVT is a step forward, but it is not a complete solution. Killer acquisitions are, by their nature, acquisitions of small innovative firms or start-ups. It is not only possible but highly probable that these acquisitions will escape the DVT. The experience of the prominent antitrust regime of Europe shows that the introduction of DVT has not just increased the burden on antitrust regulators but has not yet made a considerable dent in curbing these acquisitions.

There is also a practical challenge: the CCI may need to consider counterfactuals when evaluating the potential competitive scope of a startup for competition analysis. Predicting the likelihood of a nascent startup having the potential to topple today’s industry titans is highly speculative, specifically in light of market dynamics and rapid technological advancements. Regulators cannot always foresee which startup’s IP will disrupt a market five years down the line.

The Section 3(5) safe harbour: IPR protection within competition law 🔗

It is important to note that competition law in India does not treat all IP-related conduct as suspect. Section 3(5) of the Competition Act provides that the prohibition on enterprises from entering into agreements that cause an AAEC does not extend to the right of any person to restrain any infringement of, or to impose reasonable conditions necessary for protecting, their rights conferred under various IP statutes including the Copyright Act 1957, the Patents Act 1970, the Trade Marks Act 1999, the Geographical Indications of Goods Act 1999, the Designs Act 2002, and the Semiconductor Integrated Circuits Layout-Design Act 2000.

This safe harbour means a patent holder that imposes licensing restrictions for legitimate IP protection purposes is not automatically in violation of competition law. However, the exemption does not apply to abuse of dominance under Section 4 – a critical distinction that has shaped enforcement in cases involving standard-essential patents (SEPs) and FRAND licensing.

Remedies available to the CCI in IP-driven mergers 🔗

When the CCI identifies competition concerns in an IP-heavy combination, it has a range of tools to address them without necessarily blocking the deal entirely. After evaluating a transaction’s market share, potential barriers to entry, consumer impact, and market concentration, if it is determined that the merger could cause or is likely to cause AAEC, the CCI has the authority to either block the transaction or impose remedies. These remedies may include: behavioural remedies such as price caps, information sharing, restrictions on expansion or overpricing, and other compliance conditions; structural remedies like asset divestments; or a combination of both types of remedies.

In practice, the remedies have included the divestment of assets, business resources such as IP rights, customer lists, and inventory, equity shareholdings, and the execution of non-exclusive licensing arrangements. In the Dow/DuPont case, for instance, the CCI accepted a global divestiture package to address competition concerns in crop protection products, and additionally required DuPont to cancel a specific trademark in India and not sell or export that product through affiliates.

The bigger picture: balancing IP rights with market competition 🔗

The fundamental tension is this: IP rights create legal monopolies that are meant to incentivise innovation, while competition law aims to prevent monopolistic behaviour. In M&A, these two goals collide most visibly. The CCI has adopted a largely balanced and progressive approach in ensuring that the enforcement of competition law is not at odds with the preservation of IP. In doing so, it has relied on decisional practice in other jurisdictions, while developing its own jurisprudence on antitrust issues emanating from the exercise of IPRs.

But the balance is delicate. While the intent behind regulating killer acquisitions is to preserve competition and foster innovation, there is an inherent risk that overregulation could have the opposite effect. If dominant firms are prevented from acquiring smaller, innovative companies, those startups might struggle to commercialise their innovations due to lack of funding or resources. Moreover, acquisitions often provide a viable exit strategy for startups, incentivising entrepreneurs to innovate – without the prospect of being acquired, the motivation to develop disruptive technologies might diminish, particularly in capital-intensive industries like pharmaceuticals and technology.

The CCI, to its credit, has processed close to 990 merger notifications since merger regulation came into force in India in 2011. The CCI has not blocked any transactions so far and found no competition concerns in most of the transactions notified to it. In around 23 cases where competition concerns were found, it cleared the transactions subject to certain remedies that would mitigate its concerns. This track record suggests a regulator that is careful, not obstructionist – but one that is increasingly being tested by the complexities of IP-driven deals in digital markets.

What the future holds 🔗

India is also watching developments in the proposed Digital Competition Bill, which aims to introduce ex-ante oversight for systemically significant digital enterprises. The Ministry of Corporate Affairs has hinted at the possibility of incorporating specific provisions to bring killer acquisitions within the regulatory domain of the CCI, which if materialised, would make India one of the few jurisdictions to have taken a proactive step in addressing an issue that has plagued regulators worldwide.

For IP-rich industries – pharmaceuticals, technology, agri-biotech, media – the interaction between IP law and merger control will only grow more complex. Companies need to understand that IP assets are not invisible to competition regulators. A large enough patent portfolio, or a strategically acquired trade secret, can place a transaction squarely under the CCI’s microscope.

What do you think? As digital startups increasingly derive their entire value from IP and data rather than physical assets, is India’s current merger control framework equipped to protect innovation competition in these markets? And when the CCI imposes compulsory licensing as a remedy in a merger involving patents, does that strike the right balance – or does it undermine the very incentive to innovate in the first place?

References

1. https://www.iclg.com/practice-areas/merger-control-laws-and-regulations/india
2. https://prsindia.org/billtrack/the-competition-amendment-bill-2022