The Intellectual Property and Antitrust Review: Indonesia
Intellectual property laws2 in Indonesia grant exclusive rights to intellectual property owners to exploit their intellectual property or to grant licences to other parties to exploit them. The licensing provisions of the intellectual property laws do not specifically regulate circumstances when the implementation of intellectual property can conflict with antitrust laws and regulations. The intellectual property laws in Indonesia only provide general provisions that licence agreements should not contain provisions that are directly or indirectly detrimental to the Indonesian economy, hinder the ability of Indonesian people to master and develop technology in general, or contradict Indonesian laws and regulations, morality or public order.
The Anti-Monopoly Law3 of Indonesia generally covers the same ground as the competition law of other jurisdictions. It contains prohibitions against the usual forms of cartel behaviour, horizontal collusion and conspiracy, and also vertical restraints of trade and unilateral conduct (such as abuses of dominant position). The Anti-Monopoly Law is applicable to all businesses established in Indonesia or operating in Indonesia, whether or not they are legal entities.
In Indonesia, intellectual property cases are tried by the commercial courts. The commercial courts' decisions may be subject to further appeal (by way of cassation) to the Supreme Court. Meanwhile, antitrust cases are tried by the Business Competition Supervisory Commission (KPPU), and the district courts and the Supreme Court are mandated to accept and try appeals against KPPU decisions. KPPU, which is the main enforcement body for the Anti-Monopoly Law, is an autonomous body, independent of the executive and judiciary legislative bodies, but its members are appointed by the president. KPPU is authorised to examine allegations of violations of the Anti-Monopoly Law, issue guidelines for implementation of the law and apply administrative sanctions, subject to court control.
Article 50(b) of the Anti-Monopoly Law exempts agreements related to intellectual property (e.g., the licensing of intellectual property), trade secrets and franchising. The text of this Article does not include any qualification to this exemption. However, in its Guideline No. 2 of 2009 on the Exemption of Intellectual Property Agreements (the KPPU Guideline on the Exemption of Intellectual Property Agreements), KPPU has taken the position that this exemption is not absolute and that intellectual property licences are still subject to scrutiny under the Anti-Monopoly Law. KPPU assesses licence agreements under the rule of reason and will only exempt licences that do not cause monopolistic practices or unfair competition. In practice, when parties accused of violating the Anti-Monopoly Law try to invoke Article 50(b) in their defence, KPPU generally disagrees and does not accept that the exemption under this Article applies.
Intellectual property licences are likely to become subject to increased competition law scrutiny as there is a draft revision to the Anti-Monopoly Law (the Draft Anti-Monopoly Law) that proposes eliminating the intellectual property licensing and franchising exemptions provided by Article 50(b). This draft is still being discussed by the Indonesian House of Representatives. At the time of writing, having failed to pass this draft into law in 2019, the House is resuming its consideration of this draft but it is not clear that it can be passed in 2020.
However, there is a draft Omnibus Law on Job Creation, the purpose of which is to reform many laws for the purpose of making business easier, thus boosting employment growth. This draft also contains proposals for a more limited amendments to the Anti-Monopoly Law. In particular, it proposes to raise the maximum administrative fine that KPPU may impose from the current 25 billion rupiah per violation to 100 billion rupiah; a four-fold increase.
Moreover, in October 2020 the KPPU issued a regulation (KPPU Regulation No. 3 of 2019) whereby it asserts that it has the authority to review transfers of assets (including intellectual property) that passed certain thresholds. Formations of joint ventures (including those that include contributions or the use of intellectual property) are currently not subject to merger review. If the Omnibus Law is passed, then failure to file merger filing for acquisition of intellectual property or conclusion of an intellectual property acquisition that causes unfair competition would be subject to higher maximum penalty under this future law.
Therefore, in this year, a greater interface between competition law and intellectual property has become a reality. The stakes may also get higher.
Year in review
No notable intellectual property-related cases have been tried by KPPU in the past year. As Indonesia is not a jurisprudence-based jurisdiction, prior court decisions do not need to be followed by panels of judges in similar cases.
The most significant development on antitrust aspects of intellectual property in Indonesia in the past year has been the Issuance of KPPU Regulation No. 3 of 2019 on the Review of Merger or Consolidations or Share Acquisitions of Companies which May Cause Monopolistic Practices or Unfair Competition (KPPU Regulation No. 3 of 2019), or both. Under this regulation all qualifying acquisition of assets are subject to KPPU review and must be notified to KPPU within 30 working days after the closing date of the transaction. Details of these new requirements can be found in Section V, below.
Licensing and antitrust
According to the KPPU Guideline on the Exemption of Intellectual Property Agreements, the exemption provided by KPPU would only be applicable if the licence agreement was made in line with the intellectual property laws. According to intellectual property laws in Indonesia, intellectual property licence agreements must be recorded at the relevant intellectual property office to bind third parties. However, intellectual property owners have only been able to file recordal requests since the issuance of Minister of Law and Human Rights Regulation No. 8 of 2016 on Requirements and Procedures for the Recordal of Intellectual Property Licence Agreements and Government Regulation No. 36 of 2016 on IP Licence Recordal. In addition to this, license recordal is also regulated under Government Regulation No. 36 of 2018 on IP License Recordal.
The purpose of the requirement to record intellectual property licence agreements is to bind third parties. From the perspective of third parties, recordal automatically serves as notification that there is an intellectual property licence arrangement in place between the intellectual property owner as the licensor and the licensee in Indonesia – which would be important if the intellectual property owner needed to show proof of use of its intellectual property in Indonesia. However, as yet there have been no notable cases before the commercial courts where a licence agreement was overruled because of non-recordal issues. Moreover, KPPU has not issued any notable decisions in which it considered an intellectual property licence agreement as anticompetitive on the basis of non-recordal issues.
Although the following discussion is based on the KPPU Guideline on the Exemption of Intellectual Property Agreements, in practice, KPPU guidelines do not restrain KPPU from adopting a different approach to particular cases if deemed necessary. Therefore, the views expressed in the Guideline might not reflect how KPPU will act in a particular case.
KPPU is in the process of reviewing and revising all of its guidelines. A revision of the KPPU Guideline on the Exemption of Intellectual Property Agreements may be issued later in 2020.
i Anticompetitive restraints
As stated previously, the Anti-Monopoly Law exempts agreements related to intellectual property, but KPPU regards such exemptions as not being absolute, as a licence agreement would still be subject to the application of the Anti-Monopoly Law if it were to cause conditions of actual monopolistic practices or unfair business competition. As regards the Anti-Monopoly Law, business actors should not prevent other competitors from carrying out business activities in the same relevant market, or from carrying out development of technology, or prevent consumers from engaging in business relationships with competitors, as such conduct may lead to monopolistic practices or unfair business competition.
According to the KPPU Guideline on the Exemption of Intellectual Property Agreements, intellectual property licence agreements may be subject to the application of the Anti-Monopoly Law if the intellectual property is deemed as an essential facility and the owner refuses to license it, or the licence agreement leads to exclusive dealing.
The KPPU Guideline on the Exemption of Intellectual Property Agreements provides some examples where licence agreements may lead to exclusive dealing, such as pooling licensing and cross-licensing, tying arrangements, material supply limitation, production and marketing limitation and grant-back licensing. According to this Guideline, it should be identified whether the licensed intellectual property is deemed as an essential facility. An essential facility in general is a facility that is required to run a business and not economical to duplicate.
Specifically in relation to franchise agreements, according to KPPU Guideline No. 2 of 2009 on Exemption of Franchise Agreements (the KPPU Franchise Guideline), a franchise agreement cannot be exempted from the application of the Anti-Monopoly Law if it consists of provisions relating to purchase obligations or unrelated to the intellectual property that is the essence of the franchise business or that cause entry barriers for other suppliers.
The Anti-Monopoly Law also prohibits exclusive dealing. This is, for example, an agreement where any of the following apply:
- the recipient of any product or service may only resupply or may not resupply the product or service to certain parties or in certain places;
- the recipient of any product or service must agree to purchase other products or services from the supplier (tying-in agreements); and
- the recipient of any product or service will get certain prices or discounts, but in return it is required to purchase other products or services from the supplier or the recipient is prohibited to purchase the same type of products or services from the supplier's competitors.
Article 15 of the Anti-Monopoly Law provides that a prohibition on exclusive dealing is illegal per se, but the KPPU guidelines indicate that this should be subject to the 'rule of reason', specifically prohibiting the practice if it has caused or might cause monopolistic practices or unfair competition.
The intellectual property laws do not specifically regulate grant-back licences. Nevertheless, according to the KPPU Guideline on the Exemption of Intellectual Property Agreements, each party should consider the fact that a grant-back licence may hinder the licensee from advancing the technology. The grant-back licence may also be unfair, as it allows the licensor to own intellectual property that it has not created itself. Therefore, this provision could be seen as anticompetitive and, hence, it may be further examined for potential violation of the Anti-Monopoly Law, with consideration given to the background, purpose and reasons for the inclusion of the grant-back provision in the licence agreement.
ii Refusals to license
From the intellectual property law perspective, refusals to license are not considered as prohibited practices. However, in terms of the Anti-Monopoly Law, this could be seen as a form of abuse of dominant position if the licensor has a market share of 50 per cent or more of a certain product or service, or where the licensor and one or two other business actors collectively control market share of 75 per cent or more of a certain product or service.4 Moreover, a business actor could also be deemed dominant if it no longer has any significant competitors in the relevant market in terms of the market share controlled, and has a higher position than all of its competitors in terms of financial capability, access to supply or sales, and capability to adjust the supply or demand for certain products or services.5
As explained earlier, that assessment should also consider whether the licensed intellectual property is deemed as an essential facility. In general, if the intellectual property is not deemed as an essential facility, the exemption could be applicable.
The Patent Law does not provide specific measures that could be taken by third parties if patent holders refuse to grant a licence. Nevertheless, according to the Patent Law, a third party who can show that he or she has the capability to fully exploit a patent and has his or her own facilities for doing so can file an application for compulsory license of a patent within 36 months of the patent being issued.6 A compulsory licence could be given based on the Minister of Law and Human Rights' decision in any of the following circumstances:
- the patent holder does not implement an obligation to create a product or use a process in Indonesia within 36 months of the patent being granted;
- a patent has been implemented by the patent holder or its licensee in a form or way that harms the public interest; and
- a patent resulting from a development of a previous patent cannot be implemented without using a third-party patent that is still under protection.
To obtain the compulsory licence, the applicant (or its proxy) should also provide evidence that it has taken action within 12 months of the first action to obtain a licence from the patent holder based on proper requirements and conditions, but that it was not successful. The Minister of Law and Human Rights can only grant a compulsory licence if the Minister is of the opinion that the aforementioned patent can be implemented in Indonesia on a 'proper economic scale' and can benefit society.7 'Proper economic scale' is regarded as circumstances in which the products manufactured using the patent could be sold at an affordable price to the public while still taking the rights of the patent holder into consideration.
iii Unfair and discriminatory licensing
As stated earlier, the refusal of a dominant business actor in a relevant market to license intellectual property could constitute a prohibited relative monopolistic practice.
The Anti-Monopoly Law provides the following criminal and civil liabilities for dominant business actors who impose terms of trade with the intention of preventing or obstructing consumers from acquiring competitive products, restrict the market and the development of technology, or obstruct potential competitors from entering the market:
- criminal liability: criminal fine of between 25 billion rupiah and 100 billion rupiah, or imprisonment for a maximum period of six months; and
- civil liability: subject to an order to cease the abuse of the dominant position and fines of between 1 billion rupiah and 25 billion rupiah, and damages.
iv Patent pooling
Patent pooling takes the form of an agreement between multiple patent holders to license their patent to a third party. In general, the Patent Law does not specifically regulate patent pooling issues. Nevertheless, from the perspective of the KPPU Guideline on the Exemption of Intellectual Property Agreements, the Anti-Monopoly Law could still be applicable to patent pooling arrangements, subject to the rule of reason. Specifically, the Guideline provides that if the pooling of a licence consists of provisions allowing manufacturing or marketing activities of a product dominantly owned by one business entity such that other business entities could not compete effectively, those provisions could be seen as anticompetitive. For example, these kinds of monopolistic practices could be applied by setting discriminatory pricing for other business actors outside the patent pool and limiting the grant of licences to those outside the pool.
v Software licensing
In practice, software may be protected by different forms of intellectual property, such as patents and trade secret rights, although the common form of intellectual property protection for software is copyright. The Copyright Law does not specifically regulate software licences (or software distribution and end-user licence agreements). However, as a general rule, the Copyright Law provides that copyright licensing should not extend beyond the validity and protection period of the licensed copyright work,8 and that the licensor is entitled to receive royalties from the licensee (unless agreed otherwise).9 Moreover, a copyright licence agreement should not be used as an avenue to diminish or take over all the author's rights in relation to its copyright.10
vi Trademark licensing
With regard to trademark licensing, the licensors' perspective is usually that it would be essential for them to control the use and commercial exploitation of their marks by licensees, and ensure that this use does not conflict with the licensors' business and interests. For example, in a franchise business, the licensors may request the licensees to purchase materials from a certain supplier. According to the KPPU Franchise Guideline, such an arrangement could be exempted from the application of the Anti-Monopoly Law as long as it is related to the intellectual property that is the essence of the franchise business or would not cause entry barriers for other suppliers.
In some jurisdictions, competition issues relating to trademark licensing may also arise in the form of coexistence agreements when both the licensor and licensee decide to regulate each party's use and registration of its marks to avoid confusion among consumers. In general, the Trademark Law and also the Indonesian Trademark Office's practice do not acknowledge coexistence agreements. Therefore, while coexistence agreements may be considered binding between parties from a contractual perspective, coexistence agreements may not be used to overcome possible rejections of trademark by the Indonesian Trademark Office. The Anti-Competition Law also does not specifically regulate the coexistence-agreement issue. As a general rule, however, coexistence agreements should not limit competitors' ability to carry out their business activities in the same relevant market or prevent consumers from doing business with competitors, as such terms may be monopolistic and anticompetitive.
In general, the patent for an invention that is integral to standards that are important for functionality or for relevant commercial items is known as a standard-essential patent (SEP). This is mostly relevant in the information and communication technologies sector, where creation and protection of new communication standards through patents could constitute a competitive advantage that allows an SEP holder to control input and hinder the entry of potential competitors or innovation in the market.
The Patent Law does not specifically define or regulate SEPs, although it provides a mechanism for third parties to seek a compulsory licence for implementing a patent resulting from a development of a previous third party's patent that is still under protection, as stated above. Moreover, under the Patent Law and the Anti-Monopoly Law, holding an SEP has not been found to directly yield dominance in the patent-related market. Furthermore, there have been no KPPU decisions issued in recent years finding refusal to license an SEP as being anticompetitive.
There have been no KPPU decisions analysing injunctions sought by patent holders from the antitrust perspective, as there is currently no measure for injunctions under the Anti-Monopoly Law. As a general rule, the Patent Law provides a mechanism for the owner of a patent registration to file a request for an injunction (in the form of a temporary court order) to prevent: (1) the entry to the market of products resulting from patent infringement; (2) the removal of the evidence of patent infringement from the infringer's premises; and (3) further damage being suffered by the patent owner.11 The mechanisms to initiate a temporary court order are stipulated in Supreme Court Regulation No. 5 of 2012 on Temporary Court Orders (Regulation 5/2012). According to Regulation 5/2012, the court order request should be lodged together with the payment of a deposit or warranty in an amount equal to the value of the suspended goods.
With regard to the process, within two days of the court order request being lodged, the commercial court should decide whether to grant or reject the request. If the request is granted, the bailiffs will go to the defendant's premises to initiate the order. Within 30 days of the implementation of the court order, the panel of judges should review the case (hearing arguments from both parties) and accordingly decide either to confirm or cancel the order. If the panel of judges confirms the order, the plaintiff should proceed with filing an infringement claim as a follow-up. If the panel of judges cancels the order, the deposit or warranty will be given to the defendant.
According to Regulation 5/2012, the amount of the deposit for the temporary court order should be equivalent to the value of the goods detailed and the costs that will be incurred as a result of the implementation of the court order.12 Unfortunately, at the time of writing, the implementation of this measure is yet to be tested, as there is no further guideline available for the commercial courts to calculate the deposits or warranties for temporary court orders; hence, there have been no court orders requested for patent infringement cases so far.
iii Licensing under FRAND terms
The Patent Law does not include any provisions that require an SEP holder to grant patent licences to other parties under FRAND licensing terms. There have been no notable court cases in Indonesia in relation to the application of FRAND licensing terms, particularly those cases where patent licence agreements are overruled or deemed invalid because of failure to comply with FRAND licensing terms.
iv Anticompetitive or exclusionary royalties
There are no specific provisions in the Patent Law prohibiting issues such as exploitative prices and practices, or exclusionary practices. Moreover, there has been no notable intellectual property or antitrust case where royalty rates in an intellectual property licence agreement are deemed as abusive or excessive.
As best practice, any applicable industry-specific guideline should also be taken into consideration when determining royalty rates. For example, in the music industry, the Minister of Law and Human Rights has issued Decree No. HKI.2.OT.03.01-02 of 2016 to regulate the benchmark for royalties for the use of music by various users or premises in Indonesia.
Intellectual property and mergers
i Transfer of IP rights constituting a merger
The following criteria must be fulfilled in order for the acquisition of assets (including intellectual property) to be notifiable to KPPU under KPPU Regulation No. 3 of 2019:
- The acquisition is concluded between non-affiliated parties.
- The acquisition fulfils the financial thresholds for notification:
- the combined value of (1) the worldwide assets of the acquirer and its group companies and (2) the assets of acquirer and its subsidiaries exceeds 2.5 trillion rupiah. In the case of financial institutions (banks) the assets threshold is 20 trillion rupiah. This worldwide calculation method is an unwritten KPPU policy that may be superseded by a written policy as KPPU has promised that a technical guidance will be issued to further elaborate the provisions of KPPU Regulation No. 3 of 2019;
- the combined value of the Indonesian sales or turnover of (1) the acquirer and its group companies and (2) the target and its group companies exceeds 5 trillion rupiah;
- there are also qualitative criteria that the acquisition of assets would increase the acquirer's ability to control the relevant market. These criteria are not clearly spelt out and there is currently no further guidance on these criteria although generally KPPU's stated intention is that their primary interest is in acquisition of productive assets.
Failure to file within the required timeline is subject to administrative penalty. In theory the penalty is 1 billion rupiah per day of late filing up to the maximum of 25 billion rupiah. As noted above, If the current version of the Omnibus Bill is passed, the maximum penalty would be raised to 100 billion rupiah.
ii Remedies involving divestitures of intellectual property
In relation to the post-completion notification as elaborated above, if KPPU determines that a transaction may cause monopolistic practices or unfair competition, KPPU will require remedies. In practice, the remedy required is usually in the form of behavioural remedies relating to intellectual property. Behavioural remedies include if KPPU accepts the proposed remedies, it will issue a conditional opinion of no risk of monopolistic practices or unfair competition. If KPPU rejects the proposed remedies, it will issue an opinion that the transaction risks causing monopolistic practices or unfair business competition. An ultimate penalty of divestment and imposition of administrative fines may be imposed on transactions that the KPPU objects to, but in theory this has not happened.
To date there has not been any precedent of mergers where KPPU has imposed remedies involving the transfer of intellectual property to prevent a business entity achieving a dominant position by such means.
i Sham or vexatious IP litigation
This concept is not commonly known in Indonesia, as there have been no notable cases analysing the antitrust implications of sham or vexatious IP litigation. While 'pay for delay' has been a hot issue in other jurisdictions, there have been no notable patent-related cases before the commercial courts where pay for delay was one of the measures to settle the court dispute. In general, the number of patent infringement cases in Indonesia is not significant, compared with other intellectual property infringement cases, such as trademark or copyright infringement.
The Patent Law does not specifically define 'sham litigation', but it is normal in Indonesian court practice that infringers respond to infringement claims by saying that the civil claim was groundless or unclear. This defence is usually raised together with the arguments that the intellectual property being used by the infringer is not the same as the one owned by the plaintiff; hence, the commercial use is non-infringing.
ii Misuse of the patent process
In some jurisdictions, this topic may lead to 'evergreening' issues in the pharmaceutical and healthcare industry, which is considered a life-cycle strategy initiated by patent holders to extend products that are about to expire to retain patent royalties. This is not a concept normally regulated under the Patent Law, and in general there have been no notable cases where KPPU considered evergreening or life-cycle management measures initiated by patent holders as anticompetitive.
Moreover, at the time of writing, there have been no patent infringement cases before the commercial courts where the panel of judges highlighted misuse of the patent process. On a related note, the Patent Law provides five years (two years under the previous law) for third parties to use a patented invention for the purpose of carrying out tests, preparing for production and seeking regulatory or marketing approval before the patent expires (widely known as the Bolar provision).
iii Anticompetitive settlements of IP disputes
So far, there have been no notable cases where KPPU reviewed the settlements of intellectual property disputes from antitrust perspectives.
Outlook and conclusions
The development at the interface between intellectual property and antitrust law is starting to become more dynamic due to the introduction of assets acquisitions review in 2019. As KPPU begins to issue its opinion on intellectual property will be subject to KPPU reviewtransactions, we should expect even greater dynamism in 2020, hopefully greater clarity on how KPPU would apply its standards on intellectual property matters.
1 Daru Lukiantono is a partner and Mochamad Fachri and Wiku Anindito are associate partners at Hadiputranto, Hadinoto & Partners.
2 Law No. 20 of 2016 on Trademarks (the Trademark Law), Law No. 13 of 2016 on Patents (the Patent Law), Law No. 31 of 2000 on Industrial Design (the Industrial Design Law), Law No. 28 of 2014 on Copyright (the Copyright Law), Law No. 30 of 2000 on Trade Secrets (the Trade Secrets Law), Law No. 29 of 2000 on Plant Variety Protection (the Plant Variety Protection Law) and Law No. 32 of 2000 on Layout Designs of Integrated Circuits (the Layout Designs of Integrated Circuits Law).
3 Law No. 5 of 1999 on Prohibition of Monopolistic Practices and Unfair Business Competition.
4 Article 25(2) of the Anti-Monopoly Law.
5 Article 1(4) of the Anti-Monopoly Law.
6 Article 84(1)(a) of the Patent Law.
7 Article 84(1)(c) of the Patent Law.
8 Article 80(2) of the Copyright Law.
9 Article 80(3) of the Copyright Law.
10 Article 82(3) of the Copyright Law.
11 Article 155 of the Patent Law.
12 Article 2 of Regulation 5/2012.