Towards a Transaction Cost Approach to the Essential Facilities Doctrine

Most problems facing a policy maker involve tradeoffs. She chooses legal tools to tilt the balance in favor of one action against the other. The essential facility doctrine (EFD) is one such tool. However, before utilizing the tool, one has to decide which side needs tipping. This chapter discusses how to make that decision, with regard to EFD (and specifically with respect to intellectual property rights (IPRs)). Borrowing from the ideas that have emerged in US and Europe, the chapter proposes specific suggestions for India, which, without loss of generality, can be applied to most other developing nations as well. The doctrine is used to address the anticompetitive behavior of a firm with market power, which owns ‘an essential facility’ and refusing to license it to competitors or new entrants. Using the doctrine, government may mandate the firm to share the facility. The issues addressed here are significant and with debates on this issue gaining momentum in developing countries, there is a need for rigorous analysis.

Study of EFD has had its own share of conflicts. It has attracted dissimilar sentiments from various scholars. Areeda famously called it 'an epithet in need of limiting principles,' 1 and many others have been critical of its scope. 2 Yet host of scholars defend its importance in relevant policy designs. 3 Given that the doctrine advocates granting access to competitors, it has generated significant debates in academia, for both its desirability and applicability. 4 From economic consideration, the issue is complex. It usually applies to firms, which are vertically integrated, and perhaps natural monopolists in one market 1 attempting to refuse in providing a monopolised input to a rival in a related competitive market. While at one level, their refusal is justified in preventing efficiency losses, free-riding tendencies by rivals, double marginalization problem and ensuring that there are incentives to invest/innovate 5 ; at another level, such denials have potential to thrust anticompetitive effects in the market. 6 Chicago school thinkers are primary sources for benign academic view of EFD. They propose a 'single monopoly profit theorem,' according to which, if the products are used in fixed proportion, then a monopolist in one market cannot increase its profits in an adjacent market through extension. 7 In some ways, the approach proposes that such extensions are driven by efficiency considerations and therefore hardly anticompetitive. 8 However, recent scholarship contends that Chicago School's thinking went too far, grounded on unrealistic assumptions, because neither products are necessarily used in fixed proportions, nor the static efficiency merits such a short-term view. 9 The denial for sharing the services could be motivated by rising rival's costs and in short-term, there are no substitutes for essential facilities. 10 Even Areeda, in his famous critique, accepted the economic value of the doctrine in under certain circumstances-for instance, he agreed with court's decisions in MCI and Otter Trail cases because of the natural monopoly of the issue. 11 5 Perhaps the pivot over which EFD cases revolve is to decide when the shared use becomes essential. Further, questions like whether in denial of the license, is there a threat to competition, and how to draw the guiding principles which help identify the exceptional circumstances that may justify the competition authority's intervention, without undermining the objective justifications by a dominant undertaking in refusing to allow such access. The legislative design in Europe, which refers to 'refusal to deal' cases are dealt as exclusionary abuse of dominance, under Article 82, EC Treaty establishing the European Community (hereinafter, Article 82 EC). Section 4 of the Competition Act 2002 12 and Section 2 of the Sherman Act 1890 are the corresponding provisions under Indian law and US law respectively. Needless to mention, Competition Act 2002 is nascent and is yet to evolve in matters involving abuse of dominance.
The rest of the chapter is divided as follows: Part two illustrates the evolution of the doctrine through last century, in the US and the EU. It examines the case law driven jurisprudence and shows the trajectory of the attitude of the judiciary in both regions. This part serves to give an account of the path dependency of the doctrine and allay the surprises that may emerge from a time-restricted view of the doctrine. Part three compares Article 82 EC and Section 2 of Sherman Act in order to understand the (differing) EU and US approaches to encouraging competition. This chapter will carve out the principles on which Indian approach should (or should not) be based. Part four delves into how the doctrine has been invoked in India and in Part five, criticizes its present scope and design. Part six proposes that India needs a proactive application of the doctrine, which needs to be modeled on EU's line. To support the proposal, this part builds an analytical argument, examining EFD in alternative theoretical set-ups. Authors analogise EFD as a legal institution with liability rule, which intervenes in a property framework. Drawing from the famous Calabresi and Melamed paper 13 this chapter shows how EFD could be located in this scholarship. This chapter utilizes the concept of transaction cost from the perspective of bargaining power between transacting parties and investigate its variation in different scenarios that produce (dis)incentives to refusing to license. Authors conclude that India needs to adopt expansive view of the doctrine particularly by its competition authorities because Indian IPRs regime is weak, which exhibits high transaction costs and therefore requires liability rule of EFD. Part seven concludes, mainly recognizing the limitations of the proposed model.

Historical Overview
It can fairly be said that 'refusal to deal' under competition law is a manifestation of the 'freedom of contract' of contracting parties, 14 which was the essence of freedom from undue restraint on the right to contract. 15 Clauses of contract not to compete received considerable judicial attention in the 1880s in US just as they do today. 16 It may at first seem that freedom of contract would support enforcement of these agreements because parties ought to be able to set the terms of their contracts. 17 However, enforcement of these contracts can prevent formation of many other contracts. 18 It could, therefore, be argued that a court may actually increase the level of contract activity by refusing to enforce such contracts, as is the case with some 'restraint of trade' contracts and this would be an increase in the freedom of contract under some connotations of that term. 19

Doctrine's Origin in the US
As largely driven from American judgements, the doctrine is usually seen to have originated in US Supreme Court's 1912 Terminal Railroad 20 decision, in which denial of third party usage of railroad bridges to St. Louis, owned and maintained by the defendant was challenged. The court opined that 'the inherent conditions are such as to prohibit any other reasonable means of entering the city, the combination of every such facility under the exclusive ownership and control of less than all of the companies under compulsion to use them violates' 21 Section 1 and Section 2 of the Sherman Act. Note that the defendant here was an Association that comprised of fourteen railroads serving St. Louis, and therefore invoked a strong sense of competition concerns. However, the Supreme Court did not agree to prosecutor's (government's) contention to dissolve the Association and proposed alternate institutional safeguards. 22 The idea of invoking antitrust concerns was logical, but 14 Albeit the contrary was also believed for some time as is evident from old scholarship. See 14 A Transaction Cost Approach to EFD there was no explicit mention of the doctrine, and the courts had differing viewpoints on how strictly they want to come out on monopolies. 23 Comparable reliefs were granted by the US Supreme Court in subsequent years, solidifying the existence of doctrine.
In Associated Press 24 (AP) case, where AP had prohibited member newspapers to provide any news to nonmember organizations, the court held AP's practice as an unreasonable restraint of trade violating Section 1 of Sherman Act, even though there was no monopolization that AP exhibited. 25 The court's view was that AP's bylaws served 'seriously to limit the opportunity of any new paper to enter', and that its services 'give many newspapers a competitive advantage over their rivals.' 26 In both these influential cases, there was an element of unfairness rather than fear of market power. Yet, the essentiality of goods/services was pivotal in both the cases. Many cases provide precedents to the similar reasoning: for instance, Eastern States Lumber Dealers' Association v United States 27 and Klor's, Inc. v Broadway-Hale Stores, Inc. 28 Of particular interest is Silver v NYSE 29 where the court held the Exchange's decision to terminate two brokers' direct wire connection was violating Section 1 of Sherman Act, holding that 'valuable service germane to petitioner's business and important to their effective competition with others was withheld from them by collective action.' 30 The courts have been cautious however, by avoiding blanket mandates to declare all group-boycotts illegal. For instance, in Northwest Wholesale Stationers, Inc. v Pacific Stationery and Printing Co, 31 the court expressly held that, 'Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted…. Absent such a showing with respect to a cooperative buying arrangement, courts should apply a rule-of-reason analysis.' 32 Notice that not all cases had issues pertaining to competition but definitely with essential goods/services, unilateral refusals to deal with which was imposing severe fairness considerations. 23  However, a clearer jurisprudence evolved from interpreting Section 2 of the Sherman Act, 33 where one party's alleged control of some 'essential facility' is enough to invoke the doctrine. Consider United States v Griffith, 34 which invalidated the monopoly power of theatres in one geographical market to use their positions and occupy monopoly power in another market. The court stated that 'the use of monopoly power, however lawfully acquired, to foreclose competition, is unlawful.' 35 Note that in both cases, courts were trying to prevent monopoly power to beget further monopoly power. This is indeed the case in owning essential rival goods/services, sole access to which can greatly enhance monopoly power of firms that own them. After Otter Trail 36 and Aspen Highlands 37 cases, the doctrine was etched in legal memory to be invoked frequently in subsequent cases. In the former case, Otter Trail, which was an integrated electric utility company attempted to prevent entry of distribution players in the business by refusing to sell or transmit wholesale power to them. Even though not specifically articulated in the EFD context, the court held the conduct unlawful because the '[u]se of monopoly power 'to destroy threatened competition' is a violation of the 'attempt to monopolise' clause of Section 2 of the Sherman Act' 38 and therefore paved way for broader understanding of EFD. Similarly in Aspen Highlands case, the court declared the refusal to access the three skiing mountains by the owners to the owner of a fourth mountain who wanted to offer a joint lift ticket in cooperation with the three, anticompetitive and therefore unlawful. 39 Interestingly, that even in Aspen Highlands, the court never explicitly mentioned EFD. On the contrary, it went to suggest that it was 'unnecessary to consider the possible relevance of the 'essential facilities' doctrine…' 40 This view is noteworthy for another reason-many firms engage in unilateral actions everyday, both to accept and refuse and there is no reason to believe that all such actions warrant similar judicial reactions. 41 Yet, the common binding factor is that of how refusing access to essential facility could result in potential anticompetitive effects. Scholars have located the doctrinal original in cases including this one and these precedents structure how judicial viewpoints are shaped in time. Therefore, which cases will strictly fall under EFD could be disputable. Werden 42 makes a logical categorization and other than Terminal Railroad and Otter Trail, suggests that two other major cases be considered under the category of strictly EFD: Gamco, Inc. v Providence Fruit and Produce Building, Inc. 43 and Hecht v Pro-Football, Inc. 44 but the latter deserves special mention because it was the first case to expressly use the term, 'essential facility doctrine.' In Hecht, a covenant prohibiting leasing the stadium to any other professional football team was challenged and the court opined, 'essential facility doctrine would also support an allegation that the Redskins' refusal to waive the restrictive covenant constituted illegal monopolization under section 2'. 45 The definitional impact of this judgement for EFD was also recognised by Sixth Circuit in 1979. 46 Perhaps the most significant case that rests entirely on EFD and proposes a systematic test to establish liability for the doctrine is the famous MCI case. 47 The case involved AT&T refusing access to its local Bell facilities to MCI, which the latter challenged. The court of appeals sustained the jury opinion that AT&T's action constituted violation of Section 2 of Sherman Act. The court stated that: the case law sets forth four elements necessary to establish liability under the essential facilities doctrine: (1) control of the essential facility by a monopolist; (2) a competitor's inability practically or reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility. 48 This four-part test was subsequently adopted by the court in Aspen Highlands case. 49 The doctrine has subsequently been extensively applied in cases involving 42 Gregory J Werden, 'The Law and Economics of the Essential Facility Doctrine ' (1987) 45 ibid 993. The court also mentioned before reaching the conclusion that: The essential facility doctrine, also called the 'bottleneck principle,' states that 'where facilities cannot practicably be duplicated by would-be competitors, those in possession of them must allow them to be shared on fair terms. It is illegal restraint of trade to foreclose the scarce facility.' This principle derives from [Terminal Railroad] and was recently reaffirmed in [Otter Tail]; the principle has regularly been invoked by the lower courts. (See ibid 992, footnotes omitted). 46 In dictum, the Sixth Circuit stated, 'There also exists a… line of cases which has been styled as promulgating the 'bottleneck theory of antitrust law.' Under this approach, a business or group of businesses which controls a scarce facility has an obligation to give competitors reasonable access to it. ' 51 However, recently, American jurisprudence in favor of EFD has suffered limiting checks, especially in appreciating the role of regulatory bodies to address the issue, and encouraging EFD only for those cases where regulation has not been able to settle points of contentions. Of particular importance is the famous Trinko 52 case. It was a class action suit brought against Verizon (local telephone monopolist), alleging antitrust violations since Verizon had not shared its network with rivals, even when this was mandated in Telecommunications Act 1996. 53 The court declined that there was an antitrust liability 54 while opining that the defendant had no general duty to deal with rivals with whom it did not have a prior course of dealing. 55 The court announced that the doctrine only 'crafted by some lower courts' 56 and that it had 'never recognized such a doctrine…and find no need either to recognize it or to repudiate it here'. 57 Post-Trinko era has been characterized by increasing scepticism of EFD, and only those cases have survived the EFD claims who have been operating in unregulated market. 58

Doctrine's Origin in Europe
EFD as it appeared in the US inspired many jurisdictions at multiple levels. Yet, since the doctrine expressly relies on its ability to read issues through competition law lens, there is a need to understand the legal framework that deals with competition law in US and Europe. Section 2 of the Sherman Act in US not only assumes the name of Section 82 of the European Commission (EC), but also differs markedly in spirit. 61 While Section 2 of the Sherman Act punishes willful acquisition or maintenance of monopoly power by the use of exclusionary conduct, 62 Article 82 EC prohibits abuse of dominant position by an undertaking in the common market. 63 In several ways, EC's approach is more sympathetic to the cause of EFD more than that of US.
It is important to note that the genesis of competition law in Europe reflected a desire to break down trade barriers and promote economic integration, in the hope that this would lead to a period of stability and peace in the post-war European environment. 64 That is why, the core objectives of Article 82 EC are to protect competition on the market as a means of enhancing consumer welfare, ensuring an efficient allocation of resources 65 and to ensure fairness and protect small and medium-sized firms. 66 Basic notions of fairness 67 and the idea that small and medium sized firms need protection feature more prominently under Article 82 EC than the equivalent provision in US, Section 2 of the Sherman Act. The origins of 'fairness' concerns under Article 82 EC reflect the impact of German ordoliberal thinking, 68 which attached importance to the notion that large firms should not unfairly limit their rivals' production and access to markets-on the initial drafting of Article 82 EC.  On the other hand, US antitrust law, which is much older, was borne of the desire to dismantle a number of cartels and conglomerates, or 'trusts' as they were known, that had come to dominate late 19th century economic life in the US, with adverse effects for consumers. Over a period of time, influenced by the vagaries of Great Depression, 70 post-war reconstruction efforts, 71 and academic writings, particularly of the Chicago School 72 informed the fundamental purpose of US antitrust law to protect the public from the failure of the market. As noted by the Supreme Court, 'the law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.' 73 American antitrust laws 'are for the benefit of competition, not competitors.' 74 This is precisely why Section 2 of the Sherman Act adopts a more minimalist, or less interventionist, approach to enforcement than Article 82 EC. Section 2 of the Sherman Act encourages a monopolist even, to compete aggressively on merits. 75 Even if such aggressive competition harms less efficient firms, it is the sort of competition that promotes the consumer interests that the Sherman Act aims to foster. 76 The underlying principle of US antitrust law is that striving for monopoly is an important element of the free-market system because it induces risk taking that produces innovation and economic growth. 77 The successful competitor, having been urged to compete, must not be turned upon when he wins. 78 In contrast, in Europe, dominant firms must be mindful of their rivals and not necessarily celebrate their successes in isolation. 79 Dominant undertakings have a 'special responsibility' not to allow its conduct to impair genuine undistorted competition on the common market. 80 It is easy to imagine from preceding discourse that the intervening doctrine of essential facility will find more conducive environment in Europe. This is indeed the case. The doctrine was openly introduced by the EC in early 1990s and has indirectly inspired the legislation concerning deregulation of traditional natural   monopolies. 81 A nontrivial scholarly literature emerged alongside 82 and only bolstered the existence of the doctrine in the EU. Like in the US, where judicial pronouncements decided the scope and institutional heaviness of the doctrine, in the EU, the Commission has developed an extensive case law referring to the doctrine expressly, and sometimes subtly.
The first case in which the principle was applied in 1974: Commercial Solvents Corp v Commission of the European Communities. 83 The judgement proposed that a dominant supplier of an input abused its dominant position when it refused to supply the input to a customer, the supplier's competitor in the downstream derivative market. B&I/Sealink 84 was one of the very first case in which the doctrine was explicitly applied. The case concerned Sealink as the owner of the port changed the timings in a way that its vessels obstructed B&Is loading procedure. A similar case was that of Sea Containers/Stena Sealink, 85 where the complainant was a new comer desiring entry into the market. The Commission granted interim measures in favour of the complainants in both cases. Up to this point, only a faint picture of 'essential facilities' could be drawn including any facility or infrastructure without access to which competitors could not provide services to their customers. There had to be some test to determine which facilities would be truly 'essential' or 'indispensable' rather than merely desirable. At the same time, the questions pertaining to actual access or sharing of facilities were also not yet answered. It was pertinent to decide whether the parties themselves or some authority, like the Commission, should dictate the terms of such an arrangement.
Other infrastructure related cases involve tunnels, 86 airports and ports. For instance, in London European/Sabena, 87 a Belgian firm was asked by the Commission to grant access to its computerized reservation systems to a British firm. In FAG-Flughafen Frankfurt/Main AG, 88  was also engaged in ground-handling services without allowing other companies to enter and compete. Notably, Commission's general attitude in this regard has not changed regardless of whether the defendant is a private party of public authoritysomething clear from the case of Port of Rødby 89 and that of ICG/CCI Morlaix (Port of Roscoff), 90 where the defendants were Danish government and Chamber of Commerce of Morlaix in Brittany.
European approach to EFD is most visibly pronounced in IPR related cases, and in particular by the famous Magill 91 case, which was not only affirmed by European Court of Justice (ECJ) but has generated a significant amount of scholarship. 92 The case investigated and confirmed that three broadcasters of television programs in their refusal to grant licenses to Mr. Magill for publication of their weekly listing by him were considered engaging into abusive and anticompetitive practices. IMS Health 93 case has also given rise to a heated debate. 94 It involved access of IMS Health's (a market research company) patented database structure (brick structure) to other firms on market research to produce a more competitive database. The court said that 'on the premise … that the use of the 1860 brick structure is indispensable to allow a potential competitor to have access to the market'. 95 Perhaps the most significant case in the segment of IPR is that of Microsoft. 96 After a lengthy investigation, in 2004, the EC issued its decision against Microsoft. The Commission identified two infringements of Article 82 EC: (a) refusal to supply interface information to competitors to achieve client-to-client and server-to-server interoperability and leveraging its dominant position in the PC-client operating system market into the market for work-group server operating system under Article The case of Bronner 97 reflects the shift in courts' priorities. It not only restricts the scope of the doctrine by limiting its usage in situations where owner has more than a dominant position but also imposes a forward looking test, thereby ascertaining whether refusal to deal will lead to monopolization in downstream market. 98 In a way therefore, this case represents a bridging effort of Section 82 of EC Treaty that talks of abuse of dominant position and Section 2 of Sherman Act in US which centralises monopolization in its context. 99 The case involved Austria's leading newspaper publishing company refusing to allow another newspaper its delivery services. In addition to addressing the issue on grounds that emerged from existing case laws, the court also held that it is important to observe the refusal is likely to eliminate all competition, and the service being indispensable (there is no actual or potential substitute for home-delivery scheme). 100 Overall, in a way, with Trinko and Bronner cases, the uncertainty in excavating reasonableness in potential EFD cases seems to have increased. It is in this light that the chapter proposes alternative theoretical benchmarks against which one can view the issues. But before that, it may be useful to highlight how EFD legislations and case law have impressed upon regulatory thought in few other jurisdictions.

Application of the Doctrine in IPR Cases: Comparing US and EU Approach
Because of the aggressive competition encouraged by US and the responsible competition standard adopted by Europe, they have been regarded as cowboy capitalists and gentlemen competitors respectively. 101 Close inspection of the legislative language itself surfaces their inherent subtle differences in approach. Section 2 of Sherman Act, courts have interpreted that monopolization requires (1) the willful acquisition or maintenance of monopoly power (2) by the use of exclusionary conduct. approach 104 while in US, any share less than 70% will make it highly unlikely to be appreciated as an antitrust case. Divergent treatment of tying by Microsoft exemplifies this amply. Even though the company had 90% market share and pure monopoly in operating system market, the appeals courts in US required that regardless of the market share, it should be evaluated under a rule of reason, whether there was actual proof of anticompetitive effects in the downstream browser markets. 105 The EC decision on contrast, considered the tie between operating system and downstream media player as outrightly unlawful without delving into excavating proof of impact on consumers. 106 The case laws will help us generalize this observation.
The earlier American approach in deciding the framework of EFD in IPR related cases, was derived in by precedents set by court of Appeals and three different circuits and had presumed the legality of refusal to license cases in nearly absolute terms. The first case in this regard was that of Data General, 107 which was a computer manufacturing company, and it declined to license copyrighted diagnostic software to independent service organizations that competed with it in maintenance and repair of its computers. Even though the First Circuit acknowledged that 'cases in which antitrust liability is unlikely to frustrate the objectives of the Copyright Act are certainly rare' 108 it suggested that this can happen only if there is enough evidence that monopolist had acquired IP protection unlawfully. This was not the case here and affirmed that 'author's right to exclude others from use of its copyrighted work is presumptively valid business justification.' 109 This judicial view was further reinforced by Ninth Circuit's case of Kodak, 110 in which the legality of refusal to license was extended to even patents, largely based on the fact that presumption of legality could be rebutted by evidence of anticompetitive intent on the part of IP holder who is refusing to license. 111 The Federal Circuit has crystallised this narrow view in form of a rule, in a case involving Xerox 112 that involved Xerox refusing to sell and license its protected replacement parts and software maintenance, driving the plaintiff out of the service market. The court held that a patent holder is free to exclude competition altogether in more than one antitrust market, absent exceptional circumstances. 113  The US therefore, appeared to grant immunity to firms refusing to license, in view of stronger support for rights-based-framework as deciding factor between justified and unjustified restraints of competition. 114 Such views, which favor one area of law (IPR) compared to another (competition) rest on assuming that relationship between IPR and competition law is conflicting-a myopic outlook for appreciating their complementary set up to promote innovation. 115 Although it appears that courts have generally been inclined to recognise the loss of incentives to innovate and invest rather than antitrust duty to license. 116 This need to ensure companies' IP incentives are not diluted was further observed by the Supreme Court in Trinko case. 117 The court argued that while invoking Sherman Act's Section 2 is plausible, but its applicability is limited by (a) enabling the firm to be free in using their property thereby incentivizing them to innovate, (b) court's ill-equipped competence to determine terms of dealing, and (c) possibility of collusion in compelled negotiation. 118 This judgement shows American legal system's inclination to tilt in favor of IP rights and its acceptance of certain degree of market power that could spur innovation. 119 There are good reasons to doubt these viewpoints and scholarly work has shown that innovation may actually be higher in competitive markets. 120 Regardless of the merits in arguments, the insulation of IPR against application of antitrust law in American judgements stifles EFD's fertility.
The European approach (driven by the Commission and ECJ) is fairly different from the American. 121 This has been mentioned in the preceding part of the chapter, but authors look at it more closely here. Even though considerations of long-term incentives and contractual freedom is espoused regularly, the imposition of duty to license that interferes with the IPR is common-giving it an IP-friendly color. Even though EFD principle has been implemented in judgements of European courts from 1988, a major thrust to evolving jurisprudence in this regard came in Magill case. 122 The three broadcasters of TV programs in Ireland used to provide their copyrighted program schedules to daily newspapers free of charge, but there was no comprehensive weekly listing guide. When Mr. Magill attempted to produce an Irish guide of all channels, he was refused the copyright license. He complained to the EC. The Commission considered it violating Article 86 of Rome Treaty, 123 and this view was endorsed by the ECJ, which stated, 'prevented the appearance of a new product, a comprehensive weekly guide to television programmes, which the appellants did not offer and for which there was a potential consumer demand.' 124 Further, it argued that the appellant had monopolized 'the secondary market of weekly television guides by excluding all competition in that market since they denied access to the basic information which is the raw material indispensable for the compilation of such a guide.' It explained why this case fits into the 'exceptional circumstances' where a refusal to license prevented the appearance of a new product. The reading of the case clearly depicts European approach to be far more considerate towards competition issues in comparison to its IPR counterparts.
Several uncertainties arising out of Magill case were put to an end in the next landmark judgement, IMS Health case. 125 It concerned a copyrighted '1860-brick-structure' for processing regional sales data becoming de facto industry standard in Germany. The copyright holder's refusal of the license, even though acknowledged as non-abusive in nature generally, was held to constitute as a violation of Article 82 EC. It laid out three cumulative conditions to be satisfied for refusal to license to constitute an abuse, namely (a) refusal must prevent emergence of new product for which there is a potential consumer demand, (b) it must be unjustified, and (c) it must exclude any competition on a secondary market. 126 In addition to offering legal certainty to gaps left unfilled from Magill case, the ECJ in this judgement, broadly interpreting Magill, also 'does away with leveraging of market power between two distinct markets as an independent form of abuse in cases involving IPRs.' 127 The attitude of Commission only resonates that of the judiciary, in its willingness to affirm a duty to license under Article 82 EC. Even though the Commission did not consider IMS Health case as that involving leveraging, it did so in the Microsoft case. 128 Moreover, it applied a new balancing test, comparing the possible negative impact that duty to license may have on right holder's incentives to innovate, and the positive impact of this duty on the level of innovation of the whole industry. 129 This reasoning is also reflected in Commission's Discussion Paper 130 on exclusionary abuses, which mentions that for refusal to license to be abusive, following conditions 131 have to be met: (a) there is a refusal to license (it also includes license with unreasonable terms, 132 or dilatory tactics by dominant firm 133 ), (b) right holder has a dominant position in the relevant (mostly upstream) market, (c) the IPR is indispensable, (d) there is likely market-distortionary foreclosure effect on downstream market, (e) no negative effects on long-run incentives to innovate, and (f) refusal to license prevents the emergence of a new product. Indeed, EC's decision in the Microsoft case 134 was to make available, on reasonable and non-discriminatory terms, proprietary information on certain Windows communication protocols since it refused to supply them to a rival, was not a surprise.
This suggests a very broad understanding of how EFD could be interpreted and incorporated into the legal thought process of the EC or judiciary. In their expansive approach, the Commission has relied on not just the precedence but adequate economic analysis to understand tension (if at all) between IPR and competition law, and sought to resolve it by means of sculpturing informed judgement on how to determine whether a specific case falls under the exceptional criteria. The interventionist approach of EC reflects its obsession with false negatives and more confident in predicting outcomes. On the other hand, US Supreme Court feels that 'cost of false positives counsels against an undue expansion of Section 2 liability.'

Application of the Doctrine in India
Interestingly, India witnesses application of EFD not through competition framework, but through intervention of sectoral regulatory institutions. And in post-Trinko era, having regulatory agencies manage the doctrine in their respective industries, is no unusual in the West either. 135 The regulatory agencies do possess superior competence and information over competition courts for managing complex access arrangements. 136 These sector regulators are intimately linked with infrastructure provisions, and therefore relate to physical assets more than non-tangible ones. Primary legislative frameworks in this regard are that of the Telecom Regulatory Authority of India Act (TRAI) 1997, the Electricity Act 2003 and the Petroleum and Natural Gas Regulatory Board Act (PNGRB) 2006. 137 Section 11(1) (c) and Section 11(1) (l) of the TRAI Act, mandate interconnection and technical compatibility between various service providers and maintain a register of such agreements. 138 Enacting the Telecommunication (Broadcasting and Cable Services) Interconnection Regulation 2004 where the arrangements to guide the interconnection and revenue share among service providers is enumerated, is a step in this direction. 139 In addition, TRAI has also enacted The Telecommunication Interconnection (Reference Interconnect Offer) Regulation 2002 which specified the terms and conditions on which interconnection of its network with that of other service providers seeking interconnection rests. In 2003, the Telecommunication Interconnection Usage Charges (IUC) Regulation was passed that encouraged regular consultation with stakeholders to preserve coherence in the interconnection regime was followed. 140 The Petroleum and Natural Gas Regulatory Board Act (PNGRB) 2006 Act exhibits the idea of essential facilities in the definition of 'common carrier' or 'contract carrier. Section 2(j) mentions that there is non-discriminatory open access given by the Board from time to time to pipelines for transportation of petroleum and related products. Section 2(m), which defines 'contract carrier' as 'such pipelines for transportation of petroleum, petroleum products and natural gas by more than one entity pursuant to firm contracts … as may be declared by the issued a draft regulation according to which, once an infrastructure is declared common user facility, it is compulsory for the body owning the capacity to share it with the other users. 142 The Electricity Act 2003 captures elements of EFD by defining what it terms, 'open access' (stated under Section 42(2) and 47(2) of the Act). 143 Open access implies non-discriminatory provision of distribution or transmission to any licensee, consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission. Further, the Act under Section 38(2)(d) directs the Central Transmission Utility to provide non-discriminatory access of transmission to the licensee or generating company on payment of transmission charges and to any consumer when open access is provided by State Commission. 144 A similar provision is made for the State Transmission Utility and Transmission Licensee under Section 39(2)(d) and 40(2)(d) respectively. 145 In the context of IPR, relevant statutory provision in Competition Act 2002 is 3 (5), which immunises those from competition law, who are protecting their IPR, as long as such protection is reasonable. 146 However, even though there is no suggestive list of what actions would be unreasonable, one can craftily interpret exclusive licensing or no licensing (given certain necessary conditions) as one of those actions. This was affirmed by the High Court of Delhi, in Gramophone Company of India Ltd. v Super Cassette Industries Ltd. 147 The Supreme Court, in Entertainment Network (India) Ltd. v Super Cassette Industries Ltd., 148 noted that even though the copyright owner has complete freedom to decide the licensing provisions, this right is not absolute and is subject to the compulsory licensing schemes. The Bayer v Natco case which involved first issuance of compulsory license in India is one major case that has potential to create strong precedent. The case law is rather scanty with little help to estimate the general ideological pattern that seems to be emerging in IP-competition law conflict. And perhaps more importantly, no case as yet has been filed with the Commission invoking EFD. While it appears that infrastructure provision has in spirit, captured the essence of EFD in India, there are inherent conflicts in this setting. Firstly, the impact has not been uniform. For instance, the said 'open access' in electricity has not translated facility sharing in reality for a variety of complex reasons. 149 Secondly, and at principle level, regulatory response is ex-ante as compared to intervention by competition authorities, which is usually ex-post in such cases. 150 The regulatory agencies aim to 'build' markets and the competition commissions are expected to 'repair' them. In countries like India, where concept of regulatory institutions is rather new (as imported from Washington Consensus) the need to repair is high because of fossilised structure of markets that has high likelihood of being anticompetitive and distortionary. Consider the pre-liberalization monopolists still seeking rent that began in the license raj. 151 Scholarly literature on regulatory institutions of Global South is emerging slowly, 152 and there is little doubt in the scepticism shared by scholars in its nascent position and modest success. 153 Ex-ante approaches should be preferred when old market structures are in sync with contemporary growth trajectory of the country-this is clearly not the case with India. After experimenting with first stage of reforms, 154 India is witnessing paradigm shifts in which interactions between state and the market are occurring. In such dynamic shifts, ex-ante regulation needs a very crucial support of ex post monitoring, and 'remedy' the fissures that surface in time. Competition authorities, by nature and definitional mandate, have been equipped to provide these very remedies.
Thirdly, there are significant overlaps between sector regulators and Competition authorities in India, and their resolution is important. 155 This was clear in a suit brought by Reliance Industries Ltd. to Competition Commission of India (CCI) for alleged cartel of its three competitors in supplying fuel to an airline. However, the defendants challenged the jurisdiction of CCI to deal with the matter, in Delhi High Court and argued that sector regulator was a more competent authority. The court passed an interim order in favour of the three companies' claim. 156 Similar treatment was suffered by CCI yet again in its case involving investigation of abuse of dominant position by three electricity companies when the state electricity regulatory commission intervened in the investigation claiming its sole jurisdiction to deal with these matters. 157 In the banking sector as well, Reserve Bank of India has argued that issues of mergers in banks should be kept outside the purview of CCI. 158 Even though the Competition Act 2002 encourages cooperation between sector regulators and CCI, particularly in Section 21 and 21 A, 159 little has been achieved on that front.
With regard to non-tangible products, which invokes EFD for IPR related competition issues, the framework is restricted squarely to the concepts of compulsory licensing. Even though the Patent Act 2005 possesses clauses in favor of compulsory licensing, it has only been used once for pharmaceutical products. 160 In terms of pharmaceutical innovation, India never needed compulsory licensing until WTO emerged, because Indian Patents Act 1970 follows a process patent system. Although law permitted process patents on medicines, 161 it was rarely sought and had limited scope. 162 This therefore gave rise to a number of local pharmaceutical firms increasing their share of the market. 163 Indian pharmaceutical firms became larger and more sophisticated. They employed reverse engineering methods to develop new processes for the drugs. Over the next three decades, Indian pharmaceutical industry became extremely competitive and diverse 164 and by 1990s, India started producing the most inexpensive medicines in the world. 165   from patent policy's perspective, access to medicines was not a concern 166meaning Patent Act 1970 has produced a favored system for access to medicine in India. 167 In 1995, WTO introduced TRIPS, setting up minimum standards of IP regulation, 168 specifying enforcement mechanisms, dispute resolution features and remedies. India opposed TRIPS initially, 169  Access to medicines has been a primary concern from the perspectives of affordability though, and largely so. India is overburdened by communicable and infectious diseases alongside an emerging epidemic of non-communicable diseases. But public health spending constitutes around 0.9% of Gross Domestic Product. Government expenditure of health in India is 17.9% of the total health expenditure and remaining 82. capabilities; and the grounds on which a general compulsory license can be requested by an interested person after the expiry of three years from the granting of a patent are: (a) the reasonable requirements of the public have not been satisfied; (b) the patented invention is not available to the public at a reasonably affordable price; or (c) the invention is not worked in the territory of India. 172 However, in the last eight years after the enactment of the law, barely any legislation has emerged in this regard. The only case, which has been very popular, is that of Natco v Bayer, decided in 2012 which raised significant reactions. 173 Yet, given how multinational companies are engaging vigorously in making generic drugs and entering into strategic alliance with Indian companies, it is difficult to say with certainty how the judgement will impact the general application of principle of EFD in IPR in India. 174 Until date, there has not been a single competition law case that has invoked the principle of EFD. 175 Yet, the legislative framework on which competition authority is built provides sufficient possibilities for EFD to be explored. For instance, Section 4(c) of the Competition Act 2002, which asserts that denial of market access to others by a dominant player would be an abuse of dominant position, furnishes a fertile platform to invoke EFD. More precisely, Section 4(2)(e) of the Competition Act 2002 176 in India stipulates that an enterprise shall be considered to 172 Indian Patents Act 2005, ss 84, 87, 92, 92A. See also s 107A, which is also known as Bolar exception rule, which permits activities for the development of information required by the authorities for approval of a generic version of a patented medicine. It is noticed that not all the activities of the private bodies are subject to private law, e.g., the activities by private bodies may be governed by the standards of public when its decisions are subject to duties conferred by statute or when by virtue of the function it is performing or possible its dominant position in the market, it is under an implied duty to act in the public interest (emphasis added)….
Further, the court asserted that any private company in India that is controlling infrastructure facility through concession agreement as awarded by the government will be considered as performing a public function and thus is expected to act in public interest. If the company refuses to deal with any competitor then it would be under judicial scrutiny for performing an arbitrary action of a body discharging public functions. 176 The Competition Act 2002 (n 12).
have abused its dominant position if it uses its dominant position in one market to enter another market. Under the EC Treaty, Section 82 may involve markets where there is no dominant company, 177 and 'leveraging' may occur when a monopolist uses power in one market to induce or foreclose sales in another market and thereby monopolise both. 178 Leveraging is a label for various types of conduct that have in common the feature that they involve a firm that is active in two or more related markets. 179 A monopolistic firm may assert or 'leverage' its power to extend its monopoly to other markets and thereby increase the social harm caused by the initial monopoly. 180 In the Microsoft case, leveraging was read into both infringements, regarding refusal to supply interoperability information under Article 82(b) EC and tying of Windows and Windows Media Player under Article 82(d) EC.
Leveraging, even though characterised by specificities and not universally anticompetitive, 181 affords very powerful way to justify application of EFD.
The CCI can make creative use of few other clauses to rest its case on EFD principles. Section 18 provides for duty of the Commission to 'eliminate practices having adverse effect on competition' and it should be construed broadly. Article 19 (3) and 19 (4) allow Commission to have regard with several factors that may potentially threaten competition viz. barriers to new entrants, vertical integration of the enterprise, etc. The Commission also has the liberty to make new regulations, which could be done to conceptualise and produce a statutory understanding of EFD. There is a need to distinguish pro-competitive and anticompetitive leveraging. A firm indulging in activities in several markets would constantly leverage. Not all leveraging conduct is violative of competition law. For example, economies of scope-where it is cheaper to produce the two products together than to make each separately-are an example of legitimate leveraging. See Donoghue and Padilla (n 61) 208. The traditional belief that a firm with a monopoly in one market always an incentive to extend that monopoly to a market for a complementary product, and thereby get two monopoly profits instead of one has been positively influenced by the Chicago School's 'single monopoly profit theorem', according to which, a monopoly can choose to exercise its power in other markets or can link markets, but in doing so it does not earn more than one monopoly profit, it does not gain monopoly power over additional markets, and it does not increase the harm caused to the society (see ibid). But recent developments rearticulate the design of leveraging and proposed that it was possible to develop models in which leveraging behaviour could be shown to harm consumer welfare (Donoghue and Padilla (n 61) 179).

Why should Indian Practice be Sympathetic to a Liberal Interpretation of EFD
There are several compelling reasons that warrant the Indian law on refusal to deal to be modeled on the lines of European law. In fact, a plain reading of Article 82(b) EC and Section 4(2)(b) of the Competition Act 2002 (which are the provisions relating to refusal to deal), bring to notice the stark similarities in the language of the provisions. A basic objective of Article 82 EC is to ensure fairness and protect small and medium-sized firms. For instance, rules relating to predatory pricing were justified on the basis that, below-cost prices could drive away undertakings as efficient as dominant firms but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them. 182 Several prominent members who laid the foundation for the European Community belonged to the ordoliberal school of thought, which believed that collaboration between the Nazi regime and several private cartels led to the disintegration of Germany. 183 They believed that social welfare was achievable only through an economic order based on competition, where law would have the specific role of creating and maintaining the conditions under which competition could function properly. Ordoliberal thinking 184 on the goal of competition law was based on notions of 'fairness' and that firm with market power should behave 'as if' there was effective competition. Dominant firms were commercially free to compete on the merits. But small and medium-sized enterprises were important to consumer welfare and should receive some protection. Such an objective is consistent with the Indian policies. The Indian Micro, Small and Medium Enterprises Development Act has been enacted 'to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises.' 185 The number of micro, small and medium enterprises in India is estimated to be around 361 lakh, which contribute about 37.5% to GDP, over 40% to the manufacturing output and around 40% to the national exports. 186 Thus a competition policy in India will have to protect and foster the small and medium enterprises and not stifle their growth. This part will develop a theoretical framework, in order to explain why countries like India are in need to following EU approach towards EFD. Refusal to license cases could be costlier for India (and other developing nations), where IPR regime is weak, and incurs high transaction costs. Following part shows that EFD is a liability regime, compared to the property regime of voluntary licensing, and compare the two regimes from transaction costs perspective. From theories of bargaining power, it is clear that refusal to license is a result of high transaction costs. Further, chapter also shows, through nontrivial empirical work that refusal to license results from weak IPR regime of the society. This way, authors connect weakness of IPR regime with high transaction cost, and because liability rules are suitable for societies with high transaction costs, there is merit in appreciating the value of EFD in those societies. India is one such society, given the weakness of its IPR regime. Through such analytical framework, this chapter builds a powerful tool of transaction costs as a determinant of deciding, which judicial direction should be taken as regards EFD.

The Property-Liability Framework as Explained Through Transaction Costs
An interesting theoretical treatment of 'need for EFD' can be developed from property-liability dichotomy. 187 The elegant difference between property rules and liability rules was set in the analytical manner in Calabresi-Melamed's seminal paper published in 1972. 188 This was an interesting and convincing analytical tool stimulating scholars in various disciplines-most notably in law and economicsto cross-navigate beyond established terminology to appreciate functional and formal differences/congruence between two different areas of law-property and liability. 189 The property-liability rule framework has inspired a range of scholarship in issues related to legal protection of information goods, 190  extremely useful in understanding copyright collectives, 191 determining appropriate protection of incentives to innovate 192 and explaining relationship between several property, including IP regimes. 193 Calabresi-Melamed's work differentiates property and liability approach to entitlement in a fairly neat way: An entitlement is protected by a property rule to the extent that someone who wishes to remove the entitlement from its holder must buy it from him in a voluntary transaction in which the value of the entitlement is agreed upon by the seller. It is the form of entitlement which gives rise to the least amount of state intervention: once the original entitlement is decided upon, the state does not try to decide its value. It lets each of the parties say how much the entitlement is worth to him, and gives the seller a veto if the buyer does not offer enough… Whenever someone may destroy the initial entitlement if he is willing to pay an objectively determined value for it, an entitlement is protected by a liability rule… Obviously, liability rules involve an additional stage of state intervention: not only are entitlements protected, but their transfer or destruction is allowed on the basis of a value determined by some organ of the state rather than by the parties themselves. 194 Hence, a property rule is a legal entitlement that can be bought only after bargaining with the entitlement holder and the price for the transaction is mutually decided by the buyer (holder) and seller of the right. Under a liability rule on the other hand, a tribunal (third party) will determine the appropriate compensation in an ex-post proceeding.
But how does one choose which rule to be employed. Their paper establishes that transaction cost 195 is the primary determinant of that choice. Whenever market transaction costs are low, property rules are preferred; while liability rules are favoured when the transaction costs are high. 196 This is easy to understand. Whether parties can negotiate for the transaction of the right is a direct function of how costly the bargaining process is. In other words, transaction costs will determine whether price discovery will be a result of negotiation or a third party will impose prices it has determined on the basis of (so-called) objective criteria. The doctrine asserts that low transaction costs favour negotiation and reaching a Coasian bargain, 197 while high transaction costs will impede any such solution to be achieved. 198 Therefore in case of high transaction costs, parties will not be able to come to a mutually agreeable solution, and hence the need of a third party (tribunal or any government institution) which can declare the damage quantum and ensure the same. Low transaction costs facilitate negotiation and adjustments, so there is no need of a third party to enforce a bargain. The parties themselves can contract mutually. However, when institutional design of voluntary negotiation is ineffective due to high transaction costs, liability rule (third party enforcement) suits best. Low transaction costs would imply that (a) parties to a transaction are easily identifiable to each other, (b) there is no significant difference in bargaining power between the parties so negotiations could conclude favorably, and (c) a third party setting the terms of the exchange would have a difficult time doing so quickly and cheaply, given the specialized nature of the assets and the varied and complex business environments in which the assets are deployed. 199 This approach generally builds the argument that property rules are better suited to protect IP as opposed to liability rules in case of low transaction cost. Liability rules always come with an efficiency loss and their application in presence of low transaction costs does not make sense since the objective can be achieved at a lesser cost. One can imagine such efficiency losses in costs imposed by incomplete information of the third party, inefficient fixation of price, diminished utility of the parties, procedural delays and constraints, administrative expenses, flaws in institutional design, generation of perverse incentives, possibilities of errors, political economy factors, psychological costs or perhaps, the transaction not taking place at all (which happens to be the case many a times). On the other hand, in presence of high transaction costs, liability rules are employed to avoid the danger of adopting a suboptimal solution, a result that flows naturally if Coase theorem is modified and viewed from a non-zero transaction cost perspective. 200 The cost of incorporating liability rule in a property rule set-up is offset by the exercise of the transaction, which should yield a higher optimal outcome.
An EFD framework kicks in, when one of the parties has to be forced to offer access to its facility/facilities. This can be viewed as a standard application of liability rule approach to have a property transaction be concluded. Indeed, if the owner of a facility is principally free to decide who to contract with and who to avoid in sharing the facility, an enforced obligation by either the regulatory 197 Coase in his seminal article suggested that if initial entitlements are clear, they do not matter in absence of transaction costs. Efficient solution will always be reached no matter who has the entitlement. This is famously called Coase Theorem. He proposed that if transaction costs are negligible, parties can effectively negotiate and contract to buy the right. Whoever values it more will get it, and that in fact is efficient solution. See Ronald Coase, 'The Problem of Social Cost' (1960) 3 Journal of Law and Economics 1. institutions or competition courts, is imposing liability rule. From theoretical treatment of property-liability framework flowing from Calabresi-Melamed's paper, it is easy to view EFD from the lens of transaction costs.
EFD therefore portrays liability framework because the rights holders are protected by a 'liability rule' (royalty set by the government) instead of a 'property rule' (receipt of an injunction with the rights holder then negotiating the price out with potential buyers). 201 Hence, while EFD stands as a true liability rule, property rule is invoked whenever licenses are given on voluntary basis. From purely legal standpoint, the significant leap that this framework achieves is an alternative view of EFD, justified by theoretical considerations and providing a technical impetus towards sustained usage of the doctrine.

Refusal to License and Transaction Costs: View from Bargaining Power Differences
Careful examination of the scope, complexity and quantum of individual transactions involved makes it easier to believe that indeed, transaction costs are very important. These transaction costs rests not necessarily on the ability to identify who owns the property, or on the synchronization of their willingness to pay and accept, but on the difference in bargaining power between the contracting parties.
To elaborate on this, authors rely on simple economic framework of bargaining power. Consider a bargaining space in Cartesian coordinate framework as illustrated in Fig. 1, as simple representation of bargaining space. 202 A and B are two players who have their respective reserve levels in the absence of reaching any agreement (or concluding a bargaining process successfully). These reserve levels can be considered as initial endowments. The X-axis shows the utility that B receives in executing the agreement and Y-axis refers to utility of A-this also shows preference orders of both parties-A wants the agreement to be reached as high up along Y-axis, while B would like to stretch bargaining to take the agreement as far along X-axis.
The circle shows all possible sets of outcomes possible. But the bargaining can happen only in the zone of possible alternatives where players are better off in reaching an agreement than without it. This space in Fig. 1  bargaining solution (NBS) in the figure is also shown, which is a Pareto efficient solution to this problem. 203 Bargaining power also stems from events outside the bargaining process. This is the concept of outside options in a bargain. 204 Outside options are those events that may affect the player's behaviour towards bargaining process. Mathematical models are shown in which actors restrict the bargaining space in their favor by eliminating some unfavourable outcomes as principally unacceptable. 205 A new outside option tends to increase the non-agreement value for one player, and this player achieves a higher bargaining power during the transaction. The outside options increase reserve utility or initial endowment of the player. This pattern is easy to visualise from Fig. 2, where the new NBS has shifted to the right, in favor of B, because B's initial endowment increased. If the reserve levels increase further, they can actually fall outside the bargaining space, meaning player B will not engage into the bargaining process at all, since payoffs in no-agreement are higher for her, compared to the payoffs in any agreeable situation.
This is exactly what happens in a situation where EFD comes into picture. The transaction costs of engaging into bargaining are so high that property rule approach ceases to act. Liability rule takes over, and solutions are sought after a third party's intervention. Even though the owner of the facility can take license fee for access to its facility to another party, the total surplus it can gain by retaining/capturing its dominant position in the market is much larger than the revenues accrued from licensing fee. This is indeed, a social loss. The solution therefore comes in the form of an involuntary contract enforced by a third party, invoking EFD. The government authorises itself to allow other parties to use the facility, without the voluntary consent of the owner of the facility, and sets out to dictate licensing agreements and fees. In these cases, the public interest in broader access to the invention is Fig. 2 Outside option shifts bargaining solution in favour of the player, which has increased initial endowment/reserve level considered more important than the private interest of the right holder to fully exploit his exclusive rights. 206 The preceding discussion helps us imagine refusal to license as an act of a party, which has very high bargaining power, relative to the other party. If the difference in bargaining power of randomly selected transacting parties in a society is fairly high, it can be understood to be reflective of high transaction costs of the society. 207 This is evident in say, feudal or rural societies where the difference in bargaining power forces non-elites to be evicted from the market and transactions between elites and non-elites become unaffordable for the non-elites. 208 In similar vein, the structure of transaction costs can be understood from how a large difference in bargaining power exists between transacting parties. In other words, bargaining power differences act as a robust proxy for how high transaction costs are, in a society.

Strength of IPR Regime as Explained through
Occurrence of Refusal to License If IPR regimes are strong-respect for property rights is high, identification of right holder and contours of rights is clear, uncertainties and bargaining costs are low, enforcement is high and there is emphasis on incentives to innovate over access, there is low likelihood that licenses will be reduced. This is simply because as long as willingness to pay is higher than willingness to accept, the trade will happen, and there are no intervening factors that can thwart it. All intervening factors for transaction to be successful-in strong IPR structures-favour the transaction, keeping the costs low. On the other hand, weak IPR regimes are characterised by under-enforcement, blurred and uncertain scope of rights, impetus on access rather than innovation, thinly designed institutions, lack of political will to make IPR stronger and high bargaining costs (which leads to stealth and piracy). In such societies, licensing will be difficult to achieve due to prevalent uncertainty and nebulous character of how rights are drawn. People have incentives to simply get around the system rather than engaging into negotiation. Intuitively also, it is not difficult to understand why licensing thrives in strong IP regimes. 210 Since stealing is cheaper, and observing infringement is costly, it builds incentives to refuse license. In extreme situations, it leads to situations that invoke EFD.
There have been several studies taking different approaches but arriving at the same conclusions. In 1984, Farok Contractor attempted to correlate patent protection and licensing using cross-sectional data, which explained the determinants of the ratio of receipts in the US of royalties and licensing fees from unaffiliated sources to various measures of direct investment activity. 211 The study defined patent intensity of a nation by flows of new patents in force. Technology transfer on the other hand was used as proxy for licensing. The study found that patent intensity did attract licensing. The argument behind this observation is that patent protection increases the income extractable from licensing. In another well-cited study, Edwin Mansfield established 212 that multinationals are less likely to engage in technology transfer (licensing) with firms of countries where IP protection is weak. 213 In yet another study, Pamela Smith infers 214 that the effect of stronger 210 For an elaborate theoretical discussion that started very early on, see Nancy T Gallini, 'Patent Policy and Costly Imitation ' (1984)  IPRs on international licensing depends on the imitative capabilities of host countries, by drawing on cross-sectional data on US multinationals' licensing activities in 50 countries. 215 Even after extending the scope and methodology, it is found that strong patent rights and licensing activities are positively correlated. Yang and Maskus extended the analysis of US foreign licensing to a panel data set covering three time periods (1985, 1990 and 1995) and 23 partner countries, of which approximately ten are emerging market economies. They found that countries with stronger patent rights attract larger volumes of licensed technology. 216 More recently, Michael Nicholson finds that R&D intensive firms are more apt to license when patent protection is strong. 217 His approach-which involved cross-sectional empirical analysis and it pools together data for 1995 from 49 destination countries and 82 industries-was to focus on count data rather than value data.
While previous studies were using Bureau of Economic Analysis aggregated industry or national level data, Branstetter and others conducted a study using Bureau of Economic Analysis micro-data. A key finding was that IPR reformssignifying strength of patent protection-stimulate US firms to license abroad to affiliated parties. 218 Anand and Khanna attempted to explore how much is licensing dependent on IPR protection levels. The study employed data on international licensing contracts from the Joint Ventures and Strategic Alliances database of the Securities Data Company, 219 and founds that while in some sectors (semiconductor), the dependence is low, but in many others (pharmaceutical and chemical, for instance), IPR levels significantly determine activity in licensing. 220 215 In situations where imitative risk is low, stronger IPRs serve primarily to raise rents to rights holders. In countries where imitative capabilities are high, stronger patent rights stimulate licensing to unaffiliated foreign firms.

216
A research conducted by OECD, 221 deserves our special attention because of its elaborate methodology, recent nature and effectiveness of control variables. 222 This study considered the relationship between strengthening of IPR and licensing activities, particularly in 1990s, in developing countries. It employed a regression analysis to draw on an international data set to consider the relationship over time between changes in the host-country patent regime and changes in the number of licensing transactions between developed and developing countries. The strength of IPR was measured by different IP index, like patent rights, 223 copyrights 224 and trademarks, 225 and finally the fourth index examines enforcement effectiveness. 226 The study finds general support for the proposition that strengthening of IPRs has a net positive effect on technology transfer via licensing. It is interesting to note that licensing fees and royalties were found to vary positively with stronger patent rights and effectiveness of the enforcement. 227

Connecting the Variables
The three analytical statements are: (a) Liability rules are favored in high transaction cost scenario (and low transaction costs are fertile for property rule approach) (b) High transaction costs (emerging from difference in bargaining power) lead to refusal to license, (c) Refusal to license reflects weak IPR regimes Therefore, as a corollary, it follows that (d) Weak IPR regimes need to adopt liability rules.
This forms the central message of our theoretical treatment. With considerations made in the analysis-which reasonably elaborate on underlying principles-this framework has potential to aid to the existing discourse by adding new dimension to the debate. Once EFD is understood as a liability approach, a country's IPR strength can be investigated and performance to devise a general approach towards EFD, and varying the narrowness in which EFD clauses can be interpreted both at judiciary and executive level.

Why is Indian IPR Regime Weak?
From historical standpoint, Indian intellectual tradition has been fairly open in terms of access. 228 The concepts of IP emerged only during colonial rule, and even today, legislative construction has been largely modeled on British statutes. In fact, the emergence of IP globally has been considered purely a European idea, emerging in seventeenth century, strengthening through late nineteenth and twentieth century aided by American impetus, and being transported to non-Western nations through international treaties. 229 The Indian copyright law closely parallels the development of the same law in England. The Copyright Act 1914 of India was basically, an extension of British Copyright Act 1911; just like the present Copyright Act 1957 is borrowed extensively from Copyright Act of the United Kingdom of 1956. 230 This gives it a de jure color of copyright protection, but a de facto culture of fearless infringement. According to studies commissioned by Motion Picture Distributors' Association (local office of Hollywood's Motion Picture Association), India tops the chart for maximum film piracy in English-speaking world. 231 In 2012, the US Trade Representative's highest Priority Watch List had figures India amongst thirteen 228 There were restrictions based on caste. But that does not affect our analysis here, since the focus is not on reach of access but how is access provided.  The latest amendment was done in 2012, which even though attempts to curb piracy strongly, is still embedded in the existing structure. countries with huge online piracy. 232 It continues to remain so. 233 Story of trademarks is also similar, with huge counterfeit market of goods emerging in India even though two experiments with re-institutionalizing the relevant statutory laws. 234 In fact, earlier studies indicate similar pattern-study sponsored by Ministry of Human Resource and Development of Indian government, copyright piracy has been noted to be significantly high. 235 Socially, this is catapulted from very high levels of poverty and affordability issues. In fact, a strict enforcement of copyright will evict substantial amount of population from accessing copyrighted material and therefore political will to curb infringement is rather low-contextually reasonable. And hence, it is not surprising that through efforts of India, which led the developing nations to adopt Stockholm Protocol of 1967 that enables developing countries to adopt greater access for copyright materials; the Protocol's adoption created a crisis in international copyright. 236 In its own legislation, India has exempted significant number of uses of copyright material exempted from infringement. 237 The wide interpretation of this fair dealing clause as illustrated in the Act itself gives considerable latitude for accessing copyrighted material without payment. In fact, Consumer International rated Indian Copyright Act 1957 at top position (2009 and 2010) in terms of enabling access to knowledge. 238 Evolution of patent laws is not very different, principally. Pharmaceutical patents were first introduced by the British in 1856. 239  The Hindu BusinessLine (New Delhi, 11 January 2017) <http://www.thehindubusinessline.com/ economy/india-likely-to-remain-under-priority-watch-list-in-us-ipr-report/article9474144.ece> accessed 28 September 2017. 234 The first statutory design was Trade Marks Act 1940, modeled on the UK Trade Marks Act 1938. With certain modifications, The Trade and Merchandise Marks Act, 1958 came into force, which was repealed by Trade Marks Act 1999. For newspaper coverage of recent trademark infringement <http://articles.economictimes.indiatimes.com/keyword/counterfeit-products> accessed 28 September 2017. 235 foreign firms (which controlled 70% of Indian market), 240 and high drug prices. 241 The realization came in 1970, when India enacted Indian Patents Act 1970, that prohibited product patent on medicines. This Act has acted as the main thrust to India's pharmaceutical industry, 242 leading to steep fall in number of patents granted. 243 Although law permitted process patents on medicines, 244 it was rarely sought and had limited scope. 245 This therefore gave rise to a number of local pharmaceutical firms increasing their share of the market. 246 Indian firms employed reverse engineering and developed new processes for the drugs. Over the next three decades, Indian pharmaceutical industry became extremely competitive and diverse 247 and by 1990s, India started producing the most inexpensive medicines in the world. 248 The situation changed after TRIPS to which India opposed initially, 249 but finally acceded. However, it incorporated several flexibilities that the TRIPS allow, notably that of compulsory licensing. Overall, India is labeled 'pharmacy of the developing world' 250 due to its extremely access-friendly patent laws rather than rights-friendly structure. Even though the Patents (Amendment) Act 2005, being TRIPS-complied, has stricter provisions for rights, the reality has not changed 240 significantly. Indian law per se does not allow patents for softwares (it has copyright for softwares) and business methods. Until 2008, merely 22 cases in Supreme Court and High Courts in India dealt with the important issue of revocation of patents (Section 64)-showing not only dismal awareness and litigiousness of IPR cases, 251 but also highlights that the general framework indicates weakness of IPR regime.
WIPO's Global Innovation Index Ranking 2017 places India at 60th position, below several East European and Middle East nations. 252 That this may be a result of weak IPR regime needs further qualification, but if standard theory is correct, there is definitely some correlation. Scholars have constructed an index of patent rights and have shown that the index is highly correlated with per capita GDP, accordingly Global North (producers of innovation) typically provide stronger patent protection than their counterparts in the Global South (consumers of innovation). 253 India, which clearly falls under the 'consumers of innovation' category, makes it abundantly evident that it is characterised by weak IPR regime.

Therefore, India needs EFD Expansively
The above finding, when placed in our analytical skeleton of viewing EFD through transaction cost network, reaffirms the view that India requires a proactive approach towards EFD. Since weak IPR regimes require liability approach, and India's IP regime is indeed weak, there is compelling reason that it adopts an extensive manner to interpret EFD through competition authorities. Since regulatory agencies assume the responsibility to police firms in their jurisdiction to ensure that facilities, which are essential, not be refused to share, given certain conditions, there is a need for such regulatory agency in the domain of IPR as well. IPR has significant spillover effects due to its-basically-a public good nature. And it has dramatic consequence for shaping the contours of competition in a relevant market. In fact it is surprising to imagine that competition authority has not been able to realise its true role and potential, in perhaps the same way as it has been done by regulatory agencies of network goods in infrastructure. Given the theoretical framework developed in this chapter, there is no need for CCI to be painfully cautious in engaging with market players who seem to advocate their rights to IP trumping everything else. At multiple levels, the CCI needs to be proactive in an evolving competition law regime, and developing oversight to an important area of EFD will create poor precedents for future. In certain ways, the chapter's contribution is straightforward. Given the characteristic of the doctrine being heavily inspired from case laws across US and EU, there is a considerable lesson that can be drawn by studying how the case laws evolved and what are the pivots of differences between diverse approaches adopted by US and EU. Once the case laws are distilled over time, it becomes easy to observe the legislative designs in light of case laws as they gave emerged. This gives us a clue towards generalizing framework of approach in India. The real lacuna where academic intervention is sought remains in the IP driven model of EFD. This is modeled through the property-liability conceptualization. Authors borrow from the concept of bargaining cost, the tool of transaction costs and positioning it-as it has been in the Calabresi and Melamed's paper-within the property-liability framework. The idea of bargaining power helps us develop the tool of transaction costs which can squarely suit the purpose of EFD. The authors conclude that for countries where strength of IPR is low, the doctrine needs broader interpretation. This is true for India, and is easily transportable to other developing nations.
The chapter in no way makes an argument towards completeness of the model, in explaining factors on which characteristics of EFD depends. Indeed, a host of other factors determine the doctrine, including royalty fee, duration, scope, legal framework, international obligation, expected hit in FDI, market potential, public funds towards innovation and the like. The chapter attempts to create a discourse on one of the fundamental grounds of EFD, namely the transaction costs and issue of public interest. This alone has several important principles endogenised. More importantly, there is a general policy principle flowing from the analysis, which calls for attuning liberty in EFD with the strength of the IPR framework of the country. For instance, if the property rights are strong, it calls for a conservative and narrow interpretation of the doctrine, perhaps as is the case in US.
In addition, like any analytical framework, our methodology does come with its inherent limitations. The model crucially rests on property-liability framework elucidated in Calabresi and Melamed's paper. That model, in turn, pivots on transaction cost economics. Considerable work has been done since then in categorization, structural layering and re-inventing the concepts of transaction costs. The contextual application of transaction cost economics is, while very important, our model does depend largely on the value of the transaction costs. These values are difficult to collate, and hence most studies do not go deeper into classifications of transaction costs. It does merit the question of what happens if the transaction costs vary greatly in a country from across regulations affecting the same industry. In addition, although extremely comprehensive, existence of only two categorieslow and high transaction costs-obscures subtle nuances in mid-level transaction costs. This however, could be an interesting territory lying unchartered, which could further aid to the development of this scholarship.
The principle does not imply that courts should take into account the IPR strength and weakness of a society before adjudicating on an issue of refusal to license. However, it assumes a twofold role: firstly, a conciliatory role, where scholars and society becomes sympathetic towards a judgement that invoked the doctrine in a competition law case favoring the plaintiff; and secondly, a predictor role, where the doctrine's application could be expected in societies where strength of IPR is rather low. In this way, the chapter proposes guiding principle to decide which side of policy outcome, should the policy maker tilt her options, using the legal tool of EFD.
Acknowledgements Authors would like to thank Pradeep Mehta, Ajay Pandey, Tobias Hlobil, Hans-Bernd Schäfer, Louis Visscher, Thomas Eger, Giuseppina D'Agostino, Gertrui van Overwalle and PG Babu for insightful discussions on the idea that developed the framework of the chapter. Excellent research assistance of Titiksha Mohanty, Sree Ramya Hari and Durga Agarwal is immensely appreciated. All errors and omissions remain authors' alone.
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