Using competition policy to mitigate the impact of patent protection Advancing public health by other means: Using competition policy to mitigate the impact of patent protection Jonathan Berger Head: Law & Treatment Access Unit AIDS Law Project Centre for Applied Legal Studies University of the Witwatersrand ICTSD/UNCTAD Regional Dialogue on IPRs, Innovation and Sustainable Development Cape Town: 29 June – 1 July 2004 8 December 2018

Overview of the presentation Context and purpose of the paper The TRIPS framework Relevance of developed country experience Regulatory mechanisms to promote public health Limitations of using competition policy in the developing world The South African experience Concluding remarks

Context and purpose of the paper Debate post Doha Declaration TRIPS provides significant flexibility to deal with “anti-competitive practices” Purpose Role of competition policy in advancing public health Particular focus on how and when competition policy can be used to increase access to essential medicines Based on assumption that developing countries can and should take measures to limit the potentially negative implications of IP protection

Overview of the presentation Context and purpose of the paper The TRIPS framework Relevance of developed country experience Regulatory mechanisms to promote public health Limitations of using competition policy in the developing world The South African experience Concluding remarks

The TRIPS framework Why focus on TRIPS? Which provisions? Imposes certain limits on use of competition policy Provides some guidance on IP/competition policy interface Only framework that legally binds Southern African countries for now Which provisions? Art. 1.1 – method of implementation Art. 8.2 – steps to address “unwanted outcomes” Art. 31(c) and (k) – patents and compulsory licences Art. 40 – anti-competitive “contractual licences”

Overview of the presentation Context and purpose of the paper The TRIPS framework Relevance of developed country experience Regulatory mechanisms to promote public health Limitations of using competition policy in the developing world The South African experience Concluding remarks

Relevance of developed country experience General position “Competition policies … generally take a favourable attitude to intellectual property rights” BUT, important differences regarding specific issues Scope of “essential facilities” doctrine Forms of abuse of dominance prohibited Relevance for developing countries Developed world approach informed by – TRIPS+ IP protection More tolerant to conduct that we may regard as abusive No single approach to some key issues

Overview of the presentation Context and purpose of the paper The TRIPS framework Relevance of developed country experience Regulatory mechanisms to promote public health Limitations of using competition policy in the developing world The South African experience Concluding remarks

Regulatory mechanisms to promote public health: approach Exercise of IPRs cannot in and of itself provide basis for using competition policy Freedom to determine grounds for issuing CL not a reason for broad definition of “anti-competitive” When no abuse or problematic conduct, invoke government-use and standard IP instruments Competition policy inappropriate vehicle where conduct not problematic (or potentially problematic) Use competition policy only to – Increase access where unfairly or unjustifiably limited Maintain access where already exists

Regulatory mechanisms to promote public health: overview Three main competition policy instruments Abuse of market dominance Excessive pricing Predatory pricing Refusal to license Regulation of licensing Merger control Focus on abuse of dominance and licensing Merger jurisprudence generally well-established As mergers difficult to undo, generally regulate upfront

Abuse of market dominance IPRs do not necessarily confer dominance BUT, in certain circumstances, existence is sufficient Guidelines needed to help in determining whether IP protection contributes to or creates dominance Get the definitions right Market definition Extent of market share for deemed dominance Focus on unfair advantage of dominance More than mere assertion of exclusive rights Simple refusals to license not enough Higher prices than those of generic competitors not enough

Refusal to license: approach Not in and of itself abusive No developed country consensus EU: prevents market entry of innovative product for which there is consumer demand if – Not objectively justifiable Excludes competition in a “secondary market” US: freedom to choose whether to license Implications of divergence of opinion Take advantage of lack of consensus Protect against unintended consequences of ordinary exercise of exclusive rights in IP

Refusal to license: examples Benefit from inferior product by excluding prospective competitors with better product Refusal to license + failure to collaborate ARV FDCs such as Triomune (d4T/3TC/nevirapine) Hinder innovation by preventing market entry, undermining strongest rationale for IP protection Grant licence to one, refusing to license others License only one company to produce efavirenz ARV co-blisters such as Odivir (3TC + ddI + efavirenz) Unfair advantage in secondary market for 3TC and ddI

Refusal to license: comments How to frame the refusal to license Essential facilities doctrine? Exclusionary conduct? Refusal to deal in certain circumstances? Where to locate the refusal to license When exclusive rights holder benefits Abuse of dominance When excusive rights holder does not benefit Restrictive horizontal practices, with broad definition of “horizontal relationship”

Regulating IP licensing: approach Developed country experience EU – not every restraint of conduct is anti-competitive US – IP licensing is generally pro-competitive Possible developing country approach Licensing further limits – or has potential further to limit – existing access Consumers actually or potentially had greater access prior to licensing Licensing agreements that permit exclusive rights holders to extract more from some markets by “surrendering” others

Regulating IP licensing: example Patent holder charges excessive price State plans to issue CL for public and private sectors “Voluntary” licence granted instead Limited to public sector Licensee relinquishes right under patent law to seek CL for private sector Impact of licensing agreement No CLs issued by government Private sector prices remain excessive Generic competition in private sector thwarted

Regulating IP licensing: comments Counterproductive approach? Possibly prevent both public and private benefiting Only where state unwilling to use licensing powers or where third party CL provisions TRIPS+ Framing the licensing regulation Prior approval – similar to merger control Ex post facto – authority and/or third party challenges after the fact Hybrid approach Prohibit certain licensing practices No automatic prior approval Voluntary – but binding – prior approval process at instance and for account of licensor

Overview of the presentation Context and purpose of the paper The TRIPS framework Relevance of developed country experience Regulatory mechanisms to promote public health Limitations of using competition policy in the developing world The South African experience Concluding remarks

Limitations of using competition policy in the developing world Against Insufficient expertise or capacity Rather invest resources in patent system until required to have a competition law framework For Regulatory flexibility under TRIPS requires state or specific third party action – may not be forthcoming “Singapore issues” around the corner – Doha Development Round and/or regional/bilateral FTAs Compromise? No prior approval Enforced by third parties in ordinary civil courts

Overview of the presentation Context and purpose of the paper The TRIPS framework Relevance of developed country experience Regulatory mechanisms to promote public health Limitations of using competition policy in the developing world The South African experience Concluding remarks

The South African experience GlaxoSmithKline and Boehringer Ingelheim “engaged in excessive pricing of ARVs to the detriment of consumers” Conduct was “directly responsible for the premature, predictable and avoidable deaths of people living with HIV/AIDS, including both children and adults” In contravention of section 8(a) of the Competition Act, 89 of 1998

What had to be proved? Charging “a price for a good or service which – (aa) bears no reasonable relation to the economic value of that good or service; and (bb) is higher than the value … in (aa)” What makes up the economic value? Manufacturing costs R&D costs (where applicable) Licensing costs (where applicable) Reasonable profits Reasonable relation = balancing of rights

Learning from Hazel Tau: settlement Matter settled in December 2003 Avoids protracted Competition Tribunal public hearing into pricing practices Defers good/bad jurisprudence – complex legal issues remain unresolved Terms and conditions Excessive pricing complaint – licensing solution Limited number of licences, but includes key players Commitment to generic market entry includes FDCs Each new licence on terms and conditions no less favourable than most favourable

Learning from Hazel Tau: themes Civil society took the lead No government-issued licences under Patents Act Not even threats of issuing licences State willing to let civil society do its “dirty work” – speaks the speak, but does not translate talk into action Chilling effect of TRIPS+ third-party CL provisions Failure to implement Doha Declaration No CLs issued by courts on any patented products No applications for CLs by generic manufacturers of ARVs Need for regulatory reform Express CL remedy for excessive pricing Publish guidelines on Commission’s policy approach

Overview of the presentation Context and purpose of the paper The TRIPS framework Relevance of developed country experience Regulatory mechanisms to promote public health Limitations of using competition policy in the developing world The South African experience Concluding remarks

Concluding remarks Competition policy can play an important role in advancing public health Increase access to essential medicines Increase options for action by consumers Learn from developed country experiences Issues not clear cut Context is everything Stimulating creative thought and debate Placing new ideas on the table Playing our own game, creating our own rules

Contact details Jonathan Berger Head: Law & Treatment Access Unit AIDS Law Project Centre for Applied Legal Studies University of the Witwatersrand +27(0)11.717-8627 (t) +27(0)11.403-2341 (f) +27(0)83.419-5779 (m) bergerj@law.wits.ac.za www.alp.org.za