1. 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

2. 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

3. 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

4. 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

5. 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”

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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”

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. Contact details Jonathan Berger Head: Law & Treatment Access Unit
AIDS Law Project
Centre for Applied Legal Studies
University of the Witwatersrand
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