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Using competition policy to mitigate the impact of patent protection

Using competition policy to mitigate the impact of patent protection

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Using competition policy to mitigate the impact of patent protection

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  1. 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

  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 • Context • 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? • 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 +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