In June 2018, the European Union (EU) delivered the following statement on Intellectual Property and the Public Interest at the WTO TRIPS Council. The EU voiced a specific concern over a reference in the WTO submission by China and South Africa on Promoting Public Health Through Competition Law and Policy (IP/C/W/643) to “refining the criteria for grant of a patent (patentability criteria)” as a TRIPS flexibility. The EU asserted the following:
The TRIPS agreement is very clear and unambiguous on patentability criteria. TRIPS Article 27 (1) states very unmistakably that: “patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.” We see with growing concern that misinterpretation of this Article has led many jurisdictions to apply practices in the patent grant process which could be interpreted as amounting to additional patentability criteria not mentioned in the TRIPS agreement. The EU urges those Members to reconsider their practices.
In relation to the discussion of competition as a TRIPS flexibility, the EU contended:
In the general, the EU would also be cautious to consider the use of competition policy a TRIPS flexibility. Without doubt, the TRIPS agreement is compatible with the application of competition policy measures. However, as clearly provided for in Article 8 (1) and (2), as well as in Article 40 (2), these measures have to be consistent with the provisions of the TRIPS agreement and cannot be used as tools in avoiding the obligations under the Agreement.
As examples of EU competition policy, the EU mentioned the 2013 Lundbeck decision on pay for delay, and the current investigation of Aspen.
For example, the EU Commission has adopted decisions against pay-for-delay agreements. A landmark case was the 2013 Lundbeck decision, which concerned citalopram, Lundbeck’s blockbuster antidepressant medicine.
After the basic patent expired, Lundbeck still held a number of related process patents with limited protection. Lundbeck paid significant sums, purchased generic’s stock for the sole purpose of destroying it, and offered guaranteed profits in a distribution agreement, in return for agreements from generic producers not to enter the market with generic product. These agreements were found to infringe Article 101 TFEU.
The EU Commission fined Lundbeck (€93.8 million) and generic competitors (€52.2 million) for delaying market entry of generic citalopram. In September 2016, the EU General Court basically upheld the Commission decision. Appeals are currently on-going before the European Court of Justice.
In another example, the EU Commission is currently investigating, for the first time ever, pricing practices for life-saving medicines in the Aspen investigation.
Aspen is a global pharmaceutical company headquartered in South Africa, with several subsidiaries in the EEA. The investigation concerns Aspen’s pricing practices for niche medicines used for treating cancer, such as hematologic tumours. The medicines are sold with different formulations and under multiple brand names. Aspen acquired these medicines many years after their patent protection had expired. Hence, we are talking here about generic drugs.
The Commission is investigating allegations suggesting that Aspen has imposed very significant and unjustified price increases of up to several hundred percent, so-called ‘price gouging’ in violation of Article 102 TFEU. To impose such price increases, Aspen may have threatened to withdraw the medicines in question in some EU Member States and may have actually done so in certain cases. The investigation covers all of the EEA except Italy, where the Italian competition authority already adopted an infringement decision against Aspen in September 2016.
In closing, the EU noted that “[c]ompulsory licences to pharmaceutical patents as a remedy to excessive pricing would have a negative impact on innovation incentives and appear to be superfluous, because a competition authority, once it has established unlawful market behaviour, has the normal toolbox of competition policy remedies.”
INTELLECTUAL PROPERTY AND THE PUBLIC INTEREST
EU intervention:
The EU views critically a number of issues discussed in the Communication from China, South Africa and co-sponsors.
To start with and as previously stated, the work conducted by the United Nations Secretary-General’s High-Level Panel on Access to Medicines started from an assumption that there was “policy incoherence between the justifiable rights of inventors, international human rights law, trade rules and public health”. As the European Commission already indicated in its written contribution to the Panel and in various interventions at this Council, it does not share that assumption.
This is why in its written contribution to the Panel, the Commission encouraged it to adopt a holistic approach to the problem of access to medicines that could result in a valuable contribution to the wider debate.
However, due to its limited mandate, unfortunately, the High-Level Panel has focused its proposals exclusively on addressing an alleged conflict between a research and development model that (partially) relies on intellectual property rights and the possibility of providing affordable medicines. In doing so, it has missed an opportunity to advance more balanced, comprehensive and workable solutions to the problem of access to health. As we all know, IP protected medicines are only a very small fraction of the medicines that patients in need in many developing countries lack access to.
While there are a number issues in the Communication the EU disagrees with, we would like to particularly voice concern over the mentioning of “refining the criteria for grant of a patent (patentability criteria)” as a TRIPS flexibility. The TRIPS agreement is very clear and unambiguous on patentability criteria. TRIPS Article 27 (1) states very unmistakably that: “patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.” We see with growing concern that misinterpretation of this Article has led many jurisdictions to apply practices in the patent grant process which could be interpreted as amounting to additional patentability criteria not mentioned in the TRIPS agreement. The EU urges those Members to reconsider their practices.
In the general, the EU would also be cautious to consider the use of competition policy a TRIPS flexibility. Without doubt, the TRIPS agreement is compatible with the application of competition policy measures. However, as clearly provided for in Article 8 (1) and (2), as well as in Article 40 (2), these measures have to be consistent with the provisions of the TRIPS agreement and cannot be used as tools in avoiding the obligations under the Agreement.
If applied in a compatible manner with TRIPS, competition policy has a role in regulating and controlling unlawful market behaviour in any sector, including the pharmaceutical sector.
Taking into account the sensitive balance between encouraging, incentivising and ensuring continued innovation in the sector, on the one hand, and competitive generic medicines, on the other, the EU’s antitrust enforcement seeks to promote open and competitive markets in the sector.
In the pharmaceutical and health services sector, the European Commission’s Directorate General for Competition has investigated a number of anticompetitive agreements between companies (pursuant to Article 101 TFEU, which prohibits agreements restricting competition) and abuses of a dominant position by dominant market players (Article 102 TFEU). It also reviews proposed mergers and intervenes where market concentration would significantly impede effective competition and lead to less innovation.
For example, the EU Commission has adopted decisions against pay-for-delay agreements. A landmark case was the 2013 Lundbeck decision, which concerned citalopram, Lundbeck’s blockbuster antidepressant medicine.
After the basic patent expired, Lundbeck still held a number of related process patents with limited protection. Lundbeck paid significant sums, purchased generic’s stock for the sole purpose of destroying it, and offered guaranteed profits in a distribution agreement, in return for agreements from generic producers not to enter the market with generic product. These agreements were found to infringe Article 101 TFEU.
The EU Commission fined Lundbeck (€93.8 million) and generic competitors (€52.2 million) for delaying market entry of generic citalopram. In September 2016, the EU General Court basically upheld the Commission decision. Appeals are currently on-going before the European Court of Justice.
In another example, the EU Commission is currently investigating, for the first time ever, pricing practices for life-saving medicines in the Aspen investigation.
Aspen is a global pharmaceutical company headquartered in South Africa, with several subsidiaries in the EEA. The investigation concerns Aspen’s pricing practices for niche medicines used for treating cancer, such as hematologic tumours. The medicines are sold with different formulations and under multiple brand names. Aspen acquired these medicines many years after their patent protection had expired. Hence, we are talking here about generic drugs.
The Commission is investigating allegations suggesting that Aspen has imposed very significant and unjustified price increases of up to several hundred percent, so-called ‘price gouging’ in violation of Article 102 TFEU. To impose such price increases, Aspen may have threatened to withdraw the medicines in question in some EU Member States and may have actually done so in certain cases. The investigation covers all of the EEA except Italy, where the Italian competition authority already adopted an infringement decision against Aspen in September 2016.
The EU Commission has not pursued a case involving unreasonably high royalties for a technology transfer. Nor has it ordered an originator company as the IP holder to grant a licence for its proprietary technology to remedy a competition law infringement.
Such interventions would only occur under very strict conditions and in exceptional circumstances, which are typically not associated with conditions of competition between the innovator and the generic companies.
In addition to the obligations under TRIPS agreement, with respect to compulsory licencing under Article 102, the test developed by the EU courts sets out very strict criteria which are usually met in highly exceptional circumstances:
(i) licensing is indispensable for the exercise of an activity in a neighbouring or related market;
(ii) the refusal is capable of eliminating any effective competition on that market;
(iii) the refusal prevents the introduction into the market of a new product for which there is potential consumer demand; and
(iv) the refusal has no objective justification.
It has never been applied as a remedy against excessive pricing (i.e. a licence to generics to bring down the price) or to otherwise remedy patent barriers to generic entry.
Compulsory licences to pharmaceutical patents as a remedy to excessive pricing would have a negative impact on innovation incentives and appear to be superfluous, because a competition authority, once it has established unlawful market behaviour, has the normal toolbox of competition policy remedies.