On 9 November 2018, South Africa delivered the following statement on IP and competition policy at the WTO TRIPS Council under agenda item 13 on Intellectual Property and the Public Interest: Promoting Public Health Through Competition Law and Policy (an item co-sponsored by Brazil, India, and South Africa). This topic was first proposed by South Africa, China, Brazil and India in May 2018. On 26 October 2018, South Africa submitted a follow-up paper( IP/C/W/649).
The intervention of South Africa is reproduced below in its entirety.
ITEM 13:
Intellectual Property and the Public Interest: Promoting Public Health Through Competition Law and Policy.
South Africa has a proud history of robustly engaging with issues that concern intersection between Intellectual Property (IP) rights and public health. Indeed, the South African government’s stance in the case between the Pharmaceutical Manufacturers Association versus the President of South Africa (the late President Nelson Mandela) in 1998, was a key factor leading to global dialogue around the potential negative impacts of intellectual property rights on public health, culminating in the Doha declaration on TRIPS and Public Health.
The South African Competition Act, for example, is intended to “advance the social and economic welfare of South Africans”, “correct structural imbalances and past economic injustices” and “reduce the uneven development, inequality and absolute poverty which is so prevalent in South Africa. The South African Competition Commission has not issued specific guidelines on application of the Competition Act to IP. However, it has explained its general approach in by indicating that firms are not automatically exempt from the rules of the Competition Act as a result of the rights granted in terms of laws like the intellectual property laws. It further reiterated that firms cannot be automatically allowed to continue with a particular prohibited practice as outlined in the Competition Act because that practice is allowed by another Act. [1]
The Competition act covers both horizontal and vertical modes of competition. Horizontal anti-competitive activity refers to conduct among independent enterprises that are suppliers of competitive (or potentially competitive) goods or services. Vertical anti-competitive activity refers to the supply chain controlled by a producer, beginning with inputs to production, into production, intermediate distribution and, ultimately, the retail sale of goods or services. Instances of horizontal anti-competitive behaviour that are per se illegal in most jurisdictions include price-fixing among competitors, output restraints and allocation of geographic territories. Examples of vertical restraints that are per se illegal in many, but not all, jurisdictions are resale price maintenance (or fixing the minimum price at which retailers may sell) and ‘exclusive grant backs’ requirements in patent licences.
There are some significant risks of anti-competitive conduct in pharmaceuticals markets that are fairly widespread and deserve close attention from competition authorities. These include bid manipulation in procurement of health technologies, whereby a group of potential competitors may agree not to submit bids below a set price and to allocate the ‘lowest set price’ bid to a particular firm. Such activity may also involve inappropriate payments to government officials who might otherwise report the anti-competitive practice. Anti-competitive conduct by patent-owning enterprises may include requiring a distributor or retailer of health technologies to purchase a complete line of products as a condition of purchasing a particular product or products (i.e. a tying arrangement). Perhaps the most widely discussed form of anti-competitive conduct involving patent owners involves ‘buying out’ generic challenges to patents that might otherwise result in generic products entering the market at an early date.
Since 2001 many generic manufactures secured voluntary licenses to produce medicines in South Africa, including over 20 licenses for medicines in the antiretroviral category. The increase in voluntary licensing (VL) agreements for ARV drugs was often a result of civil society pressure, and the use of competition law. For example, in 2002 activist initiatives of the Anti-Retroviral Therapy (ART) treatment campaign, resulted in some multinational companies found guilty of excessive pricing by the South African Competition Commission.
South Africa’s Competition Commission investigated several cases involving the interface of IP and competition concerns, particularly in cases where complaints of excessive pricing and refusals to license competitors were alleged. The landmark case in South Africa arose out of a September 2002 complaint by Hazel Tau [2] and the South Africa Treatment Action Campaign (TAC) and others against GlaxoSmithKline (GSK) and Boehringer Ingelheim (BI), suppliers of the first-line antiretroviral medicines zidovudine and lamivudine. In the Hazel Tau case, the prices for antiretroviral medicines from the patent holders were, at the time, from three to ten times higher than the least expensive generic version of the same medicines.
There had been requests for licenses by generic pharmaceutical producer Cipla and from the medical services humanitarian organisation, Médicins Sans Frontieres (MSF, or Doctors without Borders). Respondents admitted in documents filed with the South African Competition Commission that it had a general policy to refuse licences for the generic supply of its products. It also admitted that its prices were unaffordable by at least 80 percent of all South Africans. The case resulted in an order of the Commission finding that high prices and a refusal to license Indian generic manufacturers constituted three abuses of dominance under Section 8 of the Competition Act: (a) excessive pricing; (b) refusing to give a competitor access to an essential facility, when it is economically feasible to do so; and (c) engaging in exclusionary conduct if the anti-competitive effect of that act outweighs its technological, efficiency or other pro-competitive gains. In reference to remedy, the CC stated that it would “request the Tribunal to make an order authorising any person to exploit the patents to market generic versions of the respondents patented medicines or fixed dose combinations that require these patents, in return for the payment of a reasonable royalty”.
Before the referral and prosecution of the case, GSK and BI, negotiated a settlement agreement in terms of which they admitted no liability. GSK and BI agreed to:
In 2007, the Commission received another complaint relating to HIV/AIDS medicine from the TAC alleging that Merck (and its South African subsidiary, MSD) has abused their dominant positions in the markets for the ARV medicine efavirenz (EFV) by refusing to license other firms to import and/or manufacture generic versions of this medicine on reasonable and non-discriminatory terms. MSD holds a twenty-year patent on efavirenz that expired in 2013. The TAC case resulted directly in MSD and Merck reaching agreement with multiple licensees on reasonable terms to bring a wide range of generic products containing EFV (an essential drug used as part of first-line ARV treatment in South Africa) to market. While the Hazel Tau case was settled only after the Commission had taken a decision to refer the matter to the Tribunal for adjudication, the TAC case was resolved before the Commission completed its investigation on the matter.
In February 2009, Aspen notified the Commission of its intention to acquire the Lanoxin brand from GSK South Africa. In its investigation, the Commission noted that GSK had voluntarily licensed three patented antiretroviral medicines including, Zidovudine where the parties (GSK and Aspen) held a combined market share of 95.7% The Commission focused predominantly on the horizontal aspects of the merger since GSK, to some degree also competed with its generic licensees. To avoid the reversal of gains obtained by licensing of patented products in the Hazel Tau case (above), the Commission sought conditions for extension of the license of antiretroviral medicines to include the Abacavir product. Abacavir was a GSK patented product which was used primarily for the treatment of children suffering from HIV. At the time of the merger, GSK was the only supplier of this product in South Africa. The Commission sought and obtained as a condition for the approval of the merger an undertaking by GSK to not only license the production and/or importation of this product by Aspen but to also extend the license to other generic companies.
The Commission announced in April 2018 investigate local pharmaceutical company Aspen Pharmacare for alleged “abuse of dominance”. Reports in April this year indicated that the Spanish Markets and Competition Commission initiated anti-trust proceedings against Aspen. In October 2016, Aspen was fined over EUR 5 million by the Italian Competition Authority for having abused its dominant position by increasing prices of four of its anti-cancer medicines by up to 1,500%. The Commission also announced in June 2018 that it would initiate an investigation against pharmaceutical company Pfizer Inc. for “suspected excessive pricing of lung cancer medication”. Furthermore, the Competition Commission announced in July 2018 that they would investigate the price of cancer medicines of three pharmaceutical companies. One of these companies is Roche Holdings AG, which will be investigated for the excessive pricing of Trastuzumab. The investigation specifically relates to “excessive pricing”, “exclusionary conduct”, and “price discrimination”.
The Competition Commission has also finalized its Health Market Inquiry which looked at how pharmaceuticals and related activities may be a cost driver in the private sector. In consideration of time, I will leave it at this.
Thank you for your kind attention.
Endnotes:
[1] South African Competition Commission “The Competition Act, an introduction.” at p. 8 -http://www.compcom.co.za/wp-content/uploads/2014/09/Nov-01-The-Competition-Act-An-Introduction-Book1.pdf (accessed 4.11.2018)
[2] Competition Commission case number 2002Sep.226