The IP and Competition Law Interface in the

Pharmaceutical SectorJ.Sai Deepak

Saikrishna & AssociatesMHRD IP Chair Roundtable Symposium17th & 18th March’12

Objects of Competition Law

Prevent practices having an adverse effect on

competition (Sections 3 and 6 of the Competition

Act)

Promote and sustain competition in markets

Protect interests of consumers

Ensure freedom of trade of other participants in

markets (Abuse of dominant position under

Section 4)

Monitor and regulate connected and incidental

matters

Application of Competition law to Pharma Sector

Ensure competitiveness of the Indian

pharmaceutical sector

Maintain balance between incentives for

innovation and freedom of players to operate-

Section 3 of Competition Act and S.140 of Patents

Act

Facilitate achievement of public health objectives

Scope of the Presentation

Identify and discuss specific issues under Indian

Law:

1. Patent Pools in Pharma sector and Competition

Law

2. Alternatives to compulsory licensing

Brief Primer on Patent Pools

Patent Pool

A. “Agreement between two or more patent owners to license one or

more of their patents to one another or third parties”

B. “The aggregation of intellectual property rights which are the

subject of cross-licensing, whether they are transferred directly by

patentee to licensee or through some medium, such as a joint

venture, set up specifically to administer the patent pool”

Typically expected to bring down cost of innovation, besides

facilitating speedier and increased access to technologies

Chequered history- “Necessity” to “No-No” to “Not Bad Per Se” to

“Necessity”

Patent Pools in Pharma Sector

Merits serious thought in light of declining pharma productivity

Assumed to be the smoother way of surmounting “blocking patents”

and improving access to medicines

More importantly, may become the way of the future thanks to patent

thickets, if patent thickets continue to flourish

Examples: Fragmented patent holding of technologies needed to

combat SARS and H1N1

Reason for discomfiture and suspicion- Interaction between

competitors

Brings together all three objects of Competition law and tests the

law’s robustness

Issues Typical or Peculiar to Pharma Patents

Assumption- Statutory incentives are key drivers of pharma innovation

Specifically, incentives which offer exclusivity find favour with innovator

companies

Broad and fragmented ownership hurdles to the nature of conventional

pharma innovation (sequential)- Patents as “licenses to sue”

Several “must have” technologies need to be licensed. No (viable)

substitutes for such technologies. Royalties paid up to 20% of net sales

Patents covering research tools most expensive licensing options and

obviously are “must have”

Again non-exclusive licenses have direct adverse effect on

commercialization – Reason? No exclusivity

Questions

Can Competition law and collaborative innovation by way of

patent pools co-exist in harmony to facilitate advancement

of pharma innovation and access to medicines?

Does the competition regime, as it exists and is expected to

play out in India, render patent pool a sub-optimal option if

patent pools were to be designed to comply with the

regime?

What are the consequences of deterring or encouraging

patent pools?

Alternatives or substitutes to patent pools?

Legality of Patent Pools under Indian Law Section 3(3) of Competition Act

Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which— (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services

Patent Pools and Section 3(3)

Patent pools could attract Section 3(3)(a)-(c)

Could be “presumed” to have “appreciable

adverse effect on competition”- Prima Facie view

Defenses Available to Section 3(3) of Competition Act

(A) Rebut presumption that none of grounds are attracted; or

(B) The adverse effect on competition is not “appreciable”; or

(C) Rely on Proviso to Section 3(3)- Prove increase in Efficiency (?);

or

(D) Fall back on Section 3(5)- Limited conditions for applicability of of

Section 3(5):

A. To prevent infringement; or

B. Imposition of “reasonable” conditions as may be necessary for

“protection”

Of rights under the Patents Act

CCI’s Analysis under Section 3- Section 19(3) 19(3) The Commission shall, while determining whether an

agreement has an appreciable adverse effect on competition under section 3, have “due” regard to all or any of the following factors, namely:— (a) creation of barriers to new entrants in the market; (b) driving existing competitors out of the market; (c) foreclosure of competition by hindering entry into the market; (d) accrual of benefits to consumers(e) improvements in production or distribution of goods or provision of services;(f) promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services to consumers;

Interplay between Sections 3(3) and 19(3)

Dissenting Order in Ramachandran Reddy v. HDFC :

“However, it is a wrong presumption that the parameters prescribed under Section 19 (3) are not required to be applied while assessing an "agreement" under Section 3(3) as it is a deeming provision. Merely because it is a deeming provision, it does not mean that the Commission is deprived of its powers to apply these factors while determining AAEC. Section 19(3) is a mandatory provision and the Commission is bound to apply these factors for arriving at AAEC. In my opinion the deemed provisions of Section 3(3) is for forming a prima facie opinion and not the final one. The parameters given in Section 19(3) are not the 'cause' of AAEC but a result thereof. For example, if an "agreement" results in the creation of barriers or driving existing competitors or forecloses the competition and so on, there has to be AAEC.””

Analysis of Defenses Patents pools invariably attract grounds under Section 3(3)

Establishing what amounts to “appreciable adverse effect on competition” is a better alternative:

“The judge stressed that when assessing the effect of agreements or concerted practices on competition, a realistic economic approach is necessary. Regard must be given to individual circumstances, to actual and potential competition. The effect on competition must be negative and must be appreciable or significant, not merely hypothetical. If it is claimed that a restriction prevents a new competitor from entering a market, there must be a real concrete possibility of a new competitor entering that market. Regard must also be given to ancillary restraints and commercial necessity, and in particular whether a restraint is ‘necessary’ for the purpose of enabling a new entrant in a market. The judge noted that the concept of ‘necessity’ does not necessarily entail something which is ‘strictly essential’ but could be satisfied in circumstances where achieving the commercial objective would be difficult absent the restriction”*

Patent Pools and Proviso to Section 3(3)

Provided that nothing contained in this sub-section shall apply to

any agreement entered into by way of joint ventures if such

agreement increases efficiency in production, supply,

distribution, storage, acquisition or control of goods or

provision of services

Why is the Proviso’s applicability/availability restricted to “joint

ventures”?

Does the Competition Act define “Joint Ventures”? No

Does the body of Section 3(3) refer to joint ventures? No

Therefore, must “joint ventures” be treated as not falling within

“any agreement” mentioned in Section 3(3)?

“Joint Venture” Can existing definitions of JVs formulated by Courts accommodate patent

pools which do not necessarily lead to or flow from creation of a new juristic entity?

Supreme Court in Faqir Chand Gulati vs. Uppal Agencies Pvt. Ltd. and Anr. [(2008) 10 SCC 345]:“joint venture” connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. Therefore, the use of the words ‘joint venture’ or ‘collaboration' in the title of an agreement or even in the body of the agreement will not make the transaction a joint venture, if there are no provisions for shared control of interest or enterprise and shared liability for losses.

Supreme Court in New Horizons Ltd vs Union Of India 1995 SCC (1) 478- Sharing of risks, community of interests, contribution to assets and the intent to jointly run an undertaking were taken as indicators of a joint venture.

Other Definitions of JVOECD report on "Competition Issues in Joint Ventures 2000". The last para on page 19 provides a small sample of ways in which joint ventures could be defined. One definition is below:  

“A broader definition includes all cases where firms collaborate in carrying on some activity that each firm might otherwise perform alone.  Sometimes the term has been used to refer to virtually any collaboration by competitors, short of merger. ”

Joint Ventures Qualified

Provided that nothing contained in this sub-section shall apply to

any agreement entered into by way of joint ventures if such

agreement increases efficiency in production, supply,

distribution, storage, acquisition or control of goods or

provision of services

Joint venture agreements limited to ones which improve efficiency

in “production, supply, distribution, storage, acquisition or

control of goods or provision of services”

“Technical Development/Advancement”

Can “technical advancement/development” fall under any of

the categories mentioned in the Proviso? Or does the

Proviso need to be amended?

Section 3(3) mentions “limits or controls technical

development”, but the proviso does not refer to it.

How is Section 19(3) to be interpreted?

International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), Switzerland Guidelines

1. Patent pools should be voluntary associations of entities formed

without coercion

2. Objectives of any patent pool should be clearly defined 

3. Patent pools should complement rather than replace elements of

existing intellectual property regimes 

4. Rights and obligations of contributors and licensees of contributed

rights should be clear 

5. Patent pools should reduce transaction costs, and not increase

administrative costs, relative to other options such as direct

licensing

Collective Bargaining- A Potential Reaction to Patent Pools

Potential entrants/licensees to a patent pool could choose to

bargain collectively with patent pools

Would they attract Section 3(3) if they bargain collectively?

Is collective bargaining a defense under Indian competition

law?

Indian Position on Collective Bargaining under Competition Law

Para 23.48 of FICCI – Multiplex Association of India

 versus United Producers/ Distributors Forum:

"23.48  Collective bargaining may not be  per se bad in law and

may be resorted to for legitimate purposes in accordance with

law.  However, when the trade associations enter into agreements,

as in the present case, in the garb of collective bargaining which

are anti – competitive in nature, then no competition watchdog

can countenance such act/agreement.  Resultantly, the plea

of collective bargaining, in the facts of the present case, is without

any merit and the same is directed to be dismissed."

Collective Bargaining and JV

If the OECD’s definition of JV were to be accepted,

“collective bargaining” could be treated as a JV subject to

increase in efficiency being achieved

Compulsory Licensing and Competition

Tricolour could draw colour from the Rainbow

Amended Section 15C of the South African

medicines and Related Substances Control Act

could be a template

Section 15C of MRSC Act Section 15C: The minister may prescribe conditions for the supply of more

affordable medicines in certain circumstances so as to protect the health of the public, and in particular may-

(a) notwithstanding anything to the contrary contained in the Patents Act, 1978 (Act No. 57 of 1978), determine that the rights with regard to any medicine under a patent granted in the Republic shall not extend to acts in respect of such medicine which has been put onto the market by the owner of the medicine, or with his or her consent;

(b) prescribe the conditions on which any medicine which is identical in composition, meets the same quality standard and is intended to have the same proprietary name as that of another medicine already registered in the Republic, but which is imported by a person other than the person who is the holder of the registration certificate of the medicine already registered and which originates from any site of manufacture of the original manufacturer as approved by the council in the prescribed manner, may be imported:

(c) prescribe the registration procedure for, as well as the use of, the medicine referred to in paragraph (b).

Limited Parallel Import

Parallel import under restricted circumstances

could be used as an alternative or intermediary to

an unwilling marriage between Innovator and

Generic companies by way of compulsory

licensing

Threat of a limited parallel import, in case of non-

working or non-affordability, could help lower

prices without having to resort to compulsory

licensing