Special Report: IP And Competition Law – Opposing Forces Or Partners For Consumer Welfare?

Intellectual property and competition authorities should collaborate, but other institutions should also have their say, such as health ministries, speakers said at a United Nations meeting of experts this week. And guidelines should be provided to judges in the difficult task of determining whether IP rights monopolies impede on competition, they said. This special report takes a deeper look at IPRs, competition, and differing economies.

The 15th session of the Intergovernmental Group of Experts (IGE) on Competition Law and Policy is taking place from 19-21 October. The IGE is a standing body established under the UN Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (UN Set) to monitor the application and implementation of the Set.

Speakers at a roundtable [pdf] on 19 October, examining the interface between the objectives of competition policy and intellectual property, agreed that IP and competition authorities should collaborate in order to fulfil their respective role. The IGE on Competition Law and Policy is serviced by the UN Conference on Trade and Development (UNCTAD).

If some speakers said both areas promote innovation, some speakers underlined the difficulties faced by competition authorities, gave advice on competition legislation in developing countries, and the need to associate other authorities in decision-making, such as the ministries of health, consumer protection, and food and agriculture bodies.

Conflicting Norms Complicate Decisions

Francisco Hernandez Rodriguez, president of the Galicia Competition Council, said mechanisms such as pay-for-delay, which aim to extend the monopoly time for patents both in terms of scope and in terms of time, prevent further competition and innovation. This practice can be restricted through competition law.

However, when competition authorities try to act in this area they face a number of problems, he said. The European Commission in a case involving AstraZeneca was forced to create a new doctrine of abuse of a dominant position as a mechanism to prevent damaging practice, he said.

AstraZeneca was fined €60 million (US$ 65 million) for abusing its dominant position relating to its best-selling anti-ulcer medicine Losec, according to a European Commission release.

It is also very difficult to identify anti-competitive practices in relation to intellectual property, because every patent has an inherent anti-competitive effect, he said. When does this anti-competitive effect go too far, when is it disputable under anti-competitive law? this is very difficult to determine, said Hernandez.

One of the main problems is conflicting norms, he said. Patent law authorises certain practices that competition law seeks to prevent, and when a judge must decide, it is very difficult and complex, he explained.

“In our legal systems we do not have clear principles that establish that these patent privileges can be attacked legally ” he said. There is also a notion within competition authorities that every attack against intellectual property equals an attack against innovation.

Recent years have seen changes in European law, and in the next few years, a greater equilibrium should be seen between IP and competition law, however in the United States, it is a period of strong patents and weak competition, said Hernandez.

The change in the EU comes from several reasons. One of those is the increasing notion that consumers lie at the heart of competition law, he said. Another reason is that the European Commission has highlighted the importance of Article 102 the Treaty on the Functioning of the European Union (TFEU), he said. Article 102 deals with abuse of dominant position on markets.

IP, Competition Laws’ Role in Promoting Innovation

Kathleen Bradish, international counsel at the US Department of Justice, speaking in a personal capacity, talked about the principles which have guided the US antitrust enforcement with respect to IP.

Both IP and competition law have a role to play in promoting innovation, she said. IP rights provide incentives for innovation by establishing enforceable property rights, which allow IP rights owners to get the value of their IP. It also makes it easier for IP owners to commercialise their inventions and ideas, and encourages public disclosure of those inventions and ideas.

Competition creates the incentive for firms to engage in research and development, to be the first to create a market or to provide a more attractive product, she said.

Bradish said the US antitrust agencies’ approach to enforcement with respect to IP is well documented, and mentioned the Antitrust Guidelines for the Licensing of Intellectual Property, which are currently being updated.

The core principles of all US antitrust agencies include the notion that IP rights are like any other property rights, she said. The same antitrust analysis will apply.

Another principle is that a patent does not necessarily equal market power. The market power created by an IP right must be analysed on a case-by-case basis to determine whether there is actually market power, she explained.

There is also recognition that the licensing of IP is generally pro-competitive, as licensing helps disseminate technology, encourages the marketing and development of technology, and reduces production costs.

Remedies in IP cases as well as other antitrust cases should be tailored to stop anti-competitive practice, she said, adding that transparency in the decision-making process is essential and enhances the legitimacy of the outcome.

“We must calibrate enforcement work to ensure competition and intellectual property play their proper roles,” said Bradish. They are complementary both in encouraging innovation and ensuring consumer welfare, she said.

Competition Law in Developing Countries Should Include Knowhow

Kamisha Menns, a competition lawyer from Jamaica, provided tips for second generation competition legislation on “the particularly discreet area” of the interface between IP and competition law.

She said the Kenyan patent office, which is the most active office in Africa had issued 589 patents between the opening of the office in 1991 and 2013. In comparison, the US Trademark and Patent Office issues about 5,000 patents in a week. Out of the 50 patents that would be granted in Kenya in a year, only 5 of them would be granted to a Kenyan company, she said. There is, however, quite a lot of innovation happening in Kenya.

Developing countries are at the stage of second generation competition legislation, after some mostly wrote their legislation in the 1990s by copying and pasting European or US legislation, she said. Now the issues and the role of competition laws are better understood by developing countries, and they want to develop competition legislation that applies to the context of their particular developing country economics and their indigenous realities, she added.

“We do have innovation in the Caribbean, we do have innovation in Africa,” she said, “but what we don’t have is patent offices or trademark offices granting recognition of our knowhow.”

If competition law is meant to elevate consumer welfare, access to goods, and reduced costs of living, “we should also recognise that the grant of IPRs can operate to the reverse…” The granting of IP rights do suppress rivalry, can lead to increased prices, and few or no choices, she said.

According to Menns, in developing countries, knowhow such as particular fruits or vegetables, production processes, is identifiable, substantial and valuable and can be treated like an IP right. It can attract the attention of multinationals which try to engage in long-term contracts with local companies.

“In the developing world IPRs are essentially knowhow, even though it is not being registered, not being granted patents, it is still there” she said.

“We propose that in second generation competition legislation, now that we understand the principles, now that we know that intellectual property does exist in the developing world and we should regulate it, we have to acknowledge the reality, she said, and the reality is knowhow.

She gave examples of knowhow such as plant breeding in Belize, agro-farming in Uruguay, herbal medicines in Saint-Lucia, and fishing tools and methods in Trinidad and Tobago, and Barbados.

Nothing in the international rules and not in the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Article 40 (general obligations), prevents developing countries from creating competition legislation that prevents knowhow or IP rights from restricting competition, she explained.

Legislation can be created that covers unregistered IP, she said. That can be done through providing a definition of knowhow in the legislation, she said.

“The individual farmer or plant breeder, or medical practitioner in a developing country may be the owner or the inventor of the technical knowhow but operates at the mercy of certain big corporations that impose on them long-term contracts, and other oppressive and highly restrictive intra-technology restrictions, or pay-for-delay tactics,” she said

Competition authorities should develop priority policies for dealing with IP rights competition law conflicts typically seen in their particular jurisdiction. There should also be coordination between competitions authorities with an array of institutions beyond patent offices, such as the consumer protection authority, the standards bureau, the food, drug and agricultural bodies, and medical associations, she said.

WIPO: IP Right Not Necessarily Market Power

Giovanni Napolitano, consultant, IP and Competition Policy Division, World Intellectual Property Organization, argued that having an IP right does not necessarily mean market power or the kind of monopoly that antitrust agencies run after.

“It is only very recently that in the US in 2006 that finally the Supreme Court acknowledged that in fact a patent holder does not have a monopoly,” he said.

IP and competition policies support the idea and foster the differentiating nature of new services and goods. What IP actually does, he said, is “whenever you have a creative idea,” and something different from what has existed so far, “then that something is protected.”

Competition law does, in a way, exactly the same thing, he said. When there is a new entrant in a market, it seeks to promote a new service or a new product, something that makes that good or service different from anything else that is on that market. This differentiating nature of goods and services make IP and competition law intertwined and complementary, he said.

As an example of how competition law enforcement can go in the same direction of protecting IP rights, he cited the case of a Chilean local beer brewery having registered all possible names of foreign beer companies to prevent competition. The Chilean competition commission went after the local brewery and declared that all the trademarks registered by this local brewery in the name of the foreign beer companies were unlawful and were restricting the market in Chile.

Napolitano underlined the importance of a strong cooperation between IP and competition authorities.

The Case of Off-Label Medicines

Speaking from the audience, Sothi Rachagan, commissioner at the Malaysia Competition Commission said Malaysia submitted a country paper [pdf] to the 15th Session of the Intergovernmental Group of Experts on the topic of competition law and IP.

He underlined the importance of competition law in the field of health, and in particular in the context of the off-label use of medication. This happens when a medication has been approved for a particular indication has been promoted for other indications. And it is considered illegal, he said.

Avastin, initially registered by Roche for cancer indication and further found to be efficient to treat age-related macular degeneration, has been an off-label medicine commonly used by doctors throughout the world. However, Lucentis, a close variation of Avastin, was registered by the same company, for the specific indication of age-related macular degeneration. Because the patent holder decided to register each for a different indication, it became a problem to use one for the other, he explained.

A number of studies show that Avastin could be used also for age-related macular degeneration. However, because the packaging and the quantity in which it is supplied in each instance, the cost of one drug was only US$50, whereas the other drug was priced at US$2,000, he said, adding, “We are talking about a great difference in price.”

Rachagan mentioned the Italian Competition Authority response in 2014, detailed in the Malaysian submission, which states that the Italian Competition Authority fined Roche €90,593,369 euros and Novartis €92,028,750 because they colluded “by raising and spreading concerns related to the safety of ophthalmic uses of Avastin in order to boost the sale of Lucentis, from which both groups were expecting their own returns.” [In Europe, the patents are held by Roche for Avastin, and Novartis for Lucentis]

In that case the competition authority took action on this but the solution to that problem does not only lie with the competition authority, he said. The decision to use an off-label drug is not a decision that lies with the competition authority but rather lies with the regulatory authority, in such cases, the ministries of health, he said.

There is an unequal response given, he said. In France and in Italy, the decision has been taken that off-label use can be made for this indication, he said, while other countries follow on the basis of case-by-case decision.

 

Image Credits: Catherine Saez