On 9 November 2018, Brazil 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).
Brazil provided the recent example of the Bayer-Monsanto merger as an example of its competition authority, CADE, preventing “the concentration of economic power generated by IP rights, as well as potential abuses of dominant position by IP rights holders.”
“In the merger filing between Bayer and Monsanto, CADE had the opportunity to address intellectual property rights issues as they pertain to the sale of goods and tangible assets. The merger involved the seeds and agricultural defensives markets. The analysis undertaken by CADE highlighted the importance of IP rights for the companies involved, who heavily rely on patents and plant varieties protection. Bayer and Monsanto are active in all those areas, which gave rise to competitive concerns related to increased entry barriers and market concentration deriving from IP rights. CADE conditioned approval of the merger on remedies that addressed the competitive concerns caused by the concentration of IP rights. For the merger to go through, the companies were required license certain patented seed traits and protected plant varieties.”
The full text of Brazil’s intervention is reproduced below.
IP and Public Interest
I would like to thank South Africa for circulating document IP/C/W/649. The communication builds on documents IP/C/W/630 and IP/C/W/643, with the goal of expanding the discussions on the complex interplay between intellectual property and public interest. The debate on the relation between intellectual property and competition lies at the heart of the IP system and is certainly of interest to this Council. This is an issue that has been attracting increased attention in international forums, as evidenced by the discussions held in September at the WIPO Advisory Committee on Enforcement.
Intellectual property and antitrust law have common objectives: to stimulate economic development, promote innovation and foster competition. However, these two disciplines deploy different methods to achieve these same objectives, which, at first, may seem contradictory. Antitrust law stimulates economic development by promoting competition and preventing abuse of dominance and exclusionary practices, whereas intellectual property stimulates innovation by creating exclusive rights, which prevent competition and use of immaterial goods by unauthorized third parties.
For a long time, the two fields were considered incompatible. However, the debate has evolved to consider that antitrust and intellectual property are complementary, even though there may be a tension between them. A dynamic analysis of the competition process shows that intellectual property is not by itself harmful to competition. Rather, exclusive rights granted under IP laws promotes competition between companies, which are compelled to invest in research and development in order to innovate and keep up with the market.
Therefore, antitrust and intellectual property should work together towards their common goals. This is particularly true in the context of the new economy, in which innovation, knowledge and intellectual property rights are a central part of the competition dynamics. It does not mean, however, that the two fields will remain without conflicts. In the concrete economic reality, there is growing attention from competition authorities to the relationship between the two areas, because there is also an increasing possibility to the abuse of IP rights in innovative and digital markets.
In the last session of the Council we presented a case of sham litigation involving a drug used against breast cancer. Our competition authority, whose acronym in Portuguese is CADE, imposed a fine of 36.6 million reais or 10 million US dollars on the defendants(empresa).
I would like now to mention two other cases decided by CADE, the first one regarding the use of auto parts industrial design rights in the aftermarket and the second involving a merger filing.
The “Anfape Case”, as it came to be known, was filed by the National Association of Independent Manufacturers of Automobile Parts against original equipment manufacturers. The plaintiff alleged that the defendants had abused their dominant position and their IP rights over automobile spare parts by exercising their industrial design rights in the aftermarket, thus effectively monopolizing the aftermarket. Certain original manufacturers filed legal claims in the judiciary to safeguard their intellectual property and preclude the independent manufacturers from commercializing auto parts without properly licensing the industrial design. ANFAPE argued that those injunctions intended to prevent independent manufacturers from effectively competing in the aftermarket and argued that the industrial design was restricted to the primary market. The decision by CADE held that the Brazilian Industrial Property Law did not restrict the enforcement of the industrial design protection to the aftermarket. The registrations were obtained lawfully and the means used to enforce the IP rights were reasonable, so there was no trace of sham litigation. For this reason, no abuse in the exercise of the IP rights was identified and the case was closed. This understanding reveals CADE’s balanced position when confronting intellectual property matters, achieved after careful consideration of the issues.
In the merger filing between Bayer and Monsanto, CADE had the opportunity to address intellectual property rights issues as they pertain to the sale of goods and tangible assets. The merger involved the seeds and agricultural defensives markets. The analysis undertaken by CADE highlighted the importance of IP rights for the companies involved, who heavily rely on patents and plant varieties protection. Bayer and Monsanto are active in all those areas, which gave rise to competitive concerns related to increased entry barriers and market concentration deriving from IP rights. CADE conditioned approval of the merger on remedies that addressed the competitive concerns caused by the concentration of IP rights. For the merger to go through, the companies were required license certain patented seed traits and protected plant varieties. This merger analysis shows that competition authorities can effectively and timely intervene to prevent the concentration of economic power generated by IP rights, as well as potential abuses of dominant position by IP rights holders.
Policy coherence between the IP system and competition must be strengthened in order to promote to the full extent innovation and access to technologies. Article 8(2) of the TRIPS Agreement provides flexibilities for governments to adopt competition law measures to prevent abuse of intellectual property rights, including IP rights related to the life sciences.
Abuses of intellectual property rights, such as reverse payment agreements and anticompetitive licensing practices, may favor undue extension of the market power granted by a patent. These practices impact both traditional and innovative companies, stifling competition and harming consumers. One way to deal with these practices is through the improvement of the patent system, for example by carefully designing patentability requirements. While some changes may indeed decrease or eliminate abuses, they should be implemented cautiously to avoid unforeseen outcomes.
Competition law, on the other hand, may be useful in situations where changes to IP policies are ineffective in dealing with these types of practices. In the pharmaceutical industry, competition policy benefits consumers in the form of increased access to affordable medicines by detecting, halting and correcting anti-competitive practices, without harming the dynamic competition effect granted by IP rights. Furthermore, countries should be able to retain freedom to utilize to the full flexibilities available in the TRIPS Agreement to ensure access to medicines. It is also important that technical assistance and capacity building contribute to the delivery of more effective policies on potentially abusive practices in the pharmaceutical sector in support of access to medicines.
The relationship between antitrust and intellectual property is complex and there are still many issued to be addressed by authorities. As new competitive strategies related to new businesses arise, there will be a growing number of antitrust cases involving IP rights. The core issue is to determine the optimal level of competition law intervention in the field of intellectual property rights. We must fine tune enforcement work to ensure competition and intellectual property laws each play their complementary role in encouraging innovation and enhancing consumer welfare.