On 1 February 2019, the World Trade Organization (WTO) published a submission (IP/C/W/651)by South Africa to the TRIPS Council on Intellectual Property and the Public Interest: Promoting Public Health Through Competition Law and Policy. The South African paper endeavored to kickstart discussions at the TRIPS Council to examine “the linkage between intellectual property and competition law…with specific reference to exploitative excessive pricing and restrictive practices such as reverse payment agreements, strategic patenting and more lately,the evolution of niche pricing of off-patent pharmaceuticals.”
On Wednesday, 13 February 2019, the European Union (EU) delivered the following statement on intellectual property and competition policy at the WTO TRIPS Council under agenda item 12 on Intellectual Property and the Public Interest: Promoting Public Health Through Competition Law and Policy. The subject of intellectual property and competition policy was the subject of heated discussions at the TRIPS Council in 2018.
In relation to excessive pricing, the European Union stated:
However, competition authorities in the EU have been generally reticent to address possible excessive pricing conduct. In a market economy, prices and profits are generally regarded as useful indicators and necessary incentives for other firms to decide where to invest, enter a certain market or expand their business. Lastly, if high profits are the result of a firm’s own excellence and innovativeness, the incentive for such efforts should not be undermined by ex-post competition policy enforcement. While these reasons, which justify a cautious policy, are generally well understood, TFEU Article 102 has an explicit abuse prohibition of excessive pricing, which has been further developed by the European Court of Justice.
However, in the EU, there were no competition cases of excessive prices related to intellectual property rights. EU authorities, including the Commission, have so far intervened in cases where, due to market failure, older, off-patent drugs saw their prices increase by up to over 2000%. In these cases, i.e. drugs which were no longer protected by intellectual property rights, high prices were not related to intellectual property rights and did not act as an incentive for innovation, which intellectual property rights aim at safeguarding. Conversely, the European Commission has never reached the conclusion that the pricing of an innovative medicine was excessive.
The full text of the EU intervention, as delivered, can be found below.
Intellectual property and the public interest
EU intervention:
Competition law and intellectual property systems are not contradictory, but complementary systems of law, which both strive to further welfare and growth. As already stated at the last two TRIPS Council sessions, in general, we do not consider the TRIPS Council the appropriate forum to discuss competition policy. There are other international fora, such as the International Competition Network, where such international exchanges and cooperation are taking place and we invite all WTO members’ competition authorities to participate in those fora.
While the submission from South Africa seems to consider the use of competition policy a TRIPS flexibility to facilitate the market entry of generic competitors, the EU would be cautious and would emphasise the following: while the TRIPS agreement is obviously compatible with the application of competition policy measures, it clearly does not allow for “absolute policy space”. As 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.
Generally, of course, competition policy plays an important role in controlling and sanctioning anti-competitive market behaviour in any sector, including the pharmaceutical sector.
However, competition authorities in the EU have been generally reticent to address possible excessive pricing conduct. In a market economy, prices and profits are generally regarded as useful indicators and necessary incentives for other firms to decide where to invest, enter a certain market or expand their business. Lastly, if high profits are the result of a firm’s own excellence and innovativeness, the incentive for such efforts should not be undermined by ex-post competition policy enforcement. While these reasons, which justify a cautious policy, are generally well understood, TFEU Article 102 has an explicit abuse prohibition of excessive pricing, which has been further developed by the European Court of Justice.
However, in the EU, there were no competition cases of excessive prices related to intellectual property rights. EU authorities, including the Commission, have so far intervened in cases where, due to market failure, older, off-patent drugs saw their prices increase by up to over 2000%. In these cases, i.e. drugs which were no longer protected by intellectual property rights, high prices were not related to intellectual property rights and did not act as an incentive for innovation, which intellectual property rights aim at safeguarding. Conversely, the European Commission has never reached the conclusion that the pricing of an innovative medicine was excessive.
Moreover, competition enforcement should not only safeguard static price competition, but also be mindful of the need to secure dynamic competition for the development of new, innovative drugs. Both the Commission’s recent Report on Competition Enforcement in the Pharmaceutical Sector as well as the Commission’s Sector Inquiry recognize the value that systemic protection of intellectual property rights together with the other incentives on the pharmaceutical markets (e.g. incentives for development of orphan medicines) bring by stimulating innovation and increasing choice for the patients. They also recognize that many legitimate practices of the pharmaceutical companies rely on the intellectual property framework (e.g. patent strategies, patent litigations and settlements, patent oppositions).
Abusive conduct of pharmaceutical companies, as any other abusive practices, can violate competition law in certain clearly defined circumstances, and provided that all applicable legal requirements are met. The Report and the reported cases that include intellectual property elements clearly underscore that it is not the IPR system as such that is problematic. In fact, it is to the opposite, competition issues originate from the unlawful conduct of pharmaceutical companies, which go against the objectives of the IPR system, for example, fraud on the patent office, vexatious litigation, or pay for delay settlement of patent disputes. European authorities have prosecuted a number of such cases, notably AstraZeneca, Lundbeck, Servier, Pfizer, Boehringer / Almirall etc, all summarised in the report.
The Commission believes that vigilant enforcement is needed to prevent abusive anti-competitive practices in all sectors, including the pharmaceutical sector. To that end, EU competition authorities have the normal toolbox of competition policy remedies, in particular monetary fines.
However, it cannot be inferred that patenting, patent litigation or other IP related conduct is generally problematic from the competition law perspective.
On the international level, the EU effectively cooperates with other national authorities, including many WTO Members, on competition policy and enforcement issues of mutual interest. EU cooperation with competition authorities takes place at two levels. First, the Commission discusses competition-related matters in various international fora, such as the International Competition Network (ICN), where excessive pricing was discussed during its annual conference in Portugal in 2017. ICN is an effective forum with a broad expert outreach, and brings together competition authorities from more than 100 jurisdictions, which exchange experiences and best practices in several meetings every year. Second, the Commission is also regularly engaged in bilateral cooperation, including in the pharmaceutical sector. The nature of the cooperation activity varies between countries and can cover cooperation on specific investigations, dialogue on competition policy issues as well as capacity building support.
Therefore, we remain to be convinced about the added value of discussing competition policy here at the TRIPS Council.