[Ip-health] TRIPS Council (November 2018): Statement of South Africa on Promoting Public Health Through Competition Law and Policy

Thiru Balasubramaniam thiru at keionline.org
Mon Nov 12 08:34:35 PST 2018


TRIPS Council (November 2018): Statement of South Africa on Promoting
Public Health Through Competition Law and Policy

Posted on November 12, 2018 by Thiru

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 <https://www.keionline.org/27930> 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:
- grant licences to generic manufacturers;
- permit the licensees to export the relevant ARV medicines to sub-Saharan
African countries;
- where the licensee did not have manufacturing capability in South Africa,
permit the importation of the ARV medicines for distribution in South
Africa only, provided all the regulatory approvals were obtained;
- permit licensees to combine the relevant ARV’s with other ARV medicines;
- not require royalties in excess of 5% of the net sales of the relevant

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

Thank you for your kind attention.


[1] South African Competition Commission “The Competition Act, an
introduction.” at p. 8 -
(accessed 4.11.2018)

[2] Competition Commission case number 2002Sep.226

Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International
41 22 791 6727
thiru at keionline.org

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