COMPETITION LAW
v. 1.0 researched and written by Catherine Saez, edited by Suerie Moon, last updated March 2019
INTRODUCTION
The literature on the application of competition law to the pharmaceutical sector is rich*. Over 100 countries have enacted competition laws, compared to 159 countries that have intellectual property (IP) laws in place (Raju 2014). A wide range of pharmaceutical industry behaviors may fall under the remit of competition law, from innovation to pricing-related actions, as detailed further below. The use of competition law varies widely across countries, and its relationship particularly to IP law can be complex. We use the terms "competition" and "anti-trust" law interchangeably in this review.
SEARCH TERMS
Medicine/pharmaceutical and antitrust, competition law, parallel importation, pay-for-delay, patent pool, innovation
SYNTHESIS OF THE LITERATURE
TYPES OF POTENTIALLY ANTI-COMPETITIVE BEHAVIOR IN THE PHARMACEUTICAL SECTOR
A number of pharmaceutical company activities may be characterized as anti-competitive. Abbott et al (2014) have described these as either horizontal or vertical: Horizontal anti-competitive activities involve direct competitors, and include price-fixing, pay for delay, output restraints, and allocation of geographic territories.
Vertical anti-competitive activities involve firms at different parts of the value chain, and could include resale price maintenance, collusion between pharmaceutical companies and pharmacy benefit managers (PBMs) with market dominant positions (Yoo, 2018), and exclusive grantback requirements in patent licences (Abbott et al., 2014).
A number of remedial actions can be sought to address anti-competitive behavior, which can be initiated by public authorities or private parties (Abbott et al., 2014). Remedial actions can include settlements, injunctions, technology remedies (such as compulsory licenses), damages, criminal penalties, and limits on mergers and acquisitions (Abbott et al., 2014; WTO, WHO, WIPO, 2012).
MERGERS AND COLLUSION
Competition law has traditionally focused on preventing collusion (e.g. price-fixing) among competitors and scrutinizing proposed mergers to ensure an adequate degree of competition in the market, both of which are relevant to the pharmaceutical market (Arnaudo, 2017; WTO, WHO, WIPO, 2012). Mergers may not only hinder price competition but also impede innovation. Haucan and Stiebale found that after a merger, patenting and R&D expenditures declined in the merged entity and among non-merging rivals (Haucan & Stiebale, 2016). One of the areas of antitrust concern for R&D intensive pharmaceutical firms arises when two merging parties have potentially competing drug candidates in their R&D pipelines, as the merger could result in suppressing one of the research paths (Grabowski & Kyle, 2008).
EXCESSIVE PRICING
Competition law has rarely been used to mitigate "excessive" or "unfair" prices of pharmaceutical products (Abbott, 2016). High prices are a particular risk for products under monopoly, such as drugs and biologics under patent and/or regulatory market exclusivity, or generics without competitors. (Abbott, 2016).
Abbott et al. have argued that competition law is the least discussed flexibility of the World Trade Organization Agreement on Trade-Related Intellectual Property Rights (TRIPS) and is an untapped policy tool (Abbott et al., 2014; WTO, WHO, WIPO, 2012). Countries’ competition authorities take varying approaches to excessive pricing. In Australia, Mexico, and the US, for example, competition laws do not cover excessive pricing by monopolies. In contrast, the South African Competition Commission has succeeded in securing several settlements based on allegations of excessive pricing of medicines (Abbott, 2016) (see Hazel Tau case, below).
Excessive pricing also falls within the remit of competition law in Europe, as established by the seminal 1978 United Brands Co. v. Commission of the European Communities case at the European Court of Justice (ECJ) (FitzPatrick, 1979; Jenny, 2016). The ECJ developed three approaches to determining whether a price was excessive: by comparing the price to computed costs of production, to other prices of the dominant firm, and to prices of other firms offering similar products (Motta & de Streel, 2003). The United Brands case has become a benchmark for determining excessive prices in medicines (Hou, 2011). For example, the Italian competition authority applied the ECJ test to determine whether the prices charged by pharmaceutical firm Aspen were excessive (Caro de Sousa, 2018).
Views differ significantly on what constitutes an excessive and/or unfair price (Jenny, 2016). One of the difficulties in determining excessive pricing is the lack of data on the cost of researching and developing originator pharmaceutical products, which is "deliberately shrouded in mystery" (Abbott, 2016). Abbott has argued that it would be necessary to require the originator industry to provide concrete data regarding the cost of R&D on individual drugs in order to make an assessment.
COMPETITION LAW AND INTELLECTUAL PROPERTY
The question of the appropriate relationship between intellectual property (IP) law and competition law has been much debated. Competition legislation may provide that the rules of competition shall apply to the exercise of IP rights, and the legislation may extend the definition of IP rights to know-how and certain unregistered businesses processes (UNCTAD, 2016).
The most widely discussed form of horizontal IP-related potentially anti-competitive behavior is when patent-holders buyout generic patent challenges. An analogous practice is known as “pay for delay” (also known as reverse payment settlements) in which a dominant market player (such as a monopoly patent-holding company) pays a generic firm to delay entering the market and competing after patent-expiry (Hemphill, 2009). Not all countries take the same approach to regulating “pay for delay,” however. For example, in India there has been debate over whether pay for delay falls under the authority of the competition or patent authorities, though Chawla and Verma (2018) argue for the former. Raju (2014) has argued that both enforcing authorities should have a role in policy making, particularly in developing countries.
Patent pools can also be the focus of competition authorities. In particular, the accumulation of technologies within one pool strengthens its position in a given technology market and the pool can become a dominant market player (Odrobina, 2014). Anti-competitive concerns are greater when pools are closed, as the pool can hinder technological advancement and innovation by preventing the sale of patents or blocking access to a given technology (Odrobina, 2014). The European Commission considers that pool agreements do not infringe on competition laws if “their activities are confined to standard patent packages, pool members can freely grant licences for the use of their own patents to non-members, and pools do not have exclusive licence rights, thus enabling their members to develop alternative technologies outside the pool’s structure” (Odrobina, 2014).
An additional IP-related concern is the filing of new patent applications for minor modifications to existing health technologies, which can impede the potential entry of generics (Abbott and al., 2014). A joint WTO/WHO/WIPO report notes that some companies establish strategies to extend patent protection for originator drugs and to prevent market entry by generic competitors after patent expiry (WTO, WHO, WIPO, 2012)
Abbott et al. (2014) also argued that TRIPS Article 31(k) provides for the use of compulsory licences to remedy anti-competitive practice (Abbott et al., 2014). Alternately, competition law can be considered in lieu of compulsory licences, which have been challenging to implement, for mandating competition in a monopolistic medicines market. Matthews and Gurgula (2016) have argued that a decision by a competition authority to do so may establish a useful legal precedent and push companies to take those guidelines into consideration in their pricing strategies, and/or to engage in voluntary licensing.
Parallel importation, which depends on a country’s IP exhaustion regime, may also be considered an important enabler of competition. Treacy and Watson-Doig point out that the European Commission “has consistently found pharmaceutical companies to have infringed competition law by preventing parallel trade” within the EU (2016).
SPECIFIC COMPETITION CASES CONCERNING PHARMACEUTICALS
A number of important competition cases have been brought in the pharmaceutical sector. In 2002, the Treatment Access Campaign (TAC) lodged a complaint with the South African Competition Commission regarding the excessive pricing of three HIV medicines (AZT, lamivudine, and nevirapine) manufactured by GlaxoSmithKline and Boehringer Ingelheim (the Hazel Tau case). In 2003 the Commission found evidence that supported Tau’s allegations resulting in the matter being referred to the Competition Tribunal. The companies subsequently settled and provided licenses for competitors to supply lower-cost generics to South Africa and other countries in Sub Saharan Africa (Mdletshe, 2016).
AbbVie was found to have abused its monopoly in 2018 by a Federal District Court judge in Pennsylvania, who ruled in favour of the US Federal Trade Commission (FTC) and granted a civil award of US$448 million. The same judge also found AbbVie to have engaged in sham patent litigation against generic firms Perrigo and Teva in 2017, when the firm sought to prevent the generics from early entry into the market for testosterone gel (Abbott, 2018). According to a WIPO study (2012), “A possible tentative definition for sham litigation on a strictly economic perspective is predatory or fraudulent litigation with anticompetitive effect, i.e., the improper use of the courts and other government adjudicative or granting processes against rivals to achieve anticompetitive ends (Institute for Applied Economic Research, 2012).”
In the EU, competition authorities have adopted several infringement decisions related to unfair pricing in the pharmaceutical sector since 2000, all pertaining to medicines that had already lost their market exclusivity. For example, in April 2001, the United Kingdom competition authority found that Napp Pharmaceuticals abused its dominant position by charging excessively high prices for morphine(Caro de Sousa, 2018). In 2005 the European Commission fined AstraZeneca €60 million for misusing its patent system and the procedures for marketing pharmaceuticals to block or delay market entry for generic competitors to its ulcer drug omeprazole (Baier, 2011; Caro de Sousa, 2018). In September 2016, the Italian competition authority found that Aspen abused its dominant position by imposing unfair prices for four off-patent anti-cancer medicines (melphalan, chlorambucil, mercaptopurine and thioguanine). Aspen's price increases ranged from 300% to 1500% without any economic justification for the price levels imposed, according to Caro de Sousa (2018). The first-level appeals court fully upheld the decision in June 2017; a further appeal against that judgment is still pending (Caro de Sousa, 2018). In 2016, the UK competition authority found that Pfizer and the distributor Flynn had each abused their dominant positions by charging unfair prices for phenytoin sodium capsules, an anti-epilepsy medicine manufactured by Pfizer (Caro de Sousa, 2018). The UK Competition and Markets Authority imposed a £84 million fine for abusing a dominant position, and Flynn a further £5.2 million. However, in June 2018, the Competition Appeal Tribunal partially upheld and partially reversed and remanded the decision (Abbott, 2018). According to Abbott, the Competition Appeal Tribunal decision is problematic because it creates unwarranted hurdles to findings of excessive pricing in the UK.
In January 2018, the Danish national competition authority found that CD Pharma (a pharmaceutical distributor) abused its dominant position in Denmark by charging Amgros (a wholesale buyer for public hospitals) unfair prices for oxytocin after a price increase of 2000%. An appeal against the decision is pending. Additional investigations by the European Commission and national competition authorities were ongoing as of 2018 (Caro de Sousa, 2018).
CRITIQUES AND PROPONENTS OF COMPETITION LAW IN THE PHARMACEUTICAL MARKET
There is robust debate regarding the extent to which competition law should be used to regulate pharmaceutical markets. Some have argued against intervention by competition authorities, due to the risk of long-term anti-competitive implications if there is a chilling effect on new entrants. Such intervention could also generate uncertainty for dominant firms concerning the terms under which they can compete (Caro de Sousa, 2018). If companies anticipate that a competition authority can cap their prices, it has been argued, their incentive to invest and innovate would diminish (Motta & de Streel, 2003). Further, competition authorities may not be well-equipped for regulating medicines prices (Hou, 2011). For pharmaceuticals, Grabowski and Kyle (2008) have argued that competition authorities should focus any potential intervention on late-stage drug candidates and finished products rather than earlier stage R&D for which barriers to entry and costs are relatively low.
Although competition authorities in a number of countries have intervened against excessive prices by dominant firms, conditions under which high prices can be considered to be violations of competition law are "neither abundant nor very clear" and a number of economists and legal scholars have said that competition authorities should refrain from enforcing such provisions, save for some exceptional cases (Jenny, 2016).
Some further argue that high prices cannot last in the long term and suggest that high prices may constitute market signals which will attract entry, so the market will correct itself (Hou, 2011). Doubts remain, however on the time frame of this self-correction, and on the possibility to overcome high barriers to entry (Jenny, 2016).
While some warn against over-intervention, others have advocated for wider use of competition law. Matthews and Gurgula (2016) argue that competition authorities have not adequately addressed practices to delay generic entry nor to address “life-cycle management”/”evergreening” practices such as patent thickets, secondary patenting, and defensive patenting, which can considerably delay generic entry and innovation.
CHALLENGES IN USING COMPETITION LAW IN THE PHARMACEUTICAL MARKET
For many developing countries, competition law is a relatively novel area and authorities may have limited resources and experience with it. Nyak (2014) has argued that technical assistance, provided by multilateral agencies, foreign governments, and civil society could alleviate the lack of capacity Regional cooperation agreements focused on pooling resources may also be useful (Abbott, 2018).
Jenny has found that a number of developing countries that are following the EU approach to excessive pricing have a low level of enforcement, mainly for lack of means to assess whether prices are excessive or unfair (2016). Indeed, as noted above, in all countries the establishment of excessive prices is complex, in part due to the difficulty of assessing the relevant costs. National competition authorities in LMICs need stronger investigative powers, in particular the authority to compel the production of evidence, and LMICs should be encouraged to adopt legislation banning obligations precluding the disclosure of the price paid for pharmaceutical products, whether through trade secrets or other forms of protection (Abbott, 2018a). Furthermore, competition authorities may not have deep knowledge of the sector being investigated (Motta & de Streel, 2003). Caro de Sousa has argued that an important tool to be used by competition authorities may therefore be market studies, which might help competition agencies better understand market developments and tailor the most appropriate response. Market studies could be coupled with advocacy for the adoption of appropriate regulation, or the adoption of initiatives launched in cooperation with sectoral regulators (Caro de Sousa, 2018).
EMERGING ISSUES
Biosimilars: It remains to be seen whether and how competition law may be applied to biologics and biosimilars (Carrier & Minniti, 2017). In the US, biosimilars are not governed by the Hatch-Waxman Act but by the Biologics Price Competition and Innovation Act (Carrier & Minniti, 2017). Heled (2018) has argued that companies such as Johnson & Johnson and Roche are abusing their dominant positions in the markets for biologics infliximab and trastuzumab, respectively, to block market entry by competitors. Johnson & Johnson has been accused of requiring exclusionary contracts with both health insurers and healthcare providers in the US to drive the competing biosimilars out of the market. Roche is accused of lowering the price of trastuzumab below cost to drive a competitor in Russia out of the market. Biologics may also be subject to patent thickets and other evergreening strategies, just as small molecule drugs. However, courts have not yet recognized these practices in biologics markets as anti-competitive, and enforcement has not been undertaken (Heled, 2018).
INTERNATIONAL COMPETITION AGREEMENTS
Abbott has argued that the incorporation of competition rules in bilateral, regional, and plurilateral agreements between LMICs and high-income countries is premature and may be counterproductive. Matthews and Gurgula ( 2016) have pointed out that in the absence of an international agreement on competition law, developing countries have the freedom to develop policies and objectives tailored to their specific needs, which they should retain.
RESEARCH GAPS
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The extent and manner in which competition law has been applied to pharmaceuticals in developing country contexts.
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Data for determining whether a price is excessive.
CITED PAPERS WITH ABSTRACTS
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Abbott, Frederick. 2016. “Excessive Pharmaceutical Prices and Competition Law: Doctrinal Development to Protect Public Health.” UC Irvine Law Review 6 (3): 281."Abstract: Public health budgets and individual patients around the world struggle with high prices for pharmaceutical products. Difficulties are not limited to low income countries. Prices for newly introduced therapies to treat hepatitis C, cancer, joint disease and other medical conditions have entered the stratosphere. In the United States, state pharmaceutical acquisition budgets are at the breaking point -- or have passed it -- and treatment is effectively rationed. Competition/antitrust law has rarely been used to address “excessive pricing” of pharmaceutical products. This is a worldwide phenomenon. In the United States, the federal courts have refused to apply excessive pricing as an antitrust doctrine, either with respect to pharmaceutical products or more generally. Courts in some other countries have been more receptive to considering the doctrine, but application in specific cases has been sporadic, including with respect to pharmaceuticals. This remains a paradox of sorts. Competition law experts acknowledge that one of the principal objectives of competition policy is to protect consumers against the charging of excessive prices. The currently preferred alternative is to address the “structural problems” that allow the charging of excessive prices. That is, “fixing the market” so that the underlying defect by which excessive prices are enabled is remedied. There is a fundamental problem with the “fixing the market” approach when addressing products protected by legislatively authorized market exclusivity mechanisms such as patents and regulatory marketing exclusivity. That is, mechanical aspects of the market are not broken in the conventional antitrust sense. Rather, the market has been designed without adequate control mechanisms or “limiters” that act to constrain exploitive behavior. Political institutions, such as legislatures, that might step in are constrained by political economy (e.g., lobbying), and do not respond as they should. Competition law and policy should develop robust doctrine to address excessive pricing in markets lacking adequate control mechanisms. This article will focus specifically on the pharmaceutical sector because of its unique structure and social importance. This focus is not intended to exclude the possibility that development of excessive pricing doctrine would be useful in other contexts. This article is divided into two parts. The first addresses competition policy and why it is appropriate to develop the doctrine of excessive pricing to address distortions in the pharmaceutical sector. The second addresses the technical aspect of how courts or administrative authorities may determine when prices are excessive, and potential remedies. The policy prescription of this article is twofold: first, the United States should incorporate excessive pricing doctrine in its antitrust arsenal, and; second, other countries should maintain the status quo with respect to multilateral competition rules that allow them flexibility to develop and refine doctrine, including excessive pricing doctrine, that is best suited to their circumstances and interests. Link: https://scholarship.law.uci.edu/ucilr/vol6/iss3/3/
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Heller, Peter S. “The Prospects of Creating ‘Fiscal Space’ for the Health Sector.” Health Policy and Planning 21, no. 2 (March 1, 2006): 75–79. https://doi.org/10.1093/heapol/czj013."Abstract: Not Available Link: https://academic.oup.com/heapol/article/21/2/75/554947
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Lexchin, Joel. 2015. “Drug Pricing in Canada.” In Pharmaceutical Prices in the 21st Century, 25–41. Adis, Cham. https://doi.org/10.1007/978-3-319-12169-7_2."Abstract: Not available Link: https://link.springer.com/chapter/10.1007/978-3-319-12169-7_2
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Love, James. 2012. “Affidavit: Natco Pharma Limited versus Bayer Corporation.” https://www.keionline.org/sites/default/files/aff-jameslove_13Feb2012_as_Filed.pdf."Abstract: Not available Link: https://www.keionline.org/sites/default/files/aff-jameslove_13Feb2012_as_Filed.pdf
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Ottersen, Trygve, Riku Elovainio, David B. Evans, David McCoy, Di Mcintyre, Filip Meheus, Suerie Moon, Gorik Ooms, and John-Arne Røttingen. 2017. “Towards a Coherent Global Framework for Health Financing: Recommendations and Recent Developments.” Health Economics, Policy, and Law 12 (2): 285–96. https://doi.org/10.1017/S1744133116000505."Abstract: The articles in this special issue have demonstrated how unprecedented transitions have come with both challenges and opportunities for health financing. Against the background of these challenges and opportunities, the Working Group on Health Financing at the Chatham House Centre on Global Health Security laid out, in 2014, a set of policy responses encapsulated in 20 recommendations for how to make progress towards a coherent global framework for health financing. These recommendations pertain to domestic financing of national health systems, global public goods for health, external financing for national health systems and the cross-cutting issues of accountability and agreement on a new global framework. Since the Working Group concluded its work, multiple events have reinforced the group’s recommendations. Among these are the agreement on the Addis Ababa Action Agenda, the adoption of the Sustainable Development Goals, the outbreak of Ebola in West Africa and the release of the Panama Papers. These events also represent new stepping stones towards a new global framework. Link: https://www.cambridge.org/core/journals/health-economics-policy-and-law/article/towards-a-coherent-global-framework-for-health-financing-recommendations-and-recent-developments/32B84686FD13D7CB340643D798832095
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Wirtz, Veronika J., Hans V. Hogerzeil, Andrew L. Gray, Maryam Bigdeli, Cornelis P. de Joncheere, Margaret A. Ewen, Martha Gyansa-Lutterodt, et al. 2017. “Essential Medicines for Universal Health Coverage.” The Lancet 389 (10067): 403–76. https://doi.org/10.1016/S0140-6736(16)31599-9."Abstract: Not available Link: https://www.thelancet.com/action/showPdf?pii=S0140-6736%2816%2931599-9
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World Health Organization. n.d. “Essential Medicines.” WHO. http://www.who.int/medicines/services/essmedicines_def/en/.Abstract: Not available Link: http://www.who.int/medicines/services/essmedicines_def/en/
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Xu, Ke, David B Evans, Kei Kawabata, Riadh Zeramdini, Jan Klavus, and Christopher J L Murray. 2003. “Household Catastrophic Health Expenditure: A Multicountry Analysis.” The Lancet 362. http://www.who.int/health_financing/documents/lancet-catastrophic_expenditure.pdf."Abstract: Not available Link: http://www.who.int/health_financing/documents/lancet-catastrophic_expenditure.pdf
* For the purposes of this review, we have established three categories to describe the state of the literature: thin, considerable, and rich.
- Thin: There are relatively few papers and/or there are not many recent papers and/or there are clear gaps
- Considerable: There are several papers and/or there are a handful of recent papers and/or there are some clear gaps
- Rich: There is a wealth of papers on the topic and/or papers continue to be published that address this issue area and/or there are less obvious gaps
Scope: While many of these issues can touch a variety of sectors, this review focuses on medicines. The term medicines is used to cover the category of health technologies, including drugs, biologics (including vaccines), and diagnostic devices.
Disclaimer: The research syntheses aim to provide a concise, comprehensive overview of the current state of research on a specific topic. They seek to cover the main studies in the academic and grey literature, but are not systematic reviews capturing all published studies on a topic. As with any research synthesis, they also reflect the judgments of the researchers. The length and detail vary by topic. Each synthesis will undergo open peer review, and be updated periodically based on feedback received on important missing studies and/or new research. Selected topics focus on national and international-level policies, while recognizing that other determinants of access operate at sub-national level. Work is ongoing on additional topics. We welcome suggestions on the current syntheses and/or on new topics to cover.