TWN Info Service on WTO and Trade Issues (Nov18/07)
9 November 2018
Third World Network

South Africa challenges North on curbing anti-competitive behaviour
Published in SUNS #8790 dated 7 November 2018

Geneva, 6 Nov (D. Ravi Kanth) - South Africa has challenged the developed countries at the World Trade Organization (WTO) to discuss how to promote public health by curbing the anti-competitive behaviour of the pharmaceutical companies stemming from the existing Intellectual Property (IP) protection.

The South African challenge comes at a time when the developed countries led by the United States are queering the pitch for framing rules for Intellectual Property and Innovation by ignoring the central issue of anti-competitive behaviour of the pharmaceutical industry that is causing an explosion in the prices of prescriptive drugs, particularly in the US where it is a major election issue today.

South Africa has said that "IP protection per se cannot be presumed to confer market power or to indicate anti-competitive behaviour."

In its proposal (IP/C/W/640) circulated on 26 October, South Africa, later joined by Brazil, has asked members to discuss at the meeting of the WTO Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS) on Thursday ( 8 November) about the interface between competition law and policy and IP because of the anti-competitive behaviour of leading pharmaceutical behemoths.

Incidentally, Brazil has also co-sponsored the proposal on IP and Innovation circulated by the US, the EU, Japan, and Chinese Taipei among others.

During the June 2018 TRIPS Council meeting, South Africa said that the co-sponsors on "IP and the Public Interest: Promoting Public Health through Competition Law", including China, had demonstrated that "there are various pro-competitive provisions in the TRIPS Agreement, including Article 6, Article 8.1, Article 31(k) and Article 40."

South Africa said, "these provisions leave WTO Members broad policy space to apply competition law in respect of acts related to the acquisition or exercise of IP rights."

For accommodating "the variety of potential competition approaches," South Africa and other co-sponsors had argued that "remedies" are available to address anti-competitive behaviour, including "permitting a broader range of remedial action than some other public health-related flexibilities associated solely with patents."

Therefore, "competition policy has an important role to play in ensuring access to medical technology and fostering innovation in the pharmaceutical sector," South Africa has argued.

"WTO Members have absolute policy space under international law to design their national competition laws in accordance with their domestic interests and needs and the level of their development," South Africa has maintained.

It acknowledged that there are difficulties in using competition policy in developing countries due to "lack of capacity to administer or enforce such a system."

Nevertheless, many WTO members, including several developing countries, are already using "competition law to address various anti-competitive practices that affect access to medicines and medical technologies."

South Africa said practices adopted by patent holders that have been identified as detrimental include, among others:

(i) abuses of IPRs due to a refusal to deal with or imposition of overly restrictive conditions in medical technology licensing;

(ii) preventing generic competition through anti-competitive patent settlement agreements;

(iii) mergers between pharmaceutical companies that lead to undesirable concentration of research and development and IPRs;

(iv) cartel agreements between pharmaceutical companies, including between manufacturers of generics;

(v) anti-competitive behaviour in the medical retail and other related sectors; and

(vi) bid rigging in public procurement.

In this respect, South Africa said, "not all jurisdictions follow the same approach, for instance, refusal to license may amount to an abuse of dominance in some jurisdictions while others consider this [to be] within the rights of IPR holders."

It maintained that the "objectives" and "principles" enshrined in Articles 7 and 8 of the TRIPS Agreement form central elements of the interpretation of the T RIPS Agreement, especially with regard to the relevant provisions that recognize flexibilities to legislate at the national level.

South Africa cited the cases of Canada - Patent Protection for Pharmaceutic al Products and Australia - Tobacco Plain Packaging to argue that paragraph 5 of the Doha Declaration constitutes a subsequent agreement of WTO Members within the meaning of Article 31(3)(a) of the Vienna Convention on the Law of Treaties, and have important consequences for how flexibilities in the TRIPS Agreement are interpreted.

According to South Africa, the United Nations Conference on Trade and Development (UNCTAD) has produced seminal work on several issues concerning competition policy matters.

Even the World Intellectual Property Organisation (WIPO) has actively discussed the issue of IP and competition, South Arica maintained.

Against this backdrop, South Africa and the co-sponsors have urged WTO members to "share their national experiences and examples of how competition law is used to achieve public health and related national objectives."

The sponsors on the IP and the public interest have posed the following que stions to be discussed at the TRIPS Council meeting on Thursday:

(1) What types of behaviours do WTO Members consider abuses of intellectual property rights in the pharmaceutical and medical sectors? Has there been any evolution in the approaches that WTO Members take to assess such types of behaviours?

(2) What examples of best practice can Members identify on the subject of the control and remedies for excessive pricing? Are there context-specific methodologies employed by Members for determining if prices are excessive, and the mechanisms to remedy and control pricing abuse?

(3) What examples of best practice can be identified through national competition laws and practices? Are there certain common trends that can be identified across various jurisdictions?

(4) To what extent can technical assistance and capacity building contribute to the delivery of more effective policies by WTO Members in the field of competition law to address the abuse of intellectual property rights?

South Africa's proposal has triggered fierce opposition from the US, the European Union, and Switzerland among others who have maintained that the TRIPS Council should not discuss the issue. Instead, the industrialized countries want to discuss IP and Innovation, which fails to serve any public goals at this juncture.

Ahead of the WTO's TRIPS Council meeting on Thursday, the two sides are challenging each other in which way the IP protection must proceed in the face of public health challenges, particularly the unaffordable prices for prescription drugs in several industrialized countries.

The US, joined by the European Union, Japan, Switzerland, Korea, Chinese Taipei, and Brazil among others, has zeroed in exclusively on how IP can foster new business in which the private sector "is moving more and more towards having knowledge and technology as its main product and service."

The US and other sponsors have argued repeatedly that given the predominant role played by knowledge in economic growth and other intangible assets, WTO members must aim at policy measures that would enhance intellectual property rights for supporting new businesses.

The sponsors have listed the following areas in which IP and innovation can play an important role:

* IPRs can act as a cartel that sets start-ups on a growth path, and thus may provide a stimulus and encourage them to enter national and international markets;

* IP can play a key role in overcoming financing constraints well known to young entrepreneurs. Patents function as a mechanism for credibly publicizing information for external investors. In fact, this patent signaling mechanism motivated a body of economic research examining use of patents by start-ups to signal quality such as R&D success and innovative capabilities, which outsi de investors would otherwise have difficulty in screening or differentiating.

* To create a secure national and international business environment, with a special focus on making IPR available and providing adequate remedies for when they are infringed.

The proponents want WTO members to share country-specific information on IP and knowledge-based businesses, and address the question as to what IPR-specific regulatory measures, policies and practices are "conducive to, or even necessary for, creating new businesses, e.g. how easy is it to create a new business for young entrepreneurs."

Significantly, the proponents are silent about IP and public health, particularly the growing prices of prescription medicines in the US and other countries.