ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
-A A +A

Enhancing Affordable Pharmaceutical Healthcare

Possibilities in Indian Competition Law Regime

Natasha Nayak ( is a visiting fellow at the Hoover Institution, Stanford University.

The Indian intellectual property regime has often met with severe criticism from the United States as India strives to balance the need to provide affordable healthcare with a thriving market for a competitive pharmaceutical industry. In this context, the nexus between compulsory licensing, competition law and patent law merits a closer examination and it is debatable whether a strong competition law framework is indeed the way forward.

The author would like to thank the anonymous reviewer for extensive comments, Shamnad Basheer for his review and Joanna Barretto for her research assistance.

The politicisation of the intellectual property rights (IPR) regime in India is not new and dates back to the 1990s when India became a member of the World Trade Organization (WTO) and therefore, a signatory to Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). India thus undertook a commitment to harmonise its IPR with that of the multilateral agreement and its mandate. Since then, balancing domestic needs for accessible and affordable medicines with those of the global demands of trade has been a continuous struggle. The Indian Patent Act of 1970 has been amended several times to align it with India’s global commitments, even when it ran the risk of compromising domestic goals. In recent times, the growing global discourse on compliance with TRIPS has shifted to TRIPS-plus, with significant consequences for the country’s political economy.

In 2016, news of “private assurances” offered by the Indian government to the industry to eschew issuance of compulsory licences for commercial purposes made waves throughout the nation. The submissions made by the United States (US)–India Business Council (USIBC) to the US Trade Representative (USTR) on 5 February 2016 revealed this was a wake-up call that the government has now blotted out India’s long hard battle for access and public health and the concessions it earned at the multilateral trade negotiations over a decade ago at Doha. There was some relief in the Ministry of Commerce and Industry’s (2016) subsequent clarification rubbishing the media reports.1 Yet again, 2018 began with James Greenwood, president and chief executive officer of the Biotechnology Innovation Organization, the world’s largest trade association of biotech companies, applauding the current government on its “decision not to pursue compulsory licensing and the Prime Minister’s leadership in setting up an Intellectual Property (IP) task force with the US Trade Representative” (New 2017). Critiquing several provisions of the domestic patent laws, Greenwood urged India to adopt a “Western style approach to IP laws” if it wanted to see a tidal wave of biotech investment and expansion in Gujarat (New 2017).

Politicisation of the Indian IPR Regime

With the government aiming to transform India into a global manufacturing and technology hub, intellectual property laws have assumed special significance in the Indian economy. Innovation is a key driver of economic growth upon which the success of many government initiatives such as “Make in India,” “Digital India” and “Startup India,” hinges. There are noticeable growth surges, especially in key sectors such as pharmaceuticals (India is frequently referred to as the “global generics capital”), telecommunications (second largest mobile telecommunications market in terms of user base overtaking that of the US) and others. These are intensely innovation-driven sectors that are now increasingly being met with regulatory competition scrutiny for conflicts of consumer interest with proprietary rights of innovators.

A crucial development shortly after the 2014 elections was the formation of a bilateral high-level working group on intellectual property, under the aegis of the Trade Policy Forum between the US and India. A national IPR think tank was constituted the same year, with the mandate to formulate a national IPR policy, as well as to consult the government on issues pertaining to IPRs. In May 2016, the National IPR Policy was adopted. The formation of the working group was met with widespread criticism by Indian civil society organisations and scholars who had issued a joint statement raising concerns about India becoming “hostage to the US government and companies” (Raja 2014). Concerns were also raised about the IPR policy prior to its adoption, for a lack of balance and a possible compromise on India’s pro-access position that has inspired many developing countries in the past. Interestingly, it was also found that the previous think tank that offered a policy more in tune with public interest was arbitrarily disbanded and no intimation was offered of the disbanding and formation of the new committee (Datta 2014).

Despite having a TRIPS compliant IPR regime, India has been placed under the USTR Special 301 Priority Watch where it continues to stay. The USIBC submissions were made to the USTR as part of a report of a review of global IP laws earlier last year. In a letter dated 5 February 2016, applauding the Modi administration for making waves by what seems to be a significant shift in India’s approach towards policymaking in IPRs, the letter by the President of USIBC reveals:

USIBC took notice that the Government of India has denied several compulsory licence applications, providing investor certainty and predictability that their patents will be upheld in India … Despite compulsory licensing denials, Industry continues to be concerned by the potential threat of compulsory licensing. The Government of India has privately reassured India it would not use Compulsory Licences for commercial purposes. (Aghi 2016)

Furthermore, Christine Peterson (2016) in a Special 301 submission by Global Intellectual Property Rights Center, mentions,

Industry continues to be concerned by the potential threat of compulsory licensing. While the Government of India has privately reassured Industry that it would not use Compulsory Licences for commercial purposes, a public commitment to forego using compulsory licensing for commercial purposes would enhance legal certainty for innovative industries.

The reports are indicative of the targeted attacks on India’s current compulsory licensing framework and the perceived measure of threat they pose to the US industry. Compulsory licensing is one of the core TRIPS flexibilities that India along with other Group of 77 (G-77) and African countries successfully negotiated at the Doha Development Round in the interest of enhancement of access to medicines and public health in 2001. The impact of compulsory licences on the price reduction of drugs in the global scenario can be seen in Table 1. Such “assurances” would come at the cost of a constitutional guarantee of affordable healthcare. The Supreme Court has held in Paschim Banga v State of West Bengal (1996) that Article 21 of the Constitution imposes an obligation on the state to safeguard the right to life of every citizen. Preservation of human life is thus of paramount importance. Flexibilities embedded in India’s patent law have the potential to contribute to safeguarding this right.

The intellectual property landscape in India has witnessed many dramatic turns in the present times. The potential implications for affordable access to medicines are severe. It may be good to specially draw attention to an alternate forum that promises to present an appropriate yet underutilised framework for solutions to the problem of access to affordable pharmaceutical drugs. Aside from the fact that India’s IPR regime is mired in severe complexities, existing safeguards may have limited benefits, even if we succeed in finding a way out of the labyrinth, especially so when they are enshrined in a framework that is primarily designed to enhance innovation through the protection of commercial interests of creators, and aligned with a framework whose primary mandate is the facilitation of global trade.

Given how prevention of abuse and protection of consumer interests are paramount, there is a case for exploring alternatives within the regulatory framework presented by competition laws that are inherently motivated by such goals. Countries like South Africa have taken this path in the past. Remedial measures under competition law are likely to be broader in range and empower wider interests, than the safeguards given under patent regimes which have been barely invoked by companies and there is but one case of compulsory licensing in close to its 12-year-old history in India’s IPR framework. This is because remedies in competition law differ from private law remedies in the wider objective of social welfare that they are designed to enhance. Correction of market failures, restoration of markets and deterrence is likely to be more effective in meeting public interest goals of ensuring accessibility, affordability and availability in the long run. They may be critically viewed as having potential for alternative solutions, especially when India today boasts of a young yet dynamic competition law framework that functions with the ultimate goal of maximisation of consumer welfare as evinced in its fast-developing competition jurisprudence. Enforcement of competition law, however, is not free from limitations presented by a system that is still evolving and grapples with its own inherent complexities and external pressures. The heavy toll on patients who are primarily consumers of healthcare products and services, however, inspires a fresh look at the problem from these other quarters.

Exploring an Intimate Interface

At present, the close interactions between intellectual property and competition laws have assumed a very important place in technologically driven global as well as domestic markets. Exclusive rights granted by IPRs are often termed as a negative right that they vest in the holder to exclude another from exploiting his/her innovation. While some theorists maintain that intellectual property is an extension of one’s individual personality, utilitarian theorists ground them in social progress and incentives to innovate while Lockeans argue the need to reward labour and merit (Hughes 1988; Moore 2008). While these theories have their weaknesses, they offer compelling arguments for the purpose of IPRs.

Competition law seeks to promote effective access to the market and prevent monopolisation that leads to foreclosure of market competition to the detriment of consumers (Whish 2005). Primarily, the aim of competition law the world over is enhancement of consumer welfare. Prima facie, there seems to be an inherent conflict in the workings of the two regimes. One aims to promote monopolies to incentivise innovation, while the other is designed to curb them (in the interest of consumers) while arguably impacting incentives to innovate negatively. Contrary to this, studies reveal that innovation is an oscillating trade-off between competition and intellectual property, where the two gain complementarity and it is in fact a shared goal. The dynamic challenge here, however, remains in striking the optimal balance.

In his famous theory of continuous innovation and creative destruction, Joseph Schumpeter has emphasised that a great deal of innovation is attributable to large firms operating in oligopolistic markets and not to small firms operating in atomistic markets (Shapiro 2011). The firm of the type that is compatible with perfect competition is in many cases inferior in technological efficiency and dominant firms are most likely to innovate, as they have the resources for research and development (Schumpeter 1947). Twenty years later, economist Kenneth Arrow (1962: 622) argued on the other hand, that a monopolist’s incentive to innovate is less as compared to a competitive firm because the financial interest of a monopolist remains status quo, given that “pre-invention monopoly power acts as a strong disincentive to further innovation.”

The two views are harmonised by Carl Shapiro (2011), who examines the relationship of competitive and monopolistic markets with innovation at different phases and concludes that: (i) innovation is spurred if the market is contestable, that is, if multiple firms are vying to win profitable future sales; and (ii) the two systems are not in conflict. He makes a distinction between competition ex ante and ex post, and the differing implications for innovation. According to him, Arrow was of the view that greater ex ante competition encourages innovation by destroying profits and therefore incentivising firms to escape that state. Schumpeter instead argued that competition ex post may have detrimental impacts by not allowing firms to reap adequate rewards, and thereby reducing the incentive to enter that state (Shapiro 2011). Antitrust economist Massimo Motta (2004) summarises the debate, referring to a rich theoretical and empirical literature which reveals that the link between market structure and innovation is not conclusive, even though a “middle ground” environment, where there exists some competition but also high enough market power coming from the innovative activities, might be the most conducive to research and development output.

Situating Consumers in Competition Regulation

The theory of competition policy is traditionally studied under two distinct schools of thought. The proponents of the “Harvard School” in the 1960s and 1970s came to suggest that “when markets are more concentrated, firms are more likely to engage in anticompetitive conduct” (Hovenkamp 2003: 917–20). This school of thought centred around the Structure–Conduct–Performance Model, whereby the number of firms in a market and their size (that is, market structure), would determine their conduct and their performance in the market (Furse 2008). Such a structuralist approach to competition law opposed market concentration. There was a presumption of illegality when the firm in question exercised market power, regardless of the effect it had on consumers. A case in point is that of United States v Aluminum Co of America (1964) where the respondent company (Alcoa) was penalised on grounds that the merger was likely to result in a substantial reduction of competition, since the merger would work to increase the concentration of the market.

Subsequently, economists and lawyers associated with the University of Chicago came to advocate an approach to competition in the late 1970s that focused only on consumer welfare and the protection of competition rather than competitors. The Chicago School argued for a reverse model and that performance dictated market structure. Monopolistic industries became symbolic of an efficient and superior performance, and therefore, ought not to be penalised for their success (Furse 2008). Furthermore, the belief that markets were likely to correct their own competitive imbalances, and that external regulatory control was not required, was propagated (Fox 1987). Court intervention became necessary only after it was abundantly clear that the anticompetitive conduct was threatening consumer welfare by way of increased prices and restricted outputs (Hovenkamp 2001).

Most competition agencies globally seem to opt for a consumer welfare standard in competition law enforcement over a total welfare standard, an approach that factors in producer gains as well. The results of a 2011 study conducted by the International Competition Network for 57 competition authorities and 19 non-governmental advisers on Competition Enforcement and Consumer Welfare revealed:

Most Respondents do not generally use total welfare as a standard. Although they acknowledge that, theoretically, it may be more accurate to use total welfare in the long term, for practical purposes, most seem to regard consumer welfare as a more useful standard in the short term. Most Respondents seem to prefer a long-term approach and favour a dynamic perspective over a static one. However, most Respondents also seem to admit that enforcement realities frequently oblige them to have regard to short term effects, and often to use a static perspective. (International Competition Network 2011: 4)

A number of countries even explicitly mention protection of consumer interest in their competition law frameworks. Australia, New Zealand, Finland, Denmark, the Netherlands, Ireland, Zambia and others have opted for a single agency system housing functions of competition and consumer protection under one institutional arrangement. In India, consumer welfare objectives are explicitly stated in the Competition Act, 2002. The preamble of the act makes explicit mention of consumer interest as one of the core objectives of competition law. It states the objectives of the law as

An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India.

In the case of Belaire Owners’ Association v DLF Ltd, Huda and Others (2014), the Competition Commission of India (CCI) slapped a hefty fine of $140 million on real estate giant DLF for entering into one-sided contracts with Indian consumers. One of the core motivating factors leading to the decision was the attempt to exploit consumers. On appeal, the Competition Appellate Tribunal upheld the commission’s order and observed:

Competition Law must be read in the light of the philosophy of the Constitution of India, which has concern for the consumers and the dominant player in the market has a special duty to be within the four corners of law. (Belaire Owners’ Association v DLF Ltd, Huda and Others 2014: 132–33)

Consumer harm is central to a finding of antitrust violation in the US as well. In the words of Former US Federal Trade Commission (FTC) Commissioner Timothy Muris, “competition theory that excludes consumer policy is not only shortsighted but, given the growing importance of consumer issues, can ultimately be self-defeating” (Ohlhausen 2014). In the US Supreme Court case of FTC v Actavis (2013), the courts yet again unanimously upheld the consumer welfare approach to antitrust violations. “Consumer loss is the cognizable harm, as the Court makes clear, without inquiry into what part of the loss takes the form of deadweight loss, or instead is transferred to producers as extra profit” (Edlin et al 2013: 16–23). In matters pertaining to IPRs as well, the US courts’ clear reliance on consumer welfare standard is evinced in a series of antitrust litigations involving patent settlements cases between originator and generic suppliers. In the K-Dur Antitrust Litigation (2012), the Court held:

the policy of encouraging settlements is important, but it should be considered in light of countervailing public policy objectives. With respect to the pharmaceutical industry, Congress knowingly dealt with competing policy interests and deliberately decided that the equilibrium should shift toward favouring competition and increasing the availability of low-cost generic drugs. (K-Dur Antitrust Litigation 2012: 217)

Compulsory Licensing in India

Compulsory licence provisions are enshrined in the Indian Patent Act, 1970 primarily under Sections 84 and 92. Section 84 provides that compulsory licences be granted after an expiration of three years from the grant of a patent, to third parties if certain grounds are met, namely that (i) reasonable requirements of the public with respect to the patented invention have not been satisfied, or (ii) patented invention is not available to the public at a reasonably affordable price, or (iii) patented invention is not worked in the territory of India. Till date, only one compulsory licence has been issued in India under Section 84. No licences have been issued by the government pursuant to Section 92 which provides discretionary powers to the government to issue compulsory licences by way of a notification in cases of “a national emergency, extreme urgency or non-commercial use.”

The sole instance in India till date involves the manufacture of a kidney cancer drug, Sorafenib Tosylate, sold under the brand name “Nexavar,” produced originally by the German pharmaceutical multinational company, Bayer AG. Bayer was granted a patent over Nexavar in 2008 in India. Four years later, Natco Pharma, an Indian pharmaceutical company filed an application before the Indian Patent Office for grant of a compulsory licence for the drug after being denied a voluntary licence by Bayer for the same. It was granted to Natco, subject to a fixed royalty rate of 6% to Bayer2 when the drug was seen to have not reached 98% of the Indian population (Natco Pharma Limited v Bayer Corporation 2011) as it was exorbitantly priced at ₹2,80,428 a month. Natco offered to charge a meagre fraction of the prices charged by Bayer at ₹8,880 a month (Natco Pharma Limited v Bayer Corporation 2011).

Compulsory licences are “authorizations permitting a third party to make, use, or sell a patented invention without the patent owner’s consent.” As mentioned earlier, there has been only one successful grant of compulsory licence since its enactment in 2005. As will be explained in the following sections, this becomes symbolic of the controversies surrounding the grant of compulsory licences inasmuch as such licences help resolve the issue of access by the public.

Underutilised Compulsory Licence Provisions

Compared to other countries, the provisions in India have largely remained underutilised. In comparison to the dismal domestic success rate, low-income countries such as Ghana, Zimbabwe, Mozambique among others, have been relatively more reliant on compulsory licences to allow the promotion of access to high-priced medicines that are under patent protection (DIPP 2010). The low rate of filing of such applications also reveals a reluctance on the part of domestic companies to take recourse to the prescribed remedy.

In a study, Beall and Kuhn (2012: 7) argue that

there is a high probability that the efforts put forth during the Doha conference in regard to pharmaceutical compulsory licences will have a negligible long-term impact on their regular use or on global access to pharmaceuticals.

The study finds a high occurrence of compulsory licences at first between 2003 and 2005, yet a falling trend markedly since 2006. While upper middle-income countries have high activity and strong incentives to use these licences compared to other countries, they note considerable countervailing pressures against their use in most countries and conclude a low probability of continued compulsory licence activity. It states:

These pressures faced by countries particularly middle income countries come from industrial lobbies and foreign governments to honor intellectual property rights. Patent recognition may also be seen as an opportunity to attract foreign investment and technology transfer. Regional or bilateral trade agreement incorporating so-called TRIPS-plus provisions that expand patent rights or limit generic production capacity are yet another factor. (Beall and Kuhn 2012: 7)

Political Considerations

As mentioned earlier, the Indian government’s alleged private assurances to the USTR to not grant compulsory licences for commercial purposes is very telling. As per the USTR “Special 301” watch list (1989), India ranks as one of the countries having “serious intellectual property rights deficiencies requiring USTR attention,” having been on the list since its beginning in 1989. The 2016 USTR report criticises Section 3(d) of the Indian Patent Act, stating that since the WTO’s TRIPS agreement provides flexibilities in determining a patentable substance, the Indian Patent Act is overreaching and goes above international agreements (Mitra-Jha 2016).

Although the Ministry of Commerce and Industry subsequently issued a clarification stating that the news regarding assurances was factually incorrect (Ministry of Commerce and Industry 2016), the debate ensued thereof and the issuance of the US–India joint statement (Office of the Press Secretary 2014) is symbolic of the political pressures that dictate the discussion around compulsory licences today.

Applicability under TRIPS

The TRIPS agreement allows for policy space for member countries to address anticompetitive abuses of IPRs in their domestic competition law regimes. Article 8.2 of the TRIPS agreement is a general provision that gives flexibility to governments to adopt appropriate measures that may be needed to prevent the abuse of IPRs by rights holders who may resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. Article 40.2 of the agreement provides a non-exhaustive list of anticompetitive practices that amount to abuse of IPRs and permits members to adopt measures to prevent such practices. “An inference may be drawn from these two substantive provisions that such measures may well be found in domestic competition laws of member countries” (Subramanian 2010: 997–1023). Furthermore, as clarified in the Microsoft Corporation v Commission of the European Communities (2007: 3976) case, the Court of the First Instance of the European Union (EU) has held:

There is nothing in the provisions of TRIPS Agreement to prevent the competition authorities of the members of the WTO from imposing remedies which limit or regulate the exploitation of intellectual property rights held by an undertaking … And Article 40(2) of TRIPS clarifies that members of the WTO are entitled to regulate abusive use of such rights in order to avoid effects which harm competition.

Article 31 of TRIPS allows for issuance of compulsory licences. Article 31(b) permits compulsory licensing on the condition that it is subject to judicial review and is used for non-commercial government use, in cases of national emergencies. Article 31(k) permits compulsory licensing in cases where it is necessary to remedy practices that are deemed anticompetitive in nature, such as those addressed in Article 40. The sole grant of compulsory licence under Article 31(k) may not always prove to be effective in promoting competition, as its impact would depend on factors such as the dominance of the patent owner in the market and other conditions unique to the market (Watal 2000). However, Article 31(k) has remained an important provision under TRIPS. Unlike the grant of compulsory licences permitted elsewhere under Article 31, under Article 31(k) it is granted only in cases of anticompetitive practices, and (i) there need not be a negotiation for a voluntary licence with the owner of the patents, (ii) the need to correct anticompetitive practices are taken into account while determining the remuneration payable, (iii) the compulsory licence is not subject to limitations imposed by Article 31, and (iv) the licence shall be primarily for the supply of the domestic market of the member seeking the grant (Correa 2007). The principle of granting these licences to remedy anticompetitive practices has mirrored itself in the domestic laws of various nations (Scherer and Watal 2007).

Doctrine of Essential Facilities

The possibility of permitting the third party use of IPRs in cases of refusal to licence amounting to anticompetitive abuse has been considered in the context of the “essential facilities” doctrine. This doctrine, as defined by a US appellate court, “imposes liability when one firm, which controls an essential facility, denies a second firm reasonable access to a product or service that the second firm must obtain in order to compete with the first” (Alaska Airlines, Inc v United Airlines, Inc 1991). While a refusal to licence is presumed to be legal, in the United States v MicrosoftCorporation (1998) case, the district court held that “copyright does not give its holder immunity from laws of general applicability, including the antitrust laws.” Although some US court decisions have suggested that information may constitute an essential facility, the extent of the application of this doctrine to intellectual property cases is uncertain (Verizon Communications v Law Offices of Curtis V Trinko2004).3 Other jurisdictions such as the EU have made no explicit mention of this doctrine, though they have applied the same in a limited number of cases as seen below.

In the EU, certain “exceptional circumstances” justify the issuance of compulsory licences. The European Court of Justice in Magill in paragraphs 49 and 50 held:

Refusal by the owner of an intellectual property right to grant a licence, even if it is the act of an undertaking holding a dominant position, cannot in itself constitute abuse of a dominant position, but the exercise of an exclusive right by the proprietor may, in exceptional circumstances, involve an abuse. (RTE and ITP v Commission 1995)

Exceptional circumstances exist when such refusal (i) prevents the emergence of a new product or service for which there is a potential demand, (ii) is without objective justification, and (iii) is capable of eliminating all competition in the relevant market.

In recognising the contribution that effective competition can make to the welfare of the poor, the 2001 Nobel Prize winner Joseph Stiglitz said, “Strong competition policy is not just a luxury to be enjoyed by rich countries, but a real necessity for those striving to create democratic market economies” (OECD 2007: 89). In developing societies especially, competition agencies should be able to intervene when a patent monopoly fails to address social concerns. Table 2 highlights the benefits of competition law enforcement in the pharmaceutical sector in various countries.

South Africa’s Competition Commission has investigated cases involving complaints of lack of access to life-saving drugs. In 2003, the South African Treatment Action Campaign (TAC), Congress of South African Trade Unions, Chemical, Energy, Paper, Printing, Wood and Allied Workers’ Union and the AIDS consortium reached an agreement with GlaxoSmithKline (GSK) and Boehringer Ingelheim, after the above-mentioned pharmaceutical companies were prosecuted under the South African Competition Act, 1998. The said companies were found to have violated the competition law of South Africa since they were charging excessive prices for the patented antiretroviral (ARV) medicines. GSK had exercised the exclusive right to market and sell GSK ARVs in South Africa, and the said ARVs included Zidovudine (AZT), Lamivudine, Abacavir (ABC), Amprenavir, AZT/lamivudine, and AZT/lamivudine/ABC. Boehringer Ingelheim on the other hand, had the exclusive right to market and sell the ARV nevirapine. Both companies were allegedly engaging in excessive pricing of the ARVs and were therefore acting in a manner detrimental to the consumers.

When the matter was brought before the Competition Commission, it was found that such behaviour was in violation of Section 8(a) of the South African Competition Act. The prices were claimed to be excessive since there was a stark difference between them and the prices of generic alternatives. As per the Competition Commission, the said companies had not only priced these ARVs excessively but had also failed to grant licences to generic manufacturers, thus using their patent monopolies to deny appropriate licences to other manufacturers while keeping their own prices high. The dispute was settled when the Competition Commission concluded a settlement agreement with GSK and Boehringer Ingelheim. As per the said agreement, GSK was to provide licence to four generic companies (TAC Newsletter 2003). Prior to the agreement, however, GSK had only granted a licence to Aspen Pharmacare. Furthermore, in pursuance of the agreement, Boehringer Ingelheim was to grant licences to three generic companies. The above-mentioned licences were to be provided on the basis of a royalty fee of no more than 5% of the net sales of the said medicines, whereas they were initially licences at 30% royalty fee (by GSK) and 15% royalty fee (by Boehringer Ingelheim).

In yet another case, TAC v Merck and MSD (2007), the claim brought before the Competition Commission was that Merck, along with its South African subsidiary (Merck Sharpe & Dohme [MSD]), had abused their dominant positions in the market of ARV medicine Efavirenz (EFV) since they refused to license other firms to import/manufacture generic versions of the said HIV/AIDS medicines on reasonable and non-discriminatory terms (UNCTAD 2015). The commission found that they threatened access to treatment for HIV/AIDS in the private and public sectors, and coupled with the above-mentioned exclusionary acts, violated Section 8(c) of the Competition Act 89 of 1998. Since EFV could not be substituted for another ARV treatment, and since there were no generics available, the respondents were alleged to have a dominant position, which they had subsequently abused. However, the said case was resolved before the commission had completed its investigation. MSD and Merck reached an agreement with multiple licensees, permitting a range of generic EFV products to be brought to the market.

Competition Scrutiny in India

There have not been many cases pertaining to competition scrutiny of patent abuses in the pharmaceutical sector as of now. In 2013, a complaint was filed against the US-based pharmaceutical company Gilead Sciences for abusing its dominant position in the market for ARV drugs. However, the CCI rejected this complaint at the prima facie stage. It held that Gilead Sciences did not have a legal presence in India and was not a dominant player in the ARV drugs market. There was also no appreciable adverse effect on the competition caused by the agreements entered into by Gilead with several other Indian pharmaceutical companies.

At present there are two vital cases involving alleged abuse of dominance in the mobile telecommunication technology industry by the holder of standard essential patents, Ericsson, that are pending investigation under the CCI (Telefonaktiebolaget LM Ericsson [Publ] v Competition Commission of India 2016). After much controversy regarding the jurisdiction of the commission to hear matters involving patent disputes, a recent order dated 30 March 2016 has put the debate to some rest by explicitly stating that the commission is vested with wide powers and jurisdiction to adjudicate on disputes of this nature. Para 174 of the judgment states:

There is no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act. And, in absence of any irreconcilable conflict between the two legislations, the jurisdiction of CCI to entertain complaints for abuse of dominance in respect of Patent rights cannot be ousted. (Telefonaktiebolaget LM Ericsson [Publ] v Competition Commission of India 2016: 58)

Private Nature of Patent Claims

In Ericsson, a claim was made to dispute the application of the Indian Competition Act, 2002 alongside the Patent Act. However, Justice Vibhu Bakhru held that the nature of both acts was different. While the challenge under the Patent Act was that of a private list, that is, the grant of injunction under the act arose from the contract between the licensee and the licensor, the examination of an abuse of dominance under the Competition Act was not a private suit. This is not to say that suitable remedies do not exist in patent law or that either of the laws is in derogation of one another, but that they are materially different and may in fact supplement one another. This is owing to the differing nature of remedies in private law and public law. Private law entails remedies that are designed for the “infliction of the wrongs on private individuals and entities” (Weinrib 1995: 143). These remedies are granted in matters relating to tort, property, and contract law.

Thus, in cases pertaining to any of the said categories, the relief that can be sought can vary from seeking damages in lieu of the harm suffered, an injunction to prevent the continuance of the harm that is caused and any future harm that may be caused. Patent law permits the revocation of a patent or injunction or compulsory licence, as the case may be. In such instances, the remedy is only available to the applicant (person suffering tangible harm) in the matter (Gaur 2013). Therefore, under patent law, the suit for remedies is a private suit and patent law remedies mirror the remedies granted under tort law that is directed at restoring the patentee to status quo (prior to the infringement).

It may be argued that the remedies in competition law can be more useful in correcting public harms in comparison to patent law remedies. Anyone can file a complaint and seek remedial action under competition law at any given time. However, a compulsory licence application can only be made three years after the grant of a patent, and by a company that wishes to manufacture generic versions of the patented drugs. A licensee seeking the grant of a compulsory licence would have had to make efforts to obtain a voluntary licence on reasonable terms from the patent holder first. However, the same would not be a consideration in the event that a company is engaging in anticompetitive conduct and the complainant approaches the CCI. Furthermore, if the CCI found a patentee’s conduct to be anticompetitive and the finding had attained finality, the patent controller would proceed on the said basis and the patentee would be stopped from contending the contrary.

The remedies in competition law in accordance with Section 27 grant the CCI the power to direct the enterprise to cease–desist, discontinue, modify the agreement or action amounting to an abuse. The act provides for a wide range of remedies ranging from a heavy penalty to a division of the enterprise and any other order or directions deemed appropriate for the case. The CCI under Section 27 (e) has been empowered with a broad reach of directing the enterprises concerned to abide by any orders the commission may pass and comply with the directions it issues. It may pass all or any of the remedies which go a long way in simultaneously creating substantial deterrence in future, correcting market failures and promoting competition in the market for all in the larger interest of consumers. Under the patent law, on the other hand, a compulsory licence offers a somewhat targeted relief and is exclusive and limited to the applicant alone, making it less effective to correct a public harm.

Abuse of Dominance

Section 4 of the Competition Act, 2002 addresses conduct of firms that amounts to an abuse of a dominant position in a given market. Competition jurisprudence in India has evolved from a structuralist to a behaviouralist paradigm, whereby possession of market power does not automatically attract competition scrutiny but its abuse does. An enterprise is understood to possess considerable market power if it has the ability to operate independently of competitive forces prevailing in the relevant market. Abuse of dominance is a three-pronged test. It begins with delineating the relevant market. The market is defined in terms of products based on substitutability and the extent of competitive constraints they impose on one another. The market is also defined geographically based on how prevailing conditions in a given area impact demand and supply of goods and services as distinguishable from markets in neighbouring areas. Once a relevant product and geographic market are defined, the next step is to determine dominance and it is often (though not always), assessed based on the market share.4 The final step is assessment of abuse.

Under the Competition Act, an enterprise is guilty of abusing its dominant position if it imposes unfair or discriminatory conditions or prices, limits production, restricts technical development and denies market access. The nature of abuses is categorised as exploitative and exclusionary. Exploitative abuses involve excessive and discriminatory pricing, while exclusionary abuses involve behaviour that causes foreclosure of competitors and includes denial of market access, unfair contracts, etc, through tying, bundling, refusal to deal and predation.

Despite their differing natures, the grounds for issuance of a compulsory licence under Section 84 of the Indian Patent Act, 1970 may in essence bear some resemblance to few of the factors mentioned above. Indian patent monopolies may at times charge unfair, excessive prices for their drugs and also deny other competitors access to market by a refusal to license, thereby limiting the production of drugs and restricting innovation or technical/scientific development of drugs. While a refusal to license is well within the lawful rights of an intellectual property holder, if the resulting impact of such conduct is demonstrable consumer harm (reduced output, detriment to innovation or increase in prices) and market failure, such a case merits scrutiny under competition law framework.

In India’s sole compulsory licence case of Bayer Corporation v Natco Pharma Ltd (2013), a claim could be successfully made for abuse of dominance by Bayer under Section 4. The Controller General of Patents had held in the case that the reasonable requirement of the public in India was not met, though Bayer had made thumping sales elsewhere and that if the drug is so highly priced to be out of reach to the ordinary public, then it is not available to the public on reasonable terms. The prices charged by Bayer were extremely high and could well be termed as “unfair” as they were unaffordable to close to 98% of the Indian population at ₹2,80,428. This could be classified as a Section 4(2)(a) (ii) violation of unfair/excessive pricing. Bayer took no adequate or reasonable steps to “start the working of the invention in the territory of India on a commercial scale and to an adequate extent” and even after the lapse of four years, the patentee (Bayer) failed to do so and also to grant voluntary licence to anyone (Natco Pharma Limited v Bayer Corporation 2011: 22). Such failures could be classified as limiting the production or technical/scientific development of goods or services to the prejudice of consumers, as well as denial of market access, abuses in contravention of Sections 4(2)(b) (i) (ii) and 4(2)(c) of the Competition Act (Chopra and Muthappa 2012).

Addressing Market Failure

The rationale for granting patents is to incentivise innovation since it arguably enables the patentee to obtain a monopoly and the resultant profits (Scherer and Ross 1980). However, the monopoly grant of the patent also creates an additional cost, that is the price of the product would be higher than what it would have been had it been competitively provided. Sean Flynn, Aidan Hollis and Mike Palmedo in Flynn et al (2009) argue that in the case of essential medicines provided in developing countries, there exists a high inequality in the demand of the product, and the amount accessible to consumers, since the patent holder has “priced out the consumers,” that is, a category of consumers is created, who cannot afford the drug due to the price at which it is sold. As a result, the “monopoly pricing” creates a “dead weight loss” that creates a situation whereby the consumers forego certain purchases of the patented product in question, due to the high monopolistic price and lack of access.

This becomes more significant when the said patented product is an essential drug. Such a situation of a dead weight loss is referred to as a market failure. Market failures generally are a product of inefficiency caused by monopolistic rent-seeking and erection of entry barriers for competitors. Competition law seeks to maximise static efficiency in the short run and therefore becomes a more suitable method to address these market failures. This is because competition law seeks to maximise productive efficiency, that is, producing without waste, and allocative efficiency, that is, producing goods and services that society values the most. Furthermore, since competition law seeks to prevent any unreasonable restraint on trade, it addresses the problem that arises when patents are used to create a monopoly and create entry barriers to probable competitors. To sum up the discussions in previous sections, it can be inferred that competition law presents effective remedies to address problems of access to medicines where remedies in patent law may fail. Nonetheless, it has of its own limitations.

Challenges in Competition Law Enforcement

The CCI has recently started taking on cases involving global corporate giants. The prima facie orders of the commission in the Ericsson cases have been met with great criticism for lacking in sound economic reasoning and a protectionist bias in favour of implementers. Furthermore, the commission’s views as stated in the prima facie order stand in stark contrast with the position taken by the Delhi High Court on the same core issues (Sidak 2015). In the absence of sound basis, competition enforcement is likely to create business uncertainty and have a chilling effect on investment by foreign players, to the detriment of Indian consumers (Ghosh and Sokol 2016).

Furthermore, competition enforcement in excessive pricing cases is never free from the danger of lowering post entry margins, thereby discouraging subsequent entry, which may ironically lead to higher prices (Ghosh and Sokol 2016).

In industries driven by innovation or large up front investments, it has been argued that consumers do not benefit from excessive pricing interventions, since it takes away the incentive of firms to invest ex ante. Motta (2004) argues that antitrust excessive price action presents a high risk of type I (false condemnation errors), characterised by dynamic inefficiency, low investments and low innovation which is especially detrimental in highly dynamic industries where innovation plays a crucial role. There is also a persistent danger of price regulation which is an absolute overreach by the competition agency, given that outside market failures, competition agencies lack political legitimacy or technical expertise to intervene in the market (Motta and Streel 2007) and upheld by CCI in Manjit Singh Sachdeva vs Director General (Manjit Singh Sachdeva v Director General, Director General of Civil Aviation & Anr 2012).

A further limitation with abuse cases is that they require a step by step analysis and make for tedious investigations, as mentioned before. As per the current statute, abuse of dominance is a “per se” violation and does not explicitly require a deeper probe into an effects test. However, this is a grey area given that competition jurisprudence on this is varied and the commission is found to have applied an effects test in one case while disregarding it in others.5

Lastly, some of the cases disputed may also involve anticompetitive agreements. While there are no explicit exemptions for the treatment of IPRs for abuse and combinations, there are statutory exemptions laid out under Section 3(5) for agreements. These are the only exemptions for IPRs from competition scrutiny under Indian competition law. However, these exemptions have never been successfully invoked by any party till date. The main reason for this being that the scope of this provision is ambiguous and no clarification on what amounts to “reasonable conditions” “necessary to protect IPRs” exists under Section 3(5) of the Competition Act at present.


While competition enforcement suffers from some inherent limitations, it has been actively invoked, unlike the underutilised compulsory licence regime in India. The CCI’s proactive role in recent years has brought to light many of these limitations and the scope of regulatory intervention is currently being widely debated. Recent years have seen a trend in aggressive competition enforcement against enterprises, including major corporate giants. In the face of growing politicisation of intellectual property regimes, this may therefore prove to be a more receptive framework. The need for greater use of competition law was highlighted by the Global Commission on HIV and the Law, an independent body of eminent persons tasked with interrogating the relationship between human rights, law and public health in the context of HIV (UNDP 2014).

The commission recommended that “countries must proactively use other areas of law and policy, such as competition law, price control policy and procurement law which can help increase access to pharmaceutical products” (UNDP 2014: 5). Given many factors mentioned in this paper, countries are better advised to opt for competition law where affordability of healthcare is compromised by the conduct of patent monopolies. Furthermore, when navigating complex issues of interface, the CCI must be encouraged to invoke statutory provisions on regulatory cooperation and consultations prescribed in Sections 21 and 21A of the Competition Act. It will be interesting to see how one of the most crucial policy debates at present that is the interface of the two complex regimes in general, and the extent of regulatory intervention in pharmaceutical patent monopolies in particular, shape up in times to come.


1 “Even as Government of India is conscious of the need to spur innovation and protect individual rights, it retains the sovereign right to utilize the flexibilities provided in the international (IP rights) regime,” the ministry reportedly said.

2 The Intellectual Property Appellate Board hiked this to 7% royalty rate upheld by the Bombay High Court.

3 In Verizon Communications v Law Offices of Curtis V Trinko (2004), the Supreme Court stated that it had never recognised the essential facilities doctrine.

4 The Herfindahl-Hirschman Index (HHI) measures market concentration by squaring the market share of each firm in the market and then calculates the sum of the resulting share of each firm. Other than the HHI, additional factors that are relied upon to calculate market power are: (i) size and resources of the enterprise, (ii) size and importance of the competitors, (iii) economic power of the enterprise, (iv) vertical integration of the enterprise, and (v) dependence of consumers on the enterprise.

5 In Dhanraj Pillay and Others v M/s Hockey India (2013), the CCI brought in the “effects test,” but subsequently disregarded it. In Faridabad Industries Association v M/s Adani Gas Limited (2014), CCI imposed a penalty on Adani, even absent proof that the result would further consumer benefit, and the ostensible clauses deemed anticompetitive were not enforced by Adani.


Alaska Airlines, Inc v United Airlines, Inc (1991): United States Court of Appeal, 9th Circuit, 948 F 2d 536, 542.

Bayer Corporation v Natco Pharma Ltd (2013): Intellectual Property Appellate Board, Chennai, Order No 45/2013.

Belaire Owners’ Association v DLF Ltd, Huda & Others (2014): Competition Appellate Tribunal, 19/21010, p 132–33.

Dhanraj Pillay and Others v M/s Hockey India (2013): Competition Commission of India, Case No 73/2011.

Faridabad Industries Association v M/s Adani Gas Limited (2014): Competition Commission of India, Case No 71/2012.

FTC v Actavis (2013): United States Supreme Court, Docket No 12–416.

Hazel Tau & Others v GlaxoSmithKline, Boehringer & Others (2003): Competition Commission of South Africa, Case No 2002Sep226.

K-Dur Antitrust Litigation (2012): United States Court of Appeals, 3rd Circuit, 686 F 3d 197, 208.

Manjit Singh Sachdeva v Director General, Director General of Civil Aviation & Anr (2012): Competition Commission of India, Case No 68/2012.

Microsoft Corporation v Commission of the European Communities (2007): Court of First Instance, II-3601 Judgment ECLI:EU:T:2007:289 T-201/04.

Natco Pharma Limited v Bayer Corporation (2011): Controller of Patents, Mumbai, Compulsory License Application No 1/2011, p 22.

Paschim Banga v State of West Bengal (1996): SC, 4, 37.

RTE and ITP v Commission (1995): C-241/91 P and C-242/91 P (joined cases),

TAC v Merck and MSD (2007): Competition Commission of South Africa,

Telefonaktiebolaget LM Ericsson (Publ) v Competition Commission of India (2016): W P (C) 464/2014 & CM Nos 911/2014 & 915/2014.

United States v Aluminum Co of America (1964): 377, United States Supreme Court, p 271.

United States v Microsoft Corporation (1998): United States District Court, District of Columbia, WL 614485.

Verizon Communications v Law Offices of Curtis V Trinko (2004): 540, Supreme Court of United States, p 398.


Abbott, Frederick et al (2014): Using Competition Law to Promote Access to Health Technologies: A Guidebook for Low- and Middle-income Countries, United Nations Development Programme, New York.

Aghi, Mukesh (2016): “Special 301 Review Hearing Statement,” US–India Business Council, Washington DC.

Arrow, Kenneth (1962): “Economic Welfare and the Allocation of Resources to Invention,” The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau of Economic Research and Committee of the Economic Growth of the Social Science Research Council, Princeton: Princeton University Press, pp 609–26.

Beall, Reed and Randall Kuhn (2012): “Trends in Compulsory Licensing Since the Doha Declaration: A Database Analysis,” PLoS Med, Vol 9, No 1, e1001154.

Chopra, Naval and Dino Muthappa (2012): “The Curious Case of Compulsory Licensing in India,” Competition Law International, Vol 8, No 2, p 34.

Correa, Carlos M (2007): “Intellectual Property and Competition Law: Exploring Some Issues of Relevance to Developing Countries,” International Centre for Trade and Sustainable Development, No 21.

Datta, Sagnik (2014): “Breach of Promise on IPR Policy?,” Frontline, 10 December,

DIPP (2010): “Discussion Paper: Compulsory Licensing,” New Delhi: Department of Industrial Policy and Promotion, Government Press.

Directorate for Financial and Enterprise Affairs, Competition Committee (2015): “Generic Pharmaceuticals—Competition Committee Meeting Summary Record,” OECD, Paris.

Edlin, Aaron, Scott Hemphill, Herbert Hovenkamp and Carl Shapiro (2013): “Activating Actavis,” Antitrust Magazine, Vol 28, pp 16–23.

Fisher III, William W and Cyrill P Rigamonti (2005): “The South Africa AIDS Controversy: A Case Study in Patent Law and Policy,” The Law and Business of Patents, Harvard Law School, Harvard.

Flynn, Sean, Aidan Hollis and Mike Palmedo (2009): “An Economic Justification for Open Access to Essential Medicine Patents in Developing Countries,” The Journal of Law, Medicine & Ethics, Vol 137, pp 184–208.

Fox, Eleanor (1987): “The Battle for the Soul of Antitrust,” California Law Review, Vol 75, pp 917–23.

Furse, Mark (2008): Competition Law of the EU and the UK, Oxford: Oxford University Press.

Gaur, Abhinav (2013): “Significance of Remedies Available in Intellectual Property Rights,” The Lex Warrier: Online Law Journal, 31 May.

Ghosh, Shubha and D Daniel Sokol (2016): “FRAND in India,” University of Wisconsin Legal Studies, Research Paper No 1374,

Hovenkamp, Herbert (2001): “Post-Chicago Antitrust: A Review and Critique,” Columbia Business Law Review, pp 257–336.

— (2003): “The Rationalization of Antitrust,” Rev of Antitrust Law, Richard A Posner, Harvard Law Review, Vol 116, No 3, pp 917–44.

Hovenkamp, Herbert, M D Janis and M Lemley (2005): “Unilateral Refusals to License in the US,” Antitrust, Patents and Copyright: EU and US Perspectives, F Lévêque and H Shelanski (eds), Cheltenham: Edward Elgar Publishing.

Hughes, Justin (1988): “The Philosophy of Intellectual Property,” Georgetown Law Journal, Vol 77, pp 287–366.

International Competition Network (2011): “10th Annual Conference Report: Competition Enforcement and Consumer Welfare Setting the Agenda,”

Love, James Packard (2007): “Recent Examples of the Use of Compulsory Licenses on Patents,” Knowledge Ecology International,

Ministry of Commerce and Industry (2016): “Clarification on Media Reports Regarding Compulsory License,” 22 March,

Mitra-Jha, Shreerupa (2016): “US Report Puts India on ‘Priority Watch List’, Raises Concerns Over Pharma Sector,” Firstpost, 29 April,

Moore, Adam (2008): “Defining Privacy,” Journal of Social Philosophy, Vol 39, pp 411–28.

Motta, Massimo (2004): Competition Policy: Theory and Practice, Cambridge: Cambridge University Press.

Motta, Massimo and Alexandre de Streel (2007): Excessive Pricing in Competition Law: Never Say Never?, Kalmar: Swedish Competition Authority, pp 14–46.

New, William (2017): “US Biotech Industry to India’s Modi: Follow Our IP Practices, Get ‘Tidal Wave’ of Investment,” Intellectual Property Watch,

OECD (2007): “Promoting Pro Poor Growth: Policy Guidance for Donors,” DAC Guidelines and Reference Series, Organisation for Economic Co-operation and Development, Paris, p 89.

Office of the Press Secretary (2014): US–India Joint Statement, Washington, DC: The White House.

Ohlhausen, Maureen K (2014): “One Agency, Two Missions, Many Benefits: The Case for Housing Competition and Consumer Protection in a Single Agency,” Federal Trade Commission,

Petersen, Christine (2016): “Special 301 Report,” Global Policy Center, USTR, Washington, DC.

Raja, Kanaga (2014): “CSOs Concerned Over Timing of IP Policy Review in India,” Third World Network, 26 September,

Scherer, F M (2007): “Essential Drugs,” Harvard Kennedy School Working Paper Series No RWP07–003,

(2001): “Post-TRIPS Options for Access to Patented Medicines in Developing Countries,” Journal of International Economic Law, Vol 5, No 4, pp 913–39.

Scherer, F M and D Ross (1980): Industrial Market Structure and Economic Performance, 3rd ed, Boston: Houghton-Mifflin, pp 621–30.

Scherer, F M and Jayashree Watal (2007): “Essential Drugs,” Harvard Kennedy School Working Paper Series, available at

Schumpeter, Joesph A (1947): Capitalism, Socialism and Democracy, 2nd ed, New York: Harper and Brothers.

Shapiro, Carl (2011): “Did Arrow Hit the Bull’s Eye?,” The Rate and Direction of Inventive Activity Revisited, Josh Lerner and Scott Stern (eds), Chicago: University of Chicago Press, pp 361–404.

Sidak, J Gregory (2015): “FRAND in India: The Delhi High Court’s Emerging Jurisprudence on Royalties for Standard—Essential Patents,” Journal of Intellectual Property Law & Practice, Vol 10, pp 609–18.

Subramanian, Sujitha (2010): “EU Obligation to the TRIPS Agreement: EU Microsoft Decision,” European Journal of International Law, Vol 21, pp 997–1023.

TAC Newsletter (2003): “Competition Commission Settlement Agreements Secure Access to Affordable Life-saving Antiretroviral Medicines,” 10 December,

UNCTAD (2015): “The Role of Competition in the Pharmaceutical Sector and Its Benefits for Consumers,” Note presented at the Seventh United Nations Conference to Review All Aspects of the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices, Geneva, Switzerland, 6–10 July,

UNDP (2014): Using Competition Law to Promote Access to Health Technologies: A Guidebook for Low- and Middle-income Countries, United Nations Development Programme, New York.

USTR (1989): “Fact Sheet: ‘Special 301’ Report,” United States Trade Representative, Washington DC,

Watal, Jayashree (2000): “Access to Essential Medicines in Developing Countries: Does the WTO TRIPS Agreement Hinder It?,” Science, Technology and Innovation Discussion Paper No 8, Center for International Development, Harvard University, Cambridge.

Weinrib, Ernest J (1995): The Idea of Private Law, Harvard: Harvard University Press, p 143.

Whish, Richard (2005): Competition Law, 2nd ed, Oxford: Oxford University Press.

WHO Commission on Macroeconomics and Health (2011): “Macroeconomics and Health: Investing in Health for Economic Development,” World Health Organization, Geneva.

Updated On : 8th Oct, 2018


(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top