1. J.Sai Deepak Saikrishna & Associates MHRD IP Chair Roundtable Symposium 17 th & 18 th March’12

2. Objects of Competition Law Prevent practices having an adverse effect on competition (Sections 3 and 6 of the Competition Act) Promote and sustain competition in markets Protect interests of consumers Ensure freedom of trade of other participants in markets (Abuse of dominant position under Section 4) Monitor and regulate connected and incidental matters

3. Application of Competition law to Pharma Sector Ensure competitiveness of the Indian pharmaceutical sector Maintain balance between incentives for innovation and freedom of players to operate- Section 3 of Competition Act and S.140 of Patents Act Facilitate achievement of public health objectives

4. Scope of the Presentation Identify and discuss specific issues under Indian Law: 1. Patent Pools in Pharma sector and Competition Law 2. Alternatives to compulsory licensing

5. Brief Primer on Patent Pools Patent Pool A. “Agreement between two or more patent owners to license one or more of their patents to one another or third parties” B. “The aggregation of intellectual property rights which are the subject of cross- licensing, whether they are transferred directly by patentee to licensee or through some medium, such as a joint venture, set up specifically to administer the patent pool” Typically expected to bring down cost of innovation, besides facilitating speedier and increased access to technologies Chequered history- “Necessity” to “No-No” to “Not Bad Per Se” to “Necessity”

6. Patent Pools in Pharma Sector Merits serious thought in light of declining pharma productivity Assumed to be the smoother way of surmounting “blocking patents” and improving access to medicines More importantly, may become the way of the future thanks to patent thickets, if patent thickets continue to flourish Examples: Fragmented patent holding of technologies needed to combat SARS and H1N1 Reason for discomfiture and suspicion- Interaction between competitors Brings together all three objects of Competition law and tests the law’s robustness

7. Issues Typical or Peculiar to Pharma Patents Assumption- Statutory incentives are key drivers of pharma innovation Specifically, incentives which offer exclusivity find favour with innovator companies Broad and fragmented ownership hurdles to the nature of conventional pharma innovation (sequential)- Patents as “licenses to sue” Several “must have” technologies need to be licensed. No (viable) substitutes for such technologies. Royalties paid up to 20% of net sales Patents covering research tools most expensive licensing options and obviously are “must have” Again non-exclusive licenses have direct adverse effect on commercialization – Reason? No exclusivity

8. Questions Can Competition law and collaborative innovation by way of patent pools co-exist in harmony to facilitate advancement of pharma innovation and access to medicines? Does the competition regime, as it exists and is expected to play out in India, render patent pool a sub-optimal option if patent pools were to be designed to comply with the regime? What are the consequences of deterring or encouraging patent pools? Alternatives or substitutes to patent pools?

9. Legality of Patent Pools under Indian Law Section 3(3) of Competition Act Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which— (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition : Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services

10. Patent Pools and Section 3(3) Patent pools could attract Section 3(3)(a)-(c) Could be “presumed” to have “appreciable adverse effect on competition”- Prima Facie view

11. Defenses Available to Section 3(3) of Competition Act (A) Rebut presumption that none of grounds are attracted; or (B) The adverse effect on competition is not “appreciable”; or (C) Rely on Proviso to Section 3(3)- Prove i ncrease in Efficiency (?); or (D) Fall back on Section 3(5)- Limited conditions for applicability of of Section 3(5): A. To prevent infringement; or B. Imposition of “reasonable” conditions as may be necessary for “protection” Of rights under the Patents Act

12. CCI’s Analysis under Section 3- Section 19(3) 19(3) The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have “due” regard to all or any of the following factors, namely:— (a) creation of barriers to new entrants in the market; (b) driving existing competitors out of the market; (c) foreclosure of competition by hindering entry into the market; (d) accrual of benefits to consumers (e) improvements in production or distribution of goods or provision of services; (f) promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services to consumers;

13. Interplay between Sections 3(3) and 19(3) Dissenting Order in Ramachandran Reddy v. HDFC : “However, it is a wrong presumption that the parameters prescribed under Section 19 (3) are not required to be applied while assessing an "agreement" under Section 3(3) as it is a deeming provision. Merely because it is a deeming provision, it does not mean that the Commission is deprived of its powers to apply these factors while determining AAEC. Section 19(3) is a mandatory provision and the Commission is bound to apply these factors for arriving at AAEC. In my opinion the deemed provisions of Section 3(3) is for forming a prima facie opinion and not the final one. The parameters given in Section 19(3) are not the 'cause' of AAEC but a result thereof. For example, if an "agreement" results in the creation of barriers or driving existing competitors or forecloses the competition and so on, there has to be AAEC.””

14. Analysis of Defenses Patents pools invariably attract grounds under Section 3(3) Establishing what amounts to “appreciable adverse effect on competition” is a better alternative: “The judge stressed that when assessing the effect of agreements or concerted practices on competition, a realistic economic approach is necessary. Regard must be given to individual circumstances, to actual and potential competition. The effect on competition must be negative and must be appreciable or significant, not merely hypothetical. If it is claimed that a restriction prevents a new competitor from entering a market, there must be a real concrete possibility of a new competitor entering that market. Regard must also be given to ancillary restraints and commercial necessity, and in particular whether a restraint is ‘necessary’ for the purpose of enabling a new entrant in a market. The judge noted that the concept of ‘necessity’ does not necessarily entail something which is ‘strictly essential’ but could be satisfied in circumstances where achieving the commercial objective would be difficult absent the restriction”*

15. Patent Pools and Proviso to Section 3(3) Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services Why is the Proviso’s applicability/availability restricted to “joint ventures”? Does the Competition Act define “Joint Ventures”? No Does the body of Section 3(3) refer to joint ventures? No Therefore, must “joint ventures” be treated as not falling within “any agreement” mentioned in Section 3(3)?

16. “Joint Venture” Can existing definitions of JVs formulated by Courts accommodate patent pools which do not necessarily lead to or flow from creation of a new juristic entity? Supreme Court in Faqir Chand Gulati vs. Uppal Agencies Pvt. Ltd. and Anr. [(2008) 10 SCC 345]: “joint venture” connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. Therefore, the use of the words ‘joint venture’ or ‘collaboration' in the title of an agreement or even in the body of the agreement will not make the transaction a joint venture, if there are no provisions for shared control of interest or enterprise and shared liability for losses. Supreme Court in New Horizons Ltd vs Union Of India 1995 SCC (1) 478- Sharing of risks, community of interests, contribution to assets and the intent to jointly run an undertaking were taken as indicators of a joint venture.

17. Other Definitions of JV OECD report on "Competition Issues in Joint Ventures 2000". The last para on page 19 provides a small sample of ways in which joint ventures could be defined. One definition is below: “ A broader definition includes all cases where firms collaborate in carrying on some activity that each firm might otherwise perform alone. Sometimes the term has been used to refer to virtually any collaboration by competitors, short of merger. ”

18. Joint Ventures Qualified Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services Joint venture agreements limited to ones which improve efficiency in “ production, supply, distribution, storage, acquisition or control of goods or provision of services”

19. “Technical Development/Advancement” Can “technical advancement/development” fall under any of the categories mentioned in the Proviso? Or does the Proviso need to be amended? Section 3(3) mentions “limits or controls technical development”, but the proviso does not refer to it. How is Section 19(3) to be interpreted?

20. International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), Switzerland Guidelines 1. Patent pools should be voluntary associations of entities formed without coercion 2. Objectives of any patent pool should be clearly defined 3. Patent pools should complement rather than replace elements of existing intellectual property regimes 4. Rights and obligations of contributors and licensees of contributed rights should be clear 5. Patent pools should reduce transaction costs, and not increase administrative costs, relative to other options such as direct licensing

21. Collective Bargaining- A Potential Reaction to Patent Pools Potential entrants/licensees to a patent pool could choose to bargain collectively with patent pools Would they attract Section 3(3) if they bargain collectively? Is collective bargaining a defense under Indian competition law?

22. Indian Position on Collective Bargaining under Competition Law Para 23.48 of FICCI – Multiplex Association of India versus United Producers/ Distributors Forum: "23.48 Collective bargaining may not be per se bad in law and may be resorted to for legitimate purposes in accordance with law. However, when the trade associations enter into agreements, as in the present case, in the garb of collective bargaining which are anti – competitive in nature, then no competition watchdog can countenance such act/agreement. Resultantly, the plea of collective bargaining, in the facts of the present case, is without any merit and the same is directed to be dismissed."

23. Collective Bargaining and JV If the OECD’s definition of JV were to be accepted, “collective bargaining” could be treated as a JV subject to increase in efficiency being achieved

24. Compulsory Licensing and Competition Tricolour could draw colour from the Rainbow Amended Section 15C of the South African medicines and Related Substances Control Act could be a template

25. Section 15C of MRSC Act Section 15C: The minister may prescribe conditions for the supply of more affordable medicines in certain circumstances so as to protect the health of the public, and in particular may- (a) notwithstanding anything to the contrary contained in the Patents Act, 1978 (Act No. 57 of 1978), determine that the rights with regard to any medicine under a patent granted in the Republic shall not extend to acts in respect of such medicine which has been put onto the market by the owner of the medicine, or with his or her consent; (b) prescribe the conditions on which any medicine which is identical in composition, meets the same quality standard and is intended to have the same proprietary name as that of another medicine already registered in the Republic, but which is imported by a person other than the person who is the holder of the registration certificate of the medicine already registered and which originates from any site of manufacture of the original manufacturer as approved by the council in the prescribed manner, may be imported: (c) prescribe the registration procedure for, as well as the use of, the medicine referred to in paragraph (b).

26. Limited Parallel Import Parallel import under restricted circumstances could be used as an alternative or intermediary to an unwilling marriage between Innovator and Generic companies by way of compulsory licensing Threat of a limited parallel import, in case of non-working or non-affordability, could help lower prices without having to resort to compulsory licensing