CRITICAL STUDY OF COMPETITION LAW WITH REFERENCE TO PATENTING AND TRADE SECRET IN PHARMACEUTICAL PRODUCTS

Author: B. Lekshmi, 3rd Year, BBA LL.B (H), Government Law College, Thrissur

INTRODUCTION

Due to the introduction of Liberalization, Privatization and Globalization, India changed its economic policies which included the opening of Indian market in the global market. This was largely influenced in the markets of India as well as legislation as new developments came with the new economic policies. India enacted the Patent (Amendment) Act in 2005 replacing the Monopolies and Restrictive Trade Practices (MRTP) which could not fulfill the new requirements. These changes in the legislations were viewed as a return gift to the international obligations towards free market and patent protection. The Competition Act of 2002 gives directions regarding remedial measures and also prohibits anti-competitive behavior of the parties which is very well described in Section 3[1] of the Act. Section 4 of the Act also prohibits the abuse of dominance. The Indian pharmaceutical industry is one of the largest growing industries. The market size of the Indian pharmaceutical sector is expected to grow at the rate of 15.92% between 2015-2020. It is also expected to grow more than the annual growth rate of the world pharmaceutical sector[2].

This article gives a detailed study of the concept of patent, trade secret and Competition law. It also discusses the rights of patent holders, trade secrets and the pharmaceutical industry India with the reference of competition law. This article also deals with the compulsory licensing & parallel import of patented pharmaceuticals and also the effect of medicine patent pool and cross licensing on competition.

CONCEPT OF PATENT & TRADE SECRET

Patent is a right given to an invention which provides a new method or technical information about the invention must be disclosed to the public in a patent application. The owner of the patent has the right on it. This helps him/her to protect the invention from exploitation from others. This right is guaranteed for a specific period to the inventor.

Trade Secrets are considered as an Intellectual property which can be licensed. It is confidential information regarding an organization or a product.The trade secret must have a commercial value which should be known to a limited number of people as it is a secret. The owner of the secret should be responsible for the safeguard of these secret information for which they can even use confidential agreements for their business partners and their employees. This information should not be a public one, i.e., it should not be known outside the company. Black’s Law Dictionary defines trade secret as a general rule which can be any information not commonly known in the relevant industry that is used in connection with business to obtain a competitive advantage and the information is secret, is identifiable, and is not readily ascertainable[3].

The Trade- Related Aspects of Intellectual Property Rights (TRIPS) Agreement laid down criteria regarding trade secrets with the assistance of the World Trade Organization (WTO). Those criteria are: –

  1. It must not be readily accessible or generally known by individuals who normally deal with such type of information.
  2. It must have commercial value as a secret.
  3. The lawful owner must take reasonable steps to retain its secrecy.

Also, the North American Free Trade Agreement (NAFTA) provides detailed information than what is mentioned in the Article 39 of TRIPS Agreement[4]. Article 1711 of NAFTA [5]provides that all signatories implement laws to protect trade secrets.  According to this Section, “Each party shall provide the legal means for any person to prevent trade secrets from being disclosed to, acquired by, or used by others without the consent of the person lawfully in control of the information in a manner contrary to honest commercial practices, in so far as the information is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons that normally deal with the kind of information in question”.

COMPETITION LAW

Competition Law is the body of legislation which has an aim to prevent anti-competitive practices which would lead to market distortion. This ensures that the market is a fair place where both consumers and the producers are working in the most fair and ethical manner. To tackle these situations from happen, India enacted the Competition Act in 2002[6]. It deals with the matters relating to the existence and regulation of competition and monopolies. This Act was aimed to replace the MRTP Act, which was not sufficient to control the matters regarding competition in India. Major motive of the Act was to promote competition in the Indian market. The objectives of the competition Act are: –

  1. To protect the interests of the consumers by providing them good products and services at reasonable prices
  2. To promote healthy competition in the Indian market.
  3. To prevent the interests of the smaller companies or prevent the abuse of dominant position in the market.
  4. To prevent those practices which have adverse impact on competition in the Indian markets.
  5. To ensure freedom of trade in Indian markets
  6. To regulate the operation and activities of combinations (acquisitions, mergers and amalgamation)

This Act also prohibits anti-competitive agreements and the abuse of dominance. It establishes the Competition Commission of India (CCI) and also the powers and functions of CCI are described. This Act can have adverse effects on the competition by having anti-competitive agreement. It also reduces the competitors in the market achieved through acquisition, mergers and amalgamation. It also prohibits the abuse of dominant position. One can enjoy the dominant position will not be a crime but its abuse will be a crime.

COMPETITION LAW AND RIGHTS OF PATENT HOLDERS

Competition law ensures a fair competition of the market. It gives importance to the anti-competitive practices to ensure this. There is a connection between patent rights and competition. Patent law prevents the imitation or duplication of patented goods which helps the competition policies by contributing a fair market behavior. Competition laws may limit patent rights in the patent holders may be barred from abusing their rights. There must be a balance between the patent rights and the competition policy, otherwise it would lead to trade distortions.

To ensure this state of balance between patent rights and the competition policies, the objectives of both are created with respect to each other. The core principles of the patent system have been framed with respect to fair market rules. While the competition law has anti-competitive rules, which prevent the market from undesired market behavior and also the abuse of market position. Competition laws and policies can become an important tool to regulate the possible patent rights abuse and to complement patent inherent boundaries.

Section 3(5) (i) of Competition Act, 2002 provides an exclusion of the intellectual property rights from the domain of the competition. This section indirectly recognizes the connection between the IP rights and the competition law. Also, the entire mandate of the section 140 of the Patent Act appears to be against the Section 3 of the Competition Act which puts a restriction on agreements which are anti-competitive in nature. There is no remedy for the licensing agreements carried on by a patent holder for the extension of his patent to licensee at the same time it does not address the fallacy to be unrestrictive on the part of the patent holder.

COMPULSORY LICENSING & PARALLEL IMPORT OF PATENTED PHARMACEUTICALS

Compulsory licensing is done with the help of the government. In this, the government gives permission to produce a patented good or a product without the consent of the patent owner.   It is one of the relaxations given in the protection of patents  which is included in the WTO’s agreement on intellectual property – the TRIPS. The Patents Act, 1970 [7]was amended three times in 1999, 2002, 2005 respectively to include the concept of ‘compulsory license’ and these are given in the sections 84-92 of the Indian Patents Act, 1970.

There is a growing trend of drugs being imported in the domestic market as it was found that out of 140 patent products that are being marketed in India. ‘Only 4 of these were manufactured in India[8]. When Compulsory License is used, the prices decrease from 50- 97%which helps in cost savings to government and patients and the access to the medicines increases. With the help of Compulsory Licensing, the Patent Act gives measures to ensure the protection of public health and nutrition and also that the patent rights are not abused by patentee. Section 84 of Patent Act provides for the grant of Compulsory licensing due to the unaffordable price of the patented products.

India’s first Compulsory License was granted by Patent Office to Natco Pharma Ltd for products of generic version of Bayer Corporation’s Patented Medicine Nexavar on March 9, 2012. The problems related to the future problems of monopolistic practice and dominance in the market are not given any importance in the provisions relating to the compulsory license in Patent Act.

Dominance position has been defined under Section 4 of the Competition Act, 2002. It defines certain elements such as the position of the strength, position in the market, etc., to understand the term ‘dominance’. Compulsory Licensing and Parallel Import are very necessary. But if both these come in a conflict, then it would destroy the purpose of Competition Law. Governments can issue Compulsory Licensing to the pharmaceutical companies to make the drugs at affordable prices. This act of the government would promote the competition as the drugs would be available at a much lower price. The Indian Patent Act was amended on January 1, 2005[9] and Section 92A was incorporated for ‘ a grant of Compulsory License for export of pharmaceutical products in certain exceptional circumstances’.

EFFECT OF MEDICINE PATENT POOL AND CROSS LICENSING ON COMPETITION

Patent pool is an association of two or more companies to cross license their patents in respect to a particular technology. It permits one another or any third party to use the patents owned by them[10]. By pooling a patent, a joint venture is created and the patent holders share their Intellectual Property Rights. The Medicine Patent Pool (MPP) is a United Nations backed public health organization with regard to life – saving medicines for third world countries. It has signed agreements only with ten patent holders. The aim of cross-licensing is the reciprocal access to IPR held by the contracting parties while the patent pools are oriented to create a contractual licensing for the third party. In developing countries, cross licensing and patent pools are supported and also creates barriers to innovation. This offers an alternative solution to the developing countries while applying Article 8 (2) and 40 of the TRIPS Agreement. Article 8(2) deals with the appropriate measures provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. ‘Article 40 recognizes that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology’.

When the negotiated license is exclusive, both cross-licensing and patent pools have anticompetitive effects. This prevents others from using the technologies which are involved. These pools also serve as mechanisms which sets the conditions and also the price levels for the sale of substitute technologies between them. This prevents new technologies from competing with those inventions that are already there.

TRADE SECRET AND COMPETITION LAW

The trade secret can be anything ranging from a simple instrument to a recipe or a formula which is not evident to others. This gives an advantage in the competition and it also provides value to the consumers. The World Trade Organization’s agreement on TRIPS sets down minimum standards for Intellectual Property Regulation. Although in India, there is no specific law created for trade secrets. Therefore, there is no definition described in India in the matter of trade secrets. But the concept of trade secrets has been widely used. Due to the absence of a legislation, India is compelled to depend on the International legislations and conventions in the matter related to the trade secret.

Competition policy aims in promoting competition in local, national market and also in the matter of judicial decisions as well as legislation. The regulations made by these policies aim to restrict the government interventions and anti- competitive business practises. It also takes a strong view regarding the market power abuse. Competition law also removes monopolization of the production process by allowing new players to the industries. It gives its attention to the welfare of producers and consumers.

Generally, Intellectual Property rights and Competition are considered as areas with conflicting objectives. It is because of the boundaries that the competitors may exercise monopoly in the designated boundaries of IPR. This legal monopoly may lead to the market power and the monopoly as defined under competition law. There are other substitutes of IPR holders. But this doesn’t mean that both these areas are always in conflict. There are areas where both IPRs and the competition accompany each other. Intellectual Property Rights give rewards for the new innovation in the technology. It also creates and protects the rights of the creators in order to protect them from the exploitation. This is backed by the competition as it creates more inputs for competition on the future market. This will also promote dynamic efficiency which increases the quality and the diversity of goods, which is one of the objectives of the competition policy. Not only this, Intellectual Property Rights creates a race for innovation to gain the IPR protection. Hence, both IPRs and competition policy should go hand-in-hand to ensure fair competition.

COMPETITION LAW AND THE PHARMACEUTICAL INDUSTRY IN INDIA

The Indian pharmaceutical industry is one of the fastest growing industries in the world. It contributes hugely to the growth of the Indian economy. The intellectual property (IP) legislation ensures the protection of the innovative products which are developed by the research and development to ensure the flow of the innovative drugs. Although the pharmaceutical industry is protected under IP laws, there also arises the issues related to Competition Law. Earlier, the MRTP Act was there. The Monopolies and Restrictive Trade Practices Act (MRTP) was enacted in 1969 as per the recommendations of the Monopolies Inquiry Committee. The MRTP Act was aimed to provide structural remedies in its attempt to curb monopolistic behavior as such structural nature of the law. Cases like Haridas Exports v. All India Float Glass Mfrs. Association and Ors.[11], Rajasthan Housing Board v.Smt. Parvati Devi[12] and the Union of India and Others v. Hindustan Development Corpn. And Others[13] are some of the cases which were dealt under MRTP Act. But after the Liberalization, Privatization and the Globalization (LPG), the MRTP was not sufficient to create a favorable environment for private investments. To bring certain changes in the Competition Act and policy, the Government appointed the Raghavan Committee. The MRTP Act was replaced with the Competition Law, 2002.

Licensing and pricing are the two levels in which the pharma industry operates. The Competition Act, 2002 provides protection to the innovations of pharmaceutical companies but under Section 3(5) of the same Act provides specific inclusions which creates a restriction. “Section 3(5) says that nothing contained in this section shall restrict –

  1. The right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under:
  2. the Copyright Act, 1957 (14 of 1957);
  3. the Patents Act, 1970 (39 of 1970);
  4. the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999)
  5. the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999)
  6. the Designs Act, 2000 (16 of 2000);
  7. the Semiconductor Integrated Circuits Layout- Design Act, 2000 (37 of 2000)
  8. the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.

The pharmaceutical sector has horizontal and vertical agreements. In Horizontal agreements, the pharmaceutical companies enter into the agreement with the same level companies to restrict supply or to fix the prices which is like the prevalent situation of “payment of delay” in the United States. While in Vertical agreement, the agreements are between two different pharmaceutical companies who are at different levels in the supply chain and form tie-in-arrangements. The provisions of Section 3(3) and 3(4) of the Act pertains to such agreements which are entered between enterprises for restricting purchase or sale prices, curtailing supply or production of goods and services as well as creating the tie-in arrangements which was mentioned earlier. Only those pharmaceutical companies with valid patents could enter into agreements with hospitals or pharmaceuticals if it is unregulated by the Drug Price Control Order (DPCO). The entry in the absence of generic drug manufacturers and also the inter-se between the pharmaceutical companies may lead to the possible violations of this Act.

Mergers and Takeovers in the pharmaceutical sectors have also grown considerably in the past few years. Section 5 of the prescribes the thresholds under which combinations shall be examined. “Section 6 of the Act states that any combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India shall be void”. As it involves the matter regarding the public health, the regulatory authorities should be mindful prior to sanctioning such deals considering the possible impact it may have on the market and ultimate end consumers.

Both the Intellectual Property legislation and the Competition law have different objectives. IP legislation protects private rights while the Competition law has a pro-consumer approach which prevents innovation and efficiency from hindering the market. Both these laws have an important role and function in the growth of the Indian Pharmaceutical Industry. If the functioning of both laws is done with integration, it would help in achieving the desired result.

CONCLUSION

Competition Act has played a huge role in the Indian market by providing a fair play and giving equal chances even to the new competitors. It also promoted anti-competitive methods such as dominance in the market. All these gave the Indian pharmaceutical sector a boost and because of this it is one of the growing industries in the terms of values. There are some areas where the Competition law and the Patent Act conflict with each other such as the providing of the IP exclusivity from the domain of Competition law. While reading the Competition Law we can understand that it failed to address the issues of Compulsory Licensing and its impact on Competition and also about the dominant position to be exercised by Compulsory Licensing holding company. The absence of legislation regarding the trade secret should be considered seriously as it would create a problem in protecting the rights of those parties which would enter into trade secret agreements. Also, the issue of importing of pharmaceutical products is a growing concern in the Indian pharmaceutical sector. More products should be made in India which would boost the economy. It would also help all people to access the medicines and we would become self-reliable. All these problems suggest certain amendments that should be done in order to overcome all these problems and to solve the irregularities in these Act. By making these necessary changes, the market would absolutely be a fair place with fair policies and laws.


[1] The Competition Act, 2002, No. 12, Acts of Parliament, 2003(India).

[2] U Chandra and S. Sridharan, “Opportunities and Challenges of Indian Pharmaceutical Sector: An overview”, Semantic scholar, (Mar. 17, 2016), https://www.semanticscholar.org.

[3]  Trade Secret, Black’s law dictionary, (10th ed. 2014).

[4] Agreement on Trade-Related Aspects of Intellectual Property Rights 15 Apr., 1994, 1869 U.N.T.S. 299, 33 I.L.M. 1197.

[5] The North American Free Trade Agreement 17 Dec., 1994, Can.- Mex.-U.S., 32 I.L.M. 289.

[6] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India).

[7] The Patents Act, 1970, No. 39, Acts of Parliament, 1970 (India).

[8] Amit Sengupta, India Assures the Us it will Not Issue Compulsory Licences on Medicines, The Wire, (Mar. 12, 2016), https://m.thewire,in/article/health/india-assures-the-us-it-will-not-issue-compulsory-licenses-on-medicines/amp.

[9] Supra note 1, at 1.

[10] WIPO, Medicines Patent Pool: Facilitating Access to HIV Treatment, WIPO (Jun.3, 2011), https://www.wipo.int/wipo_magazine/en/2011/03/article_0005.html.

[11] Haridas Exports v. All India Float Glass Mfrs. Association, (2002), SC 2728, (India).

[12] Rajasthan Housing Board v.Smt. Parvati Devi, (2000), SC 1940, (India).

[13] Union of India v. Hindustan Development Corpn, (1994), SC 988, (India).


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