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Enhancing Affordable Pharmaceutical Healthcare

Possibilities in Indian Competition Law Regime

Natasha Nayak

The Indian intellectual property regime has often met he politicisation of the intellectual property rights (IPR)
with severe criticism from the United States as India regime in India is not new and dates back to the 1990s
when India became a member of the World Trade
strives to balance the need to provide affordable
Organization (WTO) and therefore, a signatory to Agreement
healthcare with a thriving market for a competitive on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
pharmaceutical industry. In this context, the nexus India thus undertook a commitment to harmonise its IPR with
between compulsory licensing, competition law and that of the multilateral agreement and its mandate. Since then,
balancing domestic needs for accessible and affordable medi-
patent law merits a closer examination and it is
cines with those of the global demands of trade has been a
debatable whether a strong competition law framework continuous struggle. The Indian Patent Act of 1970 has been
is indeed the way forward. amended several times to align it with India’s global commit-
ments, even when it ran the risk of compromising domestic
goals. In recent times, the growing global discourse on compli-
ance with TRIPS has shifted to TRIPS-plus, with significant con-
sequences 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
The author would like to thank the anonymous reviewer for extensive manufacturing and technology hub, intellectual property laws
comments, Shamnad Basheer for his review and Joanna Barretto for her
have assumed special significance in the Indian economy. In-
research assistance.
novation is a key driver of economic growth upon which the
Natasha Nayak ( is a visiting fellow at the success of many government initiatives such as “Make in India,”
Hoover Institution, Stanford University.
“Digital India” and “Startup India,” hinges. There are noticeable
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growth surges, especially in key sectors such as pharmaceuticals Furthermore, Christine Peterson (2016) in a Special 301 sub-
(India is frequently referred to as the “global generics capital”), mission by Global Intellectual Property Rights Center, mentions,
telecommunications (second largest mobile telecommunica- Industry continues to be concerned by the potential threat of compulsory
tions market in terms of user base overtaking that of the US) licensing. While the Government of India has privately reassured Industry
and others. These are intensely innovation-driven sectors that that it would not use Compulsory Licences for commercial purposes, a
are now increasingly being met with regulatory competition public commitment to forego using compulsory licensing for commercial
scrutiny for conflicts of consumer interest with proprietary purposes would enhance legal certainty for innovative industries.
rights of innovators. The reports are indicative of the targeted attacks on India’s
A crucial development shortly after the 2014 elections was current compulsory licensing framework and the perceived
the formation of a bilateral high-level working group on intel- measure of threat they pose to the US industry. Compulsory
lectual property, under the aegis of the Trade Policy Forum licensing is one of the core TRIPS flexibilities that India along
between the US and India. A national IPR think tank was with other Group of 77 (G-77) and African countries success-
constituted the same year, with the mandate to formulate a fully negotiated at the Doha Development Round in the interest
national IPR policy, as well as to consult the government on of enhancement of access to medicines and public health in
issues pertaining to IPR s. In May 2016, the National IPR Policy 2001. The impact of compulsory licences on the price reduc-
was adopted. The formation of the working group was met tion of drugs in the global scenario can be seen in Table 1. Such
with widespread criticism by Indian civil society organisa- “assurances” would come at the cost of a constitutional guar-
tions and scholars who had issued a joint statement raising antee of affordable healthcare. The Supreme Court has held in
concerns about India becoming “hostage to the US govern- Paschim Banga v State of West Bengal (1996) that Article 21 of the
ment and companies” (Raja 2014). Concerns were also raised Constitution imposes an obligation on the state to safeguard the
about the IPR policy prior to its adoption, for a lack of balance right to life of every citizen. Preservation of human life is thus of
and a possible compromise on India’s pro-access position that paramount importance. Flexibilities embedded in India’s patent
has inspired many developing countries in the past. Interest- law have the potential to contribute to safeguarding this right.
ingly, it was also found that the previous think tank that The intellectual property landscape in India has witnessed
offered a policy more in tune with public interest was arbi- many dramatic turns in the present times. The potential
trarily disbanded and no intimation was offered of the dis- implications for affordable access to medicines are severe. It
banding and formation of the new committee (Datta 2014). may be good to specially draw attention to an alternate forum
Despite having a TRIPS compliant IPR regime, India has that promises to present an appropriate yet underutilised
been placed under the USTR Special 301 Priority Watch where framework for solutions to the problem of access to affordable
it continues to stay. The USIBC submissions were made to the pharmaceutical drugs. Aside from the fact that India’s IPR re-
USTR as part of a report of a review of global IP laws earlier last gime is mired in severe complexities, existing safeguards may
year. In a letter dated 5 February 2016, applauding the Modi have limited benefits, even if we succeed in finding a way out
administration for making waves by what seems to be a signifi- of the labyrinth, especially so when they are enshrined in a
cant shift in India’s approach towards policymaking in IPRs, framework that is primarily designed to enhance innovation
the letter by the President of USIBC reveals: through the protection of commercial interests of creators,
USIBC took notice that the Government of India has denied several and aligned with a framework whose primary mandate is the
compulsory licence applications, providing investor certainty and pre- facilitation of global trade.
dictability that their patents will be upheld in India … Despite com- Given how prevention of abuse and protection of consumer
pulsory licensing denials, Industry continues to be concerned by the
potential threat of compulsory licensing. The Government of India has
interests are paramount, there is a case for exploring alterna-
privately reassured India it would not use Compulsory Licences for tives within the regulatory framework presented by competition
commercial purposes. (Aghi 2016) laws that are inherently motivated by such goals. Countries

Table 1: Impact of Compulsory Licences on Price Reduction of Drugs

Country and Date of Issue Type of Licence Type or Name of Medicine Impact of Compulsory Licence
India, February 2012 Compulsory licence to manufacture Sorafenib (kidney cancer treatment) Resulted in price reduction of 97%
generic version
Ecuador, April 2010 Compulsory licence to import and, if necessary, Ritonavir (ARV) Resulted in patent holder reducing price
locally produce generic version of brand medicine by 70%
Thailand, January 2008 Government use licence to import Letrozole (Breast cancer treatment) Projected price reductions of
generic version 97% expected
Brazil, May 2007 Compulsory licence to import generic version Efavirenz (ARV) Resulted in a 72% price reduction
Thailand, January 2007 Government use licence to import or locally Lopinavir/Ritonavir (ARV) Projected price reductions of
produce generic version 80% expected
Indonesia, October 2004 Government use licence to locally produce Lamivudine/Nevirapine (ARV) Resulted in price reduction of 53%
generic version
Malaysia, November 2003 Government use licence to locally produce Combination of Stavudine, Resulted in price reduction of 83%
generic version Didonasine and Nevirapine (ARV)
Source: UNDP (2014).

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like South Africa have taken this path in the past. Remedial with perfect competition is in many cases inferior in techno-
measures under competition law are likely to be broader in logical efficiency and dominant firms are most likely to inno-
range and empower wider interests, than the safeguards given vate, as they have the resources for research and development
under patent regimes which have been barely invoked by com- (Schumpeter 1947). Twenty years later, economist Kenneth Arrow
panies and there is but one case of compulsory licensing in (1962: 622) argued on the other hand, that a monopolist’s
close to its 12-year-old history in India’s IPR framework. This is incentive to innovate is less as compared to a competitive firm
because remedies in competition law differ from private law because the financial interest of a monopolist remains status
remedies in the wider objective of social welfare that they are quo, given that “pre-invention monopoly power acts as a
designed to enhance. Correction of market failures, restora- strong disincentive to further innovation.”
tion of markets and deterrence is likely to be more effective in The two views are harmonised by Carl Shapiro (2011), who
meeting public interest goals of ensuring accessibility, afford- examines the relationship of competitive and monopolistic
ability and availability in the long run. They may be critically markets with innovation at different phases and concludes
viewed as having potential for alternative solutions, especially that: (i) innovation is spurred if the market is contestable, that
when India today boasts of a young yet dynamic competition is, if multiple firms are vying to win profitable future sales;
law framework that functions with the ultimate goal of maxi- and (ii) the two systems are not in conflict. He makes a distinc-
misation of consumer welfare as evinced in its fast-developing tion between competition ex ante and ex post, and the differ-
competition jurisprudence. Enforcement of competition law, ing implications for innovation. According to him, Arrow was
however, is not free from limitations presented by a system of the view that greater ex ante competition encourages inno-
that is still evolving and grapples with its own inherent vation by destroying profits and therefore incentivising firms to
complexities and external pressures. The heavy toll on escape that state. Schumpeter instead argued that competition
patients who are primarily consumers of healthcare products ex post may have detrimental impacts by not allowing firms to
and services, however, inspires a fresh look at the problem reap adequate rewards, and thereby reducing the incentive to
from these other quarters. enter that state (Shapiro 2011). Antitrust economist Massimo
Motta (2004) summarises the debate, referring to a rich theo-
Exploring an Intimate Interface retical and empirical literature which reveals that the link be-
At present, the close interactions between intellectual property tween market structure and innovation is not conclusive, even
and competition laws have assumed a very important place in though a “middle ground” environment, where there exists
technologically driven global as well as domestic markets. some competition but also high enough market power coming
Exclusive rights granted by IPRs are often termed as a negative from the innovative activities, might be the most conducive to
right that they vest in the holder to exclude another from research and development output.
exploiting his/her innovation. While some theorists maintain
that intellectual property is an extension of one’s individual Situating Consumers in Competition Regulation
personality, utilitarian theorists ground them in social progress The theory of competition policy is traditionally studied
and incentives to innovate while Lockeans argue the need to under two distinct schools of thought. The proponents of the
reward labour and merit (Hughes 1988; Moore 2008). While “Harvard School” in the 1960s and 1970s came to suggest that
these theories have their weaknesses, they offer compelling “when markets are more concentrated, firms are more likely
arguments for the purpose of IPRs. to engage in anticompetitive conduct” (Hovenkamp 2003:
Competition law seeks to promote effective access to the 917–20). This school of thought centred around the Structure–
market and prevent monopolisation that leads to foreclosure Conduct–Performance Model, whereby the number of firms
of market competition to the detriment of consumers (Whish in a market and their size (that is, market structure), would
2005). Primarily, the aim of competition law the world over is determine their conduct and their performance in the market
enhancement of consumer welfare. Prima facie, there seems (Furse 2008). Such a structuralist approach to competition
to be an inherent conflict in the workings of the two regimes. law opposed market concentration. There was a presumption
One aims to promote monopolies to incentivise innovation, of illegality when the firm in question exercised market power,
while the other is designed to curb them (in the interest of regardless of the effect it had on consumers. A case in point is
consumers) while arguably impacting incentives to innovate that of United States v Aluminum Co of America (1964) where
negatively. Contrary to this, studies reveal that innovation is the respondent company (Alcoa) was penalised on grounds
an oscillating trade-off between competition and intellectual that the merger was likely to result in a substantial reduction
property, where the two gain complementarity and it is in fact of competition, since the merger would work to increase the
a shared goal. The dynamic challenge here, however, remains concentration of the market.
in striking the optimal balance. Subsequently, economists and lawyers associated with the
In his famous theory of continuous innovation and creative University of Chicago came to advocate an approach to compe-
destruction, Joseph Schumpeter has emphasised that a great tition in the late 1970s that focused only on consumer welfare
deal of innovation is attributable to large firms operating in and the protection of competition rather than competitors.
oligopolistic markets and not to small firms operating in atomistic The Chicago School argued for a reverse model and that per-
markets (Shapiro 2011). The firm of the type that is compatible formance dictated market structure. Monopolistic industries
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became symbolic of an efficient and superior performance, theory that excludes consumer policy is not only shortsighted but,
and therefore, ought not to be penalised for their success given the growing importance of consumer issues, can ultimately
(Furse 2008). Furthermore, the belief that markets were likely be self-defeating” (Ohlhausen 2014). In the US Supreme Court
to correct their own competitive imbalances, and that external case of FTC v Actavis (2013), the courts yet again unanimously
regulatory control was not required, was propagated (Fox 1987). upheld the consumer welfare approach to antitrust violations.
Court intervention became necessary only after it was abun- “Consumer loss is the cognizable harm, as the Court makes
dantly clear that the anticompetitive conduct was threatening clear, without inquiry into what part of the loss takes the form
consumer welfare by way of increased prices and restricted of deadweight loss, or instead is transferred to producers as
outputs (Hovenkamp 2001). extra profit” (Edlin et al 2013: 16–23). In matters pertaining to
Most competition agencies globally seem to opt for a con- IPRs as well, the US courts’ clear reliance on consumer welfare
sumer welfare standard in competition law enforcement over a standard is evinced in a series of antitrust litigations involving
total welfare standard, an approach that factors in producer patent settlements cases between originator and generic sup-
gains as well. The results of a 2011 study conducted by the pliers. In the K-Dur Antitrust Litigation (2012), the Court held:
International Competition Network for 57 competition authorities the policy of encouraging settlements is important, but it should be
and 19 non-governmental advisers on Competition Enforcement considered in light of countervailing public policy objectives. With
and Consumer Welfare revealed: respect to the pharmaceutical industry, Congress knowingly dealt
with competing policy interests and deliberately decided that the
Most Respondents do not generally use total welfare as a standard.
equilibrium should shift toward favouring competition and increas-
Although they acknowledge that, theoretically, it may be more accurate
ing the availability of low-cost generic drugs. (K-Dur Antitrust Litiga-
to use total welfare in the long term, for practical purposes, most seem
tion 2012: 217)
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
Compulsory Licensing in India
dynamic perspective over a static one. However, most Respondents
also seem to admit that enforcement realities frequently oblige them to Compulsory licence provisions are enshrined in the Indian Patent
have regard to short term effects, and often to use a static perspective. Act, 1970 primarily under Sections 84 and 92. Section 84 provides
(International Competition Network 2011: 4) that compulsory licences be granted after an expiration of
A number of countries even explicitly mention protection of three years from the grant of a patent, to third parties if certain
consumer interest in their competition law frameworks. Australia, grounds are met, namely that (i) reasonable requirements of
New Zealand, Finland, Denmark, the Netherlands, Ireland, the public with respect to the patented invention have not
Zambia and others have opted for a single agency system hous- been satisfied, or (ii) patented invention is not available to the
ing functions of competition and consumer protection under public at a reasonably affordable price, or (iii) patented invention
one institutional arrangement. In India, consumer welfare objec- is not worked in the territory of India. Till date, only one compul-
tives are explicitly stated in the Competition Act, 2002. The pre- sory licence has been issued in India under Section 84. No licences
amble of the act makes explicit mention of consumer interest have been issued by the government pursuant to Section 92 which
as one of the core objectives of competition law. It states the provides discretionary powers to the government to issue com-
objectives of the law as pulsory licences by way of a notification in cases of “a national
An Act to provide, keeping in view of the economic development emergency, extreme urgency or non-commercial use.”
of the country, for the establishment of a Commission to prevent The sole instance in India till date involves the manufacture
practices having adverse effect on competition, to promote and sus- of a kidney cancer drug, Sorafenib Tosylate, sold under the
tain competition in markets, to protect the interests of consumers brand name “Nexavar,” produced originally by the German
and to ensure freedom of trade carried on by other participants in
pharmaceutical multinational company, Bayer AG. Bayer was
markets, in India.
granted a patent over Nexavar in 2008 in India. Four years
In the case of Belaire Owners’ Association v DLF Ltd, Huda and later, Natco Pharma, an Indian pharmaceutical company filed
Others (2014), the Competition Commission of India (CCI) an application before the Indian Patent Office for grant of a
slapped a hefty fine of $140 million on real estate giant DLF compulsory licence for the drug after being denied a voluntary
for entering into one-sided contracts with Indian consumers. licence by Bayer for the same. It was granted to Natco, subject
One of the core motivating factors leading to the decision to a fixed royalty rate of 6% to Bayer2 when the drug was seen
was the attempt to exploit consumers. On appeal, the Compe- to have not reached 98% of the Indian population (Natco Pharma
tition Appellate Tribunal upheld the commission’s order Limited v Bayer Corporation 2011) as it was exorbitantly priced
and observed: at `2,80,428 a month. Natco offered to charge a meagre frac-
Competition Law must be read in the light of the philosophy of the tion of the prices charged by Bayer at `8,880 a month (Natco
Constitution of India, which has concern for the consumers and the Pharma Limited v Bayer Corporation 2011).
dominant player in the market has a special duty to be within the four Compulsory licences are “authorizations permitting a third
corners of law. (Belaire Owners’ Association v DLF Ltd, Huda and Others party to make, use, or sell a patented invention without the
2014: 132–33)
patent owner’s consent.” As mentioned earlier, there has been
Consumer harm is central to a finding of antitrust violation only one successful grant of compulsory licence since its enact-
in the US as well. In the words of Former US Federal Trade ment in 2005. As will be explained in the following sections,
Commission (FTC) Commissioner Timothy Muris, “competition this becomes symbolic of the controversies surrounding the
Economic & Political Weekly EPW OCTOBER 6, 2018 vol lIiI no 40 51

grant of compulsory licences inasmuch as such licences help a general provision that gives flexibility to governments to
resolve the issue of access by the public. adopt appropriate measures that may be needed to prevent the
abuse of IPRs by rights holders who may resort to practices
Underutilised Compulsory Licence Provisions which unreasonably restrain trade or adversely affect the inter-
Compared to other countries, the provisions in India have national transfer of technology. Article 40.2 of the agreement
largely remained underutilised. In comparison to the dismal provides a non-exhaustive list of anticompetitive practices that
domestic success rate, low-income countries such as Ghana, amount to abuse of IPRs and permits members to adopt measures
Zimbabwe, Mozambique among others, have been relatively to prevent such practices. “An inference may be drawn from
more reliant on compulsory licences to allow the promotion of these two substantive provisions that such measures may well
access to high-priced medicines that are under patent protec- be found in domestic competition laws of member countries”
tion (DIPP 2010). The low rate of filing of such applications also (Subramanian 2010: 997–1023). Furthermore, as clarified in
reveals a reluctance on the part of domestic companies to take the Microsoft Corporation v Commission of the European
recourse to the prescribed remedy. Communities (2007: 3976) case, the Court of the First Instance
In a study, Beall and Kuhn (2012: 7) argue that of the European Union (EU) has held:
there is a high probability that the efforts put forth during the Doha There is nothing in the provisions of TRIPS Agreement to prevent the
conference in regard to pharmaceutical compulsory licences will have competition authorities of the members of the WTO from imposing
a negligible long-term impact on their regular use or on global access remedies which limit or regulate the exploitation of intellectual prop-
to pharmaceuticals. erty rights held by an undertaking … And Article 40(2) of TRIPS clari-
fies that members of the WTO are entitled to regulate abusive use of
The study finds a high occurrence of compulsory licences at
such rights in order to avoid effects which harm competition.
first between 2003 and 2005, yet a falling trend markedly
since 2006. While upper middle-income countries have high Article 31 of TRIPS allows for issuance of compulsory licences.
activity and strong incentives to use these licences compared Article 31(b) permits compulsory licensing on the condition that
to other countries, they note considerable countervailing pres- it is subject to judicial review and is used for non-commercial
sures against their use in most countries and conclude a low government use, in cases of national emergencies. Article 31(k)
probability of continued compulsory licence activity. It states: permits compulsory licensing in cases where it is necessary to
These pressures faced by countries particularly middle income coun- remedy practices that are deemed anticompetitive in nature,
tries come from industrial lobbies and foreign governments to honor such as those addressed in Article 40. The sole grant of com-
intellectual property rights. Patent recognition may also be seen as pulsory licence under Article 31(k) may not always prove to be
an opportunity to attract foreign investment and technology transfer.
effective in promoting competition, as its impact would de-
Regional or bilateral trade agreement incorporating so-called TRIPS-
plus provisions that expand patent rights or limit generic production pend on factors such as the dominance of the patent owner in
capacity are yet another factor. (Beall and Kuhn 2012: 7) the market and other conditions unique to the market (Watal
2000). However, Article 31(k) has remained an important provi-
Political Considerations sion under TRIPS. Unlike the grant of compulsory licences per-
As mentioned earlier, the Indian government’s alleged private mitted elsewhere under Article 31, under Article 31(k) it is
assurances to the USTR to not grant compulsory licences for com- granted only in cases of anticompetitive practices, and (i) there
mercial purposes is very telling. As per the USTR “Special 301” need not be a negotiation for a voluntary licence with the owner
watch list (1989), India ranks as one of the countries having of the patents, (ii) the need to correct anticompetitive practices
“serious intellectual property rights deficiencies requiring are taken into account while determining the remuneration
USTR attention,” having been on the list since its beginning in payable, (iii) the compulsory licence is not subject to limitations
1989. The 2016 USTR report criticises Section 3(d) of the Indian imposed by Article 31, and (iv) the licence shall be primarily
Patent Act, stating that since the WTO’s TRIPS agreement pro- for the supply of the domestic market of the member seeking
vides flexibilities in determining a patentable substance, the the grant (Correa 2007). The principle of granting these licences
Indian Patent Act is overreaching and goes above international to remedy anticompetitive practices has mirrored itself in the
agreements (Mitra-Jha 2016). domestic laws of various nations (Scherer and Watal 2007).
Although the Ministry of Commerce and Industry subse-
quently issued a clarification stating that the news regarding Doctrine of Essential Facilities
assurances was factually incorrect (Ministry of Commerce and The possibility of permitting the third party use of IPRs in cases
Industry 2016), the debate ensued thereof and the issuance of of refusal to licence amounting to anticompetitive abuse has
the US–India joint statement (Office of the Press Secretary 2014) been considered in the context of the “essential facilities” doctrine.
is symbolic of the political pressures that dictate the discussion This doctrine, as defined by a US appellate court, “imposes
around compulsory licences today. liability when one firm, which controls an essential facility,
denies a second firm reasonable access to a product or service
Applicability under TRIPS that the second firm must obtain in order to compete with the
The TRIPS agreement allows for policy space for member coun- first” (Alaska Airlines, Inc v United Airlines, Inc 1991). While a
tries to address anticompetitive abuses of IPRs in their domestic refusal to licence is presumed to be legal, in the United States v
competition law regimes. Article 8.2 of the TRIPS agreement is Microsoft Corporation (1998) case, the district court held that
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“copyright does not give its holder immunity from laws of In 2003, the South African Treatment Action Campaign (TAC),
general applicability, including the antitrust laws.” Although Congress of South African Trade Unions, Chemical, Energy,
some US court decisions have suggested that information may Paper, Printing, Wood and Allied Workers’ Union and the AIDS
constitute an essential facility, the extent of the application of this consortium reached an agreement with GlaxoSmithKline (GSK)
doctrine to intellectual property cases is uncertain (Verizon and Boehringer Ingelheim, after the above-mentioned pharma-
Communications v Law Offices of Curtis V Trinko 2004).3 Other ceutical companies were prosecuted under the South African
jurisdictions such as the EU have made no explicit mention of Competition Act, 1998. The said companies were found to
this doctrine, though they have applied the same in a limited have violated the competition law of South Africa since they
number of cases as seen below. were charging excessive prices for the patented antiretroviral
In the EU, certain “exceptional circumstances” justify the (ARV) medicines. GSK had exercised the exclusive right to market
issuance of compulsory licences. The European Court of Justice and sell GSK ARVs in South Africa, and the said ARVs included
in Magill in paragraphs 49 and 50 held: Zidovudine (AZT), Lamivudine, Abacavir (ABC), Amprenavir,
Refusal by the owner of an intellectual property right to grant a AZT/lamivudine, and AZT/lamivudine/ABC. Boehringer Ingel-
licence, even if it is the act of an undertaking holding a dominant posi- heim on the other hand, had the exclusive right to market and
tion, cannot in itself constitute abuse of a dominant position, but the sell the ARV nevirapine. Both companies were allegedly engaging
exercise of an exclusive right by the proprietor may, in exceptional in excessive pricing of the ARVs and were therefore acting in a
circumstances, involve an abuse. (RTE and ITP v Commission 1995)
manner detrimental to the consumers.
Exceptional circumstances exist when such refusal (i) prevents When the matter was brought before the Competition Com-
the emergence of a new product or service for which there is mission, it was found that such behaviour was in violation of
a potential demand, (ii) is without objective justification, and Section 8(a) of the South African Competition Act. The prices
(iii) is capable of eliminating all competition in the relevant were claimed to be excessive since there was a stark difference
market. between them and the prices of generic alternatives. As per
In recognising the contribution that effective competition the Competition Commission, the said companies had not only
can make to the welfare of the poor, the 2001 Nobel Prize winner priced these ARVs excessively but had also failed to grant licences
Joseph Stiglitz said, “Strong competition policy is not just a to generic manufacturers, thus using their patent monopolies
luxury to be enjoyed by rich countries, but a real necessity for to deny appropriate licences to other manufacturers while
those striving to create democratic market economies” (OECD keeping their own prices high. The dispute was settled when
2007: 89). In developing societies especially, competition the Competition Commission concluded a settlement agreement
agencies should be able to intervene when a patent monopoly with GSK and Boehringer Ingelheim. As per the said agree-
fails to address social concerns. Table 2 highlights the benefits ment, GSK was to provide licence to four generic companies
of competition law enforcement in the pharmaceutical sector (TAC Newsletter 2003). Prior to the agreement, however, GSK had
in various countries. only granted a licence to Aspen Pharmacare. Furthermore, in
South Africa’s Competition Commission has investigated pursuance of the agreement, Boehringer Ingelheim was to grant
cases involving complaints of lack of access to life-saving drugs. licences to three generic companies. The above-mentioned
Table 2: Benefits of Competition Law Enforcement in Pharmaceutical Sector
Country and Date of Action Description of Action Pharmaceutical Products Impact
France, 2013 Following complaint by Teva, French competition Clopidogrel Sanofi-Aventis fined ¤40.6 million
authority found Sanofi-Aventis had abused a
dominant position with a strategy to denigrate
generic versions of its branded drug, Plavix
EU, 2012 European Court of Justice affirmed Commission Losec AstraZeneca Fined ¤52.5 million
findings of abuse of dominant position by
AstraZeneca in providing misleading information
to patent offices and deregistering product to
inhibit generic entry
Colombia, 2009 Finding fewer than three homogeneous products on Lopinavir and Ritonavir Average price reduction ranging
the market, National Medicines Pricing Commission between 54% and 68% per person per year
regulated price of medicine sold by Abbott Laboratories
Italy, 2007 Competition authority initiated investigation into abuse API Finastertide Defendant agreed to grant free licences to
of dominant position by Merck allow manufacture and sale of API prior to
expiration of patent term
South Africa, 2003 Competition Commission found two pharmaceutical AZT, lamivudine and nevirapine Led to voluntary settlement
companies guilty of excessive pricing and denying a and fixed-dose combinations agreements with GlaxoSmithKline and
competitor an essential facility, following complaints containing these antiretrovirals Boehringer Ingelheim providing
from activist groups licensing of patents to seven
generic companies, based on 5% royalties
US, 2000 Federal Trade Commission charged generic producers Lorazepam and Clorazepate Lead defendant (Mylan) placed $100 million
with restraint of trade and conspiracy to monopoly into escrow account for distribution to
markets for two generic drugs; settlement agreed purchasers of relevant drugs during time
period covered by settlement
Source: UNDP (2014).

Economic & Political Weekly EPW OCTOBER 6, 2018 vol lIiI no 40 53


licences were to be provided on the basis of a royalty fee of no was different. While the challenge under the Patent Act was
more than 5% of the net sales of the said medicines, whereas that of a private list, that is, the grant of injunction under the
they were initially licences at 30% royalty fee (by GSK) and act arose from the contract between the licensee and the
15% royalty fee (by Boehringer Ingelheim). licensor, the examination of an abuse of dominance under the
In yet another case, TAC v Merck and MSD (2007), the claim Competition Act was not a private suit. This is not to say that
brought before the Competition Commission was that Merck, suitable remedies do not exist in patent law or that either of
along with its South African subsidiary (Merck Sharpe & Dohme the laws is in derogation of one another, but that they are
[MSD]), had abused their dominant positions in the market of materially different and may in fact supplement one another.
ARV medicine Efavirenz (EFV) since they refused to license This is owing to the differing nature of remedies in private law
other firms to import/manufacture generic versions of the said and public law. Private law entails remedies that are designed
HIV/AIDS medicines on reasonable and non-discriminatory for the “infliction of the wrongs on private individuals and
terms (UNCTAD 2015). The commission found that they threat- entities” (Weinrib 1995: 143). These remedies are granted in
ened access to treatment for HIV/AIDS in the private and public matters relating to tort, property, and contract law.
sectors, and coupled with the above-mentioned exclusionary Thus, in cases pertaining to any of the said categories, the
acts, violated Section 8(c) of the Competition Act 89 of 1998. relief that can be sought can vary from seeking damages in
Since EFV could not be substituted for another ARV treatment, lieu of the harm suffered, an injunction to prevent the continu-
and since there were no generics available, the respondents ance of the harm that is caused and any future harm that may
were alleged to have a dominant position, which they had sub- be caused. Patent law permits the revocation of a patent or
sequently abused. However, the said case was resolved before injunction or compulsory licence, as the case may be. In such
the commission had completed its investigation. MSD and Merck instances, the remedy is only available to the applicant (person
reached an agreement with multiple licensees, permitting a suffering tangible harm) in the matter (Gaur 2013). Therefore,
range of generic EFV products to be brought to the market. under patent law, the suit for remedies is a private suit and
patent law remedies mirror the remedies granted under tort
Competition Scrutiny in India law that is directed at restoring the patentee to status quo (prior
There have not been many cases pertaining to competition to the infringement).
scrutiny of patent abuses in the pharmaceutical sector as of It may be argued that the remedies in competition law can
now. In 2013, a complaint was filed against the US-based phar- be more useful in correcting public harms in comparison to
maceutical company Gilead Sciences for abusing its dominant patent law remedies. Anyone can file a complaint and seek re-
position in the market for ARV drugs. However, the CCI rejected medial action under competition law at any given time. How-
this complaint at the prima facie stage. It held that Gilead ever, a compulsory licence application can only be made three
Sciences did not have a legal presence in India and was not a years after the grant of a patent, and by a company that wishes
dominant player in the ARV drugs market. There was also no to manufacture generic versions of the patented drugs. A licensee
appreciable adverse effect on the competition caused by the seeking the grant of a compulsory licence would have had
agreements entered into by Gilead with several other Indian to make efforts to obtain a voluntary licence on reasonable
pharmaceutical companies. terms from the patent holder first. However, the same would
At present there are two vital cases involving alleged abuse not be a consideration in the event that a company is engaging
of dominance in the mobile telecommunication technology in anticompetitive conduct and the complainant approaches
industry by the holder of standard essential patents, Ericsson, the CCI. Furthermore, if the CCI found a patentee’s conduct to
that are pending investigation under the CCI (Telefonaktiebolaget be anticompetitive and the finding had attained finality, the
LM Ericsson [Publ] v Competition Commission of India 2016). patent controller would proceed on the said basis and the
After much controversy regarding the jurisdiction of the com- patentee would be stopped from contending the contrary.
mission to hear matters involving patent disputes, a recent The remedies in competition law in accordance with Section
order dated 30 March 2016 has put the debate to some rest by 27 grant the CCI the power to direct the enterprise to cease–
explicitly stating that the commission is vested with wide desist, discontinue, modify the agreement or action amount-
powers and jurisdiction to adjudicate on disputes of this nature. ing to an abuse. The act provides for a wide range of remedies
Para 174 of the judgment states: ranging from a heavy penalty to a division of the enterprise
There is no irreconcilable repugnancy or conflict between the Com- and any other order or directions deemed appropriate for the
petition Act and the Patents Act. And, in absence of any irreconcilable case. The CCI under Section 27 (e) has been empowered with
conflict between the two legislations, the jurisdiction of CCI to enter-
a broad reach of directing the enterprises concerned to abide
tain complaints for abuse of dominance in respect of Patent rights can-
not be ousted. (Telefonaktiebolaget LM Ericsson [Publ] v Competition by any orders the commission may pass and comply with the
Commission of India 2016: 58) directions it issues. It may pass all or any of the remedies
which go a long way in simultaneously creating substantial
Private Nature of Patent Claims deterrence in future, correcting market failures and promot-
In Ericsson, a claim was made to dispute the application of the ing competition in the market for all in the larger interest
Indian Competition Act, 2002 alongside the Patent Act. How- of consumers. Under the patent law, on the other hand, a
ever, Justice Vibhu Bakhru held that the nature of both acts compulsory licence offers a somewhat targeted relief and is
54 OCTOBER 6, 2018 vol lIiI no 40 EPW Economic & Political Weekly

exclusive and limited to the applicant alone, making it less the Indian population at `2,80,428. This could be classified as
effective to correct a public harm. a Section 4(2)(a) (ii) violation of unfair/excessive pricing.
Bayer took no adequate or reasonable steps to “start the work-
Abuse of Dominance ing of the invention in the territory of India on a commercial
Section 4 of the Competition Act, 2002 addresses conduct of scale and to an adequate extent” and even after the lapse of
firms that amounts to an abuse of a dominant position in a four years, the patentee (Bayer) failed to do so and also to
given market. Competition jurisprudence in India has evolved grant voluntary licence to anyone (Natco Pharma Limited v
from a structuralist to a behaviouralist paradigm, whereby Bayer Corporation 2011: 22). Such failures could be classified
possession of market power does not automatically attract as limiting the production or technical/scientific develop-
competition scrutiny but its abuse does. An enterprise is un- ment of goods or services to the prejudice of consumers, as
derstood to possess considerable market power if it has the well as denial of market access, abuses in contravention of
ability to operate independently of competitive forces prevailing Sections 4(2)(b) (i) (ii) and 4(2)(c) of the Competition Act
in the relevant market. Abuse of dominance is a three-pronged (Chopra and Muthappa 2012).
test. It begins with delineating the relevant market. The market
is defined in terms of products based on substitutability and Addressing Market Failure
the extent of competitive constraints they impose on one another. The rationale for granting patents is to incentivise innovation
The market is also defined geographically based on how pre- since it arguably enables the patentee to obtain a monopoly
vailing conditions in a given area impact demand and supply and the resultant profits (Scherer and Ross 1980). However,
of goods and services as distinguishable from markets in the monopoly grant of the patent also creates an additional
neighbouring areas. Once a relevant product and geographic cost, that is the price of the product would be higher than what
market are defined, the next step is to determine dominance it would have been had it been competitively provided. Sean
and it is often (though not always), assessed based on the market Flynn, Aidan Hollis and Mike Palmedo in Flynn et al (2009)
share.4 The final step is assessment of abuse. argue that in the case of essential medicines provided in
Under the Competition Act, an enterprise is guilty of developing countries, there exists a high inequality in the
abusing its dominant position if it imposes unfair or discrimi- demand of the product, and the amount accessible to consum-
natory conditions or prices, limits production, restricts tech- ers, since the patent holder has “priced out the consumers,”
nical development and denies market access. The nature that is, a category of consumers is created, who cannot afford
of abuses is categorised as exploitative and exclusionary. the drug due to the price at which it is sold. As a result, the
Exploitative abuses involve excessive and discriminatory pric- “monopoly pricing” creates a “dead weight loss” that creates a
ing, while exclusionary abuses involve behaviour that causes situation whereby the consumers forego certain purchases of
foreclosure of competitors and includes denial of market the patented product in question, due to the high monopolistic
access, unfair contracts, etc, through tying, bundling, refusal price and lack of access.
to deal and predation. This becomes more significant when the said patented
Despite their differing natures, the grounds for issuance of a product is an essential drug. Such a situation of a dead weight
compulsory licence under Section 84 of the Indian Patent Act, loss is referred to as a market failure. Market failures gener-
1970 may in essence bear some resemblance to few of the fac- ally are a product of inefficiency caused by monopolistic rent-
tors mentioned above. Indian patent monopolies may at times seeking and erection of entry barriers for competitors. Com-
charge unfair, excessive prices for their drugs and also deny petition law seeks to maximise static efficiency in the short
other competitors access to market by a refusal to license, run and therefore becomes a more suitable method to address
thereby limiting the production of drugs and restricting inno- these market failures. This is because competition law seeks
vation or technical/scientific development of drugs. While a to maximise productive efficiency, that is, producing without
refusal to license is well within the lawful rights of an intel- waste, and allocative efficiency, that is, producing goods and
lectual property holder, if the resulting impact of such conduct services that society values the most. Furthermore, since
is demonstrable consumer harm (reduced output, detriment to competition law seeks to prevent any unreasonable restraint
innovation or increase in prices) and market failure, such a on trade, it addresses the problem that arises when patents
case merits scrutiny under competition law framework. are used to create a monopoly and create entry barriers to
In India’s sole compulsory licence case of Bayer Corporation probable competitors. To sum up the discussions in previous
v Natco Pharma Ltd (2013), a claim could be successfully made sections, it can be inferred that competition law presents
for abuse of dominance by Bayer under Section 4. The Controller effective remedies to address problems of access to medicines
General of Patents had held in the case that the reasonable re- where remedies in patent law may fail. Nonetheless, it has of
quirement of the public in India was not met, though Bayer its own limitations.
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 Challenges in Competition Law Enforcement
not available to the public on reasonable terms. The prices The CCI has recently started taking on cases involving global
charged by Bayer were extremely high and could well be corporate giants. The prima facie orders of the commission in
termed as “unfair” as they were unaffordable to close to 98% of the Ericsson cases have been met with great criticism for lacking
Economic & Political Weekly EPW OCTOBER 6, 2018 vol lIiI no 40 55

in sound economic reasoning and a protectionist bias in favour statutory exemptions laid out under Section 3(5) for agreements.
of implementers. Furthermore, the commission’s views as stat- These are the only exemptions for IPRs from competition scru-
ed in the prima facie order stand in stark contrast with the po- tiny under Indian competition law. However, these exemp-
sition taken by the Delhi High Court on the same core issues tions have never been successfully invoked by any party till
(Sidak 2015). In the absence of sound basis, competition enforce- date. The main reason for this being that the scope of this
ment is likely to create business uncertainty and have a chilling provision is ambiguous and no clarification on what amounts
effect on investment by foreign players, to the detriment of to “reasonable conditions” “necessary to protect IPRs” exists
Indian consumers (Ghosh and Sokol 2016). under Section 3(5) of the Competition Act at present.
Furthermore, competition enforcement in excessive pricing
cases is never free from the danger of lowering post entry Conclusions
margins, thereby discouraging subsequent entry, which may While competition enforcement suffers from some inherent
ironically lead to higher prices (Ghosh and Sokol 2016). limitations, it has been actively invoked, unlike the underutilised
In industries driven by innovation or large up front invest- compulsory licence regime in India. The CCI’s proactive role in
ments, it has been argued that consumers do not benefit recent years has brought to light many of these limitations and
from excessive pricing interventions, since it takes away the the scope of regulatory intervention is currently being widely
incentive of firms to invest ex ante. Motta (2004) argues that debated. Recent years have seen a trend in aggressive competi-
antitrust excessive price action presents a high risk of type I tion enforcement against enterprises, including major corpo-
(false condemnation errors), characterised by dynamic ineffi- rate giants. In the face of growing politicisation of intellectual
ciency, low investments and low innovation which is especially property regimes, this may therefore prove to be a more recep-
detrimental in highly dynamic industries where innovation tive framework. The need for greater use of competition law
plays a crucial role. There is also a persistent danger of price was highlighted by the Global Commission on HIV and the
regulation which is an absolute overreach by the competition Law, an independent body of eminent persons tasked with in-
agency, given that outside market failures, competition agen- terrogating the relationship between human rights, law and
cies lack political legitimacy or technical expertise to inter- public health in the context of HIV (UNDP 2014).
vene in the market (Motta and Streel 2007) and upheld by CCI The commission recommended that “countries must proac-
in Manjit Singh Sachdeva vs Director General (Manjit Singh tively use other areas of law and policy, such as competition
Sachdeva v Director General, Director General of Civil Aviation & law, price control policy and procurement law which can help
Anr 2012). increase access to pharmaceutical products” (UNDP 2014: 5).
A further limitation with abuse cases is that they require a Given many factors mentioned in this paper, countries are better
step by step analysis and make for tedious investigations, as advised to opt for competition law where affordability of
mentioned before. As per the current statute, abuse of domi- healthcare is compromised by the conduct of patent mono-
nance is a “per se” violation and does not explicitly require a polies. Furthermore, when navigating complex issues of inter-
deeper probe into an effects test. However, this is a grey area face, the CCI must be encouraged to invoke statutory provi-
given that competition jurisprudence on this is varied and the sions on regulatory cooperation and consultations prescribed
commission is found to have applied an effects test in one case in Sections 21 and 21A of the Competition Act. It will be inter-
while disregarding it in others.5 esting to see how one of the most crucial policy debates at pre-
Lastly, some of the cases disputed may also involve anticom- sent that is the interface of the two complex regimes in general,
petitive agreements. While there are no explicit exemptions and the extent of regulatory intervention in pharmaceutical
for the treatment of IPRs for abuse and combinations, there are patent monopolies in particular, shape up in times to come.

notes of the enterprise, and (v) dependence of con- Dhanraj Pillay and Others v M/s Hockey India
1 “Even as Government of India is conscious of the sumers on the enterprise. (2013): Competition Commission of India, Case
need to spur innovation and protect individual 5 In Dhanraj Pillay and Others v M/s Hockey India No 73/2011.
rights, it retains the sovereign right to utilize the (2013), the CCI brought in the “effects test,” but Faridabad Industries Association v M/s Adani Gas
flexibilities provided in the international (IP subsequently disregarded it. In Faridabad Indus- Limited (2014): Competition Commission of
rights) regime,” the ministry reportedly said. tries Association v M/s Adani Gas Limited (2014), India, Case No 71/2012.
2 The Intellectual Property Appellate Board CCI imposed a penalty on Adani, even absent FTC v Actavis (2013): United States Supreme Court,
hiked this to 7% royalty rate upheld by the proof that the result would further consumer Docket No 12–416.
Bombay High Court. benefit, and the ostensible clauses deemed an- Hazel Tau & Others v GlaxoSmithKline, Boehringer
3 In Verizon Communications v Law Offices of ticompetitive were not enforced by Adani. & Others (2003): Competition Commission of
Curtis V Trinko (2004), the Supreme Court South Africa, Case No 2002Sep226.
stated that it had never recognised the essen- K-Dur Antitrust Litigation (2012): United States Court
tial facilities doctrine.
Cases CITED of Appeals, 3rd Circuit, 686 F 3d 197, 208.
4 The Herfindahl-Hirschman Index (HHI) measures Alaska Airlines, Inc v United Airlines, Inc (1991): Manjit Singh Sachdeva v Director General, Director
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share of each firm in the market and then calcu- F 2d 536, 542. tion Commission of India, Case No 68/2012.
lates the sum of the resulting share of each firm. Bayer Corporation v Natco Pharma Ltd (2013): Intel- Microsoft Corporation v Commission of the European
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relied upon to calculate market power are: (i) size No 45/2013. 3601 Judgment ECLI:EU:T:2007:289 T-201/04.
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importance of the competitors, (iii) economic (2014): Competition Appellate Tribunal, 19/21010, Controller of Patents, Mumbai, Compulsory
power of the enterprise, (iv) vertical integration p 132–33. License Application No 1/2011, p 22.

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