Financial Express, July 09, 2012
Pradeep S Mehta
In May 2012, Polandís Court of Appeal upheld an earlier ruling by
Polandís Office of Competition and Consumer Protection to fine
Narodowy Fundusz Zdrowia (NFZ), the countryís National Health
Fund, a total fine of 1.1 million zloty (270,000 euros) for abuse
of dominance. NFZ, which is Polandís only public provider for
health services, had abused its dominance by putting continuity
clauses in its tenders that unfairly favoured companies that had
cooperated with it in the past. It thus awarded long-standing
clients additional points during weighting evaluations, meaning it
discriminated against new market entrants.
The case becomes disturbing since it involves abuse of dominance
by a firm, which is in the health sectoróa sector that is critical
with products of very low demand elasticity since they are
necessities rather than luxuries. Despite the health sector being
critical, firms usually find themselves in a dominant position,
with huge opportunities for abuse due to the existence of several
barriers to entry. Even hospitals are expensive to build and to
operate such that there will be few investors in developing
countries with deep pockets. It is a natural entry barrier and
cannot be dealt with easily. This makes the need to protect the
sector against any anti-competitive tendencies that can suppress
its growth paramount. Abuse of dominance is largely intended to
suppress the growth of the sector to ensure that the incumbents
enjoy abnormal profits.
It is for this reason that competition authorities around that
world, including those in the developed world, monitor the market
closely to ensure that firms abusing their dominance are fined
heavily. Several such examples exist, where competition
authorities have punished health sector firms for abuse of
dominance. In June 2011, for example, it was reported that the UK
government had launched a lawsuit of £220 million for damages
against Servier Laboratories, a French pharmaceuticals company for
abusing its dominant position by causing a delay to rivals that
wanted to launch their own generic versions of a blood pressure
drug. In April 2011, the Office of Fair Trading (OFT) had found
that Reckitt Benckiser had abused its dominant position in the
market for the supply of alginate and antacid heartburn medicines.
The OFT ruled that Reckitt Benckiser abused its dominant position
by withdrawing and delisting Gaviscon Original Liquid from the NHS
prescription channel in 2005.
In 2011, the European Commission fined AstraZeneca a euro 53
million for abusing its dominant position in the health sector.
The pharmaceutical company had been found guilty of abusing its
dominant position by withdrawing one form of its Losec products
(capsules) in certain territories in the EU and replacing them
with another (tablets) in order to block the entry of generic
products and restrict parallel importing. In 2007, the French
Competition Council issued its first ever order on predatory
pricing after it levied a fine of euro 10 million on the
pharmaceutical company GlaxoSmithKline. The company was found to
have engaged in predatory conduct on drug sales in 1999 and 2000.
Companies in the health sector in South Africa and many other
developing countries have also been found to be abusing their
dominance and fined heavily by the competition authorities. A
database of anti-competitive practices by Evenett, Jenny and Meier
of 2006 revealed that about 41% of all cases of anti-competitive
practices in Sub-Saharan Africa in the health and social sector
could be attributed to abuse of dominance related competition
violations. It is in the same context that abuse of dominance in
the Indian health sector should also be looked at.
As outlined in a 2010 study commissioned by the Competition
Commission of India (CCI) on competition issues in the healthcare
sector, India is among the top five producers of bulk drugs in the
world, with a share of 20% in the pharmaceutical market. Worth
noting, the Indian health sector is highly technology as well as
knowledge intensive, with costly research and development needs.
With only some 35% of Indians being able to access essential
medicines, this causes serious concern. The Competition Act, 2002
can be used as a tool to remedy the situation.
Most of the cases relating to abuse of dominance in the health
sector are related to the abuse of intellectual property rights (IPRs).
There are strong indications that IPRs are easily abused in India
amid allegations that patentees are often misusing these rights.
These also include price gouging in the selling of medicine,
thereby jacking up costs. The Indian companies are also accused of
restricting the entry of generics suppliers into the market, at
the detriment of consumers who could only afford generic drugs.
Restricting entry for generic drugs is done by creating artificial
entry barriers by setting up their own range of generics, refusal
to license and patent pooling, or not even working the patent.
An example of patenting abuse was dealt with by the Indian
Controller of Patents recently, when it granted a compulsory
license to Natco, an domestic pharma company, to produce the
anti-cancer drug Naxevar, whose rights belonged to Bayer, a big
The fear of possible anti-competitive practices also becomes more
relevant against the recent entry of MNCs in the generic drug
business in India. MNCs which recently entered the Indian market
include Abbot Labs (by purchasing Piramal Healthcare),
Sanofi-Aventis (which purchased Shantha Biotech), Fresenius Kabi
(through Dabur Pharma) and Daiichi Sankyo (which bought Ranbaxy).
They joined other MNCs such as GlaxoSmithKline (GSK) and Novartis,
which were already in the market. With the market being so
lucrative, there are always possibilities that the companies can
engage in such practices if opportunities present themselves. (In
our policy circles, we are still debating as to who will regulate
such mergers, whether it would be FIPB or the CCI). Furthermore,
most of these MNCs have been hauled up by competition authorities
across the world.
Since it was established, CCI has already taken action against
many firms for abusing their dominant positions such as the famous
DLF case. However, the health sector is more critical, given the
extent to which the poor are vulnerable to abusive behaviour by
the firms. In addition to particular cases, it is also critical
for CCI to inter alia invest heavily in getting acquainted with
the whole rubric of the interface between competition and IPR,
which would prove useful in dealing with abuse of dominance in the
health and similar sectors.
The author is
secretary general, CUTS International. Cornelius Dube of CUTS
contributed to this article
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