Combating Evergreening and Abuse of Dominance: The Role of Patent Litigation and Competition Law in Pharma

I. Introduction

The continuous progression of Competition Law in the Indian Pharmaceutical Industry is a dynamic and evolving endeavor. India's Competition law, implemented in 2002, is relatively recent in comparison to other global competition laws. The regulatory landscape of the Indian pharmaceutical industry raises issues due to its distinct attributes. The industry being examined is the largest in terms of global scale, and it poses a unique challenge due to the inherent nature of its products, which are medicines. The question at hand pertains to the attainment of equilibrium between the concerns of innovators and the welfare of consumers. This suggests that it is crucial to find an optimal selling price for the good in question. Setting prices too low may discourage enterprises from engaging in its production, resulting in limited availability and accessibility. This is particularly concerning when considering that the product in question is critically important for society as a whole. On the other hand, exorbitant prices would make the product inaccessible, so potentially adversely impacting consumers.

Two of the major approaches in the context of competition policy are the Harvard School and the Chicago School. For the purposes of this paper, we shall foreground our discussion in the context of the Chicago School. In the late 1970s, economists and scholars affiliated through the University of Chicago advocated an approach to competition that emphasized consumer welfare and the preservation of competition over competitors. The Chicago School pushed for an inverted model whereby market structure was determined by performance. Therefore, industries with monopolies ought not be punished for their success, as they have become emblematic of efficiency and superiority.² India’s Competition Act, 2002 has explicitly recognized the importance of consumer welfare in its preamble. The interpretation of Competition Law should be informed by the underlying principles stipulated in the Constitution of India, which prioritizes the welfare of consumers. It is incumbent upon the dominant market actor to adhere strictly to legal boundaries and obligations.³

When considering the subject of competition law and its relationship with Intellectual Property Rights within the pharmaceutical sector, the matters of evergreening and patent litigation emerge as important concerns. The practice commonly referred to as 'evergreening', although not directly addressed in the Indian Patents Act, 1970, has been ruled invalid based on established legal precedents. This paper will delve into the judicial precedents that have shed light on this matter. ‘Evergreening’ as a practice encompasses a range of techniques employed by patent holders in anticipation of the expiration of their valuable patent rights. These techniques are designed to further the advantageous position that a patent holder maintains during the period of exclusivity. The utilization of evergreening strategies is particularly prevalent within the pharmaceutical sector. Upon the expiration of a patent, original companies encounter competition from generic companies, typically resulting in a decrease in both price and demand for the branded product. To effectively respond to this competition, organizations that initiate a product or service implement strategic measures to safeguard their market position.⁴

The act of evergreening gives rise to concerns within the framework of both the Patent Act of 1970 and the Competition Act of 2002.To ensure a monopoly for a longer period of time, a number of companies, particularly pharmaceutical ones, wish to prolong the patent's duration. Economic exploitation of a patent constitutes one of the largest sources of revenue for companies, therefore, to retain this revenue, they devise evergreening methods that extend the patent's protective period. Pharmaceutical companies with such patents charge exorbitant prices for their products, making them inaccessible to the general public. In the absence of any competition and with a complete monopoly over the product, those companies may decide prices at their discretion. When the patent term expires, however, the invention becomes public domain. As it becomes accessible to everyone and enters the public domain, its economic value decreases. Therefore, these items become more affordable and accessible to consumers.⁵ Thus, in scenarios wherein a patent holder engages in anti-competitive behavior by exploiting their patent rights, such instances may provoke an investigation by the Competition Commission of India (CCI). Moreover, the jurisprudences on Patent litigation and evergreening have been slowly becoming commonplace ever since the Supreme Court’s decision in the Novartis v. Union of India⁶ case. Thus, we arrive at this paper’s thesis, which is to what extent has the application of competition law in India addressed evergreening and patent litigation by pharmaceutical companies, and how has this influenced competition, access to generic medicines, and consumer welfare?

II. Application of competition law in india

The establishment of the Monopolies Inquiry Commission took place in April 1964, with Justice KC Das Gupta, a distinguished Supreme Court judge, assuming leadership of the commission. The primary aim of the commissions was to investigate the impact and scope of monopolistic and restrictive trade practices within significant sectors of the Indian economy. The primary objective of the Monopolies and Restrictive Practices Act of 1969 was to curtail the consolidation of economic power among a select few individuals or entities, as well as to regulate and restrict monopolistic behaviors. However, the legislation's efficacy was hindered by its outdated and inadequate delineation of what constitutes a "monopolistic practice." Hence, a determination was made to necessitate the enactment of a novel legislation pertaining to competitiveness within the Indian context. With the aforementioned objective in consideration, the Competition Act was presented in the Lok Sabha on August 6, 2001.

As a result, the Indian Parliament enacted the Competition Act 2002 (Competition Act) in 2002, which serves as a comprehensive regulation to govern corporate practices in India. Its primary objective is to prevent acts that could significantly harm competition (AAEC) inside the country. The primary objective of the Competition Act is to govern three distinct categories of behavior: anti-competitive agreements, the abuse of dominant market positions, and combinations, which encompass mergers, acquisitions, and amalgamations. The Competition Act, which underwent amendments through the Competition (Amendment) Act 2007, was subsequently enacted on 20 May 2009, following the notification of sections pertaining to anti-competitive agreements and the abuse of dominant position within the Competition Act by the Government of India. The implementation of the merger control requirements of the Competition Act was delayed for an additional three years until June 2011.⁷

The Competition Act also established the Competition Commission of India (CCI), which enforces and administers the Act. A chairperson and two to six other members selected by the Indian government make up the CCI. The CCI has five members, including chairman Ravneet Kaur, who was appointed in 2023. The CCI can investigate an anti-competitive agreement or abuse of dominant position on its own, using the knowledge and information it has, or with a government or statutory authority's referral. Any individual, consumer, or association can report anti-competitive agreements and dominant position abuse. The CCI may investigate combinations on its own or after corporations notify it. Anti-competitive practices are investigated by the CCI and its Office of the Director General (DG), which has broad powers to summon and enforce attendance, examine witnesses under oath, receive evidence by affidavit, and more. If the CCI finds a prima facie case, it will order the DG to investigate and report. The DG can conduct “dawn raids” for investigations. After providing the parties a chance to be heard, the CCI may issue orders to immediately cease and desist and impose penalties based on the DG's findings. The Competition Act allows CCI orders to be appealed to COMPAT.⁸

III. Impact on evergeening & patent litigation

The nation's jurisprudence on patent infringement has been growing and solidifying gradually but progressively. Many of the claims made in the past concerned copyright or trademark infringement, but times have changed and are going to continue to evolve. A landmark case that ushered in an era of developing jurisprudence concerning evergreening and patent litigation is the case of Novartis v. Union of India⁹ wherein the Supreme Court elucidated the position of the Indian legal system on the practice of ‘evergreening’. Novartis, a prominent pharmaceutical corporation, had submitted a patent application for an anticancer medication called 'Glivec.' This therapy was developed for the treatment of Chronic Myeloid Leukemia and Gastrointestinal Stromal Tumors. The patent pertains specifically to Novartis' discovery of the beta crystalline salt form of imatinib mesylate, the active ingredient in Glivec. Nevertheless, a patent named 'ZIMMERMANN' had already been registered in India. The newly developed application did not introduce any innovative features or characteristics compared to the previously available medicine.¹⁰

The Court's ruling stipulated that patent protection would only be granted to a novel iteration of a recognized substance if the new version shown superior therapeutic effectiveness compared to the established substance. The Supreme Court’s judgement in the Novartis case converges with the concept of abuse of dominant position which is frequently exercised by pharmaceutical companies as they try and exploit their patent rights to milk exorbitant amounts of money from the same drug, causing harm to the consumers in terms of access to generic medicines. Section 4 of the Competition Act, 2002 entails the provision regarding abuse of dominant position by market enterprises. Competition law in India has shifted to a behavioralist paradigm owing to which just market dominance does not attract the said provision, but an abuse of it does. As per the provisions of the Competition Act, an entity can be deemed culpable of engaging in the abuse of its dominating position when it enforces unjust or discriminatory terms or pricing, curtails output, hinders technological advancement, and prevents entry into the market. Abuses are classified as exploitative and exclusive in nature. Exploitative abuses encompass the practice of setting prices at unreasonable and discriminatory levels.

On the other hand, exclusionary abuses pertain to behaviors that result in the exclusion or foreclosure of competitors from the market. These behaviors may include denying market access, employing unfair contracts, and engaging in practices such as tying, bundling, declining to deal, and predation. Despite their inherent distinctions, Section 84 of the Indian Patent Act, 1970 may exhibit certain resemblances to the aforementioned aspects. Indian patent monopolies may demand unjust, excessive prices for their pharmaceuticals and refuse to license competitors, limiting drug production and innovation/technological/scientific progress. Intellectual property holders have the right to refuse licenses, but competition law requires scrutiny if such conduct causes consumer harm (reduced output, detriment to innovation, or price increases) and market failure.

Venturing further into the abuse of dominance and the patent litigation domain, a discussion shall follow pertaining a landmark judgement regarding the interplay of abuse of dominance and patent rights, which is the case of Bayer Corporation v. Natco Pharma Ltd (2013)¹¹ which deals with compulsory licensing. Now, compulsory licensing in India is enshrined within the Indian Patents Act, 1970, primarily under Sections 84 and 92. There are certain grounds enunciated under Section 84 that provide for a grant of compulsory license three years after the grant of a patent to third parties. The grounds are- (a) The patented invention does not meet the reasonable expectations of the public, (b) A patented invention cannot be purchased by the general public for a fair price and lastly (c) The patented invention has not been worked upon inside the geographical boundaries of India.¹²

A successful claim under the abuse of dominance provision under Section 4 was raised against Bayer. One key requirement to be fulfilled for a grant of a compulsory license, as mentioned above is the reasonable expectation of the public. The controller general of patents in this case held that such requirement was not fulfilled. Irrespective of the fact that Bayer had made significant sales elsewhere, the fact the drug was so highly priced that it was out of the reach of the general public then it can be said that the drug is not available to the public on reasonable terms. The cost of the drug was so high rendering it unaffordable by 98% of the Indian populace. The excessive pricing of the drug can be classified as a violation of Section 4 (2) (a) (ii). Bayer failed to take any such steps to work on the drug on a commercial scale adequately within Indian territory. Moreover, even after the passing of four years, no voluntary license was granted by Bayer to anyone else. These shortcomings on part of Bayer can be delineated as acts of restricting the production or advancement of goods or services in a manner that harms consumers, as well as denying market entry and engaging in abusive practices that violate Sections 4(2)(b) (i) (ii) and 4(2)(c) of the Competition Act, 2002. The frequency of lawsuits involving the application of competition law within the pharmaceutical industry continues to rise over time.

The frequency of lawsuits involving the application of competition law within the pharmaceutical sector is on the rise. In contemporary times, there has emerged a legal matter pertaining to the abuse of dominance and the engagement in anti-competitive practices by a pharmaceutical entity. The case revolves around Vifor¹³, which is the patent holder for Ferric Carboxymaltose used for treating anemia. The antitrust allegations levied against Vifor centered on its alleged practice of restricting fair market competition by exclusively giving licenses to only two businesses within the Indian market. Moreover, the allegation of anti-competitive behavior was made about Vifor's provision of supplies to government entities at an amount that was less than its market value. The core of the dispute centered around the refusal of Vifor to provide a patent license to ‘West Bengal Chemical Industries Limited.’¹⁴ On the question of its jurisdiction to deal with a case concerning a patent protected drug, CCI held that it does have the requisite jurisdiction to deal with the said subject matter. However, it dismissed the complaint against Vifor in the initial stage for a multitude of reasons. CCI stated that since Vifor’s licensing agreements are short term with an extension clause, such agreements cannot be deemed to be anti-competitive since they do not set any unreasonable restrictions. Moreover, since the patent is set to expire in October 2023, any interested companies can come up with their own versions of the drug post expiry period. Lastly, on the question of price procurement, Vifor’s place distinction is reasonable as the prices offered to the government under their procurement programmes cannot be compared to that of open market prices.¹⁵

IV. Influence on competition & access to generic medicines

The implementation of competition law within the pharmaceutical industry yields dual advantages for society as a whole. The enhanced protection of consumer rights in the nation is seen through the provision of a recourse for consumers to seek redress from the Competition Commission of India (CCI) in instances where pharmaceutical industry leaders engage in anti-competitive behaviors, including the abuse of market dominance, price collusion, or formation of cartels. As evident from the example of Vifor mentioned earlier in the paper, CCI has ruled in the affirmative on its jurisdiction to deal with patent-protected drugs, thus opening another channel for the consumers to approach in case there are claims of anti-competitive behavior. Secondly, the dearth of anti-competitive practices by pharmaceutical companies yields advantages, including improved accessibility to generic medications. An example for the same is the case of Mylan Pharmaceuticals Pvt. Ltd. V. Hoffman- La Roche Ag¹⁶ wherein by voicing concerns about the approvals given, the safety, efficacy, and risk associated with the generic versions that were biosimilar to Roche's original drug for the treatment of breast cancer, the Roche group tried to influence regulatory authorities, physicians, and hospitals in order to prevent manufacturers of generic medicines from entering the market. Roche's actions were deemed anti-competitive by CCI based on their 26(1) order from April 21, 2017.

To further the argument concerning the application of competition law vis-à-vis patent rights in the pharmaceutical sector and its repercussions on consumer welfare concerning access to generic medicines, the decision of the Court of Justice of the European Union (CJEU) in the case of AstraZeneca¹⁷ shall be considered. CJEU’s ruling in this case is relevant to this paper’s core thesis since this case was the first wherein CJEU concluded that there had been an abuse of power in the pharmaceutical industry concerning evergreening. AstraZeneca was found guilty of abusing its dominant position on two grounds mainly. Firstly, making false claims to patent offices and courts in member states to receive an SPC (statistical process control) resulting in an extension of Losec’s patent protection. Secondly, removing the marketing authorization for the original Losec in Denmark, Sweden, and Denmark while introducing Losec MUPS in those Member States as part of a plan to lessen the impact of Losec coming off patent.¹⁸ It’s important to note that Losec was AstraZeneca’s bestselling medicine having an approximate 6 billion Euros in sales annually, making it one of the most successful drugs for AstraZeneca. The Court’s ruling highlighted how a strategy may be legal even if its goal is to reduce sales degradation and cope with generic competition. Article 102 of the Treaty on the Functioning of the European Union (TFEU) only defines abuse of a dominant position as behavior that deviates from fair and reasonable practices that are detrimental to consumers and fall under the purview of competition. In the current instance, the actions were intended, among other things, to stop generic competition and were not predicated in the slightest on the rightful defense of an investment that fell within the purview of merit-based competition. Under Article 102, an undertaking participating in merit-based competition is considered to be engaging in unlawful behavior if there are no reasons to defend its legitimate interest.¹⁹

V. Consumer welfare & conclusion

The application of competition law is driven by the objective of consumer welfare, which may be inferred from various judicial precedents. This goal is pursued either by direct means or indirectly. Furthermore, the objective of safeguarding consumer welfare is not only embedded in the Indian jurisprudence concerning competition law, but also prevalent in several major competition law frameworks worldwide. For example, Article 101 (3) of the TFEU’s primary aim is to safeguard competition for the advantage of consumers. Furthermore, according to Article 102 (b), dominating undertakings are prohibited from engaging in practices that restrict output, markets, or technical development to the detriment of clients. In the Continental Can²⁰ case, the Court of Justice of the European Union (CJEU) reached the conclusion that competition legislation not only addresses practices that directly harm consumers, but also practices that have an adverse impact on consumers by affecting the competitive framework of the marketplace, which is additionally referred to as an indirect effect. Therefore, the competition law focuses on behaviors that have a negative impact on consumers, regardless of whether that impact is immediate or indirect. Through an examination of the above-mentioned court decisions by the European Union, it can be inferred that the practice of evergreening has the potential to constitute an abuse of dominant position as provided for in Article 102. Consequently, it can be deemed an illicit practice, even though evergreening practices sometimes straddle the line between acceptable conduct and abusive behavior. The determination of the legality of evergreening does not rely on a universally applicable definition. Rather, the demarcation point is contingent upon the circumstances of each case.

A parallel can be drawn from the European Union’s stance to the stance in Indian competition law jurisprudence. The Act forbids the abuse of exclusive rights to monopolize to the detriment of the public, and it contains restrictions to that effect. Similarly, drawing upon the Indian judicial precedents mentioned earlier in this paper such as Novartis, Bayer, Vifor, Hoffman- La Roche, the ultimate end goal of these rulings was to protect the consumer’s welfare, obviously through different means but the end goal remains constant. By allowing access to generic medicines, say through the case of Novartis, the consumers are the one who stand to benefit from such a decision. The decisions rendered by the Competition Commission of India, as well as the Supreme Court are commendable. The inclusion of pharmaceutical patents in the realm of IP-competition law marks a significant development, and India's initial few rulings in this regard represents a promising and favorable beginning, which will only continue to strengthen with the passage of time.