SPECIAL ARTICLE
Enhancing Affordable Pharmaceutical Healthcare
Possibilities in Indian Competition Law Regime
Natasha Nayak
The Indian intellectual property regime has often met
with severe criticism from the United States as India
strives to balance the need to provide affordable
healthcare with a thriving market for a competitive
pharmaceutical industry. In this context, the nexus
between compulsory licensing, competition law and
patent law merits a closer examination and it is
debatable whether a strong competition law framework
is indeed the way forward.
The author would like to thank the anonymous reviewer for extensive
comments, Shamnad Basheer for his review and Joanna Barretto for her
research assistance.
Natasha Nayak (natasha.nayak@gmail.com) is a visiting fellow at the
Hoover Institution, Stanford University.
48
T
he politicisation of the intellectual property rights (IPR)
regime in India is not new and dates back to the 1990s
when India became a member of the World Trade
Organization (WTO) and therefore, a signatory to Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
India thus undertook a commitment to harmonise its IPR with
that of the multilateral agreement and its mandate. Since then,
balancing domestic needs for accessible and affordable medi-
cines with those of the global demands of trade has been a
continuous struggle. The Indian Patent Act of 1970 has been
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
manufacturing and technology hub, intellectual property laws
have assumed special significance in the Indian economy. In-
novation is a key driver of economic growth upon which the
success of many government initiatives such as “Make in India,”
“Digital India” and “Startup India,” hinges. There are noticeable
OCTOBER 6, 2018 vol lIiI no 40 EPW Economic & Political Weekly
 SPECIAL ARTICLE

growth surges, especially in key sectors such as pharmaceuticals
(India is frequently referred to as the “global generics capital”),
telecommunications (second largest mobile telecommunica-
tions market in terms of user base overtaking that of the US)
and others. These are intensely innovation-driven sectors that
are now increasingly being met with regulatory competition
scrutiny for conflicts of consumer interest with proprietary
rights of innovators.
A crucial development shortly after the 2014 elections was
the formation of a bilateral high-level working group on intel-
lectual property, under the aegis of the Trade Policy Forum
between the US and India. A national IPR think tank was
constituted the same year, with the mandate to formulate a
national IPR policy, as well as to consult the government on
issues pertaining to IPR s. In May 2016, the National IPR Policy
was adopted. The formation of the working group was met
with widespread criticism by Indian civil society organisa-
tions and scholars who had issued a joint statement raising
concerns about India becoming “hostage to the US govern-
ment and companies” (Raja 2014). Concerns were also raised
about the IPR policy prior to its adoption, for a lack of balance
and a possible compromise on India’s pro-access position that
has inspired many developing countries in the past. Interest-
ingly, it was also found that the previous think tank that
offered a policy more in tune with public interest was arbi-
trarily disbanded and no intimation was offered of the dis-
banding and formation of the new committee (Datta 2014).
Despite having a TRIPS compliant IPR regime, India has
been placed under the USTR Special 301 Priority Watch where
it continues to stay. The USIBC submissions were made to the
USTR as part of a report of a review of global IP laws earlier last
year. In a letter dated 5 February 2016, applauding the Modi
administration for making waves by what seems to be a signifi-
cant shift in India’s approach towards policymaking in IPRs,
the letter by the President of USIBC reveals:
USIBC took notice that the Government of India has denied several
compulsory licence applications, providing investor certainty and pre-
dictability that their patents will be upheld in India … Despite com-
pulsory licensing denials, Industry continues to be concerned by the
potential threat of compulsory licensing. The Government of India has
privately reassured India it would not use Compulsory Licences for
commercial purposes. (Aghi 2016)
Furthermore, Christine Peterson (2016) in a Special 301 sub-
mission by Global Intellectual Property Rights Center, mentions,
Industry continues to be concerned by the potential threat of compulsory
licensing. While the Government of India has privately reassured Industry
that it would not use Compulsory Licences for commercial purposes, a
public commitment to forego using compulsory licensing for commercial
purposes would enhance legal certainty for innovative industries.
The reports are indicative of the targeted attacks on India’s
current compulsory licensing framework and the perceived
measure of threat they pose to the US industry. Compulsory
licensing is one of the core TRIPS flexibilities that India along
with other Group of 77 (G-77) and African countries success-
fully negotiated at the Doha Development Round in the interest
of enhancement of access to medicines and public health in
2001. The impact of compulsory licences on the price reduc-
tion of drugs in the global scenario can be seen in Table 1. Such
“assurances” would come at the cost of a constitutional guar-
antee of affordable healthcare. The Supreme Court has held in
Paschim Banga v State of West Bengal (1996) that Article 21 of the
Constitution imposes an obligation on the state to safeguard the
right to life of every citizen. Preservation of human life is thus of
paramount importance. Flexibilities embedded in India’s patent
law have the potential to contribute to safeguarding this right.
The intellectual property landscape in India has witnessed
many dramatic turns in the present times. The potential
implications for affordable access to medicines are severe. It
may be good to specially draw attention to an alternate forum
that promises to present an appropriate yet underutilised
framework for solutions to the problem of access to affordable
pharmaceutical drugs. Aside from the fact that India’s IPR re-
gime is mired in severe complexities, existing safeguards may
have limited benefits, even if we succeed in finding a way out
of the labyrinth, especially so when they are enshrined in a
framework that is primarily designed to enhance innovation
through the protection of commercial interests of creators,
and aligned with a framework whose primary mandate is the
facilitation of global trade.
Given how prevention of abuse and protection of consumer
interests are paramount, there is a case for exploring alterna-
tives within the regulatory framework presented by competition
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
India, February 2012
Ecuador, April 2010
Thailand, January 2008
Brazil, May 2007
Thailand, January 2007
Indonesia, October 2004
Malaysia, November 2003
Source: UNDP (2014).
Type of Licence
Compulsory licence to manufacture
generic version
Compulsory licence to import and, if necessary,
locally produce generic version
Government use licence to import
generic version
Compulsory licence to import generic version
Government use licence to import or locally
produce generic version
Government use licence to locally produce
generic version
Government use licence to locally produce
generic version
Type or Name of Medicine
Sorafenib (kidney cancer treatment)
Ritonavir (ARV)
Letrozole (Breast cancer treatment)
Efavirenz (ARV)
Lopinavir/Ritonavir (ARV)
Lamivudine/Nevirapine (ARV)
Combination of Stavudine,
Didonasine and Nevirapine (ARV)
Impact of Compulsory Licence
Resulted in price reduction of 97%
Resulted in patent holder reducing price
of brand medicine by 70%
Projected price reductions of
97% expected
Resulted in a 72% price reduction
Projected price reductions of
80% expected
Resulted in price reduction of 53%
Resulted in price reduction of 83%

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SPECIAL ARTICLE
like South Africa have taken this path in the past. Remedial
measures under competition law are likely to be broader in
range and empower wider interests, than the safeguards given
under patent regimes which have been barely invoked by com-
panies and there is but one case of compulsory licensing in
close to its 12-year-old history in India’s IPR framework. This is
because remedies in competition law differ from private law
remedies in the wider objective of social welfare that they are
designed to enhance. Correction of market failures, restora-
tion of markets and deterrence is likely to be more effective in
meeting public interest goals of ensuring accessibility, afford-
ability and availability in the long run. They may be critically
viewed as having potential for alternative solutions, especially
when India today boasts of a young yet dynamic competition
law framework that functions with the ultimate goal of maxi-
misation of consumer welfare as evinced in its fast-developing
competition jurisprudence. Enforcement of competition law,
however, is not free from limitations presented by a system
that is still evolving and grapples with its own inherent
complexities and external pressures. The heavy toll on
patients who are primarily consumers of healthcare products
and services, however, inspires a fresh look at the problem
from these other quarters.
Exploring an Intimate Interface
At present, the close interactions between intellectual property
and competition laws have assumed a very important place in
technologically driven global as well as domestic markets.
Exclusive rights granted by IPRs are often termed as a negative
right that they vest in the holder to exclude another from
exploiting his/her innovation. While some theorists maintain
that intellectual property is an extension of one’s individual
personality, utilitarian theorists ground them in social progress
and incentives to innovate while Lockeans argue the need to
reward labour and merit (Hughes 1988; Moore 2008). While
these theories have their weaknesses, they offer compelling
arguments for the purpose of IPRs.
Competition law seeks to promote effective access to the
market and prevent monopolisation that leads to foreclosure
of market competition to the detriment of consumers (Whish
2005). Primarily, the aim of competition law the world over is
enhancement of consumer welfare. Prima facie, there seems
to be an inherent conflict in the workings of the two regimes.
One aims to promote monopolies to incentivise innovation,
while the other is designed to curb them (in the interest of
consumers) while arguably impacting incentives to innovate
negatively. Contrary to this, studies reveal that innovation is
an oscillating trade-off between competition and intellectual
property, where the two gain complementarity and it is in fact
a shared goal. The dynamic challenge here, however, remains
in striking the optimal balance.
In his famous theory of continuous innovation and creative
destruction, Joseph Schumpeter has emphasised that a great
deal of innovation is attributable to large firms operating in
oligopolistic markets and not to small firms operating in atomistic
markets (Shapiro 2011). The firm of the type that is compatible
50
with perfect competition is in many cases inferior in techno-
logical efficiency and dominant firms are most likely to inno-
vate, as they have the resources for research and development
(Schumpeter 1947). Twenty years later, economist Kenneth Arrow
(1962: 622) argued on the other hand, that a monopolist’s
incentive to innovate is less as compared to a competitive firm
because the financial interest of a monopolist remains status
quo, given that “pre-invention monopoly power acts as a
strong disincentive to further innovation.”
The two views are harmonised by Carl Shapiro (2011), who
examines the relationship of competitive and monopolistic
markets with innovation at different phases and concludes
that: (i) innovation is spurred if the market is contestable, that
is, if multiple firms are vying to win profitable future sales;
and (ii) the two systems are not in conflict. He makes a distinc-
tion between competition ex ante and ex post, and the differ-
ing implications for innovation. According to him, Arrow was
of the view that greater ex ante competition encourages inno-
vation by destroying profits and therefore incentivising firms to
escape that state. Schumpeter instead argued that competition
ex post may have detrimental impacts by not allowing firms to
reap adequate rewards, and thereby reducing the incentive to
enter that state (Shapiro 2011). Antitrust economist Massimo
Motta (2004) summarises the debate, referring to a rich theo-
retical and empirical literature which reveals that the link be-
tween market structure and innovation is not conclusive, even
though a “middle ground” environment, where there exists
some competition but also high enough market power coming
from the innovative activities, might be the most conducive to
research and development output.
Situating Consumers in Competition Regulation
The theory of competition policy is traditionally studied
under two distinct schools of thought. The proponents of the
“Harvard School” in the 1960s and 1970s came to suggest that
“when markets are more concentrated, firms are more likely
to engage in anticompetitive conduct” (Hovenkamp 2003:
917–20). This school of thought centred around the Structure–
Conduct–Performance Model, whereby the number of firms
in a market and their size (that is, market structure), would
determine their conduct and their performance in the market
(Furse 2008). Such a structuralist approach to competition
law opposed market concentration. There was a presumption
of illegality when the firm in question exercised market power,
regardless of the effect it had on consumers. A case in point is
that of United States v Aluminum Co of America (1964) where
the respondent company (Alcoa) was penalised on grounds
that the merger was likely to result in a substantial reduction
of competition, since the merger would work to increase the
concentration of the market.
Subsequently, economists and lawyers associated with the
University of Chicago came to advocate an approach to compe-
tition in the late 1970s that focused only on consumer welfare
and the protection of competition rather than competitors.
The Chicago School argued for a reverse model and that per-
formance dictated market structure. Monopolistic industries
OCTOBER 6, 2018 vol lIiI no 40 EPW Economic & Political Weekly

became symbolic of an efficient and superior performance,
and therefore, ought not to be penalised for their success
(Furse 2008). Furthermore, the belief that markets were likely
to correct their own competitive imbalances, and that external
regulatory control was not required, was propagated (Fox 1987).
Court intervention became necessary only after it was abun-
dantly clear that the anticompetitive conduct was threatening
consumer welfare by way of increased prices and restricted
outputs (Hovenkamp 2001).
Most competition agencies globally seem to opt for a con-
sumer welfare standard in competition law enforcement over a
total welfare standard, an approach that factors in producer
gains as well. The results of a 2011 study conducted by the
International Competition Network for 57 competition authorities
and 19 non-governmental advisers on Competition Enforcement
and Consumer Welfare revealed:
Most Respondents do not generally use total welfare as a standard.
Although they acknowledge that, theoretically, it may be more accurate
to use total welfare in the long term, for practical purposes, most seem
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
dynamic perspective over a static one. However, most Respondents
also seem to admit that enforcement realities frequently oblige them to
have regard to short term effects, and often to use a static perspective.
(International Competition Network 2011: 4)
A number of countries even explicitly mention protection of
consumer interest in their competition law frameworks. Australia,
New Zealand, Finland, Denmark, the Netherlands, Ireland,
Zambia and others have opted for a single agency system hous-
ing functions of competition and consumer protection under
one institutional arrangement. In India, consumer welfare objec-
tives are explicitly stated in the Competition Act, 2002. The pre-
amble of the act makes explicit mention of consumer interest
as one of the core objectives of competition law. It states the
objectives of the law as
An Act to provide, keeping in view of the economic development
of the country, for the establishment of a Commission to prevent
practices having adverse effect on competition, to promote and sus-
tain competition in markets, to protect the interests of consumers
and to ensure freedom of trade carried on by other participants in
markets, in India.
In the case of Belaire Owners’ Association v DLF Ltd, Huda and
Others (2014), the Competition Commission of India (CCI)
slapped a hefty fine of $140 million on real estate giant DLF
for entering into one-sided contracts with Indian consumers.
One of the core motivating factors leading to the decision
was the attempt to exploit consumers. On appeal, the Compe-
tition Appellate Tribunal upheld the commission’s order
and observed:
Competition Law must be read in the light of the philosophy of the
Constitution of India, which has concern for the consumers and the
dominant player in the market has a special duty to be within the four
corners of law. (Belaire Owners’ Association v DLF Ltd, Huda and Others
2014: 132–33)
Consumer harm is central to a finding of antitrust violation
in the US as well. In the words of Former US Federal Trade
Commission (FTC) Commissioner Timothy Muris, “competition
Economic & Political Weekly EPW OCTOBER 6, 2018 vol lIiI no 40
SPECIAL ARTICLE
theory that excludes consumer policy is not only shortsighted but,
given the growing importance of consumer issues, can ultimately
be self-defeating” (Ohlhausen 2014). In the US Supreme Court
case of FTC v Actavis (2013), the courts yet again unanimously
upheld the consumer welfare approach to antitrust violations.
“Consumer loss is the cognizable harm, as the Court makes
clear, without inquiry into what part of the loss takes the form
of deadweight loss, or instead is transferred to producers as
extra profit” (Edlin et al 2013: 16–23). In matters pertaining to
IPRs as well, the US courts’ clear reliance on consumer welfare
standard is evinced in a series of antitrust litigations involving
patent settlements cases between originator and generic sup-
pliers. In the K-Dur Antitrust Litigation (2012), the Court held:
the policy of encouraging settlements is important, but it should be
considered in light of countervailing public policy objectives. With
respect to the pharmaceutical industry, Congress knowingly dealt
with competing policy interests and deliberately decided that the
equilibrium should shift toward favouring competition and increas-
ing the availability of low-cost generic drugs. (K-Dur Antitrust Litiga-
tion 2012: 217)
Compulsory Licensing in India
Compulsory licence provisions are enshrined in the Indian Patent
Act, 1970 primarily under Sections 84 and 92. Section 84 provides
that compulsory licences be granted after an expiration of
three years from the grant of a patent, to third parties if certain
grounds are met, namely that (i) reasonable requirements of
the public with respect to the patented invention have not
been satisfied, or (ii) patented invention is not available to the
public at a reasonably affordable price, or (iii) patented invention
is not worked in the territory of India. Till date, only one compul-
sory licence has been issued in India under Section 84. No licences
have been issued by the government pursuant to Section 92 which
provides discretionary powers to the government to issue com-
pulsory licences by way of a notification in cases of “a national
emergency, extreme urgency or non-commercial use.”
The sole instance in India till date involves the manufacture
of a kidney cancer drug, Sorafenib Tosylate, sold under the
brand name “Nexavar,” produced originally by the German
pharmaceutical multinational company, Bayer AG. Bayer was
granted a patent over Nexavar in 2008 in India. Four years
later, Natco Pharma, an Indian pharmaceutical company filed
an application before the Indian Patent Office for grant of a
compulsory licence for the drug after being denied a voluntary
licence by Bayer for the same. It was granted to Natco, subject
to a fixed royalty rate of 6% to Bayer2 when the drug was seen
to have not reached 98% of the Indian population (Natco Pharma
Limited v Bayer Corporation 2011) as it was exorbitantly priced
at `2,80,428 a month. Natco offered to charge a meagre frac-
tion of the prices charged by Bayer at `8,880 a month (Natco
Pharma Limited v Bayer Corporation 2011).
Compulsory licences are “authorizations permitting a third
party to make, use, or sell a patented invention without the
patent owner’s consent.” As mentioned earlier, there has been
only one successful grant of compulsory licence since its enact-
ment in 2005. As will be explained in the following sections,
this becomes symbolic of the controversies surrounding the
51
SPECIAL ARTICLE
grant of compulsory licences inasmuch as such licences help
resolve the issue of access by the public.
Underutilised Compulsory Licence Provisions
Compared to other countries, the provisions in India have
largely remained underutilised. In comparison to the dismal
domestic success rate, low-income countries such as Ghana,
Zimbabwe, Mozambique among others, have been relatively
more reliant on compulsory licences to allow the promotion of
access to high-priced medicines that are under patent protec-
tion (DIPP 2010). The low rate of filing of such applications also
reveals a reluctance on the part of domestic companies to take
recourse to the prescribed remedy.
In a study, Beall and Kuhn (2012: 7) argue that
there is a high probability that the efforts put forth during the Doha
conference in regard to pharmaceutical compulsory licences will have
a negligible long-term impact on their regular use or on global access
to pharmaceuticals.
The study finds a high occurrence of compulsory licences at
first between 2003 and 2005, yet a falling trend markedly
since 2006. While upper middle-income countries have high
activity and strong incentives to use these licences compared
to other countries, they note considerable countervailing pres-
sures against their use in most countries and conclude a low
probability of continued compulsory licence activity. It states:
These pressures faced by countries particularly middle income coun-
tries come from industrial lobbies and foreign governments to honor
intellectual property rights. Patent recognition may also be seen as
an opportunity to attract foreign investment and technology transfer.
Regional or bilateral trade agreement incorporating so-called TRIPS-
plus provisions that expand patent rights or limit generic production
capacity are yet another factor. (Beall and Kuhn 2012: 7)
Political Considerations
As mentioned earlier, the Indian government’s alleged private
assurances to the USTR to not grant compulsory licences for com-
mercial purposes is very telling. As per the USTR “Special 301”
watch list (1989), India ranks as one of the countries having
“serious intellectual property rights deficiencies requiring
USTR attention,” having been on the list since its beginning in
1989. The 2016 USTR report criticises Section 3(d) of the Indian
Patent Act, stating that since the WTO’s TRIPS agreement pro-
vides flexibilities in determining a patentable substance, the
Indian Patent Act is overreaching and goes above international
agreements (Mitra-Jha 2016).
Although the Ministry of Commerce and Industry subse-
quently issued a clarification stating that the news regarding
assurances was factually incorrect (Ministry of Commerce and
Industry 2016), the debate ensued thereof and the issuance of
the US–India joint statement (Office of the Press Secretary 2014)
is symbolic of the political pressures that dictate the discussion
around compulsory licences today.
Applicability under TRIPS
The TRIPS agreement allows for policy space for member coun-
tries to address anticompetitive abuses of IPRs in their domestic
competition law regimes. Article 8.2 of the TRIPS agreement is
52
a general provision that gives flexibility to governments to
adopt appropriate measures that may be needed to prevent the
abuse of IPRs by rights holders who may resort to practices
which unreasonably restrain trade or adversely affect the inter-
national transfer of technology. Article 40.2 of the agreement
provides a non-exhaustive list of anticompetitive practices that
amount to abuse of IPRs and permits members to adopt measures
to prevent such practices. “An inference may be drawn from
these two substantive provisions that such measures may well
be found in domestic competition laws of member countries”
(Subramanian 2010: 997–1023). Furthermore, as clarified in
the Microsoft Corporation v Commission of the European
Communities (2007: 3976) case, the Court of the First Instance
of the European Union (EU) has held:
There is nothing in the provisions of TRIPS Agreement to prevent the
competition authorities of the members of the WTO from imposing
remedies which limit or regulate the exploitation of intellectual prop-
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
such rights in order to avoid effects which harm competition.
Article 31 of TRIPS allows for issuance of compulsory licences.
Article 31(b) permits compulsory licensing on the condition that
it is subject to judicial review and is used for non-commercial
government use, in cases of national emergencies. Article 31(k)
permits compulsory licensing in cases where it is necessary to
remedy practices that are deemed anticompetitive in nature,
such as those addressed in Article 40. The sole grant of com-
pulsory licence under Article 31(k) may not always prove to be
effective in promoting competition, as its impact would de-
pend on factors such as the dominance of the patent owner in
the market and other conditions unique to the market (Watal
2000). However, Article 31(k) has remained an important provi-
sion under TRIPS. Unlike the grant of compulsory licences per-
mitted elsewhere under Article 31, under Article 31(k) it is
granted only in cases of anticompetitive practices, and (i) there
need not be a negotiation for a voluntary licence with the owner
of the patents, (ii) the need to correct anticompetitive practices
are taken into account while determining the remuneration
payable, (iii) the compulsory licence is not subject to limitations
imposed by Article 31, and (iv) the licence shall be primarily
for the supply of the domestic market of the member seeking
the grant (Correa 2007). The principle of granting these licences
to remedy anticompetitive practices has mirrored itself in the
domestic laws of various nations (Scherer and Watal 2007).
Doctrine of Essential Facilities
The possibility of permitting the third party use of IPRs in cases
of refusal to licence amounting to anticompetitive abuse has
been considered in the context of the “essential facilities” doctrine.
This doctrine, as defined by a US appellate court, “imposes
liability when one firm, which controls an essential facility,
denies a second firm reasonable access to a product or service
that the second firm must obtain in order to compete with the
first” (Alaska Airlines, Inc v United Airlines, Inc 1991). While a
refusal to licence is presumed to be legal, in the United States v
Microsoft Corporation (1998) case, the district court held that
OCTOBER 6, 2018 vol lIiI no 40 EPW Economic & Political Weekly

“copyright does not give its holder immunity from laws of
general applicability, including the antitrust laws.” Although
some US court decisions have suggested that information may
constitute an essential facility, the extent of the application of this
doctrine to intellectual property cases is uncertain (Verizon
Communications v Law Offices of Curtis V Trinko 2004).3 Other
jurisdictions such as the EU have made no explicit mention of
this doctrine, though they have applied the same in a limited
number of cases as seen below.
In the EU, certain “exceptional circumstances” justify the
issuance of compulsory licences. The European Court of Justice
in Magill in paragraphs 49 and 50 held:
Refusal by the owner of an intellectual property right to grant a
licence, even if it is the act of an undertaking holding a dominant posi-
tion, cannot in itself constitute abuse of a dominant position, but the
exercise of an exclusive right by the proprietor may, in exceptional
circumstances, involve an abuse. (RTE and ITP v Commission 1995)
Exceptional circumstances exist when such refusal (i) prevents
the emergence of a new product or service for which there is
a potential demand, (ii) is without objective justification, and
(iii) is capable of eliminating all competition in the relevant
market.
In recognising the contribution that effective competition
can make to the welfare of the poor, the 2001 Nobel Prize winner
Joseph Stiglitz said, “Strong competition policy is not just a
luxury to be enjoyed by rich countries, but a real necessity for
those striving to create democratic market economies” (OECD
2007: 89). In developing societies especially, competition
agencies should be able to intervene when a patent monopoly
fails to address social concerns. Table 2 highlights the benefits
of competition law enforcement in the pharmaceutical sector
in various countries.
South Africa’s Competition Commission has investigated
cases involving complaints of lack of access to life-saving drugs.
Table 2: Benefits of Competition Law Enforcement in Pharmaceutical Sector
Country and Date of Action Description of Action
France, 2013 Following complaint by Teva, French competition
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
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
the market, National Medicines Pricing Commission
regulated price of medicine sold by Abbott Laboratories
Italy, 2007 Competition authority initiated investigation into abuse
of dominant position by Merck
South Africa, 2003 Competition Commission found two pharmaceutical
companies guilty of excessive pricing and denying a
competitor an essential facility, following complaints
from activist groups
US, 2000 Federal Trade Commission charged generic producers
with restraint of trade and conspiracy to monopoly
markets for two generic drugs; settlement agreed
Source: UNDP (2014).
Economic & Political Weekly EPW OCTOBER 6, 2018 vol lIiI no 40
SPECIAL ARTICLE
In 2003, the South African Treatment Action Campaign (TAC),
Congress of South African Trade Unions, Chemical, Energy,
Paper, Printing, Wood and Allied Workers’ Union and the AIDS
consortium reached an agreement with GlaxoSmithKline (GSK)
and Boehringer Ingelheim, after the above-mentioned pharma-
ceutical companies were prosecuted under the South African
Competition Act, 1998. The said companies were found to
have violated the competition law of South Africa since they
were charging excessive prices for the patented antiretroviral
(ARV) medicines. GSK had exercised the exclusive right to market
and sell GSK ARVs in South Africa, and the said ARVs included
Zidovudine (AZT), Lamivudine, Abacavir (ABC), Amprenavir,
AZT/lamivudine, and AZT/lamivudine/ABC. Boehringer Ingel-
heim on the other hand, had the exclusive right to market and
sell the ARV nevirapine. Both companies were allegedly engaging
in excessive pricing of the ARVs and were therefore acting in a
manner detrimental to the consumers.
When the matter was brought before the Competition Com-
mission, it was found that such behaviour was in violation of
Section 8(a) of the South African Competition Act. The prices
were claimed to be excessive since there was a stark difference
between them and the prices of generic alternatives. As per
the Competition Commission, the said companies had not only
priced these ARVs excessively but had also failed to grant licences
to generic manufacturers, thus using their patent monopolies
to deny appropriate licences to other manufacturers while
keeping their own prices high. The dispute was settled when
the Competition Commission concluded a settlement agreement
with GSK and Boehringer Ingelheim. As per the said agree-
ment, GSK was to provide licence to four generic companies
(TAC Newsletter 2003). Prior to the agreement, however, GSK had
only granted a licence to Aspen Pharmacare. Furthermore, in
pursuance of the agreement, Boehringer Ingelheim was to grant
licences to three generic companies. The above-mentioned
Pharmaceutical Products Impact
Clopidogrel Sanofi-Aventis fined ¤40.6 million
Losec AstraZeneca Fined ¤52.5 million
Lopinavir and Ritonavir Average price reduction ranging
between 54% and 68% per person per year
API Finastertide Defendant agreed to grant free licences to
allow manufacture and sale of API prior to
expiration of patent term
AZT, lamivudine and nevirapine Led to voluntary settlement
and fixed-dose combinations agreements with GlaxoSmithKline and
containing these antiretrovirals Boehringer Ingelheim providing
licensing of patents to seven
generic companies, based on 5% royalties
Lorazepam and Clorazepate Lead defendant (Mylan) placed $100 million
into escrow account for distribution to
purchasers of relevant drugs during time
period covered by settlement
53
SPECIAL ARTICLE
licences were to be provided on the basis of a royalty fee of no
more than 5% of the net sales of the said medicines, whereas
they were initially licences at 30% royalty fee (by GSK) and
15% royalty fee (by Boehringer Ingelheim).
In yet another case, TAC v Merck and MSD (2007), the claim
brought before the Competition Commission was that Merck,
along with its South African subsidiary (Merck Sharpe & Dohme
[MSD]), had abused their dominant positions in the market of
ARV medicine Efavirenz (EFV) since they refused to license
other firms to import/manufacture generic versions of the said
HIV/AIDS medicines on reasonable and non-discriminatory
terms (UNCTAD 2015). The commission found that they threat-
ened access to treatment for HIV/AIDS in the private and public
sectors, and coupled with the above-mentioned exclusionary
acts, violated Section 8(c) of the Competition Act 89 of 1998.
Since EFV could not be substituted for another ARV treatment,
and since there were no generics available, the respondents
were alleged to have a dominant position, which they had sub-
sequently abused. However, the said case was resolved before
the commission had completed its investigation. MSD and Merck
reached an agreement with multiple licensees, permitting a
range of generic EFV products to be brought to the market.
Competition Scrutiny in India
There have not been many cases pertaining to competition
scrutiny of patent abuses in the pharmaceutical sector as of
now. In 2013, a complaint was filed against the US-based phar-
maceutical company Gilead Sciences for abusing its dominant
position in the market for ARV drugs. However, the CCI rejected
this complaint at the prima facie stage. It held that Gilead
Sciences did not have a legal presence in India and was not a
dominant player in the ARV drugs market. There was also no
appreciable adverse effect on the competition caused by the
agreements entered into by Gilead with several other Indian
pharmaceutical companies.
At present there are two vital cases involving alleged abuse
of dominance in the mobile telecommunication technology
industry by the holder of standard essential patents, Ericsson,
that are pending investigation under the CCI (Telefonaktiebolaget
LM Ericsson [Publ] v Competition Commission of India 2016).
After much controversy regarding the jurisdiction of the com-
mission to hear matters involving patent disputes, a recent
order dated 30 March 2016 has put the debate to some rest by
explicitly stating that the commission is vested with wide
powers and jurisdiction to adjudicate on disputes of this nature.
Para 174 of the judgment states:
There is no irreconcilable repugnancy or conflict between the Com-
petition Act and the Patents Act. And, in absence of any irreconcilable
conflict between the two legislations, the jurisdiction of CCI to enter-
tain complaints for abuse of dominance in respect of Patent rights can-
not be ousted. (Telefonaktiebolaget LM Ericsson [Publ] v Competition
Commission of India 2016: 58)
Private Nature of Patent Claims
In Ericsson, a claim was made to dispute the application of the
Indian Competition Act, 2002 alongside the Patent Act. How-
ever, Justice Vibhu Bakhru held that the nature of both acts
54
was different. While the challenge under the Patent Act was
that of a private list, that is, the grant of injunction under the
act arose from the contract between the licensee and the
licensor, the examination of an abuse of dominance under the
Competition Act was not a private suit. This is not to say that
suitable remedies do not exist in patent law or that either of
the laws is in derogation of one another, but that they are
materially different and may in fact supplement one another.
This is owing to the differing nature of remedies in private law
and public law. Private law entails remedies that are designed
for the “infliction of the wrongs on private individuals and
entities” (Weinrib 1995: 143). These remedies are granted in
matters relating to tort, property, and contract law.
Thus, in cases pertaining to any of the said categories, the
relief that can be sought can vary from seeking damages in
lieu of the harm suffered, an injunction to prevent the continu-
ance of the harm that is caused and any future harm that may
be caused. Patent law permits the revocation of a patent or
injunction or compulsory licence, as the case may be. In such
instances, the remedy is only available to the applicant (person
suffering tangible harm) in the matter (Gaur 2013). Therefore,
under patent law, the suit for remedies is a private suit and
patent law remedies mirror the remedies granted under tort
law that is directed at restoring the patentee to status quo (prior
to the infringement).
It may be argued that the remedies in competition law can
be more useful in correcting public harms in comparison to
patent law remedies. Anyone can file a complaint and seek re-
medial action under competition law at any given time. How-
ever, a compulsory licence application can only be made three
years after the grant of a patent, and by a company that wishes
to manufacture generic versions of the patented drugs. A licensee
seeking the grant of a compulsory licence would have had
to make efforts to obtain a voluntary licence on reasonable
terms from the patent holder first. However, the same would
not be a consideration in the event that a company is engaging
in anticompetitive conduct and the complainant approaches
the CCI. Furthermore, if the CCI found a patentee’s conduct to
be anticompetitive and the finding had attained finality, the
patent controller would proceed on the said basis and the
patentee would be stopped from contending the contrary.
The remedies in competition law in accordance with Section
27 grant the CCI the power to direct the enterprise to cease–
desist, discontinue, modify the agreement or action amount-
ing to an abuse. The act provides for a wide range of remedies
ranging from a heavy penalty to a division of the enterprise
and any other order or directions deemed appropriate for the
case. The CCI under Section 27 (e) has been empowered with
a broad reach of directing the enterprises concerned to abide
by any orders the commission may pass and comply with the
directions it issues. It may pass all or any of the remedies
which go a long way in simultaneously creating substantial
deterrence in future, correcting market failures and promot-
ing competition in the market for all in the larger interest
of consumers. Under the patent law, on the other hand, a
compulsory licence offers a somewhat targeted relief and is
OCTOBER 6, 2018 vol lIiI no 40 EPW Economic & Political Weekly

exclusive and limited to the applicant alone, making it less
effective to correct a public harm.
Abuse of Dominance
Section 4 of the Competition Act, 2002 addresses conduct of
firms that amounts to an abuse of a dominant position in a
given market. Competition jurisprudence in India has evolved
from a structuralist to a behaviouralist paradigm, whereby
possession of market power does not automatically attract
competition scrutiny but its abuse does. An enterprise is un-
derstood to possess considerable market power if it has the
ability to operate independently of competitive forces prevailing
in the relevant market. Abuse of dominance is a three-pronged
test. It begins with delineating the relevant market. The market
is defined in terms of products based on substitutability and
the extent of competitive constraints they impose on one another.
The market is also defined geographically based on how pre-
vailing conditions in a given area impact demand and supply
of goods and services as distinguishable from markets in
neighbouring areas. Once a relevant product and geographic
market are defined, the next step is to determine dominance
and it is often (though not always), assessed based on the market
share.4 The final step is assessment of abuse.
Under the Competition Act, an enterprise is guilty of
abusing its dominant position if it imposes unfair or discrimi-
natory conditions or prices, limits production, restricts tech-
nical development and denies market access. The nature
of abuses is categorised as exploitative and exclusionary.
Exploitative abuses involve excessive and discriminatory pric-
ing, while exclusionary abuses involve behaviour that causes
foreclosure of competitors and includes denial of market
access, unfair contracts, etc, through tying, bundling, refusal
to deal and predation.
Despite their differing natures, the grounds for issuance of a
compulsory licence under Section 84 of the Indian Patent Act,
1970 may in essence bear some resemblance to few of the fac-
tors mentioned above. Indian patent monopolies may at times
charge unfair, excessive prices for their drugs and also deny
other competitors access to market by a refusal to license,
thereby limiting the production of drugs and restricting inno-
vation or technical/scientific development of drugs. While a
refusal to license is well within the lawful rights of an intel-
lectual property holder, if the resulting impact of such conduct
is demonstrable consumer harm (reduced output, detriment to
innovation or increase in prices) and market failure, such a
case merits scrutiny under competition law framework.
In India’s sole compulsory licence case of Bayer Corporation
v Natco Pharma Ltd (2013), a claim could be successfully made
for abuse of dominance by Bayer under Section 4. The Controller
General of Patents had held in the case that the reasonable re-
quirement of the public in India was not met, though Bayer
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
not available to the public on reasonable terms. The prices
charged by Bayer were extremely high and could well be
termed as “unfair” as they were unaffordable to close to 98% of
Economic & Political Weekly EPW OCTOBER 6, 2018 vol lIiI no 40
SPECIAL ARTICLE
the Indian population at `2,80,428. This could be classified as
a Section 4(2)(a) (ii) violation of unfair/excessive pricing.
Bayer took no adequate or reasonable steps to “start the work-
ing of the invention in the territory of India on a commercial
scale and to an adequate extent” and even after the lapse of
four years, the patentee (Bayer) failed to do so and also to
grant voluntary licence to anyone (Natco Pharma Limited v
Bayer Corporation 2011: 22). Such failures could be classified
as limiting the production or technical/scientific develop-
ment of goods or services to the prejudice of consumers, as
well as denial of market access, abuses in contravention of
Sections 4(2)(b) (i) (ii) and 4(2)(c) of the Competition Act
(Chopra and Muthappa 2012).
Addressing Market Failure
The rationale for granting patents is to incentivise innovation
since it arguably enables the patentee to obtain a monopoly
and the resultant profits (Scherer and Ross 1980). However,
the monopoly grant of the patent also creates an additional
cost, that is the price of the product would be higher than what
it would have been had it been competitively provided. Sean
Flynn, Aidan Hollis and Mike Palmedo in Flynn et al (2009)
argue that in the case of essential medicines provided in
developing countries, there exists a high inequality in the
demand of the product, and the amount accessible to consum-
ers, since the patent holder has “priced out the consumers,”
that is, a category of consumers is created, who cannot afford
the drug due to the price at which it is sold. As a result, the
“monopoly pricing” creates a “dead weight loss” that creates a
situation whereby the consumers forego certain purchases of
the patented product in question, due to the high monopolistic
price and lack of access.
This becomes more significant when the said patented
product is an essential drug. Such a situation of a dead weight
loss is referred to as a market failure. Market failures gener-
ally are a product of inefficiency caused by monopolistic rent-
seeking and erection of entry barriers for competitors. Com-
petition law seeks to maximise static efficiency in the short
run and therefore becomes a more suitable method to address
these market failures. This is because competition law seeks
to maximise productive efficiency, that is, producing without
waste, and allocative efficiency, that is, producing goods and
services that society values the most. Furthermore, since
competition law seeks to prevent any unreasonable restraint
on trade, it addresses the problem that arises when patents
are used to create a monopoly and create entry barriers to
probable competitors. To sum up the discussions in previous
sections, it can be inferred that competition law presents
effective remedies to address problems of access to medicines
where remedies in patent law may fail. Nonetheless, it has of
its own limitations.
Challenges in Competition Law Enforcement
The CCI has recently started taking on cases involving global
corporate giants. The prima facie orders of the commission in
the Ericsson cases have been met with great criticism for lacking
55
SPECIAL ARTICLE

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

notes
1 “Even as Government of India is conscious of the
need to spur innovation and protect individual
rights, it retains the sovereign right to utilize the
flexibilities provided in the international (IP
rights) regime,” the ministry reportedly said.
2 The Intellectual Property Appellate Board
hiked this to 7% royalty rate upheld by the
Bombay High Court.
3 In Verizon Communications v Law Offices of
Curtis V Trinko (2004), the Supreme Court
stated that it had never recognised the essen-
tial facilities doctrine.
4 The Herfindahl-Hirschman Index (HHI) measures
market concentration by squaring the market
share of each firm in the market and then calcu-
lates the sum of the resulting share of each firm.
Other than the HHI, additional factors that are
relied upon to calculate market power are: (i) size
and resources of the enterprise, (ii) size and
importance of the competitors, (iii) economic
power of the enterprise, (iv) vertical integration
of the enterprise, and (v) dependence of con-
sumers on the enterprise.
5 In Dhanraj Pillay and Others v M/s Hockey India
(2013), the CCI brought in the “effects test,” but
subsequently disregarded it. In Faridabad Indus-
tries Association v M/s Adani Gas Limited (2014),
CCI imposed a penalty on Adani, even absent
proof that the result would further consumer
benefit, and the ostensible clauses deemed an-
ticompetitive were not enforced by Adani.
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