(KEI) Cracking Open Anti-competitive Practices in the Developing World: Complaints, Amendments and Waivers.

In Feb 2007 Knowledge Ecology International (KEI) had brought to the notice of the US Federal Trade Commission the practices of Gilead Sciences Inc. with respect to certain patented drugs used in the treatment of HIV and AIDS of Gilead that they believed was wholly anticompetitive. As Shamnad recently posted, this is with respect to a same drug that is facing pre-grant opposition in India from a Brazillian organisation.

The study of these documents made for very interesting reading, one because it exposed the several ways in which a Company may employ practices that are wholly uncompetitive within the legal framework through voluntary licenses, and importantly also highlights the need to strenghten the competition laws especially in a country such as India which is a haven for generic manufacturers, the API market and has problems in the proper administration and control of public health.

Background:

A brief background and relevant excerpts of their complaint are as follows:

Gilead signed voluntary non-exclusive licences with companies in South Africa and notably eleven generic manufacturers in India for the production and sale of an HIV-AIDS drug, ‘Tenofovir disoproxil fumarate’ (hereinafter TENOFOVIR) as well as product patents on Emtricitabine, and combinations of the two.

The terms in these licenses are generally standard- with a payment of a royalty rate of 5%, meeting quality standards of the WHO and/or US FDA, and the grant-back licenses on improvements, modifications and derivatives. However, there were certain anti-competitive features of the license including (most disturbingly) requirement of royalty payment where Gilead does not hold a patent, prohibition of supply of active pharmaceutical ingredients (APIs) to firms/markets not approved by Gilead and lastly, that licensed sellers were required to purchase the APIs from Gilead affiliated licensed suppliers.

The product licence covers 99 countries, of which Gilead has filed or has been granted patent approval in 48. The other license being issued by Gilead is one for APIs. An API is an active pharmaceutical ingredient, which (as the name suggests) the active component of a pharmaceutical, which when combined with external excipients forms the finished drug. “The markets for APIs are generally more sensitive to economies of scale and scarce know-how, and hence more concentrated than are markets for finished products.”

The KEI, in a request to the US FTC had stated in detail the background as well as the impact of such practices on the markets especially in developing countries. The letter had also detailed measures that could be taken including:

1. Offering separate patents for products and know-how: This is especially relevant since the technical know-how that is passed on to the licensee when API and know-how rights are bundled as one, serves as a restriction on the capabilities of generic manufacturers, especially in countries such as India that have immense potential to reverse engineer.

2. Removing obligations such as payment of royalties etc. where no patent is held by the Company allowing for free purchase from all suppliers complying with recommended quality standards.

3. No restriction on sale in the concentrated API market: As was pointed out in a comment by Ellen 't Hoen (Policy Advocacy director MSF Access to Essential Medicines Campaign) on the KEI website, in case of a WHO recommended standard drug such as TDF which is not easily accessible to the developing world, “cost of the API may account for 80% of the total cost of production. Limiting access to API for the production of TDF will inevitably keep the price artificially high.”

4. Finally and most importantly, they even asked the Federal Trade Commission to look into possible options such as Governmental insistence on a change of the licensing undertaken by Gilead (restricted to the licensing of know-how and excluding utility), as well as the option of ‘March-In rights’ since all the patents in question here are Government funded and therefore, subject to the Bayh Dole Act. (Readers may recollect our earlier posts on an analysis of the Bayh Dole style bill to be enacted in India and most recently analysed by Shamnad and Mrinalini. As was critiqued by Shamnad, compulsory licensing norms under the Indian Bill have a rather narrow scope. In a situation such as this, it is these very provisions that could help curb anti-competitive practices.)

Results: Amendments and a KEI Victory

In India, as of 2007, two firms manufacture TDF -- Ranbaxy (a Gilead licensee) and Cipla. Pursuant to such letter and reports of investigation by the FTC, the latest in the weeding out of such practices has been the announcement by Gilead that it has made an amendment in relation to its licensing arrangement with Ranbaxy (Ranbaxy has been in the news and on the blog lately for various reasons, including Sai’s piece on the Company’s latest “strategic partnership”). As the KEI report on the matter rightly points out, this was especially problematic after the decision of the US Supreme Court in Medimmune v. Genentech allowing licensees to challenge the validity of patents.

The license which deals with Tenofovir has been amended to delete the specific clause that could be interpreted as preventing the licensee (here the generic manufacturer Ranbaxy) in mounting an opposition to Gilead’s Tenofovir patents.

[Section 5.2 of the License Agreement between Gilead and the licensee (Ranbaxy), previously read that the licensee “agreed to “assist Gilead with regard to the issuing, maintenance and enforcement to the Patents” and to “reasonably assist Gilead” in enforcement actions or proceedings involving the patents licensed to Ranbaxy under the License Agreement.”]

As an additional and well fought victory, a remark in the post by Judit Rius has also led to the amendment of another seemingly anti-competitive clause. “Clause 10.3… adds that Gilead has the right to terminate the Agreement should the Licensee directly or indirectly challenge any of the patents or lend support to a third party for making such a challenge. This clause should also be deleted.”

Truvada: Exclusivity and Waivers:

Recently, after an authorised release of certain confidential documents, Gilead also confirmed a grant of selective waivers to certain generic manufacturers under the President’s Emergency Plan for AIDS Relief (Pepfar). [For readers unaware, patents and “exclusivities’ are different concepts and they work thus. In the US, although a drug is of patent, a generic will not get authorisation, if there is an exclusivity in force. Therefore in Gilead’s case, although it grants voluntary licenses over its patents to generic manufacturers, the said manufacturers cannot make drugs, unless Gilead also grants them a waiver of such exclusivity rights. Exclusivity can be of different kinds:

New chemical entity (NCE) exclusivity

Pediatric exclusivity

Here is a quick guide to a basic understanding of exclusivity and waivers under the US Law.]

Firstly upon request, a selective waiver has been issued to Matrix Laboratories with respect to New Chemical Entities (NCE) exclusivity as well as a Pediatric exclusivity for all products containing Emtricitabine as well as Truvada separately. [Truvada, whose active ingredients are emtricitabine and tenofovir DF, is a drug that is used in the treatment of HIV and helps in lowering the HIV by blocking the multiplication of the enzyme HIV reverse transcriptase, and may also increase the immune system cells.] This waiver as regards Truvada was also granted to Aurobindo Laboratories, another leading manufacturer in India.

Again, the waivers granted allow registration of generic versions of Emtricitabine and Truvada, but are limited in the sense that the generic companies cannot until the expiration of the patents, commercialize the drugs. Therefore, the effects of the waivers are quite limited and have been made for solely keeping Pepfar in mind.

What does all this mean for India?

Firstly, drawing on observations from the KEI Complaint, the legal scene in India is interesting to note. “Before February 2005, India only provided for patents on processes for manufacturing pharmaceuticals, but not for the product themselves. This has now changed. In February 2005, India enacted a new patent law to bring the country into compliance with new obligations under the WTO TRIPS agreement. The new Indian patent law has a number of different provisions that have yet to be tested and implemented.” Being one of the two leading manufacturers of APIs for AIDS drugs, “the future role for India in providing a global source for inexpensive generic APIs and finished products is unknown, and will depend upon the resolution of legal challenges to the new Indian patent law, disputes over patentability of new inventions, and internal policy debates over the standards for patents and procedures for compulsory licensing of patents. According to Gilead’s 2006 offers regarding the voluntary license, patents were filed in India on Tenofivir (TDF), but not for Emtricitabine (FTC), or combinations involving FTC. The Alternative Law Forum has filed opposition to the TDF product patent on behalf of the Delhi Network of Positive People and the Indian Network for People Living with HIV/AIDS.”

This observation cited above is only the beginning of the unhealthy trend of increased likelihood of collaborations between generics and innovators—with the result that we will see more voluntary licensing agreements. Undesirable results such as the shielding worthless patents or amount to anticompetitive trade practices which may emerge as a result must be discouraged.

Our readers will remember Mrinalini’s illustration in an earlier post about the various ways in which practices of companies can be used in a manner that is wholly anti-competitive but squarely within the framework of what is considered legal. “Dominant position” under the Act is the advantage enjoyed by an enterprise in India due to which it is possible for such enterprise to operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market in its favour. Thus, with respect to the current Indian law on competition, the vague provisions of the Competition Act, have to be re-looked at to ensure no “abuse of a dominant position” within the meaning of the Act.

Conclusion

For now, one ought to appreciate that the work done by organizations such as KEI is commendable and definitely helps increase transparency in an oft neglected area of public health in India. However, the work should not stop here. As succinctly put by Judit in her post, “a bigger step will be to have a major revision of the terms contained in this and other voluntary license agreements and to ensure that they respond to reasonable and non-discriminatory licensing strategies to enable generic competition to supply developing country markets with more affordable medical technologies.”

(This post has been written with invaluable input and guidance from Shamnad.)