[Ip-health] Abbott's anticompetitive practices in Thailand

[Sean Flynn]

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The full note, with citations, can be found at
http://www.wcl.american.edu/pijip/CompetitionPolicyProject.cfm





CHALLENGING ABBOTT'S ANTICOMPETITIVE PRACTICES IN THAILAND

Sean Flynn

Program on Information Justice and Intellectual Property

American University Washington College of Law

sflynn@wcl.american.edu

March 23, 2007





Abbott's planned withholding of drugs from Thailand's market may be
illegal under Thailand's competition law.  In addition, there appear to
be valid competition law-based grounds for justifying compulsory
licenses of Abbot's product, Kaletra.  These grounds may, in turn,
authorize financial penalties against Abbott, reductions, including to
zero, of royalty payments and authorizations of exports of compulsory
licensed products outside of Thailand.



1.          Suspending, reducing or restricting services.



In response to Thailand's local and international law justified decision
to issue a public health compulsory license for Kaletra and other
medicines, Abbott announced that it would refuse to market a new
heat-stabilized version of Kaletra, along with several other drugs, from
Thailand's market.  This decision may violate Thailand's Competition
Act.



Many competition laws, including Thailand's, prohibit dominant companies
doing commerce in the country from withholding provision of products
without adequate pro-competitive justification.  Section 25(3) of
Thailand's competition law prohibits a dominant firm from "suspending,
reducing or restricting services, production, purchase, distribution,
deliveries, or importation without justifiable reasons."[1]  Penalties
under the Act can include 3 years imprisonment and a fine of 6 million
bhat, with the possibility of double penalties.[2]



The plain text of the Thailand statute would appear to permit a
colorable complaint against Abbott for its actions, setting up the
question of whether a legal (under local and international law)
regulatory decision by the government (i.e. issuing a public health
compulsory license) is a "legitimate reason" for refusing to sell an
essential good by a dominant firm (that still does business in the
country).



It is important to note that at least one of the products that Abbott is
withholding from the Thai market is an improvement of the existing
product, Kaletra, that Abbott already markets in the country.  In a
tropical weather country such as Thailand, this heat-stabilized form is
also the version of the product most needed by majority of poor people
who may lack refrigeration.



There is a supportive case decided by Thailand's Competition Commission.
In early 2000, the Thai Competition Commission received complaints that
the newly registered cable television company, UBC, was refusing to
offer basic cable service desired by the majority of moderate income
cable subscribers.  The Commission ultimately found that the refusal to
supply the basic product desired by the majority of poorer households
was a potentially illegal refusal to supply without justifiable reasons
under Section 25(3).[3]  Similarly, here Abbott is refusing to offer the
version of its Kaletra product that is needed by most poorer
consumers.[4]  The willingness of the Thai Commission to challenge
anti-poor market segmentation strategies as anti-competitive under the
refusal to supply doctrine may suggest that a receptive audience may be
found in that institution.



2.         Refusal to license essential medical products.



Thailand may also consider a second ground for a competition-based
complaint against Abbott - it's refusal to license generic versions of
Kaletra to supply Thailand's market.  This ground could be added to the
existing public health ground for the compulsory license, which, under
the TRIPS agreement, would permit penalizing Abbott through lower
(including zero) royalties as well as authorization of unlimited exports
of compulsory licensed products.[5]



There is strong precedent for using competition law as a basis for
compulsory licenses for needed medicines.  In 2001, the South Africa
Treatment Action Campaign filed a complaint with the South Africa
Competition Commission against GSK and BI for excessive pricing of
first-line AIDS drugs.  In 2003, the Commission ruled that the companies
were dominant in their respective markets and that that the companies
abused their dominance by excessive pricing and refusing to license
generics. Menzi Simelane, then Commissioner at the Competition
Commission, explained:



Our investigation revealed that each of the firms has refused to license
their patents to generic manufacturers in return for a reasonable
royalty. We believe that this is feasible and that consumers will
benefit from cheaper generic versions of the drugs concerned. We further
believe that granting licenses would provide for competition between
firms and their generic competitors.



South Africa now produces and imports low cost versions of the medicines
at issue, and exports them to many countries in sub-sarahan Africa.
More information on the case can be found at
www.wcl.american.edu/pijip/CompetitionPolicyProject.cfm



Abbott has refused to license generic versions of Kaletra in Thailand
and in other countries.  This refusal similarly restricts competition
despite the fact that licenses would be economically feasible for Abbott
with reasonable commercial royalties and would likely have the effect of
lowering prices for Thailand consumers through competitive supply.
Accordingly, Abbott's refusal to license generic products may violate
section 25(1) of Thailand's Competition Act, which prohibits
"unreasonably fixing or maintaining purchasing or selling prices of
goods or fees for services."  It may also violate section 29, which
prohibits "any act which . . . has the effect of . . . impeding or
restricting business operation of other business operators or preventing
other persons from carrying out business."



3.         Is Abbott Dominant?



One question that has often troubled competition complaints is whether
the firm at issue is dominant, and therefore subject to abuse of
dominance prohibitions.  There are a large number of U.S. cases finding
that a single drug can be viewed as a market for U.S. competition law
purposes, and this logic is particularly compelling with AIDS drugs
where for at least some patients only one drug can be used in their
cocktail most efficaciously.  The South African Commission decision was
based on this type of reasoning.  So, for example, with the market for
fixed-dose ritonivir-boosted protease inhibitors, Abbott is dominant --
there being only one drug (Kaletra) in that market.






________________________________

[1] Thailand Competition Act 1999, Section 25, states:



A business operator having market domination shall not act in any of the
following manners:

1.           unreasonably fixing or maintaining purchasing or selling
prices of goods or fees for services;

2.           unreasonably fixing compulsory conditions, directly or
indirectly requiring other business    operators who are his or her
customers to restrict services, production, purchase or distribution of
goods, or restrict opportunities in purchasing or selling goods,
receiving or providing services or obtaining credits from other business
operators;

3.           suspending, reducing or restricting services, production,
purchase, distribution, deliveries, or importation without justifiable
reasons, or destroying or causing damage to goods in order to be lower
than market demand;

4.           intervening in operation of business of other persons
without justifiable reasons.

[2] Section 51of the Act states:

Any person who violates section 25, section 26, section 27, or section
29 or fails to comply with section 39 shall be liable to imprisonment
for a term not exceeding three years or to a fine not exceeding six
million Baht or to both, and, in the case of the repeated commission of
the offence, shall be liable to the double penalty.

[3] Ultimately the case was decided on other grounds.  See Review of
Recent Experiences in the Formulation and Implementation of Competition
Law and Policy in Selected Developing Countries, Thailand, Lao, Kenya,
Zambia, Zimbabwe, UNCTAD 22-23 (2005).

[4] Consider another potentially analogous situation: Envision an energy
firm responding to a public utility rate making decision it does not
like by pulling applications for building new, improved, transmission
lines and generating plants and capping all output at existing levels,
thereby restricting access to energy to a growing population.  These
kind of decisions by dominant suppliers of essential goods appear to
"suspend[ ], reduce[e] or restrict[ ]services, production, purchase,
distribution, deliveries, or importation without justifiable reasons."

[5] See TRIPS Article 31.