[Ip-health] Thai Competition Commission to Hear Abbott Complaint

[Sean Flynn]

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Today in Thailand the Thai Competition Commission is meeting to decide
whether to press forward on the complaint of AIDS activists that
Abbott's removal of registration applications for several drugs,
including heat stabilized Kaletra, violates Thailand's Competition Act.



PIJIP submitted the following additional analysis to the Commission
yesterday at the request of activists working on the case.  Previous
analysis of the case and background documents and information can be
found at http://www.wcl.american.edu/pijip/thai_comp_licenses.cfm





ABBOTT'S REFUSAL TO REGISTER MEDICINES AS A CONTRAVENTION OF SECTION 28
OF THE THAILAND COMPETITION ACT



Sean Flynn

Associate Director

Program on Information Justice and Intellectual Property

American University Washington College of Law

sflynn@wcl.american.edu

202-294-5749



October 23, 2007



I have been asked to express my opinion on whether Abbott's action
withholding supplies of several needed medicines in Thailand in response
to a lawful government compulsory license decree may violate section 28
of the Thai Competition Act.  This memo summarizes my view that Abbott's
actions do violate section 28.



The basic facts of this matter are that, in March 2007, Abbott responded
to a lawful and reasonable government use compulsory license for Kaletra
by announcing it would no longer register new drugs for sale in
Thailand, and pulling the registration applications for several new
drugs that it was seeking marketing approval for.  The dugs that Abbott
revoked its registration applications for included a new version of
Kaletra that does not need refrigeration and therefore is considered an
essential medicine in tropical regions such as Thailand.[1]  It is
uncontested that Abbott will continue to sell and seek approval to sell
the drugs it pulled from the Thai market in other countries in which it
does business.



Section 28 of the Thai Competition Act states:



A business operator who has business relation, with business operators
outside the Kingdom, whether contractual or through policies,
partnership, shareholdings or in the form of relation of any other
similar description, shall not carry out any act in order that a person
who is in the Kingdom and intends to purchase goods or services for
personal consumption will have restricted opportunities to purchase
goods or services directly from business operators outside the Kingdom.



In essence, section 28 prohibits international firms from taking
measures that restrict access to goods sold internationally within
Thailand.  This appears to be a law restricting global market
segmentation strategies that disadvantage Thai (and likely other poor or
middle income) consumers.

It is clear that Abbott falls under the statute's reach.  The statute
covers "A business operator who has business relation, with business
operators outside the Kingdom, whether contractual or through policies,
partnership, shareholdings or in the form of relation of any other
similar description."  Although there is no definition of a "business
operator" in the Act, a "business operation" is defined in the statute
as "a distributor, manufacturer for distribution, orderer or importer
into the Kingdom for distribution or purchaser for manufacture or
redistribution of goods or a person engaging in the business of service
providing."  It is my information and belief that the international
branches of Abbott do business in Thailand through a Thai subsidiary
with which it has "contractual," "partnership" or other relations.  The
purpose of those relations is to facilitate the distribution and import
of medicines into Thailand.  Accordingly, Abbott's Thai subsidiary is a
business operation with business relations with others outside the
Kingdom, bringing it within the scope of the Act.

My professional opinion is that Abbott's actions contravene section 28.
The underlying purpose of section 28 appears to be to ensure that firms
with international business relations that do business in Thailand offer
Thai consumers the same opportunities to purchase their products as are
offered to those abroad.  By refusing to register products in the Thai
market that it makes available in other markets, Abbott clearly violates
this law.

It may be added that, although section 28 does not require a finding of
dominance, Abbott's actions in this case show the telltale signs of
abuse of monopoly power.  Monopolies raise profits and cause social harm
referred to be economists as "deadweight loss" (i.e. loss of sales that
would have been made in a competitive market, benefiting both consumer
and producer) by intentionally serving only segments of the potential
consumer population at much higher prices than would exist in a
competitive market.  In poor countries with high income inequality, the
profit maximizing behavior of firms will be to serve a very small
segment of the population, often at prices equal to or greater than
those in richer countries.  In other words, a monopoly will willingly
forego sales to the majority of the population in order to maintain its
prices at as high a level as possible.[2]

On a global scale, the same pattern is repeated.  Faced with demands to
lower prices in poor countries, the rational monopoly will rather forego
sales (i.e. cut output) than lower its prices dramatically.  Its goal
will be to make up its losses through higher priced sales in countries
with less exacting regulatory requirements.  Thus, if the world had a
legal framework where companies could willingly and selectively pull out
of developing country markets in response to regulatory proceedings
demanding lower prices or increased competition, monopolies would
(rationally) leave the poorest and most unequal countries without access
to their goods.  This is not because they are evil, but rather because
it would be the rational (profit maximizing) choice within the legal
framework.

Fortunately, Thailand's law is reasonably constructed to head off
exactly this socially harmful monopoly behavior.  Section 28 bans a
multinational company from operating in Thailand without supplying Thai
consumers with products that it supplies to other countries.  This case
appears to raise exactly the kind of socially harmful behavior that the
law was intended to prohibit.  While Thailand would have no recourse if
Abbott simply pulled out of all operations in Thailand, as long as the
company continues to profit from sales in the country, Thailand has the
authority to punish the firm's behavior that exploit its market
dominance to the detriment of Thai consumers.




________________________________

[1]  Other drugs that Abbott is refusing to sell in Thailand include
Brufen (ibuprofin), Abbotic (clarithromycin), Clivarine (heparin),
Humira (adalimumab), Tarka (trandolapril/verapamil HCl ER), and Zemplar
(paricalcitol).

[2] Explication of this economic dynamic is the subject of a forthcoming
paper of mine, co-authored with Aidan Hollis and Mike Palmedo.