[Ip-health] Statement on Thai appeal

[Sean Flynn]

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APPEAL OF THAILAND COMMISSION ORDER ON ABBOTT'S REFUSAL TO SELL AIDS
MEDICATIONS



Sean Flynn

sflynn@wcl.american.edu

202-294-5749



January 17, 2008



This note explains why the recent order rejecting Thai patient
advocates' complaint against Abbott Laboratories for refusing to sell
life saving medicines is flawed and should be overturned on appeal.




Background


Between November 2006 and January 2007, the Thai Ministry of Health
granted several compulsory licenses for the government use of generic
versions of several costly patented medicines in its public health
program.  The medicines licensed included the two-in-one AIDS drug
lopinavir+ritonavir, sold by Abbott as Kaletra. The licenses were issued
for only government use, and included a royalty payment to the patent
holder.  By all accounts, the licenses issued are fully in compliance
with the World Trade Organization's Agreement on Trade Related Aspects
of Intellectual Property Rights and with Thai law.[1]



In March 2007, Abbott responded to the a lawful government licenses by
announcing that it would withdraw applications to register for sale in
Thailand of its new heat stable version of Kaletra as well as several
other medications not yet approved for sale in Thailand.  On April 26, a
Thai network of people living with HIV/AIDS (TNP+), the AIDS ACCESS
Foundation, and an alliance of supporting organizations and individuals
filed a complaint with the Thai Ministry of Commerce to demand that the
Thai Trade Competition Commission instigate criminal actions against
Abbott.  The complaint alleges that Abbott breached the Competition Act
by refusing to supply drugs in Thailand in response to a legal
government compulsory license in violation of section 25(3) of the Thai
Competition Act.



On December 27, 2007, the Thai Trade Competition Commission issued a one
page letter ruling rejecting the section 25(3) claim because it found
that Abbott is not a dominant firm in the relevant market.




Appeal of Section 25(3): The Dominance of Abbott


The Thai Competition Commission's finding that Abbott is not a dominant
firm is a particularly glaring error.



This case involves the withdrawal of various products, including heat
stabilized Kaletra, from the Thai market in response to a compulsory
license on Kaletra.  Abbott is dominant in the markets for both Kaletra
and heat stabilized Kaletra because there were no adequate substitutes
on the Thai market for either of these drugs at the time the action was
taken.



Section 25(3) of the Thai Competition Act prohibits any firm "having
market domination" from "suspending, reducing or restricting services,
production, purchase, distribution, deliveries, or importation without
justifiable reasons."  In common competition law doctrine throughout the
world, "justifiable reasons" standards require the offering of
pro-competitive reasons for the action.



The Thai Competition Commission does not dispute that Abbott acted
without justifiable reasons when it suspended registration for important
drugs in response to a lawful government order.  Rather, the Commission
found that Abbott did not have market domination because it did not meet
its regulatory definitions requiring over 50% market share and over
1,000 million baht turnover in the previous year.  The Commission's
restrictive definition of market domination is not in accord with
international competition law standards and appears arbitrary and
unreasonable when assessed against the purposes of the Thai competition
law.



Market domination (often called "market power") is most commonly defined
as the power to control prices or to exclude competition.  The first,
and often definitive, step to determining whether a defendant has
monopoly power is to define the relevant market.  Product markets are
normally defined on the basis of whether there are substitutes in a
particular market for the good being offered by alleged monopolist.  A
product market is one for which there are no effective substitutes.



At the time of the complaint, there was no effective substitute for
Kaletra or heat stabilized Kaletra.  Kaletra is the only protease
inhibitor on the market that comes in a single pill format boosted with
ritonavir.  Ritonavir boosts the effectiveness of nearly all protease
inhibitor treatments, enabling better treatment with less milligrams of
medicine.  The single pill format cuts the number of pills patients must
keep track of and health officials report that adherence to treatment
with such regimes is radically improved.  Heat-stabilized Kaletra is the
only heat stabilized form of a ritonavir boosted protease inhibitor, and
also comes in a single pill format.  Kaletra is the preferred protease
inhibitor in the World Health Organization's most recent guidelines for
second-line antiretroviral therapy.



Because there are not other similar two-in-one ritonavir boosted
protease inhibitors, Abbott was a dominant firm in each of these
markets.  It faced no competition from viable substitutes and had
complete power to raise prices and, through refusals to license patents,
exclude competitors.  Indeed, the price of Kaletra in Thailand at the
time of the compulsory licenses was over $2,000 a year, a substantial
portion of the average income of a person in the country (Thailand's GDP
per capita is $3,000 per year).



There is nothing in the Thai Act that instructs the Commission to give a
free pass for the anti-competitive behavior of firms that do not have
1000 million baht turnover.  That standard, implemented by regulation of
the Commission, is arbitrary and should be overturned by a court.  Firms
may exert monopoly power in small markets as well as big ones.  Indeed,
the exertion of market power in small markets may be more harmful to
consumers as they may offer fewer incentives for other firms to attempt
to enter and compete in the market and therefore may multiply the
pricing power of the dominant firm.



The repercussions of competition authorities giving a free pass to the
anticompetitive conduct of firms like Abbott are enormous.  Thailand
committed itself to universal treatment for HIV/AIDS in 2003, which
means that more and more PWAs are starting HAART each year.  As more
people remain on these therapies, more will develop resistance to
first-line medications.  The Thai government estimates that in the near
future, 50,000 Thais will need access to second line treatment including
Kaletra.  At the price charged by Abbott to the Thai government in 2006,
the cost of treatment for this many people would be 3,600 million bhat,
a sum exceeding the government's entire budget for all AIDS medicines.



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).[2]  Similarly, here Abbott is refusing to offer the
version of its Kaletra product that is needed by most poorer
consumers.[3]  The willingness of the Thai Commission to challenge
anti-poor market segmentation strategies for cable television but not
for life saving medications is shocking.




________________________________

[1] For further background, see
http://www.wcl.american.edu/pijip/thai_comp_licenses.cfm

[2] 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).

[3] 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."