PHARMACEUTICAL INDUSTRY DURING COVID-19: A liberal recourse to the Competition Act

by Vibhu Pahuja

With COVID-19 now been declared as a global pandemic, many countries, including India have taken stringent measures. These include measures such as a nationwide lockdown to protect the lives of its population. This has led to an economic collapse, as various industries the economy would not be operational during this time. However, industries that form the necessity for livelihoods are still operational, such as the Pharmaceutical Industry.

Pharmaceutical Industry

With the number of cases of COVID 19 rapidly increasing at the moment, there is immense pressure on the pharmaceutical industry. They are required to treat the current patients but also contain the spread of the virus. There are more than a hundred research groups working round the clock to develop a potential vaccine of the virus. National wholesalers have also put in a commendable effort to ensure that the patients have the requisite supplies when needed.

As an obvious matter of fact, collaboration in R&D activities by the research organizations, the solution for this global pandemic would be made available at a relatively faster pace. However, it must be noted that the competition law is still in place and companies must continue to abide by the provisions of the Competition Act, 2002. Article 3(1) of the Act restricts anti competitive agreements, such as anti-competitive collaboration or a horizontal agreement in the market, causing Appreciable Adverse Effects on Competition (AAEC).

For effectively tackling COVID-19, and also upholding the law at the same time, competition authorities around the world are maintaining that there shall be some flexibility with regards to the operation of the law. This blog post analyzes the aforementioned from an Indian approach.

Business Advisory Issued by the CCI on Competition Matters

With the imposition of lock-down, there has been immense pressure on industries which account as “essential services” for the people. This has led to a disruption in the chain of supply under the individual capacity of the businesses when there is an urgent need for continuous supply and fair distribution of products and services at the moment. The above point has been acknowledged by the CCI. In this situation, information sharing, coordination and collaboration for the efficient supply of services form an important part of the business conduct.

Under Section 3(3) of the Act, coordination amongst competitors is presumed to cause Appreciable Adverse Effect on Competition (AAEC). However, at the time of competition assessment, CCI has to take into due regard, amongst other factors, pro competitive effects such as the accrual of benefits to consumers; improvement in production or distribution of goods or provision of services; and promotion of technical, scientific and economic development by means of production or distribution of goods. Therefore, the Act has in-built safeguards to protect businesses from sanctions for certain coordinated conduct, provided such arrangements result in increased efficiencies.

The result of the advisory on pharmaceutical industry

The CCI has also mandated that only businesses which are regarded requisite and proportional to the needs of people and that address the concerns arising from the lockdown during the pandemic will be considered. Furthermore, the businesses mentioned herein must not take advantage of the leniency permitted by the CCI during the COVID-19 must not directly contravene any of the provisions of the Act.

From the directions given by the CCI, it could, therefore, be derived that currently, the pharmaceutical industry, falls within the new conduct mandated by the CCI as it is indulged in scientific promotion wherein there is an intent to find the solutions to the current pandemic, thereby not only leading to scientific promotion but also, accrual benefit of the people by enhancing their health.

It must however, be noted that the advisory issued by the commission does not provide any exemption from the provisions contained within the Act. It merely provides that there will be a consideration of the circumstances due to the gravity of the situation and necessities of the population at large while there is an undertaking of the necessary assessment for the acts of the businesses during the current pandemic.

Plausible Approaches

With the considerations over relaxation of policies by the commission, the pharmaceutical industries can collaborate with each other over the sharing of information in terms of R&D activities, mass production of medicines, etc.

This should lead to opening up of investigations with regards to essential medical needs during the time of COVID-19, such as hand sanitizers, face masks and so on. A similar case occurred in Italy wherein there was an investigation against Amazon and eBay for charging excessive prices of face masks and hand sanitizers. Opening up of investigations in this regard would ensure that with collaboration of businesses, no monopoly over a certain product is ascertained in the market.

In addition to the above stated, the commission should also set up a task force to investigate rise in prices of food and other hygienic products, considering the fact that businesses are misusing their authority due to limited supply of the aforementioned products and an increase in demand. This would consequently lead to price control on essential pharmaceutical products such as face masks and hand sanitizers. This measure has been implemented by many countries, including Netherlands and United Kingdom.

For the evaluation of excessive pricing, the rule elucidated in the United Brands[ii] case could be used where there is a comparison of cost of manufacturing and the selling cost, and also, the price under consideration must also be unfair either in itself or when compared to prices of competing products.[iii]

Relaxations on Horizontal Agreements for pharmaceutical industries

There must also be relaxation on horizontal agreements so as to make sure that with collaboration between businesses, shortage of supply chain could be met, wherein stockers could coordinate and maintain the level of demand that is necessary.  This should be interpreted in the light of doctrine of state compulsion wherein activities that may constitute anti competitive conduct on normal basis, would be given a liberal recourse by the state so as to meet the shortage of supply or any other reason, whatsoever necessary. 

In furtherance, there will be joint R&D activities by various organizations indulging in pharmaceutical business. It must, however, be noted that the activities of these organizations will not be fully immune as the competition law is still in force and the actions would only be carried under the direction of the commission. This implies that there should not be any breach of anti-trust regulations by these organizations as they should not replace the work of companies otherwise competing to make other innovations, thereby complying with the required regulations. Therefore, structuring of activities by the R&D organizations should be done in a manner that does not breach the anti-trust regulations. The exchanging of information should be done in such a manner that only the requisite and necessary information is shared by the parties in hand and it should not restrict the production of information and innovation in the future.

Conclusion

As has been iterated by the European Commission and various other countries, it is highly likely that the government would allow a liberal recourse from the anti-trust authorities, thereby allowing the Pharmaceutical Industries to collaborate for R&D purposes and to make sure that the supply chain is met in the market. However, this shall be done only by the virtue of consideration of the commission, making sure that there is no departure from the principles of anti-trust in these times and competition is still maintained in the market. The business organizations must also abide by their obligations to not disproportionally use the consideration granted by the commission, as this would expose them to anti-trust authorities, thereby levying penalties.

Views are personal.

Image credits: USA Today

ABOUT THE AUTHOR

Vibhu Pahuja is currently pursuing B.A. LLB (Hons.) from National Law Institute University, Bhopal.

REFERENCES

[i]Advisory to Businesses in Time of COVID-19, Competition Commission of India (April 19, 2020), https://www.cci.gov.in/sites/default/files/whats_newdocument/Advisory.pdf.

[ii]United Brands Company and United Brands Continental BV v. Commission of the European Communities, Case 27/76 ECJ (1978).

[iii]id.

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