(Bio-)Similar views?

Towards the end of last year, I contributed a couple of articles to Bristows’ Biotech Review publication.  One article looked at the new TTBER, something that we have already explored in depth on this blog.  The other (written with colleague Maria Georgiou) was a round-up of competition law developments in the pharma sector over the last couple of years, with some crystal-ball gazing as to how these may be applied in the biotech sector (see pp.13-15 of the 2014 Biotech Review).  

Our conclusion in the article noted that: 

it cannot be excluded that the regulators’ stance [in relation to the pharma industry] will spill over into the biotech sector given that the market dynamics have some similarities. The importance of such products for consumers and the unrelenting pressure on national health budgets makes it worthwhile for regulators to keep the sector under review.”  

I now note that the OECD’s newly published report on Generic Pharmaceuticals and Competition appears to endorse this view, stating as follows: 

Looking ahead, bio-similar medicines may also represent a major competitive pressure in the pharmaceutical sector in respect of biological drugs. Biological drugs are a fast growing industry branch. They are more complex and usually more expensive than the small chemically synthesised molecules, that form the basis of originator drugs and their generic substitutes. Competition authorities have voiced concerns regarding regulations that may restrict bio-similar entry and competition against reference biologic drugs. Such regulations consist notably in restricting the principle of substitutability or therapeutic equivalence of bio-similars, or disproportionate authorisation and registration conditions.” (Executive summary, p.3 – strangely, the detailed summary of the discussion does not mention biologics or bio-similars at all)

It is, however, to be hoped that the competition authorities will also recognise the significant differences between generic pharmaceuticals and bio-similar drugs.  While there are certain similarities in the market dynamics, there are also important differences.  As we noted in our Biotech Review article: “a company launching a biosimilar product will have incurred a significant amount of time and money in the development of its product, typically on a completely different scale from where a generic of a traditional pharmaceutical is launched. This is likely to result in smaller price differences between the original biotech and the biosimilar products, compared to the difference between original and generic medicines”. 

We hope to comment on the OECD report on Generics more generally in the near future (I’ve already spotted a number of nice comments about the need to balance promotion of generic entry with incentives for innovation, which chime with one of the perennial themes on this blog), as well as on its companion piece on Competition Issues in the Distribution of Pharmaceuticals… 

Sophie Lawrance

Chinese MIIT identifies basis for a FRAND royalty rate

An intervention from a little further afield than the recent US and EU rumblings on FRAND licensing and competition law has come in the form of a paper published by a research centre associated with China’s Ministry of Industry and Information Technology (China’s telecoms regulator) (see here).  The paper, published for comment, proposes a template for an intellectual property rights policy for standards setting organisations. Perhaps more controversially, the paper includes a list of factors to consider when calculating a reasonable royalty rate for a standard essential patent. 
The MIIT publication has sparked consternation: on the one hand because of apparent governmental intervention in what some argue should be an issue for individual standard-setting organisations; and on the other because of its arguably overly prescriptive approach.

In contrast, only a month ago, the OECD reproduced a paper summarising the United States’ approach to standard setting: this notes that the DOJ antitrust division and the FTC (“the agencies”) do not require SSOs to adopt specific intellectual property policies, instead using a flexible rule of reason approach to review standard setting. 

That said, while the agencies may take an apparently ‘hands off’ approach in relation to standards setting organisations, recent US Court Judgments (see for example: re Innovatio IP Ventures and Microsoft Corp v Motorola, Apple v Motorola, CSIRO v Cisco Sys Inc) have begun to suggest how to calculate a FRAND (or as the Americans call it “RAND") royalty in specific circumstances. Indeed the Chinese courts themselves have had occasion to tackle the issue - determining a FRAND rate head on in Inter Digital Corporation v. Huawei Technologies Co., Ltd (Guangdong High Court Civil Judgment (2013) Yue Gao Fa Min San Zhong Zi No. 36)

Unfortunately and perhaps unsurprisingly, the approaches taken by different countries do not match up (indeed there have been some significant differences in the approaches taken within the US). For a commentary on the availability of injunctive relief for standard essential patents in the United States and in the EU see our blog here and for a summary of the German and EU position on FRAND licensing see our blog here.  Certainly, the Chinese MIIT does not concord with the latest judgment by the US Federal Court of Appeal, Ericsson v DLink, (summarised here) which sought to give guidance to US Federal Courts.  In contrast with the more laissez-faire approach in Ericsson v DLink, the MIIT paper suggests that any RAND calculation should be based on the “smallest salable patent practising unit” and should account for royalty stacking by taking into account the total aggregate royalties that may apply if other owners of intellectual property demand similar terms. Koren Wong-Ervin, Counsel for Intellectual Property and International Antitrust at the United States FTC has voiced particular concerns about this approach which, she considers, risks over or under-valuing the IPR.

To add to the melee of ‘helpful pointers’ on FRAND is the EU approach, the latest development of which is the Opinion of Advocate General Wathelet in Huawei v ZTE which this blog commented on previously here. This opinion focuses more on the procedural obligations of those engaged in negotiations for FRAND licences. As such, it sits well with the US and MIIT approach (see Article X MIIT Template for IP Policies in Industry Standards Organisations) as well as the approach taken by the Korean FTC in its recent guidance, all of which acknowledge that the licensee must be willing to take a license on FRAND terms in order to prevent an injunction being available to the patentee. However, the EU opinion doesn’t engage with the ‘nuts and bolts’ of how a reasonable royalty rate for a FRAND  licence should be calculated, preferring to defer such issues to a court or arbitration tribunal on the facts of the case. It remains to be seen whether the Court of Justice will follow the Advocate General’s opinion and keep out of the FRAND debate or if it will wade in whole heartedly (although we think this unlikely!). 

So, what next for the MIIT proposal? It is, as described, only a proposal at this stage and no doubt key industry players will take the opportunity to voice their concerns. Whether a less prescriptive version will emerge as a result remains to be seen.

Resolutions for innovation in 2015

This blog on the competition law/IP Interface has had an interest in how competition interventions may impact on innovation for some time now.  2014 saw a number of posts on topics such as whether competition law is able to take sufficient account of long-term effects on innovation (here), the impact of new competition rules on innovation (e.g. in relation to the revised TTBER and the new state aid rules on R&D), the perspective of US commentators on these issues (here and here), and on the concept of ‘predatory innovation’ (e.g. here and here).  Bloggers were also heavily involved in a few events last year which focussed on the interaction between competition law and innovation (reported on here and here).  (Fortunately, these were not combined with our cycling commitments!)  
We now see that our friends over at the IPKat blog are taking a fresh look at innovation in the EU in 2015.  We also notice that their post seeks suggestions for what Europe's innovation resolutions should be for the year to come.  How could we resist taking up such an invitation...?

For anyone who has read our past offerings, it won’t come as a surprise that our recommendation for an innovation-focussed New Year’s resolution relates to the treatment of intellectual property rights by the competition authorities.  2013 and 2014 saw an unprecedented number of Commission decisions with a direct impact on agreements/conduct concerning patents (notably Lundbeck and Servier in the pharma sector, and Motorola and Samsung in the TMT sector).  Whatever one’s views about the merits of these decisions (a moan about the continuing lack of a public version of the 2013 Lundbeck decision in particular is deferred... for now), it can be agreed that those decisions and related initiatives, such as patent settlement monitoring (our post on the latest report is here), will have a real-world effect of some kind.  The Big Question, for us at least, is whether that effect will involve any adverse impact on companies’ willingness to innovate.  

If there were such an impact, it is more than arguable that this would undermine the effectiveness of the EU’s competition regime.  The importance of innovation is built into EU competition law: “technical and economic progress” forms part of the part of exemption criteria for Article 101(3), and innovation is repeatedly cited as a positive attribute of competition in the Commission’s Article 102 Enforcement Priorities paper.  At a broader EU policy level, the Lisbon Agenda has been described as: “an industrial policy that puts innovation at the centre in a European Union with a high quality of life and a strong, sustainable industrial base” (Commission Staff Working Document, “Towards enhanced patent valorisation for growth and jobs”, 2012).  The Technology Transfer Guidelines note that “Innovation constitutes an essential and dynamic component of an open and competitive market economy. Intellectual property rights promote dynamic competition by encouraging undertakings to invest in developing new or improved products and processes” (para 7).

Of late, there has certainly been a perceptible shift in competition authority pronouncements/thinking towards favouring upstart innovation over that of incumbents (e.g. in the amended approach to grant-backs and non-challenge provisions – see here), but the general policy guidance does not suggest any preference one way or the other.  And more importantly, no one seems to be looking at what actually happens when competition law is applied in a way which may have some impact on innovation, positive or negative.  (The position in the merger context is somewhat different, with attention routinely given to potential outcomes for innovation.)  In fact, we are hardly alone in bemoaning the lack of empirical evidence on the impact of competition interventions. 

Our proposed New Year’s resolution is therefore this: that individuals within competition authorities around the EU who are involved in assessing potential competition infringements (re-)focus on the important role played by innovation.  As a concrete commitment to this aim, they should – in particular in cases which raise novel issues, whether to do with IP or with innovation more broadly, perhaps in the form of novel business methods – give consideration to developing methods of measuring the impact of decisions on longer-term incentives to innovate (on both sides of the incumbent/upstart fence), perhaps also commissioning some empirical work on the impact of relevant recent decisions.  This is something that the CMA has done in the past (in its former guise as the OFT, for example here). While there is a risk that such studies are overly focussed on price outcomes, and may very well be self-serving, they are perhaps a step in the right direction.

And to conclude: we couldn’t defer moaning about the (snail-like) speed of publication of important Commission decisions for very long.  We are in good company – late last year Judge Peter Smith noted the “grindingly slow process” of agreeing a redacted decision (Emerald Supplies Ltd v. BA & others).  If there is a risk that certain decisions could give rise to adverse effects on innovation, the risk of such chilling effects is surely all the greater where companies and their advisors remain in the dark as to the true parameters of how competition law is applied to particular business practices.  Time for another resolution…?