On 8 February 2022, the Competition Commission of South Africa filed a referral with the Competition Tribunal for prosecution of Roche on alleged excessive pricing of its breast cancer treatment drug, Trastuzumab. The Commission cited contravention of Section 8(1)(a) of the South African Competition Act.
“8. Abuse of dominance prohibited
(1) It is prohibited for a dominant firm to—
(a) charge an excessive price to the detriment of consumers or customers;
(2) If there is a prima facie case of abuse of dominance because the dominant firm charged an excessive price, the dominant firm must show that the price was reasonable.
(3) Any person determining whether a price is an excessive price must determine if that price is higher than a competitive price and whether such difference is unreasonable, determined by taking into account all relevant factors, which may include—
The Commission’s referral alleged that excessive pricing of Trastuzumab violates fundamental human rights.
The Commission reasoned as follows:
“In view of the fact that Roche had declined to provide the Commission with its cost data (despite the Commission pursuing all available legal channels, including the diplomatic channels), allegedly on the basis that, that cost data sits in Switzerland, the Commission considered three competitive benchmarks in its assessment, namely:
- Trastuzumab biosimilar manufacturing cost estimates – Commission relied on a body of knowledge that provides a calculation algorithm to estimate the manufacturing cost of Trastuzumab biosimilars;
- Prices of a biosimilar drug supplied in South Africa – Commission relied on the price of a biosimilar drug supplied in both the private sector and public sector South Africa since 2019. A biosimilar medicine is one that has the same active properties and similar clinical outcomes as an originator biologic medicine; and
- Value-based price benchmarks – The Commission relied on ratios estimating the additional value/benefit attributable to Trastuzumab against the income per capita ( a proxy of the affordability of Trastuzumab).”
The South African Competition Act perceives unreasonable excessive pricing as an element of abuse of dominance. Earlier, in 2002, in Glaxo Smith Kline – Boehringer Ingelheim Case (which is regarding the excessive pricing of HIV drugs), the Competition Commission found the companies to have charged excessive prices. However, before the matter was adjudicated by the Competition Tribunal, the case was settled.
US has a different approach when it comes to excessive pricing. The purpose of Competition Act is, as reiterated by the Court of Appeals for the 9th Circuit in FTC v. Qualcomm, to regulate anti-competitive behavior and not hypercompetitive behavior. The underlying assumption is that the market can correct itself and so is the case of excessive pricing if it is not anti-competitive i.e. excessive pricing will lead to more competition and ultimately, the prices will come down. The regulator will intervene only when the excessive pricing becomes anti-competitive. In emerging markets like India, where the informal economy is still a sizeable proportion, it is naïve to place confidence in the markets to correct themselves.
The Indian Competition Act is more in the lines of South African Competition Act.
4. Abuse of dominant position
(1) No enterprise or group shall abuse its dominant position.
(2) There shall be an abuse of dominant position under sub-section (1), if an enterprise or a group —-
(a) directly or indirectly, imposes unfair or discriminatory— (
i) ……; or
(ii) price in purchase or sale (including predatory price) of goods or service.
Explanation.— For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or service referred to in sub-clause (i) and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory condition or price which may be adopted to meet the competition; or
Excessive pricing can be abuse of dominance only if (i) excessive pricing is unfair or discriminatory; and (ii) excessive pricing does not promote or facilitate competition. This means that the Indian Competition Commission can make quality interventions in various spheres of life. There is a need for institutional audit as to how far the Competition Commission has exercised its statutory powers in addressing excessive prices in the market.