1 October 2014 by Cliffe Dekker Hofmeyr Competition Alert 1 October

Commission non-refers complaint by Doctors Without Borders

In September 2012, Doctors Without Borders (DWB) lodged a complaint of alleged anticompetitive conduct against Aspen Pharmacare Holdings Limited (Aspen), Mylan Laboratories Limited (Mylan Laboratories), Mylan South Africa Incorporated (Mylan SA) and Mylan Incorporated (Mylan). DWB complained that the exclusive supply agreement concluded by these parties in respect of the introduction of fixed dose combination anti-retroviral products (used in the treatment of Aids and HIV) in the South African public health sector was possibly anti-competitive.

Mylan appointed Aspen as its exclusive distributor of the active pharmaceutical ingredient used to produce finished dose anti-retroviral products and its exclusive distributor of the finished dose anti-retroviral products in South Africa. Mylan also agreed that neither it nor its affiliated firms would directly or indirectly sell these products to any other company registered or incorporated in South Africa. The exclusive distribution agreement was concluded for a period of eight years.

DWB complained that the exclusive distribution agreement caused a substantial lessening or prevention of competition in the market and that on-going pricing negotiations between Aspen and Mylan possibly constituted price fixing. The latter was dismissed by the Competition Commission (Commission) based on a lack of supporting evidence.

The Commission further investigated whether the conduct by Mylan, Mylan Laboratories and Mylan SA constituted market allocation between competitors.

The Commission found that the non-compete provisions and as such were considered together. The Commission found that the non-compete provisions were not sufficient to be categorised as market allocation as envisaged in the Competition Act, No 89 of 1998. Furthermore, it is accepted that the pharmaceutical industry, as owners of intellectual property, may licence the use of their intellectual property on an exclusive or non-exclusive basis. Where an exclusive agreement is concluded the Commission will scrutinise the agreement closely and will consider any claimed efficiencies. The Commission found that, in this case, Aspen's competitors could reasonably access alternative sources of supply and the exclusivity was warranted based on certain efficiencies. Accordingly, the Commission did not believe that the exclusivity agreement led to a substantial lessening or prevention of competition that could not be justified based on certain efficiencies.

The Commission did indicate its concern about the duration of the exclusivity agreement, however, the exclusivity agreement had been mutually terminated in 2013 and it was not necessary for the Commission to consider it further.

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