Pharmaceutical regulatory lawRegulatory framework and authorities
What is the applicable regulatory framework for the authorisation, pricing and marketing of pharmaceutical products, including generic drugs?
The R&D, manufacturing, distribution and advertisement of pharmaceutical products are subject to prerequisite approvals or filings with the National Medical Products Administration (NMPA) or the National Health Commission of People’s Republic of China (NHC), or their respective local counterparts. Most drugs’ prices are determined by the undertakings other than the narcotic drugs and class I psychotropic substances.Regulatory authorities
Which authorities are entrusted with enforcing these rules?
These rules are implemented by various authorities, including the NMPA (mainly for pharmaceutical products’ R&D, manufacturing, distribution and advertisement), the National Healthcare Security Administration (NHSA, mainly for pricing, national drug price negotiation and centralised procurement of drugs), the State Administration for Market Regulation (SAMR, mainly for supervision of drugs’ distribution), NHC and the Ministry of Commerce of the PRC.Pricing
Are drug prices subject to regulatory control?
The NHSA sets the maximum wholesale and retail prices for narcotic drugs and class I psychotropic substances. For drugs that are eligible for medical insurance coverage, the governmental procurement agency will set certain pricing guidelines and restrictions that will indirectly impact the final prices of the drugs procured. Except for the aforementioned, other drugs are not subject to any regulatory price control.Distribution
Is the distribution of pharmaceutical products subject to a specific framework or legislation? Do the rules differ depending on the distribution channel?
Distributers of pharmaceutical products are generally required to obtain distribution licences from the NMPA or its local counterparts, and additional permits or filings may be required depending on the distribution channels (such as through the internet).Intersection with competition law
Which aspects of the regulatory framework are most directly relevant to the application of competition law to the pharmaceutical sector?
The authorisation, pricing and distribution regulatory requirements are most directly relevant to the competition law.
Competition legislation and regulationLegislation and enforcement authorities
What are the main competition law provisions and which authorities are responsible for enforcing them?
The Anti-Monopoly Law (AML) is the main competition law and the SAMR is responsible for AML enforcement.
There have also been a series of regulations and guidelines in respect of merger control, abusive conducts and monopoly agreements (including a separate guideline on relevant market definition).
There is also a guideline in the pharmaceutical sector regarding the price-related conducts of undertakings in relation to drugs in short supply and active pharmaceutical ingredients (APIs), which sets out the approach regarding relevant market definition, and the general assessment framework for price-related monopoly agreements and abusive conducts.Public enforcement and remedies
What actions can competition authorities take to tackle anticompetitive conduct or agreements in the pharmaceutical sector and what remedies can they impose?
The SAMR may initiate administrative investigations, including carrying out dawn raids at the undertakings.
The SAMR has the right to order the wrongdoers to cease anticompetitive conducts or agreements, confiscate illegal gains and impose a fine of 1 per cent up to 10 per cent of the wrongdoing undertaking’s sales revenue in the previous year. If monopolistic agreements have not been performed although reached, the SAMR can impose a fine of no more than 500,000 yuan on the business participant.
For example, the SAMR initiated an investigation in 2018 over three companies with respect to glacial acetic acid (APIs for producing hemodialysis concentrates), which are the only three competitors in the market of manufacturing and supply of glacial acetic acid in China. These three companies exchanged price and output information and carried out price-fixing agreements in 2017. The SAMR ordered the three companies to cease the illegal conducts, imposed on them a fine at 4 per cent of their 2017 sales revenues and confiscated the illegal gains of the three companies out of the illegal price-fixing.Private enforcement and remedies
Can remedies be sought through private enforcement by a party that claims to have suffered harm from anticompetitive conduct or agreements implemented by pharmaceutical companies? What form would such remedies typically take and how can they be obtained?
Both stand-alone and follow-on litigations are allowed in China.
Remedies in private actions include the ceasing of infringement and compensation for losses (the plaintiff’s reasonable costs for investigating and preventing the monopolistic conducts are also deemed as losses).
There have been quite a number of AML private litigations in China but only a few in the pharmaceutical sector, which involved both resale price maintenance (RPM) and abuse of market dominance claims. In Ruibang v Johnson & Johnson, which involved RPM claims, the court held that Johnson & Johnson’s RPM conducts constituted a violation of AML and ordered it to compensate for Ruibang’s losses. To our knowledge so far, in the cases involving abuse of market dominance claims in pharmaceutical sector, the plaintiffs have been unsuccessful in proving either the dominance or the abusive conduct as a result of which no remedies have been imposed by courts.
In some non-pharmaceutical private litigations, the courts ordered the defendants to stop the anticompetitive conducts and compensate for the damage suffered by plaintiffs (eg, Huawei v Inter Digital Corporation).Sector inquiries
Can the antitrust authority conduct sector-wide inquiries? If so, have such inquiries ever been conducted into the pharmaceutical sector and, if so, what was the main outcome?
The enforcement agency can conduct sector-wide inquiries but not frequently. Inquiries are believed to have been conducted into the pharmaceutical sector. The enforcement agencies are said to have conducted a couple of surveys on the pharmaceutical and medical devices industry in 2016 and 2017, in the form of a questionnaire or seminar. We understand that there was more than one round of questionnaires in one of the surveys and that a seminar was held, but the survey results have not been made public.
The enforcement agency’s sector-wide inquiries are generally understood to serve a number of different purposes, such as legislation preparation, investigation into a specific case or purely for information collection for a general understanding of the industry. But it is not common or at least not clear whether a sector-wide inquiry would necessarily trigger an investigation (as a matter of fact, a large number of the investigations have been triggered by complaints).Health authority involvement
To what extent do health authorities or regulatory bodies play a role in the application of competition law to the pharmaceutical sector? How do these authorities interact with the relevant competition authority?
Health authorities or regulatory bodies may be consulted by the enforcement agency for views about market dynamics, such as regulatory requirements, the industry supply chain, the pricing mechanism, the key market players and their market shares. The consultation may take the form of a questionnaire, phone discussions or face-to-face meetings. These interactions take place more in the merger control review process, but are less common and frequent in antitrust investigations on anticompetitive conducts or agreements.NGO involvement
To what extent do non-government groups play a role in the application of competition law to the pharmaceutical sector?
Trade associations in China are commonly consulted by the enforcement agency in both merger control reviews and investigations. They are normally requested to share views about relevant market definitions, market share data and observations about historical or future market entry or exit (eg, IPR restriction) and the impact by the proposed merger on the industry development. Trade associations can also proactively raise complaints to the enforcement agency about certain anticompetitive conducts. Trade associations cannot bring private antitrust litigations on their own behalf though.
NGOs and consumer groups (in China, the consumer groups are the China Consumer Association and its local counterparts) are usually not consulted by the enforcement agency in the law enforcement activities.
Legally, according to the PRC Consumer Rights Protection Law, the China Consumer Association and its provincial-level counterparts can bring lawsuits on behalf of consumers if their rights are damaged, but in practice we are not aware of any antitrust lawsuits brought by the China Consumer Association or its counterparts.
Review of mergersThresholds and triggers
What are the relevant thresholds for the review of mergers in the pharmaceutical sector?
Being applicable to the pharmaceutical sector, it is mandatory for undertakings to obtain merger clearance from the SAMR in relation to their proposed concentration if they meet either of the following turnover thresholds:
- the combined worldwide turnover of all the undertakings concerned in the preceding financial year is more than 10 billion yuan, and the nationwide turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than 400 million yuan; or
- the combined nationwide turnover within China of all the undertakings concerned in the preceding financial year is more than 2 billion yuan, and the nationwide turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than 400 million yuan.
Is the acquisition of one or more patents or licences subject to merger notification? If so, when would that be the case?
Theoretically, yes, if the patents or licences constitute stand-alone ‘assets or businesses’ and turnover generated from such patents or licences exceed the notification thresholds in question 12. In practice, we are not aware of such kind of merger notification solely involving the acquisition of patents or licences so far.Market definition
How are the product and geographic markets typically defined in the pharmaceutical sector?
In approaching the question of product market definition in the pharmaceutical sector, the starting position is often considered to be the anatomical therapeutic chemical (ATC) level 3 classification developed by the European Pharmaceutical Market Research Association whereby in most cases pharmaceuticals are grouped according to their therapeutic indications. For example, the Ministry of Commerce of the People’s Republic of China (MOFCOM) (the former merger control review authority before April 2018), in discussing the relevant product markets in its decision of 29 September 2009 in Pfizer/Wyeth (MOFCOM Announcement (2009) No.77) referenced the relevant ATC3 classifications.
In addition, the indications of pharmaceuticals are also used in determining the relevant product market in previous decisions. In other words, the types of diseases that the particular pharmaceuticals are indicated to treat and the appropriate product market delineation within those groupings are then considered. For example, MOFCOM considered an opthalmological anti-inflammatory/anti-infective product as the product market in Novartis/Alcon (MOFCOM Announcement (2010) No. 53).
When reviewing mergers involving pharmaceuticals distribution companies, the enforcement agency would also consider the particular market level at which a company operates - for example, wholesale or retail. Accordingly, the wholesale and retail markets of pharmaceuticals are normally defined as two different product markets.
For the geographic market definition, normally a nationwide market is defined because of the heavy industrial regulation in the pharmaceuticals sector. However, if the Chinese market is heavily reliant on imported pharmaceuticals, or the ratio of imported pharmaceuticals is high or there is heavy entry barrier (eg, IPR restriction), the authority would also consider the global market situation in the competitive assessment (Novartis/Alcon).Sector-specific considerations
Are the sector-specific features of the pharmaceutical industry taken into account when mergers between two pharmaceutical companies are being reviewed?
Sector-specific features would be taken into account during the merger control review. For example:
- the parties’ overlapping activities in both marketed products and pipeline products would be considered in the relevant market definition;
- the parties’ R&D activities and the developmental stages would be considered in the potential impact on innovation;
- the bidding data in past years would be reviewed and referenced in the competition assessment (eg, whether there is any back-to-back competition); and
- the fact that manufacturers may heavily rely on the distributors’ network may be assessed in the determination of remedies.
Can merging parties put forward arguments based on the strengthening of the local or regional research and development activities or efficiency-based arguments to address antitrust concerns?
These can be put forward as pro-competitive arguments, while these arguments standing alone may probably not be sufficient to address the antitrust concerns and would need to be accompanied by other arguments (eg, declining market shares, more market entry after patent expiration) to be successful.Horizontal mergers
Under which circumstances will a horizontal merger of companies currently active in the same product and geographical markets be considered problematic?
The enforcement agency would consider a horizontal merger problematic if the parties’ combined share is high (eg, more than 50 per cent, even with only a very small share increment); the degree of market concentration is high (eg, a very small number of market players); the market entry barriers may be further enhanced (eg, the existence of patent protection or exclusive licences); or the technological development may be hindered (eg, less R&D), etc.
For example, in the Novartis/Alcon case, MOFCOM considered that the transaction would be anticompetitive in the market of opthalmological anti-inflammatory/anti-infective products, of which the parties’ combined share is over 55 per cent (worldwide) and 60 per cent (China); however, the incremental is minimal (Novartis’ share alone is less than 1 per cent in China).Product overlap
When is an overlap with respect to products that are being developed likely to be problematic? How is potential competition assessed?
An overlap in products that are being developed may also be problematic if the authority is concerned about that the proposed merger would cause the R&D efforts in the overlapping area to cease, delay or decrease, and have adverse impact on the technological development. The potential competition assessment usually focuses on the developmental stage, impact on the innovation efforts, the commercialisation roadmap, etc.
For example, in Becton, Dickinson and Company/C R Bard, Inc, the authority believed that the proposed merger will likely reinforce its market dominance by eliminating Becton’s potential competition in new product, decreasing the R&D investment and degrading the commercialisation process.Remedies
Which remedies will typically be required to resolve any issues that have been identified?
Behavioural or structural remedies or a combination of both may be imposed as remedies to address the competition concerns.
Behavioural remedies may include a commitment not to supply the relevant products in China within a certain period, or a commitment to terminate existing distribution agreements. For example, in Novartis/Alcon, Novartis is barred from selling certain opthalmological anti-infective products in China for five years, and has been requested to terminate a distribution agreement with another competitor within 12 months.
Structural remedies may include divestment of shares and assets (tangible and intangible), termination of an original equipment manufacturer agreement, etc. For example, in Becton, Dickinson and Company/C R Bard, Inc, Becton is requested to divest its soft-tissue core biopsy product line and soft-tissue core biopsy products under R&D across the world, and Becton’s tangible and intangible assets in relation to its soft-tissue core biopsy product line that include without limitation finished goods inventory, IPR, designated personnel, production equipment and machinery used by Becton for the production of its soft-tissue core biopsy products, only with the exception of the retained assets expressly enumerated in the sales agreement.
Anticompetitive agreementsAssessment framework
What is the general framework for assessing whether an agreement or concerted practice can be considered anticompetitive?
The general framework under the AML for assessing whether an agreement or concerted practice can be considered anticompetitive can be summarised as a ‘prohibition and exemption’ approach (except for RPM conduct, which receives divergent treatments by the enforcement agency and the courts, see question 24). This approach means that the specified types of agreements are presumed to be anticompetitive unless exemption conditions are proven.
The explicitly specified circumstances are agreements (including contracts, decisions or concerted practices) between competitors to fix price, restrict output, divide market, restrict new technology and products and collectively boycott, and agreements between a party and its trading counterparty to maintain the resale prices. In addition to these specified agreements, the AML also authorises the enforcement agency to determine other types of anticompetitive agreements by applying a catch-all clause.
Justifications regarding efficiency and consumer benefits and whether these would outweigh the anticompetitive effects are considered in the exemption conditions and circumstances. In addition, whether the conducts are beneficial to public interests may be considered in the assessment.Technology licensing agreements
To what extent are technology licensing agreements considered anticompetitive?
Whether technology licensing agreements are considered anticompetitive would generally follow a ‘rule of reason’ analysis, by assessing whether the relevant clauses thereof would result in any effect of eliminating or restricting competition in the market.
Anticompetitive technology licensing agreement may exist in either horizontal agreements between competitors or vertical agreements between non-competitors. For example, cross-licence agreements between competitors with exclusivity clauses may be considered anticompetitive if the relevant clauses may constitute a barrier for third party to the market entry or restrict the competition in the downstream markets.
To give another example, patent pool agreements between competitors may also be deemed anticompetitive if the agreements contain restrictions that have the effect of eliminating or restricting competition in the relevant market. A number of factors would be considered, for example:
- whether the patents in the pool consist of all or most substitutable technologies; and
- whether the patent pool compels other alternative technologies or prevents other undertakings from entering into the market, or the members of the patent pool unnecessarily exchange competitively sensitive information or are restricted from developing new technologies.
For the technology licensing agreements between non-competitors, clauses involving fixing or restricting the resale price of products manufactured by using the licensed IP, excessive pricing of the licence fee, and restrictions on licensees by grant-back clause and no-challenge clauses, may be considered anticompetitive. Other clauses, such as restrictions on output, distribution channel and territory of sales, and customers of products manufactured by using the licensed IP, and restriction on competitive IP, may also cause antitrust concerns.
Furthermore, a technology licensing agreement involving a licensor with market dominance in relevant markets may be deemed anticompetitive if there are clauses of excessive pricing of a licence fee, unjustified tying or bundling, refusal to license, or unreasonable or discriminatory trading terms (eg, an exclusive grant-back clause, restriction on competitive IP and no-challenge clause).Co-promotion and co-marketing agreements
To what extent are co-promotion and co-marketing agreements considered anticompetitive?
Whether co-promotion and co-marketing agreements are anticompetitive also generally follows the general assessment framework under the AML. For example, if the co-promotion agreements or co-marketing agreements result in price-fixing or output limiting or collectively boycotting, they would be considered anticompetitive.Other agreements
What other forms of agreement with a competitor are likely to be an issue? How can these issues be resolved?
Some commonly seen agreements, such as non-compete agreements in the context of a joint venture transaction (or assets or business transfer transactions), and co-R&D agreements may also trigger antitrust issues. Clauses should be drafted and implemented very carefully to mitigate the antitrust risks, such as to limit the scope of non-compete (eg, the product, geography and duration), avoid the exchange of commercially sensitive information and put in place appropriate confidentiality provisions, firewall arrangements or clean team protocols.Issues with vertical agreements
Which aspects of vertical agreements are most likely to raise antitrust concerns?
RPM in vertical agreements is most likely to raise antitrust concerns in China and has been subject to heightened antitrust scrutiny.
Vertical agreements involving RPM can be manifested as direct or indirect restrictions, and be concluded by agreement or reached under coercion of will. For instance, it exists obviously when the resale price for distributors is set out in the contract thereof. And it can also be achieved by indirect means, such as fixing the profit margin and discount level of distributors, implementing rules of price monitoring, and abolishing rebates for the distributors who fail to adopt any recommended price.
Although no investigations have been initiated against stand-alone non-price vertical agreements, other vertical restraints than RPM, such as exclusive dealing, and tying and bundling, have been investigated in the context of abuse of market dominance. Vertical restraints such as territory restraints and customer restraints that may indirectly result in RPM effect may also probably raise antitrust concerns.
It is important to note the divergence between private and public enforcement against RPM. RPM conduct has been receiving bifurcated treatment between the enforcement agency and the courts; in other words, in most cases the courts followed the rule of reason approach and left aside the framework of ‘prohibition and exemption’ on RPM by the AML that is consistently adopted by the enforcement agency, treating it as equivalent to the by-object offence in the EU. For example, in a judgment of July 2018 by Shanghai IP Court in Shanghai Hankook Tires, which involved both RPM and abuse of market dominance claims, the court ruled that anticompetitive effects of the RPM must be established for the claim of ‘vertical monopoly agreement’. This judgment reiterated the same position in the Ruibang v Johnson & Johnson in 2013 by Shanghai Higher People’s Court.
While the divergence remains, convergence also emerges. In a recent administrative litigation judgment by Hainan Higher People’s Court relating to RPM conducts in the fish feed market, the court accepted the local enforcement agency’s argument that RPM conduct is illegal by object and overthrew the verdict of the trial court’s judgment, which was made based on the rule of reason analysis.Patent dispute settlements
To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?
The reverse payment arrangement in a patent dispute may expose the parties concerned to the risks of antitrust violation. So far, there has been no case in either public or private enforcement.Joint communications and lobbying
To what extent can joint communications or lobbying actions be anticompetitive?
Joint communications or lobbying actions among competitors in the context of trade associations (eg, for launching a new line of therapy and getting the governmental approval) may become risky and anticompetitive if the monopolistic conducts are involved, especially in a way that commercially sensitive and commercially differentiated information is exchanged during these communications or actions (eg, exchange of information relating to pricing or R&D cost, route to market plan, distribution model).
So far there has been no case in this regard.Public communications
To what extent may public communications constitute an infringement?
If the public communications involve and result in a pattern of cooperative behaviour or communications between two or more competitors that eventually has the effect of eliminating or restricting the competition, they may be considered as part of the evidence (together with others, for example, private communications) in the enforcement agency’s determining whether there are any concerted practices between two or more competitors and furthermore evidence of ‘horizontal monopoly agreement’.Exchange of information
Are anticompetitive exchanges of information more likely to occur in the pharmaceutical sector given the increased transparency imposed by measures such as disclosure of relationships with HCPs, clinical trials, etc?
We think it is likely, as the increased transparency in market structure and market changes may from time to time prompt exchange of information in different ways that could increase the risk of competitors aligning their conduct, and thus may be considered relevant in the determination of ‘a concerted practice’. So far, there has been no case in this regard but it is worth monitoring.
Anticompetitive unilateral conductAbuse of dominance
In what circumstances is conduct considered to be anticompetitive if carried out by a firm with monopoly or market power?
An undertaking with market dominance is explicitly prohibited from selling products at unfairly high prices or purchasing products at unfairly low prices. Unless there are justifiable reasons, it is also prohibited from implementing other specified conducts including predatory pricing, exclusive dealing, refusing to trade, tying, imposing unreasonable trading conditions and discriminatory treatments. The undertaking is entitled to put forward justifications for no abusive conducts and the enforcement agency will assess the anticompetitive effects of the involved conducts and the justifications put forward by the undertaking.
Some non-specified conducts that would result in the same effect of the specified types of conducts may also be considered anticompetitive. For example, restricting the trading counterparty to trade exclusively without justifications would constitute abusive conduct, while other restrictive conducts that have had the same effect of exclusive dealing (even only for a substantial purchasing volume but not all) would also be deemed as ‘exclusive dealing’ conducts. For example, in the recent Eastman (China) Investment case, the enforcement agency determined that several clauses in the purchasing agreement, including the minimum order quantity requirement, take or pay and most favoured nation clauses, collectively resulted in the effect of exclusive dealing with regard to the customers’ substantial purchasing demand and therefore these conducts constituted abusive exclusive dealing.
In practice, the enforcement agency is also authorised to determine non-specified anticompetitive abusive conducts by applying the catch-call clause. For example, loyalty rebate was identified as a form of abuse of dominance in the Tetra Pak case.De minimis thresholds
Is there any de minimis threshold for a conduct to be found abusive?
Do antitrust authorities approach market definition in the context of unilateral conduct in the same way as in mergers? If not, what are the main differences and what justifies them?
Generally, the antitrust authorities would follow the market definition guideline as promulgated by the Antimonopoly Commission of State Council, and are supposed to approach the market definition in the context of unilateral conduct in the same way as in mergers.
The precise market definitions may be case-specific and not exactly the same in investigating unilateral conducts and reviewing mergers. The main difference may be due to the different focuses in the competitive assessment and can be justified accordingly. In the former scenario, the affected products by the unilateral conducts are more obviously seen by existing facts and evidence and the boundary of the relevant market may have a clearer picture. Meanwhile, in the latter scenario of merger control review, the market definition would be more based on predictive and hypothetical factors for the purpose of assessing the likelihood of anticompetitive effects, which may depend on different features of the mergers being reviewed and therefore can be broader or narrower than the markets affected by the unilateral conducts.Establishing dominance
When is a party likely to be considered dominant or jointly dominant? Can a patent owner be dominant simply on account of the patent that it owns?
If an undertaking has more than 50 per cent share in the relevant market, it may be presumed to have a dominant market position, while it is rebuttable. The undertaking’s ability to control product pricing, quantity and other transaction conditions (eg, commodity quality, payment terms, delivery method, after-sale services, trading options and technical constraint) will be considered in determining the market dominance, together with the ability to hinder or affect the entry of other undertakings into the relevant market (eg, excluding other undertakings from or delaying them in entering the relevant market, or making it impossible for them to compete effectively with the existing undertakings).
There is also a doctrine of joint dominance under the AML. Being rebuttable too, if the joint relevant market share of two undertakings accounts for two-thirds or above, or if the joint relevant market share of three undertakings accounts for three-quarters or above, these undertakings may be presumed to have joint dominant market position (except that an undertaking alone has a market share of less than one-tenth).
There have been two public enforcement cases where the joint dominance doctrine was applied; both cases are in the pharmaceutical sector (involving APIs). In Erkang Pharma and Jiushi Pharma in 2019, the enforcement agency found these two undertakings jointly dominant on the ground, among others, that they hold an aggregate market share of more than 90 per cent in the chlorphenamine APIs market in China, with one of them alone over 10 per cent of the market share (another factor is that they had a structural link during the period when the infringement was alleged).
A patent owner is not necessarily deemed dominant simply on account of the patent that it owns. Additional factors including possibility and cost for switching to other alternative patents, level of manufacturers’ reliance of downstream products on the involved patents and the countervailing power of the trade counterparty need to be taken into account in determining whether the patent owner has a dominant position.IP rights
To what extent can an application for the grant or enforcement of a patent or any other IP right (SPC, etc) expose the patent owner to liability for an antitrust violation?
Generally following the ‘rule of reason’ analysis, an IP owner having market dominance in relevant markets may be exposed to antitrust risks if the exercise of IPR would result in the effect of eliminating or restricting competition in the market. Typical conducts that may be problematic include excessive pricing of licence fee, tying and bundling, refusal to license, setting out unreasonable trading terms (eg, exclusive grant-back clause, restriction on competitive IP and no-challenge clause), applying differentiated trading conditions, implementing an injunction order, etc.
For example, in the Huawei v IDC case, the court held that IDC has a dominant market position in relation to the licensing of standard-essential patents for 3G wireless communication, and the royalty rate IDC has offered to Huawei was discriminatory, which thus constitutes an abuse of market dominance. There has been no such case in the pharmaceutical industry so far though.
When would life-cycle management strategies expose a patent owner to antitrust liability?
The implementation of life-cycle management strategies may be problematic if they would result in the effect of eliminating or restricting competition in the market. For example, if the regulatory approvals are obtained on the basis of misleading information or otherwise form part of a strategy to exclude generic entry (eg, reverse patent settlement agreements with potential generic entrants). The life-cycle management strategies for the purpose of obtaining an exclusive right to which a dominant firm is otherwise not entitled can amount to an abuse of market dominance (following the rule of reason analysis with other factors considered). There has been no such case in the pharmaceutical industry so far though.Communications
Can communications or recommendations aimed at the public, HCPs or health authorities trigger antitrust liability?
Not likely.Authorised generics
Can a patent owner market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection on the drug concerned, to gain a head start on the competition?
In China, such practice is allowed and may be even encouraged by the healthcare regulators as it would be deemed beneficial to the consumers and market competition. Therefore, at this stage such practice is unlikely to raise antitrust concerns under the AML.Restrictions on off-label use
Can actions taken by a patent owner to limit off-label use trigger antitrust liability?
There has been no such case in the pharmaceutical industry so far and thus it is not clear whether these actions can be taken from the AML perspective. Generally, if the actions taken by the patent owner are defaulted, for example, the claim or ground of induced infringement is challengeable, they may be deemed (together with other factors) as having an effect of eliminating or restricting competition and thus raise antitrust concerns, for example, as an abusive conduct.Pricing
When does pricing conduct raise antitrust risks? Can high prices be abusive?
Several types of pricing conducts would or may raise antitrust risks. An undertaking is prohibited from reaching agreements with competitors on fixing or changing prices, and agreements with its trading counterparty (eg, the distributors) fixing the resale price or setting out the minimum resale price.
An undertaking with market dominance is prohibited from selling products at unfairly high prices or purchasing products at unfairly low prices and, without any justifiable reasons, selling products at a price below cost (predatory pricing).
Unfairly high prices are deemed abusive. For example, in one case in 2011 involving two pharmaceutical distributors, the enforcement agency found two distributors to have raised the price from less than 200 yuan per kilo to a range of between 300-1,350 yuan per kilo after they monopolised the supply of promethazine hydrochloride (APIs of compound reserpine) in the Chinese market.
Neither the decisions of the enforcement agency nor those of the courts show any clear or specific quantitative test. The tests adopted in both public and private enforcement actions seemed to indicate that the enforcement agency and courts tend to adopt more qualitative test for the assessment of unfairly high prices. The generally applicable qualitative tests include whether the price is remarkably higher than the competitor’s price, whether the increase in sale price exceeds the normal range when costs are generally stable and whether the increase in sale price remarkably exceeds the cost increase.Sector-specific issues
To what extent can the specific features of the pharmaceutical sector provide an objective justification for conduct that would otherwise infringe antitrust rules?
Generally, quality promotion and safety control can serve as justifications for certain abusive conducts such as exclusive deal, or factors in the assessment of whether consumers benefit. However, to be successful in mitigating the antitrust infringement, they alone would not be sufficient and shall be assessed together with other factors that are usually taken into account in the enforcement agency’s rule of reason analysis.
Update and trendsCurrent trends and developments
40Are there in your jurisdiction any emerging trends or hot topics regarding antitrust regulation and enforcement in the pharmaceutical sector?Emerging trends and hot topics40 Are there in your jurisdiction any emerging trends or hot topics regarding antitrust regulation and enforcement in the pharmaceutical sector?
Given that the pharmaceutical sector is fundamental and closely linked to public interests in China, stringent regulation and enforcement over anticompetitive conducts in this sector has been one of the focuses of the enforcement agency in past years.
With the country’s continuous efforts to secure the level of national healthcare standard, for example, including more medicines in China’s essential drug list for national healthcare reimbursement and providing more choices of medicines with affordable prices, we expect the enforcement agency will continue to take this stringent and prudent approach. It may take more proactive actions to safeguard the effective competition in pharmaceutical sector by securing a stable supply and price level of active pharmaceutical ingredients and finished pharmaceutical products, sufficient market entries and promotion of low-priced generic medicines.