Pharmaceutical regulatory lawRegulatory framework
What is the applicable regulatory framework for the authorisation, pricing and marketing of pharmaceutical products, including generic drugs?
The Medicines and Related Substance Act No. 101 of 1965, as amended (the Medicines Act) and the regulations promulgated under the Medicines Act regulate the authorisation, pricing and marketing of pharmaceutical products.Regulatory authorities
Which authorities are entrusted with enforcing these rules?
The South African Health Products Regulatory Authority (SAHPRA) is entrusted with enforcing the rules set out in the regulatory framework. The objectives of SAHPRA are to provide for the monitoring, evaluation, regulation, investigation, inspection, registration and control of medicines, scheduled substances, clinical trials, medical devices, in vitro diagnostics and related matters in the public interest.Pricing
Are drug prices subject to regulatory control?
Drug prices are regulated in terms of section 22G of the Medicines Act, which provides for the establishment of a pricing committee that makes recommendations to the Minister of Health. The Minister of Health may make regulations on a transparent pricing system for all medicines and scheduled substances sold in South Africa. The transparent pricing system includes a single exit price that is published as prescribed.
The Department of Health published the Regulations relating to a Transparent Pricing System for Medicines and Scheduled Substances (30 April 2004) under the Medicines Act (Transparent Pricing Regulations). In terms of the Transparent Pricing Regulations, manufacturers and importers are required to determine a single exit price for each medicine and scheduled substance that is the price at which the relevant medicine must be sold by manufacturers, importers, distributors and wholesalers to all persons, other than the state, and must, inter alia, conform to international benchmarks and may only be increased in accordance with Transparent Pricing Regulations. Provision is made for a logistics fee and dispensing fee. The extent to which the single exit price may be increased will be determined annually by the Minister of Health, after consultation with the pricing committee, with regard to:
- the average consumer price index and producer price index for the year;
- changes in foreign exchange rates and purchasing parity power;
- international pricing information relating to medicines and scheduled substances;
- comments received from interested parties; and
- the need to ensure availability, affordability and quality of medicines and scheduled substances in South Africa.
Is the distribution of pharmaceutical products subject to a specific framework or legislation? Do the rules differ depending on the distribution channel?
The distribution of pharmaceutical products in South Africa is regulated by the Medicines Act. Different rules apply to different scheduled substances as set out in section 22A of the Medicines Act. Section 22C of the Medicines Act makes provision for licences to compound and dispense medicines to persons registered under the Health Professions Act No. 56 of 1974 (HPA) as well as licences to manufacture, import, export, act as a wholesaler of or distribute such medicine, scheduled substance, medical device or in vitro device (IVD) to a medical device or IVD establishment, manufacturer, wholesaler or distributor of medicine. A wholesaler may only buy medicines, medical devices and IVDs from a primary importer or manufacturer of the medicine and is required to sell medicines, medical devices or IVDs only into the retail sector.
The Pharmacy Act No. 53 of 1974, as amended, also regulates the practice of pharmacists in the dispensing of medication, medical devices or IVDs. Other legislation that regulates the distribution of medicine and persons authorised to distribute these medicines are the HPA, the National Health Act No. 61 of 2003 and the Animal Diseases Act No. 35 of 1984.Intersection with competition law
Which aspects of the regulatory framework are most directly relevant to the application of competition law to the pharmaceutical sector?
Although there is a single exit price regime, the setting of the single exit price would be relevant to potential abuse of dominance concerns if the price is excessive. The distribution and importation of medicines and scheduled substances is also regulated; however, there may be restrictive agreements entered into between parties at different levels of the supply chain that may raise restrictive vertical practice or abuse of dominance concerns. Agreements entered into that restrict competition, such as patent strategies to delay the entry of generics, may raise concerns under the abuse of dominance provisions.
Competition legislation and regulationLegislation and enforcement authorities
What are the main competition law provisions and which authorities are responsible for enforcing them?
Competition law is governed by the Competition Act No. 89 of 1998, as amended (the Competition Act), as well as the regulations promulgated under the Competition Act. The Competition Act regulates mergers and seeks to guard against, amongst other things, restrictive horizontal practices, restrictive vertical practices and abuse of dominance.
The Competition Commission (the Commission) is the investigative body, established under the Competition Act, primarily responsible for enforcing the Competition Act including investigating and prosecuting contraventions of the Competition Act. The Competition Tribunal (the Tribunal) is the adjudicative body established under the Competition Act responsible for, inter alia, hearing referrals of alleged contraventions of the Competition Act. The Competition Appeal Court (CAC) is a court with the status of a High Court established under the Competition Act to, inter alia, hear reviews and appeals of the Tribunal’s decisions.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 Commission may investigate a complaint submitted to it by a third party or initiate a complaint itself. It will then investigate the complaint and if it finds that there has been anticompetitive conduct or agreements, it will refer the complaint to the Tribunal for adjudication. If the Tribunal finds that a company has engaged in prohibited conduct, the Tribunal may make an appropriate order imposing any behavioural or structural remedies permitted in terms of the Competition Act including:
- interdicting any prohibited practice;
- ordering a party to supply or distribute goods or services to another party on terms reasonably required to end a prohibited practice;
- imposing an administrative penalty;
- ordering divestiture;
- declaring conduct to be a prohibited practice in terms of the Competition Act for purposes of third party civil damages claims;
- declaring the whole or party of any agreement to be void; and
- ordering access to an essential facility on terms reasonably required.
The administrative penalty that can be imposed may be up to 10 per cent of the firm’s annual turnover in South Africa and its exports from South Africa during the firm’s preceding financial year. In determining the extent of an administrative penalty, the Tribunal may:
- increase the administrative penalty to include the turnover of any firm that controls the respondent, where the controlling firm knew or should reasonably have known that the respondent was engaging in the prohibited conduct; and
- on notice to the controlling firm, order that the controlling firm be jointly and severally liable for the payment of the administrative penalty imposed.
If the prohibited conduct is cartel conduct, directors or employees in management positions who caused the firm to engage in, or knowingly acquiesced in the firm engaging in, cartel conduct may be held criminally liable and sentenced for up to 10 years in prison or receive a fine of up to 500,000 rand, or both.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?
Any person that suffers harm from anticompetitive conduct or agreements may, in terms of the Competition Act, seek damages in a civil court. When instituting proceedings, such a person must file with the Registrar or Clerk of the Court a notice from the Chairperson of the Tribunal, or the Judge President of the CAC, certifying that the conduct constituting the basis for the action has been found to be a prohibited practice in terms of the Competition Act. This certificate is conclusive proof of its contents and is binding on a civil court.
See, for example, Nationwide Airlines (Pty) Ltd (In Liquidation) v South Africa Airways (Pty) Ltd (12026/2012)  ZAGPJHC 213 and Comair Limited v South African Airways (Pty) Ltd (2008/23443; 2011/34079)  ZAGPJHC 10.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 Competition Commission, acting within its functions set out in the Competition Act, may conduct a market inquiry at any time (1) if it has reason to believe that any feature or combination of features of a market for any goods or services impedes, distorts or restricts competition within that market; or (2) to achieve the purposes of the Competition Act.
To date, no market inquiry has been conducted in relation to the pharmaceutical sector, although a market inquiry was conducted in relation to the private healthcare sector.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?
One of the functions of the Commission is to negotiate agreements with any regulatory authority to coordinate and harmonise the exercise of jurisdiction over competition matters within the relevant industry or sector, and to ensure the consistent application of the principles of the Competition Act. To this end, the Commission has entered into memorandums of understandings (MoU) with various sector regulators, including the Council for Medical Schemes. However, there is currently no MoU with the health authorities or other health regulators. The Commission nevertheless often engages relevant authorities and regulatory bodies to the extent that any competition matter relates to a specific sector.
Any person (including, for example, the health authorities or regulatory bodies) who has a material interest in the outcome of a Tribunal hearing may apply to participate in the hearing but only to the extent required for the interest to be addressed, unless, in the opinion of the presiding member of the Tribunal, that interest is adequately represented by another participant. The department of health has, for example, participated in merger proceedings (see, for example, Aspen Pharmacare Holdings Limited and Fine Chemicals Corporation (Pty) Ltd 127/LM/Dec08).
The South African Health Products Regulatory Authority may also liaise with any other regulatory authority or institution and may, without limiting the generality of this power, require the necessary information from, exchange information with and receive information from any such authority or institution in respect of matters of common interest, a specific investigation or enter into agreements to cooperate with any regulatory authority to achieve the objectives of the Medicines Act.NGO involvement
To what extent do non-government groups play a role in the application of competition law to the pharmaceutical sector?
Any person (including NGOs, trade associations or consumer groups) may submit information concerning an alleged prohibited practice to the Commission in any manner or form, or submit a complaint against an alleged prohibited practice to the Commission, in the prescribed form.
For example, the Congress of South African Trade Unions; the Chemical, Energy, Paper, Printing, Wood and Allied Workers’ Union; and the Treatment Action Campaign, amongst others, submitted a complaint to the Commission against GlaxoSmithKline South Africa (Pty) Ltd, Boehringer Ingelheim (Pty) Ltd and others alleging that the respondents engaged in excessive pricing in respect of antiretroviral drugs to the detriment of consumers. The Commission expanded its investigation to include allegations that the respondents refused to give competitors access to an essential facility when it was economically feasible to do so and engaged in exclusionary conduct. The matter was settled before it was referred to the Tribunal.
Medecins Sans Frontiers/Doctors Without Borders submitted a complaint to the Commission against Aspen Pharmaceuticals and Mylan Inc in relation to exclusive supply agreements regarding active pharmaceutical ingredients used for antiretroviral products in the South African public healthcare sector. The Commission did not ultimately refer the complaint to the Tribunal, although it did indicate that the Commission will closely examine the effects of an exclusive licence in the relevant market and assess any claimed efficiencies.
In the case of mergers, merging parties are required to provide a copy of the merger notice to any registered trade union that represents a substantial number of their employees or the employees concerned or representatives of the employees concerned, if there is no such registered trade union.
Review of mergersThresholds and triggers
What are the relevant thresholds for the review of mergers in the pharmaceutical sector?
A merger occurs when one or more firms directly or indirectly acquires or establishes direct or indirect control over the whole or part of the business of another firm. All mergers that meet the following financial thresholds are notifiable to the Competition Commission (the Commission), regardless of the sector.
Intermediate merger thresholds are as follows:
- the combined assets in or turnover of acquiring firms and transferred firms in, into or from South Africa (or a combination of the acquiring firms’ turnover and transferred firms’ assets; or the transferred firms' turnover and the acquiring firms’ assets) is greater than or equal to 600 million rand; and
- the transferred firms’ assets in or turnover in, into or from South Africa is greater than or equal to 100 million rand.
Large merger thresholds are as follows:
- combined assets in or turnover of acquiring firms and transferred firms in, into or from South Africa (or a combination of the acquiring firms’ turnover and transferred firms’ assets; or the transferred firms' turnover and the acquiring firms’ assets) is greater than or equal to 6.6 billion rand; and
- the transferred firms' assets in or turnover in, into or from South Africa is greater than or equal to 190 million rand.
If the proposed merger does not meet these financial thresholds, it will be categorised as a ‘small merger’. Notification of small mergers is not mandatory, however, the Commission may, within six months of implementation, require the parties to a small merger to notify the merger to the Commission if, in the opinion of the Commission, the merger may substantially prevent or lessen competition or cannot be justified on public interest grounds.
In terms of the Commission's Guidelines on Small Merger Notifications (the Small Merger Guidelines), the Commission has indicated that it must be informed in writing of all small mergers, prior to their implementation, if:
- any of the firms, or firms within their group, entering into the transaction are subject to an investigation in terms of Chapter 2 of the Competition Act No. 89 of 1998 (Restrictive Practices) (the Competition Act); or
- any of the firms, or firms within their group, entering into the transaction are respondents to pending proceedings referred by the Commission to the Tribunal in terms of Chapter 2 of the Competition Act.
Pursuant to an amendment to the Small Merger Guidelines in December 2022, the Commission requires that it be informed of all small mergers where:
- the acquiring firm's turnover or asset value alone exceeds the large merger combined asset or turnover threshold (currently 6.6 billion rand); and
- the consideration for the acquisition or investment exceeds the target firm asset or turnover threshold for large mergers (currently 190 million rand) or the consideration for the acquisition of a part of the target firm is less than the 190 million rand threshold but effectively values the target firm at 190 million rand or more.
Although it appears that the amendments to the Small Merger Guidelines were made to cater for small mergers in the digital sector, the amendment applies to all transactions that meet the criteria. The guidelines are, however, non-binding.
Is the acquisition of one or more patents or licences subject to merger notification? If so, when would that be the case?
An acquisition of assets, including patents and licences, could be subject to merger notification obligations if the assets constitute the whole or part of a business of another firm and the relevant financial thresholds are met.
The test that is generally followed internationally as to when an asset constitutes the whole or part of a business, and which has been referenced with approval in South Africa, is whether there will be a relatively permanent transfer of either market share or productive capacity (see the Competition Appeal Court (CAC) decision in Multichoice and SABC v Caxton and CTP Publishers (020717 and 140/CAC/Mar16)). If there is, then that transfer would generally be regarded as a merger that requires notification.
Where only limited assets are transferred (ie, not a whole business), the standard approach, therefore, looks at whether:
- there is a particular market share or the ability to generate market turnover that attaches to the assets being transferred; and
- there was a transfer of an identified set of activities and structures that can be identified as a separate business undertaking and which could be pursued by the transferee (see the CAC decision in Caxton and CTP Publishers and Printers Limited and Others v Multichoice Proprietary Limited and Others (08/36380 and 140/CAC/MAR16)).
In circumstances where a patent is transferred, or a licence is being granted by a licensor to a licensee, this may be regarded as the ‘transfer’ or a change in control of certain intangible assets (eg, IP, goodwill or the right to sell and exploit the brand, etc).
The granting of a licence that is non-exclusive or of a limited duration (eg, not longer than five to 10 years) alone would not likely be regarded as a notifiable merger. Something more would be required, such as the transfer of productive assets, employees or customer contracts that are associated with the business of that brand. If the brand is already present in the market (meaning that it has associated turnover, goodwill and a market share) and this brand is then licensed to another party on an exclusive and indefinite basis, the act of granting this licence on its own could – at least on the face of it – be regarded as sufficient to require notification. However, to our knowledge, this is not something that has been tested or definitively determined by the competition authorities or courts in South Africa.Market definition
How are the product and geographic markets typically defined in the pharmaceutical sector?
In defining product markets, the competition authorities consider the substitutability of the relevant products with other products from both a demand and supply side. Geographic markets are defined based on the areas to which the product can be supplied and distributed.
In relation to mergers involving pharmaceutical products, product markets are generally defined based on the categories of the third level of the Anatomical Therapeutic Chemical (ATC) Classification System (see, for example, Medpro Pharmaceutica Proprietary Limited and Allergan GX 2016Jul0345). The ATC Classification System classifies the active ingredients of drugs based on their therapeutic, pharmacological and chemical properties as well as the organ or system on which they act.
Product markets in mergers involving distribution in the pharmaceutical sector included the distribution (wholesale and retail) of scheduled and unscheduled pharmaceutical and patented products (see, for example, Clicks Pharmaceutical Wholesale (Pty) Ltd and New United Pharmaceutical Distributors (Pty) Ltd 69/LM/Sept02 and Dis-Chem Pharmacies (Pty) Ltd and CJ Pharmaceutical Enterprises Ltd and others 017111) and the dispensing of prescription medicines to private sector patients (see, for example, Medicine Management Services (Pty) Ltd (MMS) and Direct Medicines Pharmacy 63/LM/Jul05).Sector-specific considerations
Are the sector-specific features of the pharmaceutical industry taken into account when mergers between two pharmaceutical companies are being reviewed?
Competition authorities are generally not concerned about the impact that a merger involving scheduled medicines has on the pricing of those medicines as scheduled medicines are regulated through a single exit price regime by the Department of Health. Other pharmaceutical products, including unscheduled medicines (such over-the-counter products) and certain input products are not regulated (see, for example, Aspen Pharmacare Holdings Limited and Fine Chemicals Corporation (Pty) Ltd 127/LM/Dec08).
The Commission has identified the healthcare sector, and in particular pharmaceuticals, as a priority sector for its enforcement efforts due to the likely negative impact that anti-competitive conduct in that sector would have on consumers in general (specifically the poor and vulnerable). There are currently complaint referrals and investigations ongoing into certain pharmaceutical companies for excessive pricing, price discrimination and exclusionary conduct. As such, it is possible that mergers in the pharmaceutical sector will attract a higher level of scrutiny.
Although not sector-specific, a key consideration by the competition authorities is whether a merger can or cannot be justified on substantial public interest grounds including:
- a particular industrial sector or region;
- the ability of small and medium-sized businesses, or firms controlled or owned by historically disadvantaged persons, to effectively enter into, participate in or expand within the market;
- the ability of national industries to compete in international markets; and
- the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market.
These issues become even more pertinent in mergers involving foreign acquiring firms, which is often the case in mergers in the pharmaceutical industry.Addressing competition concerns
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?
Yes – if it appears that the merger is likely to substantially prevent or lessen competition, the competition authorities must determine whether or not the merger is likely to result in any technological, efficiency or other pro-competitive gain that will be greater than, and offset, the effects of any prevention or lessening of competition, that may result or is likely to result from the merger, and would not likely be obtained if the merger is prevented.Horizontal mergers
Under which circumstances will a horizontal merger of companies currently active in the same product and geographical markets be considered problematic?
When determining whether or not a merger is likely to substantially prevent or lessen competition, the competition authorities must assess the strength of competition in the relevant market and the probability that the firms in the market after the merger will behave competitively or cooperatively, taking into account any factor that is relevant to competition in that market, including:
- the actual and potential level of import competition in the market;
- the ease of entry into the market, including tariff and regulatory barriers;
- the levels and trends of concentration, and history of collusion, in the market;
- the degree of countervailing power in the market;
- the dynamic characteristics of the market, including growth, innovation and product differentiation;
- the nature and extent of vertical integration in the market;
- whether the business or part of the business of a party to the merger or proposed merger has failed or is likely to fail;
- whether the merger will result in the removal of an effective competitor;
- the extent of ownership by a party to the merger in another firm or firms in related markets;
- the extent to which a party to the merger is related to another firm or firms in related markets, including through common members or directors; and
- any other mergers engaged in by a party to a merger for such period as the Competition Commission may stipulate.
Horizontal mergers resulting in a high market share accretion in concentrated markets with few alternative competitors may be considered problematic as they could, amongst other things, provide the merged entity with (or increase the merged entity’s) market power to the detriment of consumers.
For example, in the merger between Nestle SA and the Infant Nutrition Business of Pfizer Inc 65/LM/Jun12, the competition authorities found that the South African market for infant milk formula is distinctly concentrated with only three significant competitors: Nestlé, Pfizer and Aspen. Given that the merging parties would have a market share of greater than 70 per cent, which was considered high, and the high levels of concentration (the merger was a three-to-two merger) with only one significant competitor post-merger, the merger was considered to raise competition concerns and was approved subject to conditions to alleviate these concerns.Product overlap
When is an overlap with respect to products that are being developed likely to be problematic? How is potential competition assessed?
The competition authorities consider potential competition in merger assessments, and will therefore consider pipeline products of merging parties in their competition assessment. Depending on the stage of development and the level of competition in the market, overlaps with respect to products that are being developed could be problematic. If products have not yet been approved by SAHPRA and are therefore not registered (to the extent that this is required), the overlap may not raise concerns given that the regulatory time frames required to bring product to market is estimated to be approximately five years, especially in markets with a high degree of competition among pharmaceutical firms, including, for example, generic products (see, for example, Medpro Pharmaceutica Proprietary Limited and Allergan GX 2016Jul0345).Remedies
Which remedies will typically be required to resolve any issues that have been identified?
Structural and behavioural remedies may be imposed by the competition authorities to resolve competition issues identified.
As an example of a merger where a behavioural remedy was imposed is in relation to the intermediate merger between Aspen Pharmacare Holdings Limited and Fine Chemicals Corporation (Pty) Ltd in 2004 (see Government Gazette Notice 2731 dated 18 November 2004), which involved the acquisition by Aspen of the only manufacturer of narcotics and non-narcotic active pharmaceutical ingredients in South Africa. The merger was approved on condition that the vertically integrated merged entity would continue to supply the relevant inputs to downstream third parties for a period of three years.
As an example of a structural remedy, see Nestlé SA v Pfizer Infant Business (65/LM/Jun12), which involved the acquisition by Nestlé of the locally conducted infant nutrition business of Pfizer Inc. As the post-merger market share of the merged entity was greater than 70 per cent, a remedy was imposed with key elements, including that Nestlé would provide a third-party purchaser with:
- an exclusive 10-year paid-up licence to use the Pfizer trade marks on products that are currently marketed in South Africa, followed by a 10-year ‘black out’ period during which Nestlé will not be allowed to use those trade marks in South Africa;
- an exclusive 10-year paid-up licence to use Pfizer’s product formulations for the relevant products;
- a non-exclusive perpetual licence under process technology relating to the relevant products, including trade secrets and the know-how necessary to develop and manufacture the divested products and products in the pipeline;
- access to pipeline products (including the necessary licences) for the development and sale in South Africa;
- detailed information regarding key or unique product ingredients used in the divested and pipeline products and their sources of supply; and
- clinical trial results and product trial results relating to the divested and pipeline products for a defined period.
Public interest factors are a key consideration of the competition authorities in merger assessments and have an equal weighting to competition factors. The competition authorities are increasingly imposing conditions to ensure that transactions promote a greater spread of ownership among workers or historically disadvantaged persons (HDPs). See, for example, Dis-Chem Pharmacies Ltd and Pure Pharmacy Holdings (Pty) Ltd (LM181Jan21) where the following public interest conditions were imposed, inter alia:
- maintaining and improving Dis-Chem's level of local procurement, including from small, micro and medium-sized enterprises and HDPs;
- developing Dis-Chem's local supplier base and promoting local manufacturing;
- increasing Dis-Chem's procurement spend on South African HDP-controlled firms over five years; and
- increasing training initiatives provided by Dis-Chem, including providing:
- up to 150 learnerships to pharmacists’ assistants;
- two bursaries for every new store opened by the merger entity;
- internship opportunities to new graduates; and
- full-time employment opportunities to post-community service qualified pharmacists.
Anticompetitive agreementsAssessment framework
What is the general framework for assessing whether an agreement or concerted practice can be considered anticompetitive?
An agreement between, or concerted practice by, firms, or a decision by an association of firms, in a horizontal relationship is prohibited if it has the effect of substantially preventing or lessening competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect.
An agreement between parties in a vertical relationship is prohibited if it has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect.
Some conduct is prohibited per se (ie, no technological, efficiency or pro-competitive defence may be raised to justify the conduct). In relation to firms in a horizontal relationship, the following conduct is prohibited per se:
- directly or indirectly fixing a purchase or selling price or any other trading condition;
- dividing markets by allocating customers, suppliers, territories or specific types of goods or services; or
- collusive tendering.
In relation to firms in a vertical relationship, the practice of minimum resale price maintenance is prohibited per se.
In the context of exclusionary conduct by a dominant firm, the competition authorities have stated that anticompetitive effects can be found where there is evidence of actual harm to consumer welfare or if the exclusionary act is substantial or significant in terms of its effect in foreclosing the market to rivals.Technology licensing agreements
To what extent are technology licensing agreements considered anticompetitive?
A technology licensing agreement may be considered anticompetitive if it contains restrictive terms that have the effect of substantially lessening or preventing competition in a market, unless it can be shown that the restrictions have technological, efficiency or other pro-competitive effects, outweighing the anticompetitive effect. In conducting this rule of reason analysis, consideration will be given to the scope of the restriction and whether the restrictions contained in the agreement result in foreclosure of an input or supplier, the market share of the parties, and the duration of the restriction, as well as the economic rationale and commercial justifications for the restrictions.
In the context of a merger, see Nampak Products Limited and Burcap Plastics (Pty) Ltd 71/LM/Oct06, where the Tribunal imposed a condition on the merged entity to not acquire any further exclusive licence agreements for PET paint containers within South Africa for a period of three years given that both the acquirer and the target already had exclusive licences to PET technology and the merged entity could raise barriers to entry if it acquired more.
A technology licensing agreement may also be considered anticompetitive if it is between competitors and is found to amount to market allocation, which is prohibited per se.Co-promotion and co-marketing agreements
To what extent are co-promotion and co-marketing agreements considered anticompetitive?
Co-promotion and co-marketing agreements may potentially raise concerns when they are between firms in a horizontal relationship (ie, competitors), particularly where they involve the fixing of prices or the allocation of markets.
The Supreme Court of Appeal stated in American Natural Soda Ash Corporation and Another v Competition Commission of South Africa (554/2003)  ZASCA 42, however, that not every arrangement between competitors entailing the ultimate supply of goods is necessarily prohibited and it is not difficult to envisage a bona fide joint venture that is embarked upon by competitors for a legitimate purpose, through the vehicle of a separate entity, which must necessarily set a price for goods that it supplies (emanating from the competitors) merely as an incident to the pursuit of the joint venture. This sort of arrangement might be characterised as falling outside of the prohibition per se of collusion but argument will have to be made in this respect.
It would therefore be necessary for the parties to the agreement to have a clear objective commercial justification for the arrangement, which is not aimed at restricting competition, and to prove efficiency or other pro-competitive justifications that outweigh any anticompetitive effect of the agreement.Other agreements
What other forms of agreement with a competitor are likely to be an issue? How can these issues be resolved?
Generally, any arrangement or agreement between competitors (actual or potential) will likely raise suspicion on the part of the competition authorities as it creates an opportunity for competitors to share competitively sensitive information beyond what is required and/or cooperate beyond the arrangement or agreement.
Concerns relating to the sharing of competitively sensitive information can be resolved by way of information barriers to ensure that no inappropriate information is shared and that representatives of each parent company that are involved in pricing, marketing and strategy are not privy to competitively sensitive information of the joint venture (if the joint venture competes with the parent companies) or the other parent. In February 2023, the Competition Commission (the Commission) released its final Guidelines on the Exchange of Competitively Sensitive Information between Competitors under the Competition Act. These guidelines, although not binding, are intended to assist firms and third parties in determining what may be permissible information exchange, so as to not fall foul of the prohibited horizontal restrictive practices within the Competition Act.Issues with vertical agreements
Which aspects of vertical agreements are most likely to raise antitrust concerns?
Agreements between parties at different levels of the supply chain (eg, manufacturers and distributors) may raise antitrust concerns if they contain restrictions that have an anticompetitive effect, unless the parties can show efficiency or other pro-competitive effects that outweigh the anticompetitive effect. An example of a vertical restriction that may raise antitrust concerns is a long-term exclusive agreement giving rise to material input or customer foreclosure. However, such an agreement is unlikely to raise concerns if the parties’ market shares are not high and there are other sources of supply, including imports. There has not yet been a successful prosecution under this prohibition in the Competition Act.Patent dispute settlements
To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?
Patent settlements entered into between pharmaceutical companies, for example to delay the entry of a generic brand into a market, such as ‘pay for delay’ agreements, have not yet been considered by the competition authorities. The Commission has referred a complaint to the Tribunal against Roche Holding AG for adjudication relating to allegations of excessive pricing of cancer medicines. The Commission had previously indicated that information in its possession gave rise to a reasonable suspicion that the Roche may also be engaging in exclusionary conduct to prolong its hold on breast cancer drugs and, in particular, it may be using the ‘ever-greening’ and ‘patent thicket’ strategies to delay or prevent the entry of generic alternative breast cancer drugs (see the Commission's statement on the investigation into manufacturers of cancer drugs). While this does not relate to a patent dispute settlement, it would be the first case where the competition authorities consider potential anticompetitive effects relating to patent conduct.Joint communications and lobbying
To what extent can joint communications or lobbying actions be anticompetitive?
Trade associations can serve a legitimate purpose, but competition authorities are wary that trade associations could also be used as platforms to engage in anticompetitive conduct, including by facilitating coordination through the exchange of competitively sensitive information. The Commission referred a case of price-fixing and market division regarding the supply of diesel against the South African Petroleum Industry Association and six of its members to the Tribunal for adjudication. The conduct related to extensive exchanges of commercially sensitive information relating to monthly sales volumes of each company, per product category, to defined grounds of customers in each magisterial district that allowed the companies to closely track each other’s sales and to align their strategies in the market, eliminating competition among them. It also enabled them to divide or allocate markets. The case was ultimately settled by the respondents without any admission of liability; however, the Tribunal imposed a number of conditions relating to the respondents’ future conduct (see the Competition Commission and Chevron South Africa (Pty) Ltd and others CR098Oct12/SA245Nov17).
Passive participation in anticompetitive discussions could constitute cartel conduct and it is therefore important for attendees to actively dissociate from any anticompetitive discussions by orally objecting to the discussion and leaving the meeting (see, for example, the Competition Commission and Fritz Pienaar Cycles (Pty) ltd and others CR049Jul12).
Joint communications or lobbying actions, for example, in relation to legislative changes, may be permissible provided that competitors do not share any competitively sensitive information, including business strategies, business models and future plans that may underlie their lobbying position or otherwise.Public communications
To what extent may public communications constitute an infringement?
Public communications may serve a legitimate purpose, for example, to report to investors or inform customers of changes in pricing. It may, however, constitute a concerted practice between competitors that is prohibited per se if it signals future market behaviour and invites competitors to coordinate their strategies and competitors react accordingly. The risk may be higher if the public communication relates to strategies that are not finalised and may change, or announcements of price increases well in advance of the implementation of the price increase that give competitors time to align their pricing, as this suggests that the public announcement is not genuinely for the benefit of investors or customers.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?
The exchange of trade, business or industrial information that has a particular economic value to a firm and its business strategy and is generally not available or known by others may raise competition concerns. To the extent that information is required to be exchanged pursuant to statutory obligations, the exchange will unlikely be considered to be problematic by the competition authorities, particularly where the exchange of the information is in the public interest. The Commission published its final Guidelines on the Exchange of Competitively Sensitive Information between Competitors under the Competition Act that set out its approach to its assessment of information sharing, as well as guidance on what types of exchanges it would likely consider problematic.
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?
The following types of conduct are considered to be abuses of dominance that is prohibited:
- charging excessive prices to the detriment of consumers or customers;
- refusing to give a competitor access to an essential facility when it is economically feasible to do so;
- engaging in exclusionary acts, other than those listed in (4) if the anticompetitive effect of that act outweighs its technological, efficiency or other pro-competitive gain; or
- engaging in any of the following exclusionary acts, unless the firm concerned can show technological, efficiency or other procompetitive gains that outweigh the anticompetitive effect of its acts:
- requiring or inducing a supplier or customer to not deal with a competitor;
- refusing to supply scare goods or services to a competitor or customer when it is economically feasible to do so;
- selling goods or services on condition that the buyer purchase separate good or services unrelated to the object of a contract, or forcing a buyer to accept a condition unrelated to the object of a contract;
- selling goods or services at predatory prices;
- buying up a scare supply of intermediate goods or resources required by a competitor; or
- engaging in margin squeeze.
It is also prohibited for a dominant firm to engage in prohibited price discrimination.
An excessive pricing complaint was made, and investigated by the Competition Commission (the Commission), against GlaxoSmithKline (GSK) and Boehringer Ingelheim (BI). The Commission expanded the investigation to include allegations that GSK and BI engaged in exclusionary conduct and refused to give competitors access to an essential facility when it is economically feasible to do so on the basis that GSK and BI failed to license their patents on reasonable commercial terms. The Commission found that GSK and BI had abused their dominant positions in the market for their respective ARVs by charging excessive prices for ARV drugs under patent and for excluding generic manufacturers from the market by not issuing licences to these generic manufacturers to supply ARV drugs to the market. Before the matter was referred to the Tribunal for prosecution, a settlement agreement was negotiated between the parties and the Commission in terms of which the parties agreed to:
- grant licences to generic manufacturers;
- permit the licensees to export the relevant ARV medicines to sub-Saharan African countries;
- where the licensee did not have manufacturing capability in South Africa, permit the importation of the ARV medicines for distribution in South Africa only, provided all regulatory approvals were obtained;
- permit licensees to combine the relevant ARV’s with other ARV medicines; and
- not require royalties in excess of 5 per cent of the net sales of the relevant ARVs.
The Commission referred a complaint to the Tribunal for prosecution against Roche Holding AG and its subsidiaries, for alleged excessive pricing (which is alleged to have taken place in both the private and public healthcare sector in South Africa) of a breast cancer treatment drug, Trastuzumab, in contravention of the Competition Act. The Commission alleges that Roche's conduct infringes several constitutional rights, including the right to equality, the right to access to healthcare services, the right to dignity and the right to life. Notably, the Commission appears to be attempting to use potential violations of the Constitution of the Republic of South Africa in its prosecution of the excessive pricing complaint, which is a novel approach to excessive pricing. This referral represents the first opportunity for the Tribunal to provide guidance on the pharmaceutical-specific abuse of dominance issues in South Africa.
There is also an ongoing investigation by the Commission against Pfizer Inc in relation to excessive pricing of lung cancer medication.De minimis thresholds
Is there any de minimis threshold for a conduct to be found abusive?
There are no de minimis thresholds for conduct to be found abusive; however, the anticompetitive effect of the conduct needs to be substantial. The size of the market, the number of customers or tenders concerned or the duration of the conduct will be factors that are taken into account in assessing the substantiality of the anticompetitive effect of any conduct.
The abuse of dominance provisions do not, however, apply to any firm whose assets in or annual turnover in, into or from South Africa is less than 5 million rand (see Government Gazette Notice GN 562 dated 9 March 2001).Market definition
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?
The competition authorities generally approach market definition in the context of unilateral conduct in a similar way to mergers (ie, in defining product markets), the competition authorities consider the substitutability of the relevant products with other products from both a demand and supply side and geographic markets are defined based on the areas to which the product can be supplied and distributed.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?
A firm is dominant if it has:
- at least 45 per cent of the market;
- at least 35 per cent of the market, but less than 45 per cent of the market, unless it can show that it does not have market power; or
- it has less than 35 per cent of the market but is shown to have market power.
Market power means the power of a firm to control prices, to exclude competition or to behave to an appreciable extent independently of its competitors, customers or suppliers. There have, however, been a number of recent cases where firms with market shares that fell well below the thresholds in the Competition Act were found to be dominant, although this was in the context of the covid-19 pandemic (see the decision of the Competition Appeal Court in Babelegi Workwear and Industrial Supplies CC v Competition Commission of South Africa (186/CAC/JUN20)).
A patent holder may be considered dominant on the basis of the patent that it owns, depending on the availability and accessibility of substitutable products. There is no concept of joint dominance in South Africa.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?
The application or enforcement of a patent or any other IP right in and of itself will not expose the patent owner to liability for an antitrust violation, unless it is part of a strategy to exclude competition. South Africa has a depositary system with respect to patents and is therefore more susceptible to misuse by companies to exclude competition. It is possible for a firm to apply to the Commission to exempt from the application of the prohibited practice provisions an agreement or practice, or category of agreements or practices, that relates to the exercise of intellectual property.
The Commission's investigations against Roche Holding AG, which has now been referred to the Tribunal for adjudication, related to, among other things, exclusionary conduct involving breast cancer medication. The exclusionary allegations against Roche included that the respondents use:
- an ‘ever-greening’ strategy, which involves a minor change to a first-generation patent, that is about to expire, in an attempt to be granted second generation patent protection; and
- a ‘patent thicket’ strategy, which:
- restricts the processes by which a drug is produced thereby preventing the development of alternate versions of the original product; and
- limits the number of forms of the active ingredient that generic companies can make, thereby eliminating possible substitutable products.
Both these strategies are allegedly employed by the respondents to delay or prevent entry of generic alternative breast cancer drugs.
When would life-cycle management strategies expose a patent owner to antitrust liability?
Life-cycle management strategies could expose a patent holder to antitrust liability, particularly if the patent holder is a dominant firm and the life cycle management strategy is exclusionary (ie, it impedes or prevents a firm from entering into, participating in or expanding within a market and does not relate to genuine improvements).
The Commission's investigations against Roche Holding AG, which has now been referred to the Tribunal for adjudication, related to allegations that, inter alia, the respondents use an ‘ever-greening’ strategy, which involves a minor change to a first-generation patent, that is about to expire, in an attempt to be granted second-generation patent protection.Communications
Can communications or recommendations aimed at the public, HCPs or health authorities trigger antitrust liability?
Communications or recommendations aimed at the public, HCPs or health authorities are unlikely to raise antitrust liability, particularly where they are made in good faith and in the public interest. The only communication that raise antitrust concerns is if the communication was a signal to competitors relating to future strategic market behaviour to engage in anticompetitive coordination.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?
It is quite common for a patent owner to market or licence its drug as an authorised generic prior to the expiry of the patent protection and there is nothing that would prevent it from doing so, unless it involves a pay-for-delay arrangement with a third-party generic company that may raise competition concerns.Restrictions on off-label use
Can actions taken by a patent owner to limit off-label use trigger antitrust liability?
This issue has not been tested by the competition authorities; however, it is unlikely that actions taken by a patent owner to limit off-label use will trigger antitrust liability considering the regulatory framework where only pharmaceutical products and scheduled substances may be sold, marketed and distributed.Pricing
When does pricing conduct raise antitrust risks? Can high prices be abusive?
Pricing conduct can raise several antitrust risks. The following conduct is considered abusive if perpetrated by a dominant firm:
- excessive pricing;
- predatory pricing (ie, below the firm’s average avoidable cost or average variable cost);
- margin squeeze; and
- price discrimination.
Pricing conduct can also be abusive if it is otherwise exclusionary.
A high price can be abusive if it amounts to excessive pricing. A 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 respondent’s price cost margin, internal rate of return, return on capital invested or profit history;
- the respondent’s prices for the goods or services:
- in markets in which there are competing products;
- to customers in other geographic markets;
- for similar products in other markets; and
- relevant comparator firm’s prices and levels of profits for the goods or services in a competitive market for those goods or services;
- the length of time the prices have been charged at that level;
- the structural characteristics of the relevant market, including the extent of the respondent’s market share, the degree of contestability of the market, barriers to entry and past or current advantage that is not due to the respondent’s own commercial efficiency or investment, such as direct or indirect state support for a firm or firms in that market; and
- any regulations made regarding the calculation and determination of dominance.
Any agreement or concerted practice between, or concerted practice by, firms, or a decision by an association of firms, is per se prohibited if it is between competitors and if it involves directly or indirectly fixing a purchase or selling price or any other trading condition.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?
Save for the prohibitions where no objective justification may be raised, specific features of the pharmaceutical sector may provide efficiency, technological or other pro-competitive justifications (including safety concerns in the public interest) that outweigh any anticompetitive effect of conduct that would otherwise infringe antitrust rules.
Updates and trendsRecent developments
Are there in your jurisdiction any emerging trends or hot topics regarding antitrust regulation and enforcement in the pharmaceutical sector?
The Competition Commission (the Commission) has identified the healthcare sector, and in particular pharmaceuticals, as a priority sector for its enforcement efforts due to the likely negative impact that anticompetitive conduct in that sector would have on consumers in general and specifically the poor and vulnerable. Closer attention to pharmaceutical activity can therefore be expected.
The Commission has referred a complaint against Roche Holding AG relating to, inter alia, allegations of excessive pricing of breast cancer treatment. There are also ongoing investigations by the Commission against Pfizer Inc, in relation to excessive pricing of lung cancer medication.
The Commission stated in its performance report dated 7 March 2023 that, following investigations into Roche Holding AG and pricing of covid-19 polymerase chain reaction tests, it has initiated further investigations into ‘life saving drugs and essential vaccines to contain the public and private health costs’. This reinforces that the healthcare sector is a focal point for the Commission.Coronavirus
What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?
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