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Merger control
Up to now, there have not been many merger cases in the pharmaceutical field in which the KFTC has issued a corrective order.
In 2016, in a case where Boehringer Ingelheim acquired the animal medicine division from Sanofi, the KFTC used the marketing approval certificate issued by the Animal and Plant Quarantine Agency, which disclosed the animal species, administration method, efficacy and effect, as well as the classification system of the European Animal Health Study Centre, which codifies animal medicine according to therapeutic use, animal species, indications, etc., to establish the relevant product market. Because the local market is affected by different administrative procedures and approval conditions and different distribution systems, the KFTC limited the relevant market to that of Korea. Based on this, the KFTC recognised competition concerns in only two markets in Korea and imposed an order to sell related assets.
When Bayer Korea acquired the over-the-counter drug business division of MSD Korea in 2015, the domestic market was selected as the relevant market, considering that it was necessary to obtain marketing approval from the MFDS to sell domestically. Based on this, the KFTC recognised there to be a competition restriction in the domestic market for non-prescription oral contraceptive drugs and issued an order to sell related assets.
With regard to pipeline products, there have been no cases in which the KFTC issued a corrective order recognising competition restrictions. In the case of Takeda’s acquisition of Shire’s shares in 2018, there was future potential overlap in the area of inflammatory bowel diseases between Takeda’s marketed product Entyvio (vedolizumab) and Shire’s pipeline compound SHP647; however, the KFTC did not issue any corrective order after taking into account that:
- it would take many years for SHP647 to be launched in Korea;
- there is currently R&D on many competitive drugs other than SHP647; and
- the exclusive rights on biological therapy for inflammatory bowel diseases in Korea has already lapsed or will soon lapse, resulting in the eventual commercialisation of various biosimilar treatment methods in Korea.
On 9 December 2020, the National Assembly approved the amended Monopoly Regulation and Fair Trade Act (the Amended MRFTA), which came into force on 30 December 2021. The Amended MRFTA introduced a new merger control regime that regulates large-sized transactions that have an impact on competition in the relevant market in Korea, even when the target company does not satisfy the thresholds on assets or turnover for triggering a filing requirement in Korea.
Newly adopted merger filing thresholds are further prescribed by the corresponding Enforcement Decree, and the relevant authorities have published an advance legislative notice of the Enforcement Decree containing the detailed filing thresholds.
Under the Amended MRFTA, a transaction will be subject to a merger filing if all the following requirements are met:
- the value of the transaction is 600 billion won;
- the acquirer satisfies the asset and turnover thresholds; and
- the target, which does not satisfy the asset and turnover thresholds, has significant business activities in Korea.
‘Significant business activities’ refers to the following events occurring within three fiscal years immediately preceding the closing of the transaction: (1) the target has provided its products and services to more than 1 million customers per month in the relevant Korean market; or (2) the target has leased research facilities or hired researchers in Korea, and the relevant annual budget is 30 billion won or more.
The new thresholds are similar to the thresholds in place under the merger control regimes of Germany and Austria.
Anticompetitive behaviour
The MRFTA, in principle, does not apply competition laws to the legitimate exercise of exclusive intellectual property rights while enforcing applicable competition laws on the unfair exercise of intellectual property rights, thereby balancing out the application of intellectual property laws and competition laws. The KFTC sets out standards for fair business in its Review Guidelines on Undue Exercise of Intellectual Property Rights. Unfair exercise of intellectual property rights is handled by the Korean courts and the KFTC in accordance with these laws and guidelines.
The following are notable cases relating to the unfair exercise of intellectual property rights in the pharmaceutical field.
i Cases related to pay-for-delay settlements
The plaintiff GSK acquired a patent on the manufacturing method of ondansetron, an antiemetic drug, based on which it marketed the drug Zofran. Dong-A Pharmaceutical independently developed ondansetron and launched its antiemetic drug Ondaron, containing the same active ingredient as Zofran. GSK then filed a patent infringement suit against Dong-A Pharmaceutical, and the two companies terminated the suit in 2000 by signing a drug licensing agreement that included a pay-for-delay settlement.
The KFTC determined that the collusion between the two pharmaceutical companies would exclude the cheaper generic drug (Ondaron) from the antiemetic drug market and prevent competing drugs from entering the market. As a result, it issued a corrective order and imposed a 5.173 billion won penalty to GSK.
The Supreme Court also recognised the KFTC’s judgment with regard to the pay-for-delay settlement between GSK and Dong-A Pharmaceutical. It considered GSK’s action to prevent the launch of a competing product, by providing Dong-A Pharmaceutical with economic benefits that were greater than the litigation costs during the patent litigation proceedings, as ‘an act not considered to be a legitimate exercise of patent rights’ and therefore to be subject to the Fair Trade Act.
In this case, ‘an act not considered to be a legitimate exercise of patent rights’ means an act that may appear to be exercising a patent right, but the substance of which is contrary to the fundamental purpose of the patent system. The Supreme Court held that this can be determined by considering various factors, such as the purpose and intent of the Patent Act, the content of the patent right and the impact the subject activity has on fair and free competition.
Following this, Article 69-3 of the PAA was newly established on 13 March 2015. It expressly requires that if there is a settlement between a patent holder and generic applicant with regard to a patent dispute of a drug, the settlement details must be reported to the MFDS and the KFTC.
ii Sham patent litigation
In pharmaceutical IP litigation, sham litigation generally means litigation based on an invalid patent. Korea has a dual-structure system in which patent infringement suits and patent invalidation suits are carried out separately; however, a Korean court has held that a court that hears a patent infringement case may determine whether there are clearly grounds for patent invalidation even before a patent invalidity decision is confirmed, and that if it is clear that there are grounds for the patent at issue to be invalidated as a result of hearing the case, or if it is clear that the patent is certain to be invalidated, any request for injunctive relief or claim for damages with regard to that patent right is, in principle, considered an abuse of power and therefore, not allowed.
The Review Guidelines on Undue Exercise of Intellectual Property Rights, which contain the established rules by the KFTC, states that the following acts are highly likely to be considered an abuse of patent infringement action:
- filing a patent infringement suit based on a patent that had knowingly been acquired fraudulently;
- filing a patent infringement suit despite knowing that patent infringement cannot be established (e.g., knowing that the patent at issue is invalid); and
- filing a patent infringement suit despite the fact that it is objectively obvious under socially accepted notions that patent infringement cannot be established.
The KFTC has recently found a domestic pharmaceutical company to have violated the MRFTA’s restriction on ‘unfair inducement of customers’ by (1) abusing its patent rights to prevent the market entry of a competitor by filing a patent infringement claim, despite having knowledge that there was, in fact, no infringement; and (2) interfering with a competitor’s business by filing a patent infringement action based on a patent registration obtained through the submission of fabricated materials.
The KFTC found that these activities of the pharmaceutical company constituted ‘unfair inducement of customers’ because they were aimed at interfering with customers’ business transactions with the competitor so that customers would instead transact with the subject company. The KFTC imposed corrective orders and an administrative fine of around 2.3 billion won on the company and reported the company for criminal prosecution.
iii Product switching and hopping (evergreening)
There are many cases in which the court has ruled in favour of domestic generic companies for the reason that the patents at issue were found invalid in cases where a patent infringement action was filed by a multinational pharmaceutical company, using the ‘evergreening’ strategy, which attempts to extend the patent term of the original patent by partially changing the chemical structure of the original drug or by broadening the scope of the patent.
Although there are no case precedents where the KFTC has sanctioned such activities, it is possible that product switching and hopping could fall under abuse of market dominance or unfair trade practice under the current Fair Trade Act, and thus a close watch on the developments in this area is necessary.
iv Authorised generics
In 2006, Daewoong Pharmaceutical’s patent for the raw material of the original drug for the treatment of dementia (Gliatilin), which Daewoong had exclusively produced and sold, expired. When eight competitors tried to enter the market, Daewoong entered into a consignment agreement with another pharmaceutical company for the manufacture of a generic drug and had the consignee company be the first to have its generic drug listed to dominate the market. In addition, in return for Daewoong compensating for any losses, Daewoong had the consignee pharmaceutical company apply for a lower insurance drug price than what it could actually receive to interfere with the business activities of the other eight companies.
The KFTC found that Daewoong ‘s actions amounted to tortious interference of business activities (Article 23(1)(5) of the Fair Trade Act) that delayed and obstructed the market entry of the eight competitor companies. For those reasons, as well as other unfair trade issues, the KFTC issued a corrective order and imposed a fine on Daewoong.
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