How Trademarks and Trade Dress Help Big Pharma to Dominate in the Market

[By Sanidhya Bajpai & Akash Gulati]

The authors are students of Dr. Ram Manohar Lohiya National Law University, Lucknow.

 

Introduction

The award for innovation in the modern world is your commercial exclusivity to that creation. In the pharmaceutical sector, innovation in drugs and consumables is endowed with patents granting a temporary monopoly. However, such temporary monopolies are sometimes virtually elongated with the use of trademark and trade dress rights for foreclosure of competition. All major brands use trademarks and trade dress rights to make a product so distinct that any generic substitute seems like a different drug. Pharmaceuticals contribute 43.2% to the total out-of-pocket expenditure on health in India. While around 17.7% of the pharmaceuticals market in India (in terms of value) is under price regulation, competition is the major source of price control for the rest of the market.

This piece delves into trademarks and trade dresses in the healthcare sector, how they affect competition, and the need for a more balanced approach between the two to maintain fair competition in the market.

Trademarks and Trade Dress in Pharma

Consumers are often caught in a paradox of choosing from a branded manufacturer, seldom being the innovator itself or any other major brand, which ensures safety, or a bioequivalent generic drug, which came later in the market due to patent protection to the innovator drug. The ignorance in consumers often leads to consumers opting for branded high-priced medicines despite the presence of cost-efficient bioequivalent generics.

Using color as a distinctive feature is another tool pharmaceutical manufacturers use to indicate their brand. The definition of trade dress under the Indian Trademark Act is found in Section 2 (1) (zb), which encompasses shape, packaging, and color combination in general. The courts have denied trade dress to Pharmaceutical manufacturers in India and the USA in some cases on the grounds that there can be no color monopoly and that the design or color is functional (essential to the use or the purpose of the article without which the cost or quality will be affected), respectively. The significant role of the trademarks and trade dress in this affair is further discussed in toto.

How trademarks affect competition

As discussed above, a trademark’s function is to attribute the maker’s identification to the product or service. This identification helps the consumer to buy a specific product from a specific maker.  The pharmaceutical sector sees a peculiar case, where the trademark itself becomes the predominant identity of the drug. Branding is used to differentiate identical drugsConsequentially, the consumer seeks that particular trademarked brand in the market. The consumers are generally unaware of the drug’s generic chemical name or international non-proprietary name (“INN”) in most cases. For example, a consumer might know of “Benadryl” as a medicine to a list of symptoms but might not know its generic name, diphenhydramine. For the consumers, the name “Benadryl” is the medicine itself and not the producer’s identification.

  1. The patent period establishes the dominance of trademarks

Patents inherently “create market power positions that can adversely affect the system’s economic performance.” Moreover, when a product is sold in the market by a single producer and under a particular name for twenty years (being the patent period), the consumer becomes more than familiar with the product’s name (trademarked names in our case).  This familiarization accumulates into consumers assuming the brand trademark as the product’s name.

  1. Trademarks elongate the monopoly established by patents post-expiration

After the patent’s expiration, consumers and doctors are likely to remember only the trademarked name, even in the presence of bioequivalent generic substitutes. If aware of generic substitutes, consumers would doubt their efficacy due to dissimilar names. Even prescriptions by doctors play a huge role in the dominance of trademarks owned by Big Pharma. A known ill of the sector is that pharmaceutical companies incentivize doctors unethically to prescribe drugs of certain brands. A patient who is availing the services of a doctor would not usually go against the mandated drugs in the prescription.

  1. How excessively priced medicines outcompete lesser-priced medicines

A monopoly of big brands persists instead of relatively exorbitantly priced branded medicines compared to generics and competing smaller brands. Usually, when a brand charges higher for a similar product, it tends to lose its market share given that other brands are selling the identically same product with lower prices. So, when both brands and generics are available at lower prices in the healthcare sector, why do the top brands continue to dominate? A major part of it may have to do with marketing and advertising, both solidifying their trademarks, establishing trademarked names as distinct drugs. The rest is taken care of by doctors prescribing drugs under the monetary influence of the brands.

How Trade dress affects competition

In addition to the trademarked name, the shape and color also contribute to giving the innovator firm a competitive edge after the patent expiry. The drugs with distinct colors when associated with the drug’s identity steer consumer choice.

  • How does trade dress affect consumer choices?

It is now well accepted through various research and reports that color combinations help shape consumer choices, making trade dress a significant market strategy. The importance of color-coded asthma treatment in patient education is widely accepted. By habit, the patient will stick to the inhalers from the same brand with the same color coding for efficiency and perceived utility.

This principle extends to medicines, especially where the patients have to take several medicines regularly, making them recalcitrant to the change in color or shape of medicines as it has an adverse effect on compliance.

In Ives Lab., Inc. v. Darby Drug Co. defense of functionality by the generic manufacturers though first reversed, was successfully upheld after several appeals. While upholding appeals, the US courts enumerated several significant findings, including association of appearance of medication with its therapeutic effects, denial of equivalent drugs by some patients even after their doctor’s testimony and benefits of color combination for patients who co-mingle their drugs in a container and take them based on their colors.

These findings establish that the colour combination and shapes of drugs and pharmaceutical devices play a significant role in consumer choices.

However, the Indian Delhi High Court in Cipla Limited v/s M.K. Pharmaceuticals while rejecting the injunction asked by the plaintiff for imitation of shape, colour, and blister packing of pills, stated that ‘it is well established that there can be no colour monopoly because no one requests for medicine based on its colour, form, or packaging.’ This decision neglects the course of field research and judicial findings on the concept of trade dress. As the presumption that the color of medicines does not affect consumer choice goes against the data aforementioned and sets a wrong precedent for a substantial problem.

  • How does trade dress aid a lifetime monopoly?

The colour codes and shapes of the drugs and medicinal devices significantly cause patients to stick to a specific brand of medicines and devices. As straying from the pre-following prescriptions causes a lot of confusion. This adherence from the patients towards the brands even after the patent expiry (in the case of patented medicines) leads to a situation where branded drugs face little competition from the generic bioequivalent drugs and extend the monopoly of the branded drugs even further. The extension of the monopoly of branded drugs through trade dress creates a barrier to entry into the market for new competitors.

  • Patients invariably own the cost of unfair competition

The ramifications of trademarks and trade dress are that it prima facie restricts the generic bioequivalent drugs from entering the market and gives the branded innovator drug companies an unfair advantage, which invariably leads to a peculiar state for patients. Caught between the paradox of cost of confusion (which the patients face while choosing a generic bioequivalent, in ways of increased anxiety) and cost of IP (the high drug prices of branded drugs due to trademarks and trade dress), the patients invariably own the cost of unfair competition.

Conclusion

Competition Law and Intellectual Property Rights interplay need a nuanced and balanced approach, as a heavily shifted pendulum towards either side could be detrimental to the market and consumers. Owing to the use of intellectual property rights the big pharma firms gain a peculiar position in the market from where they can restrict the generic bioequivalence from entering the market and distort the competition, which is an antitrust violation and the commission needs to take ready steps to restore the fair competition in the market.

Even though the problems are facilitated by leveraging Intellectual Property Rights, the same cannot be denied due to misuse. The problem is a lot bigger than to be resolved through a single framework alone. However, as a matter of public policy, such rights may also be watered down for the benefit of the public good and a healthier competitive environment. Limited trademarks and trade dress could also be a viable option, especially for patented drugs. However, an overall solution would require a restoration of fair competition in the market for generic substitutes without infringement on trademark rights of the pharma.

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