Today, the General Court ruled in an appeal against the European Commission’s first ever finding of abuse of a dominant position by a pharma company. The Court has broadly upheld a Decision the Commission itself characterised as “novel”, but reduced the €60 million fine on AstraZeneca to €52.5 million.
Background
The judgment marks a watershed in a process that has been running for more than a decade, concerning business practices applied by AstraZeneca between 1993 and 2000. In 1999, following complaints from two generic manufacturers, the Commission opened an investigation into AstraZeneca’s patent management strategies for blockbuster ulcer drug, Losec (omeprazole). The allegations centred around two practices:
- First, the Commission found that AstraZeneca had engaged in a pattern of misrepresentations to patent attorneys, patent offices and courts in several Member States. This practice established incorrect dates for initial Losec marketing authorisation in applications for so-called Supplementary Protection Certificates (SPCs), artificially prolonging the period of patent protection and delaying generic market entry.
- Second, the Commission found that AstraZeneca had applied a strategy of selectively replacing its capsule formulation of Losec with a tablet formulation, withdrawing the capsule formulation and requesting that the market authorisation for this formulation be withdrawn. As a consequence, generic producers were unable to use the capsule formulation as a reference product, delaying generic market entry and preventing parallel imports in some Member States.
In its Decision of 15 June 2005, the Commission confirmed the existence of these practices, and imposed a fine of €60 million on AstraZeneca for abusing its dominant position on the market for Proton Pump Inhibitors (PPIs) with the strategies identified above. The level of the fine was intended to reflect the fact that the abuses described constituted a “novel” application of the competition rules for dominant firms (today Article 102 TFEU).
The judgment
The General Court ruled on a broad appeal against the Commission’s Decision brought by AstraZeneca, challenging both the finding of “dominance” (including the analysis of the relevant market and the position the company held in this market) and the characterization of AstraZeneca’s practices as “abusive”.
- Today’s judgment upholds the Commission’s analysis on market definition and dominance, ruling that AstraZeneca’s pricing policy for Losec was not constrained either by national regulatory systems, or by competition from another class of molecule, H2 blockers.
- As regards the dates of first marketing authorisation used in applications for SPCs, the General Court ruled that in failing to disclose to the authorities the basis on which it had calculated those dates, AstraZeneca demonstrated a “manifest lack of transparency” at odds with its special responsibility as a dominant company not to impair competition. Accordingly, the Court upheld the Commission’s analysis on the first instance of abusive conduct.
- On the issue of marketing authorisation for the withdrawn capsule formulation of Losec, the Court held that whilst AstraZeneca was entitled to devise a strategy to meet competition from generic market entrants and parallel importers, deregistration of the marketing authorisation for the withdrawn formulation did not constitute legitimate competition. The Court emphasised AstraZeneca’s stated intent to delay generic entry and prevent parallel import, as demonstrated in documents in the Commission file, and its failure to offer any evidence why such a withdrawal might be desirable or necessary.
- The Court however reduced AstraZeneca’s fine from €60 million to €52.5 million to reflect the fact that the Commission had failed to demonstrate that deregistration of the capsule marketing authorisation in Denmark and Norway was capable of affecting parallel trade.
Why is this judgment significant?
It is the first time that the General Court has considered an appeal brought against a Commission abuse of dominance decision in the pharma sector. It is now clear that making misleading statements to patent authorities can constitute an abuse of a dominant position in certain specific circumstances.
The specific conduct identified as abusive in this judgment is highly fact-specific and concerns the regulatory framework for the pharma industry. However, one of the Commission’s objectives in pursuing antitrust enforcement by its 2005 Decision was to facilitate generic entry in pharmaceutical markets; this objective was pursued also by the policy recommendations the Commission made following its in-depth inquiry into the sector as a whole (2008) and is understood to be a factor in ongoing Commission investigations.
The judgment significantly limits the freedom of pharmaceutical companies deemed dominant in the management of their marketing authorisations. The Court's judgment seems to imply that the dominant firm must enable generic entry by maintaining marketing authorisations in force in certain specific circumstances.
In relation to the second abuse, in particular, the Court attached considerable importance to AstraZeneca’s stated intentions, and to the potential for competitive harm, rather than to any genuine anti-competitive effects. This approach seems at odds with business sense: a company which has made significant investments into R&D will naturally seek to reap the full benefits of those investments. In addition, the focus on intentions also appears at odds with the Commission’s more recent (2008) stated policy of focussing antitrust enforcement on conduct which produces anti-competitive effects to the detriment of consumers.
What next?
AstraZeneca now has two months to launch an appeal, restricted to points of law and not fact, against the judgment to the European Court of Justice.
