Last week’s judgment from the Court of Justice of the European Union (“CJEU”) in the landmark AstraZeneca v Commission case appeared to represent another resounding victory for the European Commission (“Commission”) and a defeat for the innovative pharmaceutical industry. The arguments put by AstraZeneca and by industry association EFPIA (against the General Court’s judgment upholding the Commission’s findings that AstraZeneca had abused a dominant position in relation to its blockbuster Losec product) were rejected in their entirety. However, on closer inspection, key aspects of the CJEU’s judgment may be of assistance to the innovative pharmaceutical industry – and to dominant companies more generally – going forward. It is on these particular aspects of the judgment that this Sidley Update focuses.
The European Commission Decision and the General Court Judgment
The key findings from the Commission’s 2005 decision and the General Court’s 2010 judgment (which was appealed to the CJEU) are set out in a previous Sidley Update (available here). In short, the Commission found (and the General Court agreed): (1) that AstraZeneca was dominant in a market defined to include only newer, “PPI” products;1 and (2) that it had abused that position of dominance:2 (a) by making misleading representations in order to obtain supplementary protection certificates (“SPCs”)3 to which it was not entitled; and (b) by selectively deregistering marketing authorisations for an older form of Losec in order, inter alia, to hinder market entry by generics.
The Appeal to the CJEU
Supported by EFPIA, AstraZeneca brought an appeal to the EU’s highest court, the CJEU. AstraZeneca and EFPIA challenged the General Court’s findings on market definition and the two alleged abuses. The various challenges were rejected, but the CJEU’s judgment contains the following points that may be of assistance going forward to innovative pharmaceutical companies – and to allegedly dominant companies more generally.
The CJEU provided some important pointers on market definition in dominance cases. First, it noted that the General Court would have erred had it failed to consider the competitive relationship between the newer PPI products and the older H2 blockers across the entirety of the relevant time period. This may force the Commission to engage in a more sophisticated and far-reaching analysis of substitution between older and newer products. Second, the CJEU appeared to suggest that, while price is not irrelevant when determining the scope of a relevant market, it might not have the importance the Commission appeared to ascribe to it in its decision. This can be particularly important in innovation-driven markets in which newer versions of products can attract far higher prices than their older, and less effective, alternatives.
Representations to Regulators
In its 2010 judgment, the General Court had referred to “the abusive nature of the lack of transparency which AZ displayed when filing the SPC applications”. This had led to concerns from potentially dominant companies in a variety of sectors that a simple “lack of transparency” when dealing with a regulator could constitute an abuse. However, the CJEU steers clear of this formulation in its judgment, preferring instead to adopt the General Court’s alternative language to the effect that AZ’s conduct was abusive since it was “characterised by the notification to the patent offices of highly misleading representations and by a manifest lack of transparency”. The use of the words “highly” and “manifest” suggests that the standard for a finding of abuse is somewhat higher than a mere “lack of transparency”, which will be of comfort to dominant companies having to deal with regulators on a routine basis.
Deregistrations of Marketing Authorisations
The CJEU’s comments in relation to the alleged abuse that consisted in the selective deregistration of marketing authorisations may be of assistance to innovative pharmaceutical companies and other dominant companies in two particular ways. First, the Court appeared to accept that arguments about the costs of keeping older versions of products on the market (and, in this instance, keeping in force the relevant marketing authorisations) could be used to justify withdrawals of such products (or deregistrations of such marketing authorisations). Second, the CJEU adopted language (also used by the General Court) in order to emphasise that dominant companies are, generally-speaking, free to engage in strategies aimed at defending themselves against competition: “The preparation by an undertaking, even in a dominant position, of a strategy whose object it is to minimise the erosion of its sales and to enable it to deal with competition from generic products is legitimate and is part of the normal competitive process [...].”
Buyer Power Arguments
The pharmaceutical industry has often argued, with varying degrees of success, that the significant buyer power held by government (or quasi-government) entities charged with healthcare allocation should fundamentally change the way in which competition rules are applied in the pharmaceutical sector. Interestingly, in its judgment in the AstraZeneca case, the CJEU held that arguments relating to government buyer power could be admissible as pleas in law (rather than inadmissible as questions of fact). Although the CJEU rejected the arguments in the case at hand, its willingness to engage in a detailed review of buyer power arguments may pave the way for their successful employment in future litigation.
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1 Proton Pump Inhibitors, a newer class of product developed as an alternative to the older H2 Blockers for use in the treatment of certain acid-related stomach disorders.
2 In breach of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”).
3 And, by virtue of obtaining the SPCs, also obtaining extensions to its exclusivity on the market.
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