ACCC v Pfizer: A bitter pill for the ACCC
The Federal Court of Australia has dismissed the ACCC's anti-competitive conduct case against Pfizer, finding that Pfizer did not breach the prohibition on misuse of market power. Nor did it engage in unlawful exclusive dealing.
The ACCC had alleged in the case that Pfizer misused its market power when it offered significant discounts and rebates on sales of Pfizer's own generic version of atorvastatin direct to pharmacies before Pfizer's blockbuster cholesterol lowering drug, Lipitor came off patent in May 2012.
Three interesting points to take away from the judgment are:
- The judgment can not be used as ammunition to support the case for reform to section 46 of the Competition and Consumer Act 2010 (Cth) (prohibition on misuse of market power) as suggested in the Harper Review Draft Report. The Draft Report has recommended removing the requirement to prove that a corporation 'took advantage' of its market power and also replacing the proscribed purpose test with a purpose or effect of substantially lessening competition test. Such law reform, if it happened, would not have altered the outcome of this case. This is because the Court was satisfied that Pfizer did 'take advantage' of its market power and positively found Pfizer's purpose to be something other than a purpose of substantially lessening competition.
- The Court identified a period for which Pfizer had substantial market power and an immediately subsequent period when its market power had diminished (as the end of patent protection for its product loomed) so that its power was no longer substantial at the time that the offers were made to pharmacies in January 2012. To carve that line in time when 'market power' (an amorphous concept) ceases to be 'substantial' (itself hardly a quantitatively clear measure) with such precision is intrinsically an artificial exercise, albeit one required by the Act. The case highlights very clearly that identifying substantial market power is a matter more of art than science and that this 'impressionism' presents a real challenge for companies seeking confidently to assess a proposed course of business conduct in advance. One may ask: Would Pfizer have assessed at the time that it had substantial market power in late 2011 and that it then ceased to be substantial in early 2012?
- In determining that Pfizer did not take advantage of its market power with the requisite purpose, the court relied on the oral evidence of Pfizer's witnesses, notwithstanding that the documentary evidence 'unquestionably provided a platform from which the ACCC could argue that the impugned conduct was undertaken for a proscribed purpose'. For example, there were numerous Pfizer documents that referred to Pfizer's strategy as 'an effective blocking strategy'. Despite that kind of documentary evidence, the Court was satisfied with the alternative explanations given by Pfizer's witnesses of the purpose for Pfizer's conduct. Flick J commented that caution should be exercised in too readily drawing inferences from documents drafted by unknown persons divorced from input from those responsible for making decisions.
The ACCC has commented that it will carefully consider the judgment, but has not provided any early indication as to whether there will be an appeal. Given the reliance the Court placed on oral evidence in finding that Pfizer did not act with the proscribed purpose and the general reluctance of appeal courts to challenge original findings based on oral evidence, there is a fair chance that the ACCC will swallow the bitter pill of this decision rather than seek a second opinion.
Pfizer owned the patent for atorvastatin (marketed in Australia by Pfizer as Lipitor), a pharmaceutical used to lower blood cholesterol. The patent expired in May 2012 and Pfizer was therefore entitled to be the sole supplier of atorvastatin until that date.
The ACCC alleged that Pfizer designed and implemented a strategy to protect its market share in the supply of atorvastatin following the expiration of the patent. It was alleged that the strategy involved:
- implementing a 'direct-to-pharmacy model' so as to supply directly to pharmacies and cut out wholesales;
- establishing an 'accrual funds scheme', involving the accrual of 5% of a pharmacy's purchases of Pfizer's patented products to be credited as rebates on certain conditions; and
- offering a 'bundled offer' to pharmacies which tied the price charged for Lipitor to the amount of Pfizer's generic atorvastatin that the pharmacy agreed to purchase.
The ACCC alleged that together this conduct amounted to a breach of the prohibition on misuse of market power on the basis that Pfizer had substantial market power and by engaging in this behaviour it had taken advantage of its market power for the substantial purpose of deterring or preventing competitors from supplying atorvastatin to a substantial proportion of community pharmacies after the expiration of its patent.
The ACCC also alleged that Pfizer offered and gave discounts on its generic atorvastatin on the condition that community pharmacies would not, except to a limited extent, re-supply atorvastatin from other suppliers and this was for the purpose of substantially lessening competition.
In respect of misuse of market power, the Court found that:
- the relevant market is the Australia-wide market for the supply of atorvastatin to, and acquisition of atorvastatin by, community pharmacies;
- up until late 2011 Pfizer had a substantial degree of market power in the relevant market;
- Pfizer took advantage of that market power by distributing its products through the 'direct-to-pharmacy model' and establishing the 'accrual funds scheme'; and
- Pfizer took advantage of such limited market power as it retained in making the 'bundled offers' in January 2012.
However, the Court found that as from January 2012 Pfizer did not have a substantial degree of market power and at no time did Pfizer engage in the conduct for the proscribed purpose of deterring or preventing other suppliers of generic atorvastatin from engaging in competitive conduct in the atorvastatin market. Rather, the Court found that Pfizer's purpose was to ensure that it remained a supplier of pharmaceutical products (including Lipitor and its generic atorvastatin alternative) and to ensure that it remained competitive in the atorvastatin market.
The Court further found that the ACCC's section 46 pleadings were 'legally incoherent' on the basis that, as pleaded, it was impossible for the Court to find that the necessary elements of the prohibition could have co-existed in the same time period.
The Court also dismissed the exclusive dealing claim, finding that the conduct did not have the purpose of substantially lessening competition (an effects argument was not pleaded).