Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd  FCA 113
In what has turned out to be another unsuccessful attempt by the ACCC to prosecute a misuse of market power case, the Federal Court of Australia, in Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd  FCA 113, has dismissed the ACCC's allegations that Pfizer Australia Pty Ltd (Pfizer) breached the Competition and Consumer Act 2010 (CCA) by engaging in misuse of market power and exclusive dealing regarding its commercial strategy in the lead up to the expiration of its Lipitor patent.
Atorvastatin is a medication that blocks the production of cholesterol. Until 18 May 2012, Pfizer held the patent over the atorvastatin molecule. Pfizer marketed and sold atorvastatin under the brand name 'Lipitor'. Between 2010 and 2013, atorvastatin was the highest selling prescription pharmaceutical in Australia with sales exceeding $700 million a year for the financial years ending June 2010, June 2011 and June 2012.
Not surprisingly, the expiration of Pfizer's patent was highly anticipated by generic drug manufacturers wanting to sell their own atorvastatin products as soon as they could lawfully do so.
In anticipation of this increased competition, Pfizer implemented a number of sales and marketing changes. These included:
- The 'Direct-to-Pharmacy' model whereby Pfizer would cease supplying through wholesalers instead supplying direct to pharmacies itself.
- The 'Accrual Funds Scheme' whereby pharmacies would accrue a rebate equal to a percentage of the price of the pharmacy's purchases of Pfizer patented products, including Lipitor.
- The 'Atorvastatin Pfizer' offer whereby the prices at which Lipitor was to be provided to pharmacies and the rebates available from the 'Accrual Funds Scheme' were tied to the amount of generic atorvastatin the pharmacies agreed to purchase.
The ACCC claimed that the above course of conduct contravened the CCA. It alleged that:
- Pfizer held a substantial degree of market power and took advantage of that power to deter or prevent competition in the market (misuse of market power).
- Pfizer engaged in exclusive dealing for the purpose of lessening competition (exclusive dealing) by requiring pharmacies to agree to purchase 75% of their anticipated generic atorvastatin requirements for 6, 9 or 12 months and requiring them to not exceed sales of more than 25% of competitor's generic atorvastatin.
Pfizer disputed all of the allegations.
THE COURT'S DECISION
Misuse of Market Power
The Court held that the ACCC's misuse of market power claim was pleaded in such a 'legally incoherent' manner that it could have been summarily dismissed. However, the Court chose not to do so, instead finding that the allegations failed for the following reasons:
- Pfizer had enjoyed a substantial degree of market power up until late 2011. However, by January 2012, that is, the time the contravening conduct was alleged to have occurred, Pfizer's market power could no longer be described as substantial due to the imminent arrival of atorvastatin competitors in the market.
- Noting it was Pfizer's subjective purpose that was relevant when assessing conduct, the Court held any contention that Pfizer was seeking to prevent generic atorvastatin competition was 'commercial naivety'. The substantial purpose of Pfizer's conduct was to remain competitive in the market following the expiry of its patent.
Pfizer conceded that the condition placed on pharmacies requiring them to not exceed sales of more than 25% of competitor's generic atorvastatin fell within the definition of exclusive dealing. However, Pfizer disputed the ACCC's claim that the conduct was undertaken for the purpose of substantially lessening competition. The Court agreed and concluded that the claim failed for the following reasons:
- Pfizer's 'purpose' in pursing the impugned conduct was to ensure its own corporate survival.
- The ACCC failed to establish that Pfizer's 'purpose' was to cause a 'substantial lessening of competition'.
The ACCC failed to establish both the misuse of market power and exclusive dealing claims and was ordered to pay Pfizer's costs in the proceedings.
This case supports the proposition that the conduct of a corporation for the purpose of remaining competitive in a market following the expiry of its patent, will not, in itself, amount to anti-competitive conduct. This case also highlights the importance of pleading your case in a structured and logical manner.
The case has also highlighted the subjective nature of the purpose test used when assessing misuse of market power. The Court found that although Pfizer's purpose was not anti-competitive, the likely effect of its conduct was. In its submissions to the Harper Review, the ACCC has called for the misuse of market power test to include a 'likely effects' test.
For a full copy of the judgment please click here.