The General Court has issued its long awaited judgment in the AstraZeneca case, upholding the Commission's decision in respect of both the SPC abuse and the selective deregistration abuse. At the time of the Commission's decision, these abuses were novel under EU competition law as there had been no previous cases finding an abuse of regulatory procedures. The ruling will therefore be seen as an important victory for the Commission, adding two new types of abuse to the non-exhaustive list of Article 102 TFEU (previously Article 82 EC). The Commission has since considered these issues in the context of the pharmaceutical sector inquiry and made it clear at the time of the final report that it would not hesitate to make full use of all its competition law powers to take action against companies who use patent filing, life cycle strategies and similar practices to create artificial barriers to entry. The Court's confirmation of the Commission's analysis in the AstraZeneca case is likely to be a further incentive for the Commission to bring more cases of this nature.
In June 2005 the EU Commission adopted a decision fining AstraZeneca €60 million for abusing a dominant position under Article 102 TFEU by misusing the patent system and pharmaceuticals marketing procedures in order to exclude generic competitors to its ulcer drug Losec from the market and to restrict parallel imports of the drug.
The Commission held that AstraZeneca was dominant on the national markets for proton pump inhibitors (PPIs) used for gastro-intestinal diseases. In merger investigations, the Commission often determines the relevant market by reference to the therapeutic indication of the drug (ATC classification 3). Had the Commission done so in this case, AstraZeneca would not have been dominant due to the existence of another class of drugs used for the treatment of gastro-intestinal disease, H2 blockers. Although AstraZeneca argued that H2 blockers exercised a significant competitive constraint on PPIs, the Commission adopted a more restricted market definition based on its mode of action (ATC classification 4). AstraZeneca's drug, Losec, was the pioneer and clear market leader of the PPIs and in many of the Member States held market shares of nearly 100%, thanks in large part to its first mover advantage and its particularly strong patent protection for Losec.
The Commission concluded that AstraZeneca had abused its dominant position by having a strategy to restrict generic competition and parallel imports. This strategy was said to consist of two separate types of practices:
- Giving misleading information to several national patent offices resulting in the grant of extended patent protection for Losec through SPCs (supplementary patent certificates) – the SPC abuse
- Misusing rules and procedures applied by the national medicines agencies by selectively deregistering the market authorisation for Losec capsules in some Member States – the deregistration abuse
The SPC abuse (the first abuse)
Regulation 1768/92/EEC (the SPC Regulation) introduced a system of supplementary protection certificates (SPCs) for pharmaceuticals in order to compensate for some of the delays that occur, due to the regulatory system, between the patent filing and market authorisation. The duration of an SPC (which can never be longer than five years) depends on the date of "first authorisation to place the product on the market in the Community". The Commission held that AstraZeneca had supplied misleading information to national patent offices which did not allow them to correctly identify the date of first marketing authorisation. By supplying this alleged misleading information, AstraZeneca obtained extra SPC protection in several countries, which forced its competitors to bring lengthy and costly litigation to invalidate the SPCs and caused uncertainty, delays and disruption of generic firms' preparations for market entry. The Commission held that this conduct did not constitute normal competition, but amounted to an abuse of a dominant position, as the practice prevented or delayed market entry for generic products.
The selective deregistration abuse (the second abuse)
At its launch in Europe, Losec was sold mainly in capsule formulation. At the end of 1998, AstraZeneca withdrew the capsules in several European countries and replaced them with tablets with the brand name "Losec MUPS" (multi-unit pellet system). It continued to sell the capsules in other Member States. Following applications by generic companies for marketing authorisation for generic versions of the capsules, AstraZeneca made requests to deregister the marketing authorisations relating to capsules in Denmark, Norway and Sweden. This prevented the generic companies from using a simplified procedure that was faster and less burdensome to obtain market authorisations for the generic product. The Commission found that this conduct constituted an abuse as its key purpose was to exclude competition from generic firms and from parallel traders. AstraZeneca deregistered its marketing authorisations for Losec capsules selectively, only in countries where it thought this strategy would block or delay generic market entry. The conduct did not constitute standard practice at the time and there was no objective justification for the behaviour.
AstraZeneca lodged an appeal against the Commission's decision, claiming that the Commission had erred in its definition of the relevant market and in finding that there had been abuse. AstraZeneca argued that the making of misleading presentations in the course of applications for intellectual property rights cannot amount to an abuse of a dominant position unless or until the dishonestly obtained rights are enforced or are capable of being enforced. As for the withdrawal of marketing authorisations being abusive, AstraZeneca argued that Article 102 does not impose an obligation to maintain a marketing obligation for a product that is no longer marketed, simply to make it easier for generics and parallel traders to compete with it.
General Court's findings
The General Court dismissed most of the arguments put forward by AstraZeneca. In respect of the SPC abuse, the Court held that the submission to the public authorities of misleading information which leads to the grant of an exclusive right to which an undertaking is not entitled or to which it is entitled for a shorter period, constitutes a practice that falls outside the scope of competition on the merits and may be particularly restrictive of competition. Such conduct is not in keeping with the special responsibility of a dominant undertaking not to impair genuine undistorted competition on the market. Proof of the deliberate nature of the conduct and of bad faith of the undertaking in a dominant position is not required for the objective assessment of the misleading nature of the representations. As for the applicant's claim that an abuse of a dominant position can only be identified where the behaviour in question has a direct effect on competition and that in this case the unlawful SPC application had only remote effects on competition, the Court held that, in a case where the practices in question cannot in any way be regarded as being covered by normal competition, it is sufficient for it to be established that they are capable of restricting competition. The Court also found that there was plenty of documentary evidence that corroborates the correctness of the contested decision and that confirms that AstraZeneca had deliberately tried to mislead the patent offices. It was irrelevant whether or not the misleading representations produced any effects.
With regard to intellectual property rights in general, the Court held that such rights are a relevant factor in determining the existence of a dominant position. The fact that patent proceedings may be in no way unlawful does not affect a finding that those proceedings enable an undertaking to exert significant pressure on its competitors. It emphasised that obtaining a position of dominance is not prohibited per se; only the abuse of that position. The Court rejected any assertion that the taking into account of intellectual property rights reduced the incentive to produce innovative products.
The Court also upheld the Commission's findings that the selective deregistration of the Losec capsule marketing authorisations amounts to abusive conduct under Article 102 to the extent that it did restrict access to the market of generic products or did restrict parallel imports. The deregistration was not based on the legitimate protection of an investment and was not required by the conversion of AstraZeneca's sales of Losec capsules to Losec MUPS. In so far as the deregistrations constitute an obstacle to market entry of generic products and to parallel imports, arguments disputing the effects of the deregistrations in practice can not affect the classification of the conduct in question as an abuse of a dominant position. The Court did however find that the Commission had failed to establish to the requisite legal standard that the deregistrations were capable of preventing parallel imports of Losec in certain Member States, and on that basis decided to reduce the fine imposed by the Commission from €60 million to €52 million.
AstraZeneca was the first case in which abuse of regulatory process was held an abuse of a dominant position under EU competition law, but misrepresentations before patent offices and misuse of regulatory procedures for the authorisation of medicines have previously been held to be antitrust violations by US courts and by the FTC. The Court rejected any notion that, because IP rights were involved and because these rights could be challenged by third parties, the acts did not constitute an abuse. The Court also rejected arguments that an undertaking could not be considered dominant, where its market power was attributable to IP rights. The judgment, in this respect, confirms a trend (seen also in the USA) in which the obtaining and exercise of IP rights are being increasing circumscribed by anti-trust provisions.
The Commission also examined these practices in the context of the pharmaceutical sector inquiry which it launched in January 2008 in order to establish the reasons for perceived delays in entry of generic medicines and the apparent decline in innovation, but may have been awaiting the General Court's ruling before launching any new cases. The Court's ruling can therefore be expected to result in more cases of this nature, not necessarily limited to the pharmaceutical sector.
Undertakings in IP- dependent industry sectors, will often find themselves in a dominant position thanks to their IP rights. They will need to take great care in ensuring that their IP filing and enforcement strategies are not perceived as abusive by the regulatory authorities. In particular, such undertakings must be careful when applying for IP rights not to mislead the examining authorities and, when taking a possibly contentious interpretation of a provision, make this clear to the authorities as well as the basis for the interpretation.
In the UK, the OFT recently launched an investigation into similar practices by Reckitt Benckiser in respect of its drug Gaviscon. The OFT alleges that Reckitt Benckiser has tried to restrict competition to its Gaviscon brand by withdrawing and de-listing its NHS packs of Gaviscon Original Liquid from the NHS prescription channel. The OFT argues this was deliberately timed to occur before the publication of the generic name for this product, so that GPs will continue to prescribe Gaviscon Advance Liquid, which remains patent protected. The OFT issued a statement of objections earlier this year and recognises that the case raises complex competition issues relating to the supply of prescription drugs to the NHS.