In the recent high profile case, ACCC v Pfizer (Pfizer),1 Justice Flick held that Pfizer, in making commercial offers to maintain the sale of its popular Liptor pharmaceutical product after the expiry of its patents, did not breach the misuse of market power and exclusive dealing provisions of the Competition and Consumer Act 2010 (Cth) (CCA).
For businesses with a focus on innovation (including in particular patented inventions), this is an important case demonstrating the commercial strategies which could be legitimately implemented by them in seeking to defend their market position upon expiry of their patents. Although similar cases have been examined in overseas jurisdictions, the Pfizer case represents the first Australian case to consider the application of competition law to conduct of an originator pharmaceutical company trying to protect its own commercial position following the loss of patent exclusivity.
This decision comes at an interesting time when the Federal Government has commissioned a comprehensive review of competition law in Australia by the Harper Review Panel. In respect of section 46 of the CCA (i.e. misuse of market power), the Harper Review Panel's draft report recommends the introduction of an “effects” test whereby conduct by a business with substantial market power would be prohibited if it has the effect of substantially lessening competition. Under the law as it currently stands, a business must be shown to have “taken advantage” of its substantial market power for a prohibited anti-competitive purpose.
Implications of the Pfizer Case
On 18 March 2015, the ACCC announced its intention to appeal the decision. Although we will have to wait for the decision of the Full Federal Court to fully assess the implications of the case from a competition and intellectual property perspective, a number of interesting points arise from the decision as we touch on below.
The Pfizer decision demonstrates the challenges in proving misuse of market power under section 46 due to the need for the temporal co-existence of the 3 elements (i.e. substantial market power, taking advantage and anti- competitive purpose). It represents another high profile loss for the ACCC in this area and is the first case where it has lost on the ‘purpose’ (as opposed to the ‘taking advantage’) element.
The approach of the Court to the ‘purpose’ element also confirms that it is the subjective purpose of the alleged wrongdoer that is relevant. This underscores that, in establishing subjective purpose, reliable oral evidence is far more persuasive than seeking to draw inferences from documentary evidence. That being said, businesses should still take caution when preparing documents showing their competitive strategies to ensure that these documents do not contain inferences of anti-competitive conduct.
The Pfizer decision will also no doubt, add fuel to the debate regarding the need for reform of section 46 of the CCA. It will be particularly interesting to see how it is addressed by the Harper Review Panel, whose final report is due to be released later this month. It is of note that the proposal for reform contained in the draft Harper Report, released last year, would not actually have assisted the ACCC in this case, as the ACCC did not have difficulties establishing the ‘taking advantage’ limb but rather the ‘purpose’ limb. Even if an ‘effects’ test had been in place, the ACCC would not have been able to establish the misuse of market power, as the evidence showed that the impugned conduct did not occur at a time where Pfizer had substantial market power and that the market for generic versions of atorvastatin had not been seriously damaged by Pfizer’s conduct.
The facts underlying the Pfizer case also highlight the tension which exists between the granting of statutory monopoly rights (such as patents, which are inherently anti-competitive) and competition law policy. The draft Harper Report identified this as a key issue, recommending a review of competition policy issues in intellectual property, particularly arising from new developments in technology and markets.
Clearly a statutory monopoly if granted, is intended to reflect (from the inventors' perspective) an incentive to innovate and reflect the time, money cost and risk this may entail. That monopoly is, however, for example in the case of a patent, granted for a finite period. The Pfizer case illustrates the tension which arises when the patent owner, in effect, tries to extend its monopoly right or leverage itself from such a right (as it comes nearer to expiry). Whether what is done by a patent owner in a particular case in such circumstances will move the conduct outside of the monopoly rights granted and impeach any competition law and policy, will be heavily decided on the facts.
In the Pfizer case, the commercial landscape in play and circumstances relevant to Pfizer, as well as the purpose for which (the evidence showed) Project LEAP was implemented, were central to the outcome of the case. As such, although patent holders can look to gauge what might have been acceptable behaviour in this case, given the Federal Court's initial view, it would be wrong and precarious to use that as a "fit all" solution for those in a similar situation, with patents coming due for expiration. It may well be indicative of a strategy which might be considered in dealing with such an issue, but needs to be dealt with very cautiously and with full consideration of all of the relevant facts.
For those in the generic manufacture business looking to take advantage of the expiry of certain patents, the Pfizer case also provides a reminder as to the care which needs to be taken, particularly with the timing of any launch or offer for sale of a generic product, when a patent is soon to expire. Such businesses should exercise caution when preparing for such a product launch, to ensure that they do not make offers to sell products (which are the subject of a patent) before the expiration of the relevant patent or the commencement of any relevant licence (whichever is first). Otherwise, such conduct may be considered an encroachment of the exclusive rights of the patent holder and could lead to infringement issues for the generic manufacturer.
Pfizer researches, develops, manufactures and markets human prescription medicines, as well as over-the- counter healthcare products and animal health products. As a result of an Australian patent owned by Pfizer, it was the exclusive supplier of a pharmaceutical product under the name of "Liptor atorvastatin" (which is a cholesterol- lowering drug) (Liptor) in Australia from 2000 until 18 May 2012. In the 2010-2013 financial years, Liptor was the highest-selling medicine, in terms of volume and value, under the Pharmaceutical Benefits Scheme in Australia.
In anticipation of the fact that other manufacturers of pharmaceutical products would supply generic versions of atorvastatin after the patent expires, Pfizer took the following steps as part of its "Project LEAP" strategy:
- Branded Generic – Pfizer developed its own generic version of atorvastatin for supply in Australia in January 2012 (Pfizer Generic Atorvastatin); Pfizer Generic Atorvastatin) to community pharmacies;
- Accrual Funds Scheme – The establishment in January 2011 of an accrual funds scheme, which involved the accrual of credits and rebates for each community pharmacy when it purchases Pfizer's pharmaceutical products (including Liptor and Pfizer Generic Atorvastatin); and
- Bundled Offers – In January 2012, Pfizer offered to sell Liptor and Pfizer Generic Atorvastatin as part of a bundled offer (more information detailed in the "Exclusive Dealing" section below).
- Direct to Pharmacy Sales Model – In December 2010, Pfizer announced that it would cease supplying prescription pharmaceuticals through wholesalers and would itself commence marketing and supplying prescription pharmaceuticals (including Liptor and
The ACCC claimed that the above conduct engaged in by Pfizer contravened the misuse of market power (section 46(1)(c)) and exclusive dealing (section 47) provisions in the CCA. Declaratory relief was sought by the ACCC together with orders for the imposition of pecuniary penalties.
Misuse of Market Power
In order for the claim under section 46(1)(c) to succeed, the ACCC needed to prove that Pfizer had a substantial degree of market power in the relevant market and that it took advantage of that power for one of the three proscribed purposes (in Pfizer's case, deterring or preventing a person from engaging in competitive conduct). All of these elements must be shown to be present at the same time and there must be a connection between the substantial market power and the proscribed purpose.
Justice Flick held that Pfizer did not engage in conduct in breach of the misuse of market power provision. His Honour made the following observations in respect of the application of the relevant competition law provisions against Pfizer's factual background:
- The proper characterisation of the relevant market was for the supply to and acquisition by pharmacies of atorvastatin. His Honour rejected the broader proposition submitted by Pfizer that there was a market for the wholesale supply of a range of pharmaceuticals to pharmacies given that atorvastatin was sold as a separate pharmaceutical product for which there was no substitute;
- Pfizer had a substantial degree of market power prior to January 2012 as a result of its exclusive patent rights. However, after January 2012, Pfizer's market power gradually declined as a result of the imminent expiration of its patent and the strategic commercial activities undertaken by its competitors in preparation for the expiry of Pfizer's patent;
- In order to determine whether a person took advantage of its marker power for the purpose of deterring or preventing competition in that market, the Court will look at the subjective purpose of the corporation and will not be concerned directly with the effect of the conduct;
- His Honour said that, on face value, the references to "blocking" competition in the Pfizer marketing material suggested that Pfizer's purpose was to deter manufacturers from entering into the generic atorvastatin market. However, his Honour accepted the oral testimony of Pfizer's key decision makers which indicated that the actual purpose was to ensure that Pfizer remains a viable supplier of atorvastatin into the future. For example, Pfizer's Direct to Pharmacy Sales Model was established for the purpose of developing a closer relationship with community pharmacies so that it would be able to protect itself from loss in volume and price upon the expiration of its patent; and
- The ACCC's claim under section 46(1)(c) was "legally incoherent" as it failed to prove that, at the time of contravention, all of the elements set out in section 46 co-existed.
The exclusive dealing provision is concerned with conditions placed on the supply or acquisition of goods or services which have the purpose, effect or likely effect of substantially lessening competition.
The ACCC alleged that Pfizer's Bundled Offers contravened the exclusive dealing prohibitions as they had the purpose of substantially lessening competition (the ACCC did not plead an effect or likely effect of substantially lessening competition). The Bundled Offers were available until 30 April 2012 to pharmacies that agreed to purchase 75% of its anticipated generic atorvastatin requirements from Pfizer for 6, 9 or 12 months (known as the Platinum, Gold or Silver offer respectively) and involved a range of "stepped" discounts, namely:
- A discount (varying between 55% and 75%) off the "Chemist List Price" in respect of the purchase of Pfizer Generic Atorvastatin;
- The release of all or part of the Liptor rebate (50% to 100%) given in respect to the purchase of Pfizer Generic Atorvastatin; and
- The ongoing discount (varying between 5% and 20%) off the "Chemist List Price" in respect of the purchase of Liptor.
However, pharmacies could choose not to participate in the Bundled Offers, the consequence being that they would not be entitled to the above discounts, save for a discount of 1.5% off the "Chemist List Price" in respect of the purchase of Liptor.
In respect of the first two discounts, Justice Flick found that they did not constitute a condition within the meaning of section 47(2) as pharmacies could choose not to participate in the Bundled offers and remain free to purchase generic atorvastatin from other suppliers. In respect of the third discount, Justice Flick accepted that it was a "condition" but the ACCC failed to establish that Pfizer's conduct had the purpose of substantially lessening competition within the meaning of section 47(10). As a result, Justice Flick held that Pfizer did not contravene the exclusive dealing provisions.
Patents Act 1990 (Cth)
Although the Pfizer decision did not involve any patent law issues directly, Justice Flick briefly considered the relevance of section 13 of the Patents Act 1990 (Cth). As part of a 2008 patent settlement, Pfizer granted Ranbaxy Australia Pty Ltd (Ranbaxy) a licence to release a generic version of atorvastatin from 18 February 2012. However, prior to 18 February 2012, Ranxbaxy made and accepted offers for the sale of its generic atorvastatin.
Section 13 sets out the exclusive rights granted to a patent holder to exploit the patented invention. As a result, Justice Flick found that Ranbaxy's conduct prior to 18 February 2012 constituted "an encroachment upon the exclusive right" of Pfizer to exploit its patent for Liptor.
As noted above, on 18 March 2015, the ACCC announced that that it will appeal in respect of the Pfizer decision