Competition Update

On October 19, 2016, the Court of Justice of the European Union (CJEU) issued a landmark judgment in a case concerning cross-border internet sales of prescription medicines.1 The judgment sets an important precedent and may contribute significantly to the creation of a truly EU-wide market for online sales of medicinal products by encouraging cross-border sales from online pharmacies in one Member State to another.

The case relates to attempts by a patient association to work with an online pharmacy from outside Germany to obtain better terms for German patients. German law imposes a uniform retail price on medicinal products sold to patients in Germany, regardless of whether those products are sold in a traditional German pharmacy or sold online by a supplier outside Germany. The case considers whether this uniform price obligation creates disadvantages for non-German suppliers, thereby limiting their access to the German market and infringing the EU’s free movement rules.

The CJEU found that the German price control law is more of an obstacle to pharmacies outside Germany than to those within Germany. Sale by mail order constitutes the main (if not only) means for foreign pharmacies to access the German market directly, whereas German pharmacies can offer products from physical premises and use online sales as an additional or alternative sales method. Moreover, the CJEU recognized that price competition is more important for mail-order pharmacies than for traditional pharmacies, as the latter are able to compete on their ability to offer patients individually-tailored advice by dispensary staff and emergency care services. The German law therefore impedes access to the German market by cross-border pharmacies.

Germany argued that its price controls were necessary to ensure consistent supply of medicines across Germany, and that price competition would lead to the closure of many local pharmacies – to an extent that could endanger their ability to perform certain activities in the general interest, such as maintaining a given stock and selection of medicinal products. The CJEU rejected those arguments and found that Germany had not demonstrated how setting fixed prices would ensure a better geographical distribution of traditional pharmacies in Germany. The CJEU’s view was that, to the contrary, increased price competition might actually encourage the establishment of traditional pharmacies in regions where their scarcity allows them to charge higher prices. The CJEU further asserted that traditional pharmacies can remain competitive by focusing on other factors of competition, such as offering individual advice to patients in person or supplying emergency care.

The CJEU emphasized that a Member State can only justify, on the basis of public health, legislation which is capable of restricting a fundamental freedom guaranteed by the EU Treaty, if such legislation is appropriate for achieving that objective and does not go beyond what is necessary in order to attain it. The burden is on the national authorities to provide the necessary evidence to prove the appropriateness and proportionality of the measure, through, e.g., statistical analysis or other data. Where a Member State adopts restrictive legislation in order to address a risk to human health, the existence of that risk must be genuine and must be measured on the basis of relevant scientific research, and not “according to the yardstick of general conjecture.”

The CJEU found that Germany had not provided any such specific evidence, and that the price controls had not been shown to be an appropriate means to protect public health. The CJEU found that, on the contrary, price competition could benefit patients as it would allow them access to prescription-only medicines in Germany at more attractive prices.