On September 16, 2008, the European Court of Justice (ECJ) handed down a long-awaited judgment in Sot Lélos kai Sia EE and Others v. GlaxoSmithKline AEVE Farmakeftikon Proïonton1 (the Greek Glaxo Case). This much awaited judgment is the latest step in a long series of cases relating to parallel imports in the pharmaceutical industry, after the ECJ and Court of First Instance (CFI) judgments in P. Bundesverband der Arzneimittel-Importeure v. Bayer and Commission2 (the Bayer case), and GlaxoSmithKline Services Unlimited v. Commission3 (the GSK Spain case) (see Hogan & Hartson’s Antitrust Update of September 29, 2006).
Overall, the decision in the Greek Glaxo judgment should be welcomed by the pharmaceutical companies. The ECJ recognized that dominant pharmaceutical companies can protect their commercial interests by restricting parallel trade, provided that such restrictions are imposed in a reasonable and proportionate way. So far, the ECJ had admitted that principle only for nondominant companies (see the Bayer judgment). Further to the Greek Glaxo judgment, a dominant supplier may refuse to meet orders from wholesalers, when such orders are “out of the ordinary” and essentially destined to be exported to other Member Sates.
The facts of the case were as follows: in November 2000, GlaxoSmithKline AEVE (Glaxo), a Greek subsidiary of the UK-based GlaxoSmithKline plc, stopped supplying certain drugs to Greek wholesalers. Instead, Glaxo started supplying directly to hospitals and pharmacies in Greece. In February 2001, Glaxo resumed supplies of certain drugs to Greek wholesalers, though in relatively limited quantities. The Greek wholesalers complained that Glaxo’s actions constituted an abuse of a dominant position under Article 82EC because it limited the quantities they could export to high-priced Member States. The Greek Court made a reference for a preliminary ruling to the ECJ as to whether a dominant supplier could lawfully refuse to meet wholesalers' orders for the purpose of limiting exports to other Member States.
The ECJ ruled that “there can be no escape” from the provisions of Article 82 of the EC Treaty that prohibits companies in a dominant position from engaging in activities such as the restriction of parallel trade. As a consequence, a dominant company normally abuses its position by refusing to meet ordinary orders from an existing customer for the sole purpose of limiting parallel trade.
In addition, the ECJ seemed to give more weight to benefits that parallel trade may have for end-users, than the previous CFI judgment in GSK Spain, by pointing out that the overall beneficial effects of parallel trade on price fluctuations should not be underestimated.
The ECJ nevertheless nuanced its ruling by admitting that, in certain circumstances, pharmaceutical companies may take “reasonable and proportionate” measures to protect their commercial interests. As part of these measures, the ECJ stressed that pharmaceutical companies may refuse to meet orders that are “out of the ordinary” and essentially destined for parallel exports.
The ECJ did not give any specific benchmark on how to measure “out of the ordinary” orders and left it to the national court to decide. It nevertheless specified that the question could be answered in light of the previous business relations between the company and its wholesalers, and the size of the wholesaler’s orders in relation to existing demand in the local market. As a preliminary conclusion, until the national courts arrive at a decision on what exactly constitutes ordinary and extraordinary orders, it remains to be seen how pharmaceutical companies will be able to build on the “out of the ordinary” justification in order to limit parallel trade in the future. On the one hand, the concept may be too vague to be applied with certainty and will likely give rise to future controversy. On the other hand, the judgment made it clear that even a dominant company is under no obligation to deliver unlimited quantities to the parallel trader, which may be construed as a victory for pharmaceutical companies.
Finally, it is interesting to note that, unlike the CFI ruling in GSK Spain, the ECJ did not rule on whether the “specific status” of the pharmaceutical industry could also be held as justifying limitations to parallel trade. In both cases, GSK argued that losses to parallel trade impacted on research & development budgets and hampered innovation. Although in GSK Spain, the CFI considered that this argument could be accepted as part of a rule of reason approach in order to potentially justify restrictions to parallel trade, the ECJ in Glaxo Greece declined to rule on this issue, leaving it to the outcome of the appeal of the CFI judgment in GSK Spain.