The Commission decision

In March 1998, GSK notified its Spanish dual pricing arrangements to the European Commission in order to obtain a declaration that these arrangements were not caught by the prohibition of anticompetitive agreements laid down in Article 81(1) EC or, failing that, an exemption in light of the efficiency gains obtained by countering parallel trade in pharmaceutical products.

In May 2001, the Commission decided that GSK’s dual pricing arrangements were indeed caught by Article 81(1) EC and refused the exemption. In doing so, the Commission took the view that dual pricing arrangements are restrictions by object. This qualification is relevant in that Article 81(1) EC refers to competition restrictions by object or effect. Restrictions by object are deemed to be anticompetitive per se and do not require an extensive analysis of their effects for Article 81(1) EC to be infringed. Restrictions by effect, on the other hand, are not restrictive per se and do require such an analysis. 

The CFI judgment

On appeal, the EC CFI handed down its judgment on 27 September 2006 (Case T-168/01 GlaxoSmithKline Services v Commission).

It held, first, that the dual pricing arrangements were indeed caught by Article 81(1) EC, but annulled the Commission’s decision, finding that dual pricing is a restriction by effect.

It also annulled the Commission's decision on the grounds that the Commission had not carried out an adequate examination of GSK’s request for exemption in light of the special market conditions prevailing in the pharmaceutical sector.

Both GSK and the Commission appealed before the ECJ, joined by EAPC and Aseprofar.

The ECJ judgment

The ECJ has now held, first, that dual pricing is a restriction of competition by object, which means that no extensive effect analysis needs to be carried out in respect of dual arrangements in order for them to be caught by Article 81(1) EC.

As far as GSK's request for exemption is concerned, the ECJ confirmed the CFI's finding that the Commission had not sufficiently taken into account the specific nature and features of the pharmaceutical sector, as well the relevant evidence produced by GSK regarding the loss in efficiency associated with parallel trade and the gain in efficiency procured by the dual pricing arrangements.

Although the CFI erred in law in holding that dual pricing arrangements are restrictions by effect, the ECJ did not annul the CFI judgment because the overall conclusion that dual pricing arrangements are caught by Article 81(1) EC and that the Commission must reassess GSK's exemption request was correct.

As a result of this judgment, the Commission must reappraise GSK's request for exemption, in light of the specific circumstances of the pharmaceutical sector. (The system of exemption requests was abolished on 1 May 2004 with the entry into force of Regulation (EC) No 1/2003 and replaced with a system where companies have to assess by themselves whether the efficiency exemption applies, but the Commission must still take a decision on GSK's request because it was filed before 1 May 2004.)

Consequences for pharmaceutical companies

Even though the ECJ has held that dual pricing arrangements are restrictions by object, which is a more restrictive approach than that adopted by the CFI, the door remains open for exemption of such arrangements.

There will not be legal certainty on this last issue, however, until the Commission has taken a fresh decision, in accordance with the guidelines imposed by the CFI and the ECJ.

Until that time, unilateral stock management systems will remain the preferred instrument against parallel trade, provided that they comply with the requirements imposed by the ECJ in the Greek GSK Case (Case C-468/06, judgment of 16 september 2008).

In that case, the ECJ held that stock management systems are compatible with Article 82 EC on the prohibition of the abuse of a dominant position, provided that wholesalers keep receiving supplies that are ordinary in the light of both the size of their orders in relation to the requirements of the national market concerned and the previous business relations between the pharmaceutical company and the wholesalers concerned.