In GlaxoSmithKline Services v Commission and Others, (Joined Cases C-501/06 P and others), the ECJ states that the mere existence of an anticompetitive object is sufficient to trigger Article 81(1) EC without any further need to determine consumer harm. At the same time, the ECJ makes it clear that it is incumbent on the Commission to properly examine any evidence provided in support of an Article 81(3) EC exemption.
The ECJ confirms that the Commission erred in law when it flatly rejected Glaxo's policy aimed at limiting parallel trade in pharmaceuticals. The ECJ made it clear that the mere existence of anticompetitive objects is sufficient to trigger Article 81(1) EC without any further examination of consumer harm. However, the key message is that any assessment under Article 81(3) EC of restrictions on parallel trade in the pharmaceutical sector must be conducted in relation to a wider economic context including arguments relating to innovation and the underlying structure of the market. While the ECJ did not go as far as holding that the agreements could be entirely outside the scope of Article 81(1), its approach under Article 81(3) shows that it supports an effects-based approach which requires the Commission to take into account any specific characteristics of individual markets in their proper economic context.
In 1998, GSK adopted a set of new sales conditions for its Spanish wholesalers, which provided that the wholesalers would have to pay higher prices for products which they exported than for products which they resold for consumption on the domestic market. These conditions were an attempt to limit parallel trade within the EU in medicines originating in Spain, where the health administration sets lower maximum prices than the rest of the EU.
GSK notified its arrangements to the Commission and applied for negative clearance or exemption under Article 81(3) EC. GSK argued that its pricing system did not restrict competition because the price differences between Member States resulted from national price regulations and that, in any event, there were consumer welfare arguments for justifying any restriction on competition, referring to the losses suffered as a consequence of parallel trade which seriously affect its R&D budget for developing new and innovative drugs.
Commission's decision - May 2001
The Commission adopted a decision that GSK had infringed Article 81 EC by concluding an anti-competitive agreement with its wholesalers having both the object and effect of restricting competition and rejected its request for an exemption under Article 81(3) EC on the basis that it had not proved to the Commission that the exemption criteria had been met. The Commission ordered GSK to end its dual pricing system with immediate effect. GSK appealed that decision before the CFI.
Court of First Instance judgment - October 2006
The Court of First Instance ("CFI") found that the Commission had erred in concluding, without assessing the effects of the agreement, that the sales conditions infringed Article 81(1) EC by virtue of their object of restricting competition. The CFI found however that GSK had not succeeded in calling into question the Commission's subsidiary conclusion that the dual pricing provision had the effect of depriving final consumers of the advantage they would have derived from price reduction, if parallel trade had been allowed to take place. GSK's argument that the dual pricing was justified by virtue of the regulatory conditions on the market was not accepted, and the CFI upheld the Commission's conclusion that the sales conditions constituted an agreement which had the effect of restricting competition contrary to Article 81(1) EC.
With reference to the Commission's analysis of the agreement under Article 81(3) EC, in order to establish whether the agreement did merit an exemption, the CFI concluded that the Commission did not carry out an adequate examination balancing the advantages of the agreement against the disadvantages for competition. Although it is up to the party relying on Article 81(3) EC to demonstrate that each of the four cumulative conditions is satisfied, the Commission must adequately examine the arguments and evidence presented to it in order to determine whether they satisfy those conditions. In this case the Commission's decision focused on the first of the Article 81(3) conditions, finding that the agreement did not contribute to improving the production or distribution of the goods in question, or to promoting technical or economic progress, but the Commission did not find it necessary to examine the other conditions in great detail. The CFI concluded that the decision was "vitiated by a failure to carry out a proper examination" and annulled that part of the Commission's decision in which it rejected GSK's request for an exemption.
Opinion of the Advocate General - June 2009
The Advocate General proposed that that Court of Justice should uphold the appealed judgment of the CFI in so far as the judgment requires the Commission to conduct a fresh examination as to whether the restrictive sales conditions can be exempted under Article 81(3) EC. Nevertheless, the Advocate General stated that the grounds of the CFI judgment need to be replaced to the effect that the Commission was correct in stating that the agreements were restrictive of competition by object. As a result, the GSK appeal, which related to the effect of the agreements on the final consumer, is irrelevant.
The Advocate General observed that the CFI made an error of law as it did not regard the object of restricting parallel trade as a sufficient basis for finding a restriction of competition by object under Article 81(1) EC but required the additional determination of whether such restriction by object resulted in a restriction of competition detrimental to the final consumer. The Advocate General stated that such a two-step approach would be practically ineffective as it would necessitate a detailed market analysis of potential adverse effects on the final consumer, which can be very time consuming and onerous in the context of, for example, a restriction which takes place on an upstream market. However, the Advocate General stressed that such an approach to agreements which are restrictive by object does not result in a per se prohibition as it does not prevent the company from presenting a wide range of evidence showing benefit to the final consumer in the context of Article 81(3) EC.
In the context of Article 81(3) EC, the Advocate General stated that, even though the burden of presenting convincing evidence is entirely on the undertaking, the Commission is under an obligation to review any such evidence in a sufficiently detailed manner, assessing each of the conditions listed within Article 81(3) EC.
ECJ judgment - 6 October 2009
The ECJ endorsed the Opinion of the Advocate General by re-stating that the anti-competitive object and effect are not cumulative but alternative conditions for assessing an agreement under Article 81(1) EC. The Court pointed out that the alternative nature of object or effect makes it necessary first to consider the precise purpose of the agreement in its economic context and, only when no object restriction can be found, proceed to the examination of negative effects that the agreement may have on competition. The Court also highlighted that any examination of the agreement must be firmly grounded in the economic and legal context in which such agreement exists, including the parties' intentions (although they are not always a sufficient factor). Turning to the question of parallel trade, the Court stated that it is established in principle that agreements aimed at preventing parallel trade, including parallel trade in pharmaceuticals, have as their object the prevention of competition.
The ECJ stated that the CFI committed an error of law by requiring proof that the agreement entails disadvantage for final consumers as a necessary condition for a finding of an anti-competitive object. The ECJ held that the CFI, by not finding that the agreement had such an object, had committed an error of law. Nevertheless, the ECJ did not set aside the CFI's judgment as other elements of the operative part of the CFI confirmed the Commission's decision finding the infringement of Article 81(1) EC.
With reference to Article 81(3), the ECJ stated that it is for the undertaking concerned to present to the Commission convincing arguments and evidence showing that the agreement fulfils the conditions imposed by that provision. However, the ECJ noted that despite the burden being clearly on the party trying to rely on the exemption, the facts relied on by that undertaking may be such as to oblige the Commission to provide an explanation or justification as to why the conditions are not met, failing which it is permissible to conclude that the burden of proof has been discharged by the undertaking.
Most importantly, the ECJ made it clear that any arguments presented by the notifying party under Article 81(3) EC must be assessed in the light of factual arguments and evidence provided, including taking into account the specific nature of the sector concerned if these are decisive for the assessment. Such arguments may include the specific nature of competition in the pharmaceutical sector. This does not result in any increase in the standard of proof or reversal of the burden of proof, but merely ensures that all appropriate information is properly taken into consideration and examined by the Commission. The ECJ stressed that it is for the notifying party to present to the Commission the evidence establishing that the agreement fulfils the conditions imposed by that provision. With regard to assessing any pro-competitive advantages flowing from the agreement under Article 81(3), the ECJ made clear that the Commission may need to examine prospectively whether, in the light of the factual arguments and the evidence provided, the claimed advantages are likely to offset any competitive harm.