On March 14, 2007, the French Competition Council issued a decision (see also English press release) imposing a €10 million fine on GlaxoSmithKline’s (GSK) French subsidiary (GSK France) for hindering the use of generic drugs in hospitals through an alleged "predatory" pricing policy. Proceedings were opened after Flavelab, a generics manufacturer, lodged a complaint. This is the first decision where the Council has penalized a company for predatory pricing. The Council’s approach to predatory pricing is generally considered to be more lenient than that of the European Commission. Under the Council’s case law, liability under the predatory pricing test requires not only sales below average variable costs but also establishing the company’s ability to recoup initial losses through a price increase in the longer term. According to the French approach, if there is no expectation of recouping losses, selling below average variable costs is not abusive behavior.
In the GSK case, the Council considered GSK France’s pricing policy in relation to the sales of Zinnat, an injectable antibiotic, to hospitals. First, the Council found that GSK France’s prices were below average variable costs. GSK bought Zinnat from a sister company in the GSK group and the Council’s conclusions were based on the fact that GSK France’s selling prices to hospitals were lower than the purchasing price that GSK paid to its sister company for the acquisition of the drug in France. For the Council, the fact that the purchasing price was a transfer price between intragroup companies made no difference to the application of the predation test under competition law.
Second, the Council considered that, although GSK France’s practices only affected a small market (the value of which was approximately €1 million), it was allegedly part of a global intimidation plan aimed at sending a signal to generic manufacturers to discourage them from supplying generics to hospitals in competition with GSK France. For the Council, the alleged intimidation was successful because it resulted in driving Flavelab out of the market and deterred other manufacturers of generics from supplying hospitals even though they held marketing authorizations. Finally, the Council found that once Flavelab was evicted from the market, GSK raised its prices over the following two years in order to recoup its losses.
GSK France has announced that it intends to appeal the Council’s decision.