On 6 December 2012, the Court of Justice of the European Union (ECJ) upheld the decision of the European Commission (Commission) and the judgment of the General Court in the long-running AstraZeneca (AZ) case.

The ECJ found that AZ had abused its dominant position on the market for proton pump inhibitors (PPIs) used for gastrointestinal diseases in two ways:

  •  AZ made misleading representations to certain patent offices across Europe as part of a strategy to obtain or maintain supplementary protection certificates (SPCs) that extended its exclusivity for Losec to which it was not entitled or to which it was entitled for a shorter duration. AZ used the date of the first pricing decision (i.e. when the marketing authorisations actually became effective) rather than the commonly accepted date of the first authorisation in order to obtain a longer period of protection.
  •  AZ misused the regulatory system, by submitting requests for deregistration of the marketing authorisation for Losec capsules in certain Member States in order to block or delay the entry of generic products replicating AZ’s anti-ulcerant drug Losec as well as to prevent parallel imports of Losec.

This was the first case in which these two novel abuses were held to infringe Article 102 of the Treaty on the Functioning of the European Union (TFEU) and the first time that the ECJ ruled on an abuse of dominance case in the pharmaceutical sector.

The ECJ’s precedent is clear – a simple mistake in a communication with the patent office is unlikely to be enough to find an abuse whereas “highly misleading representations [made] with the aim of leading public authorities into error” will undoubtedly be considered abusive conduct by a dominant company. As to what behaviour will amount to abusive conduct in between these two extremes, this remains uncertain.

As regards the deregistration abuse, this is likely to be of limited relevance in the pharmaceutical sector given the change in the laws to avoid a repetition of the AZ case. However, dominant companies in other regulated sectors should be careful given the unsatisfactory result of the ECJ’s judgment in terms of legal certainty.

The ECJ found that AZ was entirely within its legal rights to surrender the marketing authorisations it no longer required. However, this did not mean that AZ could not be in breach of Article 102, TFEU when taking account of the entire context of the deregistration (rather than just the simple act). Especially also in light of the documentary evidence which indicated AZ’s abusive deliberateness to exclude or make it more difficult for competitors to enter the marketplace.

In addition, the ECJ held that it was sufficient that AZ’s acts had a “potential anti-competitive effect” rather than “concrete anti-competitive effects”. That the ECJ adopted such a low threshold in relation to the effects criteria under Article 102, TFEU came as no surprise, especially when put in the context of the ECJ’s overall finding – i.e. that AZ’s conduct was highly misleading.

AZ will now have to pay a fine of €52.5 million (reduced on appeal by the General Court from €60 million).

ECJ’s Judgment

The ECJ clarified a number of principles in relation to market definition and on dealings with the patent office and with regulators by companies with a dominant position.

Market Definition – PPIs

  • The ECJ confirmed that the Commission has a very broad discretion to find a narrow market and maintained that AZ held a dominant position in the market for PPIs. 
  • The ECJ rejected pleas that the General Court had not examined correctly the competitive interaction between PPIs and H2 blockers, doctor prescribing practices and certain price indicators which would have adequately shown that H2 blockers exercised a significant competitive pressure over PPIs. The two products were not considered substitutable and formed separate product markets.
  • The ECJ dismissed any errors made by the General Court on the basis such errors would not alter the outcome. The General Court’s conclusions on market definition were reached after a careful consideration of evidence.

Misleading Representations

  • With regards to the first abuse, the ECJ adopted a more reserved approach compared to the General Court, which had adopted a rather low standard of proof. The latter held that any objectively misleading statements, including a lack of transparency or an honest mistake (regardless of whether it was corrected or not), to the national patent office could amount to abusive conduct given it was not necessary to establish deliberate fraud or deceit.
  • The ECJ noted that the concept of “abuse” is an objective one – Article 102, TFEU prohibits a dominant undertaking from eliminating a competitor and strengthening its position by using methods other than those which come within the scope of competition on the merits. However, the ECJ then went on to carefully consider the deliberateness and length of the nature of the representations.
  • Relying on internal AZ documents, it was evident that AZ was aware that its inconsistent actions with regards to the SPC applications were wrong but nonetheless AZ continued over the long term with its approach.
  • The ECJ accordingly found that “consistent and linear conduct (...) characterised by (...) highly misleading representations and by a manifest lack of transparency” could result in anti-competitive behaviour. AZ had deliberately attempted to mislead the patent offices and judicial authorities in order to keep for as long as possible its monopoly on the PPI market. This fell outside the scope of “competition on the merits” and was not consistent with a dominant firm’s special responsibility.
  • AZ should have voluntarily and proactively disclosed all relevant information to the patent offices. AZ knew that the patent offices would not have issued the SPCs had they known the true facts.
  • The ECJ also clarified that no company faced liability merely for ordinary fallibility in dealings with regulatory authorities or because the subject matter of a patent application was ultimately found not to meet the patentability criteria. Each case had to be assessed in light of its specific circumstances and such scenarios were “radically different” from AZ’s conduct in the case.

Misuse of Regulatory Procedures

  • As regards the second abuse, the ECJ held that although AZ was entirely within its rights to withdraw marketing authorisations it no longer required to cut down costs and preserve existing levels of sales – this was provided AZ’s strategies were within the scope of “competition on the merits”.
  • Considering the context of AZ’s acts, there was no “objective justification” and no evidence of a legitimate motive for its actions. Rather, there was evidence from internal documents that only showed AZ’s anticompetitive deliberateness to make generic competition more difficult (if not impossible) and restrict parallel imports.
  • It was this evidence that was critical to the ECJ’s finding that it was irrelevant as a regulatory matter that AZ was within its legal rights to deregister Losec capsules and replace them with Losec tablets.

Practical Considerations

While the new abuses of dominance in the AZ case have arisen in the pharmaceutical sector, they are likely to be of interest in other industries where dominant firms have implemented strategies considered likely to mislead regulatory authorities or abuse administrative procedures.

In particular, it will be interesting to see how the ECJ’s precedent is applied (if at all) by national competition authorities as well as by the Commission – especially in relation to the Commission’s ongoing investigations against pharmaceutical companies which are hindering the entry of generic products (i.e. Servier, Lundbeck) as well as the recent Article 102, TFEU investigation the Commission opened into Honeywell to examine whether the latter engaged in abusive deceptive conduct during the authorisation process for a new refrigerant product.

Ultimately, the ECJ has confirmed that dominant companies have a “special responsibility”, more particularly an obligation to conduct themselves in a “transparent” way in their dealings with authorities and to avoid strategies that prevent or delay the launch of cheaper generic versions of their drug or risk a substantial fine.

Accordingly, dominant companies would be well advised to continue to monitor their commercial practices and strategies carefully, and above all, to the extent they are not already doing so:

  • Use utmost care and good faith when making representations to patent offices or any other authorities in relation to “dominant” products to avoid misleading authorities.
  • Engage in an open and transparent dialogue even if not required under any relevant patent or other laws clarifying any ambiguities and correcting any errors proactively.
  • Ensure commercial strategies are objectively justifiable and document the rationale.
  • Avoid creating documents (including emails) that can be read as evidence of intention to “highly mislead” patent offices or regulatory authorities and exploit procedures to delay competitors from entering the marketplace.
  • Avoid any conduct and avoid giving the impression of directly or indirectly excluding or delaying the entry by generic competitors into the market.
  • Ensure all employees understand the competition rules and their implications in the event of a breach for both the company and individuals.
  • Update competition compliance materials and deliver competition compliance training on a regular basis.