Summary of the Judgment
For the first time, the ECJ has annulled a Commission refusal to grant an individual exemption following a notification pursuant to the old notification system. The notification system was abandoned in 2004 and has now been replaced by a self-assessment system.
Regarding Article 81(1) EC, the ECJ does not go as far as GSK had argued and agrees that the Commission could find the existence of a restriction.
However, regarding Article 81(3) EC, the ECJ confirms that hindering parallel trade is not a per se infringement. It is susceptible of being justified under Article 81(3) EC. The Judgment also contains very helpful language for the pharmaceutical industry with regard to the test to be carried out pursuant to Article 81(3) EC. The ECJ holds that the Commission must take into account the context of the pharmaceutical industry when carrying out its assessment under Article 81(3) EC and must carefully review the likely gain in efficiency. The Commission may not limit itself to assessing the existence of negative effects.
Following the Judgment, the Commission procedurally might be free to reconsider GSK’s arguments and adopt a new decision. However, it is to be hoped that the Commission would accept the logic of the numerous decisions at national level which have found against parallel trade wholesalers.
In 1998, Glaxo Wellcome adopted a pricing arrangement for Spain, whereby it would charge wholesalers the local mandatory prices (set by the Spanish authorities for medicines dispensed in Spain under the Spanish reimbursement system) only for those products which are covered by the national reimbursement system, while at the same time setting a free market price for products which would be shipped to other Member States.
GSK notified the agreement in 1998 to the Commission, which adopted in 2001 a negative decision.
The Commission decision considered that a system whereby GSK’s Spanish affiliate charged two different prices for its products in Spain (a price set by the Spanish authorities for medicines dispensed in Spain under the Spanish reimbursement system, and a price freely set by GSK for medicines which would be exported) was “tantamount to an export ban”. The CFI overturned the Decision in 2006.
The CFI found that GSK’s arrangements, whereby it proposed to charge wholesalers the local mandatory prices only for those products which are covered by the national reimbursement system, while at the same time setting a free market price for products to be shipped to other Member States, did not have as its object the restriction of competition. The CFI stated that unlike in other economic sectors, the prices of medicines reimbursed by national sickness insurance schemes are not freely determined by supply and demand, but are set or controlled by the Member States. Therefore, according to the CFI, it cannot be presumed that parallel trade tends to reduce prices, thus increasing the welfare of final consumers.
However, the CFI also found that parallel trade may permit limited price reductions for health care funds; insofar as GSK’s arrangements prevent that advantage, they may have a restrictive effect. The CFI noted however, agreeing with GSK, that “competition by innovation is very fierce in the sector” and that competition on price exists after patent expiry and the arrival of generic medicines.
The CFI also found that the Commission had failed to carry out an adequate assessment of whether GSK’s arrangement can be exempted under Article 81(3) of the EC Treaty. The CFI stated that in particular, the question of whether the General Sales Conditions might give rise to an economic advantage by contributing to innovation, which plays a central role in the pharmaceutical sector, was not examined with sufficient thoroughness. On this ground the CFI annulled the Commission decision and awarded half of GSK’s legal costs.
Regarding Article 81(1) EC
Existence of restriction under 81(1) EC: The ECJ does not go as far as GSK had argued. It does not hold that the Commission was wrong to find the existence of a restriction.
Market integration: The ECJ repeats its Lelos finding as to the importance of market integration (§61) and that, in principle, restrictions of parallel trade constitute restrictions by object – also in the pharmaceutical sector (§§59-60).
Direct harm to end consumers not necessary for object restrictions: The ECJ holds that (direct) harm to end consumers cannot be required to find a restriction of competition under 81(1) EC. The ECJ overturns the CFI’s analysis, which had found that a restriction to parallel trade can only be qualified as a restriction by object if it may be presumed to deprive final consumers of the advantages of effective competition. The ECJ states that Article 81 aims to protect not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, competition as such (§§62-63).
Positive Findings for the Pharmaceutical
Industry regarding Article 81(3) EC Importance of economic context: The ECJ confirms that the Commission must take into account the nature and specific features of the pharmaceutical sector when carrying out its assessment under Article 81(3) EC
(§103). Justification possible: The Judgment confirms that restrictions to parallel trade are not per se violations in that they are susceptible to be justified under Article 81(3) EC. The ECJ holds that the Commission may not limit its analysis to Article 81(1) EC and the finding of an object infringement.
Improper analysis under 81(3): The ECJ upholds the CFI’s finding that the Commission failed to conduct a proper analysis under Article 81(3) EC. In particular, the Commission examined only whether the agreement gives rise to a loss of efficiency and failed to consider whether the agreement could also entail a gain in efficiency. The ECJ finds this examination insufficient (e.g. §§131, 157).
Likely positive effects: The ECJ defines the relevant test for the assessment under Article 81(3) EC in terms of likely positive effects. The ECJ holds that the relevant test is whether the appreciable objective advantage is sufficiently likely (§93). In other words, the Commission must ascertain whether in the light of the factual arguments and the evidence provided, it seems more likely either that the agreement in question must make it possible to obtain appreciable advantages or that it will not (§94).
Link with R&D investment: The ECJ holds that it is not necessary that all of the additional funds saved by hindering parallel trade must be invested in R&D (§102). Today’s judgment is helpful as linking reduced parallel trade to specific investments in R&D is difficult. The Commission was previously demanding proof that all money had to be devoted to R&D.
In general, contractual hindrances to parallel trade will be capable of being justified in appropriate circumstances. The Commission’s long standing hostility to any such measure may now be reconsidered.