On Thursday, the Court of Justice of the European Union (CJEU) dismissed AstraZeneca's (AZ's) appeal against a €52.5 million fine originally levied by the European Commission in 2005 for abuse of a dominant position.  The fine was imposed after apparently misleading and contradictory representations were made by AZ in an attempt to secure Supplementary Protection Certificates for their revolutionary anti-ulcer drug Losec®.  The decision represents the first occasion on which the CJEU has considered the issue of market dominance in the pharmaceutical sector and has potentially important implications for companies in the field, especially those with pioneering products.

The process of bringing a pharmaceutical product to market is a long and ever-increasingly expensive one.  Even once a promising candidate has been identified from the vast numbers of compounds that must be tested to find a possible active agent, many years of refinement and safety and efficacy testing must be undertaken before a new medicine is ready to be released onto the market.  Drug regulatory authorities exist to ensure that new drugs are safe before they are sold to the public and a Marketing Authorisation (MA) must be obtained from those authorities before a drug can be legally marketed.  This testing consumes huge sums of money ($200M from lead optimisation to market would not be unexpected) and takes many years to complete.  As a result, the patent lifetime of 20 years from filing is often more than halfway to expiry before a drug ever reaches the market.  This could mean that the costs of developing the next new drug cannot be met from the revenue generated during that limited period of exclusivity that remains.

Supplementary Protection Certificates were first proposed by the European Commission in 1990 as a way to compensate innovative pharmaceutical companies for the costs of developing new drugs, by allowing up to 5 years of additional patent-like protection where regulatory delay has significantly reduced the useful term of a patent.  The corresponding Regulation came into force in 1993 but the transitional provisions governing which existing drugs could benefit varied between EU member states.  As a result, a drug that was eligible for an SPC in some countries might not be eligible in others; the key criterion for this distinction being the date of the first Marketing Authorisation in the EU.

Losec® had first been authorised in 1987, the year before the earliest allowable date for SPCs in Germany and Denmark.  However, by using instead the date on which a pricing structure was first agreed (March 1988), AZ were able to apply for SPCs in those countries and succeeded in extending the duration of protection in the key market of Germany.  They then proceeded to sue companies in Germany under the SPC in spite of a German decision to revoke that protection, which was under appeal at the time.  Many other instances of deception, inconsistency and misrepresentation were found when the issue was eventually investigated by the European Commission.

When, in 2005, the European Commission came to a decision regarding AstraZeneca's behaviour in securing SPCs covering Losec®, it was not the use of the somewhat questionable March 1988 date that was considered to be at issue.  An applicant is entitled to interpret legislation in any realistic way until that interpretation has been tested in court.  However, the consistent pattern of misleading representations was found to be abusive behaviour which had resulted in additional protection in several countries.  This was considered particularly serious because AZ were held to have a special obligation to ensure fair competition as a result of holding market dominance with their Losec® product.

One of the key issues, and one with potential implications for all innovative pharmaceutical companies, was the Commission's analysis of the "market" into which Losec® was sold.  This analysis has now been upheld by the highest court in the EU and concluded that rather than using a market definition based on the condition to be treated (in this case excess stomach acid), the market should be defined on the basis of Losec's mode of action.  Since Losec® was the first of a new generation of anti-ulcer medications that used "proton pump inhibitors" (PPIs) to reduce excess stomach acid, this resulted in AZ being essentially the only company in the market and so dominance (typically defined as a 40% market share) was easily established.

There are many lessons that can be drawn from the Losec® case with the most obvious being that objectively misleading statements submitted to patent offices are likely to lead to trouble.  Less crudely, however, the case should be seen as a warning to all companies in the sector that the "special obligations" of market dominance could apply no matter how small that company may be.  If your product is innovative enough that it has an entirely new mode of action then the "market" may consist of only your product.  This is a situation profoundly to be wished for by most companies but it is worth bearing in mind that every company in the sector may need to behave with the utmost integrity, just in case their wish comes true.