On 6 December 2012, the Court of Justice of the European Union (CJEU) upheld the European Commission’s decision fining AstraZeneca (AZ) for abuse of a dominant position. The European Commission concluded that AZ had abused its dominant position in two ways; firstly through misuse of the patent system to obtain supplementary protection certificates (SPCs) and, secondly, through misuse of the pharmaceutical regulatory system by selective withdrawal of certain marketing authorisations.
The European Commission's decision was regarded as significantly extending the scope of EU competition law on abuse of dominant position but has now been upheld firmly both by the European General Court and by the CJEU. The misuse of patent and regulatory procedures can consequently be regarded as an abuse of dominant position where such conduct has the over-riding purpose of excluding new entrants and in particular generic companies. The fact that the conduct in question may be lawful as a matter of the regulatory system, as in the case of the second abuse, will not be a defence where the conduct can be shown to have been pursued with an anti-competitive strategy of excluding new entrants from the market.
The CJEU issued its judgment on 6 December 2012 on AstraZeneca's appeal against the European General Court's judgment of 1 July 2010 which upheld the European Commission's decision of 15 June 2005 fining AstraZeneca (AZ) €60 million for abuse of dominant position, first through misuse of the patent system to obtain supplementary protection certificates (SPCs) and, second, through misuse of the pharmaceutical regulatory system by selective withdrawal of certain marketing authorisations. The General Court reduced the total fines from €60 million to €52.5 million but this fine was upheld by the CJEU.
The CJEU upheld the General Court's judgment as to the definition of the relevant product market and as to the findings of both the first abuse and the second abuse of dominance.
Relevant Product Market
As with all cases on abuse of dominance, it had to be shown that AZ was in a dominant position. The relevant market concerned products to treat acid-related gastro-intestinal diseases and conditions, in which AZ was the leading player through Losec. In particular, AZ was the pioneer of proton pump inhibitors (PPIs) and held the key technology protecting the active ingredient omeprazole.
The European Commission’s decision had contained very detailed consideration of the relevant market, including detailed data on the inter-relationship of price and sale trends, during a ten year period, of PPIs and H2 blockers, in order to show that PPIs constituted a distinct market. The Commission decision included a dynamic analysis of trends of usage and demand and patient prescribing practice over the relevant period, in order to show that there was a significant patient population for which only prescription PPIs provided appropriate treatment. Unusually, in order to show that PPIs constituted a distinct market, they had to refer to the fourth ATC level (which refers to a medicine’s mode of action), departing from the normal starting point of the third ATC level (which refers to the therapeutic indications).
The Court upheld the finding that the treatment of more severe symptoms involved replacing H2 blockers by PPIs which were a more powerful medicine. However, the competitive constraints exercised by the two product groups were not reciprocal in that PPIs exercised a constraint on H2 blockers but not vice versa. This asymmetrical substitutability supported a finding that PPIs were in a distinct market.
The CJEU rejected AZ's argument that H2 blockers and Losec PPI together formed a product market. The General Court had concluded on the basis of medical evidence that throughout the entirety of the relevant period (1993-2000) PPIs and H2 blockers were used differently. The General Court was held to have based its findings on the correct premise that the burden of proof lay with the Commission in examining whether it concludes on the basis of the information in the file that H2 blockers did not exercise a significant competitive constraint over PPIs, so as to be part of the same market.
Abuses of dominance:
The two abuses of AZ’s dominant position concerned behaviour in relation to separate systems. The first abuse concerned the patent system, whereby up to five years extra protection can be granted on expiry of a patent in the form of a supplementary protection certificate (SPC) in respect of the active ingredient of a pharmaceutical product, calculated by reference to the patent protection remaining after the date of first marketing authorisation. The second abuse concerned the procedures and conditions under EU and national regulatory law relating to the marketing authorisation of a pharmaceutical product.
The first abuse – misrepresentations to patent offices concerning SPCs:
The first abuse of dominance involved “misrepresentations” comprised in statements made by AZ to patent offices in various EEA Member States regarding the date for calculating the duration of SPC protection for omeprazole in various European countries. An SPC application must be filed within six months of the grant of the first marketing authorisation in each EU country and the term of the SPC is limited to the lesser of five years from patent expiration and fifteen years from the first European marketing authorisation.
The date of first marketing authorisation is therefore a key factor and AZ referred to March 1988 of the “first authorisation date”, whereas the Commission demonstrated that a marketing authorisation had been issued in France in 1987. This resulted in AZ gaining an additional period of protection for Losec in some countries and excluding the possibility of generic competition for a period of several months longer than was justified under the SPC system.
The General Court upheld the findings of misleading representations to patent offices (and subsequently to a national court, in the context of invalidity proceedings brought by competing generic manufacturers). The submission of each misleading information to a public authority liable to lead to the grant of an exclusive right to an undertaking which is not entitled to that right or which is only entitled to such rights for a shorter period, was held by the Court to be “a practice falling outside the scope of competition on the merits which may be particularly restrictive of competition” (paragraphs 355 and 375).
The Court reached this conclusion without needing proof that the resulting SPCs had been enforced, and without needing proof that AZ was still in a dominant position at the time when the SPCs conferred the supplementary protection, and without needing proof of a direct effect (as opposed to an indirect effect) on competition or proof that the national patent offices had actually allowed themselves to be mislead (or as to whether they had detected the inaccuracies in the information provided to them).
The CJEU upheld the General Court's conclusions that AZ's consistent conduct was characterised by the notification to patent offices of highly misleading representations and by a manifest lack of transparency (inter alia as regards the existence of the French authorisation), and that AZ had thereby deliberately attempted to mislead the patent offices in order to keep its monopoly on the PPI markets as long as possible (paragraph 93). This conduct fell outside the scope of competition on the merits.
The CJEU stated that even if AZ had taken the view that the French authorisation of 1997 constituted the relevant authorisation to which the SPC legislation referred, the onus was on AZ to disclose to the patent offices all the relevant information and in particular the existence of the French authorisation, in order to allow them to decide, with full knowledge of the facts, which of the authorisations they wished to accept for purposes of issuing the SPC (paragraph 95).
The CJEU further stated that in the light of the facts found by the General Court (which AZ did not question) its arguments concerning the first abuse were "tantamount to an argument that where an undertaking in a dominant position considers that it can, in accordance with a legally defensible interpretation, lay claim to a right, it may use any means to obtain that right and even have recourse to highly misleading representations with the aim of leading public authorities into error".
This approach was "manifestly not consistent with competition on the merits" or with the specific responsibility of a dominant undertaking not to prejudice effective and undistorted competition in the EU (paragraph 98).
The CJEU did state, however, that the assessment of whether representations are made to public authorities for the purposes of improperly obtaining exclusive rights are misleading, must be made by reference to the particular circumstances of each case. It could not be inferred from the General Court judgment that any patent application made by a dominant undertaking which is rejected for non-compliance with the patentability criteria automatically gives rise to liability under Article 102 TFEU.
The CJEU concluded also that the conduct by AZ formed part of an overall strategy seeking to unlawfully exclude manufacturers of generic products from the market by means of obtaining SPCs in breach of the relevant regulatory framework and the existence of an abuse was not affected by the fact that the strategy was not successful in certain countries, in particular Denmark and initially Ireland and the UK. The CJEU also reiterated existing case law to the effect that although the conduct of a dominant undertaking cannot be abusive in the absence of any anti-competitive effect, such anti-competitive effect does not necessarily have to be concrete. It is sufficient to demonstrate that there is a potential anti-competitive effect in order for there to be an abuse (paragraph 112).
The second abuse – selective deregistrations of the capsule marketing authorisation:
The second abuse involved misusing the rules and procedures applied by national regulatory authorities which allow reliance by new entrants on the pharmacological and toxicological tests and clinical trials which such authorities used to grant the marketing authorisation of an original product. AZ selectively deregistered the marketing authorisations for Losec in Denmark, Norway and Sweden when it ceased marketing capsules on those markets and launched Losec (MUPS) tablets instead.
This enabled it to take strategic advantage of the marketing authorisation rules by preventing generic omeprazole manufacturers from showing that their products were essentially similar to those covered by the original reference product, for purposes of obtaining their own marketing authorisation for capsules. The manufacturer of a generic product may only rely on the clinical data that were used to obtain the marketing authorisation of the original product after a period of six or ten years from the original marketing authorisation, and where that original marketing authorisation still subsists. Thus the deregistration of Losec capsules prevented the ability of generic manufacturers to rely on this data to obtain marketing authorisations for the launch of their own generic products.
The CJEU reiterated that a dominant undertaking has a responsibility not to use regulatory procedures in such a way as to prevent or make more difficult the entry of competitors, in the absence of grounds related to “competition on the merits” or in the absence of objective justification (paragraph 134).
The CJEU confirmed that although the European Commission had defined the second abuse as resulting from the combination of the deregistrations of the marketing authorisations for Losec capsules with the conversion of sales of those capsules to Losec MUPS, the central element of the abuse consisted in the deregistrations; it was the deregistration alone which was liable to produce the anti-competitive effects and to be regarded as an abuse (paragraph 140). The CJEU reiterated that an undertaking in a dominant position has a special responsibility in that regard. A dominant undertaking therefore cannot use regulatory procedures in such a way as to prevent or make more difficult the entry of competitors on the market (paragraph 134).
It was no defence for AZ to point out that its conduct in withdrawing its marketing authorisations for Losec capsules was lawful under the relevant EU legislation (Directive 65/65). As the General Court had pointed out, the illegality of abusive conduct under Article 102 TFEU is unrelated to its compliance or non-compliance with other legal rules (paragraph 132). Moreover, in the majority of cases, abuse of dominant position consists of behaviour which is otherwise lawful under other branches of law.
The CJEU did, however, emphasise that even a dominant undertaking is entitled to pursue a strategy having the objective of minimising the erosion of its sales and to enable it to deal with competition from generic products, provided that the relevant conduct does not depart from practices coming within the scope of competition on the merits (paragraph 129).
AZ raised further arguments that the Commission's application of competition law amounted in effect to expropriation of the right to request deregistration of a marketing organisation, by virtue of the fact that the prohibition on deregistration is a form of compulsory licensing. However, the CJEU concluded that the possibility provided for in Directive 65/65 of deregistering a marketing authorisation is not equivalent to a property right. Consequently, the fact that a dominant undertaking cannot make use of such a possibility in a way that prevents or renders more difficult the entry of competitors on the market in the absence of objective justification does not constitute either an "effective expropriation" of such a right or an obligation to grant a licence, but rather is a straightforward restriction of the options available under EU law (paragraph 149).
The CJEU also upheld the General Court's conclusion that the fact that the regulatory framework offers alternative means, which are longer and more costly, to obtain a marketing authorisation, did not prevent the conduct of a dominant undertaking being abusive where that conduct (considered objectively) has the sole purpose of preventing the marketing authorisation data being available to other suppliers after the end of the statutory exclusivity period. AZ’s conduct excluded generic producers from the market for as long as possible, thereby delaying the significant competitive pressure to be exerted by those generic products (paragraph 154).
AZ argued that the fine should be further reduced to reflect the novelty of the two abuses of dominant position. The CJEU held that the two abuses had the deliberate aim of keeping competitors away from the market. Therefore, it held that even though the Commission and the European Courts had not yet had the opportunity of ruling specifically on conduct which characterised those abuses, AZ was nonetheless aware of the highly anti-competitive nature of its conduct and should have expected it to be incompatible with the EU competition rules. The General Court was fully entitled to find that the conduct was "manifestly contrary to competition on the merits".
The European Commission's decision was regarded as significantly extending the scope of EU competition law on abuse of dominant position. This has now been upheld firmly both by the European General Court and by the CJEU. The misuse of patent and regulatory procedures can now be regarded as an abuse of dominant position where such conduct has the over-riding purpose of excluding new entrants and in particular generic companies. The fact that the conduct in question may be lawful as a matter of the regulatory system, as in the case of the second abuse, will not be a defence where the conduct can be shown to have been pursued with an anti-competitive strategy of excluding new entrants from the market.
In all such cases, however, it will be necessary to consider the actual effects of the dominant company's behaviour. The CJEU judgment makes clear that there is no per se abuse in relation to misleading patent offices. Representations designed to obtain exclusive rights can constitute an abuse only if it is established that, in view of the context, those representations are actually likely to lead to the grant of the exclusive rights applied for.
Thus the Commission's decision and the European Court judgment imposed constraints on dominant companies seeking to limit generic competition through the misuse of the patent or regulatory systems. However, the principles emerging from the case must be limited to the specific types of situation addressed in the decision and judgment.