On May 15, 2017, the European Commission (“Commission”) announced it had opened a formal investigation into a global pharmaceutical company for possible abuse of dominant position. The alleged conduct of the company, headquartered in South Africa, concerns its pricing practices for cancer medicines.
Article 102 of the Treaty on the Functioning of the European Union prohibits the abuse of dominant position and, in particular, directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions. In the European Union (“EU”), dominant companies are subject to a tougher standard than in other jurisdictions (e.g., the United States (“U.S.”)) since they hold a special responsibility not to impair genuine undistorted competition.
The investigation of the company is based on its pricing practices for generic medicines, described as “life-saving” by the EU Competition Commissioner Margrethe Vestager (“Competition Commissioner”), used for treating cancer. According to the Commission, there is information that the company “has imposed very significant and unjustified price increases of up to several hundred percent, so-called ‘price gouging.’” Furthermore, it will investigate allegations that the company has threatened to (or actually did) withdraw the medicines in some Member States (“MS”).
The investigation follows the imposition in September 2016 of a €5 million fine on the same company by the Italian Competition Authority (“ICA”). The ICA found that the company had obtained an increase in its prices of between 300 and 1500 percent in negotiations with the Italian Medicines Agency, which included threats to cease supply of four cancer drugs in Italy. The main concern stemming from the Commission’s excessive pricing investigation is the possibility of the antitrust enforcement agency acting as an unofficial price regulator. The Competition Commissioner has, however, reportedly stated that it is trying to avoid such risk as it acknowledges this is not its role.
The case confirms the renewed interest of the Commission in so-called “exploitative abuses” by dominant companies and excessive prices in particular. Despite the general difficulty in assessing what level of price should be considered as excessive, the Competition Commissioner had previously indicated that such abuses were on the Commission’s radar. This case marks the first investigation of the Commission into excessive pricing practices in the pharmaceutical industry and will cover the entire European Economic Area except for Italy where the conduct was already investigated by the ICA.