In a decision dated December 20, 2005,1 France’s antitrust agency, the Conseil de la Concurrence ("Conseil"), rejected complaints filed by French pharmaceutical wholesalers against several leading pharmaceutical manufacturers. The decision relates to so-called "supply quota systems" set up by manufacturers to plan and organize their supply and distribution in the EU. The wholesalers complained that such systems restrict supplies for exports outside France.2

The wholesalers raised three antitrust arguments before the Conseil. First, under Article 81 EC, that the manufacturers had coordinated their behavior vis-à-vis exporting wholesalers to limit supplies. Second, also under Article 81, that the manufacturers had concluded agreements with certain wholesalers aimed at limiting supplies to exporting wholesalers. Third, under Article 82 EC, that the companies had separately abused dominant positions on narrowly-defined relevant product markets for each individual specialty drug.

The Conseil rejected the first argument on the basis that the separate systems put in place by the manufacturers had different aims and characteristics and were not adopted at the same time. There was no evidence of collusion.

The second argument, regarding alleged "agreements" between manufacturers and wholesalers to restrict parallel trade, had been well rehearsed in the EU courts. In its landmark Bayer/Adalat judgment of January 2004, the European Court of Justice ("ECJ"), held that the imposition of a supply quota system – under which Bayer unilaterally limited supplies to exporting wholesalers – did not constitute an "agreement" to restrict parallel trade and could not, therefore, be prohibited under Article 81. In the case at hand, the Conseil applied the same reasoning as the ECJ, thereby further cementing the position under EU law that unilaterally imposed supply restrictions will not easily be regarded as "agreements" under Article 81.

It is particularly noteworthy that the Conseil accepted the manufacturers’ arguments that there were objective justifications for treating domestic exporting wholesalers differently than "pure" exporting wholesalers (i.e., wholesalers who cannot sell in France) – on the basis, for example, of the scale of historic orders and the public service requirements imposing obligations to supply domestic demand.

However, it is the Conseil’s rejection of the Article 82 arguments relating to alleged abuses of dominant market positions that may be of most interest to pharmaceutical manufacturers. In its Bayer/Adalat judgment, the ECJ recognized that it was delivering a resounding defeat to the Commission on the Article 81 issues. Nonetheless, one of the most-quoted sections of the judgment seemed to be a direct invitation to the Commission to attack the supply quota systems under Article 82 – "It should be made clear … that neither the possible application of … Article [82] … nor any other possible definitions of the relevant market are at issue in these proceedings." It is exactly these "other possible definitions of the relevant market" and the application of Article 82 that were at issue in the instant case.3

Two elements must be present for a finding of infringement of Article 82, namely (a) dominance on a relevant market, and (b) an abuse. The Conseil rejected the Article 82 argument on the basis that the supply restrictions/refusals did not constitute an abuse but in fact constituted legitimate commercial practices that were objectively justified. The existence of national price regulation was taken into account in the Conseil’s assessment, and it found that the manufacturers’ restrictions of supplies to "pure" exporters were objectively justified by their legitimate commercial interests, given that prices were regulated for domestic consumption while the "pure" exporters did not sell on the national market at all.

Although the Article 82 case failed as a result of the above finding alone, the Conseil nonetheless makes preliminary findings in relation to the market definition issues that determine the likelihood of a finding of dominance. The Conseil suggested that the relevant product markets should be defined on the basis of the "traditional"ATC third category therapeutic use methodology, as opposed to being defined more narrowly on the basis of separate markets for each specialty drug, as suggested by the complainants. Finally, the Conseil also noted that it would have rejected the complainants’ submission that drugs for parallel export constituted a separate relevant market, finding that parallel export was merely "a distribution channel" for products belonging to the wider overall market.

Following the recent reforms of the application of EU antitrust law, the Conseil’s decision will likely influence other European antitrust authorities. The European Commission supervises the enforcement practices of all 25 national antitrust agencies within the framework of the European Competition Network (ECN) and has an overriding duty to ensure "consistency" in the application of Articles 81 and 82 across the EU. Given that the Conseil has rejected this attempted application of Article 82 to supply quota systems, the chances of other national agencies coming to different conclusions would seem to have been reduced.

1 Décision no. 05-D-72 du 20 décembre 2005 relative à des pratiques mises en oeuvre par divers laboratoires dans le secteur des exportation parallèles de médicaments.

2 "Parallel trade" in the pharmaceutical industry occurs where drug prices vary from country to country due to national price regulation. In such circumstances, a wholesaler in "lowprice" country A will be able to achieve a better price by selling its product in "high-price" country B rather than on the domestic market in country A.

3 Earlier this year, there was a reference to the ECJ from the Greek antitrust agency relating to an alleged abuse of dominant position through supply restrictions, but it was rejected on procedural grounds.

This article has been prepared by Sidley Austin Brown & Wood LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.