UK: Lessons In Losec: The Astrazeneca Dominance Decision

Last Updated: 20 February 2013
Article by Publications Field Fisher Waterhouse

Introduction

December's decision of the Court of Justice of the European Union ("CJEU") in the AstraZeneca case is unsurprising: the Court refused AstraZeneca's application to have the General Court's decision set aside (AstraZeneca v. Commission1). The General Court last year essentially upheld the European Commission's decision of 20052, which found AstraZeneca guilty of having abused dominance by using its IPRs and the pharmaceutical regulatory system to prevent or delay the marketing of generic versions of its ulcer treatment drug, Losec.

The Commission's original infringement decision3 was seminal. It was the first abuse of dominance case in the pharmaceutical sector and remains to this day the only abuse decision that the Commission has taken in respect of a pharmaceutical company.

The Commission found that AstraZeneca had abused a dominant position in the period from 1993 – 2000 by:

  • submitting misleading information to national patent offices in order to acquire supplementary protection certificates (SPCs) which would extend the patent protection for Losec, and then defending those SPCs in court; and
  • misusing national rules to restrict parallel trade in, and block generic competitors to, Losec by launching a tablet form of the drug and withdrawing authorisations for the capsule form in certain national markets where patents or SPCs were due to expire4.


The General Court essentially upheld the Commission's infringement decision although it did reduce the level of the fine imposed on AstraZeneca from €60 million to €52.5 million because the Commission had not established that withdrawing marketing authorisations would have prevented parallel imports in Norway and Denmark. 

In upholding the General Court's decision, and the Commission's original infringement decision, and dismissing AstraZeneca's appeal in its entirety, the CJEU decision embeds an elevated antitrust risk environment for pharmaceutical companies, but also more broadly, for companies that operate in any IP rich environment. We have identified three key lessons. 

Lesson 1: there is a trend towards narrower market definition.

In AstraZeneca, the General Court endorsed the Commission's view that the way in which health care systems operate in the EU, particularly pricing and reimbursement mechanisms, tend to make narrower market definitions more appropriate. This echoes the narrower approach to market definition taken in EU Merger Regulation decisions in which the Commission assessed the transaction by looking at markets at ATC4 level and the molecular level (generally ATC5):

The market investigation in the present case indicates that it is only in a minority of cases that products based on alternative pharmaceutical ingredients, i.e. alternative molecules, can be considered as perfect substitutes for each other: Sanofi-Aventis/Zentiva5

The market investigation has indicated that, in particular for drugs purchased by hospitals, competition primarily takes place between drugs based on the same molecule: Teva/Barr6

The CJEU found that the General Court did not commit any error of law in its examination of the relevant market. It correctly examined the competitive interaction between proton-pump inhibitors (PPIs) such as Losec, and other gastro-intestinal pharmaceuticals, in particular, H2 blockers. The appellants argued that the only very gradual increase in use of PPIs at the expense of H2 blockers in spite of the therapeutic superiority of PPIs, evidenced the latter product exercising a competitive constraint on the former. The CJEU found that the General Court was entitled to conclude that it could not be assumed that there was a causal link between the gradual increase in sales of PPIs and any competitive restraint exercised by H2 blockers. The General Court had also correctly considered the entirety of the period of infringement (from 1993 – 2000) and had not limited itself to information relating only to the year 2000 as submitted by the appellants.

Lesson 2: first movers with IPRs face a risk of dominance even in sectors characterised by innovation

The General Court did not accept that because the pharmaceutical sector is characterised by strong competition by innovation, AstraZeneca's high market share, was less meaningful in assessing dominance than in other sectors.

In addition, the Commission's approach to, and analysis of, other factors to which it gave consideration in its dominance analysis were vindicated: the fact that AstraZeneca could charge higher prices for Losec was a relevant indicator for the purpose of assessing dominance, despite the fact that prices are the result of, or are strongly influenced by, public authorities; so too was its ownership and use of intellectual property rights; its first mover status; and its financial, human resource and sales force strength, particularly relative to generic suppliers of competing products.

This approach is not undermined by the CJEU's recent decision.

Lesson 3: the special responsibility on dominant companies can be extremely onerous

It is a well established principle of EU law that abuse is an objective concept referring to the behaviour of an undertaking in a dominant position7. Nonetheless, the Commission's finding that AstraZeneca had abused its dominance was to a large extent underpinned by the fact that the company had acted dishonestly by knowingly making misleading representations in connection with its applications for SPCs and withdrew marketing authorisations for the purpose of making it more difficult for generic products to enter.

Both the General Court and the CJEU validated the "forked tongue" approach to objectivity and subjective intent in identifying abuse. They confirmed that the misleading nature of the representations made to public authorities by AstraZeneca must be assessed on the basis of objective factors and that proof of the deliberate nature of the conduct and bad faith was not required. However, intention was nonetheless found to be a relevant factor in the assessment of abuse.

In addition, two active obligations appear to have been imposed on AstraZeneca:

  • AstraZeneca argued that its representations to the patent offices were not misleading because it had proceeded on the basis of its understanding of ambiguous EU legislation (and it had at the time obtained independent legal opinions supporting its interpretation). The Courts did not accept this and criticised AstraZeneca for refraining from disclosing to the patent offices both the manner in which it had interpreted SPC legislation relevant to its application and information as to what the date of first marketing would have been in the event that its interpretation of the legislation was incorrect. It follows that a dominant company might arguably be obliged to disclose the interpretation of legal provisions upon which it relies when applying for IP rights, to detail the "counterfactual" in the event that its interpretation of the law is incorrect.
  • In addition, AstraZeneca had a duty to notify the patent offices once it became aware that that its submissions were inaccurate and that as a result it had been granted an unlawful extension of its patent rights: in so far as an undertaking in a dominant position is granted an unlawful exclusive right as a result of an error by it in a communication with public authorities, its special responsibility not to impair, by methods falling outside the scope of competition on the merits, genuine undistorted competition ... requires it, at the very least, to inform the public authorities of this so as [to] enable them to rectify those irregularities.

The exact scope of these obligations and the extent to which they apply in relation to applications for IP rights other than SPCs (or other engagements with public authorities such as responding to procurements), is not clear. The question whether representations made to public authorities for the purpose of improperly obtaining exclusive rights are misleading must, according to the Courts, be assessed in concreto. In AstraZeneca, the Courts referred to a "manifest lack of transparency" as being contrary to the special responsibility of an undertaking in a dominant position not to impair genuine competition "on the merits".

The key issue would seem to be whether the practice was such as to lead the public authority wrongly to create regulatory obstacles to competition and in this the Courts endorsed the Commission's assertion that the limited discretion or absence of any obligation on public authorities to verify the accuracy of information may be a relevant factor in deciding whether the practice is liable to raise regulatory obstacles to competition.

Conclusion

The CJEU's decision opens the door to the likelihood of more extensive use of Article 102 by an emboldened European Commission, in the pharmaceutical sector and also more broadly in respect of IPR management strategies. Narrow markets, and the potentially very taxing ongoing obligations as regards disclosure of information to regulatory authorities, will make it easier for the Commission and national competition authorities to establish abuse of dominance infringements.

Footnotes

1. Case C-457/10P, AstraZeneca v. Commission

2. Case T-321/05, AstraZeneca v. Commission

3. Case COMP/A.37.507/F3 - AstraZeneca

4. At the time of the abuse, generic entry and parallel trade was limited unless originators' marketing authorizations remained in force.

5. Case M.5253

6. Case M.5295

7. For example, Case 85/76, Hoffman La Roche v. Commission

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Publications Field Fisher Waterhouse
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions