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.
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.
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
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