In this insight, we explore the recent €462 million fine imposed by the European Commission (the "Commission") on Teva, an international pharmaceutical company, for abusing its dominant position in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU).
In arriving at this conclusion, the Commission found that Teva's conduct in:
- misusing the rules and procedures of the European Patent Office (EPO) in relation to divisional patents; and
- implementing a systematic campaign to disparage a competing medicine,
amounted to a single and continuous abuse of dominance, which had the overall aim of hindering or blocking market entry by competitors.
The Commission notes that list prices decreased by up to 80% once a competing medicine entered the market and considers that Teva's abusive conduct may have stopped price reductions in a number of EU Member States, adversely affecting public health budgets as a result.
This is the first time the Commission has found that these types of behaviour breach Article 102 TFEU and imposed a fine in relation to this conduct.1
While a public version of the Commission's decision is unlikely to be available for some time, Teva has already confirmed its intention to appeal, describing the decision as based upon legal theories that are "extreme, untested, and factually unsupported".2
Pending a public version of the Commission's decision, the Commission's press release,3 together with the accompanying statement by Executive Vice-President Margrethe Vestager,4 provide the following insights for businesses seeking either to "risk assess" their own conduct, or to potentially challenge the behaviour of a competitor.
Teva's dominance in relation to glatiramer acetate
Glatiramer acetate is the active pharmaceutical ingredient of Teva's "blockbuster" medicine, Copaxone, which is used for the treatment of multiple sclerosis.
Teva held a basic patent for glatiramer acetate which expired in 2015 (the "Basic Patent"). However, the Commission found that Teva's abusive conduct contributed to it maintaining a "quasi-monopoly" for glatiramer acetate in several EU Member States, for years after the expiry of the Basic Patent.
While the full extent of the Commission's analysis remains to be confirmed, the Court of Justice has previously clarified that:
- while "the importance of the market shares may vary from one market to another, the possession, over a long period, of a very large market share constitutes in itself, save in exceptional circumstances, proof of the existence of a dominant position", and "market shares of more than 50% constitute very large market shares";5 and
- "although the mere possession of intellectual property rights cannot be considered to confer [a dominant position] their possession is none the less capable, in certain circumstances, of creating a dominant position, in particular by enabling an undertaking to prevent effective competition on the market".6
Against this background, and in view of Teva's "quasi-monopoly", the Commission found that Teva held a dominant position on the markets for glatiramer acetate in: (i) Belgium; (ii) the Czech Republic; (iii) Germany; (iv) Italy; (v) the Netherlands; (vi) Poland; and (vii) Spain.
Teva's misuse of EPO rules and procedures
With the date of the expiry of the Basic Patent approaching, the Commission found that Teva used two existing secondary patents (with later expiry dates) to file multiple applications before the EPO for divisional patents further protecting the manufacturing process and dosing regimen of glatiramer acetate.
Divisional patents
The EPO's rules and procedures enable applications to be made for divisional patents. Divisional patents are derived from an earlier "parent" patent, and can protect specific subject matter that was included within the "parent" patent.
Once filed, divisional patent applications exist independently of the "parent" patent, as do divisional patents when granted.. Divisional patents can also become "parent" patents themselves, meaning that further divisional patents may be obtained from a divisional patent.
Abusive conduct
In the specific circumstances of the case, the Commission considered that Teva had:
- filed multiple divisional patent applications in a staggered way in order to spin "a web of secondary patents" around Copaxone;
- enforced its divisional patents to obtain interim injunctions and prevent competitors from entering with generic versions of Copaxone following the expiry of the Basic Patent; and
- unilaterally withdrawn divisional patents if they appeared likely to be revoked (often as late in proceedings as possible), in order to ensure that:
-
- the individual divisional patents could no longer be challenged, meaning that Teva could avoid any findings of invalidity in respect of those divisional patents, which could have been adverse to its other divisional patents protecting the manufacturing process and dosing regimen of glatiramer acetate; and
- competitors wishing to enter with generic forms of Copaxone needed to "repeatedly start new lengthy legal challenges" in their efforts to invalidate Teva's divisional patents and "clear the way to market", as a result of Teva's unilateral withdrawal of divisional patents that were being challenged.
The Commission concluded that Teva's misuse of the EPO rules and procedures was an abuse of dominance, and had served to artificially prolong "legal uncertainty over its patents", with the overall aim of hindering entry by generic forms of Copaxone following the expiry of the Basic Patent.
Again, while the full extent of the Commission's analysis remains to be confirmed, the Court of Justice has previously held that the fact a dominant company is permitted to take certain actions under other legal rules (such as under patent law) "in no way causes that conduct to escape the prohibition laid down in [Article 102 TFEU]". This is because "...the illegality of abusive conduct under [Article 102 TFEU] is unrelated to its compliance or non-compliance with other legal rules", and "...in the majority of cases, abuses of dominant positions consist of behaviour which is otherwise lawful under branches of law other than competition law".
Teva's campaign to disparage a competing product
The Commission also found that Teva implemented a systematic campaign to disparage a competing product shortly before the expiry of the Basic Patent.
Abusive conduct
Despite the competing product having been approved for use by health authorities, and its therapeutic equivalence to Copaxone having been established, Teva disseminated misleading information that cast doubt on the safety, efficacy, and therapeutic equivalence of this competing product.
In so doing, Teva targeted key stakeholders within public health services, including doctors as well as organisations involved in the pricing and reimbursement of medicines at a national level.
In the circumstances, the Commission concluded that Teva's disparagement campaign was an abuse of dominance, and that it had the aim of hindering or blocking market entry by the competing product.
Pending confirmation of the analysis undertaken by the Commission, it is notable that the Court of Justice has previously confirmed (albeit in the context of the application of Article 101 TFEU) that: "the dissemination, in a context of scientific uncertainty ...of misleading information relating to adverse reactions [resulting from the use of a medicine] ...with a view to reducing the competitive pressure [of that medicine upon another] ...constitutes a restriction of competition 'by object'".7
Key points to consider
- Exploiting permitted rules and procedures – the Commission appears to have focussed upon the misuse of patent-related rules and procedures by a dominant company, rather upon divisional patents in and of themselves.This approach has clear implications for dominant companies (or companies likely to be dominant) that are pursuing, or are considering pursuing, strategies that seek to exploit permitted procedural rules and procedures in order to make it harder for their competitors to enter the market and/or effectively compete.Importantly, such strategies may risk being found to breach Article 102 TFEU (or the Chapter II Prohibition in the UK), even if the conduct in question has not previously been found to constitute an abuse of dominance.
- Disparagement – Executive Vice-President Margrethe Vestager's statement accompanying the Commission's press release indicates that disparagement does not simply mean disseminating objectively false information but would also include efforts to "create doubts" about a competitor's product.This could potentially include "the dissemination of information which is in itself correct but is presented selectively or incompletely where, because of that manner of presentation, the information disseminated is likely to mislead those who receive it".8 While the Commission's focus to date has been upon the pharmaceutical sector, dominant companies (or companies likely to be dominant) in other sectors should ensure that any information they share about competitors' products and services does not risk breaching Article 102 TFEU.
- Actions for damages – the Commission's decision may be expected to prompt claims for damages to be commenced against Teva, particularly in view of the Commission's finding that the abuse of dominance may have prevented prices from reducing in a number of EU Member States.Companies found to have breached EU competition law should now expect to face claims for damages, potentially in a number of different jurisdictions, with lawyers representing claimants finding increasingly innovative means by which to advance their clients' positions.
- Legal privilege – the Commission's press release explains that: "the Commission also relied on documents from Teva's in-house lawyers who were involved in the design of its abusive strategy".Under EU law, if an in-house lawyer provides legal advice to its internal client (i.e. the company), this advice would not be protected by legal privilege.With this in mind, companies seeking to "risk assess" their current or planned commercial strategies should ensure that any assessments are protected by legal privilege under EU law insofar as possible.For example, this would mean obtaining legal advice from an external lawyer qualified to practise within an EU Member State, rather than from the company's in-house lawyer.
If you have any questions about the topics raised in this article, or how UK and/or EU competition law may affect your business more generally, please contact Gowling WLG's EU, Trade & Competition team.
Footnotes
1 An earlier Commission investigation into the alleged abusive disparagement of a competitor's products was closed by the Commission accepting legally binding commitments, but without the Commission finding an infringement of Article 102 TFEU.
2 See, Teva Statement on European Commission Decision; Company to Appeal.
5 Case C‑457/10 P AstraZeneca AB and AstraZeneca plc v Commission ECLI:EU:C:2012:770, paragraph 176.
6 Ibid, paragraph 186.
7 See, Case C-179/16 F. Hoffmann-La Roche Ltd and Others v Autorità Garante della Concorrenza e del Mercato ECLI:EU:C:2018:25, paragraph 95.
8 See, Case C-179/16 F. Hoffmann-La Roche Ltd and Others v Autorità Garante della Concorrenza e del Mercato ECLI:EU:C:2018:25, Opinion of AG Saugmandsgaard Øe, paragraph 158.
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