The Competition and Markets Authority (CMA) has issued fines totalling £44.99 million to a number of pharmaceuticals companies for engaging in anti-competitive conduct and agreements in relation to the supply of paroxetine.
Background
The decision of the CMA relates to conduct and agreements involving GlaxoSmithKline (GSK) between 2001 and 2004. GSK was a leading supplier of paroxetine, an anti-depressant medicine, in the early 2000s, with 4.2 million prescriptions of Seroxat, GSK's own branded version of paroxetine, being issued in 2000 and sales of Seroxat exceeding £90 million in 2001. At this time GSK owned patents for paroxetine that provided them with protection for their highly valuable product.
Generics (UK) Limited (GUK) and Alpharma Limited (Alpharma) were among a number of other pharmaceutical companies moving towards production and distribution of a generic version of paroxetine for the UK market. GSK alleged that these companies were infringing the intellectual property rights it owned by way of the patents and commenced litigation against GUK and Alpharma.
Out of court settlements were reached between GSK and both GUK and Alpharma that included terms prohibiting entry into the UK paroxetine market. It is these agreements that have been found by the CMA to breach competition law rules and have resulted in the fine issued on 12 February 2016.
Legal Rules
Chapter I of the Competition Act 1998 (the Act) prohibits all agreements, decisions and practices that have as either their object or effect the prevention, restriction or distortion of competition within the UK, with Article 101 of the Treaty of the Functioning of the European Union (TFEU) prohibiting equivalent agreements that affect trade between Member States. The agreements between GSK and GUK and Alpharma ensured the delay of a generic form of paroxetine being introduced onto the UK market. This deprived the National Health Service of potentially acquiring the medicine at a cheaper price, something that is generally a result of the introduction of generic competition on a marketplace. Indeed, when there was a generic form of paroxetine introduced onto the UK market in 2003 the average price of paroxetine dropped by around 70%. By preventing this competition and its impact, the pharmaceutical companies were found by the CMA to have breached the legal rules prohibiting anti-competitive practices.
Chapter II of the Act prohibits abuse of a dominant position that may affect trade in the UK market and Article 102 TFEU controls abuse of a dominant position in the relevant market place within the EU. The two facets of the "relevant market" are the product market and the geographical market. In this instance the CMA found that GSK had abused its dominant position in the paroxetine market in the UK by providing potential competitors with cash payments and other value transfers to induce them into delaying entry into that market.
Conclusion
Although the agreements were made between GSK and the other pharmaceutical companies in the early 2000's, they were only brought to the attention of the Office of Fair Trading in 2010 and passed on to the CMA in 2014. The total fines issued last week of £44.99 million, included an individual fine to GSK of £37,606,275.
This is not the first occasion that pharmaceutical companies have experienced enforcement action from the competition authorities. In June 2013 the European Commission fined Danish pharmaceutical company Lundbeck €93.8 million, and other pharmaceutical companies (including Alpharma) €52.2 million, for preventing the market entry of competing generic versions of Lundbeck's anti-depressant citalopram. In the December of 2013 the European Commission again took action against pharmaceutical companies. On that occasion Johnson & Johnson and Novartis were fined €10,798,000 and €5,493,000 respectively for coming to an agreement that delayed the market entry of a generic version of the painkiller fentanyl.
The magnitude of the fines issued displays the seriousness with which both the CMA and European Commission take anti-competitive practices. Businesses found to have infringed prohibitions on anti-competitive practices or abuse of a dominant position can face fines of up to 10% of worldwide turnover and put themselves at risk from both significant financial and reputational damage.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
