The Court of Justice of the European Union (CJEU)’s much anticipated early Christmas present for generic producers has arrived in the form of its judgment in the AstraZeneca case (Case C-457/10 P AstraZeneca AB and AstraZeneca plc v European Commission, 6 December 2012). The decision upheld that of the General Court and the Opinion of Advocate General Mazák, and suggests that the pharmaceutical industry may soon be faced with emboldened competition authorities.
At issue was the Commission’s finding of abuse of dominance (under Article 102 TFEU) for two abuses of the patent system by AstraZeneca (AZ). Firstly, the Commission found that AZ had made “misleading representations” to national patent offices in several Member States which enabled it to extend patent protection of one of its headline gastrointestinal treatments longer than should have been possible. Secondly, the selective deregistration of an older form of the drug had deprived generic producers of the simplified procedure for obtaining a marketing authorisation for their products under Article 4(3)(8)(a)(iii) of Directive 65/65.
Dismissing the appeal, the CJEU took a narrow approach to its role, choosing not to go behind many of the General Court’s extensive factual findings. The CJEU emphasised that a dominant undertaking “has a special responsibility [...] it cannot therefore use regulatory procedures in such a way as to prevent or make more difficult the entry of competitors on the market, in the absence of grounds relating to the defence of the legitimate interests of an undertaking engaged in competition on the merits or in the absence of objective justification” (at §134). It did not consider whether equally efficient competitors were being excluded by any of the alleged practices, despite the Grand Chamber’s general endorsement of the “efficient competitor” test in Post Danmark (at §22) earlier this year.
In the particular context of the pharmaceutical industry – with its fundamental reliance on research and innovation – AZ may have felt that it was on solid ground. Precedents such as ITT Promedia and IMS Health insist that the lawful use of an undertaking’s rights (whether procedural, such as through litigation in ITT, or substantive, as with IP rights in IMS) will only ‘exceptionally’ constitute an abuse under article 102 TFEU.Where there was an accepted, clear therapeutic difference in quality, AZ could legitimately have felt that its patent strategies were “competition on the merits” to protect a valuable blockbuster drug. Not so, said the CJEU, for dominant undertakings (which all the key pharmaceutical producers are likely to be in relation to specific treatments).
A number of the judgment’s consequences are worthy of note. The first is the apparent lowering of the threshold for a finding of abuse where an undertaking uses regulatory procedures to protect its valuable know-how. Although the CJEU emphasised factual findings which it felt demonstrated ‘misleading’ conduct by AZ, the ultimate position suggests that subjectivity is on the rise. Recent investigations in the UK (the OFT’s Reckitt Beckinser settlement agreement in April 2011) and Italy (the Italian Competition Authority’s Pfizer decision in January 2012) demonstrate that the key bugbear of authorities is the intention of a dominant undertaking to hinder or exclude generics from entering the market by using the regulatory procedures in place. Competition authorities will need to ensure that they do not undermine the objectivity of the concept of abuse (see §74 of the judgment) or fail to give proper weight to legitimate competitive strategies. Reports suggest that the Administrative Court of Lazio overturned the Pfizer decision precisely on that basis in September.
Moreover, this case was an acute illustration of the need for market-specific analysis. The Court’s reasoning did little to pierce the complex mesh of interests between pharmaceutical companies (producers), medical practitioners (prescribers), the ultimate consumer (the patient) and the payer (often national social security entities or private insurers). By taking the doctors’ perspective as its focal point the Court relied upon a certain amount of amalgamation of complex medical opinion across many Member States (and obviously did not share Voltaire’s piquant views of the medical profession – “[d]octors are men who prescribe medicines of which they know little, for persons of whom they know less” ((1694-1778), Épigrammes)). Indeed, the Court did not examine the therapeutic group with any degree of detail (e.g. comparison of prescription habits across the public-private divide, contrasting benchmark practices in different Member States), and endorsed the rather subtle distinction between PPIs and their main competitors (“prescribed to treat the same conditions […but] used differently” (at 72 of the GC’s judgment)).
This was perhaps most telling in the absence of any significant analysis of harm to the end consumer from the alleged abuses, where AZ’s practices often related to the introduction of a much more therapeutically effective medicine. Instead, the focus appears to have been on the harm to competitors – who are not classically protected by competition law (see the OECD’s guidance). The Court also did not account for the temporary dominance of undertakings in an industry where innovation can and systematically does undercut short term market power.
The end result is likely to embolden domestic enforcement authorities to call into question patent procedures (which in some cases take many years), despite their potential lack of specialist knowledge in that area. Undertakings with patents in place will need to ensure that a strong evidential basis is available to satisfy any potential investigators that its use of the regulatory system is driven by health-and innovation-related objectives. More generally, industry-specific detail will be key for dominant undertakings in all markets to satisfy authorities seeking to second-guess expert procedures.