AstraZeneca and Losec: judgment of the General Court

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1 AstraZeneca and Losec: judgment of the General Court CHRISTOPHER STOTHERS 1 Counsel at Arnold & Porter (UK) LLP, London and Visiting Lecturer at University College London MARK GARDNER Senior Associate at Arnold & Porter (UK) LLP, London This article considers the potential impact of the European Commission s decision and the General Court s judgment in AstraZeneca, 2 particularly in the light of the Commission s Pharmaceutical Sector Inquiry which concluded on 8 July After setting the scene, it looks at three key aspects: dominant position, Supplementary Protection Certificates and selective deregistration of marketing authorisations. It concludes that the decision and judgment bring with them an unwelcome level of uncertainty which risks discouraging innovation and further weakening the pharmaceutical sector in Europe. Omeprazole On 14 April 1978, AB Hässle filed a patent application with the Royal Swedish Patent Office. The inventors were Ulf Krister Junggren and Sven Erik Sjöstrand and the application was for an invention entitled gastric acid secretion agents, covering the chemical compound omeprazole. Omeprazole is a proton pump inhibitor ( PPI ) and is the novel active substance in the anti-ulcer medicine Losec. Losec was marketed by Hässle s parent company, Astra AB, which in 1999 merged with Zeneca Group plc to form AstraZeneca plc. On 1 June 1978, the European Patent Office began accepting applications for patent protection. On 3 April 1979, AB Hässle STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT : VOL 11 ISSUE 2 BSLR 39 filed an application with the European Patent Office, claiming priority from its Swedish application, and on 29 April 1981 the application was granted as EP 0,005,129. The patent covered Belgium, France, Italy, Luxembourg, the Netherlands, Switzerland, the United Kingdom and West Germany. Counterpart national patents were granted in Austria, Denmark, Finland, Ireland and Norway, among other countries. Before Losec could be launched in Europe, Astra needed to obtain a marketing authorisation, price approval and reimbursement approval, all of which at that time were determined by individual Member States. Losec received its first marketing authorisation in France on 15 April 1987, followed by a further authorisation in Luxembourg on 16 November However, Losec could not be sold until it received price approval. The first decision was in Luxembourg, where price approval was granted on 17 December 1987 but not published until 21 March 1988, while price approval was not published in France until 22 November Therefore, Astra was unable to sell Losec until around ten years after filing its priority patent application. As approvals were eventually obtained, Losec became a blockbuster drug, with sales of $1.7 billion in 1993 rising to $4.8 billion in Given the size of this market and the variations in prices between Member States due to national regulation, Losec also became a target for parallel trade from high price countries to low price countries. However, the patents were due to expire between April and August For such a blockbuster drug, where data exclusivity had already expired, that would almost certainly lead to the entry of competition by third parties producing generic versions of omeprazole and consequently a dramatic reduction of prices. Unsurprisingly, Astra had taken various steps to prepare for these changing market conditions and to ensure its continued presence in the anti-ulcer market. Such management behaviour has been widely known for many years and in many industries as product life cycle management. In particular, Astra had sought to extend its existing patent protection for Losec, by applying for Supplementary Protection Certificates, and it had continued development of omeprazole, including by launching Losec MUPS (Multiple Unit Pellet System) tablets in place of Losec capsules. Astra also took action to defend and enforce its rights. 1) Arnold & Porter represented the intervener in this case, the European Federation of Pharmaceutical Industries and Associations (EFPIA). However, the authors themselves did not act for the intervener in this case and the views expressed are strictly their own. 2) Commission Decision C(2005) 1757 final AstraZeneca (15 June 2005); Case T-321/05 AstraZeneca v Commission (1 July 2010). 3) See the Commission s website, sectors/pharmaceuticals/inquiry/index.html (last visited 22 August 2010).

2 40 VOL 11 ISSUE 2 BSLR : STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT Commission Investigation On 12 May 1999, Generics (UK) Limited and Scandinavian Pharmaceuticals Generics AB lodged a complaint alleging abuse of a dominant position by Astra. On 9 February 2000, the European Commission began an investigation and on 15 June 2005 decided that AstraZeneca had indeed held and abused a dominant position. Specifically, the Commission found that AstraZeneca had restricted competition from parallel traders and generic manufacturers through its applications for Supplementary Protection Certificates and its selective deregistration of marketing authorisations for Losec capsules in Denmark, Norway and Sweden. Although it recognised the novelty of the case, the Commission fined the company 60 million. AstraZeneca appealed, but on 1 July 2010 the General Court 4 largely upheld the decision of the Commission. However, it annulled the Commission s finding that the deregistration of marketing authorisations for Losec capsules in Denmark and Norway was capable of restricting parallel imports of capsules into those countries and reduced the fine to 52.5 million. Three key aspects of the case will now be considered: whether Astra held a dominant position on a relevant market, whether Astra abused that dominant position through its applications for Supplementary Protection Certificates and whether Astra abused that dominant position through its selective registration of Losec MUPS tablets and withdrawal of authorisations for Losec capsules. Dominant Position The Commission concluded that Astra held a dominant position in the market for PPIs in Belgium, Denmark, Germany, the Netherlands, Norway, Sweden and the United Kingdom under Article 82 of the EC Treaty 5 and Article 54 of the EEA Agreement. That dominance lasted from 1993 until 1997 in Germany and until 1999 or 2000 in the other countries. On appeal, the General Court agreed with the Commission s assessment. A two-stage analysis is required before concluding that an undertaking holds a dominant position. First, the relevant product and geographic market(s) in which the undertaking competes must be defined. Second, whether that undertaking is dominant in that relevant market must be assessed by reference to various factors, including but not limited to its share of the market. Market Definition The Commission Notice on the definition of the relevant market for the purposes of Community competition law 6 explains that the main purpose of market definition is to identify in a systematic way the competitive constraints faced by the undertakings concerned. More specifically, the objective is to identify those actual competitors that are capable of constraining an undertaking s behaviour and of preventing it from behaving independently of effective competitive pressure. An assessment of the relevant product and geographic market must therefore be undertaken before a finding of dominance can be established. In pharmaceutical cases, the Commission has consistently found the relevant geographic market to be a national market. In its decision against AstraZeneca, the Commission followed this approach and concluded that the relevant markets for PPIs were national markets. In particular, the Commission noted the different price and reimbursement rules, as well as the different brand and packaging strategies, different distribution and different prescribing habits of physicians that exist between national markets. Neither of the parties contested the Commission s findings on the relevant geographic market. In relation to the relevant product market, the key question for the Commission (and later the General Court) to assess was whether Losec competed only with other PPI products (in which case the relevant product market would only comprise PPIs), or whether antihistamines (H2-receptor antagonists or H2 blockers) exercised a significant competitive constraint on PPIs such that the relevant product market should be wider and include both PPIs and H2 blockers. The Commission has often used the Anatomical Therapeutic Chemical (ATC) classification system, recognised and used by the World Health Organisation, when defining markets. 7 In this case PPIs and H2 blockers shared the same therapeutic indication at ATC level 3 (both being classified as A02B, Drugs for peptic ulcer and gastro-oesophageal reflux disease ) but differed at ATC level 4 due to their modes of action (classified as A02BC and A02BA respectively). 4) Since 1 December 2009, the new name for the Court of First Instance, under the Treaty of Lisbon. 5) Since 1 December 2009, Article 102 of the Treaty on the Functioning of the European Union as a result of the Treaty of Lisbon. 6) OJ 1997 C372/5. 7) For instance, in the Commission s clearance of the merger between Astra and Zeneca: Case COMP/M.1403 Astra/Zeneca OJ 1999 C335/3. In paragraph 7 of that Decision, the Commission stated The third level of the ATC classification allows medicines to be grouped in terms of their therapeutic indications, i.e. their intended use, and can therefore be used as an operational market definition. However, it may be appropriate to carry out analyses at other levels of the ATC classification.

3 STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT : VOL 11 ISSUE 2 BSLR 41 However, the Commission concluded that, despite the shared therapeutic indication, PPIs faced no significant competitive constraints from H2 blockers or other products used for the treatment of acid-related gastro-intestinal diseases or conditions at the relevant times in the relevant geographic markets (Belgium, Germany, the Netherlands, Norway, Sweden and the United Kingdom). In reaching this conclusion, the Commission looked at a number of different factors including product characteristics, therapeutic uses and price. The Commission noted the revolutionary nature of PPIs as a result of their direct blocking effect on the acid-producing proton pump in the stomach s cells. In contrast, H2 blockers acted only indirectly, targeting one of several factors stimulating the proton pump (the histamine receptors) without any direct effect on the pump itself. The mode of action of PPIs was, therefore, fundamentally distinct from that of other categories of medicines used within the field and PPIs were widely considered to be therapeutically superior to H2 blockers. Compared to other available medicines, PPIs manifestly appeared to yield superior results in terms of symptomatic relief, cost effectiveness, healing rates and longterm treatment/prevention of recurrence. In particular, the Commission found that there was a significant patient population for which only prescription PPIs provided sufficiently appropriate and effective response to their conditions. Perhaps unsurprisingly, given these findings, the Commission also found that the prices of PPIs were significantly higher than those of H2 blockers during the relevant period. In light of these factors, the Commission concluded that H2 blockers did not exert a significant competitive constraint on PPIs and that, therefore, the relevant product market was constituted of only PPI products. AstraZeneca appealed certain aspects of the Commission s analysis of the relevant product market to the General Court. However, the General Court largely upheld the Commission s conclusions and found that it had been right to conclude that H2 blockers did not represent a competitive constraint on PPIs. In particular, the General Court noted the following: Whilst PPIs and H2 blockers were prescribed to treat the same condition, the greater effectiveness of PPIs meant that they were used differently: PPIs were essentially prescribed to treat the severe forms of gastrointestinal acid-related conditions and H2 blockers were prescribed to treat the less severe, or milder, forms of those conditions. The fact that sales of PPIs had increased only gradually at the expense of sales of H2 blockers did not demonstrate that the products were part of the same relevant product market; rather, the slow transition from H2 blockers to PPIs was as a result of doctors being cautious about prescribing a new drug (the General Court noted that there had been some concerns about the possible carcinogenic effects of PPIs). The difference between the absolute prices of PPIs and H2 blockers reflected to a large extent the public authorities perception of the greater therapeutic efficacy of PPIs in comparison with H2 blockers. Dominance Once the relevant market had been determined, the question was whether Astra had enjoyed a dominant position on the market. A dominant position has been defined by the European Court of Justice as a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers. 8 The Commission found that Astra was dominant in the national markets for PPIs in Belgium, Denmark, Germany, the Netherlands, Sweden, the United Kingdom and Norway during the relevant period. In reaching this conclusion, the Commission took into account a number of factors including: Astra s market shares, its first-mover advantage as an incumbent on the PPI market, the price it charged for its PPI products, the buyer power of downstream customers and its overall financial strength. The Commission found that Astra had significant market shares (all were above 50 per cent) in all of the relevant national markets. In some markets, Astra s shares had been above 90 per cent for certain periods. The Commission found that Astra had enjoyed significant competitive advantages as an incumbent on the PPI market. In particular, the Commission noted that Losec was marketed for five years within the EEA before the first competing PPI (Takeda s lansoprazole) was launched in The Commission also found that in general, Astra had been able to maintain higher prices than its PPI competitors and that Astra s claims about the buyer power of national health systems were exaggerated. Finally, the Commission analysed Astra s 8) Case 27/76 United Brands v Commission [1978] ECR 207, paragraph 65.

4 42 VOL 11 ISSUE 2 BSLR : STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT financial strength and found that its annual turnover dwarfed that of the other two main research companies on the PPI market (Takeda and Byk Gulden). On appeal, the General Court agreed with the Commission s assessment of Astra s dominant position on the relevant markets. The General Court explained that Astra s ability to obtain higher prices or reimbursement levels reflected the advantage that it derived from its first-mover status on a market which it pioneered and that the Commission was entitled to take the view that Astra s high market shares, which were out of all comparison to the shares of its competitors, was a relevant indicator of market power. Furthermore, the fact that Astra had been able to maintain a much higher market share whilst charging prices higher than those charged for other PPIs was a relevant factor, indicating that the company could act independently of its competitors, customers and consumers. The General Court also said that it did not matter that Astra s position was made possible or favoured by social security systems. The General Court confirmed that the Commission had been correct to take into account Astra s intellectual property rights when assessing its position on the market. In this regard, the General Court agreed with the Commission that the patent protection enjoyed by Losec enabled Astra to exert significant pressure on its competitors, which was itself an indicator of dominance. Lastly, the General Court agreed that the Commission s findings in relation to Astra s financial superiority, although not conclusive in themselves, were relevant indicia to support a finding of dominance. The Commission and General Court then had to turn to the alleged abuses of that dominant position, which related to Supplementary Protection Certificates and selective deregistration of marketing authorisations. Supplementary Protection Certificates Supplementary Protection Certifications ( SPCs ) were introduced by Regulation 1768/92 9 as, in effect, a form of patent term extension for pharmaceutical products. Applications for SPCs are made to national patent offices. Under Article 3 of the Regulation, an SPC could only be granted where a valid authorization to place the product on the market as a medicinal product has been granted in accordance with Directive 65/65/EEC or Directive 81/851/EEC, as appropriate and where that authorisation was the first authorization to place the product on the market as a medicinal product. Directive 65/65 provided the rules for marketing authorisations for human pharmaceuticals while Directive 81/851 dealt with veterinary pharmaceuticals. The SPC, once granted, lasts from the expiry of the patent until the earlier of 15 years from the date of first authorisation or five years from the expiry of the patent (in other words, 25 years from the date of the application for the patent). These provisions on length of protection are complicated, but can be summarised as follows: No SPC is available if the first authorisation is obtained within five years of the filing of the patent application. The SPC expires 15 years from the date of first authorisation if that authorisation is obtained between five and ten years after filing of the patent application. The SPC expires five years from expiry of the patent if the first authorisation is obtained more than ten years after filing of the patent application. The Regulation entered into force on 2 January 1993 and, under Article 19, protection could be sought for pharmaceuticals which were already the subject of patents and authorisations. However, in Denmark and Germany (and subsequently also Finland and Norway) this only applied to pharmaceuticals for which the first authorisation to place it on the market as a medicinal product in the Community was obtained after 1 January Therefore, for Losec the crucial date was the date of the first authorisation, and whether this was the date of the first technical marketing authorisation (15 April 1987 in France), the grant or publication of its first price approval (17 December 1987 or 21 March 1988 in Luxembourg) or some other date. This would determine the length of protection for most countries and, crucially, would determine whether or not any protection at all was available in Denmark or Germany. Astra took the view that the Regulation referred to the date of the first price approval, not the first technical marketing authorisation, and sought protection based on that date when it filed its applications with national patent offices which took a range of views. In Germany, the SPC was granted and became the subject of litigation before the German courts which went up to the Bundesgerichtshof. That court determined that it was necessary to refer the case to the European Court of Justice, which it did by order on 1 February 9) Regulation 1768/92, OJ 1992 L182/1, now codified as Regulation 469/2009, OJ 2009 L152/1.

5 STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT : VOL 11 ISSUE 2 BSLR In due course, and almost two years after the Opinion of the Advocate General, the Court of Justice gave its judgment on 11 December In that judgment, it held that the relevant date for Article 19, as for Article 3, was the date of the first marketing authorisation in the Community. 10 In this case, that meant the relevant date was 15 April 1987 and the SPC in Germany was invalid. After an incredibly detailed review of the evidence before it, including many submissions that would normally be expected to fall within the scope of legal privilege (at least in England and Wales), the Commission considered that the representations which had been made by Astra to national patent offices when it applied for SPC protection were misleading and thus abusive. The Commission noted in particular that the only remedy for competitors would be to seek to revoke or shorten the SPCs, and that damages would not be available to those competitors. On appeal, AstraZeneca argued (among other things) that acquisition of intellectual property rights can only be abusive where this is done fraudulently and the rights are then enforced, making reference to the US Walker Process doctrine. 11 However, the Court rejected this argument in very broad terms, holding as follows: 355 In the present case, the Court observes that the submission to the public authorities of misleading information liable to lead them into error and therefore to make possible the grant of an exclusive right to which an undertaking is not entitled, or to which it is entitled for a shorter period, constitutes a practice falling outside the scope of competition on the merits which may be particularly restrictive of competition. Such conduct is not in keeping with the special responsibility of an undertaking in a dominant position not to impair, by conduct falling outside the scope of competition on the merits, genuine undistorted competition in the common market (see, to that effect, [Case 32/81] Nederlandsche Banden-Industrie-Michelin v Commission [[1983] ECR 3461], paragraph 57). 356 It follows from the objective nature of the concept of abuse ([Case 85/76] Hoffmann-La Roche v Commission [[1979] ECR 461], paragraph 91) that the misleading nature of representations made to public authorities must be assessed on the basis of objective factors and that proof of the deliberate nature of the conduct and of the bad faith of the undertaking in a dominant position is not required for the purposes of identifying an abuse of a dominant position. 357 The Court would point out that the question whether representations made to public authorities for the purposes of improperly obtaining exclusive rights are misleading must be assessed in concreto and that assessment may vary according to the specific circumstances of each case. In particular, it is necessary to examine whether, in the light of the context in which the practice in question has been implemented, that practice was such as to lead the public authorities wrongly to create regulatory obstacles to competition, for example by the unlawful grant of exclusive rights to the dominant undertaking. In this respect, as the Commission asserts, the limited discretion of public authorities or the absence of any obligation on their part to verify the accuracy or veracity of the information provided may be relevant factors to be taken into consideration for the purposes of determining whether the practice in question is liable to raise regulatory obstacles to competition. 358 Moreover, 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 in the common market requires it, at the very least, to inform the public authorities of this so as enable them to rectify those irregularities. 359 The Court would also point out, in the light of the applicants arguments set out in paragraphs 309, 312 and 314 above, that, although proof of the deliberate nature of conduct liable to deceive the public authorities is not necessary for the purposes of identifying an abuse of a dominant position, intention none the less also constitutes a relevant factor which may, should the case arise, be taken into consideration by the Commission. The fact, relied upon by the applicants, that the concept of abuse of a dominant position is an objective concept and 10) Case C-127/00 Hässle AB v Ratiopharm GmbH [2003] ECR I ) Walker Process Equipment, Inc. v Food Machinery & Chemical Corp., 382 US 172 (1965). For a recent summary of the doctrine, see Robert Matthews A primer on US antitrust claims against patentees under Walker Process [2007] JIPLP 657.

6 44 VOL 11 ISSUE 2 BSLR : STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT implies no intention to cause harm (see, to that effect, [Case T-128/98] Aéroports de Paris v Commission [[2000] ECR II-3929], paragraph 173) does not lead to the conclusion that the intention to resort to practices falling outside the scope of competition on the merits is in all events irrelevant, since that intention can still be taken into account to support the conclusion that the undertaking concerned abused a dominant position, even if that conclusion should primarily be based on an objective finding that the abusive conduct actually took place. 361 Consequently, the Commission applied Article 82 EC correctly in taking the view that the submission to the patent offices of objectively misleading representations by an undertaking in a dominant position which are of such a nature as to lead those offices to grant it SPCs to which it is not entitled or to which it is entitled for a shorter period, thus resulting in a restriction or elimination of competition, constituted an abuse of that position. The question whether those representations were objectively misleading must be assessed in the light of the specific circumstances and context of each individual case. In this case, the factual assessment made by the Commission in this respect is the subject of the second plea. Equally, when considering the factual assessment made by the Commission, the General Court took a very dim view of Astra s conduct. For instance, in relation to the first SPC filings, the Court held: 492 It follows from the foregoing that nothing in the manner in which the information in the instructions of 7 June 1993 was presented was of such a nature as to suggest that the dates given in respect of France and Luxembourg did not relate to the technical marketing authorisations. In this respect, even assuming that it were possible to put forward alternative interpretations of the concept of authorisation to place the product on the market in Regulation No 1768/92, it is common ground that both the patent offices and the patent attorneys construed that concept as referring to the technical authorisation. The memorandum of 16 March 1993 indeed clearly suggests that that was also AZ s understanding of that concept, since it initially took the view that the acquisition of SPCs in Germany and Denmark was impossible (see paragraph 479 above). 493 The Court therefore finds that, in view of the context in which those representations to the patent attorneys and patent offices were made, AZ could not reasonably be unaware that, in the absence of an express disclosure of the interpretation that it intended to adopt of Regulation No 1768/92 which underlay the choice of the dates provided in relation to France and Luxembourg, the patent offices would be prompted to construe those representations as indicating that the first technical marketing authorisation in the Community had been issued in Luxembourg in March Thus, there was no need for the Commission to demonstrate AZ s bad faith or positively fraudulent intent on its part, it being sufficient to note that such conduct, characterised by a manifest lack of transparency, is contrary to the special responsibility of an undertaking in a dominant position not to impair by its conduct genuine undistorted competition in the common market (see, to that effect, [Case 32/81] Nederlandsche Banden-Industrie-Michelin v Commission [[1983] ECR 3461], paragraph 57). 494 Accordingly, the dispute between the parties on the issue whether the misleading nature of the SPC applications stemmed from AZ s bad faith is irrelevant. In any event, the applicants multiple arguments based on the alleged absence of bad faith on the part of AZ, as regards both the interpretation that it chose to adopt of Regulation No 1768/92 and the manner in which the SPC applications were presented, or the significance that it attached to the Luxembourg list, cannot constitute objective justification for the absence of proactive disclosure of the nature of the dates mentioned in relation to the Luxembourg and French marketing authorisations, on the one hand, and of the interpretation of Regulation No 1768/92 which led to the choice of those dates, on the other. Therefore, the Court agreed that Astra had misled the national patent offices by filing SPC applications containing the date of the price approval in Luxembourg without informing the patent offices of the earlier marketing authorisation in France or Astra s interpretation of Regulation 1768/92. The Court also agreed that this conduct was abusive.

7 STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT : VOL 11 ISSUE 2 BSLR 45 Selective Deregistration of Marketing Authorisations As already discussed, before a pharmaceutical product can be launched in Europe it must first obtain a marketing authorisation. In the past, marketing authorisations could only be granted at a national level under Directive 65/65. Now they can be granted at a national level under Directive 2001/83 12 or at Community level under Regulation 726/ These provisions are designed to ensure the quality, safety and efficacy of pharmaceuticals marketed in Europe. The requirement of a marketing authorisation also applies to generic pharmaceuticals (which contain the same active ingredient but may be manufactured without the consent of the product innovator) and to parallel imported pharmaceuticals (which were put on the market in another country in the European Economic Area by or with the consent of the product innovator). In certain circumstances, the generic manufacturer or parallel importer only needs to go through a simplified or abridged process to obtain the necessary authorisation. This issue arose when Astra decided to launch an improved version of Losec, which it called Losec MUPS tablets. Although the MUPS tablets were bioequivalent to the existing capsules, they contained the magnesium salt of omeprazole rather than omeprazole itself. They were smaller and easier to swallow and they could also be dispersed in water. They were gelatine free, lactose free and could be dispensed in blister packs. Losec MUPS tablets were launched between 1998 and 2000 in Belgium, Denmark, Finland, Germany, Ireland, the Netherlands, Norway, Sweden and the United Kingdom. They were not launched in Austria, France, Greece, Italy, Luxembourg, Portugal or Spain. The Commission found that the MUPS tablets were only launched in countries which were regarded as high price countries (with Belgium being on the borderline). The old capsule products were withdrawn in the countries where MUPS tablets were launched (although they were later reintroduced in the United Kingdom). Moreover, in the Nordic countries (Denmark, Finland, Norway and Sweden) Astra sought to withdraw the marketing authorisations for the capsule products. The Commission took the view that the strategy adopted by Astra was abusive, as the withdrawal of marketing authorisations in combination with the switch from capsules to tablets was designed to restrict competition from generic omeprazole and from parallel imports of capsules. It rejected Astra s arguments that Losec MUPS was an improved product, that decisions about withdrawal of capsules and marketing authorisations were taken by individual subsidiaries, that decisions not to launch Losec MUPS in certain countries were taken for legitimate commercial reasons and that in any event no damage to competition had been caused. Therefore, it found a breach of Article 82 (and Article 54 of the EEA Agreement) in the three countries where Astra held a dominant position and had sought to withdraw its marketing authorisations: Denmark, Norway and Sweden. However, on this point the General Court did not agree entirely. It set the scene as follows: 811 Thus, in view of the fact that, in the present case, the conduct that may be classified as an abuse of a dominant position consists essentially in deregistration of the marketing authorisations, which is, by hypothesis, the sole element which could be capable of producing the anticompetitive effects alleged by the Commission, the applicants arguments are irrelevant inasmuch as they assert, in essence, that, first, Losec MUPS was introduced on the market because it was a better product and, second, Losec capsules were withdrawn from the market because the local marketing companies considered, inter alia as a result of several market studies and a study on consumer preferences, that it was preferable to maintain just one product on the market. In the present case, there is no reason to reproach AZ either for launching Losec MUPS or for withdrawing Losec capsules from the market, since those acts were not such as to raise the legal barriers to entry complained of by the Commission that were capable of delaying or preventing the introduction of generic products and parallel imports. 812 By contrast, the deregistration of the Losec capsule marketing authorisations cannot be regarded as within the scope of competition on the merits. As was established in paragraph 675 above, that conduct was not based on the legitimate protection of an investment designed to contribute to competition on the merits, since AZ no longer had the exclusive right to make use of the results of the pharmacological and toxicological tests and clinical trials. Furthermore, the applicants adduce no evidence to permit the inference 12) Directive 2001/83, OJ 2001 L311/67 (as amended). 13) Regulation 726/2004, OJ 2004 L136/1 (as amended).

8 46 VOL 11 ISSUE 2 BSLR : STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT that those deregistrations were necessary, or even useful, for the introduction on the market of Losec MUPS, or for the conversion of sales of Losec capsules to Losec MUPS. Thus, without prejudice to the question whether the Commission has established to the requisite legal standard that the objective context in which the impugned conduct took place permitted the inference that that conduct was such as to restrict competition, the deregistration of the Losec capsule marketing authorisations was the sole aspect of the conduct identified by the Commission which would be capable of creating obstacles to the market entry of generic products and to parallel imports. 813 The applicants repeatedly claim that there is no documentary evidence expressly indicating that AZ applied a malevolent or intentional strategy in Denmark, Norway and Sweden seeking to deregister the marketing authorisations in order to delay the market entry of generic products and to prevent parallel imports. In this respect, it is sufficient to note that the concept of abuse of a dominant position is an objective concept and does not require that an intention to cause harm be established (see, to that effect, [Case T-128/98] Aéroports de Paris v Commission [[2000] ECR II-3929], paragraph 173). It is common ground that AZ carried out those deregistrations in Denmark, Norway and Sweden. The alleged absence of any malevolent intention underlying that conduct cannot therefore preclude the Commission s classification of that conduct as an abuse of a dominant position where it is established that, in view of the objective context in which that conduct took place, the conduct was such as to delay or prevent the introduction of generic products and parallel imports. 824 The Court would point out, first of all, that, as regards conduct such as that at issue in the present case in which regulatory procedures are used without any basis in competition on the merits evidence that, in view of its economic or regulatory context, that conduct is capable of restricting competition is sufficient to classify it as an abuse of a dominant position. 825 In the present case, it was established in paragraphs 675 and 812 above that the deregistration of the Losec capsule marketing authorisations was not based on the legitimate protection of an investment which was part of competition on the merits and, moreover, was not required by the conversion of AZ s sales of Losec capsules to Losec MUPS. 826 Consequently, in so far as it is established that in Denmark, Norway and Sweden the deregistrations of the marketing authorisations were capable of constituting an obstacle to the market entry of generic products and to parallel imports, the applicants arguments disputing the effects of those deregistrations in practice cannot affect the classification of the conduct in question as an abuse of a dominant position. 827 However, those arguments are capable of calling in question the merits of that classification in so far as the applicants maintain that the Commission has failed to establish to the requisite legal standard that, in view of the objective context in which that conduct was implemented, that conduct was such as to delay or prevent the introduction on the market of generic products and parallel imports. It is therefore necessary to examine that point in the light of the applicants grounds of complaint. The General Court then had no difficulty in upholding the Commission s conclusions in relation to generic competition, finding that competitors who were forced to use alternative routes to obtain marketing authorisations were subject to additional burdens and delays. Thus, it held, the withdrawals of marketing authorisations by Astra reduced competition from generic manufacturers. However, when it came to parallel trade the General Court was more critical of the Commission s analysis. Although it accepted that Astra could have had an intention to restrict parallel imports, it also found that the national authorities did not automatically withdraw parallel import authorisations where the marketing authorisation on which they were based was withdrawn. Indeed, the national authorities should not have done so, based on the subsequent decisions of the European Court of Justice in the Paranova cases. 14 The General Court found that the Commission had not provided any evidence that the Danish authorities had withdrawn the parallel import authorisations or that the fall in parallel imports of capsules into Denmark was due to the action by Astra. Similarly, it found that the Norwegian authorities had not withdrawn the authorisations 14) Case C-15/01 Paranova Läkemedel [2003] ECR I-4175; Case C-113/01 Paranova [2003] ECR I-4243.

9 STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT : VOL 11 ISSUE 2 BSLR 47 and that there was no evidence that the fall in parallel imports was due to the action by Astra. Only in Sweden were the parallel import authorisations withdrawn and competition thereby restricted. Therefore, the General Court upheld the findings of abuse in relation to generic competition in Denmark, Norway and Sweden. However, it restricted those findings to Sweden in relation to parallel trade, on the basis of lack of evidence that the conduct was capable of excluding parallel trade from the market in Denmark and Norway. Conclusions The relationship between pharmaceuticals, patents and healthcare funding raises highly emotive issues. Once a new pharmaceutical has been identified, developed, tested and brought to market, it may appear unfair and even cruel that patients should be denied it on grounds of patent protection or cost (lack of funding). However, this is static, ex post reasoning. At the same time, we need to be concerned with the dynamic, ex ante situation and ask whether the investment would have been made to develop the pharmaceutical in the first place without the lure of that reward for success. The balance is set by the patent and healthcare funding systems. Researchers and their funders are encouraged to innovate and develop products on that basis and those systems can be amended if they are not fulfilling their functions. However, ex post interference by competition authorities alters the balance on an ad hoc basis and, unless handled very carefully, may ultimately serve to discourage innovation in the same way as a sudden reduction of healthcare funding. In relation to market definition in the pharmaceutical sector, the General Court s judgment makes it clear that, even where drugs have the same therapeutic indication, where one is more effective or used for a different phase of the treatment the products may be found to form separate markets. Moreover, the General Court s confirmation that the Commission was correct to consider factors such as the mode of action of a drug may signal that the Commission will apply greater scrutiny to market definition in the future. At present, as a general rule, the Commission often uses the third ATC level (therapeutic indication) to define the relevant market. Consideration of the mode of action of a drug would represent a move to the fourth ATC level. Should the Commission decide to use the narrower fourth ATC level in the decision-making in the future, this could potentially result in a greater number of companies being found to hold a dominant position in relation to single pharmaceutical products. As regards dominance, whilst both the Commission and the General Court considered a number of different factors in reaching their conclusions, an excessively formalistic analysis of Astra s market shares over the relevant period appears to be odds with the Commission s stated intention of undertaking a more economic effects-based approach when considering exclusionary conduct under Article 102 TFEU. 15 The finding of abuse in relation to SPCs should be a matter of serious concern to those with any involvement in obtaining and enforcing intellectual property. Although it is possible to regard the facts in this case as rather unusual, applying to transitional provisions relating to the introduction of SPCs, the reasoning of the Commission and, more worryingly, the General Court would suggest that the principles could apply far more widely. For instance, would the failure to disclose a known piece of prior art to the European Patent Office, or to characterise it in an accurate way (as determined by some third party in the future), constitute an abuse when carried out by an undertaking in a dominant position on that market? Or would the failure to correct the position if such prior art came to light after grant of the patent, perhaps during enforcement activities, constitute an abuse? In contrast to the position in the United States, there is no obligation under patent law in Europe to make such full and frank disclosure. In practice, adoption of such an obligation would place additional bureaucratic burdens on innovators and would likely flood the patent offices with prior art (often of marginal relevance), just as the Commission discovered when undertakings were required to file potentially anti-competitive agreements in order to benefit from exemptions under Articles 85(3)/81(3). If enforced by the introduction of a new ground of patent invalidity, such an obligation would likely lead to a significant increase in the costs of enforcement of patent rights as speculative validity challenges would increase. However, it appears that such an obligation has now been introduced for dominant undertakings, as it is hard to see how such conduct would not be abusive based on the broad reasoning of the General Court. 15) See, in particular, Guidance on the Commission s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ 2009 C45/7.

10 48 VOL 11 ISSUE 2 BSLR : STOTHERS AND GARDNER : ASTRAZENECA AND LOSEC: JUDGMENT OF THE GENERAL COURT Moreover, it is highly likely that internal expressions of concern or counsel over particular courses of action, akin to those relied upon by the Commission against AstraZeneca, will be found in the files of many in-house and external patent attorneys and lawyers unused to the rigours of US-style discovery. Although such communications would be regarded as privileged in England and Wales, it is clear that the Commission and European Courts do not necessarily take such a generous view. 16 In the light of the much-criticised pharmaceutical sector inquiry, 17 companies in the pharmaceutical (and other patent-heavy) sectors need to consider whether their patent filing and enforcement strategy would survive a dawn raid by the Commission. In particular, they need to consider whether it might be advisable to avoid putting any doubts about strategy or specific rights into writing, if they could later be used as the basis for a finding of abuse of a dominant position under Article 102. The finding of abuse in relation to the deregistration casts a similar shadow over the regulatory and marketing strategies of undertakings which could find themselves characterised as holding a dominant position. Undertakings must now be careful to ensure that their decisions on product development will constitute acceptable commercial practice in the (retrospective) eyes of the Commission. It is unclear when the use of the regulatory framework in the commercial interests of an undertaking ceases to be competition on the merits, and consequentially what obligations have now been placed on undertakings (rather than legislators and regulators) to ensure that their competitors do not face regulatory barriers. The Commission did restrict its finding on abuse to the selective withdrawal of marketing authorisations and the General Court was most specific that there is no reason to reproach AZ either for launching Losec MUPS or for withdrawing Losec capsules from the market. However, despite the General Court finding that it was not relevant whether Astra had applied a malevolent or intentional strategy, the intentions of Astra were clearly a key motivating factor in the Commission s investigation and are likely to be the basis for further action in the future. In effect, this potentially turns the Commission s power under Article 102 to ensure competitive behaviour in the marketplace into one to ensure decent and proper market behaviour. While a desirable goal, it is not clear that it is one best sought by the distortion of the proper scope of competition law. In particular, given the heavy regulation of pharmaceuticals and patents, it is perfectly possible to address problematic behaviour by changing the rules. One example is the recent decision to restrict the right to file divisional patent applications at the European Patent Office. 18 Another is the change to the regulatory system so generic marketing authorisations can be granted even if the original marketing authorisation is no longer in place. 19 Such changes of the rules apply to all market participants, not just those who hold a dominant position or fear that in the future they might be determined to have held one, and thus disincentivise undesirable behaviour across the market. In sum, the approach of the Commission and the General Court does not reflect the reality of daily practice in the field of intellectual property or healthcare regulation. It imposes a moralistic approach, rather than an economic one seeking to correct market distortions due to the abuse of market power or anti-competitive agreements, and seeks to regulate intellectual property and pharmaceuticals by the back door. In effect, it introduces disclosure obligations which are not required by the European Patent Convention, and which are potentially even more stringent than those required by the United States Patent and Trademark Office, but which only apply to undertakings which happen to hold a dominant position in the relevant market at the relevant time. It raises serious uncertainty for undertakings which seek to develop existing, successful products. It is possible that the European Court of Justice will take a different view. However, for the time being, this approach is the dominant one in Europe and pharmaceutical companies are well advised to take particular care that they are not at risk of being found to have behaved in an abusive manner. 16) See Case C550/07P Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission (14 September 2010), an appeal against the judgment of the General Court in Joined Cases T-125/03 and T-253/03 Akzo Nobel Chemicals and Akcros Chemicals v Commission [2007] ECR II-3523, which refused legal professional privilege for correspondence between the general manager of Akcros Chemicals Ltd and the in-house lawyer of its sister company Akzo Nobel Chemicals Ltd. 17) Final Report adopted 8 July See the Commission s website at 18) Decision of the Administrative Council CA/D 2/09 of 25 March 2009 (OJ EPO 2009, 296), amending Rule 36 of the Implementing Regulations to the European Patent Convention. 19) Directive 2004/27, OJ 2004 L136/34, Article 1(8), amending Directive 2001/83, Article 10.