Restriction of parallel trade by a dominant pharma company

20 January 2005

Filip Ragolle

In pending European Court proceedings, Advocate General ("AG") Jacobs takes the view that the refusal by a dominant pharmaceutical company to meet all orders of its wholesale customers so as to restrict parallel trade does not automatically constitute an abuse of a dominant position in breach of Article 82 EC.

AG Jacobs stated this view in his Opinion on a preliminary reference from the Greek Competition Commission. A number of GlaxoSmithKline's Greek wholesalers had complained that GSK refused to meet all their orders in order to prevent them from exporting the medicines to other EU Member States where prices were much higher. Proceeding on the basis that GSK enjoys a dominant position for at least one of the medicines in question, Lamictal (an anti-epileptic drug), the Greek Competition Commission asked the ECJ whether and in what circumstances a dominant pharmaceutical company may refuse to meet in full the orders it receives from wholesalers in order to limit parallel trade.

The AG recalls that, according to settled case law, a dominant firm may be obliged to supply its products, but this only applies in exceptional circumstances, for example where a refusal to supply would seriously distort competition in a downstream market. However, a dominant firm is not obliged to meet orders above ordinary levels and is entitled to take reasonable steps to defend its commercial interests. Moreover, the AG observes that the criteria for determining whether behaviour is abusive are highly dependent on the specific economic and regulatory context of each case.

He, therefore, concludes that restricting the supply of products does not automatically constitute an abuse of dominant position merely because the dominant firm intends to impede parallel trade.

When examining whether such conduct by a pharmaceutical company constitutes an abuse, the following factors must, according to AG Jacobs, be taken into account. Firstly, normal competition conditions do not prevail on the pharmaceuticals market because (i) the price difference resulting from State intervention creates the possibility for parallel trade and (ii) the market is highly regulated. Secondly, given the specific economic characteristics of this sector, a requirement to supply would, in AG Jacobs' view, not necessarily promote either free movement or competition and could even harm the incentive to innovate. Thirdly, such parallel trade does not always produce any benefit for the consumer since in some circumstances the only benefit derived goes to the distribution chain.

It should be noted that the AG's Opinion is not binding on the court, which will give its judgment at a later date. If the court does follow the Opinion in its judgment, then the case will be very significant for competition law in the pharmaceutical sector.

Source: Advocate General Jacobs' Opinion in Case C-53/03, Synetairismos Farmakopion & Akarnaias (Syfait) and Others v. Glaxosmithkline