EU: Advocate General’s opinion supporting parallel trade in Greek case against GSK

09 May 2008

Richard Eccles

The long running saga of disputes between Greek exporter wholesalers and GSK following GSK’s refusal of supplies for export purposes has taken a new turn. In the European Court of Justice (ECJ) proceedings referred from the Greek court, Efetio Athinon, the Advocate General issued his opinion on 1 April 2008 which favours a conclusion that GSK was abusing a dominant position in refusing supplies to the exporter wholesalers (Joined Cases C-468/06 - 478/06). This opinion goes against the trend of recent European Court and national court judgments, and also the previous opinion in the Syfait case given by Aggregate General Francis Jacobs, and therefore comes as a surprise. However, the ECJ is not bound to follow the opinion of the Advocate General when it adopts its full judgment in a few months’ time.

In the Syfait case, following a complaint by various Greek wholesalers, the Hellenic Competition Commission referred questions to the ECJ for a ruling under EC law on whether GSK was abusing a dominant position by failing to meet in full all the orders that the wholesalers had placed for export purposes. The ECJ declined to give judgment on jurisdictional grounds, because it concluded that the Hellenic Competition Commission was not a court or tribunal authorised to make a reference within the meaning of Article 234 EC. Meanwhile, Advocate General Jacobs had issued his opinion (in October 2004) to the effect that it was not abusive in the circumstances of the case for GSK to refuse to supply the wholesalers in full, in order to prevent parallel trade, taking into account the specific characteristics of the pharmaceutical sector, including the pervasive regulation of price and distribution in the Member States, which were imposed on the pharmaceutical companies.

In the similar issues now raised in the proceedings referred to the ECJ by the Efetio Athinon (Joined Cases C-468/06 - 478/06), the ECJ was asked to rule on:

  • Whether the refusal by a dominant undertaking to meet pharmaceutical wholesalers’ orders in full, as a means of limiting parallel trade, constitutes per se an abuse of dominance, taking into account the profitability of parallel trade for wholesalers because of the price differentials resulting from state intervention; and

  • Insofar as such conduct is not an abuse of dominance in every case, which factors are relevant in assessing the possible abuse?

Advocate General Ruiz-Jarabo proposes that the ECJ should rule that a dominant undertaking which refuses to meet in full the wholesalers’ orders of pharmaceutical products, in order to protect itself against the effects of parallel trade, commits an abuse of that dominant position. The Advocate General denied that GSK had put forward sufficient evidence to demonstrate economic efficiencies to justify its refusal in this particular case, but he took the view that it is possible that an undertaking could provide objective justification for such conduct by showing that the regulation of the pharmaceuticals market compels it to take such action to protect its legitimate business interests. However, the Advocate General also stated that it is not possible to rely for such purposes on the pricing system for medicinal products (because the system allows for an element of negotiation by pharmaceutical companies with national price control authorities) nor on the impact of parallel trade on incentives to innovate. On the last point, the Advocate General rejected the idea of a causal link between the loss of income because of parallel trading and the producer’s reduction of investment in research and development.

The opinion of the Advocate General takes the opposite position to the rulings of national courts in France and Spain, and also the ruling of the Hellenic Competition Commission in the Syfait case (in September 2006), all of which have supported the conclusion that a refusal by a dominant pharmaceutical company to supply exporter wholesalers was normally unlikely to be abusive in the economic and regulatory context of the industry. The Advocate General’s present opinion is also inconsistent with the judgment of the European Court of First Instance (ECFI) also in September 2006 in GSK v Commission in which the ECFI quashed a decision of the European Commission to refuse exemption under Article 81(3) EC to GSK’s agreement involving a dual pricing regime in Spain whereby wholesalers were charged the national regulated price for sales for domestic consumption and a higher price on supplies for exports. In that case, the ECFI ruled that the European Commission needed to carry out a full balancing exercise under Article 81(3), inter alia comparing the advantages of intra-brand competition through parallel exports with the advantages of inter-brand competition at innovation level as between pharmaceuticals producers who for this purpose had an interest in protecting their revenue by limiting parallel imports. This case is also under appeal to the full ECJ.

The issues surrounding the Advocate General’s present opinion are therefore very contentious. There is a rich background of economic and legal issues for the ECJ to consider, in deciding whether or not to follow the Advocate General’s opinion.