The European Commission has launched a sector enquiry into competition in the pharmaceutical sector. It is concerned that a reduction in the numbers of pharmaceutical products launched on the European market and possible delays in the introduction of generic pharmaceutical products may result from the misuse of intellectual property rights in the sector. The launch of this enquiry is a further indication of the focus of the Commission’s competition policy in the pharmaceutical sector on intellectual property issues.

The Commission states in its published decision to open the sector enquiry, that there are indications of commercial practices by pharmaceutical suppliers including notably patenting or the exercise of patents and goes on to indicate that these practices may serve to block innovation rather than to fulfil the basic intellectual property purpose of protecting innovation. The Commission refers to the possibility of vexatious litigation and collusive agreement.

The Commission’s concerns regarding possible abuse of dominant position by pharmaceutical companies follows from its decision (of June 2005) concerning AstraZeneca in which it considered that AstraZeneca had misused its patent rights through “misrepresentions” regarding a first marketing date for calculating the duration of a supplementary protection certificate in respect of its Losec patents, and also by using the regulatory system “unreasonably” by withdrawing the capsule and replacing it with a tablet version of the product in order to hinder entry by generic products. Further, the Commission subsequently (in February 2007) opened an Article 82 investigation of two Boehringer companies concerning alleged misuse of patent rights, though without further particularising publicly the nature of the allegations.

It is not generally an abuse of dominant position to enforce the patent rights by means of infringement litigation, though there is limited case law to support the view that vexatious litigation designed to over-burden the defendant rather than primarily to protect the claimant’s rights can be an abuse of dominant position (ITT Promedia v Commission). In the ITT Promedia case, the European Court of First Instance concluded that if an action were brought for harassment purposes as part of a plan to eliminate competition, then on that basis the enforcement action could be an abuse of a dominant position.

As regards collusive agreements, the Commission indicates in its press announcement that it is concerned with the possibility of restrictive settlement agreements in patent disputes. Previous case law (Bayer v Sullhofer) has indicated that settlement agreements are not shielded from the application of EC competition law just because they result from litigation. Dispute settlement agreements are, as a general principle, only likely to fall outside Article 81 EC where they are the least restrictive possible means of resolving a genuine, bona fide dispute. The Commission’s concern is likely to focus on whether economically powerful companies are taking patent enforcement action which they settle by means of burdensome or even oppressive terms on a competing manufacturer. The Commission will be concerned to establish whether by these or other similar means, companies are extending the scope of their intellectual property by means of contract.

Generally, sectoral enquiries can be undertaken by the Commission under Article 17 of Regulation 1/2003. The opening of a sector enquiry signals the real concern on behalf of the Commission that an anti-competitive trend is emerging within a market or industry, even though no one company is yet accused of an anti-competitive agreement or conduct. The Commission will use the information that it obtains through the present enquiry to better understand the market for competition policy purposes. Moreover, it may at a later stage open specific investigations under Articles 81 and/or 82 EC in respect of matters on which it may reach adverse findings on the sector enquiry.

It is notable that this sector enquiry has been launched with dawn raids on a number of pharmaceutical companies, on 16th January 2008. The Commission gave the reason for this in its press statement, that the type of information that the Commission will be examining, relating to intellectual property rights, litigation and settlement agreements, is by its nature highly confidential and “may also be easily withheld, concealed or destroyed”. The Commission therefore decided to use its “dawn raid” powers to inspect business premises, which it normally uses in the case of identified cartels or specific allegations of abuse of dominant position. This emphasises the seriousness of the Commission’s approach.

Nonetheless the Commission states that its action will compliment not challenge intellectual property law, that the enquiry will take due account of the specifities of the relevant regulatory frameworks and that it will not in any way put into question the health schemes enforced in the Member States. Final results of the enquiry are expected in the spring of 2009, with an interim report planned for autumn 2008.

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