Refusal to supply exporter wholesalers as abuse of dominant position

23 January 2009

Richard Eccles

The European Court of Justice (“ECJ”) has given judgment in relation to the long running disputes involving Greek wholesalers and GSK concerning the supply of GSK products for export.  The case has previously been considered by the Greek Competition Commission and subsequently by the Greek national courts on claims brought by the wholesalers.  Article 82 EC issues were referred by the Greek Court of Appeal to the ECJ.  The ECJ has concluded that under Article 82 EC, a dominant undertaking on a relevant market for pharmaceutical products will abuse a dominant position where it refuses to meet ordinary orders from wholesalers in order to put a stop to parallel exports to other Member States carried out by such wholesalers.  The crucial question is the meaning of ordinary orders, and the ECJ stated that this is for the national court to establish in the light of the size of the orders in relation to the requirements of the home market and the previous business relations between the dominant undertaking and the wholesalers concerned. 

The case concerned three prescription only pharmaceutical products supplied by GSK in Greece Imigran, Lamictal and Serevent.  GSK stopped supplying wholesalers in November 2000 apparently in order to prevent parallel exports to higher priced Member States, but resumed some supplies to the wholesalers in February 2001 though it restricted the quantities supplied.  Certain wholesalers complained to the Greek Competition Commission which eventually ruled in 2006 that GSK was in a dominant position only in a relation to one of the products, Lamictal.  It found that GSK had breached Greek competition law on abuse of dominance only between November 2000 and February 2001, but that it had not breached Article 82 EC.  GSK agreed with the Competition Commission to supply quantities to the Greek national market equivalent to national consumption plus 18%.

Various wholesalers also brought an action in the Greek Court of First Instance which found in favour of GSK, whose ruling was then appealed by the wholesalers to the Greek Court of Appeal which made Article 234 EC reference to the ECJ.

The ECJ assessed the economic issues surrounding parallel exports and concluded as follows:  Parallel trade affords competitive advantages through lower prices in the importing Member State, even though some of the price differential between the Member State of export and the Member State of import will be absorbed by the parallel exporter’s profits.  Further, parallel trade between Member States was stated to increase the choice available to entities in the Member State of importation where that Member State obtains supplies by means of public procurement procedure and the parallel importers can offer the products at lower prices.  The ECJ also observed that although public authorities set the selling prices of pharmaceutical products in some Member States, this does not in itself mean that the pharmaceutical manufacturing companies have no influence on the level at which the selling prices are set or the proportion of those prices which is reimbursed by the State. 

However, the ECJ also observed that a consequence of unlimited parallel exports could be that a pharmaceutical company in a dominant position might choose not to place its products on the market at all in a Member State where the price of those products are set at a relatively low level.  In this regard, dominant companies must be entitled to take reasonable steps to protect their own commercial interests if they are attacked, according to the ECJ’s judgment in Case 27/76 United Brands v Commission [1978] ECR 207.  However any such steps taken in response to parallel export threats must be a reasonable and proportionate measure in relation to the threat to its legitimate commercial interests, for which purpose it is necessary to see whether the orders in question from the wholesalers are out of the ordinary.  On this basis, the ECJ concluded that it is permissible for the dominant company “to counter in a reasonable and proportionate way the threat to its commercial interests potentially posed by the activities of an undertaking which wishes to be supplied in the first Member State with significant quantities of products that are essentially destined for parallel export” (paragraph 71).

It is for the national court to determine whether the orders in question are ordinary in the light of the previous business relations between the dominant supplier and the wholesaler concerned and the size of the orders in relation to the requirements of the home market.  The ECJ also observed that orders would be out of the ordinary if they were for quantities “which are out of all proportion to those previously sold by the same wholesalers to meet the needs of the market” in the home state (paragraph 76).

Comment: This judgment appears to represent a reversal of the recent trend of judgments in favour of pharmaceutical companies seeking to limit the economic effects of parallel export activity.  The European Court of First Instance decided in favour of GSK in relation to its dual pricing system for deterring parallel exports from Spain, in Case T-168/01 GlaxoSmithKline Services v Commission [2006] ECR II-2969 which judgment is currently pending on appeal before the ECJ.  The Paris Court of Appeal decided in favour of GSK and other pharmaceutical suppliers on similar issues in January 2007 when it rejected an appeal by exporter wholesalers against a decision of the French Competition Council in December 2005 to dismiss their complaint.  Moreover in the present case, the Greek Competition Commission had found no abuse of dominant position by GSK except under Greek law only and in respect of the period November 2000 to February 2001 only, when GSK refused all supplies to wholesalers.  It remains to be seen whether the Greek national courts, in applying the present ruling of the ECJ, will consider that the settlement previously reached by GSK with the Greek Competition Commission to supply quantities of products equivalent to national consumption, plus 18% will be sufficient.  However this could only be a starting point in determining whether orders by individual wholesalers are ordinary or out of the ordinary within the meaning of the ECJ judgment.  Only on this basis can it be determined whether in the circumstances of the case, GSK would need to further adapt its supply policy in the light of the ECJ judgment.

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