The European General Court issued its judgment on 1 July 2010 on AstraZeneca’s appeal against the European Commission’s decision adopted on 15 June 2005 fining AstraZeneca (“AZ”) EUR 60 million for abuse of dominant position through misuse of the patent system to obtain supplementary protection certificates (SPCs) and misuse of the pharmaceutical regulatory system by selective withdrawal of certain marketing authorisations. The Court reduced the total fines from EUR 60 million to EUR 52.5 million due to the fact that the Commission had failed to prove certain aspects related to the second abuse. However the Court confirmed the overall gravity of the infringements, pointing out that the abuses had lasted several years and related to the best-selling medicinal product in the world at the time, AZ’s blockbuster drug Losec.
Relevant market and dominance
As with all cases on abuse of dominance, it had to be shown that AZ was in a dominant position. The relevant market concerned products to treat acid-related gastro-intestinal diseases and conditions, in which AZ was the leading player through Losec. In particular, AZ was the pioneer of proton pump inhibitors (“PPIs”) and held the key technology protecting the active ingredient omeprazole. The European Commission’s decision had contained very detailed consideration of the relevant market, including detailed data on the inter-relationship of price and sale trends, during a ten year period, of PPIs and H2 blockers, in order to show that PPIs constituted a distinct market. The Commission decision included a dynamic analysis of trends of usage and demand and patient prescribing practice over the relevant period, in order to show that there was a significant patient population for which only prescription PPIs provided appropriate treatment. Unusually, in order to show that PPIs constituted a distinct market, they had to refer to the fourth ATC level (which refers to a medicine’s mode of action), departing from the normal starting point of the third ATC level (which refers to the therapeutic indications).
The Court upheld the finding that the treatment of more severe symptoms involved replacing H2 blockers by PPIs which were a more powerful medicine. However, the competitive constraints exercised by the two product groups were not reciprocal in that PPIs exercised a constraint on H2 blockers but not vice versa. This asymmetrical substitutability supported a finding that PPIs were in a distinct market. Moreover, the fact that the regulated systems allowed higher prices for PPIs and did not influence the prices by reference to the lower prices of H2 blockers, indicated that there was little competitive pressure between the two product groups and that they comprised distinct markets.
The Commission found that AZ held a dominant position on the PPIs market in Belgium, The Netherlands, Sweden (from 1993 until the end of 2000), Denmark and the UK (from 1993 until the end of 1999) and Germany (from 1993 until the end of 1997). The General Court upheld these findings, by reference to AZ’s market share and the price levels that it had been able to maintain for Losec. The Court stated that it was not disputed that AZ had a market share of between 55% to 100% sales of PPIs in the relevant countries in these periods. Also the fact that AZ was able to obtain higher prices or reimbursement levels than those for other suppliers’ PPIs showed that it was not appreciably constrained by its competitors, customers and suppliers. This was in turn partly due to AZ’s first-mover status on the PPI market and also its patent protection for Losec, which were held to be further indicators of dominance.
Abuses of dominance
The two abuses of AZ’s dominant position concerned behaviour in relation to distinct systems. The first abuse concerned the patent system, whereby up to five years extra protection can be granted on expiry of a patent in the form of a supplementary protection certificate (“SPC”) in respect of the active ingredient of a pharmaceutical product, calculated by reference to the patent protection remaining after the date of first marketing authorisation. The second abuse concerned the procedures and conditions under EC and national regulatory law relating to the marketing authorisation of a pharmaceutical product.
The first abuse – misrepresentations to patent offices concerning SPCs
The first abuse of dominance involved “misrepresentations” comprised in statements made by AZ to patent offices in various EEA Member States regarding the date for calculating the duration of SPC protection for omeprazole in various European countries. An SPC application must be filed within six months of the grant of the first marketing authorisation in each EU country and the term of the SPC is limited to the lesser of five years from patent expiration and fifteen years from the first European marketing authorisation. The date of first marketing authorisation is therefore a key factor and AZ referred to March 1988 of the “first authorisation date”, whereas the Commission demonstrated that a marketing authorisation had been issued in France in 1987. This resulted in AZ gaining an additional period of protection for Losec in some countries and excluding the possibility of generic competition for a period of several months longer than was justified under the SPC system.
The General Court upheld the findings of misleading representations to patent offices and subsequently to a national court, in the context of invalidity proceedings brought by competing generic manufacturers. The General Court found that the abuse consisted in misrepresentations by AZ’s patent attorneys to the patent offices, rather than the misrepresentations by AZ to its patent attorneys. The submission of each misleading information to a public authority liable to lead to the grant of an exclusive right to an undertaking which is not entitled to that right or which is only entitled to such rights for a shorter period, was held by the Court to constitute “a practice falling outside the scope of competition on the merits which may be particularly restrictive of competition” (paragraphs 355 and 375). The Court reached this conclusion without needing proof that the resulting SPCs had been enforced, and without needing proof that AZ was still in a dominant position at the time when the SPCs conferred the supplementary protection, and without needing proof of a direct effect (as opposed to an indirect effect) on competition or proof that the national patent offices had actually allowed themselves to be mislead (or as to whether they had detected the inaccuracies in the information provided to them). In this regard, the Court noted that although the misleading representations did not enable AZ to obtain SPCs in Denmark or the UK, and although the SPCs were revoked in Germany and Norway, these facts did not alter the abusive nature of AZ’s conduct.
The abuse was established on the basis that the behaviour was objectively of such a nature as to restrict competition, without need for proof of any deliberate nature of the relevant practices liable to deceive the public authorities. However, proof of the deliberate conduct, and/or of an anti-competitive intention on the part of the dominant undertaking, was stated to be a relevant factor which could be taken into account by the Commission. Equally, AZ argued that its good faith interpretation of the relevant legislative provisions concerning the first authorisation date (in Regulation 1768/92) was relevant. However, the Court held that proof of bad faith was not required and that the abuse subsisted in AZ’s failure to disclose the interpretation that it had applied (which would have enabled the private authorities to request further information by way of clarification) and in the objectively misleading nature of AZ’s SPC applications.
The second abuse – selective deregistrations of the capsule marketing authorisation
The second abuse involved misusing the rules and procedures applied by national regulatory authorities which allow reliance by new entrants on the pharmacological and toxicological tests and clinical trials which such authorities used to grant the marketing authorisation of an original product. AZ selectively deregistered the marketing authorisations for Losec in Denmark, Norway and Sweden when it ceased marketing capsules on those markets and launched Losec (MUPS) tablets instead. This enabled it to take strategic advantage of the marketing authorisation rules by preventing generic omeprazole manufacturers from showing that their products were essentially similar to those covered by the original reference product, for purposes of obtaining their own marketing authorisation for capsules. The manufacturer of a generic product may only rely on the clinical data that were used to obtain the marketing authorisation of the original product after a period of six or ten years from the original marketing authorisation, and where that original marketing authorisation still subsists. Thus the deregistration of Losec capsules prevented the ability of generic manufacturers to rely on this data to obtain marketing authorisations for the launch of their own generic products.
The Court stated that the deregistrations were “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” (paragraph 812). Therefore, the deregistration of the Losec capsule market authorisations could not be regarded as within the scope of “competition on the merits”. Moreover, AZ’s deregistrations of the capsule marketing authorisation had not been shown to be necessary or even useful for the introduction of the tablet form of Losec or for the conversion of sales of Losec capsules to Losec (MUPS) tablets. Thus there was no objective justification for the conduct.
The General Court held that a dominant undertaking cannot use regulatory procedure so as to prevent market entry or make entry more difficult for competitors. Any such use of regulatory procedures must be related to competition on the merits by the dominant undertaking or otherwise be supported by objective justification, in order not to be an abuse. Conduct designed to prevent generic manufacturers from benefiting from the original clinical data is not, however, legitimate competition on the merits.
AZ did succeed to some extent in demonstrating that the deregistration of the marketing authorisations for Losec capsules in Denmark and Norway did not result in an exclusion of parallel imports of the products, as opposed to obstructing the entry of the generic products in those countries. However, as regards Sweden, the Court upheld the position that parallel imports were impeded, because the Swedish Medical Products Agency considered that parallel import licences could be granted only if valid marketing authorisations were in place, and withdrew the parallel import licences as a result of the deregistration of the Losec capsule marketing authorisation. Moreover, the Court stated that the fact that the Commission was not able to evaluate precisely the effect that the deregistration had on parallel imports did not affect the abusive nature of the conduct, since it was established that the conduct was capable of impeding parallel imports and that it indeed did so in the present case.
AZ’s claimed lack of any malevolent intention was held not to preclude the Commission’s treatment of the conduct as an abuse, since its conduct was by its objective nature capable of delaying or preventing generic competition and parallel imports. Moreover, the Court stated that it was clear from the documentary evidence that AZ did intend, by means of the deregistrations, to obstruct the introduction of generic products and parallel imports.
The European Commission’s decision was regarded as significantly extending the scope of the EU competition rules on abuse of dominant position. This has (for the most part) now been upheld firmly by the European General Court. The misuse of patent and regulatory procedures can now be regarded as an abuse of dominant position even where the system itself contained a sanction for misuse, i.e., invalidity, if such conduct by a dominant company is carried out so as to obstruct or delay generic competition. Moreover the Court’s judgment shows clearly that proof of bad faith (or intention to cause harm) on the part of the dominant entity is not required for there to be an abuse of dominance. The Court emphasised that in the majority of cases, abuses of dominant position consist of behaviour which is otherwise lawful under branches of law other than competition law. The essence of the General Court’s judgment is summed up in paragraph 672, where the Court stated that a dominant undertaking “cannot use regulatory procedures in such a way as to prevent or make more difficult the entry of competitors on the market, in the absence of grounds relating to the defence of the legitimate interests of an undertaking engaged in competition on the merits or in the absence of objective justification”.
The decision and judgment in the AZ case impose constraints on dominant companies seeking to limit generic competition. When combined with the concerns expressed by the Commission in its 2009 pharmaceuticals sector enquiry report on defensive patenting strategies and the use of regulatory objection procedures against generic marketing authorisations, it is unlikely that such constraints will diminish.