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Parallel Trade of Pharmaceutical Products and EU “The price of pharmaceutical products in some Member States is typically much higher than in others. It is the price differentials between Member States which create the
opportunities for parallel trade” (Advocate General Jacobs’ Opinion in C-53/03, Syfait I,
For the European Commission “the scope of EC competition law is the protection of parallel trade in the pharmaceutical sector” (MEMO/08/567)
“The Commission’s approach is predicated by two principles: – The Single Market in pharmaceuticals requires the unhindered free movement of
products – private companies cannot erect barriers to undermine this without distorting – The efficiency claims defence advanced by the research based pharmaceutical industry
is unsubstantiated – i.e. there is no evidence that partitioning the common market
would spur on global investment in inter-brand competition” (Competition Policy Newsletter 1- 2007 )
But the approach of the EU courts is more nuanced: – “In order to examine the effect of [parallel trade restrictions] on competition, it is necessary, first of all, to define the relevant market or markets, from both a material
and a geographic point of view” (Judgment T-168/01, GSK ,¶ 148)
The “analysis generally starts from the third ATC level. However, other ATC levels should also
be taken into consideration where it appears that sufficiently strong competitive constraints
operate at other ATC levels and that, consequently, the third ATC level does not seem to
allow for a correct market definition” (Judgment T-321/05, AstraZeneca , ¶ 154)
In the case of medicines available on prescription, the key criterion is the prescription
practice of doctors. “For such prescription practice, account can be taken of whether the
medicines correspond to each other, for example in terms of active principle, tolerance,
toxicity, and side effects
.” (Commission Decision COMP/M.737, Sandoz,¶ 21)
However, in parallel trade cases, “it is not manifestly incorrect to accept that all the
medicines
[…] which are capable of being sold at a profit owing to the price differential
between […] Member State[s] constitute a product market” (Judgment T-168/01, GSK, ¶
159)

“The relevant geographic market must be considered to be the national market, owing, in
particular, to the existence in the Member States of the Community of different price and
reimbursement regulations, different brand and packing strategies, different distribution
systems and different prescribing habits” (Judgment T-168/01, GSK ,¶ 150)
However, “The peculiarity of the distribution network of pharmaceutical products has
[sometimes] led the Commission to limit the relevant geographic market so as to coincide
with the regional territory” (AGCM n. 14227 in C6974, COMIFAR DISTRIBUZIONE /
FARMACEUTICA BOLOGNESE
)
• An agreement between a pharmaceutical manufacturer and its wholesalers which applies different prices depending on where the pharmaceuticals are ultimately sold: (1) lower prices for domestic sales and (2) higher prices for exports to other Member States. • For the Commission, such an agreement “clearly […] impede[s] parallel trade by obliging […] wholesalers to purchase the drugs at prices which are higher than the maximum
industrial price for domestic sales” (Commission Decision COMP/36.957, ¶ 116)

• The EU Court of Justice conceded that “the principle, according to which an agreement aimed at limiting parallel trade is a restriction by object, applies to the pharmaceuticals
sector” (Judgment C-501, 513, 515 e C-519/06 P, GSK, ¶ 60)

But…
“Any agreement which restricts competition, whether by its effects or by its object, may in principle benefit from an exemption” (Judgment T-168/01, GSK, ¶ 233)
– In this case, the “factual arguments and the supporting evidence [brought forwarded by GSK] appear to be relevant [for an exemption analysis]” (¶ 263)
Specific features of the sector “corroborate” these factual arguments (¶ 264)
– “Parallel trade entails a loss in efficiency” (¶ 258) “because most, although not al , of the
financial benefit accrues to the paral el trader rather than to the health care system or the patient “(¶ 135) and it impacts on “technical progress”(¶ 269-280) by “reducing
the capabilities for financing R&D” (¶ 258). Such a decline in efficiency is material
– By contrast, Dual pricing “contributes to the promotion of technical progress”. (¶ 259-
308). “Owing to the particular legal and economic context of the sector […], the fact of
holding substantial market shares, which, moreover, is limited to certain of the relevant products […] clearly does not in itself make it possible to conclude, in a convincing manner, that competition would be eliminated for a substantial part of the relevant products” (¶ 313)
“An examination may require the nature and specific features of the sector concerned by the agreement to be taken into account and those specific features are decisive for the outcome
of the analysis ” (Judgment C-501, 513, 515, 519/06 P, GSK, ¶ 103)

Art. 102 “does not preclude an undertaking in a dominant position from setting different
prices in the various Member States […] where they are applied on separate geographic
markets, characterised by insufficiently homogeneous conditions of competition regard being
had in particular to the relevant regulatory framework” (Judgment T-168/01, GSK, ¶ 177)
“Those considerations may be transposed to the present case, […] in so far as the relevant
geographic market is national owing, in particular, to the differences in the national
regulations on the prices and the reimbursement of the medicines in question” (¶ 178)
It fol ows that “the finding of a difference in price is not sufficient to support the conclusion
that there is discrimination” (¶ 179)
A non dominant pharmaceutical manufacturer refuses to supply exporting wholesalers For the Commission this amounts to an agreement between the supplier and its wholesalers containing “an export ban [which] may be deduced from the following […] factors: (a) a system for detecting exporting wholesalers, and (b) successive reductions in the amounts supplied […] where wholesalers export all or some of the products” (Commission Decision
COMP/34.279 , ¶ 156)

But for the EU Court of Justice this is not enough “it is necessary that the manifestation of the wish of one of the contracting parties to achieve an anti-competitive goal constitute an invitation to the other party, whether express or implied, to fulfil that goal jointly and that applies all the more where, as in this case, such an agreement is not at first sight in the interests of the other party, namely the wholesalers” (Judgment C-2 and 3/01 P, Adalat,
“Provided he does so without abusing a dominant position, and there is no concurrence of
wills between him and his wholesalers, a manufacturer may adopt the supply policy which he
considers necessary, even if, by the very nature of its aim, for example, to hinder parallel imports, the implementation of that policy may entail restrictions on competition and affect trade between Member States” (Judgement T-41/96 , Adalat, ¶ 176)
Refusal to supply (Syfait I and II) A dominant pharmaceutical manufacturer refuses to supply exporting wholesalers. “Such a refusal is capable of objective justification, and thus of not constituting an abuse, given the complex nature and the actual development of the pharmaceutical sector” (Advocate General Jacobs’ Opinion in C-53/03, Syfait I, ¶ 105)
“An undertaking occupying a dominant position on the relevant market for medicinal products which, in order to put a stop to parallel exports carried out by certain wholesalers from one Member State to other Member States, refuses to meet ordinary orders from
those wholesalers, is abusing its dominant position. It is for the national court to ascertain whether the orders are ordinary in the light of both: • the size of those orders in relation to the requirements of the market in the first
• the previous business relations between that undertaking and the wholesalers
(Judgment in C-486 e 478/06, Syfait II (¶ 78)
The flip side is that a dominant pharmaceutical manufacturer may refuse extraordinary
orders having regard to their size and previous business relations.
A dominant pharmaceutical manufacturer selectively supplies certain wholesalers but not others. There is no obligation in antitrust law for a dominant undertaking to contract with everyone.
(Court of Naples, 20 May 2004, in Giur. nap., 2004, p. 269)
However, “it is an abuse of dominant position for a pharmaceuticals company to supply
certain wholesalers but not others, on grounds of too generic distribution network
reorganisation needs” (App. Milano, ord., 23 July 2005, Farmacie Petrone s.r.l. c. Pfizer Italia
s.r.l. e Pharmacia Italia s.p.a.
)
Where it is not possible for the pharmaceutical manufacturer to supply al clients in an equal
manner, it ought to be free to decide whether to limit supply to ordinary orders (Judgment
T-65/89, BPB Industries e British Gypsum
, ¶ 74 and cf. also Syfait II.)
Marketing authorisation withdrawal (AstraZeneca) A dominant pharmaceutical manufacturer withdraws the marketing authorisation of its own pharmaceuticals in some Member States, withdraws the pharmaceuticals in question from these markets and launches a different formulation of the same medicinals (e.g. tablets instead of capsules). The pharmaceutical manufacturer is “entirely free to decide if and when to […] withdraw an
application“ (Advocate General La Pergola’s Opinion in C-94/98, Rhone-Pulenc , ¶ 20)

“The withdrawal of marketing authorisations for reasons other than public health does not
justify the automatic cessation of the parallel import licence.” (Judgment in C-15/01,
Paranova ,
¶ 25-28 and 33)

Despite these legal principles, the Commission found that “selectively deregistering the
market authorisations for a medicinal in certain Member States constitutes an abuse of
dominant position with the intent of blocking parallel traders” (Commission Decision
COMP/37.507, ¶788-793)

Marketing authorisation withdrawal(AstraZeneca) The General Court largely upheld the Commission on this point: – “The illegality of abusive conduct under Article [102] is unrelated to its compliance or non-compliance with other legal rules” (Judgment T-321/05, AstraZeneca, ¶ 677)
– “Parallel import licences have traditionally relied on the existing market authorisations of the proprietary medicinal product in question. Consequently, only deregistration of
marketing authorisations could, by hypothesis, induce national authorities to withdraw
parallel import licences” (¶ 810)
– “The Medical Products Agency […] considered [albeit wrongly] that parallel import licences could be granted only if valid marketing authorisations were in place […]. It is
unambiguously clear from this that the deregistration of the marketing authorisations
was such as to impede parallel imports” (¶ 862)
Appeal C-457/10 P: “the Commission should be required to prove that the exercise of the
validly held right tended to eliminate any effective competition. This would be similar to the
conditions in cases concerning compulsory licensing”.
Opinion of Advocate-General Mazak of 15 May 2012 sided with the General Court and the
Commission (¶ 78-80). We wait with interest to see what the EU Court of Justice will decide.
This is a complex and ever evolving area of law, as it is demonstrated by the fact that the Commission has recently announced another investigation in restrictions on parallel trades in the pharmaceutical sector. Despite the uncertainty created by the AstraZeneca judgment, what can be taken away from the jurisprudence of the European Courts is that they are seeking to balance a broader range of concerns against the Commission's single-minded view that restrictions on parallel trade segregate the single market and so are per se anticompetitive. In such circumstances pharmaceutical companies have to tread carefully in order to make sure that they are legitimately protecting their commercial interests without crossing the line and engaging in anticompetitive conduct. In spite of the Commission's intransigent position the European Courts have been far more receptive to the potential dangers that parallel trade poses to the pharmaceutical sector, particularly to the incentives to research and development of new potentially lifesaving medicines. Following the Modernisation Regulation the role of the national courts is likely to prove decisive, and the interpretative role imposed upon them will determine the faith of the EU pharmaceutical sector.

Source: http://www.freedomhouse.ro/old/images/Francesco_Liberatore_-_final.pdf

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