ASTRAZENECA - Abuse of Dominant Position
The European Commission has fined AstraZeneca 60 million Euros for misusing the patent system and procedures for marketing pharmaceuticals to block or delay market entry for generic competitors to its ulcer drug, Losec, (omeprazole) on the basis that this was an abuse of AZ's dominant market position, and breached Article 82 EC.
Article 82 EC
This is the first pharmaceutical case concerning Article 82, and it will be very interesting to see how the caselaw develops.
Article 82 EC states that
Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. Such abuse may, in particular, consist in:
The European Commission concluded that from 1993 to 2000, AZ had abused its dominant position by blocking or delaying market access for generic versions of Losec and preventing parallel imports of Losec. The Commission believe this occurred in two ways:
By giving misleading information to National Patent Offices, resulting in AZ obtaining SPCs, and by misusing rules and procedures applied by the National Medicines Agencies and selectively de-registering market authorisations for Losec Capsules and replacing the capsule with Losec (MUPS) tablets.
In determining whether or not a company has abused a dominant position it is necessary to decide the relevant market, then to assess dominance within that market, and finally, whether or not the activity of the dominant undertaking was abusive.
During the period, generic products could only be marketed, and parallel importers could only obtain parallel import product licenses if there was an existing reference market authorisation for the original corresponding product (Losec Capsules)1. The de-registration of Losec Capsules and the substitution of tablets meant that parallel importers could not obtain parallel import product licenses, and generic companies could not obtain licenses on the basis of essential similarity. Generic companies may have been able to obtain licenses by another route, (published information), but this is more complex. It would not have been possible for Parallel Importers to get parallel import product licenses to import the capsules once the capsules had been deregistered in the UK2, and AZ continued to market the capsules (rather than the new tablets) in low cost countries so that it was no longer possible for parallel importers to sell Losec in the UK. Prior to AZ's switch from capsules to tablets, Losec had been subject to high PI competition.
AZ's actions effectively meant that an out of patent product was not subject to generic competition, and that even competition from PIs, which had occurred before patent/SPC expiry, stopped.
For part of the period in question, Losec was the world's highest selling pharmaceutical product. It is a protein pump inhibitor, and is used to treat stomach ulcers. Astrazeneca have claimed that the European Commission wrongly defined the relevant market, and that it was not in a dominant position in the market. How should market be defined?
The definition of relevant market is crucial to assessing dominance, and there is virtually no EC caselaw concerning market definition in the pharmaceutical sector, outside merger control (where different criteria may apply). So far, only the Commission's press release has been published, and we cannot see how is has analysed relevant market in this particular case. In merger cases, it has used the ATC (Anatomical Therapeutic Chemical) classification system for market definition, refining this to achieve market definitions which it considers best reflect substitutability. The Commission's views (generally) are expressed in its Market Definition Notice3 which essentially, defines relevant market by reference to substitutability..
The narrowest possible definition of relevant market is to take each patented product as a separate market. Patents create monopolies and in one sense can be regarded as necessarily creating dominance. If a particular molecule is the subject of a patent, no other party can manufacture it4 . However, that is not how markets have generally been assessed. The purpose of Article 82 is to ensure competition, and the test which is applied is economic : the purpose of the definition is to identify competitive constraints facing the undertaking concerned. Whether or not a product is dominant depends on whether or not there is competition in its market.
Some molecules are unique. Their mode of action, and/or their therapeutic effect may be such that they have, within certain market niches, no competition. If this is the case, then they should be regarded as dominant within their market. Losec is a protein pump inhibitor, used for the treatment of stomach ulcers. If its indications were unique, different from other protein pump inhibitors and drugs for the treatment of stomach ulcers, it should be regarded as a market in its own right, in which AZ were necessarily dominant. If as a matter of practice, doctors would have had to take a decision as to whether to prescribe Losec or some other protein pump inhibitor or stomach ulcer drug, then it should not automatically be regarded as dominant within its market : a quantitive assessment of market power would need to be carried out to assess whether or not AZ was in.
'a position of economic strength which enable[d] it to hinder the maintenance of effective competition on the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately of it consumers'5
It is quite possible that different conclusions may be reached by reference to different times, and it will be interesting to see how this is argued by AZ, given the high sales of Losec.
AZ has claimed that the Commission's definition of dominance would mean that any product could be considered to be dominant retrospectively, subject to additional restrictions over and above a non-dominant product, which would ultimately affect industry competitiveness.
In my view, if a product does something entirely new, that is not achieved by any other product, it cannot be subject to competition, and in my view is necessarily dominant, from the beginnings of its life, even whilst sales are low. That dominant position may disappear once competition arises.
If AZ was dominant in the relevant market, should its actions be regarded as an abuse of that dominant position?
AZ has said that it will appeal against the Commission's decision on the basis that the law relating to SPCs is so badly drafted that at the time, it was not clear how the length of SPCs should be calculated. Further, it claims that its action should not have affected generic traders, since they could have relied on public literature to obtain registrations, irrespective of the status of AZ's product registration. Its purpose in supplanting Losec capsules with MUPS tablets was commercial, for good business reasons, and not to block generic companies and parallel importers..
The Community institutions have defined abuse as
'an objective concept referring to the conduct of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is already weakened and which, through recourse to methods different from those governing normal competition, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition'6
The arguments so far referred to in AZ's press releases have been subjective, not objective, and in due course, they will no doubt be refined. Arguments may relate to the nature of the pharmaceutical industry as a whole. However, we shall have to be patient : it will take years for an appeal to be heard, and this case is not likely to be finalised until 2009.
FineThe Commission has the power to fine undertakings which breach Article 82 upto 10% of their turnover, and has in the past, imposed high fines. AZ's turnover exceeds 200m Euros, and in that context, the fine may be regarded as low - less than AZ may have earnt from the removal of competition caused by its actions - reflecting, in the Commission's words that 'some features of the abuses can be considered as novel'.
Anna McKay, June 2005
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