Intellectual Property

This Article appears in the August 2005 issue of Pharma Ppatent Bulletin

SYFAIT/GlaxoSmithKline - ECJ Decision

In February, I considered the Opinion of the Advocate General in the SYFAIT/GlaxoSmithKline case. The ECJ has now given its decision.

The SYFAIT/GSK case was seen as extremely important for pharmaceutical parallel trade, and the decision was keenly awaited. It was the first case in which the European Court of Justice ("ECJ") was asked to consider Article 82 of the EC Treaty, which prohibits abuses of a dominant position. GSK, which was acknowledged to be dominant in relation to the products in question, refused supply to Greek wholesalers, and instead, supplied goods directly to pharmacies and hospitals. This enabled them to control quantities, and to limit the amount of parallel exports which could be carried out from Greece.

Greek wholesalers complained that GSK's decision to stop supplying products to them and to supply directly to pharmacies and hospitals was in breach of Article 82. There was no argument as to dominance: the only matter before the ECJ was whether there was abuse by reason of GSK's refusal to supply.

Questions referred to the ECJ

The questions referred to the ECJ were extremely important for the industry, namely:-

  • a) Whether refusal to supply by a dominant undertaking in order to limit trade was an abuse, and whether the answer was affected by the fact that pure conditions of supply did not prevail in the pharmaceutical market, but a regime governed by state intervention.
  • b) If such limitation of parallel trade was not automatically abusive, how should abuse be assessed.

60 parties made observations, such is the importance of the matter. The Advocate General, as I reported in February, considered that refusal to supply was not automatically abusive and that factors which should be taken into account in considering whether there was objective justification were the regulation of price and distribution, the impact of unmoderated parallel trade on pharmaceutical undertakings, and the effect of parallel trade on consumers. He concluded that, in trying to inhibit parallel trade, pharmaceutical companies were not trying to escape the consequences of their own differential pricing, but were trying to avoid the consequences of prices imposed on them by national governments, and that the restriction of supply by dominant pharmaceutical undertakings in order to limit parallel trade was capable of justification as a reasonable and proportionate measure.

Throughout Europe, prices of pharmaceutical products are regulated. A decision endorsing the Advocate General's opinion would have given pharmaceutical companies the right to limit supply and stop parallel trade by supplying hospitals and pharmacies directly.

Parallel trade depends on free movement of goods, and although there are special factors relating to the pharmaceutical market, to date, it has been treated in principle, in a similar manner to other industries. There are factors which mean that trade of pharmaceutical products across borders is less easy than for other products, (different packaging, marks, pack sizes, brands and so on), but essentially caselaw has permitted pharmaceutical parallel importers to overcome these difficulties, and to sell across borders. It seemed as though all such sales might stop, and pharmaceutical parallel trade be drastically curtailed.

Lack of Jurisdiction

In fact, the ECJ Judge's decision is a disappointment. Rather than addressing the very important issues raised by the reference head on, the ECJ has decided that it had no jurisdiction to determine the matter. The ECJ decided that the Greek Competition Authority was not a Court or Tribunal within the meaning of Article 234EC, and that therefore the ECJ had no jurisdiction to answer its questions. The ECJ's decision was based on the fact that the Greek Competition Authority was not independent: it is supervised by the Minister for Development, and its Executive is not free from removal.

What now?

It is now up to the Greek Competition Commission to decide what it wants to do. It has already found that GSK was abusing its leading position in relation to Lamictal, Seratide and Imigran by restricting supplies of these products to pharmaceutical wholesalers. As an interim measure it forced GSK to continue to supply such products to wholesalers. No doubt these interim measures will stay in force. It seems unlikely that the Greek Competition Commission will change its attitude, and that it may be up to GSK to appeal the Competition Commission's decision to the Greek courts, which will eventually be able to refer the matter to the ECJ with certainty as to jurisdiction.

The Court of First Instance in Athens ordered compensation to parallel importers for losses they suffered from the refusals to supply by GSK, confirming the interim decision of the Competition Commission, and it seems as if it must be GSK which refers the matter to the ECJ.

Some of the arguments made by Francis Jacob, the Advocate General, were not fully supported. For example, he argued that supply restrictions were justified because parallel distribution risks causing supply shortages, produces inhibitive capacity and competitiveness of pharmaceutical manufacturers, and does not benefit the the consumer. These arguments were not backed up by factual evidence. In fact, it seems that supply shortages occurred in the Greek market only after GSK restricted deliveries - they were not being caused by parallel export prior to that. Similarly, there is no evidence to show that parallel trade has a negative impact of research and development expenditure. R & D spending in Europe is still quite high, despite the incidence of parallel trade. Some benefits to consumers by virtue of parallel trade were shown by the York Health Economics Consortium Report, which concluded that parallel trade produced considerable direct and indirect savings for National Healthcare providers and patients. Most importantly, parallel trade is a driver for competition.

No doubt, trade mark owners hoped that the ECJ would follow the Advocate General's opinion, and that this would enable supplied to wholesalers which are available to parallel traders to be drastically cut. This has not happened. Neither has the parallel traders received the comfort that they might have wished, although in the short term their position seems to be protected. Both sides of the industry have uncertainty to cope with, which is not likely to be resolved for several years.

Anna McKay, August 2005

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