A recent EU General Court judgment explores the application of competition law to intellectual property rights. In this case, the court upheld a 2005 European Commission decision finding that AstraZeneca1 abused a market-dominant position by blocking or delaying parallel imports and the entry of generic versions of its ulcer drug, Losec.2
In its judgment, the court upheld two main findings of abuse: (i) obtaining patent extensions on the basis of misleading information and (ii) a marketing strategy involving withdrawal of Losec capsules and the marketing authorisations for them, combined with the launch of Losec tablets. However, the court reduced to €52.5 million the €60 million fine originally imposed on AstraZeneca, citing the Commission's failure to prove that AstraZeneca's marketing strategy had blocked parallel imports to Denmark and Norway.
The Relevant Market and Dominance
The court found that Losec's very high share of the supply of proton pump inhibitors (PPIs) gave AstraZeneca a dominant market position in the territories in which it engaged in the conduct challenged by the Commission.
The court endorsed the Commission's finding that the product market relevant to Losec was the market for PPIs alone, since these were substantially superior to other products with the same therapeutic use. It rejected AstraZeneca's argument that H2 receptor antagonists (H2 blockers), another form of ulcer treatment, should be treated as part of the same market on the basis that both fell within the same ATC level 3 classification. (The Anatomical Therapeutic Chemical [ATC] Classification System is used for the classification of drugs, and is also used by antitrust authorities to define the relevant product market.) The court upheld the Commission's finding that H2 blockers did not sufficiently constrain pricing of PPIs, which were therapeutically superior, and so were not part of the same market. The court made this finding notwithstanding the fact that PPIs constrained the pricing of H2 blockers. Further, it noted that PPIs were used to treat the more serious forms of ulcer conditions, while H2 blockers were used to treat less serious conditions.
Until the Commission's decision in this case, ATC level 3 had been the starting point for defining the relevant market in pharmaceuticals cases. The court upheld the Commission's narrower approach, which was based on the mode of action of PPIs as opposed to H2 blockers and therefore the equivalent to an ATC level 4 classification. This suggests that in the future pharmaceuticals markets will be defined more narrowly and that, in most cases, it will therefore be easier to find that the holders of pharmaceuticals patents are dominant.
The court's decision establishes that conduct relating to patent applications and extensions, and to marketing procedures, may constitute an abuse of market dominance, within the meaning of Article 102 of the Treaty on the Functioning of the European Union (TFEU), where that conduct blocks or delays competitors' market entry. The existence of other sanctions for misleading patent authorities does not detract from this finding, meaning that firms in a dominant position face dual liability.
The conduct at the centre of the case involved:
- A pattern of misleading representations made by AstraZeneca to patent attorneys, national patent offices and national courts in a number of Member States with a view to gaining extended patent protection for omeprazole, the active substance in Losec, through supplementary protection certificates (SPCs).3 In what was found to be a departure from its normal practice in relation to other drugs, AstraZeneca had used the date of price approvals, rather than the (earlier) date of marketing authorisations, as the basis for its applications to extend protection of omeprazole. It had not informed the authorities of this.
- A marketing strategy combining three elements:
- selective requests by AstraZeneca for deregistration of market authorisations for Losec capsules in Denmark, Norway and Sweden,
- withdrawal by AstraZeneca of Losec capsules from those markets, and
- the launch by AstraZeneca of Losec multiple-unit pellet system (MUPS) tablets.
AstraZeneca appealed on the basis that it had not intentionally provided misleading information in order to obtain SPCs for Losec, and that the introduction of a new Losec formulation and the withdrawal of Losec capsules amounted to a legitimate commercial policy designed to protect AstraZeneca's business from competition from generic producers and parallel importers.
The General Court's Judgment of July 1, 2010
Misleading Representations to Extend Patent Protection
The court found that AstraZeneca did in fact make misleading representations in order to obtain SPCs to which it was not entitled. This type of conduct was not in keeping with the special responsibility of a dominant company not to impair genuine undistorted competition. Rather, it amounted to conduct that did not constitute competition on the merits.
AstraZeneca had argued that the existence of a fraudulent intention to cause harm to competition could not amount to an abuse of market dominance, but should be dealt with by the patent authorities under the relevant patent rules. It further argued that the competition authorities had Article 102 jurisdiction only over the enforcement (or threatened enforcement) of a fraudulently obtained patent or SPC.
The court disagreed: "...the submission to the patent offices of objectively misleading representations by an undertaking in a dominant position which are of such a nature as to lead those offices to grant it SPCs to which it is not entitled or to which it is entitled for a shorter period, thus resulting in a restriction or elimination of competition, constituted an abuse of that position." The court found that AstraZeneca's conduct had had an effect on competition from the time the SPCs were granted, despite the fact that they had not been enforced—their existence had kept competitors away. Further, the existence of a specific remedy for fraudulent representations in the patent system did not preclude the application of competition law.
Deregistration of Marketing Authorisations
The court confirmed that the launch of Losec MUPS and the withdrawal of Losec capsules from the market did not in themselves constitute an abuse: they were not capable on their own of blocking competition from generic products and parallel imports. However, when these activities were combined with the deregistration of marketing authorisations for Losec capsules, they were capable of having this effect. The court rejected AstraZeneca's argument that the withdrawal of the registrations was justified on the basis of avoiding ongoing pharmacovigilance requirements. It found that there was no evidence of this in AstraZeneca's documentation and that the withdrawals had been selective—registrations had been maintained in some countries but not others. Finally, the withdrawals were not necessary to enable AstraZeneca to launch Losec in tablet form.
Reduction in Penalty
Although the court upheld the substance of the Commission's decision, it reduced AstraZeneca's fine by €7.5 million to €52.5 million. The court found that the Commission had failed to prove that deregistrations of marketing authorisations for the Losec capsule in Denmark and Norway were specifically capable of restricting parallel imports.
What Happens Next?
This is the first time that the EU courts have had the opportunity to apply Article 102 TFEU to the way in which a dominant pharmaceutical company protects and uses its intellectual property rights. AstraZeneca has appealed to the Court of Justice on a number of grounds. It is hoped that the Court of Justice, which hears appeals on points of law only, will provide guidance on these issues. Judgment is unlikely to be issued for at least one year.
Implications of the Judgment
In the meantime, the General Court's judgment creates greater risks for the holders of pharmaceuticals patents—the court’s endorsement of a narrower approach to market definition will make it easier to find that pharmaceutical companies are dominant.
Further, the judgment highlights the need for firms that may be dominant in any sector to take particular care not to mislead when applying for patents or patent extensions. The effect of the judgment is that, where companies depart from normal practice in drawing up an application, they should draw this departure to the authorities' attention. Even a genuine error in the information provided for the purpose of obtaining protection could potentially constitute an abuse if it is shown that the company discovered the error but did not inform the patent authorities. The fact that fraudulent or misleading conduct can be sanctioned under the patent regime does not prevent it from also being an abuse.
Additional liability may arise from other activities that are lawful when viewed separately but, when combined with yet other activities, exclude competition from other drugs, or generics or parallel imports. For a company in this situation to defend itself against allegations of abuse, it must be able to show sound justification for its conduct, evidenced in documentation produced before the conduct occurred.
1. AstraZeneca AB and AstraZeneca Plc.
2. Case T-321/05, Judgment of July 1, 2010; Action brought on August 25, 2005—AstraZeneca/Commission, OJ 2005/C 271/47—against Commission Decision of June 15, 2005, relating to a proceeding under Article 82 of the EC Treaty and Article 54 of the EEA Agreement (Case COMP/A. 37.507/F3 AstraZeneca)  OJ L322/24.
3. SPCs are granted according to the provisions of Council Regulation 1768/92 of 18 June 1992 concerning the creation of a supplementary protection certificate for medicinal products (OJ L 182). SPCs grant longer patent protection to pharmaceutical products, not exceeding five years after the expiration of the patent. SPCs were introduced to take into account of the lapse of time between patent registration and market authorisation.