Entering into agreements that erect barriers to parallel exports between EU markets is generally a high-risk endeavour, which is likely to attract the attention of the competition authorities. Nevertheless, in the pharmaceutical industry the financial stakes can be high – medicines are often sold at very different prices in different Member States, due to the different applicable health policies.
Relatively low mandated prices in Spain have led a number of companies to devise sales structures which reduced the flow of parallel exports out of the country – in particular, through the use of so-called dual pricing schemes. Under such schemes, prices charged to wholesalers differ depending on whether the medicines were resold in Spain or exported to other Member States, in some cases this is achieved by selling all products at the export price, and granting rebates to wholesalers where the products do not in fact leave the country. While not explicitly prohibiting parallel trade, such practices are likely to reduce the financial incentive for wholesalers to export.
GSK introduced such a scheme in 1998, and applied to the European Commission for an individual exemption (under a procedure which has since been repealed). This application, and a subsequent complaint by the industry body for parallel traders (the EAEPC), has led to what must be one of the longest-running competition cases. Initially found by the Commission to be restrictive of competition by object, GSK succeeded before the European Courts in showing that the Commission had given insufficient consideration to whether the practice warranted an exemption. The case was therefore remitted to the Commission for further consideration. In January 2010, GSK formally withdrew its original application for an individual exemption. However, that was not the end of the matter, as the EAEPC’s complaint remained live. By this time, however, GSK had changed its practices, so the Commission rejected the complaint and closed its file. EAEPC persisted, and lodged an appeal.
The General Court Judgment
It is this appeal that has given rise to the most recent development. On 26 September 2018, the General Court (GC) approved the Commission’s stance, effectively putting an end to this case (appeals to the Court of Justice are rare in rejection cases).
The GC judgment demonstrates that while there was still some sympathy for EAEPC’s appeal, the Court was unable to identify any continued Union interest. The Court agreed with the applicant that the previous judgments have generated legal interest in relation to the “analysis of … dual-pricing systems in the light of Article 101 TFEU”. However, that was not sufficient reason to require the Commission to continue examining the applicant’s complaint.
The Court held that a “specific and genuine interest” is required to justify use of the Commission resources. Likewise, EAEPC’s contention that GSK’s practices and the Commission’s “inaction” in the late 1990s led to the adoption of dual pricing by other manufacturers such as Pfizer, Janssen-Cilag and Lilly was not accepted as good reason for requiring the Commission to act now.
The future of dual pricing schemes?
The relevance of the GC decision for other dual pricing schemes should not be overstated: the rejection of EAEPC’s complaint turns on its particular facts. Indeed, the fate of another Commission investigation into Spanish dual pricing practices more generally (referred to in the Commission rejection decision and the GC judgment) is unclear (the Commission website shows no record for the case number cited by the GC).
However, developments have also continued in Spain. Within the past six months, the Spanish Supreme Court has rejected an appeal by the EAEPC against a lower court rejection of a complaint against Janssen-Cilag’s drug supply scheme, finding that the scheme did not breach competition law. More recently, the Spanish competition authority closed an investigation into alleged collusion between pharmaceutical manufacturers in relation to the introduction of such schemes in the mid-2000s. The authority found that the companies’ schemes were the result of changes in pharmaceutical legislation, not of anti-competitive agreements.
Despite the successes for the originator companies, it remains the case that agreements which seek to limit parallel trade within the EU are high risk of being found to restrict competition by object and, as the Glaxo Greece case has shown (see our recent report here), unilateral conduct may also be caught.
Of course, from a UK perspective, a no-deal Brexit may make prohibiting parallel exports possible again, but it is unlikely to be possible under any likely successor to the Chequers proposal. In any event, agreements affecting exports within the European Union will continue to be caught.