Articles

In the European Union (EU), medicines are developed and marketed in a highly regulated environment.  Pharmaceutical companies are subject to both national and EU regulation.  This article briefly considers an additional source of scrutiny, namely intervention by the competition authorities, demonstrated by the recent investigation by the Competition Directorate of the EU Commission into AstraZeneca (commenced in 2003).  The investigation is not complete but there has been considerable debate about the policy justification for intervention.  We briefly discuss these issues below and also reflect on how some recent legal developments could affect the outcome.

The AstraZeneca investigation

The AstraZeneca investigation is the Commission's first consideration of “evergreening”[1].  The Commission's concerns are of two types: (i) alleged “misuse” of regulatory procedures by withdrawing marketing authorisations; and (ii) alleged misrepresentations in applications for a Supplementary Protection Certificate (SPC)[2].  We concentrate on the alleged misuse of regulatory provisions as the second allegation relates to the detailed interpretation of the SPC Regulation.

AstraZeneca decided to withdraw the marketing authorisation for the capsule form of Losec in some EU Member States once authorisation for the tablet form had been granted.  The withdrawal of a marketing authorisation prevents generic applications from being assessed by the regulatory authorities under the abridged procedure.[3]  The Commission decided to investigate AstraZeneca's conduct under the competition rules.  Two issues arise: first, whether the Commission's intervention will succeed under competition law; and secondly, whether that intervention is appropriate as a matter of policy.

The legal basis for investigation

The Commission relies on Article 82 EC which prohibits the abuse of a dominant position.  To succeed, it will need to show that AstraZeneca occupies a dominant position in a relevant market, and that it has abused that position of dominance.  Neither will be straightforward.

Dominant Position

It is unclear how the Commission will establish that AstraZeneca is dominant.  The mere fact that a company is the holder of a marketing authorisation or controls underlying data for a particular product does not equate to dominance.  The traditional definition of dominance requires the dominant company to be in a position of such strength as to be able to act independently of competitive pressure.  As a rule of thumb, it is presumed (though the presumption can be rebutted) that this will be the case when a company has a market share of around 50% or more.  In the pharmaceutical sector, markets are usually defined (at least as a starting point) by looking at all those products at level III of the ATC.  AstraZeneca's product, Losec, competes with several other products in the same therapeutic class and the Commission will have to take those into account in determining whether AstraZeneca is dominant.  It would be wrong for the Commission to conclude that AstraZeneca is in a monopoly situation simply by virtue of its marketing authorisation.  Quite apart from competition from other products, nothing prevents a generic manufacturer from generating its own data in support of an application for authorisation.

Abuse

AstraZeneca's conduct is of a type not previously held abusive under Article 82.  However, this does not mean that it is outside Article 82 as a matter of law.  Article 82 has a broad scope.  The European Courts have held that it can be employed to prohibit any conduct by a dominant firm which seriously and unjustifiably distorts or weakens competition.  Various types of behaviour not specifically mentioned in Article 82 itself (such as a refusal to license) have been prohibited in certain circumstances.  The challenge for the Commission will be to show that AstraZeneca's conduct in exercising rights available to it under specific EU legislation is of a type that Article 82 prohibits.  The Commission should also consider whether such a use of Article 82 is appropriate.

How appropriate is the Commission's intervention?

Regulatory context

Obtaining a marketing authorisation entails no general legal obligation to maintain the authorisation indefinitely.  There are many reasons why a manufacturer may decide to withdraw a product.  For example, it may have developed an improved version, the product may be subject to pharmacovigilance issues or it may no longer be cost effective to supply.  In a purely regulatory context, therefore, AstraZeneca was entitled to withdraw its marketing authorisation.

The suggestion that AstraZeneca has infringed Article 82 implies that pharmaceutical companies may not simply rely on compliance with their regulatory obligations as sufficient to avoid scrutiny.  Whilst there can be no argument that pharmaceutical companies are subject to the competition rules in Articles 81 and 82 of the EC Treaty, the issue of when, or if, competition authorities should intervene to regulate behaviour in what is already a heavily regulated industry is a vexed question. [4] 

For example, in 2004, the Canadian competition authority refused to pursue a complaint about evergreening by pharmaceutical manufacturers.  The Competition Bureau said that the Canadian regulatory framework contained specific provisions designed to balance the competing interests of patentees and generic manufacturers.  The fact that the legislation permitted considerably more aggressive practices than anything possible under the European regime (requirement that generic manufacturers give advance notification of an intention to launch, provision for mandatory 24-month stays if the brand-name manufacturer disputes the generic's right to launch) was sufficient to short-circuit the competition investigation. 

What kind of abuse?

Leaving aside the policy issues, is there any guidance in the case law on the hurdles facing the Commission in showing abuse?  Although novel, the allegation that AstraZeneca has misused regulatory procedures to prevent generic market entry has similarities to an allegation of refusal to license or to supply.  By withdrawing its marketing authorisation for Losec capsules, AstraZeneca has, it might be argued, prevented third parties from relying on it, inhibiting the entry of generic substitutes for Losec.  However, the case law on refusals to license or to supply demonstrates that cases of this type are difficult to establish.

Compulsory licensing cases are rare, and the conditions for requiring a compulsory licence under Article 82 are onerous.  A recent ECJ judgment confirmed that a compulsory licence is appropriate only in “exceptional circumstances”[5] and that such circumstances would usually exist only where the proposed licensee was offering a new product.  A generic copy, by its very nature, duplicates an existing product, albeit that it may be available at a lower price. 

It is also unclear that cases prohibiting refusals to supply by dominant companies will assist the Commission.  Whilst refusals to supply existing customers have been held to infringe in the past, there is little evidence of a general obligation on a dominant company to supply new customers.  Such an obligation is imposed only in unusual circumstances (such as in “essential facilities” cases). 

The case law on essential facilities also suggests that the Commission should be cautious.  “Essential facilities” are generally infrastructure (for example, ports or pipelines) to which access is necessary for market entry.  Although in such cases it is not necessary to show that a competitor is offering a new product before access may be ordered, there are other hurdles to overcome.  The case law suggests that access to a facility is only likely to be ordered where the facility in question is indispensable for market entry.[6]  A marketing authorisation for an individual product cannot realistically be regarded as indispensable, as its existence does not preclude others from developing competing drugs for the same indication or, indeed, from compiling their own data. 

Refusals to supply in the pharmaceutical sector are currently topical.  At the time of writing, the ECJ ruling in Syfait/Glaxo is awaited.  It is alleged that Glaxo abused a dominant position by refusing to supply the volumes of pharmaceuticals requested by wholesalers.  Jacobs AG has suggested in his Opinion that distortions of competition in the pharmaceutical sector are often due to the highly regulated pharmaceutical environment and that use of the competition rules may not be appropriate to resolve such issues.[7] 

Are there other means available?

If the use of the competition rules may be difficult or inappropriate, perhaps the Commission should rely on other mechanisms to deal with perceived problems arising from the operation of the regulatory environment.  For example, legislation entering into force on 30 October 2005 introduces a new concept of “European reference product”.[8]  Manufacturers will be able to apply for a marketing authorisation in relation to any product which has been marketed anywhere in the EU.  A manufacturer wishing to obtain a marketing authorisation will not be prevented from so doing by the withdrawal of the marketing authorisation for a reference product.  Given this change, it remains to be seen whether the Commission will consider that use of Article 82 against AstraZeneca remains appropriate. 

Conclusion

The Commission's intervention demonstrates that the competition authorities will review the use of IP and related rights to ensure that their exercise will not have unjustifiable adverse effects on competition.  However, this saga also suggests that the Commission should not use the competition rules to “correct” perceived inadequacies in the regulatory rules unless there is no less draconian option.[9]  The proportionate response may be to use other means: if the Commission is unhappy with the way an EU regulatory provision operates in practice, it can amend it.