Law Times

Law Times • February 14, 2011 FOCUS PAGE 11 EU court fires warning on antitrust behaviour A BY JULIUS MELNITZER For Law Times cting legally, even with- in the specifi c frame- work of regulatory pro- cedures, is not necessarily a de- fence to antitrust allegations of abuse of dominance. Th at's the clear and perhaps startling mes- sage from the European Gener- al Court's July 2010 judgment in AstraZeneca v. Commission. Th e decision confi rmed the European Commission's 2005 ruling that AstraZeneca, a pharmaceutical company, had abused its dominant position in the market for proton pump inhibitors used to combat gastrointestinal diseases and conditions such as ulcers and acid refl ux. Th e court also up- held 52.5 million euros of the 60-million-euro fi ne imposed on AstraZeneca. It reduced the fi ne slightly because the com- mission had erred in its assess- ment of the impact of the com- pany's misconduct. "Th e court ruled that a dominant undertaking cannot use regulatory procedures to prevent or hinder market entry for competitors," says Richard Eccles, a partner at Bird & Bird LLP in London, England. "Any such use of regulatory procedures must be related to competition on the merits by the dominant undertaking or otherwise be supported by objective justifi cation in order not to be an abuse." Perhaps as signifi cantly, the court also ruled that dominant companies that make misrep- resentations to regulators may be liable to antitrust penalties if the misrepresentations have the eff ect of restricting com- petition. Th e liabilities attach even if the regulatory scheme contains its own sanctions for such conduct. "Th e court's reasoning here is a good victory for the com- mission because it amounts to a statement that abuse of dom- inance is not a closed category," says David Marks, a partner at CMS Cameron McKenna LLP. AstraZeneca pioneered the development of proton pump inhibitors with its introduc- tion of Losec, for which it held a patent, in the late 1980s. "Losec was the biggest drug in the world at the time, the Lipitor of its day," Marks says. Taking advantage of its fi rst- to-market status, AstraZen- eca held a dominant position in Belgium, the Netherlands, Sweden, Denmark, Britain, and Germany. Naturally, the generic drug manufacturers had their eyes on the market. Under European rules, new entrants seeking mar- ket authorization for their drugs could rely on the pharmacologi- cal and toxicological tests and clinical trials fi led by AstraZen- eca to show that their products were essentially similar to the original and therefore eligible for marketing authorization. Hardbound • 424 pp. 2009 • $115 P/C 0291010000 ISBN 978-0-88804-484-6 Prices subject to change without notice, to applicable taxes and shipping & handling. Realizing this, AstraZeneca ceased marketing Losec cap- sules in Denmark, Norway, and Sweden and began selling Losec tablets instead. Simulta- neously, the company deregis- tered the marketing authoriza- tions for the capsules. "Because the generics could only rely on the clinical tri- als for the capsules only while the authorizations existed, the deregistrations had the eff ect of preventing [AstraZeneca's] competitors from using its original tests as benchmarks for their own authorizations," Eccles says. European rules also allowed patent holders to apply for a supplementary protection cer- tifi cate extending the validity of their patents for fi ve years. Th e term is limited to the lesser of fi ve years from patent expi- ration and 15 years from the fi rst European marketing au- thorization. In its application for Losec, AstraZeneca claimed March 1988 as the fi rst marketing au- thorization date, but the com- mission proved that France had issued an authorization in 1987. "Th is resulted in [AstraZen- eca] gaining an additional pe- riod of protection for Losec in some countries and excluded the possibility of generic com- petition for a period of several months longer than was justi- fi ed under the [supplementary] system," Eccles says. Following complaints from two generic manufacturers in 1999, the commission began in- vestigating AstraZeneca's patent management strategies between 1993 and 2000. In 2005, it de- cided that both the deregistra- tion of the marketing authoriza- tions and the misrepresentation of the fi rst authorization date constituted abuse of dominance and imposed fi nes totalling 60 million euros. AstraZeneca appealed to the European General Court. Th e company argued that abuse-of-dominance rules shouldn't force it to perpetu- ate its marketing authoriza- tions in aid of its competitors. But the court reasoned that the deregistrations were "not based on the legitimate protection of an investment designed to con- tribute to competition on the merits since [AstraZeneca] no longer had the exclusive right to make use of the results of the pharmacological and toxicolog- ical tests and clinical trials." As well, the company hadn't established that the deregis- trations were either necessary or useful to market the Losec tablets and promote consumer conversion from capsules. "Th e upshot is that there was no objective justifi cation for the conduct," Eccles says. However that may be, the practical implications are sig- nifi cant. "Th e ruling suggests that pharmaceutical patent holders may be under a duty to main- tain their marketing authoriza- tions, and that goes quite far in terms of requiring you to help your competitors," says Joanna Goyder, a barrister at Freshfi elds Bruckhaus Dering- er LLP. To be sure, the case doesn't The court's reasoning is a 'good victory' for the European Commission, says David Marks. stand for the proposition that dominant companies are pro- hibited from using regula- tory processes to protect their market position. "But the judgment does make it clear that dominant companies must be very careful in their approach to the regulatory process," says Matthew Hall, a partner at McGuireWoods LLP in Brussels. For example, the mere fact that AstraZeneca applied for the supplementary certifi cates didn't make its conduct abu- sive. But misleading regulators regarding the date of the "fi rst marketing authorization" took the company's conduct outside the realm of legitimate compe- tition on the merits. "Th e submission to the pub- lic authorities of misleading in- formation liable to lead them into error and therefore to make possible the grant of an exclusive right to which an un- dertaking is not entitled, or to which it is entitled for a short- er period, constitutes a prac- tice falling outside the scope of competition on the merits which may be particularly re- strictive of competition," the court stated. Neither the misrepresen- tation nor the withdrawal of the marketing authorizations, then, was in keeping with "the special responsibility of domi- nant companies not to impair, by methods falling outside the scope of competition on the merits, genuine undistorted competition." While the case arises in the context of the pharmaceuti- cal market, it could well aff ect conduct in other regulated in- dustries, particularly those in which innovation and patents are signifi cant competitive factors. "Th e technology sector, for example, is one area where reg- ulatory procedures and intel- lectual property rights play an important role," Goyder says. What's clear is that the com- mission regards the abuses re- vealed in the case seriously. Its press release when it imposed the 60-million-euro fi ne em- phasized that it had taken the novel features of the case into account as a mitigating factor. "Firms should therefore be aware that considerably higher fi nes can be expected in similar cases in the future," Goyder says. AstraZeneca has appealed the matter to the European Court of Justice. LT CROSS-BORDER LITIGATION INTERJURISDICTIONAL PRACTICE AND PROCEDURE Kenneth C. 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