IP-rich Japanese companies may face new competition issues in Europe: CJEU's decision in AstraZeneca

Japanese companies that enjoy a dominant position in a particular market in Europe are likely to be aware that they are subject to high standards of competitive behaviour, and must not abuse their dominant position lest they be deemed to have infringed Article 102 of the Treaty on the Functioning of the European Union ("TFEU").

A recent judgment of the Court of Justice of the EU ("CJEU") concerning the actions of pharmaceutical company AstraZeneca indicates that strategies involving the misuse of the patent system and pharmaceutical marketing procedures in order to exclude generic competitors and restrict parallel importations can constitute an abuse of a dominant position.

In its final judgment, the CJEU dismissed AstraZeneca's appeal against the findings of the General Court in this matter, which itself upheld the EU Commission's original decision. The General Court decision was the first case in which abuse of regulatory process was held to be an abuse of a dominant position under EU competition law. The CJEU has upheld the findings of the General Court and the fine of EUR60 million levied by the EU Commission. Graeme Preston, Gavin Margetson and Dr Frederick Ch'en analyse the decision below.

Article 102 TFEU

Article 102 provides that:

"any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States."

Japanese companies in IP-dependent industry sectors often find themselves in a dominant position as a result of their IP rights. In such a case, they must avoid actions that constitute an abuse of that position, and Article 102 provides a non-exhaustive list of examples of such impermissible actions, including limiting production, markets or technical development to the prejudice of customers, and directly or indirectly imposing unfair purchase or selling prices.

Following the CJEU's final judgment – which is consistent with the recommendations of Advocate General ("AG") Mazak as reported in our July 2012 newsletter (available here) – the abuse of regulatory procedures as an abuse of a dominant position has now become firmly entrenched under EU competition law (as is already the case in the US), with two new types of abuse added to this non-exhaustive list.

The EU Commission identified two separate abuses by AstraZeneca of its dominant position on the market for proton pump inhibitors ("PPIs") for gastro-intestinal diseases. These abuses were seen as part of a strategy on behalf of AstraZeneca to exclude generic competitors to its ulcer drug Losec and to restrict parallel imports of the drug.

The first abuse - providing misleading information to national patent offices

The first abuse concerned AstraZeneca's Supplementary Protection Certificates ("SPCs"). We discussed SPCs in our March 2012 newsletter (available here). In summary, SPCs allow companies to enjoy an additional five-year monopoly that comes into force after expiry of the patent upon which it is based. SPCs are offered in order to encourage innovation by compensating for the lengthy time needed to obtain regulatory approval for certain products, such as pharmaceuticals. SPCs may only be granted in respect of a product if the product is:

(a) protected by a basic patent in force; and

(b) the subject of a valid marketing authorisation, that is, an authorisation to place the product on the market.

The Commission considered that AstraZeneca provided misleading representations to national patent offices that did not allow them to identify correctly the date of first marketing authorisation. This resulted in AstraZeneca being awarded SPCs to which it was either not entitled or entitled for a shorter duration. Importantly, this caused uncertainty, delays and disruption of generic firms' preparations for market entry for generic products.

In its appeal, AstraZeneca asserted that it had acted on the basis of a reasonable bona fide understanding of its legal rights, and that the General Court was wrong to dismiss this as irrelevant. AstraZeneca argued that a lack of transparency cannot be sufficient for there to be an abuse. According to AstraZeneca, there are compelling reasons why deliberate fraud or deceit (as opposed to mere lack of transparency) should be a requirement for a finding of abuse in circumstances where accepting such a position is likely to impede and delay applications for intellectual property rights in Europe. In this context, AstraZeneca referred to the US regime under which only patents that are obtained fraudulently can be challenged under competition law, in order not to stifle patent applications.

However, the CJEU concluded that the General Court was fully entitled to find AstraZeneca's consistent and linear conduct – characterised by the notification to the patent offices of highly misleading representations and by a lack of transparency, by which it deliberately attempted to mislead the patent offices in order to keep for as long as possible its monopoly on the PPI market – clearly fell outside the scope of competition on the merits.

Abuse of dominance is an objective concept and must be assessed on objective factors, and proof of the deliberate nature of the conduct and of the bad faith of the dominant undertaking is not required in order to identify an abuse of a dominant position. According to the CJEU, however, this does not imply that dominant companies must be infallible in their dealings with regulatory authorities and that each objectively wrong representation made will constitute an abuse. Rather, the assessment of whether representations made to public authorities for the purpose of improperly obtaining exclusive rights are misleading must be made taking into account the circumstances of each case and will vary according to those specific circumstances.

The CJEU also considered whether the conduct needs to have an effect on competition for there to be a breach of Article 102 TFEU. The CJEU referred to previous case law that establishes that, although the practice of an undertaking in a dominant position cannot be characterised as abusive in the absence of any anti-competitive effect on the market, such an effect does not necessarily have to be concrete: it is sufficient to demonstrate that there is a potential anti-competitive effect.

The second abuse – selective deregistration of marketing authorisations

The second abuse consisted of the selective deregistration by AstraZeneca of marketing authorisations for its product in those countries in which generic companies had applied for marketing authorisations for generic versions of Losec (Denmark, Norway and Sweden). By doing so, AstraZeneca prevented the generic companies from using a simplified procedure to obtain their authorisation that was faster and less burdensome.

AstraZeneca had argued in its appeal that it would unduly stretch the special responsibilities of a company in a dominant position to (i) require it to refrain from surrendering a marketing authorisation it no longer requires and (ii) force it to bear the strict pharmacovigilance obligations2 and costs associated with an unneeded marketing authorisation. However, the CJEU held that it was the context in which this selective deregistration took place that rendered it an abuse of a dominant position, rather than the mere act of deregistration. Without objective justification, a dominant company such as AstraZeneca could not use regulatory procedures in such a way as to prevent or hinder the introduction of generic products or parallel imports.

The definition of the relevant market and the level of the fine

The CJEU also disagreed with both AstraZeneca's challenge to the Commission's approach to the definition of the relevant market and also its arguments that the General Court had erred in law by failing to examine properly the legal relevance of gradual developments in the relevant markets and the degree of inertia of prescribing doctors when it concluded that another product (H2 blockers) did not competitively constrain PPIs such that they should be treated as being in the same market. According to the CJEU, the General Court had properly examined the competitive interaction between PPIs and H2 blockers throughout the period in issue and had not committed any error of law in that examination.

The CJEU also dismissed AstraZeneca's claim that the fine imposed was excessive and should have been reduced due to the novelty of the infringements and their minimal effects on competition. Although the General Court had held that the abuses were novel as regards the means used, it had correctly concluded that the actual substance of the abuses was not novel at all and that they clearly constituted serious infringements. As for the argument that they had only had a minimal effect on competition, the General Court was right to find that these were highly anti-competitive abuses that were capable of having a significant effect on competition.

Conclusions

This is the first case in which abuse of regulatory process (including the patent system) was held to be an abuse of a dominant position under EU competition law. The case has already been followed by national authority actions in similar areas3 and may be followed by more aggressive enforcement.

As such, Japanese companies in dominant positions will need to take great care to ensure that their IP filing and enforcement strategies are not perceived as abusive by the regulatory authorities. In particular, such companies should be careful when applying for IP rights not to make objectively misleading representations to the examining authorities.

1 Case C-457/10 P AstraZeneca AB and AstraZeneca plc v European Commission of 6 December 2012.  

2 These obligations relate to the detection, assessment, understanding and prevention of adverse effects, particularly long term and short term side effects of medicines.

3 For instance, in December 2012 the Spanish authority (perhaps emboldened by the CJEU's decision in AstraZeneca) opened proceedings against Pfizer alleging that Pfizer was unduly delaying the entry of medicines with the active ingredient latanoprost (an alternative to Pfizer's Xalatan) by artificially extending its patent (click here to view the article).