European Court to rule on stock management by dominant pharma companies

The European Court (ECJ) has received a cluster of 11 references for rulings from the Greek courts on questions relating to the ability of dominant companies to limit parallel trade through stock management. The references ask questions similar to those sidestepped by the ECJ in a previous case (Syfait).

The references focus on (i) whether an entity in a dominant position would automatically breach the EU prohibition on abuse of a dominant position by implementing stock management strategies aimed at reducing parallel trade and (ii) if there is no automatic abuse, how should potential abuse be assessed.

These references offer an important opportunity for the ECJ to clarify the competition law treatment of dominant companies’ stock management strategies. In the earlier Syfait case, the opinion of Advocate General Jacobs was very favourable to the pharmaceutical industry. He took the view that a refusal by a dominant company to meet all orders of its customers so as to restrict parallel trade does not automatically constitute an abuse of a dominant position in the specific economic circumstances of the pharmaceutical industry. However, the ECJ later decided that the Greek competition authority concerned did not have power to make the reference in the first place with the result that no decision was made on the substance of the case. Note that the latest references also stem from Greece.

Advocate General Jacobs’ observations on the particular nature of the pharmaceutical sector have also been echoed by the Court of First Instance in GSK where GSK operated a dual pricing scheme, with one price for domestic consumption and one for export.

The reference questions in detail are as follows:

• Would refusal of an entity in a dominant position to meet fully the orders sent to it by pharmaceutical wholesalers due to its intention to limit their export activity and thereby the harm caused to it by parallel trade constitute an automatic (per se) breach of the EU prohibition on abuse of a dominant position?
• Is the position affected by the fact that parallel trade is particularly profitable for wholesalers because of the fact that prices differ across the EU due to EU Member States determining the prices at which their national health providers will reimburse drugs ?(i.e. conditions of pure competition do not prevail in the EU pharmaceuticals market but rather a regime which is governed to a large extent by state intervention)
• Is it ultimately the duty of a national competition authority to apply Community rules in the same way to markets which function competitively and those in which competition is distorted by State intervention?

If the Court decides that there is no automatic abuse in the circumstances set out above, how is possible abuse by an undertaking holding a dominant position to be assessed? In particular:

• Are the appropriate criteria the percentage by which normal domestic consumption is exceeded and/or the loss suffered by an undertaking holding a dominant position compared with its total turnover and total profits? If so, how should that percentage and the level of loss be determined, above which he conduct in question may be abusive?
• Is an approach entailing the balancing of interests appropriate, and if so, what are the interests to be compared? In particular: (a) is the answer affected by the fact that the ultimate consumer/patient derives limited financial advantage from the parallel trade and (b) is account to be taken, and to what extent, of the interests of social insurance bodies in cheaper medicinal products?
• What other criteria and approaches are considered appropriate in the present case?

The details of the references (cases C-468-478/06 inclusive) are available on the ECJ’s website.