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Article 82 EC

This is the first pharmaceutical case concerning Article 82, and it will be very interesting to see how the caselaw develops.

Article 82 EC states that:    
Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers; ….
The European Commission concluded that from 1993 to 2000, AZ had abused its dominant position by blocking or delaying market access for generic versions of Losec and preventing parallel imports of Losec.  The Commission believe this occurred in two ways:

By giving misleading information to National Patent Offices, resulting in AZ obtaining SPCs, and by misusing rules and procedures applied by the National Medicines Agencies and selectively de-registering market authorisations for Losec Capsules and replacing the capsule with Losec (MUPS) tablets. 

In determining whether or not a company has abused a dominant position it is necessary to decide the relevant market, then to assess dominance within that market, and finally, whether or not the activity of the dominant undertaking was abusive.

What happened?

During the period, generic products could only be marketed, and parallel importers could only obtain parallel import product licenses if there was an existing reference market authorisation for the original corresponding product (Losec Capsules)[1].   The de-registration of Losec Capsules and the substitution of tablets meant that parallel importers could not obtain parallel import product licenses, and generic companies could not obtain licenses on the basis of essential similarity.  Generic companies may have been able to obtain licenses by another route, (published information), but this is more complex.  It would not have been possible for Parallel Importers to get parallel import product licenses to import the capsules once the capsules had been deregistered in the UK[2],  and AZ continued to market the capsules (rather than the new tablets) in low cost countries so that it was no longer possible for parallel importers to sell Losec in the UK.  Prior to AZ’s switch from capsules to tablets, Losec had been subject to high PI competition. 

AZ’s actions effectively meant that an out of patent product was not subject to generic competition, and that even competition from PIs, which had occurred before patent/SPC expiry, stopped.   

Relevant Market/Dominance

For part of the period in question, Losec was the world’s highest selling pharmaceutical product.  It is a proton pump inhibitor, and is used to treat stomach ulcers.  AstraZeneca have claimed that the European Commission wrongly defined the relevant market, and that it was not in a dominant position in the market.  How should market be defined?

The definition of relevant market is crucial to assessing dominance, and there is virtually no EC caselaw concerning market definition in the pharmaceutical sector, outside merger control (where different criteria may apply).  So far, only the Commission’s press release has been published, and we cannot see how it has analysed relevant market in this particular case.  In merger cases, it has used the ATC (Anatomical Therapeutic Chemical) classification system for market definition, refining this to achieve market definitions which it considers best reflect substitutability.  The Commission’s views (generally) are expressed in its Market Definition Notice[3]  which essentially, defines relevant market by reference to substitutability.

The narrowest possible definition of relevant market is to take each patented product as a separate market.  Patents create monopolies and in one sense can be regarded as necessarily creating dominance.  If a particular molecule is the subject of a patent, no other party can manufacture it[4] . However, that is not how markets have generally been assessed.  The purpose of Article 82 is to ensure competition, and the test which is applied is economic : the purpose of the definition is to identify competitive constraints facing the undertaking concerned.  Whether or not a product is dominant depends on whether or not there is competition in its market.

Some molecules are unique.  Their mode of action, and/or their therapeutic effect may be such that they have, within certain market niches, no competition.  If this is the case, then they should be regarded as dominant within their market.  Losec is a proton pump inhibitor, used for the treatment of stomach ulcers.  If its indications were unique, different from other proton pump inhibitors and drugs for the treatment of stomach ulcers, it should be regarded as a market in its own right, in which AZ were necessarily dominant.  If as a matter of practice, doctors would have had to take a decision as to whether to prescribe Losec or some other proton pump inhibitor or stomach ulcer drug, then it should not automatically be regarded as dominant within its market : a quantitive assessment of market power would need to be carried out to assess whether or not AZ was in
‘a position of economic strength which enable[d] it to hinder the maintenance of effective competition on the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately of it consumers’[5] .

 It is quite possible that different conclusions may be reached by reference to different times, and it will be interesting to see how this is argued by AZ, given the high sales of Losec.

AZ has claimed that the Commission’s definition of dominance would mean that any product could be considered to be dominant retrospectively, subject to additional restrictions over and above a non-dominant product, which would ultimately affect industry competitiveness.

In my view, if a product does something entirely new, that is not achieved by any other product, it cannot be subject to competition, and in my view is necessarily dominant, from the beginnings of its life, even whilst sales are low.  That dominant position may disappear once competition arises.

An Abuse?

If AZ was dominant in the relevant market, should its actions be regarded as an abuse of that dominant position? 

AZ has said that it will appeal against the Commission’s decision on the basis that the law relating to SPCs is so badly drafted that at the time, it was not clear how the length of SPCs should be calculated.  Further, it claims that its action should not have affected generic traders, since they could have relied on public literature to obtain registrations, irrespective of the status of AZ’s product registration.  Its purpose in supplanting Losec capsules with MUPS tablets was commercial, for good business reasons, and not to block generic companies and parallel importers.

The Community institutions have defined abuse as  ‘an objective concept referring to the conduct of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is already weakened and which, through recourse to methods different from those governing normal competition, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition’[6].

The arguments so far referred to in AZ’s press releases have been subjective, not objective, and in due course, they will no doubt be refined.  Arguments may relate to the nature of the pharmaceutical industry as a whole.  However, we shall have to be patient : it will take years for an appeal to be heard, and this case is not likely to be finalised until 2009.

Fine

The Commission has the power to fine undertakings which breach Article 82 upto 10% of their turnover, and has in the past, imposed high fines.  AZ’s turnover exceeds 200m Euros, and in that context, the fine may be regarded as low – less than AZ may have earnt from the removal of competition caused by its actions – reflecting, in the Commission’s words that ‘some features of the abuses can be considered as novel’.

[1] Directive No. 2004/27/EC, which comes into effect in October 2005, treats all oral immeciate-release products as the same pharmaceutical form, and under those conditions, the registration of a generic immediate release capsule would be possible, even if the marketing authorisation for the capsule had been withdrawn, and the product replaced by a tablet.
[2] See Case C-106/01 (Novartis/Sangstat)
[3] Commission Notice on the Definition of the Relevant Market for the purposes of Community Competition Law 91997 O.J. C372/1)
[4] This definition was adopted by the French Conseil de la Concurrence decision no 04-D-05 February 24 2004, Phoenix Pharma
[5] Case 322/81 Nederlandsche Banden Industrie/ Michelin, 1983 E.C.R. I-3461
[6] Case 85/76 Hoffman-La-Roche v Commission 1979 E.C.R. 461, Case C-62/86 AKSO v Commission 1991 E.C.R. I-3359, Case T-228/97 Irish Sugar  v Commission ECR II-2969, 111

Currently, the access to scientific and technological information on any sector is possible through diverse means, either by directly contacting technicians, engineers or scientists expert in the area, or through consulting literature, publications, theses, or by attending expositions and congress meetings. Nevertheless, not any of the aforementioned provides us a more updated, complete, useful and accessible source, than the information available in the Industrial Property System.

Nowadays, unlike other times, there is an incessant flow of scientific and technological information, as well as of its productive applications. This gathering of knowledge has not only generated a great historical background, but has additionally allowed us to recognize the technological trends and to set strategies in new investigations for rendering development a key result in the scientific, technological and productive success of a country.

The compilation of information has become a detonator that has motivated the creation of new research and productive application areas. It is precisely the nature of the innovation that leads us to perceive the fundamental role the linkage between development and management competitiveness performs.

The competitive advantage that a firm possesses is a key factor in its growth and development , which may be acquired from searching, analyzing and making the most of useful technical information. There is a great variety of scientific and technologic information sources. Thus, the firm that handles them with skill and responsibility will be ahead when generating value.

The increase in the use of scientific information sources has also brought benefits to the researchers, allowing them to keep updated in the technical field they are working on. Nevertheless, on the one hand, such investigators openly disclose their results or findings in a written way by means of publishing them in scientific magazines or theses, or in an oral way throughout congresses or conferences. On the other hand, the enterprises or corporations, which obtain the development of new technological advances opt for the appropriation technology system for providing protection to the new knowledge acquired by using the Industrial Property regime, and they generally do not divulge the existence of their products until the same are in promotion or in the market ready for sale.

The importance of the search of scientific and technological information is associated to an ordered process that includes the stages of detecting, selecting, organizing, filtering, evaluating and using such information with the intention of using and operating the knowledge resources based on the own intellectual capital of the organizations, oriented to harness the management competition, the administration of information and the generation of value.

A search of technological or scientific information can be a very effective tool in decision making, but it is necessary to take into account diverse aspects that accompany a deep analysis of the obtained results. The referenced aspects are:

It is very important to consider that the relevant part of a search, including the success thereof, is not reflected in the amount of obtained information in a specific matter, but in the correct selection and later discrimination of such information, as well as the use given to the same.

As it can be appreciated from the above, the benefits of a search of technological and scientific information are many, provided that the correct matter be searched from the right source, and such as was previously commented, there are several information sources, from which sources patent databases are considered one of the most important since they are the most widely accessible, current and relatively easy to search.

With reference to the characteristics of the databases related to IP, we could mention:

• Constitutes the most recent means of technological disclosure.
• Information related topatents can be obtained from almost all countries around the world.
• Covers all technical and scientific sectors of what is new, internationally relevant and is applicable to industry.
• Contains information that is not otherwise divulged.
• Contains an abstract of the invention, providing an idea about the content with no need to read the complete document.
• Includes a single classification system (IPC - International Patent Classification) that allows the accomplishment of the search in an easy, expedite and practical manner.
• Presents useful information from the commercial point of view, such as information about the applicant, inventors and/or patent holders, such  that it is possible to contact them for a possible negotiation.
• Provides easy handling of million of documents and with immediate recovery.

With the object of facilitating the search of scientific and technological information in patent databases, some suggestions appear hereinafter for optimizing results.

Subject matter of the search:  once the subject matter is known, it is necessary to establish the terms of the search and to choose the database.  This is probably the most important stage by virtue that it determines what is to be searched.  In the case where the search uses the name of a company or inventor, such a search is faster and more direct; whereas in the case of searches by subject matter, that is to say, using keywords of the subject matter, it is necessary to define the terms to better represent the necessity of information.  It is advisable to use words related to the applications or uses, or in the field of development, as well as synonyms of these words.

Selection of information sources (databases):  databases of patents, projects or the Internet are multidisciplinary sources of information.  There are some that have free access, and others for which a payment is necessary to access them, but nevertheless, since the choice is voluntary since any one of them will be useful for the intentions of a search.

Establishment and execution of the search:  it is recommended to elaborate the criteria of the search by combining the selected keywords with Boolean operators or proximity operators, among others.  Likewise, orthographic errors, terminology and homonyms should be taken into account.

Evaluation of the results and refinement of the search:  in order to evaluate the results of the search it is necessary to determine if they meet the level of expectation.  If, as a result of the search, there are few or no documents found that relate to the subject matter, it will be necessary to refine the search.  One possible refinement is the use of the international patent classifications, and eliminating those documents that are not related to the subject matter of the search.

Storage of results and search strategy:  for later analysis of the search results it is advisable to keep the results.  It is also recommended to preserve the strategy used in the search since this will allow future consultations in the same database without the uncertainty of reconstructing the search strategy every time.

Analysis of the obtained information:  the group of investigators or strategists must value the obtained information, and it is recommended supplying them with a report that will help them in decision making that affects current or future developments.

From the above, we can conclude that the search of technological and scientific information is in an advanced dynamic state, therefore an organisation that boasts of being intelligent should not lose sight of the importance of watching how technology affects decision making in the definition of investment investigations, as well as recognising the areas of industrial progress and great opportunities for business; situations that will keep an organisation a step ahead of their competitors, and growing with the surroundings and generating the shift.

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