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AstraZeneca appeal against competition law breach and level of fine imposed on it should be rejected, legal advisor says

Out-Law News | 18 May 2012 | 4:40 pm | 6 min. read

The European Court of Justice (ECJ) should reject an appeal by a leading drugs company against a fine imposed on it for anti-competitive behaviour, a top legal advisor to the court has recommended.

Advocate General Ján Mazák said AstraZeneca (AZ) should have to pay the €52.5 million fine imposed on it in 2010 by the EU's General Court for abusing a dominant market position within the anti-ulcer drugs market in the 1990s.

AZ has appealed against both the ruling that it abused a dominant market position and the amount of fine levied upon it. The ECJ is expected to rule on the issue later this year.

In an opinion published on Tuesday, Mazák said that in addition to rejecting AZ's appeal, the arguments brought in cross-appeal against the General Court's judgment by The European Federation of Pharmaceutical Industries and Associations (EFPIA) and separately by the European Commission should also be dismissed.

AZ misled patent-granting authorities in the 1990s in a bid to increase the life of its patents on Losec, the world's best-selling drug at the time, the General Court had found.

It also took advantage of quirks in the drug regulation system to delay the ability of competitors to release rival drugs. By withdrawing market authorisations – regulators' permissions to sell a drug – and reissuing the drug in a slightly different form and with a different market authorisation, AZ was able to stop competitors using vital data that would allow them to enter the market, effectively preventing competition from generic manufacturers.

Both these actions unfairly restricted the ability of generic firms to release competing drugs, the Court had said, and because AZ dominated the market this activity infringed competition law.

The European Commission, which is responsible for investigating possible abuses of dominant market position under the Treaty on the Functioning of the European Union (TFEU), originally fined AZ €60m for the offence, but the level of fine was reduced to €52.5m following AZ's appeal to the General Court.

Under the TFEU companies may be said to have abused a dominant market position by engaging in activity that includes "directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage" amongst other possible abuses.

Advocate General Mazák rejected as "unfounded" concerns that AZ expressed about the way in which the General Court had formed its view that the representations the company had made to patent offices were misleading.

AZ had tried to justify its actions by claiming it was seeking to obtain a 'supplementary protection certificate' (SPC) for its drugs, under the terms of EU law, but Mazák said the General Court's view that AZ had made "objectively misleading representations" to the patent offices would have a positive effect in curtailing abuse of market dominance stemming from similar representations in future.

In some circumstances, drugs companies can apply for SPCs following the expiry of patent protection on their products. An SPC, if granted, extends the company's monopoly rights to those drugs and is designed to "guarantee sufficient protection for the development of medicinal products in the European Union" during times when companies file patent applications for new medicinal products upon expiry of one of their patents, according to the European Commission.

"In my opinion, the General Court has not, as claimed by [AZ], made it a per se abuse for a dominant company to apply for a right it thinks it is entitled to without disclosing the basis for its belief," Mazák said. "Rather, the General Court found that an undertaking in a dominant position may not make objectively misleading representations to public authorities to obtain a right, irrespective of whether that undertaking believes it is entitled to that right."

"Such an approach does not set a low threshold for abuse and will not in my view have a chilling effect on or delay applications for intellectual property rights in Europe by increasing the regulatory, legal and bureaucratic burden on companies, as claimed by [AZ] and also EFPIA, but rather will curtail abuse of dominance resulting from highly misleading representations made to patent, or other intellectual property, authorities," he said.

Competition law expert Natasha Pearman of Pinsent Masons, the law firm behind Out-Law.com, said that the Advocate General had not made it clear what 'objectively misleading' representations were in practice.

"What is 'objectively misleading' still isn’t clear and increases the uncertainty for companies looking to maximise the life of their intellectual property (IP) rights," she said.

AZ has further claimed that General Court failed to identify the correct time that it was said to have first abused its position of market dominance .

It has also argued that in the US only patents which have been obtained fraudulently can be challenged under competition law, but Mazák dismissed these arguments.

AZ has also said that it cannot be right that EU law permits it to ask for the withdrawal of market authorisations for drugs and at the same time prohibit that activity under competition law. However, Mazák said the law was not contradictory.

"The fact that AZ was entitled to request the withdrawal of its marketing authorisations for Losec capsules ... in no way causes that conduct to escape the prohibition laid down in [the] TFEU," he said. "As the Commission pointed out in its pleadings, the illegality of abusive conduct under [the] TFEU is unrelated to the compliance or non-compliance of that conduct with other legal regimes."

The Advocate General also said that AZ's actions in delaying the ability of generic companies to compete with it had unfairly impinged on market competition.

"The deregistration of the marketing authorisations ... enabled AZ to delay, at least temporarily, the significant competitive pressure that generic products exerted on it," he said. "The General Court found, in view of the sales volumes at stake, that any delay in the entry of generic products onto the market was worthwhile for AZ. Contrary to the claims of [AZ], I consider that the delay in question is material and is sufficient for the withdrawal of the marketing authorisation to hinder the maintenance of the degree of competition still existing in the market or the growth of that competition."

AZ has claimed that both the Commission and the General Court had not considered the "relevant product markets" because they had failed to recognise changes in the market and the increase in popularity of other kinds of drugs. However, Mazák rejected that claim.

"In my view, an analysis of which product sells more at a particular point in time may be insufficient for the purposes of defining a relevant market pursuant to competition law," he said. "Thus in the case of evolving markets, sales and substitution trends must be examined over time."

"The mere fact that there were significant sales of H2 blockers at the end of the relevant period does not mean, as suggested by [AZ], that H2 blockers and PPIs were part of the same relevant product market. It is possible for a ‘new’ and ‘old’ product to coexist in two separate markets. I therefore consider that the Court should dismiss the first part of the first ground of appeal as in part inadmissible and in part unfounded," he said.

The Advocate General also said that claims by AZ that doctors' "inertia" in the way they prescribed certain drugs as substitute for others meant both those forms of drugs should be considered "necessarily interlined", should be dismissed as "in part inadmissible and in part unfounded." He also rejected arguments by AZ that the Commission and General Court had relied too heavily on certain "price indicators" when evaluating the relative cost of the different drugs and how that related to the competition abuse charge.

AZ has claimed that the €52.5m fine imposed on it is "excessive" on the basis "that the abuses were novel". However, although Mazák considered the fine was based on novel abuses he said AZ's claim that that should lead to a reduction in fine should be "rejected".

"Such a claim wholly ignores the fact that while the means used were novel, as there was no Commission decision or judgment of the Court on conduct using those same methods, the actual substance of the abuses in question was not novel and clearly departed from competition on the merits," he said. "I consider that the General Court correctly found, on examination of the actual substance of the abuses in question, that those abuses were serious infringements."

Mazák also dismissed claims by AZ that "the absence of anti-competitive effects" was a "factor" that should see the fine levied on it reduced.

"Clearly, the Commission will be very pleased with the opinion especially in light of further investigations both within the pharmaceutical sector and wider technology industries which relate to the use of IP," Natasha Pearman of Pinsent Masons said. "The opinion is a harsh reminder for companies in a dominant position of their 'special responsibility' and an obligation which is approaching one of being whiter than white."