Restrictions placed on supply of drugs were not anti-competitive, rules Court of Appeal

Out-Law News | 14 Nov 2013 | 12:58 pm | 3 min. read

A pharmaceuticals company did not act in breach of UK competition rules when it placed restrictions on its supply of a drug to one of its customers, the Court of Appeal has ruled.

The court rejected an application for an interim injunction brought by pharmacy business and homecare service provider, Chemistree Homecare Limited (CHL), to force Abbvie Limited (Abbvie) to supply CHL's orders for Kaletra, a drug manufactured and supplied in the UK by Abbvie which is used to treat patients with the most common form of HIV.

The court said that CHL had failed to show there was a serious case to be tried that Abbvie had a dominant position in the relevant market. As a result, it did not need to consider the other aspects, in particular whether the conduct amounted to an "abuse" or whether damages would have been an adequate remedy rather than injunction.

This judgment sits in contrast to another recent judgment in interim injunction proceedings. In that case Barclays was ordered to continue to supply banking services to two money services businesses where the High Court found the thresholds for interim relief to be met.

Competition law expert, Jenny Block of Pinsent Masons, the law firm behind Out-Law.com, said that these cases "show the difficulties and complexities of seeking injunctive relief in competition cases".

In the Abbvie case, Lord Justice Rimer, Lord Justice Lewison and Lord Justice Treacy upheld the High Court's previous ruling after refusing to accept that the market for the supply of Kaletra itself in the UK was the relevant market in which to assess Abbvie's activities. They agreed with High Court judge Mr Justice Roth that, while accepting it was possible for a single patented drug to constitute a distinct market of its own, this would be "rare". The absence of a generic equivalent was deemed not to be determinative.

This may appear a more generous view than suggested by some European Commission and OFT precedents on market definition in pharmaceutical cases, but shows the importance of considering each case on its facts, life sciences law expert Stuart Richards of Pinsent Masons said.

CHL had sought to argue that there was likely to be a group of 'captive' customers who were unlikely to switch away from using Kaletra. The Court of Appeal said, however, that this was insufficient on its own to prove that the supply of Kaletra was the relevant market to scrutinise. The Court of Appeal also rejected CHL's argument that the relevant customers in the market to be assessed were pharmacists and not others who have scope to prescribe drugs.

"The [High Court] judge understood the evidence correctly and recognised, or at least was prepared to assume, that there will be a cohort of captive patients for whom Kaletra is a 'must have' drug," Lord Justice Rimer said in the ruling. "However, for the reasons he explained ... that did not by itself, and without at least some evidence identifying their share of the Kaletra market in the UK and also the share of the Kaletra market occupied by therapy naïve patients, enable any conclusions to be drawn as to the impact on Kaletra's role in the market of a small but significant price increase."

"The problem with CHL's case is that it was based on evidentially unsupported theory. For the reasons the judge gave ... this was not a case in which it could be said that CHL had shown that there is a serious issue to be tried that the relevant product market is Kaletra. The burden was on CHL to make good that assertion. The judge concluded that it had failed to do so. I agree with him. That being so, this appeal must fail," he added.

Both UK and EU competition law prohibit businesses with significant market power unfairly exploiting their position, which can include refusing to supply products to customers.

Abbvie had entered into a contract with CHL which permitted CHL to supply Kaletra so as to fulfil a contract it had won to provide pan-London HIV pharmacy home delivery services. However, following an increase in quantities of the drug CHL was ordering, Abbvie found that CHL was supplying Kaletra to third parties other than by reference to its homecare services contract and in particular that it was acting as a wholesaler of Kaletra in the UK and overseas. As a result of this additional supply which Abbvie had been trying to meet, it had in turn been experiencing "critical" stock levels for Kaletra. The Court of Appeal considered the argument that Abbvie should have known the reason for increased orders and whether it had therefore gone along with the alleged disingenuous behaviour of CHL.

"It is helpful the Court of Appeal confirmed that suppliers, even dominant ones, are generally able to determine their marketing strategies and cannot be required to supply wholesalers where this is not part of their normal commercial strategy," Richards said.

Block said that the Abbvie judgment may suggest that the threshold for obtaining interim relief in competition law cases is difficult to overcome but that each case does turn on its specific facts and the evidence put forward. The new regulatory regime which enters into force from April next year could also have an impact.

"The threshold for seeking interim measures from the Competition and Markets Authority, which will begin operations from April 2014, will be lower than it is now and parties may return to seeking an administrative solution in these cases rather than going to court," Block said.