28 September 2006

CFI: innovation may render pricing rules in parallel trading acceptable

Yesterday, the European Court of First Instance (CFI) delivered its long-awaited judgement in the case GSK vs EU Commission relating to a Spanish parallel import case. GSK’s dual pricing scheme introduced in Spain did not find explicit blessing by the CFI but the European Commission’s decision was quashed in some key respects. The Commission will have to do a better job when re-analysing GSK’s 1998 “General Sales Conditions” introducing one price for drugs resold subject to price controls in Spain and a (higher) price for drugs sold abroad.

The CFI held that there is no presumption that agreements between pharmaceutical companies and wholesalers intending to limit parallel trade have as their object the restriction of competition. The CFI recognises that the market for medicines is not one of free play of supply and demand. Lower prices may not necessarily be passed on to consumers: they may benefit only those “vectors of artificial competition”. The CFI went on to hold after examining the context that parallel trade permits a limited but real reduction in the prices of medicines so that the conditions were anti-competitive in effect. Exemption may be available, however, on the basis that the conditions contributed to innovation, an issue which the Commission had not satisfactorily examined.

The CFI’s ruling can be seen as part of the “new approach” taken by Luxembourg to pharmaceutical cases which the European Commission will have to adopt. Advocate-General Jacobs in his Opinion in Syfait, in part echoing the Court of First Instance in Bayer (Adalat), widened the scope for a differentiated approach to be taken to restrictions on parallel imports in the pharmaceutical industry. Where it can be shown that the endconsumer of medicines is not deprived of concrete benefits of parallel trade in the form of cheaper pharmaceuticals, restrictions on parallel trade may be in line with EC competition law; and arguments for exemption should be examined in detail, and may succeed.

(source: Oliver Heinisch, Tony Woodgate, Rowan Freeland, Simmons & Simmons (London, UK)
Never was the word "innovation" mentioned by the CFI so many times in one decision, 29 times. The CFI specially deals with the relationship between innovation, parallel trade and competition in the pharmaceutical sector (see par. 265-297)

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