18 July 2018
Pharmaceutical stock management – the brand-owner practice of limiting quantities sold to levels required for the local market in a bid to limit parallel exports – has been a feature of European markets for at least much of the past two decades. It was the 2004 Bayer (Adalat) decision of the Court of Justice, coupled with the continued supply obligations in Article 81 of Directive 2001/83 (as amended) which opened up a route for brand owners to effectively limit exports from lower price Member States without risking engaging the prohibition on anti-competitive agreements for limiting parallel trade. That route essentially rested on unilateral conduct by the brand owner – but as such left open the risk of abuse of dominance rules applying. As pharma markets are often narrowly drawn by competition regulators, this remained a significant concern. It was another year before the first case raising the question of how Article 102 applied to stock management came before the Courts (Syfait, 2005). That case was a referral to the CJEU from the Greek Competition Commission – but the request was stymied by a procedural point, and the Court declined to respond to the request for a preliminary ruling. It was another few years before the same case came back before the CJEU. This time the CJEU endorsed the benefits to consumers from parallel trade, and clarified that it may be an abuse of a dominant position for a pharmaceutical manufacturer to refuse to meet ‘ordinary orders’ from existing customers (Lelos, 2008).
Surprisingly, it took 10 years before the next development in the saga, when the Hellenic Competition Commission (“HCC”) found that GlaxoSmithKline (“GSK”) had abused a position of dominance in the market for migraine medicines in Greece by refusing to fulfil any orders in their entirety of Imigran and by refusing to meet ‘ordinary orders’ from wholesalers. As a result, the HCC fined GSK a total of just over €4 million. In reaching that decision, the HCC clarified that orders from wholesalers which were out of all proportion to a previous order history, could legitimately be refused as being of an ‘extraordinary’ character. Assessing whether an order was ‘ordinary’ within the meaning set out in Lelos required a review against the annual size of previous orders and supplies per wholesaler, total national consumption per year and the pattern of previous business relations between the pharmaceutical manufacturer and the wholesaler in question. Despite its findings on abuse, the HCC indicated that orders of significant quantities of products intended primarily for the parallel export market are likely to qualify as ‘extraordinary’, and rejected other parts of the complaints against GSK on that basis.
It seems that stock management issues in general may once again be an area of particular focus for regulators – it is interesting to note that in its case opening report initiating formal antitrust proceedings against Aspen Pharmacare, the Commission cites stock management alongside unfair and excessive prices. Whatever the outcome of that case, it is clear that even a dominant firm can legitimately refuse orders that are ‘extraordinary’, but in doing so, the manufacturer must be able to justify this decision by reference to national market requirements and previous business relations with the wholesaler in question.