A pharmaceutical company is breaking European Union (EU) law if it refuses to meet “ordinary” orders by wholesalers in order to prevent parallel imports, the European Court of Justice (ECJ) has ruled. However, it also says that the company must be able to protect its commercial interests if it is confronted with orders that are “out of the ordinary in terms of quantity,” and it leaves it up to the national courts to decide what is “ordinary.”

The ruling came yesterday in a long-running case which began when GlaxoSmithKline’s (GSK) subsidiary in Greece, GSK AEVE, stopped supplying Greek wholesalers in November 2000, citing product shortages, and began distributing direct to hospitals and pharmacies direct. Wholesalers’ and pharmacist groups complained about the practice to Greece’s competition commission, which referred a number of issues to the European Court, but in 2005 the ECJ declared that it did have the jurisdiction to deal with these questions. However, after the wholesalers again brought an action claiming that GSK AEVE’s sales policy was in breach of both Greek and European Union (EU) competition law, the Athens Court of Appeal, before which the case is now pending, sought the ECJ’s judgement on aspects of the case relating to EU regulations.

Yesterday, the ECJ ruled that, by refusing to meet the Greek wholesalers’ orders, GSK AEVE had intended to limit their parallel exports, thus abusing its dominant position. However, it added that a drugmaker must be in a position to protect its commercial interests in the face of orders which are larger than “ordinary”, and that it is for the national courts to decide what is “ordinary,” in the light of previous “regular commercial practice.”

The ECJ also ruled that if parallel trade should lead to shortages in a given market, it is for the national authorities, and not the dominant supplier, to resolve the situation.

Predictably, groups representing both the research-based industry and parallel importers welcomed the ruling. The European Federation of Pharmaceutical Industries and Associations (EFPIA) said the Court has taken account of “the specific characteristics of competition in the pharmaceutical sector, where pricing and reimbursement are largely controllable by member states, and the fact that parallel trade benefits neither consumers nor social security systems but only a few intermediaries.”

“This a great day for European patients,” said EFPIA president Arthur Higgins, who added: “competition policy should not be used to export the health choices of one member state to another, but should protect consumers and patients rather than parallel traders.”

For the parallel importers, the European Association of Euro-Pharmaceutical Companies (EAEPC) described the ruling as a “landmark case” and “a crucial victory for competition” which “unequivocally confirms that manufacturers cannot partition the market in an attempt to harm legitimate competitors and disrupt parallel trade.”

“The alleged economic specificity of the pharmaceutical sector has always been a shaky foundation on which to justify anti-competitive behaviour. Today’s ruling has dealt this argument a final blow,” said the EAEPC’s president, Richard Fruedenberg.

However, a leading expert in competition law says the ruling simply means the legal battle between drugmakers and parallel importers has entered a “new phase of uncertainty” and that the outcome will be more litigation.

“Although pharma companies are likely to see the judgment as a major step forward, it may in practice be difficult to convince national courts that large orders for export from existing traders are unusual within the meaning of today’s judgment, given the already widespread nature of parallel trade,” comments Edward Miller, a partner in competition at law firm Reed Smith. However, he adds that the judgment will provide support to the national courts and to competition authorities such as the French Competition Council which have shown sympathy with the “more fundamental” arguments raised by the drugmakers.