Both the pharmaceutical industry and parallel importers have cautiously welcomed a European Court of Justice decision which partially annuls an earlier ruling by the European Commission that a dual pricing policy being operated by GlaxoSmithKline in Spain was unlawful.

In 1998, GSK had sought approval (or “exemption”) from the Commission for the policy, under which Spanish wholesalers were charged different prices for eight of its products - one being the maximum set by the Spanish authorities for drugs sold in the country under the national reimbursement system, and a higher one for products destined for export.

Among its arguments in support of an exemption, GSK had denied that the policy constituted an agreement between itself and the Spanish wholesalers, which would have contravened Article 81 of the European Union treaty, and it maintained that dual pricing actually benefited consumers because it ensured sufficient revenue for continued research and development (R&D).

In 2001, the Commission rejected these arguments, ruling that the policy was tantamount to an export ban, and ordered it to end.

However, on September 27, the European Court of First Instance (CFI) annulled the Commission's ban, on the grounds that it had not carried out an adequate examination of GSK's request for an exemption, and in particular, that the firm's claim that dual pricing could benefit R&D had not been studied “with sufficient thoroughness.”

The CFI also disagreed with the Commission's decision that the dual pricing scheme had as its object the restriction of competition. It had not taken proper account of the “specific nature” of the pharmaceutical sector, said the Court, adding: “it cannot be presumed that parallel trade tends to reduce prices.”

Restricting competition

However, the CFI upheld the Commission's decision that the policy did have the effect of restricting competition, and that there was an agreement in restriction of competition between GSK and the wholesalers “A specific examination of the situation in the sector leads to the finding that parallel trade permits a limited but real reduction in the cost of medicines,” it said, adding that, “insofar as they prevent that advantage from being produced,” such pricing arrangements “diminish the welfare of final consumers.”

GSK welcomed the CFI's decision to annul the ban, but added that the judgement would have no immediate impact on its operations in Europe as the scheme was only implemented in Spain for a short time.

Legal experts for the industry believe that this ruling appears to continue a trend, begun with earlier cases involving Bayer's pricing of Adalat and GSK in Greece, indicating judicial support for action by drugmakers to combat parallel trade in their products.

“Today's ruling opens the door to successfully arguing that restrictions on parallel trade can be justified in the pharmaceutical industry,” said Gavin Robert, partner in the competition/antitrust practice at law firm Linklaters, while Axel Schulz, a lawyer at White & Case, which represents GSK, noted that the Court had recognized “that normal competitive conditions do not apply to pharmaceutical products in Europe, because of national prescription pricing regimes and, second, that pharmaceutical companies have a legitimate right to protect their commercial interests.”

Ruling fails to bring clarity

However, Marie Manley, intellectual property partner at law firm Bristows, noted that, while the CFI has again “slapped' the Commission, “pharmaceutical companies are still in a foggy uncertainty in relation to the legality of a dual pricing scheme. We will need a second round of arguments and at least a second visit to the European courts before this issue is fully resolved,” she said.

The European Association of Euro-Pharmaceutical Companies, which represents the parallel traders, also felt the ruling contained “a number of inconsistencies.” The Court had, “once more, failed to bring clarity to the precise rules on the application of EU competition law to the pharmaceutical sector” and had not questioned the illegality of dual pricing, said the EAEPC.

However, “this ruling shouldn't shake the Commission's core principles. The Court has confirmed that dual pricing is a restriction of competition and that the Treaty rules apply in full,” added Kim Jensen, chairman of the EAEPC's legal working group.

The CFI has now ordered the Commission to re-examine GSK's request for an exemption for its dual pricing scheme. Both sides have two months in which to make an appeal - limited to points of law only - on the judgement.

o The products covered by the dual pricing policy in Spain were: Beconase, Lamictal, Imigran, Becloforte, Becotide, Flixotide, Serevent and Ventolin. By Lynne Taylor