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Competition Law

Analysis - debate - current awareness

08 JAN 2013

Lessons in Losec: the AstraZeneca dominance decision


Last week's decision of the Court of Justice of the European Union (‘CJEU') in the AstraZeneca case is unsurprising: the Court refused AstraZeneca's application to have the General Court's decision set aside (AstraZeneca v Commission)[1]. The General Court last year essentially upheld the European Commission's (EC) decision of 2005,[2] which found AstraZeneca guilty of having abused dominance by using its IPRs and the pharmaceutical regulatory system to prevent or delay the marketing of generic versions of its ulcer treatment drug, Losec.

The Commission's original infringement decision[3] was seminal. It was the first abuse of dominance case in the pharmaceutical sector and remains to this day the only abuse decision that the Commission has taken in respect of a pharmaceutical company. 

The Commission found that AstraZeneca had abused a dominant position in the period from 1993 - 2000 by:

  • submitting misleading information to national patent offices in order to acquire supplementary protection certificates (SPCs) which would extend the patent protection for Losec, and then defending those SPCs in court; and
  • misusing national rules to restrict parallel trade-in, and block generic competitors to Losec by launching a tablet form of the drug and withdrawing authorisations for the capsule form in certain national markets where patents or SPCs were due to expire.[4]

The General Court essentially upheld the Commission's infringement decision although it did reduce the level of the fine imposed on AstraZeneca from €60m to €52.5m because the Commission had not established that withdrawing marketing authorisations would have prevented parallel imports in Norway and Denmark.

In upholding the General Court's decision, and the Commission's original infringement decision, and dismissing AstraZeneca's appeal in its entirety, the CJEU decision embeds an elevated antitrust risk environment for pharmaceutical companies, but also more broadly, for companies that operate in any IP rich environment. We have identified three key lessons. 

Lesson 1: there is a trend towards narrower market definition

In AstraZeneca, the Court's endorsed the Commission's view that the way in which health care systems operate in the EU, particularly pricing and reimbursement mechanisms, tend to make narrower market definitions more appropriate. This echoes the narrower approach to market definition taken in recent EU Merger Regulation decisions in which the Commission assessed the transaction by looking at markets at ATC4 level and the molecular level (generally ATC5):

The market investigation in the present case indicates that it is only in a minority of cases that products based on alternative pharmaceutical ingredients, ie alternative molecules, can be considered as perfect substitutes for each other: Sanofi-Aventis/Zentiva.[5]

The market investigation has indicated that, in particular for drugs purchased by hospitals, competition primarily takes place between drugs based on the same molecule: Teva/Barr.[6]

Lesson 2: first movers with IPRs face a risk of dominance even in sectors characterised by innovation

The Courts did not accept that because the pharmaceutical sector is characterised by strong competition by innovation, AstraZeneca's high market share, was less meaningful in assessing dominance than in other sectors.

In addition, the Commission's approach to, and analysis of, other factors to which it gave consideration in its dominance analysis were vindicated: the fact that AstraZeneca could charge higher prices for Losec was a relevant indicator for the purpose of assessing dominance, despite the fact that prices are the result of, or are strongly influenced by, public authorities; so too was its ownership and use of intellectual property rights; its first mover status; and its financial, human resource and sales force strength, particularly relative to generic suppliers of competing products.

Lesson 3: the special responsibility on dominant companies can be extremely onerous

It is a well established principle of EU law that abuse is an objective concept referring to the behaviour of an undertaking in a dominant position.[7] Nonetheless, the Commission's finding that AstraZeneca had abused its dominance was to a large extent underpinned by the fact that the company had acted dishonestly by knowingly making misleading representations in connection with its applications for SPCs.

The Courts validated the forked tongue approach to objectivity and subjective intent in identifying abuse. They confirmed that the misleading nature of the representations made to public authorities by AstraZeneca must be assessed on the basis of objective factors and that proof of the deliberate nature of the conduct and bad faith was not required. However, intention was nonetheless found to be a relevant factor in the assessment of abuse.

The Court appears to have imposed two active obligations on AstraZeneca:

  • AstraZeneca argued that its representations to the patent offices were not misleading because it had proceeded on the basis of its understanding of ambiguous EU legislation (and it had at the time obtained independent legal opinions supporting its interpretation). The Courts did not accept this and criticised AstraZeneca for refraining from disclosing to the patent offices both the manner in which it had interpreted SPC legislation relevant to its application and information as to what the date of first marketing would have been in the event that its interpretation of the legislation was incorrect. It follows that a dominant company might arguably be obliged to disclose the interpretation of legal provisions upon which it relies when applying for IP rights, to detail the ‘counterfactual' in the event that its interpretation of the law is incorrect.
  • In addition, AstraZeneca had a duty to notify the patent offices once it became aware that that its submissions were inaccurate and that as a result it had been granted an unlawful extension of its patent rights: in so far as an undertaking in a dominant position is granted an unlawful exclusive right as a result of an error by it in a communication with public authorities, its special responsibility not to impair, by methods falling outside the scope of competition on the merits, genuine undistorted competition ... requires it, at the very least, to inform the public authorities of this so as [to] enable them to rectify those irregularities.

The exact scope of these obligations and the extent to which they apply in relation to applications for IP rights other than SPCs (or other engagements with public authorities such as responding to procurements), is not clear. The question whether representations made to public authorities for the purpose of improperly obtaining exclusive rights are misleading, must, according to the Courts, be assessed in concreto. In AstraZeneca, the Courts referred to a ‘manifest lack of transparency' as being contrary to the special responsibility of an undertaking in a dominant position not to impair genuine competition ‘on the merits'.

The key issue would seem to be whether the practice was such as to lead the public authority wrongly to create regulatory obstacles to competition and in this the Courts endorsed the Commission's assertion that the limited discretion or absence of any obligation on public authorities to verify the accuracy of information may be a relevant factor in deciding whether the practice is liable to raise regulatory obstacles to competition.


The CJEU's decision opens the door to the likelihood of more extensive use of Art 102 by an emboldened EC, in the pharmaceutical sector and also more broadly in respect of IPR management strategies. Narrow markets, and the potentially very taxing ongoing obligations as regards disclosure of information to regulatory authorities, will make it easier for the Commission and national competition authorities to establish abuse of dominance infringements.

Article 101

European Commission imposes €1.47bn fine of Cathode Ray Tube (CRT) cartel

On 5 December 2012, the EC announced that between1996-2006, eight producers of TV and computer monitor tubes engaged in one, or both, of two distinct CRT cartels, contrary to Art 101 of the Treaty on the Functioning of the European Union (‘TFEU').

Across the life of the cartels, the participants fixed prices, shared markets, allocated customers between themselves, coordinated output and exchanged commercially sensitive information.

The Commission found that Chunghwa, LG Electronics, Philips and Samsung SDI participated in both cartels while Panasonic, Toshiba, MTPD (owned by Panasonic) and Technicolor only participated in the computer tubes cartel.

Fines totalling €1.47bn were imposed by the Commission, with LG Electronics and Philips also being found jointly and severally liable for their joint venture LG Philips Displays, and Panasonic and Toshiba being found jointly and severally liable for their joint venture MTPD.

Chunghwa received full immunity for bringing the cartel to the Commission's attention, while Samsung SDI, Philips and Technicolor received reductions of 40%, 30% and 10% respectively.

Cartel Appeals

Mitsubishi Electric and Toshiba appeal Commission decision re-imposing fines for gas insulated switch gear cartel

On 24 January 2007, Mitsubishi Electric and Toshiba Corporation were fined €118,575,000 and €90,000,000 respectively (both with €4,650,000 to be paid jointly) for their participation in a cartel on the market for gas insulated switch gear, a major component in electrical substations.

In July 2011, the General Court upheld the Commission's findings in relation to the cartel but annulled the fines imposed on Mitsubishi and Toshiba due to an infringement of the principle of equal treatment in calculation of the fines. Specifically, it was deemed the different reference years of turnover used for calculating the fines of the Japanese and EU producers violated the principle of equal treatment. Revised fines of €74,817,000 for Mitsubishi and €56,793,000 for Toshiba (with €4,650,000 jointly and severally liable) were later re-imposed by the Commission.

Both Mitsubishi and Toshiba have now brought actions before the General Court seeking annulment or reduction of the fines on the basis that a number of procedural and legal errors were made by the Commission in making its re-imposition decision and recalculating the fines.

European Court of Justice rules that Commission can claim compensation for cartel damages

On 6 November 2012, the ECJ handed down a ruling that the EC was not precluded by the Charter of Fundamental Rights from claiming compensation for loss sustained in its capacity as a consumer of products that were the subject of a cartel.

In 2007, the EC announced that it had imposed fines totalling €990m for infringing Art 101 TFEU by operating cartels for the installation and maintenance of lifts and escalators. The Commission later argued that the EU had suffered financial loss as a result of entering into a number of contracts for the installation, maintenance and renewal of lifts and escalators in several of its buildings, the prices of which were allegedly higher than the market prices as a consequence of the cartels.

The Brussels Commercial Court referred the question of whether Art 47 of the Charter of Fundamental Rights of the European Union (right of access to a tribunal and the quality of arms between parties to proceedings) prevented the Commission, acting as the EU's representative, from bringing an action for damages on the basis of anti-competitive conduct when it was the Commission itself that previously adopted the decision finding the conduct unlawful and when the national court cannot call into question the validity of the Commission's decision.

The ECJ stated that any person (including the EU) can claim compensation for the harm suffered where there is a causal link between that harm and a prohibited agreement or practice. The ECJ added that although national courts are bound by the Commission's findings, it is down to the national courts alone to assess whether there is loss and a direct causal link. Further, it is still up to the national court to determine individually the loss caused to each person bringing an action for damages. Therefore, the Commission cannot be considered its own judge and jury, and is therefore entitled to bring a claim for damages.

Court of Appeal upholds CAT decision to strike out damages claim against UK subsidiary of addressee of cartel decision

On 28 November 2012, the Court of Appeal upheld a judgment of the Competition Appeal Tribunal (CAT) striking out a damages claim brought by Emerson Electric (and others) against Mersen UK Portslade Ltd, formally Le Carbone (Great Britain) Ltd (‘Carbone GB'), under s 47A of the Competition Act.

Carbone GB is a UK subsidiary whose parent company, Le Carbone Lorraine SA, was an addressee to the EC carbon and graphite products cartel decision of 3 December 2003. Emerson Electrics Co and others alleged that they had suffered substantial monetary loss and damage as a result of the artificially inflated prices caused by the cartel.

The Court of Appeal agreed with the CAT that Carbone GB was not itself an addressee of the EC decision because it was not named anywhere in the decision. Therefore, as there was no relevant infringement decision of the EC within the meaning of s 47A(6)(d) CA 98 for the purpose of initiating a claim against Carbone GB, there were no ‘reasonable grounds' for making the claim under Rule 40 of the CAT 2003 Rules.

From this judgment it would seem that the CAT will only hear cartel claims under s 47A where:

  • the defendant to the damages action is domiciled in the UK;
  • the defendant is an addressee of the EC decision; and
  • there are no appeals of the infringement decision pending.

Market investigations

Office of Fair Trading call for information about personalised pricing practices

On 14 November 2012, the Office of Fair Trading (OFT) launched a call for information to explore the extent to which businesses are monitoring online shoppers and using the data to target them with personalised prices, and whether any action by the OFT is necessary.

Many businesses monitor consumer behaviour online, collecting and recording information about individual shoppers' purchasing habits, websites they have visited and the items and services they have looked at, as well as the type of device or internet browser they use. The OFT seeks to investigate how businesses use such consumer information, including whether they change the prices they offer individual shoppers as a result.

The OFT will be carrying out its investigation over the next 6 months and will publish its findings in Spring 2013. The OFT has invited responses by 4 January 2013.


European Commission conditionally approves acquisition of Xstrata by Glencore

The European Commission has decided to grant conditional approval for the acquisition of Xstrata by Glencore. Glencore is the largest supplier of zinc metal in the EEA and the Commission was concerned that the transaction may further strengthen their already strong position, increasing Glencore's ability and incentive to raise prices.

Glencore already owned a 34% stake in Xstrata, the world's fifth largest metals and mining group. However, the Commission concluded that this interest did not give Glencore de jure or de facto control over Xstrata.

In order to address the Commission's concerns, Glencore has agreed:

  • to end its exclusive off-take arrangement with Nyrstar (the largest European zinc metal producer) in relation to commodity zinc products produced by Nyrstar in the EEA;
  • not to buy any EEA zinc metal quantities from Nyrstar for a 10-year period;
  • not to engage in any practices that could prevent Nyrstar from competing effectively with Glencore in relation to zinc metal in the EEA; and
  • to divest its 7.79% stake in Nyrstar.

On the basis of these commitments, the Commission is satisfied that the transaction will not significantly impede effective competition in the EEA.

Commission conditionally approves joint venture between ARM, Giesecke and Gemalto

On 7 November 2012, the Commission announced its decision to approve a joint venture between ARM, Giesecke and Gemalto. The intended purpose of joint venture is to develop and market trusted execution environment (TEE) software for consumer electronic devices.

The Commission was concerned that as a result of the joint venture, ARM, which has a strong position as an upstream supplier of IP architecture for application processors for consumer electronic devices, would have the incentive and ability to shut out competitors of the joint venture from the market for TEE solutions for consumer electronic devices.

In order to address these concerns, ARM has agreed to provide hardware interoperability information to competitors on the same terms that it would be offered to the joint venture. Additionally, it will not develop its IP in a way that would degrade the performance of alternative TEE solutions. The commitments will stay in force for 8 years, ensuring that the next generation of ARM's IP architecture will be covered by these provisions.

Article 102

Commission opens proceedings against Bulgarian Energy Holding

The European Commission has opened formal proceedings into whether Bulgarian Energy Holding may be abusing its dominant position as a result of certain provisions in electricity supply agreements entered into by its subsidiaries, which may impose territorial restrictions on resale. 

These contractual provisions may restrict the freedom of its trading partners to deliver electricity purchased from Bulgarian Energy Holding as the provisions prescribe where the electricity must be delivered. The Commission believes that competition on the wholesale energy markets in Bulgaria and neighbouring states being may be affected as a result.

The Commission has therefore opened proceedings in order to investigate further, and as a matter of priority, whether the inclusion of such restrictions may constitute an abuse of dominance by Bulgarian Energy Holding under Art 102 TFEU.


[1]              Case C-457/10P, AstraZeneca v Commission.

[2]           Case T-321/05, AstraZeneca v Commission.

[3]           Case COMP/A.37.507/F3 - AstraZeneca.

[4]           At the time of the abuse, generic entry and parallel trade was limited unless originators' marketing authorisations remained in force.

[5]           Case M.5253.

[6]           Case M.5295.

[7]           For example, Case 85/76, Hoffman La Roche v Commission.

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