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Print articleDominant Pharmaceutical Companies Can Refuse to Sell to Pure Exporters
May, 2009 - Carmen Verdonck and Louise Depuydt
In recent years parallel trade in the pharmaceutical sector has been a hot topic. On September 16 2008 the European Court of Justice published its eagerly anticipated judgment on the refusal to supply by dominant pharmaceutical companies in the Syfait II Case. Recently, the Belgian competition authorities have also addressed this subject when dismissing an appeal by Bofar, an exporter of pharmaceutical products.
Previously, Bofar had requested the College of Prosecutors to grant interim measures ordering nine pharmaceutical companies to resume deliveries to it or to process its orders, at least in proportion to the deliveries previously made, until a judgment in the proceedings on the merits was made. The College of Prosecutors refused to grant interlocutory relief and Bofar appealed this decision.
Bofar is a wholesaler and exporter of medicinal products. As it has no licence to distribute products in Belgium, it is exclusively involved in export sales to other countries. When several pharmaceutical companies refused to supply it, Bofar requested interim measures from the College of Prosecutors, but this request was denied in Spring 2008. The College of Prosecutors ruled that the refusal to supply was objectively justified by the fact that pharmaceutical companies cannot be obliged to supply exporters at the same prices as those set by the Belgian government for resale in Belgium. Thus, the pharmaceutical companies were entitled to protect their interests and Bofar was trying to take advantage of regulations that were not intended for this purpose. The College of Prosecutors based its decision on the opinion of Advocate General Jacobs in Syfait I (Case C-53/03), which held that a refusal to supply by dominant pharmaceutical companies can be justified based on the specific characteristics of the pharmaceutical sector.
On April 1 2008, only four days after the dismissal of Bofar's request for preliminary measures, Advocate General Colomer issued his opinion in Syfait II (Cases C-468/06 to 478/06), which seemed to agree with Bofar. Unsurprisingly, therefore, Bofar appealed the College of Prosecutors' decision before the president of the Competition Council.
The pharmaceutical companies argued that any evidence dating from after the original judgment could not be taken into account when hearing the appeal, thus hoping to exclude Colomer's opinion and the subsequent judgment of the European Court of Justice in Syfait II. However, the president of the Competition Council held that this opinion and judgment were an interpretation of a rule of law and could not be regarded as new evidence; therefore, they could be taken into account in his judgment.
In essence, the European Court of Justice had ruled in Syfait II that a company must be "in a position to take steps that are reasonable and in proportion to the need to protect its own commercial interests".(1) Refusal to supply is reasonable and proportionate if it is based on orders that are "out of the ordinary".(2) This must be determined:
"in the light of both the size of the orders in relation to the requirements of the market in the first member state [the member state from which the products are exported] and the previous business relations between that undertaking and the wholesalers concerned."(3)
Based on the principles described above, the president of the Competition Council ruled that if a pharmaceutical company is allowed to protect its commercial interests by limiting parallel exports by Belgian wholesalers in a reasonable and proportionate way, it is also allowed to protect its interests towards wholesalers that exclusively serve export markets.
Moreover, according to the president, the concept of 'out of the ordinary' orders used in Syfait II cannot be applied to pure exporters. The European Court of Justice ruled that the size of ordinary orders must be determined with regard to the requirements of the member state in which the orders are placed (in this case, Belgium). As Bofar was not entitled to supply in Belgium, the president of the Competition Council ruled that pharmaceutical companies could protect their commercial interests by limiting parallel trade and reducing supplies to pure exporters without abusing their dominant position.
The president recognized that pharmaceutical companies cannot exclude all parallel exports. He added that as the European Court of Justice had ruled that pharmaceutical companies are required to supply ordinary quantities to wholesalers which are (at least partially) active on the Belgian market, a complete refusal to supply to exporters would not prevent all parallel exports. The activities of wholesalers active both in Belgium and abroad will ensure the continued parallel export of the products in question. Therefore, it was unlikely that the behaviour of the pharmaceutical companies towards the exporters could exclude all parallel exports.
Bofar's appeal was therefore rejected. The proceedings on the merits are still pending.
For further information on this topic please contact Carmen Verdonck or Louise Depuydt at ALTIUS by telephone (+32 2 426 1414) or by fax (+32 2 426 2030) or by email ([email protected] or [email protected]).
Previously, Bofar had requested the College of Prosecutors to grant interim measures ordering nine pharmaceutical companies to resume deliveries to it or to process its orders, at least in proportion to the deliveries previously made, until a judgment in the proceedings on the merits was made. The College of Prosecutors refused to grant interlocutory relief and Bofar appealed this decision.
Bofar is a wholesaler and exporter of medicinal products. As it has no licence to distribute products in Belgium, it is exclusively involved in export sales to other countries. When several pharmaceutical companies refused to supply it, Bofar requested interim measures from the College of Prosecutors, but this request was denied in Spring 2008. The College of Prosecutors ruled that the refusal to supply was objectively justified by the fact that pharmaceutical companies cannot be obliged to supply exporters at the same prices as those set by the Belgian government for resale in Belgium. Thus, the pharmaceutical companies were entitled to protect their interests and Bofar was trying to take advantage of regulations that were not intended for this purpose. The College of Prosecutors based its decision on the opinion of Advocate General Jacobs in Syfait I (Case C-53/03), which held that a refusal to supply by dominant pharmaceutical companies can be justified based on the specific characteristics of the pharmaceutical sector.
On April 1 2008, only four days after the dismissal of Bofar's request for preliminary measures, Advocate General Colomer issued his opinion in Syfait II (Cases C-468/06 to 478/06), which seemed to agree with Bofar. Unsurprisingly, therefore, Bofar appealed the College of Prosecutors' decision before the president of the Competition Council.
The pharmaceutical companies argued that any evidence dating from after the original judgment could not be taken into account when hearing the appeal, thus hoping to exclude Colomer's opinion and the subsequent judgment of the European Court of Justice in Syfait II. However, the president of the Competition Council held that this opinion and judgment were an interpretation of a rule of law and could not be regarded as new evidence; therefore, they could be taken into account in his judgment.
In essence, the European Court of Justice had ruled in Syfait II that a company must be "in a position to take steps that are reasonable and in proportion to the need to protect its own commercial interests".(1) Refusal to supply is reasonable and proportionate if it is based on orders that are "out of the ordinary".(2) This must be determined:
"in the light of both the size of the orders in relation to the requirements of the market in the first member state [the member state from which the products are exported] and the previous business relations between that undertaking and the wholesalers concerned."(3)
Based on the principles described above, the president of the Competition Council ruled that if a pharmaceutical company is allowed to protect its commercial interests by limiting parallel exports by Belgian wholesalers in a reasonable and proportionate way, it is also allowed to protect its interests towards wholesalers that exclusively serve export markets.
Moreover, according to the president, the concept of 'out of the ordinary' orders used in Syfait II cannot be applied to pure exporters. The European Court of Justice ruled that the size of ordinary orders must be determined with regard to the requirements of the member state in which the orders are placed (in this case, Belgium). As Bofar was not entitled to supply in Belgium, the president of the Competition Council ruled that pharmaceutical companies could protect their commercial interests by limiting parallel trade and reducing supplies to pure exporters without abusing their dominant position.
The president recognized that pharmaceutical companies cannot exclude all parallel exports. He added that as the European Court of Justice had ruled that pharmaceutical companies are required to supply ordinary quantities to wholesalers which are (at least partially) active on the Belgian market, a complete refusal to supply to exporters would not prevent all parallel exports. The activities of wholesalers active both in Belgium and abroad will ensure the continued parallel export of the products in question. Therefore, it was unlikely that the behaviour of the pharmaceutical companies towards the exporters could exclude all parallel exports.
Bofar's appeal was therefore rejected. The proceedings on the merits are still pending.
For further information on this topic please contact Carmen Verdonck or Louise Depuydt at ALTIUS by telephone (+32 2 426 1414) or by fax (+32 2 426 2030) or by email ([email protected] or [email protected]).
Footnotes: (1) Paragraph 69. (2) Paragraph 70. (3) Paragraph 70. |
