Member Article

1. Introduction
Since 2004 the sale by mail-order of prescription-only pharmaceutical products is no longer prohibited in Germany, being the biggest potential market for pharmaceutical products within Europe and thus generally most attractive for pharmacy companies. However, the German pharmacies have been protected during the last decade by a national legislation providing for a fixed–price system for the supply of prescription-only pharmaceutical products. As a consequence, a patient has to pay the same price for a prescription-only pharmaceutical product in any of the approximately 20,000 pharmacy stores in Germany. So far, this legislation constituted in fact an effective protective shield against any kind of cross-border competition with regard to the supply of pharmaceutical products into the German market. However, according to a new Ruling of the European Court of Justice (ECJ) from 19 October 2016 (ECJ 2016, C-148/15) such a national fixed-price system for prescription drugs constitutes a breach of EU law. As a consequence, EU resident mail-order pharmacies do now have much easier access to the German market since the national fixed-price regulation does no longer apply to them.

2. Facts and ECJ Ruling
The facts of the case are as follows:

2.1 Facts
A German self-help organisation called “Deutsche Parkinson Vereinigung” supported patients suffering from Parkinson's disease. In doing so this organisation cooperated with the Dutch mail-order pharmacy DocMorris. This cooperation was based on a bonus system from which members were able to benefit when purchasing from DocMorris prescription-only pharmaceutical products for treating Parkinson's disease.

A German association for protection against unfair competition called “Zentrale zurBekämpfung unlauteren Wettbewerbs” was of the opinion that such bonus system would violate the German legislation providing for a fixed–price system for the supply of prescription-only pharmaceutical products.

2.2 National Court Proceedings
The association issued a request to the Regional Court of Düsseldorf (Landgericht) which ordered Deutsche Parkinson Vereinigung not to promote its bonus system among its members anymore. One central argument in support of the German fixed-price regulation was that it ensures a better distribution of pharmacies throughout Germany and therefore provides for a better national health system. Upon the association's appeal to the Higher Regional Court of Düsseldorf (Oberlandesgericht) the matter was referred to the ECJ in order to ascertain whether the German regulation is compatible with the European principle of free movement of goods.

2.3 New ECJ Ruling
The ECJ ruled that the German legislation at issue constitutes an unjustified restriction of the free movement of goods according to Article 34 of the Treaty on the Functioning of the European Union (TFEU). The court argued that the national fixed-price system would in fact impede access for pharmacies from other EU member states to the German market. The court further determined that price-driven competition is a more important factor for mail-order pharmacies than for traditional pharmacies which have direct access to the market.

Although a restriction of Article 34 TFEU can be justified for higher reasons such as health and life of human population, the regulation at issue has – according to the ECJ – not been shown to be an appropriate means by which to attain those objectives. Instead an increased price competition could encourage the establishment of pharmacies also in rural regions where the scarity of dispensaries allows for the charging of higher prices. Thus, price competition could in the end even benefit patients by providing more attractive prices.

3. Consequences
In a nutshell, the German legislator has basically two possibilities to react to the new ECJ Ruling. The first possibility is to implement a new regulation prohibiting any kind of mail-order-selling of prescription-only pharmaceutical products in Germany. According to another connected ECJ Ruling as of the year 2003 (ECJ 2003, C-322/01) such regulation would not necessarily constitute a breach of EU law.

Another possibility would be the abolishment or at least relaxation of the German price fixing regulation even for local pharmacies in Germany. Such a step would apparently lead (also) to a new level of competition among pharmacy stores in Germany.

There is already a controversial debate within the German Government on the question as how to react to the ECJ Ruling at hand. For the time being the German fixed-price regulation stays in force only for pharmacies within Germany, not for EU-based mail-order pharmacies.

4. Advantages for foreign pharmacies
In fact, this new situation constitutes a paradigm change for foreign pharmacies since the new ECJ Ruling leads apparently to a much better cross-border access to the German market for pharmaceutical products than before. Given the fact that prescription-only pharmaceutical products represent the core of the German pharmacy market, the chances for EU-based mail order pharmacies are exceptional.

5. Conclusion
With its decision the ECJ laid the path for further expansion of EU-based mail-order pharmacies on the attractive German market for pharmaceutical products.

As one consequence, it can be expected that the market share of the mail-order business, which represents currently only 3 percent of the entire German pharmacy market, will increase significantly in the future.

This development will also lead to increased investments and M&A activity in this important segment of the market.

About the Authors:
Dr. Michael Sörgel LL.M. (Partner) and Dr. Patrick Müller LL.M. (Associate) are Lawyers both specialized in the field of corporate and commercial law at the law firm Heuking Kühn Lüer Wojtek in Düsseldorf/Germany. E-Mail to: [email protected] and [email protected]