Parallel Trade In Pharmaceuticals - European Court Fails To End Confusion

Author:Mr Cormac Little
Profession:William Fry Solicitors
 
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Article by Cormac Little and Marie McGinley

A pharmaceutical company and parallel traders have both claimed

victory in a recent European Court of Justice (ECJ) decision on

abuse of dominance.

Background

According to the European Commission, parallel trade is a key

component in the promotion of European market integration because

it promotes cross-border competition. Essentially, parallel trade

occurs when goods are bought at a cheaper rate in one country to be

resold in another where the prices are higher.

Pharmaceutical prices are typically cheaper in southern EU

Member States, such as Greece, than in northern European countries.

This fuels parallel trade. Pharmaceutical manufacturers often seek

to prevent parallel trade because they maintain that this

undermines their investment in the development of new medicines.

These companies have found it difficult to prevent parallel trade

while continuing to respect EC competition laws.

A Greek subsidiary of GlaxoSmithKline stopped supplying local

wholesalers with certain drugs, citing a shortage of those

particular medicines. GSK then proceeded to supply those medicines

directly to hospitals and pharmacies in Greece.

Some wholesalers brought a case to the Athens Court of First

Instance claiming that GSK's refusal constituted an abuse of

its dominant position in the market for certain pharmaceuticals

under Article 82 of the EC Treaty, because it effectively prevented

parallel trade of these medicines. Subsequently, the Athens Court

asked the ECJ for a ruling on whether a dominant supplier could

lawfully refuse to meet wholesalers' orders for the purpose of

preventing parallel trade.

Abuse of a dominant position

Article 82 prohibits the abuse of a dominant position within the

EU insofar as it may affect trade between the Member States. Any

abuse by an undertaking in a dominant position within the EU or a

substantial part thereof is prohibited. Unlike Article 81 of the EC

Treaty, which prohibits arrangements between two or more companies

which have as their object or effect a restriction on trade between

Member States, there are no exemptions to Article 82.

However, a dominant undertaking has the opportunity to

demonstrate that their conduct is objectively justified given the

circumstances despite the fact that it is a prima facie abuse under

Article 82. This argument is sometimes used by pharmaceutical

companies in their attempt to justify restrictions on parallel

trade.

Preliminary ruling

In a...

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