On June 15, the European Commission (“Commission”) announced that it had fined Anglo-Swedish pharmaceutical company, AstraZeneca, €60 million (approx. US$73 million) for misusing the patent system, and the procedures for marketing pharmaceuticals, to block or delay market entry for generic competitors to its ulcer drug Losec. The Commission decided that AstraZeneca’s actions constituted serious abuses of its dominant market position in violation of the European Union’s competition rules. The level of the fine took into account that some features of the abuses were considered novel by EU standards.

Losec pioneered a new generation of medicines, known as proton pump inhibitors, to treat stomach ulcers and other acid-related diseases. Losec initially received patent protection in Europe in 1979. However, the Commission held that for a seven year period, between 1993 and 2000, AstraZeneca had infringed the EU’s competition laws by blocking or delaying market access for generic versions of Losec, and preventing parallel imports of Losec. During part of this period, Losec was the world’s best-selling prescription medicine.

In particular, the Commission’s statement alleged that AstraZeneca had provided misleading information to several national patent offices resulting in the company gaining extended patent protection for Losec through so-called supplementary protection certificates (SPCs). The patent offices were not obliged, as in normal patent assessments, to consider whether the products were innovative, and had essentially relied on the information supplied by the company. The Commission believes that company’s alleged misleading conduct amounted to an abuse in Belgium, Denmark, Germany, the Netherlands, Norway and the United Kingdom.

The Commission also alleged that AstraZeneca had misused the rules and procedures applied by Europe’s national medicines agencies which issue market authorizations for medicines, by selectively deregistering the market authorizations for Losec capsules in Denmark, Norway and Sweden, with the intent of blocking or delaying entry by generic firms and parallel traders.

The Commission stated that at the time, generic products could only be marketed and parallel importers only obtain import licenses if there was an existing reference market authorization for the original corresponding product (Losec). The purpose of a market authorization is the right to sell a medicine, and not to exclude competitors. Unlike patents, SPCs and data exclusivity, market authorizations are not intended to reward innovation, and the finding of an abuse should not, therefore, affect incentives to innovate. The relevant European rules on marketing authorizations have since changed so that such an abuse cannot be repeated.

In announcing its decision, European Competition Commissioner, Ms. Neelie Kroes, stated that, “I fully support the need for innovative products to enjoy strong intellectual property protection so that companies can recoup their R & D expenditure and be rewarded for their innovative efforts. However, it is not for a dominant company but for the legislator to decide which period of protection is adequate. Misleading regulators to gain longer protection acts as a disincentive to innovate, and is a serious infringement of EU competition rules. Health care systems throughout Europe rely on generic drugs to keep costs down. Patients benefit from lower prices. By preventing generic competition, AstraZeneca kept Losec prices artificially high. Moreover, competition from generic products after a patent has expired itself encourages innovation in pharmaceuticals.”

On the same day as the Commission’s decision, AstraZeneca announced, in a press release, that it does not accept the European Commission’s decision that it infringed the European competition rules by its marketing of Losec in the 1990s, and will appeal the decision to fine the company to the European Courts. In particular, AstraZeneca argues that companies are entirely within their rights to withdraw products; to introduce new products; and to deal with product registrations as may be necessary. In this case, its new Losec tablet formulation offered benefits over the previous formulation. Moreover, the Commission failed to recognize that generic companies could have obtained their own registrations of Losec on the basis of the extensive published literature already available at that time.

AstraZeneca also argues that the Commission failed to properly define the relevant market, and incorrectly assessed the company as holding a dominant position on the relevant market. The company believes that the Commission’s interpretation in this case could mean that any innovative product may be considered dominant retrospectively, and hence subject to the ‘special responsibility’ of a dominant company under EU competition rules. This, the company argues, could impose unnecessary additional burdens, which will adversely affect industry competitiveness.

Sir Tom McKillop, Chief Executive of AstraZeneca, said: “AstraZeneca has not made misrepresentations or behaved inappropriately. We believe that a proper evaluation on appeal of all the facts and legal position will confirm that the Commission’s analysis is fundamentally flawed”.

Authored by:

Neil Ray
415-774-3269
nray@sheppardmullin.com