European Court Clarifies Law on Parallel Trade

Pharmaceutical Companies May Take Reasonable Steps to Protect Commercial Interests

Brussels, September 25, 2008 ... The European Court of Justice ("ECJ") has confirmed the legitimacy of pharmaceutical companies taking steps to protect their commercial interests, even if this involves limiting parallel trade. In a judgment handed down on 11 joined cases, C-468/06 to C-478/06 Lelos and Others v GlaxoSmithKline ("GSK"), the court confirmed that it may be an abuse of a dominant position for a dominant pharmaceutical company to prevent all parallel trade, but that in these cases, GSK had not. Global law firm White & Case LLP represented GSK in the case.

In 2000 and 2001 complaints were lodged against GSK with the Hellenic Competition Commission ("HCC") by a number of wholesalers alleging that by limiting supplies of certain drugs from its Greek subsidiary, GSK was abusing its dominant market position. The wholesalers in question had been placing ever larger orders for prescription medicines with GSK Greece, mainly for export, to exploit the price differentials in prescription medicines between EU Member States. At one point, despite GSK supplying seven times the Greek demand for one product, shortages persisted in the Greek market. In response to this GSK initially suspended supplies to wholesalers for a few week so as to restore supplies to pharmacies directly. GSK later decided to only supply wholesalers with quantities corresponding to Greek annual consumption plus a safety margin. The question of whether GSK's refusal to supply all the orders placed by the wholesalers in unlimited quantities amounted to an abuse of dominant position was referred to the ECJ.

In its ruling of September 16, the ECJ began by repeating that it may be an abuse of a dominant position for a dominant pharmaceutical company to prevent all parallel trade. However, it was agreed that GSK had not prohibited exports by wholesalers and hence was not acting to prevent parallel trade. On the issue of how much GSK should supply to the wholesalers, the Court held that pharmaceutical companies were not obliged to supply unlimited quantities. The Court also considered that a dominant pharmaceutical company must be able to defend its own commercial interests by adopting reasonable and proportionate measures.

"This judgment represents important and welcome news for the research-based pharmaceutical industry, which has for years faced uncertainty created by massive volumes of parallel trade from Member States where for budgetary reasons prices are set at a low level," commented White & Case partner Ian Forrester. "The confirmation that a dominant company in a market can take reasonable steps to defend its commercial interests when confronted with orders that are out of the ordinary, is a significant clarification of the law on parallel trade."

The White & Case team advising GSK was led by partner Ian Forrester, working alongside associates Assimakis Komninos, Axel Schulz, Anthony Dawes and Pascal Berghe.

It will now be for the Greek National Court to decide whether the orders placed by the wholesalers to GSK were "ordinary" and whether GSK's decision to limit its supplies was proportionate to the need to protect its commercial interests.

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Sara McIlroy
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Mireille Dallmann
White & Case, Brussels
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