In a major loss for the ACCC, the Full Federal Court on Friday tossed the competition regulator’s challenge to a ruling that drug giant Pfizer did not misuse its market power in the months leading up to the expiration of the patent for its blockbuster cholesterol drug Lipitor.
The Full Court agreed with the ACCC in finding that Pfizer did have a substantial degree of market power in the sale of atorvastatin, the drug marketed as Lipitor, and that it took advantage of that power in early 2012 by bundling discounts with a minimum purchase of the drug. But the ACCC had not made out its case on appeal that Pfizer’s purpose was to substantially lessen competition.
“The primary judge was correct when he concluded that, at no time in the relevant period, did Pfizer have a proscribed purpose, either for the purposes of section 46(1)(c) of the Competition and Consumer Act or for the purposes of section 47(1) and section 47(10)(a) of the CCA, when it engaged in the impugned conduct relied upon by the ACCC in respect of each alleged contravention,” the court wrote.
The court also ruled that Justice Geoffrey Flick had not erred in rejecting in its entirety the ACCC’s case under section 47, which prohibits exclusive dealing.
The court emphasised that the ACCC “ran its case as a ‘purpose’ case, and not an ‘effects’ or ‘likely effects’ case.” The distinction is an important one, because recent amendments to the misuse of market power provision of the competition law do not require the regulator to prove purpose.
ACCC chairman Rod Sims said in a statement the commission was “carefully considering the judgment”, indicating the commission had not ruled out an appeal to the High Court.
“The ACCC brought this appeal because it was concerned that Pfizer’s use of its market position as supplier of the top selling branded atorvastatin immediately before generic products were able to enter the market harmed the competitive process and therefore consumers,” Sims said. “Over a million Australians rely on the drug atorvastatin to keep their cholesterol levels down.”
The regulator filed the appeal in March 2015 after Judge Flick found that the actions taken by Pfizer to protect its market share in the lead up to the May 18, 2012 expiration of the Lipitor patent did not constitute misuse of market power or exclusive dealing.
Lipitor was the world’s best-selling prescription drug at the time of the patent’s expiration.
The ACCC claims Pfizer engaged in anticompetitive conduct through its plan to bypass wholesalers and supply its prescription drugs directly to pharmacies; by establishing a scheme under which pharmacies could accrue rebates on purchases of certain drugs, including Lipitor; and by offering discounts and rebates conditional on the purchase of a minimum amount of its generic atorvastatin.
Pfizer’s offers to pharmacies were first made before the patent expired, when other generics producers were not allowed to make competing offers to pharmacies to supply generic atorvastatin.
Judge Flick found that while Pfizer had taken advantage of its market power, its market power was not “substantial” at the time of the alleged conduct because it was already facing strong competitive pressure from rival generics producers, including Ranbaxy, Apotex, Alphapharm and Sandoz.
The Full Court ruled on Friday that Judge Flick erred in finding that the market was not substantial.
“At all relevant times up to late 2011, Pfizer possessed substantial market power in the
atorvastatin market. Up to that point in time, it had long been the sole supplier of
atorvastatin in Australia,” the court said.
In his ruling, Judge Flick also found that although Pfizer’s actions made it harder for other generics to compete, the ACCC had failed to prove Pfizer engaged in the conduct with the purpose of preventing competitors from entering the market. Pfizer’s actions were undertaken “for the purpose of seeking to remain competitive in the market”, the court said.
Section 46 previously required proof that the alleged anticompetitive conduct was undertaking with the intent of deterring other parties from competing. However, changes to the law made in 2017 put in place an effects test for Section 46 cases, substantially lowering the bar in misuse of market power cases.
Sims told Lawyerly in October that he was eager to bring a misuse case under the new powers, and companies with substantial market power should take heed.
“The behaviour that some are concerned about with Google, Facebook or Amazon, that behaviour is the sort of thing we can now take a look at, whereas before we couldn’t,” he said.
The ACCC is represented by Webb Henderson. Pfizer is represented by Allens.
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