Case Note: Pfizer Xalatan Case & Abuse of Dominant Position

By Matisse Barbaro

Introduction

Intellectual property rights (IPR) consist of inventions and ideas on which the inventors can obtain protection. Accordingly, the inventor or the owner is granted exclusive rights with the aim of obtaining commercial benefits by its invention, and in order to have some protection against the utilization of such invention by other actors.[1] There are several kinds of intellectual property protection, such as patents, copyrights, design rights, trade marks etc. In particular, “a patent is an exclusive right granted for an invention, which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem”.[2] On the European market, the patents are granted by the European Patent Office (EPO). Such organ bestows patents only if the invention is patentable.[3] In order to be patentable, the invention must fulfil the following conditions: (i) it must be novel,[4] (ii) it must be inventive,[5] and (iii) it must be susceptible of industrial application.[6]

101618658-84459655.530x298

In the Pfizer case, the multinational pharmaceutical Pfizer Italia s.r.l., Pfizer Health A.B. and Pfizer Inc. (Pfizer) used to hold a European patent related to the latanoprost molecule contained in the Xalatan drug. Xalatan is a medicine that contains latanoprost molecule, claimed to treat high eye pressure, which may lead to glaucoma.[7]

The Italian Competition Authority (ICA), on January 11th, 2012, found the pharmaceutical firm to be in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU),[8] condemning the company for abuse of dominant position.[9] Consequently, the ICA gave a fine of € 10,677,706. In September 2012, the Regional Administrative Court of Lazio (TAR) annulled the ICA’s decision.[10] Later, on February 12th, 2014, the ICA appealed before the Council of State (the highest administrative Court on competition) that overturned the TAR’s decision. The alleged abuse consists in unlawfully delaying the entry into the market of generic pharmaceutical companies of Pfizer’s product Xalatan. The patent for this drug should have expired in 2009 in Italy. Nevertheless, the pharmaceutical company adopted a complex strategy in order to prevent competition from generic firms, or in order to delay their entrance in the aforementioned market. Pfizer’s way of conduct, though legitimate under patent law, resulted in an anticompetitive behaviour in breach with Article 102 TFEU. Thanks to its unlawful conduct, Pfizer earned € 17 million. Moreover, it caused a loss by the Italian National Health System of € 14 million.[11]

The Pfizer case shows the conflict that could possibly arise between competition law and intellectual property rights (IPR). In fact, even if the conduct under patent law can be lawful, this does not necessarily mean that it does not infringe competition law. The European Commission stressed that “if the existence and exercise of industrial property rights are not of themselves incompatible with competition law, they are not immune from competition law”.[12] More precisely, the European Union Court of Justice (EUCJ), in the AstraZenea case,[13] declared that “the illegality of abuse conduct under Article (10)2 EC is unrelated to its compliance or non-compliance with other legal rules and, in the majority of cases, abuses of dominant positions consist of behaviours which are otherwise lawful under branches of law other than competition law”.[14]

The structure of this paper prescribes as follows: first part analyses the sanction of the ICA. The second part deals with the appeal by Pfizer before the TAR, which reversed the ICA’s conclusion. In the third part, an evaluation of the final judgment on the Pfizer case by the Council of State is made. It must be outlined that the paper particularly focuses on the facts of the case, on the reasoning of each authority and, lastly, on the legal outcome. Finally, the fourth part briefly outlines the general problem of the unlawful use of patent rights in the pharmaceutical industry. 

The sanction ruled by the Italian Competitive Authority

On October 2010, Ratiopharm Italia Srl (Ratiopharm), a generic company, filed a complaint to the ICA. According to Ratiopharm, Pfizer engaged in an anti-competitive strategy with the goal of delaying the entry of generic pharmaceutical firms in the Italian market for the supply of the anti-glaucoma drugs. Pfizer, in this market, was the holder of a European patent, which it nationalized in several European Union Member States.  There is scientific proof that this medicine is able to cure eye pressure that can lead to glaucoma.[15] In Italy, the patent for the latanoprost molecule should have expired in 2009. Nevertheless, Pfizer adopted an ingenious and complicated strategy in order to delay the entrance of generic companies into such market, or, even, to prevent such entry.

  1. The facts

Pfizer conduct is very clever and complex and can be summarised in five steps.

Firstly, in 1989, Pfizer filed the main patent for the drug. After a several amount of years, in 2002, it filed, under article 76 European Patent Convention,[16] before the EPO, a European divisional application (which is a new patent application separate and independent from the original parent application). This European division application was also  meant to cover latanoprost. Pfizer filed this application because, in Italy, the patent protection for the latanoprost molecule had a shorter length with respect to the other European Union Member States (except for Spain and Luxembourg) where Pfizer owned the patent. The shorter length was due to the fact that the multinational company did not ask for the Supplementary Protection Certificate (SPC) that would have extended the duration of the protection of such patent. An SPC “has the effect of extending the term of a patent relating to the protection of a particular medicinal or plant protection product usually by a period of not more than five years”.[17] The objective of an SPC is to compensate the patent owner for the loss of patent protection that would be caused by the time taken in order to obtain a marketing authorisation for the product in question. The EU Member States can obtain the SPC by filing to the national patent office of the single State. The SPC can only be granted concerning a specific active ingredient in the product enjoying the patent protection.[18]

Secondly, Pfizer obtained the European divisional application in 2009. Afterwards, the company validated the patent only in Italy, where the patent protection had a shorter length with respect to the other Member States of the European Union, and requested an SPC. In this way, Pfizer would have been able to extent the patent protection in Italy until July 2011 in order to align the deadline of the Italian patent protection with that one of the other States.

Thirdly, Pfizer engaged in a patent-related litigation aimed at avoiding generic companies to enter the market for latanoprost molecule.

Fourthly, the firm took action in order to prevent the Italian Medicines Agency (AIFA) to grant marketing authorizations for the latanoprost to generic companies. The AIFA is the national Italian authority that is responsible for drugs regulation in this State. One of the AIFA missions is to “guarantee access to medicines and their safe and appropriate use as means to protect public health”.[19]

Fifthly, Pfizer applied for an extension of the patent protection. The justification was a paediatric experimentation. If this extended protection had been granted, it would have lengthened the duration of the protection for six more months that is until January 2012. Nevertheless, Pfizer requested the extension claiming a paediatric experimentation, which it had no actual interest in developing.

        2. The reasoning

The ICA found Pfizer strategy anti-competitive, in breach of Article 102 TFEU, because aimed at delaying, or avoiding the entry to latanoprost market by generic companies. The ICA’s reasoning is based on two main findings.

Firstly, the European divisional patent filed by Pfizer was validated only in Italy, in Spain and in Luxembourg. In fact, in these three Member States, the patent protection was shorter than that one granted in the other Member States.

Secondly, Pfizer applied for the European divisional patent. Nevertheless, the company did not develop any new output, nor any development, of the first product, which enjoyed the main patent protection.

        3. The outcome

The ICA sanctioned Pfizer behaviour as unlawful. In fact, the pharmaceutical firm intentionally constructed a situation of uncertainty, which would prevent generic companies from entering the latanoprost market with their equivalent medicines. Pfizer strategy is anti-competitive, with subsequent infringement of Article 102 FTEU.

With its unlawful conduct, Pfizer could earn € 17 million. Likewise, it caused important damages both to the generic companies, whose entry to the Italian market was delayed by 7 months and to the AIFA, which approximately lost € 14 million.

Xalatanimage
Courtesy: FDALawyersBlog

The annulment of the Italian Competitive Authority by the Regional Administrative Court of Lazio

Following the ICA’s condemnation, Pfizer appeal, in September 2012, to the Regional Administrative Court of Lazio (TAR). The TAR overturned the ICA’s decision and found Pfizer conduct to be lawful.

  1. The reasoning

Firstly, the TAR stated that Pfizer commitments, during the proceedings, had been unreasonably rejected by the ICA. According to the TAR, those commitments objectively would meet the concerns expressed by the ICA during its preliminary assessment.[20] 

Secondly, Pfizer’s conduct was justified in order to protect the company rights and interests. In the opinion of the TAR, Pfizer’sbehaviour would be lawful according to patent law. In fact, in order to have an unlawful conduct, the ICA had to prove the existence of a quid pluris[21] to be added to the whole set of conduct kept by Pfizer. Accordingly, as previously stated, Pfizer behaviour would be lawful and limited to the safeguard of the industry’s own rights and legitimate interests. Nevertheless, the ICA did not prove the existence of given quid pluris.

Thirdly, in the TAR opinion, the ICA mistook not to evaluate the opportunity to stay the proceedings and it should have waited for the decision on the appeal filed by the firm against the EPO invalidation of the European divisional patent.[22]

        2. The outcome

For the outlined reasons, the TAR concluded that Pfizer’s conduct was lawful, aimed at protecting its own IRP and legitimate objectives. Consequently, it was not in breach of Article 102 TFEU. Therefore, the TAR overturned the ICA’s sanction, annulling the fine of € 10,677,706. 

The judgment of the Council of State

The ICA appealed against the TAR’s decision before the Council of State. On 12 February 2014, the Council of State overturned the TAR’s decision, confirming the ICA’s finding. The Council of State found Pfizer’s strategy to be anti-competitive and in breach of Article 102 TFEU. According to the Council of State, Pfizer’s behaviour lead to a misuse of IPR aimed at pursuing unlawful objectives, that is delaying or avoiding the entry of generic companies in the Italian market for latanoprost.

  1. The reasoning

Firstly, the Council of State agreed on the definition of the relevant market provided by the ICA in its decision of 11 January 2012. Likewise, ICA’s findings of Pfizer’s dominant position on the market of latanoprost were correct.

Secondly, given the gravity and the duration of the violation of Article 102 TFEU, the ICA’s fine of € 10,677,706 was proportionate and appropriate. In fact, Pfizer, with its ingenious conduct, caused a detrimental impact on the generic companies. This was extremely anti-competitive.

Thirdly, the Council of State confirmed the ICA finding related to the proceedings. Accordingly, those proceedings would be inappropriate to meet the anti-competitive concerns expressed in the preliminary assessment. This is explained by the fact that the patent protection should have expired very shortly and that the breaching conduct had already caused important damages to the competition, namely the generic companies.

Fourthly, the Council of State found that the TAR erroneously evaluated Pfizer’s conduct only with respect to the patent law, without taking into account the anti-competitiveness of the company’s strategy. As a matter of fact, it is indeed legitimate and lawful to apply to a European divisional patent related to an ingredient already protected by the parent patent, as Pfizer did. Nevertheless, the anti-trust law further requires verifying whether the effective use of that legitimate right is anti-competitive.[23] The Council of State found that no real and concrete use was made of the divisional patent requested by Pfizer since no new product was produced, neither any developments of the existing product were made.[24]

        2. The outcome

In conclusion, Pfizer, in a position of dominance, could not engage in conducts being legitimate under patent laws, but illegitimate under competition law.

The Council of State found Pfizer to have abused its dominant position in the latanoprost market, in breach of Article 102 TFEU. The authority recalled that the abuse of dominant position belongs the broader category of abuse of rights: the right is exercised for an objective different from the one for which the right was granted in the first place. Accordingly, Pfizer exercised its legitimate right for pursuing an illegitimate objective that is delaying or avoiding the entry of its competitors to the market for the Xalatan drug. As a matter of fact, according to the Council of State, the abuse of right does not need a formal breach of the law, but the distorted exercise of such right, for different purposes than those laid down by the legislator, suffices.[25] In the present case, Pfizer was able to extent the duration of the patent protection in Italy and, consequently, delaying the entrance of generic companies to the Italian market for that drug, without effectively using the European divisional patent. The objective meant by the legislator in according the divisional patent certainly differs from the illegitimate use that Pfizer made out of it. Pfizer used the divisional patent for anti-competitive purposes, which caused a considerable loss by the National Health Italian System and which further harmed the competition.

Unlawful patent practices in the pharmaceutical industry

The Pfizer case is only an example of the general problem of unlawful patent practices in the pharmaceutical industry, as the European Commission outlines in its Inquiry on the pharmaceutical sector.[26] With its inquiry, published on July 8th, 2009, the European Commission established the existence of a general unlawful patent practice by the pharmaceutical industry. Lately, pharmaceutical companies have been trying to extend the duration of the patent protection in order to delay or to avoid the market entry of generic drugs. In fact, applying to European divisional patents for the same drug is nowadays a common practice. The problem is not requesting a European divisional patent, but the anti-competitive and illegitimate use that firms make of it.

In its report, the European Commission outlines a series of patent strategies aimed at extending the breadth and duration of the patent protection[27] and “to delay or block the market entry of

generic medicines”.[28] Such strategies consist of defensive patenting, patent thickets/clusters and secondary or follow-on-patent. As the European Commission final report shows, the strategic practices for unlawful use of patent rights are several and their utilization has been increasing. A convincing answer to solve this dilemma is certainly not easy.[29]

Conclusion

The Pfizer case is only one among the several examples of unlawful practices of patent rights in the pharmaceutical industry. The firm, with its ingenious strategy, was able to exploit its patent for a longer duration. Doing so, Pfizer: (i) harmed the competition by delaying the entry market of generic companies, (ii) caused a loss by the Italian National Health System of € 14 million, and (iii) was able to earn € 17 million.

This case shows the delicate balance that must be found between IPR and competition law. On the one hand, IPR extremely important and must be granted and protected. In fact, “without effective means of enforcing intellectual property rights, innovation and creativity are discouraged and investment diminished”.[30] Above all, the pharmaceutical market is essential to the well-being of humans. The development and the improvement of such market can not only increase the general state of health of the population but also save millions of human lives.

On the other hand, the protection and utilization of IPR must be weighted and balanced with the fact of ensuring competitiveness in the market. Thus, the scope and utilization of IPR must be legitimate. As a matter of fact, according to the European Commission “if the existence and exercise of industrial property rights are not of themselves incompatible with competition law, they are not immune from competition law intervention”.[31] On the same opinion are several experts on the field, such as Russell Graeme Hunter, who stated: “this [the pharmaceutical industry] is an environment typified by imperfect competition, where the legislative and judicial organs of the Community must maintain a balance between realising the Single Market while respecting the function and integrity of IP rights, as well as ensuring the social element of the pharmaceutical industry is not sacrificed on the altar of the Single Market”.[32]

* (Matisse Barbaro has done her Bachelors in International Relations with majors in Law from University of Geneva. She has a keen interest in international trade law & Intellectual Property.)

__________________

[1] Saha CN, Bhattacharya S. Intellectual property rights: An overview and implications in pharmaceutical industry. Journal of Advanced Pharmaceutical Technology & Research. 2011;2(2):88-93. doi:10.4103/2231-4040.82952.

[2] http://www.wipo.int/patents/en/

[3] Art. 52 (EPC) – Patentable inventions: “1) European patents shall be granted for any inventions which are susceptible of industrial application, which are new and which involve an inventive step.”

[4] Article 54 EPC – Novelty: “(1) An invention shall be considered to be new if it does not form part of the state of the art. (2) The state of the art shall be held to comprise everything made available to the public by means of a written or oral description, by use, or in any other way, before the date of filing of the European patent application.”

[5] Article 56 EPC – Inventive step: “An invention shall be considered as involving an inventive step if, having regard to the state of the art, it is not obvious to a person skilled in the art.”

[6] Article 57 EPC – Industrial application: “An invention shall be considered as susceptible of industrial application if it can be made or used in any kind of industry, including agriculture.”

[7] Pfizer inc., website: http://www.xalatan.com.

[8] See Article 102 (ex 82) TFEU, available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12012E/TXT.

[9] ” To be in a dominant position is not in itself illegal. A dominant company is entitled to compete on the merits as any other company. However, a dominant company has a special responsibility to ensure that its conduct does not distort competition. Examples of behaviour that may amount to an abuse include: requiring that buyers purchase all units of a particular product only from the dominant company (exclusive purchasing); setting prices at a loss-making level (predation); refusing to supply input indispensable for competition in an ancillary market; charging excessive price “. See: European Commission, Antitrust procedures in abuse of dominance -Article 102 TFEU cases, July 2013.

[10] TAR, I, decision No. 7467, 3 September 2012.

[11] Council of State, Order No. 693, dated 12 February 2014.

[12] § 4.1 of the Executive Summary of the Pharmaceutical Sector Inquiry Report.

[13] EU Court of Justice, case C-457/10P, decision dated December 6, 2012, §132.

[14] The Administrative Supreme Court confirms the ICA’s decision to condemn Pfizer for abuse of dominant position aimed at delaying the market entry of generic pharmaceutical companies. DOI: 10.12870/iar-9935.

[15] Pfizer Inc. website. See: http://www.xalatan.com.

[16] Article 76, EPC. See: http://www.epo.org/law-practice/legal-texts/html/epc/2013/e/ar76.html.

[17] UK government website -intellectual property office. See: https://www.gov.uk/supplementary-protection-certificates.

[18] UK government website -intellectual property office. See: https://www.gov.uk/supplementary-protection-certificates.

[19] AIFA website. See: http://www.agenziafarmaco.com/en/node/4111.

[20] Claudia D’Amore, Il caso Ratiopharm/Pfizer e l’abuso del diritto – commento alla sentenza Pfizer di Claudia D’Amore. See: http://www.competition-law.eu/il-caso-ratiopharmpfizer-e-labuso-del-diritto-commento-alla-sent-pfizer-di-claudia-amore/.

[21] Latin expression meaning “something more”, according to the dictionary. See: http://mymemory.translated.net/t/Latin/Italian/quid-pluris.

[22] Claudia D’Amore, Il caso Ratiopharm/Pfizer e l’abuso del diritto – commento alla sentenza Pfizer di Claudia D’Amore. See: http://www.competition-law.eu/il-caso-ratiopharmpfizer-e-labuso-del-diritto-commento-alla-sent-pfizer-di-claudia-amore/.

[23] Claudia D’Amore, Il caso Ratiopharm/Pfizer e l’abuso del diritto – commento alla sentenza Pfizer di Claudia D’Amore. See: http://www.competition-law.eu/il-caso-ratiopharmpfizer-e-labuso-del-diritto-commento-alla-sent-pfizer-di-claudia-amore/.

[24] Council of State, Order No. 2790, dated 22 May 2013.

[25] Claudia D’Amore, Il caso Ratiopharm/Pfizer e l’abuso del diritto – commento alla sentenza Pfizer di Claudia D’Amore. See: http://www.competition-law.eu/il-caso-ratiopharmpfizer-e-labuso-del-diritto-commento-alla-sent-pfizer-di-claudia-amore/.

[26] European Commission, Pharmaceutical Sector Inquiry Final report, 8 July 2009.

[27] European Commission, Communication from the Commission – Executive Summary of the Pharmaceutical

Sector Inquiry Report, p. 11.

[28] European Commission, Communication from the Commission – Executive Summary of the Pharmaceutical

Sector Inquiry Report, p. 11.

[29] The general problem of unlawful practice of patent rights is not the topic of this essay, but, for a more analysed view of this issue, see: European Commission, Pharmaceutical Sector Inquiry Final report , 8 July 2009.

[30] Council Directive 2004/48/EC, of 29 April, 2004, on the enforcement of intellectual property rights, Recital 3, OJ L 195/16–25.

[31] § 4.1 of the Executive Summary of the Pharmaceutical Sector Inquiry Report.

[32] Russell Graeme Hunter, The Pharmaceutical Sector in the European Union: Intellectual Property Rights,

Parallel Trade and Community Competition Law, Juristförlaget, Stockholm, 2001, p.16.

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