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November 16

On 19 October 2016 the Court of Justice of the European Union ("CJEU") decided in the case of C-148/15 that fixed prices set in Germany for prescription-only medicinal products are contrary to European law. As a result, mail order pharmacies located in the European Union are now allowed to grant discounts and bonuses if they send prescription-only medicinal products to Germany. However, for German pharmacies the prohibition on granting rebates remains in force.

Legal background

The sale of prescription-only medicinal products by mail order is not prohibited in Germany. Rather under German law, paragraph 7(1)(2) of the Heilmittelwerbegesetz (Law on the advertising of medicinal products) prohibits monetary advantages, such as discounts, bonuses and promotional gifts for prescription-only medicinal products, in case the monetary advantage is granted in violation of the Arzneimittelpreisverordnung (Regulation on the pricing of medicinal products) (the "Regulation"). The Regulation requires manufacturers to add wholesaler and pharmacy additions when establishing a price for their medicinal product. On 22 August 2012, the Joint Chamber of the Superior Federal Courts in Germany ordered that the Regulation is also applicable to sales by mail order of medicinal products sold by pharmacies established in other EU Member States supplied to end consumers in Germany.

ECJ decision

The request for the preliminary ruling concerned the interpretation of Articles 34 and 36 of the TFEU. The request had been made in proceedings between Deutsche Parkinson Vereinigung eV ("DPV"), a German self-help organisation which seeks to improve the lives of patients suffering from Parkinson’s disease, and the Zentrale zur Bekämpfung unlauteren Wettbewerbs eV (Association for Protection Against Unfair Competition) ("ZBUW").

DPV entered into an agreement with the Dutch mail-order pharmacy DocMorris to provide a bonus system for its members. Under the scheme, DPV members could benefit by purchasing from DocMorris prescription-only medicinal products for treating Parkinson’s disease, that were otherwise only available from pharmacies. ZBUW took the view that the bonus system infringed German legislation providing for a fixed-price system for the supply by pharmacies of prescription-only medicinal products. Following a request from ZBUW, the Düsseldorf Regional Court ordered DPV not to promote its bonus system among its members. DPV appealed to the Düsseldorf Higher Regional Court, which, in turn, referred the matter to the CJEU to ascertain whether a fixed-price system for the sale of prescription-only medicinal products for human use by pharmacies is compatible with the free movement of goods.

In its judgment, the CJEU held that the legislation in issue constitutes an unjustified restriction on the free movement of goods, as the imposition of fixed sales prices creates a greater impediment to pharmacies established in other Member States accessing the German market than it does for domestic products. The Court noted in this regard that for foreign pharmacies, sale by mail order constitutes a more important, if not the only, means of accessing the German market directly. As a result, price competition is liable to constitute a more significant competition factor for mail-order pharmacies than for traditional pharmacies; the latter being better placed to offer patients individually-tailored advice provided by dispensary staff and to ensure the supply of medicinal products in cases of emergency.

Although a restriction on the free movement of goods may, in principle, be justified on the grounds of the protection of health and human life, according to the Court the legislation in issue has not been shown to be an appropriate means by which to attain those objectives. In particular, it has not been demonstrated how setting fixed prices makes it possible to ensure a better geographical distribution of traditional pharmacies in Germany. On the contrary, according to the Court certain factors tend to suggest that increased price competition between pharmacies would be conducive to a uniform supply of medicinal products, in so far as it would encourage the establishment of pharmacies in regions where the scarcity of dispensaries allows for the charging of higher prices.

Assessment

By taking a rather surprising turn, the Court initially found that the Regulation on the pricing of medicinal products, which actually should be applied uniformly, does not affect foreign mail order pharmacies and pharmacies established in Germany in the same way. The reason for which being, that the restrictions imposed by the Regulation have a more significant economic impact on foreign mail order pharmacies than on community pharmacies established in Germany. The Court considered that mail order pharmacies are more heavily dependent on price competition than traditional pharmacies in Germany in order to gain access to the market. Thus, the Court did not recognise the request to allow price competition on the pharmacy level only for OTC drugs.

By offering this reason, the CJEU opened the way for the application of Article 34 TFEU, and therefore, had to dedicate the second part of its decision to Article 36 TFEU. In doing so, the Court had to determine whether a restriction on the free movement of goods, which it found to exist, could be necessary in this particular case to ensure the supply of medicinal products throughout Germany. Although the Court found this to be a commendable aim, it held that the particular measure of a fixed price system to attain this objective was inadmissible. In fact, the Court expressly supported price competition, reaching the conclusion that it could benefit the patient and in turn, questioned the justification for the German fixed price system for medicinal products in general.

Obviously, the ruling concerns the special case of mail order pharmacies. In that context the CJEU found that the application of the Regulation on the pricing of medicinal products is irreconcilable with European law where it acts to prevent price competition for foreign mail order pharmacies in the German market. It remains open as to whether the Court would use the same line of argument if pharmaceutical manufacturers established in another country advertised their products on the German market with price advantages to the relevant customers – who would normally not be consumers but intermediary trade levels. In this circumstance, the Court would be required to find that the price regulations also have a greater impact on foreign than on German providers of medicinal products. This position is not easily justifiable. However, the Court’s considerations suggest that if in doubt, it will give preference to price competition.

Outlook

In its decision, the CJEU did not address the different pharmacy systems that exist across Member States. Nor did it discuss the strict German regulations that it has previously confirmed prohibit pharmacy chains and the operation of enterprises by corporations. However, this prohibition does contribute to an imbalance to the disadvantage of the German pharmacies versus competing pharmacies in other Member States, especially if the latter are granted access to the German market without having to observe the pricing regulations, at least in the mail order trade.

Altogether, it will be most interesting to see how the German legislators in particular react to this ruling, especially whether or not they will restrict the sale of medicinal products by mail order, as has been demanded from several sides already; at least for prescription-only medicinal products. In keeping with CJEU case law, this appears to be a possibility. If the German legislator takes this line, the Dutch mail order pharmacy DocMorris will have arguably achieved a somewhat Pyrrhic victory. However, it is debatable whether prohibiting mail order sales of prescription-only medicinal products would be a legally sound measure. Although the CJEU suggested in the 2003 DocMorris ruling (Case C-322/01) that it would probably not have objected to such a restriction back then for reasons of health protection, it is doubtful if the CJEU today, after more than 13 years of mail order business in Germany, would still stand by this view and find a prohibition “necessary”. Moreover, the mail order pharmacies operating in Germany are protected by constitutional rights, which would conflict with any unjustified, i.e. unnecessary, interference in their established and practiced business operations. Therefore, things will remain exciting.

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