Dutch competition authority ACM targets pharmacy sector in 2018-2019

March 2018

The Dutch Authority for Consumer and Market ("ACM") recently announced its draft agenda for 2018 and 2019, in which it indicates which issues are at the top of its priority list in the coming two years. One of four topics on which the ACM plans to focus is the issue of high prices for medicines charged by pharmaceutical companies. Recently three high-ranking officials of the ACM, including the ACM's departing chairman Chris Fonteijn also published a working paper in which they discuss the reconciliation of competition and IP law in the pharmaceutical sector. Although the officials note that the paper is written in a personal capacity, it hardly seems a coincidence that the paper is published a week after the ACM's consultation on the draft agenda was closed and focusses mainly on excessive pricing in the pharmaceuticals sector.

In the paper the authors first describe the strained relationship between IP and competition law in general and the difficulty competition authorities are faced with when they want to address excessive pricing issues on the basis of the prohibition on abuse of dominance. In the pharmaceutical sector and other patent heavy industries this issue is even further complicated: a lot of lawyers and economists argue that high prices are logical in such industries, because those prices are a reward for the large investments necessary in the development of new products. Prohibiting such pricing behavior too easily could take away the incentive to innovate and would undermine the essential objective of IP rights. Moreover high prices encourage market entry by (generic) competitors who strive to offer the same product for a lower price. There are however, also commentators who think that enforcement of competition law can be compatible with IP law, even if it concerns excessive pricing issues of a patented product.

The authors of the Working Paper note that abuse of dominance cases can be roughly divided into two categories: exclusionary and exploitative practices. The former category relates to abusive behaviour which leads to the exclusion of competitors; the latter category deals with behaviour which exploits a dominant position; such behavior is often considered to be the most harmful to end-users of a product. The authors consider their publication the most relevant for exploitative abusive practices, which is logical considering that excessive pricing is usually associated with exploitative abuse. The fact that the paper focuses on a "consumer issue" also makes sense from an ACM policy perspective: the ACM is a merger of the former Dutch competition and consumer authorities and since its conception 5 years ago it has tried to shift its focus in competition law cases to those cases which are allegedly the most harmful to consumers. Note however, that (excessive) pricing issues can also be considered an exclusionary practice in some cases and therefore can also be harmful to competitors of the dominant company, for instance generic companies versus an originator company that is trying to protect a product for which IP protection is about to expire.

In fact the only case in which the ACM dealt with pricing issues in the pharmaceutical sector related to such exclusionary abuse. AstraZeneca charged low prices for a specific drug for hospitalized patients, which patients were then more likely to continue to use the drug outside of the hospital as well. AstraZeneca charged a much higher extramural price for the drug, which made it difficult for competitors to enter the market. In the end the ACM did not establish an infringement of competition law, primarily because it could not establish that AstraZeneca held a dominant position in the hospital market.

The final chapter of the Working Paper is the most interesting part as it might provide some insight as to what arguments the ACM might use when it decides to enforce actively in excessive pricing cases. The authors recognize the importance of innovation and patent protection, but do not consider that a good enough reason to refrain from enforcing the excessive pricing prohibition altogether in markets where products are protected by patents. To determine whether prices are excessive a judge or competition authority needs to assess: 1) whether the difference between actual costs incurred and the price actually charges is excessive and if so; 2) if a price has been imposed which is unfair in itself or when compared to competing products. The authors argue that in the case of patented products, innovation incentives can be taken into account in the first part of this test, by including ex-ante probabilities of success of the relevant drug. The argument that high prices encourage market entry and should therefore not be dealt with by competition law is also partially rebutted in the Working Paper, in particular with regards to "orphan drugs" where the possibility of market entry is effectively impossible due to the ten-year exclusivity period for a specific indication. In general the Working Paper notes, price constraints in the pharmaceutical sector are limited, especially on the demand side as people are willing to pay for life prolonging or quality of life improving medicines; patients and doctors making treatment decisions do not have to pay directly for the cost of the medication and are therefore not or to a lesser extent exposed to price pressure; this is also caused by the fact that medicines are for a large part funded by health insurance and/or government funds throughout the EU, which means that the so-called "ability to pay" on the buyer’s side is quite large. The Working Paper also adds that in terms of social return on investment it is not necessarily better that incentive to invest in innovation are higher due to higher prices. To this end the quality of life per adjusted year (qaly) threshold could be a tool to determine at what point incentives to invest are no longer beneficial to social welfare. The amount of money one is willing to spend per qaly (in the Netherlands € 80.000,-) can then be used as an indicator that a price which exceeds that amount might be excessive. The authors consider this a better test than comparing the prices of the same drug in different markets.

At the EU level, competition law has been regularly applied to the pharmaceutical sector, and IP protection almost always played a role in these cases but did not deter the European Commission or the European courts from intervening. The CJEU's judgments in AstraZeneca and Hoffmann-La Roche (also see Synapse article from February 2018) come to mind, as well as the General Court's judgement in the Lundbeck case, to which the ACM Working Paper also refers. The European Commission has also been very actively enforcing competition law in the pharmaceutical sector for a number of years now and has been rather successful thus far. Judging by the Agenda and Working Paper, it seems as if the ACM is keen to follow suit, which is probably also caused in part by recent discussions in Dutch politics about the high prices for medicines. Although excessive pricing is mainly considered an issue that harms consumers, it should be borne in mind that such practices might harm competitors as well. It will be therefore interesting to see if the new ACM agenda also causes an increase in civil litigation amongst competitors in the pharmaceutical sector, considering that the Netherlands already is a popular stomping ground for damages claims related to competition law infringements.

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Money and medicine

Bram Nijhof

Bram is a senior associate in Eindhoven specialising in competition law and public procurement issues.

"The authors of the Working Paper note that abuse of dominance cases can be roughly divided into two categories: exclusionary and exploitative practices."