ACCC Loses Federal Court Case Brought Against Pfizer For Misuse Of Market Power

Thursday 19 March 2015 @ 12.14 p.m. | Trade & Commerce

The Australian Competition and Consumer Commission (“the ACCC”) has been unsuccessful in an attempt to prosecute pharmaceutical company Pfizer Australia for misuse of market power and stifling competition.  In February, Justice Flick of the Federal Court found that Pfizer had not contravened either section 46 or section 47 of the Competition and Consumer Act 2010 (Cth) (“the Act”), when it engaged in a strategy known as “Project LEAP” in an attempt to deal with the expiration of a patent covering its product “Lipitor”.  According to The Australian, the  ACCC are planning to appeal the decision.

Facts

Pfizer Australia had exclusive rights under a patent to atorvastatin, a pharmaceutical product used to lower cholesterol, which they marketed as “Lipitor”.  The patent was due to expire in 2012, and internal documents of Pfizer suggested that revenue from the sales of Lipitor “would fall from $771 milllion in 2011 to $70 million in 2015” [at 5], as a result of the entry into the market of generic versions of atorvastatin.

Pfizer Australia then developed the “Project LEAP” strategy, which involved a number of steps, summarised in the judgment [at 6] as:

  • the announcement in December 2010 that it would cease supplying prescription pharmaceuticals through wholesalers and would itself commence marketing and supplying prescription pharmaceuticals exclusively direct to community pharmacies
  • the establishment in January 2011 of an accrual funds scheme whereby funds would accrue to each community pharmacy to which it supplied prescription pharmaceuticals
  • the making of an offer in January 2012 to all, or virtually all, community pharmacies as to the terms upon which it would supply Lipitor and its own generic atorvastatin (Atorvastatin Pfizer) which, inter alia, tied the rebates that were available from the accrual fund to the quantity of Atorvastatin Pfizer that the pharmacy purchased.

The ACCC alleged that this breached section 46 of the Act by taking advantage of Pfizer’s substantial degree of market power for a proscribed purpose under s 46(1)(c), and section 47 of the Act by engaging in a course of exclusive dealing for the proscribed purpose of lessening competition.

Decision

There were a number of issues in the case, including the period of time in which the contraventions were said to occur.  This was particularly important, because Justice Flick concluded that if the relevant time period was January 2012 to May 2012, Pfizer’s market power “could no longer be described as “substantial”” [at 12].

Justice Flick rejected both planks of the ACCC’s claim on various grounds.  In particular, he found that the ACCC had failed to establish that Pfizer’s intention was to deter or prevent other suppliers from entering into the atorvastatin market.  Justice Flick found:

“Pfizer unquestionably knew that it would face intense competition… [i]ts revenue would unquestionably be impacted… At all material times Pfizer was seeking to position itself to remain a viable supplier of atorvastatin in the future” [at 413].

Comment

The ACCC said they would “carefully consider the judgment”, saying in a statement:

“The ACCC brought this case because it raised important public interest issues regarding the conduct of a patent holder nearing the expiry of that patent and what constitutes permissible competitive conduct.”

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