Antitrust: shortcomings in pharmaceutical sector require further action

Market entry of generic drugs is delayed and there is a decline in the number of novel medicines reaching the market, according to the European Commission's final report on competition in the pharmaceutical sector. The sector inquiry suggests that company practices are among the causes, but does not exclude other factors such as shortcomings in the regulatory framework. As a follow up, the Commission intends to intensify its scrutiny of the pharmaceutical sector under EC antitrust law, including continued monitoring of settlements between originator and generic drug companies. The first antitrust investigations are already under way. The report also calls on Member States to introduce legislation to facilitate the uptake of generic drugs. The report notes near universal support amongst stakeholders for a Community Patent and specialised patent litigation system in Europe.

Competition Commissioner Neelie Kroes said: “We must have more competition and less red tape in pharmaceuticals. The sector is too important to the health and finances of Europe's citizens and governments to accept anything less than the best. The inquiry has told us what is wrong with the sector, and now it is time to act. When it comes to generic entry, every week and month of delay costs money to patients and taxpayers. We will not hesitate to apply the antitrust rules where such delays result from anticompetitive practices. The first antitrust investigations are already under way, and regulatory adjustments are expected to follow dealing with a range of problems in the sector."

Main findings and policy conclusions

The inquiry has contributed significantly to the debate on European policy for pharmaceuticals, in particular for generic medicines.

On the basis of a sample of medicines that faced loss of exclusivity in the period 2000 to 2007 in 17 Member States, the inquiry found that citizens waited more than seven months after patent expiry for cheaper generic medicines, costing them 20% in extra spending.

Generic delays matter as generic products are on average 40% cheaper two years after market entry compared to the originator drugs. Competition by generic products thus results in substantially lower prices for consumers. The inquiry showed that originator companies use a variety of instruments to extend the commercial life of their products without generic entry for as long as possible.

The inquiry also confirms a decline of novel medicines reaching the market and points to certain company practices that might contribute to this phenomenon. Further market monitoring is ongoing to identify all the factors that contribute to this decline in innovation.

Reacting to the findings, the Commission will apply increased scrutiny under EC Treaty antitrust law to the sector and bring specific cases where appropriate. The use of specific instruments by originator companies in order to delay generic entry will be subject to competition scrutiny if used in an anti-competitive way, which may constitute an infringement under Article 81 or 82 of the EC Treaty. Defensive patenting strategies that mainly focus on excluding competitors without pursuing innovative efforts will remain under scrutiny. To reduce the risk that settlements between originator and generic companies are concluded at the expense of consumers, the Commission undertakes to carry out further focused monitoring of settlements that limit or delay the market entry of generic drugs. In the case of clear indications that a submission by a stakeholder intervening before a marketing authorisation body was primarily made to delay the market entry of a competitor, injured parties and stakeholders are invited to bring relevant evidence of practices to the attention of the relevant competition authorities.

On regulatory issues the inquiry finds that:

• There is an urgent need for the establishment of a Community patent and a unified specialised patent litigation system in Europe to reduce administrative burdens and uncertainty for companies. A full 30% of patent court cases are conducted in parallel in several Member States, and in 11% of cases national courts reach conflicting judgements.
• Recent initiatives of the European Patent Office (EPO) to ensure a high quality standard of patents granted and to accelerate procedures are welcome. This includes measures taken in March 2009 to limit the possibilities and time periods during which voluntary divisional patent applications can be filed (so called "raising the bar exercise")

The Commission is also urging Member States to:

• ensure that third party submissions do not occur and in any event do not lead to delays for generic approvals
• significantly accelerate approval procedures for generic medicines - for example, the Commission believes that generic products should automatically/immediately receive pricing and reimbursement status where the originator drug already benefits from such status, which would allow for a faster product launch in certain cases
• take action if misleading information campaigns questioning the quality of generic medicines are detected in their territory
• streamline trials that test the added value of novel medicines.

To assist Member States in delivering speedy generic uptake and improved price competition, the report contains an overview of national measures and their effects on generic uptake (volume, prices, number of entrants) and encourages Member States that want to benefit from generic savings to consider such measures. In this light the Commission will also examine existing EU rules in the area of pricing and reimbursement (Transparency Directive 89/105/EEC).

Background

The inquiry began in January 2008 (see IP/08/49 and MEMO/08/20 ) to examine the reasons why fewer new medicines were brought to market and why generic entry seemed to be delayed in some cases. The goal is to find ways that help the market work better.

Preliminary results were published in November 2008. More than 70 submissions were received from stakeholders. Consumer associations, health insurers and the generics industry have welcomed the results arguing that they confirm their concerns. The originator industry and their advisors have supported the call for the creation of a Community Patent and a specialised litigation system, whilst arguing that generic delay and the decline in innovation is caused by regulatory shortcomings.

For further information, see also MEMO/09/321

The final report and more information on the pharmaceutical sector inquiry will be available at:

http://ec.europa.eu/comm/competition/sectors/pharmaceuticals/inquiry/index.html

Antitrust: Commission fines E.ON and GDF Suez ?553 million each for market-sharing in French and German gas markets

The European Commission has imposed fines totalling Euro1 106 000 000 on E.ON AG and its subsidiary E.ON Ruhrgas AG (of Germany) and on GDF Suez SA (of France) for market sharing in breach of EC Treaty rules on cartels and restrictive business practices (Article 81). E.ON/E.ON Ruhrgas and GDF Suez are fined Euro553 000 000 each. Ruhrgas AG (now E.ON Ruhrgas, part of the E.ON group) and Gaz de France (now part of GDF Suez) agreed in 1975, when they decided to jointly build the MEGAL pipeline across Germany to import Russian gas into Germany and France, not to sell gas transported over this pipeline in each other's home markets. They maintained the market-sharing agreement after European gas markets were liberalised, and only abandoned it definitely in 2005. These are the first Commission fines imposed for an antitrust infringement in the energy sector. This case is entirely separate from the antitrust case in which GDF Suez recently submitted commitments.

The European Commission is inviting comments from interested parties on commitments offered by the French energy company GDF Suez to remedy concerns that it might have infringed EC Treaty rules on abuse of a dominant market position (Article 82) in the gas sector. The Commission was concerned in particular that GDF Suez might be closing off competitors from access to gas import capacity into France. Whilst not acknowledging any infringement, GDF Suez proposed to address the Commission's concerns through a major structural reduction in its long-term reservations of gas import capacity into France.

New entrants into gas markets require access to gas import infrastructure (such as pipelines and liquefied natural gas terminals). Insufficient access to infrastructure limits their ability to acquire customers, no matter how competitive their offers may be. Preventing new entrants from gaining access to infrastructure can therefore hinder the development of competition in energy markets.

The Commission's preliminary investigation found that GDF Suez had long-term reservations for most of France's gas import capacity, thereby largely closing off access to the French gas market to other potential gas suppliers. Under the proposed commitments, GDF Suez would immediately release a large share of its long-term reservations of gas import capacity into France, and would then continue to reduce its share of these reservations to below 50%. These commitments could have a major structural impact on the possibility for other companies to compete on the French market, to the benefit of domestic and industrial gas consumers.

Competition Commissioner Neelie Kroes said: "This decision sends a strong signal to energy incumbents that the Commission will not tolerate any form of anticompetitive behaviour. Market sharing is one of the worst types of antitrust infringement. This agreement deprived customers of more price competition and more choice of supplier in two of the largest gas markets in the EU. The Commission has no alternative but to impose high fines."

E.ON (?87 billion worldwide turnover in 2008), through its subsidiary E.ON Ruhrgas, and GDF Suez (?68 billion worldwide turnover in 2008) are the leading suppliers of natural gas in Germany and France respectively and two of the largest players in the European gas industry. E.ON acquired control of Ruhrgas, which then became E.ON Ruhrgas, in 2003. Gaz de France merged with Suez in 2008, after the end of the market-sharing agreement with E.ON, to become GDF Suez. The Commission authorised the transaction in 2006.

The Commission started an investigation following surprise inspections carried out in 2006 on E.ON and Gaz de France premises in Germany and France, opened formal proceedings in July 2007 and sent a Statement of Objections to the companies in June 2008.

The MEGAL pipeline is jointly owned and operated by E.ON Ruhrgas and GDF Suez. It transports gas across Southern Germany between the German-Czech and German-Austrian borders to the east and the French-German border to the west.

When Ruhrgas and Gaz de France decided in 1975 to build the MEGAL pipeline together, they explicitly agreed in two letters that GDF would not sell any gas transported over the MEGAL in Germany and neither would Ruhrgas in France. At that time, Gaz de France enjoyed a legal monopoly to import natural gas into France, which was only removed in August 2000. Ruhrgas' supply area in Germany was de facto protected from competition by a system of so-called "demarcation agreements" with other German suppliers until such agreements became illegal in April 1998.

独占的な供給区域を設定するDemarcation Agreement 境界設定契約　と排他的な導管敷設権を認めるConcession Agreementが競争を阻害するものとして批判の対象となっていた。

Both parties maintained their market-sharing agreement even after European gas markets were opened to competition as from August 2000 by Directive 98/30/EC, despite being aware that the 1975 letters violated competition law. The companies met on a regular basis at various levels, discussed the implementation of the agreement in the newly liberalised market and monitored each other's actions. The parties' contacts after 1999 confirmed that there was a single and continuous anticompetitive market-sharing agreement in breach of antitrust law. Although the parties declared in August 2004 that they had long regarded the letters as "null and void", they continued until the end of September 2005 to implement the prohibition imposed on Gaz de France to supply gas in Germany that had been transported over the MEGAL pipeline.

The market sharing agreement helped EON and GDF to maintain strong positions in the German and French gas markets when they were being liberalised. The companies thus deliberately denied French and German gas consumers the benefits of the 1998 Directive, including more price competition and more choice of supplier.

Fines

The market-sharing agreement constitutes a very serious infringement of EC Treaty antitrust rules. In setting the fines, the Commission took into account the sales in France and Germany of the companies involved of gas transported through the MEGAL pipeline. Given the large size of the two groups, the anticompetitive purpose of the market-sharing agreement, their equal stake in the MEGAL pipeline and the gas volumes transported over that pipeline, the Commission sets equal fines for E.ON/E.ON Ruhrgas on the one hand and GDF Suez on the other hand.

The fines are based on the 2006 Guidelines on Fines (see IP/06/857 and MEMO/06/256), in force at the time the Statement of Objections was notified in June 2008. Council Regulation 1/2003 provides that companies may be fined up to 10% of their total annual turnover. Within this limit, the 2006 Guidelines provide that fines may be based on up to 30% of the company’s annual sales on markets affected by the infringement, multiplied by the number of years of participation in the infringement.

Action for damages

Any person or firm affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages. The case law of the Court and Council Regulation 1/2003 both confirm that in cases before national courts, a Commission decision is binding proof that the behaviour took place and was illegal. Even though the Commission has fined the companies concerned, damages may be awarded without these being reduced on account of the Commission fine. A White Paper on antitrust damages actions has been published (see IP/08/515 and MEMO/08/216 ). More information, including a citizens' summary of the White Paper, is available at:

http://ec.europa.eu/comm/competition/antitrust/actionsdamages/documents.html

See also MEMO/09/323