Insights

19/03/14

Pushing boundaries – anticompetitive conduct relating to the expiry of patents and the use of loyalty discounts

In February 2014, the ACCC brought Federal Court proceedings against Pfizer Australia for alleged misuse of market power and exclusive dealing in relation to its previously patent protected cholesterol lowering drug, “atorvastatin” (both its originator brand “Lipitor” and its generic atorvastatin product).  Lipitor was for some years Australia’s highest selling prescription medicine under the Pharmaceutical Benefits Scheme (PBS).

Key take-outs

The case is an interesting one to watch because:

  • it raises important issues regarding the conduct of a patent holder nearing the expiry of a patent, and what may constitute anticompetitive conduct for the purposes of the Competition and Consumer Act 2010 (Cth) (CCA);
  • it also has wider implications, in that the Federal Court will consider the use of loyalty discounts and requirements obligations, as offered by Pfizer Offers. These are commonly used commercial incentives, which may in some circumstances be prohibited by the CCA; and
  • it highlights the tension between two aspects of the law that are increasingly in focus, not just in Australia but internationally – the patent and competition law regimes.

The case may also potentially impact on the Commonwealth Government’s Root and Branch Review of Competition Law and Policy which is currently underway and is expected to be released later this year.

Alleged anticompetitive conduct

The ACCC alleges that Pfizer engaged in anticompetitive conduct in its supply of these products by:

  •  implementing new distribution arrangements by which it would market and supply prescription pharmaceuticals to pharmacies directly, bypassing wholesalers (Pharmacy Supply Arrangements);
  •  establishing a scheme under which pharmacies would accrue rebates on purchases of certain pharmaceuticals, including Lipitor (Accrual Funds Scheme); and
  •  offering and supplying atorvastatin at substantial discounts, and paying rebates on previously accrued sales of Lipitor, on conditions which included the acquisition of 75% of a pharmacy's generic atorvastatin supply requirements for a set period.  The terms of the offer also required a pharmacy to nominate a conversion rate, being the percentage of Lipitor sales it anticipated would be converted to the Pfizer generic product (Pfizer Offers),

for the purpose of deterring or preventing competitors from engaging in competitive conduct, as well as for the purpose of substantially lessening competition.  The ACCC is alleging that this conduct is in contravention of sections 46 and 47 of the CCA.

Significantly, Pfizer first made the Pfizer Offers described above prior to the expiry of Pfizer’s patent protection for the atorvastatin molecule, when the other generic suppliers were prevented from supplying generic atorvastatin products in Australia.

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