Abusive denigration in the pharmaceutical industry

June 2015

Over the last decade or so, Competition regulators have become increasingly attuned to attempts by originators to limit the impact of generic competition. As demonstrated by the European Commission's ("Commission") enquiry into the pharmaceutical sector and its subsequent investigations, such attempts have not always stayed on the right side of competition laws.

The Commission has already focused on settlement agreements containing reverse payments and alleged refusals to license standard-essential patents on FRAND terms. Competition authorities are increasingly required to apply competition law principles to novel factual circumstances and are challenging practices that do not always fit neatly into established "categories" of infringement.  One issue that is taking on increasing significance, in the pharma sector in particular, is the extent to which "denigration" of a competitor's product can be considered a competition law abuse.

Competition laws

people discussing documentsCompetition laws provide for two main prohibitions: (a) the prohibition on concluding anti-competitive agreements; and (b) the prohibition on the abuse of market power by a dominant company. Anti-competitive agreements regulate bilateral market conduct, preventing competing (and, to a lesser extent, non-competing) companies from concluding certain types of agreement. The Commission recently claimed, for example, that some settlement agreements between originators and generics containing reverse payments amounted to a restriction of competition.

It is also possible for a single company, acting unilaterally, to infringe competition laws if it holds a dominant market position. Competition law deems significant market strength as an indication that competition on that market is particularly vulnerable. As a result, it imposes a "special responsibility" on the dominant player not to further weaken competition through specific conduct.

Established abuses and "novelty"

There are a number of commercial practises which have previously been found to constitute an "abuse" if adopted by a dominant company.  Some are expressly set out in the relevant provisions of the Treaty on the Functioning of the European Union ("TFEU"), such as unjustified discrimination and the imposition of unfair trading terms. However, these are merely examples, and numerous decisions of the European Courts have established a number of further abuses such as refusals to deal, predatory pricing, and exclusive dealing.

The fact that the TFEU abuses are non-exhaustive also permits the Commission (and national competition authorities) to impose sanctions for certain types of infringements despite the lack of an established precedent. The defendants in such cases often seek to argue that penalties would either be inappropriate or excessive based on the principles of legal certainty, legitimate expectations and proportionality. The Commission has occasionally accepted such arguments and chosen either to refrain from imposing financial penalties, or issue only modest fines to reflect the reduced gravity of the infringement.

Such arguments were utilised, for example, in a case involving AstraZeneca. The company was investigated in relation to misleading representations made to patent authorities and strategically de-listing certain of its products, in order to artificially extend their patent protection. The Commission's response was to argue that the company either knew or ought to have known that its behaviour did not amount to "competition on the merits" and would therefore constitute an infringement.  A financial penalty of €60 million was ultimately imposed.

open book on shelfAbusive denigration

This concept of "competition on the merits" is certainly an interesting one, as it suggests that there is an established set of "rules of the game" and a company will always know whether they will fall on one side of the line or the other. However, there will generally be some element of doubt in relation to the application of this concept to novel conduct. This illustrates the difficult task before dominant companies when it comes to exercising their "special responsibility" and whether their behaviour could inhibit "competition on the merits".

This is relevant to the novel concept of "abusive denigration", of which there is no mention in the TFEU and no directly analogous decisions by the European Courts. This particular abuse is derived from a case before the French Competition Authority ("Autorité"), which fined Sanofi-Aventis ("Sanofi"), a dominant company, over €40 million for pursuing a strategy of denigration. The decision was seen as a step forward from previous cases which had addressed defamatory remarks made in relation to generic competition, and established that such conduct could also amount to an abuse of both Article 102 TFEU and its French equivalent.

Sanofi's denigration strategy related to the cardiovascular drug Plavix, and largely consisted of a focussed and systematic marketing campaign designed to discourage the prescription of generic alternatives by casting doubts on their efficacy and safety prior to launch. Sanofi's strategy extended to misleading doctors and pharmacists, suggesting that medical professionals could be exposed to liability if medical problems occurred following the prescription and sale of generic versions (other than Sanofi's own generic product). By engaging in these practices, Sanofi successfully deterred medical professionals from switching to generic alternatives, to the detriment of Sanofi's competitors and consumers.

In finding that such conduct amounted to an abuse of dominance the Autorité focussed, in particular, on the fact that its communications were not based on objective findings and were merely unverified assertions. It also emphasised the level of Sanofi's dominance, and the fact that the strategy was designed to maintain or strengthen its dominant position. Finally, it is worth noting that the Autorité's investigation had yielded substantial and clear evidence regarding Sanofi's anti-competitive intentions and the fact that it knew the statements it was making were untrue.

Raising the stakes

Generics and biosimilar manufacturers are no doubt considering whether they may be able to use this new abuse against an incumbent originator who may be using a similar strategy to delay or inhibit market entry. This will be particularly relevant for biosimilar launches where products are typically prescribed by brand rather than generically by international non-proprietary name (INN) and so health care professionals will have to make a positive decision to prescribe a biosimilar and might be more easily persuaded not to make that choice.  Given the nature of competition in the pharma sector, it is surely only a matter of time before another competition authority receives a similar complaint regarding exclusionary denigration strategies.

yellow and blue balls through gateIt will be interesting to see whether other competition law regulators will adopt a similar approach to the Autorité.  In the UK, the Competition and Markets Authority ("CMA") has been reluctant to investigate abuses of dominance in recent years; such cases are inherently more complicated than those investigating hard-core anti-competitive agreements since they require complex assessments of market definition and market power.  Although injunctive relief and damages may also be available through a defamation claim, the potential fines of up to ten per cent of annual worldwide group turnover and the potential for "follow on" damages actions under competition laws will inevitably raise the stakes.  As such, originators and biologics adopting aggressive commercial practices designed to inhibit competition from generics or biosimilars will need to review their strategy very carefully.

If you have any questions on this article or would like to propose a subject to be addressed by Synapse please contact us.

doctor using laptop

Richard Craig

Richard Craig

Richard is a senior associate in the IT, Telecoms & Competition group based in our London office.

"...the Commission (and national competition authorities) can impose sanctions for certain types of infringements despite the lack of an established precedent."

"...the novel concept of "abusive denigration", of which there is no mention in the TFEU and no directly analogous decisions by the European Courts (…) is derived from a case before the French Competition Authority."