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In May 2018, the Full Federal Court held that Pfizer did not misuse its market power under section 46 of the Competition and Consumer Act 2010 (Act) by engaging in a number of activities that sought to defend its market position in circumstances in which the patent for its highest selling drug, Lipitor, was due to expire.
While the court found that Pfizer enjoyed substantial market power prior to the expiry of the patent when it engaged in the relevant conduct, it did not have the proscribed anti-competitive purpose under section 46 of the Act when it took advantage of that power.
Although the decision is based on the old version of the misuse of market power prohibition (i.e. before the operation of the “effects” test), it is significant because it demonstrates that:
Pfizer held a patent over its atorvastatin drug, Lipitor, which effectively reduced cholesterol in humans.
Pfizer’s patent was due to expire in May 2012. For a significant period of time prior to this date, Pfizer considered how it would respond to the availability of generic atorvastatin being available on the market post-May 2012. Lipitor was the biggest selling drug in Australia for many years and accordingly, rival companies were well aware of the date of the expiry of the patent and had been planning for many years to release generic products at this time. Pfizer too was aware of this and understood that from May 2018, buyers would switch from Lipitor, the monopoly patented product, to generic alternatives and would also switch between one generic and another.
By January 2012, Pfizer engaged in a range of activities to avoid being “slaughtered” in the market (as it had described in its own documents). Pfizer was:
(collectively, Relevant Conduct).
These activities were described in Pfizer’s internal documents as ways in which to “block” generic rival products from obtaining shelf space in pharmacies. In response to the Relevant Conduct, generic manufacturers themselves developed competitive responses including matching or bettering Pfizer’s offers.
By April 2012, Lipitor had lost 68% of its market share to Pfizer’s generic atorvastatin and by June 2012, 77% of market sales were for generic atorvastatin products.
The ACCC alleged that the Relevant Conduct was a misuse of market power because Pfizer was taking advantage of its substantial market power in the atorvastatin market for the purpose of deterring or preventing competitive conduct from rival suppliers of generic atorvastatin.
The ACCC also alleged that the Relevant Conduct amounted to exclusive dealing under section 47 in breach of the Act.
The trial judge held that as expiry of Pfizer’s patent became imminent, its market power gradually decreased. The judge accordingly found that in light of the imminent competition from the large, well-funded generic manufacturers and their activity in approaching and marketing to pharmacies, Pfizer’s market power was not enduring and could not be sustained after January 2012.
The Court concluded that although Pfizer had a degree of market power until the expiry of the patent, that power was not “substantial” from January 2012.
The judge also found that Pfizer did not hold the proscribed anti-competitive purpose under sections 46 and 47.
Pfizer had a patent and exclusive supply rights over Lipitor until May 2012 but when did it lose its substantial market power? The day of expiry of the patent or some time before?
The Full Court held that in January 2012 when Pfizer engaged in the Relevant Conduct, Pfizer enjoyed substantial market power. It made this finding on the following grounds:
The Full Court concluded that while Pfizer had substantial market power at the time of engaging in the Relevant Conduct it was not necessary for it to determine whether that degree of market power was substantial up to May 2012.
The Full Court accepted that Pfizer had used “colourful” language in its internal documents to justify the Relevant Conduct. In particular, Pfizer’s internal documents considered that the Relevant Conduct would stack the shelves of pharmacies with its own product thus “blocking” rivals.
Although words such as “blocking” appear to suggest an anti-competitive purpose, the Full Court held that such words must be read in their context and could be explained such that there should be no attribution of an anti-competitive purpose to the relevant conduct.
The Full Court accordingly held:
For the reasons above, the Full Court held that Pfizer did not have the proscribed anti-competitive purposes of blocking or preventing competitive conduct (section 46) or substantially lessening competition (section 47).
While Pfizer was decided under the old version of section 46 (i.e. prior to the “effects” test), there are still a number of lessons that can be learnt from the case.
Substantial market power
Anti-competitive language and anti-competitive purpose
If you have a substantial degree of market power and wish to engage in conduct to maintain your market position, it may be prudent to seek legal advice to determine whether you do, in fact and law, have substantial market power and whether your conduct is legitimate.
You should ensure all staff responsible for preparing internal business cases for conduct that will have a significant competitive impact are well versed in ensuring they accurately capture the purpose for the conduct. The wrong language may result in an ACCC investigation.
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