The Full Federal Court has found that commercial strategies employed by Pfizer Australia Pty Ltd (Pfizer) prior to the expiry of its Lipitor patent did not contravene Australian competition laws. The decision provides guidance to patent holders on their ability to legitimately protect their market position upon patent expiry.
- Pfizer manufactured and supplied atorvastatin, a popular cholesterol lowering pharmaceutical product sold under the brand name 'Lipitor'. In anticipation of the expiry of patent protection for Lipitor, Pfizer offered pharmacies significant discounts and rebates based on the bundled supply of Lipitor and Pfizer's generic atorvastatin product. The Australian Competition and Consumer Commission (ACCC) alleged that in doing so, Pfizer had breached the prohibitions against misuse of market power and exclusive dealing under the Competition and Consumer Act 2010 (Cth) (CCA).
- At first instance, the trial Judge found that Pfizer's conduct did not contravene the CCA, even though Pfizer recognised that its conduct may have made it more difficult for generic manufacturers to compete. The key issues on appeal were:
- whether Pfizer had substantial market power in the atorvastatin market at the time when it offered the relevant discounts and rebates and, if so, whether it had 'taken advantage' of that power; and
- whether the strategies implemented by Pfizer had the purpose of (i) deterring generic drug manufacturers from competing in the atorvastatin market; or (ii) substantially lessening competition in the atorvastatin market.
- The Full Federal Court found that Pfizer had substantial market power for a longer period of time than the trial Judge had found at first instance and that Pfizer had taken advantage of that power. However, as was the case at first instance, the Full Court held that Pfizer did not have an unlawful purpose because its strategy was undertaken for a legitimate business objective, i.e. to remain competitive in the atorvastatin market in the face of impending entry from generic manufacturers. On that basis, there was no breach of the misuse of market power or exclusive dealing prohibitions.
- A new test for misuse of market power came into effect from 6 November 2017, which is different to the test that was considered in the Full Court's decision. The new test prohibits a corporation from engaging in conduct that has the "purpose, effect or likely effect of substantially lessening competition", and there is no longer any requirement that a corporation "take advantage" of its substantial market power. Given the Full Court's finding that Pfizer's purpose was not to substantially lessen competition, it is very unlikely that the result would be any different under the current misuse of market power test.
- The ACCC did not allege that Pfizer's conduct had any anti-competitive effect. The available evidence indicated that the conduct did not have any adverse impact on competition as the atorvastatin market was highly competitive following the expiry of patent protection for Lipitor.
Implications for healthcare companies
- The Full Court's decision provides useful guidance on the scope of permissible conduct that may be implemented by originator companies in the lead up to patent expiry. Most importantly, the decision confirms that, where they have a legitimate commercial purpose and there is unlikely to be any anti-competitive effect, patent holders can implement strategies to protect their market share in response to the competitive threat arising from patent expiry.
- There will always be a fine line between competitive conduct in preparation for market entry by generic competitors, and conduct that seeks to hinder competition. The Pfizer decision demonstrates that a focus on contesting the market, rather than seeking to control it, will assist patent holders in staying on the right side of the line. Commercial strategies that are designed to deter, prevent or delay generic entry such as "pay-for-delay" and "product hopping" strategies, as well as "product bundling" strategies that do not have a legitimate commercial purpose, remain likely to attract the attention of the ACCC, as they have with competition regulators overseas.
- Evidence from Pfizer's executives was vital in persuading the Court that there was a legitimate purpose for Pfizer's strategy, and in explaining how that legitimate purpose could be inferred from various internal documents. The decision therefore highlights the importance of ensuring that, when developing a business strategy designed to protect market position, the commercial imperatives for that strategy are clearly recorded.
This article was prepared by Georgina Foster, Anita Thompson and Emma Panhuber.