Italy’s Council of State reinstates the fine imposed on Pfizer for delaying a generic’s market entry

by Gabriele Accardo

On 12 February 2014, Italy’s Council of State (the “CdS”) dismissed the ruling of the lower administrative court (the “TAR Lazio”) which quashed the decision of Italian Competition Authority (the “ICA”) that fined pharmaceutical company Pfizer EURO 10,6 million for an abuse of its dominant position to artificially extend the patent protection of its anti-glaucoma drug Xalatan and keep generic rivals out of the market in breach of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) (see Newsletter 4-5/2012 p. 13, Newsletter 1/2012 p. 9, Newsletter 3/2011 p. 7 and Newsletter 6/2010 p. 8 for background information). Last year, the CdS reversed another ruling of the TAR Lazio and reinstated a fine on Bayer Cropscience in another abuse of dominance case (see Newsletter 1/2013 p. 8, Newsletter 3/2012 p. 10 and Newsletter 4-5/2011, p. 11 for additional background).

According to the TAR Lazio, Pfizer’s conduct was legitimate, since the pharmaceutical company had done nothing more than exercising its rights. It stressed that in order to be regarded as anticompetitive, the practices under scrutiny had to be accompanied by a clear exclusionary intent and an additional anti-competitive element that goes beyond the existence of a simple set of legitimate actions carried out and brought before the competent administrative and jurisdictional authorities. In addition, the TAR Lazio held that Pfizer’s proposed commitments were sound particularly in addressing ICA’s main concern of allowing market entry by generics licensees to whom Pfizer would have granted a non-exclusive, royalty free license in Italy.

All these reasons were invalid, the CdS held. The ruling is instructive since the Court addressed for the first time the issue of the abuse of rights in a competition law context in Italy, notably in relation to the limits that a dominant company faces in exploiting the faculties attached to the protection of patents concerning pharmaceutical specialties.

First, the CdS noted that the conduct under scrutiny essentially relates to Pfizer’s filing application for a divisional patent and its related Supplementary Protection Certificate (or SPC) concerning a class of molecules that included the active ingredient latanoprost, which was already protected by the main patent. Following the release of the divisional patent, however, Pfizer did not launch any new products other than those already available in the market.

The CdS clarified that the dispute here is not about the authorization, granted through the regulatory framework, to file an application for a divisional patent for a product that is already patent protected, but rather the use made of such an authorization by Pfizer in the circumstances. The CdS stressed that it is irrelevant whether the divisional patent and the SPC have been legitimately requested/obtained by Pfizer, since the legal framework concerning the protection of an invention (the patent system), is different than the protection of competition. Thus, the CdS noted that the reasoning of the ruling is flawed insofar as, first and foremost, the TAR Lazio assessed the decision of the ICA from the perspective of the patent rules, whereas in the present case the issue is not whether the conduct was contrary to patent laws but rather what is the anticompetitive effect of a series of acts, which were legitimate on their own.

Accordingly, the CdS held that, in the circumstances, Pfizer’s conduct of exploiting the authorizations attached to the main patent, as well as its market position, resulted in delays in the introduction of generic drugs that compete with Xalatan, without any actual use of the active ingredient for new products. Therefore the ICA was right to find that such a conduct had a further and different goal than patent protection (which was already in place). That conduct also had an overt and persistent anticompetitive goal, notably keeping generics out of the market for as long as possible, causing a significant damage also to the National Health Service.

As to the assessment of Pfizer’s commitments, the CdS agreed with the ICA that they were manifestly incapable of removing the anticompetitive effects of Pfizer’s conduct. Among the other considerations, the CdS noted that Pfizer had offered the commitments just a couple of months before its patent would expire, whereas the proposal to license the patent at issue for use in Italy, albeit royalty-free, would be likely to reinforce the abuse rather than facilitate generics entry. In fact, the production of generics based on an active ingredient whose patent protection has expired is quite different than the situation where the production is subject to the terms of a licence granted by the patent holder.

The CdS ultimately reinstated the EURO 10,6 million fine, but rejected -as inadmissible, the ICA’s request to raise the penalty, based on the fact that the ICA cannot submit counter claims in its appeals.