ACCC v Pfizer Australia Pty Ltd

Justice Flick

Trial: Market definition

[References are to judgment of Flick J at first instance unless otherwise noted: references to the Full Court judgment include the abbreviation 'FC'. Significantly more detail to follow ...]

ACCC argued the market was an Australia-wide market for atorvastatin (a single product market) because there were no substitutes for atorvastatin (supported by their expert, Dr Pleatsikas)

Pfizer argued the market was 'market for the wholesale supply of pharmaceutical products and over-the-counter products to Community Pharmacies in Australia' (para 276). It was argued that this arose from the fact that atorvastatin was supplied to pharmacies as part of a bundle (para FC42) (para 268) (supported by their expert, Dr Addanki).

At 266 Justice Flick observed that the 'approach of the two experts was significantly different'.

Justice Flick accepted the market identified by the ACCC. His Honour further accepted that there had been no change in the 'market' from Dec 2010 - May 2012 (para 160), notwithstanding the fact that the market was in a 'state of flux' from at least Jan/Feb 2012 (para 260).

His Honour observed that:

[270] At all times a pharmacist presented with a prescription for atorvastatin was required to supply atorvastatin. In the language of an economist, throughout that period there was:

no demand-side substitution; andno supply-side substitution.

...

[271] No matter how other generic manufacturers may have been supplying their own “range” of generic products and no matter what may have been the terms and conditions of supply arrangements between those manufacturers and their aligned pharmacies, the fact remained that throughout the period from December 2010 through to May 2012 a prescription for the supply of atorvastatin could only be supplied by the atorvastatin pharmaceutical supplied by Pfizer. The availability to secure product from Ranbaxy for a limited period towards the end of the period, it is respectfully concluded, does not alter that conclusion.

...

[272] ... atorvastatin was being seen to be – and being marketed as – a separate pharmaceutical product in its own right for which there was no substitute throughout the period in question. Although the generic manufacturers may have marketed their own generic range of pharmaceuticals, and resisted attempts by pharmacies to “cherry-pick” individual products from within their ranges, atorvastatin had long been regarded as a truly unique product. It was a product which pharmacies had to stock and was a considerable source of their income

Trial: Misuse of market power

The case involved conduct occurring prior to the significant changes to the provision that came into operation in November 2017. At the relevant time, the misuse of market power provision required:

1. That a corporation have substantial market power

2. That the corporation take advantage of that power

3. That the taking advantage be for one of three prohibited purposes

The relevant prohibited purpose relied upon by the ACCC was the purpose of ' deterring or preventing a person from engaging in competitive conduct in that or any other market' (s 46(1)(c))

Substantial market power

Justice Flick held that prior to late 2011 'Pfizer possessed substantial market power in the atorvastatin market' (para FC148) - his Honour observed:

[284] Prior to late 2011, it is respectfully considered that no conclusion is open other than that Pfizer possessed both “market power” and that such power as it possessed was truly “substantial”. If the market be correctly identified as the atorvastatin market, Pfizer had long been the sole supplier of atorvastatin. The fact that the price at which it could sell that product may have been subject to some limited degree of regulation pursuant to the Pharmaceutical Benefits Scheme is not sufficient to render its market power anything other than “substantial”.

However, at least from early 2012, Flick J held that the market power ceased to be 'substantial':

[285] Well prior to the expiration of its patent in May 2012, the other generic manufacturers began planning their onslaught upon the market. From at least 2010, the established generic manufacturers were planning their future sale of atorvastatin. But – and despite the fact that the other generic manufacturers were circling the prey from an early date – Pfizer retained substantial market power up to late 2011.

[286] But Pfizer’s market power gradually decreased the more imminent the expiration of its patent became. Notwithstanding this reduction in its power, it is nevertheless respectfully concluded that Pfizer maintained some degree of market power up to May 2012. It retained its unique ability to exploit, for example, the marketing of Lipitor at a premium price and to package its generic atorvastatin in a manner identical with or substantially similar to the packaging of the established brand, Lipitor. But as from January 2012 it is concluded that the market power Pfizer retained was not “substantial”.

...

[288] Relative to the forthcoming competition from the generic manufacturers of atorvastatin, the power that Pfizer had once exercised had waned .... And the power it retained was no longer “enduring”; that power could not be “sustained” throughout the period from January to May 2012 ....

In reaching this finding his Honour pointed to the fact that, from late 2011, Ranbaxy had been promoting the sale of its generic atorvastatin at a highly (85%) discounted rate (para 289) and was able to enter the market on 19 Feb 2012 [ed: although it did not appear on the PBS until April 2012]. Other generics had also listed their impending atorvastatin products on the Australian Register of Therapeutic Goods (para 290), Apotex was holding discussion with key customers from March 2012 regarding supply of atorvastatin post patent-expiry (para 290) and Alphapharm had told customers (from Jan 2012) that it would beat Pfizer's offer.

Justice Flick observed that the 'influence that such large generic manufacturers could exert on the market cannot be underestimated.' (para 290)

Taking advantage

Pfizer argued that the ACCC's case in relation to taking advantage was 'legally incoherent' - Justice Flick agreed.

Purpose

Justice Flick accepted witness evidence explaining terminology in documentation and, as a result, concluded there was no prohibited purpose.

Trial: Exclusive dealing

The trial judge held there was no anti-competitive purpose and therefore no contravention of s 47 (the ACCC not having pleaded anti-competitive effect).

Justice Flick did consider whether there would have been a contravention if there had been an anti-competitive purpose, based on the offer of discounts, rebates and credits on condition that the community pharmacies would not (or would not except to a limited extent) for a specified period:

• acquire atorvastatin directly or indirectly from a competitor of Pfizer

• Resupply atorvastatin directly or indirectly acquired from a competitor of Pfizer

The ACCC argued that by making the bundled offers in January 2012 Pfizer had engaged in exclusive dealing: s 47(2)(d) and 47(2)(e).

Pfizer accepted and Flick J agreed that the ongoing discount offered on Lipitor (tied to first line support of atorvastatin Pfizer) was a condition falling within s 47(3)(e). However it did not accept the other two discounts were given on a relevant 'condition' under s 47 - the ACCC's argument as that eligibility for the platinum offer required a pharmacy to purchase and dispense at least 75% of its generic atorvastatin from Pfizer (and this was a relevant condition).

Justice Flick agreed with Pfizer's submissions (at 447):

[446] ... the other two discounts or rebates, Pfizer contends, were not given on any “condition” that fell within s 47. The pharmacies, it is said, remained free to purchase generic atorvastatin from other suppliers. The fact that any particular pharmacist may have been less likely to buy as much generic atorvastatin from another supplier as he would have had he not accepted the Pfizer offer does not, so it is submitted on behalf of Pfizer, mean that it engaged in the practice of exclusive dealing. These “conditions” may have had the “effect” or may have the “practical consequence” that a pharmacy may been less “inclined” to purchase generic atorvastatin from a supplier other than Pfizer (Monroe Topple ... ). But no “condition” was imposed on the pharmacies inhibiting their freedom to acquire generic atorvastatin from other suppliers.

Trial: Section 51(3)

Pfizer argued the exemption in s 51(3)(a)(i) and (iii) applied in relation to s 47 claims. This provides an exemption for certain conditions in licences of IP rights in patents, among other things.

The Full Court summarised the exemption as follows:

[586] In summary, the relevant exemption provides that imposing or giving effect to “a condition of a licence” granted by the licensee or owner of a patent will not be a contravention of s 47 in circumstances where the particular condition “relates to” the invention to which the patent relates or articles made by the use of that invention. It follows that, to engage the exemption, Pfizer must satisfy the Court of the following elements: First, that the offers made by Pfizer in January 2012 imposed or gave effect to a condition or conditions of a licence granted by Pfizer, in its capacity as the licensee or owner of the atorvastatin patent and, second, that that condition related to the invention to which the patent related or articles made by the use of that invention viz Lipitor tablets or atorvastatin Pfizer tablets.

It was not necessary for Flick J to determine the matter, but had it been, his Honour opined that he would have found the exemption did not apply because [459]:

• 'the sale of atorvastatin by Pfizer to the pharmacies would not have been held to involve the granting of any "licence", and

• the 'condition' contained in any such licence would not have been a relevant condition for purposes of s 51(3) - that exemption does not cover conditions that 'seek to gain advantages collateral to the patent' (and this would have been such a condition).

Trial: Pleadings

Trial judge found ACCC pleadings in relation to take advantage element were 'legally incoherent' (finding overturned on appeal).