IP and antitrust in Australia

Wow! I think this is a first in Australia: the ACCC – Australia’s competition “watchdog” – is suing Pfizer for antitrust breaches over its (then expiring) patent for Lipitor.[1]

According to the ACCC’s press release:

At its peak, Lipitor was prescribed to over one million Australians with annual sales exceeding AU$700 million.

Pfizer had a patent over the active ingredient, atorvastatin, but it expired in May 2012.

Early in 2012 (before the patent expired), the ACCC alleges that Pfizer offered to supply Lipitor to pharmacies at “significant discounts and the payment of rebates previously accrued” so long as they agreed to buy from Pfizer a minimum volume of up to 12 months’ generic atorvastatin after the patent expired.

The ACCC alleges this constituted a misuse of market power contrary to s 46 and exclusive dealing contrary to s 47 of the Competition and Consumer Act because:

(1) the offers were made before the patent expired and so at a time when other generic suppliers could not make offers; and

(2) “Pfizer engaged in this conduct for the purpose of deterring or preventing competitors in the market for atorvastatin from engaging in competitive conduct, as well as for the purpose of substantially lessening competition”.

If the ACCC is right, it wants penalties, declarations and costs. Under the Act, the pecuniary penalties could be up to the greater of $10 million, 3 times the benefit gained from the contravention or 10% of annual turnover.

More generally, as the ACCC’s chairman flagged:

This case also raises an important public interest issue regarding the conduct of a patent holder nearing the expiry of that patent and what constitutes permissible competitive conduct.

Now, patentees’ efforts, while their patent is in force, to tie customers into taking the product after the patent has expired, were so controversial that, just over one hundred years ago, Parliaments introduced legislation to permit licensees to terminate patent licences once the patent expired.[2]

Beyond that, s 46 also prohibits any corporation from taking advantage of a substantial degree of power in a market for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

So, to contravene s 46, the ACCC will have to establish two conditions:

(1) Pfizer had a substantial degree of power in a market; and

(2) it took advantage of that power for an anti-competitive purpose.

The first issue turns on what is the market: the market for Lipitor or some wider market such as a market for the treatment of high cholesterol? This question highlights the reference in the ACCC’s press release to the succes of Lipitor “at its peak”. I don’t know much about the market for treatment of high cholesterol but, by the time Pfizer did this allegedly dastardly deed, there were presumably some alternatives to prescribing Lipitor.[3]

In an earlier proceeding involving copyright,[4] the Full Court of the Federal Court held that a record company which had less than 20% of the market did not have a substantial degree of power in the market. So, unless the ACCC can tie the market narrowly to the market for Lipitor, it may well face considerable difficulties.[5]

Those difficulties may mean that the s 47 allegation has greater significance as, in that earlier case, the Full Federal Court still found the record companies contravened s 47 even though they did not have market power. Although their conduct could not have the effect of substantially lessening competition (because they did not have sufficient market power), their purpose was anti-competitive.

Plainly, Pfizer was trying to sign up the pharmacies to this deal so that they would not buy at least the minimum amount from these generic suppliers who were apparently waiting in the wings, but is that anti-competitive? Maybe it depends on how large the minimum requirement is in relation to the pharmacy’s expected needs for the period. But, it was only for 12 months!

Normally,[6] one would expect the pharmacies could readily calculate whether they were better off taking the deal or continuing to pay the “list” price for Lipitor and then taking advantage of spot prices in the market after the patent expired. If the alleged contravention, however, was that Pfizer refused to supply Lipitor at all while the patent was in force unless the pharmacies agreed to buy “generic” Lipitor after the patent’s expiry, that might have put the pharmacies in a very difficult position of being unable to fill prescriptions.

A further potential complication is that s 47 does not apply to conditions in a licence (or assignment) of a patent to the extent the conditions related to the patented invention or articles made by the use of the patented invention. No-one really knows what that means. Could a pharmacy that agrees to buy Lipitor from Pfizer be a licensee? Certainly, in keeping the drug for sale and selling it, the pharmacy would be exploiting the patent (while it was still in force), but has an implied licence to do those acts. Could agreement to buy “generic” Lipitor after the patent has expired relate to the invention?

At this stage, the parties have filed their respective pleadings,[7] discovery is taking place to be followed by affidavits and a return to Court for further directions in September.

The ACCC’s press release

Lid dip: Patentology


  1. Federal Court Proceeding No. NSD 146/2014, filed on 13 February 2014.  ?
  2. As this case demonstrated, however, it has limited effect.  ?
  3. And it may often be the case that different drugs have different side effects or have particular advantages over other treatments so it is not quite the same as comparing, say, Pink Lady apples with Fuji apples or ….  ?
  4. Universal Music Australia Pty Ltd v Australian Competition & Consumer Commission [2003] FCAFC 193  ?
  5. That said, the price of Lipitor in Australia, even off-patent, has managed to attract unfavourable headlines.  ?
  6. Maybe there is some complexity arising from the arcane operations of pricing under the Pharmaceutical Benefits Scheme?  ?
  7. If anyone cares to provide a copy, I’d love to read them :-).  ?

Linklaters’ IP update

is online here.

ECJ highlights are:

  • Owners of registered trade marks for luxury goods will be encouraged by a ruling of the European Court of Justice in Copad SA v Christian Dior Couture SA.
  • The European Court of Justice has confirmed that domestic legislation which seeks to prohibit businesses from offering goods and services tied to the offer of other goods and services is in breach of EU consumer protection rules.

Microsoft, the EU, Internet Explorer and tying again

On 15 January 2009, the European Commission commenced new proceedings against Microsoft alleging that Microsoft was abusing its dominant position in the market by tying Internet Explorer to the Windows operating system:

According to the Commission:

The evidence gathered during the investigation leads the Commission to believe that the tying of Internet Explorer with Windows, which makes Internet Explorer available on 90% of the world’s PCs, distorts competition on the merits between competing web browsers insofar as it provides Internet Explorer with an artificial distribution advantage which other web browsers are unable to match. The Commission is concerned that through the tying, Microsoft shields Internet Explorer from head to head competition with other browsers which is detrimental to the pace of product innovation and to the quality of products which consumers ultimately obtain. In addition, the Commission is concerned that the ubiquity of Internet Explorer creates artificial incentives for content providers and software developers to design websites or software primarily for Internet Explorer which ultimately risks undermining competition and innovation in the provision of services to consumers.

Apparently, Microsoft has 8 weeks to reply.

Microsoft’s initial press release notes that the Statement of Objections served by the Commission specifically states that the US settlement with the DOJ in 2002 (Wikipedia here) does not make the inclusion of Internet Explorer in Windows lawful under EU law.  Other than that it is fairly bland, as you would expect, stating that “We are committed to conducting our business in full compliance with European law.”

Read the Commission’s Press Release. Read Microsoft’s here or here.