Home Page / Cases / ACCC v Pfizer

ACCC v Pfizer Australia Pty Ltd

[2015] FCA 113 (25 February 2015)
[2018] FCAFC 78 (25 May 2018)

NOTE: On 25 June 2018 the ACCC sought special leave to appeal the decision of the Full Federal Court. The application was heard on 18 October 2018 and was special leave was refused.

 

Overview

Image of formula of atorvastatin/Lipitor (https://commons.wikimedia.org/wiki/File:Atorvastatin.svg)The ACCC alleged misuse of market power and exclusive dealing in relation to Pfizer's supply of atorvastatin to pharmacies in the lead up to the expirty of it's exclusive patent.

Trial

At trial, Justice Flick dismissed the ACCC's application:

  • Misuse of Market Power
    Justice Flick held that ACCC had failed to establish that Pfizer pursued its course of conduct "for the purpose of deterring or preventing a person from engaging in competitive conduct" (and further that, in relation to post-2012 conduct Pfizer did not have 'substantial' market power)
  • Exclusive dealing
    Justice Flick held that the ACCC failed to establish that Pfizer pursued its course of conduct for the purpose of 'substantially lessening competition'. Justice Flick further held that some of the conduct alleged to fall within the scope of s 47 did not involve supply 'on a condition', as required by the relevant sub-sections.

Appeal

The ACCC appealed the Federal Court decision. On 25 May 2018 (almost 2.5 years after the hearing was conducted) the Full Court dismissed the appeal. In their joint judgment, the Full Court held that the trial judge did not err when he found that Pfizer did not have the requisite prohibited purpose for either the s 46 or 47 claims or when he found that the requirements contracts did not contain a relevant condition for purposes of s 47. However, the Full Court did uphold several grounds of appeal - in particular:

  • Pfizer did have substantial market power at the relevant time in January - February 2012
  • Pfizer did take advantage of its substantial market power in making bundled offers in early 2012
  • the ACCC's pleadings were not 'legally incoherent' as had been found by Flick J in respect of the take advantage pleadings

 

Trial

Trial: Market definition

Pills tipped out of container[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; and
  • no 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 occuring 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 purpse 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).

 

Full Federal Court

Pills in containerThe Full Court of the Federal Court, in a joint judgment, dismissed the ACCC's appeal. However, it did accept three appeal claims:

  • the ACCC's pleadings were not 'legally incoherent' as had been found by Flick J in respect of the take advantage pleadings
  • Pfizer did have substantial market power at the relevant time in January - February 2012
  • Pfizer did take advantage of its substantial market power in making bundled offers in early 2012

Briefly, the Full Court:

  • rejected the appeal
  • on misuse of market power
    • agreed with the definition of market proposed by the ACCC and accepted by Justice Flick
    • accepted the ACCC's claim that Justice Flick erred in finding that Pfizer's market power was not 'substantial' in Jan-Feb 2012 when it made the bundled offers
    • accepted the ACCC's claim that Justice Flick erred in finding that its pleadings on 'taking advantage' were 'legally incoherent'
    • accepted the ACCC's claim that Pfizer had taken advantage of substantial market power when making its bundled offers in 2012
    • rejected the ACCC's claims that Justice Flick erred in finding that Pfizer did not have a purpose of deterring or preventing competitive conduct
  • on exclusive dealing
    • rejected the ACCC's claim that the trial judge erred in finding no relevant condition for purposes of s 47(1) in relation to the bundled offer (with the exception of the ongoing discount which Pfizer had agreed was a relevant condition)
    • rejected the ACCC's claim that the trial judge erred in finding no substantial purpose of substantially lessening competition
    • rejected Pfizer's submission that the IP exemption in s 51(3) applied to this conduct.

Full Court: Market definition

Agreed with trial judge - ACCC proposed market definition accepted.

Full Court: Misuse of market power

Substantial market power

Agreed with Flick J on time period pre-2012 but disagreed that there was no substantial market power at the relevant time in January and February 2018 - ACCC succeeded on this ground.

Taking advantage

Upheld Flick J's judgment in relation to take advantage pre-2012. Post 2012 the trial judge held there was no substantial market power and there was some conflicting reasoning regarding whether he would have found a take advantage. The Full Court found that there was a 'taking advantage' of market power associated with the Jan/Feb 2012 bundled offers.

Purpose

The Full Court rejected the ACCC's claim that the trial judge erred in finding no prohibited purpose.

[564] Pfizer did not have as a substantial purpose for engaging in the impugned conduct the purpose of making it difficult for the generics manufacturers to compete in the atorvastatin market post 18 May 2012 nor did it have as a substantial purpose a purpose of substantially lessening competition in that market.

Full Court: Exclusive dealing

Condition

In relation to the claim rejected by the trial judge, the ACCC argued that the practical effect of the bundled offers was that 'community pharmacies would not, or would not, except to a limited extent, acquire or re-supply generic atorvastatin from other suppliers'. The Full Court noted that Flick J had rejected these arguments and the found no error in his reasons for doing so.

Purpose

The Full Court rejected the ACCC's claim that the trial judge erred in finding no purpose of substantially lessening competition.

[564] Pfizer did not have as a substantial purpose ... a purpose of substantially lessening competition in that market.

The Full Court emphasised that the ACCC ran its s 47 case as a purpose and not an effects or likely effects case.

Full Court: Section 51(3)

The Full Court agreed that s 51(3) did not apply but reached a different conclusion in relation to the first element of Pfizer's s 51(3) defence [see para 589].

[594] In our view ... Pfizer’s sale of Lipitor and its generic atorvastatin to community pharmacies without any express restriction being imposed by Pfizer, involved the grant by Pfizer of a sub-licence of the atorvastatin patent to use or on-sell its atorvastatin. Of course, the pharmacies could only deal with atorvastatin in accordance with the statutory regime imposed upon them in respect of pharmaceuticals sold under the PBS and the Health Act more generally. But these were restrictions imposed under that regulatory regime and not by Pfizer.

Pfizer argued that if there were relevant conditions in relation to the bundled offers then they were conditions of the licence of the atorvastatin patent. The ACCC submitted that even if there was a licence the conditions were not conditions of that licence [595]

At [596] the Full Court observed that if there were conditions they related to the ability to purchase generic atorvastatin from Pfizer's competitors which would not be a relevant condition for purposes of s 51(3) with the result that the exemption would not have applied even if the conduct otherwise fell within s 47(1).

In any event, the condition postulated by Pfizer did not relate to the 'invention' to which the patent relates (597). The Full Court held that the trial judge 'arrived at the right conclusion' - the conditions postulated 'are not conditions which deal with the subject matter of the intellectual property right itself' (606).

Full Court: Pleadings

Upheld ACCC claim that trial judge erred in finding ACCC pleadings in relation to take advantage element were 'legally incoherent'.

 

Media and commentary

Media and commentary on Special Leave application

Media and commentary on Full Federal Court appeal

ACCC press releases

ACCC press release following judgment (25 May 2018)

ACCC, 'ACCC appeals Pfizer decision' (press release,18 March 2015)

Law firm commentary

Baker & McKenzie: Georgina Foster, 'ACCC loses Pfizer Appeal' (Insight, 29 May 2018)

Clayton Utz: 'Pfizer's bundling and rebates get a clean bill of health – do yours?' (Knowledge, 1 June 2018)

Corrs Chambers Westgarth: Rachelle Downie and Ian Reynolds, 'Power and Purpose: Protecting a competitive position after ACCC v Pfizer (II)' (Corrs Chambers Westgarth, Corrs in Brief, 31 July 2018)

Herbert Smith Freehills: Patrick Gay, Sarah Benbow, Patrick Sands and Asa Tan, 'Pfizer beats the ACCC again - implications for pharma' (Legal Briefings, 29 May 2018)

Johnson Winter & Slattery: Sar Katdare, 'The Pfizer case: Monopolies ≠ market power; Anti-competitive language ≠ anti-competitive purpose' (July 2018)

King & Wood Mallesons: Sharon Henrick and Rebecca Prior, 'The final word and ‘smoking gun’ documents - ACCC v Pfizer' (Insights, 5 June 2018)

Russell McVeagh: Sarah Keene, Troy Pilkington and Hamish Saunders, 'ACCC unsuccessful in appeal against Pfizer on misuse of market power claim' (Insights, 1 June 2018)

Other commentary

Donal Curtin, '609 paragraphs later' (Economics New Zealand blog, 5 June 2018)

Media

Christine Caulfield, 'ACCC loses appeal in Pfizer misuse of market power case' (Lawyerly, 25 May 2018)

Misa Han, 'ACCC loses competition law case against Pfizer again' (AFR, 25 May 2018)

Malina McLennan, 'Australian court throws out ACCC Pfizer appeal' (Global Competition Review, 25 May 2018) (also available at Getting The Deal Through, 5 June 2018)

Reuters, 'ACCC loses appeal against Pfizer over Lipitor sales' (SMH, 25 May 2018).

Melissa Davey, 'Consumer watchdog to appeal federal court decision on Pfizer' (The Guardian, 18 March 2015)

Leo Shanahan, 'ACCC to appeal after court clears Pfizer' (The Australian, 19 March 2015)

Media and commentary on trial decision

ACCC press releases

ACCC, 'ACCC takes action against Pfizer Australia for alleged anti-competitive conduct' (13 February 2014)

ACCC, 'Federal Court dismisses anti-competitive conduct case against Pfizer Australia' (25 February 2015)

Law firm summaries and analysis

Clayton Utz

Gilbert + Tobin

Herbert Smith Freehills

Johnson Winter & Slattery

King&Wood Mallesons

Minter Ellison

Piper Alderman

'ACCC v Pfizer – Judgment summary and ramifications' (27 February 2015)

Other media and commentary

James Lawrence, Alisha Jung and Leonora Tyers, 'Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd' (2015) 31(2) Competition and Consumer Law News 21

Leo Shanahan, 'Pfizer court win on Lipitor a blow for ACCC' (The Australian, 26 February 2015)

Melissa Davey, 'Court dismisses case accusing Pfizer Australia of anti-competitive conduct' (The Guardian, 25 February 2015)

Thomas Faunce, 'Australian Competition and Consumer Commission v Pfizer: Evergreening and market power as a blockbuser drug goes off patent' (2015) 22(4) Journal of Law and Medicine 771

James Lawrence and Alisha Jung, 'ACCC v Pfizer: a bitter pill?' (2014) 30(8&9) Competition and Consumer Law News 105

Simon Thomsen, 'ACCC loses misuse of market power case against Pfizer over cholesterol lowering drug' (Business Insider Australia, 25 February 2015).

Government media release (The Hon Bruce Billson MP), 'Government to keep a close eye on misuse of market power case' (13 February 2014)

Marianna Papadakis, 'ACCC: Pfizer stemmed sales' (The Australian Financial Review, 10 October 2014, page 32)

Suiya Zhang, 'Market power in pharmaceutical antitrust cases - Australia's approach contrasted' (2015) 31(3&4) Competition and Consumer Law News 56-59

 

Case links