The Syfait Case - Observations on Advocate General Jacobs's Opinion.

Originally published March 2005

This article considers Advocate General Jacobs's opinion1 handed down his opinion on the Syfait case on 28 October 2004. The case concerns a preliminary reference from the Greek Competition Commission requesting a ruling on the question of whether (and in what circumstances) a dominant pharmaceutical company may refuse to meet in full orders it receives from wholesalers in order to limit parallel trade.

Advocate General Jacobs in his opinion in the Syfait case rejected the proposition that a refusal to supply by a dominant pharmaceutical company would be an automatic abuse under Article 82 EC, noting also that an obligation to supply on a pharmaceutical company would only arise in exceptional circumstances. Such refusal by a dominant company may be deemed reasonable in order to defend its commercial interests.2

If Advocate General Jacobs's opinion is upheld, it would have important consequences for the pharmaceutical industry.

It is worth noting that ultimately the extent to which pharmaceutical companies will be allowed to protect their commercial interests will depend on the limits that the ECJ imposes in the final judgment. Indeed, it is probable that the ECJ will not go as far as the AG's opinion, in this respect.

Below are some observations on the potential implications the case may have for the pharmaceutical industry.

First, it is useful to remember that this case is specifically concerned with conduct under Article 82 EC (which concerns dominant companies). It does not concern Article 81 EC (which concerns among other things agreements between companies). In particular, the case is concerned with the "exceptional circumstances" that have to be met, for, what would otherwise be abuse of dominance, to be considered objectively justified.

A second, and probably more important, consequence might be that dominant pharmaceutical companies could be considered to be acting in accordance with EC law when refusing to supply or to meet in full orders for their products, provided that certain conditions are met. If that is the case, the refusal to meet in full orders could be considered "objectively justified", the partition of the market simply being an inevitable consequence.

AG Jacobs, however, also pointed out in his opinion that "conduct by a dominant pharmaceutical undertaking which more clearly and directly partitioned the common market would not be open to a similar line of defence" making clear also that "a restriction of supply by a dominant pharmaceutical undertaking might fall foul of the Court's established case-law on refusal to supply if it had negative consequences for competition arising other than as a consequence of its restriction of parallel trade".

In this regard, it appears reasonable to infer that where it is clear that the refusal or the reduction of supplies is indeed specifically to punish the customer for its export activity, to drive the customer out of the market or to prevent market entry, then the conduct will likely not to be objectively justified and - accordingly - will still be considered as an abuse under Article 82 EC. The same would probably apply to cases where the refusal or the reduction of supplies is associated with other abusive conduct. In such cases a refusal, otherwise considered objectively justified, might be considered an abuse in so far as it is aimed at reinforcing the other abusive conduct.

In other words, it could be maintained that a refusal to supply might be considered not objectively justified in cases where the overall conduct of a pharmaceutical company could be considered not as a proportionate step aimed at merely protecting its commercial interest, but rather as aimed at damaging actual and potential competitors, and therefore at hampering competition in the pharmaceutical industry.

Finally, the Commission's policy concerning the single market objective in the pharmaceutical industry may need to be changed in response to the case law. Regardless of how much the ECJ might water down the AG's opinion, if it follows the reasoning at least to some degree, the result would be a second consecutive loss - after the Bayer case - for the Commission in its attempt to prevent innovative companies from limiting parallel trade in the pharmaceutical industry. This may lead the Commission to "rethink" the way to achieve this important objective.

Footnotes

1. Opinion of Advocate General Jacobs in Case C-53/03 Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and others v Glaxosmithkline AEVE.

2. Pharmaceutical companies argue that if the price established in a low-price Member State were generalised across the whole of the Community, their legitimate commercial interest of covering the total costs (fixed and variable costs) and make a reasonable profit would be put at risk.

3. See our February 2004 Newsletter

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Gabriele Accardo

Lovells

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