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MEMO/08/20

Brussels, 16th January 2008

Antitrust - sector inquiry into pharmaceuticals – frequently asked questions (see also IP/08/49)

What is a sector inquiry? Why not just open a case if there is a competition problem?

The Commission uses sector inquiries when it wants to improve its knowledge about a particular sector with a view to better identifying possible obstacles to competition. Essentially, the Commission opens a sector inquiry if it has indications that competition may not be working as it should be in the sector concerned. A sector inquiry is primarily an information gathering and analysis exercise that provides the Commission with in-depth knowledge about markets. It is therefore 'upstream' of any antitrust proceedings in specific cases, which may or may not follow.

Is this the Commission's first sector inquiry?

No. In the past few years, several other sector inquiries have been conducted, for instance, in the areas of telecommunications, energy and financial services. More information on these inquiries is available at: http://ec.europa.eu/comm/competition/antitrust/sector_inquiries.html

Why has the pharmaceuticals sector been selected for such an inquiry?

Through its own monitoring of the sector, as well as through specific cases (e.g. the AstraZeneca case – see IP/05/737)[1], the Commission has become concerned that competition may not be functioning optimally in the pharmaceutical sector.

With respect to novel medicines, the number of such medicines reaching the market has decreased over time. From 1995-1999 an average of 40 novel molecular entities were launched per year. From 2000-2004 the figure was only 28[2]. The Commission wants to investigate the reasons for this and in particular whether any agreements restricting competition or unilateral abuses of dominant position are connected to it.

With respect to generic medicines, the Commission has indications that the entry of such medicines into the market place is, in some cases, delayed. Here also, the Commission will investigate the causes of this trend and in particular whether it results from any restrictions of competition between producers or any unilateral abuses of dominant positions.

What are medicines for human consumption?

This concept covers in particular substances presented as having properties for treating or preventing disease in human beings. It notably covers all prescription medicines for humans.

Veterinary medicines are outside the scope of this inquiry.

Could reduced market entry of novel medicines not simply be due to the regulation to which novel medicines are subjected before they are allowed to be sold on the market?

Of course, the regulatory environment we have in Europe to ensure that only safe novel medicines come onto the market has implications on market entry. But the question is, for example, whether the significant decrease since 1995 in the number of novel medicines reaching the market can be fully explained by this circumstance. The Commission's inquiry will not question the regulatory requirements currently in force. We will merely investigate whether, without prejudice to these regulatory factors, market entry of novel medicines is being reduced or delayed because of potentially anti-competitive behaviour by the market players themselves.

Could delayed market entry of generic medicines not simply be due to the normal functioning of the patent system rather than to competition problems?

Patent law grants the inventors of novel medicines a fair reward in terms of temporary protection from generic competition. The Commission's inquiry supports this principle. The question the Commission will examine is whether over and above this temporary protection, market entry of novel and generic medicines is being reduced or delayed through anti-competitive practices. Misusing public procedures and regulations in order to prevent generic firms from competing can under certain circumstances amount to an abuse of a dominant position in breach of Article 82 of the EC Treaty. Similarly, if market entry of generic medicines were delayed because of agreements between competitors, the Commission would want to examine whether such agreements were compatible with the EC Treaty's rules on restrictive business practices (Article 81).

What possible anticompetitive practices could the inquiry reveal?

The inquiry will investigate commercial practices, including notably patenting or the exercise of patents, which may not serve to protect innovation but to block innovative and/or generic competition, litigation (which may be vexatious) and agreements which may be collusive, such as settlement agreements. The practices may cause market distortion when they unduly fence off incumbent suppliers of drugs from innovative or generic competition.

What are the steps of the sector inquiry and how long is it expected to take?

The sector inquiry has begun with unannounced inspections of a number of pharmaceutical companies in Europe. In all likelihood, once the information gathered in the inspections has been analysed, the Commission will send out requests for further information to the companies concerned as well as to other actors in the sector.

Evaluation of all this information should lead to the publication of a preliminary report in the autumn of 2008. Reactions to that report from the sector and from the public at large will again be assessed, after which the publication of a final report is envisaged in the spring of 2009.

The inquiry's findings will allow the Commission or national competition authorities to focus any future action, should action appear necessary, on the most serious competition concerns, and to identify the most efficient remedies that can resolve the specific competition problems in individual cases.

If any specific cases against companies are opened, these cases will be launched in their own right, outside of the framework of the sector inquiry.

Is this the first time a sector inquiry has begun with unannounced inspections? If so, why does this inquiry start with inspections rather than with requests for information?

Yes, this is the first time a sector inquiry starts with unannounced inspections. The kind of information the Commission will be examining in this inquiry, notably concerning the use of intellectual property rights, litigation and settlement agreements covering the EU, is by its nature information that companies tend to consider highly confidential. Such information may also be easily withheld, concealed or destroyed. The Commission is keen to have immediate access to all such company information and has therefore ordered unannounced inspections. This is not to say that in future all sector inquiries will begin with unannounced inspections. Much depends on the type of information the Commission would be looking for. If, for instance, the competition problem were to lie in the wording of a type of standard contract widely used in the industry, the Commission could simply ask for those contracts through a request for information.

How did the Commission select the companies inspected?

The Commission is inspecting producers of innovative medicines and producers of generic medicines. In each category several companies with significant commercial activities in Europe have been selected, based on a number of objective selection criteria, for example, relating to the competitive environment of these companies.

Under what legal instrument is the Commission carrying out this inquiry?

Article 17 of Council Regulation 1/2003, which lays down the legal framework for the Commission to apply the EC Treaty's antitrust rules, provides that the Commission can undertake a sector inquiry when the trend of trade, price developments or other circumstances suggest that competition in a given sector might be distorted. The investigative powers available under this inquiry include the authority to undertake inspections of business premises in the framework of the inquiry.

What is the geographical scope of the inquiry?

The Decision to open the inquiry covers the entire territory of the European Union.

Can the inquiry cover non-European companies?

Yes. Companies whose activities affect trade in Europe are covered by EU competition law, even if they are located outside of the EU. The Commission cannot inspect companies located outside the EU, but it can send them requests for information. The Commission can, of course, also send requests for information to subsidiaries of such companies in the EU, and inspect them.

Is the Commission working together with national competition authorities in this inquiry?

The Commission has coordinated the inspections with the competition authorities of the Member States where the inspections take place. The Commission has noted that the competition authorities in several Member States are themselves actively examining cases in the pharmaceutical sector. There will be close cooperation between the Commission and the Member States on issues of common concern in the context of the sector inquiry. More generally, the competition authorities of all Member States will be associated to the progress and outcome of the Commission's work in this sector inquiry.


[1] See the Commission's Decision of 15 June 2005, summarized at http://ec.europa.eu/comm/competition/sectors/pharmaceuticals/astrazeneca.pdf. AstraZeneca was fined EUR 60 million for having infringed Article 82 EC and Article 54 EEA by misusing public procedures and regulations in a number of EEA States with a view to excluding generic firms and parallel traders from competing against AstraZeneca's anti-ulcer product Losec. See also the Commission's opening of proceedings against Boehringer on 22 February 2007, information on which can be found at http://ec.europa.eu/comm/competition/antitrust/cases/decisions/39246/initiations.pdf.

[2] See European Federation of Pharmaceutical Industries and Associations (EFPIA): The Pharmaceutical Industry in Figures, 2006 edition, page 7, on-line available at http://212.3.246.100/Objects/2/Files/infigures2006.pdf .


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