Inside Views: Excessive Pricing and Sham Patent Litigation: The Pfizer and AbbVie Decisions

by Frederick M. Abbott

Intellectual Property Watch - July 3, 2018

Download here

Competition law is a critical tool in seeking to maintain some semblance of reasonable pricing in the pharmaceutical market. It is particularly important as legislators around the world appear extremely hesitant to address pharmaceutical pricing in meaningful ways, regrettably influenced by well-funded lobbying.

Two recent competition law decisions discussed below illustrate the importance of and challenges to regulating the pharmaceutical sector. In the first, the UK Competition Appeal Tribunal (CAT) partially upheld and partially reversed and remanded (pending briefing) a decision by the Competition and Markets Authority (CMA) fining Pfizer and Flynn close to £90 million for abuse of dominant position in the excessive pricing of an anti-epilepsy drug. The CAT decision is problematic because it creates unnecessary and unwarranted hurdles to findings of excessive pricing in the UK. In the second decision, the US Federal Trade Commission succeeds in proving that AbbVie engaged in abuse of monopoly power by engaging in sham patent litigation against two generic producers in order to delay market entry of competitive products. The Federal District Court found that AbbVie’s patent lawyers by “clear and convincing” evidence had knowingly pursued patent infringement claims without chance of success for no other purpose than to delay market entry.

IP-Watch Pfizer and AbbVie Decisions

 

Second Report of the Global Health Law Committee prepared for the International Law Association 2018 Sydney Biennial Conference, August 19-24, 2018

draft Report to be discussed and proposed for adoption


 

Decision by UK Competition Appeal Tribunal on Excessive Pricing

Note by F. M. Abbott

Joined Cases

Flynn Pharma v. Competition and Markets Authority (CMA), Case No. 1275/1/12/17, and Pfizer v. CMA, Case No. 1276/1/12/17, UK Competition Appeal Tribunal, [2018] CAT 11, decided 7 June 2018.

 

In this decision, the UK Competition Appeal Tribunal affirmed in part, and overruled and remanded in part, the decision of the UK Competition and Markets Authority that had found Flynn and Pfizer guilty of excessive pricing under the UK Competition Act 1998 in relation to phenytoin sodium capsules, which are used to treat epilepsy. The CMA had fined Pfizer and Flynn £90 million as a consequence of price increases of up to 2600% following the “debranding” of the pharmaceutical product in September 2012. This increased expenditure by the National Health Service from £2 million a year in 2012 to £50 million a year in 2013.

The decision by the Competition Appeal Tribunal (CAT) upheld the finding of the CMA that Pfizer and Flynn together held a dominant market position in the UK with respect to the subject product. However, the CAT considered that the CMA had used a flawed methodology in analyzing excessive pricing. After reviewing the standards established by the Court of Justice of the European Union in the United Brands case, the CAT said that the CMA had proceeded reasonably by establishing a cost-plus price for the relevant product, but had not adequately considered alternative methods for establishing a benchmark price as a baseline for comparison with the prices charged. The CAT said that the CMA had used an idealized competitive market pricing methodology rather than one that reflected the realities of the regulated market (i.e. “under conditions of normal and sufficiently effective competition”). Since the CAT noted that cost-plus was specifically identified by the CJEU as an appropriate method for establishing a benchmark, it is not clear why the CAT believed consideration of alternative approaches a sufficiently material basis for overruling the CMA finding.

More important, however, the CAT referenced the second prong of the CJEU test, which is to determine whether an excessive price is also “unfair”. In this regard, the CAT considered it appropriate that the CMA had examined the change in price over time, acknowledged that Pfizer and Flynn had dramatically increased prices, and that this was good reason for the CMA to launch an investigation. Moreover, the CAT said that the CMA could base a finding of unfairness on the basis of prices being unfair in themselves. Nonetheless, in determining whether the price increases were unfair, the CAT said that the CMA had not sufficiently considered the “economic value” of the products. The CAT acknowledged that because patients could not do without the products, there would be a distortion if economic value was equated with demand based on necessity (i.e., a hostage bargaining model). It nevertheless thought the CMA had not sufficiently taken into account the economic value of the products from the demand side.

The CAT remanded (subject to briefing) the case back to the CMA so that it might undertake an assessment that conforms to the CAT’s preferred approach, which it spelled out:

“443. In our assessment, to apply Article 102 through the two-limb test of United Brands, in circumstances where the only alleged infringement is one of excessive pricing and the dominance of an undertaking in a given market has been established, a competition authority should:

(1) consider a range of possible analyses, reflecting market conditions and the extent and quality of the data that can be obtained, to establish a benchmark price, or range, that reflects the price that would pertain under conditions of normal and sufficiently effective competition. On the facts of a particular situation, there might be only one basis of analysis that was credible, but the authority is not entitled to select one basis of analysis and ignore others that are also credible. The criteria for selection and application must be objective, appropriate and verifiable. The analysis must also be done on a consistent basis;

(2) compare that price (or range) with the price that has been charged in practice and determine whether that is excessive;

(3) for that purpose, form an assessment, for the purpose of the Excessive Limb, of whether that differential is sufficiently significant and persistent to be excessive, as a matter of its own discretion, exercised fairly and reasonably, in the light of such factors as:

(i) the absolute size and stability of that differential;

(ii) the reasons for it, taking account of the fact that the conditions for excessive pricing will only usually occur where the market is one where regulation, or some similar feature, or other barriers to entry, protect it from competition, or where there is regulatory failure and the relevant regulator has not intervened;

(iii) previous decisions finding other differentials excessive, weighted for the markets applicable in those cases;

(iv) the wider market conditions, including the evolution of pricing over time.

(4) where there is a conclusion that the differential is excessive, then proceed to consider whether it is unfair under the Unfair Limb;

(5) be free to use either Alternative 1 (unfair in itself) or Alternative 2 (unfair compared to competing products) to determine unfairness but give due consideration to any prima facie convincing argument that the pricing is actually fair under either Alternative and take that into account in reaching a decision under either Alternative 1 or 2;

(6) if there is a finding of unfairness under the Unfair Limb, assess what is the economic value of the product, and whether the price charged in practice bears no reasonable relation to it;

(7) give appropriate consideration to any objective justification advanced by the dominant undertaking;

(8) make a finding of an infringement of Article 102 if all the conditions above are fulfilled; and:

(i) the price bears no reasonable relation to the economic value;

(ii) the dominant undertaking is reaping trading benefits that it would not reap under conditions of normal and sufficiently effective competition.

444. It is for the competition authority to determine, when considering comparators, either for the application of Alternative 2 or for considering whether there are prima facie issues raised under Alternative 2 that need to be considered before proceeding under Alternative 1, or indeed if they are relevant to the Excessive Limb, what weight to be applied to them in the light of market conditions and their suitability, as comparators, for the product concerned. In making that determination, it must, but need only, act in a manner which is objective, appropriate and verifiable. It has a substantial margin of appreciation, but must recognise the presumption of innocence in favour of the undertaking under investigation.”

 

While it may be useful for the CAT to articulate in some detail the methodology it prefers for establishment of excessive pricing under the UK Competition Act, it remains an unfortunate decision in that it delays (and perhaps even negates) the imposition of penalties by the Competition and Markets Authority in a case of egregious excessive pricing. It will certainly encourage the pharmaceutical industry view that litigation is always worthwhile because, at the least, it ties up the resources of governmental authorities and makes them less likely to pursue subsequent challenges because of the expenditure of resources involved.


Global Medicines Council - Briefing Paper No 1, Inaugural Meeting April 2017 (BlueAntWorks 2017)

G Med Briefing Paper Cover

 

 

                                                                  

              

F. Abbott - China policies to promote local production of pharmaceutical products and protect public health (WHO 2017)

            

F. Abbott - Indian policies to promote local production of pharmaceutical products and protect public health (WHO 2017)

            

Jorge Bermudez - Contemporary challenges on access to medicines: beyond the UNSG High-Level Panel, Ciência & Saúde Coletiva, 22(8):2435-2439, 2017

            

Discussants to J. Bermudez: Frederick M. Abbott - Reflections on the Report of the UN Secretary General’s High Level Panel on Access to Medicines; Mohga Kamal-Yanni - Commentary on Jorge Bermudez’s article; Claudia Vaca & Carolina Gómez - Ensuring access; halting pressures!; Jorge Bermudez, The authors reply, Ciência & Saúde Coletiva, 22(8):2440-2451, 2017

            
 

 

 

  Formation of the Global Medicines Council was proposed in meetings in Geneva, Switzerland and Tremblant, Canada, beginning in 2011. The concept was further elaborated at an experts working group meeting in Tallahassee, USA, in March 2017. Details regarding the Tallahassee meeting can be found here.