The EC Pharmaceutical Report
The 2008 EC Sector Inquiry Regarding Pharmaceuticals: What Does It Mean from a Research-Based Company Perspective?
A sector inquiry is never pleasant for the sector involved. It is much like going to the dentist for a checkup. The best possible result is that after all is said and done, nothing was wrong and life can go on. Well, this checkup began with a bang. On January 16, 2008, the European Commission launched a sector inquiry by staging a series of dawn raids on a number of pharmaceutical companies, with no suggestion of specific wrongdoing. The expressed reasons for the inquiry are puzzling.
One reaction to the pharmaceuticals sector inquiry, particularly from the originator side of the industry, has been to question the need for the investigation. What is certain is that the Commission has set itself a challenging task. It has chosen to investigate a number of competition law issues that are likely to pose substantial legal and evidential difficulties. However, the sector, and originators in particular, cannot afford to be complacent. Information already in the public domain suggests that the industry probably should not expect to be given a clean bill of health.
The EC Pharmaceutical Inquiry: Behind the Headlines, What is the Real Story on Innovation and Generic Competition in Pharmaceuticals?
While the pharmaceutical sector waits for the European Commission’s interim report and hearing scheduled for November 28, 2008, there is an opportunity to step back and examine critically the premise of the inquiry—started infamously with dawn raids on January 16, 2008—that, as Commissioner Kroes announced, â€œif innovative products are not being produced, and cheaper generic alternatives â€¦ delayed, then we need to find out why and, if necessary, take action.â€
This article draws on experience of recent inquiries by the European Commission and the CC to compare the purpose and scope of their market inquiries, as well as to contrast the approach of the two authorities.
The EC’s Investigation into the Pharmaceutical Sector: Trouble Ahead at the IP/Competition Intersection?
Efforts by innovative pharmaceutical companies to protect their markets against generic drugs have generated a wide-ranging debate over how to achieve the proper balance between these companies’ legitimate interests in reaping the full rewards of their research and development (R&D) efforts and the public’s interest in having access to cheaper drugs. In Europe, this debate has largely centered on issues relating to healthcare policy, national pricing, and reimbursement policies, and the overall pharmaceutical regulatory regime. To date, competition law has not played a prominent role in this debate.
Section 5 Review
The Federal Trade Commission’s (“FTC”) powers under Section 5 of the FTC Act are often misperceived, often by the enforcers themselves. Too often in the past, the FTC has perceived itself as the younger sister of the Antitrust Division of the Department of Justice (“DOJ”), measuring its success and activities based on the enforcement agenda and approach of the Antitrust Division. There have been times when the FTC has focused its efforts, like the Antitrust Division, on federal court litigation, and in doing so, has failed to perceive and fully utilize its unique range of statutory and adjudicative powers.
The basic question I am addressing concerns the wisdom of using the “unfair method of competition” prong of Section 5 of the Federal Trade Commission Act to prohibit conduct that does not violate the Sherman Act or the other antitrust statues (the Clayton Act and the Robinson-Patman Act, all of which are collectively referred to herein as the “antitrust laws”). I will address that question as a policy matter.
As this is published, the United States has just elected a new President. No matter who won, it is likely that the federal antitrust enforcement agencies—the Department of Justice’s Antitrust Division (“DOJ”) and the Federal Trade Commission (“FTC”)—will become more aggressive in their enforcement agendas. With the DOJ, that is most likely to manifest itself in somewhat more aggressive merger enforcement. Absent something crazy, that is a path we have been down before without systemic damage to the economy. Of course, those parties whose mergers are attacked are not happy, but it seems pretty unlikely that the change here will be more than marginal from a broad economic perspective. On the FTC front, however, there is the risk of something more dangerous.