Legal limbo as EU court ducks parallel trade issue

Date: 20/07/05

The controversy between the pharmaceutical industry and parallel traders continues after a recent court case at the European Court of Justice (ECJ) failed to produce a definitive ruling. But lawyers predict that future cases will provide more clarity.

There have been many court cases between pharmaceutical companies and parallel traders, but this one was different. Everyone expected it to provide a clear legal view.

The battle was over a decision by GlaxoSmithKline's (GSK) Greek subsidiary to stop supplying some products to Greek wholesalers and instead sell them directlyto hospitals and pharmacists. This prevented parallel traders from buying up the extra stocks and selling them at a profit in countries where prices are higher than those in Greece. Greece is one of the cheapest countries for pharmaceuticals.

In December last year, a groundbreaking opinion delivered by Advocate General Francis Jacobs boosted GSK's position. Recognising that prices are imposed on the drugs industry as part of their public service obligation, he said that limiting parallel trade was not an abuse of GSK's position but an attempt to avoid the consequences of forced pricing.

Buoyed by this decision, the drugs industry waited impatiently - and parallel traders fearfully - for the European Court of Justice to follow the advocate general's decision as it does in most cases.

Instead, on 31 May the ECJ said that it had no competence to rule in the case because it was brought by the Greek competition authorities rather than a court. "The court was very clever in backing away from any decision in such a difficult area," says one Brussels-based lawyer.

Though the case fell flat, it has opened old wounds in the long-running battle between the pharmaceutical industry and parallel traders.

The drugs companies claim that parallel trade takes advantage of a false free market because in reality they have no choice over the price at which they sell their drugs. It therefore hinders innovation by robbing them of money that would be spent on research and development.

Parallel traders argue that the drugs industry spends more on marketing than on R&D in any case and that, in fact, they have a wide negotiating margin when it comes to price-setting with the government.

Parallel traders expressed anger that the case had not changed the situation. "The court did not uphold the advocate general's decision and yet what it has meant in practice is that the pharmaceutical industry is using this to stand outside competition law," says one industry source. He said that parallel trade was a "natural outcome of a free market".

A spokesperson for GSK says: "We were disappointed that the ECJ didn't take the opportunity to support the advocate general, as we believe that parallel trade in pharmaceutical products is of no benefit to patients and little if any to payers. But what it does do is harm the pharmaceutical industry's competitiveness."

The case has now been referred back to the Greek competition authorities. If there is a court case and the losing side decides to appeal, the case could eventually bounce back to the ECJ.

Lawyers say that the legal limbo will probably end with another similar case. "I think we'll see other cases where a body that the ECJ does see as competent will ask the same question and we'll get a definitive result," says one.

Article reports on a controversy between the pharmaceutical industry and parallel traders of medicines. The dispute was set to continue after the European Court of Justice (ECJ) said on 31 May 2005 that it had no competence to rule in a key case involving the Greek subsidiary of GlaxoSmithKline's (GSK) because it was brought by the Greek competition authorities rather than a court.