Insights / November 7th, 2018

Pfizer’s pharmacy supply models and rebate scheme not in breach of the Competition and Consumer Act

Since 1987, Pfizer Australia Pty Ltd (“Pfizer”) was the owner of the Australian patent for atorvastatin, a pharmaceutical it manufactured for the treatment of high cholesterol. For some time atorvastatin was supplied under the brand label Lipitor, and shortly before the patent’s expiry in 2012, Pfizer commenced supply of a generic (non-branded) label of atorvastatin. This was in anticipation of the expiry of the patent, and the subsequent inflow of competitor products.

In anticipation of this inflow, Pfizer also established:

  1. A supply model whereby Pfizer would directly supply community pharmacies with Lipitor and generic label atorvastatin, instead of doing so through wholesalers.

  2. An “accrual funds scheme” whereby Pfizer would pay rebates to community pharmacies based on how much Lipitor or generic label atorvastatin those pharmacies purchased from Pfizer.

ACCC’s claim

The Australian Competition and Consumer Commission (“ACCC”) commenced proceedings in the Federal Court, alleging that by implementing the supply model and accrual funds scheme identified above, Pfizer was in contravention of section 46(1)(c) of the Competition and Consumer Act 2010 (Cth) (“CCA”) by:

  1. taking advantage of the substantial degree of market power it held in the market; and

  2. doing so for the purposes of deterring or preventing generic manufacturers from engaging in competitive conduct in the market after the atorvastatin patent expired.

The ACCC’s claim concerned the market for the supply of atorvastatin to, and the acquisition of atorvastatin by, community pharmacies in Australia.

Full Court decision

Did Pfizer take advantage of the substantial degree of market power it held in the market?

Yes. The Full Court agreed with the ACCC that Pfizer had a substantial degree of market power, and that by introducing the new supply model and an accrual funds scheme, Pfizer took advantage of its substantial market power.

But was Pfizer’s conduct for the purpose of deterring or preventing competitive conduct?

No. The Full Court affirmed the primary judge’s findings that the ACCC’s claim did not prove that Pfizer’s conduct was substantially for the purpose of deterring or preventing competition. Rather, Pfizer did so to ensure that it remained competitive in the market. The new supply model was established so that Pfizer could minimise the impact of the inevitable price erosion once competitors entered the market upon the patent’s expiry and forced Pfizer to lower its prices.

In October, the High Court dismissed the ACCC’s application for special leave to appeal the Full Court’s decision.

Further developments

Since the ACCC’s initial claim, section 46 of the CCA was revised in 2017 to contemplate conduct that has the effect or likely effect of substantially lessening competition, not just conduct that has the purpose of substantially lessening competition. This should capture more conduct, because it will no longer be necessary for the conduct to be deliberately designed with the purpose of anti-competitive behaviour — mere effect will suffice.

The Full Federal Court’s findings are still a timely reminder to market participants that the ACCC is closely monitoring market activity and relationships between suppliers, sellers and customers. Supply agreements that are commercially attractive but aggressively competitive may fall afoul of the CCA, and be subject to scrutiny by the ACCC.

If you have any questions about your supply agreements and rebate schemes, or your legal obligations more broadly, please do not hesitate to contact Megan Jongebloed or a member of our Competition and Consumer Law team.

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