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ECJ rules against GSK in parallel trade case

The European Court of Justice has ruled against GSK in the Greek parallel trade case, citing the firm for being in breach of EU competition law by refusing to meet ordinary orders for medicinal products.

The European Court of Justice (ECJ) has ruled against GlaxoSmithKline (GSK) in the Greek parallel trade case, citing the firm for being in breach of EU competition law by refusing to meet ordinary orders for medicinal products.

GSK was hoping to put a stop to parallel exports of its products and in November 2000 stopped meeting the orders of Greek wholesalers, who distribute the company's medicinal products in Greece and other member states. Claiming that there was a shortage of products at the time, GSK began to distribute products itself directly to Greek hospitals and pharmacies.

According to the ECJ, a pharmaceutical company is abusing its dominant position if it refuses to meet ordinary wholesaler orders in order to prevent parallel exports. However, the ECJ also ruled that it is up to individual countries' courts to decide whether orders were ordinary. They will have to decided, based on previous relations between the drug companies and wholesalers, whether orders are ordinary and take into account the size of the orders in relation to the market needs of the respective countries.

"The ongoing legal battle between drug wholesalers and pharma companies about restrictions on so called parallel trade enters a new phase of uncertainty following today's ruling by the ECJ," said Edward Miller, partner in competition team at international law firm Reed Smith. "The European Court was clearly not impressed with arguments that drug companies' refusal to supply parallel traders for export was justified by differential national reimbursement prices imposed on drug companies by state social security authorities."

Miller explained that the ECJ ruling did offer a move forward for the pharmaceutical industry in stating that drug companies can refuse to supply unusual orders from wholesalers. But the court did stipulate that a refusal to supply based only on the fact that the order was for export rather than domestic sale would be unlawful.

"Overall, this looks like another piece of rather clumsy sidestepping of this key issue by the European Court," said Miller. "The result will be more litigation and more uncertainty in the market as to the permissible scope of parallel trade. In short – business as usual."

30th September 2008

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