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A Critical Analysis of DG Competition's Preliminary Sector Report

Schwartz, Robert (2009)
Department of Law
Abstract
On January 16, 2008 DG Competition announced the initiation of a Sector Inquiry Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (Text with EEA relevance) OJ L 1, 04/01/2003 p. 1 (''Regulation 1'') Article 17. into the Pharmaceutical Industry which it had begun by conducting unannounced ''Dawn Raids'' See Regulation 1 Article 20. the day prior at a number of Pharmaceutical companies. The key premise for the Inquiry as announced by Commissioner Neelie Kroes Neelie Kroes, Commission launches sector inquiry into pharmaceuticals, Introductory remarks at press conference, Brussels, 16th January 2008, SPEECH/08/18 (the ''January 16... (More)
On January 16, 2008 DG Competition announced the initiation of a Sector Inquiry Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (Text with EEA relevance) OJ L 1, 04/01/2003 p. 1 (''Regulation 1'') Article 17. into the Pharmaceutical Industry which it had begun by conducting unannounced ''Dawn Raids'' See Regulation 1 Article 20. the day prior at a number of Pharmaceutical companies. The key premise for the Inquiry as announced by Commissioner Neelie Kroes Neelie Kroes, Commission launches sector inquiry into pharmaceuticals, Introductory remarks at press conference, Brussels, 16th January 2008, SPEECH/08/18 (the ''January 16 Speech'').Found at http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/08/18&amp&semicformat=HTML&amp&semicaged=1&amp&semiclanguage=EN&amp&semicguiLanguage=en Last visited April 5, 2009. was the Commission's concern that innovation in the industry was not proceeding as ''it should'' as measured by a drop in the introduction of novel medicines from previous years. Although the Commission has not alluded to earlier governmental investigations of the issue this appears have been a case of ''Deja vu, all over again'' See e.g. U.S. Government Accountability Office, New Drug Development: Science, Business, Regulatory, and Intellectual Property Issues Cited as Hampering Drug Development Efforts 1. Found at http://www.gao.gov/new.items/d0749.pdf Last visited March 26, 2009)(''GAO Report'') (Investigating possible causes of decrease in FDA submissions for NME's since 1995 despite 147% increase in R&amp&semicD spending.) October 2006 Congressional Budget Office Study Pub. No. 2589, Research and Development in the Pharmaceutical Industry. ( the ''CBO Study'') (Examining reasons for decline.) See also, Arti K. Rai, Jerome H. Reichman, Paul F. Uhlir, Colin Crossman, PATHWAYS ACROSS THE VALLEY OF DEATH: NOVEL INTELLECTUAL PROPERTY STRATEGIES FOR ACCELERATED DRUG DISCOVERY, 8 Yale J. Health Pol'y, L. &amp&semic Ethics 1 (Winter 2008) (''Valley of Death''.)(a phrase attributed to baseball player Yogi Berra.) The Commission surmised that the decline in bringing NME's to market might be due to potentially anti-competitive actions by originator companies See the January 16 Speech at p. 3. The information gathered will be used to look at two particular questions relating to the sector. First, the inquiry will look at agreements between pharmaceutical companies, such as settlements in patent disputes, to see whether they infringe the EC Treaty's prohibition on restrictive business practices. Second, the inquiry will look at whether companies have created artificial barriers to innovative or generic product entry, through the misuse of patent rights, vexatious litigation or other means, to see whether such practices infringe the EC Treaty's ban on abuses of dominant positions. (Emphasis added.). The Commission also sought information regarding whether anti-competitive commercial practices were used to delay generic competition with originator companies. The Commission's allusions to unilateral abuses of dominant position, misuses of public procedures and vexatious litigation in speeches and press releases were generally understood to mean that the Commission suspected the existence of widespread abuses of public procedure such as it had found in its case against AstraZeneca The Commission's Press release dated 16 January 2008 MEMO/08/20 Antitrust-sector inquiry into pharmaceuticals-frequently asked questions Why has the pharmaceuticals sector been selected for such an inquiry states ''Through its own monitoring of the sector as well as through specific cases (e.g. the AstraZeneca case-...the Commission has become concerned that competition may not be functioning optimally in the pharmaceutical sector.'' Found at http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/20&amp&semicformat=HTML&amp&semicaged=0&amp&semiclanguage=EN&amp&semicguiLanguage=en Last visited April 1, 2009. (''Commission 16 January Press Release'').. On November 28, 2008 the Commission released its 426 page Preliminary Sector Report Pharmaceutical Sector Inquiry Preliminary Report (DG Staff Working Paper) 28 November 2008. Found at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/exec_summary_en.pdf (Last visited March 1, 2009) (the ''Sector Report''.). The Preliminary Report did not make any findings as to its original question, the alleged slowdown in the introduction of novel medicines. The only finding related in any way was the somewhat counterintuitive argument that originator firms created ''patent thickets'' of secondary patents to prevent other originators from patenting similar medicinal products. This appears to be an elision of the original problem namely, why fewer New Molecular Entities (''NME's'') or New Chemical Entities (''NCE's) were coming to market. (Surprisingly, notwithstanding an abundance of evidence of the same pattern of decline in the approval of NCE's in the US, the Sector Inquiry did not examine the US experience for evidence of some other causal factor See,e.g., The GAO Report and the CBO Study. See also, Frederic.M. Scherer, Pharmaceutical Innovation, AEI-Brookings Center for Regulatory Studies Working Paper 07-13 (June 2007) Figure 2 at p. 47. Found at http://ssrn.com/abstract=902395 Last visited April 1, 2009. (''Scherer.'') (Graph showing approval of NCE's in the US 1970-2005.).) Secondary patents, the subject of the alleged Patent Thickets, appear to have nothing to do with NME's. The Report failed to show how Patent Thickets could block anything other than minor changes from the originator drug or manufacturing processes. The fact that more patents are being filed would also appear to indicate that innovative improvements of some kind are being made. The Preliminary Report also failed to mention any abuse of dominance cases similar to AstraZeneca by other Originators and did not investigate instances of vexatious or at least aggressive litigation by Generic producers. Instead, it analyzed originator/generic disputes and litigation from the point of view of originator commercial practices which the Commission named ''tool box'' whose purpose, (according to the Commission) was to deter originators from creating ''me too'' drugs and generic market entry. This change in focus resulted in a number of recommendations and hints by the Commission with respect to its taking action against the use of such ''tool boxes'' The Commission previously perjoratized normal business practices by using a similar term ''toolkit for dominance'' to describe GE's access to capital in Commission Decision 2004/134/EC of 3 July 2001 in Case No. COMP/M.2220 General Electric/Honeywell OJ 2004 L 48, p. 1. The use of the term ''toolkit'' unleashed a storm of criticism, not the least from the U.S Department of Justice. See, William J. Kolasky, Conglomerate Mergers and Range Effects: It's a Long Way from Chicago to Brussels, Address before the George Mason University Symposium, November 9, 2001. Found at http://www.usdoj.gov/atr/public/speeches/9536.htm (Last visited February 8, 2009.). The outgoing FTC Commissioner has already made a public speech regarding the Report's ''tool boxes'' distinguishing between anticompetitive and lawful uses of its tools J. Thomas Rosch, THE EC'S PHARMACEUTICAL SECTOR INQUIRY PRELIMINARY REPORT--WADING INTO THE THICKET OF THE ANTITRUST/INTELLECTUAL PROPERTY LAW OVERLAP, FIW - Innsbruck Symposium on Innovation and Competition Law, February 26, 2009, Found at www.ftc.gov/speeches/rosch/090226innsbruck.pdf Last visited April 15, 2009, 2009 WL 576145 (F.T.C.) (''Wading into the Thicket'') (Commissioner Rosch interprets some of the Report's originator tools as consisting of such elements as ''repeated meritless infringement'' actions.). The recommendations include changes to the patent system and restrictions on originators' abilities to use commercial practices such as IPR strategies. The Preliminary Sector Report's changed focus appears to regard increased originator versus generic competition as an appropriate commercial model for innovation. This is puzzling as the generics' business model is to manufacture drugs after the originator's Exclusive Marketing periods end. The Report approaches the innovation problem by wishing to level the playing field between Originators and Generic producers during even the Originators' exclusive IPR periods. While decrying various originator practices as ''tool boxes'' to deter generic entry the Report fails to examine similar practices by generics. The Commission's recommendations appear to discourage, rather than encourage, investment in innovation in the name of lowering consumer prices. While the Commission has no competence to alter patent law it makes recommendations for significant changes to it. It eschews, as outside of its competence, any attempt to examine the cost of pricing and marketing regulations in the 27 Member States (except to examine originator actions.) The Sector Report makes no examination of generic versus generic competition, an area that is within its competence and relevant to the sector's operation. Finally, the Report fails to distinguish between New Chemical Entities and Biologic Entities, the fastest growing segment of new therapeutics in which a substantial role is played by SME's. These acts and omissions in an ostensibly objective inquiry are puzzling and create questions regarding the information upon which the Report's recommendations are based. It appears to me that the Commission had not read Aesop's Fable ''The Goose That Laid the Golden Egg I confess to emulating the Rt Hon. Sir Robin Jacobs, whose November 29, 2008 Speech at DG Competition's presentation of the Preliminary Sector Report cautioned those arguing after the fact that pharmaceutical prices are too high by quoting ''The Pied Piper of Hamlin''. See, e.g. Rt. Hon. Sir Robin Jacobs, Patents and Pharmaceuticals-A Paper given on 29th November 2008 at the Presentation of the Directorate General Competition's Preliminary Report of the Pharma-sector inquiry. Found at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/index.html Last visited March 23, 2009) (the ''Sir Robin Jacobs Speech''.) Milord, I plead guilty - with an explanation.'' before it espoused its model of originator/generic competition. (Less)
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author
Schwartz, Robert
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organization
year
type
H2 - Master's Degree (Two Years)
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keywords
European Business Law
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English
id
1555376
date added to LUP
2010-03-08 15:23:31
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@misc{1555376,
  abstract     = {On January 16, 2008 DG Competition announced the initiation of a Sector Inquiry Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (Text with EEA relevance) OJ L 1, 04/01/2003 p. 1 (''Regulation 1'') Article 17. into the Pharmaceutical Industry which it had begun by conducting unannounced ''Dawn Raids'' See Regulation 1 Article 20. the day prior at a number of Pharmaceutical companies. The key premise for the Inquiry as announced by Commissioner Neelie Kroes Neelie Kroes, Commission launches sector inquiry into pharmaceuticals, Introductory remarks at press conference, Brussels, 16th January 2008, SPEECH/08/18 (the ''January 16 Speech'').Found at http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/08/18&amp&semicformat=HTML&amp&semicaged=1&amp&semiclanguage=EN&amp&semicguiLanguage=en Last visited April 5, 2009. was the Commission's concern that innovation in the industry was not proceeding as ''it should'' as measured by a drop in the introduction of novel medicines from previous years. Although the Commission has not alluded to earlier governmental investigations of the issue this appears have been a case of ''Deja vu, all over again'' See e.g. U.S. Government Accountability Office, New Drug Development: Science, Business, Regulatory, and Intellectual Property Issues Cited as Hampering Drug Development Efforts 1. Found at http://www.gao.gov/new.items/d0749.pdf Last visited March 26, 2009)(''GAO Report'') (Investigating possible causes of decrease in FDA submissions for NME's since 1995 despite 147% increase in R&amp&semicD spending.) October 2006 Congressional Budget Office Study Pub. No. 2589, Research and Development in the Pharmaceutical Industry. ( the ''CBO Study'') (Examining reasons for decline.) See also, Arti K. Rai, Jerome H. Reichman, Paul F. Uhlir, Colin Crossman, PATHWAYS ACROSS THE VALLEY OF DEATH: NOVEL INTELLECTUAL PROPERTY STRATEGIES FOR ACCELERATED DRUG DISCOVERY, 8 Yale J. Health Pol'y, L. &amp&semic Ethics 1 (Winter 2008) (''Valley of Death''.)(a phrase attributed to baseball player Yogi Berra.) The Commission surmised that the decline in bringing NME's to market might be due to potentially anti-competitive actions by originator companies See the January 16 Speech at p. 3. The information gathered will be used to look at two particular questions relating to the sector. First, the inquiry will look at agreements between pharmaceutical companies, such as settlements in patent disputes, to see whether they infringe the EC Treaty's prohibition on restrictive business practices. Second, the inquiry will look at whether companies have created artificial barriers to innovative or generic product entry, through the misuse of patent rights, vexatious litigation or other means, to see whether such practices infringe the EC Treaty's ban on abuses of dominant positions. (Emphasis added.). The Commission also sought information regarding whether anti-competitive commercial practices were used to delay generic competition with originator companies. The Commission's allusions to unilateral abuses of dominant position, misuses of public procedures and vexatious litigation in speeches and press releases were generally understood to mean that the Commission suspected the existence of widespread abuses of public procedure such as it had found in its case against AstraZeneca The Commission's Press release dated 16 January 2008 MEMO/08/20 Antitrust-sector inquiry into pharmaceuticals-frequently asked questions Why has the pharmaceuticals sector been selected for such an inquiry states ''Through its own monitoring of the sector as well as through specific cases (e.g. the AstraZeneca case-...the Commission has become concerned that competition may not be functioning optimally in the pharmaceutical sector.'' Found at http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/20&amp&semicformat=HTML&amp&semicaged=0&amp&semiclanguage=EN&amp&semicguiLanguage=en Last visited April 1, 2009. (''Commission 16 January Press Release'').. On November 28, 2008 the Commission released its 426 page Preliminary Sector Report Pharmaceutical Sector Inquiry Preliminary Report (DG Staff Working Paper) 28 November 2008. Found at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/exec_summary_en.pdf (Last visited March 1, 2009) (the ''Sector Report''.). The Preliminary Report did not make any findings as to its original question, the alleged slowdown in the introduction of novel medicines. The only finding related in any way was the somewhat counterintuitive argument that originator firms created ''patent thickets'' of secondary patents to prevent other originators from patenting similar medicinal products. This appears to be an elision of the original problem namely, why fewer New Molecular Entities (''NME's'') or New Chemical Entities (''NCE's) were coming to market. (Surprisingly, notwithstanding an abundance of evidence of the same pattern of decline in the approval of NCE's in the US, the Sector Inquiry did not examine the US experience for evidence of some other causal factor See,e.g., The GAO Report and the CBO Study. See also, Frederic.M. Scherer, Pharmaceutical Innovation, AEI-Brookings Center for Regulatory Studies Working Paper 07-13 (June 2007) Figure 2 at p. 47. Found at http://ssrn.com/abstract=902395 Last visited April 1, 2009. (''Scherer.'') (Graph showing approval of NCE's in the US 1970-2005.).) Secondary patents, the subject of the alleged Patent Thickets, appear to have nothing to do with NME's. The Report failed to show how Patent Thickets could block anything other than minor changes from the originator drug or manufacturing processes. The fact that more patents are being filed would also appear to indicate that innovative improvements of some kind are being made. The Preliminary Report also failed to mention any abuse of dominance cases similar to AstraZeneca by other Originators and did not investigate instances of vexatious or at least aggressive litigation by Generic producers. Instead, it analyzed originator/generic disputes and litigation from the point of view of originator commercial practices which the Commission named ''tool box'' whose purpose, (according to the Commission) was to deter originators from creating ''me too'' drugs and generic market entry. This change in focus resulted in a number of recommendations and hints by the Commission with respect to its taking action against the use of such ''tool boxes'' The Commission previously perjoratized normal business practices by using a similar term ''toolkit for dominance'' to describe GE's access to capital in Commission Decision 2004/134/EC of 3 July 2001 in Case No. COMP/M.2220 General Electric/Honeywell OJ 2004 L 48, p. 1. The use of the term ''toolkit'' unleashed a storm of criticism, not the least from the U.S Department of Justice. See, William J. Kolasky, Conglomerate Mergers and Range Effects: It's a Long Way from Chicago to Brussels, Address before the George Mason University Symposium, November 9, 2001. Found at http://www.usdoj.gov/atr/public/speeches/9536.htm (Last visited February 8, 2009.). The outgoing FTC Commissioner has already made a public speech regarding the Report's ''tool boxes'' distinguishing between anticompetitive and lawful uses of its tools J. Thomas Rosch, THE EC'S PHARMACEUTICAL SECTOR INQUIRY PRELIMINARY REPORT--WADING INTO THE THICKET OF THE ANTITRUST/INTELLECTUAL PROPERTY LAW OVERLAP, FIW - Innsbruck Symposium on Innovation and Competition Law, February 26, 2009, Found at www.ftc.gov/speeches/rosch/090226innsbruck.pdf Last visited April 15, 2009, 2009 WL 576145 (F.T.C.) (''Wading into the Thicket'') (Commissioner Rosch interprets some of the Report's originator tools as consisting of such elements as ''repeated meritless infringement'' actions.). The recommendations include changes to the patent system and restrictions on originators' abilities to use commercial practices such as IPR strategies. The Preliminary Sector Report's changed focus appears to regard increased originator versus generic competition as an appropriate commercial model for innovation. This is puzzling as the generics' business model is to manufacture drugs after the originator's Exclusive Marketing periods end. The Report approaches the innovation problem by wishing to level the playing field between Originators and Generic producers during even the Originators' exclusive IPR periods. While decrying various originator practices as ''tool boxes'' to deter generic entry the Report fails to examine similar practices by generics. The Commission's recommendations appear to discourage, rather than encourage, investment in innovation in the name of lowering consumer prices. While the Commission has no competence to alter patent law it makes recommendations for significant changes to it. It eschews, as outside of its competence, any attempt to examine the cost of pricing and marketing regulations in the 27 Member States (except to examine originator actions.) The Sector Report makes no examination of generic versus generic competition, an area that is within its competence and relevant to the sector's operation. Finally, the Report fails to distinguish between New Chemical Entities and Biologic Entities, the fastest growing segment of new therapeutics in which a substantial role is played by SME's. These acts and omissions in an ostensibly objective inquiry are puzzling and create questions regarding the information upon which the Report's recommendations are based. It appears to me that the Commission had not read Aesop's Fable ''The Goose That Laid the Golden Egg I confess to emulating the Rt Hon. Sir Robin Jacobs, whose November 29, 2008 Speech at DG Competition's presentation of the Preliminary Sector Report cautioned those arguing after the fact that pharmaceutical prices are too high by quoting ''The Pied Piper of Hamlin''. See, e.g. Rt. Hon. Sir Robin Jacobs, Patents and Pharmaceuticals-A Paper given on 29th November 2008 at the Presentation of the Directorate General Competition's Preliminary Report of the Pharma-sector inquiry. Found at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/index.html Last visited March 23, 2009) (the ''Sir Robin Jacobs Speech''.) Milord, I plead guilty - with an explanation.'' before it espoused its model of originator/generic competition.},
  author       = {Schwartz, Robert},
  keyword      = {European Business Law},
  language     = {eng},
  note         = {Student Paper},
  title        = {A Critical Analysis of DG Competition's Preliminary Sector Report},
  year         = {2009},
}