Australia: European Developments: To Regulate Or Not To Regulate - That Is The Question?

Last Updated: 12 October 2009
Article by Amanda Turnill

Key Points:
Australian manufacturers and suppliers who export products to the EU should keep in mind that reforms across a number of fronts could have an impact on their business.

"We must have more competition and less red tape in pharmaceuticals. The sector is too important to the health and finances of Europe's citizens and governments to accept anything less than the best. The inquiry has told us what is wrong with the sector, and now it is time to act. When it comes to generic entry, every week and month of delay costs money to patients and taxpayers. We will not hesitate to apply the antitrust rules where such delays result from anticompetitive practices. The first antitrust investigations are already underway, and regulatory adjustments are expected to follow dealing with a range of problems in the sector".

This statement from the European Commissioner for Competition, Neelie Kroes, reflects the European Commission's (EC) findings from the recent inquiry into the pharmaceutical sector under EC antitrust law. This is one of a number of critical developments in Europe which highlight a trend towards increasing regulation of the industry, and call for regulatory reform on a number of fronts. Here we examine those recent developments, and their potential impact for Australian pharma.

Antitrust regulation

The EC's antitrust inquiry into the pharmaceutical sector began in earnest back in January 2008 after concerns were raised by the EC that it had observed both:

  • a decline in the introduction of novel medicines in the EU; and
  • notable delays for generic products to come onto the market.

A preliminary report was first published by the EC on 28 November 2008 and, following public consultation, the final report on competition in the pharmaceutical sector was adopted on 8 July 2009.

The report found that competition in the pharmaceutical sector was not working as effectively as it should, with both delays to market entry of generic medicines, and a decline in innovation with less new medicines reaching the market each year.

This position was considered unacceptable by the EC which has proposed various remedial steps including:

  • the application of increased scrutiny under EC competition law to the sector and bringing specific cases where appropriate; and
  • the creation of a single community patent and specialised patent litigation system to reduce administrative problems for companies.

Further, the EC is urging Member States to:

  • accelerate approvals of generic medicines and to take action against any steps designed to prevent generic medicines from entering the market; and
  • streamline trials that test the "added value" of novel medicines.

These developments are significant for Australian companies supplying generic medicines in the European Union (EU). The potential for the reduction of barriers may bring new opportunities.

Outside of the inquiry, specific enforcement action is already underway in a number of cases. Highly publicised "dawn raids" were carried out at a number of companies in different member states suggesting a trend towards increased anti competitive regulation. Only time will tell if this trend continues.

Collective redress - Europe

In addition to the potential for change in the competition arena, the issue of collective redress still remains on the reform agenda in Europe.

In the April 2008 edition of Insights we examined the possible move towards a collective redress system in the EU. We noted that the EC had been examining the problems faced by consumers when attempting to obtain redress for a breach of their rights and that reform of the redress system has significant implications for the business community.

The EC expressed the view that individuals often refrained from bringing individual claims to court due to the costs involved and the difficulty met in sustaining such claims. Further, with only 13 member states providing for collective redress, difficulties arise for consumers attempting to take such action.

Since then, in November 2008, the EC (through the Directorate General for Health and Consumer Protection (DG SANCO)) published a Green Paper on Collective Redress in order to address the problems faced by consumers in the EU with the stated intention to:

assess the current state of redress mechanisms, in particular in cases where many consumers are likely to be affected by the same legal infringement, and to provide options to close any gaps to effective redress identified in such cases.

The Green Paper sets out four options when considering reform:

  • taking no immediate action;
  • encouraging cooperation between EU Member States to extend national collective redress systems to consumers from other Member States (without a collective redress mechanism available to them);
  • introducing policy instruments to strengthen consumer redress; and
  • introducing binding or non binding measures for collective redress judicial procedures that would operate in all Member States, including the potential for an opt-out form of collective redress mechanism.

Following publication of the Green Paper, the EC invited comments from stakeholders, consumers and interested parties on the impact of the proposed options in the Green Paper. Those specific comments and feedback from stakeholders (which are now available) go beyond the scope of this article.

Significantly, DG SANCO also published a consultation paper to follow up on the Green Paper. This contained an analysis of the options in the light of replies to the Green Paper and introduced additional options addressing the question of redress, for example, "an EU-wide judicial collective redress mechanism including collective ADR". Relevantly, this paper saw a shift in focus by DG SANCO from the suggestion in the Green Paper of an opt-out form of collective redress system, to more of a test case style procedure in the context of the judicial mechanism.

A summary of the contributions to DG SANCO's consultation paper has since been published, based on responses received by 24 July 2009. Broadly speaking, industry representatives stated that there was insufficient evidence to demonstrate the scale of the problem within Europe, whereas consumer representatives tended to highlight the cross-border difficulties that would arise when seeking to join a collective action across member states. Of those who responded to the paper, most consumers, legal practitioners and one EU Member State supported community intervention. At the other end of the spectrum, industry representatives who responded were content with maintaining the status quo.

Division over the most appropriate mechanism will continue to fuel the debate in Europe about how to ensure that mass consumer claims can be effectively managed. We await further action from the EC. In the meantime, Australian manufacturers and suppliers which export products to the EU should keep in mind that reform could have an impact on litigation risk in Europe.

We will continue to monitor European developments and provide further updates in Insights.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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