French appeal court reverses Glaxo predation decision

Appeal court judgment (16 pages in French, PDF) reversing the Conseil de la concurrence decision that the pharmaceutical company GSK had committed predatory abuse through below-cost pricing of Zinnat (an antibiotic for surgery-induced infections).

The court endorses the Conseil's analysis of costs, including that GSK was not entitled to claim that the high transfer prices paid by its French business to its Swiss business (presumably for tax reasons) were irrelevant to the Akzo cost test.

The basis for the court's reversal of the finding of abuse is that the Conseil had not satisfactorily proved its assertion that below-cost pricing of one drug was part of a GSK strategy to establish a reputation for aggressivity so as to deter future competition in other markets. In reaching this view, the court relies on:

The matter may be appealed to the French supreme court (Cour de cassation).

Comment, 22 April 2008: The Conseil's cost analysis, which survives the appeal court ruling, concluded that prices were below variable costs. The ECJ said at paragraph 71 of Akzo that “prices below average variable costs .... by means of which a dominant undertaking seeks to eliminate a competitor must be regarded as abusive”. I wonder whether the GSK case could have been decided on the basis of that first leg of the Akzo test: condemning the below-cost pricing behaviour simply because its object was to eliminate a competitor. But instead of that, the Conseil decided to launch into a general discussion (paragraphs 256-281 of the decision) on economic theories of predation and the alleged effects of GSK's strategy, drawing parallels with the strategy condemned in the Akzo case. That speculative section of the decision provided ample ammunition for GSK in this appeal. Franck

For further information or advice please contact Franck Latrémolière.

Filed under Article 82, Conseil de la concurrence, France, Healthcare.

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