EC competition law and parallel trade in pharmaceuticals- Time for a new approach?

Parallel trade in goods is generally viewed as a positive phenomenon within the EU as a consequence of the principle free movement of goods: When traders buy goods in one part of the common market at a low price and transfer it to a higher priced area, allowing them to undercut those prices, then this will enhance competition, drive down prices and give consumers more choice- an overall positive effect. Traditionally, the pharmaceuticals market has not been treated any differently and the Community institutions have for many years encouraged pharmaceutical parallel trade without listening to concerns voiced by the industry that the pharmaceuticals market is characterised by special conditions setting it apart from all other markets. These include the fact that prices are not feely determined by the industry and that regulation occurs at a national level. Consequently, it is artificial to treat this sector as a single market, when the conditions of pricing, reimbursement, sale and prescription vary so dramatically between Member States. Pharmaceutical manufacturers argue that parallel trade is eroding their R&amp&semicD budget, which has led to much of the new innovation industry moving abroad, particularly to the US, and that the European Union is losing competitiveness on the global scene. Not only does this have detrimental economic effects but will also impact social welfare and efficient health care provision. This paper therefore analyses the approach taken by the Institutions toward parallel trade in the field of competition law. Article 81 EC and Article 82 EC have consistently been used as vehicles to prevent manufacturers from restricting parallel trade, but the Courts are now for the first time considering their arguments. In Bayer Joined cases C-2/01 P and C-3/01 P Bundesverband der Arzneimittel-Importeure v Commission [2004] January 6 2004, the ECJ recognised that the Commission had been abusing its position as a quasi-legislator by adopting a very strict formalistic approach to Article 81 EC in order to protect parallel traders. It held that using competition provisions to introduce price harmonisation through the back door was unacceptable. The Advocate General in Syfait C-53/03 Synetairismos Farmakopoion &amp&semic Akarnias ( Syfait) and Others v GlaxoSmithKline Opinion of Advocate General Jacobs 28 October 2004 reached a similar conclusion with regard to Article 82 EC, holding that the Treaty provisions did not represent a per se prohibition on restrictions to parallel trade, and that such restrictions could in certain circumstances be justified: manufacturers needed to be able to defend their economic interests in light of the divided markets across the EU. If this line of reasoning is followed, it could represent an important shift away from the traditional approach and could pave the way for a political consensus being reached and a more acceptable solution being found. This is crucially important at this stage, after the recent eastwards enlargement, which greatly expanded the market to include areas of comparatively low GDP and pricing. Although those areas are now protected by a 'specific mechanism', it would be helpful to have a clear policy to follow