The European Court of First Instance has held that the European Commission was correct in deciding that GlaxoSmithKline's General Sales Conditions in Spain restricted competition by preventing the price and the cost of medicines from falling. However, the Court called the Commission's reasoning into question, in particular the Commission making assumptions that these agreements breach EC Law.
A Spanish subsidiary of GlaxoSmithKline (GSK), one of the world’s leading producers of pharmaceutical products, notified to the Commission an agreement relating to the sale of medicines to wholesalers, seeking confirmation on whether it was infringing EC law by being anti-competitive. GSK had introduced General Sales Conditions, which stipulated that its medicines would be sold to Spanish wholesalers at prices differentiated according to the place of resale. That system was introduced in order to limit parallel trade in medicines between Spain and other Member States, in particular the United Kingdom, where prices are fixed at a higher level.
GSK had notified those General Sales Conditions to the Commission in order to obtain a decision declaring that they were not prohibited by Community competition law (Article 81(1) EC) or, failing that, a decision granting them an exemption (Article 81(3) EC) as an agreement contributing to promoting technical progress. The Commission decided that because they constituted an agreement in restriction of competition, the General Sales Conditions were prohibited by Community competition law. The Commission also rejected the exemption request.
On appeal the European Court of First Instance held that whilst the Commission decision was correct, the Commission’s analysis was invalid in part. The Commission had been wrong to assume that an agreement containing an export ban, dual pricing system, or other limitation of parallel trade, was per se anti-competitive. Agreements should always be analysed by reference to their legal and economic context before making a decision on them. This did not mean that such agreements would be lawful however, and in this particular case, the Court agreed that taken in its context the Conditions were anti-competitive and infringed Article 81(1), as they had the effect of preventing final consumers in countries other than Spain from taking advantage of reduced prices and costs which would otherwise be offered by Spanish wholesalers.
Lastly, the Court found that the Commission had not carried out an adequate examination of GSK’s request for an exemption. In particular it had not assessed GSK's evidence that parallel trade has adverse effects on Research & Development and has no benefit to the consumer. Therefore, the Commission was ordered to reconsider GSK's request.