Pfizer Ltd and Flynn Pharma Ltd v. Competition and Markets Authority[2018] EWCA Civ 2341.

Case Identification 

This case was heard in the Court of Appeal (Civil Division), and the three justices handed down their judgement on December 11th, 2018. The Court of Appeal listed the case as ‘Pfizer Ltd and Flynn Pharma Ltd v. Competition and Markets Authority’ and can be cited by using [2018] EWCA Civ 2341. The respondent in this case was the Competition and Markets Authority (CMA), and the appellant was Flynn Pharma Ltd and Pfizer Ltd. The case was brought about due to competition issues, with the main legal issues surrounding the excessive pricing due to a dominant market position and whether an abuse of dominance had taken place. 

Procedural History 

This case has a long procedural history, which began in 2016 with the CMA’s Initial investigation. The CMA launched this initial investigation into both Flynn Pharma and Pfizer over concerns that they had engaged in excessive pricing for the epilepsy anti-convulsion drug Phenytoin Sodium. This investigation was launched under the Competition Act (1998) and concluded with the CMA’s preliminary decision in 2016, in which they provisionally found that Flynn Pharma and Pfizer had abused their dominant market position by charging excessively more for the Phenytoin medication, causing harm to both the National Health Service (NHS) as well as consumers. This decision was finalised in November 2016 with the CMA imposing fines on both Flynn Pharma and Pfizer (totalling £90 million) as well as requiring that the price of the drug be decreased to reasonable and competitive levels. 

Upon this ruling being handed down, both Flynn Pharma and Pfizer appealed to the Competition and Appeals Tribunal (CAT) in 2017. They contested both the factual findings of the case as well as the legal basis for the CMA’s decision, in which they placed particular emphasis on the claim of excessive pricing and that their pricing was, in fact, justifiable and that the CMA did not take into account the market conditions and legitimate costs involved in the sale of the drug. These claims were rebutted by the CAT, which rejected the appeal on the grounds that the price increase was excessive. They also emphasised that excessive pricing is prohibited under both the UK and EU competition law, particularly when it exploits vulnerable consumers and finally that the conduct by the pharmaceutical companies had disadvantaged both the NHS and individual patients who relied on the medication.

A further appeal was launched by both Flynn Pharma and Pfizer in 2018 to the Court of Appeal (COA) of England and Wales, in which they continued to argue that both the CMA and CAT’s rulings were incorrect on the basis of both factual findings as well as the legal application. The COA dismissed the appeal and held the CAT’s decision was correct in terms of both the legal and factual assessments that had taken place. 

The final appeal by both pharma companies came in 2022 in the Supreme Court of the United Kingdom. In which both companies upheld their innocence and argued that the increases in price were justified. This appeal, though, was based on considering what costs to award following an appeal before the CAT from an infringement decision of the CMA, and as such, is separate from that of the COA case that will be summarised in this article.

Facts  

The Pfizer and Flynn Pharma v CMA case heard in the Court of Appeals stemmed originally from an investigation into excessive pricing in the sale of Phenytoin Sodium, a drug used to treat epilepsy, launched by the CMA. After rulings from both the CMA and CAT against the big pharma companies, the involved parties brought their claim to the Court of Appeal in an attempt to overrule the past two decisions handed down. 

Contextual Facts: 

• Phenytoin Sodium is a prescription-only drug used to treat epilepsy, primarily by preventing seizures from taking place. It was originally marketed under the name Dilantin by Pfizer who obtained patents to exclusively produce and sell the drug.
• In 2012, after Pfizer’s patent had lapsed, Flynn Pharma acquired the rights to the drug in the UK from Pfizer. At the time, the medication was being produced as a generic drug by multiple pharmaceutical companies, although Flynn quickly became the sole supplier in the UK after the rights to the brand-name product were sold to Flynn.
• Following this, Flynn was able to set the same price of the drug, and given that they no longer had any competition, there was a significant increase in the cost of the medication.

The Price Increases:

• After taking over the supply of Phenytoin Sodium, Flynn raised the price of the drug by 2000%. Putting this into context, the price of a pack of 100 pills (at 100mg each) rose from £2.83 to £67.50.
• This increase was made even though there were no significant increases in production or distribution costs – this placed pressure on both individual consumers and the UK’s state health service, the NHS, who as suppliers of this drug to epilepsy patients had to absorb the increased costs.

Past Decisions:

• The CMA and CAT both held that these increases in price amounted to anticompetitive behaviour and that Flynn Pharma had taken advantage of their dominant market position which adversely affected consumers.

Appeal to the Court of Appeals:

• Both Flynn and Pfizer decided to continue their appeals, challenging the CMA and CAT’s decisions and bringing the claim to the COA in 2018.
• The grounds for the appeal as detailed by the appellants primarily revolved around the legal standards for excessive pricing in which they claimed that the CMA’s assessment of this was flawed.
• They also detailed that the CMA had not adequately considered legitimate economic justifications for the price increases and further to this that their pricing structure was not exploitative under competition law.
• In conjunction with the first point, they argued that the test for abuse of dominance in pricing should be more stringent and that the economic impact of the price increase should have been further assessed.   

Legal Issues 

Throughout the appeal, two main issues were prevalent in the Court’s judgement. Firstly, the question of whether the price increase was excessive and, furthermore, if the application of relevant competition law by the past bodies was correct. Both of these arguments were carefully considered by the court and can be seen throughout the full judgement. If the court found that either of the two arguments were true, the appeal would be successful, and the fines imposed by the CMA and upheld by the CAT would not be enforced. 

Arguments 

The appellants, in relation to their first argument and legal issue in this case – was the price increase excessive? Contended that the price increase was justifiable when considering supply chain issues that they had encountered, as well as other economic factors. They built on this and claimed that such increases are not unprecedented and gave evidence through broader pharmaceutical practices. In response to this, the respondent rejected the arguments and presented that the price increases were disproportionate, given that they were over 2000% higher than the original pricing, this was far higher than could be expected out of a competitive market, and as such was unjustifiable based on any rational economic analysis. They continued and pointed out that there was a lack of cost justification for the increases, stating that there was not sufficient evidence supplied throughout any stage of the litigation. They went on and claimed that even if there was evidence as to economic factors, the price hike was still far too steep to be considered anything but disproportionate. 

The appellants also argued their appeal on the grounds that the previous two bodies (CMA and CAT) had incorrectly interpreted the relevant competition law. They specifically argued that competition law should not regulate pricing decisions, and as such, the CMA’s regulation of both Flynn and Pfizer in this area was unlawful. They contended that bodies should only have the power to do this in light of direct competitive concerns such as price fixing or market collusion (which this case did not fall under). The CMA responded by claiming that excessive pricing in situations of market dominance is a recognised form of abuse of dominance in both the UK and EU. The fact that Flynn was the sole supplier made it a dominant player, and as such, the company had a responsibility not to abuse their dominance by overcharging. They concluded by stating that competition law is in place to protect consumers from this type of exploitive conduct, and the fact that there was no market competition made the excessive pricing even more egregious. They continued, stating that the protection of public health was another factor that needed to be considered, given that the price hike had a significant effect on consumers (the nature of the product as an essential medication for a condition that poses significant health risks if not effectively managed). They penultimately claimed that within the healthcare sector, competition law ensures that products are sold at reasonable prices – especially in the public sector, which includes bodies such as the NHS. They concluded with precedent from the EU’s Court of Justice ruling in the United Brands Case (Case 27/76, United Brands Company v. Commission) which established that excessive pricing could be considered an abuse of dominance in markets where firms have significant market power. 

Courts Analysis 

The Court of Appeal found in favour of the respondent and upheld the CMA’s finding that Pfizer and Flynn Pharma had abused their dominant market positions for the sale of Phenytoin Sodium through excessive pricing. They agreed with the CMA that the price hike was unjustifiable and was an attempt to exploit the lack of market competition, as Flynn was the sole supplier of the branded version of the drug in the UK. The court rejected the argument that the price hike was justifiable by supply chain issues or market conditions by commenting on the 2000% increase and the fact that it had no reasonable link to cost increases. They finally held that the CMA’s approach in applying competition law to regulate pricing in the pharmaceutical sector is lawful, especially in instances where there is no effective competition. In terms of remedies, the court upheld the fines imposed by the CMA on both Pfizer and Flynn Pharma – totalling around £90 million stating that the fines were proportionate and served as a deterrent for any future anti-competitive conduct in regulated markets where consumers and public health could be harmed by unjustified price hikes. 

Conclusion 

Overall, this case acts as a landmark precedent within competition law, with the Supreme Court upholding the decision in 2022, both Flynn Pharma and Pfizer were legally required to pay the fines they had been handed as well as creating precedence for cases involving excessive pricing and abuses of dominance in the UK. It is also likely contributed to the CMA’s ongoing regulatory vigilance in monitoring and investigating potential abuses of dominance in highly concentrated markets. The decision in the 2018 COA case acts as a reminder that huge companies are not above competition law and that if they infringe on their responsibilities as dominant party’s that the CMA will hold them accountable. 

References 

Chappatte P and Nsoatabe L, ‘Pfizer and Flynn Phar Ma: A Long and Winding R Oad 1’ (2020)

<https://www.slaughterandmay.com/media/mprluqn0/pfizer_and_flynn_pharma__a_long_an d_winding_road_1237pdf.pdf>

‘CMA Fines Pfizer and Flynn £90 Million for Drug Price Hike to NHS’ (GOV.UK7 December 2016) <https://www.gov.uk/government/news/cma-fines-pfizer-and-flynn-90million-for-drug-price-hike-to-nhs>

Competition and Markets Authority, ‘Phenytoin Sodium Capsules: Suspected Unfair Pricing’ (GOV.UK18 December 2015) <https://www.gov.uk/cma-cases/investigation-into-the-supplyof-pharmaceutical-products>

‘Competition and Markets Authority (Respondent) v Flynn Pharma Ltd and Another

(Appellants) – UK Supreme Court’ (Supremecourt.uk16 July 2024) <https://www.supremecourt.uk/cases/uksc-2020-0113#judgment-details>

‘Judgment | Competition Appeal Tribunal’ (Catribunal.org.uk20 November 2024) <https://www.catribunal.org.uk/judgments/phenytoin-1524-1525-judgment-20-nov-2024>

Killick J and Komninos DrA, ‘Court of Appeal Broadly Upholds the CAT’s Judgment in

Phenytoin and Clarifies “Excessive Pricing” Test | White & Case LLP’ (Whitecase.comApril 2020) <https://www.whitecase.com/insight-alert/court-appeal-broadly-upholds-catsjudgment-phenytoin-and-clarifies-excessive-pricing>

‘Tribunal Fines Drug Firms £69m for Excessive Pricing after CMA Investigation’ (GOV.UK20 November 2024) <https://www.gov.uk/government/news/tribunal-fines-drugfirms-69m-for-excessive-pricing-after-cma-investigation>