RSIEAblog

by Julia Sinnig

The third DocMorris judgment or “we should call a spade a spade”*

On 22 August 2012, the Joint Chamber of the Superior Federal Courts of Germany[1], consisting of the Federal Social Court and the Federal Court of Justice of Germany, held that the German price-fixing system for prescription-only medicinal products applying to German pharmacies as well as to mail-order supplies from pharmacies established in other EU Member States, is not contradicting EU law. The Joint Chamber is a supreme judicial ad-hoc body, which is extraordinarily convened in the event of disparities in the case law of the highest German courts. In its judgment, the Joint Chamber did not see any necessity to request a preliminary ruling under Art. 267 (3) TFEU[2], stating that the legal point at issue was clear from the settled case law of the CJEU.[3]

Contrary to what German pharmacists and their associations might have expected after this reassuring national judgment, the Higher Regional Court of Düsseldorf referred in another case the matter to the CJEU, which – following AG Szpunar’s Opinion – held exactly the opposite: The German price-fixing system for prescription-only medicinal products is a measure having equivalent effect to quantitative restrictions according to Art. 34 TFEU and it cannot be justified by the protection of health and life of humans under Art. 36 TFEU.

 

Background

Before going into the details of the case, some preliminary information should be given: The Deutsche Parkinson Vereinigung (DPV) case is the third CJEU judgment in a matter concerning the Dutch mail-order pharmacy DocMorris NV. Like most EU Member States, Germany has a strictly regulated pharmaceutical retail market in order to avoid ruinous price competition in the field of human health and life, protect patients and ensure a safe and high-quality supply of medicinal products within the whole German territory, high-quality advice, emergency supply and predictability of social security costs. Two essential aspects of the German regulation in this regard are, on the one hand, the price-fixing system for prescription-only medicinal products, that applies to the selling price of the pharmacy with regard to the patient as well as to the purchase price between the wholesaler or pharmaceutical companies and the pharmacy. Consequently, the profit margin of the pharmacy is strictly legally fixed. The second important aspect of German pharmaceutical retail regulation is, on the other hand, the “Fremdbesitzverbot”, a prohibition of ownership and operation of a pharmacy by persons not having the status of pharmacist.

DocMorris NV, the Dutch mail-order pharmacy, has been aggressively trying to access the German pharmaceutical retail market for more than a decade. After having achieved the judicial permission of mail-order sale of prescription-free medicinal products in 2003, which was prohibited by German law before, DocMorris NV pushed the German legislature to abolish the mail-order sale prohibition for both prescription-free and even prescription-only medicinal products. Six years later, DocMorris NV again pushed the debate on the “Fremdversitzverbot” to the CJEU – however without success this time.

The status quo of German law in 2016 was hence that mail-order sale for both prescription-free and prescription-only medicinal products is allowed, albeit it being subject to the condition of respecting the price-fixing system for prescription-only medicinal products. Owning and operating pharmacies is only permitted to persons having the status of pharmacist.

 

Facts of the DPV case

Deutsche Parkinson Vereinigung e.V. (DPV) is an association with the aim of improving the lives of patients with Parkinson’s disease. The association entered into a cooperation agreement with the mail-order pharmacy DocMorris in 2009 introducing a bonus system to the members of the association for ordering prescription-only medicinal products against Parkinson’s disease.

Zentrale zur Bekämpfung unlauteren Wettbewerbs e.V. (ZBUW) is an association with the aim of combating unfair competition and considers the cooperation agreement to be harmful to competition and violating several German law provisions, such as §78 (1) of the Arzneitmittelgesetz (AMG) (Law on medicinal products). This provision establishing the fixing of prices also applies to §73 (1) of the AMG regarding the “sale, by mail order, of medicinal products supplied in Germany to end consumers by pharmacies established in another Member State”.[4] This amendment legally enacted the ruling of the Joint Chamber of 22 August 2012. §7 (1) (2) of the Heilmittelwerbegesetz (Law on the advertising of medicinal products) prohibits monetary advantages (bonuses/discounts) and promotional gifts for prescription-only medicinal products.

The national first instance court upheld ZBUW’s claim; DPV appealed against it. The referring Oberlandesgericht Düsseldorf (Higher Regional Court) decided to request a preliminary ruling from the CJEU. It opines that the bonus system of DocMorris violates §78 of the AMG in case different prices than the fixed ones are applied and in case the customer gets an economically advantageous benefit from it.[5] Moreover, it states that a central question is whether the price-fixing system alone can ensure uniform supply of prescription-only products to the entire population.[6]

 

Legal questions

The referring court asked three questions to the CJEU. In its first question, the referring court asks whether the price-fixing system for prescription-only medicinal products constitutes a measure having equivalent effect to a quantitative restriction according to Art. 34 TFEU. If this question is answered in the affirmative, the second question deals with a possible justification on grounds of protection of health and life of humans under Art. 36 TFEU, in case the price-fixing system is the only means to ensure a “consistent supply of medicinal products to the population across all parts of the country”.[7] Thirdly, the referring court asks about the degree of judicial scrutiny to be applied when deciding whether the condition of the second question is satisfied.

 

Reasoning of the Court

Does the price-fixing system for prescription-only medicinal products constitute a measure having equivalent effect according to Art. 34 TFEU?

On the first question regarding Art. 34 TFEU, the Court emphasizes that the price-fixing system applies to both pharmacies established in Germany and in other Member States.[8] This evokes its reasoning of 2003 stating that the former prohibition of mail-order sales of prescription-only medicinal products does have a greater impact on pharmacies established in other Member States compared to those established in Germany. Indeed, German pharmacies are still able to sell products in their dispensaries whereas pharmacies established in other Member States obviously were deprived from this possibility.[9] Hence, the internet would provide a significant way to have direct access to the German market for non-German EU pharmacies.

The Court argues that traditional pharmacies are better placed to provide clients with individually-tailored advice given by the specialized staff as well as to provide emergency supplies. Consequently, the judges opine that mail-order pharmacies, offering only “limited services”, cannot replace such services so that price competition might be more important for their competitiveness.[10]

Concluding that for these reasons, the price-fixing system has a bigger impact on pharmacies established in other Member States than on German pharmacies, even if not putting it as drastically as AG Szpunar,[11] the Court holds that the legislation at issue constitutes a measure having equivalent effect to a quantitative restriction on imports according to Art. 34 TFEU.

 

Justification of the price-fixing system: strict interpretation

Examining the second and third questions together, the Courts repeats the principle of strict interpretation of the exceptions to the free movement of goods and emphasizes the particular importance of the protection of human health and life, whose level of protection is to be determined by the Member States that should, therefore, also be granted a certain margin of discretion.[12] This is in particular the case for the assurance of reliable supplies for essential medical purposes.

 

Justification: the comparison with the Scotch Whisky Association case

The German government’s argument in favor of the price-fixing system is lost when analysing proportionality.[13] The German government argues that the price-fixing system is needed to ensure safe and high-quality supply of medicinal products to the German population and that harsh price competition would ruin these traditional pharmacies that are “alone capable of ensuring safe and high-quality supplies, especially in cases of emergency, tailored advice and effective checks on the medicinal products supplied”.[14]

Relying on the Scotch Whisky Association case, the Court states that national courts must examine proportionality on the basis of statistical or ad hoc data or by other means.[15] In the Scotch Whisky Association case however, the factual background is completely different: this case deals with the compatibility of a legal act and a draft order that set a minimum price per alcohol unit for alcoholic beverages (both not yet entered into force at the time of the judgment) with Regulation No. 1308/2013[16] and Arts. 34 and 36 TFEU. In its proportionality analysis, the Court provides a detailed analysis on how to assess the proportionality of grounds of justification. The proportionality assessment is generally split up in three steps: the appropriateness/suitability of the measure to attain the objective pursued, the necessity of this measure (are there no less restrictive means available?) and the proportionality stricto sensu, balancing the different interests at stake.

The Court follows AG Szpunar[17] in stating that no evidence (such as described in Scotch Whisky Association) has been reported that shows the appropriateness of the German price-fixing system to ensure a uniform supply of prescription-only medicinal products for essential medical purposes throughout Germany. More specifically, it has not been proven “how setting fixed prices for such medicinal products allows for a better geographical allocation of traditional pharmacies in Germany”.[18]

 

Justification: suitability of the price-fixing system to attain the protection of health and life of humans

When assessing the appropriateness of the measure to justify the existence of a measure having equivalent effect, the Court argues in para. 38 of the judgment that price competition would encourage the establishment of pharmacies “in regions where the scarcity of dispensaries allows for higher prices to be charged” following the AG in this point[19]. According to the Court, the high-quality supply of medicinal products is not endangered[20] by a prohibition of the price-fixing system as traditional pharmacies could still compete (if not on price) on individually-tailored advice and emergency supplies.

Further, it is not obvious to the judges from the submitted elements that price competition adversely affects traditional pharmacies’ activities in the general interest, such as producing prescription-only medicinal products, maintaining a given stock or selection of medicinal products.[21] Following the reasoning of the Dutch government and DPV, the Court considers that price competition would urge German pharmacies to offer medicinal products at more attractive prices, which would be in the interest of consumers in order to effectively protect health and life.[22]

The Court concludes that the German price-fixing system for prescription-only medicinal products cannot be justified on the grounds of protection of health and life of humans, as it does not even pass the first step of the proportionality test[23].

 

Comment

At first sight, in DPV, the Court dealt with a classical “simple” free movement of goods case – on a closer inspection however, it is proven once more that the devil is in the detail. Although the legal review of the Court as such is perfectly valid and reasonable, the legal qualification of the facts is disputable – not least because of the moderate argumentation of the German government. In the following, some examples of the divergence between the judgment’s argumentation and the economic reality will be given.

Firstly, this disputable subsumption becomes very obvious in the comparison of DPV with Scotch Whisky Association on the proportionality of the justifying measure: in Scotch Whisky Association, the Court[24] had to rule on the hypothetical analysis of the effects a law not yet into force might have. In DPV on the contrary, the law in question existed already for a long time and proved to work out, forming an integral part of the German regulatory system of the pharmaceutical retail market. Even more strikingly, the goods in question are as opposite as one might imagine: whereas the Scotch Whisky Association case deals with alcohol, DPV deals with prescription-only medicinal products – although the legal basis at stake is the same, the impact of the facts is nonetheless considerable, especially in cases dealing with Art. 34 TFEU and the grounds of justification in Art. 36 TFEU.

The only common point of those two judgments is that in both cases, the empirical evidence – be it statistical or ad hoc data – required by the Court for the suitability assessment of a national measure within the proportionality test is close to impossible to provide. How would one want to prove that a minimum price for alcohol reduces hazardous and harmful alcohol consumption if such a measure has never been in place? Likewise, how should one prove that the non-existence of a price-fixing system for prescription-only medicinal products ensures an equal territorial allocation of pharmacies, high-quality supply of medicinal products and professional tailored advice if such situation never existed ergo the data proving this could never be collected?

Therefore, the continuous references by the Court in DPV to Scotch Whisky Association, especially in the field of the fact-sensitive proportionality analysis, is at least noteworthy – if not astonishing.

 

Further, the German government argued totally validly that the high degree of professionalism in advice would have to be lowered in order to keep up with competition in a market without any price-fixing system for prescription-only medicinal products.[25] The AG contradicts this claim however, arguing that he would expect the opposite in this case if there were more competition.[26] This however does not correspond to the economic reality, as advice is a free service provided to patients which does not include any obligation to buy the product in the traditional brick-and-mortar pharmacy. Hence, for pharmacists as well as for many other brick-and-mortar businesses (e.g. mattress and furniture businesses, shops with electrical goods, etc.), professional advice is a mere cost factor, but does often not achieve any economic benefit since in reality, patients/clients frequently do not hesitate to ask for advice but then purchase the product online. This is of course entirely acceptable and part of a liberalized market with free competition. Nevertheless, the consequences of such a choice in favor of a complete market liberalization should be anticipated at least and especially in sensitive sectors such as the public health sector. Considering that after DPV, German pharmacies are still bound by the price-fixing system if no legislative change intervenes[27], traditional pharmacies will not be economically viable anymore and will not be able to afford numerous specialized employees so that less time will be spent per client for advice. In the worst case, German pharmacies shut down and on-site supply of medicinal products (e.g. in cases of emergency) are simply not given anymore. This is one of the points on which the German government should have insisted more rigorously.

Moreover, the argument on the competitive advantage of providing emergency services[28] comes in a row with the one of the possibility to provide professional advice: The German government rightly argues that such emergency supplies would not exist anymore if prices were not fixed as it is simply not economically viable, meaning that pharmacies cannot survive merely by providing emergency supplies. Pharmacies could not even afford to have the necessary stock of medicinal products to supply such emergency situations, as such a stock easily values between 50,000 and 200,000 EUR. The Apothekennotdienstsicherstellungsgesetz (free translation: Law on the securing of pharmaceutical emergency supply services), correctly mentioned by AG Szpunar[29], is not yet drawn up in a manner to assure consistent emergency supply in an economically viable way. The objective of the law is to provide financial assistance through a fund, which is fed by a charge levied on each product sold.[30] In 2015, 271.36 EUR per emergency service were paid to the respective pharmacy. This amount is certainly not enough to maintain a complete emergency stock of medicinal products, to provide premises and remunerate the working hours.

 

Thirdly, the Court’s argument in para. 38 of the judgment according to which price competition is “conducive” to the establishment of pharmacies “in regions where the scarcity of dispensaries allows for higher prices to be charged” is not really self-explanatory. It is not really obvious how this would work out in practice, as due to mail-order pharmacies, patients in those areas would obviously resort to the latter in order to save money on their medicinal products.

 

To conclude, this interesting judgment has certainly a tremendous impact on the German pharmaceutical retail market and its regulation, which is not least shown by the fact that the German Bundesrat (upper house of Parliament) decided on 25 November 2016 in favor of a proposal prohibiting (again) mail-order sale of prescription-only medicinal products.[31] If that legislative proposal is finally adopted as a law, the DPV judgment – that at a first glance should lead to the opening of the German pharmaceutical retail market and its integration in a single European market – would ironically lead to the exact contrary, namely the complete European isolation of this market. The situation existing 15 years ago would be restored.

So after a thorough analysis, the question to be asked is: is this judgment really a step towards the European integration DocMorris so bitterly pursues?

* Opinion of Advocate General Szpunar on Case C-148/15 Deutsche Parkinson Vereinigung eV v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV, 2 June 2016, ECLI:EU:C:2016/397, para. 4.

[1] Gemeinsamer Senat der Obersten Gerichtshöfe des Bundes: Bundessozialgericht and Bundesgerichtshof.

[2] Joint Chamber of the Superior Federal Courts of Germany (GmS-OGB), decision of 22 August 2012, case no. GmS-OGB 1/10, para. 47.

[3] The Joint Chamber referred to the Köbler judgment: CJEU, Gerhard Köbler v Republik Österreich, 30 September 2003, C-224/01, ECLI:EU:C:2003:513, para. 118.

[4] CJEU, Deutsche Parkinson Vereinigung eV v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV, 19 October 2016, C-148/15, ECLI:EU:C:2016:776, para. 5. For the sake of simplicity, this judgment will be abbreviated as follows: “CJEU, DPV”.

[5] CJEU, DPV, para. 12.

[6] Ibid., para. 15.

[7] Ibid., para. 18.

[8] Ibid., para. 21.

[9] Ibid., para. 23.

[10] Ibid., para 24.

[11] Opinion of AG Szpunar on Case C-148/15 DPV, para. 19: “the provisions at issue […] are more than capable of hindering trade”.

[12] CJEU, DPV, paras. 29-30.

[13] CJEU, DPV, para. 34.

[14] Ibid., para. 33.

[15] Ibid., paras. 35-36.

[16] Regulation (EU) No. 1308/2013 of the European Parliament and the Council of 17 December 2013 establishing a common organization of the markets in agricultural products (“single CMO regulation”).

[17] Opinion of AG Szpunar on Case C-148/15 DPV, paras. 51 and 74.

[18] CJEU, DPV, para. 37.

[19] Opinion of AG Szpunar on Case C-148/15 DPV, para. 52.

[20] CJEU, DPV, para. 39.

[21] Ibid., para. 40.

[22] Ibid., para. 43.

[23] The Court follows in this regard AG Szpunar’s Opinion, see paras. 75-76 of the Opinion.

[24] It is interesting to note that in both cases the Chamber was presided by honorable judge R. Silva de Lapuerta.

[25] Opinion of AG Szpunar on Case C-148/15 DPV, para. 46.

[26] Ibid., para. 47, and CJEU, DPV, para. 24.

[27] Only pharmacies established in other EU Member States may rely on this judgment, as only their right to free movement of goods under Art. 34 TFEU is restricted by the price-fixing system.

[28] CJEU, DPV, para. 33.

[29] Opinion of AG Szpunar on Case C-148/15 DPV, para. 54.

[30] For more information, see the website of the “Nacht- und Notdienstfonds”, as well as its business reports available online: http://www.dav-notdienstfonds.de/nacht-und-notdienstfonds/wir-ueber-uns/ (accessed 4 January 2017).

[31] Lothar Klein, “Antrag ist durch: Bundesrat fordert Rx-Versandverbot”, Apotheke ad hoc, 25 November 2016, http://www.apotheke-adhoc.de/nachrichten/politik/nachricht-detail-politik/eugh-urteil-bundesrat-fordert-von-groehe-rx-versandverbot/ (accessed 4 January 2017). The German Minister of Health Hermann Gröhe is in favour of this prohibition of mail-order sale of prescription-only medicinal products, emphasising that 21 EU Member States have such a prohibition in place: Apotheke ad hoc, “Gröhe: Apotheke ist mehr als Arzneimittelverkauf”, Apotheke ad hoc, 1 February 2017, http://www.apotheke-adhoc.de/nachrichten/politik/nachricht-detail-politik/rx-versandverbot-groehe-apotheke-ist-mehr-als-arzneimittelverkauf/?L=&cHash=0c081305e5bc2cc923a145a88cadcfc9 (accessed 27 February 2017). See for more information also: Alexander Müller, “Zweiter Entwurf: Gröhe macht Verbot EuGH-sicher“, Apotheke ad hoc, 25 January 2017, http://www.apotheke-adhoc.de/nachrichten/politik/nachricht-detail-politik/rx-versandhandel-zweiter-entwurf-groehe-macht-verbot-eugh-sicher/?L=&tx_ttnews%5BsViewPointer%5D=3&cHash=c6cecb7ff5dc980f52cdc50dd9f11848 (accessed 27 February 2017).

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