Italy: Antitrust Pioneer Continues to Break Ground on Theories of Harm

Introduction

Italy has always been a pioneer in the enforcement of antitrust law in the pharmaceutical sector, with landmark cases such as the Aspen case^[2] on excessive pricing and the Roche/Novartis case^[3] on product denigration influencing the European Commission’s decisional practice.

The Italian Competition Authority (AGCM or the Authority) has selected the pharmaceutical sector as one of the industries in which to pursue antitrust enforcement actions and to develop innovative theories of harm. The sector requires close competition law scrutiny to safeguard EU patients’ access to affordable and innovative medicines. This focus was confirmed by the Authority’s decision last year against Leadiant Biosciences Ltd (formerly Sigma Tau Rare Disease Ltd) and other companies of the Leadiant group (collectively, Leadiant)^[4] for abuse of dominance, by overcharging the National Health Service (NHS) in connection with the marketing in Italy of the orphan drug chenodeoxycholic acid (CDCA) Leadiant (CDCA-Leadiant), which is used to treat cerebrotendinous xanthomatosis (CTX), an ultra-rare disease.

Main merger control developments and matters

On 27 December 2022, the Authority published a notice (Notice)^[5] setting forth procedural rules and criteria for the application of its newly introduced powers to request notifications for mergers and concentrations falling below the national turnover thresholds, triggering mandatory prior notification of a transaction. The new powers were introduced earlier, in August 2022,^[6] by adding a new Paragraph 1 bis to Article 16 of Law No. 287/90 (the Italian Competition Act), with an eye to bringing the Italian merger control regime in line with the recently updated interpretation and application by the European Commission of Article 22 of Regulation No. 139/2004 (the European Merger Control Regulation, or EUMR), as enforced in Illumina/GRAIL.^[7] More specifically, with the introduction of Paragraph 1 bis, the Authority is now allowed to control transactions that do not exceed national merger control thresholds via request up to six months after closing of the transaction. There has been an increase in the number of predatory and consolidating acquisitions (aka ‘killer acquisitions’) that, while below the threshold, are still bound to restrict competition significantly, particularly in the digital economy and in the pharmaceutical sector. That led the Authority to follow in the footsteps of several EU Member States in identifying new criteria for scrutiny.

Therefore, in addition to the traditional criteria based on turnover-thresholds and mandatory prior notification, Article 16, Paragraph 1 bis states that the Authority may ask companies to notify below-the-threshold mergers even after completion, and within 30 days of the request, if three cumulative conditions are met:

• no more than six months have passed since completion of the transaction;
• either one of the two Italian turnover thresholds provided under Article 16, Paragraph 1 (i.e., €532 million or €32 million euros) is exceeded, or the worldwide aggregate turnover generated by all the undertakings concerned exceeds the EUMR threshold of €5 billion euros; and
• based on available evidence, the ICA believes there are true risks to competition in the national market or in a significant part thereof, including in terms of harmful effects on the development of small enterprises characterised by innovative strategies.

On 27 December 2022, the Authority published a guidance notice on procedural and substantive criteria for the application of this new provision.

However, because the Italian turnover thresholds provided by the Italian merger control regime are rarely exceeded, including in the life sciences sector, the activity of the AGCM in this field in recent years has been limited.

Relevant cases include a 2020 assessment by the Authority of a potential agreement for Cooperativa Esercenti Farmacia to lease a Catena Farmaceutica SpA business unit, and concluded that it did not constitute a concentration.^[8] Cooperativa Esercenti Farmacia is active in the wholesale distribution of pharmaceutical and parapharmaceutical products. Catena Farmaceutica SpA is a wholesaler of products that meet the demands of pharmacies and healthcare facilities. According to the Authority, the lease did not constitute a concentration because of its short duration – limited to 12 months – and an early termination clause provided in the lease contract. Therefore, due to the lack of lasting change in control, the Authority stated that the operation fell outside the scope of a concentration as defined in Article 5 of Law No. 287/90.^[9]

In addition, in September 2020, the AGCM decided not to open an investigation into the acquisition of Genetic SpA, Genelife Srl and Max Farma Srl, part of the same corporate group, by CVC Capital Partners SICAV-FIS SA through an indirect subsidiary, Mendel Investimenti SpA.^[10] On the basis of the activities of the target companies, the Authority singled out three relevant markets:

• the research and development, production and sale of generic and over-the-counter drugs;
• the development, production and packaging of pharmaceutical products for third parties; and
• the production and marketing of lactose-based pharmaceutical excipients.

The AGCM assessed the potential horizontal and vertical effects of the operation and found that it was unlikely to lead to the creation of a dominant position or to significantly alter the conditions of competition in any of the relevant markets. In fact, as a result of the transaction, the market share held in each relevant market would increase by approximately zero per cent to 1 per cent, and the aggregate post-transaction shares were below or around 15 per cent.

Finally, on 22 February 2022, the AGCM decided to clear the acquisition of Biofarma Srl by Vegeta Srl.^[11] According to the AGCM, the transaction concerned the market for the development, production and packaging of dietary supplements, medical devices and cosmetic products for third parties, where Biofarma operates. The exact market definition was left open by the AGCM, as this would not have changed its assessment: according to the AGCM, the transaction raised no competition concerns. As far as horizontal effects are concerned, the buyer is not present in the target markets, with the exception of third-party production of medical devices, where the aggregate post-transaction share is 1 per cent to 10 per cent at both national and European levels. Regarding vertical effects, the AGCM noted that the acquirer operates only marginally in the target’s downstream markets (i.e., the sale of dietary supplements, medical devices and cosmetics) as a result of participations held in two companies (one Italian and one Belgian) with entirely marginal market shares. Therefore, the transaction did not involve the creation or strengthening of a dominant position in the markets concerned pursuant to Article 6, Paragraph 1 of Law No. 287/90.

Main infringement proceedings

Recent matters in AGCM enforcement in the life sciences sector include the Authority fining Leadiant €3.5 million for abuse of dominance pursuant to Article 102 of the Treaty on the Functioning of the European Union (TFEU) in connection with the marketing in Italy of the orphan drug CDCA-Leadiant, used to treat CTX, an ultra-rare disease. This decision is significant as it is the first to address regulatory gaming (also known as abuse of rights) and excessive pricing in the field of orphan drugs. Since 2016, CDCA-Leadiant has been the only CTX drug authorised in Italy, and the orphan designation grants it statutory 10-year market exclusivity over any similarly effective treatment for CTX until 2027. Furthermore, applicable regulation prevents pharmacists from creating a galenic drug with the same active ingredient, same dosage and same overall composition. This blocks others from creating a CDCA-based galenic drug as a viable alternative to CDCA-Leadiant.

Considering this, the AGCM stated that Leadiant holds a dominant position in the market for CTX treatments and that Leadiant’s behaviour is part of an overall carefully planned blocking strategy to prevent other undertakings from entering the CDCA-based drug market so that it may charge unjustifiably high prices. While applying for orphan drug designation, Leadiant entered into an exclusive agreement for the sourcing of the drug’s raw material (CDCA) from the Italian chemical company ICE SpA, which the AGCM considers the only entity with sufficient expertise and administrative authorisation to produce enough CDCA in Italy and likely elsewhere. The AGCM alleged that by leveraging its dominant position, Leadiant slowed the process and was generally obstructionist during price negotiations with the AIFA, whose participation is required to add CDCA-Leadiant to the list of drugs reimbursed by the Italian NHS. The AIFA was in a weak bargaining position because the Italian NHS needs to provide patients with this essential, irreplaceable and life-saving drug within a reasonable time frame and at an affordable price. According to the AGCM, Leadiant took advantage of this weak position to charge the NHS excessively high prices. The AGCM decision was confirmed on appeal by the first instance administrative court.^[12]

In addition to the Leadiant case, with regard to medical devices, in March 2021 the AGCM closed an investigation against Siemens Healthcare Srl, Philips SpA, GE Medical Systems Italia SpA and their parent companies (the parties) without finding any abuse of a dominant position.^[13] The AGCM alleged that the parties (which the Authority defines as original equipment manufacturers (OEMs) of high-end diagnostic imaging devices) might have refused to grant access to indispensable service software and to supply spare parts to independent maintenance service providers, preventing them from providing their services for ‘branded’ high-end diagnostic imaging devices and, therefore, unlawfully restricting competition. Each manufacturer has a minimum and an advanced set of service software for maintenance purposes, and each manufacturer provided independent maintenance service providers for its minimum set only, while reserving the advanced set for its own technicians and business partners. The parties argued, and the Authority then acknowledged, that: (1) the minimum sets gave sufficient access to high-end diagnostic imaging devices to run basic diagnostic tests; and (2) granting access to the advanced sets would infringe the parties’ intellectual property rights. The AGCM stressed that there was no right for competitors to compete with equally efficient input for maintenance, or to provide a service of the exact same quality as that provided by the dominant OEMs. The Authority applied the criteria outlined by the Court of Justice of the European Union^[14] to ascertain whether the parties’ refusal to license IP rights constituted an abuse of dominant position and found that access to the advanced sets of service software was not ‘indispensable’ for independent maintenance services to provide service for high-end diagnostic imaging devices. The Authority did not find sufficient evidence to prove that the advanced sets were not in any way replicable by potential competitors due to objective reasons related to technical, legal or economic obstacles or that independent maintenance providers could not come up with alternative solutions. Therefore, the Authority concluded that the OEMs’ refusal to license the advanced sets of service software was justified by the need to promote development and innovation in disease prevention and medical treatment.

In May 2021, the AGCM launched an investigation to ascertain whether the commercial practices – the imposition of minimum resale prices and a limitation on the marketing of the product on third-party platforms – of SOFAR SpA (a company that manufactures and markets pharmaceuticals, medical devices and nutritional supplements) towards its online distributors breached Article 101 of the TFEU.^[15] The AGCM alleged that this behaviour might constitute vertical agreements in violation of Article 101 of the TFEU as they were likely to restrict price competition among distributors and unjustifiably limit a specific mode of online sales, thereby hindering the competitive development of this distribution channel. In response to these critical issues raised by the Authority, in July 2021 SOFAR submitted commitments deemed suitable by the AGCM to eliminate the anticompetitive profiles covered by the investigation.^[16]

SOFAR committed to:

• send a communication to all resellers of its products reiterating their right to determine freely on any channel, including third-party online platforms, resale prices to the public;
• include in any contract with retailers an additional statement regarding the freedom to set resale prices to the public;
• refrain from exerting pressure on retailers to conform to list prices;
• send a notice to its agents to reiterate resellers’ freedom to determine resale prices on any channel, including third-party online platforms; and
• refrain from offering agents incentives in any way related to the retail prices charged by retailers.

Following the commitments, the case was closed without ascertaining any infringement.

In October 2021, the AGCM launched an investigation to ascertain whether the Association of Pharmacists of Bari-Barletta-Andria-Trani and several pharmacies in the municipality of Altamura violated Article 101 of the TFEU for having agreed on discounts applicable to band A and C drugs and supplements.^[17] The Authority supported the applicability of Law No. 287/90 to pharmacies and the Association, due to the former falling under the definition of ‘undertaking’ and the latter under the definition of an ‘association of undertakings’. Thus, promoting an understanding on the extent of applicable discounts would constitute a serious anticompetitive agreement because it would be aimed at eliminating price competition.^[18] The AGCM defined the relevant market as the retail distribution market for all types of drugs and parapharmaceutical products paid for directly by customers and sold in pharmacies in the municipality of Altamura. The criteria applied by the Authority in defining the geographically relevant market were: (1) the importance that consumers attach to the proximity of outlets; and (2) the practice under scrutiny being implemented by pharmacists operating in the municipality of Altamura. However, in December 2022, the Authority concluded that the documentation and information acquired during the investigation did not unequivocally make it possible to infer that during the meetings that took place from 2014 onward, in the presence of representatives of the Association, the attending pharmacies had established a pricing strategy. Moreover, the investigation revealed, that during the period in question, the prices and discounts applied by pharmacies in Altamura were not in line with each other.

Finally, in February 2022, the Italian Council of State (CDS), which is the highest administrative court, revoked its previous rulings confirming fines imposed on five companies by the AGCM for participating in a medical oxygen cartel, as it found a manifest omission of facts and reasoning in the judgments and asked the AGCM to produce a set of documents acquired during the proceedings so it could re-examine the case.^[19] In the revocation judgments, the CDS affirmed that without providing any reason the previously issued judgments simply ruled out the idea that the companies had provided a plausible alternative explanation in relation to their actual conduct. This failure to consider the alternative explanations for the alleged anticompetitive agreement met the requirements for revocation of the challenged judgments under Article 395 of the Italian Code of Civil Procedure,^[20] as it deprived them of a logical and legal basis. The principle that failing to address a party’s relevant argument in an appeal proceeding may prejudice the validity of the final judgment, including that of a last-instance court, reflects the case law developed by Italian civil and administrative last-instance courts. By this token, these judgments clarified that a court reviewing complex antitrust conduct cannot refrain from exhaustively addressing a (relevant) argument or circumstance regarding a ‘plausible alternative explanation’ for anticompetitive behaviour.

Further regulatory developments

The most significant regulatory developments in the life sciences sector have occurred as a result of the covid-19 pandemic and fall in the area of digital health. In Italy, prior to the pandemic, digital healthcare experience was very limited, despite legislative impetus in that direction.^[21] However, in response to the covid-19 emergency, digital technologies as a whole began to be adopted more rapidly, and the healthcare field was no exception.

The pandemic generated a sharp increase in demand for medical devices and vaccines, which triggered heated debate about patent monopolies in the pharmaceutical and biochemical fields. This resulted in significant amendments to the Industrial Property Code (the IP Code), as described below.

Additional regulatory developments are contained in the annual market and competition laws, the last of which was approved by Law No. 118/2022, which entered into force on 27 August 2022. Currently under approval is the new market and competition law, the proposal for which was adopted by the Council of Ministers on 20 April 2023; it will now pass through Parliament. Such laws include measures closely linked to the implementation of the National Recovery and Resilience Plan, which are discussed below.

During the pandemic, in addition to enforcement and advocacy, the AGCM’s activities were driven by the need to address issues closely related to the covid-19 emergency.

Following the European Commission’s communication regarding the assessment of business cooperation during the pandemic,^[22] the AGCM published its own notice on cooperation agreements in the context of the covid-19 emergency,^[23] allowing more favourable treatment of these agreements. According to the AGCM, to be eligible for exemption due to the emergency, a cooperative agreement must meet three essential requirements: (1) be objectively necessary to increase output in the most efficient way to address or avoid a shortage of supply of essential products or services; (2) be proportionate (i.e., not exceeding what is strictly necessary to achieve the objective); and (3) be temporary in nature.

The AGCM applied its notice for the first time on 27 May 2020, to a cooperation project for the distribution of disposable surgical masks through pharmacies and parapharmacies (i.e., pharmacies with fewer requirements and limited authorisation to sell certain drugs) submitted by two national associations of pharmaceutical distributors (the Pharmaceutical Distributors Association and Federfarma). The same day, the AGCM, together with the European Commission, also evaluated an agreement reached within the Italian Association of Consumer Credit and Mortgage Lending to implement a common moratorium programme for consumer lending.

In both cases, the AGCM found that the essential requirements listed in the notice were fulfilled and decided that no formal investigation was needed. The two approved cooperation projects show the extent to which the tools provided by the Italian notice can be used in practice to address hurdles and shortages caused by the healthcare crisis and could pave the way for further and complementary cooperation projects to address emergencies in other sectors as well.

In the context of its advocacy powers, not strictly linked to the covid-19 emergency, on 10 March 2020 the AGCM sent to the Italian Parliament and government a letter^[24] criticising the introduction, through the 2020 Budget Law,^[25] of rules allowing only pharmacies to provide certain public health services and assistance functions funded by the NHS, therefore excluding parapharmacies from distribution.^[26] These services concern a series of tasks aimed at:

• ensuring the participation of pharmacies in the performance of integrated home-care service;
• collaborating on health education programmes and prevention campaigns for major diseases with a strong social impact on the population;
• providing ‘second level’ services for individual patients, possibly using nursing staff; and
• allowing specialist visits and examinations at authorised public and private facilities to be booked and results to be reported.

The rules criticised by the AGCM relate to a trial of these services to all Italian regions for the two-year period from 2021 to 2022. According to the AGCM, they unjustifiably excluded parapharmacies from the distribution of these services, therefore blocking an additional important supply channel for citizens. Furthermore, reserving these services for pharmacies only gave pharmacies an undue competitive advantage because it deprived parapharmacies of a source of revenue in an area in which they might legitimately compete with pharmacies, potentially contributing to higher quality and a more efficient service provision.

Compulsory licences: Article 70 bis of the Industrial Property Code

The covid-19 emergency generated increased demand for medical devices as well as vaccines once they were placed on the EU market. This has spawned a debate over patent monopolies in the pharmaceutical and biochemical fields, which have been criticised for slowing down the rapid and widespread provision of medical solutions for combating covid-19.

This debate at the European level led to the proposed regulation on EU compulsory licensing, presented by the European Commission on 27 April 2023 as part of the broader patent package (the ‘Proposal for a regulation of the European Parliament and of the Council on compulsory licensing for crisis management and amending Regulation (EC) 816/2006’ – ref. COM(2023)224). Under the regulation proposal, the EU compulsory licence would be a last-resort mechanism, to be used during times of crisis or emergency at the European Union level when reasonable efforts to obtain a voluntary patent licence have failed. More specifically, the regulation would allow the European Commission to grant compulsory licences that are non-exclusive, non-assignable and limited to the purpose and duration of the crisis within the territories of the European Union. This proposed regulation is still pending approval by the European Parliament and the Council of the European Union.

Italy had already moved in this direction by introducing a similar compulsory licensing mechanism for medicinal products and medical devices in the event of a national health emergency such as the one created by the covid-19 epidemic. With Law Decree No. 77 of 31 May 2021 (which was converted into Law No. 108 of 29 July 2021), Article 70 bis was introduced into the IP Code. Article 70 bis of the IP Code provides that, should a national health emergency lead to a declaration of scarce supply of specific medicinal products or medical devices that are deemed essential, a compulsory licence for the patent covering the required products may be granted on a non-exclusive and non-transferable basis for the primary purpose of supplying the Italian market.

This licence shall be issued via a decree of the Minister of Health, in agreement with the Minister of Economic Development (after having heard from the patent owner and obtaining the opinion of the Italian Medicines Agency (AIFA), in the case of medicinal products, or the National Agency for Regional Health Services, in the case of medical devices), for a duration equal to the emergency period and up to 12 months after the end of the state of emergency. According to the new rules, to be eligible for this system the applicant must prove that it first tried to obtain a licence under fair and reasonable conditions from the patent owner. The decree shall also consider the economic value of the authorisation and establish appropriate remuneration for the holder of the intellectual property rights.

The compulsory licensing system is not new in Italy, as it was previously regulated by Articles 70 to 73 of the IP Code, deriving from Articles 30 and 31 of the Agreement on Trade-Related Aspects of Intellectual Property Rights. However, in the Italian legislation, Articles 70 to 73 of the IP Code do not contemplate the scenario of granting a compulsory licence to deal with a national health emergency. There is also a complex and lengthy procedure for issuing a compulsory licence.

For example, a compulsory licence cannot be obtained until at least three years from the granting of the patent or four years from the filing of the patent application. These requirements are clearly incompatible with a health emergency.

The substantial changes under the new provision consist of shortening waiting times, ensuring that a patent for drugs or essential medical devices can be licensed as soon as a health emergency is declared.

To see how Article 70 bis of the IP Code will be reconciled with European legislation, we need to wait for the final version of the proposed regulation. For now, however, we can already see that the European Commission has made it clear that the objective of the proposed regulation is to deal uniformly with crises that have a cross-border dimension within the European Union and do not fall within the scope of national compulsory licensing regimes, without replacing national legislation.

Outlook

From a competition law perspective, we expect AGCM enforcement efforts to continue to focus on life sciences companies in the coming year. This trend will continue to involve not only pharmaceutical and medical devices companies, but the entire downstream distribution chain. We also expect an increasing focus on public procurement and tenders, as well as further instances of follow-up actions for damages before civil courts on the heels of recent AGCM decisions. Furthermore, the ICA receiving the power to scrutinise below-threshold mergers is bound to impact the pharmaceutical sector.

From a regulatory perspective, further developments will result from the annual law for the market and competition, which constitutes one of the main cornerstones of the reforms contained in the National Recovery and Resilience Plan.

The latest law approved, Law No. 115/2018, addresses the patent linkage mechanism, which has long been under the magnifying glass of European and national authorities. Patent linkage refers to any scheme aimed at subordinating or linking the marketing authorisation, pricing, eligibility for drug reimbursement or any other approval related to a generic drug, to the patent status of the originator drug. These schemes can create barriers to market entry for equivalent drugs, dilating the time required for their commercialisation or reimbursement and leading to increased expenditure for citizens and the healthcare system. This is addressed by Article 17 of the Law, which allows manufacturers of equivalent drugs to obtain reimbursement classification of the drug while the patent on the originator drug is active so that the drug may be reimbursed as soon as the patent expires. This ensures a faster time frame for reimbursement, which remains subject to patent expiry.

The Law, at Article 16, also affects the distribution of pharmaceuticals, by amending Legislative Decree No. 219/2006 to remove the requirement for authorised wholesale distributors to hold at least 90 per cent of the medicines authorised and reimbursed by the NHS, instead requiring them to hold ‘an assortment of medicines with marketing authorisation, including authorised homeopathic medicines and generics . . . to meet the needs of the geographically determined territory to which the wholesale distribution authorisation refers’. This obligation does not apply to medicines that are ineligible for reimbursement by the NHS.

Law No. 118/2022 also impacts contractual agreements between private healthcare facilities and regions (or local health units) for the delivery of healthcare services by private entities on behalf of the NHS.

Finally, Article 18 of the Law intervenes on certain types of drugs, classified in the temporary ‘Cnn’ category, waiting for confirmation of their reimbursement price. The drugs can be commercialised and purchased by healthcare facilities before the price is agreed with the AIFA. The Law amends Article 12, Paragraph 5 ter of Legislative Decree No. 158/2012 by introducing a provision aimed at guaranteeing prompt negotiation of the price by companies after the marketing authorisation is obtained. The new Law provides that, under certain conditions, if companies fail to apply for price negotiation, the price of their drug automatically defaults to the lowest reference price.

Currently under discussion is the proposal for the new market and competition law, which was greenlit by the Council of Ministers on 20 April 2023 and has been submitted to Parliament for consideration. The text available to date for Article 7 contains provisions on the preparation of galenic drugs that amend Article 68 of the Italian IP Code. Article 68 of the IP Code regulates limitation of the patent right protecting industrial property, providing, among other things, that the exclusive right granted by a patent does not extend to galenic preparations of limited quantity packaged in pharmacies, provided that no industrially made active ingredients are used. The action under consideration, deleting the provision ‘provided that no industrially made active ingredients are used’, would have the effect of allowing the use of industrially made substances in galenic preparations. This provision would significantly expand the scope of what is known as the ‘galenic exception’, which allows pharmacists to prepare drugs for individual patients in derogation of patent rights.

Pending the parliamentary discussion, on 10 July 2023 the AGCM made its comments on the proposal for the new market and competition law,^[27] proposing to address some additional topics to improve competition in certain areas. Specifically regarding the pharmaceutical sector, the Authority is pushing for the introduction of measures aimed at increasing competitiveness in public tenders for the purchase of drugs, eliminating the prohibition currently provided in Article 15, Paragraph 11 quater of Decree Law No. 95/2012 to open to competition biosimilar drugs of different active ingredients in the same batch, even if they have the same therapeutic indications. Since biologic drugs significantly impact public health spending, the preparation of public tenders that also cover biosimilar drugs having different active ingredients but marketed for the same therapeutic indications on the basis of well-founded and documented decisions on therapeutic overlap previously expressed by the AIFA could deliver cost savings and improve citizens’ access to care. In addition, the Authority is pushing for removal of certain restrictions on health advertising by healthcare facilities and professionals, which, according to Paragraph 525 of Article 1, Law No. 145/2018, must be ‘functional to ensure the safety of health treatments’ and must not contain ‘elements of a promotional or suggestive nature’. The Authority specifically notes that these provisions are unjustified and disproportionate in relation to the general interest of protecting consumers, and that it is not advertising that should ensure the safety of health treatments, but rather the actions of the healthcare professionals involved in such treatments.

Notes