Pharma company found liable for abusing rights to its IP under antitrust law

Russian Federation

In Teva Pharmaceutical Industries Ltd v Federal Antimonopoly Service of Russia (Case No А40-42997/14, March 18 2015, full judgment published in April 2015), the Federal Commercial Court of the Moscow Region has considered a claim filed by an Israel-based pharmaceutical company (the claimant) against the Russian antitrust regulator, the Federal Antimonopoly Service of Russia (FAS). The dispute involved a FAS decision in which the claimant was held liable for a breach of Russian antitrust laws - namely, the claimant was found to have abused its rights in its intellectual property by deviating from the execution of a contract with its Russian partner.

The claimant owns the trademark COPAXONE, under which it has been manufacturing and selling an immunomodulatory drug to treat multiple sclerosis. In 2010 the claimant entered into a framework agreement with a Russian-based company, the closed joint-stock company MFPDK Biotek, under which both companies executed individual contracts (including a licence agreement regarding the use of the claimant’s trademark and other IP rights, such as patents and know-how) for, among other things, the distribution, sale and marketing of the Copaxone drug in Russia.

In 2013 the claimant deviated from the execution of contracts with the Russian distributor within the terms of the framework agreement. One of the grounds for such deviation was that the claimant was the manufacturer of the Copaxone drug and the owner of the exclusive rights in the trademark COPAXONE, as well as in the patent for the chemical formula of the drug. The claimant argued that it simply exercised its rights to use its own intellectual property (allow or restrict other persons from using its intellectual property), as provided in Article 1229 of the Civil Code of the Russian Federation. Such actions are exempt from Russian antitrust control, as provided under Articles 10(4) and 11(9) of the Federal Law No 152-FZ “On the Protection of Competition” (the Antitrust Law).

The Russian distributor subsequently filed a claim against the claimant with FAS, who agreed with the distributor and held that the claimant was liable for a breach of the Antitrust Law - namely Article 10(1)(5), which prohibits the abuse of a dominant position (ie, more than 50% of the relevant market) - by refusing to enter into contracts with certain sellers or buyers without economic or technological justifications. Such breach is punishable by severe administrative fines.

The claimant appealed against the decision. The Moscow City Commercial Court, as the court of first instance, agreed with the claimant and invalidated the FAS decision, referring to Article 10(4) and Article 11(9) of the Antitrust Law and Article 1229 of the Civil Code. However, the Ninth Commercial Court of Appeal overruled the decision of the lower court, and that decision was then upheld by the Federal Commercial Court of the Moscow Circuit on March 18 2015.

The upper courts argued that, if an IP rights holder has a dominant position in a particular market, it should not abuse its rights in its intellectual property by refusing to enter into contracts or deviating from the execution of contracts with other parties, unless there is an economic, technological or other valid ground for refusal.

The upper courts emphasised that the reasons why the claimant had deviated from the execution of the contract with the distributor was because the latter needed to undergo the claimant’s anti-corruption compliance measures and that the claimant wished to participate in state procurement procedures for the supply of drugs to state hospitals through its own Russian subsidiary. The court argued that this did not amount to an economic or technological ground allowing the claimant to deviate from the execution of a contract with the distributor.

It followed from the logic of the upper courts’ decisions that the exceptions provided by Articles 10(4) and 11(9) of the Antitrust Law will not apply if licence agreements granting a right to use certain intellectual property (eg, trademarks) extend to the supply of goods bearing such trademarks and if this creates a restriction of competition on the market. The claimant could not ignore the rules on the circulation of goods, including the Russian antitrust restrictions, when deciding whether or not to put into circulation goods marked with its trademarks (ie, the Copaxone drug).

The outcome of the dispute may, in theory, be reconsidered by the Supreme Court of the Russian Federation. The position of the upper courts should not be interpreted as a binding precedent, although it may serve as guidance for the lower courts. In any case, IP rights holders should be cautious when negotiating licence agreements in combination with supply/distribution contracts in order to avoid breaching the Russian antitrust rules.

Sergey Treshchev and Alexey Pashinskiy, Squire Patton Boggs Moscow LLC, Moscow

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