Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd (ACN 008 422 348)

[2018] HCATrans 218

[2018] HCATrans 218

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S172 of 2018

B e t w e e n -

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

and

PFIZER AUSTRALIA PTY LTD (ACN 008 422 348)

Respondent

Application for special leave to appeal

KIEFEL CJ
BELL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 19 OCTOBER 2018, AT 9.50 AM

Copyright in the High Court of Australia

MR J.T. GLEESON, SC:   May it please the Court, in that matter I appear with MR J.A. HALLEY, SC and MS C.G. WINNETT for the applicant.  (instructed by Webb Henderson)

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friends, MR S.A. LAWRENCE and MR B. HANCOCK, for the respondent.  (instructed by Allens)

KIEFEL CJ:   Yes, Mr Gleeson.

MR GLEESON:   Your Honours, the two proposed special leave questions are at page 368 to 369.  The first question is one concerning the legal test for purpose under both sections 46 and 47 of the Consumer and Competition Act.  The second question concerns the approach to the concept of condition under section 47 and its particular application to retirement requirements contracts.

Your Honours, to understand those questions could I ask you perhaps to go simply to page 85 of the trial judge which sets out the impugned conduct.  Pfizer held a statutory monopoly on Atorvastatin which expired in May of 2012.  In the last five months of that statutory monopoly it engaged in this conduct, the making of these offers.  It made them to every community pharmacy in Australia and it is the first three of those four offers which are said to breach the law.

The fourth offer ‑ the alternative offer ‑ was a perfectly lawful offer.  It simply offered various discounts on different products.  The unlawful offers – the first three – had in each of them the critical requirement found in the third column, that the pharmacy could not get the benefit of the various discounts and rebates unless it agreed to take 75 per cent of its requirements for the generic product over a period of either six, nine or 12 months.  The intended effect of those three offers was to contract the demand requirements of the community pharmacies in Australia by 75 per cent over six to 12 months with the necessary effect that when the generic competitors first came into the market on and after 18 May 2012 they would find most of the market was denied to them.

Now, the central question on purpose is whether, that being the immediate and intended effect of the conduct as a means of course to a larger effect which is to prevent Pfizer’s market share being eroded, did section 46 regard that as a purpose of preventing, deterring or hindering competition?

KIEFEL CJ:   Your largest difficulty is the findings of fact made.

MR GLEESON:   Your Honours, the reason that is not a difficulty is we accept those findings.  There is no doubt that in terms of the ultimate objective the witnesses said, “I am doing this to prevent being slaughtered”.  They said that.  The central matter that the Full Court has got wrong is not to focus on the means, the how or the method, which was also part of the purpose.  The only way those witnesses could be accepted as truthful witnesses is to say how did they think they would achieve the purpose of not being slaughtered in the market, and the how or the method is this document I am showing you here, which is to tie up those customers.

KIEFEL CJ:   Do you not have to revisit the findings in some way to get to your end result?

MR GLEESON:   With respect, no, your Honour, because what is raised is a legal question.  If my purpose is to tie up the demand side of the market in this fashion such that when the generics are able to come and compete with me, they will not do as well as they otherwise might.  Is that a purpose of lessening, hindering or defeating competition in the market?  That is the question of law.

KIEFEL CJ:   As you state the purpose, that is not the purpose as found below.  It seems to me you are converting the findings into something approaching a statement of legal principle.

MR GLEESON:   Your Honours, let me take one of the findings, if I could, of fact and analyse that.  If one takes the high point of the evidence for Pfizer, it would be the evidence of Mr Crotty at page 318 to 319, and he is being asked the questions about what would be the effect of you doing the – it is described as the “sell‑in”.  What one sees in Mr Crotty’s answers is an oscillation between two types of answers.  When he is asked the direct question:

wouldn’t you accept that the logical consequence of that was that it was less likely to need to acquire the generic Atorvastatin from a competitor –

the very matter I have put to you, he tries to resort to a general answer, I wanted to compete.  The cross‑examiner asks him the question again, in effect, and we then start to see him admitting what I am calling the how or the means.  He says:

We wanted to compete and we wanted to make sure that we had a foothold in pharmacy –

So the foothold – what is the foothold?  The foothold is the very matter I have taken you to.  Then he is asked again, and his next answer is, we sought to compete, so he is very willing to say, we sought to compete:

because if we didn’t have stock in the pharmacy . . . we would have got slaughtered.

Then over the page, the last question, he is pressed one more time:

And the way you were going to achieve that object was to sell‑in your stock so the pharmacy would be much less likely to want to take stock from your competitors.  That’s the case, isn’t it? — Of course.

So what he has admitted there is the means, the how, and he has then said, I am doing that.  Why?  Because that will mean I will do better in the new world.

KIEFEL CJ:   The reference which he constantly repeated, according to the trial judge, of trying to avoid being slaughtered suggests that there would intense competition and that is what these strategies were about, about trying to compete.  The foothold is actually just exercising competition in what was expected to be an absolutely gruelling market.

MR GLEESON:   Your Honour, with respect, the critical thing that misses is we are looking at conduct done in the last five months of the statutory monopoly.  It is conduct which the Full Court has correctly found was a taking advantage of market power.  Why was it a taking advantage of market power?  Because in that period they were the only people who could sell Lipitor and they were the only people who could sell the generic.  That is the market power that they used to go to the customers in that five‑month period and say, “We want you now, in exchange for these wonderful discounts, to sign up to 75 per cent of your generic requirement for that period of time”.

So where the Full Court has gone wrong is it has really failed to distinguish the period of time in which the taking advantage of market power occurred and say, what was it you were doing and seeking to do then, and then what effect would that have in the wonderful new world of competition post‑18 May?

If I could show your Honours why that timing issue is critical, if you were to look at the actual pharmacy form which is at page 472 to 473, this is the example of the impugned conduct.  This is the form that goes to every community pharmacy in Australia.  You can see at line 25 on 472 that in consideration of the customer ordering 870 units of the generic Pfizer product, that 870 being because this is a platinum offer, 75 per cent of their estimated requirements for 12 months, it has to be ordered “in bulk by 24 February 2012”, so you have to order it now in the dying days of the monopoly.

You then get the three discounts and then when one sees the terms and conditions on 473 they confirm that the whole of this conduct is intended to have its legal effects in the period of monopoly when no one else can compete.  So, from the first bullet point, it confirms you must accept by 24 February.  The third bullet point is essential – 100 per cent of the generic volume must be delivered before 30 April.  So these pharmacies have in their store at a time when the generics are not yet free to compete, 75 per cent of their requirements for 12 months.

KIEFEL CJ:   These steps were taken admittedly when it had market power, but the purpose is directed to a period when competition is going to be in play.

MR GLEESON:   The purpose is directed to having that much of the demand side of the market locked up in advance of the competition being allowed to have its play.

KIEFEL CJ:   Or, as was found, a foothold in the ‑ ‑ ‑

MR GLEESON:   A foothold.  And we suggest perhaps that one way of looking at the question ‑ ‑ ‑

KIEFEL CJ:   A foothold in the context that it knew that its competitors could come in with prices that it could not compete at.  So we are actually talking about competition in a market.

MR GLEESON:   Your Honours, part of what the case raises which is interesting is it is not just – although it is – can I defeat a purpose case by saying my intention was to compete and thereby overlook how I was going to compete.  It is certainly that, and that is the issue raised by Chief Justice Gleeson in News which we say has been misapplied here.  The deeper point really does arise from your Honour’s questions, which is what is the conception of hindering competition which this Act is designed to prevent and how does that apply ‑ ‑ ‑

KIEFEL CJ:   Deter or hinder?

MR GLEESON:   Deter, hinder ‑ yes, your Honour, lessen, deter, hinder.  And how does that apply to competition as a process over time?  The larger issue there is, if you are a monopolist, if you still have substantial market power but it is going to end shortly, to what extent can you use that power in the dying days of your monopoly to lock up the customers in the market so that when the competition does start in its full glory your competitors find that a substantial part of the market has been denied to them?

KIEFEL CJ:   In terms of competition though, would it be expected that you would do nothing to ensure that you are in a position when your monopoly finished to effectively compete against those who would otherwise, as they say, slaughter you?

MR GLEESON:   That is the issue raised by the case.  I have indicated the fourth of the offers ‑ the last offer is a lawful offer.  There is nothing wrong with you issuing – that is page 85, the alternative offer – there is nothing wrong with you issuing and offering discounts.  That is fine.  And you will then come into that new world offering your discounts; they will be offering their discounts.  The one thing you cannot do is use your power to lock up those customers for substantial periods of time so that ‑ ‑ ‑

KIEFEL CJ:   Is it six or nine months?

MR GLEESON:   Six, nine or 12 months.  So, the platinum offer which this customer at 472 has accepted, your Honours will see that offer at page 475, and the platinum offer gave you discounts on the generic and on Lipitor and you see the relevant conditions below, the first one being:

To be eligible . . . you must comply with purchasing & dispensing at least 75% ‑

of your volume requirements.  So the world we are looking at is, come 19 May, every generic salesperson goes into the community pharmacy and finds that the pharmacy says, if the offer has been accepted, I have already not only bought 75 per cent of, in this case a year’s requirements, but I am contractually bound to Pfizer to dispense their product or I will lose all the discounts I have received from Pfizer.  The question then is, is a world which has that form of fetter imposed on the customers and therefore on the competitors, is that a world which displays a hindering or lessening of competition in the sense of the Act?

BELL J:   That is looking at it very much as an objective test in terms of purpose.  Here it was incumbent on you to establish that subjectively a substantial purpose was the unlawful purpose.

MR GLEESON:   Yes.

BELL J:   It is recognised both by the trial judge and by the Full Court that factually there is a fine line in these cases between conduct engaged in for the subjective purpose of competition and conduct that crosses the line.

MR GLEESON:   We have findings of both saying you are on the wrong side of the line, so I have to show something more has gone wrong than just an issue of degree.

BELL J:   Yes.  What I am taking up with you is your argument seems to be in circumstances where the monopolist at the close of the monopoly engages in conduct of this kind, it follows regardless of the findings below that the purpose was the prescribed purpose, and that just seems difficult to fix in with the cases.

MR GLEESON:   It has to be subjective; we cannot move away from that.

BELL J:   Yes.

MR GLEESON:   But there is a legal question involved of what do I bring to account as the full range of subjective matters and then how do I apply the legal standard to them?  What seems to have happened here is that the matters I have emphasised today, they just arise from the documents.  That is what this scheme had to be designed to do.  It cannot have had any other purpose.  If you ask yourself how was this scheme going to make Pfizer a better competitor in the new world, it is only by the means I have taken your Honours to.

BELL J:   It is very hard to see that that is not an objective conclusion.  It puts to one side the acceptance that it was not the substantial purpose to deter competitors, as opposed to obtaining a foothold in a highly competitive market as soon as the patent expired.

MR GLEESON:   Could I show your Honours two other places in the evidence that might assist?  If your Honours would go, please, to page 322 to paragraph 455, this is a recitation from the trial judge.  The Full Court has agreed with it.  This is why the ACCC lost.  This is the sort of evidence that your Honour is asking me to consider.

BELL J:   Yes.

MR GLEESON:   What you will see in the last two sentences is first of all a binary:

at all relevant times, Pfizer was seeking to position itself to remain a viable supplier . . . rather than to hinder or deter others from competing –

We submit that is the false binary, both looking at the facts properly and the law, because the reason you are going to position yourself as a viable supplier was by doing the things I have mentioned.  But if your Honours could look at the last sentence, or the last part of the sentence:

Pfizer well understood that any aspiration to hinder or deter the very substantial corporations which manufactured and supplied generic pharmaceuticals in Australia would have been pointless.

Part of the reason why legally this has gone wrong is both courts below focused very much on the position in terms of purpose between the alleged contravener and the competitors and saying, they are big, bad, mean and nasty.  You know they are going to come in.  They have got all sorts of cost advantages.  Anything you do of course could never stop them making their offers.  That is part of the central reason why the purpose has been regarded as not a prescribed purpose.  You cannot be hindering them.  Why?  Because you cannot stop their salespersons ‑ ‑ ‑

KIEFEL J:   They cannot be hindered.

MR GLEESON:   They cannot be hindered.  In a sense, of course, if one is only focusing on what your competitors do when they make their offers into the pharmacies, that is true.  It is a hundred per cent true, you cannot stop them going in and making the best offer in town.  But the one thing you can do, which is what they did, was to make sure when they come in and make that offer they find ‑ ‑ ‑

BELL J:   The shelves are full.

MR GLEESON:   ‑ ‑ ‑ the shelves are full.  Then you ask the question do they want the shelves to be full.  Subjectively, the answer is yes, that is the entire purpose of the offer.

KIEFEL CJ:   That is a rather, with respect, clever way of avoiding I think what you were doing, which is to focus on the effect.  You are looking at the effect and from there discerning the purpose, and I do not think it was any part of the ACCC’s case below that focused on the effect ‑ competitive effect.

MR GLEESON:   Could I repeat, it is not an effects case; it is a purpose case.  It has to be subjective.  But if your Honours could look at page 374, please, between lines 10 and 20, we have collected four findings by the trial judge or the Full Court which said the Pfizer executives “appreciated” and “expected” that their offers would have the effect I have identified.  So we have got the finding of fact that that is the immediate appreciation or expectation that it would have the effect I have identified, and then we have got the further evidence, why am I doing that?  I am doing that to maintain my competitive position.

Just to give your Honours one of those to see that those references are accurate, the reference at page 347, line 25, letter (f), that is Mr Latham, the most senior executive of Pfizer.  So there we have the subjective expectation of what I am calling the obvious effect of the conduct.  Then we have the further evidence, well, why am I trying to achieve this result?  I am trying to achieve it because that will stop me being slaughtered.  So we have, we submit, just on the facts both elements that the Court needs.  Then one stands back and says, if I am doing something where I expect these consequences and I am doing that in turn then to be more competitive, is that a purpose of substantially lessening competition?

KEANE J:   Mr Gleeson, when you speak of false binaries, it does sound a little as if you are proposing that the prohibited purpose of deterring or preventing a competitor from engaging in competitive conduct is the other side of the coin of proceeding as best one can to protect oneself in terms of purpose, and it seems to me that that is a proposition that has never been accepted or, indeed, advanced.

MR GLEESON:   Your Honour, that is not good enough.  That would not be correct.  But what we are trying to suggest is that in the 46 case as per Queensland Wire, when one looks at the conduct which is the taking advantage of and you ask how did this take advantage of your market power, that is going to give you the entry point into is it the prescribed purpose, and what has been lost in this frame is the taking advantage of being,  it is only because I am the Lipitor monopolist I can bundle up the customers.  Why am I bundling up the customers?  To achieve these results.  One then gets the purpose.  Your Honours, I notice the time.  We have the second question on requirements contracts.  It only arises if we are right on purpose.

KIEFEL CJ:   On ground 2, relies on ground 1.

MR GLEESON:   If we are right on purpose, it raises a very important separate point.

KIEFEL CJ:   We need not trouble you, Mr Hutley.

In our view the proposed appeal necessarily involves challenges to findings of fact or mixed law and fact made by the courts below.  It raises no question of principle and provides no basis for the grant of leave.  Special leave is refused with costs.

MR GLEESON:   May it please the Court.

MR HUTLEY:   May it please the Court.

AT 10.13 AM THE MATTER WAS CONCLUDED