Federal Court of Justice increases leeway for pricing by pharmaceutical wholesalers

In its decision of 5 October 2017 (case no. I ZR 172/16), the First Civil Panel of the German Federal Court of Justice, which is responsible for areas including antitrust law, decided that pharmaceutical wholesalers are not required to charge a minimum price when selling prescription drugs to pharmacies.

Legal action had been brought against a pharmaceutical wholesaler selling prescription-only medication (known as “Rx” products in the US). In its advertising it stated that it would grant its pharmacy customers a discount of 3% plus a reduction of 2.5% for early payment on the discounted price on all Rx products up to €70, and from €70 a discount of 2% plus a reduction of 2.5% for early payment on the discounted price up to the maximum price limit.

The claimant was the association known as the German Centre for Protection against Unfair Competition (Wettbewerbszentrale). The association believed that this was a breach of the rules on pricing under section 78 German Medicinal Products Act and section 2 of the German Pharmaceutical Price Ordinance. It had brought a claim for injunction and reimbursement of costs for warning notices against the wholesaler concerned.

The regional court, as the lower trial court, had rejected the claim by the association. A first appeal on points of fact and law was then filed to Bamberg Higher Regional Court. Bamberg Higher Regional Court came to a different judgment than the regional court and found that the wholesaler had breached the Medicinal Products Act. According to the higher regional court, section 2 subsection 1 sentence 1 Pharmaceutical Price Ordinance stipulated that pharmaceutical wholesalers have to charge a fixed mark-up of at least 70 cents. It said that this fixed mark-up could not be reduced by price discounts.

The Federal Court of Justice has now repealed the decision by Bamberg Higher Regional Court in the second-stage appeal on points of law and reinstated the trial court’s judgment dismissing the claim. It held that section 2 subsection 1 sentence 1 of the Pharmaceutical Price Ordinance specifies a price ceiling but no minimum price for selling prescription drugs with the wholesale mark-ups referred to. According to the court, this was shown by the wording of the rule ("no more than … MAY … be charged") and the comparison to the different rule on pharmacy mark-ups for finished medicinal products in section 3 subsection 2 no. 1 of the Ordinance ("… IS to be charged …").

Conclusion

Pharmaceutical wholesalers are not obliged to apply the mark-ups specified in the Pharmaceutical Price Ordinance. Consequently, wholesalers are also not obliged to charge the pharmacies they deliver to a minimum price corresponding to the sum of the pharmaceutical company’s selling price, the VAT and a fixed mark-up of 70 cents. Instead, they can completely or partially ignore the mark-ups included in the Ordinance.

Although this decision gives wholesalers more flexibility, at the same time it will increase the competitive pressure on wholesale companies in practice. This represents a challenge for sales and marketing departments who will have to respond to it with intelligent solutions.