05 June 2018

The final word and ‘smoking gun’ documents - ACCC v Pfizer

This article was written by Sharon Henrick and Rebecca Prior.

On Friday 25 May 2018, the Full Court of the Federal Court of Australia handed down its long-awaited decision in the Australian Competition and Consumer Commission’s appeal of the Pfizer case.[1]

The Pfizer case concerns when the testimonial evidence of managers responsible for developing a competitive strategy will overrule anti-competitive statements in ‘smoking gun’ documents.

The Full Court dismissed the ACCC’s appeal, finding that Pfizer had not misused its substantial market power for an anti-competitive purpose, and had not engaged in exclusive dealing conduct.

The ACCC has said that it is carefully considering the judgment.  The ACCC has 28 days from the date of the judgment to seek leave to appeal to the High Court of Australia.  

The ACCC’s case against Pfizer

In 2009, Pfizer developed a competitive strategy in anticipation of the expiry of a number of its pharmaceutical patents between 2010 and 2014, including its patent for the leading cholesterol-lowering drug, atorvastatin, which expired in May 2012. Pfizer manufactured, supplied and marketed atorvastatin to pharmacies in Australia under the trade name 'Lipitor'.

The strategy, titled ‘Project LEAP’, proposed a number of measures to respond to the inevitable competition from generic manufacturers in the lead up to, and following, the expiry of Pfizer’s patent for atorvastatin. The measures were implemented in 2011 and early 2012.  They included developing Pfizer’s own generic brand of atorvastatin under the trade name 'Atorvastatin Pfizer', and incentivising pharmacies to stock both Lipitor and Atorvastatin Pfizer in bulk quantities.

In 2014, the ACCC commenced proceedings against Pfizer alleging that Pfizer had:

  • taken advantage of its substantial market power in the market for atorvastatin for the purpose of deterring or preventing other manufacturers of generic atorvastatin from engaging in competitive conduct after the expiry of Pfizer’s patent;[2] and
  • engaged in exclusive dealing by requiring pharmacies who wished to acquire Atorvastatin Pfizer to also purchase specific quantities of Lipitor, with the purpose of preventing or hindering other manufacturers of generic versions of atorvastatin from supplying their product to pharmacies.[3]

The Federal Court’s decision at first instance

The primary judge dismissed the ACCC’s case at first instance.

Pfizer did not misuse its substantial market power

The Court found that Pfizer no longer held a substantial degree of market power between January and February 2012, before its patent for atorvastatin lapsed in May 2012. The Court observed that while Pfizer maintained some degree of market power up to the expiration of the patent, its market power gradually decreased the more imminent the expiration of the patent became.

The Court rejected the proposition that, by offering Atorvastatin Pfizer and Lipitor on the terms that it did, Pfizer had taken advantage of its alleged degree of market power in the market for the supply of atorvastatin.

The Court concluded that Pfizer did not, at any time, exercise a substantial degree of market power for an anti-competitive purpose.

Pfizer did not engage in exclusive dealing

The Court rejected the ACCC’s submission that Pfizer had made those offers to pharmacies for the purpose of preventing or hindering the other manufacturers of generic atorvastatin from supplying it to pharmacies. Consequently, the Court held Pfizer did not engage in exclusive dealing for a prohibited purpose. The ACCC did not plead that Pfizer engaged in exclusive dealing with the likely effect of substantially lessening competition in a market, so it was not necessary for the Court to consider the effects of Pfizer’s conduct.

The Court found that offering to supply atorvastatin products on terms that merely had the effect or resulted in the practical consequence that a pharmacy may have been less inclined to buy elsewhere did not amount to offering to supply on a 'condition' that the pharmacy would not acquire atorvastatin products from other generic manufacturers.[4]

Purpose and ‘smoking gun’ documents

The ACCC’s case focussed on the anti-competitive language used in a number of Pfizer’s internal documents (the ‘smoking gun’ documents).  The ACCC relied on the content of those documents to argue that Pfizer had acted with an anti-competitive purpose.

A number of Pfizer’s draft Project LEAP documents frequently referred to ‘block’ and ‘blocking’ in the context of Pfizer’s ‘bulk sell-in’ strategy.  The bulk sell-in strategy was designed to incentivise pharmacies to pre-emptively stock their shelves with Atorvastatin Pfizer before the patent expired and other generic manufacturers could offer to supply generic versions of the product.

At trial, Pfizer called as witnesses “all of the persons who had any relatively important role to play in the development and execution of Project LEAP”, including executive managers. These witnesses gave evidence that the draft documents had been prepared by subordinates reporting directly to the executive management team.

Pfizer’s witnesses testified that the references to ‘blocking’ did not evidence an intention to prevent other manufacturers of generic atorvastatin from entering and competing in the market. Rather, Pfizer intended to have its stock on pharmacy shelves prior to the expiry of the patent, so that it was in a position to compete when the other generic brands hit the market.

Recognising the “tension between the competing inferences which could have been drawn from the documents”, his Honour relied on the credibility of Pfizer’s witnesses.

The Court observed that Pfizer’s internal documents “unquestionably provided a platform from which the ACCC could argue that the impugned conduct was undertaken for [an anti-competitive] purpose.” However, the Court found Pfizer’s witnesses “satisfactorily answered the inferences otherwise available from the documents.” [5] In particular, the Court noted the “consistency of the explanations provided by Pfizer’s witnesses” and “the integrity with which they gave that evidence”, which provided “considerable comfort in accepting their explanations in the fact of the inferences otherwise available.”

The Court cautioned against drawing inferences from draft documents, which may simply communicate the view of the author of the document, rather than the views ultimately embraced or approved in final form.[6]

When determining Pfizer’s purpose, the Court held it was not the subjective purpose of any individual author that mattered, but rather the purpose of those responsible for making the ultimate decision.

Therefore, the Court at first instance concluded that Pfizer had not acted with an anti-competitive purpose.  Rather, the Court found that Pfizer’s substantial purpose in devising and implementing Project LEAP was to ensure it remained a supplier of pharmaceutical products (including Lipitor and Atorvastatin Pfizer) and remained competitive in the market for atorvastatin following its loss of exclusivity.

The ACCC’s appeal

In March 2015, the ACCC appealed to the Full Court of the Federal Court, submitting that the primary judge erred in finding that, from January 2012, Pfizer’s market power was no longer substantial.

The ACCC also challenged the finding that it was not Pfizer’s intention to shut out its competitors by preventing other manufacturers from supplying their own generic atorvastatin to pharmacies.

The Full Court of the Federal Court’s decision

The Full Court of the Federal Court upheld the primary judge’s findings in relation to the allegation of exclusive dealing. It found that Pfizer had not engaged in exclusive dealing with the purpose of substantially lessening competition in a market.

In addition, the Full Court addressed:

  • whether Pfizer had a substantial degree of market power in the months before its patent expired; and
  • whether Pfizer took advantage of this market power for an anti-competitive purpose.

Pfizer did have substantial market power notwithstanding the impending expiry of the patent

The Full Court held that the Primary judge had erred when he found that, by January 2012, in the lead up to the expiration of the patent for atorvastatin in May 2012, Pfizer no longer had a substantial degree of market power.

While Pfizer’s market power may have decreased as other manufacturers of generic versions of atorvastatin began to enter the market, this potential competition was held to be not so imminent in January or February 2012 “so as to have operated to diminish to any significant degree the long standing market power held by Pfizer.”

The Full Court reasoned that, if there was any diminution of Pfizer’s market power in January or February 2012, “the extent of that diminution was not so great as to render Pfizer’s market power in the market less substantial.”

Pfizer did not act with an anti-competitive purpose

‘Smoking gun’ documents v the ‘final word’ of management

The ACCC submitted that the primary judge did not pay proper regard to what it termed the “objective evidence” – the contemporaneous internal documents and Pfizer’s actual conduct – when assessing Pfizer’s purpose.

The ACCC contended instead that the Court at first instance had accepted “self-serving statements from witnesses called by Pfizer” to explain away inferences that should otherwise have been drawn, and which would have supported a finding that Pfizer had acted with an anti-competitive purpose.

The ACCC proposed that there was a clear contest between the so-called “objective evidence” contained in Pfizer’s internal documents and the testimonial evidence given by Pfizer’s witnesses, and that one body of evidence was to be preferred over the other.[7]

The Full Court rejected the notion that there were two bodies of evidence to be considered – the first being “objective” evidence consisting of the documentary material and Pfizer’s actual conduct, and the second being the testimonial evidence. 

The Full Court also rejected the ACCC’s contention that the “objective” evidence must be preferred if ever it were to conflict with testimonial evidence. The Full Court described this contention as an “artificial bifurcation of the evidence” which “is not supported by any authority.”  It concluded that most of the ACCC’s submissions on appeal were “infected by [this] approach to the evidence.[8]

Use of anti-competitive language in Pfizer’s internal documents

The Full Court also rejected the argument that use of the word 'blocking' in Pfizer’s internal documents inferred the existence of a strategy or desired outcome to keep Pfizer’s competitors out of the market for as long as possible. The Full court emphasised that the word ‘blocking’ only ever appeared in draft presentations and communications between subordinates of the executive managers, and that the word “was not used in the final package that was approved by senior management.[9]

These “blocking” documents were explained by Pfizer’s witnesses, and the Court at first instance preferred to proceed upon the basis of the reliability of the evidence they gave. The Full Court upheld the Court at first instance’s finding that the end sought to be achieved by Pfizer by making the bundled offers “was not to make it difficult for its … competitors to compete in the atorvastatin market post 18 May 2012 but rather to enable Pfizer to have a fair and reasonable opportunity to minimise the erosion of its market share for the supply of atorvastatin in the atorvastatin market… as a result of the loss of its monopoly position.”[10]

The Full Court emphasised that Pfizer’s conduct was commercial conduct in which it was entitled to engage, was not atypical of the conduct which other pharmaceutical manufacturers had taken in the past, and would take again in the launch phase of a new pharmaceutical.

As Pfizer anticipated, the generic manufacturers vigorously competed with Pfizer once its patent for atorvastatin expired, some discounting their generic versions of atorvastatin to 90% or 100% in order to gain traction in the post-patent market. The Full Court noted: “Nothing Pfizer did changed those circumstances. Pfizer did not expect that its manoeuvres would change those circumstances.[11]


[1]     Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2018] FCAFC 78; Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2015] FCA 113; (2015) 323 ALR 429.

[2]     The ACCC alleged that Pfizer engaged in this conduct in contravention of sections 46(1), 47(2)(d) and 47(2)(e) of the Competition and Consumer Act 2010 (Cth).

[3]     The ACCC alleged that Pfizer engaged in this conduct in contravention of sections 47(1), 47(2)(d) and 47(2)(e) of the Competition and Consumer Act 2010 (Cth).

[4]     Sections 47(2)(d) and 47(2)(e) of the Competition and Consumer Act 2010 (Cth).

[5]     Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2015] FCA 113; (2015) 323 ALR 429, 521 [344] – [347]; Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2018] FCAFC 78, 139 [432].

[6]     Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2015] FCA 113; (2015) 323 ALR 429, 482 – 483 [192] – [193].

[7]     Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2018] FCAFC 78, 180 [557].

[8]     Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2018] FCAFC 78, 180 [562] – [563].

[9]     Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2018] FCAFC 78, 180 [558].

[10]    Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2018] FCAFC 78, 181 [559].

[11]    Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2018] FCAFC 78, 181 [559].

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