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Client Alert

September 27, 2006

European Court of First Instance Delivers Important Judgment in the GlaxoSmithKline Case on Glaxo’s dual pricing practice to prevent parallel tr

On 27 September 2006, the European Court of First Instance (CFI) delivered an important judgment in the GlaxoSmithKline (“Glaxo”) Case on Glaxo’s dual pricing practice to prevent parallel trade of pharmaceuticals in the EU. This practice was declared illegal by the European Commission in 2001. Glaxo challenged the Commission’s Decision in front of the CFI (Case T-168/01).By way of introducing new General Sales Conditions for its Spanish wholesalers in 1998, Glaxo installed two price levels for sales of its pharmaceutical products in Spain: a lower price for pharmaceuticals intended to be marketed in Spain and financed by the Spanish national social security schemes, and a higher price for other sales. These other sales mainly relate to products that are later exported by the Spanish wholesalers to other Member States of the EU, where the price level for pharmaceuticals is higher than in Spain (such as in the United Kingdom) -- a practice known as 'parallel trade'. The reasoning for applying this higher price was to discourage parallel trade and to secure the profits gained by Glaxo in countries with a higher price level.The Commission found that this practice violated Art. 81 of the EC Treaty as it had as its object and effect the distortion of competition and free trade between the Member States of the EU.In its judgment, the CFI found that The Commission's Decision had not properly taken into account the specific nature of the pharmaceutical sector. In most EU Member States, prices are not determined by supply and demand as a result of a competitive process, but are directly fixed by the competent authorities. Therefore, the parallel trade of pharmaceuticals would not, of itself, directly contribute to lower consumer prices but would rather shift profits from producers to intermediate wholesalers. As a result, the CFI stated that Glaxo’s dual pricing approach does not have the object of restricting competition to the detriment of consumers.However, due to certain measures taken by some Member States, parallel trade may nevertheless permit a limited but notable reduction of pharmaceutical costs for consumers and for social security schemes. Glaxo could therefore not disprove that its pricing did have a restrictive effect on competition. For this reason, the dual pricing system constitutes a violation of Art. 81(1) of the EC Treaty, which would be legal only if exempted under Art. 81(3) of the EC Treaty.When assessing the availability of such exemption, the Commission had not thoroughly taken into account the possible economic advantage of Glaxo’s dual pricing system. The CFI acknowledged that Glaxo’s pricing mechanism may contribute in a considerable way to innovation, as research and development play a crucial role in today’s pharmaceutical sector. These considerations and the benefit of such pharmaceutical innovations to consumers may justify and exempt Glaxo’s pricing system.As stated by counsel at the oral hearing, this case is a “landmark case the whole industry has been waiting for”. The Advocate General's Opinion in the Syfait case has already demonstrated a much greater willingness to take into account the specific characteristics of the pharmaceutical industry, but the CFI has now clearly acknowledged that competition in the pharmaceutical sector is distorted due to different national regulations within the EU and that the pharmaceutical industry may validly take steps to protect and secure its investment in R&D as well as to prevent profit shifts to intermediate wholesalers in which final consumers would not participate. Nevertheless, as parallel trade may contribute to a limited reduction of medical costs for consumers, pharmaceutical companies will have to adhere to such effects and ensure that any measures it takes do not affect possible reductions in the cost of pharmaceutical products for consumers.It must be noted, that the CFI’s judgment may be appealed in front of the European Court of Justice. Further, the Commission may after thorough consideration of the CFI’s judgment, find that the benefits to consumers and the contribution to innovation brought about by Glaxo’s pricing system do not justify an exemption under Art. 81(3) of the EC Treaty.  Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work or Michael Walther (+49 89 18933-180; mwalther@gibsondunn.com) in the firm's Munich office. © 2006 Gibson, Dunn & Crutcher LLPThe enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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September 19, 2006

European Court of Justice Delivers Important Judgment in Laserdisken Case on Interplay Between National and EU Copyright Law

On 12 September 2006, the European Court of Justice (ECJ) delivered an important judgment on the interplay between national and EU copyright law, a judgment which also has implications for the interplay between IP and antitrust in the EU. The Laserdisken case concerned the import and sale in Denmark of DVDs lawfully marketed outside the European Economic Area (EEA).The key legal provision is Article 4(1) of EU Copyright Directive (2001/29) which enshrines the exclusive right for authors, in respect of the original of their works or of copies thereof, to authorise or prohibit any form of distribution to the public by sale or otherwise. Article 4(2) of the Directive provides that the distribution right is not to be exhausted except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent.It follows that for the right in question to be exhausted, two conditions must be fulfilled: first, the original of a work or copies thereof must have been placed on the market by the rightholder or with his consent and, second, they must have been placed on the market in the Community.The ECJ found that Article 4(2) of the Directive did not leave it open to the Member States to introduce or maintain in their respective national laws a rule of exhaustion in respect of works placed on the market not only in the Community but also in non-member countries.The WIPO Copyright Treaty does not affect the contracting parties’ power to determine the conditions governing how exhaustion of that exclusive right may apply after the first sale. The harmonisation of national copyright laws promotes competition in the internal market.The rule of exhaustion in the Community is not a disproportionate measure in view of the fact that legal protection of intellectual property rightsis necessary in order to guarantee an appropriate reward for the use of works and to provide the opportunity for satisfactory returns on investment, and is a way of ensuring that European cultural creativity and production receive the necessary resources and of safeguarding the independence and dignity of artistic creators and performers.That the principle of equal treatment does not apply as between a producer and a licence holder established in a non-member country and a producer and a licence holder established in the Community, since the two are manifestly not comparable. Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work or David Wood (+32 2 554 7210; dwood@gibsondunn.com) in the firm's Brussels office.© 2006 Gibson, Dunn & Crutcher LLPThe enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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September 15, 2006

Beware of OFAC

Partner Judith Lee and Of Counsel James Slear are authors of "Beware of OFAC" [PDF] published in September 2006 in the International Financial Law Review.Copyright 2006 by the International Financial Law Review.
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September 13, 2006

Special problems concerning the Foreign Corrupt Practices Act in the People’s Republic of China

Partner Judith Lee and Of Counsel James Slear are authors of "Special problems concerning the Foreign Corrupt Practices Act in the People's Republic of China" [PDF] published in September 2006 in the IBA Legal Practice Division's Litigation Committee Newsletter. Copyright 2006 by the International Bar Association. This article first appeared in the September 2006 issue of International Litigation News, the Newsletter of the Litigation Committee of the Legal Practice Division of the International Bar Association, and is reproduced by kind permission of the International Bar Association, London, UK.
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September 11, 2006

2006 Bank Secrecy Act/Anti-Money Laundering Examination Manual Clarifies Elements of Effective OFAC Compliance Program for ACH Transactions

On July 28, 2006, the Federal Financial Institutions Examination Council (FFIEC) released the 2006 Bank Secrecy Act/Anti-Money Laundering Manual ("BSA/AML Manual"). The section addressing compliance with economic and trade sanctions programs administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) has been revised to provide expanded guidance regarding automated clearing house (ACH) transactions. Additional guidance is found in the section of the BSA/AML Manual dedicated to ACH transactions.A critical component of an OFAC compliance program is a procedure for screening ACH transactions to identify blocked parties. When developing that procedure, it is helpful to know which financial institution involved in a transaction is responsible for verifying that a party is not blocked. In screening domestic ACH transactions, the Originating Depository Financial Institution (ODFI) is responsible for confirming that the Originator is not a blocked party, and must make a good faith effort to ensure that the Originator is not sending blocked funds. Similarly, the Receiving Depository Financial Institution (RDFI) is responsible for verifying that the Receiver is not a blocked party. FFIEC has stated that, in the context of a domestic ACH transaction, the ODFI and RDFI may, in effect, rely on each other to ensure OFAC compliance.However, the ODFI and RDFI may not rely on each other in the context of cross-border ACH transactions. For outbound transactions, the ODFI may not rely on the RDFI outside the United States. The ODFI is responsible for verifying that none of the parties to the transaction is blocked, and that the underlying purpose of the transaction does not violate OFAC regulations. The RDFI similarly is responsible for ensuring that transactions in-bound to the United States comply with OFAC regulations.The OFAC section of the BSA/AML Manual describes the understanding of federal agencies regarding screening obligations. Incorporating that insight into an OFAC compliance program could result in a more effective program. Moreover, the level of care demonstrated by such an action could serve to mitigate penalties in the event of a violation.. Gibson, Dunn & Crutcher's International Trade Regulation and Compliance Practice Group is available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn attorney with whom you work or Judith A. Lee (202-887-3591, jalee@gibsondunn.com), Amy G. Rudnick (202-955-8210, arudnick@gibsondunn.com) or Andrea Farr (202-955-8680, afarr@gibsondunn.com) in the firm's Washington, D.C. office.© 2006 Gibson, Dunn & Crutcher LLPThe enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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September 11, 2006

Japanese leniency process evolves

Brussels Associate Vassili Moussis is the author of "Japanese leniency process evolves" [PDF] in the August 30, 2006 edition of Global Competition Review.--------------------------------------------------------------------------------Reprinted with permission.   www.GlobalCompetitionReview.com
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