On March 12, 2015, the Federal Commercial Arbitration Court of Moscow Circuit adopted a resolution which is likely to have a substantial impact on applying antitrust legislation to intellectual property.

Case No.А40-68992/2014 on contesting the decision of FAS of Russia, pursuant to which TEVA PHARMACEUTICAL INDUSTRIES LIMITED (the “Company”) was recognized as having violated the antitrust legislation by refusing to conclude a supply contract for Copaxone (the “Drug”), the exclusive rights to which belong to the Company.

The reason for initiating the antitrust case was a complaint from BIOTEC  to the FAS of Russia (the “Applicant”). In 2010, the Company and the Applicant concluded a framework agreement providing for the conclusion of individual contracts between these entities in relation to the Drug, including in relation to its sale and purchase, storage, repacking, promotion, marketing, sale and distribution. The respective individual contracts were concluded between the Company and the Applicant under this framework agreement in the period from 2010 to 2013.

However, in 2013 the Company evaded conclusion of the next contract on the grounds of change in the supply structure of the Drug.

In justification of its actions, the Company specified that it was the manufacturer of the Drug and had exclusive rights to it, and that it is an original drug whose chemical composition is protected as an item of exclusive title certified by a patent. The Company’s actions on refusal (evasion) to conclude the contract were actions on exercising exclusive rights to intellectual property. Therefore, in the Company’s opinion, the antitrust bans do not apply to its actions.

However, the commission of the FAS of Russia concluded that the actions of the Company, a monopolist on the market of the Drug, contain unreasonable refusal to conclude the contract.

The Company did not agree with the decision of the antitrust authority and contested it in commercial arbitration court.

The court of the first instance noted in its decision[1] that since the Company exercised its exclusive rights when selling pharmaceuticals, pursuant to Article 1229 of the Civil Code the Company is entitled at its own discretion to allow or to prohibit the use of the identification means by other entities. In such circumstances, the court came to a conclusion that the requirements of the antitrust legislation do not apply to the contractual relations concerned pursuant to Part 4 Article 10 of the Law on protection of competition, and acknowledged the decision of the antitrust law to be unlawful.

However, this court decision was cancelled later by the court of appeal.

The Ninth Commercial Arbitration Court specified in its resolution[2] that the procedure for introducing a purchased product under the Company’s trademark into turnover in the Russian Federation cannot substitute the subject matter of the agreement, in particular, the supply of pharmaceuticals. In this event, the provisions of Part 4 Article 10 of the Law on protection of competition are not applicable.

The court of cassation supported the conclusions of the court of appeal.[3]

The court acts specified are of particular interest due to the discussion on the issue of excluding the norms restricting operation of the antitrust law in intellectual property from the Law on protection of competition.[4]

The exclusion of these norms was one of the most debatable amendments of the draft “fourth antitrust package.”

Part of the business community strongly criticized such amendment of the antitrust legislation. Arguments were stated that the exclusion of this provision makes the innovative path of development of the Russian economy impossible, leads to losing significance of intellectual property investments, will prejudice the rights of small and mid-sized business and will lead to an exit of innovative products and technologies from the market.

The FAS of Russia in its turn insists that any goods are an object of civil law meant for introduction into turnover. The results of intellectual activity do not possess this feature and they are not meant for introduction into turnover and hence they are not goods by definition. The issues related to exercising intellectual rights are not regulated by the antitrust legislation. That provided, in the opinion of the FAS of Russia, exclusion of these norms from the antitrust law does not reduce protection for the rightholder.

However, these amendments were excluded from the draft “fourth antitrust package” which is currently being prepared for examination by the State Duma in the second reading. The FAS of Russia still intends to achieve the exclusion of the said norms from the Law on protection of competition, stating that certain rightholders expecting to obtain protection in form of license agreements are an issue.

For the first time, the court acts referred to in this review confirmed the position of the FAS of Russia, according to which in the event a license agreement contains provisions regulating the procedure for the supply of goods (introduction into turnover), the exclusions contained in Part 4 Article 10 and Part 9 Article 11 of the Law on protection of competition cannot apply to the legal relations of the parties.

It can be stated that in the event the norms restricting the effect of the antitrust legislation on the legal relations on exercising the exclusive rights remain in the Law on protection of competition, the antitrust bans will in any event apply to actions and agreements on exercising exclusive rights, if such actions and agreements lead or can lead to exclusion, restriction or elimination of competition.

Irina Akimova  Of Counsel                                Moscow   iakimova@cls.ru  Tel.: +7 (495) 970 1090

Dmitry Gavrilenko     Associate                Moscow       Tel.: +7 (495) 970 1090

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Irina Akimova or Dmitry Gavrilenko, Moscow Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.