Duphar BV and others v The Netherlands State (238/82)

II —Observations submitted to the Court

The plaintiffs in the main proceedings state that by virtue of the case-law of the Court any rules adopted by Member States governing trade which are capable directly or indirectly, actually or potentially, of hindering intra-Community trade must be regarded as measures having an effect equivalent to a quantitative restriction prohibited by Article 30 of the Treaty (Case 8/74 Dassonville [1974] ECR 837, Joined Cases 88 to 90/75 SADAM [1976] ECR 323 and Case 82/77 Van Tiggele [1978] ECR 25). The prohibition contained in Article 30 of the Treaty also applies to measures which, although not restricting the freedom to import, unilaterally hinder in any way sales on the national market. A measure adopted by the national authorities which withholds from persons insured under the sickness insurance scheme — who account for more than 70% of consumption — entitlement to the supply of a specifically listed medicinal product coming from another Member State, certainly falls within the prohibition laid down in Article 30 of the Treaty. Such a measure does not escape that prohibition merely because an identical measure has been adopted regarding a proprietary medicinal preparation of national origin, even if the two measures derive from a single decision and were both adopted on the basis of the same objective criteria.As regards the “rule of reason”, it is laid down in the decisions of the Court that obstacles to intra-Community trade may be permitted where the following conditions are satisfied:(1) no Community rules exist;(2) the obstacles must be the result of disparities between national laws regarding the marketing of a product;(3) imperative grounds must exist relating inter alia to the effectiveness of fiscal controls, the protection of public health, the fairness of commercial transactions or the protection of the consumer; and(4) those imperatives must render the obstacles necessary.According to the plaintiffs in the main proceedings the withholding of insured persons' entitlement to the medicinal preparations listed in Annex 1 to the order is not made necessary by mandatory requirements relating to the protection of public health or other matters referred to above. The protection of public health is not assured since the physician issuing the prescription is denied in advance any possibility of considering either the price or the benefit when choosing a medicinal preparation for the treatment required.Even if it is considered that the concern to achieve savings in the cost of health care justifies certain restrictions on the fundamental principle of the free movement of goods within the Community, a prohibition of supply affecting 70% of consumers is excessive, that is to say unnecessary. According to Duphar BV and the other plaintiffs in the main proceedings, that objective may be attained by measures which have fewer repercussions on the functioning of the common market and competition.As regards the over-the-counter medicinal preparations listed in Annex 2 to the order, the decisive criterion for their inclusion therein is the fact that the products in question may also be obtained elsewhere than in a pharmacy, in other words the criterion is the sales policy of the manufacturer or of the importer of the medicinal preparation in question.Even though Article 3 (1) of the order does not totally withhold the right to be supplied with the medicinal preparations listed in Annex 4, it imposes very strict conditions upon that right. It should however be noted that the prohibition contained in Article 30 of the Treaty still applies even if the national measure provides for the possibility of exemptions and in fact such exemptions are freely granted (Case 82/77 Van Tiggele [1978] ECR 25 and Case 130/80 Kelderman [1981] ECR 527).As regards the incompatibility of the order with Article 34, the plaintiffs in the main proceedings are of the opinion that the order may directly or indirectly hinder the export of medicinal preparations from the Netherlands. The medicinal preparations listed in Annexes 1 and 4 to the order are, in the opinion of the Netherlands authorities, to be regarded as too expensive and must not be prescribed or else must be prescribed only to a limited extent for pharmaco-therapeutic reasons. Those medicinal products are therefore “tainted” in so faias the assessment of the Netherlands authorities is likely indirectly to influence the judgment of the relevant foreign authorities or purchasers. The disappearance of 70% of the Netherlands turnover would in many cases constitute a ground for withdrawal of the product from the market, which might also lead to the discontinuance of exports.The essential purpose of the order is not to safeguard public health and by its nature it is likely to inhibit the development of the pharmaceutical industry and trade in pharmaceutical products within the Community.As regards the question whether the order may be justified under Article 36 of the Treaty, the plaintiffs in the main proceedings consider that the costs incurred in the provision of health care are not covered by the protection of the health and life of humans. Control of those costs is an integral part of short-term economic policy and cannot justify departure from the principle of the free movement of goods within the common market (Cases 88 to 90/75 SADAM, cited above).Savings regarding the supply of pharmaceutical products to persons insured under the sickness insurance scheme may be achieved by the adoption of measures which restrict intra-Community trade to a lesser degree. It cannot be validly claimed that in the absence of measure depriving persons insured under the sickness insurance scheme of the right to specifically listed proprietary medicinal products, the expenses incurred for the provision of pharmaceutical products to persons insured under that insurance scheme would exceed the limits of what might reasonably be required.Even if the order in question were justifiable by virtue of the first sentence of Article 36, it would be in breach of the second sentence, in so far as it is a means of arbitrary discrimination or a disguised restriction on trade between Member States.With regard to the second question, the plaintiffs in the main proceedings are of the opinion that the question whether or not Article 5 of the Treaty has direct effect depends on the content and the scope of the provisions of the Treaty or of the rules of secondary Community law, on the basis of which Article 5 of the Treaty is relied upon. The provisions of the two directives cited in the questions submitted for a preliminary ruling fulfil the conditions which, according to the Court of Justice, must be satisfied if a provision of a directive is to have direct effect (Case 51/76 Verband van Nederlandse Ondernemingen [1977] ECR 113). Consequently, Article 5 and the provisions of the directives in question have direct effect.As regards the third question, the order is manifestly in conflict with the spirit of the Community provisions regarding medicinal preparations. The practical consequence of the order is to suspend the authorization to market the medicinal preparations listed in Annexes 1 and 4 to the order. The prohibition laid down in the order regarding the proprietary medicinal preparations listed in Annex 4 is incompatible in particular with Article 12 of Directive 65/65 because the procedural guarantees required by virtue of that provision are not observed in the order.With regard to the fourth question, the plaintiffs in the main proceedings claim that the question whether or not Article 3 (f) of the EEC Treaty has direct effect depends on the content and the scope of the rules of the Treaty relating to competition, on the basis of which Article 3 (f ) of the Treaty is relied upon. In this case, Article 3 (f) has direct effect because Articles 85 and 86 have direct effect (Case 127/73 SABAM, [1974] ECR 51).As regards the fifth question, Community law must be interpreted as meaning that the articles in question prevent a Member State from adopting, with a view to achieving savings regarding the provision of pharmaceutical products to persons insured under the sickness insurance scheme, unilateral provisions.disentitling insured persons to the supply of specifically listed medicinal products and medicinal dressings if the effect of the adoption of such provisions is directly or indirectly, actually or potentially, to distort competition in the common market and if those provisions are capable of affecting trade between Member States.The defendant in the main proceedings considers that the first question should be answered in the negative. The purpose of Articles 30 and 34 is the creation of a common market characterized not only by the removal of barriers to trade between Member States but also by the normal functioning of the economy and genuine competition.Therefore, it is not contrary to the principle of the free movement of goods for an undertaking not to choose an imported product (or a product manufactured in its own country) and to give preference to another product (likewise imported or else manufactured in its own country). Where there is real access to the market, an undertaking has an opportunity to choose. By making its choice on the basis of objective criteria, it ensures the genuine competition sought by the Treaty and contributes to the functioning of the common market.In such circumstances, economic decisions of undertakings which are determined by practical and objective considerations do not constitute measures having an equivalent effect within the meaning of Articles 30 and 34 of the Treaty. Such a decision may influence the volume of imports but is not thereby contrary to Article 30 of the Treaty.The contested order which lists the supplies available through the sickness funds also of course has repercussions for the persons insured under the health care scheme. In fact, the order determines the rights to which persons insured under the scheme are entitled by virtue of the insurance. Nevertheless, a person insured under the health care scheme still retains his freedom of action, in so far as he wishes to act independently from the economic point of view. The order does not place any obstacle in the way of a person insured under the health care scheme who wishes to purchase an excluded product by paying the price asked for it.As regards Article 34, the order does not, in the view of the Netherlands State, affect exports in any way.If it were considered that the contested order should however be regarded as constituting an infrigemcnt of Article 30 of the Treaty, the Netherlands Government is of the opinion that such an infringement is justified. The purpose of the order in question is to ensure health care of the highest possible standard, at acceptable costs. Consequently, the exception recognized in the case-law of the Court regarding the “rule of reason” extends to the public interests involved in this case. Alternatively, the Netherlands Government considers that it is possible to rely upon the exception regarding the protection of public health provided for in Article 36 of the Treaty.As regards the second and third questions, the purpose of the directives in question is to regulate the marketing of proprietary medicinal products. The rules include the introduction of a system of authorizations and lay down criteria relating to the composition and quality of the products in question. The purpose of the contested order is different. It contains rules for the consumer as regards the list of available benefits and embodies an economic decision taken by or for the benefit of an organization operating within the economy. The freedom to take such economic decisions is not limited by the directives in question. Those directives certainly contribute to defining the range of products on offer from which that organization may choose but, for the rest, it retains its freedom of choice.In consequence, the directives and the order have different purposes and are not in conflict.For that reason the directives in question do not prohibit rules such as those referred to by the national court in its judgment making the reference, and therefore the third question should also be answered in the negative.The Netherlands Government takes the view that, in the circumstances, the Court ought not to consider the direct effect of the articles in question.As regards the fourth and fifth questions, the Netherlands Government considers that Articles 85 and 86 of the Treaty are not relevant to the assessment of the contested order in the light of Community law. In fact, the order does not constitute an agreement between undertakings affecting trade between States and distorting competition within the common market. Neither can it be validly claimed that the authorities, by adopting the order, are compelling undertakings to act in breach of the provisions in Articles 85 und 86. Moreover, Article 3 (f), which is given more specific expression inter alinea in Articles 85 and 86, has no real significance in this case.The Netherlands Government therefore considers that the fifth question must also be answered in the negative. Accordingly, there is no need to answer the fourth question. If the Court nevertheless considers that it must also examine the fourth question, the Netherlands Government defers entirely to the judgment of the Court regarding the answer to be given to that question.In its observations the Danish Government points out in the first place that schemes for assistance with the provision of medicinal products exist in several Member States, including Denmark. Such systems are manifestly justified by social considerations, because assistance in defraying a patient's expenses makes it possible to ensure that the availability of the appropriate medical treatment is not dependent upon the patient's financial situation. Community law, and in particular Article 30 et seq. of the Treaty, imposes certain specific limits to which Member States are subject when drawing up schemes for the provision of assistance regarding the supply of medicinal preparations. It follows, in particular, that the selection of preparations in respect of which assistance may be granted must not depend upon their origin. A public scheme for assistance with the provision of medicinal products is not contrary to Article 30 et seq. of the Treaty provided that, in the selection of the proprietary medicinal preparations in respect of which assistance may be granted, account is taken exclusively, on the basis of an objective and fair assessment, of their therapeutic value and of the expenses incurred for normal and necessary medical treatment.The Italian Government considers that Articles 30 and 34 of the Treaty do not prevent a Member State, in its concern to achieve savings regarding the provisions of pharmaceutical products, from introducing unilateral rules which withhold from persons insured under a benefit scheme entitlement to the supply of certain medicinal preparations, provided that the decision to include or exclude a particular product from the scheme is adopted in accordance with objective criteria and does not discriminate between national and imported products. Quantitative restrictions on imports or exports and measures having an equivalent effect are prohibited in so far as they are discriminatory. The provisions at issue, despite having adverse effects on trade in the products in question, affect national and imported products without distinction, on the basis of wholly objective considerations.Directives 65/65 and 75/319 make it incumbent upon the Member States to amend their provisions regarding authorizations to produce and market proprietary medicinal preparations, but they impose no obligation with regard to the provisions by virtue of which States or other public bodies defray expenses in respect of benefits in kind supplied to their nationals, unless they are implemented in a manner which is found to affect the marketing of such preparations. The measures in question do not supersede those governing the authorizations for trade in such products, even though they might affect the volume of the product marketed. Even if a product does not appear on the list, it remains on the market and is sold, albeit to a lesser extent, to persons not affected by its exclusion from sickness insurance schemes.As regards the alleged distortion of competition and the encouragement of concerted practices and underhand dealings, the Italian Government considers that the measures in question do not distort competition. In any event, recourse might be had to Article 85 (3) because there is no doubt that the careful choice made by the national authority contributes to improving production or promoting technical and economic progress.In its observations on the first question, the Commission considers that Article 34 is not applicable. The order in question has no effect on exports of medicinal preparations manufactured in the Netherlands. It is not intended specifically to restrain the flow of exports and does not therefore provide for a difference of treatment as between domestic trade and the export trade.As regards the applicability of Article 30, the Commission observes that the order is a measure under public law forming part of a sickness insurance scheme regulated and managed in accordance with law and that it falls within the fiel'd of application of Article 30.In view of the high percentage (70%) accounted for by the medicinal preparations prescribed within the framework of the sickness insurance scheme by comparison with the total quantity of medicinal preparations sold in the Netherlands, and by reason of the fact that roughly 80% of all the medicinal products sold in the Netherlands are imported, there can be no doubt that the order in question restricts imports. Consequently, the Commission considers that the order constitutes a measure having an effect equivalent to a quantitative restriction.As the Court held in its decision in the “Cassis de Dijon” case [1979] ECR 649, the prohibition laid down in Article 30 does not apply to national measures which apply without distinction to national and imported products and which are justified by mandatory requirements relating in particular to the protection of public health, the fairness of commercial transactions and the protection of consumers. According to the Commission, the mandatory requirements which the Court has to date recognized are not of such a nature as to justify the order. In particular, the measure cannot be justified by mandatory requirements relating to the protection of public health, with which the measure has strictly no connection. If the order had not been adopted, public health would in no way have been endangered.However, the Court has not given an exhaustive list of the mandatory requirements. Although, according to the Commission, it is appropriate to observe caution regarding any extension of the concept of mandatory requirements, it considers that this case is an example of a mandatory requirement of national policy which the Court should regard as justified within the meaning of Article 30.The purpose of the measure is to reorganize and improve the financial management of a sickness insurance scheme governed by public law. Although the Commission does not wish to claim that any national measure adopted to improve national finances ought to be permissible under Article 30, it considers that the order in question, which is intended exclusively to improve the financial management of a public sickness insurance scheme, may be regarded as compatible with Article 30 even if it affects trade. The measure applies objectively to medicinal products manufactured in the Netherlands and to imported medicinal products. The products are not treated differently according to their origin. Moreover, no measure has been adopted which is capable of directly affecting the marketing of the products, in the strict sense of the word. The marketing of them remains totally unrestricted, so that anyone may obtain the medicinal preparations in question, if necessary on the basis of a medical prescription. The restriction lies in the fact that the medicinal products appearing on the negative list are not supplied to persons insured under a health-care scheme within the framework of sickness insurance. Otherwise, they may purchase the medicinal preparations in the usual way, if they wish to do so, but without reimbursement.The Commission concludes therefore that the order in question does not fall within the prohibition imposed by Article 30.However, if the Court takes the view that Article 30 does apply to the order at issue, the question of the interpretation of Article 36 arises. The Commission is of the opinion that the grounds of justification laid down in Article 36 do not apply in this case.As regards the second question, the Commission considers that the articles mentioned in the question submitted by the national court contain a clearly-defined obligation which is not subject to any prior conditions and regarding the fulfilment of which the Member States have no margin of discretion. Moreover, fulfilment of the obligation does not require any legal measure to be adopted by the Member States or the Community institutions. Those articles satisfy all the conditions laid down in the decisions of the Court which must be satisfied if a provision of Community law is to have direct effect (Case 41/74 Van Duyn [1974] ECR 1337, Case 51/76 Verbond van Nederlandse Ondernemingen [1977] ECR 113 and Case 38/77 Enka [1977] ECR 2203).The third question, in the Commission's view, should be answered in the negative. The order in question does not concern access to the market. It in no way affects the freedom of producers to continue to market the medicinal preparations appearing on the negative lists.With regard to the fourth and fifth questions, the Commission considers that Articles 3 (f) and 5 may be relied upon by individuals before a national court provided that they are so relied upon in conjunction with Articles 85 and 86. As regards Articles 85 and 86, the Commission is of the opinion that they are not applicable to this case because one of the preconditions for the applicability of either article is the existence of an agreement between undertakings, a decision by associations of undertakings, a concerted practice or abuse of a dominant position. The Commission sees no reason for describing the order as constituting any of the foregoing. It considers the order to be a genuine measure of public law. It would be incompatible with Article 86 only if it upheld the abuse of a dominant position by an undertaking. It is however unlikely that such a situation exists in this case.