Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd

The ACCC's Case, Pfizer's Defence and the Issues at Trial 22 In its Amended Originating Application filed on 8 September 2014, the ACCC claimed declarations in respect of the four contraventions of the CCA alleged in the ASC and orders pursuant to s 76(1) of the CCA requiring Pfizer to pay a pecuniary penalty in respect of each of the pleaded contraventions. The ACCC alleged that Pfizer was guilty of two separate contraventions of s 46(1) of the CCA and was also guilty of two separate contraventions of s 47(1) of the CCA. It also claimed costs. 23 Many of the allegations made by the ACCC in the ASC were admitted by Pfizer in its Defence to the ASC (filed on 17 September 2014) (Defence). Other allegations were substantially admitted by Pfizer in its Defence.

Some Matters of Context (Paragraph 1 to Paragraph 41 of the ASC) 24 At pars 1 to 41 of the ASC, the ACCC pleaded a number of facts, matters and circumstances which constituted the setting in which the alleged contraventions took place. Pfizer did not take issue with most of these matters. We shall endeavour to summarise these matters in this section of our Reasons. The reader should assume that these matters were admitted by Pfizer in its Defence unless otherwise stated. 25 At all relevant times, Pfizer was a wholly owned subsidiary of Pfizer Australia Holdings Pty Limited (Pfizer Holdings). Pfizer was ultimately owned by Pfizer Inc. Pfizer was also a body corporate which was related to Pfizer Inc and to Warner-Lambert, a company also incorporated in accordance with the laws of the State of Delaware, USA, within the meaning of s 4A of the CCA. Pfizer was engaged in the business of, amongst other things, the supply of pharmaceutical products in Australia. 26 Atorvastatin is a pharmaceutical which functions by blocking an enzyme in the liver which the human body uses to make cholesterol thereby lowering levels of cholesterol for its users. The claimed benefits to users of atorvastatin include lowering the risk of heart attack, stroke, heart disease and chest pain, particularly for users exhibiting high risk factors including a family history of heart disease, high blood pressure, old age, low high-density lipoprotein cholesterol or smoking. 27 Warner-Lambert was the registered patentee of the atorvastatin patent. The atorvastatin patent was valid, subsisting and in full force and effect, from 18 May 1987 to the date of its expiry on 18 May 2012. 28 Warner-Lambert has been ultimately owned by Pfizer Inc since about June 2000. 29 From around early 1998 until about June 2000, Warner-Lambert, utilising the invention comprising the atorvastatin patent, manufactured a prescription pharmaceutical known as atorvastatin calcium under the pharmaceutical name LIPITOR atorvastatin. From about early 1998 until about June 2001, Parke Davis Pty Limited (a wholly owned subsidiary of Warner-Lambert) supplied Lipitor to wholesalers of pharmaceutical products in Australia who then supplied it to community pharmacies operating in Australia, being pharmacies in relation to which approval to dispense prescription drugs had been granted under s 90 of the National Health Act 1953 (Cth) (Health Act). 30 In the ASC, the ACCC referred to any atorvastatin pharmaceutical supplied under a name other than Lipitor as Generic Atorvastatin. 31 Between about June 2001 until about 31 January 2011, Pfizer supplied Lipitor to wholesalers in Australia and to community pharmacies directly. The wholesalers with which it dealt in that period were principally Symbion Pty Ltd (Symbion), Sigma Pharmaceuticals Limited (Sigma) and API Limited (API). In the same period, wholesalers also supplied Lipitor to community pharmacies in Australia. 32 From about 31 January 2011, Pfizer has been the exclusive supplier of Lipitor to community pharmacies in Australia. 33 In each of the financial years ended 30 June 2010, 30 June 2011, 30 June 2012 and 30 June 2013, atorvastatin was the highest selling prescription pharmaceutical in Australia. In that period, atorvastatin was prescribed to over 1 million members of the public in Australia. In the same period, over 10 million units of atorvastatin were supplied to members of the public in Australia. 34 Atorvastatin was the pharmaceutical that accounted for the highest total amount of subsidies paid under the PBS throughout the period 1 July 2009 to 30 June 2013. In each of the financial years ended 30 June 2010, 30 June 2011 and 30 June 2012, the value of atorvastatin sales in Australia under the PBS exceeded $700 million. In the financial year ended 30 June 2013, the value of atorvastatin sales in Australia under the PBS exceeded $500 million. 35 In around late 2002 or early 2003, disputes arose between Pfizer Inc and certain of its subsidiary companies and interests, including Pfizer and Warner-Lambert, on the one hand, and Ranbaxy India and certain of its subsidiary and affiliate companies including Ranbaxy Australia Pty Ltd (Ranbaxy Australia), on the other hand, regarding amongst other things: (a) The validity of certain patents owned by corporations in the Pfizer group of companies, including the atorvastatin patent; and (b) Whether entities in the group of companies of which Ranbaxy Australia was a member could lawfully distribute atorvastatin in Australia. 36 As part of the settlement of these disputes, certain entities in the Pfizer group of companies and certain entities in the Ranbaxy group of companies entered into an agreement in about May or June 2008 (Ranbaxy Agreement). The Ranbaxy Agreement provided for, or had the effect that, Ranbaxy Australia could: (a) Commence manufacturing, importing and stockpiling its own generic atorvastatin product in Australia from 18 November 2011; and (b) Commence marketing and selling its own generic atorvastatin product in Australia from 18 February 2012, being a date three months prior to the expiry of the atorvastatin patent. 37 The arrangement was that Ranbaxy Australia was permitted to proceed in accordance with the Ranbaxy Agreement without fear of being sued by any entity in the Pfizer group of companies alleging infringement of the atorvastatin patent. This arrangement meant that Ranbaxy Australia would have a head start of three months over other suppliers of generic atorvastatin in Australia who could not commence supply until 18 May 2012, at the earliest. 38 At par 18 of the ASC, the following matters were pleaded in respect of the PBS, namely: Pharmaceuticals Benefits Scheme At all material times: (a) the Federal Government subsidised the costs of pharmaceuticals under the PBS for certain medical conditions; (b) the PBS was governed by the Health Act; (c) the Schedule of Pharmaceutical Benefits for Approved Pharmacists and Medical Practitioners (PBS Schedule) listed all pharmaceuticals available to be dispensed to general members of the public at Government-subsidised prices, known in the industry as the patient co-payment contribution, being an amount fixed by the Federal Government as the maximum price a Community Pharmacy can charge a general member of the public for a pharmaceutical listed on the PBS Schedule (Patient Co-Payment); (d) upon a pharmaceutical being listed on the PBS Schedule, the maximum price that a supplier could charge Community Pharmacies for the pharmaceutical (Chemist List Price) was fixed by the Federal Government; (e) where a Community Pharmacy dispensed, pursuant to the PBS, a pharmaceutical listed on the PBS Schedule to a general member of the public, the Community Pharmacy was entitled to be paid by the Federal Government a subsidy (PBS Subsidy) being: i. the 'PBS dispensed price', determined by the sum of: A. the Chemist List Price; B. the prescribed pharmacy mark-up which, since 1 July 2010 has been prescribed by the Fifth Community Pharmacy Agreement (FCPA) and given legal effect by the Commonwealth Price (Pharmaceutical Benefits supplied by Approved Pharmacists) Determination 2010 (the Determination); C. the prescribed dispensing fee payable on both ready prepared and extemporaneously prepared pharmaceuticals listed on the PBS Schedule, which since 1 July 2010 has been prescribed by the FCPA and given effect by the Determination; and D. any other relevant prescribed fees listed on the PBS Schedule, which since 1 July 2010 have been prescribed by the FCPA and given effect by the Determination, less ii. the Patient Co-Payment; (f) payment of the PBS Subsidy was administered by Medicare Australia (Medicare) and a Community Pharmacy could claim from Medicare the PBS Subsidy on pharmaceuticals sold by it on a monthly basis; (g) when the first generic version of an originator pharmaceutical was listed on the PBS Schedule (First-Listed Generic), a mandatory reduction of 16% was applied to the Chemist List Price for the originator pharmaceutical (Mandatory Reduction); Particulars Section 99ACB of the Health Act. (h) a First-Listed Generic was only able to be listed on the PBS Schedule on 1 April, 1 August or 1 December of each calendar year; (i) new generic brands of a pharmaceutical subsequent to a First-Listed Generic could be listed on the PBS Schedule on the 1st day of the month in each calendar year; and (j) the PBS provided for a safety net, pursuant to which a general member of the public, once their accumulated eligible Patient Co-Payment contributions met a prescribed threshold within a calendar year, would be entitled to be charged a lower Patient Co-Payment for the balance of that calendar year through either purchasing pharmaceuticals listed on the PBS Schedule using a PBS Safety Net card or claiming a refund (Safety Net). 39 The facts and matters concerning the PBS pleaded in par 18 of the ASC constitute an accurate and helpful summary of the important features of the PBS. All of those facts and matters were admitted by Pfizer in its Defence (as to which, see par 18). 40 At all material times, manufacturers and wholesalers of atorvastatin were prohibited from supplying atorvastatin directly to members of the public in Australia. The supply of atorvastatin in Australia was, and is, restricted in all States and Territories to pharmacists dispensing in accordance with a prescription, medical practitioners and other designated persons, and does not include manufacturers and wholesalers of pharmaceuticals. 41 At all relevant times, atorvastatin was available for purchase by members of the public only from community pharmacies in Australia. Persons wishing to purchase atorvastatin had first to obtain a prescription for atorvastatin from a medical practitioner or, alternatively, from 1 September 2010, from a nurse practitioner authorised to prescribe PBS medicines and then by subsequently arranging to have that prescription filled by a pharmacist at a community pharmacy. 42 At all relevant times, there were in excess of 5,000 community pharmacies in Australia, almost all of which had a demand for, and acquired, atorvastatin. 43 At all relevant times, a pharmacist was not permitted lawfully to fill a prescription for atorvastatin with another pharmaceutical nor could a pharmacist lawfully fill a prescription for another pharmaceutical with atorvastatin. According to the ACCC (as to which see par 24 of the ASC), no other pharmaceutical supplied to community pharmacies was substitutable for atorvastatin. Pfizer took issue with this last proposition at par 24 of its Defence. 44 The total volume of atorvastatin required by community pharmacies: (a) Was determined by prescriptions issued by medical practitioners or, from 1 September 2010, by a nurse practitioner authorised to prescribe PBS medicines; and (b) Was effectively a derived level of demand. 45 Atorvastatin was distributed nationally by suppliers to community pharmacies and for the most part was imported by suppliers. 46 At par 27 of the ASC, the ACCC alleged that, by reason of the matters pleaded in pars 21 to 26 of the ASC … "at all material times there was an Australia-wide market for the supply of atorvastatin to, and acquisition of atorvastatin by, Community Pharmacies (Atorvastatin Market)". 47 The atorvastatin market as defined in the ASC was the only market relied upon by the ACCC as the relevant market in which the impugned conduct occurred. This was the case for the alleged s 46 contraventions as well as for the alleged s 47 contraventions. The ACCC did not allege that there was an Australia-wide market for the supply of statins to, and the acquisition of statins by, community pharmacies. The relevant market relied upon by the ACCC was a one product market although, in respect of the period after 18 February 2012 (at the latest), not a one brand market. 48 In its Defence, Pfizer took issue with the ACCC's definition of the relevant market. At pars 27A to 27J of its Defence, Pfizer pleaded facts and matters in support of its counter-allegation that the relevant market was a market for the wholesale supply of pharmaceutical products and over-the-counter products to community pharmacies in Australia. Those paragraphs were in the following terms: 27A. At all material times there were in Australia manufacturers and importers of pharmaceutical products, including atorvastatin (Manufacturers). Particulars The Manufacturers included Alphapharm Pty Ltd, Apotex Pty Ltd, Ascent Pharma Pty Ltd, Aspen Pharma Pty Ltd, Dr Reddy's Laboratories (Australia) Pty Ltd, Generic Health Pty Ltd, Glaxosmithkline Pty Ltd, Janssen-Cilag Pty Ltd, Merck Sharpe & Dohme (Australia) Pty Ltd, Novartis Pharmaceuticals Australia Pty Ltd, Pfizer Australia Pty Ltd, Ranbaxy Australia Pty Ltd, Sandoz Pty Ltd, Sanofi-Aventis Australia Pty Ltd, Spirit Pharmaceuticals Pty Ltd and STADA Pharmaceuticals Australia Pty Ltd. 27B. At all material times there were in Australia wholesalers of products typically sold in Community Pharmacies, namely pharmaceutical products and over-the-counter or 'OTC' products. Particulars The wholesalers included API Limited, Sigma Pharmaceuticals Limited and Symbion Pty Ltd (Wholesalers) and, from 31 January 2011, Pfizer. 27C. At all material times Manufacturers supplied pharmaceutical products to wholesalers. 27D. At all material times Wholesalers supplied products typically sold in Community Pharmacies, namely pharmaceutical products and over-the-counter products, to Community Pharmacies. 27E. The services provided by Wholesalers included warehousing and distribution of products typically sold in Community Pharmacies, namely, pharmaceutical products and over-the-counter products. 27F. At all material times Wholesalers offered Community Pharmacies prices, discounts, rebates, credits, allowances or benefits to encourage Community Pharmacies to: (a) purchase all or most of their pharmaceutical products and over-the-counter products from that Wholesaler; and/or (b) maximise as far as possible their purchases of pharmaceutical and over-the­counter products from that Wholesaler. 27G. A wholesaler is eligible tor payments from the Community Service Obligation Pool administered by the Commonwealth Government if that wholesaler meets certain service standards, including supplying any brand of PBS Medicine (as defined in the Community Service Obligation Funding Pool Operational Guidelines), not the subject of an exclusive supply arrangement, to any Community Pharmacy that requests it, within 24 hours. 27H. At all material times each of the Wholesalers was eligible for payments from the Community Service Obligation Pool. 27I. At all material times Community Pharmacies supplied pharmaceutical products and over-the-counter products to members of the public. 27J. By reason of the matters pleaded in paragraphs 27A to 27I above, at all material times there was a market for the wholesale supply of pharmaceutical products and over-the-counter products to Community Pharmacies in Australia (the Wholesale Market). 49 Throughout its Defence, as necessary, Pfizer consistently denied the existence of the atorvastatin market and relied upon the wholesale market, as defined in par 27J of its Defence, as the relevant market in which the impugned conduct took place. So, for example, when the ACCC alleged at par 28 of the ASC that Lipitor was supplied by Pfizer in the atorvastatin market, Pfizer admitted that Lipitor was supplied by Pfizer but denied the existence of the alleged atorvastatin market. Both of the competing definitions of the relevant market were confined to Australia. They both were nonetheless said to operate Australia-wide. 50 At all relevant times, there was significant and sustained demand from community pharmacies for Lipitor. The prices charged by Pfizer for the supply of Lipitor to community pharmacies were significantly higher than the prices charged for the supply of generic atorvastatin to community pharmacies when those products became available. 51 From about 16 January 2012, atorvastatin Pfizer, a generic atorvastatin manufactured by Pfizer, was offered for supply and subsequently supplied by Pfizer in the atorvastatin market. 52 In about June 2011, the size and shape of Lipitor tablets supplied to community pharmacies by Pfizer changed from a large oval form to a smaller round form. Atorvastatin Pfizer tablets were the same size, shape and colour and were manufactured and packed in the very same factory, as Lipitor, as it was supplied from January 2012. 53 From 18 February 2012, Ranbaxy Australia supplied a generic atorvastatin, Trovas, or offered Trovas for supply, in the atorvastatin market, as it was lawfully permitted to do under the Ranbaxy Agreement. 54 Atorvastatin Pfizer and Trovas were both listed on the PBS Schedule on 1 April 2012. This was the earliest date that those pharmaceuticals could be listed on that Schedule. 55 In the circumstances, community pharmacies could not receive any PBS Subsidy and members of the public would not receive any Safety Net Benefit associated with any supply of atorvastatin Pfizer or Trovas to members of the public before 1 April 2012. 56 On and from the expiry of the atorvastatin patent on 18 May 2012, manufacturers and importers other than Pfizer and Ranbaxy Australia were no longer prevented by the atorvastatin patent from offering and supplying generic atorvastatin in the atorvastatin market. According to Pfizer, some manufacturers or importers promoted their generic atorvastatin prior to 19 May 2012. 57 At pars 38 and 39 of the ASC, the ACCC pleaded the following matters: 38. The following brands of Generic Atorvastatin, supplied by the following manufacturers or importers of atorvastatin, were listed on the PBS Schedule from 1 June 2012, which was the earliest date (after the expiry of the Atorvastatin Patent) on which those brands could have been listed: (a) Lorstat, a Generic Atorvastatin manufactured or imported by Alphapharm Pty Ltd (Alphapharm); (b) APO-Atorvastatin, a Generic Atorvastatin manufactured or imported by Apotex Pty Ltd (Apotex); (c) Chemmart Atorvastatin, a Generic Atorvastatin manufactured or imported by Apotex; (d) Terry White Chemists Atorvastatin, a Generic Atorvastatin manufactured or imported by Apotex; (e) Atorvachol, a Generic Atorvastatin manufactured or imported by Ascent Pharma Pty Ltd (Ascent); (f) Torvastat, a Generic Atorvastatin manufactured or imported by Aspen Pharma Pty Ltd (Aspen); (g) Atorvastatin GH, a General [sic] Atorvastatin manufactured or imported by Generic Health Pty Ltd (Generic Health); and (h) Atorvastatin Sandoz, a Generic Atorvastatin manufactured or imported by Sandoz Pty Ltd (Sandoz). 39. By reason of the matters pleaded in paragraphs 18 and 38 above, Community Pharmacies could not receive any PBS Subsidy and general members of the public would not receive any Safety Net benefit associated with any supply of one or more of the brands of Generic Atorvastatin referred to in paragraph 38 above to general members of the public before 1 June 2012. 58 Prior to 1 June 2012, there was a significant financial disincentive for community pharmacies to supply to members of the public one or more of the brands of generic atorvastatin referred to in par 38 of the ASC in substitution for atorvastatin Pfizer or Trovas. 59 At par 41 of the ASC, the ACCC pleaded the following matters: The following brands of Generic Atorvastatin, supplied by the following manufacturers or importers of atorvastatin, were listed on the PBS Schedule on the following dates after 1 June 2012: (a) Atorvastatin SCP, a General [sic] Atorvastatin manufactured or imported by Dr Reddy's Laboratories (Australia) Pty Ltd (Dr Reddy's), which was listed on the PBS Schedule from 1 August 2012; (b) STADA Atorvastatin, a General [sic] Atorvastatin manufactured or imported by STADA Pharmaceuticals Australia Pty Ltd (STADA), which was listed on the PBS Schedule from 1 August 2012 until 1 December 2013; and (c) Atorvastatin SZ, a Generic Atorvastatin manufactured or imported by Sandoz, which was listed on the PBS Schedule from 1 August 2013, (Alphapharm, Apotex, Ascent, Aspen, Dr Reddy's, Generic Health, Sandoz and STADA are hereinafter referred to as Other Generics Suppliers). 60 The eight organisations identified in par 41 of the ASC as suppliers of generic atorvastatin together with Ranbaxy Australia comprised Pfizer's competitors in the atorvastatin market post 18 May 2012. 61 We interpolate here that the evidence tendered at the trial established that, by June 2012, 77% of the atorvastatin market was being supplied by suppliers of generics, including by Pfizer as the supplier of atorvastatin Pfizer, its generic atorvastatin. That position continued for some time thereafter. It should also be noted that by April 2012, which was approximately one month before the expiry of the atorvastatin patent, 68% of Lipitor's share of the atorvastatin market had been lost to atorvastatin Pfizer and, to a much lesser extent, Ranbaxy Australia's Trovas product.

The Impugned Conduct (Paragraph 42 to Paragraph 60 of the ASC) 62 In or around late 2010, Pfizer advised community pharmacies that it: (a) Intended to commence manufacturing and supplying generic brands of originator prescription pharmaceuticals manufactured and supplied by it and for which its patents would shortly expire, including a generic atorvastatin pharmaceutical; and (b) Would offer community pharmacies a discount on the supply of the generic brands of prescription pharmaceuticals, including a generic atorvastatin pharmaceutical. 63 On or around 3 December 2010, Pfizer announced that it would cease to supply prescription pharmaceuticals to community pharmacies through wholesalers and would soon commence marketing and supplying prescription pharmaceuticals exclusively direct to community pharmacies. 64 Pfizer implemented its DTP model on or about 31 January 2011. It did so through a business unit known as "Pfizer Direct". 65 On or about 31 January 2011, Pfizer established its accrual funds scheme. 66 Commencing on or about 16 January 2012, Pfizer made offers to all, or virtually all, community pharmacies in Australia that it would: (a) Supply atorvastatin Pfizer; (b) Provide access to rebates on the supply of Lipitor; and (c) Give or allow discounts in relation to the supply of Lipitor and atorvastatin Pfizer, on the terms and conditions contained in a document entitled "Atorvastatin offer Pharmacy Acceptance Form". These offers are called "Atorvastatin Pfizer Offers" in the ASC. 67 The detailed terms of the atorvastatin Pfizer offers are set out in par 51 of the ASC. There were four tiers of offer made: Platinum, Gold, Silver and "Alternate". Depending on which offer type was under consideration, different rebates and discounts were offered. 68 At par 52 and par 53 of the ASC, the ACCC made the following allegations: 52. In the period up to and including 24 February 2012, the Platinum Offer, Gold Offer and Silver Offer, amongst other things, included terms and conditions to the effect that: (a) Community Pharmacies were required to accept a Platinum Offer, a Gold Offer or a Silver Offer on or before 24 February 2012, in order to receive the relevant proportion of the Lipitor Rebate to be released as a credit on their end of month statement for April 2012; (b) the entire Nominated Volume of Atorvastatin Pfizer was to be delivered in one shipment or multiple shipments before 30 April 2012; (c) the discounts on Lipitor were subject to "first line support" of Atorvastatin Pfizer, in that at least 75% of the total Generic Atorvastatin volumes dispensed by a Community Pharmacy was required to be Atorvastatin Pfizer. This requirement applied from the date of a Community Pharmacy's first delivery of Atorvastatin Pfizer until it had dispensed all of the Atorvastatin Pfizer supplied pursuant to a Platinum Offer, a Gold Offer or a Silver Offer, (Terms and Conditions). 53. The timing of the release of the Lipitor Rebate to Community Pharmacies that accepted a Platinum Offer, a Gold Offer or a Silver Offer after 24 February 2012 was not communicated by Pfizer to Community Pharmacies until after 24 February 2012. 69 In its Defence, Pfizer denied the allegations made in par 52(a) and par 53 of the ASC. It said that it waived the requirement referred to in par 52(a) for many community pharmacies. 70 After 24 February 2012, Pfizer advised community pharmacies of the terms and conditions that would apply to the late acceptance of its atorvastatin Pfizer offers. The terms and conditions governing those late acceptances are set out at par 54 of the ASC. The effect of the late acceptance terms and conditions was to reduce the amount of the Lipitor rebate which might be accessed by a community pharmacy if the atorvastatin Pfizer offers were accepted after 24 February 2012. 71 Platinum, Gold and Silver offers were subsequently accepted by a significant number of community pharmacies. 72 Prior to 1 April 2012, Pfizer in fact supplied atorvastatin Pfizer and Lipitor to community pharmacies in accordance with the terms and conditions governing the atorvastatin Pfizer offers. 73 At par 60 of the ASC, the ACCC alleged that a substantial purpose of Pfizer in engaging in the conduct which we have summarised above was to hinder, deter or prevent other suppliers of generic atorvastatin from supplying generic atorvastatin to a substantial proportion of community pharmacies. Particulars of the evidence relied upon to prove the alleged substantial purpose were set out in par 60 of the ASC. Some of the particular matters referred to in par 60 were admitted by Pfizer. Most were denied. Pfizer denied the existence of the atorvastatin market and denied having the purpose alleged in the period to which the matters alleged in par 60 relate.

The Alleged Section 46 Contraventions (Paragraph 61 to Paragraph 67 of the ASC) 74 At par 61 of the ASC, the ACCC alleged that, from in or around June 2000 until at least 18 May 2012, Pfizer had a substantial degree of power in the atorvastatin market. Pfizer denied that it had a substantial degree of market power in the atorvastatin market. Particulars underpinning the ACCC's allegation were set out in par 61 of the ASC. 75 At pars 62 to 65 of the ASC, the ACCC alleged that, for the reasons specified in those paragraphs, Pfizer took advantage of its substantial degree of market power in the atorvastatin market. This is also denied by Pfizer. 76 At par 65A and par 65B of the ASC, the ACCC pleaded the following matters: 65A. By structuring at least the Platinum Offer to include the Lipitor Rebates, discounts on Lipitor and discounts on Atorvastatin Pfizer, Pfizer offered and supplied Atorvastatin Pfizer to Community Pharmacies pursuant to the Terms and Conditions and the Late Acceptance Terms and Conditions below Pfizer's forecast cost of supplying Atorvastatin Pfizer, and in some cases below a zero price, in that the sum of: (a) the Lipitor Rebates; (b) the incremental discounts on Lipitor (relative to the discounts offered pursuant to the Alternate Offer); and (c) the discounts on Atorvastatin Pfizer, offered pursuant to the Terms and Conditions and the Late Acceptance Terms and Conditions of the Platinum Offer resulted in Pfizer offering and supplying Atorvastatin Pfizer to Community Pharmacies below Pfizer's forecast cost of supplying Atorvastatin Pfizer, and in some cases below a zero price. Particulars i. Document named 'Lipitor Forecast NewStructure 20120104.xlsx', January 2012. ii. The ACCC repeats the particulars pleaded in relation to paragraphs 18(g) and 51 above. 65B. Further, or in the alternative, to paragraph 65 above, by reason of the matters pleaded in paragraph 65A above, Pfizer has taken advantage of its substantial degree of market power in the Atorvastatin Market in engaging in the conduct pleaded in paragraphs 50 to 59 above. 77 At pars 66 to 67A, the ACCC pleaded the following matters: Purpose 66. By reason of the matters pleaded in paragraph 60, Pfizer engaged in the conduct pleaded in paragraphs 43 to 59 above for the purpose, or for purposes that included the substantial purpose, of deterring or preventing other suppliers of Generic Atorvastatin, including Ranbaxy Australia and Other Generics Suppliers, from engaging in competitive conduct in the Atorvastatin Market. Contraventions 67. By reason of the matters pleaded in paragraphs 42 to 53, 55 to 59, 60(a) to 60(r), 60(t) to 60(v) and 61 to 66 above, Pfizer has engaged in conduct in contravention of section 46(1) of the CCA, in that during the period between at least 1 December 2010 and 18 May 2012 Pfizer held a substantial degree of market power in the Atorvastatin Market and took advantage of that power by its conduct which cumulatively comprised: a. the implementation of the Pharmacy Supply Arrangements; b. the establishment of the Accrual Funds Scheme, including the Lipitor Rebates; and c. from on or about 16 January 2012 offering to supply and subsequently supplying atorvastatin to Community Pharmacies pursuant to the Atorvastatin Pfizer Offers which included the Terms and Conditions, for the purpose of deterring or preventing other suppliers of generic atorvastatin from engaging in competitive conduct in the Atorvastatin Market. 67A. By reason of the matters pleaded in paragraphs 42 to 51, 54 to 59, 60(a) to 60(g), 60(s) to 60(v) and 61 to 66 above, Pfizer has engaged in conduct in contravention of section 46(1) of the CCA, in that during the period between at least 1 December 2010 and 18 May 2012 Pfizer held a substantial degree of market power in the Atorvastatin Market and took advantage of that power by its conduct which cumulatively comprised: a. the implementation of the Pharmacy Supply Arrangements; b. the establishment of the Accrual Funds Scheme, including the Lipitor Rebates; and c. from at least on or about 24 February 2012 offering to supply and subsequently supplying atorvastatin to Community Pharmacies pursuant to the Atorvastatin Pfizer Offers which included the Late Acceptance Terms and Conditions, for the purpose of deterring or preventing other suppliers of generic atorvastatin from engaging in competitive conduct in the Atorvastatin Market. 78 In its Defence, Pfizer took issue with the proposition that it had a substantial degree of market power in the atorvastatin market in the first half of 2012 and denied that it took advantage of any market power that it had in that period or earlier for the purposes ascribed to it in the ASC.

The Alleged Section 47 Contraventions (Paragraph 68 to Paragraph 73C of the ASC) 79 The ACCC alleged at pars 68 to 73C of the ASC that, in offering to supply atorvastatin Pfizer and Lipitor to community pharmacies and by supplying those pharmaceuticals pursuant to the terms and conditions of the atorvastatin Pfizer offers, Pfizer offered, gave or allowed the discounts provided pursuant to those offers and the rebates or credits offered pursuant to those offers on the condition that community pharmacies would not, except to a limited extent, for specified periods of up to 12 months: (a) Acquire atorvastatin directly or indirectly from a competitor of Pfizer in the atorvastatin market; or (b) Re-supply atorvastatin acquired directly or indirectly from a competitor of Pfizer in the atorvastatin market. 80 The ACCC went on to allege that the purpose or a substantial purpose of Pfizer in engaging in that conduct was to cause a substantial lessening of competition in the atorvastatin market by: (a) Preventing or hindering other suppliers of generic atorvastatin, including Ranbaxy Australia and other generics suppliers, from supplying generic atorvastatin to a substantial proportion of community pharmacies; and thereby (b) Preventing or hindering other suppliers of generic atorvastatin, including Ranbaxy Australia and other generics suppliers, from competing with Pfizer for the supply of such products in the atorvastatin market. 81 The ACCC alleged that, from on or about 16 January 2012 until at least 18 May 2012, Pfizer engaged in the practice of exclusive dealing by offering to supply and subsequently supplying atorvastatin to community pharmacies pursuant to the atorvastatin Pfizer offers which included the terms and conditions for the purpose of substantially lessening competition in the atorvastatin market. 82 The ACCC ultimately alleged that this conduct constituted a breach of s 47(1) of the CCA. 83 In its Defence, Pfizer admitted offering to supply and supplying atorvastatin Pfizer and Lipitor upon the terms and conditions alleged by and relied upon by the ACCC in the ASC but denied doing so for the purpose alleged and denied engaging in the practice of exclusive dealing.

The Section 51(3) Defence (Paragraph 73D of the Defence) 84 In par 73D of the Defence, Pfizer raised a positive defence to the alleged contraventions of s 47 of the CCA based upon s 51(3) of the CCA. That paragraph was in the following terms: By way of further defence to the alleged contraventions of s. 47 of the CCA pleaded at paragraphs 68 to 73C of the amended statement of claim, Pfizer says: (a) At all times prior to 18 May 2012, Pfizer was a licensee of the Atorvastatin Patent pleaded at paragraph 5 of the amended statement of claim. (b) In supplying and/or agreeing to supply Atorvastatin Pfizer and/or Lipitor to a Community Pharmacy prior to 18 May 2012 pursuant to the terms and conditions of an Atorvastatin Pfizer Offer, Pfizer granted that Community Pharmacy a licence of the Atorvastatin Patent (the "Sub-Licence"). (c) If (which is denied) prior to 18 May 2012 Pfizer offered, gave or allowed the discounts, rebates or credits pleaded at paragraphs 69 and 70 of the amended statement of claim on the condition pleaded at paragraph 71(a) of the amended statement of claim, then: (i) the condition pleaded at paragraph 71(a) of the amended statement of claim was a condition of the Sub-Licence; (ii) the condition pleaded at paragraph 71(a) of the amended statement of claim related to the invention to which the Atorvastatin Patent related and/or articles made by use of that invention; (iii) by virtue of s. 51(3) of the CCA, Pfizer did not contravene s. 47 of the CCA by imposing or giving effect to the condition pleaded at paragraph 71(a) of the amended statement of claim. (d) If (which is denied) prior to 18 May 2012 Pfizer offered, gave or allowed the discounts, rebates or credits pleaded at paragraphs 69 and 70 of the amended statement of claim on the condition pleaded at paragraph 71(b) of the amended statement of claim, then: (i) the condition pleaded at paragraph 71(b) of the amended statement of claim was a condition of the Sub-Licence: (ii) the condition pleaded at paragraph 71(b) of the amended statement of claim related to the invention to which the Atorvastatin Patent related and/or articles made by use of that invention; (iii) by virtue of s. 51(3) of the CCA, Pfizer did not contravene s. 47 of the CCA by imposing or giving effect to the condition pleaded at paragraph 71(b) of the amended statement of claim.

The Judgment of the Primary Judge - A Synopsis 85 The trial before the primary judge took fourteen hearing days. His Honour delivered a lengthy and thorough judgment in which his Honour carefully considered all of the relevant issues raised by the parties for determination at the trial. 86 As already mentioned (see, in particular, [17]-[18] above), the ACCC has advanced a substantial number of grounds of appeal in its Notice of Appeal and Pfizer, for its part, has raised a number of matters in its Notice of Contention (see [19] above). 87 In due course, we will address in detail the findings made by his Honour when dealing with the grounds of appeal and the matters raised in the Notice of Contention. In this section of our Reasons, we propose to give a relatively short synopsis of the primary judge's judgment in order to set the scene for a more detailed consideration of the matters raised on appeal. In these Reasons, when referring to specific paragraphs in the judgment of the primary judge, we shall provide the page number in the report of the judgment at (2015) 323 ALR 429 followed by the paragraph number.

Section 46 and Section 47 of the CCA (The Law) 88 After introducing the general subject matter of and issues raised by the parties in the case, the primary judge proceeded to consider the relevant legislative provisions and the authorities which have explained and authoritatively determined the meaning of those provisions. As his Honour correctly noted at 434 [19] of his Reasons: There was no real dispute between the parties as to the meaning and ambit of operation of these provisions. The real dispute was whether the facts fell within these provisions. It nevertheless remains important to set forth some accepted principles in respect to each provision. 89 His Honour concluded that, for all of the contraventions pleaded and relied upon by the ACCC, it was necessary to identify the market in relation to which the alleged contraventions occurred (see 435 [23] and 437 [29] of the Reasons). His Honour also observed (correctly) that, in the present case, for the purposes of the ACCC's s 46 case, the market in which Pfizer is alleged to have had a substantial degree of power for some time (the atorvastatin market) was the same market to which the impugned conduct was directed for the requisite proscribed purpose. He also noted (correctly) that, for the purposes of the ACCC's s 47 case, the market in which the competition was allegedly substantially lessened or intended to be substantially lessened by the impugned conduct was also the atorvastatin market. Thus, for all relevant purposes, only one market needed to be identified and defined. Although Pfizer took issue with the ACCC's definition of the relevant market, it nonetheless accepted that only one market needed to be considered (viz the wholesale market) and conducted its case accordingly. 90 At 437-441 [29]-[37], the primary judge considered the principles which guide the Court in its determination of the relevant market for the purpose of s 46(1)(c) and for the purpose of s 47. At 437 [30], his Honour noted that the relevant market must be a market in Australia (as to which, see s 4E of the CCA and the decision of the High Court in Air New Zealand Ltd v Australian Competition and Consumer Commission [2017] HCA 21; (2017) 344 ALR 377 (Air NZ)). 91 The primary judge did not have the benefit of the judgment of the High Court in Air NZ. Nonetheless, with respect, he explained the relevant principles correctly. Pfizer did not contend that his Honour's exposition of those principles contained errors or that his Honour had omitted critical points. Rather, the criticism was that his Honour had misapplied the relevant principles. 92 At 437-440 [32]-[35], his Honour considered Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 (Re QCMA) at 190; Queensland Wire Industries Proprietary Limited v The Broken Hill Proprietary Company Limited (1989) 167 CLR 177 (Qld Wire) at 187-188; Trade Practices Commission v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299 at 317; and Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317 (AGL) at 426-427 and then said (at 440-441 [35]-[37]): Finally, reference should also be made to Australian Gas Light Co v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317; [2003] FCA 1525 at [378] and [379] where French J (as his Honour then was) observed: [378] The concept of market describes, in a metaphorical way, an area or space of economic activity whose dimensions are function, product and geography. A market may be defined functionally by reference to wholesale or retail activities or a combination of both. The concept of product encompasses goods and services and, having regard to the definition of "market" in s 4E, includes the range of goods or services which are substitutable for or competitive with each other. [379] The process of market definition was expounded in QCMA where the Tribunal defined "market" as the area of close competition between firms and observed that substitution occurs within a market between one product and another, and between one source of supply and another in response to changing prices (at 190): "So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive." In Re Tooth & Co Ltd (1979) 39 FLR 1, the Tribunal identified the task of market analysis as involving: 1. Identification of the relevant area or areas of close competition. 2. Application of the principle that competition may proceed through substitution of supply source as well as product. 3. Delineation of a market which comprehends the maximum range of business activities and the widest geographic area within which, if given a sufficient economic incentive, buyers can switch to a substantial extent from one source of supply to another and sellers can switch to a substantial extent from one production plan to another. 4. Consideration of longrun substitution possibilities rather than shortrun and transitory situations recognising that the market is the field of actual or potential rivalry between firms. 5. Selection of market boundaries as a matter of degree by identification of such a break in substitution possibilities that firms within the boundary would collectively possess substantial market power so that if operating as a cartel they could raise prices or offer lesser terms without being substantially undermined by the incursions of rivals. 6. Acceptance of the proposition that the field of substitution is not necessarily homogeneous but may contain submarkets in which competition is especially close or especially immediate. This is subject to the qualification that competitive relationships in key submarkets may have a wide effect upon the functioning of the market as a whole. 7. Identification of the market as multidimensional involving product, functional level, space and time. Of particular importance in respect to each of these expositions of the concept of "market" are the continued references to goods or services which are "substitutable for or competitive with each other" and the focus upon the identification of a "field of actual and potential transactions between buyers and sellers among whom there can be strong substitution, at least in the long run". See also: Karsh, "The Role of Supply Substitutability in Defining the Relevant Product Market" (1979) 65 Virginia L Rev 129. However the concept of a "market" may be defined, it must be recognised that "a market is not an artificial economic construct but rather a place, actual or nominal but recognisable not just by economists but also by its participants, be they suppliers or consumers, in which forces of supply and demand interact in the conduct of trade, a profession or commerce": Australian Competition and Consumer Commission v Flight Centre Ltd (2013) 307 ALR 209; [2013] FCA 1313 at [108] per Logan J. With specific reference to the terms of s 4E, it has long been recognised that the section refers to both a market in which goods are "substitutable" and "otherwise competitive with" other goods. The "better view" as to the construction of s 4E, it has been said, "is that s 4E addresses constraints upon the supply or acquisition of the relevant goods or services" and in that context "the word 'substitutable' is used in a narrow sense whilst the words 'or otherwise competitive with' include degrees of 'substitutability'": Seven Network Ltd v News Ltd (2009) 182 FCR 160; 262 ALR 160; [2009] FCAFC 166 at [621] (Seven Network) per Dowsett and Lander JJ. However construed, s 4E confirms that the concept of substitution is basic to the process of market definition: Australian Competition and Consumer Commission v Air New Zealand Ltd [2014] FCA 1157 at [213] (Air New Zealand) per Perram J. 93 The observations which his Honour made at 440-441 [35]-[37] demonstrate that his Honour had an accurate appreciation of an appropriate working definition of market which he later applied to the facts of the case before him. 94 At 441-443 [38]-[42], his Honour considered the principles which govern the determination of the next question for s 46(1)(c) purposes viz whether the alleged contravener had, at the relevant time, "a substantial degree of power" in the relevant market. 95 At 441 [39], the primary judge noted that market power "means capacity to behave in a certain way (which might include setting prices, granting or refusing supply, arranging systems of distribution), persistently, free from the constraints of competition" (Melway Publishing Pty Limited v Robert Hicks Pty Limited (2001) 205 CLR 1 (Melway) at 27 [67] per Gleeson CJ, Gummow, Hayne and Callinan JJ). 96 His Honour went on to observe (at 441 [40]) that a primary consideration relevant to determining whether a corporation has "market power" is whether there are barriers to entry into the relevant market (quoting from the judgment of Lockhart and Gummow JJ in Eastern Express Pty Limited v General Newspapers Pty Limited (1992) 35 FCR 43 (Eastern Express) at 62). 97 According to the primary judge, in order to have a "substantial" degree of market power, the corporation must be able to sustain its conduct over a reasonable period of time (Boral Besser Masonry Limited v Australian Competition and Consumer Commission (2003) 215 CLR 374 (Boral) at 467-468 per McHugh J). Whether the use of the word "substantial" adds much to the concept of "market power" is a matter which is open to debate. At most, it calls for a quantitative assessment of the relevant market power. 98 At 443-451 [43]-[60] of his Reasons, his Honour considered the meaning of "purpose" when used in both s 46(1)(c) and s 47(10)(a) of the CCA. 99 Although (at 443 [45]), the primary judge correctly noted that the "purpose" referred to in s 46(1) and the "purpose" referred to in s 47(10)(a) are differently expressed and invite different enquiries. He said that, in s 46(1)(c), the proscribed purpose is "… the purpose of deterring or preventing a person from engaging in competitive conduct (in the relevant market)" whereas in s 47(10)(a), the proscribed purpose is "… the purpose of substantially lessening competition". 100 At 444 [46], his Honour said that, in both provisions, the proscribed purpose must be ascertained subjectively and not objectively. In support of that proposition, he cited the judgment of the Full Court in ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 (Pont Data) at 474-475. 101 At 444 [47] of his Reasons, his Honour said: "Purpose" is concerned with the "intent" of the corporation engaging in the impugned conduct and is not concerned directly with the effect of conduct: Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 at 143; 106 ALR 75 at 110 (Dowling). Lockhart J there referred to a number of authorities, including ASX Operations, and observed: The determination of purpose for the purposes of s 46 is to be ascertained subjectively, in the sense of ascertaining the intent of the corporation in engaging in the relevant conduct … "Purpose" in s 46 is not concerned directly with the effect of conduct, but with purpose in the sense of motivation and reason, though, as mentioned earlier, purpose may be inferred from conduct … The same proposition was repeated by Lockhart and Gummow JJ in Eastern Express at FCR 66; ALR 320 as follows: If a corporation has a substantial degree of power in the relevant market the question then arises whether the corporation has taken advantage of that power for one or other of the purposes proscribed by s 46(1)(a), (b) or (c). It is permissible to infer the relevant purpose under s 46: s 46(7). Further, a corporation shall be deemed to have engaged in conduct for a particular purpose if it engaged in conduct for purposes that included that purpose, and that purpose is a substantial purpose: s 4F(b). The determination of purpose for the operation of s 46 is to be ascertained subjectively, in the sense that what is to be ascertained is the intent of the corporation engaging in the relevant conduct: … "Purpose" in s 46 is not concerned directly with the effect of conduct, but with "purpose" in the sense of motivation and reason, although, as mentioned earlier, purpose may be inferred from conduct … Lockhart J had previously observed in Dowling that purpose "will generally be inferred from the nature of the contract, the circumstances in which it was made and its likely effect": at FCR 134; ALR 101. 102 At 444 [48], the primary judge noted that what needs to be proved is the actual purpose of the alleged contravener (Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 (Universal Music) at 588). 103 At 445 [49]-[50] of his Reasons, his Honour said: More recently, the difference between "purpose" and "motive" has, perhaps, been slightly differently expressed. Gleeson CJ in News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563; 200 ALR 157; [2003] HCA 45 at [18] (News) observes: [18] … The distinction between purpose and effect is significant … In a case such as the present, it is the subjective purpose … that is to say, the end they had in view, that is to be determined. Purpose is to be distinguished from motive. The purpose of conduct is the end sought to be accomplished by the conduct. The motive for conduct is the reason for seeking that end. The appropriate description or characterisation of the end sought to be accomplished (purpose), as distinct from the reason for seeking that end (motive), may depend upon the legislative or other context in which the task is undertaken … See also: Seven Network at [851]-[858] per Dowsett and Lander JJ. One manner in which "purpose" may well be established is if a corporation exerts pressure so as to defeat a new entrant's attempt to gain market share and a place in the market: Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR 42-123; [2006] FCA 826 (Liquorland). Allsop J (as his Honour then was) there observed (at [807]): [807] There is a danger in disembodying the debate about purpose from the evidence that is available. Even if a market is workably competitive or highly competitive, the appearance of a new entrant actively engaging in the winning of market share and recognition is the working of the competitive process. The effect of a new entrant may have a detrimental effect on the business and turnover of incumbents. That, of itself, will create competitive pressures and close competition to defeat the new entrant's attempt to gain market share and a place in the market. There may be cases where a firm acting to prevent a new entrant can explain that by a desire divorced from competition and the competitive process. If a firm has a purpose to impede or prevent the entry of a new competitor into a market lest that new entrant conduct itself competitively to wrest business from the incumbent and so damage its business, that purpose involves the process of competition. It involves preventing entry into the market and preventing a state of affairs of lost sales through additional competitive activity. Such lost sales and damage to business will, in the ordinary course call for steps, if available, in response to meet the challenge of any new entrant. The available steps may be marginal if the market is already highly competitive. To say as much, however, is only to posit even closer, or more fierce, competition. If a purpose is to prevent or impede market entry and so to prevent competitive activity, that is sufficient it seems to me to amount to a purpose directed to the competitive process. One does not need to superadd a further purpose that the success of that purpose is to affect the degree of competitive activity as opposed merely to preserving the firm's share of revenue in a mercantilist sense. The entry of competitors is an essential attribute of the competitive process. It is the means of access for competitive trading and for pressure on incumbent firms, through their revenue and profitability, to offer more or charge less in order to retain their places in the competitive (on this hypothesis increasingly competitive) market. If the grant of new licences were seen as a competitive threat they were so seen because they were a threat to business through competitive activity. A purpose to prevent or impede such competitive activity is a purpose concerned with the process and conduct of competition. 104 The passages which the primary judge extracted at 445 [49]-[50] of his Reasons accurately state the law as to the meaning of "purpose" when used in s 46(1)(c) and in s 47(10)(a). 105 At 445-447 [51], the primary judge noted that a proscribed purpose may be made out even though the alleged contravener maintains that it was simply seeking to win as much business as possible. In support of that proposition, his Honour referred to a paragraph in the judgment of Gyles J in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (No 2) (2008) 170 FCR 16 (Baxter) (100 [381]). "Purpose" must be distinguished from "motive" (News Limited v South Sydney District Rugby League Football Club Limited (2003) 215 CLR 563 (South Sydney) at 573 per Gleeson CJ and Baxter at 85-86 [329] per Dowsett J). So must "effect" be distinguished from "motive". 106 At 447 [53], his Honour began his consideration of the concept of "taking advantage" when used in s 46(1). Although the concept of "taking advantage" is a notion which is separate from "purpose", nonetheless the conduct which is alleged to constitute the relevant "taking advantage" must be for the alleged proscribed purpose if the alleged contravention is to be proven. However, the concepts are distinct. At 448-451 [54]-[60], his Honour referred to Melway, Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53 (Rural Press), Seven Network Ltd v News Ltd (2009) 182 FCR 160 (C7) and other cases in this Court in support of the proposition that not all conduct engaged in by a corporation which holds market power in a particular market in order to protect its market power in that market will amount to taking advantage of that power and thus constitute a breach of s 46. 107 At 450 [59], the primary judge noted that one test that may be applied in order to determine whether a corporation has taken advantage of its market power requires a comparison between what the alleged contravener has in fact done with what it would rationally have done if it had lacked market power (Rural Press at 76 per Gummow, Hayne and Heydon JJ and C7 at 381-382 [971]-[975] per Dowsett and Lander JJ). 108 At 451 [62] of his Reasons, his Honour explained the concept of "deterring or preventing" a person from engaging in competitive conduct as follows: In Baxter at [317] Dowsett J said of this phrase: [317] The words "deterring or preventing" also require attention. To "deter" is to "(r)estrain or discourage (from acting or proceeding) by fear, doubt, dislike of effort or trouble, or consideration of consequences": see the Shorter Oxford English Dictionary. The same dictionary defines the verb "prevent" as to "[s]top, hinder avoid. Forestall or thwart by previous or precautionary measures … Frustrate, defeat, make void (an expectation, plan, etc.) … Stop (something) from happening to oneself; escape or evade by timely action … Cause to be unable to do or be something, stop (foll by from doing, from being)". The combined effect of the words "deterring" and "preventing" includes persuading a person to decide to withdraw from, not to enter or not to compete in a market, as well as making it difficult or impossible for that person to do so. 109 At 451 [63], the primary judge said: Section 46 "requires, not merely the co-existence of market power, conduct and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power": Melway Publishing at [44] per Gleeson CJ, Gummow, Hayne and Callinan JJ. 110 At 451-455 [65]-[75], the primary judge examined the elements of the alleged contraventions of s 47 of the CCA. 111 Section 47(1) of the CCA prohibits the practice of exclusive dealing. At 451 [65], his Honour noted that s 47(2) provides that a corporation engages in the practice of exclusive dealing if it supplies or offers to supply goods or services on one or other of the conditions set forth in ss 47(2)(d), 47(2)(e) or 47(2)(f). 112 In the present case, the ACCC relied upon s 47(2)(d) and s 47(2)(e). The first of these subsections describes the relevant condition as a requirement that the acquirer of the relevant goods or services will not, or will not except to a limited extent, acquire goods or services directly or indirectly from a competitor of the supplier or from a competitor of a body corporate related to the supplier. The second of these subsections describes the relevant condition as a requirement that the acquirer of the relevant goods or services will not, or will not, except to a limited extent, re-supply goods or services acquired directly or indirectly from a competitor of the supplier or from a body corporate related to the supplier. 113 At 452 [66], his Honour held that a condition of the kind referred to in s 47(2) need not be legally binding but it must have "attributes of compulsion and futurity" (SWB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 48 FLR 445 at 464 per Northrop J). 114 At 452-453 [67], the primary judge held that the mere fact that a likely consequence is exclusion (in the sense described in s 47(2)) is not sufficient. In support of this proposition, his Honour cited Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110 at 130 per Heerey J). In that case, Heerey J said (at 138-139 [105]): … For a trader to offer products A and B for a single price which might make the consumer more inclined to purchase the package and not buy a competing trader's product B is not to impose any sort of condition within the meaning of s 47(2). 115 The primary judge then turned his attention (at 453 [68]) to the concept of "… substantially lessening competition …" in s 47(10). 116 At 453-454 [71], his Honour quoted the well-known passage from the judgment of Smithers J in Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238 (Dandy) at 259-260. There, Smithers J said: … To my mind competition in a market is the sum of activity engaged in by persons in promoting the sale to potential buyers of the goods with which that market is concerned … To apply the concept of substantially lessening competition in a market, it is necessary to assess the nature and extent of the market, the probable nature and extent of competition which would exist therein but for the conduct in question, the way the market operates and the nature and extent of the contemplated lessening. To my mind one must look at the relevant significant portion of the market, ask oneself how and to what extent there would have been competition therein but for the conduct, assess what is left and determine whether what has been lost in relation to what would have been, is seen to be a substantial lessening of competition. I prefer not to substitute other adverbs for "substantially". "Substantially" is a word the meaning of which in the circumstances in which it is applied must, to some extent, be of uncertain incidence and a matter of judgment. There is no precise scale by which to measure what is substantial. I think in the context, particularly the penalty and other remedies for contraventions of the Act, and the nature of trade which is the subject of the Act, the word is used in a sense importing a greater rather than a less degree of lessening. Accordingly in my opinion competition in a market is substantially lessened if the extent of competition in the market which has been lost, is seen by those competent to judge to be a substantial lessening of competition. Has competitive trading in the market been substantially interfered with? It is then that the public as such will suffer. … 117 The primary judge also referred to Baxter at 89 [340] per Dowsett J. 118 At 454 [72], his Honour said: When addressing a comparable provision to s 47(10)(a), namely that found in s 45(2) of the Trade Practices Act, Gummow, Hayne and Heydon JJ in Rural Press observed (at [41]): [41] … The relevant questions in this case are whether the effect of the arrangement was substantial in the sense of being meaningful or relevant to the competitive process, and whether the purpose of the arrangement was to achieve an effect of that kind. When addressing the comparable provision found in the Trade Practices Act, Burchett and Hely JJ in Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] ATPR 41-783; [2000] FCA 1381 (Stirling Harbour Services) observed at [12] : [12] There was no dispute but that in determining whether the proposed conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in the relevant market, the court has to: - consider the likely state of future competition in the market "with and without" the impugned conduct; and - on the basis of such consideration, conclude whether the conduct has the proscribed anti-competitive purpose or effect Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238 at 259; 44 ALR 173 at 191; (1982) ATPR 40-315 at 43,887; Outboard Marine Australia Pty Ltd v Hecar Investments No 6 Pty Ltd (1982) 66 FLR 120 at 123; 44 ALR 667 at 669-670; (1982) ATPR 40-327 at 43,982. The test is not a "before and after" test, although, as a matter of fact, the existing state of competition in the market may throw some light on the likely future state of competition in the market absent the impugned conduct. 119 At 454 [73]-[74], the primary judge observed that s 47(10) refers to a "lessening" of competition and s 4G expands upon that expression by deeming it to include "preventing or hindering competition". He said that this expanded definition is to be given a broad construction. 120 At 455 [76], the primary judge began his discussion of s 51(3) of the CCA. His Honour noted that s 51(3) does not apply to contraventions of s 46. 121 His Honour then discussed various aspects of the pecuniary penalties regime under the CCA. 122 At 459-460 [89]-[91], his Honour outlined the statutory protections afforded to the owner of a registered patent, including the statutory provision (s 117 of the Patents Act) which is the source of the patentee's right to sue for infringement of its patent.

The Sale of Pharmaceutical Products in Australia 123 At 461-478 [93]-[176], the primary judge examined the manner in which pharmaceutical products are sold and regulated in Australia. 124 At 462-463 [101], his Honour recorded the following: Notwithstanding the number of witnesses called, the case for the ACCC turned - at least initially - upon the contents of documents circulating internally within Pfizer and the inferences to be drawn from those documents. Not surprisingly, the Pfizer officers were cross-examined largely upon one or other of those documents. That cross-examination, however, was on occasions hampered by the fact that the officer giving evidence had never seen the document before, or was not the author of the document, or by the fact that the witness had not participated in a meeting or conference at which decisions were made or issues canvassed for consideration. Any finding of fact to be made in respect to some issues necessarily has to take into account both the difficulties experienced by the witness and the difficulties confronting the cross-examiner. 125 These observations are significant. They are to be taken as an indication of his Honour's general approach to the assessment of the evidence at the trial, particularly the evidence relevant to establishing Pfizer's purpose for engaging in the impugned conduct. 126 At 463 [102]-[106], his Honour described the PBS in the following terms: The pharmaceutical benefits scheme The supply of certain pharmaceutical benefits in Australia is regulated by Pt VII of the National Health Act 1953 (Cth). Legislative instruments made pursuant to that Act list pharmaceutical benefits available to be dispensed to members of the general public at government-subsidised prices. The process for determining the pricing of pharmaceuticals subsidised under the pharmaceutical benefits scheme changed on 1 October 2012. For present purposes it is sufficient to refer to the position prior to that date. The pricing of pharmaceuticals was, at the relevant time, determined by reference to the "Approved Price to Pharmacist" (or chemist list price). That price was determined either through: • agreement between the supplier and the Minister for Health and Ageing; or • a price determination made by the minister. The "Approved Price to Pharmacist" consisted of the "ex-manufacturer price" plus a fixed "wholesale mark-up". This is the price at which pharmaceuticals were provided to pharmacists. The remuneration provided to a pharmacist under the pharmaceutical benefits scheme covered three items. First, the "Approved Price to Pharmacist" (or chemist list price). Second, a "mark-up" of 4-15% of the "Approved Price to Pharmacist" to cover the pharmacist's costs in handling and storing the pharmaceutical. Third, a "pharmacy dispensing fee". Between January 2011 and 30 June 2012, the "pharmacy dispensing fee" for atorvastatin was $6.42. Pharmacists then received payment for the pharmaceuticals they dispensed in two forms: a "Patient Co-Payment" and a "PBS Subsidy". The "Patient Co-Payment" is an amount paid by the patient to the pharmacist at the point of sale. Throughout 2012, this amount was capped at $35.40. The remainder of the cost (comprising the "Approved Price to Pharmacist", the "pharmacy dispensing fee" and the "mark-up") was covered by the "PBS Subsidy" - an amount paid to the pharmacist by the government. 127 At 463-464 [107]-[112], his Honour made a number of findings concerning atorvastatin. At 464 [111]-[112], his Honour said: Not surprisingly, the expiration of Pfizer's patent on 18 May 2012 was a much anticipated event by generics manufacturers who wanted to sell their own atorvastatin products. By mid-2011 a number of generic manufacturers had already listed their impending atorvastatin products on the Australian Register of Therapeutic Goods (the ARTG). These generic manufacturers were the following: Well prior to 2012, it was thus clear that generic manufacturers were preparing to offer their own generic products to the Australian community as soon as they could lawfully do so. 128 At 464-478 [113]-[176], the primary judge discussed the way in which pharmaceutical products are supplied in Australia. 129 At 465 [116], his Honour held that, prior to 2011, the wholesalers API, Sigma and Symbion controlled over 90% of the distribution of prescription medicines in Australia. 130 At 465 [117], his Honour held that, in the same period, it was the wholesalers who supplied pharmaceutical products to the community pharmacies. 131 At 465 [118]-[119], the primary judge said: In early 2012 there were approximately 5000-5200 community pharmacies in Australia and about half of these were members of so-called "banner groups" such as Terry White, Chemists Warehouse, Amcal, Guardian, Priceline and Pharmacists Advice. In addition to these so-called "banner groups", there are also about 500 "buying groups", which purchased products collectively so as to increase their bargaining power. Of the remaining pharmacies (about 2500) many have preferred supply agreements with wholesalers. Some of the major "banner groups" are either owned by or have major commercial alignments with the major pharmaceutical wholesalers and manufacturers. One Pfizer document (being the final version of the Project LEAP: Review dated 14 September 2011) depicted this "vertical integration" then in place between the manufacturers and the wholesalers as follows: This table exposes the "vertical integration" between the pharmacy groups identified and their manufacturers, Aspen, Alphapharm and Apotex. 132 In the succeeding paragraphs, his Honour described in detail the marketing methods of the generic manufacturers of pharmaceutical products (Apotex, Alphapharm, Ranbaxy Australia, Ascent and Sandoz) and the plans which each of those corporations had in place in readiness for the expiration of the atorvastatin patent on 18 May 2012. Apotex, for example, had started planning the development of its generic atorvastatin products in 2007 and had commenced manufacturing such products in 2011 for distribution in Australia. Alphapharm had begun developing its own generic atorvastatin products (Lorstat) in 2006. 133 Pfizer's conduct which is said to constitute contraventions of the CCA did not cause any of the generic manufacturers to cease their endeavours to enter the market as soon as possible after 18 May 2012. To the contrary, each of them developed a competitive response. 134 At 476-477 [173], the primary judge held that, in early 2012 (as early as January 2012), significant consideration was being given by manufacturers of generic atorvastatin and their aligned pharmacies to the offers being made at that time by Pfizer to community pharmacies and to the ability of the generic manufacturers to match or better those offers. 135 At 478-496 [177]-[247], the primary judge examined Pfizer's conduct and the pharmacies' reactions to that conduct in the period from about September 2009 until early 2012. His Honour held (at 478 [182]) that there is no doubt that Pfizer had to take some steps to combat the competition which it would confront when the atorvastatin patent expired on 18 May 2012. These steps developed into a three-pronged strategy - the deployment of the DTP model; the establishment of the accrual funds scheme; and the making of bundled offers to community pharmacies.

The Application of the Law to the Facts (Section 46 and Section 47) 136 The primary judge expressed his ultimate conclusions in respect of the ACCC's case at 497-498 [248]-[252] in the following terms: Sections 46 and 47 In order to bring these disparate facts within the reach of ss 46 and/or 47 of the Competition and Consumer Act, the ACCC submits that from 2010 onwards Pfizer embarked upon a strategy to avert impending losses which it foresaw would flow from the loss of its exclusivity on patented products, including Lipitor. The strategy, or so it was submitted, sought to delay its exposure to the full force of competition by entering into long-term supply agreements with community pharmacies before its competitors could effectively compete for sales. The conduct of Pfizer relied upon, cumulatively, by the ACCC to bring the facts within the reach of s 46(1)(c) of Competition and Consumer Act include: (i) the commencement in January 2011 of an exclusive supply arrangement for the supply of pharmaceuticals (including Lipitor) directly to community pharmacies - the direct-to-pharmacy model; (ii) the allocation to an accrual fund, as from January 2011, of 5% of all Lipitor sales, to be used as a rebate which could be "unlocked" or accessed by those community pharmacies that accepted Pfizer's offers for its generic atorvastatin; and (iii) the making of "bundled offers", prior to 18 May 2012 - the date that the atorvastatin patent expired. This conduct, the ACCC further submits, was pursued by Pfizer for the substantial purpose of deterring or preventing: (a) all competitors, other than Ranbaxy, from supplying atorvastatin to a substantial proportion of community pharmacies from 19 May 2012; and (b) Ranbaxy (and potentially one licensee from Ranbaxy) from supplying atorvastatin to a substantial proportion of community pharmacies from 19 February 2012. To bring the facts within the reach of s 47(2)(d) and/or (e), the ACCC further submits that atorvastatin was supplied by Pfizer on a "condition" and for the purpose of "substantially lessening competition" (see s 47(10)(a)). The submissions advanced on behalf of the ACCC that Pfizer thereby contravened ss 46 and/or 47 of the Competition and Consumer Act are rejected. For the purposes of s 46 of the Competition and Consumer Act, it is concluded that: (i) the relevant market is the Australia-wide market for the supply of atorvastatin to, and acquisition of atorvastatin by, community pharmacies; (iii) until late 2011 Pfizer had a substantial degree of market power in that market and took advantage of that market power by both distributing its products through the direct-to-pharmacy model and establishing the accrual funds scheme whereby "rebates" would accumulate in a "bank" for the benefit of each pharmacy; and (iii) Pfizer took advantage of such limited market power as it retained in making the Platinum, Gold and Silver Offers in January 2012; but that: (iv) as from January 2012 Pfizer did not have a substantial degree of market power; and that: (v) at no point of time did Pfizer engage in conduct for a purpose proscribed by s 46(1)(c). Separate from any of these conclusions, and on one view the only conclusion that need be reached, is that: (vi) the manner in which the ACCC pleaded the contravention of s 46 was "legally incoherent" such that the entirety of its s 46 claim could have been summarily dismissed. For the purposes of s 47 of the Competition and Consumer Act, it is concluded that: (i) the market is again the Australia-wide market for the supply of atorvastatin to, and acquisition of atorvastatin by, community pharmacies; (ii) only one condition - namely a condition found within the Pharmacy Acceptance Form completed by pharmacies - was a "condition" that fell within s 47(2); but that: (iii) Pfizer did not engage in conduct for the purpose of "substantially lessening competition". 137 The primary judge then embarked upon a detailed process of reasoning in order to explain his reasons for arriving at those conclusions.

The Market 138 At 498-505 [254]-[279] of his Reasons, the primary judge considered and determined the definition of the relevant market. As already mentioned, it was common ground between the parties at the trial, and accepted by his Honour, that, whatever conclusion was reached as to the scope of that market, the market in or in respect of which the impugned conduct took place was the same market for the purpose of the ACCC's s 46 case as it was for the ACCC's s 47 case. It was also common ground that both of the competing definitions of the relevant market provided that the relevant market was an Australia-wide market. 139 The competing definitions of the relevant market were: An Australia-wide market for the supply of atorvastatin to, and acquisition of atorvastatin by, community pharmacies (the ACCC's definition) and an Australia-wide market for the wholesale supply of pharmaceutical products and over-the-counter products to community pharmacies (Pfizer's definition). 140 At 498-500 [258]-[260], his Honour said: When considering the proper characterisation of the "market" for the purposes of resolving the present dispute, there were a number of relevant points of agreement as between the ACCC and Pfizer, including agreement that: • the definition of the "market" in question is a factual inquiry which is to be approached in a "purposive" manner; • the "market" could potentially change over time; and • the "market" was the same for the purposes of both ss 46 and 47. There was disagreement, however, between the parties - largely caused by the manner in which paras 67 and 67A of the amended statement of claim were pleaded - as to the period of time during which the market was to be determined. On behalf of the ACCC, it was contended that the amended statement of claim identified that period as: • the period "from at least 1 December 2010 to 18 May 2012"; and that the period was not confined to: • the period from 16 January 2012 to 18 May 2012. Pfizer contended that the relevant period was from 16 January 2012 to 18 May 2012. Whatever be the period of time in question, the resolution of this divergence of views as to which constituted the "market" necessarily involved a factual inquiry. The factual nature of the inquiry to be undertaken, it is well recognised, is fundamental. Thus, for example, in his treatise on Trade Practices Law (at [30.245]), J D Heydon writes as follows: The dimensions of a market are real, not theoretical. To define those dimensions the best evidence will come from the people who work in the market: the marketing managers and salesmen, the market analysts and researchers, the advertising account executives, the buyers or purchasing officers, the product designers and evaluators. Their records will establish the dimensions of the market; they will show the figures being kept at [sic] competitors' and customers' behaviour and the particular products being followed. They will show the potential customers whom salesmen are visiting, the suppliers whom purchasing officers regularly contact, products against which advertising is directed, the price movements of other suppliers which give rise to intra-corporate memoranda, the process by which products are bought, what buyers must seek in terms of quantities, delivery schedules, price flexibility, why accounts are won and lost. This passage has been referred to with approval: for example, Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; 284 ALR 662; [2011] FCAFC 151 at [312] per Yates J. The identification of the relevant market "involves fact-finding together with evaluative and purposive selection": Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 174; 104 ALR 633 at 649 per French J (as his Honour then was). For the purposes of the present proceeding, it is further concluded that: • the "market" is the market contended for by the ACCC; • there has been no change in the "market" during the period from December 2010 to May 2012; and that: • Dr Pleatsikas was correct in his conclusion that "the economic principles relevant to defining the dimensions of a market for the purposes of " s 46 or s 47 "are essentially identical in general". In so concluding it is nevertheless recognised that the "market" was in a state of flux from at least January/February 2012. Whether the perimeters of the "market" remained the same later in mid-to-late 2012 was not a question which was expressly addressed in the evidence and which, accordingly, could be resolved. Whether there was a "generics market", for example, in 2012/2013 is not a question presently in need of resolution. It is to be recalled that "there can be overlapping markets with blurred limits and disagreements between bona fide and reasonable experts about their definition": NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; 210 ALR 312; [2004] HCA 48 at [68] (NT Power Generation) per McHugh A-CJ, Gummow, Callinan and Heydon JJ. 141 At 500-505 [261]-[279], the primary judge discussed the expert evidence which addressed the question of market definition. The ACCC called Dr Christopher Pleatsikas and Pfizer called Dr Sumanth Addanki. Both experts are highly qualified economists. 142 Dr Addanki expressed the opinion that atorvastatin was supplied to pharmacies as part of a bundle (a range of products). Dr Pleatsikas concluded that the product dimension of the relevant market was atorvastatin and not a range of pharmaceuticals. He placed considerable emphasis upon the fact that atorvastatin had no substitutes. 143 At 502 [269]-[270], his Honour said: It is respectfully concluded that many facts dictate the conclusion that the "market" is the market for atorvastatin as identified by the ACCC. Notwithstanding the morass of factual detail as to the manner in which manufacturers supply their pharmaceutical products and the manner in which pharmacies purchase those products, the conclusion that the market was a market for atorvastatin is a conclusion dictated by the evidence informed by the views of Dr Pleatsikas. At all times a pharmacist presented with a prescription for atorvastatin was required to supply atorvastatin. In the language of an economist, throughout that period there was: • no demand-side substitution; and • no supply-side substitution. 144 At 502-503 [271], his Honour extracted and agreed with certain paragraphs in Dr Pleatsikas' first report (par 55 and par 56 of that report). At 503 [271], the primary judge said: … the fact remained that throughout the period from December 2010 through to May 2012 a prescription for the supply of atorvastatin could only be supplied by the atorvastatin pharmaceutical supplied by Pfizer. The availability to secure product from Ranbaxy for a limited period towards the end of the period, it is respectfully concluded, does not alter that conclusion. 145 At 503-504 [272], his Honour expanded upon his reasons for reaching the conclusion which he stated at 502-503 [271]. 146 The observations which his Honour made at 502-504 [269]-[272] related to a period commencing in December 2010 and ending in May 2012. At 504 [273]-[274], his Honour said: Even if it is accepted that the period of time during which the "market" is to be determined is that period between January/February and May/June 2012, no different conclusion would be reached. Although it may readily be accepted that the dimensions of a market may change over time, and even though it may well be the case that the "market" as between January/February and May/June 2012 may have been in a state of flux, it is nevertheless concluded that the dimensions of that "market" had not changed by mid-2012. 147 The primary judge expressly rejected the market definition advanced by Pfizer (see esp 505 [276]-[279]). At 505 [278], his Honour held that, in the relevant period up to mid-2012, atorvastatin formed its own market.

Pfizer's Power in the Atorvastatin Market 148 At 506 [284]-[285], his Honour held that, prior to late 2011, Pfizer possessed substantial market power in the atorvastatin market. 149 At 506-507 [286]-[288], the primary judge said: But Pfizer's market power gradually decreased the more imminent the expiration of its patent became. Notwithstanding this reduction in its power, it is nevertheless respectfully concluded that Pfizer maintained some degree of market power up to May 2012. It retained its unique ability to exploit, for example, the marketing of Lipitor at a premium price and to package its generic atorvastatin in a manner identical with or substantially similar to the packaging of the established brand, Lipitor. But as from January 2012 it is concluded that the market power Pfizer retained was not "substantial". There is, of course, no clear or definitive point of time at which Pfizer's market power ceased to be "substantial". It matters not that that point of time may have been reached by September or October 2011 rather than December 2011. What potentially matters is the finding that as from January 2012 Pfizer no longer possessed "substantial" power in the market for the supply of atorvastatin. Relative to the forthcoming competition from the generic manufacturers of atorvastatin, the power that Pfizer had once exercised had waned: Tillmanns Butcheries at FLR 348; ALR 382 per Deane J. And the power it retained was no longer "enduring"; that power could not be "sustained" throughout the period from January to May 2012: Boral Besser Masonry at [287] and [293] per McHugh J; Universal Music Australia [158] per Wilcox, French and Gyles JJ. 150 At 507-508 [289]-[290], his Honour went on to provide further reasons for the findings which he made at 506-507 [286]-[288].

Taking Advantage 151 This part of the ACCC's case was attacked by Pfizer as being "legally incoherent". Further, as the primary judge correctly observed (509-510 [293]-[294]), given his conclusion that Pfizer did not possess a substantial degree of market power in the atorvastatin market in the period from January 2012 to May 2012, it was, strictly speaking, unnecessary for him to consider the question of whether Pfizer took advantage of such power in that period. Nonetheless, he went on to consider that question (at 510-517 [295]-[324]). His Honour's conclusions were: (a) When Pfizer implemented its DTP model in January 2011, it had a substantial degree of market power in the atorvastatin market and took advantage of that power when it implemented that model (at 510 [297]); (b) In establishing the accrual funds scheme which it established in January 2011, it took advantage of its substantial degree of market power in the atorvastatin market. It was only by reason of that market power that it was able to announce a rebate scheme without at the same time telling community pharmacies how they could recover the monies that were accumulating for their benefit (510-514 [298]-[311], esp at 511 [303]-[304]); and (c) Even if, contrary to his Honour's finding, Pfizer did, in fact, have a substantial degree of market power in the atorvastatin market as at January 2012 when it made its Platinum, Gold and Silver offers, it did not take advantage of such power by making those offers (at 514-517 [312]-[324]).

Purpose 152 As pleaded, the ACCC's case in respect of Pfizer's alleged purpose in engaging in the impugned conduct was to hinder, deter or prevent other suppliers of generic atorvastatin (including Ranbaxy Australia from 18 February 2012 and other generics suppliers from 18 May 2012) from supplying generic atorvastatin to a substantial proportion of community pharmacies (see par 60 of the ASC). Pfizer denied having any such purpose. 153 The primary judge held that the ACCC had failed to establish that Pfizer took advantage of its market power at any time for a proscribed purpose as required by s 46(1)(c). This conclusion obtained whether the Court considered Pfizer's purpose by reference to events extending back to December 2010 or by reference to events confined to the period from January 2012 to May 2012 (see his Honour's findings at 519-520 [338]-[340] and at 521 [344]). 154 The primary judge held that this was not a case where Pfizer could be found to have had a purpose of "preventing" the other generics manufacturers from engaging in competitive conduct in the atorvastatin market. His Honour took the view that this was a case where Pfizer must be found to have had the purpose of "deterring" such competitive conduct or the case would fail. 155 At 521 [344], the primary judge said: It is respectfully concluded, however, that several factors provide a firm foundation for the conclusion that Pfizer was not engaging in conduct for a purpose proscribed by s 46(1)(c). Although Pfizer accepted that its conduct would provide an incentive for pharmacies to accept its offers, it is concluded that Pfizer pursued its conduct for the substantial purposes of: • ensuring that it remained a supplier of pharmaceutical products, including both Lipitor and Atorvastatin Pfizer; and • ensuring that it remained competitive in the atorvastatin market. Rejected is the allegation that Pfizer: • engaged in conduct for the purpose of "deterring or preventing" other generic manufacturers from engaging in competitive conduct. Also rejected is the submission that Pfizer pursued its conduct for the purpose of: • "blocking" competition. Even if it could be said that Pfizer's desire to gain a commercial advantage or make it harder for a generic competitor to succeed were "purposes" which could fall within s 46(1)(c), it is further concluded that any such "purposes" were not a "substantial" purpose. 156 At 521 [345]-[347], his Honour said: The factors which it is respectfully concluded ultimately demand the rejection of the case advanced on behalf of the ACCC that s 46 has been contravened emerged from a number of discrete themes pursued by senior counsel for the ACCC in his cross-examination of the more senior officers within Pfizer. Given a tension between the competing inferences which could be drawn from the documents circulating internally within Pfizer between 2009 and 2012, it is necessary to express some brief observations as to the credibility of the Pfizer witnesses. Left unexplained, those documents unquestionably provided a platform from which the ACCC could argue that the impugned conduct was undertaken for a proscribed purpose. Expressed as a general conclusion, the Pfizer witnesses satisfactorily answered the inferences which were otherwise available from the documents. To a considerable extent, the explanations are to be found in the terms of the evidence provided and in the consistency of the explanations provided by the Pfizer witnesses. But to a considerable extent the explanation is also to be found in the integrity with which they gave that evidence. The manner in which they presented their evidence provided, with respect, considerable comfort in accepting their explanations in the face of the inferences otherwise available. Although the reasons or purposes pursued by Pfizer were differently expressed by different officers within Pfizer, and although it is somewhat artificial to seek to divorce one reason or purpose from another where reasons or purposes appear interrelated, a number of discrete themes can conveniently be addressed separately. 157 His Honour then undertook a detailed consideration of the evidence given by the witnesses called by Pfizer in order to explain the conclusions which he had expressed at 521 [345]-[347] (at 521-537 [348]-[421]).

Paragraph 67 and Paragraph 67A of the ASC 158 In support of its contention that the ACCC's s 46 case was "legally incoherent", Pfizer submitted that the ACCC had pleaded only two contraventions of s 46(1) of the CCA, namely, the contravention pleaded in par 67 of the ASC and the separate contravention pleaded in par 67A of the ASC. It was Pfizer's contention that all three of the elements pleaded in each of those paragraphs had to be evaluated "cumulatively" (ie together) and that the ACCC had not pleaded and was not running a case where each one of those elements needed to be separately evaluated against s 46. 159 Pfizer went on to submit that only the period referred to in subpar (c) of par 67 ("… from on or about 16 January 2012 …") and the period referred to in subpar (c) of par 67A ("… from at least on or about 24 February 2012 …") were required to be considered. That being so, whether the establishment and implementation of the DTP model or the establishment of the accrual funds scheme could or should be separately considered as engaging s 46 was not pleaded by the ACCC and was therefore not a case which Pfizer was obliged to meet. 160 Pfizer's submissions in relation to the correct interpretation of pars 67 and 67A of the ASC found favour with the primary judge (see, in particular, 539 [431]-[432]). Had his Honour not otherwise rejected the ACCC's case based upon s 46, he would have done so on this ground.

Section 47 161 At 541 [439], the primary judge identified the three discounts or rebates that could potentially fall within s 47. These were: (i) the discount off the "Chemist List Price" in respect to Atorvastatin Pfizer - that discount varying between 55% and 75% under the Platinum, Gold and Silver Offers; (ii) the release of all or part of the Lipitor rebate given in respect to the purchase of Atorvastatin Pfizer under the Platinum, Gold and Silver Offers; and (iii) the on-going discount off the "Chemist List Price" given on Lipitor under the Platinum, Gold and Silver Offers. 162 The primary judge found that the ongoing discount given by Pfizer on Lipitor after January 2012 was given on a condition within the meaning of s 47(2)(e) of the CCA. However, his Honour found that the other two discounts or rebates offered by Pfizer in its bundled offers were not given on any condition that fell within s 47(2)(e). At 542-543 [443]-[447], his Honour said: The ACCC maintains that the particular "condition" of present relevance is to be found either within the final form of the brochure setting forth the terms upon which offers would be made or in the "Pharmacy Acceptance Form" provided by Pfizer to the pharmacies for completion. The "condition" as set forth in the final form of the brochure in respect to the Platinum Offer provided as follows: To be eligible for the Platinum offer, you must comply with purchasing & dispensing at least 75% of your generic Atorvastatin requirements from Pfizer. You are free to purchase more - it's your choice. Alternate offers also available. The relevant "condition" as set forth in the "Pharmacy Acceptance Form" provided as follows: Lipitor discounts are subject to first line support of Atorvastatin Pfizer - at least 75% of your total generic atorvastatin volumes dispensed must be Atorvastatin Pfizer. This requirement applies from the date of your first delivery of Atorvastatin Pfizer until you have dispensed the total agreed Atorvastatin Pfizer volume. If you do not meet this requirement, your Lipitor discount will revert to 1.5%. In its final written submissions the ACCC maintained (footnotes excluded): The bundled offers for Lipitor and Atorvastatin Pfizer constituted exclusive dealing for the purposes of s 47 of the CCA for 2 reasons. These offers included conditions that: first, had the effect of effective precluding Community Pharmacies from acquiring more than 25% of their anticipated requirements for the supply of generic atorvastatin for specified periods from Pfizer's competitors; and second, re-supplying atorvastatin from Pfizer's competitors if the re-supply would exceed 25% of the total generic atorvastatin dispensed by that pharmacy. The practical effect of each of the Platinum, Gold and Silver Offers was that the Community Pharmacies would not, or would not except to a limited extent, acquire or re-supply generic atorvastatin from other suppliers. Moreover, it was readily apparent that acquiring 75% of 12 months anticipated requirements for generic atorvastatin was equivalent to 100% of 9 months anticipated requirements of generic atorvastatin. Pfizer certainly modelled the effects of the 75% requirement on this basis. These supply conditions contained in the offers fit squarely within the terms of s 47(2) of the CCA and contravene s 47 if they satisfy the requirements of s 47(10). Pfizer accepts that the ongoing discount given on Lipitor was given on a "condition" that falls within s 47(2)(e). That condition, it is accepted by Pfizer, was imposed by that condition in the "Pharmacy Acceptance Form" linking Lipitor discounts to "first line support of Atorvastatin Pfizer". But the other two discounts or rebates, Pfizer contends, were not given on any "condition" that fell within s 47. The pharmacies, it is said, remained free to purchase generic atorvastatin from other suppliers. The fact that any particular pharmacist may have been less likely to buy as much generic atorvastatin from another supplier as he would have had he not accepted the Pfizer offer does not, so it is submitted on behalf of Pfizer, mean that it engaged in the practice of exclusive dealing. These "conditions" may have had the "effect" or may have the "practical consequence" that a pharmacy may been [sic] less "inclined" to purchase generic atorvastatin from a supplier other than Pfizer: Monroe Topple at [105] per Heerey J, at [160] per Tamberlin J. But no "condition" was imposed on the pharmacies inhibiting their freedom to acquire generic atorvastatin from other suppliers. These submissions are accepted. 163 At 543-544 [448]-[453], his Honour explained why the one discount that was offered on a relevant condition was not imposed for a purpose which was proscribed by s 47(10)(a) ie for the purpose of causing a substantial lessening of competition in the atorvastatin market. The ACCC did not plead nor run a case based upon s 47(10)(b).

Section 51(3) of the CCA 164 The primary judge rejected the positive defence raised by Pfizer based upon s 51(3)(a)(i) of the CCA. 165 At 544-545 [457]-[459], his Honour said: The gist of Pfizer's submission was that - but for a licence from Pfizer - the sale by pharmacies of the patented atorvastatin would be a contravention of s 13 of the Patents Act. The sale by the pharmacist, it was submitted, would be a breach of the exclusive right of Pfizer to "exploit" its patent, namely the right to "sell or otherwise dispose of …" the pharmaceutical product. To address this prospect of breach on the part of the pharmacist, it is then submitted that "… the law treats the sale without express restrictions as involving the grant of a licence from the patentee authorizing such future use of the goods as the owner for the time being sees fit": Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534 at 549; 15 ALR 353 at 365; 1B IPR 253 at 263 per Stephen J. If this be correct, the condition which would otherwise offend s 47 of the Competition and Consumer Act, is said on behalf of Pfizer to be a condition which "relates to … the invention to which the patent relates … by the use of that invention" for the purposes of s 51(3)(a)(iii). Had it been necessary to resolve this argument, it would have been rejected for either of two reasons, namely: • the sale of the atorvastatin by Pfizer to the pharmacies would not have been held to involve the granting of any "licence"; and, perhaps more relevantly: • the "condition" otherwise contained within any such licence would not have been held to constitute a "condition" to which s 51(3) applied. Section 51(3), it has been said, "determines the scope of restrictions the patentee may properly impose on the use of the patent. Conditions which seek to gain advantages collateral to the patent are not covered by s 51(3)": Transfield at CLR 103; ALR 217 per Mason J. The relevant "conditions", it would have been concluded were "conditions" which sought to gain "advantages collateral to the patent".

Pfizer's Conduct 166 At the trial, there was no dispute of any significance between the parties as to whether Pfizer had engaged in the conduct said to constitute the contraventions of s 46 and s 47 of the CCA alleged by the ACCC nor was there any dispute about when that conduct occurred. 167 The contest between the parties at trial concerned the correct characterisation of that conduct for the purposes of s 46 and s 47 and, in particular, the question whether Pfizer had engaged in the impugned conduct for a proscribed purpose within the meaning of each of those sections. 168 The ACCC made detailed submissions to this Court directed to persuading us that the primary judge made a number of erroneous findings of fact principally when assessing whether Pfizer had either of the relevant proscribed purposes when it engaged in the impugned conduct. Pfizer answered these submissions with its own detailed analysis of the evidence before his Honour. It must, of course, be remembered that there are limitations upon this Court's power and willingness to interfere with findings of this nature. Nonetheless, we are obliged to address the parties' submissions sufficiently to explain our reasons for the conclusions to which we have come in determining the Appeal and we shall do so as required when dealing with the particular issues raised on appeal.

The Relevant Statutory Provisions 169 In the period between 1 January 2011 and late 2013, s 46 of the CCA was in the following terms: 46 Misuse of market power (1) A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of: (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market. (1AAA) If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services. (1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of: (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market. (1AB) For the purposes of subsection (1AA), without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has a substantial share of a market, the Court may have regard to the number and size of the competitors of the corporation in the market. (1A) For the purposes of subsections (1) and (1AA): (a) the reference in paragraphs (1)(a) and (1AA)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and (b) the reference in paragraphs (1)(b) and (c) and (1AA)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons. (2) If: (a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or (b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market, the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market. (3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of: (a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or (b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market. (3A) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court may have regard to the power the body corporate or bodies corporate has or have in that market that results from: (a) any contracts, arrangements or understandings, or proposed contracts, arrangements or understandings, that the body corporate or bodies corporate has or have, or may have, with another party or other parties; and (b) any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of. (3B) Subsections (3) and (3A) do not, by implication, limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market. (3C) For the purposes of this section, without limiting the matters to which the court may have regard for the purpose of determining whether a body corporate has a substantial degree of power in a market, a body corporate may have a substantial degree of power in a market even though: (a) the body corporate does not substantially control the market; or (b) the body corporate does not have absolute freedom from constraint by the conduct of: (i) competitors, or potential competitors, of the body corporate in that market; or (ii) persons to whom or from whom the body corporate supplies or acquires goods or services in that market. (3D) To avoid doubt, for the purposes of this section, more than 1 corporation may have a substantial degree of power in a market. (4) In this section: (a) a reference to power is a reference to market power; (b) a reference to a market is a reference to a market for goods or services; and (c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market. (4A) Without limiting the matters to which the court may have regard for the purpose of determining whether a corporation has contravened subsection (1), the court may have regard to: (a) any conduct of the corporation that consisted of supplying goods or services for a sustained period at a price that was less than the relevant cost to the corporation of supplying such goods or services; and (b) the reasons for that conduct. (5) Without extending by implication the meaning of sub-section (1), a corporation shall not be taken to contravene that subsection by reason only that it acquires plant or equipment. (6) This section does not prevent a corporation from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47, 49 and 50, by reason that an authorization or clearance is in force or by reason of the operation of subsection 45(8A) or section 93. (6A) In determining for the purposes of this section whether, by engaging in conduct, a corporation has taken advantage of its substantial degree of power in a market, the court may have regard to any or all of the following: (a) whether the conduct was materially facilitated by the corporation's substantial degree of power in the market; (b) whether the corporation engaged in the conduct in reliance on its substantial degree of power in the market; (c) whether it is likely that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market; (d) whether the conduct is otherwise related to the corporation's substantial degree of power in the market. This subsection does not limit the matters to which the court may have regard. (7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances. 170 In 2009 and in 2010, s 46 was part of the Trade Practices Act 1974 (Cth) (TPA) which was renamed and became operative as the Competition and Consumer Act 2010 (Cth) on 1 January 2011. The terms of s 46 did not change at all between 2009 and 2013. 171 For the purposes of the present case, particular attention needs to be paid to ss 46(1)(c), 46(3), 46(4), 46(6A) and 46(7). 172 In the period 2009 to late 2012, s 47 of the CCA provided: 47 Exclusive dealing (1) Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing. (2) A corporation engages in the practice of exclusive dealing if the corporation- (a) supplies, or offers to supply, goods or services; (b) supplies, or offers to supply, goods or services at a particular price; or (c) gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the corporation, on the condition that the person to whom the corporation supplies, or offers or proposes to supply, the goods or services or, if that person is a body corporate, a body corporate related to that body corporate- (d) will not, or will not except to a limited extent, acquire goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; (e) will not, or will not except to a limited extent, re-supply goods or services, or goods or services of a particular kind or description, acquired directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; or (f) in the case where the corporation supplies or would supply goods or services, will not re-supply the goods or services to any person, or will not, or will not except to a limited extent, re-supply the goods or services- (i) to particular persons or classes of persons or to persons other than particular persons or classes of persons; or (ii) in particular places or classes of places or in places other than particular places or classes of places. (3) A corporation also engages in the practice of exclusive dealing if the corporation refuses- (a) to supply goods or services to a person; (b) to supply goods or services to a person at a particular price; or (c) to give or allow a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services to a person, for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate- (d) has acquired, or has not agreed not to acquire, goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; (e) has re-supplied, or has not agreed not to re-supply, goods or services, or goods or services of a particular kind or description, acquired directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; or (f) has re-supplied, or has not agreed not to re-supply, goods or services, or goods or services of a particular kind or description, acquired from the corporation to any person, or has re-supplied, or has not agreed not to re-supply, goods or services, or goods or services of a particular kind or description, acquired from the corporation- (i) to particular persons or classes of persons; or (ii) in particular places or classes of places or in places other than particular places or classes of places. (4) A corporation also engages in the practice of exclusive dealing if the corporation- (a) acquires, or offers to acquire, goods or services; or (b) acquires, or offers to acquire, goods or services at a particular price, on the condition that the person from whom the corporation acquires or offers to acquire the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will not supply goods or services, or goods or services of a particular kind or description, to any person, or will not, or will not except to a limited extent, supply goods or services, or goods or services of a particular kind or description- (c) to particular persons or classes of persons or to persons other than particular persons or classes of persons; or (d) in particular places or classes of places or in places other than particular places or classes of places. (5) A corporation also engages in the practice of exclusive dealing if the corporation refuses- (a) to acquire goods or services from a person; or (b) to acquire goods or services at a particular price from a person, for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate has supplied, or has not agreed not to supply, goods or services, or goods or services of a particular kind or description- (c) to particular persons or classes of persons or to persons other than particular persons or classes of persons; or (d) in particular places or classes of places or in places other than particular places or classes of places. (6) A corporation also engages in the practice of exclusive dealing if the corporation- (a) supplies, or offers to supply, goods or services; (b) supplies, or offers to supply, goods or services at a particular price; or (c) gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the corporation, on the condition that the person to whom the corporation supplies or offers or proposes to supply the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will acquire goods or services of a particular kind or description directly or indirectly from another person not being a body corporate related to the corporation. (7) A corporation also engages in the practice of exclusive dealing if the corporation refuses- (a) to supply goods or services to a person; (b) to supply goods or services at a particular price to a person; or (c) to give or allow a discount, allowance, rebate or credit in relation to the supply of goods or services to a person, for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate has not acquired, or has not agreed to acquire, goods or services of a particular kind or description directly or indirectly from another person not being a body corporate related to the corporation. (8) A corporation also engages in the practice of exclusive dealing if the corporation grants or renews, or makes it known that it will not exercise a power or right to terminate, a lease of, or a licence in respect of, land or a building or part of a building on the condition that another party to the lease or licence or, if that other party is a body corporate, a body corporate related to that body corporate- (a) will not, or will not except to a limited extent- (i) acquire goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; or (ii) re-supply goods or services, or goods or services of a particular kind or description, acquired directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; (b) will not supply goods or services, or goods or services of a particular kind or description, to any person, or will not, or will not except to a limited extent, supply goods or services, or goods or services of a particular kind or description- (i) to particular persons or classes of persons or to persons other than particular persons or classes of persons; or (ii) in particular places or classes of places or in places other than particular places or classes of places; or (c) will acquire goods or services of a particular kind or description directly or indirectly from another person not being a body corporate related to the corporation. (9) A corporation also engages in the practice of exclusive dealing if the corporation refuses to grant or renew, or exercises a power or right to terminate, a lease of, or a licence in respect of, land or a building or part of a building for the reason that another party to the lease or licence or, if that other party is a body corporate, a body corporate related to that body corporate- (a) has acquired, or has not agreed not to acquire, goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; (b) has re-supplied, or has not agreed not to re-supply, goods or services, or goods or services of a particular kind or description, acquired directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; (c) has supplied goods or services, or goods or services of a particular kind or description- (i) to particular persons or classes of persons or to persons other than particular persons or classes of persons; or (ii) in particular places or classes of places or in places other than particular places or classes of places; or (d) has not acquired, or has not agreed to acquire, goods or services of a particular kind or description directly or indirectly from another person not being a body corporate related to the corporation. (10) Sub-section (1) does not apply to the practice of exclusive dealing constituted by a corporation engaging in conduct of a kind referred to in sub-section (2), (3), (4) or (5) or paragraph (8)(a) or (b) or (9)(a), (b) or (c) unless- (a) the engaging by the corporation in that conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition; or (b) the engaging by the corporation in that conduct, and the engaging by the corporation, or by a body corporate related to the corporation, in other conduct of the same or a similar kind, together have or are likely to have the effect of substantially lessening competition. (10A) Subsection (1) does not apply to a corporation engaging in conduct described in subsection (6) or (7) or paragraph (8)(c) or (9)(d) if: (a) the corporation has given the Commission a notice under subsection 93(1) describing the conduct; and (b) the notice is in force under section 93. (11) Sub-sections (8) and (9) do not apply with respect to- (a) conduct engaged in by, or by a trustee for, a religious, charitable or public benevolent institution, being conduct engaged in for or in accordance with the purposes or objects of that institution; or (b) conduct engaged in in pursuance of a legally enforceable requirement made by, or by a trustee for, a religious, charitable or public benevolent institution, being a requirement made for or in accordance with the purposes or objects of that institution. (12) Sub-section (1) does not apply with respect to any conduct engaged in by a body corporate by way of restricting dealings by another body corporate if those bodies corporate are related to each other. (13) In this section- (a) a reference to a condition shall be read as a reference to any condition, whether direct or indirect and whether having legal or equitable force or not, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from the conduct of persons or from other relevant circumstances; (b) a reference to competition, in relation to conduct to which a provision of this section other than sub-section (8) or (9) applies, shall be read as a reference to competition in any market in which- (i) the corporation engaging in the conduct or any body corporate related to that corporation; or (ii) any person whose business dealings are restricted, limited or otherwise circumscribed by the conduct or, if that person is a body corporate, any body corporate related to that body corporate, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the conduct, supply or acquire, or be likely to supply or acquire, goods or services; and (c) a reference to competition, in relation to conduct to which sub-section (8) or (9) applies, shall be read as a reference to competition in any market in which the corporation engaging in the conduct or any other corporation the business dealings of which are restricted, limited or otherwise circumscribed by the conduct, or any body corporate related to either of those corporations, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the conduct, supply or acquire, or be likely to supply or acquire, goods or services. 173 Certain amendments were made to subs 11(a) and subs 11(b) of s 47 of the CCA by Act No 169 of 2012. Those amendments concerned registered charities (as to which, see the definition of registered charity now in s 4) and are not presently relevant. Those amendments are not included in the above extract of s 47. 174 For the purposes of the present case, particular attention needs to be paid to ss 47(1), 47(2)(d), 47(2)(e), 47(10)(a) and 47(13). Subsections (3) to (9) of s 47 are not presently relevant. 175 Also relevant are ss 4E, 4F and 4G of the CCA which, at all relevant times, were in the following terms: 4E Market For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services. 4F References to purpose or reason (1) For the purposes of this Act- (a) a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, or a covenant or a proposed covenant, shall be deemed to have had, or to have, a particular purpose if- (i) the provision was included in the contract, arrangement or understanding or is to be included in the proposed contract, arrangement or understanding, or the covenant was required to be given or the proposed covenant is to be required to be given, as the case may be, for that purpose or for purposes that included or include that purpose; and (ii) that purpose was or is a substantial purpose; and (b) a person shall be deemed to have engaged or to engage in conduct for a particular purpose or a particular reason if- (i) the person engaged or engages in the conduct for purposes that included or include that purpose or for reasons that included or include that reason, as the case may be; and (ii) that purpose or reason was or is a substantial purpose or reason. (2) This section does not apply for the purposes of subsections 45D(1), 45DA(1), 45DB(1), 45E(2) and 45E(3). 4G Lessening of competition to include preventing or hindering competition For the purposes of this Act, references to the lessening of competition shall be read as including references to preventing or hindering competition.

The Issues on Appeal 176 We have summarised the ACCC's grounds of appeal at [17]-[18] above and Pfizer's Notice of Contention points at [19] above. 177 We now turn to address the issues raised on appeal by each party.

The Pleading Point (Appeal Ground 17) 178 The ACCC contended that the primary judge erred in holding that the ACCC's pleading of the two s 46 contraventions alleged against Pfizer was "legally incoherent". That holding is expressed at 433 [14] and at 497-498 [251(vi)] and discussed at 537-540 [422]-[436] (esp at 539-540 [430]-[436]) of the primary judge's Reasons. This ground of appeal relates only to the ACCC's s 46 case.

The Primary Judge's Reasons 179 The primary judge began his consideration of Pfizer's argument that the ACCC's s 46 case was "legal nonsense" or "legally incoherent" by referring to the circumstance that, in its Amended Originating Application, the ACCC claimed declarations in the terms of the allegations pleaded in par 67 and par 67A of the ASC. We have set out those paragraphs of the ASC at [77] above. 180 His Honour noted (correctly) that the only differences between the allegations made in par 67 and those made in par 67A were: (a) The earlier paragraphs of the ASC picked up and incorporated into par 67 were different from those picked up and incorporated into par 67A; and (b) The period specified in subpar (c) of par 67 ("… from on or about 16 January 2012") was different from the period specified in subpar (c) of par 67A ("… from at least on or about 24 February 2012"). 181 The earlier date was the date when the original Pfizer bundled offers commenced to be made and the later date was the start of the period in which the Pfizer bundled offers which included the late acceptance terms and conditions were made. The period during which Pfizer was alleged to hold a substantial degree of market power in the atorvastatin market was the same in both paragraphs (viz from at least 1 December 2010 to 18 May 2012). We note that, at par 61 of the ASC, the ACCC alleged that Pfizer had a substantial degree of market power in the atorvastatin market "… from in or around June 2000 to at least 18 May 2012". Pfizer acquired Warner-Lambert in 2000. Nothing turns on the difference between that which is alleged in par 61 and that which is alleged in par 67 and par 67A as to Pfizer's market power in the atorvastatin market. 182 His Honour then recorded (at 538-539 [426]-[428]) Pfizer's submission that the ACCC had not pleaded and had not conducted a case which included an allegation that the implementation of the DTP model in January 2011 was conduct which, taken on its own, constituted a separate and distinct contravention of s 46 of the CCA nor had it pleaded or conducted a case which included an allegation that the establishment of the accrual funds scheme at the same time was conduct which, taken on its own, constituted a separate and distinct contravention of s 46 of the CCA. Nor, so Pfizer submitted, had the ACCC pleaded and run a case that the implementation of the DTP model and the establishment of the accrual funds scheme, taken together, was conduct which constituted a contravention of s 46. 183 It was Pfizer's submission that, by using the word "cumulatively" in par 67 and par 67A, the ACCC intended to plead two contraventions (and only two contraventions) of s 46 of the CCA which included as a fundamental premise in each case that the alleged contraventions did not occur until the bundled offers were made (16 January 2012) or, alternatively, until the bundled offers were made with late payment terms and conditions included (24 February 2012). 184 At 538-539 [428] and at 539 [430]-[431], his Honour said: If the Pfizer submission be accepted: • whether the implementation of the direct-to-pharmacy model; and/or • the establishment of the accrual funds scheme. could have constituted a contravention of s 46 as at January 2011: • was not the case it came to meet. Indeed, if this submission be accepted: • evidence as to the purpose sought to be achieved by Pfizer in implementing its direct-to-pharmacy model or the accrual funds scheme prior to January 2012 was irrelevant to the issues to be now resolved. "Section 46 of the Act", Pfizer correctly emphasised, "requires, not merely the co-existence of market power, conduct and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power": Melway Publishing at [44] per Gleeson CJ, Gummow, Hayne and Callinan JJ. Indeed, on this approach: • even the question as to whether the atorvastatin offers made between January and May 2012 contravened s 46 was not a question which arose for resolution - that not being a contravention taken in isolation which had been pleaded by the ACCC. It was the conduct identified in para 67(a)-(c) which "cumulatively" was the conduct pleaded by the ACCC which constituted the two contraventions of s 46. … Notwithstanding considerable reservation, it is ultimately concluded that the Pfizer submission would have been accepted. The submissions should prevail both by reason of: • the manner in which the contraventions of s 46 were pleaded; and • the manner in which the evidence unfolded and submissions advanced on behalf of the ACCC. The submission should, accordingly, not simply be resolved "as a pleading point". Confined to the pleadings, the Pfizer submission that the ACCC is "incoherent" is accepted. Paragraph 67(a) and (b) focuses attention upon the "implementation" of the direct-to-pharmacy model and the "establishment" of the accrual funds scheme. Both events took place in January 2011. Whatever "market power" Pfizer may then have possessed and whatever may have been the "purpose" it was then pursuing matters not. No contravention is separately alleged in respect to such conduct as otherwise falls within para 67(a) or para 67(b). The pleading that "during the period between at least 1 December 2010 and 18 May 2012 Pfizer held a substantial degree of market power" is confined by reference to the "cumulative" conduct thereafter identified and confined to the period (in respect to para 67) "from on or about 16 January 2012". Given the need for there to be a "co-existence" of each of the requirements of s 46 at the time of contravention (Melway Publishing at [44] per Gleeson CJ, Gummow, Hayne and Callinan JJ), a contravention of s 46 "from on or about 16 January 2012" cannot be made out by reference to conduct pursued in January 2011. 185 At 539-540 [433], the primary judge said that not only had the case been pleaded in the manner which he described at 539 [431] but it had also been conducted upon the same basis. His Honour found that the ACCC had concentrated much of its attention upon January 2011. It had led evidence designed to prove the nature and extent of Pfizer's market power at that time. The ACCC had also endeavoured to prove that Pfizer's purpose at that time in implementing the DTP model and in establishing the accrual funds scheme was a proscribed purpose. In effect, his Honour held that this approach was flawed because the only times when Pfizer's market power and conduct were required to be assessed were January 2012 (par 67) and February 2012 (par 67A).

The ACCC's Submissions 186 In its Written Submissions dated 2 October 2015 (ACCC's WS), the ACCC accepted that the conduct in question must satisfy the three principal requirements of s 46 (the possession of substantial market power; the taking advantage of such power; and doing so for the purpose of preventing, hindering or deterring competition in a market for goods or services or both) and that those requirements must be causally co-extensive and temporally co-existent in the critical period when the contraventions are alleged to have taken place. 187 The ACCC submitted that the case which it had pleaded and run at trial was that Pfizer had implemented a commercial strategy or plan that involved three inter-related elements, namely, the implementation of the DTP model, the establishment of the accrual funds scheme and the making of the bundled offers. The ACCC argued that the impugned conduct (as alleged) was not "complete" until January 2012 when the bundled offers were made. As at January 2012, Pfizer was continuing to implement the DTP model and continuing to operate the accrual funds scheme. 188 The ACCC also accepted in its WS that it had not pleaded nor conducted a case at trial to the effect that the implementation of the DTP or the establishment of the accrual funds scheme in January 2011 constituted separate contraventions of s 46 of the CCA in January 2011. It contended nonetheless that these two steps were integral to the bundled offers first made in January 2012. The ACCC argued that its use of the word "implementation" in par 67(a) and par 67A(a) of the ASC and the use of the word "establishment" in par 67(b) and par 67A(b) of the ASC did not confine the relevance of the conduct pleaded to January 2011 and that the primary judge had erred by interpreting the pleading upon the basis that those two subparagraphs were so confined. 189 In oral submissions at the hearing of the Appeal, Senior Counsel for the ACCC took the Court through the pleadings and the circumstances in which the most recent amendments to the Statement of Claim had been made. He stressed that the ACCC's case was that there was one course of conduct (one strategy, one scheme) and two contraventions of s 46 - one which occurred in January 2012 and the other which took place in February 2012. The making of bundled offers continued thereafter. Early in his submissions, he accepted that he had to show that, in January 2011, and that at all times thereafter, and especially at January 2012 and February 2012, Pfizer had substantial market power; that, at least in January 2012 and in February 2012, it took advantage of that power; and that, at that time, it did so for the purpose proscribed in s 46(1)(c) (see, in particular, Transcript p 17 at l 40-p 19 at l 23). 190 In his submissions in reply made at the hearing of the Appeal in relation to the pleading point, Senior Counsel for the ACCC stressed that the conduct relied upon by the ACCC as being the conduct which the Court was required to assess for the purposes of its s 46 case was the implementation of the commercial strategy that had the three pillars of which the ACCC had spoken repeatedly at the trial. The ACCC submitted that all of the conduct was inter-related. It was then argued that establishing and operating the DTP model and the accrual funds scheme were both integral and essential elements and components of the bundled offers made in January 2012 and in February 2012. The ACCC contended that the conduct was "cumulative" in the sense that it was related and sequential and that the making of the bundled offers in January and February 2012 built upon the earlier conduct. The ACCC also emphasised that it had pleaded the three pillars as a single course of conduct giving rise to a contravention at the time of the making of the bundled offers, ie in January 2012 and in February 2012. It was submitted that, throughout the period from at least December 2010 to 18 May 2012, Pfizer possessed substantial market power in the relevant market and took advantage of that power by engaging in the conduct pleaded as constituting the implementation of its commercial strategy and did so for a purpose which was proscribed by s 46 of the CCA. That is to say, it was part of the ACCC's case as pleaded and run that Pfizer engaged in all of the conduct summarised in par 67(a), (b) and (c) and in par 67A(a), (b) and (c) for the alleged proscribed purpose. The ACCC went on to submit that the primary judge had understood the ACCC's case in this way and had decided it accordingly in that part of his Honour's judgment where his Honour dealt extensively with the substance of the case as pleaded and run before him.

Pfizer's Submissions 191 Pfizer submitted that the only error in the reasoning of the trial judge which was identified by the ACCC concerned his Honour's interpretation of subpars (a) and (b) of par 67 and par 67A. Pfizer accepted that his Honour did construe those subparagraphs as relating only to the initial implementation of the DTP model and to the initial establishment of the accrual funds scheme and that he was correct to do so. His Honour construed the language of those subparagraphs by applying the ordinary meaning of the words used. 192 Pfizer then argued that the case sought to be run on appeal (viz that in January 2012 and also in February 2012 Pfizer continued to operate its DTP model and its accrual funds scheme having established both of these activities in January 2011) was not run below. At the trial, so Pfizer argued, the ACCC had submitted that the three elements pleaded did not need to occur at the same time. 193 Pfizer contended on appeal that the fatal flaws in the ACCC's case which were accepted by the primary judge were not mere pleading points. Rather, the problems in the ACCC's case were fundamental. The ACCC's case did not respect an essential requirement for liability under s 46, namely, that there must be a temporal coincidence between the existence of substantial market power, the taking advantage of that power and the existence of the relevant proscribed purpose. 194 It was submitted on behalf of Pfizer that the Court could not have regard to the conduct of Pfizer before January 2012 unless that earlier conduct was also a breach of the law (meaning, probably, a breach of s 46). Pfizer argued that the ACCC could not simply bring forward to January 2012 Pfizer's earlier conduct in January 2011 and thereby convert conduct that was not illegal in January 2011 into conduct that became illegal in January 2012. Notwithstanding this contention, Pfizer accepted that evidence which informed the Court about the implementation of the DTP model and the establishment of the accrual funds scheme in January 2011 might be relevant to a case based upon Pfizer's conduct in early 2012. At the very least, it would prove the context in which the 2012 conduct took place. 195 Pfizer also submitted that the counterfactual inquiry undertaken by it would have been very different if the continuous course of conduct case had been run below. It argued that the case as pleaded and run required the Court to include in any counterfactual analysis as at January 2012 (and beyond) the fact that the DTP model was in place and the fact that the accrual funds scheme was in place. That was so because neither the implementation of the DTP model nor the establishment of the accrual funds scheme constituted a contravention of s 46 taken on its own. Neither of those actions was illegal when first taken in January 2011. 196 Pfizer submitted that the substance of the case, as opened by the ACCC at the trial, is found in par 1 of the ACCC's Outline of Opening Submissions relied upon at the trial. In that paragraph, the ACCC argued that the impugned conduct included embarking upon the Project LEAP strategy from 2010 "… which culminated in [Pfizer] making bundled offers for generic atorvastatin and Lipitor to community pharmacies throughout Australia from January 2012". The ACCC went on to explain that the strategy to which it had referred in par 1 of its Submissions had three elements, namely, the commencement of its DTP model, the establishment of the accrual funds scheme and the making of the bundled offers. Pfizer submitted that, at the trial, it was the ACCC's case that the conduct which constituted the necessary taking advantage of substantial market power comprised Pfizer's actions in January 2011 and its actions in January 2012 in giving effect to the three pillars which the ACCC had identified. These actions were taken almost a year apart and were not temporally co-extensive. 197 According to Pfizer, in its oral opening at trial, the ACCC made clear that all of the conduct constituting the so-called three pillars constituted the necessary taking advantage of substantial market power. We were reminded by Pfizer at the hearing of the Appeal that it had made perfectly plain during its Opening Submissions at the trial that the two contraventions of s 46 of the CCA alleged by the ACCC occurred in the period from 16 January 2012 (as pleaded in par 67 of the ASC) or from about 24 February 2012 (as pleaded in par 67A of the ASC). 198 At the trial, Pfizer submitted that the ACCC could not prove a contravention of s 46 of the CCA in 2012 by relying upon impugned conduct in 2011. Pfizer accepted that conduct which occurred in 2011 may well constitute background facts which formed part of the evidentiary matrix against which the Court might assess the conduct which is said to have infringed the CCA. In response, Senior Counsel for the ACCC reaffirmed the position which he had outlined in his opening. At the trial, Senior Counsel for the ACCC described the three pillars as "interlocking" and "intertwined". The ACCC had accepted at the trial that it was not alleging that any one of the three pillars, in and of itself, constituted a separate contravention of s 46 of the CCA. It also took the same position on appeal. 199 The ultimate submission made by Pfizer was that the case pleaded, opened and conducted at the trial was premised on a legal possibility of aggregation of actions across time in order to constitute a breach upon the happening of the last action. Pfizer submitted that such a case is "legally incoherent" because it fails to recognise that the elements of s 46 must co-exist at the same time and that there must be a causal connection between those elements.

Consideration 200 At pars 43 to 47 of the ASC, the ACCC identified certain conduct engaged in by Pfizer. This conduct comprised: (a) Informing community pharmacies that it intended to supply them with a range of generic pharmaceuticals, not just atorvastatin Pfizer (par 43); (b) Establishing the DTP model in January 2011 (pars 44 to 46); and (c) Establishing the accrual funds scheme (par 47). The establishment of this scheme was said to be part of the "Pharmacy Supply Arrangements" which was the pleader's reference to the DTP model. 201 At pars 50 to 59, the ACCC pleaded that Pfizer initially made the bundled offers to community pharmacies on or about 16 January 2012. In those paragraphs of the ASC, the ACCC spelt out the terms of those offers and went on to allege that Pfizer had subsequently begun to supply Lipitor and atorvastatin Pfizer to community pharmacies in accordance with the terms of those offers. 202 At par 60 of the ASC, the ACCC pleaded that the purpose of Pfizer in carrying out the actions referred to in pars 43 to 59 of the ASC was a proscribed purpose. The conduct to which that pleaded allegation was intended to refer included conduct engaged in by Pfizer in June 2010; in December 2010; in January 2011 and throughout 2011; and in January and February 2012. When close regard is paid to pars 45, 46, 47, 48 and 49 of the ASC, it is tolerably clear that the ACCC was also alleging that both the DTP model and the accrual funds scheme continued to operate throughout 2011 and well into 2012. In par 60 of the ASC, the ACCC pleaded that a substantial purpose of Pfizer in engaging in the conduct referred to in pars 43 to 59 was to hinder, deter or prevent other suppliers of generic atorvastatin from supplying generic atorvastatin to a substantial proportion of community pharmacies after 18 May 2012. It also pleaded specific facts and matters relevant to the position of Ranbaxy Australia which was permitted to sell its generic atorvastatin from 18 February 2012. The substance of these allegations was repeated in par 66 of the ASC. The particulars provided in the ASC relevant to par 60 of the ASC made quite clear that it was the ACCC's case that Pfizer had engaged in all of the conduct referred to in pars 43 to 59 for a proscribed purpose. The ACCC did not confine its pleaded purpose case to the making of the bundled offers in January 2012 and in February 2012. 203 At par 61 of the ASC, the ACCC alleged that Pfizer had a substantial degree of market power in the atorvastatin market throughout the period from June 2000 until at least 18 May 2012. 204 The ACCC addressed Pfizer's "taking advantage" of its market power at pars 62 to 65B of the ASC. Paragraph 63 included reference to the establishment of the accrual funds scheme and the accumulation of the Lipitor rebates as part of the accrual funds scheme. In similar vein, in par 63, the ACCC also pleaded other conduct which related to the way in which Pfizer allowed access to the Lipitor rebates. In par 64 of the ASC, the ACCC pleaded facts and matters which were designed to make clear that it was the ACCC's case that Pfizer could not have made the bundled offers in early 2012 upon the terms and conditions governing those offers without (inter alia) having previously established and continuously operated both the DTP model and the accrual funds scheme. 205 The ACCC also pleaded at par 65A and par 65B of the ASC a case of taking advantage based upon the fact that some of the supplies of atorvastatin Pfizer to community pharmacies involved the supply of that product below Pfizer's forecast cost of supplying that product. 206 It is against the paragraphs in the ASC to which we have referred at [200]-[205] above that the Court must interpret par 67 and par 67A of the ASC. 207 The pleaded contravention in par 67 of the ASC is based upon the matters pleaded in pars 42 to 53, 55 to 59, 60(a) to 60(r), 60(t) to 60(v) and 61 to 66 of the ASC. The contravention pleaded in par 67A is based upon the matters pleaded in pars 42 to 51, 54 to 59, 60(a) to 60(g), 60(s) to 60(v) and 61 to 66. 208 The following observations may be made about the conduct of Pfizer relied upon by the ACCC in its pleaded s 46 case: (a) The conduct pleaded in pars 43 to 64 of the ASC included conduct which took place in mid-2010 and possibly earlier in 2010 (Pfizer's decision to implement its commercial strategy known as "Project LEAP"); conduct which took place in December 2010 (Pfizer's announcement that it was proposing to establish and implement its DTP model); conduct which took place in late 2010 (Pfizer's advice to community pharmacies that it intended to commence manufacturing and supplying generic brands of originator prescription pharmaceuticals and that it would offer community pharmacies a discount on the supply of such pharmaceuticals); conduct in late January 2011 (Pfizer's implementation of the DTP model and its establishment and implementation of the accrual funds scheme); and conduct which took place in January 2012 and in February 2012 and subsequently (the making of the bundled offers and the supply of Lipitor and atorvastatin Pfizer in accordance with the terms and conditions of those offers). That is, the conduct relied upon by the ACCC as constituting the impugned conduct is all of the conduct described in pars 43 to 64 of the ASC. (b) The conduct summarised in subpars (a), (b) and (c) of par 67 and the conduct summarised in subpars (a), (b) and (c) of par 67A is that conduct covered by the earlier paragraphs of the ASC incorporated into each of par 67 and par 67A with the exception of those actions on the part of Pfizer which might be described as devising Project LEAP or planning Project LEAP as distinct from giving effect to the critical elements of Project LEAP. It is the giving effect to the fundamental elements of Project LEAP which is said to constitute the impugned conduct although the ACCC's case was that no contravention was committed until the last action referred to in each of par 67 and par 67A (the making of the bundled offers) was carried out. (c) It may be convenient to describe steps taken by Pfizer in 2010, 2011 and 2012 as a single course of conduct. However, it is more accurate to characterise the ACCC's pleaded s 46 case as being based upon the proposition that the impugned conduct over that period should be considered by the Court as a whole, that conduct being the manifestation of Pfizer's commercial strategy (Project LEAP) which had been devised in 2010 in order to meet the expected competition from the generic manufacturers post expiry of the atorvastatin patent. 209 There is no doubt that the ACCC's pleaded case contained an allegation that Pfizer held a substantial degree of market power in the atorvastatin market throughout the period between at least 1 December 2010 and 18 May 2012. That is an allegation to the effect that Pfizer held such power continuously at all times throughout that period. 210 In addition, it seems to us that the allegations as to Pfizer's purpose made in par 60 and par 66 of the ASC also make clear that it was the ACCC's pleaded case that, in engaging in the conduct pleaded in pars 43 to 59 of the ASC, a substantial purpose of Pfizer was to hinder, deter or prevent other suppliers of generic atorvastatin including: (a) Ranbaxy Australia, from 18 February 2012; and (b) Other generic suppliers from 18 May 2012 from supplying generic atorvastatin to a substantial proportion of community pharmacies. In the ASC, that purpose is described as "Intended Foreclosed Supply". Those allegations as to Pfizer's purpose demonstrate, it seems to us, that it was part of Pfizer's pleaded case at the trial that Pfizer engaged in the impugned conduct throughout the relevant period (late 2010 to 18 May 2012) for a purpose which was proscribed by s 46 of the CCA. In other words, the ACCC's pleaded case was not confined to establishing the existence of a proscribed purpose only as at January and February 2012 but necessarily proceeded upon the basis that it had undertaken the burden of proving that the alleged proscribed purpose obtained throughout the entire period from late 2010 up to at least 18 May 2012 and that Pfizer's conduct in that period which was impugned was engaged in for that purpose. 211 It also seems to us that the ACCC's pleaded case included an allegation that, in engaging in the impugned conduct, Pfizer took advantage of its market power which was said to be substantial throughout the relevant period. That is, it took advantage of that market power on each occasion when it took the steps referred to in pars 43 to 64 of the ASC which are summarised in subpars (a), (b) and (c) of each of par 67 and par 67A. As submitted by the ACCC, the efficacy of the bundled offers when made in January and February 2012 was dependent upon the existence and continued operation of the DTP model and the accrual funds scheme. Those two elements were integral to the intended operation of the bundled offers. 212 The ACCC did not allege at trial nor did it seek to argue on appeal that contraventions of s 46 were committed at any time prior to the making of the bundled offers. Its case was that the commercial strategy to which we have referred was only fully brought into effect when the bundled offers were made. For this reason, the ACCC disavowed any case which involved contending that contraventions of s 46 were committed by Pfizer when it established and put into operation the DTP model and established and put into operation the accrual funds scheme. Contraventions may have occurred before January 2012 or February 2012 but it was no part of the ACCC's pleaded case that this was so. 213 The ACCC's pleaded case depended upon the Court accepting that Pfizer had a substantial degree of market power in the atorvastatin market from at least 1 December 2010 to 18 May 2012. 214 We have carefully considered the submissions made by both parties at the trial (both written and oral) and have, with some hesitation, come to the view that the pleaded case as we have explained it was, in fact, the case which Pfizer conducted at trial. Further, it seems to us that it was also the case which the primary judge addressed in his Reasons when he dealt with the substance of the ACCC's s 46 case as distinct from the pleading point which related to that case. 215 Pfizer contended at the trial and contended before us that the case which we have found was pleaded by the ACCC was "legally incoherent" or "legal nonsense". This proposition was largely based upon the further proposition that the law requires that the three principal requirements of s 46 must be shown to be causally connected and temporally co-existent at the time when the alleged contravention took place. In the present case, so Pfizer submitted, the ACCC's case was fatally flawed because there was no appropriate temporal or causal co-existence between the fundamental elements of s 46. It was said that the ACCC could not rely upon conduct in 2010 and 2011 which it did not allege constituted a contravention of s 46 in conjunction with conduct which took place in January and February 2012 in order to establish the pleaded contravention of s 46. 216 In support of these arguments, Pfizer relied upon the following statement made by the plurality in Melway (at 21 [44]): … Section 46 of the Act requires, not merely the co-existence of market power, conduct, and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power. 217 That observation was endorsed by Gleeson CJ and Callinan J in Boral at 419 [120] in the following terms: It was pointed out by this Court in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [(2001) 205 CLR 1 at 21 [44]] that s 46 requires, not merely the co-existence of market power, conduct, and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power. It was also observed that an absence of a substantial degree of market power only requires a sufficient level of competition to deny a substantial degree of power to any competitor in the market. 218 Here, the ACCC alleged that, throughout the period from 1 December 2010 to 18 May 2012, Pfizer had a substantial degree of market power in the atorvastatin market. The ACCC also alleged that throughout that period, when Pfizer engaged in the impugned conduct, it had a purpose which was proscribed by s 46. It also alleged that, by engaging in the impugned conduct, Pfizer took advantage of its undoubted market power. Finally, it alleged that the conduct needed to be viewed as a whole because it was put into effect as part of an overall commercial strategy or plan which had a number of integers, being in effect the integers or elements pleaded in summary form in par 67 and par 67A of the ASC. The conduct should be viewed as a whole, so the ACCC submitted, because the bundled offers would not have been made had the DTP model and accrual funds scheme not been established and operated continuously prior to the making of the bundled offers. The efficacy of the bundled offers was dependent upon the existence and continued operation of the DTP model and the accrual funds scheme. We agree with these submissions. 219 Viewed in this way, we do not think that the ACCC's pleaded s 46 case offends the principle explained by the High Court in Melway and Boral. We take the view that the critical elements of s 46 are relevantly causally connected in the present case as pleaded even if they were not temporally so connected. However, we also think that the better view of the facts is that those critical elements were temporally connected because the pleaded case required the Court to consider the impugned conduct as a whole at a time when, throughout the entirety of the relevant period, Pfizer held the requisite degree of market power, took advantage of that market power by engaging in the impugned conduct and did so at all times for a proscribed purpose. 220 For the above reasons, we think that the primary judge erred when he concluded that the ACCC's s 46 case was legally incoherent. Therefore, we are of the opinion that Ground 1 in the Appeal should be upheld. 221 Of course, the primary judge relied upon his conclusion that the ACCC's case was "legally incoherent" only as a fall-back position. For the detailed reasons which he gave elsewhere in his judgment, the primary judge was of the opinion that the ACCC's case should fail in any event. Our conclusion on this pleading point merely opens the way for us to consider the balance of his Honour's judgment as challenged on appeal. In so doing, we will approach our consideration of the remaining grounds of appeal and of Pfizer's contention points upon the basis that the ACCC's pleaded case was the case which we have explained at [200]-[220] above.

Market Definition (Contention Ground 1) 222 It may be recalled that the market which the ACCC pleaded and relied upon at the trial for the purposes of its s 46 cases and also its s 47 cases was defined in the following terms: "An Australia-wide market for the supply of atorvastatin to, and acquisition of atorvastatin by, community pharmacies". In these Reasons, we have used the expression "atorvastatin market" to describe this market. This market, as defined, included both branded atorvastatin (Lipitor) and generic atorvastatin. It is a wholesale market but is confined to a single pharmaceutical viz atorvastatin. At the trial, Pfizer took issue with the proposition that the relevant market for present purposes was the atorvastatin market. Pfizer argued that the relevant market was "… a market for the wholesale supply of pharmaceutical products and over-the-counter (OTC) products to community pharmacies in Australia". We have described this market as the "wholesale market". This market is a very broad market. Its product dimension includes generic pharmaceuticals, branded pharmaceuticals and a large variety of OTC products. 223 Both the ACCC and Pfizer agreed that, whatever market definition was the correct definition for present purposes, the market was an Australia-wide market. They also agreed that the market was a wholesale market although, of course, they disagreed as to the product dimension of the relevant market. 224 The ACCC's case was that Pfizer had contravened s 46(1)(c) by taking advantage of a substantial degree of market power in the atorvastatin market for the purpose of hindering, deterring or preventing other suppliers of generic atorvastatin from supplying generic atorvastatin to a substantial proportion of community pharmacies post expiry of the atorvastatin patent. The ACCC also related the alleged contraventions to the period post 18 February 2012 in respect of Ranbaxy Australia. Thus, as pleaded and conducted, the ACCC's s 46 case was that it was Pfizer's conduct in the atorvastatin market which had the anti-competitive effect alleged in the same market. While the conduct occurred in the period from late 2010 to 18 May 2012, it was principally directed to competition in the atorvastatin market in the post-patent period.

The Primary Judge's Reasons 225 The primary judge's reasons for preferring the market definition propounded by the ACCC are found at 498-505 [254]-[279] read with his Honour's exposition of the general principles governing the definition of market at 437-441 [29]-[37]. We have summarised the reasons of the primary judge concerning the definition of the relevant market at [138]-[147] above. The following paragraphs supplement the earlier section. The two sections should be read together. 226 At 498-499 [258], the primary judge noted that the parties agreed that: (a) The definition of a market for the purposes of s 46 of the CCA is a factual enquiry which is to be approached in a purposive manner; (b) The nature of the market could potentially change over time; and (c) In the present case, the market was the same for the purposes of both the ACCC's s 46 case and its s 47 case. 227 At 499-500 [259]-[260], his Honour cited with approval the well-known passage from Professor Heydon's book on trade practices law concerning the correct approach to defining the relevant market and then made the other remarks which we have extracted at [140] above. 228 At 500 [261], his Honour noted that it was permissible for the Court to have regard to expert evidence in seeking to determine the definition of market. At 500-501 [264]-[267], the primary judge said that Dr Pleatsikas, the expert called by the ACCC, had expressed the opinion that the relevant market should be defined by reference to the manufacturing functional level. Dr Pleatsikas suggested that the expert called on behalf of Pfizer, Dr Addanki, had gone about his analysis of the relevant market for the purpose of defining that market, "backwards". Dr Pleatsikas said that his (Dr Pleatsikas') approach was to define the product market (atorvastatin) and then look at the constraints within that market. He said that because atorvastatin had no substitutes it was difficult to identify any operative constraints in the relevant market. Dr Pleatsikas accepted that the behaviour of participants in the relevant market did operate as a constraint on the price of atorvastatin but that that state of affairs did not mean that other non-substitutable pharmaceutical products suddenly became substitutable for atorvastatin. Dr Pleatsikas was of the opinion that it was wrong to suggest that the true product dimension of the relevant market was the wholesale supply of a broad range of generics and OTC products. 229 At 501-502 [268], his Honour addressed some of the evidence given by Dr Addanki in support of his proposition that the relevant market in the present case was the wholesale market. At 502 [270], his Honour noted (inter alia) that, at all relevant times, a pharmacist presented with a prescription for atorvastatin was required to supply atorvastatin (and no other pharmaceutical). He noted that, in the language of an economist, throughout the relevant period there was no demand-side substitution and no supply-side substitution. 230 At 503-504 [272], his Honour said: Expressed differently, but still with the emphasis upon whether there was substitutability in respect to the product dimension of market definition, it is not without relevance to note: • the volume and value of atorvastatin supplied to the Australian community under the pharmaceutical benefits scheme. Prior to 1 April 2012, Lipitor was the only atorvastatin product available on a subsidised basis; • the fact that atorvastatin was a significant, if not key, pharmaceutical product essential to the practice of an Australian pharmacy - it was a product which contributed significantly to the income of pharmacies. As Ms Carter expressed it: "every pharmacy has to stock" atorvastatin; and • the fact that there was a demand for atorvastatin from a considerable number of patients - it was a pharmaceutical product prescribed by medical practitioners for a considerable number of patients. Moreover: • when comparing offers, pharmacists compared the prices at which atorvastatin was being offered. According to Ms Carter, "the most important factor for Chempro in determining which supplier of generics (sic) pharmaceuticals … to use to supply a particular pharmaceutical is always price". Additional matters include the fact that: • the generic manufacturers long before 18 May 2012 were contemplating how they would supply atorvastatin to the Australian community; • Apotex, in structuring how it would supply its own generic atorvastatin perceived its challenges to include the ongoing need for pharmacies to continue stocking Lipitor; • the fact that Pfizer had offered and was offering significant discounts on Lipitor and that pharmacies had built up over time considerable sums in Pfizer's "bank"; • Alphapharm, in structuring how it would supply its generic atorvastatin perceived that it was unable to respond to the Pfizer offers and devised its own "three-pronged strategy" which focused on "requiring no long term purchase commitments and exploiting [their] understanding of the pharmacies (sic) negative views of Pfizer …"; • Ranbaxy offered discounts on its own generic atorvastatin - Trovas - even though it did not generally offer rebates or discounts to customers which were tied to the bundling of more than one product; and • there was considerable competition for the supply of atorvastatin - with a considerable number of people switching from Lipitor to Atorvastatin Pfizer and a considerable number of people switching from one generic product to another. Such facts, it is considered, support a conclusion that atorvastatin was being seen to be - and being marketed as - a separate pharmaceutical product in its own right for which there was no substitute throughout the period in question. Although the generic manufacturers may have marketed their own generic range of pharmaceuticals, and resisted attempts by pharmacies to "cherry-pick" individual products from within their ranges, atorvastatin had long been regarded as a truly unique product. It was a product which pharmacies had to stock and was a considerable source of their income. 231 At 504 [274], his Honour concluded that the dimensions of the relevant market had not changed between late 2010 and mid-2012. 232 At 505 [276]-[279], his Honour expressly rejected Pfizer's arguments in support of its wide definition of the relevant market principally for the reason that there was no substitutability of any other pharmaceutical for atorvastatin at any time in the relevant period.

Pfizer's Submissions 233 Pfizer made the following submissions in support of its overall contention that the relevant market for the purposes of both the s 46 and s 47 cases which the ACCC sought to make was the wholesale market ie the market for the wholesale supply of pharmaceutical products and OTC products to community pharmacies in Australia. In its Defence, Pfizer did not make clear that the wholesale market was a market in which only generic pharmaceuticals were supplied. By the time that Pfizer made its oral submissions to this Court, there was no doubt that Pfizer's postulated market was a market for the supply of generic pharmaceuticals only. Thus, it was Pfizer's case that, in the period between January 2012 and 18 May 2012, Lipitor was not supplied in its postulated wholesale market but was supplied in a single-molecule market of its own. 234 At Transcript p 272 at ll 23-43, Senior Counsel for Pfizer submitted the following: … Now, as we know, other generic suppliers could supply from 18 May. However, they engaged in rivalrous conduct from earlier dates, and your Honours will see that considered by his Honour at judgment 171 to 175. On our case, and the case we say that, properly understood on the pleading - and I won't go back to that - the only relevant taking advantage market is that which obtained at the date of contravention, being 16 [January] to 18 May. His Honour's finding concerning the period from December 2010 - namely, that there was a market for Lipitor - need not be disturbed. In our submission on the pleading, it is irrelevant. Our case focuses on late 2011 and following, although we have to against the possibility that my learned friend's submissions, as to how your Honours should approach the pleading, finds favour with your Honours. I will have to say something at least of the taking advantage case about the earlier events. Now, our essential proposition is that generic atorvastatin was, from 16 January, supplied in a market. The product dimension of which consisted of ranges of generic pharmaceutical. As I said, the reference to over the counter products was for completeness and is not the focus of the case. Now, we don't need to dwell upon Lipitor, whether Lipitor was in that market or constrained by that market, but I will come to some detail which may well suggest that it wasn't. … (Emphasis added) 235 At Transcript p 327 at ll 9-44, the following exchange took place: GREENWOOD J: … Now, is there any room for accommodating the possibility that the product in question here was part of a cluster market on ranges of generic drugs, but, at the same time, there was subsisting in parallel a separate market for the drug itself. MR HUTLEY: Your Honour, the real question is, when it says "the drug itself", one has to ask the question, are we including in that Lipitor, the brand, because one then has to confront the price constraint question. It affords my learned friends no comfort if there be a, as it were, sub-market of generic atorvastatins. GREENWOOD J: Yes. MR HUTLEY: The really critical question, their anticipated market - required market - requires Lipitor and all generics to be in it - ie, their, in effect, close constraints - and, in our respectful submission, properly analysed, all the evidence made that a very problematic proposition, because the pricing just makes no sense if you're talking about a close constraint, accepting all the capacity to - of course - anyway, I will just be repeating what I've said. Your Honours understand it. GREENWOOD J: Yes. MR HUTLEY: But what we say is that when one looked at the entirety of this, and Mr Millichamp's evidence is the best - although there are other documents which basically say the same thing, and we refer to that - is that this was a business which really was just a business about one thing; that is, the overwhelming terms of trade in this business was competition for pharmacies, with periods of ripple and periods of excitement when they were entering, but if you're looking at - if you're trying to analyse competition over - and a market should be looked at over the long term in a forward looking way - we say it was just inescapable that the true competition in respect of generic atorvastatins is, as Mr Millichamp said, it would just fall in and became a trading item. That's what was happening. That's what this was all about. It was just, in effect, there was a big one-off opportunity, went on for a short while, and this would then become the bread and - part of the bread and milk, along with simvastatins and all the other drugs, which you will see in just about every one of these agreements if you compare the schedules; you know, the big ticket items. … 236 The primary judge held (at 499-500 [260]) that the atorvastatin market (referring to the relevant market as defined by the ACCC) was in a state of flux as at January and February 2012. 237 As at early 2012, it was common knowledge among manufacturers of statins, manufacturers of generic pharmaceuticals and proprietors of community pharmacies in Australia that the atorvastatin patent would expire on 18 May 2012. As at early 2012, that fact had been common knowledge among those persons and organisations for many years. Manufacturers of generic atorvastatin were likely to enter the relevant market in Australia as soon after 18 May 2012 as they were able to do so. This prospect was also well appreciated by Pfizer and the proprietors of community pharmacies. 238 Three separate periods are to be identified and distinguished. The first period is the period before January 2012. In particular, the period between late 2010 and late 2011. Throughout this first period, atorvastatin was supplied in Australia only by Pfizer and only as a branded product (Lipitor). Pfizer accepted at trial and on appeal that, throughout this first period, the relevant market was the atorvastatin market (as defined by the ACCC). The second period is the period between January 2012 and 18 May 2012. During this second period, Pfizer continued to supply Lipitor but also launched its generic atorvastatin under the name "Atorvastatin Pfizer". After 18 February 2012, Ranbaxy Australia began to supply its generic atorvastatin (Trovas) in Australia. Its market share was insignificant. A number of other substantial manufacturers of generic pharmaceuticals intended and were expected to commence supply of generic atorvastatin soon after 18 May 2012. The impending entry of those generics manufacturers was going to be a close constraint upon Pfizer in the relevant market after 18 May 2012. The basis of that close constraint was the ability of those generics manufacturers to supply and thus compete, not only in respect of atorvastatin, but across a range of generics which was their usual mode of supply. The third period is the period after 18 May 2012, the date when the atorvastatin patent would expire. 239 The primary judge did not decide the question of whether the relevant market remained the same after 18 May 2012. For that reason, he did not specifically address the question of whether, after that date, atorvastatin would be supplied in Australia as part of a wholesale market for the supply of generic pharmaceuticals or, alternatively, as part of a wholesale market for the supply of generic pharmaceuticals and OTC products. His Honour did not address these questions for a number of reasons. First, neither party led evidence at the trial specifically directed to the definition of the relevant market in the post 18 May 2012 period. Pfizer criticised the ACCC for not leading such evidence but accepted that the ACCC had not, in fact, done so. Pfizer argued at trial that it was a necessary part of the ACCC's case to prove the relevant market post 18 May 2012 because the ACCC's s 46 and s 47 cases were both built upon the fundamental proposition that the impugned conduct which culminated in the making of the bundled offers in January and February 2012 was directed to the atorvastatin market in the period immediately following 18 May 2012 when competition in respect of the sale or supply of atorvastatin was expected to be at its most vigorous. Second, if it be correct that Pfizer lacked a substantial degree of market power in the relevant market during the period from January to May 2012, a fortiori it would have lacked a substantial degree of market power in a much broader generics market post 18 May 2012. Third, there was no need to look at the market in the post 18 May 2012 period because, in any event, Pfizer did not have a proscribed purpose at any time in the period from late 2010 to 18 May 2012. 240 Pfizer concentrated its submissions on the second period referred to above ie the period between January 2012 and 18 May 2012. It submitted that, throughout that period, Pfizer supplied its generic atorvastatin in a market the product dimension of which was a range of generic pharmaceuticals and OTC products. 241 At 462-478 [101]-[176], the primary judge made a number of findings relevant to market definition. None of those findings is challenged. Pfizer argued that his Honour should have made the following additional findings: (a) Prior to the end of 2010, pharmaceutical manufacturers could be divided into originator manufacturers and generic manufacturers. Project LEAP included a plan by Pfizer, an originator manufacturer, to develop its own range of generic pharmaceuticals. We pause here to note that that idea was abandoned soon after it was conceived. In Australia, Pfizer never became a manufacturer and supplier of a full range of generic pharmaceuticals. The major generics manufacturers who supplied pharmaceuticals in Australia in 2011 and 2012 were Alphapharm, Aspen, Apotex and Sandoz. Between them, they accounted for 85% of the sales of generic pharmaceuticals made in Australia. (b) In 2010-2012, the supply of pharmaceuticals to community pharmacies in Australia was dominated by three wholesalers, API, Sigma and Symbion. There were strong vertical alignments between those three wholesalers and the three major generics manufacturers (Alphapharm, Aspen and Apotex). (c) As at early 2012, there were approximately 5,000 to 5,200 community pharmacies in Australia. Around half of them were members of banner groups or buying groups, many of which were, in turn, owned by or aligned with one of the major wholesalers. (d) Wholesalers typically granted their aligned manufacturers preferred supplier status in respect of their aligned banner groups. (e) Manufacturers of generic pharmaceuticals believe that they compete in a "generics market" in which Pfizer planned to be a new entrant. No-one in the industry speaks of an atorvastatin market or a single molecule market. We note that Pfizer relied upon several internal Apotex business documents in support of this proposition. (f) Generics manufacturers generally compete with each other on range, price and supply terms. (g) The evidence did not disclose any examples of a generics manufacturer who supplied a single molecule. To supply only one molecule was not a viable option for generics manufacturers. (h) Most community pharmacies have in place a first line support agreement with a generics manufacturer. (i) In 2012, Apotex, Alphapharm, Sandoz and Aspen had between the four of them 4,921 pharmacies signed up to long-term or first line support agreements. (j) The dominant mode of procurement in the industry is that banner groups and buying groups put the supply of pharmaceuticals to their members out to tender and the generics manufacturers compete for long-term supply arrangements to the pharmacies in that group. (k) Preferred supplier agreements are typically in place for a specified period, usually one to three years. (l) Long-term preferred supplier agreements typically offer discounts, rebates and other benefits across the manufacturer's entire range, which normally require the pharmacy or group to purchase between 85% and 100% of its generic requirements from that manufacturer. (m) Generics manufacturers structure their preferred supplier agreements to encourage or compel pharmacies to take the full range of products which they offer, including new products where a patent has just expired. Apotex's arrangements exemplify this approach. (n) The major generics manufacturers strenuously resist any attempt by pharmacies to negotiate on a molecule-by-molecule basis. Pharmacies endeavouring to do this are called "cherry-pickers". The major generics manufacturers position themselves with their customers upon the basis that they provide the best value across the full range of generic products, even if they do not have market-leading discounts on all molecules. (o) When a molecule comes off patent, there is a short period of intense competition in respect of the individual molecule, after which the molecule joins the range and is dealt with under preferred supplier agreements. From time to time, generics manufacturers sell a pharmaceutical below cost during this launch phase. At 517 [324], the primary judge held that, had it been necessary to do so, he would have found that the bundled offers made by Pfizer in January and February 2012 were offers made during the launch phase of a new product and for a relatively short period of time. For this reason, his Honour held that those offers did not involve the taking advantage of any market power that Pfizer may have retained. (p) Community pharmacies prefer to deal mainly with one wholesaler. (q) Atorvastatin was such a significant pharmaceutical and such a high volume product that a community pharmacy could not possibly remain compliant with any loyalty requirements in its preferred supplier agreement unless that pharmacy acquired and dispensed that manufacturer's generic atorvastatin. Generics manufacturers sought to dissuade pharmacies from buying Pfizer's generic atorvastatin by pointing out to them that they risked losing the discount which they received across the range of generics. The evidence disclosed examples of this on the part of Apotex as early as May 2012. (r) The preferred supplier arrangements between manufacturers of generic pharmaceuticals and community pharmacies closely constrained Pfizer and Ranbaxy Australia when they were formulating their launch offers for the generic atorvastatin products because: (i) One of the largest banner groups (Chemist Warehouse) had an exclusive supply agreement with Sandoz, which precluded that group from accepting Pfizer's or Ranbaxy Australia's offers; (ii) Many of the remaining pharmacies stood to lose their discounts, rebates and other incentive payments across the range of generic pharmaceuticals which they purchased from their preferred supplier if they accepted Pfizer's offer; (iii) In formulating its atorvastatin offer, including its discounts, Pfizer had regard to the range and to the discounts being offered by generics manufacturers across the range, including the level of discounts pharmacies stood to lose if they accepted Pfizer's offer; (iv) An important aspect of Pfizer's strategy was to expand the range of generic pharmaceuticals which it supplied. This was done so as to position Pfizer to offer pharmacies a broader range of generics in the event that a particular pharmacy which accepted Pfizer's atorvastatin offer lost the discounts which it would otherwise have obtained from its preferred generics manufacturer across its range; and (v) Ranbaxy Australia considered the generics manufacturers, their ranges and the agreements which they had with community pharmacies to be a major obstacle in their ability to be successful. 242 Pfizer contended that the primary judge erred when he concluded as he did at 502 [270] that, throughout the relevant period, there was no demand-side substitution and no supply-side substitution for atorvastatin because (inter alia) at all times in that period a pharmacist presented with a prescription for atorvastatin was required to fill that prescription by supplying atorvastatin. It was also argued that his Honour erred by thinking that the relevant enquiry began and ended with the circumstance that there was no demand-side substitute for atorvastatin and no supply-side substitute for that molecule. This was to elevate the use of atorvastatin (ie its functionality) to a prominence in the market definition analysis which it should not have had. That analysis should rather have concentrated on the transactions carried out in the marketplace. Pfizer made the following submissions in support of this overall challenge to the primary judge's conclusions: (a) The primary judge's observation at 502 [270] was directed at the wrong level of the supply chain. It was directed to the supply of atorvastatin by community pharmacies to consumers whereas the case before his Honour was concerned with the supply of atorvastatin to community pharmacies by way of wholesale transactions. In order to understand that wholesale market, one has to understand the way in which suppliers of generics trade with community pharmacies. This exercise involves a consideration of how competition for substitutes takes place (see s 4E of the CCA and Australian Competition and Consumer Commission v Metcash Trading Ltd [2011] FCA 967; (2011) 282 ALR 464 at 501 [175]). (b) One cannot extrapolate backwards from the consumer level to the pharmacy level. Consumers buy pharmaceuticals on a product-by-product basis whereas pharmacies purchase them as part of a range. (c) In order to define the relevant market, one needs to know how the participants in that market behave in the real world. The relevant market should be defined by reference to structural and commercial features of the pharmaceutical industry. The facts in the present case demonstrated that the relevant product dimension in the real world was a range of generic products. (d) In the present case, the substitution which actually occurred is a substitution between bundles of different goods or services viz ranges of generic pharmaceuticals. In terms of the US jurisprudence, this was truly a cluster market. (e) In the present case, the evidence established that community pharmacies did not, in fact, buy pharmaceuticals that have come off patent on a product-by-product basis. The findings made by the primary judge at 503-504 [272] based upon the evidence of Ms Carter were not justified. This is because Ms Carter did not make clear whether she was, in truth, referring to long term supply. In addition, she was not cross-examined with the consequence that her evidence was not tested. (f) In reality, a community pharmacy tends to have a single preferred supplier from whom the supplier acquires all, or substantially all, of its off patent pharmaceuticals. Conversely, suppliers of off patent pharmaceuticals do not seek to supply their pharmaceuticals on a product-by-product basis but instead compete with each other to become the preferred supplier of all, or substantially all, of the off patent pharmaceuticals purchased by a community pharmacy. That competition is reflected in, and reinforced by, the preferred supplier agreements between generics manufacturers, wholesalers and community pharmacies, which offer substantial discounts if pharmacies meet loyalty targets calculated across a range of off patent pharmaceuticals. (g) The primary judge should not have relied upon Dr Pleatsikas in determining the definition of the relevant market because Dr Pleatsikas reached his conclusions without considering the evidence of how the industry actually operates and did not adopt a forward-looking analysis as he should have done. 243 Pfizer went on to submit that the primary judge should have concluded that, once a drug comes off patent, the competition to supply that drug to community pharmacies takes place in a market the product dimension of which is the range of generic pharmaceuticals. Determining the definition of any particular market is a forward-looking exercise. One must evaluate close constraints operating over a relevant temporal horizon. Not just for a moment but over the longer term. In the present case, the primary judge needed to come to a view as to the definition of the market in which atorvastatin would be supplied at the wholesale level after 18 May 2012 in order to consider whether the dimensions of that market would influence the dimensions of the same market in which atorvastatin would be supplied between mid-January 2012 and late May 2012. Had the primary judge adopted that approach, he would have concluded that, after 18 May 2012, atorvastatin would be supplied in a cluster market comprised of a range of generic pharmaceuticals. This conclusion would then inevitably result in the definition of the relevant market for the earlier period (mid-January 2012 to 18 May 2012) being the same as applied in respect of the post 18 May 2012 period. 244 Pfizer then argued that the close constraint imposed by competition across the whole range of generic pharmaceuticals commences before the expiry of the patent. Community pharmacies anticipate the expiry of the patent and anticipate the effect that that circumstance will have, not just on the prices for the molecule in question, but also on their purchasing requirements, if they are to meet the loyalty requirements under their preferred supplier agreements. In the present case, in light of the fact that, for several years before 18 May 2012, the date of the expiry of the atorvastatin patent was well known as being 18 May 2012, all major generics suppliers were preparing to enter the market. Contracts already in place between pharmacies and the incumbent vertically aligned suppliers would catch atorvastatin once it came off patent and exposed pharmacies to reductions in the discounts which they would receive across the range of generics which they acquired if they did not buy their preferred supplier's generic atorvastatin when it was launched. The presence of those generics suppliers as potential (almost certain) suppliers of atorvastatin in the imminent future closely constrained Pfizer as a seller of atorvastatin throughout the period from mid-January 2012 to May 2012. What imposed that close constraint was not the ability of those generics suppliers to compete by supplying atorvastatin on its own but their ability to compete as suppliers of the range of generic medicines pharmacies generally acquired. 245 The reasons advanced by the primary judge at 504-505 [275] for the conclusion which he expressed in that paragraph (viz that the definition of the relevant market did not change between late 2011 and mid-2012) demonstrate that his Honour failed to undertake the correct enquiry. His Honour should have looked at the atorvastatin offers that Pfizer was formulating, and subsequently implementing, in the first half of 2012 and asked whether Pfizer's conduct demonstrated that Pfizer was closely constrained by the impending entry of the generics manufacturers as suppliers of atorvastatin. If that enquiry had been undertaken, it would have shown that, by January 2012, the potential for competition across the range of generics was already a close constraint on Pfizer as a supplier of atorvastatin.

The ACCC's Submissions 246 The ACCC made the following submissions in relation to the issues of market definition raised by Ground 1 of Pfizer's Notice of Contention. 247 In advancing submissions which we have summarised at [241] above, Pfizer incorrectly adopted an industry rather than a purposive approach to market definition. The ACCC relied upon the observations of Mason CJ and Wilson J in Qld Wire at 187. 248 Market definition is a tool of analysis and not a physical thing or essence which can be identified in a manner divorced from the relevant context (Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] FCA 826; (2006) ATPR ¶42-123 (Liquorland) at 45,245 [438]). 249 Pfizer has approached the issue of market definition from an incorrect perspective. Rather than considering the economic principles that have been adopted by the authorities as the starting point for consideration of the relevant market having regard to the conduct at issue, Pfizer has sought to define the market by reference to certain structural and commercial features of part of the pharmaceutical industry, including wholesale and marketing behaviours. 250 In this regard, Pfizer's market definition analysis is not purposive and does not define a market that is relevant to analysing the pleaded conduct at issue. Pfizer's submissions focussed exclusively on generic atorvastatin whereas the supply of atorvastatin and the conduct in question concern not only Atorvastatin Pfizer (Pfizer's generic product) but also Lipitor (Pfizer's branded product). Pfizer's market definition is limited to the supply of generic pharmaceuticals. It follows from these submissions that, according to Pfizer, Lipitor, which is the originator molecule, is not supplied in the same market as generic atorvastatin. This proposition is plainly incorrect. 251 Pfizer's approach ignores the product which is the focus of the conduct (atorvastatin) and the manner in which competition for the supply of atorvastatin manifested itself during the period of selling from 16 January 2012 until 18 May 2012. Throughout that period, Pfizer was the only supplier of atorvastatin to pharmacies, other than Ranbaxy Australia, which had a limited capacity to supply and which ultimately secured only a very small market share. 252 Consideration of the supply arrangements and trading terms that other generics suppliers had in place with wholesalers and chemist banner groups for the supply of generic pharmaceuticals (other than atorvastatin) to community pharmacies does not assist to define the market in question in the present case. Such material is divorced from the relevant conduct and does not focus on Pfizer's impugned conduct in respect of Lipitor, generic atorvastatin and the bundled offers made by Pfizer in January and February 2012; the competitive activities of the generic suppliers which were responsive to those bundled offers; or the considerations and behaviours of the pharmacists in acquiring atorvastatin prior to the expiry of the atorvastatin patent. 253 Central to the conduct and the identification of the market in the present case are the bundled offers made by Pfizer for its two atorvastatin products (Lipitor and atorvastatin Pfizer) and its preparatory planning and conduct in relation to the making of those offers. The area of actual or potential competition between Pfizer and other market participants that is relevant to these offers is for the supply of branded and generic atorvastatin. Competition for other patented molecules or portfolios of off patent or OTC products (including generic pharmaceuticals) are not central to that area of actual or potential competition. The fact that wholesalers supply multiple products to pharmacies does not mean that Pfizer relevantly competed with such wholesalers for the supply of atorvastatin to pharmacies in some general wholesale or cluster market comprising multiple goods or that Pfizer's conduct should be adjudged in this more broadly delineated market that is divorced from the conduct under examination. 254 Pfizer's submissions failed to distinguish between "substitution possibilities" and "close constraints". For antitrust purposes, a market is defined by reference to substitution possibilities in supply and demand. Market power is measured by the degree to which a firm can act independently of close constraint. Pfizer seeks to overturn the trial judge's orthodox reliance on substitution to delineate markets by erecting a false dichotomy between purchases of atorvastatin by consumers from pharmacies and purchasers of atorvastatin by pharmacies from suppliers. 255 The product dimension of a relevant market is the starting point for defining the market and is determined by consideration of product substitution possibilities. Atorvastatin has only ever been available for purchase from pharmacies by members of the public by way of prescription. A pharmacy has never been permitted to dispense any pharmaceutical other than atorvastatin to a patient with a prescription for atorvastatin. For a pharmacy, atorvastatin has no substitutes. 256 For the duration of the whole of the period of the relevant impugned conduct for s 46 purposes and up until the time when pharmacies could sell generic atorvastatin under the PBS acquired from Pfizer's competitors (Ranbaxy Australia from 1 April 2012 and others from 1 June 2012) there was no supply-side substitutability by reason of Pfizer's patent. 257 The primary judge did not misunderstand the passage from Dr Pleatsikas' report upon which he relied at 502-503 [271]. That passage was directed at both the functional dimension and supply and demand-side substitutability and was not confined to the functional dimension alone. 258 The "real world" evidence before the primary judge demonstrated that, in the period immediately following the expiry of the atorvastatin patent, generics suppliers competed against each other and against Pfizer for the custom of pharmacies for the supply of atorvastatin on a molecule-specific basis and not by reference to volume discounts and the bundling of other pharmaceuticals. Thus, for some time after the expiry of the atorvastatin patent, there was no basis for arguing that atorvastatin was supplied in a "cluster market". 259 The primary judge's findings in relation to the market in which the impugned conduct took place were also supported by the fact that, contrary to Pfizer's submissions, each molecule supplied by generic suppliers had its own separate discount. 260 The true constraint on the pricing of the Pfizer bundled offers in the period immediately following the expiry of the atorvastatin patent was the price of competing generic atorvastatin not the price of other pharmaceutical or consumer products. Pfizer did not seek to bundle its other patented molecules with atorvastatin in formulating its offers for Lipitor and atorvastatin Pfizer and the relevant discounts offered by competing suppliers, once they were able to make offers and to supply pharmacies, related to their own generic atorvastatin and not to unrelated molecules or other products. 261 The "real world" evidence therefore demonstrated that the area of price competition and the depth of discounting were focussed on atorvastatin alone. The principal focus of all of the suppliers and potential suppliers in the market was on discounts off their own generic atorvastatin variants and, to the extent that any offers or planned offers might have enlivened volume rebates or discounts, the commercial impacts of any discounts were marginal. It is simply incorrect to suggest, as Pfizer does, that generic suppliers relevantly competed for atorvastatin sales using their broader portfolio of products in the period immediately following the expiry of the atorvastatin patent on 18 May 2012. 262 The relevant market did not in any event change after the expiry of the atorvastatin patent. At par 85 of its WS, the ACCC made the following submission: Pfizer's launch of its generic atorvastatin as a bundled offer with Lipitor in January 2012 did not amount to entry into some broader generics market in which Lipitor had no place. Pfizer's documents demonstrate its concern with the share of the Atorvastatin Market and not any share of any broader generics market. Contrary to PS [23(d)] Pfizer never regarded itself as a generics company and any strategy by Pfizer to develop a complete generics range to offer to pharmacies was abandoned. Although Project Aqua and the earlier work undertaken in relation to Project LEAP may have contemplated some broader strategy by Pfizer to offer a range of generics, this never eventuated. As Project LEAP developed, Pfizer's conduct became increasingly focussed on the protection of Lipitor and the successful launch of a generic atorvastatin product as part of a 'total molecule solution' (originator and generic). (Footnotes omitted)

The Relevant Principles 263 Our exposition of the relevant principles begins with s 4E, the text of which is set out in full at [175] above. That section provides that, for the purposes of the CCA, unless the contrary intention appears, "market" means a market in Australia and includes a market for particular goods or services and other goods or services that are substitutable for, or competitive with, those goods or services. 264 In Re QCMA, the Trade Practices Tribunal (at 190) explained the concept of a market in the present context in the following way: … We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market.) Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm's product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives. It is the possibilities of such substitution which set the limits upon a firm's ability to "give less and charge more". Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to "give less and charge more" would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question is this: From which products and which activities could we expect a relatively high demand or supply response to price change, i.e. a relatively high cross-elasticity of demand or cross-elasticity of supply? 265 In Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited (2015) 236 FCR 78 (ANZ) at 106-108 [133]-[139], the Full Court said: Much has been written about the meaning of a "market". It is neither necessary nor desirable to significantly add to that body of writing here. The word is "not susceptible of precise comprehensive definition when used as an abstract noun in an economic context": Queensland Wire at 195-196 (Deane J). It may generally be described as the area of actual or potential close competition or rivalry between firms in respect of particular goods or services and their substitutes: see generally Queensland Wire at 187-188 (Mason CJ and Wilson J), 195-196 (Deane J) and 198-200 (Dawson J). The dimensions of that area of economic activity may be defined by reference to function (that is, wholesale, retail or both), product (that is, the nature and characteristics of the goods or services), and geography (for example, local, state or national): Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317 at [378]. The leading authorities emphasise the importance of the substitutability of the relevant products (goods or services) in the market. In simple terms, substitutability means that buyers and sellers can and will substitute one product for the other in response to changes in prices. That does not mean that the products have to be identical. As Wilcox J explained in Trade Practices Commission v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299 at 317: The existence of price differentials between different products, reflecting differences in quality or other characteristics of the products, does not by itself place the products in different markets. The test of whether or not there are different markets is based on what happens (or would happen) on either the demand or the supply side in response to a change in relative price. Whilst relatively easy to describe, at least in a general sense, it is often difficult to identify and define the nature and parameters of a particular market in any given circumstance. Market definition "involves value judgments about which there is some room for legitimate differences of opinion": Queensland Wire at 195-196 (Deane J). Market identification and definition is not an exact science. It is rooted in the analysis of commerce as an aspect of human behaviour. For present purposes it is important to emphasise that a market is "not a feature of the real world" but rather "an analytical tool devised by economists": Seven Network Ltd v News Ltd (2009) 182 FCR 160 at 350-351 (Dowsett and Lander JJ). The identification of a market in any given case is therefore generally purposive and directed to the problem or issue at hand. As explained by Allsop J in Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] ATPR 42-123 at [429]: Market definition is not an exact physical exercise to identify a physical feature of the world; nor is it the enquiry after the nature of some form of essential existence. Rather, it is the recognition and use of an economic tool or instrumental concept related to market power, constraints on power and the competitive process which is best adapted to analyse the asserted anti-competitive conduct. The process of market identification or definition is therefore to be undertaken with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context the subject of analysis. Here, in simple terms, the process is undertaken in order to determine if the impugned conduct (the agreement between ANZ and Mortgage Refunds) had the purpose or effect of fixing, controlling or maintaining a rebate, or otherwise had the purpose or effect of substantially lessening competition, in a market in which the parties to the agreement competed in respect of the supply of services. Whilst a market is an analytical or economic tool designed to analyse the particular asserted anti-competitive conduct, a market definition must nonetheless be based on findings of fact: Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 174 (per French J). The premise of that proposition is that it has economic and commercial reality. It must accordingly not be artificial or contrived. Economists frequently construct economic models to analyse complex commercial or economic events or scenarios. But a model is unlikely to be a useful analytical tool if based on unrealistic assumptions that materially depart from the real world facts and circumstances involving commercial behaviour in which the events to be analysed occur. A court should be loathe to accept or act on a market definition which is an artificial construct that does not accurately or realistically describe and reflect the interactions between, and perceptions and actions of, the relevant actors or participants in the alleged market, that is, the commercial community involved. There is, it must be said, an element of artificiality or contrivance in the market definition advanced by the ACCC in this matter. 266 The passages which we have extracted from ANZ at [265] above emphasise the importance of "substitutability" of the relevant goods or services as a feature of the particular market in question. The identification of a market in any given case must be purposive and must be directed to the problem at hand. 267 The High Court considered the question of market definition for the purposes of the CCA in Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd [2016] HCA 49; (2016) 339 ALR 242. 268 In that case, Flight Centre Travel Group Ltd (Flight Centre) carried on business as a travel agent in Australia whereby it sold international airline tickets to customers, including for the provision of international air carriage by Singapore Airlines, Malaysia Airlines and Emirates, all of which airlines were members of the International Air Transport Association (IATA). Flight Centre was authorised to sell those tickets under a Passenger Sales Agency Agreement (PSAA) entered into between it and IATA on behalf of its members. Under the PSAA, Flight Centre was authorised to sell international airline tickets, but not to the exclusion of the airlines themselves, and was obliged to pay the relevant airline a net amount calculated by reference to a published amount. As such, Flight Centre's retail margin on the sale of tickets to customers was increased if it could charge a higher price than the net amount. Singapore Airlines, Malaysia Airlines and Emirates sold international airline tickets directly to customers at less than the net amount payable to them by Flight Centre under its PSAA. In a series of emails sent on behalf of Flight Centre to each of the aforementioned airlines, Flight Centre attempted to stop those airlines from selling tickets at the discounted price and threatened to stop selling their tickets altogether if they failed to do so. In light of these facts, the ACCC commenced a proceeding alleging that Flight Centre was a competitor of the airlines in question in relevant markets and had contravened s 45 of the TPA, as it stood during the relevant period, by proposing an arrangement or understanding with a view to maintaining or controlling the price of air tickets supplied to consumers. 269 The trial judge found that Flight Centre and the airlines were in competition with each other in a market for booking and distribution services and that Flight Centre's conduct reflected in the emails to which we have referred constituted an attempt to induce each of the airlines in question to make an arrangement that would have contravened s 45(2)(a)(ii) of the TPA. On appeal, the Full Court held that Flight Centre and the airlines competed in a market for the supply of international passenger air travel services. The Full Court held that there was no separate market for distribution and booking services. The High Court (by majority) held that Flight Centre was in competition with each airline in the market for the supply, to customers, of contractual rights to international air carriage. The majority justices held that competition existed in that market notwithstanding that Flight Centre supplied in that market as agent for each airline. 270 At 257-259 [65]-[75], Kiefel and Gageler JJ, who were in the majority, said: Limits of the functional approach The critical condition for the application of s 45A, it will be recalled, was that the services in relation to which a price was fixed, controlled or maintained were supplied by one party to the contract, arrangement or understanding in competition with the other party. Section 45(3) operated with s 4E to require that competition to occur in a market in which the other party supplied either the same services or services that were substitutable for, or otherwise competitive with, those services. A market is a metaphorical description of an area or space (which is not necessarily a place) for the occurrence of transactions. Competition in a market is rivalrous behaviour in respect of those transactions. A market for the supply of services is a market in which those services are supplied and in which other services that are substitutable for, or otherwise competitive with, those services also are actually or potentially supplied. A market is commonly defined by reference to its dimensions. The dimensions of a market are commonly described in terms of product (the types of services supplied), function (the level within a supply chain at which those services are supplied) and geography (the physical area within which those services are supplied). A market might sometimes also usefully be described as having a temporal dimension (referring to the period within which the supplies occur). No issue has been raised in this case about either of the last two of those dimensions of market definition. The controversy has been about the first, and to a lesser extent about the second. Flight Centre and the airlines transact within the chain of supply of what the ACCC chooses to describe as international passenger air travel services to customers. But what, relevantly, do they supply, to whom, and at what price? The question does not necessarily admit of a unique answer. Because "[t]he economy is not divided into an identifiable number of discrete markets into one or other of which all trading activities can be neatly fitted", the identification and definition of a market for particular services will often involve "value judgments about which there is some room for legitimate differences of opinion" [Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 196; 83 ALR 577 at 588]. Identifying a market and defining its dimensions is "a focusing process", requiring selection of "what emerges as the clearest picture of the relevant competitive process in the light of commercial reality and the purposes of the law" [Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 178; 104 ALR 633 at 653]. The process is "to be undertaken with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context the subject of analysis" [Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 78; 324 ALR 392; [2015] FCAFC 103 at [137]]. "The elaborateness of the exercise should be tailored to the conduct at issue and the statutory terms governing breach" [Brunt, "'Market Definition' Issues in Australian and New Zealand Trade Practices Litigation", (1990) 18 Australian Business Law Review 86 at 127]. Market definition is in that sense purposive or instrumental or functional. The functional approach to market definition is taken beyond its justification, however, when analysis of competitive processes is used to construct, or deconstruct and reconstruct, the supply of a service in a manner divorced from the commercial context of the putative contravention which precipitates the analysis. Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd [(1986) 162 CLR 395; 68 ALR 376 (Castlemaine Tooheys)] is an illustration. There a brewer supplied beer to retailers, offering retailers the choice of collecting the beer from the brewer's depot for one price or having the beer delivered to the retailer's premises for a higher price. The brewer contracted with a particular haulage contractor to make the deliveries. A rival haulage contractor claimed that the brewer was engaged in the practice of exclusive dealing in contravention of ss 47(1) and 47(6) of the Act, the claimed contravention being constituted by the brewer supplying beer to a retailer on condition that the retailer acquire haulage services from the preferred contractor. The claim failed on the basis that what the brewer supplied and what the retailer acquired was in reality nothing other than delivered beer. Wilson J explained [Castlemaine Tooheys at CLR 403; ALR 381]: "Here the transactions under scrutiny encompassed no more than the supply of goods. The beer was to be supplied at the premises of the retailer. Each supply was a single transaction which could not be broken up into its several elements of sale and delivery without doing violence to the reality. Delivery to the premises was an essential and therefore inseparable concomitant of the supply of the beer. In different circumstances it might well be appropriate to characterize the delivery of the goods as the supply of a service. But not here. No question of supplying a service arises." The ACCC's primary case encounters essentially the same problem as did the claim in Castlemaine Tooheys. The problem is one of economic theory doing violence to commercial reality. The ACCC attempts to map the processes of competition between Flight Centre and the airlines to the second condition of s 45A(1) by advancing as its primary case that the price fixed, controlled or maintained was Flight Centre's commission and that the services to which that price related were distribution services to international airlines and booking services to customers. Essential to that case was that Flight Centre supplied at least one of those services in a market in which the airline supplied the same services or services that were substitutable for, or otherwise competitive with, those services. There is no want of realism in describing Flight Centre as having provided distribution services to an airline when selling that airline's ticket to a customer in accordance with the Agency Agreement. It is quite artificial, however, to describe the same airline as having provided those services (or any other services) to the airline itself when selling a ticket directly to a customer. Booking the flight, issuing the ticket and collecting the fare were part and parcel of the airline making the sale. They were inseparable concomitants of that sale. Conversely, what a customer acquired when purchasing an international airline ticket could not realistically be described as more than the ticket. That was so whether the customer purchased from Flight Centre or directly from an airline. No doubt, an element of customer service was involved in making the sale. But that element of service was inseparable from the sale transaction. It was no different in kind, and little different in degree, from the attention to the requirements of the individual customer typically involved in the retail sale of a motor vehicle or of a pair of shoes. Whatever other difficulties the ACCC's primary case might encounter, it was unsustainable because it rested on attributing to Flight Centre and to the airlines the making of supplies of services of a description which did not accord with commercial reality. The Full Court's rejection of the primary case was for that reason correct. 271 Justice Nettle concurred in the result essentially for the same reasons. 272 At 270 [126], Nettle J said: As defined in s 4E of the Trade Practices Act, a market for goods or services means a "market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services". Ultimately, therefore, the existence of a market for goods or services is determined by the extent of their substitutability. Substitutability is, however, a matter of degree. The greater the degree of substitutability between goods or services, the greater the degree of competition between suppliers of those goods or services, and vice versa [Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 331-2; 97 ALR 555 at 575-6 (Arnotts)]. A market for goods or services within the meaning of s 4E is taken to exist where there is such a degree of substitutability between the goods or services of suppliers in the same or a related geographic area, and thus such competition between them, that the market power of each is significantly constrained [Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 187-9; 83 ALR 577 at 582-4 per Mason CJ and Wilson J, CLR 196; ALR 588 per Deane J; Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 178; 104 ALR 633 at 653 per French J, citing Areeda and Kaplow, Antitrust Analysis, 4th ed, 1988, p 572; Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110; [2002] FCAFC 197 at [135]-[136] per Tamberlin J]. 273 Justice Gordon delivered a separate judgment in which her Honour concurred with the orders proposed by Kiefel, Gageler and Nettle JJ but reached that concurrence by means of a slightly different pathway. Although her Honour considered that the relevant market was a market for the sale of tickets on airlines, her Honour also took the view that Flight Centre was not competing against all sellers of tickets as agent of the airlines but rather was acting in its own right. 274 The High Court again looked at the question of market definition for the purposes of the CCA in Air NZ. In that case, the critical question was whether the postulated market was a market "in Australia". In the course of addressing that question, the High Court helpfully and succinctly explained the meaning of a "market" for the purposes of the CCA. All five justices concluded that the appeals should be dismissed. There were three separate judgments. These were the judgment of the plurality (Kiefel CJ, Bell and Keane JJ), the judgment of Nettle J and the judgment of Gordon J. 275 At 379 [1], the plurality adopted the factual background and the legislative provisions relevant to the issues in the appeals as set out in the reasons of Gordon J. Their Honours then went on to consider the question of market and, at 380-381 [12]-[15], said: A market in Australia The authorities confirm that a market, within the meaning of the TPA, is a notional facility which accommodates rivalrous behaviour involving sellers and buyers [Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 188, 195, 199; 83 ALR 577 at 582, 588, 591 (Queensland Wire); Boral Besser Masonry Ltd (now Boral Masonry Ltd) v Australian Competition and Consumer Commission (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5 (Boral) at [247]-[248], [252]-[253]; Flight Centre at [66], [69], [126]]. In Queensland Wire [at CLR 195; ALR 588], Deane J, after noting that "[s]ection 4E confines 'market' for the purposes of the Act to 'a market in Australia'", went on to say that "'market' should, in the context of the Act, be understood in the sense of an area of potential close competition in particular goods and/or services and their substitutes". Dawson J agreed [Queensland Wire at CLR 198; ALR 590] generally with Deane J, adding [Queensland Wire at CLR 199; ALR 591]: "A market is an area in which the exchange of goods or services between buyer and seller is negotiated. It is sometimes referred to as the sphere within which price is determined and that serves to focus attention upon the way in which the market facilitates exchange by employing price as the mechanism to reconcile competing demands for resources." Similarly, in Boral [(2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5], McHugh J observed [Boral at [252]]: "[T]he market is the area of actual and potential, and not purely theoretical, interaction between producers and consumers where given the right incentive … substitution will occur. That is to say, either producers will produce another similar product or consumers will purchase an alternative but similar product." Section 4E of the TPA proceeds upon the express footing that, notwithstanding the abstract nature of the concept of a market, it is possible to locate the market where the competition protected by the TPA occurs in Australia. Reconciling the abstract notion of a market with the concrete notion of location, so that they work coherently, presents something of a challenge. Particularly is this so because "competition" describes a process rather than a situation [Re Queensland Co-operative Milling Association Ltd - Proposed Merger (1976) 8 ALR 481 at 515 (QCMA)]. But given that the TPA regulates the conduct of commerce, it is tolerably clear that the task of attributing to the abstract concept of a market a geographical location in Australia is to be approached as a practical matter of business. It is important that any analysis of the competitive processes involved in the supply of a service is not divorced from the commercial context of the conduct in question [Flight Centre at [70]]. It was common ground between the parties that a market in Australia does not cease to be so located because it encompasses other places as well. The issue then is whether the rivalrous behaviour - in the course of which suppliers and acquirers might be matched - occurred in Australia, whether or not it also occurred elsewhere. 276 Justice Nettle agreed with Gordon J but added the following (at 386 [39]-[41]): As the majority in the Full Court of the Federal Court (Dowsett and Edelman JJ) recognised [Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (2016) 244 FCR 190; 330 ALR 230; [2016] FCAFC 42 (Garuda) at [104]-[106], [109]], market definition is a question of fact. More precisely, it involves "a fact-intensive exercise centered on the commercial realities of the market and competition" [EI du Pont de Nemours and Co v Kolon Industries Inc 637 F 3d 435 at 442 (4th Cir, 2011) (EI du Pont). See Eastman Kodak Co v Image Technical Services Inc (1992) 504 US 451 at 481-2 per Blackmun J (Rehnquist CJ, White, Stevens, Kennedy and Souter JJ agreeing); Todd v Exxon Corporation 275 F 3d 191 at 199-200 (2nd Cir, 2001)]. And, as a consequence, the definition of a market is liable to vary according to the purposes of the exercise undertaken [See Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 175, 178; 104 ALR 633 at 649, 653 (Singapore Airlines) per French J (Spender J and O'Loughlin J agreeing at CLR 159, 185; ALR 634, 660)]. In some cases, a geographic market may logically be understood as the area in which potential buyers look for sellers to supply goods and services, as opposed to the area in which sellers look for buyers to purchase goods and services [Tampa Electric Co v Nashville Coal Co (1961) 365 US 320 at 327, 331-3; United States v Grinnell Corp (1966) 384 US 563 at 571-3; Tunis Bros Co Inc v Ford Motor Co 952 F 2d 715 at 726 (3rd Cir, 1991). See generally Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5 (Boral) at [252] per McHugh J]. That may be so where sellers do not "market" their goods and services, or perceive themselves to be competing [See generally Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 78; 324 ALR 392; [2015] FCAFC 103 (ANZ Banking Group) at [138]], outside the area in which they as sellers are located. The facts of Tampa Electric Co v Nashville Coal Co provide the paradigm [(1961) 365 US 320 at 327, 331-3]. By contrast, where sellers are engaged in marketing their goods and services, or perceive themselves to be competing, in areas beyond the area in which they are located, commercial reality is likely to dictate that the market includes those further areas [EI du Pont at 4-7]. In cases of the latter kind, it is accepted in United States anti-trust jurisprudence that the geographic market consists of the smallest area of overlap of sellers' and buyers' locations in which sellers are able to increase prices or reduce supply without purchasers turning to alternative suppliers beyond that area [Re Southeastern Milk Antitrust Litigation 739 F 3d 262 at 277 (6th Cir, 2014); Hovenkamp, Federal Antitrust Policy: The Law of Competition and its Practice, 2nd ed 1999, at 113 s3.6]. A similar concept has been recognised in Europe [See Decision 1999/243/EC relating to a proceeding pursuant to Arts 85 and 86 of the EC Treaty (Case No IV/35.134) at [519]; Atlantic Container Line AB v Commission of the European Communities [2003] ECR II-3298 at II-3577-II-3578 [858]]. And despite differences between competition law in the Unites States, Europe and Australia, the area of a geographic market is essentially an economic concept and therefore logically to be determined according to similar considerations in each jurisdiction [See Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR ¶42-123; [2006] FCA 826 at [429]; Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; 284 ALR 662; [2011] FCAFC 151 at [244] per Yates J (Finn J agreeing at [1]); ANZ Banking Group at [136]-[138]; Donald and Heydon, Trade Practices Law, 1978, pp 92-4]. 277 At 390-392 [57]-[66], Gordon J explained the correct approach to market identification for the purposes of the CCA in the following terms: (1) Approach to market identification Market identification is not a task undertaken at large, or in a vacuum. The task, and the extent of the task, are tailored to the conduct at issue and the statutory terms governing the contravention [Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143; 339 ALR 242; [2016] HCA 49 (Flight Center) at [69]. See also Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 195, 198; 83 ALR 577 at 588, 590 (Queensland Wire); Australia Meat Holdings Pty Ltd v Trade Practices Commission (1989) ATPR ¶40-932 at 50,091, 50,104]. The need to identify the market arises only in the context of determining whether the conduct constitutes a particular contravention of the TPA [See Queensland Wire at CLR 195, 200; ALR 588, 591]. That is, the question of whether there is a market "in Australia" is to be asked and answered in the statutory context in which that question arises. It is not to be asked or answered in isolation from that context or by looking only at what appears in s 4E of the TPA. The first step is to identify "precisely what it is that is said to have been done in contravention of the section" [Queensland Wire at CLR 195; ALR 588]. As has been rightly said in the Federal Court of Australia, the court begins with the problem at hand and asks "what market identification best assists the assessment of the conduct and its asserted anti-competitive attributes" [Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR ¶42-123; [2006] FCA 826 at [437]. See also Brunt, "'Market Definition' Issues in Australian and New Zealand Trade Practices Litigation", (1990) 18 Australian Business Law Review 86 at 123]. Identifying a market is a "focusing process" [Flight Centre at [69] quoting Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 178; 104 ALR 633 at 653 (Singapore Airlines)] which is "to be undertaken with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context the subject of analysis" [Flight Centre at [69] quoting Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 78; 324 ALR 392; [2015] FCAFC 103 (ANZ Banking Group) at [137]]. (emphasis added). That approach recognises that the concept of a "market" is "not susceptible of precise comprehensive definition" [Queensland Wire at CLR 195; ALR 588]. It recognises that market identification is an economic tool, or instrumental concept, that uses and integrates those legal and economic concepts best adapted to analyse the asserted anti-competitive conduct [Liquorland at [429]; Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; 284 ALR 662; [2011] FCAFC 151 (Metcash) at [244]; ANZ Banking Group at [136]]. It recognises that market identification is "not an exact physical exercise to identify a physical feature of the world" [Liquorland at [429]; Metcash at [244]; ANZ Banking Group at [136]. See also Breyer, "Five Questions About Australian Anti-Trust Law", (1977) 51 Australian Law Journal 28 at 34] and that there is often little or no utility in debating or identifying "the precise physical metes and bounds of a market" [Liquorland at [430]]. It recognises that market identification is "not a physical thing, or essence, which can be identified in a manner divorced from the relevant context" [Liquorland at [438]]. And it recognises that market identification depends upon the issues for determination [Liquorland at [437]] - the impugned conduct and the statutory provision proscribing anti-competitive behaviour that the conduct is said to contravene. That is not to say that a market can be identified arbitrarily [See Brunt, "'Market Definition' Issues in Australian and New Zealand Trade Practices Litigation", (1990) 18 Australian Business Law Review 86 at 126]. It must be based on findings of fact [ANZ Banking Group at [138] citing Singapore Airlines (1991) 33 FCR 158 at CLR 174; ALR 649]. "The premise of that proposition", as the Full Court of the Federal Court said in ANZ Banking Group, is that the identified market "has economic and commercial reality" [ANZ Banking Group at [138]. See also Flight Centre at [70]]: "It must accordingly not be artificial or contrived. Economists frequently construct economic models to analyse complex commercial or economic events or scenarios. But a model is unlikely to be a useful analytical tool if based on unrealistic assumptions that materially depart from the real world facts and circumstances involving commercial behaviour in which the events to be analysed occur." The identification of the market must therefore "accurately [and] realistically describe and reflect the interactions between, and perceptions and actions of, the relevant actors or participants in the alleged market, that is, the commercial community involved" [ANZ Banking Group at [138]]. Embedded in the "focusing process" is the recognition that the substantive criteria for a particular contravention in issue will depend on the particular statutory provisions. That process "may lead to the drawing of different lines in different circumstances depending upon the purpose of the provision in question" [Singapore Airlines at CLR 175; ALR 649 citing Breyer, "Five Questions About Australian Anti-Trust Law", (1977) 51 Australian Law Journal 28 at 34]. In turn, that process may "lead to different market definitions in relation to the same industry" [Liquorland at [439]] or even different markets within the same case. That potential was recognised more than 25 years ago by Professor Brunt, who wrote that "[t]here can be more than one 'relevant market' for a particular case, in the sense of markets that will attract liability" [Brunt, "'Market Definition' Issues in Australian and New Zealand Trade Practices Litigation", (1990) 18 Australian Business Law Review 86 at 127]. There is nothing odd about that conclusion. As Professor Brunt pointed out, it reflects the fact that market identification "is but a tool to facilitate a proper orientation for the analysis of market power and competitive processes - and should be taken only a sufficient distance to achieve the legal decision" [Brunt, "'Market Definition' Issues in Australian and New Zealand Trade Practices Litigation", (1990) 18 Australian Business Law Review 86 at 126-127 quoted in Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 328; 97 ALR 555 at 572 (Arnotts)]. Recognising that market identification is an economic tool has other important consequences. Economics is a social science and "does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor draw correct conclusions" [Liquorland at [838]]. The nature of economics as a social science is often highlighted by the existence of conflicting expert opinions about the identification of a relevant market. Deane J acknowledged as much in Queensland Wire, when his Honour said [(1989) 167 CLR 177 at 196]: "The economy is not divided into an identifiable number of discrete markets into one or other of which all trading activities can be neatly fitted. One overall market may overlap other markets and contain more narrowly defined markets which may, in their turn, overlap, the one with one or more others." When a court is required to draw its own conclusions about market identification, it is therefore inherent in that task - being one founded on economics as a social science - that the court will be required to make "value judgments about which there is some room for legitimate differences of opinion" [Queensland Wire at CLR 196; ALR 589]. As a result, "[m]arket identification and definition is not an exact science. It is rooted in the analysis of commerce as an aspect of human behaviour" [ANZ Banking Group at [135]]. This approach has been referred to as the "functional", "purposive" or "instrumental" approach to market identification. In Flight Centre, Kiefel and Gageler JJ noted that there are limits to this approach [Flight Centre at [70] see also at [123], [150]]. It should not be taken beyond its justification by, for example, using analysis of competitive processes "to construct, or deconstruct and reconstruct, the supply of a service in a manner divorced from the commercial context of the putative contravention which precipitates the analysis" [Flight Centre at [70]]. 278 Later in her Reasons, Gordon J observed that the existence of close substitutes is not the defining feature of every market and that elasticities and the notion of substitution provide no complete solution to the definition of a market (at 396 [87]). 279 At 404 [127]-[128], her Honour continued: (9) Other market indicia A market is commonly described by reference to four dimensions - product (here, the types of services supplied), function (where within the supply chain the services are supplied), geography (the physical area in which the services are supplied) and time (the period in which the supply occurs) [Flight Centre at [67]]. Those dimensions, and that form of analysis, are tools. They are not the starting point of the process of market identification for the purposes of considering the application of particular provisions of the TPA. A court begins with the problem at hand (the impugned conduct) and asks: what market identification best assists in the assessment of that conduct and its asserted anti-competitive attributes? What process best assists in that assessment is determined by "the substantive criteria for the particular contravention in issue … in the commercial context the subject of analysis" [Flight Centre at [69] quoting ANZ Banking Group at [137]]. The significance of one or more of the four identified dimensions (product, function, geography and time) in that process of market identification will necessarily vary depending on the impugned conduct, the asserted anti-competitive attributes of that conduct, the statutory criteria for the alleged contravention and the factual and legal issues in dispute. That is shown in these appeals. 280 In the present case, at 438-441 [33]-[37], the primary judge referred to a number of other cases and sources which assisted him to develop a correct and workable approach to the issue of market definition which he then endeavoured to apply to the facts of the present case. 281 Neither the ACCC nor Pfizer contended on appeal that the primary judge had misstated the relevant principles which govern the identification of a "market" for the purposes of the CCA nor did either of them contend that his Honour had misunderstood those principles. The complaint made on appeal by Pfizer was that his Honour had misapplied those principles. Therefore, we do not need to rehearse in any further detail the relevant principles which govern the identification of a "market". Consistently with our discussion above, the relevant principles were recently confirmed and applied in the decision in Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73 at [134]-[168].

Decision 282 The starting point for our consideration of the correct definition of market in the present case is the identification of what it is that is said to have been done in contravention of s 46 and in contravention of s 47. 283 At [200]-[213] above, we explained the ACCC's s 46 case as pleaded and as run at trial. The conduct of Pfizer relied upon by the ACCC as constituting the impugned conduct comprised the following actions: (a) Informing community pharmacies in late 2010 that it intended to supply them with a range of generic pharmaceuticals, not just atorvastatin Pfizer; (b) Establishing the DTP model in January 2011; (c) Establishing the accrual funds scheme in late January 2011; and (d) Making the bundled offers in mid-January 2012 and again in late February 2012 in a revised form in circumstances where the DTP model and the accrual funds scheme continued to operate and subsequently supplying atorvastatin in accordance with the terms of those offers. 284 As we said at [208(b)] above, the impugned conduct for the purposes of the ACCC's s 46 case comprised Pfizer's conduct which put into effect the critical elements of Project LEAP. The last action in this series of connected steps was the making of the bundled offers in January and February 2012 and the supply of atorvastatin pursuant to those offers when accepted. 285 For the purposes of the ACCC's s 47 case, the impugned conduct was the making of the bundled offers in January and February 2012 and the subsequent supply of Lipitor and atorvastatin Pfizer in accordance with the terms of those offers upon conditions which fell within s 47(2)(d) and s 47(2)(e). 286 As the authorities make clear, the Court begins with its articulation of the impugned conduct and asks what market identification best assists the assessment of that conduct and its asserted anti-competitive attributes. The Court is looking to identify the area or areas of close competition of relevance to the impugned conduct. What is the field or rivalry between the relevant competitors? 287 In the present case, a number of important matters which bear upon the exercise of defining the relevant market were not in dispute. These were: (a) The parties offered a stark choice to the Court between the ACCC's postulated market ("… an Australia-wide market for the supply of atorvastatin to, and the acquisition of atorvastatin by, community pharmacies") and Pfizer's suggested market ("… a market for the wholesale supply of (generic) pharmaceutical products and OTC products to community pharmacies in Australia"). Neither party pleaded or relied upon any alternative market or markets. Neither party led expert evidence which supported or even suggested the possibility of any alternative market. In those circumstances, it would be difficult for the Court to find that the relevant market or markets was neither of the two markets propounded by the parties. In particular, neither party argued that a relevant market in the present case was a market for the wholesale supply of statins to community pharmacies in Australia. (b) There was only one relevant market for all purposes. That is, for the purposes of the ACCC's s 46 case, the impugned conduct took place in the same market as the market in which Pfizer is alleged to have had a substantial degree of market power and in which Pfizer is said to have taken advantage of that power. The conduct is alleged to have been directed to hindering, deterring or preventing others (namely manufacturers of generic pharmaceuticals) from engaging in competitive conduct in the same market. In addition, the anti-competitive conduct for the purposes of the ACCC's s 47 case is said to have been undertaken for the purpose of substantially lessening competition in the same market. (c) The relevant market was an Australia-wide market. (d) Notwithstanding the terms of pars 27A to 27J of the Defence, Pfizer ultimately accepted that, throughout the period between mid-2010 and the end of 2011, the relevant market was the atorvastatin market: That is, Pfizer accepted that, throughout this period, the relevant market was the market propounded by the ACCC. This concession was correctly made. Throughout this period, Pfizer had the benefit of the atorvastatin patent which gave it a monopoly over the supply of atorvastatin to community pharmacies. No other person or entity was legally entitled to supply atorvastatin to community pharmacies in this period. (e) In the period up to late 2011, Lipitor was the only atorvastatin supplied by Pfizer to community pharmacies. After 16 January 2012, Pfizer supplied both Lipitor and atorvastatin Pfizer to those pharmacies. 288 Pfizer contended that, throughout the period from January 2012 to 18 May 2012, it was obvious to all concerned that, from the date of expiry of the atorvastatin patent (18 May 2012), atorvastatin would be supplied to community pharmacies in a market the product dimension of which was the wholesale supply of a range of generic pharmaceuticals to community pharmacies. Initially, Pfizer argued that, if the Court accepted that definition of the relevant market, it was unnecessary to decide whether Lipitor would be supplied in the generics market or whether it would be supplied in its own market. Ultimately, Pfizer was driven to accept that the adoption of its definition of the relevant market led inevitably to the conclusion that Lipitor would be supplied in its own single-molecule market. Pfizer argued that the above propositions applied with equal force throughout the period from January 2012 to 18 May 2012 which, of course, was the critical period in the present case. 289 In the period from January 2012 to 18 May 2012, Pfizer was, in fact, the predominant supplier of atorvastatin to community pharmacies in Australia. Ranbaxy Australia was entitled to supply atorvastatin from 18 February 2012 under the Ranbaxy Agreement although it was not actually in a position to do so until 1 April 2012. Thereafter, in the period up to 18 May 2012, the quantities of atorvastatin supplied by Ranbaxy Australia were negligible. It was on 1 April 2012 that atorvastatin Pfizer and Trovas were both listed on the PBS Schedule for the first time. In the circumstances of this case, 1 April 2012 was the earliest date that Trovas could have been listed on that Schedule. For this reason, community pharmacies could not receive any PBS subsidy and members of the public would not receive any Safety Net Benefit in respect of the supply of atorvastatin Pfizer or Trovas to members of the public before 1 April 2012. 290 The earliest date after 1 April 2012 when other generic atorvastatin pharmaceuticals might be listed on the PBS Schedule was 1 June 2012. A number of those generic pharmaceuticals were listed on that Schedule on that date. 291 In the period from January 2012 to at least 18 May 2012, Pfizer continued to supply atorvastatin as a single molecule. It supplied both Lipitor and atorvastatin Pfizer on that basis. Pfizer never supplied atorvastatin as part of a broad range of generic pharmaceuticals sold by it and neither did Ranbaxy Australia in this period. When other generics manufacturers entered the market after 1 June 2012, they too supplied atorvastatin as a single molecule and not as part of a broad range of generic pharmaceuticals. This state of affairs continued for several months (at least). At all times up to the last quarter of 2012, the area of close competition in relation to the supply of atorvastatin was confined to the supply of atorvastatin as a single molecule. That competition concerned the supply of both Lipitor and generic atorvastatin. 292 As Gordon J said in Air NZ (at 404 [127]), a market for anti-trust purposes is commonly described by reference to four dimensions - product, function, geography and time. 293 In the present case, two of those dimensions were agreed - function and geography: It was agreed that the relevant market was a wholesale market and that it was an Australia-wide market. 294 As to time, as we have already mentioned, ultimately the parties agreed that, in the period from mid-2010 to the end of 2011, the relevant market was the atorvastatin market. Throughout that period, Pfizer had control of the atorvastatin patent and, for that reason, had a monopoly over the supply of atorvastatin in Australia which it exploited by supplying Lipitor, its branded product, as a single molecule. It did not supply its generic product atorvastatin Pfizer at any time during this period. 295 The second and most significant period was the period from January 2012 up to the date when the atorvastatin patent expired (18 May 2012). This was the period when the critical steps giving effect to Project LEAP, viz the making of the bundled offers in January and February 2012 and the subsequent supply of atorvastatin in accordance with those offers, were taken. 296 The third period was the period after the expiry of the atorvastatin patent ie the period after 18 May 2012. This was the period to which Pfizer's allegedly anti-competitive purposes were directed. The primary judge noted (at 499-500 [260]) that the definition of the relevant market post 18 May 2012 had not been addressed in the evidence before him so that, for that reason, could not be resolved. In the same paragraph of his Reasons, his Honour also observed that, whether there was a generics market for pharmaceuticals in 2012 and 2013, as submitted by Pfizer, was not a question which had to be resolved in the present case. These remarks were correct. However, in assessing Pfizer's purpose, the Court will need to understand and take into account Pfizer's expectations as to the relevant shape of the market post 18 May 2012 and also have a reasonable understanding of that market as it was at that time in order to come to a view as to whether or not Pfizer had the relevant proscribed purpose when it engaged in the impugned conduct. 297 Thus, it was essential in the present case to define the relevant market as it existed in the period between January 2012 and 18 May 2012 and to have some reasonable idea of that market in the period immediately after the expiry of the atorvastatin market. 298 The critical issue insofar as the definition of the relevant market in the first half of 2012 was concerned was: What was the product dimension of the relevant market? The ACCC and its expert, Dr Pleatsikas, were of the opinion that the product dimension was the single molecule atorvastatin. Pfizer and its expert, Dr Addanki, argued that the true product dimension of the relevant market in this period was a broad range of generic pharmaceuticals, even though atorvastatin was never supplied as part of such a range at any time in this period nor had it been so supplied at any time in the past. 299 His Honour rejected Pfizer's contentions in respect of the product dimension of the relevant market. His reasons may be summarised as follows: (a) Pfizer's arguments were contrary to the evidence of Dr Pleatsikas which evidence his Honour preferred. (b) During the first half of 2012 (up to 18 May 2012) there was no supply-side substitutability for Pfizer's atorvastatin except for a very short period of time (1 April 2012 to 18 May 2012) and then only by reason of Ranbaxy Australia's entry into the market. There was no general access to the market by other generics manufacturers. (c) Once prescribed, there was no demand-side substitutability between atorvastatin and other molecules. This was the result of the application of regulatory rules, amongst other things. (d) The wholesalers' margins under the PBS were relatively small. (e) Pfizer bypassed the major wholesalers during the relevant period by selling direct to pharmacies. (f) The arrangements between generics manufacturers, wholesalers and pharmacies (whether buying individually or through banner or buying groups) in respect of other pharmaceuticals did not alter the above essential facts. A prescription for the supply of atorvastatin could, in reality, throughout the period from January 2012 to 18 May 2012, only be filled by atorvastatin and, subject to the involvement of Ranbaxy Australia for a very short time, only be filled by atorvastatin supplied by Pfizer. See, in particular, his Honour's remarks at 505 [278]. (g) Other different considerations led to the same result. These are the matters discussed by the primary judge at 503-504 [272] which we have extracted at [230] above. 300 Pfizer's submissions which we have summarised at [241] and [242] above did not come to grips with the need for Pfizer to focus its submissions on the period from January 2012 to 18 May 2012. Further, we reject the argument summarised at [243] above. For market definition purposes, we do not accept the proposition that a conclusion to the effect that the post 18 May 2012 supply of atorvastatin in Australia would, in the long term, be in a broad generics market, could be and should be regarded as a source of constraint upon the behaviour of Pfizer in the earlier period between January 2012 and 18 May 2012. Such a conclusion may have been relevant to the question of whether Pfizer had a substantial degree of market power in the relevant market in the period up to 18 May 2012 but ought not be used to influence the definition of the relevant market in the manner advocated by Pfizer. 301 As the ACCC submitted, even if we were to accept the correctness of all of the factual matters listed at [241] above, the primary judge would nonetheless have been correct in the conclusion which he reached as to the definition of the relevant market. This is because Pfizer has adopted the wrong approach to the issue by focussing on structural and commercial features of part of the pharmaceutical industry. Pfizer's preferred definition of the relevant market is not purposive and does not relate the market to the impugned conduct in accordance with established principle. 302 Ranbaxy Australia was the only supplier of atorvastatin in Australia in addition to Pfizer in the period from January 2012 to 18 May 2012. Other generics manufacturers were not supplying in the market until June 2012. For some months after June 2012, atorvastatin continued to be supplied as an individual molecule and not as part of any broad range of generic pharmaceuticals. This period was, as expected by all relevant players, a period of intense competition. The competition was, however, in respect of the supply of the single molecule - atorvastatin - and not in respect of a broad range of generic pharmaceuticals which by then included atorvastatin. 303 As submitted by the ACCC, Pfizer's submissions failed to distinguish between substitution possibilities and close constraints. Pfizer's approach also blurred the distinction between defining a market and discerning whether any particular supplier of goods has market power in that market as defined. 304 The submissions of the ACCC which we have summarised at [250]-[262] above are correct and we accept them. 305 Further, there is no warrant, in our view, for Pfizer's contention that Lipitor was supplied in the period after the end of 2011 in its own separate market. We think that Lipitor is substitutable for generic atorvastatin and that generic atorvastatin is substitutable for Lipitor. They are the same pharmaceutical. To contend that Lipitor is sold in one market (its own market) and that generic atorvastatin is sold in another market (the generics market), as Pfizer does, is a fallacious argument. The argument fails to pay due regard to the circumstance that the impugned conduct took place in relation to the supply and potential supply of both Lipitor and generic atorvastatin. The fact that Lipitor was sold at a higher price than atorvastatin Pfizer or Trovas or, indeed, any other generic atorvastatin, is not to the point. 306 Pfizer's postulated definition of the relevant market as it stood in the period between January 2012 and 18 May 2012 is not supported by the relevant facts or the relevant law. 307 For all of the above reasons, Pfizer has failed to demonstrate error in the primary judge's conclusion that the relevant market for the purposes of the ACCC's s 46 case and for the purposes of its s 47 case throughout the period from mid-2010 to 18 May 2012 (and for some months thereafter) was the atorvastatin market (ie the market postulated by the ACCC). The conduct of Pfizer which is said to constitute the alleged contraventions of s 46 of the CCA and s 47 of the CCA took place in that market. The market to which that conduct was allegedly directed for the purposes of both of those cases was the same market. 308 At 504 [273]-[274], the primary judge held that the dimensions of the relevant market had not changed by "mid-2012". That timeframe included June 2012. 309 Ultimately, at 505 [279], his Honour said: Whether the intense competition for the "switching" from one generic version of atorvastatin to another and whether the manner in which atorvastatin is now marketed would lead to a different definition of "market" as at (for example) mid-2013 is a question which need not be pursued. Whether atorvastatin has, for example, now entered a more generalised "wholesale market" may be a question for another day. We agree with these observations.

Pfizer's Market Power in the Atorvastatin Market (Section 46(1)(c) of the CCA) (Appeal Grounds 1, 2 and 3) 310 The primary judge held that, as from January 2012, Pfizer no longer held a substantial degree of market power in the atorvastatin market although, in the period between January 2012 and 18 May 2012, Pfizer retained some degree of market power in that market. 311 On appeal, the ACCC challenged that finding. It contended that Pfizer retained a substantial degree of market power throughout the period from January 2012 to 18 May 2012 or, alternatively, enjoyed such a degree of market power in January and February 2012 when it made the bundled offers to community pharmacies. 312 The factors upon which the ACCC relied in its pleading as constituting a basis for its contention in relation to market power were set out at par 61 of the ASC. It is not necessary to refer in detail to those factors here.

The Primary Judge's Reasons 313 At [148]-[150] above, we made brief reference to his Honour's Reasons on this point. In particular, at [149] above, we extracted 506-507 [286]-[288] from his Honour's Reasons. Paragraphs 148-150 above should be read with this section of our Reasons in order to enable the reader to gain a fair appreciation of the primary judge's reasoning process in relation to the question of market power. 314 At 506 [284]-[285], his Honour held that: (a) At all relevant times up to late 2011, Pfizer possessed substantial market power in the atorvastatin market. Up to that point in time, it had long been the sole supplier of atorvastatin in Australia. (b) Despite the fact that the major manufacturers of generic pharmaceuticals had been planning their supply of generic atorvastatin in the atorvastatin market for some years prior to 2012, Pfizer nonetheless retained substantial market power in the atorvastatin market up to late 2011. 315 It appears from the context in which these views were expressed that his Honour had in mind that Pfizer retained substantial power in the atorvastatin market up to late December 2011. 316 At 506-507 [286]-[288], the primary judge held that Pfizer's market power in the atorvastatin market gradually decreased as the expiry date of the atorvastatin patent became imminent. His Honour accepted that Pfizer retained some degree of market power up to May 2012. In that context, he observed that Pfizer had a unique ability to supply Lipitor at a premium price and to package its generic atorvastatin in a manner identical with or substantially similar to the packaging of Lipitor. Nonetheless, his Honour concluded that Pfizer's market power in the atorvastatin market from January 2012 was not substantial. In coming to that conclusion, his Honour recognised that there was no definitive point in time at which Pfizer's market power ceased to be substantial. His Honour took the view that, because of the forthcoming expected competition from the major manufacturers of generic pharmaceuticals post May 2012, the power that Pfizer had once exercised had "waned" by January 2012, was no longer "enduring" by then and could not be "sustained" throughout the period from January to May 2012. When his Honour spoke of "January 2012" in this context, he appeared to be referring to early January 2012. 317 At 507-508 [289]-[290], his Honour listed the factors which, in his Honour's opinion, supported the findings which he had made at 506-507 [286]-[288]. These were: (a) The impact of the entry into the market by Ranbaxy Australia on 19 February 2012 in circumstances where Ranbaxy Australia had been promoting the sale of its own generic atorvastatin at significant discounts (up to 85% of CLP) since late 2011. (b) The fact that a number of the major manufacturers of generic pharmaceuticals had listed their impending atorvastatin products on the Australian Register of Therapeutic Goods, such registrations having been put in place in 2009 and 2010. (c) The fact that, in February 2012, Sandoz had begun to alert its customers to offers which it would make in due course in respect of its generic atorvastatin and that Apotex was holding discussions with its key customers from at least March 2012 in which it communicated to those customers that it would be ready to supply its generic atorvastatin as soon as the atorvastatin patent expired. (d) The fact that Alphapharm had told its customers in January 2012 that it would beat Pfizer's offer so that their best interests would be served by dealing with Pfizer on an interim basis only. 318 At 507-508 [290], his Honour also relied upon the indirect influence of the potential participation of the powerful manufacturers of generic pharmaceuticals entering the market in May or June 2012. In that paragraph, his Honour noted that, in February 2012, two wholesalers were actively marketing their aligned generic manufacturer's generic atorvastatin and that Chemsave, one of the buying groups, was also recommending that its member pharmacies not accept the Pfizer or the Ranbaxy Australia offers. His Honour also relied upon the fact that, within Pfizer, there was a clear expectation that other generic manufacturers would all enter the market as soon as they could after the expiration of the atorvastatin patent.

The ACCC's Submissions 319 The ACCC submitted that none of the matters relied upon by the primary judge at 507-508 [289]-[290] rationally supported his Honour's finding that sufficient changes had occurred to the market between late 2011 and January 2012 such that by early 2012 Pfizer's market power ceased to be substantial. The ACCC submitted that his Honour's finding was implausible. Two of the circumstances (Ranbaxy Australia's marketing from late 2011 and the generics manufacturers' listings on the Australian Register of Therapeutic Goods from late 2009) were clearly in play in late 2011 ie before January 2012 - in fact, well before January 2012. The third factor consisted of conduct which did not take place until March 2012 (Apotex's discussions with key customers with respect to the planned arrival of product in May 2012). The fourth factor, viz the discussions between the generics manufacturers and potential customers and between wholesalers and potential customers did take place, in part, in January 2012 although most of those discussions took place later (in February 2012). 320 The ACCC submitted that the primary judge failed to have proper regard to the following evidence: (a) Ranbaxy Australia could not enter the atorvastatin market until 19 February 2012 at the earliest so that, until that time, Pfizer continued to be a monopolist and thus logically must have had the same degree of market power as it had in late 2011. Ranbaxy Australia was expected to be, and was, in fact, a weak competitor. (b) Pfizer commenced making the bundled offers which it made in early 2012 on 16 January 2012. Those offers had substantial take-up by 18 February 2012. (c) By late February 2012, a large number of additional community pharmacists had taken up one or other of the Pfizer bundled offers. (d) Further pharmacies (926 in number) had accepted the Pfizer bundled offers by 1 April 2012. This was an indication that the presence of Ranbaxy Australia in the market did not deprive Pfizer of a substantial degree of market power, at least up to that time. (e) The other significant manufacturers of generic pharmaceuticals could not supply generic atorvastatin to pharmacies until after 18 May 2012 and could not list their generic atorvastatin products on the PBS until 1 June 2012. (f) Throughout the period from January 2012 to 18 May 2012, and at all times thereafter, Pfizer continued to be the only source of the "must have" atorvastatin molecule, Lipitor. 321 Pfizer's continued capacity to exploit the atorvastatin patent lasted until 18 May 2012. That is the most significant factor bearing upon the qualitative nature of Pfizer's market power in the period from January 2012 to 18 May 2012. 322 Given that the major manufacturers of generic pharmaceuticals (other than Ranbaxy Australia) could not lawfully promote or supply their generic atorvastatin products in the atorvastatin market prior to 19 May 2012 and could not list their generic atorvastatin products on the PBS before 1 June 2012, Pfizer did not face any close constraint in its supply of Lipitor or generic atorvastatin prior to 19 May 2012. 323 Pfizer was uniquely placed in the period prior to 19 May 2012 (including from January 2012) to exploit its timing advantage in respect of the supply of generic atorvastatin. Pfizer's executives described this period as the "unique quiet time" and a period to put in place the necessary strategies "in the absence of competition". 324 The ACCC submitted that the primary judge erred in confining his analysis of substantial market power to a prospective view looking forward from the dates upon which the impugned conduct took place, namely, from 16 January 2012 or, alternatively, from 24 February 2012. 325 In the present case, even on the primary judge's own findings, Pfizer's substantial market power had been persistent up to at least late 2011 and had existed over a substantial period of time up to that date. The impending loss of exclusivity upon the expiry of the atorvastatin patent, however, in itself could not rationally give rise to an inference that this substantial market power was lost prior to the loss of exclusivity.

Pfizer's Submissions 326 In defending the conclusions reached by the primary judge, Pfizer made the following submissions. 327 Market power must be enduring or sustained. Market power is the capacity to behave, persistently, in a manner different from the behaviour that a competitive market would force upon a corporation facing otherwise similar cost and demand conditions. A corporation only has a substantial degree of market power "when it can persistently act in a way over a reasonable time period, unconstrained by the market's forces of supply and demand". The enquiry as to whether market power is enduring is conducted in a forward-looking way. 328 Potential new entrants can reduce the market power held by existing participants before they have entered the relevant market. This is because the market comprises the area of actual and potential transactions or interactions between producers and consumers, or buyers and sellers. This notion is reflected in subs (3) of s 46 of the CCA. 329 The four matters relied upon by the primary judge as supporting his conclusion all rationally did support that conclusion. The potential entry of Ranbaxy Australia into the market from 19 February 2012 and other generics manufacturers from 19 May 2012 constrained the behaviour of Pfizer much earlier in the relevant period. 330 The ACCC's arguments do not take sufficient account of the extent to which pharmacies were able to constrain Pfizer in the relevant period. Pharmacists could nominate their own conversion levels under Pfizer's bundled offers and access to the rebates and initial discounts were not contingent on abiding by these nominations. Also, pharmacists could game the offers. The weakness demonstrated by these circumstances is not consistent with Pfizer continuing to have substantial market power.

The Relevant Legal Principles 331 In Melway, at 20-21 [40]-[44], the majority (Gleeson CJ, Gummow, Hayne and Callinan JJ) said: Although there was no argument against the finding that Melway has a substantial degree of power in a market, the dispute as to whether it took advantage of that power requires attention to the meaning of the concept of market power. In Queensland Wire [(1989) 167 CLR 177 at 200], Dawson J said: "The term 'market power' is ordinarily taken to be a reference to the power to raise price by restricting output in a sustainable manner … But market power has aspects other than influence upon the market price. It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal … The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices." His Honour then went on to quote the authors Kaysen and Turner, who wrote [Kaysen and Turner, Antitrust Policy (1959), p 75]: "A firm possesses market power when it can behave persistently in a manner different from the behavior that a competitive market would enforce on a firm facing otherwise similar cost and demand conditions." The notion of market power as the capacity to act in a manner unconstrained by the conduct of competitors is reflected in the terms of s 46(3). Such capacity may be absolute or relative. Market power may or may not be total; what is required for the purposes of s 46 is that it be substantial. There has been no attempt in this Court to challenge the finding that Melway's market power is substantial. The focal point of debate was whether, even accepting the purpose for which it was found to have been done, Melway's refusal to supply the respondent was a taking advantage of that power for the proscribed purpose. Consistently with the approach of the Court in Queensland Wire, much of the argument was directed to a consideration of how Melway would have been likely to behave, if it had lacked the power it had. Section 46 of the Act requires, not merely the co-existence of market power, conduct, and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power. 332 Their Honours then discussed Qld Wire and, at 23 [51], observed that, in a given case, it may be proper to conclude that a firm is taking advantage of market power where it does something that is materially facilitated by the existence of the power, even though it may not have been absolutely impossible without the power. Section 46 would be contravened if the market power which a corporation possessed made it easier for the corporation to act for the proscribed purpose than otherwise would have been the case. 333 At 23-24 [52] in Melway, the majority said: … It seems to involve unstated assumptions about the nature and structure of the competitive market. There is nothing in s 46 that assists in that regard. An absence of a substantial degree of market power does not mean the presence of an economist's theoretical model of perfect competition. It only requires a sufficient level of competition to deny a substantial degree of power to any competitor in the market. To ask how a firm would behave if it lacked a substantial degree of power in a market, for the purpose of making a judgment as to whether it is taking advantage of its market power, involves a process of economic analysis which, if it can be undertaken with sufficient cogency, is consistent with the purpose of s 46. But the cogency of the analysis may depend upon the assumptions that are thought to be required by s 46. 334 At 27 [67], the majority expressed their views as to the meaning of "market power" for s 46 purposes as follows: The respondent's argument depends upon equating the exercise of power in a market with deciding whether to grant or withhold supply. That begs the question. As Dawson J explained, in Queensland Wire, market power means capacity to behave in a certain way (which might include setting prices, granting or refusing supply, arranging systems of distribution), persistently, free from the constraints of competition. This is the generally accepted meaning of the concept, and it is reflected clearly in the provisions of s 46(3). Barriers to entry into a market by competitors are a common reason for the existence of market power. They could exist, as in the present case, because of technological factors, or they might result, for example, from legislation which gives a statutory monopoly. Freedom from competitive constraint might make it possible, or easier, to refuse supply and, if it does, refusal to supply would constitute taking advantage of market power. But it does not follow that because a firm in fact enjoys freedom from competitive constraint, and in fact refuses to supply a particular person, there is a relevant connection between the freedom and the refusal. Presence of competitive constraint might be compatible with a similar refusal, especially if it is done to secure business advantages which would exist in a competitive environment. 335 In Eastern Express at 62-63, Lockhart and Gummow JJ observed that: The primary consideration in determining market power must be taken to be whether there are barriers to entry into the relevant market. This is the fundamental point made in Queensland Wire; see also Arnotts (at 336, 339) and Dowling (at 137-138). To what extent is it rational or possible for new entrants to enter the market in this case? That is the primary question in considering whether each of the respondents has a substantial degree of market power. Other factors to be taken into account in defining and identifying market power are referred to in the judgment in Queensland Wire, in particular per Mason CJ and Wilson J (at 188-190), namely: • "the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product"; • "the extent to which the conduct of [any of the respondents] in that market is constrained by the conduct of ... competitors, or potential competitors ... " (s 46(3)); • Market share of each respondent must be examined but this alone is generally not determinative of market power as "the relative effect of percentage command of a market varies with the setting in which that factor is placed" (per Mason CJ and Wilson J when adopting the language of Reed J in United States v Columbia Steel Co (supra); • The presence of vertical integration is another factor, but its presence does not necessarily mean that a substantial degree of power exists. 336 The existence of a patent is a factor which may create a barrier to entry (Australian Competition and Consumer Commission v Boral Ltd [1999] FCA 1318; (1999) 166 ALR 410 at 438 [140] per Heerey J. 337 In Universal Music, at 567-568 [158], the Court (Wilcox, French and Gyles JJ) held that market power must be judged by reference to persistent rather than temporary conditions. 338 In Boral, at 467-468 [287]-[288] and at 470-471 [293], McHugh J said: The views of Merkel and Finkelstein JJ also seem to be based on a misunderstanding of what is meant by a substantial degree of market power. Firms only have a substantial degree of market power when they can persistently act in a way over a reasonable time period unconstrained by the market's forces of supply and demand. Firms that do not have "the power to raise price above cost without losing so many sales as to make the price rise unsustainable" [In re Brand Name Prescription Drugs Antitrust Litigation (1997) 123 F 3d 599 at 603 (7th Cir), per Chief Judge Posner] do not have market power. Cutting prices is not evidence of market power. Any firm can do that. Market power is an economic concept and should be given its ordinary meaning. As Professors Krattenmaker, Lande and Salop point out ["Monopoly Power and Market Power in Antitrust Law", Georgetown Law Journal, vol 76 (1987) 241, at p 245]: "When economists use the terms 'market power' or 'monopoly power,' they usually mean the ability to price at a supracompetitive level." Market power also includes the power to sell less in terms of quality or quantity at the same price or to sell products on terms and conditions which a firm without market power would not be able to enforce - this being an element of market power that arises in conduct other than "predatory pricing". But market power is not equivalent to the mere cutting of prices. … Relevance of market structure - market share and barriers to entry - in determining market power The concept of "market power" in s 46 shows that the section is not concerned with a one-second snapshot of economic activity. Market power can only be determined by examining what a firm is capable of doing over a reasonable time period. Whether a firm has market power - whether it has the ability to act unconstrained by competition, whether it can raise prices above competitive levels - requires an examination of the existing structure and the likely structure of the market if competitors are removed or prices rise to supra-competitive levels. Such an analysis requires an examination of the business structure and practices of the alleged offender and its competitors, their market shares and the barriers to entry (if any) into the market. In Queensland Wire [(1989) 167 CLR 177 at 189-190], Mason CJ and Wilson J said: "A large market share may well be evidence of market power … but the ease with which competitors would be able to enter the market must also be considered. It is only when for some reason it is not rational or possible for new entrants to participate in the market that a firm can have market power … There must be barriers to entry. ... Barriers to entry may be legal barriers - patent rights, exclusive government licences and tariffs for example. Barriers to entry may also be a result of large 'economies of scale'." Dawson J said [Queensland Wire (1989) 167 CLR 177 at 201-202]: "The existence of barriers to entry may be conclusive in determining the relevant market and the degree of market power in it. In the context of s 46, the existence of significant barriers to entry into a market carries with it market power on the part of those operating within the market. Market power follows as a natural consequence of barriers to entry … There is, of course, vigorous debate in economic circles about what constitutes a barrier to entry into a market. There are those who would and those who would not accept that the high cost of entry constitutes a barriers [sic] … However, it is less important to arrive at a precise meaning than to recognize the assistance given by the identification of conditions, in the nature of barriers to entry, for the purpose of defining the relevant market, measuring the extent of market power and determining whether that power has been exercised." 339 In NT Power Generation v Power and Water Authority (2002) 122 FCR 399 (NT Power) at 440 [155], Finkelstein J said: In my opinion sometimes it will be appropriate for market power to be analysed on the basis of long-term horizons, and on other occasions short-term horizons will do. In the case of a long-term monopolist who has, and will continue to have, discretionary power in a market it is not always necessary to consider for how long into the future that power will continue to exist. The relevant feature of the market is not that the temporal dimension of the market power, whatever that may be, has only a short period to run. The monopolist has market power until its ability to exercise its discretionary power is eliminated or significantly reduced by an actual or potential competitor. Until that time, the monopolist will have market power for the purposes of the antitrust provisions of the Competition Code.

Decision 340 The starting point for our consideration of the market power issue is the finding made by the primary judge at 506 [284]-[285] that Pfizer had a substantial degree of market power in the atorvastatin market throughout the period from 2000, or thereabouts, up to late 2011. That finding was not challenged by Pfizer on appeal. 341 Throughout the period from 2000 to late 2011, Pfizer controlled the atorvastatin patent and exploited that patent in Australia by manufacturing and supplying here Lipitor, its branded premium atorvastatin product. By the end of 2011, Lipitor was a "must have" pharmaceutical because, by then, atorvastatin had become the highest selling prescription pharmaceutical in Australia in terms of both volume and value. It had occupied that position under the PBS for several years prior to the end of 2011. 342 The primary judge accepted, and found, that Pfizer continued to have market power in the atorvastatin market throughout the first half of 2012. The finding to which we have referred at [340] above was a finding to the effect that, notwithstanding that Pfizer continued to have market power in the atorvastatin market in January 2012, and beyond that date, that market power was no longer substantial or, in the language of s 46 of the CCA, Pfizer no longer had a substantial degree of market power in the atorvastatin market. His Honour appeared to conclude that the necessary quality of "substantiality" had evaporated suddenly in early January 2012. However, we think that, to place such a complexion on his Honour's reasoning, is unfair to him. It seems to us that, at 507 [287]-[288], his Honour contemplated that Pfizer's market power had diminished over a period of time, culminating in the loss of the necessary quality of substantiality by January 2012. 343 It is important to remember that the critical dates when the impugned conduct is alleged to have blossomed into contraventions of the CCA are January and February 2012, not April, May or June 2012. The first round of bundled offers made by Pfizer was made to all community pharmacies on or about 16 January 2012. On a date around 24 February 2012, revised terms in relation to those offers were announced. In April 2012, further revised terms were announced by Pfizer. 344 In the period January, February and March 2012, the only atorvastatin supplied in the atorvastatin market was Lipitor which, of course, was supplied by Pfizer. 345 Deliveries of atorvastatin Pfizer and of Trovas to community pharmacies commenced in April 2012. By the end of April 2012, Lipitor still retained 32% of the atorvastatin market. Atorvastatin Pfizer and Trovas together held 68% of that market. Trovas had a very small portion of that 68%. In some pharmacies, the switch from Lipitor to generic atorvastatin in April 2012 was far more swift and far more significant. In some cases, Lipitor retained as little as 5% of the atorvastatin dispensed in April, May, June and July 2012. 346 The entry of the major generics manufacturers into the atorvastatin market from 1 June 2012 saw a further reduction in Lipitor's share of that market to around 23%. That share remained at around that level for the next 12 months at least. The share of the atorvastatin market held by generic atorvastatin in this period was shared amongst the various generics manufacturers, including Pfizer. 347 The only possible source of supply for deliveries of atorvastatin to be made in January, February and March 2012, was Pfizer. The only atorvastatin product which was available for delivery by Pfizer in that period was Lipitor. Throughout the whole of January and most of February 2012, Pfizer was still a monopolist having in place a patent which prevented potential competitors from supplying atorvastatin and from carrying on pre-supply activities in relation to the atorvastatin market because such activities might constitute an infringement of the atorvastatin patent. There is no doubt, of course, that, throughout January and February 2012, Pfizer faced the prospect of significant potential competition from other manufacturers of generic pharmaceuticals later in 2012. It faced inevitable competition from Ranbaxy Australia from 19 February 2012 although, in reality, as a practical matter, Ranbaxy Australia could not actually supply its generic atorvastatin, Trovas, until on and after 1 April 2012. This was because Trovas could not be listed on the PBS until 1 April 2012 and pharmacists were unlikely to take deliveries of Trovas before then given that the sale price would not be subsidised by the Commonwealth under the PBS. Pfizer also faced the inevitable onslaught from the major manufacturers of generic pharmaceuticals from the date of the expiry of the atorvastatin patent although, in the case of these other suppliers, deliveries were unlikely to take place before 1 June 2012 when their products were to be listed on the PBS for the first time. 348 The inevitability of the competition which we have described at [347] above was known and appreciated by Pfizer and the market participants long before January 2012. While it is true that the time at which this potential competition was to be encountered was closer in January and February 2012 than it had been in the latter half of 2011, we find it difficult to accept that this potential competition was so imminent in January and February 2012 as to have operated to diminish to any significant degree the long standing market power held by Pfizer in the atorvastatin market up to and including late 2011. If there was any diminution of that power in January and February 2012, the extent of that diminution was not so great as to render Pfizer's market power in that market less than substantial. 349 Further, throughout January and February 2012, and beyond, Pfizer continued to supply Lipitor at the prices previously achieved which some regarded as supra or premium pricing reflecting, as one would expect, its monopoly position throughout that period. 350 The ACCC identified two errors which it contended were made by the primary judge in reaching the conclusions which he did concerning Pfizer's market power in the atorvastatin market in the first half of 2012. First, the ACCC contended that the primary judge had confined his consideration of Pfizer's market power to the future and that this was an error of law. Second, it argued that his Honour's conclusion in relation to market power was implausible because, not only was it not justified by the four reasons actually relied upon by his Honour, but it was contrary to other persuasive evidence. 351 While we agree that the requirement of sustainability mandated by the relevant principles in this area often requires the Court to consider the likely position in the future, it does not follow that approaching the matter in this way is the only available approach. Each case must be looked at by reference to its own peculiar circumstances. We agree with the remarks of Finkelstein J in NT Power which we have extracted at [339] above. In the present case, the primary judge did concentrate on the future but we do not think that he ignored the past when looking at the future from the perspective of January 2012. We do not accept that his Honour committed the first error alleged by the ACCC. 352 However, we agree with the ACCC that none of the four matters relied upon by his Honour as justifying the conclusion to which he came, whether taken individually or together, justified that conclusion. We think that the submissions made by the ACCC which we have summarised at [319]-[320] above are sound and we accept them. 353 It seems to us that an important indicator of substantial market power as at January and February 2012 is the fact that Pfizer was able to introduce into the atorvastatin market its own generic atorvastatin by means of the bundled offers at a time and in a manner which gave it a significant commercial advantage over its potential future competitors, even if only for a short time. It is well known that the major manufacturers of generic pharmaceuticals compete with each other as vigorously as they can with a view to obtaining first mover advantage over other potential generic pharmaceutical suppliers. It is apparent that those major manufacturers took every step that they were lawfully able to take in the period from as early as 2009 or 2010 to place themselves in a position to supply generic atorvastatin into the Australian market as soon as they were able after the expiry of the atorvastatin patent. By making the bundled offers which it did on or about 16 January 2012, Pfizer exploited its then existing dominant position in the atorvastatin market to establish from April 2012 a strong foothold in that market for the supply of generic atorvastatin which would stand it in good stead when the patent expired on 18 May 2012. It seems to us that Pfizer could not have launched its generic atorvastatin when it did and in the manner that it did had it not had a substantial degree of market power in the atorvastatin market at the time when that launch took place. In addition, it managed to launch its generic atorvastatin without seriously affecting the pricing of its branded product, Lipitor. 354 In January and February 2012, Pfizer was not yet constrained in its behaviour to any significant extent by the future inevitable competition that would be brought to the atorvastatin market by the participation in that market of Ranbaxy Australia and the major generics manufacturers. Its conduct in making the bundled offers on or about 16 January 2012 was behaviour which would not have been possible in the absence of its having a substantial degree of market power in the atorvastatin market. That behaviour was a reflection of its continuing to hold a substantial degree of market power in that market although the behaviour in question was, by early 2012, being heavily influenced by the fast approaching inevitable competition from the generics manufacturers. 355 It follows that we also generally accept the submissions made by the ACCC which we have summarised at [321]-[325] above. 356 We are of the opinion that Pfizer had a substantial degree of market power in the atorvastatin market throughout January and February 2012 and probably for some time after February 2012. We do not think it necessary to decide whether it had such a degree of market power up to 18 May 2012. 357 While it is fair to say that Pfizer's submissions on appeal correctly capture the relevant legal principles, we are not persuaded that those submissions should be accepted insofar as they rely upon the reasoning process of the primary judge when his Honour came to apply the relevant principles to the facts of the present case. 358 We do not think that the potential for pharmacies to game Pfizer and its offers (as to which see the submissions recorded at [330] above) constitute a relevant constraint upon Pfizer at the critical time for the purposes of antitrust analysis. 359 For all of the above reasons, we consider that his Honour erred when he concluded that, by January 2012, Pfizer no longer held a substantial degree of power in the atorvastatin market. We think that the opposite was the case. Accordingly, we uphold Grounds 1, 2 and 3 in the ACCC's Notice of Appeal.

Taking Advantage of the Relevant Market Power and Proscribed Purpose (Section 46(1)(c) and Section 47(10)(a) of the CCA) (Appeal Grounds 4, 5, 7 and 8; 10 to 16 and 23 to 26) (Contention Grounds 2 and 3)

Introduction 360 In these Reasons so far, we have decided that: (a) The primary judge erred when he found that the s 46 case propounded by the ACCC was legally incoherent and that his Honour should have found that that case, as pleaded and run, was not fatally flawed as alleged by Pfizer; (b) The primary judge was correct in finding that, at all times from at least mid-2010 to at least 18 May 2012, the relevant market for all purposes in the present case was the atorvastatin market (viz the market propounded by the ACCC in the ASC); and (c) The primary judge erred when he found that, by January 2012, Pfizer no longer had a substantial degree of market power in the atorvastatin market and should have held that, throughout the whole of January and February 2012, Pfizer still had a substantial degree of market power in that market. 361 We note that the primary judge held that, in the period from at least mid-2010 until the end of 2011, Pfizer had a substantial degree of market power in the atorvastatin market and that that finding was not challenged on appeal. In any event, we think that that finding was correct. 362 We now turn to deal with the question of whether Pfizer took advantage of its market power in the atorvastatin market from time to time in the period from mid-2010 to February 2012 and, if so, whether it took such advantage for the purpose of hindering, deterring or preventing other manufacturers of generic atorvastatin from engaging in competitive conduct in that market (s 46(1)(c)). We shall also now deal with the question of whether, assuming that Pfizer's conduct in January and February 2012 constituted the imposition of conditions upon the supply of atorvastatin to community pharmacies of the kind described in s 47(2)(d) and s 47(2)(e), that conduct was engaged in for the purpose of substantially lessening competition in the atorvastatin market (s 47(10)(a)). 363 As we have noted at [360] above, the primary judge found that the ACCC's s 46 case was legally incoherent. He also found that, throughout the period from January to May 2012, Pfizer did not have a substantial degree of market power in the atorvastatin market. At 509 [293] his Honour observed that, for those two reasons, it was "somewhat potentially academic" to determine whether Pfizer took advantage of such market power as it may have possessed during the first five months of 2012. 364 His Honour then went on to consider whether Pfizer took advantage of such market power as it, in fact, had in 2011, upon the assumption that that market power was substantial and upon the further assumption that the ACCC's s 46 case was not legally incoherent. His Honour then made the following findings in respect of the question of taking advantage in respect of Pfizer's actions in January 2011: (a) When Pfizer implemented its DTP model in January 2011, it had a substantial degree of market power in the atorvastatin market and took advantage of that power in order to implement that model (497 [251(ii)] and 510 [297]). (b) By establishing the accrual funds scheme in January 2011, Pfizer took advantage of the substantial market power in the atorvastatin market which it had at that time (497 [251(ii)] and 510-511 [300]). 365 At 497 [251(iii)], the primary judge recorded his conclusion as to whether there was a relevant taking advantage of its market power by Pfizer when it made the bundled offers, in the following terms: Pfizer took advantage of such limited market power as it retained in making the Platinum, Gold and Silver Offers in January 2012; 366 At 508-517 [291]-[324], the primary judge went on to consider generally the question of whether Pfizer had taken advantage of its market power in the atorvastatin market by implementing the DTP model, by establishing the accrual funds scheme and ultimately by making the bundled offers. 367 At 517 [324], his Honour concluded (contrary to what he had said at 497 [251(iii)]) that, by making the bundled offers in January and February 2012, Pfizer did not take advantage of any market power in the atorvastatin market that it may have retained after the end of 2011. By Appeal Ground 5, the ACCC challenged the correctness of that conclusion. By Appeal Grounds 7 and 8, the ACCC sought a finding on appeal to the opposite effect. It is not possible to reconcile his Honour's finding at 497 [251(iii)] with his finding at 517 [324]. When his Honour's Reasons are considered as a whole, we think that, had he been required to do so, his Honour would have rejected the ACCC's "take advantage" case in respect of the bundled offers made by Pfizer in January 2012 and found that Pfizer did not "take advantage" of its market power in the atorvastatin market in January 2012 when it made those offers. 368 By Appeal Ground 4, the ACCC contended that the primary judge had failed to consider its primary case on taking advantage. The challenge to his Honour's reasoning process on that ground is beside the point. The real question concerns whether his Honour's "take advantage" conclusion in respect of the January 2012 conduct was correct. 369 This Court has now held that Pfizer retained a substantial degree of market power in the atorvastatin market at least throughout January and February 2012. In light of that finding, in addition to determining the issues raised by Pfizer's conduct in January 2011 (as to which, see [364] above), we must also decide whether Pfizer took advantage of the substantial degree of market power which it held in that market when it made the bundled offers in January and February 2012. 370 By Appeal Ground 6, the ACCC challenged the primary judge's finding at 517 [324] insofar as it related to the question of whether the supply of generic atorvastatin at below cost involved Pfizer taking advantage of market power in the atorvastatin market. As we have already noted at [17(b)] above, Appeal Ground 6 was not pressed at the hearing of the Appeal. For this reason, we do not need to consider further the question of whether or not the supply of generic atorvastatin in the first half of 2012 by Pfizer at prices which were below cost, on its own, involved a taking advantage of the requisite kind. 371 By Grounds 2 and 3 of its Notice of Contention, Pfizer challenged the findings made by the primary judge which we have recorded at [364(a)]-[364(b)] above. 372 Thus, the issues raised in the Appeal in respect of the question of "taking advantage" were: (a) Whether the primary judge erred in making the findings which we have extracted at [364(a)] and [364(b)] above; and (b) Whether Pfizer took advantage of the substantial market power which it had in the atorvastatin market when it made the bundled offers in January and February 2012. 373 In addition, the primary judge upheld only one of the ACCC's arguments that atorvastatin was supplied on conditions which were prohibited by s 47(2)(d) and s 47(2)(e) of the CCA. The ACCC has appealed his Honour's findings in respect of the remaining elements of its s 47 case including his Honour's finding that Pfizer did not have the requisite proscribed purpose. 374 Insofar as Pfizer's purpose was concerned, at 536 [412], his Honour found that, had it been necessary to make a finding as to Pfizer's purpose, he would have found that the ACCC had failed to establish that a substantial purpose of Pfizer in engaging in the impugned conduct was to hinder, deter or prevent other manufacturers and suppliers of generic pharmaceuticals from engaging in competitive conduct in the atorvastatin market after 18 May 2012 (or, in the case of Ranbaxy Australia, after 18 February 2012) or was to substantially lessen competition in that market after that date. 375 The ACCC advanced the following particular grounds of appeal in respect of those findings which it challenged: (a) The primary judge erred in failing to consider the ACCC's primary s 46 case, as pleaded at pars 62 to 65 of the ASC, in support of the ACCC's contention that Pfizer had taken advantage of its substantial market power in the atorvastatin market in making the bundled offers which it made in January and February 2012 and in subsequently supplying atorvastatin Pfizer to community pharmacies pursuant to those offers. The ACCC contended that his Honour should have found that Pfizer took advantage of such power in making those offers (Grounds 4, 5 and 7). (b) His Honour should have found that Pfizer took advantage of its substantial market power in the atorvastatin market by engaging in the conduct referred to at pars 43 to 59 of the ASC being the conduct which we have summarised at [207]-[211] above and being conduct which took place in 2010, 2011 and 2012 (Ground 8). The ACCC was content with the primary judge's findings in relation to Pfizer's conduct in January 2011 (as to which see [364(a)] and [364(b)] above). 376 In its Notice of Contention (Contention Grounds 2 and 3), Pfizer challenged his Honour's findings that Pfizer had taken advantage of such market power as it had in the atorvastatin market by implementing the DTP model in January 2011 and by establishing the accrual funds scheme at the same time. Pfizer contended that the ACCC had never alleged that Pfizer had taken advantage of such market power as it had in the atorvastatin market in January 2011 by implementing the DTP model and by establishing the accrual funds scheme at that time and, in the alternative, contended that implementing the DTP model and establishing the accrual funds scheme constituted conduct which Pfizer could have undertaken without having a substantial degree of market power in the atorvastatin market. 377 The ACCC specified seven grounds of appeal in respect of the primary judge's finding that Pfizer did not have the alleged proscribed purpose for the purposes of the ACCC's s 46 case when it engaged in the impugned conduct (Grounds 10 to 16) and four grounds of appeal in respect of his Honour's finding that Pfizer did not have the requisite proscribed purpose for the purposes of the ACCC's s 47 case when it engaged in that conduct (Grounds 23 to 26). 378 It is important to note for present purposes that we have held (at [207], [208], [209], [210], [211] and [218] above) that the conduct relied upon by the ACCC for the purposes of its s 46 case is all of the conduct described at pars 43 to 64 of the ASC, including its conduct in making the bundled offers in January and February 2012 and in subsequently supplying atorvastatin in accordance with those offers. 379 For the purposes of its s 47 case, however, the ACCC relied only upon Pfizer's making of the bundled offers to community pharmacies in January and February 2012 and its subsequently supplying atorvastatin in accordance with those offers as constituting the relevant impugned conduct. 380 Although the nature of the anti-competitive purpose proscribed by s 46(1)(c) (as further explained by ss 46(3), 4F and 4G of the CCA) is different from the anti-competitive purpose proscribed by s 47(10)(a), it is convenient in the present case to address Pfizer's conduct and its purpose in engaging in that conduct in this section of our Reasons for the purposes of both of the ACCC's cases. 381 None of the grounds of appeal raised by the ACCC in relation to the primary judge's findings concerning Pfizer's purpose in engaging in the impugned conduct raised a question of law. In each of them, the ACCC highlighted specific criticisms of the primary judge's findings of fact, including that his Honour erred in preferring the evidence of the witnesses called by Pfizer to inferences which the ACCC urged upon the Court as arising from Pfizer's own documents. It is not necessary to refer at this point in these Reasons to each of the specific grounds of appeal relied upon by the ACCC in which factual findings made by the primary judge are attacked. We will address the specific arguments advanced by the ACCC later in these Reasons, at which time we shall also address, to the extent necessary, the specific grounds of appeal directed to Pfizer's purpose in engaging in the impugned conduct.

The Primary Judge's Reasons 382 The primary judge addressed the legal principles which govern the meaning of "purpose" in s 46(1)(c) and in s 47(10)(a) at 443-451 [43]-[60]. At 447-451 [53]-[60], his Honour explained the relationship between the concept of "purpose" and the concept of "taking advantage" of market power as those concepts are used in s 46(1) of the CCA. We have summarised his Honour's views in those passages at [98]-[109] above. We will not repeat that summary here. 383 At 453-455 [68]-[75], his Honour explained the concept of "… substantially lessening competition …" as it is used in s 47(10)(a) of the CCA. Our summary of his Honour's reasons in this regard is to be found at [115]-[119] above. 384 At 461-478 [93]-[176], the primary Judge explained the way in which the PBS works and the way in which pharmaceutical products are generally supplied in Australia. At [126]-[127] above, we have set out his Honour's explanation of the PBS and his Honour's introduction to most of the big players in the market for the supply of generic pharmaceuticals to community pharmacies in Australia. 385 At 461-463 [98], [99] and [101], his Honour said: The evidence filed by the parties In support of its case, the ACCC relied upon a large number of Pfizer's own internal documents and upon the following affidavits either sworn or affirmed by: • Mr Roger Millichamp, the regional managing director (Australia and New Zealand) of Apotex; • Mr Stephen Fraser, the managing director of Alphapharm; • Mr Robert King, a pharmacist who was a partner in and manager of five pharmacies (four of which are located in the Central Coast region of New South Wales); • Ms Nancy Carter, the purchasing manager employed by Chempro (Qld) Pty Ltd; • Mr Michael Karsz, a pharmacist employed by Jon Ravech's Chemsave Pharmacy; • Mr Reza Safaei-Hosseinpour, a pharmacy manager employed by VietPhuoc Pty Ltd, trading as Curry Chemist Hornsby; and • Mr Alexander Evans, the managing director of Ranbaxy. The expert relied upon by the ACCC was: • Dr Christopher Pleatsikas. With the exception of Ms Carter, each of these witnesses was cross-examined. Ms Carter was unavailable for cross-examination. It was nevertheless agreed between the parties that subject to the "weight" to be given to her evidence, her affidavit could nevertheless be read. In support of its case, Pfizer relied upon affidavits either sworn or affirmed by: • Ms Jennifer Alltoft, the general manager, Global Established Pharma, Australia and New Zealand employed by Pfizer Australia; • Mr Mark Crotty, the general manager of the established products business unit for Australia and New Zealand at Pfizer Australia between January 2009 and April 2011; • Ms Sharon Brady, the business operations manager, strategic planning and operations, established products employed by Pfizer Australia; • Mr David Gledhill, a senior finance manager who joined Pfizer Australia in April 2010; • Mr Michael Held, Pfizer Australia's national key accounts manager, a position he has held since July 2011; • Mr Deran Bagdadi, the trade marketing manager, established products employed by Pfizer Australia; • Mr David Penny, Pfizer Australia's regional sales manager for Victoria and Tasmania; • Mr John Latham, now retired but a former managing director of Pfizer Australia; and • Mr Gary Cooper, the commercial manager, pharmacy in Pfizer Australia's established products division between August 2009 and April 2013. The expert witness relied upon by Pfizer was: • Dr Sumanth Addanki. … Notwithstanding the number of witnesses called, the case for the ACCC turned - at least initially - upon the contents of documents circulating internally within Pfizer and the inferences to be drawn from those documents. Not surprisingly, the Pfizer officers were cross-examined largely upon one or other of those documents. That cross-examination, however, was on occasions hampered by the fact that the officer giving evidence had never seen the document before, or was not the author of the document, or by the fact that the witness had not participated in a meeting or conference at which decisions were made or issues canvassed for consideration. Any finding of fact to be made in respect to some issues necessarily has to take into account both the difficulties experienced by the witness and the difficulties confronting the cross-examiner. 386 At 465 [115], his Honour found that the major manufacturers of generic pharmaceuticals who supplied those pharmaceuticals in Australia were Alphapharm, Aspen, Apotex and Sandoz. His Honour went on to find that those manufacturers together accounted for at least 85% of the sales of generic pharmaceuticals in Australia. 387 At 465 [116]-[117], his Honour said: The manufacturers supply the wholesalers. The three major wholesalers are Australian Pharmaceutical Industries, Sigma Pharmaceuticals Ltd and Symbion Pharmacy Services. Prior to 2011, these three wholesalers controlled over 90% of the distribution of prescription medicines in Australia. Smaller wholesalers included Central Hospital Supplies and CH2. It was the wholesalers who supplied pharmaceutical products to the community pharmacies. 388 At 465 [118]-[119], his Honour made the findings which we have extracted at [131] above. 389 At 465-466 [120], his Honour noted that the influence which could be exerted by the major wholesalers of pharmaceuticals in Australia was not inconsiderable. To a large extent, this influence was due to the vertical integration of the sale of those pharmaceuticals in Australia. 390 At 466-478 [121]-[176], the primary judge described in some detail the marketing methods of the major generic manufacturers of pharmaceutical products (Apotex, Alphapharm, Ranbaxy Australia, Ascent and Sandoz) and the plans which each of those corporations had in place in readiness for the expiration of the atorvastatin patent on 18 May 2012. Those findings made by the primary judge make perfectly plain that these corporations were and are very substantial enterprises which exercise considerable influence and power over the price at which pharmaceuticals are sold in Australia. 391 Some matters of importance should be highlighted from this section of his Honour's Reasons. These are: (a) All of the major manufacturers of generic pharmaceuticals were well aware for a number of years prior to 2012 that the atorvastatin patent would expire on 18 May 2012; (b) Apotex had started planning the development of its generic atorvastatin products in about 2007 and had started manufacturing its generic atorvastatin products in or around November 2011 in Canada for ultimate distribution in Australia; (c) Apotex was in the habit of offering substantial discounts and rebates to its aligned wholesalers; (d) Apotex sold its pharmaceutical products as a range of generic products and did not allow its wholesalers to "cherry pick" individual pharmaceuticals; (e) The major manufacturers of generic pharmaceuticals encouraged a sell-in of their generic pharmaceutical products from the very moment the relevant patent expired. As the CEO of Apotex said: "We would absolutely want to be selling the minute the patent expired, absolutely."; (f) By mid-2011, Apotex had carried out sophisticated modelling to support its launch of its own generic atorvastatin with a target launch date of 19 May 2012, which, of course, was the day after the expiration of the atorvastatin patent. In May 2011, it placed an order with its manufacturing arm to satisfy the anticipated demand; (g) Apotex was also monitoring the steps being taken by other manufacturers of generic pharmaceuticals in the lead up to the expiry of the atorvastatin patent; (h) At the time of the Apotex launch on 19 May 2012, two deals were being offered to pharmacies by Apotex, namely: (i) Deal 1: This deal provided a percentage discount of 90% off invoice price, the offer being based on a nine month order at 60% substitution rate; and (ii) Deal 2: This deal provided for a lesser discount but stated that Apotex would cover the Pfizer rebate. Upon presentation of the pharmacy's Pfizer statement, the deal provided that Apotex would organise a credit for the wholesale account; (i) As at the date of the Apotex launch, deals had been struck with at least: Blooms the Chemist; Discount drugs stores; Chemmart; and Terry White; (j) By May 2012, competition in the atorvastatin market was intense; (k) The evidence disclosed that Alphapharm had taken similar steps to those taken by Apotex, starting as early as October 2006; (l) Alphapharm made a competitive response to Pfizer's bundled offers by offering a higher discount on its generic atorvastatin and by not requiring any minimum purchase commitments; (m) Ranbaxy Australia took similar steps but also actively sought to sell into the atorvastatin market even before it was entitled to do so on 19 February 2012; and (n) Ascent and Sandoz also actively pursued opportunities for the sale of their generic atorvastatin as soon as the atorvastatin patent expired. 392 Neither the ACCC nor Pfizer challenged in this Court his Honour's exposition of the relevant legal principles in respect of the matters with which we are dealing in this section of our Reasons nor did either of the parties challenge his Honour's findings as to the workings of the PBS, the manner in which pharmaceuticals are supplied in Australia and the detailed preparations and plans carried out by the major manufacturers of generic pharmaceuticals in order to be in the best possible position to exploit the opportunities presented to them by the expiry of the atorvastatin patent on 18 May 2012. 393 At 478-496 [177]-[247] and also at 508-536 [291]-[414], his Honour made detailed findings in respect of the issue of "taking advantage" and "purpose" for the purposes of the ACCC's s 46(1)(c) case and the issue of "purpose" for the purposes of the ACCC's s 47(2)(d) and s 47(2)(e) case. Included within these paragraphs of the primary Judge's Reasons are his Honour's detailed reasons for rejecting critical elements of the ACCC's cases. In these paragraphs, the primary judge explained why he found that, at no time in the period from mid-2010 to the end of February 2012, when the impugned conduct was engaged in by Pfizer, did Pfizer engage in that conduct for either of the purposes proscribed by s 46(1)(c) or s 47(10)(a) of the CCA. 394 We will now endeavour to explain his Honour's reasons for reaching the conclusions which he did in respect of the elements of s 46 and s 47 with which this section of our Reasons is concerned. 395 At 478 [177]-[182], the primary judge said: Pfizer traditionally focused on supplying its patented products and researching and developing new medicines. As at 2009 it had little experience in marketing and supplying generic products. The looming expiration of a number of its patented products, however, dictated the need for Pfizer to give consideration to what position it would occupy in the market once its key patents expired. The atorvastatin patent was not the only Pfizer patent which was due to expire. Between 2010 and 2014 the patents for an unusually high number of other important pharmaceuticals also expired, namely, the patents over the molecules used in Exefor, Caduet, the Xalabrands (Xalatan and Xalacom), Aricept, Viagra and Celebrex. In 2007, there were sales of approximately $9 billion of pharmaceuticals under the pharmaceutical benefits scheme. Of those, approximately $2.4 billion were sales of products whose patent expired in the period 2010-14. There can be no doubt that Pfizer had to take some steps to combat the competition which it would confront when the atorvastatin patent expired in May 2012. 396 At 478 [183], his Honour recorded that Pfizer retained Sinapse Consulting (Sinapse) in September 2009 to assist it to develop its strategy for addressing the expiry of the patents to which his Honour had referred at 478 [177]-[182]. The retention of Sinapse was intended to assist Pfizer in combating the power of the significant manufacturers of generic pharmaceuticals operating in Australia. 397 At 479-480 [184]-[186] his Honour made findings concerning Sinapse's identification of the important drivers for change and its market research work carried out for Pfizer which led ultimately to Pfizer's conceiving and putting into effect Project Leap. 398 At 480-481 [187]-[190], his Honour said: The plan to combat these changes came to be known as "Project LEAP". As explained by Mr Crotty, he perceived the main features of Project LEAP to be: • the supply by Pfizer of pharmaceutical products directly to retail pharmacies, bypassing wholesalers; • the development of a dedicated sales field force and customer service support teams; • the development of a range of Pfizer Australia generics - or what it termed "price fighters"; • the development of a range of non-Pfizer generics; • the offering of an immediate trading term discount of 5% off the "Chemist List Price" on pharmaceuticals listed on the pharmaceutical benefits scheme and sold to community pharmacies; • the offering of commercial proposals at the time Pfizer Australia launched a generic product in the future that was competitive with those being offered by other manufacturers; and • the creation of an accrual scheme to fund rebates on seven major Pfizer Australia products - including Lipitor - as they approached and entered the post patent expiry phase of their life cycle. The aspects of Project LEAP that the ACCC takes issue with in this proceeding involve three "platforms", namely: • the direct-to-pharmacy model, involving the sale and distribution of its products directly to pharmacies; • the accrual funds scheme, involving the accrual of 5% of a pharmacy's purchase of Pfizer's patented products (including Lipitor) from 31 January 2011 to be credited as a rebate on conditions; and • a "bundled offer" to pharmacies which (inter alia) tied the prices upon which the branded product, Lipitor, was to be provided to the amount of Pfizer's generic atorvastatin that the pharmacy agreed to purchase. The first reference in the documentary evidence to Project LEAP appears in a feasibility study forwarded by Sinapse to Pfizer in September 2009. The content of the plan, including each of the three "platforms", evolved from its outset in 2009. Issues which were canvassed over time and changes which took place included: • whether the direct-to-pharmacy model should in fact be pursued or whether there were other options open to Pfizer; • the quantum of the Pfizer generic atorvastatin required to be purchased by a pharmacy in order to "unlock" the rebate which had been accruing in that pharmacy's "bank"; and • the date upon which Pfizer would launch its own generic atorvastatin. There was also a change in the manner in which one or other of the objectives sought to be achieved were expressed. There was also, perhaps not surprisingly, differing views being expressed within Pfizer. 399 At 481-482 [191] his Honour explained the way in which Project LEAP was intended to work by reproducing a table created by Pfizer in February 2010. That paragraph is in the following terms: Although each of these "platforms" was separately considered, they each interrelated one with the other. Thus, for example, a table included with the Project LEAP Overview: Primary Care in February 2010 provided as follows: This table was reproduced from time to time in slightly different forms. Earlier variants emerged (for example) in December 2009 and January 2010. Without being exhaustive, the relevant features in this table, and other variants of it, are: • the 5% discount - both in respect to the invoice price and the separate contribution to the pharmacist's "bank"; • the reference to the expected date of Ranbaxy's generic atorvastatin "launch"; • the proposed timing of the Pfizer launch; and • the proposed "12 month sell in". 400 At 482-483 [192]-[193], the primary judge made the following observations: The detailed evolution of Project LEAP from 2009 through to 2012 was largely tracked by the documents being circulated within Pfizer. Caution must be exercised, however, in deciding what inferences should be drawn from them. There were various drafts of documents and some uncertainty as to whether a document labelled "draft" was in fact the final version. The language, terminology and views expressed in some documents - not surprisingly - simply communicated the views or thinking of the author of the document and did not necessarily expose the views or thinking which was ultimately embraced when Project LEAP was approved in its final form. Indeed, some proposals were raised for consideration but later abandoned. Within Pfizer itself there were also different corporate divisions each having different responsibilities and priorities. Some documents produced within one division may not have been considered or agreed upon by another division. The documents circulating internally within Pfizer nevertheless remain an invaluable source of information disclosing the consideration being given by Pfizer as to how it would combat a very changed market when its patent on atorvastatin - and its patents over other products - expired. 401 At 483 [194], his Honour made a number of findings concerning the respective roles of Mr Crotty and Mr Latham in relation to Project LEAP. His Honour found that Mr Crotty had a more "hands-on" role in developing and executing Project LEAP even though that project was under the supervision of a Steering Committee the members of which included Mr Crotty and Mr Latham. In the same paragraph, his Honour appeared to make findings that the evidence of both Mr Crotty and Mr Latham was reliable. 402 At 483 [195], his Honour found that, as Project LEAP evolved, some elements of the project commended themselves more to Mr Crotty than to Mr Latham. 403 At 483 [196], the primary judge made the following findings as to the steps involved in developing Project LEAP. His Honour said: At a very general level, an overview of the steps taken along the way in developing the strategy involved at least the following: • the preparation in June 2009 of a long-range forecast review; • a number of meetings in September 2009 at which there was a presentation of a feasability project; • the preparation of a commercial offer assessment in November 2009; • a meeting of the steering committee on 17 December 2009; • a further meeting of the steering committee in January 2010; • the preparation of a final report for Project Leap in March 2010; • a videoconference in April 2010 in which there was a presentation of Project Leap to Mr John Young and the responses to a series of questions which were then raised; • a presentation in Australia in late May 2010 of Project Leap to Mr Simmons the global president of established products; • the preparation of a "Briefing document" on about 9 June 2010 for a presentation on 10 June 2010; • the preparation on 8 July 2010 of an "Approval document for the ELT" (namely the "Executive Leadership Team") for the purposes of a presentation in New York on 14 July 2010. The final approval of Project LEAP was communicated to Mr Crotty on 14 July 2010. The project as finally approved obviously went through a process of review both within Australia and ultimately in New York. As Mr Crotty observed, "this [was] probably the most approved project I've ever been involved in". 404 At 484 [197]-[201], his Honour made a number of important observations as to the way in which he approached his assessment of the evidence. At those paragraphs, his Honour said: The ACCC's case focused (at least in part) on the language used to express Pfizer's objective within a number of internal Pfizer documents and the various changes to the manner in which elements of Project LEAP were to be structured and implemented throughout the development process. It is unnecessary to trace each of these elements from the outset through to the final approval of Project LEAP in New York in July 2010. It is equally unnecessary to canvass each of the occasions and the context in which each of these elements was considered. It is sufficient to make reference to a limited number of discrete occasions upon which one or other of these elements arose for consideration. Such references are sufficient to give context to both the inferences sought to be drawn from the documents on the part of the ACCC and to the explanations sought to be propounded by the Pfizer witnesses during their cross-examination by senior counsel for the ACCC. And, although it is convenient to direct separate attention to each of the three elements of Project LEAP which were said by the ACCC to culminate in contraventions of ss 46 and 47 of the Competition and Consumer Act, within Pfizer it was manifestly apparent that a consideration of these elements progressed on many occasions in tandem. Focused attention upon one or other of these three elements on occasion exposes parallel consideration being given to one or more of the other elements. Subject to those reservations, it is nevertheless convenient to consider the evolution of each of these three "platforms" relied upon by the ACCC separately. These paragraphs should be read with 462-463 [101] where his Honour made a number of other pertinent observations about the evidence of the witnesses called by Pfizer. 405 At 484-488 [202]-[214], the primary judge explained the DTP model and its development within Pfizer. In those paragraphs, his Honour made the following findings: (a) Historically Pfizer had distributed its products solely through wholesalers (484 [204]). (b) In September 2007 it established a parallel distribution division called "Pfizer Direct". Pfizer Direct gave Pfizer the ability to distribute products directly to pharmacies. Pfizer's initial use of Pfizer Direct was "soft" and "non-aggressive" (484 [205]). (c) In June 2009, Pfizer began looking at the possibility of using its DTP model in respect of its proposed generic pharmaceuticals and also in respect of its established products. At this time, Pfizer was investigating supplying all of its products direct to pharmacies (484-486 [206]-[209]). (d) The advantages perceived by Pfizer in implementing the DTP model were referred to repeatedly at meetings of the Project LEAP Steering Committee. It was thought that the DTP model would optimise revenues and provide a platform to defend LOE revenue erosion (486 [210]). (e) In 2009, the DTP model was not the only option being pursued. At that time, Pfizer had under active consideration licensing existing generic manufacturers to product a generic version of some of its established products (486 [211]). (f) By May 2010, Pfizer had come to the view that the DTP model produced a better commercial outcome for Pfizer than any proposed licensing arrangement (486-488 [212]-[214]). It was described as the "enabler" not the "nucleus" of the Project LEAP strategy (488 [214]). 406 At 488-490 [215]-[225], his Honour discussed the rebates and the accrual funds scheme. In those paragraphs, his Honour referred to that scheme and those rebates as the second "platform" relied upon by the ACCC. 407 At 488 [216]-[219], his Honour said: The prospect of Pfizer being able to offer discounts and rebates to pharmacies was contemplated from the outset. The proposal that Pfizer would deliver its products directly to the pharmacies enabled it to offer a 5% "discount" off the invoice price of its products. This represented an approximate amount which had previously been incurred by the wholesalers responsible for the delivering of product to pharmacies. The 5% "rebate" was a separate amount. It, too, was related to the direct-to-pharmacy model. In an executive summary of Project LEAP circulated in June 2010 the operation of the "rebate" was explained as follows (without alteration): Project Leap aims to create Pfizer and brand loyalty in the 18 months leading up to LOE. Building a relationship with Pharmacy is key to our strategy. Accordingly, a pharmacy field force will be recruited at the end of 2010. Pfizer and brand loyalty will be achieved via a two pronged approach. Firstly, a 5% reduction from Chemist's List price will form our net invoice price. Secondly, each pharmacy will start to accrue a rebate "bank" of 5% on all purchases of an LOE product 18 months out from LOE. That is, purchases of Lipitor will start to accrue a rebate before Caduet, Xalabrands, and there will be overlap. Due to the launch date of Feb 1 2011, Lipitor will only have 12 months before LOE. That rebate accrual is analogous to a frequent flyer scheme, whereby the pharmacy will know each month how their rebate bank is accruing. The pharmacy representative will have that accrual on their CRM screens each month, and AR will have it noted on the monthly debtor statements. Once LOE occurs, we will require the pharmacies to continue to meet preconditions related to purchase of Pfizer branded products. If successfully meeting those purchasing conditions for 6 months post LOE, the rebate "bank" will be paid to the pharmacy via credit on their AR account in quarterly instalments over a 12 month period. Access to dispensing data will enable measurement of the purchasing behaviours. Should a pharmacy fail to meet their purchasing levels, they will lose their "bank" and the accrual will be reversed. For modeling purposes we have assumed 87.5% of pharmacies will actually be paid, the balance finding generic competitor's offerings more attractive. 408 His Honour then referred (at 488-489 [220]) to a briefing document prepared in June 2010 which was in the following terms: In the "Briefing document for the WBB ELT" prepared in June 2010 the loss of exclusivity of the Pfizer patents over the forthcoming years was referred to. The "opportunities in Australia" were set forth, one of which included "[d]eveloping a platform to defend LOE revenue erosion". A "Solution" was set forth. It again referred to the role played by the "rebate" as follows: The Solution The Project Leap commercial offer aims to create Pfizer and brand loyalty in the 18 months leading up to LOE. The intended launch date of the commercial offer is Feb 1 2011 and building a relationship with Pharmacy is key to the strategy. Accordingly, a pharmacy field force will be recruited at the end of 2010. … Secondly, each pharmacy will start to accrue a rebate "bank" of 5% on all purchases of an LOE product 18 months out from LOE. That is, purchases of Lipitor will start to accrue a rebate before Caduet, Xalabrands, and there will be overlap. Due to the launch date of Feb 1 2011, Lipitor will only have 12 months before LOE. That rebate accrual is analogous to a frequent flyer scheme, whereby the pharmacy will know each month how their rebate bank is accruing. The pharmacy representative will have that accrual on their CRM screens each month, and AR will have it noted on the monthly debtor statements. But the offer of a mere "rebate" was not without its own consequences. 409 The primary judge then discussed the terms of the bundled offers which were ultimately made in January and February 2012. At 489-490 [221]-[225], his Honour said: It was a term of Pfizer's offer that pharmacists accept a specified volume of Pfizer's generic atorvastatin. An incentive for the sell-in of a large volume of stock before 30 April 2012 lay in the 1-month grace period available under the statutory price disclosure regime then in operation. For the first month after the listing on the pharmaceutical benefit scheme schedule of a generic product, sales of that product were excluded from calculations of the weighted average disclosed price. There were within Pfizer two schools of thought as to whether pharmacists should be encouraged to take delivery of generic stock in advance of patent expiry. One school of thought was that having generic stock on pharmacist's shelves would only accelerate erosion by encouraging pharmacists to sell through their generic stock quickly at the expense of Lipitor. That scenario would have an adverse effect on Lipitor sales and on Pfizer's revenue given that Atorvastatin Pfizer was less profitable than the brand, Lipitor. The other school of thought was that selling in stock would not be perceived favourably by pharmacies and could affect the take up of Pfizer's atorvastatin offer. Four levels of offer were developed - the Platinum Offer, the Gold Offer, the Silver Offer and the Alternate Offer. One internal Pfizer document dated 16 November 2011 entitled "Project LEAP Update" referred to the Platinum, Gold and Silver Offers. This document referred to the Platinum Offer as "requiring a commitment on the generic of 12 months at 70% support and carries the highest levels of discount on the brand and the generic version". The terms upon which discounts would be offered and rebates offered were finally settled in January 2012. It provided for Platinum, Gold, Silver and Alternate Offers - each dependent upon the volume of Pfizer's generic atorvastatin purchased by the pharmacy and the time over which that quantity was to be used. The final rebate and discount structure is summarised by the following table: This table distinguishes between (inter alia) the generic product (Atorvastatin Pfizer) and Lipitor. Pursuant to this offer, pharmacists were invited (for example) to purchase under the Platinum offer enough Atorvastatin Pfizer to fulfil 75% of their anticipated demand for generic atorvastatin for a period of 12 months. The Gold Offer was to purchase 75% of their anticipated demand for generic atorvastatin for 9 months; the Silver Offer was to purchase 75% of the anticipated demand for a period of 6 months. 410 At 490 [226]-[230], the primary judge referred to the bundled offers in a little more detail. He noted that an aspect of the strategy pursued by Pfizer from the outset was that it would sell both Lipitor and its own generic atorvastatin to pharmacies as a bundle. Of course, only Pfizer could sell both branded and generic atorvastatin. Pfizer recognised this unique position that it held and sought to exploit the premium image it held in respect of Lipitor by marketing its generic atorvastatin in almost identical packaging. It made much of its capacity to market its generic atorvastatin as having been made in the same factory as Lipitor. 411 At 490 [229]-[230], the primary judge said: In "bundling" its branded and generic atorvastatin it was doing something which no other manufacturer could offer. And, in doing so, some documents circulating internally within Pfizer stated that the stocking of pharmacy shelves with its own product would effectively "block" the ability of pharmacies to obtain and sell the generic products of other manufacturers. This was an important element of the strategy under consideration by Pfizer. 412 At the trial, the ACCC focussed much of its attention on the use of the words "block" and "blocking" in respect of Pfizer's strategy to pre-emptively stock pharmacy shelves with its own product before other generic manufacturers could supply. An internal Pfizer document dated November 2009 recorded that, in the opinion of the author, it was possible to sell in over six months of stock into a typical community pharmacy. In this way, Pfizer sought to delay its market share loss for year 1 and to piggy back the higher market share which it would thus be able to sustain for future years. This approach led to what it became referred to in the Pfizer internal documents as the "Complete Package" or the "preferred offer". 413 In March 2011, in a note recording the summary outcomes from a Lipitor Scenario Planning Day, the author of the note recorded that Pfizer needed "to have a compelling offer that is sold into pharmacy early. Pfizer has the advantage of being able to formulate deals and sign contracts before competitors". 414 The primary judge noted (at 492-493 [235]), that the word "blocking" was used relatively frequently in internal documentation of Pfizer in the latter half of 2011. At 492-493 [235]-[237], the primary judge said: This "unique" position occupied by Pfizer was repeatedly acknowledged. Thus, for example, it was stated in the draft September 2011 "Project LEAP: Review" that "Pfizer is in a unique position - they are the only company selling both the brand and generic". The same review also stated: There are many factors that determine the market share of generic entrants post LOE. Two of the most crucial factors are: 1. First or equal first to market, and 2. Authorised / licensed generic Being first to market allows the generic to maximise the initial patient switch. It also provides the opportunity to employ "blocking" strategies against yet to be launched generics by taking up valuable shelf space, limiting the ability for subsequent companies to sell their product. It was assumed that Pfizer would launch its 2nd brand equal first to market. Later in this draft review it was explained as follows how a promotional "sell in" would become "an effective blocking strategy": Explanation: How a promotion sell in becomes an effective blocking strategy • Pfizer will be able to ensure it is first, or equal first, to market on the launch of 2nd brands for its LOE range • For Lipitor, there will only be one competitor - Ranbaxy - for the first 3 months post LOE • This is due to the Government regulations regarding when a generic product can be listed (currently it is not monthly) • Ranbaxy are seen as a weak competitor given their existing market share is estimated at around only 1% ... • This 3 month window presents Pfizer with a unique opportunity to gain market share • A promotional sell in would be aimed at putting in stock longer than the 3 month window - this serves two purposes: • Blocking shelves with Atorvastatin to reduce motivation of the pharmacist to purchase another suppliers molecule when they come to market • If sold within the first month, the sale is excluded from Price Disclosure calculations This draft version of the Project LEAP: Review was superseded by at least two further versions. One version dated 14 September 2011 and labelled "DRAFT ONLY" deletes the reference to the term "blocking". A further version, labelled "FINAL Version 11, Dated 14/9/11" also deletes the term "blocking". There were also changes to the text of the document. Part of the final version was as follows: 5.5.6 Explanation: How a promotion sell in becomes an effective 2012 strategy • Pfizer will be able to ensure it is first, or equal first, to market on the launch of 2nd brands for its LOE range • For Lipitor, there will only be one competitor - Ranbaxy - for the first 3 months post LOE • This is due to the Government regulations regarding when a generic product can be listed (currently it is not monthly) • Pharmacies are aligned to each of the generic companies, selecting one of them as their "preferred" supplier • This relationship ensures that the best discount is on offer to pharmacy, in return for support of the generic partner range • If the generic partner cannot offer a generic molecule, the pharmacy is free to source it from another supplier • This small time window presents Pfizer with an opportunity to gain market share • A promotional sell in would be aimed at putting in stock longer than the 3 month window - this provides an important benefit in that if the stock is sold within the first month, the sale is excluded from Price Disclosure calculations The language of "blocking" nevertheless persisted. In a document prepared in about November 2011 and intended to be used at the "Atorva Launch - January 2012" (Atorva being an earlier proposed name for Pfizer's generic atorvastatin) it was stated that the "deal" to buy 12 months stock "blocks competition". The first approaches to community pharmacies occurred in about December 2010. The first few months evidenced pharmacy resistance to Pfizer Australia. The regional sales manager for Victoria and Tasmania, Mr David Penny, maintained that the period from December 2010 to March 2011 "were the four hardest months of [his] professional life". It was his view that the anger expressed towards Pfizer Australia by the pharmacies was "created largely because the pharmacists were concerned that Pfizer DTP would take business away from the wholesalers and would threaten the viability of the Australian wholesaler model if other originators followed Pfizer's lead". 415 At 493-495 [238]-[243], the primary judge noted that Pfizer's strategy did not meet with wholehearted support from all pharmacists. However, the bundled offers had significant take-up in February 2012. At 495 [243], his Honour summarised this part of his Reasons in the following terms: Common to the accounts given by the pharmacists called by the ACCC to give evidence was that the following facts were key to their reasons for accepting the Pfizer offer: • the fact that each had accumulated a rebate which they did not wish to lose; • the fact that atorvastatin was a significant part of their business, both in terms of volume and value; and • the fact that the generic atorvastatin supplied by Pfizer (Atorvastatin Pfizer) was available in advance of other alternative generics. 416 At 495-496 [244]-[247], the primary judge discussed briefly the impact of Pfizer's activities in the first half of 2012. In those paragraphs, his Honour recorded that, when Pfizer began supplying its generic atorvastatin, there was an immediate and significant switch from Lipitor to that generic atorvastatin in terms of market share. From June 2012, there was a further reduction in Lipitor's market share of atorvastatin dispensed in Australia. 417 At 508-517 [291]-[324], the primary judge considered the question of whether, making the assumptions which we have specified at [364] above, Pfizer took advantage of its market power in the atorvastatin market when it established the DTP model, implemented the accrual funds scheme and made the bundled offers. 418 At 508-509 [291]-[293], his Honour set out verbatim pars 62-65B of the ASC. He then moved to discuss the various integers of the ACCC's case in respect of "taking advantage" for the purposes of its s 46 case. 419 At 510 [295], his Honour found that the DTP model could not have been successfully implemented by Pfizer without it being the sole supplier of the atorvastatin in Australia prior to 19 February 2012. Atorvastatin was an essential pharmaceutical for community pharmacies to have in stock at that time. Ranbaxy Australia was a weak competitor. In the real world, there was no other source of supply until after the atorvastatin patent expired on 18 May 2012. 420 At 510-514 [298]-[311], his Honour discussed the question of whether there was any relevant "taking advantage" by Pfizer when it established the accrual funds scheme. 421 At 510-511 [300]-[301], his Honour explained the essence of his reasoning on this point in the following terms: Notwithstanding the uncertainty as to the precise terms upon which a pharmacist could access its "rebate" until January 2012, it is nevertheless concluded that: • Pfizer took advantage of its market power in establishing the accrual funds scheme in January 2011; and that • that taking advantage of power falls within paras 63(a) of the amended statement of claim - subparas (a)-(d) being pleaded either conjunctively or disjunctively. Paragraph [48] pleads as a material fact, being a pleading later included with the pleading as to the taking advantage of power (para 65), the fact that prior to 16 January 2012 Pfizer had not advised pharmacies as to "how they could use or redeem their Lipitor Rebate". The accruing rebate upon the sale of its patented products inevitably provided an incentive to pharmacies to accept Pfizer's offers to supply generic atorvastatin. Such a result necessarily followed from Pfizer's position in the market as the only supplier of a product over which it had a patent and the linking of the rebate to the quantity of its generic atorvastatin that the pharmacy purchased. Mr Crotty accepted such a connection in his cross-examination: So you were able to plan to use some of the profit that you obtained on the sale of your patented products for the purpose of creating an incentive to encourage pharmacies to purchase a Pfizer generic following loss of exclusivity? --- Yes. It would provide some of the funding towards a generic, yes. 422 The primary judge held that the establishment of the accrual funds scheme in January 2011 was, of itself, a taking advantage of the substantial market power which Pfizer then held in the atorvastatin market. His Honour held that this was so because Pfizer thereby created an expectation in the minds of community pharmacists that rebates which a community pharmacy would accumulate would be made available upon terms and conditions to be announced in the future. In his Honour's opinion, it was only Pfizer's substantial market power in the atorvastatin market in January 2011 that enabled it to announce a rebate scheme without at the same time telling pharmacies how they could access and recover the monies that would be accumulating for their benefit (see, in particular, 511 [304]). 423 At 511-513 [306]-[310], the primary judge explained his reasons for concluding that the value of the rebates being offered to community pharmacies as part of the accrual funds scheme was only a part of the overall strategy being developed by Pfizer for doing its utmost to protect is market share of the sale and supply of atorvastatin in Australia. 424 The primary judge then moved to consider whether, having concluded that Pfizer did not have a substantial degree of market power in the first half of 2012, it nonetheless took advantage of such market power as it had retained in that period to make the Platinum, Gold and Silver Offers which it made in January 2012. His Honour concluded that it did not. 425 In this part of his Reasons, the primary judge rejected Dr Pleatsikas' application of the discount attribution test and thus rejected the proposition that atorvastatin Pfizer was effectively being offered at below cost. In addition, his Honour expressed the opinion that, during the launch phase of a new pharmaceutical product, the evidence before him established that a new product could, for a time, be sold at below cost without thereby necessarily exposing the seller to the charge of engaging in anti-competitive conduct. In this regard, the primary judge ultimately concluded that the bundled offers made by Pfizer in early 2012 were being made during the launch phase of its generic atorvastatin. In addition, his Honour concluded that the duration of time over which the bundled offers were made and the duration of the terms consequent upon acceptance of one or more of those offers was a relatively short period of time. 426 At 517 [324], his Honour said: Had it been necessary to do so, it would thus have been concluded that the Pfizer offers when first made did not involve the taking advantage of any market power that Pfizer may have retained. Even if it be assumed that Pfizer was supplying the generic atorvastatin at below cost, the offers it made were but offers made during the launch phase of a new product and for a relatively short period of time. And the quantum of any losses being incurred relative to the profit that Pfizer may have been making were not addressed. 427 At 517 [325], the primary judge commenced his consideration of the question of whether, in all of the circumstances, Pfizer had a proscribed purpose for the purposes of s 46(1)(c) of the CCA or s 47(10)(a) of the CCA when it engaged in the impugned conduct from mid to late 2010 up to the end of February 2012. 428 Given the way in which the ACCC pleaded and ran its s 46 and s 47 cases, it undertook the burden of proving that Pfizer had the requisite proscribed purpose throughout the period from mid-2010 up to the end of February 2012. 429 At 520 [339], the primary judge said: The ACCC has failed to establish that Pfizer took advantage of its market power for a purpose proscribed by s 46(1)(c) by reference to either events: • extending back to December 2010; or by reference to events confined to: • the period from January to May 2012. 430 At 520 [340], his Honour noted that the search for the relevant purpose was a search for Pfizer's subjective purpose being what Pfizer had in view or being the end sought to be accomplished by Pfizer. Purpose is different from "motive". At 520 [341]-[342], the primary judge briefly described the task which he then undertook in deciding whether or not the ACCC had established that Pfizer had the requisite proscribed purpose at all relevant times. At those paragraphs, his Honour said: With reference to the "purpose" pleaded in both paras 60 and 66 of the amended statement of claim, the ACCC further pleads in summary form that: (i) the advice provided to pharmacies by Pfizer in late 2010 of its intention to commence manufacturing and supplying generic brands and its intention to offer pharmacies a discount on the supply of generic brands: para 43; (ii) the announcement by Pfizer in December 2010 of its intention to change its distribution arrangements with pharmacies and that it would commence marketing and supplying prescription pharmaceuticals directly to pharmacies: paras 44-46; (iii) the establishment of the "Accrual Funds Scheme" in January 2011: paras 47-49; and (iv) the terms upon which it made offers, commencing in January 2012: paras 50-60; were pursued by Pfizer: (v) "for the purpose, or for purposes that included the substantial purpose, of deterring or preventing other suppliers of Generic Atorvastatin, including Ranbaxy Australia and Other Generic Suppliers, from engaging in competitive conduct in the Atorvastatin Market". Pfizer's defence to the allegation of "purpose" was, in essence, to deny that it had the "purpose" alleged. Realistically, it is concluded that any case should be rejected which sought to contend that Pfizer had a purpose of "preventing" other generic manufacturers from supplying atorvastatin to community pharmacies - even in the short to medium term. To so contend, with respect, would be commercial naivety. It would also be a finding contrary to the evidence. The value of the atorvastatin market made competition inevitable once Pfizer's patent expired. At a point of time, at the very latest, shortly after the expiration of the Pfizer patent, competition was inevitable. However, it was plainly open to contend that Pfizer's conduct was undertaken for the purpose of "deterring" the entry of other generic manufacturers - and for the purpose of "deterring" the entry of other generic manufacturers for as long a period of time as possible. 431 The primary judge rejected the idea that the evidence could conceivably support the proposition that Pfizer's purpose was to prevent future competition from generic manufacturers in the atorvastatin market. His Honour noted that competition in that market was inevitable post expiry of the atorvastatin patent and that the most that Pfizer could expect to achieve would be to slow down the rate at which that competition developed. His Honour also noted that the ACCC submitted that the selling-in of a large volume of stock was action taken by Pfizer which disclosed the requisite proscribed purpose for all to see. 432 At 521 [344]-[347], the primary judge expressed his ultimate conclusions in relation to the question of whether Pfizer had the requisite proscribed purposes. At those paragraphs, his Honour said: It is respectfully concluded, however, that several factors provide a firm foundation for the conclusion that Pfizer was not engaging in conduct for a purpose proscribed by s 46(1)(c). Although Pfizer accepted that its conduct would provide an incentive for pharmacies to accept its offers, it is concluded that Pfizer pursued its conduct for the substantial purposes of: • ensuring that it remained a supplier of pharmaceutical products, including both Lipitor and Atorvastatin Pfizer; and • ensuring that it remained competitive in the atorvastatin market. Rejected is the allegation that Pfizer: • engaged in conduct for the purpose of "deterring or preventing" other generic manufacturers from engaging in competitive conduct. Also rejected is the submission that Pfizer pursued its conduct for the purpose of: • "blocking" competition. Even if it could be said that Pfizer's desire to gain a commercial advantage or make it harder for a generic competitor to succeed were "purposes" which could fall within s 46(1)(c), it is further concluded that any such "purposes" were not a "substantial" purpose. The factors which it is respectfully concluded ultimately demand the rejection of the case advanced on behalf of the ACCC that s 46 has been contravened emerged from a number of discrete themes pursued by senior counsel for the ACCC in his cross-examination of the more senior officers within Pfizer. Given a tension between the competing inferences which could be drawn from the documents circulating internally within Pfizer between 2009 and 2012, it is necessary to express some brief observations as to the credibility of the Pfizer witnesses. Left unexplained, those documents unquestionably provided a platform from which the ACCC could argue that the impugned conduct was undertaken for a proscribed purpose. Expressed as a general conclusion, the Pfizer witnesses satisfactorily answered the inferences which were otherwise available from the documents. To a considerable extent, the explanations are to be found in the terms of the evidence provided and in the consistency of the explanations provided by the Pfizer witnesses. But to a considerable extent the explanation is also to be found in the integrity with which they gave that evidence. The manner in which they presented their evidence provided, with respect, considerable comfort in accepting their explanations in the face of the inferences otherwise available. Although the reasons or purposes pursued by Pfizer were differently expressed by different officers within Pfizer, and although it is somewhat artificial to seek to divorce one reason or purpose from another where reasons or purposes appear interrelated, a number of discrete themes can conveniently be addressed separately. 433 At 521-525 [348]-[363], the primary judge considered whether or not, by implementing the DTP model, Pfizer took advantage of a substantial degree of market power in the atorvastatin market for the purpose of hindering or deterring competition in that market from generic manufacturers post expiry of the atorvastatin patent. 434 Once the DTP model was put in place, Pfizer became the sole supplier of atorvastatin to pharmacies until at least February 2012. Wholesalers no longer supplied atorvastatin to those pharmacies. 435 Internal Pfizer documents dated July 2009 and September 2009 suggested that the DTP model was developed and put into place as a means of protecting the volume of sales of Lipitor once the atorvastatin patent expired. As the primary judge said, according to those documents, a central concern of Pfizer was to protect its branded product (Lipitor). 436 At 522 [356], the primary judge said: The reasons for ultimately approving the direct-to-pharmacy model are many. However, none of those reasons was the desire to deter or prevent other generic suppliers from entering the market for the purposes of s 46(1)(c). 437 At 522-524 [357]-[359], his Honour extracted a number of passages from the oral evidence given by Mr Crotty and Mr Latham as to Pfizer's purpose in putting the DTP model in place. 438 At 523-524 [358], his Honour noted two of the reasons given by Pfizer witnesses for implementing the DTP model in the following terms: Although Mr Crotty left Pfizer Australia in April 2011 to become vice president of established product for Pfizer in South Europe, his evidence as to the thinking behind the strategy being developed prior to that date nevertheless remains of assistance. With respect to the direct-to-pharmacy model, Mr Crotty maintained his: … reason for supporting the direct to pharmacy model stemmed from the vertical alignments between generic manufacturers, wholesalers and pharmacies which meant that Pfizer Australia could not rely on generic manufacturers and wholesalers to supply Pfizer Australia's off-patent products. I thought that the direct to pharmacy model would provide the platform to enable Pfizer Australia to establish relationships with pharmacies which would provide Pfizer Australia with a greater opportunity to be able to sell its generic products, including atorvastatin, to those pharmacies at the time of loss of exclusivity. He also thought that the exclusive direct-to-pharmacy model provided an improved ability to defend volume and price erosion upon loss of exclusivity. The model established a direct platform with pharmacies that would facilitate a successful commercial offering. 439 Mr Crotty accepted that Pfizer was trying to minimise the erosion of Pfizer's market share of atorvastatin once the product came off patent. 440 At 524-525 [360]-[363], the primary judge stated his conclusions in relation to Pfizer's purpose in implementing the DTP model. His Honour said: It is concluded that the reasons of Pfizer in establishing the direct-to-pharmacy model were as explained by Messrs Latham and Crotty. That evidence should be accepted. Uppermost in the minds of the Pfizer officers was the need to establish a close relationship with pharmacies and the Pfizer objective of creating a greater opportunity to sell its own generic products. The explanation provided by Mr Latham in respect to the "fallback plan" as depicted in the internal Pfizer documents also provides, only by way of further example, reason for caution in too readily drawing inferences from documents drafted in some cases by unknown persons and divorced from the input of those responsible within Pfizer for making decisions. On many occasions the author of the documents upon which cross-examination proceeded was unknown - the author may have been an officer of Pfizer or (indeed) Sinapse. But it was not the subjective purpose of any individual author which mattered; it was the purpose of those who were responsible for making the ultimate decision that mattered. The views being expressed by those various authors may be a source upon which the views of those responsible may be questioned. Ultimately, however, it was the purpose of the decision-maker that remains of primary importance for the purposes of s 46(1). It was not a substantial purpose of Pfizer, in establishing that model, to hinder, deter, or prevent other generic manufacturers from supplying their own generic atorvastatin to community pharmacies. The mere fact of implementing a direct-to-pharmacy model, it should be noted, could not of itself necessarily expose any proscribed anti-competitive purpose. Such a model may be implemented for purposes free of any anti-competitive purpose. Thus, for example, Ascent also implemented such a model. One of its reasons for doing so focused on "customer relationships and control over customer service". In implementing that model it was said that "Ascent interacts directly with its pharmacy customers across the entire chain from promotion and order taking through to product support and customer queries". Such was also part of the reasoning of Pfizer. Although Pfizer's implementation of its direct-to-pharmacy model was potentially capable of supporting the ACCC submission as to purpose, neither the implementation of that model alone - nor in combination with other factors - made good that submission. 441 At 525-530 [364]-[388], his Honour discussed Pfizer's purpose in relation to the proposed sell-in of its generic atorvastatin in the first half of 2012. 442 His Honour noted that, as was the case with many of the relevant decisions made by Pfizer at this time, the considerations feeding into the decision to be made were multifaceted. His Honour found (at 525 [367]) that the date upon which Pfizer proposed to sell in its generic atorvastatin was a matter which was given some detailed consideration. One aspect of the decision requiring consideration was the circumstance that an early sell-in of product would prejudice the commercial position of Pfizer by reducing profits from the sale of its branded product (Lipitor). 443 At 526-528 [370]-[379], his Honour explained his reasons for concluding that it was not the purpose or objective of Pfizer in attempting to sell in large quantities of atorvastatin to shut out its competitors or to discourage pharmacies from sourcing product from its competitors in the post 18 May 2012 period. At those paragraphs, his Honour said: The case sought to be advanced on behalf of the ACCC, for present purposes, had at least two strands to it, namely: • the purpose of placing on the shelves of pharmacies as much stock of the Pfizer generic atorvastatin as possible such as to reduce the "motivation" of pharmacists to purchase generic atorvastatin from another supplier; and - but perhaps differently expressed: • to "block" the ability of a competitor to supply a pharmacy with generic atorvastatin. Although both strands may be but a means of conveying a single message, each should be separately addressed. Any consideration of the significance to be attached to the strategy of selling in large quantities of generic atorvastatin upon its launch - or the motivation or ability of pharmacies to order a generic atorvastatin from a manufacturer other than Pfizer - must necessarily recognise at the outset that there were many reasons why Pfizer was pursuing a strategy of encouraging pharmacies to purchase large quantities of its generic atorvastatin. As explained by Mr Latham during the course of his cross-examination, those reasons were expressed as follows: It was your view, Mr Latham, I suggest, that unless Pfizer included an upfront bulk purchase in its offers it would be unlikely to gain any significant ongoing custom for Atorvastatin Pfizer. That's correct, isn't it? - It was unlikely that we would get ongoing unless we had a - Unless the offers included an upfront bulk purchase? - It's - it's a benefit to Pfizer to have an upfront offer. Absolutely. There was significant demand from the pharmacies. Pharmacies were expecting - were wanting - to have this ability to buy as much as they could during this grace period. So not only do you have Pfizer wanting to sell as much as we can, you also have the pharmacists wanting to purchase as much as they can in this grace period. You have the Pharmacy Guild doing road shows around Australia, every capital city, talking to pharmacies about this. About the opportunity, this window, where they can buy as much as they can in the grace period and substitute as much as they can to generics to offset the $600 million that they were losing on 1 April from price decreases. So as I said, there was demand there for this buy-in as well as from Ranbaxy and Pfizer, and also a subsequent buy-in from Alphapharm as well too. That's also excluded from the 13 month period that they go to. So, you know, this - Pfizer wasn't - Pfizer wasn't generating this demand. This demand for a big buy-in was there, and certainly surprised us the amount of that demand, for sure. Those reasons were also explained by Mr Crotty as follows: And you thought that that was a relevant strategy for Pfizer to consider in the context of any exclusive direct to pharmacy case scenario, didn't you, at this time? - This - yes, this was a - a part of the strategy that we were considering. And an important part of the strategy that you were considering, wasn't it? - The sell-in - you know, for a company that had no, I suppose, experience with pharmacy, it did require a sell-in over the period prior to and post-patent expiry. Mr Crotty continued on to say: Now, you mentioned a moment ago that one of the reasons why you thought the sell-in was appropriate, was that Pfizer didn't have any pharmacy experience? - That was one of the reasons, yes. Why was the lack of any experience with pharmacies a reason to have a sell-in? - Well, first and foremost, there's a number of reasons for the sell-in. The first is that you're allowed to under the PBS rules - the first month didn't count towards price disclosure. The second one is that we needed to - we needed to have a go at competing in that marketplace, and so we needed to have stock, basically, in the pharmacies upon both the entry of Ranbaxy and also when the other generic companies would come in. If we didn't have any stock, given the very tight vertical arrangements between the generic companies, the pharmacists and the wholesalers, we would have got absolutely slaughtered. So it was a way of having relevance. So, your view, as early as June 2009, was that in order to have relevance, you had to get your stock in the shelves of the pharmacies before the generic companies were able to market any generic atorvastatin product? - Well, for a start, there's a distinction between Ranbaxy and the licence they could grant and when a - the other generic companies could come in. So we had a decision to make. Did we compete with Ranbaxy and one other generic company prior to patent expiry, the three month period - and if we did, I think we would have been out of the game - or did we compete with them first and so we had to have a sell-in then, or that was the plan, and then once the other companies came into the marketplace, we obviously had to have stock on shelf then. So there was more than one reason why we had to have a sell-in. And, in respect to the sell-in, there was what was referred to as the "first mover advantage". Pfizer, according to Mr Crotty, was of the view that "a sell-in would provide Pfizer with an ability to get the stock in the shelves of the chemist before the other generic manufacturers other than Ranbaxy were able to market their generic product". The prospect of one manufacturer selling in large quantities of product and thereby placing at risk the ability of another to supply its own product was not confined to Pfizer. As at May 2011 one risk to Pfizer envisaged by Ms Brady, for example, was that Ranbaxy could supply its generic atorvastatin for free. If Ranbaxy did so, it would place at "risk" the ability of Pfizer to supply its own generic atorvastatin to those pharmacies that accepted any such offer from Ranbaxy. The ACCC proposition that Pfizer was pursuing a strategy of selling in large quantities of its own generic atorvastatin upon launch for the purpose of - or with the intention of - discouraging other competitors from supplying their own product was thus not borne out by the evidence of the other Pfizer witnesses. Pfizer did so for the purpose of protecting its own commercial position - and did so in a manner consistent with the practice pursued by other manufacturers upon the release of a new pharmaceutical product. The ACCC proposition was also rejected by Ms Brady. Her response in cross-examination was as follows: Another objective of the bulk sell-in, as you understood that Pfizer was seeking to pursue, was to discourage those pharmacies that accepted a platinum offer from taking generic atorvastatin from your competitors for a significant period of time, wasn't it? - I don't believe it was an objective, no. What you were - what Pfizer, as you understood it, was seeking to achieve by the bulk sell-in was to discourage those pharmacies who had accepted the Pfizer generic offer from taking generic atorvastatin from your competitors during the period at least of the sell-in stock; would you agree? - I can't say I agree that it was the intention, no. I believe that that is a likely result, but I don't believe that it's the intention. And when you say "intention", you're talking about the intention of senior management within Pfizer? - Well, I'm not referring to any specific people. It was your view that the result of the sell-in would be that community pharmacies that accepted the platinum offer would be most unlikely to have any incentive to acquire generic atorvastatin from your competitors, that is Pfizer's competitors, until at least the stock and the sell-in had been sold? - Until they started to dispense the atorvastatin Pfizer stock, they were unlikely to take a volume stock from a competitor, yes. Ms Alltoft was also taken to the reasons pursued by Pfizer in seeking a bulk "sell-in" of product. When questioned by her cross-examiner, Ms Alltoft responded as follows: Because the idea of the bulk sell-in was that you hoped it would improve, first brand retention? - The idea of the bulk sell-in was the bulk sell-in was a volume incentive and as a result of that bulk sell-in we would take advantage of price disclosure for that volume not counting in the first month of price disclosure, and the second was we were hoping that it would mean that pharmacies would actually support us in the longer term because that was our intention in the marketplace was to be a competitor in the post-patent marketplace. So having volume sell-in that gave greater commitment to pharmacies to actually support us long-term, that was the purpose of the bulk sell-in. And beyond the term of the bulk sell-in, wasn't it? - Beyond the term of the - The long term support that you were looking for to achieve by the bulk sell-in wasn't limited to the term of the bulk sell-in, was it? - We wanted long - we wanted to be a player in the post-patent marketplace and so we wanted customers to support us not only for the short term on the deal but for the long term. The explanations provided by these witnesses, it is respectfully concluded, should be accepted. It is concluded that Pfizer recognised that a consequence of selling-in large quantities of its generic atorvastatin at launch - and in "incentivising" pharmacies to commit to take specified percentages of their future requirements - was that those pharmacies which did may well have little need to source generic atorvastatin from a Pfizer competitor. But it is further concluded that it was not the intention, purpose or objective of Pfizer in attempting to "sell-in" large quantities of atorvastatin to shut out its competitors or to discourage pharmacies from sourcing product from its competitors. 444 At 528-530 [380]-[388], the primary judge discussed the significance of documents in which the word "block" or "blocking" were used. 445 His Honour gave careful consideration to the significance of the use of the word "block" or "blocking" in Pfizer's own documents. He (correctly) reasoned that the use of colourful language such as this had to be understood in its context. He noted that various explanations were provided by the Pfizer witnesses for the use of that terminology. 446 Mr Crotty testified that Pfizer needed to have stock on the shelves of pharmacies from 1 June, given the vertical alliances between the generic manufacturers and the wholesalers of generic pharmaceuticals, or else Pfizer would have been slaughtered from that date onwards by the generic manufacturers. 447 In the second half of [387] (at 530), his Honour extracted the following exchange between Senior Counsel for the ACCC and Mr Crotty: Mr Crotty also recognised that the inevitable effect of the "sell-in" was that a pharmacy would buy less of a competitor's generic atorvastatin. The cross-examiner was thus content to conclude with the following exchange: If a pharmacy accepted a significant supply of generic Atorvastatin from Pfizer wouldn't you accept that the logical consequence of that was that it was less likely to need to acquire generic Atorvastatin from a competitor at least for the period during which that pharmacy sold through Pfizer Australia stock? - Well, we definitely had the intention of - of wanting to compete and that they would buy less of our competitor's range. You realised that would be the consequence of the sell-in, didn't you? - We wanted to compete and we wanted to make sure that we had a foothold in pharmacy that there was a reason for our reps to go in and continue to sell through the stock, so if that meant that our competitors didn't get as much share as they hoped then that is the - it's the consequence. You would accept that was the effect that you sought to achieve through the sell-in, wasn't it? - The effect we sought to achieve is to compete, to have a chance because if we didn't have stock in the pharmacy on either 19 February when Ranbaxy came in or 1 June we would have got slaughtered. Now, your motivation, I suggest, was to enable Pfizer to compete with the generic manufacturers for the supply of Atorvastatin post-loss of exclusivity, wasn't it? - Yes - And the way you were going to? - - and to sell Lipitor. Sorry. Yes, and sell Lipitor, sorry. And the way you were going to achieve that object was to sell-in your stock so the pharmacy would be much less likely to want to take stock from your competitors. That's the case, isn't it? - Of course. Your Honour, I have no further questions. The explanations provided by Mr Crotty are accepted. His view that Pfizer took the steps that it did to avoid being "slaughtered" was a view oft-repeated in his evidence. It was a view, with respect, which he genuinely and passionately held. 448 At 530 [388], his Honour said: The reasons for the bulk "sell-in", it is thus concluded, were driven by a recognition that it was in the commercial interests of both the pharmacy and Pfizer to take advantage of the first month's stock not being included in the subsequent calculation and adjustment of price under the pharmaceutical benefits scheme and a desire to secure the long-term support of pharmacies. It was not a purpose of the bulk "sell-in" to deter or prevent other generic manufacturers - or to "block" those manufacturers - from supplying their own products to pharmacies. 449 At 530-535 [389]-[406], his Honour then considered whether the requirement in the Platinum Offer made by Pfizer in January 2012 for community pharmacies who accepted that offer to take 100% of their needs for generic atorvastatin for 12 months was evidence of a proscribed purpose. 450 At 531-532 [392]-[396], his Honour examined the evolution of the Platinum Offer. It will be remembered that, in January 2012, Pfizer altered its requirement in respect of the Platinum Offer. From then on, it required pharmacies to take only 75% of their generic stock requirements in order to obtain the discounts being offered whereas previously it had required pharmacies to take 100% of their requirements of generic atorvastatin. That decision enabled community pharmacies to take 25% of their needs of generic atorvastatin over a 12 month period from other generic suppliers or limited the time during which the pharmacies would effectively be unable to accept supplies from other generic suppliers to nine months from the date of acceptance of the offer, rather than 12 months. 451 Another matter upon which the ACCC focussed was the delaying of the date for the acceptance of the Pfizer offers and thus the delaying of the date of any sell-in of the new generic product to be supplied by Pfizer. This matter is dealt with at 532-535 [397]-[406] of his Honour's Reasons. 452 After referring to the evidence of Mr Cooper and Ms Brady in relation to this aspect, his Honour moved to consider the evidence of Mr Latham relevant to the topic. At 533-535 [402]-[406], his Honour said: Whatever may have been the thinking of these persons within Pfizer, the decision to change the date for acceptance of the offers to 24 February 2012 was also taken by Mr Latham. He accepted in his cross-examination that "a benefit of a cut-off date of 18 February to Pfizer would be that the community pharmacies were required to commit to [Pfizer's] before Ranbaxy was able to legally make offers to community pharmacies …". His reasons for extending the date to 24 February 2012 were, obviously enough, a matter which attracted the attention of his cross-examiner. An initial venturing into this area was the following exchange (without alteration): Now, looking at this document, do you maintain your evidence that it was you who made the decision to move to 24 February? - Yes. And do you say the reason why you moved it to 24 February was to allow established products more time for logistics and rebate calculations? - No. The - the move - the move from 18 February for 24 February was to allow pharmacists time to assess the offers and everything that were being made by - by Ranbaxy. The reason it's not later than 24 February, like 7 March or 15 March, is that you have to put everything in place to process the orders and to make - make the deliveries. Remember, the stock has to be there on the shelves in the pharmacies ready for sale on 1 April. The notion that Pfizer wanted to extend time to pharmacies to "assess the offers" attracted further attention in the following exchange occurring a little later: … In order to give community pharmacies five business days to consider any offers that Ranbaxy will make, we're going to move the offer cut off date to 24 February? - Yes, that is correct. You're not making this up as you're going along, are you, Mr Latham? - No, I'm - I'm not making this up as I go along. Why did you want to give community pharmacies five business days to consider the Ranbaxy offer, Mr Latham? - Well, I suppose, to a certain extent, it's optical. We already knew that Ranbaxy were out there. We already knew that Ranbaxy were talking to pharmacists. We already knew that Ranbaxy were talking to the groups. We already had evidence that - that other generic manufacturers were out there talking to the groups as well, too. However, it would appear to be improper, incorrect, to ask pharmacies to make a decision before the time that legally Ranbaxy were entitled to be out there. Why were you concerned about that? - About the optics? Yes. Why were you concerned about - weren't you out there to try and make money? - No. But it would appear to me that the pharmacists have to have time to legally assess the offers made by Ranbaxy. Why? - Otherwise we would be in the situation of getting pharmacists to sign up when, in fact, legally they had not been able to have any offers made to them by Ranbaxy or everybody else, even though we knew - and we have evidence - and we have documented evidence, that there was significant activity in the marketplace, as far as terms and conditions were concerned. But, Mr Latham, you had known for some time, I take it, that the original proposal had been to have a cut-off date of 18 February? - That's right. And then it was brought to my attention, okay, that that does not give - when Ranbaxy are not legally allowed to talk to anybody legally until 18 February, it looks a bit silly getting pharmacists to make a decision to accept your offer when they haven't legally had a chance to listen to Ranbaxy. That makes sense to me. Taken by itself, there may well have been good reason to also question this evidence of Mr Latham. Against the background of the repeated references in the internal Pfizer documents to (for example) the "blocking strategy", considerable reservation may have been expressed as to whether Pfizer's reasons were as altruistic as suggested. But such reservation is, it is concluded, removed when consideration is given to the further evidence of Ms Alltoft. By the time she had arrived at Pfizer, the decision to extend the date to 24 February 2012 had already been taken. Her evidence can, accordingly, not go to any finding of fact as to the reasons being pursued by Mr Latham on behalf of Pfizer. Her evidence can, however, assist in an understanding of what Pfizer was seeking to achieve in the longer term. Although her understanding as to the reasons for extending the date for acceptance of the offers may have been a matter left unexplored in cross-examination, senior counsel did pursue this issue with her. She explained her understanding as follows: And why was, as you understood it, the fact that Ranbaxy was able to make offers legally to community pharmacies from 18 February relevant to the decision as to when Pfizer was going to impose a cut-off date for community pharmacies to accept the Pfizer offer? - It was one of the relevant pieces because it was the other competitor in the market at the time, and we wanted pharmacies to be able to consider our offer and competitor offers. Why did you want to do that? - We have to have the pharmacy to be able to consider all offers that were in the market at the time and make an informed decision about whose offer they wanted to go with. She returned to the same explanation a little while later in her evidence when the following exchanged occurred: Because, prior to 24 February, you wanted pharmacists to believe that if they didn't accept the offers that you were making prior to that date, they would have to wait for some later time to get access to their accrual funds with respect to Lipitor. That's the case, isn't it? - We wanted to have a date where there was a - a target to actually gain acceptances by pharmacies. And you wanted them to provide those acceptances before they had had any significant period of time to consider the terms of any Ranbaxy offer? - As I said before, I think we believed that Ranbaxy was out talking about their deal, and that by giving them till 24 February gave them time to consider the Ranbaxy offer. Founded upon such evidence, it is concluded that the reason for extending the date for acceptance of the Pfizer offers was that propounded by Mr Latham. In fixing the various dates upon which offers could be accepted, it was no part of Pfizer's purpose to deter or prevent the other generic manufacturers from engaging in competitive conduct in the atorvastatin market. Rejected is the submission of the ACCC that "[t]he effect that Pfizer sought to achieve by setting a deadline for acceptance of 24 February 2012 for the initial Atorvastatin Offers was to secure supply arrangements with as many Community Pharmacies as possible before they were able to receive or adequately assess definitive offers from other suppliers or potential suppliers of generic atorvastatin including Ranbaxy". Also rejected is the similar submission advanced by the ACCC in respect to setting the deadline for acceptance of the late acceptance terms and conditions of 10 March 2012 and 15 April 2012. 453 At 535-536 [407]-[414], his Honour gathered together his conclusions in relation to the question of whether Pfizer had a proscribed purpose for the purposes of the ACCC's s 46 case or its s 47 case. 454 At 535 [407]-[409], his Honour said: Any finding as to the "purpose" being pursued by Pfizer in the present case - and whether any such "purpose" or "purposes" was the "substantial" purpose for its conduct - necessarily has to take into account the entirety of both the evidence given by the individual witness and that evidence in the context of the inferences to be drawn from documents and the evidence of other witnesses. Part of that evidence is to be found not only in the documents themselves and in the oral evidence of the Pfizer witnesses; it is also to be found in the factual content of the conduct pursued. Thus, for example, one fact was that Pfizer did "bundle" both its branded product with its generic atorvastatin; another fact is that the "sell in" of product necessarily had the effect that pharmacies would have less shelf-space for other competitive generic products. Any finding must also necessarily take into account the suggestions made by senior counsel for the ACCC from time to time that one Pfizer witness was making it up as he went along or was "deliberately avoiding" answering a question or making a concession. Left unexplained, the inferences which may otherwise have been drawn from the documents circulating internally within Pfizer and the objective facts flowing from the conduct of Pfizer may well have supported a finding that its purpose fell within s 46(1)(c). But such inferences were not left unexplained. 455 His Honour went on to accept that each and every one of the Pfizer witnesses was a person of commercial integrity who sought to do no more than give an honest account as to the purposes or reasons behind the decisions being taken. His Honour recognised, as was obvious, that, when a commercial enterprise previously had 100% of a particular market because its business was patent protected, once the patent expires, there is only one way to go - down. In the words of Mr Crotty: "Our strategy was to manage that market share erosion as best as we could". His Honour found that that particular objective was variously expressed but that, at all relevant times, Pfizer was seeking to position itself to remain a viable supplier of atorvastatin into the future rather than to hinder or deter others from competing in the atorvastatin market. At all relevant times, Pfizer well understood that any aspiration to hinder or deter the very substantial corporations which manufactured and supplied generic pharmaceuticals in Australia would have been pointless. 456 At 536 [414], his Honour specifically distinguished Baxter from the circumstances of the present case. At 536-537 [415]-[421], his Honour rejected the proposition that, in the circumstances of the present case, the ACCC could not rely upon the submissions which it was advancing in relation to "purpose" because it had not confronted Mr Latham bluntly with its contentions and thus had breached the rule in Browne v Dunn (1893) 6 R 67.

Taking Advantage - Section 46(1)(c) and Section 46(6A) of the CCA 457 In Qld Wire, at 190-191, Mason CJ and Wilson J held that, for the purposes of s 46(1) of the Trade Practices Act, "taking advantage" of a substantial degree of market power simply means "using" that power. Where having a proscribed "purpose" is part of the alleged contravention, it is the purpose provisions of s 46 which define what uses of market power constitute misuses. Justice Deane took a similar view of the concept of "take advantage" in s 46(1) at 194. At 202-203, Dawson J agreed with Deane J on this point. Similarly, at 212-215, Toohey J also expressed the opinion that the expression "take advantage" when used in s 46 simply means "exercise" or "use". 458 In Melway, the majority (Gleeson CJ, Gummow, Hayne and Callinan JJ), at 16-21 [24]-[42], reviewed a number of authorities (including Qld Wire) before making the following observations at 21 [43]-[44]: The notion of market power as the capacity to act in a manner unconstrained by the conduct of competitors is reflected in the terms of s 46(3). Such capacity may be absolute or relative. Market power may or may not be total; what is required for the purposes of s 46 is that it be substantial. There has been no attempt in this Court to challenge the finding that Melway's market power is substantial. The focal point of debate was whether, even accepting the purpose for which it was found to have been done, Melway's refusal to supply the respondent was a taking advantage of that power for the proscribed purpose. Consistently with the approach of the Court in Queensland Wire, much of the argument was directed to a consideration of how Melway would have been likely to behave, if it had lacked the power it had. Section 46 of the Act requires, not merely the co-existence of market power, conduct, and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power. 459 At 27 [67], the majority said: The respondent's argument depends upon equating the exercise of power in a market with deciding whether to grant or withhold supply. That begs the question. As Dawson J explained, in Queensland Wire, market power means capacity to behave in a certain way (which might include setting prices, granting or refusing supply, arranging systems of distribution), persistently, free from the constraints of competition. This is the generally accepted meaning of the concept, and it is reflected clearly in the provisions of s 46(3). Barriers to entry into a market by competitors are a common reason for the existence of market power. They could exist, as in the present case, because of technological factors, or they might result, for example, from legislation which gives a statutory monopoly. Freedom from competitive constraint might make it possible, or easier, to refuse supply and, if it does, refusal to supply would constitute taking advantage of market power. But it does not follow that because a firm in fact enjoys freedom from competitive constraint, and in fact refuses to supply a particular person, there is a relevant connection between the freedom and the refusal. Presence of competitive constraint might be compatible with a similar refusal, especially if it is done to secure business advantages which would exist in a competitive environment. 460 In Rural Press, at 76-77 [51]-[53], the plurality (Gummow, Hayne and Heydon JJ), with whom Gleeson CJ and Callinan JJ relevantly agreed, said: Conclusion on s 46. The words "take advantage of" do not extend to any kind of connection at all between market power and the prohibited purposes described in s 46(1). Those words do not encompass conduct which has the purpose of protecting market power, but has no other connection with that market power. Section 46(1) distinguishes between "taking advantage" and "purpose". The conduct of "taking advantage of" a thing is not identical with the conduct of protecting that thing. To reason that Rural Press and Bridge took advantage of market power because they would have been unlikely to have engaged in the conduct without the "commercial rationale" - the purpose - of protecting their market power is to confound purpose and taking advantage. If a firm with market power has a purpose of protecting it, and a choice of methods by which to do so, one of which involves power distinct from the market power and one of which does not, choice of the method distinct from the market power will prevent a contravention of s 46(1) from occurring even if choice of the other method will entail it. The Commission's criticism of the Full Federal Court for asking whether Rural Press and Bridge "could" engage in the same conduct in the absence of market power must be rejected. A majority of this Court in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [(2001) 205 CLR 1 at 26 [61]] adopted the same test in saying: "Bearing in mind that the refusal to supply the respondent was only a manifestation of Melway's distributorship system, the real question was whether, without its market power, Melway could have maintained its distributorship system". The Commission did not demonstrate either that that did not mean what it said, or that what it said should be overruled. The Commission failed to show that the conduct of Rural Press and Bridge was materially facilitated by the market power in giving the threats a significance they would not have had without it. What gave those threats significance was something distinct from market power, namely their material and organisational assets. As the Full Federal Court said, Rural Press and Bridge were in the same position as if they had been new entrants to the Murray Bridge market, lacking market power in it but possessing under-utilised facilities and expertise [Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 at 277 [143]]. 461 The following propositions of present significance may be taken from the above passages which we have cited from Rural Press: (a) Section 46 of the CCA distinguishes between "taking advantage" of market power and an alleged contravener's "purpose" for doing so; and (b) In order for there to be a relevant "taking advantage" of market power, the alleged contravening conduct must be materially facilitated by the market power held by the contravener in the sense that the method chosen by the contravener to protect its market power must involve the exercise of that power. 462 In C7, at 382 [975], Dowsett and Lander JJ (with whom Mansfield J agreed on this point), said: In our opinion, the trial judge was right to conclude that the High Court's reasoning in Rural Press Ltd v Australian Competition and Consumer Commission 216 CLR 53 establishes that the test to be determined is whether the corporation which is alleged to have contravened s 46, on a counter-factual assumption that it lacked a substantial degree of power in the relevant market, could have conducted itself in the same way. 463 In Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2013] FCA 909; (2013) 310 ALR 165 at 509-510 [1899]-[1902], in a passage not disturbed on appeal, Greenwood J said: In examining the evidence, I ask whether a profit maximising firm operating in a workably competitive market could in a commercial sense profitably engage in the conduct in question having regard to the business reasons identified by the witnesses, assuming such a firm is confronted with similar circumstances to those confronting Pozzolanic of asking itself whether it should enter into the original Millmerran contract on 30 September 2002 (and later engage in the further steps of maintaining the contract). In answering that question, a practical judgment must be brought to bear having regard to the identified so-called legitimate or ordinary business rationale informing the decision-making of the firm in question in all the circumstances. Those similar circumstances in which a hypothetical firm might be called upon to decide the questions confronting Pozzolanic will, however, reflect a hypothetically competitive market in which all aspects or sources of Pozzolanic's substantial degree of market power are stripped away so as to neutralise its market power. In all other respects, the hypothetical market will reflect the circumstances of the actual market: Commerce Commission v Telecom Corp of New Zealand Ltd [2011] 1 NZLR 577; [2010] NZSC 111. In such a hypothetically competitive market, Pozzolanic would be confronting rivalrous supply of flyash in the concrete grade flyash market in South East Queensland. Alternatively, the uncertainty surrounding the renewal of the Tarong contractual rights might be treated, for this purpose, as if it had the effect of eliminating Pozzolanic's substantial degree of market power such that Pozzolanic could not, by reason of the uncertainty, price its product above the competitive level. Whatever the mechanism of the construct, the point is that in a hypothetical, workably competitive market, judgments about such a firm engaging in the conduct must be made in circumstances where a profit maximising firm would need to take account of the constraints imposed by workable competition. The question, put simply, is whether a firm profitably could have engaged in the conduct in question in the absence of a substantial degree of power in the relevant market. Because that question involves a hypothetical construct it must be answered by applying an objective test but one which takes into account the legitimate business reasons identified by the firm for engaging in the conduct. 464 In the present case, the primary judge articulated the relevant principles which he intended to apply to his determination of the question of whether or not Pfizer "took advantage" of a substantial degree of market power held by it in the atorvastatin market at 447-451 [53]-[60]. Those principles, as explained by his Honour, conformed to the principles to which we have referred at [457]-[463] above which we consider accurately encapsulate the relevant law. 465 Neither party on appeal contended that his Honour's exposition of the relevant principles was incorrect or defective in any way. Each party challenged one or more of the conclusions reached by his Honour in respect of the element of "take advantage" in s 46 but did so upon the basis that his Honour misapplied the relevant principles to the facts rather than upon the basis that he applied incorrect principles.

Purpose - Sections 4F, 4G, 46(1)(c) and 47(10)(a) 466 The primary judge addressed the relevant principles governing the concept of "purpose" when used in s 46(1)(c) and s 47(10)(a) of the CCA at 443-455 [43]-[75]. 467 "Purpose" is to be ascertained subjectively and not objectively (Pont Data at 474-475 per Lockhart, Gummow and von Doussa JJ). The purpose of a corporation is its "intent" or the end which it intends to achieve by its conduct (Melway at 18-19 [31] per Gleeson CJ, Gummow, Hayne and Callinan JJ). 468 In South Sydney at 573 [18], Gleeson CJ said: We are concerned with the purpose of a provision (here, the fourteen team term), in the context of a definition section (s 4D) of the Act defining an expression used in another section (s 45) which distinguishes between purpose and effect. The distinction between purpose and effect is significant. In a case such as the present, it is the subjective purpose of News and ARL in including the fourteen team term, that is to say, the end they had in view, that is to be determined [Hughes v Western Australian Cricket Association (Inc) (1986) 19 FCR 10 at 37-38; ASX Operations Pty Ltd v Pont Data Australia Pty Ltd [No 1] (1990) 27 FCR 460 at 474-477. See also s 4F of the Act]. Purpose is to be distinguished from motive. The purpose of conduct is the end sought to be accomplished by the conduct. The motive for conduct is the reason for seeking that end. The appropriate description or characterisation of the end sought to be accomplished (purpose), as distinct from the reason for seeking that end (motive), may depend upon the legislative or other context in which the task is undertaken. Thus, for example, in describing, for the application of a law relating to tax avoidance, the purpose of an individual, or of an arrangement, it will be necessary to look at what is sought to be achieved that is of fiscal consequence, not at a more remote, but fiscally irrelevant, object, such as increasing a taxpayer's disposable income. Similarly, in the context of competition law, it is necessary to identify purpose by describing what is sought to be achieved by reference to what is relevant in market terms. The purpose of the fourteen team term was the objective, in relation to the nature of their business arrangements, that News and ARL sought to achieve; not the reason why they sought to achieve that objective. They may have had different, and multiple, reasons for their conduct. The manifest effect of a provision in an agreement, in a given case, may be the clearest indication of its purpose. In other cases, it may be difficult, or even impossible, to determine the purpose (of a kind relevant to the operation of the Act) of a provision in a written contract merely by reading the document. And, of course, the legislation deals with contracts, arrangements or understandings. 469 In any particular case, there may be a fine line between conduct which enhances the process of competition by means of lawful participation in that process, on the one hand, and conduct which is directed at disrupting the competitive process in an unlawful manner, on the other hand (Liquorland at 45,303 [807] per Allsop J; Boral at 411-412 [88] per Gleeson CJ and Callinan J; and Melway at 20 [38] per Gleeson CJ, Gummow, Hayne and Callinan JJ). 470 Although in dissent, in the result, we think that the following observations made by Dowsett J at 85-86 [329] in Baxter correctly state the law and are apposite in the present case: Purpose, effect and likely effect are quite distinct concepts. To establish that Baxter had a proscribed purpose, it was necessary to show an actual, subjective intention. As always, purpose must be distinguished from motive, but subjective purpose must still be demonstrated. Purpose may be inferred from statements and actions in the light of common experience. In the present context, effect is to be distinguished from likely effect. The effect of conduct is its outcome as demonstrated by evidence concerning actual events. Likely effect involves a prediction as to whether particular events will flow from relevant conduct. Likely effect may vary, depending upon the time at which the prediction is made. It may be made before, at the time of, shortly after, or long after the relevant causal conduct. 471 Section 4F of the CCA amplifies the meaning of "purpose" in s 46 and s 47(10) of the CCA. 472 At 448 [54], the primary judge correctly observed that the Court must exercise caution when analysing the relevant conduct for the purposes of s 46(1) of the CCA in order to avoid equating a finding that a corporation has taken advantage of its substantial market power in a particular market with a conclusion that it did so for a purpose proscribed by s 46. 473 In the present case, the ACCC alleged (at par 66 of the ASC) that Pfizer engaged in the impugned conduct for the purpose, or for purposes that included the substantial purpose, of deterring or preventing other suppliers of generic atorvastatin from engaging in competitive conduct in the atorvastatin market. That is, the proscribed purpose alleged against Pfizer for the purposes of the ACCC's s 46 case was said to be directed against manufacturers of generic pharmaceuticals. In addition, at par 73B of the ASC, the ACCC alleged that Pfizer engaged in the practice of exclusive dealing by making the bundled offers which it made in January 2012 for the purpose of substantially lessening competition in the atorvastatin market (as to which, see s 47(10)(a) of the CCA). This latter allegation correctly identifies an important distinction between a s 46(1)(c) proscribed purpose and a s 47 proscribed purpose. The former is directed to one or more persons whereas the latter is directed to competition in a market. 474 Although the ACCC pleaded a case which relied upon the concept of "preventing" the generics manufacturers from engaging in competitive conduct in the atorvastatin market (for the purposes of its s 46(1)(c) case) and "preventing" competition in that market (for the purposes of its s 47 case) (as to which, see s 4G and s 47(10)(a)), it concentrated its efforts at the trial upon the concepts of "deterring" and "hindering" competition in that market. Thus, when the provisions of s 4G are relevantly taken into account in the present case, the ACCC was required to establish for the purposes of its s 47 case that, when Pfizer made the bundled offers which it made in January and February 2012, it made those offers for the purpose or, if more than one purpose, for a substantial purpose, of substantially hindering competition in the atorvastatin market. 475 In Baxter at 82 [317], Dowsett J said of the phrase "deterring or preventing": The words "deterring or preventing" also require attention. To "deter" is to "(r)estrain or discourage (from acting or proceeding) by fear, doubt, dislike of effort or trouble, or consideration of consequences": see the Shorter Oxford English Dictionary. The same dictionary defines the verb "prevent" as to "[s]top, hinder avoid. Forestall or thwart by previous or precautionary measures … Frustrate, defeat, make void (an expectation, plan, etc.). … Stop (something) from happening to oneself; escape or evade by timely action. … Cause to be unable to do or be something, stop (foll. by from doing, from being)". The combined effect of the words "deterring" and "preventing" includes persuading a person to decide to withdraw from, not to enter or not to compete in a market, as well as making it difficult or impossible for that person to do so. 476 Here, it would have been utterly unreal for Pfizer to have engaged in the impugned conduct for the purpose of trying to persuade the generics manufacturers to withdraw from the atorvastatin market or not to enter that market or not to compete in that market or of trying to make it impossible for those corporations to enter or compete in that market. Immediate and vigorous competition from the generics manufacturers was inevitable and Pfizer well understood this. In light of the above, for the purposes of the ACCC's s 46 case, we will concentrate on the concept of "deter" in the sense of "making it difficult" for those manufacturers to compete in the atorvastatin market when assessing Pfizer's purpose for engaging in the impugned conduct. For the purposes of the ACCC's s 47 case, we will focus upon the question of whether Pfizer had a purpose of "substantially hindering" competition in the atorvastatin market when it made the bundled offers which it made in January and February 2012. 477 In Baxter, at 93-94 [351], after reviewing a number of authorities where various concepts relevant to the Court's assessment of conduct alleged to be in contravention of s 47 of the CCA, Dowsett J said: A number of propositions emerge from these authorities: • a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong competition; • competition in a market is the sum of activity engaged in by persons in promoting the sale to potential buyers of the goods with which that market is concerned; • competition in a market may be "deliberate and ruthless", one competitor injuring another by attracting sales; • application of the concept of substantially lessening competition in a market requires an assessment of the nature and extent of the market, the probable nature and extent of competition but for the conduct in question, and the nature and extent of the contemplated lessening; • the effect of conduct upon competition is not to be equated with its effect upon competitors, however the latter effect may be relevant to the former; • the convenience of customers has never been treated as an important feature of market structure for the purposes of determining the state of competition in a particular market; • whether changes in market concentration have the effect of lessening competition must be determined by reference to competitive characteristics in the market; and • the effect of the elimination of a competitor must also be addressed by reference to such characteristics. 478 We think that the above summary of various elements of s 47 provided by Dowsett J in Baxter is correct and we propose to apply it in the present case. 479 One of the authorities considered by Dowsett J in the paragraphs culminating in 93-94 [351] was the decision of Smithers J in Dandy. In that case, at 259-260, his Honour said: To my mind competition in a market is the sum of activity engaged in by persons in promoting the sale to potential buyers of the goods with which that market is concerned. One question is, what degree of lessening of competition constitutes a substantial lessening for the purposes of s. 47(10)? As stated by Franki J. in Hecar Investments No. 6 Pty. Ltd. v. Outboard Marine Australia Pty. Ltd. (1982) 62 F.L.R. 159 it is to the point that the sanction upon a corporation for a contravention of s.47(1) may be a penalty as high as $250,000 (see s.76). Furthermore provisions of s. 47(1), although designed to achieve free competition in trade, nevertheless impose restrictions on freedom of trade which is itself an ancient and valuable public interest. Conduct which will entail that or some other large penalty would ordinarily be understood to be conduct which, having regard to the purposes of the Act, involves serious trade consequences. To apply the concept of substantially lessening competition in a market, it is necessary to assess the nature and extent of the market, the probable nature and extent of competition which would exist therein but for the conduct in question, the way the market operates and the nature and extent of the contemplated lessening. To my mind one must look at the relevant significant portion of the market, ask oneself how and to what extent there would have been competition therein but for the conduct, assess what is left and determine whether what has been lost in relation to what would have been, is seen to be a substantial lessening of competition. I prefer not to substitute other adverbs for "substantially". "Substantially" is a word the meaning of which in the circumstances in which it is applied must, to some extent, be of uncertain incidence and a matter of judgment. There is no precise scale by which to measure what is substantial. I think in the context, particularly the penalty and other remedies for contraventions of the Act, and the nature of trade which is the subject of the Act, the word is used in a sense importing a greater rather than a less degree of lessening. Accordingly in my opinion competition in a market is substantially lessened if the extent of competition in the market which has been lost, is seen by those competent to judge to be a substantial lessening of competition. Has competitive trading in the market been substantially interfered with? It is then that the public as such will suffer. … 480 The observations made by Smithers J which we have extracted at [479] above have been applied in many subsequent cases and we see no reason not to apply them in the present case. 481 In Stirling Harbour Services Pty Limited v Bunbury Port Authority [2000] FCA 1381; (2000) ATPR ¶41-783 at 41,267 [12], Burchett and Hely JJ said: There was no dispute but that in determining whether the proposed conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in the relevant market, the Court has to: - consider the likely state of future competition in the market "with and without" the impugned conduct; and - on the basis of such consideration, conclude whether the conduct has the proscribed anti-competitive purpose or effect Dandy Power Equipment Pty Limited v Mercury Marine Pty Limited (1982) ATPR ¶40-315 at 43,887; (1982) 64 FLR 238 at 259; Outboard Marine Australia Pty Limited v Hecar Investments No 6 Pty Limited (1982) ATPR ¶40-327 at 43,982; (1982) 44 ALR 667 at 669-670. The test is not a "before and after" test, although, as a matter of fact, the existing state of competition in the market may throw some light on the likely future state of competition in the market absent the impugned conduct. 482 In Australian Wool Innovation Ltd v Newkirk [2005] FCA 290; (2005) ATPR ¶42-053, Hely J said at 42,671 [34]: "Prevents" suggests a total cessation of dealings between the third person and the target; "hinders" suggests that they have been made more difficult: J D Heydon, Trade Practices Law, Lawbook Co, Sydney, 2001 at [10.130]. "Hinder", in the context of s 45D has received a broad construction, as in any way affecting to an appreciable extent the ease of the usual way of supplying or acquiring goods or services: Devenish v Jewel Food Stores Pty Ltd (1991) ATPR ¶41-098 at 52,563; 172 CLR 32 at 45-46 (Mason CJ); Australian Builders' Labourers' Federated Union of Workers - Western Australian Branch v J-Corp Pty Ltd (1993) ATPR ¶41-245 at 41,308; 42 FCR 452 at 460. 483 In the present case, for the purposes of its s 47 case, the ACCC must establish that the bundled offers were made for the purpose of substantially lessening competition in the atorvastatin market post 18 May 2012. A substantial hindrance to competition in a market is a meaningful hindrance to the competitive process in that market. Assessing the element of substantiality requires a qualitative judgment (Rural Press at 71 [41] per Gummow, Hayne and Heydon JJ; and AGL at 417 [351] per French J). 484 As was the case with the element of "taking advantage" being one of the integers of the s 46(1)(c) contravention, both parties on appeal accepted that the primary judge correctly stated the relevant principles governing the concept of "purpose" in both s 46(1)(c) and s 47(10)(a). Before this Court, however, the ACCC complained that his Honour misapplied those principles in the present case. In particular, the ACCC argued that, notwithstanding the fact that his Honour expressly noted that there is a difference between "motive" and "purpose" and notwithstanding that he specifically referred to authorities which explained the distinction between the two concepts, he appeared to confuse the concepts when analysing the evidence in the present case. The ACCC pointed out that his Honour repeatedly referred to Pfizer's "reasons" for taking particular actions, a use of language, so the argument ran, which betrayed his Honour's error in this regard. The ACCC submitted that, ordinarily, a person's reason for taking a particular action corresponds with that person's motive for taking that action and not his purpose in doing so.

The Full Court's Role on Appeal 485 The ACCC contended that the primary judge erred in preferring the evidence of witnesses called at the trial by Pfizer to the inferences of purpose which the ACCC argued should have been drawn by the primary judge from Pfizer's contemporaneous documents and from Pfizer's conduct itself. The ACCC also argued that the primary judge erred by failing to draw appropriate inferences from those materials being inferences which would have supported the ACCC's case as to Pfizer's purpose when it engaged in the impugned conduct. 486 In the present case, the primary judge made detailed findings concerning the evidence of Pfizer's witnesses which he found generally credible and reliable. On appeal, the ACCC did not attack the credit of any witness called by Pfizer. The test which an appeal Court applies where there are challenges to the findings of a trial judge as to the credit of witnesses is well known (Fox v Percy (2003) 214 CLR 118 at 128 [29] per Gleeson CJ, Gummow and Kirby JJ; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 at 380-381 [76] per Heydon, Crennan and Bell JJ; and Robinson Helicopter Company Inc v McDermott [2016] HCA 22; (2016) 331 ALR 550 (Robinson Helicopter) at 558-559 [43]). 487 In Robinson Helicopter at 558-559 [43], the Court (French CJ, Bell, Keane, Nettle and Gordon JJ) said: The fact that the judge and the majority of the Court of Appeal came to different conclusions is in itself unremarkable. A court of appeal conducting an appeal by way of rehearing is bound to conduct a "real review" [Fox at [25] per Gleeson CJ, Gummow and Kirby JJ] of the evidence given at first instance and of the judge's reasons for judgment to determine whether the judge has erred in fact or law. If the court of appeal concludes that the judge has erred in fact, it is required to make its own findings of fact and to formulate its own reasoning based on those findings. [Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479-81; 112 ALR 641 at 646-7 per Deane and Dawson JJ; Fox at [29] per Gleeson CJ, Gummow and Kirby JJ; Miller & Associates Insurance Broking Pty Ltd (ACN 089 245 465) v BMW Australia Finance Ltd (ACN 007 101 715) (2010) 241 CLR 357; 270 ALR 204; [2010] HCA 31 at [76] (Miller & Associates) per Heydon, Crennan and Bell JJ.] But a court of appeal should not interfere with a judge's findings of fact unless they are demonstrated to be wrong by "incontrovertible facts or uncontested testimony", [Fox at [28] per Gleeson CJ, Gummow and Kirby JJ] or they are "glaringly improbable" or "contrary to compelling inferences". [Fox at [29]. See also Miller & Associates at [76].] In this case, they were not. The judge's findings of fact accorded to the weight of lay and expert evidence and to the range of permissible inferences. The majority of the Court of Appeal should not have overturned them. 488 The observations made by the Court in the second half of [43] in Robinson Helicopter were not expressed to be confined to challenges to findings of fact which depended upon the credit of witnesses. Nonetheless, all of the cases referred to in the footnotes to that paragraph were cases where the Court was concerned with challenges of that kind. It has long been accepted that the leading authority which explains the scope of an appellate Court's review in cases where the substance of the challenge to the trial judge's factual findings is that she erred in the inferences which she drew or failed to draw from established primary facts is Warren v Coombes (1979) 142 CLR 531. Warren v Coombes was not discussed at all in Robinson Helicopter and was only referred to once in that judgment. This was at footnote 22 which was a footnote to a paragraph ([57]) where the High Court observed that the Queensland Court of Appeal had failed to give the respect and weight to the trial judge's analysis of one of the issues in the case which that analysis deserved. We think it unlikely that the High Court intended to overrule Warren v Coombes by the observations which the Court made at [43] in Robinson Helicopter particularly when the Court made no mention of Warren v Coombes. However, to a large extent, in Robinson Helicopter, the challenges made to the trial judge's findings concerned challenges to the trial judge's reasoning in drawing inferences. In the circumstances, we propose to approach the present case by regarding the Court in Warren v Coombes as stating the law when it comes to challenging a trial judge's reasoning in respect of inferences and by interpreting [43] in Robinson Helicopter as being confined to challenges to findings of fact which depend upon the credit of witnesses. This appears to have been the approach taken by the Full Court in Australian Competition and Consumer Commission v Australian Egg Corporation Limited [2017] FCAFC 152 (Egg Corporation) at [127]. 489 In Egg Corporation at [126], the Full Court said: As to this Court's role on an appeal, the Federal Court of Australia Act 1976 (Cth) gives this Court a number of powers on an appeal, including the power to affirm, reverse or vary the judgment appealed from and the power to give such judgment, or make such order, as, in all the circumstances, the Court thinks fit, or refuse to make an order (s 28(1)(a) and (b)). The Court is to have regard to the evidence given in the proceedings out of which the appeal arose, and has power to draw inferences of fact (s 27). The Court is required to conduct a real review (Fox v Percy (2003) 214 CLR 118 (Fox v Percy) at [25] per Gleeson CJ, Gummow and Kirby JJ). 490 In Egg Corporation, the ACCC's complaint on appeal was that the primary judge had failed to draw obvious inferences said to follow from the primary facts as found by him. 491 At [128]-[132], the Full Court said: The scope of this Court's review in cases where the allegation is that the primary judge erred in the inferences he drew or failed to draw from established primary facts is well known and was stated in the following way by the majority of the Court in Warren v Coombes (at 551): … Shortly expressed, the established principles are, we think, that in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it. … However, there are limitations on the power of review which the passage from the majority in Warren v Coombes itself suggests. In Branir Pty Ltd and Others v Owston Nominees (No 2) Pty Ltd and Another (2001) 117 FCR 424 (Branir), Allsop J (as his Honour then was) (with whom Drummond and Mansfield JJ agreed) made it clear that the role of this Court was to correct error and that in order to succeed, the appellant must demonstrate error (at [25]). His Honour summarised the relevant principles in four propositions. It is the fourth proposition which is of particular relevance in this case, but in order to understand the context, it is necessary to set out the passage in full (at [28]): … From Warren v Coombes, the passages of Menzies J and Walsh J in Edwards v Noble, from the other authority cited by the majority in Warren v Coombes and from more recent decisions of the High Court flow a number of relevant propositions. First, the appeal court must make up its own mind on the facts. Secondly, that task can only be done in the light of, and taking into account and weighing, the judgment appealed from. In this process, the advantages of the trial judge may reside in the credibility of witnesses, in which case departure is only justified in circumstances described in Abalos v Australian Postal Commission (1988) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472 and SRA v Earthline, supra. The advantages of the trial judge may be more subtle and imprecise, yet real, not giving rise to a protection of the nature accorded credibility findings, but, nevertheless, being highly relevant to the assessment of the weight to be accorded the views of the trial judge. Thirdly, while the appeal court has a duty to make up its own mind, it does not deal with the case as if trying it at first instance. Rather, in its examination of the material, it accords proper weight to the trial judge's views. Fourthly, in that process of considering the facts for itself and giving weight to the views of, and advantages held by, the trial judge, if a choice arises between conclusions equally open and finely balanced and where there is, or can be, no preponderance of view, the conclusion of error is not necessarily arrived at merely because of a preference of view of the appeal court for some fact or facts contrary to the view reached by the trial judge. There is nothing in Fox v Percy which suggests that the fourth proposition is incorrect. In fact, the following passage from the reasons of Gleeson CJ, Gummow and Kirby JJ supports the proposition (at [23]): The foregoing procedure shapes the requirements and limitations, of such an appeal. On the one hand, the appellate court is obliged to "give the judgment which in its opinion ought to have been given in the first instance". On the other, it must, of necessity, observe the "natural limitations" that exist in the case of any appellate court proceeding wholly or substantially on the record. These limitations include the disadvantage that the appellate court has when compared with the trial judge in respect of the evaluation of witnesses' credibility and of the "feeling" of a case which an appellate court, reading the transcript, cannot always fully share. Furthermore, the appellate court does not typically get taken to, or read, all of the evidence taken at the trial. Commonly, the trial judge therefore has advantages that derive from the obligation at trial to receive and consider the entirety of the evidence and the opportunity, normally over a longer interval, to reflect upon that evidence and to draw conclusions from it, viewed as a whole. (Citations omitted.) (see also Zuvela v Cosmarnan Concrete Pty Ltd [1996] HCA 30; (1996) 140 ALR 227 at 229-230.) It seems to us that it is important to bear in mind that in this case the matter in respect of which the primary judge is said to have failed to draw an appropriate inference is not a matter where there is only one right answer, such as there is where the construction of a document is in issue (an example given by Allsop J in Branir at [25]), where a different view by the appeal court itself establishes error. In this case, the primary judge refused to draw an inference going to the intention of the respective respondents. It seems to us that the issue of whether the inference of intention should have been drawn was finely balanced. The primary judge carefully weighed all the relevant issues and decided that intention had not been made out. It has not been demonstrated that he erred. The advantages he enjoyed over this Court may have been modest, but, in the absence of a preponderance of view against that taken by the primary judge, we would not interfere with his conclusion. In those circumstances, the appeal must be dismissed. 492 The present case involves similar issues to those with which the Full Court dealt in Egg Corporation. The passages we have extracted at [489] and [491] above seem to us to be apposite in the present case and we propose to follow the principles explained by the Full Court in those passages when evaluating the relevant appeal grounds directed to the issue of "purpose" in the present case.

The ACCC's Approach to the Trial Judge's Findings of Fact 493 On appeal, the ACCC did not challenge the primary judge's findings to the effect that the evidence given by the witnesses called by Pfizer was both truthful and reliable (see, in particular, 521 [346]-[347]; 524-525 [360]-[361]; 528 [378]; 529-530 [387]-[388]; 532 [396]; 535 [405]; 535-536 [407]-[412]; 537 [421]; 544 [452]-[453]; and 462-463 [101] in the primary judge's Reasons). This was an important concession. 494 At Transcript p 94 at ll 23-30, Senior Counsel for the ACCC explained the ACCC's approach to the findings of fact made by the primary judge in the following terms: So we're not challenging individual factual findings as to what witnesses said as to what they thought was the position. We're not attacking or seeking to set aside credit findings. What we're saying ultimately is that the trial judge, notwithstanding the recitation of relevant principle, when he came to apply the principles, or when he undertook whatever reasoning to the extent of the reasoning he did, he was ultimately seduced by protestations of commercial motivation rather than looking at it through the lens of competition and seeking to understand what it was that was relevant in terms relevant to the competitive process. 495 At Transcript p 146 at ll 4-13, Senior Counsel for the ACC reiterated that the ACCC was not challenging on appeal the findings made by the primary judge as to the truthfulness and reliability of Pfizer's witnesses. 496 These concessions add to the considerations which this Court must take into account when evaluating the challenges which the ACCC now seeks to make to the primary judge's findings of fact. 497 The ACCC argued that a proscribed purpose for the purposes of both s 46 and s 47 was manifest from the findings which the primary judge made as to Pfizer's purpose and that this Court need look no further than those findings in order to be convinced that his Honour's ultimate conclusions as to Pfizer's purpose were wrong and were arrived at as the result of erroneous reasoning. 498 During the ACCC's oral submissions on appeal, Senior Counsel for the ACCC was asked whether there was any document in evidence "… which gets into the territory of saying: 'We've got to do this because we must stop competitors coming into this market'…". Senior Counsel answered that enquiry by referring to the "blocking" documents. The Court then continued its enquiry by asking whether the documents in evidence before the Court demonstrated that Pfizer was focussing on particular competitors and was considering what steps it might take to thwart engagement in the competitive process by its putative competitors. Senior Counsel responded by submitting that the Court should infer such a purpose from the documents. Then, at Transcript p 121 at l 31-p 122 at l 21, Counsel informed the Court that the ACCC accepted that the primary judge had reproduced in his Reasons the most important documents relied upon by the ACCC as part of its proof of the relevant proscribed purposes. At the same time, Counsel also said that, while there may have been other documents in the evidence which also tended to support the inferences urged upon the Court by the ACCC, the ACCC was content to confine its submissions to the documents referred to in his Honour's Reasons and for the Court to regard only those documents interpreted in the context in which they were created as constituting the body of documentary evidence relied upon by the ACCC in support of its case on purpose.

Pfizer's Conduct 499 At [382]-[456] above, we referred to, and, to a large extent, set out, the primary judge's reasons for the conclusions to which he came in respect of "taking advantage" and "purpose". For the purposes of the present Appeal, those findings must be evaluated against the background of the concessions expressly made by the ACCC to which we have referred at [493]-[498] above and by paying due regard to the bases upon which the ACCC attacked those findings on appeal. In this section of our Reasons, we shall only refer to the findings made by the primary judge to the extent necessary in order to address specific submissions made by the ACCC and its specific grounds of appeal referrable to "taking advantage" and "purpose". We will also address Contention Grounds 2 and 3. 500 In his Reasons, the primary judge explained in detail the evolution of Project LEAP. 501 It is the giving effect to the fundamental elements of Project LEAP as approved by the senior management of Pfizer which the ACCC argued constituted the impugned conduct for the purposes of its s 46 case although the ACCC expressly disavowed running its s 46 case upon the basis that establishing and implementing the DTP model, on its own, was a contravention, or that establishing the accrual funds scheme, on its own, was a contravention. The only s 46 contraventions pleaded by the ACCC as supporting the relief claimed by it in the proceeding were those which were consummated in 2012 when Pfizer made its bundled offers. This approach does not gainsay the possibility that, as a matter of fact and law, contraventions occurred at the earlier point in time (January 2011). The ACCC accepted (correctly we think) that, in order for it to succeed in its pleaded s 46 case, it must demonstrate that Pfizer had a proscribed purpose throughout the period from January 2011 to February 2012. 502 The conduct of Pfizer relied upon by the ACCC as the impugned conduct for the purposes of its s 47 case was confined to the making of the bundled offers which Pfizer made in January 2012. 503 The decision to implement Project LEAP was made on or about 14 July 2010 by Mr Latham, subject to an overriding final approval coming from senior management of Pfizer Inc in New York. Although Pfizer's conduct in the period leading up to that decision is relevant, we think that we should pay particular attention to the evidence which casts light on Pfizer's purpose from the middle of 2010 onwards and to the findings of the primary judge based upon that evidence. 504 In December 2010, Pfizer announced that it was proposing to establish and implement a DTP model. It did not implement that model straight away. 505 In late 2010, Pfizer announced that it proposed to sell its own generic atorvastatin. 506 Although, in the early days when Project LEAP was under consideration, Pfizer had flirted with the idea of producing its own range of generic pharmaceuticals which would have encompassed molecules in a range which was far wider than atorvastatin, it abandoned that idea quite early in the relevant timeline. 507 In January 2011, Pfizer implemented the DTP model. At the same time, it established the accrual funds scheme. Under that scheme, purchasers of Lipitor would start to accrue a rebate of 5% referrable to the price paid by them for Lipitor from 1 February 2011. The rebate would continue to accrue thereafter until dealt with in accordance with the scheme. Should a pharmacy fail to meet Pfizer's required purchasing levels, the pharmacy would lose its bank of accumulated rebates. As at January 2011, the detail of the way in which community pharmacies could fully utilise and obtain the benefit from their accumulated rebates was not communicated to them. 508 The terms upon which discounts would be offered and the rebates repatriated to community pharmacies were settled and communicated to the pharmacies in January 2012. At the same time, on or about 16 January 2012, Pfizer made its first bundled offers to all community pharmacies in Australia. The detail of these offers is explained by the primary judge at 489-493 [221]-[237] and at 510-514 [298]-[312] of his Reasons. 509 The critical elements of the bundled offers were: (a) There would be three levels of offer made (Platinum, Gold and Silver). Each level would carry with it an obligation on the part of the relevant community pharmacy to take up a nominated volume of atorvastatin Pfizer. The more atorvastatin Pfizer that was agreed to be purchased, the greater the proportion of the accrual fund previously set aside for the particular pharmacy would be released. In addition, each level of offer carried with it discounts on the price of atorvastatin Pfizer and Lipitor, the quantum of which in each case was dependent upon the conversion rate promised or nominated by the community pharmacy in respect of converting its purchases from the branded pharmaceutical (Lipitor) to atorvastatin Pfizer. These features are summarised in the table reproduced by the primary judge at 490 [225]; (b) Each level of offer proceeded upon the basis that those community pharmacies which accepted one or other of the offers would agree to purchase and take delivery of quantities of atorvastatin which were sufficient to meet the needs of the accepting pharmacies for varying periods of time all of which expired at a point in time which was several months after the expiry of the atorvastatin patent on 18 May 2012; and (c) The offers all involved bundling atorvastatin with Lipitor.

Taking Advantage 510 By Contention Grounds 2 and 3, Pfizer challenged the primary judge's findings to the effect that, by its conduct in January 2011 in implementing the DTP model and in establishing the accrual funds scheme, it took advantage of its market power in the atorvastatin market, on the ground that his Honour was not required to and ought not to have made those findings because the question of whether or not Pfizer took such advantage at that time (January 2011) by taking the particular actions referred to was not an issue in the proceeding and should not have been decided by the primary judge. 511 Pfizer submitted that, because the ACCC had expressly eschewed any case based upon the proposition that Pfizer's conduct in January 2011 in implementing the DTP model and in establishing the accrual funds scheme gave rise in each case to a contravention of s 46(1)(c) of the CCA, it was unnecessary for the primary judge to make any findings as to whether, in taking each of those steps, Pfizer took advantage of its market power in the atorvastatin market. 512 At [211] above, we have held that the ACCC's case based upon s 46(1)(c) of the CCA included an allegation that, in January 2011, when it took each of the actions referred to at [510] above, it took advantage of its market power in the atorvastatin market. That conclusion means that it was necessary for the primary judge to make findings in relation to that question. Therefore, he did not err by doing so. Contention Grounds 2(a) and 3(a) are therefore rejected. 513 By Contention Grounds 2(b) and 3(b), Pfizer challenged the correctness of the primary judge's conclusions in respect of the two actions taken by Pfizer in January 2011 viz the implementation of the DTP model and the establishment of the accrual funds scheme. Pfizer argued that those actions were actions which a firm in Pfizer's position could have taken without having a substantial degree of market power in the atorvastatin market and therefore did not amount to a relevant "taking advantage" of that market power. 514 Pfizer argued that the hypothetical pharmaceutical supplier in Pfizer's position could have implemented the DTP model without a substantial degree of market power because it controlled not only the atorvastatin patent but the patents for several other important molecules so that it was its control of this larger group of pharmaceuticals which enabled it to do what it did. 515 At 510 [295], the primary judge found that Pfizer could not have successfully implemented the DTP model without being the sole legitimate supplier of atorvastatin at the time when that model was implemented (January 2011). This conclusion was confirmed by the evidence of Mr Crotty which his Honour extracted at 510 [296]. 516 There is no doubt that many of the community pharmacies did not like the DTP model. They did not wish to disrupt their supply lines for generic pharmaceuticals, integral to which was the ongoing viability of wholesalers, by dealing directly with Pfizer and they did not wish other originator suppliers to follow Pfizer's lead and thereby also put at risk the pharmacies' existing supply lines. But Pfizer was in a position effectively to impose its new model on the pharmacies because it had a monopoly through the atorvastatin patent over the supply of atorvastatin. In the language of the High Court in Rural Press, the establishment of the DTP model was materially facilitated by Pfizer's monopoly position in the supply of atorvastatin. In those circumstances, we agree with the primary judge on this point. We reject Contention Ground 2(b). 517 Pfizer endeavoured to support Contention Ground 3(b), which relates to establishment of the accrual funds scheme, by similar arguments. At 511 [304], the primary judge held that, even though prior to January 2012, there was no certainty about the terms upon which a pharmacy could access its accumulated accrual rebate, there was nevertheless an expectation on the part of all concerned that Pfizer would not appropriate the amount of that rebate to its own ends. His Honour found that a supplier in Pfizer's position in a workably competitive market could not have effectively forced this rebate scheme upon its customers in such a state of uncertainty had it not had a monopoly over the supply of atorvastatin to those pharmacies by reason of the atorvastatin patent. 518 Pfizer argued that a firm without substantial market power in the atorvastatin market could have established such a scheme by, in effect, persuading its customers of the economic benefits of the scheme and by setting aside some of its profits to support such a scheme. Again, we do not agree with Pfizer's contentions and are of the opinion that the primary judge was correct when he held that, by establishing the accrual funds scheme, Pfizer took advantage of its substantial power in the atorvastatin market. 519 The ACCC attacked the primary judge's conclusion that, by making the bundled offers in January and February 2012, Pfizer did not take advantage of any market power in the atorvastatin market which it retained at that time. 520 The reasons which his Honour gave for that conclusion appear to be confined to the ACCC's case based upon its assertion that Pfizer was supplying generic atorvastatin at prices which were below cost. The primary judge found that the ACCC had failed to establish that Pfizer had supplied atorvastatin at prices which were below cost and that, even if it had established that fact, the making of the bundled offers did not constitute a taking advantage of any residual market power. 521 The primary judge did not engage with the other reasons advanced by the ACCC in support of its argument that Pfizer took advantage of its market power in the atorvastatin market when it made the bundled offers in January and February 2012. In effect, his Honour did not engage at all with the "taking advantage" case adumbrated at pars 63, 64 and 65 of the ASC. For those reasons, we would uphold Appeal Ground 4. 522 As at January 2012, Pfizer had put in place its DTP model and had also begun accruing rebates in respect of the sales of Lipitor commencing on 1 February 2011. In addition, it had announced to the market that it intended to supply its own generic atorvastatin from early 2012. In those circumstances, when postulating the relevant hypothetical (counter-factual) for the purposes of assessing whether Pfizer took advantage of its market power in the atorvastatin market in January 2012 when it made the bundled offers, all of the above circumstances must be included as elements of that hypothetical. Other matters were also required to be taken into account. These were: (a) Pfizer was then the only supplier of Lipitor to community pharmacies; (b) Even after the expiry of the atorvastatin patent, Pfizer would continue to be the only supplier of Lipitor to pharmacies; (c) There would continue to be a sustained demand from pharmacies for Lipitor even after the introduction of atorvastatin Pfizer; (d) Until 1 April 2012, Lipitor would be the only atorvastatin product that could be sold to members of the public under the PBS; (e) Pfizer was the only firm offering and capable of offering a discount on the price of Lipitor; (f) Pfizer had a discretion as to what price it charged for Lipitor and, as at January 2012, had an ongoing ability to charge a substantial premium in its price for Lipitor relative to the price of generic atorvastatin; (g) Pfizer was the only firm offering and capable of offering a pharmacy the benefit of rebates on the price of Lipitor; (h) Pfizer was the only participant in the atorvastatin market which had the capacity to control the manner in which the Lipitor rebates might be made available to pharmacies; (i) Pfizer was the only supplier (and from 19 February 2012 to 18 May 2012, one of only two suppliers) offering, or capable of offering, to supply a generic atorvastatin to pharmacies; and (j) Ranbaxy Australia was not able lawfully to market a supply of atorvastatin in the atorvastatin market until 19 February 2012 and the other generics suppliers were not able lawfully to market or supply atorvastatin in that market until after 18 May 2012. 523 Pfizer argued that all of the factors which we have listed at [522] above were only matters of money and did not bespeak any taking advantage of market power. Further, Pfizer submitted that, ultimately, Pfizer's competitors did make offers that matched or bettered Pfizer's offers. However, those matching offers came later and the question for present purposes is whether, in January and February 2012, the making of the bundled offers constituted a relevant taking advantage of market power. For the reasons which we have explained, we consider that the making of those offers did constitute such a taking advantage of market power. 524 It follows from the reasons which we have given at [519]-[523] above that the primary judge erred when he held that, by making the bundled offers, Pfizer did not take advantage of any market power which it retained in the atorvastatin market as at January and February 2012. Further, because we have already held that Pfizer retained a substantial degree of market power in the atorvastatin market at that time, it follows that, by making the bundled offers which it made in January and February 2012, Pfizer took advantage of the substantial degree of market power which it then held in the atorvastatin market within the meaning of s 46(1)(c) of the CCA. We would therefore also uphold Grounds5, 7 and 8 in the ACCC's Notice of Appeal.

Pfizer's Purpose 525 We commence our Reasons in respect of "purpose" by briefly setting out the evidence of Messrs Latham and Crotty relevant to "purpose". These two gentlemen, along with Mr Cooper, were the most senior executives within Pfizer who were involved with and approved Project LEAP. By focussing on Messrs Latham and Crotty, we do not intend to play down the significance of the evidence of other witnesses - in particular, Mr Cooper, Ms Alltoft and Ms Brady. However, the evidence of Messrs Latham and Crotty assumes particular importance. 526 In his first affidavit filed in the proceeding below, Mr Latham gave detailed evidence as to the restructure of the global operations of Pfizer Inc which took place in early 2009 and the reasons for that restructure. He also described in some detail the way in which manufacturers of generic pharmaceuticals and wholesalers of such pharmaceuticals conducted business in Australia. He then moved on to consider Project LEAP. In the course of addressing the evolution of Project LEAP, he made the point that, although he was on the Steering Committee for the project, he did not attend all meetings of the Steering Committee and was not intimately involved with the project until the middle of 2010. At par 112 of his first affidavit, Mr Latham set out in detail his reasons for supporting the DTP model which was under consideration by Pfizer in mid-April 2010. At par 113, Mr Latham said: My objectives in supporting the proposal [referring to the DTP model] were to promote Pfizer Australia's generic products business and develop a close relationship with community pharmacies which would also benefit the Primary Care business unit. At that time, Mr Latham was the most senior executive in Pfizer's Primary Care business in Australia. 527 In his first affidavit, Mr Latham then addressed the consultation process undertaken for the DTP model and subsequently for its launch. He gave detailed evidence of "road shows" which he undertook with Mr Crotty in late 2010 and early 2011 in order to promote the DTP model with pharmacies throughout the country. 528 Mr Latham said that, in 2010 and 2011, he was well aware that Ranbaxy Australia would list a competing generic atorvastatin on the PBS from 1 April 2012 and that he expected that Ranbaxy Australia would sub-licence the right to manufacture and sell atorvastatin from 18 February 2012 to another major generics manufacturer. 529 On 10 August 2011, Mr Latham presented the Primary Care business unit Australia Operating Plan for the 2012 year to his superiors in Pfizer's global business at a meeting in Seoul, South Korea. That plan was then updated in September 2011. 530 In September 2011, Mr Latham said that he had become aware of the use of the word "blocking" or something similar in draft presentations prepared by others for use by him with his superiors at Pfizer Inc. One of his subordinates, Mr Tangalakis, told Mr Latham in September 2011 that his (Tangalakis') understanding of the use of the word in one such draft presentation was that it was intended to refer to the state of affairs that would result from a pharmacist having purchased a number of months' worth of Pfizer's stock in advance of the pharmacy's needs with the consequence that it lessened the pharmacy's urgency to buy from its existing wholesaler. Mr Latham said in his affidavit that he told Mr Tangalakis that that was not why Pfizer was doing a sell-in. Mr Latham went on to testify that he thought that pharmacies would have an expectation that they would be able to buy Pfizer's generic product as part of a sell-in during the PBS grace period. Sell-ins had been a common feature of major generic launches in the recent past and he felt that pharmacists would expect to be given the opportunity to make a bulk purchase during the launch period of atorvastatin Pfizer. It was Mr Latham's intention to accommodate those expectations on the part of the pharmacists. 531 At par 162 of his first affidavit, Mr Latham set out a number of "reasons" for supporting a sell-in of Pfizer's generic product in what he called "the one month PBS window". Although expressed as "reasons", the matters which he listed there were all outcomes or ends in view which he hoped to achieve. These matters were: (a) To take advantage of the one month grace period from price disclosure under the PBS (by selling product at a discount that would be excluded from the WADP calculations); (b) To maximise sales of Pfizer's generic by satisfying the demand for a bulk purchase that he had anticipated would exist within pharmacies; (c) To maximise sales of Pfizer's generic atorvastatin by giving that product a presence in pharmacies as at 1 June 2012 when he anticipated that the aligned manufacturers and wholesalers would list their products so that Pfizer would be able to compete against the aligned manufacturers and wholesalers in the future and not be overpowered by them; (d) To share the first mover advantage with Ranbaxy Australia in relation to patients switching to a generic atorvastatin, given that he knew Ranbaxy Australia would launch on 18 February 2012; and (e) To establish Pfizer's second brand (atorvastatin Pfizer) in the mind of pharmacists. 532 At par 163 of his first affidavit, Mr Latham said that, in his view, the vertical alignments in place in early 2012 between the existing generic manufacturers, wholesalers and pharmacies meant that, if Pfizer's generic atorvastatin was not on aligned pharmacies' shelves by 1 June 2012, then the commercial and contractual arrangements between those pharmacies and their preferred generics manufacturers and wholesalers would effectively prevent Pfizer from competing for sales to those pharmacies after 1 June 2012. 533 At par 164 of his first affidavit, Mr Latham expressly denied that he was seeking to block competition or to limit the ability of subsequent entrants to sell their products in the atorvastatin market by means of the proposed sell-in. He said that he appreciated that one consequence of offering a sell-in was that those pharmacies which took up the sell-in would be less likely to buy competitors' generic atorvastatin for a short period of time but that that was not his objective. 534 Mr Latham went on to explain that his intention in proceeding with the proposed sell-in was to serve Pfizer's interests in the long term. He said that Pfizer's decision to supply generic pharmaceuticals in Australia was one of the biggest changes it had undertaken in this country. Those changes affected not only atorvastatin but the entire product range for which Mr Latham was responsible. He was concerned how best to position Pfizer's business over the coming years, not months, following the expiry of Pfizer's patents over atorvastatin and a number of other patented pharmaceuticals. He said that sales of generic atorvastatin were of secondary importance to him. His main concern was to minimise the inevitable decrease in revenue from Lipitor. 535 Mr Latham then explained in detail what he hoped to achieve by making the bundled offers which Pfizer made in January and February 2012. He said that fashioning the terms of the offers in the manner in which Pfizer did was designed to make the offers attractive to individual pharmacies and also to maximise sales of Lipitor by rewarding pharmacies which were supporters of Lipitor with a greater discount on that product. 536 At par 186 of his first affidavit, Mr Latham said that he supported the decision to require (in the case of the Platinum Offer) that the pharmacy only take the relevant percentage of 12 months' requirements (and not a full 12 months' requirement) because he wanted pharmacies to be able to carry a second brand of generic atorvastatin (in addition to atorvastatin Pfizer) and because he wanted Pfizer's offer to be comparable with offers that would be made by wholesalers who typically required a support level of 80%-85% from pharmacies if they were to receive preferential discounts from the wholesalers. 537 Mr Latham swore a second affidavit which was relied upon by Pfizer. At par 17 and par 18 of that affidavit, Mr Latham said: In 2010-2012, I believed that Pfizer Australia was competing against well-entrenched and aligned generic manufacturers. I thought that those multinational generic manufacturers, which were supplying, or about to supply, atorvastatin in a large number of countries around the world, would compete aggressively to sell their generic atorvastatin in Australia. I also thought that those generic manufacturers' costs would be lower than Pfizer's costs because they were manufacturing in lower cost countries, whereas Pfizer's manufacturing took place in Ireland, Germany and Australia. I thought that there was no possibility of Pfizer Australia preventing or dissuading those other generic manufacturers from supplying their generic atorvastatin products to pharmacies by virtue of the price at which Pfizer Australia was offering to sell its products. In January 2012, my view was that atorvastatin prices were inevitably going to fall consistently from LOE onwards. It was no part of my thinking that, by offering low prices as part of the Atorvastatin Pfizer offers, Pfizer Australia would put itself in a position to charge higher prices for its products at a later point in time and recoup any losses that it had made. To my mind, that would have been impossible, because I thought prices would fall dramatically and continue to fall. 538 Mr Latham was cross-examined at some length by Senior Counsel for the ACCC. The primary judge extracted various exchanges during that cross-examination in his Reasons at 522-523 [357]; at 526-527 [372]; at 531 [394]; and at 533-534 [402]. We have referred to and, in some cases, set out those passages at [438]-[454] above and, for that reason, will not reproduce these passages here. However, it is accurate to say that the extracts quoted by the primary judge are a fair reflection of the answers which Mr Latham gave relevant to the question of "purpose" during the course of his cross-examination. 539 At one point, after some questions directed to what the likely effect of the proposed sell-in might be, the following exchange took place (Transcript p 716 at ll 32-39): Yes. And that's what you were seeking to achieve, wasn't it, through the bulk supply of Atorvastatin Pfizer?---No. I think there - there were other factors that were - that - that were key drivers - probably more important drivers of the - of the bulk selling, which I've spelt out in my affidavit, and certainly price disclosure being probably one of the - one of the major ones there, is that, in that selling period - that grace period that the government allows, to encourage, you know, generics to enter the market. That to me was a major, major driver, as well establishing the product, yes. 540 Mr Latham was cross-examined for some time about the "blocking" documents. In answer to questions on that topic, Mr Latham said the following: (a) The proposed sell-in was not being done to block competition; (b) There were several reasons for the sell-in; (c) He intended that Pfizer should take advantage of the first month of the launch of its atorvastatin Pfizer, that month being excluded from calculations of the subsequent reduction in the selling price under price disclosure by the government. He said that those products with a high discount in that first month are actually excluded from that calculation; (d) Pfizer wanted to reinforce its branded product (Lipitor) in the mind of the pharmacist as well as establish its new generic; (e) He intended to take steps to facilitate Pfizer's capacity to compete with the wholesalers and generic manufacturers given that many pharmacies were already tied to those enterprises by contract and by commercial connections so that they would wish to buy as much as they could from Pfizer in the launch period; and (f) He expected that, if pharmacies purchased a significant amount of Pfizer's atorvastatin in the launch period, they would be less likely to purchase atorvastatin from generic competitors immediately after the expiry of the atorvastatin patent. 541 Later during this cross-examination, Mr Latham said that, by making the bundled offers which Pfizer made in January and February 2012, Pfizer was trying to minimise price disclosure (referring to WAPD), was trying to launch atorvastatin Pfizer effectively and was trying to give the pharmacies the benefit of a major buy-in because they would benefit from price disclosure as well. He emphasised that the pharmacies would be keen to have the opportunity to receive the benefits of a bulk sell-in at favourable prices and that he wanted to position Pfizer to take advantage of this. He said that he was well aware that Pfizer would not be able to sell its generic atorvastatin to a large number of pharmacies after 1 June 2012 because those pharmacies had contractual arrangements with preferred wholesalers. Mr Latham's views on this point were borne out by events after 1 June 2012. The generics manufacturers immediately commenced supply of generic atorvastatin on 2 June 2012 and competed vigorously thereafter on price. In advertisements placed in major daily newspapers around Australia on 2 June 2012, Chemist Warehouse, a well-known discount pharmacist, advertised atorvastatin Sandoz at no cost to the consumer and various concentrations of Trovas at $19.99 for 30 tablets. It also advertised Lipitor. Chemist Warehouse described the generic pharmaceuticals in the advertisements to which we have referred as "generic Lipitor" or "Lipitor generic". 542 In his evidence-in-chief, Mr Crotty said that, if Pfizer was going to achieve its ambition to become an effective competitor in the supply of generic pharmaceuticals as a new entrant, it needed to have a range of "hygiene" factors as well as a "unique" factor to differentiate itself from other generic manufacturers. At par 55 of his affidavit, Mr Crotty explained what he meant by the expression "hygiene factors" in the following terms: By hygiene factors, I mean that Pfizer Australia needed to have: (a) competitive discounts, incentives, and payments terms; (b) a broad product range; (c) the ability to provide a strong distribution service; (d) a large, effective field force, customer services and accounts teams having strong relationships with community pharmacy; (e) reliability of product supply; and (f) an effective customer relations management program. Generic manufacturers and wholesalers had offerings which were very hard for Pfizer Australia to match because of the trading terms, product range and loyalty programs which were offered to pharmacies. 543 Mr Crotty went on to testify that Project LEAP would give Pfizer a unique factor because it would be the only originator manufacturer with a DTP distribution model and, unlike the generic manufacturers who did have a direct to pharmacy distribution model, Pfizer could offer an originator brand and a generic version of certain medicines, including atorvastatin. Notwithstanding this unique factor, Mr Crotty expected that the generics manufacturers and the wholesalers would be able to better the financial terms of any offer which Pfizer was able to make because the generic manufacturers had a low cost of goods and therefore could offer high discounts to the market. In addition, generic manufacturers and wholesalers were well placed to offer a range of products at low cost in comparison with Pfizer's limited opportunity to exploit its branded and generic pharmaceuticals. Mr Crotty went on to explain that he saw Project LEAP as making Pfizer competitive by combining these hygiene and unique factors. At par 57 and par 58 of his affidavit, Mr Crotty described the important features of Project LEAP and what he saw as likely features of any commercial proposal which Pfizer would make when it launched its generic pharmaceuticals. 544 At par 59 of his affidavit, Mr Crotty said: My intention in supporting Project Leap was as set out in paragraphs 57 and 58 above. By supporting Project Leap, I did not intend to discourage other generic manufacturers from competing for sales of generic atorvastatin nor limit their ability to compete for such sales. I also did not think Project Leap would have that effect. Because of the value of Lipitor, I thought that from 18 February 2012 Ranbaxy and any sub-licensee, and from 1 June 2012 every generic manufacturer in Australia (plus new entrants), would be competing aggressively in the supply of generic atorvastatin and that it would be impossible for Pfizer Australia to stop that. I never thought that any generic manufacturer would choose not to sell generic atorvastatin. The patent expiry of Lipitor was commonly described in the industry as the "Golden Era", which I took to mean a great opportunity for generic manufacturers, wholesalers and pharmacies. 545 As was the case with Mr Latham, the primary judge carefully considered Mr Crotty's evidence-in-chief and assessed it in light of his cross-examination. His Honour set out various extracts from Mr Crotty's cross-examination at 523-524 [358]; at 524 [359]; at 527 [373]; at 529-530 [387]; and at 536 [413]. Those extracts are also referred to or set out at [438]-[454] above. 546 The evidence established that neither Mr Latham nor Mr Crotty was the instigator of the use of the word "blocking" in Pfizer's internal documents nor did either of those gentlemen ever use the word or endorse the use of that word in the context of Project LEAP. The evidence also established that neither Mr Latham nor Mr Crotty intended to prevent competition in the atorvastatin market post 18 May 2012 (they would have scoffed at such a suggestion) and that neither of them intended that the implementation of Project LEAP to its fullest extent would substantially hinder or deter competition in that market after 18 May 2012. There is no doubt that they expected to gain a foothold in that market with atorvastatin Pfizer by making very attractive offers to the community pharmacies, the banner groups and the buying groups before the expiry of the atorvastatin patent. However, they well appreciated that, however Pfizer's first mover advantage in respect of generic atorvastatin played out, the initial "jump" which Pfizer had on its competitors would be very short-lived. They hoped to develop and exploit over the longer term the relationships which they sought to establish in the launch phase but well understood that Pfizer's capacity to do so was going to be impacted by competitive forces including vigorous competition from large enterprises, being the generics manufacturers and their aligned wholesalers, which competition would include a significant capacity to discount and rebate the price at which generic atorvastatin would be sold into the atorvastatin market. Any initial sales advantage achieved by the bundled offers and the sell-in would be short-lived and was likely to disappear altogether very soon after 1 June 2012. As submitted by Pfizer, in 2010, 2011 and 2012, it was obvious to Pfizer's senior executives, and indeed, to the whole of the pharmaceutical industry in Australia, that the generics manufacturers and the community pharmacies were going to "make a killing" by selling generic atorvastatin in the period after 18 May 2012 until the price reduction mechanisms in the PBS caught up with reality which, under the relevant legislation, could not happen until 1 December 2013, at the earliest. As Mr Millichamp, the CEO of Apotex, said in his evidence: "The idea of a generics manufacturer not supplying atorvastatin after the expiry of the atorvastatin patent was like a supermarket not selling bread and milk". 547 At the trial, Pfizer called a number of other witnesses who were involved in the evolution and ultimate execution of Project LEAP. In his Reasons, the primary judge discussed the evidence of those witnesses. We do not think that it is necessary for present purposes for us to traverse that evidence. It is sufficient to note that Pfizer brought to the Court all of the persons who had any relatively important role to play in the development and execution of Project LEAP and that the ACCC had every opportunity to test the evidence of Messrs Latham and Crotty with these other witnesses, an opportunity, of course, of which it availed itself. The ACCC also cross-examined Messrs Latham and Crotty at length. 548 How then did the ACCC go about seeking to make good its grounds of appeal in respect of the primary judge's findings as to Pfizer's "purpose" in the face of this evidence and in light of the principles which we have outlined at [485]-[492] above and in light of the concessions which it made in respect of its challenges to the primary judge's findings of fact? 549 The ACCC argued that the primary judge erred in failing to distinguish between the commercial motivation of Pfizer to remain competitive in the atorvastatin market once the atorvastatin patent expired, on the one hand, and the end sought to be achieved by its conduct in implementing Project LEAP, including in engaging in the impugned conduct which we have summarised at [499]-[509] above, on the other hand. The ACCC contended that this error on the part of the primary judge resulted in his failure to find that the end sought to be achieved by Pfizer in requiring a bulk purchase of atorvastatin Pfizer pursuant to the bundled offers was to hinder, deter or prevent other suppliers of generic atorvastatin from engaging in competitive conduct in the atorvastatin market. 550 The ACCC submitted that, notwithstanding that his Honour had made specific reference to the difference between "motive" and "purpose" in this context, his Honour failed to respect that distinction when applying the relevant principles to the facts of the present case. 551 In very broad terms, the ACCC identified three areas in the evidence which it considered made good its proposition that his Honour had misapplied the relevant principles insofar as the distinction between "motive" and "purpose" is concerned. First, the ACCC argued that the reasons given by Mr Crotty and Mr Latham for approving the DTP model as explained by his Honour at 522-524 [357]-[358] disclosed his Honour's error. We have referred to those paragraphs at [437]-[440] above. These passages draw attention to the use by both Mr Latham and Mr Crotty in their oral evidence of the word "reason" or "reasons" for introducing the DTP model. The ACCC latched on to this use of language from time to time by witnesses called by Pfizer and, indeed, by the primary judge himself, as indicating that his Honour began to assess the evidence by reference to Pfizer's motive rather than by reference to its purpose and thereby erred. However, as Pfizer submitted, the word "reason" may be just as apposite to describe "purpose" in the relevant sense as it might be to describe "motive". The true meaning of the word on any particular occasion when it is used must depend upon the context in which it is used. In our view, the primary judge did not fail to keep in mind and apply the distinction which the authorities require between "motive" and "purpose" in the context of s 46 of the CCA. Nor do we think that the witnesses gave evidence which, properly understood, was evidence of motive rather than purpose. We reject this first contention advanced by the ACCC. 552 The ACCC then submitted that, although Pfizer recognised that a consequence of selling in large quantities of atorvastatin Pfizer was that those pharmacies which acquired that pharmaceutical may well have had little need for some time to source generic atorvastatin from a Pfizer competitor, Pfizer's purpose was not to discourage competitors from supplying their own product but was rather to enable it to compete and to do so in a manner consistent with the practice pursued by other generics manufacturers upon the release of a new pharmaceutical product. The findings criticised by the ACCC in this regard are found at 527 [375] and 528 [379]. 553 It is true that the effect of Pfizer's bundled offers, if accepted by community pharmacies, was to delay slightly (at best, for a few months), full blown competition by the generics manufacturers and their wholesalers unconstrained by any competitive response from Pfizer. As we have already concluded, the evidence made perfectly clear that nothing Pfizer did in the lead up to the expiry of the atorvastatin patent prevented any of its putative competitors (including Ranbaxy Australia) from competing altogether in the atorvastatin market post 18 May 2012. The ACCC's case was more subtle and relied upon acceptance of the proposition that the fact that certain community pharmacies stocked their shelves with atorvastatin Pfizer and Lipitor prior to 18 May 2012 sufficiently to cover their atorvastatin needs for a period extending for a few months (at most) post 18 May 2012 would have been seen by Pfizer as a means of hindering or deterring competition in the atorvastatin market post 18 May 2012. The primary judge did not see matters in this way. At the core of his Honour's reasoning was the finding that Pfizer's purpose in endeavouring to procure a state of affairs whereby a significant number of community pharmacies took up its bundled offers was to allow it to continue to compete in the atorvastatin market post expiry of the atorvastatin patent. In this sense, it was seeking to protect its own commercial position. 554 The ACCC also challenged the primary judge's finding at 530 [388] to the effect that Pfizer's purpose in pursuing the bulk sell-in through the bundled offers was to secure the long term support of pharmacies by making it attractive for them to continue to purchase their atorvastatin needs from Pfizer, Pfizer having secured a foothold by means of its effective first mover advantage. 555 Notwithstanding its disavowal of any challenge to the credit of Pfizer's witnesses, the ACCC nonetheless endeavoured to advance an argument that, in respect of certain aspects of the change of the terms of the bundled offers made in early 2012, the evidence of Mr Latham and Ms Alltoft was inherently implausible. The ACCC challenged Mr Latham's evidence that the reason that Pfizer changed the terms of some of the offers from 100% of 12 months' needs to 70% of 12 months' needs was to give the relevant pharmacy a fair opportunity to purchase generic atorvastatin from a supplier other than Pfizer. The ACCC argued that this conduct was consistent with interpreting the use of the word "blocking" as manifesting a sinister purpose on the part of Pfizer rather than an innocent one. The simple fact is that his Honour accepted Mr Latham's evidence on this point and the ACCC has made it abundantly clear that it does not challenge the credit of Mr Latham. If it matters, we do not agree that the evidence given by Mr Latham is obviously implausible. Pfizer was aware that most pharmacies had existing contractual arrangements with wholesalers and manufacturers of generic pharmaceuticals and did not wish to force those pharmacies to cease buying from those organisations as the price of accepting Pfizer's offers. The pharmacies may not have preferred the Pfizer offer at the risk of enraging their existing generics suppliers, a risk which, by one means or another, might have led to a severe disruption in supply of those other pharmaceuticals. Looked at in this way, changing the percentages in question made sense from Pfizer's point of view. We do not find this submission made by the ACCC to be persuasive. 556 The ACCC then referred to certain evidence given by Mr Latham as to why it was that Pfizer selected 24 February 2012 as the date for acceptance of the offers. In effect, Mr Latham testified that that date was chosen in order to ensure that the pharmacies had an opportunity to consider any offers made by Ranbaxy Australia before accepting the Pfizer offers. 557 The ACCC submitted that the primary judge did not pay proper regard to the contemporaneous documentary evidence and the conduct of Pfizer objectively interpreted when assessing Pfizer's purpose but rather accepted self-serving statements from witnesses called by Pfizer as being capable of explaining inferences that may otherwise have been drawn and which may well have supported a finding that Pfizer had a proscribed purpose when it engaged in the impugned conduct. In oral submissions, Senior Counsel for the ACCC repeatedly referred to what he described as the "objective evidence", by which we understood him to be referring to the documentary evidence and the conduct of Pfizer itself. His proposition was that, in the present case, there was a clear contest between the so-called "objective evidence" and the testimonial evidence given by the witnesses and that the Court was obliged to make a decision as to which body of evidence it would prefer. In our opinion, this is a false approach. The Court is obliged to assess all of the evidence, both documentary and testimonial, as well as the conduct itself, in order to determine whether or not the ACCC has established the requisite proscribed purpose. The evidence of Pfizer's employees was plainly relevant and his Honour was obliged to consider it. We have no doubt that his Honour undertook the correct task and resolved it in favour of Pfizer. We see no error in his Honour's approach in this regard. 558 In both its written and oral submissions on appeal, the ACCC placed a great deal of emphasis on the so-called "blocking" documents. However, as Sackville J said in C7 (quoted by the primary judge at 529 [385]), the use of particularly colourful language has to be understood in context. The ACCC submitted that this use of language was not colourful but apt. It argued that the language was apt to describe a strategy, or end in view, on the part of Pfizer which was to keep its putative competitors out of the atorvastatin market for as long as possible in order to enable it to develop relationships with the community pharmacies and thus to secure the benefits of its so-called first mover advantage well into the future. But, once again, his Honour rejected this interpretation of the "blocking" documents. Those documents were explained by the Pfizer witnesses and his Honour preferred to proceed upon the basis of the reliability of the evidence given by those witnesses. It must also be remembered that the word "blocking" only ever appeared in draft presentations and in communications between subordinates of Mr Latham and Mr Crotty. It was not used in the final package that was approved by senior management of Pfizer Inc in New York and was never embraced by Mr Latham or by Mr Crotty. In the end, at all points in its submissions, the ACCC was ultimately driven to a submission that the evidence of the Pfizer witnesses was implausible and should not be accepted, a proposition which it had clearly disavowed on appeal. 559 There is no doubt that both Mr Latham and Mr Crotty hoped and expected that the making of the bundled offers would give Pfizer an edge in the highly competitive atorvastatin market which was to come post 18 May 2012. But, as the primary judge found, the end sought to be achieved by Pfizer by making the bundled offers in the circumstances in which they were made was not to make it difficult for its putative 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 post 18 May 2012 as a result of the loss of its monopoly position. Furthermore, the primary judge took the view that Pfizer's conduct in offering rebates and discounts and, indeed, in bundling the sale of Lipitor with atorvastatin Pfizer, was commercial conduct in which Pfizer was entitled to engage in order to compete in the atorvastatin market post 18 May 2012 and 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. After all, the generics manufacturers were expected to, and did, in fact, vigorously compete with Pfizer by discounting their generic atorvastatin to 90% or 100% in order to gain traction in the post 18 May 2012 atorvastatin market. Nothing Pfizer did changed those circumstances. Pfizer did not expect that its manoeuvres would change those circumstances. 560 It must also be remembered, when assessing Pfizer's purpose, that the community pharmacies were not unsophisticated or disorganised or lacking bargaining power in their dealings with Pfizer and its competitors. Many of those pharmacies were organised into buying groups or banner groups and all of them well understood that, post 18 May 2012, the major generics manufacturers of atorvastatin would enter the atorvastatin market as soon as they practically could (post 1 June 2012) and would do so as vigorously as possible. Community pharmacies should be taken as well understanding that the atorvastatin market post 18 May 2012 would be intensely competitive, particularly in the first few months after the expiry of the atorvastatin patent. Pfizer understood all of this and, no doubt, fashioned its offers upon the basis that it would have to make those offers very attractive if it were to compete satisfactorily in the atorvastatin market post 18 May 2012. It was clear to Pfizer that, no matter what it did and no matter what strategy it adopted, immediately after 18 May 2012, it was going to face intense competition in the atorvastatin market from the major generics manufacturers and their aligned wholesalers. The strategies which it had developed and put in place were not expected to have effect in that market for very long and were not expected to achieve much more than gaining a first-mover advantage for Pfizer. 561 Of course, Pfizer still had the branded pharmaceutical (Lipitor). Lipitor was likely to remain an important part of the community pharmacies' offerings of atorvastatin for a long time, even in the period post 18 May 2012. Nonetheless, we do not think that the bundling of Lipitor with atorvastatin Pfizer in the bundled offers made in January and February 2012 is evidence of Pfizer having a proscribed purpose when it engaged in the impugned conduct. 562 We accept, of course, that the "purpose" which must be ascertained is Pfizer's subjective purpose. This requirement does not mean that the objective circumstances in which the alleged contravention took place should be ignored. We have firmly in mind what was said by the Full Court in Pont Data at 474-475. But, the remarks by the Court in Pont Data do not support the approach to the evidence taken by the ACCC in this case. In particular, those remarks do not support the notion that there are two bodies of evidence to be considered in this context, the first being the "objective" evidence consisting of the documentary material and the impugned conduct itself, and the second being the testimonial evidence, which two bodies of evidence may or may not be in conflict, with the consequence that, if there is conflict, the "objective" evidence must be preferred. This artificial bifurcation of the evidence is not supported by any authority and is definitely apt to mislead. As we have already said, it is a false approach and should be rejected. 563 Most of the ACCC's submissions on appeal were infected by the incorrect approach to the evidence which we have described at [562] above. 564 For all of the reasons which we have explained at [493]-[563] above, we are not persuaded that any of the ACCC's grounds of appeal in respect of the primary judge's decision on "purpose" should be upheld. Pfizer did not have as a substantial purpose for engaging in the impugned conduct the purpose of making it difficult for the generics manufacturers to compete in the atorvastatin market post 18 May 2012 nor did it have as a substantial purpose a purpose of substantially lessening competition in that market. 565 This conclusion as to Pfizer's "purpose" in engaging in the impugned conduct applies to both the ACCC's s 46 case and its s 47 case.

The ACCC's Section 47 Case 566 The primary judge rejected the ACCC's s 47 case for the reason that the ACCC had failed to establish that, when Pfizer made the bundled offers which it made in January and February 2012, it did so for the proscribed purpose specified in s 47(10)(a) of the CCA (read with s 4G). In light of the conclusions which we have reached in respect of Pfizer's purpose, we would reject the ACCC's case based upon s 47 for the same reason. We would, therefore, reject Appeal Grounds 23 to 26. 567 Notwithstanding that the ACCC's s 47 case must fail for the reason set out at [566] above, the primary judge went on to consider whether Pfizer would have contravened s 47(1) of the CCA, had it had a s 47 proscribed purpose, because it had offered discounts, rebates and credits on the condition that community pharmacies would not, except to a limited extent, for specified periods of up to 12 months: (a) Acquire atorvastatin directly or indirectly from a competitor of Pfizer in the atorvastatin market; or (b) Re-supply atorvastatin acquired directly or indirectly from a competitor of Pfizer in the atorvastatin market. 568 The ACCC's case was that, by making the bundled offers which it made in January 2012, Pfizer had offered discounts, rebates and credits on those conditions and had thereby engaged in the practice of exclusive dealing within the meaning of s 47(1) of the CCA by offering to supply and by subsequently supplying atorvastatin to community pharmacies upon those conditions for the purpose of substantially lessening competition in the atorvastatin market. The ACCC relied upon ss 47(1), 47(2)(d), 47(2)(e), 47(10)(a) and 4G. 569 In its Defence, Pfizer admitted that it offered and gave the discounts on Lipitor specified in the right-hand column of the table appearing in the particulars to par 51 of the ASC on the condition that community pharmacies would not, except to a limited extent, re-supply atorvastatin acquired directly or indirectly from a supplier other than Pfizer but otherwise denied that it gave or allowed any other discounts, rebates and credits upon either of the conditions pleaded in par 71 of the ASC. 570 We emphasise that the ACCC ran its s 47 case as a "purpose" case and not as an "effects" or "likely effects" case. 571 Pfizer accepted that the ongoing discount which it offered on Lipitor to which we have referred at [569] above was given on a condition that fell within s 47(2)(e). That condition was imposed by means of the Pharmacy Acceptance Form linking Lipitor discounts to first line support of atorvastatin Pfizer. For this reason, the primary judge found that that discount was given on the alleged condition. 572 Pfizer did not accept that the other two discounts relied upon by the ACCC were given on any condition which fell within s 47. The primary judge agreed with this. 573 The primary judge dealt with the ACCC's s 47 case at 540-544 [437]-[453]. 574 The particular condition relied upon by the ACCC was said to be contained in the Pharmacy Acceptance Form. The condition relied upon was said to be this: To be eligible for the Platinum offer and thus to be able to secure the discounts on Lipitor referrable to that offer, a community pharmacy must purchase and dispense at least 75% of its generic atorvastatin from Pfizer. 575 The terms upon which the discounts on the price of Lipitor were given did not prevent the pharmacies which accepted the offers from buying generic atorvastatin from other suppliers. Merely having the effect or resulting in the practical consequence that a pharmacy might be less inclined to buy elsewhere did not mean that the terms amounted to conditions within s 47(2). 576 The essence of his Honour's reasoning in rejecting the ACCC's case in respect of the contested allegations under s 47 is found at 543 [446] where his Honour said: But the other two discounts or rebates, Pfizer contends, were not given on any "condition" that fell within s 47. The pharmacies, it is said, remained free to purchase generic atorvastatin from other suppliers. The fact that any particular pharmacist may have been less likely to buy as much generic atorvastatin from another supplier as he would have had he not accepted the Pfizer offer does not, so it is submitted on behalf of Pfizer, mean that it engaged in the practice of exclusive dealing. These "conditions" may have had the "effect" or may have the "practical consequence" that a pharmacy may [sic] been less "inclined" to purchase generic atorvastatin from a supplier other than Pfizer: Monroe Topple at [105] per Heerey J, at [160] per Tamberlin J. But no "condition" was imposed on the pharmacies inhibiting their freedom to acquire generic atorvastatin from other suppliers. 577 In its submissions on appeal in respect of its s 47 case, the ACCC submitted that Pfizer's customers did not have the requisite "freedom to decide" in respect of the terms of the bundled offers. The ACCC emphasised that the practical effect of those offers was that community pharmacies would not, or would not, except to a limited extent, acquire or re-supply generic atorvastatin from other suppliers. It then argued that that was sufficient for the Court to conclude that Pfizer was supplying its atorvastatin upon conditions of the type referred to in s 47(2)(d) and s 47(2)(e). The primary judge rejected this submission for the reasons which he explained at 543 [446]. We think that his Honour was correct in doing so for the reasons which he gave. 578 We see no error in the manner with which his Honour dealt with the ACCC's s 47 case based upon s 47(2)(d) and s 47(2)(e) and therefore reject Appeal Grounds 18 to 22 in respect of those matters.

Introduction 579 By way of further defence to the claim of exclusive dealing, Pfizer argued that the exemption in s 51(3)(a)(i) and s 51(3)(a)(iii) of the CCA applied to its conduct. This defence, which would apply only in respect of the alleged s 47 contraventions, is pleaded at par 73D of the Defence. We have set out that paragraph of the Defence at [84] above. 580 Pfizer did not also rely upon s 144 of the Patents Act. 581 The primary judge rejected this defence at 544-545 [454]-[459] of his Reasons. His Honour also discussed s 51 at 455-456 [76]-[79]. 582 Section 51(3)(a) provides an exemption from the prohibitions in Pt IV (other than those specified in ss 46, 46A and 48) for certain conditions in licences or assignments of intellectual property rights in patents, registered designs, copyright, trade marks and circuit layouts. 583 Section 51(3) relevantly provides: A contravention of a provision of this Part other than section 46, 46A or 48 shall not be taken to have been committed by reason of: (a) the imposing of, or giving effect to, a condition of: (i) a licence granted by the proprietor, licensee or owner of a patent, … to the extent that the condition relates to: (iii) the invention to which the patent or application for a patent relates or articles made by the use of that invention; … 584 The s 51(3) exemption relied upon by Pfizer addresses the area of tension between intellectual property rights and competition regulation. This tension was summarised by Professor Gummow in "Abuse of Monopoly: Industrial Property and Trade Practices Control" (1976) 7 Sydney Law Review 339 at 340: The monopoly given the owner of industrial property may be used to achieve various collateral objects and so may have far-reaching commercial and industrial effects. Thus, the patent monopoly may be used to support an extensive system of resale price maintenance or to exclude, by refusal of licences, competitors from entry to a particular field. The licensor of a design or registered trade mark may condition licences thereof by stipulations restricting the licensee in the sources of supply of materials for the articles to which the design is to be applied or mark attached. Accordingly, there arises the important question of the extent to which in Australia the common law, pre-1974 statutes, and now the Trade Practices Act 1974 control the enjoyment of industrial property and its use to attain collateral objects. … 585 As the primary judge observed at 455 [77], the provision had existed in identical terms in the TPA for many years prior to 2010. The provision has remained in its present form despite numerous recommendations for further review, reform and repeal over the years. See, for example: the Hilmer Review of National Competition Policy, 1993, at 149-151; the National Competition Council's Review of Sections 51(2) and 51(3) of the Trade Practices Act 1974, 1999, at 233-246; the Ergas Committee's Review of intellectual property legislation under the Competition Principles Agreement, 2000, at 19-30; and most recently the Harper Committee's Competition Policy Review, 2015, at 105-110. At 109, this latter review summarised the original rationale for the exemption in the following terms: … The subsection applies where an owner of an IP right licences [sic] another person to commercialise that right, but imposes restrictions on the manner in which the commercialisation occurs; for example, quality specifications, quantity restrictions or territorial restrictions. If the IP owner were to commercialise the right, the owner would itself make decisions about quality, quantity and selling territory. The rationale for subsection 51(3) is that the grant of a licence to another person, subject to conditions or restrictions that the owner could have imposed upon itself, should not be regarded as anti-competitive and should be exempted from the competition law. 586 In summary, the relevant exemption provides that imposing or giving effect to "a condition of a licence" granted by the licensee or owner of a patent will not be a contravention of s 47 in circumstances where the particular condition "relates to" the invention to which the patent relates or articles made by the use of that invention. It follows that, to engage the exemption, Pfizer must satisfy the Court of the following elements: First, that the offers made by Pfizer in January 2012 imposed or gave effect to a condition or conditions of a licence granted by Pfizer, in its capacity as the licensee or owner of the atorvastatin patent and, second, that that condition related to the invention to which the patent related or articles made by the use of that invention viz Lipitor tablets or atorvastatin Pfizer tablets.

Primary Judgment 587 At the trial, Pfizer argued that, prior to 18 May 2012, Pfizer was a licensee of the atorvastatin patent and, accordingly, in supplying and/or agreeing to supply Lipitor and/or atorvastatin Pfizer to community pharmacies prior to 18 May 2012, pursuant to the terms and conditions of its January 2012 bundled offers, Pfizer granted community pharmacies a sub-licence of the atorvastatin patent. Pfizer then contended that, if it had offered, given or allowed the proposed discounts, rebates or credits on the condition that the community pharmacies would not, except to a limited extent, and for specified periods up to 12 months, acquire atorvastatin directly or indirectly from Pfizer's competitors, or re-supply atorvastatin acquired directly or indirectly from Pfizer's competitors, as alleged by the ACCC, these conditions were conditions of the sub-licence and were therefore exempt by virtue of s 51(3) of the CCA. 588 The primary judge held at 544-545 [459] that, had it been necessary to resolve the argument in relation to s 51(3), Pfizer's argument would have been rejected for two reasons, namely: • the sale of the atorvastatin by Pfizer to the pharmacies would not have been held to involve the granting of any "licence"; and, perhaps more relevantly: • the "condition" otherwise contained within any such licence would not have been held to constitute a "condition" to which s 51(3) applied. Section 51(3), it has been said, "determines the scope of restrictions the patentee may properly impose on the use of the patent. Conditions which seek to gain advantages collateral to the patent are not covered by s 51(3)": Transfield at CLR 103; ALR 217 per Mason J. The relevant "conditions", it would have been concluded were "conditions" which sought to gain "advantages collateral to the patent". 589 We do not think his Honour erred in rejecting Pfizer's s 51(3) defence although we have reached a different conclusion from that reached by his Honour in relation to the first element of Pfizer's s 51(3) defence. We shall now explain why.

Did Pfizer's Offers Involve the Grant of a Licence? 590 Pfizer argued that prior to 18 May 2012, Pfizer was a licensee of the atorvastatin patent and, accordingly, in supplying and/or agreeing to supply Lipitor and/or atorvastatin Pfizer to community pharmacies prior to 18 May 2012, pursuant to the terms and conditions of its January 2012 bundled offers, Pfizer granted community pharmacies a sub-licence of the atorvastatin patent. 591 There is no doubt that Pfizer was the licensee of the atorvastatin patent at all relevant times up to 18 May 2012. However, whether Pfizer granted a sub-licence to the community pharmacies is a different and contentious question. At 544-545 [459], the primary judge answered this question in the negative, concluding that the sale of atorvastatin by Pfizer to the community pharmacies did not involve the granting of any licence to them. However, given his Honour's conclusion that s 47 had not been contravened in any event, his Honour did not consider it necessary to outline his reasons for reaching this conclusion. 592 On appeal, Pfizer submitted that, prior to 18 May 2012, its sale of atorvastatin to community pharmacies involved an implied licence to re-sell, relying upon Interstate Parcel Express Co Proprietary Limited v Time-Life International (Nederlands) BV (1977) 138 CLR 534 (Interstate Parcel), in the absence of which, any community pharmacy that purchased Lipitor or generic atorvastatin from Pfizer and then sold it to a customer would breach s 13 of the Patents Act at the time of on-sale. 593 In Interstate Parcel the appellants argued for the implication of a licence in relation to the sale of goods subject to copyright protection. In considering this argument Stephen J (with whom Barwick CJ and Jacobs J agreed) referred to and discussed a number of authorities on the existence of implied licences for the sale of patented goods. At 549, his Honour said (referring to those authorities which he had discussed): … They should, I think, be seen as confined to the quite special case of the sale by a patentee of patented goods and as turning upon the unique ability which the law confers upon patentees of imposing restrictions upon what use may after sale be made of those goods. If the patentee, having this ability, chooses not to exercise it and sells without imposing any such restrictions, the purchaser and any successors in title may then do as they will with the goods, for they are then in no different position from any purchaser of unpatented goods. But, to ensure that consequence despite the existence, albeit in the instance unexercised, of this power on the patentee's part, the law treats the sale without express restriction as involving the grant of a licence from the patentee authorizing such future use of the goods as the owner for the time being sees fit. The law does this because, without such a licence, any use or dealing with the goods would constitute an infringement of the patentee's monopoly in respect of the use, exercise and vending of the patent. … 594 In our view, the authorities discussed by Stephen J in Interstate Parcel apply to the current facts. Pfizer's sale of Lipitor and its generic atorvastatin to community pharmacies without any express restriction being imposed by Pfizer, involved the grant by Pfizer of a sub-licence of the atorvastatin patent to use or on-sell its atorvastatin. Of course, the pharmacies could only deal with atorvastatin in accordance with the statutory regime imposed upon them in respect of pharmaceuticals sold under the PBS and the Health Act more generally. But these were restrictions imposed under that regulatory regime and not by Pfizer.

Did the Offers include Conditions of the Licence? 595 Pfizer argued that, if it had offered, given or allowed the discounts, rebates or credits referred to in its bundled offers on the condition that the community pharmacies would not, except to a limited extent and for specified periods of up to 12 months, acquire atorvastatin directly or indirectly from Pfizer's competitors, or re-supply atorvastatin acquired directly or indirectly from Pfizer's competitors, as pleaded by the ACCC (which was denied by Pfizer), then these conditions were conditions of the licence of the atorvastatin patent. In response, the ACCC submitted that even if it were established that such a licence existed, the conditions were not conditions of any such licence. 596 Those conditions were not conditions which imposed restrictions on the manner in which the atorvastatin patent was to be commercialised by the community pharmacies. They were not, for example, conditions which imposed quantity restrictions, territorial restrictions or quality specifications on the exploitation of the patent. Rather, if the relevant conditions were conditions at all, those conditions affected the ability of community pharmacies to purchase atorvastatin from Pfizer's competitors. We do not consider conditions restricting dealings with competitors to be conditions of a licence to use or to on-sell a patented product. Accordingly, in our view, the offers did not include conditions of the atorvastatin sub-licence. It follows that the s 51(3) exemption would not have applied to Pfizer's conduct, in any event, as the requirements of s 51(3)(a)(i) were not satisfied.

Did the Condition "relate to" the Invention or Articles made by Use? 597 Even if we had concluded that the postulated conditions were conditions of the licence, those conditions would not have satisfied s 51(3)(a)(iii) because the postulated conditions do not relate to the invention to which the atorvastatin patent relates or articles made by the use of that invention. 598 The meaning of "relates to" in the context of s 51(3) has been described as "nebulous", "vague" and "open-ended" (Eagles I and Longdin L, "Competition in Information and Computer Technology Markets: Intellectual Property Licensing and Section 51(3) of the Trade Practices Act 1974" (2003) Vol 3 No 1 QUTLJJ 31). These difficulties are compounded by the paucity of authority on s 51(3). 599 The construction of s 51(3), and the meaning of "relates to", have been considered only once by the High Court, in Transfield Proprietary Limited v Arlo International Limited (1980) 144 CLR 83 (Transfield). The primary judge provided a concise summary of the facts and key issues in Transfield at 456 [79]: … Arlo International was there a licensee of a patented process for the manufacture and erection of a steel pole, the "Arlo PTL pole". It granted an exclusive sublicense [sic] to Transfield. Clause 7 of the sublicense [sic] provided as follows: The Licensee covenants during the period of the Power Transmission Line Licence at all times to use its best endeavours in and towards the design fabrication installation and selling of the Arlo PTL pole throughout the licensed territory and to energetically promote and develop the greatest possible market for the Arlo PTL pole. In issue was whether this clause was unenforceable because it had the purpose, or had or was likely to have the effect of substantially lessening competition. On its proper construction, this argument was rejected. Views were nevertheless expressed as to s 51(3) of the Trade Practices Act. … 600 In Transfield, Stephen and Murphy JJ did not consider it necessary to determine whether s 51(3) provided a complete answer to the case brought by Arlo. At 92, the Chief Justice said that s 51(1)(a) excepts things authorised by the Patents Act and therefore the submission that s 45 of the TPA rendered cl 7 unenforceable was rejected. At 108, Wilson J concluded: … s. 51(3) would appear to provide a complete answer to the appellant's argument. So far as material, that sub-section provides that s. 45 shall not be taken to have been contravened by reason of a condition of a licence granted by the owner of a patent to the extent that the condition relates to articles made by the use of the invention to which the patent relates. Clause 7 would seem to fall squarely within that provision. 601 Justice Mason considered the applicability of s 51(3) in more detail. His Honour's reasoning at 102-103 is extracted below: The second issue is whether cl. 7 of the Agreement is rendered unenforceable by s. 45 of the Trade Practices Act. The appellant has not shown that cl. 7, on the construction I have given it, tends to lessen competition so as to come within the terms of s. 45(1). Likewise, the appellant has failed to show that cl. 7, on that construction, is within s. 45(2). In any event, I take the view that s. 51(3)(a)(i) and s. 51(3)(a)(iii) of the Trade Practices Act would provide a defence to a case of contravention of s. 45(2) arising out of the presence of cl. 7 in the Agreement. Section 51(4) extends this defence to the determination of whether cl. 7 is unenforceable by reason of s. 45(1). In expressing this view I have assumed, without deciding, in accordance with the submissions of counsel, that the Trade Practices Act as amended in 1977, rather than the 1974 Trade Practices Act, governs the case. The appellant submitted that cl. 7 of the Agreement does not only relate to "the invention" or to "articles made by the use of that invention" but it goes beyond the terms of s. 51(3)(a)(iii) and relates to other products, that is, it relates to not using any other poles. This submission in part reflects an interpretation of cl. 7 which I have rejected and in part attributes to the word "relates" a meaning which is too narrow, thereby giving s. 51(3) an overly restrictive operation. In bridging the different policies of the Patents Act and the Trade Practices Act, s. 51(3) recognizes that a patentee is justly entitled to impose conditions on the granting of a licence or assignment of a patent in order to protect the patentee's legal monopoly. Even under American antitrust law, where there is no equivalent exception to s. 51(3), the patentee is entitled to exercise some measure of control over the licensee consistent with the scope of the patent monopoly, though there has been some controversy as to the scope of permissible control: see Donald and Heydon, Trade Practices Law (1978), vol. 1, pp. 117, 118; Ward S. Bowman Jr., Patent and Antitrust Law (1973), ch. 7 and ch. 8; P. Areeda, Antitrust Analysis, 2nd ed. (1974), pp. 448 et seq. Section 51(3) determines the scope of restrictions the patentee may properly impose on the use of the patent. Conditions which seek to gain advantages collateral to the patent are not covered by s. 51(3). … 602 The notion of advantages collateral to the patent in interpreting the meaning of "relates to" in s 51(3)(a)(iii) was also discussed by Professor Gummow in "Abuse of Monopoly: Industrial Property and Trade Practices Control" (1976) 7 Sydney Law Review 339 at 356: Sub-paragraphs (iii), (iv) and (v) of s. 51(3) speak respectively of the subject invention and articles made by its use, goods to which the design is applied, and the work in which the copyright subsists. It follows from this that, for example, licence agreements which deal with only one subject matter of industrial property, but go on to tie in various collateral obligations or advantages not otherwise secured by the monopoly given by the industrial property concerned, will contain provisions not relating to the subject matter of s. 51(3). … (Footnote omitted) 603 Although the text of s 51(3)(a)(iii) in 1976 was slightly different from the text of that subsection in its current form, Professor Gummow's comments remain relevant and persuasive. 604 The primary judge applied the "collateral advantage" test and held that the alleged conditions imposed by Pfizer were not conditions to which s 51(3) applied, as they were conditions by which Pfizer sought to gain advantages collateral to the statutory rights afforded to it by the patent. 605 On appeal, Pfizer submitted that "relates to" is not to be given a narrow construction and that each of the conditions is expressed to be a condition which relates to atorvastatin, which can only mean atorvastatin tablets, which are articles made by the use to which the atorvastatin patent relates. 606 In our view, the primary judge arrived at the correct conclusion. Whilst atorvastatin tablets are articles to which the atorvastatin patent relates, the postulated conditions are not confined to the tablets being the "… articles made by the use of the invention". As explained above, the postulated conditions impose restrictions on the ability of community pharmacies to deal with Pfizer's competitors. These are not conditions which deal with the subject matter of the intellectual property right itself, the atorvastatin tablets.

Conclusions 607 Our conclusions in respect of the issues raised on appeal by the ACCC and by Pfizer by its Notice of Contention are: (a) The ACCC's pleaded s 46 case was the same case as it ran at trial. That case was not legally incoherent, as found by the primary judge. Therefore, the primary judge erred in finding that the ACCC's s 46 case was legally incoherent. Appeal Ground 17 should be upheld; (b) The primary judge's finding that, at all relevant times and for all relevant purposes, the relevant market was the atorvastatin market as pleaded by the ACCC was correct. For this reason, Pfizer's Contention Ground 1 should be rejected; (c) The primary judge erred when he found that, by January 2012, Pfizer no longer had a substantial degree of market power in the atorvastatin market. We think that throughout the whole of January and February 2012, which was the critical time for assessing market power in this case, Pfizer retained a substantial degree of market power in the atorvastatin market. Accordingly, Appeal Grounds 1, 2 and 3 (in part) should be upheld. We do not think it necessary to decide whether Pfizer retained such market power at all times up to 18 May 2012; (d) The primary judge was correct when he found that, by implementing the DTP model and by establishing the accrual funds scheme, Pfizer took advantage of its substantial market power in the atorvastatin market. Contention Grounds 2 and 3 should be rejected; (e) The primary judge erred when he concluded that, by making the bundled offers which it made in January and February 2012, Pfizer did not take advantage of its market power in the atorvastatin market which we have now held was, at that time, still substantial. We are of the opinion that, by making those offers, Pfizer did take advantage of that market power. Accordingly, Appeal Grounds 4, 5, 7 and 8 should be upheld; (f) The primary judge was correct when he concluded that, at no time in the relevant period, did Pfizer have a proscribed purpose, either for the purposes of s 46(1)(c) of the CCA or for the purposes of s 47(1) and s 47(10)(a) of the CCA, when it engaged in the impugned conduct relied upon by the ACCC in respect of each alleged contravention. Appeal Grounds 10, 11, 12, 13, 14, 15, 16, 23, 24, 25 and 26 should be rejected; (g) His Honour was correct when he found that the contested questions before him as to whether certain discounts, rebates and credits were conditions within s 47(2)(d) and s 47(2)(e) should be resolved in favour of Pfizer. Appeal Grounds 18, 19, 20, 21 and 22 should be rejected; (h) His Honour did not err by rejecting the ACCC's s 47 case in its entirety; and (i) The primary judge was correct when he declined to uphold Pfizer's defence to the ACCC's s 47 case based upon s 51(3) of the CCA. Contention Ground 4 should therefore be rejected. 608 It follows that the appeal must be dismissed. For the moment, the costs of the appeal will be reserved. 609 We shall give each party an opportunity to make a short written submission on the question of costs and shall make appropriate timetabling orders to facilitate this opportunity. Thereafter, we intend to decide the question of costs on the papers. I certify that the preceding six hundred and nine (609) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Greenwood, Middleton and Foster.