Opinion of Mr Advocate General Lenz delivered on 8 March 1994. - Commission of the European Communities v Kingdom of Spain. - Failure to fulfil obligations - Public supply contracts - Pharmaceutical products and specialities. - Case C-328/92.



European Court reports 1994 Page I-01569



Opinion of the Advocate-General

++++

Mr President,

Members of the Court,

A ° Introduction

1. In these proceedings for infringement of the Treaty, the Commission is seeking a declaration from the Court that, by requiring in the legislation concerning social security that the administration award public contracts for the supply of pharmaceutical products and specialities to social security institutions by a direct procedure, and with the social security administration deciding to award nearly all supply contracts directly, the Kingdom of Spain has failed to fulfil its obligations under Directive 77/62/EEC (1) coordinating procedures for the award of public supply contracts. Thus the public supply contracts to be awarded were not published in the Official Journal as required by Article 9 of Directive 77/62.

2. The award of public contracts in Spain is governed by the Ley de Contratos del Estado (Law on State Contracts, hereinafter referred to as "the LCE") and the Reglamento General de Contratación del Estado (2) (General Regulations concerning State contracts), an implementing regulation. According to the first final provision of the decrees aligning the LCE and the implementing regulation with Community law, (3) those provisions also apply to public contracts awarded by the administrative social security bodies.

3. Article 2, points 3 and 8 of the LCE, which were already the subject of the judgment in Case C-71/92, (4) read as follows:

"Notwithstanding the provisions of the previous article, this Law shall not apply to the following contracts and legal acts of the administration:

...

3. transactions which the administration effects with private individuals with respect to goods or rights, dealings in which are regulated (' mediatizado' ) by law, or controlled products (' intervenidos' ) which are the subject of a monopoly (' estancados' ) or prohibited (' prohibidos' );

...

8. contracts expressly excluded by a Law."

4. The purchase of pharmaceutical products and specialities by hospitals within the social security system is governed by Article 107 of the Ley General de la Seguridad Social (5) (General Law on Social Security, hereinafter referred to as "the LGSS"). That provision, entitled "Purchase and distribution of pharmaceutical products and specialities" provides as follows:

"...

2. The social security authority shall purchase directly from the centres of production those pharmaceutical products which are to be used in its institutions, whether open or closed, and for that purpose shall select, according to rigorous scientific criteria, the pharmaceutical products necessary for the care provided in those institutions ... .

3. In all cases, the distribution of pharmaceutical products intended for use outside the institutions referred to in the previous paragraph shall be carried out through legally established pharmacies, which shall be obliged to carry out such distribution ...".

5. There was in force until the end of 1990 an agreement concluded between the State administration and Farmaindustria, the national association of the pharmaceutical industry, under Article 107(4) of the LGSS fixing prices and laying down other financial conditions applying to the purchase and distribution of the pharmaceutical products and specialities in question. While the agreement was in force, and even afterwards, the social security institutions did not normally, with few exceptions, as in the case of vaccines, publish the supply contracts in the Official Journal of the European Communities.

6. The Commission considers the abovementioned provisions and the practice of awarding supply contracts on that basis to be contrary to Community law.

7. The Spanish Government, on the other hand, takes the view that the relevant provisions are compatible with Community law. It contends that the market in pharmaceutical products and specialities constitutes, likewise in accordance with Community law, a highly regulated market in respect of production, the fixing of prices and the observance of industrial property rights. Furthermore, neither the relevant provisions nor the agreement made on the basis thereof preclude observance of the provisions of Community law on publication.

8. The Commission claims that the Court should:

(i) declare that:

° by requiring in the legislation on social security that the administration award public contracts for the supply of pharmaceutical products and specialities to social security institutions by a direct procedure; and

° by awarding nearly all of those supply contracts directly, so that no contract notices were published in the Official Journal of the European Communities,

the Kingdom of Spain has failed to fulfil its obligations under Council Directive 77/62/EEC of 21 December 1976;

(ii) order the Kingdom of Spain to pay the costs.

The Kingdom of Spain contends that the Court should:

(i) dismiss the action;

(ii) order the Commission to pay the costs.

9. I shall consider in detail the facts of the case and the submissions of the parties when I come to assess the legal position.

B ° Analysis

1. Definition of the dispute

10. The Commission submits that its attention was first drawn to the problem by a reference for a preliminary ruling (6) from the Audiencia Territorial de Sevilla. (7) The main proceedings were between the Farmaindustria and the Ministry for Health of the Junta de Andalucía concerning an invitation to tender issued by the Ministry in relation to the purchase of medicinal products in disregard of the said agreement.

11. In the preliminary ruling proceedings, the Commission had proposed that the answer to the questions put by the national court should be that Article 30 of the EEC Treaty (8) and Directive 77/62 must be interpreted as precluding a system for awarding public contracts for the supply of pharmaceutical products of the kind introduced by the agreement and the legal provisions serving as the basis for it.

12. The reference for a preliminary ruling did not proceed to judgment since the plaintiff in the main proceedings withdrew the action. (9) Nevertheless the Commission pursued the question of the legal position which it considered to be contrary to Community law.

13. On 6 July 1990 the Commission sent a letter of formal notice to the Spanish Government pursuant to Article 169 of the EEC Treaty. On 18 March 1991 it sent a reasoned opinion setting a time-limit of one month for adopting remedial measures, which was extended to 18 June 1991. Finally, on 27 July 1992, it brought the present action for infringement of the Treaty, which was received at the Court on 30 July 1992.

14. The pre-litigation procedure was largely occupied with discussions concerning the legal nature and consequences of the contested agreement. Even in the proceedings before the Court, there was further argument concerning its classification. The agreement however expired on 31 December 1990, that is before the issue of the reasoned opinion of 18 March 1991 and thus before the expiry of the time-limit set therein for adopting the remedial measures. The agreement cannot therefore be the subject of the present proceedings. (10)

15. Since the agreement represented a substantial part of the subject-matter of the dispute in the pre-litigation procedure, the question arises as to how far the subject-matter of the proceedings for infringement of the Treaty, (11) already defined in the pre-litigation procedure, agreed with that of the application. If the subject -matter of the application were even partially new, that could render the application inadmissible. (12)

16. The legal basis of the agreement in Article 107(4) and (5) of the LGSS, the agreement itself and its alleged incompatibility with Directive 77/62 and Article 30 of the EEC Treaty were essential elements of the letter of formal notice. Those aspects are also to be encountered in the reasoned opinion. It is true that the reasoned opinion also objects to Article 107(2) and (3) of the LGSS which, as interpreted by the Commission, lays down that supply contracts are to be awarded directly. On page 9 of that opinion there is a general complaint that the system of supplying pharmaceutical products to social security institutions in Spain is provided for in Article 107 of the LGSS, which is concerned with the award of contracts by the direct procedure. Whatever form of contract is adopted by the social security institution for the award of contracts, the provisions of the directive must be observed.

17. Finally in the reasoned opinion the alleged infringement of the Treaty is also worded in general terms: by requiring in the legislation on social security that the administration award public contracts for the supply of pharmaceutical specialities to social security institutions by a direct procedure, and with the social security administration deciding to award all such supplies to the National Association of Pharmaceutical Undertakings directly, and by failing to publish the contract notices in the Official Journal of the European Communities, the Kingdom of Spain has failed to fulfil its obligations under Directive 77/62 and Article 30 of the EEC Treaty. That wording is basically the same as that of the application.

18. The Commission did not make the agreement a central issue in its application and failed to mention it at all in the form of order sought. There is no reference to Article 30 of the EEC Treaty in the application, which in that respect causes no problem since the omission constitutes a restriction of the subject-matter. In its reply, (13) the Commission expressly states that Article 30 is not an issue in the proceedings.

19. In the result, the subject-matter of the dispute, limited by the reasoned opinion and substantiated by the application, must be regarded as the objection to the rules in Article 107 of the LGSS governing the award of contracts for the supply of pharmaceutical products and specialities to social security institutions, as well as to the direct procedure.

2. Applicability of Directive 77/62

20. It is necessary to start from the premise that since 1 January 1991, that is the period after the expiry of the agreement which gave rise to the proceedings, all public contracts for the supply of pharmaceutical products and specialities were awarded (with few exceptions (14)) to social security institutions by the direct procedure. As a rule the supply contracts were not published in the Official Journal of the European Communities. The period monitored by the Commission covers more than one and a half years, namely from 1 January 1991 to the end of July 1992 when the action was brought.

21. Public supply contracts, that is contracts for the supply of goods, (15) in writing and for consideration, concluded between a supplier and a contracting authority within the meaning of Article 1(b) of the directive, come within the scope of Directive 77/62 only if the estimated value is not less than ECU 200 000. (16) Under Directive 88/295, the time-limit for the implementation of which expired in the case of the Kingdom of Spain on 1 March, (17) a lower value of ECU 130 000 applies for certain contracting authorities. (18)

22. Even if, in the absence of concrete evidence of individual contracts, the volume of contracts for the supply of pharmaceutical products and specialities to social security institutions can only be estimated, it must be assumed that in view of the spread of social security institutions in Spain the volume of contracts is considerable. In view of the systematic failure to publish the contract notices in accordance with Article 9 of Directive 77/62, it must be assumed a contrario that supply contracts, which by reason of their value fall within the scope of the directive, were also awarded by the direct procedure.

23. Furthermore, Article 5(2) and (3) of the directive must be observed in estimating the value of the contract. In the case of regular or renewable supply contracts, a type of contract which in the nature of things is most likely to be concluded in the case of supplies to social security institutions, Article 5(2) provides that "the aggregate cost during the 12 months following first delivery or during the term of the contract where this is greater than 12 months must be taken as the basis". For supplies of the same kind Article 5(3) provides:

"If a proposed purchase of supplies of the same type may lead to contracts being awarded at the same time in separate parts, the estimated value of the sum total of these parts must be taken as the basis ...".

24. It follows that contracts for the supply of pharmaceutical products and specialities to social security institutions in principle fall within the scope of the directive.

25. The Spanish Government contended that the pharmaceutical market was highly regulated and that price controls were acceptable, if not mandatory, in the interests of public health care. The Spanish Government refers to the Community legislation on the approximation of provisions laid down by law, regulation or administrative action relating to proprietary medicinal products. (19) Furthermore it cites Directive 89/105/EEC (20) relating to the transparency of measures regulating the pricing of medicinal products for human use and their inclusion in the scope of national health insurance systems, the object of which is "to obtain an overall view of national pricing arrangements ...". (21) The Spanish Government therefore considers that agreements fixing prices are unobjectionable from the point of view of Community law. In its view, the Spanish legislation is compatible with all the relevant Community legislation.

26. Those arguments obviously constitute the basis for the Spanish Government' s contention that Directive 77/62 does not apply.

27. Provisions regulating products, market transparency and the fixing of prices have a different object from those governing the procedure for the award of public contracts. Even if all those provisions are intended to encourage the free movement of goods in the broadest sense, that does not mean that observance of the one exonerates from compliance with the other. The aim of the rules and their addressees are different. It is precisely because those different rules ultimately serve the same purpose that they are not mutually exclusive.

28. The rules on the marketing of products cannot therefore displace the rules governing the procedure for the award of public contracts. (22) The present case, however, is concerned only with observance of the latter. The obligations imposed by Directive 77/62 regarding publication are therefore applicable to the pharmaceutical products sector as well in so far as no exceptions apply.

3. Exceptions to Directive 77/62

29. In considering possible exceptions, it is necessary as a rule to start from the premise that they are granted only within the scope allowed by the directive, (23) since otherwise the object of the directive, namely to coordinate procedures for the award of supply contracts by introducing equal conditions of competition and ensuring transparency, (24) would be jeopardized.

30. The ninth recital in the preamble to Directive 77/62 reads as follows:

"Provision must be made for exceptional cases where measures concerning the coordination of procedures may not necessarily be applied, but such cases must be expressly limited".

31. Accordingly it is necessary to consider whether the award of contracts for the supply of pharmaceutical products by a direct procedure falls within the exceptions provided for in the directive.

32. Article 2(2) of Directive 77/62 provides that the directive is not to apply to certain awarding bodies, namely bodies which administer transport services, (25) and bodies which administer water, energy and telecommunications services. (26) Moreover, Article 2(2)(c) of Directive 77/62, as amended by Directive 88/295, provides for an exception in respect of supplies which are declared secret or when their delivery must be accompanied by special security measures. The exceptions in Article 2 of the directive are certainly not applicable in the present case. Nor is Article 3 which excludes from the scope of the directive public contracts governed by procedural rules which are different and are awarded pursuant to an international agreement (27) or to the specific procedures of an international organization. (28)

33. Article 6 of Directive 77/62 lists the circumstances in which a contracting authority may award a supply contract without observing an "open procedure" (29) or a "restricted procedure". (30) Thus, in those circumstances which are described in detail, the award of a supply contract by the direct procedure is possible with the result that publication of the invitation to tender pursuant to Article 9(1) of the directive may be dispensed with.

34. The Spanish Government considers that Article 6(1)(b) and (d) are both relevant. According to Article 6(1)(b) supply contracts may be awarded by the direct procedure "when, for technical or artistic reasons, or for reasons connected with protection of exclusive rights, the goods supplied may be manufactured or delivered only by a particular supplier".

35. The Spanish Government takes the view that exclusive rights often have to be observed in the pharmaceutical products sector, which excludes a choice between various manufacturers from the outset. A doctor' s freedom of prescription, which, moreover, is consistent with Community law, (31) entails that certain pharmaceutical products should be obtainable from the manufacturers who hold exclusive rights to them. (32)

36. It is undisputed that exclusive rights are to be encountered on the market in medicinal products, even if they are not so common. However, the protection of exclusive rights, such as registered trade marks or marketing licences, may justify the award of a contract by the direct procedure only if the product "may be manufactured or delivered only by a particular supplier (33)". (34) The protection of exclusive rights in the market in medicinal products can in no way go so far as to exclude competition in practically all products. The Spanish Government gives that impression when it seeks to justify the systematic failure to publish public supply contract notices in the Official Journal of the European Communities by reference to the protection of exclusive rights. That is not in keeping with the actual facts, since the market in pharmaceutical products is very much a competitive market.

37. The extent to which medicinal products may, on account of the protection of exclusive rights, be obtained only from one manufacturer in relation to the total needs of the social security institutions cannot be determined here in the absence of specific data. It is clear, however, that it cannot cover all pharmaceutical products and specialities and that it is for the Member State which relies on the exception to adduce grounds.

38. In the result, Article 6(1)(b) may be relied on for at most only a part of the supply contracts for pharmaceutical products, to be specified by the Member State concerned.

39. So far as concerns freedom to prescribe, it may not in any way be called into question. However, that principle, as the Commission has rightly argued, must be viewed separately from meeting in broad terms the needs of a hospital pharmacy. If in particular cases a medicinal product is prescribed which is not in stock, there are usually reasons of extreme urgency within the meaning of Article 6(1)(d) of the directive.

40. Article 6(1)(d) of the directive allows the award of contracts by the direct procedure "in so far as is strictly necessary when, for reasons of extreme urgency brought about by events unforeseeable by the contracting authorities, the time-limit laid down in the procedures covered by Article 4(1) and (2) (35) cannot be kept".

41. All the conditions laid down in the provision must be met cumulatively in order to justify an exception. That was decided by the Court in relation to the corresponding provision in Directive 71/305/EEC (36) on the coordination of procedures for the award for public works contracts. (37)

42. In cases in which a medical prescription cannot be satisfied at once because the prescribed medicinal product is not in stock in the pharmacy concerned, the contracting authority can no doubt rely on Article 6(1)(d). In the case of such individual orders, the value of the supply contract is generally so small that it will not fall within the scope of the directive. Article 6(1)(d) cannot therefore normally be relied upon to justify the procedure for the award of public contracts for the supply of pharmaceutical products, to which the Commission has objected.

4. The legal position in Spain in relation to the award of public supply contracts for pharmaceutical products and specialities by social security institutions

43. The legal basis for breach of the duty regarding publication pursuant to Directive 77/62 is Article 107 of the LGSS in conjunction with Article 2(3) and (8) of the LCE and the corresponding implementing provisions. Article 2(3) of the LCE expressly excludes from the scope of the Law transactions in relation to goods or rights, dealings in which are regulated by law, or to products which are controlled, subject to a monopoly or prohibited. Article 2(8), on the other hand, refers to further exceptions from the general provisions which may be laid down by law. Article 107 of the LGSS extends the possibility of exemption in the case of supply contracts for social security institutions.

44. Article 2(3) and (8) of the LCE and Article 2(3) and (8) of the corresponding implementing regulation have already been discussed in Case C-71/92. In its judgment of 17 November 1993, the Court held that by maintaining those provisions in force the Kingdom of Spain had failed to fulfil its obligations under Directive 77/62, which is at issue in this case, and under Directive 71/305. In the grounds of the judgment, the Court refers to the fact that Articles 2(2) and 3 of Directive 77/62, which list the public supply contracts exempted from the directive, did not define the exceptions with regard to the legal nature of the products in question, as the Spanish Government has done. (38)

45. The technique of providing for exceptions (39) in relation to products and by reference to legislation (40) is not compatible with the provisions of Community law in Directive 77/62. In so far as Article 2(3) and (8) of the LCE (41) are incompatible with Community law, the same must be true of Article 107 of the LGSS as a supplement to the statutory reference in Article 2(8).

46. Admittedly, the Spanish Government pleads in its defence that that provision does not preclude the application of Directive 77/62. In its observations in Case C-71/92, (42) however, it had already conceded that the basic provisions on public supply contracts exclude from their scope the market for medicinal products.

47. Finally it need not be decided whether the statutory rules of the Member State mandatorily exclude the general provisions on the publication of invitations to tender and, consequently, Directive 77/62, or whether they offer only the possibility of a divergent procedure beyond the exceptions provided for in Directive 77/62, since any exceptions, including those of an optional nature, which are not covered by the directive are incompatible with it.

48. Article 107(2) of the LGSS, which lays down that "the social security authority shall purchase directly from the centres of production those pharmaceutical products which are to be used in its institutions, whether open or closed, ...", is contrary to Community law even if it imposes no obligation, but merely makes it possible, to award a contract by the direct procedure.

Costs

49. Pursuant to Article 69(2) of the Rules of Procedure of the Court of Justice, the unsuccessful party is to be ordered to pay the costs if they have been applied for.

C ° Conclusion

50. In the light of the foregoing considerations, I propose that the Court:

(1) Declare that,

° by requiring in the legislation on social security that the administration award public contracts for the supply of pharmaceutical products and specialities to social security institutions by a direct procedure; and

° by awarding nearly all supply contracts directly, so that no contract notice was published in the Official Journal of the European Communities,

the Kingdom of Spain has failed to fulfil its obligations under Directive 77/62/EEC;

(2) Order the Kingdom of Spain to pay the costs.

(*) Original language: German.

(1) - Council Directive 77/62/EEC of 21 December 1976 (OJ 1977 L 13, p. 1), as most recently amended by Council Directive 88/295/EEC of 22 March 1988 (OJ 1988 L 127, p. 1), which pursuant to Article 20 thereof applies to Spain only from 1 March 1992; the whole of the pre-litigation procedure prior to the present proceedings for infringement of the Treaty took place before that date.

(2) - As amended by the Real Decreto Legislativo No 931/86 of 2 May 1986 (BOE No 114 of 13 May 1986, p. 16920) and the Real Decreto No 2528/86 of 28 November 1986 (BOE No 297 of 12 December 1986, p. 40546) for the purpose of complying with the directives of the European Economic Community.

(3) - Real Decreto Legislativo No 931/86 and Real Decreto No 2528/86.

(4) - Judgment in Case C-71/92 Commission v Spain [1993] ECR I-0000.

(5) - As amended by Decree No 2065/74 of 30 May 1974 on the approval of the consolidated text of the general law on social security (BOE No 174 of 20 July 1974, p. 1482).

(6) - Reference for a preliminary ruling of 8 May 1989 in Case C-179/89 (OJ 1989 C 160, p. 10).

(7) - Since 23 May 1989, the Tribunal Superior de Justicia de Andalucía (BOE No 119 of 19 May 1989, p. 14896).

(8) - Since 1 November 1993, the EC Treaty pursuant to the Treaty on European Union of 7 February 1992 (OJ 1993 C 191, p. 1).

(9) - Removed from the Register of the Court (see OJ 1989 C 301, p. 7).

(10) - For the consequences of termination of the infringement of the Treaty before the expiry of the period laid down in the reasoned opinion, see my Opinion of 26 February 1992 in Case C-362/90 Commission v Italy [1992] ECR I-2353, paragraph 10 et seq.

(11) - See the judgment in Case C-296/92 Commission v Italy [1994] ECR I-0000, paragraph 11.

(12) - See Case C-296/92 Commission v Italy, cited above.

(13) - P. 2 of the reply.

(14) - Mainly vaccines.

(15) - See Article 1(a) of Directive 77/62.

(16) - See Article 5(1)(a) of Directive 77/62.

(17) - See Article 20(2) of Directive 88/295.

(18) - See the second subparagraph of Article 5(1)(a) of Directive 77/62, as amended by Directive 88/295.

(19) - See p. 5 of the defence; Council Directive 65/65/EEC of 26 January 1965 on the approximation of provisions laid down by law, regulation or administrative action relating to proprietary medicinal products (OJ, English Special Edition 1965-1966, p. 20); Council Directive 75/318/EEC of 20 May 1975 on the approximation of the laws of Member States relating to analytical, pharmaco-toxicological and clinical standards and protocols in respect of the testing of proprietary medicinal products (OJ 1975 L 147, p. 1); Second Council Directive 75/319/EEC of 20 May 1975 on the approximation of provisions laid down by law, regulation or administrative action relating to proprietary medicinal products (OJ 1975 L 147, p. 13) and the later amending directives: Directive 87/19/EEC (OJ 1987 L 15, p. 31), Directive 87/21/EEC (OJ 1987 L 15, p. 36) and Directive 89/341/EEC (OJ 1989 L 142, p. 11).

(20) - Council Directive of 21 December 1988 (OJ 1989 L 40, p. 8).

(21) - See the fifth recital in the preamble to Directive 89/105.

(22) - Case C-71/92, ibid., paragraph 15.

(23) - Case C-71/92, ibid., paragraphs 10, 22 and 36.

(24) - See the second recital in the preamble to Directive 77/62.

(25) - Article 2(2)(a) of Directive 77/62.

(26) - Article 2(2)(b) of Directive 77/62.

(27) - See Article 3(a) and (b) of Directive 77/62.

(28) - See Article 3(c) of Directive 77/62.

(29) - See Article 4(1) of Directive 77/62.

(30) - See Article 4(2) of Directive 77/62.

(31) - With reference to the judgment in Joined Cases 266 and 267/87 The Queen v Royal Pharmaceutical Society of Great Britain, ex parte Association of Pharmaceutical Importers [1989] ECR 1295.

(32) - With reference to the judgments in Case 102/77 Hoffmann La Roche v Centrafarm [1978] ECR 1139 and in Case 3/78 Centrafarm v American Home Products Corporation [1978] ECR 1823.

(33) - Emphasis added.

(34) - See Article 6(1)(b).

(35) - Open procedures and restricted procedures .

(36) - Council Directive of 26 July 1971 concerning the coordination of procedures for the award of public works contracts (OJ, English Special Edition 1971 (II), p. 682).

(37) - See my Opinion of 13 January 1987 in Case 199/85 Commission v Italy [1987] ECR 1039, at p. 1047, paragraph 36; judgment in Case C-24/91 Commission v Spain [1992] ECR I-1989, paragraph 13; judgment in Case C-107/92 Commission v Italy [1993] ECR I-4655, paragraph 12.

(38) - See paragraph 11 of the judgment in Case C-71/92.

(39) - See paragraph 18 of the judgment in Case C-71/92.

(40) - See paragraph 26 of the judgment in Case C-71/92.

(41) - Likewise the corresponding provisions of the implementing regulation.

(42) - See paragraph 12 of the judgment in Case C-71/92.