Economical with the truth? When providing misleading information to authorities might be an object infringement

One of the more intriguing Opinions to be given by an Advocate General recently came out in late September (Case C-179/16, F. Hoffmann-La Roche and Others v Autorità Garante della Concorrenza e del Mercato (AGCM), Opinion of Advocate General Saugmandsgaard Øe delivered on 21 September 2017). 

 It is full of interesting observations on market definition in the pharma sector; the distinction between object and effect; how to look at the question of competition between licensors and licensees under the Technology Transfer Regulation; and how to assess whether a restriction of competition exists. We will be writing about these (and more) a bit later, but thought that in the meantime those of you who are particularly interested in Life Sciences might want to take a look at our sister blog On The Pulse. A short article has been posted there which briefly summarises the Advocate General’s views on whether there is a duty on pharma companies under Article 101 not to agree to provide information which is objectively misleading to the regulatory authorities. In this instance the information found to be misleading related to the relative safety of two products, one of which was authorised to treat ophthalmic conditions and one of which was not, but which was being prescribed off-label – so quite unusual circumstances (although perhaps a situation that could be expected to arise more in future, as second, third and fourth medical uses become the norm).

You may remember that a similar legal issue has already been discussed under Article 102 in the AstraZeneca case (see here and here) where dominant companies were found to be subject to a duty to act transparently when dealing with the patent authorities. The extent of the duty was somewhat modified by the CJEU, but the obligation to provide all relevant information, and to clarify information which subsequently turns out to be incorrect, still exists. It will be interesting to see whether the CJEU follows the Advocate General in his approach to identifying a similar duty under Article 101, and whether the Advocate General’s expansive reading of when information may be misleading is approved by the Court.

Pat Treacy

Product hopping: The competition law risks of launching new product formulations

‘Product hopping’, or ‘evergreening’, are expressions used (by competition authorities and industry respectively) to describe strategies employed by pharmaceutical companies to protect sales of a successful drug on the verge of losing patent protection. For example, a pharmaceutical company might introduce a new formulation of the drug before it faces significant competition from a generic alternative.

There is nothing inherently wrong with product hopping. The European Court of Justice has recognised that it is legitimate for pharmaceutical companies to adopt strategies seeking to minimise the erosion of their sales when faced with competition from generic products1. In addition, the development of a new and improved formulation of a drug can be extremely beneficial, both to the patients that might find it more effective, and to society as a whole for the jobs created in researching, manufacturing and marketing the new product.

However, there is a growing line of case law in the US and Europe that illustrate the competition law risks involved with product hopping. In all of these cases, the issue has not been the introduction of a new formulation. Instead, it has been other specific elements of the strategies employed by pharmaceutical companies to encourage consumers to switch to the new formulation that have caught the attention of the courts and regulators, particularly where this has prevented consumers from having a choice between a branded drug and generic version. 

Europe

Cases in Europe offer some clear examples of this. When withdrawing Losec capsules in favour of new Losec tablets, AstraZeneca deregistered its marketing authorisation for Losec capsules in several EU Member States. This prevented generics manufacturers from relying upon the clinical trials conducted for Losec capsules when applying for authorisation for a generic version, making it for more difficult for generics to enter the market. The deregistrations, in the absence of any objective justification, were found to be an abuse of a dominant position2.

In the UK, Reckitt Benckiser replaced its original Gaviscon product with a new version, Gaviscon Advance. This was done after the original patent had expired but before a generic name for the original product had been published, with the result that prescriptions could only be written for the new branded product. In finding that this was an abuse, the UK regulator held that it would have been commercially irrational to withdraw the original product had it not been for the anticipated benefits of delaying generic competition3.

In both cases, the introduction of the new product was not anti-competitive, however, the combination of that and the exploitation of the underlying regulatory framework was found to breach competition law.

USA

In the US, the focus has also been on actions by pharmaceutical companies that remove the consumer’s ability to choose. 

In State of New York v Actavis4, a US Appeal Court drew a distinction between a ‘soft switch’ and a ‘hard switch’. Actavis manufactured a successful twice-daily Alzheimer’s drug, Namenda IR. In 2013, it introduced a once-daily version, Namenda XR. The new drug contained the same active ingredient, memantine. Actavis began an aggressive marketing campaign to switch patients on to Namenda XR, and made use of rebates to offer it at a low price. This was the soft switch. Then, in August 2014, a year before it was due to lose patent protection on Namenda IR, Actavis discontinued it. The Court described this as a hard switch; the discontinuation left Namenda XR as the only option for patients before the entry of a generic version of Namenda IR. The court held that the hard switch crossed the line from persuasion to coercion, and was anti-competitive.

More recently, in early September 2017, the US District Court for the Eastern District of Pennsylvania denied Indivior’s motion to dismiss a claim brought against it by the State of Wisconsin (along with a number of other States) alleging anti-competitive behaviour relating to its marketing and sale of Suboxone5. In finding that Wisconsin had a plausible claim, the court noted that Indivior had near simultaneously introduced a new Suboxone film, removed its Suboxone tablets from the market, and engaged in a marketing campaign to disparage Suboxone tablets. This was done before the entry of generic competitors into the relevant market, leading to a restriction of the ability of consumers to choose between the branded products and a generic alternative.

Interestingly, although the plaintiffs characterise Indivior’s conduct as a hard switch, the generic alternative to Suboxone tablets had been on the market for almost two weeks before the tablets were withdrawn. Arguably, Suboxone tablet prescriptions could simply have been replaced with generic tablets at this point. However, realistically this could only occur for patients who needed to renew their prescriptions in that short period of time. In addition, the plaintiffs claim that even by the time generic tablets received FDA approval in February 2013, 85% of Suboxone prescriptions were already for film instead of tablets. If this case proceeds to trial, the focus may therefore be on the soft switch elements to Indivior’s strategy: the disparagement of tablets leading to the rapid take-up of film. In denying the motion to dismiss, the judge noted that summary judgment record might be different, suggesting that he wasn’t completely convinced by the merits of the plaintiffs’ case.

Will the case law develop further?

It’s possible that in the future we may see competition authorities or courts seeking to penalise conduct that is closer to a soft switch than hard switch. After all, in France in 2016, the Cour de Cassation upheld the €40.6m fine imposed on Sanofi-Aventis by the French Competition Authority in May 20136. Sanofi-Aventis was found to have denigrated generic competitors of its drug Plavix in its communications with doctors and pharmacists; it encouraged them to indicate on Plavix subscriptions that the drug was “non-substitutable”. This was not a hard switch – there was a generic alternative available, but the conduct had a similar effect to a hard switch; it partially foreclosed generic entry to the French clopidogrel market (leading to a softening of competition, as Sanofi lost market share to generics much more slowly than it otherwise would have). 

For now though, it remains the case that pharmaceutical companies can continue to take steps to extend the lifetime of their product ranges, as long as they are careful to ensure that any introduction of a new formulation is not supported by a strategy that limits the ability of generics of the earlier formulation to enter the market. Where companies avoid that potential pitfall, the introduction of new formulations benefits patients: and pharmaceutical companies’ promotion of those positive attributes epitomises legitimate competition on the merits.

______________________________________________
1 AstraZeneca v Commission, Case C-457/10 P, at 129.
2 AstraZeneca v Commission, Case C-457/10 P.
3 Decision of the Office of Fair Trading, predecessor to the Competition and Markets Authority, in Case CE/8931/08, decision of 12 April 2011 at 6.64.
4 State of New York v. Actavis, Case No. 14-4624 (2d Cir. 2015)
5 State of Wisconsin et al. v. Indivior Inc. et al., case number 2:16-cv-05073.

Introducing On the Pulse – the Bristows life sciences microsite

Bristows has recently launched On the Pulse, a microsite offering legal analysis and practical tools that our life sciences readers may find useful.

The site is organised by sector, covering pharmaceuticals, biotech, medical devices, health care and animal health. There is a Brexit section, touching on many aspects from data protection to tax issues, and from scientific funding to the UPC. The Tools menu allows access to a number of standard documents in different areas, including competition/procurement

There are already a number of competition focused posts from our regular contributors, with Aimee Brookes writing about excessive pricing, Matthew Hunt on product hopping and rebates, Noel Watson-Doig on the NHS approach to biosimilar procurement and on standardisation agreements in pharma and Francion Brooks on CMA enforcement in the pharmaceutical sector. We hope our readers find it a useful resource and we will continue to link to any relevant articles from here.

SEPs, 5G and the IoT: where will the Commission land on use-based licensing?

In April this year we reported that the Commission had released a Roadmap towards a ‘Communication on Standard Essential Patents for a European digitalised economy’,  intended to address some of the uncertainties in SEP licensing left unresolved following Huawei v ZTE (see e.g. here), and to drive progress for the EU-wide adoption of 5G. Originally expected in May, the Communication is now said to be likely to be published before the end of the year. Part of the reason for the delay appears to be a dispute between several directorates within the Commission as to the appropriateness of use-based licensing for Internet of Things (IoT) enabled devices.

Recap: the IoT & 5G

The Internet of Things (IoT) will result in increasing inter-connectivity between devices. For example, smart kitchen appliances can already be turned on remotely. A new smart fridge might re-order milk automatically. On a grander scale, lighting systems in towns and cities might vary the level of illumination produced by streetlamps based on the time of day, season, or even weather conditions. 

Some of these new technologies will be very data hungry. They will all require the ability to connect to mobile networks and other devices. This is where standards come in. Standards like 3G and 4G enable fast mobile connectivity. 5G, currently in development, will enable even faster transfers of data. Each of these standards incorporates thousands of patents which have been declared essential to use of the standard (SEPs). The holder of an SEP must commit to license its SEPs on Fair, Reasonable and Non-Discriminatory (FRAND) terms. 

The negotiation of FRAND terms is often contentious (see for example our reports on the Unwired Planet case in the UK, here and here, Huawei v ZTE in the EU, and Ericsson v D-Link and CSIRO v Cisco in the US). Most FRAND litigation to date has focussed primarily on mobile phones or similar devices. As more types of product with connectivity are developed, licensing negotiations (and litigation following failed negotiations) risk becoming even more complicated. However, as there could be more than 29 billion IoT connected devices by 2020, with IoT systems creating an economic impact of more than $11 trillion per year by 2025 (source), the stakes are considerable.

The difficulties of drafting the Communication

A number of recent reports have indicated considerable debate within the Commission about the contents of the Communication. The centre of the dispute is use-based licensing: whether SEP holders should be able to charge different rates to different licensees depending on the nature of the final product that implements the technology. 

For example, it is argued that 5G is more valuable to a mobile phone, where connectivity is integral to its operation, than to a smart energy meter that might only connect once a day. It is therefore suggested that charging a higher royalty rate for a 5G enabled mobile phone than a 5G enabled meter is fair. This is the position supported by some big SEP holders such as Qualcomm, Nokia and Ericsson.

On the other hand, small developers claim that by focussing on the final product, SEP holders are trying to take a cut of the value created by other inventors who have come up with innovative new uses of a technology. Some vocal critics of current licensing practices take issue with the SEP holder practice of granting licences only to those who produce and sell the final product, such as Samsung, Apple or Huawei. Instead, they argue that SEP holders should be obliged to grant licences to all-comers, including companies higher up the supply chain, for example to those that produce the wireless chipsets incorporating the SEP technology. 

However, this option could also create its own challenges. If a number of companies in the supply chain have all taken licences to the same underlying SEPs, this could result in a form of ‘double-dipping’ – allowing SEP holders to recover higher royalties (depending on the extent to which the licence would otherwise ‘pass-through’ from the company highest in the chain to the end manufacturer). It could also result in an increase in the number and complexity of licensing negotiations. Those who support use based licensing argue that the simplest way of licensing SEPs of this sort is at the point where the final product incorporating the patented technology is complete, and that a single licence at that point is the neatest and most efficient licensing model. 

Underlying both positions is a concern about the price to be paid for standard essential technology. Those who develop that technology and contribute it to standards want to ensure a return on their investment and argue that good financial incentives are required to ensure continued innovation. Those who use the technology argue that they are happy to pay, but also need their incentives to continue bringing new data-dependent products to market not to be crimped by patentees charging royalties which exceed the value contributed by standardised technologies. Implicitly, both arguments assume that relying on royalties at an earlier point in the value chain will result in lower costs for product developers and lower returns for patentees.

Our understanding is that within the Commission itself, some directorates largely support the views of the SEP holders. They cite concerns about the need to preserve SEP holders’ incentives to innovate and support the use based model, which would enable SEP holders to calibrate the royalties sought finely by reference to different uses. On the other hand, DG Competition continues to be concerned about the position of implementers. It notes that they may face significant difficulties in acquiring licences directly, as well as the potential for unjustified price discrimination between users if companies higher in the supply chain are not able to obtain, and pass on the benefits of, licences to all comers. Over recent years, DG Competition has also frequently focussed on incentives for follow-on innovation both in TMT and in other sectors, which again tends to favour the position of implementers. 

Whatever the final text of the Communication, the intensity of the debate surrounding it means that it is unlikely to be overly prescriptive. Discussion on these issues is likely to continue over the coming years across an array of industry forums and within bodies such as ETSI, not least because of the global nature of the debate. It’s also worth noting that representatives from a number of technology companies such as Nokia, Ericsson and Orange have formed a committee to establish an industry-wide code on best practices for SEP licensing (here – subscription required). It will be interesting to see if that code supports or conflicts with the Commission’s approach.

Laitenberger on the notions of fairness and consumer welfare in EU Competition Law

Johannes Laitenberger (Director-General for Competition, European Commission) spoke last week on an increasingly prominent topic in competition authority discourse, namely the role of fairness in competition law.

Fairness

Taking his cue from Commissioner Vestager’s recent speech on the same topic (see here), Laitenberger’s speech looked at the concept through the lens of recent developments in relation to innovation and digital markets. According to Laitenberger, “fairness is important to maintain confidence in the system”. Citing a topical example, he noted the recent Amazon state aid case.

That case related to a tax ruling granted by Luxembourg to Amazon that allowed Amazon to shift ¾ of their EU profits to an untaxed entity, in the form of an IP royalty payment. The decision has strong similarities to the 2016 Apple/Ireland ruling, in which the Commission found that equivalent royalty payments bore no relation to economic reality and thus constituted illegal state aid. The Apple ruling is set to be considered by the CJEU, but the Commission remains of the view that the use of unwarranted IP royalty payments to reduce tax burdens, are ‘unfair’ and will receive short shrift.

Assessing innovation

Laitenberger emphasised that the role of competition law is not limited to consideration of price competition. Other parameters of competition, including quality, choice and innovation are also key in digital markets.

He illustrated this through a discussion of merger cases where the impact on innovation was a major concern (see our previous commentary here). Perhaps the most controversial of these has been the Dow/Dupont decision, where the Commission used techniques such as patent citation analysis to assess the impact of a reduction of the number of players in the agrichemical business. It ultimately ordered the divestiture of Dupont’s R&D organisation in order to ensure future innovation was protected. Laitenberger highlighted the Commission’s main concerns in this case: a small number of major agrichemical business with R&D capabilities; very high barriers to entry; evidence of likely lessening of R&D efforts post-merger; and existing overlaps between current R&D efforts. This is not the only merger case in which such concerns have been key, and it is likely that this trend will continue. 

EU Competition Law is “fit for purpose”

Indeed, Laitenberger also referred to the Microsoft-LinkedIn merger (about which we wrote earlier this year) as an example of the Commission being alert to the potential anti-competitive effects of big data.

Going forward, it remains to be seen whether the Commission will live up to Laitenberger’s ambition “to ensure that markets deliver for the many, not the few” by accounting “for new phenomena and new technologies while maintaining the level of enforcement that is needed for the Single Market to serve society as a whole”. While this aspiration is probably uncontroversial, it also remains to be seen whether the Commission will continue to be able to meet it while remaining true to the fundamentals of competition law as it has developed over the past 50+ years. Indeed, if it is true that divestment remedies ordered against merging parties on grounds of innovation are controversial, the same is all the more true in behavioural cases where innovative conduct is in play. The concept of predatory innovation remains a novel one in competition law, and one where the risks of over-enforcement are legion.

Licensing of Latvian collecting society prompts CJEU to provide greater clarity on how to determine excessive pricing

Last week the CJEU released its judgment on excessive pricing that could prove of interest to many of our readers.

In 2013 a dispute arose between the Latvian Competition Council and the AKKA/LAA, the Latvian equivalent of the PRS, responsible for licensing the public performance of musical works and collecting the resulting royalties. AKKA/LAA, a monopoly organisation, was fined for excessive pricing (and thus an abuse of a dominant position under Article 102 TFEU) but took this ruling to the courts. In finding that the collecting society had engaged in excessive pricing, the Latvian competition authority had made direct comparisons with prices in the neighbouring states of Estonia and Lithuania and found that the rates applied in Latvia were two to three times higher than those applied in the other two Baltic States. The authority also made a comparison to the rest of the EU on a purchasing power parity (PPP) basis. On a reference to the CJEU, the Court was asked to rule on several important questions relating to this assessment.

First, the CJEU dealt with how to make valid comparisons in assessing the imposition of unfair prices. The Court ruled that such comparisons are valid, provided that the relevant Member States are selected according to ‘objective, appropriate and verifiable criteria’ and that the comparison is made on a ‘consistent basis’. Such criteria could include factors as concrete as GDP per capita, or as loose as ‘cultural and historical heritage’. Notably, the Court held that a comparison cannot be considered to be insufficiently representative merely because it takes a limited number of Member States into account. Whilst such a clear statement on the legal position is welcome, recent case law has shown that agreeing objective criteria by which to select comparables is not trivial. For example, in the Unwired Planet litigation (see here), in attempting to agree a FRAND rate for a licence in the telecommunications sector, there was much debate over which licences were the most comparable. 

Second, the CJEU dealt with the circumstances in which prices would be considered excessive. The Court ruled that there is no minimum threshold, but instead that Article 102 will bite where a difference in price is ‘both significant and persistent on the facts’. Looking at the growing number of actions against pharmaceutical companies for excessive pricing, most notably the Commission investigation into Aspen (reported on in August), a key question remains as to what amounts to a significantly and persistently higher price. An obvious starting point, now validated by this ruling, is a comparison with other Member States, but with so many different national healthcare and regulatory systems in place in the EU this may not be straightforward.  

Overall, this decision provides some welcome guidance, but there still remains plenty to ponder!

The CJEU’s Intel judgment – First thoughts and some predictions

Today’s Intel judgment from the Court of Justice does not strictly concern the Competition Law/IP interface.  However, it is a case which has considerable interest for potentially dominant companies, as well as a strong technology thread. 

At the basis of today’s judgment is the European Commission fine of €1.05bn, imposed on Intel back in 2009, and upheld by the General Court in 2014, for abusing a dominant position by granting exclusivity rebates to customers.  
 
In brief, the CJEU has today held that the General Court did not sufficiently analyse all of Intel’s arguments that its conduct did not foreclose competitors. The General Court’s failure to analyse the results of the ‘as efficient competitor’ (AEC) test was a particular focus of the criticism. The CJEU has therefore remitted the case to the lower court for further consideration on the central abuse of dominance question.  

Much ink will no doubt be spilled in analysing this judgment, but for now, the points below seem to be key:

  • Relevance of ‘as efficient’ competitors. The Court emphasises that Article 102 applies when conduct foreclosure of “as efficient competitors”; in other words, the provision is not intended as a tool for protecting entities which lack the ability to compete effectively and which are therefore likely to be less attractive to consumers.  
Strictly speaking, the CJEU’s remittal to the GC only requires it to look again at the AEC test because the Commission had in fact carried out such a test, and the GC had not responded to all of Intel’s arguments about it (143-144).  However, the fact that the Court embraces a reference to “competitors considered to be as efficient as [the dominant company]” within its general legal framework (133, 136) suggests that it will not be easy for competition authorities (or indeed private action claimants) to walk away from this test. This is mirrored in the Court’s description of the abuse finding which must be reached before an assessment of objective justification can take place (140).

  • Form vs. effects. On a first read, the judgment is a shot in the arm for effects- rather than form-based analysis (136-140).  On this reading, the mere fact that an exclusivity rebate exists is not enough in itself to establish anti-competitive foreclosure. The extent of dominance plays a role here, as well as the market coverage and duration of the practice (both the market coverage and duration were considered by the Advocate General to be ‘inconclusive’ in themselves).  
However, there are a couple of stings in the tail.  First, to avoid a formalist approach, a company under investigation must adduce evidence during the initial investigation to show that its conduct was not in fact capable of affecting competition (138).  Past cases (e.g. AstraZeneca) suggest that this evidence should be contemporaneous with the conduct.  Second, evidence of a strategy to exclude will be considered relevant (139).  While case law establishes that a company’s intention is less relevant than the objective effects of the conduct, it seems to us that clear evidence of an anti-competitive strategy will make it much more difficult to support an argument that the conduct was incapable of affecting competition. 

It’s perhaps too early to predict what impact this judgment will have on future cases – not least because a further referral back to the CJEU in this case remains possible.  However, a couple of possible consequences are:

  • Reduced options for formalistic short-cuts in establishing infringement – arguably this is of greater relevance in the private litigation context, given that competition authorities have tended to carry out extensive analysis of effects as a fall-back (or have closed cases where such evidence cannot be established, as with the CMA’s recent decision on impulse ice creams).
  • Again in the private litigation context, the practice of splitting questions of dominance and abuse into separate trials may not be the best solution for conduct of this kind, given that the degree of dominance may affect whether the conduct is in fact anti-competitive or not.
As for Intel’s fate when it comes back before the GC, all bets are off.  But given the CJEU’s indication of the significance of evidence of an anti-competitive strategy, we wouldn’t like to bet against a further confirmation of the Commission’s original conclusions…

Apple’s battle with Qualcomm spreads to the UK

On 19 May 2017 Apple issued a major claim against Qualcomm in the English Court. This is part of a widely reported global dispute between the two giants. The English action includes an Article 102 abuse of dominance claim as well as a FRAND licensing claim and was issued just a month after the English Court’s first FRAND valuation in Unwired Planet v Huawei (Bristows’ blog post here and here). The particulars of the claim are now available and make fascinating reading. 

On the FRAND licensing front, Apple seeks a declaration that Qualcomm has breached its obligations to ETSI, by failing to offer a FRAND licence for Standard Essential Patents (SEPs), seeking excessive and non-FRAND royalties. 

As far as competition law and Article 102 is concerned, Apple makes a number of arguments. 

It claims that Qualcomm is abusing its dominant position in the markets for LTE, CDMA and UMTS chipsets by refusing to license its SEPs to competing chipmakers. This means that if a chipset is purchased from a company other than Qualcomm, the purchaser must then obtain a licence from Qualcomm for use of Qualcomm’s standard-essential IP. Apple asserts that Qualcomm’s practices exclude chipset competitors from the market, as well as being in breach of its contractual FRAND obligations.

Apple also complains about various aspects of agreements between itself and Qualcomm. These expired in 2015, and in 2016 Apple began to purchase chipsets from Intel. This has doubtless affected the nature and timing of the litigation.

As mentioned above, Apple contends that Qualcomm’s royalties are excessively high. It then argues that to reduce the effective royalty rate it had to pay, it had no commercial alternative other than to conclude rebate agreements which involved granting Qualcomm exclusivity over Apple’s chipset supply. Apple maintains that one consequence of this arrangement has been to limit the emergence of other chipset manufacturers, who have been precluded from competing for Apple’s custom. Because of Apple’s importance as a purchaser of chipsets this is argued to have foreclosed a significant part of the potential demand. Qualcomm’s practice of forcing customers to take a licence and to agree to exclusionary terms is said to further reinforce the exclusionary effects. 

A particular feature of the rebate agreement which is criticised by Apple is that it was conditional on Apple agreeing not to pursue litigation or governmental complaints that the royalties were ‘non-FRAND’. 

Apple explains that Qualcomm’s royalties are charged in addition to the price of the chipset itself, and are based on the price of the end device being sold by the licensee, rather than on the price of the chipset in which it is argued that all the patented technology is practised. Apple takes the position that in order to be acceptable the royalty should be calculated by reference to the smallest saleable patent practising unit (SSPPU) – in this instance the chipset, rather than the phone. This is said to guard against situations where two phones that use the same Qualcomm technology could incur significantly different royalty obligations for use of the same SEPs based only on their different end sales prices. Those sales prices which differ because of completely different aspects of the phones, such as design or additional functionalities. This issue was not considered by Birss J in Unwired Planet v Huawei. The argument was raised in Vringo v ZTE, but was dropped before trial. 

Apple makes several arguments which are in tension with the recent Unwired Planet v Huawei Judgment. These include: that licensees can be acting in a FRAND manner even though they refuse to take a licence of an entire patent portfolio of declared SEPs, irrespective of validity or essentiality; that the FRAND royalty for an SEP should reflect the intrinsic value of the patent; and that the standard (of which that technology is a part) constitutes value that Qualcomm has not created and which it should not seek to capture through its FRAND licensing. 

Finally, in an attempt to demonstrate that Qualcomm’s royalty is not FRAND, Apple states that Qualcomm holds a quarter of the declared SEPs for the LTE standard and compares Qualcomm’s royalty with the (presumably lower) licence fee it pays other SEP holders, who combined hold one third of the relevant SEPs.

Ultimately, Apple claims that Qualcomm’s undertaking to ETSI is ineffective to constrain its dominance as an SEP owner. This may be a direct response to comments by Birss J in Unwired Planet v Huawei that an SEP holder may not always hold a dominant position, for example, because of the FRAND obligation and the risk that implementers may engage in patent hold-out. 

Conclusion

Developments in this case will be interesting when set against the recent judgment in Unwired Planet v Huawei, in which Birss J considered many of the issues raised by Apple. But Apple also makes arguments that go well beyond the issues considered in that case. For example, Apple’s arguments about exclusionary rebates may be affected by the Intel judgment, due to be handed down by the EU’s Court of Justice on 6 September 2017.  It also sits alongside parallel antitrust litigation in the US, including retaliatory actions by Qualcomm designed to exclude Apple’s handsets from import to the US. How this case, and the global dispute, evolves will be fascinating to follow – and not only for those with an interest in SEP and FRAND issues.

Excessive Pricing: Aspen lose their appeal in Italy – and are in the Commission’s crosshairs

Last year we reported the Italian’s take on excessive pricing (here), where South African pharmaceutical Aspen was in the firing line for increasing the price of four cancer drugs by a hefty 300% – 1500%. The Italian Market Competition Authority (AGCM) found that this amounted to an abuse of dominance by artificially inflating the price of the drugs, which had long been off patent. The company was fined €5.2 million in October 2016. 

On 14 June 2017 Aspen lost all grounds of its appeal against the AGCM decision (the judgment – in Italian only – is here).

This loss for Aspen was set against a troubling back drop for the company: not only had the South African Competition Commission announced an investigation into Aspen, Pfizer and Roche for suspected collusion over cancer drug prices just days earlier, but on 15 May 2017 the European Commission opened a formal investigation into Aspen in relation to excessive pricing of five cancer drugs. 

The Commission’s press release states that – in addition to investigating the apparently ‘significant and unjustified’ price hikes applied to Aspen’s products – the Commission is also looking at the way in which Aspen threatened to withdraw the drugs in issue from Member States.  This was also an influential fact in the AGCM decision and subsequent appeal ruling by the Italian Appeal Court. 
 
The separate statement recording the opening of proceedings suggests that the Commission’s focus is wider than simply the negotiation of prices with national health authorities. It notes that Aspen’s negotiation practices “have included reducing the direct medicine supply and/or threatening supply reductions, as well as defining EAA-wide stock allocation strategies and implementing them in cooperation and/or agreement with local wholesalers”. It has been a while since stock management has been subject to scrutiny by the Commission, and this is likely to be an unwelcome development for the industry more widely. For now, it is probably safe to assume that this aspect of the investigation is ancillary to the primary case on pricing issues.

Meanwhile, back in the UK, the date for an appeal of the (now-published) Pfizer/Flynn decision has been set by the Competition Appeal Tribunal – a four-week hearing is due to start on 30 October. 

Luxury brands, third party platforms and EU competition law – guidance from AG Wahl

The Court of Justice of the European Union (‘CJEU’) has today handed down Advocate General Wahl’s opinion in the Coty Germany reference proceedings (see press release here, the full opinion should be published later today). The press release explains that the Opinion proposes that the European Court find that a supplier of luxury goods may prohibit its authorised retailers from selling its products on third-party platforms such as Amazon and EBay. For the background to the case see our earlier post here

The Opinion begins by restating that selective distribution systems for luxury and prestige products do not necessarily fall within the prohibition of anticompetitive agreements under Article 101(1) if they meet three well-established criteria:

  1. the resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers; 
  2. the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used; and 
  3. the criteria established do not go beyond what is necessary.
AG Wahl then goes on to deal with the restriction which is at the centre of this dispute, namely a provision which prohibits the authorised sellers from using third party platforms for internet sales “in a discernible manner”. He states that – in the present state of development of e-commerce – such a restriction does not necessarily fall within Article 101(1) where three criteria are met. However, it seems to us that the criteria he lists is merely a restatement of the well-established criteria for lawful selective distribution set out above, i.e. that the criteria:  

  1. are dependent on the nature of the product; 
  2. are determined in a uniform fashion and applied without distinction; and 
  3. do not go beyond what is necessary.
The assessment of the facts will ultimately be left to the German Court.  However, AG Wahl does observe that the contested clause does not appear to be caught by Article 101(1). In fact, he suggests that the restriction is likely to improve competition by ensuring the products are sold in an environment that meets the qualitative criteria and guarding against the phenomena of “parasitism” (a more loaded term than the usual reference to ‘free-riding’). He points out that the restriction does not amount to an absolute prohibition on online sales (which is considered a serous restriction of competition) for two reasons. First, the restriction still allows authorised distributors to sell through their own websites and to make use of third party platforms “in a non-discernible manner”. Second, distributors’ own online stores are still the preferred distribution channel so such a restriction cannot be assimilated to an outright ban or substantial restriction on internet sales.  This analysis leaves a number of questions open, and certainly suggests that the analysis of such restrictions may change if the popularity of third party platforms continues to grow.  

Finally, the Opinion proposes that, in the event that a restriction on third party platforms does fall within Article 101(1), it may well be exempted under Article 101(3), including under the block exemption for vertical agreements. AG Wahl does not consider a third party platform ban to be a hardcore restriction which would automatically exclude the relevant distribution agreement from the benefit of the block exemption. 

Overall, the AG Opinion appears to be in line with the Commission’s recent final report in its e-commerce sector inquiry, which recognised that price is not the only relevant competition consideration when selling goods online: “While price is a key parameter of competition between retailers, quality, brand image and innovation are important in the competition between brands. Incentivising innovation and quality, and keeping control over the image and positioning of their brand are of major importance for most manufacturers to help them ensure the viability of their business in the mid to long term.”  The AG Opinion is a first step in showing how this balance may in future be struck – although crucially the Opinion is not binding on the CJEU who will now begin its deliberations in this case. The final word on these issues will be left to the European Court, and this will no doubt be keenly awaited by brand owners, online retailers and third party platforms alike.