Brazil joins the ‘pay-for-delay’ party

Many of our pharma-themed blog posts have focused on the actions that European and US regulators have been taking in the sector.  However, it’s not just the EU and the US that are exploring the boundaries of their antitrust laws in the sector: Sophie has already mentioned the phenomenon of global convergence here, commenting on the investigation into Pfizer in Australia for conduct which might have the effect of delaying generic entry after patent expiry.  We thought we’d mention that the Brazilian authority has now also joined the ‘pay-for-delay’ party.

On 6 August, the Brazilian competition authority fined Merck around $1.8 million for conspiring to prevent distributors from working with generic drugmakers.  The Administrative Council for Economic Defense, known as CADE, concluded that the German pharma giant had met with Brazil’s major drug companies to hatch a plan to limit the sale of generic drugs in the country, to the detriment of consumers.

“The anticompetitive effects of the practice are clear,” CADE spokesman Alessandro Octaviani said in a statement.  CADE took the view that even a short delay in generic entry would prevent cheaper products from reaching consumers.  In contrast (and perhaps predictably), a Merck spokesman said that the German company was surprised by the decision and suggested that there was a lack of evidence “demonstrating any anti-trust violation”.  It is understood that Merck may file an appeal.

The antitrust community has always known that often the enforcement activities of jurisdictions around the world take their cue from the US and/or the EU – given the marked increase in the communication between authorities internationally, this is unsurprising.  If anything, this puts even more emphasis on the activities of the EU and US authorities, especially at a time when the politicisation of antitrust enforcement is rising up the agenda… 

The CMA’s plan for IP

On 1 April 2014, on the first day of its operation, the CMA published its Annual Plan 2014/15. At the end of July, it published the first of a series of bulletins to inform interested parties about the CMA's progress and issued a press release explaining “how it is putting the consumer at the heart of everything it does”.  For those without the time to wade through all the materials, here are the highlights for IP-rich industries.

Pharmaceutical sector

  • In the Annual Plan, the CMA stated that it inherited 11 live competition enforcement cases from the OFT, including one relating to pharmaceutical products (assumed to be this one, which was opened by the OFT and taken over by the CMA) and the investigation of patent settlement agreements in relation to Paroxetine, with a decision due in October according to the CMA’s website. The CMA states that it intends to “progress these ‘in flight’ cases quickly and effectively and ensure that they have the maximum impact on deterrence and compliance incentives, and ultimately the welfare of consumers”.  
  • A separate investigation has also recently (June 2014) been launched into a suspected breach of Chapter II/Article 102 in the pharmaceutical sector (see here).  Given that Chapter I/Article 101 is not being applied, it seems likely (based on recent cases across the EU) that this relates either to pricing or to some sort of abuse of the patent or regulatory system which led to a delay to generic entry, but there is no further information in the public domain at present.  The CMA’s indicative timetable suggests that a decision on whether to proceed should be made in around October.
  • The CMA has not yet reached any firm conclusions in either of the cases mentioned above, but the CMA materials highlight the emphasis on consumer welfare: the July press release states that the CMA intends to deliver “real and demonstrable impact for consumers”.  It appears likely that in the pharma context, this will involve low prices for generic or OTC medicines (i.e. direct and short term consumer benefits), rather than meeting consumers' interests for new and innovative products coming to market.  How the CMA intends to weigh these benefits is unclear.
  • However, the CMA has announced that it is endeavouring to build a ‘consumer network’ of organisations that engage with consumers and are expert in the issues that matter to them. It will work with these organisations to improve intelligence gathering on emerging consumer issues, testing proposed remedies and outcomes, and communicating its work to consumers. The CMA also intends to instigate discussion and debate on consumer issues with experts, academics and business representatives.
 Healthcare sector
 
  • The Annual Plan mentioned the market investigation into the private healthcare sector, in which the CMA has now published its findings. It identified several features of the UK market for the provision of hospital services in private healthcare facilities which gave rise to adverse effects on competition (AECs). The private healthcare sector will have to implement changes once the CMA publishes its final order setting out the remedies to be imposed (the CMA is currently consulting on a draft order covering the PPU, clinician incentive and information remedies as set out in the final report). HCA, a hospital group affected by the order,  is currently appealing certain aspects of the remedies package in the CAT.
E-commerce/privacy/data protection

  • The Annual Plan again had a consumer focus when discussing e-commerce, emphasising that customers must have confidence in online markets. It stated that although consumers are increasingly using the internet to compare products and to purchase goods and services, they are also increasingly providing personal data when doing so.  The CMA expressed concern that consumer worries about threats to privacy could undermine their willingness to shop online.  The relevance of data to competition law is becoming an increasingly hot topic, as recent calls (e.g. by the EU Data Protection Supervisor) to include data protection issues as a criterion in merger and competition cases at EU level shows.
  • The CMA indicates that these issues (amongst other things) would be reflected in its priorities and has therefore made a commitment to conduct research into anticompetitive barriers to the development of e-commerce.  The CMA is of course not the only UK agency to be looking at issues of this kind - the FCA is also engaged in an investigation into the effectiveness of insurance price comparison websites (PCWs). The FCA published its report on PCWs in the general insurance sector (TR14/11) on 16 July 2014 (see here for the announcement). It found that PCWs had not always taken reasonable steps to ensure that consumers were given the appropriate information to help them make informed decisions and that some had failed to make clear their role in the distribution of the product or the nature of service they provided, whilst their business models were not necessarily aligned with the best interest of their customers. The FCA also found that although PCWs had generally taken steps to comply with the regulatory obligations outlined in its 2011 guidance, some PCWs were failing to fully implement these.
  • According to the Annual Plan, it will be important in emerging sectors and business models more generally to ensure that the CMA understands “how technological and other developments are changing markets and the opportunities and risks those changes present for consumers, and to ensure that emerging and evolving markets are characterised by healthy competition”.  It intends to develop its understanding in these areas “through research, casework and working with partners” – which is, however, pretty vague as an aim. A more concrete development was the CMA’s launch in April of a ‘big data’ research project, designed to identify sectors of the economy where online commerce is developing more slowly than might be expected.  Sectors exhibiting such slower development will be prime candidates for investigation to discover if the delay results from anti-competitive behaviour.  Recent cases in relation to mobility vehicles exemplify this trend: in both the Roma-branded Mobility Scooters case (which pre-dates the advent of the CMA – we discussed the case on this blog here) and the Pride case earlier this year, online advertising restrictions were criticised.
  • In a similar vein, the CMA intends to follow up the OFT’s work on online games (the OFT gave the industry until 1 April to ensure that it was complying with consumer law).
  • In the Annual Report, the CMA stated that it will “continue to play a leading role in the development of consumer protection internationally, particularly in Europe, working with partners in e-commerce and on unfair terms".  The CMA’s emphasis on e-commerce is consistent with the OFT’s previous approach, and mirrors the emphasis placed by the German Bundeskartellamt, which has been very active in assessing online business practices, as we reported here.  
So does the CMA have a ‘plan for IP’?  Despite all the indications above, it is really too early to answer this question.  But we do note that, so far, the cooperation agreement between the OFT and the IPO (the UK’s Intellectual Property Office, for those who are blissfully unaware!) appears not to have been ‘novated’ for the CMA.  This is either a sign that the original agreement proved unfruitful, or that the CMA is planning to take a more independent stance.  

Year of the Phoenix (aka EU/US competition cases reigniting in China)

2007-09: European Commission investigates Qualcomm for possible abuse of a dominant position in relation to compliance with FRAND and licensing terms for WCDMA (3G) technology, a case ultimately closed on grounds of administrative priorities, following a settlement between Qualcomm and the complainants.

2014: Chinese authorities responsible for competition law (the National Development and Reform Commission) investigate Qualcomm for… anticompetitive conduct involving the licensing fees/terms for standard essential technology, in this case for 4G.

2008-09: European Commission investigates Microsoft for abuse of a dominant position arising from the tying of software programs to its dominant Windows operating system (case closed by commitments, although we all know what happened next…)
            
2014: Chinese authorities (in this case the State Administration for Industry and Commerce) investigate Microsoft for… anticompetitive conduct relating to “compatibility, bundling and document authentication”, according to reports.

Companies in the tech space which were investigated by the EU / US authorities in the 2000s may wish to take note….

Sophie Lawrance