Enacted: Consumer Rights Act 2015

On 26 March the Consumer Rights Act 2015 was enacted.  The Act will bring about substantive change in a number of areas.  Of most interest to competition law buffs is Section 81 of the Act which gives effect to Schedule 8 which, in turn, amends the Competition Act 1998 and the Enterprise Act 2002.  These changes, when they come into force, will significantly bolster the importance of the Competition Appeal Tribunal – at long last turning it into the primary venue for competition cases in the UK. The changes will also usher in the possibility of opt-out collective actions and create a ‘fast track’ for smaller injunction disputes in England, Wales and Northern Ireland (about which we have blogged previously here and here).

Pursuant to Section 100(5) of the Act, these changes will “come into force on such day as the Secretary of State may appoint”.  So competition lawyers will have to continue biting their nails in excited anticipation – watch this space.

David George

Sticky switching opens the way to over-stickering

Lord Justice Floyd has had occasion recently to remind us of the re-packaging/re-labelling rules in a recent Court of Appeal judgment in European Pharma Ltd and Doncaster Pharmaceuticals Group Ltd and Madaus GmbH. The Court of Appeal, overturning the first instance judgment, held that it was legal for a parallel importer (Doncaster) to export pharma products containing the active ingredient Trospium Chloride from France and Germany where they were marketed under the trade mark Céris and UriVesc respectively and import them into the UK by affixing the products with the UK trade mark ‘REGURIN’.
 Article 7(1) Trade Mark Directive provides for EU-wide exhaustion where the parallel importer uses a trade mark from the country of export and re-affixes it onto a product to be imported to another Member State. However, this case was different. Here the parallel importer was re-labelling a product with the trademark of the country of import. In this instance, re-affirming previous case law in Pharmacia & Upjohn v Paranova, the court determined that trade mark owners may take steps to prevent such over-stickering unless doing so creates an impediment to free movement of goods between Member States. That would be the case where over-stickering is necessary to obtain effective access to the market and is not simply for the importer’s commercial advantage.

Trade mark holders will be concerned that in this case the very points evidencing the success of the REGURIN brand were those relied upon as showing that it was necessary for the parallel trader to over-sticker. The strength of the UK brand therefore prevented the trademark owner from exercising its UK trademark rights to stop what is, on its face, an infringement.  The facts relied on as evidence of “necessity” were the fact that doctors and pharmacists were resistant to switching away from prescribing by reference to 'REGURIN' rather than the generic INN and the impracticability for Doncaster to set up a new brand and persuade doctors to prescribe to it. This is because parallel importers are dependent on purchases from third parties and therefore cannot guarantee supply. As a result of this resistance to using non-branded products, the court found that it was indeed necessary to over-sticker the products entering the UK with the UK TM REGURIN in order for Doncaster to be able to compete effectively. An attempt to prevent this would be an impediment to the free movement rules. Furthermore, Doncaster did not obtain a commercial advantage from over-stickering as it would never be able to sell more cheaply than a generic. 

This case will STICK in the minds of trade mark holders who, as a result of this judgment may find their ability to benefit from their trade marks curtailed after expiry of the patent. However trade mark holders may find some solace in the fact that before using their trademarks, parallel importers will still have to prove that over-stickering is necessary to gain effective access to the market and will have to comply with the five conditions protecting the guarantee of origin of the trade mark owner’s mark as set out in Bristol Myers Squibb v Paranova.

Guidance from the Court of Justice – the ‘hot topic’ of patent licences and litigation

Readers of this blog on the competition law/IP interface will already be familiar in at least broad outline with Advocate General Wathelet’s Opinion in Huawei v. ZTE.  Parties presently engaged in SEP litigation in the EU are currently waiting (feverishly, in some cases) for the Court of Justice ruling (there is still no date for this, at the time of writing).  Pending such further elucidation, readers who would like a more in depth review may be interested in my article on the Opinion, published in Competition Law Insight last month.
Another future ruling which will be of great interest to the bloggers on the CLIP board (and hopefully to their readers also) will be given in response to a request from the Paris Cour d’Appel in Genentech v. Hoechst.  Unlike Huawei v. ZTE in which the referring Düsseldorf Court raised 5 multi-part questions, the Paris Court has posed an apparently simpler, single, question – namely, does Article 101 preclude the enforcement of an obligation to pay patent royalties for a sole licence to certain patents which have since been revoked?  
Although the Paris referral relates to a very different industry to the SEP case, this reference is in fact complementary to the issues at play in Huawei v. ZTE.  One of the points discussed in AG Wathelet’s Opinion in Huawei is the idea that licences should be concluded promptly, but without requiring the licensee to enter into a no-challenge arrangement – thus accepting that challenges to the licensed IP may continue after the licence has been concluded.  Of course, in many SEP licences, which often include very large numbers of individual patent rights, there is little chance of the licensee revoking all or even a significant proportion of the licensed rights.  But in some cases, developments after the grant of the contract may result in the licensee having a licence which is less valuable than it bargained for.  The outcome in Genentech v. Hoechst may indicate how licensors and licensees can, or should, provide for this eventuality.  It may also indicate whether the EU approach is more or less in line with the US where post-expiry royalties are viewed as contrary to the antitrust rules, as we reported here.

German Federal Cartel Office (FCO) decision in HRS (online hotel booking)

Following Avantika's excellent post on “most favoured nation” or “MFN” clauses, we’ve decided to make an article on the same subject our “CLIP of the month” (look to the top right…).  In this, Dr Volker Soyez takes a step back and looks at the December 2013 prohibition decision by the German Federal Cartel Office issued against Hotel Reservation Service (“HRS”) an online hotel booking platform. I’m not quite sure that the FCO’s decision is quite ‘the beginning of the end of MFN clauses’, but he’s quite right to note that competition authorities are no longer turning a blind eye to such provisions. 

Here are a few points to whet your appetite for the article itself. 

  • MFNs should not be classified as hard-core restrictions
The article questions the suggestion that MFNs could in some circumstances be regarded as akin to RPM (an idea mooted by the FCO in its December 2013 decision).

  • It will be an uphill struggle to satisfy Article 101(3) TFEU... but context is key.
Dr Soyez notes that avoiding free-riding could be a legitimate criterion for individual exemption but only in exceptional circumstances - he highlights the damning words of the FCO: the comprehensive elimination of competition created by the MFN would never be necessary and proportionate to protect HRS’s investments especially where HRS had other less restrictive methods at its disposal for recouping such fees. 

  • An MFN imposed by a dominant undertakings is likely to be a “no no”
The article comments that it may be tough for a dominant company to justify MFNs and highlights that the FCO found HRS to have abused its dominant position. 

This (and other comment) sets in stark relief that context is key for the assessment of MFNs: the greater the impact on the market (whether because of industry - wide practice or because of significant market power), the greater the likelihood of an MFN being regarded as anti-competitive.  

The avoidance of free - riding is a key stated reason for MFNS in online trading. However, Article 101(3) is a demanding standard and it remains to be seen whether free riding can provide a defence satisfying that standard. As ever, the most difficult aspect of the high standard for exemption seems likely to be the “indispensability” criterion and particularly showing that the MFN was an indispensable means of recouping sunk costs.