Recent pay-TV developments: the dawning of a new era?

As part of the European Commission’s ongoing pay-TV investigation, it was announced last week that Paramount Pictures have offered commitments in order to address competition concerns. As we have previously discussed, the Commission’s July 2015 Statement of Objections considered that six Hollywood studios (of which Paramount is one) and Sky UK had bilaterally agreed contractual restrictions that prevent Sky from allowing EU consumers located elsewhere to access, via satellite or online, pay-TV services available in the UK and Ireland.

The Commission’s preliminary view was that these clauses restrict Sky’s ability to accept unsolicited requests for its pay-TV services from consumers located in other Member States ("passive sales") where the company is not actively promoting or advertising its services. As a result, these clauses grant BSkyB ‘absolute territorial exclusivity’, eliminating cross-border competition between pay-TV broadcasters and partitioning the internal market along national borders.

Margrethe Vestager said: "European consumers want to watch the pay-TV channels of their choice regardless of where they live or travel in the EU"

Paramount’s proposed commitments, to apply throughout the EEA, include the following:

  • When licensing its films for pay-TV to an EEA broadcaster in the EEA, Paramount would not prevent or limit a pay-TV broadcaster from responding to unsolicited requests from consumers within the EEA but outside of the pay-TV broadcaster’s licensed territory (No "Broadcaster Obligation").
  • When licensing its films for pay-TV to an EEA broadcaster, Paramount would not prohibit or limit pay-TV broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (No "Paramount Obligation").
  • Paramount would not bring an action for the violation of a Broadcaster Obligation in an existing agreement licensing its films for pay-TV.
  • Paramount would not act upon or enforce a Paramount Obligation in an existing agreement licensing its films for pay-TV.
If accepted by the Commission, these commitments will apply for five years and cover both online and satellite broadcast services. Paramount is the first studio to have offered commitments in an attempt to settle the Commission’s investigation; the other parties are still disputing the allegations.

Separately, it was reported recently that Sky has signed its first pan-European movie deal with Sony Pictures. While the immediate driver for the deal appears to be Sky’s acquisition of Sky Deutschland and Sky Italia from 20th Century Fox and the resulting increase in its European subscriber base, it is also likely to allow Sony to address the seemingly imminent shift in the way the EU views content licensing agreements. 
 
The background to the Commission’s investigation into the Hollywood studios is that in 2011 the CJEU held, in a case concerning the exclusive licensing of broadcasting rights for Premier League football matches on a territorial basis, that any agreement designed to stop cross-border provision of broadcasting services is deemed to be anti-competitive and prohibited by EU competition law.

What is the likely consequence for licensors?

The Commission’s investigation seems certain to have far-reaching consequences for the business model of content licensors across the EU, as splitting rights into multiple national territories as opposed to selling a single, pan-European license is a key part of many business models.

The CMA still has pharma and medical devices in its sights

The CMA has been slowly but surely opening a raft of new investigations in the pharma and medical devices industries.  

It announced last week that it is investigating suspected anti-competitive conduct in the medical equipment sector under Chapter II CA 98 and Article 102 TFEU.  An initial 6-month timetable is set down, with the CMA hoping to be in a position to decide whether to take the investigation into the Statement of Objections phase by around October.

Last week also saw the CMA announce that it is investigating anti-competitive arrangements in the pharmaceutical sector under Chapter I CA and Article 102. This will follow the same timetable. 

Just a few weeks earlier, the CMA announced another separate investigation into suspected abuses of a dominant position in the pharma sector.

The CMA recently closed a possible market investigation into possible anti-competitive causes of medicines shortages and it is possible that at least some of these investigations will be shelved before more public information is made available.  However, at least two other longer-standing pharma-industry-focused investigations remain on foot, including:

  • The investigation into possible excessive prices charged by Pfizer for phenytoin sodium, which we have been following here on The CLIP Board: a formal Statement of Objections has been sent in this case, and an oral hearing held; last week Pfizer was fined £10,000 for a procedural infringement in connection with a failure to provide information, a salutary reminder for those involved in CMA investigations in any industry, as the CMA itself points out (“The imposition of an administrative penalty [on Pfizer] […] is critical to achieve deterrence, ie to impress both on the party under investigation, and more widely, the seriousness of a failure to comply with a statutory deadline, without a reasonable excuse.”…).  A decision is due in around August 2016.
  • An investigation into possible abusive discounts which is coming towards the end of its initial phase, and should be the subject of a decision to close or proceed next month.
One case which was not shelved was the Paroxetine patent settlements case (see our earlier post here).  Following the CMA’s imposition in February of £45 million of fines, it has been confirmed that GSK and all of the generics have appealed to the CAT.  The full text of the infringement decision has still not been published by the CMA, but the notices of appeal against the CMA’s decision have appeared on the website of the Competition Appeal Tribunal.  

GSK’s appeal encompasses eight separate grounds, six of which are on issues of substantive law (with two subsidiary grounds on the fining decision).  It is evident from GSK’s appeal that the CMA has followed the Commission in proceeding on the basis of both object and effect analyses in their Article 101/Chapter I infringement decisions, as well as in claiming an abuse of dominance arising from the set of facts.  GSK is unsurprisingly appealing the finding of dominance, which arose from the identification of a relevant market limited to a single molecule.
The CMA is clearly keeping a close eye on the pharmaceutical and medical industries – and we will continue to keep a close eye on the CMA’s activities in this area.

UPDATE: International spring cleaning time to review those IPR Guidelines

For those of you who read my blog post from earlier this month on the recent flurry of international IPR guidelines announcements (see here), we thought some of you might be interested in a more in depth look at the Canadian IPR Enforcement Guidelines written by Canadian law firm McCarthy Tétrault (for a link to their interesting article see here).  

The article summarises the most notable new guidance in the Canadian guidelines – namely in relation to pharma patent litigation settlements, product switching, standard setting and SEPs and patent assertion entities.  It also contains links to previous articles discussing the evolution of the guidelines.  There are many parallels to ongoing IPR policy developments in Europe but a few differences also stand out (e.g. express discussion of the potential for criminal liability for pharma patent litigation settlements (not something that has reared its head in Europe… (yet?)) and a helpful distinction between so called ‘hard’ and ‘soft’ product switching).

The NHS opens up to increased competition

From today the NHS is likely to significantly increase the number of contracts it advertises for external competition, as it will now be required to comply with the general EU procurement regime rather than relying on a temporary exemption for healthcare services. 

For the first time, the NHS will be under a statutory obligation to advertise their healthcare services contracts. 

This is a significant change to the UK healthcare landscape, and as many readers of The CLIP Board provide services to the NHS, we thought this a development worth bringing to your attention. 
 
What happens after 18 April 2016?

The NHS’s procurement of healthcare services has, until today, been regulated by the Procurement, Patient Choice and Competition Regulations (No. 2) 2013. 

From 18 April 2016, contracts for healthcare services above €750,000 (£589,148) must be awarded in line with the Public Contracts Regulations 2015 using the “light touch regime” for social services. 

This “light touch regime” requires:
publication of a contract notice in the OJEU; and
an award procedure which complies with the EU principles of non-discrimination and equal treatment.

What does this mean?

From today we anticipate that more NHS contracts will be put out to tender than before and NHS commissioners should reflect carefully on the legal risks of not competitively procuring health services. This change presents increased opportunities for private players and healthcare charities to win business with the NHS and public health services. 

However, this change is likely be accompanied by increasing political controversy, given the contentious debate around the healthcare procurement aspects of the Transatlantic Trade and Investment Partnership.

The government has published a guidance note on the new procurement regime and we are very happy to discuss these changes in greater detail with clients. 

A relatively rare beast: CMA clearance of a pharmaceutical sector merger

The Competition and Markets Authority (CMA) has announced that it has decided not to refer the acquisition by LEO Pharma of certain dermatological products belonging to Astellas Pharma for an in-depth Phase 2 merger inquiry. The CMA concluded that the merger was unlikely to result in a substantial lessening of competition, on the basis that the companies’ products were not sufficiently close substitutes.  

There have been few recent national merger decisions in the UK in relation to the pharmaceutical sector, as many such transactions are caught by the significantly higher EU merger thresholds. Interestingly, in the other recent case, McKesson/UDG Healthcare, the EU referred the UK aspects of the proposed transaction back to the CMA to review.   

Who did the case involve?

LEO Pharma is a Danish pharma company that develops and sells dermatological products. Astellas Pharma is a Japanese pharmaceutical company that develops cancer, immunology, and dermatology products. Both companies are active on the UK market.

Why was the CMA concerned? 

The CMA took the view that a ‘relevant merger’ situation had arisen as the ‘share of supply’ test was satisfied, due to the parties' combined shares of supply of non-steroidal products for inflammatory skin disorders. As is commonly done in merger cases at EU level, it took level 3 of the of the Anatomical Therapeutic Chemical classification as its starting point for this consideration (category D5X).

What did the CMA find? 

The CMA found that, in relation to dermatological products, Leo and Astellas’s products are not the closest alternatives to each other. In relation to the supply of products in the D5X category, the parties' products are not close substitutes as they are used to treat different skin conditions. It also found that the market would remain competitive post-merger, as there will remain several competitors to constrain the merged entity. 

In relation to hydrocortisone products, the CMA found that the increment in the combined share of supply post-merger would be very small (less than 5%). The CMA also found that the parties' products are not close substitutes and that there will again remain several competitors post-merger to constrain the merged entity. 

In relation to topical psoriasis products, again the increment in the combined share of supply post-merger is very small (less than 5%), indicating that the competitive impact of the merger will very limited; and as regards the supply of topical eczema products, the parties' respective products do not compete closely and there will remain several competitors post-merger.

What does this case tell us?

This case demonstrates the importance of contesting Phase I merger reviews as there is often a reasonable prospect of a clearance decision without a referral to Phase II.

International spring cleaning: time to review those IPR guidelines…

A number of national competition agencies have recently been reviewing their IPR guidelines giving rise to some interesting trends and developments…  

On 31 March 2016 the Canadian Competition Bureau released updated IPR Enforcement Guidelines (the “Canadian IPR Guidelines”) (see here for a press release and here for the Enforcement Guidelines themselves). The main revisions to the Canadian IPR Guidelines focus on the Bureau’s position on patent settlements and product switching in the pharma sector as well as the conduct of patent assertion entities and conduct involving SEP owners.
  
This followed hot on the heels of an announcement by the Korea Trade Commission (“KFTC”) on 30 March 2016 that the Guidelines regarding the Unfair Exercise of Intellectual Property Rights (“the Korean IPR Guidelines”), which have recently been amended, became effective on 23 March 2016 (the revised Guidelines do not yet appear to be publically available in English at least).  The primary purpose of the Korean IPR Guidelines is to provide a framework for the KFTC to regulate abuse of IPRs by holders of SEPs (including in particular NPEs).   The Korean IPR Guidelines were previously amended in December 2014.  The most interesting changes at that time included de facto SEPs being included within the definition of SEPs, and the introduction of examples of abusive or unreasonable acts, including the filing for injunctive relief against willing licensees by an SEP holder that has committed to grant a license on fair reasonable and non-discriminatory (FRAND) terms.  

The most notable changes to the Korean IPR Guidelines this time around are:

  1. carving out de facto SEPs from the IPR Guidelines (stakeholders argued that the previous change to include them led to over-regulation of the exercise of IPRs); 
  2. removing the reference to the choice of governing law and dispute resolution mechanism which is unilaterally unfavourable to one party as a factor in determining whether an exercise of patent rights in unfair; and 
  3. including a standard for determining unfair refusals to license which focuses on the intent of the SEP holder, the surrounding economic circumstances and the effects of the refusal to license.
Similar developments have taken place not that far from South Korea, with China also drafting IPR Guidelines.  China’s top antitrust authority, the Anti-monopoly Commission (“AMC”) of the State Council has instructed four Chinese antitrust enforcement agencies: the National Development and Reform Commission (“NDRC”); the State Administration of Industry and Commerce (“SAIC”); the Ministry of Commerce (“MOFCOM”); and the State Intellectual Property Office (“SIPO”) to draft antitrust guidelines on IPRs.  It has reported that these agencies are finalizing their respective drafts and that they were due to submit them to the AMC by the end of March 2016.  The AMC coordinates antitrust policies in China, so it will be responsible for consolidating the drafts and issuing an integrated policy.  

The purpose of the Chinese Guidelines will be to provide guidance on when the enforcement of IPRs, and in particular patents, would contravene China’s Antimonopoly law.  China’s IPR Policy is still very much under development. However, these latest developments correlate with a growing international view that the Chinese antitrust authorities are increasingly treating IPR as an enforcement priority (although I think it is still agreed that China has some way to go before it becomes a major jurisdiction for the enforcement of IPR).  One recent example from 2014 was the Chinese Authorities’ investigation into Qualcomm for anticompetitive conduct involving its licensing of 4G SEPs (see our previous blog post here).

It is unsurprising that telecoms and pharma both come under the spotlight in all these new IPR Guidelines given the competition law issues afoot globally in both sectors. The EU Commission’s TTBE Guidelines were also updated in 2014 to include new sections relevant to pharma and telecoms (see our previous blog post here).  It is also interesting to see such a detailed approach to IP and antitrust issues being taken in other jurisdictions and that these new Guidelines are in places going further than their EU counterparts, for example in their discussion of PAEs/NPEs, SEPs and injunctions and refusal to license IPRs.