CLIP of the month: Competition law and innovation - where do we stand?

This month’s CLIP is an editorial in the Journal of European Competition Law and Practice written by leading  LSE economist Pablo Ibanez Colomo.  Pablo writes regularly and is a co-founder of the superb Chillin'Competition blog.  This particular article looks at the latest developments in the evolving relationship that exists between competition law and policy and innovation.  The debate of these issues in some ways came to a head in the Commission’s Phase II decision in Dow/DuPont in which the Commission delved more deeply into speculative research poles when considering overlaps not just of products on the market, but of those in an earlier stage of development.  In this article, Pablo looks at the tension that can exist between the legal framework and an economic assessment of the relationship between market concentration and innovation.  Looking beyond the field of merger control, Pablo also considers the ongoing Commission investigation into alleged collusion between German car manufacturers where the alleged collusion itself was in respect of future developments and innovation of clean emission technologies (see our own comment on this investigation: “The Cartelization of Innovation – a new emissions scandal?”).  It is clear that this topic is far from stale and that we can look forward to further developments across merger control and anti-trust decisions in the year ahead.

High Court rejects application to discharge CMA search warrant

In its judgment yesterday, the High Court rejected an application by Concordia to have a CMA search warrant discharged in relation to two specific drugs (Carbimazole and Hydrocortisone).

Background

The CMA was granted warrants under section 28(1)(b) of the Competition Act 1998 by Mann J on 5 October 2017 following a without notice and private application.  The warrant applied to documents relating to an ongoing CMA investigation into alleged anti-competitive behaviour in respect of a number of pharmaceutical drugs.  The legislation itself provides that the CMA should be granted warrants where it suspects that relevant material might be otherwise concealed or destroyed.  Unusually, the CMA was seeking a warrant despite the fact that Concordia had been subject to, and was cooperating in, an ongoing investigation in respect of both Carbimazole and Hydrocortisone for some 18 months as at the date of the warrant and that Concordia had responded to numerous section 26 notices during this time.  When granting the warrant, Mann J stated that he was satisfied that the application was focussed on “different types of abuse”.  The fact that Concordia would have been on notice from the first formal section 26 request and therefore had already had ample time to destroy or conceal evidence was not sufficient to conclude that no such documents existed on Concordia’s premises.

The warrants themselves were executed on 10 October 2017 and Concordia applied to have the warrant discharged in respect of Carbimazole and Hydrocortisone on the same day.  The reasons given were that there could be no basis for the CMA to conclude that there was a risk that relevant documents would be concealed or destroyed as Concordia had been co-operating fully with the CMA in its ongoing investigation, a fact that had not been raised before Mann J.  Further, the CMA had sought to widen the investigation by suggesting that it was investigating other potential abuses, whereas in fact the CMA had only ever been investigating one particular alleged abuse (i.e. market sharing).

In the interim, the Court of Appeal had given its judgment that in hearing the main application to vary, the High Court must be able to review all relevant materials including any that are subject to public interest immunity. The Court of Appeal also stated that the appropriate time for the court to form a definitive view on what material is subject to public interest immunity (and therefore should be withheld from Concordia) is when the application to vary is made.  On 12 December 2018, having heard arguments from the CMA in a closed hearing, the High Court held that the majority of the CMA’s requests for public immunity interest redactions were properly made and could not (consistent with the Court of Appeal’s view) be disclosed to Concordia, whether into a confidentiality ring or otherwise.

The Judgment 

Finding that Concordia’s application must fail, Marcus Smith J stated that this was primarily as a result of reviewing the material that was properly protected by public interest immunity (and which therefore had not been made available to Concordia).  This material made clear that the focus of the CMA’s ongoing investigation had shifted and that the scope of the document retrieval methodology was no longer appropriate in view of the type of documents and the range of custodians at issue.  In particular, the CMA had taken the view that whilst it was co-operating, Concordia’s response was incomplete and that there remained relevant material within Concordia that would not be caught by the proposed methodology.

Turning to the question of whether the CMA was indeed investigating a different abuse to that it had been following in the course of the ongoing investigation, Marcus Smith J stated his belief that Mann J was not using the term “in a technical way”.  Rather, the term was used to describe the reasonable suspicion raised by the CMA that Concordia may have deliberately framed its search methodology with a view to ensuring that relevant materials were omitted.  If that were the case, then it was reasonable for the CMA to also conclude that a further, targeted section 26 notice might well lead to concealment or destruction of relevant material.

Comment

It remains to be seen whether the CMA will seek to make more use of its section 28 powers to investigate under a warrant without notice. Historically, the CMA has preferred either to proceed under section 26 (on notice information requests) or by using its section 27 powers which enables the CMA to conduct unannounced visits without a warrant. The main practical difference for a company facing a section 28 investigation rather than a section 27 is that in the former the CMA has the power to conduct its search itself, whereas under section 27 the CMA must ask for relevant information to be brought to it.  It is certainly the case that the facts were unusual, particularly given that the decision to seek a warrant was taken despite the ongoing investigation and the fact that Concordia had been co-operating.  It also remains to be seen how the CMA will deal with its reasonable suspicion that Concordia might continue to conceal or destroy relevant materials in the context of any eventual infringement decision. 

Canal+ finds copyright is no match for the EU single market

The EU General Court (GC) has rejected an appeal brought by Groupe Canal+ (a French pay-TV broadcaster) against commitments proposed by Paramount, and accepted by the Commission, to address competition concerns related to cross-border access to pay-TV content (see here – only available in French). 

The GC found that: (i) the commitments proposed by Paramount addressed the Commission’s competition concerns in relation to its content distribution licence with Sky UK; and (ii) that the competition-infringing provisions could not be justified on the basis of copyright protection.

The key competition law issue arose from provisions in the Paramount/Sky UK licence which guaranteed Sky UK absolute territorial exclusivity in the UK and also prevented Sky UK from making its pay-TV services available to consumers in other parts of the EEA in response to unsolicited requests (i.e. a restriction of “passive sales”, the bête noire of competition law).

Background 

In 2014 the Commission began investigating certain clauses in licensing agreements between the six major Hollywood studios (Paramount Pictures, Disney, NBCUniversal, Sony, Twentieth Century Fox and Warner Bros) and pay-TV broadcasters which prohibited the broadcasters from providing content via satellite or online streaming outside their specific EEA member states.

In 2015 the Commission sent a statement of objection to Sky UK and the six Hollywood major studios which considered that bilateral licences that prevented Sky UK from offering access to its pay-TV services to EEA customers outside the UK and Ireland breached competition law (see here). 

In 2016 Paramount gave commitments to the Commission in order to close the investigation.  Paramount committed to stop using clauses preventing broadcasters from responding to unsolicited requests from consumers based elsewhere in the EEA and agreed not to enforce any existing restrictions. These commitments were accepted by the Commission on the basis that they would last for five years (see here).  The Commission Decision accepting the commitments laid out the basis for the infringement; however, as is typical for the commitments process, it did so rather briefly.

Canal+ also had a contract with Paramount and appealed the commitments decision before the GC on the basis that: (i) territorial exclusivity is essential for the production of European cinema, which is mainly financed by TV channels; and (ii) territorial exclusivity is necessary to protect intellectual property rights.

The GC’s findings 

The GC rejected the Canal+ appeal in its entirety. 

It considered that the Commission’s commitments decision established competition concerns under Article 101(1) TFEU and that these were sufficiently addressed by the Decision.  The GC noted that the commitments did not prohibit the granting of exclusive broadcast licences to pay-TV broadcasters; rather, it prohibited only absolute territorial exclusivity.

The GC rejected the argument that territorial exclusivity is necessary to protect intellectual property rights. In particular, it found that copyright owners are free to demand a premium in exchange for a pan-EEA licence. However, if a premium is paid to guarantee absolute territorial exclusivity this is irreconcilable with the imperative of the EU single market. 

Arguments that the relevant clauses promote cultural production and diversity and that their abolition would endanger the cultural production of the EU were also rejected.

Finally, the GC rejected the Canal+ argument that the commitments violate the interests of third parties (such as Canal+) as third parties could still sue Paramount for breach of contract.

Comment

The case is a further illustration of the Commission’s determination to tackle measures that undermine the EU single market, such as absolute territorial protection. Consequently, the use of copyright arguments to justify partitioning the single market will be given short shrift. 

The approach of the GC may also encourage the Commission to press ahead with the pending case against the remainder of the Hollywood studios – despite evidence of considerable concerns (including among politicians) about the impact of any decision on the economics of European TV/cinema.

Having said that, it is unclear what the actual impact of the commitments given by Paramount will be: given the national nature of copyright, anything other than a pan-EU licence will leave the broadcaster exposed to the risk of infringement proceedings if it sells into countries not covered by the licence. 

Partial annulment of Servier decision by the General Court – some good news for pharma innovators at last

The General Court has today handed down its judgment in the long-running Servier patent settlement case.  

It remains a rare event that the European Courts annul Commission decisions under Article 101 and, in particular, Article 102.  In this case, the General Court has partially annulled the 900 page decision.  In doing so, it has – subject to the outcome of further appeals – considerably reduced the range of competition law risks facing pharmaceutical companies.

Of particular note for innovators is the complete annulment of the fine for abuse of dominance.  The General Court has found that the Commission has failed to substantiate the alleged relevant market, and thus wrongly found that Servier held a dominant position in the EU.  

In the Decision, the Commission had held that perindopril, a treatment for hypertension, was a relevant market in itself.  This was despite it being one of a large class of drugs (‘ACE inhibitors’) with an essentially identical mode of action, and in relation to which clinical guidance existed which treated the products as substitutable.  The General Court has held that the Commission was wrong to rely on Servier’s promotional materials to claim that differences existed between the different members of the class of drugs, under-estimated the amount of switching which took place between different ACE inhibitors (in some cases driven by cost considerations on the part of organisations such as Clinical Commissioning Groups in the UK) and attributed too much importance to price in its analysis.  In its decision, the Commission had carried out a so-called ‘natural events’ analysis, which found that the only significant impact on sales volumes was sustained when perindopril generics entered the market.  The General Court has held that this paid insufficient attention to clinical decision-making, something the Commission had explicitly ruled out when considering what was relevant for market definition.

Although the particular market definition in this case is of limited relevance to third parties, the Commission’s failure to demonstrate that perindopril competed only with generics of the same drug has significantly wider implications for competition authorities’ ability to bring future abuse of dominance cases which rely on artificial differentiations between drugs with an equivalent mode of action.  Subject to the outcome of any appeal by the Commission to the Court of Justice, the position should now revert back to that established in AstraZeneca, which focuses on prescribers’ considerations as to the different therapeutic uses of the different drugs.  While a first in class product may still give rise to a dominant position in a period before further similar products come to market, a later drug is likely sit within the same relevant market, and will therefore be less likely to gain a dominant position (subject to market share growth, and specific factors which may indicate that a separate market in fact exists in a given case).  

As well as annulling the Article 102 portion of the case in its entirety, the General Court has also annulled the fine in relation to one of the anti-competitive agreements identified by the Commission, which was alleged to consist of a withdrawal from litigation in the UK in return for the grant of a licence in another Member State.  This annulment will also be welcome news to the pharmaceutical industry, as it may permit greater flexibility for companies wishing to enter into licensing agreements in tandem with settlements.  Provided any licensing agreement remains an arm’s length arrangement, at commercial rates, the risk that this will be categorised as an ‘inducement’ to settle the litigation now appears lower.

We conclude with a welcome recognition from the General Court of the value of patent protection and of patent settlements: “…intellectual property rights are protected by the Charter of Fundamental Rights, to which the Treaty of Lisbon has conferred the same legal value as the Treaties. …As regards patents, … when granted by a public authority, a patent is presumed to be valid and an undertaking’s ownership of that right is presumed to be lawful. The General Court emphasises, lastly, the importance of settlement agreements, since the parties to a dispute should be authorised, indeed encouraged, to conclude settlement agreements rather than pursuing litigation. The General Court concludes that the adoption of settlement agreements in the field of patents is not necessarily contrary to competition law.

Case T 691/14, judgment of 12 December 2018, press release here, full judgment (currently available only in French) here.

CLIP of the month: What is the best response to higher prices in the pharma sector?

Pricing issues in the pharmaceutical industry continue to keep European competition authorities busy. From the UK excessive pricing case involving Pfizer and Flynn (which has been remitted to the CMA following appeal – see here and here), and the Italian Aspen case (see here and here), to the European Commission’s continuing Aspen investigation (see here). Indeed, excessive pricing in the pharma sector was one of the topics discussed last week at the 130th Meeting of the Competition Committee of the OECD. The briefing paper for that session is our CLIP of the month.

The OECD paper provides a useful overview of recent competition law enforcement relating to excessive pricing in the pharma market, noting that such cases generally meet the stringent requirements developed in academic literature for the bringing of such cases: the presence of significant market power and high and durable barriers to entry, in scenarios where intervention will not adversely affect innovation, and where alternative regulatory intervention is not possible/inappropriate. In particular, the paper notes that each of the recent cases in Europe relates to:

  • medicines that have long been off-patent meaning that there were not R&D and investment recoupment justifications for high prices, nor concerns with interfering with innovation;
  • medicines which are essential to patients, and for which there was no prospect of timely market entry of alternative products (either because of supply constraints, the regulatory framework, or the limited size of the market); and
  • price increases which were sudden and significant, in respect of products that had long been in the market.

The OECD paper also notes that regulatory intervention in those cases was perceived to be unable to provide an appropriate, or at least timely, response to the price increase. Indeed, in light of the specific market and regulatory conditions, the stringent requirements for excessive pricing cases are more likely to be satisfied in the pharma sector. However, the OECD paper recognises that such cases are unavoidably fact-specific, operate ex post, are subject to high error risks and costs, and rarely set out bright-line guidance on how to set accurate prices. It therefore suggests that competition authorities should consider deploying other tools at their disposal including market studies, regulation, and joint initiatives with sectoral regulators. 

This is not the first we have seen of calls for broader methods for dealing with higher prices in the pharma market. Last year we reported on a recommendation by the Dutch Council for Public Health and Society for the government to use compulsory licences when a medicine is priced too high, or above a “socially acceptable price” (see here). However, there have not yet been any reports on the Dutch government’s response to that recommendation. 

In the UK at least, it seems that the CMA will not be abandoning its traditional competition tools for dealing with excessive pricing. In its contribution to the OECD meeting it states that new specific regulatory regimes are not always preferable to antitrust enforcement, as legislation takes time to implement and is generally fails to address the historic harm caused by higher prices. The CMA also emphasises that excessive pricing cases are important as a matter of policy, given that “[e]nsuring consumers are not exploited by unfairly high prices is at the heart of antitrust enforcement”. 

Maintaining competition in online advertising: the US FTC’s 1-800 Contacts decision

In an important case on the intersection of IP and antitrust, the US Federal Trade Commission (FTC) has held that 1-800 Contacts, the largest online retailer of contact lenses in the US, unlawfully entered into a series of anti-competitive settlement agreements with its online rivals.  Issued on 7 November, the Commission’s Opinion provides useful insight into the mechanics of keyword search advertising and emphasises that such advertising is fundamental to competition between retailers in an e-commerce context.  The case also serves as a reminder – if any were needed – that companies cannot rely on IP settlements to shield their conduct from competition law scrutiny.

Background

Internet search engines such as Google typically generate two types of results in response to search queries: ‘organic’ results and ‘sponsored’ links.  The latter are advertisements, which are often displayed above or beside the organic results. As the name suggests, advertisers have to pay to have their sponsored links appear on a search engine results page.  To determine which ads appear (and in which order), search engines use auctions to sell advertising positions.  Advertisers bid on ‘keywords’ – words or phrases that trigger the display of ads when they are deemed to match a user’s search.  Advertisers can also specify ‘negative’ keywords. For instance, a retailer of eye-glasses might bid on ‘glasses’ but list ‘wine’ as a negative keyword to prevent its ad from appearing in response to a query for wine glasses.

Between 2004 and 2013, 1-800 Contacts sent cease and desist letters alleging trade mark infringement to a number of its competitors whose online search advertising displayed in response to queries involving ‘1-800 Contacts’ and similar terms.  It subsequently filed suit against a number of these online retailers (even if the retailers had not been bidding on the keyword ‘1-800 Contacts’ but on more generic terms such as ‘contacts’).  Rather than litigating the trade mark disputes to conclusion, 1-800 Contacts entered into settlement agreements with each of the competitors.  The agreements prevented the competitors from bidding for search advertising involving ‘1-800 Contacts’ and similar terms. The agreements also required the competitors to employ negative keywords to prevent their ads appearing whenever a search included the ‘1-800 Contacts’ trade mark (even in situations where the advertiser did not bid on the actual trade mark and the ad would appear due to the search engine’s determination that the ad was relevant and useful to the consumer). The settlement agreements were reciprocal: 1-800 Contracts agreed to the same bidding restrictions and negative keyword requirements in respect of its rivals’ trade marks.

The FTC’s decision

Anti-competitive restraints 

The FTC held that the settlement agreements prevented online contact lens retailers from bidding for online search ads that would inform consumers about the availability of identical products at lower prices.  According to the FTC, the agreements:

  • harmed competition in bidding for search engine key words, artificially reducing the prices that 1-800 Contracts paid for search advertising, as well as reducing the quality of search engine result ads delivered to consumers; and
  • resulted in price-conscious consumers paying more for contact lenses that they would have absent the restrictions.  
Whilst the FTC did not suggest that all advertising restrictions are necessarily anti-competitive, it emphasised that the restrictions in this case prevented the display of ads that would enable consumers to learn about alternative sellers of contact lenses and to make price comparisons at a time when they would be considering a purchase.  Significantly, the restrictions in the settlement agreements were not merely “limitations on the content of an advertisement a consumer would otherwise see”; they were restrictions on a “consumer’s opportunity to see a competitor’s ad in the first place”.  The restrictions were particularly harmful to retail price competition because the suppressed ads “often emphasise[d] lower prices”.

1-800 Contacts’ efficiency justifications

1-800 Contacts put forward two efficiency justifications for the restrictions: (i) avoidance of litigation costs though settlement and (ii) trade mark protection.  The FTC found that whilst these justifications were plausible, they were insufficient to outweigh the restrictions’ anti-competitive effects.  Further, the claimed pro-competitive benefits could have been achieved through less restrictive means.  In the agency’s analysis, “when an agreement limits truthful price advertising on the basis of trade mark protection, it must be narrowly tailored to protecting the asserted trade mark right”.  The settlement agreements in this case were not: they restricted advertising regardless of whether the ads were likely to cause consumer confusion (a key element of the test for trade mark infringement) and regardless of whether competitors actually used the trade mark term.

The FTC was also unimpressed by 1-800 Contacts’ argument that a trade mark settlement requiring non-use is immune from antitrust review because a prohibition on use is within a trade mark’s exclusionary potential.  Citing the US Supreme Court’s 2013 ruling in Actavis, the FTC emphasised the importance of considering “both antitrust and intellectual property policies”.  According to the agency, the “crux” of the Actavis decision was that there could be antitrust liability for settlement of litigation, regardless of whether the agreement’s anti-competitive effects fall within the scope of the exclusionary potential of the IP right in question.  1-800 Contacts’ argument “look[ed] only to half of the equation, i.e. trade mark policies, and did not withstand a thorough understanding of Actavis”.

Comment 

The decision sends a clear signal that the FTC takes a dim view of agreements between competitors that restrict online search advertising to the detriment of consumers.  Whilst agreements to limit advertising are not per se illegal in the US, it seems that such agreements will likely fall foul of the antitrust rules unless the parties can establish robust pro-competitive justifications for the restrictions.  The FTC’s position is clear: online search advertising plays a crucial role in the effective functioning of retail competition in the modern internet economy.

Competition authorities on this side of the Atlantic have also shown an interest in the links between online advertising and competition in recent years. The European Commission’s Final Report in the E-Commerce Sector Inquiry noted that almost one in ten retailers were contractually restricted from advertising online. The French competition authority published a report on the functioning of the online advertising sector in March this year.  And in the German Asics case, the Bundeskartellamt found that the sports equipment manufacturer’s prohibitions on the use of price comparison websites and Asics brand names in online advertisements amounted to a hardcore restriction of competition under the Vertical Agreements Block Exemption.  That decision was ultimately upheld by Germany’s highest court, the Federal Court of Justice.  Given the continuing growth of e-commerce, it would hardly be surprising to see further cases in this area in the future.

US District Court confirms that Qualcomm must offer RAND SEP licences to rival chipset manufacturers

In California, Judge Koh has granted partial summary judgment in favour of the FTC against Qualcomm, making an order that Qualcomm must license its SEPs to rival chipset manufacturers (such as Intel). 

We explained the background to this judgment and its significance in a previous post. Although the ruling is limited to Qualcomm’s position vis-à-vis competing manufacturers without commenting on the position of other SEP holders, it indicates that FRAND requires ‘licensing to all’ (at least in respect of the rules of ATIS and TIA, which, like ETSI, are members of the Third Generation Partnership Project, the collaboration of standard setting organisations behind the development of standards such as 4G LTE and 3G UMTS). The result could be a shift in the focus point for licensing SEPs in cellular standards from the manufacturers of end devices (handsets) to the manufacturers of chipsets.

The issue

Qualcomm had declared its SEPs as essential to two US standard setting organisations (SSOs), the Alliance for Telecommunications Industry Solutions (ATIS), and the Telecommunications Industry Association (TIA). In return, each SSO required Qualcomm to license its SEPs on RAND terms (note that the exact wording of the ATIS IPR policy and TIA IPR policy differ slightly, although this made no substantive difference in these proceedings).

The FTC alleged that both of these policies required Qualcomm to license its SEPs to all applicants, including competing chipset manufacturers. Qualcomm argued that the IPR policies contain limitations and that Qualcomm is not required to license its SEPs to applicants, like chipset manufacturers, that only produce components of devices. The FTC applied for partial summary judgment on this point (the trial on the wider issue of whether Qualcomm’s actions have harmed competition is scheduled for January 2019).

The decision

Judge Koh preferred the FTC’s interpretation, taking into account the following points:

  • Non-discrimination: Judge Koh reasoned that “if a SEP holder could discriminate against modem chip suppliers, a SEP holder could embed its technology into a cellular standard and then prevent other modem chip suppliers from selling modem chips to cellular handset producers”. She suggested that such discrimination could enable a SEP holder to achieve a monopoly, in direct contradiction of the stated purpose of the TIA IPR policy.
  • Industry practice: as part of its argument, Qualcomm claimed that chipset manufacturers never receive SEP licences. However, Qualcomm itself had received licences to manufacture and sell components, and had received exhaustive licences from over 120 companies, indicating that it could not be contrary to industry practice for chipset manufacturers to obtain SEP licences. 
  • Prior litigation:  when defending a patent infringement case against Ericsson, Qualcomm had previously claimed that the TIA policy required Ericsson to license any patents ‘required to develop products compliant’ with a given standard. Qualcomm suggested that this requirement would enable all industry participants to develop, manufacture and sell compliant products, and importantly, that chipsets were ‘compliant’ products covered by the policy.
  • Implementing the standard: Judge Koh also dismissed Qualcomm’s arguments that chipset manufacturers do not practise its patents. She noted that neither the ATIS not TIA policy restricts a SEP holder’s FRAND obligations to applicants that themselves practice or implement a whole standard. She emphasised that Qualcomm’s own documents demonstrate that a modem chip is a core component of a cellular handset, and that such chipset implements key cellular technologies.

Judge Koh also referred to a Ninth Circuit precedent (Microsoft II) as establishing that that Qualcomm’s RAND commitments include an obligation to license to all comers, including competing chipset manufacturers. She noted that in Microsoft II the Ninth Circuit had been interpreting a SSO IPR policy with almost identical language to the TIA and ATIS IPR policies.

For all of those reasons, Judge Koh agreed that the test for partial summary judgment (that ‘the meaning of the contract is unambiguous’) was met, and that both IPR policies required Qualcomm to license its SEPs to chipset manufacturers.

Conclusion

Although it was only a hearing for partial summary judgment, this case aired a significant number of the issues and arguments involved in the ‘licensing to all’ debate. These were all dealt with thoroughly by Judge Koh, though Qualcomm is expected to appeal. 

Judge Koh’s reliance on Qualcomm’s previous conduct highlights a frequent problem for large SEP holders that act as both licensor and licensee; it is difficult for such companies to eliminate conflicting positions in different cases.  However, not every judge will place the same weight on such considerations: in Unwired Planet, Birss J dismissed the relevance of past statements made by Ericsson and other SEP holders as to the appropriate total royalty burden (although in TCL Judge Selna took the opposite approach).   

In any event, this ruling is unlikely to be the last word on the matter. The case primarily focussed on contractual interpretation, rather than on antitrust as such. Establishing a contractual requirement for Qualcomm to offer licences to competing chipset manufacturers is one thing. Whether Qualcomm and any chipset manufacturers can agree the terms of a (F)RAND licence is quite another, particularly given that the order relates only to the ATIS and TIA IPR policies and so has a direct impact only on licences to those of Qualcomm’s SEPs which have been declared to ATIS/TIA, rather than necessarily on its global portfolio.  It remains to be seen whether Qualcomm will elect to carry this finding across to SEPs declared to other standards bodies, such as ETSI, and whether chipset manufacturers will in fact benefit from an exhaustive licence from Qualcomm.

Brexit and Competition Law: CMA publishes guidance on its role in a “no-deal” scenario

On 29 October 2018, the government laid ‘The Competition (Amendment etc.) (EU Exit) Regulations 2019’ (the Competition SI) before Parliament. The Competition SI makes provision for the transition to a standalone UK competition regime after exiting the UK in a ‘no-deal’ scenario. The next day (30 October) the CMA published two notices, one on mergers and one on antitrust cases setting out the way it intends to proceed in the event of a ‘no deal’ scenario based on the Competition SI. These notices follow guidance published in September 2018 by Department of Business, Energy and Industrial Strategy on merger review and anti-competitive activity in a “no-deal” Brexit scenario. 

Mergers

Whether the UK leaves the EU with or without a negotiated agreement, it is inevitable that the CMA will have to take on some of the burden of merger reviews from the European Commission. The CMA has now clarified that in a no-deal scenario, the CMA will have jurisdiction to review the UK aspects of mergers that are still being reviewed by the Commission on 29 March 2019, provided that the usual merger control thresholds are met, i.e. if the CMA has reasonable grounds to suspect that the transaction may give rise to a relevant merger situation. 

Any company engaged in a merger to which this is likely to apply to should discuss the possible ramifications with the CMA at an early stage in the transaction, particularly where the merger is likely to give rise to UK competition issues. The CMA may then suggest to such companies that they enter into pre-notification discussions with the CMA in parallel with any EU review. The CMA has been monitoring non-notified merger cases that may fall into this category, and will continue to do so in the lead up to the withdrawal date. 

The UK will have no jurisdiction over mergers that have been reviewed by the Commission and where a decision has been published before 29 March, unless the decision is subsequently annulled. Provided the Commission has not issued a decision on or before 29 March, the CMA will no longer be excluded by the EU Merger Regulation from taking jurisdiction over the UK aspects of the merger and the provisions of the Enterprise Act 2002 will therefore apply. 

For mergers referred to the CMA by the Commission before the withdrawal date, the CMA’s usual processes will apply. 

Antitrust

Following the UK’s exit from the EU, the CMA will no longer have jurisdiction to apply Article 101 TFEU on anti-competitive agreements and Article 102 TFEU on abuse of dominance. The CMA’s jurisdiction will extend only to applying the equivalent UK national prohibitions in the Competition Act 1998 (Chapter I and Chapter II). 

The CMA’s guidance notes that section 60 of the Competition Act 1998, requiring the CMA and UK courts to interpret UK competition prohibitions consistently with CJEU decisions and principles, will no longer apply under the Competition SI (including to cases already opened on or before 29 March 2019). A new provision, section 60A, will apply instead. This provision will oblige the UK competition enforcers and courts to ensure there is no inconsistency with the pre-exit EU competition case law, however they will have the power to depart from the EU case law where they “consider [it] appropriate in the light of particular circumstances”. 

On exit, the CMA may conduct investigations into breaches of the domestic prohibitions before or after exit day, including cases where the CMA was relieved of its competence by the European Commission. However the CMA will not be able to open investigations, where before exit, the Commission reached an infringement decision that has not been subsequently annulled. 

Seven EU Block exemption regulations will be retained in EU law in amended form. In practice this means that agreements that met the criteria of these block exemption regulations remain exempt from the UK provisions.

The relevant block exemption regulations are:
  • Liner shipping regulation (expiring 30 April 2020)
  • Transport regulation
  • Vertical agreements regulation (expiring 31 May 2022)
  • Motor vehicle distribution regulation (expiring 31 May 202)
  • Research and development regulation (expiring 31 December 2022)
  • Specialisation agreement regulation (expiring 31 December 2022)
  • Technology transfer regulation (expiring 30 April 2026)

The power to amend or revoke the block exemptions is transferred to the Secretary of State under the Competition SI. The CMA expects to consult on the block exemptions as they expire in order to advise the Secretary of State. 

The CMA’s antitrust notice added that following a no deal Brexit, any existing or potential applicant for leniency under the Commission’s leniency programme in respect of conduct also covered by the CMA’s leniency programme should make a separate application for leniency to the CMA. 

While these notices give some initial guidance on the CMA’s approach, it is hoped that the CMA will publish further advice for the benefit of companies that are likely to be affected, particularly if the prospect of a no-deal Brexit becomes more likely. Indeed it is highlighted in the notices, that the CMA shall keep under review the necessity of further guidance or updates and shall add to the notices as appropriate.

Polish Plant Protection Products: CJEU confirms Commission was right to reject investigation

In its judgment of earlier this year, the Court of Justice of the European Union (CJEU) upheld a decision of the European Commission to reject a case involving distributors and manufacturers of plant protection products (PPPs) on the grounds of insufficient EU interest. 

Facts

The facts in the case date back to the 2000s, when Agria Polska, a Polish company involved in the parallel importation of PPPs, claims it was subjected to a coordinated series of wrongful allegations which sought to impugn the legality of its PPPs.  Agria Polska characterised the statements made against it by its competitors (including DuPont, BASF and others) to national authorities and courts as “false” or “misleading”, and the resulting inspections and court cases as “vexatious proceedings” within the meaning of ITT Promedia v Commission.  

In 2010, it lodged a complaint with the European Commission, alleging that the entities referred to in the complaint, had engaged in practices that amounted to infringements of Articles 101 and 102 TFEU. The allegation encompassed the use of customs control procedures which the competitors used to seek to block the import of Agria Polska’s products into Poland.

The Commission declined to open an investigation, finding that that there was insufficient evidence in support of the complaint, and that the resources necessary for the investigation would be disproportionate in view of the limited likelihood of establishing the existence of an infringement. 

Agria Polska’s appeals

Agria Polska appealed the Commission’s refusal to open an investigation, seeking an annulment of the Commission’s decision on procedural and substantive grounds, also alleging that the Commission infringed its right to effective judicial protection under Article 13 of the Convention for the Protection of Human Rights and Article 47 of the Charter of Fundamental Rights.

The General Court (GC) rejected the appeal, finding that the Commission had not committed a manifest error of assessment when it declined to open the investigation. 

On a further appeal, in which judgment was given in September 2018, the CJEU upheld this finding.  According to the CJEU, the entities referred to in the complaint were entitled to inform national authorities of the alleged IP infringements committed by Agria Polska, and to cooperate with the authorities carrying out investigations into Agria Polska. The Court cited the Commission’s viewpoint that the principles on vexatious litigation drawn from ITT Promedia and on the provision of misleading statements from AstraZeneca were not intended to apply to situations in which undertakings informed the national authorities of allegedly unlawful conduct or actions by other undertakings.  The CJEU noted in particular that the administrative and judicial authorities involved in those cases “had no discretion as to whether or not it was appropriate to act on the applications made by those undertakings”; this was contrasted with the position of the relevant Polish authorities involved in the complaints lodged by Agria Polska’s competitors which were able to take decisions on the merits.   

The CJEU therefore upheld the GC’s judgment, declining to annul the Commission’s decision. The CJEU noted that “…it is for the Member States to provide remedies sufficient to ensure effective judicial protection for individual parties in the fields covered by EU law”, and that it is not the Commission’s responsibility to plug gaps in judicial protection left by national courts by opening an investigation where the likelihood of finding an infringement of Articles 101 and/or 102 is low.

Impact

As human rights and competition law continue to brush against each other in the EU courts, it is noteworthy that the CJEU was not convinced by Agria Polska’s arguments. The courts have established that a complainant does not have a fundamental right to a full Commission investigation, particularly in cases where it would not be in the interest of the EU to launch an investigation. 

The CJEU’s approach in Agria Polska also demonstrates the high hurdle that represented by the ITT Promedia line of cases.  It seems that it is particularly difficult to justify an investigation into “vexatious proceedings”; as previous case law has established, recourse to legal action will be considered abusive only in exceptional circumstances.  In the opinion of the authors, the case arguably overstates the distinction between the lack of discretion supposedly held by regulatory and patent authorities in AstraZeneca with the position in this case.  Such authorities are well able, and routinely do, ask questions and seek more information from applicants for patents or marketing authorisations.  Conversely, it understates the impact of multiple litigation proceedings on an undertaking whose competitors are undoubtedly better funded than it.  (There is no doubt either that the parallel trade carried out by Agria Polska represented a disruptive influence on the market, which the competitors would have had an interest in hindering.)  It cannot be excluded a different case could be pursued in future, if, for example, the foreclosure effects were clearer.  Indeed, the case must be seen for what it is – namely, an appeal against a Commission decision not to investigate.  Given the implications for public resources, it is unsurprising that such cases are only rarely overturned.

Case C-37/17 P Agria Polska v Commission, judgment of 20 September 2018.

CLIP of the month: Does orphan drug pricing pose an antitrust problem?

In the USA, a rare or orphan disease is defined as affecting fewer than 200,000 people and more than 7,000 rare diseases have been identified to date. The EU adopts a similar definition and identifies the existence of a similar number of rare diseases (see here). 

Pharmaceutical companies are often reluctant to fund R&D for orphan diseases. As they affect so few people, there is no guarantee that successfully developed orphan drugs will be profitable. The Pharmaceutical Research and Manufacturers of America estimates that 95% of rare diseases do not have approved treatments (see here).

Both the US and EU have therefore sought to incentivise companies to develop orphan drugs. For example, in the US, the Orphan Drugs Act 1983 provides tax credits for clinical research into rare diseases, and the EU’s Horizon 2020 scheme provides funding of around €900 million for collaborative projects related to rare diseases.

Although more than 600 orphan drugs and biological products have now been approved in the US, they are still scarce, and often come with a high price attached. Given the relative lack of competition in this area, it’s no surprise that antitrust concerns have been raised about the potential for excessive prices to be charged.

This month’s CLIP examines antitrust enforcement actions involving orphan drugs in the US. It concludes that there has not been a special focus on orphan drug pricing compared to any other drugs. 

From the European perspective, we’ve noted the attempt by the Dutch foundation for ‘pharmaceutical accountability’ to secure an investigation into orphan drug pricing in the Netherlands (here).  As long ago as 2003, the OFT (as it then was) issued an abuse of dominance decision against Genzyme, in relation to a margin squeeze involving a treatment for an orphan indication. More recently, the question of excessive pricing in the pharmaceutical sector has been a focus across Europe.  The UK’s CMA and CAT looked at it in Pfizer/Flynn (see here), and the European Commission is investigating Aspen Pharma for its pricing practices for cancer medicines (here). 

In this current climate, whether it’s an orphan drug or any other potentially dominant product, pharmaceutical companies need to be prepared to justify their prices in case one of the competition regulators does come calling.