Depression delayed: CMA’s paroxetine pay-for-delay case heads to Luxembourg

On 8 March 2018, the Competition Appeal Tribunal (CAT) gave an initial judgment (see here) in the appeals brought by GlaxoSmithKline (GSK) and a number of generic manufacturers against the Competition and Markets Authority’s (CMA) 2016 Paroxetine decision (see here and here).   As explained further below, the CAT has (in a move which perhaps goes against the prevailing zeitgeist) not reached final conclusions on the appeals, but has rather referred a number of questions to the Court of Justice in Luxembourg.


The infringements identified by the CMA in its Paroxetine decision arose out of three patent settlement agreements made in 2001 and 2002 between GSK and various generic manufacturers of paroxetine.  

Paroxetine is an anti-depressant (selective serotonin reuptake inhibitor “SSRI”), marketed by GSK under the brand name “Seroxat”, which during the infringement period was one of its highest selling products, accounting for £71.6 million (10% of revenue) in 2001.

The CMA’s investigation into paroxetine was the first UK case to grapple with the contentious area of patent settlement agreements which limit generic companies’ ability to bring their own product to market.  The investigation was formally launched by the OFT in 2011 on the basis of information obtained by the European Commission through its pharmaceutical sector inquiry (2009). 

Following a significant further period of investigation, the CMA in 2016 issued a decision fining GSK, Alpharma and Generics (UK) a total of £44.99 million for agreeing to delay the entry of generic paroxetine in breach of Chapter I and/or Article 101 TFEU.  GSK received the largest penalty, being fined £37,606,275 for its parallel infringement of the Chapter II prohibition:

  • The CMA found that between 2001 and 2004 GSK agreed to make payments and other value transfers of over £50 million to generic suppliers of paroxetine; this amounted to a restriction of competition by object and/or effect. 

  • The CMA also found that GSK’s conduct induced generic providers to delay their efforts to independently enter the UK paroxetine market, abusing its dominant position in breach of Chapter II of the Competition Act.

The CAT Judgment 

The essential element of the CAT’s March 2018 judgment is the reference of five issues to the CJEU for a preliminary ruling.  As things stand, the exact text of the questions has not been formulated (and will no doubt be the subject of fierce debate among the parties).  However, the issues referred will relate to the following areas: 

  1. Potential competition: whether the existence of an interim injunction against generic manufacturers was an insurmountable barrier for entering the market.

    The provisional view of the Tribunal was to find that it was not (since, for example, it could have been discharged). However, it decided to refer a question to the CJEU as the question was similar to one raised in Lundbeck’s appeal (see here). This reference raises issues not dissimilar to those at play in the recent Roche judgment of the CJEU, which considered whether potentially unlawful products could be viewed as potential competitors (see here).

  2. Restriction of competition by object: when the strength of a patent is uncertain, does a transfer of value from the originator to a generic of an amount substantially greater than avoided litigation costs, under a settlement agreement in which the generic company agrees not to enter the market with its generic product and not to challenge the originator’s patent, constitute a restriction by object?

    The CAT emphasised a number of points in connection with this question, including a notable recognition that (a) the uncertainty over patent strength means that a possible outcome of the litigation was that the generic challengers would be held to infringe a valid patent; and (b) an outcome of litigation which upheld the patent should not be viewed as a less competitive outcome than the situation where the patent was overturned.

    A second related question was also identified, which seeks to establish whether a settlement comprising a value transfer which also provides some benefits to consumers (in the form of limited supplies of authorised generic products) should also be viewed as restrictive by object. Again, the preliminary view of the Tribunal was that such limited competitive benefits are not sufficient to draw into question the overall categorisation of the agreement as a by object infringement. If that is correct, it is necessarily a conclusion which will have to be considered in detail for any specific patent settlement agreement, and suggests that a blanket ‘by object’ approach will not be warranted.

  3. Restrictions by effect: in order to show a restriction by effect is it necessary to establish that the counterfactual would have been more competitive? The Appellants argued that the CMA’s Decision did not sufficiently consider the potentially pro-competitive effects of GSK’s agreements with generic manufacturers, for example the savings to the NHS compared to the situation where no authorised generics were on the market.

    The CAT also started to grapple with an issue which has been underplayed in the European decisions to date, namely the relevance of the outcome of the underlying patent litigation. If one realistic outcome of that litigation was success for GSK, the approach proposed by the CMA would be to reduce the test for identifying effects to “the probability of a possibility”. On the other hand, the CAT did not seem to acknowledge the risk of creating a situation where an agreement is considered restrictive of competition by object yet does not possess the requisite degree of probability for an effects finding that is not made out. This is surely an issue that will have to be fully played out before this, and similar cases, are finally resolved. (Damages litigation in relation to patent settlement agreements is likely to bring this issue to the fore, even if the CJEU elects to side-step the question.)

  4. The correct approach to defining the relevant product market: is the relevant product market paroxetine or all SSRIs? While the Tribunal supported the CMA’s finding of dominance on the basis of a market limited to paroxetine, it criticised its reasoning. It considered the CMA to have taken an overly narrow approach to market definition, based on the impact of generic entry on the price of paroxetine - following the Commission’s ‘natural events’ approach used in its AstraZeneca Decision (2005) (see here). However, the CAT supported the view that from the time when there were potential generic entrants, the market was limited to paroxetine and its generics. It recognised that this preliminary view, which suggests a significant change in the relevant market over time (despite no suggestion that the view of prescribing professionals was subject to a similar change) was a departure from existing case law. In the authors’ view, this approach will lead to legal uncertainty and, more importantly, inappropriately substitutes an analysis based on perceived competitive constraints for an assessment based principally on objective demand factors. As the CAT itself notes, this approach would suggest successful drugs will almost always be found to constitute a distinct market at least from the time when generic entry becomes likely. As the Tribunal notes, this approach would amount to a material change to the “IP bargain” which “might adversely affect the economic purpose of patent legislation”.

    Nevertheless, in making the reference on this point, the CAT has flagged some significant issues which should weigh in the CJEU’s eventual analysis.

  5. Abuse: are potential benefits to the NHS relevant to the assessment of whether GSK had abused a dominant position by entering into the agreements?

    The final question on abuse is limited to an allusion back to the questions referred in relation to the object and effect of anti-competitive agreements. The central issue is again the question of whether the limited pro-competitive benefits derived from the presence of the generic companies as distributors of an authorised generic product are sufficient to undermine the main finding as anti-competitive effects.

Although the judgment is provisional in nature, there is much to absorb. We will report further when the agreed text of the questions to be referred has been published.

The BKA’s Facebook investigation: new frontier or regulatory overreach?

At the end of 2017, the German competition authority (BKA) provisionally concluded that certain Facebook polices in relation to users’ data are an abuse of its dominant position in the German market for social networks.  It published an accompanying position paper

The BKA’s provisional dominance finding takes into account Facebook’s 30 million monthly users in Germany (with 23 million using Facebook on a daily basis), as well as the allegedly high barriers to entry for new social networking platforms (a point to which we return below).  

It considers the terms and conditions Facebook imposes on its users to be abusive, requiring them to choose between accepting “the whole Facebook package”, including an extensive disclosure of personal data, or not using Facebook at all. 
Specifically, the BKA takes issue with the requirement for users to accept Facebook’s right to collect data from third party websites: data which is made available to Facebook by operators that have embedded the Facebook ‘like’ or ‘login’ options.  Data is collected by Facebook even where users do not click on such options, and is then associated with the user’s Facebook account.  According to Cliqz, Facebook’s reach may stretch to over 25% of all websites. 

The BKA considers that users could not meaningfully consent to Facebook’s data processing requirements, as they have no alternative but to consent if they wish to access Facebook’s platform.  The BKA characterises this as "exploitative business terms”. 

As we have previously noted, the investigation is a test case on the interplay between big data, consumer protection and competition law (here and here). But is this investigation an opening salvo in a new frontier for competition enforcement, or more of a modish dalliance with the hipster zeitgeist?

It certainly concerns an unusual alleged form of abuse, since it does not appear to depend in any meaningful sense on Facebook’s dominance (save perhaps in the extent of the data collection).  Nor does it readily seem to fulfil the classical requirement of an abuse which uses “methods different from those governing normal competition [which …] has the effect of hindering the maintenance of the degree of competition existing in the market or the growth of that competition” (Case 85/76, Hoffmann La Roche).

It is not uncommon for investigations which challenge the boundaries of antitrust to be relatively clear about the potential harm to competitors, but much less clear about the harm to consumers or the competitive process.  This case is rather the converse – with its most controversial aspect perhaps being the BKA’s theory of consumer harm, which is based on users’ loss of control of their data: “Facebook offers its service for free.  Its users therefore do not suffer a direct financial loss from the fact that Facebook uses exploitative business terms.  The damage for the users lies in a loss of control: they are no longer able to control how their personal data are used”.  This theory necessarily assumes that users are sufficiently tied into the platform to be unwilling or unable to ‘click away’ and select an alternative messaging service.  Indeed, in Facebook’s public statement about the recent development in the BKA’s investigation, it strongly emphasised its lack of market power, which is both a pre-condition for any abuse finding and in this case is closely tied to the nature of the abuse itself.

The BKA’s position paper seeks to redress this apparent focus on consumers, noting the high economic value of the data gathered by Facebook, and its relevance for targeted advertising which in turn makes Facebook more attractive to advertisers, a concept referred to as “identity-based network effects”.  The interest in online advertising is of course not limited to the BKA, but is an increasingly hot topic in competition policy generally – see for example the ongoing French competition authority sector inquiry (see here and here). 

It is also questionable how the case can be reconciled with the Court of Justice’s more orthodox position in Case 238/05 Asnef-Equifax (here): “any possible issues relating to the sensitivity of personal data are not, as such, a matter for competition law”.  The BKA’s answer will have to be that its investigation does not relate to the sensitivity of personal data “as such”, but rather to Facebook’s use of the data.

In terms of next steps, Facebook can defend its positon and/or offer solutions.  A final decision in expected in the summer.

The chips are down! The Commission fines Qualcomm for abuse of dominance

The Commission has fined Qualcomm €997 million for abuse of dominance. The Commission found that Qualcomm had paid Apple to use only Qualcomm LTE baseband chips in its smartphones and tablet devices (see here) and that this was exclusionary and anti-competitive. 

Commissioner Vestager has said Qualcomm “denied consumers and other companies more choice and innovation – and this in a sector with a huge demand and potential for innovative technologies”, as “no rival could effectively challenge Qualcomm in this market, no matter how good their products were.

LTE baseband chips enable portable devices to connect to mobile networks. The Commission considers Qualcomm to have had a market share of over 90% between 2011 and 2016 (the period of the infringement). 
The Decision centres on an agreement between Qualcomm and Apple in force from 2011 to 2016 under which Qualcomm agreed to make significant payments to Apple. The payments were conditional on Apple not using chips supplied by Qualcomm’s rivals, such as Intel, in Apple’s mobile devices. Equally, Apple would be required to return a large part of Qualcomm’s previous payments if it decided to switch chip suppliers. The Commission also identifies Qualcomm’s IP rights as contributing to the significant barriers to entry in the chip market, reinforcing Qualcomm’s dominance.

The Qualcomm Decision is similar to the Commission’s 2009 Decision to fine Intel €1.06 billion for giving rebates to major customers in return for them exclusively stocking computers with Intel chips – a decision recently remitted by the CJEU to the General Court for further consideration of the ‘as efficient’ competitor analysis (see here and here). 

Applying the CJEU’s reasoning in Intel, Qualcomm sought to justify its rebate arrangements with Apple on the basis of the ‘as efficient competitor test’. However this attempt was rejected by the Commission as there were “serious problems” with Qualcomm’s evidence (see here).

Separately, Apple has also argued that Qualcomm’s dominance may be reinforced by its strategy for licensing its standard essential patents (SEPs) to competing chip manufacturers. Apple is bringing cases against Qualcomm around the world, alleging that it has engaged in “exclusionary tactics and excessive royalties”. In litigation launched in the English Patent Court in 2017, Apple alleges that Qualcomm is unwilling to license its SEPs to competing chip manufacturers, offering only patent non-assert agreements (see here) which could have a foreclosing effect on other chip manufacturers. (We understand that this case is subject to a jurisdiction challenge, due to be heard in the coming months.)

Qualcomm’s patent licensing arrangements are described (by Apple in its pleadings) in the diagram below:

The Qualcomm Decision reiterates the aggressive approach adopted by the Commission to policing rebates given by dominant companies and potential foreclosure effects. Following the Qualcomm Decision, Commissioner Vestager said “[t]he issue for us isn't the rebate itself. We obviously don't object to companies cutting prices. But these rebates can be the price of an exclusive relationship – the price of keeping rivals out of the market and losing the rebate can be the threat that makes that exclusivity stick” (see here). 
As litigation and antitrust clouds swirl around Qualcomm’s business model, in a separate case filed in the Northern District of California in 2017, the US Federal Trade Commission has similarly alleged that Qualcomm is using anti-competitive tactics to maintain its monopoly of baseband chips and has rejected requests for SEP licenses from Intel, Samsung and others (see here and here).

In parallel, competition authorities in China, South Korea, Japan and Taiwan have fined the company a total of $2.6 billion in relation to its SEP licensing policies and pricing (see here).

In summary, while the EU Commission fine is significant, and interesting for competition lawyers as it perhaps suggests that the significance of the Intel CJEU judgment may be more limited than anticipated, it is only part of the overall picture for Qualcomm (and for the sector as a whole). Indeed, even with today’s decision, the Commission has not brought its interest in Qualcomm to an end, as it is still investigating a separate predatory pricing complaint which was filed in 2015.  

The cumulative impact of these legal issues (as well as Qualcomm’s rejection of Broadcom’s takeover bid) may have contributed to a fall in Qualcomm’s share price – although Qualcomm had better news from DG Comp recently when its proposed acquisition of NXP was cleared by Brussels on 18 January (see here and here).

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

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. 


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.

The Commission steps into the excessive pricing arena

An announcement by the European Commission last week resolves an open question about its view on the recent spate of pharma sector excessive pricing cases that have been seen in Italy and the UK.  The Commission has now confirmed that, following dawn raids across four member states in February, it has opened an investigation into Aspen Pharma for suspected breach of Article 102.  The concern is that Aspen’s pricing practices in relation to off patent drugs containing five ingredients used for treating cancer has led to unjustified price increases.  This overlaps with the Italian Market Competition Authority’s decision in October 2016 to fine Aspen €5.2 million for unfair price increases, which covered four of the five ingredients now under investigation (see here for our report).

This is the Commission’s first excessive pricing case in the pharma sector, following a trend set by the national competition authorities (including in the UK and US – although given that US antitrust does not apply to pure pricing issues, the US cases have tended to focus on another form of abuse (e.g. here) which led to the excessive prices).  

The EU NCAs have been well placed to deal with such conduct, as pharma markets are national in scope, and subject to significant regional differences resulting from the different formation of public health services.  However, setting the benchmark price is a difficult – and controversial – aspect in any investigation (see here for our thoughts on the CMA’s recent approach) and it will be of interest to see how the Commission tackles the issue, as its approach may well be followed by other NCAs.  

Bearing these points in mind, we will be particularly keen to see how the Commission deals with the following two points: 

  1. The definition of the relevant market and whether a company is dominant – before assessing whether its prices are excessive, a pharma company must first know whether it is dominant.  With diverging approaches on product market definition (definitions have been drawn from therapeutic / molecular / dosage level and from regulatory guidance), it can be difficult to make an assessment of dominance.  In Aspen’s case, it has found itself  one of few companies willing to manufacture low volume generic drugs, and despite low barriers to entry, no other companies have entered the market to exert a form of price control on Aspen.  It has perhaps therefore become dominant as a result of market failures.    
  2. How the Commission determines an acceptable level of profit (i.e., what is the meaning of ‘excessive’?).  While under patent protection, pharmaceutical product prices are generally constrained in some way (e.g. through profit caps under the UK PPRS), but in theory, profits could be competed upwards following patent expiry, even if overall prices decline (this is a key part of the argument raised by Pfizer and Flynn in their appeals of the CMA infringement decision).  The recent opinion of AG Wahl considering unfair prices (albeit in a copyright licence context) concluded that there is no single method of determining the benchmark, and acknowledges that there is a high risk of error, but a price should only be excessive if it is significantly and persistently above whatever benchmark is determined.  Whilst AG Wahl was unable to point to any guaranteed failsafe methods of analysis, he stated that an authority should only intervene when there is no doubt that an abuse has been committed. 

The investigation does signal that the Commission is keen to address the fairness of pricing in the pharmaceutical industry, but as with all such investigations, its approach should not be one of a price regulator.  Indeed, the Commission is at pains to point out that it is looking at a case where the price increases were extremely significant (100s of percent uplift).  It may reveal that a case-by-case approach is not appropriate, and the real issue is regulatory failure that will need to be corrected by legislation (such as that currently before the UK Parliament). 

FTC settles abusive acquisition of pharma licensing rights

On 18 January, the FTC announced that Mallinckrodt ARD Inc. (formerly Questcor Pharmaceuticals, Inc.) and its parent company have agreed to pay $100 million to settle FTC charges that they violated antitrust laws when Questcor acquired the rights to a drug that threatened its monopoly in the U.S. market for adrenocorticotropic hormone (ACTH) drugs.  The announcement was made concurrently with the release of the FTC's complaint.

Antitrust (as opposed to merger) cases about acquisitions of competing technology are not an everyday occurrence.  However, this complaint has something of the flavour of the EU Commission’s Tetra Pak 1 decision.  In that case, the EU Commission objected to Tetra Pak’s acquisition (through a merger) of exclusive rights to what was at the time the only viable competing technology to Tetra Pak’s dominant aseptic packaging system.  The Commission (and subsequently the EU courts) held that this would prevent competitors from entering the market and therefore amounted to an abuse of a dominant position.  

The FTC’s Mallinckrodt complaint alleges that while benefitting from an existing monopoly over the only U.S. ACTH drug, Acthar, Questcor illegally acquired the U.S. rights to develop a competing drug, Synacthen (a synthetic ACTH drug which is pharmacologically very similar to Acthar).  This acquisition stifled competition by preventing any other company from using the Synacthen assets to develop a synthetic ACTH drug, preserving Questcor’s monopoly and allowing it to maintain extremely high prices for Acthar.  

To judge by the FTC’s complaint, the case appears to contain some pretty stark facts which may have contributed to the immediate settlement of the proceedings by Mallinckrodt.  Those facts also bring the case squarely into line with the US and EU competition regulators’ current concern over excessive pricing in pharma.

First up is the finding that Questcor had a 100% share of the U.S. ACTH market and that it took advantage of that monopoly to repeatedly raise the prices of Acthar from $40 a vial in 2001 to more than $34,000 per vial today – an 85,000% increase.  The complaint details that in August 2007 Questcor increased the price of Acthar more than 1,300% overnight from $1,650 to $23,269 per vial and that it has taken significant and profitable increases on eight occasions since 2011 pushing the price up another 46% to its current $34,034 per vial.  Acthar is a speciality drug used to treat infantile spasms, a rare seizure disorder affecting infants, as well as being a drug of last resort (owing to its cost) for a variety of other serious medical conditions.  According to the FTC, Acthar treatment for an infant with infantile spasms can cost more than $100,000.  In Europe, Canada and other parts of the world doctors treat these conditions with Synacthen which is available at a fraction of the price of Acthar in the U.S. (Synacthen is not available in the U.S. as it does not have FDA approval.)  The FTC relies on the supra-competitive prices charged in the U.S. for Acthar as evidence of Questcor’s monopoly power as well as its 100% market share and the existence of substantial barriers to entry.

It is also part of the FTC’s case that Questcor disrupted the bidding process for Synacthen when the rights came up for acquisition.  According to the complaint, Questcor first sought to acquire Synacthen in 2009, and continued to monitor the competitive threat posed by Synacthen thereafter.  When the U.S. rights to Synacthen were eventually marketed in 2011, dozens of companies expressed an interest in acquiring them with three firms proceeding through several rounds of detailed negotiations.  All three firms planned to commercialise Synacthen and to use it to compete directly with Acthar including by pricing Synacthen well below Acthar.  In October 2012, Questcor submitted an offer for Synacthen and subsequently acquired the rights to Synacthen for the U.S. and thirty-five other countries and did not subsequently bring the product to market in the US.

In addition to the $100 million payout, the proposed court order requires that Questcor grant a licence to develop Synacthen to treat infantile spasms and nephrotic syndrome to a licensee approved by the FTC, a pretty far-reaching remedy.  

This case is the latest in a string of cases on both sides of the Atlantic relating to escalating pharma prices (as discussed in our previous blog posts here and here).  While companies retain significant scope to price products as they see fit, it reaffirms that pharma companies should be wary of implementing very significant price increases in the absence of good objective reasons for doing so.  This is particularly so where the increase is facilitated by commercial strategies such as acquiring IP rights to existing/potentially competitive products.  In the EU, it is also worth remembering that – as established by Tetra Pak I (on appeal to the General Court) – an agreement which falls within a block exemption can at the same time constitute an infringement of Article 102.  So companies and their advisors should remember to wear Article 101 and 102 hats when reviewing agreements.

Helen Hopson

When the price isn’t right – CMA fines Pfizer / Flynn for excessive pricing

The year is 2011.  The Office of Fair Trading (the predecessor to the current Competition and Markets Authority) contributes to an OECD round table on excessive pricing, concluding that: “firms should not face fines for excessive pricing, and should not face the risk of private damages actions in respect of such behaviour”.

Five years later, in early December this year, the CMA announced that its investigation into the supply of phenytoin sodium capsules by Pfizer and Flynn had concluded with its highest ever fine (£90 million), and ordered the companies to reduce their prices within 4 months.  How times change…

Excessive pricing is one of the more controversial types of abuse of dominance – the lack of a bright line test between competitive and anti-competitive pricing has meant that infringement decisions in relation to this form of abuse have been rarely pursued.  Indeed, this is the first UK competition authority decision based on excessive pricing by a pharmaceutical company since the 2001 Napp decision, which involved differential pricing in the hospital and community sectors.

As we have previously reported, however, something of a sea change in competition policy currently appears to be taking place, at least for certain parts of the pharmaceutical sector. 

The full reasoning of this decision will therefore be closely reviewed.  For now, however, the text of the decision remains unpublished.  While we wait for a non-confidential version, the following 4 points seem to us to be worth noting:

  1. Phenytoin sodium is not a new drug – it has been off patent for many years, although only entered as a generic following the conclusion of a UK supply deal between Pfizer and Flynn.  The case – as with other high profile excessive pricing investigations in the EU and beyond (see here/here) – concerns a sudden and significant jump in previously established market pricing, in this case of around 2,600%.  This is an entirely different legal and commercial context to that applicable for new or branded drugs: it would be extremely surprising if this decision provides any new basis for future intervention in relation to drugs which are subject to the PPRS, even at the stage of free initial pricing.  

  2. Although two companies are involved, no anti-competitive collusion has been alleged.  Rather, the case is based only on abuse of dominance.  It is rare for such cases to involve two separate companies.  Here, the allegation appears not to be that Pfizer and Flynn are jointly dominant, but that each holds a separate dominant position and has separately proved it.  This is a surprising feature of the investigation – proving excessive pricing is notoriously difficult, and the CMA given itself the task of pulling that off twice, with each company being held separately to have extracted supra-competitive prices.  Flynn is at once the ‘victim’ of Pfizer’s excessive pricing, and the perpetrator of an abuse of its own. 

  3. The basis for the findings of dominance is also far from obvious.  While details of how the market has been defined have not yet been released, it appears from a 2015 parallel trade case also relating to Flynn Pharma’s phenytoin sodium product that the drug is only a third line treatment for certain specific types of epilepsies, and that its sales have been in decline for a number of years.  It appears that the CMA’s dominance finding may be based on clinical guidance that stabilised patients should remain on one specific brand of product rather than being switched between different formulations even of the same API.  The trend to ultra-narrow market definition in the pharma sector thus appears to be continuing (see Perindopril, Paroxetine…) – but query whether it will survive review in the Competition Appeal Tribunal. 

  4. And finally, compliance with the price reduction remedy may not be straightforward – the companies will have to calculate what measure of reduction is sufficient to bring the infringement to an end.  Pfizer has already been subject to a procedural fine for failure to comply with a procedural order; if the companies miscalculate their price reductions, further fines could follow – in addition to the now inevitable follow-on claims from, at least, the Department of Health.