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”. 

Request to re-open Glaxo ‘dual pricing’ case rejected by General Court: The end of the road for challenges to dual pricing?

Entering into agreements that erect barriers to parallel exports between EU markets is generally a high-risk endeavour, which is likely to attract the attention of the competition authorities.  Nevertheless, in the pharmaceutical industry the financial stakes can be high – medicines are often sold at very different prices in different Member States, due to the different applicable health policies.  

Relatively low mandated prices in Spain have led a number of companies to devise sales structures which reduced the flow of parallel exports out of the country – in particular, through the use of so-called dual pricing schemes.  Under such schemes, prices charged to wholesalers differ depending on whether the medicines were resold in Spain or exported to other Member States; in some cases this is achieved by selling all products at the export price, and granting rebates to wholesalers where the products do not in fact leave the country.  While not explicitly prohibiting parallel trade, such practices are likely to reduce the financial incentive for wholesalers to export.

GSK introduced such a scheme in 1998, and applied to the European Commission for an individual exemption (under a procedure which has since been repealed).  This application, and a subsequent complaint by the industry body for parallel traders (the EAEPC), has led to what must be one of the longest-running competition cases.  Initially found by the Commission to be restrictive of competition by object, GSK succeeded before the European Courts in showing that the Commission had given insufficient consideration to whether the practice warranted an exemption.  The case was therefore remitted to the Commission for further consideration.  In January 2010, GSK formally withdrew its original application for an individual exemption.  However, that was not the end of the matter, as the EAEPC’s complaint remained live. By this time, however, GSK had changed its practices, so the Commission rejected the complaint and closed its file.  EAEPC persisted, and lodged an appeal.

The General Court Judgment

It is this appeal that has given rise to the most recent development. On 26 September 2018, the General Court (GC) approved the Commission’s stance, effectively putting an end to this case (appeals to the Court of Justice are rare in rejection cases). 
 
The GC judgment demonstrates that while there was still some sympathy for EAEPC’s appeal, the Court was unable to identify any continued Union interest. The Court agreed with the applicant that the previous judgments have generated legal interest in relation to the “analysis of … dual-pricing systems in the light of Article 101 TFEU”.  However, that was not sufficient reason to require the Commission to continue examining the applicant’s complaint. 

The Court held that a “specific and genuine interest” is required to justify use of the Commission resources. Likewise, EAEPC’s contention that GSK’s practices and the Commission’s “inaction” in the late 1990s led to the adoption of dual pricing by other manufacturers such as Pfizer, Janssen-Cilag and Lilly was not accepted as good reason for requiring the Commission to act now. 

The future of dual pricing schemes? 

The relevance of the GC decision for other dual pricing schemes should not be overstated: the rejection of EAEPC’s complaint turns on its particular facts.  Indeed, the fate of another Commission investigation into Spanish dual pricing practices more generally (referred to in the Commission rejection decision and the GC judgment) is unclear (the Commission website shows no record for the case number cited by the GC).  

However, developments have also continued in Spain.  Within the past six months, the Spanish Supreme Court has rejected an appeal by the EAEPC against a lower court rejection of a complaint against Janssen-Cilag’s drug supply scheme, finding that the scheme did not breach competition law.  More recently, the Spanish competition authority closed an investigation into alleged collusion between pharmaceutical manufacturers in relation to the introduction of such schemes in the mid-2000s.  The authority found that the companies’ schemes were the result of changes in pharmaceutical legislation, not of anti-competitive agreements.

Despite the successes for the originator companies, it remains the case that agreements which seek to limit parallel trade within the EU are high risk of being found to restrict competition by object and, as the Glaxo Greece case has shown (see our recent report, here), unilateral conduct may also be caught.  

Of course, from a UK perspective, a no-deal Brexit may make prohibiting parallel exports possible again, but it is unlikely to be possible under any likely successor to the Chequers proposal.  In any event, agreements affecting exports within the European Union will continue to be caught.

Competition law challenge to orphan drug prices in the Netherlands

Some months back, we reported on an initiative by the Dutch Council for Public Health and Society which considered measures for containing high drug prices.  Of particular note were the proposals for compulsory licensing, and the application of the new measures to orphan drugs as well as to more mainstream products (orphan drugs are those which are applicable to rare diseases affecting less than 0.05% of the population).  

Now a newly formed Dutch foundation for “pharmaceutical accountability” (the Stichting Farma ter Verantwoording, or SFV) has announced that it has presented a dossier to the Dutch competition authority requesting that it take action against Leadiant Pharmaceuticals in relation to the price of chenodeoxycholic acid (CDCA) which is used for a metabolic disease affecting around 60 people in the Netherlands (report in English here).  The focus of the complaint is on the difference between the current price of CDCA (€140 per capsule), and the price of the same drug which was formerly used in the treatment of gallstones (c. €0.28 per capsule).  According to the SFV’s report, the orphan designation was secured in Leadiant only  last year, following a two-year period when the drug was not on the market.  The orphan designation means that Leadiant will have market exclusivity for a 10-year period.  However, unlike some orphan drugs, CDCA was not a new product, but was used off-label for the disease in question for a number of years before withdrawal.  

This complaint highlights the competing policies of effective protection and incentivisation of drug development, including for small patient populations, and that of cost containment for health budgets.  Assuming the Dutch Competition Authority agrees to investigate, it will have to grapple with questions as to the appropriate return on an orphan product (bearing in mind the limited patient population which presumably means that fixed costs of producing the drug will have to be allocated at a much higher rate than for non-orphan drugs), and the question of whether the drug’s previous use for treatment of gallstones is comparable to its current use under the orphan designation.  There is no doubt that the prior off label use was more cost effective for treating Dutch patients, but on the other hand the orphan designation should assure the continued availability of the drug in circumstances where it was otherwise withdrawn from the market, and will have involved additional testing to ensure that appropriateness of the treatment.  

Whether these policy tensions are questions that are appropriately answered through the application of competition law is a wider question that will no doubt continue to stimulate discussion and dissent.

Concordia and the CMA – a drama in (at least) three parts

Last week, Concordia International released a management report in which it announced the names of six drugs currently under investigation by the Competition and Markets Authority (“CMA”).  This relates to an investigation into Concordia’s UK activities, which is the third launched by the CMA into Concordia’s business since April 2016, and forms part of a wider inquiry into the UK pharmaceutical sector. 

The investigation was launched in October 2017, and we now know that it involves the following products: 

  • Carbimazole, used to treat hyperthyroidism; 
  • Nitrofurantoin, an antibiotic;
  • Prochlorperazine, used to treat nausea and psychosis;
  • Dicycloverine, a gastrointestinal muscle spasm relaxant;
  • Trazodone, an antidepressant; and 
  • Nefopam, an analgesic. 
According to Concordia, the CMA has confirmed that it will be continuing its investigation into Nitrofurantoin and Prochlorperazine. It is currently assessing whether to continue its investigation into Trazodone, Nefopam and Dicycloverine. This investigation is still at an early stage, unlike a couple of others. 

The other current investigations involving Concordia are an abuse of dominance case about alleged excessive pricing of Concordia’s ‘essential’ thyroid drug, Liothyronine, and a case involving a possible ‘pay-for-delay’ agreement between Concordia and Actavis for hydrocortisone tablets (we previously discussed this here). Both cases have progressed to an advanced stage, with statements of objections having been issued by the CMA, but progress appears to have been delayed, perhaps because of the CAT’s June judgment in the Pfizer/Flynn case, which overturned the CMA’s controversial excessive pricing decision (covered here).

This latest announcement re-emphasises the CMA’s continued interest in the pharmaceutical sector and its eagerness to weed out anticompetitive practices in this industry, including the more novel, sector-specific forms of abuse and collusion such as ‘pay-for-delay’ strategies. It will be interesting to see whether the CMA follows a similar approach in these cases to that taken in other recent pharmaceutical cases, such as Pfizer/Flynn and the Paroxetine (GSK) case (discussed here). We will be keeping a close eye on any developments over the coming months…

Commission considers pricing algorithms in fining consumer electronics manufacturers for RPM

Last year, we speculated whether the European Commission might target pricing algorithms (here) and noted that the Final Report of the Commission’s E-Commerce Sector Inquiry had identified the wide-scale use of pricing software as an issue that might raise competition concerns (here).

On 24 July 2018, the Commission announced that four consumer electronics manufacturers, including Asus and Pioneer, have been fined a total of over €111 million for imposing fixed or minimum resale prices on their online retailers (here). If the online retailers tried to set lower prices than those requested by the manufacturers, they were threatened with actions such as the withdrawal of supplies of the product in question.  

Interestingly, the Commission noted that the use of pricing algorithms by the online retailers exacerbated the impact of the manufacturers’ conduct. Many retailers were using pricing algorithms to automatically adapt their prices to those of their competitors. So where manufacturers were able to force some online retailers to adopt higher prices than they wished to, this had a broad impact across overall online prices.  It meant that other online retailers would match those higher prices, rather than the lower prices that might otherwise have been introduced.  In essence, this is rather akin to the umbrella price effects arising from many cartel-type agreements between competitors, but is not something that would – in the pre-pricing-algorithm era – have been so possible in the world of distribution agreements.

This isn’t an example of the Commission taking issue with the use of pricing algorithms in their own right. It hasn’t accused the online retailers of using pricing software as a means of coordinating on prices. Nor has it taken aim at the companies producing such software. The Commission did flag the manufacturers’ use of “sophisticated monitoring tools” to track resale prices, which enabled them to intervene quickly if a retailer attempted to decrease its prices, but otherwise pricing algorithms/software were part of the background to the decisions rather than the focus.

This may have been because there is nothing novel in the underlying competition law infringements committed in these cases; they appear to be classic cases of resale price maintenance contrary to Article 101 TFEU – although it is true that the Commission has not enforced against such agreements for a number of years before this announcement. In any event, there is nothing here to alarm companies making use of pricing algorithms or monitoring software, as long as they aren’t using such tools to implement an unlawful strategy.

However, these decisions do show that the Commission is alive to the potential for pricing algorithms and other software tools to be utilised as part of anti-competitive conduct, and such tools may feature more heavily in future Commission decisions. The Commission launched a number of other investigations following the E-Commerce Sector Inquiry (see here and here) into issues such as the licensing and distribution of merchandising products, the geo-blocking of PC video games, and hotel price discrimination on the basis of customer location.  Any decisions adopted following the conclusion of those investigations may offer some further guidance on the use of pricing algorithms.

MasterCard and Visa MIFfed as the Court of Appeal considers two-sided markets; SCOTUS itself is two-sided (Part 2 – the USA)

Following on from yesterday’s blog on the MasterCard / Visa decision, we’ve also taken a look at how the US is approaching antitrust issues in two-sided markets, with SCOTUS giving its first Opinion on these in the AmEx litigation (originally brought with the DoJ, but continued by only eleven states following the administration change). 

AmEx is a closed loop network, with AmEx holding relationships with Cardholders and Merchants.  In a 5-4 decision considering anti-steering provisions that prohibited merchants from avoiding fees by discouraging AmEx use at the point of sale, SCOTUS found no violation of the Sherman Antitrust Act (upholding the U.S. 2nd Cir. Court of Appeals).  SCOTUS was asked to determine whether the parties had met the burdens in a three step rule of reason analysis (plaintiff must prove anticompetitive effects; defendant must show a procompetitive justification; plaintiff must show that efficiencies could have been achieved through less restrictive means).  

The plaintiffs sought to argue that a market definition wasn’t necessary because they had offered evidence that showed adverse effects on competition.  The majority disagreed with this, and noted that the cases relied on by the plaintiffs for this proposition were horizontal restraint cases. Here, vertical arrangements were at issue, and given that they’re not always anti-competitive, the market definition was relevant.  

The majority held that the relevant market included both sides of the transaction, and it had to be shown that both sides of the transaction were harmed by the provision.  The Court stated that “a market should be treated as one sided when the impacts of indirect network effects and relative pricing in that market are minor”, and divided two-sided markets into two categories:

  1. Two-sided transaction platforms that facilitate a single, simultaneous transaction and are best understood as supplying that transaction as the product (such as those between AmEx Cardholders and Merchants); and

  2. Platforms where the two sides aren’t selling directly to each other (such as newspapers, where users are indifferent to the amount of advertising).

Further, with the first category, evaluating both sides would be necessary to assess competition; only other two-sided platforms can compete for transactions.  Non-transaction platforms often do compete with companies that do not operate on both sides.  Unfortunately for the plaintiffs, their evidence was insufficient as they had only focused on the increase to merchant fees.  This division will perhaps create some debate as to which category a platform falls into, and arguments around how strong indirect network effects are. 

The majority stated that in order to show that the provisions were anticompetitive, plaintiffs should have demonstrated that they increased the cost of credit card transactions above a competitive level, reduced the number of transactions, or otherwise stifled competition.  In fact, the majority found that the provisions were pro-competitive, as they helped maintain a competitor to MasterCard and Visa. 

The dissenting opinion, which included some persuasive points, wanted the US to follow other jurisdictions and take action against high fees charged by credit-card companies to Merchants, viewing the provisions as clearly anticompetitive.  It referred to findings by the District Court, and stated that a market definition was unnecessary because of direct evidence of anticompetitive effects (primarily that AmEx was able to keep increasing fees without losing any large Merchants), but the correct relevant market should have been only the one side – the services are complementary, not substitutes – and that the other side of the market should have come in at the second step of the rule of reason analysis.  This perhaps puts the dissenting justices more in line with the CoA’s approach.   

Dissenting, Justice Breyer further countered the view that the provisions were pro-competitive by stating that “if American Express’ merchant fees are so high that merchants successfully induce their customers to use other cards, American Express can remedy that problem by lowering those fees or by spending more on cardholder rewards so that cardholders decline such requests”.  

Back in the UK, the Merricks collective claim is attempting to show that harm was caused to consumers –not on the flip side of the market, but by Merchants passing on the cost of the MIFs to customers.  Although the CAT refused to allow the action, the appeal is due to be heard later this year.  Whilst there is quite a hurdle to jump in how to ensure consumers receive compensatory amounts rather than token sums of money, if the class is certified, the analysis of effects on consumers and the links between the different markets could make for interesting reading. 

(On a collective action side note…  After two years of build-up, it’s good to see that the first trucks collective claim has started rolling towards certification, and interestingly, is using a special purpose vehicle more typical of litigation in the Netherlands than the UK.)

MasterCard and Visa MIFfed as the Court of Appeal considers two-sided markets; SCOTUS itself is two-sided (Part 1 – the UK)

Whilst the Court of Appeal’s judgment in MasterCard / Visa, and the SCOTUS Opinion in AmEx may seem a little outside our usual area of focus, they are nevertheless decisions that relate to the operation of two-sided markets.  With multi-sided platforms in innovative technological markets, such as Google, Facebook and Uber, increasingly drawing antitrust attention, (see here, and here) there may be some helpful guidance to be drawn from long established industries such as banking and finance. 

This post comes in two parts, with today focusing on the MasterCard / Visa judgment, and tomorrow focusing on the AmEx litigation. 

The Court of Appeal judgment 

Both MasterCard and Visa operate four-party payment schemes:

  • Cardholders contract with an Issuer for a card to buy goods from Merchants;
  • Merchants contract with Acquirers to obtain payment from the Cardholders;
  • Issuers (mostly banks) contract with Acquirers (also mostly banks) to settle transactions.

The Issuers compete for the business of the Cardholders, and the Acquirers compete for the business of the Merchants; but each side is dependent on the other.  The MasterCard / Visa schemes operate as open loop networks, and those participating are subject to various rules – including a requirement to pay fees, including multi-lateral interchange fees (‘MIF’s), that are charged by the Issuer to the Acquirer, and ultimately paid by Merchants in each card transaction.  The MIFs could have been negotiated individually between the Issuer and the Acquirer, but in practice default MIFs set by MasterCard / Visa were used.   

This raised an interesting Article 101(1) question: do the schemes’ default MIFs amount to a restriction of competition by effect?  The European Commission thought so in issuing a 2007 decision against MasterCard in respect of cross-border card transactions, a decision which spawned a multitude of follow-on and standalone actions for damages against both MasterCard and (by analogy given the similarities between their systems) and VISA.  The CAT initially found for the Claimant in one damages action, but the High Court subsequently found for the Defendants in separate actions (MasterCard and Visa).  The Court of Appeal was tasked with addressing these inconsistent outcomes.

The systems themselves operate across three separate markets (an inter-systems market, an issuing market, and an acquiring market), and it was common ground that the relevant market was the acquiring market.  However, arguments raised by the parties (particularly the ‘death spiral’ argument, where MasterCard claimed that if it lowered its MIFs, Issuers would have switched to Visa and the MasterCard scheme would have collapsed) concerned effects on the inter-system market, and the issuing market.  The CoA held that the first question is whether the MIFs restricted competition in the acquiring market. The second question is then whether the MIFs were objectively justified, and at that point, it is legitimate to consider both sides of the two-sided market and the inter-system market. 

The CoA ultimately found that the fees were unlawful, and all three cases are to be remitted to the CAT for an assessment of damages, and a determination as to whether any objective justification applies.  Tomorrow, we’ll set out how the US Supreme Court came to the conclusion that provisions which affected Merchants’ transaction costs were not anti-competitive, with analysis turning on a definition of the market that has implications for all platforms.     

CAT judgment in Pfizer/Flynn: Was the CMA ‘unfair’ in its assessment of Pfizer and Flynn’s prices?

The principal issue is excessive pricing; … the reason for our conclusion is that the judge erred in holding that the economic value of the pre-race data was its competitive price based on cost +. This method of ascertaining the economic value of this product is too narrow in that it does not take account, or sufficient account, of the value of the pre-race data … and in that it ties the costs allowable in cost+ too closely to the costs of producing the pre-race data.

Thus concluded the Court of Appeal some 10 years ago in overturning a High Court judgment identifying an abuse of dominance through excessive pricing, in that case of pre-race data about British horse races.

The chequered history of excessive pricing cases has repeated itself in 2018, with the Competition Appeal Tribunal’s 7 June judgment in the appeals by Pfizer and Flynn of the CMA’s excessive pricing Decision in relation to phenytoin sodium capsules (we’ve previously covered this here, here, and here).   In a blow to the CMA’s ground-breaking case, the CAT has taken issue with the CMA’s analysis of abuse. As a result, it is considering whether to remit this part of the Decision (and consequential findings, such as the penalties imposed) back to the CMA, and essentially let the CMA try again.  

The CAT has succinctly summarised its main conclusions here.  The findings on market definition and dominance have been upheld, but the controversial findings on abuse have been set aside.  This post guides readers through the key points.

What was the CMA actually arguing?

In its Decision, the CMA sought to apply the Court of Justice’s United Brands ‘two-limb’ test for excessive and unfair pricing, and it was on this that the grounds of appeal focussed.  

During the appeal hearing, however, the CMA seemed to place greater emphasis on the comparison of prices before and after the Pfizer-Flynn agreement, perhaps in reliance on AG Wahl’s opinion in the AKKA/LAA case that competition authorities should have flexibility to determine their own framework for assessing prices.  While the CAT acknowledged that significant price increases over time may be a useful indicator of a potential competition problem, and a reason for starting an investigation, this “should not be confused with the test for unfair pricing itself” (439).  This therefore does not seem to be an easy route for the CMA to take on remittal.

The CAT’s analysis of the United Brands test

Taking the CAT’s approach to the two limbs of the United Brands test separately:  

(i) Whether the difference between the costs actually incurred and the price actually charged is excessive 

The CAT did not conclude that facts established by the CMA could not give rise to a finding of excessive prices.  Rather, it was the CMA’s narrow approach to the assessment of excessive pricing which could not support such a conclusion.  The CMA’s use of only a Cost Plus methodology resulted in a price that would have existed under conditions of “idealised competition”, rather than in the ‘real world’.  If the Cost Plus figure was not the normal competitive price, then it was not the right price for the purposes of the United Brands test.  Instead, the CAT should have looked at wider evidence to establish a benchmark price (or range) based on circumstances of “normal and sufficiently effective” competition.  If the Decision is remitted back to the CMA, it may use Cost Plus as part of the methodology, but it will also need to put those theoretical figures in their full market and commercial context.   

As to the benchmark figures themselves, which used the PPRS derived 6% return on sales, the CAT seemed to accept the PPRS was a potentially relevant indicator, but found the CMA placed too much reliance on it – particularly as Department of Health evidence expressed doubts as to its relevance.  The CAT cautioned that the PPRS was intended to apply in different circumstances to those in this case.  

(ii) Whether a price has been imposed which is either unfair in itself or when compared to competing products

The second limb of the United Brands test appears to give regulators two options: the issue here was whether these were genuine alternatives (as the CMA had only considered the first, ‘unfair in itself’), or whether the CMA should have considered both.  The CAT found that, although the CMA did not need to succeed under both to show a price was unfair, it did need to consider whether the alternative would show a price is one that undermines the basis of a finding of unfairness, in particular where a party under investigation has raised the issue.  While the CAT does not refer to the recent Intel judgment of the CJEU, there is a flavour of its ruling here.  

The CMA had determined that there were no products which could provide a ‘meaningful comparison’, but the CAT found that the CMA’s argument to support this was at fault, and it should have considered the suitability of comparators in more depth.  In particular, tablets produced by Teva were around twice the price of the Pfizer-Flynn Capsules; but this price came from an agreement with the Department of Health which reflected the economic value of the Teva tablets.  Even though those tablets were accepted by the CAT to be outside the relevant market as defined, they appeared to be sufficiently comparable to be worthy of more in-depth consideration.  The contrast drawn between the narrow function of market definition and the wider consideration of competitive constraints relevant in considering abuse is an important and sensible contribution to Article 102 case law generally.

The CAT found that the question of the ‘economic value’ of the Pfizer-Flynn Capsules (which the CMA had considered separately) was best addressed in the context of the ‘Unfairness Limb’.   The CMA had found that the economic value did not exceed the Cost Plus price it had calculated, and considered that there were no non-cost factors which served to increase it.  However, the CAT expressed concern that the evident economic value derived from the benefit patients received had been rejected.  Although the CAT acknowledged that patients did only have limited choices, the CAT found that the CMA should still have attempted a qualitative assessment of this benefit.  Assigning a monetary value to this benefit and assessing by how much it should be reduced due to patients’ limited choices is likely to be difficult.    

Findings of abuse set aside

The CAT decided that further assessment of competitive conditions using information beyond the scope of the Decision would be required.  For that reason, the CAT could not make its own findings as to whether there was an abuse by either company.  Instead, it has provisionally proposed to remit the abuse section Decision back to the CMA, but will now fix a further hearing for the parties to address it on this point.  

Given the policy issues surrounding price increases in the pharmaceutical sector, remitting the Decision for more a comprehensive analysis with the benefit of further clarity in a novel area (from the CAT and the CJEU in AKKA/LAA) is probably the best outcome for all concerned – although the recent closure of the regulatory ‘loophole’ that allowed unregulated price-rises perhaps reduces the long-term benefit.  This ‘have another go’ approach was also the outcome in the CAT’s first hearing for a collective proceedings order – another novel area where policy objectives would have been frustrated by an outright refusal.    

There have been immediate knock-on effects: the CMA has indicated that other active investigations it has in the area may now be severely delayed.  The end of the CMA’s investigation into hydrocortisone seemed to be in sight, and it will be interesting to see how the CMA proceeds with that, as well as the Pfizer / Flynn case.  

The CAT’s difficulties in applying the United Brands test are also likely to be of interest to the Commission, given that it has opened an excessive pricing investigation (into Aspen Pharma) – its first of that type in the pharmaceutical industry.

But while the CMA will clearly have its work cut out (assuming the CAT goes ahead with the remittal), it should not be assumed that this judgment is the end of the story for excessive pricing cases in the UK.  

Excessive pricing spreads to Denmark - a cautionary tale about exclusive licensing

Following cases in Italy, the UK and before the European Commission, the Danish authorities have reached an abuse of dominance finding against CD Pharma (CDP). 

CDP was found to have imposed price increases of up to 2,000% on supplies of Syntocinon, without any justification in terms of increased costs. The product, used in connection with childbirth, is long off patent. 

Two points mark this case out from other excessive pricing investigations.

First, this is as much a cautionary tale about exclusive licensing as it is about excessive pricing. In acquiring an exclusive licence to what appears to be a ‘must stock’ product for hospitals CDP acquired a dominant position, leading to the risk of abuse. 

While exclusive licensing between non-competitors generally does not raise competition concerns, it is notable that Commission guidance refers specifically to the justification for exclusive licensing as the bringing of a new product to market. In the case of an old product which does not require further development, the basic justification for the exclusivity appears to be missing. In this case, if competitor Orifarm had been able to approach the manufacturer of Syntocinon rather than having to purchase from CDP as the local distributor, there would have been a greater chance of price competition on the Danish market. 

Second, the Danish authority is alive to the wider (umbrella) harm caused by the pricing strategy which extend beyond the period of direct infringement. The press release refers to the risk of permanent price increases - in particular where products are procured through periodic tender processes. This could be a significant point in any attempt by the Danish authorities to seek damages in  respect of the abuse. 


Excessive Pricing: Aspen lose their appeal in Italy – and are in the Commission’s crosshairs

Last year we reported the Italian’s take on excessive pricing (here), where South African pharmaceutical Aspen was in the firing line for increasing the price of four cancer drugs by a hefty 300% – 1500%. The Italian Market Competition Authority (AGCM) found that this amounted to an abuse of dominance by artificially inflating the price of the drugs, which had long been off patent. The company was fined €5.2 million in October 2016. 

On 14 June 2017 Aspen lost all grounds of its appeal against the AGCM decision (the judgment – in Italian only – is here).

This loss for Aspen was set against a troubling back drop for the company: not only had the South African Competition Commission announced an investigation into Aspen, Pfizer and Roche for suspected collusion over cancer drug prices just days earlier, but on 15 May 2017 the European Commission opened a formal investigation into Aspen in relation to excessive pricing of five cancer drugs. 

The Commission’s press release states that – in addition to investigating the apparently ‘significant and unjustified’ price hikes applied to Aspen’s products – the Commission is also looking at the way in which Aspen threatened to withdraw the drugs in issue from Member States.  This was also an influential fact in the AGCM decision and subsequent appeal ruling by the Italian Appeal Court. 
 
The separate statement recording the opening of proceedings suggests that the Commission’s focus is wider than simply the negotiation of prices with national health authorities. It notes that Aspen’s negotiation practices “have included reducing the direct medicine supply and/or threatening supply reductions, as well as defining EAA-wide stock allocation strategies and implementing them in cooperation and/or agreement with local wholesalers”. It has been a while since stock management has been subject to scrutiny by the Commission, and this is likely to be an unwelcome development for the industry more widely. For now, it is probably safe to assume that this aspect of the investigation is ancillary to the primary case on pricing issues.

Meanwhile, back in the UK, the date for an appeal of the (now-published) Pfizer/Flynn decision has been set by the Competition Appeal Tribunal – a four-week hearing is due to start on 30 October.