15 October 2015
On 9 October 2015, the European Commission published its clearance decision in relation to the joint venture between three collecting societies (GEMA, STIM and PRSfM). This joint venture - and the European Commission’s (Commission) decision to clear it (following commitments offered by the parties) is of particular note, not only because it fits under the e-commerce umbrella (it is all about the licensing and administration of online rights in musical works), but also because it represents a further move towards breaking down the practice by collecting societies of dividing up the licensing and administration of copyright along national boundaries, long-criticised by the Commission. As highlighted by Competition Commissioner Margrethe Vestager in her recent speech in Florence:** barriers to cross-border trade can be created either by national copyright laws or by the use of contractual terms in copyright licences. This decision deals with the latter.
To be clear, up to now, reciprocal representation agreements between collecting societies have permitted each participating collecting society to license the repertoires of other collecting societies around the world to users but only for use in its own territory. Although collecting societies have started granting multi-territorial licences for their own repertoires, they have licensed the world repertoire of other collecting societies only on a mono-territorial basis for their home country.
The joint venture will provide new products on both sides of this two-sided market:
- The joint venture will provide multi-territorial licences to online platforms for all three collecting societies’ musical repertoires. Going forward, the likes of iTunes will need to negotiate only one single multi-territorial licence for all three repertoires instead of negotiating a licence for each country where the platforms operate. Small collecting societies who do not license their repertoire on a multi-territorial basis will also be able to request that their repertoire is included in any multi-territorial online licensing offer.
- Collecting societies and large music publishers will also have the opportunity to obtain copyright administration services on a multi-territorial basis for the first time. Until now such services have been offered for a single country, namely that of the collecting society providing the service.
What was the Commission concerned about?
The Commission’s concerns lay in the market for the provision of copyright administration services to collecting societies and particularly to large music publishers (so-called “Option 3 publishers”) in relation to transactional multi-territorial licences. These publishers tend to license the mechanical rights for their Anglo-American repertoires themselves but obtain a mandate from the PRSfM to license the performing rights. They still obtain administration services from collecting societies. One of the Commission’s concerns was that in return for granting a mandate to license the performing rights for the Option 3 publisher’s repertoire, the PRSfM would oblige Option 3 publishers to obtain all their administration services from the joint venture, thus excluding collecting societies who wished to compete in providing these services. In the eyes of the Commission, the joint venture might also impose exclusivity provisions or bundle such services in an attempt to foreclose competitors. Lastly, the Commission was concerned that the joint venture may make it difficult for users of its database to transfer their data to a competitor if they decided to switch to a different collecting society.
The commitments made by the parties
The PRSfM committed:
- not to use its position in relation to Option 3 publishers’ performing rights to require them to obtain their copyright administration services from the joint venture. Other collecting societies and Option 3 publishers will be able to pick and choose the services they require from the joint venture and such services will not be bundled together.
All three collecting societies committed that the joint venture would:
- not enter into exclusive contracts other than for database services;
- offer copyright administration services to competing copyright societies on fair reasonable and non-discriminatory terms when compared with the terms offered to its parent companies;
- facilitate switching; and
- allow termination of the contract at any time on the provision of reasonable notice.
Not only will the Collective Management Directive (“CMD”) be directly applicable to the joint venture, but the joint venture itself puts into practice the idea, made legally binding in the CMD, that musical repertoires should be able to be aggregated into multi-territorial online licences regardless of the location of the right-holder or the collecting society. In addition, the Commission’s decision may pave the way for easier switching by rights holders which will increase their choice of collecting society. Offline licensing and mono-territorial online licensing and administration are not the subject of the decision and will continue to function as before.
It will not be surprising if the impact of the CMD, the European Commission’s investigations in relation to the e-commerce sector enquiry as well as the review of copyright rules across the EU, lead to a change in the landscape relating to the licensing and administration of online musical rights, and pave the way for more exciting “tie-ups” in the future. Who knows if the offline world of music licensing will follow?
**Speech by Commissioner for Competition, Margrethe Vestager, at the 19th IBA Competition Conference, Florence 11 September 2015
12 October 2015
It seems that the CMA's opening of an investigation into Pfizer / Flynn (which we discussed here) may not be the only pending competition case on excessive pricing of pharmaceuticals. A possible investigation into Turing Pharmaceuticals is being mooted in the US, following the company's decision to increase the price of Daraprim (an anti-parasitic) from $13.50 to $750, according to reports.
Pricing, in particular excessive pricing, is a notoriously difficult area for competition authorities. The legal test does not lend itself well to markets where intellectual property rights may apply. There may also be many reasons why a company might seek to introduce above-inflation price increases: to reflect increased input / manufacturing costs, to improve the margin, to reflect changed competitive dynamics, to compensate for financial problems elsewhere in its business, and so on. None of these are in themselves contrary to competition law.
Nevertheless, price increases of the type introduced by Turing at least seem to indicate a lack of effective competition on the relevant market. The drug is long off patent, yet prices are evidently unconstrained by generic competition. This may be due to low sales of the drug, or manufacturing cost/complexity that third parties may find difficult to replicate without the originator's know-how. The regulatory framework almost certainly plays a role in raising barriers to entry and also – in countries where free pricing is an option – in failing to constrain the price at which such drugs are sold. The enormous differences in wealth and living standards across the globe also lead to difficult questions for pharmaceutical companies – high prices in one country may in fact facilitate lower prices being made available to health services in countries which are less able to afford such drugs.
These complex dynamics certainly contribute to the dearth of excessive pricing cases in this sector. Competition law seems an unlikely panacea. But pharmaceutical companies considering their pricing strategy should nevertheless be aware of the tools potentially available to competition authorities and private claimants.
The message to business seems to be:
- Don’t forget the possibility of competition law scrutiny when increasing prices;
- Document the objective basis for any price increases and be particularly cautious when increasing prices to captive parts of the market.
1 October 2015
Last night we had the pleasure of giving a seminar at our offices on competition law developments in the pharma sector. We looked at investigations into patent settlements, and in particular the ‘pay for delay’ cases. We also reflected at how the recently published Lundbeck and Servier decisions may impact upon other important areas for pharmaceutical companies, such as licensing transactions. We concluded by drawing some ‘bright lines’ to try to assist in navigating what can sometimes appear to be a very grey area, providing practical guidance where we could. After a thorough review of a complex, and sometimes daunting, area of competition law we enjoyed a well deserved drink with many familiar faces, and some new ones too...
For those of you who couldn’t make the seminar a webinar version is available here and the slides here.
15 September 2015
On 11 September 2015 the Antitrust Commissioner Margrethe Vestager announced in a speech at the 19th IBA Conference in Florence that certain companies are potentially circumventing the rules established by the Court of Justice in the recent Huawei v ZTE judgment (see our blog posts here, here and here and here).
In that judgment, the Court of Justice held that in certain circumstances a holder of a standard essential patent which has committed to licensing it on fair, reasonable and non-discriminatory (FRAND) terms would be abusing its dominant position if it seeks an injunction against an implementer (typically a manufacturer) which is willing to licence on FRAND terms. However, some companies are now seeking injunctions not against manufacturers, but against other parties further down the distribution chain (for example telecoms operators selling phones), which are exercising the same patent right.
Of course, this isn’t a breach of patent law, which countenances the possibility of “infringing acts” at many different levels of the supply chain. In her Florence speech, however, Vestager made clear that the Commission will consider it an abuse of dominance to impose an injunction on any party exercising the same patent right even if they are not the actual product manufacturer.
Vestager also suggested a broadening of the debate, referring elliptically to “new questions arising in patent enforcement that have a competition law dimension”. Which exact aspect of the exercise of a right-holder’s patent she had in mind is not clear, given there have been a number of types of conduct in this area that have caused DG Competition consternation. Given the Huawei ruling’s endorsement of patentees’ right to seek damages, it is to be presumed that Vestager has claims for injunctive relief primarily in mind.
Vestager also suggested that, as with copyright law, competition law may not always be the solution and that a re-design of certain patent laws and practice may be required. Those involved in the negotiations to reach agreement on the UPC will no doubt wish the Commissioner “good luck” with that particular enterprise…
8 September 2015
You could be forgiven for thinking that after a busy year DG Competition would take a break over the summer period. In fact, it continues to focus on the e-commerce sector inquiry which it launched in May (see our previous commentary here and here).
Over the past few weeks DG Comp has continued to send information requests to numerous stakeholders in the digital market throughout the EU. This includes suppliers, wholesalers, online platforms and online retailers. The currently proposed timetable for the inquiry is as follows:
Earlier this summer the Commission also made a number of other significant moves in the e-commerce sector. First, it opened an investigation into Amazon’s e-book distribution agreements and in particular its ‘most-favoured-nation’ clauses. Second, it approved under the EU Merger Regulation the proposed creation of a joint venture for multi-territorial online music licensing and copyright administration services by three music collecting societies (we will be writing a post on this shortly). Third, it sent a Statement of Objections to MasterCard in relation to the MasterCard’s inter-regional inter-change fees and its rules on cross-border acquiring. It is alleged that these rules prevent arbitrage on interchange fees in different Member States thereby artificially raising costs for consumers using the card. National authorities also remain active: the German Bundeskartellamt recently concluded its investigation into the selective distribution system of Asics which prohibited dealers from: (i) using online marketplaces such as eBay and Amazon; (ii) supporting price comparison engines; and (iii) using its trade mark on third party sites, even to guide customers to the site of an authorised dealer. The regulator found that each prohibition was itself a hardcore restriction, and taken together essentially amounted to a de facto ban on internet distribution, causing serious restraints to competition. The Commission is bound to be following such outcomes with great attention.
With so much activity in the area it is clear that the Commission, as well as the national authorities, are scrutinising closely the behaviour of those working in the e-commerce sector. We will be sure to keep readers updated as developments in the area unfold...
4 September 2015
If you are interested in competition law developments in the pharma sector, it’s still not too late to register for a seminar that a couple of us will be giving on Wednesday 30 September. We will be looking in some detail at the latest patent settlement cases, with a view to trying to find some much-needed legal certainty. We will also be talking about how the Commission’s conclusions in its Lundbeck and Servier decisions may apply to other areas such as licensing transactions, as well as considering the impact of the competition authorities’ increasingly narrow approach to market definition.
Registration is via Bristows’ main website – here.
A podcast of the seminar, together with the slides, will be available after the event
Pat Treacy and Sophie Lawrance
27 August 2015
Whilst the European Commission has shifted its focus to e-commerce and all things digital (see here, here, here and here), the CMA has put the spotlight back on pharma – this time, looking at pricing issues. On 6 August 2015, the CMA issued a statement of objections to Pfizer and Flynn Pharma alleging abuse of a dominant position in relation to the supply of the anti-epilepsy drug Epanutin. The drug started receiving media attention in late 2012, when Pfizer transferred the marketing of it to Flynn Pharma and the price increased from £0.66 per 28 capsules to £15.74. Epanutin was still to be made by Pfizer, in the same factory, but now had a new name with the active ingredient, ‘Phenytoin Sodium Flynn Hard Capsules’ (although the capsules themselves are still marked ‘Epanutin’).
Once Pfizer had transferred the marketing rights of Epanutin to Flynn Pharma, Epanutin was no longer a branded drug and outside price regulation. In theory, generic markets are competitive, so the prices of generics are not directly regulated (although special rules still apply to reimbursement). Yet three years after Epanutin’s move to the generic market, there’s still no direct competitor and the market has apparently failed to self-regulate. Add to that the fact Epanutin has a very narrow therapeutic index, and there is said to be a difficulty in switching to close substitutes. As a result, the Epanutin capsules reportedly still account for 85% of the market – and the CMA is investigating whether Pfizer/Flynn may have abused a possible dominant position.
The abuse under investigation consists in the charging of excessive and unfair prices – which is usually a difficult abuse to establish because of the challenges around establishing what a price “should” be in a free market economy.
So when does a price become “excessive”? This is an area with limited case law (but some theory), and generally we look first to bananas for guidance – but the bananas test is far from definitive and there are a number of ways to assess excessive prices (as the Court of Appeal pointed out when it went to the races and considered the right way to assess prices for media deals). A factor which is usually relevant is the profit margin, but – unlike for predatory (unfairly low) pricing - there’s no bright line test. And after all, the opportunity to make large profits is what attracts companies into business, a factor which is particularly relevant in industries built on complex inventions yet where the actual costs of production may not be that high. The OFT did record an early success in the pharma/excessive pricing arena, but that case focussed on price differentials between hospital and community segments of the market, and was also able to rely on data from certain sufficiently comparable third party products. The Court of Appeal’s wrestle with excessive pricing produced a decision that shows how difficult it is to estimate economic value – especially in industries where production costs are not a good guide. Here, with no obvious comparator and only a steep price increase to go on (which Flynn Pharma has stated was necessary in order to maintain the drug on the market), it’s difficult to judge whether the price of Epanutin is excessive and unfair in a competition law sense. Of course NHS funds are stretched and price increases are often unwelcome, but the CMA will need to be wary of a decision that may limit companies’ abilities to make profits.
Finding the balance between prohibiting excessive prices and sufficiently rewarding innovation is a tricky area that is usually avoided by regulators. In the end, we hope any decision manages the complexities in a way that gives those manufacturing generic drugs some clarity on pricing in the UK market and when risks may arise.
18 August 2015
Interim mandatory relief to compel a company to continue doing something it wanted to stop doing is one of the more draconian remedies in the legal arsenal. Yet the last few years have seen enough such cases in the competition law context to suggest that it is a real weapon for claimants and a real risk for dominant companies. Examples in the UK alone include Barclays Bank, which was compelled to keep providing banking services and O2 which was required earlier this month to maintain SIM card services to a downstream user of those services, pending a full trial. The pharma sector in the UK has also seen its fair share of cases in which such relief was sought. The majority of those have been refused (notably in Chemistree v. Abbvie, upheld by the Court of Appeal - see here for our post on the first instance decision), although in one case (Intecare v. Aventis, 2009, not reported) a short-term obligation to continue to supply pending full hearing of the interim relief request was enforced. In the US, Actavis has also found itself on the receiving end of an obligation to continue to supply, pending a full court investigation of whether it had breached s. 2 of the Sherman Act (the US equivalent of Article 102 TFEU). Earlier this month, the Court of Appeals for the 2nd Circuit rejected a request to reconsider relief confirmed by the same court in May.
The issue arose from the decision taken by Actavis, the manufacturer of Alzheimer’s treatment Namenda, to switch patients from an immediate release (IR) version of the product onto a sustained release version (Namenda XR). Switching patients to the new XR product entailed a change to dosage regimens, from two tablets a day down to one. According to the case report, Actavis planned to (largely) withdraw the IR product in advance of patent expiry and thus to migrate patients, in the period immediately before patent expiry, into the new XR product – which enjoyed patent protection until 2029.
This is a type of life cycle management strategy which the competition authorities sometimes refer to as 'product-hopping'. It is not the first such case – in the EU, one of the abuses identified by the Commission in its AstraZeneca decision (later upheld by the CJEU) involved the withdrawal of a capsule form of a dominant product, in favour of a new tablet formulation. The facts in this case are somewhat closer to the UK Reckitt Benckiser decision, another abuse of dominance case, than to AstraZeneca. Unlike in AstraZeneca, there was no regulatory impediment preventing generic Namenda IR products from coming to market. Rather, there was a practical difficulty – once the IR product was withdrawn, there would be minimal prescriptions for the twice-daily product and thus (according to the interim assessment) very little generic substitution. The court determined, on an interim basis, that there were no substitutes for Namenda IR other than the XR version and that patients were very unlikely to go back to IR once they had been moved onto XR - a practice known as "reverse-commuting". This might be thought to be an acknowledgement of the real benefits offered by the new product, but the issue was addressed purely as one of practicality (requirement of a new prescription, acclimatising vulnerable patients to the new dosage regimen, etc).
The court acknowledged that neither the introduction of a new, arguably superior, product nor the withdrawal of an old product is anti-competitive in itself. Concerns arose because both strategies were carried out in combination, with a “coercive” effect upon customers/prescribers, who had no option other than to switch to the new product. In the particular context of the pharma sector, and given the impact of Actavis’s IP protection, the Court decided not to allow Actavis to implement its “hard switch”. Instead, the relief granted means that it has been left to the market to choose whether to favour the improved release profile of the XR version, or to take advantage of the cost-savings generated by the generic products. The grant of mandatory interim relief is often the end of the story, but perhaps Actavis will decide to take up the fight for its “right to product-hop” at a full trial.
6 August 2015
A perhaps under-publicised resource on DG Comp’s website are its periodic Competition Policy Newsletters and Competition Merger Briefs, which discuss notable legal developments (from the Commission’s perspective) over the preceding period. I happened across one such without entirely meaning to (only a competition lawyer could say such a thing...) an evening or two ago, which discusses “lessons learned” from last year’s Facebook/WhatsApp merger clearance. That was obviously an important decision, both in the sense that the Commission took on a merger which fell below the usual “bright line” jurisdictional thresholds, and in which it had to grapple with new business models set in a multi-sided market context, characterised by pervasive network effects. While the competitive importance of ‘big data’ was clear from the merger decision itself, the potential significance of such matters as privacy as a parameter of competition were perhaps less clearly enunciated. The Commission’s Policy Newsletter notes that, while the CJEU has held that personal data issues do not fall to be considered as matters of competition law (thanks to the Asnef-Equifax ruling), issues such as data privacy, as well as online security, may increasingly become a parameter of competition in the digital world. Merger analysis, which involves an element of crystal-ball gazing at the best of times, is obviously a particularly challenging area for the competition authorities. The recent report prepared at the behest of the European Parliament on ‘Challenges for Competition Policy in a Digital Economy’ raises the bar by speculating as to the dangers posed by “pre-emptive” merger activity in which an incumbent aims to “prevent a (potential) competitor from disrupting [its] business model by acquiring the company”, while also noting the obviously high risks of false positives in any such analysis. In fact, the EP report concludes that “in digital markets, the traditional step-by-step analytical approach [(1) market definition; (2) analysis of market power; (3) competitive effects] does not work because of strong dynamic feedback effects running from firm behaviour to market structure”. On the specific question of the impact of data on mergers, the report speculates that amendments to DP law may be in order, to mitigate potential future competition problems. For example, a consumer right to data portability could be introduced to increase switching between platforms and, potentially “multi-homing” (using multiple platforms).
Such conundrums are not only relevant to merger analysis, but may also play a role in future abuse of dominance cases. It is to be hoped that the competition authorities will not resort to a more static – and thus unrealistic – market analysis when looking at past or continuing alleged abuses...
31 July 2015
Last week, the European Commission made concrete moves which it thinks will help it to deliver on its promise to create a Single Digital Market. On Thursday (23 July) DG Competition sent a statement of objections to six major Hollywood studios and Sky UK claiming that their contracts involve anti-competitive clauses. What is at issue? Nothing other than the “geo-blocking” clauses that have already been the subject of sceptical comment in the context of the European Commission’s e-commerce sector inquiry (for more on this see here and here and here and here). Geo-blocking, in the words of the European Parliament in its recent study (studies on challenges for competition policy in a digitalised economy), is the practice of “preventing users from accessing content based on location”. DG Competition alleges that Sky UK and each of six major Hollywood studios (NBC Universal, Paramount Pictures, Sony, 20th Century Fox, Warner Brothers and Disney) bilaterally entered into licensing agreements which obliged Sky UK to restrict consumers from other EU Member States from accessing UK pay TV services either online or via satellite when in other EU Member States. Film rights (and indeed other rights) are often licensed on an exclusive basis to a single broadcaster in each Member State. The Commission suggests that where licensing terms prevent the exclusive broadcaster being able to respond to unsolicited requests to transmit content to other countries, then this may partition the single market and infringe Article 101(1) – a transfer of the active/passive selling distinction from the realm of goods and services to the world of digital content and national copyright.
The investigation began in 2014 and similar investigations are under way in other EU Member States. They follow the FAPL decision of October 2011 (here). Those familiar with this area will recall that the Murphy case did not hold that it was anti-competitive for the FA Premier League to enter into exclusive licensing arrangements with a broadcaster in each country but it did hold that it was contrary to the competition rules to require a broadcaster to prevent its satellite decoder cards (which enable reception of the licensed program content) from being used outside the licensed territory see here for a discussion on the Advocate General’s opinion in FAPL.
However, dealing with this issue does not merely involve contractual arrangements that impose absolute territorial protection - complicating the matters under investigation are national cultural concerns and national copyright rules. The European Parliament recently noted in its studies on challenges for competition policy in a digitalised economy that the ability to access content from anywhere in the EU may also be as a result of geographical restrictions imposed by owners of intellectual property rights. This is why geo-blocking will be assessed not only under the antitrust rules but also by reviewing copyright law across Europe. The Commission is also keen to ensure wider access to online content within the internal market which will involve a review of the Cable and Satellite Directive. The allegations raised by the Commission against Sky UK and the Hollywood Majors may have a profound impact on the scope of copyright protection (particularly in relation to the doctrine of exhaustion) and may foreshadow significant changes to the copyright landscape once the modernisation of EU copyright law gets underway.
Geo blocking is a major focus of the e-commerce sector inquiry and we will undoubtedly be seeing more investigations on this topic. As companies start to respond to the chunky Commission information requests now being sent out by the sector enquiry case team, they need to have an eye on key Commission’s concerns on this subject, which may ultimately result in some significant pressure on existing business practices.