Deciding on terms of privacy policies – what are the risks of anti-competitive collusion?

Big data is the talk of the town in competition circles.  But it is perhaps a more mundane concern which could pose greater risks for a larger number of companies.  An article by a couple of regular CLIP Board contributors published earlier this year in Privacy Law International notes the increasing tendency to regard privacy as a parameter of competition, and explores the risks of collusive conduct being identified in relation to the terms of privacy policies. Is there a risk of a future information exchange case around the treatment of data privacy?  Could a concerted practice be found where companies benchmark their privacy policies against each other? Would this be as serious a concern as exchanges relating to future pricing intentions? 

Read on for our views on all of these questions here

Dutch Health Council’s proposal of compulsory licensing as solution to high pharma prices

Shortly before becoming the new home of the EMA, the Netherlands piqued the interest of the pharma industry with a controversial move on drug pricing.  The move consisted of a recommendation by the Dutch Council for Public Health and Society (“RVS”) that the government should use compulsory licences when a medicine is priced too high, or in RVS’s words, does not have a “socially acceptable price”. In this article, we touch upon the significance of such a proposition in the regulatory sphere, as in our regulatory colleagues’ eyes this could result in a violation of the established IP regulatory rights enacted in EU legislation.  However, for now our focus is on the significance of the move from a competition law standpoint.

Readers of this blog will be more used to thinking about price reduction measures and compulsory licensing issues through the lens of competition law.  However, the RVS bases its recommendation in part on Article 8 of the TRIPs Agreement, which allows measures that protect public health or prevent the (anti-competitive) abuse of intellectual property rights resulting in the unreasonable restraint of trade or of international transfer of technology.  Further provisions relevant to compulsory licensing are covered in Article 31 of TRIPs, which provides for certain rights to use the subject matter of a patent without the rights holder’s authorisation, provided rights holders are remunerated for the licence based on the “economic value of the authorisation”. 

In recent years, considerable attention has been given by competition authorities to possible instances of excessive pricing.  To date, those cases (such as Pfizer/Flynn, currently on appeal before the UK’s Competition Appeal Tribunal, or the latest Statements of Objections issued by the Competition and Markets Authority (“CMA”) to Actavis and Concordia) have focussed on prices of legacy generic products. By contrast, the RVS’s proposal is firmly focussed on cost containment measures for new, patent-protected, medicines, but is not limited to potential blockbusters.  

The RVS’s criticism of current prices and consequently its recommendations extend to orphan drugs (medicines for very rare diseases affecting less than five out of 10,000 people in the EU population), which by definition benefit only a very small part of the population. The relatively high cost of R&D and production for orphan drugs, juxtaposed against the narrower reach/ patient pool and thus lower profit margin, has resulted in the EMA providing additional incentives for the development and commercialisation of those products. The Dutch authority’s recommendations therefore appear somewhat contrary to the spirit of the EMA’s policies aiming at encouraging investment by innovators in these areas, but is perhaps motivated by concerns expressed by some around the increasing use of orphan drug status (the concept of ‘orphanizing’, alluded to here). 

There is an absence of any definition of or set of criteria to determine what might constitute ‘high’ or ‘socially unacceptable’ pricing. The RVS proposal is not a new concept and in fact the subject of high or ‘excessive’ pricing in the pharma industry has occupied European stakeholders and has been the subject of investigations on a national and European level over the past few years. In June 2015, in response to a European Parliament  member’s (MEP) suggestion of compulsory licensing as a means to lower drug prices, the Commission stated that this is a matter to be dealt with at national level and that neither the Commission nor the EMA are competent to take such action.

The UK’s approach to compulsory licensing differs significantly from the Dutch proposal. Compulsory licensing is a rare breed in the UK, as it is only a measure to be taken for an abuse of monopoly stemming from patent rights – and it is very often the case that the relevant authorities prefer alternative means. Where new drugs are concerned, the question of cost effectiveness of medical treatments lies primarily in the hands of NICE.  As noted above, the CMA has been particularly active over the past year in pursuing practices which result in elevated prices for generic pharmaceuticals  But rather than automatically holding that very high prices are inherently anticompetitive, the CMA appears to draw a distinction between abusive ‘excessive pricing’, which is artificially and unjustifiably inflated pricing or increased pricing once a gap in competition on the market is identified, and high pricing which properly reflects the cost of development and production of a new drug. 

Our (not excessively priced) two pennies’ worth on this proposal is that imposing a compulsory licensing system for drugs which are not priced in a ‘socially acceptable way’ is, at best, a vague proposition which is likely to alarm and be met with adamant opposition by the industry. With much uncertainty as to what may constitute ‘excessive pricing’ or the ‘appropriate remuneration’ for the rights holder, there will be great scope for dispute. From a regulatory perspective, the fact that this measure might make it possible for governments to bypass rights such as the regulatory data protection (RDP) is a concerning prospect.  More generally, this proposal strikes at the heart of the delicate balance between long-run innovation incentives in a high risk/high reward sector, and short-term costs considerations around access to existing medicines.  The struggle between both sides of this debate looks set to continue.

EU reaches agreement to end unjustified geoblocking

On 20 November the European Parliament, the Council and the Commission reached an agreement to adopt the proposed Geoblocking Regulation, which will come into force nine months after its publication in the EU Official Journal.

The Regulation is a key plank of the Commission’s Digital Single Market Strategy and it is intended to end unjustified geoblocking for consumers wishing to buy products or services online within the EU. 

The Commission’s other measures in relation to the digital single market include its e-commerce sector inquiry (here and here) and its antitrust investigation into absolute territorial restrictions in the distribution arrangements between Sky UK and the six Hollywood film studios (on which we have commented extensively here, here and here).

What about competition law?

An important rationale for the Regulation is that restrictions to cross-border sales by online traders are often unilateral and so do not constitute an “agreement or concerted practice” within the meaning of Article 101 TFEU.  Rather, a restriction on cross-border trade will only be caught by competition law if it is due to an agreement with a supplier, or the online trader is in a dominant position. 

Competition law’s limited ability to take action against unilateral conduct is underlined by the Commission’s closing of its investigation into Apple’s differential pricing policy for downloads, that resulted in UK consumers paying more than consumers in other Member States.  The issue was ultimately resolved by voluntary commitments from Apple in 2008 (here).

What is geoblocking?

Geoblocking is a term given to the practical and technical measures used by online traders to deny access to websites, or online services, to consumers based in Member States other than the website domain.  The Commission considers that these restrictions often result in consumers being charged more for products or services purchased online.

A well-known example of geoblocking is the car rental market: renting a car from a company in the UK can cost up to 53% more than renting from the same company in Poland, but a UK consumer cannot access the Polish site for the cheap deals.

What does the Geoblocking Regulation prohibit?

The Regulation prohibits unilateral commercial behaviour which discriminates on the basis of where a person is from, where they live or where a business is established. 

It does not (currently) apply to copyright protected works, nor does it harmonise prices between different EU Member States, or impose an obligation to sell. It also prohibits agreements containing passive (or unsolicited) sales restrictions which violate the rules.

The specific prohibitions are:

  • Geoblocking: A trader must not block or limit customers' access to websites because of a customer's nationality, residence or place of establishment.
  • Redirecting a customer without permission: A trader must seek permission before redirecting based on nationality or location.  Even if a customer agrees to the redirection the trader must make it easy to return to the website originally searched.
  • Discrimination: On the grounds of nationality/residence/place of establishment is prohibited; for applying example different terms and conditions on such grounds will not be permitted.  This prohibition applies to: 
    • sales of goods when the trader is based in a different Member State to the customer (for example buying a car or a refrigerator);
    • all electronically-supplied services, other than copyright-protected works, (for example internet hosting services); and
    • the sale of services provided in a specific physical location (for example buying a trip to an amusement park in another Member State). 
When is geoblocking justified? 

The Regulation accepts that some forms of geoblocking may be justified, for example in relation to specific national VAT obligations or different legal requirements.

French Pharma – French Competition Authority launches new sector enquiry

The CMA has opened an unprecedented number of new investigations in the pharmaceutical sector in the past month, with 4 new investigations during October 2017 (see the ‘update’ section here).  However, the CMA is not the only national competition authority to be focusing its attention on the pharmaceutical sector, as, on 20 November 2017, the French Autorité de la concurrence announced a new enquiry into the industry. The issues set to be addressed have been recently covered by the French authorities in a 2013 sector enquiry (and see our earlier post here), so it will be interesting to see whether any progress has been made.

The new enquiry will again examine the pharmaceutical distribution chain.  First, it will look at the changing role of intermediaries. The previous enquiry had found that intermediaries such as wholesale distributors and purchasing group networks often struggled to counter the market power of the large manufacturing companies.  A particular source of difficulty arose from the decision of many pharmaceutical companies to start selling direct to the large pharmacy chains. This is particularly challenging to smaller pharmacies who are unable to match the buying power of the chains and then offer their customers competitive prices. The current enquiry will investigate whether the intermediaries are playing a greater role compared to 2013, particularly in regard to sale price dynamics.

This issue was also addressed by the UK authorities in an OFT Medicines Distribution Market Study in 2007. Traditionally, branded medicines for which a price had been agreed under the Pharmaceutical Price Regulation Scheme (PPRS) were supplied to the NHS via intermediaries such as wholesalers. However, some manufacturers were starting to implement ‘Direct to Pharmacy’ (DTP) schemes and the OFT examined the potential impact of these new arrangements. The study found that whilst DTP schemes could bring efficiency benefits, there were also risks of cost increases to the NHS due to the lack of purchasing choice available to pharmacists who frequently have no choice over which medicine to dispense (for an example of this in action see the Pfizer/Flynn excessive pricing case which we covered here). 

Second, the new enquiry notes that France has heavy regulatory restrictions on the sale of non-prescription medicines. The Autorité has previously recommended that such restrictions be gradually removed, and in particular that online sales be permitted. This was in response to the finding that the “intensity of competition between dispensing chemists is relatively low, as demonstrated by major differences in pricing observed for medicinal products that are not reimbursed”. However these recommendations have not yet been implemented, whereas many of France’s European neighbours do allow online sales. The enquiry will therefore examine this topic again, taking into account new developments and ideas such as the creation of pharmacy chains and their flotation, and the relaxation of rules around advertising.

As reflected by the CMA’s recent investigations (see Pfizer/Flynn above, as well as the statements of objections sent to Actavis (in December 2016) and to Concordia (within the past week)), the Autorité will also look at pricing.  In France there are two categories of pharmaceuticals: reimbursable products where the price is set by negotiation between the French Economic Committee for Healthcare Products and the manufacturers, and generic medicines where prices are set by the market (as in the UK, until the recent passing of new legislation).  In 2013 the Autorité had observed that some generic products were subject to inflated prices due to the “existence of considerable ‘disguised’ rebates”.  Since 2013, a scheme has been implemented under which rebates have to be declared to the regulatory authorities. This new enquiry will therefore examine whether this scheme has been successful, and whether the heavy discounts often given by the pharmaceutical companies to the dispensing chemists are passed onto consumers. The enquiry also plans to examine the criteria used in the negotiation of reimbursable medicines, as well as the bargaining power of hospitals when negotiating prices with pharmaceutical companies.

In due course we will report further on how the Autorité views the current state of the French medicines distribution market and whether it leads to any infringement investigations following on from the sector inquiry.

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

Product hopping: The competition law risks of launching new product formulations

‘Product hopping’, or ‘evergreening’, are expressions used (by competition authorities and industry respectively) to describe strategies employed by pharmaceutical companies to protect sales of a successful drug on the verge of losing patent protection. For example, a pharmaceutical company might introduce a new formulation of the drug before it faces significant competition from a generic alternative.

There is nothing inherently wrong with product hopping. The European Court of Justice has recognised that it is legitimate for pharmaceutical companies to adopt strategies seeking to minimise the erosion of their sales when faced with competition from generic products1. In addition, the development of a new and improved formulation of a drug can be extremely beneficial, both to the patients that might find it more effective, and to society as a whole for the jobs created in researching, manufacturing and marketing the new product.

However, there is a growing line of case law in the US and Europe that illustrate the competition law risks involved with product hopping. In all of these cases, the issue has not been the introduction of a new formulation. Instead, it has been other specific elements of the strategies employed by pharmaceutical companies to encourage consumers to switch to the new formulation that have caught the attention of the courts and regulators, particularly where this has prevented consumers from having a choice between a branded drug and generic version. 

Europe

Cases in Europe offer some clear examples of this. When withdrawing Losec capsules in favour of new Losec tablets, AstraZeneca deregistered its marketing authorisation for Losec capsules in several EU Member States. This prevented generics manufacturers from relying upon the clinical trials conducted for Losec capsules when applying for authorisation for a generic version, making it for more difficult for generics to enter the market. The deregistrations, in the absence of any objective justification, were found to be an abuse of a dominant position2.

In the UK, Reckitt Benckiser replaced its original Gaviscon product with a new version, Gaviscon Advance. This was done after the original patent had expired but before a generic name for the original product had been published, with the result that prescriptions could only be written for the new branded product. In finding that this was an abuse, the UK regulator held that it would have been commercially irrational to withdraw the original product had it not been for the anticipated benefits of delaying generic competition3.

In both cases, the introduction of the new product was not anti-competitive, however, the combination of that and the exploitation of the underlying regulatory framework was found to breach competition law.

USA

In the US, the focus has also been on actions by pharmaceutical companies that remove the consumer’s ability to choose. 

In State of New York v Actavis4, a US Appeal Court drew a distinction between a ‘soft switch’ and a ‘hard switch’. Actavis manufactured a successful twice-daily Alzheimer’s drug, Namenda IR. In 2013, it introduced a once-daily version, Namenda XR. The new drug contained the same active ingredient, memantine. Actavis began an aggressive marketing campaign to switch patients on to Namenda XR, and made use of rebates to offer it at a low price. This was the soft switch. Then, in August 2014, a year before it was due to lose patent protection on Namenda IR, Actavis discontinued it. The Court described this as a hard switch; the discontinuation left Namenda XR as the only option for patients before the entry of a generic version of Namenda IR. The court held that the hard switch crossed the line from persuasion to coercion, and was anti-competitive.

More recently, in early September 2017, the US District Court for the Eastern District of Pennsylvania denied Indivior’s motion to dismiss a claim brought against it by the State of Wisconsin (along with a number of other States) alleging anti-competitive behaviour relating to its marketing and sale of Suboxone5. In finding that Wisconsin had a plausible claim, the court noted that Indivior had near simultaneously introduced a new Suboxone film, removed its Suboxone tablets from the market, and engaged in a marketing campaign to disparage Suboxone tablets. This was done before the entry of generic competitors into the relevant market, leading to a restriction of the ability of consumers to choose between the branded products and a generic alternative.

Interestingly, although the plaintiffs characterise Indivior’s conduct as a hard switch, the generic alternative to Suboxone tablets had been on the market for almost two weeks before the tablets were withdrawn. Arguably, Suboxone tablet prescriptions could simply have been replaced with generic tablets at this point. However, realistically this could only occur for patients who needed to renew their prescriptions in that short period of time. In addition, the plaintiffs claim that even by the time generic tablets received FDA approval in February 2013, 85% of Suboxone prescriptions were already for film instead of tablets. If this case proceeds to trial, the focus may therefore be on the soft switch elements to Indivior’s strategy: the disparagement of tablets leading to the rapid take-up of film. In denying the motion to dismiss, the judge noted that summary judgment record might be different, suggesting that he wasn’t completely convinced by the merits of the plaintiffs’ case.

Will the case law develop further?

It’s possible that in the future we may see competition authorities or courts seeking to penalise conduct that is closer to a soft switch than hard switch. After all, in France in 2016, the Cour de Cassation upheld the €40.6m fine imposed on Sanofi-Aventis by the French Competition Authority in May 20136. Sanofi-Aventis was found to have denigrated generic competitors of its drug Plavix in its communications with doctors and pharmacists; it encouraged them to indicate on Plavix subscriptions that the drug was “non-substitutable”. This was not a hard switch – there was a generic alternative available, but the conduct had a similar effect to a hard switch; it partially foreclosed generic entry to the French clopidogrel market (leading to a softening of competition, as Sanofi lost market share to generics much more slowly than it otherwise would have). 

For now though, it remains the case that pharmaceutical companies can continue to take steps to extend the lifetime of their product ranges, as long as they are careful to ensure that any introduction of a new formulation is not supported by a strategy that limits the ability of generics of the earlier formulation to enter the market. Where companies avoid that potential pitfall, the introduction of new formulations benefits patients: and pharmaceutical companies’ promotion of those positive attributes epitomises legitimate competition on the merits.

______________________________________________
1 AstraZeneca v Commission, Case C-457/10 P, at 129.
2 AstraZeneca v Commission, Case C-457/10 P.
3 Decision of the Office of Fair Trading, predecessor to the Competition and Markets Authority, in Case CE/8931/08, decision of 12 April 2011 at 6.64.
4 State of New York v. Actavis, Case No. 14-4624 (2d Cir. 2015)
5 State of Wisconsin et al. v. Indivior Inc. et al., case number 2:16-cv-05073.

Introducing On the Pulse – the Bristows life sciences microsite

Bristows has recently launched On the Pulse, a microsite offering legal analysis and practical tools that our life sciences readers may find useful.

The site is organised by sector, covering pharmaceuticals, biotech, medical devices, health care and animal health. There is a Brexit section, touching on many aspects from data protection to tax issues, and from scientific funding to the UPC. The Tools menu allows access to a number of standard documents in different areas, including competition/procurement

There are already a number of competition focused posts from our regular contributors, with Aimee Brookes writing about excessive pricing, Matthew Hunt on product hopping and rebates, Noel Watson-Doig on the NHS approach to biosimilar procurement and on standardisation agreements in pharma and Francion Brooks on CMA enforcement in the pharmaceutical sector. We hope our readers find it a useful resource and we will continue to link to any relevant articles from here.

SEPs, 5G and the IoT: where will the Commission land on use-based licensing?

In April this year we reported that the Commission had released a Roadmap towards a ‘Communication on Standard Essential Patents for a European digitalised economy’,  intended to address some of the uncertainties in SEP licensing left unresolved following Huawei v ZTE (see e.g. here), and to drive progress for the EU-wide adoption of 5G. Originally expected in May, the Communication is now said to be likely to be published before the end of the year. Part of the reason for the delay appears to be a dispute between several directorates within the Commission as to the appropriateness of use-based licensing for Internet of Things (IoT) enabled devices.

Recap: the IoT & 5G

The Internet of Things (IoT) will result in increasing inter-connectivity between devices. For example, smart kitchen appliances can already be turned on remotely. A new smart fridge might re-order milk automatically. On a grander scale, lighting systems in towns and cities might vary the level of illumination produced by streetlamps based on the time of day, season, or even weather conditions. 

Some of these new technologies will be very data hungry. They will all require the ability to connect to mobile networks and other devices. This is where standards come in. Standards like 3G and 4G enable fast mobile connectivity. 5G, currently in development, will enable even faster transfers of data. Each of these standards incorporates thousands of patents which have been declared essential to use of the standard (SEPs). The holder of an SEP must commit to license its SEPs on Fair, Reasonable and Non-Discriminatory (FRAND) terms. 

The negotiation of FRAND terms is often contentious (see for example our reports on the Unwired Planet case in the UK, here and here, Huawei v ZTE in the EU, and Ericsson v D-Link and CSIRO v Cisco in the US). Most FRAND litigation to date has focussed primarily on mobile phones or similar devices. As more types of product with connectivity are developed, licensing negotiations (and litigation following failed negotiations) risk becoming even more complicated. However, as there could be more than 29 billion IoT connected devices by 2020, with IoT systems creating an economic impact of more than $11 trillion per year by 2025 (source), the stakes are considerable.

The difficulties of drafting the Communication

A number of recent reports have indicated considerable debate within the Commission about the contents of the Communication. The centre of the dispute is use-based licensing: whether SEP holders should be able to charge different rates to different licensees depending on the nature of the final product that implements the technology. 

For example, it is argued that 5G is more valuable to a mobile phone, where connectivity is integral to its operation, than to a smart energy meter that might only connect once a day. It is therefore suggested that charging a higher royalty rate for a 5G enabled mobile phone than a 5G enabled meter is fair. This is the position supported by some big SEP holders such as Qualcomm, Nokia and Ericsson.

On the other hand, small developers claim that by focussing on the final product, SEP holders are trying to take a cut of the value created by other inventors who have come up with innovative new uses of a technology. Some vocal critics of current licensing practices take issue with the SEP holder practice of granting licences only to those who produce and sell the final product, such as Samsung, Apple or Huawei. Instead, they argue that SEP holders should be obliged to grant licences to all-comers, including companies higher up the supply chain, for example to those that produce the wireless chipsets incorporating the SEP technology. 

However, this option could also create its own challenges. If a number of companies in the supply chain have all taken licences to the same underlying SEPs, this could result in a form of ‘double-dipping’ – allowing SEP holders to recover higher royalties (depending on the extent to which the licence would otherwise ‘pass-through’ from the company highest in the chain to the end manufacturer). It could also result in an increase in the number and complexity of licensing negotiations. Those who support use based licensing argue that the simplest way of licensing SEPs of this sort is at the point where the final product incorporating the patented technology is complete, and that a single licence at that point is the neatest and most efficient licensing model. 

Underlying both positions is a concern about the price to be paid for standard essential technology. Those who develop that technology and contribute it to standards want to ensure a return on their investment and argue that good financial incentives are required to ensure continued innovation. Those who use the technology argue that they are happy to pay, but also need their incentives to continue bringing new data-dependent products to market not to be crimped by patentees charging royalties which exceed the value contributed by standardised technologies. Implicitly, both arguments assume that relying on royalties at an earlier point in the value chain will result in lower costs for product developers and lower returns for patentees.

Our understanding is that within the Commission itself, some directorates largely support the views of the SEP holders. They cite concerns about the need to preserve SEP holders’ incentives to innovate and support the use based model, which would enable SEP holders to calibrate the royalties sought finely by reference to different uses. On the other hand, DG Competition continues to be concerned about the position of implementers. It notes that they may face significant difficulties in acquiring licences directly, as well as the potential for unjustified price discrimination between users if companies higher in the supply chain are not able to obtain, and pass on the benefits of, licences to all comers. Over recent years, DG Competition has also frequently focussed on incentives for follow-on innovation both in TMT and in other sectors, which again tends to favour the position of implementers. 

Whatever the final text of the Communication, the intensity of the debate surrounding it means that it is unlikely to be overly prescriptive. Discussion on these issues is likely to continue over the coming years across an array of industry forums and within bodies such as ETSI, not least because of the global nature of the debate. It’s also worth noting that representatives from a number of technology companies such as Nokia, Ericsson and Orange have formed a committee to establish an industry-wide code on best practices for SEP licensing (here – subscription required). It will be interesting to see if that code supports or conflicts with the Commission’s approach.

Laitenberger on the notions of fairness and consumer welfare in EU Competition Law

Johannes Laitenberger (Director-General for Competition, European Commission) spoke last week on an increasingly prominent topic in competition authority discourse, namely the role of fairness in competition law.

Fairness

Taking his cue from Commissioner Vestager’s recent speech on the same topic (see here), Laitenberger’s speech looked at the concept through the lens of recent developments in relation to innovation and digital markets. According to Laitenberger, “fairness is important to maintain confidence in the system”. Citing a topical example, he noted the recent Amazon state aid case.

That case related to a tax ruling granted by Luxembourg to Amazon that allowed Amazon to shift ¾ of their EU profits to an untaxed entity, in the form of an IP royalty payment. The decision has strong similarities to the 2016 Apple/Ireland ruling, in which the Commission found that equivalent royalty payments bore no relation to economic reality and thus constituted illegal state aid. The Apple ruling is set to be considered by the CJEU, but the Commission remains of the view that the use of unwarranted IP royalty payments to reduce tax burdens, are ‘unfair’ and will receive short shrift.

Assessing innovation

Laitenberger emphasised that the role of competition law is not limited to consideration of price competition. Other parameters of competition, including quality, choice and innovation are also key in digital markets.

He illustrated this through a discussion of merger cases where the impact on innovation was a major concern (see our previous commentary here). Perhaps the most controversial of these has been the Dow/Dupont decision, where the Commission used techniques such as patent citation analysis to assess the impact of a reduction of the number of players in the agrichemical business. It ultimately ordered the divestiture of Dupont’s R&D organisation in order to ensure future innovation was protected. Laitenberger highlighted the Commission’s main concerns in this case: a small number of major agrichemical business with R&D capabilities; very high barriers to entry; evidence of likely lessening of R&D efforts post-merger; and existing overlaps between current R&D efforts. This is not the only merger case in which such concerns have been key, and it is likely that this trend will continue. 

EU Competition Law is “fit for purpose”

Indeed, Laitenberger also referred to the Microsoft-LinkedIn merger (about which we wrote earlier this year) as an example of the Commission being alert to the potential anti-competitive effects of big data.

Going forward, it remains to be seen whether the Commission will live up to Laitenberger’s ambition “to ensure that markets deliver for the many, not the few” by accounting “for new phenomena and new technologies while maintaining the level of enforcement that is needed for the Single Market to serve society as a whole”. While this aspiration is probably uncontroversial, it also remains to be seen whether the Commission will continue to be able to meet it while remaining true to the fundamentals of competition law as it has developed over the past 50+ years. Indeed, if it is true that divestment remedies ordered against merging parties on grounds of innovation are controversial, the same is all the more true in behavioural cases where innovative conduct is in play. The concept of predatory innovation remains a novel one in competition law, and one where the risks of over-enforcement are legion.

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!