Developments in the CC’s private healthcare market investigation in the UK

The Competition Commission (CC) today published its provisional decision on remedies to address features of the private healthcare market that it has found to give rise to concern.  The CC’s ‘market investigation’, which began in April 2012, has identified structural flaws in the market which the CC believes to have ultimately lead to higher prices for certain patients.  In short, the CC has proposed that:

  • 9 hospitals should be divested (seven by BMI and two by HCA);
  • the OFT/CMA should review agreements for the operation of private patient units at NHS hospitals;
  • certain consultant incentive schemes should be prohibited or restricted;
  • performance-related information on both hospitals and consultants should be published; and
  • consultants should provide fee information to both out-patients and inpatients.

Interested parties can comment by 6 February.

The CC’s procedure has already been called into question: the Competition Appeal Tribunal (CAT) today also handed down its judgment in a case which concerned BMI’s application for costs following its successful challenge to the way in which the CC operated its disclosure room in the investigation.  Interestingly, the CAT held that while a successful party would ordinarily obtain a costs award in its favour, BMI’s costs of almost £300,000 were disproportionate given the complexity of the case.  Furthermore, BMI was only successful on one of the two grounds it raised.  As a result, the CAT awarded BMI only £125,000, having taken as its starting point the CC’s modest expenditure of £35,000.  Clearly, we are getting value for money from our competition authorities!

Rosemary Choueka

The OFT tackles restrictions on the online availability of medical devices

In August 2013, the OFT issued its decision in the Roma-branded Mobility Scooters case.  This arose from an OFT investigation into arrangements between Roma and its distributors that were designed to restrict the availability of certain Roma mobility scooters online.  The classification of mobility scooters as ‘medical devices’ makes this decision relevant to all manufacturers and distributors of medical devices.

Agreements restricting competition

Agreements that affect trade in the UK and have as their ‘object’ or ‘effect’ the restriction of competition within the UK are prohibited under competition law. Unless a company is dominant, an ’agreement’ is required for competition law to bite.

The ‘agreements’ in this case arose from Roma communications to its retailers stating that certain models of mobility scooter should be sold “in-store only”.  A number of retailers expressly agreed to Roma’s request.  Roma had a policy of threatening to withdraw/actually withdrawing supply from retailers who did not comply. The OFT inferred that any retailers which did not sell online had acquiesced and had therefore entered into an ‘agreement’ for competition law purposes.  A number of retailers had attempted to “cheat” the restrictions, but even this did not prevent the OFT from finding that an ‘agreement’ was in place between Roma and those retailers.

The specific restrictions of competition related to prohibitions of online sales and online advertising.

The ‘object’ of the restrictions

Restrictions that are by their very nature detrimental to competition are seen as anticompetitive by ‘object’.  Such restrictions are prohibited without any need to show that they have an anti-competitive ‘effect’.  The OFT took the view the online sales prohibition would obviously restrict competition between retailers and therefore fell into the anticompetitive by ‘object’ category.

In a confusing section, the OFT then considered the subjective ‘objects’ /aims of the parties (and to some extent the effects of the conduct).  Roma argued that its primary aim had been to protect consumers, highlighting that mobility scooters are classified as medical devices by the MHRA.  As such, consumers needed to receive an “assessment” prior to buying a mobility scooter and this could not be carried out if the sale was made online.

The OFT found that contemporaneous documents did not suggest that the restrictions imposed (or rather ’agreed‘) were motivated by the products’ characteristics. It found that they were instead designed to incentivise bricks and mortar retailers to stock and sell Roma products on the understanding that they would not face ‘intra-brand’ competition from online Roma retailers.  The OFT emphasised that the relevant medical devices regulations imposed requirements only on the way that the scooters were manufactured, constructed and packaged, and not the way in which they were distributed, sold or advertised.  As a result, there was certainly no requirement for a manufacturer to ban online sales or online price advertising to meet regulatory obligations.

Comment

From a competition law perspective, the low threshold used by the OFT to identify an ‘agreement‘ is certainly noteworthy. This remains an area of the law that needs further clarification.  The OFT’s readiness to find that the prohibition of online sales was an ‘object’ type restriction also reflects the increasing tendency of competition authorities to categorise restrictions in this way. The practical consequence of doing so is to remove any requirement to demonstrate anticompetitive effects before finding that the conduct is in breach of the law.

It is interesting to note that when considering consumer harm and industry developments, the OFT emphasised the fact that consumers with limited mobility may find it difficult to visit more than one bricks and mortar store, particularly in light of Roma’s selective distribution system (with a limited number of distributors).  Making the products available online would make it easier to compare prices and to involve friends and family in the purchase more easily.  Manufacturers and distributors of medical devices should take note: it seems that the OFT may employ a higher standard for devices where the vulnerability of consumers is directly relevant to the devices in question.

Finally, it is important for manufacturers and distributors of medical devices to be aware that restrictions on the availability of products online that are not required by a regulatory obligation could give rise to competition concern.  Competition law is inherently sceptical of any arrangements that restrict the use of the internet to distribute products.  In its 2013-14 Annual Plan the OFT has reiterated that it will focus on protecting online channels.  Given this (which is reflected in the position of competition authorities elsewhere in Europe), any restriction on the online distribution of any goods, including medical devices, should be carefully considered. 

Osman Zafar and Steven Willis

New paper on ‘Injunctions for FRAND-pledged SEPs: the quest for an appropriate test of abuse under Article 102’

For those particularly interested in the current industry debate about when it can be abusive to seek injunctions for FRAND encumbered SEPs, a recent paper here by Nicolas Petit (one of the authors of the excellent Chillin’ Competition blog and Professor of Law at University of Liege) is well worth a read.

The paper discusses various (existing and proposed) legal tests under which owners of SEPs can be held to have abused a dominant position under Article 102 TFEU by seeking injunctions.  Professor Petit explains the concept underlying each legal test in turn. The proposed tests he identifies are: (a) refusal to supply – Magill / IMS Health; (b) abusive litigation – ITT Promedia / Protégé International; (c) abusive ‘anticompetitive foreclosure’ – Post Danmark; (d) willing licensee test – OrangeBook Standard & Commission’s current test; and (e) abusive bargaining – Mariniello.

Petit then proposes criteria  to help select the most appropriate legal standard to apply when assessing whether seeking or threatening to seek an injunction for FRAND encumbered SEPs complies with Article 102.  His preferred criterion for use when selecting a legal test is based on the notion of ‘consistency’ which he breaks into four aspects:  internal consistency (i.e. with Article 102 case law); transversal consistency (i.e. with other areas of EU competition law); constitutional consistency (i.e. with constitutional EU law principles); and economic consistency. 

Applying this intellectual approach, he concludes that the abusive litigation standard (as applied in ITT Promedia / Protégé International) is the best candidateInterestingly, he also concludes that the ‘willing licensee’ standard would be by far the worst performer on grounds of consistency.  This the standard which appears to underpin the Commission’s approach to these issues - various public statements by Commission officials and Commissioner Almunia suggest that injunctions for FRAND encumbered SEPs should not be sought against ‘willing licensees’.  The exact scope of the willing licensee test, and its relation to Article 102 TFEU, is also the subject of the recent CJEU reference by the Düsseldorf Court in Huawei v ZTE.

Petit’s conclusion seems to be sensible and based on coherent principles.  As he points out, the right of access to court is the ‘mother’ of all fundamental rights (without which none of the other fundamental rights could exist). Given the fundamental nature of access to court, it has been held by the General Court that the abusive litigation standard (already a high threshold) ‘must be construed and applied strictly’. Against this background, it is surely sensible to avoid undermining the ability of the Courts to exercise a primary judicial function by ruling on the availability of injunctions for breaches of Intellectual Property rights, not least as the Courts are already able (and obliged) to have regard to competition law issues when doing so. These considerations add considerable weight to arguments that the ‘abusive litigation’ standard is appropriate and that it should only be abusive to seek injunctions for FRAND encumbered SEPs in ‘wholly exceptional circumstances’. 

On a more minor point, Professor Petit comments that FRAND has evolved without any antitrust context (page 29 – footnote 121). This may be correct for (F)RAND at large but, at least in the ETSI sphere, the treatment of IP in ETSI standards has evolved against a background of considerable Commission involvement on the part of DG Comp as well as others.  The ETSI IPR Policy was discussed regularly with the Commission both before and after its final adoption 1993 and was subjected to considerable antitrust scrutiny during its evolution. The treatment of IP within ETSI and related competition law considerations were discussed in various Commission green papers and communications on EU telecoms and standardisation. Finally, the ETSI IPR Policy first implemented in 1994 (which has survived in much the same form to date) was cleared by the Commission.  

However, this is only a minor quibble about a thought provoking contribution to the current heated debate.

Helen Hopson

Territorial licensing in the spotlight (again)

The European Commission announced today that it has launched a formal antitrust investigation into cross-border pay-TV services. The Commission is specifically interested in agreements between: (i) several major US film studios (Twentieth Century Fox, Warner Bros., Sony Pictures, NBCUniversal, and Paramount Pictures); and (ii) large European pay-TV broadcasters (such as BSkyB, Canal Plus, Sky Italia, Sky Deutschland and DTS of Spain).

Film studios typically licensing audiovisual content to broadcasters on an exclusive and territorial basis, a business model which has arisen (in part at least) in this sector due to the national scope of the underlying IP rights.  The Commission is concerned that licensing provisions which grant “absolute territorial protection” to broadcasters for satellite broadcasting or online streaming infringe Article 101.  Under these arrangements, typically a single pay-TV broadcaster in a Member State can show licensed content only within that State and cannot broadcast elsewhere, even in response to unsolicited requests from those in other Member States.  This is at the heart of the concerns, with the Commission making clear that territorial licensing per se is not an issue, nor is it trying to push studios towards licensing on a pan-European basis (so it says).  The Commission’s investigation “will focus on restrictions that prevent the selling of the content in response to unsolicited requests from viewers located in other Member States – the so-called “passive sales” – or to existing subscribers who move or travel abroad”.

The investigation is a good reminder that EU competition law views with suspicion any hindrance to one of its key policy objectives: the creation of a single market within the EU.  The investigation arose from the ashes of the high profile Premier League/Murphy judgment of the Court of Justice in 2011, where the Court ruled that the granting of absolute territorial exclusivity to broadcasters showing Premier League matches could not be justified.

As with many Commission investigations, it is difficult to tell from the initial announcement quite what will ultimately emerge as the key issues; such things have a tendency to evolve as all parties concerned get to grips with the facts and initial legal theories.  Although the conditions of competition for different types of content can vary significantly, developments will undoubtedly be watched closely by those in related sectors.

Osman Zafar

Online (r)evolution: Bosch boshed by the Bundeskartellamt

Following on from Pat’s post, the German competition authority on 23 December closed its investigation into the rebate systems of Bosch, which had put dealers at a disadvantage when making sales online rather than via their ‘bricks and mortar’ stores.  If dealers used both channels, the more turnover they generated online the less rebates they received.  The concern of the Bundeskartellamt (BKA) was that this ‘dual-price’ rebate system created an incentive for dealers to limit sales online.  Bosch has agreed to write to all of its dealers informing them that it will no longer discriminate in its rebates between online and bricks and mortar sales.

The BKA’s stance will come as no surprise: any attempt to disadvantage those using the internet is likely to give rise to concern to a competition authority (if it finds out), unless there is a very good objective justification for such discrimination (in practice, only genuine health and safety concerns seem to be a safe bet).  It is, however, interesting to note that the BKA and other EU authorities have been willing to close investigations relating to online provisions/restrictions if the parties in question have agreed to drop them and inform relevant third parties of the change in policy.  Given the lack of reasoned decisions on this subject giving considered guidance, this lenient approach is to be welcomed.  Undoubtedly, this approach may change in time as more and more statements by authorities make clear what they consider to be unacceptable.

Osman Zafar

On line (r)evolution? The prospects for selective distribution in an internet future

The application of competition law to online distribution models has been something of a theme for several competition bodies recently. The French, German and UK authorities have all either taken decisions or made statements about various aspects of online retailing. Reflecting the considerable engagement of national competition authorities (NCAs) with this issue, the CJEU has dealt with various Article 267 references:  recently, it has criticised some aspects of selective distribution in the PierreFabre case and given guidance on selective distribution issues in the motor vehicle sector in the Auto 24 judgment.

Just before Christmas (20 December), in a pre-Christmas message of the type so beloved of competition regulators, the OFT announced a consultation on proposed commitments to be given in respect of its investigation into online booking of hotel rooms (see here).  The Competition Commission’s Provisional Findings Report in its private motor insurance investigation also touches on the issue of the impact on competition of Platform MFNs in price comparison websites (see paras 68 onwards) and the OFT’s Mobility Scooters case also reflects current NCA focus on internet retailing (here).

The most recent attempt on an EU wide level to grapple with the competition analysis of behaviour in online retail, and with the related thorny topic of selective distribution, was in the Vertical Restraints Guidelines, published in 2010.

Against this background, and the growth of internet retailing generally, the German competition authority, the Bundeskartellamt (which has been very active in assessing various online business practices including those of companies such as Sennheiser and, more recently, Gardena, published a discussion paper for its working group on Competition Law which discusses vertical restraints in the online context.

The BKA reviews a variety of provisions encountered in vertical supply/distribution contracts and how they may particularly affect competition in the internet environment. It is an interesting overview of the classic analysis of vertical restraints (including the problems of double –marginalisation and free-riding). It also considers ways in which the growing use by consumers of the internet may require a rethink of previous approaches to aspects of vertical contracts such as MFNs and selective distribution. The paper as a whole is worth reading for those with an interest in the competition approach to the distribution of consumer goods. Notably, however, the BKA appears to be particularly sceptical of the benefits of selective distribution, commenting that case law suggests that, unless objectively justified, “selective distribution systems are to be considered as restraints of competition by object, which necessarily affect competition in the Common Market”  - although it does conclude the this needs to be assessed on a case by case basis.

The BKA is not persuaded of the consumer benefits of provisions in selective distribution agreements preventing the use of online market places. It notes (with some apparent disappointment) that such prohibitions are not regarded as hardcore by the EU Commission, but takes comfort from the Pierre Fabre case, remarking that, as the CJEU was sceptical about the arguments that competition restrictions are justified to protect brand image, this “challenges the explanation in the guidelines on this matter.”

Of real concern for brand owners as a possible straw in the wind, the BKA specifically comments that: “Irrespective of the scope of the hardcore restriction, the benefits of the Block Exemption Regulation can be withdrawn in cases where an ‘excessive clause’ has effects in a specific case that are incompatible with Article 101(3) TFEU.”  This is of interest because National Competition Authorities (as well as the EU Commission) have the power to withdraw the protection of the Vertical Restraints Block Exemption in certain circumstances. One of the specific examples of grounds on which a block exemption may be withdrawn by a Member State (mentioned in the recitals to the block exemption regulation itself) is where there are parallel networks of selective distribution agreements which adversely affect competition.

Of course, it is only possible for an NCA to exercise this power where it considers the conditions of competition are peculiarly national so that there is a “distinct geographic market”. However, the facts that:

  • the BKA has explicitly mentioned withdrawal as a possibility; and
  • that it is critical of the effect of any restrictions on internet trade on consumer welfare; and that
  • it (and other NCAs) have taken the lead on challenging the approach taken by branded goods manufacturers to on line sales in a number of cases

are relevant and interesting – and should be of some concern. Branded goods suppliers took enormous trouble during the consultation period before the adoption of the Vertical Block Exemption and Guidelines to explain the long run benefits of selective distribution and of certain restraints on internet sales. Some of those arguments appear now to be likely to be powerfully challenged. Those who believe that selective distribution of branded goods has a positive role to play in the on-line era and that it can deliver real benefits for consumers should regard the BKA paper as an invitation to engage powerfully in the debate, and to do so at an early stage. The BKA’s summary (on page 26 of its Background paper) speaks for itself:

The manufacturers of these products are facing increased price competition and are justifying their controversial practices by claiming that they are trying to maintain well-established specialist trade structures, specific services or a certain brand image. The interpretation of the VRBER's hardcore restrictions are of particular significance in this respect. Another issue of growing importance is the question as to what extent selective distribution is the right form of distribution for the respective products and if the selection criteria are the most suitable.

Pat Treacy

The BKA paper (in English) can be found here.

French Competition Authority fines Schering-Plough for abuse of dominant position

The pharmaceutical sector has been the subject of considerable scrutiny in France following the initiation of a sector inquiry in February 2013.  This led to a public consultation entitled "How to revitalise competition in the distribution of medicines in cities?" being launched in July 2013.  The results of the consultation were published on 19 December and call for, inter alia, more competition throughout the distribution chain.

On the same day, the French Competition Authority (“FCA”) announced that it had fined Schering-Plough €15.3m for its conduct in relation to Subutex (buprenorphine), a drug used to treat opioid addiction.  In brief, the FCA found that Schering-Plough had disparaged Arrow's generic drug in its sales pitches, as well as granting pharmacists unjustified discounts to prompt them to stock up on Subutex instead of generic alternatives.

This is the second decision of the FCA which penalises innovators for denigrating generic medicines, the first being its decision to fine Sanofi €40.6m in May 2013 for disparaging a generic version of its Plavix blood thinner. 

It might be that cases of this type are less likely to be brought in the UK: the higher levels of generic substitution here could reduce any effects caused by any such denigration of generics.  Nevertheless, post-AstraZeneca, innovators must continue to be more careful than ever when interacting with others in the supply chain in the EU.  National competition authorities seem keen to stretch the concept of ‘abuse’ to remedy a number of perceived problems in the pharma supply chain, however they arise and whether or not they fall within the limits of the existing case law.

Osman Zafar

Find a Patent: Intellectual Venture’s searchable portfolio

Intellectual Ventures – arguably the world’s most infamous NPE with around 70,000 IP assets – has developed its own ‘patent finder’ site to "help customers interested in buying or licensing assets from [its] portfolio".  Is this the first step to patent licensing transparency?  Or is it merely a reflex to the US’ impending ‘troll laws’?  Either way, it’s a small step in the right direction – although it is also notable that only ‘the majority’ of IV’s portfolio is collated – why not all?  Have certain ‘crown jewels’ or patents earmarked for litigation been withheld?

We can only hope, in the ultimate bid for transparency, that the remainder of the portfolio, as well as guideline licensing rates follow ...

  • This news has also been picked up by IPKat, its take on the news is available here.

Kate Shires

CC investigation: private motor insurance & MFNs

E-commerce businesses, motor-related or otherwise, should take a look at the discussion of MFN clauses in the Competition Commission’s Provisional Findings Report in its private motor insurance investigation (see paras 68 onwards).  This provisional report contains the first available reasoned finding by a competition authority in relation to MFNs in a real-life online context, assessing how they affect competition.  The report makes an interesting distinction between narrow MFNs (a promise by a motor insurer to a price comparison website not to undercut prices on its own website) and wide MFNs (where the MFN promise extends to cover third party websites also).  In general, the CC thinks that narrow MFNs do not restrict competition – except where the insurer has a strong brand and strong direct sales channel, whilst wide MFNs will soften price competition which can “lead to less entry, less innovation and higher commission fees, all leading to higher premiums.”  Businesses, especially online businesses, engaged in negotiations over clauses like this will be wise to keep an eye on this aspect of the Competition Commission’s investigation.

David George