May Day! Competition policy: trade war by other means?

          
May 2016 was an important month for competition policy developments. We have reviewed the three key developments together, as they demonstrate the different policy drivers on the European Commission and national competition authorities: 

While the Commission’s policy anchors are the single market imperative and innovation, national competition authorities are more attuned to domestic political concerns. In the case of the French and German authorities, could their twin assault on big data be seen as a continuation of political protectionism by other means? 

25 May was a significant day for the Commission’s Digital Single Market Strategy (on which we commented on the Bristows ‘Cookie Jar’), with the publication of proposals for three new Regulations to:

  • tackle unjustified geo-blocking and other forms of discrimination on the grounds of nationality, residence or establishment;
  • improve cross-border parcel delivery services and increase the transparency of prices while reducing delivery costs; and
  • strengthen the enforcement of consumers' rights and provide guidance to clarify what qualifies as an unfair commercial practice in the digital world. This does not impose any new obligations on retailers, but rather is intended to improve the ability of consumers to enforce the EU Consumer Protection Regulation 2007 through national courts.
The proposed geo-blocking Regulation will ensure that:

  • Consumers visiting an online site from any EU Member State will no longer be prevented from ordering and taking advantage of retailers’ international delivery options where these are generally available; and
  • Consumers will be able to visit the country specific site of their choice.  In other words, a UK consumer can choose to visit, e.g. retailer.fr to take advantage of different purchasing options/prices on that site.  Retailers will not be able automatically to re-route customers (in this example back to the UK site) without the customer’s consent and even where consent is given, the domain must remain available.
However, notable by their absence are any proposals to tackle the geo-blocking of audio visual services. This is in stark contrast to the Commission’s original intention when the DSM strategy was launched in March 2015. This means that for the foreseeable future there will be no general right of EU citizens to access sports events broadcast under exclusive territorial licences in other Member States.

In tandem with these initiatives, Commissioner Vestager gave a speech on 24 May which set out the Commission’s view that competition supports innovation. Notably she said that to encourage innovation, there is a need for both competition and rewards for innovators. 

She went on to say that the Commission does not object to standards, provided they are set up in the right way. However, when standard essential patent holders try to go back on their promises to offer their technology to everyone on fair terms, that can be a serious problem for competition. 

French and German competition authorities also published a joint paper on data and competition law on 10 May. This considers the extent to which data confers market power, the types of data-related conduct that may give rise to abuse, and the interaction between competition and data protection/privacy rules. 

In particular, the paper looks at: (1) whether the collection, processing and use of data may lead to market power; (2) the types of data-related conduct that are potentially anti-competitive; and (3) whether personal data protection rules take precedence over competition law rules.

Lurking in the background is the German competition authority’s investigation into Facebook’s data protection policies and the French competition authority’s sector inquiry into the use of big data in the online advertising market.

Of recent years, there has been some uncertainty over whether the issue of ‘big data’ was really a competition issue.  It seems that at least the French and German authorities would disagree.

Qualcomm in the firing line again

Qualcomm, the largest manufacturer of baseband chipsets for mobile phones, has recently found itself under attack again for its business practices. 

In September last year, the UK chipset maker Icera and its US-based parent company Nvidia launched proceedings against Qualcomm in the UK.  Court filings that were made public last month make clear that the claimants are seeking compensation for losses suffered as a result of Qualcomm’s alleged “unlawful abuse of dominance”. 

Nvidia spent $352 million to acquire Icera in 2011 – but was forced to wind down its mobile broadband chipset business, including its Icera unit, just four years later.  Nvidia claims that Qualcomm’s aggressive pricing strategies – selling chipsets below the costs of development and production – drove Icera out of the market and caused Nvidia’s applications-processor business to incur substantial losses.

Nvidia is arguing that Qualcomm has a dominant position in essential patents for 3G and 4G wireless standards, and that this position has enhanced its strength downstream in the sale of chipsets to mobile device manufacturers.  It further argues that Qualcomm’s dominance in the market for slim modem chipsets is “reinforced by barriers to entry and expansion”. 

According to the claim filed by Nvidia and Icera, Qualcomm’s aggressive and anticompetitive behaviour led to “unexplained delays in customer orders, reductions in demand volumes and contracts never being entered into, even after a customer […] had agreed or expressed a strong intention to purchase” Nvidia’s chipsets.  Nvidia says that it was forced to reduce prices to retain customers, which had an adverse impact on revenues and impaired its technical ability to innovate. 

The recent developments in the UK-based action come on the back of the two Statements of Objections that the European Commission sent to Qualcomm in December 2015.  In the first of these, the Commission set out its preliminary findings that Qualcomm made illegal payments to a manufacturer-customer in exchange for that manufacturer exclusively using Qualcomm chipsets in its smartphones and tablets. 

In the second Statement of Objections, the Commission took the preliminary view that Qualcomm deliberately sold chipsets below cost with the aim of hindering competition, forcing Icera out of the market in particular.

EU Commissioner for Competition Margrethe Vestager said in December last year: “Many consumers enjoy high-speed internet on smartphones and other devices – baseband chipsets are key components that make this happen. I am concerned that Qualcomm’s actions may have pushed out competitors or prevented them from competing. We need to make sure that European consumers continue to benefit from competition and innovation in an area which is at the heart of today’s economy.”  

We understand that Qualcomm is due to respond to the Commission’s allegations shortly.

As we have pointed out previously, Qualcomm is no stranger to allegations of anticompetitive conduct.  It can confidently be said that many in the mobile telecoms industry will be keeping a close eye on the High Court proceedings and Commission investigations, not least Nvidia and Icera.

The Commission has seen the future and it is standardised!

For those of you who are interested in standardisation, a post about action by the Commission generally, rather than just DG Comp.
A couple of weeks ago the Commission has published a Communication to a whole host of other EU institutions (including the Parliament and the Council as well as the ECSC and the Committee of the Regions), setting out its Information Communication Technology (ICT) standardisation priorities. This forms part of the broader Digital Single Market (‘DSM’) strategy. If you are interested, have a look at our sister site, Cookie Jar for a broad perspective on all things DSM.

The objective is to ensure that ICT standards in Europe and globally facilitate the interoperability of digital technologies, which the Communication regards as essential for an effective DSM. To help achieve this the Commission intends to focus on improving standards in five strategic areas: 5G, cloud computing, internet of things, data technologies, and cybersecurity.

A key focus for the Commission is the role of ICT standards for 5G networks to ensure interoperability, security, privacy and data protection, and it intends to develop a 5G Action Plan for EU-wide development of 5G networks beyond 2020. The paper also highlights the role of ICT standards for sharing data across national borders (e.g. in relation to spare parts between vehicle manufacturers and scientific research).

The Communication argues that the proliferation of standards has created uncertainty about: what patents are standard essential patents (‘SEPs’); who owns which standard essential patent (SEP); the cost of licensing intellectual property rights; and the methodology for valuing SEP licences. 

So what happens now? 

The Commission intends to: 
  • Take steps to improve the efficiency of the standard-setting process by working with the wider standard-setting community. 
  • Regularly review and monitor progress for updating ICT standards.
  • Improve EU financial support for standard setting.
  • Ensure fair and non-discriminatory access to standards based on a balanced IPR policy with FRAND licensing terms, which take into account a variety of competing needs: 
    • fair return on R&D investment; 
    • a sustainable standardisation process; 
    • a competitive technology market; and potential barriers to entry for SMEs; and 
    • a fast, predictable, efficient and globally acceptable approach to technology licencing, which ensures a fair return on investment for SEP holders and fair access to SEPs for innovators. 
  • Strengthen the EU presence in international cooperation on ICT standards, in particular with the US, China, Japan and South Korea. 
It will probably come as no surprise to regular readers of this blog that the comments about FRAND caused us to pay particular attention as FRAND developments are key theme of this blog: see our previous posts here, here, here and here.

How about open source? 

It is interesting that the Communication makes no reference to open source, royalty free licencing of SEPs. This is in marked contrast to the Commission’s 2004 European Interoperability Framework for pan-European e-government services, which at the time considered that open source technology standards required intellectual property included in standards to be made available on a royalty-free basis.

More on mythical creatures – FRAND and hold up revisited

Those of you who are interested in FRAND and standardisation issues will, I hope, have read with interest the twin blogs that Sophie and I put up a couple of months ago reporting on a couple of conferences about standard setting, one in Liege and one in London. The organisers of the Liege conference, the Liege Competition and Innovation Institute, have now produced a more detailed summary of the proceedings at their conference. We thought we’d draw it to your attention, and you can find it here.

Keeping a weather eye on competition and innovation

Last week we updated our CLIP of the month to an article on the theme of innovation, as considered through the lens of competition law.  Pablo Ibanez Colomo’s article focuses on the identification of harm to innovation in competition cases (across the behavioural / merger spectrum).  He distinguishes between cases where such analysis has been just one factor among many (referred to as cases where innovation considerations have had an “indirect” role), and cases where "direct" harm to innovation is central.  

This academic contribution is timely, as innovation is now a topic at the forefront of debate in competition circles.  Last month, Commissioner Vestager gave a speech addressing this topic head-on, in particular in relation to digital markets - the trend of favouring disruptive innovation over repeat innovation by an ‘incumbent’ remains evident.  

DG Comp also focuses on innovation in its recently published Competition Merger Brief.  The brief notes how innovation concerns have been key in mergers relating to industries as diverse as gas turbines (GE/Alstom) and biosimilar medicines (Pfizer/Hospira).  The discussion of the Pfizer/Hospira merger decision (see p.12 of the Merger Brief) is likely to be of particular interest to readers of this blog, as it is the first case in which the Commission has engaged in detail with the markets for biological and biosimilar drugs, concluding that they belong in the same market, but observing considerable differences compared to the dynamic between originator and generic versions of small molecule medicines.  (And for those with a deeper interest in this area, Bristows’ own 2015 Biotech Review  carried an article (by two of the regular writers on this blog) looking at how innovation, in the form of competition between pipeline products, played a significant role in a couple of earlier mergers - see p.17.)

The current concern with innovation does not extend only to product innovation, but also encompasses changing business models - another subject which is a particularly hot topic at present - with the CMA’s Alex Chisholm having recently noted the fragility of such innovation, and the challenge of ensuring “an economic and regulatory environment in which new business models and consumer-friendly innovations can emerge and thrive”.  It was this concern that late last year led the CMA to reject proposals from Transport for London that would have curtailed the advances made by Uber on London’s taxi scene. 

We at the CLIP Board will continue to keep a weather eye on discussions of innovation and competition law - just click on the “innovation” tag on our home page to see more.

Recent pay-TV developments: the dawning of a new era?

As part of the European Commission’s ongoing pay-TV investigation, it was announced last week that Paramount Pictures have offered commitments in order to address competition concerns. As we have previously discussed, the Commission’s July 2015 Statement of Objections considered that six Hollywood studios (of which Paramount is one) and Sky UK had bilaterally agreed contractual restrictions that prevent Sky from allowing EU consumers located elsewhere to access, via satellite or online, pay-TV services available in the UK and Ireland.

The Commission’s preliminary view was that these clauses restrict Sky’s ability to accept unsolicited requests for its pay-TV services from consumers located in other Member States ("passive sales") where the company is not actively promoting or advertising its services. As a result, these clauses grant BSkyB ‘absolute territorial exclusivity’, eliminating cross-border competition between pay-TV broadcasters and partitioning the internal market along national borders.

Margrethe Vestager said: "European consumers want to watch the pay-TV channels of their choice regardless of where they live or travel in the EU"

Paramount’s proposed commitments, to apply throughout the EEA, include the following:

  • When licensing its films for pay-TV to an EEA broadcaster in the EEA, Paramount would not prevent or limit a pay-TV broadcaster from responding to unsolicited requests from consumers within the EEA but outside of the pay-TV broadcaster’s licensed territory (No "Broadcaster Obligation").
  • When licensing its films for pay-TV to an EEA broadcaster, Paramount would not prohibit or limit pay-TV broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (No "Paramount Obligation").
  • Paramount would not bring an action for the violation of a Broadcaster Obligation in an existing agreement licensing its films for pay-TV.
  • Paramount would not act upon or enforce a Paramount Obligation in an existing agreement licensing its films for pay-TV.
If accepted by the Commission, these commitments will apply for five years and cover both online and satellite broadcast services. Paramount is the first studio to have offered commitments in an attempt to settle the Commission’s investigation; the other parties are still disputing the allegations.

Separately, it was reported recently that Sky has signed its first pan-European movie deal with Sony Pictures. While the immediate driver for the deal appears to be Sky’s acquisition of Sky Deutschland and Sky Italia from 20th Century Fox and the resulting increase in its European subscriber base, it is also likely to allow Sony to address the seemingly imminent shift in the way the EU views content licensing agreements. 
 
The background to the Commission’s investigation into the Hollywood studios is that in 2011 the CJEU held, in a case concerning the exclusive licensing of broadcasting rights for Premier League football matches on a territorial basis, that any agreement designed to stop cross-border provision of broadcasting services is deemed to be anti-competitive and prohibited by EU competition law.

What is the likely consequence for licensors?

The Commission’s investigation seems certain to have far-reaching consequences for the business model of content licensors across the EU, as splitting rights into multiple national territories as opposed to selling a single, pan-European license is a key part of many business models.

The CMA still has pharma and medical devices in its sights

The CMA has been slowly but surely opening a raft of new investigations in the pharma and medical devices industries.  

It announced last week that it is investigating suspected anti-competitive conduct in the medical equipment sector under Chapter II CA 98 and Article 102 TFEU.  An initial 6-month timetable is set down, with the CMA hoping to be in a position to decide whether to take the investigation into the Statement of Objections phase by around October.

Last week also saw the CMA announce that it is investigating anti-competitive arrangements in the pharmaceutical sector under Chapter I CA and Article 102. This will follow the same timetable. 

Just a few weeks earlier, the CMA announced another separate investigation into suspected abuses of a dominant position in the pharma sector.

The CMA recently closed a possible market investigation into possible anti-competitive causes of medicines shortages and it is possible that at least some of these investigations will be shelved before more public information is made available.  However, at least two other longer-standing pharma-industry-focused investigations remain on foot, including:

  • The investigation into possible excessive prices charged by Pfizer for phenytoin sodium, which we have been following here on The CLIP Board: a formal Statement of Objections has been sent in this case, and an oral hearing held; last week Pfizer was fined £10,000 for a procedural infringement in connection with a failure to provide information, a salutary reminder for those involved in CMA investigations in any industry, as the CMA itself points out (“The imposition of an administrative penalty [on Pfizer] […] is critical to achieve deterrence, ie to impress both on the party under investigation, and more widely, the seriousness of a failure to comply with a statutory deadline, without a reasonable excuse.”…).  A decision is due in around August 2016.
  • An investigation into possible abusive discounts which is coming towards the end of its initial phase, and should be the subject of a decision to close or proceed next month.
One case which was not shelved was the Paroxetine patent settlements case (see our earlier post here).  Following the CMA’s imposition in February of £45 million of fines, it has been confirmed that GSK and all of the generics have appealed to the CAT.  The full text of the infringement decision has still not been published by the CMA, but the notices of appeal against the CMA’s decision have appeared on the website of the Competition Appeal Tribunal.  

GSK’s appeal encompasses eight separate grounds, six of which are on issues of substantive law (with two subsidiary grounds on the fining decision).  It is evident from GSK’s appeal that the CMA has followed the Commission in proceeding on the basis of both object and effect analyses in their Article 101/Chapter I infringement decisions, as well as in claiming an abuse of dominance arising from the set of facts.  GSK is unsurprisingly appealing the finding of dominance, which arose from the identification of a relevant market limited to a single molecule.
The CMA is clearly keeping a close eye on the pharmaceutical and medical industries – and we will continue to keep a close eye on the CMA’s activities in this area.

UPDATE: International spring cleaning time to review those IPR Guidelines

For those of you who read my blog post from earlier this month on the recent flurry of international IPR guidelines announcements (see here), we thought some of you might be interested in a more in depth look at the Canadian IPR Enforcement Guidelines written by Canadian law firm McCarthy Tétrault (for a link to their interesting article see here).  

The article summarises the most notable new guidance in the Canadian guidelines – namely in relation to pharma patent litigation settlements, product switching, standard setting and SEPs and patent assertion entities.  It also contains links to previous articles discussing the evolution of the guidelines.  There are many parallels to ongoing IPR policy developments in Europe but a few differences also stand out (e.g. express discussion of the potential for criminal liability for pharma patent litigation settlements (not something that has reared its head in Europe… (yet?)) and a helpful distinction between so called ‘hard’ and ‘soft’ product switching).

The NHS opens up to increased competition

From today the NHS is likely to significantly increase the number of contracts it advertises for external competition, as it will now be required to comply with the general EU procurement regime rather than relying on a temporary exemption for healthcare services. 

For the first time, the NHS will be under a statutory obligation to advertise their healthcare services contracts. 

This is a significant change to the UK healthcare landscape, and as many readers of The CLIP Board provide services to the NHS, we thought this a development worth bringing to your attention. 
 
What happens after 18 April 2016?

The NHS’s procurement of healthcare services has, until today, been regulated by the Procurement, Patient Choice and Competition Regulations (No. 2) 2013. 

From 18 April 2016, contracts for healthcare services above €750,000 (£589,148) must be awarded in line with the Public Contracts Regulations 2015 using the “light touch regime” for social services. 

This “light touch regime” requires:
publication of a contract notice in the OJEU; and
an award procedure which complies with the EU principles of non-discrimination and equal treatment.

What does this mean?

From today we anticipate that more NHS contracts will be put out to tender than before and NHS commissioners should reflect carefully on the legal risks of not competitively procuring health services. This change presents increased opportunities for private players and healthcare charities to win business with the NHS and public health services. 

However, this change is likely be accompanied by increasing political controversy, given the contentious debate around the healthcare procurement aspects of the Transatlantic Trade and Investment Partnership.

The government has published a guidance note on the new procurement regime and we are very happy to discuss these changes in greater detail with clients. 

A relatively rare beast: CMA clearance of a pharmaceutical sector merger

The Competition and Markets Authority (CMA) has announced that it has decided not to refer the acquisition by LEO Pharma of certain dermatological products belonging to Astellas Pharma for an in-depth Phase 2 merger inquiry. The CMA concluded that the merger was unlikely to result in a substantial lessening of competition, on the basis that the companies’ products were not sufficiently close substitutes.  

There have been few recent national merger decisions in the UK in relation to the pharmaceutical sector, as many such transactions are caught by the significantly higher EU merger thresholds. Interestingly, in the other recent case, McKesson/UDG Healthcare, the EU referred the UK aspects of the proposed transaction back to the CMA to review.   

Who did the case involve?

LEO Pharma is a Danish pharma company that develops and sells dermatological products. Astellas Pharma is a Japanese pharmaceutical company that develops cancer, immunology, and dermatology products. Both companies are active on the UK market.

Why was the CMA concerned? 

The CMA took the view that a ‘relevant merger’ situation had arisen as the ‘share of supply’ test was satisfied, due to the parties' combined shares of supply of non-steroidal products for inflammatory skin disorders. As is commonly done in merger cases at EU level, it took level 3 of the of the Anatomical Therapeutic Chemical classification as its starting point for this consideration (category D5X).

What did the CMA find? 

The CMA found that, in relation to dermatological products, Leo and Astellas’s products are not the closest alternatives to each other. In relation to the supply of products in the D5X category, the parties' products are not close substitutes as they are used to treat different skin conditions. It also found that the market would remain competitive post-merger, as there will remain several competitors to constrain the merged entity. 

In relation to hydrocortisone products, the CMA found that the increment in the combined share of supply post-merger would be very small (less than 5%). The CMA also found that the parties' products are not close substitutes and that there will again remain several competitors post-merger to constrain the merged entity. 

In relation to topical psoriasis products, again the increment in the combined share of supply post-merger is very small (less than 5%), indicating that the competitive impact of the merger will very limited; and as regards the supply of topical eczema products, the parties' respective products do not compete closely and there will remain several competitors post-merger.

What does this case tell us?

This case demonstrates the importance of contesting Phase I merger reviews as there is often a reasonable prospect of a clearance decision without a referral to Phase II.