Anticompetitive unilateral conductAbuse of dominance
In what circumstances is conduct considered to be anticompetitive if carried out by a firm with monopoly or market power?
While holding monopoly or market power is not unlawful, a firm is generally prohibited from using its dominant position in an abusive way. Abusive conduct generally falls into one of the following categories:
- conduct that exploits customers or suppliers (eg, excessive pricing or discrimination between customers); or
- conduct that excludes or weakens actual or potential competitors (eg, tying, exclusive dealing, predatory pricing or refusal to supply).
Some conducts are categorised as ‘by nature’ abuses (eg, exclusive dealing), meaning that there is a presumption of unlawful conduct that can be rebutted by a dominant firm adducing evidence that the conduct is not capable of restricting competition. Outside the ‘by nature’ infringements (eg, tying, product design, pricing abuses and refusals to supply), a fully fledged effects analysis must be carried out.
Some examples of an abuse include the following:
- limiting production, market or technical development; applying dissimilar conditions to equivalent transactions;
- tying or bundling the supply of a product or service to the mandatory purchase of an unrelated product or service; and
- imposing unfair purchase or selling prices or other unfair trading conditions.
The Competition and Markets Authority’s (CMA) most recent investigations in the pharmaceutical sector have primarily focused on the last example above. For example, the CMA has separately investigated Pfizer and Flynn Pharma (Phenytoin sodium capsules (2016)), Actavis UK (Hydrocortisone tablets (ongoing)) and Concordia (Liothyronine tablets (ongoing)) for alleged excessive pricing, MSD for an allegedly exclusionary discount scheme (Remicade (2019)) and Essential Pharma (Priadel (2020)) for alleged unfair pricing. The investigation against MSD was closed owing to the lack of grounds for action.
Other types of abusive conduct that have been sanctioned in the EU could also be scrutinised in the UK, such as: ‘pay-for-delay’; vexatious litigation; the dissemination of misleading information to regulatory authorities, healthcare professionals or the general public; and product denigration or other strategies designed to foreclose competitors.De minimis thresholds
Is there any de minimis threshold for a conduct to be found abusive?
There is no de minimis threshold to establish abuse in public enforcement. Market coverage and duration of the abuse, however, are relevant when assessing the severity and likelihood of anticompetitive effects. The CMA may also take these factors into account when determining whether an investigation is an administrative priority.
Conduct of a small business (ie, with an annual turnover of up to £50 million) may be considered to have minor significance and, thus, benefit from immunity from financial penalties (but not liability). Immunity has been previously granted in only two cases in the past (Cardiff Bus (case СЕ/5281/04 (2008) and JJ Burgess & Sons Limited (case 1044/2/1/04  САТ25)).Market definition
Do antitrust authorities approach market definition in the context of unilateral conduct in the same way as in mergers? If not, what are the main differences and what justifies them?
Generally, the CMA tends to take a similar approach to the product and geographic market definition in the context of an investigation of mergers and unilateral conducts in the pharmaceutical sector. For example, the CMA’s predecessor expressly adopted in a merger case, Shire/Viropharma (case ME/6331/13 (2014)), the methodology used to define the product market in the antitrust case Gaviscon (Reckitt Benckiser/K-Y (2015)) (ie, relying on the anatomical therapeutic chemical (ATC) classification system of EphMRA and the World Health Organization and considering guidelines and literature used by prescribers, as well as internal documents and sales trends).
However, in some unilateral conduct cases in recent years, the CMA carried out qualitative and quantitative analyses for the purposes of product market definition, taking into account the ATC classification as part of the qualitative limb (Paroxetine – case СЕ/9531-11 (2016)), or started the product market definition from the product under investigation, rather than the ATC3 level. The Phenytoin sodium capsules case is an example of the latter approach. The CMA defined the markets as the manufacture and the distribution of Pfizer-manufactured phenytoin sodium capsules, and then considered whether other products (such as NRIM capsules or tablets and other anti-epileptic drugs) could be viewed as substitutes based on, for example, internal contemporaneous documents, responses from pharmacies dispensing the capsules to the CMA’s surveys, and average selling price and volume sales data.
The geographic market has been generally defined by the CMA as UK-wide in mergers and unilateral conduct cases. However, in Remicade, the CMA proceeded on the basis that the geographic market was England.Establishing dominance
When is a party likely to be considered dominant or jointly dominant? Can a patent owner be dominant simply on account of the patent that it owns?
A party is considered dominant when it holds economic strength that affords it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of consumers.
The CMA will only find that a party is in a dominant position if it has ‘substantial market power’. In its assessment, the CMA first defines the product and geographic market in which the alleged conduct took place and then analyses whether the firm has substantial market power on the relevant market, taking into account market shares, barriers to entry and expansion, and customers’ buyer power. According to the CMA’s guidance, market power can be thought of as the ability to profitably sustain prices above competitive levels or to profitably restrict output or quality below competitive levels.
There is a presumption stemming from EU precedents that a party is deemed dominant if its market share is persistently above 50 per cent, although high market shares are not determinative. The CMA’s guidance states that dominance is unlikely to be found where the market share is below 40 per cent.
Separate parties may also be found to collectively hold a dominant position where certain conditions are met. For example, two or more legally independent parties may be deemed to be collectively dominant if they are linked (eg, structurally) in such a way that they adopt a common policy on the market.IP rights
To what extent can an application for the grant or enforcement of a patent or any other IP right (SPC, etc) expose the patent owner to liability for an antitrust violation?
An application for the grant or enforcement of a patent or any other IP right generally does not amount to an abuse of dominance. Certain conduct that was already deemed abusive at the EU level, however, may be scrutinised by the CMA. Such conduct includes providing misleading information to regulators as part of applications for supplementary protection certificates (AstraZeneca v Commission, case C-457/10 P (2012)), enforcing a patent in the knowledge it lacks merit (the European Commission (the Commission) decision in Perindopril (Servier), case AT.39612 (2014)) or filing patents for new pharmaceutical treatments without scientific merit (the Commission decision in Boehringer, case AT.39246 (2012)), where the sole or primary purpose or aim of the conduct is to foreclose competitors.
When would life-cycle management strategies expose a patent owner to antitrust liability?
Life-cycle management practices such as improving the method of delivery or formulation, changing labelling or indications, replacing an original drug with a successor drug or withdrawing an original drug are typically legitimate business strategies used by originator companies and do not generally raise competition concerns, unless part of an anticompetitive foreclosure strategy. For example, life-cycle management could be used to foreclose generic competition since generic versions for first-generation product cannot be automatically substituted for the second-generation product.
In 2011, the CMA’s predecessor fined Reckitt Benckiser £10.2 million for withdrawing and delisting alginate and antacid heartburn medicine (Gaviscon Original Liquid (GL)) from the National Health Service prescription channel in 2005. GL lost patent protection in 1997, the same year that Reckitt launched GL’s second-generation version, Gaviscon Advance Liquid (GA). Reckitt withdrew GL in advance of the publication of a generic name relevant to GL, which would have facilitated full generic competition. After the publication, general practitioners (GPs) could have written the generic name on prescriptions (an ‘open script’), thus allowing pharmacies to dispense any pharmaceutical product satisfying the requirement of the generic name, irrespective of whether an originator or generic product. Owing to the withdrawal and the lack of generic alternatives as a result of GA’s patent protection, GPs had to refer to the brand name in prescriptions (a ‘closed script’), forcing pharmacies to dispense the branded product and not allowing them to substitute a generic equivalent.
In October 2020, the CMA opened an investigation on the suspicion that Essential Pharma may have abused its dominant position in breach of Chapter II of the CA98 and article 102 of the Treaty on the Functioning of the European Union by withdrawing the supply of Priadel, a lithium carbonate medicine that is being used to treat bipolar disorder. The price of Priadel – a branded pharmaceutical product that is subject to the voluntary scheme for branded medicines pricing and access (the Voluntary Scheme) in the UK – must be approved by the Department for Health and Social Care (DHSC). The CMA’s concern was that Essential Pharma’s strategy was to threaten the withdrawal of Priadel to secure an unjustified and unfair price increase for Priadel with the DHSC, or to force the switch of large numbers of patients from Priadel to Essential Pharma’s other, more expensive, lithium carbonate medicine called Camcolit. The DHSC’s attempt to secure continuation of supply of Priadel by engaging in price negotiations with Essential Pharma was unsuccessful until the CMA’s investigation. In December 2020, the CMA accepted the commitments offered by Essential Pharma to ensure that Priadel will continue to be supplied for five years on terms that Essential Pharma had agreed with the DHSC.Communications
Can communications or recommendations aimed at the public, HCPs or health authorities trigger antitrust liability?
Communications by a dominant company to the public and HCPs do not typically raise competition risks. Disparagement and other practices curbing demand for generics such as dissemination of misleading, false or incomplete information can, however, amount to an abuse, if, for example, they are part of systematic campaign aimed at casting doubts on the efficacy and safety of the generic versions to reduce the competitive pressure from the generic.
The CMA may treat the dissemination of misleading information in the same way as in the EU. The Court of Justice of the European Union (CJEU) ruled in January 2018 that the dissemination of allegedly misleading information, in a context of scientific uncertainty, relating to adverse reactions resulting from the off-label use of a pharmaceutical product may constitute a restriction of competition ‘by object’ (F Hoffman-La Roche and Others, case C-179/16 (2018)).Authorised generics
Can a patent owner market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection on the drug concerned, to gain a head start on the competition?
An originator launching its own authorised generics or allowing a third party to do so is a relatively common practice in the pharmaceutical sector. It is a commercial strategy intended to better control the loss of revenues from the sale of the originator medicine after the generic competition enters the market. Such a strategy may, however, raise competition risks if it constitutes a pay-for-delay arrangement with actual or potential competitors, involving a value transfer in return for a restriction on generic entry.Restrictions on off-label use
Can actions taken by a patent owner to limit off-label use trigger antitrust liability?
The CMA is likely to be influenced by the approach taken at the EU-level to actions to limit off-label use of medicines. The CJEU held in F Hoffman-La Roche and Others (2018) that the dissemination by two pharmaceutical companies of allegedly misleading information on the off-label use of medicine could, in a context of scientific uncertainty, be anticompetitive by object.Pricing
When does pricing conduct raise antitrust risks? Can high prices be abusive?
High or low prices (including discount or rebate schemes) may amount to an abuse of dominance in certain circumstances.
To determine whether a high price can be deemed excessive, the CMA applies a legal test that stems from United Brands v Commission (case C-27/76 (1978)) – namely whether:
- the difference between the costs actually incurred and the price actually charged is excessive; and
- a price has been imposed that is either unfair in itself or when compared to competing products.
The ‘in itself’ and ‘competing products’ tests are not strictly alternatives in the sense that if the CMA relies upon one of them, it may still have an obligation in law fairly to evaluate prima facie evidence in respect of the other one.
There is no single method or way in which an abusively high price might be established. The CMA enjoys a margin of manoeuvre in deciding which methodology to use and which evidence to rely upon. For example, in Phenytoin sodium capsules (CE/9742-13 (2016)), the CMA relied on a ‘cost plus’ approach (ie, costs actually incurred plus a reasonable rate of return) as a methodology for the first limb of the test. The rate of return on sales of 6 per cent was used based on the target rates under the Pharmaceutical Price Regulation Scheme. For the second limb of the test, the CMA looked at whether there were any additional, non-cost-related factors that should increase the economic value to determine whether the prices were unfair in themselves. The case has been remitted back to the CMA for reconsideration, after an appeal to the Competition Appeal Tribunal and then the Court of Appeal. The CMA decided to continue the investigation and is currently evaluating and assessing the evidence.
Excessive pricing has been the focus of many recent CMA investigations into the pharmaceutical sector. Low prices may amount to predatory pricing if the price charged is below costs so that equally efficient rivals cannot profitably price at the same level. Prices below average variable cost (AVC) or average avoidable cost (AAC) are presumptively abusive, while pricing below average total cost but above AVC or AAC is abusive if it is part of a strategy to foreclose a rival. The CMA (including its predecessor) has not investigated predatory pricing in the pharmaceutical industry since 2001 (Napp Pharmaceutical Holdings Ltd v Director General of Fair Trading, case 1001/1/1/01 or  CAT 1).
Lower prices through discounts and rebates may also raise competition concerns if they are subject to a customer obtaining all or most of its requirements from a dominant company or have a loyalty-inducing or fidelity-building effect. In 2019, the CMA closed an investigation into whether the discount scheme introduced by MSD for Remicade (used to treat chronic illnesses such as Crohn’s disease and rheumatoid arthritis) in England was likely to have an exclusionary effect. Although the CMA did not find grounds for action, its decision contains useful guidance on rebate schemes, set out below.
The CMA stated that pure quantity rebates (ie, discounts linked solely to the volume of the purchases) are not, in principle, liable to raise concerns whereas exclusivity rebates (ie, discounts linked to an obligation or promise to obtain all or most of the requirements exclusively) are per se abusive, irrespective of whether they are requested by the customer.
Non-exclusivity discounts that offer customers financial advantages may raise concerns. Such discounts are subject to a case-by-case assessment of all relevant circumstances such as the criteria and rules governing the grant of the discount; whether the discount is based on any economic service justifying it; and whether the discount tends to remove or restrict the buyers’ freedom to choose their sources of supply, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties, or to strengthen the dominant position by distorting competition. Some signs of likely competition concerns are the following:
- discounts apply to all volumes purchased once a volume threshold is met (‘retroactive rebate’), and not only to the volumes exceeding the threshold (‘incremental rebate’);
- volume threshold for the discount is individually set and, in particular, if the threshold is based on the customer’s (total or a large proportion of) estimated requirements or past purchasing volumes;
- discounts apply without distinction to every unit purchased by a customer, including both:
- volumes that the customer can purchase either from the dominant company or a rival (‘contestable share’); and
- volume that the customer is required or has a strong preference to purchase from the dominant company (‘assured base’);
- discounts cover the majority of customers on the market; and
- the price charged under a rebate scheme or discount scheme is below the dominant company’s costs of production so that there is a concern that an equally efficient competitor would be foreclosed.
Moreover, even if the discount is not directed at the ultimate purchaser, it may raise concerns where the financial incentive is likely to influence purchasing behaviour. Also, discounts negotiated on behalf of a number of different individual purchasers and calculated on the basis of their aggregate purchases may be found abusive.Sector-specific issues
To what extent can the specific features of the pharmaceutical sector provide an objective justification for conduct that would otherwise infringe antitrust rules?
The features of the sector can be invoked as an objective justification for anticompetitive conduct. However, the CMA is not likely to be easily convinced by such arguments. For example, the CMA’s predecessor rejected the argument in Napp Pharmaceutical Holdings Ltd that prices regulated by the Pharmaceutical Price Regulation Scheme (the scheme that was replaced by the Voluntary Scheme) were incapable of being excessive.
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26 May 2020