Anticompetitive unilateral conduct

Abuse 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 CMA’s most recent investigations in the pharmaceutical sector have primarily focused on the last category. 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, and MSD for an allegedly exclusionary discount scheme (Remicade (2019)). The investigation against MSD was closed owing to the lack of grounds for action.

Other types of abusive conduct such as ‘pay-for-delay’; vexatious litigation; the dissemination of misleading information to regulatory authorities, healthcare professionals or the general public; product denigration or other strategies designed to foreclose competitors have been previously sanctioned at the EU-level or in other EU member states and could also be scrutinised closely in the UK.

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 only in two cases in the past (Cardiff Bus (Case СЕ/5281/04 (2008) and JJ Burgess & Sons Limited (Case 1044/2/1/04 [2005] 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 - see question 34) (ie, relying on the 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 recent unilateral conduct cases, 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 capsule 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 the 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 state 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 conducts that were already deemed abusive at the EU-level, however, may be scrutinised by the CMA. Such conducts include 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 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 NHS 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.

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 at the EU-level. The CJEU ruled in January 2018 that two companies agreeing to disseminate misleading information relating to adverse reactions resulting from the use of a pharmaceutical product with a view to reducing the competitive pressure may constitute a restriction of competition ‘by object’ (F Hoffman-LaRoche 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 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 agreements between two pharmaceuticals companies, who marketed similar medicine, to disseminate misleading information about the safety of off-label use of one of their products to prevent the off-label use of such product was 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 under 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)). The CAT has set out in Flynn and Pfizer v CMA (2018) (Cases 1275-1276/1/12/17 [2018] CAT 11) the steps involved in applying the test:

  • The benchmark price, or range, that reflects the price that would pertain under conditions of normal and sufficiently effective competition must be established on the basis of a range of possible analyses that reflect market conditions and the extent and quality of the available data. The criteria for selection and application of a benchmark must be objective appropriate and verifiable, and the analysis must be done on a consistent basis.
  • The price charged in practice must be compared with the benchmark price (or range) to determine whether it is excessive. A price can be excessive if the differential is significant and persistent. The factors that are taken into account include as follows:
    • the absolute size and stability of the differential;
    • the reasons for it, taking account that excessive pricing will only usually occur where the market is protected from competition (eg, owing to barriers to entry), or where there is regulatory failure and the relevant regulator has not intervened;
    • previous decisions finding other differentials excessive, weighted for the markets applicable in those cases; and
    • the wider market conditions, including the evolution of pricing over time.
  • If the differential is excessive, it is necessary to consider whether the price is unfair in itself or when compared to competing products, but due consideration must be given to any prima facie convincing argument that the pricing is actually fair under either alternative.
  • If there is a finding of unfairness, it is necessary to assess the economic value of the product and whether the price charged in practice bears no reasonable relation to it as well as whether the dominant business is reaping trading benefits that it would not reap under conditions of normal and sufficiently effective competition.
  • If all the conditions above are fulfilled, it is necessary to give appropriate consideration to any objective justification.

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 [2001] 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 PPRS (the scheme that was replaced by the Voluntary Scheme) were incapable of being excessive.