Abuse of dominance

Definition of abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

Holding or acquiring a dominant position is not unlawful under UK competition law. A dominant company only infringes the Chapter II Prohibition if it ‘abuses’ its dominance to restrict competition. For an abuse to occur, the relevant conduct needs to have been ‘implemented’; it must not have been a mere ‘preparatory act’.

In late 2019, in Royal Mail v Ofcom, the Competition Appeal Tribunal (CAT) upheld Ofcom’s finding that the public announcement of an anti-competitive pricing policy was deemed to have been ‘implemented’, even though the contemplated prices were never charged (instead, they were suspended and then abandoned following Ofcom’s decision to open an investigation).

In late 2020, the Competition and Markets Authority (CMA) treated as abusive the threat of withdrawal of a drug (Priadel) by the defendant, Essential Pharma, from the Department of Health. In its commitments decision, the CMA found that Essential Pharma could threaten to withdraw the drug in the future, which gave rise to concerns, even though Essential Pharma and the Department of Health had reached an agreement for the drug’s continued supply. 

‘Abuses’ fall into two main categories – conduct that ‘exploits’ customers directly (eg, charging excessive prices) and conduct that ‘excludes’ competitors from the market.

Certain types of conduct are categorised as ‘by nature’ infringements. Unless they are objectively justified, these forms of conduct are treated as infringing the Chapter II Prohibition without needing to show any anticompetitive effect, although an analysis of the relevant circumstances may be required, including rivals’ efficiency.

Following the Court of Justice ruling in Intel, the category of ‘by nature’ abuses is narrow. The CMA guidance confirms that the ‘likely effect’ of a dominant undertaking’s conduct is generally more important than its ‘specific form’ (‘Abuse of a dominant position’ (OFT402), paragraph 5.2).

For other types of conduct, case law establishes a need to show that anticompetitive effects are reasonably likely, and the High Court has held that where conduct has been ongoing for some time, the actual effects on the market are ‘a very relevant consideration’ (Streetmap v Google). Moreover, the assessment of whether conduct is abusive should be looked at ‘in the round’, rather than seeking to identify on a narrow basis whether conduct is different from ‘normal competition’ (National Grid, Court of Appeal judgment, paragraphs 40 to 41).

Exploitative and exclusionary practices

Does the concept of abuse cover both exploitative and exclusionary practices?

Yes.

Link between dominance and abuse

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

As a general matter, the Chapter II Prohibition requires some link between an undertaking’s dominant position and its abusive behaviour.

In Flybe, the Office of Fair Trading (OFT) considered, but ultimately rejected, a theory of harm whereby Flybe was alleged to have entered a new route – on which it was not dominant – to strengthen its position on a separate market where it was dominant. Applying the case law from (among other things) the EU judgment in Tetra Pak II, the OFT stated that conduct on a non-dominated market could be abusive, provided that the conduct:

  • took place on ‘closely associated markets’ and is likely to protect or strengthen the position on the dominated market; or
  • produces effects on the non-dominated market, provided special circumstances exist, in particular ‘the existence of sufficiently proximate associative links between the markets in question’.

 

The OFT noted, however, that the case law on how closely linked the markets must be is not well developed. In the earlier case of Burgess & Sons v OFT, the CAT set out the principle that ‘a dominant firm may be found to have committed an abuse in a neighbouring market in which it is not dominant if there are close links between the two associated markets.’

Defences

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

It is a defence for a dominant undertaking to show that its conduct was ‘objectively justified’, even if it restricted competition (OFT402, paragraph 5.3). This applies both to ‘by nature’ abuses and other types of conduct. The dominant undertaking bears the burden of showing an objective justification.

Objective justifications are assessed in line with EU law. In Streetmap v Google, the High Court observed that ‘it is open to the dominant undertaking to show that any exclusionary effect on the market is counter-balanced or outweighed by advantages that also benefit consumers’. These advantages or efficiencies may comprise ‘technical improvements in the quality of the goods’, not just ‘economic considerations in terms of price or cost’.

The undertaking must also show that the conduct is ‘proportionate’ to achieving its objective. In other words, the conduct must be ‘indispensable and proportionate’ to the goal pursued, such that there are ‘no less anti-competitive alternatives to the conduct that are capable of producing the same efficiencies’ (Streetmap v Google). On the facts, the High Court found that Google’s display of its own map in its search results, without including rival maps, improved quality and was objectively justified.

Specific forms of abuse

Types of conduct

Rebate schemes

Rebates are generally categorised into three groups:

  • Quantity discounts linked solely to the volume of purchases from the manufacturer are treated as presumptively lawful.
  • ‘Exclusivity’ rebates have been treated as ‘by nature’ anticompetitive in several EU cases. Following the Intel case, though, dominant firms can submit evidence that the rebate was not capable of restricting competition. The Court clarified that the purpose of article 102 of the Treaty on the Functioning of the European Union (TFEU) is not to protect less efficient competitors. The Commission is therefore required to consider the extent of the firm’s dominance, the market coverage of the rebate, the conditions governing it, and the existence or otherwise of a strategy to exclude equally efficient competitors.
  • ‘Fidelity-building’ rebates require an assessment of all the circumstances to analyse whether they make market entry very difficult or impossible and impede purchasers’ ability to choose their sources of supply (eg, whether the rebates are retroactive or incremental; whether they are individualised or standardised; and the length of the reference period), taking into account the market context (Post Danmark II).

 

In July 2015, the Competition and Markets Authority (CMA) closed a case concerning rebates in the fidelity-building category in the pharmaceutical sector, sending a warning letter to the company concerned (Case CE/9855-14). The CMA made the following observations that offer general guidance.

  • Retroactive rebates may exclude rivals from competing for ‘contestable’ orders if the discount is also applied to the ‘non-contestable’ share of orders that the customer wants or needs to place with the dominant firm.
  • A retroactive rebate may result in a competitor having to offer a price below the dominant company’s costs of production to compete for the contestable share, thereby excluding an ‘equally efficient competitor’.
  • Exclusionary concerns are exacerbated if the customer is able to ‘reduce its overall expenditure on the dominant company’s products by increasing the volume of contestable sales it purchases from the dominant company’ (ie, where the dominant undertaking charges ‘negative incremental prices’). This is the ‘suction effect’ of fidelity-building rebates.

 

In March 2019, the CMA closed its long-running investigation into discounts that Merck Sharp & Dohme Limited offered on its Remicade medicine. This case was novel since it considered the possibility of certain discounts to restrict competition, even though the discounts in question were not conditioned on exclusivity and were not applied retroactively. The CMA was concerned that the discount system entailed a ‘threat’ to raise prices in the future if hospital trusts within a region failed to meet certain purchase volumes. On the facts of the case, the CMA found that the discounts at issue were not likely to foreclose generic rivals.

Tying and bundling

Tying occurs when a supplier sells one product, the ‘tying product’, only together with another product, the ‘tied product’.

Section 18(2)(d) of the Competition Act 1998 states that an abuse of dominance may comprise ‘making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts’.

The elements of anticompetitive tying are as follows:

  • the tying and tied goods are separate products;
  • the undertaking is dominant in the tying product market;
  • customers have no choice but to obtain the tied and tying products together;
  • the tying conduct forecloses competition; and
  • there is no objective justification for the tie.

 

In Genzyme, the Office of Fair Trading (OFT) alleged that the company had abused its dominance by offering its drug for treating Gaucher’s disease together with its homecare services under a single price. The Competition Appeal Tribunal (CAT) agreed that the drug and homecare services were distinct products that Genzyme was offering as a package for a single price. In principle, therefore, the drug and homecare products were tied together.

However, the CAT held that there was no abuse as the OFT failed to show that the conduct would ‘eliminate or substantially weaken competition’. There was no evidence that the NHS had wanted to obtain homecare services from a third party – it had not asked Genzyme to lower its drug prices to exclude the cost of homecare – and it was unclear that there was a way for Genzyme to unbundle the two products, given that no NHS body had proposed a separate contract to supply homecare services.

Exclusive dealing

Following the Court of Justice ruling in Intel, an assessment of the circumstances and effects of an exclusivity arrangement is needed for it to be qualified as an abuse.

The UK competition authorities have challenged exclusivity agreements in a series of cases.

In 2014, the High Court held that Luton Airport’s decision to grant National Express the exclusive right to operate a bus service from the airport to various London locations for seven years – combined with a right of first refusal on new routes – was anticompetitive (Arriva v Luton Airport).

In National Grid, the Court of Appeal upheld a finding that contracts for the provision of meter readers that lasted many years – coupled with charges for early termination and a requirement to maintain a given proportion of National Grid’s meters at the end of each year – were exclusionary.

In EWS Coal Haulage Contracts, the Office of Rail Regulation (ORR) found that EWS had entered into long-term agreements with the owners of power stations, in certain instances to supply all or almost all of their coal rail haulage. These agreements had a long duration – in one instance with a term of 10 years.

The CMA has also resolved cases concerning exclusivity through commitments. In Epyx, the duration of the agreements was reduced from three to seven years to 18 months, and customers were allowed to place test orders with rival services. In Western Isle Road Fuels, five-year exclusivity agreements were made terminable on three months’ notice. In Calor Gas, the OFT closed its investigation into exclusivity arrangements with LPG retailers, following a negotiated settlement whereby Calor Gas agreed to shorten its agreements from five years to two.

In the Bunker Fuel case, the CMA examined exclusivity arrangements in relation to the supply of cards entitling HGV drivers to purchase fuel at wholesale prices. Ultimately, it closed the case on the basis that the product market was sufficiently wide that no party held a dominant position.

Predatory pricing

Predatory pricing arises when a dominant company charges prices below its cost so that even equally efficient competitors cannot viably remain on the market.

A two-stage test applies to classify predatory pricing as abusive: pricing below average variable cost (AVC) or average avoidable cost (AAC) is presumptively abusive; and pricing below average total cost but above AVC or AAC is abusive if it is part of a plan to eliminate a competitor.

This approach has been followed in several UK cases, including findings of infringement in Cardiff Bus, involving the launch of a loss-making bus service (OFT decision, paragraphs 7.13 and 7.154 to 7.163); Aberdeen Journals, involving the sale of newspaper advertising space below the variable cost of producing the newspaper (CAT judgment, paragraphs 351 to 358); and Napp Pharmaceuticals, where Napp supplied morphine tablets to hospitals below cost in order to protect its position in the ‘community segment’ where clinicians generally prescribed the same drugs as those selected by hospitals (CAT judgment, paragraphs 207 to 216).

An important question is the timescale and output over which prices and costs are compared. In Flybe, the OFT found no grounds for action, even though Flybe’s entry on a new flight route would be loss-making in the first year. A relevant consideration was that Flybe’s internal documents indicated that it expected revenue to catch up with AAC in the second year and exceed AAC in the fourth year. Moreover, it was common in the airline industry that new routes would suffer losses initially. Losses in the first year alone were therefore not ‘conclusive evidence of sacrifice’ (OFT decision, paragraph 6.44).

The CMA or sectoral regulators with concurrent antitrust powers, might – depending on the facts of the case – consider alternative cost benchmarks when assessing pricing abuses. For example, in an investigation into certain pricing practices by British Telecom, the UK telecoms regulator, Ofcom, applied a cost measure that it described as: ‘CCA FAC [current cost account fully allocated costs] or long run incremental cost plus a mark-up for the recovery of common costs (LRIC+)’. Ofcom explained that it had ‘taken as its benchmark for setting the margin, a new entrant today which has the same underlying cost function to BT (ie, similarly efficient) but enters later and benefits from fewer economies of scale and scope’ (Direction Setting the Margin between IPStream and ATM interconnection Prices, Ofcom notice, paragraph 2.32).

In line with EU case law (in particular, Tetra Pak II), it is not necessary to prove that the dominant undertaking had the possibility to recoup its losses to find that pricing is predatory (OFT, Cardiff Bus, paragraph 7.251).

Price or margin squeezes

A margin squeeze occurs when a vertically integrated company sells its own downstream product at a low price while supplying an input to downstream competitors at a price that prevents them from competing effectively. A margin squeeze abuse requires the following elements to be present (Albion Water, Court of Appeal judgment, paragraphs 88 to 90):

  • the existence of two markets (an upstream market and a downstream market);
  • a vertically integrated undertaking that is dominant on the upstream market and active (whether or not also dominant) on the downstream market;
  • the need for access to an input from the upstream market to operate in the downstream market; and
  • the setting of upstream and downstream prices by the dominant undertaking that leave an insufficient margin for an (equally) efficient competitor to operate profitably in the downstream market.

 

In Albion Water, the CAT found that Dŵr Cymru’s own downstream business could not trade profitably on the basis of the upstream water transportation prices that it charged Albion Water (CAT judgment, paragraphs 871, 898 to 901).

Refusals to deal and denied access to essential facilities

Dominant companies are generally free to decide whether to deal with a counterparty. In exceptional circumstances, a refusal by a dominant company to supply its products or grant access to its facilities can amount to an abuse. For a refusal to supply to be unlawful, the following conditions must be met:

  • supply is refused (the refusal can be express or constructive (ie, the dominant company insists on unreasonable conditions for granting access to the facility));
  • the requested input must be indispensable (ie, it is an essential facility – the input is not ‘indispensable’ if there are ‘less advantageous’ alternatives);
  • the refusal to supply is likely to eliminate competition in the downstream market; and
  • the refusal to supply is not objectively justified.

 

If the refusal involves intellectual property, it must also be shown that the refusal to license would prevent the emergence of a new product.

In 2009, the ORR found that a refusal by the Association of Train Operating Companies (ATOC) to license a third party to access ATOC’s database of real train time information (RTTI) was not abusive. The ORR found no evidence that a refusal to supply RTTIs to the complainant would prevent a new product from emerging, nor would it ‘eliminate’ all competition on the downstream market for RTTI applications. ATOC had already licensed non-exclusive access for two third parties that were producing downstream applications that had the same functionalities as those previously supplied by the complainant.

In Burgess & Sons, the OFT determined that a funeral director and owner of a crematorium (Austin & Sons) had not abused its dominant position by refusing to supply access to the crematorium to Burgess & Sons, a rival funeral director, who had previously been a regular user. On appeal, the CAT set aside the CMA’s decision and decided on its own assessment that Austin & Sons had in fact held a dominant position, which it abused by withdrawing access to the crematorium from Burgess & Sons. The CAT placed particular weight on the fact that no funeral directors in the local area could compete effectively without access to the crematorium operated by Austin & Sons. The refusal to supply would also have produced ‘significant consumer detriment’ since only two funeral directors would have remained following the exit of Burgess & Sons.

The High Court and Court of Appeal have considered the issue of refusals to license standard-essential patents (SEPs).

Predatory product design or a failure to disclose new technology

Predatory product design is not a well-established category of abuse in UK competition law, and the circumstances in which product design could be treated as anticompetitive are likely to be narrow.

In Streetmap v Google, the High Court considered allegations that Google had abused its dominant position in general search services by including a clickable Google Maps image on its search engine results page. The High Court held that since this product design was a pro-competitive improvement in general search services (where Google was alleged to be dominant), any restrictive effect on competition in the related online maps market (where Google was not dominant) would need to be ‘appreciable’ for there to be a possible abuse.

Roth J explained that:

 

[I]t is axiomatic . . . that competition by a dominant company is to be encouraged. Where – as here – its conduct is pro-competitive on the market where it is dominant, it would to my mind be perverse to find that it contravenes competition law because it may have a non-appreciable effect on a related market where competition is not otherwise weakened. Accordingly, I consider that in the circumstances of the present case a de minimis threshold applies. For Google’s conduct at issue to constitute an abuse, it must be reasonably likely to have a serious or appreciable effect in the market for on-line maps.

 

With regard to failure to disclose new technology, the European Commission investigated an alleged ‘patent ambush’ by Rambus in which the company was accused of concealing the existence of its patents that were relevant to a standard for dynamic random access memory chips, and then charging high royalty rates for those patents. The case was ultimately settled through commitments in 2009. No such ‘patent ambush’ cases have been brought in the UK.

However, related to the issue of failing to disclose a new technology, the courts and competition authorities have considered failure to license essential technologies. In the patent infringement dispute Unwired Planet v Huawei, the High Court examined – but ultimately rejected – a claim that Unwired Planet committed an abuse of dominance by failing to offer a licence to SEPs on fair, reasonable and non-discriminatory (FRAND) terms before seeking an injunction against Huawei.

This follows a series of recent EU cases concerning abusive conduct by parties seeking injunctions in respect of SEPs without offering licences on FRAND terms to willing licensees (Huawei v ZTE; Motorola and Samsung). The High Court, Court of Appeal and Supreme Court in Unwired Planet v Huawei found that the procedure prescribed in Huawei v ZTE for negotiating SEP licence fees merely created a ‘safe harbour’, not mandatory conditions that a SEP owner had to follow to avoid a finding of abuse.

Price discrimination

Section 18(2)(c) of the Competition Act 1998 identifies potentially unlawful price discrimination as ‘applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage’.

Abusive price discrimination requires proof that:

  • equivalent situations are being treated in a non-equivalent manner (or vice versa) without legitimate commercial reasons;
  • customers are placed at a competitive disadvantage relative to other trading parties to a degree that risks foreclosing equally efficient competitors; and
  • the difference in prices cannot be justified by differences in costs or other objective criteria.

 

In EWS Coal Haulage Contracts, the ORR found that EWS had engaged in discriminatory pricing by supplying coal haulage at different rates to different customers. It charged a higher price to one customer (ECSL) compared with other customers. This resulted in ECSL losing business. It was relevant that ECSL was also a competitor of EWS and internal documents showed that EWS’ intention was to ‘reduce the threat that ECSL posed to its position in the market for coal haulage’ (paragraph B100).

In 2018, Ofcom fined Royal Mail £50 million for announcing price increases that it considered discriminatory and therefore abusive. These price changes meant that any of Royal Mail’s wholesale customers seeking to compete with it by delivering letters in some parts of the UK, as Whistl was, would have to pay higher prices in the remaining parts of the country where they used Royal Mail to carry out delivery. According to Ofcom, the announced price changes deterred Whistl from competing with Royal Mail in the delivery of bulk mail.

In 2019, the CAT upheld Ofcom’s decision. It followed the approach of the Court of Justice in MEO, recognising the need to consider ‘whether Ofcom conducted a correct assessment of all the circumstances of the case to justify its findings of anti-competitive foreclosure and competitive disadvantage’; it did not infer a competitive disadvantage from the application of dissimilar prices to equivalent transactions. Controversially, though, the CAT did not consider that Ofcom was required to carry out an as-efficient competitor (AEC) test in its assessment of ‘competitive disadvantage’, despite Royal Mail having submitted an AEC analysis during the administrative procedure.

In 2021, the Court of Appeal clarified that an authority does not need to treat a defendant’s own AEC analysis as ‘highly relevant, let alone determinative of, the question of whether a pricing practice is anti-competitive.’ There may be other evidence that establishes that a pricing practice is abusive. Where a defendant relies on its own AEC analysis, the authority must engage with that analysis; however, the authority has a wide margin of discretion in determining the relevance of and weight to be accorded to the defendant’s analysis. The Court of Appeal upheld the CAT’s ruling that Ofcom had properly considered Royal Mail’s AEC analysis, concluding that the concept of an AEC was problematic on the facts and Royal Mail’s analysis was in any event flawed.

Abuse of dominance rules also cover non-price discrimination. In 2011, the High Court found that Heathrow Airport unlawfully discriminated against rival valet service operators by requiring them to operate from airport car parks rather than terminal forecourts, where Heathrow Airport’s in-house valet service operated (Purple Parking v Heathrow Airport). The relevant ‘transaction’ was the granting of access to Heathrow Airport for valet services, which was ‘equivalent’ for in-house and third-party providers. Requiring third-party valet services to operate from different locations amounted to applying ‘dissimilar conditions’. It was necessary to show that Heathrow Airport’s conduct ‘has an anticompetitive effect felt by the consumer’, which in the present case was met owing to reduced competition between operators, likely leading to higher prices.

In a separate case regarding airports in 2014 (Arriva v Luton Airport), the High Court held that it was discriminatory for Luton Airport to permit easyBus to continue operating a service from the airport (as an exception to its award of exclusivity to National Express) while denying that possibility to Arriva.

Exploitative prices or terms of supply

Section 18(2)(a) of the Competition Act 1998 refers to ‘directly, or indirectly imposing unfair purchase or selling prices or other unfair trading conditions’.

The test for excessive pricing follows two stages: the difference between the dominant company’s costs incurred and the price charged is excessive; and the imposed price is either unfair in itself or when compared to the price of competing products (United Brands). The Court of Appeal has established that ‘the cost of compilation plus a reasonable return’ only deals with the first limb of the test and is not, therefore, sufficient to show an unfair (and therefore abusive) price (Attheraces, paragraph 218).

Excessive pricing cases have traditionally been rare at the EU and UK levels, in part owing to the difficulty of defining the point when a price becomes excessive. In Napp, the excessive pricing allegation was tied closely to the claim of predation.

In December 2016, though, the CMA issued an infringement decision finding that Pfizer and Flynn Pharma had exploited their dominance in the manufacture and supply of phenytoin sodium capsules by charging excessive and unfair prices. In September 2012, Pfizer sold UK distribution rights for its Epanutin drug to Flynn, which de-branded the drug, thereby removing it from price regulation. Since September 2012, the CMA alleged that Flynn supplied the drugs to UK wholesalers and pharmacies at prices between 2,300 per cent and 2,600 per cent higher than those they had previously paid for the drug. According to the CMA ‘patients who are already taking phenytoin sodium capsules should not usually be switched to other products, including another manufacturer’s version of the product’. The NHS, therefore, had no alternative to paying the new higher prices.

Pfizer and Flynn appealed the finding of an infringement, arguing, inter alia, that the CMA applied an erroneous ‘cost plus’ measure, and ignored the fact that their product was sold at prices below relevant benchmarks, such as comparable phenytoin tablet products. The CAT agreed, annulling the CMA’s infringement decision. In particular, the CAT criticised the CMA’s determination of the ‘reasonable’ rate of return by reference to the Pharmaceutical Price Regulation Scheme, which allows participants to make a 6 per cent profit on drugs they sold to the NHS. The CAT found that this cost-plus measure was designed to establish a benchmark of perfect or ‘idealised’ competition, not ‘normal’ competitive conditions. The 6 per cent figure in any event had a diminishing importance in the sector and applied to a supplier’s portfolio of drugs – not a single drug in isolation, such as phenytoin capsules. Separately, the CAT criticised the CMA’s failure properly to examine relevant comparators, such as Teva’s phenytoin tablets, which were sold for a higher price than Pfizer’s own phenytoin product.

The CMA appealed the CAT’s judgment. In March 2020, the Court of Appeal reaffirmed the CAT's decision that the case be remitted to the CMA. It held that the CMA was wrong to hold that it was not necessary to examine the evidence of comparator products. The ‘in itself’ and ‘comparator’ tests in the unfairness limb of the United Brands test are alternatives in the sense that an authority may rely on one and ignore the other if the defendant does not make arguments in relation to the other. If, however, the defendant relies on evidence relevant to the other test, the authority must ‘fairly evaluate it’. The Court upheld the CMA’s ground of appeal that the CMA should not be required to identify a hypothetical benchmark price in assessing whether prices are excessive.

The CMA also has adopted infringement decisions in relation to excessive prices being charged for hydrocortisone tablets (Actavis) and liothyronine tablets (Concordia). This is consistent with a greater focus on excessive pricing in the pharmaceuticals sector among other European antitrust agencies (as well as the European Commission) and the CMA’s identification of healthcare and public services as an antitrust enforcement priority. 

Abuse of administrative or government process

UK competition authorities have investigated abuses of process as a form of abuse of dominant position, particularly in the pharmaceutical sector.

In Gaviscon, Reckitt Benckiser withdrew its Gaviscon Original product from sale to the NHS when the product no longer benefited from patent protection, replacing it with a similar (patent-protected) product, Gaviscon Advance. The OFT found that this made it more difficult for clinicians to prescribe generic alternatives to Gaviscon Original rather than Gaviscon Advance, owing to the configuration of the NHS computer system. The OFT imposed a fine of £10.2 million.

The CMA has also issued an infringement decision in relation to pay-for-delay agreements whereby GlaxoSmithKline made payments to several generic drug producers, allegedly to delay their entry into the market. These payments totalled more than £50 million and were made as part of a broader settlement of a patent infringement dispute. The CMA found that these agreements constituted an abuse of dominance and were also restrictive of competition under Chapter I of the Competition Act 1998 or article 101 of the TFEU.

Following a reference from the CAT, the Court of Justice confirmed that:

  • in the context of patent disputes, generic suppliers that have a ‘firm intention’ and ‘inherent ability’ to enter are potential competitors, provided they do not face ‘insurmountable’ barriers (which does not include disputed patents);
  • reverse payment settlements restrict competition ‘by object’ if (1) they can only be explained by an interest in avoiding competition on the merits, and (2) there are no pro-competitive effects casting doubt on this conclusion;
  • reverse payment settlements can be qualified as restricting competition by effect, without needing to find that the generic supplier would otherwise have succeeded in the patent litigation; and
  • concluding settlement agreements to exclude or delay generic entry can constitute an abuse of dominance, provided that the strategy has ‘exclusionary effects, going beyond the specific anticompetitive effects of each of the settlement agreements that are part of that strategy.’

 

Following the Court of Justice’s ruling, in 2021 the CAT held that:

  • Generics and Alpharma were potential competitors of GlaxoSmithKline in the supply of paroxetine in the UK;
  • the agreements between them constituted a restriction of competition by object and by effect;
  • GlaxoSmithKline was dominant; and
  • GlaxoSmithKline abused its dominance by entering into the agreements.

 

On the final finding, the CAT considered, in accordance with the Court of Justice’s judgment, that it is ‘almost inevitable that a conscious strategy of seeking to prevent unrestricted generic products coming onto the market, put into effect by making a series of agreements with each of the first three generic companies to threaten entry, “has the capacity” to have an overall anticompetitive effect beyond that of each agreement considered in isolation.’ The CAT did not, however, explain or quantify the greater effects resulting from the agreements taken together, compared with the anticompetitive effects of each agreement considered in isolation.

Mergers and acquisitions as exclusionary practices

The rules on abuse of dominance apply to ‘undertakings’. This is interpreted widely, encompassing every entity engaged in economic activity, regardless of the legal status of the entity or the way in which it is financed, in line with EU law; therefore, if public bodies carry on an economic activity, they are subject to the abuse of dominance rules.

Exemptions from the Chapter II Prohibition exist for:

  • undertakings that have been entrusted with carrying out ‘services of general economic interest’ (to the extent that the Chapter II Prohibition would prevent them from carrying out those services);
  • mergers that are subject to EU or UK merger control rules;
  • conduct that is carried out to comply with a legal requirement; and
  • conduct that the Secretary of State specifies as being excluded from the Chapter II Prohibition in order to avoid a conflict with the UK’s international obligations or for reasons of public policy.

 

In practice, the Secretary of State has only rarely exercised the power to exclude conduct from abuse of dominance rules. In 2007, the Secretary of State issued an exemption on security grounds relating to complex weaponry. This exemption was revoked in 2011.

The Chapter II Prohibition applies only to dominant firms.

Other abuses

Section 18 of the Competition Act 1998 lists examples of conduct that may be treated as abusive, though the categories of possible abuses are not closed or exhaustive. The Gaviscon and GlaxoSmithKline cases demonstrate that the CMA is willing to investigate new forms of conduct that it believes to be abusive. That said, the abusive nature of conduct cannot be simply asserted; it requires a full assessment of the conduct’s effects on competition.

In October 2019, the CMA accepted commitments ending part of a two-year investigation into Aspen, a pharmaceutical producer. In October 2016, Aspen acquired the worldwide rights over Tiofarma’s product for treating primary or secondary adrenal insufficiency, and withdrew Aspen’s own version of the product from the market. The CMA provisionally concluded that the acquisition constituted an abuse of dominance, by removing the only source of competitive threat to Aspen’s position as the sole UK supplier. Although the CMA and Aspen resolved the case through commitments, the case demonstrates the CMA’s willingness to explore novel forms of abuse: acquisitions are typically reviewed under merger control rules rather than prohibitions on abuses of dominance or anticompetitive agreements. The European Commission has only rarely applied similar theories of harm in a handful of cases that predate the entry into force of the EU Merger Regulation in 1990.

In 2021, the CAT refused to strike out and certified opt-out collective action proceedings in respect of a claim that train operating companies on the South Western railway franchise abused their dominance by failing to take ‘any or sufficient steps’ to prevent class members from being overcharged for travel beyond the boundaries covered by their travel cards. In particular, the CAT held that the defendants failed to make boundary fares sufficiently available (eg, through better staff training, amended sales procedures and increased customer-facing information). The CAT did not ‘regard it as an extraordinary or fanciful proposition to say that for a dominant company to operate an unfair selling system, where the availability of cheaper alternative prices for the same service is not transparent or effectively communicated to customers, may also constitute an abuse.’

Law stated date

Correct as of

Give the date on which the information above is accurate.

March 2020.