Anticompetitive agreements

Assessment framework

What is the general framework for assessing whether an agreement or concerted practice can be considered anticompetitive?

Section 2(1) of the CA98 (see question 6) prohibits restrictive agreements including price-fixing, resale price maintenance, bid-rigging and the exchange of sensitive information. Types of agreements that are excluded from the section 2(1) prohibition are listed in section 3 of the CA98, for example, mergers, services of general economic interest and agreements or contracts entered into to comply with a legal requirement.

The criteria for an efficiency defence to the section 2(1) of the CA98 prohibition is set out in section 9 of the CA98 and requires that an agreement improves production or distribution or promotes technical or economic progress, allows consumers a fair share of the resulting benefits and does not impose any unnecessary restrictions on competition or allow the parties to the agreement the opportunity to eliminate competition.

Moreover, section 10 of the CA98 exempts from the section 2(1) CA98 prohibition any agreement that falls under an EU block exemption regulation, irrespective of whether it affects trade between member states. The EU block exemption regulations that apply to agreements include Regulation No. 330/2010 on vertical agreements (in place until 31 May 2022), Regulation No. 316/2014 on technology transfer agreements (TTBER) (in place until 30 April 2026), Regulation No. 1217/2010 on R&D agreements (in place until 31 December 2022) and Regulation No. 1218/2010 on specialisation agreements (in place until 31 December 2022). There are a number of sector-specific EU block exemption regulations applying to sectors such as the automotive, insurance and liner shipping industries. After Brexit, the UK will retain the block exemptions with their current expiry date, apart from the insurance block exemption, which will no longer apply in the UK.

Technology licensing agreements

To what extent are technology licensing agreements considered anticompetitive?

There is no UK legislation that specifically regulates technology licensing agreements. Such agreements are assessed under the TTBER and the Technology Transfer Guidelines.

Under the TTBER, technology licensing agreements benefit from a safe harbour (ie, the agreements are deemed in line with competition law) where the contracting parties have limited market power (a share below 20 per cent if they are competitors and 30 per cent if they are not competitors) and the agreement does not contain any hardcore restrictions of competition such as price restrictions, output limitations, or market or customer allocation. Excluded restrictions such as clauses preventing challenges to intellectual property rights (no-challenge clauses) do not benefit from a safe harbour and, where severance is possible, will not remove the TTBER protection for the remainder of the agreement.

Co-promotion and co-marketing agreements

To what extent are co-promotion and co-marketing agreements considered anticompetitive?

Co-promotion agreements are agreements whereby contracting parties agree to promote a product under the same brand name and under a common marketing strategy. In contrast, co-marketing agreements are agreements between companies to promote the same product under different brand names. Such co-commercialisation agreements are commonly used by pharmaceutical companies looking to penetrate new markets while sharing the risk.

Co-promotion and co-marketing agreements are not considered intrinsically anti-competitive, but may violate competition rules in certain circumstances. In its investigations, the CMA is likely to look to the EU Commission’s guidelines on horizontal co-operation agreements and the existing Commission case law. For example, the Commission fined Johnson & Johnson and Novartis €16.3 million in 2013 for concluding a co-promotion agreement in the context of which Sandoz (Novartis’ Dutch subsidiary) agreed to abandon its independent effort to enter the market with a generic version of Johnson & Johnson’s pharmaceutical product, thus, delaying the entry of a cheaper generic medicine by 17 months and keeping the prices of the Johnson & Johnson’s product artificially high in the Netherlands.

Other agreements

What other forms of agreement with a competitor are likely to be an issue? How can these issues be resolved?

Agreements involving an exchange of competitively sensitive information (ie, non-public strategic information about business’s commercial policy such as future prices and other commercial conditions applied to customers or suppliers) between competitors may raise competition concerns. Such agreements include as follows:

  • joint venture agreements (companies pooling their resources to achieve a specific task, such as a joint development of a new product or a new business activity);
  • joint purchasing agreements (companies jointly purchasing all or part of their product requirements); and
  • joint selling agreements (companies jointly determining all commercial aspects of the sale of a product).

To minimise the competition risk, companies should make sure before entering into the agreement that they have a legitimate business justification and put in place a framework with appropriate information barriers and confidentiality obligations, as well as ensure that any information exchange relates to historic, aggregated data.

Technical cooperation may also give rise to competition risk where, for example, companies agree to restrict or delay the development of a technology or the introduction of a new technology to the market. R&D agreements in the pharmaceutical sector may, however, benefit from a safe harbour under Commission Regulation (EU) No. 1217/2010. After Brexit, the safe harbour will be available until the expiry of the block exemption.

Issues with vertical agreements

Which aspects of vertical agreements are most likely to raise antitrust concerns?

Vertical agreements such as distribution and supply agreements are subject to the Chapter I prohibition in the CA98. Such agreements benefit from a safe harbour under the EU Vertical Agreement Block Exemption (Regulation No. 330/2010) where:

  • the combined market shares of the supplier and the buyer do not exceed 30 per cent of the market in which the goods or services covered by the agreement are sold and purchased; and
  • the agreement does not contain hardcore restrictions, for example, resale price maintenance, territory or customer allocation.

Outside of the safe harbour, companies must self-assess whether their vertical agreements comply with competition law, on the basis of the guidance and existing case law of the CMA and the Commission. Vertical agreements do not generally give rise to competition concerns, unless the supplier or the buyer (or both) possess market power or will obtain market power as a result of the agreement.

Although companies cannot notify agreements to the CMA for clearance or exemption, the CMA can issue a non-binding short-form opinion that provides guidance to parties on the application of competition law on specific agreements. This option is, however, available only in a limited number of cases.

Patent dispute settlements

To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?

Patent dispute settlement agreements have the object of restricting competition (ie, per se harmful without a need to prove anticompetitive effects) where:

  • the agreement is made between actual or potential competitors;
  • the agreement includes a ‘value transfer’ from the patent holder to the patent challenger; and
  • the value transfer is made in return for a restriction on the patent challenger’s entry on the market (typically in the form of a non-compete or no-challenge clause).

In 2016, the CMA imposed a total fine of £44.99 million on GSK, the supplier of branded paroxetine (anti-depressant medicine) called Seroxat, and on Generics (UK) Limited (GUK) and Alpharma Limited (Alpharma), who were taking steps to enter the UK market with a generic version of paroxetine, for entering into pay-for-delay agreements. GSK held certain patents in relation to Seroxat, a ‘blockbuster product’, and commenced litigation proceedings against GUK and Alpharma alleging that their products infringed its patents. Before the litigation went to trial, the companies entered into patent settlement agreements that allegedly included terms prohibiting GUK’s and Alpharma’s independent entry into the market and total payments of over £50 million from GSK to GUK and Alpharma.

Joint communications and lobbying

To what extent can joint communications or lobbying actions be anticompetitive?

Trade association or lobbying actions or other joint actions by a group of companies may amount to an infringement if they involve an anti-competitive conduct such as exchange of competitively sensitive information or restrictive agreements.

The CMA has previously scrutinised rules and conduct of trade associations and imposed fines on a number of occasions. In 2016, the CMA fined five fashion model agencies and their trade association over £1.5 million for colluding on the prices charged for modelling jobs. The trade association helped the agencies share confidential and commercially sensitive information and, in some cases, urged members to reject prices offered by their customers in order to force a higher price.

The CMA’s predecessor levied a fine of more than £7.9 million (after appeal) on six recruitment agencies for collectively boycotting a competitor (Parc UK) and fixing prices. Parc entered the market in 2003 with a new business model, acting as an intermediary between a construction company and recruitment agencies to supply potential candidates. The recruitment agencies agreed to boycott Parc and to fix the rates charged to intermediaries such as Parc and a certain construction company.

Public communications

To what extent may public communications constitute an infringement?

Public announcements are generally unlikely to raise competition concerns, provided they are not used to signal future market behaviour. For example, the CMA issued an order prohibiting suppliers of cement and cementitious products from sending generic price announcement letters to their customers and restricting the disclosure and publication of certain market data, due to concerns on coordination and price signalling.

Exchange of information

Are anticompetitive exchanges of information more likely to occur in the pharmaceutical sector given the increased transparency imposed by measures such as disclosure of relationships with HCPs, clinical trials, etc?

A number of measures have been introduced or are in the process of being introduced to increase transparency in the pharmaceutical sector, including:

  • A public disclosure of any transfers of value made to HCPs and healthcare organisations by pharmaceutical companies is obligatory for ABPI members under the ABPI Code of Practice and is also considered as a good industry practice outside the ABPI. Such disclosures allow pharmaceutical companies to see the extent that rivals are supporting HCPs and healthcare organisations, including amounts paid to specific individuals and organisations.
  • Clinical and non-clinical data of the UK pharmaceutical companies is subject to disclosure in line with the EU legal requirements under the Transparency Regulation (Regulation No. 1049/2001), unless narrowly applied exceptions apply.
  • There are increased transparency requirements, such as the public registration of information concerning new clinical trials under the Clinical Trial Regulation (No. 536/2014), which is expected to enter into force in 2019.

All of the above-described practices increase market transparency in the pharmaceutical sector and may prompt scrutiny from the СМА under Chapter I of the СА98 and article 101 of the TFEU.