Anticompetitive agreementsAssessment framework
What is the general framework for assessing whether an agreement or concerted practice can be considered anticompetitive?
Restrictive agreements and practices are regulated under article 101 of the Treaty on the Functioning of the European Union (TFEU).
Article 101(1) TFEU prohibits agreements, decisions by associations of undertakings and concerted practices that may affect trade between member states and have as their object or effect the prevention, restriction or distortion of competition within the internal market. A number of examples are listed under article 101(1) TFEU (eg price fixing, bid rigging, market sharing) but this list is not exhaustive.
Article 101(2) TFEU provides that any such agreements will be automatically void and unenforceable.
Article 101(3) provides for the possibility of an exemption if certain criteria are satisfied; essentially that the pro-competitive benefits of the arrangement outweigh its anti-competitive effects.Technology licensing agreements
To what extent are technology licensing agreements considered anticompetitive?
The Commission has published specific guidelines on the application of article 101 TFEU to technology transfer agreements (2014/C 89/03). These note that most licencing agreements do not restrict competition and create pro-competitive efficiencies, as licensing leads to the dissemination of technology and promotes innovation by the licensor and licensees. To the extent that licence agreements do restrict competition, they also often give rise to pro-competitive efficiencies and may benefit from the exemption under article 101(3) TFEU.
There is also a Technology Transfer Block Exemption Regulation (TTBER) (Regulation 316/2014), which applies to patent and know-how licence agreements and provides a 'safe harbour' where certain conditions are met. In particular, these include that the combined market share of the parties must not exceed 20 per cent if the parties are competing undertakings (horizontal agreements) and 30 per cent if the parties are not competing undertakings (vertical agreements); and the agreement must not contain any 'hardcore' restrictions, such as a restriction on the licensee's ability to determine its prices or the limitation of output, the allocation of markets or customers, restrictions on the use of the licensee's own technology.Co-promotion and co-marketing agreements
To what extent are co-promotion and co-marketing agreements considered anticompetitive?
Co-promotion and co-marketing agreements are commonly used in the pharmaceutical sector.
- under a co-promotion agreement the same drug, under the same trademark, is promoted by two separate pharmaceutical companies; and
- under a co-marketing agreement the companies promote and sell the same drug under different trademarks.
On the whole the Commission has not raised objections of principle to these types of agreements, which it generally considers to be pro-competitive. However, companies need to take care not to use co-promotion or co-marketing agreements in a way that results in anti-competitive conduct.
For example, in 2013 the Commission fined Johnson & Johnson (J&J) and Novartis €16 million in relation to a co-promotion agreement for J&J's drug fentanyl. Novartis' subsidiary Sandoz had been on the verge of entering the market in the Netherlands with a generic version of fentanyl after J&J's patents had expired; however Sandoz and J&J entered into a co-promotion agreement under which Sandoz did not launch its generic and received monthly payments under the co-promotion agreement. These were calculated to exceed the profits it would have made from selling its own product. The Commission found an infringement of competition law on the basis that the co-promotion agreement was not about marketing, but was about delaying generic entry and sharing the monopoly profits from the artificially higher prices which resulted.Other agreements
What other forms of agreement with a competitor are likely to be an issue? How can these issues be resolved?
A key focus for the Commission in the pharma sector has been on agreements that hinder or delay the entry of generic medicines and the resulting price competition. The Commission has paid particular attention to 'pay-for-delay' agreements, which may take different forms but are generally entered into between an originator and generic company to delay generic entry after expiry of the originator's core patents, in return for which the generic receives a value transfer from the originator (eg, a lump sum payment, or benefit under a co-promotion agreement etc). See for example Cases AT.39226 Lundbeck and AT.39612 Servier, and subsequent appeals.
While the Commission has focused on 'pay for delay' agreements, companies need to pay attention that any agreements with competitors, whether in the context of research and development, joint production, joint marketing etc do not infringe competition law – this could, for example, include cartel type infringements such as price-fixing, market-sharing and bid-rigging. The exchange of competitively sensitive information between competitors can be an infringement of itself; but including confidentiality provisions in an agreement would not resolve competition concerns where the agreement otherwise restricts competition.
Nevertheless, cooperation between pharmaceutical companies is often pro-competitive. Recognising this, there are 'safe harbours' for certain R&D and specialisation agreements under block exemption regulations, and the Commission has published guidelines on horizontal cooperation agreements. The Commission is in the process of revising these as the current versions are due to expire at the end of 2022.Issues with vertical agreements
Which aspects of vertical agreements are most likely to raise antitrust concerns?
Vertical agreements (agreements between parties who operate at a different level of the supply chain), are generally considered less likely to raise competition law issues than horizontal agreements (agreements between competitors). In principle, this is due to the complementary nature of the activities carried out by the parties to a vertical agreement, and that vertical restraints may provide scope for efficiencies, for example by optimising manufacturing and distribution processes and services. Nevertheless, the Commission recognises that undertakings with market power may, in certain cases, use vertical restraints to pursue anti-competitive purposes that ultimately harm consumers; vertical restraints can notably lead to foreclosure, softening of competition or collusion.
Vertical agreements that meet the conditions of the EU Vertical Agreements Block Exemption Regulation (VABER, the new version of which will enter into force on 1 June 2022), benefit from an automatic exemption under article 101(3) TFEU.
In its Guidelines on Vertical Restraints (published in May 2022) the Commission sets out its framework for its assessment of vertical agreements. This includes those falling within the scope of the VABER and also those falling outside it – such agreements do not necessarily infringe competition law.
Aspects of vertical agreements most likely to raise antitrust concerns are those referred to in the guidelines as 'hardcore restrictions' and an agreement containing such restrictions cannot benefit from the VABER. These include restrictions on the price at which the products are to be sold by the distributor (resale price maintenance (RPM)) and restrictions on the customers to whom, or the territories into which, a distributor is permitted to sell the products.
Other restrictions that must be assessed carefully for competition law compliance include single branding clauses (under which a buyer is obliged or induced to concentrate its orders for a particular type of product with one supplier, eg, in non-compete and quantity forcing clauses), exclusive supply clauses, restrictions on the use of online marketplaces and the use of price comparison services, parity obligations, upfront access payments, category management agreements, and tying.
An example of a competition law infringement in a vertical agreement in the pharmaceutical sector is Glaxo Spain (Joined cases C-501/06 P). GSK had restricted its Spanish wholesalers from exporting its medicines to other member states, by agreeing with them that it would charge a higher price for sales for exports than for sales for the Spanish market. The Court of Justice of the EU held that an agreement aimed at limiting parallel trade shall be considered as restrictive of competition ‘by its object’. It also held that the Commission should have assessed a possible exemption under article 101(3) taking into account the arguments put forward by GSK in relation to the specific nature of competition in the pharmaceutical sector.Patent dispute settlements
To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?
Following its 2009 pharmaceutical sector inquiry report, the Commission monitored patent settlement agreements between originator and generic companies, in order to identify those settlements that delay generic market entry in breach of the competition rules. It published eight annual reports, the last being for 2016 and appears to be no longer actively monitoring such settlements.
Patent settlement can be a legitimate way of ending a dispute or litigation relating to a potential breach of patent rights, but they can also be used by originator companies to implement strategies to delay or prevent the entry or expansion of the more affordable generic version of a drug in exchange for benefits transferred from the originator (pay-for-delay agreements). The arrangement can benefit both the originator, who enjoys extended exclusivity resulting in extra profits, and the generic company, who can make significant earnings without entering the market, but to the detriment of healthcare systems and patients who end up paying higher prices than they would have done in the event of independent generic entry.
As such agreements involve coordination between actual or potential competitors they may be in breach of article 101(1) TFEU. The Commission has adopted infringement decisions in several pay-for-delay cases. In November 2020 the Commission fined Teva and Cephalon a total of €60.5 million for concluding a pay-for-delay settlement agreement that delayed the market entry of a generic version of Modafinil (a drug used for sleep disorders). The distinguishing feature of this case is that the arrangement went beyond lump sum payments and involved a wide range of ‘side deals’ (eg, a distribution agreement, access to valuable clinical data for another drug). The decision sends a clear signal that pay-for-delay agreements will not be tolerated irrespective of the form of the payments at issue, and that the Commission will consider the cumulative effect of a range of commercial arrangements and deals.
The Commission has also fined companies in other pay-for-delay cases, in relation to the drugs Citalopram, Perindopril and Fentanyl. On appeal against some of these decisions the EU courts' rulings have clarified the criteria and set out a framework for the assessment of pay-for-delay deals. The judgments confirm that, where the value transfer by the originator to the generic cannot otherwise be justified, the agreement at issue will be anticompetitive by its very nature (eg, 'by object'); and that commercial arrangements (eg, distribution deals) may also constitute a value transfer. The CJEU is set to deliver its judgment in the Servier pay-for-delay case later this year (2022), which should provide further guidance on when such agreements may infringe competition law.Joint communications and lobbying
To what extent can joint communications or lobbying actions be anticompetitive?
Unlike in the US, where joint lobbying is expressly excluded from the antitrust rules under the Noerr-Pennington doctrine (to the extent that such lobbying is not a mere sham to conceal an effort to interfere with legitimate competition), no such automatic safe harbour exists under EU competition law and it will be up to businesses to assess whether their conduct is competition compliant.
Particular risks in the context of trade associations or joint lobbying etc, are around the sharing of competitively sensitive information, or engaging in price fixing, customer or territorial allocation, bid rigging, collective boycotts and standard setting.
In EMC Development AB (Case T-432/05) the General Court recognised that normal lobbying activity carried out by a trade association that brings together companies in an industry in order to protect and promote the interests of its members is legitimate, but that joint lobbying may be anti-competitive where it influences a standard setting procedure to the extent of controlling it and undermining it. The Commission's horizontal guidelines also provide useful guidance on joint lobbying in the context of standard-setting.Public communications
To what extent may public communications constitute an infringement?
Unilateral announcements by a company that are genuinely public, such as through a post on a publicly accessible website, statement in public or in a newspaper, generally do not constitute a concerted practice under article 101(1) TFEU.
However, there is a risk of competition law infringement if the announcement is in fact part of a concerted practice. The concern is that announcing future price increases may signal the intended market conduct of undertakings, and by reducing the level of uncertainty about their pricing behaviour, decrease their incentives to compete against each other. In its horizontal guidelines, the Commission clarifies that this may be the case where the market is concentrated and where there are high barriers to entry, and undertakings continuously publicise information without apparent benefit for consumers. (See Case AT.39850 Container Shipping.)
In the pharmaceutical sector, the CJEU has held that the coordinated public communication of misleading information by pharmaceutical companies to favour the use of one drug over another may infringe article 101(1) TFEU. In Case C-179/16 Hoffmann-La Roche and Novartis it concluded that coordination between Novartis and Roche to communicate that the off-label use of a product was less safe than the on-label use of another product, to shift demand towards the more expensive product, was market sharing and a restriction of competition by object. The Commission is also currently investigating a communication campaign by Teva aimed at reducing the use of medicines competing with its blockbuster Copaxone. The Commission's concern is that the campaign, addressed at healthcare bodies and professionals, would have created concern over the safety of competing products, despite the fact that they were approved by the relevant authorities (Case AT.40588).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?
Disclosure requirements imposed on pharmaceutical companies under the sector's regulatory regime typically provide for the protection of commercially sensitive information and are therefore unlikely to increase the risk of anti-competitive exchanges of information. For example, the clinical trials Regulation (EU Regulation 536/2014) which launched a harmonised clinical trials information system in all EU and EEA member states (as of 31 January 2022) provides for the protection of commercially sensitive information. The EFPIA disclosure code, which requires member companies to disclose the transfers of value made to healthcare professionals and healthcare organisations, allows for disclosure of information on an aggregate basis where the information cannot be disclosed on an individual basis for legal reasons. The Heads of Medicines Agencies (HMA) and the European Medicines Agency have also produced a joined guidance document on the identification of commercially sensitive information that is provided under the marketing authorisation (MA) application regime and that must be protected.
Nevertheless, in any instance where competitively sensitive information may be received by a competitor the practice should be assessed for competition law compliance as the obligations, protections are likely to vary on a case-by-case basis.