22 December 2016
In the latest instalment of the pay-TV saga, the French pay-TV operator Canal Plus has asked EU judges to overturn a commitments decision agreed earlier this year between Paramount and the European Commission. Those commitments (on which we reported here) ended Paramount’s involvement in the Commission’s antitrust investigation into the distribution arrangements between Sky UK and the six Hollywood film Studios, with no infringement finding or fine.
The Commission’s investigation into Disney, NBCUniversal, Twentieth Century Fox and Warner Bros remains ongoing. In the background is the Commission’s Digital Single Market Strategy which aims to break down barriers preventing cross-border E-commerce.
What has been agreed with Paramount?
Paramount has agreed to remove restrictions on customers trying to access content from another EU country. In practice, this means it will no longer insert “geoblocking” obligations in its licensing contracts with EU broadcasters. As we previously commented, the Commission considered that the Studios bilaterally agreed restrictions with Sky UK that prevented it from both making active sales in to other EU territories and from accepting passive sales requests. These restrictions effectively granted Sky UK ‘absolute territorial exclusivity’ in the UK and Ireland, eliminating cross-border competition between Sky and other pay-TV broadcasters in other Member States.
Why is Canal Plus appealing?
Canal Plus wants the General Court to annul the Paramount settlement, as – in common with other EU broadcasters – it considers that the terms agreed with the Commission risk undermining the EU system of film financing which relies on broadcasters being able to use different pricing and release strategies for different EU counties.
The appeal seems likely to face an uphill struggle; the General Court has only recently underlined the high hurdle for a successful appeal against a commitments decision in its Morningstar judgment. Nevertheless, the Commission appears to be seeking to understand (or at least to address) this issue – it is understood to have requested further information from Sky and the remaining Hollywood Studios about the potential impact of a decision on the financing of independent films.
Sky has also been in the news of late in relation to the recent bid by Twentieth Century Fox for the 61% of Sky that it does not already own. If cleared, Sky’s future distribution arrangements with the film arm of Twentieth Century Fox are likely to fall outside of any future competition remedy imposed by the Commission in the Hollywood Studios investigation. Once their production and distribution businesses are vertically integrated, the rules on anti-competitive agreements will no longer apply, as there will no longer be any agreement between separate undertakings.
15 December 2016
Apple and Samsung have been engaged in litigation in the USA since 2011 over the issue of whether various Samsung smartphones infringed a number of Apple’s design patents. Last year, the US Federal Circuit affirmed a jury award of $399 million of damages in favour of Apple, comprising Samsung’s entire profit on the sale of those smartphones. On 6 December 2016, the US Supreme Court intervened in the latest chapter in this long-running saga to reverse the Federal Circuit’s decision and remand it back to that court for further consideration.
Notably, this was the first occasion in which the Supreme Court had looked at a design patent case in over a century. However, it had also seemed to be a rare opportunity for judicial clarity on a controversial issue – for infringements involving multi-component products, should damages be calculated based on the value of the whole end product sold to consumers, or on the basis of only a particular component of that product?
This is an issue regularly arising in disputes regarding what constitutes a FRAND royalty for standard essential patents, an area in which there is still little judicial guidance in the US or Europe. The Supreme Court’s judgment offers little new insight. Instead, it focuses almost entirely on the meaning of the wording “article of manufacture” in the relevant statute (35 USC §289). The Federal Circuit had previously held that only the entire smartphone could be an article of manufacture, as its components were not sold separately to ordinary consumers. The Supreme Court reversed this, holding that “article of manufacture” encompasses both a product as sold to a consumer and a component incorporated into that product, even though not sold direct to consumers.
The Supreme Court declined to comment on whether the relevant articles of manufacture at issue in the case were the entire smartphones or the particular smartphone components, remanding this question to the Federal Circuit. For (F)RAND royalty calculations, a US Court of Appeal has previously suggested that different cases may require different methodologies for damages models (see here). If the Supreme Court had provided a more wide-ranging decision, it might have included useful guidance as to when it’s appropriate to base damages on the value of an entire product, and when the value of a component alone is more suitable.
As things stand, we will have to continue to wait to see what the Federal Circuit decides on remand. Alternatively, the judgment of the UK High Court in the FRAND case Unwired Planet v Huawei, due to be handed down in early 2017, may offer us more to get stuck into.
13 December 2016
The year is 2011. The Office of Fair Trading (the predecessor to the current Competition and Markets Authority) contributes to an OECD round table on excessive pricing, concluding that: “firms should not face fines for excessive pricing, and should not face the risk of private damages actions in respect of such behaviour”. Five years later, in early December this year, the CMA announced that its investigation into the supply of phenytoin sodium capsules by Pfizer and Flynn had concluded with its highest ever fine (£90 million), and ordered the companies to reduce their prices within 4 months. How times change… Excessive pricing is one of the more controversial types of abuse of dominance – the lack of a bright line test between competitive and anti-competitive pricing has meant that infringement decisions in relation to this form of abuse have been rarely pursued. Indeed, this is the first UK competition authority decision based on excessive pricing by a pharmaceutical company since the 2001 Napp decision, which involved differential pricing in the hospital and community sectors. As we have previously reported, however, something of a sea change in competition policy currently appears to be taking place, at least for certain parts of the pharmaceutical sector.
The full reasoning of this decision will therefore be closely reviewed. For now, however, the text of the decision remains unpublished. While we wait for a non-confidential version, the following 4 points seem to us to be worth noting:
- Phenytoin sodium is not a new drug – it has been off patent for many years, although only entered as a generic following the conclusion of a UK supply deal between Pfizer and Flynn. The case – as with other high profile excessive pricing investigations in the EU and beyond (see here/here) – concerns a sudden and significant jump in previously established market pricing, in this case of around 2,600%. This is an entirely different legal and commercial context to that applicable for new or branded drugs: it would be extremely surprising if this decision provides any new basis for future intervention in relation to drugs which are subject to the PPRS, even at the stage of free initial pricing.
- Although two companies are involved, no anti-competitive collusion has been alleged. Rather, the case is based only on abuse of dominance. It is rare for such cases to involve two separate companies. Here, the allegation appears not to be that Pfizer and Flynn are jointly dominant, but that each holds a separate dominant position and has separately proved it. This is a surprising feature of the investigation – proving excessive pricing is notoriously difficult, and the CMA given itself the task of pulling that off twice, with each company being held separately to have extracted supra-competitive prices. Flynn is at once the ‘victim’ of Pfizer’s excessive pricing, and the perpetrator of an abuse of its own.
- The basis for the findings of dominance is also far from obvious. While details of how the market has been defined have not yet been released, it appears from a 2015 parallel trade case also relating to Flynn Pharma’s phenytoin sodium product that the drug is only a third line treatment for certain specific types of epilepsies, and that its sales have been in decline for a number of years. It appears that the CMA’s dominance finding may be based on clinical guidance that stabilised patients should remain on one specific brand of product rather than being switched between different formulations even of the same API. The trend to ultra-narrow market definition in the pharma sector thus appears to be continuing (see Perindopril, Paroxetine…) – but query whether it will survive review in the Competition Appeal Tribunal.
- And finally, compliance with the price reduction remedy may not be straightforward – the companies will have to calculate what measure of reduction is sufficient to bring the infringement to an end. Pfizer has already been subject to a procedural fine for failure to comply with a procedural order; if the companies miscalculate their price reductions, further fines could follow – in addition to the now inevitable follow-on claims from, at least, the Department of Health.
7 December 2016
At the end of last month, Commissioner Vestager gave a speech at the Chillin’ Competition Conference. The focus: how competition law can protect consumers from anti-competitive behaviours. The Commissioner gave examples of situations in which intervention could be justified, two of which are of particular interest in the competition/IP sphere - pharmaceutical goods and Standard Essential Patents (‘SEPs’)
Commissioner Vestager noted that people’s health often relies on a drug sold by only one company. This can be because the company has a patent, but may also simply be because no other companies are interested in coming to the market due to low levels of demand. This isn’t a problem in itself if prices stay at a reasonable level but if prices go up, the Commission suggested it may warrant action by the competition authorities. This could not be more topical – just today the Competition and Markets Authority’s (‘CMA’) has taken a decision in the Pfizer/Flynn case, which relates to excessive pricing of an anti-epilepsy drug previously branded as Epanutin (we reported previously on this investigation here). We’ll be providing a more detailed update on the CMA’s decision soon but in the meantime, our readers will be interested to know that both Pfizer and Flynn Pharma have already announced that they intend to appeal. The Pfizer/Flynn case follows the CMA’s recently launched investigation into excessive pricing in the pharmaceutical sector in the UK. Concordia International announced that it was in talks with the CMA about this. However, the investigation is still at the information gathering stage, with a decision on whether or not to proceed expected in February of next year. An article published in the Times last week suggested that certain generics drugs continue to be subject to significant price increases – the only manufacturer of lithium carbonate tablets is reported to have raised the price of its product by £39 in the last month, and from £3.22 to £87 over the last year. Similarly, the Italian Competition Authority recently investigated Aspen, a supplier of cancer drugs to the Italian Medicines Agency, and in October 2016 fined it over €5 million for increasing the price of its cancer drugs by up to 1500% (see here for our report on this). Pharmaceutical investigations continue outside of the EU as well. Last month Bloomberg reported that the first charges in the US DOJ’s antitrust investigation into collusion over generic price increases investigation (spanning over two dozen companies) are expected by the end of the year.
The prevalence of investigations relating to pricing regulation in the pharmaceutical sector represents a major change in policy from the days when competition authorities were wary of acting as price regulators. Perhaps, as is evidenced by Vestager’s recent speech, this is largely due to a renewed focus on consumer interests. But it is far from clear that it is sensible policy for the competition authorities to have to intervene in cases which arguably result from regulatory failures.
In her speech, Commissioner Vestager also suggested that in some situations, phone makers may be forced to accept whatever terms they are presented with, regardless of whether these are actually FRAND (fair, reasonable and non-discriminatory). This is particularly problematic where this takes place under threat of an injunction, and can mean that they end up paying unjustified royalties, with customers also paying more as a result. While FRAND disputes have been around for many years, the Commissioner emphasised that this remains a topical issue – with 5G and the Internet of Things, more and more products will be connected with each other; innovation is increasingly important and restrictive practices could stifle development.
The issue of whether offers are FRAND has a reflection closer to home in the UK at the moment. This week marks the closing submissions in the Unwired Planet v Huawei FRAND trial, which looks set to become the first EU case to determine what a FRAND offer is. A judgment in this case is likely to be handed down in the first few months of 2017…
1 December 2016
Our readers may be interested in two events next week at which Sophie Lawrance, one of Bristows’ competition partners, will be speaking on issues dear to the heart of this blog.
Places are still available for both events so get booking!