7 March 2017
For a number of years Actavis was the sole supplier of hydrocortisone tablets used to treat conditions such as Addison’s disease that result in insufficient amounts of natural steroid hormones. Concordia was the first potential competitor to obtain a market authorisation for a generic version of the drug. The CMA alleges that Actavis incentivised Concordia not to enter the market with its generic version of the drug by agreeing a fixed supply of its drug to Concordia at a very low price for resale to customers in the UK. As a result Actavis remained the sole supplier of the drug for most of the duration of the agreements (January 2013 to June 2016), during which time the cost of the drug to the NHS rose substantially from £49 to £88 per pack.
The CMA has provisionally found that the pharma companies have breached competition law by entering into anti-competitive agreements. It has also provisionally found that Actavis abused its dominant position by inducing Concordia to delay its independent entry into the market. This case is separate from the CMA’s other continuing investigation into Actavis UK, which it announced at the end of last year. That investigation is looking at whether Actavis UK has abused a dominant position by charging excessive prices to the NHS for the drug following a 12,000% price rise over the course of several years. A substantial portion of that price rise took place in the period before the start of the agreements in issue in this investigation.
This latest development comes amidst a number of appeals regarding the application of competition law to pay-for-delay patent settlement agreements in the pharma sector. In particular, the General Court of the EU recently upheld the European Commission’s decision fining Lundbeck and a number of generic companies in relation to patent settlement agreements (see here and here). That decision is now on appeal to the EU Court of Justice – the grounds of appeal are available here. Separately, the CAT is currently hearing the appeal of the CMA’s infringement decision against GSK and a number of generic companies for pay-for-delay agreements (see here and here) – this hearing is listed for five weeks, continuing until the end of this month.
In both of these appeals a key issue is whether the competition authorities applied the correct test in finding that the pay-for-delay agreements restricted competition ‘by object’, meaning that the effects of the agreements did not need to be considered. The appellants argue that, following the EU Court of Justice’s decision in Cartes Bancaires, ‘by object’ restrictions should be interpreted restrictively. The Lundbeck appeal to the EU Court of Justice also raises the critical issue of how the General Court dealt with the existence of Lundbeck’s patents. With this in mind, we will be keeping a close eye on the CMA’s investigation into Actavis/Concordia, particularly the legal basis for any final finding of infringement…
15 February 2017
True to its current focus on all things digital, the European Commission has recently announced that it has launched three separate investigations into whether certain online sales practices prevent, in breach of EU antitrust rules, consumers from benefiting from cross-border choice in their purchases of consumer electronics, video games and hotel accommodation at competitive prices.
The Commission is now examining whether the companies concerned are breaking EU competition rules by “unfairly restricting retail prices” or by excluding customers from certain offers because of their nationality or location (geo-blocking).
The Commission’s rationale for the inquires is that these practices may make cross-border shopping or online shopping in general more difficult and ultimately harm consumers by preventing them from benefiting from greater choice and lower online prices. Whether the evidence gathered from the investigations ultimately bears out this hypothesis is very much an open question.
Whatever the wider benefits to the Commission of the sector investigation, it is questionable whether these investigations in themselves justify the full arsenal of an antitrust sector inquiry. To judge by the press release, at least a significant part of the Commission’s concern appears to relate to classical infringements of competition law – resale price maintenance and contractual barriers to parallel trade – which merely happen to have come to light through the sector inquiry. Time will tell whether this hypothesis is correct, or whether more specific types of online anti-competitive conduct are in fact concerned.
25 January 2017
Amazon has offered commitments to the European Commission to end the antitrust investigation into its use of ‘most favoured nation’ (MFN or parity) clauses in its e-books contracts with publishers, launched in 2015. The Commission is now inviting comments on these proposed commitments from customers and rivals.
The Commission’s concern is that the clauses may breach EU antitrust rules and result in reduced competition among e-book distributors and less consumer choice.
Amazon’s MFN clauses require publishers to inform Amazon about more favourable terms or conditions offered to Amazon's competitors and to offer Amazon similar terms and conditions. This includes requiring publishers to offer Amazon any new or different distribution methods or release dates, any better wholesale prices or agency commissions, or to make available a particular catalogue of e-books.
The Commission considers that the cumulative effect of these clauses is to make it harder for other e-book retailers to compete with Amazon by developing new and innovative products and services. It also takes the view that imposing these clauses on publishers may amount to an abuse of a dominant market position.
In parallel, Audible, Amazon’s audio-books subsidiary, has announced the end of its exclusivity provisions in its distribution agreement with Apple following a joint antitrust investigation by the Commission and the German competition authority, the Bundeskartellamt.
Amazon’s proposed commitments
Amazon disputes the competition law basis for the Commission’s investigation. Nevertheless, in order to bring the investigation to a close (and to avoid the risk of a costly infringement decision), it has offered commitments:
- any clause requiring publishers to offer Amazon similar terms and conditions as those offered to Amazon's competitors; or
- any clause requiring publishers to inform Amazon about such terms and conditions.
- To allow publishers to terminate e-book contracts that contain a clause linking discount possibilities for e-books to the retail price of a given e-book on a competing platform. Publishers would be allowed to terminate the contracts upon 120 days' advance written notice.
- Finally, not to include, in any new e-book agreement with publishers, any of these clauses.
The commitments would apply for five years and (as is usual for behavioural commitments) be subject to oversight by a monitoring trustee.
E-Books - déjà vu?
This is not the first time the Commission has investigated the e-books sector. In 2011 it opened antitrust proceedings against Apple and five international publishing houses (Penguin Random House, Hachette Livres, Simon & Schuster, HarperCollins and Georg von Holtzbrinck Verlagsgruppe) on the basis that it considered that they had colluded to limit retail price competition for e-books. In that case the companies also offered commitments to address the Commission's concerns (see our previous comment).
Where does this leave MFNs?
The Commission and national competition authorities have conducted investigations into MFN clauses in a number of other sectors, including online motor insurance and online sports goods retail, on which we have previously commented.
While MFNs are not per se unlawful, and in some circumstances may even be pro-competitive, companies should carefully consider their possible anti-competitive effects before including them in new contracts.
23 January 2017
On 18 January, the FTC announced that Mallinckrodt ARD Inc. (formerly Questcor Pharmaceuticals, Inc.) and its parent company have agreed to pay $100 million to settle FTC charges that they violated antitrust laws when Questcor acquired the rights to a drug that threatened its monopoly in the U.S. market for adrenocorticotropic hormone (ACTH) drugs. The announcement was made concurrently with the release of the FTC's complaint. Antitrust (as opposed to merger) cases about acquisitions of competing technology are not an everyday occurrence. However, this complaint has something of the flavour of the EU Commission’s Tetra Pak 1 decision. In that case, the EU Commission objected to Tetra Pak’s acquisition (through a merger) of exclusive rights to what was at the time the only viable competing technology to Tetra Pak’s dominant aseptic packaging system. The Commission (and subsequently the EU courts) held that this would prevent competitors from entering the market and therefore amounted to an abuse of a dominant position.
The FTC’s Mallinckrodt complaint alleges that while benefitting from an existing monopoly over the only U.S. ACTH drug, Acthar, Questcor illegally acquired the U.S. rights to develop a competing drug, Synacthen (a synthetic ACTH drug which is pharmacologically very similar to Acthar). This acquisition stifled competition by preventing any other company from using the Synacthen assets to develop a synthetic ACTH drug, preserving Questcor’s monopoly and allowing it to maintain extremely high prices for Acthar.
To judge by the FTC’s complaint, the case appears to contain some pretty stark facts which may have contributed to the immediate settlement of the proceedings by Mallinckrodt. Those facts also bring the case squarely into line with the US and EU competition regulators’ current concern over excessive pricing in pharma.
First up is the finding that Questcor had a 100% share of the U.S. ACTH market and that it took advantage of that monopoly to repeatedly raise the prices of Acthar from $40 a vial in 2001 to more than $34,000 per vial today – an 85,000% increase. The complaint details that in August 2007 Questcor increased the price of Acthar more than 1,300% overnight from $1,650 to $23,269 per vial and that it has taken significant and profitable increases on eight occasions since 2011 pushing the price up another 46% to its current $34,034 per vial. Acthar is a speciality drug used to treat infantile spasms, a rare seizure disorder affecting infants, as well as being a drug of last resort (owing to its cost) for a variety of other serious medical conditions. According to the FTC, Acthar treatment for an infant with infantile spasms can cost more than $100,000. In Europe, Canada and other parts of the world doctors treat these conditions with Synacthen which is available at a fraction of the price of Acthar in the U.S. (Synacthen is not available in the U.S. as it does not have FDA approval.) The FTC relies on the supra-competitive prices charged in the U.S. for Acthar as evidence of Questcor’s monopoly power as well as its 100% market share and the existence of substantial barriers to entry.
It is also part of the FTC’s case that Questcor disrupted the bidding process for Synacthen when the rights came up for acquisition. According to the complaint, Questcor first sought to acquire Synacthen in 2009, and continued to monitor the competitive threat posed by Synacthen thereafter. When the U.S. rights to Synacthen were eventually marketed in 2011, dozens of companies expressed an interest in acquiring them with three firms proceeding through several rounds of detailed negotiations. All three firms planned to commercialise Synacthen and to use it to compete directly with Acthar including by pricing Synacthen well below Acthar. In October 2012, Questcor submitted an offer for Synacthen and subsequently acquired the rights to Synacthen for the U.S. and thirty-five other countries and did not subsequently bring the product to market in the US.
In addition to the $100 million payout, the proposed court order requires that Questcor grant a licence to develop Synacthen to treat infantile spasms and nephrotic syndrome to a licensee approved by the FTC, a pretty far-reaching remedy.
This case is the latest in a string of cases on both sides of the Atlantic relating to escalating pharma prices (as discussed in our previous blog posts here and here). While companies retain significant scope to price products as they see fit, it reaffirms that pharma companies should be wary of implementing very significant price increases in the absence of good objective reasons for doing so. This is particularly so where the increase is facilitated by commercial strategies such as acquiring IP rights to existing/potentially competitive products. In the EU, it is also worth remembering that – as established by Tetra Pak I (on appeal to the General Court) – an agreement which falls within a block exemption can at the same time constitute an infringement of Article 102. So companies and their advisors should remember to wear Article 101 and 102 hats when reviewing agreements.
23 January 2017
The FTC complaint focusses on three main areas*:
- Requiring customers for its baseband processors (in which Qualcomm is said to have a dominant position for both CDMA (3G) and LTE (4G)) to take a patent licence, thus achieving elevated royalties;
- Refusing to license its essential patents to competitors (such as Intel), contrary to Qualcomm’s FRAND commitments;
- Exclusive dealing, notably with Apple, to cement its position in the 4G smartphone market
In combination, this conduct is said to impose a “tax” on mobile phone manufacturers, even when using non-Qualcomm processors. The complaint also notes that licensees are passing up the opportunity to challenge whether Qualcomm’s rates are FRAND. The FTC lists a number of reasons why Qualcomm’s licences might not be FRAND, such as the maintenance of Qualcomm’s royalty rates at a significant level despite its reduced patent share; the charging of royalties on the selling price of the whole handset, even though this includes many features not subject to Qualcomm’s patent claims; and the extraction of onerous cross-licensing terms.
But why is this occurring? – why is it that licensees do not litigate Qualcomm’s royalty demands, as they do with other significant SEP holders? The answer lies – according to the FTC – in the cost to licensees of litigation with Qualcomm. It argues that rational licensees will be willing to litigate if the cost of doing so appears likely to be outweighed by the prospect of reduced royalties. In this instance, however, it is said that the cost of litigation for prospective Qualcomm licensees is usually too great: as Qualcomm’s licensees are also customers of Qualcomm’s chipsets (for which there are few – if any – substitutes), they not only have to bear the cost of the litigation itself, but also, potentially of significantly impeded market access, arising from difficulties in obtaining Qualcomm chips.
Patent licensing, once regarded as a largely benign or even pro-competitive business model, is now at the forefront of the antitrust authorities' attention around the world. The fact that Qualcomm’s conduct is perceived to have effects on a market as valuable and crucial to the economy as the smartphone market have served to make it a particularly attractive target for the antitrust authorities. This is not without controversy, however: US DOJ officials have previously expressed concerns about investigations seeking to curb royalties would be liable to affect innovation, and – as Qualcomm has emphasised – the present FTC Complaint was launched on the basis of only 2-1 agreement by the FTC commissioners, in the face of opposition from Maureen Ohlhausen. Whatever the divergence of views, it appears inevitable that Qualcomm will continue to appear in the antitrust headlines for some time to come.
* One further area has been identified by the FTC, but is subject to protective order.
17 January 2017
The Commission has published its Data Economy Package for non-personal data*, which is the final building block of its Digital Single Market (DSM) strategy – see our previous posts on the DSM here, here; and here.
With its new package, the Commission aims to:
- review the rules and regulations impeding the free flow of non-personal data and present options to remove unjustified or disproportionate data location restrictions; and
- outline legal issues regarding access to and transfer of data, data portability and liability of non-personal, machine-generated digital data.
Why is the Commission acting on data?
The economic rationale is that the EU data economy was worth €272 billion in 2015, and is experiencing close to 6% growth a year. It is estimated that it could be worth up to €643 billion by 2020, if appropriate policy and legal measures are taken. Data also forms the basis for many new technologies, such as the Internet of Things and robotics. The Commission’s ambition is for the EU to have a single market for non-personal data, which the EU is a long way from achieving. The Commission refers to the issues in terms of – the “free movement of data”, suggesting something akin to a fifth EU fundamental freedom.
What action is the Commission proposing to take?
The Consultation sets out options for addressing the legal barriers to the free flow of non-personal data, in particular in relation to:
- data access and transfer;
- unjustified localisation of data centres;
- liability related to data-based products and services; and
Some of the more eye-catching (and interventionist) options set out by the Commission are the introduction of:
- legislation to define a set of non-mandatory contract rules for B2B contracts when allocating rights to access, use and re-use data;
- creation of a sui generis data producer right for non-personal machine-generated data, with the aim of enhancing tradability; an obligation to license data generated by machines, tools or devices on fair, reasonable and non-discriminatory (FRAND) terms; and
- technical standards to facilitate the exchange of data between different platforms.
The Consultation is also seeking evidence on whether anti-competitive practices are restricting access to data. In particular, the Consultation refers to: the use of unfair business practices; the exploitation of bargaining power when negotiating licences; and abuses of a dominant position. Interestingly, it also asks whether current competition law and its enforcement mechanisms sufficiently address the potentially anti-competitive behaviour of companies holding or using data.
So where are we headed?
To date, competition law has mandated the compulsory licensing of IP rights only in exceptional circumstances, where the owner has a dominant position and there are no alternatives to the technology. The Commission is now considering a range of regulatory options, of which the most interventionist could require access to be granted to non-personal data in a far wider range of contexts (albeit without any proposal to amend the existing database right and the new Trade Secrets Directive). These issues are likely to be of considerable concern for any company holding large amounts of non-personal data. The Consultation runs until 26 April 2017.
* Non-personal data includes personal data, where it has been anonymised
4 January 2017
In December 2016, the European Commission published two new studies on standard essential patents (SEPs). As regular readers of this blog will know, SEPs protect technologies that are essential to standards such as 4G (LTE) and Wi-Fi, which rely on hundreds of patented technologies to function effectively. For the same reason, SEPs will be crucial to 5G and the nascent “Internet of Things”. The two studies form part of the Commission’s project to improve the existing IPR framework and to ensure easy and fair access to SEPs. The specific aims of the Commission’s project were outlined in its April 2016 Communication “ICT Standardisation: Priorities for the Digital Single Market”, which we commented on here. The first new study, titled “Transparency, Predictability and Efficiency of SSO-based Standardization and SEP Licensing”, and prepared by economics consultancy Charles River Associates (CRA), examines a number of issues relating to the standardisation process and SEP licensing. Building on a previous 2014 report on patents and standards, and on the responses to a 2015 public consultation, the authors outline what they see as the main “problems which have real significance and impact ‘on the ground’”. They then go on to consider a number of specific policy options which might help alleviate those problems. Particular focus is placed on “practical and readily implementable solutions” which would, according to the authors, enhance the transparency of the standardisation process and reduce the transaction costs of SEP licensing.
One of the CRA study’s most notable – and doubtless controversial – proposals is the imposition of a ceiling on the aggregate royalty for a given standard. The authors suggest that a commitment by SEP holders to observe a maximum total royalty burden would go a long way to tackling the problems of patent hold-up and royalty-stacking*. While the study recognises that there would be a number of difficulties in implementing such an approach, it arguably underestimates the challenges. The first problem would be determination of the aggregate royalty level. Assuming that can be overcome, allocation of total royalties between SEP holders would be a formidable challenge, even for a ‘static’ standard. The landscape here is far from static, however. Not only do SEPs change hands regularly (as the second report by IPlytics emphasises), but telecoms standards themselves evolve, through the addition of new releases which improve on or supplement existing technologies. When you throw into the mix the lack of public information about licence fees charged across the industry (something which the authors also have in their sights**), and the multiplicity of methods for comparing the relative values of SEP portfolios, it is difficult to see how such a system would work in practice – except, perhaps, as very general guidance.
The CRA study goes on to emphasise the importance of preserving flexibility on issues such as the appropriate royalty base and the level of the value chain at which SEP licensing should occur. In the authors’ opinion, economic analysis of these issues suggests there is no appropriate one-size-fits-all solution. This stands in contrast to the conclusion on royalty-stacking, where greater control is advocated.
The second new report, prepared by the Berlin-based data analytics company IPlytics, uses a dataset of over 200,000 SEPs to paint a more quantitative portrait of the SEP landscape. It provides detailed empirical evidence on a number of issues, including:
- Technology trends – The report shows that most declared SEPs relate to communication technologies, followed by audio-visual and computer technologies. More than 70% of all SEPs are declared as essential to ETSI.
- Regional trends – The proportion of SEPs filed at the Korean and Chinese patent offices has increased in recent years (particularly in the telecommunications sector), reflecting the growing importance of Asian markets in the global economy.
- SEP transfers – More than 12% of all SEPs have been transferred at least once. The study reveals that the top sellers of SEPs are Motorola, Nokia, Ericsson, InterDigital and Panasonic. The most active buyers include Qualcomm, Intel and – perhaps surprisingly, given its recent suit alleging that Nokia evaded FRAND by transferring patents to two PAEs – Apple.
- Comparison with non-SEPs – A comparison with a control group of patents which have not been declared as standard essential suggests that SEPs are more frequently transferred, litigated, renewed and cited as prior art than non-SEPs. This implies that SEPs are generally more valuable than non-SEPs, but the study refrains from considering whether the technology protected by SEPs is intrinsically more valuable than that protected by non-SEPs, or whether the higher value of SEPs is merely a product of their incorporation into a standard.
One striking feature of both studies is their attempt to grapple with the thorny issue of ‘over-declaration’. The authors of the CRA study point to research showing that, when tested rigorously, only between 10 and 50 per cent of declared SEPs turn out to be actually essential. Both studies propose some form of independent essentiality testing to address the problem. The CRA study claims that random testing of a sample of each SEP holder’s portfolio would provide useful information about how royalty payments should be allocated between SEP holders; and that the benefits of such testing would be especially pronounced when combined with the imposition of an appropriate ceiling on the total royalty stack. According to the IPlytics report, patent offices have the requisite technical competence and industry recognition to perform essentiality testing at a reasonable cost.
To conclude, the two studies provide a reminder – if any were needed – that issues relating to the standardisation process and SEP licensing remain high on the Commission’s agenda. The Commission says it intends to draw fully on the studies’ findings when assessing the interplay between patents and standards in the EU Single Market. However, whether the Commission will embrace any of the practical solutions proposed by the studies remains to be seen.
* As mentioned in this December 2015 blog post, royalty-stacking refers to the situation where the royalties independently demanded by multiple SEP holders do not account for the presence of other SEPs, potentially resulting in excessively high total royalty burdens for implementers.
** See pages 71 and 85 of the CRA study.
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.