Chillin'Competition

[There are too many things going on this week on which we would like to comment (not least yesterday’s record fine in the CRT cartel) and we hear that next week may be even more interesting… We had another post planned for today, but current news rule,  and we wanted to provide you with the first comment of today’s Judgment in AstraZeneca. So, here’s a subjective and hastily written summary + comments. It might be a living-post, meaning that it might be updated as further thoughts come to mind. Anyone who might want to use this to draft client alerts: please consider this as a Sint Nicholas gift 😉 ] 

It could make sense to hold a ménage à trois discussion on this Judgment; candidates are welcome…

Today the European Court of Justice (“ECJ”) issued its long-awaited Judgment in the AstraZeneca (“AZ”) case. The ECJ has upheld the 2010 Judgment from the General Court, which in turn had endorsed the Commission’s 2005 infringement decision.

Background

As most of you know, the Commission had found that AZ abused its dominant position by (a) making misleading representations to patent offices of several Member States with a view to extending the period of patent protection for its product Losec (an omeprazole-based medicinal product used in the treatment of gastrointestinal conditions); and (b) requestintg the deregistration of market authorisations for Losec capsules in Denmark, Norway and Sweden. These conducts were ultimately aimed at keeping manufacturers of generic products at bay, as well as at preventing parallel trade.

In 2010 the General Court dismissed most of AZ’s arguments, but reduced the fine from € 40.25 million to € 12.25 million on the grounds that the Commission had not proved that AZ’s conduct had prevented parallel imports of Losec in Norway and Denmark. AZ appealed this Judgment, and in doing so brought before the ECJ some issues which are of crucial relevance to the very notion of abusive conduct.

Today’s Judgment

– Market definition is discussed in paras. 31-60. I had started to summarize it, but it would take too long. Unless you represent AZ you can skip (lots of factual stuff, there’s nothing that will rock your world)

– The first abuse

The logic in the GC’s Judgment was that AZ deliberate (intention plays a key role here) submission of misleading information to public authorities with a view to obtaining the grant of an exclusive right to which it was not entitled falls outside the scope of competition on the merits, and therefore within the category of abusive conduct.

AZ and EFPIA argued that AZ had simply failed to disclose to patent offices its bona fides and allegedly reasonable interpretation of the patent rules, and that this could not be equated with “objective misleading”. In their view, even if AZ’s interpretation ultimately proved wrong, it was not aimed at misleading. The applicants claimed that pursuant to the GC’s standard, dominant companies would have to be infallible in their dealings with regulatory authorities, which, in turn, would impede and delay patent applications in the EU. [i.e. the basic trick of trying to scare the Court alleging that hell will break loose; as if it had since the Decision was issued in 2005….]

The ECJ’s Judgment -like the GC’s-  is solidly grounded on Hoffman la Roche’s rather unhelpful definition of  abuse as conduct different from “competition on the merits”. It does not require the abusive conduct to flow directly from the exercise of the undertaking’s dominanat position; on the contrary, it assumes that the presence of a dominant company already implies that the degree of competition in a market is hindered (the clearest formulation of this idea appears in para. 150, with respect to another ground of appeal), and that therefore it has a special responsibility to ensure that competition is nor further undermined.

The ECJ does a good job in setting out the objective reasons why AZ’s conduct was consciously motivated by the desire to mislead public authorities in order to maintain its dominant position (see paras. 79-93). The Court notes in paras. 94-100 that if AZ’s interpretation had been reasonable (as AZ claimed), then it should have disclosed the relevant information informing its interpretation (the Judgment doesn’t put it this way, but the idea seems to be that the intentional failure to disclose that info provides a valuable indication of the merits that AZ seemed to attribute to its own reasoning). Para 98 makes it clear that even if you have a “legally defensible interpretation” this is not excuse resorting to highly misleading representations with the aim of leading public authorities into error.

In para 99 the Court responds to the “hell will break loose argument” (see my second word crossing above) stating that the GC did not require infallibility in patent applications (“it thus cannot be inferred from that Judgment that any patent application made by such an undertaking which is rejected on the grounds that it does not satisfy the patentability criteria automatically gives rise to liability under Article 102“), and that the Judgment is confined to the specific circumstances of the case. There’s a difference between requiring infalibility and reprehending someone who obviously and intentionally fails to act right.

The Court then deals with the argument that AZ’s conduct (its apliccation for SPCs) was labelled as abusive regardless of its lack of effects. It states that the “examination by  the General Court is not in any way based on the assumption that the practice in question constitutes an abuse in itself regardless of anticompetitive effects” (para. 106). The ECJ confirms that AZs misleading interpretations were liable to lead the public authorities to grant it a right to which it was not entitled, and that this in fact happened in several Member States (paras. 107 and 108). In para. 110 the Court makes it clear that even if the effects of the abuse were also felt at a period in which AZ was not dominant anymore, this is irrelevant for the assessment of the legallity of a practice carried out while AZ was dominant. The Court also upholds the GC’s conclusion that AZ did not achieve its goal in some Member States its conduct was “very likely to result in the unlawful SPCs” (para. 111).

The ECJ makes it cleat that in Art 102 cases there is no “requirement that current and certain anticompetitive effects be shown“. Citing para. 64 of TeliaSonera the ECJ states that “although the practice of an undertaking in a dominant position cannot be characterised as abusive in the absence of any anti-competitive effects on the market, such an effect does not necessarily have to be concrete, and it is sufficient to demonstrate that there is a potential anti-competitive effect” (para. 112) (unlike in TeliaSonera, there is no reference to the exclusion of “as efficient competitors”, but this is probably due to the different factual settings in the two cases).

– The second abuse

AZ and EFPIA essntially argued that AZ’s withdrawal of the market authorization for Losec was simply the exercise of a right conferred upon it by EU law, and that the exercise of a right cannot be both prohibited and granted at the same time.

The ECJ has ruled that there was no objective justification for AZ to request those withdrawals (130); that  AZ was not in any way legitimately protecting an investment which came within the scope of competition on the merits (131) (here you have a good element to distinguish the case from other future ones); and that “the
illegality of abusive conduct under Article 82 EC is unrelated to its compliance or non-compliance with other legal rules and, in the majority of cases, abuses of dominant positions consist of behaviour which is otherwise lawful under branches of law other than competition law“.

In what may be read by some as a relative inversion of the burden of proof, the Court states in para. 134 that the special responsibility incumbent upon a dominant company implies that it cannot act (use regulatory procedures) “in such a way as to prevent or make more difficult the entry of competitors on the market, in the absence of grounds relating to the defence of the legitimate interests of an undertaking engaged in competition on the merits or in the absence of objective justification“.

AZ had argued (by reference to the case law on duty to deal) that the exercise of a right lawfuly afforded by EU law could at the most amount to an abuse only in exceptional circumstances, namely where there is an elimination of all effective competition. The ECJ dismisses the analogy between the right at issue and property rights (148-149); the obligation not to prevent or render more difficult the entry of competitors (unless objectively justified) does not constitute an “effective expropriation” of the right to desregister a MA, but rather a limitation of the options available under EU law. Conditioning the exercise of rights for the protection of competition is in no way exceptional and does not justify a derogation from Art. 102 “unlike a situation in which the unfeterred exercise of an exclusive right awarded for the realisation of an investment or creation is limited” (para. 150).

– The fine

AZ had asked for a “symbolic” fine on the grounds that its conduct was novel. The ECJ insists on the fact that the examined conduct “has the deliberate aum of keeping competitors away from the market“, that even though there were no precedents on this specific sort of conduct AZ was aware of its “highly anticompetitive nature and should have expected it to be incompatible with competition rules“.

There is also a discussion on how the absence of effects in some MS should affect the calculation of the fines. The ECJ responds that AZ “cannot take advantage, in the context of the calculation of the fine, of the fact that, thanks to the intervention of a third party, their highly anti-competitive conduct, which was likely to have a significant effect on competition, did not always produce the effects expected” (165).

It also adds a phrase that -despite some nuanced drafting- may attract some attention in future cases: “The General Court was also fullly entitled to hold (…) that factors relating to the object of a course of conduct may be more significant for the purposes of setting the amount of the fine than those relating to its effects” (para. 165).

       – Cross appeals

In paras. 169-190 the Court dismissess EFPIA’s cross-appeal by entirely endorsing the GC’s approach.

In paras. 191-203 the Court also dismissess the Commission cross-appeal against the GC’s finding regarding the lack of evidence that AZ´s conduct was capable of exclusing parallel imports in Denmark and Norway.

Conclusion

The ECJ shows a noticeable willingness to engage in a detailed and fact-specific review of the General Court’s Judgment. You will notice that the Judgment is more about assessing the case on its facts than about laying down general principles (as some may had wished for) that are rather taken for granted.

Forecasting that the Judgment will be subject to intense criticism isn’t difficult, for quite some criticism was targetted at the Commission’s decision and at the General Court’s Judgment. The core of the criticism will be that the Court is saying that anything that’s not competition on the merits is abusive, and that, given the uncertainty as to what competition on the merits really means, the Judgment is  further widening the scope of the notion of abuse in an unclear manner.

There is a preemptive response to this criticism in the ECJ’s Judgment. The assessment of whether a given conduct can be regarded as competition on the merits or not is to be made “in concreto” and “may vary according to the specific circumstances of each case” (para. 99). In other words, the ECJ does not interpret its Judgment as lowering any standards; it’s rather observing that AZ’s conduct was obviously and certainly aimed at unduly preserving its monopoly and that, as such, it was rightly sanctioned in this particular case.

This connects to is a legitimate debate on whether the Court`s task is to set clear general rules or rather to adjudicate on the merits. The Court’s have traditionally adopted a middleground approach that some regard as sensible but that doesn’t satisfy others. If interested on this debate, take a look at Nico’s piece on it.

The Judgment certainly endorses a wide view of the reach of the “special responsibility” incumbent upon dominant firms. Will this have far-reaching practical implications? Most likely not. Whether we like it or nor, we work with a law that is by nature vaporous and uncertain, and where legal certainty depends more on common sense than on the existence of clear cut-rules. This Judgment doesn’t change this for good nor for bad. The law and the case law do not clearly and unequivocally tell us what is specifically prohibited and what’s not, but with a bit of common sense in most instances we should be able to tell whether a given conduct is caught by the prohibition or not (there are exceptions to this rule, but those exceptions normally end up in commitment decisions, not in sanctions). So, yes, Art 102 is uncertain; yes at times this fits oddly with the principle of legallity; yes, the Commission has a wide discretion and the winning hand when it decides to pursue a case; but no, the Commission will not (generally) pursue cases unless anticompetitive object of effects are clear (and AZ´s conduct was obviously intended to harm competition). That was also the case in Tomra (another much criticized Judgment) and that is the case now. In other words, you may or may not agree with the underlying philosophy (I for one understand it) but I don’t see any risk that this Judgment may facilitate in practice the condemnation of conduct not clearly anticompetitive or objectively justified.