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Archive for May 22nd, 2014

More on AG Wahl and restrictions by object: ‘pay-for-delay’ settlements as a case study

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A while ago I wrote a post and engaged in some follow-up comments on the issue of restrictions by object. But since Alfonso is busy these days and has shown some persistence in chasing me to have me write another guest post, I thought it a good idea to add a few more thoughts on the matter. I see value in doing so given that the discussion in the preceding post remained (to my regret) overly abstract. I tell myself that if I illustrate my points by relating them to some on-going disputes/investigations, they may become clearer, and might even spark more discussion.

I explained back in March that the ECJ does not see the notion of restriction by object as a presumption of the likely effects of the agreement. I know this is a very popular understanding of Article 101(1) TFEU, but I see a clear difference – and so does the Court, may I add – between understanding what the agreement is all about (Article 101 TFEU refers explicitly to its ‘object’) and establishing its likely (negative) effects on the market. A ‘naked’ price-fixing agreement between competitors is prohibited irrespective of whether collusion can realistically be sustained on the relevant market (that is, irrespective of whether there are reasons to believe that the parties will ever be credibly committed to restricting competition). When reading the case law, it is pretty clear to me that the real question is whether the agreement is a plausible source of efficiency gains (there are myriad examples where this approach has been followed, some of which I mentioned in the other post). Put differently, the true issue is whether it is realistic to expect pro-competitive effects from the agreement in light of the context in which it is implemented.

Allow me to illustrate these ideas by reference to the on-going debates around ‘pay-for-delay’ settlements (Alfonso already wrote about this some time ago). It is fairly clear that a ‘naked’ (and the word ‘naked’ cannot be emphasised enough) agreement between two competitors whereby one of them agrees to delay the launch of a product amounts to a restriction by object within the meaning of Article 101(1) TFEU. The question is whether the agreements at stake in cases like Lundbeck can be likened to such ‘naked’ restrictions. Addressing this issue requires understanding, first and foremost, the point of these agreements in their context. What becomes immediately apparent in this sense is that they cannot be said to be ‘naked’. There is something else to these agreements, namely a background dispute between the parties relating to the validity or to the infringement of a patent. From this perspective, the question could be rephrased as one of whether putting an end to such a dispute by means of a settlement can be likened to a cartel agreement.

To me, the answer is a clear no. Nobody would deny that out-of-court settlements are an efficient way to deal with disputes. In paragraph 235 of the recently issued Guidelines on technology transfer agreements, the Commission is very explicit in this regard. If this is so, and to the extent that there is genuine uncertainty about the ability of a generic producer to enter the market, the applicable case law suggests that Lundbeck-like settlements should only be deemed to restrict competition after a careful assessment of their effects under Article 101(1) TFEU. By the same token, the ‘object’ category would only be appropriate where it is clear beyond doubt that the generic producer would have been able to enter the market without infringing the patent(s) in question or it is clear beyond doubt that the said patent(s) are invalid. Only then would it be justified to assess them in the same way cartels are (in such a scenario, the restraints would in reality be ‘naked’, as there would be no actual dispute to settle).

Pablo

Written by Alfonso Lamadrid

22 May 2014 at 12:18 pm