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AG Kokott in Case C-307/18, Generics UK and others (Paroxetine): dispelling the myths about Article 101(1) TFEU and restrictions of competition (I)

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Advocate General Kokott personifies, perhaps more than any of her colleagues, orthodoxy in EU competition law. During her tenure, she has warned against getting carried away by the zeitgeist (a piece of advice that is probably more valuable than ever these days). If the law is to evolve, it has to do so in an incremental way, step by step (just as she advocated in Post Danmark II).

Against this backdrop, her much-awaited Opinion in Paroxetine cannot come as a surprise. It is thorough and well-structured. It reflects the orthodox approach to Article 101(1) TFEU and the analysis of restrictions of competition (how could it be otherwise?). Importantly, the Opinion is in line with – and complements – AG Bobek’s in Budapest Bank, which is frequently cited with approval.

When I wrote about AG Bobek’s Opinion, I argued that it would probably ensure the survival of this orthodoxy. Following AG Kokott’s confirmation of the principles that have always underpinned the analysis of restrictions of competition under Article 101(1) TFEU, it is likely that some of the persistent myths we have discussed in this blog will vanish once and for all.

The Opinion is fairly long, and I would not do justice to it in a single post, which is why I will be addressing today the notion of restriction by object and the application of the principles of the case law to the issues raised in Paroxetine the Opinion. Issues of proof and effects will have to wait for another day (on effects, I can anticipate that it is also orthodox, in addition to valuable – we have not had that many Article 101 TFEU judgments on effects).

The notion of restriction of competition

Pay-for-delay cases are interesting in that they expose the most frequent myths around the notion of restriction by object. The Opinion tackles them one by one in an exhaustive way.

It is, first and foremost, all about the object (the aim, the purpose, the rationale) of an agreement

This point may seem self-evident but discussions about Article 101(1) TFEU have occasionally become so far detached from the letter of the Treaty and the principles of the case law that it is important that AG Kokott emphasises the obvious: assessing whether an agreement is restrictive by object means figuring out its aim, its ‘precise purpose’ (see BIDS), its rationale.

We are reminded of this fundamental question in several key points of the Opinion. I will mention just one, perhaps the most important. In para 115, AG Kokott evaluates the rationale for the ‘reverse payment’ and takes the view that, absent another plausible explanation, this could be an indicator that the objective purpose of the agreement is the restriction of competition.

In the same vein, AG Kokott explains that the assessment of a restriction, whether by object or effect, is never undertaken in the abstract: context is everything.

The pro-competitive aspects of an agreement are relevant under Article 101(1) TFEU (and specifically to ascertain whether an agreement is restrictive by object)

I have often written about this. In spite of the abundant evidence from the case law, it is not unusual to hear, still, that the pro-competitive aspects of an agreement can only be considered under Article 101(3) TFEU. In this regard, the Opinion is particularly valuable.

In her careful overview of the case law, AG Kokott explains that the pro-competitive aspects of an agreement are relevant in the context of Article 101(1) TFEU in two ways:

  • The clauses in an agreement may be objectively necessary to attain a pro-competitive aim. In such circumstances, such clauses do not restrict competition either by object or effect (paras 150-156 of the Opinion).
  • Even when not objectively necessary, the pro-competitive potential of an agreement may rule out its qualification as restrictive by object (paras 157-179; the key precedents cited are Cartes Bancaires and Maxima Latvija). It is in this regard that AG Kokott cites with approval AG Bobek’s Opinion in Budapest Bank. Sensibly, the Opinion clarifies that not every advantage claimed by the parties rules out a finding of an object infringement. This clarification follows logically BIDS: you will all remember that BIDS was an obvious object case; the fact that the parties invoked certain pro-competitive benefits did not alter the conclusion.

An agreement must be capable of restricting competition for it to be caught by Article 101(1) TFEU

This is a point that was already made clear in another case in which AG Kokott delivered an Opinion, T-Mobile. In Paroxetine, she insists on this fundamental point, in particular when dealing with the notions of competition and potential competition. She notes that the qualification of an agreement as restrictive presupposes that there is a degree of competition that can be restrained (para 57).

In other words, and as I understand it, the agreement must be capable of restricting competition that would otherwise have existed. The Opinion seems to avoid being explicit about whether the evaluation of the counterfactual is relevant at the object stage. However, when one puts together the different pieces, it seems obvious that the counterfactual, whether implicitly or explicitly, is a fundamental consideration.

The application to pay-for-delay agreements

Pay-for-delay agreements are a source of unique challenges for competition law. The economic and legal context of which they are a part makes it particularly difficult to establish whether they are capable of restricting competition that would otherwise have existed.

On the one hand, patents are presumed valid, on the other, patents are not presumed infringed. On the one hand, patents do not give protection against challenges before a court; on the other, courts and authorities acknowledge that settlements to avoid court proceedings are not necessarily anticompetitive.

How does AG Kokott go about the question? Provided that the pay-for-delay settlement is capable of restricting potential competition, it will restrict competition where its sole aim is to prevent generic producers from entering the market.

The question is whether the agreement is a genuine settlement of a real patent dispute (I came up with a similar interpretation here). The key paragraph is 134:

134. Furthermore, as the Commission correctly points out, even in the case of an actual dispute with an uncertain outcome concerning a lawful patent, in order to assess whether an agreement to settle such a dispute has an anticompetitive object, it must be ascertained whether that agreement has actually resolved the dispute in question and whether those terms reflect a compromise between the parties in that regard. In other words, the question is whether the agreement is a genuine compromise reached on the basis of an independent assessment by the parties of their situation regarding the patent, or whether the agreement consists, rather, in putting an end to the dispute by means of a payment made by one of the parties to the other, so that the latter no longer challenges the patent and no longer competes’ (emphasis added).

On the facts, AG Kokott concludes that it was not a real settlement, and that the ‘precise purpose’ of the agreements at stake in the case was to restrict competition (I leave the analysis of concrete outcomes in individual cases to others).

Another crucial point, noted above, is that the existence of a large reverse payment is not necessarily a determinant factor. There may be a plausible explanation for such conduct (para 115), which, as in Murphy and Intel, the parties would certainly be able to advance. This last point takes me to the issue of proof, which will be the subject of my next post on the Opinion. I look forward to your comments!

Written by Pablo Ibanez Colomo

23 January 2020 at 7:59 am

Posted in Uncategorized