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Archive for February 7th, 2020

Case C-307/18 Generics (UK) and others v CMA (Paroxetine), a major landmark in the case law (I): principles

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Generics

It is safe to predict that last week’s judgment in Paroxetine will be remembered as a major landmark in EU competition law. It is unusual due to the depth and the breadth of the contributions it makes to our understanding of some fundamental principles. We have had many judgments clarifying a discrete point of law. Unlike these, Paroxetine engages with several notions at the same time (the notions of competition, restriction by a object, effects and abuse), which is uncommon in the case law, and this, in depth.

A bit over a year ago I explained why the pay-for-delay saga would test the fundamental principles (see here) underpinning Articles 101 and 102 TFEU. I do not believe it was an exaggeration: it is sufficient to take a look at the questions raised by the national court in Paroxetine. The CAT asked whether the likelihood of a patent being declared invalid should be considered when evaluating the effects of an agreement. From a system that does not question the existence of intellectual property rights, I explained, we could be moving to one treating them as probabilistic titles.

Eventually, the case law has proved to be resilient. The judgment is in line with AG Kokott’s Opinion (see here for my take on it). The notions of competition and potential competition have not changed (they are still based on objective considerations), and the relationship between competition law and intellectual property is the same it has been since Consten-Grundig. It is not because nothing has changed that the judgment is not interesting. On the contrary.

I would not do justice to such a major landmark in a single post. This one is on principles. One will follow on pay-for-delay and the final one on issues of proof, where, now that the law is clear, the attention will move.

On restrictions by object

The law has been consistent from the very early days, but we have heard claims until not so long ago (including in Budapest Bank), that the pro-competitive aspects of an agreement are not relevant under Article 101(1) TFEU. Now we can definitely say that such claims did not reflect the reality of the case law. In paragraph 103 of the judgment, the Court clarifies that the pro-competitive effects of an agreement ‘must, as elements of the context of that agreement, be duly taken into account for the purpose of its characterisation as a “restriction by object”’.

The Court is prudent to state that such pro-competitive effects must be ‘demonstrated, relevant and specifically related to the agreement concerned’. In other words, claims about the pro-competitive effects must not be merely pretextual (as they were in cases like BIDS, which concerned a plain-vanilla crisis cartel).

What is the threshold to rule out that the agreement is a ‘by object’ infringement? I had suggested in the past that the threshold is one of plausibility. Paroxetine seems to confirm this interpretation of the case law. There is an express reference to plausibility in the assessment of the reverse payment (para 89). In addition, the Court explains that the pro-competitive effects of the agreement must cast a ‘reasonable doubt’ about the object of the agreement. This position is also in line with AG Bobek’s Opinion in Budapest Bank.

On competition, potential competition and the counterfactual

Prior to the release of Paroxetine, I explained that the notion of competition in the Treaty is best understood as meaning ‘actual or potential lawful competition which would have existed in the absence of the practices under consideration’.

The judgment confirms this definition. In paragraph 40 of the judgment, the Court makes it clear that, when considering whether a firm is a potential competitor, it is necessary to consider the ‘regulatory constraints that are characteristic of the medicine sector’, thereby confirming that only lawful entry counts as competition within the meaning of Articles 101 and 102 TFEU.

Second, it is necessary to consider the counterfactual in light of the relevant legal and economic context, and more precisely the market conditions in the absence of the practice under consideration. This position puts an end to the idea that the counterfactual is not relevant at the ‘by object’ stage. As AG Kokott explained, if the market conditions would not have been affected by the agreement, the practice does not restrict competition, whether by object or by effect.

Reasonably (para 38), the Court holds that potential entry must not be a ‘purely hypothetical possibility’. By the same token, it need not be shown that entry is certain or that the potential entrant ‘will be capable, thereafter, of retaining its place’ on the market.

Third, subjective considerations may be a factor, but the notion of competition is an objective notion. In this regard, the judgment confirms the case law. I understand it as meaning that subjective considerations are relevant insofar as they shed light on the objective ability of a firm to enter the market.

On the notion of effects

There has been no shortage of posts on this blog on the notion of effect under Articles 101 and 102 TFEU. One of the points that has always been emphasised is that not every competitive disadvantage and not every limitation of a firm’s freedom of action amounts to an anticompetitive effect within the meaning of the abovementioned provisions (Post Danmark I and II, as well as MEO, insist on this point).

Crucially, Paroxetine leaves no doubt. According to the Court (para 172), in order to establish an exclusionary effect under Article 102 TFEU it is necessary to show more than just the impact of the practice on the parties involved in the transaction. The analysis must ‘[go] beyond’ such effects and consider, the market as a whole (in past cases, the Court has already had the chance to identify the relevant factors to consider in this assessment).

On the notion of abuse

The bit on whether the practice amounts to an abuse deserves to be read closely. Interestingly, it refers to the object and effect to the conduct, thereby indicating that there can indeed be abuses by object.

Second, and more importantly, the Court points out that, whether the practice has as its object or effect the restriction of competition, the application of Article 102 TFEU ‘presupposes that that conduct was capable of restricting competition and, in particular, producing the alleged exclusionary effects’ (para 154).

Whether the impact on competition needs to be shown (as in Post Danmark II) or is implicit (as in Intel), a practice is not abusive within the meaning of Article 102 TFEU if it is incapable of having restrictive effects. This clarification also means that the panoply of arguments discussed above – relating to the counterfactual, or to the fact that the impact of the practice does not go beyond the relationship between the parties – would be relevant too.

Hopefully I will address the pay-for-delay aspects next week. As ever, your comments would be most welcome.

Written by Pablo Ibanez Colomo

7 February 2020 at 7:12 am

Posted in Uncategorized