Chillin'Competition

AG Kokott’s Opinion in Lundbeck came out earlier this month. Because it was delivered after Generics, most of the issues raised by the case were already settled when issued. In particular, the legal tests to establish potential competition and whether an agreement amounts to a restriction by object have been clarified.

In many respects, Lundbeck is more straightforward than Generics, which in turn makes it easier to apply the tests to the facts of the case. This said, I would note that AG Kokott does not make use of the distinction between genuine and non-genuine settlements. This distinction, introduced in Generics, could be relevant in Lundbeck. The available facts suggest the agreements were a sham (and thus a blatant object infringement).

When reading the Opinion, I told myself that the Court may perhaps have to identify in the future some instances in which intellectual property rights are insurmountable barriers to entry. Such instances must surely exist (in the same way it is clear that, in the specific context of the Lundbeck case, the process patents were in no way an insurmountable barrier).

The counterfactual at the ‘by object’ stage: on names and substance

A central issue that has been settled in the meantime – albeit not in Generics – is that the evaluation of the counterfactual is relevant at the ‘by object’ stage (see here). In Budapest Bank (paras 82-83), the Court held that the conditions of competition that would have prevailed in the absence of the agreement are a factor to consider in this regard.[1]

Interestingly, AG Kokott does not refer to, or discuss, Budapest Bank (only AG Bobek’s Opinion, but not in relation to the counterfactual). What is more, she does not seek to take a definitive stance on this issue, which is left open (para 139).

In any event, she notes in the Opinion that, irrespective of the name that we attach to it, the General Court had indeed evaluated the conditions of competition that would have prevailed in the absence of the agreement. In fact, one of the main points I noted about the first instance judgment is that the GC had denied the relevance of the counterfactual while at the same time conducting an extensive evaluation of the issue. As mentioned, AG Kokott seems to share the same view (see para 139).[2]

AG Kokott’s brief analysis raises three main questions . The first is whether it matters that the evaluation of the conditions of competition that would otherwise have existed is called counterfactual. I do not think so. Whether this assessment is called counterfactual or given another name (say, rose, or tomato), what it entails in substance is now clear. This, I guess, is what matters.

The second is whether there are any advantages in not calling a spade a spade. I cannot think of any. Which takes me to the third question: why, then, the reluctance to use the c-word at the ‘by object’ stage? The most reasonable explanation is probably that, in the eyes of some, considering the counterfactual amounts to evaluating the effects of the agreement. I believe we have been here before. Remember the idea that the pro-competitive effects could not be considered at the ‘by object’ stage? Fortunately we have Budapest Bank now, which shows this fear is not warranted.

What is the role of the counterfactual at the ‘by object’ stage?

The counterfactual at the ‘by object’ stage may be relevant in two ways. First, it may show that the agreement is not capable of restricting competition that would otherwise have existed. This point was elegantly addressed by AG Kokott in her Opinion in Generics, where she referred to GC rulings like E.On Ruhrgas (in addition to the Court judgment in Toshiba). If it turns out there are insurmountable barriers to competition, for instance, it may be the case that the conditions of competition would have been the same with and without the agreement (and therefore there is no restriction, whether by object or effect, as explained in para 58 of AG Kokott’s Opinion in Generics).

Second, it may be the case that the agreement is capable of improving the conditions of competition and is thus not a ‘by object’ infringement. For how can one claim that an agreement that is plausibly pro-competitive has as its ‘precise purpose’ the restriction of competition? This is the key contribution made by the Court in Budapest Bank, although the point was already implicit in Generics (remember the Court considered arguments about the alleged improvements entailed by the agreement).

Why the appelants’ interpretation of the counterfactual seems at odds with the case law

If you read the Opinion, you will see that the appellants in Lundbeck argued that, if the counterfactual had been analysed properly, it would have revealed that generic producers would not have entered the market, and that the absence of entry would have been attributable to Lundbeck’s patents, not to the agreement (para 136).

These arguments seem difficult to square with the case law. As the Court explained in Generics, it is not necessary to show that entry would be certain for potential competition to exist. In the same vein (as held in T-Mobile), an agreement is restrictive by object where it is capable (as opposed to likely, or certain) of restricting competition.

In a case like Lundbeck, it seems enough to show that the originator and the generic producers were potential competitors (and thus that the agreements were capable of restricting competition that would otherwise have existed). Absent any arguments that the settlements were capable of having pro-competitive effects (which the parties did not put forward, as noted in paras 142-143 of the Opinion), no further evaluation was necessary at the ‘by object’ stage.

[1] It probably makes sense to reproduce para 82 of the judgment here: ‘In the event that the referring court were also to find there to be, a priori, strong indications capable of demonstrating that the MIF Agreement triggered such upwards pressure or, at the very least, contradictory or ambivalent evidence in that regard, such indications or evidence cannot be ignored by that court in its examination of whether, in the present instance, there is a restriction ‘by object’. Contrary to what it appears may be inferred from the Commission’s written observations in this connection, the fact that, if there had been no MIF Agreement, the level of interchange fees resulting from competition would have been higher is relevant for the purposes of examining whether there is a restriction resulting from that agreement, since such a factor specifically concerns the alleged anticompetitive object of that agreement as regards the acquiring market in Hungary, namely that that agreement limited the reduction of the interchange fees and, consequently, the downwards pressure that merchants could have exerted on the acquiring banks in order to secure a reduction in the service charges’ (emphasis added).

[2] ‘139. Irrespective of whether such an analysis may bear similarities to a ‘counterfactual’ analysis of what would have occurred in the absence of an agreement and whether it is necessary to conduct such a counterfactual analysis in cases involving agreements constituting restrictions of competition by object, suffice it to note that, in the judgment under appeal, the General Court carried out a detailed examination of whether the generic manufacturers had real and concrete possibilities of entering the market at the time the agreements at issue were entered into, so that it can be concluded that such possibilities were eliminated by those agreements’.