Chillin'Competition

I have just uploaded on ssrn (see here) a paper discussing the Court of Justice’s ruling in Generics (Paroxetine). It is a case note commissioned by the Common Market Law Review earlier this year. Hopefully it provides a clear and useful overview of the judgment and its implications. There is also a cameo appearance of Budapest Bank, which was issued shortly afterwards and could not be left out of the analysis.

Before I say anything about the piece: I am really grateful to Fernando Castillo de la Torre (Legal Service), who shared his comments on a previous version and definitely improved the end product. Thanks so much again!

I have written several (almost certainly too many) posts on a legal issue which I continue to find fascinating. But I tell myself that it is worth emphasising the points that follow.

Pay-for-delay and minimisation of Type I and Type II errors

The more I think about it, the more I tell myself that Generics (Paroxetine) achieved an optimal balance to minimise the risk of both Type I and Type II errors.

It is true that the Court defines the notion of potential competition in a relatively broad manner. It is sufficient to show that there are ‘real concrete possibilites’ of entry (as opposed to the likelihood of entry). What is more, potential competition can be established by proxy, on the basis of indirect indicia.

On the other hand, the Court is careful to point out that pay-for-delay agreements are not always restrictive by object, and that it is necessary to consider the specific circumstances of each case to come to conclusions about whether a given settlement is prima facie unlawful irrespective of its effects.

Intellectual property and insurmountable barriers to entry

Part of the interest of the preliminary reference in the case came from the fact that the UK Competition Appeal Tribunal openly invited the Court to think in probabilistic terms about intellectual property titles. Instead of seeing them as presumptively valid exclusive rights, the tribunal suggested that the probability of them being declared invalid could be incorporated in the assessment.

The Court did not follow the path suggested or implied in the reference. This is not surprising, considering that there is a consistent line of case law, dating back to the very early days of Consten-Grundig, according to which EU law does not question the existence of intellectual property rights, but only their exercise.

What I found interesting (but also not surprising) is that the Court declares that, in the specific circumstances of the case, intellectual property rights were not deemed an ‘insurmountable barrier to entry’.

The question for future rulings is that of when intellectual property will be deemed an ‘insurmountable’ barrier. The Court suggests it is an issue to be decided on a case-by-case basis in light of the relevant economic and legal context.

On restrictions by object

On the notion of restriction of competition by object, I have already explained that Generics (Paroxetine) will be remembered as a seminal ruling, together with Budapest Bank.

The two confirm that the identification of the object of an agreement is a context-specific inquiry. In addition, they (in particular Generics) made it explicit that the pro-competitive aspects of a practices are part of this assessment.

Another point that I have addressed at length is the counterfactual: in the two judgments, the conditions of competition that would have prevailed in the absence of the practice play a role in the evaluation of the object of the agreement. Insofar as this is the case, it seems difficult to argue that the counterfactual is merely confined to the assessment of effects.

The analysis of effects under Article 102 TFEU

Finally, Generics (Paroxetine) is particularly valuable in the contributions it makes to the clarification of the notion of anticompetitive effects under Article 102 TFEU.

In this regard, the Court confirms that the evaluation of this question under Article 102 TFEU is not different from that undertaken under Article 101 TFEU or indeed merger control (which is not only welcome but natural).

Accordingly, it is necessary to assess effects by reference to the market as a whole. By the same token, the impact of the practice would need to go beyond that consequences it has for the freedom of action of individual undertakings.

In reality, the Court’s approach is not any different from that laid down in Delimitis (an Article 101 TFEU case) and sketched in Post Danmark II and Intel (where the Court placed an emphasis on the coverage of the practice as a factor).