Chillin'Competition

Advocate General Rantos rendered his Opinion in Teva last week. The factual background is not new: it involves pay-for-delay arrangements, with which the Court of Justice has dealt regularly in recent years (including the Servier saga, discussed here and here). The action against the original Commission decision in Teva was dismissed by the General Court (see here). and the appellants – Teva and Cephalon – request that the first-instance judgment be set aside.

The case law on pay-for-delay has made important contributions to the assessment of the object of agreements under Article 101(1) TFEU. Above all, this steady stream of judgments has led to the adoption of a legal test that has been systematically applied since Generics. The test captures the substantive approach followed by the Court in the preceding the years.

As the Opinion of Advocate General Rantos shows, some questions keep coming back, even though – one might reasonably argue – they were already implicitly (if not explicitly) addressed in the previous case law. In this sense, the appeal provides the Court with an opportunity to clarify some issues at the margins.

The Court’s contextual approach to restrictions by object

The case law of the past decade makes it clear that the Court’s approach to the analysis of restrictions by object is contextual. Restrictions by object, in other words, are not abstract categories that can be mechanically applied to agreements. Whether or not a practice is, by its very nature, contrary to Article 101(1) TFEU must take into account the economic and legal context surrounding it. Only in such a way is it possible to establish whether the behaviour can be explained other than as a means to restrict competition.

The Court’s contextual approach is not an analysis of effects

In spite of the consistency of the Court’s position, it is not infrequent to read that the contextual approach to restrictions by object amounts, in essence, to evaluating the effects of the practice. According to this view, the current case law would conflate the object and effect stages of the analysis.

As explained elsewhere, there is a fundamental difference between ascertaining the object of an agreement in light of the relevant economic and legal context and assessing its effects on competition. The Teva case itself shows that the object stage is about making sense of the rationale behind the practice, that is, what explains the agreement between the parties. This assessment cannot be undertaken in the abstract. By necessity, it must consider the circumstances surrounding it. Doing so does not mean, however, that it must venture into effects territory.

An indispensable step of the analysis in pay-for-delay cases, which the Court explained at length in Servier, involves asking whether the parties to the agreement are actual or potential competitors (if there is no actual or potential competition to restrict in the first place, the agreement cannot be inherently anticompetitive). Semantic issues aside (see para 52 of the Opinion), this step does not entail an evaluation of the restrictive effects of agreements in light of the relevant counterfactual (as already clarified in Lundbeck).

The appellants in Teva, the Opinion suggests, sought to argue that the General Court engaged in an analysis of effects (thereby erring in law).

Advocate General Rantos relies on the existing body of law to explain that the General Court did not seek to ascertain the impact of the practice, but rather make sense of the ‘interests and incentives of the parties concerned, in order to ascertain whether the commercial transactions contained in the settlement agreement could have any explanation other than the commercial interest of the appellants not to engage in competition on the merits’ (para 56, emphasis in the original).

In other words, the General Court did nothing other than ascertain whether the Commission had correctly identified the object of the agreement in the relevant economic and legal context, as required by the case law.

The Court’s contextual approach does not entail a reversal of the burden of proof

Pursuant to the Court’s contextual approach, the authority or claimant have the burden of showing that the practice has no explanation other than a restrictive one. If there is no other plausible way to make sense of the behaviour, it will be deemed to restrict competition by object.

This test does not entail in any way a reversal of the burden of proof. It is not for the parties to the agreement to provide a plausible non-restrictive explanation for their conduct, but for the claimant or authority to show that such a plausible explanation does not exist.

While the above point seemed clear, one of the arguments in the appeal in Teva appears to be that the General Court’s assessment amounted to a reversal of the burden of proof. Advocate General Rantos explains (paras 59-64) why this argument does not reflect the reality of the case law (and, indeed, the analysis actually undertaken at first instance).

More than anything, the appellants’ argument is a valuable reminder that there is a difference between the legal burden of proof (what the authority or claimant needs to show to establish an infringement) and the evidential burden of proof (the evidence that the parties need to provide to challenge the arguments made by the authority or claimant).

It is uncontroversial to state that the parties to an agreement have the evidential burden of putting forward a plausible non-restrictive explanation for their conduct. It does not follow from this fact, however, that the legal burden of proof is reversed in any way.

In a similar vein, Advocate General Rantos rejected claims that the General Court had set a test that was impossible for the parties to meet. The parties need not show that an alternative explanation for the agreements is ‘certain’ (para 64). It is sufficient to show that it is plausible. The plausibility of the alternative explanation, however, cannot be merely pretextual (in the sense that it must be properly substantiated) and must be informed by the specificities of the case.