Source: http://www.bristowsclipboard.com/?tag=/Market-definitiondominance
Timestamp: 2019-04-26 11:54:08+00:00

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CAT judgment in Pfizer/Flynn: Was the CMA ‘unfair’ in its assessment of Pfizer and Flynn’s prices?
Thus concluded the Court of Appeal some 10 years ago in overturning a High Court judgment identifying an abuse of dominance through excessive pricing, in that case of pre-race data about British horse races.
The chequered history of excessive pricing cases has repeated itself in 2018, with the Competition Appeal Tribunal’s 7 June judgment in the appeals by Pfizer and Flynn of the CMA’s excessive pricing Decision in relation to phenytoin sodium capsules (we’ve previously covered this here, here, and here). In a blow to the CMA’s ground-breaking case, the CAT has taken issue with the CMA’s analysis of abuse. As a result, it is considering whether to remit this part of the Decision (and consequential findings, such as the penalties imposed) back to the CMA, and essentially let the CMA try again.
The CAT has succinctly summarised its main conclusions here. The findings on market definition and dominance have been upheld, but the controversial findings on abuse have been set aside. This post guides readers through the key points.
What was the CMA actually arguing?
In its Decision, the CMA sought to apply the Court of Justice’s United Brands ‘two-limb’ test for excessive and unfair pricing, and it was on this that the grounds of appeal focussed.
During the appeal hearing, however, the CMA seemed to place greater emphasis on the comparison of prices before and after the Pfizer-Flynn agreement, perhaps in reliance on AG Wahl’s opinion in the AKKA/LAA case that competition authorities should have flexibility to determine their own framework for assessing prices. While the CAT acknowledged that significant price increases over time may be a useful indicator of a potential competition problem, and a reason for starting an investigation, this “should not be confused with the test for unfair pricing itself” (439). This therefore does not seem to be an easy route for the CMA to take on remittal.
The CAT did not conclude that facts established by the CMA could not give rise to a finding of excessive prices. Rather, it was the CMA’s narrow approach to the assessment of excessive pricing which could not support such a conclusion. The CMA’s use of only a Cost Plus methodology resulted in a price that would have existed under conditions of “idealised competition”, rather than in the ‘real world’. If the Cost Plus figure was not the normal competitive price, then it was not the right price for the purposes of the United Brands test. Instead, the CAT should have looked at wider evidence to establish a benchmark price (or range) based on circumstances of “normal and sufficiently effective” competition. If the Decision is remitted back to the CMA, it may use Cost Plus as part of the methodology, but it will also need to put those theoretical figures in their full market and commercial context.
As to the benchmark figures themselves, which used the PPRS derived 6% return on sales, the CAT seemed to accept the PPRS was a potentially relevant indicator, but found the CMA placed too much reliance on it – particularly as Department of Health evidence expressed doubts as to its relevance. The CAT cautioned that the PPRS was intended to apply in different circumstances to those in this case.
The second limb of the United Brands test appears to give regulators two options: the issue here was whether these were genuine alternatives (as the CMA had only considered the first, ‘unfair in itself’), or whether the CMA should have considered both. The CAT found that, although the CMA did not need to succeed under both to show a price was unfair, it did need to consider whether the alternative would show a price is one that undermines the basis of a finding of unfairness, in particular where a party under investigation has raised the issue. While the CAT does not refer to the recent Intel judgment of the CJEU, there is a flavour of its ruling here.
The CMA had determined that there were no products which could provide a ‘meaningful comparison’, but the CAT found that the CMA’s argument to support this was at fault, and it should have considered the suitability of comparators in more depth. In particular, tablets produced by Teva were around twice the price of the Pfizer-Flynn Capsules; but this price came from an agreement with the Department of Health which reflected the economic value of the Teva tablets. Even though those tablets were accepted by the CAT to be outside the relevant market as defined, they appeared to be sufficiently comparable to be worthy of more in-depth consideration. The contrast drawn between the narrow function of market definition and the wider consideration of competitive constraints relevant in considering abuse is an important and sensible contribution to Article 102 case law generally.
The CAT found that the question of the ‘economic value’ of the Pfizer-Flynn Capsules (which the CMA had considered separately) was best addressed in the context of the ‘Unfairness Limb’. The CMA had found that the economic value did not exceed the Cost Plus price it had calculated, and considered that there were no non-cost factors which served to increase it. However, the CAT expressed concern that the evident economic value derived from the benefit patients received had been rejected. Although the CAT acknowledged that patients did only have limited choices, the CAT found that the CMA should still have attempted a qualitative assessment of this benefit. Assigning a monetary value to this benefit and assessing by how much it should be reduced due to patients’ limited choices is likely to be difficult.
The CAT decided that further assessment of competitive conditions using information beyond the scope of the Decision would be required. For that reason, the CAT could not make its own findings as to whether there was an abuse by either company. Instead, it has provisionally proposed to remit the abuse section Decision back to the CMA, but will now fix a further hearing for the parties to address it on this point.
Given the policy issues surrounding price increases in the pharmaceutical sector, remitting the Decision for more a comprehensive analysis with the benefit of further clarity in a novel area (from the CAT and the CJEU in AKKA/LAA) is probably the best outcome for all concerned – although the recent closure of the regulatory ‘loophole’ that allowed unregulated price-rises perhaps reduces the long-term benefit. This ‘have another go’ approach was also the outcome in the CAT’s first hearing for a collective proceedings order – another novel area where policy objectives would have been frustrated by an outright refusal.
There have been immediate knock-on effects: the CMA has indicated that other active investigations it has in the area may now be severely delayed. The end of the CMA’s investigation into hydrocortisone seemed to be in sight, and it will be interesting to see how the CMA proceeds with that, as well as the Pfizer / Flynn case.
The CAT’s difficulties in applying the United Brands test are also likely to be of interest to the Commission, given that it has opened an excessive pricing investigation (into Aspen Pharma) – its first of that type in the pharmaceutical industry.
But while the CMA will clearly have its work cut out (assuming the CAT goes ahead with the remittal), it should not be assumed that this judgment is the end of the story for excessive pricing cases in the UK.
The BKA’s Facebook investigation: new frontier or regulatory overreach?
At the end of 2017, the German competition authority (BKA) provisionally concluded that certain Facebook polices in relation to users’ data are an abuse of its dominant position in the German market for social networks. It published an accompanying position paper.
The BKA’s provisional dominance finding takes into account Facebook’s 30 million monthly users in Germany (with 23 million using Facebook on a daily basis), as well as the allegedly high barriers to entry for new social networking platforms (a point to which we return below).
It considers the terms and conditions Facebook imposes on its users to be abusive, requiring them to choose between accepting “the whole Facebook package”, including an extensive disclosure of personal data, or not using Facebook at all.
Specifically, the BKA takes issue with the requirement for users to accept Facebook’s right to collect data from third party websites: data which is made available to Facebook by operators that have embedded the Facebook ‘like’ or ‘login’ options. Data is collected by Facebook even where users do not click on such options, and is then associated with the user’s Facebook account. According to Cliqz, Facebook’s reach may stretch to over 25% of all websites.
The BKA considers that users could not meaningfully consent to Facebook’s data processing requirements, as they have no alternative but to consent if they wish to access Facebook’s platform. The BKA characterises this as "exploitative business terms”.
As we have previously noted, the investigation is a test case on the interplay between big data, consumer protection and competition law (here and here). But is this investigation an opening salvo in a new frontier for competition enforcement, or more of a modish dalliance with the hipster zeitgeist?
It certainly concerns an unusual alleged form of abuse, since it does not appear to depend in any meaningful sense on Facebook’s dominance (save perhaps in the extent of the data collection). Nor does it readily seem to fulfil the classical requirement of an abuse which uses “methods different from those governing normal competition [which …] has the effect of hindering the maintenance of the degree of competition existing in the market or the growth of that competition” (Case 85/76, Hoffmann La Roche).
It is not uncommon for investigations which challenge the boundaries of antitrust to be relatively clear about the potential harm to competitors, but much less clear about the harm to consumers or the competitive process. This case is rather the converse – with its most controversial aspect perhaps being the BKA’s theory of consumer harm, which is based on users’ loss of control of their data: “Facebook offers its service for free. Its users therefore do not suffer a direct financial loss from the fact that Facebook uses exploitative business terms. The damage for the users lies in a loss of control: they are no longer able to control how their personal data are used”. This theory necessarily assumes that users are sufficiently tied into the platform to be unwilling or unable to ‘click away’ and select an alternative messaging service. Indeed, in Facebook’s public statement about the recent development in the BKA’s investigation, it strongly emphasised its lack of market power, which is both a pre-condition for any abuse finding and in this case is closely tied to the nature of the abuse itself.
The BKA’s position paper seeks to redress this apparent focus on consumers, noting the high economic value of the data gathered by Facebook, and its relevance for targeted advertising which in turn makes Facebook more attractive to advertisers, a concept referred to as “identity-based network effects”. The interest in online advertising is of course not limited to the BKA, but is an increasingly hot topic in competition policy generally – see for example the ongoing French competition authority sector inquiry (see here and here).
It is also questionable how the case can be reconciled with the Court of Justice’s more orthodox position in Case 238/05 Asnef-Equifax (here): “any possible issues relating to the sensitivity of personal data are not, as such, a matter for competition law”. The BKA’s answer will have to be that its investigation does not relate to the sensitivity of personal data “as such”, but rather to Facebook’s use of the data.
In terms of next steps, Facebook can defend its positon and/or offer solutions. A final decision in expected in the summer.
Last week the CJEU released its judgment on excessive pricing that could prove of interest to many of our readers.
In 2013 a dispute arose between the Latvian Competition Council and the AKKA/LAA, the Latvian equivalent of the PRS, responsible for licensing the public performance of musical works and collecting the resulting royalties. AKKA/LAA, a monopoly organisation, was fined for excessive pricing (and thus an abuse of a dominant position under Article 102 TFEU) but took this ruling to the courts. In finding that the collecting society had engaged in excessive pricing, the Latvian competition authority had made direct comparisons with prices in the neighbouring states of Estonia and Lithuania and found that the rates applied in Latvia were two to three times higher than those applied in the other two Baltic States. The authority also made a comparison to the rest of the EU on a purchasing power parity (PPP) basis. On a reference to the CJEU, the Court was asked to rule on several important questions relating to this assessment.
First, the CJEU dealt with how to make valid comparisons in assessing the imposition of unfair prices. The Court ruled that such comparisons are valid, provided that the relevant Member States are selected according to ‘objective, appropriate and verifiable criteria’ and that the comparison is made on a ‘consistent basis’. Such criteria could include factors as concrete as GDP per capita, or as loose as ‘cultural and historical heritage’. Notably, the Court held that a comparison cannot be considered to be insufficiently representative merely because it takes a limited number of Member States into account. Whilst such a clear statement on the legal position is welcome, recent case law has shown that agreeing objective criteria by which to select comparables is not trivial. For example, in the Unwired Planet litigation (see here), in attempting to agree a FRAND rate for a licence in the telecommunications sector, there was much debate over which licences were the most comparable.
Second, the CJEU dealt with the circumstances in which prices would be considered excessive. The Court ruled that there is no minimum threshold, but instead that Article 102 will bite where a difference in price is ‘both significant and persistent on the facts’. Looking at the growing number of actions against pharmaceutical companies for excessive pricing, most notably the Commission investigation into Aspen (reported on in August), a key question remains as to what amounts to a significantly and persistently higher price. An obvious starting point, now validated by this ruling, is a comparison with other Member States, but with so many different national healthcare and regulatory systems in place in the EU this may not be straightforward.
Overall, this decision provides some welcome guidance, but there still remains plenty to ponder!
Today’s Intel judgment from the Court of Justice does not strictly concern the Competition Law/IP interface. However, it is a case which has considerable interest for potentially dominant companies, as well as a strong technology thread.
At the basis of today’s judgment is the European Commission fine of €1.05bn, imposed on Intel back in 2009, and upheld by the General Court in 2014, for abusing a dominant position by granting exclusivity rebates to customers.
In brief, the CJEU has today held that the General Court did not sufficiently analyse all of Intel’s arguments that its conduct did not foreclose competitors. The General Court’s failure to analyse the results of the ‘as efficient competitor’ (AEC) test was a particular focus of the criticism. The CJEU has therefore remitted the case to the lower court for further consideration on the central abuse of dominance question.
Relevance of ‘as efficient’ competitors. The Court emphasises that Article 102 applies when conduct foreclosure of “as efficient competitors”; in other words, the provision is not intended as a tool for protecting entities which lack the ability to compete effectively and which are therefore likely to be less attractive to consumers.
Strictly speaking, the CJEU’s remittal to the GC only requires it to look again at the AEC test because the Commission had in fact carried out such a test, and the GC had not responded to all of Intel’s arguments about it (143-144). However, the fact that the Court embraces a reference to “competitors considered to be as efficient as [the dominant company]” within its general legal framework (133, 136) suggests that it will not be easy for competition authorities (or indeed private action claimants) to walk away from this test. This is mirrored in the Court’s description of the abuse finding which must be reached before an assessment of objective justification can take place (140).
Form vs. effects. On a first read, the judgment is a shot in the arm for effects- rather than form-based analysis (136-140). On this reading, the mere fact that an exclusivity rebate exists is not enough in itself to establish anti-competitive foreclosure. The extent of dominance plays a role here, as well as the market coverage and duration of the practice (both the market coverage and duration were considered by the Advocate General to be ‘inconclusive’ in themselves).
However, there are a couple of stings in the tail. First, to avoid a formalist approach, a company under investigation must adduce evidence during the initial investigation to show that its conduct was not in fact capable of affecting competition (138). Past cases (e.g. AstraZeneca) suggest that this evidence should be contemporaneous with the conduct. Second, evidence of a strategy to exclude will be considered relevant (139). While case law establishes that a company’s intention is less relevant than the objective effects of the conduct, it seems to us that clear evidence of an anti-competitive strategy will make it much more difficult to support an argument that the conduct was incapable of affecting competition.
Reduced options for formalistic short-cuts in establishing infringement – arguably this is of greater relevance in the private litigation context, given that competition authorities have tended to carry out extensive analysis of effects as a fall-back (or have closed cases where such evidence cannot be established, as with the CMA’s recent decision on impulse ice creams).
Again in the private litigation context, the practice of splitting questions of dominance and abuse into separate trials may not be the best solution for conduct of this kind, given that the degree of dominance may affect whether the conduct is in fact anti-competitive or not.

References: CJEU 
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