Merck KGaA v European Commission.
Date: 2021-03-25
If the conduct of undertakings is to be subject to the prohibition in principle laid down in Article 101(1) TFEU, that conduct must not only reveal the existence of coordination between them – in other words, an agreement between undertakings, a decision by an association of undertakings or a concerted practice –, but that coordination must also have a negative and appreciable effect on competition within the internal market (judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraph 31).
The latter requirement means, with respect to horizontal cooperation agreements entered into by undertakings that operate at the same level of the production or distribution chain, that the coordination involves undertakings who are in competition with each other, if not in reality, then at least potentially (judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraph 32).
In order to assess whether an undertaking that is not present in a market is a potential competitor of one or more other undertakings that are already present in that market, it must be determined whether there are real and concrete possibilities of the former joining that market and competing with one or more of the latter (judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraph 36 and the case-law cited).
When the agreements at issue, such as the agreement at issue in the present case, have the effect of temporarily keeping a number of undertakings outside a market, it must be determined, having regard to the structure of the market and the economic and legal context within which it operates, whether there would have existed, in the absence of those agreements, real and concrete possibilities for those undertakings to enter that market and compete with the undertakings established in that market (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraphs 37 and 39).
As regards more particularly such agreements arising in the context of the opening of a market, of a medicine containing an active ingredient that has recently entered the public domain, to the manufacturers of generic medicines, it must be determined, taking due account of the regulatory constraints that are characteristic of the medicine sector and the intellectual property rights and, in particular, the patents held by the manufacturers of originator medicines relating to one or more processes of manufacturing an active ingredient that is in the public domain (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraphs 40 and 41), whether the manufacturer of generic medicines has in fact a firm intention and an inherent ability to enter the market, and that market entry does not meet barriers to entry that are insurmountable (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraph 58).
In order to do so, it is necessary to assess, first, whether, at the time those agreements were concluded, that manufacturer had taken sufficient preparatory steps to enable it to enter the market concerned within such a period of time as would impose competitive pressure on the manufacturer of originator medicines. Second, it must be determined that the market entry of such a manufacturer of generic medicines does not meet barriers to entry that are insurmountable (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 43 and 45). Furthermore, the finding of potential competition between a manufacturer of generic medicines and a manufacturer of originator medicines can be confirmed by additional factors, such as the conclusion of an agreement between them even though the manufacturer of generic medicines was not present on the market concerned (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 54 to 56).
As regards, in particular, the assessment of whether there are insurmountable barriers to entry on the market concerned, the Court has stated that the existence of a patent which protects the manufacturing process of an active ingredient that is in the public domain cannot, as such, be regarded as such an insurmountable barrier, notwithstanding the presumption of validity attached to that patent, since it sheds no light, for the purposes of the application of Articles 101 and 102 TFEU, on the outcome of any dispute relating to the validity of that patent (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 46 to 51).
Consequently, the existence of such a patent cannot, as such, mean that a manufacturer of generic medicines who has in fact a firm intention and an inherent ability to enter the market, and who, by the steps taken, shows a readiness to challenge the validity of that patent and to take the risk, upon entering the market, of being subject to infringement proceedings brought by the patent holder, cannot be characterised as a ‘potential competitor’ of the manufacturer of  originator medicines concerned (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 46).
Furthermore, the Court has also stated that it is not for the competition authority concerned to carry out a review of the strength of the patent in question or of the probability of a dispute between the holder of that patent and a manufacturer of generic medicines being brought to an end with a finding that the patent is valid and has been infringed (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 50).
In that regard, it must be recalled that, for the purposes of establishing whether undertakings such as Merck (GUK) and Lundbeck are potential competitors, and as the General Court was fully entitled to state in paragraphs 151 and 152 of the judgment under appeal, it must be demonstrated not that the undertaking which is not present on the market concerned will in fact, and with certainty, enter the market concerned, and, even further, that it will be capable, thereafter, of retaining its place there, but solely that there are real and concrete possibilities for that undertaking to enter that market and compete with the undertaking already present on that market (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 36 and 38 and the case-law cited).
While the issue of whether two undertakings operating at the same level of the production chain are potential competitors must be assessed in the light of the objective factors identified in paragraph 40 of the present judgment, the fact remains that it can be confirmed by additional factors (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 54), including factors which are subjective in nature (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 42), so long as those are not decisive for the purposes of the assessment conducted.
As regards, finally, the third part of the present ground of appeal which concerns paragraphs 86 and 167 of the judgment under appeal, suffice it to state that, by that part, Merck criticises the General Court for having taken into consideration, in order to assess whether Merck (GUK) and Lundbeck were potential competitors, the fact that they concluded the agreements at issue, whereas such a factor is entirely relevant, indeed constitutes a strong indication to that end (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 55).
As a preliminary point, Merck submits, first, that the concept of ‘restriction by object’ must be interpreted restrictively, in so far as that concept provides predictability and therefore legal certainty for undertakings, is a source of procedural economy for the competition authorities, has a deterrent effect and contributes to the prevention of anticompetitive conduct. Therefore, according to Merck, agreements which have ambivalent effects on the market cannot be characterised in that way, if the condemnation of benign agreements which have not been demonstrated to have negative effects on competition is to be avoided. Merck further submits that, in order to characterise an agreement as a ‘restriction by object’, experience is important, as is apparent in particular from paragraph 51 of the judgment of 11 September 2014, CB v Commission (C‑67/13 P, EU:C:2014:2204), from paragraph 21 of the Commission Guidelines on the application of Article [101](3) TFEU, referred to in paragraph 4 of the present judgment, and from the case-law of the Supreme Court of the United States. Therefore, when a practice is scrutinised for the first time, the competition authorities may not use the shortcut of ‘restriction by object’, at least where the effects of that agreement on competition are unclear or depend on new analysis which remains to be established. Finally, in accordance with paragraphs 56 and 69 of the judgment of 11 September 2014, CB v Commission (C‑67/13 P, EU:C:2014:2204), Merck argues that practices which have merely potential effects on competition cannot be characterised as a ‘restriction by object’, in so far as they do not reveal a sufficient degree of harm, since they are solely capable of restricting competition but do not actually restrict it, nor, a fortiori, in a manner which is clear, as is apparent from paragraph 22 of the judgment of 26 November 2015, Maxima Latvija (C‑345/14, EU:C:2015:784).
As regards the other parts of the present ground of appeal, it must be recalled, as the General Court stated in paragraphs 186 and 187 of the judgment under appeal, that the concept of restriction of competition ‘by object’ must be interpreted strictly and can be applied only to certain agreements between undertakings which reveal, in themselves and having regard to the content of their provisions, their objectives and the economic and legal context of which they form part, a sufficient degree of harm to competition for the view to be taken that it is not necessary to assess their effects, since some forms of coordination between undertakings can be regarded, by their very nature, as being harmful to the proper functioning of normal competition (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 67 and the case-law cited).
As regards similar dispute settlement agreements relating to a process patent for the manufacture of an active ingredient that is in the public domain concluded between a manufacturer of originator medicines and a number of manufacturers of generic medicine and which had the effect of delaying the entry of generic medicines on the market in return for monetary or non-monetary transfers of value from the former to the latter, the Court has held that such agreements cannot in all cases be regarded as ‘restrictions by object’ within the meaning of Article 101(1) TFEU (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 84 and 85).
However, characterisation as a ‘restriction by object’ must be adopted where it is plain from the analysis of the settlement agreement concerned that the transfers of value provided for by that settlement agreement cannot have any explanation other than the commercial interest of both the holder of the patent and the party allegedly infringing the patent not to engage in competition on the merits, in so far as agreements by which competitors deliberately substitute practical cooperation between them for the risks of competition clearly can be characterised as ‘restrictions by object’ (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraphs 83 and 87).
For the purposes of that analysis, it is necessary, in each individual case, to assess whether the net gain from the transfers of value by the manufacturer of originator medicines to the manufacturer of generic medicines was sufficiently large to act as an incentive to the manufacturer of generic medicines to refrain from entering the market concerned and, therefore, not to compete on the merits with the manufacturer of originator medicines, without it being necessary for that net gain necessarily to be greater than the profits which the manufacturer of generic medicines would have made if it had been successful in the patent proceedings (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraphs 93 and 94).
It follows from the foregoing that the characterisation of agreements, such as the agreements at issue, as a ‘restriction by object’ presupposes, as is apparent from paragraph 131 of the judgment delivered on today’s date in Case C‑591/16 P, Lundbeck v Commission, an assessment of the specific characteristics of those agreements, which must be used to infer the potential harmfulness of that agreement for competition, where necessary as a result of a detailed analysis of those agreements, their objectives and the economic and legal context of which they form part, in the context of which the amount of the transfers of value is of particular importance (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraph 89).
As noted in paragraph 88 of the present judgment, in order for a given agreement to be characterised as a ‘restriction by object’, all that matters are the specific characteristics of that agreement (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 84 and 85), from which must be inferred the potential harmfulness of that agreement for competition, where necessary as a result of a detailed analysis of that agreement, its objectives and the economic and legal context of which it forms part.
The General Court was fully entitled to take account of the parties’ perception, at the time the agreements at issue were concluded, of the strength of those patents and of the likelihood of those parties succeeding in the event of litigation, in accordance with the principle that evidence may be freely adduced under EU law (judgment of 27 April 2017, FSL and Others v Commission, C‑469/15 P, EU:C:2017:308, paragraph 38 and the case-law cited) and in paragraph 26 of the judgment of 25 February 1986, Windsurfing International v Commission (193/83, EU:C:1986:75), as the General Court stated in paragraph 231 of the judgment under appeal.
As regards, first, the argument that those agreements sought to avoid litigation intended to defend Lundbeck’s process patents, it should be recalled, as the General Court was fully entitled to mention, in essence, in paragraphs 248 and 289 of the judgment under appeal, that, while the conclusion by the holder of a patent with a party allegedly infringing that patent of a settlement agreement that does not exceed the scope and duration of remaining validity of the patent does constitute an expression of the intellectual property right of its holder, which permits that holder, inter alia, to oppose any infringement, the fact remains that that patent does not permit its holder to enter into contracts that are contrary to Article 101 TFEU (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 97).
As regards, second, the argument that the agreements at issue reflect the fact, referred to by the General Court in paragraph 288 of the judgment under appeal, that the damages which may be sought by manufacturers of originator medicines in the event of unlawful market entry of generic medicines are often substantially lower than the harm suffered by the former, it should be recalled that it is for public authorities and not private undertakings to ensure compliance with statutory requirements (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 88).
As regards the first part of the third ground of appeal, it is settled case-law that, with regard to whether an infringement has been committed intentionally or negligently and is, therefore, liable to be penalised by a fine in accordance with the first subparagraph of Article 23(2) of Regulation No 1/2003, that condition is satisfied where the undertaking concerned cannot be unaware of the anticompetitive nature of its conduct, whether or not it is aware that it is infringing the competition rules of the Treaty (judgment of 18 June 2013, Schenker & Co. and Others, C‑681/11, EU:C:2013:404, paragraph 37 and the case-law cited).
It follows that punishing conduct covered in particular by Article 101(1) TFEU in no way presupposes that the undertakings concerned intended to infringe those competition rules. All that matters is knowing whether, objectively, they could, where necessary by taking appropriate advice (see, to that effect, judgment of 28 June 2005, Dansk Rørindustri and Others v Commission, C‑189/02 P, C‑202/02 P, C‑205/02 P to C‑208/02 P and C‑213/02 P, EU:C:2005:408, paragraph 219), determine whether their conduct was anticompetitive.
As the General Court acknowledged, in essence, in paragraph 503 of the judgment under appeal, which it was fully entitled to do, and as was held by the Court of Justice in paragraph 164 of the judgment delivered on today’s date in Case C‑591/16 P, Lundbeck v Commission, the perception which a contractual partner or a potential contractual partner has of whether an agreement is unlawful is a factor which is entirely capable of substantiating the finding that it, like its contractual partner, could not be unaware of the anticompetitive nature of their agreement.