European Commission

More Affordable and Innovative Medicines and Treatments in Europe – Has the Competition Enforcement Met the 2009 Objective?

A decade ago, the European Commission conducted a thorough sectoral inquiry into the European pharmaceutical sector that identified antitrust shortcomings impeding access to more affordable and innovative medicines and treatments. Concluding this inquiry by setting priority actions for the years to come, former Competition Commissioner Kroes called for “… more competition and less red tape …” (sic).

Since this statement, there has been intense enforcement activity in the sector not only by the European Commission itself, but also by the European Union Member States’ antitrust authorities.

In its report on “Competition enforcement in the pharmaceutical sector” issued on January 28, 2019, the European Commission takes stock of their actions in this space.

The past enforcement record (2009-2017): intense activity, hard stance towards pharmaceutical companies with the use of novel or less known theories of harm

Between 2009 and 2017, no less than 29 infringement decisions were issued by European antitrust authorities, leading to fines totaling over €1 billion, while the European Commission asked for structural remedies for 25% of the reportable mergers in the sector.

Antitrust enforcement

In total, European antitrust authorities investigated over a hundred cases during the 2009-2017 period. Their investigations related to a wide range of medicines and many of the actors involved in the pharmaceutical sector: manufacturers, wholesalers and retail distributors.

Applying Article 101 of the Treaty on the Functioning of the European Union (TFEU) (or its national equivalent), which prohibits anticompetitive agreements and cartels, European antitrust authorities condemned, for the first time, certain pay-for-delay agreements, whereby a generic company agrees to restrict or delay its independent entry onto the market in exchange for benefits transferred from the originator. They also condemned practices of collusion in tenders, price fixing, conduct aimed at excluding competitors or limiting their ability to compete, and other types of coordination between competitors.

Besides, European antitrust authorities found that the misuse of the regulatory framework, whereby a dominant company misleads public authorities and misuses the regulatory procedures, can infringe Article 102 TFEU (or its national equivalent). Similarly, disparagement and other practices curbing demand for generics were found to infringe Article 102 TFEU. Reviving the neglected notion of exploitative abuse, European antitrust authorities found that under certain circumstances, a dominant pharmaceutical firm may infringe Article 102 TFEU if it imposes unfair terms and conditions or excessive pricing. In these cases, the reward for innovation seemed to have weighed little in the balance against the alleged harm caused to patients.

Merger control

19 of the 80 mergers reviewed by the Commission over the 2009-2017 period were subject to structural remedies, namely divestitures, offered by the merging firms. Antitrust concerns in those cases related to the risks of (i) price increases for some medicines in one or several Member States, (ii) depriving patients and national healthcare systems of some medicinal products, and (iii) diminishing innovation in relation to certain treatments developed at the EU or even global level.

All in all, the Commission takes a positive view: it considers that active competition enforcement throughout the European Union has fostered innovation, choice and affordability by intervening where companies, unilaterally or jointly, relax competitive pressures that force them to innovate further or prevent others from innovating or illegitimately exploiting their market power.

What’s next?

After this positive assessment, the question that finally arises is whether pharmaceutical companies remain in the spotlight in Europe and should expect the same level of attention from the European antitrust authorities.

The response is, fortunately or unfortunately (depending on the standpoint), yes, definitely.

The now numerous precedents and case law have undoubtedly helped the sector to put some order into the practices implemented in the past. However, the critical challenges facing pharmaceutical companies for years (succession of blockbusters, very high cost and remuneration of innovation, very lengthy development process, etc.) weaken them and may still lead them to adopt either defensive or aggressive strategies at risk from an antitrust perspective. The European Commission remains fully aware of such risk and ultimately recommends that: “Authorities … remain vigilant and pro-active in investigating potentially anti-competitive situations, including where new practices used by companies or new trends in the industry are concerned, such as the growing relevance of biosimilars.”

So, it is most likely not the end of the story …

New EU Rules on Foreign Investments: All You Need to Know About the New Screening Mechanism

The Council of the European Union (EU) has adopted a new regulation “establishing a framework for the screening of foreign direct investments into the Union” (the Regulation). This is the first time the EU is equipping itself with a comprehensive framework to monitor investments into EU businesses by investors from outside the EU.

The new rules create a cooperation mechanism where EU member states and the European Commission are able to exchange information and raise concerns. The Commission will have the possibility to issue opinions in cases concerning several member states, or where an investment could affect a project or program of interest to the whole EU. However, EU member states remain in charge of reviewing, and potentially blocking, foreign investments on grounds of security or public order. The decision to set up and maintain national screening mechanisms also continues to be in the hands of individual member states.

In the following, we give an overview of the main features of the Regulation.

The New Regulation

Until recently, there were no measures at the level of the EU on the review and control of foreign direct investments. At the national level, such measures have existed in several member states – and amid growing concerns about the impact that certain foreign investments may have on national interests, some member states have made their review procedures significantly more stringent in recent years. However, the decentralized and fragmented nature of the national review procedures raised questions about their effectiveness in addressing adequately the potential (cross-border) impact of foreign investments in sensitive sectors.

To respond to such concerns, the European Commission proposed the Regulation in 2017.

The objective of the Regulation is not to harmonize the formal foreign investment mechanisms used in EU member states, or to replace them with a single EU mechanism. Rather, it provides a mechanism for EU-wide cooperation and information sharing to allow member states to make informed decisions taking into account all relevant risks and protect pan-European interests. The decision on whether to set up a review mechanism or to review a particular foreign investment remains the sole responsibility of the member states.

The EU Council adopted the Commission’s proposal on March 5, 2019. The Regulation will enter into effect after a transitional period of 18 months following its publication in the Official Journal, expected to take place on March 21, 2019.

Under the Regulation, the competent authorities of the EU member states remain in charge of screening foreign direct investments under the applicable national laws. The role of the European Commission is to facilitate coordination and to advise member states where it considers that an investment would likely affect security or public order in one or more member states.

Transactions Subject to Review

The Regulation does not put in place a review requirement for foreign investments; rather, it sets up a procedural framework for screening mechanisms created by the EU member states. The rules of the Regulation apply to any national “procedure allowing to assess, investigate, authorize, condition, prohibit or unwind foreign direct investments.”

The definition of “foreign direct investments” is broad and does not require an investment above a defined threshold of shareholder rights or the acquisition of control in the target company. Any investment “aiming to establish or to maintain lasting and direct links” with a business in “in order to carry on an economic activity” in an EU member state is sufficient. The investment must be made by a “foreign investor,” defined as “a natural person of a third country or an undertaking of a third country.” Third countries are countries outside the EU. Therefore, the Regulation does not apply to the screening of cross-border investments inside the EU.

 

Procedure

The aim of the Regulation is to enhance cooperation and increase transparency between EU member states and the European Commission. To this end, it creates a “cooperation mechanism” that requires member states to inform each other and the Commission of incoming foreign direct investments affecting security and public order (→ EU Cooperation Mechanism for the Screening of Foreign Direct Investments):

  • Where a member state screens a foreign direct investment, it is obliged to notify the other member states and the Commission by providing, “as soon as possible,” certain information on the investment (→ Information Requirements). The other member states can then comment and the Commission can issue a (nonbinding) opinion within certain time limits, normally within 35 calendar days following the notification (this period is extended if other member states or the Commission request additional information).
  • Where a foreign direct investment in a member state is not undergoing screening and other member states or the Commission considers that the investment is likely to affect security or public order, the latter may request from the former certain information on the investment (→ Information Requirements). The other member states and the Commission may then provide comments or a (nonbinding) opinion, respectively, to the member state receiving the foreign direct investment. The time limit for comments and opinions is 35 calendar days following the receipt of information on the investment, although extensions are possible.

Although the final screening decision is the sole responsibility of the member state receiving the foreign investment, it is required to give “due consideration” to the comments of the other member states and the opinion of the Commission. Moreover, in cases where the Commission believes that the foreign direct investment may affect projects or programs of “Union interest,” the member state receiving the investment is required to take “utmost account” of the Commission’s opinion and provide an explanation if the opinion is not followed. Project and programs of “Union interest” are defined in the Annex of the Regulation. They currently include:

  • European GNSS programs (Galileo & EGNOS);
  • Copernicus;
  • Horizon 2020;
  • Trans-European Networks for Transport (TEN-T);
  • Trans-European Networks for Energy (TEN-E);
  • Trans-European Networks for Telecommunications;
  • European Defence Industrial Development Programme; and
  • Permanent structured cooperation (PESCO).

In addition to creating the cooperation mechanism, the Regulation also imposes certain minimum standards for the national screening mechanisms of EU member states. These include:

  • National rules and procedures must be transparent and not discriminate between third countries.
  • Member states must set out the circumstances triggering a screening, the grounds for screening and the applicable detailed procedural rules.
  • Member States must apply timeframes that allow them to take into account the comments of other member states and the opinions of the Commission under the coordination mechanism.
  • Confidential information must be protected.
  • Foreign investors and the undertakings concerned must have the possibility to seek recourse against screening decisions of the national authorities.
  • National screening mechanism must include measures necessary to identify and prevent circumvention.

Substantive Assessment

The Regulation does not attempt to harmonize national rules on foreign investments in the EU member states. However, it does provide a list of factors that the member states and the European Commission may take into consideration when conducting their assessment. This includes potential effects on the following:

  • critical infrastructure (incl. energy, transport, water, health, communications, media, data processing, finance);
  • critical technologies and dual use items (incl. artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum, nuclear, nano- or biotechnologies);
  • supply of critical inputs (incl. energy, raw materials, food);
  • access to sensitive information (incl. personal data); or
  • freedom and pluralism of the media.

 

Parties Challenge the European Commission’s Decision to Open a Phase II Investigation

European Commission Considers Introduction of New European Union Merger Control Thresholds European flags in front of the Berlaymont building, headquarters of the European commission in Brussels

In an unprecedented move, the parties to a planned merger transaction have brought an action for annulment against the European Commission’s decision to initiate proceedings even before the proceedings are closed.

Under the EU Merger Regulation (“EUMR”), the Commission’s review procedure is divided into two phases: “Phase I”, which is normally limited to 25 working days, serves to separate unproblematic cases from cases that require a deeper analysis. At the end of phase I, the Commission must either clear a transaction (if it does not find significant competition concerns or if it concludes that it has no jurisdiction) or it must initiate “phase II” (if it has serious doubts as to the transaction’s compatibility with the EU law). While a decision to open phase II does not prejudice the final outcome – the Commission may still clear the transaction – it significantly increases the burden in terms of cost and inconvenience for the merging parties. The opening of phase II normally entails a significant delay of several months, and during that time and until the Commission issues a clearance decision, the parties may not close the transaction.

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E-Commerce: The EU Commission Releases Its Preliminary Report in the E-Commerce Sector Inquiry

After gathering information from nearly 1800 stakeholders from all 28 EU Member States and collecting around 8000 distribution agreements, the EU Commission published on 15 September a preliminary report on the findings of its ongoing competition sector inquiry into e-commerce.[1]

The inquiry was launched by the Commission in May 2015, after finding that despite the growing significance for e-commerce across EU countries over the last years (approximately 50% of the population of the Union shopped online in 2014), cross-border online trade remained limited.

While such limitations may have been attributable to language barriers, consumer preferences or differences in legal frameworks between Member States, the Commission sought to investigate the sector based on indications that companies active on the e-commerce market may be engaged in anticompetitive agreements.

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English High Court Allows LCD Damages Action to Proceed

On 29 July 2016, the High Court of England and Wales delivered its judgment dismissing the applications of two defendants to strike out a follow-on damages case in which the claimant, iiyama, asserts that it suffered losses as a result of the defendants’ alleged participation in the LCD cartel. Iiyama v Samsung [2016] EWHC 1980 (Ch).

The claim follows on from the European Commission’s decision of 8 December 2010, which found that six LCD panel producers had entered into a world-wide price fixing cartel and had implemented that cartel within the EU.  The Commission had been satisfied that the agreement related to direct and indirect sales of LCD panels to companies in the EU.  It also found that the participants in the cartel had sought to implement the cartel within the EU, even if price negotiations took place outside the EU.

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Price Signalling Can Put Companies in Hot Water in the EU

The long list of practices violating EU competition law just got longer: in Container Shipping, the European Commission confirmed that the unilateral publishing of pricing information, in public media, can violate Article 101 TFEU.[1]

In this case, the Commission expressed concern that the practice of fourteen container liner shipping companies (“Carriers”) to publish intentions to increase prices may harm competition. The Carriers regularly announced intended increases of freight prices on their websites, via the press, or in other ways. The announcements were made several times a year and included the level of increase and the date of implementation. The Carriers were not bound by the announced increases and some of them postponed or modified the price increases after announcement.

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European Commission Puts the Boot into Spanish Football Clubs

On 4 July 2016, just as European football takes centre stage at the final stages of the UEFA European Championships in France, the European Commission (“Commission”) issued a decision ordering Spain to recoup tens of millions of euros of unlawful State aid granted to seven Spanish football clubs, including two of the best-known clubs in the world, Real Madrid and FC Barcelona.

The Commission’s probe was launched in December 2013, with three parallel investigations into certain public support measures granted to Real Madrid, FC Barcelona, Athletic Club Bilbao, Club Atlético Osasuna, and three Valencian football clubs, Valencia CF, Elche CF and Hercules CF.

“Protect the level playing field”

In announcing the rulings, Margrethe Vestager, Competition Commissioner, stated: “Using tax payers’ money to finance professional football clubs can create unfair competition. Professional football is a commercial activity with significant money involved and public money must comply with fair competition rules. The subsidies we investigated in these cases did not.” The Commission’s press release cites its application of State aid rules in these investigations as “protect[ing] the level playing field” for competing professional football clubs against State measures that could “prevent rivals from growing and being competitive.

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The European Commission’s Priorities in Pursuing Enforcement Actions

Businesses often wonder how competition authorities pick and choose the cases they decide to bring.  Companies with operations in Europe now have some guidance as a result of a recent speech by European Competition Commissioner Margrethe Vestager, in which she outlined how the Commission prioritizes its enforcement efforts.

Commissioner Vestager explained that the Commission uses three main criteria in prioritizing which cases to pursue.  Not every case needs to satisfy all three criteria, but the Commission tries to keep these three objectives in mind in determining whether to pursue an enforcement action.

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