Guidance on the Use of Price Increase Letters in the EU
On 16 February 2016, the European Commission (EC) took the next step in its antitrust investigation into the use of price increase letters by 15 container liner shipping companies (carriers), see here. The concern identified by the investigation (which is so-called “price signalling”), and the proposed solution, should be studied by any company which issues price increase letters to EU customers, whether these letters are published or are sent privately. This is particularly since price signalling is clearly an issue in the sights of competition law regulators EU-wide.
Fifteen carriers have been regularly announcing their intended future freight price increases on their websites, via the press, or in other ways. These price announcements, typically made three to five weeks before the intended implementation date, indicate only the amount of the increase, the affected trade route and the planned date of implementation. After announcement, and before implementation, some or all of the other carriers typically announce similar intended rate increases for the same or a similar route and the same or a similar implementation date. Increases have sometimes been postponed or modified.
The EC has concerns that the announcements allow carriers to explore each other’s pricing intentions and coordinate their behaviour, in breach of EU competition law. This is often referred to as price signalling.
To end the case, the parties have made certain proposals in relation to their published price increase letters (when used). These proposals include undertakings: to stop publishing and communicating changes to prices expressed solely as an amount or percentage of the change (as opposed to the new price itself); that any announcements will be binding as maximum prices for the announced period of validity; and that announcements will not be made more than 31 days before their entry into force (this being the point at which customers start booking in significant volumes).
Internet Minimum Advertised Prices (IMAP) Can Equal Resale Price Maintenance
The UK Competition and Markets Authority (CMA) is investigating two internet minimum advertised prices (IMAP) cases. As shown by its previousPride Mobility Products case (see here), the CMA sees IMAP as a type of resale price maintenance and therefore a serious infringement of competition law, which will usually result in a fine.
The new IMAP cases concern a manufacturer of bathroom fittings and a manufacturer of commercial refrigeration products. On 28 January 2016, the CMA sent separate statements of objections (preliminary statement of case (SO)) to the two companies. The companies are alleged to have introduced IMAP, which effectively limited the ability of retailers of their products to make online sales below a specified price level.
It’s notable that the retailers involved in these alleged arrangements have not been issued SOs, even though they are also parties. The CMA explained that this was a policy decision; it does not need to investigate all parties to a potentially infringing arrangement. However, it may take a different view in future cases.
This analysis of IMAP, as amounting to resale price maintenance, is considered by many to be legally dubious, but nevertheless should be assumed to be the law. The CMA seems to be trying to establish precedents in the area by going after small companies which are unlikely to appeal its decisions (the parties in the Pride Mobility Products case were not fined since they were too small and therefore protected from fines by legislation).
Streetmap v. Google ; Important Abuse of Dominance Judgment from a UK Court
On 12 February 2016, a UK court handed down a judgment in an abuse of dominance case involving Google and Streetmap.EU (SM) (see here). This is an unusual example of an EU national court judge analysing an alleged abuse of dominance. The analysis is therefore very significant for dominant (or potentially dominant) companies considering risks arising out of their own behaviour and for third parties dealing with or affected by such companies.
SM argued in this case that Google was abusing its dominant position in the market for online search and online search advertising. The alleged abuse was displaying, at or near the very top of its SERP (search engine results page), a clickable image from Google Maps, and no other map, in response to certain geographic queries (a type of abusive “bundling”).
It was assumed for the purposes of the case (but denied by Google) that Google is dominant in the market for general online search in the UK. For there to be an abuse of that dominance, SM had to establish that Google’s conduct was reasonably likely to harm competition in a separate market (on-line maps) – in which Google is not dominant – and also that the harm in that market is appreciable. This could not be assumed. SM had to establish that Google’s conduct was reasonably likely to harm competition in that market and that effect must be appreciable.
On the facts, Google’s alleged activities were not considered reasonably likely appreciably to affect competition. SM’s decline as a competitive force, which it had argued was due to Google’s activities, would have happened anyway (there was no causal link).
This was enough to deal with the case, but the judge also considered the “defence” of objective justification. The issue in this regard was focused on proportionality; “Was there a less distortive alternative that could have been adopted?”. The answer to this was “no” and therefore Google’s alleged behaviour was in any event objectively justified and also not abusive for this reason.
Fines for Pay-for-Delay; the UK Gets in on the Act
On 12 February 2016, the UK CMA handed down competition law fines totalling GBP45 million relating to pay-for-delay settlement agreements concerning patent litigation in the pharmaceutical sector, see here. Although the case comes from the pharma sector, similar issues would apply in any other sector. Companies are able to apply for patents, to enforce them to transfer technologies and to settle litigation. However, competition law concerns may arise where such tools are misused.
In this case, the CMA found that generic pharma companies were taking steps to enter the market in the UK for paroxetine. The company which had originated this drug (GlaxoSmithKline plc (GSK)) launched a court challenge, alleging that the generic products would infringe its patents. Before that litigation went to trial, the generics entered into a settlement with GSK.
These settlement arrangements were found to be anti-competitive agreements and also an abuse of a dominant position by GSK. The CMA effectively categorised the agreements as a cartel, commenting:
“[The generics] accepted value transfers from GSK as compensation for their agreement to delay their efforts to enter the market independently of GSK. Those value transfers included cash payments, and the effective transfer from GSK of profit margins by means of agreements permitting the supply of limited volumes of product to the market in place of GSK. The appointment of [the generics] as distributors of GSK’s paroxetine provided a means of transferring value from GSK to these companies, with no meaningful increase in the level of competition facing GSK.”
This whole area remains very controversial and somewhat uncertain in the EU, including the UK. Uncertainty arises from the ongoing challenges in the EU General Court (GC) (the EU’s second highest court) to the EC’s decisions in the Lundbeck (June 2013) and Servier (July 2014) patent settlement cases.
The GC’s eventual judgments in those two cases will be of crucial importance to guiding behaviour in the market and originators and generics alike await the judgments eagerly. Meanwhile, in all sectors, patent litigation settlement agreements, particularly those which involve a limitation on entry by a new competitor and a value transfer to it, need to be considered very carefully.
Additional European competition law news coverage can be found in our news section.
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