European Competition Law Newsletter – February/March 2021

March 12, 2021

Table of Contents

  • European Commission Investigates Disparagement Claims for the First Time
  • European Commission Investigates and Fines Companies for Restricting Cross-Border Trade
  • UK CMA Obtains Yet More Director Disqualifications
  • UK Investigates Apple

European Commission Investigates Disparagement Claims for the First Time

On 4 March 2021, the European Commission announced an investigation into alleged anti-competitive conduct by pharmaceutical company Teva. The case is of particular interest since it marks the first time the Commission has considered product disparagement or denigration claims as an abuse of a dominant position.

The case concerns allegations that Teva has illegally delayed the market entry and uptake of medicines that compete with its blockbuster multiple sclerosis drug Copaxone. The Commission will investigate two potential abuses of Teva’s alleged dominance in relation to such drugs.

The first alleged behaviour is the artificial extension of the market exclusivity of Copaxone by strategically filing and withdrawing divisional patents, repeatedly delaying entry of its generic competitor who was obliged to file a new legal challenge each time. Divisional patents originate from a broader “parent” patent and may cover significantly overlapping inventions, sometimes allowing the patentee to multiply the patent barriers that a generic competitor needs to overcome to enter the market.

Of more general interest, and illustrating that the categories of abuse of dominance are not closed, are the allegations of illegal disparagement. The Commission will examine whether Teva may have pursued a communication campaign to unduly hinder the use of competing glatiramer acetate products (the active pharmaceutical ingredient in Copaxone). The Commission has indications that Teva’s campaign, primarily directed at healthcare institutions and professionals, may have targeted competing products to create a false perception of health risks associated with their use, even following the approval of these medicines by competent public health authorities.

This issue has been the subject of investigations in the EU in the pharmaceutical and other sectors previously, most notably by the French competition authority. It can be difficult to draw the line between illegal disparagement of rivals — potentially giving rise to exclusion from the market — and factual communication of differences. Competitors which have suffered from comments made by dominant rivals may be able to rely on allegations of disparagement in order to defend themselves against those rivals.

European Commission Investigates and Fines Companies for Restricting Cross-Border Trade

Two recent cases show the European Commission’s continued focus on practices and arrangements which restrict cross-border trade within the EU, whether these are in online or traditional offline markets.

On 20 January 2021, the Commission fined Valve, owner of the online PC gaming platform Steam, and five publishers €7.8 million for restricting cross-border sales of PC video games. The publishers had granted Valve a non-exclusive licence to exploit specified games on a worldwide basis, including the entirety of the European Economic Area (EEA), which includes the EU. In turn, the publishers obtained from Valve a licence for the use of Steam activation keys for distribution of those PC video games outside Steam. The publishers requested Valve to set up geographical restrictions and to provide geo-blocked Steam activation keys.

As a result, users located outside a designated EU member state were prevented from activating a given PC video game with Steam activation keys. By bilaterally agreeing to geo-block certain PC video games from outside a specific territory, Valve and each publisher partitioned the EEA market in violation of EU antitrust rules.

The second case, announced 28 January 2021 and still in the investigation phase, concerns allegations that Mondelēz restricted competition in a range of national markets for chocolate, biscuits and coffee by hindering the cross-border trade of these products between EU member states.

The alleged practices include offline restrictions long recognised as problematic and likely to give rise to fines, including the following:

  • Limitations of sales territories within the EU through agreements that determine in which member state a trader can or cannot sell the products, or that restrict passive sales
  • Curtailing of parallel trade through agreements that raise prices or limit volumes specifically for customers that trade the products across member states
  • Agreements with customers not to engage in parallel trade or not to procure products from parallel trade, inter alia, in exchange for payments or other forms of compensation
  • Restrictions on the languages used on packaging either unilaterally or through agreements with traders, thereby creating friction on sales to certain other EU member states
  • Refusals to supply certain traders with a view to restricting imports into certain markets

It is interesting to note that the Commission started this investigation on its own initiative. This may have been driven by apparent concerns voiced by various stakeholders that prices for common food and drink products can significantly vary between EU member states including between neighbouring member states.

UK CMA Obtains Yet More Director Disqualifications

The UK CMA secured the disqualification of three more company directors, after finding they broke competition law by forming a cartel in the construction industry.

This follows a CMA investigation into two of the UK’s largest suppliers of rolled lead. The companies admitted in 2020 to forming an illegal cartel, which included colluding on prices, sharing the rolled-lead market by arranging not to target certain customers, and arranging not to supply a new business because it risked disrupting the firms’ existing customer relationships.

Three individuals who were directors of the companies at the time the illegal activity took place each agreed to a disqualification undertaking. These will run for, respectively, six and a half years, four years and three years.

These cases show that personal liability for competition law infringements is a real risk in the UK. Directors need to know about their company’s practices, lead by example and create a culture of compliance, have a system to flag any suspected illegal practices, and immediately take action if they suspect any illegal practices.

Not knowing is no excuse; where a director had reason to suspect a breach but failed to stop it, or ought to have known about it, may also be grounds for disqualification under the UK rules.

UK Investigates Apple

The UK is now — after the end of the Brexit transition period — a fully separate competition law regime, and the UK CMA is keen to show this. The latest demonstration is the CMA’s decision to open an investigation into alleged anti-competitive behaviour by Apple. This is independent of the European Commission’s four probes into Apple under EU competition law.

The CMA’s investigation concerns the Apple App Store. Developers have complained that Apple’s terms of use of the App Store mean they can distribute their apps to Apple iPhones and iPads only via the App Store. In addition, they say certain developers that offer in-app features, add-ons or upgrades are required to use Apple’s payment system, rather than an alternative system.

The CMA will consider whether Apple has a dominant position in connection with the distribution of apps on Apple devices in the UK — and, if so, whether Apple imposes unfair or anti-competitive terms on developers using the App Store. As part of this analysis, it will have to consider the overall benefits to customers from any of Apple’s alleged practices, not least the protection of privacy and security for individuals and their devices. Many customers are likely to take the view that a safe and secure App Store is preferable to a situation in which their data, identities and devices are at risk from unknown and unmonitored developers and apps.

Additional European competition law news coverage can be found in our news section.

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