European Competition Law Newsletter – April 2021

April 1, 2021

Table of Contents

  • UK CMA Disqualifies More Directors for Anti-Competitive Behaviour
  • European Commission Flags Environmental Concerns When Opening Abuse Investigation
  • EU’s Top Court Considers Pay-for-Delay and Object Restrictions
  • European Commission Provides Rare Compliance Guidance

UK CMA Disqualifies More Directors for Anti-Competitive Behaviour

Following the director disqualifications reported in the February/March 2021 edition of this newsletter, the UK Competition and Markets Authority (CMA) secured the disqualification of two more individuals from acting as company directors. These new disqualifications will last for the longest period of any to date.

The move follows the CMA’s 2019 decision that FP McCann (FPM) and two other suppliers of pre-cast concrete drainage products — Stanton Bonna Concrete and CPM Group — infringed competition law. The CMA found that, for nearly seven years, the suppliers agreed among themselves to fix or coordinate their prices, shared out the market by allocating customers and exchanged with each other competitively sensitive information.

Reflecting the serious nature of the infringement and the directors’ involvement, the CMA has now secured (through undertakings they gave) the disqualification of two individuals, both of whom were directors during the entire period in which the infringing conduct took place and attended regular cartel meetings on behalf of FPM. One individual will be disqualified for 12 years and the other for 11 years, the longest periods for director disqualification secured by the CMA to date.

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.

European Commission Flags Environmental Concerns When Opening Abuse Investigation

The relationship between competition law and environmental issues — particularly climate change — is an increasingly important topic for anyone active in the field.

Despite its position as the EU’s leading enforcer, the European Commission has not been at the forefront of the discussion, which in the EU has been led by national regulators such as the Dutch Competition Authority. Nevertheless, it is clear that the Commission is taking arguments on board, which was evidenced recently by its reference to climate change issues when opening an investigation into an alleged abuse of dominance by Public Power Corporation (PPC) of Greece.

PPC is the largest supplier of retail and wholesale electricity in Greece, controlling all lignite and hydro as well as some of the natural gas and renewable power generation plants. The Commission is concerned that PPC may have restricted competition in the Greek wholesale electricity markets with its bidding behaviour. In particular, it may have adopted predatory and exclusionary bidding strategies hindering the ability of PPC’s rivals to compete in the wholesale and related electricity markets.

In announcing the investigation, the Commission expressly referenced climate change issues, saying:

“Greece has recently embarked on an ambitious plan to exit from lignite. Ensuring effective competition is the best way to deliver competitively priced electricity, both for citizens and businesses, as well as to stimulate investment in less polluting energy sources.

This is important because the Commission to date has focussed on climate change issues primarily in the context of cooperation between competitors. However, this case shows that the issue is under consideration in all aspects of competition law enforcement. Indeed, although the climate change issues are not a necessary element of any foreclosure of competitors that ultimately may be found, it seems that the Commission went out of its way to emphasise them. It may be positioning itself for a finding that, in addition to any negative forcelosure impact on competitors and therefore prices, the alleged behaviour also resulted in damage to the environment.

EU’s Top Court Considers Pay-for-Delay and Object Restrictions

On 25 March 2021, the EU’s highest court — the European Court of Justice (ECJ) — handed down an important judgment concerning so-called “pay for delay” agreements in the pharmaceutical sector and the concept of an “object” (or automatic) infringement of competition law.

The case concerned Danish pharmaceutical company Lundbeck, which had developed and patented an antidepressant medicine containing the active substance known as citalopram. Once its original compound patent expired, Lundbeck continued to hold only a number of secondary patents which offered more limited protection. Manufacturers of generic versions of citalopram therefore were able to plan to enter the market. In 2002, Lundbeck entered into agreements with generic suppliers. In return for a commitment by the generics not to enter the citalopram market, Lundbeck made significant payments to them and, in particular, purchased their stock of generic products.

The Commission investigated and in 2013 found that Lundbeck and the generic manufacturers concerned were at least potential competitors and that the agreements at issue constituted restrictions of competition “by object.” The amounts Lundbeck paid for the purpose of preventing those producers from entering the citalopram market corresponded approximately to the profits they could have made if they had successfully entered the market. The Commission therefore imposed a total fine of €93.7 million on Lundbeck, whilst the generic manufacturers were fined a total of €52.2 million. This was appealed to the EU General Court, which rejected the appeals, and then appealed again to the ECJ.

The ECJ fully upheld the Commission’s original analysis. In doing so, the judgment provides useful guidance on how to determine when suppliers of generic medicines, which are engaged in a patent dispute with an originator, agree to stop competing, not due to the strength of the patent of the incumbent originator company, but because the incumbent bought them out of the market through payments or other commercial advantages. The rulings send a strong signal that such pay-for-delay agreements are unlawful under EU competition law since they amount to cartel-like conduct.

These arrangements had been treated as a restriction by “object,” meaning the Commission did not need to show any actual effect on competition. The ECJ upheld this, putting great weight on the value of the transfer to the generics. It said there will be an object restriction when it is plain that the transfers of value from the manufacturer of originator medicines to the manufacturer of generic medicines cannot have any explanation other than the parties’ common commercial interest not to engage in competition on the merits. The question, to be answered on a case-by-case basis, is whether the net gain of those transfers of value was sufficiently significant actually to act as an incentive to the manufacturer of generic medicines to refrain from entering the market concerned. That was the situation in the present case.

European Commission Provides Rare Compliance Guidance

In a highly unusual move, on 29 March 2021, the European Commission published compliance guidance (a “comfort letter”) concerning sharing of commercially sensitive information at a meeting.

The meeting was an online pan-EU matchmaking event aimed at discussing ways to expand COVID-19 vaccine production capacities across the EU and address production and supply chain bottlenecks. The event aimed to expand connections between vaccine producers and service companies with a view to improving planning for current and future vaccine production in the EU. The participants were mainly active at different levels of the supply chain, although some were active at the same market level (e.g., vaccine developers).  

The guidance considers how the matchmaking and exchanges between participating companies, including direct competitors, can take place in compliance with the EU competition rules. It is based on the Antitrust Temporary Framework adopted by the Commission on 8 April 2020, at the outset of the COVID-19 crisis in the EU.

The Commission states that, bearing in mind the need to increase the rate of vaccine production, neither the organisation of nor participation in the event raise concerns under EU competition law, provided that:

  • In relation to matchmaking meetings between any companies (regardless of whether they are competitors or active at different levels of the supply chain), any exchange of confidential business information will be limited to what is indispensable for effectively resolving the supply challenges linked to the COVID-19 pandemic; and
  • In relation to any matchmaking meetings between direct competitors, companies will not share any confidential business information regarding their competing products, in particular information relating to prices, discounts, costs, sales, commercial strategies, expansion plans and investments, customers list, etc.; direct competitors will keep a record of which topics they discussed.
  • companies will not share any confidential business information regarding their competing products, in particular information relating to prices, discounts, costs, sales, commercial strategies, expansion plans and investments, customers list, etc.;
  • direct competitors will keep a record of which topics they discussed.

The Commission expressly states that the guidance does not cover any discussion of prices between direct competitors or any other possible cooperation between them (other than exchanging non-confidential information in the context of the event). It also does not apply to any subsequent cooperation between non-competitors resulting from the event.

The guidance shows the great sensitivity under EU competition law about the exchange of commercially sensitive information. As noted, it states that even exchanges between non-competitors should be considered carefully and, despite the pandemic and the need to increase vaccine production, exchanges between competitors must be limited to non-confidential information.     

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

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