Antitrust in focus - February 2021

Frances Dethmers, counsel based in Brussels, is our editor this month. She has selected:

General

• A&O reports on trends in 2020 global antitrust enforcement
• U.S. antitrust agencies suspend early termination and merger filing thresholds decrease
• UK Government consults on new subsidy control regime
• Independent report on UK competition policy maintains momentum for reform
  

Digital & TMT

• UK CMA refreshes its digital markets strategy
  

Industrial & Manufacturing

• German antitrust authority strikes steel forging companies with fines for information exchange
  

Life Sciences

• Aspen agrees behavioural commitments to settle EC’s excessive pricing probe
  

General

A&O reports on trends in 2020 global antitrust enforcement

2020 was a mixed picture in terms of fines for antitrust enforcement across the globe. Our latest report (expanded this year to include other forms of antitrust enforcement as well as cartel conduct) shows that in some jurisdictions fines rose significantly. France is a prime example, imposing fines totalling USD2 billion, far ahead of the European Commission (EC) and any other EU Member States and way in excess of past fine totals. This exceptionally high figure is largely attributable to the record fine of EUR1.2bn imposed in the Apple case. The U.S. is another example, issuing its highest total for cartel fines (USD539.8 million) since 2015. In other jurisdictions, we saw the opposite trend. The EU, in particular, saw a sharp decrease in antitrust fine levels – down nearly 75% from the EC’s 2019 total for cartel fines alone.

We discuss the impact of Covid-19 on these figures and on the ability of antitrust authorities to carry out investigations (including dawn raids) more generally. We set out key statistics and identify other important trends from 2020, including:

• Prioritisation of more effective enforcement in the digital sector, as authorities progress reform proposals.
• Focus on antitrust infringements in the healthcare sector as well as increased efforts to pursue resale price maintenance.
• Continuing use of settlement/commitments procedures, and a growing trend for more flexible enforcement mechanisms.
• Pursuit of individuals for their part in companies’ anti-competitive behaviour.
• Heightened sophistication of authorities’ investigative techniques, with technology/data increasingly used to detect possible infringements.
• Intensifying debates on the interaction between antitrust policy and sustainability goals.

More generally, we look ahead at what we can expect from antitrust enforcement in 2021 and beyond – will there be a continued downward trend in overall fining levels, or will we see a renewed appetite for more aggressive intervention?

Read the report here.

U.S. antitrust agencies suspend early termination and merger filing thresholds decrease

Last March, following the establishment of a new e-filing system in response to the onset of the Covid-19 pandemic, the U.S. Federal Trade Commission (FTC) and Department of Justice (DOJ) temporarily suspended the grant of early termination of the 30-day waiting period under the U.S. merger rules. Just under a year later, the agencies have announced a similar early termination suspension. The justification this time round: “an historically unprecedented volume of filings during a leadership transition amid a pandemic”.

The agencies anticipate that the suspension will be “brief”. The 2020 suspension lasted just a couple of weeks before early termination was reinstated, albeit on a more limited basis. It is not yet clear how long the current suspension will continue. Until further notice, therefore, the full 30-day waiting period will apply to all notified deals.

The announcement is not without controversy. Two FTC Commissioners dissented, stating that there was insufficient rationale for the suspension. They argue that freezing early termination could delay the completion of deals raising no antitrust issues and could harm employees, small businesses and firms in financial difficulty.

And on the same day, Senator Amy Klobuchar presented draft legislation that proposes significant changes to the U.S. merger rules. This includes a shift in the burden of proof for certain deals, such as acquisitions of rivals or nascent competitors by dominant firms. The bill would also authorise a notable increase in funding for federal antitrust enforcement. Some commentators have predicted that the bill, together with the agencies’ early termination announcement, could be a sign that a tougher approach to U.S. merger control enforcement is on the horizon.

These events came just one day before the FTC announced the annual revision to the U.S. merger notification thresholds. For the first time since 2010, the thresholds (which are based on the change in gross national product) have decreased. The size-of-transaction threshold, for example, is down from USD94.0m to USD92.0m. The thresholds will apply to all deals that close on or after 4 March 2021. For more details see our alert.

UK Government consults on new subsidy control regime

Following Brexit, with some limited exceptions, the EU State aid rules no longer apply in the UK. The UK Government is now consulting on a new UK subsidy control regime, inviting views on the best way to design rules that reflect the UK’s “strategic interests and particular national circumstances”.

The consultation outlines the possible scope of the regime, which is based on a set of core principles agreed between the UK and EU in the Trade and Cooperation Agreement. It proposes that certain types of “high risk” subsidy will be prohibited, and that conditions will be imposed in relation to others. And it sets out possible exemptions.

A number of questions remain unanswered at this stage. For example, will there be an ex ante mandatory notification requirement for at least some types of subsidy? What responsibilities and powers will any independent body have to oversee/enforce the regime and where will it sit? We should find out more after the Government has analysed the consultation responses. For now, it’s clear that the Government intends to adopt a far lighter approach to regulation and to be able to provide “more flexible and tailored financial support to businesses” than under the EU rules.

We comment further on the proposals in this alert.

Independent report on UK competition policy maintains momentum for reform

This month John Penrose MP published his UK Government-commissioned report on how the UK antitrust regime can be improved in a post-Brexit, post-Covid-19 world. The “recipe-book” of recommendations covers bolstering the role and powers of the UK Competition and Markets Authority (CMA), a procedure for redesigning CMA and Competition Appeal Tribunal processes, and limiting the remit and powers of the new digital markets unit (for further information on which see the article below) A number of the proposals align with existing CMA recommendations and may bear fruit. Our alert summarises Penrose’s findings.

Digital & TMT

UK CMA refreshes its digital markets strategy

The UK Competition and Markets Authority (CMA) first set out its priorities for digital markets in 2019 (see our alert for the details). After completing many of the tasks on its list, and following political and regulatory developments in the digital sector, it has now published a refreshed version of its strategy.

The CMA’s main ambition in the coming months is to establish the new Digital Markets Unit (DMU) – the unit that will be responsible for applying a new pro-competition regulatory regime to digital markets in the UK. Ahead of the UK Government adopting the necessary legislation to give effect to the regime, the CMA plans that the DMU will begin preparing the groundwork. This will include starting to consider which firms might fall in scope and the design of the codes of conduct that they will be required to follow.

Other priority areas for the CMA include using its existing antitrust toolkit to tackle alleged problems in digital markets and working with the UK Government on reforms to its powers. It will also prioritise the work of its Data Technology and Analytics (DaTA) unit, as well as cooperation with both UK and international regulators on digital initiatives.

Read our alert for more on the CMA’s seven priority areas and how we are seeing them already being put into practice.

Industrial & Manufacturing

German antitrust authority strikes steel forging companies with fines for information exchange

A decision by Germany’s Federal Cartel Office (FCO) this month serves as a reminder of the perils of information exchange between competitors, and the need for firms to mitigate risk when employees attend industry association events.

The FCO found that anti-competitive information exchange between steel forging companies took place at the working group meetings of the umbrella organisation of the European national associations for the forging industry (Euroforge). It claims the firms swapped competitively sensitive information on their costs, pricing strategies, and negotiations with suppliers and customers in order to pass their own manufacturing cost increases on to customers “to the fullest extent possible” and without fear of being undercut by rivals. The FCO alleges that the exchange was regular, taking place up to three times a year through Euroforge as well as through additional bilateral and multilateral contacts, and spanned October 2002 to December 2016.

The level of the fines in this case does not stand out. The total of approx. EUR35m on three companies and two senior staff members reflects reductions for the companies’ extensive cooperation and settlements. As a successful leniency applicant, a fourth German company avoided fines, and the FCO did not start proceedings against foreign forging companies for discretionary reasons.

However, the decision is the FCO’s second in under two months in the forging sector. Information exchange was again under scrutiny. In December, the FCO fined five aluminium forging companies and ten employees a total of approx. EUR175m for exchanging information on cost factors and for agreeing that their respective procurement costs and cost increases would be passed on to their customers. These discussions allegedly took place at 23 meetings of what the companies referred to as the “Aluminium Forging Group”.

And antitrust enforcement in the steel and aluminium sector has not been confined to Germany. In late January in South Korea, where demand for steel scrap significantly exceeds supply, the Fair Trade Commission found that seven local steelmakers exchanged sensitive information (for example on inventory quantities and import plans) and fixed the purchase price of scrap steel over an eight-year period. The authority fined the companies a total of KRW300bn (approx. EUR224m) and is referring some of the companies to the prosecutor’s office for criminal charges.

Overall, the cases remind compliance teams of the need to approve and monitor engagement in trade associations as well as to implement top-down antitrust compliance training amongst staff. Indeed, an increasing number of jurisdictions, now including Germany (see our recent alert), allow authorities when calculating fines to take account of compliance measures implemented prior to an alleged infringement.

Life Sciences

Aspen agrees behavioural commitments to settle EC’s excessive pricing probe

The European Commission (EC)’s ground-breaking excessive pricing investigation into Aspen, opened in May 2017, has closed with the first set of commitments accepted in a pharmaceutical antitrust case. The EC’s decision will be turned to for guidance on the circumstances in which prices will be considered excessive.

The concern

The EC’s press release and questions and answers reiterate its opinion that Aspen’s behaviour amounted to an abuse of dominance:

• After acquiring six critical off-patent cancer medicines, in 2012, Aspen started to progressively increase its prices across Europe.
• The company subsequently consistently earned very high profits on the medicines, both in absolute terms and when compared to the profits of similar pharmaceutical companies. Prices exceeded Aspen’s relevant costs by nearly 300% on average, including when accounting for a reasonable rate of return.
• There were no legitimate reasons for those profit levels, especially given that the medicines have been off-patent for a sufficient period (50 years) to allow for the recoupment of any R&D investment.
• The price increases were sustainable as there were generally no alternative medicines available and patients depended on them, sometimes with their life. Aspen threatened to withdrawn medicines from the national list of reimbursable medicines where national authorities tried to resist price increases. In some cases it was even prepared to withdraw from normal supply in the market.

In terms of guidance for future excessive pricing cases, EC Competition Commissioner Vestager notes: “It does not really matter whether the starting price is “high” or “low”. What is decisive is whether profits are excessive and whether there are any legitimate reasons for them”.

The remedies

The now legally binding, detailed commitments have three main elements, all of which will be closely supervised by an independent EC-approved monitoring trustee:

• Price reductions: net prices for all six cancer medicines will drop by, on average, approx. 73% across Europe. This is, on average, below the 2012 prices for the drugs.
• Price ceiling: the reduced prices will be the maximum that Aspen can charge for the next ten years, effective retroactively from 1 October 2019.
• Supply guarantee: Aspen will supply the medicines for at least five years after which it will either continue to supply or make its marketing authorisation available to other suppliers (eventually at no minimum price) for another five years.

While the EC has not arrived at a precedent-setting excessive pricing infringement decision, it has reached a “fast, comprehensive and lasting solution” to its concerns in each country where the medicines are sold. And while it has therefore not been able to impose a deterrent-setting fine, it has sent out a warning to the sector: “Today’s decision gives a strong signal to other dominant pharmaceutical companies not to engage in abusive pricing practices to exploit our health systems”.

Indeed, we may well see other cases at both the EU and national level as antitrust authorities seek to prioritise consumer welfare and to assist national health services coming under increasing financial pressure in the wake of the Covid-19 pandemic. The UK’s Competition and Markets Authority (CMA) for one has not been afraid to tackle the issue and is currently looking again at whether Pfizer and Flynn Pharma excessively and unfairly priced an epilepsy drug after the case was remitted back to it by the court last year. Italy’s antitrust authority actually fined Aspen EUR5.2m for excessive pricing behaviour back in 2016 (and Italy has therefore been carved out of the EC’s decision) and has since opened a preliminary investigation into whether Essetifin charged excessive prices for an “orphan drug”.

A&O antitrust team in publication

Recent publications by members of our global team include:

• Kees Schillemans (partner, Amsterdam), Emma Besselink (senior associate, Amsterdam), Eline Vancraybex (associate, Amsterdam) and Hannelore Vanderveen (associate, Amsterdam): Collective or Class Actions and Claims Aggregation in the Netherlands, an extract from GCR’s Private Litigation Guide, Second Edition. The whole publication is available at globalcompetitionreview.com/guide/private-litigation-guide/second-edition.
• Kees Schillemans (partner, Amsterdam), Emma Besselink (senior associate, Amsterdam), Eline Vancraybex (associate, Amsterdam) and Hannelore Vanderveen (associate, Amsterdam): Netherlands: Settling Collective Actions, an extract from GCR’s The Settlements Guide. The whole publication is available at globalcompetitionreview.com/guide/the-settlements-guide/first-edition.