Antitrust in focus - September 2020

Francesca Miotto, Counsel based in Brussels, is our editor this month. She has selected:

General

• EU merger control: the road ahead
• The European Commission’s evaluation of the antitrust rules on vertical agreements: where are we heading?
• Sustainability and the environment continue to capture antitrust attention
• UK antitrust authority defers decisions in pandemic-hit industries

Consumer & Retail

• Price signalling in the spotlight following Irish motor insurance probe preliminary findings
• Information exchange: EU antitrust authorities target conduct in tobacco and book markets

Life Sciences

• French competition authority fines pharmaceutical companies for abuse of collective dominance
• Pharma firms warned of crackdown on antitrust infringements in China

General

EU merger control: the road ahead

The European Commission has been mulling potential changes to the EU merger control rules for a number of years. Until now, it has been in listening mode – gathering feedback and observing how changes implemented by other jurisdictions have panned out. A speech this month by Competition Commissioner Vestager has confirmed, however, that action is on the cards. Ahead of the Commission formally publishing the results of its evaluation of the merger control regime in early 2021, Vestager has indicated that we can expect to see the Commission:

• In the coming months, take steps to simplify the merger process, eg by expanding the scope of the simplified regime, reducing the amount of information required from merging parties, speeding up reviews and even cutting back on pre-notification discussions in straightforward cases.
• By mid-2021, accept merger referrals from EU national competition authorities even where those authorities have no jurisdiction to review the deals at national level. The aim is to enable the Commission to look at potentially anti-competitive deals where the target has little or no turnover – so-called “killer acquisitions”.
• As a longer-term project, look back at recent merger decisions to check their actual impact on competition in the relevant market(s) (interestingly, the U.S. Federal Trade Commission has also announced the expansion of its programme of merger retrospective analysis). And more broadly to launch “a reflection” to discuss ideas on how to improve the rules in light of digitisation and growing market concentration.

Find out more about each of these action points in our alert. You can also learn, in our separate alert, about the potential impact of the new approach to merger referrals for businesses in France.

The European Commission’s evaluation of the antitrust rules on vertical agreements: where are we heading?

The EU Vertical Block Exemption Regulation (VBER), which defines the categories of vertical agreements that are exempted from the prohibition on anti-competitive agreements, is due to expire in May 2022. The European Commission is, therefore, carrying out an evaluation of the VBER and its associated guidelines to check whether they remain relevant and whether any amendments are needed. In a summary of its findings so far, the Commission has concluded that the answer to both of these questions is yes – that while these tools continue to serve a useful purpose, there is room for improvement and modernisation.

We have analysed the summary findings to pick out the key areas where we expect to see changes to the rules. The Commission will most likely update the rules, for example, to reflect the growth of e-commerce and the importance of data. In this vein, we expect to see guidance on new types of restriction that are growing in prevalence, such as restrictions on using online marketplaces – these restrictions in particular have been considered a number of times at Member State level, including most recently in a Dutch appeal court ruling which confirmed that a ban imposed by Nike on sales of its clothing via Amazon did not infringe EU antitrust rules as it did not amount to an absolute prohibition on online sales. Guidelines on data sharing and the permissibility of information flows between various levels of the distribution chain are also likely. The rules will be amended to take account of and, potentially, clarify, several landmark judgments on vertical restrictions issued by the European Court of Justice in recent years. And we expect the Commission to seek to provide further clarity on certain issues, such as retail price parity clauses, where the rules have been applied inconsistently by authorities and courts at Member State level.

You can read more about these likely changes and the timing of the review in our alert.

Sustainability and the environment continue to capture antitrust attention

In our July edition of Antitrust in focus, we noted the growing importance of sustainability in antitrust policy. We commented on the draft guidelines by the Netherlands Authority for Consumers and Markets (ACM), which set out how it will evaluate the compliance of cooperation agreements aimed at benefitting the environment with EU and Dutch antitrust rules. And we remarked that the European Commission was increasing its focus on sustainability and antitrust. According to a speech by Competition Commissioner Vestager this month, we can expect much more from the Commission in this area in the very near future. While Vestager acknowledged that antitrust policy cannot take the place of environmental laws or green investment, she was clear that it “has to do its bit” to support the European Green Deal, working hand in hand with regulation. She gave a sneak preview of what we will see in the coming weeks:

• A call for contributions on questions about how competition rules and sustainability policies work together, and how this could be improved. Vestager floats several ideas for a “greener competition policy”. Some we have heard before, such as making it easier for businesses to be confident that their sustainability agreements do not fall foul of antitrust rules (eg by giving clearer guidance as well as comfort letters for particular agreements). Others are new, for example a “green bonus” to encourage governments to use more state aid for projects that make a real contribution to the EU’s green goals. We can expect the Commission’s questions to seek views on these types of issue and more.
• A public consultation on new draft guidelines on State aid for energy and the environment. The Commission wants to ensure these rules give Member States sufficient scope to make the “vast investment in green projects” that will come with the Green Deal. Changes to other rules have already been made – this month the Commission published revised EU Emission Trading System State aid guidelines, to take effect on 1 January 2021. These have been amended to, for example, target aid at sectors at genuine risk of carbon leakage and to make compensation conditional on additional decarbonisation efforts.

At Member State level, the Greek Competition Commission (HCC) has also picked up the mantle. Taking a similar step to the Commission, it has launched a dialogue aimed at assessing areas of convergence and conflict between sustainable development and antitrust law. It will consider sustainability issues in the context of anti-competitive agreements, abuse of dominance and merger control and has published a discussion paper setting out initial suggestions. These include a potential ‘advice unit’ formed of experts from different regulatory authorities, an antitrust law sustainability ‘sandbox’ to allow companies to experiment with new business formats/cooperation initiatives without the risk of incurring regulatory consequences, and the issuance of general guidelines. Vestager described the initiative as “very interesting”.

Going forward, we expect to hear from other antitrust authorities on this topic as the environment and sustainability moves rapidly up their priority list. In setting out its position early, the Commission may well be seeking to take the lead in the EU and encourage some consistency in approach across Member States. Watch out for more on all of this in future editions of Antitrust in focus.

UK antitrust authority defers decisions in pandemic-hit industries

Recent weeks have seen the UK Competition and Markets Authority (CMA) undertake procedural gymnastics in order to accommodate the impact of the Covid-19 pandemic in its antitrust investigations. Unable to complete assessments given considerable uncertainty in particularly hard hit markets, the CMA has made some novel moves – the imposition of interim measures in the airline sector and plans for a supplementary market investigation in the funerals sector.

Airline cooperation: The CMA has been investigating the Atlantic Joint Business Agreement – an alliance between three members of the International Airlines Group (BA, Iberia and Aer Lingus), American Airlines and Finnair – since October 2018. European Commission remedies accepted in 2010 are due to expire next year and, mindful of Brexit, the CMA sought to examine the antitrust impact on UK-U.S. routes. By May 2020, it was consulting on a new set of binding commitments including an offer to make slots available at Heathrow and Gatwick for ten years – to address possible antitrust concerns on certain routes between London and U.S. cities. However, with the crisis in the airline sector worsening and the extent and duration of its impact currently uncertain, and informed by feedback from rival airlines, the CMA does not now consider it appropriate to accept the commitments and has decided to keep its investigation open. To avoid an ‘enforcement gap’ when agreements relating to the Commission’s commitments expire, it has – for the first time since its formation in 2014 – imposed interim measures. While procedurally unprecedented, the interim measures simply have the effect of extending the terms of the Commission’s commitments for a further three years. The CMA expects to complete its investigation, potentially setting out a long-term remedy for the alliance, before March 2024, by which time it anticipates the sector to be in a more stable position. In the meantime, the CMA will take responsibility for ensuring the ongoing implementation and enforcement of the measures.

Funerals and crematoria services: 2018 also saw the CMA launch a market study into the funerals market in the UK. It opened a full market investigation in March 2019. Again, the CMA’s probe progressed actively until the pandemic hit the sector. Since then, the CMA has struggled to obtain necessary data due to an increase in demand for funerals. On top of this, government restrictions on funerals have limited the CMA’s ability to research and test possible remedies. And difficulties accurately forecasting future revenues and profitability have ruled out the design and implementation of price controls. Statutory time limits mean that the CMA is not able to suspend or defer its final decision beyond March 2021. Despite provisionally concluding that the markets are not functioning well, it has, therefore, provisionally opted to require fairly limited short-term, largely transparency-related ‘sunlight’ remedies to deal with the price and quality concerns raised. However, it will continue to monitor the sector. Funeral directors and crematoria will potentially be obliged to provide the CMA with key financial data every quarter. And, when conditions are more stable, the CMA could move to conduct a supplementary market investigation and put more fundamental remedies, including price control, back on the table.

Remember that you can use our antitrust, merger control, foreign investment control and State aid trackers to access the latest Covid-19 developments on a jurisdiction-by-jurisdiction basis.

Consumer & Retail

Price signalling in the spotlight following Irish motor insurance probe preliminary findings

When a firm unilaterally makes a genuine public announcement, it is unlikely to give rise to any antitrust concerns. The European Commission accepts this in its guidance on horizontal cooperation agreements. However, the guidance goes on to say that, depending on the circumstances, antitrust issues could arise where rivals follow such an announcement with similar announcements of their own, as this could amount to a strategy for reaching a “common understanding about the terms of coordination”. Where announcements relate to intended future pricing and could raise antitrust concerns, this is commonly known as ‘price signalling’. Most recently in the EU, potential price signalling conduct is being scrutinised by the Irish Competition and Consumer Protection Commission (CCPC). In preliminary findings announced this month in an investigation involving the private motor insurance sector, the CCPC alleges that five insurers, an industry association and a broker engaged in anti-competitive cooperation for almost two years by making public announcements of future motor insurance premium rises as well as engaging in other contacts.

Few details of the CCPC’s precise concerns are publicly available. On its face, however, the case appears to raise similar issues to those considered by the European Commission several years ago in the container liner shipping sector. The Commission investigated whether the publication of intended future price increases by firms may have reduced uncertainty about their pricing behaviour and could have led to higher prices. The Commission closed the investigation in 2016 without reaching a final decision on the conduct. Instead, it accepted commitments from the parties aimed at improving price transparency for customers and binding firms to the prices announced, thus reducing the likelihood of coordination. The Dutch ACM took a similar approach in its 2014 investigation involving three mobile operators. Turning back to the Irish case, it will be interesting to see what happens next – the parties to the CCPC’s investigation now have the opportunity to respond to the preliminary findings.

Information exchange: EU antitrust authorities target conduct in tobacco and book markets

Information exchange enforcement cases are now not uncommon in the EU. Antitrust authorities are bringing cases and advocating compliance. This month we have seen two cases of note:

• First, the Dutch Authority for Consumers and Markets (ACM) has imposed its highest-ever combined fine in a single case, sanctioning four cigarette manufacturers – British American Tobacco, JT International Company Netherlands, Philip Morris Benelux and Van Nelle Tabak Nederland – over EUR82m for exchanging information about future prices of cigarette packs between July 2008 and July 2011. Unusually for consumer products, each cigarette manufacturer determines the price that consumers pay, printing it on cigarette packs in accordance with stamp duty legislation. As a result they send wholesalers their new price lists several weeks before store prices are amended to allow them time to adjust their sales systems. However, the ACM found that the manufacturers “knowingly asked for, received and accepted” rival manufacturers’ price lists from some buyers (in a ‘hub and spoke’ type arrangement), and then, according to the ACM, went on to use the information when determining their own retail prices to increase profit margins. In the ACM's view, the reduced uncertainty as to competitors’ future prices also allowed the manufacturers to coordinate their pricing strategies. All four manufacturers have appealed. But the ACM has explicitly cautioned businesses in all markets that sharing information indirectly through a third party provides no protection and that exchanging information about future recommended retail prices would be illegal too.
• Second, the Norwegian antitrust authority has provisionally decided to fine an alleged book publishing cartel NOK502m (EUR45m) for sharing confidential information – including on future book prices and the timing of new releases – through an industry-wide book database, Bokbasen. The four publishers under investigation all have an ownership interest in Bokbasen and are represented on its board of directors. The authority considers that this gives them an insight into and influence over its operations including the services offered and the information that could be exchanged via the database. The scheme made it possible for the publishers to coordinate the prices of books, the selection of books available and the timing of book releases. And in this case the third party is also potentially on the hook – the authority is proposing to fine Bokbasen NOK3.9m (EUR350,000) for facilitating the information exchange.

Life Sciences

French competition authority fines pharmaceutical companies for abuse of collective dominance

This month, the French competition authority fined Novartis, Roche and Genentech a total of EUR444m for abusive practices designed to prevent the drug Avastin eating into sales of eye disease treatment Lucentis in France. Genentech developed both drugs – Avastin to treat cancer and Lucentis to treat age-related macular degeneration (AMD) – and subsequently licensed their commercialisation to Roche and Novartis, respectively. However, doctors started to prescribe Avastin, a drug that is 30 times cheaper than Lucentis, for AMD after discovering that it had positive effects for patients suffering from the condition. The authority claims that between 2008 and 2013 the pharmaceutical companies moved to preserve the position and price of Lucentis by curbing this off-label use. Notably, Roche never sought a marketing authorisation for Avastin’s use in ophthalmology. The fine is the highest to date issued by the authority against a collective dominance abuse – the authority notes that “the practices sanctioned are particularly serious as they have been undertaken in the healthcare sector, in which competition is limited and, more specifically, at a time of public debate over the impact on social security finances of the extremely high price of Lucentis”. The case stands out for a couple of other reasons, too.

First, in a rare move, the authority found that the three companies held a collective dominant position in relation to treatment for AMD in France – that they formed a “single collective entity” within the meaning of antitrust law and were able to implement a common strategy in the market – given the contractual ties and cross-holdings between them. In terms of strategic links, the licensing agreements for marketing Avastin and Lucentis “provide for a highly-organised system of feedback, discussion forums and joint management committees”. In terms of structural links, Roche was the majority shareholder in Genentech until 2009 and has been the sole shareholder since and, in turn, Novartis has a 33.33% share of the voting rights in Roche Holding. All in all the authority concluded that the three companies had strong and aligned financial incentives for keeping the use of the drugs separate.

Second, the French authority found two specific forms of abusive practice:

• The disparaging of Avastin by Novartis: a “global, well-organised communication campaign” that discredited the use of Avastin for eye disease treatment in favour of Lucentis, drawing on a selective and biased presentation of the available scientific data and claiming that healthcare professionals who prescribed Avastin off-label risked being held liable under civil and criminal law. It targeted ophthalmologists and in particular key doctors who might pass the message on. Novartis also spread the message among patient associations and the general public. And the authority concluded that the campaign was effective both in reducing the off-label use of Avastin at many hospitals and more generally in preventing it from being used in comparative trials. The authority also claims that the conduct indirectly maintained the supra-competitive price of Lucentis and led to fixing the price of Eylea (a competing product launched by Bayer in 2013) at an artificially high price.
• Dealings with the French public authorities by all three companies: “alarmist and misleading” communications with the authorities designed to exacerbate their concerns and block initiatives to set up procedures for the safe use of Avastin in the treatment of AMD. Roche, for example, delayed a comparative trial by refusing to supply trial samples and data for several months. The French competition authority concluded that the companies ensured that Avastin could not be recognised by the French health authorities as an appropriate comparator to Lucentis in trials, which prevented earlier downward renegotiation of the price of Lucentis.

The French decision follows a 2014 decision of the Italian competition authority to fine Roche and Novartis EUR182m for entering into an anti-competitive agreement, in particular for colluding to exclude the use of Avastin in the treatment of AMD in favour of Lucentis, through an artificial distinction between the two products. As part of an appeal of that decision (which was confirmed by Italy’s Council of State in July 2019), in 2018 the European Court of Justice confirmed that two companies selling competing medicinal products that release misleading information on adverse effects resulting from off-label use of one of the products with a view to reducing its competitive pressure on the other product can constitute a by-object restriction of EU antitrust law.

Proceedings in France, which began with dawn raids in 2014 and, according to the President of the competition authority Isabelle de Silva, were already lengthy as a result of the complexity of the infringement and huge amounts of documents needing to be processed, will likely not end here. Novartis reportedly intends to appeal; Isabelle de Silva expects all three to challenge the decision. And the story looks set to continue beyond France. Last year, Turkey’s competition authority also opened an investigation into whether Roche and Novartis entered an anti-competitive agreement in order to increase the usage of Lucentis.

Pharma firms warned of crack down on antitrust infringements in China

China’s State Administration for Market Regulation (SAMR) has warned active pharmaceutical ingredient (API) and pharmaceuticals companies against breaching Chinese antitrust rules. The statement comes following a meeting held by SAMR with a number of firms and two industry associations to discuss issues facing the sector. The meeting also discussed and commented on new guidelines on antitrust compliance for the API sector. SAMR notes that it (including its local offices) intends to increase antitrust enforcement in the industry, cracking down in particular on monopoly conduct such as abusive price increases. Infringers will face severe sanctions. And harsh penalties will be imposed on entities that engage in conduct intended to avoid antitrust enforcement investigations.

SAMR’s approach is not surprising. As we noted in our April edition of Antitrust in focus, the pharmaceuticals sector is a key enforcement priority for SAMR, and it has concluded a number of cases – with a particular focus on APIs – in recent years. This focus is also in line with the Price Conduct Guidelines on Operators of Drugs Prone to Shortages and APIs released by the National Development and Reform Commission in 2017. And, more broadly, SAMR is taking steps to encourage companies to stay on the right side of the line: earlier this month it released the final version of antitrust compliance guidelines for business operators and published for consultation draft guidelines on how firms can comply with overseas antitrust rules.

About your editor

Francesca Miotto
Counsel
Brussels 
francesca.miotto@allenovery.com
Tel: +32 2780 2917

Francesca is counsel in our global antitrust team, based in Brussels. She acts on the full range of antitrust matters, with particular expertise in the automotive, digital, life sciences, chemical and financial services sectors. Francesca is noted for her experience in advising on complex EU Commission and global investigations, including those involving cartel settlement procedures and abuse of dominance issues. She also regularly advises on private enforcement matters across the EU and has considerable experience litigating before the EU courts. Merger control advice is a further significant part of her practice and her experience includes securing two Phase II clearances before the EU Commission (one of which was based on a “failing firm” defence).