In recent years, competition authorities have intervened in a number of cases in the life sciences sector.

In Spain, for example, sanctions have been imposed for abuse of a dominant position, for selling orphan drugs at excessive prices, for allegedly taking unjustified legal action against a competitor, or for resale price maintenance.

Being involved in a competition case entails serious drawbacks: dawn raids, lengthy and costly procedures, and serious consequences if illegal behaviour is found – sanctions for companies and their managers, exclusion from contracts with public administrations, criminal liability, reputational risks, and so on. Among these consequences, the Spanish Law on the Defence of Competition (“LDC”), allows individuals or legal entities who have suffered damage as a result of an anti-competitive practice to seek compensation. Recently, the Public Administration has shown clear signals that it intends to make use of this possibility (see, for example, the case of the “diaper cartel”, where the Catalan administration is claiming over 500 million euros in damages).

Public sector damages claims for competition law infringements

ACCO’s “Report on Damages Claims Caused to Public Administrations as a result of Anti-Competitive Practices” illustrates the interest of the administration in this issue. The objective of this study is to promote public sector claims for damages caused by competition law infringements, by providing practical guidance on how to bring such claim. This includes alternatives for financing the associated costs (such as litigation funds).

What are the key aspects of damages claims by public authorities?

• Basic requirement. In order to bring an action for damages for breach of competition law, there must be a prohibited concerted practice, such as price fixing or market sharing or an abuse of a dominant position, such as predatory pricing.

• Locus standi. Any natural or legal person, public or private, including entities in the public sector, that has suffered damage as a result of an infringement of competition law is entitled to bring an action (Article 72(1) LDC).

• Passive standing. The claim must be directed against the infringing party. Note that, as per our preceding capsule, “the claim may be directed against the parent company if the victim can prove that the subsidiary and the parent company constitute an economic unit”.

• Burden of proof. The claimant must prove the existence of an infringement of competition law, the existence of pecuniary loss (including consequential loss, loss of profits and accrued interest) and the existence of a causal link between the infringement and the loss. The infringement needs not to have been previously declared by a competition authority (as the judge is empowered to assess it). However, if there is a final decision from a competition authority, the injured party will have irrefutable evidence of the existence of unlawful conduct (Article 75(1) LDC).

• Sources of evidence and confidentiality of communications. To facilitate access to evidence, Article 283bis(a) of the Code of Civil Procedure provides the possibility of ordering the defendant to produce evidence or documents not only at the time of the claim or during the judicial proceedings, but also before their commencement (a mechanism similar to the Anglo-Saxon “Discovery” process). In this way, internal company documents or communications can be obtained. Confidentiality is applied in a very restrictive manner, with limited exceptions (such as privileged communications). On the other hand, the Spanish competition authority (CNMC), or equivalent regional authority, is invited to participate in the proceedings.

• Statute of Limitations. The time limit for bringing an action is 5 years. The period starts to run when the infringement of competition law has ceased and the claimant could reasonably have been aware of the existence of an infringement, of the damage caused and of the identity of the infringer (Article 74 LDC).

The importance of prevention

An ounce of prevention is worth a pound of cure. In this case, this could not be truer. Preventive training in competition law is a key tool for avoiding and mitigating the risks of engaging in anti-competitive practices and facing the serious inconveniences that may arise from them. Given the specific procedural regime of these actions, especially concerning access to sources of evidence, it is highly advisable to entrust the defence of the case to an expert in the field from the very outset once a claim is received. Not only to define a good strategy, but also to ensure that the way in which information and communications are handled does not prejudice the legitimate right of defence of the defendant (note that the privilege covers communications with external lawyers, while its application to communications with in-house counsel has sparked some controversy). A poorly chosen remedy can prove to be quite costly.

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The enforcement of competition law to companies operating in the pharmaceutical sector has gained great importance in recent years. We observe a shift in the traditional approach of the Commission and national authorities. In the 80’s, the time of the ‘blockbusters’, the main concern was assuring that companies did not establish artificial barriers to intra-community trade of medicinal products.

The Commission’s major concern was that the efforts that were being made to build a single market were not frustrated by anti-competitive agreements. At that time, in Brussels, they had many difficulties understanding the licensing or co-marketing agreements; and the obsession to favor parallel trade was almost ridiculous.

Currently, these issues are still a trending topic; but both the Commission and the national authorities concentrate their efforts on pursuing behaviors that may endanger access by patients to medicinal products, especially to essential medicinal products.

Approach by the Commission and the national authorities

According to the Commission, since 2009, more than 100 cases have been investigated and 29 antitrust decisions have been taken against pharmaceutical companies, with fines totaling over 1,000 Million Euros.

Among the cases analyzed by the Commission, we would highlight the cases in which manufacturers of reference medicinal products intend to extend the commercial life of their products through illicit commercial strategies.

Sometimes these cases concern unilateral actions taken by the company holder the reference product, such as in case of disrepute practices to hinder market access of some generic medicinal products in relation to which the French authorities have been particularly active; or of companies that have abused regulatory procedures to hinder the market entrance of generic products.

There are other cases, such as the so-called ‘pay for delay’, in which the company that has developed a generic medicinal product agrees to restrict or delay its independent entrance to the market in exchange for benefits transferred from the originator.

Other anti-competitive practices that have been pursued by the competition authorities include boycotts by pharmacists to the products chosen by a particular company. We refer to the Dávur case in Spain, where the Spanish authorities found the existence of an infringement. Also, pursued anti-competitive practices include market sharing agreements. In Spain, action was taken against the agreements promoted by the Healthcare Service of Castilla-La Macha as they contemplated a market share between pharmacies for the supply of medicinal products to healthcare centers.

The Commission and the national authorities have also pursued cases in which they have understood that companies have abused their dominant position either by imposing excessive prices for their  products; or by trying to exclude competitors from the market by means of offering predatory discounts in public tender procedures.

Specificities of the sector and relevant market

In the Report, the Commission highlights its interest in considering the specificities and competitive dynamics of the pharmaceutical sector, and there are some interesting ideas. On the one hand, the Commission assumes the important role played by national administrations, which can have an impact on the application of competition rules. On this point, the Commission, acknowledges that national administrations are competent in all matters related to public funding of medicinal products.

On the other hand, about how to define the relevant market, the Commission considers the possibility that each molecule constitutes a market when the main competitive threat comes from generic versions of the same molecule. In this regard, we can interpret that the Commission supports the analysis of the demand substitution not only from the point of view of the prescriber but also from the point of view of the pharmacist. This is because both the prescriber and the pharmacist play very relevant roles in case of products having generic competition.

In case of hospital tenders, everything points to the fact that the relevant market must be defined in relation to the molecule, given that the need that the contracting authority must cover when calling a tender is the availability of medicinal products containing certain molecule to meet the physician’s prescriptions.

The offers presented to hospitals, especially in cases of tying and multi-product discounts (bundling) must be carefully analyzed from this point of view.

Right to compensation for damages

To conclude, it is interesting to note that the Commission devotes a part of its Report to remember that the victims of anti-competitive behaviours have the right to claim damages according to Directive 2014/104/EU, on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union.

In Spain, this Directive was incorporated into domestic law through Royal Decree-Law 9/2017.

In accordance with these rules, any person who suffers damages caused by an infringement of competition law, has the right to claim full compensation before the ordinary civil jurisdiction.

Full compensation is understood as returning the person who suffered the damage to the situation in which such person would have been if the infringement of competition law had not been committed. Also, the ones responsible for the infringement of competition law will be responsible in a joint and several manner.

La entrada Enforcement of competition law in the pharmaceutical sector. Second generation issues aparece primero en Faus Moliner.

One of the issues that often arises in the pharmaceutical sector is how to attack the actions of competitors when they are contrary to sector-specific regulations. These Judgements remind us of an alternative legal channel provided by the Spanish legal system -besides the judicial one- that may sometimes go unnoticed. We refer to the possibility of bringing unfair competition cases before the Spanish Competition Authority. As these judgements recall, there are 2 requirements for accessing this channel: there must be an infringement of the Unfair Competition Law (UCL), and such infringement, by distorting free competition, must affect the public interest.

Breach of rules as an unfair conduct

Under the UCL, the following conducts are -among others- considered as unfair: on the one hand, taking a significant advantage through an infringement of laws; and, on the other hand, infringing the rules governing the performance of a business activity. On the first conduct, Spanish case law has clarified that the competitive advantage is significant when it is important enough from an economic point of view or when it produces a diversion of clients in favour of the infringer. In addition, according to this case law, the infringer must use this advantage in a real -and not potential- way, and there must be a cause-effect relationship between the infraction and the advantage gained. Regarding the second conduct, the case law has explained that the rules governing a “business activity” refer to those regulating an “economic activity”. Spanish Courts of Appeals have stated that some examples of these would be “the rules governing the conditions for marketing and placing medical devices on the market”. In addition, other Spanish courts have indicated that, in these cases, it is not necessary to prove the advantage gained by the infringer, because the mere violation of this kind of rules implies the existence of such advantage (unless proven otherwise).

Public interest and competition distortion

In these judgements, the Supreme Court highlights that in order for the Spanish Competition Authority to act against unfair competition conducts, it is necessary to prove that said conduct, by distorting competition, affects the public interest.  The affectation of the public interest is a very controversial requirement. According to the Supreme Court, it will depend on the “significance of the conduct or the circumstances involved”, listing the following as examples: having a dominant position in the market, the market situation at the time of the facts or the capacity of the conduct to obstruct access or permanence of competitors in the market.

Consequently, when a pharmaceutical company infringes specific sector rules, a complaint may be filed before the Spanish Competition Authority without having to prove the advantage gained by the infringer as long as the conduct affects the public interest by distorting free competition. This is without prejudice of the possibility of suing the infringer before the competent courts and/or of the healthcare authorities imposing sanctions, if applicable.

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The aim of the Directive is to ensure that anyone who has suffered harm caused by an infringement of competition law can obtain full compensation; and to ensure that equivalent rules apply throughout the member states to avoid different resolutions according to the place where the claim has been issued.

Before the transposition of the Directive, there did not exist in Spain specific rules for this kind of actions, and the non-contractual liability regime of the Civil Code was the one used to claim compensation to the infringing companies for damages caused by an anti-competitive conduct.

Joint and several responsibility 

The infringing companies will be severally liable for the entire damage caused, except for small and medium enterprises, which are governed by specific rules.

In this way, the victims are entitled to claim damages in one single procedure and to one single company for the totality of the damages caused.

Evidential value of final decisions of competition authorities

Final resolutions of the CNMC are considered as irrefutable evidence of a competition law infringement, for the purposes of claiming damages, and final resolutions of the competition authorities of other member states create a presumption of competition law infringement in Spain.

Limitation period

The limitation period is notably extended, from 1 year to 5 years.

Introduction of the discovery technique

The Anglo-Saxon discovery technique is introduced to facilitate the taking of evidence. With this technique, any victim is entitled to request to the company to disclose relevant evidence which lies in their control in order to demonstrate the scope of the damage caused. The judge will decide the scope of the documents.

The entry into force of this Royal Decree-Law will solve the main difficulties faced by the victims of anticompetitive practices when claiming compensation for damages, and it increases pressure against cartels and other collusive practices.

La entrada Claiming damages for competition law infringements has become easier aparece primero en Faus Moliner.

Two years ago, the European Commission launched a sector inquiry into E-commerce. One of the objectives of the inquiry was to analyse possible competition barriers resulting from the commercial practices of companies, and also to reflect on the measures that could be adopted to ensure better access for consumers and businesses to goods and services. The inquiry sought to address both the consumer goods and digital content markets. The final report sets out a number of interesting ideas concerning the consumer goods market and in turn, concludes that intervening in the digital content market is much more complex.

Price is not everything

E-commerce has entailed an increase in price transparency and the Commission’s report highlights the need to intervene in the event of undue barriers to price competition. At the same time, it recognises that competition between brands and sales channels is also structured around very important parameters other than price, such as quality, brand image and innovation.

Given the options offered by e-commerce, those who turn price recommendations into fixed prices are likely to get in trouble; however, the Report highlights the need for a more flexible analysis of other issues. Thus, for example, it reminds us that the price of a product should not vary depending on whether it is sold at a brick and mortar shop or online; however, actions to support sales via one channel are allowed; and price differentiation by channel may be necessary and acceptable in order to address unfair practices of free-riding.

Online Platforms

One of the burning issues in this regard is whether manufacturers can ban distributors from selling their products via third-party platforms. This would be the case, for example, of cosmetics manufacturers who do not allow their customers (a pharmacy or other establishment) to sell their products on Amazon or similar platforms. The Commission takes a cautious approach, given that a German case referred to the European Court is currently being analysed; however, everything would seem to suggest it favours manufacturers being able to establish such restrictions unless the circumstances of a specific market recommend otherwise.

Geo-blocking

The Commission acknowledges that unilateral geo-blocking measures by non-dominant companies are acceptable; and in this respect it relies on the general principles applicable to distribution agreements in terms of the measures included in agreements between manufacturers and distributors.

La entrada E-Commerce and Competition Law aparece primero en Faus Moliner.

These measures facilitate the public’s involvement in the fight against cartels and other anti-competitive practices that are difficult for the authorities to detect. Their objective is to make faster and more effective contributions for the benefit of the economic interest of the market, as this type of collaboration does not entail a complaint or a leniency application being filed. Formal complaints require the identification of complainants and the leniency application is filed by the companies involved in cartels in exchange for immunity or a reduction of the fine.

How do they work?

In the case of the CNMC, an online form must be filled in by stating the alleged anti-competitive practices, the companies involved, the market affected and the known facts, attaching the supporting documents.

This system keeps anonymous the unilateral communications of the interested party with the CNMC. In the event that a response is required from the CNMC or communications are needed with said party, a telephone number or email address can be provided on a voluntary basis; however, by doing so, the interested party loses his/her anonymity.

On the other hand, the mechanism implemented by the European Commission operates by means of an encrypted messaging system that allows two-way communications between the citizen and the Commission. This service is provided by an external agent, acting as an intermediary, merely forwarding the content of messages received; thus, no information that could serve to identify the person sending the information is revealed.

It has been said that these new measures encourage employees and former employees of infringing companies to report anti-competitive practices by providing sensitive information that they may have obtained as part of their close relationship with the companies. In this regard, the European Commissioner for Competition, Margrethe Vestager, has stated that employees have access to confidential information that will make it possible to punish practices that restrict competition more quickly and efficiently.

La entrada New online system to report anti-competitive practices before the CNMC and the European Commission aparece primero en Faus Moliner.

This extensive judgment (+120 pages) addresses the ruling adopted by the European Commission in June 2013, which declared that Lundbeck, Merck, Arrow, Alpharma and Ranbaxy had infringed European rules on competition when agreeing that Lundbeck would provide economic compensation to the manufacturers of generic medicinal products for not marketing Citalopram in certain territories during a specific period of time. These agreements were reflected in patent settlement agreements.

Some ideas on “settlements”

This judgment obviously requires an in-depth analysis and raises various question marks, some of which may ultimately be clarified by the Court of Justice in the event of an appeal being filed.

In any case, even if it is just as a preliminary comment, it is worth highlighting some basic ideas in terms of settlement agreements between patent holders and generic medicinal product companies:

• Precaution. These agreements may be legitimate, but they may breach competition rules. Any negotiation of such agreement requires a specific analysis from this perspective.

• Potential competitors. The judgment backs the analysis of the Commission in that the patent holder and any powerful company in the generic medicinal products market are potential competitors, even when patents are in effect, given that the strategies followed by generic medicinal product companies to compete may include (and normally, it is the case) actions to question the validity of patents or to defend their non-infringement; usually willing to assume the investments and risks associated with these actions. Eliminating such competitive pressure by means of this type of agreement, according to the Court, is unacceptable.

• Is the dispute genuine? All agreements of this type must be thoroughly reviewed. Such an agreement may be acceptable if it seeks to resolve a dispute, even if it involves a payment, if such payment is associated to the strength of the patent, and is needed to achieve an acceptable and legitimate solution for both parties; and does not feature limitations that may delay the market entry of the generic medicinal product.

• No to mere “pay for delay” settlements. However, an agreement that includes a significant payment to the generic medicinal product company, which remunerates the delay of the market launch of the generic medicinal product and compensates the unearned amounts surrendered by said company as a result of the delay, without resolving the underlying patent dispute, will normally be considered as an agreement that seeks to restrict competition.

La entrada Risks in the agreements between patent holders and generic medicinal product companies aparece primero en Faus Moliner.

In 1992, Behringwerke AG and Genentech entered into a licence agreement under which the former granted the latter a non-exclusive worldwide licence to use a specific trigger that increases the efficiency of the cellular process employed to produce proteins. The licensed technology was protected by two US patents and one European patent. As compensation for the right to use said technology, Genentech committed to pay certain fees to the licensor but licensor claimed that Genentech failed to pay a periodic fee, equal to a percentage of sales of the ‘finished products’ (understood as those that, in the absence of the agreement, would infringe the patents).

Genentech used the licensed technology to facilitate the transcription of a DNA sequence to produce a biological medicinal product, the active substance of which was rituximab, for its sale in both the EU and the US. In 2008, the licensor asked Genetech about the medicinal products that Genetech sold without paying the periodic fee and, subsequently, Genentech provided notification of its decision to terminate the license agreement with two months’ notice.

Dispute
The licensor initiated arbitration proceedings before the International Chamber of Commerce, on the grounds that Genentech had breached the agreement. The arbitrator ruled that Genetech had the obligation to pay the periodic fee and that it had to pay to the licensor more than100 million Euro.

Genentech appealed against the ruling before the Courd’Appel in Paris, arguing that it should not be forced to pay the periodic fee as the European patent that had been licensed to Genetech, had been annulled in 1999 by the European Patent Office and that, in 2011, a court in California ruled that Genentech had not infringed the patents. Based on this rationale, the Courd’Appel in Paris took the decision to suspend the matter and seek a preliminary ruling from the European Court of Justice.

Position assumed by the European Court of Justice

The preliminary ruling, in essence, consisted of ascertaining whether the obligation imposed on the licensee, as part of the patent licence agreement, of paying a fee throughout the duration of the agreement up until its termination, despite not infringing the patent or the patent in question having been annulled, may be invalid on the grounds of restricting competition.

The Court of Justice concluded that local fact that the competent authorities had annulled the patents or deemed that they had not been infringed, does not affect the enforceability of the fee during the period of validity of the agreement and that, given that Genentech could freely terminate the agreement with a reasonable notice period, the agreement cannot be considered as restricting competition.

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This case has its origin in an inspection that the Spanish Competition Authority (CNMC) performed at the offices of Montesa Honda to investigate whether the company had exchanged information and coordinated strategies with its distributors. Following the inspection, the CNMC filed proceedings against Montesa Honda.

A couple of months later, the CNMC opened new proceedings alleging that when revising the information retrieved during the inspection, an email with the subject line “price list”, sent by Suzuki to Montesa Honda, had been discovered. The CNMC included this email in the second set of proceedings, which ended with a fine of more than two million euros for the exchange of information between competitors.

Montesa Honda expressed its opposition that the email collected during the inspection related to the first proceeding was included in the second one. The Spanish High Court accepted the appeal alleging that, pursuant to the Order authorising the inspection, the CNMC was only allowed to confiscate documentation regarding the relations of Montesa Honda with its distributors, but not documents concerning relations with its competitors.

In the judgement which is object of our analysis, the Supreme Court annulled the Judgement of the High Court.

Position of the Supreme Court

The Supreme Court holds the view that the CNMC can search companies to collect evidence of unlawful activities and recognises that the scope of its activities is subject to judicial authorisation. Furthermore, it highlights that Spanish and European case law specify that such searches must be limited to the object of the authorised investigation and that the inspection activities must always be proportionate and aimed at such object. However, this does not mean that only material that is specifically related to such object can be confiscated during the search itself. Should it be the case, inspection activities would be practically impossible according to the Supreme Court.

In this case, inspectors circumscribed to the matters specified in the judicial order; however, due to computer difficulties and the fact that it was impossible to filter a wide range of documentation at the time, a large amount of data was retrieved for analysis at a later date. According to the Court, based on the content of the Inspection Record, the company did not believe such an approach was abusive.

Given that the inspection was carried out pursuant to the law and in an appropriate and proportionate manner, the Supreme Court ruled that the CNMC acted correctly by opening a second set of proceedings based on a document that was obtained during said inspection by chance.

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Selective distribution is an option chosen by many manufacturers to market their products. A few years ago, several companies chose this system to place their products in pharmacies; as a result, companies faced significant criticism for restricting the sale of their products to the pharmaceutical channel.

Currently, the outlook is quite different; companies that are not in a dominant position in the market can choose to organise the distribution of their products in the way that they believe most appropriate. In the dermo-cosmetics sale sector, many manufacturers have legitimately chosen to demand that points of sale meet certain conditions.

For example, the permanent presence of a pharmacist is often requested to provide consumers with bespoke advice. The point of sale featuring the entire range of products is often a requirement or conditions relating to the protection of a manufacturer’s image and reputation, with a view to defend the company’s goodwill are also a common stipulation.

Online points of sale

The judgement in question addresses how these concepts can affect e-commerce, and websites as a point of sale.

In Europe, and concerning retail pharmacies, the Judgement of 13 October 2011 on the matter of Pierre Fabre Dermo-Cosmétique set the benchmark. Encouraged by its close links to pharmaceutics, Pierre Fabre only authorised the sale of its products in physical premises with the constant presence of a pharmacist. The court deemed that this policy was excessively restrictive as it prevented all online sales, ruling that Pierre Fabre should permit online sales. Notwithstanding the foregoing, the judgement allowed the company to demand certain conditions from the websites on which its products were available.

In Spain, the Supreme Court also backed the idea that manufacturers can impose certain requirements that websites selling their products must meet, especially concerning conditions that seek to protect the prestige of the brand itself.

Thus, a brand that seeks to safeguard its image may object to its products being sold on a website that is associated to low-cost, discontinued or out-of-season products (for example, using the name “outletbelleza.com”). Brands may also object to their products being offered under conditions that are harmful to their image (for example, if on the website in question, products are essentially displayed in alphabetical order, if it is impossible to distinguish between brands, the latest products are not available or if it is not possible to return products).

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