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04 August 2017

Competition Law Summer update

The past few months have seen some intriguing developments in UK competition law which have shed valuable light on some important areas of compliance and enforcement.  We provide some comment on a selection of the key highlights below.

Discounts are not always good news - CMA cracks down on abusive pricing by dominant drug supplier to the NHS

Companies offering major discounts to the purchase price of their products may not immediately strike you as a target for complaints and regulatory scrutiny.  However, where that company enjoys a dominant position (as a rule of thumb, holding 40% or more of the relevant market although it could be found at a lower share depending on the structure of the market and any ‘barriers to entry’, such as proprietary technology), discounting policies can seriously damage the competitiveness of the marketplace by driving smaller rivals out of business.

Following an 18-month investigation, on 23 May 2017 the CMA announced that it had issued a statement of objections (“SO”) (an initial ‘charge sheet’ informing its recipient that the CMA has reason to believe it has infringed competition law, and on what ‘counts’) to pharmaceuticals company Merck Sharpe & Dome (“MSD”).  This SO alleged that MSD had been marketing its gastroenterological and rheumatological medicine remicade at a discount level that was anti-competitive.  As required for a finding that a company has breached Chapter II of the Competition Act 1998 (“CA98”), the CMA considers MSD to be dominant in the market for this and similar treatments for Crohn’s disease, ulcerative colitis and rheumatoid arthritis, and that its discount scheme was likely to prevent ‘biosimilar’ rival versions of the infliximab drug in question from viably competing.

The issue of this SO to MSD follows on from the CMA’s handing down on 7 December 2016 of record fines of £82.4 million on Pfizer Limited (plus £5.2 on Flynn Pharmaceuticals) for abusing a dominant position by charging unfairly excessive prices for phenytoin sodium anti-epilepsy capsules.

Law Society breaks the law! LS successfully challenged by a rival training course provider for unfair exclusivity and abuse of dominance

In a reminder that even the institutions supposed to uphold the legal profession are not above the law, on 26 May 2017 the Competition Appeal Tribunal (“CAT”) gave its judgment in a claim brought by Socrates Training Limited, a provider of training courses for solicitors, against the Law Society.  Socrates had complained that the Law Society was acting unlawfully in requiring that in order for solicitors to obtain accreditation under the Conveyancing Quality Scheme (“CQS”) (for solicitors engaged in residential conveyancing) they had to purchase certain constituent training courses exclusively from it.

 In Socrates’ case, it claimed damages on account of its having been denied the opportunity to sell its anti-money laundering (“AML”) training product to CQS applicants in breach of the prohibitions in both Chapter I (against anti-competitive agreements) and Chapter II (against abuse of a dominant position) of the Competition Act 1998.

Significantly, the LS was found to be dominant since the end of April 2015 on the market for the accreditations in question, with the CQS having become a ‘must have’ product for which almost 60% of those firms engaged in residential conveyancing had become subscribed.  The LS keeping such a large proportion of firms subscribed to its AML and mortgage fraud courses was considered by the CAT as threatening to discourage any competition to it from rival providers, and the CAT panel refused to accept LS’s counter-argument that there was no reasonable alternative to its own mandatory training courses.

The case serves as a reminder as to the continuing need for firms in a potentially dominant position to act with great caution in setting terms of business, as they have a special responsibility to preserve competition and protect consumers – this appears a particularly pertinent message in the higher and professional education sectors, where accreditation rules can often encounter issues where providers are dominant. 

It also highlights the newfound availability for claimants to pursue actions for damages (and, indeed, other remedies such as injunctions) before the CAT under a ‘fast track’ procedure (which Socrates invoked in this case), benefiting from a shorter timetable, truncated evidence and a manageable cap on costs to assist claimants that might otherwise be deterred from bringing an action in fear of the management time involved and the cost liability they could face in the event their claim does not succeed.

Online platforms are not always the victim: CMA consults on commitments from ATG Media to preserve competition in internet auction marketplace

Many will have read about competition regulators cracking down on attempts by various brand owners to prevent or restrict sales of their products via online platforms.  However, it is not always these online sales platforms that are the victims of alleged competition law infringements.  In a recent CMA case, it is an online auction platform which has itself been found to be in the wrong.

ATG Media is the largest UK provider of live online bidding (“LOB”) platforms, and has attracted scrutiny from the CMA for imposing exclusivity and “most favoured nation” (“MFN”) clauses (i.e. “no less favourable terms” – that is to say, clauses which effectively require that “you [the customer] must offer us the same or better terms than you offer to all of your other providers”, or vice-versa) and other restrictions against auction houses advertising and promoting rival LOB platforms.  Given ATG’s size and influence, the CMA believes these restrictions may foreclose the market for potential competitors to it and, at least, reduce the scope for existing rival services to expand.  The MFN clauses could, in the CMA’s view, also deter rival platforms from attempting to compete with ATG on price, also leading to reduced choice for consumers.

The CMA invited ATG to propose measures to address its concerns, with ATG then offering to refrain from exclusivity arrangements, MFNs and advertising restrictions with auction house customers for a period of five years.  The CMA considered that these proposed commitments will address its concerns and invited comment on its intention to accept them in settlement of the case by 19 June 2017. On 29 June 2017, the CMA then announced that it had decided to accept the commitments and on 13 July 2017, the CMA published guidance and a 60-second-summary advice sheet to help auction houses and others understand these commitments.

Bottom of the class – collective actions face problems before the Tribunal BUT the upshot should encourage these types of claims, if more targeted, in future

In the first edition of our firm’s revamped Compliance newsletter we reported on the growth in “collective actions” by classes of claimants following reforms under the Consumer Rights Act 2015 (notably, an “opt out” approach to collective actions brought on behalf of an entire class of claimant, reversing the previous so-called ‘opt-in’ system, which required active participation by class members). 

In particular, we highlighted two class action cases before the CAT, notably with MasterCard facing a damages claim worth billions by a representative claimant (Walter Hugh Merrick) on behalf of, potentially, more than 46 million UK consumers alleged to have overpaid for fees on credit card transactions.  Merrick’s application for a Collective Proceedings Order (“CPO”) was heard before the CAT through a series of hearings, which raised concerns over the size of the proposed class and the complexities of establishing the level at which transaction fees levied on retailers were passed on to consumers in the prices ultimately charged, especially given the huge variation in spending patterns and card use by the millions of members of the proposed class, creating major difficulties for Merrick in this case.  Ultimately, in a ruling on 20 July 2017, Merrick’s application for a CPO was formally refused by the CAT.

However, whilst the observations drawn from the Merrick hearings suggest that successfully applying for a collective action is likely to prove challenging in such vast consumer cases across heterogenous purchasing markets, it will if anything encourage many more representative claimants to come forward and seek to utilise the new opt-out system, especially where their claim concerns a single product or product line and a more ‘homogenous’ claimant class.

A similar collective action, on which we also reported in the first edition of Compliance, being pursued against Pride mobility scooters on behalf of the General Secretary of the National Pensioners Convention (“NPC”), (an umbrella organisation representing around 1.2 million individual members), was adjourned by the CAT following its ‘CPO’ hearing after problems were observed with the various ‘sub-classes’ of the proposed claimant group and with how common issues as to determining monetary loss could be identified between them.  Ms Dorothy Gibson, the representative claimant, has since taken the decision to withdraw the action.

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