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The Court of justice’s judgment in Generics (UK) v Competition and Markets Authority and the object/effect dichotomy

The Court of justice’s judgment in Generics (UK) v Competition and Markets Authority and the... I. INTRODUCTION Over the years since the Treaty establishing the European Economic Community came into force, the EU Courts have regularly been called upon to engage with the ‘dichotomy between restriction of competition by object and restriction by effect’1 set out in what is now Article 101 of the Treaty on the Functioning of the European Union (TFEU). This series of cases illustrates, as observed by Advocate General Bobek in Gazdasági Versenyhivatal v Budapest Bank Nyrt (Budapest Bank),2 that although the distinction between by object and by effect restrictions is relatively easy to make in theory, its ‘practical operation is nonetheless somewhat more complex’.3 Further that ‘the case-law of the EU Courts has not always been crystal clear on the subject. Indeed, a number of decisions given by the EU Courts have been criticised for blurring the distinction between the two concepts’.4 In Generics (UK) v Competition and Markets Authority (Generics)5 the Court of Justice handed down another judgment dealing with horizontal cooperation (see also Groupement des cartes bancaires v Commission (CB),6 Budapest Bank,7 and H Lundbeck v Commission8), in which it has sought to elucidate the object/effect dichotomy.9 Like Lundbeck, the case concerned the appraisal of patent settlement agreements concluded between manufacturers of originator medicine and generic manufacturers, and involving ‘reverse payments’ (so-called pay-for-delay agreements),10 under Article 101.11 The judgment arose following a reference to the Court of Justice by the UK’s Competition Appeal Tribunal (CAT)12 in the course of appeal proceedings from the Competition and Market Authority’s (CMA) decision in Paroxetine.13 This article considers the extent to which the Court of Justice’s judgment in Generics, read together with other recent cases, clarifies the object-effect distinction and the question of how substantive analysis of agreements under Article 101(1) is to be conducted in the future. II. BACKGROUND: OBJECT, EFFECT, AND CHARACTERIZATION Object or Effect Article 101, like most other competition law systems, employs different types of antitrust analysis to achieve its underpinning objectives and to balance the desire for the competition rules to be accurate and consistent, yet also to be clear, predictable, transparent, administrable, and not too costly to apply.14 A mixture of techniques, involving the shifting of burdens between the parties, are used to identify anticompetitive or restrictive agreements, and to distinguish them from procompetitive or competitively neutral conduct. Indeed, since 1966,15 the Court of Justice has acknowledged that the wording of Article 101(1) itself envisages different approaches to the question of how a restriction of competition is to be estabished, by prohibiting an agreement if either its object or its effect is to restrict competition. Thus, where the precise purpose, or object, of the agreement reveals a sufficiently deleterious effect on competition (it is by its very nature ‘injurious to the proper functioning of normal competition’16), a restriction of competition is assumed, and the claimant does not need to engage in the more complex analysis required to establish restrictive effects (actual or likely). Rather, for procedural economy reasons, a clear, bright-line rule is applied against such conduct and costs do not need to be incurred in demonstrating restrictive effects.17 The agreement is condemned unless the parties can establish that the agreement benefits from the legal exception set out in Article 101(3) (an onerous burden to be discharged in practice). Characterization—importance of content and context Any competition law system that employs a mix of short-cuts and fuller antitrust analysis in this way, requires a sorting exercise to place conduct into the correct basket: consistent with its goals, conduct suitable for quick-look analysis and conduct requiring a more elaborate inquiry. It is this ‘characterisation’ or ‘classification’ step that has proved elusive in the EU, but which is crucial to ensure that error risks within the system are minimized, especially from over-expansion of the object category.18 Since its first judgments on Article 101, the Court of Justice has made it clear that identifying restrictions of competition by object is not necessarily a simple exercise as the purpose of an agreement is to be derived through an analysis of its clauses and the economic context in which it operates.19 Subsequently, it has become clear that agreements involving certain ‘established’ clauses—including market sharing, or horizontal or vertical price fixing provisions—are highly likely, or liable in principle, to restrict competition by object.20 What has been less apparent, however, has been exactly how ‘context’ is relevant to the appraisal and how such contextual analysis differs from that required to demonstrate restrictive effects.21 Indeed, in some cases those relying on the object category, have been criticized for focussing too heavily on the established list of object restraints without paying sufficient attention to the context of the case.22 In others, claimants and Courts have been criticized for over-relying on context to expand the object category to ‘new’ restraints that have not been classified as object restrictions in past case law, and which have only be found to be likely, or to have the potential, to produce, or to be capable of producing, negative effects of competition (without demonstrating why they evidently restrict competition).23 These developments raised concern that the category was being expanded well beyond its envisaged purpose and that the line between object and effects analysis was being inappropriately blurred. As a result, it has been necessary for the Court in its more recent judgments to clarify the function of the object category and, in particular, the role of context in the characterization process. In so doing the Court has reiterated the confined role played by, and the restrictive nature of, the object category—it is only where, taking account of their content, objectives and economic and legal context, agreements inherently reveal a sufficient degree of harm to competition, that a claimant can be exempted from the burden of demonstrating actual or likely anti-competitive effects.24 Further that object categorization is not appropriate for agreements involving complex measures,25 or where experience with the restraint is limited or insufficiently reliable and robust to justify an assumption that competition is restricted.26 Nonetheless, this still leaves the difficult question of how exactly to identify obviously anticompetitive arrangements (such as naked cartel agreements to fix prices, restrict output, share markets or rig bids) and to distinguish them from arrangements requiring deeper analysis. Indeed, a central question arising in Generics was how pay-for-delay patent settlement agreements should be characterized. III. ‘CHARACTERISING’ PATENT SETTLEMENT AGREEMENTS One view is that patent settlements never by their very nature restrict competition, as neither economic analysis nor past experience justifies an assumption of anticompetitive harm.27 On the contrary, such agreements may constitute the only viable form of settling a patent infringement dispute, and a negative impact on competition is contingent on several assumptions—in particular, that entry would be attempted by the alleged infringer/ generic manufacturer, and would have succeeded in bringing down the market price. Consequently, an assumption of anticompetitive harm is inappropriate, and a more detailed analysis is required to determine an agreement’s impact. Others, in contrast, are concerned that patent settlements involving reverse payments are liable to eliminate potential competition and to operate as market sharing arrangements to the detriment of consumers (by delaying generic entry a sharp decline in prices is also postponed).28 Indeed, in a series of decisions, Lundbeck,29 Johnson & Johnson/Novartis (Fentanyl),30 Servier/Périndopril,31 and Teva/Cephalon: modafinil,32 the European Commission has found pay-for-delay agreements to restrict competition by object and to constitute serious violations of Article 101. Similarly, in Paroxetine,33 the CMA found that settlement arrangements concluded between GlaxoSmithKline plc (GSK), Generics (UK) and others restricted competition by object (and effect), did not meet the conditions for exemption under Article 101(3), and so infringed Article 101 (and the UK equivalent set out in Chapter I of the UK Competition Act 1998 (CA98)).34 The agreements in this case had been concluded after GSK’s patent for the active ingredient of its originator medicine Seroxat (an anti-depressant) had expired, but following GSK obtaining a number of secondary, process patents. On appeal, the appellants argued, amongst other things, that the CMA’s decision erred in finding that the generic companies were potential competitors of GSK and that the agreements restricted competition by object or by effect. The CAT referred these points to the Court of Justice for a preliminary ruling, which made it clear that although patent settlement agreement cannot be considered to restrict competition by object in all cases they may do so in certain circumstances. A vital, initial matter to be considered in assessing the competitive impact of a patent settlement is whether it constitutes a horizontal agreement—ie an agreement between competitors. In Generics,35 the Court held that a generic producer that is not present in a market may be a potential competitor of an originator in that market where there are real and concrete possibilities of the former entering the market sufficiently quickly and competing with the latter.36 Further, that although hypothetical possibility of entry is not sufficient to demonstrate potential competition, entry (and successful entry) does not have to be demonstrated with certainty.37 The existence of a process patent does not therefore mean that the parties cannot be potential competitors. On the contrary, because uncertainty as to the validity of patents covering medicines is a fundamental characteristic of the pharmaceutical sector, a genuine dispute between the parties about the validity of an originator’s process patents (for an active ingredient that is in the public domain) and/or whether those patents have been infringed, may constitute evidence of the existence of a potential competitive relationship between the parties.38 This is likely to be the case where the manufacturer of generic medicines has taken steps to enter the market,39 has a firm intention and an inherent ability to enter the market, and if unsurmountable barriers to entry do not exist.40 More generally, the Court noted that the conclusion of a market sharing agreement between undertakings operating at the same level in the production chain, but where some had no presence in the market concerned, constitutes a strong indication that a competitive relationship exists between those undertakings.41 Although leaving final judgment to the referring court, the Court thus indicated that it considered it to be likely that the parties in Generics were potential competitors. Even if concluded between potential competitors, it must still be determined whether the agreement to restrain the generic’s entry into the market is restrictive of competition by object. The Court clarified that this may be the case, for example, if the dispute is entirely fictitious and the agreement is designed with the sole aim of disguising a market-sharing or market-exclusion agreement between the parties.42 Where, however, the dispute is genuine, and even if it involves a value transfer to the generic,43 analysis is required to determine whether the agreement reveals an aim to share markets or whether it has ‘any explanation other than the commercial interest of both the holder of the patent and the party allegedly infringing the patent not to engage in competition on the merits’.44 In making such an assessment a relevant factor includes the value of any transfer made under the agreement (pecuniary and non-pecuniary) and whether it is sufficiently significant45 to encourage or incentivize the generic manufacturer to refrain from entering the market.46 When it is sufficiently significant, and not made in return for other goods or services, the agreement concerned must, in the absence of any other plausible justification,47 be characterized as a ‘restriction by object’.48 Such a conclusion cannot be rebutted on the ground that the settlement agreement does not exceed the scope and the remaining period of validity of the patent nor on the ground that there is a genuine dispute about the ability of the patents to prevent market entry.49 However, if procompetitive effects are demonstrated, relevant, specifically related to the agreement concerned, and sufficiently significant, they will ‘justify a reasonable doubt as to whether the settlement agreement concerned caused a sufficient degree of harm to competition, and, therefore, as to its anticompetitive object’.50 IV. IMPLICATIONS Combined with other recent judgments of the EU Courts, Generics sheds further, and clearer, light on the question of when horizontal agreements may be categorized as restrictive by object. First, the judgment reiterates the sometimes-overlooked point that although certain established restraints are liable to be found to be restrictive of competition by object, object restraints cannot be identified solely by reference to a list.51 Rather, to ensure that Article 101 analysis is in tune with the objectives underpinning it and the risk of Type I errors is minimized,52 ‘context’ constitutes a central plank of the characterization exercise. As a result, even if a horizontal agreement incorporates price fixing or market sharing provisions, no restriction by object may be found if contextual analysis reveals that the restraints are required to achieve a procompetitive objective, or efficiency-enhancing cooperation agreement; there is another credible explanation for the agreement other than the commercial interest of the parties not to compete.53 The category is not intended to extend to horizontal cooperation arrangements which have the potential for mixed effects on competition. Rather, it is confined to restrictions that ‘generally have net negative effects’—a high potential to create negative effects whilst being highly unlikely to be a vehicle for creating efficiencies.54 Although it has always been clear that by object restrictions may benefit from the Article 101(3) exception, the Court’s clarification in this case means that where efficiency stories are successfully proffered at the Article 101(1) stage, the claimant will be required to demonstrate actual or likely anti-competitive effects before those efficiency arguments are fully tested under Article 101(3). Secondly, to differentiate object from fuller effects analysis, the Court has stressed the limited nature of contextual analysis in the characterization setting, confining it ‘to what is strictly necessary … to establish the existence of a restriction of competition by object’.55 The assessment required is not therefore as in-depth as that required to identify actual or likely restrictive effects and does not generally demand a detailed assessment of the relevant market or counterfactual scenario.56 Rather, it serves as a reality check to the assessment, permitting evidence that casts reasonable doubt57 on the conclusion that the agreement by its very nature harms competition, for example, because the parties are not potential competitors, the agreement pursues a viable procompetitive commercial objective or was designed to prevent upward pressure on prices.58 Thus even though the Court in Generics referred to the need for procompetitive effects to be sufficiently significant, proven, relevant and related to the agreement, it made it clear that no restrictive object could be found where arguments are capable of giving rise to a reasonable doubt as to whether the agreement caused a sufficient degree of harm to competition. It thus appears that, as noted by Advocate General Bobek in Budapest Bank,59 the yardstick is whether a ‘reasonable’ countervailing hypothesis exists which is not implausible at first sight and challenges, in the context of the individual case, the conventional wisdom. The explanation must be plausible enough to warrant further examination but does not need to be fully established, argued and proven.60 Thirdly, the importance of context to the characterization process means that, in spite of its narrow nature, the category of object restraints can encompass new agreements (beyond those established in past cases). It is no defence consequently that, at the time an agreement was concluded, there were doubts as to whether it could be found to be restrictive of competition by object—‘all that matters are the specific characteristics of that agreement.’61 The content, objective, and context must, however, reveal a restrictive purpose, for example, where sufficient and consistent experience and evidence exists of the inherently harmful nature of the type of agreement,62 or the agreement is equivalent to a price fixing, output or capacity limiting, market sharing, or other obviously anticompetitive agreement.63 Fourthly, the Court’s approach, which has similarities to the ‘ancillary restraints’ doctrine in the US (used to distinguish agreements which are illegal per se from those requiring fuller analysis under the rule of reason64), emphasizes that ‘restrictions by object’ and ‘restrictions by effect’ are not separate analytical approaches but are joined by unifying concepts. In each case the analysis (the decision to place an agreement in the object category or the appraisal of restrictive effects) must be referable to a theory of harm and, in particular, to the question of whether the agreement can be expected to harm competition.65 In object cases EU decision-takers must be clear on how experience, theory, and context justifies a conclusion that competitive harm is highly likely66 (likely, potential, or a capability of, anticompetitive effects is insufficient). The difference between object and effect analysis is thus ‘more of degree and depth than of kind. The two types of analysis are simply different ways, in the light of the knowledge and experience acquired by the authority, to answer one and the same question: whether the agreement at issue may prevent, restrict or distort competition in the internal market’.67 Nonetheless, some questions concerning the precise scope of the category still require greater clarification. For example, the judgment itself does not explicitly deal with the question of whether it is possible to escape a finding that an agreement restricts competition by object by demonstrating that in the setting in which it occurred the agreement does not, or is not likely to, have a restrictive effect on prices or other parameters of competition (eg because the parties did not have sufficient market power or because of other specific features of the market).68 In the context of Article 102, the Court of Justice held in Intel69 that although a dominant undertaking that ties purchasers to it through an exclusivity requirement or loyalty rebate abuses its dominant position, a fuller analysis of effects is required if the dominant firm submits evidence that its conduct was not capable of restricting competition and of producing the presumed foreclosure effects. Although at first sight it might seem possible to draw parallels between the treatment of exclusivity provisions and loyalty rebates under Article 102 with by object restrictions under Article 101, on close inspection the two approaches adopted do not mirror each other;70 there is a difference between the analysis required to identify object restraints under Article 101, leading to an assumption that competition is restricted, and the approach in Intel, where a presumption is applied that exclusivity clauses and loyalty rebates are abusive, unless the defendant can produce evidence indicating a lack of anticompetitive effects or countervailing efficiencies. Indeed, the EU Court in Generics does not provide any indication that evidence of an absence of anticompetitive effects, if proffered by the parties, would be relevant to object analysis under Article 101. On the contrary, case law under Article 101 indicates that, once an agreement has been characterized as restrictive of competition by object—the true purpose of the agreement having been ascertained taking account of clauses, objective and context71—the claimant is not bound to research actual or likely effects.72 It is not a presumption of illegality which can be rebutted.73 Rather, a core purpose of this approach is to ensure that full, complex effects analysis is side-stepped. The Court in Generics was also not required to deal with the question of how characterization is affected by the existence of an explanation for the agreement which is not an economic one. In a line of cases commencing with Wouters v Algemene Raad van de Nederlandse Orde van Advocaten,74 the Court of Justice has held that agreements incorporating established or other severe restraints on the core parameters of competition will not restrict competition (by object or by effect), if inherent in, and proportionate to, a legitimate public policy objective or regulatory aim, for example the proper practice of the legal profession or the organization and proper conduct of competitive sport and the protection of a sport’s integrity. The scope of this ‘Wouters’ exception is central in the pending appeal before the Court of Justice in International Skating Union (ISU) v Commission,75 which raises the question of whether ISU eligibility rules (broadly, enabling skaters participating in certain competitor events to be sanctioned with a life-time ban from skating in ISU events) restrict competition by object or are justified by the objective of protecting the integrity of speed skating. The approach of the Court in this group of cases has, however, some differences to that adopted in cases such as CB and Generics. First, in conducting contextual analysis the Court goes beyond looking for evidence which casts reasonable doubt on a conclusion that the agreement at issue reveals sufficient harm, testing not only if the restraints pursue the legitimate objective, but also whether they are inherent, necessary, and proportionate to them.76 Secondly, if the restraints are found to be inherent in, and proportionate to, a legitimate objective they fall outside the scope of Article 101(1) entirely—it does not have to be determined whether their effect is the restriction of competition. Public policy justifications thus remove practices from the scope of Article 101(1) altogether, whilst the procompetitive justifications referred to in Generics only remove practices from the by object category. The appeal in ISU provides an opportunity for the Court of Justice to clarify the relationship between these strands of case-law. Finally, the judgment in Generics has implications for the analysis of vertical agreements incorporating ‘established’ by object restraints—including resale price maintenance (RPM) provisions and clauses conferring absolute territorial protection (ATP) on a distributor. The jurisprudence in the verticals sphere has consistently found that ATP and RPM provision are liable in principle to restrict competition by object, even in some cases where the parties have argued that the purpose of the agreement is to enhance efficiency of the supply chain to the benefit of the parties and end customers (for example by prohibiting free riding or protecting brand image).77 Generics, however, establishes that consideration of a procompetitive rationale for an agreement must form part of the categorization process.78 In other words, a restriction that at first sight falls in the by object category, will not do so where an examination of the context reveals a credible efficiency story casting reasonable doubt on the conclusion that the agreement causes a sufficient degree of harm to competition. V. CONCLUSION Although some outstanding issues remain for resolution, the Court of Justice in Generics has taken another significant step in illuminating the distinction between the ‘by object’ and ‘by effect’ concepts. Crucially, Generics establishes that object categorization is not to be used where the parties raise a credible efficiency justification for their agreement, which is sufficient to cast reasonable doubt on the conclusion that it pursues an anticompetitive object. In such scenarios, the claimant is required to demonstrate actual or likely restrictive effects before the parties can be required to justify their agreement under Article 101(3).79 Further, by again highlighting the narrow role of the object category, the judgment signals that most agreements are not to be condemned under Article 101(1) unless restrictive effects are demonstrated. The Court in Generics, however, shed relatively little light80 on how this latter appraisal is to be completed. The next challenge therefore will be for the EU Courts and competition authorities to provide direction on how a cohesive, consistent and administrable framework can be constructed to conduct fuller effects analysis under Article 101—how actual or likely restrictive effects are to be identified under Article 101(1) and how countervailing benefits are to be appraised within the Article 101(3) framework. Footnotes 1 Case C-228/18, Budapest Bank EU:C:2019:678, para 1. 2 ibid. 3 ibid, para 2. 4 ibid. 5 Case C-307/18, EU:C:2020:52. 6 Case C-67/13P, EU:C:2014:2204. 7 Case C-228/18, EU:C:2020:265. 8 Case C-591/16 P, EU:C:2021:243. 9 See also eg the judgments of the General Court in Case T-93/18, ISU ECLI:EU:T:2020:610 (discussed at n 75 and text); and the Court of Justice in Case C-345/14, Maxima Latvija EU:C:2015:784 (dealing with a vertical agreement). 10 Reverse payments because ordinarily when a patent infringement case is settled it is the alleged infringer that pays the patentee (not the other way round). Many competition agencies are concerned about these practices, see the European Commission’s Pharmaceutical Sector Inquiry, Preliminary Report, 28 November. 2008, Final Report, 8 July 2009, Competition Enforcement in the Pharmaceutical Sector (2009–2017), COM(2019) 17 final and eg, Study of the US Federal Trade Commission, ‘Pay-for-delay: how drug company pay-offs cost consumers billions’ (2010). 11 It also considered the application of TFEU, art 102 and its UK equivalent to the conduct, but this issue is not discussed in this article. 12 Case 1251/1/12/16, [2018] CAT 4. 13 Case CE/9531-11, 12 February 2016 (see n 33 and text). 14 Including, rules or presumptions against certain conduct, rules or presumptions in favour of certain conduct, standards requiring a more complex, multi-faceted analysis and/or intermediate types of analysis, see A Jones and W Kovacic, ‘Identifying Anticompetitive Agreements in the United States and the European Union: Developing a Coherent Antitrust Analytical Framework’ (2017) 62 Antitrust Bulletin 254. 15 Case 56/65, STM EU:C:1966:38. 16 Case C-209/07, BIDS EU:C:2008:643, para 17. 17 See Kokott AG, Case C-8/08, T-Mobile Netherlands BV v Raad van bestuur van de Nederlandse Mededingingsautoriteit EU:C:2009:110, para 43. In Budapest Bank (n 7) paras 39–40 it was confirmed that an agreement may have as its object and effect the restriction of competition, as long as each are established separately. Although a finding of a restriction of competition by object relieves the competent authority or court of the need to examine the effects of that restriction, it does not mean that the authority or court cannot make such an examination. 18 See also Pitruzzella AG in Case C-132/19 P, Groupe Canal + v Commission EU:C:2020:355, para 88. 19 STM (n 15) and CB (n 6) para 57. 20 See eg CB ibid. 21 Since the 1960s and the case of STM (n 15), the Court of Justice has stressed the need to examine an agreement which did not have as its object the restriction of competition in its market context to determine its effect. 22 See eg Budapest Bank (n 7). See also n 77 and text. 23 See Case C-8/08, T-Mobile EU:C:2009:343, Case C-32/11, Allianz Hungária Biztosító Zrt, Generali-Providencia Biztosító Zrt v Gazdasági Versenyhivatal EU:C:2013:160. 24 See CB (n 6) paras 53–58 and Budapest Bank (n 7) para 54. 25 In that case it was argued that the horizontal cooperation was designed to ensure the success of the carte bleu system, in particular through combating free-riding and balancing issuing/acquisition activities. The Court considered that, given the complex nature of the market and the efficiency justifications raised, negative effects could not be considered so likely to make assessment of effects redundant. 26 Budapest Bank (n 7) paras 76–79. See also Bobek AG in Budapest Bank (n 1) para 72 (suggesting that there must be sufficient consensus among economists of the inherently anticompetitive nature of the agreement). 27 See eg the US Supreme Court’s Opinion in Federal Trade Commission v Activas, 570 US 136 (2013) (given their potential to lead to genuine adverse effects on competition, reverse payment settlement arrangements are subject to scrutiny under the antitrust laws. They are not to be treated as per se illegal or even presumptively invalid, however. Rather, the complexity and variability of the practices demand a fuller rule of reason inquiry). 28 See n 10. 29 COMP/39.226, 9 June 2013, aff’d Case T-472/13, H Lundbeck A/S v Commission EU:T:2016:449, Case C-591/16 P (n 8). 30 COMP/39.685, 10 December 2013. 31 COMP/39.612, Périndopril (Servier) 9 July 2014, IP14/799, Case T-691/14, Servier v Commission EU:T:2018:922 (although the findings on abuse were annulled on appeal, and the fines reduced, the GC upheld the findings that all the patent settlements in this case, except for one with Krka, were restrictive of competition by object), Cases C-176 and 201/19P (judgment pending). 32 COMP/39.686, 26 November 2020, IP/20/2220. 33 n 13. 34 The CMA also found that GSK has abused a dominant position and imposed fines totalling £44.99 million. 35 n 5. 36 Generics (n 5) para 36. See also Lundbeck (n 8) para 54. 37 Generics, ibid, para 38. 38 Even where an interim injunction had been granted prohibiting a generic manufacturer’s entry into the market (as the matter has not yet been decided). 39 eg taking steps to obtain market authorisation, to ensure adequate stocks and to challenge the process patents. 40 Generics (n 5) paras 35–58 (the mere existence of a process patent cannot be regarded as an insurmountable barrier). 41 ibid, para 55, relying on Case C-373/14 P, Toshiba Corp v Commission EU:C:2016:26, paras 33-34. 42 ibid, para 76. 43 ibid, paras 84-5. 44 ibid, para 87 and see Lundbeck (n 8) paras 114–15 (an argument that the agreement was intended to allow the originator to protect its patents through recourse to dispute resolution was not sufficient to establish that the agreement did not restrict competition by object. Not only did a patent not permit its holder to enter agreements in breach of art 101, but it was for public authorities not private entities to ensure compliance with statutory requirements). See also A Jones, B Sufrin and N Dunne, Jones and Sufrin’s EU Competition Law: Text, Cases, and Materials (7th edn, OUP 2019) 259–60. 45 And eg beyond sums to compensate the generic manufacturer for the costs of, or disruption caused by, the litigation, Generics, ibid, para 86. 46 ibid, paras 84–93. 47 ibid, para 89. 48 ibid, para 95. 49 ibid, paras 96–98. 50 ibid, para 107. The Court considered that although a matter the referring court the factual situation raised indicated that the settlement agreements at issue gave rise to procompetitive effects that were only minimal and uncertain. 51 See Trstenjack AG, Case C-209/07, BIDS EU:C:2008:467. 52 See Jones, Sufrin and Dunne (n 44) Chs 5 and 10. 53 Generics (n 5) para 111, see also Budapest Bank (n 7) paras 71–75, Wahl AG in Case C-67/13, CB, EU:2014:1958, para 56. 54 L Peeperkorn, ‘Defining “By Object” Restrictions’ (2015) 3 Concurrences 40, 399–400. 55 Toshiba (n 41) para 29. 56 Lundbeck (n 8) para 140. These factors are not irrelevant, however, as eg in pay-for-delay cases a crucial issue is whether, in the absence of the agreement, real and concrete possibilities exist for the generic to enter the market and whether a potential competitive relationship exists, ibid para 143 and see Section III above and n 71. 57 A mere unsubstantiated assertion concerning procompetitive effects is insufficient Lundbeck, ibid, para 137. 58 Budapest Bank (n 7) paras 82–83. 59 ibid, para 79. 60 ibid. 61 Lundbeck (n 8) para 131. 62 See n 26 and text. 63 See eg Case C-179/16, Hoffmann-La Roche and Novartis v AGCM EU:C:2018:25. 64 See Broadcast Music, Inc v Columbia Broadcasting System Inc 441 US 1 (1979) (the US Supreme Court warning that ‘easy labels do not always supply ready answers’ drew a distinction between: practices such as price-fixing and market-sharing agreements with no purpose except stifling competition which are illegal per se; and practices designed to increase economic efficiency and render markets more, rather than less, competitive—such as agreements where price-fixing and market division are ‘ancillary’ to cooperative productive activity engaged in by the agreeing parties, which must be analysed under the rule of reason). 65 See M de la Mano and A Jones, ‘Vertical Agreements under EU Competition Law: Proposals for Pushing Article 101 Analysis, and the Modernization Process, to a Logical Conclusion’ in D Healey, M Jacobs and RL Smith, Research Handbook on Methods and Models of Competition Law (Edward Elgar 2020). 66 Wahl AG (n 53) para 8. 67 See Bobek AG in Budapest Bank (n 1) para 32. 68 But see Kokott AG (n 73) and text. 69 Case C-413/14 P Intel v Commission, ECLI:EU:C:2017:632, paras 136–39. 70 In allowing dominant firms to submit such evidence, a rebuttable presumption of illegality is applied. 71 Making it clear that the agreement is at least capable of restricting competition, see T-Mobile (n 23) para 31. 72 See Cases C-101 and 110/07 P, Coop de France bétail et viande v Commission EU:C:2008:741, para 88 and Case C-501/06 P, GlaxoSmithKline Services v Commission EU:C:2009:610. 73 See Kokott AG in Generics EU:C:2020:28, para 162. 74 Case C-309/99, EU:C:2002:98 and Case C-519/04 P, Meca-Medina v Commission EU:C:2006:492. 75 Case C-124/21 P (judgment pending) (relating to Case COMP/40.208, ISU 8 December 2017, aff’d Case T-93/18 EU:T:2020:610). It has also been much debated following the announcement of an intention by certain European football clubs to create a new football Super League, Case C-333/21, European Super League Company, SL v Union of European Football Associations (UEFA) and Fédération Internationale de Football Association (FIFA) (judgment pending). 76 The approach has similarities to that adopted by the EU Courts in relation to selective distribution systems (SDS) (holding that SDSs necessarily restrict competition by object unless objectively justified—the restraints constitute a proportionate measure to achieve a legitimate aim, see eg Case C-439/09, Pierre Fabre EU:C:2011:277). Although the Court in Generics uses some similar language (eg when considering whether the transfers of value under the settlement agreement are appropriate and strictly necessary having regard to the legitimate objectives of the parties, (para 85)), as described above, the characterization exercise actually carried out seems to be broader, to determine whether there is reasonable doubt as to the anticompetitive purpose of the agreement (eg because it pursues a viable procompetitive commercial objective). 77 Indeed, to date there is no case involving an ordinary vertical agreement (rather than an intellectual property (IP) licensing agreement) in which the Commission (or EU Courts) has been prepared to accept that either ATP or RPM is not restrictive of competition by object. 78 See also Peeperkorn (n 54) para 55. 79 de la Mano and Jones (n 65). 80 The CAT requested only specific guidance from the Court on this issue, Generics (n 5) paras 120–21. But see eg the judgment of the General Court in Servier (n 31). Author notes * Alison Jones, Professor of Law, King’s College London, UK. With many thanks to Niamh Dunne and Luc Peeperkorn for their extremely helpful comments on an earlier version of this article. © The Author(s) 2021. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Antitrust Enforcement Oxford University Press

The Court of justice’s judgment in Generics (UK) v Competition and Markets Authority and the object/effect dichotomy

Journal of Antitrust Enforcement , Volume Advance Article – Oct 25, 2021

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Oxford University Press
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Copyright © 2021 Oxford University Press
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2050-0688
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2050-0696
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10.1093/jaenfo/jnab017
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I. INTRODUCTION Over the years since the Treaty establishing the European Economic Community came into force, the EU Courts have regularly been called upon to engage with the ‘dichotomy between restriction of competition by object and restriction by effect’1 set out in what is now Article 101 of the Treaty on the Functioning of the European Union (TFEU). This series of cases illustrates, as observed by Advocate General Bobek in Gazdasági Versenyhivatal v Budapest Bank Nyrt (Budapest Bank),2 that although the distinction between by object and by effect restrictions is relatively easy to make in theory, its ‘practical operation is nonetheless somewhat more complex’.3 Further that ‘the case-law of the EU Courts has not always been crystal clear on the subject. Indeed, a number of decisions given by the EU Courts have been criticised for blurring the distinction between the two concepts’.4 In Generics (UK) v Competition and Markets Authority (Generics)5 the Court of Justice handed down another judgment dealing with horizontal cooperation (see also Groupement des cartes bancaires v Commission (CB),6 Budapest Bank,7 and H Lundbeck v Commission8), in which it has sought to elucidate the object/effect dichotomy.9 Like Lundbeck, the case concerned the appraisal of patent settlement agreements concluded between manufacturers of originator medicine and generic manufacturers, and involving ‘reverse payments’ (so-called pay-for-delay agreements),10 under Article 101.11 The judgment arose following a reference to the Court of Justice by the UK’s Competition Appeal Tribunal (CAT)12 in the course of appeal proceedings from the Competition and Market Authority’s (CMA) decision in Paroxetine.13 This article considers the extent to which the Court of Justice’s judgment in Generics, read together with other recent cases, clarifies the object-effect distinction and the question of how substantive analysis of agreements under Article 101(1) is to be conducted in the future. II. BACKGROUND: OBJECT, EFFECT, AND CHARACTERIZATION Object or Effect Article 101, like most other competition law systems, employs different types of antitrust analysis to achieve its underpinning objectives and to balance the desire for the competition rules to be accurate and consistent, yet also to be clear, predictable, transparent, administrable, and not too costly to apply.14 A mixture of techniques, involving the shifting of burdens between the parties, are used to identify anticompetitive or restrictive agreements, and to distinguish them from procompetitive or competitively neutral conduct. Indeed, since 1966,15 the Court of Justice has acknowledged that the wording of Article 101(1) itself envisages different approaches to the question of how a restriction of competition is to be estabished, by prohibiting an agreement if either its object or its effect is to restrict competition. Thus, where the precise purpose, or object, of the agreement reveals a sufficiently deleterious effect on competition (it is by its very nature ‘injurious to the proper functioning of normal competition’16), a restriction of competition is assumed, and the claimant does not need to engage in the more complex analysis required to establish restrictive effects (actual or likely). Rather, for procedural economy reasons, a clear, bright-line rule is applied against such conduct and costs do not need to be incurred in demonstrating restrictive effects.17 The agreement is condemned unless the parties can establish that the agreement benefits from the legal exception set out in Article 101(3) (an onerous burden to be discharged in practice). Characterization—importance of content and context Any competition law system that employs a mix of short-cuts and fuller antitrust analysis in this way, requires a sorting exercise to place conduct into the correct basket: consistent with its goals, conduct suitable for quick-look analysis and conduct requiring a more elaborate inquiry. It is this ‘characterisation’ or ‘classification’ step that has proved elusive in the EU, but which is crucial to ensure that error risks within the system are minimized, especially from over-expansion of the object category.18 Since its first judgments on Article 101, the Court of Justice has made it clear that identifying restrictions of competition by object is not necessarily a simple exercise as the purpose of an agreement is to be derived through an analysis of its clauses and the economic context in which it operates.19 Subsequently, it has become clear that agreements involving certain ‘established’ clauses—including market sharing, or horizontal or vertical price fixing provisions—are highly likely, or liable in principle, to restrict competition by object.20 What has been less apparent, however, has been exactly how ‘context’ is relevant to the appraisal and how such contextual analysis differs from that required to demonstrate restrictive effects.21 Indeed, in some cases those relying on the object category, have been criticized for focussing too heavily on the established list of object restraints without paying sufficient attention to the context of the case.22 In others, claimants and Courts have been criticized for over-relying on context to expand the object category to ‘new’ restraints that have not been classified as object restrictions in past case law, and which have only be found to be likely, or to have the potential, to produce, or to be capable of producing, negative effects of competition (without demonstrating why they evidently restrict competition).23 These developments raised concern that the category was being expanded well beyond its envisaged purpose and that the line between object and effects analysis was being inappropriately blurred. As a result, it has been necessary for the Court in its more recent judgments to clarify the function of the object category and, in particular, the role of context in the characterization process. In so doing the Court has reiterated the confined role played by, and the restrictive nature of, the object category—it is only where, taking account of their content, objectives and economic and legal context, agreements inherently reveal a sufficient degree of harm to competition, that a claimant can be exempted from the burden of demonstrating actual or likely anti-competitive effects.24 Further that object categorization is not appropriate for agreements involving complex measures,25 or where experience with the restraint is limited or insufficiently reliable and robust to justify an assumption that competition is restricted.26 Nonetheless, this still leaves the difficult question of how exactly to identify obviously anticompetitive arrangements (such as naked cartel agreements to fix prices, restrict output, share markets or rig bids) and to distinguish them from arrangements requiring deeper analysis. Indeed, a central question arising in Generics was how pay-for-delay patent settlement agreements should be characterized. III. ‘CHARACTERISING’ PATENT SETTLEMENT AGREEMENTS One view is that patent settlements never by their very nature restrict competition, as neither economic analysis nor past experience justifies an assumption of anticompetitive harm.27 On the contrary, such agreements may constitute the only viable form of settling a patent infringement dispute, and a negative impact on competition is contingent on several assumptions—in particular, that entry would be attempted by the alleged infringer/ generic manufacturer, and would have succeeded in bringing down the market price. Consequently, an assumption of anticompetitive harm is inappropriate, and a more detailed analysis is required to determine an agreement’s impact. Others, in contrast, are concerned that patent settlements involving reverse payments are liable to eliminate potential competition and to operate as market sharing arrangements to the detriment of consumers (by delaying generic entry a sharp decline in prices is also postponed).28 Indeed, in a series of decisions, Lundbeck,29 Johnson & Johnson/Novartis (Fentanyl),30 Servier/Périndopril,31 and Teva/Cephalon: modafinil,32 the European Commission has found pay-for-delay agreements to restrict competition by object and to constitute serious violations of Article 101. Similarly, in Paroxetine,33 the CMA found that settlement arrangements concluded between GlaxoSmithKline plc (GSK), Generics (UK) and others restricted competition by object (and effect), did not meet the conditions for exemption under Article 101(3), and so infringed Article 101 (and the UK equivalent set out in Chapter I of the UK Competition Act 1998 (CA98)).34 The agreements in this case had been concluded after GSK’s patent for the active ingredient of its originator medicine Seroxat (an anti-depressant) had expired, but following GSK obtaining a number of secondary, process patents. On appeal, the appellants argued, amongst other things, that the CMA’s decision erred in finding that the generic companies were potential competitors of GSK and that the agreements restricted competition by object or by effect. The CAT referred these points to the Court of Justice for a preliminary ruling, which made it clear that although patent settlement agreement cannot be considered to restrict competition by object in all cases they may do so in certain circumstances. A vital, initial matter to be considered in assessing the competitive impact of a patent settlement is whether it constitutes a horizontal agreement—ie an agreement between competitors. In Generics,35 the Court held that a generic producer that is not present in a market may be a potential competitor of an originator in that market where there are real and concrete possibilities of the former entering the market sufficiently quickly and competing with the latter.36 Further, that although hypothetical possibility of entry is not sufficient to demonstrate potential competition, entry (and successful entry) does not have to be demonstrated with certainty.37 The existence of a process patent does not therefore mean that the parties cannot be potential competitors. On the contrary, because uncertainty as to the validity of patents covering medicines is a fundamental characteristic of the pharmaceutical sector, a genuine dispute between the parties about the validity of an originator’s process patents (for an active ingredient that is in the public domain) and/or whether those patents have been infringed, may constitute evidence of the existence of a potential competitive relationship between the parties.38 This is likely to be the case where the manufacturer of generic medicines has taken steps to enter the market,39 has a firm intention and an inherent ability to enter the market, and if unsurmountable barriers to entry do not exist.40 More generally, the Court noted that the conclusion of a market sharing agreement between undertakings operating at the same level in the production chain, but where some had no presence in the market concerned, constitutes a strong indication that a competitive relationship exists between those undertakings.41 Although leaving final judgment to the referring court, the Court thus indicated that it considered it to be likely that the parties in Generics were potential competitors. Even if concluded between potential competitors, it must still be determined whether the agreement to restrain the generic’s entry into the market is restrictive of competition by object. The Court clarified that this may be the case, for example, if the dispute is entirely fictitious and the agreement is designed with the sole aim of disguising a market-sharing or market-exclusion agreement between the parties.42 Where, however, the dispute is genuine, and even if it involves a value transfer to the generic,43 analysis is required to determine whether the agreement reveals an aim to share markets or whether it has ‘any explanation other than the commercial interest of both the holder of the patent and the party allegedly infringing the patent not to engage in competition on the merits’.44 In making such an assessment a relevant factor includes the value of any transfer made under the agreement (pecuniary and non-pecuniary) and whether it is sufficiently significant45 to encourage or incentivize the generic manufacturer to refrain from entering the market.46 When it is sufficiently significant, and not made in return for other goods or services, the agreement concerned must, in the absence of any other plausible justification,47 be characterized as a ‘restriction by object’.48 Such a conclusion cannot be rebutted on the ground that the settlement agreement does not exceed the scope and the remaining period of validity of the patent nor on the ground that there is a genuine dispute about the ability of the patents to prevent market entry.49 However, if procompetitive effects are demonstrated, relevant, specifically related to the agreement concerned, and sufficiently significant, they will ‘justify a reasonable doubt as to whether the settlement agreement concerned caused a sufficient degree of harm to competition, and, therefore, as to its anticompetitive object’.50 IV. IMPLICATIONS Combined with other recent judgments of the EU Courts, Generics sheds further, and clearer, light on the question of when horizontal agreements may be categorized as restrictive by object. First, the judgment reiterates the sometimes-overlooked point that although certain established restraints are liable to be found to be restrictive of competition by object, object restraints cannot be identified solely by reference to a list.51 Rather, to ensure that Article 101 analysis is in tune with the objectives underpinning it and the risk of Type I errors is minimized,52 ‘context’ constitutes a central plank of the characterization exercise. As a result, even if a horizontal agreement incorporates price fixing or market sharing provisions, no restriction by object may be found if contextual analysis reveals that the restraints are required to achieve a procompetitive objective, or efficiency-enhancing cooperation agreement; there is another credible explanation for the agreement other than the commercial interest of the parties not to compete.53 The category is not intended to extend to horizontal cooperation arrangements which have the potential for mixed effects on competition. Rather, it is confined to restrictions that ‘generally have net negative effects’—a high potential to create negative effects whilst being highly unlikely to be a vehicle for creating efficiencies.54 Although it has always been clear that by object restrictions may benefit from the Article 101(3) exception, the Court’s clarification in this case means that where efficiency stories are successfully proffered at the Article 101(1) stage, the claimant will be required to demonstrate actual or likely anti-competitive effects before those efficiency arguments are fully tested under Article 101(3). Secondly, to differentiate object from fuller effects analysis, the Court has stressed the limited nature of contextual analysis in the characterization setting, confining it ‘to what is strictly necessary … to establish the existence of a restriction of competition by object’.55 The assessment required is not therefore as in-depth as that required to identify actual or likely restrictive effects and does not generally demand a detailed assessment of the relevant market or counterfactual scenario.56 Rather, it serves as a reality check to the assessment, permitting evidence that casts reasonable doubt57 on the conclusion that the agreement by its very nature harms competition, for example, because the parties are not potential competitors, the agreement pursues a viable procompetitive commercial objective or was designed to prevent upward pressure on prices.58 Thus even though the Court in Generics referred to the need for procompetitive effects to be sufficiently significant, proven, relevant and related to the agreement, it made it clear that no restrictive object could be found where arguments are capable of giving rise to a reasonable doubt as to whether the agreement caused a sufficient degree of harm to competition. It thus appears that, as noted by Advocate General Bobek in Budapest Bank,59 the yardstick is whether a ‘reasonable’ countervailing hypothesis exists which is not implausible at first sight and challenges, in the context of the individual case, the conventional wisdom. The explanation must be plausible enough to warrant further examination but does not need to be fully established, argued and proven.60 Thirdly, the importance of context to the characterization process means that, in spite of its narrow nature, the category of object restraints can encompass new agreements (beyond those established in past cases). It is no defence consequently that, at the time an agreement was concluded, there were doubts as to whether it could be found to be restrictive of competition by object—‘all that matters are the specific characteristics of that agreement.’61 The content, objective, and context must, however, reveal a restrictive purpose, for example, where sufficient and consistent experience and evidence exists of the inherently harmful nature of the type of agreement,62 or the agreement is equivalent to a price fixing, output or capacity limiting, market sharing, or other obviously anticompetitive agreement.63 Fourthly, the Court’s approach, which has similarities to the ‘ancillary restraints’ doctrine in the US (used to distinguish agreements which are illegal per se from those requiring fuller analysis under the rule of reason64), emphasizes that ‘restrictions by object’ and ‘restrictions by effect’ are not separate analytical approaches but are joined by unifying concepts. In each case the analysis (the decision to place an agreement in the object category or the appraisal of restrictive effects) must be referable to a theory of harm and, in particular, to the question of whether the agreement can be expected to harm competition.65 In object cases EU decision-takers must be clear on how experience, theory, and context justifies a conclusion that competitive harm is highly likely66 (likely, potential, or a capability of, anticompetitive effects is insufficient). The difference between object and effect analysis is thus ‘more of degree and depth than of kind. The two types of analysis are simply different ways, in the light of the knowledge and experience acquired by the authority, to answer one and the same question: whether the agreement at issue may prevent, restrict or distort competition in the internal market’.67 Nonetheless, some questions concerning the precise scope of the category still require greater clarification. For example, the judgment itself does not explicitly deal with the question of whether it is possible to escape a finding that an agreement restricts competition by object by demonstrating that in the setting in which it occurred the agreement does not, or is not likely to, have a restrictive effect on prices or other parameters of competition (eg because the parties did not have sufficient market power or because of other specific features of the market).68 In the context of Article 102, the Court of Justice held in Intel69 that although a dominant undertaking that ties purchasers to it through an exclusivity requirement or loyalty rebate abuses its dominant position, a fuller analysis of effects is required if the dominant firm submits evidence that its conduct was not capable of restricting competition and of producing the presumed foreclosure effects. Although at first sight it might seem possible to draw parallels between the treatment of exclusivity provisions and loyalty rebates under Article 102 with by object restrictions under Article 101, on close inspection the two approaches adopted do not mirror each other;70 there is a difference between the analysis required to identify object restraints under Article 101, leading to an assumption that competition is restricted, and the approach in Intel, where a presumption is applied that exclusivity clauses and loyalty rebates are abusive, unless the defendant can produce evidence indicating a lack of anticompetitive effects or countervailing efficiencies. Indeed, the EU Court in Generics does not provide any indication that evidence of an absence of anticompetitive effects, if proffered by the parties, would be relevant to object analysis under Article 101. On the contrary, case law under Article 101 indicates that, once an agreement has been characterized as restrictive of competition by object—the true purpose of the agreement having been ascertained taking account of clauses, objective and context71—the claimant is not bound to research actual or likely effects.72 It is not a presumption of illegality which can be rebutted.73 Rather, a core purpose of this approach is to ensure that full, complex effects analysis is side-stepped. The Court in Generics was also not required to deal with the question of how characterization is affected by the existence of an explanation for the agreement which is not an economic one. In a line of cases commencing with Wouters v Algemene Raad van de Nederlandse Orde van Advocaten,74 the Court of Justice has held that agreements incorporating established or other severe restraints on the core parameters of competition will not restrict competition (by object or by effect), if inherent in, and proportionate to, a legitimate public policy objective or regulatory aim, for example the proper practice of the legal profession or the organization and proper conduct of competitive sport and the protection of a sport’s integrity. The scope of this ‘Wouters’ exception is central in the pending appeal before the Court of Justice in International Skating Union (ISU) v Commission,75 which raises the question of whether ISU eligibility rules (broadly, enabling skaters participating in certain competitor events to be sanctioned with a life-time ban from skating in ISU events) restrict competition by object or are justified by the objective of protecting the integrity of speed skating. The approach of the Court in this group of cases has, however, some differences to that adopted in cases such as CB and Generics. First, in conducting contextual analysis the Court goes beyond looking for evidence which casts reasonable doubt on a conclusion that the agreement at issue reveals sufficient harm, testing not only if the restraints pursue the legitimate objective, but also whether they are inherent, necessary, and proportionate to them.76 Secondly, if the restraints are found to be inherent in, and proportionate to, a legitimate objective they fall outside the scope of Article 101(1) entirely—it does not have to be determined whether their effect is the restriction of competition. Public policy justifications thus remove practices from the scope of Article 101(1) altogether, whilst the procompetitive justifications referred to in Generics only remove practices from the by object category. The appeal in ISU provides an opportunity for the Court of Justice to clarify the relationship between these strands of case-law. Finally, the judgment in Generics has implications for the analysis of vertical agreements incorporating ‘established’ by object restraints—including resale price maintenance (RPM) provisions and clauses conferring absolute territorial protection (ATP) on a distributor. The jurisprudence in the verticals sphere has consistently found that ATP and RPM provision are liable in principle to restrict competition by object, even in some cases where the parties have argued that the purpose of the agreement is to enhance efficiency of the supply chain to the benefit of the parties and end customers (for example by prohibiting free riding or protecting brand image).77 Generics, however, establishes that consideration of a procompetitive rationale for an agreement must form part of the categorization process.78 In other words, a restriction that at first sight falls in the by object category, will not do so where an examination of the context reveals a credible efficiency story casting reasonable doubt on the conclusion that the agreement causes a sufficient degree of harm to competition. V. CONCLUSION Although some outstanding issues remain for resolution, the Court of Justice in Generics has taken another significant step in illuminating the distinction between the ‘by object’ and ‘by effect’ concepts. Crucially, Generics establishes that object categorization is not to be used where the parties raise a credible efficiency justification for their agreement, which is sufficient to cast reasonable doubt on the conclusion that it pursues an anticompetitive object. In such scenarios, the claimant is required to demonstrate actual or likely restrictive effects before the parties can be required to justify their agreement under Article 101(3).79 Further, by again highlighting the narrow role of the object category, the judgment signals that most agreements are not to be condemned under Article 101(1) unless restrictive effects are demonstrated. The Court in Generics, however, shed relatively little light80 on how this latter appraisal is to be completed. The next challenge therefore will be for the EU Courts and competition authorities to provide direction on how a cohesive, consistent and administrable framework can be constructed to conduct fuller effects analysis under Article 101—how actual or likely restrictive effects are to be identified under Article 101(1) and how countervailing benefits are to be appraised within the Article 101(3) framework. Footnotes 1 Case C-228/18, Budapest Bank EU:C:2019:678, para 1. 2 ibid. 3 ibid, para 2. 4 ibid. 5 Case C-307/18, EU:C:2020:52. 6 Case C-67/13P, EU:C:2014:2204. 7 Case C-228/18, EU:C:2020:265. 8 Case C-591/16 P, EU:C:2021:243. 9 See also eg the judgments of the General Court in Case T-93/18, ISU ECLI:EU:T:2020:610 (discussed at n 75 and text); and the Court of Justice in Case C-345/14, Maxima Latvija EU:C:2015:784 (dealing with a vertical agreement). 10 Reverse payments because ordinarily when a patent infringement case is settled it is the alleged infringer that pays the patentee (not the other way round). Many competition agencies are concerned about these practices, see the European Commission’s Pharmaceutical Sector Inquiry, Preliminary Report, 28 November. 2008, Final Report, 8 July 2009, Competition Enforcement in the Pharmaceutical Sector (2009–2017), COM(2019) 17 final and eg, Study of the US Federal Trade Commission, ‘Pay-for-delay: how drug company pay-offs cost consumers billions’ (2010). 11 It also considered the application of TFEU, art 102 and its UK equivalent to the conduct, but this issue is not discussed in this article. 12 Case 1251/1/12/16, [2018] CAT 4. 13 Case CE/9531-11, 12 February 2016 (see n 33 and text). 14 Including, rules or presumptions against certain conduct, rules or presumptions in favour of certain conduct, standards requiring a more complex, multi-faceted analysis and/or intermediate types of analysis, see A Jones and W Kovacic, ‘Identifying Anticompetitive Agreements in the United States and the European Union: Developing a Coherent Antitrust Analytical Framework’ (2017) 62 Antitrust Bulletin 254. 15 Case 56/65, STM EU:C:1966:38. 16 Case C-209/07, BIDS EU:C:2008:643, para 17. 17 See Kokott AG, Case C-8/08, T-Mobile Netherlands BV v Raad van bestuur van de Nederlandse Mededingingsautoriteit EU:C:2009:110, para 43. In Budapest Bank (n 7) paras 39–40 it was confirmed that an agreement may have as its object and effect the restriction of competition, as long as each are established separately. Although a finding of a restriction of competition by object relieves the competent authority or court of the need to examine the effects of that restriction, it does not mean that the authority or court cannot make such an examination. 18 See also Pitruzzella AG in Case C-132/19 P, Groupe Canal + v Commission EU:C:2020:355, para 88. 19 STM (n 15) and CB (n 6) para 57. 20 See eg CB ibid. 21 Since the 1960s and the case of STM (n 15), the Court of Justice has stressed the need to examine an agreement which did not have as its object the restriction of competition in its market context to determine its effect. 22 See eg Budapest Bank (n 7). See also n 77 and text. 23 See Case C-8/08, T-Mobile EU:C:2009:343, Case C-32/11, Allianz Hungária Biztosító Zrt, Generali-Providencia Biztosító Zrt v Gazdasági Versenyhivatal EU:C:2013:160. 24 See CB (n 6) paras 53–58 and Budapest Bank (n 7) para 54. 25 In that case it was argued that the horizontal cooperation was designed to ensure the success of the carte bleu system, in particular through combating free-riding and balancing issuing/acquisition activities. The Court considered that, given the complex nature of the market and the efficiency justifications raised, negative effects could not be considered so likely to make assessment of effects redundant. 26 Budapest Bank (n 7) paras 76–79. See also Bobek AG in Budapest Bank (n 1) para 72 (suggesting that there must be sufficient consensus among economists of the inherently anticompetitive nature of the agreement). 27 See eg the US Supreme Court’s Opinion in Federal Trade Commission v Activas, 570 US 136 (2013) (given their potential to lead to genuine adverse effects on competition, reverse payment settlement arrangements are subject to scrutiny under the antitrust laws. They are not to be treated as per se illegal or even presumptively invalid, however. Rather, the complexity and variability of the practices demand a fuller rule of reason inquiry). 28 See n 10. 29 COMP/39.226, 9 June 2013, aff’d Case T-472/13, H Lundbeck A/S v Commission EU:T:2016:449, Case C-591/16 P (n 8). 30 COMP/39.685, 10 December 2013. 31 COMP/39.612, Périndopril (Servier) 9 July 2014, IP14/799, Case T-691/14, Servier v Commission EU:T:2018:922 (although the findings on abuse were annulled on appeal, and the fines reduced, the GC upheld the findings that all the patent settlements in this case, except for one with Krka, were restrictive of competition by object), Cases C-176 and 201/19P (judgment pending). 32 COMP/39.686, 26 November 2020, IP/20/2220. 33 n 13. 34 The CMA also found that GSK has abused a dominant position and imposed fines totalling £44.99 million. 35 n 5. 36 Generics (n 5) para 36. See also Lundbeck (n 8) para 54. 37 Generics, ibid, para 38. 38 Even where an interim injunction had been granted prohibiting a generic manufacturer’s entry into the market (as the matter has not yet been decided). 39 eg taking steps to obtain market authorisation, to ensure adequate stocks and to challenge the process patents. 40 Generics (n 5) paras 35–58 (the mere existence of a process patent cannot be regarded as an insurmountable barrier). 41 ibid, para 55, relying on Case C-373/14 P, Toshiba Corp v Commission EU:C:2016:26, paras 33-34. 42 ibid, para 76. 43 ibid, paras 84-5. 44 ibid, para 87 and see Lundbeck (n 8) paras 114–15 (an argument that the agreement was intended to allow the originator to protect its patents through recourse to dispute resolution was not sufficient to establish that the agreement did not restrict competition by object. Not only did a patent not permit its holder to enter agreements in breach of art 101, but it was for public authorities not private entities to ensure compliance with statutory requirements). See also A Jones, B Sufrin and N Dunne, Jones and Sufrin’s EU Competition Law: Text, Cases, and Materials (7th edn, OUP 2019) 259–60. 45 And eg beyond sums to compensate the generic manufacturer for the costs of, or disruption caused by, the litigation, Generics, ibid, para 86. 46 ibid, paras 84–93. 47 ibid, para 89. 48 ibid, para 95. 49 ibid, paras 96–98. 50 ibid, para 107. The Court considered that although a matter the referring court the factual situation raised indicated that the settlement agreements at issue gave rise to procompetitive effects that were only minimal and uncertain. 51 See Trstenjack AG, Case C-209/07, BIDS EU:C:2008:467. 52 See Jones, Sufrin and Dunne (n 44) Chs 5 and 10. 53 Generics (n 5) para 111, see also Budapest Bank (n 7) paras 71–75, Wahl AG in Case C-67/13, CB, EU:2014:1958, para 56. 54 L Peeperkorn, ‘Defining “By Object” Restrictions’ (2015) 3 Concurrences 40, 399–400. 55 Toshiba (n 41) para 29. 56 Lundbeck (n 8) para 140. These factors are not irrelevant, however, as eg in pay-for-delay cases a crucial issue is whether, in the absence of the agreement, real and concrete possibilities exist for the generic to enter the market and whether a potential competitive relationship exists, ibid para 143 and see Section III above and n 71. 57 A mere unsubstantiated assertion concerning procompetitive effects is insufficient Lundbeck, ibid, para 137. 58 Budapest Bank (n 7) paras 82–83. 59 ibid, para 79. 60 ibid. 61 Lundbeck (n 8) para 131. 62 See n 26 and text. 63 See eg Case C-179/16, Hoffmann-La Roche and Novartis v AGCM EU:C:2018:25. 64 See Broadcast Music, Inc v Columbia Broadcasting System Inc 441 US 1 (1979) (the US Supreme Court warning that ‘easy labels do not always supply ready answers’ drew a distinction between: practices such as price-fixing and market-sharing agreements with no purpose except stifling competition which are illegal per se; and practices designed to increase economic efficiency and render markets more, rather than less, competitive—such as agreements where price-fixing and market division are ‘ancillary’ to cooperative productive activity engaged in by the agreeing parties, which must be analysed under the rule of reason). 65 See M de la Mano and A Jones, ‘Vertical Agreements under EU Competition Law: Proposals for Pushing Article 101 Analysis, and the Modernization Process, to a Logical Conclusion’ in D Healey, M Jacobs and RL Smith, Research Handbook on Methods and Models of Competition Law (Edward Elgar 2020). 66 Wahl AG (n 53) para 8. 67 See Bobek AG in Budapest Bank (n 1) para 32. 68 But see Kokott AG (n 73) and text. 69 Case C-413/14 P Intel v Commission, ECLI:EU:C:2017:632, paras 136–39. 70 In allowing dominant firms to submit such evidence, a rebuttable presumption of illegality is applied. 71 Making it clear that the agreement is at least capable of restricting competition, see T-Mobile (n 23) para 31. 72 See Cases C-101 and 110/07 P, Coop de France bétail et viande v Commission EU:C:2008:741, para 88 and Case C-501/06 P, GlaxoSmithKline Services v Commission EU:C:2009:610. 73 See Kokott AG in Generics EU:C:2020:28, para 162. 74 Case C-309/99, EU:C:2002:98 and Case C-519/04 P, Meca-Medina v Commission EU:C:2006:492. 75 Case C-124/21 P (judgment pending) (relating to Case COMP/40.208, ISU 8 December 2017, aff’d Case T-93/18 EU:T:2020:610). It has also been much debated following the announcement of an intention by certain European football clubs to create a new football Super League, Case C-333/21, European Super League Company, SL v Union of European Football Associations (UEFA) and Fédération Internationale de Football Association (FIFA) (judgment pending). 76 The approach has similarities to that adopted by the EU Courts in relation to selective distribution systems (SDS) (holding that SDSs necessarily restrict competition by object unless objectively justified—the restraints constitute a proportionate measure to achieve a legitimate aim, see eg Case C-439/09, Pierre Fabre EU:C:2011:277). Although the Court in Generics uses some similar language (eg when considering whether the transfers of value under the settlement agreement are appropriate and strictly necessary having regard to the legitimate objectives of the parties, (para 85)), as described above, the characterization exercise actually carried out seems to be broader, to determine whether there is reasonable doubt as to the anticompetitive purpose of the agreement (eg because it pursues a viable procompetitive commercial objective). 77 Indeed, to date there is no case involving an ordinary vertical agreement (rather than an intellectual property (IP) licensing agreement) in which the Commission (or EU Courts) has been prepared to accept that either ATP or RPM is not restrictive of competition by object. 78 See also Peeperkorn (n 54) para 55. 79 de la Mano and Jones (n 65). 80 The CAT requested only specific guidance from the Court on this issue, Generics (n 5) paras 120–21. But see eg the judgment of the General Court in Servier (n 31). Author notes * Alison Jones, Professor of Law, King’s College London, UK. With many thanks to Niamh Dunne and Luc Peeperkorn for their extremely helpful comments on an earlier version of this article. © The Author(s) 2021. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)

Journal

Journal of Antitrust EnforcementOxford University Press

Published: Oct 25, 2021

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