Impact of Brexit on Competition matters
On 31 January 2020, the United Kingdom ("UK") ceased to be a Member State of the European Union. However, under the UK-EU agreement on the UK's withdrawal from the EU (the “Withdrawal Agreement”), virtually all EU law remains "applicable to and in the UK" until 31 December 2020 (the “implementation period”). Although the Withdrawal Agreement allows for this period to be extended for a further one or two years, UK law currently prohibits the Government from extending the implementation period.
At the end of this period, the UK and EU may have reached agreement on all the aspects of their future relations or none of them. However, it is also quite likely that they will have reached agreement on some, but not on others, so that the question "deal or no deal?" can only be answered for each individual topic or sector.
Antitrust enforcement: Until the end of the implementation period, there will be no major changes and EU antitrust law will continue to apply (and to be enforceable) before the European Commission (“EC”) and the European Court of Justice. Once the implementation period is over, EC infringement decisions published after 31 December 2020 will no longer be a valid basis for follow-on damages actions in the UK courts. The EC will no longer be able to carry out dawn raids in the UK and will be limited to making written requests for information to UK-based companies.
For companies involved in an ongoing competition investigation at the end of the implementation period, parallel proceedings (which could be criminal in the UK and civil in the EU) are a possibility. Investigations with an EU element, carried out by the Competition & Markets Authority (“CMA”) under EU law and which are ongoing at the end of the implementation period, will continue under UK law only as the CMA can no longer enforce EU competition law.
Finally, it is currently the position that once the implementation period is over, the current EU block exemptions (of which there are seven, including exemptions for vertical restrictions) will be retained in the UK as parallel exemptions to the UK competition prohibitions but these may be amended in the future. We can also anticipate greater territorial protections in the UK.
Merger control: During the implementation period, the EC will continue to be a one-stop-shop and at the end of the implementation period, cases in mid-review will, if notified to the EC, continue to be investigated by the EC. Once the implementation period ends, the UK will not be part of the one stop shop and a filing before both the EC and the CMA may be necessary for some deals that meet the merger thresholds in both jurisdictions.
Although notification under the UK merger regime is nominally voluntary, in practice, deals are very unlikely to go "under the radar" if there is also an EC notification for deals having an effect on competition in the UK. Therefore, there must be a strong chance of the CMA initiating an investigation in such cases if a voluntary notification is not made. Such changes are likely to involve longer timetables and, as a result, additional costs for merging companies. In addition, in light of these changes, conditions precedent in relation to merger clearances will need to be carefully drafted. One positive point for merging companies with revenue in the UK is that their UK revenue will no longer be taken into account in determining whether a transaction meets the EU mandatory merger filing thresholds.
Furthermore, the UK has also taken several steps with a view to implementing new legislation to allow for greater powers to intervene on “public interests” grounds for mergers in sensitive fields.
State Aids: After the implementation period, the CMA will take over enforcement and supervision of State Aid rules from the EC. At that point, the UK could depart from the EU State Aid rules by introducing new legislation. However, the EC will be able to bring a State Aid claim against the UK if it involves actions that occurred before the end of the implementation period.
Our UK team would be happy assist you for any questions relating to Brexit issues.
The CJEU gives its analysis grid of pharmaceutical Pay-for-Delay agreements
Further to a request for a preliminary ruling, the CJEU clarified the notion of restriction of competition by object in the context of a Pay-for-Delay agreement in its “Generics UK and others” decision of January 30, 2020.
GlaxoSmithKline (hereafter “GSK”) was the holder of a patent for the active pharmaceutical ingredient of the anti-depressant medicine paroxetine. When the patent expired, competing laboratories contemplated creating generics. However, some processes for the manufacture of the active pharmaceutical ingredient were protected by other patents which resulted GSK bringing infringement proceedings. These proceedings were settled by amicable “Pay-for-Delay” agreements prohibiting GSK’s competitors from offering generics of this medicine during a defined period in consideration for a payment. These agreements were thereafter sanctioned by the CMA on the grounds of unlawful agreement and abuse of a dominant position, decision that was appealed before the Competition Appeal Tribunal that in turn brought the matter before the CJEU in the context of requests for preliminary rulings.
The Court first recalled that for an agreement to be ruled as restricting competition, the parties have to be at least potential competitors. On this point, the Court emphasized that the existence of a patent cannot be considered as an insurmountable barrier to entry on the market and that the firm intention and inherent ability of the potential competitors has to be analyzed.
Then, the Court recalled that a restriction of competition by object must reveal a sufficient degree of harm, having regard to its content, its objective and its economic context.
In the case at hand, it is therefore necessary to determine whether the amicable agreement had been concluded by the parties in consideration of their chances of success in the context of the infringement proceedings or whether it was in fact motivated by their sole commercial interest not to engage in competition on the merits.
Furthermore, the pro-competitive effects invoked by the parties have to be taken into account in order to determine whether they were sufficient to permit a reasonable doubt as to whether the agreement causes a sufficient degree of harm to competition.
As regards the analysis of the potential or actual anti-competitive effects of such an agreement, the Court indicated that it was not necessary to analyze, in the context of the counterfactual, the parties’ chances of success in the infringement proceedings or the probability of conclusion of a less restrictive agreement between the parties.
Finally, the decision clarifies the definition of the relevant market to be adopted (including generics) and recalls that a Pay-for-Delay agreement is also likely to constitute an abuse of a dominant position if the agreement falls within an overall contractual strategy likely to produce a significant foreclosure effect on the market, to the detriment of the consumer deprived of the entry into the market of potential competitors.
“Coca-Cola” summary proceedings: the judge orders the resumption of supplies on the grounds of abrupt termination
The Paris Commercial Court handed down a summary judgment on January 16, 2020 in a dispute involving Intermarché and Coca-Cola. The US-based beverage company had decided to no longer supply the French distributor after the failure of the 2020 annual negotiations due to a “disagreement on the ranges”. Faced with the impossibility to reach an agreement, Coca-Cola ceased to supply Intermarché when the supply agreement expired on December 31, 2019. It gave Intermarché just 5 business days’ notice before terminating the supply. Given the importance of Coca-Cola branded products, that represent 75 to 90% of the cola market, and the related risk of losing customers, Intermarché summoned Coca-Cola in summary proceedings. The Commercial Court accepted Intermarché’s claim and ordered Coca-Cola to resume supplies under the 2019 conditions subject to a penalty. The Court considered that this refusal to sell was likely to constitute an abuse of a dominant position and that the notice period granted was largely insufficient given the duration of the relationship between the two companies.
Here is a decision sure to spice up the 2020 annual negotiations!
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.