EU & Competition Law Update - January 2018

by Bryan Cave
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When is pricing discriminatory?

French Competition Authority ends 2017 with a bang

Why Brexit Could Limit Damages in Procurement Challenges

Germany Bans CTS Eventim’s Exclusive Contracts

Selective Distribution Is Not Dead, at Least for Cosmetics


When is pricing discriminatory?

We reported in January 2017 on how a Portuguese Court had asked the Court of Justice of the European Union (“CJEU”) to provide guidance on when “discriminatory pricing applied to equivalent transactions” amounts to an abuse of a dominant positon under Article 102 (c) Treaty for the Functioning of the European Union (“TFEU”).

Article 102(c) is often invoked when a dominant company supplies an input or raw material at different prices to competing customers. These competitors then process it into a finished product and sell it in competition with each other on the downstream market.

The essential questions before the Court were; is it enough that discriminatory pricing is proved on the facts or does the Court need to consider whether the effects of the discriminatory behaviour in question place the aggrieved party at a competitive disadvantage to make out the offence? The Court also asked that, if this is correct, what is the minimum level of disadvantage that needs to be suffered for an abuse to be committed?

On 20 December 2017, Advocate General Nils Wahl (the “AG”) delivered his Opinion to the CJEU. His Opinion is advisory but not binding on the CJEU. However, it is more often than not followed by the Court.

In answer to the questions posed by the Portuguese Court he suggested the following answers:

A breach of Article 102(c) is not a by object infringement which can be found merely by proving the existence of a discriminatory price. Instead, the Commission and/or the Court have to examine the effects of the behaviour in each case to see whether it restricts competition. Not every discriminatory price is anti-competitive. In certain circumstances it can be either competition neutral or pro-competitive.

However, the AG’s Opinion is disappointing in that it fails to provide any substantial guidance on the key question referred by the Portuguese Court as to what level of distortion of competition has to occur for one customer to be put at a competitive disadvantage with one another. The Opinion seems to leave us with the somewhat circular answer that a competitive disadvantage is a competitive disadvantage. Let’s hope the CJEU can be more illuminating, though we should note that the AG’s Opinion is not yet available in English.

The previous case law in this area often bears a central theme of a dominant undertaking resorting to discriminatory behaviour to disadvantage another party or even drive another competitor out of business. Good examples of such cases being; Irish Sugar (ECJ Case T-228/97), Portuguese Airports Case (Commission Decision No IV/35.703) and the Napp Pharmaceutical (CAT decision 1001/1/1/01).

Finding evidence of anti-competitive intent on the part of the dominant undertaking could have the most probative value in proving an abuse of a dominant position under Article 102 (c), even before examination of whether there was an economic distortion in the market between favoured and discriminated-against parties.

The CJEU’s judgment is expected in the near future.

The case can be found here.

French Competition Authority ends 2017 with a bang

[co-author: Emmanuelle Mercier]

The French Competition Authority (“FCA”) ended the year with two punitive decisions: in both cases, the parties were severely sanctioned for obstructionist behavior.

In the first decision dated 20 December 2017, the FCA imposed a 25 million euro fine on pharmaceutical company Janssen-Cilag and its parent company Johnson & Johnson, for having prevented and then restricted the development of generic versions of its Durogesic analgesic (a medicine aimed at alleviating the pain of individuals, in particular children, suffering from cancer).

Following the expiration in 2005 of patent protection for fentanyl, the active ingredient of Durogesic, a generic version of Durogesic obtained market authorization in Germany in April 2006 and sought to extend such authorization to the other Member States, as allowed by EU law. This was granted by the EU Commission in October 2007, which directed the Member States to grant the market authorization on their respective territories within 30 days.

However, during that period of time, Janssen-Cilag was found to have contacted and requested meetings with the French Health Products Safety Agency (previously known as “AFSSAPS”), and convinced the AFSSAPS that the generic was not identical to the original drug and that it could be inefficient or even have side effects on some patients, causing additional pain.

As a result, the AFSSAPS delayed the authorization of the generic drug on the French market for over one year, which was precisely the goal Janssen-Cilag was found to have set during an internal meeting named “Team Anti Durogesic Generic”. The generic drug was finally authorized at the end of 2008, but the AFSSAPS recommended a specific medical follow-up for certain vulnerable patients if they were to switch from one fentanyl drug to another.

In addition, Janssen-Cilag was found to have conducted a smear campaign addressed to healthcare professionals, with the aim of discrediting the generic versions of Durogesic. A team of 300 medical visitors were trained for the specific purpose of getting in touch with healthcare professionals and convincing them of the potential lack of safety of the generic drugs. The pharmaceutical company was found, further, to have distorted the recommendation of the AFSSAPS, insisting that a patient should not switch from one brand of fentanyl drug to another. As a result, doctors would write “non-substitutable” on Durogesic prescriptions, thus dissuading pharmacists from selling the generic version.

Through this scheme, Janssen-Cilag was able to benefit from its monopoly on the fentanyl market for a longer period of time. Not only was the authorization delayed, but even once the generic drugs were authorized, they were infrequently used.

This resulted in considerable losses for the generic pharmaceutical companies and extra costs for patients.

In view of the seriousness of such behavior, the FCA imposed a 25 million fine on Janssen-Cilag and its parent company Johnson & Johnson.

* * *

This decision was followed the next day by decision of the FCA in the chemical industry. For the first time, the FCA sanctioned a company on the basis of Article L. 464-2 para. V of the French Commercial Code, which provides for a fine of up to 1% of the global turnover of a company that hinders an investigation of the FCA on a case.

In this case, Brenntag SA and Brenntag AG were being investigated for possible anti-competitive practices by the FCA (in particular alleged predatory pricing and pressure on providers to cease contractual relations with one of Brenntag’s competitors).

Brenntag was found to have provided incomplete, imprecise and outdated information to the FCA and further to have refused altogether to provide some material elements.

The maximum amount that Brenntag could be fined was 103 million euros as its global income amounted to 10.3 billion euros in 2016. In order to determine the proportionality of the sanction to be imposed, the FCA considered the seriousness of Brenntag’s behavior, the necessity to impose a dissuasive sanction and also the size of the company. On December 21, 2017, Brenntag was finally fined 30 million euros for obstruction of the FCA’s investigations.

Decisions: FCA 17-D-25 20 December 2017 and 17-D-27 21 December 2017

Why Brexit Could Limit Damages in Procurement Challenges

A recent public procurement decision of the European Free Trade Association (“EFTA”) Court highlights the possibility that aggrieved suppliers in public procurement cases in the UK run the risk of losing their future rights to damages in post-Brexit Britain unless they are specifically retained under the European Union (Withdrawal) Bill.

One of the UK Government’s redlines in the Brexit negotiations was not being subject to the rulings of the Court of Justice of the European Union (“CJEU”). However, the EU 27 were adamant that any disputes over a future EU/UK free trade deal would have to be referred to the CJEU for determination. The UK Government proposed becoming an EFTA member and as a solution referring any disputes to the EFTA Court. However, the EFTA Court, the equivalent of the CJEU for non EU members of the EEA, closely follows the provisions of EU law and would not provide, as the case of Fosen-Linjen AS and AtB AS (Case E-16/16) (EFTA Court 2016/16) (31 October 2017) clearly demonstrates, the type of wholly independent tribunal which the UK Government was looking for.

The Fosen-Linjen case is significant as it demonstrates how the EFTA Court will closely follow the CJEU’s lead in the interpretation of EU law which is likely to run contrary to the ruling of UK Courts, an occurrence that will undoubtedly increase after Brexit.

Fosen-Linjen case involved a Norwegian procurement dispute which was referred to the EFTA Court by a Norwegian Court for a preliminary ruling on points of EU public procurement law, as implemented in Norway.

The question before the Court was what level of culpability was necessary by a contracting authority for the Court to award damages for breach of the public procurement law? The Court held that the award of damages (according to the Remedies Directive – Article 2(1)(c) of Directive 89/665/EEC) did not depend on whether the breach of public procurement law was due to “culpability and conduct deviating markedly from a justifiable course of action, or whether it occurred on the basis of a material error or whether it was attributable to the existence of a material, gross and obvious error”.

Instead, the EFTA Court held a simple breach of public procurement law was sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred. This was provided that the other conditions for the award of damages were met, including demonstrating a causal link between the breach and the damage.

The Court justified its decision by relying on the general EEA law principles of equivalence and effectiveness. No provisions of the Remedies Directive laid down any conditions for the award of damages as a remedy in the field of public procurement. Therefore, it was for the legal system of each EEA state to determine the criteria necessary to be present for the award of damages caused by an infringement of EEA law on the award of public contracts.

However, national rules laying down these conditions must nevertheless comply with the EEA law principles of equivalence and effectiveness. Accordingly, the Court held that a rule requiring a breach of a certain type or gravity would substantially undermine the goal of effective and rapid judicial protection sought by the Remedies Directive. It would also interfere with the objectives to guarantee the free movement of services and to ensure open and undistorted competition in this field in all EEA states. Therefore, the gravity of a breach of the EEA rules on public contracts was irrelevant for the award of damages. It followed from the principle of effectiveness and the right to damages under Article 2(1)(c) of the Remedies Directive that a person harmed by an infringement of public procurement law must, in principle, be able to seek compensation for loss of profit.

This ruling goes directly against that of the UK Supreme Court in Nuclear Decommissioning Authority v Energy Solutions EU Ltd (now called ATK Energy EU Ltd) ([2017] UKSC 34). In that case the Court held that a “sufficiently serious breach” pursuant to the rule in Francovitch case was required to establish the liability of a contracting authority to damages for breach of public procurement law.

On the strength of the Fosen-Linjen case it would appear whilst the UK Supreme Court was within its rights to determine the criteria upon which damages would be available under English law, it is likely that had the Nuclear Decommissioning Authority case been referred to the CJEU on a preliminary ruling, the CJEU is likely to have sided with the EFTA Court. The UK Supreme Court’s limitation of damages to cases of sufficiently serious breach would have been likely to have been viewed as infringements of the EEA law principles of equivalence and effectiveness. However, the case was not referred to the CJEU as the Supreme Court took the view that the EU principles involved were clear so as not to require a reference to the CJEU as the final arbiter of EU law. In addition, the lack of willingness to make a reference was probably also related to the imminence of Brexit and the likelihood the CJEU would not have been able to opine prior to Brexit.

There are two worrying issues which are highlighted by the juxtaposition of these two cases. The first is that the recent UK Supreme Court decision corroborates the concerns of many that parties’ legal rights and safeguards currently enjoyed under EU public procurement law are going to be rolled back in post-Brexit Britain. Secondly, if the UK Supreme Court has based the availability of damages upon Francovitch principles, what will be the future of damages claims for breach of the public procurement rules after Brexit, given the provisions of Schedule 1 paragraph 4 of the European Union (withdrawal) Bill. This paragraph states:

“there is no right in domestic law on or after Exit Day to damages in accordance with the rule in Francovitch”.

It appears that unless the Courts in some way distinguish the UK Supreme Court decision as not relying on Francovitch principles, which we believe is very hard to do, or Parliament provides specifically for the retention to a right of damages for the breach of the public procurement rules, in post-Brexit Britain, aggrieved suppliers rights to effective remedies could be significantly curtailed.

Germany Bans CTS Eventim’s Exclusive Contracts

On 4 December 2017, the Bundeskartellamt (German Federal Cartel Office – FCO) announced it had banned CTS Eventim from having exclusive agreements with its promoter and box office partners.

Based in Munich, CTS Eventim is the operator of the largest ticketing system in Germany and holds a dominant position in the relevant market. The company provides ticketing services for event organisers and advance booking offices, organises music tours and festivals, and is particularly known for its ticket online shop “eventim.de”. Ticketing systems allow event organisers to sell tickets through different advance booking offices and online shops. It is estimated that 60-70 percent of all tickets which are distributed via ticketing systems in Germany are sold via CTS Eventim’s system. The company’s competitors are sizably smaller, have a regional focus, and sometimes depend on cooperation with CTS.

The clauses under debate stipulate that Eventim’s ticketing partners may only sell tickets exclusively or to a considerable extent via CTS’s “eventim.net” ticket sales system. The FCO regards Eventim’s contractual agreements as an abuse of market power under competition law and has ordered the company to amend its contracts within four months. The FCO has set out requirements that CTS Eventim’s contract partners must have the possibility in the future to sell at least 20 percent of their annual ticket volume at their own discretion via third party ticketing systems, provided that the contracts extend for more than two years.

The FCO believes that with this decision, substantial ticket quotas will be freed up for sale via competing ticketing systems. CTS Eventim plans to appeal the decision in court.

This is not the first time that Eventim has come under the scrutiny of the FCO. At the end of November, the German competition authority blocked Eventim’s acquisition of Berlin-based promoter and booking agency Four Artists, citing the reason that Eventim would gain control of additional relevant ticket quotas and thereby even expand its dominant market position to the detriment of free competition.

Selective Distribution Is Not Dead, at Least for Cosmetics

[co-author: Emmanuelle Mercier]

On September 13th 2017, the French Supreme Court overturned the decision of the Paris Court of Appeal dated February 2nd 2016 which had ruled that the blanket prohibition imposed by the Caudalie cosmetics company to its approved distributors to sell on-line via a marketplace platform was likely to constitute a hard-core restriction of competition. This decision, recently reinforced by a somewhat similar decision of the Court of Justice of the European Union (CJEU) in Coty Germany GmbH v Parfümerie Akzente GmbH (Case C-230/16), may signal a shift from the previous direction taken by the French Courts in prohibiting cosmetics brands using selective distribution networks from outright banning marketplace retailers from carrying their products.

The battle between Caudalie and eNova Santé (the company monitoring the marketplace "1001pharmacies.com" that was selling Caudalie's products) started in November 2014 when Caudalie "applied for an injunction against the 1001pharmacies.com marketplace platform to prohibit them from selling Caudalie personal care and beauty products via their on-line website on the grounds that 1001pharmacies.com was not an approved distributor of Caudalie, that those pharmacies which were approved Caudalie distributors were authorized to sell on-line only via their own internet sites, as opposed to via on-line marketplaces, and therefore that the activity of 1001pharmacies.com was "manifestly illicit"" (see our April 2016 EU Retail News update).

Even though the Paris Commercial Court granted the injunction in December 2014, thus compelling 1001pharmacies.com to remove all references to Caudalie’s products from its website, the Paris Court of Appeal overturned the decision in February 2nd 2016, ruling that the blanket prohibition imposed by Caudalie to its approved distributors to sell on-line via a marketplace platform was likely to constitute a hard-core restriction of competition. In its decision, the Court referred to recent decisions of the French Competition Authority (FCA) in favor of on-line marketplaces (see Decisions n° 14-D-07 and n° 15-D-11 dated 23rd July 2014 and 24th June 2015 and Press release dated 18th November 2015 about the investigation targeting Adidas).

However, on September 13th 2017, the French Supreme Court overturned the decision of the Paris Court of Appeal on the ground that it had failed to indicate why the aforementioned decisions of the FCA were deemed to exclude the existence of a "manifestly illicit" disturbance resulting from the violation by eNova Santé of Caudalie's selective distribution network, which network had previously been considered legal by the French Competition Council in a decision dated 8th March 2017. The case was remanded to other judges of the Paris Court of Appeal.

The Coty decision of the CJEU dated 6th December 2017 (Case C-230/16 - Coty Germany GmbH v Parfümerie Akzente GmbH) brought clarification as to whether or not a supplier of certain luxury goods running a selective distribution network can lawfully prohibit agreed distributors from selling the products on a third-party internet platform, such as Amazon or eBay.

In this case involving a supplier of luxury cosmetics goods in Germany (Coty Germany GmbH) running a selective distribution network similar to that of Caudalie, the CJEU restated the principles laid down in the "Métro" case (CJEC, 25th Oct. 1977, Case 26/76) and therefore reaffirmed that a selective distribution system of luxury goods does not breach EU Competition Law when i) resellers are chosen on the basis of objective qualitative criteria, laid down uniformly with respect to each and every potential reseller and applied in a non-discriminatory fashion and ii) the defined criteria do not go beyond what is necessary to protect the luxury aura of the products.

Next, the CJEU found that a contractual clause such as the one at issue in the Coty case, prohibiting authorized distributors in a selective distribution network of luxury goods from using on-line marketplace platforms to sell the products, does not violate EU Competition Law provided that i) the said clause has the objective of preserving the luxury image of the goods in question, ii) it is laid down uniformly and applied in a non-discriminatory fashion and iii) it is proportionate to the objective pursued.

Nevertheless, the CJEU's holding in the Coty Germany case does not necessarily mean that the Paris Court of Appeal to which the Caudalie case was remanded must rule in favor of the cosmetics company.

As a matter of fact, the scope of the decision of the CJEU in Coty Germany GmbH v Parfümerie Akzente GmbH could be deemed to be confined to the luxury sector and the Paris Court of Appeal in Caudalie v. eNova Santé might decide that Caudalie's products do not belong to the luxury sector. On the other hand, the decisions of the Paris Court of Appeal in the two Coty France cases (see our September 2016 EU & Competition Law update) which both held that the selective distribution system of Coty Prestige France was incompatible with EU competition law, may well be overturned by the French Supreme Court on the basis of the CJEU’s ruling in Coty Germany GmbH v Parfümerie Akzente GmbH.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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