The concept of dominance plays a pivotal role in European antitrust law. The creation or strengthening of a dominant position is an example of the “significant impediment to effective competition” that grounds the prohibition of a proposed merger, and the rules on abuse of a dominant position sanction conduct that has exclusionary or exploitative market effects.
While the abuse of dominance rules are easiest to understand when they apply to unilateral behavior, since Italian Flat Glass1 in 1992, the European courts have recognized that the rules also apply when two or more undertakings hold a collective dominant position because they “present themselves or act together on a particular market as a collective entity.”2 Antitrust cases where the European Commission (EC) has found collective dominance are limited in number. However, the French Competition Authority (FCA) has recently imposed eye-watering fines totaling more than US$510 million (€444 million) on Genentech, Roche, and Novartis for abusing their collective dominance in the market for wet age-related macular degeneration.3
A Court-Endorsed Test for Collective Dominance
In Airtours (2002) and in Laurent Piau (FIFA) (2005), the European court developed a three-fold test for the application of collective dominance in an oligopolistic market. First, there needs to be a high level of transparency, so that each of the participants can quickly know the other members’ behaviors and strategies. Second, the tacit coordination between members of the oligopoly must be sustainable (i.e., the threat of retaliation must be enough to deter deviation and/or incentivize the maintenance of the common strategy). Third, actual or potential competitors or the reactions of consumers must not jeopardize the overall strategy. These three criteria, said the court, apply both in merger control and in antitrust.4
Although the criteria have been authoritatively established, enforcement has largely been in limbo at the European level for at least a decade. One reason for this is, no doubt, the reluctance―perhaps even the inability―of European antitrust agencies to pursue an abuse of collective dominance based solely on the existence of tacit collusion, when the court has explicitly ruled that businesses have “the right to adapt themselves intelligently” to the behavior of competitors in the market.5 The EC’s 2008 Guidance on its enforcement priorities on abuse of dominance did not make collective dominance an enforcement priority and did not develop the concept further.6 Therefore, it is remarkable that the FCA chose to breathe new life into this concept and levied such a heavy fine―more than half a billion dollars―in the first major new case in more than a decade.
The FCA’s Analysis in the Pharmaceutical Sector
The FCA’s case concerned the market for treatments against wet age-related macular degeneration (wet AMD), a chronic eye disorder that causes blurred vision. The leading treatment for wet AMD in France for several years was Lucentis (Novartis), which in 2009 had a market share of approximately 86 percent.
Physicians treating patients with both cancer and wet AMD observed that Avastin (a cancer treatment produced by Roche) had appreciable benefits for ophthalmologic disorders, and as a result Avastin came to be used off-label to treat wet AMD. When the French Health Ministry discovered this, it commissioned a study to ascertain whether Avastin was effective for ophthalmologic purposes and whether the French State health insurance system might replace Lucentis with this less expensive treatment.
The FCA’s investigation revealed significant structural and financial links between the three companies, which permitted them to adopt uniform conduct in the relevant market. Novartis held a 33 percent non-controlling stake in Roche’s parent, and Roche owned a controlling stake in Genentech. In addition, there were license agreements from Genentech in favor of Roche for the exploitation of Avastin, and from Genentech in favor of Novartis for the exploitation of Lucentis, which facilitated the exchange of strategic information about wet AMD between the parties through joint management committees. The FCA found that the three laboratories had strong financial incentives to align their interests in Lucentis insofar as:
- Novartis, as licensee, received the proceeds of sales of Lucentis;
- Genentech, as licensor, received royalty payments for sales by Novartis; and
- Roche, as Genentech’s principal shareholder, received dividends.
As a result, the FCA ruled that they formed a “collective entity” when marketing Lucentis and Avastin.
The laboratories were also found to have exaggerated the risks associated with the use of Avastin to treat wet AMD, and to have compared it unfavorably with Lucentis (which was described as more secure and efficient) to maintain the price of Lucentis above competitive levels. The FCA characterized their strategy to block the French government’s initiatives to favor and secure Avastin’s use as a treatment for AMD as an abuse of their collective dominant position.
Position of Other Agencies
While there are few recent cases dealing with collective dominance, the FCA is not alone in exploring the boundaries of the concept. Guidance issued by national competition agencies highlights the assessment of collective dominance,7 and in May 2020, SAMR, the Chinese competition authority, imposed a US$46.2 million fine on three pharmaceutical suppliers (Shandong Kanghui, Weifan Pununhui, and Weifang Apollo) for abusing their collective dominance in the market for ingredients for injectable calcium gluconate, where they had a combined share of 87 percent.8 This is the largest antitrust fine imposed in the pharmaceutical industry in China, and is notable because there were no structural links (no common shareholders, no cross directorships, and no common managers) between the three suppliers. SAMR nonetheless found that Shandong Kanghui was able to “control” the two other suppliers through the exchange of management teams, oral agreements, and control of their financial systems.
Wilson Sonsini Observations
By accident rather than design, the timing of the FCA’s decision is intriguing. In recent speeches and presentations, senior EC officials, including Vice President Vestager herself, have suggested that there are enforcement gaps―in mergers and in antitrust―that the EC might be seeking to fill. Before year-end, it is expected that the EC will publish its proposal for a New Competition Tool (NCT) to plug at least some of these gaps. There is likely to be some resistance to the adoption of this NCT, and editorials have already been written on the topic. It is therefore fascinating that, at the very time when proposals are being formulated that might give the EC new or extended powers, the FCA has breathed new life into an old and little-used enforcement tool and done so in pharmaceuticals, a high-profile area of the economy. Does the FCA’s decision show that the existing agency toolbox is so well-equipped that no new tools are needed, or does it remind us that the existing law has its limits, reinforcing the need for an NCT?
In the immediate short term, in-house counsel at pharmaceutical firms doing business in Europe may wish to run a health-check over their licensing arrangements with other pharmaceutical companies, especially where they are active in the same or neighboring markets, to ascertain whether the effect of their licensing practices could be to expose them to the charge that they present themselves or act together on a particular market as a collective entity.
Laurine Signoret in our Brussels office contributed to the preparation of this Wilson Sonsini Alert.
 Joined Cases T-68, 77 and 78/89 Società Italiana Vetro SpA, 1992.
 Joined Cases C-395/96P and C-396/96P Compagnie Maritime Belge, 2000, para. 36.
 FCA Decision 20-D-11Genentech, Roche and Novartis, 2020; press release available in English at: https://www.autoritedelaconcurrence.fr/en/press-release/treatment-amd-autorite-fines-3-laboratories-abusive-practices.
 Case T-342/99 Airtours, 2002, para. 62, and Case T-193/02 Laurent Piau (FIFA), 2005, para. 111.
 Joined Cases 40/73 and Others Suiker Unie, 1975, para. 174.
 EC Communication, “Guidance on the Commission's Enforcement Priorities in Applying Article 82 EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings,” 2008.
 See, for example, the Lithuanian Konkurencijos taryba’s new guidelines, summarized at “Dominance-abuse guidelines published by Lithuanian watchdog,” MLex, Apr. 8, 2020, available at: https://www.mlex.com/GlobalAntitrust/DetailView.aspx?cid=1177908&siteid=190&rdir=1.
 See “Three Chinese pharma companies fined for abuse of dominance in calcium gluconate market” (English version), MLex, Jul. 22, 2020, available at: https://www.mlex.com/GlobalAntitrust/DetailView.aspx?cid=1210082&siteid=202&rdir=1.