The European Commission (the Commission) is making increased use of sector-wide inquiries as a means of informing its enforcement activities. This is demonstrated by its recent investigations into anti-competitive practices in the energy and pharmaceutical sectors.
Commission report fuels action in the energy sector
The Commission conducted an inquiry into the energy sector in 2007.1 This concluded that, despite the liberalisation of energy markets, barriers to competition persisted. The Commission pledged to bring enforcement action, under EC competition law, against any infringing companies.
The Commission has acted on its words by imposing its first fines for a competition law infringement in the energy sector. On 8 July 2009, the Commission announced that it had fined German energy group E.ON and French gas company GDF Suez (GDF) €553m each for agreeing, between 1975 and 2005, not to sell their gas imported from Russia into each other’s home market. Competition Commissioner Neelie Kroes reaffirmed that such market sharing is ‘one of the worst types of antitrust infringement’.2 This fact, the size of the parties and the long duration of the infringement contributed to the very high fines in this case.
It has not been a good year for GDF. It is also currently under investigation over concerns that it abused its dominant position by blocking its competitors from accessing the infrastructure needed to import gas into France. The Commission is currently seeking comments from interested parties on GDF’s offered commitments to remedy these concerns. GDF proposes to release immediately a large share of its long-term reservations of gas import capacity into France until its share falls below 50%, freeing up access to the infrastructure for its competitors and thereby leading to more competitive prices in the market.
Finally, in June, GDF was fined €20m as a result of the failure of its electricity producer and retailer arm, Electrabel, to notify and gain prior approval for its acquisition of another electricity producer, Compagnie Nationale du Rhône. This is the highest fine ever imposed for non-notification of a merger to the Commission.
Pharmaceuticals: the end of branded companies muscling out the generics?
The Commission has also been scrutinising the pharmaceutical sector. A decline in new medicines and delays in generic medicines entering the market (costing consumers an extra €3bn for an average delay of seven months), prompted a Commission inquiry into the sector in January 2008. The Commission published its final report on 8 July 2009.
There is a persistent tension in the pharmaceutical sector between developers of medicines, known as ‘originators’, who want to be free to exploit any market power conferred by their patent rights, and the desire on the part of governments and insurers to keep prices down, especially through competition from generic drugs companies.
The final report found that originators were delaying the entry of generic companies into the market, thereby prolonging their exclusivity period, using several strategies, including:
- filing ‘patent clusters’ – ie registering a large number of EU-wide patents and pending patent applications for a single medicine;
- launching lengthy patent litigation against generic companies;
- concluding over 200 settlement agreements, half of which restricted generic entry and over 10% of which included ‘reverse payment settlements’ whereby originators paid generic companies not to enter the market to delay entry; and
- intervening in national procedures to approve generic medicines, which led to an average delay of four months to their entry into the market.
In particular, the Commission stated that it will be alert to any ‘settlements that limit generic entry and include a value transfer from the originator company to a generic company’. It is worth noting that there has been some back-pedalling on this issue since the Commission’s preliminary report, which recommended introducing a notification system whereby the originator and generic companies would be required to notify any reverse payment settlements to the Commission for further scrutiny. Although such a notification system was not included in the final recommendations, pharmaceutical companies pursuing these practices should be aware that the Commission may take action against such agreements under Article 81 EC Treaty. Such proceedings could lead to settlement agreements being declared void and unenforceable, fines of up to 10% of global turnover and the issue of third-party damages actions.
The Commission has indicated that from now on it will take a robust stance on the harmful practices of originators, stating that:
‘Where delays to market entry of generics result from anti-competitive practices, the Commission will not hesitate to apply the antitrust rules.’3
This sentiment has been bolstered by the fact that the first antitrust investigations are already under way. On the same day the Commission confirmed that it was investigating French pharmaceutical firm Les Laboratoires Servier (Servier) and five generic manufacturers for alleged unilateral behaviour by Servier, and for concluding agreements with generic manufacturers that allegedly prevented the entry on to the market of generic versions of cardiovascular medicine perindopril (originally developed by Servier in the EEA).4These proceedings follow the Commission’s unannounced inspections in several member states during November 2008.
Finally, the Commission’s indication that it will closely follow any increased market concentration suggests that it will be less likely to give clearance to any proposed mergers in the industry than it has been in the past.
By Rebecca Riss, associate, and Angela Gregson, trainee solicitor, Berwin Leighton Paisner LLP.E-mail:rebecca.riss@blplaw.com;angela.gregson@blplaw.com.
