Offering discounts can amount to breach of competition laws in the Pharmaceutical industry
First published by Admin on December 24, 2016 in the following categories: Latest and tagged with cma
The Competition and Markets Authority (CMA) opened an investigation in December 2015 for a suspected breach of EU and U.K. competition laws in the pharmaceutical industry.
The CMA are looking at whether an unnamed pharmaceutical company has abused a dominant market position by offering discounts on products, which may have breached Chapter II of the Competition Act (CA), and Article 102 Treaty on the Functioning of the European Union (TFEU).
The CMA hasn’t published any further details on its investigation – i.e. the product or the company concerned – however, they’ve set a deadline for March 2017 to implement the next phase of the investigation in light of evidence received to date.
When discounts are seen as anti-competitive
By offering discounts on a product, the company has potentially tried to remove competition. This isn’t the first time that discounts have raised issues of anti-competitive practice – in 2012, the European Court of Justice (ECJ) handed a final judgment to say that discounts or rebates are considered as anti-competitive; especially in a case where the company is already in a dominant market position.
The European Commission received a complaint from Prokent AG that Tomra Systems abused a dominant position by prohibiting Prokent from entering the market for reverse vending machines (RVMs). On top of this, Tomra made sure that all RVM customers stayed loyal by offering them discounts and rebates.
In a competitive world there wouldn’t be much of an issue, as most retailers, like Costa Coffee for example, offer such loyalty schemes to ensure repeat custom. However, it can be problematic and deemed anti-competitive where the company already has a dominant market position, and this was the case here as Tomra’s existence in the marketplace weakened the competition in the RVM market.
CA and TFEU
The CA and TFEU were created to promote the maintenance of competition within the EU. This was to ensure that companies weren’t creating monopolies and agreements that would hinder free choice and low prices for consumers and competitors alike.
Chapter II of the CA prohibits companies from conduct that amounts to an abuse of a dominant position, which may have a negative effect on trade and the market in the U.K. Whether the pharmaceutical company has breached competition laws may depend on things like whether they have 40% market share. If they have less than 40%, it probably won’t be considered as an abuse of a dominant position. However, if this case is anything like the Tomra case, the pharmaceutical company will have breached competition laws.
Chapter II prohibition
The Chapter II ‘prohibition’ gives specific examples of what may amount to an abuse of dominant position:
- Directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
- Limiting production, markets, or technical development to the prejudice of consumers;
- Applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
- Making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature, and according to commercial usage, have no connection with the subject of the contracts.
Article 102 of the TFEU details similar prohibitions to that of Chapter II of the CA.
The CMA’s power to fine
The CMA has the power to fine the company 10 per cent of its annual turnover if there is a breach of the competition laws. The CMA won’t fine companies that have less than £50 million annual turnover. The CMA’s power mustn’t be underestimated – Intel were fined around £1 billion in 2009, so the lucrative pharmaceutical industry must tread carefully…
Sources:
http://www.bath.ac.uk/management/cri/pubpdf/Occasional_Papers/14_Parker.pdf (Opens as PDF)
https://www.gov.uk/cma-cases/pharmaceutical-sector-alleged-discounts-offered-on-a-product
http://unctad.org/meetings/en/SessionalDocuments/tdrbpconf8d3_en.pdf (Opens as PDF)