“18 Abuse of dominant position.” (1) … any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom. (2) Conduct may, in particular, constitute such an abuse if it consists in— (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; …”
“The issue of abuse and any consequential matters, including penalties and directions, are remitted to the CMA for reconsideration in accordance with the Judgment.”
“3. Cases of pure unfair pricing are rare in competition law. Authorities find them difficult to bring and are, rightly, wary of casting themselves in the role of price regulators. Generally, price control is better left to sectoral regulators, where they exist, and operated prospectively; ex post price regulation through the medium of competition law presents many problems. However, the law prohibits unfair pricing in certain circumstances and in such cases there is no reason in principle why competition law cannot be applied, provided this is done on the correct legal basis and the analysis of evidence is sound. 4. We understand the CMA’s concern to deter and punish instances of unfair pricing that infringe the law. However, we have found this particular decision to be wrongly based in certain respects. Whilst we find the CMA was correct that the two companies each held a dominant position, we find the CMA’s conclusions on abuse of dominance were in error. The CMA did not correctly apply the legal test for finding that prices were unfair; it did not appropriately consider what was the right economic value for the product at issue; and it did not take sufficient account of the situation of other, comparable, products, in particular of the phenytoin sodium tablet. This means that the CMA’s findings on abuse of dominance in this case cannot be upheld. 5. The importance of this case for the public interest makes it desirable to rectify the errors we have found. In a matter as important for government, for the public as patients and as taxpayers, as well as for the pharmaceutical industry itself, the law should be clear and any decisions made should be soundly based on proper evidence and analysis. It is important that there is a good legal foundation for any future action in this area.”
“(1) It misinterpreted United Brands to introduce an additional requirement of “benchmarking” the hypothetical price that would have been charged under sufficiently effective (but not idealised) competitive conditions (2) Advocate General Wahl’s Opinion in LatvianCopyright was treated as a general restatement of the law, relevant to the application of the United Brands test, whereas: (a) it was not, (b) insofar as used to interpret United Brands, was not followed in all respects by the Court. In particular, on a proper understanding of LatvianCopyright, the judgment does not endorse the suggestion made in the Opinion that it would be necessary to combine several different tests of analysis that are mutually corroborated to reach a conclusion on whether a particular price is unfair and therefore abusive.”
“(1) Although the CAT ostensibly accepted that United Brands allows unfairness to be established in one of two ways, the effect of the judgment is to require Alternative 2 (unfair compared to competing products) to be applied, even if Alternative 1 (unfair in itself) is satisfied. This is unsupported by United Brands, and if followed would impose an unjustifiable burden on a competition authority or other party with the burden of establishing an infringement of Article 102(a) TFEU. (2) The Tribunal’s misinterpretation of the general scheme of United Brands and of the copyright cases, including Latvian Copyright, led it to impose a number of additional requirements and a further test of applying demand side considerations to the “economic value” of the product in determining whether the price was unfair. In this context, the Tribunal overstated the import of the Commission’s decision in Scandlines.”
“5.476 Having reached the conclusion that each of Pfizer's Prices and Flynn's Prices is unfair in itself, it is not necessary for the CMA to reach a conclusion as to whether those prices are also unfair when compared to competing products. 5.477 This is because, as set out in section 5.D.I., the two limbs within the second stage of the United Brands Test are alternative and not cumulative. Accordingly, where an excessive price is established as unfair in itself it will infringe the Chapter II prohibition/Article 102 and there is no additional requirement to establish whether that price is also unfair when compared to competing products. 5.478 However, for completeness, and because the Parties submitted representations to the CMA on the issue of whether their respective prices are unfair when compared to competing products, the CMA has considered whether such a comparison could be conducted.”
“… it is sufficient to demonstrate that one of its limbs is satisfied in order to establish an infringement”
“248. The imposition by an undertaking in a dominant position directly or indirectly of unfair purchase or selling prices is an abuse to which exception can be taken under Article 86 of the Treaty. 249. It is advisable therefore to ascertain whether the dominant undertaking has made use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition. 250. In this case charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied would be such an abuse. 251. This excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin; however the Commission has not done this since it has not analysed UBC's costs structure. 252. The questions therefore to be determined are whether the difference between the costs actually incurred and the price actually charged is excessive, and, if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair in itself or when compared to competing products. 253. Other ways may be devised - and economic theorists have not failed to think up several – of selecting the rules for determining whether the price of a product is unfair.”
“[264] However unreliable the particulars supplied by UBC may be (and in particular the document mentioned previously which works out the “losses” on the Irish market in 1974 without any supporting evidence), the fact remains that it is for the Commission to prove that the applicant charged unfair prices. [265] UBC's retraction, which the Commission has not effectively refuted, establishes beyond doubt that the basis for the calculations adopted by the latter to prove that UBC's prices are excessive is open to criticism and on this particular point there is a doubt which must benefit the applicant, especially as for nearly 20 years banana prices, in real terms, have not risen on the relevant market.”
“… a scale and rate of royalty which is several times greater than that applied by all copyright-management societies in the member countries of the EEC without any objectively justifiable ground and is unrelated to the sums redistributed to the authors, so that the royalty is disproportionate to the economic value of the service provided?”
“…useful indications regarding the possible abuse of a dominant position by a national copyright-management society”
“In such a case it is for the undertaking in question to justify the difference by reference to objective dissimilarities between the situation in the Member State concerned and the situation prevailing in all the other Member States”
“47. In accordance with paragraph 252 of United Brands v Commission, the existence of an unfair price may be examined either by reference to whether the price is unfair in itself or unfair by comparison with competing products. As the wording of that paragraph is clear, the appellants’ argument that the examination of the unfair price must be based on a cumulative application of those criteria, and in the order suggested by the appellants, cannot therefore succeed.”
“100. The Court did not specifically set out how the “economic value” of a product should be determined, although it stated in paragraph 251 of its judgement that “the excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which could disclose the amount of the profit margin”. 101. The Court further stated in paragraph 252 that “[t]he questions therefore to be determined are whether the difference between the costs actually incurred and the price actually charged is excessive, and, if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair in itself or when compared to competing products”. 102. It is important to note that the decisive test in United Brands focuses on the price charged, and its relation to the economic value of the product. While a comparison of prices and costs, which reveals the profit margin, of a particular company may serve as a first step in the analysis (if at all possible to calculate), this in itself cannot be conclusive as regards the existence of an abuse under Article 82. 103. In this decision, the Commission will follow the methodology set out by the Court in paragraph 252 of the United Brands judgement. The Commission will therefore assess the costs actually incurred by HHAB in providing the products/services in question (the costs of production) and make a comparison with the prices actually charged (section II.B.2.1). The Commission will then assess whether the prices are unfair when compared to prices charged to other users or by other ports (section II.B.2.2), or whether the prices are unfair in themselves (section II.B.2.3).”
“43. Thus, in the absence of an ubiquitous test and given the limitations inherent in all existing methods, it is in my view crucial that in order to avoid (or, more correctly, to minimise) the risk of errors, competition authorities should strive to examine a case by combining several methods among those which are accepted by standard economic thinking and which appear suitable and available in the specific situation. It seems to me that those which can be found in the Court’s case-law (and that have been illustrated in points 18 and 19 above) may serve that purpose.”
“(a) No single method or test 36. It can be safely stated that, at the current stage of legal and economic thinking, there is no single method, test or set of criteria which is generally accepted in economic writings or across jurisdictions for that purpose. Different authorities as well as lawyers and economists have suggested a number of methods of analysis (as well as a variety of criteria, tests or ‘screens’) to that end. However, in point of fact, each of those methods reveals some inherent weaknesses.”
“It falls to the competition authority concerned to make the comparison and to define its framework, although it should be borne in mind that the authority has a certain margin of manoeuvre and that there is no single adequate method”
“… an abuse might lie in the imposition of a price which is excessive in relation to the economic value of the service provided”
“139. In that case, the Commission is not only required to analyse, first, the extent of the undertaking’s dominant position on the relevant market and, secondly, the share of the market covered by the challenged practice, as well as the conditions and arrangements for granting the rebates in question, their duration and their amount; it is also required to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market (see, by analogy, judgment of27 March 2012 , Post Danmark, C-209/10, EU:C:2012:172, paragraph 29). 140. The analysis of the capacity to foreclose is also relevant in assessing whether a system of rebates which, in principle, falls within the scope of the prohibition laid down in Article 102 TFEU, may be objectively justified. In addition, the exclusionary effect arising from such a system, which is disadvantageous for competition, may be counterbalanced, or outweighed, by advantages in terms of efficiency which also benefit the consumer (judgment of15 March 2007 , British Airways v Commission, C-95/04 P, EU:C:2007:166, paragraph 86). That balancing of the favourable and unfavourable effects of the practice in question on competition can be carried out in the Commission’s decision only after an analysis of the intrinsic capacity of that practice to foreclose competitors which are at least as efficient as the dominant undertaking.”
“391. While there may well be other ways of approaching the issue of unfair prices under section 18(2)(a) of the Act, the Director’s starting point, as stated in paragraph 203 of the Decision, seems to us to be soundly based in the circumstances of the present case.”
“397. In our view those comparisons, taken together, amply support the Director’s conclusions that Napp’s prices in the community segment were, during the period of the infringement, well above what would have been expected in competitive conditions. Thus we agree with the Director’s finding, at paragraph 211 of the Decision, that it is only in the community segment, where buyers are less price sensitive, and where there is an absence of effective competition, that Napp can sustain a premium of 40 per cent over competitors. With the exceptions mentioned in paragraph 360 above, Napp’s prices have remained unchanged for 20 years, including nearly 10 years since the expiry of Napp’s formulation patent. At the same time, Napp has retained a market share of the community segment of some 96 per cent. Those facts also support the proposition that Napp’s community prices, unlike its hospital prices, have not been subject to competitive pressure, as the Director found in paragraph 213 of the Decision”
“… when is the price charged by the person controlling access to...information so high as to be excessive or unfair?”
“Is there a pricing principle which can be applied to such a case? If so, what is a non-abusive "right price" and how is it to be ascertained by the court? Is it, as was held in this case, the cost of production of the information plus a reasonable profit (called "cost +")? If the possessor of the information may only lawfully charge a price calculated in this way, how does the court set about ascertaining the cost + price? In comparing the price charged and the cost incurred, what should be included in the allowable costs incurred? Is it only the costs directly involved in the secondary activity of creating, collating and compiling the information, or does it include, or reflect, all, or only some, and, if so, which, of the costs incurred in conducting the primary activity to which the information relates?”
“213. As already noted, the Commission's decision in Scandlines supports the view that the exercise under Article 82, while it starts from a comparison of the cost of production with the price charged, is not determined by the comparison. This in itself is sufficient to exclude a cost + test as definitive of abuse. Mr Roth accepts that there is no single methodology or litmus test of abuse: the court has a choice of methods, but not an unlimited one. His contention is that the judge has gone outside the admissible limits of method in coming to his conclusion. Mr Hollander, also contending that the choice of methodology is for the court, defends both the choice made by the judge and the way he has implemented it.”
“218. For all the above reasons we conclude that, in holding that the economic value of the pre-race data was the cost of compilation plus a reasonable return, the judge took too narrow a view of economic value in Article 82. In particular he was wrong to reject BHB's contention on the relevance of the value of the pre-race data to ATR in determining the economic value of the pre-race data and whether the charges specified by BHB were excessive and unfair.” “218. For all the above reasons we conclude that, in holding that the economic value of the pre-race data was the cost of compilation plus a reasonable return, the judge took too narrow a view of economic value in Article 82. In particular he was wrong to reject BHB's contention on the relevance of the value of the pre-race data to ATR in determining the economic value of the pre-race data and whether the charges specified by BHB were excessive and unfair.”
“This has led some to consider that the identification of excessive prices is a ‘daunting, if not, impossible task’… The issues are still more extreme when trying to set clear rules that allow for ex ante compliance with excessive pricing rules. The key problem here is that it is not clear what the appropriate benchmark should be.”
“… all the methods to determine whether a price is excessive under competition law have weaknesses”
“… even if it were true that the assessment of excessive pricing can be challenging, it would be wrong to overstate the difficulties of pursuing such an assessment. While it can be hard to set out simple guidance that draws a clear line between excessive and lawful pricing, there may nevertheless be cases where pricing is so extreme that it becomes relatively easy to demonstrate that it is excessive by reference to a variety of different measures. Acknowledging the difficulties in identifying a single standard which is able to determine whether prices are excessive in all situations, many competition authorities have instead applied several methodologies in parallel in order to minimise the possibility of erroneous intervention”
“…consider a range of possible analyses, reflecting market conditions and the extent and quality of the data that can be obtained, to establish a benchmark price, or range, that reflects the price that would pertain under conditions of normal and sufficiently effective competition.”
“35. In paragraph 59 of its judgment in A. Menarini Diagnostics v. Italy, the European Court of Human Rights explained that, in administrative proceedings, the obligation to comply withArticle 6 of the ECHR does not preclude a ‘penalty’ from being imposed by an administrative authority in the first instance. For this to be possible, however, decisions taken by administrative authorities which do not themselves satisfy the requirements laid down inArticle 6(1) of the ECHR must be subject to subsequent review by a judicial body that has full jurisdiction. The characteristics of such a body include the power to quash in all respects, on questions of fact and law, the decision of the body below. The judicial body must in particular have jurisdiction to examine all questions of fact and law relevant to the dispute before it.”
“37 As regards the review of legality, the Court has pointed out that the European Union judicature must carry it out on the basis of the evidence adduced by the applicant in support of the pleas in law put forward and that it cannot use the Commission’s margin of discretion – either as regards the choice of factors taken into account in the application of the criteria mentioned in the 1998 Guidelines or as regards the assessment of those factors – as a basis for dispensing with the conduct of an in-depth review of the law and of the facts….”
“389. It is not possible, within the scope of the present proceedings, for us to give full and adequate consideration to the competitive situation in relation to tablets during the Relevant Period. We have been given at best some isolated pieces of information, and certainly not enough to form a conclusion. 390. However, if it is indeed the case that new entrants have entered the tablet sector and that as a result price competition has reduced the tablet ASP, a matter on which we can make no finding on the evidence before us, this would suggest that one of the material reasons given in the Decision by the CMA for disregarding the tablet as a meaningful comparator, namely that it was subject to the same restrictions on competition as the capsule, would be wrong. However, that process would also be highly germane to seeking to establish the benchmark price in conditions of sufficient competition, as well as being informative on the question of unfairness. Assessing whether or not that remains the case, however, is clearly a matter for the CMA. 391. The Decision states (para 3.448) that the CMA had considered making a formal investigation into tablets following the DH’s complaint in 2012 but decided against it on grounds of administrative priorities. This is entirely understandable. Nevertheless, in this case, the CMA should, in our view, have done a sufficient investigation into the competitive conditions surrounding the most obvious comparator product properly to inform its decision on Pfizer-Flynn Capsules. It is not an answer to state there was no obligation to conduct a full investigation. That is so in relation to the CMA's discretion in relation to the price of tablets; but it is not right in terms of obtaining sufficient evidence properly to apply Article 102 to the price of Pfizer-Flynn Capsules. As Mr Hoskins conceded in a different context (see paragraph 365 above), no authority should leave a relevant factor unclear. 392. All this suggests to us that the phenytoin tablet as a meaningful comparator should not have been wholly rejected on the grounds relied on by the CMA. There was enough material to make it pause to consider, at the very least, whether there was a prima facie case of fairness under Alternative 2. We accept that there is an element of circularity in this. The authority must investigate possible comparator candidates to see if they are likely to be meaningful on objective, verifiable and appropriate criteria. On the other hand, the authority has a margin of discretion as to the possible comparators that it needs to examine. How is it to know whether the comparators are likely to be meaningful unless it examines them? That difficulty does not avoid the need, in our view, for the authority, at least, to examine any prima facie good comparator, as the CMA accepted.”
“412. The CMA was criticised by the parties for not considering patient benefit although it did indeed describe, in broad outline in the Decision, the nature of epilepsy and phenytoin's role in its treatment. The CMA has not, however, contested the evidence of Professor Walker and has, in effect, conceded that phenytoin remains a useful and effective treatment for a significant number of patients. That being so, we find the outright rejection of any value at all to patients surprising. The CMA seems to have placed some reliance on the age of the drug, which is irrelevant in therapeutic terms. We think there is clearly some economic value to be derived from the therapeutic benefit to patients of phenytoin capsules.”
“416. … It seems that the CMA may be confusing the conclusion of its analysis of markets and dominance with a medical assessment that any given patient is completely dependent on the particular formulation. Professor Walker’s evidence shows that to be not necessarily correct in all or even a majority of cases. As he said in his second expert report, to the extent that the CMA has described patients as “completely dependent” on phenytoin sodium by reason of Continuity of Supply, the CMA has used Continuity of Supply out of context. 417. We therefore do not think this is a binary issue but more one of degree. … There is clearly some economic value to be derived from the significant contribution of phenytoin to treating epilepsy in a significant number of patients. Some allowance must be made for the extent to which the choice of switching from phenytoin may be restricted, which decreases the value as measured in terms of patient benefit.”
“345. However, suitable and meaningful comparators do not have exactly to mimic the features of phenytoin, and if there were prima facie evidence of a meaningful comparator which helped establish a benchmark price for Pfizer-Flynn Capsules in conditions of normal and sufficiently effective competition, it should have been examined carefully. On the various suggested combinations of other companies put forward by Flynn, whether or not their activities included manufacture, or their portfolios included or they were subject to a sufficient degree of competition, it is not apparent from the Decision (paras 5.164 and 5.193-4) that the CMA examined these fully and may have been too ready to dismiss them entirely (i.e. in a binary fashion) because of other factors such as Flynn’s low level of risk and high supply price. Nevertheless, with the exception of the tablets issue discussed below and subject to our findings on the CMA’s overall approach, we do not find that any of the comparators suggested to us, in themselves, presented such a clear evidential picture (given the difficulties, on the material before us, of understanding how relevant any given comparator was) that they undermined the conclusions reached by the CMA in deciding on a reasonable rate of return. We do not, however, regard the CMA’s overall approach as valid (see paragraph 310 above).”
“467. In the present case, however, although our essential finding is that the CMA misapplied the test for unfair pricing, the correct application of that test as we have described it would involve detailed consideration of further information, some of which may need to be obtained and properly tested, and the careful assessment of what normal competitive conditions might have been. A particular example is a better understanding of the evolution of the tablet market and tablet pricing. These are not things that the Tribunal is, in practice, in this case, in a position properly to do. 468. We therefore confirm the Decision save for that part of it that relates to abuse (and any consequential findings, including penalties). That part we set aside. Our provisional view is that we will remit the matter, insofar as it deals with abuse, to the CMA for further consideration as it sees fit. However, before making an order to that effect, we will invite written submissions from the parties on whether to remit the matter to the CMA and the scope of any such remittal.”