Author: Dr. Opeyemi Kolawole Post-doctoral Researcher, PatentsInHumans Project, ALL Insittute and Department of Law and Crimonology
Research Stream: Social Technologies
Competition law is pivotal in maintaining market equilibrium and safeguarding consumer welfare. In the European Union, competition law principles are enshrined in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). While Article 101 prohibits the formation and enforcement of agreements that have the object or effect of distorting competition, Article 102 prevents a dominant firm from abusing its dominant market position.
Competition in healthcare services is critical to providing access to affordable medicines and medical technologies, ensuring expensive pharmaceutical and medical technologies do not significantly strain public and private finances. With their proactive enforcement of competition rules, the EU Commission and the 27 National Competition Authorities (NCAs) have been instrumental in this regard. In the recent Report on Competition Enforcement in the Pharmaceutical Sector, published in January 2024, the EU Commission provides an overview of how EU competition rules have been enforced to prevent and rectify business practices which may harm competition in the common market and consumer welfare. This article examines some of the key decisions reached by the Commission and some of the NCAs and highlights potential improvement opportunities to maximise consumer welfare.
The EU Commission and the 27 NCAs do not investigate and address every market behaviour that may be considered anti-competitive. Instead, as the Report suggests, the focus is on “the most important cases”, particularly those that could “provide guidance to market participants” and discourage anti-competitive behaviour (The Report 2024, p.5). In the reviewed period (2018 – 2022), the EU Commission and the 27 NCAs have “adopted 26 antitrust decisions” relating to pharmaceutical firms, resulting in fines of close to €780 million (The Report 2024, 9). The Report also notes that there are 30 open investigations involving pharmaceutical firms, and 10 infringement or commitment decisions have been adopted with regard to medical devices, with an additional 13 cases involving other health-related issues (The EU Commission, p. 9).
The Report, particularly in Chapter 5, discusses the types of anti-competitive practices relevant to the healthcare services sector. The Report notes that the Commission and the NCAs have investigated and punished several prohibitive market practices, including abusive patent protection strategies and implementation, pay-for-delay agreements, disparaging and false advertisement, predatory pricing and other forms of excessive pricing. These strategies, whether implemented separately or together, often delay the market entry for cheaper medicines and other medical technologies.
For example, regarding the abusive use of the patent system, which could occur at the implementation stage if a patent holder may use their patent right unreasonably to block access to essential products through their pricing mechanism, the Report notes that certain originators may file patent infringement cases against their competitors or generic producers, not because of a viable infringement case but to “harass” their competitors. This was the case in Spain, where Merck Sharp & Dohme GmbH (S/0026/19, 2022) was found to have provided misleading information to secure an injunction to prevent a competitor’s product from entering the market.
Pay-for-delay cases, as the name suggests, often involve a producer with about-to-expire intellectual property rights, paying a generic producer to delay introducing a new and cheaper product to the market, which may compete with the rightsholder’s product. This allows the producer of the patented product to continue to impose high prices on the market. This may mean that consumer welfare is affected due to choice limitations and the likelihood of high prices remaining. The Court of Justice of the EU, in the Generics UK (Case C‑307/18, 2020) case, ruled that this type of agreement constitutes an abuse of dominant position and is anti-competitive under EU law. The EU Commission also reached a similar decision in the Cephalon (Case T‑74/21, 2023) case, where the Commission fined Teva and Cephalon €30 million and €30.5 million for entering into an agreement, which prevented Teva from introducing a generic version of Cephalon’s sleeping disorder medication. The Report also identified other unilateral actions, such as disparagement – when a producer who controls a large share of the market makes disparaging comments or adverts about their competitor’s product, with the aim of causing commercial harm to the competitor’s products or making them undesirable to the consumer – as a way in which entities can try to limit competition for their patented products/high priced health-technologies. The Report notes that the French NCA has decided on three cases and imposed fines on breaches of this nature (The EU Commission, p. 25).
Another significant anti-competitive strategy the Report identifies is predatory pricing, which is also a significant issue the Commission and the NCAs are addressing. A dominant actor could offer significantly low prices or rebates (below cost price and intentionally incurring losses) to customers to maintain its market dominance or push its competitors out of the relevant market (Lorenz, 2013). In 2019, the Dutch NCA investigated AbbVie’s pricing strategy for its Humira medication. AbbVie had offered discounts to hospitals, preconditioned on their continuing prescription of AbbVie’s Humira. The investigation found that this strategy allowed AbbVie to maintain a high price because other competitors were shut out of the market. In the Aspen case in 2016] the Italian Competition Authority imposed a €5.2 million fine on Aspen for abusing its dominant position by imposing prohibitive prices for its four cancer medicines.
The report also indicates that mergers and acquisitions can lead to anti-competitive outcomes. For instance, a merger between Company A, which produces Drug C and Company B, which produces Drug D, a viable and cheaper alternative to Drug C, poses a risk to consumer choice and effective competition. Therefore, competition authorities scrutinise merger and acquisition proposals, ensuring they do not negatively impact consumers. In the period under review, the report notes that the EU Commission and the NCAs reviewed more than 30 merger and acquisition transactions in the pharmaceutical sector to ensure compliance with anti-competition rules. Five of the transactions were found to be problematic: four were subsequently revised for compliance, while one merger was abandoned entirely.
In short, this Report presents a useful overview of some of the key aspects of the EU’s approach to anti-competitive behaviours within the EU. Importantly, it shows that without the guardrails imposed through Articles 101 and 102 of the TFEU and the enforcement powers of the Commission and the 27 NCAs, market actors, especially producers who enjoy proprietary rights protection, are always strategising on the best approach to extend their market dominance and extract maximum profit, often to the consumer’s detriment. This may lead to excessive or predatory pricing and a lack of innovation, which affect consumer welfare and access to affordable healthcare services and technologies. Competition law, when enforced and implemented adequately, is a tool that can be used to prevent such anti-competitive behaviours. Despite this, Palacios and Veraldi note that most cases often involve producers whose patents are about to expire. They suggest that competition authorities should also focus on patent holders with extensive patent portfolios that are not about to expire. While the criticism is welcomed, it is possible that originators do not need to collude or engage in significant anti-competitive market activities when they have a valid subsisting patent. The fear of losing market dominance with the potential entry of generic competitors may drive a firm to engage in anti-competitive practices, such as predatory pricing or pay-for-delay. Nonetheless, there is still room for improvement. The report also shows the importance of consumer welfare in the EU competition law framework. However, there is a narrow conceptualisation of “consumer welfare”, often interpreted within the broader framework of price and choice in the market context. It may be desirable that the interpretation of “consumer welfare” should extend to non-market issues, including when IP rightsholders’ decisions adversely affect the provision and choice of health technologies available. This broader interpretation would give the Commission and NCAs further scope and the powers to address issues critical to EU patients.
Acknowledgment of funding:
This research was developed as part of the ERC PatentsInHumans project, funded by the European Union (ERC, PatentsInHumans, Project No. 101042147). Views and opinions expressed are however those of the author only and do not necessarily reflect those of the European Union or the European Research Council Executive Agency. Neither the European Union nor the granting authority can be held responsible for them.