The General Court of the European Union partially annuls the Commission’s decision condemning Servier for anti-generic practices

On December 12, 2018, the General Court of the European Union partially annulled the Commission’s decision on the existence of restrictive agreements and an abuse of dominant position on the perindopril market by Laboratoires Servier, and reduced the fine imposed by nearly a third, i.e. by €102.67 million.

The Commission had considered that Servier had concluded agreements with Matrix, Teva, Niche, Unichem and Lupin intended to delay the entry into the markets of perindopril generics.
It also considered that Servier had committed an abuse of dominant position developing an exclusionary strategy, notably through agreements concluded with generic manufacturers.

The Court recalled that “pay for delay” agreements can be contrary to competition law. Although amicable settlement agreements regarding patents between competitors are not necessarily illegal, this is not the case when the agreements contain clauses prohibiting patent challenges and product commercialization and grant incentives to refrain from entering the market or challenging the patent. The system of “reverse payment” of the branded prescription medical product company to the generic manufacturer is by definition suspicious in the context of amicable settlement agreements when the payment cannot be justified. This is the case when the payment goes beyond the costs inherent in the amicable settlement agreement and corresponds in fact to compensation for not entering the market.

After recalling that the relevant generic manufacturers could be considered as potential competitors of Servier since they could enter the market sufficiently quickly, the Court invalidated most of the amicable settlement agreements concluded by Servier with other companies in the sector.

However, it annulled the fine inflicted on Servier and Krka, since the Commission had not established the existence of an incentive in exchange for Krka’s withdrawal from the market. It also reduced by 30 percent the fine for the Servier-Matrix agreement, as its amount was deemed too high.

Regarding the abuse of dominant position, the Court annulled the Commission’s decision for erroneous analysis of the relevant market. It had incorrectly decided that Servier held a dominant position on a product market whose boundaries were to be limited to the perindopril molecule alone, in its branded prescription and generic forms.

However, according to the Court, the Commission wrongly considered that perindopril differentiates itself by its medical use from other molecules of the same therapeutic class, when these molecules are comparable in terms of effectiveness and side effects. Moreover, the Commission underestimated the propensity of patients treated with perindopril to change treatment, and overestimated the inertia of physicians to prescribe other medicinal products to their new patients. Therefore, the Commission did not sufficiently take into account the competitive pressure exercised by these other molecules on perindopril.

The Court therefore concluded to an erroneous definition of the relevant market, limited to the perindopril molecule alone. It then inferred that the Commission had not sufficiently established Servier’s dominant position in France, the Netherlands, Poland and the United Kingdom, whether on the perindopril market or the upstream market for the active ingredient technology. Consequently, the Court annulled the €41 million fine imposed on Servier for abuse of dominant position.

The Court thus reminded the Commission that even in the pharmaceutical field where the trend is to use very narrow markets which can be limited to a given molecule (thus necessarily leading to a dominant position of the laboratory marketing this molecule), the Commission is not exempted from conducting a complete analysis of potentially substitutable solutions by the medical use made thereof.

The General Court of the European Union reasserts that the seller is liable for the anticompetitive practices committed before the sale of assets and shares

In a decision of December 6, 2018, the General Court of the European Union concludes that under the personal liability principle, the seller of assets or shares, although it continues to exist legally and economically at the time of the decision, will be held liable for the anticompetitive practices committed prior to the sale.
In this case, the Commission jointly sentenced Coveris and its parent company Huhtamäki Oyj for restrictive practices committed in France, on the market of polystyrene trays, between 2004 and 2005.

Coveris had appealed arguing that in 2006, i.e. after the end of the practices, Coveris had sold its assets to Ono Packaging, a third party company to the group, whereas the shares of another Portuguese subsidiary of the Huhtamäki group were sold to Ono Packaging’s parent company, on the same day.
For Coveris, the Commission should have designated the purchaser, Ono Packaging, as liable for the infringement, on the principle of economic continuity.

The Court first considered that, even if after the transfer of part of its assets to Ono Packaging, Coveris had ceased to be active on the market of polystyrene trays, it nevertheless continued to exist legally and economically. Under the personal liability principle, Coveris was therefore liable for the infringement committed in France.

The Court thus concluded that the liability for anticompetitive practices follows these assets solely in the exceptional case where the legal entity which held these assets ceases to exist legally or economically, which was not the case here.

Moreover, it pointed out that companies cannot escape sanctions by modifying their identity through restructuring, sales or other legal or organizational changes. Thus, as Coveris and Ono Packaging did not have any structural ties at the time of the sale of the assets, the latter could not be sanctioned due to an intragroup transfer.

Finally, the Court underlines that charging an independent third party purchaser with an offense could only be admitted exceptionally in the name of the principle of economic continuity, for example in a transfer of assets between two companies in bad faith, seeking to escape sanctions. However, this was not the case here.

The purchaser can thus have the seller bear the fines for the anticompetitive practices committed before the sale, provided naturally that these practices did indeed cease before the sale. If they continue, the purchaser will bear the consequences thereof for the post-closing period.

Coty, lesson No. 3: The French Competition Authority validates a clause prohibiting sales on market places, but sanctions a prohibition of online sales

In this first post-Coty decision, the Authority ruled on the lawfulness of a selective distribution network for Stihl products relating to the mechanized farming sector (chainsaws, brush cutters, hedge cutters).

It first considered that use of selective distribution was legitimate, acknowledging that these products can have a certain dangerous nature and technicality. The selection of distributors would thus ensure the transmission of useful information for the proper use of the machinery and user safety.

However, it sanctioned Stihl for imposing a “hand over” of the products to online buyers. Stihl required its distributors to propose either to pick up the products in store, or delivery at the purchaser’s home but in person by the distributor, accordingly prohibiting in practice distance selling of products by the distributor, which went beyond what was necessary to protect consumer health. Therefore, Stihl was sanctioned €7 million for this restriction by object ruled particularly harmful.

On the other hand, the Authority ruled valid the clause prohibiting distributors from selling Stihl products on market places, in line with the Coty decision.

Moreover, it indicated that the Coty decision could be extended to types of products other than luxury products, analysis which was incidentally made by the European Commission in April 2018.

Thus, it made an extensive application thereof since the products concerned did not fall under the luxury sector but that of the mechanized farming sector. Therefore, this restriction was deemed legitimate to preserve consumer safety and guarantee the brand image and quality of the products concerned.

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