Vestager’s razor to cut the ordo-liberal knot

To turn the page on more than forty years of quarrel over whether antitrust is about protecting the competitive process without prejudging its result or about ensuring that markets have a competitive structure (thereby tipping the balance towards a particular market outcome), Commissioner Vestager has finally applied Ockham’s law of parsimony. In front of the European antitrust establishment attending the Chillin’ Competition conference last 21 November, the Commissioner heralded a return to the exploitation origins of EU competition law.

Seven years ago, Kokott’s opinion in T-Mobile proclaimed the victory of the ordo-liberal static approach to antitrust:[1]

[…] Article 81 EC, like the other competition rules of the Treaty, is not designed only or primarily to protect the immediate interests of individual competitors or consumers, but to protect the structure of the market and thus competition as such (as an institution). In this way, consumers are also indirectly protected […].”

Thus, there’s nothing new to Commissioner Vestager’s assertion that consumers are best protected by guaranteeing a competitive structure of markets (although her acknowledging that the Commission’s job is to defend competition and not competitors is a highly appreciated subtlety). But why indirectly steering towards a market outcome that increases consumer welfare if it can be done directly? Well, the Berlaymont is no longer going to shy away from correcting prices and other results of the competitive process (only) where the market structure is not considered able to guarantee that they are fair enough.

The risk of overrunning the limits of regulation (a no-go area for competition authorities devoid of regulatory powers) will no longer be a deterrence to the extent that it’s justified by the absence of choice in the hands of consumers. Allegedly, the test for an exploitative abuse case to be an enforcement priority seems to be that consumers are not able to “walk away” from the dominant company due to the lack of alternatives, i.e. only when the process of competition has failed to produce a competitive market structure will the EU watchdog step in to guarantee that the welfare effect is the same as under competitive circumstances. The problem is that the trustbuster would have to correct this “market failure” without exerting regulatory powers. For instance, it would decide when prices are not acceptable while being precluding from giving guidance on what an acceptable level is.

Commissioner Vestager also gave a heads-up that there will be three hot areas in which the Commission will most likely resort from typical exclusionary concerns to the exploitative second line of defence.

Firstly, she reminded that the war waged by the Commission on Gazprom doesn’t lack an exploitative front. Aside from territorial restrictions in gas supply agreements with wholesalers in Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia (export ban and destination clauses, the requirement for wholesalers to obtain Gazprom’s approval for exports or the refusal to change the location to which the gas should be delivered), the Russian giant with feet of clay was accused on 21 April 2015 of exploiting its market shares ranging from 50% to 100% in Bulgaria, Estonia, Latvia and Poland by charging wholesalers unfair prices pegged to a number of oil products (ultimately pressing retail prices upwards). Gazprom’s costs, prices in different geographic markets and market price were the yardsticks to assess the excessive nature of oil-indexed prices, which are suspected of largely favouring the dominant gas supplier over its customers.

Secondly, pharmaceuticals were addressed. Albeit admitting that only one pharmaceutical company serving the market (either because of patent protection or because no other undertaking is interested in entering it) is not bad in itself, the level of prices charged can be considered excessive vis-à-vis the legal interest of consumers’ health and even life. In this event, antitrust enforcement comes into play as a fall-back solution where adjustments in regulation and health systems’ enhanced bargaining power are not enough.

Commissioner Vestager expressly referred to the British and Italian watchdogs taking the lead in this regard. In fact, as far as in 2013 the former Office of Fair Trading opened a probe into the increase in prices for an anti-epilepsy drug that Pfizer charged Flynn Pharma and Flynn Pharma charged consumers by, respectively, 8–17 and 25–27 times the prices traditionally applied by Pfizer to wholesalers and pharmacies before the distribution rights were sold to Flynn Pharma, and the drug started to be sold to be marketed through this company.[2] The case is still pending. Additionally, on 25 October 2016, the Competition and Markets Authority launched a further enquiry into a number of pharmaceutical companies suspected of applying excessive prices, including to the National Health Service.[3]

In turn, the Italian Autorità Garante della Concorrenza e del Mercato fined Aspen EUR 5,000,000 for increasing by 300%–1,500% the price for certain anti-cancer drugs obtained from the bargaining process with the Italian medicine agency. GlaxoSmithKline had sold the distribution rights of those drugs to Aspen, which was their only supplier in Italy. Interestingly enough, the market was defined at molecular level (ATC5) and the prices found unreasonable were, at a first stage, benchmarked against the manufacturing or acquisition cost and, at a second stage, contrasted with specific context and behavioural factors, e.g. the inter-temporal comparison of prices, the absence of economic justification for the increase, the lack of any extra-economic benefits for patients, the nature of the drugs, the characteristics of Aspen and the damage to the national health system.[4]

Thirdly, the spotlights turned towards standard-essential patents. In this regard, the Commissioner made clear that the fact that holders of patents that are essential for mobile devices to meet a standard (e.g. GSM, UMTS or 4G) commit to licensing them on fair, reasonable and non-discriminatory (FRAND) terms does not prevent them from charging mobile device manufacturers unreasonable royalties. This would ultimately translate into excessive prices for consumers. The reason is that patentees are able to hold up licensees by threatening with seeking judicial injunctions to bar them from selling devices.

Then, Commissioner Vestager mentioned the need to strike a balance between fair access to standards and reward for genuine innovators to ensure that sky-rocketing development in interconnection due to breakthroughs like 5G technology and the Internet of Things is conducted in a consumer-friendly way. As a means of guaranteeing this equilibrium, and impliedly referring to the recent Huawei case law,[5] she acknowledged that the premises for enforcement action under Article 102 in the field of standard-essential patents are both that the patent-holder had agreed to license on FRAND terms and that the device manufacturer is willing to take licence on such terms.

Who knows what tomorrow brings? But one thing is sure, Commissioner Vestager is not going to lag behind national trustbusters already using abuse of dominance to harness consumer exploitation (the most prominent and innovative, or at least the sexier, example being Bundeskartellamt’s scrutiny of Facebook’s treatment of user data), after the forty-year desert journey that followed United Brands promising start.[6]

[1] Case C‑8/08 T-Mobile Netherlands BV and Others [2009] ECLI:EU:C:2009:110, §58

[2] https://www.gov.uk/cma-cases/pharmaceutical-sector-anti-competitive-conduct

[3] https://www.gov.uk/cma-cases/pharmaceutical-sector-anti-competitive-conduct

[4] http://www.agcm.it/en/newsroom/press-releases/2339-a480-price-increases-for-cancer-drugs-up-to-1500-the-ica-imposes-a-5-million-euro-fine-on-the-multinational-aspen.html

[5] Case 170/13 Huawei Technologies Co. Ltd v ZTE Corp. [2015] ECLI:EU:C:2015:477

[6] Case 27/76 United Brands v Commission [1978] ECLI:EU:C:1978:22

Leave a Reply

Your email address will not be published. Required fields are marked *