Let's talk antitrust

Excessive pricing – where does this stand after Pfizer/Flynn and Gazprom?

Video | August 2018 | 00:05:23

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Let's talk antitrust

Ian Giles: So Richard, very good to see you again. Now you will have seen there’s been a big case development in the UK recently, the Pfizer/Flynn Pharma decision of the Competition Appeal Tribunal, where they’ve overturned the CMA’s decision. This is one of the biggest decisions the CMA had issued since the merger of the OFT and the Competition Commission and it’s in the interesting and sometimes controversial area of excessive pricing. We had done a short summary video of this when the decision came out, but wanted to follow up with you in a bit more detail. So to start with can you very quickly precis what this case was about?

Richard Whish QC: Well, yes, it’s a very interesting case. So Pfizer owned this particular drug, which was used for the treatment of epilepsy and it’s an old drug actually from the 1930s, I think, and the point was that as long as it was branded it was price regulated. At a certain point in time the market authorisation was transferred to a distributor called Flynn. They de-branded it and at that point the drug ceased to be subject to regulation and the CMA’s view was that both Pfizer and Flynn interestingly, the producer and the distributor, were guilty of excessive and unfair prices. As a matter of law, we know that prices of a dominant firm can be so high as to be abusive and the basic test has always been United Brands v the Commission: is the price excessive in relation to the cost of production? And, if so, the second part of the test: is the price either unfair in itself, or when compared to competing products? And the CAT’s view was that the CMA had committed various errors of law, in particular in deciding that the price of the capsule for this drug was unfair in itself, without the CMA having compared its price and cost to a product that was arguably a suitable benchmark, namely the same drug when produced in tablet form. So that’s the area of law and the CAT will remit the case to the CMA for reconsideration.

Ian Giles: And this, Richard, is a pretty significant ruling from the CMA’s perspective because this case was the first of these excessive pricing cases and there are a few others in the pipeline. How do you think they are going to proceed in the context of the following cases that they have and, of course, trying to avoid defeat in this which is a high profile case for them?

Richard Whish QC: I think I would certainly appeal because the law on excessive pricing, it’s not easy. I think it requires clarification. I think it would be very useful to have a judgment from the Court of Appeal, in particular on this idea of whether something can be unfair in itself. So if I were the CMA I would appeal.

Ian Giles: One of the challenges there, of course, and there’s interesting parallels with, for example, the Intel case, what the CAT is saying is that they haven’t factored in the evidence on benchmarks that was presented by the defendants in the case. Do you think that, both in this case, but also looking at the CMA’s other cases, at the excessive pricing cases being run by other authorities – this has developed into something of a trend – is that need to really wrestle with competitive benchmarks going to make it more difficult and stymie this series of cases?

Richard Whish QC: Well, I hope not. I think there are excessive pricing cases that need to be run and I don’t see this as a monumental setback to the CMA. One can agree or disagree about a particular methodology, but I think there are other cases that need to be done and will be done.

Ian Giles: And we’ve seen, I mean for example, we had the Latvian Collecting Society case, we’ve had the Gazprom case, where again benchmarks were an important part of the findings that led to the settlement there. But then in counterpoint we have the position in the US and you often hear people talking about, well, excessive pricing as a notion does not exist under the law of monopolisation in the US and that this is the kind of thing that can either be dealt with by market forces or by regulation. Do you think that may well be a more efficient way of dealing with these types of cases?

Richard Whish QC: Well, I mean, to begin with excessive pricing isn’t covered by US Law and that’s clear. Section 2 talks about monopolisation, whereas Article 102 talks about the imposition of unfair selling prices, so US Law and EU Law are different. Should the Commission be doing excessive pricing cases? As a general proposition, no – it’s better for the market to correct itself. Some markets never will correct themselves and that’s when the Commission has to act.

Ian Giles: Thank you very much Richard. We will see how this trend develops.