CN08 - CAT confirms infringement in paroxetine pay-for-delay case but slashes fines

The judgment was handed down by the Competition Appeal Tribunal ("CAT") in the paroxetine pay-for-delay case in 2018.  However, the CAT decided to wait for a preliminary ruling from the European Court of Justice ("ECJ") on certain questions before determining the remaining grounds of appeal.  This judgment dismisses the remaining grounds of appeal relating to the Competition and Market Authority's ("CMA") findings of infringement, but the CAT reduced the fines imposed to reflect the novelty of the infringement at the time it was committed and the lapse of time between the infringements and the start of the investigation.

Key takeaways

• Awareness of the anticompetitive character of an agreement is a low bar.
• There is scope for significant reductions to fines on proportionality grounds where the infringement was novel at the time it was committed, and where there is a significant lapse in time between the date of the infringement and the start of the investigation.

Background

In 2016, the CMA fined GlaxoSmithKline ("GSK"), Alpharma Limited ("Alpharma") and Generics (UK) Limited ("GUK") (together, the "Companies") a combined sum of almost GBP 45 million for entering into a series of agreements that delayed generic entry of the anti-depressant drug paroxetine. The CMA also found that GSK induced generic providers to delay their efforts to enter the UK paroxetine market independently, abusing its dominant position.

The Companies lodged appeals against the CMA's decision in the CAT. The CAT handed down an intermediate judgment in 2018, dismissing arguments that the CMA had erred in finding that the agreements did not benefit from a vertical exemption. 

The CAT referred certain questions relevant to the finding of infringement to the ECJ for a preliminary ruling. For commentary on the ECJ ruling, please see our earlier article. 

The CAT's supplemental judgment

The judgment applied the ECJ ruling and dismissed each of the outstanding grounds of appeal in relation to liability:

• first, the judgment confirms that GUK and Alpharma were potential competitors of GSK in the supply of paroxetine in the UK;
• second, the CAT concluded that each agreement, in principle, amounted to a restriction by object. In particular, the CAT ruled that the ECJ ruling did not set out an entirely different framework for analysis from that in the CMA's decision, such that the findings in the intermediate judgment ought to be reconsidered;
• third, the CAT dismissed the appeals against the CMA's decision in respect of the finding that the GUK and Alpharma agreements were anticompetitive by object;
• fourth, the CAT dismissed GSK's appeal challenging the finding of dominance on the basis of the CMA's definition of the relevant product market as paroxetine; and
• fifth, the CAT also dismissed GSK's appeal as regards the CMA's finding that it had abused its dominant position. In particular, the CAT confirmed that GSK's conscious strategy of seeking to prevent unrestricted generic products coming onto the market amounted to an abuse.

Penalties

The appellants argued that the anti-competitive agreements were not committed intentionally or negligently and that no penalty could therefore be imposed.  However, the CAT held that the parties ought to have been aware of the anti-competitive nature of the agreements on the basis that they excluded potential generic entrants from the market by making very substantial transfers of value. On this basis, and having regard to the finding that the agreements were anticompetitive by object, the CAT ruled that the CMA was justified in imposing fines.

As regards the abuse of dominance, the CAT ruled that GSK should have known that paroxetine was a distinct product market in which it had substantial market power.  However, the CAT considered that no separate penalty should be imposed on GSK for the abuse of dominance infringement on the basis that: 

• the CMA's approach to market definition was overturned in the CAT's intermediate judgment;
• the approach set out by the ECJ was a novel means of assessment of the relevant market in the early 2000s (i.e., at the time of the infringement); and
• the abuse of dominance substantially overlapped with the anti-competitive agreements.

In relation to fines, the CAT concluded that the reduction of 10% granted by the CMA to reflect proportionality of the fine was inadequate, given the novelty of the infringements at the time they were committed and the length of time which had lapsed between the infringement and the start of the investigation.  While recognising that the CMA has a margin of appreciation in setting fines, the CAT concluded that the CMA's approach was flawed and applied a reduction of 40%. 

With thanks to Susanna Breslin of Ashurst for her contribution.