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A Hard Pill to Swallow

24 July 2019 by Robert Bell

A Hard Pill to Swallow

Will the CMA face more rigorous scrutiny of its competition investigations following the Concordia case?

A recent judicial review challenge before the High Court against the Competition & Markets Authority (CMA) for their conduct of a pharmaceutical investigation under the Competition Act 1998 has potentially paved the way for further scrutiny of the CMA’s conduct of its investigations at an interim stage. But how likely is it that affected parties will resort to such an approach?

The recent High Court case of Concordia has brought under legal scrutiny for the first time the way the CMA conducts its investigations under the Competition Act 1998 during the currency of the investigation itself.

Normally scrutiny of the CMA’s procedures and conduct of their investigation, as well as more substantive questions of evidence and law, are reserved for the consideration of the Competition Appeal Tribunal (CAT) once the CMA has taken its final decision in a case.

Appeals against the CMA’s Decisions can be lodged under Section 46 of the Competition Act 1998 by the parties to whom the decision is addressed. For the purposes of Section 46 an appealable decision is a decision that Article 101 or 102 TFEU or the prohibitions under Chapter I or II of Competition Act 1998 have been infringed. Appeals are heard on a full merits basis and can raise procedural irregularities as well as legal and evidential points as grounds for appeal.

In addition to this, aggrieved third parties have the right to challenge a decision under Section 47 of the Competition Act 1998 before the CAT.

A recent example of this was when Skyscanner challenged the CMA in relation to their online hotels booking decision and more particularly the commitments accepted in that case. They alleged that the Commitments the CMA accepted from the parties to the online hotels booking case would incorrectly require third parties to adhere to these Commitments even though they were not party to the proceedings and did not accept them. Skyscanner had responded to the CMA’s Second Consultation, expressing the concern that the proposed Commitments in that case could have a negative effect on interbrand competition. The CAT decided that the CMA had acted unreasonably when it effectively ignored Skyscanner’s point that it raised on the potential impact of these Commitments in the consultation.

What makes the Concordia case novel is that firstly the CMA’s conduct of its investigation is being challenged at an interim stage and secondly the form of challenge in this case is based on judicial review grounds before the High Court and is not a challenge under either Sections 46 or 47 of the Competition Act 1998.

Concordia Case

Competition authorities worldwide have been prominently active in the healthcare sector for some time. Their interest has primarily focused on the activities of pharmaceutical companies and in particular their pricing practices. In the UK there have been a series of excessive pricing cases brought by the CMA against a number of pharmaceutical companies. One such case was the case brought against Concordia.

The facts of the case were as follows. Liothyronine tablets, commonly used to treat hyperthyroidism, were reported to cost the NHS £34 million in 2016 . The same tablets cost only £600,000 in 2006. So why the huge spike? The CMA found this 6,000% rise worthy of investigating and, shortly after in October 2017, dawn raided the pharmaceutical company that produces these tablets, Concordia (now called Advanz Pharma) with authorisation from the UK High Court. In November 2017, the CMA alleged in a Statement of Objections that Advanz Pharma, breached UK and EU competition law by charging excessive and unfair prices in relation to the supply of liothyronine tablets in the UK.

Separately, in December 2016, the CMA fined Pfizer and Flynn Pharma £90 million for the excessive pricing of phenytoin pills which are commonly used to treat epilepsy. Pfizer and Flynn appealed. The decision in this case was important to the CMA as it had several other cases pending including Concordia. In June 2018, the CAT declared that the CMA “misapplied the test for unfair pricing” in a parallel pharmaceutical case and remitted it back to the CMA.

Subsequent to the CAT judgment, the Court of Appeal granted the CMA permission to appeal the CAT’s judgment of 7 June 2018 which partially set aside the CMA’s decision that fined Pfizer and Flynn for charging excessive prices to the NHS for the sale of anti-epilepsy phenytoin sodium capsules. The Court of Appeal is due to hear the CMA’s appeal in November this year.

As this is the lead case on the legal definition of excessive pricing under UK competition law the Court of Appeal’s judgment is eagerly awaited.

Parallel to this the CMA became aware of new evidence which suggested that Concordia might be guilty of new infringements. Therefore on 21st January 2019 the CMA issued a Supplementary Statement of Objections to Advanz Pharma in order to expedite the timeframe of its investigation and to avoid further legal enforcement hurdles.

In June 2019 Advanz Pharma launched judicial review proceedings before the High Court calling for a halt in the CMA’s probe to await the clarification of the law in the Pfizer-Flynn case.

The Judgment

Judicial review is the main mechanism used by the courts to ensure that bodies exercising public law functions act lawfully and fairly and do not abuse their powers. Their decisions can be subject to legal scrutiny only where all other avenues for appealing the relevant decision have been exhausted.

Therefore to bring a case for judicial review Advanz Pharma had to point to a reviewable decision by the CMA, which it was not possible to otherwise appeal, and finally that the CMA had in some way acted illegally or irrationally in taking that decision or that the decision itself was subject to procedural impropriety.

The detailed judgment has not yet been published at the time of writing so it is not possible to comment in detail on the case. However, Concordia argued in its case that the CMA's supplementary charges as set out in the Supplementary Statement of Objections should be halted pending the outcome of the CMA's Pfizer-Flynn appeal in November. Additionally putting the case on hold while the appeal is pending would avoid unnecessary costs if the regulator succeeds in overturning the tribunal court.

The CMA disagreed about putting the case on hold and said it was normal practice for the CMA to proceed with cases while legal challenges are pending. In addition stopping their investigation into Concordia's pricing would create an impediment to their other enforcement work relating to pharmaceutical pricing.

However the Court dismissed Concordia's case and permitted the CMA’s investigation to continue notwithstanding the presence of the outstanding Pfizer-Flynn appeal. The Court added that they were not persuaded by Concordia’s arguments and did not believe that there was procedural unfairness or irrational conduct on the part of the CMA.

Conclusion

The interesting aspect of this case is not the individual facts of the case or whether in the circumstances Concordia prevailed or not but the fact that judicial review was used at all to challenge the conduct of the CMA investigation at an interim stage.

Clients often complain at the length of CMA investigations. Hitherto the only traditionally used avenues open to them are to question the conduct of the CMA on procedural grounds by referring issues to the Procedural Officer or the Office of the General Counsel. But these forms of redress are only open to parties in defined circumstances.

So it is likely that there will be further judicial review cases following Concordia which will seek to clarify whether remedies by way of judicial review are accepted as an appropriate avenue
of challenge to the CMA’s conduct during the currency of its investigations under
the Competition Act 1998 or will it be regarded as premature. If judicial review applications find favour it would open the CMA to more rigorous scrutiny of its conduct of Competition Act investigations. 

Robert Bell is a Partner at Bryan Cave Leighton Paisner LLP

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