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Inside Life Sciences

Increased enforcement activity by the CMA – what does this mean for you?
Inside Life Sciences

Inside Life SciencesIssue 1 | April 2017

Date
20 April 2017

Andrij Jurkiw Partner

Back in February 2016, the National Audit Office ("NAO") criticised the lack of successful enforcement activity by the Competition and Markets Authority ("CMA").


Increased enforcement activity by the CMA – what does this mean for you?

Back in February 2016, the National Audit Office ("NAO") criticised the lack of successful enforcement activity by the Competition and Markets Authority ("CMA"). The NAO found a low number of enforcement decisions and too much emphasis on market investigations, which impacted on the CMA's ability to take on new cases. So what, if anything has changed and what is the particular relevance to the Life Sciences industry? 

Set out below is a summary of the increased activity of the CMA and importantly what this can mean for companies that come under the scrutiny of the CMA.

First, however, and hot off the press, is the announcement by the CMA that it has sent a formal statement of objections to Actavis UK and Concordia which alleges that, between January 2013 and June 2016, they entered into an agreement under which Actavis incentivised Concordia not to enter the market with its own version of hydrocortisone tablets (Concordia being the first competitor to Actavis to obtain a marketing authorisation for 10mg hydrocortisone tablets).

The CMA has provisionally found that Actavis abused its dominant position in this market by supplying Concordia with a fixed supply of 10mg hydrocortisone tablets for a very low price for resale by Concordia to delay its independent entry into the market.  The CMA claims this allowed Actavis to prolong the high price for the product, thereby preventing the NHS achieving the significant savings that would normally flow from free competition of the products in the market.

More investigations?

During 2016, the CMA announced fines in three cartel cases, and fines for resale price maintenance in three cases - hardly a record number of enforcement decisions. What is more interesting is the first director disqualification by the CMA for a period of five years, and the sending of 94 warning or advisory letters to organisations which the CMA believed were engaging in unacceptable business practices.

Director disqualification?

The CMA and its predecessor, the OFT, have had the power to obtain director disqualification orders for more than a decade. However, this power has seldomly been used, the last occasion being over eight years ago in the Marine Hose case. The circumstances of the most recent case are interesting as they involved a relatively small business which was in administration, a single infringement of agreeing with a competitor not to undercut one another's prices on the Amazon Marketplace, and the use of automated repricing software to give effect to the unlawful agreement. Not exactly the kind of classic "smoking gun" cartel, for which you might expect the CMA to pursue a director disqualification order.

Warning and advisory letters

The heavy use of warning and advisory letters is an interesting development. These letters are a way for the CMA to make businesses aware that certain practices might be problematic and to encourage them to carry out a self-assessment of their business practices. A warning letter is the more serious of the two, and asks the business to provide the CMA with details of what the business has done or is planning to do to ensure compliance with competition law. If a recipient of a warning letter fails to take any action and the conduct referred to in the letter is subsequently the subject of a CMA Infringement Decision, that party may receive a higher fine as a result of failing to take appropriate action.

Offences targeted by the CMA

Resale price maintenance has been the predominant target of the warning letters issued in 2016, in sectors including clothing, cosmetics and toiletries, furniture, photographic equipment, heating products and recreational and sports goods. It was also a key activity referred to in the advisory letters issued in 2016, although there were also instances of potential market sharing agreements, a potential abuse of dominance and other forms of collusion in sectors including bathroom fittings, medical equipment, footwear, electronic equipment, sports equipment and beverages.

Future CMA priorities

The CMA's draft Annual Plan 2017/18 talks about opening at least six new enforcement cases during the year; reviewing the conduct of directors and seeking disqualification orders where appropriate; and launching at least four consumer protection projects. The online and digital commerce sectors are likely to continue to be the focus of enforcement activity by the CMA, but other sectors are also likely to come under the spotlight. The CMA has said it wishes to have a balanced portfolio of cases, targeting large and small organisations to make it clear that no business should think of itself as immune from competition enforcement.

What does this all mean for you?

As the number of warning/advisory letters shows, the chances of getting drawn into a CMA investigation are increasing. In addition to leniency applications, the CMA receives information about problematic activity via complaints and in some instances when reviewing mergers or via market studies. With director disqualification no longer being a theoretical threat but a reality, business executives need to consider where the risks to their business lie, and what mechanisms they have in place to identify when those risks become a reality. Ignorance is not a defence when it comes to competition enforcement. If you don't know what is happening throughout your business, now might be a good time to consider changing that position.