ACM concept Leidraad Duurzaamheidsafspraken

Dr. Rob van der Laan, 1 September 2021

Op 9 juli 2020 publiceerde de ACM het concept Leidraad Duurzaamheidsafspraken (verder het “Concept”). Het Concept beschrijft de mogelijkheden die er zijn in het mededingingsrecht voor ondernemingen om afspraken te maken om de economie en de samenleving duurzamer te maken. Volgens de ACM vallen onder het begrip duurzaamheid onder andere de bescherming van milieu, biodiversiteit, klimaat, volksgezondheid, dierenwelzijn en eerlijke handel.

Mijn eerste indruk van het Concept komt neer op het volgende. Het Concept is een lovenswaardige poging om de interpretatie van de wet door de ACM duidelijk te maken. Helaas blijft het concept voor een deel hangen in algemeenheden en is daarom mogelijk niet voldoende concreet en specifiek om duurzaamheidsinitiatieven echt een duwtje in de rug te geven. In een context waarin hoge boetes staan op overtredingen, economisch en juridisch advies voor veel ondernemingen duur is en ondernemingen risicoafkerig zijn lijkt de meerwaarde van het Concept voor de materiële beoordeling daarom gering.

De grote meerwaarde van het Concept lijkt dat duurzaamheidsafspraken die publiekelijk bekend zijn gemaakt en waarbij de Leidraad te goeder trouw is gevolgd niet in aanmerking komen voor een boete. Dit kan een geruststelling zijn voor veel ondernemingen. Vanwege de meerwaarde van dit aspect zou het wel wenselijk zijn indien (a) iets meer handen en voeten wordt gegeven aan wanneer een afspraak dusdanig publiekelijk bekend is gemaakt om aan deze voorwaarde te voldoen en (b) wanneer de uitleg en voorbeelden voldoende duidelijk zijn opdat de kans groot is dat de ondernemingen hierin een analogie vinden met hun eigen voorgestelde duurzaamheidsafspraak.

Ten aanzien van het eerste punt “publiekelijk bekend”. Een logische interpretatie van het openbaarheidsvereiste lijkt mij dat de potentiële personen die benadeeld worden door de duurzaamheidsafspraak hiervan kennis hebben kunnen nemen. Dit betekent volgens mij dat bijvoorbeeld een vermelding in de publieke jaarverslagen van de betrokken ondernemingen onvoldoende is maar dat bijvoorbeeld een artikel wordt geplaatst in een vaktijdschrift van de mogelijk getroffen afnemers aan het vereist voldoet. Dit zou de ACM verder uit kunnen werken.

Ten aanzien van het tweede punt “materiële duidelijkheid”. Een onderneming kan alleen te goeder trouw lessen trekken uit een leidraad indien de voorbeelden herkenbaar en voldoende uitgewerkt zijn. Dit is volgens mij (nog) niet het geval. Ik zal onderstaand op een aantal aspecten ingaan.

Het Concept poogt te verduidelijken welke duurzaamheidsafspraken niet onder het verbod van lid 1 vallen. Het is goed dat de ACM onderstreept dat er afspraken mogelijk zijn die helemaal niet onder het verbod vallen. De bewoording in het Concept blijft echter summier en cryptisch en zal ondernemingen niet de comfort geven die mogelijk (lees: waarschijnlijk) nodig is. In het concept staat bijvoorbeeld dat duurzaamheidsafspraken die de concurrentie op basis van belangrijke concurrentieparameters, zoals prijs, kwaliteit, variëteit, service en distributiewijze niet of niet merkbaar beïnvloeden veelal niet-mededingingsbeperkend zullen zijn. De vraag die opkomt is natuurlijk wanneer toch sprake is van een mededingingsbeperkend doel of effect zodat ondernemingen kunnen controleren dat hier geen sprake van is. Ten aanzien van afspraken die een kwaliteitsverbetering van producten beogen waarbij minder duurzaam geproduceerde of aangeboden producten niet meer worden producten stelt de ACM dat deze buiten de reikwijdte van het kartelverbod kunnen vallen wanneer zij geen merkbare invloed hebben op de prijs en/of de variëteit van het aanbod. De vraag die ondernemingen kunnen stellen is welke van dergelijk afspraken die geen merkbare invloed hebben op de prijs en/of de variëteit van het aanbod wel onder de reikwijdte van het verbod vallen.

Soortgelijke opmerkingen kunnen worden gemaakt over de andere categorieën toegestane duurzaamheidsafspraken in het Concept: Wanneer zijn afspraken die ondernemingen stimuleren om een positieve bijdrage te leveren aan een duurzaamheidsdoel zonder verplichtend karakter toch niet toegestaan? Bedoelt de ACM met “verplichtend” juridische afdwingbaar of is een afspraak ook verplichtend indien het al dan niet nakomen in financiële voor- of nadelen resulteert? Wat wordt bedoeld met gelijkwaardige alternatieve standaarden – bedoeld de ACM alternatieve standaarden met een soortgelijk achterliggend doel?

De ACM identificeert een vierde categorie initiatieven waarbij nieuwe producten of markten worden gecreëerd en waarbij een gezamenlijk initiatief nodig is om over voldoende productiemiddelen, inclusief know-how, te beschikken of voldoende schaal te bereiken. Het is economisch gezien evident dat een afspraken tussen ondernemingen om gezamenlijk een product of dienst aan te bieden de mededinging niet kan beperken indien de ondernemingen individueel of in een kleinere subgroep dit product of dienst niet of niet concurrerend aan kunnen bieden. Uit de beschrijving van het Voorbeeld 1 in het Concept kan evenwel niet worden geconcludeerd dat aan deze voorwaarde is voldaan.

Mogelijk het meest verwarrend is de laatste categorie van afspraken die ertoe strekken dat betrokken ondernemingen, hun leveranciers en/of hun distributeurs de wetten respecteren van de landen waar zij zaken doen. Het achterliggende probleem dat de ACM lijkt te willen oplossen is dat controle op naleving van normen door derden duur is en dat door ondernemingen wordt gezocht naar een mogelijkheid om deze kosten te verdelen – het heeft immers mogelijk weinig meerwaarde indien er drie keer een soortgelijke audit plaatsvindt door telkens een andere afnemer. Voorbeeld 2 in het Concept betreft verwerking van hout uit landen met op verschillende continenten en met verschillende nationale wettelijke duurzaamheidseisen. Een punt van kritiek op de analyse van de ACM vanuit duurzaamheidsperspectief is dat door het goedkeuren van een label van gecontroleerd hout het lastig lijkt voor de markt om binnen de groep van afnemers die zich houden aan de nationale wettelijke normen nog verder onderscheid te maken. Anders gezegd, stel dat land A een strenger beschermingsregime heeft dan land B dan zouden consumenten mogelijkerwijs een voorkeur kunnen hebben voor hout uit land A. Echter, door het uniforme label zou land A een reden kunnen krijgen om de bescherming te verlagen tot het niveau van dat van land B om concurrerend te blijven. Zou het Concept zich niet moeten beperken tot de mogelijkheid van het delen van kosten voor het controleren of lokale leveranciers zich aan de wet houden en zich verder niet uitlaten over lijsten van goedgekeurde gebieden en labels?

In hoofdstuk 5 van het Concept besteedt de ACM aandacht aan afspraken die onder de vrijstelling van lid 3 zouden kunnen vallen. De ACM beschrijft dat de Europese Commissie als algemeen uitgangspunt neemt dat gebruikers ten minste moeten worden gecompenseerd voor de nadelen die zij van de mededingingsbeperking ondervinden maar dat er onder voorwaarden een goede reden is om van dit uitgangspunt af te wijken. Deze twee cumulatieve voorwaarden zijn:

(i) de afspraak is gericht op het voorkomen of beperken van evidente milieuschade. Voor milieuschadeafspraken kan naar het oordeel van de ACM ook rekening worden gehouden met voordelen buiten de kring van de gebruikers. In een dergelijk geval kan het volgens de ACM billijk zijn dat de gebruikers niet volledig worden gecompenseerd voor de nadelen van de afspraak omdat hun vraag naar de producten in kwestie in wezen het probleem veroorzaakt waarvoor de samenleving oplossingen moet vinden.

(ii) de afspraak levert een efficiënte bijdrage aan de naleving van een internationale of nationale norm ter voorkoming van milieuschade waaraan de overheid is gebonden. Dit wordt later in het Concept verwoord als “een bijdrage levert aan het bereiken van een beleidsdoel dat is vastgelegd in een internationale of nationale norm waaraan de Nederlandse overheid is gebonden.” De vraag is hoe de ACM definieert wanneer een bijdrage wordt geleverd en wanneer deze efficiënt is. Stel de norm is een uitstoot van maximaal 80. Indien de uitstoot op dit moment 90 is is evident dat de uitstoot omlaag moet. Indien de uitstoot 75 is kan het vanuit duurzaamheidsperspectief natuurlijk nog steeds wenselijk zijn om de schadelijk uitstoot verder te reduceren maar de vraag is of dit efficiënt is. Ook is niet evident dat indien een industrie de eigen uitstoot van 0,05 naar 0,03 brengt dit efficiënt is - ergo of de reductie opweegt tegen de mogelijke nadelen voor de concurrentie. En net als ten aanzien van de definitie van de voorwaarde “niet-verplichtend” ten aanzien van ondernemingen (zoals hierboven besproken) is het mogelijk goed voor de ACM om te verduidelijken of de uitzondering alleen geldt voor bindende normen of bijvoorbeeld ook voor in verdragen vastgelegde ambities.

Dit is geen uitputtende samenvatting en reactie op het Concept. Het is geruststellend om te horen van de ACM dat veel duurzaamheidsinitiatieven die aan de ACM worden voorgelegd met het mededingingsrecht in overeenstemming zijn en doorgang kunnen vinden (soms na enige aanpassing). Het is zeer lovenswaardig dat de ACM haar best doet om meer duidelijkheid te scheppen en daarmee mogelijke barrières die duurzaamheidsafspraken in de weg staan weg te nemen. Deze doelstelling zal worden gehaald indien de uiteindelijke Leidraad Duurzaamheidsafspraken voldoende details bevat zodat ondernemingen beter hun risico kunnen inschatten.

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The Rise and Fall of the Channel Islands Competition and Regulatory Authorities

Dr. Rob van der Laan, 10 May 2020

CICRA (the Channel Islands Competition and Regulatory Authorities) comprises the Jersey Competition Regulatory Authority (JCRA) and the Guernsey Competition and Regulatory Authority (GCRA). CICRA was created in 2010 as an administrative arrangement between the JCRA and the GCRA to share costs and expertise to work more efficiently across the Island. In June 2012, the effective merger of the competition and regulatory authorities in Jersey and Guernsey was completed.

On 22 April 2020, CICRA announced its end: “CICRA will revert to being separate authorities from July 2020. A decision to withdraw from the CICRA model of a pan island body has been made by the Jersey Minister for Economic Development, Tourism, Sport & Culture and the Guernsey Committee for Economic Development has accepted that decision.”[1]

According to the States of Jersey website[2], CICRA will “de-merge” from 1 July 2020 to better address the different competition issues faced in Jersey and Guernsey. According to this message, the differences in political and legal systems, priorities and political cycles between Jersey and Guernsey mean that both islands have varied scope for competition and economic regulation. The Jersey Minister for Economic Development, Tourism Sport and Culture, Senator Farnham, has set the new direction for the JCRA to make competition work as well as it possibly can in the interests of Jersey consumers and businesses. The message concludes that unwinding CICRA will enhance the ability of the JCRA to be responsive, adaptable and in tune with the needs of consumers and businesses and is in the best interests of Jersey’s economy.

It appears that breaking up CICRA was very much a Jersey initiative. A statement by the President of the Guernsey Committee for Economic Development of 22 April 2020 informs that “on the 17th February I received a telephone call from Senator Lyndon Farnham. During the call Senator Farnham advised me of Jersey's intention to terminate the pan-island sharing of cost, expertise and administration support under the CICRA joint operating model and revert back to separate insular competition and regulatory authorities in Jersey and Guernsey. This decision was confirmed in a letter dated 3rd March from Senator Farnham. (..) it would be fair to say that Jersey's request came as surprise (..).”[3]

Whereas the reasons for the break-up of CICRA are not fully understood, there are some aspects that may have affected this course of action. I will briefly discuss some recent grounds for disaffection with CICRA in relation to its effectives and the financial benefits of the creation of CICRA for Jersey.

Effectiveness of CICRA

CICRA over the past few years has come under various strands of critique. On 6 January 2018, the Jersey Royal Court issued a judgment overturning the JCRA’s decision that ATF Fuels (ATF) infringed the Competition (Jersey) Law 2005 by refusing to allow Aviation Beauport to purchase fuel from ATF for the purpose of supplying their customers at Jersey airport.[4] The judgement resulted in a review of the CICRA decision and context. The local newspaper reported in early 2018 that there was the threat of a vote of no confidence over the board of the JCRA from Senator Philip Ozouf – who was the politician responsible for setting up the JCRA.[5] At the end of 2018, CICRA reported to be very pleased with the outcome of the review of the circumstances around the JCRA’s decision on ATF.

More recently, doubt has been shed on the effectiveness of CICRA on the basis of inflation figures for Jersey. According to a report published by the Jersey Inflation Strategy Group, there is a significant body of research from around the globe that shows that more competitive markets result in lower prices and better outcomes for consumers.[6] Jersey’s competition law was introduced in 2005. This coincided with the end of a sustained period in which Jersey’s inflation rate was considerably higher than the UK’s. However, the inflation rate peaked at 4.2% in mid-2018, and at times has been double the equivalent rate in the UK in the past few years. One of the recommendation of the report was that “the Government will work with the JCRA to ensure competition policy is directed at those sectors with potentially significant impacts on the living standards of households and the competitiveness of businesses”. This may indicate some dissatisfaction with the JCRA’s focus.

Jersey’s financial benefits of CICRA

In June 2012, the effective merger of the competition and regulatory authorities in Jersey and Guernsey was completed. The financial burdens for the Jersey taxpayer however appear to have very much stayed the same. For example, the average annual Jersey grant to the JCRA funding was about £402k over the six-year pre-CICRA period 2006-2011 and about £371k over the six-year CICRA period 2013-2018.[7] CICRA thus resulted in a small average annual reduction of the contribution of £31k for direct expenditure on the JCRA.

However, this small saving came at the price of a presumed need for increased coordination between the jurisdictions that is not reflected in the CICRA annual report. Hence, there is no convincing evidence that CICRA resulted in a net cost reduction for Jersey. The fact that the Jersey grant to the CICRA for competition law related work was double the Guernsey grant probably also did not help to rally or maintain support for CICRA in Jersey.

In addition, the efficiency of competition law enforcement may have been reduced. When CICRA was created, various costs increased such as the remuneration of the top positions. For example, according the CICRA’s 2013 Annual report, in recognition of the additional responsibilities, on the formation of the joint board in August 2012, the Chairman’s and member’s fees were increased by 25%. On the other hand, the total number of case officers working for the JCRA and GCRA (and its predecessor OUR) have gone down since the creation of CICRA. This appears to have been reflected in the output of the JCRA: The average length of JCRA-only merger decisions reduced from 7,7 to 5,9 pages (-23%) and the average number of days for JCRA merger decision increased from 43 to 54 calendar days (+26%) if we compare the same six-year periods. If we take the length of a decision as an indication of explanation of application of the rules, then the quality of the service provided to merging companies was reduced. The overall income on merger fees paid by companies over these six years periods increased from £409k to £475k (+16%) even though the number of JCRA-only merger decisions over the respective six-year periods dropped from 58 to 47 (-19%).

Practical consequences for future mergers

The practical consequences for parties that need to apply for merger approval in the Channel Islands are still unknown but do at first sight appear to be limited. The merger thresholds for the JCRA and the GCRA were and remain distinct. There only have been six pan-Channel Island merger applications, i.e. less than one each year of CICRAs existence. The end to the option of making a joint JCRA-GCRA merger application will therefore hardly be missed. If the JCRA manages to return to the set-up and productivity of the pre-CICRA period, companies can look forward to longer merger decisions that provide more clarification and shorter decision periods.

Enforcement of 102TFEU in the Netherlands; another hurdle?

Dr. Rob van der Laan, 23 August 2019

In 2017 I reported on a (rare) abuse of dominance decision by the Dutch competition authority ACM regarding the incumbent Dutch rail services provider NS. This decision was appealed. One of the two questions addressed in the Court decision of June 2019 was whether NS is dominant. The Court concludes that there it is not beyond reasonable doubt that NS had the ability to act independently to the extent required by law as a result of a lack of research by the ACM.

One may question the reasoning by the Court. All fast trains connecting the mayor Dutch cities (“intercity” trains) are awarded in a single, exclusive concession which is awarded for 10 years. During the period there is a legal monopoly. NS is 100% owned by the State and the State has always awarded the concession to its “own” NS without allowing potential competitors to submit a competing bid. According to the Court, the mere fact that there has not been competition for this market does not imply that NS is dominant. According to the Court, whether a company is dominant depends on the extent to which the company can act independently or is constrained. This familiar reasoning is translated by the Court into the question to what extent the concession contains constraints on NS.

According to the Court, behaviour (such as the behaviour considered an abuse of a dominant position by the ACM in its 2017 decision) is an indication for a dominant position but it is not decisive evidence: Decisive is whether an undertaking can act independently. (“Gedrag kan op zichzelf wel een indicatie vormen voor het hebben van een economische machtspositie, maar is daarvoor niet doorslaggevend. Doorslaggevend is of een onderneming zich in belangrijke makte onafhankelijk kan opstellen.”) To me this appears to be a circular reasoning, at least when applied to this case. The State, even if it had – as a 100% shareholder – an incentive to stop NS to protect its future “by any means”, apparently did not act. I do not know whether the State had contractual scope to act – any lawyer will be able to evidence that it is impossible to have specific clauses to deal with all events that can happen during a 10-year concession period. But, assuming that there was a general requirement on NS to stay within the law, I wonder whether such a requirement would be sufficient for any person issuing a concession to act: competition law is notoriously complicated, any person may have chosen not to act on the basis of such a general clause and rely on the ACM to undertake the specialised review required to determine whether the law was indeed infringed. Considering the expenditure on this case by the ACM and the NS and the number of external advisors involved, one may wonder whether the State would reasonable had stood any chance to restrain NS on the basis of general contractual obligations. One may also wonder whether the Parliament would have allowed the State to make the required expenses knowing that the ACM is the specialized body created to enforce competition law. Nevertheless, this is what appears to be required by the Court: the fact that the NS could act the way it did and was not constrained by the State was not sufficient to establish that the NS could independently act the way it did.

The question is where this leads the enforcement of 102 TFEU and its national equivalent in the Netherlands. The ACM and its predecessor were already very reluctant to enforce this article. If a decision of a client not to constrain a contracted company during the exclusive contract period (i.e. force this company to abstain from certain behaviour) implies that there is no evidence that this company is able to act independently, enforcement of 102 TFEU by the ACM will become even harder.

The purpose and equality of merger control procedures

Dr. Rob van der Laan, 19 November 2018

This article is a summary of my presentation given at the 2018 ICN Merger Workshop in Tokyo on 8 November. Please note that the presentation and this summary should be taken as a starting point for discussion: I merely observe a potential issue, but I do not profess to have the best answer to resolve this issue. Given its purpose, this summary by necessity brief and does not give an exhaustive review of the issue.

1.      Modern competition law is firmly based on economic theory. The market mechanism provides the solution for the great majority of situations. Only some very extreme situations require intervention of the competition authority, for example where competitors engage in customer allocation or when a monopolist abuses its market power.

2.      Within competition law, the enforcement of merger control is quite distinct from the enforcement of antitrust legislation. In antitrust, enforcement is ex post following an infringement, be it an anti-competitive agreement or an abuse of a dominant position in trade. In merger control, enforcement is ex ante, predicting the creation or enforcement of a dominant position in trade or a substantial lessening of competition.

3.      The nature of merger control - intervening in market behaviour that could reduce competition in the near but still uncertain future - would logically imply that intervention in relation to proposed mergers would be rare. This is reflected by the statistics of the competition authorities.

4.      Even if a proposed merger would result in a substantial lessening of competition (or similar threshold required for intervention), this does not automatically imply that the merger is blocked or requires remedies. This is because of the so-called efficiency defence. If the merger results in specific benefits to society that outweigh the negative effects on competition and that cannot be achieved without the merger, the merger will be allowed to proceed.

5.      The central proposition of this contribution is that merger control can become biased because non-competition efficiencies and non-competition “inefficiencies” are treated differently in the merger control process. This may result in a sub-optimal solution, both from a total welfare perspective and from a fairness perspective.

6.      The merger control process by a competition authority in the jurisdictions that I am most familiar with (the EU, the Netherlands and the United Kingdom) allows for an efficiency defence. The merging parties can propose to the competition authority that, despite a reduction in competition (e.g. the creation or enhancement of a dominant position), the merger should be allowed to proceed because of benefits to society that result of the merger. On the other hand, once a competition authority concludes that there is no substantial lessening of competition, third parties objecting to the merger do not have a similar opportunity to ask for intervention for non-competition reasons.

7.      For example, if a merger would result in an SLC but also substantial benefits for the natural environment these benefits can potentially qualify as an efficiency defence. On the other hand, if a merger would not result in an SLC but would also result in significant environmental damage, there is no opportunity to raise such inefficiencies as part of the merger proceedings. This creates a bias in merger control.

8.      In addition to non-economic effects of a merger such as quality, there is also a very specific cost (or, more particular, risk) associated with merger control. That is the possibility that a merger may fail. This is a risk inherent in every merger. From a competition perspective, the counterfactual situation without a merger will generally be superior to a post-merger situation that results in exit from the market.

9.      As many markets have a great number of suppliers and surmountable barriers to entry, the reduction of competition from a failed merger is not a major issue and inherent of the “right to fail” in a market economy. However, if the service provided by the merger parties is healthcare one may want to re-evaluate the conventional wisdom that consideration of the ex-ante chances of success of a merger should be of no concern to the competition authority. In other words: If a toy shop closes following a failed merger, the costs of society may be very limited. On the other hand, if a hospital closes following a failed merger, the impact on society may be considerable. There appears to be little scope for competition authorities to take such concerns into account once the authority has concluded that there will be no significant lessening of competition.

10.  I will highlight this bias by comparing two recent hospital mergers, one in the Netherlands and one in the United Kingdom. Both involve the leading hospitals in the area – respectively the (only) two academic hospitals in the Amsterdam region and the two leading hospitals in   the Manchester region.

11.  A big difference in the material assessment of the proposed mergers is the market definition: In the UK, each speciality is a relevant product market. The parties respectively offered 84 and 56 specialities in relation to elective and maternity services and 89 and 31 specialised services. The UK competition authority CMA concluded that the merger would result in an SLC in relation to several of these specialities. In the Netherlands, all the health care services are grouped in two large categories of “basic care” and “top care”. Given these much larger relevant product markets, there are many more suppliers and the Dutch competition authority ACM concluded that the merger would not result in an SLC.

12.  One may have preferences which of the market definitions adopted is better – a precautionary approach would imply making the assessment at the narrowest relevant product market, and if there would be no competition concerns on the basis of the narrow market definition one can generally conclude that there should be no competition concerns if the relevant product market should be defined more broadly -, the main point I want to make in this contribution is how efficiencies and inefficiencies were taken (or not taken) into account.

13.  The conclusion from the UK CMA was that the merger would result in a substantial lessening of competition. This conclusion procedurally opened the way for an efficiency defence. The UK phase II decision noted that “we have been struck in our inquiry by the widespread support of the merger of those NHS-related bodies who we have spoken to including the GMHSCP, CCGs, NHS England, and other providers. We have also been struck by the enthusiasm and support for the merger of each party’s clinical staff we have met. They have all cited the benefits of the merger to patients as their reason for supporting the merger. (..) we have given material weight to the reduction in mortality, and complications and morbidity for a significant number of patients which are likely to result from the merger, which we consider to be extremely significant benefits, in addition to the merger’s likely beneficial impact on patient access and on the hospital experiences for a significant number of patients (..) We consider that the adverse effect likely to result from the SLC that we have found in NHS elective and maternity services and NHS specialised services is substantially lower than the beneficial impact of the RCBs that would be lost as a result of a prohibition remedy (..) Accordingly, we have decided that it would be disproportionate to prohibit the merger. Therefore, we are clearing the merger.” In conclusion, following the SLC established by the CMA the authority was still able to clear the merger as a result of efficiencies.

14.  The conclusion from the Dutch ACM was that there was no substantial lessening of competition. Therefore, there was no opportunity to review non-competition efficiencies and risks. The Dutch phase II decision noted that (my translation) “both a number of third parties (RL – I assume the purchasers, i.e. the health care insurers) and the Dutch Healthcare Authority indicate that the proposed merger will result in a very large organisation with the associated risks (for example, whether this organisation is still manageable. This risks however are not within the scope of the merger control assessment and therefore cannot be addressed by the ACM. (..) The Dutch Healthcare Authority predicted risks both in relation to prices and in relation to quality. (..) The Dutch Healthcare Inspectorate stated that it did not have information or means to determine with certainty that the merger would have negative effects on quality and safety of care. However, is noted that a merger process between healthcare provides always results in risks in relation quality and safety of care. (..) The market power of the parties in relation health care in which they respectively already have market power could increase, which can result in higher prices or lower quality in healthcare for which they are in competition. The merger will result in such a large organisation that the Dutch Healthcare Authority foresees a very significant challenge for the parties to manage this organisation, both during the merger process and afterwards. The Dutch Healthcare Authority assessed that there is a risk that this will have a negative effect on the quality of care. The Dutch Healthcare Authority also assessed that the merger could result in an organisation that is too big to fail. The Dutch Healthcare Authority concludes that it is not convinced that public interests are served with the merger.”  In conclusion, as the ACM concluded that there was the proposed merge would not result in an SLC, the authority was not able to deal with the risks identified by third parties.

15.  I do not argue for a total-welfare analysis of mergers in general. Such would run counter to the aforementioned fundamentals of merger control. In addition, the costs of such a system of merger control is almost certain to outweigh the benefits given the very large percentage of mergers that pose not issue whatsoever from a competition law perspective. However, where the competition authority is empowered to review an efficiency defence, it may - at least for certain sectors and at least for certain risks– be justified to allow the competition authority to assess such risks irrespective of whether the proposed merger would result in a substantial lessening of competition or not.

(The handout can be found at https://icnmergerworkshop2018.jftc.go.jp/agenda.html)

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Abuse of dominance and market definition - A comment on the CMA Phenytoin Sodium excessive pricing case CE/9742-13

Dr. Rob van der Laan, 17 July 2017

On 15 June 2017, the CMA published the full text of its infringement decision, finding that Pfizer and Flynn Pharma abused their respective dominant positions by pricing excessively. Despite (or perhaps because?) its 465 pages, the decision makes for interesting reading. This is not only for the relative rarity of excessive pricing cases. In this short comment, I will focus on market definition and the evidencing of the relevant product market.

Some background: The product involved is phenytoin sodium (“PS”), a prescription drug to treat epilepsy. PS is an 80-year old medicine and no longer recommended for new patients. It is estimated that about 10% or 48,000 UK patients are reliant on PS capsules.

From September 2012, Pfizer produced PS capsules were distributed to pharmacies through Flynn rather than directly by Pfizer. The prices for 100mg capsules increased in September 2012 by over 2,200% (of which over 1,300% from the price charged by Pfizer to Flynn). Competitor NRIM started manufacture of PS capsules in April 2013.Between April 2013 and November 2013, NRIM’s SP capsules were significantly cheaper to dispense than Pfizer-Flynn’s product.

The Medicines and Healthcare Products Regulatory Agency (‘MHRA’) recommended in November 2013 that patients who are stabilised on a particular manufacturer’s phenytoin sodium capsule should be maintained on that manufacturer’s product and should not be switched to another manufacturer’s capsule. As a result, none of the 10 pharmacies any longer switched individual patients to the cheaper NRIM SP - even when the prescription did not specify the brand.

I want to draw attention to 4.56 of the decision: “The CMA considers that the switching that occurred towards NRIM’s Product was not at a scale that meant NRIM’s Product exerted a sufficient competitive constraint on the Focal Product such that it would be included in the relevant markets. If NRIM had been a sufficient constraint it would have gained a much larger market share given its significantly lower prices.” In my view, the decision leaves room for an alternative interpretation.

The CMA contacted ten pharmacy groups during the course of its investigation covering approximately 50% of pharmacies in the UK and accounting for over 75% of NRIM’s total sales. As pharmacies have an incentive to dispense the cheapest medicine available, two out of the ten pharmacy groups contacted switched to dispensing NRIM PS to individual patients when it was launched and when there was an opportunity (i.e. the GP’s prescription was “open” and did not specify the brand). The other eight pharmacy groups informed the CMA that, in the period April to November 2013, they followed the principle of Continuity of Supply, rather than commercial incentives, when determining which phenytoin sodium capsule product to dispense. As a result, by November 2013 NRIM was dispensing an estimated 20-30% of all 100mg SP capsules in the UK (4.55 of the decision).

According to the decision, eight out of the ten pharmacy groups contacted were sufficiently concerned by the risk of therapeutic failure that they did not view the Focal Product and NRIM's Product as substitutes. In my view, this conclusion is less than convincing on the basis of the evidence presented. Of course, pharmacists should exercise caution when switching to a new product. That not all pharmacists would switch to a new brand immediately is only logical. It would not be surprising to me to hear that the largest pharmacy groups, probably most knowledgeable on regulatory matters, would come to a different estimation of the relative costs and benefits of switching brands when possible. I will explain in the next section that this appears to have been the case.

According to the decision, the two pharmacies that switched when possible accounted for 75% of NRIM’s total sales, i.e. these two groups supplied about 15-22.5% of the NRIM SPs and X% of Pfizer-Flynn SPs to the UK market. According to the decision, for the first eight months of 2012, 62% of prescriptions for phenytoin sodium capsules in England allowed for switching. Assuming that this percentages stayed the same over the next six months, one may assume that the two groups supplied about X = (15-22.5) * 38/62 = 9.1-13.8% of the of Pfizer-Flynn SPs to the UK market. In other words, these two groups that switched when possible accounted for 24.2-36.3% of the supply of SP in the UK. The average market share of the two groups that switched was thus about 12-18%. The average market share of the other eight groups was therefore at maximum 8-9%, but probably closer to 4-5% as the ten groups together only accounted for approximately 50% of pharmacies in the UK. That is, the average market share of the group that switched is significantly larger than the average market share of the group that stayed passive following the entry by NRIM.

This is reason to suspect that the two groups that switched could more in general be spearheading developments in the sector. It does not appear implausible that the smaller eight pharmacy groups would have switched if the two groups that switched would have reported positive results (i.e. economic benefits and no adverse effects on patients). One may therefore question whether the period assessed (April – November) was sufficiently long to conclude that eight out of the ten pharmacy groups contacted were sufficiently concerned by the risk of therapeutic failure that they did not view the Pfizer-Flynn SP capsules and NRIM's SP capsules as substitutes.

If a substantial number of the eight passive pharmacy groups would have switched after, say, the release of the annual accounts of the two switching groups, the conclusion on the market definition for at least the period April-November 2013 may well have been different. One may refer to the 2004 OFT guidance on market definition (3.6): “Customers may take time to respond to a sustained rise in the price of the focal product. As a rough rule of thumb, if substitution would take longer than one year, the products to which customers eventually switched would not be included in the same market as the focal product. Products to which customers would switch within a year without incurring significant switching costs are more likely to be included in the relevant market. However, the relevant time period in which to assess switching behaviour may be significantly shorter than one year: for example, in industries where transactions are made very frequently. A case by case analysis of switching is therefore appropriate.” The decision does not contain evidence of switching behaviour by pharmacy groups in general.

As the stated duration of the infringement was from September 2012 to date of the decision, the question of market definition is not moot.

END

Abuse of dominance in the Dutch rail sector

Dr. Rob van der Laan, 4 July 2017

The Dutch competition authority ACM recently published a (relatively rare) decision establishing the abuse of a dominant position. The ACM concluded that the incumbent rail services provider abused its dominant position by (primarily) submitting a loss-making bid for a local concession that could not be met by equally-efficient competitors without also making a loss. Whereas the local consession only related to a minute part of the Dutch railroads, the tender was a pilot project to assess the scope for further decentralization and regional competition. The loss of the concession could potentially result in the opening-up of larger parts of the Dutch rail network for competition and conversely winning of the regional concession by the incumbent could possibly prevent the emergence of competition in other regions. The incumbent was fined 40.950.000 Euro.

The analysis centers on the as-effective competitor test. The economic analysis appears to have been applied to the company at large, in effect a monopolist on most of the Dutch rail network. The analysis makes a distinction between the expected profit estimated on the basis of the winning of the regional concession as such (there appears to have been no dispute that the profit for the regional concession was negative) and the expected profit (avoided losses) of winning the regional concession in a wider context. As mentioned, this wider context was to prevent competition across a large part of its services: The incumbent internally used the metaphor of a house of cards – the loss of the single regional concession concerned could (or would) have repercussion in relation to other services and other regions. The incumbent appears to have considered its bid profitable when these wider effects were taken into account, however, according to the ACM, the bid was based on unsubstantiated expectations of growth of demand and the exclusion of risks. These expectations and exclusions had been the subject of internal discussion within the incumbent provider.

The ACM imposed a fine of €39m for the abuse of the dominant position sic. This was increased 5% (€1,95m) for a lack of cooperation with the investigation.

Source: https://www.acm.nl/en/publications/publication/17397/Dutch-Railways-NS-abused-its-dominant-position-in-regional-tender-process/

END

ACM campagne

Dr. Rob van der Laan, 7 June 2016

De Autoriteit Consument en Markt voert de komende weken campagne om mensen alert te maken op kartelafspraken. Naar mijn mening een zeer lovenswaardig doel waar de economie netto profijt van kan hebben.

In het ACM-persbericht van 7 juni 2016 staat te lezen:

“Er zijn altijd mensen die weten van verboden afspraken tussen concurrerende bedrijven. (…) Een kartelafspraak is mensenwerk. Voorbeelden uit recente zaken:

in e-mails stond: ‘Streven moet zijn om de tarieven te verhogen’.
Of: ‘Een verhoging wordt door beide bedrijven noodzakelijk geacht’.
Een citaat van een manager in een bespreking tussen concurrerende bedrijven spreekt voor zich: ‘Our competitors are our friends, our customers are our enemies’.

Er zijn dus altijd mensen die weten van de verboden afspraken.”

Bij elk van de gegeven voorbeelden kan ik me binnen een bepaalde context een verklaring voorstellen die plausibel is en die niet duidt op een kartelafspraak. Ik ben niet nagegaan of de citaten vermeld staan in ACM-beslissingen, de bronnen worden niet vermeld in het persbericht. Daarom is het jammer dat tussen de bullet points en de conclusie een cruciale zin ontbreekt:

“Na zorgvuldig onderzoek door de ACM naar de context waarin de uitspraak is gedaan is vast komen te staan dat deze uitspraken betrekking moeten hebben gehad op verboden afspraken.”

Zonder deze toevoeging is het gevaar dat compliance officers meer van hun schaarse tijd zullen gaan besteden aan het redigeren van interne teksten in plaats van het voorkomen (en indien nodig beëindigen) van kartels – wat zeker niet goed zal zijn voor de economie.

END

Below is a selection of short articles - some in English, some in Dutch - also posted on my Linkedin profile. The most recent contributions are posted higher.

Sponsored ranking

Dr. Rob van der Laan, 26 April 2021