Early spring brought us a couple of interesting competition law developments involving France. First, the Court of Appeal in Paris annulled a judgment by a lower court that dismissed a damages action against Sanofi in relation to its practice of “denigration” or “disparagement” of competitors. Next, the European Commission partly referred the McKesson/Phoenix merger to France for a review by the French regulator, causing delay to completion of the deal. We discuss both developments below.
In our recent post on Pay for Delay, we mentioned that so far there had been few private actions in Europe following on from pay for delay decisions. The same might be said about private enforcement of competition law in the life sciences sector more generally, with the UK National Health Service a notable exception.
However, a recent judgment by the Court of Appeal in Paris shows that there is also action in this space in France (for an excellent summary in French, see here). The case involves the well-known Sanofi decision by the French competition authority (Autorité de la Concurrence, “AdlC”), in which it found that the practice of “denigration” of competitors was an abuse of Sanofi’s dominant position.
Sanofi had been fined in 2013 by the AdlC for abusing its dominant position through the distribution to health professionals misleading information which aimed to dissuade them from prescribing generics of its blockbuster drug Plavix. Although the communication strategy highlighted objective differences between Plavix and the generics, the AdlC considered that these differences were nevertheless presented in such a way as to create doubt among healthcare professionals on the bioequivalence between the originator and its generics.
After this decision, the Caisse Nationale d’Assurance Maladie (CNAM) sued Sanofi for damages, but the case was dismissed by a lower Paris tribunal because the CNAM’s claim was time-barred. There is a five-year period within which damages can be claimed, which runs from the moment the victim becomes aware of the facts allowing it to exercise its right. According to the tribunal, the CNAM had played a pivotal role in the AdlC’s investigation, and therefore knew of the practices well before the AdlC issued its decision and could have acted to claim damages sooner.
However, on appeal the Paris Court of Appeal held that the lower tribunal was wrong in this respect. Although the CNAM had been involved in the investigation, it could not have known with certainty that the practice alleged against Sanofi was anti-competitive and what impact it would have had on public finances. The Court explained that the denigration by Sanofi of its competitors’ products had original characteristics: it did not relate to the dissemination of manifestly misleading information on the generics of Plavix but resulted from the way Sanofi had structured its discourse on the objective differences between Plavix and the generics. In addition, the Court relied on the fact that Sanofi had, throughout the proceedings before the AdlC, questioned the existence of abusive denigration.
The Court of Appeal went on to consider the causal link between Sanofi’s infringement and the damage suffered by CNAM. It compared the rate of substitution between Plavix and generic alternatives to what had happened previously when other molecules had been genericised, and concluded that Plavix’s rate of substitution was atypical, which could only be explained by Sanofi’s conduct. It also referred to the AdlC’s conclusions that the penetration rate of generics appeared to the authority to be abnormally low, whether in relation to other comparable molecules, the average penetration rate of generics since 2009 or with regard to social security objectives. Accordingly, the Court concluded that there was a harmful effect on health insurance expenditure, which it estimated theoretically – based on a conservative assumption – at no less than 450,000 euros per month for the period January 2010 to October 2011. The Court decided to appoint an expert to assess the robustness of the economic analyses presented by the CNAM and the end date of the practices, which the CNAM claims went on well beyond October 2011, until 2015.
This is a second blow for Sanofi in 2022, after a Paris court ruled in January that families of victims of Depakine, an epilepsy drug that caused birth defects and learning difficulties when taken during pregnancy, could join a class action lawsuit against the drugmaker.
We understand the Plavix case is the first time the CNAM has claimed damages for breach of the competition rules in France. The positive outcome in this case may well mean it will continue to do so in the future, which means that alongside the UK’s NHS, Europe has another public body actively seeking damages for antitrust infringements in the life sciences. Companies active in the sector should take note, as this significantly increases the potential exposure from competition infringements.
The wider context is also important to note. This is another example of a successful claim for damages following an abuse of a dominant position. Similar actions have been launched in the UK against tech companies like Apple, Google, Meta and Qualcomm, as well as against BT and rail operators, and actions on the basis of abuse of a dominant position are also ongoing in the Netherlands. The time that only cartels led to damages actions seems long gone.
Finally, the Paris Court of Appeal’s approach to the statute of limitations is very interesting. When does the period after which a claim would be time-barred start running? Usually this is linked to whether the claimant knew or ought to have known about the infringement. For example, under the Damages Directive, the limitation period does not begin to run before the infringement has ceased and the claimant knows, or can reasonably be expected to know (i) of the behaviour and the fact that it constitutes an infringement; (ii) of the fact that the infringement of competition law caused harm to it; and (iii) the identity of the infringer. In a dominance context, the claimant – often a customer or competitor of the dominant firm – tends to know of the facts constituting the infringement. However, the Court of Appeal demonstrates in this case that such knowledge of the facts is not in itself sufficient. Clearly the Court considered that it was not certain during the investigation that the conduct would be found to be anti-competitive, therefore – in the words of the Damages Directive – the claimant could not reasonably be expected to know that the conduct constituted an infringement. This is a welcome development for claimants, although the application of the limitation period will still always be highly fact specific.
The European Commission announced on 30 March that it has partially referred the proposed acquisition of a part of McKesson by Phoenix to the French competition authority, at its request. At the same time, the transaction was cleared unconditionally outside of France, as it would raise no competition concerns in other European markets.
Phoenix and McKesson are both active in the wholesale and retail distribution of pharmaceutical goods in several European countries.
On 9 February 2022, Phoenix notified the acquisition, and on 23 February 2022, the AdlC requested that the Commission refers the assessment of the transaction in relation to France to it. The AdlC submitted that there were competition concerns in a number of markets in France, notably the markets for wholesale distribution of pharmaceutical goods. The evidence gathered by the Commission confirmed that the proposed acquisition threatens to affect significantly competition in the markets for wholesale pharmaceutical distribution in France, where McKesson and Phoenix are currently the first and the fifth largest competitors. The Commission therefore decided to partially refer the transaction to the AdlC, which will deal with the case under national competition law. The AdlC now has 25 working days to issue a decision to clear the deal or open an in-depth examination.
According to Article 9(2)(a) of the EU Merger Regulation, the Commission may refer a transaction notified to it to the competent national competition authority, when a Member State requests such a referral because a transaction would threaten to significantly affect competition in a market within that Member State and that market presents all the characteristics of a distinct market.
For merging parties, such a request can be a bit of a timing nightmare, as they will already have gone through a lengthy pre-notification phase with the Commission, as well as phase 1 of the Commission’ formal review under the EU Merger Regulation. As we see in this case, the referral to the competition authority of a Member State can happen at the same time as the merger being cleared for all other Member States. The parties will now need to engage with the merger control review of this deal under French rules.
The remaining European businesses in the UK, Norway, Austria, and Denmark are not included in this transaction and will continue to be operated by McKesson. The parties will therefore be spared a review by the increasingly interventionist CMA. McKesson has stated that it is committed to exploring strategic alternatives for all remaining European businesses and focusing future investments on growth strategies outside of Europe. This may mean further consolidation in the markets not covered by the deal with Phoenix, and it will be interesting to see how competition authorities will respond.