Anti-competitive disparagement: think twice before you criticise your competitors’ products

The European Commission recently fined a large global pharmaceutical company €462.6 million for abusing its dominant position to lessen competition in the market for the supply of Copaxone (medication used to treat multiple sclerosis).

The Commission found that the company had abused its dominant position for between four to nine years by:

1. taking advantage of the European Patent Office’s rules in assessing patent applications to artificially extend its patent protection of a key ingredient in Copaxone; and
2. spreading misleading information about competing products (generic products which were cheaper) to hinder market entry and uptake.

This is the second case in which the Commission investigated disparagement campaigns as abuses of dominant market power. Both cases have been in the pharmaceutical sector, which is particularly prone to this type of conduct.

Disparagement as abuse of market power – Europe

In June 2022, the Commission commenced an investigation into another global pharmaceutical company, Vifor Pharma, in relation to allegations that it had been spreading misleading information about its closest competitor in Europe for the treatment of iron deficiency. Significantly, the disparagement conduct was the only conduct the Commission considered in determining whether Vifor had abused its market dominance, the first case of this kind.

Ultimately in that case, the Commission did not issue any fines but accepted legally binding commitments by Vifor to address the Commission’s concerns, including rectification communications, not engaging in external communications about the competitor, and compliance measures.

Earlier this year, the UK’s Competition and Markets Authority also commenced an investigation into Vifor in relation to the same conduct and allegations. This investigation is ongoing.

The French competition regulator, Autorité de la concurrence, has investigated four pharmaceutical companies in the past few years for disparagement as an abuse of dominant market power. The Belgian and Italian competition authorities have also launched their own investigations into two of the four pharmaceutical companies.

The focus on the pharmaceutical industry is due to the close structure of stakeholder relationships within the sector, which gives rise to opportunities for pharmaceutical companies to approach key players, such as medical professionals, experts, health authorities and national decision-makers, to cast doubt on competitor products and cause real competitive effects such as increasing barriers to entry.

Misuse of market power – Australia

In Australia, section 46 of the Competition and Consumer Act 2010 (Cth) currently prohibits a firm with a substantial degree of market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in that market or in an upstream or downstream market.

Prior to the reforms in 2017, this provision focused on a corporation’s use of market power for a particular purpose (eliminating a competitor, preventing market entry, etc.). The focus of the current provision is on conduct by a corporation with substantial market power that has the purpose or effect of substantially lessening competition. The current provision is more aligned with the abuse of market power provision in the EU.

In determining the degree of power of a corporation in a market, the court will have regard to various factors including:

• the extent of constraints by competitors or customers. This could be in the form of market shares, market features, and availability of substitutes;
• barriers to entry, including whether there are costs of entry, brand loyalty, predatory reputation, and exclusive relationships;
• the power the corporation has in the market resulting from any contracts, arrangements or understandings;
• the structure of the market; and
• the behaviour of market participants.

The ACCC has investigated conduct such as conditional threats to competitors, exclusive dealing, predatory pricing, refusal to deal, and refusal of access to facilities as potential breaches of the misuse of market power provision.

Disparagement and misleading marketing tactics have not been considered as conduct (stand-alone or in conjunction with other conduct) constituting misuse of market power in Australia. However, given the current s 46 is more aligned with the EU approach, and that the EU and UK have recently been examining disparagement as a form of anti-competitive conduct, it is possible that such conduct may be on the ACCC’s radar and form a misuse of market power case in the future.

Key takeaways

Companies with some degree of market power should take care that any marketing campaigns do not disparage competitors either intentionally or with the effect of lessening competition.

The pharmaceutical and similar industries are particularly impacted by these recent investigations, due to the close structure of stakeholder relationships giving rise to significant competitive effects of disparagement campaigns.