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Competition Law

Analysis - debate - current awareness

22 NOV 2013

Just saying no

By John Cassels

In the EU, Article 102 TFEU prohibits the abuse of a dominant position, where dominance is "a position of economic strength which enables a company to prevent effective competition by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately consumers".  

The provision curtails the commercial freedom of companies that are dominant (for example, in designing and deploying rebate schemes) and the European Commission has used Article 102 to carry out some of its most high profile market interventions, including to sanction behaviour by Microsoft, Intel and AstraZeneca.  

A supplier in a dominant position that refuses to continue to meet the ordinary orders of an existing customer risks falling foul of Article 102, unless it has an objective justification for the refusal.  Stopping supplies in order to prevent or restrict parallel trading by customers is not an objective justification. This means that care should be taken when de-selecting wholesalers or distributors. 

A recent UK case provides some insight into how this can apply in practice.  A pharmacy business that specialises in the provision of homecare services (Chemistree), sought an interim injunction to force its existing supplier of HIV drugs (Abbvie) to meet ever increasing orders by arguing that any refusal to meet those orders in full would be an abuse of dominance in breach of Article 102.   Chemistree's orders of the drugs had increased threefold over a very short time period.  When Abbvie sought information about the reason for the increase in orders, Chemistree obfuscated: it said the increase was for additional year-end demand when in fact it was wholesaling to customers elsewhere in the EU. 

On 7 November, the UK Court of Appeal upheld a decision of the High Court to refuse to grant the interim injunction.  Chemistree had failed to show a reasonable prospect of proving that Abbvie was dominant.   It is of note that in the High Court, the judge seems to have been influenced by the fact that Chemistree was disingenuous about the purpose for which it was purchasing the drugs.  It had never told Abbvie that it was wholesaling to customers outside the UK:

"if [a supplier] supplies a customer on the basis that the supply is for retail sale and has a policy of not supplying wholesalers, the fact that, unknown to the supplier, its customer is reselling some of the products on the wholesale market does not mean that the customer's orders for the purpose of wholesale constitute "ordinary orders""

If Chemistree had been upfront about its wholesaling, and Abbvie had continued to supply, this argument may lay the other way. 

If you would like to discuss these issues, please do not hesitate to contact John Cassels at john.cassels@ffw.com 

 

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