COLLABORATION IN LIFE SCIENCES FIELD:

COMPETITION CONCERNS

by Craig Simpson, Brussels EU Regulatory Practice

27 September 2006

Introduction

1. Competition Law – Why an issue for biocides companies?

2. The Basic Framework – Article 81 and Block Exemptions

3. Case Study: Licensing Technology and related IPRs

4. Horizontal Task Force Agreements regarding Submission of Collective Dossiers under BPD and Review Regulations

5. Conclusions

Why you should worry?

Lengthy investigations

Fines of up to 10% global turnover

Void and unenforceable agreements or clauses

Private actions for damages in national courts

Criminal sanctions in some jurisdictions (for example, UK Enterprise Act 2002)

Article 81(1) and Exemptions

Article 81(1) EU Treaty: ‘Agreements between undertakings, decisions by

associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market’

Not limited to where parties and/or activities based inside European Union

Relevant whenever Biocides Companies cooperate or enter into Licence agreements

Article 81(1) and Exemptions

Horizontal cooperationFormal R&D, joint production and Task Force Agreements

for submission of collective notification dossiersWhen between competitors, cartel potential (informal

‘gentleman’s agreement): price fixing, limitation of output, allocation of markets

Vertical cooperation (licensing)For example, ‘technology transfer’

Agreement falling within Article 81(1) not necessarily breach of competition law – does exemption under Article 81(3) apply?

Article 81(1) and Exemptions

Block Exemption (US ‘Safe Harbor’ concept): Is there a Block Exemption covering the area, e.g. R&D,

Technology Transfer?Does it apply in this case?

• Parties’ individual or combined market shares in relevant markets below certain thresholds; and

• No ‘hard core’ or non-exempted restrictions

Presumption of competition compliance

Individual exemption-complex assessment of economic context (market entry barriers, number of other market players and respective shares)

Article 81(1) and Exemptions

2004 ‘Modernisation’Death of DG Competition notification and clearance

systemReplaced by self-certification

BE still yardstick for individual exemption analysis (hardcore restrictions never likely to be permitted)

Case Study: Technology Transfer

Licensing intellectual property (especially patent and know-how) to enable licensee to manufacture and market contract products

Technology Transfer Block Exemption Regulation

772/2004 – example of core competition restriction principles:Restriction of price competitionMarket partitioningLimitation of outputRestrictions not warranted by subject matter of agreement

Case Study: Technology Transfer Only one example: Parallel restrictions based on same

core principles prohibited in other agreements

Hardcore restrictions (competitors):Restriction of price of licensee’s sales of contract product to

third partiesCharging royalties on products where licensed technology not

usedRestriction on territory into which, or customers to whom,

licensee may sell, with certain exceptionsRestrictions of the licensee's ability to exploit its own

technology or to carry out research and developmentRequirement not to challenge validity of licensor’s IPRs

Cooperation on collective dossier BP of Directive 98/8: Article 16(2) Existing Active

Substances Review Programmes‘Whenever a formulator or a producer is aware of another

notifier’s possible intention to notify the same active substance, they shall undertake all reasonable efforts to present a common notification in whole or in part, in order to minimize animal testing’ (Article 4(1) First Review Regulation 1896/2000).

‘In order to avoid duplication of work, and in particular to reduce testing involving vertebrate animals, the requirements concerning preparation and submission of the complete dossier should be such as to encourage those whose notifications have been accepted, hereinafter ‘participants’, to act collectively, in particular by submitting collective dossiers’ (Recital 9 Second Review Regulation 2032/2003).

Cooperation on collective dossier

Agreement between Competitors-Competition issues raised? ‘Participants seeking review of the same active substance

for the same product type(s) shall undertake all reasonable efforts to submit a collective complete dossier, while fully respecting the Community rules on competition’ (Article 6(5) Regulation 2032/2003).

European Commission Opinion:

Common notifications do not normally infringe competition law or constitute participation in a cartel

Cooperation on collective dossier

Issues under Task Force Agreements:Potential cloak for a cartel - exchange of commercially

sensitive informationPrejudice to non-members of Task Force

Importance of measures to protect Task Force from allegations that agreement itself or behaviour of parties infringes competition

Exchange of certain types of information not prohibited (for example, more than 12 months old, aggregated, etc.)

Cooperation on collective dossier

Typical areas of commercially sensitive information:

Margins, profits, discounts or prices charged to customers/ end users;

Names of customers or customer-specific translation information;

Key terms and conditions for sales;Future strategic, business or investment plans;Current market shares and sales volumes;Suppliers and input costs for key materials;Marketing plans and promotions; andSuggesting joint actions/boycotts versus a competitor.

Cooperation on collective dossier

Incorporate Antitrust policy clause in Task Force Agreement:

‘The Members will limit their activities under the Agreement to jointly reviewing, sharing, developing and submitting certain studies and will not exchange market information in any way that is prohibited by EU competition law or which goes beyond what is needed under the Biocidal Directive and its implementing regulations’.

Cooperation on collective dossier

Adherence to Antitrust Policy. All task force members to:acknowledge this Antitrust Policy before each Task Force

meeting; inform other appropriate personnel involved in the work of

the Task Force about the rules of Antitrust Policy; limit all discussions during meetings to the topics in the

agreed agenda;protest immediately should the discussion or any meeting

activity appear to fall within the scope of the above mentioned information to be avoided and leave if continues (otherwise all members who have not protested taken to have agreed);

maintain minutes of all meetings (which should include note of the acknowledgment of this Antitrust Policy).

Cooperation on collective dossier

BPD Review Regulations require disclosure to RMS of sensitive information (Annexes I and II, points 5 and 6 of First Review Regulation)

Such data must be submitted in case of collective notification:

Separately to RMS by each notifier; orTo a neutral third party

Cooperation on collective dossier

Refusal of entry of a notifier into Task Force: restriction of competition?

Reduce likelihood of competition challenge by competitors outside Task Force:Agree to give letter of access/citation rights in return for

compensationNon-arbitrary, non-discriminatory and consistent ground for

refusal of entry, for example, not a ‘participant’ within meaning of Second Review Regulation (implicit from Regulation that collective dossier applies specifically to ‘participants’).

Conclusion Agreements between biocides companies and

behaviour by parties breaching competition law is a serious issue.

Remember the core competition law infringement areas identified by Technology Transfer Block Exemption case study:Restriction of price competition/ price fixingMarket partitioningLimitation of outputRestricting parties in areas not warranted by the

subject matter of the agreement.

Alarm Bells! Consult legal- can restrictions be exempted?

Conclusion

Task Force Agreements

Minimise exposure to allegations of cartel behaviour by clear antitrust policy on exchange of information

Reasons for denying access to Task Force Groups must be objectively justifiable and non discriminatory

TF Agreement to allow for grant of letter of access