Published on Apr 10, 2025
This blog post is a contribution by Niels Ersboll, Zeno Frediani and Lazarinka Naydenova of Arnold & Porter.
Competition law (also known as antitrust) is designed to protect businesses and consumers from anti-competitive behaviour, to maximise market efficiency, and enhance innovation.
Competition law enforcement is used as a public policy tool aimed at correcting market failures that the market itself is unable to address. It operates via three main constructs:
i) prohibition of anti-competitive agreements,
ii) ii) prohibition of abuse of dominant position, and
iii) ii) ex-ante review of mergers and acquisitions.
The main difference between anti-competitive agreements and abuse of dominant position is that the former requires the involvement of more than one independent economic operators, while the latter mostly concerns the unilateral behaviour of a single company.
The prohibition of anti-competitive agreements covers cartels (price fixing, market sharing, etc.) and other horizontal agreements that restrict competition.
The rules on abuse of dominant position prohibit companies with market power to leverage their strong position on the market (share above 40-50% as a starting point) in order to engage in activities that do not qualify as “competition on the merits”. Such abusive activities may be aimed at foreclosing competitors (raising barriers to entry and expansion, bringing equally efficient competitors out of the market), or exploiting customers (charging excessive prices, imposing unfair conditions).
Merger control affects conduct before it happens. Companies of a certain size or market position are required to notify to regulators the transactions they are involved in for prior approval before closing. The purpose of review is to ensure that the market structure post-transaction remains competitive.
Competition law applies equally to regulated industries such as pharma. Healthcare is a sensitive topic that has been at the forefront of the enforcement priorities of most competition regulators. The competition rules apply to the entire life-cycle of pharmaceutical products – from the initial stages of their development (clinical trials), through obtaining marketing approvals and setting up of manufacturing, distribution and supply systems. Examples of issues that authorities have scrutinised and sanctioned are listed below.
Many pharmaceutical markets are patent protected monopolies and a large part of antitrust investigations focus on unilateral conducts aimed at extending that monopoly.
In the past and more recently, the European Commission has focused on patenting practices and disparagement of competitors as tools to prevent or delay the entry of biosimilars and generics.
Agreements designed to delay generic entry have also been found to restrict competition (pay-for-delay), licensing or considered as potentially restrictive (early-entry agreements). The authorities’ concern is that originator companies and generics may collude to extend patent protection, maintain high margins and share profits.
Pricing is another key area of competition enforcement. Both pricing too high or too low can be problematic depending on the circumstances.
A company selling cheap medicines might appear as fierce competition and benefit patients (in the short term). However, if that company is selling products below cost or applies exclusivity rebates with the sole purpose of bringing an equally efficient competitor out of the market, it will likely be found to engage in exclusionary practices.
There has also been prior enforcement against exploitative practices such as charging excessive prices for medicines. In a recent case, the EC found that charging a price exceeding relevant costs by several hundred percent and without legitimate reasons was a violation of the abuse of dominance rules.
Competition law should not prevent potential competitors from cooperating for a legitimate purpose. Indeed, it is common practice in the industry for pharmaceutical companies to cooperate in the development, promotion or marketing of certain medicines. However, these situations entail risk and the framework of the cooperation between the parties needs to be reviewed closely, including length of the relationship, freedom to cooperate / compete outside of the contract, existence and length of exclusivity clauses, etc.
In the context of merger control, regulator have been entertaining new theories of harm investigating whether deals may result in hampering of innovation because post-transaction the merged entity: i) will have less incentives to innovate generally, or ii) will ‘kill’ its own or the acquired (pipeline) product to eliminate future competition. The focus on “killer acquisitions” remains and the authorities are increasing their powers to call in such deals for review, even where they fall below the usual notification thresholds.
Compliance and dawn raid preparedness are key.
Between 2020 and 2024, the EC conducted 21 unannounced inspections (against pharma and non-pharma companies).
In the same period, 45 antitrust decisions were issued imposing either commitments or fines nearing €2.5 billion, and 49 pharma transactions were reviewed by the European Commission.
Competition authorities have the power to show up at companies’ offices or even at individuals’ private homes without notice, to inspect and collect documents in search of evidence of anti-competitive behaviour.
Compliance programmes, trainings and prevention plans should be put in place to raise awareness of potential risks.
Join the expert faculty from Arnold & Porter on the Competition Law for the Pharmaceutical Industry course to gain the knowledge and tools needed to navigate the complexities of competition law. This course is running on various dates across the year.
Published on Apr 10, 2025 by Arnold & Porter Team