The Competition And Markets Authority v Flynn Pharma Ltd & Anor (Rev 3)

Under Article 102 and the Chapter II prohibition, there is no single mandatory method for proving excessive and unfair pricing. A competition authority may select an appropriate methodology and benchmark, including costs and a reasonable return, and need not construct a hypothetical market price or use several methods in every case.

However, it must fairly evaluate prima facie relevant exculpatory evidence advanced by the undertaking, including comparator evidence. The alternatives of unfairness in United Brands do not permit relevant evidence under one alternative to be ignored because the authority relies on the other. Economic value must be fairly addressed within the analysis, without double counting it as a separate final stage.

The CMA found that Pfizer and Flynn had separately abused dominant positions in their respective markets for phenytoin sodium capsules. Following the de-branding of the capsules, their prices increased substantially. The CMA found the prices excessive and unfair under section 18 of the Competition Act 1998 and Article 102 TFEU, imposed financial penalties, and issued price-reduction directions.

The Competition Appeal Tribunal set aside the findings of abuse and remitted that issue, penalties and directions to the CMA: [2018] CAT 11. It held that the CMA had applied the excessive-pricing test wrongly, had insufficiently considered phenytoin tablets as a comparator, and had inadequately addressed economic value and patient benefit.

The CMA appealed on the applicable legal test, benchmarks, comparators and economic value. Flynn appealed concerning the scope and effect of the remittal.

1. The CMA’s appeal was allowed only on the hypothetical-benchmark issue. The Tribunal’s order setting aside the abuse findings and remitting the matter was nevertheless upheld. Flynn’s appeal was dismissed.
2. The governing question under Article 102 and section 18 is whether the dominant undertaking imposed an unfair price. A price bearing no reasonable relation to the product’s economic value is an example of such an abuse. United Brands does not prescribe a fixed or exhaustive methodology. The authority has a margin of manoeuvre to choose suitable evidence and methods, including cost-plus analysis, return-on-sales or return-on-capital benchmarks, price comparators, or an appropriate combination.
3. The Tribunal erred if it required a hypothetical benchmark price or range in every case. A benchmark is necessary because excessiveness and fairness are relative concepts, but it may be based on the undertaking’s costs or another suitable measure. No rule requires a hypothetical market-price construct.
4. The two unfairness alternatives in United Brands are alternatives in the sense that an authority need not establish both. They are not strict alternatives permitting an authority to disregard prima facie relevant evidence that the price is fair under the other alternative. The authority must fairly evaluate such evidence, though it has no general duty to conduct a full investigation in every case. The necessary intensity of its inquiry depends on the facts and the quality of the undertaking’s evidence.
5. The Tribunal had a full merits jurisdiction. It could conclude that the CMA’s examination of tablet comparators was insufficient, and that conclusion was a factual finding not open to challenge on this appeal. The CMA’s fresh assessment must be made with an open mind.
6. Patient therapeutic benefit could contribute some economic value. Patient dependency was not a binary reason to assign it no value. Economic value is an economic component which must be fairly assessed somewhere in the analysis; it is not a discrete final stage requiring double counting.
7. The whole issue of abuse was remitted. None of the Tribunal’s findings on abuse was res judicata or prevented either party from advancing fresh evidence or argument.

• Court of Appeal (Civil Division): The CMA’s appeal was allowed only to clarify that no hypothetical benchmark price was mandatory. The Tribunal’s setting aside of the abuse findings and general remittal were upheld. Flynn’s appeal was dismissed: [2020] EWCA Civ 339.
• Competition Appeal Tribunal: The Tribunal upheld market definition and dominance, set aside the CMA’s findings of abuse, and remitted abuse, penalties and directions to the CMA: [2018] CAT 11.