Factual and Procedural Background
The case concerns the legality of pricing models used by a dominant supplier ("Advanz") of generic pharmaceutical drugs sold to the NHS, specifically relating to liothyronine tablets used to treat thyroid deficiency. The Competition and Markets Authority ("CMA") issued a lengthy decision finding that Advanz abused its dominant position by charging excessive and unfair prices during the period from 1 January 2009 to 1 July 2017 ("the Infringement Period"). Prices rose from approximately £20 per box to nearly £248 per box without objective justification. The CMA imposed penalties exceeding £100 million, allocated among various controlling entities over time, including Company A ("Hg"), Company B ("Cinven"), and Advanz Pharma Corp.
The applicants, comprising the Cinven and Advanz Pharma Corp groups ("the applicants"), appealed the CMA decision to the Competition Appeal Tribunal ("CAT"), which dismissed the appeals except on a narrow penalty point. The present applications are for permission to appeal the CAT judgment dated 8 August 2023, with appeals to follow if permission is granted. The CAT upheld the CMA's findings on dominance, abuse, and pricing methodology, endorsing the Cost Plus test as an appropriate benchmark for fairness in generic pharmaceutical markets. The CMA also seeks permission to appeal the CAT's reduction of penalties relating to specific deterrence applied to Cinven.
Legal Issues Presented
- The validity and application of the "workable competition" test as a determinant of fairness in pricing by a dominant undertaking.
- The relevance and evidential weight of Entry Incentivising Prices ("EIP") in assessing fairness.
- The relevance and evidential weight of Post Entry Pricing ("PEP") in assessing fairness.
- The admissibility and relevance of new evidence relating to PEP submitted after the CAT judgment.
- The relevance of multi-firm pricing ("MFP") models to fairness assessments.
- The relevance of portfolio pricing as a justification for otherwise excessive prices.
- The effect of alleged acquiescence by the NHS on the assessment of abuse and dominance.
- The burden and standard of proof applied by the CAT in relation to pricing issues.
- The correct application of statutory guidance on penalties, specifically concerning specific deterrence uplifts.
Arguments of the Parties
Applicants' Arguments
- Prices generated in a market characterized by workable competition must be lawful, even if significantly above Cost Plus benchmarks.
- Cost Plus test is flawed as it ignores pro-competitive effects of high prices that incentivize entry and competition.
- EIP and PEP are valid benchmarks reflecting real competitive pricing and should be given primacy over Cost Plus.
- New evidence of post-entry pricing shows prices have stabilized at higher levels than Cost Plus, undermining the CMA's benchmark.
- MFP reflects pricing in competitive markets and is necessary for fairness assessments.
- Portfolio pricing, where profits from one product subsidize others, should be considered in fairness evaluations.
- Acquiescence by the NHS to price increases negates unilateral conduct required for dominance and abuse findings.
- The CAT erred in its evaluation of evidence and failed to apply the correct burden and standard of proof.
- The CAT erred in rejecting the CMA's specific deterrence penalty uplift, and the penalty should be reinstated in full.
Respondent's (CMA) Arguments
- The Cost Plus test is a valid and sufficient benchmark for determining fairness in pricing by a dominant undertaking.
- EIP and PEP do not reflect prices arising from effective competition and are unreliable as dispositive benchmarks.
- New evidence on post-entry pricing does not establish that prices have stabilized free of contamination from prior abuse.
- MFP is a hypothetical and inappropriate benchmark for assessing fairness in a monopoly market context.
- Portfolio pricing is not relevant absent evidence that the dominant undertaking actually used such a strategy.
- There was no acquiescence by the NHS; price increases were not approved or subject to informed assessment by the NHS.
- The CAT correctly applied the burden and standard of proof, fairly evaluating all evidence.
- The CAT erred in removing the specific deterrence uplift; the penalty should be reinstated to ensure adequate deterrence.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| United Brands v Commission [1978] EU:C:1978:22 |
Established the test for unfair pricing as prices bearing no reasonable relation to economic value; fairness judged by comparison to conditions of "normal and sufficiently effective competition". |
The Court applied and summarized this test as foundational to assessing abuse under section 18 CA 1998. |
| CMA v Flynn Pharma [2020] EWCA Civ 339 ("Phenytoin") |
Summarized nearly 50 years of case law on abuse of dominance; emphasized Cost Plus as a valid test and the concept of workable competition. |
The Court relied heavily on Phenytoin's principles to evaluate evidence and methodology for assessing excessive pricing. |
| National Grid v Gas and Electricity Markets Authority [2010] EWCA Civ 114 |
Competition rules promote consumer welfare indirectly by protecting market structure and competition as an institution. |
Applicants cited this to support the centrality of market structure in assessing pricing fairness; the Court rejected this as a mandatory test. |
| British Airways v EU Commission [2007] ECLI:EU:C:2007:166 |
Article 102 protects market structure and competition as an institution, not just immediate interests of competitors or consumers. |
Cited to support arguments on workable competition; Court emphasized broader evidence-based approach instead. |
| Napp Pharmaceutical v Director General of Fair Trading [2002] CAT 1 |
Discussed the relevance of entry-incentivising prices to the assessment of excessive pricing. |
Court held Napp did not mandate EIP as dispositive; EIP may be relevant evidence but not mandatory benchmarks. |
| Generics (UK) Ltd and Others v CMA [2020] EU:C:2020:52 |
Confirmed evidential burden on dominant undertakings to justify conduct by demonstrating efficiency gains benefiting consumers. |
Used to reject vague or unsubstantiated claims of benefits justifying excessive pricing in this case. |
| Deutsche Telekom AG v Commission [2008] ECR II-447 |
Legal certainty requires assessment of abuse based on dominant undertaking’s own situation and costs, not competitors’ costs. |
Supported the principle that evidence unknown to the dominant undertaking at the time may have less probative value. |
| London & South Eastern Railway Ltd and others v Gutmann [2022] EWCA 1077 |
Affirmed consumer protection from unfair conduct by dominant undertakings; relevant to the principle of fairness. |
Referenced in rejecting EIP as a dispositive test of fairness. |
| Intel v Commission [2007] ECR I-02331 |
Conduct with exclusionary effects may be justified by efficiency advantages benefiting consumers. |
Distinguished from exploitative pricing; Court noted benefits may justify exclusionary abuses but not necessarily excessive pricing. |
| Interclass Ltd. v OFT [2012] EWCA Civ 1056 |
On appeals against penalties, Court will intervene only on errors of principle or clear disproportionality or discrimination. |
Guided the Court’s approach to reviewing the CAT’s penalty decision. |
| R (Iran and others) v Secretary of State for the Home Dept [2005] EWCA Civ 982 |
Errors of fact may amount to errors of law where parties share an interest in correct decision; sets out grounds for appeals involving mistakes of fact. |
Considered in relation to admissibility of new evidence and errors of fact in the CAT’s findings. |
| Evans v Barclays Bank [2023] EWCA Civ 876 |
Discussed Court’s powers on penalty reconsideration and remittal. |
Supported Court’s power to reinstate CMA penalty in this case. |
Court's Reasoning and Analysis
The Court undertook a detailed legal and factual analysis of the pricing conduct and the evidential basis for the CMA and CAT findings. It affirmed the validity of the Cost Plus test as a primary benchmark for establishing excessive and unfair pricing by a dominant undertaking, noting that this approach is consistent with nearly five decades of case law and endorsed by the Court of Appeal in Phenytoin. The Court rejected the applicants’ argument that workable competition, defined by absence of dominance, collusion, and insurmountable entry barriers, constitutes a bright-line test for fairness. Instead, workable competition is a relevant but non-dispositive evidential factor, and the Court emphasized that the effects of prior abuse, such as price contamination and stickiness, may persist even after new entry.
Regarding Entry Incentivising Prices (EIP), the Court agreed with the CAT and CMA that EIP evidence is admissible but cannot serve as a definitive test of fairness. EIP reflects only the initial stage of potential entry, is inherently subjective and unreliable, and does not necessarily indicate effective competition. The Court further rejected the applicants’ contention that the dominant undertaking’s intent to stimulate entry through high pricing negates abuse, holding that subjective intent is not exculpatory and may be inculpatory.
On Post Entry Pricing (PEP), the Court found that the CAT correctly concluded that prices post-entry had not stabilized at competitive levels and remained contaminated by prior abuse. The Court rejected the applicants’ legal certainty arguments favoring settled prices over uncontaminated prices, emphasizing that evidence available to the dominant undertaking at the time of pricing decisions carries greater probative value. The Court also found that the new evidence of pricing after the CAT judgment raised factual disputes rather than points of law and did not undermine the CAT’s conclusions.
The Court endorsed the CAT’s rejection of multi-firm pricing (MFP) as a relevant benchmark for fairness, noting that MFP is hypothetical and not reflective of the monopoly market conditions during the infringement period. It agreed that Cost Plus based on actual monopoly costs is the appropriate standard.
Regarding portfolio pricing, the Court found no evidence that Advanz employed such a strategy and agreed with the CAT that portfolio pricing is not a proper justification for excessive prices absent clear evidential correlation and consumer benefit. The Court noted that while portfolio pricing may be relevant in some contexts, it was not established here.
On acquiescence, the Court agreed with the CAT that there was no acquiescence by the NHS. The NHS did not receive sufficient information to assess or approve the price increases, and acquiescence does not negate unilateral conduct or dominance where market power is exercised through contracts.
Concerning the burden and standard of proof, the Court found the CAT had applied the correct legal principles and fairly evaluated the evidence. The CAT’s acceptance of Cost Plus and relevant comparables, and its rejection of the applicants’ alternative benchmarks, was within its evaluative discretion.
On penalties, the Court held that the CAT erred in its application of the statutory guidance on specific deterrence. The CAT failed to adequately consider the size and financial strength of Cinven, the proportion of its turnover outside the relevant market, and the conservative nature of the minimum financial benefit calculation. The Court concluded that the penalty uplift for specific deterrence should be reinstated, restoring the full amount imposed by the CMA.
Holding and Implications
The Court REFUSED PERMISSION TO APPEAL on all substantive pricing issues (Issues I-VIII), concluding these are predominantly challenges to findings of fact made by the CAT after proper evaluation of evidence. The applicants’ legal arguments seeking to elevate alternative pricing benchmarks to mandatory tests of fairness were found to be without merit.
Permission to appeal was GRANTED on the penalty issue (Issue IX). The Court found the CAT erred in its application of the statutory penalty guidance concerning specific deterrence. The full penalty imposed on Company B ("Cinven") by the CMA is reinstated.
The decision confirms the continuing validity of the Cost Plus test as a benchmark for unfair pricing in dominance abuse cases and affirms the broad discretion of competition authorities and tribunals to evaluate complex economic evidence. It clarifies that evidential weight and relevance, rather than rigid legal mandates, govern the assessment of pricing benchmarks such as workable competition, EIP, PEP, and MFP. The ruling on penalties underscores the importance of thorough and proportionate application of statutory guidance to ensure effective deterrence of anti-competitive conduct.