UK Court of Appeal refuses to reinstate excessive pricing fines in key pharma case

On 10 March 2020 the UK Court of Appeal handed down its hotly anticipated judgment in Flynn Pharma Limited & Anr vs Competition and Markets Authority. The UK Competition and Markets Authority (CMA) was seeking to reinstate record fines totalling £89.4m imposed on pharmaceutical companies Pfizer and Flynn Pharma in 2016, for abuse of a dominant position through excessive and unfair pricing of an anti-epilepsy drug. The CMA’s findings of abuse, and related penalties, had been set aside by the Competition Appeal Tribunal (CAT) ruling in June 2018 which had remitted the case back to the CMA for reconsideration.

The Court of Appeal dismissed three of the CMA’s four grounds of appeal, and refused to reinstate the fines. It upheld the CAT’s judgment, including the order made by the CAT for remittal.

However, the Court of Appeal did not uphold the CAT’s approach in its entirety; in particular, it agreed with the CMA that it was entitled to take a “Cost Plus” approach to determine whether the prices in question were excessive so as to amount to an abuse of a dominant position, and that it was not required to establish a hypothetical benchmark price. It also confirmed that the CMA has a “margin of manoeuvre” in deciding which methodology to use and which evidence to rely upon. On that basis, the press release issued by the CMA following the judgment describes it as “a good result”, which represents “an important step forward in clarifying the legal test for excessive and unfair pricing.”

The CMA has stated that it will now move forward with its case against Pfizer and Flynn Pharma, and the Court of Appeal has clearly left open the possibility that the CMA may confirm its finding of abuse following reconsideration of the issue in line with the principles clarified by the Court.

Key practical implications for future excessive pricing cases

The key practical implications of the Court of Appeal’s judgment for future excessive pricing cases are:

• When investigating alleged excessive or unfair pricing, the Court of Appeal held that the CMA benefits from a “margin of manoeuvre” in deciding which methodology to use and which evidence to rely upon, but equally cannot ignore evidence adduced by defendants as to why prices are in fact fair.
• Any company facing allegations of excessive or unfair pricing should therefore seek to adduce as much evidence as possible to explain why its pricing is not unfair, both “in itself” and by reference to relevant competing products.
• It remains the case that excessive pricing infringements are generally difficult to prove, but the existence of such practices in the pharmaceutical sector in particular seems likely to remain a focus area for the CMA. Indeed, the CMA has expressly stated that it remains “committed to its work to robustly tackle any illegal behaviour by drug companies ripping off the NHS”.

Read the full briefing here for a detailed consideration of the Court of Appeal’s judgment.