- European Commission Imposes Fine for Restrictions on Cross-Border Sales of Clothing
- First Judgment on Application of the UK National Security and Investment Act 2021
- EC Imposes Fine for Patent System Misuse and Disparagement
- UK Shoe Retailer Successfully Challenges Supplier’s Distribution Model
European Commission Imposes Fine for Restrictions on Cross-Border Sales of Clothing
On 28 November 2024, the European Commission (EC) announced a fine of €5.7 million on Pierre Cardin and its licensee Ahlers for infringing EU competition law by restricting online and offline cross-border sales of clothing between European Economic Area (EEA) countries.
Pierre Cardin is a French fashion house that licenses its trademark to allow third parties to manufacture and distribute branded clothing. Ahlers was the largest licensee of Pierre Cardin clothing in the EEA during the infringement.
According to the EC, the companies entered into agreements and engaged in practices aimed at shielding Ahlers from competition in EEA countries where it held a Pierre Cardin licence. They prevented other licensees and their customers from selling Pierre Cardin-branded clothing, both offline and online, outside their licensed territories and/or to low-price retailers (such as discounters) that offered the clothing to consumers at lower prices.
The EC found that the agreement was an attempt to provide Ahlers with “absolute territorial protection” in the EEA countries covered by its license by limiting any parallel trade from other countries. In imposing the fine, the EC noted that restrictions to parallel trade “are among the most serious restrictions of competition” because they protect suppliers from competition and allow them to charge higher prices.
The case applies long-standing and clear case law but shows that the EC remains focussed on practices in any sector that divide the EU internal market. That includes the supply of basic consumer goods, not least in order to reduce cost pressures on individuals. Competition law compliance training should reflect this continuing enforcement priority and risk of fines.
First Judgment on Application of the UK National Security and Investment Act 2021
The High Court handed down the first court ruling on the application of the UK National Security and Investment Act 2021 (NSI Act) on 20 November 2024. The judgment confirms the government’s wide margin of discretion in these cases and the difficulty parties will have in challenging its decisions.
The NSI Act controls investment into UK entities and assets on national security grounds and in some cases gives rise to a mandatory filing and suspensory obligation before closing.
Following a review under the NSI Act, investment firm LetterOne, founded and ultimately owned by sanctioned Russian oligarchs, was ordered by the Secretary of State for Business, Energy and Industrial Strategy to divest its shareholding in Upp, a telecoms start-up. The basis for the order was the risk to national security due to potential Russian state influence over Upp and its “expanding full fibre broadband network.”
The company appealed on the grounds that the decision was disproportionate and contrary to LetterOne’s right to property under Article 1 of the First Protocol to the European Convention on Human Rights (A1P1).
The court rejected this ground as well as the argument that the absence of compensation breached A1P1. It also dismissed LetterOne’s challenges based on procedural unfairness and irrelevant considerations being taken into account by the Secretary of State.
The judgment goes into great detail on the process followed by the Secretary of State to reach the decision, which is of interest to parties involved in these cases. On the substance of the case, the court allowed great latitude to the government to decide on the issues and remedies. It stated “the court will treat as axiomatic that Parliament has entrusted the assessment of risk to national security to the executive and not to the judiciary,” Further, the government “should be afforded a wide margin of discretion in relation to whether a party operating an entity in a way that is contrary to the interests of national security ought to be reimbursed for financial losses upon divestment under the [NSI Act].”
The lawyers also received a warning. LetterOne sought to challenge the suitability of one of the civil servants involved in analysing the case by submitting “his career history from a social media profile … in support of the submission that he does not have the skill or expertise that should be required of officials who have a role in the decision-making process.” The court, noting that the decision was formally taken by the Secretary of State and not civil servants, was not impressed. It stated “his social media presence is irrelevant” and “the online search for his personal details was frivolous and vexatious.”
EC Imposes Fine for Patent System Misuse and Disparagement
On 31 October 2024, the EC announced a fine of €462.6 million on Teva for abuse of its dominant position in the markets for glatiramer acetate in various EU countries. Teva’s medicine Copaxone is widely used for the treatment of multiple sclerosis and contains glatiramer acetate, over which Teva held a basic patent until 2015.
The abuse the EC found consisted of misuse of patent procedures and a systematic disparagement campaign with the overall objective to delay competition and artificially prolong the exclusivity of Copaxone by hindering the market entry and uptake of competing, cheaper glatiramer acetate medicines.
When its patent on glatiramer acetate was about to expire, Teva extended Copaxone’s patent protection by filing for divisional patents with the European Patent Office (EPO). Divisional patents are derived from earlier “parent” patent applications and share similar content. However, they focus on different aspects of the invention and are treated independently when it comes to assessing their validity.
Rivals challenged these patents but, pending review by the EPO, Teva started enforcing them against competitors to obtain interim injunctions. Teva then withdrew the patent applications to avoid formal invalidity rulings that may have set precedents. This forced competitors repeatedly to start legal challenges, allowing Teva to artificially prolong legal uncertainty over its patents and potentially hinder the entry of competing glatiramer acetate medicines.
The EC found that Teva’s disparagement campaign consisted of spreading misleading information about the safety, efficacy and therapeutic equivalence of a competing glatiramer acetate medicine for the treatment of multiple sclerosis, despite it being an approved product. The campaign targeted key stakeholders, including doctors and national decision makers for pricing and reimbursement of medicines.
The case shows the wide scope of activities that can be considered an abuse of dominance and therefore be challenged by a regulator or affected party. It is the second EC decision on disparagement campaigns. In July 2024, it accepted commitments by Vifor addressing the EC’s preliminary concerns that the pharmaceutical company could have engaged in a potentially anticompetitive disparagement campaign.
The EC also identified a very important practical issue concerning in-house legal advice on EU competition law matters. It commented that “in the decision, the Commission also relied on documents from Teva’s in-house lawyers who were involved in the design of its abusive strategy to protect Copaxone. In-house lawyer communications are not privileged under EU law.” The same applies to non-EEA qualified external lawyers (including those only qualified in the UK or U.S.). This is a good reminder that this long-standing issue, raised as a matter of course in compliance manuals and training, can and does have a real impact in practice.
UK Shoe Retailer Successfully Challenges Supplier’s Distribution Model
A shoe retailer, acting without legal representation and using the fast-track procedure, successfully obtained a ruling from the UK Competition Appeal Tribunal (CAT) on 31 October 2024 that one of its suppliers infringed UK competition law through the operation of its distribution model.
Up & Running operated a retail business selling specialist running shoes and accessories in the UK. Deckers had been supplying HOKA branded running shoes to Up & Running on a wholesale basis. In July 2020, Up & Running presented a business proposal to Deckers involving the launch of a website on which excess stock, including HOKA products, would be sold at a discount. Deckers declined, and Up & Running nevertheless started selling HOKA products on the website, following which Deckers ceased supplying products to Up & Running in reliance on its terms and conditions.
Up & Running argued before the CAT that the terms and conditions are an agreement that contravenes the UK competition law ban on anticompetitive agreements. Deckers claimed that its agreement with Up & Running including the terms and conditions were part of the selective distribution system it operated in accordance with the Metro test (based on an EU case known by that name) and therefore exempt from the ban. Under a selective distribution system that satisfies the criteria in that case, a supplier can lawfully restrict its sales to certain outlets.
The CAT found that Deckers operated a two-channel distribution strategy involving a main retail channel and a clearance channel allowing for the disposal of residual stock. This distribution system was not an exempt selective distribution system because it did not meet the criteria set out in the Metro case. It lacked transparency, the criteria on which it was based were not clearly set out, it employed some quantitative criteria and it was applied in a discriminatory manner.
The CAT also held that the real reason Deckers refused to grant Up & Running permission to sell HOKA products via its website was to prevent the establishment of a new clearance website in the clearance channel. The relevant terms and conditions (as applied) restricting that activity amounted to a “by object” (in effect, automatic) restriction in contravention of UK competition law because they amounted to a complete ban on internet sales.
Further, the relevant terms and conditions sought to prevent retailers in Deckers’s selective distribution system that sell HOKA product in the main retail channel, such as Up & Running, from selling the product at a material discount through the clearance channel on clearance websites. That amounted to resale price maintenance and another by object infringement.
The relevant block exemption that at the time automatically exempted certain vertical agreements from UK competition law did not apply because these by object infringements amounted to hardcore restrictions under the block exemption and therefore automatically disapplied it.
The CAT concluded that Up & Running had suffered loss as a result of these infringements with the level of damages to be determined in a separate trial.
The case should be noted by any company that operates a distribution system in the EU or UK and will likely feature in many competition law compliance training sessions.
Additional EU and UK competition law news coverage can be found in McGuireWoods’ news section.
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