Judgment

Judgment of the Tribunal in relation to two appeals against a decision of the Competition and Markets Authority (“CMA”) entitled “Unfair pricing in respect of the supply of phenytoin sodium capsules in the UK”, issued on 7 December 2016 and addressed to Pfizer Limited and Pfizer Inc. (together, “Pfizer”), and Flynn Pharma Limited and Flynn Pharma (Holdings) Limited (together, “Flynn”) (the “Decision”).

                                    In the Decision, the CMA found inter alia that (i) Pfizer’s supply prices to Flynn; and (ii) Flynn’s selling prices, for the capsule form of the drug phenytoin sodium, which is used to treat epilepsy, were excessive and unfair. Pfizer and Flynn were each found to have infringed the Chapter II prohibition under the Competition Act 1998 (“CA 98”) and Article 102 of the Treaty on the Functioning of the European Union (“TFEU”). The CMA imposed a financial penalty of £84.2m on Pfizer and £5.2m on Flynn and directed Pfizer and Flynn to reduce their prices. 

                                    Pfizer and Flynn brought separate appeals against the Decision under section 46 CA 98.  The appeals were heard together with each of Pfizer and Flynn being granted permission to intervene in the other appeal. 

                                    In summary, the Tribunal reached the following conclusions on the main issues in the appeals:

1. Market definition and dominance (Section G of the Judgment): the Tribunal upheld the CMA’s findings that the relevant markets were (i) as regards Pfizer, the manufacture of Pfizer-manufactured phenytoin sodium capsules that are distributed in the UK; and (ii) as regards Flynn, the distribution of Pfizer-manufactured phenytoin sodium capsules in the UK; and that Pfizer and Flynn each held dominant positions in their respective relevant markets.
    
2. Abuse (Section H of the Judgment): the Tribunal set aside the CMA’s findings on abuse on the basis inter alia that:
    
   • The CMA had erred in its reliance on the Cost Plus approach by which it found that Pfizer’s and Flynn’s prices were excessive because they materially exceeded their respective costs plus a reasonable rate of return.
      
   • The CMA had not properly assessed the possible impact of meaningful comparators (in particular, phenytoin sodium tablets) for the purpose of assessing whether Pfizer’s and Flynn’s prices were unfair.
      
   • The CMA had erred in finding that there were no non-cost related factors which would increase the economic value of the capsule product beyond Pfizer’s and Flynn’s Cost Plus.
      
3. Pfizer’s position as supplier (Section I of the Judgment): The Tribunal rejected Pfizer’s argument that, because of the vertical nature of its relationship with Flynn and its distance from Flynn’s pricing, it could not be in breach of Article 102 TFEU in any event.
    
4. Penalties (Section J of the Judgment): In view of its decision on abuse, the Tribunal concluded that it was not necessary for it to come to a decision on the level of the financial penalties imposed by the CMA in this case.
    

The Tribunal set aside that part of the Decision relating to abuse (and any consequential findings, including penalties), and invited written submissions from the parties on whether to remit the matter to the CMA.