CMA decides that loyalty discounts in pharma sector not an administrative priority but may be in the future

The CMA has closed a competition investigation into alleged abuse of dominance through loyalty discounting in the pharmaceutical sector. The CMA has decided not to continue with its year-long investigation on the grounds that the case is not within its current administrative priorities.  However, it has been at pains to stress that this does not mean that such cases could not merit investigation in the future.

Loyalty-inducing rebates have been a difficult topic at the EU and national level.  Companies who are at risk of being found dominant and competitors who consider that they are prejudiced by the discounting practices of such firms may consider that the case was a missed opportunity for the CMA to establish a precedent.  The CMA said that the evidence it has obtained suggests that continuing with its investigation would have had a limited effect on consumer welfare.  

Public authorities have limited resources and cannot of course investigate every case to a conclusion.  The European Commission may also decline to investigate a case to a full decision on the basis of it not being an EU priority.  This does not mean that the authority is closing the case due to resource issues alone but that the issues raised are not considered by it to be a regulatory priority.  This can involve the situation where the evidence gathered does not suggest that there will be a successful outcome. 

The CMA has said that it examined the conduct at issue extensively, including through stakeholder meetings and information requests.  The company under investigation has not been named yet the investigation has not been without costs in terms of legal uncertainty and disruption in dealing with the ongoing scrutiny.   

The case comes as a reminder of the often finely balanced issues to consider in relation to loyalty rebates applied by dominant firms.  Many schemes are pro-competitive.  Others will require a more detailed assessment.  However, until a competition authority or court makes a definitive decision in this area there will remain uncertainty in seeking to defend such practices against a traditional form-based approach and notwithstanding the portent of a more economics-based approach in the European Commission’s priority guidance.

Statement regarding the CMA's decision to close an investigation into a suspected breach of competition law in the pharmaceutical sector on the grounds of administrative priority, 26 June 2015