EU Competition Law : It’s Not What a Contract Calls itself but What it Does

You can’t judge a book by its cover” is a proverb that one seldom hears these days.  But it is applicable in many situations, and not least in the field of EU antitrust or competition law.  When assessing a contract from competition law standpoint, one “judges” it not by its “cover” (i.e. how it chooses to call itself), but by its intention and its effect.  If the intention or the effect of the contract is to prevent, restrict or distort competition in the relevant market, then there will be a clear risk of it contravening competition law…with all of the negative consequences that flow from that.

A good example of this principle has recently been provided by the European Commission, when it announced in December 2013 that it was imposing fines in excess of €16m on two well-known pharmaceutical companies, Johnson & Johnson and Novartis.  Those companies’ respective Dutch subsidiaries had signed a contract that described itself as a “co-promotion agreement”.  True, the word “co-promotion” is prima facie innocuous.  But when one “opened the book” and looked inside, it became apparent that neither the intention nor the effect of the contract had much if anything to do with co-promotion.  Instead, the aim was to incentivise one of the contractors to delay the market entry of a cheaper generic version of a pharmaceutical in order to keep prices artificially high.  This “pay for delay” tactic was particularly fiendish, as the pharmaceutical in question was a pain-killer used to treat patients suffering from cancer. The European Commission described the tactic as “simply intolerable“.

So the message is clear.  It doesn’t matter at all how the contract describes itself, or indeed what words are chosen to frame its provisions.  If it is intended to be anti-competitive, and/or if that is its effect, then no amount of euphemisms or creative drafting will rescue it.  To those considering entering such contracts, another proverb is useful to bear in mind:  “Look before you leap“.