The judgment of the Competition Appeal Tribunal (CAT) in Lexon v CMA demonstrates the breadth of the prohibition on exchanging competitively sensitive information with competitors.

For context, the case arose from an appeal by UK generics wholesaler Lexon of a CMA decision finding that it, along with competitors King and Alissa (who did not appeal), had engaged in anti-competitive communications relating to the conditions of supply of the generic drug nortriptyline in the UK. Lexon was fined £1.22m in March 2020. The CAT rejected Lexon’s appeal and upheld the CMA decision in its entirety.

We have reviewed the judgment in more detail in a post on our sister blog, the CLIP Board. This article focusses on the learnings in relation to anti-competitive information sharing risks arising from the distribution of pharmaceuticals in the UK.

When does the sharing of information breach the competition rules?

Exchanging competitively sensitive information with a competitor is viewed as a serious infringement of the competition rules in most jurisdictions, including the UK and the EU. The competition authorities consider that such exchanges (or even a single piece of information passed from one competitor to another) remove uncertainty for market participants and so distort competition on the market.

What do we learn from the Lexon judgment?

The Lexon judgment clearly illustrates the risks that can arise in the specific context of the UK pharma distribution market. The following are the top 10 points from the judgment that companies active in pharmaceutical distribution should be aware of when talking to competitors:

1. Just because you don’t talk about prices doesn’t mean that an exchange with a competitor is risk-free:
   • Exchanges relating to topics such as volumes, stock availability or supplier-customer relationships can convey meaningful commercial information about likely future market prices.
2. Even vague or misleading information can constitute an unlawful information exchange:
   • If the information is plausible and likely to be acted upon in a way which is consistent with an anti-competitive objective (such as maintaining prices or slowing price decreases), that is sufficient.
3. Just because information is available from other sources, it doesn’t mean that there may not be a breach of the competition rules:
   • Discussion of market intelligence and inferences drawn can be within the scope of the competition rules – particularly where part of a pattern of conduct, designed to reassure or reinforce expectations.
4. Communications which create a general sense of assurance of consistent market conduct are within the scope of competition law:
   • Knowing that a competitor is not going to act as a maverick can be commercially valuable.
5. Even information of borderline commercial sensitivity may come within the scope of a competition law infringement if there is a pattern of communications:
   • A single exchange of commercially sensitive information is enough to engage the rules, but frequent or regular communications may make more innocuous information suspect.
6. The period around new entry to a generic market is particularly high risk:
   • At such time periods there is greater scope for price decreases so communications which are aimed at or have the effect of slowing those price decreases are likely to be viewed with suspicion.
7. Changes in competitive status (e.g. a wholesaler obtaining its own product licence) can be a danger point:
   • A customer-supplier relationship may have previously existed, but once the customer starts to compete with the supplier, their communications will be considered in the light of that new relationship.
8. Subjective intentions in attending a meeting (or engaging in other communications) are irrelevant if its objective purpose is to discuss topics of commercial sensitivity:
   • Any necessary communication with competitors should be have a clear basis and should be carefully minuted to avoid the risk of problematic inferences being drawn.
9. The fact that one individual initiated the meetings/communications does not affect the liability of other participants:
   • Even individuals who were not the driving force behind a series of communications can risk their companies being held liable if they allow themselves to be drawn in, and will run risks of competition law disqualification being sought if they are themselves directors.
10. The fact that a party has a very small market share does not immunise them from the risk of participating in a competition law infringement:
    • Lexon’s own market share was very small (<5%), although it also benefitted commercially from sales made by Teva (due to Teva having a licence from Lexon’s JV partner) – but any competitor or potential competitor who exchanges commercially sensitive information with rivals is liable to be found to have infringed.

Significance of the judgment

The Lexon judgment does not make new law, but is a clear illustration of the risks of engaging in an anti-competitive exchange of information. It also demonstrates some of the risk points that arise from the nature of the UK pharmaceuticals distribution market, with companies acting both as suppliers and resellers, and as a result having more than one type of relationship with other industry participants.

The consequences of a finding that commercially sensitive information has been exchanged are significant. Lexon has been fined £1.22M, which included an uplift for deterrence. One of its directors is also the subject of a CMA application for disqualification; the CMA has already secured disqualification undertakings from directors of each of the other companies involved in the infringement.