When does speaking badly about your competitors become a competition law problem?

For ease of reference, we'll refer to such practices as "denigration" in this article.

Interestingly, whilst these cases have been based on the European rules (primarily the prohibition of abuse of a dominant position contained in Article 102 TFEU), this development in case law has not been centrally driven by the European Commission's competition authority in Brussels but instead by the French, Italian and Danish competition authorities and later confirmed by national courts (and indirectly by the European Court of Justice in Luxembourg in an Article 101 TFEU case).

Denigration is a clear example of how TFEU Article 102 develops through case law to encompass new types of abuses to ensure that companies with significant market power compete fairly.

It's not unlawful to be good at what you do and become the leading, dominant player in the market. However, case law has decided that dominant companies have a special obligation not to harm what remains in the market in terms of effective competition and are therefore limited in their actions by being held accountable to only "compete on the merits". The definition is vague yet it basically means that dominant companies are only allowed to compete on, for example, having better prices or quality, sharper marketing, providing better before and after sales service, offering variation wide range of products, and/or being more innovative.

Denigration basics

Denigration means to criticize a competitor's products or services in a derogatory manner, ultimately with a view to influencing customers purchasing patterns. As such, such practices are normally dealt with under unfair marketing rules in national legislations, typically through litigation in courts or complaints to special regulatory authorities.

However, denigration has in certain very serious cases found its way into the competition law arena.

Indeed, in several cases, denigrating conduct has been a part of dominant companies’ communication strategies with the clear object of disseminating information to customers about a competitor in order to create an air of uncertainty and/or doubt regarding either the competitor's ability to carry out certain activities or the putting a question mark on the quality, safety or efficacy of their products and services. Denigrating conduct is most often seen in the form of dissemination of negative information based on false or misleading assertions in regard to competing products with the intention of having an impact on customers' purchasing decisions.

In this sense, denigration of competitors' products may have the same effects as other known exclusionary abuses, but the effects in the market are longer-lasting than purely monetary based incentives. This is because the unjustified doubts or fears only can be overcome with a significant effort by the target company to (re)educate and (dis)prove the denigrating statements in front of healthcare professionals.

The legal standard for bringing a denigration claim is evolving

Whilst at European level the European Commission has not yet had the opportunity to take a decision on a dominant company denigrating competitor products there is a considerable body of law at national level under Article 102, in particular in France. When appealed, the French cases have been upheld in two instances on appeal (the Cour d'appel de Paris and the Cour de Cassation). The cases have covered not only the pharmaceutical sector but also diverse sectors such as telecoms, electricity and pay-TV. Common to all cases is that the dominant player has attempted to hinder market entry and product switch through denigrating competitor products in a number of different ways. Typically, the dominant company conducted a consistent, widespread strategy of misinformation to people who took or influenced purchasing decisions. For example, in the cases relating to the pharmaceutical sector, the dominant company would undertake a campaign aimed at generating a sense of uncertainty on the safety and/or efficacy in the minds of doctors and that the doctors could become liable for damages if they prescribed a generic version to patients. The information the dominant pharma company would systematically provide to doctors would be false (or at least against commonly accepted scientific knowledge) and exploit the well-established relationships that the dominant company's medical representatives had with doctors across France.

The French Competition Authority (the FCA) has thus in its more than 10 denigration cases consistently held that denigration of competitors or their products does not constitute competition on the merits and as a result denigration can constitute an abuse of a dominant position in certain circumstances. In French case law, for denigration to infringe Article 102, four clear elements have to be proven: there is (i) denigration of a competitor’s product with a view to obtaining a commercial advantage; (ii) a link between the dominance and the practice of denigration has to be established; (iii) it has to be verified whether the statements put forward in the market by the dominant company are based on objective findings or assertions that are not verified and then (iv) whether the commercial statements are liable to influence the structure of the market.

In Italy, a case started before the Italian competition authority (the ICA), went all the way to the European Court of Justice, Europe's highest court. The Court found that an agreement between competitors marketing two competing products, which concerned the dissemination, in a context of scientific uncertainty, to the European Medicines Agency, doctors, nurses and the general public of misleading information relating to adverse reactions resulting from the use of one of those products for off label use, with a view to reducing the competitive pressure resulting from such use on the use of the other medicinal product, constituted a restriction of competition ‘by object', i.e. the most severe type of competition law restriction.

Indeed, Europe's highest court stressed that by providing misleading information on the safety of pharmaceutical products “…given the characteristics of the medicinal products market, it is likely that the dissemination of such information will encourage doctors to refrain from prescribing that product, thus resulting in the expected reduction in demand for that type of use.” Interestingly, the Advocate General in his opinion qualified misleading information to be incorrect (i.e. erroneous) information but also information that was in itself correct but “…presented selectively or incompletely, where, because of the manner of presentation, the information disseminated is likely to mislead those who receive it” [1] and went on to state that “In my opinion, omitting to state that the risks created by using the medicine are uncertain, or exaggerating such risks with a lack of objectivity with regard to the available evidence, may render the concerted communication of those risks misleading”.

Whilst not a case on abuse of dominance, the Court nonetheless confirmed that putting forward misleading information to stakeholders in a given market can – in certain circumstances where such information has an impact on customers purchasing decisions – constitute an infringement of competition law.

Finally, earlier this year the Danish Competition Authority (hereafter the DCA) held that the Danish business unit of the ambulance service company, Falck, had abused its dominant position on the market for ambulance services by excluding a Dutch competitor, BIOS, from the market.

The DCA concluded that Falck had implemented a general strategy to exclude BIOS from the market by creating uncertainty and concern about BIOS as a supplier of ambulance services and, in particular, as an employer. Prior to the implementation of the strategy, Falck had lost a public tender regarding the supply of ambulance services in the region of Southern Denmark.

Among other things, Falck's strategy consisted of secretly conveying negative stories about BIOS to the press and to their own employees, thus purposefully influencing paramedics, who considered a job at BIOS, in order to prevent them from applying for a job. Important to understand, the Danish market for ambulance services is characterized by a limited workforce since all educated paramedics are already employed and the education of new paramedics is time-consuming and expensive. Therefore, it was a known fact that BIOS had to take on paramedics from Falck in order to be the supplier in the region, leaving room for denigration to be an effective non-price exclusionary strategy.

Overall, Falck's conduct made it difficult for BIOS to recruit paramedics, and ultimately BIOS had to leave the market. The DCA especially found it critical that Falck used third parties in order to distribute the misleading information that could not be traced back to the itself, making the information seem more trustworthy and objective.

Falck argued that the case should be assessed according to the Danish Marketing Practices Act and not the competition rules. The DCA rejected this argument, stating that even though the practices had many similarities with marketing rules it did preclude antitrust enforcement.

As illustrated above, the case law relating to denigration requires the information to be directly false, misleading or based on unverified assertions. However, the DCA was not particularly concerned whether Falck's communication strategy was wrong or misleading. Actually, the DCA found that some of the information might even have been factually correct, but the mere fact that the communication strategy was carried out through third parties was misleading and manipulative and the conduct did therefore not constitute competition on the merits. According to the DCA, it is therefore sufficient in order to establish abusive behaviour that the dissemination of information takes place in a covert manner in order to make the information seem more credible and objective, regardless of whether the information is actually accurate or not.

Unfortunately, the DCA's reasoning was never tested in court as Falck chose not to appeal the case, so it is difficult to be certain whether the mere fact that information was disseminated in a covert manner would be enough to trigger Article 102.

The core of denigration

The denigration cases have so far turned on the dominant company identifying the most important non-price parameters to be able to compete in a market and concluding that the relevant customer decision process could be influenced by instilling fears or concerns that are then conveyed to decision makers and stakeholders in a systematic and consistent campaign. Just as safety and effect are essential parameters in the pharmaceutical sector, paramedics comprise an essential non-price competition parameter in the sector of ambulance services.

Therefore, it seems that abuse of a dominant position as a consequence of denigrating conduct is more likely to be sanctioned in sectors where non-price competition parameters are more relevant than price. The more important a given parameter is, the more critical it is when a dominant company tries to exclude competitors through either false or misleading information, or tries to make information credible in a covert manner.

The development of the application of denigration demonstrates that the scope of competition law is ever expanding and it will be highly interesting to see if the European Commission will take on the issue in future abuse of dominance cases. The fact that a novel application of competition law has been led by national competition authorities and not the European Commission is also worth noticing.

[1] Roche/Novartis Opinion, Judgment 95.