UK SUPREME COURT JUDGEMENT IN SERVIER COMPETITION DAMAGES LITIGATION

Holds Findings Made by European Courts Cannot Be Relied on in Different Context in Other Proceedings

On November 6, 2020 the U.K. Supreme Court handed down a judgment relating to the Servier U.K. competition damages litigation, in which it made key observations on when a judicial decision of the EU courts is binding in other proceedings.

What happened in the European proceedings?

In 2014, the European Commission (the Commission) fined Servier under Article 102 of the Treaty on the Functioning of the European Union (TFEU) and a restriction of competition ‘by object’ under Article 101 TFEU for entering into ‘pay-for-delay’ agreements, which delayed the market entry of cheaper generic versions of the heart drug Perindopril, an angiotensin converting enzyme (ACE) inhibitor medicine. Servier was found to be dominant because no other ACE inhibitor medicines, other than the generic versions of Perindopril, were able to meaningfully constrain its prices. As a result, the Commission concluded that the ‘pay-for-delay’ agreements amounted to an abuse of dominance.

In 2018, the General Court partially annulled the fine on the grounds that the Commission had made a series of errors when defining the market and had failed to establish that the relevant market was limited to Perindopril. The General Court decided that the relevant market extended to all ACE inhibitors generally because the Commission had: (i) under-estimated the propensity of patients to change medicines and (ii) attributed excessive importance to the price factor in analyzing the competitive constraints. As a result, the General Court held that the Commission wrongly concluded that Servier held a dominant position and therefore annulled the Commissions’ decision that there was an abuse of dominance under Article 102 TFEU. However, the General Court largely upheld the Commission’s finding that the ‘pay-for-delay’ agreements breached Article 101 TFEU.

Both Servier and the Commission have appealed this judgment to the European Court of Justice (ECJ).

What did the UK Supreme Court say?

Turning to the damages proceedings, due to significant overlap between the allegations of infringement in the U.K. proceedings and the infringements in issue in the ECJ proceedings, the U.K. claims cannot proceed to a final trial until the ECJ proceedings have been resolved. However, the High Court allowed certain preliminary issues relating to Servier’s arguments on mitigation and loss to be determined.

Servier sought to rely on the findings of the General Court on relevant market and dominance in relation to Article 102 TFEU in support of its arguments on mitigation and loss in relation to infringing agreements under Article 101 TFEU, on the basis that the EU principle of absolute res judicata meant that the General Court’s findings are binding on domestic courts. Where absolute res judicata applies, a judicial decision is given dispositive effect which is binding not simply on the parties to the decision but on all the world.^[1]

Servier argued that since the General Court had held that the relevant market was wide enough to include other ACE inhibitors (in concluding that Servier was not dominant), the claimants could have switched from Perindopril to generic ACE inhibitors. Their failure to do so amounted to a failure to mitigate losses and contributory negligence in relation to their damages claims under Article 101.

Both the High Court and the Court of Appeal held that none of the General Court’s findings on the definition of the ACE inhibitor market that were relied on by Servier constituted res judicata for these purposes. This was upheld by the Supreme Court which confirmed, first, that EU judicial decisions are only binding in domestic proceedings once they have become definitive, i.e., when all rights of appeal have been exhausted or time limits have expired. The General Court’s judgment is not definitive because it may be reversed or otherwise altered as a result of Servier’s and the Commission’s appeals to the ECJ. Therefore, res judicata did not apply.

Nonetheless, the Supreme Court went on to consider the underlying issues of law. It held that where a European judicial decision annulling a Commission decision is definitive, the principle of absolute res judicata is limited to the conclusions reached in the annulling judgment within the specific context in which it is made (not necessarily, as Servier argued, in any proceedings that fall within the scope of EU law which raise the same factual issues).

The wider approach for which Servier contended was not supported by EU or domestic case law and would go against the objective of EU res judicata, which is to promote legal certainty, effective judicial control of EU institutions and maintenance of the EU legal order. Servier’s argument would also raise practical difficulties, including that it had no workable defined limits and could bind third parties in an arbitrary and unjust way.

Therefore, the Supreme Court concluded that (even if the General Court’s findings were definitive), their binding effect would only apply with regards to the specific conclusions reached on the ACE inhibitor market and dominance in relation to the Article 102 claim, not also in the context of the issues of mitigation and loss in the Article 101 claim.

What impact will this have on future cases?

The Supreme Court has confirmed that the EU principle of absolute res judicata is interpreted narrowly and should mean that findings of the Courts of Justice of the European Union regarding infringements of EU law are not binding in domestic litigation in contexts different to those in which they are made.

Note that in the context of Brexit, General Court and ECJ judgments delivered before the end of this year are binding on U.K. courts. Decisions of those courts made from January 1, 2021 onwards will not be binding, but the U.K. courts will be able to have regard to such decisions where they are relevant to any matter that the court is considering.