The Serious Fraud Office (SFO) has announced that it is bringing criminal proceedings against five companies and nine individuals following an in-depth investigation, reported to be one of the largest it has ever conducted, into the pharmaceutical sector.
In 2002, the SFO and the police conducted a series of investigations at both company and domestic premises associated with six pharmaceutical companies into suspected fraud on the National Health Service following a prompt from the Department of Health. Subsequently the SFO opened an investigation into price-fixing and market-sharing by these companies in the supply of generic drugs (including warfarin, a blood-thinner).
The SFO has now announced that it has commenced criminal proceedings alleging conspiracy to defraud in relation to the pricing and supply of these drugs between January 1996 and December 2000.
The Department of Health has brought parallel civil proceedings against the companies, claiming damages arising out of anti-competitive agreements between them in relation to the supply of certain generic drugs. Three of the companies facing criminal charges have reached settlements with the Department of Health in relation to these civil proceedings, making payments which reportedly totalled approximately £30 million.
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Since the Enterprise Act 2002 came into force on 20 June 2003, an individual who has been dishonestly involved in hard-core cartel behaviour can be subject to criminal sanctions.
The maximum punishment for the 'cartel offence' is 5 years' imprisonment and/or a fine. The allegations in the SFO's investigation relate to a period prior to the Enterprise Act 2002 and are based therefore on charges of criminal conspiracy to defraud. If similar activities to those alleged took place now, they could well be caught by the criminal cartel offence.
Businesses should be aware that not only are companies exposed to fines and damages claims for breaching EC or UK Competition Law, but that individuals are also at risk of committing the criminal cartel offence. They may also become subject to Director Disqualification Orders.
First Damages Claim for CAT Under Competition Act
The Competition Appeal Tribunal (CAT) has received its first ever third party claim for damages based on an infringement decision of the Office of Fair Trading (OFT).
Under the Competition Act 1998 (the Act), third parties can bring a claim before the CAT if they have suffered loss or damage and the OFT or the CAT has found that there has been an infringement of Chapters I or II of the Act (so called 'piggy-back' actions). A similar principle applies where the European Commission, the OFT or CAT has found a breach of Articles 81 or 82 of the EC Treaty.
In 2004, the CAT confirmed in part the OFT's finding that Genzyme, a global biotechnology company, had abused its dominant position under Chapter II by operating an abusive pricing policy that effectively foreclosed the market for the provision of certain home care services to companies other than Genzyme.
In April 2006, one of the companies affected by Genzyme's pricing policy, Healthcare at Home, lodged a claim in the CAT against Genzyme for damages, together with a declaration of entitlement to an account of profits in respect of losses it claims to have sustained because of Genzyme's abusive conduct. The claimant has also requested exemplary damages (i.e. damages to punish Genzyme, rather than simply to compensate the claimant) - if the CAT grants the request, this would be the first time an English court or tribunal has made such an award in a competition case.
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Whether this claim for damages will proceed to judgment is still an open question. Two previous damages claims brought before the CAT based on a European Commission infringement decision in the Vitamins Cartel were settled confidentially out of court. It is clear, however, that if as a result of this new claim the legal framework for seeking damages proves to be sufficiently robust, then it may trigger a flow of damages claims before the CAT and UK courts.
More generally, the desirability of encouraging third party private enforcement actions has recently been the subject of a Green Paper on Damages Actions issued by the European Commission. The Commission suggests that a competition law specific remedy of double damages awards might be necessary, both in order to incentivise claimants as well as to deter possible infringers. Consultation on the Green Paper has ended and the Commission is reviewing its next steps.
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