COMPETITION NEWS AND REGULATION OF DIGITAL MARKETS


Executive summary


Merger Control in Luxembourg

On 13 July 2022, the Ministry of the Economy published a report on the establishment of a national merger control. Its purpose is to present the results of the year-long process of preparation and to present the public consultation results regarding the establishment of a national merger control, which seems to be appropriate (I).


Sector inquiry on medical products and pharmacies

The Competition Council ("Council") published, in June 2022, a sector inquiry report on medical products and pharmacies. In particular, the Council examined the analysis of the Luxembourg market regarding medical products for human use. Since Luxembourg has no producers or developers of pharmaceutical products, the investigation focused mainly on the distribution of medicines (II).


Regulation of digital markets

On the regulatory side of digital markets, two new European Union regulations are expected to come into force in the coming months. Their objectives are to control large platforms with a dominant position as well as the dissemination of illegal content and products online (III).


I) The Introduction of Merger Control in Luxembourg


On 13 July 2022, the Ministry of the Economy published a report on the establishment of a national merger control.


Merger control is a complementary practice to the law on anti-competitive practices, which is described as preventive since it avoids negative effects on competition in the interest of the consumer, while allowing undertakings and third parties to express their views. Especially since, while most mergers and acquisitions are supposed to be beneficial, other transactions can have the opposite effect and affect competition.


Thus, a public consultation was initiated at the beginning of 2022, in order to gather the opinion of interested parties on the establishment of a future national merger control system. Luxembourg is the only Member State of the Union without national rules on the control of mergers.


It is clear from this report that a national merger control is desired by the various economic actors and by all interested parties. Two important questions persist regarding the introduction of this type of control in Luxembourg: 1) The choice of the notification system and; 2) The question of the level of the competition authority's jurisdiction. However, certain aspects will have to be taken into account in order to give rise to a Luxembourg-specific control, in particular the cross-border activities of Luxembourg companies and the importance of the financial sector.


The aim now is to submit a bill to the Parliament in 2023 introducing merger control under Luxembourg national law.


II) Sector investigation of the Competition Council in the pharmaceutical sector

1) Regulation of the prices of medical products for human use

The investigation lasted nearly three years. It began in autumn 2019 and was interrupted because of the pandemic which has surely had a definite impact on the sector analyzed.


The pharmaceutical sector is obviously not an economic sector comparable to any other. Specifically, health-related services are services considered to be of general interest that require different and often more restrictive regulations than the pure and hard economic law of supply and demand.


However, as far as the Council considers that the features of the health sector are not sufficient, on their own, to shield that sector from free competition, the Council has carried out an analysis of the various aspects of that field.


The Council states that pharmacies in Luxembourg sell both medical products for human use and veterinary medical products but also Para pharmaceutical products. Its analysis is limited to medical products for human use, which fall into two categories, namely, medical products whose sale is subject to medical prescription and over-the-counter medical products. To be able to market a medical product on Luxembourg territory, it must have a marketing authorization drawn up by the Ministry of Health and be awarded a prize to the public by the Ministry of Social Security. This price is fixed by maximum price on the price structure of the country of origin.

  • Medical products subject to medical prescription

As regards medical products sold only under medical prescription, the Council considers that liberalization of the prices fixed would lead to issues at various levels and that the fixing of those prices allows them to be reimbursed at the same level and without discrimination for those insured by the Health Funds system.

  • Over-the-counter medications

However, regarding over-the-counter medical products, the Council advocates a liberalization of fixed prices for these medical products. This liberalization would make it possible to improve the state of health of citizens at a lower cost. The representatives of pharmacists, for their part, consider that such liberalization would strengthen the mercantile side of the pharmacist's activity to the detriment of that of the service of general interest in relation to the advisory activities, availability, and on-call services of pharmacists.


2) Generic pharmaceutical products

Generic drug is the drug that consists of a replica of the original patent-protected drug or patented active molecule. It has identical therapeutic efficacy, and the active substance contained in the generic drug is the same as that of the original drug.


The Council, after analyzing that sector, notes that generic medical products are little used in Luxembourg. Whereas the generalization of the generic drug would have several advantages, including lower prices than the original drugs and therefore a substantial budgetary saving of the State.


The Council recommends several solutions to encourage insured persons and doctors to use these generic drugs. Among other things, expanding the generic drug sector, prescribing in international names rather than the name of the drug, or promoting generics through general awareness among the public.


3) Medical products wholesale distribution analysis

The Council notes that in Luxembourg there are essentially two types of wholesale distributors: 1) Wholesaler-distributors and; 2) Wholesalers authorized to distribute certain medical products. According to pharmacists' representatives, the stock-outs are mainly due to quotas imposed by the pharmaceutical industry to counter the use of parallel imports, which are legal under the free movement of goods.


In order to avoid, or at least reduce stock-outs, the Council recommends various measures, including the reduction of price differentials within the European Union.


4) Analysis of pharmacies open to the public

In Luxembourg, there are two pharmacy schemes: concession pharmacies and private pharmacies.

  • Pharmacies under concession, which are liable for a fee of 2% to the State, are awarded by the State, which opens a concession in the event of a concession vacancy or in the event of the creation of a new urban district requiring the presence of a new pharmacy because of the growing number of residents. The State selects the dealer based on his experience and professional career, who must hold a diploma in pharmacy.

  • Private pharmacies are pharmacies subject to a special exceptional regime put in place to protect existing pharmacies when setting up pharmacies under concession. These pharmacies are the private property of its holder with a pharmacist's degree.

The Council notes that access to pharmacies, whether licensed or private is difficult.


The allocation of pharmacy concessions is governed by a system of points calculated according to the seniority of the diploma, the years of experience and the scientific titles of the pharmacists-candidates. This system creates a barrier to entry for young pharmacists.


As far as private pharmacies are concerned, they tend to stay with their families or are sold at high prices, depriving young pharmacist-candidates of access de facto.


The Council recommends identifying pharmaceutical deserts by social-demographic criteria. By trying to overcome these deserts by opening new pharmacies under concession and let the market evolve according to the law of supply and demand by allowing the opening of other pharmacies without obligation of concession.


5) The Luxembourg's dual officinal monopoly

The Council analyses the Luxembourg officinal monopoly as far as pharmacies are subject to a double monopoly: The monopoly possession on medical products and the monopoly on their distribution.


Indeed, only a pharmacist can own a pharmacy and only pharmacies can sell medications. This dual monopoly does not promote innovation or differentiation. In the Council's view, if qualified persons who can advise the client dispense the medical products, it is not necessary for the pharmacy to be owned by a pharmacist. Thus, the monopoly of ownership by a pharmacist could be lifted.


The Council therefore recommends opening the holding market by allowing, for example, associations between healthcare professionals in which the pharmacist should be included.


In addition, it suggests allowing the sale of out-of-prescription medicines outside pharmacies under the supervision of a qualified pharmacist.


Finally, the Council is in favor of extending pharmacy services open to the public by allowing them to carry out vaccines, blood pressure tests, blood glucose levels, prescription extensions and rapid diagnostic orientation tests. This would allow, among other things, the decongestion of medical practices.


The Council's recommendations

  • The Council advocates prices liberalization of over-the-counter medications;

  • Generic drugs, being very little used in Luxembourg, the Council recommends broadening the sector of these categories of medicinal products by prescribing an international non-proprietary name and promoting generics through general awareness among the general public;

  • The Council advises a reduction in price differentials within the European Union to reduce the cases of stock-outs;

  • As access to pharmacies is difficult, the Council also recommends the identification of pharmaceutical deserts (localities that do not have a pharmacy nearby) by social-demographic criteria as well as by the opening of other pharmacies under concession and others without obligation of concession;

  • The Council advocates the abolition of the monopoly on the ownership of pharmacies by a pharmacist (natural person) and recommends associations between health professionals in which the pharmacist should be included;

  • Finally, the Council also recommends allowing the sale of out-of-prescription drugs outside pharmacies as long as a qualified person sells the drug.

III) The digital markets act and the digital services act: pillars of digital regulation


The two new proposed EU regulations limit the economic dominance of large platforms, and the distribution of illegal content and products online, should enter into force soon.


On 5 July 2022, the European Parliament took the final vote on the new digital markets and services act: the Digital Markets Act (hereinafter the “DMA”) and the Digital Services Act (hereinafter the “DSA”). The process of adopting these texts is not yet complete since the Council of the European Union still must approve them in July for the DMA and in September for the DSA.


Certainly, the adoption of these two major texts is an upheaval for the digital landscape as these rules have as their main objectives to create a safer online environment. "What is illegal offline should also be illegal online in the European Union", Ursula von der Leyen, President of the European Commission, declared last April.


Being regulations, these texts will not need to be transposed into the national law of the Member States, which should accelerate their enforcement. The two regulations should entry into force 20 days following their publication.


Digital technology is a difficult area to understand and regulate, as it has a direct link with different types of markets. It is causing major changes in several economic sectors.


The development of the “GAFAM” platforms – an acronym for Google, Apple, Facebook, Amazon, and Microsoft – has given rise to several complex competition issues for regulators. Indeed, in recent years the large digital platforms have grown so rapidly that they have undermined the digital independence of States. For this reason, the European Union has intervened to strengthen the control of the practices of these platforms by introducing a new legal tool for this purpose. To counter this, the European Commission has proposed two legislatives initiatives: the DSA, complemented by a second regulation and the DMA, both tabled in 2020.


These two regulations propose to define the responsibilities of the major online platforms, as well as to better control their anti-competitive behavior.


1) Digital Markets Act regulates internet Gatekeepers

The scale of the large platforms; an attack on the digital independence of States.


In the European digital market, more than 10,000 online platforms exist today, but only small minority is capturing the value created by these digital activities.


The most established technology companies, i.e., the web giants, are the main target of this regulation on digital markets. Its objective is to fight against the abuse of their dominant positions and to guarantee the development of competing activities in compliance with fundamental rights.

  • The objectives of the Digital Markets Act

Its objective is to create a fair and a level playing field, with the aim of promoting innovation, competitiveness, and development in the European single market and globally, in short, to regulate the existing relationships between the large online platforms and the user companies.


Some large online platforms act as Gatekeepers to digital markets. These platforms, known as Gatekeepers, are few but have the largest market share. They are referred to as “core platform services providers”.


The DMA establishes a set of strictly defined objective criteria for qualifying a major online platform as a “Gatekeeper”.


These criteria are met if the company has a significant impact on the international domestic market; it operates a core platform service, which serves as an important gateway for business users to reach end users; has a strong and sustainable position in its business.


However, a company may still be qualified as Gatekeeper by the European Commission after an investigation by the latter.

  • The obligations and prohibitions imposed on Gatekeeper

The main goal is to allow user companies that are dependent on Gatekeepers to market in a fairer environment. Start-ups and innovators will be able to compete and innovate in the online platform environment without unfair terms and conditions holding back their development. In turn, consumers will have a wider range of services, a wider choice of suppliers and fairer prices.


As far as Gatekeepers are concerned, they will obviously be able to continue to innovate by offering new services, but they will no longer be able to resort to unfair practices towards companies and customers. However, they will have to comply with obligations and prohibitions that they must respect on a daily basis.


Subject to further clarification by other legal texts, Gatekeepers will no longer be able to: 1) Prevent end-users from accessing company services outside their platforms; 2) Prevent users from uninstalling pre-installed software or applications; 3) Give the services and products they offer more favorable treatment in terms of ranking than similar services and products offered by third parties on their platform.

  • The powers of the European Commission

The European Commission will be able to carry out three types of market investigations to monitor developments in digital markets: investigations into systematic non-compliance, investigations into new practices and services and investigations into the appointment of Gatekeepers.


Penalties for non-compliance with the rules set out in the act are fines of up to 10% of the company’s total annual worldwide turnover, or up to 20% in the event of a repeat offence; penalty payments of up to 5% of its average daily turnover.


2) The strengthening of Europe’s digital plan with the Digital Services Act

  • The objectives of the Digital Services Act

The Digital Services Act aims to contribute to a safer digital space, in which the fundamental rights of users of digital services are protected. It aims to regulate the relationships between digital platforms and consumers.


The regulation concerns all companies that offer “intermediary services” to European users. This includes: 1) Providers of Intermediary Services; 2) Online Platforms; 3) and “Very Large Online Platforms” characterized by having "an average monthly active recipients of the service in the Union equal to or higher than 45 million” and thus presenting risks for the dissemination of illegal content and societal harm (hereinafter the “Very Large Online Platforms”).


In other words, the DSA aims to try to limit the distribution of illegal content (harassment, incitement to violence...) and products online. The main targets of the DSA are therefore all companies that offer “intermediary services” to users.

  • Obligations under the Digital Services Act

In order to ensure these objectives, the DSA sets out certain obligations to be met.


Providers of Intermediary Services have the following obligations :

  • Establish a single point of contact to facilitate communication with Member State authorities, the Commission, and the European Committee;

  • For those not established in a member state but offering their services in the EU, appoint a legal representative in the EU;

  • State in their terms and conditions any restrictions they may impose on the use of their services and act responsibly in applying these restrictions;

  • Provide transparency reports on content that is illegal or contrary to their terms and conditions and has been removed or made inaccessible.

For their part, hosting service providers (as Online Platforms) shall :

  • Establish mechanisms for third parties to notify the presence of illegal content; and

  • Provide a statement of reasons if they decide to withdraw information provided by a service recipient.

As for Online Platforms (other than SMEs), they will be obliged to :

  • Establish an internal complaint handling system for decisions on illegal content that is incompatible with their terms and conditions;

  • Partner with alternative dispute resolution organizations to resolve disputes with users of their services;

  • Give priority to notifications submitted by entities that have been granted trusted signatory status;

  • Inform the authorities when there is information to suspect serious criminal offences involving threat to life or security of persons;

  • When these online platforms allow consumers to conclude distance contracts with these professionals obtain different information about the professionals using their services and assess their reliability;

  • Organise their interface in such a way as to enable professionals to comply with EU consumer protection and product safety act;

  • Publish reports on content that is illegal or contrary to their terms and conditions; and

  • Be transparent about online advertising.

Finally, the Very Large Online Platforms are obliged to :

  • Carry out assessments of systemic risks arising from, or related to, the operation and use of their services;

  • Take reasonable and effective measures to mitigate these risks;

  • Undergo external and independent audits;

  • Provide, under certain conditions, access to data to the coordinator of the Member State of establishment or to the Commission and to accredited researchers;

  • Designate one or more persons responsible for compliance with the obligations under the Regulation; and

  • Establish transparency reports.

This new European act on digital markets (the Digital Markets Act and the Digital Services Act) is an excellent opportunity for user companies and online service providers to assess the compliance of their contractual relations, if not the opportunity to renegotiate them, and, more generally, to check the compliance of their practices wih the new legislative framework. As mentioned above, the main objective of these two texts is to regulate abusive practices in the digital sector.


Our team specialized in competition law and market regulation is at your disposal in case of questions.