A recent Law 360 story by Christopher Crosby, “Authorities May Feel The Sting From Loser Pays Ruling” reports that the U.K. Supreme Court opened the door to public authorities being forced to pay defendants' costs from failed enforcement actions, but attorneys say it is too soon to know whether that risk will deter agencies from bringing cutting-edge cases.  Britain's highest court has ruled that the Competition and Markets Authority might have to cover the legal costs of drugmaker Pfizer and a distributor, Flynn Pharma, after the watchdog's market abuse case against the two companies fell short.

Britain's highest court ruled, in a unanimous 55-page decision handed down, that costs could follow a failed enforcement action because there is no automatic presumption that authorities do not pay for legal fees when they lose cases.  Businesses and trade organizations have applauded the development, which they say will help defendants with small budgets recover their legal fees if they can prove that an enforcement case was groundless.

But the ruling, written by Justice Vivien Rose, does not mean that regulators will always be on the hook for costs — that issue will be determined by the trial court or tribunal on a case-by-case basis.  But the justices said the Court of Appeal was wrong to assume that costs automatically have a chilling effect on regulators in every case.  "The Court of Appeal had created an unhelpful precedent, which puts a potential appellant in the unenviable position of being forced to pay the CMA's legal costs if their appeal failed yet prevented them recovering their own legal costs if their appeal succeeded," Robert Vidal, a competition partner at Pinsent Masons LLP, said.

The competition watchdog fined the drug companies £84.2 million ($106 million at today's rates) in 2016. A three-year investigation had concluded the companies had overcharged the National Health Service for the anti-epilepsy drug phenytoin sodium.  But the Competition Appeal Tribunal found errors in the regulator's analysis in 2020 and ordered it to reassess the fairness of the prices.  Those findings were upheld by the Court of Appeal.  The tribunal then ordered the CMA to pay part of Flynn and Pfizer's multimillion-pound costs after concluding that the default position in cases involving regulators was that the loser bears the burden of costs.

Although the losing side in litigation usually pays the winner's costs, the Court of Appeal disagreed with the tribunal.  The appellate court ruled in 2019 that the "starting position" is that public agencies should not be made to pay for trying to do their job — even if they are unsuccessful in court.  Overturning the lower court's findings, the justices said the Court of Appeal was wrong to overturn the Competition Markets Authority's costs ruling and instructed that there would be no order about costs.

The appellate court had looked at a line of cases beginning with Bradford Metropolitan District Council v. Booth in 2000 and found that the starting assumption for courts was that all public bodies are protected from costs when they lose a case.  Justice Rose said that, even though those cases created a strong preference against deterring regulators, it cannot be assumed that every case involving every regulator carries that risk.

In the case of the CMA, the watchdog can offset its litigation costs against the penalties it imposes, the Supreme Court said.  The competition authority incurred £2 million in legal costs during the last year, which it covered with £56.7 million in penalties handed out, justices noted.  Justice Rose said the "way that the functions of the CMA are funded dispels any plausible concern that its conduct will be influenced by the risk of adverse costs orders."

Robert Vidal said that the CMA "already has all the financial and legal resources of the state behind it, so it was difficult to understand why the Court of Appeal felt it needed to provide the CMA with an additional advantage on exposure to legal costs."  Stijn Huijts, a former CMA director and partner at Geradin Partners, said that it was a "bridge too far" for justices to accept that a public body like the CMA should be shielded from adverse cost awards.

"It's important to recognize that this doesn't mean all costs of litigants like Pfizer will fall to the CMA from now on," Huijts said.  "Nevertheless, the CMA will be in a position where it will need to challenge costs claimed in individual cases and, in most cases that it loses, it will at least need to pay part of the litigants' costs from public money."  Sophie Lawrance, a Bristows partner who acted for two pharmaceutical groups in the CMA case, said the issue was of particular concern to companies active in the pharmaceutical industry, which may have been discouraged against appealing future infringement decisions by the watchdog.

In the last year the CMA has fined several drugmakers in complex medication-pricing cases, finding in February that the cost for anti-nausea medication and thyroid medication was excessive.  In one case, Advanz Pharma Corp. and two private equity firms, Hg and Cinven, have asked the Competition Appeal Tribunal to annul a £100 million ($126 million) fine over Liothyronine tablets, which are used to treat thyroid hormone deficiency.

Drugmaker Allergan and four other pharmaceutical companies are also appealing against a record £260 million fine from the competition watchdog for allegedly abusing their market dominance over an adrenal drug.  Lawrence said that the Supreme Court's decision "ensures that meritorious appeals — which can result in crucial guidance for the sector as a whole — are not deterred."

The Supreme Court Justices highlighted the fact that costs have not prevented the CMA from investigating large companies such as Google and Apple.  The regulator is looking into whether their duopoly on the "mobile ecosystem" threatens competition for digital services, setting up potential enforcement actions.  "Whether this will have a chilling effect on the CMA will in reality probably depend on how it fares in a number of high-profile cases making their way through the courts now, and in investigations against digital giants like Apple and Google," Huijts said.  "Win most of those, and this chapter will be easily forgotten. Lose the majority, and the watchdog may grow more timid."