Bayer Pharmaceuticals AG ("Bayer") has recently successfully challenged a decision of the EC Commission that had required it to stop restricting its supplies of its product, called Adalat, to its wholesalers in France and Spain. The restriction had been enacted by Bayer in order to try and prevent its wholesalers from exporting its product from Spain and France to the UK where they could exploit the price difference to make a profit.
The product at issue in this case was nefidipine, sold under the trade mark Adalat. This is used in the treatment of high blood pressure and related diseases. In many states in the EC, the prices of pharmaceuticals are controlled by the Government. In other states there is a lesser degree of control over prices which, as a consequence, has the effect that there are price differences between member states in the EU when it comes to the price of pharmaceuticals. This price difference can be exploited by parallel importers but is, of course, a cause for concern for some pharmaceutical companies as it undermines their pricing strategy.
In this case the Spanish and French wholesalers started selling stocks of Adalat into the United Kingdom market where it was otherwise more expensive. As a result of this trade Bayer estimated that its UK subsidiary lost half of its sales of Adalat. In order to combat this Bayer decided that it would reduce the volume of Adalat that it sold to its Spanish and French wholesalers to a quota which was calculated on the previous years sales and a 10% increase to allow for an increase in consumption.
The wholesalers objected to this restriction and complained to the EC Commission which found in their favour holding that Bayer had breached Article 85(1) (formerly Article 85(1)) of the Treaty of Rome by putting into effect an export ban. It ordered Bayer to cease its scheme. Bayer appealed to the European Court of Justice's, Court of First Instance.
Under the provisions of Article 81(1) of the Treaty of Rome any agreement between undertakings (in effect any kind of commercial enterprise) that prevents, distorts or, restricts competition between member states of the EC is deemed anti-competitive and is null and void provided that it has an appreciable effect on interstate trade. The Commission in this case felt that the imposition of the quotas by Bayer added an "export ban" to the agreement between Bayer and its wholesale distributors in Spain and France.
In front of the Court of Justice the case would turn on three issues. The most interesting is whether Bayer could convince the Court of First Instance that the imposition of the quota system by them did not amount to an "agreement" between Bayer and its distributors that amounted to an "export ban". In addition to arguing that there was no agreement in any event, Bayer showed the court that; (i) the wholesalers in Spain were ordering amounts of Adalat that were disproportionate to their needs and destined for export rather than for local needs, (ii) some of the wholesalers used third parties in order to get the quantities that they needed, (iii) some wholesalers had given up supplying their local market altogether and had, Bayer suggested, endangered the local market in order to concentrate on exports and, (iv) in choosing the path of imposing quotas Bayer had considered all the options and looked carefully at previous case law to ensure that it acted legally.
For their part the Commission defended its earlier decision by arguing that in effect the wholesalers were left with the impression that should they comply with the export ban and used the acquiescence of the wholesale distributors in order to get them to agree to the export ban. The Commission cited the fact that Bayer did not apply the quota system evenly across the wholesalers and in some circumstances did not leave them with sufficient Adalat in order to fulfill their local orders. The wholesalers agreed to accept the quota in order to obtain sufficient supplies for their local needs. The Commission agreed that Article 81 required an "agreement", but said that Article 81 only required the people involved in the agreement to have an interest in concluding the agreement (i.e the supply of Adalat) and to have an identical interest in the agreement.
The Court of First Instance examined the evidence put forward by each party and put down three principles that it felt were important to its decision. Firstly, where there is a unilateral decision this falls outside the definition of an agreement given in Article 81; secondly, in order to be an agreement the parties must have expressed their intention to conduct themselves in a particular way and; thirdly in order to demonstrate this intention it is enough that the parties behaviour is in accordance with that agreement. There were, in the Court's view, two clear lines of authority. Were one party had adopted a unilateral act with the express or tacit consent of the other side and where one party had acted unilaterally. In the case of the former, there was an agreement and, subject to the other requirements of Article 81, grounds to suppose that there was a breach of Article 81(1).
The Court then applied these principles to the case. Although the Commission had access to Bayer's internal documents there was little in the way of tangible proof that would substantiate any case that the actions of Bayer were anti-competitive. Even though there was some evidence that Bayer was closely monitoring the market place for Adalat, there was no evidence that this was done to check in order were the sales of the drugs originated from and therefore they could target the quotas at those companies.
In this Judgement the court affirmed the principle that in order to infringe the provisions of Article 81(1) there has to be an agreement, resulting from a concurrence of wills in the creation of an agreement. A unilateral act, in the absence of the framework of some kind of agreement does not constitute an act that would infringe Article 81.
First published in WIPR in November 2000.