The Competition Tribunal recently gave its approval to the SA
leg of Nestle's acquisition of Pfizer's infant nutrition
business. Nestle bought this business not to increase
its market share in South Africa (which was already 70%), but to
increase its share in the all-important Chinese market. The ruling
is interesting because the Tribunal accepted an arrangement that
went as follows:
- Nestle would immediately sell the physical assets it acquired from Pfizer in SA to a third party, and simultaneously grant that third party a 10-year, royalty-free licence to use the former Pfizer trade marks, together with the technology.
- During this 10-year period, the third party would need to introduce its own trade marks and start a re-branding process.
- Following the 10-year period, Nestle would observe a 10-year black-out period during which it would make no use of the former Pfizer trade marks (although an exception seems to have been made for some minimal sales to keep the registrations valid).
The thinking behind this – the third party would have
enough time to build up competitive brands. Said the
tribunal: 'The ultimate aim of the remedy is to provide
an opportunity for entry by a credible viable and stand-alone
competitor in the long run.' The tribunal felt that the
period was appropriate because the 'market
recognition in South Africa of products bearing those (Pfizer)
trade marks will dwindle to nothingness.' The
tribunal accepted the opinion of branding guru, Andy Rice,
who said that the period was 'a generous window and a window
that is probably greater than is needed for the purposes of
migrating consumers from one brand to another.'
Interestingly the Tribunal turned down a similar proposal involving
five-year periods, holding that this would not be long enough to
achieve the aims.
This solution was preferable to a complete divestment because divestment would mean that the former Pfizer brands would be owned by one company in SA and by Nestle in the rest of the world, something that simply isn't feasible in an age of global brands: 'We acknowledge the risk of reputational damage and free-riding that can result from split ownership of the trade marks. We also acknowledge that these risks would exist in perpetuity in a permanent divestiture: whereas they will be cured under the re-branding remedy as the danger of confusion in the market regarding the origin of products will be eliminated. A neat trade mark solution to a monopoly problem!
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