European Union: NAPP Pharmaceutical: OFT Decision Confirmed but Fine Reduced

Last Updated: 5 February 2002
Article by Martin R Smith

In a landmark judgment delivered on 15 January 2002, the Competition Commission Appeal Tribunal ("the Tribunal") upheld a decision by the Director General of Fair Trading (DGFT) that Napp Pharmaceutical Holdings Ltd, a Cambridge-based company, had abused its dominant position, in breach of Chapter II of the Competition Act 1998.

The case is important as it is the first appeal made under the Act against a DGFT infringement and fining decision. In March 2001, the DGFT found that Napp had abused its dominant position in the UK market for the supply of sustained release morphine tablets and capsules (MST), an analgesic commonly used in the treatment of cancer-related pain, and imposed a penalty of £3.21m. Napp’s abusive conduct was twofold: charging excessive prices to customers in the community segment of the market whilst supplying hospitals at discount levels designed to drive out competitors. The DGFT directed Napp to reduce the price of MST tablets in the community and limit the extent to which discounts are offered to hospitals.

The Judgement

In its judgment, the Tribunal confirms in substance the essential features of the DGFT's reasoning on the findings of infringement, whilst making extensive reference to the case law of the European Court of Justice (ECJ).

Discounts to hospitals

The DGFT had found that Napp (the first company to launch a sustained release morphine product in the UK, in 1980) charged excessively low prices in the hospital segment of the market. Although hospital sales represent only a fraction (around 10-14%) of all sales of MST, such sales nevertheless play a central role in facilitating entry into the much larger community segment of the market, by establishing the reputation of a new product brand. By matching the prices offered by competitors with discounts of over 90% off NHS list prices in some instances, Napp effectively foreclosed the hospital segment of the market. It was also found to have selectively targeted these discounts at those hospitals and strengths of MST where it faced competition.

Napp argued that its hospital sales have always been profitable when one takes account of the ‘net revenue’ resulting from both the hospital sales and the ‘follow-on’ sales in the community to which the hospital sales give rise; and that this linkage is equally available to its competitors, so that overall Napp’s conduct had been reasonable and proportionate, and within the bounds of normal competition.

The Tribunal could have disposed of the issue quite simply by stating that, since on the (uncontested) facts of the case Napp, a virtual monopolist, had been selling at prices below direct cost, and did so selectively on those tablet strengths where it faced competition, applying the principles laid down by the ECJ (presumption of abuse) in AKZO and Tetra Pak II, Napp had abused its dominant position contrary to the Chapter II prohibition, without it being necessary to find that Napp had a specific intention to eliminate competition.

However, ‘as a precaution’, the Tribunal went on to consider whether Napp had an intention to eliminate competition. It ruled that Napp’s ‘net revenue’ argument, on its own, was not a legitimate defence to a charge of abuse "unless it is accompanied by clear evidence that there was no intention or effect of foreclosing the market and impairing competition".

The Tribunal found that Napp’s intention to eliminate competition was shown by the fact that Napp’s discounts were targeted on those tablet strengths where it faced competition; the highest discounts were given on sole contracts (which by their nature were intended to exclude competitors); and Napp must have been aware that its conduct was of such a nature as to prevent or hinder entry in the market. In reaching this conclusion, the Tribunal admitted new evidence, which had not been relied on in the original Decision. It also emphasised that Napp had a ‘special responsibility’, by virtue of its virtual monopoly, which constrained its freedom of action: there was a certain limit beyond which it could not go when reducing its prices, ostensibly to meet competition.

Excessive Prices

The second abuse found by the DGFT was that Napp charged high prices in the community segment of the market, in some cases more than ten times its hospital prices. This premium pricing combined with Napp’s virtual monopoly led the DGFT to conclude that Napp was abusing its position by charging excessive prices in the community.

Napp argued that its pricing of MST could not be regarded as excessive since it is set in accordance with the Pharmaceutical Price Regulation Scheme (PPRS), which sets a limit on the rate of return that a company can earn on its sales of branded prescription medicines to the NHS.

Adopting the DGFT’s approach to deciding when, as a matter of principle, a price is excessive for the purposes of the Chapter II prohibition, and after reviewing the factual circumstances before it, the Tribunal concluded that these established that Napp’s prices in the community were well above what would have been expected in a competitive market and that those prices had not been subject to competitive pressure to bring them down to competitive levels.

Rejecting Napp’s argument, the Tribunal found that the PPRS was irrelevant to the determination of the issue, although it later took it into account as a mitigating factor when considering the amount of the penalty

The Penalty

The Tribunal agreed with the DGFT that predatory pricing, even of short duration (here a year, as the Act only came into force on 1 March 2000), is one of the most serious infringements of the Act. On the other hand, whilst taking the view that excessive pricing was also a serious abuse, it was prepared to accept some mitigating factors in Napp’s favour: the existence of the PPRS; the absence of any ECJ case law upholding an abuse of excessive pricing in comparable circumstances; and the fact that this was the first case of excessive pricing under the Act. Taking all of these factors into account, the Tribunal reduced the fine to £2.2 million. Given the complex nature of the issues, it rejected the DGFT’s decision that Napp’s failure to alter its pricing practices when proceedings were first brought was an aggravating factor. It ordered interest to be payable on the fine from the date of the application to the date of payment.


The judgment is important in several respects. It addresses the issue of the burden and standard of proof in proceedings where penalties are imposed. Whilst conceding that such proceedings may be treated as ‘criminal’ for the purposes of the ECHR (Article 6), with the consequence that the burden of proof rests on the DGFT to prove the infringements alleged, the Tribunal ruled that it does not follow that Article 6 imposes the criminal standard of proof. In its view, the structure of the Competition Act points to the conclusion that the standard of proof in proceedings involving penalties is the civil standard (ie. the balance of probabilities), but that standard is to be applied having regard to the fact that infringements of the Act are serious matters attracting severe penalties. The Tribunal accepted that there was force in the argument that the administrative procedure before the DGFT does not comply with Article 6(1), notably because the DGFT himself combines the roles of investigator, prosecutor and decision maker. However, it found that that in itself is not a breach of Article 6 because his decision-making is subject to full judicial control on the merits by the Tribunal.

It also clarifies the question of admissibility before the Tribunal of new evidence adduced by the DGFT and, indirectly, the function of the Tribunal. In essence, whilst the discretion to take account of such new evidence should be exercised sparingly, it held that it should be allowed in some instances in the interests of fairness. By contrast, the DGFT should not be allowed to make a wholly new case at the judicial stage.

The judgment – as well as the proceedings which preceded it – gives some useful insight into the procedure to be followed in future appeals. One ‘tip’ for future applicants is to follow the Guide to Appeals under the Competition Act closely. Another would be to abide by the strict timetable for the proceedings agreed with the Tribunal.

The Tribunal’s approach to the question of assessment of the penalty is also worthy of mention: it makes it clear that it has full jurisdiction to assess the penalty to be imposed and that it is not bound by (and does not even have to have regard to) the DGFT’s published Guidance on penalties. The only constraint on the amount of the penalty binding on the Tribunal is that which flows from the Maximum Penalties Order.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions