On 6 January 2004 the European Court of Justice ("ECJ") dismissed the appeal by the European Commission1 and others against the Court of First Instance’s ("CFI") decision2 to annul the Commission’s Bayer/Adalat decision.3

Background

The Bayer Group, one of the main European chemical and pharmaceutical groups, is represented in all Member States by national subsidiaries. It produces and markets, amongst other things, a range of medicinal products designed to treat cardio-vascular illnesses under the brand name "Adalat" or "Adalate."

In most Member States, the price of medicinal products is fixed, directly or indirectly, by the competent national authorities. From 1989 to 1993, the prices of Adalat in France and Spain were much lower than those charged in the United Kingdom. Those price differences of about 40% led Spanish wholesalers (from 1989) and French wholesalers (from 1991) to export a large quantity of that medicinal product to the United Kingdom.

That practice of parallel imports caused a DM 230 million (Euro 118 million) loss of turnover for the British subsidiary of Bayer. The Bayer Group then changed its supply policy and began no longer to meet all orders placed by Spanish and French wholesalers.

On 10 January 1996, following complaints by the wholesalers concerned, the Commission adopted a decision requiring Bayer to change its policy deemed contrary to Article 81(1) EC and fined the company 3 million ecus. On 26 October 2000, the CFI annulled that decision following an action by Bayer (judgment in Case T-41/96 of 26 October 2000). The CFI found that the Commission had not proved that there was an "agreement" within the meaning of Article 81(1) between Bayer and its Spanish and French wholesalers to limit parallel exports of Adalat to the United Kingdom.

In the view of the CFI, neither the conduct of the Bayer Group nor the attitudes of the wholesalers were factors constituting an agreement between undertakings. None of the documents submitted by the Commission contained evidence proving either that Bayer intended to impose an export ban on its wholesalers or that supplies were made conditional on compliance with that alleged ban. Nor had the Commission proved that the wholesalers had adhered to that policy, their reaction showing, on the contrary, an attitude of opposition. The Commission had not therefore proved the existence of an express or tacit acquiescence by the wholesalers in the attitude adopted by the manufacturer.

Finally, the CFI rejected the Commission’s argument that it was sufficient, in order to prove the existence of an agreement, to establish that the parties continued to maintain their business relations, and held that the very concept of an agreement rests on a meeting of minds between economic operators. In January 2001, the Bundesverband der Arzneimittel-Importeure and the Commission lodged an appeal against the judgment of the CFI before the ECJ.

The Pleas Of The Commission And Why It Appealed

The Commission challenged the factual findings of the CFI, but of more general importance are its pleas in law, which were:

  • The CFI interpreted Article 85(1)4 in an excessively restrictive way in that the CFI held that both a monitoring system by the manufacturer on its wholesalers and penalising exporting wholesalers constituted a necessary condition for an agreement concerning an export ban to be regarded as having been concluded.
  • The CFI interpreted Article 85(1) in an excessively restrictive way in that the CFI held that an agreement concerning an export ban could not be considered to have been concluded unless the manufacturer requires a particular line of conduct from wholesalers or seeks to obtain their adherence to its policy seeking to prevent parallel imports.
  • The CFI committed an error in law by holding that the conditions for a meeting of minds were not fulfilled because the declared intention of the wholesalers (to order medicinal products only for the needs of the domestic market) did not correspond to their real wishes (to order medicinal products for export also).
  • The CFI erroneously applied Article 85(1) by requiring, contrary to the judgement in Sandoz,5 that there be proof of the wholesalers’ intention to align their conduct with the measures adopted by Bayer even where those measures formed part of the continuous business relations between the wholesalers and the manufacturer.

These pleas identify the points of law that the Commission wished to address. At the policy level, the Commission was concerned by the CFI’s ruling because it considered the ruling created uncertainty on the fundamental issue of what constitutes an agreement within Article 85(1). As the Commission stated in a press statement on the same day as the ECJ’s ruling, "we need to read the judgment carefully to see its implications in terms of finding an agreement between manufacturers and their distributors."

The ECJ’s Decision

To these four pleas the ECJ found:

  • The plea was dismissed. The ECJ found that the fact that there is a system of subsequent monitoring and penalties may constitute an indicator of the existence of an agreement, but it does not follow necessarily that such an agreement exists (at ¶ 82). The ECJ also found that the mere fact that the unilateral policy of quotas implemented by Bayer, combined with the national requirements on the wholesalers to offer a full product range, produces the same effect as an export ban does not mean either that the manufacturer imposed such a ban or that there was an agreement prohibited by Article 85(1) (at ¶ 87).
  • The plea was dismissed. The ECJ found that the existence of an agreement within Article 81(1) can be deduced from the conduct of the parties concerned but cannot be based on what is only the expression of a unilateral policy of one of the parties, which can be put into effect without the assistance of others (at ¶¶ 99 and 100). It went on to comment that to hold that an agreement prohibited by Article 85(1) may be established simply on the basis of the expression of a unilateral policy aimed at preventing parallel imports would have the effect of confusing the scope of that provision with that of Article 866 (at ¶ 100). Importantly, the ECJ found that: 

"For an agreement within the meaning of Article 85(1) of the Treaty to be capable of being regarded as having been concluded by tacit acceptance, it is necessary that the manifestation of the wish of one of the contracting parties to achieve an anti-competitive goal constitute an invitation to the other party, whether express or implied, to fulfil that goal jointly, and that applies all the more where, as in this case, such an agreement is not at first sight in the interest of the other party, namely the wholesalers" (at ¶ 101).

  • The plea was dismissed. The ECJ found that, in the absence of an export ban, the CFI did not make an error in law in referring to the genuine wishes of the wholesalers in seeking to determine whether or not the wholesalers shared the intention of Bayer to prevent parallel imports (at ¶ 120).
  • The plea was dismissed. The ECJ found that the mere concomitant existence of an agreement which is in itself neutral and a measure restricting competition that has been imposed unilaterally does not amount to an agreement prohibited by Article 85(1) (at ¶ 140). The judgment in Sandoz was distinguished because it was found there that an export ban imposed by the manufacturer had been tacitly accepted by the wholesalers. The ECJ also found that the Commission could not rely on the AEG,7 Ford8 or BMW Belgium9 decisions, because each of those concerned a selective distribution system, which was not the case here.

Consequences

The ECJ’s ruling clearly is a victory for Bayer. To varying degrees of extent other research based Pharma companies will take comfort from the ruling. However, applying the ruling must be done with care.

If the facts are proven…

The Commission failed to prove to the requisite legal standard the imposition of an export ban, the establishment of a systematic monitoring system or that supply was conditional on compliance with an alleged export ban (at ¶ 79). In another case these or other pertinent facts might be successfully proven, which whilst not necessarily being determinative would be indicative that an agreement exists (at ¶ 82).

The Sandoz difference…

The ECJ did not seek to diminish the ruling in Sandoz, meaning that a finding of tacit acceptance by wholesalers is the difference between Sandoz (an unlawful agreement) and Bayer/Adalat (no agreement). Defining that differential element has not been clarified by the ECJ’s ruling. The ECJ quoted a paragraph of the Sandoz judgment "[t]he repeated orders of the products and the successive payments without protest by the customer of the prices indicated on the invoices, bearing the words ‘export prohibited’, constituted a tacit acquiescence on the part of the latter in the clauses stipulated in the invoice and the type of commercial relations underlying the business relations between Sandoz PF and its clientele" (at ¶ 141).

Legislative consequences…

The existence of national requirements on wholesalers to offer a full product range, combined with Bayer’s unilateral policy of quotas, produced the same effect as an export ban (at ¶ 87). Wholesalers may now more than ever turn their attention to seek to change these requirements, which do not exist in many EU Member States.

And Then There Is Article 82…

As expressly identified by the ECJ, the Bayer/Adalat ruling does not address the possible application of Article 82 (at ¶ 41). It is well known that some representatives of DG Competition have, in speeches and articles over the last two years or so, indicated a willingness on the part of the Commission to consider narrow market definitions in the pharmaceutical sector. It is also well known that a number of innovative Pharma companies have submitted requests for clearance from the EU’s competition rules for so-called supply quota systems. As Commission spokeswoman Amelia Torres is quoted on the same day as the ECJ ruling, in the Bloomberg press, "The commission has received dozens of requests for clearance of such supply quota systems and is analysing them under the antitrust rules." The Commission has not concluded whether these quotas raise antitrust concerns and is undertaking a "fact-finding exercise to gain full knowledge of the economics behind these systems and their impact on competition" according to Ms Torres.

Endnotes

1 Cases C-2/OIP and C-3/OIP of 6 January 2004.

2 Case-T41/96 of 26 October 2000.

3 Decision 96/478/EC of 10 January 1996 (OJ 1996 L201, p.1).

4 Article 85(1) is now Article 81(1) EC Treaty, but for ease of reading, the ‘old’ references are kept in this note in the description of the case, but the new reference is used in the final section of this note.

5 Case C-277/87 Sandoz/Prodotti Farmaceutici v. Commission [1990] ECR I-45.

6 Article 86 is now Article 82 EC Treaty.

7 Case 107/82 AEG V. Commission [1983] ECR 3151.

8 Cases 25/84 and 26/84 Ford v. Commission [1985] ECR 2725.

9 Cases 32/78 and 36/78 to 82/78 BMW Belgium and Others v. Commission [1979] ECR 2435. 

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