COURT OF APPEAL (CIVIL DIVISION)
Wednesday, 8th May 2002
B e f o r e :
LORD JUSTICE BUXTON
|NAPP PHARMACEUTICAL HOLDINGS LIMITED||(claimant)|
|DIRECTOR GENERAL OF FAIR TRADING||(defendant)|
Smith Bernal Reporting Limited,
190 Fleet Street, London EC4A 2AG
Telephone No: 020 7404 1400 Fax No: 020 7404 1424
(Official Shorthand Writers to the Court)
The Defendant did not appear and was not represented.
Crown Copyright ©
Wednesday, 8th May 2002
LORD JUSTICE BUXTON:
"(a) while charging high prices to customers in the community segment of the market, supplied sustained release morphine tablets and capsules to hospitals at discounts which have the object and effect of hindering competition in the market for the supply of sustained release morphine tablets and capsules in the UK. The pricing behaviour of Napp has to be considered as a whole, but the particular aspects in which, in the circumstances of the present case, its discounting behaviour is abusive under section 18 of the Act, are as follows:
"(i) selectively supplying sustained release morphine tablets and capsules to customers in the hospital segment at lower prices than to customers in the community segment;(ii) more particularly, targeting competitors, both by supplying at higher discounts to hospitals where it faced (or anticipated) competition, and by supplying at higher discounts on those strengths of sustained release morphine tablets and capsules where it faced competition; and"(iii) supplying sustained release morphine tablets and capsules to hospitals at excessively low prices."Moreover, Napp has engaged in the above conduct with the intention of eliminating competition."(b) charged excessive prices to customers in the community segment of the market for the supply of sustained release morphine tablets and capsules in the UK.In doing so, Napp has abused its dominant position in the market for the supply of sustained release morphine tablets and capsules in the UK."
The jurisdiction of this Court
1. Identify in precise terms the rule of law said to have been infringed;
2. Demonstrate where in the European jurisprudence that rule is to be found, by specific reference to the European authorities;
3. Demonstrate briefly from the Tribunal's judgement the nature of the error, by reference to the Tribunal's handling of the issue in question.
The implications of the claim that Napp's conduct in the hospital segment was "normal"
(i) it influences the structure of the market; and
(ii) in the market where competition is already weakened by the presence of the dominant firm, "by recourse to methods different from those which condition normal competition in products or services on the basis of transactions of commercial operators [the conduct] has the effect of hindering the maintenance of the degree of competition still existing in the market".
"We accept the Director's argument that Napp's policy of matching competitors' prices in the hospital segment significantly hinders competition by adding an additional strategic barrier to the already high barriers to entry".
"The overwhelming inference from the totality of the evidence is that Napp's prices in the community segments, and its market shares in both the hospital and community segments, have been protected, at least in part, by the foreclosure effects of Napp's hospital discount policy. Nor do we doubt that that was Napp's intention".
"It follows from the above that we reject Napp's argument that it has not 'had recourse to methods different from normal competition' (Hoffman-La Roche, paragraph 91). We accept that in the pharmaceutical sector, discounts granted to hospitals by pharmaceutical companies may be substantial. However, nothing in the evidence before us leads us to doubt: (i) that discounts of up to in excess of 90 per cent are not normal in hospital tenders; (ii) that such discounts have been granted selectively only where Napp has been faced by a competitor; and (iii) that the resulting difference between what the hospital pays and the normal NHS list price is exceptional. Perhaps more significantly, we do not regard it as 'normal' for prices to hospitals to remain below direct costs for many years. For the reasons already given, we find that the below-cost pricing in question was not a 'normal' commercial response but the response of a super-dominant undertaking aiming to eliminate competition. Nothing in the structure of the NHS compelled Napp to act as it did".
"In our judgement, there is no credible evidence that Napp ever saw any justification for its hospital discount policy, other than the need to exclude competitors from the hospital segment, and thus prevent them from gaining hospital influence which would, in turn, threaten Napp's market share in the community segment".
"There is no credible evidence that Napp ever saw any justification for its hospital discount policy, other than the need to exclude competitors from the hospital segment, and thus prevent them from gaining hospital influence which would, in turn, threaten Napp's market share in the community segment ... The evidence establishes that Napp's pricing policy was intended to eliminate competition".
"Since we have found that Napp's policy of pricing below direct costs hindered competition and raised barriers to entry, to the significant disadvantage of its competitors, it is, strictly speaking, unnecessary to examine Napp's intentions in order to establish an abuse. See Tetrapak II in the judgement of the Court of Justice at paragraph 42. We do so for completeness".
"What then does a jury have to decide so far as the mental element in murder is concerned? It simply has to decide whether the defendant intended to kill or do serious bodily harm. In order to reach that decision, the jury must pay regard to all the relevant circumstances, including what the defendant himself said and did. In the great majority of cases, a direction to that effect will be enough. Where a man realises that it is for all practical purposes inevitable that his actions will result in death or serious harm, the inference may be irresistible that he intended that result, however little he may have desired or wished it to happen. The decision is one for the jury to be reached upon a consideration of all the evidence".
Abuse in the community segment
1. No value had been placed on Napp's legitimate brand premium;
2. A pharmaceutical company's prices should be judged according to its profits on its portfolio, in order to encourage R&D;
3. Prices could not be abusive if they complied with the PPRS.