Irish Competition Authority Decisions

1. Notification was made by Bimeda Chemicals Ltd on 30th September 1992 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4(2) in respect of an exclusive distribution and manufacture agreement.

2. The notification concerns an exclusive manufacture and distribution agreement, dated 10th December 1990 between Bimeda Chemicals Limited (Bimeda) and Orion Yhtyma Oy (Orion) for the manufacture and sale of pharmaceutical products in the State.

3. Bimeda is a subsidiary of Cross Vetpharm Group Limited which is a wholly owned subsidiary of The Cross Group, which is the largest Irish owned manufacturer and distributor of veterinary pharmaceuticals. The registered offices are at Broomhill Road, Tallaght, Dublin 24. The Cross Vetpharm Group has seven subsidiaries, of which Bimeda Chemicals is one, and it sells its own range of products exclusively to veterinary surgeons in Ireland. Orion is a Finnish pharmaceutical company and is part of the Orion Group [1] which is the leading company in the Finnish health care sector, with a registered address at PO Box 65, 02101 Espoo, Finland.

4. The products which are the subject of this agreement are veterinary pharmaceutical products. The products are the two intramammaries, Kefamast and Kefamast Dry Cow. Bimeda Chemicals imports the concentrate from Orion and converts to a finished product form in 4.5gm sterile syringes. Intramammaries are treatments for the prevention of mastitis in cows.

5. The intramammary market is estimated at IR£3.8m in annual sales value, with IR£2.3m in

dry cow treatments and the balance, IR£1.5m in lactating treatments. The following Table shows the market shares for each of the products and sales as a percentage of the total relevant market for year ended December 31 1997:

Dry Cow Intramammaries 2,300 48 2.1%

Lactating Cow Intramammaries 1,500 13 0.9%

Total 3,800 61 1.6%

6. The notifying party submitted that there were twelve competing products in the lactating cow intramammary market and eleven competing products in the dry cow intramammary market in 1996/97. The main products and their estimated market shares area as follows: in the Dry Cow Therapy market there are Cepravin (19%), Orbenin DC (19%), Leo Dry Cow (10%) and Synolux DC (10%); and in the Lactating Cow Therapy, there are Tetra Delta (22%), Terrexine (12%), Multimast (12%), Leo Yellow (8%) and Orbenin (7%).

7. The Authority is of the view that the relevant market is the market for intramammaries which are used in the treatment for the prevention of mastitis in cows.

8. The agreement dated 10th December, 1990 is an agreement whereby Orion appoints Bimeda as its sole and exclusive distributor and manufacturer in the State for the intramammary products. Orion is interested in having its products manufactured, marketed and distributed in the State and Bimeda have both the facilities and a well established manufacturing, distribution and service systems in which to do so.

9. This agreement remains in force for each product separately for a period of ten years after the effective date of the grant of the respective product registration. After five years from the date of the signature of the Agreement both parties have a right to notify the other by giving six months notice in writing. Orion may after consultation with Bimeda convert this exclusive manufacturing and distribution agreement into a non-exclusive agreement or indeed terminate the agreement if Bimeda fails to sell agreed quantities. For certain products, Bimeda will manufacture the products under Licence from Orion.

10. The agreement presently operates as essentially a manufacturing agreement using Orion’s technology and know-how whereby Bimeda pay a royalty of 6% of sales. The agreement envisaged extra territorial distribution but nine years into the agreement no marketing authorisations have been obtained in other jurisdictions within the EU and no distribution has taken place in the other territories defined in the agreement and there is no intention to supply other territories. The agreement is now terminable by six months notice by either party.

11. Bimeda shall devote its best efforts to manufacturing, promoting and selling the products in the territory and shall refrain from selling them outside the territory. This Agreement shall not constitute Bimeda the agent or legal representative of Orion. The phrase ‘MANUFACTURED BY BIMEDA CHEMICALS LTD UNDER LICENCE FROM ORION PHARMACEUTICA, FINLAND, DISTRIBUTED BY BIMEDA CHEMICALS LTD’ shall be contained on the products. Products shall be sold under Orion‘s tradenames and the product registrations shall be under Bimeda’s name.

12. Bimeda shall hold in confidence any and all information disclosed to it by Orion under this Agreement except information which: (i) can be shown by written records to have been already known by Bimeda at the time of its disclosure by Orion; or (ii) is public knowledge at the time of receipt or subsequently becomes public knowledge; or (iii) information received by Bimeda from a third party which was not obtained directly or indirectly from Orion; or (iv) information which must be disclosed to the proper governmental agencies to enable Bimeda to sell the products.

13. The notifying party submitted that they do not believe that the agreements, or any aspects of the agreements, restrict them in their freedom to take independent commercial decisions. Without prejudice to the foregoing the parties drew the Authority’s attention to some provisions of the agreement.

14. The notifying party submitted that this type of agreement would be covered by a Block Exemption under EC Law. It represents sales in this country of one and a half percent of the market involved. If this type of agreement was not entered into by Orion with Bimeda or an equivalent company Orion would not distribute the goods on the Irish market for the simple reason it would not be economically viable for it to do so. The party further claimed that by entering such an agreement, it enabled the companies to compete in this highly competitive market thereby widening the choice of ultimate product to the consumer.

15. It is the view of the notifying party in a letter to the Authority dated 3rd March 1999 that this Agreement falls within the Category Certificate/Licence (in respect of Agreements between Suppliers and Resellers). The notifying party submitted that if the Authority was of the view that because of the extra territorial clause in the Agreement or the fact that manufacturing under licence brought it outside the Category Certificate/Licence, that the Authority should grant a Certificate or Licence, following the logic of the arguments made by the Authority in granting a category certificate for vertical distribution. It is the view of the notifying party that the Agreement is pro-competitive in that it opens up the market and gives more choice and value to the consumer. The notifying party also believe that the percentage of the market affected by this agreement is so small as to have no bearing of any significance on the competitiveness of the market.

16. The notifying party finally submitted that, in the light of the above, the agreement does not constitute restrictions on competition within the meaning of Section 4(1) of the Act and that, on this basis, the agreement does not offend against Section 4(1) so that the Competition Authority should grant a certificate in respect of the agreements.

17. Section 3(1) of the Competition Act defines an undertaking as ‘a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service’ . Both Bimeda and Orion are engaged in the production and distribution of goods for gain, and they are therefore undertakings within the meaning of the Act. The agreement is an agreement between undertakings. The agreement has effect within the State.

18. The Authority is of the view, that neither the agreement nor any aspects of the agreement, restricts the parties in their freedom to take independent commercial decisions. They are pro-competitive rather than anti-competitive and it is the view of the Authority that the agreement does not restrict or distort competition within the meaning of Section 4(1) of the Act.

19. In its assessment of the conditions of competition, the Authority draws particular attention to the fact that the market shares are small. Although the agreement is an agreement between potential [2] competitors, the Authority has concluded, that the products are exposed to effective competition in the relevant market from the products of rival competitors. Therefore the Authority is of the opinion that the agreement does not contravene Section 4(1) of the Act.

20. In the Authority’s opinion, Bimeda and Orion are undertakings within the meaning of Section 3(1) of the Competition Act and the notified arrangements constitute an agreement between undertakings. In the Authority’s opinion the manufacture and exclusive distribution agreement between Bimeda Chemicals Ltd and Orion Yhtyma Oy dated 10th December 1990 does not contravene Section 4(1) of the Competition Act.

The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the agreement between Bimeda Chemicals Ltd and Orion Yhtyma Oy notified under Section 7 of the Competition Act on 30th September 1992 (Notification No. CA/994/92E) does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority

[1] Business divisions related to health care include the pharmaceutical division, Orion Pharma, the wholesale company Oriola, and Orion Diagnostica.

[2] If it were economical to do so, Orion would enter the market as a competitor and dispense with the manufacturing and distribution services of Bimeda.