Irish Competition Authority Decisions

1. Notification was made by Clonmel Chemicals Ltd on 30 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 a Know-How Licensing agreement.

2. The notification concerns a Know-How Licence Agreement between Clonmel Chemicals Company Ltd (“Clonmel Chemicals”) and Ethical Pharmaceuticals Limited (“Ethical”) dated 8th June, 1988, where Ethical Pharmaceuticals have developed certain ‘Know-How’ and they have agreed to share this under Licence with Clonmel Chemicals.

3. Clonmel Chemicals Company Ltd, a company registered in the State has its principal place of business at Waterford Road, Clonmel, Co Tipperary. Clonmel Health Care Limited formerly Clonmel Chemicals Limited was a subsidiary of The Cross Group. It was purchased by Fuisz Technologies Ltd, a US Corporation in 1996. Ethical Pharmaceuticals Limited is a wholly owned subsidiary of Ethical Holdings a United Kingdom plc and has its principal place of business at Cambridgeshire Business Park, Ely, Cambridgeshire, CB7 4EE, England. Both Clonmel Chemicals and Ethical are involved in the pharmaceutical market in the State.

4. The pharmaceutical market in Ireland has a value of £232 million in annual sales value (at trade prices). The market is fairly fragmented with over 270 other producers. The present size of the pain killer market (in general) is estimated at £16 million. There are 40 products in this therapeutic class and Clonmel has consistently achieved less than 5% of that market.

5. The product which is the subject of this agreement is a narcotic pain killer called morphine sulphate. The Authority is of the view that the relevant product market for the purposes of this agreement is the narrower market for narcotic pain killers. The notifying party claim that although there are eight competing products in this market, the segment is dominated by Napp Pharmas product(s) which control 75% of the market. The notifying party estimated the annual sales of narcotic pain killers to be in the order of IR£1 million pa in the State. Clonmel’s sales have consistently been less than 5% of that market.

6. The Licence Agreement was made on 8th June, 1988. Ethical Pharmaceuticals Limited has developed and improved pharmaceutical compositions by combining active drug agents in a pharmaceutical formulation capable of delivering the drug agents in a controlled release manner after oral administration. Under the agreement, Clonmel Chemicals are licensed to sell the Ethical controlled release formulation in the case of the product, morphine sulphate.

7. Article III of the agreement provides for the licensing by Ethical to Clonmel Chemicals of certain know how and marketing information to be used by Clonmel Chemicals as a sole licence to make, have made, use and sell the product in the territory. Ethical have applied for patent rights in respect of the “Ethical Know-How” and Clonmel Chemicals want Ethical to develop and to obtain marketing approval of a 10mg, 30mg and 100mg morphine sulphate controlled release tablet using the Ethical Know-How. In addition, Ethical grants to Clonmel Chemicals the right to make the product outside the Republic of Ireland. Ethical shall remain the proprietors of the Patent Rights and Ethical Know How and retain the right to make, have made and use (but not sell) the product in the territory.

8. Under Article IV, Clonmel Chemicals agree to make payments to Ethical at certain times and upon certain marketing approval being obtained. If such requirements are not met within two years the initial payment may be refunded and the agreement will become null and void. Clonmel Chemicals is to pay to Ethical an agreed royalty of 5% of the Net Sales Price of all products sold by Clonmel Chemicals in the Territory.

9. Ethical will undertake to deal with all the necessary requirements to obtain marketing authorisations of the product in the Territory and Clonmel Chemicals agree to bear all the costs involved. Upon early termination of this agreement Clonmel Chemicals shall continue (Article X.G), to keep confidential for a period of seven years from the date of such early termination all Ethical Know-How and all Licensee Know How subject to any information which: (i) can be shown by written records to have been already known by Clonmel Chemicals at the time of its receipt from Ethical; or (ii) is public knowledge at the time of receipt or subsequently becomes public knowledge; or (iii) is received by Clonmel Chemicals from a third party having an unrestricted and a legal right to disclose such information and data to others.

10. The rights and obligations conferred by the Know-How Licensing Agreement shall not be transferable or assignable by one party without the written consent of the other party, such consent not to be unreasonably refused.

11. 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 notifying party drew the Authority’s attention to some provisions of the agreement.

12. The notifying party submit that this area of research, development, manufacture and supply in the pharmaceutical industry is highly competitive. The parties involved in this application have excellent reputation in the manufacture of generic pharmaceuticals. In order to enable them to put their products on the market and to continue their research and development it is necessary to enter in to these type of Agreements. The notifying party submits that the area of development has always been encouraged by the EU. The notifying party states that the cost of research and development is very high and in many cases the return is often small as the product range produced will have a very limited market scope.

13. The notifying party further submitted, that in order to effectively market such a product it is necessary to enter into restrictive agreements and exclusive distribution agreements. If this was not done then it would be impossible to effectively market any drug produced if one was obliged to supply to the market directly. This drug is highly regulated by NDAB because of the morphine content and has a market share of less than 5% of the product category. Each of these companies has found the only way to market any product and them to further enable them to finance their research and development which is an inherent part of the industry is through these type of Licence and Manufacturing Agreements.

14. It is the view of the notifying party that this agreement falls squarely within the Category Certificate/Licence (in respect of Agreements between Suppliers and Resellers). The notifying party submitted that if the Authority were of the view that because of the extra territorial clauses in the Agreement or the fact that manufacturing under licence brought them outside the Category Certificate/Licence, that the Authority should grant a Certificate or Licence by following the logic of the arguments made in favour of a Category Certificate/Licence. 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. They 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.

15. In the light of the above the notifying party submitted that the agreements do 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 Authority should grant a certificate in respect of the agreements.

16. 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 Clonmel Chemicals and Ethical 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.

17. The notified agreement concerns an exclusive “Know-How” Licensing agreement, whereby Ethical, the owner of the trademark, appoints Clonmel Chemicals as licensee to use the Ethical name in Ireland. The agreement did not benefit from the Category Certificate & Licence (in respect of agreements between suppliers and resellers), Decision No 524, December 4, 1998, as the agreement is a know-how licence agreement providing for the manufacture and sale of the product in the relevant market.

18. The Authority is of the view that the products affected in the agreement have market shares of less than 5% of the total market in the State. Consequently, the agreement has a limited impact on competition in Ireland. Licensing in this case simply allows Ethical to transfer their know-how to Clonmel Chemicals and it is the view of the Authority that no aspects of the agreement restrict the notifying party in their freedom to take independent commercial decisions.

19. It is therefore the view of the Authority that the agreement does not have as its object or effect the prevention, restriction or distortion of competition in the State or any part of the State within the meaning of Section 4(1) of the Competition Act.

20. The Authority is of the view that the terms of Know-How Licensing agreement are necessary in order to ensure good relations between the notifying party in the award of an exclusive license for introduction of a product into a competitive market.

21. In the opinion of the Authority, the exclusive Know-How Licensing agreement notified by Clonmel Chemicals does not contravene Section 4(1) of the Competition Act.

22. In the Authority’s opinion, given the facts in its possession, Ethical and Clonmel Chemicals 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 exclusive licensing agreements dated 8th June 1988 do not offend against 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 Clonmel Chemicals Company Ltd and Ethical Pharmaceuticals Limited notified under Section 7 of the Competition Act on 30th September, 1992 (Notification No. CA/991/92E) does not offend against section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority