1. The
Plaintiff (hereinafter "Chanelle") is a wholesale distribution company which
was founded in 1980. The directors and principal shareholders are Michael
Burke and his wife Mary Burke. Michael Burke is a qualified veterinary surgeon
and practised as such for several years before setting up the Plaintiff
company. He did so because he was unhappy with the distribution services
offered by the multinational companies and he set out from the beginning to
provide a twenty-four hour delivery service of the full range of animal health
products. The business of Chanelle prospered and today enjoys a turnover of
approximately £9 million out of a total animal health products market of
some £55-£60 millions. Chanelle is part of a group of companies
which includes Chanelle Pharmaceuticals Manufacturing Limited ("CPML") which
was formed in 1985.
2. Amongst
the suppliers serviced by Chanelle in the 1980s were Beechams Plc. and Smith
Kline French Limited. These two companies merged in the early 1990s to become
Smith Kline Beecham. In January 1995 the Pfizer Group of Companies, of which
the Defendants are part, purchased the world wide animal health business of
Smith Kline Beecham Plc., and as part of this take-over the first named
Defendant took over the animal health business of Smith Kline Beecham in
Ireland and commenced trading as Pfizer Animal Health. Chanelle continued to
act as wholesaler and distributor of the Pfizer Animal Health range of
products. In this way in 1996 Chanelle had acted as wholesaler or distributor
for a decade and a half for the Beechams Plc. and the Smith Kline French range
of products, now part of the range of Pfizer Animal Health.
3. The
first named Defendant ("Pfizer") is the Irish subsidiary of a US Corporation,
Pfizer International Inc. Pfizer carries on business from Pharmapark,
Chapilizod, Dublin 20. Pfizer International Inc., is a multinational
corporation with subsidiaries or branches in many countries throughout the
world. It is a world leader in many veterinary and other pharmaceutical
products.
4. Pfizer
is the second largest supplier of animal health products in the Irish market
the largest being Merck Sharp & Dohme which is a single product (Ivomec)
company. The third largest supplier is Mallinckrodt. Pfizer has approximately
twelve per cent of this market. Prior to the take-over of Smith Kline Beecham,
Pfizer products in Ireland were distributed on an exclusive basis by Caffrey
& Mallon in Limerick ("C&M"). Shortly after the take-over in January
1995 Chanelle was contacted by Pfizer who were considering appointing them as
stockholding agents for the new company. After detailed negotiations this
contract was given in November 1996 to Cathal May Roberts a wholesale
distributor who also distributed the human range of Pfizer products.
5. The
second named Defendant has been joined in these proceedings as the employer of
one Mr. Johan Rabie and has offices at Louvain-la-Neuve, Belgium. As will be
detailed hereafter, Mr. Rabie was involved to some degree in the events which
lie at the heart of the dispute between the parties.
6. After
the take-over of the Smith Kline Beecham range Pfizer continued the exclusive
distributorship through C&M for Pfizer products, and Smith Kline Beecham's
distribution system comprising sales to wholesalers and direct sales to
customers also continued for several months. At the end of the year apart from
appointing a national stockholder Pfizer decided to appoint a limited number of
wholesale distributors. In this connection a meeting took place on the 29th
November, 1995 between Chanelle and Pfizer. As a result of this and other
meetings five wholesale distributors were appointed and the Pfizer products
were available only through these five. The other four were Boileau and Boyd,
Co-operative Animal Health, Agri Health and C&M . These five wholesale
distributors were the largest wholesalers in the distribution market.
7. At
the meeting on the 29th November, 1995 the parties reached agreement on the
terms of the distributorship. The wholesaler's discount was 12.5%, a fee of
£10,000 was payable for the monthly supply of information on Pfizer sales
extracted from Chanelle's computer, credit was sixty days and the territory of
the agreement was the Republic of Ireland. The discount represented a
reduction from a previous 15% for Smith Kline Beecham products but this was
offset by the increase in business resulting from the decision of Pfizer to
distribute its goods exclusively through the five appointed wholesalers.
8. In
parallel with these arrangements Pfizer also operated a rebate scheme which was
available to those who purchased their range of goods through the five
appointed wholesalers. Depending on quantity the maximum rebate was 10%. This
rebate was paid monthly to end purchasers and was calculated on a rolling
twelve month basis.
9. Mention
should be made of a meeting between the parties which took place on the 12th
February, 1996. There were complaints on either side. For their part Tom
Mullaney (Managing Director) and Philip Howlan (Sales Manager) of Pfizer were,
according to Michael Burke, very dissatisfied with Chanelle because they were
giving away a 6% discount out of the 12½%. Chanelle for its part
complained that other wholesale distributors were being given 15% discount on
Dectomax which was the number one success product from Pfizer. Chanelle's
response to the discount complaint was that they were followers, that others
had done it before and they agreed that in one case a personal friend in Galway
of Michael Burke had been given this discount. Pfizer's response to Chanelle's
complaint was that they denied that other wholesale distributors were being
given 15% and insisted that Chanelle's discount remain at 12½%.
10. A
second matter of some significance is the fact that Valbazen which is a very
successful white wormer supplied by Pfizer had come off patent some time before
this. Chanelle's sister company CPML was engaged in developing a generic
competitor to Valbazen namely Albex which was launched at a trade show in
Athenry on the 25th May, 1996. In a telephone conversation on the 22nd May,
Michael Burke notified Tom Mullaney of Pfizer that this launch was about to
take place. In the course of that telephone call he asked Tom Mullaney
whether he had any complaints about Chanelle and whether Pfizer was happy with
them. He was told "You are doing an excellent job: no complaints". It was
following this that Michael Burke told Tom Mullaney that Chanelle were bringing
out a generic Valbazen and he got the impression that Tom Mullaney was a bit
taken aback. He had made the telephone call in the first place because during
the previous year Tom Mullaney had asked him on three or four occasions whether
Chanelle were bringing out a generic Valbazen. He felt he owed it as a matter
of courtesy to inform Tom Mullaney before the actual launch.
11. Following
this Tom Mullaney tried to arrange a meeting between himself and Michael Burke
between the date of the telephone call and either the 7th or 10th of June. He
wouldn't give an agenda for the meeting. Because of conflicting commitments
neither date proved possible and the meeting was never held.
12. On
the 18th June, 1996 Michael Burke was in London. That morning Tom Mullaney
delivered to Chanelle at its premises in Loughrea a letter dated 17th June
indicating that it had been decided to implement new distribution arrangements
for their animal health products from the 24th June, 1996. From that date the
main wholesale distributors set out in the letter excluded the Plaintiff. The
letter referred to the two failed meetings as business review meetings.
13. This
decision to "de-list" Chanelle came without warning and immediately Michael
Burke attempted to make contact with Tom Mullaney. He wanted to know why his
company had been "de-listed". He failed initially to make contact and
subsequently did so but did not succeed in getting a clear reason.
Subsequently it has been suggested that Chanelle was not wholly committed to
the Pfizer animal health product range, that it had made wrongful use of
private or confidential information belonging to Pfizer or, alternatively, that
it was in a position to make use of such information and there was a suggestion
that it had not been prompt in paying monies it owed to Pfizer.
14. It
is clear from the conduct of the defence, however, that the main stand of the
Defendants is that the agreement between the parties is governed by common law
and common law alone. They claim to have given adequate notice and indeed
Chanelle makes no case based on notice. The relevance of the Defendants'
reasons, stated or otherwise, for "de-listing" Chanelle is the bearing they may
have on the complex issues arising under Irish Competition Law and Articles 85
and 86 of the Treaty of Rome.
15. Having
failed to procure a satisfactory reason for their "de-listing", Chanelle
instituted these proceedings and brought an application for an Interlocutory
Injunction in July of last year. This was resolved by the Defendants'
undertaking to continue to supply Chanelle on the same basis as theretofore
until the determination of this action.
16. Chanelle
says that the Pfizer range of animal health products is an essential part of
its business. It is essential that Chanelle has access to this range which
comprises approximately eighty different animal health products many of which
are unique to the Defendants and many of which are market leaders in their own
right. The Defendants are part of a world wide animal health producer and
Chanelle claims that its wholesale business will not be viable without access
to the products of the Defendants' range on the same terms as the other four
appointed wholesalers.
17. Many
of the Defendants' products are in a special if not unique position in the
market according to chanelle. For example, Valbazen is the number one white
drench product in Ireland for the treatment of endoparasites in cattle and
sheep. It is the only white drench product effective against all types of
stomach round worms and lung worms as well as adult fluke and fluke eggs. This
arises because of its unique combination of chemicals. Furthermore, Valbazen
is the number one world-wide Pfizer product. About 75% of chanelle's business
is with vets. These tend to prefer to purchase all their supplies from one
wholesaler. Chanelle also says that there is a preference in the market-place
for brand leaders. All of his means, according to chanelle, that its wholesale
distributor business will be damaged and possibly lost if it cannot have access
to the Pfizer range of animal health products on the same terms as the other
four appointed wholesalers.
18. The
pleadings articulate a number of different claims and grounds of relief. These
can be conveniently summarised as follows:-
19. In
either event Chanelle says that the object of the agreements was
anti-competitive. Furthermore, Chanelle says that the effect of such
de-listing is to restrict or distort competition in a way which offends against
Section 4(1) of the Act of 1991. Chanelle says not only that competition in
the trade of distributing Pfizer animal health products in Ireland has been
restricted or distorted but that, so also, has the market for the end user.
20. At
the conclusion of the Plaintiff's case Counsel for the Defendants applied to
have all claims dismissed on the grounds that there was no case. I ruled on
this application in my judgment delivered on the 5th June, 1997. In the result
I held that a prima facie case had been made out in relation to a breach of
Section 4 of the Act of 1991 arising out of an agreement or concerted practice
between Pfizer and the remaining distributors and also an agreement or
concerted practice between Pfizer and the second named Defendant. I held that
no case had been made out in relation to breach of a dominant position by
Pfizer in any of the markets identified with the exception of a market for the
product Synulox. I held, further, that a prima facie case had been made out to
establish appreciable inter-State effect. The case proceeded thereafter in
accordance with this Ruling.
21. Before
dealing with the issues that have arisen, I propose to explain a little more
about the background to the various claims.
22. Initially
(at the stage of the Interlocutory Application) Mr. Burke made the case that
de-listing chanelle would mean that it would not be able to carry the Pfizer
range of products, that the customers would automatically switch to other
suppliers who are chanelle's competitors and since the Pfizer cash save rebate
scheme would not be available to these purchasers, chanelle would be put at an
enormous disadvantage with the possible loss of £2.2 million turnover in a
twelve month period implying lost profits in the region of £400,000 to
£500,000 per annum. In the course of these proceedings it was made clear
by Counsel on behalf of the Defendants that the rebate would be available to
Chanelle in the event that it purchased Pfizer products from one of the four
appointed wholesale distributors just the same as it would be available in the
case of any other purchaser. This contrasts with the plea at paragraph 22 of
the amended Defence which places emphasis on the availability of these products
by way of import from other EC countries but I note that in an earlier letter
of 24th June, 1996 Pfizer's solicitors did indicate that their client's product
would continue to remain available to Chanelle after "de-listing".
Furthermore, the point was made that because Chanelle's purchases would be
large it would qualify for the top rate of rebate at 10%. Michael Burke and
Mr. Moore McDowell, an economist, who gave evidence on his behalf, both
commented that these four wholesale distributors are in direct competition with
chanelle and would be unwilling to supply goods on terms which would enable it
to compete effectively in the wholesale distributor market. In the course of
cross-examination Counsel on behalf of the Defendants put to Mr. Burke the
following questions:-
23. In
commenting on the implications of "de-listing" for Chanelle as a wholesaler Mr.
McDowell noted that it was commercially necessary for Chanelle to be able to
offer a very wide range of products to potential customers. The reason for
this was a widespread preference on the part of end users for "one stop
shopping" even when they take supplies from more than one wholesaler. This
witness noted that Pfizer had a share of around 15% in the total sales of
animal health products in Ireland and said that de-listing Chanelle implied
depriving it of the ability to offer the products of one of the top three
producers in markets covering nearly half of the total animal health product
sales in Ireland. This would clearly have the effect of seriously undermining
its competitiveness as an independent wholesaler.
24. Mr.
McDowell's evidence and report was initially prepared on the assumption that
Chanelle would not be eligible for volume rebates after de-listing. This has
been stated to be incorrect by Counsel on behalf of the Defendant and Mr.
McDowell accepted that many of his conclusions would have to be modified in
light of this information. He did not, however, withdraw any of them.
25. Mr.
Tom Tierney, group financial controller of Chanelle, specified six consequences
of "de-listing" which would apply even if the rebate is made available to it as
it is to any other purchaser of Pfizer products. These included that Chanelle
would not get a wholesaler's margin ("the wholesaler margin is how you
survive") they would not get "referred orders" (that is orders referred to a
wholesaler from Pfizer representatives in the field) and there were a number of
promotional devices which would not be available to Chanelle.
26. In
commenting on the fact that Pfizer's rebate system is given to end users rather
than to distributors Mr. McDowell identified an element of loyalty bonus which
he said reduces substitutability between Pfizer's products and those of other
producers. In the context of wholesaling, he said that the rebate system:
27. A
separate aspect of Chanelle's claim is that there is an element of
"disciplining the market" in Pfizer's decision to "de-list" Chanelle. This
arises in the following way. Valbazen is an extremely successful product of
the Defendants both world wide and on the Irish market. Chanelle's competing
product Albex was launched and competes directly with Valbazen. The
consequence of de-listing not only weakens Chanelle as a competitor but also
sends a clear signal to other distributors that the introduction of generic
competitors for Pfizer's brand leaders is likely to be a costly exercise. This
creates a barrier to entry to the market for the supply of generics. In this
context I note that Michael Burke in a telephone conversation with Johan Rabie
on 19th June, 1996 suggested a formula where "we would not bring out any
further competing generics".
28. In
a further submission Chanelle alleges that Pfizer's distribution system is what
is termed a "selective distribution system". In principle a supplier is free
to determine how his goods are to be distributed. (See for example
Butterworths
Competition Law
,
Chapter 4, para. 568). He may appoint a sole agent, he may distribute himself,
he may select any number of wholesale distributors. If, however, he selects
distributors and places them under an obligation to sell his goods only to end
users or other distributors who have been appointed by the supplier this
amounts to an intervention in the market place which requires justification.
In order to justify such an intervention the goods themselves must be suitable
for selective distribution. Examples of categories of goods which have been
held suitable for selective distribution are goods that are technically
complex, goods the brand image of which is particularly important, and goods
with an extremely short shelf life necessitating particularly careful
distribution. If a selective distribution system is not to run counter to
competition law the products must be appropriate for such treatment, the
criteria for selection of wholesale distributors must be qualitative and the
system must be operated in a non discriminatory way which means that any
wholesale distributor who qualifies under the qualitative criteria is entitled
to be appointed a distributor.
29. Chanelle
argues that the Pfizer distribution system is in fact a selective distribution
system because whilst the appointed distributors are not restricted from
selling only to end users or other distributors who have been appointed by
Pfizer, the effect of the rebate system with its "loyalty tie" characteristics
produces the same result. Appointed distributors will not sell otherwise than
to end users and fellow appointed distributors because the only way the end
user will qualify for the Pfizer rebate is to purchase from an appointed
distributor. It is further argued that even if Pfizer's distribution
arrangements do not amount to a selective distribution system in the strict
sense, it is nonetheless a restricted distribution system which is contrary to
Section 4 and Article 85 because it is operated in a discriminatory manner with
anti-competitive effect, namely, Chanelle has been de-listed notwithstanding
that it qualifies under all the appropriate qualitative criteria. The
significance of a distribution system being a selective distribution system
properly so called, is that there is authority to say that it could constitute
an agreement or concerted action for the purposes of competition law despite
appearing at first sight to be no more than a unilateral action.
30. Quite
apart from the foregoing, Chanelle had alleged that in a number of identified
markets the Defendants are in a dominant position and that withdrawal of supply
constitutes abuse which should be condemned. In my judgment of 5th June, 1997
I restricted this aspect of Chanelle's case to an alleged market in Pfizer's
product Synulox.
31. The
identified markets appeared in a letter from Chanelle's solicitors dated the
25th April, 1997. Four of these are product markets identified in the Animal
and Plant Health Association Report (the "APHA report") which has been
introduced in evidence. The APHA Report is a quarterly compendium of data in
relation to the animal health market and divides the range of products into
categories and sub-categories where a specific product is identified and sales
figures given. Not all suppliers to the animal health market are members of
APHA but the evidence shows that approximately 90% of the volumes in each
market are included.
32. Thirdly,
it is claimed that the de-listing of Chanelle will have an effect on the
markets in other member States of the European Community. Chanelle points to
the fact that the first named Defendant imports products from the United
Kingdom, Belgium and France as well as the United States and also to the fact
that its sister company exports the bulk of its manufactured products from this
country. Chanelle's Counsel cites
Bellamy
and Child
,
Common
Market Law of Competition
,
4th ed., at paragraph 2-129, where the test laid down by the Court of Justice
for assessing whether trade between Member States will be affected is as
follows:-
33. I
now turn to consider these claims and will deal first with the issue of alleged
agreement or concerted practice.
34. In
order to make a case under Section 4 or Article 85, it is clearly necessary to
establish that there is an agreement or concerted practice. This topic is
introduced in a general way in
Bellamy
and Child
(op. cit.) at paragraph 2-015 as follows:-
35. Counsel
for Chanelle has submitted that the decision to de-list his client was part of
both an agreement and of a concerted practice. On day 19 of the hearing Mr.
Tom Mullaney was questioned and gave answers as follows:-
37. It
is abundantly clear from the foregoing that there was no prior communication
between Pfizer and the other four wholesalers. They were informed of the
situation after the event. They had no part in reaching the decision. They
were told what the future arrangements were going to be and they accepted it.
In light of this evidence there can be no question of an agreement between
Pfizer and the other four wholesalers in relation to the de-listing of
Chanelle. I will consider later whether a concerted practice can be inferred
from the continuing business relationship between these parties.
38. Before
I do so, however, I must first consider whether there was an agreement in the
ordinary sense of that term between the first Defendant and the second
Defendant.
39. Mr.
Michael Burke says that on hearing of the "de-listing" letter on the 18th June
1996 he telephoned the second Defendant, whom he had known a few years before
when Mr. Rabie was working in South Africa but whom he knew at the time was
working for a Pfizer company in Brussels, to see if there was anything that
could be done for Chanelle which had just been dropped as a wholesaler in
Ireland. Mr. Burke says that in that phone call Johan Rabie said that he had
been involved in the fringes of the decision, that Chanelle had been dropped
because they had a competing product with the Pfizer Valbazen product and that
Pfizer were also afraid of what other generics Chanelle might be working on.
Mr. Burke was staying at the Sheridan Hotel in London at the time and he had a
little Sheridan Hotel pad with him on which he made notes of the telephone
conversation and this pad has been produced in evidence and shows that such
notes were in fact made. The words "laundered generics", "effected business",
"involved on fringes" and "working on more generics" were written by Mr. Burke
on the Sheridan Hotel pad.
40. Mr.
Rabie agrees that he spoke on the telephone to Mr. Burke but refers to several
telephone calls as follows: The first, towards the end of April or beginning
of May, was when Mr. Mullaney rang him being aware of some arrangement between
Smith Kline Beecham (now Pfizer) in South Africa and Chanelle and indicating
that he was reviewing the distribution agreement between Chanelle and Pfizer in
Ireland and wondering whether any decision made in this regard would have a
material effect on the business in South Africa. Mr. Rabie indicated that he
was not really able to answer but he would contact Mr. Mike Hagamman in South
Africa who was General Manager for Pfizer. He did so and was told that the
relationship in Ireland would not have a material effect on their relationship
with Chanelle. Mr. Rabie phoned Mr. Mullaney with this information.
Subsequently, some weeks later towards the third or last week of June 1996, he
got a telephone call from Mr. Burke. This was one of two phone calls on that
day from Mr. Burke. In the first phone call
41. Mr.
Rabie says that he was able to say he had some idea of what was going on but
that he was certainly not involved in any of the decisions and never had been.
He told Mr. Burke that the policy decisions were taken locally. He was asked
to try and contact Mr. Mullaney. He agreed to do that and did so. Mr. Burke
rang him a second time and on this occasion he confirmed that his involvement
in the decision was limited to the phone call that
42. Mr.
Mullaney made to him in the first place asking about the nature of the
agreement between Chanelle and Pfizer in South Africa. In the second phone
call Mr. Rabie said he informed Mr. Burke that Mr. Mullaney had told him that
Chanelle had planned to or had introduced a generic Albendazole and that
Chanelle were targeting the Valbazen customers with this new compound. He said
that the second phone call after he spoke to Mr. Mullaney was made by Mr. Burke
phoning from London Heathrow just prior to him leaving for a flight back to
Ireland.
43. He
also stated in evidence that his responsibilities in his job in Brussels did
not involve decisions in relation to wholesale distributors.
44. The
clash of evidence between these two witnesses relates, in essence, to whether
Mr. Rabie was able to communicate the reasons for the de-listing decision to
45. Mr.
Burke on the first telephone call (as Mr. Burke says) or on the second
telephone call after Mr. Rabie had communicated with Mr. Mullaney in Ireland in
the meantime and been given the relevant information (as Mr. Rabie says). I
consider that Mr. Burke's recollection is likely to be the more accurate. He
says that the explanations were given by Mr. Rabie on the first phone call made
by himself from the Sheridan Hotel. He made notes of the essential points on
the Sheridan pad which was produced in evidence. If Mr. Rabie's account is
correct, the reasons were given by him to Mr. Burke in the second phone call
when Mr. Burke was at Heathrow Airport on his way back to Ireland. If that
happened it is unlikely that the notes of the phone call would have been made
on the Sheridan pad. I consider that Mr. Burke's recollection is more likely.
46. I
accept, however, that Mr. Mullaney did telephone Johan Rabie to enquire whether
the proposed de-listing of Chanelle might affect the South African company and
was given this information. I accept further that Mr. Mullaney was merely
making a general enquiry and was not involving the second-named Defendant or
indeed Mr. Johan Rabie personally in any significant way in a decision-making
process. I think it likely that if
47. Mr.
Mullaney wished to have an input into this decision-making process from the
second-named Defendant, he would have contacted Mr. Rabie's superior, Mr. Jo
Jensen. I further accept that the purpose of Mr. Mullaney's phone call to Mr.
Rabie was simply to ascertain the viewpoint of the South African company and
because he was aware that Mr. Burke had had links with that company through Mr.
Rabie. This was the evidence of Mr. Rabie. Mr. Mullaney also gave evidence
that he did not speak "higher up the tree". Subsequently the Brussels company
was informed when the new system was put in place. This was after the event.
48. In
my view the second Defendant was not involved in the decision to de-list
Chanelle and was not asked to endorse or approve it. Mr. Rabie was consulted
in advance on a point of information by Mr. Mullaney and the second-named
Defendant company was informed after the event of the new distribution system.
In my view there was no agreement between the first and second-named Defendants
in relation to the de-listing of Chanelle.
49. Chanelle
contends, further, that Pfizer's distribution arrangements, which exclude
Chanelle, amount to a concerted practice within the meaning of Section 4 and
Article 85. Reference is made to
Bellamy
and Child
(op.
cit.
),
Chapter 2 Part III generally, and in particular at 2-022 as follows:-
50. Counsel
for Chanelle argues that the apparently unilateral decision of Pfizer to
"de-list" Chanelle when seen in its true context, namely in the context of a
selective distribution system or indeed a restricted system of distribution as
referred to in the above quotation, should be regarded as a concerted practice
within the meaning of Section 4 and Article 85. Specifically it is contended
that there is at least a tacit understanding between the supplier and the
remaining four distributors to exclude Chanelle from the distribution network
and that this tacit understanding
"may be inferred from all the circumstances"
,
to use the phrase of
Bellamy
and Child
at paragraph 2-016, which circumstances include the continued operation without
protest by these four distributors of Pfizer's distribution arrangements which
exclude Chanelle. Particular reliance is placed by Chanelle's Counsel, in this
context, on the rebate scheme and its alleged anti-competitive features which
are analogous to resale price maintenance control by Pfizer of their products
on the market, an engagement by Pfizer in a form of loyalty rebate and a
restriction of competition at the wholesale level. There is authority, says
Counsel for Chanelle, to show that in all the circumstances the continued
operation of this distribution system should be seen as a concerted practice
carried on by Pfizer and the four remaining distributors. In this context
Counsel refers to a number of authorities and because this argument is of such
importance to Chanelle, I propose to deal with the most important of these,
briefly, in turn.
51. In
assessing existing case law the Court of Justice noted that it was clear that
"it is sufficient that the undertakings in question should have expressed their
joint intention to conduct themselves on the market in a specific way" for
there to be an agreement within the meaning of Article 85(1). In dealing with
the definition of the concept of a concerted practice the Court observed (at p.
1805):-
52. It
was found in that case that the applicant had participated in meetings
concerning the fixing of price and sales volume targets during which
information was exchanged between competitors as specified above. The
applicant had pursued the aim of eliminating in advance uncertainty about the
future conduct of its competitors. It also took account of information during
the course of the meetings already referred to.
53. This
case establishes that evidence of parallel behaviour may amount to strong
evidence of a concerted practice.
54. In
joined cases 25 and 26/84
Ford-Werke
AG -v- Commission
(No.
4) [1985] ECR 2725, the supply company discontinued sales of right hand drive
cars to its German dealers in order to protect its UK dealers because the
German cars were cheaper. The distribution agreements constituted a selective
distribution system which specifically left certain future decisions to be
dealt with by the manufacturer. One such future decision was the decision to
protect the UK dealers' prices by refusing to supply cheaper right hand cars to
the German market. The Commission held that this decision was part and parcel
of the agreement with the suppliers although it appeared at first sight to be
unilateral. This aspect of the case turned upon the fact that the agreements
specifically left this matter to be decided in the future by the manufacturer.
55. I
would comment in passing that this case might be authority to show acceptance
by the four distributors in the instant case of the terms of Pfizer's invoices
which indicate that the rebate will be calculated by reference only to goods
purchased from these distributors. There is nothing in the invoices, however,
to indicate that Chanelle is to be de-listed or excluded.
56. The
decision in
AEG
-v- commission
[1983] ECR 3151, was intimately bound up with the Court's perception that the
distribution system involved constituted a selective distribution network. The
case concerned a complaint by certain distributors that this system was
operated in a way which discriminated against them. In dealing with the
argument by AEG that any decisions were unilateral the Court said (at pp.
3194-3195):-
58. If
the system was applied in practice in a manner incompatible with these
principles then such a practice was unlawful, and in those circumstances
59. I
regard this case as authority in the context of a selective distribution
network because it is clear that the judgment of the Court is intimately bound
up with the principles relating to such networks. Chanelle has submitted that
the distribution system in the present case amounts to a selective distribution
system and I will consider that argument at a later point in this judgment.
60. In
addition specific reference is made to four cases referred to in a footnote to
paragraph 2-022 of
Bellamy
and Child
already cited. Two of these four
AEG
and
Metro No. 2
cases
have already been dealt with. A third case referred to in this footnote is
Holloran
-v- Thwaits
[1989] 2 CMLR 917. This is the judgment of Peter Gibson J. in the Chancery
Division of the English High Court on behalf of the tenants of two tied
licensees of public houses who had been served with notice to quit by the
brewery which was offering a new agreement which it claimed was in conformity
with EEC law. The plaintiffs claimed that it was not and sought an
interlocutory order prohibiting the brewery from implementing the notice to
quit. As part of this submission Counsel for the plaintiffs relied on the AEG
case already referred to in order to overcome an argument that the brewery's
decision was unilateral. The plaintiffs' argument on this aspect was accepted
at the interlocutory stage and injunctions were granted.
61. The
final authority I am asked to consider in this context is the case of
Tipp-Ex
[1989] 4 CMLR 425. This case arose out of distribution arrangements between
Tipp-Ex and its exclusive distributors in several EU countries. These
arrangements were aimed at preventing parallel imports or exports within the
Common Market. The authorised dealer undertook not to sell the contract goods
to customers who to his knowledge intended to re-sell them in areas outside the
contract territory. Enquiries by customers from such countries were to be
forwarded to the supplier. One of these dealers, ISA France, appeared to have
breached these policies and re-sold products in the Federal Republic of
Germany. It even told its customers where and at what prices it bought them.
Tipp-Ex terminated the relationship. It sent several telexes to other
exclusive distributors impressing upon them the policy of not supplying
parallel importers. ISA France was succeeded by Beiersdorf. ISA France
procured some Tipp-Ex products from another distributor, BDF Tesa. Beiersdorf
wrote to BDF Tesa complaining about this and under pressure of repeated
representations from Tipp-Ex expressed its readiness to support Tipp-Ex in the
latter's policy of preventing parallel imports by ISA France. The Commission
found that the authorised dealers adopted Tipp-Ex's ideas regarding the mutual
protection of territories and that these ideas had become an integral part of
their agreements. It accepted that the continuation of contractual relations
between Tipp-Ex and the exclusive distributors was proof that these
undertakings were prepared to accede to Tipp-Ex's wishes. At least one of its
distributors explicitly agreed to endorse Tipp-Ex's policies and it is clear
that the Commission was satisfied that Tipp-Ex took active measures to prevent
parallel imports or exports and also exerted pressure on its exclusive
distributors in order to obtain their agreement and support. The Commission's
findings that the authorised dealers adopted Tipp-Ex's ideas connotes, in the
context, something more, in my view, than mere passive acquiescence.
62. Counsel
for the defendants, having submitted his own analysis of a number of the
foregoing authorities submitted that in order to find a concerted practice
there must be evidence of some form of positive co-operation in reaching it or
of acceptance of it thereafter as a term of trade. The distributors in the
instant case were not consulted in advance of Pfizer's decision to de-list
Chanelle, they were informed of it over the telephone after the event and there
was no discussion with any of them on the topic. They accepted the decision
and it was clear that the continued business relationship would necessarily
involve four wholesalers in the future.
63. In
my view it is clear from the evidence that there was nothing like positive
co-operation between Pfizer and the four distributors before the de-listing of
Chanelle. It is equally clear that they were informed after the event. Their
only involvement was to accept the fait accompli and react to the market as
they found it. In this they were merely adapting themselves intelligently to
the conduct of their competitors as defined in
Hercules.
There was no question of them being put under any kind of pressure to assist
Pfizer in continuing the de-listing of Chanelle: there was no question of an
invoice or other documentation which could conceivably be regarded as part of
the ongoing terms of agreement which specifically supported the exclusion of
Chanelle as a wholesale distributor. The facts of the present case are very
far from those in
Hercules
for example where there were several meetings concerning price fixing and sales
volume targets. There was no question of the remaining distributors being
"asked" to co-operate with Pfizer in continuing the de-listing of Chanelle in a
way that might be compared to the request by
Konica
UK
to its UK wholesalers to co-operate with it by not exporting film directly or
indirectly into Europe.
ICI -v- Commission
was a case involving parallel behaviour which was accepted as strong evidence
of concerted practice. In the present case there was one act and one act
alone: namely the act of Pfizer to de-list Chanelle. In
Ford
it was held that a contractual clause to leave over future decisions to the
supplier meant that those future decisions, apparently unilateral, were in fact
part of the agreements. The invoices in
Sandoz
were evidence of terms written on the invoices: the invoices in the present
case have nothing to say about de-listing.
AEG -v- Commission
is a selective distribution network case and for the reasons already given the
position is not really advanced by
Metro
2
,
Holleran
or
Demo
Studio Schmidt
.
As I have already stated, in my view the Commission in
Tipp-Ex
had evidence of and accepted something more than mere passive tacit
acquiescence on the part of the distributors.
64. In
my opinion the acceptance by the four remaining distributors of Pfizer's
de-listing of Chanelle and their continuation as distributors thereafter was
not and is not a concerted practice for the purposes of Section 4 or Article
85. The evidence is quite clear that so far from being involved before the
event they were merely informed after it. There is no evidence that they
actively support or aid this policy of Pfizer in a manner analogous to the
behaviour of those involved in the cases relied upon or even that Pfizer ever
sought or desired such support. Pfizer's decision to de-list Chanelle was, in
my opinion, a unilateral act and I hold, therefore, that it did not constitute
nor was it part of any concerted practice as contended by Chanelle.
65. In
case I am incorrect, in the conclusion I have come to in relation to the
claimed agreements or concerted practices and in deference to the comprehensive
submissions of Counsel, I think I should set out as briefly as I can, my views
in relation to the other main issues in the case.
66. Chief
among these is the question whether any agreement (or concerted practice) to
de-list Chanelle has as its "object or effect the prevention, restriction or
distortion of competition" in trade contrary to Section 4 of the Act of 1991 or
Article 85 of the Treaty of Rome. I turn first to consider the
anti-competitive object issue. Chanelle argues that the object of such an
agreement is anti-competitive. It is clear from
Société
Technique Minière
-v-
Maschinenbau Ulm GmbH
[1966] ECR 235 and
Delimitis
-v- Henninger Brau AG
[1991] 1 ECR 935 that the correct approach is that the Court would first
consider the object of the agreement before considering its effect. If the
object is clearly and unambiguously anti-competitive then, subject to the
de
minimis
rule, the agreement will be condemned and it will not be necessary to consider
its effect.
67. Chanelle
suggests that the object of any agreement between the first named Defendant and
the four remaining distributors (or between the first and second named
Defendants) is either to exclude Chanelle as an appointed distributor because
it has misused allegedly private information for the purpose of promoting
("piggy backing") its own product, Albex, in competition with Pfizer's brand
leader Valbazen. Alternatively the object of the agreement is to de-list
Chanelle because it "targeted" Valbazen customers (known to Chanelle in its
capacity of wholesalers/distributors for Pfizer's Valbazen) for the purpose of
persuading them to purchase its own product, Albex, instead.
68. In
ascertaining the object of an agreement the Court looks at the objective
circumstances rather than the subjective intentions (declared or otherwise) of
the parties to the agreement (see
Bellamy
and Child
:
op.
cit.
paragraph 2-097). "Horizontal" agreements (that is between undertakings at the
same level of distribution) are more likely to be anti-competitive than
"vertical" agreements (that is agreements between parties at different levels
of the distribution chain). Bellamy and Child at paragraph 2-100 write:-
69. In
dealing with this issue in
Masterfoods
Limited -v- HB Ice Cream Limited
[1993] ILRM 145, at page 205, Keane J. noted the following:-
70. In
the present case Pfizer has emphasised that Chanelle is perfectly free to
purchase and re-sell its goods from other listed wholesale distributors. It
will qualify for the rebate and it is likely to purchase in such volumes that
it will qualify for the rebate at the highest (10%) level.
71. I
am unable to hold that the "object" of any agreement involving the de-listing
of Chanelle is anti-competitive
per
se
as
claimed by Chanelle because I cannot see that such an agreement is of a kind
which restricts competition "of its nature". There has been a lively
difference of opinion between the economic experts and others in this case as
to whether competition (as distinct from the competitiveness of Chanelle) will
be affected at all by this decision. Regardless of outcome, I consider that
the fact that there can be responsible debate at all, demonstrates that the
object of the agreement could not be restrictive of competition of its nature.
I am compelled to hold, therefore, that any agreement involving the de-listing
of Chanelle does not have as its object the prevention, restriction or
distortion of competition.
72. Accordingly,
I must now turn to consider whether the effect of such an agreement has been
shown to be anti-competitive.
73. Before
summarising the evidence submitted by the economists in the case, I intend to
set out one or two principles of law.
74. Firstly,
I accept the following statement by Costello P. in
Donovan
& Ors -v- ESB
[1994] 2 IR 305 at page 322, namely:-
75. Secondly,
I accept that the applicable standard of proof is proof on the balance of
probabilities as stated by Keane J. in
Master
Foods Limited -v- HB Ice-cream Limited
[1993] ILRM 145, at page 183 where he said:-
76. Thirdly,
I intend to adopt the approach set out by Keane J. in the same judgment (at
page 185) as follows:-
77. I
will now attempt to summarise the economic evidence given by the expert
witnesses on either side of the case.
79. Mr
McDowell is a statutory lecturer in economics at University College Dublin
where he obtained his primary degrees. He obtained a post-graduate degree in
the University of Oxford. He has been teaching in Dublin since 1969 and has
held visiting lectureships in the United States. Since the introduction of the
Competition Act in 1991 he has been extensively engaged in consultancy and to
some extent research in the area of industrial economics and has been involved
in several Competition Law cases.
80. His
report recites that if Chanelle were "de-listed" it would not be feasible for
it to match Pfizer's discount to its wholesalers without selling Pfizer
products at a loss. The total value of sales of animal health products in
Ireland is between £55-£60 million. He describes the "vertical
market structure" as comprising three levels, the "up-stream" level being the
producers of both proprietary and generic products. The intermediate stage
comprises a group of independent wholesalers including Chanelle at least four
of which have links with manufacturers. Prior to 1995 the producers of Pfizer
and Smith Kline Beecham products had direct sales to end users. In December,
1995 Pfizer decided to offer all their products through wholesalers and in
appointing five wholesalers included, apparently, all possible national
distributors of animal health products.
81. The
final (retail) level comprises vets, chemists, local co-operatives, farmers and
other end users.
82. The
primary producers (comprising in the main multi-national corporations) largely
import their products and promote them. They supply wholesalers at a discount
on a recommended price (Chanelle carries approximately 1,500 lines in stock).
The wholesalers compete for business on service (speed of delivery, range of
product, advice) and price (discounts). The Pfizer rebate system is based on
accumulated sales and therefore has an element of loyalty bonus. The
wholesalers gather information and pass it on to Pfizer for calculating the
rebate. It is critical that only products purchased by end users from
wholesalers will be calculated for the purpose of assessing the end users'
rebate. Turning to the market for these products some 75% of sales was in the
hands of the eleven largest producers. The largest two each enjoyed 15% and
Pfizer at number three had 12% of sales. Mr McDowell said that it was hard to
sustain an argument that Pfizer had sufficient market power to be treated as
dominant, if one takes the animal health market as a single market.
83. Looked
at from the point of view of the consumer (demand side) it became clear that
there were a large number of markets because the demand was for the treatment
of different conditions, each of which could constitute a market on its own.
This approach depends crucially on the technical evidence of experts in
veterinary medicine to establish accurately the market boundaries.
84. He
referred to the APHA Report and noted that it divided the overall market into
eighteen main product groupings with approximately eighty sub-groupings.
85. He
concluded that on the demand side there were a very large number of markets the
exact number and boundaries of which would have to depend, for their
definition, on expert evidence. As an economist he did not have sufficient
data to add to the establishment of boundaries by reference to veterinary
evidence.
86. On
the supply side it was important to determine the degree of ease of entry to
the markets (whether they were contestable). An unbiased observer would
probably not regard the animal health products market as being closed to entry,
especially in light of a significantly large number of suppliers with general
ability to use reverse engineering to produce competing generic products. This
applies less so where a producer (Pfizer) has products supported by patents or
branding which have a large share in a market.
87. Dealing
with the market structure in terms of product markets and taking information
from the APHA fourth quarter Report for 1996, Pfizer had 13.8% of the overall
market for the year 1996 and 16.5% for the fourth quarter of that year. These
are not percentages usually associated with substantial market power. The
market power of Pfizer may, however, be under-estimated by treating the animal
health product market as a single aggregate market.
88. In
the absence of actual hard data, Mr McDowell calculated that in twelve of the
thirty six APHA product sectors in which Pfizer had products (out of a total of
some eighty APHA product sectors), Pfizer was one of the top three which
between them had 60% or more of the market.
89. Turning
to Chanelle (as manufacturer) the figures (from the same source) show that
Chanelle is a fringe producer with between 2-3% of the product market. By
reference to individual markets Chanelle had products in twenty-five of these
with shares ranging up to 40% but the higher shares were in small value market
segments.
90. Comparing
Chanelle and Pfizer it appeared that sales of Chanelle products seemed to have
little impact on Pfizer sales (for example in two markets where Chanelle
significantly increased its market share, so did Pfizer). Again, Chanelle's
Albex competes with Pfizer's Valbazen: Chanelle's share rose by 40% on a low
base in 1996 whilst Pfizer's Valbazen rose by 7% on an already high base in a
nearly stationary market.
91. Turning
to the intermediate (wholesale/distributor) level of the market, there appeared
to be five firms at this level including Chanelle. Economists would call this
stage oligopolistically competitive. (The percentage shares of the five were
31%, 15% (Chanelle), 12%, 7% and 6% with 29% accounted for by direct sales and
others). The value of Chanelle's 15% was approximately £7.9 million in
the year ending April 1996 and of this, its own products (i.e. the products of
its sister company CPML) accounted for 22% of turnover. Chanelle increased its
market share from 9.5% to 14.1% in the four years to 1996. This increase was
accounted for by an increase in the classic wholesale business rather than from
selling its own products.
93. There
was no information on any agreements between the major (mainly multi-national)
firms. They could be taken to compete at the level of research and development
but given large "sunk costs" it would not be in their interests to compete on
price.
94. A
concentrated wholesale stage is more consistent with the objectives of avoiding
price competition in contrast to an atomistic structure which would make
monitoring of pricing by suppliers more difficult.
95. Dealing
with the effect of the rebate scheme, Mr McDowell noted that information on
sales was passed to Pfizer from its wholesalers. Whilst the retailers were not
obliged to enter this arrangement, they were obliged to do so if they were to
get the benefit of the rebate offered by Pfizer, based on achieved sales to
them by approved wholesalers. He said:-
96. He
referred to evidence which he understood to amount to complaints by Pfizer of
deep discounting by Chanelle which could be seen as a restriction on intra
brand competition at wholesale level thereby, he said, reducing inter brand
competition on price. The fact that the price at the end user stage is
sensitive to scale of purchase in the context of the rebate system has the
effect, he said, of reducing the incentive to engage in intra brand price
competition by wholesalers. There would, moreover, appear to be no sound
commercial reason for Pfizer to limit the number of wholesalers. These
features suggest that there may be "strategic considerations" for Pfizer's
distribution arrangements. Two such considerations would be:-
97. If
any tacit agreement on price competition exists, it would be difficult to
police given the discounting by wholesalers, and the loyalty rebates and bonus
offers of goods from Pfizer. There is evidence suggesting pressure on
wholesalers not to engage in discounting, or at least deep discounting. The
entire pricing structure operated by Pfizer begs questions. If the object is
to increase sales, it is difficult to see why Pfizer does not offer deep
discounts to wholesalers based on volume sales rather than to the retail trade.
98. A
second possible "strategic consideration" would be to discourage generic
competition. The refusal of Pfizer to permit Chanelle to market its products
in the face of a competitive threat from Chanelle's generic product challenge
to a Pfizer brand leader can be seen not only as weakening Chanelle as a
competitor, but also as sending a clear signal to other distributors that
introduction of generic competitors for Pfizer's brand leaders is likely to be
a costly exercise. Thus, a barrier to entry to the market for supply of
generics is created.
99. Mr.
McDowell next deals with the implications of Pfizer's refusal to supply
Chanelle as a wholesaler. Chanelle argues that it needs to offer the entire
range of animal health products including Pfizer's products because vets have a
preference for "one stop
shopping".
Pfizer has approximately 15% of all total sales of animal health products in
Ireland. It has products in markets which between them account for over
£26 million from a total estimate sales value of £55 million. This
is over 47% of the total. De-listing Chanelle implies depriving it of the
ability to offer the products of one of the top three producers in markets
which cover nearly half the total animal health product sales in Ireland. This
would clearly have the effect of seriously undermining its competitiveness as
an independent wholesaler.
100. The
impact on Chanelle's competitive position can be quantified to some extent in
that Pfizer products appear in orders which constitute 24% of Chanelle's sales.
101. For
Chanelle as a manufacturer the impact is also serious because it is vital for a
small scale generic producer to have access to the market. Thus, if Chanelle
were forced to close down its wholesaling arm by Pfizer's action, this would be
a threat to the commercial viability of Chanelle's manufacturing sister
company, which would be deprived of ready and friendly access to the market.
102. Mr.
McDowell then turned to the implications (of Pfizer's de-listing Chanelle) for
competition in general.
103. Dealing
with competition at the distributor level, Mr. McDowell could not say whether
de-listing would cause it to withdraw from this market. However, it was
generally accepted that as the number of players in a market fall, "the
consequence of a rising recognition of inter-dependence is a blunting of
competition" whatever form that competition takes. Furthermore, this effect
increases dramatically when the number of "players" falls below five.
Collusion would be made much more likely by any factor which restricts entry
into the industry. A reduction in the number of competitors, especially if it
means eliminating an aggressive discounter, would be consistent with the
objective of avoiding price competition with other suppliers.
104. Dealing
with the impact on the manufacturing market, Mr. McDowell said an independent
wholesaler was likely to offer less favourable terms to a small producer than
it would to a relatively risk-free producer of substantial brand image or
patented products. The de-listing of Chanelle is immediately anti-competitive,
in that such an action raises entry costs into product markets by existing
manufacturers insofar as they have distribution operations. Such a distributor
clearly faces an entry cost into the relevant market.
105. Mr.
McDowell would not accept Pfizer's argument that Chanelle's Albex posed a
successful challenge to its Valbazen product. Information in the APHA Report
was to the contrary. He did not agree that the sales information in Chanelle's
computer was private Pfizer information, because it could have been obtained
from market research and indeed from sales staff employed by Pfizer. In
relation to Pfizer's perceived objection to Chanelle as the manufacturer of
competing products, he noted that other wholesalers continued without objection
from Pfizer to have links with manufacturers of similar competing products. In
addition he offered his view that a wholesaler does not necessarily have an
incentive to substitute its own product for that of a "bought in" product.
106. In
cross-examination Mr. McDowell accepted that his report and evidence was
prepared on the basis that the end user rebate would not be available to
Chanelle once it was de-listed. If the rebate was available to Chanelle, this
would have a mitigating effect on his conclusions. He also accepted that it
would be significant if Chanelle remained viable as a wholesaler even if it did
not carry Pfizer products. He accepted that if the APHA Report only accounted
for 85% of the overall market, it would be necessary to go outside the Report
to assess the true market share and market power of Pfizer, especially if there
were significant competitors not accounted for in the APHA Report. The
calculation of Pfizer's market share was a "guesstimate". They were "best
estimates with very imperfect data. A guesstimate, an inference I would draw
from the data. One which could be contradicted by better evidence".
107. He
accepted that at the wholesale level there appeared to be a highly competitive
market and clarified that his evidence that Pfizer were in some way trying to
control price, was that Pfizer's intervention was "consistent with not being
anxious to see price competition between (wholesalers)". With reference to his
evidence that a reduction from five wholesalers to four wholesalers would
increase the likelihood of collusion, he clarified that he would have to have
much more evidence before he could give a considered opinion that such was
highly probable to happen. His evidence was that there was an increase in
probability. The heart of the matter was that Chanelle was being placed at a
competitive disadvantage by virtue of the decision to de-list it, which arises
from Chanelle's introduction of a competing product. The new system (a
de-listed Chanelle entitled to an end user rebate) would not necessarily in all
cases produce as big a profit for Chanelle as being a distributor. That went
to the heart of the matter, in that Chanelle was being treated in different
terms to other distributors and he thought that, under the law, in terms of
price, you must apply similar conditions amongst similar trading partners.
108. Expert
economic evidence was given on behalf of Pfizer by Dr. William Bishop who is
Chairman of a London firm of consultant economists specialising in the
application of economics to Competition Law. He is professor of the economics
of Competition Law at the College of Europe, Bruges, has an academic background
in economics and considerable practical experience of market definition for
competition policy purposes. He has been asked to provide advice to public
bodies, notably the European Commission, inter alia, in connection with its
drafting of a Notice on Market Definition issued in May 1997.
110. Like
Mr. McDowell, he also relied on expert veterinary advice particularly in
relation to market definition.
111. He
said that competition (commercial rivalry) was seen by economists as favouring
the efficient use of resources in the interests of improving the welfare of
individuals. Economists see efficiency as concerned with the optimal
allocation of production resources and with maximising output. It is also
concerned with innovation and technological advance which can only be assessed
over time. Economists differ to some extent as to how best economic efficiency
can be achieved.
112. A
text book model of "perfect competition" is rarely appropriate in practice:
real competition is a dynamic process characterised by rivalry. A dilemma for
competitive policy is that the outcome of this process may result in a firm or
group emerging with a stronger position in the market: if the goal of achieving
efficiency is to be achieved, however, care must be taken before intervening in
such a case. It is unsound to interpret harm to a competitor as equivalent to
harm to competition.
113. There
is no simple solution to this dilemma because there will always be tension
between the process of competition and its outcome. A guiding principle ought
to be that intervention is only warranted where it is likely to result in an
improvement over the probable outcome in the absence of intervention. The
underlying aims of any policy must be borne in mind: these include the
enhancement of economic efficiency in the ultimate long-term interest of the
consumers. The primary concern should be to maintain an appropriate market
environment over the long term and a "snap shot" at any one time could be
misleading.
114. In
relation to dominance, this is characterised broadly as a persistently high
position in the market place which permits of substantially greater freedom of
commercial action than in the presence of close competition. Concern arises
when a firm exploits or seeks to reinforce a dominant position. Dominance is
only a problem if potential competitors face barriers that they cannot overcome
by themselves within a reasonable time.
115. A
second area of concern is with "anti-competitive agreements". These should be
tested from an economic point of view, against their likely impact on the
objectives of economic policy which is concerned ultimately with the welfare of
the consumer.
116. In
the context of Section 4 or Article 85, the criterion given by law (the impact
of an agreement on competition) can give rise to conflicts. This is because of
the somewhat ill-defined nature of the concept of "competition". Given that an
agreement will inevitably impose conditions limiting freedom of action, a
narrow view of competition policy will almost inevitably see any agreement as
"anti-competitive" - leading indeed to outcomes contrary to the aims of the
legislation itself. The same agreements could, on a wider view, be seen as
enhancing competition if they resulted in economic activity which would
otherwise not occur. Hence the need, from an economist's point of view, to
take a broad view.
117. A
relevant market can be defined for a given product as a group of products all
of which consumers would consider to be reasonable close substitutes for one
another. It is necessary that all consumers be considered because different
individuals will have different views on acceptable substitution: it is the
aggregate demand which constrains the supplier to the market. Therefore the
essence of market definition is to identify a group of products which is:
118. This
concept is similar to those underlying definitions provided by the European and
US authorities.
120. In
applying these notions to the animal health products market, it is important
that any serious attempt to define a market in practice must make reference to
some empirical evidence of consumer demand. Dr. Bishop relies on the APHA
Report and on information from Tom Mullaney and David Pepper (a veterinary
surgeon). In light of this, it was immediately apparent that there was not a
single market for animal health products in Ireland, but that there was a
diverse collection of products in different markets.
121. The
key test in market definition is the substitutability of products. The demand
in this case is what economists would call a "derived" demand, namely, a demand
for the result which the product produces rather than for the product itself.
This is often determined by the view of the veterinary surgeon.
122. He
was advised (by Mr. Mullaney and Mr. Pepper) that there were two primary
features of this demand at retail level, namely, (a) a condition requiring
action, and (b) the species of animal, together with a possible third, (c) the
mode of administration. The delineation of product market at wholesale level
is likely, in the absence of special features, to follow the delineation of
market at end user level. In the markets in the present case both branded and
generic products appeared: differentials in price between these did not imply
that they were in distinct relevant markets.
123. In
dealing with the allegation that Pfizer's distribution arrangements were
"anti-competitive", Dr. Bishop perceived a close connection between market
power and anti-competitive arrangements: the objectionable outcome of abuse of
a dominant position under Article 86 is the same objectionable outcome achieved
through "co-ordination" by more than one undertaking under Article 85. Before
considering anti-competition it is necessary to be clear about the markets
affected. If an undertaking or group of undertakings has little or no market
power, it is unlikely that it can restrict competition to any appreciable
extent by entering into a "vertical" agreement.
124. In
dealing with Chanelle's claim under Section 4/Article 85, insofar as it alleges
that the reduction in the number of wholesalers of Pfizer products is likely to
affect competition at the wholesale distribution level, there are two
determinants of this question, namely, (a) the likely intensity of intra brand
competition between the remaining four Pfizer wholesalers/distributors, and (b)
the extent to which non-Pfizer products provide a competitive constraint on the
price of the four Pfizer wholesalers.
125. In
relation to the first of these, there is no evidence to suggest collusive
tendencies between Pfizer's wholesalers: on the contrary the evidence suggests
keen competition on price between wholesalers: furthermore, to the extent that
there are competitors for Pfizer products, this question loses much of its
significance. Dr. Bishop sees no evidence suggesting Chanelle would be unable
to remain competitive as a wholesaler of non-Pfizer products and there is a
possibility that it would continue wholesaling Pfizer products, albeit on a
smaller margin. To argue that de-listing Chanelle would appreciably impair
competition in wholesale distribution would, therefore, first require
demonstration that at lease some Pfizer products have no close competitors in
their particular markets.
127. Dr.
Bishop noted that all wholesalers carry a variety of generic products, some in
direct competition with Pfizer products. Accordingly, Pfizer's own evidence
does not entail an implicit general requirement of its wholesalers to refrain
from competing generics. It does not follow that competition
per
se
is jeopardised even if Pfizer's dealing with Chanelle is motivated by a
perception of a specific threat from Chanelle's Albex.
128. Turning
to Mr. McDowell's report, Dr. Bishop observed that it fails to deal adequately
with the specific features of the products or markets at issue in this case.
It deals largely in general principles with which Dr. Bishop has no quarrel,
but these do not much advance the Plaintiff's case.
129. In
relation to market definition, Mr. McDowell offers no conclusions of his own,
although Dr. Bishop agrees with his general approach. It is not justifiable,
however, to equate the APHA categories with markets and Mr. McDowell's market
share analysis based on the APHA categories is therefore undermined in a
fundamental way.
130. Mr.
McDowell offers no explicit conclusion on dominance or even on market power.
Dr. Bishop notes that Mr. McDowell makes no reference to the product markets
identified in the Plaintiff's solicitor letter of the 25th April, 1997. In
regard to the treatment by Mr. McDowell of market shares and contestability,
this treatment does not permit of conclusions about the specific markets at
issue because in the case of market share the markets are not defined and the
APHA Report is incomplete and in the case of contestability, Mr. McDowell's
treatment is only in general terms, for example "
in
so far as
the markets for AHB can be so characterised (i.e., by the importance of
branding and/or intellectual property rights) supply side substitutability is
weak, and the markets are not in general highly contestable" (p.15); and "
to
the extent that
products are protected by patents .... and/or by substantial expenditure on
marketing and branding supply side competition is weakened" (p. 16)
(emphasis added to both quotes). The factual premise necessary for the
conclusion to apply to the specific markets in question is not established in
either case."
131. In
relation to the claim that Pfizer's decision to de-list Chanelle is
"anti-competitive", Dr. Bishop notes that there was no firm conclusion on
market definition and that therefore, it is difficult to assess any alleged
effect on competition. Specifically, in relation to the claim that Chanelle is
not able to compete on an equal footing, Dr. Bishop says it is not at all clear
that Chanelle would cease to wholesale Pfizer products, there being examples of
other wholesalers not appointed by Pfizer who do this. It has not been
demonstrated that Pfizer is immune from competition in any market and therefore
the four remaining wholesalers would continue to face competition from Chanelle
wholesaling other products. The empirical evidence shows that "one stop
shopping" is not reflected in the actions of individuals.
132. Even
if, contrary to the foregoing, the wholesalers were reduced from five to four,
it does not follow that there would be a reduction in intensity of competition
at wholesaler level. Mr. McDowell's evidence in this connection is the outcome
of a particular theoretical model which can not be taken as a serious
prediction of what will happen. There is evidence of keen price competition
between wholesalers and even evidence that Chanelle's rivals seek to undercut
Chanelle on Pfizer products. Dr. Bishop notes that in December, 1995 the
number of wholesalers had been reduced to five. This indicates an implicit
acknowledgement that the criterion for judging whether a particular
distribution arrangement distorts competition is not whether there is a
potential buyer who is treated differently from an other, but rather whether
the likely net effect of the arrangement is to reduce the intensity of
competition.
134. Dr.
Bishop suggests that this claim does not conform to the facts. There are a lot
of Pfizer distributors who carry a large range of generics which are in
competition with Pfizer products and therefore Pfizer's objection is not an
objection to generic competition
per
se
.
Even if the object or effect of the de-listing was to make circumstances more
difficult for the manufacturers of products which compete with Pfizer products,
before concluding that this was anti-competitive one would have to consider
that Pfizer is not shown to be dominant and that it was therefore difficult for
Pfizer to have an effect on the wholesale market. Furthermore, Mr. McDowell
had argued that it was in Pfizer's interests to reduce the intensity of
"up-stream" price competition by controlling down stream pricing, and in
particular by reducing the intensity of competition on Pfizer products between
wholesalers. This may be true in a general sense, but it is a long way from
showing that Pfizer has actually behaved in this way, much less that any such
actions have been successful. On the contrary, the evidence shows lively price
competition between wholesalers. The ultimate test must be whether this
allegedly anti-competitive agreement will have an overall chilling effect on
the intensity of competition. The extent to which Pfizer distributors have in
the past been able to carry generic products without eliciting such a reaction
from Pfizer is relevant to answering this question.
135. In
relation to dominance, Dr. Bishop defined this as a persistently high position
in the market place which permits substantially greater freedom of commercial
activity than in the presence of close competition. Concern arises when a firm
exploits or seeks to reinforce a dominant position. Dominance is only a
problem if potential competitors face barriers that they cannot overcome by
themselves within a reasonable time.
136. Market
power can be seen when a firm is in a position to maintain prices above the
competitive level without losing profit. The competitive level is the level
which allows it to cover the costs of production and earn a return on capital
just sufficient to attract funds to run the business. This concept is closely
allied to the concept of dominance.
137. It
is more likely that a firm (or group of firms) with a high market share would
be able to distort competition than in the case of a low market share. In Dr.
Bishop's experience, it is unusual that a firm with less than 40% of market
share would be able to exercise any appreciable degree of market power. Market
share is only one of several possible indicators.
138. Applying
these concepts to the allegation that de-listing Chanelle constitutes an abuse
of a dominant position in the market for Synulox, Dr. Bishop is advised (by
139. Mr.
Pepper) that there are four different Synulox sub-product markets depending on
species of animal and mode of administration. According to Mr. Pepper, these
are not substitutable one for another. Furthermore, each of these Synulox
products has substitutes outside the Synulox range. These four markets are:-
140. Synulox
500 mg. Bolus: the market is cattle oral antibiotics: the APHA class is oral
preparations I/N SCO cattle and Pfizer's market share is 26.4%.
141. Secondly
Synulox lactating cow intramammary suspension: the market is lactation cow
intramammaries: the APHA class is intramammary lactating cow and
the Pfizer share is 13.2% to 13.8% (estimated).
142. Thirdly,
Synulox palatable tablets: the market is small animal oral antibiotics. The
APHA class is oral preparations I/N SCO small animal and Pfizer's market share
is 34.5%.
143. Fourthly,
Synulox ready-to-use injection: the market is injectable antibiotics: the
APHA class is injectable preparations (whole category-7 classes) and Pfizer's
market share is 13%.
144. Pfizer's
market share alone in three of these is sufficient to conclude with a high
degree of confidence that Pfizer cannot be dominant. In the third case
(Synulox palatable tablets), Mr. Pepper does not believe that Pfizer is
dominant in the market for small animal oral antibiotics. He notes that the
Synulox palatable tablet share fell in each of the years 1995 and 1996: this
was against a background of falling real prices and is therefore strong
evidence of increasingly keen competition.
145. In
cross-examination Dr. Bishop accepted that there are three separate levels of
market in the present case, with a specific market at wholesale level. It is
possible to enter an agreement with other undertakings to distort competition
at the wholesale level but one would need to monopolise the wholesale level
which is difficult to do because of the ease of entry into wholesaling
generally. Any perceived "rip-off" would produce a reaction by way of the
rapid setting up of alternative wholesalers. A reduction of wholesalers in
number from five to four is not likely to reduce competition. In fact, even if
the number were reduced to one, this is not likely to have an effect on
competition because of the ease of entry into the wholesale market.
146. Dr.
Bishop accepted that if Chanelle offered to withdraw Albex this might affect
competition, if over time no one else could be found who would take it up. He
also accepted that it is probable that over time the amount of Pfizer products
that Chanelle will purchase will decrease because of the non-availability of
the rebate to Chanelle's customers.
147. From
the foregoing, it can be seen that both economic experts accepted that the
definition of the relevant market in the present case is crucially dependant
upon the evidence of the vets. It is also clear that a crucial difference
between them is that
148. Mr.
McDowell regards the placing of Chanelle at a competitive disadvantage as the
heart of the matter, whereas Dr. Bishop makes a key distinction between harm to
a competitor and harm to competition. To a significant degree this distinction
also underlies the approach to the interpretation of Section 4(1)(d) of the Act
of 1991 (and the equivalent sub-paragraph in Article 85), between respective
Counsel in this case, and accordingly, I will now turn to consider the legal
submissions in this regard.
149. Counsel
for Chanelle argues that Section 4(1)(d) is to be interpreted as standing alone
as an alternative to the generality of Section 4(1). He says that if the
present case involves an agreement or a concerted practice which applies
dissimilar conditions to equivalent transactions in the way identified in this
sub-paragraph then, without more, it is prohibited and void under sub-section
(1). He says the generality of sub-section (1) which refers to agreements and
concerted practices having as their object or effect the prevention,
restriction or distortion of competition in trade is another category which is
an alternative category to agreements which apply dissimilar conditions etc.
under sub-paragraph (d). The effect of this interpretation is that agreements
which apply dissimilar conditions to equivalent transactions can be condemned
as contrary to sub-section (1) even if it is not established that they have as
their object or effect the prevention, restriction or distortion of
competition. Counsel for Chanelle goes on to say that it is clear on the
evidence that Chanelle has been placed at a competitive disadvantage by being
de-listed by Pfizer and that this is clearly an instance of the application by
Pfizer of dissimilar conditions to equivalent transactions contrary to Section
4(1)(d) and that therefore, without more, the agreement or concerted practice
(alleged) is prohibited and void.
150. Counsel
for Pfizer says, on the contrary, that sub-paragraph (d) must be read together
with sub-section (1), that sub-paragraph (d) is an instance of the generality
of agreements or concerted practices having as their object or effect the
prevention, restriction or distortion of competition in trade and that to
isolate sub-paragraph (d) and treat it as identifying a comprehensive and
independent test which is quite separate from the generality of sub-section (1)
would be to ignore the purpose of the Act and would produce results never
intended by the legislature.
151. I
have carefully considered these submissions because they represent not only a
difference between Counsel but to a significant extent a difference between the
economic experts. Mr. Moore McDowell emphasised that the heart of the matter
lay in the fact that Chanelle was at a competitive disadvantage after
de-listing and he specifically referred to equivalent transactions in this
context. Dr. William Bishop, on the other hand, emphasised throughout his
evidence that a Court must look at competition and the effect on competition of
any allegedly improper agreement rather than its effect on an individual
competitor.
153. If
the interpretation advanced by Counsel for Chanelle is correct this would, to
my mind, prejudice the generality of Section 4(1), because it would focus the
exclusive attention of the Court onto the fate of an individual trading party
(or parties) who are placed at a competitive disadvantage, without any
reference to the issue as to whether competition was prevented, restricted or
distorted. To my mind, this interpretation could itself lead to
anti-competitive results in the way identified in the evidence of Dr. William
Bishop and I accept that the Court must look at competition rather than the
competitor when testing any allegedly anti-competitive agreement or concerted
practice. I cannot accept, therefore, that the evidence that Chanelle is
placed at a disadvantage as a competitor establishes, without more, that its
de-listing is in breach of Section 4 (1). In my view, to establish a breach of
the sub-section it is necessary to show on the balance of probabilities that
competition has been or will be prevented, restricted or distorted.
154. In
light of my understanding of the correct interpretation of the relevant
legislative provisions, I am not satisfied that the evidence establishes on the
balance of probabilities, that any agreement or concerted practice has or will
have the effect of preventing, restricting or distorting competition contrary
to Section 4 of the Act of 1991 or (assuming an inter-State impact) Article 85
of the Treaty of Rome.
155. Chanelle
argues that Pfizer's distribution system is what has come to be termed a
"Selective Distribution System" in competition law. These systems are treated
as a special category and because they are to some extent regarded as
sui generis
I think I should set out, briefly, my views on this submission.
156. Clearly
the distribution system operated by Pfizer is "selective" in the sense that
Pfizer has selected (now four) appointed wholesaler distributors to service the
entire country. At the end of 1995, the present five member distribution
system was put in place to replace an earlier distribution system involving
many more wholesaler distributors and also some "direct" sales to end users.
The system, therefore, is clearly selective or restricted. The concept of a
"selective distribution system" as a term of art in competition law, however,
involves not only the selection of a limited number of wholesale distributors
but also the imposition by the supplier upon such distributors of a requirement
that they would re-sell only to end users or other appointed wholesale
distributors. The concept is defined in
Bellamy
and Child
(op. cit. paragraph 7-073) as:-
157. It
is this latter element, denying access to the suppliers' goods to non-appointed
wholesaler distributors, which characterises selective distribution systems in
competition law and these are justified only when they conform to specific
criteria dealing with such issues as whether the goods or products are
appropriate for selective distribution, whether the distributors are selected
on a "qualitative" (as distinct from quantitative) basis, and whether the
system is operated in a non-discriminatory way, with the result that any
distributor wishing to be supplied and who qualifies must be appointed.
158. It
is clear that Chanelle will be entitled to purchase Pfizer's goods from any of
the other four appointed wholesale distributors. Furthermore, they will be
entitled to the rebate and are likely to qualify for the rebate at the highest
level. Nonetheless, Chanelle argues that the distribution system in the
present case is a selective distribution system because the
effect
of the rebate system will be to preclude Chanelle from having access to the
Pfizer range of goods. Dr. William Bishop accepted that there will be a
diminution in the amounts of goods that Chanelle would purchase after
de-listing, possibly to zero in the context of the non-availability to
Chanelle's retail clients of the Pfizer rebate. Furthermore, it is stated,
that restrictions are imposed by statutory regulations on the sale of animal
remedies. With regard to the latter point, I cannot see that a regime of
general statutory intervention in the market place by way of licensing persons
and categories of persons who may or may not deal in particular animal health
products, adds anything more by way of end user curtailment in the context of a
restricted distribution system than it does in the case of an open distribution
system. I accept the Defendants' submission that the only restriction on
wholesalers in relation to onward sales which can be taken into account for the
purpose of ascertaining whether the distribution system is a selective one or
not, must be a restriction imposed by the supplier in relation to its specific
goods.
159. I
further accept the submission that the essence of a selective distribution
system is the imposition of a restriction on
the
members of the distribution system in relation to onward sales. There is thus,
a restriction on the numbers of potential competitors at the wholesale level
which can be seen as anti-competitive in the absence of justification. But
there is no restriction on the number of competitors at the wholesale level as
a result of the distribution system operated by Pfizer. This is demonstrated
by the fact that wholesale distributors who are not appointed continue to
purchase from the appointed wholesale distributors and also by the evidence
that Chanelle would be free so to do after de-listing. To say that Chanelle
might opt not to purchase Pfizer goods, or that they would opt to reduce the
quantity of Pfizer goods over time, is very different in my opinion, from
asserting that Pfizer prohibits its nominated wholesale distributors from
supplying Pfizer goods to Chanelle. Only in the latter case would the
distribution system be a selective distribution system properly so called.
160. I
note, in addition, that Chanelle has not been able to refer to a case analogous
to the present one where either of the Courts or the Commission of the E.E.C.
has been prepared to identify a selective distribution system properly so
called where the appointed distributors are free to supply the relevant goods
to any wholesaler who wishes to have them. Perhaps the closest that Chanelle
comes to producing such authority is the case of
Krups
[1980] 3 CMLR 274. This was a Commission decision on an application by
Krups
for "negative clearance" in relation to a distribution system. It is
noteworthy that the system received negative clearance, which is tantamount to
a declaration by the Commission that there were no grounds for action in
relation to it under Article 85(1) of the Treaty. In
Krups
the Commission noted that as a general rule
Krups
admits
all dealers who can perform the functions specified in the dealership agreement
and that the agreement imposes no restrictions on the sale of the relevant
goods by
Krups
or
its approved dealers. It also noted that the services, discounts and
advantages available to appointed dealers were available to outside dealers.
The system was not a closed system, in the sense of allowing access to the
relevant goods exclusively to member dealers. Furthermore, the standard
dealership agreement contained no obligation constituting an appreciable
restriction of competition.
161. Chanelle
seeks, notwithstanding the foregoing, to argue in effect that
Krups
would not have received negative clearance if the situation had been that the
excluded distributors were not treated in the same way as those included.
Chanelle has been placed at a competitive disadvantage and it is argued on the
authority of
Krups
that once this can be established the system should be condemned.
162. I
think this is reading far too much into
Krups
and I do not read this case as authority for the proposition that the supplier
is obliged to supply all applicant wholesale distributors in exactly the same
way.
163. In
my judgment of the 5th June, 1997, I concluded with some doubt that a
prima
facie
case had been made out to establish a separate market for Synulox in this
country. In deciding that such a case had been made out I emphasised that I
was particularly conscious of the distinction between a
prima
facie
case on the one hand and on the other a case that will probably succeed.
Counsel for the Defendants referred to this ruling as leaving Chanelle's case
on this aspect as hanging by a thread. I would not quarrel with this
description.
164. Since
that ruling the Court has heard evidence, inter alia, from Mr. David Pepper a
veterinary surgeon with twenty years experience in a mixed practice, and an
ex-president of the Council of the British Veterinary Association, who has
since 1991 been a consultant to the Veterinary Defence Society, which is a
professional indemnity insurance company which insures many Irish as well as
U.K. vets. In the latter capacity during the past six years, Mr. Pepper has
made connections on a weekly if not a daily basis with many vets who are in
practice all over Ireland. He has also advised a number of the bigger animal
health product multinationals. He says that Synulox is an extremely effective
broad spectrum antibiotic produced in a variety of formulations with a unique
constitution, a unique mode of action but, crucially, its efficacy and what it
does are not unique. It is a valuable part of the veterinary surgeon's
armoury, but is not unique in terms of what it does. As a clinícian his
view is that there was not any situation in which there would not be some other
drug that could be used. This witness saw the different Synulox formulations
as fitting into four separate markets, namely,
165. This
evidence together with the analysis of Dr. Bishop on this point to which I will
return in a moment, must be balanced against the evidence adduced by Chanelle
already summarised in my earlier judgment. This was to the following effect:
166. Michael
Burke said that Synulox is a product that a vet must have with him in order to
carry out his work and he referred to its uniqueness and to its broad range of
activity. He described it as the "Rolls Royce of antibiotics". In certain
cases it is the only antibiotic that will work for a particular type of
disease. A number of vets referred to Synulox as a drug of choice or
equivalent. One of these, Mr. O'Keeffe, was not, however, prepared to say that
there were cases which may not be treatable without Synulox. Another, Mr.
Brendan Gardiner, stressed on a number of occasions that there was no
substitute for Synulox. He said that there was no other product on the market
that contained both Amoxycicillin and Clavulinic Acid. He referred to the
results of State laboratory testing which on occasion would indicate that the
only drug to treat a particular difficult situation was, indeed, Synulox.
Another witness, veterinary surgeon Pat Murphy, gave evidence that there were a
number of occasions where Synulox has proved to be the only antibiotic that is
effective. It is particularly effective with calves. There are cases where
the animal will die if it is not given Synulox and he thought that a vet would
be negligent if he did not carry it when faced with such case. It was
particularly effective in the case of gangrenous Mastitis.
167. Mr.
Pepper in his evidence commented on the limitations of laboratory testing which
in the first place did not necessarily reflect conditions in the field and
secondly, there were only a limited number of antibiotics that one could
physically accommodate on one test plate, leaving open the possibility that an
indication that Synulox was the only antibiotic suitable for dealing with a
particular bug did not communicate the entire picture.
169. Dr.
Bishop who pointed out it does not necessarily follow, even if one accepted
that Synulox could be the only antibiotic to save the life of an animal in a
certain situation, that there must be a separate market for Synulox to deal
with that situation. Whether a separate product market exists depends on
whether or not it would be profitable for the supplier of Synulox to exploit
that market. If the only way Pfizer could profitably do so would be to charge
a higher price, then the supplier would sacrifice sales to other competitive
uses and if that would lead to overall less profit than by competing generally,
then there is no market for the specific situation. It follows that even if
there were instances where the life of an animal might be lost in the absence
of Synulox, this did not mean that this alone proved that there was a separate
market for Synulox to deal with that circumstance.
170. Bearing
in mind, as was pointed out by Keane J. in
Masterfoods
Limited -v- HB Ice Cream Limited
that the onus rests on Chanelle to establish on the balance of probabilities
that a market exists, I have come to the conclusion that the evidence does not
establish that a separate market exists for Synulox either in general or in any
one of the sub-categories. I think some vets may certainly require Synulox in
their armoury as a "must" but I think that the balance of evidence shows that
there are substitutes for Synulox in each of its applications. Even if I am
wrong about this and if there are circumstances where Synulox and Synulox alone
will save the life of an animal, I do not think it follows that a market exists
for Synulox to deal with this particular circumstance because Chanelle has not
shown that its producer would probably be prepared to raise the price of
Synulox to capture this specialist market, thereby incurring a loss of sales of
Synulox in other markets at the cheaper price.
171. The
question of dominance (and of course abuse of dominance) does not, therefore,
arise: however, I would say that the evidence of Dr. Bishop does establish to
my mind that the Synulox product market shares he describes are not such, as
are likely to establish dominance.
172. As
part of its defence Pfizer alleged that information on sales of Valbazen was
misused by Chanelle for the purpose of "targeting" Valbazen buyers or "piggy
backing" Chanelle's new Albex product on the back of Valbazen sales. In the
course of the hearing I asked Counsel for Pfizer what was the relevance of this
allegation in the context of a competition case? Either the alleged Pfizer
agreement/concerted practice was in breach of Section 4/Article 85 or it was
not. A similar comment could be made in relation to the abuse of a dominant
position point. Counsel for Pfizer agreed that this point had no direct
bearing on the competition issue. In these circumstances it is not necessary
that I rehearse the evidence in detail in relation to this point. I think I
should record, however, that I have carefully considered the evidence adduced
by both parties in relation to this issue. In particular I would accept
Michael Burke as a reliable witness. He gave his answers readily, without
delay and, in my opinion, in a forthright and candid manner. He accepted
responsibility where that was appropriate. On this particular issue where he
insisted that he did not use allegedly private Pfizer information for the
purpose of launching Albex, he was supported by Mr. Tom Tierney who stated that
he and he alone had the expertise to extract the relevant information from
Chanelle's computer system. He also stated that a check which he conducted in
the course of the trial indicated that the information had not been extracted
up to that point. Furthermore, Pfizer's suspicions that Chanelle was misusing
information in relation to Valbazen was stimulated by a memorandum of
information prepared by Laura Ruane at Michael Burke's request and dated the
21st March, 1996. This memorandum contained details of numbers of sales of
Valbazen in its different formulations across three years from May, 1994 to
March, 1996. Laura Ruane was marketing manager in Chanelle and reported
directly to Michael Burke. She prepared the Valbazen memo at Michael Burke's
request. Her evidence was that it contained more information than he had
requested and when she produced the memo to Michael Burke she felt embarrassed
because she had the distinct impression from his reaction that her efforts in
producing the unasked for information had been a waste of time particularly,
because Michael Burke had written down the pack sizes he wanted anyway, which
as a matter of fact did not correspond to the Valbazen pack sizes.
173. I
specifically refer to this matter, not because it makes any difference to the
result which is brought about by what I consider to be coercive economic
analysis and the relevant principles of law and interpretation of the
legislation, but because I do not wish to leave room for any inference that I
did not accept the evidence of Michael Burke, Tom Tierney and Laura Ruane on
this topic. I did accept such evidence but as I have indicated I do not think
it makes any difference to the outcome.