1. This
Judgment deals with an application on behalf of the Defendants to dismiss all
claims of the Plaintiff. Counsel for the Defendants has reserved his right to
call evidence in the event that the application is not successful and in these
circumstances it is clear from the decisions of the Supreme Court in
Heatherington
-v- Ultra Tyre Service Limited and Others
(1993: 2: IR: 535) and
O'Toole
-v- Heavey
(1993: 2: IR: 545) that in order to succeed the Defendants must establish that
the Plaintiff has failed to establish a prima facie case.
2. 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 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 from the beginning 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.
3. Amongst
the suppliers serviced by Chanelle in the 1980's were Beechams Plc. and Smith
Kline French Limited. These two companies merged in the early 1990's 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 Smith Kline French range of
products, now part of the range of Pfizer Animal Health.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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 of 10% 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.
9. 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.
10. Mention
should be made of a meeting between the parties which took place on the 12th
February. 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 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%.
11. A
second matter of some significance is the fact that Valbazan 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 Valbazan 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 Valbazan 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 Valbazan. He felt he owed it as a matter
of courtesy to inform Tom Mullaney before the actual launch.
12. 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.
13. 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
14. 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.
15. 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.
16. 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.
17. 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.
18. Many
of the Defendants' products are in a special if not unique position in the
market according to chanelle. For example Valbazan 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 Valbazan 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 marketplace
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.
19. The
pleadings articulate a number of different claims and grounds of relief. These
can be conveniently summarised as follows:-
20. 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.
21. Before
outlining the basis of the Defendants' application I will first set out in a
little more detail Chanelle's contentions in relation to each of the above
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, but not before,
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. 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. Q. I
must suggest to you, Mr. Burke, that between the rebate which you would
automatically qualify for and discount which you would negotiate with the
distributor anyway, you would have no difficulty in selling Pfizer products.
24. A. It
would be impossible and I am being realistic about it. I mean, I get 12½%
as a wholesaler, right, all the other people get 12½%. If I had to buy
form another wholesale distributor they may give me no discount. Before I go
out on to the market, in order to compete with them on the market, I have to
give 7% so I am at a loss of 7% immediately and number two, the people I sell
to cannot get a rebate.
25. Q. So
are you saying that you must, whatever else happens, be allowed to trade on
exactly the same terms as the other distributors.
26. A Absolutely.
I see no difference between Chanelle and the other four wholesale distributors
that are either in the manufacture or the distribution of their own generics.
27. 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.
28. The
evidence and report prepared by Mr. McDowell was initially 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.
29. 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 include 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.
30. 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, the rebate system:
31. He
referred to the fact that Pfizer had expressed concern (in February 1996) that
Chanelle was offering large discounts out of its wholesalers margin. Whilst I
have to take account of the fact that these conclusions were arrived at on the
assumption that the rebate would not be available to Chanelle at all after it
was de-listed, I must also bear in mind in dealing with this application that
Mr. McDowell whilst accepting that this modified the force of his conclusions
did not withdraw them.
32. A
separate aspect of Chanelle's claim under this heading is that there is an
element of "disciplining the market" in Pfizer's' decision to "de-list"
Chanelle. This arises in the following way. Valbazan is an extremely
successful product of the Defendants both world wide and in the Irish market.
Chanelle's competing product Albex was launched and competes directly with
Valbazan. The consequence of de-listing not only weakens Chanelle as a
competitor but also sends a clear signal to other distributors that
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".
33. In
a further submission Chanelle alleges that Pfizer's distribution system is what
is termed a "selective distributive 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.
34. 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 none the less 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.
35. Quite
apart from the foregoing, Chanelle alleges 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.
36. These
markets have been identified in the 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 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. In four specific markets identified in the letter of the
25th April, 1997 each of the Pfizer products specified has in excess of 40% of
that particular market. It seems that these markets may have been identified
by reference to the statement at paragraph 9-023 in Bellamy and Child "Common
Market Law of Competition" 4th edition where it is stated:-
38. Finally
Chanelle's solicitor's letter appears to make the claim that the "full range of
the Defendants' veterinary products puts them in a position where they are in a
dominant position in the market" and goes on to identify eighty different
animal health products which it purchases from the Defendants.
39. 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 (op.cit.) 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:-
41. Counsel
for the Defendants says that there is no evidence of an agreement. On the
contrary the decision of the first named Defendant to "de-list" Chanelle was
clearly a unilateral decision.
42. In
so far as Chanelle seeks to establish an agreement with the Belgian company as
employer of Johan Rabie it faces a dilemma: The law establishes that in
general different members of the same group of companies cannot between
themselves reach an agreement or engage in a concerted practice for the
purposes of Article 85 or Section 4. (See Bellamy and Child: op.cit. para.
2-052). On the other hand if one looks at the individual companies it is clear
from the correspondence that the decision (to de-list) was clearly left to the
sole discretion of the Irish company. Either way there was no agreement.
43. In
addition Counsel for the Defendants says that there is no evidence that the
object of any alleged agreement was to distort or to restrict the market or
that such was its effect.
44. He
points to the fact that Chanelle has been unable to cite a single clear
precedent in point and wonders why. Clearly the principle is that a supplier
is entitled to select who will distribute his goods and how they will do it.
That is all the Defendant has done in the present case. If, on the contrary,
Chanelle is entitled to compel the Defendants to continue dealing with it as a
wholesale distributor or, failing this, to have the Defendants' distribution
system condemned as void, this will open the flood gates so that any wholesale
distributor can demand that the Defendant supply it with goods for
distribution. This sets at nought the principle that the supplier is entitled
to decide who will distribute his goods and how, and in the end result will be
"anti competitive" by compelling a supplier to deal with a whole multitude of
potential distributors thereby increasing costs and overheads to the detriment
of the ultimate purchaser.
45. Specifically,
the distribution system is not a selective distribution system because the
appointed distributors are perfectly free to sell the Defendants' goods to
anyone they like. Accordingly there is no question of the first Defendant
being obliged not to discriminate against Chanelle. The rebate system is not
the equivalent of a bar on members of a true selective distribution system
because whilst it may reduce the percentage profitability of Chanelle once
Chanelle has been "de-listed", this does not distort the market. There is no
evidence that any vet or farmer would be disadvantaged by having four as
distinct from five wholesalers.
46. In
regard to the claim that there is an alleged abuse of a dominant position,
Counsel says that it is first necessary to define the market, then to establish
dominance by reference to well established criteria and finally to establish
abuse. In the present case Chanelle has identified what it says are four
markets by reference to the APHA study, a fifth by reference exclusively to the
Defendants' product Synulox and sixthly Chanelle appears to have identified the
general animal health products market in the Republic of Ireland.
47. With
regard to the definition of the markets by reference to the APHA study Counsel
criticises this on the basis that the purpose of the APHA study was not to
identify any market at all. In one or two cases it is quite clear that
products which are in different markets are listed together in the APHA Report.
Furthermore the APHA study does not cover all the products in any market
because not all the suppliers are members of APHA. With regard to establishing
dominance Counsel relies on the four steps set out in Bellamy and Child
(op.cit.) at paragraph 9-007 as follows:-
48. Counsel
for the Defendants argues that the Court has been provided only with a
"snapshot" of the position of the Defendants in the relevant markets in the
shape of the APHA survey for the fourth quarter of 1996. Furthermore there is
no evidence whatsoever of the position (actual or potential) of rivals in the
market let alone to show that there is no real likelihood of such rivals
eroding the alleged dominant position.
49. In
relation to the alleged "abuse" of this position, if it exists, Counsel says
that there has not been a refusal to supply: the Defendants' goods are
available to Chanelle through the appointed distributors and indeed Chanelle
will qualify in common with all purchasers for the rebate.
50. Counsel
for Chanelle refers to Bellamy and Child (op. cit.) at paragraph 2-016 to the
effect that an agreement may be written or oral and may be inferred from all
the circumstances. It can consist in the continuing business relationship
between the parties. He refers to the commission decision of the 18th
December, 1987 in the case of Konica where at paragraph 40 of the legal
assessment it is stated
51. Earlier
in dealing with the status of the suppliers' promulgated terms it was stated
(paragraph 36):
52. Counsel
for Chanelle would apply these principles to the alleged agreement or concerted
practice operating between the first Defendant and the remaining appointed
distributors.
53. With
regard to the alleged agreement between the first and the second named
Defendants Counsel relies on the acknowledgement by Mr. Johan Rabie that he was
involved in the fringes of the decision and to the acknowledgement in a letter
from the Defendants' solicitors of 4th February, 1997 that the distribution
policy in relation to products is left to the local operating company to decide
upon rather than being decided at European level.
54. Reliance
is also placed on the contention that the Defendants' distribution arrangement
amounts to a selective distribution system properly so called and that
accordingly, the decision to de-list Chanelle which offends against the rules
in relation to such systems, can be treated as anti-competitive under Section 4
of the Act of 1991 and Article 85 despite appearing to be unilateral.
55. With
regard to the argument that there is no evidence that the decision to de-list
either restricts or distorts the market Counsel contends that the evidence of
56.
Mr. McDowell establishes that both the wholesale and the retail markets are
affected in a way which restricts them or distorts them. He says that it is
sufficient to establish that the wholesale market is affected even if there
were no evidence (though he claims there is) that the retail market is also
affected. He says that there is no authority to support the general contention
of the Defendants that the touchstone of competition law is whether the
ultimate purchaser is either advantaged or disadvantaged. On the contrary in
Consten
-v- Grundig
(CMLR: 1966: 418) the Court of Justice held that Article 85(1) extended to
agreements which restricted competition between distributors of the same brand
of products which is a point emphasised in Bellamy and Child (op.cit.) at
paragraph 2-069.
In
relation to the "floodgates" argument, Counsel for Chanelle refers to the
qualitative criteria set out at paragraph 2(6) of its solicitor's letter of 7th
April, 1997 and argues that these criteria would exclude the vast majority of
wholesalers.
57. On
the point that there is no evidence that the de-listing of Chanelle would
restrict or distort the market, Chanelle relies on a Commission decision of the
17th April, 1980 in the case of Krups (OJEC: 13/5/1980). An International
Dealers Association agreement was referred by Krups itself to the Commission
for negative clearance. In granting that clearance the Commission made clear
that it had regard to the fact that all dealers who can perform the functions
specified in the dealership agreement were admitted by Krups to its dealers
association and that the
58. In
particular the sales promotion services provided by Krups which were of any
consequence for competitiveness at the distribution stage (which included
international consumer advertising, international after sales service, a policy
on prices and terms reflecting market conditions and quality and modern design)
were all available to outside dealers. In contrast, says Counsel, even if the
Defendants' products are available to Chanelle, they are clearly available at
less advantageous terms which must have an effect on the competitiveness of
Chanelle.
59. Arising
out of these claims, submissions and counter submissions a number of issues
fall to be determined. I will now set out these issues bearing in mind that at
this point if Chanelle has made out a prima facie case in relation to any one
of them then the authorities indicate that the Defendant is not entitled to a
dismiss of that part of its case.
61. I
am prepared to accept that a prima facie case has been made out to establish a
concerted practice operating between the first Defendant and the nominated
distributors. In reaching this conclusion I have paid particular regard to the
statement in Bellamy and Child at paragraph 2-016 that such an agreement "can
consist in the continuing business relationship between the parties" and to the
authorities cited by Counsel for Chanelle. There is a continuing business
relationship between the first named Defendant and the existing nominated
suppliers and I consider that Chanelle has made out a case for the Defendants
to answer so far as this point goes.
62. In
relation to the claim that there is an agreement between the Defendants the
evidence for this, such as it is, comes from the Defendants themselves. Mr.
Johan Rabie, an employee of the second named Defendant, indicated to Mr.
Michael Burke that he was involved in the fringes of the decision to de-list
Chanelle. Mr. Burke says that Johan Rabie told him that Pfizer decided to drop
Chanelle as a wholesaler because they had a competing product with Valbazan and
that they were also afraid of other generics that Chanelle was working on.
Michael Burke took a contemporaneous note of his phone call with Mr. Rabie
which indicated that Pfizer's concern was that Chanelle manufactured a generic
Albendazole which effected their business, that Mr. Rabie was involved in the
fringes of the decision and they were also concerned that Chanelle were working
on more generics. The other part of Chanelle's case on this point is to be
found in the Defendants' solicitor's letter of the 4th February, 1997 to which
I have already alluded. Again I am prepared to hold that Chanelle has made out
a prima facie case to show an agreement or concerted practice between the
Defendants.
63. I
have been referred to case 56/65 Soiété Technique Mienére
(1966 ECR: 235) as authority to show that the Court when approaching the
question whether an alleged agreement or concerted practice is in breach of
Article 85(1) (that is that it is an "anti-competitive" agreement) it is
necessary first to consider "the object" of the agreement and if the object
does not of its nature restrict competition it is necessary next to consider
"the effect" of the agreement.
64. The
evidence that a Plaintiff will normally be able to adduce in relation to the
"object" of an agreement - in the sense of the intended purpose - must
necessarily be indirect. In the present case Chanelle points to the fact that
its sister company had just launched a generic competitor of a successful
product of the Defendants, the fact that this appears to be supported in the
observations of Johan Rabie and it is also noted that the Defendants were slow
in giving a reason for de-listing Chanelle. (Something, of course, which on the
Defendants' case they were perfectly entitled to withhold). I am prepared to
hold that there is sufficient evidence to raise a prima facie case that the
object (in the sense of the intended purpose) of the de-listing of Chanelle was
to deter its distributors from developing competitor generics, or to use the
expression of Mr. McDowell "to discipline the market".
65. Whilst
the authorities seem to suggest that once it has been established that the
object of an agreement is "anti-competitive" it is not necessary to consider
what the effect of the agreement might be, in case I am incorrect in the
immediately preceding conclusion, I should say that I also consider that a
prima facie case has been made out to show that the effect of the de-listing of
Chanelle is anti-competitive. In this regard I have paid particular attention
to the evidence of Mr. McDowell to which I have already briefly referred. I
have also had regard to paragraph 2-102 of Bellamy Child, (op.cit.) under the
heading of "Effect on Potential Competition" and to the point made by Counsel
for Chanelle that wholesalers compete on services just as much as they might do
on price. Having reached these conclusions I do not think it is necessary for
me to decide at this stage whether Pfizer's distribution system is a selective
distribution system properly so called and I prefer to leave this to be
determined later if necessary.
66. Whilst
I have been impressed by the arguments of Counsel for the Defendant showing
that the markets alleged have not been identified by appropriate evidence (and
I have taken note of the point that the purpose of the APHA survey is not to
identify markets and that the figures do not include all suppliers) and while
in addition I have taken note of the observation of Mr. McDowell that ".. for
economic analysis to add substantially to what is available from veterinary and
pharmaceutical sources in determining what products are "in the market
together" an estimate of "cross price elasticities of demand" would be helpful
and that in the absence of data relating to same it has not been possible to
come to any more precise conclusions on the substitutability and market
boundaries based on estimates of cross price elasticity of demand" I am
nonetheless prepared to hold on balance that Chanelle has made out a sufficient
prima facie case as to the identity of the markets set out in the letter of the
25th April, 1997 to require an answer from the Defendants on this point.
67. In
relation to the first four markets set out in the letter of the 25th April,
1997 I do not think that Chanelle has established a prima facie case to show
that the Defendants' product is dominant in those markets. Whilst the
percentage share of the Defendants' product may exceed the threshold indicated
in Bellamy and Child in the reference already alluded to I accept that before a
Court can embark upon the exercise of enquiring whether a particular product is
dominant in any market it is necessary to have evidence not only of the
percentage share of the product in question but also of its rivals and to have
satisfactory evidence of the market share of the relevant product over a period
of time to enable the Court to conclude that there is no prospect of the
dominant position being eroded. Chanelle has not adduced such evidence in
relation to these four markets and accordingly I accede to the Defendants'
request to dismiss Chanelle's claim in so far as it relates to an alleged abuse
of dominant position in relation to those four markets.
68. A
different situation applies in relation to the claim made in connection with
the Defendants' product Synulox. Chanelle asserts that there is a market for
Synulox and Synulox alone. In the first place I accept that a market can be
narrowly defined. In Case 22/78
Hugin
-v- Commission
(1979: ECR: 1869) it was accepted that a market existed in the supply of
spare parts for Hugin cash registers. On the other hand Professor Whish in
his book "Competition Law" at page 5 writes "... monopoly power does not exist
in relation to a product, but to a
relevant
product market
,
and the definition of this relevant product market must meet two criteria: It
must be sufficiently narrowly drawn to exclude non-substitutes and it must be
sufficiently broadly drawn to include all substitutes".
69. The
evidence relied upon by Chanelle to establish a specific market in the
Defendants' product Synulox has been conveniently identified in a memorandum
referring to the transcript of evidence prepared by Counsel at my request.
This evidence establishes the following: Michael Burke says that Synulox is a
product that a vet must have with him in order to carry out his work: he
refers 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 prepared to say, however, that there were cases which may not
be treatable without Synulox. On the other hand another, Brendan Gardiner,
stressed on a number of occasions that there was no substitute for Synulox .
He stressed that there was no other product on the market that contained both
Amoxycicillin and Clavulinic Acid. The results of State laboratory testing on
occasion would indicate that the only drug to treat a particularly difficult
condition was Synulox. Another witness, veterinary surgeon Pat Murphy, gave
evidence that there were a number of cases where Synulox has proved to be the
only antibiotic that is effective and that 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 a case. It is particularly effective in the case of gangrenous
mastitis. Under cross-examination Mr. Murphy insisted that there was no
substitute for Synulox in the market.
70. I
have some doubt in deciding that a prima facie case has been made to establish
a separate market for Synulox in this country. However in deciding that such a
case has been made out I have been particularly conscious of the distinction
between a prima facie case on the one hand and on the other a case that will
probably succeed which is a distinction which clearly emerges from the
authorities referred to at the outset of this judgment and it is indeed a
distinction that I have kept at the forefront of my mind in reaching all my
conclusions.
71. The
Defendants argue that in this case, however, there has not been a refusal to
supply Chanelle but only a refusal to supply it as a nominated distributor. The
Defendants' product can be procured by Chanelle from any of the nominated
distributors and with the benefit of the rebate. There is authority, however,
(Napier Brown-British Sugar; 1990: 4: CMLR:) at Commission level that an offer
of supplies on terms which the supplier knows are unacceptable to the customer
will be treated as a constructive refusal.
72. With
hesitation I am prepared to hold that Chanelle has produced sufficient evidence
to warrant a reply from the Defendants to the proposition that a market exists
in this country for the Defendants' product Synulox, which is separate to the
general antibiotic market or any other market, thereby placing the Defendants
in a dominant position in that market and that the decision of the Defendants
to de-list Chanelle as an appointed wholesale distributor amounted in law to an
abuse of that position.
73. Mr.
McDowell with reference to a broad market definition for animal health products
indicated that it would be hard to sustain an argument that even a large firm
such as Pfizer has sufficient market power to warrant treating it as dominant
in the sense of EU jurisprudence. Pfizer's percentage share in the overall
animal health products market is approximately 12% or perhaps slightly above
that. Mr. McDowell did, indeed, go on to consider the market power of the
Defendants in the various submarkets.
74. In
my view Chanelle has not established a prima facie case to show that Pfizer has
dominance in a single overall animal health product market in the Republic of
Ireland and accordingly no case can be made in relation to abuse of dominance
in such a market. Accordingly I accede to the Defendants' application to
dismiss Chanelle's claim in so far as it relates to any alleged abuse of
dominance in the overall animal health products market in this country.
75. Pfizer
imports products from other Member States of the EU as well as from the U.S.
Chanelle's sister company CPML exports the bulk of its products to other Member
States.
76. The
"low threshold" referred to by Counsel for Chanelle refers to the possibility
of foreseeing an influence, direct or indirect, actual or potential, on the
pattern of trends between Member States, such as might prejudice the aim of a
single market in all the Member States.
77. In
relation to the case alleging anti-competitive agreements or concerted actions
under Article 85 I am prepared to hold that a prima facie case has been made
out that the de-listing of Chanelle as an appointed wholesale distributor could
have such an inter Member State effect as is indicated in the Miller case, to
which I will refer immediately hereafter and that therefore a prima facie case
has been established to show an infringement of Article 85 of the Treaty.
78. In
considering whether a prima facie case has been made out to establish an inter
Member State effect arising out of the refusal of the Defendants to supply
Synulox to Chanelle as an appointed wholesale distributor, I have had
particular regard to the judgment of the European Court of Justice's decision in
Miller
International Schallplatten GmbH -v- Commission of the European Communities
(Case 19/77) where it was held that the treaty does not require proof that an
allegedly anti-competitive agreement has in fact appreciably affected trade
between Member States "but merely requires that it be established that such
agreements are capable of having that effect." I note, in particular, that the
Court so held notwithstanding reliance by Miller on its weak position in the
market and a "derisory" proportion of the total relevant market.
79. Despite
the "low threshold" established by this authority I consider that the case
alleging abuse of a dominant position in relation to Synulox must be close to
coming within the "de minimis" category. I am prepared, notwithstanding, to
hold that a prima facie case has been made out in this regard also.