COMMISSION DECISION of 19 December 1990 relating to a proceeding under Article 86 of the EEC Treaty (IV/33.133-D: Soda-ash - ICI) (Only the English text is authentic) (91/300/EEC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Economic Community,

Having regard to Council Regulation No 17 of 6 February 1962, First Regulation implementing Articles 85 and 86 of the Treaty (1), as last amended by the Act of Accession of Spain and Portugal, and in particular Articles 3 and 15 thereof,

Having regard to the Commission Decision of 19 February 1990 to open a proceeding on its own initiative pursuant to Article 3 of Regulation No 17,

Having given the undertaking concerned the opportunity to make known its views on the objections raised by the Commission, pursuant to Article 19 (1) of Regulation No 17 and Commission Regulation No 99/63/EEC of 25 July 1963 on the hearings provided for in Article 19 (1) and (2) of Council Regulation No 17 (2).

After consulting the Advisory Committee on Restrictive Practices and Dominant Positions,

PART I THE FACTS A. Summary of the infringement (1) The present Decision arises out of investigations carried out by the Commission in March 1989 pursuant to Article 14 (3) of Regulation No 17 at the premises of Community producers of soda-ash. By means of the said investigations and subsequent enquiries under Article 11 of Regulation No 17 the Commission discovered documentary evidence showing that an infringement of Article 86 had been committed by Imperial Chemical Industries plc (ICI).

(2) The infringement can be summarized as follows:

Infringement of Article 86 by ICI From about 1983 until the present time ICI has abused the dominant position which it holds in the market for soda-ash in the United Kingdom by applying to its major customers a system of loyalty rebates and discounts by reference to marginal tonnage ('top-slice` rebates), contractual arrangements tending to ensure an effective exclusivity of supply for ICI and other devices which have had the object and effect to tying the said customers to ICI for the whole of their requirements and of excluding competitors.

B. Background 1. ICI's position in the United Kingdom soda-ash market (3) Details of the product and the soda-ash market reference are set out in Part IB of Commission Decision 91/297/EEC (ICI-Solvay) (3).

ICI is the only soda-ash market producer located in the United Kingdom. The 'Page 1000` agreement of 1945 (replacing an earlier cartel agreement) recognized that Solvay and ICI would not compete in each other's traditional markets.

(4) To this day, neither Solvay nor any other producer in continental western Europe has marketed soda-ash in the United Kingdom. ICI enjoyed a complete monopoly in the supply of soda-ash to the United Kingdom until the late 1970s when import penetration from the United States began. Two United States producers, TGI and Allied where active on the market and imports reached 77 000 tonnes in 1982 (some 10 % of the market) before anti-dumping measures were adopted and reduced the United States presence to around 30 Kt per year. TGI soon abandoned the market and the only alternative suppliers to ICI are now General Chemical (as Allied is now known) with some 4 % of the market and Brenntag which supplies Polish ash (3 %) (1).

(5) The ICI soda-ash business was continuously profitable until the early 1980s, when there was a substantial fall in demand. From 1979 to 1984 soda-ash consumption in the United Kingdom dropped by one-third, leading to the closing of the ICI's production units (Wallerscote) in September 1984.

As a result of the closure, the United Kingdom supply-demand balance was in deficit and ICI bought material from Solvay under 'PFR` (purchase for resale) arrangements.

ICI's declared policy is to maximize its share of the United Kingdom soda-ash market and to maintain it at over 90 %.

Following the introduction of anti-dumping measures, ICI's market share has been stable at about 93 %. The ICI soda-ash operation has returned to profitability since 1986 and is considered a mature cash-generating business.

2. ICI's competitors (6) Whatever the reason, 'major competitive incursions` by other Community producers are considered unlikely by ICI, although since 1980 the list price levels of ICI in the United Kingdom have been substantially - up to 20 % - higher than those of producers in the neighbouring markets.

According to a briefing by the Soda Ash Business Team Leader ICI 'have managed to reduce the number of competitors in the market to two - Poland and one American supplier - and plan to keep it this way`.

(7) Imports of soda-ash from Poland continue to reach the United Kingdom market via a trader, Brenntag (formerly TR International). There are no anti-dumping duties on dense-ash from eastern Europe, but non-Community ash imported to the United Kingdom is subject to a 10 % customs duty. At [. . .] (2) tonnes per year (of which half was a special metallurgical grade) Polish imports were however considered 'troublesome rather than critical` by ICI. Recently ICI seems to have developed a policy of eliminating supplies of Polish heavy-ash leaving only imports of light-ash from that source.

(8) The United States producers of natural-ash are considered by ICI as the main source of potential competition. Up to the present time the anti-dumping measures (undertakings from two producers and anti-dumping duties on the others) have provided ICI with a substantial measure of protection. According to ICI, perhaps half of its current profit would be at risk if anti-dumping protection against United States imports were to be removed.

3. ICI's customers (9) Most of ICI's major soda-ash customers are in the glass manufacturing sector which in the United Kingdom uses exclusively dense-ash. (Dense-ash accounts for [. . .] % of ICI's soda-ash sales.) In the flat glass sector Pilkington is the only United Kingdom producer, with a requirement of almost [. . .] tonnes per year: ICI has [. . .] % of the business.

Container glass producers (such as United Glass, Rockware, Redfearn, Beatson Clarke) account for up to [. . .] tonnes per annum of dense soda-ash: again, they source primarily or exclusively from ICI.

ICI's 10 largest soda-ash customers in the United Kingdom account for almost [. . .] % of its total business.

The major customers for light-ash are in the metallurgical and chemical sectors.

4. Anti-dumping measures against United States producers (10) The untertakings offered by Allied and TGI in August 1984 and accepted by the Commission (Commission Regulation (EEC) No 2253/84 (3)) were not published but ICI was well aware that the minimum price undertaking was £ 112,26 ex-store.

TGI withdrew from the market in 1985 leaving Allied (which after reorganization became General Chemical) as the only United States supplier. For most of the period covered by the present decision, the General Chemical price was £ 119 per tonne ex-store. Allied's price was raised to this level from £ 112,26 in November 1985 following contacts with the Commission's Directorate-General for External Relations (DG I) but no official review was undertaken until the expiry of Council Regulation (EEC) No 3337/84 (1) in late 1989.

(11) Both ICI and Solvay became aware that as a result of exchange rate movements since 1984 the United States producers would be able to offer natural-ash in the Community at prices competitive with (and even substantially below) their own without dumping. Both of these producers also knew that in many cases their own prices, particularly on marginal tonnage, were substantially below the minimum price undertakings. They foresaw a strong likelihood that the United States producers could make a successful case for the removal of anti-dumping protection in 1989 when the measures were due for review. However ICI considered that in order to maintain the profitability of its soda-ash products business at current levels it was crucial to ensure that anti-dumping measures against United States ash remain in place. On a number of recent occasions ICI has written to the Commission arguing that irreparable harm would be caused to its business unless a minimum price for imported material of £ 120 per tonne ex-store was maintained. At the time that ICI last wrote to the Commission in these terms (on 16 March 1990, after the commencement of the present proceedings) it had recently modified its price of its largest customer (Pilkington) to a single price of £ 11 [. . .] per tonne delivered.

The anti-dumping measures against the United States producers expired in November 1989. A review of the measures had been requested by the United States producers and by representatives of the Community glass industry in 1988. On 7 September 1990 the review was terminated without protective measures being imposed (Commission Decision 90/507/EEC) (2).

5. Exclusive supply agreements (12) Until 1979 most of ICI's supply agreements were so-called 'evergreen contracts` (i.e. contracts running for an indefinite period) with a two-year notice of termination and which stipulated that the buyer obtain the whole of its requirements from ICI.

Following negotiations with the Office of Fair Trading, ICI began in October 1980 to offer its United Kingdom customers a range of contract options which included running contracts on a total requirements basis but terminable on shorter notice (three to six months notice after one year).

(13) The Commission however considered that the total requirements clause even for short periods was unacceptable in terms of Community competition rules. The Commission also objected to certain aspects of ICI's 'competition clause` ('English clause`) as then drafted since it would effectively have excluded the possibility that any competitive offer could ever succeed.

(14) Although ICI disputed that its new form agreements were incompatible with competition rules, it agreed (under protest) to cease to offer to its customers a total requirements contract terminable at short notice. It also amended its non-competition clauses. The file was closed on 14 December 1982 without any formal decision. It is amply clear from the correspondence that ICI was well aware of the policy on fidelity rebates underlying the judgment of the Court of Justice in Case 85/76 Hoffmann-La Roche v Commission (3).

(15) On 24 December 1980 ICI wrote to the Commission asserting that the customers were being offered a range of contract options from which they could choose:

'In no way is ICI obliging its principal customers - or, indeed, any of its customers to accept a form of contract which requires them to purchase from ICI their total requirements of soda-ash or a quantity close to this, nor does it offer any special inducement to do so.` As a result of the discussions with the Commission, ICI amended almost all its supply contracts to a 'tonnage` basis.

6. Quantity rebates up to 1985 (16) Soda-ash is normally sold by ICI on a delivered basis. Although price lists are produced showing an 'exworks` price, these are intended for internal ICI use only and are not communicated to customers. To the 'ex-works` price is added the transport rate as quoted by the haulier to ICI (customers wishing to collect from the works are given a collection allowance [. . .]).

Standard quantity rebates were given until fairly recently. ICI's 'price book` circular of 1 October 1985 shows that a new scale of tonnage rebates was to be effective on 1 January 1986. The standard tonnage rebates in this 1985 list ranged from £ 0,25 per tonne (2 500 to 7 500 tonnes) to £ 3,00 per tonne for an annual take-off of over 87 500 tonnes. According to ICI, from 1984 onwards rebates have 'for the most part` been the subject of individual negotiation.

C. Exclusionary conduct by ICI 1. Top-slice rebates (17) In spite of the assurances on special inducements which ICI had given to the Commission in 1981, from 1983 onwards it made increasing use of so-called 'top-slice rebates` of up to £ 30 per tonne on marginal tonnage. From 1985 almost all the major customers of ICI had such arrangements in place.

The term 'top-slice rebate` means that customers are offered substantial financial incentives in the form of deep discounts in order to induce them to buy from ICI not only the 'core` tonnage which they would normally have obtained from their principal supplier but also the marginal tonnage (or 'top slice`) which they might or would otherwise have purchased from a second supplier which in the United Kingdom would be either TR (now Brenntag) or Allied (now General Chemical).

2. Exclusionary purpose of the top-slice rebates (18) The place in ICI's strategy of the top-slice rebates was made clear in a number of internal memoranda dating from 1985.

By early 1985 it was apparent to ICI that one of the two United States suppliers, TGI, was intending to withdraw entirely from the market, not least as a result of the 'deals` which ICI had offered the glass industry in order to displace the product from the United States. ICI's objective was to ensure that it obtained the maximum benefit from TGI's withdrawal. It was concerned that customers which had previously used TGI as a second source should not go to Allied, the other United States supplier, or still worse from ICI's point of view, approach producers or traders in continental western Europe.

Referring to the likelihood of picking up most of the former TGI business, an ICI note of 28 February 1985 states that 'monies are available to extend the existing top slice deals . . .`.

(19) A strategy document of 28 June 1985 sets out in explicit detail ICI's plan for preventing or eliminating all imports of dense soda-ash into the United Kingdom with the exception of Allied (now called General Chemical), which ICI, for reasons of 'commercial prudence` was content to see remaining in the United Kingdom market as a minor supplier strictly limited as to price and to volume.

ICI's objective as regards eastern European imports of dense-ash was clearly stated:

'1. To reduce current TR bagged and bulk special heavy-ash sales to zero/minimum.

2. To prevent TR establishing any position with bulk standard heavy ash at any glass producer.` The strategy of ICI as regards US imports of dense-ash was set out as follows:

'1. To minimize Allied sales to a level that will result in them remaining as a second source to the glass industry: 15 to 20 Kt per annum.

2. Prevent any other United States supplier/ Ansac establishing a position in the United Kingdom.` (20) Pursuant to the plan, ICI's policy was 'to compete for the US share of the business by offering up to £ 15/Te discounts for "top-slice tonnage" above the core ICI tonnage.' (The paper notes that at the time the differential between ICI's list price and those of the United States producers Allied and TGI was only £ 0,50 per tonne.) (21) Originally ICI had expected to pick up the majority of the former TGI business and keep Allied's sales down to 15 Kt per year. Subsequently it had to accept that almost all the major glassmakers wished to maintain a second source which would give Allied some 25 to 30 Kt annually. Paradoxically, it suited ICI's purposes to have Allied remain in the market as a minimal presence at prices which were controlled by the anti-dumping undertakings. Were Allied to withdraw completely, the glassmakers would almost inevitably look to Europe for alternative supplies. Traders in western Europe were seen as a particular danger to market stability. A memorandum of 18 November 1985 explains:

'The strategy remains one of being price competitive at every account on a delivered basis in order to achieve the core ICI tonnage, and to offer top-slice deals of up to £ 15/Te to obtain incremental tonnage from Allied. The objective is to maintain Allied`s position at less than 30 Kt annually. Our intention is not to force Allied from the marketplace since this would force the glass industry to seek supplies from either continental western Europe or eastern Europe.' 5. The operation of the top-slice rebates (22) The operation and the effect in practice of the top-slice rebate system have to be assessed in the light of:

- the minimum-price undertakings given by the two American producers,

- ICI's practice of securing the customer's agreement to limit their purchases from competitors.

(a) The minimum-price undertaking (23) Although the original minimum-price undertaking for the UK was set at £ 112,26, this was increased 'unofficially` (i.e. without a formal review) to £ 120 (reduced to £ 119 soon afterwards) following contacts between ICI, the United Kingdom Department of Trade and Industry (DTI) and the Commission's Directorate-General for External Relations (DG I) when ICI put up its prices by 6,5 % with effect from 18 November 1985.

General Chemical (formerly Allied) is unlikely to go much below this price of £ 119 ex-store, since it was aware that any perceived breach of the 'unofficial` undertaking would result in the imposition of prohibitive anti-dumping duties. In fact apart from a £ 1 per tonne allowance for quantities over 1 000 tonnes, General Chemical has never given discounts or rebates off list price. From November 1985 its price to container glass manufacturers was £ 119 per tonne ex-works, increased to £ 121 in January 1988. For Pilkington the price was slightly less but still well above the official undertaking.

ICI's internal documents show clearly the relationship between the minimum-price undertaking and the top-slice rebate and how it is aimed at containing the competitive activity of General Chemical.

(24) Referring to the price increase of 18 November 1985, and its implementation at the major customers, an ICI briefing note observes that:

'The Allied minimum-price undertaking has remained at £ 112,26/Te ex-store, but their price having increased initially to £ 120/Te ex-store has very recently been eroded to £ 119/Te . . . All customers apart from Redfearn and UG have an incremental tonnage deal in place with rebate of £ 5 to 20/Te being offered as either export assistance (principally Beatson Clarke) or to attract potential United States tonnage to ICI.` Later the note reports the position of United Glass (one of the largest container glass producers):

'Deals for incremental tonnage of £ 10 to 20/Te proposed continuously over past two years but UG not prepared to change their stance of [. . .] % ex-USA . . .` (25) A memorandum of the quaterly sales meeting of ICI Soda Ash Products dated 4 September 1987 makes the connection even more explicitly:

'. . . budget allows for additional £ 500/k in rebates in order to ensure that marginal ton sought by all major bulk customers is below £ 112,26 PMT ex-works, the General Chemical minimumprice undertaking.` A handwritten note, undated, but probably also from late 1987 when ICI put its prices up by £ 6 per tonne reads:

'Are we cutting top slice enough? Gen Chem may not follow increase. Top slice should be under £ 112,26 ex works.` (26) With General Chemical effectively prevented by the anti-dumping undertakings from going below £ 112,26 (if not £ 119, the 'unofficial` undertaking price), ICI was able to ensure that its presence was marginalized by the operation of the top-slice rebate system.

A striking example of the operation of this policy is provided by the case of Pilkington, the largest customer, where ICI was aiming at obtaining a 100 % supply position. Pilkington operates at several United Kingdom sites and had a total soda-ash requirement for 1986 of around [. . .] Kt, all of which was supplied by ICI except for some [. . .] Kt to one minor site at Pont-y-felin.

On Pilkington's 'top-slice` (i.e. offtake over [. . .] Kt) ICI gave a rebate of £ 20 per tonne. This 'top-slice` rebate was not particularly costly for ICI in terms of the total offtake of Pilkington. It meant however that for the Pont-y-felin site ICI was quoting a delivered price of £ 10 [. . .] (under £ [. . .] per tonne ex-works) while believing that General Chemical was supplying at a price of £ 128,50 delivered because of the unofficial minimum-price undertaking. Pilkington had a group purchasing policy of not becoming dependent upon a single producer so it was in effect paying a premium of almost £ 2 [. . .] per tonne to have a second supplier. For quality control reasons Pilkington does not normally mix soda-ash originating from different producers so if one Pilkington site was to be 'denied` to ICI it was logical for it to be the smallest one. In view of the price differential Pilkington's had no alternative but to keep its purchases from the second supplier to the minimum, so ICI was assured of the vast bulk of its business.

Another example is provided by Rockware which up to 1988 had a soda-ash consumption of around [. . .] Kt per year. Again General Chemical was the second supplier. Since 1986 ICI had been offering Rockware a 'top-slice` rebate of £ 15 per tonne which according to a letter from ICI of 12 November 1985 was intended, in part at least, 'to encourage you to minimize your Allied purchases`. An ICI employee noted in handwriting at the bottom of the memorandum on the subject dated 5 June 1987:

'Top-slice must be below £ 112, 26 ex-store.` (b) Agreement to restrict purchases from competitors (27) Whatever formal amendments may have been made to ICI's supply agreements in 1980, it is apparent that ICI in practice makes it its business during price negotations to ascertain each customer's total anticipated annual requirements. Only United Glass seem to have kept ICI uncertain of its total consumption needs. With this detailed knowledge of the customer's total soda-ash consumption ICI was able to frame its 'top-slice` rebate in such a way as to minimize the customer's purchases from any second supplier.

In several cases ICI has also pressed the customer, sometimes successfully, to give a commitment to purchase 100 % from ICI for the next year. In other cases, ICI was secured the customer's agreement to taking substantially the whole of its needs from ICI while limiting purchases from another source to specified and relatively unimportant tonnages.

- Pilkington (28) In the text of the Pilkington 'evergreen` supply agreement dated 1 April 1981 the stipulation 'Buyer`s total commercial requirements in the United Kingdom' was deleted and a new clause substituted on 2 September 1982 which provided simply for 'a quantity of sodium carbonate to be agreed annually between buyer and seller`.

ICI seems however to have considered that whatever the wording of the new clause its relations with Pilkington should continue to be governed by the original agreement. Pilkington's policy of sourcing from ICI for its four largest sites (total [. . .] tonnes) while buying up to [. . .] tonnes from Allied for the small Pont-y-felin works led ICI to remind Pilkington in February 1987 that the April 1981 contract had referred to 'Buyer`s total requirements':

'This is clearly not today`s reality. As you know we are extremely keen to make it so and feel there is no commercial or technical barrier from our side . . .

For your part you have indicated some unhappiness at committing the totality of your requirements to us irrevocably. I understand your fears and would be only too happy to agree some modification to the contract wording that gives you the flexibility you desire whilst meeting our volume aspirations.' (29) ICI had ascertained that Pilkington's total United Kingdom requirements for 1987 would be [. . .] tonnes 'of which you intend to purchase from ICI [. . .]`. A top-slice rebate of £ 25 was given on any tonnage over [. . .]. ICI clearly indicated to Pilkington that it hoped by this means to obtain the Pont-y-felin business as well.

For the 24-month period 1 April 1988 to 31 March 1990 the agreement with Pilkington was set out as follows:

'You expect the United Kingdom soda-ash requirements of Pilkington plc to be close to [. . .] tes per year and you intend to purchase all this from ourselves with the one exception of your Insulation Division`s Pont-y-felin works (approximately [. . .] tes per year.' The top-slice rebate to Pilkington had by this time been increased to £ 30 per tonne on offtake over [. . .]tonnes per year.

A note of a meeting between ICI and Pilkington on 6 March 1989 shows that the 100 % theme was still being actively pursued by ICI.

- Rockware (30) Rockware originally operated three works (five after taking over another glass producer, CWS, in 1988).

On 12 November 1988 ICI wrote to Rockware confirming the oral agreement which had been reached for 1986. Incremental tonnage over [. . .] tonnes was to receive a £ 15 per tonne rebate. It was expressly agreed that two of the works would purchase '100 % of their 86 requirements from ICI` while the third would buy the majority of its needs from ICI 'some [. . .] tonnes will be taken from Allied`. (Subsequently it was agreed that the [. . .] tonnes from Allied would be diverted to another works.) ICI's choice of language in relation to Rockware's purchases from competitors is also not without significance. On a number of occasions ICI refers in its documents to Rockware having 'admitted` to taking a certain tonnage from General Chemical, a curious phrase to use if the customer is free to choose whether and how much it will buy from another supplier.

(31) In 1988 Rockware acquired the two CWS factories. Rockware's annual usage of soda-ash thus rose from around [. . .] tonnes to over [. . .] tonnes. On 29 November 1988 ICI and Rockware agreed the 1989 'supply frame`. Having ascertained Rockware's total requirements for 1989 as [. . .] tonnes, ICI obtained an undertaking that it would obtain 'not less than [. . .] tonnes` from ICI. Rockware's purchases from other suppliers were the subject of detailed discussions. One of ICI's specific objectives was to:

'Recover [. . .] Kt per year previously purchased from Poles at ex-CWS factories.` To this end Rockware was offered a 'top-slice` rebate of £ 10 per tonne for offtake from [. . .] Kt and £ 22 per tonne for anything above [. . .] Kt. This meant that for the marginal tonnage the effective cost to the customer offered by ICI was only £ 10 [. . .] ex-works. It would appear that before this meeting Rockware was considering rationalizing its minor suppliers and keeping only General Chemical as a second source, but had assured Brenntag on 8 November that there would be no change in purchasing policy until at least the middle of 1989 and that it would receive adequate notice of any such change.

(32) The result of the ICI offer however was that Rockware agreed with ICI to cease all Polish purchases and to keep the General Chemical volume constant at [. . .] Kt. The Commercial Director of ICI Soda Ash Products wrote a note congratulating the United Kingdom sales manager for having 'snaffled` the Polish share at CWS. Brenntag was informed of the Rockware decision but still maintained some expectation of continuing to supply at least some tonnage. Deliveries of ash from Brenntag continued for the first two months of 1989. ICI then met Rockware again on 28 February 1989. The ICI note of the meeting records that: 'All Polish purchases will cease after today`. This is in fact what occurred. Rockware wrote to Brenntag on 13 March 1989 confirming that instructions had already been given two weeks previously to cease placing orders with Brenntag as from 1 March. According to Rockware, continuing to do business with Brenntag instead of ICI would have involved a 'penalty cost` of some £ 100 000 [. . .] . The Letter to Brenntag reads:

'I fully realize the position this places you in but you clearly understand that the commercial offer we have received is impossible to refuse.` ICI claimed that it was General Chemical and not itself which gained the tonnage previously supplied by Brenntag to CWS. In fact General Chemical made no special offer to Rockware and it did not obtain any of the former CWS business.

- CWS (33) Prior to the takeover of the CWS glassworks by Rockware, ICI was the main supplier of CWS, with secondary sourcing from Allied and TR (as Brenntag was then known). Again, attempts were made by ICI to ensure that purchases from these competing suppliers were limited. Thus for 1987, ICI obtained an undertaking from CWS that 'we intend to restrict our offtake of United States soda-ash to a maximum of [. . .] tonnes`. A promise (albeit rather vague) was also obtained from CWS to reduce its purchases of Polish ash from TR which then stood at [. . .] tonnes per year.

- Redfearn (34) Another customer, Redfearn, had indicated to ICI in 1985 that it had an 'irrevocable commitment to maintenance of a competitive pressure` by taking some tonnage from Allied. Again ICI has made a particular point of ascertaining Redfearn's total requirements for each year and then making an arrangement, involving a 'top-slice` rebate, which would restrict the purchases from the second supplier to [. . .] tonnes per year. Thus for 1986 it was agreed that:

'RNG intend to purchase not less than [. . .] tonnes of soda-ash from ICI in 1986 out of a total budgeted purchase of [. . .] tonnes. All additional volume that you may possibly require above the budgeted total will also be purchased from ourselves.` The arrangement for 1987 provided that Redfearn would purchase from ICI at least [. . .] tonnes out of its total expected usage of [. . .] tonnes, (i.e. some 95 % of its requirement). There was an added inducement to purchase any marginal tonnage from ICI in the form of a £ 10 rebate.

Similar arrangements were made for 1988 and 1989.

- Beatson Clarke (35) Besides the 'top-slice` rebate system, ICI has given other forms of rebate or allowance to glassmakers, including 'export-support` rebates and 'importsubstitutions` rebates. (These rebates are not the subject of the present proceedings.) In one case at least, Beatson Clarke, it was made clear to the customer by ICI from 1985 onwards that not only the top-slice rebate but also the other special allowances were dependent upon the customer placing the whole of its business with ICI each year.

For example, for 1988 ICI wrote to Beatson Clarke confirming that 'you intend to purchase your total requirements from ICI and an assumption of [. . .] Te has been considered when offering the following support . . .`.

An ICI note of a meeting with Beatson Clarke relating to the 1988 negotiations reports that:

'I . . . made it clear that the offer was only for 100 % of their business. (The Purchasing Manager of Beatson Clarke) equally made it clear that he was prepared to commit 100 % of their business and that as far as the competition went, it would only be used as a bargaining tool if we got completely out of line . . .` Later in the same note the author reports how he had emphasized to Beatson Clarke 'the reward aspect for placing all their business with ICI`.

ICI has in fact been the sole supplier of soda-ash to Beatson Clarke since 1985.

(36) Since the investigations in the present case were carried out, ICI has abandoned the practice of 'top-slice` rebates, while insisting that the modification of its pricing arrangements in no sense constitutes an admission that the rebates in question constituted an infringement of Article 86. ICI's own documentation shows however that it was aware that its rebate system was of questionable legality: a note headed '1989 Issues and Objectives` reads 'consider legality of top-slicing and alternatives`.

ICI's principal factual arguments (37) ICI denies that it ever had a general strategy of excluding a particular supplier or suppliers from the market. The 'top-slice` rebates are said not to have been motivated by any exclusionary intent. According to ICI, they were intended to 'encourage and support growth` and therefore had inevitably to be related to quantities over and above the customer's nominal or 'core` tonnage. They were (ICI argues) conceived in response to customer demands for a change in the rebate structure and were negotiated on an individual basis rather than pursuant to any plan. ICI points to the continued presence of General Chemical in the market as proof that it did not intend to eliminate competition.

ICI also claims that it was obliged to give a 'top-slice` rebate in one case (Rockware) because it had reason to believe that Allied (later General Chemical) had done so first.

Assessment of the defence argument (38) ICI's assertion that the top-slice rebates were not part of an exclusionary plan is in direct contradiction with its own internal documents. It is made clear that its intention was to exclude TR (Brenntag) entirely as a supplier of dense (but not light) ash (recital 19). As for General Chemical, it was never alleged by the Commission that ICI intended to eliminate this producer entirely. The whole object was to ensure that a second source of supply remained in the market but one which sold at prices and in quantities which posed no real competitive threat to its dominant position (see recitals 19 to 21). The suggestion that the rebate system developed in a haphazard way is also difficult to reconcile with ICI's own documents, particularly the memorandum which states that an additional £ 500 000 was available to finance the top-slice rebates 'in order to ensure that the marginal tonnage sought by all bulk customers is below £ 112,26 PMT ex-works, the General Chemical minimum-price untertaking` (recital 25).

(39) In relation to the claim that ICI was only reacting to competition from Allied, there is no evidence to support this assertion apart from an indication that, in November 1988, ICI was led to believe that General Chemical had offered a 'deep-top slice` to Rockware with a view to picking up the Polish share of the former CWS business (recitals 31 to 33). This offer from General Chemical would 'produce an average price close to £ 112/Te ex-store`. Even if it were the case that on this occasion General Chemical offered a special price to Rockware (and ICI appears in fact to have been mistaken on this point) it does not provide the explanation for ICI's general policy of giving topslice rebates to 'all major bulk customers` for at least three years prior to that date. ICI does not even appear to be claiming that General Chemical offered special prices, except to Rockware. According to its own documents it believed that General Chemical's pricing was at around £ 120 per tonne ex-store. But even in the single case of Rockware, ICI is not to explain why, if the General Chemical average price to Rockware was £ 112, it should itself need to give a top-slice rebate which resulted in an effective price for the last [. . .] tonnes to be taken by Rockware from ICI of only £ 10 [. . .] per tonne.

In fact neither Allied nor its successor General Chemical offered a special 'top-slice` rebate to Rockware, or indeed to any other customer. Since November 1985 it has not gone below a list price of £ 119 ex-works for container glass manufacturers and has given no discounts off this list price.

The Commission therefore considers that the rationale of the strategy of giving 'top-slice` rebates was indeed that which was explained in detail in ICI's own documents.

PART II LEGAL ASSESSMENT A. Article 86 of the EEC Treaty 1. The terms of Article 86 (40) Under Article 86 of the EEC Treaty, any abuse by one or more undertakings of a dominant position within the common market or in a substantial part thereof is prohibited as incompatible with the common market in so far as it may affect trade between Member States. Special rebates or other financial inducements granted to customers by dominant undertakings in order to secure the whole or a substantial part of their business may be prohibited by Article 86 as an exclusionary practice.

In the present case, the essential questions to be decided are:

- whether ICI holds a dominant position within the meaning of Article 86,

- whether the conduct alleged constitutes an abuse of such a dominant position,

- whether there is an appreciable effect upon trade between Member States.

2. Dominant Position (a) Definition (41) The term 'dominant position` is not defined in Article 86. The Court of Justice has however described a dominant position under that Article as 'a position of economic strength enjoyed by an undertaking which enables it to hinder the maintenance of effective competition on the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately of consumers. Such a position does not preclude some competition . . . but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which competition will develop, and in any case to act largely in disregard of it so long as such conduct does not act to its detriment` (Judgment in Case 85/76, Hoffmann-La Roche v. Commission, paragraphs 38 and 39).

(42) 'Dominance` is therefore the power to hinder effective competition. Such power may involve the ability to eliminate or seriously weaken existing competition or to prevent potential competitors from entering the market. As the Court stated, the existence of a dominant position does not however require the producer enjoying it to have eliminated all possibility of competition (see also Case 27/76, United Brands v. Commission (1), paragraph 113).

The existence of a dominant position may depend upon a combination of factors, none of them necessarily controlling of itself.

(b) Relevant market (43) In order to determine whether an undertaking holds a dominant position, it is necessary first of all to identify the area of business in which conditions of competition and the market power of the allegedly dominant undertaking fall to be assessed. This examination enables the Commission to identify the actual and potential competitors of the undertaking in question and other constraints which may exist on the exercise of its supposed market power. Account has to be taken of the nature of the abuse which is being alleged and of the particular manner in which competition is impaired in the case in question (see Judgment in Case 22/78, Hugin v. Commission (2).

In the present case, the particular abuses which are suspected concern the foreclosure by ICI of actual and potential competition from other suppliers of soda-ash.

(44) ICI produces both light and dense soda-ash. Glassmakers almost all consume dense-ash, while for chemical and metallurgical applications light-ash is the preferred form. Although the competition which ICI was aiming to exclude came principally from dense-ash, it would be artificial to draw a strict boundary line between light- and dense-ash. ICI's major light-ash customers could switch to dense-ash with little capital outlay and are also the subject of the 'top-slice` rebate system. The relevant product market in which ICI's market power - in particular its ability to exclude competitors - falls to be assessed, may therefore fairly be taken to include both light and dense soda-ash.

For the purposes of assessing ICI's market power, the Community can be divided into two broad zones or 'spheres of influence`, one dominated by Solvay, the other by ICI.

(45) Conditions in the United Kingdom are, for the reasons set out earlier both relatively homogenous and separate from those prevailing in other Member States. ICI is the sole national producer and neither Solvay nor the other western European producers market their product in its 'home` territory. ICI's important customers in the Community are all located in the United Kingdom.

The appropriate product and geographical area in which ICI's economic power falls to be assessed is thus the market for soda-ash in the United Kingdom.

(46) The United Kingdom is a 'substantial part of the common market` within the meaning of Article 86.

(c) Market power (47) ICI's own documentation recognizes that it holds a dominant position in the United Kingdom. Its historic market share of more than 90 % over the whole of the period under consideration is in itself strong evidence of a significant degree of market power. Market share, while important, is however only one of the indicators from which the existence of a dominant position may be inferred. Its significance may vary from case to case according to the characteristics of the market in question.

(48) To assess market power for the purposes of the present case, the Commission takes into account all the relevant economic evidence, including the following elements:

(i) the persistence over many years of ICI's near-monopoly in the United Kingdom;

(ii) the absence of any competition from Solvay and the other western European producers;

(iii) the improbability of any 'new` producer of synthetic soda-ash entering the market and setting up manufacturing facilities in the Community;

(iv) ICI's position as exclusive or nearly-exclusive supplier to all the major customers;

(v) the perception by customers of General Chemical and Brenntag as secondary suppliers only;

(vi) the protection against United States and eastern European producers afforded by the anti-dumping measures;

(vii) the pricing constraints imposed on General Chemical by the anti-dumping undertakings;

(viii) ICI's demonstrated ability over the years to maintain a higher price level than in other Member States;

(ix) the 'interdependence` of major customers and ICI and their shared perception of a community of interest;

(x) the success of ICI's strategy of minimizing the presence and/or effectiveness of General Chemical and Brenntag as competitors and maintaining its predominant market share in the United Kingdom.

(49) In assessing ICI's market power, the Commission takes account of the possible substitutability of caustic soda for soda-ash and vice versa. Caustic soda (sodium hydroxide) is largely used for the production of paper and aluminium and may also in theory replace soda-ash for certain manufacturing applications as a source of alkali particularly in the manufacture of detergents and in metallurgical processes. (NB: The reverse is also true: soda-ash is in theory also an alternative for caustic soda in some processes.) In practice however the availability of caustic soda does not constitute a substantial limitation on ICI's market power in the United Kingdom which is principally based on supply to the glass manufacturers, few if any of which are likely to use caustic soda in preference to soda-ash.

Caustic soda is a co-product of the manufacture of chlorine, a basic raw material in the manufacture of PVC. Since long-term storage is not feasible, production of chlorine is tailored to current PVC demand. The supply of caustic soda inevitably fluctuates in line with that of chlorine. Demand for caustic soda on the other hand depends largely on the requirements of the paper industry. The price of caustic soda is therefore - unlike soda-ash - subject to considerable fluctuation.

At the present time caustic soda is 'short`, i.e. the growth in demand for caustic soda exceeds that for chlorine: the product is in short supply and is likely to remain so for the foreseeable future. It is also considerably more expensive than the equivalent in soda-ash. There is thus no incentive for soda-ash users to switch to caustic soda. Further, conversion from soda-ash to caustic requires a substantial capital investment. Even if caustic soda is 'long` at a particular time the cyclical nature of the market and uncertainty as to future pricing acts as a deterrent to switching.

(50) In the glass sector - the main consumer of soda-ash - caustic soda substitution is even less likely than in metallurgical and detergent applications. In theory up to 15 % of the alkali requirement of glassmakers may be provided by caustic soda. Again, capital investment in plant modification is required. In practice, none of the United Kingdom glassmakers has converted to caustic soda.

It should also be noted that the major soda-ash producers (Solvay, ICI, AKZO) between them make some one-third of the caustic soda produced in the Community. In the United Kingdom, ICI is the leading producer of caustic soda.

(51) ICI has also argued that the availability of cullet (recycled broken glass) excludes its having a dominant position. A customer's requirement of soda-ash in glass container manufacture can be reduced by up to 15 % by using cullet and with appropriate technology the proportion may be higher. It may well be that the cullet usage lessens the dependence of customers upon the soda-ash suppliers in general. It does not however lessen the ability of a powerful soda-ash producer to exclude smaller producers of that product.

The possibilities of substitution do not therefore act as a constraint on the exercise of ICI's market power vis-à-vis the other producers of soda-ash.

(52) On the basis of the above considerations the Commission concludes that at all material times ICI occupied a dominant position in the sense of Article 86.

3. Abuse of dominant position (53) As the Court of Justice has observed in serveral cases, conduct by a dominant undertaking which undermines the objectives of Article 3 (f) of the EEC Treaty by endangering the structure of competition may constitute an infringement of Article 86. Exclusionary behaviour which hinders existing competition or the development of new competition has been condemned by the Court. Practices designed to block the access of competitors to customers by tying the latter to the dominant supplier have been particularly identified as abusive in leading cases (Case 40/73, Suiker Unie v. Commission (1); Case 85/76, Hoffmann-La Roche v. Commission; Case 322/81, Nederlandsche Banden Industrie - Michelin (2).

(See also Commission Decision 89/22/EEC (3), British Gypsum/BPB Industries.) (54) The present case concernes the tying of customers to ICI by means of a number of devices which all serve the same exclusionary purpose: 'top-slice` rebates, exclusive requirements clauses and (in one case at least) making other financial benefits dependent on the customer taking its total requirements from ICI.

(i) 'Top-slice rebates` (55) It is obvious both from the nature of the system itself and from the terms of ICI's own internal documentation that the 'top-slice` rebates were intended to exclude effective competition by:

- inducing customers to obtain from ICI the marginal tonnage which might otherwise be obtained from a second supplier,

- minimizing or neutralizing the competitive impact of General Chemical by containing its presence or the market in terms of price, tonnage and customers within limits that insured the continuance of ICI's effective monopoly,

- eliminating Brenntag from the market or at least minimizing its competitive effect,

- minimizing the risk of the customers turning to alternative sources of supply whether from sister-producers, traders or other EEC producers,

- maintaining and reinforcing ICI's virtual monopoly of the United Kingdom market for soda-ash.

(56) The substantial variations in 'trigger` tonnages at which the rebate is activated at each customer demonstrates that the top-slice rebate system and the price advantages it confers depends not upon differences in the cost to ICI in relation to the quantities supplied but upon the customer taking its marginal tonnage from ICI.

There is no need, in order for such practices to fall under Article 86, of a legal obligation or express stipulation requiring the customer to obtain its supplies exclusively from the dominant firm. It is sufficient if the object or result of the inducement offered is to tie customers to the dominant producer.

(ii) Exclusive requirements clauses and restrictions on purchases from competitors (57) It is clearly established in law that where a dominant undertaking ties customers - even at their request - by an obligation or promise to obtain the whole or substantially the whole of their requirements exclusively from that undertaking, this will constitute an infringement of Article 86 (Hoffmann-La Roche v. Commission, point 89).

It is irrelevant whether the obligation in question is stipulated for without further qualification or whether it is undertaken in consideration of the grant of a rebate.

(58) The possible anti-competitive effects of the stipulations on quantities in ICI's supply agreements have to be assessed in the light of ICI's stated policy towards General Chemical and Brenntag. As the documents discovered at ICI show, ICI was concerned not to exclude all competitors entirely. It was in ICI's interest to ensure that General Chemical at least remained in the United Kingdom market as a 'presence` - strictly controlled as to both price and tonnage - which met the need of most large customers for a secondary supplier while in fact presenting no real competitive threat to ICI's near-monopoly position.

(59) By making it its business to ascertain the total requirements of each major customer, ICI was able to structure its 'top-slice` rebate system in such a way as to exclude or minimize the presence of competitors. In many cases an assurance was obtained from the customer to reduce its competitive purchases or restrict them to a specified tonnage. In the case of Beatson Clarke it was expressly stipulated that the customer obtain its total requirements from ICI.

Such arrangements substantially restrict the contractual freedom of the customer, prevents competitive entry, and is tantamount to an exclusivity clause.

(60) The agreements with these major customers mean that they are tied to ICI for substantially the whole of their requirements (and in one case at least, their total requirements) while the competitive effect of other suppliers is minimized.

(iii) Other financial inducements (61) In its dealings with Beatson Clarke, ICI also made it clear that the 'support package` (1), additional to the 'top-slice` rebate, was dependent upon its agreeing to take 100 % of its requirements from ICI, a condition which was confirmed in writing. This special 'inducement` has the object and effect of reinforcing ICI's position at the customer and excluding competition.

All the above measures in recitals 55 to 60 are intended to remove or restrict the opportunities of other producers or suppliers of soda-ash to compete with ICI. They have to be seen in the light of ICI's clearly expressed strategy of retaining a virtual (but not 100 % complete) monopoly of the United Kingdom market. They thus consolidate the dominant position of ICI in a manner which is incompatible with the concept of competition inherent in Article 86.

(62) The rebates do not reflect possible differences in costs based on the tonnage supplied but were referable to securing the whole or the largest possible percentage of the customer's requirements. The 'top-slice` rebate system thus involved considerable variations from customer to customer as to the 'trigger` tonnage at which it was activated. There were also differences in the amount per tonne of the rebate itself, varying from £ 6 per tonne to £ 30 or more.

4. Effect upon trade between Member States (63) Article 86 covers not only abuses which may directly prejudice consumers but also those which indirectly prejudice them by impairing the effective competitive structure in the common market as envisaged by Article 3 (f) of the EEC Treaty.

The measures taken by ICI to ensure the continuance of its dominant position and effective monopoly in the United Kingdom were aimed in the first place at direct competition from outside the Community (the United States and Poland) rather than other Community producers. However the 'top-slice` rebates and other exclusionary devices have to be examined in the overall context of the phenomenon of strict separation of national markets in the Community. ICI's documents stress that its commercial strategy called for the continued but limited presence on the United Kingdom market of a single American producer as a 'second supplier` which ICI could control through the anti-dumping measures.

(64) ICI was thus particularly anxious that General Chemical should remain in the United Kingdom as an 'alternative`: were it to leave the market entirely, the customers might be encouraged to look for alternative and possibly cheaper sources of supply in continental western Europe.

Furthermore, the fact that the competition at which the conduct of ICI was particularly directed came from outside the Community does not exclude an appreciable effect upon trade between Member States. The maintenance and reinforcement of ICI's dominant position in the United Kingdom affects the whole structure of competition in the common market and ensures that the status quo, based on marked separation, will be maintained.

B. Remedies and sanctions 1. Article 3 of Regulation No 17 (65) Where the Commission finds that there is an infringement of Article 86 of the Treaty it may require the undertaking concerned to bring such infringement to an end in accordance with Article 3 of Regulation No 17.

In the present case the infringements of Article 86 were still continuing at the end of 1989.

Since the date of the investigation ICI has altered its rebate system in the United Kingdom and in its contractual negotiations with customers for 1990 the system of 'top-slice` rebates has been abandoned.

ICI insists that the modification of its pricing system is without prejudice to its contentions that the 'top-slice` rebates do not fall within the prohibition set out in Article 86 of the Treaty.

(66) The Commission therefore considers that it is appropriate in the case of the infringements of Article 86 by ICI to issue a termination order. Besides requiring the undertaking to bring the infringements to an end, the Commission may also specify particular measures to ensure that the infringements are not repeated or continued. It is established by the judgment of the Court of Justice in Joined Cases 6 and 7/73, Commercial Solvents v. Commission (1), that the Commission has a discretionary power to order measures ensuring that its decision is effective. The power to order such measures is not confined to acts directly affecting trade between Member States particularly where the objective is the maintenance or the establishement of an effective competitive structure in the common market.

(67) ICI will be required to abandon its system of loyality rebates for soda-ash. Any new system of rebates applied by ICI will have to be confined to reflecting in a fair and objective manner the cost savings involved in large tonnage orders.

2. Article 15 (2) of Regulation No 17 (68) Under Article 15 (2) of Regulation No 17 the Commission may by decision impose on undertakings fines of from ECU 1 000 to ECU 1 million, or a sum in excess thereof but not exceeding 10 % of the turnover in the preceding business year of each of the undertakings participating in the infringement where, either intentionally or negligently, they infringe Article 86. In fixing the amount of the fine, regard is to be had to both the gravity and the duration of the infringement.

(a) Gravity (69) In the present case the Commission considers that the infringements of Article 86 were of particular gravity. They were part of a deliberate policy aimed at consolidating ICI's control over the United Kingdom soda-ash market in a manner which was in fundamental conflict with the basic objectives of the EEC Treaty. Further, they were specifically directed at restricting or damaging the business of particular competitors.

By foreclosing for a long time sales opportunities for all competitors, ICI has caused lasting damage to the structure of the market concerned, to the detriment of consumers. This infringement is, under the specific circumstances of the case, more serious than the infringement of Article 85 in which ICI was also involved.

ICI was well aware from its extensive negotiations with the Commission in 1980 to 1982 of the requirements of Article 86. The introduction of the top-slice rebates in about 1983 followed not long after specific assurances had been given to the Commission by ICI that it offered no special inducements to customers to take the whole or a quantity close to the whole of their requirements of soda-ash from ICI.

(70) ICI has been the subject on several previous occasions of substantial fines imposed by the Commission for collusive arrangements in the chemical industry: dyestuffs; polypropylene; LdPE; PVC.

(b) Duration (71) The infringement began in about 1983 - very shortly after the negotiations with the Commission and the closure of the Commission's file - and has continued at least up to the end of 1989.

The Commission takes into account the fact that ICI has abandoned the system of top-slice rebates with effect from 1 January 1990,

HAS ADOPTED THIS DECISION:

Article 1

Imperial Chemical Industries plc ('ICI`) has infringed Article 86 of the EEC Treaty from about 1983 until at least the end of 1989 by a course of conduct aimed at excluding or severely limiting competition and consisting of:

(a) granting substantial rebates and other financial inducements referable to marginal tonnage in order to ensure that customers buy all or most of their requirements from ICI;

(b) securing the agreement of customers to buy the whole or substantially the whole of their requirements from ICI and/or to restrict their purchases of competitive material to a specified tonnage;

(c) in one case at least making the granting of rebates and other financial benefits dependent upon the customers agreeing to buy the whole of its requirements from ICI.

Article 2

ICI shall (if it has not already done so) forthwith take the steps necessary to bring the infringements to an end and shall in the future refrain from any pricing practice in relation to soda-ash which may have the same or an equivalent effect.

Article 3

A fine of ECU 10 million is imposed on ICI in respect of the infringement of Article 86 specified in Article 1.

Article 4

A fine imposed under Article 3 shall be paid within three months of the date of notification of this Decision to the following bank account:

N° 310-0933000-43,

Banque Bruxelles Lambert,

Agence européenne,

Rond Point Schuman 5,

B-1040 Bruxelles.

On expiry of that period, interest shall automatically be payable at the rate charged by the European Monetary Cooperation Fund on its ecu operations on the first working day of the month in which this Decision was adopted plus 3,5 percentage points, i.e. 14 %.

Should payment be made in the national currency of the Member State in which the bank nominated for payment is situated, the exchange rate applicable shall be that prevailing on the day preceding payment.

Article 5

This Decision is addressed to Imperial Chemical Industries plc, 9 Millbank, London SW1P 3JF.

This Decision is enforceable pursuant to Article 192 of the EEC Treaty.

Done at Brussels, 19 December 1990.

For the Commission Leon BRITTAN Vice-President

(1) OJ No 13, 21. 2. 1962, p. 204/62.

(2) OJ No 127, 20. 8. 1963, p. 2268/63.

(3) See page 1 of this Official Journal.

(1) The major customers all use ICI as their primary source with the US or Polish producers as a possible second supplier only.

(2) In the published version of the Decision, some information has hereinafter been omitted, pursuant to the provisions of Article 21 of Regulation No 17 concerning non-disclosure of business secrets.

(3) OJ N° L 206, 2. 8. 1984, p. 15.

(1) OJ N° L 311, 29. 11. 1984, p. 26.

(2) OJ N° L 283, 16. 10. 1990, p. 38.

(3) (1979) ECR 461.

(1) (1978) ECR 207.

(2) (1979) ECR 1869.

(1) (1975) ECR 1663.

(2) (1983) ECR 3465.

(3) OJ N° L 10, 13. 1. 1989, p. 50.

(1) The compatibility or otherwise of ICI's 'support packages` (import substitution, export assistance) with Article 85 or 86 of the EEC Treaty may form the subject of separate proceedings. For the purposes of the present case the Commission confines itself to the linkage between the package and the customer's total requirement.

(1) (1974) ECR 223.