COMMISSION DECISION of 10 January 1996 relating to a proceeding under Article 85 of the EC Treaty (Case IV/34.279/F3 - ADALAT) (Only the German text is authentic) (96/478/EC)

CONTENTS OF THE DECISION

CHAPTER I THE FACTS

Section I The product

1. Nature of the product

2. Markets on which ADALAT is sold

2.1. Coronary heart disease

2.2. Hypertension

2.3. Congestive heart failure

3. Importance of the product

3.1. A major product for Bayer

a. For the group

b. A major product in the sales strategies of Bayer subsidiaries in the various Member States

3.2. Market shares

a. In France

b. In Spain

c. In the United Kingdom

d. In the Community of Twelve

e. Conclusion

3.3. Parallel imports of ADALAT

a. Wide price differences between Member States: an incentive for parallel imports

b. Extent of parallel imports

c. Cost of parallel imports

3.4. Outlook: ADALAT will in future remain a major product for Bayer

Section II Bayer

Section III Pharmaceutical wholesalers

1. General

2. The situation in France

2.1. The wholesalers operating on the market (1990)

2.2. Legislation applicable to distributing wholesalers

3. The situation in Spain

3.1. The wholesalers operating on the market (1990)

3.2. Legislation applicable to wholesalers

Section IV Bayer France and Bayer Spain's continuous commercial relations with their wholesale customers

1. In France

1.1. Start of commercial relations

1.2. Normal commercial relations

1.3. Invoices

1.4. Procedures in the event of supply problems

2. In Spain

Section V Obstacles to parallel exports of ADALAT to the United Kingdom

I. INTRA-GROUP CONDUCT WITHIN BAYER

1. Parallel exports: an ongoing problem for Bayer

1.1. A general concern for the past number of years

1.2. Studies and research into the problem of parallel exports

2. Full information system on parallel imports within Bayer

2.1. Continuous exchanges of information on parallel imports between the various Bayer companies

2.2. Centralization of information at Leverkusen

2.3. Other means of obtaining information on parallel imports

3. Formal decisions within the group intended to reduce parallel exports to the United Kingdom

II. PRACTICAL IMPLEMENTATION OF THE INTRA-GROUP STRATEGY IN FRANCE AND IN SPAIN

1. France

1.1. Bayer France's identification of exporting customers

1.2. Halting of supplies to customers who have been detected

1.3. Bayer France's official argument: depletion of stocks

1.4. Wholesalers' reaction to Bayer France's conduct

1.5. Results

2. Spain

2.1. Bayer Spain's identification of exporting customers

2.2. Halting of supplies to customers who have been detected

2.3. Wholesalers' reaction to Bayer Spain's obstructive behaviour

2.4. Results

3. United Kingdom: identification of the source of parallel imports to the United Kingdom

4. Results

4.1. Complaints from wholesalers not receiving supplies

4.2. Results achieved by Bayer

CHAPTER II LEGAL ASSESSMENT

Section I Definition of the market

1. Geographic market

2. Product market

3. Relevant market

Section II Article 85 (1)

1. Agreement

1.1. Export ban

(a) System for detecting exporting wholesalers

(b) Successive reductions in the amounts supplied by Bayer France and Bayer Spain where wholesalers export all or some of the products

(c) Conclusions

1.2. The export ban has been incorporated into the continuous relations between Bayer France and Bayer Spain and their respective wholesalers

(a) The precedent of the Sandoz case

(b) Continuous commercial relations

(c) Incorporation of the export ban into these continuous commercial relations

1.3. General conclusion

2. Restriction of competition

2.1. Object and effect of restricting competition

2.2. Appreciable restriction of competition

3. Appreciable effect on trade between Member States

4. Conclusions

Section III Bayer's counter-arguments

1. The argument that stocks were depleted

2. The argument that legislative provisions impose certain obligations regarding the supply of the domestic market

3. The argument regarding the existence of a patent for ADALAT-Retard

Section IV Article 85 (3)

Section V Duration of the infringement

1. Spain

2. France

Section VI Article 3 of Regulation No 17

Section VII Party to which this Decision is addressed

Section VIII Article 15 of Regulation No 17

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European 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 Austria, Finland and Sweden, and in particular Articles 3, 15 (2) and 16 (1) thereof,

Having regard to the decision taken by the Commission on 26 September 1994 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity of being heard on the matters to which the Commission has taken objection, in accordance with the provisions of 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),

Having consulted the Advisory Committee on Restrictive Practices and Dominant Positions,

Whereas:

CHAPTER I

THE FACTS (3)

SECTION I

The product

1. Nature of the product

(1) ADALAT (known in France as ADALATE) is the brand name of a range of medicinal products whose active principle is nifedipine. This substance has remarkable pharmacological properties.

(2) The ADALAT product range is available in the following forms:

- capsules (5 mg, 10 mg, 20 mg)

- tablets (20 mg)

- modified-release tablets (10 mg, 20 mg, 5+15 mg)

- one-per-day tablets (30 mg, 60 mg).

(3) The products are marketed as follows in Germany, France, Spain and the United Kingdom:

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(4) ADALAT products also exist in the form of an injectable solution, for hospital use only. These products are not covered by this Decision, which will be confined to the ADALAT products marketed in the following three countries: France, Spain and the United Kingdom. Therefore, this Decision covers only the following two products in the ADALAT range: the 10 mg capsule (marketed in the United Kingdom and Spain under the name ADALAT and in France under the name ADALATE) and the 20 mg modified-release tablet (marketed in the United Kingdom and Spain under the name ADALAT-Retard and in France under the name ADALATE 20 mg LP). As may be seen from the facts set out below, the main export restrictions apply essentially to ADALAT-Retard. It is this product which, for medical reasons, is in greatest demand. In this Decision, the term 'ADALAT` designates the two products.

(5) In France, ADALATE 10 mg was licensed in May 1979 and ADALATE 20 mg LP in 1985. The two products are manufactured, packaged and marketed by Bayer Pharma SA (France) (4).

(6) In Spain, ADALAT and ADALAT-Retard were licensed in January 1986. The two products are manufactured, packaged and marketed by Química Farmacéutica Bayer SA (Spain) (5).

(7) Bayer states that, in the United Kingdom, it applied for a patent in the early 1980s for the ADALAT-Retard 20mg Tablets and that this patent was definitively awarded at the beginning of 1995.

2. Markets on which ADALAT is sold

(8) ADALAT belongs to a category of medicinal products known as 'calcium antagonists` and is used to treat cardiovascular diseases, which are subdivided into three categories: coronary heart disease, arterial hypertension and congestive heart failure. However, congestive heart failure seems to represent a minor market for Bayer (6):

'On comparing the 2 markets important to Bayer at the moment, ie Coronary Heart Disease (CHD) and Hypertension it is clear that the hypertension market holds by far the greatest potential. There has been a significant growth in the hypertension market in the last few years and this is expected to continue. (. . .) In contrast there is little growth expected in the CHD market.` 2

2.1. Coronary heart disease

(9) Coronary heart disease is characterized by violent constrictive pains in the precordial region. Three types of treatment are used: calcium antagonists, nitrates and beta blockers.

'Leading product classes by revenue are Ca-antagonists. They maintained their leading position since 1985 with a market share of 40 % in 1989 (34 % in 1985).

(. . .)

(In Europe), leading product classes are Ca-antagonists (34 %) (. . .):

>TABLE>

From 1988 to 1989, ADALAT is slightly losing ground in all 5 European countries (France, Great Britain, Germany, Italy, Spain) mainly due to the generic competition of Nifedipine and Diltiazem.` 3

2.2. Hypertension

(10) Hypertension is a heart disease in which increased tension in the arteries brings about an increase in blood pressure.

'The (world) Hypertension Market is the largest pharmaceutical market and has experienced a very healthy growth rate of approximately 10 % per annum over the last five years, growing from DM 10.9 bn in 1985 to DM 14.5 bn in 1989.` 4

(11) Four types of treatment are used: ACE (angiotensin converting enzyme) inhibitors, beta blockers, calcium antagonists and diuretics.

'ACE-Inhibitors are, in revenue terms, dominant market leaders in Europe as a whole. This dominance is especially marked in the Mediterranean countries such as Italy and Spain, whereas in Great Britain and Germany Calcium Antagonists and Beta-Blockers are relatively much stronger as illustrated below:

>TABLE>

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Europe and the United States represent more than 70 % of the world market.

2.3. Congestive heart failure

(12) Congestive heart failure is cardiovascular insufficiency and the circulatory problems which this causes.

'The world market in CHF (Congestive Heart Failure) in 1989 was valued at DM 3.2 billion (. . .):

>TABLE>

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Europe accounted for 40 % of the world market for this type of medicament (Japan: 14 %, North America: 33 %, other countries: 13 %).

3. Importance of the product

(13) ADALAT ranked ninth in the world's top 40 pharmaceutical products in 1992, with world sales of US$ [. . .] (7) million (about ECU [. . .] million).

3.1. A major product for Bayer

(a) For the group

(14) Bayer's annual report for 1990 states that:

'The very effective calcium antagonists are among the most important therapeutic principles for the treatment of coronary heart disease and hypertension. Our product ADALATE (nifedipine), proven for many years, is now available in more than one hundred countries (. . .).` 7

(15) The report goes on to confirm that ADALAT is Bayer's major product:

'In a short time, Ciprobay (. . .) has become our most important pharmaceutical specialty after ADALATE.` 8

(16) An internal Bayer report confirms that ADALAT is Bayer's major product:

'Bayer's current image in the CV-business is closely linked to the market success of ADALAT which currently represents one of the leading products in HT and CHD and the standard reference for investigators all over the world.` 9

(17) Another report states that ADALAT is Bayer's leading product in terms of turnover (DM [. . .] million in 1991, i.e. about ECU [. . .] million, up 7 % on 1990).

(18) In 1990, ADALAT accounted for [. . .] of the group's turnover in prescription medicines and [. . .] of its turnover in the cardiovascular disease sector.

(19) Numerous documents detail the qualities which make ADALAT 'a leading product with a strong identity` 10. These qualities are as follows:

'- Reference (product) as a calcium inhibitor

- guaranteed effective

- can be used in cases of associated pathologies

- easy to use

- tolerance

- Bayer product.` 11

(b)A major product in the sales strategies of Bayer subsidiaries in the various Member States

(20) In Spain, ADALAT is the leading product in the sales of Bayer Spain. In 1992, Bayer Spain's turnover in ADALAT (all products) accounted for [. . .] of its total turnover and [. . .] of its turnover in the cardiovascular disease sector.

(21) In France, in 1992, ADALATE accounted for [. . .] of Bayer France's total turnover and [. . .] of its turnover in the cardiovascular disease sector.

(22) In the United Kingdom, ADALAT was by far Bayer UK's leading product in terms of turnover in 1992. In that year ADALAT accounted for [. . .] of Bayer UK's total turnover and virtually [. . .] of its turnover in the cardiovascular disease sector.

3.2. Market shares

(23) Only the market shares of the countries that are pertinent to this Decision are given here, since markets in the pharmaceutical sector are national (see paragraphs 150-152). For the purposes of this Decision, market shares are indicated by reference to the major therapeutic uses of the product (coronary heart disease and hypertension).

(a) In France

(24) Bayer has specified the following market shares, calculated in value terms:

- on the coronary heart disease market, ADALATE (capsules + Retard) has 5,1 %,

- on the hypertension market, ADALATE has 4,1 %,

(b) In Spain

(25) Bayer has specified the following market shares, calculated in value terms:

- on the coronary heart disease market, ADALAT has 7,4 %,

- on the hypertension market, ADALAT has 8,7 % of the market.

(c) In the United Kingdom

(26) Bayer has specified the following market shares, calculated in value terms:

- on the coronary heart disease market, ADALAT has 19,6 %,

- on the hypertension market, ADALAT has 16,6 %.

(d) In the Community of Twelve

(27) Bayer has specified the following market shares, calculated in value terms:

- on the coronary heart disease market, ADALAT has 7,6 %,

- on the hypertension market, ADALAT has 5,8 % of the market.

(e) Conclusion

(28) It should be noted that, in the medicinal products sector, doctors and patients are often very attached to a particular brand, particularly in the case of chronic diseases. This is the case with ADALAT, which has the backing of Bayer's name and is recognized as one of the major products worldwide for the treatment of the relevant diseases. It must therefore be borne in mind that, where ADALAT is expressly prescribed by the doctor, it is often difficult to substitute another, competing product, for example a generic, for it, both for psychological reasons (reluctance on the part of the patient to accept another product) and for statutory reasons (statutory rule in some countries prohibiting pharmacists from substituting a product having equivalent therapeutic properties for the product specifically prescribed by the doctor). This aspect helps to give the market shares held by Bayer through its product ADALAT special significance, these market shares being in themselves already relatively substantial, particularly in the United Kingdom.

3.3. Parallel imports of ADALAT

(a) Wide price differences between Member States: an incentive for parallel imports

(29) A very large number of documents found on the premises of the various Bayer companies investigated give the prices for ADALAT products in the various countries. For example, one document compares prices between the various countries as at 14 October 1991:

'>TABLE>

>TABLE>

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(30) Numerous documents take these figures as a basis in calculating the difference in prices between certain countries. Handwritten annotations highlight the differences between the low-price countries and the United Kingdom.

(31) The most recent document (18 March 1992) gives the following price comparisons:

'

Price comparison/by region

>TABLE>

>TABLE>

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It may be noted here in particular that, in the case of ADALAT-Retard 20 mg tablets, the price in Spain is, depending on the type of packaging, from 35 to 47 % below the price in the United Kingdom and that the price in France is 24 % lower. In the case of ADALAT in 10 mg capsule form, depending on the type of packaging, the price in Spain is from 48 to 55 % below the price charged in the United Kingdom. The price in France is from 39 to 45 % below the United Kingdom price.

(b) Extent of parallel imports

(i) Origin of parallel imports

(32) A very large number of statistical documents found on the premises of Bayer's various companies that were investigated record parallel imports regularly, with monthly updatings, indicating their level and countries of origin.

(33) The following table gives the figures for the countries of origin of parallel imports in 1990 and 1991. It recapitulates the figures available in those two years regarding the origin of parallel imports.

'>TABLE>

14`

(ii) Market shares of parallel imports

(34) The market shares (in Europe) of parallel imports are as follows:

'>TABLE>

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(c) Cost of parallel imports

(35) A very large number of documents identify parallel imports as 'weak points` or 'threats` for ADALAT.

For price reasons, as stated above, the United Kingdom is one of the main targets of parallel imports. In 1989, a report by the ABPI (Association of the British Pharmaceutical Industry) concluded:

'The overall effects of parallel imports on the UK economy are harmful (. . .) our direct estimate of the value of domestic sales lost to parallel imports by UK manufacturers in 1987/8 was £ 350 m. representing 0,1 % of gross National Product in 1987.` 16

In 1992, a report drawn up by Bayer UK concluded:

'Estimated loss to the UK market through PI would be £ 1.4 billion if total free trade and unlimited supply in low cost countries`. 17

3.4. Outlook: ADALAT will in future remain a major product for Bayer

(36) The following document highlights Bayer's objectives for ADALAT:

'The objective of Bayer cardiovascular is to make ADALAT the number [. . .] product in cash and scrips in both (coronary and hypertension) indications by [. . .].` 18

The Bayer group's annual report for 1992 confirms the group's success with ADALAT:

'We have consistently developed our leading product in terms of turnover, the heart/circulatory drug ADALAT (. . .). This has enabled us to strengthen our position as world leaders in the heart/circulatory drug sector.` 19

SECTION II

Bayer

(37) Bayer is a highly diversified international chemicals group. It operates in some 180 countries in six sectors: polymers, organic chemicals, industrial products, health, agriculture and information technology. The Bayer group's turnover amounted to DM 41 195 million in 1992 (some ECU 22 029 million). Its turnover in the health sector amounted to DM 7 198 million (some ECU 3 849 million) in 1992.

In 1991 to 1992, the Bayer group was eighth in the pharmaceuticals sector at world level with sales of US$ 4 309,1 million (some ECU 3 264 million).

SECTION III

Pharmaceutical wholesalers

1. General

(38) Pharmaceutical distribution in Europe uses three distinct channels: hospitals, pharmacies and drugstores, and wholesalers.

Hospitals generally obtain their supplies direct from the laboratories or through purchasing consortia. Hospitals obtain supplies from wholesalers only in exceptional cases. There are approximately 6 000 hospitals in the Community of Twelve. Hospitals account for 11 % of demand in France, 12 % in Spain and 5 % in the United Kingdom.

Pharmacies and drugstores obtain few of their supplies direct from laboratories. There are at present 103 500 pharmacies and 14 650 drugstores in the Community of Twelve. Direct sales of pharmaceutical specialities to pharmacies represent 7 % of distribution in France, 3 % in Spain and 19 % in the United Kingdom.

Pharmaceutical wholesalers are thus the main intermediaries between laboratories and retailers in the Community of Twelve. European wholesalers thus distribute 90 % of medicinal products. There are about 500 wholesalers. Pharmaceutical specialities account for 75 to 95 % of their turnover, and their profit margin ranges between 9,7 and 16,5 %.

2. The situation in France

2.1. The wholesalers operating on the market (1990)

(39) '>TABLE>

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2.2. Legislation applicable to distributing wholesalers

(40) French legislation (8) applicable to distributing wholesalers is based on the following provisions:

- legislative articles L.596, L.596-1, L.598, L.599, and L.600 of the Code de la santé publique (9),

- the regulatory articles relating to establishments preparing and dealing wholesale in pharmaceutical products, Articles R.5105 to R.5516 of the 'Code de la santé publique`,

- the Order of 3 October 1962 (10) laying down the requirements incumbent on distributing wholesalers as regards the supply of medicinal products to pharmacies.

French legislation lays down the following rules:

- there must be a pharmacist authorized to take decisions (Article L.596),

- a pharmaceutical establishment (capable of wholesale distribution of medicinal products) may not be opened until administrative authorization has been obtained (Article L.598),

- the conditions under which pharmaceutical establishments operate must be such as fully to safeguard public health (specially fitted-out premises, availability of the necessary equipment, resources and staff) (Article R.5115-6),

- distributing wholesalers must keep a sufficient stock of medicinal products to be able to supply the relevant pharmacies (third paragraph of Article R.5115-6),

- This latter article is spelt out in greater detail by the Order of 3 October 1962, which provides that:

'Any wholesale distributor of pharmaceutical products (. . .) and its branches must permanently keep a stock of pharmaceutical specialties to enable it to supply the monthly consumption of their regular pharmacy customers in the area which they serve.

This stock of medicinal products must be similar in nature to a "collection" of specialties and must include at least two thirds of the number of special pharmaceutical forms actually used and, in terms of value, must correspond to the average value of the monthly turnover of the preceding year (Article 1).

Any wholesale distributor of pharmaceutical products and its branches must be able to supply any specialty used by any pharmacy which is a regular customer and which lies within their distribution area within twenty-four hours of receiving an order for any specialty forming part of their "collection".

They must monitor their supplies of specialties in order to avoid running out of stock (Article 2).

The area referred to in Article 2 is constituted by the geographical area in which the pharmacist responsible for the wholesale distributor of pharmaceutical products or the branch of a wholesale distributor of pharmaceutical products has stated that he carries on his activity (Article 3).` 21

(41) French legislation does not prohibit exports. No implicit impediment to exports may be inferred from the legislation. It is therefore clear that, under the terms of the legislation, exports are authorized.

These are the interpretation and practice which have always been followed. The recent Law of 1992 and the decrees implementing it elucidate the matter further along these lines and spell out explicitly what the law already provided implicitly: French law grants distributing wholesalers a monopoly for the distribution of medicinal products to pharmacies. In return for this monopoly, it imposes a number of public-service requirements. The territory of the Community is treated by the law on a par with the French national territory, and distributing wholesalers are free to export to other countries of the Community once their public-service obligations have been fulfilled.

(42) Producers are not subject to any statutory requirement as regards supplies to wholesalers or the supplying of the national market.

3. The situation in Spain

3.1. The wholesalers operating on the market (1990)

(43) '>TABLE>

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3.2. Legislation applicable to wholesalers

(44) Spanish legislation applicable to pharmaceutical wholesalers is based on the Ministerial Decision of 7 April 1964 (11) as supplemented by the Ministerial Decision of 5 May 1965 (12). In 1990, a Law on medicinal products was also adopted, spelling out the earlier provisions without amending them (13).

This legislation lays down rules which are similar to those provided for under French legislation:

- there must be a pharmacist authorized to take decisions (Chapter IV, Article 14 et seq. of the Ministerial Decision of 1964),

- a pharmaceutical establishment may not be opened until administrative authorization has been obtained (Chapter I, Article 1 et seq. of the Ministerial Decision of 1964),

- the conditions under which pharmaceutical establishments operate must be such as fully to safeguard public health (Chapter II, Article 9 et seq. of the Ministerial Decision of 1964),

- wholesalers must, at all times, keep sufficient stocks for the region in which they operate (Chapter III, Article 12 of the Ministerial Decision of 1964). In 1964, the term 'region` meant the provinces. Nowadays, it refers to the autonomous communities. The term 'sufficient stocks` was defined by means of a list published in the Ministerial Decision of 1965. The list has not been updated since 1965.

(45) Spanish law does not provide for any obligation to supply pharmacies.

- With regard to exports, Article 82 of the Law of 1990, confirming previous practice, provides explicitly for the right of pharmaceutical wholesalers to export.

(46) Producers are not subject to any statutory requirement regarding supplies to wholesalers or the supplying of the national market.

SECTION IV

Bayer France and Bayer Spain's continuous commercial relations with their wholesale customers

1. In France

(47) Bayer France has a continuous commercial relationship with the wholesalers, who regularly order ADALATE and other medicinal products from it in order to meet the demand emanating from the pharmacists which they have to supply. Direct supplies from the producer to pharmacies are rare and are not part of Bayer France's general marketing policy.

Pharmaceutical product wholesalers are therefore the natural customers of Bayer France, which, as a general rule, supplies them on request, except in specific cases.

Similar procedures apply for each of the three major wholesalers in France, OCP, CERP Rouen and CERP Lorraine (these three wholesalers accounting for at least 80 % of the market):

1.1. Start of commercial relations

(48) - Commercial relations between OCP and Bayer France date from the beginning of the century. Commercial relations were established as soon as the two companies were set up and have continued uninterrupted ever since. The distributing wholesaler is the natural prime customer of any producer of pharmaceutical products wishing to distribute them in France.

- CERP Rouen has provided similar information: commercial relations date back to the setting-up of CERP Rouen, in 1919. Since then, CERP Rouen has always been supplied by Bayer France.

- CERP Lorraine has provided similar information: commercial relations started when CERP Lorraine was set up in 1935, and they have continued uninterrupted ever since CERP Lorraine and Bayer France have existed in France.

1.2. Normal commercial relations

(49) - In the case of OCP, orders are normally placed by telephone. Bayer France sends the invoice after delivery. Settlement normally takes place within 90 days.

- In the case of CERP Rouen, orders are placed more or less weekly by electronic mail. The order is delivered by Bayer France generally within a few days, and delivery rarely takes more than a week. CERP Rouen draws up a receipt list on delivery, and this enables it to check the delivery. Bayer France sends the invoice after delivery.

- In the case of CERP Lorraine, the way in which orders are normally placed depends on their destination: orders for France are generated automatically by the 'chain of supply`, with the computer automatically placing orders in response to the level of stocks. Orders for export (Community and third countries) are irregular in pattern, since they depend on foreign customer demand, and CERP Lorraine cannot always assess foreign customers' requirements precisely in advance. Those orders are therefore placed separately from the orders for France. All normal orders are placed by fax or telephone, and in some cases by ordinary letter. Bayer France sends the invoice after delivery.

1.3. Invoices

(50) The invoices sent by Bayer France to its wholesale customers include clauses specifying the general conditions of sale. The bottom left-hand corner of the French invoice refers the customer clearly, in capital letters, to the notice on the reverse side of the invoice:

'See over for our general conditions of sale` 23

The general conditions of sale are neutral: they are the usual clauses included in a contract for the supply of goods.

1.4. Procedures in the event of supply problems

(51) Normal supply problems are generally settled by telephone. With regard to the particular problems involved in this case, all the wholesalers have made telephone calls of complaint, have (in rare cases) sent letters of complaint and, in certain cases, have actually placed their orders by registered letter in a (vain) attempt to get Bayer France to supply them. These aspects will be dealt with below in the detailed description of the disruptions in supply and the reasons for them, which are the subject of this Decision.

2. In Spain

(52) The situation is similar to that in France.

With regard to continuous commercial relations, contacts between pharmaceutical product wholesalers and Bayer Spain are regular and frequent. Orders are normally placed by telephone or electronic mail, and the invoices are sent after delivery.

On the Spanish invoice, the clause 'conditions of sale` 24 states that:

'Acceptance of the goods implies compliance with the following conditions of sale.` 25

There then follow the usual clauses contained in a contract for the supply of goods.

SECTION V

Obstacles to parallel exports of ADALAT to the United Kingdom

I. INTRA-GROUP CONDUCT WITHIN BAYER

1. Parallel exports: an ongoing problem for Bayer

1.1. A general concern for the past number of years

(53) A very large number of documents reflect the ongoing concern caused by parallel imports of ADALAT, particularly in the United Kingdom.

(54) For example, in 1988, an internal Bayer UK memorandum states:

'Parallel import brainstorm meeting.`

'The purpose of this PI brainstorming meeting was to explore ideas to combat the potential increase in the demand for foreign ADALAT (. . .).` 26

(55) In 1989, the same concern is apparent:

'Without doubt the main cause of the overall decline in sales for the period is the significant increase in the level of parallel imports of the ADALAT product range, in particular the 20 mg presentation of ADALAT RETARD. Parallel imports of ADALAT RETARD 20 mg now account for some 25 % of that product's sales in the UK.` 27

At the end of 1989, the ABPI (Association of the British Pharmaceutical Industry) decided to carry out a study to identify the level of parallel imports. The project was supported by all the major producers, and Bayer UK stated:

'We are trying to establish the true size of Parallel Imports (PIs) which "official" sources put at between £ 70-£ 300m. ADALAT is quite badly affected and it is in our interest to support the project.` 28

(56) In 1990, the Bayer UK reports identify the source of the problems:

'PH (PHARMA) (14) in spite of the continued erosion of ADALAT sales due to parallel imports performed very well (. . .).(14) PH (= Pharma): Pharmaceutical division of the company.` 29

'(. . .) PH still losing sales of ADALAT against parallel imports (. . .).` 30

(57) In 1991, subsequent reports indicate continuing parallel imports:

'(. . .) progress of ADALAT RETARD 20 mg in spite of parallel imports!` 31

(58) In 1992, the problem continued to be referred to in documents:

'The launch of ADALAT LA continues to do well and is rising every week (. . .) However there is considerable concern over the continued increase in parallel imports which is affecting our business badly.` 32

1.2. Studies and research into the problem of parallel exports

(59) Bayer set up bodies and structures to examine the problem and find solutions.

(60) In 1988, a 'PI Brainstorm Meeting` 33 was organized by Bayer UK. At the meeting, different ideas were put forward to combat the potential increase in the demand for 'foreign` ADALAT.

'The purpose of this PI brainstorming meeting was to explore ideas to combat the potential increase in the demand for foreign ADALAT. The ideas put forward at the meeting fell into four groups.

Promotional

Action which could be taken immediately to offer defence in the short term.

Supply PI company with UK stock

Cut UK price

Attend trade shows for local promotions

Request free AG stock to fund promotion

Adjust credit/invoice procedure to aid wholesalers

Provide free UK stock to hospitals

Increase direct dealing

Employ telesales techniques

Target problem areas and conduct intensive sell-ins

Increase discount to wholesalers by 0.34 % to eliminate the clawback rationale.

Marketing Orientated Activity

Medium-Term Defence

Run a cardiovascular awareness programme

Increase efforts to educate GPs

Promote product lines which are UK specific

Provide patient compliance packs

Vary UK pack sizes

Obtain unique batch numbers for the UK

Release a medical information deterrent

Stop promoting capsules

Delete ADALAT RETARD 20 mg for a period

Print Bayer UK on capsules

Run a national newspaper awareness campaign

Employ a speaker for wholesaler meetings

Become more involved with the Royal Pharmaceutical Society.

Legal Actions

Back retail chemist to challenge clawback

Prosecute all unlicensed users

Supply information to VAT, inland revenue, customs, etc., on customer accounts

Highlight illegal PIs

Corporate Action

Long-Term Defence

Hold discussion with DHSS

Restrict foreign supply

Bayer AG to allocate ADALAT stock against strict market forecasts

Cooperate with other manufacturers

Purchase a wholesaler

Do nothing.

Some of these ideas are obviously extreme but the purpose of the meeting was to explore as many different angles as possible.` 34

(61) In 1989, the 'EC 92` group met. The record of the meeting states:

'In general, all representatives of low-price countries referred to the risk of parallel imports from their countries.` 35

At that meeting, study groups placed under the responsibility of Bayer executives were set up. One of them was the group on 'Transfer prices, parallel imports and re-imports 36`.

(62) In 1990, the 'EC 92` study group met on numerous occasions:

'How can we gain control of "Euro-purchases" by wholesalers/hospitals?`

(. . .) 'the group made the following recommendations: (. . .) 3. Identify possible European wholesalers.` 37

(63) In 1991, the same group continued to put forward proposals:

'(. . .) For the time being, PH production will remain in Spain (. . .).

In addition, however, the future distribution strategy should be discussed, in particular with regard to possible cooperation with UK wholesalers.` 38

(64) In 1992, a 'wholesaler working group` met and reported that parallel imports were increasing and that measures such as the following should be envisaged:

'phased plan:

1. Make wholesale trade aware of direct supply as a reaction to imports (threat)

2. Regional** direct supply of pharmacies by wholesalers with fast-moving products

3. Stakes in national wholesalers ***

(> 75 %), in order to be present in substitution competition (poss. further development of wholesalers to carry partial product range)

*) No bonus for import returns

*) possible Awareness campaign for parties with similar interests on price level (e.g. ABDA, wholesale trade)

**) poss. alternative Cooperation with regional wholesalers, less than ideal because of danger of dependency

***) poss. alternative Set up new MPS wholesaler, but would take longer than purchase (2 years) and cost advantage questionable` 39

2. Full information system on parallel imports within the Bayer group

2.1. Continuous exchanges of information on parallel imports between the various Bayer companies

(65) Following the Hauptländertreffen in Travemünde (22 September 1991) at which major decisions were taken (see paragraph 76), Bayer UK sent all the low-price countries a circular:

'Dear Dr Acebillo,

ADALAT/Parallel Imports

I refer to our recent discussions at the "Top Country Meeting" and would like to send you updated figures regarding the quantities of parallel imported ADALAT to the UK. Please find enclosed.

1. Quantities of the different forms and packages sold in the UK in the twelve months to September 1991.

2. Countries of origin.

The source of these data is IMS (British Pharmaceutical Index) and Taylor Nelson Healthcare (Parallel Imports Monitor). However, both research companies provide us only with quantities and the respective package size. We associate the packs with the country of origin as follows:

1. ADALAT capsules 5 mg

16 190 packs - Belgium

4 282 packs - France

2. ADALAT capsules 10 mg

66 238 packs - Germany

55 691 packs - France

147 665 packs - Belgium/France

3. ADALAT RETARD 20 mg tablets

249 945 packs - Italy

1 005 042 packs - Greece/Spain

257 838 packs - Spain

I think we all agreed to discuss this matter in an objective way and to try our best to find and talk about facts instead of just assumptions. . . All parties concerned should cooperate closely in the fact finding. However, please advise your staff to work together rather than merely to defend their positions!

Thanking you for your co-operation.

Yours sincerely,

Klaus Behrend

cc Dr Kley - Region 2

David St George

Roger Cuff

Also sent to:

Dr G Pecci - Italy

Mr F Schönig - France

Dr K Bohle - Belgium

Mr A Zumbaum - Leverkusen` 40

All the persons receiving this letter are either general directors of the company or specialists in market studies and parallel imports. The handling of parallel imports is thus dealt with at the highest decision-making and responsibility level.

(66) The answers obtained and included in the file are the following:

The reply from Bayer Hellas states:

'(. . .) Contrary to your information on export volumes in Greece and Spain, we must inform you that in our opinion the quantities quoted are incorrect.

For your information, we plan to sell 1 220 000 packs in 1991. We assume that 850 000 of these packs will be used in Greece.` 41

This letter was copied to Bayer AG, Leverkusen (14).

The reply from Bayer Belgium states:

'We understand your questions.

However, the facts in Belgium are as follows:

(1) ADALAT capsules 5 mg:

Alleged exports to UK: 16 190 packs.

Alleged exports to Cyprus: some 30 000 packs, i.e. a total of some 46 000 packs.

This year (Jan-Nov), Bayer Belgium has sold 19 349 packs in Belgium.

Comment: to our knowledge, practically nothing has been exported.

(2) ADALAT capsules 10 mg:

147 665 Belgium/France?

We are at a loss to understand what Belgium/France means.

This year (Jan-Nov), Bayer Belgium has sold 760 817 packs.

Comment: exports of ADALAT capsules 10 mg in these quantities to UK are extremely unlikely.

Perhaps the goods involved are counterfeit? (. . .)` 42

This letter was copied to Leverkusen.

For France, the copy of the letter from Bayer UK is included in the file with the following handwritten annotations: 'Impossible` 43 (opposite the figure attributed to France for the 5 mg capsules) and 'Which one?` 44 (opposite the figure attributed to France/Belgium for the 10 mg capsules).

(67) Other documents show that Bayer UK made frequent enquiries to other subsidiaries. For example, in Ireland and Denmark:

'Please could you let me know the current situation re the nifedipine (Elan) as Germany have made another enquiry concerning this.` 45

A handwritten note states that the text was sent by telex to Leverkusen.

(68) 'Bayer Denmark inform us that they are keeping a very close eye on the possibility of any parallel imports. As it is such a small country with such a small turnover, it will become rapidly obvious.` 46

2.2. Centralization of information at Leverkusen

(69) The documents set out in paragraphs 65 to 68 show that all the information gathered between subsidiaries was invariably forwarded to Leverkusen.

For example, a memo sent by Bayer France to Leverkusen states:

'Subject: UK

Thank you for the statistics on parallel imports to the UK. The data are instructive.

It must be assumed that imports from France rose rapidly from the fourth quarter of 1989.

The situation highlighted by yourselves requires great caution with all customers.` 47

A memo sent by Bayer Netherlands to Leverkusen similarly states:

'Herewith we send you the information concerning sales and country of origin of the ADALAT parallel imports in the Netherlands.` 48

Similarly, the following memorandum sent to Leverkusen states:

'Report on visit by Bayer Italy on 18-19 March 1991.

(1) ADALAT (. . .)

1.3 Parallel imports of capsules appear to be continuing. Estimate of 100 000 to 150 000 packs in 1990.` 49

There are numerous documents through which the statistics on parallel imports were transmitted regularly to Leverkusen.

2.3. Other means of obtaining information on parallel imports

(a) Instruments external to Bayer

(70) Bayer also drew on external instruments measuring parallel imports to enhance its knowledge of the market, as is indicated by this report drawn up by an external consultant commissioned by Bayer to carry out a study on parallel imports:

'Project Outline

There has been concern over the reliability of a range of industry data sources to measure certain parameters. This project is concerned with the comparison of data relating to parallel imports and generics available from a range of those industry sources, namely:

British Pharmaceutical Index (B.P.I) - I.M.S. (16)

Medical Data Index (M.D.I.) - I.M.S.

Scriptcount - Taylor Nelson

Parallel Import Monitor - Taylor Nelson

D.H.S.S. data

The comparison has been carried out through the examination of data for five products, namely (. . .), ADALAT, (. . .).

Table: Comparison of parallel import data from Parallel Import Monitor and B.P.I.

(. . .)(16) IMS = Intercontinental Medical Statistics.` 50

(71) Bayer UK regularly receives the updated documents of the Parallel Import Monitor (Taylor Nelson). These give details of all the information available on certain products, including ADALAT, broken down by month, by product (every product in the ADALAT range), by country, distribution network (pharmacies, hospitals) and importer.

Bayer AG and all its subsidiaries subscribe to IMS, either direct or to one of its national branches, or else to a national group providing the same type of data.

Comparison of all the external data together with the information provided by the subsidiaries allows Bayer AG's 'market research` department to be fully and continuously informed of parallel imports.

(b) Computerized preparation of the annual Bayer budget

(72) An internal Bayer AG document indicates that, for the purposes of the group's annual budget exercise, all the subsidiaries are linked to a centralized computerized system for drawing up the annual budget in the health sector. The document sets out the instructions for providing the data on diskette. The system is divided into 'GARTs` (type of operation) as follows:

[. . .] 51

This data breakdown makes it possible rapidly to identify sales on the domestic market and other sales. It is in general use, notably in the documents of Bayer France (and not only in the budget documents).

(73) The 'Important planning advice` 52 includes the following instruction:

[. . .] 53

ADALAT and a few other major Bayer products are thus entered in the system under a special code. The figures are not aggregated as in the case of the figures included in the GARTs. Under the specific code, they are broken down for each product in the ADALAT range.

The instructions state that Leverkusen must be informed immediately in the event of any discrepancy between the figures deriving from different internal computerized instruments used for planning purposes.

The system also comprises a specific entry 'Commentary on planning` 54, which itself comprises a separate chapter for [. . .] products [. . .] 55.

The computerized system enabling Bayer to draw up its budget thus includes the necessary entries for covering the needs of each national market in respect of each strategic product.

However, Bayer did not confine itself to keeping itself informed of the trend of national requirements and the level of parallel imports by endowing itself with the appropriate instruments for this purpose. It also established an actual strategy for preventing or at least curbing them and took formal decisions for this purpose.

3. Formal decisions within the group intended to reduce parallel exports to the United Kingdom

(74) The senior managers of all the subsidiaries meet at regular intervals at Hauptländertreffen or 'Top Country Meetings`. At the meetings, the managers have informal discussions. Written documents on the results of these important meetings are rarely available.

(75) Records in the form of summary tables setting out the comments made and results obtained are drawn up after the meetings. These documents are neutral, particularly that on the Travemünde meeting.

(76) However, one of the senior managers of Bayer Spain drew up a report on the Travemünde meeting for his own purposes, a report in which he notes the various decisions taken during the meeting. Point 19 of this record, entitled 'Comments on the "Hauptländertreffen" in Travemünde (23/9/1991)` 56 states:

'Activities to reduce parallel imports to the UK as much as possible will continue. The situation in Spain is stable, despite the fact that it is the country with the lowest price for ADALAT RETARD and ADALAT capsules.` 57

(77) In 1992, the record of the Hauptländertreffen at San Felice, which took place from 27 to 29 April 1992, included the following comments:

'Political aspects and parallel imports are important for strategy in Europe. However, the availability of ADALAT CC makes it possible to introduce the one-per-day formula for ADALAT into all European countries, which means we can protect high-price markets at the same time.` 58

II. PRACTICAL IMPLEMENTATION OF THE INTRA-GROUP STRATEGY IN FRANCE AND IN SPAIN

1. France

1.1. Bayer France's identification of exporting customers

(78) The Director of the Sens production centre regularly sends by mail to the Director of Bayer France lists setting out the names of customers and the amount of their orders from Bayer France. On many documents, large orders of ADALATE are highlighted by marker pen.

(79) One document surveys six customers in 1990 and 1991, indicating for each month the quantities ordered and the increase (highlighted) in their amount compared to the GERS (15) statistics for the same period.

(80) These data are supplemented by the information circulating within the group, which are intended to 'facilitate monitoring`, as the following document (1 October 1990) states:

'Subject: UK

Thank you for the statistics on parallel imports to the UK. The data are instructive.

It must be assumed that imports from France rose rapidly from the fourth quarter of 1989.

The situation highlighted by yourselves requires great caution with all customers.

On the other hand we can assure you that we have not deliberately encouraged this and have never tried to conduct our business to the detriment of another market: that would be completely unacceptable for us.

(. . .) We would ask you to keep us informed of further developments in parallel imports to the UK, providing details of lot numbers etc. so as to facilitate monitoring.

We enclose several graphs summarizing our sales.` 59

(81) A record of the Bayer France management committee meeting held on 5 February 1992 reports the following instruction:

'Given the increasing importance of parallel exports in our Gart 1 turnover (France), and in order better to define our sales potential, Invoicing will notify Control every month of the quantities likely to be exported by our main customers.` 60

The instruction is given by the management committee - that is, at the highest decision-making and responsibility level within Bayer France.

(82) A memo from the Director of the Sens centre to the Director of Bayer France states:

'As agreed, I enclose the table of sales for ADALATE 20 mg LP, which summarizes sales whose final destination is probably not metropolitan France.` 61

1.2. Halting of supplies to customers who have been detected

(83) A number of documents in the file show that Bayer France discontinues supplies to identified wholesalers. On 20 October 1991, the Director of the Sens centre stated in an internal memo to the Director-General of Bayer France:

'Supplies of ADALATE 20 mg LP to CERP Rouen.

(. . .) Since the end of September we have not been supplying CERP Boulogne, and we owe them 40 000 packs. (. . .) At present we have blocked a total of 11 orders (7 wholesalers), or 137 000 packs.` 62

(84) Some documents refer to 'quota restrictions` imposed on ADALATE, witness the following document (17 February 1992):

Letter from CERP Rouen (Boulogne agency) to Bayer France:

'(. . .) Boulogne has not received its order for 3 200 packs dated 10 February.

The reply given by your purchasing department was that the product (ADALATE LP) should not exceed a quota of 2 000 packs per month and any additional order should be addressed in writing direct to you.` 63

Bayer France's reply:

'(. . .) We can supply some 5 000 - 6 000 packs of ADALATE 20 mg LP every month for our exceptional orders without necessarily disturbing our supplies to pharmacists through distributing wholesalers.

(. . .) Of course, the quantity of 5 000 - 6 000 packs in question concerns all exceptional orders. If we supply Boulogne, we do not supply St Etienne du Rouvray and vice-versa.` 64

(85) Handwritten notes found in the files of the Director of the Sens centre indicate the sales situation, regularly listing customers and their orders. The notes include the following comments:

'I have blocked 2 000/3 000 packs to CERP Hérouville`

'I have blocked 2 000/4 400 packs to CERP St Lô`

'do not deliver`

'blocked`. 65

1.3. Bayer France's official argument: depletion of stocks

(86) The Commission has in its possession documents claiming that the reason for the supply difficulties was that Bayer was out of stock. In the case of CERP Lorraine, Bayer France was able, from June to September 1991, to supply on average 67 300 packets of ADALATE 20 mg a month. The previous year, in 1990, Bayer France had supplied only 8 900 packets in July and 2 800 packets in August, in line with the orders placed at that time by CERP Lorraine. If Bayer France really based its production forecasts on the orders supplied the previous year, it would not have been able to keep pace with such a considerable increase in demand over a period of four months in 1991.

(87) From October 1991, CERP Lorraine continued to order the same quantities as in previous months, but Bayer France's supplies began to fall very sharply, as the following table shows:

'>TABLE>

` 66It may be noted that the drastic decrease in supplies corresponds to the date of the decision taken at the Hauptländertreffen at Travemünde.

In February 1992, CERP Lorraine began to place its orders by registered letter. Bayer France replied as follows:

'(. . .) You point out that we supplied you with 75 000 packs/month from June to September 1991 and you seem to be saying that we are now going to supply you with only 5 000 packs.

We never said that. At our meeting in Sens on 17 January 1992, we said that, in order to avoid running out of stock on the French market, we would give priority to orders for hospitals and pharmacies.

On the other hand, other orders would be supplied if we were able. To our knowledge we have abided by that rule.` 67

The letter goes on to cite the purchases made each month by CERP Lorraine the previous year so as to demonstrate that CERP Lorraine's monthly requirements (on average) were 9 000 packets a month. It was for this reason, Bayer France claims, that it was not able to keep pace with increased demand the following year.

The Commission would point out that, for four months, Bayer France was able to keep up with demand without any apparent problem, then was suddenly no longer able to do so. Its production structures were evidently able to adapt very rapidly during this four-month period. Despite the rapid increase in orders, the delivery period remained two weeks.

As from February 1992, Bayer France's supplies were cut to 5 000 packets a month to cover CERP's first order placed in February (50 000 packets), and to 2 500 packets a month to cover CERP's second order placed in February (50 000 packets).

Lastly, it may be noted that the very wording of the letter makes it clear that Bayer France wished to supply the product to the French market alone.

(88) The other two French wholesalers, OCP and CERP Rouen found themselves in the same situation as CERP Lorraine. They confirmed this point during the investigations carried out on their premises in their oral replies to questions put by the Commission inspectors.

1.4. Wholesalers' reaction to Bayer France's conduct

(89) Prior to Bayer France's change in conduct, the wholesalers, in placing their orders, used to state expressly that they were intended for export. Bayer France was thus perfectly aware of the final destination of the products supplied.

The final destination was often specified on the actual order itself. This was simpler for the wholesalers, for whom French demand is fairly steady and can be managed more or less automatically on the basis of the level of the wholesaler's available stocks, whereas foreign demand is more irregular.

When Bayer France cut its supplies claiming that it had production problems and inadequate stocks, the wholesalers reacted in two stages, as described below.

(a) Planning arrangements proposed to Bayer France

(90) After having attempted in vain to obtain supplies and to complain by telephone, this being the usual commercial practice in the sector, the wholesalers had the idea of proposing to Bayer France forecasts of their future requirements so as to enable it to make arrangements to produce sufficient quantities. On 20 November 1991, CERP Rouen sent the director of the Sens production centre the following letter:

'(. . .) I enclose a monthly schedule for orders of ADALATE LP 20 mg.

Since there is still no slippage in supplies to France, and since ADALATE is one of the best-sellers in Europe, we are absolutely convinced that you will have no trouble in supplying the quantities ordered.

In addition to our purchasing schedule, we request 45 000 ADALATE LP 20 mg per month to be supplied to our agency in Boulogne sur Mer (this does not include 15 000 packs ordered by Boulogne on 11 October 1991, which have still not arrived).

With a schedule, the argument concerning difficulties in supply will be difficult to justify much longer.` 68

The amount ordered in this letter is, given its level, intended for export. Domestic orders are at very much lower levels. Furthermore, within CERP Rouen's internal organization, the Boulogne agency specializes in exports to the United Kingdom. By requesting that the order be supplied direct to the Boulogne agency, CERP Rouen explicitly and deliberately made clear the destination of the product ordered.

Bayer France did not respond in any way to this letter. The orders were not supplied, as may be seen from Bayer France's subsequent invoices and the CERP Rouen documents intended to confirm that the invoices matched the products received. On these invoices, the quantity ordered by CERP Rouen is given under the heading 'quantity invoiced` 69. This shows the large amounts of ADALATE 20 mg ordered by the wholesaler and intended for export. Under the heading 'unit price invoiced` 70 Bayer France entered the comment 'resubmit order` 71. This means that in practice CERP Rouen was not supplied. Very quickly, CERP Rouen abandoned this method, which did not enable it to meet demand from its British customers.

(91) OCP reacted in the same manner at the beginning of 1992 by announcing its projected order of 50 000 packets for March, April and May 1992. Here again, Bayer France did not respond to these planned orders. Supplies continued well below the wholesaler's request, as may be seen from the following telex sent by OCP to Bayer France on 6 May 1992:

'To date we have had no further supplies of ADALATE LP CP BT 30 for our export orders for monthly dispatch.

Your last deliveries were:

15 000 ADALATE CP BT 30, invoice No 701893 dated 10. 2. 1992.

5 000 ADALATE CP BT 30, invoice No 701993 dated 4. 3. 1992.

We have had no product for two months. Our customers are complaining. Our quotation committed us to price and quantity. At present there is an increase in demand. We must increase our schedule to 80 000 packs/month. (. . .)` 72

Bayer France did not respond to this request. It should be noted that OCP explicitly states that the order is for export. Bayer France was therefore fully aware of the destination and of the amounts requested for export.

(92) CERP Lorraine did not use the planning method. It resorted to placing orders by registered letter, which marks a sharp break with the normal, very flexible practice of ordering by telephone or ordinary letter.

(93) Very rapidly, within a few weeks, at the end of 1991, the three French wholesalers realized that their efforts to obtain supplies for export under normal conditions were in vain. They then decided to take appropriate action.

(b) Wholesalers' realization of Bayer France's real objective

(94) All the wholesalers asked Bayer France for explanations. This is reflected in internal documents drawn up by Bayer France, such as this memo sent by the Director of the Sens centre to the Director-General of Bayer France on 20 October 1991:

'VERY IMPORTANT

Confidential

I had a telephone conversation with (. . .) CERP Rouen concerning deliveries of ADALATE 20 mg LP.

CERP Rouen is our third largest customer with turnover of FF (. . .) million at 30 September 1991.

(. . .) Since the end of September we have not been supplying CERP Boulogne, and we owe them 40 000 packs.

CERP Boulogne thinks that it is deliberate Bayer policy to prevent the growth of parallel imports because it has noticed that Bayer has the same attitude in Belgium and Spain.

The Belgian and Spanish markets are small markets but the French market is sizeable. (. . .) I explained (. . .) that we had very low stocks and that our main concern was to supply the French market. CERP Boulogne asked whether I took them for fools, etc. (. . .)` 73

(95) On 17 January 1992, the Export Director of CERP Lorraine went to see the Director of the Sens centre. During the investigation carried out at CERP Lorraine, he gave the following account of the meeting:

'I met Mr Giraldi in Sens on 17 January 1992 to discuss problems obtaining ADALATE LP 20 mg. I asked him why, after supplying us with an average of 65 000 packs per month between April and September 1991, it was now impossible to obtain these quantities. He replied that he had received strict instructions from Bayer general management to stop parallel exports, that the instructions would never be in writing and that officially they would blame it on problems in obtaining raw materials.` 74

(c) Action taken by the wholesalers in an attempt to obtain supplies

(i) General description

(96) The three wholesalers adopted the same method: they stopped placing orders for export and made arrangements to increase the orders which were officially intended for the French market.

Bayer France accepts as normal an increase or decrease of 10 % in domestic requirements. The wholesalers have a number of local agencies situated throughout France which normally provide supplies at local level.

The domestic orders placed by each of the agencies increased, with no indication being given to Bayer France of their destination. The aim was to induce Bayer France to believe that domestic demand had increased, by spreading it over the different agencies. The amounts which were in fact intended for export were then rechannelled within each wholesaler's organization so that they could be exported.

(ii) CERP Rouen

(97) The first document illustrating this approach was the following letter sent by the CERP Rouen central purchasing department to the agency directors on 18 October 1991:

'ADALATE LP

Following our telephone conversation today, we have noted that you were sending the following quantities to Boulogne:

>TABLE>

We have asked Boulogne to send you an order form.

Thank you for your cooperation.` 75

Boulogne is the CERP Rouen agency specializing in exports to the United Kingdom. The purchasing department was thus asking the other agencies to send it a part of the orders (intended for the French market) which they had received so that Boulogne could meet British demand.

(98) Subsequent documents become increasingly explicit.

A letter sent by the CERP Rouen central purchasing department to the agency directors on 25 October 1991 makes the following request:

'URGENT

To help the Boulogne agency meet 20 000 ADALATE LP 20 mg, code PHON:TE 360, please issue the following order:

>TABLE>

As soon as the order is received, please forward to Boulogne.

Thank you for your cooperation and your discretion.` 76

(99) On 27 November 1991, the central purchasing department sent the same type of letter to the agencies.

But the system did not work for long: the order for 20 000 packs divided up among the agencies and placed by the letter of 27 November was not supplied by Bayer France. The wholesaler was then no longer able simply to increase its agency orders, dividing them up in such a way as to meet actual demand: it had to place orders intended for the French market alone, orders which Bayer France could plausibly believe were for the French market alone.

The following type of document then appeared in the letters sent by the CERP Rouen central purchasing department to the agencies:

'ADALATE LP

The order for ADALATE LP that we asked you to place (see memo dated 27 November 1991) has not been received by any agency. We believe that you will not receive it. Bayer is very reluctant to supply exceptional orders.

Accordingly, for the next three orders:

>TABLE>

Include one third of the quantity ordered with each of your weekly orders (consistent with size). As soon as the order is received, please forward the product to Boulogne.

Thank you - absolutely no telephone orders` 77

This request not to place any orders by telephone shows that the situation is abnormal. The usual practice (see paragraph 49) is for orders to be placed simply by telephone. This aspect may also be compared with the letter cited below (paragraph 115) regarding the approach adopted by Comercial Genové in Spain ('I am trying to present a watertight case against the labs` 78).

CERP Rouen was supplied with 7 000 packets (one third of the 20 000 required).

(100) CERP Rouen accordingly regularly sent this type of letter to its agencies.

The following CERP Rouen document of 27 January 1992 explains the arrangement:

'Central purchasing department Agency directors

ADALATE LP - code TE 360 -

We need 50 000 ADALATE LP for the Boulogne agency for February 1992.

With the next orders:

>TABLE>

You should add one third of the quantity shown below to each of your weekly orders (consistent with size). As soon as the order is received, please forward the goods to Boulogne.

Thank you for your cooperation.

Central purchasing department

>TABLE>

` 79(101) The following letter similarly illustrates this approach:

'ADALATE LP - code TE 360

The Boulogne agency needs to build a stock of 8 000 to 9 000 ADALATE LP per week.

Please try to build this stock by adding the quantities set out below to your requirements.

However, in view of the monthly quotas allocated by Bayer to prevent us (illegally) from exporting, send to Boulogne only if your monthly requirements are met.

(. . .)` 80

CERP Rouen sent the same type of letter to its agencies throughout 1992.

(iii) CERP Lorraine

(102) CERP Lorraine made use of the same tactic, as its managers explained orally during the investigation carried out on its premises. This is confirmed by the following extract from an internal CERP Lorraine report:

'(. . .) Although I do not see a favourable solution in the short term concerning supplies from Bayer (we have managed to obtain minimal quantities of product through the agencies), I think that the budget should be attainable at the end of the financial year.` 81

(iv) OCP

(103) OCP used the same system, as its managers explained orally during the investigation.

1.5. Results

(104) The wholesalers managed to obtain small quantities of supplies which did not cover their requirements. The method of dividing the orders up between local agencies did not allow real demand to be met. In addition, it entailed additional costs by way of handling, management and transport. The wholesalers' customers finally became disheartened, and demand from the United Kingdom dried up.

(105) The following document, headed 'Export situation on 30. 6. 1992`, shows, by way of example, the losses suffered by CERP Lorraine because of Bayer France's obstructive conduct:

'Half-way through the financial year, the export situation in terms of turnover is behind the draft budget as it stands.

budgeted turnover (. . .)

actual turnover (. . .), i.e. (. . .) (-5.06 %)

This difference is explained principally (not to say exclusively) by the difficulties in obtaining supplies experienced since the start of January with Bayer laboratories, which are blocking supplies of ADALATE LP 20 mg (see my January memo following my interview with Mr Giraldi at Bayer in Sens).

Our minimum monthly requirements are (. . .) packs, i.e. (. . .) packs over the last six months, but we were supplied with 10 000 packs in January and 7 500 packs/month since February, a total of 55 000, representing a difference of (. . .) packs. These (. . .) packs account for a loss of (. . .) (unmet orders).

This also means that, despite these difficulties, we have succeeded in offsetting part of this difference since we are only FF (. . .) million behind target and not FF (. . .) million. Thus, although I do not see a favourable solution in the short term concerning supplies from Bayer (we have managed to obtain minimal quantities of product through the agencies), I think that the budget should be attainable at the end of the financial year.` 82

(106) CERP Rouen's demand amounted to up to 50 000 packets a month at the beginning of 1992. CERP Rouen was able to supply only 7 000 packets to meet this demand, by increasing its orders for France (see paragraph 99).

(107) OCP's demand went as high as 80 000 packets a month. OCP received minimal supplies. The fax cited in paragraph 91 shows that OCP was supplied with 15 000 packets in February 1992 (to meet demand of 50 000 packets) and 5 000 packets in March (to meet demand of 50 000 packets). The following document provides an example of the losses suffered by OCP:

'(. . .) We would remind you that we are losing monthly turnover of FF (. . .) million and potential customers. (. . .).` 83

(108) The situation was similar in Spain. The following documents, while describing what happened in Spain, also throw useful light on the situation in France.

2. Spain

2.1. Bayer Spain's identification of exporting customers

(109) The Commission found, on Bayer France's premises, a Bayer Spain document containing a full description of the system used by Bayer Spain to identify those of its customers who were exporting. The document reports that a Bayer Spain manager came to Bayer France to give an information talk on the subject: 'Distribution Control System (Spain).` 84

The transparencies used during the presentation begin by outlining the problem:

'The Problem

- ADALAT order volume grows in a few weeks up to 300 %

- out of stocks

- uniform distribution all over the country is not guaranteed

- dissatisfaction of wholesalers/internal and external sales organization: pharmacists

- disturbed production rhythm due to urgencies in ADALAT.` 85

This is followed by an outline of the way in which Bayer Spain intends to resolve the problem:

'>START OF GRAPHIC>

>END OF GRAPHIC>

` 86

Certain aspects of the system are identified as being particularly important:

'Very Important

- Discuss (no written information) assigned limits with concerned wholesalers . avoid legal problems

- Weekly shipment in order to avoid accumulation of product at wholesalers warehouse . export for small quantities not interesting

- Distribution Dept. (at low level) gives always the same information . out of stocks due to strong increase of sales

- Inform own sales organization

- Determine responsible person for direct contact (calls and visits) from wholesalers

Wholesalers, reps, reg, and sales managers and also pharmacies will call continuously for reviewing established limits.` 87

The transparencies show how the system works in practice:

'>START OF GRAPHIC>

>END OF GRAPHIC>

` 88

At the end of the presentation, examples were given to show specifically how customers' orders were assessed and treated:

'>TABLE>

Relation of Spanish Wholesalers with External Capital Participation

- Hermandad Fca. del Mediterráneo (HEFAME) - Poland [sic]

- HUFASA - Sevilla (CERP)

- Genové - Barcelona (CERP)

- Centro Europeo de Reparto - Palma Mallorca (CERP)

- Centro Europeo de Reparto - Barcelona (CERP)

- Sisenz Gurb-Vic (CERP)

- Unión Fca. Guipuzcoana - San Sebastián (OCP)

- Centro Fco. Del Norte - Santander (OCP)

- Centro Fco. Asturiano - Oviedo (OCP)

Other Exporters

- Coop. Fca. Española (COFARES) - Madrid

- SAFA - Zaragoza

- Galenica - Barcelona

- Grupo J.J. (Farmacén, Olmeda y Vinuesa, Sefarma, Dimafar y S. Ortíz)

- Hermandad Fca. Del Mediterráneo - Murcia

- Centro Coop. Farmacéutica - Valencia

- Compañía Fca. Madrileña - Madrid

- Centro Fco. Nacional, S.A. - Madrid` 89

2.2. Halting of supplies to customers who have been detected

(110) The following document (4 April 1989) shows that Bayer Spain has for a long time been stopping supplies to exporting wholesalers identified as such:

'PARALLEL EXPORTS OF ADALAT 50 AND ADALAT RETARD

- It was agreed to restrict as far as possible sales to the four exporting wholesalers identified so far.

- The programme of sales in P3 will rise to:

200 000/month for ADALAT 50 capsules

130 000/month for ADALAT RETARD 60

- It was agreed to create a special stock (for accounting purposes the Felguera warehouse) of 50 000 units of both specialties, maintaining the usual theoretical stock at four and six weeks respectively.

The special stock will be updated monthly by order to the factory (P3).

- Distribution will report any anomaly that may arise with regard to amounts ordered.` 90

This letter was signed by the manager who gave the information talk in France on the system of controlling distribution in Spain (see paragraph 109 above). It was transmitted to Leverkusen.

(111) A memorandum (also signed by the same manager) stated in 1991:

'Amendment to CLI 208 print-out

Monitoring of ADALAT sales

About two months ago a verbal request was made to change the daily print-out since at the start of the month it still accumulates quantities from the previous month.

On various occasions this inaccurate information has led to discussions with wholesale customers who, not surprisingly, could not confirm our data.

There is no need to stress the importance of accurate information for sound management of this very complex issue concerning customers and PH Germany.

I would ask you to take the necessary measures to correct the program immediately.` 912.3. Wholesalers' reaction to Bayer Spain's obstructive behaviour

(a) Wholesalers' realization of Bayer Spain's real objective

(112) The wholesalers knew that Bayer Spain wanted to prevent parallel exports. The case of the four wholesalers examined below is revealing: the French CERP Rouen group's Spanish subsidiaries Comercial Genové, Hufasa and Disdasa (about 4 % of the market), Safa, Galenica and DFM (grouped together within SAFA, about 6,5 % of the market), Hermandad Farmacéutica del Mediterraneo (Hefame, about 6 % of the market) and Cofares (the largest wholesaler in Spain with 20,6 % of the market). These wholesalers together account for about 40 % of the Spanish market and are the major wholesalers on that market, which is otherwise extremely dispersed (some 200 wholesalers in Spain, most of whom operate on a purely local and very restricted market).

(i) Comercial Genové, Hufasa and Disdasa (Spanish subsidiaries of the CERP Rouen group)

(113) As early as the first half of 1989, Comercial Genové stated in its management report:

'Exports have fallen (. . . millions), due mainly to the restrictions imposed by (. . .) and Bayer on the supply of ADALAT RETARD and (. . .)` 92

The management reports for the following years consistently give the same information. These reports will be quoted below in the assessment of the results (paragraph 132) achieved by Bayer Spain.

(114) Comercial Genové is in permanent contact with the other firms in which CERP Rouen has holdings, for example Hufasa. Hufasa had a meeting with the Bayer Spain management in an attempt to obtain supplies. An internal record was drawn up of the meeting, which took place at the end of 1989:

'Following the latest conversation with Bayer management, they stated that they could not accept the quantities requested by HUFASA because they accounted for 50 % of the domestic market and were much higher than those of other firms in the same area (. . .). This led them to believe that a substantial proportion of the product was intended for export (. . .).` 93

A subsequent passage in the record shows that Hufasa negotiated hard in order to obtain larger quantities of supplies, arguing that there was a high level of domestic demand. This passage will be quoted below (paragraph 127) in the examination of the systems established by the wholesalers in order to obtain supplies despite Bayer Spain's obstructive attitude.

(115) Numerous documents exchanged between Comercial Genové and CERP Rouen, its parent company in France, show that Bayer Spain's motives were perfectly clearly recognized:

'Every week I want a copy of the order forms for ADALATE and (. . .) sent to the laboratories and the delivery notes corresponding to those orders.

I am trying to present a watertight case against the labs (. . .)` 94

'With regard to your FAX today concerning (. . .) and Bayer laboratories, I give you my word that I am doing my utmost to obtain supplies greater than our requirements.

The laboratories are refusing to listen to any arguments. They know that the quantities they supply to us are easily enough to cover the needs of the Spanish market. (. . .)` 95

'>TABLE>

(. . .)

The above table shows the worrying situation of incoming product over the last three months. For ADALAT, I know that the new contact at Bayer is not making things any easier but Disdasa and Genové have not received anything since the beginning of June. (. . .).` 96

(116) The following documents show that the supplies did not take place:

'Purchases for export to the UK

Since my memo of 13 August 1990, we should have observed goods going to Didasa, Genové and Hufasa towards the 20th.

In fact, we have the following situation:

>TABLE>

(. . .)

N.B.: Since the last date shown, we have not been informed of any further delivery.` 97

'Purchases for export to the UK

Even though the problems with Bayer remain the same, that is not the case for (. . .) (. . .) For the record, here are the quantities of ADALAT supplied in September and October.` 98 (The quantities are then given, either zero or minimal, by subsidiary).

'I am tired of hearing the same old story as soon as we send a new order to Spain.

Apart from oranges and strawberries, I wonder what Spain is capable of exporting. . .` 99

(117) Lastly, the following letter:

'Thank you for drawing up the list of laboratories that said "impossible to export", i.e. all the problem suppliers.

urgent` 100

The reply was as follows:

'As you know, the only laboratory that told us that it was not possible to export is (. . .). As for the others, when we ask for too small a quantity for our market or despite the fact that the product is selling very well in Spain, they understand that if the order is higher than our normal requirements, it will be for export. The problem laboratories are:

Bayer

(. . .)

On the other hand, (. . .) gives us everything we ask for.` 101

(118) Comercial Genové sometimes tried to explain to its customers the reasons why it was unable to supply them:

'(. . .) Due to difficulties in deliveries from these laboratories, we have been waiting until now in order to see whether we could get more quantities of such products.

However, the situation today is as follows:

we cannot accept any new order for ADALAT nor (. . .).` 102

'(. . .) Unfortunately, we cannot supply you both products, because the manufacturers are controlling our orders.

Bayer and (. . .) do not want that their Spanish products appear in other countries, so they do not supply as much we need. We have only stock for our market.` 103

'(. . .) I am sorry to say that it will be impossible to supply you the mentioned products. The manufacturers are delivering only small quantities of ADALAT, (. . .) as well as (. . .).` 104

(ii) Galenica

(119) During the investigation carried out on Galenica's premises, the Commission obtained documents showing that the company was aware of Bayer's motives:

'We are very concerned that trading with your company is becoming more and more difficult due to your inability to supply our requirements for ADALAT RETARD.

Could you please explain to us why you are unable to fulfil our orders.` 105

Galenica's reply to its customer was as follows:

'I (. . .) apologize for being unable to supply to your company your orders of ADALAT RETARD.

The reason is that the laboratory that produces it (Bayer) does not deliver to us the quantities we order because they want to avoid any kind of export of this product and then, they deliver only the quantity they estimate we need for the internal market.` 106

(iii) Hefame

(120) Hefame tried to explain the situation to dissatisfied customers in the United Kingdom. The most explicit of such documents state the following:

'In this moment in Spain we have a very big problem about ADALAT, (. . .) because Bayer and (. . .) not send goods for us (. . .).` 107

'I'm sorry for your fax. But it is realy in Spain in this moment all the parallel export we have a problem about ADALAT 10 mg, RETARD 40, RETARD 60 and also (. . .).

In this moment, the situation is:

About the ADALAT is very complicate the prevision

(. . .) Also I have ready for you 1 000 x 50 ADALAT 10 mg

I understand you are not happy about this news but in one year all are change and the parallel-export is to big and the multinational-control.` 108

'Bayer & (. . .): impediment of free trade

For quite some time now we have been experiencing serious difficulties in obtaining sufficient quantities of ADELAT RETARD, (. . .) and (. . .) from Spain.

I admit that our second supplier is having a hard time too.

It would appear that, once more, Bayer and (. . .) are doing their utmost to keep availability of their products strictly in line with their presumed needs for Spain, therefore impeding free trade within the EC.

Is there any way in which you can take any action against these companies? If you cannot guarantee that, within the foreseeable future, you can obtain sufficient quantities to meet our requirements I am afraid that we will have to start buying in Italy or France.` 109

(iv) Cofares

(121) During the investigation carried out on its premises, Cofares made the following statement:

'- COFARES' export activity accounts for a very small proportion of its total invoicing because of the difficulties posed by certain laboratories (including Bayer) to orders for export.

- When Bayer set an ADALAT quota for COFARES that was initially clearly insufficient to cover the requirements of its domestic market, in his capacity as a Director of COMPRAS he warned them of a possible complaint because of such restrictions. Since then, Bayer has supplied COFARES with sufficient quantities to meet national consumption of the product in question.` 110

It is evident from this statement that Cofares complied with Bayer Spain's requirement that it confine itself to its domestic market.

b. Action taken by the wholesalers in an attempt to obtain supplies

(i) Hefame

(122) Hefame made supply arrangements by concluding agreements with other small wholesalers and with pharmacists to pass on to it the ADALAT which they had been able to obtain for their orders officially intended for Spain. These small wholesalers, with strictly local markets, are not amongst the wholesalers monitored by Bayer Spain. The purpose of this system was to enable Hefame to obtain ADALAT for export. One of the documents in the file is an agreement concluded between Hefame and a small wholesaler which stipulates:

'COOPERATION AGREEMENT FOR EXTERNAL MARKETS

(. . .) THREE: That, in spite of the above, "HEFAME", at the request of its own foreign customers and given its interest in opening up and penetrating new markets, plans to obtain, for export, new products or larger quantities of the products already available to it.

FOUR: That, in addition, (. . .) is ready to provide HEFAME's Export Department with new products or additional quantities of existing products that could, to a great extent, satisfy the needs of HEFAME's foreign customers and, at the same time, would make it easier for HEFAME to move into new markets and win new customers.

(. . .)

AGREEMENTS

(. . .)

III. The first element of cooperation is that (. . .) agrees to support, by supplying products or quantities of the products that it may have available, in addition to those provided by HEFAME, to facilitate the normal supply of HEFAME's foreign customers with the necessary quantities.

In order to facilitate the agreement with (. . .), HEFAME shall be required to notify (. . .) rapidly, and with sufficient notice, of its product requirements in terms of quantity, to meet its supplies to those customers and, at the same time, (. . .) will meet those needs, as quickly as possible, from its available stock, to make up the losses of which it is informed.

IV. (. . .)

V. (. . .)

VI. (. . .)

If an order includes products that are difficult to obtain (e.g. ADALAT) and ones that are easy to obtain, HEFAME's Export Department undertakes to ask (. . .) and to include in the export order the quantity of those hypothetical products in identical proportion to those provided by (. . .) of the products that are difficult to obtain under Section IV of this agreement (. . .).` 111

(123) The same type of agreement was concluded with a small wholesaler which was operating on a strictly local market and which was therefore not one of the firms monitored by Bayer Spain.

'Cooperation between the two companies in export trade began, within the same framework as the agreement between HEFAME and (. . .).` 112 (wholesaler referred to in paragraph 122).

(124) The Commission has in its possession a number of letters showing that the agreement was in operation: orders placed by Hefame with the small wholesaler, the arrangements for delivery, and faxes indicating the quantities requested, sometimes in the following form:

'(. . .) Our order is as follows: all the ADALAT RETARD that you can supply (. . .).` 113

Lastly, the Commission has in its possession documents showing orders placed by Hefame with other small wholesalers through which HEFAME managed to acquire small quantities of ADALAT.

Shortly after the introduction of these cooperative arrangements between HEFAME and other wholesalers, Bayer Spain identified (see paragraph 109, computerized system for identifying exporting wholesalers) these other wholesalers who were receiving abnormally large quantities for their 'normal` requirements on the Spanish market, began to monitor them and supplied them only with amounts to cover their requirements on the local market.

(ii) Comercial Genové, Hufasa and Disdasa

(125) As stated above, Comercial Genové is a Spanish subsidiary of the French group CERP Rouen. CERP Rouen's case was described in detail in paragraphs 97 to 101.

(126) Documents were found on the premises of Comercial Genové showing that CERP Rouen used its Spanish subsidiaries, Comercial Genové, Hufasa and Disdasa, to meet British demand. CERP Rouen thus acted as an international group and made use of all its scope both in France and in Spain for obtaining supplies of the necessary quantities for its British customers. Under this system, the Spanish subsidiaries were used in the same way as the French regional agencies: they were asked to make a plausible increase in their orders for the Spanish market, and the amounts thus obtained were supplied to British customers on behalf of CERP Rouen. The following letter from CERP Rouen to those responsible for purchasing in the three subsidiaries confirms this arrangement, which was described by the Comercial Genové management during the investigation:

'EXPORT

The holidays are finally over and I hope that we will get back to normal deliveries of our three "problem products": can you take up the original schedule and try to obtain these quantities. I am refusing all other customers since I prefer not to increase the number of unhappy clients.

We need the following product through GENOVE, HUFASA and DISDASA:

100 000 ADALAT RETARD 60 or 40 pack

(. . .)

EVERY MONTH to satisfy our two main customers: (. . .).

I am asking (. . .), after having discussed the problem with (. . .) and (. . .), to send me purchasing forecasts for DISDASA and GENOVE and to (. . .) for the HUFASA agencies. Let us try to improve things by taking advantage of the post-holiday period.` 114

The purpose of this document is clear in the context of the system used in France for spreading orders: the arrangements are similar, Disdasa and Genové are small, Hufasa, which is more powerful, spreads its orders over its various agencies.

(127) It is apparent from a record of a meeting between Hufasa and Bayer Spain that Hufasa pressed hard to get Bayer Spain to accept that domestic requirements were high and that they had to be met. Hufasa thus completely accepted Bayer Spain's arguments, namely that it had to concentrate on domestic sales. However, the record is explicit: the pressure put on Bayer Spain on the basis of domestic-market arguments was merely a means used by Hufasa to obtain the amounts intended for export:

'Following the latest conversation with Bayer management, they stated that they could not accept the quantities requested by HUFASA because they accounted for 50 % of the domestic market and were much higher than those of other firms in the same area (. . .). This led them to believe that a substantial proportion of the product was intended for export (. . .).

Faced with these statements, I pointed out that HUFASA needed substantial quantities of ADALAT because:

- They based their figures for HUFASA on the 1988 financial year, during which there had been a marked reduction in purchases due to the crisis within the company.

- Since they supply quantities below real needs, orders had to rise so that a stock could be built up since that had been impossible to date because of the small quantities delivered, and this had forced us to try to make up the losses in orders.

- At the moment, not only have we recovered the market but we are also above our 1987 level, a year which can be regarded as normal for HUFASA.

In the light of these arguments and a very firm position with Bayer, they agreed to supply us more ADALAT RETARD in quantities similar to those of (. . .), although they could not provide us with everything that we were asking for because of lack of raw materials from Germany.

The quantities we asked for were:

>TABLE>

Bayer agreed to supply the ADALAT, although they did not commit themselves to these figures, which they regarded as very high. I asked for these quantities by taking account of the information given by (. . .) and increasing them by 30 %.

After commenting to (. . .) that Bayer would do their best to supply substantial quantities of ADALAT without reaching the quantities requested, I asked (. . .) to slightly reduce the quantities requested from Bayer since they did not take account of what we were ordering or that we had reached an agreement with Bayer to maintain higher supplies of ADALAT, it was better not to submit figures that would not be accepted as possible for Hufasa and which revealed our interest in exporting significant amounts. That is why I took the view that it was more important to obtain a quantity of ADALAT for export with very plausible figures rather than to maintain a very high level of orders which would not be supplied. The important thing was actual receipts rather than the order. That is no doubt why (. . .) orders less than forecast.` 115

(128) The following letter from CERP Rouen to its Spanish subsidiaries deals with the same concern: pressure must be put on Bayer Spain.

'GOODS FOR EXPORT

I know that we have reached a difficult period, but product is now arriving in lower quantities than ever before, and it does not seem to me that we are increasing pressure on laboratories for an improvement.

The situation has been deteriorating since the beginning of March. I would be grateful to managers if they would make personal contact with the laboratories (. . . Bayer and . . .) and keep me directly informed. The (. . .) laboratories cannot have all run out of stock at the same time.

I regret having to intervene once again but we need the sales volume.` 116

(129) The following documents confirm the efforts made:

'With regard to your fax today concerning (. . .) and Bayer laboratories, I give you my word that I am doing my utmost to obtain supplies greater than our requirements.

The laboratories are refusing to listen to any arguments. They know that the quantities they supply to us are easily enough to cover the needs of the Spanish market. (. . .)` 117

In the letter quoted above (paragraph 117) which listed the laboratories obstructing parallel trade, the end of the letter shows that Commercial Genové was trying all the same to obtain supplies, using the system of increasing Spanish demand in a way that was plausible for Bayer Spain and receiving, though without specifying how, the goods from DISDASA, another subsidiary of the same group (this arrangement was explained in paragraphs 97 to 101 above with regard to CERP Rouen):

'(..) if we want a product that sells well on our market, we could order it along with the usual orders, but if it is rare, we will not be able to hide it.

On the other hand, DISDASA gives us product.` 118

(iii) Galenica

(130) Galenica also confirmed orally to the Commission inspectors that it had had difficulties in obtaining supplies. Furthermore, 'Summaries of "difficult" products` 119 were found during the investigation carried out on its premises. These summaries take the following form:

'>TABLE>

` 120

Given the context and the practices of the other wholesalers already examined in detail, this document shows that Galenica's orders were spread over the group's three companies in order to obtain a reasonable quantity of the product.

(iv) Cofares

(131) In its replies to the Commission inspectors' questions during the investigation carried out on its premises, Cofares stated that it preferred to concentrate on the home market, given the pressure exerted by Bayer Spain (see paragraph 121 above).

2.4. Results

(a) Comercial Genové

(132) The Comercial Genové management report for the first half of 1989 states:

'(. . .) Exports have fallen by (. . . millions), due mainly to the restrictions imposed by (. . .) and Bayer on the supply of ADALAT RETARD and (. . .).

There has been a greater imbalance in exports since forecast turnover was PTA (. . .) million, and actual turnover PTA (. . .) million because of the supply problems referred to above` 121

The Comercial Genové report for 1990 states:

'With regard to exports, it is becoming increasingly difficult to get product to cover existing demand, which means that this figure was lower than last year. Consequently, the sales effort was made essentially in the domestic market.` 122

The Comercial Genové management report for 1991 states:

'The domestic market has developed satisfactorily, with growth of 25.2 %, while the export market has experienced greater difficulties (-25.8 %) because of the problems continuously created by the laboratories with regard to supplying products for export.` 123

(133) A number of documents in the file also show that Comercial Genové refused orders from British customers, for example the following letter:

'We are sorry not to be able to accept any further order for ADALAT, ADALAT RETARD, (. . .), as long as the situation is not being cleared in Spain (. . .).` 124

(134) Similarly, the invoices obtained during the investigation show that supplies were few and far between and difficult to obtain.

(b) Galenica

(135) During the investigation, monthly summaries of 'difficult` products were obtained for the period February 1991 to August 1993. The summaries show that supplies of ADALAT were minimal (a few hundred packets a month, often nothing at all).

(c) Hefame

(136) The HEFAME management stated, in reply to Commission officials' questions during the investigation, that supplies of ADALAT were cut back drastically from 1989.

(d) Cofares

(137) At the request of the Commission officials, COFARES provided a summary table of its export sales since 1989, which remained at a minimal level:

'>TABLE>

` 125COFARES accepted the regime imposed by Bayer Spain and confined itself strictly to the Spanish domestic market.

3. United Kingdom: identification of the source of parallel imports to the United Kingdom

(138) A Bayer UK internal memorandum dated 26 July 1990 states:

'Further to our recent discussions regarding the country of origin of ADALAT parallel imports and the price differentials across Europe, I have looked at and attach the following: -

1. ADALAT price comparison across Europe (source: Bayer Leverkusen/ Marketing Information).

2. IMS Data (BPI April 1990).

3. Taylor Nelson parallel Imports Monitor - country of origin data (graphs).

I have used the pricing information to compare pack size prices with the equivalent UK price in order to identify the most likely source for each and the relative price differentials. I have also indicated the IMS ADALAT PI data for the 12 months ending April 1990 in order to see which parallel imported pack sizes are most commonly found in the UK.

Analysis of the data showed the following:

ADALAT RETARD 20

30 tablet packs formed the largest proportion of ADALAT RETARD PI during the 12 months to April 1990. The cheapest sources appear to be France and Greece.

The 60 tablet packs appear only to be available in Spain and at a far cheaper price (i.e. an index figure of 66). These packs accounted for £ 2.4 million (NHS prices) during the period concerned.

This largely reflects the country of origin trends shown by the Taylor Nelson data (see graph). France and Italy account for a regular if fluctuating supply of parallel imports with Spain picking up considerably during 1989, presumably accounting for all the 60 tablet packs.

ADALAT 5 mg

ADALAT 5 mg parallel imports only account for a very small proportion of the total. The 50 mg pack size is the most likely to appear and is cheapest in Portugal and Belgium.

ADALAT 10 mg

Most 10 mg parallel imports were available in 50 tablet packs during the 12 months to April 1990. The cheapest European countries for this pack are currently Spain and Portugal with Italy and Belgium also below the equivalent UK price.

30 packs are also parallel imported and are significantly cheaper in France.

The Taylor Nelson data largely mirrors this picture with Spain again gaining ground during 1989.

It must be noted of course that parallel import trends are always likely to be fluctuating ones with exchange rates playing a vital role. It is also clear that pack sizes in stock may vary over time.

I hope the above information is of interest.` 126

(139) Many other documents give the same type of information:

'(. . .) The level of PI's now stands at 35.34 % (this figure is calculated with ADALAT RETARD 10 excluded).

(. . .)Total ADALAT PI's from this source (Scriptcount PI monitor) currently stand at 51.13 %. However, this data does not take account of Boots and is therefore an indication of the trend only.

Belgium remains the top country of origin for ADALAT 10 mg (30 %), followed by Italy (28 %) and Spain (21 %). Whilst for ADALAT RETARD 20 the largest number of PI's came from Greece (43 %), followed by France (19 %) and Italy and Spain (10 % each).` 127

(140) A letter sent by Bayer UK to Bayer AG (Region 2) on 27 June 1991 states:

'Please find enclosed patient information leaflets and empty packs of ADALAT RETARD which were discovered at the premises of the UK parallel importer(. . .). According to our source, some 8,000 leaflets relating to Spanish ADALAT RETARD were seen. According to Dr Ebsworth, Spain has managed to control the majority of its product, and hence the batch numbers on the 3 boxes might provide lead to the Spanish wholesalers who are exporting to the UK. Please keep me informed of any developments.` 128

(141) A memorandum dated 5 May 1992 states:

'Subject: PARALLEL IMPORTS

Further to your request, please find attached the parallel imports data by country of origin since January 91.

Both France and Greece are still taking the lion's share with no signs of easing off.` 129

4. Results

4.1. Complaints from wholesalers not receiving supplies

(142) On 2 February 1990, Bayer Spain faxed to Leverkusen the following letter from the wholesaler Hefame.

'I am very surprised that, even in the new year, delivery of ADALAT in all its pharmaceutical forms has not returned to its normal pattern.

I would be very happy if you could notify us in writing of the reasons for the constantly low stocks and undersupply of the market for the product in question so that we can explain the situation to the Spanish health authorities if necessary.

Our firm Hefame, with its twelve branches covering almost half of Spain, is certainly of such importance to you that you should cover these delivery shortfalls as soon as possible.

I hope that you will take all of this into account in future and that you will return to a normal rate of delivery.` 130

(143) An internal memorandum drawn up by Bayer Spain on 21 May 1990 makes it clear that Cofares, the largest Spanish wholesaler, was requesting an explanation for the limited supplies it was receiving:

'Notes for the discussion with Cofares on the question of "reductions in supplies of ADALAT and ADALAT RETARD".

From the first quarter of 1989, demand for ADALAT and ADALAT RETARD was greater than the requirements of the Spanish market, and orders were p