Notice pursuant to Article 19(3) of Chapter II of Protocol 4 to the Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice concerning case no. COM 020.0129 - LIS

(1999/C 330/08)

A. The Notification

On 6 February 1996 the EFTA Surveillance Authority received an application for negative clearance pursuant to Article 2 and a notification for an individual exemption pursuant to Article 4 of Chapter II of Protocol 4 to the Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice (SAC-A) concerning the cooperation between 17 Norwegian counties in the organisation Legemiddel Innkjøp Samarbeid (LIS) for joint purchasing of medicines for use in county hospitals.

A complaint was received on 29 September 1995, in which the complainant, Legemiddelindustriforeningen (LMI), the Norwegian Association of Pharmaceutical Manufactures, alleged that the activities of LIS constitute an infringement of Articles 53(1) and 54 of the EEA Agreement.

B. The Parties

The notifying parties are the 16 Norwegian counties which were the founding members of LIS. The number of members has during the proceedings been increased to 18. The members are:

Østfold fylkeskommune

Akershus fylkeskommune

Hedmark fylkeskommune

Oppland fylkeskommune

Buskerud fylkeskommune

Vestfold fylkeskommune

Telemark fylkeskommune

Aust-Agder fylkeskommune

Vest-Agder fylkeskommune

Rogaland fylkeskommune

Hordaland fylkeskommune

Møre og Romsdal fylkeskommune

Nord-Trøndelag fylkeskommune

Nordland fylkeskommune

Troms fylkeskommune

Finnmark fylkeskommune

Sør-Trøndelag fylkeskommune

Rikshospitalet

There are only two counties which are not members of LIS, Sogn og Fjordane fylkeskommune and Oslo fylkeskommune.

C. Nature of the cooperation

Pursuant to the LIS Statutes the purpose of LIS is to establish a basis for agreements concerning purchasing and delivery of pharmaceutical products on the instructions of counties and public hospitals, and thus to reduce costs for these products.

LIS has since 1995 published common tenders on behalf of its members for the purchase of purchase of pharmaceuticals to be used in county hospitals.

LIS tenders are planned and carried out in the following manner. The LIS administration prepares the draft tender documentation on the basis of an initial discussion between LIS members on the general framework for a LIS tender. Thereafter the draft tender documentation is sent to teh members for comments. Individual members may freely decide which pharmaceutical substances they would like LIS to invite tenders for. This is specifically laid down in the States as amended on 23 August 1996. Any additional proposals from the members are included in the tender documentation before the tender is published by LIS on behalf of its members. LIS prepares a list for the members of the offers received and most often makes a recommendation of what it considers to be the best offers. Members are not obliged to follow these recommendations.

The individual members then decide whether or not they want to enter into framework contracts with any of the supplies. A standard framework contract is established by LIS. Members are free to choose whether or not to enter into such contracts and the products the contract would cover, but when they are concluded, members are prohibited from entering into individual contracts with other suppliers for the same or substitutable products, with three exceptions. Firstly, individual contracts for the same or substitutable products may be entered into in individual cases when there are medical reasons therefor, secondly, for testing of new products and research, and thirdly, if a product within a certain substance is prepared in various forms, e.g. liquid and tablets. The duration of the framework contracts is generally one year.

The complainant alleges that the establishment and the operation of LIS infringe Article 53(1) of the EEA Agreement. Several reasons are given for this. Firstly, it is alleged that the LIS cooperation leads to a coordination of trading conditions between the members, which hold a significant share of the market concerned. Secondly, it is alleged that the LIS cooperation prohibits LIS members from participating in competing joint purchasing organisations, and from entering into individual purchase agreements if LIS has invited or will invite tenders for the products in quesition, thereby creating an exclusive purchasing obligation for the members. Thirdly, it is alleged that the minimum membership period of three years laid down in the LIS Statutes, and the obligation to pay the annual membership fee during this period, even if members choose not to take part in LIS tenders, has the same effect as an exclusivity provision.

The LIS Statutes as notified contained a clause according to which members were not allowed to participate in other forms of joint purchasing cooperation with respect to the same products and users as those convered by LIS. This clause was, after discussions with the Authority, removed with effect from 23 August 1996.

Furthermore, the Statutes as notified prohibited members from entering into agreements which were in competition with tenders which LIS had invited or planned to invite, and obliged members who wished to invite tenders separately to clarify this with LIS beforehand. Following discussions with the Authority these clauses were modified with effect from 23 August 1996. The amended Statutes specifically state that LIS members may enter into individual purchasing agreements outside the LIS cooperation, provided that the products concerned are not already the subject of framework purchasing contracts with suppliers under LIS tenders. Moreover, members who wish to invite tenders separately are merely obliged to inform LIS well in advance, at the latest when the drafting of LIS tenders are being finalised.

LIS claims that the members are free to decide whether or not to take part in a LIS tender. Even if they take part in a tender, they are completely free to choose whether or not to enter into purchasing framework contracts and for which products and with which suppliers such contracts would be concluded.

LIS also publishes common tenders on behalf of its members for the distribution of pharmaceuticals bought by way of LIS. A tender is published uopon proposal from the members, and a list of the offers received is made by LIS for the members. A recommendation of what LIS considers the best offer is given. In the tender invitation it is stated that the members intend to choose a common distributor, but that the members are nevertheless free in their choice. Each member then enters into af framework distribution agreement with the distributor of his choice, and the agreement is exclusive. The framework agreement is established by LIS for use by members, and its duration is generally two and a half years with an option for the members to prolong it with one year. All LIS members have in fact chosen Norsk Medisinaldepot (NMD) as their distributor.

The complainant argues that an exclusive distribution agreement entered into between LIS members and the wholesaler NMD on distribution restricts the manufactures and importers with regard to the choice of the distribution of their products as they will be forced to distribute their products through NMD in order to deliver medicinal products to LIS members. It is held that this de facto removes one level of competition between manufacturers and wholesalers with regard to sales to hospitals in counties which are LIS members.

LIS claims that the members are free to decide which distributor they wish to enter into framework contracts with and that they are not bound to choose one and the same distributor.

The complainant also gives various reasons for why the LIS cooperation is an infringement of Article 54 of the EEA Agreement. It is held that LIS has a dominant position on the market for all pharmaceutical products bought by hospitals for use in hospitals. Furthermore, an abuse is said to exist firstly in that LIS extracts unfairly low prices. Secondly, an abuse is held to exist in that unfair trading conditions are imposed because the tender documentation does not indicate the quantity of total purchase or the quantities of any individual contracts, and that suppliers are obliged to submit offers at prices free delivered wholesaler. A third basis for the alleged abuse is that LIS excluded two products from the invitation to LIS tender 9501 which were substitutes to products covered by the tender. Fourthly, the obligatory payment of the annual membership fee for three years is held to be an abuse.

The LIS members claim that there is no dominant position and no abuse. It is held that the cooperation has increased competition between suppliers and reduced the barriers to entry to the market in particular for smaller producers and parallell importers. Furthermore, it is held that estimates of total purchase quantity are given in the tender invitations and that this is in accordance with normal business practice and sufficient for the suppliers to calculate their offers. In addition, it is submitted that suppliers are under no obligation to submit offers at prices free delivered wholesaler.

D. The Market

The cooperation in question concerns purchasing of pharmaceuticals only used in hospitals and of pharmaceuticals both used in hospitals and sold by pharmacies. In addition, it concerns the market for wholesale/distribution of pharmaceuticals. The geographical market is Norway.

LIS has provided information on its market shares based on figures excluding Rikshospitalet, which became a member on 1 January 1999. According to this information LIS has a share of the total market for pharmaceuticals in Norway of some 11 %. In the market for pharmaceuticals only used in hospitals its share is approximately 66 %. In the market for pharmaceuticals both used in hospitals and sold by pharmacies LIS' market share is estimated to some 5 %. All market shares have increased as a consequence of Rikshospitalet joining LIS. However, it is assumed that the effects of these increments will not be significant.

In the market for wholesale/distribution of pharmaceuticals LIS has an estimated market share of 11 %.

E. The Intentions of the EFTA Surveillance Authority

The EFTA Surveillance Authority intends to take a favourable position with regard to the LIS cooperation. Before doing so, it invites interested third parties to send their comments within one month from the date of publication of this notice in the EEA section of, and the EEA supplement to the Official Journal of the European Communities, to the following address, quoting reference COM 020.0129 - LIS: EFTA Surveillance Authority

Competition and State Aid Directorate

Rue de Trèves/Trierstraat 74 B - 1040 Brussels