Commission Decision of 8 May 2001 relating to a proceeding pursuant to Article 81 of the EC Treaty Cases: IV/36.957/F3 Glaxo Wellcome (notification), IV/36.997/F3 Aseprofar and Fedifar (complaint), IV/37.121/F3 Spain Pharma (complaint), IV/37.138/F3 BAI (complaint), IV/37.380/F3 EAEPC (complaint) (notified under document number C (2001) 1202) (Text with EEA relevance.)
Date: 2001-05-08
Institutions: European Commission
Subjects: Spain, pharmaceutical industry, trade regulations

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 8 May 2001

relating to a proceeding pursuant to Article 81 of the EC Treaty

Cases: IV/36.957/F3 Glaxo Wellcome (notification), IV/36.997/F3 Aseprofar and Fedifar (com-
plaint), IV/37.121/F3 Spain Pharma (complaint), IV/37.138/F3 BAI (complaint), IV/37.380/F3
EAEPC (complaint)

(notified under document number C (2001) 1202)

(Only the English text is authentic)

(Text with EEA relevance)

(2001/791/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

WHEREAS:

Having regard to the Treaty establishing the European Com-
munity,

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 Regulation (EC) No 1216/
1999 (2), in particular Articles 3 and 6 thereof,

(1)

Having regard to the Commission of 13 July 1999 to initiate
proceedings in this case,

Having given the undertaking concerned the opportunity to
make known its views on the objections raised by the
Commission pursuant to Article 19(1) of Regulation No 17
and Article 2 of Commission Regulation (EC) No 2842/98 of
22 December 1998 on the hearing of parties in certain
proceedings under Articles 85 and 86 of the EC Treaty (3),

After consulting the Advisory Committee on Restrictive Prac-
tices and Dominant Positions,

(1) OJ 13, 21.2.1962, p. 204/62.
(2) OJ L 148, 15.6.1999, p. 5.
(3) OJ L 354, 30.12.1998, p. 18.

I.

FACTS

A.

INTRODUCTION

This decision concerns the compatibility with Article 81
the EC Treaty (4) of Glaxo Wellcome SA’s sales
of
conditions regarding pharmaceutical products supplied
to Spanish wholesalers. Pursuant to clause 4 of these
sales conditions, Glaxo Wellcome SA operates a distinc-
tion between, on the one hand, the prices charged to
wholesalers reselling its products to Spanish pharmacies
or hospitals for (reimbursable) end-use in Spain and, on
the other hand, prices charged to wholesalers exporting
the products. The latter prices are higher than those
applied in case of domestic resales.

B.

PROCEDURE

(2) On 6 March 1998, Glaxo Wellcome SA (hereinafter
‘GW SA’) notified new sales conditions (hereinafter the
‘new sales conditions’) with a view to obtaining a
negative clearance pursuant to Article 2 of Regulation

(4) In the text of this decision, references to ‘Article 81 of the Treaty’
refer to the EC Treaty. This Article was formerly known as
Article 85.

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No 17 or, alternatively, an exemption pursuant
to
Article 4 of Regulation No 17. On 30 June 1998, GW
SA informed the Commission of slight modifications
concerning in particular the calculation of the export
price for older products. It also provided the Com-
mission with a new list of ‘Spanish’ prices valid as of
29 June 1998. On 28 July 1998, GW SA’s parent
company, Glaxo Wellcome plc (hereinafter GW plc)
transmitted a supplementary notification drawing the
Commission’s attention ‘to factors that are not specific
to Glaxo Wellcome’s business in Spain, but that affect
the business of Glaxo Wellcome and its subsidiaries
throughout the EU’.

(4) On 10 September 1998, the Commission sent GW plc a
warning letter pointing out that the new sales conditions
the Treaty. On
appeared to infringe Article 81 of
29 September 1998, GW plc submitted a memorandum
entitled ‘Response of GW plc to the legal arguments
in the Commission’s letter of 10 September 1998’
(hereinafter referred to as:
‘GW memorandum’). Sub-
sequently, it submitted two economic studies analysing
the effects of parallel imports entitled ‘GW’s Spanish
pricing system: the need for a new approach to parallel
imports’ (hereinafter referred to as: ‘London Economics
study’) and ‘The adverse effects of parallel imports on
consumer welfare’ (hereinafter referred to as: ‘Prof. Rey
study I’).

(3)

Subsequently, a number of wholesalers and wholesaler
associations lodged complaints with the Commission
pursuant
to Article 3(2) of Regulation No 17. All
complaints argue that GW SA’s sales conditions infringe
Article 81 of the Treaty, while some of them add that
these conditions also violate Article 82 of the Treaty.
Complaints were received from the following undertak-
ings or associations of undertakings:

(a) Aseprofar (‘Associacio´ n de Exportadores Espan˜ oles
de Productos Farmacéuticos’) which is a Spanish
professional organisation consisting of five phar-
maceutical wholesalers: Centro Farmacéutico Astu-
riano SA, Unyexport Medicamentos SA, Euroserv
SA, Galénica SA Farmacéutica Aragonesa and Cen-
tro Farmacéutico Nacional SA. Aseprofar’s objec-
tive is the defence of
freedom of exportation
and interstate circulation of pharmaceutical goods,
pursuant to the rules of the European Union (5).
The total turnover of the five wholesalers for 1997
was around EUR 1,35 billion (ESP 225 billion).
Another Spanish professional organisation com-
prising two associations each of eight wholesalers
called Fedifar (‘Federacio´ n Nacional de Asociaciones
de Mayoristas Distribuidores de Especialidades Far-
macéuticas y Productos Parafarmacéuticos’) inter-
vened to support Aseprofar’s complaint;

(b)

Spain Pharma SA, an individual Spanish wholesaler
of pharmaceutical products. In 1997 it achieved a
turnover of EUR 10,8 million (ESP 1,8 billion),
three quarters of which is derived from exports to
other Member States;

(c) Bundesvervand der Arzneimittel-Importeure (BAI),
an association of German importers of pharmaceut-
ical products;

(d)

European Association of Euro Pharmaceutical
Companies (EAEPC) representing the interests of
national associations of importers and exporters of
pharmaceutical products located in Germany (BAI),
Spain (Aseprofar), United Kingdom, Denmark, the
Netherlands, Norway and Sweden.

(5) Article 2 of the statutes of Aseprofar (free translation into English).

(5) On 13 July 1999, the Commission adopted a statement
of objections to which GW plc replied on 15 November
1999 (hereinafter referred to as: ‘the reply to the SO’).
The reply to the SO contained another study on
pharmaceutical pricing (hereinafter referred to as: ‘Fron-
tier Economic study I’).

(6)

GW was given the opportunity to make known its views
in an oral hearing which took place on 8 and 9 December
1999. The complaints Aseprofar, Spain Pharma and
EAEPC participated in the hearing. The European Feder-
Industries and Associations
ation of Pharmaceutical
(EFPIA) also participated in support of GW plc.

(7) On 22 December 1999, the Commission sent a formal
request for information to GW plc concerning a number
of issues discussed at the oral hearing. GW plc replied
on 14 February 2000. A week later, it also submitted its
comments regarding two studies submitted by Aseprofar
regarding ‘The effects of parallel
imports on social
welfare’ undertaken by Professors Corcho´ n and Marı´n
(hereinafter referred to as:
‘Prof. Corchon and Marin
study’). GW plc’s comments on these studies are em-
bodied in two more studies: one produced by Frontier
‘Frontier Eco-
Economics (hereinafter referred to as:
nomics study II’) and another one prepared by Professor
Rey (hereinafter referred to as: ‘Prof. Rey study II’).

(8)

EAEPC submitted a written version of its intervention at
the oral hearing as well as documentation entitled
‘Parallel trade of pharmaceutical’ on which GW plc
commented on 23 February 2000.

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C.

PARTIES TO GW NEW SALES CONDITIONS FOR SPAIN

1. GLAXO WELLCOME SA

(9)

As stated above (recital 2), GW SA is the Spanish
subsidiary of GW plc. Its main activity is the creation
and discovery, development, manufacture and marketing
of medicines in Spain. The company operates directly as
well as through its subsidiaries Wellcome Farmacéuticas
SA, Allen Farmacéutica SA and Duncan Farmacéutica
SA with which it forms an economic unit. Total turnover
was EUR 306 million in 1996 (ESP 50,9 billion).

in 33 countries

(10) GW SA forms part of the Glaxo Wellcome group which
is a major global player manufacturing pharmaceutical
and selling them in
products
57 countries. In 1996, GW plc had a turnover of GBP
7,9 billion (EUR 11,2 billion). In 2000, GW plc merged
with the pharmaceutical company Smithkline Beecham
to form the new entity GlaxoSmithkline plc. The merger
was cleared by the Commission on 8 May 2000 (6).

(11)

In section3.1 of its supplementary notification, GW plc
specified that ‘because Glaxo Wellcome has effective
ownership and control of Glaxo Wellcome SA, the two
firms constitute a single undertaking for purposes of
Community law’. It emerges from section 1.1 of that
notification that ‘Glaxo Wellcome’ refers to Glaxo Well-
come plc. The present Decision will refer to Glaxo
Wellcome (GW) as designating the entire group, except
where it is necessary to make a specific reference to
either GW SA or GW plc.

2.

SPANISH WHOLESALERS

(12) The other parties are the Spanish wholesalers who
subscribed to the new sales conditions. Over a hundred
pharmaceutical wholesalers are active in Spain. GW SA
transmitted its new sales conditions to 89 wholesalers (7).
In total, 75 wholesalers, whose sales represent over 90 %
of all GW SA sales in Spain (8), accepted these conditions.
They include GW SA’s five main clients: Cofares, Regula-
dora de Compras del Mediterra´neo, Cecofar, Saga Galé-

(6) Commission decision in Case IV/M.1846 — Glaxo Wellcome

Smithkline (OJ C 170, 20.6.2000, p. 6).

(7) For a full list: see Annex to the original notification, Document
No 1ter [82, 91 to 101]. Note: page numbers in brackets [] refer
to a page in Commission file IV/36.957. Reference to the
complaints files are indicated with case number and page number.
(8) Response by GW of 6 May 1998 to information request of

15 April 1998, Annex 4 [678 to 687].

nica and Federacio´ Farmacéutica. Safa Galenica raised a
reservation concerning the legality of the new sales
conditions, whereas Federacio´ Farmacéutica stated that
they would not be able to comply with the obligation of
Clause 1B(c) of the new sales conditions according to
which they would have to specify whether the products
can be funded by social security or other public funds.
Another wholesaler which subscribed to the sales con-
ditions, but does not belong to GW SA’s five main
clients (Cofaran), also expressed doubts about the legality
of these conditions (9).

D.

PRODUCTS CONCERNED

(13) GW SA points out that the new sales conditions apply
in total to 82 pharmaceutical products. In its reply
to the SO, GW specifies that all these products are
prescription drugs. For a complete list of these products,
see Annex 1 to this Decision. The total number takes
account of the fact that several drugs are sold in different
dosages and packages forms (for example, Lamictal
25 mg/56 tablets, 50 mg/56 tablets, 100 mg/56 tablets
and 200 mg/30 tablets) and/or that some drugs are
administered in different ways (for example Ventolin
inhalable or injectable).

(14) The relevant pharmaceutical products cover a variety of
different fields, for example, drugs functioning in the
respiratory system (bronchodilators/A-Asthma, nasal
preparations and antihistamines), drugs used for the
treatment of infections, preparations for nausea and
immunomodulating
ulcers, dermatological products,
agents, anti-malaria drugs, hormonal preparations, car-
diac drugs, preparations for the central nervous system
or musculo-skeletal system, otologicals and products for
herpes and migraine.

(15)

In its supplementary notification of 28 July 1998, GW
plc submitted a list of eight products which it considers
to be the prime candidates for parallel trade between
Spain and the United Kingdom: Becotide, Beconase,
Becloforte, Flixotide, Imigran, Lamictal, Serevent and
Ventolin (10). This number (eight) does not take account
of the fact that these drugs are sold in different dosages
and package forms or are administered in different ways.
Their total number is 15 if this fact is taken into account.

(9) Response by GW of 6 May 1998, p. 8 and Annex 5 [642/689 to

706].

(10) Supplementary notification by GW of 28 July 1998, annex 12

[910, 911].

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(16)

In its response of 14 December 1998 to a formal
request for information, GW plc provided market shares
between June 1996 and June 1998 in all Member States
for the 82 products covered by the new sales conditions.
GW plc calculated these market shares on the basis
of data collected by the medical research company
International Medical Statistics (IMS). The data relate to
classes of drugs belonging either to the second or the
third level of the ‘Anatomical therapeutic classification’
(ATC) drawn up by EphMRA (European Pharmaceutical
Marketing Research Association). The ATC classification
groups the pharmaceutical specialities into therapeutical
classes. The second ATC level corresponds to thera-
peutical main groups whereas the third ATC level reflects
therapeutical/pharmacological subgroups.

(17) The table in Annex 2 has been drawn up by the
Commission. It focuses on six Member States and shows
GW’s market shares valid as at June 1998. Where the
table does not give a market share, the product is not
marketed or data are not available. Specific Spanish
brand names are added between brackets. Figures reflect
sales values expressed in GBP at constant exchange rates.

B.

(18)

It emerges from that table that GW’s market shares for
the eight products which it considers to be the prime
candidates for parallel trade are substantial. Becotide,
Becloforte, Flixotide, Serevent and Ventolin all belong to
the second level R3 class bronchodilators/A-Asthma.
For this class of drugs, GW holds a Community-wide
share of [...] (*) % with a peak in the United Kingdom of
[...] %. Its UK share for Beconase (which is part of the
third level R1A class) amounts to [...] %. Lamictal (which
is part of the second level N3 anti-epileptics class) gives
GW a Community-wide share of [...] % and a UK share
of [...] %. Finally, Imigran yields shares of [...] % in the
Community and up to [...] % in the United Kingdom.

E. GW SALES CONDITIONS FOR SPAIN: CONTENTS AND
ENFORCEMENT

1. CLAUSE 4 OF THE NEW SALES CONDITIONS

(19) The notified new sales conditions entered into force on
9 March 1998. Clause 4 deals with the prices charged
by GW for its pharmaceutical specialities to its whole-
salers (the ‘industrial price’) and reads as follows.

of 20 December 1990 concerning medicine, the
price of pharmaceutical products of GW SA and its
in no event, exceed
subsidiary companies shall,
the maximum industrial price, established by the
Spanish health authorities when the two factors
which allow for the application of the said legal
rules are present, namely:

— that the aforementioned pharmaceutical prod-
ucts are financed by the funds of the Spanish
social security or by Spanish public funds,

— that the acquired pharmaceutical products are
subsequently marketed at a national level i.e.
through pharmacies or Spanish hospitals.

In the absence of one of these two factors (i.e. in all
case where Spanish law gives full freedom to the
laboratories to set the prices of their pharmaceutical
products themselves), GW SA and its subsidiaries
will fix the price of their pharmaceutical products
according to real, objective and non-discriminatory
economic criteria and completely irrespective of
the destination of the product determined by the
purchasing warehouse. In particular, GW SA and
its subsidiary companies will apply to their pharma-
ceutical products the price which, on the basis of
their internal economic surveys, had been initially
proposed to the Spanish health authorities and
objectively updates taking account of the increase
living in accordance with the
in the cost of
provisions of subsections 1 (first paragraph) and 2
of Article 100 of law 25/1990 of 20 December
1990 concerning medicine, and other prior Spanish
legislation concerning setting of prices of medi-
cines.’

(20)

It follows from the terms of Clause 4A (in particular its
second indent) that GW SA offers the Clause 4A price
only to the Spanish wholesalers on the condition that
they resell the drugs to an end-use destination (pharmacy
or hospital) located in Spain. Hence, Clause 4A prevents
Spanish wholesalers who export the drugs outside Spain
from purchasing these drugs at this price. In the case of
export, they have to pay the higher price provided for in
Clause 4B (see Table 2).

‘A.

Pursuant to the provisions of subsections 1 (first
paragraph) and 2 of Article 100 of Law 25/1990

(21)

(*) Parts of this text have been edited to ensure that confidential
information/business secrets are not disclosed. Those parts are
indicated by square brackets.

In its notification of 28 July 1998, GW plc states that
the objective of Clause 4 is ‘to allow consumers in Spain
to obtain GW products without prejudicing the ability
of GW to fund research and development
in the
Community and without distorting the ability of all GW
distributors (including those based in Spain) to compete
with each other on the basis of price, service and

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efficiency throughout the Community’. It submits that
the Clause ‘do[es] not block and [is] not intended to
block sale by distributors established in Spain to
countries outside Spain or to protect distributors estab-
lished outside Spain, where Spanish distributors have an
advantage due to superior efficiency or differences in
exchanges rates’ (11).

(22) GW plc further states that Clause 4 could affect trade
between Spain and all other Member States. It acknowl-
edges that ‘in practice, the principal immediate effect of
[Clause 4] will be on trade between Spain and the UK,
inasmuch as the greater part of Spanish-sourced parallel
imports are sold on the market in the UK’ (12).

2.

ENFORCEMENT OF CLAUSE 4 OF THE NEW SALES
CONDITIONS

(23) GW initially suspended supplies to the wholesalers who
refused to subscribe to the new sales conditions which
entered into force on 9 March 1998. Its stated reason
for doing so was to avoid discrimination towards the
75 wholesalers who had accepted the new con-
ditions (13). Spain Pharma SA confirmed that following
its refusal to accept the new sales conditions, it was no
longer supplied by GW SA (14). Three members of
Aseprofar (Euroserv, Cefena and Cefasa) also indicated
that supplies were reduced almost to zero for the same
reason (15). GW further explains how it monitored

(11) Ibid., see p. 6 [838].
(12) Ibid. see p. 7 [839].
(13) Response by Glaxo of 6 May 1998, p/ 15 [649].
(14) Response by Spain Pharma of 6 November 1998 to information

request of 14 October 1998, p.3 (Case 37.121, p. 931).

(15) Response by Aseprofar of 13 November 1998 to information
request of 14 October 1998 (Case 36.997, pp. 1209 et seq.).

the implementation of the sales conditions by those
wholesalers who had actually subscribed to them. It
stresses that it had no practical means of ensuring strict
compliance with Clause 4 (16).

(24)

(25)

it was a competitor which
In one case (Cofares),
informed GW SA of the exports. When questioned by
GW SA, Cofares acknowledged the existence of these
exports and declared they had taken place by mistake.
GW SA then requested payment of a supplementary
invoice covering the difference between the Clause 4A
and 4B prices.

In seven other cases (Cecofar, Reguladora de Compras
del Mediterra´neo, Nafarco, Molina Serrano, Cofex, Hefa-
gra and Cofas), GW SA compared the volume of
products acquired by the wholesalers at the Clause 4A
price with the IMS data concerning these wholesalers’
domestic sales. The actual sales in Spain appeared to be
significantly lower than the supplies made to them at
the Clause 4A price. GW SA requested the seven
wholesalers to specify the amount of exported products
acquired at the Clause 4A price in the period between
9 March 1998 (entry into force of
the new sales
conditions) and 16 October 1998 (entry into force of
interim measures ordered by the Spanish competition
authorities: see recital 26), with a view to sending them
a supplementary invoice covering the difference between
the Clause 4A and 4B prices. All wholesalers replied that
they had not exported products after 9 March 1998.
In reply to the Commission’s information request of
30 October 1998, GW SA pointed out that there would
be valid reasons for terminating commercial relations
with a wholesaler who repeatedly infringed the new
sales conditions and systematically refused to pay the
supplementary invoices.

(26) On 26 October 1998, the Spanish competition defense
tribunal
(‘Tribunal de Defensa de la Competencia’)
adopted interim measures ordering GW SA to suspend
the application of Clause 4 for a period of six months.
GW SA appealed to the ‘Audiencia nacional’ (national
Spanish court) against the interim measures.

(27)

Pending the appeal, GW SA supplied its products to
wholesalers at the maximum wholesale Clause 4A price,
whether or not they had signed the new sales conditions
and irrespective of the destination (domestic or abroad)
of the purchase products. According to GW, orders
significantly exceeded GW SA’s sales and production

(16) Response by GW of 14 December 1998 to information request

of 30 October 1998, Annex 15 [1779-1784].

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forecasts. On 5 January 1999, GW SA therefore decided
no longer to supply the total quantities ordered by the
wholesalers who had not signed the new sales conditions
but rather to allocate to them volumes based on their
historic ordering patterns. In this respect, GW indicated
that ‘since each wholesaler is supposed to carry out its
activity in a more or less defined territory in Spain, this
(i.e. high volume orders) would endanger the legitimate
objective (and legal obligation) of GW SA to maintain an
adequate and balanced supply of its products throughout
Spain’ (17). Aseprofar confirms that GW did not supply
all the quantities requested by its members (18).

(31) The first factor is structural. In the absence of harmonis-
ation at Community level, the national authorities of
the Member States enact and enforce rules aimed at
controlling, directly or indirectly, the sales prices charged
by pharmaceutical companies and determining the pur-
chasing cost for end-consumers and the State budget. In
order to achieve cost savings, many Member States seeks
to promote parallel trade (see recital 34).

(32) The second factor is, by its very nature, cyclical. When
the currency of a country targeted by parallel traders
because of its high price levels depreciates, parallel trade
tends to decrease whereas it is likely to increase when
that currency gains in value.

(28)

Shortly before the expiry of the interim measures in July
1999, Aseprofar and Fedifar requested an extension
of those measures. The ‘Tribunal de Defensa de la
Competencia’ granted that request. However, the pro-
longed interim measures did not enter into force since
the two wholesale associations failed to desposit a
security. To date GW SA has nevertheless refrained from
implementing the new sales conditions.

PARALLEL TRADE

F.
PRODUCTS
WITHIN THE COMMUNITY — IMPACT OF NATIONAL REGULAT-
ORY FRAMEWORKS AND CURRENCY FLUCTUATIONS

IN PHARMACEUTICAL

States have

reflect GW comments) (21). This

(33) GW has submitted the table below (Table 1) which
gives a broad picture of the level of pharmaceutical
prices in different countries (note: footnotes to this
table
table also
enacted
indicates whether Member
measures to stimulate parallel trade. Finally it contains
rough estimates of the magnitude of parallel trade in
the Community. The degree of parallel imports appears
to vary between the Member States. According to the
imports have higher market shares in
table, parallel
the United Kingdom,
in Denmark and in the
Netherlands. For the United Kingdom, GW’s estimate
is between 4 % and 8 % (see recital 34). This
percentage corresponds by and large to the National
Health Service’s estimate (see recital 49).

(29)

Prices for pharmaceutical products vary between Mem-
ber States. The price differences create opportunities for
parallel trade. They are even the ‘key drivers of parallel
trade’ (19). At the oral hearing, GW plc stated that intra-
Community trade in prescription medicines is estimated
to have increased over a period of 12 years (1985 ot
1997) from 0,5 % to 2 % of total sales (20).

(30) While price differences may be influenced by many
factors, two main factors are highlighted in this section:
the regulatory framework in the Member States and
currency fluctuations.

(17) Response by GW of 9 February 1999 to information request of

22 January 1999, pp. 1 and 2 [1063 to 1064].

(18) Faxes from Aseprofar to the Commission of 26 February 1999,
5 March 1999, 29 March 1999, 14 April 1999 (Case 36.997,
pp. 1338 to 1550 and pp. 1723 to 1790).

(19) London Economics study, p. 16 [1020].
(20) GW slide presentation at the oral hearing of 8 and 9 December

(34)

Table 1:

Incentives, prices and parallel imports

Country

Price

Incentives
for
parallel
imports

Parallel
imports
market
share (1)

Belgium

Medium to low

Yes

Denmark

High to medium Yes (2)

Germany

High

Finland

High to medium

France

Greece

Ireland

Italy

Medium to low

Low

High to medium

Low

Luxembourg

Medium

No

Yes

Yes

Yes

No

Yes

No

2 %

9 %

2 %

Low

Low

0 %

Low

0 %

Low

Netherlands

High to medium Yes (3)

10 % (12 %)

1999 [4241].

(21) The table features in the London Economics study, p. 18 [102].

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Country

Price

Incentives
for
parallel
imports

Parallel
imports
market
share (1)

Austria

High to medium

Yes

N/A

Portugal

Medium to low

Yes

Sweden

High to medium

No

Spain

Low

Yes

0 %

1 %

0 %

of pharmaceuticals. Price control may be direct (for
example, maximum sales prices) or indirect (for example,
profit capping, maximum reimbursement levels). As
Table 1 shows, most Member States have also enacted
measures aimed at encouraging parallel trade. Hereafter
(recitals 37 to 52) a short description is given of the
regulatory framework in Spain and the United Kingdom
as well as in the other Member States. The description
focuses on price control sensu stricto and reimbursement
schemes. Il also contains some information about incen-
tives for parallel trade.

United
Kingdom

Medium

Yes (4)

4 % (8 %)

a) Spain

(1) The figures in this column have been taken from Michael
Burstall, Pricing and Reimbursement in Western Europe 1998, PPR
Communications Ltd, 1998, figures in rackets indicate estimates
from Datamonitor, 1997, where these diverge.

(2) Legal compulsion.

In Denmark the pharmacists has a legal
obligation to tell the customer about all the substitutes that are
available in lieu of the prescribed drug, including parallel imports.
(3) Dutch pharmacists are paid the wholesaler’s price plus a fixed fee.
According to the Dutch health ministry, pharmacists may benefit
from parallel imports if they buy a product at a lower price without
informing the government; they would be reimbursed at the higher
Dutch wholesale price.

(4) In the United Kingdom for every sale made, the pharmacist receives
a fixed fee plus the manufacturer’s list price minus the average
wholesale discount on that medicine. Not only does such a system
it punishes pharmacists unable to
imports,
encourage parallel
obtain a wholesale discount.

(37)

(35)

Since GW SA’s new sales conditions are ‘intended to
remedy the adverse effects created by differences
between the Spanish and UK systems of pharmaceutical
price regulation by limiting the impact of the low prices
mandated by the Spanish Government to Spain’ (22), the
description below (recitals 36 to 49) deals primarily with
the regulatory framework in these two Member States.
Nevertheless, it also contains some information about
other Member States, in view of the fact that Clause 4B
prices apply irrespective of the final destination of the
exported products. Thereafter, some data on currency
fluctuations are given

1. REGULATORY FRAMEWORK IN THE MEMBER STATES

(36) All Member States operate systems aimed at controlling
— to varying degrees — prices for some or all categories

(22) London Economics study, executive summary, p. v [1003].

In Spain, maximum prices are fixed for reimbursable
prescription drugs. The basic legislation is contained in
Article 100 of Law 25/1990 (Ley del Medicamento),
as modified successively in 1993, 1997 and 1998.
Article 100(1) of Law 25/1990 provides generally that
pharmaceutical prices must be set on the basis of
objective and verifiable criteria. Article 100(2) of Law
25/1990 stipulates that the Ministry of Health and
Consumers sets a maximum industrial price for each
pharmaceutical product financed by the national social
security system. As mentioned above (see recital 19), the
industrial price is the price which a pharmaceutical
company charges to wholesales. After GW hat notified
the new sales conditions to the Commission, Law
55/1999
to
Article 100(1) and (2). These now explicitly specify that
the maximum industrial price only applies to products
dispensed in Spain and financed with social security
funds or state funds related to health. The Ministry
also sets the margins for commercialisation [‘conceptos
correspondientes a la comercializacio´ n’, Article 100(3)
of Law 25/1990]. These are the margins of wholesalers
as well as of pharmacies. Hence, the Ministry also de
facto sets the maximum retail price (that is to say,
maximum industrial prices plus the wholesaler and
pharmacy margins).

amendments

introduced

further

(38) The Ministry sets the maximum industrial price in
accordance with a procedure set out in Royal Decree
271/1990. The price-setting procedure starts with a
request from the pharmaceutical company. Pursuant to
Article 3(2) of Royal Decree 271/1990, the company
must submit the technical, accounting and financial
documentation necessary for the preparation of an
economic report. This report will be the basis for the
determination of the price of the new pharmaceutical
product. The company has to provide a very detailed
study reflecting the real costs involved at the time of

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the development of the pharmaceutical product (23).
Article 3(3) of Royal Decree 271/1990 requires the
national administration to take into account the ‘com-
plete cost, including the cost involved in research and
development’ when setting prices. It also provides that
the administration must set the company’s profit with
reference to ‘technical report on the economic and
financial position of the company’.

(39)

Independently from individual price applications, the
general level of prices for pharmaceuticals in Spain has
been discussed between the Ministry of Health and the
pharmaceutical producers’ association Farmindustria.
However, in September 1999 Farmindustria decided to
terminate its agreement with the Ministry of Health to
contain pharmaceutical expenditure (24).

(40) Article 2(3) of Royal Decree 271/1990 enables pharma-
ceutical companies to apply for price increases when
changes in the public health, technical, business or
budgetary circumstances require [...such increases]. As
GW plc acknowledges, GW SA has obtained price
increases in this way on several occasions.

(41)

In May 1997, the Spanish authorities agreed to price
increases for Serevent, Imigran and Lamictal (in various
dosages and package forms). Sometimes,
the price
increases were quite substantial (for example, Imigran,
for which the maximum unit price rose from ESP 648,25
to ESP 750, or Lamictal 200 mg/30 tablets the author-
ised price for which went up to ESP 273,66 from a
previous price of ESP 198,21 for the same product
offered in packages of 56 tablets) (25).

(42)

In July 1998 (after GW SA’s notification), another
substantial price increase was obtained for Ventolin Inh.
100 mg/200d. The authorised maximum price per unit
rose from ESP 1,5 to ESP 2,1.

(43)

It is worth noting that the abovementioned four prod-
ucts for which GW SA obtained price increases (Serevent,
Imigran, Lamictal and Ventolin) all belong to the group
of eight products which GW plc claim to be the main
candidates for parallel export from Spain into the United
Kingdom (see recital 15) (26).

(23) Notification, p. 42 [42].
(24) Reply to the SO, Annex 7, p. 3 [3765].
(25) For further details on all price increases obtained by GW SA, see
reply to the SO, Annex 9 [3795/6]. For Lamictal, the old package
form (56 tablets) was replaced by the new package form
(30 tablets): see GW response of 14 December 1998 [1698].
(26) Supplementary notification by GW of 28 July 1998, Annex 12

[910, 911].

b) United Kingdom

(44)

(45)

Price control is governed by the pharmaceutical price
regulation scheme (PPRS), which is agreed between
manufacturers and the UK National Health Service
(NHS). The scheme covers all licensed branded medicines
sold to the NHS. The PPRS which was in force at the
time of GW SA’s notification ran from October 1993 to
September 1998. The present PPRS covers the period
from October 1999 to October 2004.

Pharmaceutical companies set prices for their products
freely, but their profits are capped by the PPRS if their
total home sales of NHS medicines in the United
Kingdom exceed GBP 25 million (20 million in the
1993 scheme). The PPRS caps profits by setting ‘target’
returns on capital employed on all sales. These target
returns on capital (‘ROC’) are based on the historical
average value of invested capital (27). There are two levels
of ROC. The NHS uses a general ROC of 21 % in
determining a company’s liability to repay excess profits.
A lower ROC of 17 % will be used to decide price
increase application. Companies are allowed to deduct a
percentage of their sales revenue from ‘gross’ profits as
a reward for their R & D investments. For GW, this
discount amounts to [...] %.

(46) When a manufacturer’s profits exceed the target ROC,

one or more of the following measures may be taken:

a)

price reduction;

b)

restriction or suspension of price increases request-
ed by the manufacturer;

c)

repayment of excessive profits.

(47)

In October 1999, the PPRS introduced a general price
cut of 4,5 % for all reimbursable drugs and all pharma-
ceutical producers. Pharmaceutical companies have two
options to meet this price cut: either reduce all their
prices by 4,5 % or modulate their prices by reducing the
price for some drugs more substantially. Prices remain
unchanged at the level of the cut for a period of
15 months until 1 January 2001 (28), except where a
subsequent modulation is agreed. However, such a price
modulation has to be cost-neutral. This means that any
price change of a product must be implemented in such
a way that the 4,5 % cut is still respected.

(27) See reply the SO, Annex 4 [3674 to 3680].
(28) Reply to the SO, Annex 4, p. 5 [3679] and response of

14 December 1998 [1709].

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L 302/9

(48) Under the United Kingdom’s reimbursement scheme,
patients pay a uniform flat fee of GBP 6 per prescription
drug purchased, except for prescription contraceptive
medicines which are free. Certain categories of patients
(for example those over 60 or under 18 years old, the
poor and the chronically sick) are exempt from this
payment (29).

(50)

(49)

For every sale made, UK pharmacists receive a fixed
reimbursement fee from the NHS. This fee is set by
reference to the manufacturer’s list price. This means
that the pharmacist receives the same fee irrespective of
the actual purchase costs incurred. Parallel imports of
cheaper products thus yield the same fee as domestic
purchases at the manufacturer’s list price. The NHS
operates a ‘claw back’ mechanism vis-à-vis pharmacists
to take into account parallel trade. The NHS automati-
cally deducts from the manufacturer’s list price a dis-
count (the ‘claw back’) in the range of 4 % to 5 %. This
deduction is based on the assumption that it corresponds
to the savings which all UK pharmacists together achieve
each year by placing orders with parallel traders (30).
Every pharmacist faces this 4 % to 5 % claw back,
irrespective of whether or not he actually dispenses
parallel traded products or, if he does, whether or not
his savings correspond to the 4 % to 5 % figure. This
claw back mechanism aims at ensuring that these savings
are at least partially transferred to the NHS (and therefore
to taxpayers). Although this mechanism might aim
primarily at avoiding unjust enrichment by intermediari-
es and pharmacists, it also encourages them to increase
parallel trade. If they purchase drugs via parallel trade in
excess of the 4 % to 5 % used as a reference point in the
claw back mechanism, they are indeed better off than
competitors whose purchase of parallel-traded drugs are
below that level or who even buy all their requirements
domestically. The London Economics study submitted
by GW explicitly states that the claw back system
penalises traders who do not engage in a certain level of
parallel trade (31).

In April 1999, the NHS set up the National Institute
for Clinical Excellence (NICE). This institute makes
recommendations to the NHS, patients and doctors on
the use of medicines, medical equipment and clinical
procedures. In this context, it also examines the cost-
effectiveness of medical treatments and medicines.

c) Other Member States (32)

Like Spain, most other Member States operate direct
price-control systems. These systems may cover all
medicines (Belgium) or they may be confined to prescrip-
tion drugs (the Netherlands) or to reimbursable drugs
(Denmark, France, Italy and Sweden). In some countries,
maximum prices are set on the basis of a wide variety of
parameters, including actual or average price levels in
other Member States (Belgium, Finland, Italy Sweden
and the Netherlands) or on the basis of a more general
reasonableness test (Denmark). In other countries, prices
are fixed (France). The pharmaceutical companies are
usually involved in the regulatory process together with
other market players. Two countries allow, in principle,
free pricing for all medicines (the United Kingdom and
Germany). However, as explained above (recital 45), the
United Kingdom caps profits for all branded drugs sold
to the NHS. Germany — as indeed all other Member
States mentioned above — exerts indirect price control
via a reimbursement scheme.

the reference price system may vary.

(51) Reimbursement schemes can take various forms. Some
countries operate a reference price system (for example,
Germany, the Netherlands, Sweden and Denmark). This
means that the national authorities reimburse the drugs
which are authorised for reimbursement up to an
amount equal to the reference price set by them. In
some countries (Denmark and Sweden) the reference
price is calculated on the basis of the price of the
cheapest product(s) within the group. If the product is
sold at a higher price, the patient pays the excess. The
scope of
In
Germany it does not cover patented drugs. In other
Member States, patients may receive reimbursements
expressed as a certain percentage of the sales price —
sometimes up to 100 % (for example, France). In other
countries, patients will pay a flat fee, regardless of the
type of drugs, and the remaining amount is borne by
the national health system (for example, the United
Kingdom). A combination of both mechanisms can also
occur. In these cases, patients in principle receive a
reimbursement expressed as a percentage of the sales
price but,
in order to avoid the amount paid being
excessive, the national authorities require no more than
the payment of a modest flat fee (Belgium, Finland and
Italy). There are often special regimes for the benefit of
certain social groups (pensioners, invalids, widows and
so forth). Further,
in some countries (Denmark and
Sweden), patients are not reimbursed if their annual
expenses for drugs stay below a certain level.

(29) Information taken from a working document

featuring as
Annex 6 to EFPIA’s comments on Case IV/36957 of 22. Novem-
ber 1999.

(30) London Economics study, p. 19 [1023]. GW’s presentation in

the oral hearing mentions 4 % to 5 % [4274].

(31) London Economics study, p. 41 [1045].

(32) Information taken from a working document

featuring as
Annex 6 to EFPIA’s comments on Case IV/36957 of 22 Novem-
ber 1999.

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(52) As Table 1 shows, most Member States also operate
measures to encourage parallel trade. In the Netherlands,
pharmacists are paid the domestic wholesale price plus
a fixed fee (like in the United Kingdom). Pharmacists
who find cheaper products via parallel imports do not
have to inform the Dutch health ministry and will
receive the same fee (33). This increases their profit
margin and thus gives them an incentive to engage in
parallel trade. There is no claw back mechanism to
adjust these profits. In Denmark, which according to
GW has a parallel trade penetration of 9 % (34), pharma-
cists have a legal obligation to inform the patient
ordering a particular drug prescribed by his doctor about
all available cheaper substitutes, including parallel traded
products. Also in two other Member States (Germany
and Sweden) where — according to Table 1 — no
imports exist, pharmacists are
incentives for parallel
encouraged to use parallel imported goods. According
to a 1999 report by the Swedish competition authority,
counties recommend that pharmacies sell the cheapest
medicine, including parallel products (35). In Germany,
the Social
to amended paragraph 129 of
pursuant
Security Act (Sozialgesetzbuch), pharmacists are also
obliged to sell cheap imported pharmaceutical products
in circumstances which will have to be spelled out in a
contract between the pharmacies and the health
insurance companies ‘Krankenkassen’ (‘Re-Import För-
clause) (36).
derklausel’,
According to the Ministry of Health, this clause should
stimulate price competition and ultimately lead to
savings for the health insurance schemes (37). These
savings indirectly benefit
the patient who finances
these schemes through his monthly obligatory health
insurance contribution (38).

re-importation

promotion

‘In the past, exchange risks have been a major complicat-
ing factor as exchange-rate movements can quickly
erode, sometimes even eliminate, price differentials.
Consequently, many importers have attempted to limit
the risk by at least buying forward their major currency
requirements. For the last few years, however, currencies
among the code EC Member States have been very
steady; the main exception is sterling in the UK. The
strength of sterling in recent months has had a major
positive impact on the profit ratios of importers in the
UK.’ (39).

(54) GW itself notes that ‘the appreciation of the pound has
caused UK prices to increase relative to those in other
EU countries’ (40). Between October 1996 and April
1998 the GBP/ESP exchange rate rose from 200,27 to
262,09 (see Annex 3 to the Decision). This reflects an
appreciation of the British pound by almost 30 %. The
October 1996 rate is taken as a reference point because
it is from that month onwards that the exchange rate
has steadily increased.
It reached its peak in April
1998 (the month after GW SA notified its new sales
conditions) and fell somewhat thereafter. If the exchange
rate in January 1996 (188,65) is compared with the
rate in December 1998 (240,09), the British pound
appreciated by almost 27 %. This period is relevant
because it is for these years that GW has provided data
concerning parallel trade of its products (see recitals 64
to 71).

2. CURRENCY FLUCTUATIONS

G.

PARALLEL TRADE IN GW PRODUCTS WITHIN THE COM-
MUNITY — IMPACT OF THE GW SALES CONDITIONS

(53) The impact of currency fluctuations on parallel trade is
universally acknowledged. Such fluctuations disappeared
on 1 January 1999 between Member States belonging
to the Euro-zone of the economic and monetary union.
The United Kingdom, Denmark and Sweden are, how-
ever, still exposed to currency fluctuations. A 1998 study
on ‘parallel importing strategies’ states the following:

(33) See recital 34 and die London School of Economics study, p. 18

[1022].

(34) London Economics study, p. 18 [1022]. All the other percentages
in this paragraph are also taken from the London Economics
study.

(35) SCA report ‘Konkurrens vid försäljnig av läkemedel’, pp. 15 and

16.

(36) BGBI. 1999, Part 1, No 59, p. 2637.
(37) Webpage Gesundheitsministerium, Dialog Gesundheit, 69 Ques-

tions.

(38) This is particularly important for patented products which,
according to German law, are freely priced (and not subject to
the reimbursement cap according to which the health insurance
schemes only pay a fixed price, whereas any excess price is borne
by the patient ‘Festbeträge’).

(55) As said (recital 13), GW SA’s new sales conditions cover
82 products, but GW plc has indicated that only eight
products are prime candidates for parallel trade (15 if
the different dosages, modes of administration and
package sizes are taken into account). For these eight
products, GWC plc has provided data concerning their
price level in all Member States except Luxembourg,
submitting that the Spanish prices artificially low (41).
GW plc has also given data concerning the volume of
parallel trade for these products, focusing on exports
from Spain and imports into the United Kingdom (42).

(39) ‘Parallel importing strategies’ (SCRIP reports, 20 April 1998), PJB

publications Ltd, p. 32.

(40) Frontier Economics study, p. 32 [3728].
(41) Original notification [10, 72 and 73] and supplementary notifi-

cation by GW of 28 July 1998, p. 8 [840].

(42) See Annexes 3 and 4 to the notification of 28 July 1998 [885 to
888] and GW plc’s response of 14 December 1998 to questions 2
and 3 of the Commission’s formal request for information of
30 October 1998 [1612 to 1621].

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L 302/11

(56) Although Clause 4 of the new sales conditions applies
to all 82 products listed in Annex 1 to this Decision, the
Commission examined the price levels for the eight
products identified by GW plc as particularly interesting
for parallel traders. These price levels, which were valid
on 27 April 1998 are examined in section 1 below. This
section also considers more specifically the domestic
price levels for Spain and the United Kingdom, although
Clause 4B prices apply irrespective of the final desti-
nation of the products exported from Spain.

(57)

(58)

In section 2, an account is given of GW plc’s information
concerning the volume of parallel trade in the eight
products for the period 1996 to 1998, that is, essentially
prior to the introduction of the new sales conditions in
Spain.

Sections 3 and 4 describe the potential impact of the
Clause 4A and 4B prices on parallel trade towards other
Member States by comparing them with the prices
prevailing in those Member States.

1.

LEVEL OF PRICES FOR GW IN 1998

a) GW prices throughout the Community

(59) Table 2A below gives an overview of GW prices for the
eight products for which — according to GW plc —
parallel trade was mot significant in the Community on
27 April 1998. Prices are unit prices expressed in ESP.
The Clause 4A and 4B prices in Spain are those following
the entry into force of the new conditions on 9 March
1998). The prices in other Member States are those valid
on 27 April 1998 but converted into ESP at 9 March
1998 exchange rate (as supplied by GW).

(60) The prices for Ventolin and Becotide are shown in a
separate Table 2B because their Clause 4A and/or
Clause 4B prices changed after 9 March 1998. The prices
in that table were valid on 29 June 1998 and are
expressed in ESP at the conversion rate of that date.

Table 2A: Glaxo Wellcome’s prices in the Community (except Luxembourg) as at 27 April 1999

Name of product

SP [4A)]

SP [4B)]

A

B

DK

FIN

FR

D

GR

IRL

I

NL

P

S

UK

Becotide Inh. 200 × 50 mcg

2,03

13,49

8,03

5,56

3,64

7,57

4,41

8,62

Becloforte Inh. 250 mcg × 180 d.

12,31

21,94

26,44

22,21

18,97

26,59

21,81

30,71

5,36

2,95

5,63

3,10

22,31

10,81

23,43

17,36

2,09

8,34

/

/

51,16

31,22

/

7,68

/

65,31

/

/

4,96

17,26

58,70

/

/

/

/

2,95

13,80

58,94

/

/

5,41

19,57

54,35

22,91

88,15

3,00

19,76

71,88

/

/

5,59
-------------
23,53

5,67

/

/

55,12

6,03

25,65

5,56

21,15

71,92

47,38

152,77

148,92

Beconase Sp. NA. 50 mcg × 200 d.

Flixotide 50 mcg Inh. × 120 d.

Flixotide 250 mcg Inh. × 120 d.

Flixotide 100 mcg Accuhaler × 60 (*)

2,15

16,13

53,75

32,25

5,70

18,73

69,99

37,46

Flixotide 500 mcg Accuhaler × 60 (*)

107,50

139,98

6,30

16,07

48,37

34,50

96,92

5,56

/

45,80

/

/

4,40

16,61

58,94

33,51

118,74

7,35

14,45

48,93

28,90

97,87

Imigran 50 mg (4 compr.)

750,00

825,00

828,99

739,71

868,38

896,07

/

/

/

/

/

/

Imigran 6 mg inject. (2 jeringas)

2 695,50 3 752,00 4 054,51 3 242,50 4 179,53 3 625,54 3 604,97 3 605,24 2 990,46

749,32

420,39

591,67

884,58

741,60

916,66 1 099,61

3 004,04 3 854,17 3 046,30 3 430,35 4 347,25

Lamictal 100 mg (56 compr.)

155,36

185,72

Lamictal 25 mg (56 compr.)

53,57

74,27

Lamictal 50 mg (56 compr.)

89,28

107,55

Lamictal 200 mg (30 compr.)

232,90

245,83

Serevent Inh. 25 mg (120 d.)

Ventolin Inh. 100 mg (200 d.)

34,54

1,50

46,95

10,00

/

/

/

/

173,22

213,17

190,27

161,65

208,86

148,96

203,14

146,63

235,85

139,14

222,21

232,33

54,09

78,06

64,45

54,81

55,47

37,24

75,04

36,57

58,95

45,04

75,26

79,19

86,62

125,23

110,30

/

394,25

330,28

/

/

108,73

74,47

117,78

73,31

117,92

75,10

132,64

134,68

385,26

217,94

365,65

283,86

471,69

/

389,39

394,92

30,14

31,89

38,94

38,02

34,86

31,72

31,25

39,05

30,78

34,27

31,92

/

3,62

2,68

1,86

3,73

2,71

3,80

1,52

2,53

2,03

2,85

2,06

2,14

52,95

2,55

(*) Flixotide MDPI Diskus Inhaler in all countries except SP.
Source: Calculations based on data supplied by Glaxo Wellcome, letter of 6 May 1998, Documents 2 and 20 [662 and 663, 782 and 811], reply to the SO, Frontier Economics study I, Annex 6, p. 14 [3710].

Table 2B: Glaxo Wellcome’s prices in the Community (except Luxembourg), as at 29 June 1998

Name of product

SP [4A)]

SP [4B)]

A

B

DK

FIN

FR

D

GR

IRL

I

NL

P

S

UK

Becotide Inh. 200 × 50 mcg

Ventolin Inh. 100 mg (200 d.)

2,03

2,10

6,50

2,65

8,04

3,62

5,56

2,69

3,64

1,86

7,56

3,73

4,41

2,71

8,63

3,80

1,96

1,43

5,42

2,55

2,95

2,04

5,64

2,86

3,10

2,07

5,57

2,14

6,08

2,57

Source: calculations based on data supplied by Glaxo Wellcome, letter of 30 June 1998, Documents 1 and 2 [821 and 826, 827], letter of 6 May 1998, Document 20 [782 and 811], reply to the SO, Frontier Economics study I,

Annex 6, p. 14 [3710].

L
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17.11.2001

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Official Journal of the European Communities

L 302/13

b) GW prices in Spain and the United Kingdom as
compared to the Community average

(61) Table 3 compares the Clause A4 prices for domestic
sales in Spain (the source country of parallel trade
according to GW) with the GW prices in the United
Kingdom (the target country of parallel trade according
to GW) as well as the Community average prices. This

table is of limited use for assessing concrete market
opportunities for parallel traders wishing to export from
Spain to the United Kingdom. However, the table does
show that Spanish prices cannot all be said to be
‘artificially low’ as contended by GW plc and that the
vast majority of UK prices exceed the Community
average by more than 20 %.

Table 3

A) Prices on 9 March 1998

Name of Product

SP [4A)]

UK

EU

SP [4A)]

UK

EU

(ESP per unit of product)

(EU = 100)

1. Becotide Inh. 200 × 50 mcg

2,03

6,03

5,04

40,28

119,64

2. Becloforte Inh. 250 mcg × 180d.

12,31

25,65

20,75

59,33

123,61

3. Beconase Sp. NA. 50 mcg × 200 d.

2,15

5,56

5,08

42,32

109,45

4.

5.

6.

7.

8.

9.

Flixotide 50 mcg Inh. × 120 d.

16,12

21,15

17,20

93,72

122,97

Flixotide 250 mcg Inh. × 120 d.

53,75

71,92

57,34

93,74

125,43

Flixotide 100 mcg Accuhaler × 60 (*)

32,25

47,38

35,72

90,29

132,64

Flixotide 500 mcg Accuhaler × 60 (*)

107,50

148,92

115,84

92,08

128,56

Imigran 50 mg (4 compr.)

750,00 1 099,61

790,58

94,87

139,09

Imigran 6 mg inject. (2 jeringas)

2 695,50 4 347,25 3 513,87

76,71

123,72

10. Lamictal 100 mg (56 compr.)

155,36

232,33

186,98

83,09

124,25

11. Lamictal 25 mg (56 compr.)

53,57

79,19

59,06

90,07

134,08

12. Lamictal 50 mg (56 compr.)

89,28

134,68

103,84

85,98

129,07

13. Lamictal 200 mg (30 compr.)

232,90

394,92

346,61

67,19

113,94

14. Serevent Inh. 25 mg (120 d.)

34,54

52,95

35,41

97,54

149,53

15. Ventolin Inh. 100 mg (200 d.)

1,50

2,55

2,54

59,06

100,39

(*) Flixotide MDPI Diskus Inhale in all countries except SP.

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

B) Prices on 29 june 1998

(ESP per unit of product)

(EU = 100)

Name of Product

SP (4A)

UK

EU

SP (4A)

UK

EU

1. Becotide Inh. 200 × 50 mcg

2. Ventolin Inh. 100 mg (200 d.)

2,03

2,10

6,50

2,65

5,04

2,58

40,28

128,97

81,04

102,71

100

100

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(62) As regards Spain, half of the Clause 4A prices are at least
90 % of the Community average with two other prices
(Lamictal 50 mg/100 mg) around 85 % of that average.
Among those considerably below the Community aver-
age (less than 60 % of the Community average), are
Becotide, which is a relatively old product introduced to
the market in 1976, and Ventolin, for which GW SA
obtained a price increase which reduced the price
difference with the Community average to under 20 %
(see Table 3B).

(63)

In the United Kingdom, prices for 12 of 15 products are
at least 20 % higher than the Community average price.
In four cases, the gap widens to over 30 %. It goes up to
almost 50 % for Serevent Inh. 25 mg/120 d.). The gap is
particularly visible for products launched in more recent
years,
Imigran,
Lamictal and Serevent.

from 1990 to 1993,

i.e. Flixotide,

2. VOLUME OF PARALLEL TRADE IN GW PRODUCTS

DURING THE PERIOD 1996 TO 1998

(64) On 28 July 1998, GW plc supplied estimates concerning
the volume of parallel trade in its products for the years
1996 to 1998 and the loss of sales revenue that this
parallel trade caused.

(65) The first set of figures concerned,

inter alia, parallel
imports in all GW products from all sources into the
United Kingdom. These imports had an estimated value
of GBP [...] million in 1996, GBP [...] million in 1997
and GBP [...] million in 1998 (representing respectively
[...] %, [...] % and [...] % of all UK sales). Taking
into account sales revenues earned outside the United
Kingdom, GW estimates the corresponding net losses of
revenue at GBP [...] million, GBP [...] million and GBP
[...] million respectively (43).

(66) A second set of data relates to parallel imports in the
eight GW products for which there was the highest
volume of parallel imports from all sources into the
United Kingdom. The value of these imports amounted
to GBP [...] million in 1996, GBP [...] million in 1997
and GBP [...] million in 1998 (representing respectively
[...] %, [...] % and [...] % of all GW UK sales of these
products) (44).

(67) A third set of figures shows parallel imports of these
eight leading products into the United Kingdom from
Spain only. Their value amounted to GBP [...] million in
1996 ([...] % of total UK sales), GBP [...] million in 1997

(43) Annex 3 to supplementary notification of 28 July 1998 [886].
(44) Ibid. annex 4 [888].

([...] % of total UK sales) and GBP [...] million in 1998
([...] % of GW total UK sales) (45). When offset against
the revenues gained from higher sales in Spain, GW
estimates that the net loss of revenue resulting from
these imports amount to GBP [...] million over the three
years (and GBP [...] million for 1998 alone) (46).

(68) A comparison of the second and third sets of data shows
that the share of imports into the United Kingdom from
Spain as compared to imports from all sources by and
large remained the same: in 1996 [...] % (GBP [...] million
out of GBP [...] million), in 1997 [...] % (GBP [...] million
out of GBP [...] million) and in 1998 GBP [...] million
out of GBP [...] million ([...] %). In other words, although
the
absolute volume of Spanish-sourced imports
their share of all
increased over those three years,
imports into the United Kingdom remained stable at
around [...] %.

(69) On 30 October 1998 and 22 January 1999,

the
Commission asked GW to provide more detailed infor-
mation about parallel trade in the eight most important
products. The Commission requested precise data about
(a) the value and volume of Spain-sourced parallel trade
towards each Member State for each of
the eight
products, and (b) the value and volume of imports into
the United Kingdom from all mother Member States,
including Spain, for each of these products (47).

(70)

In its first reply on 14 December 1998, GW provided
estimates concerning parallel exports from Spain. It did
not, however, specify countries of destination. Moreover,
it stressed, that ‘it had little confidence that these figures
provide an accurate reflection of the volume and value
of the products leaving Spain’. GW recalled, inter alia,
that much parallel trade lies outside formally audited
distribution channels and that there is no pan-European
auditing of parallel trade. As to imports into the United
Kingdom, again only estimates were given and no
indication was given regarding the source countries.
Estimates given in this reply did not relate exactly to the
eight products in their various dosage/package forms.
Some products were added (48) whereas others were
omitted (49).

(71)

In the second reply, dated 18 and 25 February 1999,
GW plc stated that ‘there is no basis upon which GW
can further refine its estimates by value and volume’ but
that its experience leads it to conclude that ‘the vast

(45) Ibid. annex 10 [907].
(46) Supplementary notification of 28 July 1998, p. 38 [870].
(47) Request for information of 22 January 1999 [967].
(48) These products are Flixotide Inhaler 125 mg × 120 doses, Imigran
Injection 2 × 0,5 ml, Serevent accuhaler 50 mg × 60 doses.
(49) These products are Flixotide 50 mcg Inhaler (120 doses), Flixotide
250 mcg Inhaler (120 doses), Flixotide 100 mcg Accuhaler
× 60 doses, Flixotide 500 mcg Accuhaler × 60 doses.

17.11.2001

EN

Official Journal of the European Communities

L 302/15

majority (90 % or more) of parallel imports from Spain
find their way to the UK with the remaining exports
being divided between Germany, the Netherlands, Den-
mark and Sweden’. As regards parallel imports into the
United Kingdom, GW estimates that between 20 % and
100 % of the imports originate in Spain. Here too, GW
admits that ‘the value data is not “real” but derived from
a series of assumptions’ and hence that ‘there is no real
empirical basis for these estimates’. Therefore it ‘would
caution that the data provided may not be reliable’ (50).

3.

IMPACT OF GW SA’S NEW SALES CONDITIONS ON
PARALLEL TRADE IN ITS PRODUCTS

(72) Table 4-1 provides a reliable starting point for assessing
the impact which the introduction of GW SA’s Clause 4A
and 4B prices has had on the ability of Spanish
wholesalers to export GW’s products. On 27 April 1998,
the price prevailing in other Member States was lower
than the Clause 4A price in 38 cases. This means that
Spanish wholesalers did not have an economic case for
exporting the products in these cases even if they were
able to purchase the products at the Clause 4A price.
Hence, the Clause 4B price had no impact at all on
parallel trade in these cases. In 66 other cases, the
price in other Member States, while situated above the
Clause 4A price, was below the Clause 4B price.
Here, the Clause 4B price deprived wholesalers of an
opportunity to export the products. Parallel trade was
thus excluded. In the remaining 57 cases, the price in
the other Member States was above the Clause 4A price
but also above the Clause 4B price. The latter price,

(50) In its supplementary notification of 28 July 1998 (p. 10) [842],
GW had estimated that ‘parallel imports from Spain account for
about 20 % of sales of parallel
imports into the UK’. A
comparison of figures in Tables 4 and 10 annexed to this
notification suggests that they accounted for around 40 % in the
period 1996 to 1998 (see recital 68 of this Decision).

while not rendering parallel trade impossible, did make
exports economically less profitable. As a consequence,
parallel trade was impeded in these cases.

(73) There is a short separate table for Becotide and Ventolin
(Table 4-1 B). For Becotide, the Clause 4B price was
reduced on 29 June 1998, whereas for Ventolin, the
Clause 4A price was increased (see recitals 42 and 60)
and the Clause 4B price was reduced on the same date.
As a result, parallel trade in Becotide became in theory
possible in three countries whereas the opportunities
for parallel trade at the Clause 4B price in Ventolin
improved.

(74) Table 4-1 does not take into account the fact that
Spanish wholesalers incur costs which must be added to
the prices at which they buy the drugs from the
pharmaceutical companies. These costs cover services
like packaging and transport. There are no reliable data
concerning the magnitude of these costs. At the oral
hearing, GW plc argued that for some products —
namely successful blockbuster products — these costs
do not exceed 5 % whereas the complainants state that
their costs an amount to 15 % (51). On this basis,
Tables 4-2 and 4-3 reproduce the figures appearing in
Table 4-1 but add respectively 5 % and 15 % to the
Spanish prices. It is assumed that the costs are not
materially different between domestic sales and exports
although this may underestimate the packaging and
transport costs related to exports.

(75) The allowance for wholesaler costs doe not change the
result dramatically. In the 5 % cost scenario, there are
68 cases in which parallel trade is excluded by the
Clause 4B price and 45 cases in which such trade is
impeded. In the 15 % cost scenario, parallel trade is
excluded in 74 cases and impeded in 14 cases.

(51) Case 37.380, Response by EAEPC of 12 May 1999 to the
Commission’s information request of 8 March 1999 [48].

Table 4-1: The effect of Glaxo Wellcome’s pricing system on parallel trade from Spain to other Member States (except Luxembourg)

Grey areas show exclusions of parallel trade (i.e. cases such that 4A < national price < 4B). Bold figures show products whose trade is made less profitable by GW’s 4B price (i.e. cases such that 4A < 4B
< national price). Slashes (/) indicate that the product is not available for comparison.

Prices for all other Member States at 27 April 1998, converted into ESP at 9 March 1998 exchange rates; prices in ESP per unit of product

A. Prices at 9 March 1998

Name of product

SP (4A)]

SP (4B)

A

B

DK

FIN

FR

D

GR

IRL

I

NL

P

S

UK

Becotide Inh. 200 × 50 mcg
Becloforte Inh. 250 mcg × 180 d.
Beconase Sp. NA. 50 mcg × 200 d.
Flixotide 50 mcg Inh. × 120 d.
Flixotide 250 mcg Inh. × 120 d.
Flixotide 100 mcg Accuhaler × 60 (*)
Flixotide 500 mcg Accuhaler × 60 (*)
Imigran 50 mg (4 compr.)
Imigran 6 mg inject. (2 jeringas)
Lamictal 100 mg (56 compr.)
Lamictal 25 mg (56 compr.)
Lamictal 50 mg (56 compr.)
Lamictal 200 mg (30 compr.)
Serevent Inh. 25 mg (120 d.)
Ventolin Inh. 100 mg (200 d.)

Total exclusions per country

Total impediments per country

7,57
26,59
7,35
14,45
48,93
28,90
97,87
896,07

2,03
12,31
2,15
16,12
53,75
32,25
107,50
750,00

8,03
26,44
6,30
16,07
48,37
34,50
96,92
828,99

13,49
21,94
5,70
18,73
69,99
37,46
139,98
825,00

5,56
22,21
5,56
/
45,80
/
/
739,71

2,09
3,64
8,34
18,97
/
4,40
/
16,61
51,16
58,94
31,22
33,51
/
118,74
420,39
868,38
2 695,50 3 752,00 4 054,51 3 242,50 4 179,53 3 625,54 3 604,97 3 605,24 2 990,46
148,96
213,17
37,24
78,06
74,47
125,23
217,94
394,25
31,25
38,94
1,52
1,86

8,62
30,71
7,68
/
65,31
/
/
749,32

4,41
21,81
/
/
/
/
/
/

173,22
54,09
86,62
/
31,89
2,68

185,72
74,27
107,55
245,83
46,95
10,00

208,86
55,47
108,73
385,26
31,72
3,80

155,36
53,57
89,28
232,90
34,54
1,50

190,27
64,45
110,30
330,28
38,02
3,73

161,65
54,81
/
/
34,86
2,71

/
/
/
/
30,14
3,62

3\11

4\11

6\11

1\11

9\15

6\15

5\15

6\15

7\7

5\12

5\12

3\12

5,36
22,31
4,96
17,26
58,70
/
/
/
/
203,14
75,04
117,78
365,65
39,05
2,53

6\11

5\11

5,63
23,43
5,41
19,57
54,35
22,91
88,15
884,58

2,95
10,81
2,95
13,80
58,94
/
/
591,67

6,03
5,59
3,10
25,65
23,53
17,36
5,56
5,67
3,00
21,15
/
19,76
71,92
/
71,88
47,38
55,12
/
152,77
148,92
/
916,66 1 099,61
741,60
3 004,04 3 854,17 3 046,30 3 430,35 4 347,25
232,33
139,14
79,19
45,04
134,68
75,10
394,92
/
52,95
31,92
2,55
2,06

222,21
75,26
132,64
389,39
/
2,14

235,85
58,95
117,92
471,69
34,27
2,85

146,63
36,57
73,31
283,86
30,78
2,03

5\13

1\13

5\15

7\15

5\12

2\12

4\12

8\12

3\15

12\15

Total exclusions

Total impediments

66\161

57\161

(*) Flixotide MDPI Diskus Inhaler in all countries except SP.

Prices for all other Member States at 27 April 1998, converted into ESP at 29 June 1998 exchange rates; prices in ESP per unit of product

B. Prices at 29 June 1998

Name of product

SP (4A)

SP (4B)

A

B

DK

FIN

FR

D

GR

IRL

I

NL

P

S

UK

Becotide Inh. 200 × 50 mcg
Ventolin Inh. 100 mg (200 d.)

Total exclusions per country

Total impediments per country

2,03
2,10

6,50
2,65

8,04
3,62

5,56
2,69

1\2

1\2

2\2

3,64
1,86

1\2

7,56
3,73

4,41
2,71

8,63
3,80

1,96
1,43

5,42
2,55

2,95
2,04

5,64
2,86

3,10
2,07

5,57
2,14

6,08
2,57

1\2

1\2

2\2

2\2

2\2

1\2

1\2

1\2

1\2

2\2

2\2

Total exclusions

Total impediments

12\26

9\26

L
3
0
2
/
1
6

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n

C
o
m
m
u
n
i
t
i
e
s

.

1
7
1
1
2
0
0
1

.

Table 4-2: The effect of Glaxo Wellcome’s pricing system increased by a 5 % margin on parallel trade from Spain to other Member States (except Luxembourg)

Grey areas show exclusions of parallel trade (i.e. cases such that 4A < national price < 4B). Bold figures show products whose trade is made less profitable by GW’s 4B price (i.e. cases such that 4A < 4B
< national price). Slashes (/) indicate that the product is not available for comparison.

Prices for all other Member States at 27 April 1998, converted into ESP at 9 March 1998 exchange rates; prices in ESP per unit of product

A. Prices at 9 March 1998

Name of product

SP (4A)

SP (4B)

A

B

DK

FIN

FR

D

GR

IRL

I

NL

P

S

UK

Becotide Inh. 200 × 50 mcg
Becloforte Inh. 250 mcg × 180 d.
Beconase Sp. NA. 50 mcg × 200 d.
Flixotide 50 mcg Inh. × 120 d.
Flixotide 250 mcg Inh. × 120 d.
Flixotide 100 mcg Accuhaler × 60 (*)
Flixotide 500 mcg Accuhaler × 60 (*)
Imigran 50 mg (4 compr.)
Imigran 6 mg inject. (2 jeringas)
Lamictal 100 mg (56 compr.)
Lamictal 25 mg (56 compr.)
Lamictal 50 mg (56 compr.)
Lamictal 200 mg (30 compr.)
Serevent Inh. 25 mg (120 d.)
Ventolin Inh. 100 mg (200d.)

Total exclusions per country

Total impediments per country

7,57
26,59
7,35
14,45
48,93
28,90
97,87
896,07

2,13
12,93
2,26
16,93
56,44
33,86
112,88
787,50

8,03
26,44
6,30
16,07
48,37
34,50
96,92
828,99

14,16
23,04
5,99
19,67
73,49
39,33
146,98
866,25

5,56
22,21
5,56
/
45,80
/
/
739,71

2,09
3,64
8,34
18,97
/
4,40
/
16,61
51,16
58,94
31,22
33,51
/
118,74
420,39
868,38
2 830,28 3 939,60 4 054,51 3 242,50 4 179,53 3 625,54 3 604,97 3 605,24 2 990,46
148,96
213,17
37,24
78,06
74,47
125,23
217,94
394,25
31,25
38,94
1,52
1,86

8,62
30,71
7,68
/
65,31
/
/
749,32

4,41
21,81
/
/
/
/
/
/

173,22
54,09
86,62
/
31,89
2,68

195,01
77,98
112,93
258,12
49,30
10,50

208,86
55,47
108,73
385,26
31,72
3,80

163,13
56,25
93,74
244,55
36,27
1,58

190,27
64,45
110,30
330,28
38,02
3,73

161,65
54,81
/
/
34,86
2,71

/
/
/
/
30,14
3,62

6\11

4\11

3\11

7\15

6\15

7\15

4\15

4\7

5\12

4\12

1\12

5,36
22,31
4,96
17,26
58,70
/
/
/
/
203,14
75,04
117,78
365,65
39,05
2,53

8\11

3\11

5,63
23,43
5,41
19,57
54,35
22,91
88,15
884,58

2,95
10,81
2,95
13,80
58,94
/
/
591,67

6,03
5,59
3,10
25,65
23,53
17,36
5,56
5,67
3,00
21,15
/
19,76
71,92
/
71,88
47,38
55,12
/
152,77
148,92
/
916,66 1 099,61
741,60
3 004,04 3 854,17 3 046,30 3 430,35 4 347,25
232,33
139,14
79,19
45,04
134,68
75,10
394,92
/
52,95
31,92
2,55
2,06

222,21
75,26
132,64
389,39
/
2,14

235,85
58,95
117,92
471,69
34,27
2,85

146,63
36,57
73,31
283,86
30,78
2,03

5\13

1\13

6\15

5\15

6\12

1\12

5\12

7\12

4\15

11\15

Total exclusions

Total impediments

68\161

45\161

(*) Flixotide MDPI Diskus Inhaler in all countries except SP.

Prices for all other Member States at 27 April 1998, converted into ESP at 29 June 1998 exchange rates; prices in ESP per unit of product

B. Prices at 29 June 1998

Name of product

SP (4A)

SP (4B)

A

B

DK

FIN

FR

D

GR

IRL

I

NL

P

S

UK

Becotide Inh. 200 × 50 mcg
Ventolin Inh. 100 mg (200 d.)

Total exclusions per country

Total impediments per country

2,13
2,21

6,83
2,78

8,04
3,62

5,56
2,69

3,64
1,86

7,56
3,73

2\2

1\2

4,41
2,71

2\2

2\2

2\2

2\2

8,63
3,80

1,96
1,43

5,42
2,55

2,95
2,04

5,64
2,86

3,10
2,07

5,57
2,14

6,08
2,57

2\2

1\2

1\2

1\2

1\2

1\2

2\2

Total exclusions

Total impediments

13\26

7\26

.

1
7
1
1
2
0
0
1

.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n

C
o
m
m
u
n
i
t
i
e
s

L
3
0
2
/
1
7

Table 4-3: The effect of Glaxo Wellcome’s pricing system increased by a 15 % margin on parallel trade from Spain to other Member States (except Luxembourg)

Grey areas show exclusions of parallel trade (i.e. cases such that 4A < national price < 4B). Bold figures show products whose trade is made less profitable by GW’s 4B price (i.e. cases such that 4A < 4B
< national price). Slashes (/) indicate that the product is not available for comparison.

Prices for all other Member States at 27 April 1998, converted into ESP at 9 March 1998 exchange rates; prices in ESP per unit of product

A. Prices at 9 March 1998

Name of product

SP (4A)

SP (4B)

A

B

DK

FIN

FR

D

GR

IRL

I

NL

P

S

UK

Becotide Inh. 200 × 50 mcg
Becloforte Inh. 250 mcg × 180 d.
Beconase Sp. NA. 50 mcg × 200 d.
Flixotide 50 mcg Inh. × 120 d.
Flixotide 250 mcg Inh. × 120 d.
Flixotide 100 mcg Accuhaler × 60 (*)
Flixotide 500 mcg Accuhaler × 60 (*)
Imigran 50 mg (4 compr.)
Imigran 6 mg inject. (2 jeringas)
Lamictal 100 mg (56 compr.)
Lamictal 25 mg (56 compr.)
Lamictal 50 mg (56 compr.)
Lamictal 200 mg (30 compr.)
Serevent Inh. 25 mg (120 d.)
Ventolin Inh. 100 mg (200d.)

Total exclusions per country

Total impediments per country

7,57
26,59
7,35
14,45
48,93
28,90
97,87
896,07

2,33
14,16
2,47
18,54
61,81
37,09
123,63
862,50

8,03
26,44
6,30
16,07
48,37
34,50
96,92
828,99

15,51
25,23
6,56
21,54
80,49
43,08
160,98
948,75

5,56
22,21
5,56
/
45,80
/
/
739,71

2,09
3,64
8,34
18,97
/
4,40
/
16,61
51,16
58,94
31,22
33,51
/
118,74
420,39
868,38
3 099,83 4 314,80 4 054,51 3 242,50 4 179,53 3 625,54 3 604,97 3 605,24 2 990,46
148,96
213,17
37,24
78,06
74,47
125,23
217,94
394,25
31,25
38,94
1,52
1,86

8,62
30,71
7,68
/
65,31
/
/
749,32

4,41
21,81
/
/
/
/
/
/

173,22
54,09
86,62
/
31,89
2,68

208,86
55,47
108,73
385,26
31,72
3,80

213,58
85,41
123,68
282,70
53,99
11,50

190,27
64,45
110,30
330,28
38,02
3,73

161,65
54,81
/
/
34,86
2,71

178,66
61,61
102,67
267,84
39,72
1,73

/
/
/
/
30,14
3,62

5\11

4\11

1\11

8\15

2\15

7\15

3\15

4\7

6\12

3\12

5,36
22,31
4,96
17,26
58,70
/
/
/
/
203,14
75,04
117,78
365,65
39,05
2,53

7\11

1\11

5,63
23,43
5,41
19,57
54,35
22,91
88,15
884,58

2,95
10,81
2,95
13,80
58,94
/
/
591,67

6,03
5,59
3,10
25,65
23,53
17,36
5,56
5,67
3,00
21,15
/
19,76
71,92
/
71,88
47,38
55,12
/
152,77
148,92
/
916,66 1 099,61
741,60
3 004,04 3 854,17 3 046,30 3 430,35 4 347,25
232,33
139,14
79,19
45,04
134,68
75,10
394,92
/
52,95
31,92
2,55
2,06

222,21
75,26
132,64
389,39
/
2,14

235,85
58,95
117,92
471,69
34,27
2,85

146,63
36,57
73,31
283,86
30,78
2,03

3\13

1\13

8\15

2\15

6\12

8\12

4\12

8\15

7\15

Total exclusions

Total impediments

74\161

24\161

(*) Flixotide MDPI Diskus Inhaler in all countries except SP.

Prices for all other Member States at 27 April 1998, converted into ESP at 29 June 1998 exchange rates; prices in ESP per unit of product

B. Prices at 29 June 1998

Name of product

SP (4A)

SP (4B)

A

B

DK

FIN

FR

D

GR

IRL

I

NL

P

S

UK

Becotide Inh. 200 × 50 mcg
Ventolin Inh. 100 mg (200 d.)

Total exclusions per country

Total impediments per country

2,33
2,42

7,48
3,05

8,04
3,62

5,56
2,69

3,64
1,86

7,56
3,73

2\2

1\2

4,41
2,71

2\2

8,63
3,80

1,96
1,43

5,42
2,55

2,95
2,04

5,64
2,86

3,10
2,07

5,57
2,14

6,08
2,57

2\2

1\2

2\2

1\2

1\2

2\2

2\2

2\2

2\2

Total exclusions

Total impediments

14\26

6\26

L
3
0
2
/
1
8

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n

C
o
m
m
u
n
i
t
i
e
s

.

1
7
1
1
2
0
0
1

.

17.11.2001

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Official Journal of the European Communities

L 302/19

H. GLAXO WELLCOME’S MAIN ARGUMENTS

(76)

In its supplementary notification of 28 July 1998, GW
plc explains in detail
the reasons for applying for
negative clearance and, alternatively, for exemption (52).
It expands on these reasons in its reply to the SO (53).
Unless otherwise indicated, the following summary of
GW plc’s arguments has been drawn from these two
documents. There is a degree of overlap between some
arguments made in the context of Article 81(1) and
others advanced in the context of Article 81(3).

1. ARTICLE 81(1) OF THE TREATY

(a) Clause 4 does not amount to an export ban or
dual pricing — hence it does not have as its object
the restriction of competition

(77) GW admits that Clause 4 of its new sales conditions for
Spain is liable to restrict parallel trade towards other
Member States. However, it states that this clause does
not amount to an export ban since it often leaves scope
for parallel exports on a commercial basis. Nor can it be
equated with a system of dual pricing, because GW SA
is not free to set the domestic wholesale price. According
to GW, one can only speak in terms of dual pricing
where the supplier can determine both of the different
prices at which the product is supplied.

(78) Agreements which merely restrict parallel imports but
are not equivalent to an export ban or to a system of
dual pricing do not have the object of restricting
competition within the meaning of Article 81(1) and
cannot be regarded as per se illegal. An assessment of
their restrictive effects must be made.

(b) Clause 4 produces no restrictive effects on compe-

tition

(79) According to GW, it is incumbent upon the Commission
to assess the restrictive effects of notified agreements in
their economic and legal context when such agreements
do not have the object of restricting competition. In
GW’s view, Clause 4 produces no such effects. It does
no more than correct and compensate for a distortion
of competition which results from State intervention, in

(52) See section 16, pp. 19 to 26 [851 to 858] (negative clearance)

and section 17, pp. 27 to 43 [859 to 875] (exemption).

(53) See respectively pp. 22 to 35 [3529 to 3542] and pp. 35 to 45

[3542 to 3552].

this case Spain’s maximum wholesale price,
in the
absence of harmonisation of national rules on the
pricing of prescription medicines. Its effects resemble
those produced by clauses in the agreements considered
in the Commission decisions relating to Metro (54),
Distillers-Victuallers (55) and Villeroy Boch (56). Finally,
GW argues that Clause 4 enhances consumer welfare
because it limits a from of trade (parallel trade) which is
likely to cause harm to consumers in Spain, without
causing any harm to UK consumers.

(c) Clause 4 merely compensates a distortion of

competition created by Spain

(80) All national authorities play a double role in the
pharmaceutical sector. They regulate drug sales prices,
directly, and effectively purchase the drugs since they
reimburse the patients. When a national authority
decides (as regulator) to impose low sales prices for
drugs in order to achieve budgetary saving (as pur-
chaser/reimbursing entity), it can undermine the pricing
policy of another national authority which approves
higher prices or even allows free pricing because it places
a higher priority on the need to research and develop
new innovative drugs and recognises that this requires
higher sales revenues for the pharmaceutical companies.
The actual distortion of competition is triggered by
parallel trade from the low price (source) country to the
higher price (target) countries. According to economic
theory, this trade flow tends to force prices downwards
tot the level of the source country. This in turn puts at
risk R & D investments in the target country and
frustrates that country’s policy of promoting such invest-
ments. In the present case, Spain creates a distortion of
competition because its system of maximum wholesale
prices which aims at reducing the national healthcare
budget puts at risk the policy of other Member States,
including the United Kingdom, which consider adequate
R & D investment to be a priority.

(54) Commission Decision 76/159/EEC in Case IV/847 — SABA (OJ
L 28, 3.2.1976, p. 19), upheld by the Court of Justice in Case
26/76 Metrov Commission(‘Metro 1’) [1977] ECR 1875.

(55) Commission Decision 80/789/EEC in Case IV/26.528 — The
Distillers Co. Ltd — Victuallers (OJ L 233, 4.9.1980, p. 43,
recitals 15, 16 and 17).

(56) Commission Decision 85/616/EEC (OJ L 376, 31.12.1985, p. 15,

recitals 35 and 36).

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(d) The analogy with the Distillers — Victuallers,

Metro I and Villeroy Boch cases

‘under these circumstances, it must seriously consider
limiting the introduction of new products in Spain’.

(81) The restrictive effect produced by Clause 4 of the new
sales conditions is similar to that of the agreements
which were given negative clearance in Distillers —
Victuallers. In that case, Distillers had prohibited the
victuallers (operators of a duty free trade) from supplying
customers who would not use the goods for their own
(duty free) end consumption but for resale in the (non-
duty free) market. GW perceives an analogy between, on
the one hand, the duty free segment and the Spanish
market where special maximum prices prevail and, on
the other hand, the non-duty free segment and the
export markets where higher prices apply.

(82) Clause 4 also intends to remedy a distortion of compe-
tition which is similar to the distortion created by dual
distribution, that is, when a wholesaler, who obtains a
product at a lower price than retailers, sells directly
to end-users in competition with these retailers. The
Commission has twice granted negative clearance to
companies who had prevented their wholesalers from
doing so (Metro I, Villeroy Boch).

(e) Clause 4 enhances consumer welfare

(83)

Parallel trade is likely to cause harm to consumers in
Spain. GW estimates that lost revenue due to parallel
trade in its eight leading products from Spain to the
United Kingdom amounted to GBP [...] million in 1998
(see recital 68). This causes harm to GW in two respects.
On the one hand, these lost sales represent a net direct
loss of GBP [...] million if account is taken of the extra
sales revenues earned in the source country. On the
other hand, a loss of GBP [...] million in domestic UK
sales reduced the [...] % discount (see recital 45) which
GW is allowed to deduct under the PPRS in the context
of the NHS’s profit-capping. This reduction amounted
to GBP [...] million in 1998 (57). GW concludes that

(57) The [...] % is calculated on the basis of domestic sales only. Sales
stemming from parallel imports are excluded. For 1998, total
UK sales amounted to GBP [...] million (see Annex 3 to GW
notification of 28 July 1998). Had all these sales been domestic,
[...] % would have meant a discount of GBP [...] million. However,
parallel imports accounted for GBP [...] million (ibid.) thereby
leaving only GBP [...] million domestic sales. GW was entitled to
a discount of [...] % of that amount. This corresponded to GBP
[...] million. The difference is GBP [...) million (GBP [...] million
minus GBP [...] million). Since out of the total value of parallel
imports (GBP [...] million), imports from Spain represented GBP
[...] million (see Annex 10 to GW notification of 28 July 1998
[907] and recital above), GBP [...] million lost discount is directly
attributable to these imports.

(84) GW SA pricing policy causes no harm to UK consumers.
Under the UK National Health Service, patients do not
pay for the cost of prescribed pharmaceutical product,
with the exception of a minimal flat-rate payment. This
cost is rather borne by the State. The only real consumer
is therefore the United Kingdom Government, which
reimburses these patients. Parallel trade benefits the
Government only to a limited extent, namely via the
claw-back mechanism (see recital 49). GW stresses,
however, that the Government has not set up this
mechanism with the intent of benefiting from parallel
trade but rather to prevent UK intermediaries and
pharmacists from obtaining unjust enrichment by pur-
chasing cheaper parallel
imported products and still
receiving reimbursement fees bases on domestic United
Kingdom prices.

2. ARTICLE 81(3) OF THE TREATY

(85) Before discussing in detail the four cumulative con-
ditions for an exemption set out in Article 81(3), GW
formulates several arguments of a general nature in its
notification of 28 July 1998 and develops these argu-
ments in its reply to the SO. There are, by and large,
three such arguments. All of those arguments contain
submissions already made in the context of Article 81(1).

(86)

First, GW argues that Article 81(3) must be interpreted
in the light of various provisions of Article 3 of the
Treaty. Second, it refers to the Court’s judgements in
Merck v Primecrouwn (58)Centrafarm v Winthrop (59) which,
in GW’s view, demonstrate that private measures to
impede parallel trade can be exempted. Third, it pleads
for a balancing of the negative impacts of the restrictions
against the benefits asserted by the parties (bilan écono-
mique) which in the present case rules in favour of the
benefits achieved by the new sales conditions.

(87) These three general arguments will first be restated. The
more specific arguments related to each condition set
out in Article 81(3) will then be summarised.

(58) Joined Cases C-267 and C-268/95, [1996] ECR I-6285.
(59) Case 16/74 [1974] ECR 1183.

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L 302/21

(a) General arguments concerning Article 81(3)

The judgments in Merck Primecrown and Centrafarm
Winthrop

(88)

(89)

The combined application of Article 81(3) and
Article 3

formerly Article 3b).

Subsidiarity (Article 5,
In the
absence of harmonisation of national regulations regard-
ing pharmaceutical pricing, the Commission cannot
use parallel
imports to advance the goals of market
integration. The price differences reflect different policy
decisions of the Member States. The effect of parallel
trade is to impose the fiscal, budgetary and industrial
policies of one Member State on another.

Economic and social cohesion (Article 3(1)(k), formerly
Article 3(1)(j). According to GW, its pricing policy in
Spain will ensure that there will be adequate supplies of
innovative medicines on the Spanish market. It argues
that the artificially low prices allowed by the Spanish
Government have led to significant delays between the
application for a product licence in Spain and the
actual marketing of GW products there. In many cases,
products only reach the market in Spain some six or
seven years after they have been marketed in the United
Kingdom.

(90) Competitiveness and R & D [Article 3(1)(m) and (n),
formerly Article 3(1)(l) an (m)]. GW goes to considerable
length to explain the immediate and long-term detrimen-
tal effects of parallel trade in the pharmaceutical sector.
The immediate effect is to reduce revenues of companies
in the target countries as prices are pushed down to
levels in the source countries. GW provides figures from
a NERA report concerning losses in 1996 for the
industry as a whole. It also refers to its own losses in the
United Kingdom for the period 1996 to 1998 (see
recitals 64 to 67). The long-term effect is to reduce
funds available for basis research and new product
development due to the loss of revenues. GW reduced
its total R & D investment by [...] % in 1997 ‘partly as a
result of lower anticipated sales revenues in 1997 and
1998’ (60), GW adds that this trend will contribute to the
migration of the pharmaceutical industry and R & D
efforts to countries such as the USA where higher profits
can be earned.

(60) Reply to the SO, p. 21 [3528].

(91) GW argues that the Court of Justice has recognised the
legitimacy of private measures to reduce parallel trade
and the need for the Commission to support such
measures by exempting them pursuant to Article 81(3).
In Merck v Primecrown, the Court acknowledged that ‘the
imposition of price controls is indeed a factor which
may, in certain conditions, distort competition between
Member States’. It then went on to observe that ‘it is
well settled that distortions causes by different price
legislations in a Member State must be remedied by
measures taken by the Community authorities and not
by the adoption by another Member State of measures
incompatible with the rules on free movement’. Accord-
ing to GW, the ‘measures taken by the Community
authorities’ must include individual exemptions pursu-
ant to Article 81(3).
In this respect, GW relies on
Centrafarm v Winthrop, where the Court described such
measures as including ‘the exercise of their powers in
the competition field’.

The bilan économique argument

(92)

(93)

In its notification of 28 July 1998, GW states that the
United Kingdom Government has estimated the annual
savings associated with all parallel imports for the NHS,
via the claw-back mechanism, at about GBP [...] million.
This benefit is small compared with the direct net loss
of GBP [...] million due to imports from Spain (see
recital 67) and the loss of GBP [...] million in GW’s
allowable R & D budget under the PPRS due to imports
from all sources (see footnote 57). It conclude that the
only real beneficiaries of parallel import are the parallel
importers themselves.

In its reply to the SO, GW expands on this argument. It
points to the negative effects of parallel imports. They
exacerbate the distortion of competition created by
Member State intervention, lead to pricing that deviates
from optimal welfare-enhancing pricing and cause
delays in product introductions in lower-price countries.
The classic benefits
in high price
countries, namely lower purchase prices, do not exist.
The principal consumers in these countries are govern-
ments, because they fund the purchases. They do not
necessarily regard lower prices generated by parallel
imports as a benefit, particularly if they lead to less
trade in
investment
pharmaceutical goods only involves arbitrage by com-
mercial speculators.

in R & D. All

for consumers

in all, parallel

L 302/22

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17.11.2001

(b) Specific arguments concerning each of the four

conditions set out in Article 81(3)

First condition (promotion of technical progress)

(94) GW reiterates its arguments about the importance of
R & D as the most critical competitive parameter in the
pharmaceutical sector and the negative impact of parallel
trade on R & D financing.

(95) R & D as competitive parameter. GW states that its rate
of R & D expenditure represents approximately 13 % to
14 % of turnover (61). In 1999, R & D investments
amounted to GBP [...] billion (62). The overall rate of
R & D expenditure is high for all companies operating
in this market. Internal funds are the major source of
funding for research projects. There are sound economic
reasons, including issues of screening and commitment,
for this (63).

(96) Negative impact of parallel trade on R & D financing.
GW uses a host of figures concerning the size of R & D
investments, the direct and indirect losses for R & D due
to parallel trade and the importance of sales revenues
for R & D to demonstrate the negative impact of parallel
trade.

(97)

It states that the average R & D investment to develop
one single product is up to GBP 300 million and urges
the Commission not to dismiss a small percentage
decrease in R & D as de minimis, because the R & D not
engaged in could be the very R & D that would led to
the discovery of a major new product. Where success is
unpredictable, opportunity costs may be infinite.

(98) GW then restates figures concerning the direct losses for
R & D incurred by GW plc as a result of parallel trade in
the eight leading product from Spain (offset against extra
revenues from sales in Spain). These losses amounted to
GBP [...) million between 1996 and 1998 and in 1998
alone GBP [...] (recital 68). Given that GW reinvests
about [...] % of its pre-tax profits in R & D, this meant a
reduction of the R & D budget of GBP [...] million in the
period 1996 to 1998 (GBP [...] million in 1998). This
represents a reduction in the contribution of GW plc
sales to GW’s world wide R & D budget of over [...] %.
The GBP [...] million reduction would have been ‘more
than sufficient to cover the development costs for any
one of a number of new products whose development
or in-licensing GW has been forced to cancel or
postpone as a result of the need to prioritise the use of

(61) London Economics study pp. 32 and 44, footnote 31 [1036,
1048] pointing out that the R & D ratio is relatively constant
over the years. For 1997, GBP 1,148 billion out of 7,980 billion
(14,5 %) was spent and for 1998 GBP 1,163 billion spend out of
7,983 billion (14,5 %) (source: Annual Reports).

(62) Slide presentation by Glaxo in the oral hearing of 8 and

9 December 1999 [4175].

(63) See p 37, footnote 39, of supplementary notification by GW of

28 July 1998 [869].

scarce resources’. GW acknowledges that it may be
difficult to identify the projects that might have been
realised or continued had such a substantial sum been
available. At the oral hearing, it nevertheless mentioned
nine projects that could not be funded due to insufficient
finances.

GW also repeats that parallel trade into the United
Kingdom from all sources, as well as from Spain in
particular, caused an indirect loss on R & D because it
led to the reduction of the discount which the NHS
deducts from its UK sales when determining the basis
for capping its profits. In 1998 this loss of revenue
amounted to GBP [...] million (parallel trade in all GW
products from all sources, see recital 65) and GBP [...]
million (parallel trade in the eight leading products from
Spain, see recital 68). This led to a reduction of the
allowable [...] % discount by GBP [...] million (all
sources) and GBP [...] million (Spain) respectively (see
footnote 57). This effectively reduced GW’s ‘permissible
R & D budget’.

(99) GW finally stresses that pharmaceutical companies make
their R & D investment decisions on the basis of the
anticipated stream of returns. These depend on the value
of the patent to be obtained. That value is directly related
to the sales revenues, net of production costs. These in
turn depend on the expected price that can be charged
and quantity that can be sold. GW illustrates this point
by referring to the increase in its R & D expenditures by
some 230 times during the period 1980 to 1993.
During that period, GW had succeeded in bringing a
number of successful innovative products to the market.
Zantac was by far the most important product. Up to
1994,
it accounted for about [...] % of word wide
revenues.

First condition (improvement of distribution)

(100) According to GW, parallel trade is detrimental for the
distribution of pharmaceutical products in at least three
respects.

To start with, parallel trade interferes with producers’
ability to plan distribution rationally because it leads to
shortages in source countries and oversupply in target
countries. Cofares, the largest domestic Spanish whole-
saler, and the association of Spanish laboratories are said
to have complained about such shortages in Spain.

17.11.2001

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L 302/23

Parallel trade also disrupts producers’ distribution sys-
tems by removing the incentive and the means for
wholesalers to provide a level of service for which they
are remunerated.

Fourth condition (no substantial restriction of com-
petition)

Finally, the combination of low domestic prices and the
parallel trade to which they give rise provide a strong
disincentive to the rapid introduction of
innovative
medicines in the low-price countries which results in
marketing delays for new products.

(101) Where these detrimental effects are the results of differ-
ences in prices due to exchange-rate fluctuations or the
lower costs of distributors, they may be excused or at
least tolerated as a reflection of the workings of a free
market.
In contrast, where these effects result from
Member State intervention, they cannot be justified. The
new sales conditions thus provide objective improve-
ments in distribution by remedying the negative effects
of parallel trade.

Second condition (consumer benefits)

(102) GW argues that consumers profit from its enhances
R & D activities as well as from its improved distribution.
Beyond the benefit for consumers, there are benefits for
the national governments involved. The GW system
allows the United Kingdom to achieve its goal of
stimulating R & D while permitting the Spanish Govern-
ment to share these benefits while setting maximum
wholesale prices domestically.

Third condition (indispensability)

(103) GW considers Clause 4 to be indispensable since there
is no other way to reduce the distortion of competition
created by Spain. It had contemplated an action against
the Spanish authorities on the basis of Article 28 of the
Treaty, on the ground that the maximum wholesale
prices limit imports. However, it was ‘advised that in the
absence of evidence that the Spanish pricing system
allows higher prices for products produced in Spain, that
system would probably not be viewed as a restriction on
imports in the light of the lack of harmonisation on
pharmaceutical pricing’.

(104) GW refers

to its

in the context of
submissions
Article 81(1) concerning the ‘competition’ created by
parallel
imports of pharmaceutical products into the
United Kingdom. Such competition does not benefit
consumers to any significant degree but only serves, at
the expense of the United Kingdom Government, the
profits of parallel traders whose sales of parallel imports
exceed the levels assumed by the PPRS. GW also notes
that it does not operate exclusive distribution in the
countries affects by parallel imports from Spain. Intra-
band competition would therefore continue in respect
of GW’s products if the new sales conditions were in
force.

I. ARGUMENTS PRESENTED BY THE COMPLAINANTS

(105) All complainants regard Clause 4 of GW SA’s new sales
conditions as an agreement that puts in place a system
of dual pricing impeding parallel trade. Such systems are
per se illegal. They cannot be exempted.

(106) Aseprofar claims that parallel trade often constitutes the
only source of competition to patented medicines (64).
EAEPC stresses that the notified system will influence
the availability of parallel traded medicines in all Member
States, not just the United Kingdom and that parallel
trade does often yield benefits for consumers in high
price countries (65).

(107) Aseprofar rejects the argument that governments must
be given the opportunity to foster R & D by accepting
high prices. This mechanism is inefficient because there
is no guarantee that high profits necessarily lead to the
desirable level of R & D. Furthermore, nobody knows
what the desirable level of R & D is. In any event,
governments can revert to alternative, more direct means
to stimulate R & D, for example, by subsidising these
activities.

(108) Aseprofar also casts doubt on the existence of conflicting
policy goals in Spain and the United Kingdom. Had the
NHS wished to stop or discourage parallel trade, it could
have done so by reimbursing pharmacists on the basis
of their actual purchase costs instead of paying them a
fixed fee which is unrelated to these costs.

(64) Professor Corchon study I, pp. 1 to 11 [Case 36.997, 3144 to

3154].

(65) Submission by the EAEPC of 22 December 1999, p. 7 [Case

37.380, 111].

L 302/24

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II. LEGAL ASSESSMENT

A. ARTICLE 81(1) OF THE TREATY

(113) Taking account of these observations and of the fact that
the new sales conditions apply to all GW products sold
in Spain (82 in total) and affect parallel trade throughout
the Community, it is not necessary to determine pre-
cisely GW’s market shares for each product for the
purpose of this decision.

1. AGREEMENT BETWEEN UNDERTAKINGS

(109) The Commission considers that Clause 4 of the new
sales conditions constitutes an agreement between GW
SA (and its subsidiaries) and all Spanish wholesalers who
have subscribed to these conditions after having received
a copy thereof (see recital 12). GW plc does not dispute
that the new conditions of sale constitute an agreement
between
of
Article 81(1).

undertakings within

the meaning

2. RELEVANT MARKET

(110) The Commission usually defines the relevant products
market by reference to the ‘Anatomical therapeutic
classification’ (ATC) recognized by the WHO. It has,
however, also occasionally accepted the ATC classifi-
cation drawn up by EphMRA on which GW relies in the
present case (66).
In pharmaceutical cases the Com-
mission uses the third ATC level, which reflects thera-
peutical/pharmacological subgroups of drugs, as a start-
ing point of its analysis.

(111) However, in specific cases, the market definition may be
narrower or wider than ATC third level. Ultimately, the
substitutability of products depends on the indication
for which they are approved and used (67). In the case of
prescription drugs, it therefore depends on the diagnosis
of prescribing doctors.

(112) In its supplementary notification of 28 July 1998, GW
provided for each product market share data based on
either the second or third level of the ATC classification.
GW observes, however, that the Spanish pricing system
and the problems caused by parallel imports give rise to
issues that go beyond the individual products covered
by the agreement. These issues might point to a wider
product market comprising all prescription medi-
cines (68).

In the present case,

(114) For the same reason, it is not necessary to dwell upon
the scope of the relevant geographic market. In all
Commission decisions adopted hitherto, this scope has
the
been defined as national.
Commission does not divert from this because of a
number of factors. These include different price and
reimbursement regulations, different brand and packing
strategies and different distribution systems as well as
different prescribing habits of physicians (reflected by
the different market shares for the same product in
different Member States). At this stage, Community
harmonisation is limited to technical requirements for
medicines and the entry into force of a procedure
enabling pharmaceutical companies to apply to the
European Agency for the Evaluation of Medicinal Prod-
ucts for the purpose of obtaining a single market
authorisation for the entire Community (69). Even with
these developments, pharmaceutical companies still con-
tinue to use the national market authorisation pro-
cedures.

3. RESTRICTION OF COMPETITION

(115) Below, the Commission addresses all arguments submit-
ted by GW in the context of Article 81(1), except those
in which it submits that its pricing policy in Spain
enhances consumer welfare in so far as it limits a form
of trade (parallel trade) which causes harm to consumers
in Spain while causing no harm to UK consumers. GW
reiterates these arguments in detail in the context of
Article 81(3) and they will therefore be addressed in that
context.

(a) Clause 4 is tantamount to an export ban or a

dual-pricing system

Objective to impede parallel trade

(116) Although GW contends that the new sales conditions
do not block and are not intended to block exports by
Spanish wholesalers where these have an advantage due

(66) Commission Decision 97/469/EC in Case IV/M.737 — Ciba-

Geigy/Sandoz (OJ L 201, 29.7.1997, p. 1, recital 22.

(67) See also Commission notice on the definition of relevant market
for the purposes of Community competition law (OJ C 372,
9.12.1997, p. 5, recital 36 on intended use.

(68) Supplementary notification, p. 10 [842].

(69) See Council Regulation (EEC) No 2309/93 of 22 July 1993
laying down Community procedures for the authorisation and
supervision of medicinal products for human and veterinary use
and establishing a European Agency for the Evaluation of
Medicinal Products (OJ L 214, 24.8.1993, p. 1). Regulation as
amended by Regulation (EC) No 649/98 (OJ L 88, 24.3.1998,
p. 7).

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to superior efficiency or differences in exchange rates
(see recital 21), it admits in the London Economics study
that the agreement is ‘intended to reduce the incentive
for Spanish traders to engage in parallel
trade of
prescription medicines purchased at the low prices set
by the Spanish Government (70)’. It follows that GW’s
objective is clearly to impede parallel trade by obliging
Spanish wholesalers to purchase the drugs at prices
which are higher than the maximum industrial price for
domestic sales.

mission’s decision in Distillers (73) according to which
‘the non-applicability of price allowances on spirits for
export and the application to the same customers of
different prices for spirits for export and for spirits for
United Kingdom consumption are clearly an attempt to
impede parallel imports from the United Kingdom into
EEC countries other than the United Kingdom, with the
same object as a formal export prohibition and can be
regarded as a more efficient way to discourage exports’.

Effective exclusion or restriction of parallel trade

Analogy with dual pricing

(117) As shown above with regard to GW’s eight leading
products which GW considers to be most subject to
parallel trade, the Clause 4B prices either exclude or
restrict parallel trade in a large majority of cases (see
recitals 72 to 75 above). The Clause 4B prices exclude
such trade by making it economically uninteresting for
wholesalers in more than 40 % of the cases: 66 out of
161 cases if no account is taken of the wholesalers’
own costs. This percentage increases slightly if a 5 %
wholesale cost margin is added to domestic and export
prices (68 cases) and even more in a 15 % cost margin
scenario (74 cases). In around 35 % of the cases, the
Clause 4B prices impede parallel trade by making it
the wholesalers
interesting for
economically less
(57 cases). Admittedly, that percentage decreases when
one adds a 5 % wholesale cost (45 cases) or a 15 % cost
(24 cases). I follows that Clause 4 produces an effect
tantamount to that of an export ban in a considerable
number of cases while impeding parallel trade in other
cases in very much the same way as a system of dual
pricing.

Analogy with export bans

(118) The Commission has already imposed a fine on a
pharmaceutical company for a policy aimed at banning
parallel trade. In Sandoz (71), it prohibited a practice
whereby the company had displayed the words ‘export
prohibited’ over a number of years on its sales invoices.
The Court of
Justice upheld the Commission’s
decision (72). A pricing policy which makes it economi-
cally uninteresting for wholesalers to indulge in parallel
trade must be considered to be at least as effective as an
outright contractual export ban in excluding such trade
because it involves in principle no cost of monitoring
compliance. A parallel can be drawn with the Com-

(70) Executive summary of the LSE study, introduction p. 1 and also

at v [1007, 1003].

(71) Commission Decision 87/409/EEC in Case IV/31.741 — Sandoz

(OJ L 222, 10.8.1987, p. 28).

(72) Case 277/87 Sandozv Commission[1990] ECR I-45.

(119) To the extent that the Clause 4B prices render parallel
trade more costly and thus economically less interesting,
GW’s policy can be equated with systems of dual pricing
of the kind prohibited in Moët Chandon (74) or Distillers
and Gosme/Martell (75). In the first case, the Commission
qualified a clause which reserved list prices for cham-
pagne to products for consumption in the United
Kingdom as a restriction by object. Since it was not
allowed to export products at these list prices, the system
was classified as tantamount to a ban on export of
champagne ‘on the said terms’. This resembles the
present situation, where the wholesalers are not allowed
to export at the Clause 4A price. Exports are only
possible at the higher Clause 4B price and therefore not
on the terms which prevail
in Spain. Likewise in
Distillers, UK customers were charged different prices
depending on whether they resold inside or outside the
United Kingdom. The Commission declared that the
price terms amounted to an indirect export prohibition
because they rendered sales to other Member States at
In Gosme/Martell, the
the very least more difficult.
Commission held that Martell’s discount system which
made exports more expensive and less profitable, was
contrary to Article 81(1) since its object and effect was
to protect a higher price level in France resulting from
government intervention in the form of price freezes and
price controls. The impediment to parallel importation
resulting from a dual-pricing system has also been
prohibited in the Commission Decision Pittsburgh Cor-
ning (76).

(73) Commission Decision 78/163/EEC in Case IV/28.282 — The
Distillers Company Limited — Conditions of sales and price
terms, OJ L 50, 22.2.1978, p. 16, point 2.

(74) Commission Decision 82/203/EEC in Case IV/30.188 — Moët
et Chandon (London) Ltd, (OJ L 94, 8.4.1982, p. 7, paragraph 11.
(75) Commission Decision 91/335/EEC in Case IV/32.186 — Gosme-
in particular

/Martell —DMP (OJ L 185, 11.7.1991, p. 23,
paragraphs 19 and 32.

(76) Commission Decision 72/403/EEC in Cases IV/26.894, 26.876
and 26.892 — Pittsburgh Corning Europe — Formica Belgium
— Hertel (OJ L 272, 5.12.1972, p. 35).

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(120) GW contests that Clause 4 can be compared with dual
pricing. It argues that the national authorities determine
the level of one set of the prices involved (the domestic
Clause 4A price) and impose that level upon it. This
argument overlooks the fact that the pharmaceutical
companies have negotiating power when discussing
prices for domestic sales.

(123) Furthermore, once a company has negotiated the indus-
trial prices with the national authorities,
it can still
decide to effectively charge a lower price. In May 1997,
GW SA sold the three product variations of Severent at
a price lower than the authorised price (80). There are
also other cases in which GW SA has set the commercial
prices below the maximum allowed (81).

(121) First of all, these discussions open on the basis of price
proposals made by the companies themselves. The
Spanish authorities allow the companies to base their
proposals on all their costs, including those related to
R & D. article 3(3) of Royal Decree 271/1990 expressly
refers to the cost involved in R & D as included in the
complete cost which must be taken into account (see
recital 38). The proposals are then negotiated. Further-
more, the companies can apply for price increases by
proving ‘mandatory modifications to social-sanitary,
technical,
(see
recital 40). The possibilities of obtaining price increases
are not theoretical and, where they materialise, not even
exceptional. Indeed, for four of the eight products which
are claimed to be the prime candidates for parallel trade,
GW managed to obtain substantial price increases. The
price increases for Serevent, Imigran and Lamictal in
May 1997 and for Ventolin in July 1998 provide telling
examples (see recitals 41 and 42).

economical or

budgetary

status’

(122) GW itself admits that it managed to align the domestic
prices for Severent, Lamictal and Imigran in Spain on
the European average price level but argues that all the
benefits of these price increases were neutralised by the
simultaneous reduction of the price for Zantac (77).
However, what matters is that GW SA itself proposed
this reduction in exchange for price increases for the
abovementioned three products (78) and that it did so at
a time when Zantac was, in any event, going off-patent
in the United Kingdom and other Member States and
already faced price competition form generic prod-
ucts (79). This illustrates that the Spanish authorities
leave room for real price bargaining and do not set the
prices unilaterally.

(77) Reply to the SO, Annex 9, Letter GW-Ministry of Health of

1 April 1997 [3799/37800].

(78) Reply to the SO, Annex 9, Letter GW-Ministry of Health of

1 April 1997 [3799/37800].

(79) Annual Report GW 1997, p. 12 and 17 where GW also states
that Zantac has come under increasing pressure from generic
competition. See also response of 14 February 2000, p. 13
[4519].

Restrictions by object

(124) The Court of Justice (and Court of First Instance) have
always qualified agreements containing export bans,
dual-pricing systems or other limitations of parallel trade
as restricting competition ‘by object’. That is to say,
prohibited by Article 81(1) without there being any need
for an assessment of their actual effects. In principle they
are not eligible for exemption pursuant to Article 81(3).
Reference can be made to the judgments in NV IAZ
International Belgium v Commission (82), Sandoz v Com-
mission and more recently to Volkswagen v Com-
mission (83). In the latter case, the Court of First Instance
upheld the Commission’s decision which had classified
various measures making parallel imports more difficult
(without excluding them altogether) as restrictions ‘by
object’. These included measures reducing the bonus
granted to retailers in the cases of exports thereby
reducing the incentives to engage in parallel trade,

(125) GW’s new sales conditions entail restrictions of compe-
tition ‘by object’ within the meaning of Article 81(1). It
is settled case-law that for the purpose of the application
of Article 81(1) there is no need to take account of the
actual effects of an agreement when it has as its object
the prevention, restriction or distortion of competition
within the common market. Consequently, the Com-
mission is not required to show actual anti-competitive
effects where the anti-competitive object of the conduct
in question is proved (84). However, for the sake of

(80) For Serevent Acc. GW charged ESP 72,5/unit instead of the
authorised 75,53. For Inh. 25 × 120, ESP 34,54/unit has been
charged, compared to an authorised price of ESP 36,05. For Inh.
25 × 60, only ESP 37,5/unit of the authorised 38,86 charged.
See reply to the SO, Annex 9, present PTW [3795].

(81) See response of 14 December 1998, Annex 5 [1693 to 1703]
where GW’s indications show differences between the commer-
cial and authorised price for the following products: Becloforte
250 mg Inh. (commercial price: 2 215,60; authorisation price:
2 296,00); Beconase (commercial price: 430,10; autorisation
price 442,00), Becotide (commercial price: 406,30; autorisation
price: 417,60).

(82) Joined Cases 96-102, 104, 105, 108, 110/82 [1983] ECR 3369,

paragraphs 24, 25 and 27.

(83) Case T-62/98 [2000] ECR II-2707, paragraphs 89 and 178.
(84) See e.g Case T-62/98, Volkswagenv Commission, paragraph 178.

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completeness,
the Commission has undertaken this
analysis and assessed the new sales conditions in their
legal and economic context.

(b) Clause 4 produces restrictive effects on compe-

tition

(126) Tables 4-1 to 4-4 set out in detail the impact of GW’s
new sales conditions on parallel trade between Spain
and all other Member States (except Luxembourg). They
do so for GW’s eight leading products which GW
considers to be most subject
to parallel trade (see
recital 15). It emerges from these tables that the Clau-
se 4B prices exclude such trade by making it economi-
cally uninteresting for wholesalers in more than 40 % of
the cases: 66 out of 161 cases if no account is taken of
the wholesaler’s own costs. This percentage increases
slightly if a 5 % wholesale cost margin is added to
domestic and export prices (68 cases) and even more in
a 15 % cost margin scenario (74 cases). This shows
that
the agreements produce a restrictive effect on
competition by excluding or limiting the possibilities of
parallel trade (see recital 75).

Clause 4 does not merely compensate a distortion
of competition created by Spain

(127) The Commission rejects GW’s argument that Clause 4
does no more than compensate a distortion of compe-
tition created by Spain, for essentially four reasons.
These will first be summarised and then developed in
more detail. First, in applying Article 28 of the Treaty
on free movement of goods, the Court of Justice has
consistently condemned State measures which restrict
parallel
imports of medicines from countries where
prices are lower and which provided less (or no)
incentives for pharmaceutical companies to undertake
R & D. It will be demonstrated that the competition
rules equally aim at preventing the partitioning of the
common market along national lines. Second, in other
sectors (for example cars) where — in contrast to the
pharmaceutical sector — companies have no say in the
regulatory process, these companies have not been able
to rely on the difference between national regulations to
justify restrictions on parallel trade. Third, the difference
between national price regulations (and the underlying
policy objectives) should not be overstated in the present
case. Fourth, it is too simplistic to refer to conflicting
national price regulations as unilateral State measures
which pharmaceutical companies have been imposed
on since these companies have negotiating power vis-à-
vis the national authorities.

(128) Case-law on Article 28 in the pharmaceutical sector. In
Merck v Primecrown (85),
the Court explicitly stated,
‘although the imposition of price controls is indeed
a factor which may,
in certain conditions, distort
competition between Member States, that circumstance
cannot justify a derogation from the principle of free
movement of goods’. In that case the Court prevented a
pharmaceutical producer from invoking its UK patent to
stop parallel imports from Spain where the products
did not enjoy patent protection and were subject to
government price control. In Centrafarm v Winthrop (86)
the Court had already stated:
‘It is a matter of no
significance that there exist, as between the exporting
and importing Member State, price differences resulting
from governmental measures adopted in the exporting
state with a view to controlling the price of the product’.

(129) Given that the Court held in Centrafarm v Winthrop and
Merck v Primecrown that undertakings may not rely on
national patent legislation to restrict the free movement
of goods placed on the common market with their
consent, there is no reason why Community law should
permit undertakings to restrict the free movement of
such goods by means of private law contracts where the
conditions of Article 81(1) are met.

(130) To begin with,

it is well established that Article 28
and Article 81, while dealing with different types of
restrictions on parallel trade, both seek to achieve the
same goal, i.e. market integration. As the Court observed
in Merck v Stephar (87), the patent-holder who availed
himself of a national patent right to block parallel trade
‘would bring about a partitioning of the national markets
which would be contrary to the aims of the Treaty’. In
that
Consten
Article 81(1) is designed to pursue the Treaty’s funda-
mental objective of abolishing the barriers between
Member States and therefore opposes agreements
between undertakings which restore national divisions.

and Grundig (88)

the Court

stated

(85) Joined Cases C-267/95 and C-268/95,Merck & Co.Inc. V Prime-
crown Limited, paragraph 47; see also Case C-436/93 Bristol Myers
Squibbv Paranova A/S, [1996] ECR I-3457, paragraph 46.
(86) Case 16/74, Centrafarm BV and De Peijperv Winthrop BV [1974]

ECR 1183, paragraph 15, 16 and 17.

(87) Case 187/80, [1981] ECR 2063, paragraph 13.
(88) Case 56 and 58/64 of, Consten and Grundig-Verkaufs-GmbH[1966]

ECR 299, at p. 340.

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(131)

Furthermore,
there is a thin line between Member
State measures and private company measures in these
intellectual property cases. Indeed, the effect of applying
Article 28 in such cases, has been to prohibit private
actions by companies relying on monopoly rights which
a Member State has granted them. If Article 28 prohibits
these unilateral private actions, then Article 81(1) logi-
cally applies to concerted actions involving these same
companies trying to achieve the same result. Thus, in
Sirena r.l.v Eda (89) the Court ruled on the exercise of a
trademark right against imports from another Member
State under Article 28. The only obstacle it saw to the
application of Article 81 was that the exercise of a
trademark right does not in itself posses the elements of
an agreement or a concerted practice within the meaning
of Article 81(1). Nevertheless, the Court acknowledged
that the exercise of that right might fall within the scope
of Article 81(1). It observed that ‘such situations (i.e.
where Article 81(1) applies) might in particular arise
from restrictive agreements between proprietors of
trademarks or their successors in title enabling them to
prevent imports form other Member States.’

(132) Analogy with other sectors where pricing is influenced
by national regulations. In other sectors, the Commission
has refused to consider the difference between national
regulations as an exculpatory factor for companies
which restrict competition (90). That approach has been
upheld by the Court of Justice. In the car sector, the
Commission acknowledges that Member States’
tax
regimes differ considerably (leading to high price differ-
ences, sometimes around 80 %) (91), that this difference
stands in the way of genuine market integration and
that it interferes with free pricing. Nonetheless, the
Commission has never accepted this as a justification to

(89) Case 40/70, Sirena Srl vEda Srl and others[1971] ECR 69,
paragraph 5. See also Case 96/75 EMI Records Limitedv CBS
Schallplatten Gmbh[1976] ECR 913, paragraph 5.

(90) See Joined Cases 209-215, 218/78 Heintz van Landewyk Sarlv
Commission[1980] ECR 3125, at paragraph 153 where the Court
acknowledges that the Belgian taxation system might have a
definite influence on competition, but nevertheless refused to
accept restrictions of competitions based on that reason.

(91) See Commission report on car prices within the European Union
on 1 May 2000, COP/F2/0500 which shows for example a price
difference between a Honda sold in Denmark and in France of
87 % (pp. 52 and 53) after tax.

block parallel trade (92). For example, in Volkswagen (93),
it held that the block exemption in Commission Regu-
lation (EC) No 1475/95 of 28 June 1995 on the
application of Article 85(3) of the Treaty to certain
categories of motor vehicle distribution and servicing
agreements (94) was inapplicable as a result of
the
concerted actions between a manufacturer and importers
aimed at restricting parallel trade. However, car manu-
facturers have no say at all
in the fiscal regulatory
process (which can cause substantial differences in car
prices between the Member States and, as a consequence,
trigger parallel trade), whereas pharmaceutical compani-
es are always involved in the regulatory process govern-
ing their sales prices. The argument that cars or other
freely traded goods cannot be compared with medicines
because parallel trade does not benefit the final con-
sumers of medicines is a separate argument and will be
addressed in the context of Article 81(3).

(133) Conflict between the United Kingdom and Spain’s policy
objectives should not be overstated. The Professor Rey
study I argues that parallel trade from Spain endangers
UK prices and therefore compromises the UK policy
choice to foster R & D. However, the study’s basic
assumption of downward pricing (see recital 80) has
no foundation. Parallel trade constitutes only a very
negligible percentage of pharmaceutical
(see
recital 29) and can therefore only produce a marginal
effect on the prices in the target country. The best
illustration of this fact can be seen in Tables 2 and 3,
which show that despite the long history of parallel
trade, prices in the United Kingdom are still substantially
higher than in other Member States. There is no proof
that UK prices have gone or are likely to go down
because of Spanish imports. Furthermore, the difference
of policy choices between the two Member States should
the Spanish
not be overstated. On the one hand,
regulatory authorities expressly allow pharmaceutical
companies to propose prices which fully reflect their
R & D costs. This is clearly stated in the relevant

sales

(92) In its notice concerning Regulation (EEC) No 123/85 on the
application of Article 85(3) to certain categories of motor vehicle
distribution and servicing agreements (OJ C 17, 18.1.1985, p. 4),
the Commission specifies that it can withdraw the benefit of the
block exemption for selective distribution networks if the price
differences exceed 12 % and if there are indications that these
differences are chiefly due to obligations subscribed to by the
approved dealers. It has, however, never supported any attempt
to block parallel trade. The notice remained applicable after the
adoption of Regulation (EC) No 1475/95, see press release IP(95)
648; also in its Decision 2001/146/EC in Case IV/36.653 —
Opel (OJ L 59, 28.2.2001, p. 1), the Commission prohibits
measures to block parallel trade despite the price differentials
resulting from different tax burdens.

(93) Commission Decision 98/273/EC in Case IV/35.733 — Volks-
wagen (OJ L 124, 25.4.1998, s. 60, paragraph 187). The Decision
in Case
the Court of
was upheld by
T-62/98, Volkswagen AGV Commission[2000] ECR II-2707.

Instance

First

(94) OJ L 145, 29.6.1995, p. 25.

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statute (95). On the other hand, the United Kingdom,
while encouraging R & D, recognises the need for
affordable prices. In paragraph 2.1 of the 1999 PPRS
scheme,
the Department of Health recognises that
continuous innovation is the key to competitive success
in a research-based industry and wishes to encourage
the research, development and supply of innovative
treatments for the benefit of NHS patients (96). However,
in paragraph 2.3 of the 1999 PPRS scheme, the Associ-
ation of British Pharmaceutical industry (ABPI) ‘recog-
nises that it is in the public interest that prices of
pharmaceutical products supplied under the NHS are
fair and reasonable’. In the introduction to the 1999
scheme, the Department of Health and the ABPI state
that they ‘have a common interest in ensuring that safe
and effective medicines are available on reasonable terms
to the National Health Service and in a strong, efficient
and profitable pharmaceutical industry in the United
Kingdom’.

cheaper parallel

taking into account

(134) While wishing to promote R & D, the NHS appears to
be equally concerned that prices are kept at a reasonable
level. This is demonstrated by the general price cut
of 4,5 % applied in October 1999 (see recital 47).
Furthermore the NHS de facto encourages parallel trade
in two respects. First of all, it reimburses pharmacists a
fixed fee without
their actual
purchase prices. As a result, the pharmacist who pur-
imported products pro-
chases
portionally receives a higher rate of reimbursement than
a colleague who buys domestic higher prices products.
If the NHS had an avowed policy in favour of high prices
and against parallel imports, it could have introduced a
‘cost-plus’ system whereby pharmacists’ margins are
fixed as a proportion of the actual price paid to the
wholosaler. In the Frontier Economics study II, GW itself
admits that by introducing such a system, the United
Kingdom Government could avoid incentives the phar-
macist to buy at the lowest price (97). It has not done so.
Secondly, the only measure the NHS has taken in order

(95) See Article 3(3) of Royal Decree 271/90 (see recital 38).
(96) Reply to the SO, Annex 4 on the PPRS, p. 2 [3676].
(97) Frontier Economics study II, p. 10 [4557].

to — as Glaxo perceives it — avoid unjust enrichment
by pharmacists is to claw back 4 % to 5 % of the
reimbursements from all pharmacists on the assumption
that
trade
this corresponds to the level of parallel
effected by intermediaries and pharmacists. Here again,
pharmacists who import more are, proportionally speak-
ing better off. So the claw-back mechanism provides
pharmacists in fact with an incentive to increase parallel
imports. The United Kingdom has not established any
measure to reduce parallel trade and might actually seek
to achieve the best of two worlds: fostering R & D while
at the same time creating possibilities to achieve savings.
Also, the fact that the NHS has recently created the
National Institute for Clinical Excellence (see recital 49)
shows that the United Kingdom is interested in the use
of cost-effective medicines.

(135) Negotiating power of pharmaceutical companies vis-à-
vis the national authorities. As already explained above,
given the fact that companies actually negotiate the
prices with the Spanish Government and manage to
achieve price increases by invoking one or more of the
justifications set forth in the relevant Royal Decree, it is
too simplistic to regard pharmaceutical companies as
price takers because the national competent authorities
set maximum prices (see paragraphs 121, 122 and 123).

The present case differs from Distillers/Victuallers,
Metro I and Villeroy Boch

(136) GW relies on Distillers/Victuallers to conclude that its
sales conditions, like the agreements between Distillers
and the victuallers, do not entail any distortion of
competition. The first point to make is that the Com-
mission actually found a restriction of competition in
Distillers/Victuallers. It simply went on to consider that
the restriction was rather theoretical and therefore not
appreciable within the meaning of Article 81(1). The
second point to make is that the regulatory framework
in that case cannot be compared with the one faced by
GW.

(137) As regards the first point (non appreciable restriction),
the Commission highlighted the fact that the victuallers’
customers (for example, international ships and airlines)
were not oriented towards the non-duty free market
segment anyway. Hence the restriction of their freedom
to choose their customers and terms of sale did ‘not
result in any real restriction’ and the obligations imposed
on the victuallers ‘does not have the effect of appreciably
restricting competition in the common market’.
In
contrast, Clause 4 of GW’s new conditions of sale
imposes a restriction of the wholesalers’ freedom of
action which matters a lot to many of them, as the
complaints and the demonstrated decline in sales to

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them demonstrate. The restriction is thus no purely
theoretical but, indeed, appreciable.

Clause 4 restricts opportunities for parallel trade
created by currency fluctuations

(138) As to the second point (different regulatory framework),
it must be noted that it was Community legislation
which has put in place a clear segmentation of the duty-
free and the non-duty free market segments. Only a
certain customer group (travelers), which had been
clearly identified by Community law, could buy duty
free. The victuallers’ agreement merely aimed at consoli-
dating this legal situation by limiting the victuallers’
freedom to sell duty-free goods outside the special
distribution channel. Besides, the segmentation at stake
did not interfere with the integration of national markets.

(141) GW itself acknowledges that the detrimental effects of
parallel
trade for ist distribution of pharmaceutical
products may be ‘excused or at least tolerated as a
reflection of the workings of a free market’ where the
differences result from ‘exchange rate fluctuations or the
lower cost of distribution’ (100). GW contends however,
that the price differences which its new sales conditions
seek to tackle result entirely from Member State inter-
vention and that this intervention distorts competition.
The appreciation of the British pound during the period
for which GW has supplied data concerning parallel
trade of its products (1996 to 1998) tells a different
story.

(139) The present case is different. To start with, the segmen-
tation between Spain and the export markets has not
been brought about by either Community or national
legislations. Even the amendment to the Ley de Medica-
mento which limits the Spanish maximum price to
products dispensed in Spain, leaves it at the discretion
of the pharmaceutical companies to apply a higher or
the same price to exports. There is specific regime which
legally reserves the Clause 4A price to the Spanish
market. It is GW’s agreements with the wholesalers
which do so. Moreover, the segmentation created by
GW’s sales conditions directly lead to a compartmentali-
sation of the common market.

(140) As regards Metro I (98) and Villeroy Boch (99), these are
not relevant because they deal with contract clauses
which address a different
type of price differential,
namely one from which vertically integrated wholesalers
benefit vis-à-vis retailers who have to purchase their
goods from wholesalers. In the present case, the price
differential
is created by an agreement between the
manufacturer and this wholesalers in one country and
it has an impact on competition between exporting
wholesalers and intermediaries operating at the same
level of the distribution chain in other Member States.
Moreover, it is a price differential which interferes with
market integration, unlike the one in Metro I and Villeroy
Boch. It should also be noted that in Metro I the Court
has not allowed the maintenance of the price differential
as such, but only under the condition that the system
does not reinforce the structural rigidity on the market.

(142) As pointed out above (recital 54), the GBP/ESP exchange
rate rose from 188,65 in January 1996 to 240,09 in
December 1998. This represented an appreciation of the
GBP against
the ESP of 27 %. The gap was even
considerably wider between January 1996 and April
1998 (that is to say, the month after GW SA notified its
new sales conditions). In April 1998, the exchange rate
had risen to 262,09 and had constantly risen from
October 1996 (when it was at 200,27). It must be
concluded that the appreciation of the GBP has been a
major factor in causing the price differences that trig-
gered parallel
trade between Spain and the United
Kingdom. GW cannot maintain that these price differ-
ences results entirely from differences between the
Spanish and British regulatory systems.

from other

(143) The importance of currency fluctuations, and more in
particular, of the appreciation of the British pound, for
the increase in parallel imports into the United Kingdom
is further illustrated by a comparison of the Spanish-
source
sourced imports and imports
countries into the United Kingdom during the period
1996 to 1998. Although the absolute volume of Span-
ish-sourced imports increases, their share of all imports
into the United Kingdom remained stable.
It must
therefore be concluded that the appreciation of the
British pound attracted imports from all sources without
the alleged discrepancies between the Spanish and UK
regulatory systems playing any material role in this
process.

(98) Case 26/76, Metro SB Großmärktev. Commission.
(99) Commission Decision 85/616/EEC.

(100) Supplementary notification of 28 July 1998, p. 41 [873].

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4. APPRECIABLE RESTRICTION OF COMPETITION

(144) GW’s new sales conditions restrict competition to an
appreciable effect for a number of reasons. Firstly, they
affect 80 % of Spanish pharmaceutical wholesalers and
these wholesalers are responsible for over [...] % of sales
in GW’s products in Spain (see recital 12). Moreover, for
many of the products covered GW has high market
shares in Spain as well as in the target countries. It
emerges from Annex 2 to this Decision that GW holds
substantial (second or third ATC level) market shares for
most of the products particularly affected by the Spanish
pricing system because they are the prime candidates for
parallel trade (see recital 18). This is especially true for
Becotide, Becloforte, Flixotide, Serevent and Ventolin,
which all belong to the class of bronchodilators/A-
Asthma as well as for Imigran. In all these cases, the
Community market share is above the [...] % mark.
Market shares in the United Kingdom (considered by
GW to be the main target country) even exceed [...] %
for Becotide, Becloforte, Flixotide, Serevent and Ventolin
and [...] % for Imigran. Community-wide and UK market
shares are also high for products like Zofran, Zyloric
and the anti-herpes products Zovirax and Valtrex.
Finally, the GW group is one of the largest pharmaceuti-
cal producers in Europe and indeed in the world. This is
reflected in the group’s high turnover figures (see
recitals 9 and 10).

5. APPRECIABLE EFFECT ON TRADE BETWEEN MEMBER

STATES

(145) An agreement is capable of affecting trade between
Member States to an appreciable extent when it is
foreseeable with a sufficient degree of probability, on
the basis of a set of objective elements of law or fact,
that it will influence, directly or indirectly, actually or
potentially, on the pattern of trade between Member
States and will hinder the attainment of the objectives of
a single market (101).

(146) Since the object and effect of the new sales conditions
are to restrict or prevent parallel exports, trade between
Member States is affected in two ways: the sealing off of
the market of origin for such exports (Spain) on the one
hand and the protection of the destination markets (all
other Member States) on the other. These markets cover
the whole Community. Furthermore,
the new sales
conditions concern almost the entire Spanish market.
An agreement of this type which extends over the whole
territory of a Member State, has by its very nature

the effect of reinforcing the compartmentalisation of
markets on a national basis, thereby holding up the
economic interpenetration which the Treaty in intended
to bring about (102). GW itself admits such an effect, in
particular by arguing that its system has reduced the lost
revenue of GW plc in the United Kingdom by GBP
13 million-during the months of
its application in
Spain (103).

B. ARTICLE 81 (3) OF THE TREATY

1. GENERAL OBSERVATIONS

(a) The combined application of Article 81(3) and

Article 3

(147) The Commission has already responded to GW’s argu-
ment relating to subsidiarity (Article 5 of the Treaty, see
recital 88) when addressing the claim that the new sales
conditions do no more than compensate a distortion of
competition created by Spain. With reference to social
and economic cohesion (Article 3(1)(k) of the Treaty, see
paragraph 89), GW points to significant delays in
product launches in Spain due to the artificially low
prices prevailing there. Although this argument does not
suggest that parallel trade (caused by these allegedly low
prices) will exacerbate the delay problem, this argument
will be addressed later in the context of the second
condition set out in Article 81(3) (consumer benefits).
Finally, GW’s argument concerning the competitiveness
of the Community’s pharmaceutical industry and pro-
motion of research and technological development (see
recital 90) overlaps entirely with the arguments it
advances in the context of
the first condition of
Article 81(3) (technical progress). That argument will
therefore be addressed in that context.

(b) The judgments in Merck v Primecrown and Cen-

trafarm v Winthrop

(148) In both cases, the Court states very clearly that Member
States cannot in principle — subject to the derogations
set out in Article 30 (formerly Article 36) or in the
Cassis de Dijon case-law — unilaterally adopt measures
restricting the import of goods from other Member
States when the goods have been lawfully marketed in
those Member States. Any distortions of competition

(101) VolkswagenAG v Commission, op. cit.; Case T-77/92, Parker PenV

Commission, [1994] ECR-II, p. 549, paragraph 39.

(102) Volkswagen AGv Commission, op. cit.; Case 42/84, Remia BV
and othersV Commissions[1985] ECR 2545, paragraph 22.

(103) Response by GW of 14 February 2000, p. 1 [4507].

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resulting from differences between national regulations
in the source and target countries can be tackled by
Community-wide harmonisation measures enacted by
the Community institutions. According to GW it follows
from Centrafarm v Winthrop that Community institutions
could, alternatively,
tackle the problem by adoptin
measures in the competition field.

(149) The first point to make is that in Merck v Primecrown the
Court no longer uses the Centrafarm v Winthrop language
on the exercise of powers in the competition field.
Secondly, and more importantly, this language suggests
at most that the Commission must consider the applica-
bility of Article 81(3) when a private party raises
obstacles to the parallel trade of pharmaceutical products
and argues that there are objective justifications for
doing so (in very much the same way as the Commission
must examine the applicability of Article 30 or the Cassis
de Dijon justification grounds when it assesses the legality
of public measures impeding the parallel trade of these
products). It is for the notifying party to provide the
necessary evidence that the restrictions of competition
resulting from the notified agreements fulfil all four
conditions of Article 81(3) of the Treaty (104). As emerges
from recitals 153 to 191, the Commission has carefully
examined whether or not GW’s new sales conditions for
Spain meet the conditions set out in Article 81(3).

(151) However, it is established case-law that the conditions
set out in Article 81(3) are cumulative. Each of them
must be met for the agreement to be considered for
exemption (105). Therefore, before carrying out
this
balancing exercise, the Commission must be convinced
that the notified agreement genuinely contributes to the
achievement of the benefits claimed (promotion of
technical progress or improvement of production or
distribution) while allowing consumers a fair share of
these benefits. In this case, GW has not proven that
Clause 4 of the new sales conditions makes such a
contribution. As will be shown below, there is no
convincing evidence that parallel trade has actually
affected GW’s R & D budget. In any event, there is no
proof that parallel trade has had anything other than a
minimal effect upon that budget. Nor has GW been able
to demonstrate that parallel trade has caused undue
harm to GW distributors located outside Spain or to
consumers in Spain.

(152) Under these circumstances,

there is no need for a
balancing test. In any event, if the Commission had to
undertake such a balancing exercise, any positive effects
generated by the new sales conditions would be out-
weighed by the negative effects they have produced
on the integration of national markets within the
Community. GW recognises that its new sales conditions
partition markets. In the Frontier Economics Study I GW
makes a clear distinction between so-called ‘low-price’
and ‘high-price’ countries (106).

(c) The ‘bilan économique’ argument

2.

SPECIFIC OBSERVATIONS REGARDING EACH OF THE
FOUR CONDITIONS SET OUT IN ARTICLE 81(3)

(150) GW argues that the Commission should weigh the
beneficial effects of the new sales conditions (promotion
of technical progress and improvement of distribution)
against their restrictive effects upon competition. The
Commission does not deny that the assessment of an
agreement under Article 81(3)
involves a balancing
exercise between the benefits achieved by the parties to
an agreement and the restrictions of competition they
have caused. The text of Article 81(3) itself reflects the
need for such a balancing exercise by incorporating two
‘positive conditions’ and two ‘negative conditions’. The
first two concern the benefits, the latter two deal with
the restrictions (which must be indispensable and should
not lead to an elimination of competition for a substan-
tial part of the products in question).

(153) It is important to note that it is for the notifying party
to justify the restrictions of competition resulting from
the notified agreement by demonstrating that these
restrictions fulfil all four conditions of Article 81(3) of
the Treaty. It is not for the Commission to prove that its
intervention against these restrictions of competition
produces a benefit for consumer welfare. Furthermore,
the restriction at issue in this case constitutes a particu-
larly serious attempt to partition the common market.
Although there is in principle no restriction which
cannot be exempted under Article 81(3) (107), GW has
failed to provide sufficient evidence that the restriction
of competition resulting from the new sales conditions
should benefit from an exemption.

(104) Case T-66/89, Publishers Association v Commission, [1992] ECR

II-1995, paragraph 69.

(106) Frontier Economics study I, p. 15 [3711].
(107) Case T-17/93 Matra SA Hachette v Commission, paragraph 85.

(105) Case T-17/93, Matra hachette SA v Commission, [1994] ECR II-

595, paragraph 104.

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(a)

First condition (technical progress)

(154) GW argues that parallel trade has caused losses for
R & D since the revenue lost due to parallel trade is
revenue that would have been spent on the development
of innovative products in the absence of such trade.
According to GW, Clause 4 of its new sales conditions
aims at remedying this situation by restricting parallel
trade. By combatting parallel
the new sales
conditions create extra financial resources for R & D and
thus promote technical progress. In the Commission’s
view, GW has not proven that there is a causal link
between parallel trade and R & D investments. In any
event, it has overstated the magnitude of any impact
that parallel trade might have on such investments.

trade,

Impact of parallel trade on R & D: no causal link

(155) The Commission does not dispute that R & D is an
important parameter of competition in the pharmaceuti-
cal sector and needs appropriate financing. However,
there is no evidence that parallel trade has caused
reductions in GW’s R & D budget or that
it has
prevented that budget from growing. In this respect, the
Commission offers the following observations.

(156) Parallel trade and profits: it is a matter of discretion for
pharmaceutical companies to decide how much they
wish to invest in R & D. Any savings they might
hypothetically make by preventing parallel trade would
therefore not automatically lead to higher R & D
investments. It is conceivable that these savings might
merely be added to the companies’ profits. Obviously,
the generation of extra profits alone cannot justify an
exemption. In this regard, GW’s argument would mean
that the first condition for exemption would be fulfilled
for every agreement that could be said to contribute to
an increase in the revenues of a firm engaged in R & D.
The condition would in any case be meaningless,
since it is in the nature of any agreement restricting
competition to be likely to increase a firm’s earnings.

(157) Parallel trade and costs: GW itself admits ‘that parallel
trade is not the key driver for decisions on R & D’ (108).
A whole series of factors influence decisions on R & D
expenditure, including — as GW admits — the general
level of current profits, the expected profitability of the
products in the R & D pipelines as well as interest rates,
future
volatility, uncertainty
exchange-rate

about

(108) Frontier Economics study II, p. 7 [4554].

demand, etc. (109). Parallel trade may have some impact
on revenue and profits. However, there is no reason why
a pharmaceutical company should react to losses of
revenue resulting from parallel trade by cutting the R &
D budget rather than any other budgetary item. In this
context, it should be borne in mind that the R & D costs
take up around 15 % of the turnover and that the
remaining 85 % goes into sales costs, administrative
costs and profits. This can be illustrated with figures for
1999. On the basis of a turnover of GBP 8,49 billion,
GW financial records shows GBP 1,98 billion costs of
sale (23 %), GBP 2,9 billion selling and administrative
costs (34 %), GBP 1,3 billion R & D (15,3 %) and a profit
of GBP 2,6 billion (30,6 %) (110).
If R & D is the
main factor of competition between pharmaceutical
companies and if savings must be made, GW would be
expected to cut expenditure on budgetary items which
represent high costs but are less important for its
competitive position or to actually use part of
its
substantial profits for R & D purposes.

(158) Pattern of parallel trade and R & D expenditure in
general: parallel trade in pharmaceutical products has
been a reality for more than 20 years. Yet, R & D
expenditure grew tremendously during the 1980s and
1990s (111). GW itself admits that between 1980 and
1993,
some
230 times (112).

its R & D budget

increased by

(159) Relationship between parallel trade in GW products and
GW’s R & D between 1996 and 1998: GW’s contends
that parallel trade has had a significant impact on its
revenues only in the last few years (113). The alleged
magnitude of this parallel trade problem for GW will be
addressed in recitals 162 to 169. At this stage, however,
it is sufficient to note that GW’s R & D expenditure
increased from 13,9 % of turnover in 1996 to 14,4 % of
turnover (114)
in 1997 even though it reduced that
expenditure in absolute terms by [...] % (115). As to the
causes for the revenue decline, GW confirmed that its
1997 revenue suffered from the expiry of the patents
for Zantac and Zovirax. Its R & D expenditure continued
to increase in relative terms in the years thereafter:
14,5 % of turnover in 1998 and 15 % in 1999. Again
no causal link can be identified between parallel trade
and R & D, even during the years which GW has
qualified as particularly problematic.

(109) Ibid.
(110) GW’s annual report 1999, p. 92.
(111) Professor Corchon Study I, p. 6 [Case 36.997, 3149].
(112) Supplementary notification by GW of 28 july 1998, p. 37,

footnote 40 [869].

(113) Frontier Economics study II, p. 7 [4554].
(114) See annual reports of those years (in particular p. 27 of the

1997 report)).

(115) See reply to the SO, p. 21 [3528].

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(160) R & D projects postponed or abandoned as a result of
parallel trade: GW refers to nine products which were
significantly delayed or abandoned in 1999 and 2000.
However, all of these products were in their pre-clinical
phase at the time the decision to abandon them was
made and all but one constituted high-risk projects (116).
The pre-clinical phase is normally at least 10 to 15 years
prior to market introduction. GW further asserts that
due to a lack of financial resources a shift to less risky
projects occurred, thereby cancelling high-risk products
which might have yielded the biggest benefit for future
patients (117). It should be noted that there is no proof
that high-risk projects are automatically those which
yield the greatest benefits to patients. As GW states
itself (118), the nature of a ‘high risk’ project just lies
in the fact that all the projects constitute ‘unproven
mechanisms for treating diseases’. This says nothing
about the quality of the project if it ever comes to
existence. All in all, the information provided by GW
only allows a very conservative conclusion, namely that
one or more projects might have had greater chances of
being continued, had GW gained higher sales revenues
and profits. To add to this, as GW does, that the loss of
revenues stemming specifically from parallel trade has
had an incremental effect on these chances is entirely
speculative.

(161) Parallel trade within the Community and migration of R
& D to the USA: there is not nexus between the loss
of revenue resulting from parallel
trade within the
Community and the migration of R & D to third
countries, in particular the USA. Pharmaceutical com-
panies pursue their R & D activities on a global scale (119).
The reasons why certain locations are chosen for
research and development are multiple and complex.
For example, the communication on the single market
in pharmaceuticals states that productivity in the United
States of America may be higher than in Europe and
also points to more favourable legislative conditions (for
example, patent protection for biotechnology) (120). This
has nothing to do with reductions in earnings caused by
parallel trade. In any event, the communication also
states that the migration trend of previous years may be
about to change.

Impact of parallel trade on R & D: magnitude

(162) Prices in Spain are often not considerably lower than the
Community average:
the Commission acknowledges
that different prices levels exist within the Community.
For the purpose of this decision, the Commission does
not object to the grouping together of Germany, the
United Kingdom, Denmark, Sweden, Finland, Ireland
and Austria as high price countries and Belgium, Portu-
gal, Italy, France, Greece and Spain as countries with
relatively lower prices (121). However, the Commission
does not accept that only one Member State, for example
Spain, can be singled out as the source of the whole
parallel trade ‘problem’.

(163) As can be seen from Table 3, Spanisch prices for some
heavily parallel-traded products are not dramatically
lower than the Community average price. GW attempts
to inflate the price gap between Spain and other Member
States, especially the United Kingdom, by weighting the
price levels in the various Member States according to
their market size (122). However, parallel traders make
decisions on where to sell primarily on the basis of price
differences, not on the basis of the size of the target
market. For that reason, simple arithmetic average prices
are more representative than weighted ones.

(164) Parallel trace between 1996 and 1998 was cyclical at is
was essentially caused by currency fluctuations: while
GW singles out Spain as the main source country for
parallel trade, therefore warranting a special pricing
policy, the Commission emphasises instead that the
main target country for parallel
imports, the United
Kingdom, saw a considerable appreciation of its national
currency. The magnitude of any parallel trade problem
for GW plc appears to have more to do with currency
fluctuations than with the price levels in Spain (see
recitals 141, 142 and 143).

(165) In this respect, it should be recalled that the British
pound appreciated by 30 % against the Spanish peseta
between October 1996 (when the pound started to rise)
and April 1998 (just after GW’s notification) and 27 %
between January 1996 and December 1998. When the
volume of parallel trade into the United Kingdom from
all sources is compared with the volume of parallel trade
from Spain during this period, the share of the Spain-
sourced imports, while increasing in absolute terms, is
found to have remained stable at around 40 %.

(116) Response of 14 February 2000, p. 5 [4511].
(117) Response of 14 February 2000, pp. 3 to 8 and Annexes [4509

to 14, 4520 et seq.].

(118) Response of 14 February 2000, p. 5 [4511].
(119) Commission Decision in Case IV/1378 — Hoechst/Rhône

Poulenc (OJ C 254, 7.9.2000, p. 5, paragraph 45).

(120) COM(98) 588 final, chapter 1.

(121) Frontier Economics study I, Annex 6 to the reply to the SO,

p. 64 and 65 [3760/1].

(122) Reply to the SO, p. 16 and Frontier Economics study I, Annex 6
to the reply to the SO, p. 17 et seq [3523, 3713 et seq].

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(166) Community law does not allow undertakings to invoke
the effect of currency fluctuations to justify any limi-
tations on parallel trade. This principle is longestabli-
shed, as explained in the Commission’s Decision in
Volkswagen (123). According to the Commission’s com-
munication on the impact of currency fluctuation on
the single market, such behaviour would constitute a
clear infringement of Community law (124).

(167) GW plc’s loss of revenue has been insignificant relative
to GW’s R & D expenditure: GW plc estimates that
Spain-sourced parallel trade of the eight leading products
into the United Kingdom caused a net loss of GBP
[...] million between 1996 and 1998 (taking into account
extra revenues from sales in Spain, see recital 67)
According to it, this represents a reduction in the R & D
budget of GBP [...] million ([...] % of its pre-tax profits,
see recital 98). Whilst the Commission disputes any
direct causal link between such lost revenue and any
reduction in R & D expenditure, it in any event considers
that the reductions claimed by GW are minimal. When
spread over the three years concerned and compared
with GW’s total R & D expenditure, these losses represent
no more than [...] % (125).

(168) Furthermore, the figures concerning the lost revenue
from UK sales (based on data in annexes to GW’s
notification) may be exaggerated. In its response of
14 December f1998, GW reduced the ‘gross’ UK losses
resulting from Spain-sourced imports for its eight lead-
ing products from GBP [...] million to GBP [...] million
by applying a ‘Forex-adjustment’. Only later, after the
oral hearing, in its 14 February 2000 response to a
formal request for information, did GW state that the
GBP [...] million reflected the real, not the estimated,
losses. The real losses were allegedly lower because the
new sales conditions had come into force in Spain in
April 1998.

(169) As already indicated (recitals 155 to 161), there is no
evidence of any direct causal link between the lost UK
sales resulting from parallel trade from Spain and any
reduction in R & D. The [...] % referred to in recital 167
is given to illustrate the magnitude of the problem.

(b)

First condition (improving distribution)

(170) GW puts forward several arguments to demonstrate that
parallel trade is detrimental to the distribution of its
pharmaceutical products. Firstly parallel trade causes a
disruption of its distribution system. Secondly, it pre-
vents the manufacturer from planning its distribution
rationally since parallel trade leads to a situation of
undersupply in the source country and of oversupply in
the target country. Thirdly, parallel trade enhances the
risk of late introduction of innovative products in low
price countries. The new sales conditions should remedy
this situation and ensure that GW will not cease
commercialising particular products in Spain (126).

(171) Parallel trade does not disrupt GW’s distribution system:
although GW argues that parallel trade removes the
incentive and the means for wholesalers located outside
Spain to provide the level of services for which they are
remunerated by GW, it does not provide any examples
of such services. Nor does it elaborate on the extent —
if any — to which it, as producer, is required to pay for
these services; As outlined above, the GW’s products are
distributed by independent wholesalers. Wholesalers set
their own resale price taking into account the level of
service they wish to provide.

(172) Parallel trade does not disrupt GW’s ability to plan
distribution rationally: GW argues that parallel trade
leads to oversupply in the target countries of parallel
trade, for example, the United Kingdom, and product
shortages in the source country, for example, Spain.
However, it does not elaborate on this argument and, in
particular, has provided no evidence to show a causal
link between parallel trade and any alleged shortage of
supply in Spain. Any such shortage may, for example,
result from the pharmaceutical company’s deliberate
policy. A company’s threat to discontinue supplies if
parallel trade continues, however, cannot serve as a
justification for restricting competition. Moreover, over-
or undersupply will be corrected by preserving the
possibility of parallel
imports and not by raising
to
obstacles against
saying that the allocative efficiency is optimal when
supply decisions are taken by a single firm and markets
are divided and not when competitive forces are at play.
The Commission does not share this view.

them. GW’s argument amount

(173) In any event, GW has failed to give examples of product
shortages in Spain or examples where it had not
introduced a product to the Spanish market, presumably

(123) Op. cit. recital 222.
(124) COM(95) 503 final.
(125) Total R & D expenditure amounted to GBP 1,13 billion in 1996,
GBP 1,16 billion in 1997 and GBP 1,148 billion in 1998.

(126) Notification, p. 75 [76].

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because despite a lower price the sales in Spain still
make a positive contribution to GW’s profits. GW simply
submits several press clippings taken from Spanish
newspapers which refer generally to the potential danger
that there might be shortages due to parallel trade. One
of the press reports of 15 October 1999 states, however,
that the Ministry of Health was not aware of any such
problem (127). GW also refers to communications by the
Spanish Medicine Agency to the Spanish autonomous
communities and the Association of Pharmaceutical
Cooperatives (128). This reference is equally vague. In any
event, the national law provides a means for preventing
such shortages by imposing an obligation upon whole-
salers to keep a sufficient volume of products in
stock (129).

demand (133). None of these reasons is related to parallel
trade.

(176) Furthermore,

there is no compelling evidence that
launches of GW products in Spain have been particularly
delayed. From the very beginning of GW’s activities in
1972 until 1998, there were five delays in Spain, three
delays in Sweden, 11 delays in the Netherland, 10 delays
in Denmark, eight delays in Germany and five delays in
France. The highest number of delays have actually
occurred in so-called high-price countries. It is striking
that in the United Kingdom there have also been eight
market introduction delays (134). Parallel trade clearly
cannot have caused these delays.

(174) Parallel trade does not cause delays for product launches
in Spain: GW refers to the London Economics study
which reports average introduction delays for countries
such as the United Kingdom, Germany and the Nether-
lands of one to two months, whereas in Spain and
France these delays range from five to six months (Spain)
to nine to twelve months (France) (130). It also submits
IMS data suggesting that product delays in Spain extend
to six quarters compared to three quarters in the
United Kingdom (131). The question is, however, whether
parallel trade has anything to do with this and, as a
consequence, whether measures limiting such trade will
contribute to reducing these market delays.

(175) The Commission sees no causal link. Product launches
depend on a number of factors, not least on the outcome
of price discussions between the pharmaceutical com-
pany and the national authorities. In fact, GW itself cites
this as the main reason for the late introduction of some
of its products in Spain (132). Incidentally, this illustrates
that it is the company itself that has full discretion to
decide whether it is profitable enough to introduce a
particular product on the market. More generally, GW
admits that there may be many reasons why product
launches are delayed: reimbursement delays, marketing
lack of
decisions, price negotiations or

simply

(127) Reply to the SO, Annex 5 ‘Drug exports could prevent
many diabetics from obtaining insulin’ La Razon 15.10.1999
[3686/7].

(128) Rebuttal of GW on EAEPC’ comments of 23 February 2000,

p. 5 [4582].

(129) Ley 15/1990, Article 79 as well as Oficio of the Ministry of

Health and Consumers dated 6 April 1998.

(130) London Economics study, p. 42 [1046].
(131) Reply to the SO, Annex 11 [3809].
(132) Supplementary notification by GW of 28 July 1998, Annex 9

[905].

While GW does not give any reason for the delays in the
United Kingdom, most of the other delays are explained
as ‘reimbursement delays’ or ‘marketing delays’. The
latter refer to a decision of GW’s local operating
company not to launch a product with a new reference
price because this might have a negative impact on
the reference price discussion with another product.
‘Reimbursement delays’ are caused by the necessity of
GW to have a market authorisation before being able to
submit the file for reimbursement. Negotiations between
GW and the authorities become protracted These
reasons are not linked to the parallel trade phenomenon.
In any event,
that a company decides or
threatens to launch products later in a lowprices country,
cannot serve as a justification to restrict competition.

the fact

(c) Second condition (benefit to consumers)

(177) As already (recital 153), it is for the notifying party to
substantiate that the restriction of competition which it
proposed to put in place will contribute to improving
production or distribution or to promoting technical or
economical progress as set out in Article 81(3) and that
consumers will receive a fair share of these benefits. It is
not for the Commission — as GW seems to require —
to prove that its intervention against the proposed
restriction of competition will enhance consumer wel-
fare. It is GW’s notified system which has to fulfil the
criteria of Article 81(3), not the Commission’s decision.

(133) Response of 14 December 1998, Annex 10 [1762 to 1772].
(134) One for four years (Ventolin Respirator), another for two years
(Imigran Injection), two for one year (Imigran tab and Ventolin
Nebules) and the remaining for at least half a year. Response by
GW of 14 December 1998, ibid.

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(178) GW argues that the consumer benefits from the new
sales conditions in terms of enhanced research and
development and improved distribution. Spanish con-
sumers will benefit directly to the extent
the
agreements ensure that GW products are available in
Spain. The new conditions will also ensure that GW is
able to maintain its investment
in R & D which
has produced substantial benefits in the past and has
considerable potential for doing so in the future. The
notified sales conditions will ensure that the United
Kingdom’s industrial and social policy decision to
encourage research and development is not frustrated
by Spanish policy implications (135).

that

(179) This argumentation is nothing but a reiteration of the
arguments put forward by GW to demonstrate that
its new sales conditions fulfil the first condition of
Article 81(3). As has been explained (recitals 155 to
161), GW has failed to demonstrate any causal link
between the restriction of competition and the objectives
set out in the first condition. Moreover, it has already
been established that the difference in policy goals of the
United Kingdom and Spain has been overstated (see
recital 133). In any event, it is not for a private company
to safeguard governmental policy choices by restricting
competition. Since GW has not demonstrated that the
restriction of parallel tade actually achieves any of the
benefits required under the first condition, the second
condition of Article 81(3) can also not be fulfilled and
therefore needs no further examination.

(180) GW insists that for pharmaceutical products parallel
trade cannot achieve any benefits for the consumer.
From a consumer welfare perspective, according to GW,
the consumer is in a better position with GW’s system
than with parallel trade. GW asserts more specifically
that parallel trade in pharmaceutical products is different
from that in other commodities (such as cars or hi-fi
equipment) because the patient does not derive any
benefit from parallel trade in the form of lower prices.
This is so, according to GW, because patients are
reimbursed by the national health organisations. These
organisations are the real consumers, because in econ-
omic terms, they purchase the drugs. As far as the United
Kingdom is concerned, GW’s new sales conditions for
Spain allegedly even benefits the NHS as they enable it
to maintain a policy which promotes R & D. Any savings
made by the NHS via the claw-back mechanism

(GBP 19 million from all parallel imports) are said to be
outweighed by GW plc’s lost sales (GBP 18 million in
1998).

(181) In this respect, it should be recalled once more that it is
for the notifying party to justify its restriction of
competition by showing that its agreement fulfils the
conditions of Article 81(3). It is not for the Commission
to prove that its intervention against this restriction
increases consumer welfare. It is therefore only for the
sake of completeness that the Commission addresses a
number of arguments by which GW contests that its
intervention as a competition authority will serve general
consumer welfare interests.

(182) Since the new sales conditions cover exports to all other
Member States, not just to the United Kingdom, the
beneficial effects of parallel trade will be illustrated on
this broader basis.

(183) First, parallel-traded products offer a second source of
supply. This is especially important from a consumer’s
point of view when branded and patented products are
involved. Patented medicines enjoy protection for at
least 20 years. In cases where only a few alternatives are
available, parallel trade will offer the only source of
competition.

(184) Second, GW’s unqualified assertion that the nature of
reimbursement systems precludes any benefit for pa-
tients from parallel trade is incorrect. Patients benefit
directly from parallel trade either when they have to pay
the full amount of the purchase price themselves or
when reimbursement is only partial and is expressed as
a percentage of the actual purchase price (in contrast
with a flat fee). For example, German patients have to
pay the full price for contraceptives. EAEPC has referred
to two contraceptives, Marvelon and Minulet, for which
parallel trade leads to direct savings for patients (136).
Although GW contests the exact amount of the price
differences between the parallel-traded and the dom-
estically sold contraceptives, it admits that the parallel-
traded ones are between 10 % and 32,9 % cheaper (137).
Furthermore, partial reimbursement and co-payment
exists in many Member States. When patients receive
reimbursement calculated as a percentage of the actual
purchase price (for example, Belgium an France) parallel
trade may benefit them directly.

(185) Finally, it can be observed that some high price countries
(for example, the Netherlands) de facto provide incentives
to parallel trade without any cost-saving effects for the
health care budget. Where reimbursement is in the form

(135) Supplementary notification, p. 42 (874).

(137) Letter of 23 February 2000, p. 4 (4581).

(136) Case 37.380, submission ‘Parallel trade of pharmaceuticals’, p. 6

(193).

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of a flat fee, pharmacists and other intermediaries benefit
from purchasing cheaper parallel-traded products
because such purchases yield higher profits. The notion
of the consumer is not restricted to the final consumer,
that is, the patient. Therefore, the interests of whole-
salers, pharmacies, national health budgets, insurance
schemes can also be taken into account. Furthermore,
the possibility of these pharmacies passing on part of
their savings to their clients, for example via annual
bonuses where authorised by national legislation, should
also not be ruled out.

(186) Ultimately, all patients pay for the national health
system. Public health systems are financed via contri-
butions or by general taxes. Any savings made by these
schemes via the purchase of cheaper parallel-traded
drugs indirectly benefit
the schemes’ members. As
emerges from Table 1, many Member States have
enacted measures providing incentives to parallel trade
and thus leading to such savings. The UK reimbursement
system with fixed reimbursement fees and its claw-back
system (see recital 49) de facto provides an incentive for
intermediaries and pharmacies to purchase cheaper
parallel-traded drugs. It has also been shown that other
Member States give more specific incentives to parallel
trade, in order to achieve cost savings for the health care
budget. Denmark, Germany and Sweden (see recital 52)
serve as an example.

(d) Third condition (indispensability)

(187) As the conditions of Article 81(3) are cumulative, it is not
necessary for the Commission to assess each individual
condition of Article 81(3) (138). Nonetheless, it notes that
the new sales conditions do not fulfil the third condition.
they achieve the
Since there is not evidence that
objectives of promotion of
technical progress and
improvement of distribution, it follows that there is no
contribution whose indispensability to the attainment of
these objective could be analysed.

(e)

Fourth condition (no elimination of competition
in respect of a substantial part of the products in
question)

(188) As noted in recital 104, GW does not put forward any
arguments concerning this condition which it has not
already submitted elsewhere. Those arguments have
already been rejected. In any event, for several of the
leading product affected by the new sales conditions (for
example, Zofran, Flixonase, Zovirax and Imigran) GW
holds substantial market shares in one or more Member
States.

III. CONCLUSION

(189) For the above reasons, it is concluded that the new sales
conditions have as their object and effect to restrict
competition and affect trade between Member States to
extent within the meaning of
an appreciable
Article 81(1). They do not meet the conditions for an
exemption pursuant to Article 81(3).

(190) GW should be required pursuant to Article 3 of Regu-
lation No 17, to bring the infringement to an end.

(191) Although GW SA filed the original notification, GW plc
filed a supplementary notification on 28 july 1998. In
the latter notification, GW plc explains that it has
effective ownership and control of GW SA (see
recital 11). In a letter of 29 October 1998, GW plc
requested that all correspondence in respect of both
notifications should be addressed to it and copied to
its subsidiary GW SA. Consequently, all subsequent
correspondence, including the statement of objections
adopted on 13 July 1999, was addressed to GW plc.
Following the merger with Smithkline Beecham, the
company name of GW plc has changed. The decision is
therefore addressed to GlaxoSmithKline plc in the United
Kingdom.

HAS ADOPTED THIS DECISION

Article 1

Glaxo Wellcome has infringed Article 81(1) of the Treaty by
entering into an agreement with Spanish wholesalers operating
a distinction between prices charged to wholesalers in the case
of domestic resale of reimbursable drugs to pharmacies or
hospitals and higher prices charged in the case of exports to
any other Member State.

Article 2

The request by Glaxo Wellcome for an exemption of the
agreement referred to in Article 1, pursuant to Article 81(3) of
the Treaty, is rejected.

Article 3

(138) Matra SA Hachette v Commission, op. cit.

immediately bring to an end the
Glaxo Wellcome shall
infringement referred to in Article 1 in so far as it has not
already done so. It shall refrain from repeating any measure

17.11.2001

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Official Journal of the European Communities

L 302/39

constituting this infringement and shall refrain from adopting
any measure having similar object or effect.

Article 5

This Decision is addressed to:

Article 4

Done in Brussels, 8 May 2001.

GlaxoSmithkline PLC, Glaxo Wellcome House, Berkeley
Avenue, Greenford, Middlesex UB6 0NN, United Kingdom.

Glaxo Wellcome shall inform the Commission, within two
months of notification of this Decision, of the steps which it
has taken to bring the infringement to an end.

For the Commission

Mario MONTI

Member of the Commission

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ANNEX 1

Products covered by Glaxo Wellcome SA’s new conditions of sale (Spanish denomination):

Alquen 150 mg 20 comp. Efervescente
Bacisporı´n Pomada 10 gramos
Becloforte Inhalador 250 mcg × 180 dosis
Beconase Spray Nasal Acuoso 50 mcg × 200
Becotide Inhalador 200 × 50 mcg
Busulfa´n Wellcome 0,5 mg 100 comp.
Busulfa´n Wellcome 2 mg 100 comp.
Curoxima 250 mcg 1 vial + amp. 2 ml
Curoxima 750 mg Vial + amp. 6 ml
Daraprim 30 comp.
Dexno´ n 100 mcg 100 mg Comp.
Flixonase 50 mg spray nasal/120 dosis
Flixotide 100 mcg Accuhaler × 60 dosis
Flixotide 250 mcg Inhalador/120 dosis
Flixotide 50 mg Inhalador/120 dosis
Flixotide 500 mg Accuhaler × 60 dosis
Fortam 1 gr Im/iv + amp. 10 ml
Fortam 500 mg 1 vial + amp. 5 ml
Greosı´n 125 mg 25 comp.
Greosı´n 125 mg 100 comp.
Igril 10 comp.
Imigra´n 50 mcg/4 comp
Imigra´n 6 mg Iny/2 jeringas sub-cut
Kemadrén 25 comp.
Lacipil 4 mg/28 comp.
Lamictal 100 mg/56 comp.
Lamictal 200 mg/30 comp.
Lamictal 25 mg/56 comp.
Lamictal 50 mg/56 comp.
Lanacordı´n ampollas 5 amp.
Lanacordı´n comprimidos 25 comp.
Lanacordı´n comprimidos 50 comp.
Lanacordı´n pedia´trico 60 ml Sol.
Leukera´n 2 mg 100 comp.
Leukera´n 5 mg 100 comp.
Melfala´n 2 mg 25 comp.
Melfala´n 5 mg 25 comp.
Mercatopurina Wellcome 25 comp.
Metoxamina Wellcome 5 mg Amp. Iny
Otosporı´n 5 ml
Pilorid 400 mg/28 comp.

Pro-Actidil 10 comp.
Serevent Inhalador 25 mcg × 60 dosis
Serevent Inhalador 25 mcg × 120 dosis
Serevent Accuhaler 50 mcg × 60 dosis
Tioguanina Wellcome 25 comp.
Trandate 100 mg 30 comp.
Trandate 200 mg 30 comp.
Valtrex 500 mg/10 comp.
Valtrex 500 mg/42 comp.
Ventolı´n 30 sol resp. 10 ml × 5 mg
Ventolı´n 2 mg 30 comprimidos
Ventolı´n 4 mg 30 comprimidos
Ventolı´n Inhalador 200 × 100 mcg
Ventolı´n Inyectable 0,5 mg 1 ml 6 amp
Ventolı´n Jarabe 2 mg/5 ml 100 ml
Wellfero´ n 10 MU/1 vial de 1 ml
Wellfero´ n 3 MU/1 vial de 1 ml
Wellfero´ n 5 MU/1 vial de 1 ml
Zantac 150 mcg/20 comp.
Zantac 300 mcg/10 comp.
Zinnat 125 mg/12 comp.
Zinnat 125 mg 12 sobres
Zinnat 125 mg 6 ml susp.
Zinnat 250 mg/12 comp.
Zinnat 250 mg 12 sobres
Zinnat 500 mg/12 comp.
Zinnat 500 mg Sobres
Zofra´n 4 mg/15 comp.
Zofra´n 4 mg/6 comp.
Zofra´n 8 mg/15 comp.
Zofra´n 8 mg/6 comp.
Zovirax 200 mg Comp. Disper./25 comp.
Zovirax 800 mg Comp. Disper./35 comp.
Zovirax crema 2 gr
Zovirax crema 15 gr
Zovirax Pom. Oftalm./4,5 gr
Zovirax Suspensio´ n Forte 100 ml
Zovirax Suspensio´ n Forte 200 ml
Zyloric 100 mg 25 comp.
Zyloric 100 mg 100 comp.
Zyloric 300 mg 30 comp.

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Official Journal of the European Communities

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ANNEX 2 (*)

SP

FR

UK

DE

NL

DK

EU

A2B Antipeptic ulcerants

Zantac
Alquen
Pylorid

A4A Antiemetics-Antinauseants

Zofran

R3 Bronchodilators/A-Asthma

Becotide + Becloforte
Serevent
Ventolı´n
Flixotide

R1A Topical nasal decongestants

Beconase
Flixonase

R6 Antihistamines systemic

Actidil (Proc-Actidil)

J1 Antiinfectives

Zinnat
Zinacef (Curoxima)
Fortum (Fortam)

D7 Topical corticosteroids

Bacisporin

D1 Dermatological antifungals

Grisovin (Greosı´n)

L1 Cytostasics

Alkeran (Melfala´n)
Leukeran
Thioguanine
Mercatopurina
Busulfa´n

L3B Interferons

Wellferon

P1D Antimalarians

Daraprim

H3A Thyroid preparations

Eltroxin (Dexnon)

L 302/42

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SP

FR

UK

DE

NL

DK

EU

C7 Beta blocking agents

Trandate

C8 Calcium antagonists

Lacipil

C1 Cardiac therapy

Lanoxin (Lanacordı´n)
Metoxamina

M4 Anti-gout preparations

Zyloric

N3 Anti-epileptics

Lamictal

N4 Anti-Parkinson

Kemadrin (Kemadrén)

S2 Otologicals

Otosporı´n

Hsv (**)

Zovirax
Valtrex

ICD 346 (***)

Imigran
Migril (Igril)

Business secrets, not disclosed.

(*)
(**) Anti-herpes products from classes J5B, D6D, J7A, S1D.
(***) Indicated as such by GW.

(Community except DK, PO, LU, IR, FL)

17.11.2001

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Official Journal of the European Communities

L 302/43

ANNEX 3

GBP/ESP Exchange rates

March 94 to November 98

Date

Value GBP/ESP

Date

Value GBP/ESP

Mar–94
Apr–94
May–94
Jun–94
Jul–94
Aug–94
Sep–94
Oct–94
Nov–94
Dec–94
Jan–95
Feb–95
Mar–95
Apr–95
May–95
Jun–95
Jul–95
Aug–95
Sep–95
Oct–95
Nov–95
Dec–95
Jan–96
Feb–96
Mar–96
Apr–96
May–96
Jun–96
Jul–96

207,56
203,73
205,30
204,48
201,78
198,68
201,22
202,52
203,73
204,37
205,46
209,08
203,71
205,66
198,17
193,71
192,97
189,86
194,99
194,07
192,48
187,30
188,65
189,31
188,78
189,57
190,66
198,26
197,44

Aug–96
Sep–96
Oct–96
Nov–96
Dec–96
Jan–97
Feb–97
Mar–97
Apr–97
May–97
Jun–97
Jul–97
Aug–97
Sep–97
Oct–97
Nov–97
Dec–97
Jan–98
Feb–98
Mar–98
Apr–98
May–98
Jun–98
Jul–98
Aug–98
Sep–98
Oct–98
Nov–98
Dec–98

196,28
194,88
200,27
207,82
216,68
221,56
224,46
233,07
231,56
236,83
236,24
244,20
252,78
245,70
240,47
241,44
249,59
251,17
252,20
257,74
262,09
254,99
246,36
256,19
246,46
250,64
243,07
234,95
240,09

Source: Europa Plus-Infor Euro