C-85/76

defendant,

APPLICATION for the annulment of Commission Decision of 9 June 1976 relating to a proceeding under Article 86 of the EEC Treaty (IV/29.020 — Vitamins),

THE COURT

composed of: H. Kutscher, President, J. Mertens de Wilmars and Lord Mackenzie Stuart (Presidents of Chambers), A. M. Donner, P. Pescatore, M. Sørensen, A. O'Keeffe, G. Bosco and A. Touffait, Judges,

Advocate General : G. Reischl

Registrar: A. Van Houtte

The facts and the arguments of the the world's largest manufacturer of bulk parties put forward in the course of the vitamins, produces eight of those 13 written procedure may be summarized as groups (vitamin A, B1, B2, B3 follows: (pantothenic acid), B6, C, E, and H (biotin) and is in the market as a reseller for the others (vitamins B12, D, K, M I — Facts and procedure (folic acid) and PP). All these vitamins are used because of By decision of 9 June 1976 (Official their bionutritive properties. Vitamins C Journal L 223 of 16 August 1976, p. 27) and E are used in addition because of the Commission, the defendant in these their chemical properties (use in proceedings, found (Article 1), that technology), in particular as antioxidants Hoffmann-La Roche and Company AG and fermentation agents. They encounter in Basle (hereinafter referred to as no competition from other products as "Roche"), the applicant, had committed far as their bionutritive use is concerned an infringement of Article 86 of the though this is not the case with regard to Treaty "by concluding agreements which their use in technology. contain an obligation upon purchasers, The contested decision concerns the or by the grant of fidelity rebates offer them an incentive, to buy all or most of markets in seven of the eight groups their requirements exclusively, or in pre- which Roche manufactures, excluding ference, from Hoffmann-La Roche". vitamin B1. In each of these markets the applicant is said to have a dominant Under Article 2 of the same decision, the position which it has, intentionally or defendant was enjoined to terminate the negligently, abused by concluding the infringement found while, under Article agreements in question. 3, a fine of 300 000 units of account, being 1 098 000 Deutschmarks, was This decision is based on the following factors: imposed on Roche. The application is principally for the annulment of the whole of the decision A — The structure of the market in vitamins and, in the alternative, for the annulment of Article 3 thereof. (a) An analysis of the structure of the This decision concerns 26 agreements production and supply of vitamins shows concluded by Roche with 22 named undertakings engaged in the production and/or sale of vitamins in the Common

as regards the last point, Philips-Duphar, The decision mentions, moreover, whose production of certain vitamin Roche's technological lead over its groups is however not significant). competitors because of its pioneering of Based on the turnover of the various the synthesis of various vitamins and the manufacturers, the shares of the market existence of a very extensive and highly held by Hoffman-La Roche within the specialized sales network. Common Market are the following for the groups of vitamins forming the (c) As regards the structure of the demand for vitamins in the Common markets concerned (see Recital 20 to the decision). Market, its chief characteristic is the fact that although the pattern of demand is — Vitamin A: 47%; the next largest highly varied (Roche has 5 000 manufacturer accounts for slightly customers), the main area of competition more than half this percentage. involves the large-scale users and multi- — Vitamin B2: 86%; the rest of the national groups which purchase, in large market is divided among several orders, and with a few exceptions, the manufacturers. entire range of vitamins produced. — Vitamin B3 (pantothenic acid): 64%; another producer represents 30%. — Vitamin B6: 95%.

— Vitamin C: 68%; the next largest manufacturer has a market share less

than one-quarter of that of Roche.

— Vitamin E: 70%; the next largest manufacturer has a market share less than one-third of that of Roche.

— Vitamin H (biotin): 95%.

For vitamins not manufactured but

C — The dominant position of the B — The conduct of the applicant applicant

Since 1964 Roche has concluded In each of the seven markets referred to

agreements, known as "fidelity (vitamins A, B2, B6, C, E, biotin (vitamin agreements", to secure exclusive or pre- H) and pantothenic acid (vitamin B3)) ferential agreements with customers: Roche has a dominant position within the meaning of Article 86 of the Treaty, According to those agreements: based on its complete freedom of action — Purchasers obtain from Roche all or which enables it to impede effective most of their vitamin requirements in competition within the Common Market. the form of vitamins manufactured This dominant position results from: by Roche; 1. The market share held by Roche — Roche supplies customers at the most ranging from 95% for vitamins B6 and favourable price obtaining on the H to 47% (the second producer customer's domestic market; having only about half this share) for — Roche pays a rebate each year or vitamin A. every six months calculated on total 2. The far wider range of vitamins manu- purchases to those customers who factured by Roche. The requirements have obtained all or most of their of many users extend to several requirements from Roche. This groups of vitamins so that Roche is rebate varies between 1% and 5% able to employ a sales and pricing although there is one customer who strategy which is far less dependent receives rebates of from 12.5% to than that of other manufacturers on 20%; the conditions of competition in each — An "English clause" provides that market.

1. An agreement with purchasers that E — Thefine they will buy all or a very large pro- portion of their requirements from For the purpose of fixing the fine the only one source removes all freedom Commission has taken into account only of choice from purchasers in their the period between 1970, by which date there was a systematic policy of fidelity selection of sources of supply. Failure by the customer to observe his agreements, and the end of 1974, when the first termination of the agreements obligation of exclusivity causes the took place. fidelity rebate to be forfeited in respect of all his purchases from Because of the fact that Roche has its

Roche whatever the group of vitamins registered office outside the Community concerned; but has numerous subsidiaries within the

— In the alternative (3) Infringement of Article 18 of the above-mentioned Regulation No 17 Annul Article 3 of the above- according to which, for the purposes mentioned decision; of imposing fines and periodic — Order the defendant to pay the costs. penalty payments, the unit of account must be that adopted in The defendant contends that the Court drawing up the budget of the should: Community, in that Article 3 of the contested decision fixes the fine in — Dismiss the application as Deutschmarks; unfounded; (4) Infringement of Article 86 of the — Order the applicant to pay the costs of the action. Treaty in that, by the contested decision, the Commission incorrectly interpreted, and in any case inac- curately applied, the concepts of III — Submissions and argu- dominant position and an abuse of a ments of the parties dominant position which may affect trade between Member States, by The application is based on the following submissions: finding that Roche was in such a position and by treating the (1) Infringement of the general principle agreements in question as relating to the degree of certainty constituting such an abuse; and foreseeability which a rule (5) Infringement of Article 15 (2) of imposing a penalty must display Regulation No 17 in that, assuming before an infringement against that that the applicant was in breach of rule can give rise to the imposition of Article 86 of the Treaty, such breach the penalty; was not committee either (2) Infringement of procedural rules intentionally or negligently. (fair trial) in that:

Application relates essentially to the fact that provisions introducing or increasing According to the applicant, the concepts penalties should not be retroactive. That of dominant position and abuse of such a principle has been observed in this case. position may be included amongst the Article 86 of the Treaty, in conjunction most indeterminate and vague concepts with Article 15 (2) of Regulation No 17, both of Community law and of national on which the fine imposed on the legislation. In these circumstances it may be deduced from the fundamental applicant was based, were both in force at the date on which the applicant principle nullum crimen sine lege that the concluded the agreements complained of. Commission may only impose the penalties provided for in the case of an Secondly, it has not been established that infringement of Article 86 when those the principles of the necessary general concepts have been given a "certainty" of the concepts and of the sufficiently specific meaning either by "foreseeability" of the penalties apply as administrative practice or by case-law to strictly to administrative or disciplinary have enabled the application of Article penalties; Article 15 (6) of Regulation 86 to Roche's situation and to the No 17 provides expressly that the fines shall not be of a criminal law nature. agreements in question to be foreseen at the date on which they were concluded. Finally, even accepting that the above- mentioned principles of "certainty" and The applicant does not deny that the "foreseeability" may be applied to defendant is entitled to interpret and infringements of administrative law, the apply the imprecise concepts contained in Article 86 in its decisions but does terms in question ("dominant position" and "abuse") are not imprecise, having deny its power to impose fines in cases in regard on the one hand to the fact that which, as here, the meaning of those competition law must, to be effective, concepts remains uncertain. The take into account multiple aspects of principle of the necessary certainty and economic life and cannot avoid precision of rules imposing penalties references to general concepts "requiring expressed by the legal maxim nullum to a large extent interpretation by the crimen sine lege is moreover recognized court" and, on the other, to the fact that and guaranteed both by Article 7 of the these concepts are well known to under- Convention for the Protection of Human takings which, like the applicant, engage Rights and Fundamental Freedoms and in international commerce and are by the German constitution. The Bun- familiar with national competition desverfassungsgericht [Federal Con- legislation. stitutional Court] has moreover specified (14 May 1969, Neue Juristische Reply Wochenschrift 1969, p. 1759) that the requirements of "certainty" and of The applicant replies that the requirement of certainty and fore- "foreseeability" are all the greater the seeability also applies in German law more indeterminate the scope of the where provisions laying down fines are factors which constitute an infringement and the heavier the penalty is.

not of a criminal law nature (Ordnungs- precision of legal provisions" is, in widrigkeit) and even in disciplinary German and Italian constitutional law, matters. Moreover, it is generally linked to the acknowledged power of the acknowledged that the Community fines judicial authority to review the constitu- in fact constitute penal sanctions. It then tionality of the law. observes that it in no way claims that Secondly, the applicant is confusing the Article 86 runs counter to the obligation precision and the foreseeability of the to lay down precisely rules imposing rule. There is no need for the purposes penalties but claims that the protection of applying a law, even a criminal law, of fundamental rights requires that the for everybody to be able to foresee an power to impose a fine should be offence but only for it to be possible exercised only after that rule has been clearly to determine the scope of the made specific by adequate administrative factors constituting the infringement by practice. For this reason Regulation No means of judicial interpretation. 17 makes a distinction between the These principles, which apply also in finding that there has been an Italian law to the criminal law, apply all infringement of Article 86, the power to the more in the field of administrative require that such infringement should be penalties, in particular in economic brought to an end and the imposition of administrative law and more especially in a fine. In the same way, the competition the law on cartels which cannot do legislation of several countries, in without abstract descriptions. particular Article 22 of the German Gesetz gegen Wettbewerbsbeschränkungen According to the Commission, the [Law on restrictions on competition], applicant draws from the principle of the permits a penalty to be imposed only in precision of legal provisions conclusions which cannot even be deduced in the the case of a (subsequent) infringement of the decision finding that there has Federal Republic of Germany. It contests been an infringement relating to the in particular the comments which the abuse of economic power. applicant has made on Article 37 (a) of the Gesetz gegen Wettbewerbsbeschrän- Finally, the applicant observes that the kungen. principle of the foreseeability of rules imposing a penalty is also acknowledged in other legal systems, in particular in Second Submission: Infringement of pro- cedural rides Italy and in Belgium where it is expressed by the rule in dubio pro reo which applies not only to the evidence of Application the acts constituting the infringement but The applicant relies upon three irregu- also to the lack of precision of the legal larities which it alleges affect the rule. procedure and which should, in its opinion, lead to the annulment of the Rejoinder contested decision.

complete text of those documents at the the calculation of Roche's market shares

disposal of the Court by annexing them and, on the other, information acquired to its application and, in these circum- from 16 of Roche's customers and stances, leaves it to the Court to decide relating to the effect, restrictive in what consequences are to be drawn from varying degrees, of the agreements in the alleged irregularity. question. Only a small number of those customers agreed that the contents of the (b) According to the applicant the investigations to which they were subject procedure is also vitiated by reason of should be notified to the applicant and the fact that in the contested decision only those investigation reports were mention is made of certain documents notified to the applicant. which were not discussed or even

longer puts forward the submission based Reply on the allegedly unlawful procurement of According to the applicant, the failure to certain information acquired by the produce the whole file within the context Commission. of the administrative procedure violates the right to be heard; this constitutes a (b) As regards the fact that during the violation of a fundamental right. The hearing no reference was made to certain judgment in the Boehringer Case to documents mentioned in the decision, which the Commission refers established the Commission observes that under precisely that there is a right to the Article 19 (1) of Regulation No 17 it production of documents during the must notify the applicant of the matters course of the administrative procedure. to which it has taken objection; this This is the expression of a fundamental places it under a duty only to notify the principle of States to which the rule of undertakings concerned of the principal law applies that a decision cannot be points of fact and of law from which it based on documents' with regard to deduces the existence of the infringement which those concerned have not been but not of all the documents which it able to submit observations. In the

possesses. absence of such complete knowledge it is impossible for the applicant to know the (c) The Commission also contests the results of any investigations which have existence of a duty imposed on it not been expressly referred to in the requiring, within the context of the decision. As regards the investigations administrative procedures which it mentioned, the applicant insists on the initiates, to authorize the undertakings need for it to make itself acquainted with concerned to examine the files. In this the investigations conducted at the case it replied to the questions raised by premises of all 16 customers and with the the applicant, in particular with regard to observations made by those customers to the applicant's market share, that that the notice of complaints. share had been calculated on the basis of

complaints relating to an infringement of certain cases at the date on which the

the rules on competition and by the fine was enforced, the Commission has prohibition on including in the decision been in the habit of converting the objections in respect of which the under- amount of the undertaking concerned. In takings concerned have not been able to so doing the Commission takes into express their views (Article 4 of Regu- account, where undertakings have their lation No 99/63). In the present case the head offices outside the Community, the applicant was acquainted with all the Member State in which the undertaking documents which did not contain referred to has a subsidiary or a large business secrets of other undertakings establishment whose assets can cover the

Defence The Commission replies that, although it is true that Article 18 of Regulation No 17 refers to "the unit of account...

HOFFMANN-LA ROCHE v COMMISSION

third country is not opposed to the the results of those actions, in particular payment and possesses subsidiaries in all the price trend, even though those Member States. In such a case it should actions and those results constitute

be possible for the fine to be paid by any decisive criteria which must necessarily of the subsidiaries at its national parity. be taken into consideration.

The financial regulation to which the Commission referred concerned only the I Discussion of the analysis by the financial contributions of the Member Commission of the structure of the States. market

The applicant criticizes the analysis of the structure of the market on which the Commission has based its conviction that

a dominant position exists but above all the fact that for the purpose of the finding that such a position exists and in particular that there is no effective competition the Commission relied exclusively on the market shares and the structures of the market without taking into account actions on the market and

JUDGMENT OF 13. 2. 1979 — CASE 85/76

in the case of vitamins B2 and B6 are also overestimated. Moreover, the Commission, in fixing and appraising the market shares, has not correctly delimited the market concerned and has failed to take into account the fact that

the market in vitamins is an expanding market. As regards the delimitation of the market, the applicant contests the Commission's statement that vitamins are

not interchangeable with other products. In particular, vitamins E and C which are used on a large scale as antioxidants are, in this field, interchangeable with a number of other products and the same applies to biotin in the fermentation industry. The applicant has listed in Annex I (pages 46—47) of its reply to the notice of complaints a large number

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expansion stage within a very short time. determining factor is not the 10% of the A large market share in an expanding market held by competitors but the fact market is not an indication that the that the applicant has succeeded in innovation may form an obstacle to retaining a large market share for a fairly effective competition. The freedom of long period. action of the innovator in the expansion stage of the market does not result from Reply the power to keep competitors out of the The applicant specifies the market shares market but exclusively from the market which it holds on the various markets itself. concerned which indicate that the figures put forward by the Commission are Defence exaggerated: The Commission explains that so as to — In the case of vitamin A the contested have a correct idea of the conditions on decision itself states that the market the market it collected information from share is only 47%; all the manufacturers known to sell — In the case of vitamin C a precise vitamins in the Common Market, in delimitation of the market in accordance with Article 11 of Regulation question, taking into account No 17. The information requested was products which can be substituted as supplied by all of them; the manufac- turers concerned were requested to indicate the value of the quantities sold in 1974. After addition of the amounts

indicated the applicant's market shares were determined on the basis of the total

so ascertained. The undertakings competing with the applicant expressly indicated that they considered the data supplied as secret and did not agree that they should be passed on to the applicant, so that the defendant was

40%; In the Commercial Solvents Case (judgment of the Court of 16 March — On the market in pantothenic acid 1974, Joined Cases 6 and 7/73, [1974] 1 the applicant has only 30%; ECR 223) a "world monopoly" was — In the case of biotin the market share involved. should not be taken into In the Continental Can Case (judgment consideration because it cannot constitute an indication of of the Court of 21 February 1973, Case 6/72, [1973] 1 ECR 215) the domination of an expanding market; Commission referred not only to market — In the case of vitamin B2 the share of shares of between 70 and 90% but also the world market is barely 50% from to the possibility "of determining prices 1970 to 1974, except for potential and controlling production or distri- competition from the fermentation bution of a significant proportion of the industry, in particular from the products in question" (Journal Officiel capacities of antibiotics manufac- 1972 L 7, p. 35). turers, especially in the United States, The applicant emphasizes the agreement whose factories might at any moment amongst learned authors and in case-lav. be started up again; that the concept of market share is — In the case of vitamin B6, an meaningless unless it is linked to that of insignificant product compared to the the market stage. The Commission other vitamins, the applicant's market adopted this viewpoint in its 1966 study share is not 95% but 60 to 70%. and this led it to emphasize in the decision that the market in vitamins is

The applicant considers, in the light of expanding vigorously. Unfortunately in the case-law of the Court of Justice to that decision it failed to include this fact which the Commission refers and of the in its appraisal of the market shares. For decision of the Commission in the this reason, in contrast to its statement Continental Can case, that market shares that it took into consideration in its

Rejoinder vitamins but also on the appreciably smaller market shares of competitors and According to the Commission it is for on a certain number of other important the applicant to contest with figures in criteria for the purpose of determining support the data supplied by the the applicant's position on the market. Commission instead of merely referring to its own estimates of its market shares Moreover, it took into account, relying upon the declarations made by the without indicating on what they are applicant during the course of the based. In more detail, the Commission administrative procedure, both the observes with regard to vitamins C and E applicant's conduct as regards prices and that the applicant has not given precise the market situation. Besides, market information enabling it to be determined shares of the order of 25 to 33.3% are, to what extent it itself supplied customers in several Member States (the United with vitamins for technological use nor Kingdom and the Federal Republic of by what other products vitamins may be Germany) considered to be indicative of replaced in that field, who manufactures domination of the market. those products and what the situation is as regards prices. With regard to the As regards the fact that the market in other vitamins, the Commission claims vitamins is expanding, the Commission that the applicant's statements are based considers that the applicant's argument is either on potential, not actual at fault because the applicant wishes to use without differentiation certain competition (vitamin B2) or on the existence of imports which the theoretical economic models and to give, Commission took into account in addition, an absolute value to the

JUDGMENT OF 13. 2. 1979 — CASE 85/76

within the framework of the applicant's facturer. This consumer is however not conduct and not of its dominant characteristic of the market in vitamins.

Defence The Commission points out that the applicant does not contest that it has at its disposal as a manufacturer a range of vitamins which is markedly wider than that of its competitors but that this advantage is offset by the fact that those competitors can offer all the additives required by the animal feed sector. The applicant thus refers to a manufacturer of animal feed who requires a small number of vitamins and a large number of other additives and who attempts to obtain his supplies from the same manu-

HOFFMANN-LA ROCHE v COMMISSION

(a) This setting-off of risks is not limited Commission observes that, overlooking to the marketing of vitamins alone: the pharmaceutical industry and food the wider the production programme sector, the applicant once more centres of an undertaking the greater its its arguments on the animal feed sector opportunities to set off risks; in which moreover the applicant can offer greater quantities of the four main (b) The presence on the market of vitamins. vitamins manufactured by com- petitors who are markedly more powerful than the applicant offers As to (3) The fact that Roche is the those competitors much wider oppor- world's largest producer and that its tunities for setting off risks. turnover exceeds that of all other

Rejoinder In the Commission's opinion the applicant's argument concerning the setting-off of risks is over-simplified: it is by no means certain that a company which is making losses in the vitamins sector can set off risks by profits derived from other fields. As regards the supply of consumers' requirements, the

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activities (23% of its turnover is Reply accounted for by vitamins, in other According to the applicant, the words, much more than in the case of its defendant does not take into account the main competitors) results in much higher degree of diversification of greater vulnerability as regards its existing and potential competitors of the conduct: it is not the market in a product applicant which makes them less taken in isolation but all the various dependent on the market in vitamins. markets in products in which an under- Moreover, its statement that it is not the taking is active, in other words, the turnover or the financial capacity as such "undertaking's market" which de- which are important is in contradiction termines the freedom of action of an with the viewpoints adopted by it in the undertaking. The criterion of the size of proposal for a regulation relating to the control of concentrations and in the an undertaking can only be correctly Continental Can Case. Moreover, the considered if all the factors playing a applicant's turnover of 5 000 million part in the structure of the market are Swiss Francs per annum proves nothing actually taken into account and if its size if it is not compared to the situation of is considered in relation to that of other competitors whose financial capacity is in competitors. actual fact greater.

Community level and on the world level, and that it is the leading world manu- the largest producer of vitamins, and in facturer which produces more than all its addition it produces more vitamins than other competitors together is determi- all its competitors together. The fact that native. The applicant is thus able to take into account in a flexible manner the the turnover, capital, and distribution different developments of the regional potential of other companies is several markets both within and outside the times greater than that of the applicant is Community. unimportant. With a turnover of 5 000 million Swiss Francs per annum, the applicant has financial power enabling it, having regard to the high degree of diversification which it practices in the production of vitamins and to the small proportion of its turnover in that production (23% of the total turnover), the remainder being divided between the very lucrative production of pharma- ceutical and chemical products, easily to resolve any difficulties on the market in vitamins.

HOFFMANN-LA ROCHE COMMISSION

As to (4) The number of competitors is no need to take into account the resellers is incorrect in law and in fact:

which may very well be higher than Defence the distribution costs borne by sellers The argument that the persons offering and middlemen. The producers who goods for sale (producers and resellers) resell through middlemen do not bear and not just merely producers determine distribution costs of their own. The

the competition ignores the realities of purchase price of the middlemen thus economic life. Very generally, a tends to be reduced by the amount of producer is always at an advantage in the distribution costs borne by the relation to a reseller because he has to producer. take into account only his own costs whereas a reseller must first buy, in other Rejoinder words pay a price which covers both the The defendant specifies that it disputed costs of the producer and profit, and in the validity of putting producers and addition make a profit on the resale. More specifically, the agents (brokers) regularly sell at prices which are quite markedly higher than those of producers and they offer only occasionally at lower prices small quantities of goods or goods whose quality leaves something to be desired.

Reply According to the applicant the defendant's opinion that for the purposes of appraising a dominant position there

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resellers on the same footing as regards Defence competition but that it did not contest The Commission replies that the that the examination as to market statement of the applicant's technological domination must take into consideration advantage is only the expression of an "the existence and position of any obvious truth and corresponds to the producers or distributors". estimates of the applicant itself, as is The statement that the applicant must clear from a series of documents

presents no major scientific problem (Decision, Recital 3). As regards recent developments in the industrial uses of vitamin C (antioxidant, fermentation agent for brewers, etc.) (Decision, Recital 8) and of "new compounds for animal feed", this is the result of research in the public sector which led to expansion in the market for both the applicant and its competitors. Finally, the time-sharing service to which the decision refers in Recital 8 is in no way peculiar to the applicant and its use in 1975 concerned only seven customers out of several thousand purchasers (none of which customers was mentioned in the

decision). The documents produced by the defendant moreover contest the usefulness of that service.

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lizers and phytosanitary products, commercial channels in the agricultural As to (7) Potential competition sector which they can use in the sale of vitamins. Application The applicant contests the Commission's Defence statement that: "it is unlikely that the possibility of entry by new competitors According to the defendant, the to the market would at present have any advantage of Roche's sales network lies appreciable effect on the position of in the fact that whilst its competitors are Roche" (Decision, Recital 21 in fine). obliged to intersperse a considerable number of independent commercial The criterion used by the defendant in order to conclude that there is no undertakings in the distribution process the applicant has created through its sub- sidiaries a worldwide distribution network which is intended to meet the

special needs of purchasers of vitamins. This network gives them advice and has a permanent stock of fresh vitamins.

Reply The advantage resulting from the applicant's sales network is non-existent. Two of the applicant's main competitors sell through their own distribution

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potential competition is the need for Defence large and specialized investment and the Contrary to the applicant's statement, programming of capacities over long the defendant has in fact examined the periods from which it follows that "only question of the existence of potential large pharmaceutical groups" can competition but reached a negative operate on the market. The latter conclusion. It stated in the decision that

Court of Justice in Case 6/72, Europ- emballage Corporation and Continental Can Company Inc. Commission of the European Communities, judgment of 21 February 1973 [1973] ECR 215, which in actual fact attached great importance to that potential competition.

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of surplus capacity throughout the world Reply which exerts additional pressure on The applicant replies that during the competition. Finally, the defendant course of the administrative procedure it cannot contest that during the above- referred in detail to the question of mentioned period a whole series of supplies of raw materials. Two of the undertakings in fact launched themselves applicant's competitors are certainly at for the first time into the market or an advantage as manufacturers of extended their capacities thereon. primary products among the large chemical concerns as regards access to Rejoinder products which they manufacture to a According to the defendant, the large extent themselves. According to the argument put forward by the applicant as applicant, the criterion of the supply market constitutes one of the basic regards the effect of potential competition on the level of prices, which, criteria in the appraisal of market domination. the applicant claims, remains low so as not to attract that competition onto the market, confirms, according to the Rejoinder Commission, the accuracy of its The Commission does not contest that arguments concerning the significance of the question of access to the supply the reduction in the prices of the markets may be relevant for the purposes applicant's products. The Commission of appraising the question of market however continues to call in question the domination but it is only one of several probability of the appearance of new criteria which come into consideration.

of an examination of the criteria relating during a fairly long period or whether to market performance and market the undertaking has been obliged to conduct. guide itself by the market prices and reduce its own under pressure from Learned writers unanimously consider competition. that a report on the structure of the market which is merely quantitative "is However, an examination of the long- inappropriate for the purposes of term development of prices from the introduction of the vitamins concerned determining the degree of freedom of action of undertakings which escapes the until 1974 indicates that the prices of control of competition" (Mestmäcker, vitamins A, E, C, B2 and B6, which are Europäisches Wettbewerbsrecht [European the most important, have continued to Competition law] p. 370). On the fall considerably. It would be contrary it is necessary to take into unreasonable for an undertaking which is account all the special features of the allegedly not exposed to effective market situation and the market conduct. competition and which can fix its prices On the basis of those criteria the largely independently of its competitors, applicant was never able to assume that it suppliers and customers, to reduce its was not exposed to effective competition prices to such an extent without being and that it therefore had a dominant obliged to do so by competition. position in the terms of Article 86 of the Moreover, whilst price increases reaching an average of 50% were recorded during EEC Treaty. the period from 1970 to 1974 and whilst The two criteria (market conduct and therefore the applicant's costs recorded results of that conduct) are economically an increase of equal to or more than interdependent. In particular, conduct on 50%, the prices charged by the applicant the market is often described as the continued, under pressure from "most important criterion". Within the competition, to fall considerably at that context of the conduct on the market, it time in the case of most vitamins is important whether an undertaking (vitamin A: fall of 25%, vitamin E: fall must guide itself by market prices or of more than 18%, panthotenic acid: fall whether it can fix its prices at will within of 50% on average; in the case of a margin which is not precisely vitamins B2 and B6 the trend, although determined. This interpretation was less marked, is real, and only the prices accepted by the defendant itself (Le of vitamin C show a slight upward Problème de la Concentration dans le trend). It may be concluded from this Marché Commun [The problem of that the applicant had never had the concentration in the Common Market], "power to determine prices". At a period Brussels 1966, No 22, and the of great increases in prices the applicant Continental Can Decision, Journal would never have voluntarily made such Officiel L 7 of 8 January 1972, p. 25) reductions in price if it had not been and by the Court of Justice (judgment of obliged to do so by extremely effective 18 May 1962 in Case 13/60, "Geitling" competition. Ruhrkohlen-Verkaufsgesellschaft mbH and Others v High Authority of the ECSC, [1962] ECR 83). An examination of the market results

to fix "highly competitive prices" so as The defendant puts forward an argument to obtain an annual contract with as to form and an argument concerning important customers (circular of August the substance of the case in reply to the 1971); the existence of "strong complaint that it did not take into competition" in the case of vitamins A consideration the applicant's conduct on and E; the impossibility, as regards the market and the results of that vitamin C, of increasing prices without conduct. As regards form, the defendant entailing a decrease in market shares and is under a duty to give a statement of the the market loss of the order of 17.5% on reasons upon which its decisions are the German market in the case of panto- based and not to refute all the arguments thenates (report of 12 and 13 October put forward during the course of the 1972) are in this respect decisive criteria. administrative procedure. The applicant These documents objectively refute the cannot require that the defendant should existence of a dominant position and adopt in its decision a point of view prove a fortiori that the applicant could which it considers incorrect. As regards assume more or less subjectively that it the substance of the case, the defendant contests that it took into consideration was exposed to substantial competition. The applicant produces a number of exclusively criteria relating to the other internal documents which show structure of the markets. The

able to determine prices or to control appreciably to improve its receipts. production or distribution with regard to The documents which the defendant had a significant proportion of the product in referred to and quoted in the decision question". (Recital 12: circular of December 1970, In the same way, the case-law of the circular of May 1971, correctly August Court of Justice, in particular in the 1971, meeting of the European Bulk judgments in Commercial Solvents Managers on 12 and 13 October 1971, (Joined Cases 6 and 7/73 [1974] ECR correctly 1972) so as to illustrate the 223) and the Sugar Cases (Joined Cases existence of the abuse do not, contrary 40 to 48, 50, 54 to 56, 111, 113 and to the applicant's statements, prove the 114/73, Suiker-Unie and Others absence of a dominant position. Commission of the European Communities The important factor is in fact not [1975] ECR 1663, at p. 2000), indicates whether the applicant was totally free to that the mere fact that the undertakings determine its prices, which is the charac- concerned have very large shares of the teristic of monopolies, but whether its market is sufficient to establish that those position was such that it could act undertakings held a dominant position. without really having to concern itself If an undertaking has large shares of the with its competitors, suppliers or market whilst its competitors hold shares customers. However, certain documents which are markedly smaller and do not produced by the applicant in an annex to offer comparatively as large a range of the application prove precisely that the products this may generally be applicant was perfectly able to compete considered to be an indication of a with new competitors appearing on the dominant position of the undertaking market in vitamins and that it considered with large shares of the market. Only if itself capable of maintaining its position there are proved to be special circum- on the market. stances which in fact restrict to a large extent the freedom of action of the Reply undertaking in question is it impossible In its reply the applicant states that, in to conclude from the fact that large spite of statements to the contrary, the shares of the market are held that there Commission in practice takes into is a dominant position. account for the purposes of determining Analysing next the tables which show that over the years the prices of vitamins A, E, C, B2 and B6 have decreased, the Commission draws attention to the

comparatively wider range of goods are supplied by the applicant in the case of claimed to be the "indications" of a the main vitamins in the post-war period dominant position which can only be and in particular before the period from refuted by special circumstances. The 1970 to 1974 were not, as the Commission is departing from its own Commission states, the result of the previous declarations and from the increase of the quantities produced in an case-law of the Court of Justice. expansion stage, the aim of which was to Moreover, by reasoning as it does it reduce unit prices. In fact, unit prices shifts the burden of proof. only go down as long as reserve capacities in an existing production plant The fact that for the purpose of finding a which were hitherto not fully employed dominant position the Commission disre- can be better used and as long as the garded in the decision in question criteria other than the shares of the prices of capital equipment do not increase. In the expansion stage market, for example the power to production plant must however determine prices, constitutes both an necessarily be enlarged and additional infringement of Article 86 by an plant built so that there can be no misinterpretation of its conditions of reduction in costs. The applicant application and an infringement of considers that both theory and economic Article 190 of the Treaty since the experience show that an undertaking decision in question does not contain a which is not subject to competition does sufficient statement of reasons upon which it is based. not lower its prices to the extent to which they were lowered in the present The applicant observes, as regards the case. The applicant lowered its prices case-law referred to by the Commission because it was compelled to do so by and its Decision of 2 January 1973, that competition. since the undertakings involved had As regards, more particularly, the period market shares appreciably higher than from 1970 to 1974, the applicant the 50% which it has, it is impossible to conclude from this that a share of the emphasizes that the reductions in price recorded for the applicant's products market makes it superfluous to take into during this period coincided with an consideration the results and the conduct extraordinary increase in prices in all the on the market and necessary for under- countries of the Communities. In spite of takings to produce evidence of the 50% increase in costs and faced with "considerable real restriction of their doubled demand the applicant was freedom of action". With regard to the defendant's objection that it is not obliged to express its opinion on all the "objections" or "statements" of the applicant, it fails to recognize that, as regards the criterion of the power to determine prices, according to the case-law of the Court of Justice there are conditions for the application of Article 86 and it is for the Commission to prove that these have been fulfilled. The

increase in receipts (this already amounts it relied not only on the applicant's to a loss of 20% because of inflation). shares of the market with regard to the various groups of vitamins but also on Several annexes to the application supply additional evidence of the existence of the appreciably smaller market shares of competitors and on a certain number of real competition on the markets under other important criteria for the determi- consideration. It is significant that the nation of the applicant's position on the applicant did not succeed in preventing market. In addition, the defendant took certain new competitors from entering into account, relying upon the the market. Moreover, the applicant declarations made by the applicant emphasizes that the agreements during the course of the administrative complained of in the decision in question procedure, the applicant's conduct as contain merely a "parity clause" regards prices and of the situation of the providing solely for a possible lowering market. of prices but that the applicant did not succeed in making its customers subject As regards the lowering of prices, the to the "increase clause" in general use at defendant contests the applicant's argument that an undertaking present which provides that when costs dominating the market has an interest in and prices increase the delivery prices restricting the quantity sold so as to increase correspondingly. increase the price. Rejoinder An undertaking which is not in a The defendant claims that it examined monopoly situation but has an important share of the market and whose sales and appraised the conduct of the volume is increasing must make sure that applicant on the market and the results it does not encourage other undertakings which it obtained but that this exami- to compete on the market by prices nation produced results different from which are too high. It may therefore those at which the applicant arrived. In have an interest in lowering the prices examining the conduct of the applicant according to the increase in quantities. and the results obtained on the market, As regards the prices for the period from the defendant did not find that 1970 to 1974, the defendant considers competiton appreciably restricted the that the applicant has not reacted to the applicant's freedom of action. In this table produced by the defendant respect it is very important that the juxtaposing the price trend and the applicant was able to maintain its large development of output from 1970 to market shares for a relatively long 1974 or to the table of the prices charged period. by the applicant from 1971 to 1974 on Moreover, the defendant has never the basis of information supplied by the denied that it is for it to prove the existence of the criteria of the

Application sales covered by the contract providing for fidelity rebates only represent 4% of The applicant's intention is to correct the total sales in the Common Market certain facts which in its view the for the period 1970 to 1974. Commission has presented incorrectly. In the first place it stresses the fact that Defence contracts whereby the purchaser buys all its requirements exclusively or preferen- The Commission challenges the tially from Roche above all meet the applicant's assertion that the contracts in customers' wish to be guaranteed a question first and foremost meet the regular supply of products of a customers' wish to be guaranteed homogeneous quality and at advan- supplies of uniform quality and at tageous prices. favourable prices, because, if that had really been the case, all the applicant In the second place the Commission need have done was to provide in its wrongly regards the rebates on biotin as contracts that it was obliged to supply fidelity rebates. The documents mentioned in Recital 12 to the decision

indicated clearly that they are "intro- ductory" rebates usually granted to selected purchasers who agree to promote a product with a view to expanding the market in that product. The applicant also denies that the contracts entered into with Merck and

JUDGMENT OF 13. 2. 1979 — CASE 85/76

Reply The applicant takes the view that in the final analysis the Commission's approach If the rebates complained of because they is equivalent to forbidding Unilever to are regarded as "fidelity bonuses" are, conclude of its own free will and without by virtue of the English clause, in fact being under any obligation to do so a true fidelity rebates, the same applies, in contract for the supply of its annual the view of the applicant, a fortiori to the requirements and this would be an unac- rebates on biotin which are only to be ceptable restriction of the purchaser's granted to customers who are willing to freedom of choice. The mere fact that a undertake special promotion of biotin in purchaser obtains most or all of his order to develop new fields where it can supplies from the applicant without being be used. The applicant then points out under any contractual obligation to do that the English clause precluded the so cannot in any circumstances be an customer from being tied "exclusively". infringement of Article 86 of the EEC It is wrong to talk of "obligations to Treaty. The fact that the contracts obtain their supplies exclusively from specified a maximum amount which the Roche" when it is not disputed that the applicant was to supply and also a customer may accept a more favourable minimum amount which Unilever was to offer from a competitor which the purchase makes no difference, for in applicant does not itself follow up. Only long-term contracts relating to large a small number of the contracts contain quantities of raw materials such stipu- obligations to obtain supplies exclusively lations are perfectly normal on the from Roche whereas in the other cases market. just because the English clause removed the "attractive effect" of the rebates, customers were not tied by mere promise of rebates.

The contracts with Merck covered (a) The Commission, in answer to supplies of such large quantities of Roche's argument that the presence vitamins B6 and E that the applicant of the English clause in the contracts could not produce them unless the sale with Unilever does not permit the of such quantities was guaranteed. conclusion that Unilever was obliged under these contracts to buy all its Rejoinder requirements from Roche, replies that it is fully aware that the so- The rebates agreed in the biotin sector called English clause makes sense in are not introductory because they "are long-term contracts for the supply of linked to" the condition precedent that fixed quantities which do not cover the customer buys his requirements all the purchaser's requirements. exclusively or mainly from the applicant However, in such cases according to with a view to protecting the share of the the Commission it is the vendor who market which has been won. ("you undertakes to adjust his prices with should protect your market through the result that the purchaser fidelity contracts. ..", Management continues to be obliged to purchase. Information Biotin, p. 2). The legal position under the English clause contained in the contracts at The Commission points out that it has clearly distinguished in the contested issue is quite different. Since Roche, decision between clauses which directly the vendor, is not obliged to adjust bind customers to obtain their supplies its prices the clause only applies to from Roche (fidelity contracts) and those the performance of the purchaser's in which by means of a price incentive, obligation to buy most or all of its requirements from Roche. namely by granting a fidelity bonus, such a binding relationship is indirectly (b) The Commission takes the view established. It is incorrect to say that the that Merck's unusually large English clause "precludes from the requirements of supplies of vitamins outset the obligation to purchase supplies B6 and E, which, according to the exclusively from Roche", because the applicant, justified the conclusion of exclusivity relates to the procurement of a contract under which it bought its supplies whereas the English clause supplies exclusively from Roche, relates to the fixing of prices. could, according to the Commission, also have been met by other Indeed in this connexion it is perfectly methods, for example by ordering normal in long-term contracts for the fixed quantities at half-yearly or vendor to undertake to take account of yearly intervals. competitors' prices. The Commission does not deny that it is of the very II The arguments concerning the inter- essence of competition to endeavour to pretation of the English clause tie customers to the detriment of

of any obligations to obtain supplies mentioned "Sugar Case", because in that from Roche even assuming that such case the purchaser lost the rebate in any exclusivity attaches to those obligations case as soon as he met even a fraction of in principle. Every customer remains free his requirements from a competitor. The to try to obtain more favourable prices English clause expressly stipulates that and/or terms from competitors. This the annual rebate is not discontinued if applies just as much to contracts purchases are made from competitors providing for incentive or preferential charging more favourable prices. The rebates as to contracts providing for applicant produces figures to prove that supplies to be obtained exclusively from in fact its purchasers, and for those very Roche. The customer who takes reasons, on several occasions obtained advantage of a more favourable offer well over 50 % of their requirements does not lose the rebate which he is from the applicant's competitors. allowed on the other purchases. Thus the present case is entirely different from the Rejoinder so-called "Sugar Case" (judgment of 16 The Commission replies that the true December 1975 in Joined Cases meaning of the English clause is that it 40-48/73 and Others Coöperatieve allows the dominant undertaking to react vereniging "Suiker Unie" UA and Others to its competitors' price changes without Commission of the European running the risk of losing its customers Communities [1975] 2 ECR 1663, at p. to them. Since the decision as to whether 2001), for in the present case there is no a customer may obtain its supplies from risk of the rebate being lost (see a competitor rests with the applicant, the paragraph 504 of the above-mentioned applicant has the power to prevent "Sugar" judgment). customers bound by these contracts from obtaining supplies elsewhere and thus to Defence shut out its competitors. The fact that The Commission takes the view that the the applicant's customers on several applicant has minimized the significance occasions covered more than 50 % of

Application Defence The applicant explains the scope of the The Commission justifies its finding that English clause and then concludes that Roche's conduct amounts to an abuse, its use cannot amount to an "abuse" which it explained in Recital 21 et seq. of within the meaning of Article 86 of the the disputed decision, by the following EEC Treaty. The essential balancing of considerations: the interests involved (Interes- — the "fidelity" contracts, by senabwägung) shows that the contracts compelling customers to obtain their at issue: supplies exclusively from the — ensure the availability of supplies to applicant or by achieving the same customers and guarantee that a result through the medium of a price homogeneous quality will be main- advantage (the fidelity bonus) deprive tained, customers of the opportunity to choose a source of supplies of their — enable the applicant to plan its own free will, in so far as they are production, tied to the applicant as customers. — guarantee consumers the lowest — these contracts also cause com- prices. petition between vitamin manufac- On the other hand for Article 86 to turers to be adversely affected in so far as access to these customers by apply there must be a connexion between other vitamin manufacturers is barred the dominant position and the conduct by the exclusivity clause agreed of the undertaking concerned; the between the applicant and its pur- conduct complained of must spring from chasers. the undertaking's strength and must only be possible by reason of its dominant — the English clause represents a position. Indeed tying buyers is quite loosening of this tie to the extent to usual on the market in vitamins and which it permits adjustment of prices. there is no evidence whatsoever that the Nevertheless it does not leave the customers free to obtain their applicant could conclude the contracts to which objection is taken by reason only supplies as they wish from the of its supposed strong position in the applicant or its competitors: it is only market. On the contrary, as emerges when the applicant refuses to adjust from a statement by Animedica, it was its price to that of its competitor that the customers who preferred the the purchaser can obtain his supplies suppliers offering the most favourable at the latter's price. rebates. Neither has the applicant's conduct blocked access to the market, When the applicant considered the for since the market in question is a legality of this clause it wrongly started specific market providing outlets for vitamins, the applicant's main competitors, as has already been pointed

it is to be caught by the prohibition involved has been achieved to the extent contained in Article 86. to which customers, because their production depends on supplies being On the contrar)' owing to the fact that delivered on a long-term basis, require undertakings occupying a dominant and are given contracts which guarantee position have a freedom of action which supplies over a long period while, on the allows them to act without having to pay other hand, the applicant which has much regard to their competitors, they undertaken these commitments, is also are not allowed to adopt certain assured of being able to dispose of its practices which may be lawful if adopted production. Moreover by virtue of the by undertakings exposed to competition. English clause the contracts guarantee to On the other hand an "appreciable" any customer supplies at the most interference with competition is not favourable price, to each competitor able necessary for the application of Article to compete the opportunity of seeing its 86 as it is in the case of Article 85. An more favourable offer accepted and to undertaking in a dominant posititon is the consumer an assurance of obtaining not by definition exposed to any effective automatically the lowest price. competition. As soon as such an under- In the view of the applicant the wording taking abuses its position the objective of of Article 86 shows that there must be a the Treaty to protect competition is certain causal connexion between the jeopardized. Furthermore the purpose of dominant position on the market and the the prohibition contained in Article 86 is attitude of the undertaking concerned. clearly to protect trading parties from The alleged abuse must therefore be undertakings occupying a dominant connected with some "pressure"; it is not posititon. sufficient for it to be connected solely In any case the current contracts with this market situation.

concerned with the specific relations With regard to the effect of the fidelity between a company exploiting copyright contracts the applicant does not agree and its members, a set of facts which that the contracts at isssue which only cannot be applied to the present case. covered 4 % of the vitamins for the

On the question of balancing the interests involved the Commission submits that if the conduct of an under-

taking occupying a dominant position on the market adversely affects the system

JUDGMENT OF 13. 1. 1979 — CASE 85/76

important customers in the sector of v Commission of the European food and animal feed the operations of Communities [1975] 2 ECR 1663, at p. which are not limited to some Member 2004) in which it found that "Purchasers States but cover all Member States from SZV, and in particular large within the Community. industrial consumers, compete with other buyers from the company". Moreover IV Arguments concerning the discri- the documents which the applicant has minatory effect of the disputed produced prove what importance it and contracts the purchasers have attached to the fidelity bonuses. Application Reply The applicant calls attention to the fact that according to recital 26 to the The applicant takes the view that the contested decision the conditions for the reference to the case-law of the Court in

The Court has overruled this objection, inter alia, in its judgment of 16 December 1975 in Joined Cases 40 to 48/73 and Others (Coöperatieve vereniging "Suiker Unie" UA and Others

HOFFMANN-LA ROCHE COMMISSION

Application could satisfy the conditions constituting This submission, which relates to the an abuse of such a position. fine, is made in the alternative and recapi- tulates first of all the arguments which Reply have already been developed in the first The applicant replies that as far as submission. concerns the absence of proof of any misconduct on its part the defendant As far as concerns the guilt to which Recital 28 of the decision alludes the deliberately overlooks the fact that even genuine fidelity rebates (which are not applicant takes the view that it can only found in this case) are in principle be regarded as guilty of infringing acceptable under competition law Article 86 of the Treaty: (judgment of the Court of 11 June 1968 — if the interpretation of the concepts in Case 22/67 De Wendel et Cie SA "dominant position" and "abuse" is Commission of the European Communities free of doubt, and [1968] ECR 263). — the undertaking does not make a An offence cannot originate in the mistake of fact as to the existence of anticipation of the effects of a fidelity effective competition. rebate which is in principle acceptable. The defendant has put forward in the In any case the applicant has not present case some views which it has knowingly committed an illegal act and, never put forward before and which are because of the uncertain interpretation of inconsistent both with its own practice the concepts constituting the offence, and the case-law of the Court of Justice. was so placed that its ignorance of the unlawful nature of its conduct was They are as follows: excusable. To that must be added a — the applicant's market shares of mistake of fact which, according to the about only 50% are themselves generally accepted view, rules out the factors establishing that there is a possibility of any guilt. dominant position on the market; — the fact, which is not disputed, that Defence all the markets in vitamins are

A — The documents which the parties On the other hand the defendant also were requested to produce relies on the judgment of 16 December 1975 in the "Sugar Case" and thus The Commission has produced the confirms that from 1964 to 1973 a good minutes of the meeting between Unilever and Roche in London on 11 December many objections were not foreseeable. As 1972, which is mentioned in Recital 3 to far as concerns the dominant position as well as the abuse the criteria which were the contested decision, and also the

determinative in the "Sugar Case" for documents relating to investigations it carried out with certain of Roche's the application of Article 86 and the customers. In addition the parties have gravity of the infringement are not supplied further and better particulars of present. certain data and documents which they mentioned in their pleadings, especially Rejoinder with reference to the trend of prices in The Commission's answer is that the the various Member States, the quantities determinative factor is the question supplied (in kilograms/tonnes) and the whether the applicant may take use of vitamins C and E for advantage of a pardonable error as to technological purposes. the unlawfulness of its conduct. The

applicant ought to have ascertained B — The market shares whether the contracts which it arranged were objectionable or not, as far as its The Court requested the parties to operations within the Community were supply further and better particulars of concerned. Since it did not to do this it some of the data which each of them must be deemed to have accepted that used to assess Roche's market shares these contracts might be regarded as an within the Common Market, in abuse within the meaning of Article 86. particular by giving the data covering the years 1970 up to and including 1974 by taking into consideration the quantities IV — The parties replies to coming from non-member countries questions put to them by marketed by resellers who are not the Court

producers, by supplying particulars of (d) The Commission calculates the the quantities and prices, and above all market shares for vitamins B2 and B6 for by endeavouring to provide the Court the years 1972, 1973 and 1974 on the with the facts which the parties have as basis of both value and quantity at 75 to far as possible agreed. 90%. Roche stresses that since as far as its competitors' sales are concerned it has In answer to the request the parties have, to rely to a large extent entirely on mere on the one hand, produced a joint document containing the statistical data conjecture, it is not in a position to adduce any evidence to the contrary but upon which they reached agreement and, that adopting its internal method of on the other hand, separate documents making such assessments, its share of the in which each party for itself answers market in vitamin B2 amounts to only 20 those questions a joint answer to which to 30% and its share of the market in could not be agreed on. In addition each vitamin B6 does not exceed 50%. party submitted observations on the separate documents drawn up by the (e) Roche draws attention to the other party. considerable variations in its market The main factual information emerging shares from year to year (Answer to from the further particulars supplied is Question I. 5f) which goes to show that reproduced in the table (see pages 504 there is actual competition. and 505) and give rise to the following observations: (0 As far as concerns vitamins C and E the parties agree that in addition to their (a) Roche states that it has been able to use for bio-nutritive purposes vitamins C take note of the factors taken into and E are used for technological consideration by the Commission and of purposes, as antioxidants, colouring the latter's calculation in order to matter or as protection against any de- determine the market shares. terioration of taste, smell and any fading of colours. On the other hand the parties (b) Both parties agree that 47% have not reached agreement on the pro- represents Roche's share of the market in portion of these vitamins used for these vitamin A. purposes nor are the conclusions to be drawn from their findings. (c) As far as concerns vitamins B3 According to Roche the proportion is (pantothenic acid), C, E and H (biotin) 30% in the case of vitamin C and 60% (see table) the parties have jointly agreed in the case of vitamin E. Since these figures relating to the market shares, vitamins, when used for technological calculated, on the one hand, according purposes, are exposed to competition to value, and, on the other hand, according to quantity. However, in the Commission's view the value is the most

A Animal feed 81 % 47 % (the other 47 %

producers Food 7 % 27, 18, 7, 1 %)

Pharmaceuticals 12 %

B2 Animal feed 74 % 86 % (next largest 50 % manufacturer: Food 4 % 8 %)

Pharmaceuticals 22 %

B3 Animal feed 81 % 64 % (another 30 % appro (pantothenic acid) manufacturer: Food 2 % 32 %)

H Animal feed 57 % over 90 % over 90 % (Biotin) (pp. 68 to 70 of (pp. 68 to 70 Food 6 % of the the application) application) Pharmaceuticals 37 %

HOFFMANN.LA ROCHE COMMISSION

Corrections following the Court's questions

Figures which the parties have Assessments on which the parties disagree agreed (first statement)

Commission's calculation by Roche's calculation Quantity: Roche's calculation value and quantity of its own market shares Value: Commission's calculation (joint statement) (Court's Question 1.2a)

1972 1973 1974 1972 1973 1974 1972 1973 1974 6 countries 9 countries 9 countries 6 countries 9 countries 9 countries 6 countries 9 countries 9 countries

28.9 34.9 51

18.9 23.4 41.2

115 222 256

tonnes tonnes tonnes

H + B6 = 1 heading in CCT V 87 90 83.9

q 84.2 86 88.4 139 296 404 q 262 34 407 tonnes tonnes tonnes tonnes tonnes tonnes

from other antioxidants, colouring (g) The parties have produced as matter and additives, the latter products Annex IV to their joint reply tables must be included in the market for each showing the trend of vitamin prices in of the vitamins for which they can be the various Member States between 1970

substituted. Consequently the market in and 1976. Since there are many forms in question for vitamins C and E is much which vitamins may be sold (for example greater than the Commission asserts and there are 100 forms in which Vitamin A Roche's shares of these markets, account may be sold) the parties agreed to select being taken of the share attributable to the most representative product. These substitutable products, is about 46% in figures disclose a trend, in the case of the case of vitamin C and 40% in the both falls and rises in prices, which was case of vitamin E. The applicant is of the somewhat — although not fundamen- opinion that its view is confirmed by the tally — different from one Member State judgment of the Supreme Court of the to another. United States of America in the

properties, the manufacturers are free, especially on an expanding market, to use these products for the purpose which best suits them.

Finally, even if it is assumed that the vitamins sold by Roche for technological purposes are to be excluded from the markets in question the same must be done in the case of its competitors with the result that the market shares remain unchanged.

HOFFMANN-LA ROCHE COMMISSION

The applicant for its part mentions questions p. 13 et seq.) the Commission (Answer to Question I.6) an investigation stresses the fact that the disputed which it carried out on the German contracts provide in general that only market covering 815 customers, of which offers from "serious competitors" or 589, that is 72.3%, have only bought "reputable manufacturers, brokers or one, two or at most three vitamins. dealers" are taken into consideration for

the purpose of releasing customers from (i) The Commission's general their obligation to obtain most or all of conclusion is that the investigations their supplies from Roche and also carried out at the request of the Court, emphasizes that as a rule the offers from except in the case of vitamin B3 the local market are involved. It also

(pantothenic acid), on the whole confirm stresses the fact that it does not object to the determination of the market shares the English clause being applied but mentioned in the disputed decision. The maintains that this clause does not

objected to their identity being disclosed.

(b) As far as concerns the questions put to the parties by the Court relating to the effect of the so-called "English clause" (the Commission's answer to the Court's

JUDGMENT OF 13. 2. 1979 — CASE 85/76

The applicant goes on to say that it has states emphatically that it did not in fact every reason to believe that its have any means of checking that its competitors have concluded with their customers were applying the English customers a good many contracts of the clause correctly and that it always same type as those to which the refrained from applying the penalties Commission has objected (Answer to provided for in the contracts. Question II.4). It states in answer to Question II.6 that, although it has terminated the disputed contracts, it has V — Oral procedure not yet entered into new agreements with the majority of its customers, since At the public hearing on 31 May 1978 its negotiations with the Commission for the parties presented their oral argument approval of a standard form contract and answered various questions put by were not conclused until November the judges and the Advocate General. 1977. However fresh contracts have been The applicant, with the consent of the entered into with Merck, Unilever, Animedica and Dawe's and have been defendant, produced certain documents in support of its oral submissions and annexed to its reply. confirmed that it withdrew its submission The applicant in answer to Question II.7 based on the way in which some and II.8 maintains that there is an documents were obtained by the essential difference between the fidelity defendant (Submission 2a). rebates and the clauses which are included — in different forms — in the It also drew attention to the fact that in

3 In support of its application the applicant makes the following submissions:

— First submission: The contested decision infringes the fundamental principle that rules relating to penalties must be certain and foreseeable.

— Second submission: The contested decision, as a result of irregularities in the administrative procedure upon the conclusion whereof it was adopted, has several formal defects.

— Third submission: The contested decision infringes Article 86 of the Treaty in that the Commission incorrectly interpreted and in any case inaccurately applied the concepts of a dominant position and of the abuse of a dominant position which may affect trade between Member States by finding that Roche was in such a position and by treating the agreements in question as constituting such an abuse.

— Fourth submission: The contested decision, by imposing a fine upon Roche, has infringed Article 15 (2) of Regulation No 17 of the Council of 6 February 1962 (Official Journal, English Special Edition 1959-1962, p. 87), the alleged infringements, in so far as they may be found to exist, were not committed either intentionally or negligently.

The applicant has also relied in its application on the infringement of Article 18 of Regulation No 17 of the Council of 6 February 1962 and of Financial

Second submission: Irregularities in the administrative procedure

7 On this point the applicant in the first place submitted in its application that the procedure initiated by the Commission its own initiative against it pursuant to Articles 3 and 15 of Regulation No 17 of the Council was irregular having regard to the fact that documents for internal use by its departments came unlawfully into the possession of the Commission.

However during the written and oral procedure before the Court it stated that it withdrew this submission and itself produced for the Court's file with other documents the documents the use of which by the Commission it had previously regarded as being unlawful.

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In these circumstances this submission may be rejected without any further examination since the Court is of the opinions that it need not examine it of its own motion.

8 The applicant submits in the second place that in the disputed decision documents, particulars whereof were not given during the administrative procedure, and other evidence which the Commission refused to let it inspect because of the duty to respect professional secrecy were taken into account.

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10 Although the Court in its judgment of 15 July 1970 in Case 45/69 (Boebringer Mannheim GmbH Commission of the European Communities [1970] ECR 769) held that these requirements are satisfied as far as concerns the notification of complaints — the first stage of the administrative procedure — if the notification sets forth clearly, albeit succinctly, the essential facts upon which the Commission relies, this ruling is subject to the proviso that "in the course of the administrative procedure it supplies the details necessary to the defence."

11 Thus it emerges from the provisions quoted above and also from the general principle to which they give effect that in order to respect the principle of the right to be heard the undertakings concerned must have been afforded the opportunity during the administrative procedure to make known their views on the truth and relevance of the facts and circumstances alleged and on the documents used by the Commission to support its claim that there has been an infringement of Article 86 of the Treaty.

12 The Commission does not deny that, since it took the view that it was bound to observe professional secrecy, it refused to pass on the data that it had obtained from competitors or customers of Roche which formed the basis, together with other data, of its assessment of the market shares and of the view that the disputed contracts restrict competition.

13 Although Article 20 (2) of Regulation No 17 provides that "Without prejudice to the provisions of Articles 19 and 21, the Commission and the competent authorities of the Member States, their officials and other servants shall not disclose information acquired by them as a result of the application of this regulation and of the kind covered by professional secrecy", this rule must, as the express reference to Article 19 confirms, be reconciled with the right to be heard.

their coming into the possession of the Commission, although it later produced them for the Court's file so that both parties could and did make their submissions concerning them.

On the other hand as far as concerns the data on the basis of which the

Commission has calculated the market shares and its analyses of the effects of the disputed contracts the parties, during the written procedure at the request of the Court produced, following an exchange of information, an agreed document which shows that the Commission in the case of all the vitamins in question has disclosed the bases of its calculation of the market shares according to their value for 1972, 1973 and 1974 with the result that Roche was in a position to estimate its market shares according to the quantities sold on the basis of the sales attributed to certain competitors in the documents produced by the Commission.

17 Thus the parties have been able to agree on an estimate of the market shares according to quantity and value — although they have remained in des- agreement as to which of the two criteria is determinative — as far as concerns vitamins A, B3 and H and also vitamins C and E subject in the case of the latter to an examination of the market to be taken into consideration

from the standpoint of the interchangeability for certain uses of these two vitamins with other products, only the market shares of vitamins B2 and B6 remaining unagreed.

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II The contested decision assumes, in any case incorrectly, that the applicant has abused such a position, since the Commission has made a wrong analysis of the contracts the conclusion whereof is supposed, according to it to constitute an abuse and of the restrictive effects on competition of the said contracts.

III The contested decision wrongly assumes that the applicant's conduct was such as to have an appreciable effect on intra-Community trade.

I — The existence of a dominant position

Section 1 : The delimitation of the relevant markets

21 In order to determine whether Roche has the dominant position as alleged, it is necessary to delimit the relevant markets both from the geographical standpoint and from the standpoint of the product.

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25 It is an established fact that Vitamins C and E apart from their uses in the pharmaceutical industry and in food and animal feed — called bio-nutritive uses — are also sold, inter alia, as antioxidants, fermentation agents and additives — uses covered by the word "technological" and, to the extent to which there is any demand for these vitamins for the purpose of the said technological uses, they are exposed to the competition of other products suitable for the same uses.

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26 According to Roche the conclusion to be drawn from this is that the C and E groups of vitamins are part of a much larger market comprising these other products and that the Commission has exaggerated Roche's share of the said markets, by failing to include the latter.

27 The Commission on the other hand takes the view that the products which can be substituted for Vitamins C and E for technological uses cannot be included in the same markets as these vitamins because the two possible uses of the latter mean that the degree of interchangeability of the said products with the vitamins in question is not sufficient.

Neither can the vitamins used in the end for bio-nutritive purposes and those used for technological purposes be divided into two separate markets, because, by reason of the two uses to which these products lend themselves, the manufacturers and purchasers are entirely free, especially on an expanding market, to use them for the purpose which they regard as the most profitable.

However assuming that the vitamins sold by Roche for technological purposes had to be excluded from the markets in question the same would have to be done in the case of its competitors with the result that the market shares would remain unchanged.

32 However in order to calculate the market shares of Roche and of its

competitors correctly this question did not have to be answered because, as the Commission has rightly pointed out, if it had been necessary to draw this distinction, it would have had to be drawn for Roche's competitors as well as for Roche itself, and — in the absence of any indication to the contrary by the applicant — in similar proportions with the result that the market shares in percentages would remain unchanged.

Finally Roche, in answer to a question put to it by the Court, has stated that all the vitamins of each group, irrespective of the ultimate intended use of the product, were subject to the same price system so that they could not be split up into specific markets.

It follows from the foregoing that the Commission has correctly delimited the relevant markets in its contested decision.

Section 2: The structure of the relevant markets

31 Although each group of vitamins constitutes a market of its own, these separate markets nevertheless, as far as concerns production and marketing structures, have common features which must be brought out.

Some of these producers were moreover purchasers and resellers of vitamins which they did not produce themselves, while unspecified quantities of vitamins were marketed by large commercial firms which obtained their supplies from sources other than the nine producers mentioned in the decision.

35 As far as concerns the demand for bulk vitamins the special feature of the situation with the Common Market is the presence of a relatively large

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number of purchasers — about 5 000 who buy from Roche — but a considerable proportion of this demand, which in the case of Roche may be estimated at approximately 25% of its sales within the Common Market, was at the period under consideration concentrated in the hands of 22 large firms, of which seven belonged to the pharmaceutical industry, five to the food industry and 10 to the animal feed industry.

All these customers, irrespective of the sector of the economy to which they belonged, were buyers of a good deal, if not all of the vitamins in question, the only apparent exception in this connexion, at all events as far as concerns its relations with Roche, being Unilever which only purchased vitamins in group A.

Section 3: The relevance of the factors used by the Commission to establish the existence of a dominant position

Article 86 prohibits any abuse by an undertaking of a dominant position in a substantial part of the Common Market in so far as it may affect trade between Member States.

The dominant position thus referred to relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers.

39 Such a position does not preclude some competition, which it does where there is a monopoly or a quasi-monopoly, but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which that competition will develop, and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment.

A dominant position must also be distinguished from parallel courses of conduct which are peculiar to oligopolies in that in an oligopoly the courses of conduct interact, while in the case of an undertaking occupying a dominant position the conduct of the undertaking which derives profits from that position is to a great extent determined unilaterally.

The existence of a dominant position may derive from several factors which, taken separately, are not necessarily determinative but among these factors a highly important one is the existence of very large market shares.

40 A substantial market share as evidence of the existence of a dominant

42 The contested decision has mentioned besides the market shares a number of

other factors which together with Roche's market shares would secure for it in certain circumstances, a dominant position.

These factors which the decision classifies as additional criteria are as follows :

(a) Roche's market shares are not only large but there is also a big disparity between its shares and those of its next largest competitors (Recitals 5 and 21 to the decision);

(b) Roche produces a far wider range of vitamins than its competitors (Recital 21 to the decision);

(c) Roche is the world's largest vitamin manufacturer whose turnover exceeds that of all the other producers and is at the head of a multi- national group which in terms of sales is the world's leading pharma- ceuticals producer (Recitals 5, 6 and 21 to the decision);

44 In this connexion it is necessary to reject the criterion based on retention of market shares, since this may just as well result from effective competitive behaviour as from a position which ensures that Roche can behave independently of competitors, and the Commission, while admitting that there is competition, has not mentioned the factors which may account for the stability of market shares where it has been found to exist.

However if there is a dominant position then retention of the market shares may be a factor disclosing that this position is being maintained, and, on the other hand, the methods adopted to maintain a dominant position may be an abuse within the meaning of Article 86 of the Treaty.

45 The fact that Roche produces a far wider range of vitamins than its competitors must similarly be rejected as being immaterial.

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The Commission regards this as a factor establishing a dominant position and asserts that "since the requirements of many users extend to several groups of vitamins, Roche is able to employ a sales and pricing strategy which is far less dependent than that of the other manufacturers on the conditions of competition in each market".

46 However the Commission has itself found that each group of vitamins constitutes a specific market and is not, or at least not to any significant extent, interchangeable with any other group or with any other products (Recital 20 to the decision) so that the vitamins belonging to the various groups are as between themselves products just as different as the vitamins compared with other products of the pharmaceutical and food sector.

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of vitamins constitutes a group of separate products which require their own particular plant and form a separate market, in that the volume of the overall production of products which are different as between themselves does not give Roche a competitive advantage over its competitors, especially over those in the chemical industry, who manufacture on a world scale other products as well as vitamins and have in principle the same opportunities to set off one market against the other as are offered by a large overall production of products which differ from each other as much as the various groups of vitamins do.

48 On the other hand the relationship between the market shares of the under- taking concerned and of its competitors, especially those of the next largest, the technological lead of an undertaking over its competitors, the existence of a highly developed sales network and the absence of potential competition are relevant factors, the first because it enables the competitive strength of the undertaking in question to be assessed, the second and third because they represent in themselves technical and commercial advantages and the fourth because it is the consequence of the existence of obstacles preventing new competitors from having access to the market.

As far as the existence or non-existence of potential competition is concerned it must however be observed that, although it is true — and this applies to all the groups of vitamins in question — that because of the amount of capital investment required the capacity of the factories is determined according to the anticipated growth over a long period so that access to the market by new producers is not easy, account must also be taken of the fact that the existence of considerable unused manufacturing capacity creates potential competition between established manufacturers.

(a) The vitamin A group

sc The parties both concede that Roche's market share within the Common Market may be put at 47 % both as to value and quantity.

According to the data produced by the Commission, which Roche does not dispute, the shares of the other producers in 1974 may be put at 27 %, 18 %, 7 %, and 1 %.

51 Since the relevant market thus has the particular features of a narrow oligopolistic market in which the degree of competition by its very nature has already been weakened, Roche's share, which is equal to the aggregate of the shares of its two next largest competitors, proves that it is entirely free to decide what attitude to adopt when confronted by competition.

Roche's technical lead over its competitors due to the fact that it is the proprietor of several patents relating to vitamin A, even after the expiration of these patents, is a further indication that it occupies a dominant position.

As has been indicated above the same applies to the absence of potential competition from new manufacturers, whereas the competition derived from the surplus manufacturing capacity of existing undertakings rather favours Roche as is apparent from an extract from Management Information of the middle of August 1971 which reads "Although BASF will continue to intensify its activities, we expect to achieve a further steady increase of our turnover. However, the present overcapacity of production is such that a fixing of prices cannot be expected for the next few years. Such a development would, of course, be accelerated if one of our smaller competitors ceased production".

and in quantity, and it appears from the tables which it produced that all the imports of vitamins into the Common Market for which there are statistics have been taken into consideration.

On the basis of these data it arrives at the following figures :

Vitamin B2 1972 1973 1974

Roche's market share (6 Member States) (9 Member States) (9 Member States)

value 87.0% 81.2% 80.6%

quantity 84.5% 74.8% 80.8%

rather than a rationalization of production.

Furthermore although the existence of surplus manufacturing capacity may in certain circumstances be a consistent element of potential competition likely to have an effect on the question whether there is a dominant position — although it has already been confirmed above that this factor did not apply to Roche during the period under consideration — it cannot affect the evaluation of the market shares which have in fact been acquired.

56 In these circumstances the Commission's calculations as corrected, which moreover are sufficiently dependable to be capable of acceptance, cannot be called in question on the strength of the above-mentioned objections and the market shares which they disclose are so large that they are in themselves evidence of a dominant position.

(c) The vitamin B3 (pantothenic acid) group

57 The Commission has admitted that the figures used in the contested decision had to be corrected and the two parties agree the following evaluations of the market shares:

Vitamin B, 1972 1973 1974

On the contrary it has become apparent that the rectification which the latter had to carry out. was due to its omission to take account of the imports of a Japanese competitor which in 1973 accounted for 30 % of the market.

On the other hand the Commission, in the case of this particular market, has not indicated what the additional factors would be, which, together with the market share as corrected, nevertheless would be of such a kind as to admit of the existence of a dominant position.

These findings lead to the conclusion that, as far as concerns vitamin B3, there is insufficient evidence of the existence of a dominant position held by Roche for the period under consideration.

(d) The vitamin B6 group

59 The Commission had evaluated Roche's market share at 95 % whereas

Roche, which has not supplied any particulars relating to the Common Market, admits that it has a market share of about 60 to 70 % of the world market.

60 It must be noted that, although the market shares cover the two groups B6 and H, at least in terms of value, because the vitamins of groups B6 and fall within the same customs heading, Roche has nevertheless not contended that this fact is not of such a kind as to alter the resulting orders of magnitude.

Roche maintains, without going into a more detailed explanation, that this estimate must be reduced by at least 20 %, but even if this view were to be accepted without qualification, Roche's market shares are nevertheless so large that they prove the existence of a dominant position.

This is all the more true because at the relevant time the market share of

none of Roche's four next largest competitors reached 10% and the shares of some of them were probably less than 5 %.

(e) The vitamin C group

61 The Commission in the contested decision had estimated Roche's market

62 Roche takes the view that this estimate should be corrected by allowing for the fact that the market in question should also include products competing with the technological uses of Vitamin C and it asserts that in those circum- stances its market share would not exceed 47%.

63 Since the considerations set out above relating to the delimitation of the relevant market for vitamins intended both for bionutritive and technological

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uses have led to the argument developed by Roche being rejected, the market shares which the parties have agreed of the vitamin C market as such must be accepted. They are evidence of the existence of a dominant position.

As far as concerns this market too — on which moreover there was a

shortage in 1971 — the gap between Roche's shares (64.8%) and those of its next largest competitors (14.8% and 6.3%) was such as to confirm the conclusion which the Commission reached.

value 54% 64% 58%

quantity 50% 60% 54%

Moreover Roche estimates that its share for 1970 and 1971 is 7% lower still than that for 1972.

65 Roche takes the view, for the same reasons which it put forward in relation to vitamin C, that the relevant market should also include products competing with the technological uses of vitamin E and it asserts that in those circumstances its market share for 1974 would not exceed 40%.

66 Since Roche's argument as far as concerns the delimitation of the relevant market has been rejected for the reasons mentioned above it is necessary to take into consideration the market shares which the parties have agreed.

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68 It follows from the foregoing that, as far as concerns the groups of vitamins A, B2, B6, C, E and H, all the constituent elements of a dominant position were present whereas the existence of such a position in the case of vitamin B3 has not been established.

Section 5: The applicant's conduct on the market

69 It is however necessary to consider whether the preceding conclusions are belied by the applicant's behaviour on the relevant markets, which in its view shows that there was not only lively competition but also that such competition brought pressure to bear on it.

On this point it places special reliance on the fact that the prices of the various groups of vitamins continually fell and also that in certain Member States its market shares decreased.

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It also refers to the information contained in various internal documents and

Even if it is assumed that the recorded world price trends may be regarded as reflecting the general trend of prices within the Common Market, an exami- nation of the graphs however makes it clear that, to a very great extent, the prices of different groups of vitamins fell considerably so long as production only increased slowly, but that these falls were greatly reduced and even gradually superseded by a very high degree of stability as from the time

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when there was a big increase in the production of each specific group of vitamins, namely: from 1964 in the case of vitamin A, from 1956 in the case of vitamin B2; from 1966 in the case of vitamin B6; from 1958 in the case of vitamin C; from 1950 in the case of vitamin B3; from 1965 in the case of vitamin E, while in the case of vitamin H (biotin), the price curve, which had been stable up to 1970, as from that time falls slightly while at the same time production expands.

These data show that there is a correlation between prices on the one hand, and the volume of production and costs on the other, rather than between prices and the pressure of competition.

73 Roche, in answer to questions put by the Court, produced a number of tables (Annex 4 ( -i) of the document relating to matters agreed by the parties) setting out those variations in the prices of vitamins considered by Roche to be the most representative in each group between 1970 and 1976 for each Member State as well as the average prices based on national prices throughout the Community.

74 These tables in fact show that the price rises and falls varied considerably.

It is in fact in the year 1973 that a significant fall in the price of vitamin H has been recorded.

76 These factors show that Roche is certainly not subjected to any competitive pressure but by means of its position is able to adopt a price policy designed to forestall such pressure.

Furthermore the same number of Management Information recommends among other precautions to be taken the use of fidelity contracts.

77 As far as concerns vitamin C, of which Roche's market share between 1972 and 1974 may be estimated at about 65%, Marketing News of 6 December 1971 states that, in view of the shortage of this product, the representatives and subsidiaries of Roche, having regard to the long-term market strategy, are advised "to give preference to the food industry, both in respect of supplies and price advantages" as opposed to the pharmaceutical industry which will have to obtain part of its supplies from the brokers.

78 Although the figures and documents produced show that price variations, which were sometimes considerable, may be recorded on the markets for all the different vitamins, these variations appear in certain cases to bear no relation to the existence of competition, while in other cases it is usually Roche which at least plays the part of the price leader.

Furthermore the documents produced taken as a whole disclose the existence of a first-rate commercial and marketing organization, through which it is possible not only to carry out a systematic survey of the markets but also to detect the slightest intention on the part of any possible competitor to enter the market for one or other of the products, and which is capable not only of reacting instantaneously but also of forestalling such endeavours by taking appropriate steps.

se According to the contested decision the applicant has abused its dominant position by concluding with 22 large purchasers of vitamins contracts of sale — about 30 (some of them moreover were renewals with or without amendments of a previous contract) — under which these purchasers undertook to obtain all or most of their requirements of vitamins or certain vitamins expressly mentioned therein exclusively from Roche or which gave them an incentive to do so by including a promise of a discount which the Commission classifies as a fidelity rebate.

According to the Commission (Recitals 22 to 24 of the contested decision) the exclusivity agreements and the fidelity rebates complained of are an abuse within the meaning of Article 86 of the Treaty, on the one hand, because they distort competition between producers by depriving customers of the undertaking in a dominant position of the opportunity to choose their sources of supply and, on the other hand, because their effect was to apply dissimilar conditions to equivalent transactions with other trading partners, thereby placing them at a competitive disadvantage, in that Roche offers two purchasers two different prices for an identical quantity of the same product

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depending on whether these two buyers agree or not to forego obtaining their supplies from Roche's competitors.

81 The contracts at issue are for the sale of vitamins which belong to one or more of the groups in respect of which a dominant position has been found to exist to purchasers owning within the Common Market undertakings for which part or all of these vitamins are intended.

6. Dawe's: one contract which took effect from 1 August 1971 without any stipulation as to its duration.

7. Guyomarc'h: one contract which took effect as from 1 May 1972 for a period of one year and renewable by tacit agreement.

8. Isaac Spencer: two contracts, the first covering the period from 1 July 1973 to 31 December 1973, the second covering the year 1974. 9. Merck: three contracts, the first dated 3 March 1972, relating to vitamin A, for a period of five years, renewable by tacit agreement for further periods of two years; the second of 3 March 1972, relating to vitamin E and containing a clause concerning its duration almost identical to that in the preceding contract; the third, dated 5 July 1971, relating to vitamin B6 for a period up to 31 December 1966, then renewable by tacit agreement for successive periods of two years.

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10. Nitrovit/Imperial Foods: two contracts, one of 22 December 1972, the other of 11 January 1974, each for a period of one year.

11. Organon: one contract of 15 April 1970, amended on 10 October 1974, for periods of one year renewable by tacit agreement.

18. Sandoz: one contract which took effect in 1965 for a calendar year renewable by tacit agreement from year to year.

19. Trouw: one contract of 1 July 1971, which took effect as from 1 January 1971 and was amended on 27 November 1972.

20. Unilever: three contracts of 9 January 1974, the first two relating to supplies of vitamins to the United Kingdom, vitamin A, type in the case of the first contract, other types of vitamin A in the case of the second contract, while the third covers supplies of vitamin A on the continent, in the case of all three contracts for the years 1974 and 1975.

21. Upjohn: one contract which took effect on 1 November 1967 without any stipulation as to duration.

22. Wyeth: one contract which commenced on 1 January 1964 without any stipulation as to duration.

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(d) on "the major part" ("la majeure partie", "überwiegender Teil") of its requirements of vitamins or of certain vitamins (Beecham, Isaac Spencer, Nitrovit, Pauls and Whites, Ramikal, Trouw).

84 In some of the contracts the purchaser undertook to "give preference to Roche" (Wyeth) or expressed its "intention" to obtain its supplies exclusively from Roche (Capsugel/Parke Davis) or agreed to recommend its subsidiaries to do the same (Sandoz), either in respect of all their vitamin requirements or of certain vitamins therein specified (Capsugel/Parke Davis: A, B1, B2, B6, C, E, H) or again in relation to a fixed percentage of their total requirements (Protector: 80%).

85 Finally the contracts concluded with Merck and Unilever respectively had special features which makes it desirable to examine separately the under- takings which they contained.

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86 The duration of most of the contracts was for an indefinite period, either according to the terms thereof or because of the operation of a clause providing for renewal by tacit agreement, and they were clearly designed to establish trading relations for several years.

Most of the contracts were entered into as far back as 1970 and were in

89 An undertaking which is in a dominant position on a market and ties pur- chasers — even if it does so at their request — by an obligation or promise

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on their part to obtain all or most of their requirements exclusively from the said undertaking abuses its dominant position within the meaning of Article 86 of the Treaty, whether the obligation in question is stipulated without further qualification or whether it is undertaken in consideration of the grant of a rebate.

The same applies if the said undertaking, without tying the purchasers by a formal obligation, applies, either under the terms of agreements concluded with these purchasers or unilaterally, a system of fidelity rebates, that is to say discounts conditional on the customer's obtaining all or most of its requirements — whether the quantity of its purchases be large or small — from the undertaking in a dominant position.

90 Obligations of this kind to obtain supplies exclusively from a particular under- taking, whether or not they are in consideration of rebates or of the granting of fidelity rebates intended to give the purchaser an incentive to obtain his supplies exclusively from the undertaking in a dominant position, are incompatible with the objective of undistorted competition within the Common Market, because — unless there are exceptional circumstances which may make an agreement between undertakings in the context of Article 85 and in particular of paragraph (3) of that article, permissible — they are not based on an economic transaction which justifies this burden or benefit but are designed to deprive the purchaser of or restrict his possible choices of sources of supply and to deny other producers access to the market.

Section 4: The nature of the rebates at issue

92 The applicant nevertheless submits that the agreed rebates are quantity and not fidelity rebates or that they correspond to an economic transaction with the customer justifying consideration of this kind.

93 In considering this submission it is necessary to distinghuish between those contracts which provide for rebates at a fixed rate and those in which rebates at progressive rates are provided for.

(a) Contracts which provide for rebates at a fixed rate

94 First the applicant's argument cannot be accepted in the case of those contracts which provide for a rebate at a fixed rate.

95 In fact — and without prejudice to the observation that where exclusivity has been formally accepted the granting or not of a rebate is in the final analysis irrelevant — none of the said contracts includes any undertaking relating to fixed or only estimated quantities or linked to the volume of purchases but they all refer to "requirements" or a proportion of the said requirements.

(b) Contracts which provide for rebates at progressive rates

97 A number of the contracts at issue, namely Beecham (1972, 1973, 1974), Isaac Spencer (1973, 1974), Nitrovit (1973, 1974), Pauls and Whites (1972, 1973, 1974) contain, on the one hand, an undertaking relating to "the major part" of the purchaser's requirements and, on the other hand, a rebate clause providing for a discount, the percentage whereof increases — in general from 1% to 2%, and then to 3% — depending on whether during the period of one year a greater or lesser percentage of the purchaser's estimated

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requirements has been met, each of the contracts containing a value estimate (in pounds sterling) of the total requirements and, in addition, in the case of two of the contracts (Pauls and Whites 1972, Beecham 1972) a quantitative estimate of each of the types of vitamins referred to in the contract.

By way of example reference may be made to the Beecham contract (1 April 1972 to 31 March 1973) whereby, since the annual requirements were estimated at a maximum of £300 000, the rebate provided for was 1% if the turnover reached 60%, namely £180 000, 1.5% if it reached 70%, namely £210 000, and 2% if it reached 80%, namely £240 000.

There are similar formulae in the other contracts, the estimate of requirements differing from contract to contract and from year to year, obviously to allow for the customer's capacity of absorption.

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101 Consequently the Commission was also right to regard the said contracts containing fidelity rebates as an abuse of a dominant position.

Section 5: The English clause

102 All the contracts in question except five (the Animedica International, Guyomarc'h, Merck B6, Protector and Upjohn contracts) contain a clause, called the English clause, under which the customer, if he obtains from competitors offers at prices which are more favourable than those under the contracts at issue may ask Roche to adjust its prices to the said offers; if Roche does not comply with this request, the customer, in derogation from his undertaking to obtain his requirements exclusively from Roche, is entitled to get his supplies from the said competitor without for that reason losing the benefit of the fidelity rebates provided for in the contracts in respect of the other purchases already effected or still to be effected by him from Roche.

103 In the applicant's view this clause destroys the restrictive effect on competition both of the exclusivity agreements and of the fidelity rebates.

In particular in the case of those contracts which do not contain an express undertaking by the purchaser to obtain his requirements exclusively from Roche the English clause eliminates "the attractive effect" of the rebates at issue since the customer does not have to choose between acceptance of Roche's less attractive offers or losing the benefit of the fidelity rebates on all purchases which he has already effected from Roche.

Other contracts stipulate that the offer must come from producers to the exclusion of brokers or commercial agents and such a condition in fact eliminates non-European competitors who operate on the market through commercial firms as was found when the parties at the request of the Court separately undertook an investigation of the market shares.

In some contracts the English clause is linked directly with Roche's pledge to guarantee the best prices "on the local market" and it only operates within these limits, and this not only restricts its scope but brings about a partitioning of the markets which is incompatible with the Common Market.

106 Furthermore the English clause does not remove the discrimination resulting from the fidelity rebates between purchasers in similar circumstances depending on whether or not they reserve their freedom to choose their suppliers.

107 It is particularly necessary to stress that, even in the most favourable circum- stances, the English clause does not in fact remedy to a great extent the distortion of competition caused by the clauses obliging purchasers to obtain their requirements exclusively from Roche and by the fidelity rebates on a market where an undertaking in a dominant position is operating and where for this reason the structure of competition has already been weakened.

In fact the English clause under which Roche's customers are obliged to inform it of more favourable offers made by competitors together with the particulars above mentioned — so that it will be easy for Roche to identify the competitor — owing to its very nature, places at the disposal of the applicant information about market conditions and also about the alter-

Section 6: Application of the criteria adopted in the contracts at issue (other than Unilever and Merck)

109 The contracts which contain an express obligation by purchasers to obtain from Roche all (Afico, Dawe's, Organon, Provimi, Ralston, Purina, Upjohn) or a very large percentage (Animedica Allemagne, Animedica International, American Cyanamid, Guyomarc'h) of their requirements of vitamins or of their requirements of certain groups of vitamins designated in the contracts, satisfy the conditions amounting to conduct restricting competition as set out above and represent an abuse of a dominant position.

The same applies to contracts whereby the purchaser undertakes to reserve to Roche the supplying of the "major part" ("majeure partie", "überwie- gender Teil") of its requirements (Beecham, Pauls and Whites, Nitrovit, Isaac Spencer, Ramikal and Trouw) especially as the less restrictive nature of

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the wording used is offset, as has been shown above, by the granting of rebates which are specially designed to have such a corrective effect.

no The same findings have to be recorded in respect of the contracts which, although it may be doubtful whether they contain a firm undertaking by the producers to obtain supplies exclusively from Roche, offer, by means of the granting of the rebates analysed above, a strong incentive to purchasers to let Roche alone supply the whole or part of their requirements of vitamins or of certain groups of vitamins.

the sole right to supply the purchaser for them to be, for this reason alone, an abuse of a dominant position.

JUDGMENT OF 13. 2. 1979 — CASE 85/76

Section 7: Application of the criteria adopted in the Merck and Unilever contracts

(a) The Merck contracts

112 Roche has entered into three contracts with Merck, the first dated 5 July 1971 for supplying Merck with vitamin B6, the second dated 3 March 1972 for supplying it with vitamin A and the third of the same date for supplying it with vitamin E.

The recitals to the first contract, relating to a product in respect of which the applicant's market share is approximately 80 %, state that "Roche is shortly going to double the manufacturing capacity of its plant which at the present time is about 500 tonnes per annum and therefore has an interest in meeting part of Merck's requirements" and that "Merck is willing to cover these requirements from Roche upon the following terms and conditions in so far as they exceed its present manufacturing capacity of about 200 tonnes per annum".

114 The other two contracts dated 3 March 1972 for supplying Merck with vitamins A and E are in general in the same form as the contract analysed above.

The difference between these two contracts is that in the one relating to vitamin E the recitals restate that "Roche is shortly to increase substantially

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its production capacity for vitamin E" and " would therefore like to be a regular supplier of Merck", whereas the contract relating to vitamin A does not contain such a recital.

The two contracts dated 3 March 1972 — unlike the one dated 5 July 1971 — do not provide for the parties supplying each other exclusively on a reciprocal basis but contain a clause to the effect that Merck is released from its obligation to purchase its requirements exclusively from Roche if it receives a more favourable offer and Roche does not adjust its prices.

Finally, these two contracts forbid Merck to resell the said vitamins which are the subject-matter thereof to Roche's competitors without Roche's consent.

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116 It is necessary to point out that in circumstances such as those in this case, and especially with reference to the contract of 5 July 1971, in which the parties undertake to supply each other exclusively on a reciprocal basis, the question might be asked whether the conduct in question does not fall within Article 85 of the Treaty and possibly within paragraph (3) thereof.

However, the fact that agreements of this kind might fall within Article 85 and in particular within paragraph (3) thereof does not preclude the application of Article 86, since this latter article is expressly aimed in fact at situations which clearly originate in contractual relations so that in such cases the Commission is entitled, taking into account the nature of the reciprocal undertakings entered into and to the competitive position of the various contracting parties on the market or markets in which they operate to proceed on the basis of Article 85 or Article 86.

(b) The Unilever contracts

117 Roche entered into three contracts with Unilever on 9 January 1974.

us The first, executed by Food Industries Ltd., acting as Unilever's agent, with Roche's UK subsidiary, contains first of all an estimate of the purchaser's requirements of synthetic vitamin A, type b, assessed at 130-134 thousand milliard (m.m.) international units for 1974.

These three contracts do not provide for any rebates but in its two contracts with Food Industries Ltd. Roche gives an assurance that it will charge Unilever any more-favourable price which it charges third parties, whereas the contract for the Continent only provides that if Unilever receives more- favourable offers from competitors Roche will adjust its prices or permit the purchaser to buy the quantity concerned from competitors.

120 The terms of the contracts make it absolutely clear that their purpose is the supply by Roche of all Unilever's requirements of the vitamin in question for a period covering the years 1974 and 1975.

Since the contracts in question contain a formal undertaking to obtain supplies exclusively from Roche the question whether or not they also contain a provision granting a rebate is not determinative when deciding whether they are caught by Article 86 of the Treaty.

The fact that Roche's contracting partner is itself a powerful undertaking and that the contract is clearly not the outcome of pressure brought to bear by Roche on its partner does not preclude the existence of an abuse of a dominant position, such an abuse consisting in this case of the additional interference, due to the obligation to obtain supplies exclusively from Roche, with the structure of competition in a market in which in consequence of the presence there of an undertaking occupying a dominant position the degree of competition has already been weakened.

Such agreements could only possibly be admissible in the context of, and subject to the conditions laid down in, Article 85 (3) of the Treaty but none of the contracting parties has thought it necessary to avail itself of this possibility.

123 As far as the first point is concerned the terms of the contracts at issue as well as the considerations set out in Management Information and in the minutes of the meeting between Unilever and Roche in London on 11 December 1972 show clearly the importance which Roche itself attaches to the rebates which it grants.

In these circumstances it cannot be accepted that these rebates are not of importance to the customers.

Moreover since the course of conduct under consideration is that of an

undertaking occupying a dominant position on a market where for this reason the structure of competition has already been weakened, within the field of application of Article 86 any further weakening of the structure of competition may constitute an abuse of a dominant position.

124 As far as concerns the question whether trade between Member States has been affected it is in the first place an established fact that the market for each of the vitamins considered comprises the whole of Community territory which covered, to begin with, six and then nine Member States.

125 The prohibitions contained in Articles 85 and 86 must be interpreted and applied in the light of Article 3 (f) of the Treaty which provides that the activities of the Community shall include the "institution of a system ensuring that competition in the Common Market is not distorted" and Article 2 of the Treaty which gives the Community the task of promoting "throughout the Community a harmonious development of economic activities".

128 The applicant submits that because of the general nature and imprecision of the concepts "dominant position" and "abuse" of such a position, which are set out in Article 86 of the Treaty, the Commission could only have imposed fines upon it for infringing this article after these concepts had been given a specific meaning either by administrative practice or by case-law so that those persons liable to be fined know where they stand.

129 By virtue of Article 87 of the Treaty the Council had to adopt the necessary regulations or directives especially with a view to ensuring "compliance with the prohibitions laid down in Article 85 (1) and in Article 86 by making provision for fines and periodic penalty payments".

In pursuance of this provision it adopted Regulation No 17 of 6 February 1962 Article 15 (2) whereof provides that the Commission may by decision impose on undertakings or associations of undertakings fines up to a

JUDGMENT OF 13. 2. 1979 — CASE 85/76

maximum fixed by that article if they either intentionally or negligently infringe Article 85 (1) or Article 86 of the Treaty.

On the other hand under Article 2 of the same regulation: "Upon application by the undertakings or associations of undertakings concerned, the Commission may certify that, on the basis of the facts in its possession, there are no grounds under Article 85 (1) or Article 86 of the Treaty for action on its part in respect of an agreement, decision or practice".

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responsible in most of the Member States for examining and curbing conduct which restricts competition.

133 As far as concerns in particular the concept of a dominant position a prudent commercial operator is in no doubt that, although possession of large market shares is not necessarily and in every case the only factor establishing the existence of a dominant position, it has however in this connexion a considerable significance which must of necessity be taken into consideration in relation to his possible conduct on the market.

Such an evaluation of the scope of Article 86 did not mean that in Roche's case, at all events on most of the markets at issue, there was any factor which it was impossible to foresee or which gave rise to unreasonable doubt.

135 Finally, the applicant quotes the Commission's decision of 5 December 1969 (Journal Officiel L 323, p. 21) relating to a proceeding under Article 85 of the EEC Treaty (IV-24, 470-1, Pirelli/Dunlop).

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In its view that decision indicates that agreements under which the parties supply each other on a reciprocal basis are admissible as soon as they include an English clause.

136 The decision which the applicant has quoted was concerned with an agreement entered into by two undertakings, which did not occupy a dominant position on the market, relating to the manufacture on reciprocal account of tyres and which was intended to make it easier for each of the two parties to penetrate the market of the other.

Furthermore the clause providing for adjustment of prices in the Dunlop/- Pirelli agreement was not subject to the many restrictions and conditions which are found in the contracts at issue and which markedly restrict the scope of that clause.

An undertaking in a dominant position cannot reasonably believe that a negative clearance issued in such circumstances would serve as a precedent for justifying its own behaviour in the context of Article 86.

On the other hand the size of the applicant's market shares, in any event in the case of most of the groups of vitamins, implies that its conviction it did not occupy a dominant position could only be the outcome of an inadequate study of the structures of the markets on which it operates or of a refusal to take these structures into consideration.

The conditions for the application of Article 15 of Regulation No 17 were therefore fulfilled.

(c) The amount of the fine

140 However, the preparatory inquiries in this case have disclosed that the Commission has made some mistakes in its evaluation of the applicant's dominant position on the market for vitamins in group B3.

Furthermore as far as concerns the market shares which are evidence of a

dominant position the Commission only supplied particulars for the years 1972, 1973, 1974 and to a certain extent for 1971, so that the duration of the infringement to which regard is to be had in fixing the amount of the fine must be reduced to a period which is only a little over three years and so less than the five years which the Commission took into consideration.

JUDGMENT OF 13. 2. 1979 — CASE 85/76

On those grounds

THE COURT

hereby

1. Reduces the amount of the fine imposed on Hoffmann-La Roche AG, fixed under Article 3 (1) of Commission Decision of 9 June 1976 (IV/- 29.020) at 300 000 units of account, being DM 1 098 000 to 200 000 units of account, being DM 732 000;

2. Dismisses the remainder of the application;

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INDEX

Facts and Issues

I — Facts and procedure: Analysis of the contested decision 465

A — The structure of the market in vitamins . 465

B — The conduct of the applicant Roche 467

Second submission: Infringement of procedural rules (fair trial) 471

Third submission: Infringement of Article 18 of Regulation No 17 474

Fourth submission: Infringement of Article 86 of the EEC Treaty; misinterpre- tation and misapplication of the concepts of dominant position and an abuse thereof 475

A — Dominant Position 475

I. Discussion of the analysis by the Commission of the structure of the market 475

(1) The market shares held by Roche 475

(8) Access to the supply markets 476

II. Discussion of the applicant's conduct on the market and the results thereof 487

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B — Absence of any abuse 493

I. The facts 493

II. The English clause 495

C — Replies relating to the disputed contracts and their effect on competition 507

V — Oral procedure 508

Decision

The formulation of the problem 508

First submission: Infringement of the principle that rules relating to penalties must be certain and foreseeable 510

Second submission: Irregularities in the administrative procedure 510

(a) The vitamin A group 525

(b) The vitamin B2 group 526

(c) The vitamin B3 group 527

(d) The vitamin B6 group 528

(e) The vitamin C group 529

(f) The vitamin E group 530

Section 2: Analysis of the contracts at issue 538

Section 3: The determination, in the light of Article 86 of the Treaty, of the legal nature or the undertakings to obtain supplies exclusively from Roche and of the system of rebates 539

Section 4: The nature of the rebates at issue 541

(a) Contracts which provide for rebates at a fixed rate 541

(b) Contracts which provide for rebates at progressive rates 542

Section 5: The English clause 544

(a) The imprecision of the rules containing penalties 553

(b) The application of Article 15 of Regulation No 17 556

(c) The amount of the fine 557

Costs 557