COMPETITION AUTHORITY

Competition Authority Decision of 24 March 1999 relating to a proceeding under 
Section 4 of the Competition Act, 1991.

Notification No. CA/25/96: E.R. Squibb & Clonmel Healthcare Ltd

Decision No.  540

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Competition Authority Decision of 24 March 1999 relating to a proceeding under 
Section 4 of the Competition Act, 1991.

Notification No. CA/25/96: E.R. Squibb & Clonmel Healthcare Ltd

Decision No.  540

Introduction

1. Notification was made by E.R. Squibb & Clonmel Healthcare Ltd on 15 August 1996 with a request for a certificate under Section 4(4) of the Competition Act 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4(2) in respect of an exclusive licensing agreement.

The Facts

(a) Subject of the Notification

2. The notification concerns an agreement dated 14th June, 1996, together with two related side letters, one dated 14th June, 1996 and the other dated 5th July, 1996 pursuant to which Clonmel Healthcare Limited is granted by E.R. Squibb & Sons Inc. a licence under Squibb's Irish patent no. 44707 permitting Clonmel to import the substance Captopril and to convert same into a finished pharmaceutical product for human use and to market and sell the finished pharmaceutical product in Ireland from the date of the licence through to the expiry of the patent in accordance with its terms in February, 1997.  The licence is exclusive, save as to the existing rights granted in favour of Squibb's Irish affiliate, Bristol-Myers Squibb Pharmaceuticals Limited of Swords, County Dublin.

(b) The Notifying Party Involved

3. E.R. Squibb & Sons Inc. have a registered address at P.O. Box 400, Princeton, N.J. 085405 U.S.A. They are incorporated under laws of the State of Delaware in the U.S.A. and are a subsidiary Company of Bristol Myers Squibb Company of 345, Park Avenue, New York, N.Y. 10154.  The latter are also incorporated under the laws of the State of Delaware. Bristol-Myers Squibb is a diversified world-wide health and personal care company whose principal business is pharmaceuticals, consumer products, nutritionals and medical devices. E.R. Squibb & Sons Inc. does not itself market or have sales of Captopril in Ireland. All such sales are effected through a subsidiary company of Bristol-Myers Squibb Company established within the State, Bristol-Myers Squibb Pharmaceuticals Limited, which is responsible for the marketing and sale of all Bristol-Myers Squibb pharmaceutical products in Ireland. Bristol-Myers Squibb Pharmaceuticals Limited is established at Watery Lane, Swords, Co. Dublin.

4. Clonmel Healthcare Limited is an Irish company with registered office at Waterford Road, Clonmel, Co. Tipperary.  It is engaged in the manufacture and distribution of pharmaceuticals for Irish and export markets. The company is a wholly-owned subsidiary of The Cross Group, a private Irish owned holding company.

(c) The Products & Markets

5. The Notifying Parties claimed that the licence granted relates to the importation and subsequent manufacture into finished pharmaceutical form of the product generally known as Captopril. Captopril is an anti-hypertensive agent and was the first of a group of agents known as ace-inhibitors (angiotension converting enzyme (ACE) inhibitors). Captopril is used in the treatment of hypertension and the treatment of post myocardial infarction. It is used separately in the treatment of diabetic nephropathy and congestive heart failure. The Notifying Party claimed that whilst Captopril was the first ACE-inhibitor on the market, it is now one of 13 ace-inhibitors on the market.  Other ace-inhibitors include Innovace, Zestril Tritace, Coversyl, Accupro.

6. The Notifying Party further claimed that in addition to other ACE-inhibitors, Captopril also competes against 150 other products in the cardiovascular preparations market in its indicated therapeutic areas.  

7. The Authority is of the view that the relevant market for the purposes of this notification is the cardiovascular preparations products market (inclusive of ACE - Inhibitors). The market share, by value, achieved by the product Captopril in the relevant market, is approximately [ ].

(d) Structure of the Market

8. The total pharmaceutical turnover in Ireland is approximately [ ] of which the proportion spent on relevant cardiovascular preparations is approximately [ ] million. Of the total turnover of Bristol-Myers Squibb Pharmaceuticals Limited, approximately [ ] is attributable to sales of products in the relevant cardiovascular preparations market. The Notifying party claimed that Bristol-Myers Squibb Pharmaceuticals Limited has an estimated market share of approximately [ ] in the Irish Pharmaceutical market. In the field of the relevant market, Captopril has a market share of approximately [ ] by value and approx [ ] measured by prescription sales. Clonmel Healthcare Limited, which has not marketed Captopril based products before the agreement, has a [ ] share, by value, of the Irish pharmaceutical market.

9. Clonmel Healthcare currently has three products in the cardiovascular therapeutic category.  Annual sales of these products amount to [ ] of the value of this market segment (cardiovascular products).

(e) The Notified Arrangement

10. The Notification concerns an exclusive licence agreement between the Notifying Parties pursuant to which Squibb grants to Clonmel licence under its Irish patent No. 44707 covering proline derivatives, including the substance commonly known as Captopril, pursuant to which Clonmel, under Clause 1, is permitted to import the substance and to convert the same into a finished pharmaceutical product for human use and for the marketing and sale thereof in Ireland from the date of licence through to the expiry of the patent in accordance with its terms in February, 1997.

11. In consideration of the rights granted under Clause 1, an agreed lump sum, under Clause 2, is due from Clonmel to Squibb but payable over a term expiring on the 31st December, 2000 and subject to adjustment in the event that Clonmel sales of the product exceed certain agreed levels over the period in question.  The rights granted by Squibb are valid for a period of 8 months only, upon the expiration of which such period any and all Notifying Party authorised or permitted to sell pharmaceutical products in the State will be free to introduce generic products equivalent to the product licensed to Clonmel.

12. No restrictions are contained in the Clauses of the agreement as to the right of the Notifying Party to take independent commercial decisions save that it is expressly indicated that Clonmel is not, by virtue of the Agreement, entitled to import the substance from any country in which a patent or similar right corresponding to the patent under which the licence is granted in the State shall be in force in which the manufacture or supply of the substance would infringe a valid patent or other intellectual property right of Squibb.  Further, Clonmel has no right to confer any rights under the licence on third parties.

(f) Submissions by the Notifying Parties

13. The Notifying Party claimed that they did not believe that the agreement, or any aspects of the agreement, restricted the Notifying Party in their commercial freedom to take independent commercial decisions.

14. In reply to the Authority’s query on the expiry of the licence, by virtue of the Patent Expiry Date, Clauses 8(a) and 9, the Notifying Party, in a letter dated 4 March 1999, stated that for the purposes of Clause 8(b), “the agreement is still in existence and will continue in full force and effect until December 31 2000, in the context of continued payments of all monies due to E.R. Squibb & Sons Inc pursuant to the agreement”.

Arguments in Support of the Grant of a Certificate

15. The Notifying Party claim that the agreement and its provisions do not have as their object or affect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State within the meaning of Section 4(1) of the Competition Act.

16. The Notifying Party claim that the granting of a licence by E.R. Squibb is procompetitive as this permits an early entry into the market in advance of patent expiry, resulting in a direct competitor against Bristol-Myers Squibb Pharmaceuticals Limited within the lifetime of the patent and an additional competitor against other ACE-inhibitors and those other products already competing in the cardiovascular preparations market.

Arguments in Support of the Grant of a Licence

17. The  Notifying Party submitted arguments in support of the granting of a Licence.  However, the Authority is of the opinion that the grant of a Licence does not apply in this particular instance.

(g) Submissions by Third Parties
18. There were no submissions by third parties.

(h) Assessment

(a) Applicability of Section 4(1)

19. Section 4(1) of the Competition Act states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in goods or services in the State or in any part of the State are prohibited and void”.

(b) The Undertakings and the Agreement

20. Section 3(1) of the Competition Act defines an undertaking as ‘a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service’. E.R.Squibb & Clonmel Healthcare Ltd are corporate bodies engaged for gain in the manufacture and distribution of cardiovascular preparations products. They are therefore undertakings and the agreement is an agreement between undertakings. The agreement has effect within the State

(c) The Exclusive Agreement

21. It is the view of the Authority that the Clauses in the exclusive licensing agreement do not restrict competition. The agreement is an exclusive licence agreement whereby E.R. Squibb & Sons Inc. permits Clonmel to import the substance Captopril and to convert same into a finished pharmaceutical product and to market and sell the finished product in the State. Clonmel Healthcare Ltd is not precluded from selling any other products in the Territory and is free to introduce generic products equivalent to the product licensed on expiry of the patent. Inter-brand competition is not restricted and with many other producers in the market, the level of competition is not diluted.

22. Licensing in this case, for example, where market shares are relatively small and where there is effective competition, simply allows E.R. Squibb & Sons Inc to transfer their know-how to Clonmel Healthcare Ltd and although the agreement contains clauses that allow a transfer of goodwill, no aspects of the agreement restrict the Notifying Party in their freedom to take independent commercial decisions.

23. The Authority is of the view that the cardiovascular preparations products market (inclusive of ACE - Inhibitors)  in the State is characterised by a large number of competing products. The Authority opines that rather than eliminating competition, the agreement introduces an element of competition to the market which would not otherwise arise in advance of patent expiry in 1997. The Authority is therefore of the view that the agreement does not prevent, restrict or distort competition.

24. Therefore the Authority is of the opinion that the Agreement does not constitute restrictions on competition within the meaning of section 4(1) of the Act.
The Decision

25. In the Authority’s opinion E.R. Squibb & Sons Inc & Clonmel Healthcare Ltd are undertakings within the meaning of section 3(1) of the Competition Act and the notified arrangement constitutes an agreement between undertakings. In the Authority’s opinion the exclusive licensing agreement dated 14th June, 1996 does not contravene section 4(1) of the Competition Act.

The Certificate

The Competition Authority has issued the following certificate.

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the exclusive licence agreement dated 14th June, 1996 between ER Squibb & Sons Inc. and Clonmel Healthcare Limited notified under section 7 of the Competition Act on 15 August 1996 (Notification No. CA/25/96) does not contravene section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority

Professor Patrick McNutt
Chairperson
24 March 1999