COMPETITION AUTHORITY

Competition Authority Decision of 25 June 2001 relating to a proceeding under Section
4 of the Competition Act, 1991.
Notification No: CA/9/93: Smith & Nephew Ltd / Beiersdorf UK Ltd
Decision No: 589
Price £1.30, ( €1.65 )
£1.80, ( €2.28 ) including postage

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Competition Authority Decision of 25 June 2001 relating to a proceeding under Section
4 of the Competition Act, 1991.
Notification No: CA/9/93: Smith & Nephew Ltd / Beiersdorf UK Ltd
Decision No: 589
INTRODUCTION

1. Notification was made by Smith & Nephew Ltd on 26 February 1993 with a request
for a licence under Section 4(2) of the Competition Act, 1991 in respect of an exclusive
distribution agreement.

1 THE FACTS
(a) Subject of the Notification
2 The Notification concerns an exclusive distribution agreement (the “Ireland
Agreement”), dated 1 December 1992, between Smith & Nephew Ltd and Beiersdorf UK
Limited, under which Beiersdorf UK Limited appoints Smith & Nephew Ltd as exclusive
distributors for a number of its branded consumer toiletries in the State. 1

(b) The Parties Involved

3. Smith & Nephew plc, the ultimate parent company of Smith & Nephew Ltd, is an
international personal hygiene company whose principal activities are in the medical and
surgical equipment sector. In addition, but to a lesser extent, Smith & Nephew plc is active
in the manufacture and distribution of consumer toiletries. Smith & Nephew’s consumer
toiletries are marketed under the “SIMPLE” and, prior to the sale of its trademark rights to
Beiersdorf, the “NIVEA” brands. Smith & Nephew plc’s consumer toiletries business
generates less than 15% of its overall turnover. Smith & Nephew Ltd (“Smith & Nephew”),
with registered offices at Pottery Road, Kill of the Grange, Dun Laoghaire, Dublin, is a
wholly owned subsidiary of Smith & Nephew plc, with responsibility for the sale of the
parent company products in this State.

4. Beiersdorf AG, the parent company of Beiersdorf UK Limited (“Beiersdorf”), is
primarily involved in the manufacture and distribution of consumer toiletry products,
although it also manufactures and distributes other healthcare products as well as adhesive
tape products. In 1991, Beiersdorf AG’s consumer toiletries business represented 45% of its
annual total turnover. Beiersdorf AG’s registered offices are at Unnastrasse 48, D-2000,
Hamburg 20, Germany.
1 This decision is based on the arrangements as notified and do not deal with the structural arrangements that
were put into effect between the parent companies of Smith & Nephew Ltd and Beiersdorf UK Ltd. in the years
2000 and 2001.

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(c) The Products and the Markets

5. The products concerned by the notified agreement are soaps, face and body creams,
sun-protection creams, and hair-care products. All of the products concerned are sold under
the “NIVEA” brand, with two specific exceptions: a lip protection product sold under the
“Labello” mark and a body cream sold under the “Atrixo” mark.

6. The notifying parties claim that the consumer toiletries market can be broken down
into the following sub-markets: the “skin care,” “sun care,” “deodorants,” “hair care” and
“bath/shower care” markets. The Authority considers that it is not necessary to decide upon a
more precise market definition than that of the Irish consumer toiletries market to determine
the competitive effects of the Ireland Agreement.

(d) Background to the Notification

7. The Ireland Agreement takes place in the context of a broader operation whereby
Smith & Nephew, which formerly owned the trademark for the Nivea brand in Ireland and
the UK, sells its rights to that brand to Beiersdorf, which owns the trademark rights for the
Nivea brand outside Ireland and the UK.

8. The dual ownership of the Nivea brand resulted from the expropriation of
Beiersdorf’s assets in Ireland and the UK towards the end of the Second World War. The
entire assets of Beiersdorf’s UK and Irish subsidiaries, including their trademarks for the
Nivea brands for Ireland and the UK, were sequestrated as enemy property. Those assets
were then sold-off, with the trademark rights for Ireland and the UK ultimately being
assigned to Smith & Nephew.

(e) Structure of the Market

9. The notifying parties submitted that the consumer toiletries market in Ireland
comprises two broad types of competitor. First, the notifying parties submitted the market is
“dominated by” a number of multinational companies (e.g., Proctor & Gamble, Unilever,
L’Oreal, Johnson & Johnson, Colgate, Hoechst, Henkel, Beechma and Benckiser). Second,
the notifying parties submitted that “multiple retailers” (such as Dunnes Stores and Marks &
Spencer) were also involved in the market via the production and marketing of their own
range of consumer toiletries.

10. The total turnover for Smith & Nephew in Ireland was estimated at around £20m at
time of notification. According to the notifying parties, the estimated market shares for the
Smith & Nephew products covered by the Ireland Agreement were, at the time of
notification, as follows: skin care, 23%, sun care, 11.9%, deodorants, 8.1%, hair care and
bath/shower care range of products at 12.2%. Beiersdorf had no market shares in Ireland at
the time of notification.

(f) The Notified Arrangement

11. The Notification concerns the appointment by Beiersdorf of Smith & Nephew as its
exclusive distributor for the distribution of its consumer toiletry products in Ireland. The

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purpose of the arrangements is to enable Beiersdorf to avail of Smith & Nephew’s
established distribution network to ensure the distribution of Beiersdorf’s consumer toiletries
products in the Irish market.

12. Under Clause 2.1 Beiersdorf appoints Smith & Nephew (and Smith & Nephew agrees
to act) as Beiersdorf's exclusive distributor for the distribution of Beiersdorf's products in the
State. Pursuant to Clause 2.2 Smith & Nephew has a right of first refusal to act as distributor
in respect of additional consumer healthcare products that Beiersdorf may wish to distribute
in the State.

13. Pursuant to Clauses 2.3.1 and 2.3.2, Smith & Nephew is prevented from actively
soliciting sales of the contracted products outside the State or from establishing or
maintaining any branch or distribution depot outside the State.

14. Pursuant to Clauses 2.3.3 and 2.3.4, Smith & Nephew is prevented from selling the
Products to customers outside the EU and the EEA; or from selling the Products to customers
that it knows will export the Products to any country outside the EU or EEA.

15. Pursuant to Clause 2.4, Beiersdorf agrees to distribute the contract products and any
competing products in the State only via Smith & Nephew and not to sell, supply or deal in
the Products (or competing products) in the State itself, while under Clause 2.5, Smith &
Nephew is prevented during the term of the Agreement from entering into any other
distribution, manufacturing or agency agreement with any third party in respect of competing
products. Pursuant to Clause 2.6, Smith & Nephew is required to purchase the Products
solely from Beiersdorf.

16. Pursuant to Clause 5.2, Smith & Nephew must sell stipulated products (termed
“regime products” in the Ireland Agreement) on terms and conditions and prices approved
and controlled by Beiersdorf.

17. Pursuant to Clause 8.1, subject to Beiersdorf's rights to terminate early for "cause"
under clauses 8.2, 8.3, 8.4 and 8.5, the Ireland Agreement will last for an initial period of
seven years, and is automatically renewable thereafter subject to a 24-month termination
notice period.

(g) Other Information

18. The parties submitted a Notification in draft form to the EC Commission on 21
September 1992. The Commission issued a comfort letter in respect of that notification on 5
May 1993 on the basis that the parties had provided sufficient prima facie justification for an
exemption to be granted. However, as part of the Commission’s review of the notification,
the Commission required the parties to agree that Smith & Nephew should not be free to set
the resale prices and terms and conditions of sale of Beiersdorf’s products. This is because
the Commission considered that certain of Smith & Nephew’s and Beiersdorf’s products
were in direct competition and that Smith & Nephew, if left in sole control of pricing and
other contractual matters, would therefore be in a position to adversely influence the market
position and reputation of the competing Beiersdorf’s products via its pricing and contractual
policy.

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19. The German Federal Cartel Office cleared the parties' arrangements for the purposes
of national competition law by letter of September 15th 1992.

(h) Submission by the Notifying Parties

20. The notifying parties did not request a certificate.
Arguments in support of the grant of a licence

21. The notifying parties claimed that the arrangements contributed to improving
production/distribution and/or the promotion of technical and economic progress. In support
of this assertion, the notifying parties claimed that the cost of production of Nivea products
would benefit from economies of scale as a result of the bringing of the formerly distinct
Smith & Nephew and Beiersdorf product ranges within a single manufacturing base. Of the
two companies, the parties submitted that Beiersdorf had substantially larger and more
advanced production facilities and in particular had committed substantial resources to the
modification of manufacturing techniques, for example, the progressive removal of the use of
preservatives in its consumer toiletries products.

22. The parties claimed that Beiersdorf lacked the necessary "local" resources to
undertake the mass distribution of its consumer toiletries in Ireland. Beiersdorf concluded
that it would neither be feasible nor cost effective to hire its own personnel and establish its
own distribution facilities in the short to medium term. Key factors that influenced this
conclusion were: (i) the fact that the volume represented by Nivea sales was not sufficient to
justify the establishment of an independent sales, administration and distribution network of
appropriate quality and extent to meet the competitive demands of the markets; (ii) the
expense and relatively long lead times involved in the installation of the electronic trading
systems required by multiple retailers; and (iii) the scarcity of personnel possessing suitable
skills and experience. In addition, the parties argued that that Beiersdorf UK's activities
could not be expanded and developed to undertake such tasks since it was operating in
different non-consumer and non-mass distribution markets.

23. The parties further claimed that the unifying of the ownership of the Nivea marks,
their resultant access to Beiersdorf's research and development (“R&D”) and advertising and
promotion (“A&P”) capability and the commitment to reappraise the status of the Irish
market with a view to the introduction of new and existing product ranges currently available
in other Beiersdorf markets, would all have the effect of giving Irish consumers access to a
wider and enhanced range of quality consumer toiletries products. In such manner, the
parties argued, the arrangements generally were considered to contribute to technical and
economic progress in the geographic market concerned. According to the parties, technical
progress would, in particular, be promoted by Beiersdorf's advanced R&D resources and the
development of its production facilities.

24. The parties claimed that a proper share of the benefits arising from such improvement
or progress accrued to consumers. Towards this end, the parties argued that the arrangements
between the parties generally would ensure that the Nivea product range was developed and
supported (from a marketing, technological and production perspective) in a coherent and
fully resourced manner. The intended result was that the quality, reputation and

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competitiveness of the Nivea brands would be sustained in the face of growing competition
in all EC markets. Consumers would inevitably benefit from Beiersdorf's plans to launch
new and technologically enhanced products onto the markets in question at prices that will
compete with other product offerings. More specifically, the appointment of Smith &
Nephew as distributor to effect the distribution and sale of Beiersdorf's products in the State
would ensure that the quality of and effectiveness of sales and distribution matched and
supported the commitment being made by Beiersdorf to R&D, improved and modernised
production and advertising and promotion (“A&P”). The parties further claimed that all
restrictive provisions of the arrangements were indispensable to the attainment of the aims of
the agreement.

25. The notifying parties presented the following considerations of the restrictions in the
notified agreement:
(a) Clause 2.1
According to the notifying parties, the exclusivity of the distributorship arrangement
reflected the fact that both parties recognised that an effective and integrated
relationship could only be developed in circumstances where all attention was focused
upon a single channel governing the marketing and sales of the contract Products in
the State. The notifying parties stated that this exclusivity underpinned and provided
an economic and commercial justification for the commitment that Smith & Nephew
must make in retaining and supporting their substantial and high technology based
distribution, marketing and sales facilities. Further, according to the parties, the
exclusivity reflected the importance that Beiersdorf attached to matching its
commitment to developing and re-launching its Nivea ranges in Ireland with an
appropriately established and reliable distribution system. Lacking its own capability,
the notifying parties asserted that Beiersdorf could not safely undertake significant
R&D and A&P without the benefit of the present or similar arrangements.
(b) Clause 2.2
According to the notifying parties, the right of first refusal accorded to Smith &
Nephew in respect of additional consumer toiletry products that Beiersdorf might
wish to market and sell in Ireland reflected the fact that the parties’ previous working
experience would provide a sound and cost effective platform for any such additional
activity and that all the current obstacles to Beiersdorf establishing its own facilities
or finding an appropriate independent party were expected to remain for the
foreseeable future. The notifying parties noted that no extension to Smith &
Nephew's role was contemplated in the short to medium term.
(c) Clauses 2.3.1 and 2.3.2
According to the notifying parties, the restrictions in these clauses (prohibiting active
sales and marketing of the contracted products outside the exclusive distribution
territory) were in line with established EC Commission Policy on the Regulation
1983/83 at Article 2(2)(c)). The notifying parties claimed that the arrangements
generally would open up the possibility of parallel trade in Nivea products.

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(d) Clauses 2.3.3 and 2.3.4
The notifying parties claimed the above referenced restrictions (prohibiting sales
outside of the Community) were not capable of having an effect upon the Irish
consumer toiletries markets. According to the notifying parties, the quantities of
goods sold to destinations listed therein had historically been modest. In Smith &
Nephew's experience, products sold to such destinations had not been re-imported
into the Community (including Ireland).
(e) Clause 2.4
The parties argued that the restriction in this clause (prohibiting Beiersdorf from
distributing competing products in the exclusive distribution territory) was an inherent
part of the exclusivity established under clause 2.1 and complied with Regulation
1983/83 (at Article 2(1)).
(f) Clause 2.5
The notifying parties argued that this restriction (prohibiting Beiersdorf from
competing directly with Smith & Nephew in the exclusive distribution territory)
underpinned the exclusivity of the agreement and complied with Regulation 1983/83
(at Article 2(2)(a)).
g) Clause 2.6
The notifying parties submitted that this restriction (prohibiting Smith & Nephew
from purchasing competing products from any party other than Beiersdorf)
underpinned the exclusivity of the agreement and complied with Regulation 1983/83
(at Article 2 (2)(b)).
(h) Clause 5.2
According to the notifying parties, the Commission had expressly requested that
Smith & Nephew should not be free to set the resale prices and terms and conditions
of sale of Beiersdorf’s regime skincare toiletry products. This was because the
Commission considered that Smith & Nephew’s and Beiersdorf’s regime skincare
products were in direct competition and that Smith & Nephew if left in sole control of
pricing and other contractual matters, could adversely influence the market position
and reputation of Beiersdorf’s regime skincare products by its pricing and contractual
policy. Accordingly, and as a result of detailed submissions and exchanges between
the parties and DG/IV, the terms of the restriction in Clause 5.2 were made an express
condition of any exemption of the arrangements under 85(3) EC Treaty.

26. The parties further claimed that the arrangements did not eliminate competition in
respect of a substantial part of the goods or services concerned. According to the notifying
parties, the consumer toiletries markets in Ireland (and in the EU and world-wide) were
highly competitive, being dominated by a number of powerful multinationals with strong
brands and the resources to engage in substantial R&D and A&P. The parties argued that the
Ireland Agreement would do no more than ensure that Beiersdorf was able to compete

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effectively in Ireland by ensuring the effective distribution of its products. The awarding of
an exclusive agreement to Smith & Nephew was not capable of foreclosing an opportunity to
other would-be distributors, according to the notifying parties. According to the notifying
parties, this was because independent wholesalers largely served the bottom end of the retail
market or particular channels of retail trade (i.e. chemists, food, outlets, garages) and
accordingly that no single party would be capable of serving the bulk of Beiersdorf’s
requirement.

II. ASSESSMENT
(a) Section 4(1)

27. Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements
between undertakings which have as their object or effect the prevention, restriction or
distortion of competition in trade in any goods or services in the State or in any part of the
State.

(b) The Undertakings and the Agreement

28. 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’. Both Smith & Nephew and
Beiersdorf are engaged in the distribution of goods for gain, and they are therefore
undertakings within the meaning of the Act. The agreement is an agreement between
undertakings. Further, the agreement has effect within the State.

(c) The Status of the Agreement

29. The notified agreement concerns an exclusive distribution agreement between two
actual or potential competitors, with, in addition to the restrictions normally associated with
exclusive distribution arrangements, an explicit requirement on the distributor to fix terms for
the contracted goods (including the resale price) in accordance with the directions of the
supplier.

(d) Applicability of Section 4(1)

30. The notified agreement, because it involves an exclusive distribution agreement
between actual or potential competitors and provides for, inter alia, retail price maintenance,
is clearly an agreement falling within the scope of Section 4(1) of the Competition Act, 1991.
The Authority cannot therefore issue a certificate in relation to the Ireland Agreement. Nor
does the Ireland Agreement fall within the scope of the Authority’s Category Licence for
Exclusive Distribution because the Ireland Agreement can be considered to be between actual
or potential competitors.

(e) Section 4(2)

31. Under Section 4(2) of the Competition Act, 1991, the Competition Authority may
grant a licence in the case of any agreement or category of agreements which, having regard
to all relevant market conditions, contributes to improving the production of goods or

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provision of services to promoting technical or economic progress, while allowing consumers
a fair share of the resulting benefit and which does not:
(i) impose on the undertakings concerned terms which are not indispensable to
the attainment of those objectives;
(ii) afford undertakings the possibility of eliminating competition in respect of a
substantial part of the products or services in question.

(f) Applicability of Section 4(2)

32. In assessing the application of Section 4(2) to this agreement, the key question that
the Authority must confront is whether the claimed pro-competitive benefits of this
arrangement outweigh the potential negative effects, in particular because of the unusual
intellectual property right issues that background this arrangement. In making this analysis, it
must also be noted that the restriction set out in Clause 5.2 of the Ireland Agreement, which
provides that Smith & Nephew must sell stipulated products on terms and conditions,
including prices, approved and controlled by Beiersdorf, was inserted into the Ireland
Agreement to address competition concerns of the EC Commission.

33. As stated above, Clause 5.2 of the Ireland Agreement requires Smith & Nephew to
sell stipulated products on terms and conditions, including prices, approved and controlled by
Beiersdorf, the supplier.

34. The Authority considers that, in the context of an exclusive distribution agreement,
restrictions such as that set out in Clause 5.2 of the Ireland Agreement, cannot normally be
justified by reference to the grounds set out in Section 4(2) of the Competition Act, 1991. By
the same token, the Authority considers that the unusual circumstances of the case at hand,
and particularly the historical circumstances impacting the Nivea trademark, require the
Authority to carefully assess whether, in the specific context of this case, the benign effects of
the Ireland Agreement outweigh the negative competitive effects.

(i) Improves the Production or Distribution of Goods

35. The Authority considers that the assignment to Beiersdorf of the trademark right in
Nivea products for Ireland and the UK will likely allow efficiencies in the production and/or
distribution of the Nivea products.

36. In the Hag II judgement, a European Court of Justice (“ECJ”) judgment involving a
closely similar fact-set as that now before the Authority, the ECJ held that:
“Articles 30 and 36 of the EEC Treaty do not preclude national legislation from
allowing an undertaking which is the proprietor of a trademark in a Member State to
oppose the importation from another Member State of similar goods lawfully bearing
in that latter State an identical trademark or one which is liable to be confused with
the protected mark, even if the mark under which the goods in dispute are imported
originally belonged to a subsidiary of the undertaking which opposes the importation
and was acquired by a third undertaking following the expropriation of that
subsidiary.”

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37. The implications of the Hag II ruling, when applied to the situation confronted by
Smith & Nephew and Beiersdorf, are clear. Smith & Nephew could rely on their Irish
trademark to prevent Beiersdorf from selling Nivea brand products in Ireland. Similarly,
Beiersdorf could rely on their European trademarks to prevent Smith & Nephew selling
similarly branded products on the continent.

38. In other words, by virtue of the Hag II ruling, parallel imports of Nivea products
between the Irish and UK markets, on the one hand, and the continental markets, on the other
hand, were preventable.

39. The arrangements surrounding the notified agreement (i.e., the sale by Smith &
Nephew of its trademarks and the subsequent unification of ownership of the Nivea brands)
remove the possibility that either party could legitimately exercise its trademark rights to
prevent imports of the others’ products into their respective territories (upon the basis of the
Hag II judgment).

40. The Authority considers that the transfer of the trademarks and the agreement in
respect of distribution must be considered a package deal. Accordingly, the pro-competitive
benefits brought about by the transfer of trademarks, and particularly the removal of the
possibility to restrict parallel imports between State and Continental markets, must be seen as
positive consequences of not only the trademark transfer agreement but also the Ireland
Agreement.

41. Moreover, the Authority recognises that there are clear gains to be obtained in
bringing the Smith & Nephew Nivea product range within the sphere of Beiersdorf’s own
R&D and A&P programmes. Beiersdorf’s consumer toiletry business constitutes a core
aspect of Beiersdorf’s business activities. Further, Beiersdorf has the ability to offset R&D
and A&P costs against the exploitation of its Nivea range across a far wider range of
international markets.

42. The consumer toiletries market is a dynamic and rapidly changing one dominated by
large multinational groups. Successful participation in such market, in particular the
retention of brand strength, quality and reputation, requires considerable commitment to
R&D and A&P.

43. In contrast to the multinationals that typically own the registered trademark rights to
their brands in all countries worldwide, Smith & Nephew had a strictly limited geographical
area in which to exploit its marks. Within the EU, Smith & Nephew owned trademarks in the
relevant products for the UK and Ireland only. The limited nature of Smith & Nephew’s
geographic markets for Nivea products meant that it was curtailed in its ability to offset the
cost of R&D and A&P against sales.

44. By unifying the ownership of the Nivea trademarks, those products could be
developed and supported in a uniform manner across the EU (and international) markets thus
making them better equipped to compete with other internationally developed and promoted
branded product offerings. In contrast, the separate and potentially divergent development of
the Nivea marks within the EU could lead to consumer confusion and the ultimate dilution of
the strength of the two sets of marks.

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45. Accordingly, the Authority is of the view that the agreement contributes to improving
the distribution of the goods in question.

(ii) Benefits to consumers

46. As a result of the transactions giving rise to the notified arrangement, ownership of
two important and competing brands (the Nivea and Simple brands) will no longer be vested
in one party. Instead, the purchase by Beiersdorf of the trademark for the Nivea brand in
Ireland and the subsequent exclusive distribution agreement with Smith & Nephew,
introduces an additional layer of competition onto the market. By virtue of Clause 5.2 of the
Ireland Agreement, Beiersdorf can now determine the marketing and pricing of its competing
products, although these products are to be distributed by Smith & Nephew. Accordingly,
inter-brand competition may well be enhanced by the arrangement, with consumers reaping
the resulting benefits.

47. Clause 5.2 obliges Beiersdorf to take an active role in the pricing and marketing of the
Nivea range of products. Consequently, the Authority believes that Clause 5.2, rather than
limiting price competition, may actually work to facilitate competition, which would result in
a greater likelihood of price competition – and therefore lower prices for consumers – than
had the arrangement not taken place. At the same time, the Authority recognises that there is
a real danger, in particular because of the sharing of competitively sensitive information
(including in relation to price) that will necessarily result from the arrangement, that either
explicit or tacit collusion could be facilitated or encouraged.

(iii) Non-elimination of competition

48. As a consequence of the transactions giving rise to the notified arrangement, and
particularly the transfer of ownership and strategic control over the Nivea brand from Smith
& Nephew to Beiersdorf, the Authority considers that the Ireland Agreement will not
eliminate competition in respect of a substantial part of the products concerned in this State.

49. The Authority also notes that the terms of the restriction in Clause 5.2 apply only to
some products, specifically to a particular brand of product (referred to as ‘regime products’)
marketed under the ‘Nivea Visage’ brand. In further assessing the conditions of competition,
the Authority notes that the cumulative market share of the products in question is less than
5%. In addition, the Authority considers that there are many large competitors in the market
and that barriers to entry are not insurmountable for new entrants producing generic products.

50. In all events, the Authority considers that the reporting obligation to be imposed on
the parties (see paragraph 56 below) will allow the Authority to monitor closely any possible
effects on competition caused by the restrictions in the Ireland Agreement.

(iv) Indispensability

51. Following the repurchase of the trademark “Nivea” by Beiersdorf, Beiersdorf had
limited economic incentives to enter the Irish toiletry markets. In particular, the relatively
small Nivea sales volume may not have been sufficient to cover the costs of an independent
Beiersdorf sales force. Smith & Nephew, on the other hand, had to secure the future of its
own, present sales force, which for decades has distributed Nivea products. Without a

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satisfactory solution to such problem, Smith & Nephew may not have been willing to sell its
Nivea trademarks to Beiersdorf.

52. Upon its acquisition of the Nivea trademark, Beiersdorf subsequently required access
to a sales, administration and distribution network in Ireland, capable of effecting the
distribution of its products at a number of levels of trade to support its plan to realign and
revamp the former Smith & Nephew Nivea product range.

53. This being the case, the Authority considers that the restrictions in the Ireland
Agreement are indispensable to the attainment of the stated objectives.

(g) The Decision

54. The Authority concludes that:
(i) Both Smith & Nephew and Beiersdorf are undertakings within the
meaning of the Competition Act, and that the exclusive distribution
agreement, notified on 26 February 1993 is an agreement between
undertakings.
(ii) Restrictive clauses in the context of an exclusive distribution
agreement, such as that set out in Clause 5.2 of the Ireland Agreement, cannot
normally be justified by reference to the grounds set out in Section 4(2) of the
Competition Act, 1991. By the same token, the Authority considers that the
highly unusual and non-standard circumstances of the case at hand, and
particularly the historical circumstances impacting the Nivea trademark, are
exceptional circumstances justifying, in the specific factual circumstances of
this case, the restrictions set out in Clause 5.2 of the Ireland Agreement.

55. Accordingly, the Authority grants a licence to the notified agreement, on the grounds
that, in the opinion of the Authority, all the conditions of Section 4(2) of the Competition Act
have been fulfilled. This licence shall apply for a period of 5 years, subject to the Authority’s
right to revisit this licence, should the information to be supplied to it pursuant to para. 56
below so require.

56. However, because of the unusual nature of the restrictions involved in the Ireland
Agreement, and particularly the restrictions in Clause 5.2 (which could involve the sharing of
competitively sensitive information between Beiersdorf and Smith & Nephew) the Authority
considers it necessary to closely monitor the implementation of the Ireland Agreement to
ensure collusion on price, in particular, does not arise. Accordingly, as a condition of this
licence, the Authority requires the parties, for the duration of the licence and while the
agreement remains in existence, to submit sales and pricing records for the products
referenced in Clause 5.2 (to include data on the prices charged as well as the number of
products sold for each of the so-called Regime Products over the reporting period, as well as
similar and comparative data on Smith & Nephew’s nearest competing products) every 12
months starting one year after the date of the grant of this licence. The Authority reserves the
right to re-visit this licence if, based on the information supplied to it pursuant to this
condition, this would be necessary in order to address competition concerns.

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The Licence
The Competition Authority has granted the following licence:

Article 1
The Competition Authority grants a licence to the agreement dated 1 December 1992
between Smith & Nephew Ltd and Beiersdorf UK Ltd notified on 26 February 1993 on the
grounds that, in the opinion of the Authority, all the conditions of Section 4(2) of the
Competition Act have been fulfilled. The licence shall apply from 25 June 2001 to 24 June
2006

Article 2
For each year that the agreement is in existence, the parties shall send a report to the
Authority covering the preceding year. The first of these reports shall be submitted on 25
June 2002. The parties shall submit sales and pricing records for the products referenced in
Clause 5.2 of the Agreement. These records should include data on the prices charged as well
as the number of products sold for each of the so-called Regime Products over the reporting
period, as well as similar and comparative data on Smith & Nephew’s nearest competing
products.

Article 3
The Authority reserves the right to revisit this licence, should the information to be supplied
to it pursuant to Article 2 above so require.

For the Competition Authority
Isolde Goggin
Member
25 June 2001