Irish Competition Authority Decisions

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