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Insolvency agreement

30. november 2005

Journal nr. 3/1120-0289-0090/SEK/MM The Council meeting 30th November 2005

On 30th November 2005 the Danish Competition Authority Council made a decision concerning a so called “Insolvency agreement” between three medical wholesale dealers and The Danish Pharmaceutical Association.

The main purpose of the “Insolvency agreement” is to help insolvent pharmacies back on their feet. Further it is a part of the agreement that pharmacies, which have a large deficit (deficit larger than 1 million d.kr.) are under an obligation not to alter their trade pattern e.g. to chose another wholesale dealer.

The Danish Competition Council (DCC) reached the conclusion, that the overall agreement contains a number of horizontal and vertical agreements.

The Insolvency agreements contain a number of horizontal agreements between the three wholesale dealers. These agreements had the effect that the market shares between the whole sale dealers are locked in, as regards the pharmacies which are defined to have a large deficit.

A horizontal market sharing agreement is in contravention with EC article 81 and section 6 in the Danish Competition Act. The horizontal agreements restrict competition between the three wholesale dealers.

Further there exist a number of vertical agreements between the wholesale dealers and The Danish Pharmaceutical Association.

It is the Danish Pharmaceutical Association which has taken initiative to establish the insolvency agreement, and the agreement could not exist without the Association’s participation.

It is the Association which administers the agreement, and further the association has paid a large amount of the expenses which can be referred to the agreement. In addition it is the association members which have benefited from the agreement.

The vertical agreements are necessary for the existence of the insolvency agreement. The vertical agreements restrict competition between the wholesale dealers, because the vertical agreements are necessary to ensure the market sharing.

In addition it was concluded, that the horizontal and vertical agreements has appreciable effect on competition.

The horizontal agreements constitute a hard core infringement of EC article 81 and section 6 of the Danish Competition Act. It is in principle not necessary to show that the agreements have had an appreciable effect on competition. Nevertheless the ECJ has established that the agreements must cover a minimum part of the market.

When the insolvency agreement was established in January 1997 all to-gether 22 pharmacies had their trade pattern locked in. The involved phar-macies’ turnover constitutes 6.1 % of the market and on to 2003 the part of the market which was locked in was between 4.2 % and 6.4 %.

The insolvency agreement therefore restricts competition appreciable over-all from 1997 to 2004 in contravention with article 81 and section 6 in the Danish Competition Act.

In resemblance the DCC finds that the vertical agreements constitute an appreciable infringement of article 81 and section 6 in The Danish Competition Act in period overall from 1997 to 2004.

Finally the DCC has concluded that the insolvency agreement can not get an individual exemption according to section 8 in the Danish Competition Act, and further the DCC has appraised, that the insolvency agreement doesn’t fulfil the condition for getting an individual exemption after EC article 81 (3).