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The DCA ends investigation of KMD and SAP

28. februar 2007

4/0120-0301-0013/FI/LKA/LD The Council Meeting 28 February 2007

On 28 February 2007, the Danish Competition Council (hereinafter “DCC”) discussed a set of agreements between KMD A/S (hereinafter “KMD”) and SAP Danmark A/S (hereinafter “SAP”). With these agreements, the parties enter into a long-term, strategic cooperation.

As a result of the agreements between KMD and SAP, the majority of KMD’s IT-solutions to local communities in Denmark will be based on SAP’s standard soft-ware. Also, as part of the agreements, KMD will transfer know-how regarding how to adapt IT to the special requirements of local communities to SAP in exchange for a royalty payment.

Inquiries made by the Danish Competition Authority show that KMD holds a strong position in the overall market for IT-solutions to local communities – the market share is more than 30 percent – and an even stronger position in a separate market segment for sphere specific IT-systems. In the world market for standard software, SAP has a market share of less than 30 percent.

The cooperation between SAP and KMD may entail efficiency gains and this could benefit customers – given that competition is working sufficiently well. However, the DCC expresses concerns of both technical and economic character, especially in the downstream market where KMD is active and holds a very strong position.

KMD controls access to the majority of the data used in local communities. Therefore, competitors depend on KMD for access to the data required, in order to compete with KMD. KMD will thus be in a position to lay down terms and create barriers for competitors by restricting access to data.

KMD will obtain significant rebates when purchasing licenses from SAP. These rebates may benefit KMD’s end-customers (local communities) through lower prices, but it may also give rise to certain potentially damaging incentives with respect to selective price setting on behalf of KMD.

However, as it is, the effects of the agreements are uncertain. Therefore, the agreements do not give rise to an intervention by the DCC at present.