Case Citation: Hoffman-La Roche vs.

The Commission

Date: 1979

Petitioners: Hoffmann-La Roche & Co. AG

Respondents: Commission of the European Communities in Brussels

Antecedent Facts: • Hoffmann-La Roche and Company AG in Basle, the applicant, had
committed an infringement of Article 86 of the Treaty "by concluding
agreements which contain an obligation upon purchasers, or by the grant of
fidelity rebates offer them an incentive, to buy all or most of their
requirements exclusively, or in preference, from Hoffmann-La Roche".
• Under Article 2 of the same decision, the defendant was enjoined to
terminate the infringement found while, under Article 3, a fine of 300 000
units of account, being 1 098 000 Deutschmarks, was imposed on Roche.
The application is principally for the annulment of the whole of the decision
and, in the alternative, for the annulment of Article 3 thereof.
• This decision concerns 26 agreements concluded by Roche with 22 named
undertakings engaged in the production and/or sale of vitamins in the
Common Market for use either in the pharmaceutical industry or for food or
as an additive in animal feed. According to the contested decision, each of
the 13 groups of known vitamins forms a separate market. Roche, which is
the world's largest manufacturer of bulk vitamins, produces eight of those 13
groups (vitamin A, B1, B2, B3 (pantothenic acid), B6, C, E, and H (biotin) and
is in the market as a reseller for the others (vitamins B12, D, K, M (folic acid)
and PP).
• In each of these markets the applicant is said to have a dominant position
which it has, intentionally or negligently, abused by concluding the
agreements in question.

• Since 1964 Roche has concluded agreements, known as "fidelity

agreements", to secure exclusive or preferential agreements with customers:
According to those agreements:

— Purchasers obtain from Roche all or most of their vitamin

requirements in the form of vitamins manufactured by Roche;
— Roche supplies customers at the most favourable price obtaining
on the customer's domestic market; — Roche pays a rebate each year or
every six months calculated on total purchases to those customers who have
obtained all or most of their requirements from Roche. This rebate varies
between 1% and 5% although there is one customer who receives rebates
of from 12.5% to 20%;
— An "English clause" provides that customers are to inform Roche
if any "reputable" manufacturer charges a price lower than that charged by
Roche. If Roche does not lower its price to that level customers are free to
obtain supplies from the other manufacturer without losing the fidelity rebate
on their purchases from Roche.

Roche's conduct constitutes an abuse of a dominant position because by its nature

it hampers the freedom of choice and equality of treatment of purchasers and restricts
the competition between bulk vitamin manufacturers in the Common Market and is
likely to affect trade between Member States.
Petitioner’s Contention: The applicant claims that the Court should: — Principally Annul the decision of the
defendant of 9 June 1976; — In the alternative Annul Article 3 of the abovementioned
decision; — Order the defendant to pay the costs. The defendant contends that the
Court should: — Dismiss the application as unfounded; — Order the applicant to pay
the costs of the action.

Application According to the applicant, the concepts of dominant position and abuse
of such a position may be included amongst the most indeterminate and vague
concepts both of Community law and of national legislation. In these circumstances
it may be deduced from the fundamental principle nullum crimen sine lege that the
Commission may only impose the penalties provided for in the case of an
infringement of Article 86 when those general concepts have been given a sufficiently
specific meaning either by administrative practice or by case-law to have enabled the
application of Article 86 to Roche's situation and to the agreements in question to be
foreseen at the date on which they were concluded.

Issue: WON the application of Art 86 was incorrect and there was no abuse of dominant
position

Ruling: No.

Art. 86
Any abuse by one or more undertakings of a dominant position within the
internal market or in a substantial part of it shall be prohibited as incompatible
with the internal market in so far as it may affect trade between Member
States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other
unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of
consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading
parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other
parties of supplementary obligations which, by their nature or according to
commercial usage, have no connection with the subject of such contracts.

The dominant position thus referred to relates to a position of economic

strength enjoyed by an undertaking which enables it to prevent the effective
competition being maintained on the relevant market by affording it the power
to behave to an appreciable extent independently of its competitors, its
customers and ultimately of the consumers. Such a position does not preclude
some competition, which it does where there is a monopoly or a quasi-
monopoly, but enables the undertaking which profits by it, if not to determine,
at least to have an appreciable influence on the conditions under which that
competition will develop, and in any case to act largely in disregard of it so long
as such conduct does not operate to its detriment. A dominant position must
also be distinguished from parallel courses of conduct which are peculiar to
oligopolies in that in an oligopoly the courses of conduct interact, while in the
case of an undertaking occupying a dominant position the conduct of the
undertaking which derives profits from that position is to a great extent
determined unilaterally.
The existence of dominant position is based on the delimitation of the relevant
market, structure and applicant’s conduct.

Article 86 is an application of the general objective of the activities of the

Community laid down by Article 3 (f) of the Treaty namely, the institution of a
system ensuring that competition in the Common Market is not distorted. Article
86 prohibits any abuse by an undertaking of a dominant position in a substantial
part of the Common Market in so far as it may affect trade between Member
States.
Since the contracts in question contain a formal undertaking to obtain supplies
exclusively from Roche the question whether or not they also contain a
provision granting a rebate is not determinative when deciding whether they
are caught by Article 86 of the Treaty. The fact that Roche's contracting partner
is itself a powerful undertaking and that the contract is clearly not the outcome
of pressure brought to bear by Roche on its partner does not preclude the
existence of an abuse of a dominant position, such an abuse consisting in this
case of the additional interference, due to the obligation to obtain supplies
exclusively from Roche, with the structure of competition in a market in which
in consequence of the presence there of an undertaking occupying a dominant
position the degree of competition has already been weakened. Such
agreements could only possibly be admissible in the context of, and subject to
the conditions laid down in, Article 85 (3) of the Treaty but none of the
contracting parties has thought it necessary to avail itself of this possibility.
In the view of the Commission these three considerations together are a factor
showing that there is a dominant position, because "it follows that the applicant
occupies a preponderant position not only within the Common Market but also
on the world market; it therefore enjoys very considerable freedom of action,
since its position enables it to adapt itself easily to the developments of the
different regional markets. An undertaking operating throughout the markets of
the world and having a market share which leaves all its competitors far behind
it does not have to concern itself unduly about any competitors within the
Common Market".
By prohibiting the abuse of a dominant position within the market in so far as it
may affect trade between Member States, Article 86 therefore covers not only
abuse which may directly prejudice consumers but also abuse which indirectly
prejudices them by impairing the effective competitive structure as envisaged
by Article 3 (f) of the Treaty. 126 Furthermore the actual wording of a number
of the English clauses implied that the partitioning of the markets would be
maintained making it possible in particular to charge different prices from one
Member State to another, and this finding is confirmed by the fact, to which
attention has already been drawn above, that the price variations for a
particular vitamin at a particular time differed markedly from one Member State
to another.