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European Union

Parallel imports decision suspended

Ruling in favour of the international chemical group Bayer AG, the Court of First Instance has suspended the Commission decision of January 10 1996 which stated that the activities of Bayer Spain and Bayer France, subsidiaries of Bayer AG, constituted an 'agreement' contrary of Article 85 of the EC Treaty.

In France and Spain, where pharmaceutical prices are set by health authorities, the price of Adalat, a heart medicine, was on average 40% lower than in the UK. Spanish and French wholesalers ordered quantities of Adalat which exceeded the demand on the national market and exported the surplus to the UK. Bayer UK suffered a loss of Dm230 million (US$151 million). Therefore, Bayer Spain and France reduced stocks of supplies of Adalat to Spanish and French wholesalers to prevent them from continuing to export the surplus.

The Commission found that this constituted an agreement between Bayer Spain and France and the Spanish and French wholesalers and was intended to restrict the export of Adalat to member states. In Article 2 of its decision the Commission ordered Bayer to inform wholesalers in France and Spain that exports are permitted within the EC and to state that information clearly in the general conditions of sale applicable in France and Spain. The Commission also levied a fine against Bayer of Ecu3 million (US$3.75 million). Bayer applied for the annulment of this decision and suspension of the operation of Article 2 of the decision.

The Court of First Instance was not convinced that the agreement fell within Article 85(1) of the Treaty and ruled that Bayer's claims were not clearly unfounded. Bayer argued that the refusal to supply by Bayer France and Spain was purely unilateral and that through the 'distribution monitoring system' used by Bayer only sought to identify wholesalers whose orders had increased out of all proportion. The Court accepted that this conduct, if established, did not necessarily amount to an export prohibition on wholesalers, and Bayer was entitled in principle to organize its distribution system as it chose without being obliged to supply its customers. Bayer UK would also suffer 'serious and irreparable injury' as Adalat constitutes 56% of total Bayer UK sales and parallel imports of Adalat to the UK would be likely to increase if the Commission's decision were given immediate effect. The Court therefore suspended the Commission's decision, pending the Court's ruling on the main application.

BP/Mobil joint venture approved

BP and Mobil have secured the Commission's approval for the proposed combination of their fuels and lubricants operations in Europe. The structure of the joint venture will see BP as 'Fuels Operator' (with a 70% equity stake of the fuels operations to Mobil's 30% stake) and Mobil acting as 'Lubricants Operator' (with a 51% stake of the lubricants operations to BP's 49%), with both operators being under the authority of a jointly controlled Supervisory Committee. The joint venture will have a European market share of about 10% for retail motor fuels (making it Europe's third largest supplier) and 18% for lubricants.

The cooperation will extend to numerous post-refinement product markets including retail and non-retail sale of fuels, automobile and industrial lubricants and various other oil-based products. However, the companies' other core businesses and international operations will remain separate.

The competitors in all the markets affected are other large multinational petrochemical companies and in some countries strong local competitors also exist. Furthermore, the increasing trend of supermarket chains entering the retail motor fuels market will provide competition for the joint venture. Another common feature is a significant and widespread over-capacity in the product markets. Even in countries where the market share was high, the Commission considered that the joint venture was not likely to create or strengthen a dominant position in a substantial part of the Common Market.

One issue was the potential conflict of interest engendered by Mobil holding shares in Aral while entering into a joint venture that would compete the Aral. The Commission's conclusion was that the decision should not extend to supply arrangements between the joint venture, Mobil and Aral, or to information flows between Aral and Mobil.

The BA/AA alliance

On June 11 1996, British Airways (BA) and American Airlines (AA) announced their plans to form an alliance involving code sharing agreements and the coordination of all services between Europe and North America. What has alarmed rival carriers is the level of market share and control of major transatlantic routes that the new allies would enjoy as a result of BAs' strong presence at Heathrow and AA's prominence at various key American airports. As a result, significant pressure has been brought to bear on antitrust authorities in the US, EU and UK to either disallow or modify the terms of the alliance in accordance with the competition legislation in each jurisdiction.

On June 12 1996, the Commission announced that it would be investigating the BA/AA alliance, along with other such agreements concluded by European carriers, to ensure that they are consistent with competition rules. The Commission's investigation is to be conducted in accordance with its residual powers under Article 89 of the Treaty. This puts the ultimate burden on the member states concerned to enforce the Commission's findings against the airlines. The procedure is largely untried.

Due to the practical consequences and timing of the deal, it has become closely bound up with the whole question of an 'open skies' agreement between the EU and the US. The UK, presumably fearing that Britain's 40% share of all air transport between the EC and the US will diminish, was the only member state not to agree the draft mandate to negotiate a common aviation area between the EU and the US, announced by the Commission on June 18 1996.

Meanwhile, the Commission has been seeking to negotiate an open skies agreement for some time, arguing that the bilateral agreements signed by seven member states with the US were beneficial only to the large US airlines, whereas a collective agreement with the US would benefit the member states as a whole. The US also has its own agenda. The six largest US airlines asked President Clinton on July 24 1996 to suspend negotiations for a UK-US open skies accord until the conclusion of the US Department of Justice's investigation into the alliance.

Michael Reynolds
Allen & Overy

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