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Genzyme (CAT)

This page is for material relating to Reckon's October 2004 article (PDF, 13 pages) on the UK Competition Appeal Tribunal's judgment in Genzyme (PDF, 212 pages).

Summary of Reckon's October 2004 article On Genzyme

In March 2004 the Competition Appeal Tribunal found Genzyme, a pharmaceuticals company, to be dominant in the supply of drugs for the treatment of Gaucher disease. The Tribunal concluded that, following its decision to stop out-sourcing homecare services for Gaucher patients and to bring homecare in-house, Genzyme's operation of a pricing policy that would eliminate the only other provider of these homecare services was an abuse of a dominant position, under Chapter II of the Competition Act 1998. (See also Judgment on remedy below.)

At first sight Genzyme is similar to the well-rehearsed example of an "upstream" monopolist of a raw material using its dominance in that market to monopolise a related "downstream" market that is dependent on that raw material. However, the market structure in Genzyme does not fit neatly into "upstream" and "downstream" markets, and the way that Genzyme's conduct is likely to have affected the competitive process is different to that in the example of the raw material monopolist.

The Reckon article seeks to pin-point how Genzyme's conduct is likely to have affected competition. To do so, it considers the likely supply chains in three scenarios, which correspond to Genzyme's conduct before the "margin squeeze", under the margin squeeze, and finally conduct that would be consistent with the Tribunal's direction. This analysis offers a different interpretation of the way in which Genzyme affected competition. Genzyme did not eliminate effective competition that existed on a downstream market. Instead, Genzyme stopped buying a service from a third party that had previously only competed in a bidding market to provide services to Genzyme. At the same time, Genzyme failed to institute a new commercial policy that would allow this party to continue its previous line of business by starting to compete with Genzyme in a downstream market.

The intention of the article is not to re-evaluate the finding that Genzyme infringed Chapter II. Nonetheless, there appear firm grounds to criticise the specific explanation of abuse of dominance contained in the Tribunal's judgment. Genzyme is a particularly important case, because it cuts across a problematic area of competition law. The case provided an opportunity to clarify whether — and if so why — the law on abuse of dominance recognises a distinction between the obligation on a dominant firm not to harm competition that already exists, and the obligation to facilitate new competition where this could be introduced. It is unfortunate that the Tribunal's description of competitive effects in Genzyme prevented this from being addressed in its decision.

Article available for download:

"On Genzyme", October 2004 (13 pages, PDF)

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Judgment on remedy

In its judgment in March 2004, the Competition Appeal Tribunal asked Genzyme to negotiate a solution with the OFT that would end Genzyme's "margin squeeze" abuse. The negotiations (or, in the words of the Tribunal's President, the fact that "little or no negotiation in the true sense of that word has in fact taken place") were discussed at a hearing at the Tribunal on 13 October 2004: see the transcript (PDF, 81 pages).

On 29 September 2005 the Competition Appeal Tribunal published its judgment on remedy (PDF, 99 pages), including as a short version (PDF, 37 pages). The Tribunal's decision is to set a minimum discount of 20 pence per unit for supplies of Cerezyme to third-party provides of homecare services; this is equivalent to 7.2 per cent of the current NHS list price. The proposed minimum discount is less than the discount actually given by Genzyme to Healthcare at Home in 2001. See the CAT order (4 pages, PDF).

In the period between the March 2004 judgment and the September 2005 judgment on the remedy, Genzyme's in-house provider of homecare services for Gaucher patients, Genzyme Homecare, was sold by means of a management buy-out. The new entity is called Careology Ltd. The Tribunal's (draft) Direction sets the maximum price at which Genzyme must supply Cerezyme to third-party providers of homecare services, which now includes Careology Ltd; in addition it requires that "any trading as regards Cerezyme [or Ceredase] taking place between Genzyme and any company carrying on Genzyme's former homecare business is carried out strictly at arm's-length in all material respects, and on the same terms and conditions as trading with any other supplier of Homecare Services".

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Last changed by Franck at 8:51 AM on Tuesday 15 July 2008.

Reference for this page:
Reckon Open "Genzyme" 2008-07-15T08:51:29
Link within Reckon Open: [[Genzyme]]