Brussels, 23/02/2001 (Agence Europe) - The Commission closed the infringement procedure it had opened against the American and Spanish tobacco producing companies Philip Morris and Tabacalera, since then known as Altadis, following its merger with the French group Seita in 1999.
In January 1999, Philip Morris signed with Tabacalera licensing agreements to produce and sell it "Marlboro" and "L&M" brands. These agreements, notified to the Commission, grant to Tabacalera the right to produce "authorised volumes" of cigarettes of the two brands to be distributed on the Spanish market. The volume represents roughly 60% of the Spanish demand for the "Marlboro" cigarettes while for the "L&M" brand it corresponds to the quantity required to satisfy the entire local market. The Commission had formulated formal objections with regards to these agreements in June 2000 feeling that they conferred upon Tabacalera a de facto partial (Marlboro) or total (L&M) production exclusivity in Spain and hence, deprived Philip Morris of the possibility to manufacture itself the cigarettes outside Spain and to ship them subsequently for sale onto the Spanish market.
The Commission recognised that Philip Morris could to a certain extent determine Tabacalera's manufacturing costs regarding the cigarettes under licences. It also agreed that the agreements notified left Philip Morris free to set the retail price and, more generally, the marketing strategy of the licensed cigarettes. However, there was evidence that the American company could itself profitably produce its cigarettes for the Spanish market. Moreover, the market share of the parties in Spain total around 75% of the market in question. Under these conditions, the Commission felt that the agreements in question restricted competition to an appreciable extent. In order to avoid a negative decision, the two companies have modified their agreements in order to allow competition to play on the Spanish market by shortening to one year the duration of the licensing agreements that will end in 2004 for "Marlboro" and in 2003 for "L&M" (while their duration had been set to six and five years respectively). Moreover, the volumes of production authorised will be progressively adapted each year. These modification will lead to the phasing out of the current licence agreements, thus eliminating the restriction to competition. In its conclusions, the Commission decided to close the infringement procedure.