The Napp decision was the first case in which the Director General of Fair Trading fined a company for abuse of a dominant position under the UK Competition Act 1998. The Competition Act introduced competition provisions into national law which mirrored those in the EC Treaty. Napp was charged with predatory pricing and excessive pricing. The heart of the Director’s case against Napp was the redatory pricing claim. He held that Napp had charged excessively low prices for its slow-release morphine product, MST CONTINUS (MST), to hospitals, specifically and consciously raising barriers to entry. Because hospitals were a gateway, according to the Director, Napp was ultimately able to foreclose sales to GPs and thereby to protect the excessive prices which it charged to GPs. On 30 March 2001, the Director imposed a fine of £3.21 million and gave directions to Napp to reduce its list price to GPs by at least 15 per cent, and to sell MST to hospitals at a price which amounted to at least 20 per cent of the list price to the GPs (requiring an increase of hospital prices, on average, of 280 per cent). Napp appealed the Director’s decision but the UK Competition Commission Appeals Tribunal (CCAT), in its judgment of 15 January 2002, largely upheld the Director’s decision. This article focuses primarily on the predatory pricing aspects of the Napp case. The following section addresses some of the more general economic and legal issues of predation, including a brief overview of the economic analyses and an evaluation of various legal tests for predatory pricing. The subsequent section deals with the Napp case. Following a summary of the facts and main legal arguments, we assess the approaches adopted by the Director and the CCAT.
World Competition