Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: U.K. competition authority requires K-Y licensing agreement, (Aug 12, 2015)

By Greg Hammond, J.D.

The U.K. Competition and Markets Authority (CMA) is requiring personal lubricant supplier Reckitt Benckiser Group plc to license the K-Y brand in the United Kingdom to a competitor for a period of eight years. Reckitt’s acquisition of the K-Y brand through Johnson and Johnson (J&J) subsidiary McNeil-PPC, Inc. would result in a substantial lessening of competition in the market for the supply of personal lubricants to grocery retailers and national pharmacy chains, the CMA stated today in its final report.

Reckitt is a global consumer goods company that manufactures and sells a number of health, hygiene, home, food, and pharmaceutical products, including the Durex brand of personal lubricants. Reckitt and J&J entered into an asset purchase agreement in March 2014, in which Reckitt agreed to purchase the K-Y brand globally. The acquisition was cleared in roughly 50 countries, according to the CMA’s report, but no assets have been transferred that are specifically related to the U.K. business.

The CMA first identified four principal product markets of interest in the United Kingdom, including the supply of personal lubricants to: (1) grocery retailers and national pharmacy chains; (2) online retailers; (3) specialty (adult) shops; and (4) independent pharmacies.

Next, the CMA determined that, based on internal documents and consumer surveys, the Durex and K-Y brands are substitutes to some consumers and impose a competitive constraint on each other. While there was little evidence of recent successful new entry into the market for the supply of branded personal lubricants to grocery retailers and national pharmacy chains, due to limited shelf space, entry by new suppliers was relatively unproblematic in the remaining three product markets. The CMA consequently determined that the anticipated merger may be expected to result in significant loss of competition in the market for the supply of personal lubricants to grocery retailers and national pharmacy chains, in which the parties currently have a combined market share of 60 to 80 percent.

To remedy the loss of competition, the CMA is requiring Reckitt to license the K-Y brand and related intellectual property rights on an exclusive, comprehensive, and irrevocable basis for a period of eight years.

“During this period the licence will give a competitor an existing platform from which it can develop a new brand to rival the Durex range,” stated Chair of the CMA Reckitt/K-Y brand inquiry group, Phil Evans. “The license will also facilitate that new brand in gaining access to supermarkets and national pharmacy chains to protect competition.”

Companies: Reckitt Benckiser Group plc; McNeil-PPC, Inc.; Johnson & Johnson

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