OPINION OF MR ADVOCATE-GENERAL WARNER

   DELIVERED ON 11 MARCH 1975

   My Lords,

   When I first saw the names of these cases, I wondered how a Hindu
   goddess, even one with such a reputation for agressiveness, could have
   come into conflict, not once but twice, with Community law. On opening
   the papers I discovered that she had not, Kali is also German for
   potash, and these cases are about fertilizers.

   Kali und Salz AG (which I shall call `K & S') and Kali-Chemie AG (which
   I shall call `KC') are the only two producers of potash in the Federal
   Republic of Germany. K & S is the applicant in Case 19/74, KC the
   applicant in Case 20/74. Both cases are brought under Article 173 of
   the EEC Treaty and, in them, the Court is asked by the applicants to
   declare void a Decision of the Commission dated 21 December 1973, made
   under Article 85 of that Treaty and relating to an Agreement between
   the applicants about the marketing of potash.

   It is common ground between all three parties (K & S, KC and the
   Commission) that three main ingredients are required for plant growth,
   namely nitrogen (N), phosphate (P) and potash (K). It is also common
   ground that these three ingredients may, under modern methods of
   agriculture, be introduced into the soil either by the use of farmyard
   manure or by the. use of inorganic fertilizers.

   A helpful piece of evidence before the Court (and one to which I shall
   have occasion to refer again) is a report on competition in the
   fertilizer industry in the Federal Republic of Germany made, at the
   request of the Federal Ministry of the Economy, by the Research
   Institute for Economic Policy of the University of Mainz. This report
   contains an interesting passage on the relationship between farmyard
   manure and inorganic fertilizers. The use of inorganic fertilizers, the
   report explains, stimulates the growth of those plants that serve as
   cattle fodder and so enables more cattle to be fed from each acre:
   this, in its turn, means a greater yield of farmyard manure per acre.
   So the use of inorganic fertilizers starts a `virtuous spiral' in
   agriculture. I infer that farmyard manure generally contains all three
   of the main ingredients I have mentioned and also such `trace' elements
   as are needed for plant growth.

   Inorganic fertilizers are marketed either as straight or as compound
   fertilizers. A straight fertilizer contains only one of the three main
   elements I have mentioned, whereas a compound fertilizer contains
   either two of them or all three. A fertilizer containing all three is
   described as NPK, one containing nitrogen and potash as NK, one
   containing phosphate and potash as PK, and so on.

   A farmer's choice between using straight fertilizers, or a compound
   fertilizer, or a combination of a straight fertilizer and of a compound
   fertilizer, will depend on a number of factors. Among these factors,
   according to the Commission, are the natural composition of his soil
   and the kind of crop he proposes to grow on it. The Commission has put
   in evidence to show that some soils, particularly sandy soils, and some
   crops, particularly root crops, like beet and potatoes, need more
   potash than others. All parties are agreed that another important
   factor is cost: compound fertilizers are more expensive to buy, but
   their use saves time and labour.

   It is also common ground that in Germany, as elsewhere, there has been,
   proportionately, a steady increase in the use of compound fertilizers
   containing potash and a corresponding decline in the use of straight
   potash. Statistics put in by the parties abundantly prove this point.
   In the year 1972/73, 61ˇ3 % of the potash consumed on German farms was
   in compound fertilizers and only 38ˇ7 % in the form of straight potash.
   Ten years earlier the corresponding percentages were 45ˇ3 % and 54ˇ7 %.
   It seems indeed that German farmers are in this respect behind those of
   most of the other Member States. Thus in 1971/72 Italian farmers spread
   their potash as to 65ˇ8 % in compound fertilizers and as to only 34ˇ2 %
   in the form of straight potash. In Belgium and Luxembourg the
   corresponding percentages were 70ˇ1 and 29ˇ9, in Ireland they were 83ˇ4
   and 16ˇ6, in France 83ˇ7 and 16ˇ3, in the United Kingdom 92 and 8 and
   in Denmark 96ˇ5 and 3ˇ5. Only in the Netherlands is more straight
   potash used than potash incorporated in compound fertilizers, the
   1971/72 percentage for the former being 55ˇ5 and for the latter 45ˇ5.
   The explanation seems to lie in the fact that so much of Dutch farmland
   has been recovered from the sea. It appears that land recovered from
   the sea needs, proportionately, far more potash than other land.

   Until 1970 there was in Germany a joint sales organization, to which
   all German potash producers belonged, the Verkaufsgemeinschaft
   Deutscher Kaliwerke (`VDK'). The members of the VDK had bound
   themselves to sell all their potash products, except potash intended
   for the manufacture of compound fertilizers, through that organization.

   In 1970 there was a reorganization of the German potash industry as a
   result of which the VDK was dissolved, and; K & S and KC were left as
   the only two potash producers in Germany. On 6 July 1970 K & S and KC
   concluded the Agreement that is in issue in this case. In essence that
   Agreement was to the effect that, as from 1 January 1971, K & S should
   buy from KC, at a price to be determined annually, so much of KC's
   production of potash as it did not either market otherwise or use for
   its own production of compound fertilizers. In fact KC produces a PK
   fertilizer which it markets under the name RHE-KA-PHOS. The Agreement
   was for a term of 10 years and it provided that, during 1979/80 at the
   latest, the parties should enter into negotiation with a view to its
   renewal. By the Decision in question, which was addressed to K & S and
   to KC, the Commission

   1.

   held that the Agreement constituted an infringement of Article 85 (1)
   of the Treaty;

   2.

   refused an application made by K & S and KC for exemption under
   Article 85 (3); and

   3.

   required K & S and KC to bring the infringement in question to an end.

   By the effect of interim orders made by my Lord the President on
   3 April 1974 and 8 July 1974, in KC's action, the operation of the
   Commission's Decision has been suspended pending Judgment in that
   action.

   The Commission's Decision recites that K & S's annual production of
   potash amounts to 2100000 tonnes of K2O, representing about 87ˇ5 % of
   German potash production, whereas KC's amounts to 300000 tonnes,
   representing about 12ˇ5 %. These are approximate figures, based on the
   statistics for 1972, which was of course the last calendar year for
   which full statistics were available at the time when the Commission
   made its Decision. As we now know there was in 1973 a drop in KC's
   production to 280200 tonnes and an increase in K & S's to 2168400
   tonnes.

   KC has two potash mines, one at Friedrichshall and the other at
   Ronnenberg.

   In 1972 Friedrichshall produced 184500 tonnes of K20, of which 118700
   tonnes were used by KC itself in the production of RHE-KA-PHOS and the
   balance of 65800 tonnes was sold to K & S. Ronnenberg produced 121000
   tonnes, of which none was used by KC itself, 16000 tonnes were sold by
   KC to another manufacturer of compound fertilizers in which it is a
   shareholder, and the belance of 105000 tonnes was sold to K & S. Thus,
   of KC's total production of 305500 tonnes, 118700 tonnes or roughly
   39 % were used by KC itself, 16000 tonnes or roughly 5 % were sold to
   that other manufacturer and 170800 tonnes, representing the balance of
   about 56 %, were sold to K & S.

   In 1973 the picture changed. In that year the Friedrichshall mine
   produced 179400 tonnes, of which as much as 136700 were used by KC
   itself and only 42700 tonnes were sold to K & S. Production at
   Ronnenberg was down to 100800 tonnes, of which 1000 were used by KC
   itself, 13100 were sold to the other manufacturer, and the balance of
   86700 tonnes were sold to K & S. Thus of KC's reduced production,
   amounting, as I have said, to 280200 tonnes, 137700 tonnes or about
   49 % went into its own RHE-KA-PHOS, a steady 5 % went to that other
   manufacturer, and 129400 tonnes or 46 % went to K & S. Of that 129400
   tonnes over two-thirds came from Ronnenberg.

   There are two points that I must make about these figures.

   The first is that they do not merely reflect the sort of variation that
   can normally be expected in the performance, from one year to the next,
   of an industrial undertaking. They form part of a set of statistics
   covering more than the years 1972 and 1973 which show that there has
   been a steady increase in KC's use of the potash it mines in its
   production of RHE-KA-PHOS and a steady decrease in its sales to K & S.
   The latest figures before the Court, those for the year from 1 May 1973
   to 30 April 1974, show that, in that year, KC's sales to K & S were
   down to 117000 tonnes.

   The second point is that the Commission was made aware of these trends
   in the course of the administrative proceedings that led to its
   Decision. The Court called for production of, among other documents,
   KC's written observations to the Commission and the minutes of the
   hearing conducted by the Commission on 20 June 1973. In its written
   observations of 26 April 1973, KC produced (at p. 29) figures to show
   its increasing use of its own potash in the manufacture of RHE-KA-PHOS
   and emphasized that it was on the production and marketing of this that
   its efforts were concentrated. The minutes of the hearing of 20 June
   1973 evince that Dr Roth, a member of the Board of Directors of KC,
   referred to those trends at some length, albeit with commendable
   caution as to the future.

   Another set of figures that is, I think, pertinent is that relating to
   the way in which K & S disposed of KC's `surplus' production, by which
   I mean that part of KC's production that KC neither used itself in the
   manufacture of RHE-KA-PHOS, nor sold to its associated manufacturer, so
   that it sold it to K & S under the Agreement. Your Lordships remember
   that in 1972 that surplus production amounted to 170800 tonnes. Of
   this, 17200 tonnes were sold by K & S for use as straight fertilizer in
   German agriculture and 36400 tonnes were sold to other German
   manufacturers of compound fertilizers, making a total of 53600 tonnes
   sold on the German market. The balance of 117200 tonnes was exported.
   The corresponding figures for 1973 are these. Of KC's total `surplus'
   for that year of 129400 tonnes, 14100 tonnes were sold for use as
   straight fertilizer by German agriculture and 27200 tonnes were sold to
   other German manufacturers of compound fertilizers, making a total of
   41300 tonnes sold in the German market; 88100 tonnes were exported.

   Exports thus loom large in K & S's disposal of KC's surpluses.
   Unfortunately there is not before the Court a complete breakdown of
   these exports, by countries of destination or categories of purchasers.
   We know that, up to 1974, the main producers of potash in the EEC were
   the Federal Republic, France and Italy. In 1973 the Federal Republic
   produced about 2548000 tonnes, France 2031000 tonnes and Italy 133000
   tonnes. Since 1974 the United Kingdom has also become a producer, of
   upwards of 600000 tonnes a year, owing to the opening by Cleveland
   Potash Ltd. of a mine in Yorkshire.

   In 1972 the Federal Republic's, that is K & S's, total exports of
   straight potash amounted to some 1157000 tonnes. The main markets for
   these exports were Belgium and Luxembourg (206446 tonnes), Brazil
   (79546 tonnes), Poland (78641 tonnes), Denmark (77133 tonnes), the
   Netherlands (72799 tonnes), Austria (64262 tonnes) and the United
   Kingdom (46891 tonnes). It is said that, of these markets, Poland is a
   volatile one, whilst the United Kingdom, thanks to Cleveland Potash
   Ltd.'s new mine, has now become self-sufficient, if not a net exporter.
   There is also evidence that, in some importing countries at least, e.g.
   Denmark, the importers are, in the main, manufacturers of compound
   fertilizers.

   For the sake of completeness, I should mention that German imports,
   described by the Commission as `practically insignificant', amounted to
   91479 tonnes in 1971/72 and 74046 tonnes in 1972/73. These figures
   include both straight potash and potash incorporated in compound
   fertilizers.

   The Commission sees these cases as part of a campaign on its part to
   counteract the abuse by K & S and by the French State monopoly, the
   Société commerciale des potasses et de l'azote (`SCPA'), of their
   dominant positions in the EEC. The other measures that the Commission
   has taken in that campaign are a Recommendation dated 25 November 1969
   made under Article 37 (6) of the Treaty, concerning SCPA, and a
   Decision dated 11 May 1973 forbidding certain forms of cooperation
   between K & S and SCPA. The applicants say that whilst those other
   measures were warranted, and have been accepted, the Decision here in
   question was not and is not.

   The applicants attack that Decision on five main grounds.

   First they say that the Commssion was wrong in holding that the
   relevant market for the purposes of Article 85 (1) was the market for
   straight potash. They contend that the relevant market was that for all
   inorganic potash-bearing fertilizers, including compound ones.

   Secondly they say that the Agreement between them does not come within
   Article 85 (1) because it imposes no obligation on KC to sell a single
   ton to K & S. It leaves KC free to dispose of its whole production
   independently, if it chooses to.

   Thirdly they say that KC could not, as a matter of economic fact,
   dispose of its surplus production otherwise than by selling it to K &
   S, so that the Agreement (a) is not in fact susceptible of affecting
   trade between Member States and (b) cannot in fact have as its object
   or effect `the prevention, restriction or distortion of competition
   within the common market' -- with the result that Article 85 (1) does
   not apply to it.

   fourthly tne applicants say mat tne Commisson, in its Decision,
   overlooked the principle established by decisions of this Court that an
   agreement can only come within Article 85 (1) if it affects competition
   to a significant extent. Here, they say, the share of the market that
   KC could on any view obtain is insignificant.

   Lastly the applicants say that, it they are wrong in their contention
   that Article 85 (1) does not apply to the Agreement, the Commission
   should have granted them exemption under Article 85 (3).

   My Lords, I would have no difficulty in rejecting the first two grounds
   put forward by the applicants.

   As regards the relevant market, Your Lordships will remember that, in
   Cases [1]6 & 7/73 Instituto Chemioterapico Italiano S.p.A. and
   Commercial Solvents Corporation v Commission [1974] ECR, 265, I
   suggested, on the authority of the decisions of the Court that I there
   cited, that, in the context of Community competition law, a relevant
   market was one in which the products available were substantially
   interchangeable. I remain of that opinion. In the same case the Court
   in its Judgment held (ibid. at pp. 249-250) that a distinction must be
   drawn between the market for a raw material and the market for the
   products manufactured from that raw material.

   These points seem to me pertinent here. The evidence shows that,
   nowadays, if not formerly, the major market for straight potash is as a
   raw material for the manufacture of compound fertilizers. In that
   market, manifestly, straight potash is not interchangeable with
   compound fertilizers. In the agricultural market there is
   unquestionably competition between straight fertilizers and compound
   fertilizers. But that does not mean that they are interchangeable. To
   the farmer who wants to grow potatoes on sandy soil (as I have seen
   some do here in Luxembourg) and who therefore needs to spread a lot of
   potash, it may be unreasonably wasteful to resort entirely to compound
   fertilizers for the purpose. On the other hand, to the farmer who
   wishes to grow cereals on (say) clay, and who is short of time, labour
   and perhaps machinery, straight potash is no satisfactory substitute
   for a well chosen compound fertilizer.

   As regards the applicants second ground, I think the Commission is
   right when it says that the absence, in the Agreement, of any
   obligation on the part of KC to sell to K & S is immaterial. What is
   material is that, whereas there are in the Federal Republic two
   producers of potash, the effect of the Agreement is that there is,
   virtually, only one seller of it. (I say `virtually' in acknowledgement
   of the fact that KC sells some 5 % of its production to an associated
   manufacturer). From the point of view of would-be purchasers of
   straight potash, the result of the Agreement is that there is no
   competition between the only two German producers.

   There has been much controversy between the parties about Article 3 of
   the Agreement. This provides for the establishment of a biennial
   programme of sales by KC to K & S, specifying types of potash to be
   supplied, quantities and delivery dates. The applicants allege that
   this Article was inserted in the Agreement at the instance of the
   Bundeskartellamt and that it has never in fact been applied. The
   Commission does not accept this. My Lords, on the view I take, this
   controversy is irrelevant.

   I come now to what I have called the applicants' third ground. The
   issues here are much more complex and much more difficult. In essence
   the question is whether, in the absence of the Agreement, KC could
   competitively sell its surplus production.

   The applicants submit that it could not, owing to the cumulative effect
   of a number of factors, of which the main ones are:

   1.

   That KC would be a beginner in a market where it has never before
   sought to compete and which would be difficult to penetrate, because it
   is a market in which long term contracts between powerful groups of
   buyers and sellers are the rule;

   2.

   That KC's surplus production is essentially of non-granulated types of
   potash, for which demand is receding; KC would accordingly, in order to
   compete, have to install granulating plant costing some DM 10 million;

   3.

   That, in order to market its own surplus production of potash, KC would
   have to install storage facilities costing about another DM 10 million;

   4.

   That KC could not emulate K & S's performance in exporting by sea
   without acquiring, at great cost, a terminal, such as K & S possesses
   at Hamburg, for loading ships with potash;

   5.

   That, in the distribution of potash within Germany, transport costs
   play an important part; thus the distribution of RHE-KA-PHOS costs KC
   about DM 30 a ton, whereas, by centralizing orders for straight potash
   and arranging for them to be met from the factory nearest to the
   customer, whether belonging to K & S itself or to KC, K & S is able to
   keep the cost of transporting such potash down to an average of DM 17 a
   ton; KC estimates that, in seeking to market its own surplus
   production, it would incur additional transport costs of some DM
   3ˇ5 million a year;

   6.

   lhat, in order to market that production, KC would have to set up its
   own sales organization, including an advisory service to farmers, at an
   estimated cost of some DM 2 million a year;

   7.

   That the investment of DM 10 million in granulating plant, and of DM
   10 million in storage facilities, together with the additional annual
   expenditure on transport of DM 3ˇ5 million and on a sales organization
   of DM 2 million would be out of proportion even with KC's current
   turnover of straight potash, which amounts to some DM 29 million a
   year; such investment and expenditure are even more unthinkable in the
   light of the fact that that turnover is steadily decreasing;

   8.

   That KC's mines are old, having been brought into production at the
   beginning of the century and that their future life is limited:

   9.

   That the geological conditions at Ronnenberg have recently resulted in
   serious flooding, which renders the continuation of production at that
   mine (which accounts for over two-thirds of KC's "surplus")
   problematic.

   My Lords, some of those points are less impressive than others.
   Moreover, of those that I found at one time most impressive, two,
   namely those relating to granulation plant and to storage facilities,
   lost much of their force when, at the hearing of K & S's action, it
   was, in answer to questions of mine, categorically stated on K & S's
   behalf that K & S neither granulated nor stored any of the potash that
   it bought from KC. Such potash went straight from KC's factories to K &
   S's customers. When at the hearing of KC's action, this revelation was
   referred to by Counsel for the Commission, it drew no comment from
   those representing KC.

   Nor do I think that the Court can attach any importance to the evidence
   about flooding at Ronnenberg, for that evidence did not exist at the
   time when the Commission made its decision. It appears that this
   flooding began to become serious in November 1973, i.e. about a month
   before the Commission issued its Decision. The Commission acknowledges
   that the fact of the flooding was mentioned to it but says that no
   particular argument founded on that fact was then addressed to it on
   behalf of the applicants. Nor do I find that it was. The first expert's
   report on the subject is dated 30 January 1974. This was followed by a
   report prepared by KC's own staff dated 13 February 1974, by a further
   expert's report dated 3 May 1974 and then by copious correspondence
   between KC and the Commission. The upshot of this correspondence is
   that the Commission is prepared to be persuaded by KC that it should
   reconsider its Decision on the footing that the evidence now adduced
   about the situation at Ronnenberg shows that, on any view, KC could not
   contemplate embarking upon the independent sale of its surplus potash.
   My Lords, I refrain from entering into the details of the evidence in
   question, partly because KC has asked the Court to treat it as
   confidential and partly because it seems to me irrelevant to the
   question the Court has to decide, which is whether the Decision of the
   Commission was valid when it was taken.

   It was submitted on behalf of KC, on the authority of two Judgments of
   the Bundesgerichtshof (5 February 1968 and 17 May 1973) that, in a
   competition case, the Court should have regard to the facts known at
   the time of its decision. I would reject that submission. An action
   under Article 173 of the Treaty is not an appeal by way of re-hearing.
   It is a proceeding in which the Court is empowered to set aside the act
   complained of only if it finds that that act was unlawful on one (or
   more) of the grounds mentioned in the Article. An examination of the
   Judgments of the Bundesgerichtshof cited on behalf of KC shows that
   these were concerned, so far as material, with the position under
   Article 62 of the Federal statute of 1957 against restraints on
   competition (the "GWB"). That Article expressly provides that, on an
   appeal to an Oberlandesgericht against an administrative decision, new
   facts and evidence may be adduced. It is to be observed that, in
   contrast, Article 73 of the GWB provides that, on any further appeal to
   the Bundesgerichtshof itself, which can only be on a point of law, that
   Court is bound by the findings of fact in the decision under appeal.

   The question remains whether the applicants have made out a sufficient
   case for the Court to set aside the Decision of the Commission, on the
   ground that that Decision was based on a misapprehension by the
   Commission of the possibilities open to KC to compete in the market for
   straight potash. I confess, my Lords, that, on that question, my mind
   has fluctuated. What has finally persuaded me to answer it in favour of
   the applicants is that there are two points with which, it seems to me,
   the Commission failed adequately to deal either in the text of its
   Decision or in its submissions to the Court.

   It would, strictly, be enough to say that in my view the Commission
   failed adequately to deal with those points in the text of its
   Decision. Article 190 of the Treaty provides, among other things, that
   a decision of the Commission shall state the reasons on which it is
   based and, in many a Judgment, the Court has made it clear that this is
   no idle requirement. The Commission must state its reasons with
   sufficient clarity and particularity for the Court to be able to
   exercise, effectively, its jurisdiction under Article 173. But the fact
   that, in the present case, the Commission, not only did not adequately
   deal with these two points in its Decision, but failed to do so in its
   submissions either, leads me to think that the flaw in the Decision was
   no mere want of form, but was real and substantial.

   Of those two points the first is that the tonnage of KC's surplus
   potash is declining annually. There is a reference in the Decision to
   the fact that KC is to an increasing extent using the potash it
   produces in the manufacture of RHE-KA-PHOS. But no conclusion is drawn
   from this as to the availability of straight potash for KC to market.
   On the contrary the impression is conveyed that the supply of this is
   steady at about 170000 tonnes a year. This seems to me a serious error
   of fact.

   secondly, tne commission nownere states convincingly how it conceives
   that KC could go about marketing its straight potash independently. The
   Commission, no doubt, is unimpressed, as I am, by KC's assertion that
   it would need to develop an advisory service for German farmers, and
   equally unimpressed by its assertion that it could not sell to other
   manufacturers of compound fertilizers. But the fact remains that KC
   would have to create some sort of sales organization.

   In its Decision, the Commission confines itself, on this point, to
   referring to the fact that KC "belongs to the important Solvay Group,
   which also has potash interests outside Germany in Belgium and in
   Spain", and to asserting that KC "could sell its straight potash
   fertilizer independently" as it has done with RHE-KA-PHOS. The
   Commission does this, incidentally, not in the course of its reasoning
   on the applicability to the case of Article 85 (1), but in the course
   of its refutation of the applicants' claim for exemption under
   Article 85 (3).

   As to the point founded on KC's successful marketing of RHE-KA-PHOS, it
   appears that, during the course of the administrative proceedings, the
   Commission put it to KC that it could market its surplus potash through
   the same sales organization as RHE-KA-PHOS. This suggestion was not
   maintained in the Commission's Decision. But it was revived with vigour
   in the Commission's submissions to the Court, and indeed put in the
   forefront of those submissions. The applicants demonstrated beyond the
   hilt that it was misconceived.

   The reason, in a nutshell, is that, in order to sell a potash-bearing
   compound fertilizer, one has to emphasize its avantages over straight
   potash, and vice versa. It follows that the same sales organization
   cannot effectively market both. The Commission sought to show that this
   was not so by pointing out that the VDK, K & S, SCPA and a Dutch firm,
   KNIM, all marketed or market both straight potash and potash-bearing
   compound fertilizers, and that KC itself markets a straight phosphate
   fertilizer, RHENANIA-PHOSPHAT, through the same organization as
   RHE-KA-PHOS. It transpired however that the VDK, K & S and SCPA all
   marketed or market straight fertilizers and compound fertilizers
   through distinct sales organizations, that, in the case of KNIM, its
   sales of compound fertilizers represent less than 0ˇ5 % of its
   turnover, and that sales of RHENANIA-PHOSPHAT represent only about 2 %
   of KC's turnover and are losing importance.

   The point that KC belongs to the Solvay group seems to me inconclusive.
   That group, which is Belgian, owns a potash mine in Spain, but it does
   not itself market the production of that mine. As the Decision of the
   Commission it self records, all Spanish production (amounting to some
   500000 tonnes a year) is sold centrally through the Commercial de
   Potasas S.A. Solvay's `potash interest' in Belgium consist of a 25 %
   holding in a company called Cogepotasse. In a letter dated 26 February
   1974 from Solvay to KC (Annex (h) to KC's Application) it is said that
   `il s'agit d'une participation purement financiere'. Nor is there any
   evidence whatever as to the size, nature or structure of the business
   of Cogepotasse. There is thus no evidence that Solvay would be in a
   better position to market KC's surplus potash than KC itself. Indeed,
   in that letter, Solvay says that it is not in a position to help in
   that respect.

   The report, which I have already mentioned, made by the Research
   Institute for Economic Policy of the University of Mainz to the Federal
   Ministry of the Economy, concluded that the structure of the potash
   industry in the Federal Republic was such that effective competition
   was in practice impossible. The only course open to the
   Bundeskartellamt was to seek to restrain any abuse by K & S of its
   dominant position. The Agreement between K & S and KC should not be
   suppresed because of the danger that this would lead KC to reduce its
   production to the quantities needed for the manufacture of RHE-KA-PHOS.
   The Institute noted that these quantities were increasing.

   My Lords, I take the Commission's point that the findings of the
   Institute were probably largely based on what its researchers were told
   by KC and K & S themselves. The fact remains that such were the
   findings of independent experts advising the Federal Government. In my
   opinion, for the reasons I have stated, the Commission has failed to
   adduce facts and arguments sufficient to show that they were wrong.

   That being so, I can deal more shortly with the fourth and fifth
   grounds relied upon by the applicants.

   As to the fourth ground, there is a line of decisions of this Court
   establishing that an agreement is not within Article 85 if it affects
   competition and trade between Member States only to an insignificant
   extent, having regard to the weak position of the parties to it in the
   relevant market. (See Case [2]5/69 Völk v Vervaecke Rec. 1969, pp.
   302-303, Case [3]1/71 Cadillon v Höss Rec. 1971, pp. 355-358 and Case
   [4]22/71 Béguelin Import v G. L. Import Export Rec. 1971, p. 960).
   These decisions were in fact all concerned with exclusive dealer
   agreements, but there is, in my view, no reason why the principle they
   establish should not be applied to other types of agreement where
   appropriate.

   The applicants contend that it should be applied in the present case.

   That contention was met very briefly by the Commission in its Decision
   in a sentence in which it said that the quantities supplied by KC to K
   & S represented 13 % of German consumption or the total potash
   consumption of Belgium or Denmark. As I understand it, the figure of
   13 % was obtained by comparing the figure of 170000 tonnes for KC's
   sales to K & S with the total German annual consumption of potash,
   whether in straight or in compound fertilizers.

   The applicants state, by the way, that the Commission's figures for
   Belgian consumption are wrong, this being, they allege, nearer 340000
   tonnes a year than 170000. But they concentrate their attack on the
   Commission's evaluation of the position in Germany. They say that the
   comparison that should have been made was between the sales by K & S on
   the German market of potash bought from KC and the total German
   consumption. This produces a percentage for 1973 of 3ˇ5 %. In that year
   sales by K & S of KC's potash on the German market amounted, as I have
   mentioned, to 41300 tonnes whereas total German consumption amounted to
   1165100 tonnes. Alternatively, the applicants say, the comparision that
   should have been made was between KC's production of `surplus' potash
   (i. e. its sales to K & S) and the total combined production of KC and
   K & S, The former represented 7ˇ1 % of the latter in 1971, 7 % in 1972
   and 5ˇ1 % in 1973. In the year from 1 May 1973 to 30 April 1974 (when,
   Your Lordships remember, KC's surplus production fell to 11700 tonnes
   the proportion was less than 5 %.

   The applicants rely on a Notice issued by the Commission on 27 May 1970
   ([5]OJ C 64 of 2. 7. 1970) in which the Commission sought to indicate
   in general terms which agreements it would in practice consider to be
   outside Article 85 on the ground of their insignificant effect on
   competition and on trade between Member States. In this Notice the
   Commission stated that, in its view, Article 85 would not apply to an
   agreement which, among other things, affected not more than 5 % of the
   supply of the goods in question in the relevant part of the Common
   Market. But, as the Commission has pointed out in its submissions to
   the Court, that is not the only condition mentioned in the Notice.
   There is also a condition as to the combined turnover of the
   undertakings concerned, expressed in units of account. The maximum
   thereby set is far exceeded by the combined turnover of KC and K & S.
   In any case, the Notice, which is expressed to be subject to the
   Court's interpretation of Article 85, has no binding legal effect (see
   per Mr Advocate-General Dutheillet de Lamothe in the Béguelin case,
   Rec. 1971 at p. 968).

   Of far more pertinence, in my opinion, are two closely connected points
   made by the applicants: first that the Commission failed to take
   account of the fact that KC's `surplus' production was diminishing, and
   second that KC' s relevant market share for present purposes was not so
   much the share that it currently obtained for that production through K
   & S but the share that KC on its own would be able to obtain. These
   points are in my opinion valid, but they seem to me to be part of the
   argument in support of the applicant's third ground, rather than to
   constitute a separate ground for holding the Commission's decision
   void.

   I turn to the applicants fifth ground, which relates to Article 85 (3).
   No question as to this will of course arise if Your Lordships share my
   view on the applicability of Article 85 (1). On the other hand, if Your
   Lordships do not share that view, it must be because Your Lordships
   consider that the Commission was well-founded in holding that KC could
   and would, in the absence of its Agreement with K & S, effectively
   market its `surplus' production of potash, or at all events most of it.

   On that hypothesis I can leave aside the arguments of the applicants to
   the effect that the Agreement meets the first requirement of Article 85
   (3) because without it KC's surplus production could not be marketed,
   and even those to the effect that the Agreement makes for cheaper
   distribution of both KC's and K & S's output of straight potash and
   thereby confers on consumers a benefit in the matter of prices; for, it
   seems to me, the Commission was, on that hypothesis, clearly right in
   holding that the agreement failed to fulfil the requirement of
   paragraph (b) of Article 85 (3), i.e. the requirement that it should
   not `afford such undertakings the possibility of eliminating
   competition in respect of a substantial part of the products in
   question'. The German output of straight potash is manifestly a
   `substantial part' of the output of that product; on the hypothesis
   posed, there would be competition in respect of it; an the Agreement
   does afford to KC and K & S the possibility of eliminating that
   competition.

   For that reason I would uphold the Commission's decision that the
   applicants were not entitled to exemption under Article 85 (3).

   Having regard, however, to the view I take on the question of the
   applicability of Article 85 (1), I am of the opinion that the
   Commission's Decision should be declared void and that the Commission
   should be ordered to pay the costs of these actions, including the
   costs, which were reserved, of the interim applications in KC's action.

References

   1. http://eur-lex.europa.eu/query.html?DN=61973??0006&locale=EN
   2. http://eur-lex.europa.eu/query.html?DN=61969??0005&locale=EN
   3. http://eur-lex.europa.eu/query.html?DN=61971??0001&locale=EN
   4. http://eur-lex.europa.eu/query.html?DN=61971??0022&locale=EN
   5. file:///../../legal-content/EN/AUTO/?uri=OJ:C:1970:064:TOC