Competition Law Alert
ORDERS By COMPETITION COMMISSION OF INDIA
A.
Anti-Competitive Agreements
Synopsis of the legal provisions
Section 3 of the Competition
Act, 2002 (“Act”) prohibits an enterprise or
association of enterprises or persons to enter into agreements in respect of
production, supply, distribution, storage, acquisition or control of goods or
provision of services, which causes or is likely to cause appreciable adverse
effect on competition in India.
Following kinds of agreements between enterprises,
persons or association of persons or enterprises, or practices or decisions
taken by association of persons or enterprises, including cartels,
engaged in similar or identical trade of goods or provision of services
is presumed to have appreciable adverse effect on competition:
a) Agreements or decisions that directly or indirectly
determine purchase or sale price.
b) Agreements that limit or control production, supply,
market, technical development, investment or provision of services.
c) Agreements to share market or source of production
or provision of services by way of allocation of geographical area of market or
type of goods or services, or number of customers in the market or any other
similar way.
d) Agreements that, directly or indirectly, result in
bid-rigging or collusive bidding.
However, agreements entered into by way of joint
ventures are excluded from above restriction if such agreements increase the
efficiency in production, supply, distribution, acquisition, or control of
goods or provision of services.
Under the Act, ‘cartel
includes an association of producers, sellers, distributors, traders, or
service providers who, by agreement amongst themselves, limit control or
attempt to control the production, distribution, sale or price of, or trade in
goods, or provision of services’.
Further, under section 19(3) of the Act, following
factors are to be considered by Competition
Commission of India (“CCI”)
in determining whether an agreement has appreciable adverse effect on
competition:
a) Creation of barriers to new entrants in the market.
b) Driving existing competitors out of the market.
c) Foreclosure of competition by hindering entry into
the market.
d) Accrual of benefits to consumers.
e) Improvement in production or distribution of goods
or provision of services.
f) Promotion of technical, scientific and economic
development by means of production or distribution of goods or provision of
services.
B.
Abuse of Dominant Position
Synopsis
of legal provisions
Section 4 of the Act prohibits any enterprise or
group to abuse its dominant position. ‘Dominant position’ has been defined to
mean ‘a position of strength enjoyed by
an enterprise, in the relevant market, in India, which enables it to –
(i)
operate independently of competitive forces
prevailing in the relevant market; or
(ii) affect its
competitors or consumers or the relevant market in its favor’.
In light of the above provisions, we produce the
summary of CCI’s orders passed in the month of June, 2013:
- M/s
Transparent Energy Systems Private Limited v. TECPRO Systems Limited,
decided on June 11, 2013
The case was filed by Transparent
Energy Systems Private Limited (“Informant”)
against TECPRO Systems Limited (“TECPRO”)
alleging predatory pricing. Informant
alleged that TECPRO had resorted to predatory pricing for winning the bids for setting
up Waste Heat Recovery Power Plants (“WHRPP”)
in cement manufacturing industries.
Informant submitted that in year 2011,
TECPRO entered into collaboration with Nanjing Triumph Kaineng Environment and
Energy Company Limited, China (“NTK”)
for supply of Boilers, Turbine and Generators. Post collaboration with NTK,
TECPRO started business of setting up WHRPP in India. Transparent Energy
informed that NTK was the leader of WHRPP in China and has executed more than
120 Waste Heat Recovery projects. Informant
alleged that owing to its alliance with NTK, TECPRO was able to quote
abnormally low prices in all bids, which were approximately at the raw material
cost of the Informant. Informant
stated that usually the EPC component in a WHRPP constitutes 55% to 66% of the
total project cost and it remains same with all EPC bidders. As a result, the
total project cost of WHRPP, as quoted by bidders cannot be significantly
different from each other.
Informant provided a data on the business
of WHPRR done by various players in India and worldwide. On the basis of the
said data, Informant contended
that TECPRO is a dominant player, as it has 50% market share (on the basis of
number of projects) in the WHRPP market. Informant further submitted that TECPRO had grown from Rs. 1,000
million in financial year 2008 to over Rs. 46 billion during financial year
2012.
CCI held that the relevant
product market in the present case is the market for “setting up of waste heat recovery based power plants in cement industries
in India”.
On the basis of information
provided by Informant, CCI noted that there are only 5 players in the relevant
market. TECPRO entered the relevant market in year 2011, only after its
collaboration with NTK. CCI observed that dominance of TECPRO cannot be
considered on the basis of only 1 year data. CCI also noted that TECPRO has only
40% of the market share in the relevant market on the basis MW power of the
projects, and not 50% on the basis of number of projects, as claimed by the
Informant. CCI further observed that the dominance in the relevant market can only
be ascertained, if a player has successfully completed and commissioned WHRPPs.
CCI noted that TECPRO has joined the relevant market only in year 2011 and its
WHRPPs are pending.
On the issue of predatory pricing,
CCI noted that every player has its own method of ascertaining the cost and
there is no standard method for calculating cost followed by each and every
player. Therefore, the price quoted will differ from bidder to bidder. CCI
noted that the difference in the quote among the bidders in the relevant market
was between 10%-100%. CCI further observed that the allegation of predatory
pricing can be sustained only on the basis final prices, whereas the quotes
provided by the bidders at the time of bidding are only estimated prices. CCI further
took note of the fact that the Informant has itself not provided any data,
which reflects the actual (not estimated) pricing of projects implemented by it. .
Based on the above analysis, CCI
held that case of predatory pricing could not be established against TECPRO.
C. Combination
Registrations
1.
Combination
registration No. C-2013/06/125 issued
on June 26, 2013
The notice for the combination
was filed by Paris Cement Investment Holdings Limited (“PCIHL”) and Lafarge India
Private Limited (“LIPL”), pursuant to an investment agreement between
Financiere Lafarge, LIPL and PCHIL. As per the proposed combination, PCIHL will
acquire 14.03% equity share capital of LIPL. The said investment agreement also
requires LIPL to take prior written consent of PCIHL before taking certain
actions.
PCIHL is an investment vehicle
and a wholly owned subsidiary of partnerships comprising Baring Asia Private
Equity Fund V for which the Baring Asia Private Equity Fund V, L.P (“Baring”)
comprises over 99 % of total fund commitments. As per the information, Baring
is engaged in the business of investing in the companies across a broad
spectrum of industries throughout Asia.
LIPL is a wholly owned subsidiary
of Financiere Lafarge, which in turn is a subsidiary of Lafarge S.A (“Lafarge”). As per the information,
Lafarge is a French company engaged in the business of manufacturing of
building materials and LIPL is also engaged in the business of manufacturing
diverse grades of grey cements in India.
CCI noted that neither PCIHL
nor its related entities are engaged in the business of manufacturing cement in
India. CCI further noted that there is no vertical relationship between the
businesses of PCIHL and LIPL. Therefore, CCI held that the proposed combination
will not have an adverse effect on competition in India. Hence, CCI approved the
proposed combination.
2.
Combination
Registration No. C-2013/04/119 issued on June 06, 2013
The notice for combination was
filed by Mylan Laboratories Limited (“Mylan”),
pursuant to a business transfer agreement between Mylan and Unichem Laboratories
Limited (“Unichem”). As per the
proposed combination, Mylan will acquire a newly established Finished
Dosage Forms (“FDFs”) manufacturing
facility from Unichem.
As per the information, Mylan is
a pharmaceutical company incorporated under the Companies Act 1956. Mylan
through its various manufacturing facilities manufactures Active Pharmaceutical
Ingredients (“APIs”), FDFs and
injectibles. Similarly, Unichem is also an Indian company, which manufactures
FDFs and API through its various manufacturing facilities.
CCI observed that Mylan is
acquiring the manufacturing facility from Unichem only with the intent to
export the produce from the said facility. CCI stated that Mylan will neither
acquire any shares, voting rights or control in Unichem, nor will acquire
any brands or intellectual property rights from Unichem. Based on the above analysis,
CCI held that the proposed combination will not have an adverse effect on
competition in India. Hence, CCI approved that proposed combination.
3.
Combination
Registration No. C-2013/04/116 issued on June 20, 2013
The notice for combination was
given by Mylan Inc. (“Mylan”),
pursuant to a Share Purchase Agreement (“SPA”)
entered between Mylan, Strides Arcolab Limited (“SAL”), Arun Kumar and Pronomz Ventures LLP (both promoters of SAL).
As per the proposed combination, Mylan through its subsidiary will acquire
entire share capital of Agila Specialties Private Limited (“Agila”), a wholly owned subsidiary of
SAL.
The combination notice further
stated that Mylan has also entered into a share purchase agreement with Agila
Specialties Asia Pte Ltd, a company incorporated in Singapore, and certain shareholders
of SAL. Pursuant to the said share purchase agreement, Mylan will
purchase the entire issued share capital of Agila Specialties Global Pte Ltd (“Agila SG”), a company incorporated in
Singapore and an indirect wholly owned subsidiary SAL. However, the notice stated
that Agila SG does not have any turnover in India, therefore the acquisition of
Agila SG was exempted from the applicability of section 5 of the Act.
Parties to the
Combination
As per the notice, Mylan is a
company incorporated in Pennsylvania, USA. Mylan together with its subsidiaries
develops,
licenses, manufactures, markets and distributes generic, branded generic and
specialty pharmaceuticals. Mylan is one of the leading generic and specialty
pharmaceutical companies and it markets around 1100 pharmaceutical products.
Apart from providing respiratory, allergy and psychiatric therapies, Mylan also
provides anti-retroviral (“ARV”)
therapies. Mylan’s ARV therapy caters the requirements of 40% of the HIV/AIDS
patients in various developing countries of the world.
Mylan’s presence in
India
In India Mylan has three
subsidiaries, Mylan Laboratories Limited (“Mylan India”), Astrix
Laboratories Limited (“ALL”) and
Mylan Pharmaceuticals Private Limited (“MPPL”).
Mylan also has a wholly owned subsidiary in India i.e. Mylan Laboratories India
Private Limited. However, it currently does not carry on any business activity.
As per the notice, Mylan India manufactures
Active Pharmaceutical Ingredients (APIs). It also supplies APIs for
manufacturing ARV drugs. Mylan India also manufactures Finished Dosages Form (FDF)
products for ARV and non-ARV market, which are sold outside India. ALL is a
subsidiary of Mylan India and it manufactures and markets APls, primarily in
the ARV drugs therapeutic category.
MPPL is a wholly owned subsidiary
of Mylan Group B.V Netherlands (“Mylan
Group”). Mylan Group is stated to be engaged in global business development
and third party research and development work. Further, in the year 2012, MPPL
has launched a comprehensive portfolio of FDF ARV products for the treatment of
HIV/AIDS.
Agila India is a wholly owned
subsidiary of SAL, engaged in developing, manufacturing and supplying injectible
products for export market. Onco Therapies Limited (“OTL”) is a wholly owned subsidiary of Agila India and is engaged in
research, development and manufacturing of oncology related pharmaceutical
products and other preparations, both in injectable and solid dosage forms.
Agila India and OTL are the target companies under the proposed combination (“Target Companies”).
CCI’s Analysis
Market Share
On the basis of the information provided
in the notice, CCI observed that the Target Companies are mainly engaged in the
export market and have insignificant sale in the domestic market.
Further, 80% of the Mylan’s sales are from exports and it also has
insignificant presence in the domestic market.
Substitutability of
the products
As per the information provided
by Mylan, CCI observed that most of the products manufactured by Mylan on one
hand and the Target Companies on the other are of different therapeutic
categories. There are only few products of similar categories; however their
characteristics and intended use are also different. Therefore, CCI concluded
that Mylan’s and Target Companies’ products are not substitutable.
Vertical
Relationship
CCI observed that Target
Companies deal in the injectable formulations, whereas Mylan primarily deals in
API. CCI further observed that Mylan manufacturers and sells non-sterile API,
which cannot be used for developing injectable formulations. CCI also took note
that Mylan has mentioned its inability to manufacture sterile API (which is
used for developing injectable formulation) in India. Hence, CCI stated that
there exists no vertical relationship between Mylan and the Target Companies.
Restrictive
Covenant Agreement
CCI observed that Parties to
Agreement has also entered into a Restrictive Covenant Agreement (“RCA”), whereby Arun Kumar, Pronomz
Ventures LLP, SAL and any of SAL’s group companies were prevented from engaging
in the business of developing, manufacturing, distributing, marketing or selling
any injectable, parenteral, ophthalmic or oncology pharmaceutical products for
human use, anywhere in the world.
CCI raised an objection over RCA by
observing that RCA has imposed a blanket restriction covering injectable
products across all the therapeutic categories. CCI also stated that RCA has
imposed restrictions on those products as well, which are currently not
manufactured by the Target Companies. CCI observed that RCA should only
restrict the existing business and such other businesses, which are under the
stage of development. Subsequently, parties to the combination modified the RCA
by reducing time period of restriction to 4 years and curtailing the scope of
the RCA by making it applicable only to exiting and pipeline products of the Target
Companies. Further, the applicability of RCA was restricted only to the Indian
market.
Based on the above analysis, CCI
held that the proposed combination will not have appreciable adverse effect on
competition in India and approved the proposed combination.
D.
News
1.
CCI inks pact with
Australian Competition and Consumer Commission
On June 3, 2013 CCI signed a
Memorandum of Understanding (“MOU”)
with Australian Competition and Consumer Commission (“Australian Commission”). The MOU was signed with a view to
strengthen cooperation and share information on various competition issues.
As per the MOU, CCI and
Australian Commission will share information on significant developments and
enforcement of the competition policy in their respective jurisdictions.
2.
CCI
probe on Google's anti-competitive practices going nowhere
As
per newspaper reports, CCI’s investigation on the alleged abuse of dominance by
Google is progressing at a sluggish pace. The said investigation was started in
August 2012 and the same was expected to have concluded in January this year.
As per the news reports, the reason for such a delay is mainly due to a lack of
understanding of the internet-related issues.
The
CCI investigation was triggered by a complaint from advocacy group Consumers
Unity and Trust Society (CUTS). The complaint alleged that Google was
abusing its dominance in India’s online search and display advertising market.
CUTS
Associate Director Udai Mehta said that “CCI has
been struggling with this investigation due to a knowledge issue. We haven't
heard from CCI after the investigation began in August. The consensus is that
they are not equipped with the right skill-sets to examine this issue,” he
said.
Six
months ago Google was under a similar investigation by the United States’ Federal Trade
Commission (FTC). Further, in February last year,
matrimonial site Bharatmatrimony.com had also filed a
complaint against Google alleging that Google was selling keywords related to
its website to its rivals.
3.
SC refuses
to interfere with COMPAT order against cement firms
Supreme
Court has declined to interfere with order of COMPAT against 10 cement firms to
pay 10% of the penalty imposed by CCI.
CCI
has imposed a penalty of Rs. 6300 crore on the cement firms for indulging in cartelization.
Aggrieved with the order of CCI, cement firms moved to COMPAT in appeal. COMPAT
directed cement firms to deposit a sum equivalent to the 10% of the penalty
amount as a security till the finalization of the appeal. Recently, the cement
firms moved to Supreme Court to challenge the order of COMPAT to submit 10% of
the penalty amount. Supreme Court declined to interfere with the same and
stated that it is equitable and firms should deposit the said amount. However,
Supreme Court extended the deadline to deposit the money till June 24.
4.
CCI to
stick to Coal India's monopoly probe, won't dig into 'Coalgate'
As
per CCI’s Chairperson, Mr. Ahsok Chawla, CCI will not start afresh
investigation against Coal India on coal block allocations. He said that CCI is
currently investigating the issue of abuse of dominance against Coal India and
both issues of abuse of dominance and coal block allocation cannot be linked
together. CCI’s senior member Mr. HC Gupta has recently resigned from his
office over his connection in the coal block allocation scandal. Mr. Gupta was
one of the seven members, who were hearing the coal India’s defence over the
alleged abuse of dominance.
Mr.
Chawla also ruled out the issue of conflict of interest due to the involvement
of its member in the coal block scandal. He stated that CCI is quasi- judicial
body comprising of seven members and a certain level of biasness will get
evened due to the presence of multi member structure of the commission.
5.
EU watchdog
slaps fine on Ranbaxy for anti-competition deal over anti-depressant
Recently
EU anti-trust commission (EU Commission)
has imposed a heavy fine on Ranbaxy Labs among other generic firms and
innovator firm like Denmark based Lundbeck for postponing the launch of low
cost generic version of Citalopram, a blockbuster antidepressant in the EU
market.
It
was alleged that Lundbeck entered into patent settlement agreement with the
generic firms including Ranbaxy, in 2002 to postpone the entry of generic version
of Citalopram. EU commission had found that Lundbeck had paid generic firms to
postpone launch of their cheaper versions in European market, even after
patents of its blockbuster drug Citalopram expired. Hence, a penalty of $ 52.2
million has been imposed on Lundbeck together with other generic firms.
Ranbaxy
stated that EU Commission had misunderstood the fact and misapplied the law.
Ranbaxy is expected to approach General Court of European Union against the
order.
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DISCLAIMER
This
competition law alert has been prepared by Sarthak Advocates and Solicitors. It
is meant to be merely an informative summary and should not be treated as a
substitute for considered legal advice. We welcome your comments and
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