Competition Law Newsletter September 2014 :
INFORMATION; UPDATES AND ANALYSIS
Covering July-August 2014
Republic of India (comprising pronouncements onanti-competitive agreements, abuse of dominant position)
United States of America
Republic of India (including combinations approved by Competition Commission of India)
Alaya Legal presents its fourth issue of the Competition Law Newsletter. This issue covers important judicial pronouncements and market developments in certain jurisdictions across the globe, including the Republic of India.
Our next issue: November 2014
European Union (‘EU’)
Antitrust: Commission fines Servier and five generic companies for curbing entry of cheaper versions of cardiovascular medicine July 9, 2014
Through a technology acquisition and a series of patent settlements with generic rivals, Servier, the French pharmaceutical company, implemented a strategy to exclude competitors and delay the entry of cheaper generic medicines to the detriment of public budgets and patients in breach of EU antitrust rules.
Perindopril is a blockbuster blood pressure control medicine and used to be Servier’s best-selling product. Servier held significant market power in the market for the perindopril molecule as no antihypertensive medicines other than the generic versions of perindopril were able to meaningfully constrain Servier’s sales and prices. Servier’s patent for the perindopril molecule expired, for the most part, in 2003. Generic competitors continued to face a number of ‘secondary’ patents relating to processes and form but these provided a more limited protection to what Servier described as its
‘dairy cow’. In order to enter the market and overcome the remaining obstacles, generic companies sought access to patent-free products or challenged Servier’s patents that they believed were unduly blocking them. There were very few sources of non- protected technology. In 2004 Servier acquired the most advanced one, forcing a number of generic projects to stop and therefore delaying their entry.
Generic producers decided to challenge Servier’s patents before courts. However, between 2005 and 2007, virtually each time a generic company came close to entering the market, Servier and the company in question settled the challenge. The generic companies agreed to abstain from competing in exchange for a share of Servier’s rent. This happened at least five times between 2005 and 2007. In total, cash payments from Servier to generics amounted to several tens of millions of euros.
Such behaviour violates EU antitrust rules that prohibit the abuse of a dominant market position [Article 102 of the Treaty on the Functioning of the European Union (‘TFEU’)]. Each of the settlements between Servier and its generic competitors was also an anti-competitive agreement prohibited by Article 101 TFEU.
The European Commission has imposed fines totalling €427.7 million on Servier and five producers of generic medicines namely, Niche/Unichem, Matrix (now part of Mylan), Teva, Krka and Lupin for concluding a series of deals all aimed at protecting Servier’s bestselling blood pressure medicine, perindopril, from price competition by generics in the EU.
Case AT.39097 – Watch Repair: decision rejecting a complaint pursuant to Article 7(2) of Regulation 773/2004:
July 29, 2014
The European Commission has closed its antitrust investigation in the sectors of the supply of spare parts and the provision of repair and maintenance services for luxury/prestige watches in several member states (France, Germany, Italy, Spain and the UK). The investigation concerned watches which are typically worth repairing and maintaining (in that regard, the Commission focused on watches sold above a certain retail price). The Commission investigated, further to a complaint by the European Confederation of Watch and Clock Repairers’ Association (‘CEAHR’), whether the discontinuance of the supplies of spare parts by prestige watch manufacturers to independent watch repairers (i.e. repairers that do not belong to their respective official networks for repair and maintenance services) may constitute an infringement of EU competition rules on restrictive agreements and abuse of a dominant position under Articles 101 and 102 of the Treaty on the Functioning of the EU, respectively. Following a comprehensive investigation, the Commission has concluded that there is limited likelihood of finding such an infringement in the present case. The Commission has accordingly
decided to close its antitrust probe.
Republic of India
Faridabad Industries Association (FIA) v. M/s Adani Gas Limited (MANU/CO/0063/2014) July, 2014
Association (‘FIA or Informant’) situated in
Faridabad comprises of persons engaged in manufacture of auto component, medical devices, steel, alloys, textile, chemical etc.
Adani Gas Ltd. (‘AGL or Opposite Party’) is engaged inter alia in the business of setting up distribution network in various cities to supply natural gas to industrial, commercial, domestic and CNG customers.
About 90 members of the Informant association consume natural gas supplied by the Opposite Party to meet their fuel requirements.
The Information under section 19(1)(a) of the
Competition Act,2002 (‘the Act’) was filed by Informant against Opposite Party alleging inter alia contravention of the provisions of section 4 of the Act i.e., abuse of dominant position.
The Commission vide its order dated 27.12.2012 passed under section 26(1) of the Act directed the
Director General (‘DG’) to cause an investigation to be made into the matter and to submit a report.
Allegations made by Informant:
Opposite Party by grossly abusing its dominant position in the relevant market of supply and distribution of natural gas in Faridabad has put unconscionable terms and conditions in Gas Sales
Agreement (‘GSA’), which are unilateral and lopsided, besides being heavily tilted in favour of Opposite Party.
Issues arise for consideration and determination before Commission:
-What is the relevant market in the present case? -Whether the Opposite Party is dominant in the said relevant market?
-Whether the Opposite Party has abused its dominant position in the relevant market?
The Commission agreed with the DG that there being no other authorized entity in Faridabad permitted to lay its CGD network, the Opposite Party faces no competition from any other entity in the said geographical area and the factor regarding conditions of competition being
homogeneous is inconsequential. Accordingly, the Commission held ‘Faridabad’ as the relevant geographic market.
After taking into account the absence of any countervailing buying power, market structure and size thereof as also the entry barriers, the Commission held the Opposite Party to be in dominant position in the defined relevant market. The Commission considered the DG’s report and the replies, objections, submissions of the parties and examined the clauses of the GSA and observed that following sub- clauses of the GSA amount to imposition of unfair conditions in contravention of section 4(2)(a)(i) of the Act: -Sub-clause 16.3 of GSA to the extent the opposite party has reserved the right at its sole discretion to accept or reject request of customers for force majeure and sub- clause 11.2.1 to the extent that the buyer is obliged to meet its MGO payment obligation even in the event of emergency shutdown calling for complete or partial off-take of gas. -Clause regarding excess payment by the buyer to the seller due to erroneous billing/ invoicing on the part of the seller creating no liability on the part of the seller, whereas a delayed payment by the buyer renders him liable to pay interest on ‘such rates as
may be decided by the seller in future
-Clause regarding likely termination of contract by the opposite party on account of failure to off-take 50% or more of the cumulative DCQ by the buyer during a period of 45 consecutive days as against the longer period available to the opposite party from GAIL.
-Clause 13.7 which mandate the buyer to pay the invoiced amount along with interest and penalty before taking recourse to the arbitration mechanism provided in the GSA for disputes relating to payments/invoices.
The Commission opined that the Opposite Party had contravened the provisions of section 4(2)(a)(i) of the Act by imposing unfair conditions upon the buyers under GSA.
-Modification of GSA. -Imposition of penalty at the rate of 4% of the average turnover of the last three years.
Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors. MANU/CO/0066/2014 August, 2014
The informant i.e. Shri Shamsher Kataria alleged anti-competitive practices on the part of Opposite parties i.e. Honda Siel Cars India Ltd, the Volkswagen India Pvt Ltd, and Fiat India Automobiles Ltd. whereby the genuine spare parts of automobiles manufactured by OPs are not made freely available in the open market and only through various authorized workshops and service stations. Further the technological information, diagnostic tools and software programs required to maintain, service and repair the technologically advanced automobiles manufactured by each of the Ops were not freely available to the independent repair workshops.
The Commission after detailed discussion found the
conduct of the Ops as anti- competitive and found them to be in contravention of the provision of Section 3(4)(b), 3(4)(c), 3(4)(d), 4(2)(a)(i) and (ii), 4(2)(c) and 4(2)(e) of the Competition Act, 2002. The Commission imposed a penalty of 2% of total turnover in India of the opposite parties and issued following orders under section 27 of the Act:-
-to immediately cease and desist from indulging in conduct which has been found to be in contravention of the provisions of the Act. -to put in place an effective system to make the spare parts and diagnostic tools easily available through an efficient network.
-to allow original equipment suppliers (OESs) to sell spare parts in the open market without any restriction, including on prices.
-not to place any restrictions or impediments on the operation of independent repairers/garages.
In re: Collective boycott/refusal to deal by the Chemists & Druggists Association, Goa (CDAG), Glenmark Company and Wockhardt Ltd. (MANU/CO/0086/2014)
M/s Varca Druggist & Chemists and others had filed an Information with the then Director General (Investigations & Registrations), Monopolies and Restrictive Trade Practices Commission against Chemists & Druggists Association, Goa, (‘CDAG’ / the ‘Opposite Party No. 1)’) for its alleged anti-competitive practices. After repeal of the Monopolies and Restrictive Trade Practices Act, 1969, the said case was transferred to Competition Commission of India. The Commission passed an order under Section 27 of the Competition Act on 11.06.2012. Subsequently, the Commission was informed by Mr. Mario Vaz (the ‘Informant’) that CDAG had not complied with the above said order of the Commission and was restraining pharmaceutical companies such as M/s Glenmark Pharmaceuticals Limited (‘Opposite Party No. 2’) and M/s Wockhardt Limited (‘Opposite Party No. 3’) from doing business with his company. It was alleged that under the guidance of CDAG, all stockists of the Opposite Party No. 3 appeared to have formed a cartel and stopped receiving goods from the Opposite Party No. 3 so as to compel it to stop dealing with the Informant. It was also alleged that under the influence of CDAG, the Opposite Party No. 2 and the Opposite Party No. 3 stopped supplies to the Informant.
Commission observed that CDAG clearly disregarded the Commission’s order dated 11.06.2012 and indulged in anti-competitive conduct. By forcing pharma companies to discontinue supply through non-authorized stockist like the Informant, it continued to carry on its anti-competitive practices. Further, it forced pharmaceutical companies like M/s Glenmark Pharmaceuticals Limited and M/s Wockhardt Limited to follow its mandate by threatening the other stockists in Goa to stop taking supplies or suspend receiving supplies from them till such time they stopped supplies to the informant. The Commission directed CDAG to seize and desist from indulging in the anti-competitive practices and imposed a penalty of INR 10,62,062/-, calculated at the rate of 10% of the average receipts of CDAG for three financial years.
Shri Bijay Poddar v M/s Coal India Limited and its subsidiaries, (MANU/CO/0087/2014)
Shri Bijay Poddar (‘Informant’) alleged that the terms and condition of Spot e-Auction Scheme 2007 (‘the Scheme’) introduced by M/s Coal India Limited and its subsidiaries (‘Opposite Parties’) were in contravention of the provisions of the Competition Act. Informant further alleged that the forfeiture clause under the Scheme is arbitrary and illegal and in abuse of monopolistic power enjoyed by the Opposite Parties.
The Commission observed that the stipulations provided in clause 9.2 of the Scheme is in contravention of the provisions of Section 4(2)(a)(i) of the Competition Act whereby a buyer is saddled with penalty by way of forfeiture of EMD for non-lifting of coal after successful participation in the e-Auction without any corresponding liability upon Opposite Parties for failure to deliver coal in respect of accepted bids. Such arrangement in the Scheme was noted to be a result of market power exercised by Opposite Parties. Accordingly, the Commission held Opposite Parties to be in contravention of the provisions of Section 4(2)(a)(i) of the Competition Act for imposing unfair conditions upon the bidders under the Scheme. Apart from issuing a cease and desist order, the Commission ordered modification of the terms and conditions of the Scheme suitably.
M/s Sai Wardha Power Company Ltd. v M/s Western Coalfields Ltd. [MANU/CO/0085/2014]
The Information under Section 19(1)(a) of the Competition Act, 2002 (‘Competition Act’) was filed by M/s. Sai Wardha Power Company Ltd. (‘the Informant’) against M/s. Western Coalfields Ltd. and M/s. Coal India Ltd. (collectively, ‘the Opposite Parties’) alleging contravention of the provisions of Section 4 of the Competition Act. In order to procure the supply of coal for its power plant, the Informant after getting linkage and letter of assurance on cost plus basis from the Opposite Parties, had entered into three Fuel Supply Agreements (‘FSAs’) for supply of coal from three different identified cost plus coal mines under the control of the Opposite Parties. The Informant stated that the Opposite Parties enjoy virtual monopoly over production and supply of coal in India. The Informant alleged that the Opposite Parties, by abusing its dominant position, had forced the Informant to enter into one sided, anti-competitive FSAs under which the Informant had no bargaining power or power to negotiate whatsoever and in the absence of any alternative option for procurement of coal, the Informant was compelled to accept the dictated terms and conditions stipulated in the FSAs.
The Commission established that the Opposite Parties operate independently of market forces and enjoy undisputed dominance in the relevant market of “production and supply of non- coking coal to the thermal power producers in India”. The Commission further held the Opposite Parties to be in contravention of the provisions of section 4(2)(a)(i) of the Competition Act for imposing unfair conditions in FSAs with the power producers for supply of non-coking coal. Commission directed the Opposite Parties to cease and desist from indulging in the conduct found to be in contravention of the provisions of the Competition Act and to make necessary modifications in FSAs in light of the observations and findings recorded by it.
M/s HT Media Limited Informant v M/s Super Cassettes Industries Limited, (MANU/CO/0080/2014]
M/s. HT Media Limited (‘the Informant’) filed Information under Section 19(1) (a) of the Competition Act, 2002 (‘Competition Act’) against M/s. Super Cassettes Industries Limited (‘the opposite party’) alleging inter alia contravention of Sections 3 and 4 of the Competition Act.
The Informant, a leading media companies had launched an FM radio channel called Fever 104. Opposite Party is engaged in manufacture, production and publication of music and videos. The Informant alleged that the Opposite Party has abused its dominant position by (i) charging excessive amount as license fees/royalty from the Informant for grant of rights for the broadcast of the Opposite Party’s music content on Fever 104 radio station; (ii) imposing minimum commitment charges (‘MCC’) to be paid to the Opposite Party per month irrespective of actual needle hour of broadcast of the Opposite Party’s music content by the Informant and (iii) making conclusion of licensing arrangements with the Opposite Party subject to the acceptance of license fees and MCC imposed by them. The Informant alleged that such imposition of exorbitant license fees and MCC by the Opposite Party is an unfair condition imposed by it for granting license to broadcast its music content on radio under the Competition Act which limits and restricts the right of the Informant to broadcast its music content of other music companies/composers thereby limiting the choice of music for the end consumers to only the Opposite Party’s music content and results in denial of market access for other music companies (publishers, copyright societies etc.) with less market share and bargaining power.
Commission held Opposite Party to be in contravention of Section 4(2)(a)(i) of the Competition Act. The Commission directed Opposite Party to cease and desist from formulating and imposing the unfair condition of MCC in its agreements and to suitably modify such unfair conditions within 3 months of the date of receipt of order. The Commission also imposed penalty at the rate of 8% of average turnover of the last three years of the opposite party amounting to INR 2,83,28,000.
United States of America
Justice Department requires divestiture in Landmark
Aviation’s Acquisition of Ross Aviation
July 30, 2014
The Department of Justice requires Landmark Aviation to divest fixed base operator assets (FBOs) used to provide flight support services to general aviation customers at Scottsdale Municipal Airport, in Arizona, in order to proceed with its $330 million acquisition of Ross Aviation. The department said that without the required divestiture, the transaction would have combined the only two FBOs serving general aviation customers at Scottsdale
Municipal Airport, resulting in higher prices and lower quality of services.
Justice Department requires divestiture in Tyson Foods Inc.
August 27, 2014
The Department of Justice requires Tyson Foods Inc. to divest Heinold Hog Markets, its sow purchasing business, in order to proceed with its $8.5 billion acquisition of The Hillshire Brands
Company. The department said that, without the required divestiture, the transaction would have combined companies that account for more than a third of sow purchases from U.S. farmers, thereby likely reducing competition for purchases of sows from farmers. The acquisition of Hillshire by Tyson Foods Inc. would combine two major purchasers of sows from farmers in the United States and eliminate the benefit farmers have received from the competition between
Hillshire and Tyson’s Heinold
Hog Markets. Under the terms of the proposed settlement, Tyson must divest Heinold Hog Markets in its entirety to a buyer approved by the Antitrust Division.
European Union (‘EU’)
Mergers: Commission approves acquisition of ONO by Vodafone
July 02, 2014 The European Commission has cleared the proposed acquisition of Grupo
Corporativo ONO (‘ONO’) by Vodafone Group Plc under the EU Merger Regulation. Both companies provide fixed and mobile telecommunications services in Spain. The Commission concluded that the transaction would not raise competition concerns, as the parties’ activities are largely complementary: ONO’s main activity is related to fixed telecoms, whereas Vodafone is mainly active in mobile telecoms.
Antitrust: Commission sends Statement of Objections to Bulgarian Energy Holding for suspected abuse of dominance on Bulgarian wholesale electricity market.
August 12, 2014
The European Commission has informed Bulgarian Energy Holding (BEH) of its preliminary view that territorial restrictions on resale contained in BEH’s electricity supply contracts with traders on the non- regulated Bulgarian wholesale electricity market may breach EU antitrust rules. Such restrictions limit purchasers’ freedom to choose where to resell the electricity bought from BEH. The Commission’s provisional finding is that these territorial restrictions constitute an abuse of BEH’s
dominant market position, which is prohibited by Article 102 of the Treaty on the Functioning of the European Union (TFEU).
Mergers: Commission clears acquisition of parts of Rolls- Royce by Siemens
August 4, 2014
The European Commission has authorised under the EU Merger Regulation the proposed acquisition of Rolls-Royce’s aero-derivative gas turbine business, compressor activities and aftermarket services as well as Rolls Royce’s 50% stake in Rolls Wood Group, both of the UK, by Siemens of Germany. The Commission’s investigation confirmed that the proposed transaction does not raise competition concerns, in particular because the parties are not close competitors and a number of competitors will remain in the market after the transaction.
Mergers: Commission clears acquisition of Rautaruukki by rival SSAB, subject to conditions
July 15, 2014
The European Commission has cleared under the EU Merger Regulation the proposed acquisition of
Rautaruukki (‘Ruukki’) of Finland by rival SSAB of Sweden. Both companies produce and distribute carbon steel and steel construction products. The
clearance is conditional on the divestment of five businesses in Finland, Sweden and Norway. The Commission had concerns that the merger, as initially notified, would have significantly reduced competition on the markets for certain carbon steel products in the Nordic countries, as well as for stainless steel and profiled steel construction sheets in Finland. The divestments address these concerns.
United Kingdom (UK)
August 15, 2014
The CMA (Competition and Markets Authority) has cleared Alliance’s acquisition of the assets of the IBA business used to produce a radioactive tracer for cancer diagnosis. Alliance Medical Group Limited (Alliance) and IBA Molecular UK Limited (the IBA business) supply Fluorodeoxyglucose 18F (FDG-18), a radioactive tracer used in PET-CT scans which is purchased by hospitals and others who provide such scans. Due to its short radioactive half-life, an effective dose can only be given to a patient within a maximum of 8 hours following production, which limits the area which can be served by a particular production unit. IBA business had been consistently loss- making for several years, its losses would have worsened and it suffered from a weak competitive position, making it likely that, without this merger, it would have ceased to produce FDG-18 and there would not have been an alternative purchaser of the business.
Republic of India
Competition Commission of India has approved the merger of United Stock Exchange of India with the Bombay Stock Exchange. July 30, 2014
On 13th June 2014, the Competition Commission of India received a notice under sub-section (2) of Section 6 of the Competition Act, 2002 filed by Bombay Stock
Exchange Limited (‘BSE’) and United Stock Exchange of India Limited (‘USE’).
The proposed Combination relates to the merger of USE with BSE pursuant to scheme of amalgamation under Sections 391 to 394 of the Companies Act, 1956 and the provisions of the Companies Act, 2013 respectively.
As stated, the parties to the proposed combination i.e.
BSE and USE are both engaged in the business of providing stock exchanges services. However, while BSE operates in a number of segments including equity, equity derivatives, currency derivatives and interest rate derivatives; USE operates only in currency derivatives segment. Consequently the competition analysis of the proposed combination focused on the currency derivatives segment where the overlap between the parties existed and which was taken as the relevant market. BSE commenced operations in the currency derivatives segment in November 2013 when other exchanges (NSE, MCX SX and USE) were already providing their services in the currency derivatives segment. It was observed that from a firm’s perspective, it would be profitable to add products on the platform without incurring significant capital cost, thus benefitting from the scope economies. By virtue of its strength in other segments, BSE is in a position
to offer better economies of scope to the market participants.
The Commission opined that the proposed combination is not likely to have an appreciable adverse effect on competition in India in any of the relevant market(s) and therefore, the Commission approved the same under Section 31 (1) of the Competition Act, 2002.
Under King Edward III, the Statute of Labourers of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. The statute stated that overcharging merchants must pay the injured party double the sum he received, an idea that has been replicated in punitive treble damages under US antitrust law.