China: Chinese Officials Impose Conditions on Novartis’ Acquisition of Alcon

After a four-month review, on 13 August 2010, China's Ministry of Commerce ("MOFCOM") authorized Novartis' acquisition of Alcon subject to conditions. Taking different approaches than one would see in the U.S. or European Union, MOFCOM's decision is notable for the demanding view it takes of transactions involving a combination of large and small market shares and for the nature of the remedy imposed.

Background

This is MOFCOM's seventh published merger control decision under the Anti-Monopoly Law ("AML"). These include six conditional approvals and one prohibition (Coca Cola/Huiyuan). MOFCOM is required to publish only rejection or conditional approval decisions, and it has reviewed many transactions beyond these seven.

The decision was announced the day after MOFCOM held a press conference to provide an overview of two years of merger control enforcement under the AML. In that press conference, MOFCOM emphasized that it does not discriminate against foreign companies, notwithstanding the fact that all seven published "negative" decisions have involved foreign companies and none has been a purely domestic transaction.

MOFCOM also provided some new statistics. MOFCOM has reviewed 140 cases under the AML, and over 60% of these investigations were concluded in fewer than 30 days. It has prohibited or conditioned only 5% of the cases reviewed, a number that is consistent with those of other leading antitrust jurisdictions. MOFCOM appears more frequently (in one-third of all cases) than other jurisdictions to have initiated more intensive second stage investigations. This may be simply a way for MOFCOM to obtain additional time – because AML procedures do not permit MOFCOM to "stop the clock" by suspending review after a filing is accepted – rather than due to substantive concerns. Absent more complete statistics on the total number of days MOFCOM has taken to issue decisions, one cannot infer more from MOFCOM's frequent initiation of second stage reviews.

MOFCOM's Novartis/Alcon Decision

MOFCOM's decision in Novartis/Alcon explains that it found the transaction could adversely affect competition in two product markets and therefore imposed several conditions to address the potentially anticompetitive effects.

First, in a product or "commodity" market of ophthalmic anti-inflammatory and anti-infective combination products, MOFCOM found that the combined entity would have a 60% share of China sales, although Novartis' sales reflect only 1% of this combined share. Novartis already had announced it would stop selling its own product after the merger, and MOFCOM's decision required this be "set in stone" in the form of a commitment not to sell the Novartis product in China for at least five years after the decision.

It is somewhat surprising that a combination with one party having only a 1% share could be considered anticompetitive in a situation not involving a newly launched product. Moreover, it is difficult to understand how consumers will benefit from removing a competing Novartis product from the market, as opposed to requiring that Novartis maintain consumer choice by continuing to produce and sell the Novartis product or transfer the product line to a third-party competitor. This condition appears similar to that imposed by MOFCOM in Mitsubishi/Lucite (where the parties were required not to construct new plants in China in their overlapping business lines) in its emphasis on restricting further improvements in a leading firm's competitive strength.

MOFCOM's requirement that Novartis make binding its strategic decision to exit the market stands in marked contrast to, for example, the European Commission's recent acceptance of "informal commitments" in the Oracle/Sun merger, which took the form of unilateral statements rather than formal conditions to the EU clearance decision.

Second, in the product market consisting of contact lens care products, MOFCOM found that the parties would have a combined China share of only 20%. But Novartis had an existing exclusive distribution agreement with a leading (30% share) competitor, which would have resulted in the combined entity's products also being distributed by that competitor. MOFCOM decided this created a risk of anticompetitive coordination between the competitor/distributor and Novartis/Alcon, and therefore required that Novartis terminate that pre-existing exclusive distribution agreement.

It is interesting to note some differences between this MOFCOM decision and its prior merger decisions. For example, this decision refers to "commodity markets" rather than "relevant markets," and it does not specify a geographic market, although it references statistics on both China and worldwide shares. It is unclear whether these changes are intended to have substantive importance or reflect a change in analytical approach.

Conclusion

The Novartis/Alcon decision is the first merger review decision MOFCOM has published since October 2009. It is particularly noteworthy to see conditions imposed on a horizontal combination in which one party had only a 1% share, suggesting that mergers in which one party has a potentially "dominant" share – 60% in this case – may be held to a particularly high standard.

An informal translation of the MOFCOM decision is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions