India: Recent Orders Of CCI Against Anti-Competitive Practices In The Pharmaceutical Industry

The Indian pharmaceutical industry is emerging as one of the most prospective markets in the global strata in terms of its potential and factors such as lower labor cost, resource availability etc. which is bringing it to the limelight of various international giant players all across the globe for venturing into business or investments in the Indian domestic market. However, the growth emergence of the market is also leading to the emergence of certain practices in the market affecting the pace of growth of the market which may in certain point, led to a descending dive as it discourages the enthusiasm of those international giants to venture into the complicacies of the Indian market.

Recently, the industry has witnessed of practices by the players of the market, which acts as disrupting factors against "the positive competition" in the market which is an essential ingredient of every market so as it to proceed towards more innovations and developments as an outcome of such positive competition.

In the study on "Option for using Competition Law/ policy tools in dealing with anti-competitive practices in the Pharmaceuticals Industry in the Health delivery System" prepared for WHO and the Ministry of Health and Family Welfare in 20061, it is quoted that anticompetitive practices in the pharmaceuticals sector and the health delivery system in India, includes, amongst others, price fixing, abuse of dominance, collusive agreements and tied selling.

In India, the Competition Commission of India ('CCI') is the authority which has established under the Competition Act, 2002 (Act) to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in markets in India. It covers within its ambit all categories of 'markets' in India including the pharmaceuticals sector as well. Moreover, the Act is extra-territorial and assumes jurisdiction over acts even outside India that may affect a market within India.

This article endeavors to throw light on the recent regulatory steps of CCI towards prevention of anticompetitive practices in the pharmaceutical industry and discusses some of its recent orders to regulate anti-competitive practices in the pharmaceutical market.

Implementation of the regulatory mechanism by the CCI

In a recent judgment Bengal Chemist and Druggist Association,2the CCI Imposes penalty of Rs. 18.38 crores on Bengal Chemist and Druggist Association (BCDA).3

Facts: BCDA, an association of wholesalers and retail sellers of drugs and affiliated to All India Organization of Chemist and Druggist was engaged in directly or indirectly determining the sale price of drugs and controlling the supply of drugs in a concerted manner and in issuing anti-competitive circulars directing the retailers not to give any discount to the consumers. The CCI after considering the entire material directed the Director General (DG) to cause an investigation into the matter and to submit a report.4

Investigation report by Direct or General

The Director General, in light of the investigation conducted, opined that the BCDA directed the retailers to sell the drugs only at MRP determined by it on account of agreement entered into amongst the members of the BCDA and that no discounts be offered by the retailers, it clearly implies that, then such a trade practice causes or is likely to cause an appreciable adverse effect on competition, especially when almost all the retailers and wholesalers are members of BCDA. The DG concluded that the above said conduct has resulted or is likely to result in controlling and or limiting supply of medicines and the market of provision of drugs, which contravene the provisions of Section 3(3)(b) of the Act.

CCI's finding:

The CCI firstly, dealt with the question as to whether BCDA is covered under the category of 'entities' under Section 3(3) read with Section 2(h) of the Act and whether the alleged practices of BCDA falls under "practice carried on" or decision taken by "an association of enterprises" under Section 3(3) of the Act. The CCI concluded that BCDA, being an association of its constituent enterprises, is taking decisions relating to distribution and supply of pharma products on behalf of the members who are engaged in similar or identical trade of goods and that such practices carried on, or decisions taken, by BCDA as an association of enterprises are covered within the scope of Section 3(3) of the Act.

Further, the CCI holds that the attempt of BCDA to justify sale of drugs only on MRP on the basis that the margins have been fixed under the DPCO and accepted in the market is untenable as the issue is not the reasonability or the quantum of trade margins but the concerted action to fix uniform trade margin by an agreement amongst the members of the trade association. The CCI found the activities of the BCDA in conflict with the objects of the competition law as they cause restraint of trade, stifle competition and harm the consumers.

Order:

The CCI directed the BCDA and its office bearers & executive committee members to seize and desist from indulging in anticompetitive practices found to be anticompetitive in terms of the provisions of Section 3 of the Act. The BCDA has been further directed to file an undertaking within 30 days that the CCI's directions have been complied with. The amount of penalty imposed was directed to be deposited within 60 of the receipt of the order.

In another judgment, M/s Arora Medical Hall, Ferozepur v. Chemists &Druggists Association, Ferozepur (CDAF),5 the CCI ordered another judgment imposing a penalty of Rs.55.42 lakhs on Ferozepur Chemists and Druggists Association.6

Facts: M/s Arora Medical Hall, Ferozepur informed the CCI that the CDAF made a mandatory rule in 2010 that any chemist/ druggist who wishes to take distributorship for medicines of a company in Ferozepur city to get a NOC and Letter of Credit (LOC) from CDAF by making a payment of Rs. 2100/- per company. The informant alleged that when it objected to the said rule, it was expelled from the primary membership of CDAF and passed a resolution to boycott the informant directing its members to stop purchasing goods from the informant and directed all the wholesalers to stop dealings with the retailers who continued to purchase goods from the informant and thereby, alleged to have violated the provisions of sections 3 and 4 of the Competition Act.

The Director General reported that CDAF's practice of necessarily requiring NOC to be taken from it prior to appointment of a new/ additional stockist in Ferozepur and indulging in the practice of non-grant of NOC to non-members is foreclosing the market for such nonmember which has the effect of limiting and controlling the supply of drugs and medicines in Ferozepur.

Order of CCI

The CCI directed CDAF to cease and desist from indulging in such anti-competitive practices which have been found to be anti-competitive in terms of the provisions of section 3(3)(b) read with Section 3(1) of the Act and imposed penalty accordingly.

On 3 February 2014, Press Information Bureau, Government of India, Ministry of Corporate Affairs vide press release informed that CCI has found the following practices of All India level, State level, District level associations of chemists, druggists, stockists, wholesellers and manufacturers as anti-competitive:

  1. Issuance of No Objection Certificate or letter of consent by such associations for opening chemist shop/being appointed stockists/ distributor/whole-seller.
  2. Compulsory payment of PIS charges by pharmaceutical firms/manufacturers to associations for release of new drug/new formulation.
  3. Fixation of trade margins at different levels of sale of drugs/medicines.
  4. Issuance of instructions to chemists/ druggists/shops/stockists/whole-sellers/ manufacturers restricting discounts on sale of drugs in retail or wholesale.
  5. Issuance of boycott calls by the associations to their members against any enterprise for not following the instructions of associations.

It is also mentioned in the press release dated 3 February 2014 that penalties have been imposed by the CCI on such trade associations of chemists and druggists for violation of provisions of Competition Act. The CCI had issued cease & desist order against the associations directing them not to indulge in anticompetitive practices and the associations have filed undertakings that they would not indulge in such illegal practices.

Conclusion

It is noteworthy that the CCI's stringency towards the objective of eliminating and regulating against the malpractices from the pharmaceutical market is also evidently clear from the press release of 3 February 2014 that in case any drug manufacturer or concerned party is victim of any anti- competitive practice described above, it may notify the CCI who shall take appropriate action as required, usually in the nature of criminal proceedings against the guilty associations and its office-bearers, and imposition of heavy monetary penalty.

To conclude with, such initiatives by CCI clearly indicate that it intends to bring into its stringent control on the mechanism of the pharmaceutical industry so as to regulate it against all the anti-competitive practices prevailing in the market thereby deterring those players of the market who indulged into such practices for their gain.

It further expected to bring a positive impact on the distribution of medicines in India as well as prices charged to the customers, thus with it, the hope that the Indian pharmaceutical market will move towards being more systematic and organized.

Footnotes

1.http://www.cuts-ccier.org/pdf/Project-Report08Sep06.pdf

2. Suo moto Case No. 02 of 2012 and Ref. Case No. 01 of 2013, Competition Commission of India order, available at http:// www.cci.gov.in/May2011/OrderOfCommission/27/022012.pdf

3. Press Information Bureau, Ministry of Corporate Affairs, Government of India notification available at pib.nic.in/ newsite/PrintRelease.aspx?relid=104597.

4. This has been done vide a common order in Suo moto Case No. 02 of 2012 and Reference Case No. 01 of 2013 filed by Dr. Chintamoni Ghosh, Director, Directorate of Drugs, West Bengal.

5. Case No. 60 of 2012, Competition Commission of India order, available at http://www.cci.gov.in/May2011/OrderOfCommission/27/602012.pdf .

6. Press Information Bureau, Ministry of Corporate Affairs, Government of India notification available at pib.nic.in/ newsite/PrintRelease.aspx?relid=103171

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