India: Beware Pharmaceutical Companies- CCI Penalizes Alkem Laboratories Ltd. (ALKEM) For Bowing Down To Pressure Of All Kerala Chemists And Druggists Association By Stopping Supplies To A Local Chemist

Last Updated: 15 March 2016

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

The CCI, vide its recent order dated December 1, 2015, has penalized All Kerala Chemists and Druggists Association(AKCDA) and Alkem Laboratories Limited(ALKEM) for limiting and controlling the supply of medicines in Kerala.

The Informant Mr. P. K. Krishnan Proprietor, Vinayaka Pharma, runs a pharmaceutical distribution store in Palakkad, Kerala. It was alleged that Alkem refused to appoint Informant as its stockist as the Informant did not have a No Objection Certificate (NOC) from the AKCDA for appointment as a stockist.

During investigation, it was found that the AKCDA has been involved, along with All India Organization of Chemists and Druggists (AIOCD), has been involved in the practice of issuing NOC with co-operation of pharmaceutical companies. AKCDA implements the same practice at the district level with threats of boycott and stoppage of supplies. The Director General (DG) found a contravention of Section 3(3) (b) of the Act.

DG further found that the conduct of Alkem in refusing to deal with the Informant was pursuant to an arrangement between Alkem and AKCDA. Accordingly, DG found that the conduct of Alkem has contravened provisions of Section 3(1) of the Act.

Through a perusal of the E-Mail(s) sent by AKCDA, the CCI was of the opinion that the appointment of stockists were being made with the approval of district/State units of AKCDA. AKCDA also boycotted various pharmaceutical companies, for instance Merck Ltd., for failure to follow its diktats. The CCI considered that the conduct of AKCDA results in restricting the provisioning of goods in the market in contravention of Section 3(3)(b) of the Act.

The CCI also noted that AKCDA had given an undertaking that, pursuant to the directions by the CCI in one of the previous cases, AKCDA shall not engage in anti-competitive practices such as issue of grant of NOC for appointment of stockists, fixation of trade margins, and collection of PIS charges and boycott of products of pharmaceutical companies. The CCI noted that the conduct is in the nature of continued contravention with complete disregard to the mandate of the CCI. The CCI also penalized the President and General Secretary of the AKCDA liable under Section 48 of the Act.

Most importantly, CCI noted with regards to Alkem that denial of supply by Alkem is established through a perusal of evidence on record. Such refusal was because of the instructions given by AKCDA and amounts to an understanding between AKCDA and Alkem. The CCI held that the agreement between AKCDA and Alkem was violative of Section 3(1) of the Act, subject to establishment of appreciable adverse effect on competition (AAEC).

Even though Alkem contended that its market share in the relevant market is miniscule, the CCI noted that the conduct of Alkem and AKCDA causes potential consumer harm as well as lessens competition. Even though Alkem acted under threat from AKCDA, the same cannot absolve it of liability from the provisions of the Act.

A penalty on AKCDA at the rate of 10% of its average turnover for the past three was imposed (totaling INR 4, 35,778.26/-). A penalty on Alkem at the rate of 3% of its average turnover for the past three was imposed.

The CCI comments in this regard are notable,

"Such denial of supply to unauthorized stockists by various pharmaceutical companies like OP 2 undoubtedly affects the competition in the market adversely and appreciably. The Commission thinks it appropriate to issue orders against such pharmaceutical companies as well to deter their actions of facilitating the associations in indulging in anti-competitive practices in the market. "

The same represents change of approach by the CCI and rings alarm bells for the pharmaceutical companies.

(Source: CCI Order dated 1.12.2015. For full text see CCI website-www./

Comment: The CCI has been dealing with anti-competitive conduct in pharmaceutical sector for quite some time. However, this represents the first time when the CCI has imposed a penalty on a pharmaceutical company instead of just on the chemists and druggist associations.This order of CCI is a landmark decision which reverses its earlier decisions of not penalizing pharmaceutical companies if they implemented the State Chemists and Druggists Association for boycotting and stopping supplies of stocks to any local chemist /dealer if it did not have a 'no objection certificate from the Association . CCI in this order invokes omnibus provision of section 3(1) of the Act, used by CCI for the first time in the Hiranandani case.

Suggested Read– for a brief history of anti-competitive behaviour in the pharmaceutical sector , you may like to read my earlier post here.

Specific Questions relating to this article should be addressed directly to the author.

© 2016, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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