Competition Law: INFORMATION; UPDATES AND ANALYSIS, Sep 2014
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)
Faridabad Industries 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
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.
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.
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.
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.
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.
The information in this private circulation is not legal advice and should not be treated as such. The information is taken from public domain and is purely for private and non- commercial purposes. We do not represent that the information is correct, accurate, complete or non- misleading.
This disclaimer is governed by and construed in accordance with laws of India, and any disputes relating to this disclaimer will be subject to the exclusive jurisdiction of the courts of the Republic of India.
If you do not accept the Terms and Conditions of the Disclaimer or do not wish to receive this circulation, please reply to this email with ‘Do Not Send’
Doc ID: CL/09/14