Author name: CBCL

[By Oorja Newatia] The author is a student of National Law School of India University, Bengaluru.   INTRODUCTION Recently, on the sidelines of the BRICS Competition Conference, the Competition Commission of India’s (‘CCI’) Chairperson has declared that the CCI is looking at ways to integrate sustainability dimensions into the competition law framework. India has declared an ambitious target to achieve carbon neutrality by 2070 and an emissions-intensity target of 45% below 2005 levels by 2030. To achieve these reduction targets, it is necessary to create a society that combines economic growth with the reduction of environmental burdens. Collaborate efforts by enterprises are the only efficient means for companies to achieve their sustainability goals so as to avoid first-mover disadvantages. Thus, to ensure that enterprises build green businesses without having to face anti-competitive barriers, it is critical to have a clear framework to assess ‘anti-competitive agreements having sustainability dimensions’. However, for much of its history, competition law has been largely focused on promoting consumer welfare by promoting competition in the markets. Broader public interest objectives such as sustainability were considered outside the ambit of competition law. This article, by borrowing from various international jurisdictions seeks to argue that environmental concerns can be taken into account to assess the validity of restrictive agreements. In doing so, it first, explores the complex relationship between sustainability and competition, second, analyses the approaches adopted by various competition regimes to integrate sustainability in competition law and finally, suggests amending the Competition Act 2002 (‘the Act’) to make it sufficiently flexible to allow anti-competitive mergers or restrictive arrangements that may have sustainability benefits to proceed without needing to change the objectives of competition law. COMPETITION LAW AND SUSTAINABILITY: A COMPLEX RELATIONSHIP Competition law is not considered the primary policy tool for promoting sustainability because firstly, the OECD has warned that having multiple objectives applied to competition law increases a number of risks including inconsistent application of competition policy and the public interest constraining the independence of competition regulators. Secondly, assessment of sustainability considerations often requires the ability to measure difficult trade-offs between environmental and commercial interests. Thirdly, at times there may be a conflict between sustainability and competition. For instance, a competition agency could decline a merger or take action against an arrangement that has potential environmental benefits because of its likely impact on competition. In essence, competition law is a disincentive to cooperation between firms. In most cases this promotes consumer welfare i.e. where collaboration reduces competition, but it may also prevent industry-wide measures to achieve significant changes in the long-term interests of the public. Collective agreements related to environmental schemes can produce substantial benefits from a sustainability perspective, while simultaneously limiting competition (example; agreements to improve efficiency of refrigerators)  In such cases, the crucial question is whether competition concerns can be balanced with sustainability objectives. INTERNATIONAL APPROACHES TO INTEGRATING SUSTAINABILITY IN COMPETITION LAW The CCI has finally joined the debate on how sustainable dimensions can be integrated within the competition regime. Fortunately, it can benefit by exploring the approach adopted in various foreign regimes. Countries such as Japan, Netherlands, Australia, New Zealand, Greece, Germany have tackled anti-competitive agreements having green dimensions by drafting guidelines. Consider Japan which has recently adopted draft guidelines on how competition law can promote sustainability. These guidelines consider that most activities seeking environmental sustainability are unlikely to restrict competition. However, in cases where business activities have both anti-competitive as well as pro-competitive effects (such as innovation and creation of new technologies resulting in say reduction of greenhouse gas), the guidelines envisage a threefold test: (i) whether the objective of the impugned measure is legitimate; (ii) whether the said measure is reasonable; and (iii) balancing test between the anti-competitive effects and the pro-competitive effects of the measure. However, strict restrictions, such as price restrictions, restraints on new entry and exclusion of existing players cannot be justified in the name of sustainability. Similarly, the Dutch guidelines suggest that in cases where agreements promoting sustainability restrict competition, the sustainability benefits must outweigh the disadvantages caused by such agreements. It necessitates that the parties qualitatively or quantitatively justify the benefits arising. Such an integration of sustainability in competition law can also be viewed in the orders by New Zealand and Australia’s Commerce Commissions (‘NZCC’ and ‘ACCC’ respectively). In Refrigerant License Trust Board (RLTB) case, RLTB sought authorisation for an arrangement under which up to 100% of New Zealand refrigerant wholesalers may agree to supply refrigerants only to customers that are trained and licensed or certified to safely handle refrigerants. The NZCC granted authorisation on grounds that the net benefit of such an arrangement in the form of reduction in the amount of ozone depletion outweighed any detriment to the exclusionary provision. Likewise, the ACCC in 2018 granted authorisation to the Tyre Stewardship Scheme which envisaged dealing with only accredited businesses along the tyre supply chain because it aimed at increasing the recycling of tyres and use of products made from recycled tyres. CRAFTING A FLEXIBLE REGULATORY FRAMEWORK To promote sustainability, the CCI needs to create a competition regime which is sufficiently flexible to look beyond a consumer welfare standard to consider broader wider economic and social impacts. In doing so, it could observe the EU’s approach. The EU Guidelines (2004) read ‘public interest objectives that are pursued by other provisions of European treaties’ into Article 101(3) of the Treaty on the Functioning of European Union (‘TFEU’) which provides exemptions to anti-competitive agreements. Along the same lines, this article suggests that a flexible framework requires restricting the ambit of section 3 of the Act which deals with anti-competitive agreements. This can be done by creating a second proviso to section 3(3). The proviso could be framed as follows: “Provided that nothing contained in this sub-section shall apply to any agreement entered into by two or more entities if such agreement furthers public interest objectives pursued by other existing laws in India.” Public interest covers a broad range of issues including environment, culture, public health and

[By Sanidhya Bajpai & Akash Gulati] The authors are students of Dr. Ram Manohar Lohiya National Law University, Lucknow.   Introduction The award for innovation in the modern world is your commercial exclusivity to that creation. In the pharmaceutical sector, innovation in drugs and consumables is endowed with patents granting a temporary monopoly. However, such temporary monopolies are sometimes virtually elongated with the use of trademark and trade dress rights for foreclosure of competition. All major brands use trademarks and trade dress rights to make a product so distinct that any generic substitute seems like a different drug. Pharmaceuticals contribute 43.2% to the total out-of-pocket expenditure on health in India. While around 17.7% of the pharmaceuticals market in India (in terms of value) is under price regulation, competition is the major source of price control for the rest of the market. This piece delves into trademarks and trade dresses in the healthcare sector, how they affect competition, and the need for a more balanced approach between the two to maintain fair competition in the market. Trademarks and Trade Dress in Pharma Consumers are often caught in a paradox of choosing from a branded manufacturer, seldom being the innovator itself or any other major brand, which ensures safety, or a bioequivalent generic drug, which came later in the market due to patent protection to the innovator drug. The ignorance in consumers often leads to consumers opting for branded high-priced medicines despite the presence of cost-efficient bioequivalent generics. Using color as a distinctive feature is another tool pharmaceutical manufacturers use to indicate their brand. The definition of trade dress under the Indian Trademark Act is found in Section 2 (1) (zb), which encompasses shape, packaging, and color combination in general. The courts have denied trade dress to Pharmaceutical manufacturers in India and the USA in some cases on the grounds that there can be no color monopoly and that the design or color is functional (essential to the use or the purpose of the article without which the cost or quality will be affected), respectively. The significant role of the trademarks and trade dress in this affair is further discussed in toto. How trademarks affect competition As discussed above, a trademark’s function is to attribute the maker’s identification to the product or service. This identification helps the consumer to buy a specific product from a specific maker.  The pharmaceutical sector sees a peculiar case, where the trademark itself becomes the predominant identity of the drug. Branding is used to differentiate identical drugsConsequentially, the consumer seeks that particular trademarked brand in the market. The consumers are generally unaware of the drug’s generic chemical name or international non-proprietary name (“INN”) in most cases. For example, a consumer might know of “Benadryl” as a medicine to a list of symptoms but might not know its generic name, diphenhydramine. For the consumers, the name “Benadryl” is the medicine itself and not the producer’s identification. The patent period establishes the dominance of trademarks Patents inherently “create market power positions that can adversely affect the system’s economic performance.” Moreover, when a product is sold in the market by a single producer and under a particular name for twenty years (being the patent period), the consumer becomes more than familiar with the product’s name (trademarked names in our case).  This familiarization accumulates into consumers assuming the brand trademark as the product’s name. Trademarks elongate the monopoly established by patents post-expiration After the patent’s expiration, consumers and doctors are likely to remember only the trademarked name, even in the presence of bioequivalent generic substitutes. If aware of generic substitutes, consumers would doubt their efficacy due to dissimilar names. Even prescriptions by doctors play a huge role in the dominance of trademarks owned by Big Pharma. A known ill of the sector is that pharmaceutical companies incentivize doctors unethically to prescribe drugs of certain brands. A patient who is availing the services of a doctor would not usually go against the mandated drugs in the prescription. How excessively priced medicines outcompete lesser-priced medicines A monopoly of big brands persists instead of relatively exorbitantly priced branded medicines compared to generics and competing smaller brands. Usually, when a brand charges higher for a similar product, it tends to lose its market share given that other brands are selling the identically same product with lower prices. So, when both brands and generics are available at lower prices in the healthcare sector, why do the top brands continue to dominate? A major part of it may have to do with marketing and advertising, both solidifying their trademarks, establishing trademarked names as distinct drugs. The rest is taken care of by doctors prescribing drugs under the monetary influence of the brands. How Trade dress affects competition In addition to the trademarked name, the shape and color also contribute to giving the innovator firm a competitive edge after the patent expiry. The drugs with distinct colors when associated with the drug’s identity steer consumer choice. How does trade dress affect consumer choices? It is now well accepted through various research and reports that color combinations help shape consumer choices, making trade dress a significant market strategy. The importance of color-coded asthma treatment in patient education is widely accepted. By habit, the patient will stick to the inhalers from the same brand with the same color coding for efficiency and perceived utility. This principle extends to medicines, especially where the patients have to take several medicines regularly, making them recalcitrant to the change in color or shape of medicines as it has an adverse effect on compliance. In Ives Lab., Inc. v. Darby Drug Co. defense of functionality by the generic manufacturers though first reversed, was successfully upheld after several appeals. While upholding appeals, the US courts enumerated several significant findings, including association of appearance of medication with its therapeutic effects, denial of equivalent drugs by some patients even after their doctor’s testimony and benefits of color combination for patients who co-mingle their drugs in a container

[By Sanidhya Bajpai & Akash Gulati] The authors are students of Dr. Ram Manohar Lohiya National Law University, Lucknow.   Introduction Committed to maximizing profits, some mega-hospital chains have adopted unfair measures, and the patients often face the brunt of such measures. Through their numerous manoeuvres, these private super specialty hospitals have gone on to maximize their profits while the patients swallow the pill. Case in point, Max Hospital (“Max”) prima facie found to be abusing its dominant position to exploit the in-patients. In 2015 the Competition Commission of India (hereinafter “CCI”) ordered Director General’s investigation into the matter. The matter still awaits final adjudication by the CCI. This piece delves into the prima facie anti-competitive practices adopted by Max and some general practices of other hospitals to exploit in-patients and distort competition, specifically through their in-house pharmacies and the inherent monopoly over the restricted choices of in-patients; it further proposes rectifying the status quo. How Hospitals Abuse Dominance via In-House Pharmacies To scrutinize the discernible abuse of dominance by Max, CCI considered the market for ‘provisions of healthcare services/facilities for in-patients by private super specialty hospitals in Delhi’ as the relevant market. The private super specialty hospitals including Max enjoy a dominant position in the said relevant market w.r.t Section 19(4) and have been prima facie abusing it through their in-house pharmacies with exploitative pricing of medicines, collusion with pharma manufacturers and seemingly exclusive supply agreements, which is further discussed in detail. Dominance Over The In-Patients Max enjoys absolute dominance over the in-patients, once they are admitted to these hospitals, it becomes obligatory for them to avail the subsequent services from these hospitals even if they are available at a discounted price elsewhere. This creates a locked-in effect for the in-patients and equips the hospitals to abuse their dominant position, which amounts to a contravention of the provisions of Section 4(2)(a)(ii) of the Act. The DG also observed the same in the Max Hospital case. Price Disparity Of Medicines, How Hospitals Collude With Pharma Manufacturers The hospitals abuse their dominant position by charging exploitative prices for the medicines they procure from the pharmaceutical giants at a lower rate than the market, often through exclusive supply agreements. The pharmaceutical manufacturers compete to have their medicines and other products stocked at the pharmacies by offering high retail margins to the pharmacies. The hospital’s in-house pharmacies, from where the in-patients are mandated to buy the medicines, become a blooming ground for such anti-competitive agreements as the in-house pharmacies sheathe the patients from the retail competition, and consequently allow the pharmacies to extract exorbitant profits through exploitative prices. Printing Of Higher MRPs For Medicines To Be Sold By The In-House Pharmacy As mentioned above, the pharmaceutical manufacturers offer a higher retail margin to be stocked at hospitals, and these higher retail margins for non-scheduled drugs that are outside the scope of regulation, are clinched by higher M.R.P.s. An analysis by National Pharmaceutical Pricing Authority (N.P.P.A.) reveals that the most reputed private hospitals are making profits of 1,737% from drugs, consumables, and diagnostics. These profits are extracted by imposing inflated M.R.P.s; the profits on drugs which are not under price control range from 160% to 1200%, on consumables (which are also not under price control) range from 350% to 1700%, and the profits were from 115% to 350% for drugs under price control. The biggest beneficiaries of this trade are the hospitals, who, on the one hand, extract high retail margins from manufacturers and, on the other hand, impose inflated M.R.P.s on the patients. This unequivocally shows that the competition of retail margins at the manufacturing level neither fosters competition at the retail level nor results in competitive prices for consumers; rather, it aids hospitals in making exorbitant profits through anti-competitive agreements and abuse of dominance. Exclusive Supply Agreements Among Hospitals And Manufacturers High-end hospitals such as Max generally have arrangements in exclusive supply agreements with manufacturers. These agreements restrict the patients from availing of other alternatives in the hospital, and the situation becomes even dire when you’re an in-patient and have no recourse but to avail of the available services. The commission in the ‘Hiranandani’ case held that the exclusive contract contravened Section 3(1) of the Act as it had an appreciable adverse effect on competition. The same was criticized by the COMPAT, citing that such exclusive agreements are not anti-competitive as there were other suppliers, and patients were free to avail of their services. However, the present situation is distinct regarding in-patients in context, as they don’t have any liberty to avail the services outside the hospitals. This makes the exclusive supply agreements anticompetitive and aids hospitals in abusing their dominant position. The recent amendments to Section 3(3) and the introduction of the hub and spoke cartels ensure that the selling side is liable for such anti-competitive agreements. A Case for Aftermarket Abuse Apart from a prima facie case of abuse of dominance the current scenario also exhibits the symptoms of an aftermarket abuse. An aftermarket is usually a chronologically succeeding market that emerges to utilize the primary product/service properly or further. In Shamsher Kataria, the CCI explained aftermarkets as a market for complementary goods and services for a primary durable product or service. In conventional scenarios, such aftermarkets are usually of the nature of spare parts and repairs. In the Kodak Case, the US Supreme Court illustrated the market of service & repair as an aftermarket of the primary product of photocopying machines sold by Kodak. Similarly, when we consider healthcare service at a super-specialty hospital as the primary product, the succeeding market complementing the treatment with pharmaceuticals and associated products can be viewed as the aftermarket to the primary market. It is pertinent to note that aftermarket abuse does not necessarily require the perpetrator to be dominant in the primary market. The lock-in effect caused by the provision of the primary product/service provides the perpetrator the ability to acquire a dominant position in the aftermarket. It is this dominant

[By Mohd. Fahad Ansari] The author is a student of National University of Study and Research in Law (NUSRL) Ranchi.   Introduction Recently, the Competition Commission of India (CCI) has initiated investigative operations targeting technology giants such as Amazon, Whatsapp, Zomato, and others. This move has been prompted by the increasing prevalence of dominant practices among online platforms. In response to rising consumer demand for online services and the resulting antitrust apprehensions, the CCI’s investigative actions may be interpreted as its endeavors to examine means of mitigating the unchecked dominance of digital platforms. In this context, the CCI has been actively involved in broadening the definition of the ‘relevant market’ to encompass online platforms within the purview of competition law. Consequently, it has presented an expansive yet somewhat ambiguous interpretation of this term. While the rationale behind this broader interpretation is rooted in the purposive understanding of the ‘relevant product market‘ and the socio-economic needs of the nation, there are concerns that it might inadvertently result in adverse and undesirable consequences. Approach of CCI to Online Intermediaries: Restrictive or Expansive? The Competition Act, 2002 (Act) offers a comprehensive framework for curbing anti-competitive behavior by entities operating in India. However, owing to the intricate technicalities within the legal framework, the significance of the CCI as a regulatory authority has become increasingly prominent within the evolving socio-economic landscape. In this context, the CCI’s approach to addressing online intermediaries can be categorized as either ‘restrictive’ or ‘expansive.’ In the case of Ashish Ahuja v. SnapDeal (SnapDeal case) and in preceding rulings, the CCI has consistently adopted a limited viewpoint.. In this perspective, it viewed online and offline market segments as distinct distribution channels rather than a unified market entity. This interpretation can be attributed to the fundamental principle of interpreting statutes based on their plain and literal meanings, as well as considerations related to the socio-economic context aimed at safeguarding traditional offline markets. However, subsequent to 2016, there was a notable shift in the stance of the CCI, exemplified in the Rubtub Solutions Pvt. Ltd. v. Makemytrip India Pvt. Ltd. & Anr case. In this juncture, the CCI embraced a more comprehensive perspective, considering both online and offline segments as distinct markets. This shift was predicated on the recognition of dissimilar standards and technical intricacies inherent in the delivery of services within these segments. Subsequently, this broader perspective was consistently applied in various instances, leading to the classification of applications such as Google (in the domain of online general web search), Whatsapp (pertaining to OTT messaging apps through smartphones in India), and Apple (in relation to app stores for iOS in India) as separate and distinct markets. Comparing Substitutability Tests: Cross Elasticity vs. SSNIP Approach The paramount factor in ascertaining the relevant market for a product is the concept of ‘substitutability’ or interchangeability of the product. This criterion finds its origins in the United Brands case, a landmark decision rendered by European courts. In this pivotal case, it was firmly established that a product’s resemblance should be evaluated concerning products within the market rather than those external to it. It is crucial to underscore that there exist two approaches for assessing the ‘substitutability’ of a product: (a) the Demand Substitution method, often referred to as the Cross Elasticity Test; and (b) the Small but Significant Non-Transitory Increase in Price (SSNIP) Test. The Cross Elasticity Test was initially introduced in the Cellophane case, where factors such as price and product quality were deemed pivotal to its application. Conversely, the SSNIP Test posits that if an increase in the price of one product leads to a shift in the demand for another, these products are considered substitutable. While both of these tests remain valid, the effective application of the former necessitates a thorough evaluation of consumer preferences rather than relying solely on conjecture. In this context, conducting a comprehensive survey of consumer preferences within the Indian market appears to be an undertaking yet to be realized. Conversely, the latter test has already found substantiation through the observable shift in consumer preferences toward online shopping, driven by disparities in prices thereby justifying the narrow approach of the CCI. Adapting to the Digital Age: CCI’s Expansive Approach and Its Consequences Based on the preceding examination, it is reasonable to conclude that the implementation of a more expansive definition of the relevant market appears challenging, and the CCI position predominantly leans towards a ‘protectionist’ stance, aimed at ensuring equitable competition within the nation. The adoption of this approach during the early stages of the online market’s evolution served a dual purpose. It, on one hand, safeguarded emerging online startups, and on the other, acted as a deterrent against the misuse of dominance, in accordance with the provisions of Section 4(2)(e) of the Act. Consequently, this approach managed to strike a balanced equilibrium, offering both incentives and prevention, with a discerning application on a case-by-case basis. Nevertheless, the dynamics have shifted in contemporary times, with online startups now holding dominant positions within various markets. In light of this, the prevalence of online players’ dominance can only be mitigated by their endeavors to enter or safeguard other relevant markets. Furthermore, the adoption of a more expansive approach renders the relief provided under Section 19 of the Act inapplicable in instances of unilateral agreements, owing to the condition stipulated in Section 19(5). This outcome, in turn, has adverse repercussions on offline retailers. Nonetheless, it appears that the broader approach adopted by the CCI has not posed a substantial impediment to its regulation of the online market. The Indian regulatory authority has been actively addressing contemporary concerns by pursuing allegations of discriminatory practices and by invoking measures to prevent other market participants from entering the arena. While the actions taken by the CCI may offer interim solutions, they tend to constrain the utilization of the diverse legal remedies made available by the Act. Moreover, in contrast to previous circumstances, the contemporary challenges extend beyond the mere abuse of dominant positions, encompassing