Author name: CBCL

[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

[By Monesh R B] The author is a student of Tamil Nadu National Law University, Tiruchirappalli.   Introduction: In the year 2018, the Ministry of Corporate Affairs of India constituted the Competition Law Review Committee (CLRC) in order to check and assess the implementation of the Competition Act of 2002 (hereafter ‘the act’). The CLRC submitted a report on 26 July 2019, highlighting the issues revolving around the current legislation, various policy changes, assessing new age markets and tackle mechanisms, etc. The report paved the way for introduction of the concept of ‘Deal Value Threshold’ (DVT) as the government brought in an amendment to the act, making it the Competition (Amendment) Act, 2023. In the pharmaceutical industry, incumbents frequently conduct acquisitions and shut it down when the technology or innovation of the target is still in its infancy, also popularly termed as ‘Killer Acquisitions.’[i] The Organisation for Economic Co-operation and Development (OECD) defined Killer Acquisitions as “an incumbent firm acquiring an innovative target and terminating the development of the target’s innovations to prevent future competition.” In most cases, these types of acquisitions, especially in the Pharma sector, do not get notified to the Competition regulators as the value of these acquisitions will fall well below the traditional asset or turnover based threshold values as these target firms are in their nascent stage. Even though the rationale behind introducing Deal-value based threshold was to tackle this issue,  due to the lack of sector specific threshold values, there remains a gap that needs to be addressed by the law makers. Thus, this article will attempt to critically analyse the role of DVT with regard to ‘Killer Acquisitions’ in the Indian pharmaceutical industry. It will try to address the issues surrounding the absence of sector-specific threshold values, especially by highlighting the issues in the Indian pharmaceutical sector. What is Deal Value Threshold? Following the recommendations made by the CLRC, the legislature by Section 6 of the Competition (Amendment) Act 2023, inserted two new clauses to the already existing section 5 of the 2002 Act by which mergers, acquisitions and amalgamations will trigger a notification to the Competition Commission of India (CCI), if; “(i) the value of the transaction exceeds rupees two thousand crores (i.e., for acquisition, merger or amalgamation) (Approx. USD 242 Mn.) and; (ii) the target enterprise has “Substantial Business Operations in India.” The Ministry of Corporate Affairs, from its submissions before the Standing Committee, clarified that DVT is primarily meant for digital and new-age markets, where the target entity may have minimal assets and turnover, but may possess significant potential in terms of data, technology, innovation, etc. However, the text of the amendment does not restrict the application of DVT to any particular sector.[ii] Deal Value Threshold vis-á-vis  The Indian Pharma Sector: In the Pharmaceutical Industry, firms developing innovative technologies are often purchased by larger firms which provide R&D space, resources and money to develop their innovation into drugs. However, these small firms may become a potential competitor to the larger firms due to their innovation and hence becoming the targets of killer acquisitions. Competition in the pharma sector is important because it can motivate brands to create new and advanced medicines and encourage generic companies to offer less expensive alternatives.[iii] Taking a look at the deal value of pharma mergers that has taken place in India in the year of 2022 (as per data provided by the Times of India)[iv], except 2 out of 16 mergers, the rest of them will not meet this currently prescribed deal value threshold of INR 2000 crores (Approx. $242 Mn. USD). As per the CLRC’s report, the rationale behind this amendment was to bring the mergers/acquisitions under the ambit of CCI, that causes an Appreciable Adverse Effect on Competition (AAEC) in the Indian market but goes unnotified to the CCI as they do not meet the asset or turnover based threshold as prescribed in section 5 of the act. But this rationale is being completely defeated when it comes to specific sectors, like  pharmaceuticals, as the deal value of these mergers does not exceed the prescribed threshold values in most cases, because these firms are in their nascent stage and do not possess a significant market share. Thus, these mergers will not be under an obligation to notify the CCI neither under the asset and turnover based threshold nor the DVT. One may pose an argument that Killer acquisitions may be curbed down within the ambit of section 4 of the Competition Act. But the problem in doing so is that, section 4 of the act can be brought in only when the damage has already been inflicted but not prevent such activity. Thus, there is a significant gap with regard to the currently prescribed deal value of INR 2000 crores when it comes to specific sectors like pharma. If not Sector-based threshold, then what? Even though one cannot assume that every merger or acquisition will result into a Killer Acquisition, it is necessary to take some steps, with a particular focus on specific sectors, by fixing certain requirements for examination by the Competition Regulators or granting them ‘Residuary Powers’ to investigate into mergers that does not meet the prescribed threshold values for mandatory notification. As of now, no country has sector-specific threshold values for notification of combinations. But, the Competition regulators and their respective legislatures across the world are implementing various measures, in order to curb down killer acquisitions and other such anti-competitive practices.[v] In Europe, the European Commission (EC) has determined in the case of Novartis/GlaxoSmithKline Oncology Business, that drugs undergoing phase III clinical trials are potential competitors to the drugs existing in the market and thus, an incumbent acquiring the target firm in the same therapeutic category as the existing products of the incumbent, would be considered as a horizontal overlap. This is a very welcoming move in order to curb down or prevent killer acquisitions in the initial stage itself as this practice generally prevents any incumbent from acquiring a target which