Amazon and Flipkart found violating Competition law in India-DG investigation report out
CCI exonerates RDCA of anti-competitive conduct in pharmaceutical market- disagrees again with findings of the DG
The Competition Commission of India (“CCI”) vide its order dated 08.11.2018 exonerated Retail and dispensing Chemists Association, located in Mumbai (“RDCA/OP”) dismissing allegations of limiting and controlling free supply of products by charging Product information service (“PIS”) from the manufacturers of pharmaceutical products. This is the second recent order in which the Commission disagreed with the findings of the Director General (DG) to the contrary and closed the case .
Facts
RDCA is affiliated to Maharashtra State Chemists and Druggists Association (“MSCDA”) which in turn is affiliated to All India Organisation of Chemists and Druggists (“AIOCD”).
Information was filed by one consumer activist Mr. Nadie Jauhari of Nashik before the CCI alleging that RDCA was collecting PIS charges from manufacturers of pharmaceutical products in violation of the provisions of the Act thereby limiting and controlling the free supply of products in the pharmaceutical market. In the information, reference was made to a public notice issued by the CCI in Hindustan Times newspaper dated 30.01.2014 wherein CCI acknowledged that there are certain practices which are carried on by associations of chemists, druggists, stockists, wholesalers such as issuance of “no objection certificate” (NOC), or letter of consent (LOC), compulsory payment of PIS charges by pharmaceutical firms, fixation of trade margins etc.
On perusal of the information, CCI directed investigation by the DG under Section 26(1) of the Competition Act,2002 (“the Act”) after forming a prima facie opinion of limiting and controlling markets in violation of Section 3(1) read with Section 3(3) (b) of the Act. DG was also directed to investigate the role of office bearers who at the time of contravention, if any, were in-charge of and responsible for the conduct of RDCA.
Investigation by the DG
After the investigation DG found that the RDCA was levying and collecting PIS charges in Mumbai. The investigation also concluded that though the PIS was admitted to be paid voluntarily by the companies, but it was in the nature of approval by the RDCA to launch the products of the companies in Mumbai. The DG found that a sum of Rs. 500/- per product, per district was collected from the pharmaceutical companies, who voluntarily approached MSCDA for the purpose of advertising their products through publications in the bulletin of RDCA. It was also observed by the DG that many drugs were launched by some of the pharmaceutical companies, the information about which were not published in the bulletin even after considerable lapse of time of payment of PIS charges. In addition to this, the companies were not even granted copies of the bulletins even on payment of PIS charges.
DG further observed that the letter forwarded by the companies to MSCDA for publication in the bulletin mentioned “Contribution” and MSCDA put a rubber stamp where it was mentioned “product approval for advertisement”.
Based on the above findings, the DG concluded that the practice carried out by RDCA of charging PIS charges from companies was not for the purpose of any advertisement. Instead, it was for securing the goodwill of the association and ultimately getting prior permission of RDCA to launch new drugs in the market. The DG, thus concluded that collection of PIS charges was in contravention of Section 3(1) read with Section 3(3) (b) of the Act, as the levy of such charges limited and controlled free supply of products in the pharmaceutical market.
Objections to the DG Report
The RDCA made the following main written objections to the findings reached at by the DG :
- The pharmaceutical companies paid nominal charges on account of Product information Service to district associations for publishing the price list information in the bulletin for dissemination of information, as it was not possible for every company to disseminate such information due to lack of manpower.
- During the DG investigation, most of the companies stated that the purpose of PIS was to ensure widespread dissemination of information and to create awareness about the new drugs launched by the companies.
- The DG had not found any evidence to show that RDCA was forcing any company to pay PIS charges and on the contrary many companies such as Novartis Healthcare Pvt. Ltd, Corona Remedies Pvt. Ltd, Torrent Pharmaceutical Ltd etc. stated that the PIS charges were not mandatory.
- Many products sold by the above named companies were without paying PIS charges and there has been no instance of refusal to publish PIS or obstruction from selling products for want of PIS.
Analysis by CCI
The Commission began its analysis by acknowledging that since the last few years of its enforcement, it has dealt with several cases concerning practices carried out by Chemists and Druggists associations in various parts of India. CCI relied upon the order passed by it in Santuka Associates Pvt. Ltd to lay down that the decisive factor of whether the practice of charging PIS is anti-competitive or not is in the nature of the charges i.e. whether they are mandatory or voluntary. The Commission vide its public notice dated 30.01.2014 had informed that the practice of compulsory payment of PIS charges by pharmaceutical firms to associations for release of new drug is anti-competitive. As a corollary, voluntary payment of PIS charges would not amount to violation of the provision of the Act.
Therefore, the primary question before the CCI was to determine whether the payment of PIS charges by the companies to RDCA was mandatory in nature or not. The CCI perused the replies of pharmaceutical companies such as M/s Novartis India Ltd, M/s Ronyd Healthcare Pvt. Ltd, M/s Corona Remedies Pvt. Ltd, M/s Torrent pharmaceuticals Ltd. to name a few, of which all of them, stated that payment of PIS charges were not mandatory and publication of their products in the association’s bulletin was an effective way to spread awareness of their new products.
In addition to the admission of these pharmaceutical companies that the PIS charges are paid voluntarily, CCI also observed that some pharmaceutical companies have sold certain products in the territory of Mumbai without paying PIS charges and the evidence on record does not reveal even a single instance of refusing publication of any information for want of PIS.
CCI observed that certain evidences on which the DG relied to conclude that the PIS charges were not furthering the cause of advertising of the product, did not corroborate the conclusion of the DG since most of the companies claimed that PIS was beneficial and aimed at spreading awareness. The DG in its investigation had also mentioned that the letter forwarded by the companies to MSCDA for publication in the bulletin mentioned “Contribution” and MSCDA put a rubber stamp where it was mentioned “product approval for advertisement”. To this, CCI observed that mere use of the term ‘contribution´ cannot lead to a conclusive finding that PIS charges were mandatory and were being paid towards getting the approval of the association to facilitate the launch of their products in the pharmaceutical market.
Thus, in the absence of any corroborative evidence and the statements given by the pharmaceutical companies that the PIS charges were not mandatory, the CCI disagreed with the findings of the DG and found the conclusions based on mere conjectures and surmises and exonerated RDCA of the charges .
Comment: This is the second recent case decided by CCI as “order” without mentioning the section under which the order is passed . This case is also included under the category of “Grey area “ cases since , under the scheme of the Act, no appeal lies against such order . The case also assumes significance since this is perhaps the first time that CCI has used strong terms ,like conjectures and surprises to disagree with the findings of the DG .
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