Author: Meha Tandon
The author is a student at the National Law University Jodhpur
I. Introduction
With the outbreak of Coronavirus, chaos and disruption covers the globe and every area of activity. It goes without saying that one of the most critical industries in these times is the pharmaceutical industry, responsible for developing and marketing life-saving drugs. India is the world’s largest maker of generic drugs; however, it is highly dependent on China for several chemical components essential for manufacturing these medicines.[1] Therefore, there are concerns that the supply of medicines is likely to run out if the number of cases continues to increase per the recent trend.[2] In addition to pharmaceuticals, the demand for medical equipment such as ventilators has also increased manifold,[3] placing manufacturers of such equipment in a position of great importance. Over the last decade, the Competition Commission of India [“CCI”] has dealt with a considerable number of cases concerning the pharmaceutical and healthcare industry, and in 2018, it concluded that there was a need to undertake focused analysis of the antitrust trends in this sector, given its significance.[4] The CCI, via its public notice dated 31 January 2014 had earlier urged players in the industry to cease all anti-competitive activity.[5] The fact that the CCI found it necessary to examine underlying issues in the healthcare industry confirms that the regulator can play a very important role in ensuring its effective functioning, especially against the backdrop of the COVID 19 pandemic. The need for CCI intervention is also reinforced by an analysis of recent cases, which reflect the various anti-competitive practices that persist in our country, having the effect of limiting/rendering impossible the supply of essential pharmaceutical products/medical equipment.
In this paper, the author examines a series of cases highlighting certain anti-competitive agreements entered into by players in the healthcare industry [Part II] and conclude with a discussion on the need and possible mechanisms for the CCI to step up in these trying times [Part III].
II. Anti-competitive agreements in the world of Antibiotics & Medical Equipment
A. Agreements imposing illegal constraints
Section 3(3)(b) of the Competition Act, 2002 [“the Act”] provides that any agreement which limits/controls the production or supply of goods in the market will be presumed to have an appreciable adverse effect on competition. In recent years, there have been several instances of agreements between pharmaceutical companies and druggist associations of various states (to the detriment of distributors), which are found to be in violation of Section 3 of the Act.[6] Such agreements were also condemned by the CCI in its 2014 public notice.[7] Collusive behaviour of this nature will undoubtedly be even more damaging in the prevailing circumstances, with the heightened need for medicines. This is because, only those distributors would be able to supply essential medicines that are preferred by State Associations, for reasons unrelated to product quality.
An example of such anti-competitive agreements is the case of Proprietor, M/s Suman Distributors v. District Secretary of Murshidabad District Committee of Bengal Chemists and Druggists Association & Others.[8] Herein, it was alleged by the informants that prospective distributors of a pharmaceutical company were being mandated to obtain No Objection Certificates [“NOCs”] from the West Bengal Druggists Association (before commencing supplies of medicines), which in turn was seeking illegal donations for their issuance.[9] The CCI, on hearing both parties, found that the pharmaceutical company/ West Bengal Druggists Association had been unable to establish how its practices were beneficial to consumers or intended to improve the quality of pharmaceutical products in the State. Rather, people in several districts were being inconvenienced due to shortage in supply of medicines.[10] The CCI thus concluded that irrespective of lack of economic motive on the part of the pharmaceutical company, the agreement between the West Bengal Druggists Association and the company was in contravention with Section 3(1) of the Act.[11] Additionally, the State Association was directed to advocate for strict compliance with the provisions of the Act, in order to discourage perpetuation of further anticompetitive conduct.[12] However, the CCI chose not to impose a penalty on the parties, considering their efforts to phase out the practice of demanding NOCs from distributors.[13] In the opinion of the authors, should a similar case arise in present-day, hefty fines must be imposed on offenders, as a deterrent, keeping in mind the ongoing battle against coronavirus.
B. Agreements that Reflect/Facilitate Abuse of Dominant Position
Section 4 of the Act prohibits any enterprise or group from abusing its dominant position in the market by imposing unfair conditions, charging exorbitant prices, or otherwise altering the production/distribution/development of goods and services to the common detriment.[14] Groups often abuse their dominant position by entering into exclusive agreements, which restrict purchasers from dealing in goods other than their own/limit supply of goods to a specific area or market respectively.[15] The CCI had the opportunity to deal with such agreements in the context of national healthcare, in the case of House of Diagnostics LLP v. Esaote S.p.a.[16] Herein, a diagnostics business [“the Informant”] was purchasing MRI equipment of a very specific composition, from a company that had granted exclusive after-sales servicing rights with respect to this equipment to its subsidiary.[17] The informant alleged that the agreement executed by the respondent group amounted to an abuse of its dominant position, as it compelled consumers to accept overpriced and poor-quality servicing facilities, leaving them with no alternative.[18] After the CCI conducted its analysis, the respondent group was found to enjoy a dominant position in the relevant market,[19] as it was the sole producer of the unique device, making hospitals and clinics wholly dependent on it for the product.[20] Additionally, the group was also held to be in violation of the provisions of Section 4 of the Act,[21] inter alia, by virtue of the provisions of the exclusivity agreement and added failure to adhere to obligations contained within the same.[22]
In the context of the healthcare sector, such agreements can be especially dangerous, as consumer hospitals/clinics may be compelled to spend exorbitant amounts of funds on essential facilities, which are currently indispensable. With ventilators and personal protective equipment being in high demand, agreements concerning their supply and distribution should be examined with a much lower threshold than usually applied, in the public interest. Lastly, in times such as now, when there is unpreceded pressure on the industry, it is of utmost importance to check such anti-competitive and unfair practices, allowing the healthcare sector the freedom to spend wisely.
C. Refusal to Deal
Section 3(1) read with Section 3(4) of the Act prohibits “refusal to deal agreements” i.e. agreements which restrict the persons from/to whom goods can be bought/sold.[23] Additionally, Section 3(1) read with Section 3(3)(b) prohibit agreements which have the effect of limiting supply/production of goods and services.[24] Market players in healthcare have been known to attempt to manipulate the sector by entering into such agreements.[25] For example, in the case of Belgaum District Chemists and Druggists Association v. Abbott India Limited,[26] where a pharmaceutical company refused to supply to distributors who had not obtained NOCs from either the All India Organisation of Chemists and Druggists or the Karnataka State Association, it was found liable under Section 3(1) read with 3(3) of the Act. Similarly, the Chemist and Druggists Association, Goa [“CDAG”] was found guilty by the CCI of coercing pharmaceutical companies, together with various stockists in the State, to stop supplying its drugs to another stockist in the region.[27] By throwing its weight around, the CDAG was successful in controlling the supply chain of medicines in the area of the stockist concerned. The actions of the CDAG were motivated by the desire to favour members of its managing committee, who served as stockists in the State. The CCI found the impugned conduct to be a blatant violation of Section 3(3)(b) and 3(1) of the Act. However, in both these cases Section 3(4) was not applied, as the respondents and informants could not be said to have been involved in the trade of similar/identical goods or services. Nevertheless, as has been noted in the dissenting opinion of Augustine Peter, the conduct of such State Associations should be reviewed with greater scrutiny, considering their past involvement in anti-competitive agreements.[28] Such agreements can have a devastating impact on access to healthcare, as once entered into, they have the ability to reduce the supply of essential medicines in areas that perhaps need them the most.
III. Conclusion
The cases discussed by the authors in this paper have been cited with the view to demonstrate the various agreements that persist in our society, which perpetuate the disadvantage faced by consumers as far as access to quality healthcare is concerned. By refusing to deal, imposing unreasonable conditions in contracts, and abusing their dominance, players in the healthcare sector have the power to render futile any efforts being made to battle the coronavirus outbreak.
The CCI in its notice dated 13 April 2020 has made arrangements for information with respect to a violation of Sections 3 and 4 of the Competition Act, 2002 to be filed electronically by informants.[29] Therefore, it is in the public interest for individuals and groups with knowledge of the workings of the healthcare sector to be active in approaching the CCI with information regarding anti-competitive conduct of the kind discussed in this paper. The CCI must treat these matters as a high priority, and act on them as promptly as the current circumstances permit. Additionally, the CCI also has the power to inquire into anti-competitive conduct under Sections 3 and 4 on its own motion,[30] and must take a keener interest in all activities of the healthcare sector during these trying times. Lastly, CCI has an obligation under Section 18 of the Act to eliminate practices having an adverse effect on competition, and protect the interests of consumers. In the opinion of the authors, it is within the scope of this power to protect consumer interests for the CCI to issue a notice that any anti-competitive conduct indulged whilst the pandemic continues will be punished with much harsher penalties than those imposed under ordinary circumstances. The importance of the regulator in the fight against coronavirus must not be underestimated and can go a long way in securing a better outcome for India.
[1] India Restricts Drug Exports as Threat of Coronavirus Rises, Bloomberg Quint (Mar. 3, 2020), available at, https://www.bloombergquint.com/business/coronavirus-fallout-india-puts-exports-of-paracetamol-certain-apis-under-restricted-category. [2] See generally Medicines go out of stock as coronavirus lockdown hits Delhi pharmacies, India Today (Mar. 27, 2020) available at, https://www.indiatoday.in/india/story/coronavirus-lockdown-delhi-pharmacies-medicines-supply-shortage-1660526-2020-03-27. [3] To fight Covid-19, India will need 15 mn PPEs, 50,000 ventilators by June, Business Standard (Apr. 6, 2020) available at https://www.business-standard.com/article/current-affairs/india-needs-millions-of-ppes-masks-test-kits-50-000-ventilators-by-june-120040600328_1.html. [4] Press Release, Press Information Bureau, Competition Commission of India brings-out Policy Note on ‘Making Markets Work for Affordable Healthcare’ (Oct. 24, 2018), available at, https://pib.gov.in/newsite/PrintRelease.aspx?relid=184356. [5] Competition Commission of India, Public Notice regarding anti-competitive practices in the Pharma Sector (Jan. 30, 2014). [6] See Mr. Nadie Jauhri v. Jalgaon District Medicine Dealers Association, Case No. 61 of 2015; M/s Alis Medical Agency v. Federation of Gujarat State Chemists & Druggists Associations and Ors, Case No. 65 of 2014; M/s Arora Medical Hall, Ferozepur v Chemists & Druggists Association, Ferozepur (Case No. 60 of 2012); Rohit Medical Stores v Macleods Pharmaceutical Limited and Ors (Case No. 78 of 2012). [7] Supra note 4. [8] Proprietor, M/s Suman Distributors v. District Secretary of Murshidabad District Committee of Bengal Chemists and Druggists Association & Others, Case No. 36 of 2015. [9] Id. [10] Supra note 7 at ¶ 22.14. [11] Supra note 7 at ¶¶ 22.15, 23. [12] Supra note 7 at ¶ 27.
[13] Supra note 7 at ¶ 25. [14] Section 4, Competition Act, 2002. [15] Section 4(2)(b) & (c), Competition Act, 2002. [16] House of Diagnostics LLP v. Esaote S.p.a, Case No. 09 of 2016. [17] Id at ¶ 7. [18] Id at ¶ 8. [19] There was a dispute as to the definition of ‘relevant market’, on account of which Mr. Sudhir Mittal has dissented. As per Mr. Mittal, there was no separate market for the kind of MRI machines being manufactured by the respondent group.
[20] Supra note 16 at ¶ 39. [21] As per the dissent of Mr. Mittal, the respondent group was not in a dominant position and therefore could not abuse it, as the relevant market should have been defined as the larger market for MRI machines, wherein several players operated. [22] Supra note 16 at ¶ 84. [23] Section 3(1), 3(4), Competition Act, 2002. [24] Section 3(1), 3(3)(b), Competition Act, 2002. [25] See M/s Sandhya Drug Agency v. Assam Drug Dealers Association and Ors, Case No. 41 of 2011. [26] Belgaum District Chemists and Druggists Association v. Abbott India Limited, Case No. C-175/09/DGIR/27/28-MRTP [27] In re, Collective boycott/refusal to deal by the Chemists & Druggists Association, Goa, M/S Glenmark Company and M/S Wockhardt Limited, Suo Moto Case No. 05 of 2013. [28] M/S Royal Agency vs Chemists & Druggists Association, Case No. 63 of 2015 at ¶ 22. [29] Competition Commission of India, Measures in view of threat of Coronavirus/COVID-19 pandemic (Apr. 13, 2020), available at, https://www.cci.gov.in/sites/default/files/whats_newdocument/COVID-19.pdf. [30] Section 19(1), Competition Act, 2002.