ELP Competition Law & Policy Alert: CCI penalizes Chemists and Druggists Associations and some pharmaceutical companies for anti-competitive conduct

Background:

In its order dated 12 July 2017, the Competition Commission of India (“CCI”) penalized the Federation of Gujarat State Chemists and Druggists Association, its district associations and three pharmaceutical companies along with its office bearers under Section 27 of the Competition Act, 2002 (“Act”) for indulging in the practice of requiring no-objection certificate (“NOC”) for appointment of stockists in contravention of the provisions of Section 3 of the Act. The CCI imposed a total penalty of approximately INR 0.12 crores (~ USD 0.018 million) on the associations and a total penalty of approximately INR 46.42 crores (~USD 6.97 million) on the pharma companies. The CCI also penalized the relevant officials of the associations and the pharmaceutical companies. Glenmark Pharmaceutical Limited was fined with the maximum penalty of INR 45 crores (~ USD 6.76 million). While the associations were held liable for violating Section 3(3)(b) read with Section 3(1) of the Act by mandating NOC prior to appointment of stockists resulting in limiting and controlling the supply of drugs in the market, the pharmaceutical companies were held liable for violating Section 3(1) of the Act by entering into anti-competitive agreements/ understanding/ coordination with the associations.
Following four separate information filed by the distributors of pharmaceutical products, the CCI initiated investigation into all four matters in late 2015 and the Director General (“DG”) submitted his investigation report in early 2017. The matters were clubbed on the basis of similarity of issues and allegations. Out of 46 parties, the DG, in his investigation report, had identified 4 chemists and druggists associations and 5 pharmaceutical companies along with its identified office bearers to be in contravention of the provisions of Section 3 of the Act.

Key Takeaways:

a. Res judicata not applicable in the instant case – Some parties had contended that the proceedings were barred by res judicata as the CCI had already considered substantially similar issues in Case No. 97 of 2013 against the very same opposite parties. The CCI noted that the doctrine of res judicata was not applicable in the instant case as the period of investigation in both cases were different and the instant matter comprised of different transactions involving multiple associations as well as pharmaceutical companies leading to different causes of actions.
b. Bonafide/ locus of informant is subservient to the Act’s objective – Some parties argued that one of the informants was abusing the process of law by filing multiple cases only to harass the chemists and druggists associations. While the CCI noted that it does not encourage filing of multiple information, it emphasized that a person is not barred from approaching the CCI if the conduct which has been found to be in contravention previously, continues to exist despite the CCI’s directions in earlier cases.
c. Prima facie finding against each party not needed for ordering investigation – The CCI noted that proceedings before the CCI are inquisitorial and the scope of inquiry need not be confined to the facts stated in the information, as limiting the inquiry to facts stated in the information would render the inquiry incomplete. In CCI’s view, wide language in the order under Section 26(1), i.e. “to investigate the conduct of such other parties who may have indulged in the said contravention”, enables the DG to carry out a detailed investigation.
d. Parties unable to rebut the evidence – The CCI assessed internal company compliance documents, telephone conversations and email communications and found cogent links to establish the continued participation of some of the identified pharmaceutical companies in the NOC practice fostered by the federations and/or the associations. The CCI observed that the associations were unable to rebut the presumption of appreciable adverse effect on competition due to the practice of requiring NOC for appointing stockists with cogent evidence.
e. Evidence did not support allegations against Mankind – Per contra to the DG’s investigation report, the CCI found no contravention of the Act by either Mankind Pharma Limited (“Mankind”) or its C&F Agent and exonerated both parties (including their respective officials) due to insufficiency of cogent evidence. Upon assessment of evidence including emails, telephone records etc. the CCI found no infirmity in Makind’s conduct as it could not be established that Mankind’s actions were influenced in any way by the diktats of the associations.
f. Cadila’s exclusion from the instant order – The DG’s investigation report identifies Cadila Healthcare Limited (“Cadila”) to be in contravention of the Act by having a tacit understanding with the associations for requiring a NOC for appointing of stockists. While the CCI was considering the instant matter, Cadila filed an application seeking review/ recall of the investigation order, which was dismissed by the CCI. This order of the CCI was challenged by Cadila before the High Court of Delhi by way of a writ petition which was dismissed for lack of merit and for being made at a very advanced stage of the proceedings. Cadila has further appealed this order before a larger bench of the Delhi High Court which is currently pending adjudication.
CCI’s current order, therefore, does not include its findings on Cadila’s case and the CCI has noted that it will deal with Cadila and its C&F agent separately, based on the order passed by the Delhi High Court.
g. Remission in penalty – One of the pharmaceutical companies, Hetero Healthcare Limited (“Hetero”) submitted that the request for NOC by its official was a stray incident and assured the CCI that it would implement procedures to prevent the occurrence of such incident in the future. Hetero’s admission was appreciated by the CCI and was considered to be a mitigating factor leading to remission of 40% on the total penalty attributed to Hetero. This is a rare instance of remission in penalty by the CCI.
The order of the CCI may be accessed here.