2013 (5) TMI 296 - Commission - Companies Law

Abuse of dominance Determination of relevant market - Contravention of provisions of sections 3 and 4 of the Act - The informant pleaded the following three types of agreements were in contravention of the provisions of the Act (a) Voluntary non-exclusive agreements entered into by the OP directly with Indian Pharmaceutical companies since 2006 for production and distribution of TDF and FTC medicines and their combinations. (b) Licence agreement of the OP with MPP which allowed MPP to have sub-licences with Indian pharmaceutical companies. (c) The sub-license tripartite agreement among the OP, MPP and the Indian pharmaceutical companies. (all three agreements collectively referred to as license agreements . Held that - OP first entered into the voluntary license agreement LA-2006 with the Indian pharmaceutical companies and allowed them to manufacture and sell the drugs as per terms and conditions of the agreement. However, it was not clear whether LA-2006 was still effective or continued to have any continuing effect post 20.05.2009 as the substantive provisions of the Act came into force on this date, whereas LA-2006 was signed prior in time. Therefore, the agreement between the OP and the Indian pharmaceutical companies could not be examined for the agreement was entered into much prior to the enforcement of the provisions of the Act. The second agreement was between the OP and MPP i.e. LA-2011 which allowed MPP to sub-license the manufacture and sale of the drugs to Indian pharmaceutical companies. This agreement will not fall within the ambit of section 3(4) of the Act since MPP is nowhere in the production chain. The last agreement i.e. the tripartite agreement falls within the contours of section 3(4) of the Act vis- -vis the OP and the Indian pharmaceutical companies who are placed in different stages of the production chain and therefore, appreciable adverse effect on competition needs to be examined keeping in view the factors in section 19(3) of the Act. The explanation to section 4 of the Act defines dominant position to mean a position of strength enjoyed by an enterprise in the relevant market in India which enables it to operate independent of competitive forces prevailing in the relevant market or affect its competitors or consumers or the relevant market in its favour. On examining the dominant position of the OP, it was seen that the OP had no legal existence in India and did not engage in any business in India. Accordingly, the OP was not a dominant player in the relevant market in India and therefore, no abuse as envisaged under section 4 of the Act could exist. In the light of aforesaid discussion, the Commission finds that no prima facie case was made out against the opposite party u/s 3 or 4 of the Act for referring the matter to DG for investigation. It was a fit case for closure under section 26(2) of the Act.

Summary

Issues Involved:
1. Alleged contravention of sections 3 and 4 of the Competition Act, 2002.
2. Anti-competitive clauses in license agreements.
3. Market dominance and abuse of dominance.

Issue-wise Detailed Analysis:

1. Alleged Contravention of Sections 3 and 4 of the Competition Act, 2002:
The informant filed a complaint under section 19(1) of the Competition Act, 2002 against a pharmaceutical company (OP) alleging contravention of sections 3 and 4 of the Act. The informant, a treatment activist, claimed that the OP's license agreements with Indian pharmaceutical companies and the Medicines Patent Pool (MPP) were anti-competitive.

2. Anti-competitive Clauses in License Agreements:
The informant alleged that the OP's license agreements limited production and supply by restricting the purchase and sale of Active Pharmaceutical Ingredients (API) only from the OP or its approved licensees. This restriction could potentially increase the price of API, making drug production expensive and unaffordable. The agreements also allegedly restricted new drug combinations, contained exclusive supply and distribution provisions, and imposed unreasonable conditions on non-patented drugs. Furthermore, the agreements required Indian pharmaceutical companies to pay royalties even though no patents were granted on the drugs in India.

3. Market Dominance and Abuse of Dominance:
The informant also alleged that the OP abused its dominant position in the market. The Commission examined the relevant product market, which was the production/manufacture of Antiretroviral (ARV) drugs in India. It was noted that the market was fragmented with many players, and the OP did not have a dominant position in India. Therefore, no abuse of dominance under section 4 of the Act was established.

Judgment Summary:
The Commission considered the submissions and presentations from NACO and NIPER. It was observed that the ARV drugs market in India was dominated by generic products manufactured by Indian companies. The market had been growing consistently, benefiting both Indian and international consumers. The Commission found that the alleged anti-competitive agreements did not have an appreciable adverse effect on competition in India. The market for the OP's patented drugs was too small to impact competition significantly. Additionally, the OP was not a dominant player in the relevant market in India.

The Commission concluded that no prima facie case was made out against the OP under sections 3 or 4 of the Act. Therefore, the matter was closed under section 26(2) of the Act, and the Secretary was directed to inform all concerned accordingly.