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TMI Blog2015 (12) TMI 1776X X X X Extracts X X X X X X X X Extracts X X X X ..... al turnover of the appellant for last three financial years is legally justified? Held that:- A plain reading of Section 3 makes it clear that sub-section (1) thereof can be invoked only if the agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services causes or is likely to cause an appreciable adverse effect on competition within India. Sub-section (2) of Section 3 is declaratory in nature. It provides that any agreement entered into in contravention of the provisions of Section 3(1) shall be void. Sub-section (3) contains a presumption of an appreciable adverse effect on competition if the agreement has any of the effects/consequences enumerated in clauses (a) to (d). Sub-section (4) lays down that any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provisions of services including those specified in clauses (a) to (e) shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is recorded. The appellant has been providing multiple healthcare services, maternity service being one of them and stem cell banking which is being provided by a third party (Cryobanks), can at best be considered as a small part of the maternity services provided to those who are desirous of availing such services. Therefore, even if the finding of the majority of the Commission that the agreement entered into between the appellant and Cryobanks is violative of Section 3(1) of the Act is to be upheld, the turnover of the appellant with reference to stem cell banking services only could be taken into consideration for the purpose of imposing penalty and not the turnover with reference to other services or income derived from other sources. Appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... were: "Role of LifeCell: Will be responsible for the delivery of the core benefit • For organizing the collection of the blood from the hospital. • For processing the blood and harvesting of the stem cells and performing the necessary tests on the blood. • Storage for the specified period as per the standards. • Delivering the stem cells as and when the need arises • Customer Care • Enrollment Documentation Role of DR. L.H. HIRANANDANI: • Introducing this concept to all the expectant parent. • Will spread the service awareness of cord blood banking. • Handing over all the promotional material and counselling and converting them. • Collection of the blood during the delivery as per the guidelines." 6. At the end of one year, the appellant and LifeCell executed another agreement for one year commencing from September, 2010 with the understanding that the latter would exclusively provide its umbilical cord stem cell banking services to the maternity patients of the Hospital till 31.08.2011. 7. Before the expiry of the second term of the agreement with LifeCell, the appellant repeated the exercise f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e raised for refund of the payment made for such a collection. Enrollments Per Month: ₹ 18,000/- (10% tax will be deducted) per enrollment (including Cord Blood and Cord Tissue)." 9. Smt. Manju Jain wife of Shri Saurabh Kumar, who was pregnant with her second child entered into an agreement with LifeCell to obtain its umbilical cord stem cell banking services. (Though a mention of this agreement has been made in the information filed by Respondent No. 2, the investigation report prepared by the Director General (for short, 'the DG') and the order passed by the Commission, but the date of agreement has not been disclosed in any of the documents). Smt. Jain visited the appellant Hospital on 17.10.2011 to consult Dr. Vinita Raut (Gynaecologist) working in the Hospital. At that time, she neither disclosed that she had entered into an agreement with LifeCell for obtaining stem cells form her umbilical cord nor got herself registered with the appellant. After about five and half months, she again visited Dr. Vinita Raut for consultation. This time, Smt. Manju Jain disclosed that she had entered into an agreement with LifeCell for stem cell banking. Thereupon, Dr. Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espousing the cause of 'LifeCell'. In paragraphs 31 to 40, reference has been made to the provisions of the Act, referred to cases and other material, which could not possibly be in his knowledge and made the prayers to which reference has already been made. He verified the contents of the information be to true and correct to his knowledge and based on information received and believed to be correct, but did not disclose the source of information. Paragraphs 23 to 30, which will have some bearing on the merits of the case are reproduced below: "23. The Informant humbly submits that one Mrs. Manju Jain (hereinafter referred to as "Patient") had entered into an agreement with LifeCell India Private Limited (hereinafter referred to as "LifeCell"), which is a leading stem cell banking company in the country providing umbilical cord stem-cell banking services. The Informant submits that the Patient decided to use the maternity services of the Respondent, as the Respondent is known as one of the best high-end multi-speciality hospitals in country. 24. It is submitted that the Patient independently had signed up for the services of LifeCell and the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow any other company to do collection in the hospital 3) It was also indicated verbally by the treating doctor (Dr. Vinita Raut) to the patient Ms. Manju Jain that we have exclusive tie-up with CRYOBANKS for the cord blood collection at this hospital". 29. Pursuant to the Respondent's refusal to deal with LifeCell, the Patient had to either sign up for the services of stem cell banking services of Cryobanks or chose another hospital for giving birth to her child. It is submitted that Patient refused to succumb to the undue pressure exercised by the Hospital. Therefore, the Patient opted for another high end multi speciality hospital for the maternity services. 30. In light of the above, it is most respectfully submitted that Respondent in order to garner more commission/profits from Cryobanks: a) Refused to deal with LifeCell; b) Imposed conditions that are related to the contract/nature of relationship with Patient - forced the Patient to use the services of Cryobanks." 12. After 15 days, Respondent No. 2 filed additional information dated 25.07.2012 through Dhall Law Chambers incorporating the time taken by the patients for reaching various hospitals, nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement between the hospital and Cryobanks was found to be exclusive in nature and in violation of Section 3(4), requiring further investigation by DG. Further, the hospital is found to be dominant in the relevant market based on (a) a market share of 75 per cent that it commands in the market of providing maternity services in high-end multi-speciality hospitals in the wards of S, L, N and K/E of Mumbai; (b) distinct brand value and reputation in the relevant market; and (c) a National Accreditation Board for Hospitals & Healthcare Providers (NABH) rating amongst the top 10 hospitals in western India. Accordingly, the condition imposed by the said hospital to avail the stem cell banking services of Cryobanks only, appears to be an unfair condition and a prima facie violation of Section 4 i.e. abuse of dominant position, requiring further investigation by DG. Thus, CCI found prima facie evidence that the hospital may have abused its dominant position under the Competition Act, 2002 and directed the DG to investigate the matter." [Underlining is mine] 16. The appellant protested against this publication and sent letter dated 05.02.2013 through its advocate, the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic about the preliminary stages of this case through its Newsletter, prior to the completion of the DG's investigation, has compromised H Hospital's right to a fair hearing in-keeping with the principles of natural justice which are required to be followed under the provisions of the Competition Act. This is especially so because H Hospital was not heard at the prima facie stage and an ex-parte order was passed by the Hon'ble Commission directing the DG to investigate, without giving any opportunity to H Hospital to present its position before the Hon'ble Commission. H Hospital also submits that the disclosure of information in relation to this case has tarnished its reputation and brand value in the healthcare services sector, where reputation and trust are of utmost importance, causing it grave prejudice. H Hospital would therefore like to register its protest and requests that, in the interests of preservation of its rights of natural justice and due process, the Hon'ble Commission (including its officers) not publish or disclose, any further information about this case until proceedings are complete and a final order has been issued by the Hon'ble C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement entered into between the appellant and Cryobanks was contrary to Section 3(4) of the Act and it had appreciable adverse effect on competition. The conclusion recorded by the Jt. DG in Chapter -5 of his report are reproduced below: CHAPTER-5 Conclusion "5.1 The Relevant Market in the present case is the "provisions of maternity services by Super Speciality Hospitals within a distance of 0-12 K.M. from the Hiranandani Hospital covering S, L, N, K/E, T and P/S wards of Municipal Corporation of Greater Mumbai. 5.2 Investigation has established that M/s. L.H. Hiranandani Hospital has a dominant position in the relevant market on the basis of several factors mentioned in section 19(4) of the Act. 5.3 It is further established that M/s. L.H. Hiranandani Hospital is abusing its dominant position in the relevant market. It has imposed unfair conditions and indulged in unfair practices on the consumers and competitors. 5.4 It is held that OP has imposed unfair condition on the consumer (patient) and therefore its action is violative of provisions of section 4(2)(a)(i) of the Act. 5.5 It is further held that OP has indulged in practice resulting in denial of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again analysed the material collected by him and submitted supplementary report dated 04.09.2013, paragraphs 3 and 4 whereof are extracted below: "3.0 Distribution of the clients of stem cell banks by category. 3.1 As regards to the information on "Distribution of the clients of Stem Cell Banks by following categories: (a) Super Speciality Hospital; (b) Nursing Homes (Multi facility) (c) Stand alone Maternity Homes (d) other hospitals Informant, Opposite Party and Stem Cell Banks were asked to classify the Hospitals (where the maternity patients were admitted) under these categories. Relevant extracts of their replies are as below: Reply of the OP (Para 9, 10 & 11 of the submission dated 19.08.2013) "For the purpose of answering this query, the DG's Notice has provided H Hospital with lists of hospitals submitted by four umbilical cord stem cell agencies, viz. M/s. StemCyte India, M/s. Cordlife Science India Pt. Ltd., M/s. Reelabs and M/s. Cryo save India requesting H Hospital to, classify such clients/hospitals into the categories of Super Speciality Hospitals, Nursing Home (Multi-facility), Stand-alone Nursing Homes, and other hospitals, as l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. have sent the list segregating the Hospitals into Super Speciality Hospitals, Stand Alone Maternity Homes, Nursing Homes (Multi facility) and other Hospitals. Replies are enclosed as Annexure E of the report. Analysis 3.5 As it is seen from the replies of the Informant, OP and Third Parties that the classification of Hospitals into four categories was not possible by OP and Informant. Even the data supplied by Stem Cell service providers are not sufficient. The segregation done by only two stem cell banking provider is only limited to about 288 samples. Discussion in following paragraphs is about the limitation of such classification of Hospitals into two category i.e. Super Speciality Hospital and other Hospitals. 3.6 It is gathered from the information available in public domain that all the Hospitals in Mumbai are registered under "The Bombay Nursing Homes Registration Act, 1949". Section 2 of the Act, defines Maternity Home and Nursing Home as (3) "maternity home" means any premises used, or intended to be used, for the reception of pregnant women or of women in or immediately after child birth; (4) "nursing home" means any premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal, biological investigations or other diagnostic or investigative services with the aid of laboratory or other medical equipment, are usually carried on, established and administered or maintained by any person or body of persons, whether incorporation or not." 3.11 It is seen therefore, that the word Hospital, Dispensary, Clinic, Sanatorium have been included in this Act and recognized as separate entity other than Maternity Home and Nursing Home. Further classifications of Establishments with respect to diagnosis and diseased have also been made in the definition. It has gone further to identify the nature of ownership, control and management over the establishment i.e. whether it is a Government Institution, Trust (Public or Private), Corporation, Local Authority or run by a single Doctor. But again, this new Act has not defined/classify the nature of clinical establishments into Super Speciality, Nursing Home (Multi Facility) or Standalone Maternity Home. 3.12 In view of the above, it is therefore, difficult to classify the Hospitals into four categories as asked at point 2 of the order under Section 26(8) of the Act. However, in the following paragraphs, it is tried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... platforms, it is possible to categories all the Hospitals of Mumbai into Super Speciality Hospitals and other Hospitals only. Since, the relevant product market has been defined in the original Investigation Report as "provision of maternity services by Super Speciality Hospitals" the distribution of clients (availing maternity and stem cell services both) between Super Speciality Hospitals and other Hospitals is sufficient to examine the competition issues relevant to this case. 3.19 On the basis of the discussion above following Hospitals in Mumbai can be considered as Super Speciality Hospitals. 3.20 On analysis of these data of maternity patients, who had also availed Stem Cell Services in different Hospitals of Mumbai, the number and percentage of maternity patients in the Super Speciality Hospitals (12 in No. as per Table -2 above) are as below:- 3.21 It is seen therefore, that out of 3291 maternity patients, 1112 had preferred Super Speciality hospitals for availing the services of Stem Cell banking. Hence, the patients going to Super Speciality hospital is about 33.78% and rest 66.22% maternity patients had gone to maternity homes, standalone nursing homes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han one year all the sample has been taken for the purpose of such analysis. Details of the samples from Mumbai are as below: Table -4 S. No. Name of the Bank Numbers of Samples 1. Cryo-save (India) Pvt. Ltd. 862 2. Cord life Sciences Pvt. Ltd. 533 3. Ree Laboratories Pvt. Ltd. 450 Total Samples 1845 4.2 Total number of samples available for determination of the distance travelled by seekers of maternity services in Super Speciality Hospitals (ii) Nursing Home (Multi facility) (iii) Stand-alone maternity homes and (iv) other hospitals patients of Mumbai is 1845 only. This sample includes all the patients seeking maternity services at all categories of Hospitals in Mumbai. A random sample of such patient's data base would include Super Speciality Hospitals, Nursing Home, Multi Facility Hospital, Stand-alone Maternity Homes and other Hospitals. Therefore, segregation of patients detail under each category of Hospital is not required at all. Rather randomness of the data base would be high if we keep the sequence of the data base unchanged and pick up a random sample with certain logic. For example, if we pick up every 5th patient from unchanged sequence of the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly a simplistic comparison of room rent is inadequate. In doing so, the DG has failed to observe that the prices of maternity services which were submitted by H Hospital were all-inclusive and did include delivery charges and expenses ordinarily incurred by patients obtained child birth services along with the rent of such rooms. This has been specifically stated in H Hospital's submissions to the DG dated 3 April, 2013 at footnote 10 of page 14. In any event, the DG did not conduct an independent investigation of maternity service prices in exercise of his investigative duties and without any basis jumps to an incorrect conclusion that low end hospitals/nursing homes do not compete with H Hospital and to suit pre-determined outcomes. (ii) The DG has stated that H Hospital did not provide any evidence of the technical evaluation process for appointing an umbilical cord stem cell bank, as requested by the DG pursuant to the summons hearing. H Hospital's internal records of the technical evaluation of umbilical cord stem cell banks were submitted to the DG and also explained at length in H Hospital's legal submissions to the DG. The DG has ignored the evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport his conclusions on violations of the Competition Act. (v) The DG's foreclosure analysis is based on subjective statements alone and not on an empirical or objective analysis which would demonstrate that LifeCell 's significant market shares, recent entry and exponential growth of the downstream market are evidence of fierce competition and there is no foreclosure. (vi) The Supplementary Report is flawed as it does not comply with the Hon'ble Commission's direction to provide information on the distance travelled by seekers of maternity services from (i) super speciality hospitals: (ii) nursing homes (multi-facility); (iii) stand-alone maternity homes; and (iv) other hospital patients. To support the incorrect findings on the geographic market as contained in the original DG Report, the DG seeks this information not from the categories of medical establishments as mentioned above, but from stem cell banking companies and analyses data of patients who availed of both stem cell banking and maternity services instead of those who obtained maternity services alone. This conclusion is therefore flawed and cannot be relied upon. (vii) Finally, the DG has not ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or type of medical establishment can be viewed in isolation; (iv) Fourth, the DG fails to identify what exactly constitutes a "Super Speciality Hospital". The DG's definition of the relevant product market as maternity services at Super Speciality Hospitals is subjective, arbitrary, and seems to have no basis in any acceptable definition of the same; and (v) Finally, the DG's product market definition of "Super Speciality Hospitals" is contradicted by the DG's findings in the supplementary investigation. The Supplementary Report demonstrates that there is no clear and objective definition of what a Super Speciality Hospital is and that no statute in India states or market players in the healthcare industry or the Informant itself believe, that Super Speciality Hospitals constitute a separate class of medical establishments. The results of the Supplementary Report however are no incorporated or addressed by the DG to analyse the product market as defined in the DG Report. 9. The DG's product market definition presupposes that "Super Speciality Hospitals" are in fact a separate class of medical establishments. The DG has only exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutable for H Hospital by a patient, by reason of price, characteristics, or intended use. When defining a relevant product market under Section 2(t) of the Competition Act, one should examine the demand-side of the market and ask whether, from a consumer's perspective, product A is a substitute for product B? Whilst the DG identifies that maternity services at Super Speciality Hospitals is the relevant product market in this case, the Dg has failed to consider whether a set of maternity service providers (i.e. "Super Speciality Hospitals") would be considered a interchangeable or substitutable by a patient (i.e. a consumer) for maternity services at other healthcare establishments, by reasons of characteristics or prices or any other features. The fundamental question in defining the product market in this case is whether maternity patients at a Super Speciality Hospital would consider maternity services at other healthcare establishments (general hospitals, specialist maternity clinics/hospitals, nursing homes and birthing centre) as being substitutable/inter-changeable, which has not been assessed by the DG. 14. Instead of conducting such an analysis, the DG mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. A number of non-price factors, such as, quality of services, choice of gynaecologist, affect a consumer's purchasing behavior and are taken into account by an expectant mother in choosing a hospital for child-birth. The importance on non-price factors in defining relevant markets in the healthcare industry has also been repeatedly recognized by American Courts in antitrust cases. In FTC v. Tenet Healthcare, the US Federal Trade Commission (FTC) and the district court had defined the relevant market as consisting of only low-cost hospitals and HMOs (Health Maintenance Organizations, which provide low-cost health care) and had specifically excluded high-cost hospitals. On appeal, the US 8th Circuit Court of Appeal found that: "the fact that Cape Girardeau hospitals are higher priced than Poplar Bluff hospitals does not necessarily mean they are not competitors. See, e.g., United States v. Archer-Daniels-Midland Co., 866 F.2d 242, 246-47 (8th Cir. 1988). The district court placed an inordinate emphasis on price competition without considering the impact of a corresponding reduction in quality". The DG however has failed to analyse the actual economic strata of H Hospi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taken into account for defining a relevant product market. 28. The DG's sole basis for identifying 'Super Speciality Hospitals" as a standalone category of healthcare establishments is purported to be based on NABH guidelines (which has not been referred in the Supplementary Report). The Supplementary Report states "Super Speciality centres are the centres which provide the following services: Cardiology, Clinical Haematology, Clinical Pharmacology, Endocrinology, Immunology, Medical Gastroenterology, Medical Genetics, Medical Oncology, Neonatology, Nephrology, Neurology, Neuroradiology, Rheumatology, Cardiac Anaesthesia, Child & Adolescent psychiatry, Paediatrics Gastroenterology, Paediatric Cardio-Thoracic Vascular Surgery, Urology, Neuro-surgery, Paediatric Surgery, Plastic & Reconstructive Surgery, Surgical Gastroenterology, Surgical Oncology, Gynaecological Oncology, Endocrine Surgery, Vascular Surgery, Hepato-Pancreato-Biliary Surgery". However, this classification of what constitutes a "Super Speciality centre" is not provided for in an NABH "guideline"; rather, this has been imported from an NABH application form for apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Posts; and (v) Private Hospitals and Nursing homes. In any event, definitions in statutes do not define a relevant product market, Instead, all medical establishments that share a competitive relationship and compete with H Hospital would have to be included in the relevant product market. 31. Further, the Informant, when directed by the DG to segregate hospitals into Super Speciality Hospitals, Nursing Home (Multi-facility), Stand-alone Maternity Homes, and Other Hospitals, responded stating: "We are unable to provide information in this regard". Stem cell banks were also directed by the DG to segregate medical establishments into the four above mentioned categories but were unable or did not do so - only two stem cell banks (StemCyte and Cord Line) had provided any segregation and, in fact, StemCyte, in identifying Super Speciality hospitals also stated "categorization mentioned against each hospital might not be accurate in some cases". The very fact that both the Informant and most stem cell Banks in India could not classify healthcare organizations into "Super Speciality Hospitals", itself demonstrates that the Hon'ble Commission should also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tient choice or demand side substitution not reflects that "Super Speciality Hospitals" are a discreet class in themselves, and the other medical establishments that share a competitive relationship and compete with H Hospital. Failure to properly consider factors listed under Section 19(7) of the Competition Act 34. Section 19(7) of the Competition Act contains a non-exhaustive list of factors which should be used when applying the Section 2(t) definition of a relevant product market. 35. The factors listed in Section 19(7) of the Competition Act are as follows: physical characteristics or end-use of goods; price of goods or service; consumer preferences; exclusion of in-house production; existence of specialized producers; and classification of industrial products. Though the DG has broadly stated that, "in the context of the present case if one considers the distinct price and non-price factors of Super Speciality hospitals as against other categories of hospitals, the same suggests that Super Speciality Hospitals are in fact a distinct product market in themselves. A patient desiring to avail the services of Hiranandani Hospital or Seven Hills or other Hosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advocates/representatives of the parties, the majority of the Commission (Chairperson and three Members) passed order dated 05.02.2014, whereby it held that the agreement entered into between the appellant and Cryobanks is anti-competitive being in contravention of Section 3(1) of the Act as it has caused appreciable adverse effect on competition in the market of stem cell banking and imposed penalty of ₹ 3,81,58,303/- (Rupees Three Crores Eighty One Lacs Fifty Eight Thousands Three Hundred and Three only). In paragraphs 7 to 9, the Commission noticed the preamble, some of the provisions contained in the Act including Section 3, it then referred to the agreement entered into between the appellant and Cryobanks and recorded the following observations: "20. Stem cell banking services sector is at nascent stage in India. It is a small market with very few players providing this service. Although, the DG report and OP hospital's submissions talk of 13 players in this market, the respective market share scenario of the players shows that LifeCell and Cryobanks are the two major players, collectively holding around 67% of the market share in stem cell collection in Mumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd economic development by means of production or distribution of goods or provision of services. Neither has it been shown that any benefit would accrue to the consumer due to such agreements. The Commission notes that such agreement pre-closes market for new entrants. A new entrant instead of meeting productive and dynamic efficiency has to meet an efficiency in giving commissions to trick the customers to itself. This actually kills all competition replacing competition culture by commission culture. 22. A perusal of website of OP hospital shows that the hospital gives following assurance to its patients: The department of Obstetrics and Gynaecology is very vibrant. Equipment in the department is the latest and the technology is the cutting edge in this field. We cater to all the obstetric women and have a special High Risk Obstetric clinic. Foetal monitoring is done by 4D ultrasound machines that are the flagship models of the company. The department has the very latest suites for child birth such as the single room birthing complex or LDRP (Labour Delivery Recovery and Puerperium) suites. The suite helps the family to be with the laboring mother, till delivery. This help ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion, the Commission concludes that the agreement between OP hospital and Cryobank was an anti-competitive agreement in contravention of section 3(1) of the Act." [Underlining is mine] 23. In paragraphs 27 to 29 of the majority order, the issue relating to the alleged dominance of the appellant in the relevant market and abuse of dominant position by the latter in the context of the findings recorded by the Jt. DG was discussed and it was observed: "27. The second issue is about the dominance of OP hospital and abuse of dominance. For the purpose of section 4 of the Act, DG identified 'provision of maternity services by Super Speciality Hospitals' as the relevant product market and 'area within a distance of 0-12 km from O.P. hospital' as the relevant geographic market. DG carried out the patient inflow analysis from different wards to the hospitals and found that 63.70% of the maternity patients in the hospital were coming from wards S, L, N and K/E. The DG also found that two more wards T & P/S contributing 7.5% which had common boundaries with ward 'S' to be covered within the relevant geographic market. On the other hand, OP hospital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dominant in the relevant market of 'provision of maternity services by Super Specialty/high-end Hospitals within a distance of 0-12 km from the Hiranandani Hospital covering S, L, N, K/E, T & P/S wards of Municipal Corporation of Greater Mumbai'." 24. One of the Members, namely, Dr. Geeta Gouri, passed a dissenting order. She agreed with the majority that the finding recorded by the Jt. DG on the issue of alleged dominant position enjoyed by the appellant in the relevant market and abuse thereof was legally imperfect and held that there was no contravention of Section 4 of the Act. She then referred to the data collected by the Jt. DG and pointed out that 93% of the patients had availed only maternity services in the hospital and 7% out of the total patients numbering 3602 had availed stem cell banking services between 2009 and 2012. The learned dissenting Member further observed that the agreement between the appellant and Cryobanks does not stop the latter from enrolling patients from other hospitals where it provides services. The learned dissenting Member then discussed various clauses of Section 3(4) and held that the appellant did not violate Section 3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by OP on yearly basis. First two of these are with LifeCell and latter two with Cryobanks. It is noticed that the fourth agreement (signed with Cryobanks for the period w.e.f. 01.09.2012 to 31.08.2013) states that Cryobanks has exclusive tie-up with other hospitals as well. It has also been submitted by the OP that all agreements signed by the OP with different stem cell banks are for a period of one year only and that these are terminable on notice by either party. Further, there is a process of objective evaluation in selecting the preferred stem cell bank. The OP has also submitted that Cryobanks has been selected objectively on account of its superior technology and in consumer's interest despite the fact that it was offered greater remuneration by competitor stem cell banks. Issue: Is there is a vertical relationship between the OP and Cryobanks? 61. In the present case, while it is true that a hospital rendering maternity services does not require stem cell banks, the stem cell banks do require the services of the hospital to the extent that stem cell of the umbilical cord has to be collected within 10 minutes of delivery of a baby if the baby is delivered in a hospit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act defines tie-in as including any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods. In line with this, the agreement between OP and Cryobanks shall be tested for tie-in arrangement. 65. The Commission, in its Order Sonam Sharma v. Apple & Anr. had discussed the intricacies of tying and bundling: "A tying arrangement occurs when, through a contractual or technological requirement, a seller conditions the sale or lease of one product or service on the customer's agreement to take a second product or service. In other words, a firm selling products X and Y makes the purchase of product X conditional to the purchase of product Y. Product Y can be purchased freely on the market, but product X can only be purchased together with product Y. The product that a buyer is required to purchase in order to get the product the buyer actually wants is called the tied product. The product that the buyer wants to purchase is called the tying product. More often, tying is a sales strategy usually adopted by the companies to promote/introduce a slow-selling or unknown brand when it has in its portfolio a fast-selling or well kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... injury to competition by way of foreclosure. 70. In the present case, conditions of exclusive supply agreement do not appear to hold true for the reason that OP does not stop Cryobanks from enrolling patients from other hospitals. This is supported from the fact that Cryobanks has exclusive tie-up with various hospitals across the country. In view of the aforesaid, it is opined that there is no foreclosure and accordingly no violation of Section 3(4) of the Act. Issue: Can the conduct of OP be said to be in the nature of refusal to deal? 71. According to explanation (d) of Section 3(4) of the Act, "refusal to deal" includes any agreement, which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought. 72. From the above, it emerges that allegation pertaining to refusal to deal will operate only if (a) parties have an agreement between them; and (b) parties to the agreement (buyer or seller) are restricted or likely to be restricted from selling or purchasing goods. In the present case, OP being the seller of hospital space to Cryobanks, parties to agreement are: OP and Cryobanks. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... patients of OP, it would be appropriate to say that OP is within its right to choose its business partners in accordance with its commercial interests. Issue: Is there AAEC arising out of the agreement OP and Cryobanks? 77. Under AoD analysis, it has been shown that OP has less than 1% market share in terms of maternity services in Mumbai. Keeping this in mind, analysis of AAEC would be done. 78. In the present case, allegations pertain to: (a) tie-in arrangement; (b) exclusive supply agreement and; (c) refusal to deal. As discussed above the agreements are not in the nature of either tie in or exclusive supply agreement. 79. Furthermore, as discussed while the agreement may be in the nature of a "refusal to deal", however, a rule of reason approach has to be adopted in the analysis of this restraint. It needs to be established, whether such an agreement has an appreciable adverse effect on competition, with regard to all or any of the factors stated in section 19(3) of the Act. 80. As per section 19(3) of the Competition Act, 2002, the Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'relevant market' need not be taken into account. Also, as discussed earlier, there is no evidence of any sort of foreclosure of competition by hindering entry into the market - the market here is that of stem cell banking and not stem cell banking at the premises of the OP. In view of the foregoing, I am of the view that there is no AAEC and accordingly no case for Section 3(4) violation." 25. I have heard the learned counsel for the parties, considered the written submissions filed by them and carefully examined the record of the case. Two questions which arise for consideration by the Tribunal are: (i) Whether the finding recorded by the majority of the Commission that the appellant is guilty of acting in violation of Section 3(1) of the Act is legally sustainable? (ii) Whether the penalty of ₹ 3,81,58,303/- imposed by the Commission by taking into consideration total turnover of the appellant for last three financial years is legally justified? 26. Before dealing with the afore-mentioned questions and at the cost of repetition, I consider it necessary to observe that even though the Act does not prescribe any qualification to identify the locus of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l banking services and to avail the services of a competitor i.e. CryoBanks; that Smt. Manju Jain refused to succumb to the undue pressure exercised by the appellant and opted for another high-end multi-speciality hospital for maternity services. These and other facts mentioned in paragraphs 23 to 30 of the information, some of which are factually incorrect and misleading, could, by no means, be in the personal knowledge of Respondent No. 2. The same could have been supplied only and only by LifeCell with whom Smt. Manju Jain had entered into an agreement for taking stem cells. It is also important to note that Smt. Manju Jain had neither entered into any agreement with the appellant for maternity services nor had she informed Dr. Vinita Raut on 17.10.2011 about her having entered into an agreement with LifeCell for stem cell banking services and no material was produced by Respondent No. 2 before the Jt. DG or the Commission to show that the appellant had pressurised Smt. Manju Jain to terminate her agreement with LifeCell as a condition for providing maternity services. 27. Unfortunately, the Jt. DG and the majority of the Commission completely overlooked the afore-mentioned asp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplain against the same. Of course, Respondent No. 2 has not offered any explanation as to why a qualified person like him did not complain against the agreement entered by the appellant with LifeCell. 30. What is most surprising is that the Commission did not independently examine the various factors enumerated in Section 19(3), (5), (6) and (7) for deciding what constituted relevant market for the purpose of the present case. Both, the Jt. DG and the majority of the Commission were under a mistaken impression that the relevant market was of the market of maternity services ignoring that the whole dispute centred round the provision of stem cell banking services, which were being provided by the 13 entities in different parts of the country and two additional service providers had come into existence during the pendency of the information. 31. De horse the above fatal defects in the proceedings conducted by the Jt. DG and the majority of the Commission and the impugned order, I shall consider whether the finding recorded by the majority of the Commission that the appellant is guilty of acting in violation of Section 3(1) of the Act is legally sustainable. For this purpose, it wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including-- (a) tie-in arrangement; (b) exclusive supply agreement; (c) exclusive distribution agreement; (d) refusal to deal; (e) resale price maintenance, shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India. Explanation.--For the purposes of this sub-section,-- (a) "tie-in arrangement" includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods; (b) "exclusive supply agreement" includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person; (c) "exclusive distribution agreement" includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods; (d) "refusal to deal" includes any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought; (e) "r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices. xxx xxx (5) For determining whether a market constitutes a "relevant market" for the purposes of this Act, the Commission shall have due regard to the "relevant geographic market" and "relevant product market". (6) The Commission shall, while determining the "relevant geographic market", have due regard to all or any of the following factors, namely:-- (a) regulatory trade barriers; (b) local specification requirements; (c) national procurement policies; (d) adequate distribution facilities; (e) transport costs; (f) language; (g) consumer preferences; (h) need for secure or regular supplies or rapid after-sales services. (7) The Commission shall, while determining the "relevant product market", have due regard to all or any of the following factors, namely:-- (a) physical characteristics or end-use of goods; (b) price of goods or service (c) consumer preferences; (d) exclusion of in-house production; (e) existence of specialised producers; (f) classification of industrial product" 32. A plain reading of Section 3 makes it clear that sub-section (1) thereof can be invoked only if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two earlier decisions of the Commission. In Subhash Yadav's case, the informant had alleged that Respondent No. 1, who holds dominant position in the relevant market of Sports Utility Vehicle (SUV) was guilty of abusing its dominant position and that the agreement between Respondent No. 1 and Daimler A.G., Germany was anti-competitive and violative of Section 3(1) of the Act. While rejecting the arguments of the informant, the Commission referred to the aim and object of the Act, Section 3 thereof and observed: "6. It may be noted that the aim and object of the Act, is to prevent the practices having adverse effect on the competition, to promote competition and thereby to protect the interest of the customers. In nutshell, the purpose of this Act is to protect and promote fair competition in the markets in India. However, for the protection of individual consumer interest, there is another statue already in existence known as Consumer Protection Act, 1986 ('the Act of 1986') which mainly deals with protection of consumer interest against the deficiencies in services or goods being purchased by the consumers from sellers. Therefore, there is a clear difference bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and conclusions recorded by the DG and culled out the following issues: i. Appreciable adverse affect arising from such agreements; ii. Abuse of dominance by the opposite parties by: a) Imposing unfair conditions in the purchase of Apple iPhones b) Imposing discriminatory conditions on users who had purchased their Apple iPhones from a source other than OP3 and OP4 c) Indulging in such concerted practices under the agreements/understandings between them, which results in denial of access, to the other GSM network providers d) Concluding contracts for the sale of iPhones subject to acceptance by other parties of supplementary obligations e) OP3 & OP4 using their dominant position in the GSM market to enter and control the iPhone market in India. After examining the definitions of the 'relevant market', 'relevant product market' and 'relevant geographic market', the Commission observed: "56. There are two issues that need to be highlighted before commenting on the dominant position of the opposite parties. Firstly, the business model/strategy of Apple in India need to be emphasized. At the time of launch of iPhones in India, Apple did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e website of Cellular Operators Association of India (COAI), Group Company wise percentage market share in terms of GSM subscribers for the month of December 2012 is as follows: Source: http://www.coai.com/statistics.php - Subscriber Figures for Dec 2012 From the above data as also the data submitted by the DG, it is observed that none of the OPs can be deemed dominant in terms of respective market share in the relevant market and other Section 19(4) conditions. 61. An issue has been raised by the Informant, submitting that OP3 and OP4 hold more than 50% of GSM market, thereby making them dominant in the market. The Commission notes that there is no indication of any sort of agreement between them (OP3 and OP4) that could be deemed anti-competitive. Therefore, it is not relevant to take cognizance of this piece of information in the given context, more so when they are competitors in the same market. 62. In view of the above discussion, Commission opines that since dominance does not get established, there can be no case for abuse of dominance under Section 4 of the Act." The Commission then discussed whether the agreements between the respondents were anti-competiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. A bundled sale typically refers to a sale in which the products are sold only in fixed proportions (e.g., one pair of shoes and one pair of shoe laces or a newspaper, which can be viewed as a bundle of sections, some of which may not be read at all by the customers). Bundling may also be referred to as a "package tie-in." It is also true that various foreign courts have occasionally used the two terms interchangeably. 69. On the other hand, anti-trust concerns are raised in the case of tie-in as held in section 3(4)(a), although per se it is not anti-competitive. Therefore, the Commission has been at pains to distinguish between a tie-in arrangement and bundling in this specific case. Economics literature suggests that there are pro-competitive rationales for product-tying. These include assembly benefits (economies of scale and scope), quality improvement as also addressing pricing inefficiencies. Generally, the following conditions are necessary and essential in respect of anti-competitive tying: 1. Presence of two separate products or services capable of being tied: In order to have a tying arrangement, there must be two products that the seller can tie togeth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r? • Consequently, is there a foreclosure effect of the agreement on any of the two markets - smartphone and mobile services? 71. Given the fact that none of the opposite parties (Apple/Airtel/Vodafone) have dominant position in their respective market, as discussed earlier and that there has been no intention and evidence to show that market has been foreclosed to competitors or that entry-barriers have been erected for new entrants in any of the markets by any of the opposite parties, the anti-competitive analysis of the tie-in arrangement shall be made while addressing the above questions. 72. In this case, it is found that a consumer interested in buying an iPhone is tied to one of the two mobile networks i.e. Airtel or Vodafone. It is worth noting that at the time of launch of iPhone in India, Apple did not have an outlet to sell its iPhone, a high-end smartphone. Instead of investing money on creating sales and service outlet and incurring advertisement expenditure, Apple's strategy was to have tactical agreement with network operators, possibly the best partners for selling mobile handsets. This arrangement also helped Apple in gauging the public perception fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oice for availing network services without any restrictions. Furthermore, the network operators do not require any particular handset to be purchased by the customer in order to avail its network services. Moreover, the lock-in arrangement of iPhone to a particular network was for only for a specific period and not perpetual, a fact known to prospective customer. It is difficult to construe consumer harm from the 'tie-in' arrangement between the opposite parties. The Commission observes that there is no restriction on consumers to use the network services of OP3 and OP4 to the extent that the network services can be availed on any mobile handset, even an unlocked iPhone purchased from abroad. Also, a consumer who has purchased a locked iPhone in India and paid the unlocking fees is free to choose the network operator of his choice. 77. On the basis of facts submitted by the DG, none of the OPs have a position of strength to affect the market outcome in terms of market foreclosure or deterring entry, creating entry barriers or driving any existing competitor out of the market and within the theoretical framework of tying arrangement, the anti-competitive concerns in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at least two new entities namely, Novacord and Unistem Biosciences have entered the market in 2011 and 2012 respectively i.e. after execution of the agreement between the appellant and Cryobanks and no evidence whatsoever was produced before the Jt. DG or the Commission to show that any operating entities had exited the market on account of operation of the impugned agreement. 37. As a corollary to the above conclusion, it must be held that the penalty imposed by the Commission under Section 27 of the Act cannot be upheld. 38. The following are the other reasons why the penalty imposed by the majority of the Commission is liable to be set aside: (i) The view taken by the Commission on the interpretation of the term 'turnover' is contrary to the view expressed by the Tribunal in Appeal No. 79 of 2011-M/s. Excel Corp Care Limited Vs. Competition Commission of India and others decided on 29.10.2013 along with Appeals Nos. 80 and 81 of 2012. In that case, the Commission had imposed penalty on the appellants @ 9 % of the average turnover of three financial years. While modifying the order of the Commission, the Tribunal made the following observations: "60. The argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t multi-product companies. Secondly, we had specifically pointed out that the restricted turn over could not be taken into consideration. A restricted turnover is different from the relevant turn over. In that case the argument was that we must only consider the turn over generated in the supplies made only to the Government Hospitals. We had pointed out that the business of supply of the materials could not be any different from the supplies to the other Hospitals. It was on that basis that we had rejected the argument. We must repeat that we had not rejected the total concept of relevant turn over. We are accepting the argument regarding the relevant turn over in the peculiar circumstances of this case where the two appellant companies have clearly indicated that the other products of those companies have no connection and do not depend upon the product involved in this matter, that is ALP Tablets. We, therefore reject the argument of Shri Balaji Subramanian." [Underlining is mine] (ii) It is not in dispute that the appellant is a multi-speciality hospital and its total annual turnover is the income derived from the services provided in different specialities and not mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 34(1) of the DRT Act and Section 35 of the Securitisation Act, two Central legislations will have primacy over State legislations will have primacy over State legislations are the questions which arise for determination in these appeals. While answering the aforesaid question in negative, the Supreme Court referred to some of the principles of interpretation of statutes. The relevant paragraphs (paragraphs 25 to 27 of the Manupatra publication of that judgment) are extracted below: "25. As a prelude to the consideration of question relating to conflict between Central and State legislations and priority, if any, given to the dues of banks, financial institutions and other secured creditors under the DRT Act and Securitisation Act, it will be useful to notice some rules of interpretation of statutes, one of which is the rule of contextual interpretation. This rule requires that the court should examine every word of a statute in its context. In doing so, the Court has to keep in view preamble of the statute, other provisions thereof, pari materia statutes, if any, and the mischief intended to be remedied. Context often provides the key to the meaning of the word and the sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the setting of the entire Act and by reference to what preceded the enactment and the reasons for it that the Court construed the expression 'prize chit' in Srinivasa (1980) 4 SCC 507 and we find no reason to depart from the Court's constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es only could be taken into consideration for the purpose of imposing penalty and not the turnover with reference to other services or income derived from other sources. 41. While imposing penalty, the Commission completely overlooked the following important factors: (i) Smt. Manju Jain, who wanted to avail stem cell banking services did not complain that due to refusal of the appellant to allow LifeCell to collect stem cell at the time of her delivery had caused any loss, damage or harm to her. (ii) The informant did not make any complaint against the agreements executed between the appellant and LifeCell in the years 2009-10 and 2010-11, which gave exclusive rights to LifeCell to collect stem cell from the maternity patients coming to the appellant who were desirous of availing that service. (iii) This case was first of its type in which private healthcare service sector was being evaluated under the Competition Act on the allegation of violation of Sections 3 and 4 in the context of stem cell banking. (iv) After the termination of agreement entered into between the appellant and Cryobanks, the former neither renewed the agreement nor entered into any other exclusive agr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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