CCI Imposes Penalty on Esaote S.p.A and Esaote Asia Pacific Diagnostic Private Limited

On September 27, 2018, CCI (by a majority of two out of three members) passed an order under Section 27 of the Act and imposed a penalty on Esaote S.p.A and Esaote Asia Pacific Diagnostic Pvt. Ltd. (‘EAPD’) (collectively, ‘Esaote’), for contravention of Section 4 of the Act. [1]

The information was filed by M/s House of Diagnostics LLP (‘HoD’), engaged in the business of medical diagnostics and diagnostic imaging services. The allegations of HoD pertained to the purchase of three ‘Dedicated Standing/ Tilting MRI machines’ manufactured by Esaote (‘G-Scan Machines’) for HoD’s diagnostic centers. It was alleged that Esaote was dominant in the defined market and had abused its dominance as: (i) Esaote misled HoD that new machines were being supplied to it; (ii) acted unfairly by refusing to supply ‘See through Perforated RF Cage’ and ‘Head Coils’ to HoD; (iii) insisted that the Comprehensive Maintenance Contract (‘CMC’) was to be paid for each machine supplied; and (iv) limited the provision of services in the after sale market and denied market access to third party service providers.

CCI after considering the information was of the view that a prima facie case of contravention of the provisions of Section 4 of the Act by Esaote was made out. Therefore, it passed an order under Section 26(1) of the Act, directing the DG to investigate the matter and submit its report to CCI (‘DG Report’). The DG Report came to following conclusions: (i) the relevant market was found to be the market for ‘Dedicated Standing/ Tilting MRI machines in India’; (ii) Esaote was dominant in the market for ‘Dedicated Standing/ Tilting MRI machines in India’; and (iii) Esaote abused its dominance in the defined market.

In its analysis, CCI observed that G-scan Machines are a distinct product that can tilt the patient up to 90 degrees which is not possible in conventional supine MRI machines. It was also observed that conventional MRI machines can scan the whole body of a patient whereas the dedicated standing/ tilting MRI is meant specifically for joint and spines. In addition, the fact that there are diagnostic centers which have both types of MRI machines indicate that the products are distinct. Therefore, CCI found the relevant market to be the ‘market for dedicated standing/tilting MRI machines in India’ (‘Relevant Market’). Further, CCI found Esaote to be dominant in the Relevant Market as Esaote had patent rights over its G-Scan Machines and due to the absence of other companies who manufacture such machines in the Indian market, Esaote is able to operate independently of competitive forces.

CCI observed that the G-Scan Machines supplied to HoD were not performing to the level as promised by Esaote and were more than a year old. CCI also held that Esaote acted unfairly by refusing to supply ‘See through Perforated RF Cage’ and ‘Head Coils’ to HoD despite HoD being promised these products by way of email correspondence.

On a reading of the relevant purchase order, CCI found Esaote to have abused its dominance by insisting that the CMC was to be paid for each machine. Further, the exclusive rights given to EAPD for supply of spare parts and for providing after sales services for G-Scan Machines in India limited the provision of services in the after sale market and denied market access to third party service providers. Based on the above, CCI found Esaote to have abused its dominance under Section 4 of the Act and imposed a penalty of Rs 9.33 lakhs while also directing Esaote to ‘cease and desist’ from the infringing conduct.

The CCI Chairperson wholly disagreed with the majority’s view on the delineation of the Relevant Market. The dissent note observes that the market cannot be narrowed to standing/ tilting MRI machines alone as any market delineation would have to necessarily include all MRI machines. Once the market is defined in this manner, the behavior of Esaote stands constrained by the presence of many other players as Esaote is a small player in the market of all MRI machines.  Therefore, there was no question of dominance or abuse of dominance.

[1] Case No. 9 of 2016 (Order dated September 27, 2018)

Published In:Inter Alia Special Edition Competition Law Third Quarter 2018 [ English
Date: September 30, 2018