Healthcare and Life Sciences

Medical Devices Rules, 2017

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]

Some of the salient features of the Medical Devices Rules, 2017 (‘MD Rules’) notified by the Ministry of Health and Family Welfare (‘MHFW’) on January 31, 2017, which will come into force from January 1, 2018, are set out below:

i. Definition of Medical Device: The term ‘medical device’ has been defined to mean: “(a) substances used for in vitro diagnosis and surgical dressings, surgical bandages, surgical staples, surgical sutures, ligatures, blood and blood component collection bag with or without anticoagulant covered under sub-clause (i) of clause (b) of Section 3 of the Drugs and Cosmetics Act, 1940 (‘DCA’); (b) substances including mechanical contraceptives (condoms, intrauterine devices, tubal rings), disinfectants and insecticides notified under sub-clause (ii) of clause (b) of Section 3 of the DCA; and (c) devices notified from time to time by the Central Government under sub-clause (iv) of clause (b) of Section 3 of the DCA”;

ii. Classification of medical devices: The MD Rules provide for a risk based classification: (a) low risk as Class A; (b) low moderate risk as Class B; (c) moderate high risk as Class C; and (d) high risk as Class D;

iii. Conformance to the Bureau of Indian Standards or MHFW standards: Where no relevant standards have been laid down, such device should conform to the standards laid down by the International Organisation for Standardisation or the International Electro Technical Commission, or as per any other pharmacopoeial standards. In the absence of the above standards, the device should conform to the validated manufacturer’s standards;

iv. Licensing Mechanism: Licenses for manufacture for sale or for distribution of devices falling under Classes A and B will be granted by the State Licensing Authority, whereas, those falling under Classes C and D and import licenses all classes of medical devices will be granted by the Central Licensing Authority;

v. Term of Licenses: Any new licenses obtained under the MD Rules, whether for manufacture or import, will be valid in perpetuity, unless cancelled or surrendered and provided requisite license retention fees are paid; and

vi. Shelf Life: This will be determined keeping in view the technical parameters and will ordinarily not exceed 60 months from date of manufacture. The MD Rules also contain restrictions on the import of certain medical devices depending on their respective shelf life claim and the percentage of residual shelf-life as on the date of import.

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Coronary Stents Brought under Price Control

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]

On February 13, 2017, the National Pharmaceuticals Pricing Authority (‘NPPA’), Ministry of Chemicals and Fertilizers (‘MoCF’) published an order fixing the ceiling prices of coronary stents, by way of a Gazette Notification., pursuant to which the price of bare metal stents has been capped at INR 7,260 (approximately US$ 110) per unit and the price of drug eluting stents (‘DES’) (including metallic DES and Bioresorbable Vascular Scaffold / Biodegradable stents) has been capped at INR 29,600 (approximately US$ 450) per unit, exclusive of value added tax. This has primarily been done by the NPPA as it found that huge and unethical mark-ups were being charged throughout the supply chain of coronary stents resulting in irrational, exorbitant and unaffordable prices of coronary stents in India. Earlier, by way of a notification dated July 19, 2016, the Ministry of Health & Family Welfare had added ‘coronary stents’ to the National List of Essential Medicines, 2015 and subsequently the MoCF, by notification dated December 21, 2016, had amended Schedule I of the Drug Price Control Order, 2013 (‘DPCO 2013’) such that ‘coronary stents’ were classified as ‘scheduled formulations’ under the provisions of the DPCO, 2013.

By an Office Memorandum dated February 20, 2017, the NPPA, MoCF has also fixed a trade margin of 8% on coronary stents, which will apply across the trade channels viz. from manufacturer/importer to the end consumer and will include hospital handling fees. The NPPA has also clarified that the 8% trade margin has been built into the ceiling price of coronary stents.

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Revisions to FDI Policy

Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

The Department of Industrial Policy and Promotion (‘DIPP’) has, by way of Press Note No. 5 dated June 24, 2016 (‘Press Note 5’), introduced the following notable amendments to the FDI Policy:

i. 100% foreign direct investment (‘FDI’) is permitted under the approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India;

ii. In the defence sector, FDI beyond 49% is permitted through the approval route, where the investment results in Indian access to modern technology or for other reasons. The erstwhile condition for such FDI, requiring such investment to result in access to ‘state-of-art’ technology, has been dispensed with;

iii. Foreign investment in the civil aviation sector has been liberalised, whereby: (a) 100% FDI is permitted under the automatic route in brownfield and greenfield airport projects; and (b) FDI has been raised to 100% (with up to 49% under the automatic route and 100% through the automatic route for non-resident Indians (‘NRIs’)) for scheduled air transport services, domestic scheduled passenger airlines and regional air transport services. Foreign airlines continue to be allowed to invest in the capital of Indian companies operating scheduled and non-scheduled air-transport services up to 49%;

iv. FDI in brownfield pharmaceutical projects has been permitted up to 100%, with 74% under the automatic route. However, a non-compete clause is not permitted in transactions, except in certain special circumstances with the prior approval of the Foreign Investment Promotion Board;

v. Local sourcing norms have been relaxed for three years for entities engaged in single brand retail trading of products having ‘state-of-art’ and ‘cutting edge’ technology, and where local sourcing is not possible;

vi. FDI in private security agencies has been raised to 74%, with 49% permitted under automatic route. It is clarified that the terms ‘private security agencies’, ‘private security’, and ‘armoured car service’ will have the same meaning as ascribed to such terms under the Private Security Agencies (Regulation) Act, 2005. Accordingly, private security agencies would include any person (other than any governmental agency) providing private security services including training of private security guards and deployment of armoured cars;

vii. FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture was permitted up to 100% under the automatic route under controlled conditions. The requirement of ‘controlled conditions’ for FDI in these activities has now been removed; and

viii. 100% FDI in broadcasting carriage services, including teleports, direct to home, cable networks, mobile TV and headend-in-the-sky broadcasting services, has been permitted under the automatic route.

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

Published In:Inter Alia Special Edition Competition Law Third Quarter 2018 [ English ]

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)

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CCI Dismisses Allegations of Abuse of Dominance against Nutritia International Pvt. Ltd

Published In:Inter Alia Special Edition Competition Law Third Quarter 2018 [ English ]

On August 28, 2018, CCI dismissed allegations of abuse of dominance against Nutritia International Pvt. Ltd. (‘Nutritia’) with respect to the failure of Nutritia to supply goods to Mr. Prabhakhar Pandey, a stockist for Nutritia’s goods (‘Informant’). [1]

The Informant filed the information before CCI against Nutritia alleging that Nutritia had abused its dominant position by ceasing its business operations with the Informant and by not supplying goods even though the Informant had already deposited an advance towards the procurement of goods from Nutritia. CCI initiated its assessment by delineating the relevant markets as ‘(i) market for infant formula milk in India; (ii) market for baby food nutritional supplements in India; and (iii) market for protein based nutritional supplement products in India’, keeping in mind the business activities of Nutritia (protein based nutritional supplements, including ‘Protinex’) and the geographic scope of homogenous competitive conditions. As regards Nutritia’s dominance, CCI observed that Nestle was a market leader with 63% market share in the market for baby food in India and collectively held 83% market share, along with Gujarat Cooperative Milk Marketing Federation in this market (in 2017). It was further observed that Protinex too had numerous substitutes available in the market such as ‘Horlicks Protein Plus’ etc. In light of the same CCI did not considered Nutritia to be dominant either in the baby food market or nutritional supplements market in India.  In absence of dominance, CCI did not assess the allegations of abuse.

[1] Mr. Prabhakar Pandey v. Nutricia International Private Limited, Case No. 28 of 2018 (Order dated August 28, 2018)

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CCI Expands the Scope of Investigation to Consider the Pricing Practices in the Aftermarkets Healthcare Products and Services Provided by Super Specialty Hospitals in Delhi

Published In:Inter Alia Special Edition Competition Law October 2018 [ English ]

On August 31, 2018, CCI published an order in Vivek Sharma v. Becton Dickinson India (P) Ltd.[1] directing the DG to carry out further investigation and furnish a detailed supplementary investigation report, including on the issues specifically identified by CCI in its order.

By way of background, in 2015, Vivek Sharma (‘Informant’) had filed information against Becton Dickinson India (P) Ltd.(‘BDIL’) and Max Super Specialty Hospital (‘Max’) alleging that Max, in collusion with BDIL, was selling disposable syringes at a price well above the maximum retail price (‘MRP’) and the open market price. This was alleged to be in contravention of Sections 3(1) and 4 of the Act. Having found a prima facie case of contravention of 4 of the Act, CCI directed the DG to carry out a detailed investigation.

Pursuant to reviewing the findings of the DG and submissions of Max and BDIL, CCI disagreed with the DG’s identification of the relevant market as the “provision of healthcare services/ facilities by private super-specialty hospitals within a distance of about 12 kms from Max Super Specialty Hospital, Patparganj”. Instead, CCI directed the DG to consider the concept of ‘aftermarket abuse’ to define the relevant market and directed the DG to identify the relevant market as the “market for healthcare services/ facilities in the after-market for in-patients in super-specialty hospital”. CCI appears to be concerned that, once admitted for treatment, a patient is effectively ‘locked-in’ to the services and products as made available by the hospital. This ‘locked-in’ effect, in turn, increases the ability of hospitals to ‘exercise its dominance over its in patients” by requiring its patients “to purchase aftermarket products from its in-house pharmacy only.” CCI observed that “such conduct may be considered as an aftermarket abuse even if [Max] is found to be not dominant in the primary market for provision of healthcare services in Delhi.” CCI also disagreed with the DG’s identification of the relevant geographical market and directed the DG to consider ‘Delhi’ as the relevant geographic market – as CCI had done at the time of issuing its prima facie order.

CCI further opined that the DG report did not adequately make a case of excessive pricing and directed the DG to carry out further investigation. CCI noted that although the DG had recorded high profit margins in the sale of syringes to conclude an abuse of dominance, it failed to look at the absolute profits from the sale of syringes “and other products in the after markets.” Referring to concerns of “locked-in effects” CCI directed the DG to further investigate other products such as medicines, surgical tools etc. to “establish that the higher profit margins from sale of syringes or any other products cause consumer harm due to lack of competition.” Moreover, it specifically directed the DG to focus on those after-market products that are not required urgently to “examine whether [Max] abuses its dominant position by forcing in-patients to purchase those at higher/unfair prices from its in-house pharmacy though the same are available at discounted rates in the open market.”

[1]Case No. 77 of 2015

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Four Medical Devices brought under Regulatory Purview

Published In:Inter Alia - Quarterly Edition - December 2018 [ English Chinese japanese ]

By way of a notification dated December 3, 2018, the Ministry of Health and Family Welfare (‘MHFW’) has brought four commonly used medical devices (i.e. nebulizers, blood pressure monitoring devices, digital thermometers and glucometers) under the purview of ‘drugs’, as defined under Section 3(b)(iv) of the Drugs and Cosmetics Act, 1940 (‘DCA’), with effect from January 1, 2020. These are an addition to the pre-existing list of 23 other medical devices, already defined as ‘drugs’ under the DCA.

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Draft Cosmetics Rules, 2018

Published In:Inter Alia - Quarterly Edition - December 2018 [ English Chinese japanese ]

MHFW has, on November 29, 2018, published the Draft Cosmetics Rules, 2018 under the DCA. The draft rules aim to expand the regulations surrounding import, manufacturing, labelling, and other related activities in relation to ‘cosmetics’ as defined in Clause (aaa) of Section 3 of the DCA. The draft rules also introduce certain stringent norms with an aim to make manufacturers and importers of cosmetics more accountable for the safety of the cosmetics sold in the country. Some of the key salient features of the draft rules pertain to quality standard, labeling, prohibited cosmetics, import registration and enforcement authorities.

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CCI Dismisses Allegations against Chemists on the Collection of PIS Charges from Pharmaceutical Manufacturers

Published In:Inter Alia Special Edition Competition Law December 2018 [ English ]

On November 8, 2018, the CCI dismissed allegations of contravention of Section 3 of the Act filed by Shri Nadie Jauhari (‘Informant’) against Retail & Dispensing Chemists Association (‘RDCA’).[1] The allegations were with respect to the collection of Product Information Service (‘PIS’) charges by the RDCA from the manufacturers of pharmaceutical products. PIS is a fee charged by chemists and druggists associations for advertising a new product/drug of a pharmaceutical company in the publications of such associations. In this regard, CCI had issued a public notice in 2014, calling trade associations to cease and desist from inter alia compulsory payment of PIS charges by pharmaceutical firms.

In assessing the allegation of the Informant, CCI was of the view that the decisive factor for holding a PIS charge as anti-competitive is the nature of such a charge, that is, if the PIS charge is mandatory (in the sense that absence of payment will lead to the new drugs not being introduced in the market), the practice will be found to be anti-competitive. However, an independent decision of manufacturers/ pharmaceutical companies to avail the PIS charge on a voluntary basis makes it fall outside the purview of the Act.

CCI examined the responses of various pharmaceutical companies, which indicated that the companies found the RDCA’s publications useful in spreading awareness on their new products. Moreover, none of the companies indicated that the PIS charge was forced by the RDCA in any manner. Therefore, since the PIS charge met the test of voluntariness, CCI concluded that it was not anti-competitive under the Act.

[1] Case No. 60 of 2015.

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Delhi High Court Dismisses Writ Petition Filed by Abbott Healthcare

Published In:Inter Alia Special Edition Competition Law November 2018 [ English ]

On November 13, 2018, the Delhi High Court (‘DHC’) dismissed the writ petition filed by Abbott Healthcare Private Limited (‘Abbott’), challenging the order dated July 5, 2018 passed under Section 26(1) of the Act by CCI.[1] In this order, CCI had directed investigation into the anti-competitive agreements between four leading pharmaceutical companies, namely, Novartis India, Abbott, USV Limited and Emcure Pharmaceuticals Limited. Abbott also challenged the CCI order dated October 29, 2018 rejecting Abbott’s application for review and recall of the aforesaid order.

The information regarding the alleged contravention was received by CCI pursuant to: (i) a letter dated March 22, 2017 from the National Pharmaceutical Pricing Authority, Department of Pharmaceuticals (‘NPPA’); and (ii) an anonymous e-mail purportedly sent by one of the employees of Abbott (‘Email’) containing another e-mail dated July 29, 2016. The Email indicated that there was an understanding to maintain the price of drugs across the country.

According to Abbott, the Email is forged and the data provided by NPCC is inaccurate. Abbott challenged the CCI’s order on the ground that CCI could not have issued the order without employing appropriate tools to test the veracity of the contents of the Email.

While dismissing Abbott’s writ petition, DHC referred to Competition Commission of India v Steel Authority of India Limited[2]. Relying on this decision, DHC held that an order passed by CCI under Section 26(1) of the Act is essentially an administrative order, akin to a direction from one wing of the department to another. The decision further explains that an order under Section 26(1) of the Act passed by CCI can at best direct investigation and does not amount to an adjudicatory function.

The DHC noted CCI’s powers under the following provisions: (i) under Section 36 of the Act, the CCI has powers of a civil court to try matters before it including discovery, production of documents and receiving evidence on affidavit; and (ii) under Regulation 17 and Regulations 41 and 44 of the CCI (General) Regulations, 2009 (‘General Regulations’), the CCI has power and jurisdiction to take evidence and call for information in accordance with provisions of the Act. However, while dismissing the writ petition, DHC rejected the contention that it was incumbent upon CCI to take evidence under Section 36(2) of the Act or Regulation 41 of the Regulations before issuing an order under Section 26(1) of the Act. It held that a decision under Section 26(1) of the Act is only a preparatory measure which precedes an inquiry.

[1] W.P. (C) No. 12129 of 2018.
[2] (2010) 10 SCC 744.

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CCI Imposes Penalty on Chemists and Druggists Association of Baroda for Indulging in Restrictive Trade Practices

Published In:Inter Alia Special Edition Competition Law February 2019 [ English ]

On January 15, 2019, CCI passed an order under Section 27 of the CA02 imposing a penalty on the Chemists and Druggists Association of Baroda (‘CDAB’) for contravention of Section 3 of the CA02 by restricting the supply of drugs. [1]

In 2012, CCI had imposed a fine of INR 53,837 (approx. US $760) following information filed by M/s Vedant Bio-Sciences, Baroda alleging involvement of CDAB in fixing trade margins and mandating no-objection certificates for the appointment of stockists and launch of new drugs. The penalty was set aside by the Competition Appellate Tribunal in 2016 on the basis that CCI had violated principles of natural justice and the case was remanded back to CCI. After hearing the case again, CCI concluded that the pre-requisite for stockists to obtain no-objection certificates and the requirement to pay ‘product information service’ charges prior to the introduction of new products in the market, limits and controls the supply of drugs in the market.

In light of the above, CCI passed an order directing CDAB to cease and desist from such anti-competitive conduct and further imposed a penalty of INR 32,724 (approx. US $460) on CDAB for violation of Section 3(3)(a) and Section 3(3)(b) of the CA02.

[1] Case Number C-87/2009/DGIR.

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CCI Dismisses Allegations Against Ministry of Health and Central Medical Services Authority for Contravention of Section 4

Published In:Inter Alia Special Edition Competition Law February 2019 [ English ]

On December 26, 2018, CCI dismissed allegations of contravention of Sections 3 and 4 of the CA02 filed by Cupid Limited against the Ministry of Health and Family Welfare (‘MHFW’) and Central Medical Services Authority (‘CMSA’). [1]

The information was filed against the alleged abusive conduct of CMSA involving a long-term agreement (‘LTA’) which contained one-sided, unfair and arbitrary terms and conditions regarding the supply of condoms, including (i) rigid timelines for delivery of the product; (ii) imposition of damages for delay in supply; (iii) submission of security deposit before signing of the LTA; (iv) unilateral discretion of CMSA to increase/decrease the production quantity; and (v) the inability to sub-contract manufacturing of the product. The informant alleged that CMSA forced it to sign the agreement without giving it any opportunity to negotiate. The informant also alleged violation of Section 3(4) by complaining against CMSA’s packaging specification requirements which ensured that the product could not be sold to any other customer other than CMSA.

On a perusal of the allegations and the Government of India’s contraceptive policies, CCI noted that MHFW undertakes policy functions on behalf of the Government of India and hence, cannot be considered an ‘enterprise’ that can be held liable under Section 4 of the CA02. With respect to CMSA, CCI noted that it undertakes commercial functions and is therefore, an enterprise under Section 4 of the CA02. Noting its own prior decisions on abuse of buyer power[2], CCI noted that the relevant market has to be delineated by applying ‘demand side substitutability’ inversely i.e. by assessing the availability of substitutes for suppliers and their ability to switch to alternative sales opportunities. Therefore, CCI decided the relevant market to be ‘market for male condoms in India’.

CCI held that the market shares of CMSA identified by the informant did not reveal a true picture and hence failed to establish dominance of CMSA. CCI further held that having social objectives, CMSA did not have any incentive to influence the relevant market particularly when it procures 75% of its requirements from a single company. With regard to the allegation under Section 3(4), CCI held that the printing requirements of CMSA do not restrict the informant from dealing with other customers. Therefore, CCI dismissed the complaints.

[1] Case Number 45 of 2018.
[2] Case Number 70 of 2014. Case Number 16 of 2013 and Case Number 80 of 2015.

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CCI approves acquisition of Heinz India Private Limited by Zydus Wellness Limited and Cadila Healthcare Limited

Published In:Inter Alia Special Edition- Competition Law - March 2019 [ English ]

On December 6, 2018, CCI approved acquisition of 100% shareholding of Heinz India Private Limited (‘Heinz India’) by Zydus Wellness Ltd. (‘Zydus’) and Cadila Healthcare Ltd. (‘Cadila’). [1]

Zydus operates in the consumer products segment with products ranging from healthy fat spreads, personal care to sugar substitutes. Cadila, is stated to be engaged in the business of pharmaceutical formulations, biologics, etc. Both Zydus and Cadila are stated to belong to the Zydus Family Trust group.

Heinz India belongs to the Kraft Heinz Group and manufactures food and other products, including tomato ketchup, energy drinks, ghee etc., through brands such as Complan, Glucon-D, Nycil, and Sampriti Ghee etc.

The proposed combination related to acquisition of Heinz India’s businesses relating to four brands, namely, Glucon-D, Nycil, Sampriti Ghee and Complan (‘Target Business’). The transaction was structured in a way such that a new company incorporated by Heinz Italia would acquire all the assets, facilities, employees, contracts, IP, etc., that are not related to the Target Business.

In its competitive assessment, CCI noted that there were no horizontal overlaps or vertical relationships between Zydus/ Cadila and Heinz India. In light of the above, CCI approved the combination as it was not likely to have any AAEC in India in any of the markets.

[1] Combination Registration No. C- 2018/12/612

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CCI approves the amalgamation of GlaxoSmithKline Consumer Healthcare Limited and Hindustan Unilever Limited

Published In:Inter Alia Special Edition - Competition Law - April 2019 [ English ]

On January 23, 2019, CCI approved the amalgamation of GlaxoSmithKline Healthcare Limited (‘GSKCH’) and Hindustan Unilever Limited (‘HUL’, collectively with GSK referred to as ‘Parties’) (‘Proposed Combination’). The Proposed Combination was notified to CCI, (i) pursuant to a resolution passed by the board of directors of GSKCH and HUL, each on December 03, 2018, and (ii) execution of merger co-operation agreement among inter alia, HUL, Unilever Plc, GSKCH, GlaxoSmithKline (‘GSK’) Pte. Limited, Horlicks Limited and GlaxoSmithKline plc on December 03, 2018 (‘Merger Agreement’). Pursuant the Proposed Combination, HUL would also enter into a non-exclusive consignment selling agency arrangement with various GSK group entities in relation to marketing and selling of certain over-the-counter medicinal (‘OTC’) products and oral healthcare (‘OH’) products in India, Bhutan and Nepal for a period of five years. (‘CSA Products’). [1] HUL belongs to the Unilever group which is globally present in home-care, beauty and personal care and foods and refreshments product segments. In India, HUL is primarily involved in the business of manufacture and sale of: (i) home care products; (ii) personal care products; (iii) food products; and (iv) refreshments.

GSKCH belongs to the GSK group which is globally present in prescription medicines, vaccines, consumer healthcare products etc. In India, GSKCH is engaged in inter alia, manufacture and sale of: (i) malt based and protein based health food drinks; (ii) food products; (ii) nutrition drinks (ready to drink). Additionally, GSKCH is also the consignment selling agent for other GSK group entities (including for OTC and OH products).

Based on the business activities of the Parties, CCI identified overlaps between the Parties in two categories, namely, (i) instant noodles; and (ii) breakfast cereals (potential overlap). However, given that the Proposed Combination would not have led to any AAEC in any of the alternative relevant markets, CCI did not conclusively define the relevant market(s). As per CCI, the Parties did not have a significant presence in the instant noodles segment, which is marked by the presence of numerous significant enterprises. With respect to the breakfast cereals segment, CCI noted that HUL did not have a significant presence in such a segment. Accordingly, CCI concluded that the Proposed Combination would not lead to any AAEC in any market in India.

Additionally, CCI also analysed CSA Products and products sold by HUL for overlaps and identified OH as an overlapping product market. However, as per CCI, the combined market share of the Parties of 20% (with a minimal increment of zero to five percent), coupled with numerous significant competitors (e.g., Colgate, Dabur etc.) would prevent the Proposed Combination from causing any AAEC in this segment. Accordingly, CCI approved the Proposed Combination under Section 31(1) of the Act.

[1] Combination Registration No. C-2018/12/625

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India: Product Liability

Published In:The In-House Lawyer [ ]

This country-specific Q&A provides an overview to product liability laws and regulations that may occur in India

1. Please summarise the main legal bases for product liability.

The term ‘product liability’ has not been defined under any Indian statute. However, in accordance with the evolving jurisprudence around product liability claims in India, the term has generally been understood to mean the liability of any or all parties that form a part of the manufacturing and supply chain of a product, arising from any defect in the product and consequent loss or injury caused by the defective product.

In India, there is no one specific statute or law providing the entire legal framework for product liability claims. There exist multiple general and sector-specific laws that form part of the legal framework governing product liability in India, which, in certain instances may overlap depending on the sector and facts of the case.

Briefly, the substantive civil laws that relate to product liability in India are:

a. the Sale of Goods Act, 1930 (SGA);
b. the Consumer Protection Act, 1986 (CPA); and
c. the Indian Contract Act, 1872 (the Contract Act).

Further, as India is a common law country, courts are influenced by principles of justice, equity and good conscience, and principles of tort law such as the duty of care, negligence and strict liability (including absolute liability in exceptional circumstances) in claims dealing with product liability. The provisions of the Indian Penal Code, 1860 (IPC), such as those relating to criminal negligence, fraud and cheating, may apply in cases of defective products supplied if criminal intent is ascribed to the acts of the manufacturers or suppliers.

Additionally, there are pan industry laws such as the Bureau of Indian Standards Act 2016 (BIS Act), and sector specific statutes such as the Food Safety and Standards Act, 2006 (FSSA), Drugs and Cosmetics Act, 1940 (the Drugs Act), and Motor Vehicles Act, 1988 (MVA) that govern product liability in India.

BIS Act sets out mandatory and voluntary standards and specifications applicable to products across different sectors and industries. If any goods or articles do not conform to a mandatory standard, the regulatory authority under the BIS Act has the power to issue directions to stop the supply and sale, and may recall the non-conforming goods or articles. BIS Act also provides for penal consequences, including fines and imprisonment for non-conformance, including non-conformance to prescribed standards. Other sector specific laws also place recall obligations in cases of defective products, and have penalty provisions for non-compliance.

2. What are the main elements which a claimant must prove to succeed in a strict liability type claim for damage caused by a defective product?

Indian courts have significantly developed the concept of strict liability and the more stringent rule of absolute liability to deal with problems of a highly industrialised economy. However, the concept of strict liability has predominantly been applied in the context of environmental pollution and protection related matters. The jurisprudence on strict liability under tort law has not evolved significantly in India with respect to product liability claims. Having said that, the CPA, in a sense, codifies the principles of liability with respect to sale or supply of defective products to consumers. The redressal under the CPA is only available to aggrieved parties who fall under the statutory definition of a ‘consumer’. A ‘consumer’ has been defined under the CPA to include persons who have purchased or hired goods or services for consideration and does not extend to purchase for resale or commercial purposes. Aggrieved parties not being a ‘consumer’ under the CPA would be required to seek alternate methods of grievance redressal through civil suit or under contractual liability.

To establish causation in product liability cases under Indian law, every fact establishing the elements of a cause of action must be proved by the aggrieved party. Therefore, in cases relating to defects in products, based on the trend of judicial precedents in this regard and depending on the factual circumstances, the burden of proof will be on the aggrieved party to prove (a) presence of a defect in the products, (b) breach of warranty or condition (implied or expressed), or (c) breach of duty of care and resulting damage (in instances involving negligence). In some instances, however, Indian courts have gone as far as holding that the existence of the defect in the product implies negligence.

3. With whom does liability sit? If there is more than one entity liable, is liability joint and several?

Generally in cases under the CPA, there is joint liability of the manufacturer (on account of the warranty provided) and the seller (being the wholesaler or retailer), although the warranty with respect to the product is typically provided by the manufacturer alone. In product liability cases that are also contractual breaches, apportionment of liability is ordinarily contractually driven and may be joint or several (or both) depending on the provisions of the contract and the facts and circumstances of the case.

Under Indian law, a decree passed in respect of payment of compensation or damages in a suit for breach of contract or tortious claims may be passed by a civil court only against persons named as defendants in a suit. In case of sale of defective products, consumers generally tend to proceed against both, the manufacturer and the seller, for joint and several liability.

4. Are any defences available? If so, please summarise them.

The general defences available in strict liability cases under tort law provide that: (a) the injury was due to an act of God; (b) the injury was caused because of the fault of the aggrieved party; (c) the injury was because of an act of a third party (unless it was foreseeable); or (d) the risk of injury was inherent to the activity and the activity was done with the aggrieved party’s knowledge and consent.

5. What is the limitation period for bringing a claim?

Limitation on filing of suits in India is governed by the Limitation Act, 1963. The period of limitation for a tort claim is three years from the date on which the right to sue occurs. However, the CPA provides for a limitation period of two years from the date of the cause of action. Having said that, the CPA gives the consumer court the discretion to entertain complaints filed beyond the limitation period if it is satisfied with the reasons for the delay.

6. To what extent can liability be excluded (if at all)?

Manufacturers of consumer products usually limit their liability for damages (in quantum) and exclude liability for indirect losses in their warranty documents. However, in cases under the CPA, the consumer forum usually awards compensation for loss suffered and in appropriate instances also exercises its powers to award punitive damages, irrespective of the warranty terms. There are however general defences available in strict liability claims under tort law, as detailed above.

Further, as discussed earlier, the CPA permits only consumers to institute claims and therefore, the liability of manufacturers and sellers to persons who do not fall within the statutory definition of ‘consumer’, such as persons who obtain goods for resale or for commercial purposes, are excluded from the purview of the CPA.

7. What are the main elements which a claimant must prove to succeed in a non-contractual (eg tort) claim for damage caused by a defective product?

In India, there is no specific statute codifying law of torts. India is a common law country and general principles of Indian tort law follow principles of English tort law. The courts in India are guided by the principles of justice, equity and good conscience, and principles of tort law such as duty of care, negligence and strict liability, based on common law precedents.

The Supreme Court has held in Common Cause, a registered society v Union of India [(1999) 6 SCC 667] that tort signifies an act which gives rise to a right of action being a wrongful act or injury consisting in the infringement of a right created otherwise than by a contract. Torts are divisible into three classes, being in the infringement of a jus in rem, or in the breach of a duty imposed by law on a person towards another person, or in the breach of a duty imposed by law on a person towards the public.

The three essential elements required to be proved in a claim for negligence under the law of torts are (a) the existence of a duty of care, (b) a breach of such duty of care, and (c) injury or damage resulting from such breach. In most product liability claims, there is always an element of a contractual relationship between the parties. Hence, in order for an aggrieved party to institute a claim under tort law, the aggrieved party is required to establish that the breaching party had a duty of care which was independent of the contract.

8. What types of damage/loss can be compensated and what is the measure of damages? Are punitive damages available?

The damages which can be awarded in an action based on tort may be contemptuous, nominal, ordinary or exemplary. The primary object of award of damages is to compensate the aggrieved party for the harm suffered, while the secondary object is to punish the breaching party for its conduct in inflicting such harm. The secondary object is achieved in certain cases by awarding, in addition to compensatory damages, damages which are termed as exemplary, punitive, vindictive or retributory damages. In awarding punitive or exemplary damages, the emphasis is not on the injury caused, but on the breaching party and its conduct.

However, in product liability claims under the principles of tort law, practically there is limited jurisprudence available as aggrieved parties usually seek redressal under the CPA or under the Contract Act. This is also due to reluctance of Indian courts to award considerably significant amounts of exemplary or punitive damages in claims under tort law. The CPA permits awards of punitive damages in circumstances deemed fit by the consumer courts. Damages have been awarded by Indian courts under the CPA in exceptional cases by way of compensation where it has been established that the aggrieved party suffered harassment and extreme pain and suffering as a result of the conduct of the manufacturer, supplier or distributor, pursuant to being notified about the defective product. However, the quantum of damages awarded under the CPA or by a civil court is much lower than and not comparable with punitive damages that are awarded in other developed countries.

9. How are multiple tortfeasors dealt with? Is liability joint and several? Can contribution proceedings be brought?

In cases under tort law, Indian courts recognise the principle of joint and several liability. Under this principle, multiple parties may be held jointly liable in respect of any tortious claim by an affected person in the event that (a) the parties have, acting in concert, committed a wrongful act resulting in loss or damage to the affected person or, (b) when not acting in concert, have, by their individual wrongful acts, caused loss or damage to the affected person. In exceptional cases, courts have apportioned the liability between multiple tortfeasors on the basis of material evidence available on record, indicating the degree of liability of each tortfeasor.

In cases of composite negligence, an aggrieved party is entitled to recover damages from any or all of the negligent tortfeasors. That said, Indian courts have held that a tortfeasor proceeded against has the remedy to sue the other tortfeasors to recover contribution amounts to the extent of their liability. However, such proceedings are not evidenced as much in product liability claims.

10. Are any defences available? If so, please summarise them.

In case of negligence under tort law, the test is whether certain damage suffered by the aggrieved party was a foreseeable consequence of an act or omission on the part of the breaching party. The breaching party can contend that the essential components of negligence, being ‘duty’, ‘breach’ and ‘resulting damage’ are not established, and that all necessary steps a reasonable, prudent man would have taken in the given circumstances have been undertaken.

Indian courts have also recognised the principle of contributory negligence, i.e. the person who has suffered damage is also guilty of some negligence and has contributed towards damage, in adjudication of liability under tort law.

11. What is the limitation period for bringing a claim?

The period of limitation for a tort claim is three years from the date on which the right to sue occurs. The CPA provides for a limitation period of two years from the date of the cause of action; however, the CPA gives the consumer court the discretion to entertain complaints filed beyond the limitation period if it is satisfied with the reasons for the delay.

12. To what extent can liability be excluded (if at all)?

Under tort law, the breaching party’s liability can be excluded for consequences which are remote in nature, and foreseeability is the test for determining remoteness of damage. This is in addition to the defences available to the breaching party as discussed above.

Separately, the Contract Act position is that a party can monetarily limit its liability arising from defective products by including it in its contractual terms.

13. Does the law imply any terms into B2B or B2C contracts which could impose liability in a situation where a product has caused damage? If so, please summarise.

The SGA governs the relationship of a seller and buyer of movable goods in India, for both B2B and B2C contracts. The SGA specifically provides for implied conditions or warranties undertaken by the seller with respect to fitness and merchantable quality of the product sold; and there is an implied warranty for the goods sold to be free from defects. A breach of such an implied warranty entitles the purchaser the right to sue for damages.

14. What types of damage/loss can be compensated and what is the measure of damages?

The function of damages under the Contract Act is primarily to compensate the aggrieved party for losses sustained by it owing to breach of contract. In India, law has categorised damages as ‘direct damage’ or ‘indirect damage’; ‘consequential damage’ or ‘remote damage’ (the test is whether certain damage suffered by the aggrieved party was a foreseeable consequence of an act or omission on the part of the breaching party); and ‘punitive or exemplary damage’. However, the Contract Act does not permit grant of ‘indirect damages’ or ‘remote damages’.

Damages are further categorised as liquidated or unliquidated damages. Liquidated damages are such as have been agreed upon and fixed by the parties in anticipation of the breach whereas unliquidated damages are such that are required to be assessed. Applying the reasonableness test, the court can award any sum it considers reasonable provided that it does not exceed the sum previously agreed between the parties.

With regard to assessment of damages in contractual claims, Indian law imposes on the aggrieved party the duty of taking all reasonable steps to mitigate the loss consequent to the breach, and as discussed above, a court may deny an aggrieved party’s claim to the extent that it finds that the aggrieved party has failed to take such steps.

15. To what extent can liability be excluded (if at all)?

By virtue of contractual arrangements, parties are permitted to exclude liability for indirect losses even if they were aware of such losses when they made the contract. The Contract Act provides for the payment of damages/compensation by the defaulting party to the aggrieved party for any loss or damage which arose as a natural consequence of such breach; or which the parties knew, at the time of entering into the contract, to be likely to result from such a breach. The Contract Act does not allow damages for remote, indirect or incidental loss. In addition the Contract Act permits parties to agree on the quantum of liquidated damages payable by the breaching party in case of breach, thereby limiting the quantum of liability of the breaching party.

16. Are there any recent key court judgements which have had a significant impact on the approach to product liability?

Typically, jurisprudence for product liability claims under the CPA is in relation to one-off defects in consumer goods and therefore has not resulted in path-breaking judgements. That said, landmark product liability cases are also increasingly seen in the Indian scenario, however, more under industry specific statutes such as the FSSA and the Drugs Act, as opposed to under the CPA. Further, owing to limitations of legislative development, and the delay in disposition of pending cases due to systemic problems, the Government of India has also intervened in several instances to ensure breaching parties are held accountable and necessary steps are taken in this regard. Significant developments in this field have occurred in the last year through governmental intervention.

In relation to the global emission scandal involving Volkswagen, a public interest litigation case was filed against Volkswagen in India before the National Green Tribunal (NGT, which is the forum set up in India for expeditious disposal of cases relating to environmental and conservation-related issues) towards the end of 2015 seeking a ban on sale of its cars in India. In this respect, Volkswagen had submitted a road map to the NGT for the recall of its defective vehicles in India. The NGT constituted a committee to estimate the quantum of loss caused by Volkswagen, and the committee recommended a fine of one billion, seven hundred million rupees. Further to the committee’s recommendation, the NGT has directed Volkswagen to pay an interim deposit of one billion rupees, pending their decision in the case. Based on recent press releases, it appears that the NGT has now imposed an enhanced fine of five billion rupees on Volkswagen to create deterrence, on account of the environmental damage caused.

Six years after the cancellation of Johnson & Johnson’s (J&J) import license for hip replacement devices that were faulty, J&J has been ordered by the Indian Ministry of Health and Family Welfare (Ministry of Health) to pay compensation (ranging between 3 million to 12.3 million rupees) to patients who had received the faulty hip implant. A committee was formed by the Ministry of Health that calculated the compensation payable based on a formula using a person’s age and the extent of disability. J&J challenged the committee’s decision on grounds of lack of transparency and opportunity to be heard, which remains pending. However, the Supreme Court in a separate petition filed on behalf of a patient affected by the faulty implant chose not to interfere with the committee’s proposal on the quantum of compensation, including the manner of computation of the compensation. As an aftermath of the J&J case, an expert subcommittee has been constituted to review and appropriately recommend provisions for compensation in case of faulty devices under the Medical Devices Rules, 2017.

17. What are the initial litigation related steps you should take if you are facing a product liability claim or threatened claim?

As first steps upon the threat or initiation of a product liability claim, the nature of the alleged defect and the injury caused must be evaluated, including identifying factors such as the presence of a stand-alone defective product, or defects across products supplied. It is also imperative to identify if the defective products fall under a regulated sector where industry specific regulations, like the FSSA and the Drugs Act, may be applicable. Sector specific statutes may also prescribe remedial procedures, involving mandatory or voluntary recalls of the defective products, and require disclosures to a regulatory body.

Responsible parties must also devise a strategy to mitigate the damage caused, implement preliminary remedial measures, such as repairs, replacement or compensation, and manage consumer expectations. Potentially affected consumers should be notified of the remedial measures, which could comprise of a recall exercise and consequent replacements of their defective products.

Product liability claims in one jurisdiction could also trigger global recall requirements across other jurisdictions. We see global entities make a recall in select jurisdictions without being aware that news of such recall could have ramifications in other jurisdictions as well. Voluntary strategic actions with a view to limit potential liability due to defective products must be undertaken across jurisdictions. Responsible parties must therefore act swiftly to prevent escalation of loss and product liability claims.

18. Are the courts adept at handling complex product liability claims? Are cases heard by a judge or jury?

In incidents such as that involving Volkswagen (discussed above), the court relied on a report by an expert committee to better understand the damage / loss caused and corresponding quantum of compensation payable. In the J&J faulty hip implant incident, the Government pro-actively established committees to examine and evaluate the extent of damage caused and the compensation payable to patients who had received faulty hip implants manufactured by J&J. When the quantum of compensation was sought to be challenged before the Supreme Court through public interest litigation, the Supreme Court refrained from interfering with the action taken by the committee formed by the Government. Therefore, recent judgements as detailed above and related jurisprudential developments indicate the ability of Indian courts to handle increasingly complex and multifaceted product liability claims.

Cases are adjudicated by judges as the jury system was abolished in India in 1974.

19. Is it possible to bring a product liability related group action? If so, please summarise the types of procedure(s) available

Under the Civil Procedure Code (CPC), which sets out the relevant provisions relating to the jurisdiction of courts in civil cases, two or more aggrieved parties have the right to aggregate their claims in a suit against a breaching party. This can be done even if each of their cause of action is separate and distinct. This is based on the fact that in the event that the right to obtain relief arises out of the same act, transaction, or series of acts or transactions, and the causes of action are of such a nature that if separate suits were filed by the aggrieved parties, common questions of law or fact would arise. Additionally, the CPC also allows one or more persons to file a suit against the breaching party on behalf of, or for the benefit of, numerous persons having the same interest in the suit, with the prior permission of the court in which the suit is required to be instituted. In this regard, interest is said to be similar or common when the aggrieved parties have a common grievance against the breaching party and the relief sought is in its nature beneficial to all persons interested in the suit. Hence, it is possible to institute product liability related claims as a group action under contract law and tort law in India.

The CPA also recognises the right of one or more consumers or a voluntary consumer association to file a complaint against a single manufacturer, dealer, distributor, etc. on behalf of, or for the benefit of, numerous consumers having the same interest. The complainants are required to obtain prior permission from the relevant forum for adjudication of disputes under the CPA before instituting such proceedings. Additionally, the CPA provides the district, state and national fora the power to grant relief to several consumers who are unidentifiable. This power is typically exercised in the event of loss or injury being suffered by a large number of consumers as a result of defective goods or services.

20. How are cases typically funded? Can lawyers charge success fees? Is third party funding permissible?

Parties generally fund their own legal cases in India. The Bar Council of India, which is the regulatory body for the legal profession, does not permit lawyers to charge a success fee or contingent fee.

The Supreme Court of India recently held in Bar Council of India v AK Balaji and ors [AIR 2018 SC 1382] that third party funding / legal financing agreements are not prohibited in India. However, professional rules prevent lawyers from funding litigation on behalf of their clients.

Further, the Consumer Welfare Fund also provides financial assistance for expenses on advocacy and class action suits by consumers, and applications may be made to it for reimbursement of legal expenses incurred by a complainant or a class of complainants upon adjudication of a consumer dispute.

21. How common are product liability claims and what factors influence their frequency?

As India is a developing nation, the majority population has smaller disposable income, and therefore seeks value maximisation from their purchases. The CPA has established consumer dispute redressal forums at the state, district and national levels to deal with product liability claims. Due to ease of approachability of redressal forums, consumers mostly institute cases seeking replacement of defective products and / or compensation for harm caused. Factors such as (a) nominal fees for instituting a complaint before a consumer dispute redressal forum compared to that for instituting a civil suit in India, which would be calculated on an ad valorem basis, i.e., a percentage of the amount in dispute; (b) summary proceedings for ruling on cases; (c) pro-consumer approach of the forum; (d) the wide powers of the redressal forums to grant relief to consumers; and (e) tendency of the forum to award damages or compensation to an aggrieved consumer, has made consumer grievance redressal under the CPA accessible to Indian consumers. However, there remain certain systemic problems of delay owing to the severe back-log of cases pending before the forums. That said, in recent times, product liability claims are fairly common in India and claims and these claims range from mobile phones to luxury cars.

22. What are the likely future developments in product liability law and practice? To what extent is the suitability of the law being challenged by advances in technology?

On January 2018, the Ministry of Consumer Affairs, Food and Public Distribution introduced the Consumer Protection Bill, 2018 (CPB 2018) in the Lok Sabha (the lower house of the Indian Parliament). The CPB 2018 was passed in the Lok Sabha on December 2018 but is yet to be passed in the Rajya Sabha (the upper house of the Indian Parliament) and notified as law. The CPB 2018 defines product liability to mean a product manufacturer’s or seller’s responsibility towards compensating a consumer harmed by a defective product or deficiency in service. The salient features of the CPB 2018 include introducing provisions relating to product liability, enhanced penalties and establishment of the Central Consumer Protection Authority (CCPA) (a regulatory agency with wide powers to address consumers’ concerns) to promote, protect, and enforce rights of consumers as a class. The CCPA’s powers will include (a) enquiring and conducting investigations into violations of consumers’ rights, (b) order of recall of products found to be unsafe or withdrawal of services found to be unsafe or hazardous, (c) imposing penalties, and (d) issuing safety notices and alerting consumers to unsafe goods or services. The CPB 2018 also includes provisions that make the manufacturer liable for product liability actions in certain cases, and lists out instances where a product manufacturer or seller will not be held accountable for product liability.

To keep up with changing times and the advancement of technology, legislators and the judiciary are continuously attempting to keep Indian laws updated; however, it remains challenged by the rapid pace at which technology is progressing. In situations where processes are increasingly being automated, such as 3D printing and driverless cars, the existing principles of product liability in India are not sufficiently evolved to identify and apportion liability in cases involving human and machine error. The issue of liability is even less clear in situations where the involvement of a human element reduces and important decisions are taken by artificial intelligence systems.

Authors:
Vivek Bajaj, partner
Sonakshi Sharma, Associate
Kaavya Raghavan, Associate

 

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Eight New Medical Devices Brought under the Regulatory Purview of ‘Drugs’

Published In:Inter Alia - Quarterly Edition - March 2019 [ English Chinese japanese ]

The Ministry of Health and Family Welfare in consultation with the Drugs Technical Advisory Board has, by way of a notification dated February 8, 2019, introduced eight new medical devices under the purview of ‘drugs’, as defined under Section 3(b)(iv) of the Drugs and Cosmetics Act, 1940 (‘DCA’). These devices include all implantable medical devices, CT scan equipment, MRI equipment, defibrillators, dialysis machines, PET equipment, X-ray machine and bone marrow cell separator (collectively, ‘Medical Devices’), and are in addition to the pre-existing list of 23 other medical devices defined as ‘drugs’ under the DCA. The Medical Devices will be brought under the regulatory purview of the DCA and the Medical Devices Rules, 2017, with effect from April 01, 2020.

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CCI Dismisses Allegations of Anti-Competitive Agreements and Abuse of Dominant Position against Cipla Limited and the Bengal Chemists and Druggists Association

Published In:Inter Alia Special Edition- Competition Law - June 2019 [ English ]

On May 10, 2019, CCI dismissed allegations (made by Mr. Kalyan Chowdhary, a proprietor of M/s Kamala & Sons (‘Informant’)), of infringement of Sections 3 and 4 of the Act against Cipla Limited (‘Cipla’) and Bengal Chemists and Druggists Association (‘BCDA’). [1]

The Informant alleged that Cipla failed to supply medicines to the Informant for the orders placed by him due to an existing litigation between the Informant and BCDA before the National Company Law Tribunal (‘NCLT Litigation’), and further that, Cipla conveyed false reasons such as ‘delay in payments’ to justify the non-supply. However, per the Informant, when he showed Cipla emails demonstrating no delay in payments, he was verbally informed that the non-supply was because of the NCLT Litigation. The Informant also alleged that Cipla and BDCA together manipulated drug prices.

CCI noted that Cipla did not, in fact, stop supplying medicines to the Informant and simply insisted on an advance payment, given earlier instances of delayed payment by the Informant and had not terminated the Informant as its stockist. Further, CCI also did not find evidence of any price manipulation by BDCA and Cipla. In conclusion, CCI noted that the informant had tried “to give a commercial dispute, a colour of competition dispute”, and accordingly, dismissed all allegations against Cipla.

[1] Case No. 43 of 2018

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CCI Finds the Practice of Mandating No-Objection Certificates (‘NOC’) by Madhya Pradesh Chemists and Druggist Association Anticompetitive

Published In:Inter Alia Special Edition- Competition Law - July 2019 [ English ]

Background

CCI received information from the Madhya Pradesh Chemists and Distributors Federation (‘Informant’) alleging the limiting and controlling of supplies of pharmaceutical products in Madhya Pradesh, by: (i) Madhya Pradesh Chemists and Druggist Association (‘MPCDA’) and certain associations affiliated to MPCDA (including Indore Chemist Association (‘ICA’), which was subsequently impleaded); and (iii) certain pharmaceutical companies.[1] Based on its review of the information, CCI directed the Director-General (‘DG’) to investigate the matter.

The gravamen of the Informant pertained to the practice of MPCDA, and its affiliated associations including ICA (MPCDA and ICA together referred to as the ‘Associations’), issuing NOC/Letter of Consent (‘LOC’) as a pre-requisite for appointment of stockists by the pharmaceutical companies. It was alleged that this practice of mandating NOC was stifling competition in the market by limiting access of consumers to various pharmaceutical products and controlling the supply of drugs in the market. It was also alleged that the pharmaceutical companies also adhered to these ‘directives’ of the Associations and had refused to appoint distributors till such time the Associations consented. The DG examined the conduct of different pharmaceutical companies and concluded that there was evidence to show that the market was divided into two parts with one part comprising companies which acted independently of the Associations’ directives and the other part comprising companies which conformed to the Associations’ directives.

Key Observations: CCI, inter alia, decided on the following issues:

i.       Jurisdiction: In response to the contention that the pharmaceutical sector is regulated by sectoral regulators i.e., the Drug Control Department and National Pharmaceutical Pricing Authority (‘NPPA’), CCI clarified that competition law is a special law with a mandate overarching all sectors. CCI bears the mandate to intervene when markets are adversely affected by anti-competitive conduct of the enterprises. In the present case, CCI observed that since the practices of the Associations and the pharmaceutical companies created entry barriers for stockists, CCI was competent to investigate.

ii.      Investigation v. Inquiry: The pharmaceutical companies also challenged CCI’s order under Section 26(8) of the Act, i.e., directing the DG to cause further investigation in the matter, on the ground that the said provision only allows for ‘further inquiry’ and not further investigation. Rejecting the arguments put forth by the pharmaceutical companies, CCI observed that investigation is a sub-set of inquiry and remanding the matter to the DG for further investigation is within the scope of inquiry by CCI. Further, in the present case, there was no prejudice caused to the parties as they were provided the opportunity to make their submissions both before the DG as well as CCI.

iii.     Whether Associations are  caught within the ambit of Section 3(3): It was argued that the Associations could not be proceeded against since the Associations are not engaging in similar activities as that of pharmaceutical companies. CCI rejected this argument relying on the language of Section 3(3) of the Act which includes in its scope “[a] decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services”.

iv.      The practice of requiring NOC obstructs fair competition: CCI, upon examining the email communications between the Associations as well as Himalaya Drug Company (‘Himalaya’) and Intas Pharmaceutical Limited (‘Intas’), observed that the Associations exercised influence over appointment of stockists and that the practice of requiring NOC/LOC was still persistent. The practice of mandating NOC before appointing a stockist dissuades expansion of competition in the market and leads to barriers to entry. CCI observed that every pharmaceutical company should be given the freedom to select their own distributors without any unnecessary hurdles. Accordingly, CCI observed that the category of pharmaceutical companies which abided by the directives (Himalaya and Intas) of the Associations also engaged in anti-competitive practice.

Order

CCI imposed penalties on Himalaya and Intas and the Associations for engaging in anti-competitive agreements in violation of the provisions of the Act. While the penalty on the pharmaceutical companies was levied at 1% of the average income of the preceding three financial years, the penalty on the Associations was levied at 10% of the average income of the preceding three financial years. The penalties on individuals responsible for the conduct of the pharmaceutical companies and the Associations were calculated at the same rates as those imposed on the respective enterprises.

Additionally, CCI directed the Associations to organise competition awareness and competition compliance programmes over a period of six months (five compliance programmes by MPCDA, and one compliance programme by ICA) and file a compliance report with CCI within one month of hosting the last programme.

[1] Case No. 64 of 2014

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CCI Dismisses the Allegations of Anti-Competitive Agreements and Abuse of Dominant Position against Macleods Pharmaceuticals Limited and Bengal Chemist Druggist Association

Published In:Inter Alia Special Edition- Competition Law - July 2019 [ English ]

On May 23, 2019, CCI, at the outset, dismissed the allegations of anti-competitive agreements and abuse of dominant position against Macleods Pharmaceuticals Limited (‘MPL’) and Bengal Chemist Druggist Association (‘BCDA’) filed by Mr. Kuntal Chowdhury (‘Informant’).[1]

The Informant was involved in the wholesale business of medicines and had been a stockist of MPL since 2012-13. The Informant’s allegation related to stoppage of medicine supplies by MPL at the behest of BCDA, since the Informant’s brother and BCDA had been engaged in litigation pertaining to mismanagement of elections of BCDA. The Informant also alleged that MPL had begun supplying to the Informant in the first instance upon receipt of an introductory letter issued by BCDA (alleged to be a form of an NOC).

Based on the parties’ submissions, CCI observed that MPL stopped supplying medicines to the Informant because of delayed payments and the non-adherence by the Informant to conditions of advance payment. Additionally, since the stockistship of the Informant was still operative with MPL, the Informant could obtain supplies by making advance payment. Therefore, the allegation of non-supply of medicines was rejected. Additionally, in the absence of any evidence which either proved the existence of an NOC or any conditional clearance of stockistship, the allegations against BCDA were dismissed.  Thus, the allegation of requiring an NOC by the Informant from BCDA to become a stockist of MPL was also not substantiated, and the complaint was dismissed.

[1] Case No. 44 of 2018

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CCI Penalises Jalgaon District Medicine Dealers Association and its Office Bearers for the Imposition of PIS charges on Pharmaceutical Companies

Published In:Inter Alia Special Edition- Competition Law - August 2019 [ English ]

On June 20, 2019, CCI penalised Jalgaon District Medicine Dealers Association (‘JDMDA’) as well as its office bearers, i.e., the President and Secretary of JDMDA ( JDMDA and its office bearers are together referred to as ‘Parties’) on an information filed by Mr. Nadie Jauhri alleging anti-competitive conduct by that JMDA. CCI levied a penalty of Rs 80,185 (approx. USD 1200) on JDMDA for imposing a mandatory condition on pharmaceutical companies to pay Product Information Service charges (‘PIS’), which ultimately resulted in the limiting the supply of drugs in the market.[1]

PIS is in the nature of a fee charged by chemists and druggists associations for introducing a new product/drug launched by the pharmaceutical companies in the bulletins/ newsletters published by such associations. In return, the said associations publish the information and circulate it among all the dealers, distributors, etc.

CCI has previously in Santuka Associates Pvt. Limited v. AIOCD and others[2] (‘Santuka Case’), held that while collection of PIS charges may be beneficial for drug manufacturers, making the payment of PIS charges ‘mandatory’ resulted in denial of market access and limited the supply of drugs in the market, in violation of Section 3(3)(b) of the Act. Mandatory PIS effectively amounted to requiring permission of the associations to launch any new drugs. CCI then issued a public notice on January 31, 2014 directing the Chemists and Druggist Association to discontinue practice of mandating collection of PIS.

Given the above, CCI finally considered: (i) whether the PIS charges by JDMDA were mandatory/compulsory in nature; and (ii) if yes, whether office bearers of JDMDA were responsible for the violation of Section 48 of the Act.

On the first issue, after considering the statements of the witnesses and documentary evidence (emails, letters between JDMDA and pharmaceutical companies) part of the DG report, CCI concluded that JDMDA was imposing PIS charges mandatorily on the pharmaceutical companies. Accordingly, JDMDA was found to be limiting and controlling the supply of drugs in contravention of Section 3(3)(b) read with Section 3(1) of the Act. On the second issue, while the DG investigated fourteen office bearers of JDMDA, only the President and Secretary were considered to be in-charge of the day-to-day affairs of JDMDA. Thus, CCI penalised them at 10% of their average income for three financial years (FY 2013-16) under Section 48 of the Act.

Notably, the JDMA had also initiated connected proceedings before the Delhi High Court (‘DHC’) in W.P. (C) No. 11163 of 2015 challenging the prima facie order passed under Section 26(1) of the Act. Since the DHC has directed CCI to take no coercive steps against Parties, till the continuation of proceedings before it, implementation of CCI’s order is subject to the outcome of the proceedings before DHC.

[1] Case no. 61 of 2015
[2] Case No. 20 of 2011

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CCI Approves the Proposed Combination of GSK and Pfizer’s Consumer Healthcare Products into a New JV Co.

Published In:Inter Alia Special Edition- Competition Law - August 2019 [ English ]

On May 22, 2019, CCI approved the merger of certain consumer healthcare products of GlaxoSmithKline Plc. (‘GSK’) and Pfizer Inc. (‘Pfizer’, together with GSK referred to as ‘Parties’) into a new incorporated entity, New JV Co, with GSK (indirectly) and Pfizer holding 68% and 32% shares in the New JV Co., respectively (‘Proposed Combination’).[1]

GSK is a pharmaceutical company engaged globally in research, development, manufacturing, and marketing of medicines. The consumer healthcare products (‘GSK CH Business’) of GSK in India were housed in two separate entities and would be contributed to the New JV Co. by way of the Proposed Combination. Pfizer is a pharmaceutical company engaged in research, development, manufacturing, and marketing of medicines and its consumer healthcare products (‘Pfizer CH Business’) were being contributed to the New JV Co.

CCI noted the overlap between the Parties’ business activities in three product categories: (i) Non-narcotics and anti-pyretics (including paracetamol + caffeine); (ii) antacids and anti-flatulents; and (iii) calcium preparations along with colecalciferol solids. Based on the IQVIA-IMS India Database, which adopts European Pharmaceutical Marketing Research Association’s anatomical therapeutic chemical (‘ATC’) classification of medicine, CCI noted that the overlaps were at ATC3 level and ATC4 level. CCI also noted that Ayurvedic medicines are not a direct substitute of the allopathic medicines and therefore, excluded the ENO, an ayurvedic product being contributed by GSK to the New JV Co.

Further, CCI defined the relevant geographic as ‘whole of India’ and assessed the retained and contributed products of GSK and Pfizer to the New JV Co. at ATC 3 and ATC 4 level.

Despite the high combined market shares in all three categories, CCI allowed the Proposed Combination after considering the presence of multiple competitors having more or competing market shares in all three categories, which ensured the presence of competitive restraint in all the relevant markets. CCI also noted that no vertical overlap existed between the business activities of the Parties. Finally, in the absence of any likely AAEC being caused as the result of the Proposed Combination, CCI decided that the exact delineation of the relevant market may be left open.

[1] Combination Registration No. C-2019/03/654

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