CCI Order on Pharma Major Roche – I

Brief background

The Competition Commission of India (“CCI”) ordered detailed investigation against Pharma major Roche and its two group firms for alleged anti-Competition Law modus operandi with respect to the cancer drug, Trastuzumab. The regulator’s decision was delivered on information filed by pharmaceutical companies Biocon Limited, Informant No.1 (“IP-1”) and Mylan Pharmaceuticals Private Limited, Informant No. 2 (“IP-2”) wherein they, broadly speaking, alleged violation of Section 4(2) of Competition Act, 2002 (“Abuse of dominant position”). CCI concluded that there is evidence for prima-facie violation of Competition Law norms.

As to be specific, the Informants alleged the following:
a) contravention of Section 4(2)(c) with respect to practices resulting in denial of market access;
b) violation of Section 4(2)(a)(ii) with respect to imposition of unfair prices;
c) violation of Section 4(2)(a)(i) with respect to imposition of unfair conditions;
d) violation of Section 4(2)(e) with respect to leveraging; and
e) violation of Section 4(2)(b)(i) with respect to limiting or restricting the market.

Objective of this post

At the outset, I would like to state the objectives of this post:
a) bringing out the vital determinations in CCI’s Order;
b) understanding the reasoning in CCI Order which should give cues on strategizing disputes before CCI; and
c) providing inputs wherever applicable.

Please note that the CCI Order will be examined in a series of posts.

CCI Order and Analysis

a) Preliminary objection raised by Roche on maintainability of the case (Paragraphs 38-42)

Roche argued that the issues raised in the present “information” are squarely covered by the Civil Suit pending before the Hon’ble Delhi High Court. Thus, the Informants should not be permitted to raise similar issues before the Commission. In response, the Informants argued that the reliefs available from both the forums, i.e. the Hon’ble Delhi High Court and the CCI, are distinct. While the issues before the Hon’ble Delhi High Court pertain to the validity of approvals granted by Drug Controller General of India (“DCGI”) to IP-1, the issues before the CCI pertain to the violation of Competition Law norms.

The CCI ruled against Roche. The CCI referred to the Delhi High Court judgment in Telefonaktiebolaget LM Ericsson (Publ) vs. Competition Commission of India and Anr., wherein it was argued that the Commission would have no jurisdiction to determine those issues which are pending before civil courts (in the context of Patents Act, 1970 and Competition Act, 2002). The Delhi High Court rejected the argument and held as follows: “162. It is clear from the above that the remedies as provided under Section 27 of the Competition Act for abuse of dominant position are materially different from the remedy as available under Section 84 of the Patents Act. It is also apparent that the remedies under the two enactments are not mutually exclusive; in other words grant of one is not destructive of the other. Thus, it may be open for a prospective licensee to approach the Controller of Patents for grant of compulsory licence in certain cases. The same is not inconsistent with the CCI passing an appropriate order under Section 27 of the Competition Act.”

CCI rightly concluded that the nature of disputes before Delhi High Court and CCI are inherently different. Therefore, the nature of jurisdiction is ipso facto different. The CCI found “no infirmity with proceeding in the present case relating to abuse of dominant position by the Roche Group.” The CCI, consequently, examined whether there existed a prima facie case under Section 26(1) of CCI.

My view: The legal position with respect to the stated jurisdiction issue is no longer res integra and therefore, the determination of CCI is on expected lines.
b) Whether there existed prima facie case under Section 26(1) of the Competition Act? (Paragraphs 43 – 51)

Since allegations pertain to Section 4 of the Act, delineation of “relevant market” was essential for ascertaining dominance and analysing the alleged abusive conduct of the Roche group. A relevant market, as defined under Section 2(r) of the Act, means a market comprising of a relevant product market or relevant geographic market or both. A relevant product market, as defined under Section 2(t) of the Act, means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use. As the CCI observed, “..the health of a patient is of paramount importance, the intended use of a drug gains more relevance which, for the purposes of substitutability, is governed by its ‘quality’, ‘safety’ and ‘efficacy’.” Further, “in the combination matters, C-2014/05/170 (Sun Pharma/Ranbaxy) and C-2015/10/324 (Strides Shasun / Sun Pharma), the Commission has defined the relevant product market at the molecular level in the case of chemical drugs, i.e., medicines / formulations based on the same active pharmaceutical ingredient (API). At the molecular level, branded as well as generics based on the same API, were considered part of the same relevant product market. 47. ……..In case of biological drugs, Trastuzumab appears to be equivalent to the molecular level. Thus, going by the analogy, drugs based on Trastuzumab, i.e., the reference biological drug as well as its bio-similars, would be considered part of the same relevant product market.”

A generic drug is an exact copy of a branded/chemical drug. As a generic drug possesses identical characteristics, they are considered to be bioequivalent to chemical drugs. While chemical drugs are manufactured using chemical compounds, biological drugs are developed from living organisms (plant or animal cells). Thus, biological drugs and chemical drugs are not identical in nature. However, a relevant product market, within the meaning of Section 2(t) of the Act, need not comprise of products which exhibit ‘identical’ properties; it may also include products which are ‘similar’ in terms of their intended use. Therefore, “despite not being identical to the reference biological product, a bio-similar is highly analogous to an already approved biological product and may not have any meaningful differences from the reference product. It also serves the same intended use as that of the reference biological drug and can be said to be posing a competitive constraint to it………….the relevant product market, thus, would be the “market for biological drugs based on Trastuzumab, including its biosimilars”.” As the conditions of competition are homogenous across India for pharmaceutical products, the relevant geographic market is ‘India’.

The relevant market is, therefore, “market for biological drugs based on Trastuzumab, including its biosimilars in India”.

My view: The CCI rightly adopted contextualized interpretation here. The pharmaceutical economy was briefly analysed and consequently, “relevant market” was interpreted in conjunction with the context. The well-known United States v. Du Pont & Co (351 US 377 (1956)) is highly relevant here. In the aforesaid case, the appellant produced almost 75% of the cellophane sold in the United States. Cellophane, however, constituted less than 20% of all flexible packaging materials sold in the country. The US Supreme Court affirmed the judgment of the lower court and reasoned as follows: As cellophane was interchangeable with numerous other materials, the relevant market was the market for flexible packaging materials. Cellophane was part of the market for flexible packaging materials. Competition from other materials in that market prevented the appellant from exercising any monopoly power in the supply of cellophane. In examining the existence of cross-elasticity of demand between cellophane and other wrappings, the Court stated: ‘This interchangeability is largely gauged by the purchase of competing products for similar uses considering the price, characteristics and adaptability of the competing commodities.’ Evidently, cellophane and other packaging materials exhibit similar and not identical properties. The nature of aforesaid properties was the focal point.
Considering the extant jurisprudence on Competition Law, again, the determination of CCI is on expected lines.

(Will be continued…)

CCI Order on Pharma Major Roche – II and CCI Order on Pharma Major Roche – III