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CCI penalizes Jalgaon District Medicine Dealers Association for imposing PIS charges on pharma companies
The Competition Commission of India (“CCI/Commission”) by way of order dated 20.06.2019 has imposed a penalty of INR 80,185/- on Jalgaon District Medicine Dealers Association (“JDMDA/OP”) in the State of Maharashtra, India for collecting Product Information Service (“PIS”) charges from the manufacturers of pharmaceutical products and thereby restricting the supply of medicines in the market. Penalties were also imposed on the President and Secretary of JDMDA.
Background
The present information was filed by Mr. Nadie Jauhri (“the Informant”) against JDMDA, which is affiliated to Maharashtra State Chemists and Druggists Association (“MSCDA”), alleging collection of Product Information Service (“PIS”) charges from the manufacturers of pharmaceutical products.
The informant placed reliance on the public notice dated 31.01.2014 issued by the Commission wherein anticompetitive practices prevalent in the pharmaceutical sector such as procurement of a No Objection Certificate (NOC), Letter of Consent (LOC), compulsory payment of PIS charges by pharmaceutical entities to the associations, fixation of trade margins, etc. should be stopped. Consequently, the Commission held that there was a prima facie case of contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Competition Act 2002 (“the Act”) and thereby directed the Director General (“DG”) to investigate.
DG Investigation
The DG report submitted on 05.01.2017 found that pharmaceutical companies were paying PIS charges to Maharashtra State Chemists and Druggists Association (“MSCDA”) for getting the details of their products published in the bulletin/magazine published by their respective district association. A sum of Rupees 500/- per product, per district, was collected from the pharmaceutical companies, who approached MSCDA seeking advertisement of their new products, through publication in the bulletin of the JDMDA. After deducting service tax and 20% as operational cost, MSCDA transmits the remaining amount to the district associations, affiliated to it including the JDMDA. The aforementioned 20 percent of the amount (i.e. Rupees 100/-) was kept by MSCDA for meeting its operational cost of manpower, stationery, clerkage, bank charges, etc.
Nine out of the ten pharmaceutical companies examined by the DG informed that the purpose of payment of PIS charges was to seek advertisement of their products in the bulletin published by the District Associations including that of JDMDA. When questioned whether the PIS charge was mandatory or voluntary in nature , two companies stated that the charges related to seeking approval of MSCDA before launch of new products and avoid the risk of boycott. However three companies deposed that it was not mandatory to get product information published though MSCDA before sale.
The DG also found that despite the payment of PIS charges by pharmaceutical companies, information about the newly launched drugs was not published in its bulletin and there was no adherence to time frame or any uniform frequency of release of such bulletin and neither was the information published as per the prescribed format by DPCO nor were the pharmaceutical getting copies of the bulletins, in which their advertisements were published.
Consequently, the DG found that the practice of JDMDA demanding PIS charges was not for the purpose of any advertisement but getting prior permission of the OP to launch new drugs in the market. The DG, thus, concluded that payment of PIS charges was in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act, as the levy of such charges limited and controlled free supply of new products by pharmaceutical companies in the market.
CCI Analysis
The two issues considered by the CCI were as follows:
One, whether the collection of the PIS charges from companies was mandatory and contravening provisions of Section 3 of the Act?
Two, whether the contravention of the abovementioned provision would result in liability of penalty on the office bearers as per Section 48 of the Act?
CCI citing Santuka Associates Pvt. Limited and All India Organization of Chemists & Druggists & Others[1] held that whether PIS charges are anticompetitive depends upon whether these charges are voluntary or mandatorily payable prior to the launch of the drug of pharmaceutical companies.
Based on replies and statements filed, most pharmaceutical companies believed that publication of their products in the association’s bulletin newsletter was an effective way to spread awareness about the new products and was beneficial to the entrants. However a few deposed otherwise.
Statement of Mr. Chachad, an ex-employee of Cerovene Healthcare Private Limited was found of importance to the Commission which read “If PIS charges are not paid then the product will not be sold in that particular district.” Upon cross examination, this statement was corroborated by an email dated 5.2.2013 exchanged between Mr. Chachad and the JDMDA wherein the company had provided an undertaking “not take any products on which PIS charges are not paid”. The OP responded to the email explaining that some companies leave stockiest/retailers with unsold stock. Hence to protect retailers, undertakings are sought. Furthermore, upon being quarried as to why products of Cerovene Healthcare Private Limited were sold in most parts of Maharashtra but not sold by retailers/wholesalers in Jalgaon District, the ex-employee stated that it did not receive permission from the JDMDA to launch their product. Mr Chachad’s reasoning was further backed by the statement of Ms. Nita Shah, Director of Cerovene Healthcare Private Limited.
The Commission also shed light upon a letter exchanged between the JDMDA and Proprietor of M/s Unifab Pharmaceuticals, Mr. Salem who sought permission to launch its products. The nature of the letter was obvious due to the usage of terms like ‘Request for the Permission to Launch……” in the subject line of the letter.
Furthermore, Secretary of the JDMDA admitted to have missed out about 70-80 drugs from publication. The DG also found that out of the 4000 drugs for which payment was received by the JDMDA, PIS information was published only in respect of 216 drugs. This established that the purpose of PIS was not to spread information about new drugs in Jalgaon District. Had it been so, the OP, ought to have published the information supplied by the pharmaceutical company for every drug/dosage/strength in its bulletin. The DG also pointed out that the companies after making the payment were not even checking whether their ‘advertisements’ were actually published or not which is indicative of the fact that payments made by them in the name of PIS, were neither for the purpose of advertisement nor for compliance with DPCO.
Based on the above-mentioned evidence, the CCI held that this practice of mandatorily charging PIS charges, resulted in limiting and controlling the supply of drugs in the market and amounted to an anti-competitive behaviour under section 3(3) (b) read with section 3(1) of the Act since the OP were not able to rebut the presumption of the tacit understanding between the JDMDA and the pharma companies causing appreciable adverse effect on competition .
Accordingly, CCI imposed a penalty of INR 80,185/- calculated at the rate of 10% of average of its income from PIS charges for the three financial years i.e. 2013-14, 2014-15 and 2015-16. Further , penalty of INR 2,14,340 /- and INR 1,27,447/- was also imposed on the President and the Secretary of JDMDA, respectively.
Comment: This order is in the series of several orders passed earlier by CCI on the trade associations of chemist and druggists for continuing with the practice of seeking a No Objection Certificate and/or imposing PIS charges on pharma companies for appointment of new stockists and introduction of new drugs in the market respectively. However, it is the first case of imposition of penalty only for collecting PIS charges. In so far as the practice of collecting PIS charges is concerned, this case establishes that the practice was mandatory in nature though in the oral depositions most of the pharma companies claimed it to be voluntary. However, the detailed investigation undertaken by the DG and subsequent inquiry conducted by CCI proved it otherwise. Further, by this order, CCI seems to have accepted the oft repeated contention by pharma companies that they are victims and not collaborators of such anti-competitive practices carried on at the behest of the chemist and druggist associations. Noticeably, the order is a result of perseverance of the individual Mr Nadie Jauhri, who brought sufficient evidence before the Commission to expose the malpractice of misappropriation of PIS charges collected by JDMDA and Mr Jauhri deserves to be complimented.
[1] Case No. 20 of 2011
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