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20 June 2019
By way of a 27 September 2018 order, the Competition Commission of India (CCI) imposed a penalty on Italian company Esaote SpA – a world leader in dedicated magnetic resonance imaging (MRI) – and its Indian subsidiary, Esaote Asia Pacific Diagnostic Pvt Ltd (together, Esaote Group). According to the order, the Esaote group had abused its dominant position in the market through its sale of dedicated standing/tilting MRI machines (sold under the brand name G-Scan) to the House of Diagnostics LLP (the informant), an Indian medical diagnostics and diagnostic imaging services company which managed several diagnostic centres in India. The order was passed by a two-to-one majority, with CCI Chair Sudhir Mital strongly dissenting.
The informant undertakes medical diagnostics and diagnostic imaging services through multiple centres, serving patients and charitable institutions at affordable rates. Esaote is a leading manufacturer of medical diagnostic systems and is internationally acknowledged as a world leader in dedicated MRI machines. It sells dedicated standing/tilting MRI machines under the brand name G-Scan Brio (previously G-Scan) and is the exclusive holder of the patent and know-how for the related technology. Esaote Asia Pacific Diagnostic is an Indian subsidiary of Esaote which deals exclusively with machines manufactured by the latter, including by undertaking marketing and after-sale services in India.
The informant's main grievances were as follows:
Relevant market and issue of dominance
After duly examining the director general's report and the objections raised by the group, the CCI observed that the case concerned the G-Scan dedicated standing/tilting MRI machine, which can scan the body of a person in a weight-bearing position. The majority, except the chair, therefore agreed with the director general, noting that this device is unique, as it is designed to scan a specific portion of the body (hence the name 'dedicated standing/tilting MRI machine'). Accordingly, the CCI ruled that the relevant market was the market for dedicated standing/tilting MRI machines in India.
The CCI noted that Esaote Asia Pacific Diagnostic is a 100% subsidiary of Esaote through Esaote International NV, which operates in India as the sole supplier of dedicated standing/tilting MRI machines. The absence of other players which manufacture such machines in the Indian market enabled the Esaote group to operate independently of competitive forces. Accordingly, the CCI held that it had a virtual monopoly (ie, 100% share) in the market.
Abuse of dominance
The CCI examined the purchase order and found that the informant had ordered three new G-Scan machines. It was evident that two of these machines had been invoiced by Esaote in Esaote Asia Pacific Diagnostic's name on 20 September 2011, but had been packed and ready for dispatch on 15 September 2011. This is because the packing and weight lists of 15 September 2011 (Dispatch Numbers 502108 and 502109, respectively) issued by Esaote in Esaote Asia Pacific Diagnostic's favour were for two G-Scan machines (ie, the two G-Scan machines were ready and packed one week before the purchase order dated 22 September 2011). This shows that the G-Scan machines provided to the informant by the Esaote group had not been brand new or manufactured as agreed in the purchase order. Further, the CCI observed that the third G-Scan machine had been invoiced by Esaote in Esaote Asia Pacific Diagnostic's name on 30 September 2011, but had been packed and ready for dispatch by Esaote from Italy on 30 September 2011, as per the packing and weight list issued by Esaote in Esaote Asia Pacific Diagnostic's favour (Dispatch Number 502274). In other words, the third G-Scan machine had been ready for dispatch within one week of the signing of the purchase order.
Therefore, it was evident from the invoice and packing and dispatch list that the three G-Scan machines had been manufactured before the informant placed the purchase order. Further, the G-Scan machines could not have been packed on 15 September 2011 and 30 September 2011 as – according to statements made by Esaote global marketing director Massimo Guerra during the investigation – it takes a minimum of 12 weeks to manufacture one new G-Scan machine. As regards the allegation of a failure to provide head coils, the CCI observed that G-Scan machines do not usually include head coils, but that the Esaote group had agreed to supply these in the special terms of the contract. These terms stated that head coils would be supplied on mutual agreement; however, the use of the word 'shall' implied that they should be supplied. As such, the CCI held that the Esaote group had acted unfairly and thereby abused its dominant position by refusing to provide head coils with the machines.
Further, the informant claimed that Esaote had unilaterally changed the prices of its comprehensive maintenance contract in respect of G-Scan machines from Rs650,000 per year for three G-Scan machines to Rs650,000 for each machine from the sixth to the 10th year of the machine's installation. The director general found that Esaote had contravened the comprehensive maintenance contract by demanding three times the agreed price. The CCI affirmed the director general's finding and held that such conduct was clearly abusive and contravened Sections 4(2)(b) and (c) of the Competition Act.
The CCI chair disagreed with the relevant market adopted by the director general and the majority of the commission, observing that the market cannot be restricted to standing/tilting MRI machines alone, as any market delineation would have to include all MRI machines irrespective of additional features or functionalities. The main reasons behind the chair's opinion were as follows:
Therefore, according to the CCI chair, the Esaote group could not be said to enjoy any power in the MRI machine market in India. Further, in the absence of dominance, the question of abuse of market power did not arise. Accordingly, the chair disagreed with the majority order and dismissed the information.
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4249 2525) or email (email@example.com). The Vaish Associates website can be accessed at www.vaishlaw.com.
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Man Mohan Sharma