- (1.) BACKGROUND and Profile of the parties 1.1 Information under the provisions of section 19(1) (a) of the Competition Act, 2002 (Act) was filed on May 25, 2010 by Kapoor Glass India Private Limited (hereinafter Kapoor Glass or the informant) alleging certain anticompetitive acts by Schott Glass India Private Limited (hereinafter Schott Glass India or the Opposite Party or the OP). The information brings out allegations of various anti -competitive practices by Schott Glass India in the market of 'neutral USP -1 borosilicate glass tubes' and 'glass ampoules' made out of such glass tubes in India. Neutral USP -1 borosilicate glass tubes are made out of borosilicate glass, which is a special type of glass with unique properties. Due to its low thermal expansion co -efficient and high resistance to chemical reaction, borosilicate glass tubes are used to make glass ampoules, vials, cartridges, syringes which are primary packaging material for liquid injectables and drugs by the pharmaceutical industry. Pharmaceutical companies generally specify the standards or quality/source for borosilicate glass tubes which may be used to make glass tubes ampoules, since the molecules in liquid injectables tend to leach with the surface of the glass container in which they are stored over a period of time, which may result in a change in their chemical composition, in turn resulting in reduced potency. This may also result in discharge of alkali from the glass container into the medicinal solution which might pose significant safely related concerns for the patients being administered with the liquid drugs packed in such glass containers. Only such borosilicate glass tubes which conform to United States Pharmacopoeia -I standard and are neutral with alkali release of less than 1.0 ml are recommended. Borosilicate glass can either be amber or clear depending upon the drug it is being used for. Since certain drugs require very low exposure to light, these are packaged in amber borosilicate glass. Profile of Schott Glass India Private Limited -The Opposite Party 1.2 Schott Glass India is a wholly owned subsidiary of Schott Glaswerke Beteiligungs - GmbH, Germany ("Schott GmbH"), which in turn, is a wholly owned subsidiary of Schott AG, Mainz, Germany. Schott AG is the ultimate parent company of the Schott Group. The Schott Group is owned by the Carl -Zeiss -Foundation, Germany. 1.3 Schott Glass India Pvt. Ltd., as a wholly owned subsidiary of Schott glaswerke Beteiligungs GmbH, Germany (Schott Germany) is engaged in the production of 'neutral USP -I borosilicate glass tubes' in India used for the purposes of manufacturing ampoules, vials, cartridges and glass syringes (Containers) for the filling of liquid injectables. Schott Glass India was registered as a Private Limited Company in the State of Maharashtra, India in December 1997 and in January 1998, it acquired the assets of M/s Bharat Glass Tubes Ltd., one of the existing Indian producers of borosilicate glass tubes at that time. The Tubing Division of Schott Glass India is located in Jambusar, Gujarat and sales division in Mumbai. The tubing division of Schott Glass India is part of its group business unit 'Pharma'. The 'Pharma' business unit of Schott Group consists of business segments; 'Tubing' which manufactures and sells borosilicate glass tubes for pharmaceutical and technical applications for pharmaceutical use, and; 'pharmaceutical packaging' which manufactures and sells containers made out of Type I glass tubes. 1.4 Schott Glass India manufactures two qualities of borosilicate glass tubes, i.e. (i) Fiolax, (in clear version) with alkali release of 0.38 ml of H2SO40.02 N per 10g powered glass and (ii) the basic Neutral Glass Clear (NGC) and Neutral Glass Amber (NGA) with alkali release of 0.50 ml which fulfills the USP - Type I standards. NGC and NGA tubes are produced exclusively for Indian market, while Fiolax clear is produced for Indian market as well as for export. 1.5 In May 2008, Schott group through Schott Pharmaceutical Packaging GmbH ("Schott Packaging") a subsidiary of Schott Germany, entered into a Joint Venture agreement with a downstream ampoule manufacturer Kaisha Manufacturers Pvt. Ltd. ("Kaisha") to integrate operations of Schott in India vertically with downstream glass containers manufacturing business, now known as Schott Kaisha Private Limited. Thus since the year 2008, Schott India, through the JV of its related group company, Schott Packaging has been engaged in the business of producing both borosilicate Glass tubes and glass ampoules in India. The unit of Kaisha is situated at Daman. Profile of Kapoor Glass Private Limited - The Informant 1.6 The informant is a private limited company engaged in the business of producing glass ampoules, vials and dental cartridges (collectively referred as Containers) which are used by the Pharmaceutical industry as primary packaging materials for filling and dispensing of liquid injectables (drugs). The key component used in the manufacture of containers is neutral borosilicate glass tubes. Till the year 2008 Kapoor Glass had a presence also in the upstream business of manufacturing of neutral borosilicate glass tubes. Now it is engaged only in business of manufacturing ampoules, vials and other containers out of these tubes.
(2.) INFORMATION 2.1 The facts and allegations as mentioned in the information, in brief, are as under; 2.1.1 As per information, Indian Industry for 'neutral USP -I borosilicate glass tubes' has always been a concentrated one, wherein the developments can be seen in three distinct time periods - a) prior to the entry of OP in 1998, b) period between 1998 and 2008 and c) period from 2008 till date. 2.1.2 The informant has stated that prior to the entry of the OP there were five producers of 'neutral USP -I borosilicate glass tubes' in India, namely Seraikella Glass Works Ltd, Bharat Glass Tubes Ltd., Twincity Glass India Pvt Ltd., Triveni Glass Ltd. and Kapoor Glass (India) Pvt Ltd (the informant itself). Seraikella Glass exited the market around 1996, Bharat Glass was acquired by the OP in 1998 and Twincity exited the market in 2007 followed by Kapoor Glass in 2008. Triveni has been taken over by the Nipro Glass India Ltd. in March 2010. Thus at present the OP and Nipro Glass India Ltd. remain the only producers of 'neutral USP -I borosilicate glass tubes' in India. There is however considerable difference in the quality of the neutral USP Type -I borosilicate glass tubes of the OP as compared to the tubes manufactured by Triveni/Nipro India. 2.1.3 The informant has submitted that since there are only two domestic producers of these tubes in India, most of the domestic demand is met by them, and only a portion of demand is met by way of imports from China and other countries like Germany, Italy and Japan. However, imports have remained low because cost of imports from countries other than China is nearly 30 -35% higher than the domestic variants. Since the profit margins in the industry are low, the glass ampoules manufacturers do not resort to imports. Although the cost of imports from China is lower than other countries, given the difference in quality, most organized pharmaceutical companies do not prefer to use glass ampoules made from Chinese glass tubes. 2.1.4 According to informant, the quality of glass tubes produced by Triveni/Nipro is of higher expansion and is not acceptable to the most pharmaceutical companies. As a result, the glass ampoules manufactures in India including the informant are forced to rely on the OP to meet their demand because OP is the only player who is producing high quality 'Neutral USP Type I Borosilicate Glass Tubes'. 2.1.5 According to informant, although most manufacturers of 'Neutral USP Type I Borosilicate Glass Tubes' in the world are also engaged in the business of making glass ampoules and other containers, there are several independent manufacturers also in the market who are procuring these tubes from upstream suppliers for manufacturing of the ampoules/other containers. 2.1.6 It has been stated that for its business of manufacturing glass ampoules and other containers, the informant is dependent entirely on the OP. Since most Indian pharmaceutical companies have already stabilized their products with glass ampoules made out of Tubes manufactured by the OP, container manufacturers like the informant have no option but to use the tubes of the OP only. 2.1.7 According to informant on 14.05.2008, one of the ampoule manufacturers, Kaisha Manufacturers Pvt. Ltd. entered into a Joint Venture Agreement with Schott Packaging, subsidiary of Schott Germany. Schott Packaging is holding 50% of shares in Kaisha and with this arrangement, the OP has now become vertically integrated with a large downstream ampoule manufacturing company. 2.1.8 The informant has delineated relevant market for assessment of competition in the case as 'Neutral USP Type I Borosilicate Glass Tubes in India'. In this market, according to informant, Schott India holds a position of dominance in accordance with the provision of Section 4 of the Act. The informant has also brought out that the OP has a dominant presence in the Indian market having a market share of about 67% in 2009. 2.1.9 According to informant, the anti -competitive practices being carried out by the OP can be divided into two broad categories; (a) practices affecting the state of competition in the market for 'Neutral USP Type I Borosilicate Glass Tubes' in India and (b) practices affecting the state of competition in market for downstream product of glass ampoules and other containers. 2.1.10 At the upstream level, the informant has alleged that the OP has adopted a practice of unfair and discriminatory pricing of 'Neutral USP Type I Borosilicate Glass Tubes'. Initially, it started selling the tubes at a cost lower than its cost of production as well as prevailing prices in international market, in order to drive out the existing competitors in the market including the informant and two other concerns, Twincity and Triveni. This resulted in significant financial losses for the informant and ultimately led to their ouster from the market. The other two tube manufacturers also suffered financial losses. After the exit of the informant, once the OP was able to establish its position of dominance, it gradually started to increase its prices for its tubes. In its attempt to establish its dominance, the OP also started hiring key managers of the informant. The predatory hiring of employees of the informant was resorted to since the OP failed to acquire the business concerns of the informant and since it was also realized that the informant, which was engaged in business of making both tubes and ampoules could pose significant competition to the OP. Due to this, the production of the informant came to a halt and affected its competitiveness as a viable ampoule manufacturer. 2.1.11 It has been alleged that the OP is not only charging unfair prices but it is also granting loyalty rebates and discounts in order to prevent the shift of ampoule manufacturers to imports and to ensure that ampoules manufacturers use glass tubes of the OP only. The informant has brought out that under quantity discount scheme, the OP provides certain discounts depending upon the quantity of 'Neutral USP Type I Borosilicate Glass Tubes' purchased by glass ampoules manufacturers. Under loyalty discount scheme, initially the discount was given if an ampoule manufacturer used to purchase at least 80% of its total requirement from Schott. In addition, the ampoule manufacturers were to promote the sale of Schott brand and also required to sell the ampoules at prices suggested by the OP. The OP has now stipulated that it would give discounts to ampoule manufacturers depending upon the conditions that they meet their entire requirement for the tubes from it. 2.1.12 According to informant, the OP requires that ampoule manufacturers will not engage in making ampoules on temporary "job work arrangement basis" and in this manner, it ensures complete loyalty from the ampoule manufacturers. It also refuses to deal with such ampoule manufacturers who make ampoules using tubes from other sources. 2.1.13 In addition to above, the informant has alleged that the OP also requires that in order to avail tubes at discounted rate, the ampoule manufacturers must agree to furnish a bank guarantee of Rs. 70 lac. According to the informant, this would lead to complete foreclosure of competition in favour of the OP. 2.1.14 The informant has further brought out that in addition to the aforesaid two types of discount schemes, the OP also has been granting a special discount to certain favoured ampoule manufacturers like its own JV, Kaisha, Klasspack Pvt. Ltd. and Tubeglass Containers Pvt. Ltd. By granting special discounts to Schott Kaisha, the OP is engaged in the practice of discriminatory treatment of its customers. 2.1.15 According to informant, the OP is the only manufacturer of the amber variant of 'Neutral USP Type I Borosilicate Glass Tubes' which account for about 30 -35% of the entire market for glass ampoules including ampoules made out of clear variant of such tubes. The OP using its dominant position in amber variant of the tubes is driving out competitors from the market of clear variant by making the supply of amber tubes to ampoule manufacturers contingent on the procurement of the clear tubes from no other source but the OP only. 2.1.16 Due to the anti -competitive practices of the OP, while most ampoule manufactures have shown a minimum growth rate, Schott Kaisha's growth has been significant, garnering considerable market share. 2.1.17 The informant has alleged that the practices of the OP of charging unfair prices, granting quantity discounts and loyalty rebates are inconsistent with the provisions of Section 4 (2) (a) of the Act. Further, hiring of the informant's employees in order to strengthen its market share in the downstream market for glass ampoules is in violation of the Section 4 (2) (e) of the Act. It has also been alleged that its practice of refusal to deal with glass ampoule manufactures may be inconsistent with the provisions of Section 3 (4) of the Act. Reliefs sought 2.2 The informant sought the following reliefs from the Commission: 2.2.1 To issue interim orders under Section 33 to restrain Schott from abusing its position of dominance, including by offering its discount scheme by engaging in unfair or discriminatory pricing; or 2.2.2 To issue interim orders under Section 33 asking Schott to extend the same terms of discounts and rebates to all ampoule manufacturers without any discrimination on the basis of loyalty or any other criteria; 2.2.3 To issue interim orders under Section 33 to restrain Schott from continuing with its anti -competitive agreements for refusal to deal; 2.2.4 To issue orders for fines and penalties for abuse of dominance and entering into anti -competitive agreements. 2.2.5 Issue orders under Section 27 of the Act for breaking up of the joint venture company between Schott and Kaisha. Prima Facie Opinion The Commission upon examination of the facts of the Information passed an order under section 26 (1), on July 6, 2010 recording its opinion that there exists a prima facie case, and directed the Director General to investigate into the matter. Proceedings under Section 33 3.1 The informant in order to substantiate its allegations in support of its plea for interim relief made additional submissions on 07.07.2010, 09.07.2010, 16.08.2010. Reply of Opposite Party 3.2 The reply of the OP to the proceedings under section 33 received by the Commission on August 27, 2010 and oral submissions made on 30.09.2010, in brief, are as under: 3.2.1 Its entry into the glass tubing industry in India was by way of acquisition of assets belonging to Bharat Glass Tubes Limited in the year 1998. As part of such acquisitions, it acquired the production facilities that Bharat Glass had used for manufacture of Neutral Glass Tubes of Clear Variant (NGC) and Neutral Glass Tubes of Amber Variant (NGA). Thereafter, it made financial and technological investments to improve the standards of these production facilities. Its efforts in this direction enabled it to manufacture higher quality NGC as compared to the other manufacturers of NGC and also NGA in India. 3.2.2 The OP in its reply argued that the allegations made by the informant against it and its affiliates were completely false and baseless and had in fact been made with the malicious objective of harming its reputation. 3.2.3 The OP also submitted that the cause of action, if any, and the exit of the informant from the borosilicate glass tubes market, occurred prior to coming into effect of section 3 and 4 of the Act. Therefore, as a matter of law, the allegations of the informant pertaining to the alleged practice of the OP cannot be entertained under the Act. 3.2.4 As per the submissions of the OP, the exit of the informant from the glass tubing industry was not attributable to any anti -competitive practices by Schott India as alleged. According to OP, the Competition Act is not intended to offer protection to players like the informant who cannot compete in a market due to poor business skills and lack of technology to ensure high quality standards. In this regard, the OP has also brought out that as per hearsay statement, there was a fire at informant's production facilities which resulted in extensive damage to the facility that was in use to manufacture borosilicate glass tubes. On account of that, the informant had to stop production of glass tubes several times due to technical reasons resulting in higher costs which they might not have been able to absorb and eventually had to shut down. 3.2.5 It was also submitted by the OP that the glass tubes imported from China, which were similar to the quality of glass tubes manufactured by the informant might have given severe competition to the informant and this could have adversely affected its tubing business. 3.2.6 The informant also filed a rejoinder to the reply of the opposite party on 22.09.2010 and filed further submissions on 30.09.2010 in which apart from substantiating its allegations further, it also requested the Commission to pass an order under Section 33.
(3.) AFTER giving due consideration of oral and written submissions from both the parties, the Commission decided not to pass any restraining order under section 33.;