Competition Commission of India
Antitrust - Section 27 Disclaimer: The ... vs Honda Siel Cars India Ltd. & Ors. ... on 25 August, 2014
Case No. 39 of 2012
In Re:
Shri Ramakant Kini Informant
And
Hiranandani Hospital Opposite Party
CORAM:
Mr. Ashok Chawla
Chairperson
Dr. Geeta Gouri
Member
Mr. Anurag Goel
Member
Mr. Justice (Retd.) S. N. Dhingra
Member
Mr. S. L. Bunker
Member
Present:
Mr Ramji Srinivasan, Senior Advocate along with Mr Ram Kumar, Mr
Abhishek Parasheera, Ms Mansi Tewari, Advocates and Ms Nandita Jain
(Economist) for the Informant.
Mrs Pallavi Shroff, Mrs Shweta Shroff Chopra, Ms Manika Brar, Ms
Dinoo Muthappa and Ms Sreemoyee Deb, Advocates for the Opposite
Party.
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ORDER [Member (GG)]
I have had the opportunity to go through the majority Order that has found
contravention of the provisions of the Act by the OP. As I do not agree
with the Order, I shall record my findings in the case.
1. Vide an information dated 10.07.2012, the Informant has
approached the Competition Commission of India (hereinafter
"Commission") to highlight certain anti-competitive practices and
abuse of dominant position by Dr L H Hiranandani Hospital
(hereinafter "OP" or "Hiranandani Hospital") in violation of
Section 3(4) and Section 4 of the Competition Act (hereinafter
"Act"), thereby causing an appreciable adverse effect on
competition (hereinafter "AAEC").
Information
2. As submitted by the Informant, the OP is a frontline provider of
comprehensive health care in the country. With significant
investments in the most innovative technology, it is in the same
league as the best hospitals in the world. It is home to some of the
leading specialists in contemporary medicine, as well as a
committed nurse workforce with an up-to-date knowledge base.
All medical equipments of the Hospital are sourced from world‟s
best vendors and are pivotal in maintaining cutting-edge
technological excellence.
3. Bereft of details, fact of the case is that one Mrs. Jain, an expecting
mother, seeking maternity services from the OP, entered into an
agreement with LifeCell India for umbilical cord stem-cell
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banking services. Prior to the delivery, when her husband sought
OP‟s support for getting the stem cell banking procedure done at
the OP‟s premises, he was informed that the OP has an
arrangement with Cryobanks India according to which no other
stem cell banker would be allowed in the OP‟s premises. In the
event of the informant still being desirous of opting for any other
stem cell banking services other than the one with which the OP
had an arrangement, he was told that he should seek maternity
services from elsewhere. Consequently, the patient opted for
another high-end multi-specialty hospital for maternity services.
4. The Informant also submits that the OP not only denied the patient
to avail services of LifeCell India, but also directed the latter not to
enroll any of its patients for stem cell banking services as
Cryobanks was their cord stem cell Banker with effect from
01/09/2011.
Allegations
5. As submitted, violations / contraventions brought out in the
information relate to a new and emerging area of medical services,
which is currently at the nascent stage of development in India. It
is submitted that the target consumers for stem cell banking
services in India would constitute less than 2% of the total
population. It is also submitted that cord blood has to be collected
immediately after baby‟s birth, preferably within 10 minutes after
which it would not be suitable for collection and processing of
stem cells. The collection of cord blood can be done either by
customers‟ obstetrician or the hospital staff. If the customer
desires, collection can also be done by a paramedic of the service
provider in assistance with the hospital. As submitted, business of
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stem cell banking is not regulated by any statutory authority in
India.
6. It is alleged that the OP has indulged in anti-competitive practices
and abused its dominant position in the market for maternity
services in high-end multi-specialty hospitals in the wards S, L, N,
K/E of Mumbai and leveraging its dominant position to gain
advantage in a related market for providing umbilical cord stem
cell banking services to high-end multi-specialty hospitals in the
wards S, L, N, K/E of Mumbai, where it is not present itself,
thereby, causing an appreciable adverse effect on competition in
violation of sections 3(4) and 4 of the Act.
7. Specifically, the Informant has cited following abusive practices of
the OP:
i. Indulgence in practices resulting in denial of market
access.
ii. Imposition of unfair condition by way of termination of
an existing supply relationship without objective
commercial justification.
iii. Exploitation of consumers.
8. The Informant has also referred to the refusal to deal arising out of
the exclusive supply agreement between OP and Cryobanks and
submitted that competitors of Cryobanks are not allowed to
approach prospective consumers who are taking maternity services
from the OP. Further, the Informant has submitted that although
the present case is not of tying, facts do not suggest that denying
access to entities other than Cryobanks would lead to improved
patient care so as to outweigh any anti-competitive consequences
arising out of the exclusive supply agreement.
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Analysis of the Case
9. The case deals with two new concepts; (a) „super specialty
hospital‟ for maternity services; and (b) „stem-cell banking
services‟. As per the allegations, both are linked. Before analyzing
the veracity of the allegation, a background on these two new
concepts will help to place the allegations in their appropriate
context.
Market structure and Economics of Health care Industry
10. Emergence of commercial health care services, „for profit‟
hospitals as against the conventional „not-for-profit‟ hospitals and
the expansion of these hospitals raise issues on the form and nature
of market transactions. Hospitals, especially modern private
hospitals such as Hiranandani Hospital, are business firms
organized to provide comprehensive medical services, involving
various third party health care service providers. Provision of
medical services involves complicated combinations of physical
facilities, advanced technology and specialized human capital.
Diversification within a hospital is on the basis of distinct verticals
where each vertical focuses on a single branch of medicine such as
oncology, sports medicine, highlighting the expansion of health
care facilities to cover a wide range of medical treatment and
significantly the verticals also include facilities such as imaging
and even insurance.
11. As highlighted in the literature on anti-trust cases in the US and
subsequent framework with conceptual issues,1 market
1
Clement, J. (1988). Vertical Integration and Diversification of Acute Care Hospitals: Conceptual
Definitions. Hospital & Health Services Administration, 33(1):99-110; Evans, R. (1983). Incomplete Vertical
Page 5 of 35
transactions in the health care industry are organized somewhat
differently from the conventional market transactions
12. From an economic perspective, the modern hospital can be seen as
organizing the provision of medical services, using physician
labour as both a supply input and a distribution network for
patients in terms of various verticals. In the new paradigm, a
hospital gets transformed as a platform to facilitate exchange of
services between health care specialists and consumers. These
services (including consultant doctors) are provided on
commercial terms that are often packaged and offered to
consumers (patients) by the hospital in different combinations; and
if required, tailor-made to suit their requirements. Consequently,
majority transactions in the health care industry are multilateral,
involving various health care service providers, patients and
hospital itself - managerial and entrepreneurial functions are
shared among firms supplying different types of health care
service / products. The benefit of such packaged services under
one roof reduces the transaction cost to all related market
participants, including patients and diversity of package enables
patients to exercise their choice.
13. A platform typically intermediates transactions between two
distinct groups of consumers who need each other in some way,
but require a medium to facilitate exchange. The platform
generates revenues by charging fees from the consumer who joins
the platform for exchange of goods or services. A two-sided
platform provides goods or services simultaneously to these two
groups. We can identify multiple two-sided relationships that are
Integration in the Health care Industry: Pseudomarkets and Pseudopolicies. Annals of the American
Academy of Political and Social Science, Vol. 468, Health Care Policy in America, pp. 60-87.
Page 6 of 35
intermediated through a hospital - two of these pertinent to the
case are between obstetrician and maternity patients and the other
one is between umbilical cord stem cell bank and maternity
patients. It is important to appreciate the fact that in a platform,
pricing decisions are not on conventional lines as observed in the
MCX-SX v NSEIL;2 rather it is dynamic, depending on number of
users on different side of the platform, number of transactions,
frequency of transactions, contractual arrangement, if any,
between platform-owner and platform-users etc.
14. There are other notable features of the health care industries that
need to be noted. Firstly, arrangements and contracts in the health
care market give rise to vertical relations. A hospital platform is
organized along different verticals (treatment areas) and
transactions between a hospital and health care in each vertical
consists of several layers of contracts which are vertical
arrangements, a departure from earlier expansion in hospital
services that were horizontal in their arrangement. The vertical
relation in health care is not necessarily unidirectional or
sequential; unlike in a conventional manufacturing sector, where a
vertical relation gets established when output of each successive
firm is utilized by a downstream firm that adds value to it for
consumption by the final user.
15. Secondly, in this vertical arrangement, given the nature of
relationships between the two-sides of the platform, there is an
element of vertical incompleteness. A hospital acts as a
coordinator of transactions towards a common objective - this
alters the nature of transactions and incentives in the healthcare
2
Dissent Order in Case no. 13/2009, Competition Commission of India
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industry from normal market exchanges. In the health care
industry there are five basic classes of transactors. The patient or
consumer of health care services is the first transactor, followed by
first-line providers - the doctors, specialist consultants whom the
patients contact directly. The second-line providers include
imaging facilities, scanning, blood bank, stem-cell bank etc. whose
output is either used by patients under the direction of first-line
providers or supplied as intermediate products to first-line or
patients. Insurers who assume risk by selling health insurance
policies are the next line of service providers followed lastly by the
government which regulates the health care market. These
interactions are vertical in form and breadth, but do not display the
standard continuous vertical linkage to the end consumer as in the
manufacturing sector. As a result of the pattern of incomplete
integration, health care market transactions are dominated on one
side of the transaction platform. Importantly, second-line providers
(drug companies, equipment manufacturers etc.) exert greater
control than other players in the health care sector and adopt
different marketing techniques to promote their product.
16. Unlike standard market economic transactions wherein each side
of the transaction seeks to maximize his benefits by taking
independent decision, transactions in the health care industry are
often multilateral and not an outcome of independent decision -
patients purchase medicines that are prescribed by doctors,
physicians refer patients to hospitals / diagnostic centers that are
not owned / operated by them, health care equipment
manufacturers sell to hospitals who serve patients. In other words,
the ultimate user of service does not generally make the utilization
decision. Thus, although each entity in a health care industry is
related to the other, the integration is not complete in as much as
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there is a lack of independence while making decision for
utilization of a particular service. Maternity and stem cell banking
services constitute one such incomplete integration.
17. Thus, health care industry displays some sort of vertical
integration, although different from conventional vertical relation.
Further, this vertical integration is incomplete as objectives of the
transactors partly overlap and partly conflict with power to
influence each other‟s behavior.
18. In the present case, a hospital acts as a platform to facilitate
exchange of services between health care specialists (for provision
of stem cell banking services) and consumers (seekers of stem cell
services), apart from rendering maternity services to its patients.
This aspect of multitude relations between obstetricians and
patients and between umbilical cord stem cell bank and patients
mediated through the platform of Hiranandani Hospital at the time
of delivery lends these market transactions an analytical
framework of multisided markets, and in this framework the
allegations will be examined.
19. As the violations pertain to Sec 4(2)(a)(i) and 4(2)(c) and Sec 3(4),
the case revolves around the dominance of Hiranandani in the
provision of maternity services and maternity services with stem-
cell banking facility in wards S,L,N,K/E of Mumbai. The
contractual agreement between Hiranandani Hospital and
Cryobanks also raises the issue as to whether Cryobanks, a
provider of stem-cell banking facility, is dominant in that area.
20. To summarize, the Order will examine the following critical issue:
(i) Does the consumer have choices regards: (a) maternity
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services (b) packages in maternity services?
(ii) Even if consumer choice is restricted, is the conduct of the
OP anti-competitive?
Analysis of Section 4 Violation
21. The informant has alleged that the OP, Hiranandani Hospital, has
indulged in anti-competitive practices and abused its dominant
position for maternity services in high-end multi-specialty wards
S, L, N, K/E of Mumbai. To assess and evaluate the allegations
pertaining to Sec 4(2)(a)(i) and 4(2)(c), it is necessary to define the
relevant market and the dominance of Hiranandani in this market.
Relevant Market
22. What constitutes a relevant market has been provided for under
section 2(r) of the Act, according to which "relevant market"
means the market which may be determined by the Commission
with reference to the relevant product market or the relevant
geographic market or with reference to both the markets.
23. In terms of Section 2(s), "relevant geographic market" means a
market comprising the area in which the conditions of competition
for supply of goods or provision of services or demand of goods or
services are distinctly homogenous and can be distinguished from
the conditions prevailing in the neighbouring areas.
24. Further, as per Section 2(t), "relevant product market" 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
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and intended use.
25. The Informant has placed reliance on several cases viz;
PPR/Gucci3 , Wanadoo Interactive4, to underscore that there
exists a separate product market for luxury products having a low
degree of substitutability with other products falling within other
segments of the same sector. In the information filed, the
Informant has identified two distinct relevant markets for the
purpose of the present case:
(i) „Maternity services in high-end multi-specialty
hospitals in the words S, L, N, K/E of Mumbai‟;
(ii) „Umbilical cord stem-cell banking services in high-
end multi-specialty hospitals in the wards of S, L, N
and K/E of Mumbai‟
26. On the other hand, while arriving at the relevant market, DG has
submitted that factors such as economic and social strata of the
patient, peer pressure, social perceptions, brand value of the
hospital, complication attached with maternity, other health issues,
relation with the doctors etc become critical in deciding a hospital.
Further, DG has ruled out the possibility of including all hospitals /
clinics within one single market. Reliance has also been placed on
Commission‟s Order in Diageo case5 to highlight
„premiumisation‟ of certain differentiated products. Considering
the fact that the cost of availing maternity services is considerably
lower at other establishments, than what it is at the high-end multi-
specialty hospital, DG has determined the relevant product market
3
Case IV/M. 1534
4
COMP/38.233 dated 16/07/2003
5
Case No C-2012/12/97
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as „provision of maternity services by Super Specialty Hospitals‟.
27. While defining the relevant product market, the DG, in its
supplementary report, has cited the Guidelines of National
Accreditation Board for Hospitals & Health care Providers
(NABH) on the basis of which the DG concludes that super-
specialty centers are those which provide the following services:
Cardiology, Clinical Haematology, Clinical Pharmacology,
Endocrinology, Immunology, Medical Gastroenterology, Medical
Genetics, Medical Oncology, Neonatology, Nephrology,
Neurology, Neuro-radiology, Rheumatology, Cardiac Anaesthesia,
Child & adolescent psychiatry, Paediatrics, Gastroenterology,
Paediatrics Cardiology, Hepatology, Cardio-vascular & Thoracic
Surgery, Paediatric Cardio-Thoracic Vascular Surgery, Urology,
Neuro-surgery, Paediatric Surgery, Plastic & Reconstructive
Surgery, Surgical Gastroenterology, Surgical Oncology,
Gynaecological Oncology, Endocrine Surgery, Vascular Surgery,
Hepato-Pancreato-Biliary Surgery.
28. On the issue of relevant geographic market, DG has used
catchment area analysis on a sample data of 252 patients who have
availed both maternity services and stem cell banking services at
Hiranandani Hospital to conclude that 82% of the patients of OP
reside within a distance of 0-12 km. DG has also found that about
71% of the patients who availed both services at Hiranandani
Hospital come from S, L, N, K/E wards of Greater Mumbai. Using
these results, DG has determined the relevant geographic market
as the „area within a distance of 0-12 km from the Hiranandani
Hospital covering S, L, N , K/E, T & P/S wards of Municipal
Corporation of Greater Mumbai‟.
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29. To sum up, according to the DG, the relevant market is „provision
of maternity services by Super Specialty Hospitals within a
distance of 0-12 km from the Hiranandani Hospital covering S, L,
N , K/E, T & P/S wards of Municipal Corporation of Greater
Mumbai‟.
30. The OP has contested both the relevant product market as well as
the relevant geographic determined by the DG on the grounds that
the latter has made conceptual or / and methodological error
leading to erroneous determination of the relevant market. Citing
Gordon v. Lewistown Hospital6 and FTC v. Tenet Health care7,
the OP has submitted that health care decisions are based on
factors other than price and that lower price hospitals do exert
competitive pressure on higher-priced hospitals. It is submitted
that DG has: (a) failed to identify as to what constitutes super-
specialty hospitals; (b) made subjective statements while stating
that all hospitals / clinics cannot be included within a single
market; and (c) pre-supposed that super-specialty hospitals are a
separate class of hospitals without an assessment of whether they
are considered inter-changeable / substitutable for other medical
establishments by a consumer. The OP has objected to the relevant
product market definition proposed by the DG, and has submitted
that the DG has only examined what he believes are "Super
Specialty Hospitals" without an assessment of whether they are
considered inter-changeable / substitutable for other medical
establishments by a consumer. It is also submitted that Super
Specialty Hospitals are not a separate class of health care
establishments and that the DG has failed-to recognize the extent
to which other hospitals, maternity specialist hospitals, nursing
6
272 F Supp 2d 393 (2003)
7
186 F3d 1045 (1999)
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homes, maternity homes, etc., are demand-side substitutes and the
extent to which they compete with and constrain the OP. On price
based competition, the OP has submitted a list of 87 hospitals /
maternity centers which, according to it, compete with the OP in
maternity services. According to the OP, the correct product
market definition is „market for maternity services at hospitals,
specialist maternity hospitals / clinics, nursing homes, birthing
centers etc.‟
31. The OP has also disputed DG‟s definition of the relevant
geographic market on the grounds that he has relied on wrong data
set and has erred in identifying OP‟s catchment area. Moreover,
according to the OP the DG failed to identify competitive
constraint in and outside its catchment area and also failed to
consider whether a chain of substitution exists for all hospitals
within the Municipal Corporation of Greater Mumbai. Taking
recourse to the Economist‟s Report, the OP has proposed that the
relevant geographic market based on catchment area of OP should
include 16-20 km on travel distance basis or roughly 12 km on a
straight line basis and therefore, the relevant market should include
all super specialty hospitals in Mumbai.
32. Having gone through the submissions made by the parties as also
the DG Report, I am of the view that for determining the boundary
of relevant market in the present case, both dimensions - product
and as well as geography play an important role and competitive
constraints ought to be evaluated accordingly.
Relevant Product Market
33. The standard approach to defining the relevant market is the
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Hypothetical Monopolist Test or SSNIP (small but significant and
non-transitory increase in price) Test. I am of the view that use of
SSNIP test in case of differentiated products, as in the present
case, that has both price as well as non-price dimensions may be
inappropriate to the extent that SSNIP would capture only price-
related aspects.
34. For defining the relevant market, it is important to identify those
substitute products / services which provide an effective constraint
on the competitive behavior of the products or services being
offered in the market by the parties under investigation. It is
sometimes argued that two products cannot be reasonably
substitutable if they have substantially different prices. Price
differences have therefore been used to distinguish between
products which may be „functionally substitutable‟, but are not
„substitutable‟ from competition assessment perspective.
Therefore, defining relevant market solely on the basis of
differences in price will be flawed if price differences reflect
quality differences (actual or perceived). When such quality
differences appear, defining relevant market merely on the basis of
absolute price levels will ignore the possibility of consumers
making a trade-off between price and quality.
35. While accepting that the present case centers on maternity services
(having both price and non-price consideration), what is being
disputed is whether there is a need to categorize these service
providers to analyze state of competition. In this regard, it is
important to note the role of medical insurance policies. In the
absence of health policies, a patient would certainly weigh the cost
of maternity services while revealing her preference for a
particular hospital. To that extent, theoretically, some sort of
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segmentation could be possible on price consideration alone.
However, if there are serious non-price considerations such as the
choice of the gynecologist, family traditions, peer pressures etc.
then it is likely that a lower priced medical establishment may well
constrain a high-end competitor in maternity services. On the other
hand, a person having a health policy would consider non-price
factors to be the determining factor as her expenses is taken care of
in designated hospitals - in this case all such empanelled hospitals
could be deemed competitors but may just fall short of comprising
the relevant market.
36. The DG has overlooked these nuances of the health care industry,
especially in the maternity services segment, which generally is
not considered an intensive medical condition. Although not stated
upfront, even if we were to assume super-specialty hospitals to be
synonymous with high-end hospitals, no reasons has been given to
exclude single-specialty hospital / neighborhood maternity centers
that provide maternity services at comparable rates. Secondly, the
dividing line in terms of price range has not been investigated
upon; to that extent high-end hospitals for „upwardly mobile‟
customers remains subjective.
37. In the present case, there is a trade-off between price and quality as
the hospitals offer a variety of rooms with different prices based on
the category of the room with different facilities. Thus, every
individual hospital also has a price range. Any kind of price
segmentation is arbitrary. The price range of one health care
establishment that provides maternity services might overlap the
price range of others. The rates of highest priced room at a nursing
home might be comparable with the lowest priced room at a super-
specialty hospital. In other words, there is a continuous price
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spectrum for maternity services across different types of health
care establishments, such that no one price bracket or type of
medical establishments can be viewed in isolation.
38. On the other hand, if super-specialty hospitals are those that
include various verticals (as in NABH classification, referred to by
DG and brought earlier in the Order), then it would be wrong to
consider only the private high-end establishments; various
government run, charitable / trust hospitals etc. might as well get
included in the relevant market definition. It is to be noted that
NABH classifies the hospitals into super-specialty and specialty on
the basis of professional qualification of doctors rather than on the
basis of different verticals as cited by the DG. To that extent, a
super-specialty or a specialty medical establishment could be
single or multi-disciplinary. Most importantly, perusal of NABH
guidelines highlights the fact that maternity service is not included
in the list of verticals that are considered „super-specialty‟.
39. While a hospital that provides an array of services across different
verticals as discussed above, it may be true that each vertical may
not be a super-specialty on NABH guidelines. Often the
assessment as a super-specialty hospital is done as a marketing
tool to promote / build their brand equity in the market.
40. It is noted that DG has relied upon the Diageo Case (M&A Case)
to highlight high-end products being a part of a separate anti-trust
relevant market. On this aspect, it is opined that Diageo Case is
premised on premiumisation of a product. As discussed above,
facts of the case do not enable the present case to be placed in the
same league as that of Diageo mainly on account of two reasons:
(i) maternity services are not considered as „specialty treatment‟
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i.e. patients generally prefer a hospital that gives best value in
terms of services for their money since treatment is given priority
over „luxury‟ in health care; and (ii) specialty cannot be equated
with „high-end‟ - reference is made to NABH guidelines that
differentiates a super-specialty / specialty / other health
establishments on the basis of requirement of doctor of particular
qualification. Thus, in health care, specialty and high-end may not
go together.
41. It may also be pointed that definition of relevant market in merger
cases need not be on the same lines as a case pertaining to abuse of
dominance as economics of merger is different from economics of
abuse of dominant position (AoD). Unlike in a merger case
wherein competition authorities, ex-ante, predict the outcome of a
proposed merger for any change possible in competitive
environment; in analyzing AoD case, dominance is investigated on
the basis of market leadership in an oligopolistic market and
thereafter the alleged abusive conduct of OP is evaluated ex-post.
Further, assessment of entry conditions is essential to judge the
ability of the firm to harm the consumer8. Not the least, the focus
of AoD analysis is more on a particular relevant market, unlike the
M&A analysis where overall competition in different markets is
evaluated.
42. In view of the above and the fact that there exists a continuum of
price in maternity services, the relevant product market ought to be
"Market for maternity services."
8
Federico Etro, Ioannis Kokkoris: WP Series, Dept of Economics, University of Milan
Page 18 of 35
Relevant Geographic Market
43. In respect of maternity services, it is important to draw a
distinction between a planned delivery and an emergency delivery.
In the absence of supporting data, I strongly believe that majority
of delivery cases are planned. So, travel distance or time is likely
to be a factor in deciding a particular hospital, but it would
certainly not be the only determining factor that patients consider
before choosing a hospital for availing maternity services.
44. On the relevant geographic market, the DG has used the catchment
area analysis to fix the boundaries of geographic market. The
catchment area of a firm is defined as an area in which its
maximum (usually 80%, as taken in some matured jurisdiction)
customers would be located. To define the boundary of the
relevant geographic market, it is important to analyze the extent of
competition in the catchment area. On mapping customer sample
data of all such maternity patients who also availed stem cell
banking services from Cryobanks at the OP‟s premises, the DG
has concluded that nearly 82% of the OP‟s patients come from
within 12 km of the OP‟s location. As against this, the OP has
submitted analysis of all its 3602 maternity patients‟ data to
suggest that nearly 76% of its maternity patients come from a
distance up to 15 kms and further 83% patients come from a
distance up to 20 km. Further, the OP has also cited para 4.45 on
pp 25 of the DG Report that says nearly 76% of maternity patients
are coming from a distance between 0-15 km.
45. In my opinion, while the DG has used an appropriate tool to define
the relevant geographic market, he has used an incorrect sample
for analysis. Since the product under consideration is the provision
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of maternity services (the relevant product market identified by the
DG himself), the sample data set should reflect only such patients
that have availed maternity services and not such patients who
have availed both maternity and stem cell banking services at
Hiranandani Hospital. To that extent the sample characteristic does
not correctly represent the population characteristic and hence the
sample is biased. Further, it has not been established whether the
sample is statistically significant. Most importantly, selecting and
analyzing the data of only such patients that have availed both
maternity and stem cell banking services makes the DG‟s analysis
a „census‟ analysis as opposed to a „sample‟ analysis of maternity
patients that could possibly include those who availed stem cell
banking service. On account of the aforementioned, the result of
analysis is doubtful.
46. In my opinion, the DG has chosen a method for doing a sample
analysis which is inappropriate. While choosing a sample of 252
patients, the DG has inadvertently conducted unrelated „census‟
analysis of only such patients who have availed the package
service (maternity and stem cell banking) as against a purported
sample analysis of all maternity patients, including those who
availed stem cell banking services. Given the fact that there were
3602 maternity patients enrolled by the OP, an appropriate
technique would have been to conduct a „census‟ analysis of all
such patients as the relevant product has been identified as
maternity services, if he preferred to do a census.
47. It is also important to note that the catchment area analysis would
give erroneous results when competitor firms are located in such a
manner that the catchment area of two firms overlaps each other
i.e. contestability / substitutability would be more if the overlap of
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catchment area is greater. The OP has submitted that the DG has
not considered the fact that defining a rigid catchment area may
lead to the exclusion of certain health care establishments that may
lie just outside the area but do offer sufficient competition to the
establishment being considered and to that extent, applying a
precise distance measure is likely to lead to incorrect results. It is
also submitted that the DG has not considered competitive
constraint offered by Lilavati Hospital and Hinduja Hospital that
are located at 12.2 Km and 12.4 Km, respectively from the OP. In
its response to the DG report, the OP has submitted that there is a
significant overlap between its catchment area and that of 8 super-
specialty hospitals in Mumbai and has accordingly proposed that
the relevant geographic market is much broader than as defined by
the DG.
48. Having noted the arguments of OP and submissions of DG on
catchment area and analysis of data set to define the boundary of
geographic market, I am of the opinion that the relevant
geographic market for the present case would certainly be broader
than suggested by the DG. Defining particular wards of Mumbai as
the relevant geographic market would shrink the market on the
assumption that consumers in these wards do not consider availing
maternity services from a health care establishment located outside
of these named wards. Also, given that the product market has
been defined as market for maternity services, it is believed that a
metropolitan city such as Mumbai, with more than 1,60,000 live
births every year would have maternity centers spread all around
the city so as to cater to each locality of the city. Further, since
there is no data on the catchment area of all such centers that
provide maternity services, in my view, the relevant geographic
market in the present case is the City of Mumbai.
Page 21 of 35
49. In view of the foregoing, the relevant market would be „Market
for maternity services in the city of Mumbai.‟
Is OP dominant in the relevant market?
50. The first step for determining dominance is to find the stable / long
run market share of the firm under investigation in the relevant
market. For doing that, we need to estimate the size of the relevant
market.
51. It is noted that the DG has calculated market share of the OP as
about 62% within his definition of relevant market. On the other
hand, the OP has contested the very definition of the DG‟s relevant
market and accordingly submitted that it is not a dominant
enterprise in maternity service market.
52. Since, relevant market has been defined in a different manner, I
now attempt to estimate the market share of OP in the revised
relevant market. In the present case, it has been submitted that
3602 maternity patients have enrolled for maternity services at OP
during 2009-12. For assessing total market size, reliance is placed
on an internet article9, according to which there were at least
1,61,500 live births in Mumbai in the year 2009. From these two
figures, the market share of the OP in the relevant market is
calculated to be less than 1%.
53. Furthermore, since there is an upper limit on the number of
9
„25% Mumbai women have caesarean births', Chittaranjan Tembhekar, (November 6, 2009), accessed
from //http://articles.timesofindia.indiatimes.com/2009-11-06/mumbai/28063040_1_ undp-report-private-
hospitals-caesarean), accessed on January 31. 2014.
Page 22 of 35
patients that can be enrolled at any hospital (as number of beds are
fixed and cannot be increased in a short span of time to
accommodate more patients); I am of the view that there is no
further need to analyze other Section 19(4) conditions for
dominance. Accordingly, the OP is not a considered dominant
enterprise in the relevant market.
Issue: If the OP was dominant in the relevant market, has it
abused its dominance in the relevant market?
54. Having concluded that OP is not dominant in the relevant market,
it would be futile to enquire OP‟s alleged abusive conduct under
the provisions of Competition Act, 2002.
Analysis of Section 3 Violation
55. The Informant has alleged that consumers of the OP are exploited
because: (i) OP has an exclusive supply agreement with a
particular stem cell bank that results in denial of market access to
other stem cell banks; and (ii) there is a tie-in of stem cell banking
service with maternity services at the premises of OP due to which
consumer choice is restricted.
56. In its investigation, the DG has concluded that tie-in arrangement
between Hiranandani Hospital and M/s Cryobanks is an agreement
in violation of Section 3(4) of the Act, thus creating appreciable
adverse effect on competition in India.
57. The OP has rejected the conclusion of the DG in this regard and
submitted that maternity patients of the OP are not necessarily
required to purchase stem cell banking services. Accordingly,
Page 23 of 35
there is no tie-in for maternity patients. Further, the OP has quoted
Commission‟s Order in Sonam Sharma v. Apple & Anr. 10 to
highlight conditions of tying to conclude that the same are not
present case.
On the basis of submissions made, I shall record my views on
section 3(4) violation in the ensuing paragraphs.
58. According to Section 3 of the Act, "No enterprise or association of
enterprises or person or association of persons shall enter into any
agreement in respect of production, supply, distribution, storage,
acquisition or control of goods or provision of services, which
causes or is likely to cause an appreciable adverse effect on
competition within India".
59. Further, Section 3(4) of the Act highlights anti-competitive
agreements between vertically related enterprise as "Any
agreement amongst enterprises or persons at different stages or
levels of the production chain in different markets, in respect of
production, supply, distribution, storage, sale or price of, or trade
in goods or provision of services, including:
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
shall be an agreement in contravention of sub-section (1) if such
agreement causes or is likely to cause an appreciable adverse
effect on competition in India".
10
Case no.24/2011
Page 24 of 35
60. The DG, in his investigation report, has annexed four agreements
signed by OP on yearly basis. First two of these are with Life Cell
and latter two with Cryobanks. It is noticed that the fourth
agreement (signed with Cryobanks for the period wef 01.09.2012
to 31.08.2013) states that Cryobanks has exclusive tie-up with
other hospitals as well. It has also been submitted by the OP that
all agreements signed by the OP with different stem cell banks are
for a period of one year only and that these are terminable on
notice by either party. Further, there is a process of objective
evaluation in selecting the preferred stem cell bank. The OP has
also submitted that Cryobanks has been selected objectively on
account of its superior technology and in consumer‟s interest
despite the fact that it was offered greater remuneration by
competitor stem cell banks.
Issue: Is there is a vertical relationship between the OP and
Cryobanks?
61. In the present case, while it is true that a hospital rendering
maternity services does not require stem cell banks, the stem cell
banks do require the services of the hospital to the extent that stem
cell of the umbilical cord has to be collected within 10 minutes of
delivery of a baby if the baby is delivered in a hospital. However,
it is important to note that collection of stem cell from the
umbilical cord can be done at home by a paramedic staff if
delivery happens at home. It is important to note that hospital on
its own does not produce anything that is used by stem cell banks;
rather, hospital comes into the picture vis-a-vis stem cell value
chain because delivery happens within the premises of hospital.
Therefore, a hospital, apart from providing maternity services,
becomes a platform where the patients deliver the baby and the
Page 25 of 35
stem cell banks collect the umbilical cord cell. To that extent and
as discussed earlier in the Order (under economics of health care
industry), a hospital and a stem cell bank may be said to be
vertically related but this falls short of being in a vertical relation
in a conventional sense. The definition of vertical integration
requires a reference point with respect to which a firm is vertically
integrated. That reference is a final consumable product. The
hospital‟s inpatient and outpatient care are considered to be the
final consumable output. Each consists of a package of services
produced when a patient visits the hospital.
62. To refine the vertical integration definition, four dimensions have
been proposed by Harrigan11: stages, breadth, degree and form.
The "degree" of vertical integration is the production of total input
or output of required resources transferred to a later in-house
production stage. In this case, hospital services are used only at the
time of the collection of the sample and later the banking services
are provided independently by the umbilical cord stem cell bank.
63. Further, as stated above, a patient demands maternity services and
collection and banking of the umbilical cord stem cells, there are
two outputs for final consumption. When the baby is delivered, a
sample of umbilical cord stem cells is collected within 10 minutes
from the placenta. Both the outputs are produced sequentially, at
the same production stage and in a short time gap. This shows that
the hospital is in a vertical relationship not only with obstetricians
and other specialists for the provision of maternity services, but
also with umbilical stem cell bank for collection of umbilical cord
stem cells.
11
Harrigan, R. (1985). Vertical Integration and Corporate Strategy. Academy of Management Journal, Vol.
28, pp. 397-425.
Page 26 of 35
Issue: Can the agreement between OP and Cryobanks be
termed as a tie-in agreement?
64. Explanation (a) to Section 3(4) of the Act defines tie-in as
including any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods. In line
with this, the agreement between OP and Cryobanks shall be tested
for tie-in arrangement.
65. The Commission, in its Order Sonam Sharma v. Apple & Anr.12
had discussed the intricacies of tying and bundling:
"A tying arrangement occurs when, through a contractual
or technological requirement, a seller conditions the sale
or lease of one product or service on the customer's
agreement to take a second product or service. In other
words, a firm selling products X and Y makes the purchase
of product X conditional to the purchase of product Y.
Product Y can be purchased freely on the market, but
product X can only be purchased together with product Y.
The product that a buyer is required to purchase in order
to get the product the buyer actually wants is called the
tied product. The product that the buyer wants to purchase
is called the tying product.'
'More often, tying is a sales strategy usually adopted by the
companies to promote / introduce a slow-selling or
unknown brand when it has in its portfolio a fast-selling or
well known product, over which it has certain market
power.‟
12
Supra 10
Page 27 of 35
66. Referring to Van Den Bergh Foods Limited v Commission13, DG
has submitted that vertical agreements of short duration terminable
with a short notice by either party may be anti-competitive if effect
of the agreement results in foreclosure.
67. It is evident from the submissions of the parties and the DG Report
that OP provides maternity services to all those who seek its
service. It is also submitted that it refuses all stem cell banks other
than Cryobanks in its premises for stem cell banking services. The
DG has submitted that during 2009-12, a total of 3602 patients
enrolled at OP for maternity services, out of which only 252
availed stem cell banking services from its premises. It is evident
that 3350 patients availed only maternity services during the
period under reference and that these patients were not compelled
to avail stem cell banking services from its premises. In view of
this, it cannot be concluded that the agreement between OP and
Cryobanks is a tie-in agreement since more than 93% of the patient
had the choice of availing only maternity services.
Issue: Whether the agreement between OP and Cryobanks is
an exclusive supply agreement?
68. As per explanation (b) to Section 3(4) of the Act, "exclusive
supply agreement" includes any agreement restricting in any
manner the purchaser in the course of his trade from acquiring or
otherwise dealing in any goods other than those of the seller or any
other person.
13
Case T -65/98, (2003) ECR II - 4653
Page 28 of 35
69. The OP has quoted Balaklaw v. Lovell14 to highlight that "...it is
the nature of competition that at some point there are winners and
losers, and the losers are excluded..." It is evident from above that
the tenet of exclusive supply agreement, generally observed
between manufacturers and suppliers or between manufacturers
and dealers, is that a seller restricts a trader (re-seller) from dealing
with his competitor seller in order to stifle competition. While
exclusive contracts can benefit competition in the market by
ensuring supply sources or sales outlets, reducing contracting
costs, or creating dealer loyalty, they become anti-competitive
when a firm uses exclusive contracts to impede efforts of new
firms to break into the market or of smaller existing firms to
expand their presence. In other words, it has to be established that
there has been injury to competition by way of foreclosure.
70. In the present case, conditions of exclusive supply agreement do
not appear to hold true for the reason that OP does not stop
Cryobanks from enrolling patients from other hospitals. This is
supported from the fact that Cryobanks has exclusive tie-up with
various hospitals across the country. In view of the aforesaid, it is
opined that there is no foreclosure and accordingly no violation of
Section 3(4) of the Act.
Issue: Can the conduct of OP be said to be in the nature of
refusal to deal?
71. According to explanation (d) of Section 3(4) of the Act, "refusal to
deal" includes any agreement, which restricts, or is likely to
restrict, by any method the persons or classes of persons to whom
14
14 F3d 793 (2d Cir 1994)
Page 29 of 35
goods are sold or from whom goods are bought.
72. From the above, it emerges that allegation pertaining to refusal to
deal will operate only if (a) parties have an agreement between
them; and (b) parties to the agreement (buyer or seller) are
restricted or likely to be restricted from selling or purchasing
goods. In the present case, OP being the seller of hospital space to
Cryobanks, parties to agreement are: OP and Cryobanks. It has
been alleged that on account of the agreement between OP and
Cryobanks, other stem cell banks have been refused to deal by the
OP.
73. Every exclusive deal or requirements contract with one supplier
(or distributor or other customer) could potentially be
characterized as a refusal to deal with the supplier‟s competitors.
In fact, any contract could be characterized as a refusal to deal
with other suppliers to the extent of the business covered by the
contract. Antitrust does not impinge on most companies‟ choices
to deal, or not to deal, with other companies. However, antitrust
laws frown upon such refusals that have a foreclosure effect on
substantial amount of a market i.e. whether the contravening entity
has a substantial market power so as to adversely affect
competition in its favour.
74. Importantly, any allegation of refusal to deal has to be analyzed
under the „rule of reason‟ approach rather than „per se‟ approach
that condemns it for being anti-competitive. While doing so, it has
to be seen whether there has been / likely to have anti-competitive
effect in the market. In NYNEX Corp. v. Discon Inc., the US
Supreme Court reversed a decision by the Second Circuit that had
suggested that a single contract between a single buyer and a
Page 30 of 35
single seller might be illegal per se.15
75. If we adopt a per se approach, the agreement between Hiranandani
Hospital and Cryobanks for the provision of umbilical stem cell
banking services to the maternity patients restricts other stem cell
banks to provide its services to the patients at the Hiranandani
Hospital. The agreement also limits the choice of those patients
who want to avail maternity services and umbilical cord stem cell
banking services at Hiranandani Hospital, but desire to obtain cord
stem cell banking services from a different umbilical cord stem
cell bank.
76. In the present case, following are to be noted: (i) Impugned
agreement of OP with Cryobanks was initially for one year only;
(ii) the OP is able to influence less than 1% maternity patients in
the area of Mumbai, if at all it does so; (iii) The effect of so called
tie-in is cast on less than 7% of its customers; and (iv) As
submitted by OP, the practice of having an arrangement exists in
other hospitals also. As regards contention of the Informant that
other stem cell banks are restricted from doing business with the
patients of OP, it would be appropriate to say that OP is within its
right to choose its business partners in accordance with its
commercial interests.
15
The Supreme Court decided to hear NYNEX v. Discon after the Second Circuit issued a remarkable
decision that suggested that a simple agreement by one firm to use the services of another firm could
amount to a "boycott" of the second firm‟s competitors, and thus could be condemned per se. The plaintiff
in the antitrust case, Discon, was in the business of removing obsolete telephone equipment. NYNEX
owned New York Telephone, a leading local telephone company in New York and parts of Connecticut.
NYNEX at one time used Discon‟s removal services, but switched all of its business to a rival removal
service, AT&T Technologies. The Court recognized that the Second Circuit‟s broad application of the per
se rule would discourage firms from changing suppliers even where the competitive process suffered no
harm. In reversing the Second Circuit decision, the Court made clear that an agreement by a single buyer
to purchase goods and services from a single supplier could not be condemned per se even if the buyer
could not prove a legitimate business justification for its choice. Thus, after Discon, the law governing
refusals to deal once again requires a plaintiff challenging a single buyer‟s selection of suppliers to prove
harm, not only to a single competitor, but to the competitive process as a whole.
Page 31 of 35
Issue: Is there AAEC arising out of the agreement OP and
Cryobanks?
77. Under AoD analysis, it has been shown that OP has less than 1%
market share in terms of maternity services in Mumbai. Keeping
this in mind, analysis of AAEC would be done.
78. In the present case, allegations pertain to: (a) tie-in arrangement;
(b) exclusive supply agreement and; (c) refusal to deal. As
discussed above the agreements are not in the nature of either tie in
or exclusive supply agreement.
79. Furthermore, as discussed while the agreement may be in the
nature of a "refusal to deal", however, a rule of reason approach
has to be adopted in the analysis of this restraint. It needs to be
established, whether such an agreement has an appreciable adverse
effect on competition, with regard to all or any of the factors stated
in section 19(3) of the Act.
80. As per section 19(3) of the Competition Act, 2002, the
Commission shall, while determining whether an agreement has
an appreciable adverse effect on competition under section 3, have
due regard to all or any of the following factors, namely:-
a. Creation of barriers to new entrants in the market;
b. Driving existing competitors out of the market;
c. Foreclosure of competition by hindering entry into
the market;
d. Accrual of benefits to consumers;
e. Improvements in production or distribution of
goods or provision of services;
f. Promotion of technical, scientific and economic
Page 32 of 35
development by means of production or distribution
of goods or provision of services.
Creation of barriers to new entrants in the market
81. While it is true that OP has placed restriction on other stem cell
banks in its premises, it is definitely not correct to say that it has
created barriers to new entrants - no evidence has been adduced by
DG in this regard. The DG, in his supplementary report, has
submitted that there were atleast 13 stem cell banks and that
market share of Cryobanks in Mumbai was 34.54% (2011-12).
Driving existing competitors out of the market
82. Citing exclusive tie-in arrangement between OP and Cryobanks,
DG has observed that other competitors in the market of stem cell
banking services are not allowed to cater to the maternity patients
of OP. It is also submitted that having exclusive tie-up
arrangement with a particular service provider and not allowing
others to utilize its infrastructure, OP has effectively driven out all
the existing competitors of Cryobanks out of the market.
83. Reliance is placed on an internet article,16 wherein it has been
reported that about 500 samples are collected by stem cell banks
on a monthly basis and that the market, witnessing entry of more
players since starting of cord cell banking service in 2004, is
growing by about 45-50%. Further, there is no evidence to show
that any of the existing stem cell bank has been driven out of the
„market‟ that may be relatable to the agreement signed between the
16
„Stem cell banks rake in the moolah with a promise to secure future's (sic.) health for the new born',
Mohini Mishra (April 7, 2013), accessed from (http://articles.economictimes.indiatimes.com/2013-04-
07/news/38346234_1_stem-cells-mayur-abhaya-cord-blood) accessed on January31, 2014.
Page 33 of 35
OP and Cryobanks.
Foreclosure of competition by hindering entry into the market
84. Citing market share of OP in the relevant market, the DG has
submitted that the OP has foreclosed 62.27% of the market. Earlier
in the order, it has been shown that the DG has taken an incorrect
relevant market into account. Accordingly, this market share is
incorrect. Furthermore, for the purpose of Section 3, foreclosure
effect has to be assessed from „market‟ perspective, for which
„relevant market‟ need not be taken into account. Also, as
discussed earlier, there is no evidence of any sort of foreclosure of
competition by hindering entry into the market - the market here is
that of stem cell banking and not stem cell banking at the premises
of the OP.
In view of the foregoing, I am of the view that there is no AAEC
and accordingly no case for Section 3(4) violation.
Conclusion
85. The allegation in the case revolves around the dominance of
Hiranandani Hospital as regards maternity services in violation of
Sec 4 or Sec 3(4). Having examined the entire aspect on the
allegation stemming from the dominance of Hiranandani Hospital
in maternity services, as part of high-end super-specialty hospital, I
am of the considered view that maternity services do not fall in the
category of super-specialty, as supported from the data of NABH.
Further, there is no link between high-end and super-specialty. In
this case, non-price factors tend to out-weigh high-end hospitals
for maternity services. Against this background, I note that the
Page 34 of 35
patient has a choice as regards the hospital she wishes to seek for
maternity service in Mumbai and the OP offered a choice to her
between stand-alone maternity services and maternity packaged
with stem cell banking from Cryobanks. Since the OP is not
dominant in the maternity services market in Mumbai, neither
Section 3(4) nor Section 4 applies in the present case.
ORDER
No case of violation either of Section 3(4) or of Section 4 is established against the OP. Secretary, Competition Commission of India is directed to convey the same to the parties in accordance with provisions of the Act.
Sd/-
(Dr. Geeta Gouri) Member Place: New Delhi Date: 05-02-2014 Page 35 of 35