L-CM-0005-U - A Practitioner’s Approach to Competition Law in India - Law Assignment Help

Assignment Task

QUESTION I
The informant, Get Well Soon Pvt. Ltd. (GWS) has filed an information under section 19(1)(a) of the Competition Act, 2002 (Competition Act) against Medonis Brothers Inc. (Medonis Brothers) and its Indian subsidiary, Medonis Machines Pvt. Ltd. (Medonis Machines) alleging contravention of provisions of the Competition Act. Medonis Machines deals exclusively with the machines manufactured by Medonis Brothers including marketing and after-sales services in India. 
GWS is a medical laboratory with 21 centers in the North Indian region. The laboratory serves 80% of the patient population in the North Indian region and aids various charitable organizations. It has been averred that that 9 out of the 21 centers of the informant have installed Medonis Brothers’ latest high frequency Image Intensifier model of X-ray machines called MD1000X.  
Medonis Brothers is a leading X-ray machine manufacturer and is among the top ten manufacturers of X-ray machines in the world. It is the exclusive holder of patents and know-how over the technology used in MD1000X model. This model is priced at ? 75,00,000 and comes with a five-year warranty and a five-year annual maintenance contract (AMC). The contract of sale, inter alia, stipulates that each medical report issued to patients will bear the registered trademark of Medonis Brothers. 
The informant alleges that the X-ray machines sold to them had multiple manufacturing defects which affected the scan quality of the X-rays resulting in misleading test reports and diagnoses. Additionally, Medonis Brothers has given exclusive rights to Medonis Machines (i) to carry out the service and maintenance to be provided under the AMC, and (ii) for the supply of spare parts, which was not covered by the AMC and incurred additional costs. Thus, the consumers had no choice and had to rely on Medonis Machines for the supply of spare parts at additional expense and the maintenance of the X-ray machines through AMCs that were bundled along with the cost price of the MD1000X. The distribution agreement between Medonis Machines and Medonis Brothers stipulates that the spare parts, supplied internationally by Medonis Brothers for repair and maintenance purposes will not be sold below the list price in the market and Medonis Machines is not allowed to sell the spare parts at a discounted rate. The Medonis Brothers and Medonis Machines are the largest X-ray machine sellers/service providers in the Indian market, having 90% market share for medical X-ray machines in India. The remaining 10% of the market is fragmented and occupied by small players comprising local hospitals/ clinics with in-house/ captive X-ray services and who only cater to local/regional markets. It is therefore alleged that Medonis Brothers and Medonis Machines are abusing their dominant position by charging a large sum of money for supplying spare parts. 
Furthermore, the informant reports that Medonis Brothers refused to sell MD1000X to the Ramchandani Group of hospitals because it also uses X-ray machines from a South Korean competing manufacturer and often featured that logo on its medical reports. It has been further alleged that Medonis Machines has entered an arrangement with 3 diagnostic centers in North Indian States (which are the informant’s competitors) and are supplying the same model of X-ray machines ‘free of cost’ (including AMC). The arrangement entails a revenue-sharing agreement between the diagnostic centers and Medonis Machines where they divided the revenues earned from customer footfalls. As a result, the informant is not able to achieve break-even for its firm and is running into losses as a major share of the revenue for the informant comes from X-ray services.  

In the background, please answer the following questions:
Determine with the help of relevant factors, prescribed in the Competition Act, whether the (i) arrangement between Medonis Brothers Inc. and Medonis Machines Pvt. Ltd., as well as (ii) the arrangement between Medonis Machines and other diagnostic centers, will lead to any appreciable adverse effect on competition.
Propose a relevant market definition and analyze whether Medonis Brothers Inc. and Medonis Machines Pvt. Ltd. have a dominant position in the relevant market. If yes, would there be a potential abuse of dominant position in the relevant market by Medonis Brothers Inc.?

QUESTION II
Vashica Camera Pvt. Ltd. (Vashica Camera) is the largest camera manufacturer in India, which has gained significant market position in the last few years, in the market of sale of DSLR cameras across the territory of India.
Another company, Tujifilm, was previously one of India’s most popular manufacturers, sellers, and retailers of image sensor chip. However, Tujifilm has been unable to keep up with the advent of technology. Hence, over the years, the company has witnessed declining profits. The only exception is its CompactFlash Memory Stick (Memory Stick), which began turning profits in FY 2017-18 with the manufacture and sale of this device. Memory Stick’s technology was initially restricted for use in DSLR cameras only, until Tujifilm’s acquisition of an Indian start-up InstaCam, following which Memory Stick was compatible with both DSLR Cameras and Instant Cameras.
??Ever since the Memory Stick technology of Tujifilm was expanded to be compatible with both DSLR Cameras and Instant Cameras, Vashica Camera has been eyeing Tujifilm’s Memory Stick division. With the intention of becoming a one-stop-shop provider of both DSLR Cameras and Instant Cameras with the latest technology, Vashica Camera approached Tujifilm in July 2018 and offered to purchase its division which prepared the Memory Stick. Citing future expansion and related innovation concerns, Tujifilm rejected the offer.
In March 2020, as the Covid-19 pandemic spread across India, Tujifilm’s stock price hit a 52-week low in the stock exchange. Vashica Camera acted upon this opportunity and acquired 5% shareholding in Tujifilm via market purchases in May 2020. Noting this acquisition of minority stake by a competitor, Tujifilm’s senior management became concerned with its implications on the future of the company and its options for staying afloat in the market in light of the pandemic. They subsequently contacted Vashica Camera with a request to reinstate the earlier deal. After negotiations over the months of July and August 2020, it was agreed that Vashica Camera would acquire the stake in three tranches, including the earlier market purchase, over the course of the year 2020-21.
The first tranche (Tranche I) comprised the May 2020 5?quisition in Tujifilm by Vashica Camera via market purchases. In the second tranche (Tranche II), Vashica Camera acquired a further 6% stake in Tujifilm along with a board seat through a Share Purchase Agreement. In the third tranche (Tranche III), as part of the same Share Purchase Agreement, Vashica Camera acquired an additional 10% stake in Tujifilm along with certain veto rights in matters concerning the business strategy of the company, reorganisation of the company assets and divisions, and changes to the dividend policy.

In this background, please answer the following questions:
Please assess the transactions taking place in different tranches of acquiring:
(a) 5%
(b) additional 6%
(c) additional 10%
shareholding respectively, under the Competition Act, 2002.

Assuming that the merger thresholds are met, do the parties have to notify the commission at each stage of acquisition? Is there a gun-jumping issue arising from the Combination? Explain with reference to relevant provisions of the Competition Act, Combination Regulations, and relevant case law(s).

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