September 8, 2010
We are pleased to provide this global competition law update (China) from our friends at Grandall Legal Group in Beijing.
Introduction
The Ministry of Commerce’s Anti-monopoly Bureau approved Novartis’s acquisition of Alcon on August 13 2010, subject to conditions. The ministry accepted the filing in respect of the acquisition on April 20 2010 and decided on May 17 2010 that a further review period was needed. The ministry reviewed information on: (i) the overlap of the two companies’ products in the Chinese and global markets; (ii) their respective market shares; (iii) the characteristics, applications, prices and sales methods of their products; (iv) the supervisory policies in the relevant market; and (v) the two companies’ relationships with competitors in the market.
Opinions were sought from other companies in the field. After negotiating with the filing parties, consensus was reached on how to reduce the acquisition’s undesirable effects on competition in the relevant markets.
Relevant markets
Anti-infection and anti-inflammatory drugs
The products affected by the acquisition are anti-infection and anti-inflammatory drugs used to treat eyes, particularly for post-surgical infections. Novartis’s and Alcon’s products are sold under the Infectoflam and TobraDex brands, respectively.
After the concentration, Alcon’s share of the Chinese market will exceed 60% and Novartis’s share will be less than 1%. According to information in the filing, Novartis has made a strategic decision to withdraw from the Chinese and global markets.
In deciding to approve the acquisition with conditions, the ministry considered that if Novartis’s decision to exit the market were motivated solely by the purposes of the acquisition, it would still be able to re-enter the market after the transaction and either eliminate or restrict competition in the Chinese market.
Contact lens care products
The post-acquisition enterprise will have almost 60% of the global market for contact lens care products and almost 20% of the Chinese market, making it the second-largest player in China after Hydron Contact Lens.
In 2008 CIBA Vision Shanghai, a Novartis subsidiary, signed a sales and distribution agreement with Hydron whereby the latter became CIBA Vision’s sole distributor in China. The arrangement makes CIBA Vision Shanghai and Hydron strategic partners. However, it will also give the post-acquisition enterprise and Hydron the motive and opportunity to engage in concerted pricing practices and to restrict the volume and location of sales of their products with the effect of eliminating or restricting competition.
In order to mitigate these competition concerns, the ministry has imposed conditions on the transaction.
Conditions
Anti-infection and anti-inflammatory drugs
Novartis is required to cease sales of Infectoflam in China by the end of 2010. In addition, the ministry has stated that:
– for five years after the decision’s effective date, Novartis may not reintroduce Infectoflam (or the same product under a different name) into the Chinese market;
– until the acquisition is completed, Novartis may not sell other ocular anti-infection or anti-inflammatory drugs that are sold in other countries in the Chinese market; and
– for the next five years, Novartis must report annually to the ministry on its compliance with its promise.
Contact lens care products
The CIBA-Hydron agreement must be terminated within 12 months of the ministry’s decision. The relevant party will then have one week in which to notify the ministry of the termination.
____________________
SERVICES AND CONTACT
I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.
My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.
To contact me about a potential legal matter, see: contact
For more regulatory law updates follow me on Twitter: @CanadaAttorney
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
