Posted on August 24, 2010 by Dr. Zhan Hao

Conditional approval for Novartis's acquisition of Alcon

Introduction

The Ministry of Commerce's Anti-monopoly Bureau approved Novartis's acquisition of Alcon on August 13 2010, subject to conditions.(1) 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:

  • the overlap of the two companies' products in the Chinese and global markets;
  • their respective market shares;
  • the characteristics, applications, prices and sales methods of their products;
  • the supervisory policies in the relevant market; and
  • 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 notifiy the ministry of the termination.
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Posted on February 27, 2009 by Dr. Zhan Hao

How Private Oil Companies Face the Anti-monopoly Law in China

Since October 2008, Private oil companies in China have been urging one another to take advantage of the Anti-Monopoly Law（AML） to secure a stable supply of oil and avoid over-reliance on the country's two major oil producers for survival. They want new policies to create a level playing field. Currently they depend on the oil supplies of the China National Petroleum Corporation (CNPC) and the China Petroleum and Chemicals Corporation (Sinopec) as they are forbidden by law to extract or import their own.

 

It was recently reported the AML would finally protect China's small private oil firms from the monopoly practices of CNPC and Sinopec. Afterwards, select Chinese lawyers stated they will petition the government or take judicial proceedings due to the abuse of dominance of giant oil companies.


Chapter 3 of AML, stipulates the abuse of dominant market position in detail. Though if the private oil companies want to complain of CNPC's or Sinopec's abuse of dominance, they have a long journey ahead.

According to the law:

 

First, they must prove CNPC or Sinopec has a dominant market position, a precondition of abuse of dominance.


Dominant market position could refer to a market position held by business operators that have the ability to control the price or quantity of commodities or other trading conditions in the relevant market or block or affect the entry of other business operators into the relevant market.
 

Article 18 of AML states:


"The dominant market position of a business operator shall be determined according to the following factors:


1. The market share of the business operator and its competitive status in the relevant market;


2. The ability of the business operator to control the sales market or the raw material supply market;


3. The financial and technological conditions of the business operator;


4. The extent of reliance on the business operator by other business operators in the transactions;
5. The degree of difficulty for other business operators to enter the relevant market; and


6. Other factors relevant to the determination of the dominant market position of the business operator. "

 

Afterwards, Article 19 stipulates the presumption of dominant market position, and most standards are related to market share. According to the AML, a complainant should first determine the concerned relevant market and then the market share. However, determining the relevant market is a major problem in China, and legal definition is lacking.


Secondly, provision of the AML regarding the refusal to trade is too general and abstract for enforcement. Though in China, it is difficult to draw a conclusion as no precedents or specific guidelines for the abuse of dominance exist.


Lastly, there will be conflict between law and regulation. In 1999, a government regulation stated wholesale of oil products is monopolized by CNPC and Sinopec, due to national economic security. The regulation has yet to be modified.
 
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