Excessive Pricing: A Neglected Antitrust Concept?

Antitrust authorities worldwide have actively investigated and penalised dominant enterprises
on various types of anti-competitive conduct. However, historically, very few cases have
been pursued on the issue of excessive pricing by dominant entities. It is a popular perception
that this seemingly unanimous reluctance by competition authorities to initiate cases in this
realm of antitrust laws could be attributable to the perceived difficulties in establishing when
pricing is truly excessive. While the allegations of excessive pricing have been often brought
up in a multitude of jurisdictions, its successful enforcement has been rare given the
challenges in determination of the ambit of “excessive” and against what “benchmark” price
should it be compared. This coupled with the paucity of substantial evidence concerning the
costs and expenditures incurred in manufacturing/providing the goods/services, and the
presence of commercial justifications for charging the excessover and above the costs and a
reasonable margin have further contributed to the dormancy of this rather key issue under
antitrust laws. The research will aim at examining the concept of excessive pricing, reasons it
is fraught with difficulties and the old as well as the recent decisions which have the potential
to be a game changer in the domain of “excessive pricing”.

Excessing pricing: Theory and practice

As the name suggests, excessive pricing entails charging of exorbitant prices for goods
and services by dominant entities that bear no reasonable relation to the economic value of
the goods or service provided, and is above such economic value. It falls within the ambit of
abuse of dominant position under the competition laws. In 1978, United Brands case1 was the
first significant decision where the European Court of Justice (ECJ) decided on a claim of
excessive pricing and laid out a twofold test to objectively determine such a claim. First, the
difference between the costs incurred by the dominant entity and the prices actually charged
by it must be in excess; and second, the price under consideration must also be unfair either
in itself or when compared to prices of competing products. In more recent times, the United
Kingdom (UK) Competition Appeal Tribunal (CAT) in 20012 found Napp Pharmaceutical to
have abused its dominance by excessively pricing its drug in the community segment as

1
United Brands Co. and United Brands Continental BV v. Commission of the European Communities, 1978
ECR 207.
2
Napp Pharmaceutical Holdings Ltd. and Subsidiaries v. Director General of Fair Trading, 2002 CAT 1.
compared to its sale price, of the same drug, in the hospital segment, where it was sold at an
excessively low price. This decision was considered to be significant especially in the
pharmaceutical space considering that the challenges associated with excessive pricing only
intensify in this sector where exorbitant drug prices primarily act as equalisers of massive
investments in research and development (R&D), innovations, etc. However, the last couple
of years have seen steady activity in the pharmaceutical sector internationally in the context
of excessive pricing

Indian Jurisprudence

In the Indian context, the charging of excessive/unfair prices by dominant entities is

prohibited under the abuse of dominance provisions of the Competition Act, 2002 (the Act),
i.e., Section 4 of the Act. The Competition Commission of India (CCI) in its enforcement
jurisprudence has recognised the practical difficulty in establishing the scope of excessive
pricing.3 Further, in line with the erstwhile global trend, allegations of excessive pricing have
been typically rejected4 in the past for want of substantial evidence on costs, presence of
countervailing factors such as availability of substitutes from competitors and the legitimate
reluctance in exceeding its jurisdiction by setting prices of goods/services.

It is also pertinent to note that while the Indian regulator has taken a keen interest in
regulating the pharmaceutical sector in both the merger control5 and enforcement6 spheres,
there has been an absence of enforcement action by CCI against excessive pricing of drugs in
the pharmaceutical space. Very recently, an allegation of unfair pricing of the anti-cancer
drug Trastuzumab was rejected in Biocon Ltd. v. F. Hoffmann-La Roche AG7 on the premise
that the initial increase in drug price was attributable to the huge costs incurred in R&D and
innovation.

However, in the light of the growing global traction on excessive pricing in the
pharmaceutical sector coupled with the enormous size of the of the Indian pharmaceutical
industry with the presence of large multi-national pharmaceutical corporations, CCI may

3
Kapoor Glass (India) (P) Ltd. v. Schott Glass (India) (P) Ltd., 2012 SCC OnLine CCI 16.
4
All Odisha Steel Federation v. Odisha Mining Corpn. Ltd., 2013 SCC OnLine CCI 64, HT Media Ltd.v. Super
Cassettes Industries Ltd., 2014 SCC OnLine CCI 120.
5
Sun Pharmaceutical Industries Ltd. v. Ranbaxy Laboratories Ltd., C-2014/05/170
6
Belgaum District Chemists and Druggists Assn. v. Abbott India Ltd., 2017 SCC OnLine CCI 20;
7
2017 SCC OnLine CCI 21.
soon be confronted with an increased number of investigations into the drug pricing of
pharmaceutical companies. While it is likely that CCI may rely upon the tried and tested
parameters used in other mature jurisdictions, should it be expected that CCI would tailor
these parameters to suit the peculiarities of the Indian pharmaceutical sector and
simultaneously balance the dual objectives of affordable healthcare and preserving R&D and
innovation? Another related aspect in such cases would be, to evaluate whether during such
practice, CCI does not exceed its regulatory boundaries and trespass into the domain of the
sector specific price regulators.