The Cooperatition Incubator

Competition law is now in place in around 108 countries  including emerging economies like China, Thailand, Korea, Malaysia, Singapore and Vietnam where stringent competitive regulation is considered to be a constructive step to the development of market economy.

The forthcoming International Conference on Competition Law (6-7 November 2009, New Delhi) organised by the World Council on Corporate Governance in association with India’s International Academy of Law aims to examine the status of competition law in various jurisdictions with particular reference to India and the emerging economies where it is being increasingly viewed as an instrument for inclusive growth.

India has been selected as the venue of the conference as it has got a new competition law – Competition Act 2002 as amended in 2007. It has also established the Competition Commission of India with effect from October 2003 and has commenced enforcement of the law with effect from 20 May 2009.  As a consequence, Indian companies are keen to understand the role of the competition lawand its impact on their day-to-day operations.

The conference aims to share information and practice on competition law in various jurisdictions and provide a learning experience for the Indian and foreign companies, law firms, regulatory and judicial authorities and other stakeholders. It also aims to provide a blueprint on how competition law and policy can be evolved to become a powerful tool for fair and competitive markets that, in turn, promote inclusive growth.  

Justice P N Bhagwati, Chairman, International Academy of Law, commented:

“One of the primary aims of competition is to diffuse socioeconomic power of the incumbents and broaden the economic and social base by encouraging participation of new entrants and thus, fostering innovation and growth.

“It improves consumer welfare by stirring up inter-firm rivalry that compels each firm to excel to satisfy the customer by offering better deals and newer products with superior quality at lower prices.”

Andrew Dakers, Founder, The Cooperatition Incubator, added:

“We are really excited that the organisers have decided to include discussion on the social objectives of competition law and non-efficiency objectives in competition law on the agenda.  This makes the New Delhi conference an important milestone in the discussion of competition law and its relationship with responsible practices in individual businesses, across sectors and supply chains.”

Full programme: http://www.wcfcg.net/ICCL_NewDelhi.pdf
Speaker submission guidelines: http://www.wcfcg.net/Papersubmissionguidelines.pdf

The Financial Times reports on The Athenaeum Group, named after the club in Pall Mall.  The group is one of a growing number of high-level forums taking place around the world to tackle a disturbing divergence: the number of new medicines has steadily dropped, while the cost of bringing each one to market has risen sharply to more than $1bn (£605m, €700m). The group’s hope is to redress the problem with initiatives to overhaul individual companies, foster collaborations with rivals and create broader partnerships with researchers and regulators.

Richard Barker, Chief Executive of the Association of the British Pharmaceutical Industry, the UK’s trade body commented:

“It’s very important that we move away from just saying this is extraordinarily expensive.  If we extrapolate the current line, we will not have affordable medicines.”

Pharmaceutical companies face the disappearance of billions of dollars in revenues in the next few years as patents expire on their existing medicines, undermining the sales that have kept them in business.  Meanwhile, state and private healthcare systems alike are seeking ways to cut costs and are balking at the rising price of new medicines.

Kenneth Kaitlin, director of the Tufts Centre for the Study of Drug Development, which produced the $1bn per drug cost estimates, says:

“The industry has been talking about the issue for many years, but there were never the drivers that there are now. I don’t think it has ever had so much at stake. There are companies that are not going to survive.”

He cites as symptomatic the large-scale takeovers this year of Wyeth by Pfizer and Schering-Plough by Merck, which he argues were primarily designed to defer patent expiries and cut costs rather than provide a solution to falling research productivity.

Companies are also seeking to boost innovation through intensified collaboration . Eli Lilly has signed cost- and revenue-sharing deals with operators including Covance and Quintiles. AstraZeneca has agreed development projects with Bristol-Myers Squibb on a diabetes drug and with Merck for a cancer treatment.

GSK this year went much further, announcing a deal with Pfizer to pool all of their existing and experimental drugs for HIV. They must share future revenues – but also stand to gain more than either could separately, by combining expertise and funding and sharing the high risks of failure. By making their venture a separate entity, they also strip out other overheads, boosting accountability and focus.

Some of the more radical drug company partnerships are taking place with nonprofit organisations. Cancer Research, a UK charity, has lately signed three deals, including two with AstraZeneca, to test experimental treatments that the company was unwilling to pursue on its own.

Their approach also raises a third, and still more radical, way of tackling the innovation drought: collaborative alliances that go beyond individual partnerships to span the entire pharmaceutical industry as well as academic researchers and regulators.

One advantage is greater information sharing to cut costly duplication. Rival companies spend large sums on similar research programmes that lead to dead ends when they discover that a compound is toxic or fails to have the hoped-for curative effect.

Traditionally, companies have had no desire to accelerate their rivals’ relative progress – and medical journals have little interest in publishing reports on research that does not work. While the limitless space of the internet helps tackle the latter issue, incentives may be needed to deal with the former. Mr Barker from the British trade grouping says: “In principle, we all learn a lot from rigorous analysis of failures. We need a Journal of Outstanding Clinical Failures.”

In the US through the Critical Path Initiative, and more recently in Europe via the Innovative Medicines Initiative – both in tight co-operation with their respective regulators – progress has been made in identifying common “biomarkers” by which competing companies agree on the best ways to measure an experimental drug’s efficacy or safety.

“Companies have recognised there is no comparative advantage in safety,” says Ray Woosley, Critical Path president. But he concedes that they are most willing to co-operate in areas where they are failing to make much headway on their own, such as treatments for Alzheimer’s disease. “If they had a magic bullet, they would not share data.”

Thomas Lonngren, head of the European Medicines Agency, the European Union’s regulator, says that since the innovation drought became clear this decade, much progress has been made through earlier and deeper consultation with industry.

He argues that the biggest barrier to progress is science itself. “We are going into a new era of drug development where it’s getting more and more complex. It is generally accepted that we have moved from low- to high-hanging fruit. Mother Nature is saying that she has the cards.”

The Independent reports how in April 2008, after a gruelling two-year inquiry, the UK Competition Commission unveiled its eagerly anticipated final report on the £110bn grocery sector.  A key recommendation was to establish an ombudsman to police relations between the big grocers and suppliers, in an effort to stamp out alleged cases of bullying or the supermarkets allegedly abusing their immense buying power.

The commission, which does not have the power to introduce an ombudsman itself, sought the agreement of supermarkets for this. But most have vehemently opposed the idea, arguing it would add red tape and costs, which would be passed on to customers.

Yesterday, the commission bared its teeth and formally recommended to Lord Mandelson’s Department for Business, Innovation and Skills (BIS) that it should establish an ombudsman to arbitrate on disputes between grocers and suppliers, under the terms of the new Groceries Supply Code of Practice (GSCOP). The new code will come into effect on 4 February 2010, replacing the hitherto voluntary code that the big four grocers signed up to. The ombudsman and GSCOP applies to the 10 grocers with annual turnover of more than £1bn: Tesco, Asda, Morrisons, Sainsbury’s, Aldi, Lidl, Waitrose, The Co-operative Group, Iceland and Marks & Spencer.

Peter Freeman, the Competition Commission’s chairman, said:

“Our inquiry clearly revealed problems that require action and which, if left unchecked, would damage the consumer. We continue to believe that everyone’s interests – and that includes retailers – would be served by tackling a problem that has clouded the industry for many years now.  The current economic difficulties if anything reinforce rather than reduce the need for action.”

While industry observers have welcomed the introduction of an ombudsman, some remain sceptical that the body would be able to rein in any activities of the big supermarkets.

Bryan Roberts, the global research director at Planet Retail, says:

“It is welcome in practice, but I think it will be a paper tiger. It will probably not amount to much.”

Grocery suppliers certainly feel that the current system favours the supermarkets. At present, the Office of Fair Trading is responsible for monitoring relationships between suppliers and supermarkets under the voluntary Supermarkets Code of Practice.

However since the code came into effect in 2002, the OFT has never moved against a supermarket after receiving a complaint from a supplier, although the grocers assert this is because the existing code works.

In reality, suppliers have little confidence in the regulator to deal with grievances and – given the enormous buying power of the big grocers – are petrified of having their contracts terminated if they stick their head above the parapet to complain. More specifically, suppliers feel they lack protection against practices that can include retrospective changes to contracts agreed, or being charged for wastage or shrinkage when products break or get stolen in the supply chain.

Duncan Swift, the joint head of food at the accountancy firm Grant Thornton, which advises financially distressed food businesses, says:

“Having seen the lack of effectiveness of the [voluntary] code since 2002, you effectively need a regulator that has the appetite and the industry teeth that are seen to make a difference.  All the supply-chain risk continues to be borne by the suppliers.”

The ombudsman’s overriding role will be to undertake investigations and to act as an arbitrator between retailers and suppliers in disputes arising under the terms of newly introduced GSCOP.

In certain circumstances, it is envisaged that the ombudsman will be able to investigate “proactively” areas of complaints regarding a particular retailer, while maintaining the anonymity of the supplier.

Fear of losing a supermarket’s business is a key reason why so few suppliers come forward.

However, if a supplier wants to get a complaint formally resolved, it will almost certainly have to be named to enable a thorough investigation and arbitration. A supplier that wins a dispute could be reimbursed for lost business and incurred costs in bringing the action – although this has not yet been decided.

A decision is likewise pending on whether fines will also be issued, but the Competition Commission said yesterday that:

“The ombudsman would be more effective if it had more comprehensive powers to investigate and penalise retailers for non-compliance with the GSCOP.”

Over recent years, the highest- profile case referred to the OFT involved Ferndale Foods and Asda. But in 2005, the OFT dismissed the ready-meal supplier’s claim that Asda has failed to give it the full 90 days notice before terminating its contract. Mr Swift said: “The OFT has done nothing of note in regulating the supermarkets over the last seven years.”

Only a few of the big grocers, including Waitrose and Aldi, are in favour of the ombudsman. While the big four supermarkets broadly welcome the strengthened GSCOP and it being extended to their six rivals, Tesco, Asda and Sainsbury’s are firmly against the introduction of an ombudsman.

They argue that it represents unnecessary red tape, will lead to higher costs for consumers and will provide additional protection for some of the world’s most powerful consumer goods companies, such as Unilever and Procter & Gamble.

Lucy Neville-Rolfe, Tesco’s executive director, said:

“We believe that, perversely, the ombudsman would mainly benefit large successful suppliers who are well able to look after their own interests.

“It’s a highly competitive industry and if our ability to negotiate with such suppliers is reduced, the inevitable result will be higher prices to consumers at a difficult time.”

An Asda spokeswoman said: “An ombudsman is bad news for consumers – it will effectively be a one-sided pressure group for price rises from big multinational suppliers, allowing inflation in through the back door.”

Sainsbury’s said: “We consider that the OFT is well placed to continue in its current role of regulating the code and that there is no need to establish new powers.”

However, Mr Swift says the idea that the ombudsman will hit consumers is “scaremongering”. The Commission forecasts that the cost of the ombudsman, including set-up costs borne by the grocers, will be about £5m a year, compared to the £70bn of grocery supplies to retailers in the UK.

In fact, Grant Thornton estimates the ombudsman will only add 1.25p to the average family weekly grocery bill. However, the British Retail Consortium said: “Lord Mandelson must reject the Competition Commission’s recommendation.”

In fact, some are sceptical that the the department will want to bring in the ombudsman any time soon. For those in favour of an ombudsman, the worst-case scenario is that BIS will not want to introduce the necessary legislation to establish the ombudsman and will refer it back to the OFT.

Mr Swift said: “BIS is highly unlikely to do anything before the next general election. That means that it will be left to the OFT, to take on responsibilities which an ombudsman would have had.”