CAT upholds Rs40mn penalty on UDPL, IBL over anti-competitive agreement

The Competition Appellate Tribunal (CAT) upheld the cumulative penalty of Rs40 million imposed by the Competition Commission of Pakistan (CCP) on United Distributors Pakistan Limited (UDPL) and International Brands (Private) Limited (IBL) for entering into an anti-competitive non-compete agreement in violation of Section 4 of the Competition Act, 2010.

The CAT affirmed that the appellants, by their own conduct, acknowledged the agreement as a non-compete arrangement and endorsed the CCP’s finding that the agreement restricted competition and constituted a prohibited market-sharing arrangement, the CCP said in a statement.

Last year, the CCP found UDPL and IBL guilty of Rs1.13 billion anti-competitive agreement.

The CCP imposed a total penalty of Rs42 million on UDPL and IBL for entering into and giving effect to the non-compete agreement that the commission said had violated Section 4 of the Competition Act, 2010.

“In a detailed order, the commission found both companies guilty of entering into a restrictive agreement that prevented UDPL from entering the distribution market of human pharmaceutical products in Pakistan for three years,” the CCP had then said.

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CCP had initiated proceedings after UDPL publicly disclosed to the Pakistan Stock Exchange that it had entered into a non-compete agreement with IBL.

“Under the agreement, UDPL agreed not to distribute human pharmaceutical products in Pakistan for a period of three years in exchange for a payment of Rs1.131 billion from IBL.”

“CCP found that the agreement effectively eliminated UDPL as a competitor in the relevant market and restricted competition. The substantial payment was deemed a financial incentive to ensure UDPL’s exit from the market, thereby protecting IBL from competitive pressure and creating barriers to entry.“

Although the agreement contained a clause requiring regulatory approval, both companies failed to obtain prior exemption from CCP and applied for exemption only after the issuance of show cause notices.

CCP rejected the exemption application, concluding that the agreement did not meet the legal criteria for exemption and that the violation had already occurred.

“Accordingly, CCP imposed a penalty of Rs20 million each on UDPL and IBL under Section 38 of the Competition Act, 2010, for entering into and giving effect to the anti-competitive agreement,” the press release said.

The statement said that CAP upheld CCP’s findings on the violation and endorsed CCP’s view that, following the dismissal of their exemption application, the appellants did not pursue any further legal remedy, thereby implying acceptance of the contravention.

“The tribunal held that the penalties of Rs20 million each imposed on UDPL and IBL were justified and warranted, and accordingly maintained the cumulative penalty of Rs40 million.”