Commission Says BASF, Roche And Rhone Price Fixing

Commission Says BASF, Roche And Rhone Were Price Fixing, But NZ Limitation Period And International Jurisdiction Issues Prevent New Zealand Court Action

The Commerce Commission has warned the New Zealand subsidiaries of three multi-national vitamin companies for entering into market sharing and price fixing agreements. The Commission has told the companies that they would have faced charges of price fixing in New Zealand if it were not for the three-year limitation period in the Commerce Act.

Commission Chairman John Belgrave said that the Commission has issued warnings to BASF New Zealand Limited, Roche Products New Zealand Limited and Aventis Animal Nutrition New Zealand Limited (formerly known as Rhone Poulenc New Zealand Limited).

The Commission's investigation follows a prosecution by the United States Department of Justice in 1999 where BASF's and Roche's United States companies were fined US$225 million and US$500 million respectively.

In New Zealand, courts could have imposed penalties of up $5 million against each company.

The Commission has investigated what appears to be two different agreements. The first relates to meetings and agreements reached within New Zealand. Mr Belgrave said that the Commission has evidence that between 1990 and 1994 senior executives from the New Zealand companies met frequently in Auckland and agreed to set prices for vitamin products, and also agreed on the level of each company's market share. These agreements relate to vitamin products used for animal health and nutrition. The clients of the vitamin companies had introduced a tender system to encourage competition between the vitamin companies, however these agreements seem to have negated the effect of that competition.

A warning was the only option available to the Commission due to the expiry of the three-year statutory time period within which proceedings must be commenced in relation to breaches of the Commerce Act.

The second agreement relates to the period between 1994 and 1998 where the Asian regional offices of the vitamin companies had a series of meetings in Hong Kong and Singapore.

At the meetings in Asia, prices of vitamin products and each company's regional market shares were discussed. The New Zealand subsidiaries do not appear to have been present at these meetings. However, they were usually supplied with vitamins from their parents' Asian offices, and agreements at these meetings would have had some effect in New Zealand markets.

In addition to the Asian meetings, the parent companies met in Europe from 1990 to 1998 to discuss prices and global market shares. The regional meetings, including those in Asia, were held to ensure that the agreements reached in Europe were implemented worldwide.

Mr Belgrave said that the Asian and European price fixing meetings may have occurred within the three-year limitation period but international jurisdictional issues meant that the Commission did not have enough evidence to take court action. The Commission does not have the jurisdiction to requisition the necessary evidence from the overseas-based companies, and in the absence of the co-operation of the companies, and a lack of admissible evidence, penalty action was not an option available to the Commission.

"Clearly we do not have jurisdiction to use search warrants or other investigative tools outside New Zealand," Mr Belgrave said.

"With only a general outline of the international meetings and no legal means to require the parent companies to co-operate, we have insufficient evidence to show the effect of those meetings on markets in New Zealand."

Rhone responded through its New Zealand subsidiary to the Commission's questions. It gave a general outline of the purpose of the meetings held in Asia and Europe. BASF's and Roche's parent companies refused to answer questions sought by the Commission.

Investigations by overseas enforcement agencies have focused on the effects of the price fixing meetings on their countries. The penalties imposed by overseas jurisdictions relate only to meetings and agreements reached within those countries by the vitamin companies. The Commission's investigation has shown that the last meeting that was held within New Zealand was at the end of 1994.

The Commission has advised the New Zealand companies that it will continue to monitor this industry and if any similar allegations are made in the future, the Commission will investigate those matters.

Background

Price fixing

Price fixing is formal or informal collusion among competitors over prices and it is fundamentally anti-competitive and anti-customer. It limits-or even eliminates-customers' ability to shop around or negotiate for the best prices. Price fixers profit because they force their customers to pay more.

In this case the customers in New Zealand were animal health product manufacturers and poultry producers. If these companies were paying more for animal vitamins, then those costs could have been passed on to veterinarians, farmers and retailers, who, in turn, could pass the costs on to their customers.

This example highlights how price fixing can have wide reaching detriments in an economy. Ultimately, when the detriments reach consumers, they have no one to pass them on to.

Other overseas action

* In Canada, fines totalling C$88.4 million have been imposed against the Canadian companies of Roche, BASF, Rhone and Daiichi Pharmaceutical Co Ltd. * In Australia, the Federal Court is currently considering a proposed settlement under which BASF, Roche and Rhone have agreed to pay fines totalling A$26 million. * There are also investigations in Brazil, the European Union, Japan, Mexico and Switzerland.

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