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.