$100,000 penalties imposed in Waikato pathology services case
Published23 Jul 2010
The High Court in Auckland has imposed penalties on New Zealand Diagnostic Group and Pathology Associates Limited after they admitted being parties to an anti-competitive agreement concerning community pathology testing services in the Waikato area.
The High Court in Auckland has imposed penalties on New Zealand Diagnostic Group and Pathology Associates Limited after they admitted being parties to an anti-competitive agreement concerning community pathology testing services in the Waikato area.
Both companies admitted breaching section 27 of the Commerce Act and agreed with the Commission the penalties the parties thought the Court should impose. The Court ordered that New Zealand Diagnostic Group pay a penalty of $65,000 and Pathology Associates Limited pay a penalty of $35,000. They will each pay $10,000 towards the Commission's costs.
In 2004 Waikato District Health Board and the two companies agreed to a moratorium on competition with each other, and with the Waikato Hospital Laboratory, which had recently expanded into the community pathology testing market. The moratorium was agreed in the context of a possible merger of New Zealand Diagnostic Group and Pathology Associates. That merger never materialised.
"Companies should not enter into arrangements that may lessen competition in anticipation that they may merge in the future," said Peter Taylor, General Counsel, Commerce Commission. "Such behaviour is sometimes called 'gun-jumping' and is illegal and harmful. Harm is caused as there is less competition, without gaining any benefits through greater efficiency. There is also the real risk, as in this case, that the planned merger may not eventuate so that the opportunity for any benefits is not realised."
"In relation to mergers and acquisitions, the health sector is subject to the same rules as any other sector. If a potential arrangement has public benefits that outweigh the cost of lessening competition, the proper course of action is to apply to the Commission for an authorisation under the Commerce Act," said Mr Taylor.
"The Commission recognises the cooperation of both New Zealand Diagnostic Group and Pathology Associates Limited in settling this matter without the expense of going to trial. The moratorium did not continue for a significant period and it is unlikely that any party suffered material loss or harm. We are pleased the Court has again accepted that a substantial penalty discount is appropriate where defendants admit wrongdoing in a timely fashion," said Mr Taylor. "Both New Zealand Diagnostic Group and Pathology Associates Limited are committed to developing Commerce Act compliance programmes."
Background
Section 27 of the Commerce Act prohibits contracts arrangements or understandings that substantially lessen competition.
Only the courts can rule if the Commerce Act has been contravened and set appropriate penalties.
If the court finds that the Commerce Act has been breached, it may:
impose pecuniary penalties on businesses that must not exceed the greater of:
$10 million; or either:
three times the value of any commercial gain or expected commercial gain resulting from the breach; or
if commercial gain is not known, 10 per cent of the turnover of the business and all of its interconnected businesses (if any).
Part 5 of the Commerce Act allows the Commerce Commission to grant an authorisation for acquisitions that would result in a substantial lessening of competition, if the public benefits resulting from the acquisition are found to outweigh the detriments. More information can be found on the Commission's website www.comcom.govt.nz/authorisations-2/
The Commerce Act applies to the health sector except where specific exemptions have been made. There are currently Part 2 exemptions for certain activities relating to blood products, emergency ambulance services, pharmaceutical subsidies and arrangements between interconnected public health providers.
Community pathology services include the collection and laboratory testing of tissues and cells to help physicians diagnose medical conditions.
During the period relevant to these proceedings, New Zealand Diagnostic Group and Pathology Associates Limited provided community testing pathology services in the Waikato in accordance with contractual arrangements with the Waikato District Health Board.
In December 2006 the Waikato District Health Board held a competitive tender to supply pathology services in the Waikato resulting in a single provider, Pathology Associates, being awarded a contract to provide pathology services from January 2008.
