By Robert J. Kerwin, IAMERS General Counsel

In its first attempt to punish anti-competitive behaviors in the aftermarket, the Korea Fair Trade Commission (“KFTC”) has fined Siemens, Siemens Healthcare and Siemens Healthineers Korea (“Siemens”) $5.7 million for violating the Korea Monopoly Regulation and Fair Trade Act.

In January, the KFTC determined that Siemens abused market dominance and engaged in unfair business practices in the aftermarket servicing and repairing of CT and MR imaging equipment owned by hospitals in Korea. According to a report published in the Korea Biomedical Review, Siemens has advised that it plans to file an administrative suit against the fine and continues to dispute the allegations.

After two days of hearings before the Korea Fair Trade Commission, the KFTC decided to impose corrective orders and penalty surcharges for excluding small and midsize competitors from the maintenance service market for their CT and MR equipment.

According to a KFTC press release, Siemens gave less favorable terms (price, function and time required to issue a service key) when the independent service organization (“ISO”) was undertaking the work for the hospital. This conduct included delays in providing the service key necessary for equipment safety management and maintenance. The KFTC reported that as of 2016, Siemens had a market share of more than 90 percent of its equipment maintenance market, and the total market share of the four ISO companies entering the market was less than 10 percent.

The KFTC found, according to its statement, that Siemens sent exaggerated notices to hospitals explaining the risks of signing with ISOs and raised the possibility of copyright infringement. The KFTC also reportedly took issue with setting different terms for hospitals that hired independent contractors to maintain CT and MR machines. If a hospital did not sign with the ISO, high-level service keys, including its advanced version of automatic diagnosis function, were issued free of charge immediately on the day the request was made. If a hospital signed with the ISO, the basic level service key was issued at a cost, within a maximum of 25 days after the request was made.

The Siemens practices were found by the KFTC to have strengthened the entry barriers of the maintenance market for Siemens CT and MR equipment. Two of the four ISO companies were reported by KFTC to have been driven out of the market. The act of setting different contract terms for hospitals that signed with competitors was determined to be inconsistent with applicable law. According to the KFTC, “as the opportunity cost to employ the ISO increased, the price competitiveness of the ISO became invalid.”

The KFTC, in order to rectify the market order, imposed a cease and desist order, and further ordered Siemens to provide hospitals with access to the service software essential to the maintenance of CT and MR equipment within 24 hours at a minimum of administrative costs.

Siemens was also ordered to inform the hospitals that owned Siemens CT and MR equipment of the KFTC decision. The Korea Biomedical Review reported that Siemens, in disputing the KFTC claims, stated, “Siemens Healthcare Group implements the same paid maintenance software license policy globally and has not discriminated against small- to medium-sized maintenance companies In Korea.”

In Italy, Siemens, GE and Philips investigated by Competition Authority

In February, the Italian Competition and Markets Authority opened an investigation pertaining to Siemens Healthcare Srl (“Siemens”), Philips S.p.A. (“Philips”) and GE Medical Systems Italia S.p.A. (“GE") and the market for maintenance services for diagnostic imaging. The ruling may be viewed in Italian here.

The investigation was commenced when a third-party servicer that offers maintenance and support services for diagnostic imaging reported to the Competition Authority a series of actions of these manufacturers, alleged to be intended to restrict competition and exclude competitors. According to the Competition Authority written decision to open the investigation, the actions were alleged to intend to impede the assignment of maintenance services for high-tech devices to entities other than the manufacturer and in particular to the detriment of independent maintainers (for convenience, “third party servicers”).

In Ruling No. 27007, the Competition Authority advised further that the proceedings relate to the alleged anti-competitive actions put in place with the aim of impeding third party servicers from entering and remaining in the market for maintenance activities in Italy. The conduct was alleged to deny healthcare facilities in the Italian Health Service the “possibility of benefiting from making savings”. The Competition Authority opened an investigation in order to ascertain the existence of possible violations of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”). Article 102 provides in applicable part that “any abuse by one or more undertakings of a dominant position within the internal [EU] market or in a substantial part of it shall be prohibited as incompatible with the internal market, insofar as it may affect trade between Member States” of the European Union.

According to the Competition Authority ruling, the forms of restrictive conduct alleged by the reporting entity included:

• (i) Installation by the manufacturing firms in their medical devices of protection software of access codes/passwords or keys (“service keys”) with simultaneous refusal to grant access to the systems necessary to carry out maintenance, including access to management software and service manuals, and refusal to provide the passwords for the protection software service keys with simultaneous refusal to grant access to the systems necessary to carry out maintenance;


• (ii) Refusal to provide original replacement parts, including by non-response or delayed response to the reporting entity’s requests for quotations, and/or delays in delivery (so called constructive refusal); and


• (iii) Denigratory actions in order to discredit work and instill the belief that only the manufacturers of the devices are able to provide the maintenance services.

The reporting entity also claimed to receive either a flat refusal or silence from the manufacturers who were approached for access to diagnostic tools, up-to-date technical documentation or service manuals, service software and access to passwords and replacement parts in order to perform the maintenance service in the event a contract was awarded.

The Ruling further provides that the "conduct forming the subject of the proceedings falls within a context where each manufacturer holds a substantial position of dominance over the maintenance of the devices of its own brand." According to the Competition Authority ruling, "the evidence in the case file reportedly demonstrates that the manufacturers were taking advantage of positions of strength and have adopted a series of initiatives for introducing artificial technology and/or economic constraints on the availability and use of the items necessary to compete effectively in the provision of maintenance service on their equipment".

We await the outcome of the investigation.

About the author: Robert J. Kerwin is general counsel for IAMERS, the International Association of Medical Equipment Remarketers and Servicers.