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.”
