Abstract: With the advent of globalization, the product market has expanded its horizon beyond expectation. In such a situation, many enterprises try to gain a competitive edge over other competing bodies in the market. In order to maintain peace and a healthy competition in the market, it is essential that the Competition Agencies take note of such activities and formulate penalties for the same.
The Competition agencies are often faced with the confusion as to which activities should be actually prohibited and which must be allowed in light of the benefits it offers with regard to competition in the market. The former is dealt with under the per se rule and the latter with regard to the rule of reason.
The paper deals exclusively with anti competitive agreements and its role in maintaining a stable peaceful market.
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”1
This statement of khemani R.S makes it abundantly clear for a need to have a proper regulatory mechanism for prevention of anti-competitive agreement which not only affect the market economy leading to monopolistic approach but also victimizes the consumers and thereby cause harm to the entire economy creating hindrance to the competition in the market. While doing business in India, parties are prohibited from executing an agreement which is better known as anti-competitive agreements. Generally, the agreements which cause or are likely to cause appreciable adverse effect on competition are anti-competitive agreements. Such agreements may be horizontal or vertical.
However, the Competition Act, 2002 recognizes intellectual property rights and to facilitate their protection, the Act permits reasonable restrictions imposed by their owners. Similarly, the Act exempts agreements between exporters as exports do not impact markets in India. The Competition Commission of India has been given the authority to direct any enterprise or person to modify, discontinue and not re-enter into anti-competitive agreement and impose penalty, which can be 10% of the average of the turnover for the last three years.
Hon‘ble Supreme Court observed, ―over all intention of competition law is to limit the role of market power that might result from substantial concentration in a particular industry. The major concern with monopoly and similar kinds of concentration is not that being big is necessarily undesirable. However, because of the control exerted by a monopoly over price, there are economic efficiency losses to society and product quality and diversity may also be affected. Thus, there is a need to protect competition. The primary purpose of competition law is to remedy some of those situations where the activities of one firm or two lead to the breakdown of the free market system, or, to prevent such a breakdown by laying down rules by which rival businesses can compete with each other. The model of perfect competition is the economic model that usually comes to an economist‘s mind when thinking about the competitive markets.2
In light of such power of CCI, it becomes essential that parties doing business in India are aware regarding the agreements which can fall within the scope of being labeled as “anti-competitive”. In this paper we will discuss the situations and conditions in which an agreement can become anti-competitive in nature.
Meaning and Definition of Anti- Competitive Agreements: Agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services that cause or are likely to cause appreciable adverse effects on competition within India are anti-competitive agreements. To define anti- competitive agreement in an Inclusive way, it includes any agreement or understanding or action in concert, any formal and informal, written or oral agreements, agreements not meant to be legally enforced.
Anti-competitive agreement is defined under section 3 of computation law, 2002 as follows;
Anti-competitive agreements.—(1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement3
In respect of production, supply, distribution, storage, acquisition4 or control of goods5 or provision of services6, this causes or is likely to cause an appreciable adverse effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice7 carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—
(a) Directly or indirectly determines purchase or sale prices8
(b) Limits or controls production, supply, markets, technical development, investment or provision of services;
(c) Shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;
(d) Directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Explanation.—For the purposes of this sub-section, “bid rigging” means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.
(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including:
(a) Tie-in arrangement;
(b) Exclusive supply agreement;
(c) Exclusive distribution agreement;
(d) Refusal to deal;
(e) Resale price maintenance shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India.
Explanation For the purposes of this sub-section,—
(a) “Tie-in arrangements” includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;
(b) “exclusive supply agreement” includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person;
(c) “exclusive distribution agreement” includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods;
(d) “Refusal to deal” includes any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought;
(e) “resale price maintenance” includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.
(5) Nothing contained in this section shall restrict—
(i) The right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under;
(a) The Copyright Act, 1957 (14 of 1957);
(b) The Patents Act, 1970 (39 of 1970);
(c) The Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999);
(d) The Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999);
(e) The Designs Act, 2000 (16 of 2000);
(f) The Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000);
(ii) The right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.3
Kinds of anti-competitive agreements: Competition laws in all over the world usually places anti-competitive agreements in two categories namely – horizontal agreements and vertical agreements. Horizontal agreements are generally viewed more seriously than the vertical agreements. Firms enter into agreements, which may have the potential of restricting competition. A scan of the competition laws in the world will show that they make a distinction between horizontal and vertical agreements between firms.
Horizontal Agreements: Agreements prohibited under section 3(3) are described as horizontal agreements for they apply to similar or identical trade of goods or provision of services. A careful reading of section 3(3) prompts that it restricts three things namely agreement, practice and decision including cartels who are identical or similar trade of goods or provision of services. The Act under this sub-section presumes following activities as to have appreciable adverse effect on competition.
- Agreement between:-
- Associations of enterprises
- Associations of persons
- Person and enterprise
- Practice carried by:-
- Association of enterprises
- Association of persons
- Decision taken by:-
- Association of enterprises
- Association of persons
Agreements or concerted practices of the three types described above – price fixing, market sharing and bid rigging – are commonly referred to as ‘cartels’.
Those who are engaged in identical or similar trade of goods or provision of services including cartels only if any of their activity:-
- Determines either directly or indirectly purchase or sale prices.
- Limits or controls production, supply, markets, technical development, investment or provision of services.
- Shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;
- Directly or indirectly results in bid rigging or collusive bidding8
Types of horizontal agreement prohibited under Section 3(3):-
- Directly or indirectly fixing prices
Agreements which explicitly and directly fix prices or the resale prices of any product or service are likely to infringe the prohibition in the laws. CICRA considers that such price-fixing agreements will have both the object and effect of hindering or preventing competition. There are many ways in which prices can be fixed. It may be by fixing the components of a price, setting a minimum price below which prices are not to be reduced, establishing the amount or percentage by which prices are to be increased, or establishing a range outside which prices are not to move. Price-fixing agreements may also cover discounts or allowances to be granted, transport charges, payments for additional services, credit terms or the terms of guarantees, for example. The agreement may relate to the charges or allowances quoted or to the ranges within which they fall or to the formulae by which ancillary terms are to be calculated.
Price-fixing agreements also may be found at different levels of the distribution chain, whether at wholesale, retail, or after-sale. For example, even if two companies competed on price for a particular product, an agreement between them to fix the amount that each charge for after-sales service to the product would be subject to the prohibition. A similar rule applies with respect to agreements that do not fix prices explicitly, but recommend prices or minimum price levels. We are likely to conclude that such agreements have the effect of fixing prices, and are thus subject to the prohibitions in the laws.
- Agreements to Share Markets
Market sharing agreements are considered to be anti-competitive10 as they reduce the choice available to customers in a competitive market. Such agreements also reduce competition between the parties to agreement. Businesses may agree to share markets, whether by territory, type or size of customer, or in some other way. This may be as well as or instead of the price to be charged, especially where the product is reasonably standardized. Such an agreement is likely to have the effect, and may also have the object, of hindering or preventing competition.
There can be agreements, however, which have the effect of sharing the market to some degree but where that effect is no more than a consequence of the main objective of the agreement. Parties may agree, for example, each to specialize in the manufacture of certain products in a range, or of certain components of a product, in order to be able to produce in longer runs and therefore more efficiently. Such an agreement is caught by the prohibition where there is, or is likely to be, an effect on competition, but may, depending on the circumstances, qualify for an exemption as discussed below. Market allocation agreements eliminate the need to police the pricing practices of the company’s party to the agreement and the need for producers with different costs to agree on appropriate prices11
- Collusive tendering(bid-rigging); Bid-rigging has been defined in the explanation to subsection (3) of Section 3 of the n Act. According to the explanation, bid-rigging means ―any agreement between the enterprises or persons referred to in sub-section 3 engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. The OECD Glossary points out that there are two common forms of bid-rigging, one in which firms agree to submit common bids and the other where bids are submitted in such a way that each firm wins an agreed number or value of contacts12 An instance of bid-rigging agreement is a combination of dealers in meat who agree inter alia, not to bid in conjunction with each other13. Another example may be where a group of firms agree to file bids in such a way that one of them wins the bid. It is clear that bid rigging agreements hinder the process of competitive bidding as the winner of the bid to be submitted is already upon between the parties.
Vertical Agreement: Vertical Agreements are agreements between persons at different levels of the production chain such as an agreement between a manufacturer and a distributor. Section 3(4) deals with certain specific vertical agreements. It provides as under any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including —
(a) Tie-in arrangement;
(b) Exclusive supply agreement;
(c) Exclusive distribution agreement;
(d) Refusal to deal;
(e) Resale price maintenance,
Shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an AAEC in India.
Explanation.-For the purposes of this sub-section,-
(a) Tie-in arrangement‖ includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;
(b) Exclusive supply agreement‖ includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person;
(c) Exclusive distribution agreement‖ includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods;
(d) Refusal to deal‖ includes any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought;
(e) Resale price maintenance‖ includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.14
Vertical restrains can have both pro- and anti-competitive effects that respectively benefit or harm consumers. Vertical agreements can also give rise to competition concern particularly where the parties concerned enjoys market power. Horizontal agreements are generally more damaging to the competitive process and consumer interests so that a per se prohibition approach in their regard might also affect negatively consumer interests.15
In Continental TV Inc. V. GTE Sylvania Inc16 it was observed that Vertical restriction promote inter-brand competition by allowing the manufacturer to achieve certain efficiencies in the distribution of his products. Economists have identified a number of ways on which manufacturers can use such restrictions to compete more effectively against other manufacturers. Vertical agreements, form eh point of view of economic, if not legal analysis, are thought of as an intermediate form of vertical integration17. Vertical integration can be pro-competitive in the sense that it allows a firm to improve the efficiency of its operations either through creating transaction cost efficiencies or through enabling a firm to overcome difficulties in contracting with an external party.
Types of Vertical Agreement Prohibited Under Section 3(4)
- Tie-in arrangements
Tie-in arrangements have been defined in explanation (a) to Section 3 (4) as including any agreement requiring a purchaser of goods (called tying product), as a condition of such purchase, to purchase some other goods (called tied product). This practice is often resorted to by the enterprises to use the popularity of a product (tying product) to promote the sale of a less popular product in the anti-trust cases that Microsoft faced in the US and the EU, one off the allegations was that Microsoft used its dominance on personal computer operating systems (tying product) to push the sale of its other products, specifically its internet browser and media players systems (tied products) 18
In Jefferson Parish Hospital, the US Supreme Court observed that the essential characteristic of an invalid tie-in arrangement lies in the seller‘s exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms19
An example of a tie-in ‘or tying ‘arrangements is if a manufacturer of product A‘and B‘ requires an intermediate purchaser, who wants to purchase product A‘ to also purchase product B‘. Tying may result on lower production costs and may also reduce transaction and information costs for producers and provide them with increased convenience and variety20. Tie-in arrangements can have negative effects on competition if they fence off so much of the market efficiency21. In case of tie-in arrangements, competition with regard to the tied product may be affected as the purchase may be forced to purchase the ties product at prices other than those at which it s available in a competitive market or he may be forced to purchase a product that he does not require.
- Exclusive supply agreement: This category includes ―Any agreement restricting in any manner, the purchase from acquiring or otherwise dealing in any good other than those of the seller or any other person22. A case in point is where the buyer asked the manufacturer not to manufacture identical goods for any other buyer without his consent23. Exclusive dealing arrangements may serve useful economic function without harm to competition and even encourage competition or they can case substantial harm to competition depending upon many facts and circumstances. Such agreements directly affect supplies from one group to another or give preferential terms or confine dealing with the exclusive group of firms which may reduce the competitive capacity in the market for the participating group.
- Exclusive distribution agreement: Any agreement or limit, restrict or otherwise withhold the output or supply of any goods or allocate any area or market for the disposal or sale of goods may fall within the category of exclusive distribution agreements24For instance, if a manufacturer requires the wholesaler to supply a certain amount of product P‘ to each retailer or some retailers. Withholding supply of goods may lead to a rise in the prices of goods which would be unfavorable to consumers. Similarly, allocation of areas for the disposal of good may affect intra-brand competition.
- Refusal to deal: This includes agreements which restrict, or are likely to restrict, by any method the persons or classes of persons or whom goods are sold or from whom goods are bought.25 Refusal to deal may arise if the purchaser is a bad credit risk, does not carry sufficient inventory or provide adequate advertising, display etc.26 In Tutikoran Alkali Chemincals27. Manufacturers supplied only to large buyers and ignored small buyers; this is an instance of refusal to deal. Refusal to deal is anti-competitive, if a dominant firm to enforce anti-competitive practices such as resale price maintenance and selective distribution agreement practices it.
- Resale price maintenance: Explanation (e) states that resale price of maintenance‘ includes an agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged. Resale price maintenance can reduce intra-brand competition and increase transparency of prices, which may facilitate collusion28. Resale price maintenance is in some countries treated under the per se rule e.g. in the US, because it could be the sign of a cartel29.
The Indian Competition Act inter alia prohibits anti-competitive agreements of the kinds mentioned above. It is particularly severe on horizontal agreements, including cartels. The penalty provided is ten percent of the turnover or three times the profit, whichever is greater. There is a whistleblower type provision for lesser penalty on a party to a cartel that comes clean with full and true disclosure that yields vital information, and cooperates with the Competition Commission. The definition of cartel includes an association that indulges in anti-competitive activity. The stakes thus are high and the consequences severe.
Anti Competitive Agreements in India: The present Act is quite contemporary to the laws presently in force in the United States of America as well as in the United Kingdom. In other words, the provisions of the present Act and Clayton Act, 1914 of the United States of America, The Competition Act, 1988 and Enterprise Act, 2002 of the United Kingdom have somewhat similar legislative intent and scheme of enforcement. However, the provisions of these Acts are not quite suitable to the Indian legislation. In United Kingdom, the Office of Fair Trading is primarily regulatory and adjudicatory functions are performed by the Competition Commission and the Competition Appellate Tribunal. The U.S. Department of Justice Antitrust Division in United States deals with all jurisdictions in the field. The competition laws and their enforcement in those two countries are progressive, applied rigorously and more effectively. The deterrence objective in these anti-trust legislations is clear from the provisions relating to criminal sanctions for individual violations, high upper limit for imposition of fines on corporate entities as well as extradition of individuals found guilty of formation of cartels.
This is so, despite the fact that there are much larger violations of the provisions in India in comparison to the other two countries, where at the very threshold, greater numbers of cases invite the attention of the regulatory/adjudicatory bodies.
The Act as laid down in its preamble has been framed on the philosophy of modern competition law to come in line with current policies of GOI* with growing national and international trends with regard to competition both at national and international level. It aims at fostering competition and promoting Indian markets against anti-competitive practices by enterprises. Competition laws in India like in any other jurisdiction prohibits all agreements which restrict freedom of trade and cause consumer harm by way of limiting production and distribution of goods and services and fixing prices higher than normal. For example, a cartel of producers, traders, together may fix prices higher than normal leading to loss in consumer welfare. Principle objective of supplier of goods and services who are in a position to manipulate the market is to maintain their profits at pre-determined levels. They seek to achieve through this various means. Agreements for price-fixing, limiting supply of goods or services, dividing the market, etc. are the usual modes of interfering with the process of competition and ultimately reducing or eliminating competition. Where competition is adversely affected to an appreciable extent, such agreements would be anti-competitive.30
Anti-Competitive Agreement under the MRTP Act: Competition laws in India were governed by the MRTP Act, 1969 which was substantially taken from U.K Legislations, particularly the Restrictive Trade Practices Act, 1956 and Resale Prices Act, 1964. This Act established the Monopolistic and Restrictive Trade Practices The material difference in the framework and scheme of the two enactments are The emphasis under the MRTP Act was in respect of trade practices that adversely affected competition and were subject to the rule of reason. Under the MRTP Act till the cease and desist order was passed by the MRTP Commission, a particular trade practice was not considered void or illegal whereas this is not the case under the Competition Act. In term of the provisions of MRTP Act, fourteen trade practices were listed which were deemed to be restrictive and the respondent has to prove his innocence before the MPRTC. It was deeming provision and almost identical to per se illegal in public interest.31
A comparison of section 3332 of the MRTP Act, 1969 with the corresponding provisions of Section 3 of the Competition Act, 2002 would show that the anti-competitive agreements particularized in sub section 3 and 4 of the Competition Act, 2002 are somewhat akin to restrictive trade practices specified in clauses (a)-(d), (f)-(h), (j), (j a), (j b) of sub-section 1 of section 33 of the MRTP Act, 1969.
Rules Applied in the Interpretation of Anti-Competitive Agreements: There exist some principles on which the courts all over the world including India have come to judge violations of anti-competitive agreements by the following three main approaches namely:
- The Rule of Reason: Rule of reason is a judicial doctrine of antitrust law which says a trade practice violates the Sherman Act only if the practice is an unreasonable restraint of trade, based on economic factors. In order to determine whether there is unreasonable restraint the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts.33
The‘rule of reason‟ approach weighs the reasons of a certain action taken and the economic benefits and costs of that action before coming to a judgment. Under the rule of reason, the effect on competition is found on the facts of a particular case, and its effect on the market condition, and existing competition including the actual or probable limiting of competition in the relevant market.
Hon’ble Supreme Court of India observed ―it will thus be seen thus be seen that the „rule of reason‟ normally requires an ascertainment of the facts or features peculiar to the particular business; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable; the history of the restraint and the evil believed to exist, the reason for adopting the particular restraint and the purpose or end sought to be attained and its only on a consideration of these factors that it can be decided whether a particular act, contract or agreement, imposing the restraint is unduly restrictive of competition so as to constitute restraint of trade’’34
- The Per Se rule: Per Se rule is a judicially created principle of antitrust law that a trade practice violates the Sherman Act, if the practice is in restraint of trade, regardless of whether it actually harms anyone. Sherman Act is a federal statute, passed in 1890, that prohibits direct or indirect interference with the freely competitive interstate production and distribution of goods,in Northern Pacific Railway Company v. United States35 the Court observed that there are certain agreements and practices which because of their pernicious effects on competition and lack of any redeeming virtue are confusedly presumed to be unreasonable and therefore illegal without any elaborate inquiry as to the precise harm they have caused or the business excuse for their use.
This principle of per se unreasonableness not only makes the type of restraints that are prescribed by the Sherman Act more certain to everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged investigation into the entire history of industry involved, as well as related industry, in an effort to determine at large whether a particular restraint has been unreasonable, an inquiry so often wholly fruitless when undertaken.
The rule of presumption: Since the Act in section 3(3) used the term shall be presumed‖ so it becomes important to elaborate this principle of interpretation as well while discussing anti-competitive agreements. The principle have been provided in the Evidence Act, 1872 under section 4 clause 2 which says: whenever it is directed by this Act that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved.”
Hence the expression shall presume leaves no discretion with the Court to make the presumption and it is a legislative command to Courts to raise a presumption and regard such fact as proved unless and until it is disproved36 the question of calling upon the parties to formally prove a fact does not arise. The Court is bound to take the fact as proved until the evidence is given to disprove it. In this sense the presumption is always rebuttable, however, it cannot be held to be synonymous with conclusive proof 37. as discussed earlier in the per se rule.
The Supreme Court in Sodhi Transport co v. State of Utter Pradesh5538 observed that the words shall presume‖ have been used in Indian judicial lore for over a century to convey that they lay down a rebuttable presumption in respect of matters with reference to which they are used and not laying down a rule of conclusive proof.‘ the Court also observed that a presumption is not in itself evidence but only makes a prima facie case for the party in whose favor it exists. It indicates the person on whom the burden of proof lies. But when the presumption is conclusive, it obviates the production of any other evidence. But when it is rebuttable, it only points out the party on which lies the duty of going forward on the evidence on the fact presumed, and when that party has produced evidence fairly and reasonably tending to show that the real fact is not as presumed, the purpose of presumption is over.
Powers of Competition Commission as Regards Agreements: After the inquiry into the Agreement, Competition Commission can:
- direct parties to discontinue the agreement
- prohibit parties from re-entering such agreement
- direct modification of the agreement
- Impose penalty up to 10% of average turnover.
Why Anti Competitive Agreement are Prohibited: For a market economy to grow at a proper rate, the business entities must be fair. It’s natural that all the competitors will try to gain consumer confidence in order to its market share by continuously trying to improve the quality of the goods, reduce prices and find more efficient and profitable means of production.
Generally the consumers everywhere even in the most developed countries, have poor information of the necessary particulars of any product, including the current market price, the price range or the quality of the suppliers, and comparable products or services. Suppliers, who over a period of time, have acquired, on account of various factors, the power to manipulate the market, do everything in their power to prevent the development of a market that is free from interference. One reason for this is their intention of retaining the fixed percentage of profits, and this can be possible only by restraining or eliminating competition. Eliminating competition altogether is their objective. The means to achieve that objective are myriad and that is why any legislative definition of any legislative definition of an anti-competitive practice or conduct is general, inclusive and also states that the practices prescribed as anti-competitive are not exhaustive. Competition in market enhances consumer welfare and creates an effective allocation of resources. As stated in the foregoing that most business enterprises attempt to enhance market power and monopolize the market, as such competition does not arise automatically in all markets. Governments and statutory regulators are well placed to take steps to rectify adverse effect of monopolization of markets by few. Small and medium-sized business is very important to a healthy economic growth. The very existence of small and medium-sized business is a positive indication of promotion of competition in markets. However, these smaller units never get a chance to grow if they are not protected in some way against the anti-competitive activities of very powerful, well established business in the same industry.
A balanced amount of regulation does not mean that the benefits of free competition in the market are entirely eroded. Individuals and other businesses that may be adversely and unfairly affected by anti-competitive activities in a market can more effectively seek redress if clear regulatory regime is in place. So, the fundamental objective of regulating anti-competitive agreement is to have free and fair operation of big or small or medium-sized business within market and their activities necessarily needs to be regulated by a regulator.39
Exceptions: The Act prohibits agreements that have AAEC on competition, but there have been incorporated certain exceptions to this effect. Section 3(5) provides for exception from the provisions of section 3. Section 3(3), however, also provides for exception for joint ventures.
- Exception for the protection of certain IPRs:-
Section 3(5)(i) provides, exemption from the application of section 3, to the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under–
(a) The Copyright Act, 1957 (14 of 1957);
(b) The Patents Act, 1970 (39 of 1970);
(c) The Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks
Act, 1999 (47 of 1999);
(d) The Geographical Indications of Goods (Registration and Protection)Act,
1999(48 of 1999),
(e) The Designs Act, 2000 (16 of 2000);
(f) The Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000).
Hence, like competition laws in other countries the Act recognises the value of IPRs an an incentive to creativity and economic growth. However, for exemption under section 3 (5) restriction must be reasonable and necessary to protect IPR.
- Exception to agreements related to export: Many countries exempt anti-competitive agreements relating to exports from the operation of law; this is presumably on the ground that such anti-competitive agreements harm only overseas consumers and are therefore of no concern to the national authorities
Section 3(5) (ii) exempts the right of any person to export goods from India up to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export. It means export agreement relating only to the production, supply, distribution or control of goods or provision of services is exempted. According to Meyerman , ‗in the course of reaching agreement on export prices or terms of sale, for example, the participant may exchange information about domestic prices or output, that would permit them to reach an explicit or tacit agreement affecting domestic market‘.40
- Exemption for joint ventures: Proviso attached to this section3 (3) exempts any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. The term joint venture 41 has not been defined in the Act. In general terms it means the cooperation of two or more individuals or businesses in which each agrees to share profit, loss and control in a specific enterprise. 42 A joint venture can also be defined as an association of firms or individuals formed to undertake a specific business project. It is similar to a partnership, but limited to a specific project (such as producing a specific product or doing research in a specific area).
Conclusion: The new economic policy of 1991 on one hand has made our life comfortable as the goods and services required for our use are available in abundance and on the other hand it has also opened a new challenge for preventing anti-competitive agreements by manufacturers and service providers. Under the Act there has been made adequate provisions for preventing anti-competitive agreements and has also created an institution i.e. commission to ensure effective implementation of law However Act and CCI are to be adequately empowered to take of such situations. Provisions relating to prohibition of anti-competitive agreements under the Act are, to some extent adequate to maintain fair competition in the market and thereby protect interest of consumers. However they are needed to be strictly observed and implemented.
Competition law is often confused with that of consumer law but I would like to make it clear that both the laws are different as for as the area they deal with. It is to be noted that consumer laws have their focus on demand side of economics while competition law is supply side of economics. Competition law aims at smoothening the supply in the market so that healthy competition in the market can be sustained and to check that supply in the market do not get hindered by any anti-competitive factor. The positive impact of competition in terms of enhancing efficiencies, incentivizing innovation and increasing consumer welfare is well known and recognized. Competition allocates productive resources to their best uses and causes firms to develop new products, services and technologies, giving consumers greater selection of products.
Is the Competition Act truly reflective of the changing economic milieu of our country? In an economic situation, which can be best described as a mixed economy; only time will tell whether the Competition Act addresses the ground realities that exist today. However, the new Act is definitely a step in the right direction by harmonizing the competition policy with international trade and policy.
The commission‘s proactive role in India in uncovering cartels and other anti-competitive agreements would go a long way in encouraging fair market practice and deepen competition. The orders of commission reflect the robustness of the system as well as confidence to stem out the anti-competitive practice from markets in India. Need of the hour is to further strengthen and provide more teeth to commission, as brought out above.
By Meghana.S.Singh, (7th semester BA.LL.B) Student at JSS law college, Mysore
- Khemani R. S, A framework for the design and implementation of competition law and policy, World Bank.
- Competition Commission of India vs. Steel Authority of India Ltd. and Anr. (2010) 10 SCC 744 Para 1-3.
- (b) “agreement” includes any arrangement or understanding or action in concert,:–
(i) whether or not, such arrangement, understanding or action is formal or in writing; or
(ii) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings;
- (a) “acquisition” means, directly or indirectly, acquiring or agreeing to acquire
(i) Shares, voting rights or assets of any enterprise; or
(ii) Control over management or control over assets of any enterprise
- (i) “goods” means goods as defined in the Sale of Goods Act, 1930 (8 of 1930) and includes–
(a) Products manufactured, processed or mined;
(b) debentures, stocks and shares after allotment;
(c) In relation to goods supplied, distributed or controlled in India, goods imported into India;
- (u) “service” means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising.
7.(m) “practice” includes any practice relating to the carrying on of any trade by a person or an enterprise
- (o) “price”, in relation to the sale of any goods or to the performance of any services, includes every valuable consideration, whether direct or indirect, or deferred, and includes any consideration which in effect relates to the sale of any goods or to the performance of any services although ostensibly relating to any other matter or thing.
- Section 3(3)(a)to (d)
- See JCRA Media Release, JCRA Welcomes Jersey Dental Association’s Decision to Eliminate Recommended Fees (7 November 2005); JCRA Media Release, Trade Associations abolish Pricing and Wage Practices to comply with Competition Law (2 May 2006).
- Whish, Richard ,“Competition Law”, 6th edition Oxford University Press(2005):
- http://stats.oecd.org/glossary/search.asp (OECD Glossary of statistical terms)
- Supra note 85
- Swift and Co. V. United States 196 US 375
- Section 3(4)
- Buttigieg Eugene, Competition Law: Safeguarding the Consumer Interest – A Comparative Analysis of US Antitrust law and EC Competition Law,(2009) International Competition Law Series, Kluwer Law International Publication pg.(81&119)
16.433 US 36 (1977)
- http://stats.oecd.org/glossary/search.asp (OECD Glossary of statistical terms)
- Unites States v. Microsoft Corporation 258 F. 3d (DC Cir, 2001)
- 466 US 2 (1982)
- Ahlborn, Christian, Davis S Evans and A Jorge Padilla(2003); “the antitrust economics of Tying: A farewell to Per Se illegality” , available at http://.papers.ssrn.com/so13/papers.cft?abstract_id=381940
- 356 US 1 (1958)
- Explanation (b) to Subsection 4
- DGIR v. Studds Accessories (P) Ltd RPC 331/1998
- Explanation (c) to section3( 4)
- Explanation (d) to section3( 4)
- World Bank/ OECD Glossary
27.(1995)16 CLA 196 (MRTPC)
28.See Whish, Richard, n.39, p.591
29.See ‘Fox, Eleanor supra n. 37, see also Ramappa, T. (2006): ‘Competition Law in India: Policy, Issues and Developments’, New Delhi
30.Ramappa T; Competition Law in India- Policy, issues and Devolvements; Oxford University Press,(2006); pg.50
- IICA report on competition law and policy “induction training for mid level staff of the CCI, pg 27, 28, 29.
*GOVERNMENT OF INDIA
- 32. Section 33- Registrable agreements relating to restrictive trade practices. (1) Every agreement falling within one or more of the following categories shall be deemed, for the purpose of this Act, to be an agreement relating to restrictive trade practices and shall be subject to registration in accordance with the provisions of this Chapter, namely :-
(a) any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought;
(b) any agreement requiring a purchaser of goods, as a condition of such purchase, to purchaser some other goods;
(c) any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person;
(d) any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or on terms or conditions agreed upon between the sellers or purchasers;
(e) any agreement to grant or allow concessions or benefits, including allowances, discounts, rebates or credit in connection with, or by reason of, dealings;
(f) any agreement to sell goods on condition that the prices to be charged on re-sale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged;
(g) any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal of the goods;
(h) any agreement not to employ or restrict the employment of any method, machinery or process in the manufacture of goods;
(i) any agreement for the exclusion from any trade association of any person carrying on or intending to carry on, in good faith the trade in relation to which the trade association is formed;
(j) any agreement to sell goods at such prices as would have the effect of eliminating competition or a competitor;
(ja) any agreement restricting in any manner, the class or number of wholesalers, producers or suppliers from whom any goods may be bought;
(jb) any agreement as to the bids which any of the parties thereto may offer at an auction for the sale of goods or any agreement whereby any party thereto agrees to abstain from bidding at any auction for the sale of goods;
- Mahindra and Mahindra Ltd v. UOI (1979)2 SCC 529
35.356 US 1 (1958)
- State of West Bengal v. E.I.T.A India Ltd., AIR 2003 SC 4126, para 12; (2003) 5 SCC 239.
- Union of India v. Pramod Gupta, (2005) 12 SCC 1, 31 para 52
- 56Ratan Lal and Dheeraj Lal, Commentry on Law of Evidence, 23rd enlaged edition (2010), Lexis Nexis Butter Worths Wadhwa, Nagpur. Pg.173
- IICA report on competition law and policy “induction training for mid level staff of the CCI, pg 42
- Gerald Meyerman , Mary Jean Moltenbrey and Judy Whalley et al(1999); “agreements” in ‘A Framework for the
Design & Implementation of Competition Law and Policy’, World Bank/OECD, pg 36
- See proviso attached to section 3(3)