Competition Law Class Notes
Competition Law Class Notes
6 ● General Questions
● Case law based questions – specific
● Application based questions – how to regulate
○ Comp law and IP
○ Comp law and Agri
○ TRIPS and Comp law – application
○ Consumer protection and CL
○ Food industry and CL
○ Eco and CL
○ Pharma and CL
10 ● General Questions
○ On the Act
○ Relevant Market
● Case law based questions
● Definition sections
● Price Parallelism
● Bid rigging
● Cartels
● AAEC
● Tie in arrangement
● RPM, RGM
● Demand and Supply Side substitution
● Abuse of dominance
○ Exclusionary practices
○ Exploitatory
● Combination
● Cross border combinations
● CCI – Composition, Power, Functions
○ Of DG as well
○ What type of orders can be passed (can refer to Case laws)
● US Microsoft Case
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UNIT - 1
INTRODUCTION
Competition:
● Natural tendency of each and every individual to attain supremacy in respective field
● Struggle for superiority
● Process of rivalry between different market players → seeking to win customers or
customer base.
○ Customer vs. Consumer
● Changing dimensions of competition in the era of LPG
● Maximization of consumer welfare -- utmost goal of competition law
● Consumer Sovereignty
COMPETITION LAW VS CONSUMER PROTECTION
● UK and Europe: Under EC Competition Law, protection of consumers per se remains
the goal achieved by coincidence rather than through positive action as consumers are
assumed to be the ultimate indirect beneficiaries of this policy and of the single market
that competition law strives to maintain.
● USA: According to Chicago School of anti-trust law, ‘competition’ may be read as
designating a state of affairs in which consumer welfare cannot be increased by moving
to an alternative state of affairs through intervention of anti- trust law. Consumer welfare
is greatest when society’s economic resources are allocated so that consumers are able to
satisfy their wants as fully as technological constraints permit.
● Under the basic constitutional provisions of the USA, the EU and many European
countries, the overall purpose of legal rules against private restraint on competition is to
favour economic prosperity, which includes consumer welfare
● Similarity between competition and consumer law:
○ Deal with markets
○ Deals with the interest of the public
● Differences:
○ Scope: Consumer law is for narrow and is for the consumers only whereas
competition law is much wider as it deals with numerous market players
○ Effect: CPA is more restrictive and is limited to the seller-consumer ||
Competition law affects the entire market
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○ Trade Practices: CPA deals with UTP, RTP and Monopolistic Trade Practice ||
Competition deals only with Monopolistic TP (vertical and horizontal)
○ Nature of transactions: CPA seller-consumer || Competition law is Seller-buyer.
○ Side: CPA is more favoured towards the consumer || Competition law can't be
favoured towards one side -- depends on the school
■ Harvard School: Bigger sellers with larger market shares are harmful to
the market as they would end up becoming Monopolistic. Favors ‘per se
rule’ (no need to prove any special damage is caused -- more of
presumption)
■ Chicago School: Market Size of seller doesn't matter (follows ‘rule of
cause’)
○ Focus: CPA is more focussed towards Consumer Welfare || Competition aspect is
to ensure healthy competition in the market (and indirectly consumer welfare
which isn't the primary focus per se).
○ Number of cases: CPA has numerous number of cases due to forums || CCI cases
are comparatively low
○ Nature of dispute: CPA is very limited as it deals with the protection of a
specific consumer/consumer association || CompetLaw is much wider and has
national market impact.
Additional Explanation for Competition and Consumer Law in India
● Competition policy promotes efficient allocation and utilization of resources which in
turn leads to increased competitiveness resulting in higher growth and development.
○ Competition Policy promotes fair competition in the market which ultimately
leads to consumer welfare in the end.
● Consumer protection policy is more diverse in nature and empowers consumers as it
provides reliefs directly in the hands of the consumers.
○ It provides for protection of consumers against unfair and restrictive trade
practices apart from defects and deficiencies in goods or services respectively.
● According to Knight, the role of Competition law in relation to consumer welfare may be
viewed under two aspects, allocation of available productive forces and materials among
the various lines of industry and effective coordination of various means of production in
each industry into such groupings as will produce the greatest result.
● Both in a way deal with consumer welfare being the end goal but in two different
approaches → OECD’s principle
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○ Competition policy approaches a market from the supply side; its purpose is to
ensure that through competition, consumers have the widest possible range of
choice of goods and services at the lowest possible prices.
○ Consumer policy approaches markets from the demand side: to ensure that
consumers are able to exercise intelligently and efficiently the choices that
competition provides.
● Competition policy may serve as a complement to consumer protection policies to
address market failures such as information asymmetries, lack of bargaining position,
towards producers and high transaction costs
○ Competition Policy ⇒ Economic Growth ⇒ Benefit of consumers
● Aim of Consumer Protection Act is to protect the right of the consumer to be assured of
access to variety of goods and services at competitive prices whereas the Competition
Act assures availability of goods and services at competitive prices for consumers.
● Difference: The Consumer Protection Act deals with vertical relationship between a
manufacturer or producer and a consumer whereas the Competition Act deals with
horizontal relationship between manufacturers and producers.
● Similarity: Both deal with distortions in the market place, which is supposed to be driven
by the interaction between supply and demand. (UTP, RTP, excessive pricing, deceptive
trade practices, etc).
○ deceptive practices are unfair to consumers.
○ Under the Competition Act, unfair or discriminatory trade practices fall under the
first category of abuse of dominant position. Therefore, unfair trade practice will
fall within purview of Competition Act only when the enterprise is in dominant
position
● Similarity: According to Neil and Lande, antitrust and consumer protection share a
common purpose in that both are intended to facilitate the exercise of consumer
sovereignty or effective consumer choice.
○ The antitrust laws are intended to ensure that the market place remains
competitive, so that a meaningful range of options is made available to
consumers.
○ The consumer laws are then intended to ensure that consumers can choose
effectively from these options without any deception or withholding of material
information.
● Relief Mechanism in India:
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○ The Consumer Protection Act deals directly with the consumers. Therefore, it
provides reliefs directly in the hands of the consumers.
○ The Competition Commission of India has the duty to eliminate practices having
adverse effect on competition, promote and sustain competition, protect the
consumers’ interests and ensure freedom of trade carried on by other participants
in markets in India.
○ The Commission does not directly provide any relief to consumers.
TYPES OF COMPETITORS
● Direct → same goods and services in the same market (eg: Amazon - Flipkart)
● Indirect Competitors → products are different and are not substituted by one another.
Market is same but delivery of products/service is different (Eg: Netflix and PVR)
● Replacement Competitor → apparently products are different and one product might
replace the other and from different markets. (Eg: radio and mobiles)
● Potential → not competitors yet, but the company has potential to give competition
to another company -- same good/service line even at different geographical
locations.
● Future Competitor → (reliance)
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TYPES OF EFFICIENCY
1. Allocative efficiency
● The satisfaction derived from the product should be greater than the price paid
● Production till the cost exceeds the price- after that production will be stopped.
● This stoppage will not affect market price – because substitutes are available.
2. Productive efficiency
● Input results in maximum output with minimum cost (You use your resources
efficiently to minimize the cost of production and maximize the quantity
produced)
● Reduction in cost
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o Done only in certain scenarios purely for the purpose of under cutting
competitors and establishing market presence
o But this is regulated by competition commission – predator pricing
regulated
3. Dynamic Efficiency
● Innovation and new technologies reduce production costs. Xiaomi has developed
and their production costs have decreased while their revenue and sales have
increased.
o Often contested
o In fact, can be considered to be part of monopolistic market (Xerox’s
shares rising; canon’s biggest competitor)
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⇒ Decreasing economic welfare
⇒ Price discrimination
Q: Does it mean that, “Theory of Perfect Competition” is flawless? Ideal competition does
not exist. Outcomes of perfect competition exists.
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● Social cost or externalities
○ Entire competition theory is silent over this
○ Social cost is always high as corporate laws focus majorly over technical aspects
● Base
○ Static model for dynamic market → but its not possible in reality
○ Irrespective of nature and changing notions of market is the premise
○ Perfect competition is an ideal type of market structure
○ Eg: Market regulation
● Joseph S and Adam Smith View
○ Joseph → theory of creative destruction → its a continuous process where one
business may overturn and destroy the other player
○ Adam Smith → Invisible hand theory → the invisible hand tends to govern
the demand and supply to get a equilibrium
■ Invisible hand is the market force that is not governed externally by the
govt.
○ Goes against the presumption of Perfect Govt and the govt/law has to govern
incase of any issue in the market
○ Perfect competition does not exist and requires govt control and oversight
● Economies of scale, scope and natural monopolies
○ Economies of scale: cost advantage received by companies when their production
or sales become profitable
■ Too many competitors will kill the economic of scale by means of
competition as the businesses would no longer serve to be profitable while
the costs remain the same.
■ Costs would be high (or unchanged) but profits would come down due to
the numerous players
○ Economics of scope: perfect competition will kill the economic of scope as there
are players who cant sustain themselves
○ Natural monopolies:
■ Railways, electricity etc
■ Problems: lack of innovation, misuse of market position
○ So, all these require huge investments
● Network effects → Direct/Indirect
○ Can be observed more in cases of services
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○ Direct effect -- direct benefit
■ Eg: Telecommunication industry -- more users, more network, more
benefit; larger network then lower cost on consumer
○ Indirect effect --
■ Eg: Operating system and updates → free of cost given by the
company -- users make one time payment and receive the benefits
throughout.
○ Value of product increases with number of users
● Two sided market
○ Eg: Social media influencers, newspaper industry
○ Newspapers get revenue by means of advertisements majorly -- more readers then
more exposure to reader then more costs.
● Particular market
○ Strict rules of competition cant be applied to Agriculture -- cartel
● Beneficial restriction of competition
○ Is related to security measures
○ If competition is restricted it will be a benefit for others
○ Eg: Railway system in UK → 1990 UK saw numerous rly accident
(competition went up and companies began neglecting security measures)
● Ethical objections
○ Cut-throat competition will lead to unethical practices -- mafia system (eg: sugar
mills)
○ Cyclical Recession -- wrt oil market -- few market players will have the goods
and resources that others won't have, and after recession they'll put these products
in the markets
○ Confusion for Consumers -- if infinite buyers and sellers
○ Cost (Time and Travel)
● Industrial Policy
○ Govt Support
○ IP related business
● Economic Crisis
○ Eg: cooperative sector and AMUL
● Ultimate Object of Competition
○ Inherent outcome of destroying competition -- Marx ideology
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○ Even invisible hand
○ Competition would expect that it would end in monopoly
○ “ someone would win it and become the monopolist
JURISPRUDENCE OF COMPETITION
CLASSICAL THEORY
● Starting point - JS Mill, Ricardo and Smith
● Certain agreements and business practices could be unreasonable on the liberty to do
business
● Interference of courts
● Competition as the mechanism that coordinates the conflicting self interests of
independently acting individuals and directs them to the attainment of equilibrium in a
dynamic sense of the term
● Rejection of not only dominant and abusive corporations but corporation also - Smith
● Adjustment mechanism for establishing “equilibrium” (natural) prices between industries
- Ricardo
● JS Mill’s Doctrine of restrain of trade.
● Certain things are there in the market that don't need regulation -- if any Dispute then
courts can look into it
● Liberty to do business
● Smith -- made classic theory obsolete in present days
● Restraint of trade
● Schumpeter and Smith's idea
● Incase people are doing anything against the market -- doctrine of restraint of trade
● Doctrine of restraint of trade (imp question -- competition law and contract law)
○ Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd
NEO CLASSICAL THEORY:
● Cournot -- main propounder
● A more theoretical and specific model of competition
● The model for perfect competition -- production and distribution of goods and services in
competitive free market ensures social welfare
● Free entry and exits
● Allocative efficiency
● Productive
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● Dynamic
● Theory of perfect competition
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● Principles formulated in 1944 -- John Vohn Neuman and Oscar Morgenster -- “theory of
games and economic behaviour’
MARXIAN THEORY
● Coercive mechanism
● Development of capitalism
● Human nature as a product of this process
● Competition -- excessive innovation
○ Displaces labour too rapidly
○ Renders production system obsolete well before investment has been amortised
○ Emergence from monopolistic evil
● Development of competition is a parallel to the development of capitalism.
● Can be linked to the efficiency model -- effect on human capital (labour) being replaced
quite rapidly and easily which will displace labour
○ Excessive development leads to this (above)
● Excessive innovation leads to displacement of labour
● Excessive innovation cannot exploit (in positive terms) natural resources in full extent, as
it tends to get obsolete easily
○ Development leads to quick replacement technology
● Competition starts from seeking monopoly and ends with achieving monopoly in the
market
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HARVARD v CHICAGO DEBATE
● Rule per se v Rule of reason (#### AK Gopalan says follow law and Maneka Gandhi
says to interpret law####)
Harvard School:
● Edward Chamberlain, Edward Mason, Joe Bain
● Based on Cournot’s Oligopoly -- form produces homogenous goods -- competition on
account of output which market players decide independently.
● Oligopoly Definition: a market with few firms and none of them can allow others from
gaining a dominant position
● Competition depends on output and can be determined by the independent market player
(but it is a group as they all produce homogenous goods)
● Cournot’s Oligopoly: SCP Paradox
○ Structure
○ Conduct
○ Performance paradigm
○ Performance of the company is dependent on the conduct of the company which
is dependent on the structure of the company OR structure results to conduct
which results in performance
○ The market is controlled by a group of firms who produce homogenous goods
○ Static paradigm
● Rule per se:
○ Presumptions are followed merely and no application of mind is followed
○ Follows the main reasoning and main rationale behind the Sherman Act (Anti
Comp Agreements and Clayton Acts(M&A) in USA
■ Standard Oil Company Case (Rockfeller case) and Sherman Act. -- 80%
of oil of USA was controlled by SOC.
■ Main rationale behind Sherman Act is to prohibit growth of the company
thats quite rapid and excessive.
○ Does not favour market share
○ The presumption behind M&A activities and JVs
○ Protection of individual competitors from large market powers
○ Presumption against market concentration irrespective of its benefit.
○ Dominance depends on the number of competitors
○ Rule per se goes against consumerism
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○ Dominant person decides the price
○ US v ALCOA 1945
■ Aluminum market -- foreign giants wanted to acquire alcoa -- presumption
would be that these companies would dominate the market of USA and
would affect the same -- FTC wanted to scrutinize the transaction -- after
scrutiny, they came up with a conclusion that taking over is permitted then
it would give dominance to the companies and thus should not be allowed
-- same was upheld by SC applying Harvard school of law
○ US v Philadelphia National Bank 1963
■ A merger of 2 banks even though their market share did not exceed 20% --
banks claimed consumer efficiency defence -- SC rejected it on the
grounds that the market share would increase and consumer efficiency
defence was not considered thus disallowed the merger
○ Benefits:
■ Certain -- predictable -- to define actions of preventing misuse of market
position
■ Avoidance of complicated analysis
■ Predictable judgement
■ quick
○ Flaws:
■ Too quick
■ No benefit to the consumer (eg: Philadelphia National Bank Case)
Chicago School
● Robert Bork, Frank Easterbrook, Richard Posner
● Analysis of antitrust problem from the perspective of Price theory
● Certain actions which were deemed to be anticompetitive -- actually promotes
competition
● Presumption with reference to market power -- a potential competition (can be seen based
on the theory of adam smith and joseph schumpeter)
● Rule of Reason
■ Main object of Sherman and clayton act was to protect consumers and increase
efficiency of american market
■ To increase efficiency of American Market
● Maximization of wealth + Consumer welfare
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● Social justice concept → Allocative efficiency, dynamic efficiency and
productive efficiency
■ In line with Adam Smith, Joseph Schumpeter
● Govt machinery would only be needed in case of difficulties and issues
arise in the market
■ Proof based theory
● Harm/damage should be proven
● Broad Music Co v CBS
○ Music directors came together -- price fixation agreement entered into --
challenged -- price fixation agreement was observed to be anti competitive as
harvard but as per chicago it was held not be anticompetitive
● In re Boeing Co.
○ (McDowell and Boeing) Merger of 2 airline companies -- proposed merger -- if
allowed then duopoly -- allowed as ‘most possible harm’ theory could not be
proven
● Microsoft Monopolization case (2002)
○ Microsoft had a market share of 95% -- as it had a monopoly in the OS, it did not
allow any other player from release of their apps -- had control over all markets
(primary, secondary and tertiary) -- chicago went against the party as it
disallowed a market player -- imposing market entry restrictions (by disallowing
others to enter the market for selling the service) is anti competitive -- microsoft
was compelled to sell their source code to enable others to sell their apps on
windows -- judiciary went against dominant player
● Nestle Perrier Merger case
○ Benefits:
■ Revolutionary Approach
■ Consumerism -- largely protected
○ Flaws:
■ Empirical economical issues
● Works on establishing harm every time -- but it is difficult to always have
empirical evidence for establishing harm -- usually present day evidence is
used
● Can harm market in the long run → (thought of: revision of a merger
by OECD) → example: companies are merging but no evidence of
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dominance in the market so its allowed; no position to establish
potential harm → no further analysis of merger so we can't establish the
long run effect as permission is given based on current situation and
not forecasting future effect due to lack of evidence → no post merger
analysis (by OECD)
■ No predictability
● Example: boeing company case
● Can't be market friendly
■ Fear of losing deterrent effect
● Favours defendant
● Leegin Creative leather products v PSKS (2007)
○ Price restriction by manufacturers -- contract with retailers -- set discount limit for
retailers -- “resale price maintenance” -- no direct competition with competition
as there is nothing mentioned about the resale price, but this case is a exception as
leegin dealt only with one small aspect which is resale price -- so not held to be
anti-competitive
● Continental TV v GTE Sylvania (1977)
○ GTE Sylvania was facing losses so reduce dealerships -- exclusive distribution
agreement was alleged to be anticompetitive -- allocation of territory is
anticompetitive as per law -- (s.3 EDA and ESA) -- not held to be anticompetitive
as it was observed that no proof,
● Monsanto Co v Spray-rite services (1984)
○ Spray-rite terminated service to monsanto and monsanto did not get any similar
product and claimed that spray-rite and other competitors had a conspiracy
against monsanto -- held anti-compeition.
● Business Electric Co v Sharp (1988)
● Atlantic Richfield v USA Petroleum (1990)
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● Needs to be regulated -- karl marx -- Competition sows seeds of its own destruction
hence regulation is needed
● Combines Act 1889 (Canada - 1st law)
○ Failed law
○ Influenced from Sherman Act
○ First Competition law -- then provisions were included in the criminal code after
1892
○ Combines Investigation Act 1960
○ Competition Act 1985 (Based on US Law -- Sherman Act)
● Sherman Act 1890
○ Bill introduced by Sherman
○ Aim: To sustain competitive process
○ Sec.1 (Sec.3 Indian Act): Prohibition against contracts and conspiracies in
restraint of trade or commerce
○ Sec.2 (Sec.4 Indian Act): Monopolization and attempt to monopolization and
related conspiracies.
○ During this time -- agreements of restraint of trade were prevalent
■ Presumptions based on common law
■ Doctrine of restraint of trade and commerce
● Professional engineers association case
○ Agreement by virtue of which in case a project is coming,
only one person can go for bidding for one project only --
conspiracy in restraint of trade (as it was intended to
control the bidding process) -- similar to mogul steamship.
■ Moghul steamship co . v mcgregor
● Merchants came together and formed an agreement -- no one else
was to have any other trade except those in the agreement --
moghul started trading with someone else -- moghul was expelled
from the association -- agreement was held to be valid as it was in
the interest of the members
● Follows opposite view of S.3 of Competition Act
■ Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd
● Sale of business with condition that for 20 years business cant be
started in the same area -- but new business was started -- 2L
pound compensation (as per agreement) for the failure of not
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carrying business + amount of business -- interest of buyer the
HoL ratified judgement -- compensation not granted by the court
but was from the contract
○ Standard Oil company of New Jersey v US (1911)
■ Standard oil started by rockefeller in 1863
■ 1870 - Largest refineirs in Cleveland and incorporation of Standard oil
company in ohio
■ 1880 - control over refinery process and market share went to 90-95%
■ 1882 - “standard oil trust agreement” (where if anyone had to enter, they
had to be part of the agreement) -- abuse of market dominance -- control
over 40 rival -- 14 companies fully owned
■ 1892 -- Ohio SC ordered dissolution of trust -- HQ was transferred to New
Jersey and operations began from there
■ 1899 -- Company was renamed as SOC-NJ
■ 1906 -- suit by US Govt against SoC-NJ on account of Sherman act S.1
and S.2
■ 1911 - Judgement -- Dissolution into 33 companies
○ Issues with Sherman Act 1890
■ Silent over anti competitive corporate amalgamations (mergers)
■ Did not deal with anticompetitive mergers
■ No indication about the meaning of “restraint of trade” and “attempt to
gain monopoly”
■ Section 1 and 2 were very restricted
■ Uncertainity about prohibitive activities
● Clayton’s Act 1914
○ Expansion of Sherman Act
○ Uncertainties of sherman act were looked into and added
○ Terms added/proposed: Discriminatory pricing (movie tickets eg where one gets
it for 500 and other gets it for 300 for the same show), exclusive dealings, trying
contracts, interlocking directorates, stock purchases
■ That substantially lessen the competition or tend to create a monopoly in
the market
■ Discriminatory pricing: different rebates to one seller and another and
negates one marketplayer from the market.
■ Tying contract -- want to buy A but compelled to buy product B
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■ Interlocking directorates: one person controlling (director) two or more
companies -- members of the top management are common to companies
(rival companies) -- part of anti competition agreement conspiracy
■ Stock purchases: if crosses the threshold then permission is must
○ Prohibition of M&A -- Section 7
● Federal Trade Commission Act 1914
○ Establishment of commission to oversee the market -- restrictive acts and
practices of doing business was overseen
○ Functioning --
○ Further expansion beyond Sherman and Clayton Act
○ Discretionary powers given
● Celler and Kefauver Act 1950
○ Amended Clayton Act
○ Added technical characteristics
● Development of EU Competition Law
○ Two system
○ Treaty of Rome (Art.81 and 82 and agreement, controlling position respectively)
■ TFEU -- Art. 101-019
○ UK Competition Act 1998
○ Provision relating to notifying merger - Key difference
○ Doctrine of restraint of trade -- common law system
DEVELOPMENT IN INDIA
● MRTP Act → Competition Act
● Need for competition law in relation of consumer vis-a-vis market
● Contribution of companies and commission
● Impact of socialism -- state intervention, rapid industrial development on the line of
equitable distribution of wealth
● 1986 -- consumerism was linked to competition
● Mahalanobis Committee 1960
○ Objective : to check distribution of income and state of living
○ “Distribution of Income and level of living”
○ Submitted its report in 1964
○ Encouragement for concentration for big companies -- this was noted -- social
interest was not successful in the market and only big companies did big
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○ Need for machinery to collect, examine and analyze relevant data
● Monopoly enquiry Commission 1964
○ Justice Dasgupta Commission
○ To investigate the extent and effect of concentration of power in the private sector
and also to suggest relevant legislation or other measures
○ #Findings
■ High concentration – almost 85%
■ Manipulation of price and output
■ Industrial licensing
● Hazari Committee (1966)
○ To review industrial licensing system
○ Practice of multiple applications
○ First come first serve basis
○ No balanced regional development
○ No proper follow up
○ No policy of revocation of non-utilization of license
○ FCFS -- biggest hurdle
● Industrial Licensing Policy Enquiry Committee (1967)
○ Corruption
○ Multiple licensing to same house
○ Ignorance of Industrial policy of 1956
○ Regional imbalance – 4 states had 62%
○ Dominance by large business houses
○ Public sector investment institutions favored large business houses
○ Failure of industrial licensing system
○ Recommendations
■ Importance of licensing system
■ Heavy investment sector – large business houses
■ Need for Monopolies commission
■ Classification of industries - Core, Non-core and reserved sector
■ Harmonization of social interest with personal interest
● MRTP Act, 1969
○ Enacted in December 1969 and came into force in June 1970
○ To avoid concentration of economic power
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○ Objects
■ To control monopolies
■ To prohibit monopolistic trade practices
■ To prohibit restricted trade practices
■ To prohibit Unfair trade practices
○ Principles
■ Social justice with economic growth
■ Welfare state
■ Regulating concentration of economic powers
■ Controlling MTP, RTP and UTP
○ UTP and Consumer protection law and how it was taken away from the MRTP
○ Raghavan Committee and MRTP
○ Foundation of MRTP Act
■ Behavioral and Reformist
■ Behavioral – conduct of entities, different trade practices, checking its evil
aspects etc
■ Reformist – approach of Commission towards these unaccepted practices
○ Failure of MRTP ACT
■ Absence of proper and adequate definitions like Predatory Pricing, cartel,
Collusion, Bid-rigging
■ Poorly resourced with adequate weapons
■ Dilution of powers of MRTP commission wrt M&A
■ Exemptions to public undertaking
■ Anachronism for Indian economy
○ Sec. 5 exemptions
○ Anachronism for Indian economy
■ LPG
■ Crisis -- PV narasimha rao -- IB (intelligence bureau)
RAGHAVAN COMMITTEE REPORT:
● High level committee -- “Competition Law and Policy”
● Report submitted in 2000
● Recommendations were in light os the MRTP Act lacunae
● Recommendation:
○ Setting up of competition commission and winding up of MRTP Commission
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○ Government Monopolies, foreign companies should be regulated by Competition
Commission
○ Agreement among enterprises (vertical and horizontal, cartels, bid-rigging)
○ Abuse of dominance -- scope of predatory pricing -- not dealt with MRTP Act
○ Mergers and acquisitions (Threshold related issues,
○ Inclusion of all kinds of buyers -- competition act does not deal with consumer
issues directly and its seen in the consumer protection act
○ Small scale should not enjoy any protection (rule of reason) -- should not enjoy
any dominance -- depends on the number of competitors -- if ‘per se’ is used then
its based on market share and dominance wont be considered, but even if its 8-
10% based on the market it can be said to be competitive based on rule of reason
○ Closure of BIFR -- suspended under IBC 2016 -- biggest issue was that BIFR
boosted/supported weak companies -- govt accountability was the biggest concern
○ Repealing of Urban Ceiling Act and ID Act
○ Transfer of pending cases to CC
● The MRTP Act, as the name suggests, was enacted with a focus on preventing the
formation of monopolies and accumulation of wealth and power in a small portion of the
economy. The Competition Act on the other hand saw a shift in focus from monopolies to
promoting and regulating healthy competition among the players in the economy.
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● The MRTP Act was characterised as being reformatory in its approach, whereas the
Competition Act is rather punitive in nature.
● The MRTP Act was focused on taking care of the interests of the consumers. On the
other hand, the Competition Act shifted this focus on the larger interest of public welfare.
● The MRTP Act sought to prevent the domination of monopolistic firms that were deemed
dominant due to their great size. Conversely, the Competition Act determines the
dominance enjoyed by a firm not from its size but rather its structure.
● While the MRTP Act introduced a total of 14 offences, the Competition Act on the other
hand only recognises 4 offences. Further, although the MRTP Act listed out these
offences, it did not lay down any specific corresponding penalties, whereas the
Competition Act even provides for the specific penalty for each offence.
● The MRTP Act was based on the pre-liberalisation and pre-globalisation era, whereas the
Competition Act enacted in 2002 focused on a reformed economy post liberalisation and
globalisation.
● The MRTP Act deemed any firm enjoying a dominant position as troublesome, whereas
the Competition Act does not find issue with the dominant position of a firm but seeks to
penalise the actual abuse of such dominant position by a firm.
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UIT 2 : DEFINITIONS
INTRODUCTION:
● Raghavan Committee report – 2000
● Repealing MRTP Act, 1969
● Competition Bill by Fm on 6th August 2001
● Received presidential assent in January 2003
● Date of commencement – 31st March 2002
● Objects
○ to provide, for the establishment of a Commission to prevent practices having
adverse effect on competition,
○ to promote and sustain competition in markets,
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○ to protect the interests of consumers and to ensure freedom of trade carried on by
other participants in markets, in India, and
○ for matters connected therewith or incidental thereto
SECTION 2(A) ACQUISITION:
● Section 2(a) Acquisition:
○ “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
● Two dimensions/criterias for acquisitions – a. contractual and b. structural i.e. acquiring
something tangible or acquiring control over management or assets i.e. dejure and defacto
power to control
● Control – possession of the power to direct or cause to direct management and policies of
an enterprise
● Tangible and intangible things can be acquired
● De jure →
● De facto → voting rights etc
● Direct and Indirect control
○ A (51%) → B (51%) → C
■ A has indirect control over C and direct control over B
○ A (50%) → B (100%) → C
■ A cannot have any direct or indirect control ober C or B but B can have it
over C
● Control over a management
● Control over assets
● Agreeing to acquire
○ Not a concept of law but in equity (eg: LoI stage)
○ Eg: Share transfer -- should be reflected in the books of the company --
registration of the share
Agreement
● Includes any agreement or understanding or action in concert -- whether or not such
arrangement, understanding or action is formal or in writing or
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● Whether or not such arrangement, understanding or action is intended to be enforceable
by legal proceedings
● Essential of contracts -- offer and consent
○ Here under ICA agreement needs to have an offer but under competition law it
can be any arrangement and offer need not exist
○ S.2(b) Comp Act an expressed offer need not be present when compared to ICA
● The case of Lombard Club (2002)
○ Information contained in minutes of meeting, memoranda, records of telephone
communications -- no express offer was provided but fine was imposed
○ Cartel
● National society of professional engineers v US (1978)
○ Canons of carrying a trade
○ (has been discussed above)
○ All engineers were supposed to have a trade (similar to mogul) -- agreement
● Agreement is normally understood as:
○ Action in concert
■ Unlike ICA there has to be an explicit and clear offer for the agreement
■ Under the Comp Act, its highly informal
■ Least formal -- coordination for the enterprises
■ Implied notion of an agreement
■ Practicalities of market
● People would directly not come together --
● Eg: A sends an excel sheet to B which has the pricing structure of
A -- no response from B -- is it an agreement??? -- under ICA it
won't be an agreement -- if they are competitors then yes for price
fixation so action in concert
■ “We shall do this if you also do this”
○ For competition law
■ No formal agreement is needed
■ Circumstantial evidence matters a lot
■ Not means or forms of arrangement but end is of a concern
Consumer 2(f)
● Similar to consumer protection law
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ENTERPRISE 2(H)
● Is a market player, and element of the market
● Enterprise means a person or a department of the Government who or which is or has
been engaged in any activity (commercial activity)
○ Relating to the production, storage, supply, distribution, acquisition or control of
articles or goods or
○ The provision of services of any kind or
○ In investment or
○ In the business of acquiring, holding, underwriting or dealing with shares,
debentures or other securities of any other body corporate
●
● Comprehensive definition
○ Wont apply for sovereign functions
○ Only for commercial activities
● Person engaged in:
○ Who is a person -- individual, HUF, company, firm
○ Eg: NGO -- in commercial affairs -- object of the NGO is not profit making and
has no economic object -- (Question: object of an establishment would be
disregarded by competition law???? -- YES) -- competition law does not deal with
the object of the activity and merely the activity per se -- so here in this case it
would be an enterprise
● Hofner and Elser v Macrotron 1991
○ object would not be taken into consideration and only the activity and if it falls
within the scope of an enterprise then the body/person would be a considered as
an enterprise
● Carew and Co Ltd v UoI (1975)
○ Not related to competition law but has decided upon what enterprise is
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○
● Department of Govt -- no exemption unless its a sovereign function
● Georgia v Evans 1942
Foreign Sovereign immunity
● Atomic energy, currency, defense and space – pvt entities may come into defense in
India.
● Applicability only in the case of:
○ Waiver of immunity
○ Engagement in commercial activity
○ Expropriation of property in violation of international law
○ Acquisition of property
○ Commission of tort or agreed to arbitration of a dispute
● Saudi Arabia v Nelson 1993 -- construction of hospital by Saudi Arabia and it was
contested that it was a commercial activity -- saudi was held liable
● Foreign Sovereign Compulsion
○ If an enterprise is forced to do something under the govt then no liability
○ If other party is compelled to do something on behalf of the govt or told by the
govt can be exempted
○ Compulsion v Choice -- Hartford fire insurance co v California 1993 -- not
liable
○ USA v Nippon Paper Industries Co 1997
● Act of Foreign State
○ Areas where govt is the major decision maker
○ Sovereign functions -- legislative and policy functions
○ atomic energy, currency, defence, space, policy
Person 2(l)
● An individual
● A HUF
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● A company
● A firm
● An association of persons or a body of individuals, whether incorporated or not, in India,
or outside India;
● Any corporation established by or under any Central, State or Provincial Act or a Govt
company as defined in Sec 2(45) of the Companies Act, 2013;
● Any body corporate incorporated by or under the laws of a country outside India;
● A co-operative society registered under any law relating to co-operative societies
● A local authority;
MARKET
● Need to understand the concept of Market
● To understand market power – demarcate the potential areas of competition
● To analyze competitive forces – to what extent market is prone to competition ; status of
substitutability
● Difficult to define
● Is market a place ? no – Market is a system where supply and demand regulates the
economy
● Place concept – traditional concept ; specific (eg Madiwala)
● Area concept – broader concept (eg South Bangalore)
● Demand concept – the most broad of all the above concepts ( eg demand for items inside
the house makes the house a market)
● “the term market refers not to a place but a commodity or commodities and buyers and
sellers who are in different competition with one another” – Prof R Chapman (market
from perspective of competition)
● “ Economists understand the term market, not any particular market place in which things
are bought and sold, but the whole of any region in which buyers and sellers are in such
free intercourse with one another that the prices of the same goods tend to equality easily
and quickly” – A.A. Cournot (liberal interpretation; cannot study each point empirically)
● Characteristics
○ Area
○ Homogenous commodity – product has essentially the same physical
characteristics and quality as similar products from other suppliers ;not a bazaar
like situation ; possibility of substitution; heterogenous commodities cannot be
considered in the market for competition
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○ Buyer and seller – can contact each other
○ Free competition
○ One price
○ Limited government
○ Private ownership
○ Market Structure
● Nature and degree of competition for goods and services – for instance, silver strip in
currency note only produced by one company in the country due to the security and huge
investment needed for the same
● Number and nature of sellers and buyers – acting as group will give way for oligopoly
● Nature of products – whether product is homogeneous or if it has no substitute available
● Conditions of entry and exit – if free, existence of competition; mining industry can’t
have huge investments due to restricted entry to the market
● Economies of scale
Relevant Market
● Scope of market – homogenous market or where area market is dominating
● In the context of a product and area
● Sec 2(r) – “ relevant market” means the market which may be determined by the
commission with reference to the relevant product market or the relevant geographic
market or with reference to both the markets.
● Sec 19 – elements to be considered in relevant market
● Independent business area- competitive relations can be either affected or destroyed.
(war zone)
● Area of effective competition- supply and demand interact
● Monopoly with respect to? Not only product but also geography – is there any option
available for the product in that area to decide as to whether monopoly exits or not
● Relevant market is something which is worth monopolising (B. Owen and Wildman)
● Relevant market includes all reasonably substitutable products and services and to all
nearby competitors, to which consumers could turn in the short time if the restraints or
the abuse increased prices by a not insignificant amount.
● Sec.2(r) -- definition
● Independent business area -- competitive relations can be either affected or destroyed
● Area of effective competition -- supply and demand interact
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● Monopoly -- is with respect to product as well as area
○ Clarified u/s 2(r)
○ Area and product are interdependent
○ Monopoly is with respect to a specific element -- u/s 2(r)
○ Relevant Market is something which is worth monopolising (B Ownen)
● RM includes all reasonably substitutable products and services and to all nearby
competitions tro which consumers could turn in the short time if the restraints or the
abuse increased prices by a not insignificant amount (very imp)
Relevant product market
● 2(t) -- means a market comprising all those products or services which are regarded as
interchangeable or substitutable by the consumer, by reason of characteristics of the
products or services, their prices and intended use
● RPM can be relevant from demand side (consumer) and supply side
● RPM demand side -- eg. Mobiles, toothbrush etc -- perspective from consumers --
ultimate end of supply in market
● RPM supply side -- eg. Raw materials -- eg. Monsanto Case -- exclusive
supply/distribution agreement -- vertical agreements as there is no consumer
S.19(7) -- Factors for considering RPM
● Physical characteristics or end use of goods/services
● Price of goods or services
● Consumer preferences -- if consumer considers it as substitute or not -- very important
consideration
● Exclusion of in-house production
● Existence of specialised producers -- from supply side -- s.3(5) -- specialised producers
have less competition and less substitution
● Classification of industrial products
● Samsher kataria case
● How to determine these factors:
○ Cross elasticity test -- upto what extent consumer has tendency to shift to anr
product
■ Identification of substitutable products
■ From customer viewpoint --
■ Is there another outlet???
○ Supply side substitutability
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■ Consumers may not be in a position to react but Producers may be
● Competition law is supply scale dependent
● Eg: mobile suppliers need a specific material for motherboard --
person selling it has monopolised the entire market -- increase in
price then buyer has no other option
● Pre-production test as consumers cant react
● If substitute is available for producers then they'll not go to the
supplier
■ Profitable
○ SSNIP Test
SSNIP Test
● Hypothetical test -- increase price and loosing customers -- but price is kept at a higher
level
● Might control competitors indirectly
● If monopolist raises price then he will still be in profit as there is no substitution
● Small but significant non-transitory increase in price
● Tool to implement “Hypothetical Monopolist” test
● Object:
● This is not a merger
● Origin -- 1959 -- David Adelman
● Important Factors for SSNIP
○ Identification of smallest RPM
○ Consumer choice -- options for consumer
○ Profitability of a hypothetical monopolist
○ 5-10% increase
● Not an ideal test to follow
● Eg: Price Rs.10 || Sale 1000 units || Cost Rs.5 || Profit is Rs. 5000
○ Now incase of 10% in price and units are 800-- Profit is Rs. 4800
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●
○ Profit == 17700
○ Profit goes up to 18900
● If profit goes up then investigation starts
● SSNIP is a tool and not an end
● Not useful for existing monopolists -- fallacy or paradox
○ As, monopolist would be in profit as there is no substitutable product. so raising
price would not affect the monopolist
● Du Pont’s case (asynch) -- US v E I Du pont de Nemours and Co 1956
○ Complaint filed to FTC stating that Du pont is exercising monopolistic activities
u/s. 3 and 4 wrt the wrapping material
○ 75% hold in market in cellophane production
○ various patents for the wrapping material
○ 20% share in all wrapping material market (RPM)
○ RPM for FTC was the wrapping material market → FTC had to check the
level of substitute products for the SSNIP Test → identify competitors and
found that even if cellophane is increasing prices its competitors are gaining
profits and cellophane is not controlling its competitors -- Du Pont is not
managing its competitors and is not a dominant player.
○ Case was highly criticized -- paradox
○ Court missed the issue of consumer preference -- consumer preference was only
cellophane -- then
● Hoffman - La Roche Case
○ Issue with respect to use of vitamins (C and E) -- should be considered as one
market of vitamins
○ Complainant said the whole market of vitamins would be RPM -- but Hoffman
stated that only vit C and E should be the single RPM and the other vitamins
should be the others
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○ Main question is if the characteristics of the vitamins are the same -- can’t be
substituted -- court did not agree with Def -- as there can’t be anything that can
substitute vit c and e so the RPM should be the entire vitamin market
○ Bio-nutritional use (additive to foods) vs Technological use -- thus Vit C and E
cant be considered as one RPM and should be placed in separate markets.
○ No role of consumer preference as the case was dependant on physical
characteristics
● Continental Can Case 1964
○ Metal Container v Glass container
○ Main issue was if we should consider container market as RPM or separate
○ Alleged that there were 10 RPM
○ 33% in metal vs. 9.6% in glass
○ Court said 3 RPMs -- Metal, Glass, Metal and Glass for Beer
○ Different materials for different items (eg. metals stored in glass etc, or food in
metal)
○ Metal and glass cant be used as substitutes
○ Physical characteristics of goods when compared to end use of goods
● United Brands and Co v Commission 1978
○ UB is a global brand dealing with Chiquita Banana
○ Alleged for exercising monopoly
○ Should bananas be a RPM or entire fruit market???
○ Banana was considered as a RPM -- considering physical characteristics,
ripening of banana -- for banana demand > supply -- considering availability of
banana -- considering that there is no substitute for banana -- always available --
uniqueness
● Nederlandsche Banden Industrie Michelin v Commission 1983
○ Replacement tyres
○ Quality and consumer preferences will be different so RPM for used and new
tyres has to be different
○ Consumer preference is crucial
● Nestle-Perrier Merger case
○ Should we consider the entire beverage market as RPM or separately???
○ Nestle perrier would have monopoly over water -- contented entire beverage
market should be considered as RPM
○ Water can be considered as substitute for cold-drink -- NO!
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○ Entire beverage market cant be considered as the RPM -- water had different
RPM
● Shamsher Kataria case 2015
○ Liberal interpretation for RPM
○ Samsher started dealing with a situation that even if there is one product can be
considered in different markets
○ Information against OEM (Honda, Fiat, Volkswagen)
○ OEM + OES + Authorised dealers had an agreement -- streamlining spare part
market and except them no one can deal with it -- availability of technological
information, diagnostic tools and software pgms
○
○ DG Investigation -- looked into 14 car manufacturers to check if the same practice
was followed.
○ Position of each OEM → considering market share of OEM → they were
licensing their products to a OES and authorised dealers -- spare parts not
provided to open market
■ Market share of OEM were not dominant
○ Role of OES → bound by the agreement → sale of the spare parts
○ Arrangement between OEM and OES -- OES cant sell to 3rd parties
○ Contentions of other parties:
■ Annr 14 parties added
■ Challenge to division of market -- “whole life costing analysis” done by
customer while buying a specific product
■ Two types of RPM identified -- Car market and After-sales
● Car market not considered dominant
● After-sales -- dominant as 100% share in secondary market
■ No dominance over market as number of competitors is high
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○ Order:
■ RPM -- After sales is also to be considered even though there is annr
market
■ Dominance -- 5000% increase in spare parts
■ Profitability -- would go high obviously
■ Penalty -- 2 to 3%
○ COMPAT reiterated the same holding but reduced the penalty
○ Referred to Eastman Kodak Company case
○ OEMs were not compelled to share their tech/parts/ect with other competitors and
spare part manufacturers
○ Essential Facility Doctrine
■ Production and sale would be impossible without the essential facility
■ Aka bottleneck facility
■ Mainly under sec.4
■ ABuse of dominant position as they have certain facilities that would help
them provide with essential facility
■ Origin USA
■ Four important ingredients : MCI Communications Corp v AT&T 1983
●
RELEVANT GEOGRAPHIC MARKET -- S.2(S)
●
● Homogenous so substitutes would be available
● Area where there is no competitor and level of competition is low -- difficult for
individual to go to annr area to get the substitute product.
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● Larger geog market will favour Def -- Ptiff would focus on explaining the RGM as
something specific
● Factors:
○ Past evidence of diversion of orders to other areas
■ In a specific area if someone is raising prices or abusing dominance
○ Basic demand characteristics
■ Will they go somewhere else for the subs
○ View of customers and competitors
○ Current geographic pattern of purchase
○ Trade flaws or pattern of shipment
○ Barriers and switching cost
● Tests:
○ Legal Test
■ United Brands v Commission: Chiquita banana case -- UB wanted entire
europe to be considered as RPM
● Exclusion of UK, France and Italy
■ Aka Factual test
○ Hypothetical Test
■ SSNIP Test and RGM -- if substitutes are available in that specific area
● If not then area will be added under RGM (under RPM the product
would be added)
■ Identify the product → find relevant product in different areas
■ Relevant product in a geographic area
■ Eg: in BLR who are likely to have excess in product in region A and
see/identify the other regions -- see if person in A has influence in the
other areas.
■ To identify substitute for a product, we need ssnip test
○ Temporal Market
■ Temporal quantity of market – characteristics of goods and nature of
market - monopoly is never permanent United Brands v. Commission –
for characteristics of goods - defense of temporal market for bananas –
even if temporal monopoly, it will still count ABG Oil Companies Case –
streamlined oil products Oil crisis at international level and countries do
not access to oil but few companies have complete access and they would
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make unreasonable rise in price. Natural change is fine but if done with
conspiracy by holding supply, it would amount to abuse of dominant
position. Hence, just the temporal nature of companies cannot be a defense
● ABG oil company case -- global oil crisis -- inflation begun (not a
problem under competition but if there's a conspiracy then it's not
reasonable) -- few companies were holding supply during the oil
crisis -- artificial scarcity, arrangements etc -- defence was that it's
not a permanent situation --
○ Difference between United brands case is that there can't be
seasonal competition --
● Whenever there's a crisis and someone is manipulating then it's
anti competitive
■ Does not depend on time frame but depends on the damage done.
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UNIT 3 -- Anti competitive Agreements
INTRODUCTION
● Agreement -- collective effort, conspiracy
● S.3,4,5,6
● India v USA law --
○ Sherman Act 1890 -- deals with Anti competitive agreement primarily but didn't
deal with M&A that's why Clayton Act
○ Indian law does not have different laws, dealt under the same law -- merger is
related to an agreement
■ S.3 we are considering present position
■ Merger and acquisition it's based on future prediction
Objective of Competition Policy
● S.3
○ General prohibition -- on anti competitive agreement
○ Declares all agreement as void
○ Cartel -- horizontal restraint
○ Bid rigging
○ Vertical restraint
○ Exception -- IPR
● S.3(3)
○ Exclusive agreement (supply/production/sale etc)
○ Causes or likely to cause adverse effect
○ Express or implied agreement
SEC - 3(1)
● Section 3 (1) – “No enterprise or association of enterprises or person or association of
persons shall enter into any agreement (in respect of production, supply, distribution,
storage, acquisition or control of goods or provision of services,) which causes or is likely to
cause an appreciable adverse effect on competition within India”
● Duty of enterprise
○ examine the purpose
○ Anticompetitive agreement
○ Likely to cause
○ Purpose of an agreement - AAEC
40
● Ashton v CIR (NZ 1975)
○ “If an arrangement has a particular purpose, then that will be its intended effect. If
it has a particular effect, then that will be its purpose”
○ Role of motive
○ Consequences or apprehension backed by evidence
● Key words: Enterprise, Agreement, AAEC, Within India
● Purpose or motive for the objective if the agreement is essential for the CCI
Sec.3 CA and Sec.1 of Sherman Act
● Section 3 of Competition Act – Section 1 of Sherman Act
● “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of
trade or commerce among the several States, or with foreign nations, is declared to be
illegal.”
● Nature of An agreement
● Lord Denning – RRTA v. W.H.Smith and Sons Ltd (1969)
○ “People who combine together to keep up prices do not shout it from the housetops. They
keep it quiet. They make their own arrangements in the cellar where no one can see. They
will not put anything into writing nor even into words. A nod or wink will do. Parliament
as well is aware of this. So it included not only an ‘agreement’ properly so called, but any
‘arrangement’, however informal”
● Difference between s.3 and s.1
○ ‘Combination’ -- s.1 of sherman act was interpreted in a manner that its not applicable for
mergers, but sec.3 is wide enough to consider mergers
● Klor's, Inc. v. Broadway-Hale Stores, Inc.(1959)
○ 9/10 competitors are coming together -- 10th is very weak and not to provide anything to
the 10th competitor -- is it AAEC??? -- YES
○ s.1 of Sherman Act would be hit as such an agreement is in restraint of trade of the 10th
competitor irrespective of the impact the 10th competitor may face.
○ Horizontal agreement would be anti-competitive
○ Natural exit from market would be appreciated, but in this case the 10th player is being
pushed out of the market
○ ‘Appreciable’
■ Depends on the conspirator
■ Harvard school -- depends on the activity -- horizontal agreement -- would be
presumed
■ In case of vertical agreement then appreciable effect would be checked
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Arrangement and Agreement
● UK Agricultural Tractor Registrations exchange 1992
○ Agreement -- Information exchange agreement
○ Exchanging information is not illegal/anticompetitive per se, but its effect and nature of
information would be considered
○ Information Exchanged → Volume of retail sale, market share of 8 manufacturers and
importers, detailed information, cost of a product, regional arrangement etc
■ Appointment of an analyst
○ Held to be apparent anti competitive agreement due to the nature of information
○ Horizontal arrangement -- exchange of information is illegal per se and is anti
competitive
● FTC v Indiana Federation of dentists 1986
○ Association of dentists passed a resolution of not giving x-rays
○ Withholding X-Rays from dental insurance
○ Between dentist -- horizontal
○ 2 level of analysis (market)
■ At dentists level → impact on dentist practice -- to what extent they are
providing service would be hampered as a particular dentist won't be able to
enhance its service by including dental insurance
■ Insurance companies → agreement in restraint of trade which is anti-
competitive
● Goldfarb v Virginia State Bar 1975
○ Minimum fee prescribed by Bar
○ Goldfarb wanted to mortgage property in Virginia -- didn't get any lawyer -- all lawyers
were charging a fee above 50 dollars -- looked like a price resolution passed by the VSB
○ Price fixing was anti-competitive
○ Rate Card was held to be anti-competitive
● Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co. -- will come under s.3(3),
predatory pricing, s.4
Factors favouring anti-competitive agreement
● Relatively inelastic demand
○ Rigid -- no enough substitutes
○ All stakeholders are part of the agreement
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● Stable market share
○ UK Tractor case
○ Cement manufacture case
● Entry barriers
● Concentrated market
● Stable demand
○ If it ensures status quo
Appreciable adverse effect
● Significant effect on the competition
● Adverse effect -- theory of creative destruction
● Eg: Indian Telecommunications market (zoned out in between)
● Not particular list of agreement but its consequence
● Chicago School -- because AAE would have to be tested
○ Harvard it would be impliedly considered
● Acts, contracts, agreements or combinations -- prejudice of the public interest
● Not only of the industries
● Diminishing/expelling competitors out of the market
● Haridas Exports v All India Float Glass Manufacturers Association
○ HE got raw materials from Indonesia at very cheap prices -- AIFGMA filed
information with CCI -- their products were made and sold at very cheap rates --
CCI told its not AdvEf merely because of the price of products being imported
was cheap and its not ‘dangerous’ so not AAE.
● Arrangement/Effect has to be of Indian market and on Indian market
Effect Doctrine
● Irrespective of where the agreement was entered into, the only thing that matters is the
effect that such agreement/arrangement would have in India.
● Recommendation of Raghavan Committee
○ Was not dealt under the MRTP Act
○ Extraterritorial application of Law -- need for international cooperation
● To curb the menace of cross-border economic terrorism
● Effect oriented/result oriented
● Position in EU → Wood Pulp Case 1988
○ Osakeyhtiö and ors v Commission, 1988)
● Position in US
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○ Antitrust enforcement guidelines, 1995
○ Two kinds of foreign commerce
○ Foreign import commerce (Sherman Act)
○ Foreign commerce other than import (FTC Act)
○ Role of FTAIA
■ Applicable to foreign conduct – direct, substantial and reasonably
foreseeable effect on US commerce
■ Exemption for export transaction – blanket exemption?
○ Two kinds of foreign export cases
○ Effect on exports of goods and services from US
○ Effect on trade or commerce within US or import trade or commerce
● Two kinds of Foreign export cases:
○ Effect on exports of G&S from US
○ Effect on trade or commerce within US or import trade or commerce
US LAW AND INTERNATIONAL COMITY
● Timberlane Lumber v Bank of America 1976
○ 3 dimensions of Effect doctrine
○ Effect test is incomplete as it does not consider the other nations interests
○ Tripartite analysis
■ Effect on US foreign commerce
■ Greater burden of proof may be necessary
■ Interest and the links to US are sufficiently strong with respect to other
countries to justify extra-territorial application of law
● Hoffman La roche case
SEC -- 3(2)
● “Any agreement entered into in contravention of the provisions contained in sub-section
(1) shall be void.”
● Per se v Reason
● Section 3 (3)
○ Any agreement entered into
○ between enterprises or associations of enterprises or persons or associations of
persons or
○ between any person and enterprise or
○ practice carried on, or
44
○ decision taken by, any association of enterprises or association of persons,
including cartels
Difference between s.3(1) and s.3(3)
● 3(1) is conditional
● 3(1) Executory and executed 3(3)
○ 3(1) has "shall enter into" and 3(3) has "entered"
AGREEMENTS
● Collective effort to by-pass competition
● Bilateral Agreement -- implied agreement and have indulged themselves in to the
arrangement
● Practice -- What if it's unilateral?
○ Unilateral practice → other person does not have a choice to react/decide on
terms or change it -- eg: insurance/standard form contracts
○ Eg: BMW v Commission 1980 -- unilateral
■ Policy not to deal with certain parties who would re-export their goods
■ Condition in agreement was not to re-export the products of BMW
■ Q: is this arrangement an unilateral agreement
○ USA v Colgate 1919
■ Resale Price Maintenance (RPM)
■ Colgate doctrine
■ Colgate was not ready to deal with parties that would sell products at
lower price -- but would allow vendors to sell their existing products at
any rate they wanted to
■ Abuse of dominant position
■ Held to be not anti-competitive
● No sufficient position/evidence to explain colgate's intention to
exploit dominant market
● Colgate’s release price maintenance was not to be held anti-
competitive
● Pricing strategy was not anti competitive
○ USA v Parks and Davis 1960
■ Similar case to Colgate
■ Not to sell drugs under MRP
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DECISION:
● Resolutions
● Eg: virginia bar assoc. Case
CARTEL
● Is it a new phenomenon?
○ Has it emerged only after the competition law???
○ Has existed long back even before the laws were formulated recognising them
● Implied organizations -- concerted actions
● All India Cement Manufacturers Association v CCI
● Adam Smith -- Wealth of Nations
○ Theory of invisible hand
● Constitution of Zeno
● Office of Fair Trade {OFT (UK)}
○ Cartel -- agreement between businesses not to compete with each other
● OFT (UK)
○ “An agreement between businesses not to compete with each other”
■ Usually verbal and informal
■ Agreement with respect to practices, output level, discounts, credit terms,
customers, area, bid rigging etc..
■ At manufacturing, distributing or retail level
■ Less competitive sectors are more favorable to cartel
○ Sec 2(c) of Competition Act -
■ (c) “cartel” includes an association of producers, sellers, distributors,
traders or service providers who, by agreement amongst themselves, limit
control or attempt to control the production, distribution, sale or price of,
or, trade in goods or provision of services..
○ Cartel and Boycott
■ Cartel – Bad Per se
○ Alkali Manufacturers association of India v. America Natural Soda Ash
Corporation (1998)
■ Constitution and functioning of ANSAC
● Constitution and functioning of ANSAC -- before ANSAC there were 6 american
producers (competitors) in the RPM of Soda Ash
46
○ These 6 competitors began trading and selling at low prices
○ Observed by the European Commission which took action
○ Q: does EC have jurisdiction over american?
■ Yes, based on Effect doctrine
■ Cartel held
○ Similar to Haridas exports Case
■ Formation of cartel was in a foreign country -- Old MRTP act was silent --
addressed in Comp Act
● Cartel → ‘Bad per se’ -- harvard school -- horizontal arrangement
○ Implied thought/Presumption that there would be a adverse effect even if there is
no actual adverse effect
47
○ Sale outlets of like products of member firms. the sale outlet distribute the entire
demand among member firms in agreed proportions;
○ Members that exceed agreed production rates are penalized and the funds are paid
into a common pool. From the pool bonuses are paid to those firms who had been
unable to produce their full quota.
● 2 or more enterprises enter into an explicit or implicit agreement:
○ 1. to fix prices,
○ 2. to limit production and supply,
○ 3. to allocate market share or sales quotas, or
○ 4. to engage in collusive bidding or bid rigging in one or more markets
● After removing competition and creating the conditions of monopoly, the cartel of
businessmen prevents the market forces from operating smoothly and to benefit the
consumers.
● Alkali Manufacturers Association of India v America Natural Soda Ash Corporation
1998 MRTPC
○ cartelization includes in the element of a conspiracy
○ In September 1996, American Natural Soda Corporation (ANSAC) comprising of
six American producers of soda ash attempted to ship a consignment of soda ash
at cartelize price in India.
○ Based on the ANSAC membership agreement, the MRTP Commission held it as a
prima facie cartel and granted interim injunction in exercise of its powers in terms
of section 14 of the MRTP Act176.
○ However, the MRTP Commission’s stay order was set aside by the Supreme
Court on two grounds: a cartel has not been defined properly under the MRTP
Act, and it also doesn’t contain extra-territorial jurisdiction.
○ These two lacunae, among others, have been taken care of under the new
competition law.
● Hub and Spoke Cartel
○ Hub-and-spoke arrangements are horizontal restrictions on the supplier or retailer
level (the “spokes”), which are implemented through vertically related players
that serve as a common “hub” (e.g., a common manufacturer, retailer or service
provider).
○ In India, a Hub and Spoke cartel can be punished through indirect application of
provisions under Section 3(3) and 3(4), by proving horizontal and vertical
arrangements.
48
○ The “hub” facilitates the co-ordination of competition between the “spokes”
without direct contacts between the spokes.
○ In the extreme, the effects of a horizontal hard-core cartel can be achieved purely
based on indirect communication between the horizontally aligned members of a
hub and spoke arrangement.
○ Although not directly involved in its activities, the hub act as a medium to
facilitate the cartel.
○ There are transfers of information from the spokes to the hub, which is then used
by the other spokes; hence, an information exchange mechanism is formed which
facilitates cartel formation.
○ the internet is one of the most disputed forms of hub, which provides various
spokes the opportunity to enter into cartel-like formations in a way that evades
competition law scrutiny.
○ For instance, one such matter came up for the consideration of CCI in Samir
Agrawal v ANI Technologies Pvt. Ltd wherein it was decided that the use of
same cab aggregator platforms like Uber and Ola by individual drivers that use
same or similar algorithms for price discovery does not amount to cartelization
under the Competition Act, 2002.
■ The Informant submitted that due to algorithm pricing, riders are not able
to negotiate fares with individual drivers for rides matched through the
app nor drivers are able to offer any discounts.
■ The matter went on appeal to the National Company Law Appellate
Tribunal (NCLAT), wherein the NCLAT held that since Ola and Uber
work on price algorithms and the drivers do not act in the capacity of
employees, they are not acting as a hub and spoke and thus concluded that
there is no cartelization.
■ The CCI rejected the allegation of the Informant that there was a Hub and
Spoke cartel between OP and drivers. The CCI observed, “The pricing did
not appear to be similar to the ‘Hub and Spoke’ arrangement as
understood in the traditional competition parlance. Generally, spokes use a
hub for exchange of sensitive information, including information on prices
which can facilitate price fixing. For a cartel to operate as a hub and
spoke, there needs to be a conspiracy to fix prices, which requires the
existence of collusion in the first place. In the present case, the drivers
may have acceded to the algorithmically determined prices by the
49
platform, this cannot be said to amount to collusion between the drivers. A
hub and spoke cartel would require an agreement between all drivers to set
prices through the platform, or an agreement for the platform to coordinate
prices between them.”
Anti-competitive horizontal agreement -- per se void
● Based on Harvard School
● Price Fixation -- Sec. 3(3)(a)
○ “Direct or indirect determination of purchase or sale pricing”
○ Function of price competition -- should be initiated only on basis of Demand and
supply
■ If people are fixing prices and entering into catel then it'll become an issue
and anti-competitive
■ Settling of prices on sellers side and buyers side is anti-comp
○ Cooperation of price fixation at any level
■ irrespective of parties, applicable to any level of trade
○ Stability in prices and discounts
■ Eg: ParleG biscuits
■ If there is stability then its presumed to be a conspiracy -- cartel
■ Stability is sus
● If prices are constant there is a possibility that there might be some
cartelisation
■ Ideal competition market then no stability
○ US v Socony Vacuum Oil Co 1940
■ Oil industry -- Majors (big vertical corp) and Jobbers (independ refin,
small)
■ 1920 boom in market -- huge demand of oil
■ 1929 -- great depression -- prices went down
■ 1930 -- Large oil fields near Texas
■ Quota decided by state for majors and jobbers -- ‘hot oil’ is the excessive
oil
■ Resulted in dumping of hot oil in the market by majors and jobbers
■ Majors -- agreement between each other mutually -- Dancing Partner Prog
● Majors and jobbers will have a treatment -- hot oil to be dumped
with majors and not in the market -- set prices for the jobbers’ oil
50
■ 5% effect → even though effect was small, was held to be anti-
competitive
○ Price fixation unlawful perse -- Uniform rule applicable for all
○ Combination with effect of raising, depressing, stabilizing price of commodity
illegal per se
○ Even market players are not in position to control entire market
○ Arizona v Maricopa County Medical Society 1982
■ Maximum fee arrangement set for patients with insurance
■ Insured patients v. non-insured patients receiving different pricing
strategies
■ Anti-competitive test:
● If vertical or horizontal arrangement? -- horizontal
● Price fixation --
● Price discrimination
○ Generally not anti-competitive
○ Should be based on rule of reason -- Vertical arrangement
○ Texaco v Ricky Hasbrouk (1990)
■ Texaco -- Gull + dompier and respondents
■ Diff pricing strategy for the two retailers by texaco
■ Should identify if horizontal or vertical
○ Not anti-comp per se
● Exchange of price information
○ American Column & Lumber Co. v US 1921
■ Daily weekly monthly report to manager
Limiting and controlling production and investment
● Way of controlling output
● Restricting output – below optimum consumer welfare level + prices are above
competitive level
● Section 3 (3) (b)
○ “limits or controls production, supply, markets, technical development,
investment or provision of services”
○ Scope for pooling arrangement
○ Requisites for this subsection
■ Agreement between suppliers or purchasers
51
■ Restrictions – effect on production, supply, markets, technical
developments etc..
■ * Refusal to deal/Group Boycott
■ Concerted refusal to do a business with a particular entity – to obtain
concession / express displeasure
● Pooling Arrangement
○ Horizontal arrangement
○ If one player supplies more, the others would have to supply less and vice versa
● Klor Inc’s Case (check how its related)
● In re insurance antitrust litigation (1991)
○ Concept of reinsurance
○ The reinsurance company is from london and the case is in US (as party taking it
is from US)
○ London reinsurance company decided not to give insurance to companies tho do
not check the vehicles -- challenged in US calling it an anti-competitive per se
○ Q: can it be said to be anti-competitive per se?
■ Yes.
● Group Boycott - Horizontal or vertical?
○ Refusal to deal is not always horizontal
○ Refusal in vertical is not always anti-competitive per se
○ Klor Case is horizontal boycott --
● Art.19(1)(g) -- “not to deal’ as a right
○ th e right to do business would come with negative rights as well under the indian
constitution, but the CCI holds it as anti-competitive
○ Group-boycott -- collective denial
52
○ Cooperative association of 25 small and medium-sized independent regional
supermarket chains
○ Members average market share is 6%
○ Territorial licensing system
○ Procedure for normal members (75% voting) and for Special members (85%)
○ District court – SC
● Burke v. Ford (1967)
○ Retailers v wholesalers – liquor market
○ No distilleries in Oklahoma – so out-of-state liquor – shipped to wholesalers
warehouse
○ Anti-competitive conduct of wholesalers
○ Defense – “Came to rest” and commerce did not start
○ Held – Anticompetitive
○ Anti-competitve as retailers were not able to receive it as lack of stock due to
storing by wholesalers. -- here demand is made
○ ‘Limiting supply’
● United States v. Sealy Inc. (1967)
○ Owner of the trademark “Sealy” – license to manufacturers – branded mattresses
and bedding products
○ EDA
○ Obligation for Sealy – not to give license to any other in the respective location
○ Obligation for Licensee – not to deal with anyone but Sealy
○ Price monitoring by Sealy – price fixation for retailers
○ District court – SC
Bid rigging
● Section 3 (3)(d)
○ “Agreements which directly or indirectly result in bid rigging or collusive
bidding, shall be presumed to have an appreciable adverse effect on
competition.”
○ Explanation - “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
53
● Essentials
○ ESA
○ ED
○ Refusal to deal
○ Resale price maintenance
● Categories of bid rigging
○ Bid suppression
○ Complementary bidding
○ Bid rotation
○ Sub contracting
● National society of professional engineers v US 1978
54
○ 3. Nature of the restraints, actual and probable effect
Tie in Arrangement
● - tie-in arrangements” includes any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods;
● Tie-in-arrangement/Full line forcing/quantity forcing/fidelity discounts
● International salt Co. Inc. v. United States (1947)
○ Leasing out patented machine – use of only lessors unpatented products in them –
Anticompetitive?
○ International salt co. -- mandate on buying salt along with the machines →
held anti-competitive
○ Compare it with samsher kataria and eastman kodak case
○ Secondary market is the salt market in this case
● Times Picayune Publishing Co. v. US (1953)
55
○ - Morning and evening newspaper – advertisement in both the editions –
anticompetitive?
○ Morning and evening news paper -- advertisement in both editions -- compelled to
publish in both editions
○ Anticompetitive??? -- not as there are other newspapers in which you can publish
so parties could have chosen
● Jefferson Perish Hospital v Hyde 1984
○ Anesthesiologist applied for job -- hospital denied application as hospital had a tie
up with a anaesthetic society for recruiting --
○ Taking service from a specific society was compelled on the patients -- not anti-
competitive as there are other alternatives and competition was not ‘killed’
● Eastman Kodak Co.
● DG v. Kennel Club Case (1998)
○ Mandatory yearly subscription of magazine was required to be paid while taking
membership
○ DGs submission → Yes its a tie-in arrangement -- unnecessary burden on
consumers
○ Not anti-competitive (based on the nature of members) -- was observed to be an
important practice
56
● This is also related to cartelisation
● “ intra brand competition” → decisive element is the service that is being provided
(not on price and policy) -- even if there is killing of it competition commission has
no issue
● Standard fashion company v. Magrane – Houston Co. (1922)
○ Agreement with MH to sell clothes of fashion co. and not of other companies
(ESA)
○ Buy back policy
○ Main issue, whether there was a contract of sale? (based upon buy back policy)
○ Held – anticompetitive
○ Is buy-back a sale??? → yes, there is a re-sale ||
○ MH was not supposed to sell to any other competitors’ product -- but decided
later on to sell competitors product
○ Type of arrangement would be considered
○ Standard Company controlled 2/5th of the sellers
○ Nature of agreement → agreement of sale
○ Similar to s.3(4)
○ // every horizontal need not be anti-competitive and every vertical need not be
competitive
● Standard Oil Company case
● Delimitis v. Henninger Brau (1991)
○ Beer manufacturer – retailer – tenancy agreement – a cafey
○ Draught bottles beer + cold drink from manufacturer and its subsidiary
○ MPA – 132 hectolitres of beer per year
○ Penalty for failure to fulfil this promise
○ Termination on tenants request – arrears
○ Anticompetitive? No
○ Henninger couldn't order subsequently and arrears increased
■ Anti-competitive → No.
■ https://www.hospitalitylaw.co.uk/delimitis-does-it-still-apply/
57
Exclusive Distribution Agreement
● “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”
● Negative effect of EDA
○ Foreclosure of the market
○ Facilitation of collusion
○ Weakening of inter-brand competition
● Society La Technique Miniere v. Machinenbau Ulm GmbH (1966)
○ - EDA by new entrants?
● US v. Arnold Schwin Co.
● Continental TV v GTE Sylvania
● Monsanto v. Sprayrite
● Exclusive -- intra-brand competition (shamsher kataria)
● sec.3(4) second half
● Society La Technique Miniere
○ German (EU)
○ Should we check EDA by the new entrants???
○ (eg. when Jio entered into the market)
○ Factor would not apply for new entrants
● Arnold Schwin Co. Case
○ Reduction in number of retailers
○ Per se anticompetitive
● TELCO v Registrar of Restrictive Trade Agreements (1997)
○ Section 2(o) MRTP Act -- restrictive trade practice
○ Allegation -- territory allocation, exclusive dealing, fixing RPM
○ Discontinuation of RPM by TELCO
○ Was this considered as an entry barrier??
○ Rule of reason
○ TELCO’s contentions
■ Allocation -- to ensure equal and fair distribution -- proved in TELCOs
favour
■ EDA -- no preferential selection of dealers -- reasonable intelligible
differentia and based on expertise the dealers were appointed
58
■ Hgh quality of services
■ Not RTP under s.2(o) of MRTP
○ MRTP commission
■ EDA -- was anti-competitive but TELCO had benefit of s.38
■ But for allocation of territory it was held to be RTP
■ Appeal to SC -- MRTP was overturned
■ Application of sec.2(o) -- an exhaustive one (comprehensive)
■ Element of efficiency was considered in order to hold such actions
competitive as they ensured a presence in rural markets
■ what facts are peculiar to the business to which the restraint is applied,
■ what was the condition before and after the restraint was imposed, and
■ what was the nature of the restraint and what was its actual and probable
effect.
○ Fact of supply of commercial vehicles – far below demand – great demand for
TELCO vehicles – So, TELCO’s basis for allocation of territory – genuine
○ Basis for selection of dealers –
■ (a) Population of commercial vehicles in the dealer's territory;
■ (b) Orders from customers pending with the dealer;
■ (c) Preference for Tata diesel vehicles as against other makes in the
territory of the dealer
■ (d) Past sales performance of the dealer;
■ (e) Effective after-sales-service provided by the dealers;
■ (f) Special requirements of the territory during the erection of Government
Projects such as steel plants, construction of dams etc.;
■ (g) Emergency requirements of the territory on account of drought, flood
relief etc;
■ (h) Government recommendations for meeting certain specific
requirements;
■ (i) Dependence of the particular territory on road transport and
■ (j) Requirements of State Government and nationalized trans- port
undertakings which are procured through dealers
Refusal to deal
● Refusal to deal should be differentiated from group boycott
59
● US v Colgate
● Nynex v. Discon
○ Group boycott - no (it should be a horizontal arrangement for it to be group
boycott)
○ https://www.lexisnexis.com/community/casebrief/p/casebrief-nynex-corp-v-
discon
60
LENIENCY PROGRAMME -- (CARTEL)
● Usually in India the evidence to hold one liable for cartel is based on preponderance of
probabilities and its difficult to hold one liable
● So at times there is some leeway to help those who can disclose information about the
cartel
● The Leniency Program is implemented with an objective to support the enforcement of
the objective of the Competition Act, 2002.
● extremely effective mechanism to identify and investigate cartel cases.
What is the programme:
● It is an effective tool to detect, investigate and combat cartel cases
● It is a type of whistle blower protection
● Leniency program is available for enterprises / individuals who disclose to the
Competition Commission of India (“CCI”) their role in a cartel and co-operate with the
consequent investigations.
● For such an act, the enterprises/ individuals are rewarded by either a reduction/ complete
waiver of the penalty amount payable by the enterprises / individuals. Leniency programs
are universally accepted as a popular method to combat cartels.
● In other words, the leniency program may be referred to as whistle-blower protection by
offering lenient treatment to a cartel member who comes forward and reports to the CCI
about the cartel.
● This program shields and guards those who come forward and submit information who
would otherwise face severe action by CCI if the existence of a cartel was detected.
● The provisions pertaining to Leniency Program can be prima facie found under Section
46 of the Competition Act, 2002 which states that if any cartel member alleged to have
entered into an anti-competition agreement makes full disclosure to the CCI with respect
to the alleged violation, then the CCI may impose a lesser penalty on such cartel member.
However, the disclosure shall be full, true and vital disclosures.
How does it work
● Depends on when and how the information is shared -- how cooperative the help during
the investigation is
○ Eg party may give a hint and not be a part of the investigation
● Confidentiality aspects present
● The Act provides for imposiion of lesser penalty by the CCI where a person makes
FULL, TRUE and Vital disclosure of a Cartel to the CCI
61
● Leniency extent depends on the time when the information is given
○ Eg if its given even before the CCI knows about it -- then 100% leniency
○ Eg: if there are 3-4 parties approaching the CCI -- it depends on who arrives first
and who gave the most important and relevant information.
■ There might be instances where no leniency may be given
■ The power lies with the CCI and no appeal would arise
● Is targeted at a cartel participants and seeks to induce participants to break rank
● In furtherance of its objective to effectuate Leniency program, the Competition
Commission of India formulated the Competition Commission of India (Lesser Penalty)
Regulations, 2009 (“Regulations”) which govern the program.
Reduction in penalties:
● An applicant may be granted the benefit of a reduction in penalty of up to 100% if it is
the first to make an important disclosure by submitting the evidence pertaining to the
cartel, enabling the CCI to form a prima facie opinion regarding the existence of the
cartel, and the CCI or Director General did not have sufficient evidence to form such an
opinion at the time of the application.
● The reduction in penalty upto or equal to 100% will only be considered, if at the
time of the application, no other applicant has been granted such benefit by the
CCI.
● The applicants subsequent to the first applicant may also be granted the benefit of a
reduction in penalty on account of making a disclosure by submitting evidence which, in
the CCI’s opinion, may add value to the evidence already in CCI’s knowledge.
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● The applicant marked second in the priority status may be granted a penalty
reduction of up to 50%. Lastly, the applicant marked as third in the priority status
may be granted a penalty reduction of up to 30%.
● As per recent amendments to the Regulations, where the applicant is an enterprise, it
must provide the names of the individuals involved in the cartel on its behalf for whom it
seeks a reduced penalty. Based on previous decisions of the CCI, employees are usually
given a similar reduction in penalties as granted to the enterprise.
● The CCI has discretion in regard to the reduction in penalty. The discretion is exercised
with regard to the:
○ stage at which the applicant has come forward with the disclosure,
○ evidence already in the CCI’s knowledge,
○ quality of information provided, and
○ full facts and circumstances of the case
● As per the Regulations, the identity of the applicant as well as information obtained from
the applicant shall be treated as confidential and will not be disclosed except in the
following scenarios:-
○ disclosure is required by law; or
○ applicant has agreed to such disclosure in writing; or
○ public disclosure by the applicant.
● The arrangement of maintaining confidentiality would encourage submission of crucial
and critical information with the CCI.
● It will be essential to mention that the CCI may withdraw the leniency if the applicant
breaches any of the conditions which are essential for grant of leniency. Accordingly, the
applicants are required to adhere to the following:
○ cease additional involvement in the cartel from the time of disclosure, unless
directed by the CCI;
○ provide crucial and critical disclosure in respect of the violation;
○ provide relevant material and documentary evidence as required by the CCI;
○ extend full co-operation throughout the investigation proceedings before the CCI;
and
○ not destroy or hide relevant information that may contribute to the establishment
of the cartel.
Nagrik Chetna Manch vs. Fortified Security Solutions and Ors.2018, wherein it granted partial
leniency to four out of six leniency applicants involved in bid rigging.
63
64
ABUSE OF DOMINANT POSITION -- Sec.4
INTRODUCTION
● State of WB v Artist Assoc
○ Mahabharat was dubbed in Bengali -- agreement with production house --
opposed by regional artists stating that the show would kill their work -- went on
strike
○ Horizontal agreement
○ Individual filed application against CCI -- the strike by the artist associations and
trade unions was a boycott and should be anti-competitive
■ Issue: if Trade Union was enterprise or not????
○ SC -- not an enterprise
○ (just go through the case)
○ RPM was considered -- if WB market or dubbing market
● Prohibition of use of dominant position in anti-competitive manner
● Role played by market power of an enterprise or group of enterprise
● Consumer based market v. enterprise based market
● Dominant position under old MRTP Act
○ No provision
○ RTP – section 2(u)
○ Not by specific provisions but indirectly covers through prohibition of various
trade practices
● S.4 is almost based on rule of reason and RPM is required
○ Sec.4 emphasises on RPM (and for sec.3 is not must)
● Sec.4 is not against dominance
○ MRTP -- dominance is abuse always -- the provision was for RTP u/s.2(u)
■ RTP was limited in scope
■ Dominance as abusive (MRTP) v Abusive dominance (CA)
○ Not the same under the Comp Act -- free to monopolise the market to an extent
● Consumer v enterprise based market
○ Should be complementary and supplementary to each other
○ Intention depicts that it should be based on enterprise based market
65
Raghavan Committee Recommendation:
● Questions to be addressed:
○ Do the provisions of law make it too easy to classify the firm as a dominant?
○ Does the law protect potential entrants from exclusionary behavior of dominant
player?
○ Does not the law seek to control the prices charged by dominant firm?
○ Is there a suitable test for predatory price?
○ Is there a scope for applying the “rule of reason” to the exclusionary vertical
arrangements?
● Dominant position is the outcome of competition -- ought not to always consider it --
should be considered only when there is abuse
● Dominant firm/person is bound to produce entry barriers -- is there a provision???
ABUSE OF DOMINANT POSITION SECTION 4(1)
● “No enterprise shall abuse its dominant position”
○ Law provides that enterprise might have a dominant position but it prohibits
abuse of dominant position
○ What is abuse?
■ Is it subjective or objective?
● Abuse is objective -- Hoffman La roche case
● Difference between section 3 and section 4
● Meaning of dominant position
○ Sec.4(2) Expl (a)
○ Can be based on market share, capitalisation, control
○ It is a positional strength, enjoyed by a enterprise, in the relevant market in India
■ To operate independently of competitive forces prevailing in the relevant
market or
■ Affect its competitors or consumers or the RM in its favour
//Based on the position of the others
● Position of strength -- Microsoft case 2004, Times Picayune Publishing Co case
Factors for consideration for Dominance
● Market Share
○ Akzo Chemie v Commission 1991 -- 50% wont make the firm dominant -- test
should not be based on market share but should be based on the decision making
factor
66
■ Figure factor is not necessary
● Entry barriers
○ Hoffman La Roche -- elements/dimensions to be considered to understand
dominance
■ Relations between the market shares of the concerned undertaking and of
its competitors
■ Technological lead of an undertaking over its rivals (intra)
■ Highly developed sales network (intra)
■ Absence of potential competitors (who are in the business but have not
entered the relevant market)
○ United brands co v commission
Abuse
● Abuse v. dominant position
● Michelin v. Commission, 1983
○ Abuse – deviation from normal enterprise practices
● Questions/parameters by Raghvan Committee
○ How will practice harm a competition?
○ How will it deter or prevent entery?
○ Will it reduce incentives of the firm with an additional capacity to raise price?
○ Will it provide the dominant firm with an additional capacity to raise prices?
○ Will it prevent investment in research and innovation?
○ Do consumers benefit from lower prices/ or greater product and service
availability?
○ Question 3 and 5 are supplementary questions and complementary questions
● Section 4(2) provides for illustrations for what abuse might be experienced
SECTION 4(2) -- ABUSE ON PRICING
● Directly or indirectly, imposes unfair or discriminatory
○ Condition in purchase or sale of goods or services; or
○ Price in purchase or sale (including predatory pricing) of goods or services
○ More discount to be given for satisfaction of sellers
■ So might be predatory
● Unfair pricing
○ United Brands v Commission
● Predatory Pricing
67
○ Explanation (b) -- “predatory price” means the sale of goods or provision of
services at a price which is below the cost, as may be determined by regulations
or production of the goods or provision of services, with a view to reduce
competition or eliminate the competitor.
○ WHY IS PREDATORY PRICING UNDER S.4 and why not under S.3(3) -- to
test if its per se competitive or not
■ If predatory pricing is acting as a entry barrier then its competitive and
problematic
○ Predatory Pricing two stage test
■ Market Analysis
● Market share
● Possibility of recovery of loss
○ “Today’s loss is tomorrows investment”
● Adverse effect
● Sec 3 is prevention and section 4 is prohibition
■ Price Cost analysis
● Brooke Group Ltd. v. Brown and Williamson Tobacco Corp 1992
(Liggett Case)
○ Line of generic cigarettes (Brooke) introduced
○ Princes - 30% lower than branded cigarettes (1980)
○ Grew to 40% market share (1984)
○ Price war between liggettes and respondents cigarettes
○ Allegation -- rebates by respondent which was below cost
(for 18 months)
○ Would it be predatory pricing?????
■ NO as the market share of brooke group was not
lost
DISCRIMINATORY PRICING
● Closely related to but different from predatory pricing
● Price difference
● US v Borden Co et al. 1939
○ Sale of fluid milk
○ Price discrimination -- independently owned grocery stores and grocery chains
68
○ Resp: Whenever they are providing milk to store chains the costs are less so they
can provide more discounts when compared to the independent stores.
○ SC: held discriminatory pricing is anti-comp
○ District court held the reasoning based on the Cost benefit analysis
● FTC v Sun Oil Co. 1963
○ Sale of gasoline
● Utah Pie Case: Asynch
● Discriminatory conditions
○ Unreasonable pricing
○ FTC v. Simplicity Pattern Co 1959
● DG v. Gasom Gases Pvt Ltd., 1995
○ Conditions imposed by respondents – 100 connections per month – max 3000
connections within 30 months – maintaining full fleged showroom in a defined
territory
○ Held
■ Anti-competitive
■ Look into the market share and the dominant position
Denial of Market Access
● US v Griffith
○ Motions Pictures Case -- Motion Pics had their own theatres where they used to
the first access in these theatres -- if screens are available for other producers????
○ Denial of market access held
● Essential facility doctrine
● Other cases:
○ Microsoft monopolisation
○ Jefferson Parish Hosp
○ Hilti v Commission 1991
69
○ Commercial solvent is the only supplier of the Raw material to the Italian
market/Comp. -- if they cut the sale of the Raw material to the Italian market then
it would be the abuse of dom position and is anti-competitive
70
SECTION 5 & 6 -- COMBINATIONS
71
SECTION 6(1) -- BLANKET PROVISION
● Section 6(1) – “No person or enterprise shall enter into a combination which causes or
is likely to cause an appreciable adverse effect on competition within the relevant market
in India and such a combination shall be void.”
● Factors for consideration:
○ Relevant market (RPM and RGM)
○ Characterization of product -- Cellophane fallacy -- Du Ponts Case
○ Potential Competition
○ Likelihood of new entry and existence of effective barriers for it
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○ FTC took the stance that Du Pont’s fabric is a RPM in itself as there is no
substitute
○ Du Pont contention was to consider the entire fabric market as the RPM
○ Merger not allowed
Relevant Geographic Market
● US v Flagstaff Brewing Corp 1973
○ 4th largest beer producer of US
○ Agreed to acquire largest seller of beer of New England -- Narragansett
○ The question of “de novo” entry
○ Potential competitor
○ Not allowed
EXCEPTIONS: SECTION 6(4)
● share subscription or financing facility or any acquisition , by a public financial
institution, foreign institutional investor, bank or venture capital fund, pursuant to
any covenant of a loan agreement or investment agreement.
○ Foreign Institution Investor:
■ Section 115(AD) – Foreign institutional investors means such investor as
the Central Government may, by notification in the Official Gazette,
specify in this behalf;
○ Venture Capital Fund
■ Section 10 (23FB) "venture capital fund" means such fund, operating
under a trust deed registered under the provisions of the Registration Act,
1908 (16 of 1908), established to raise money by the trustees for
investments mainly by way of acquiring equity shares of a venture capital
undertaking in accordance with the prescribed guidelines
APPLICABILITY OF EFFECTS DOCTRINE FOR COMBINATIONS:
● Boeing – Mcdonalds douglas merger case
○ Boeing, Mcdonalds douglas, Airbus – International civil aircraft industry
○ Notified to US and EU
● Gencor ltd v. Commission, 1999
○ South African Co. + UK company (LPD – subsidiary of Lonhroe ) – platinum and
rhodium mining industry of SA.
○ Merger approved by SA
○ EU?
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○ Value of Assets –
■ Tangible?
● Audited Books of accounts
● Assets
■ Intangibles?
● Value of trade intangibles
● Value of Market intangibles
● Ford Motor Co. v. United States
○ Second largest automobile manufacturer + certain assets of Electric Autolite Co.
(Autolite) – independent manufacturer of spark plug and other automotive parts.
○ Trade name, Only domestic market, extensive rights to its nationwide distribution
organisation
○ RPM – Spark plug replacement market (After market)
○ Ford – largest supplier of spark plug – acquired Autolite to enter aftermarket
○ General Motors – 30%, Autolite – 15%, Champion – 50%(went on declining to
40% in 1964, 33% in 1966)
○ District Court
■ Oligopolistic market structure
■ Vigorous competition between spark plug manufacturer as long as they are
not own by automakers
■ Violated a law
○ Reason:
■ Pre-acquisition position of Ford – moderating influence on independent
companies
■ Foreclosing an access for independent spark plug manufacturers
○ Ordered divestiture of Autolite plant and trade name
■ Enjoined Ford for 10 years from manufacturing spark plug
■ Ordered half of its requirement should be brought from divested plant
under Autolite brand
○ Supreme court affirmed DC’s order
Joint Venture:
● Northern Securities Co. v. United States, 1904
○ Railroad traffic in western united states
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○ Great Northern Company versus Union Pacific Railroad and Southern pacific
railroad
○ Acquiring control over CBQ (Chicago, Burlington and Quincy Railroad)
○ Great Northern Co + Northern Pacific Railway Co. = Objections
● Penn-Olins case - United States v. Penn-Olin Chemical Co., 1964
○ Pennsalt Chemical Co. + Olin Mathewson – JV agreement - 1960
○ Each acquiring 50% in newly formed company – Chlorate production
○ Government sought to dissolve this JV
○ LOC – Sodium Chlorate and RGM – South eastern part of US
○ DC
■ Test?
■ Would they have entered the market,, if Penn-Olin had not been formed?
■ Dismissed the complaint
○ SC – reversed
■ Test – effect of JV
■ Applicable for actual or potential competitors
■ Reasonable likelihood is enough
■ Presence of a potential competitor having the capability of entering an
oligopolistic market may be a substantial incentive to a competition
■ Factors for determining probability of substantial lessening of competition
○ Reasons:
■ the number and power of the competitors in the market; the background of
their growth;
■ the power of the joint venturers;
■ the relationship of their lines of commerce;
■ the competition existing between them and the power of each in dealing
with the other's competitors;
■ the setting in which the joint venture was formed; the reasons and
necessities for its existence; the joint venture's line of commerce and the
relationship thereof to its parents; the adaptability of its line of commerce
to noncompetitive practices;
■ the potential power of the joint venture in the market; an appraisal of
competition in the market if one of the parents entered alone, instead of
through the joint venture; in that event, the effect of the other parent's
potential competition; and
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■ such other factors as might indicate potential risk to competition in the
market
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COMPETITION COMMISSION OF INDIA
CCI COMPOSITION
Establishment of CCI – Sec.7
○ Central Government appointed
○ Its a body corporate
○ Can establish offices
○ Corporate personality has been conferred to the Commission
Brahm Dutt v UoI
● In 2003 a writ petition (BrahmDutt vs. Union of India) was filed before the Apex Court
for striking down the provisions of the Rules, 2003 and for directing the Union of India to
appoint a person who is, or has been, a Chief Justice or Judge of the Supreme Court or of
the High Court, as CCI Chairman. It was also challenged that there is usurpation of
judicial power and conferment of the same on the non-judicial body.
● The Union of India argued before the Apex Court that
○ (i) the CCI was more of a regulatory body that requires expertise in the field and
as such should not be supplied by Members of the Judiciary, who can adjudicate
upon matters in dispute;
○ (ii) so long as the power of judicial reviews of the High Courts and Supreme
Court are not taken away or impeded, the right of the Government to appoint the
CCI Chairman in terms of the Act could not be successfully be challenged on the
principle of Separation of Powers recognized by the Constitution of India;
○ (iii) the CCI was an expert body and it is not as if India was the first country to
appoint such a Commission presided over by persons qualified in the relevant
disciplines other than Judges or judicial officers;
○ (iv) the main function of the expert body were regulatory in nature;
○ (v) the Government was proposing to make certain amendment to the Act and in
the Rules, 2003;
○ (vi) an appellate body would be constituted, which essentially be a judicial body
conforming to the consent of Separation of Judicial powers as recognized by the
Apex Court.
● The Apex Court, after hearing all arguments, was of the view that if an expert body is to
be created consistent with what is said to be an international practice, it might be
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appropriate for the Union of India to consider the creation of two separate bodies with
expertise (based on doctrine of separation of powers), that is,
○ (i) Advisory and Regulatory, and
○ (ii) the other as Adjudicatory, followed by an Appellate Body.
● In a nutshell, the message from the Apex Court was loud and clear that the Chairman
should be an expert in his field and needn't be a Judge of the High Court or Supreme
Court. However, since the CCI is to perform adjudicatory functions, a separate
Adjudicatory body headed by a Judicial member should be created.
● Thirteen months from the Judgment in the BrahmDutt case, the Central Government
introduced the Competition (Amendment) Bill, 2006 in Parliament with mammoth
changes to wholly revamp the Act, except to follow the observations of the Apex Court in
the BrahmDutt case with regard to creation of two separate bodies under the Act.
○ It is seen from the Bill 2006 that the Central Government, by taking away the
power of Awarding Compensation from the CCI and conferring the same to the
Competition Appellate Tribunal (the COMPAT) under the Act may have thought
that it has complied with the observations of the Apex Court in the BrahmDutt’s
Case and there is no need to create a separate adjudicatory body.
Chairperson and Membership – Sec 8
● 1 Chairperson and not less than 2 nor more than 6 members
● Appointed by Central Govt
● Qualifications:
○ Must be qualified to be appointed as HC judges or 15 years min relevant market
experience in International trade, economics, business, commerce, law, finance,
accountancy, management, public affairs etc
● 5 year term
● Whole time members
● Resignation – s.11
● Removal – s.12
● Administrative powers of Chairperson – s.13
○ Vested with powers of superintendence, direction and control wrt all
administrative matters
DUTIES AND POWERS OF CCI
Duties of Commission – s.18
● Eliminate practices which have adverse effect on competition
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● Promote and sustain competition
● Protect consumer interests and ensure freedom of trade
Enquiry into agreements and dominant position – s.19
● Commission can inquire into any contravention of s.3(1) and/or s.4(1)
● Either suo motu or on information
● CG can also make a reference
● In order to determine whether an agreement gas a AAEC the commission has to
have regard to the following:
○ creation of barriers to new entrants in the market
○ driving existing competitors out of the market;
○ foreclosure of competition by hindering entry into the market;
○ accrual of benefits to consumers;
○ improvements in production or distribution of goods or provision of services; or
○ promotion of technical, scientific and economic development by means of
production or distribution of goods or provision of services
● Factors to determine dominant position u/s.4 – s.19(4)
○ market share of the enterprise;
○ size and resources of the enterprise;
○ size and importance of the competitors;
○ economic power of the enterprise including commercial advantages over
competitors
○ vertical integration of the enterprises or sale or service network of such
enterprises;
○ dependence of consumers on the enterprise;
○ monopoly or dominant position whether acquired as a result of any statute or by
virtue of being a Government company or a public sector undertaking or
otherwise
○ entry barriers including barriers such as regulatory barriers, financial risk, high
capital cost of entry, marketing entry barriers, technical entry barriers, economies
of scale, high cost of substitutable goods or service for consumers
○ countervailing buying power;
○ market structure and size of market;
○ social obligations and social costs;
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○ relative advantage,by way of the contribution to the economic development, by
the enterprise enjoying a dominant position having or likely to have an
appreciable adverse effect on competition;
○ any other factor which the Commission may consider relevant for the inquiry.
● Sec.19(5) – Relevant Market
○ To determine RM, the CCI has to give regard to RPM and RGM
● Geographic Market – s.19(6)
○ regulatory trade barriers;
○ local specification requirements;
○ national procurement policies;
○ adequate distribution facilities;
○ transport costs;
○ language;
○ consumer preferences;
○ need for secure or regular supplies or rapid after-sales services.
● Product Market – s.19(7)
○ physical characteristics or end-use of goods;
○ price of goods or service
○ consumer preferences;
○ exclusion of in-house production;
○ existence of specialised producers;
○ classification of industrial products
● Enquiry into combinations by Commission – s.20
○ Either suo motu or upon information
○ Combination has arisen within the meaning of sec.5
■ Either by acquisition of shares, merger, amalgamation, control
○ Conduct enquiry into the fact whether the combination has caused or is likely to
cause AAEC
● Factors determining anti-competitiveness – sec.20(4)
○ actual and potential level of competition through imports in the market
○ extent of barriers to entry into the market;
○ level of combination in the market;
○ degree of countervailing power in the market;
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○ likelihood that the combination would result in the parties to the combination
being able to significantly and sustainably increase prices or profit margins;
○ extent of effective competition likely to sustain in a market;
○ extent to which substitutes are available or arc likely to be available in the market;
○ market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination
○ removal of a vigorous and effective competitor or competitors in the market;
○ nature and extent of vertical integration in the market;
○ possibility of a failing business;
○ nature and extent of innovation;
○ relative advantage, by way of the contribution to the economic development, by
any combination having or likely to have appreciable adverse effect on
competition;
○ whether the benefits of the combination outweigh the adverse impact onto
competition if any
Acts outside India but with effect of competition in India – Sec.32
● Has the powers of enquiry if they were taking place in India and pass orders as it may
deem fit under the Act
DIRECTOR GENERAL
Appointment – s.16
● Appointed by CG
● Appointed for the purpose of assisting the Commission in conducting enquiry into
contraventions and for conduct of cases before the Commission and for other functions as
may be provided
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● The Director General leads the investigation wing of the Competition Commission of
India.
Powers and duties
● Where the CCI upon private complaint or suo motu consider that a prima facie case exists
it shall ask the DG to investigate into the matter.
● In respect of investigations whether carried out suo motu or on complained filed by the
aggrieved party DG submits investigation report to the CCI within a specific time period.
○ CCI sends the DG Report to both the parties for inviting their comments and
objections.
○ After further hearing the CCI passes the appropriate orders.
● the DG is assigned with the task of being the chief of an investigation against anti-
competitive behaviour. This comes under his portfolio of bringing the leader of the
investigation wing of the Competition Commission of India.
● The powers of the DG are the same as provided for the commission as under section 36
clause 2 of the Competition Act, 2002 which can briefly put forth as follows:
○ Ask for any person’s attendance and the right to question him under the oath.
○ Call for the submission, discovery, and production of respective documents as
needed.
○ Collecting evidence on the testimony.
○ Mandating Commission for inspecting witnesses
○ Requestion any public record or copies of such records subject to the provisions
of section 123 and 124 of Indian Evidence Act, 1872.
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COMPETITION LAW AND IPR
INTERPLAY BETWEEN IPR AND COMPETITION LAW:
Introduction:
● IPR plays a critical role in facilitating the trade and economy of every nation while
ensuring that intangible properties such as creative works, trademarks and inventions are
not exploited by unauthorized parties.
● protecting your IP (such as trademarks, inventions and trade secrets) may add to the
uniqueness and distinctiveness of a particular brand. → to prevent unauthorised usage
and exploitation
● Intellectual Property systems can be used to obtain profits.
● Competition law lays down regulations and laws concerning the market competition in
order to regulate anti-competitive practices that companies may partake in.
● Anti-competitive practices may include predatory pricing (imposing exorbitant prices on
products or services that the consumer has limited choice other than to purchase it), price
fixing (a collusion between competitors to set similar prices for products or services) and
bid rigging (selection of winners of a contract in advance).
● after an IPR has been granted, the holder of such IPR has the absolute choice to decide
the most effective way to exploit it. Should the IPR holder directly exploit the IPR?
●
Ensuring competitiveness in commercial environments
● The rapid development of commercial environments have resulted in establishing a
relationship between competition law and Intellectual Property Rights
● IP is pro-competitive.
○ This means that IP systems would help consumers make conscious choices with
respect to the goods and services among competing brands that are available in
the market.
● IP ensures that there exists competition in commercial environments. Facilitating
competition in commercial environments is also one of the main roles of competition
law. Hence, it can be said that IP and competition law may cumulatively ensure
competition among brands in business environments.
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Exploring the coexistence between IP and competition law
● When IP laws are enforced upon non-differentiating features of a brand such as patents,
trade secrets or other aspects of a business that does not add to the distinctiveness of a
business, exclusivity follows.
○ This essentially means that, enforcing IP laws on such features would grant
exclusivity or monopoly over them.
○ Typically, the principles and policies of competition law disagrees with the
unduly extension and imposition of IP laws on all the facets of a business.
● Inefficient IP enforcement may negatively impact competitiveness among businesses.
○ When the aspects that add to the distinctiveness of a business are not protected
with the help of IP laws, duplication and imitation of the same may follow.
○ The imitation and duplication of the various distinctive aspects that are linked to a
business will result in inadequate competition between businesses which
inherently goes against the principles of competition law.
TRIPS agreement in IPR and competition law
● TRIPS contains a modicum of competition rules, namely Articles 8.2, 31(k), and 40,
even though it is an international convention dealing mainly with Intellectual property
rights.
● TRIPS Agreement recognizes power of WTO members over controlling Intellectual
property rights – related anti-competitive practices.
● With the negotiations between developing and developed countries, on the International
Code of Conduct on the Transfer of Technology under the auspices of the United Nations
Conference on Trade and Development (UNCTAD) from 1970 – 1985 restrictive trade
practices got special importance in New International Economic Order (NIEO).
● TRIPS Agreement recognizes power of WTO members over controlling IPR- related
anti-competitive practices. Article 40 deals with the IPR/competition law interface in
TRIPS and is playing a vital role in the flexibilities available to developing countries.
● Article 8.2 states “Appropriate measures, provided they are consistent with the
provisions of the Agreement, may be needed to prevent the abuse of intellectual property
rights by right holders or the resort to practices which unreasonably restrain trade or
adversely affect the international transfer of technology”.
○ This Article empowered WTO members to formulate or amend their domestic
laws and adopt appropriate measures to combat with three kinds of anti
competitive IPR related practices
■ abuse of IPR by right holders.
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■ Anti-competitive practice that unreasonably restrain trade
■ practices that adversely effect international technology transfer.
● Article 40 states
○ Members agree that some licensing practices or conditions pertaining to
intellectual property rights which restrain competition may have adverse effects
on trade and may impede the transfer and dissemination of technology.
○ Nothing in this Agreement shall prevent Members from specifying in their
legislation licensing practices or conditions that may in particular cases constitute
an abuse of intellectual property rights having an adverse effect on competition in
the relevant market.
● Article 31K states Members are not obliged to apply the conditions set forth in
subparagraphs (b) and (f) where such use is permitted to remedy a practice determined
after judicial or administrative process to be anti-competitive.
○ The need to correct anti-competitive practices may be taken into account in
determining the amount of remuneration in such cases.
○ Competent authorities shall have the authority to refuse termination of
authorization if and when the conditions which led to such authorization are likely
to recur.
Indian scenario with respect to competition and IPR laws
● Section 3 of the Indian competition act explains that no enterprise or association of
enterprises or person or association of persons can enter into any agreement with respect
to the production, supply, distribution, storage, acquisition or control of goods or
provision of services that are likely to cause an adverse effect on competition within
India.
● In India, the conflict between IP laws and competition laws can be noted through section
3(5) and section 4 of the Act.
● Section 3(5) of the Act deals with a blanket exception on IPR which implies that IP
policies and competition laws do not interfere with each other.
● However, section 4 of the Act elucidates upon the abuse of dominant position which is
interlinked to IP rights.
● IPR and competition laws aim to regulate commercial environments while facilitating a
common aim.
● IP laws ensure that each business is unique in nature while ensuring that the creators are
adequately incentivized.
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● Whereas, competition law ensures to strike a balance between the rights of manufacturers
and the customers while restricting anti-competitive practices.
● It has been noted that IP laws may lead to the monopolization of a particular innovation
or a creation and that this may be contrary to what competition law policies stand for.
● However, there are laws and agreements in place to regulate this.
● Thus, it can be concluded that inherently, IP laws and competition laws can coexist in
commercial environments.
● Section 3(5)(i) of the Act specifically provides for an exemption for agreement falling
under Section 3(3) or 3(4) of the Act, in case of imposition of reasonable restrictions for
protecting intellectual property rights conferred under various statutes.
● Further, the conduct falling under Section 4 of the Act, for possible abuse of dominant
position, is also tested on the touchstone of reasonability.
● Thus, though the specific exemption provided under Section 3(5) of the Act does not
explicitly applies to Section 4 cases, implicitly such analysis is integral to the
reasonability test carried out for competition assessment of such cases.
● Abuse of dominant position – sec.4
○ licensing agreements are usually vertical agreements [covered by Section 3(4) of
the Indian Competition Act, 2002] that provide for an enterprise operating in the
upstream market (licensor) licensing its IPR to another enterprise in a downstream
market (licensee).
■ It is possible that the Licensing agreement is entered into between
enterprises operating at the same level of the production chain, for the
purposes of such agreement the parties will be perceived to be vertically
related.
■ Further, in most cases, the licensor of an IP rights happens to be a
dominant player in the delineated relevant market and thus, the
competition assessment for a possible contravention of Section 4 of the
Act owing to abuse of such dominant position also needs to be done.
○ By using the power of dominance the right holder (IPR holder) abuse that
position.
○ Such kinds of abuse nullify the very concept of the free trade.
○ In Indian market free and competitive trade is the need of the hour.
○ The consumers in Indian market don’t have high purchasing capacity. So they
can’t afford highly priced goods and services.
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○ As there is little, even one can say no competition in the Indian market the IPR
holders prices their goods and services at a high rate which is beyond the
purchasing capacity of the Indian consumers.
○ But it is also true that IPR itself doesn’t provide monopoly.
○ In this situation the right holders get a chance to abuse their dominant position in
the market by resorting to anti-competitive agreements which penetrate into the
growth of trade and economy in India.
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