Anti Competitive Agreements in India — Law Insider
Anti Competition in the Market ensures benefit for both the consumer and the market as there will be fair competition. Although the freedom of trade is there for parties, they should not enter into an agreement which is anti-competitive. These types of agreements prevent or restrict the agreements between parties.
The agreements leading to appreciable adverse effect on competition (AAEC) are called as anti-competitive agreements in general way. If the parties are engaging in certain business in India they must be aware of Anti competitive agreements.
But again the important point is that even the agreement is happening outside the country, the Competition Commission of India has powers to examine it if the appreciable adverse effect on competition (AAEC) is within the country.
Monopolies and Restrictive Trade Practices (MRTP) Act:
Prior to the Competition Act 2002 the MRTP (Monopolies and Restrictive Trade Practices Act) was introduced in 1969. This ensures that there is no economic power in the few rich hands. The act concentrates to prohibit Monopolistic and restrictive trade practices which extends to the whole India except Jammu and Kashmir.
Aims and Objectives of the act:
To make sure that the rich won’t take the economic power into their hands.
To restrict the fake agreement between parties
To make sure that no consumer gain any loss from the agreement entered by the parties.
Section 3(2) speaks about the ways of prohibition in the Competition act 2002.
- Enterprise and enterprise;
- Enterprise and association of enterprises;
- Two associations of enterprises;
- Two persons;
- Person and the persons association;
- Between two association of persons;
- Person and an enterprise;
- Person and an association of enterprise;
- Association of persons and enterprises;
- Persons and Enterprises association.
Even beyond to this if the parties enter into the agreement, it becomes a void agreement.
Section 3(1) of the Act:
The enterprise or any association of enterprise, persons or any association of persons should not enter into an agreement in respect of production, supply, distribution, storage, acquisition or control of goods or any provision of services which may cause or definitely adverse effect on competition within India.
The section 3(1) should be read with only sections 3(3) and 3(4) which talk about Horizontal agreements and vertical agreements respectively. That means the section 3(1) is not only a provision which is suggestive but it is the genus of the Competition Act.
There are two types of Agreements:
1) Horizontal Agreements
2) Vertical Agreements
Section 2(b) is also important to note which says that
(i) Whether or not, such arrangement, understanding or action is formal or in writing; or
(ii) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.
Advocates for All India Motor Transport Congress asked to increase the freight of the truck because of the rise of diesel prices which finally affects the consumers and causes AAEC in the market. So the Competition Commission of India stated that the agreement between all the members uniformly will definitely cause the adverse effect.
Section 3(3) provides the exception to appreciable adverse effect on competition (AAEC) which even includes cartels. They are:
(i) Indirectly or directly determining the prices of the sale or purchase.
(ii) Limits on the Production, Investment, supply, services, markets and technical development.
(iii) Sharing the source of production, provisions of services or the market by allocating the geographical area of market or in any other way similar to this.
(iv) Resulting in the collusive bidding/bid rigging directly or indirectly. Also there is an exemption provided under this section which states that if the parties can increase the production, supply, distribution or any profitable thing, they are exempted under this section.
The court observed that the people who combine to keep up prices do it quietly. They make their own arrangements where no one can see.
Nothing is put in words or even in writing, where the Parliament also knew. So it included not only agreements but also an informal arrangement.
The COMPAT overturned the Competition Commission of India decision on the grounds that Competition Commission of India and the DG failed to give due weight age to the nature of the market in which the tender is conducted and executed the rate contract to find the bid rigging on the grounds of identical pricing.
Exchange of the information relating to Business planning, Capacity details, Expansion plans, Production or sales details is problematic especially in the case of oligopolistic and concentrated markets.
i. Creating barriers for new entries in the market
ii. Making to get existing competitors out of the market.
iii. Ruling the completion by obstructing entry into the market
iv. Accrual the benefits to consumers.
v. Production, Distributing the provision of services or goods improvements;
vi. Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.
Vertical type of Agreements: These are the agreements in which the two enterprises enter at the different production stages.
The rule of reason gives the clarification of whether the Vertical agreements come under appreciable adverse effect on competition (AAEC)or not. Rule of reason clearly mentions both the positive and negative impact of the competition.
Black’s law dictionary defines the rule of reason in antitrust law as a ‘judicial doctrine holding that a trade practice violates the Sherman Act only if the practice is an unreasonable restraint of trade, based on economic factors.
Some clauses of the TELCO had agreement with its dealers were:
(i) Selling the TATA trucks outside the territory by dealer directly should not be assigned to him.
(ii) Within his territory the Dealer should maintain the organization for sale and service to the satisfaction of TELCO.
(iii) Directly or indirectly the dealer should not sell the trucks of other manufacturers.
Cartel Regulation under the Competition Act, 2002: Term Cartel is defined in the competition Act, 2002 as follows:
Cartel includes an association of producers, sellers, distributors, traders/service providers who by an agreement among themselves, limit, control or try to control the production, distribution, sale of a trade in goods or provision of service
The 3 ingredients to constitute cartel are:
i) An agreement including arrangement or understanding whether it is Formal/Informal
ii) Agreements among producers, sellers, distributors or service providers i.e., parties who are engaged in similar trade of goods or provision of service, and
iii) Agreement aims at limiting, controlling or attempting to control the production, distribution, sale or price of, or trade in goods or the production of services.
This was one of the early cases that were decided by the US Supreme Court. Under the Sherman Act, the complaint was that the respondents controlled 82 percent of the business of manufacturing and distributing in the US vitreous pottery of the type described combined to fix prices and to limit sales in interstate commerce to jobbers.
One of the arguments from the side of respondents was that where the prices fixed were reasonable, the practice could not be deemed to be an unreasonable restraint on commerce.
The Court stated that the reasonableness/the restraint of commerce was distinct and the reasonableness of the stipulated prices, under an agreement which was shown as an unreasonable restraint of commerce did not affect the basic issue, whether an agreement was in restraint of commerce.
Section 3(4) of the Act:
The seller should have market power which is sufficient to make an anti-competitive agreement in the market, where there can be 2 products that are tied together and the arrangement of tying must affect the not insubstantial amount of commerce.
In this case, the agreement happened by saying that the party will sell the product only if the buyer will also buy another product. Here the burden of proof lies on the plaintiff.
The Informant said that the parts of the automobiles and the accessories should be taken only from its vendors or through Hyundai, mentioned in the agreement.
As the Hyundai imposed a Discount Control Mechanism, it became an anti-competitive agreement where the only the dealers were given with maximum permissible discount and were not authorized to give any further discount resulting in resale price maintenance which contrasts the Section 3(4)(e) of the Act. Observing this Competition Commission of India imposed the penalty of 87 Crore rupees on Hyundai.
b. Exclusive supply agreement: It is an agreement which restricts acquiring any goods or services to the purchaser except the seller or any person who may be nominated.
The Competition Commission of India stated that when the distributor is dealing with products belonging to suppliers, it should be informed to the supplier.
No violation happened in the case as the Bajaj was allocating the business areas where to all the dealers the exclusive dealership agreement happened under the Section 3(4) © of the act.
d. Refusal to deal: Any agreement that restricts the persons/ classes of persons from whom goods are bought or to whom they were sold
The informant alleged that the opposite parties are engaged in anti-competitive practices where they are producing the fake products into the market i.e., fake spare parts of automobiles.
The Competition Commission of India held that such agreements were in the nature of exclusive supply, exclusive distribution agreements and refusal to deal under which comes under Section 3(4) of the Competition Act.
The commission had to identify whether the parties came under AACE or not. The Commission stated that such a distribution made the Original Equipment Manufacturers to gain deceitful prices from consumers, enhancing revenue margin form the sale of auto component parts as compared to the automobiles themselves besides having potential long term anti-competitive structural effects on the automobile market in India.
Under the section 19(1) of the act the Competition commission of India can enquire on its own or by receiving any such information by any person, Central government, state government, statutory authority, a person, consumer, any trade association into the Alleged contravention of Section 3(1) of the act. And that too it enquires if prime facie exists to the director general.
The Competition Commission of India can pass the given order if they found the agreement is an Anti-agreement or have AAEC appreciable adverse effect on competition
i. Directs the parties of the agreement to cease such an agreement.
ii. Impose a penalty which should not be more than 10% of the average of the turnover in the last three financial years.
iii. Every seller, distributor or producer in the cartel can be imposed with the penalty of up to 10% of its turnover for each such year, whichever is higher or 3 times the profit for each year of the continuance of such agreement.
iv. Can direct to change the agreement as specified in the Competition Commission of India.
v. Pass or Issue any order
Section 3(5) of the talks about the Intellectual Property rights Exception:
Nothing in this section can restrict the person’s rights to prevent infringement or imposing of reasonable conditions that may be necessary for protecting his/her intellectual property rights i.e. copyright, trademark, patent, designs and geographical indications.
The practices or agreements which entered into for protection of IPR may contravene Section 3 of the Act. They are:
- Patent pooling: If the firm of pooling decides not to grant licence to any third parties, then it may be a restricted practice.
- Tie-in arrangement- It will be the restrictive practice, if the licensee is required to take particular goods solely from the patentee.
- Even after the expiry of the patent the agreement to continue the payment of Royalty.
- Licensee may be fixed not to challenge the validity of Intellectual Property Rights
- Licensees were not given freedom to the licensor to fix any price to sell.
- A licensee may be coerced by the licensor to take several licenses in intellectual property even the Licensee may not need all of them.
- Condition imposing quality control on the licensed patented product beyond those necessary.
- Should not restrict the licensee from selling the licensed product
- Licensee’s businesses should not be the restrictive one; it must be Anti-Competitive in nature.
- Licensor should not restrict the licensee to use the staff provided by the licensor only.
The Acts under this Section are:
(a) The Copyright Act, 1957
(b) The Patents Act, 1970
© The Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999
(d) The Geographical Indications of Goods (Registration and Protection) Act, 1999
(e) The Designs Act, 2000
(f) The Semi-conductor Integrated Circuits Layout-Design Act, 2000
The freedom of trade will definitely ensure if the act takes AAEC into consideration and it also safeguard the interest of all the parties or consumers. The parties of the agreement should follow the principles necessarily for the further improvement.
The parties itself should complain to the Competition Commission of India if any anti a competitive parties engage in agreement either with them or with the other parties.
Enterprises also should be active and should identify the agreement which is anti competitive around them. Awareness should be given to the employees and also enterprises from the experts.
Originally published at https://www.lawinsider.in on December 12, 2020.