Competition law – Notes

Introduction to Competition Policy and Law

• Law which deals with competition in a market – free and fair competition.
• According to 2018 survey, 60-65% countries have some kind of competition law/policy.
• Need because of globalization, liberalization and privatization.
• USA: Anti-Trust Laws – Sherman Act, 1890
• Pillars –
a. Prohibition of anti-competitive agreements
b. Prohibition of abuses of dominant position.
c. Regulation of Combinations (Merger Control System)
d. State aid control system [Invisible pillar as only a few jurisdictions explicitly mention it –
not present in Indian scenario]

What is Competition?
• The process of rivalry between firms thriving to gain more market share/sales and make profits.
• Motive: Self-interest or overcome mostly beneficial for the society.
• Process, not an event.
• Not automatic – needs to be nurtured (By State)

Type of Competition
a. Price Competition : Winning customers by lowering prices.
b. Non Price Competition : Winning customers by advertising, after sales service, using
sale promotion tools etc.

Ways of Competition
1. Fair Competition : Fair means such as producing quality goods, becoming cost-
efficient, optimizing use of resources, technology, research and development etc.
2. Unfair Competition : Unfair means such as fixing price with rivals, predatory pricing
(example could be Jio), disparaging or misleading advertisements etc. ( Horizontal v.
Vertical agreements)

How can enterprises become more competitive?

1. By betting on competitive advantages
2. Superior know-how
3. Research and development (R&D)
4. Anti-competitive practices
5. False/misleading advertisements
6. Cheating on weights and measures
7. Counterfeiting, industrial espionage

Benefits of Competition
1. Efficiency
2. Innovation
3. Check on concentration
4. Economic growth (wealth and job creation)
5. Consumer welfare gains :
- Lower price; Better quality; Freedom of choice & Easy access
 Regulatory goal of the competition laws

• Fair competition for greater good

• The existence of a free and effective competition is one of the key components of the
free market economy.
• Free competition promotes economic growth, innovation, technological progress and
the search for the most efficient production methods.
• Therefore, Competition Law is a set of legal rules aimed at protecting the competitive
process with the ultimate goal of maximum consumer welfare.

Competition Law v. Consumer Protection Law

Competition Law
To preserve a range of options in the
marketplace undiminished by artificial
constraints like price-fixing or anti-
competitive mergers.
Requires only a sufficient range of choice,
such as a competitive market would have
produced.
Have options increased?
Consumer Protection Law
To protect consumers ability to choose
among the options, unimpeded by artificial
constraints like deception, withholding of
material information.
Requires only a sufficient amount of
information, not perfect information.
Have actual purchasers been misled?

• Competition Law and Consumer Protection Law are 2 sides of the same coin.
• Common Goal: Provision of consumers with access to an array of competitively priced
goods and services in the market place.
• One agency in some jurisdictions enforcing both. Eg – FTC (US) and OFT (UK).

Theories of Competition Law (why competition law?)

1. Free Markets
The basis for fair competition
• Milton Friedman
• The ‘invisible hand’ that Adam Smith identified in 1776 ensures in most situations that free
market economies left to their own devices will produce results more beneficial than can be
realized by intervening in the markets.
• Adam Smith – An economy can work well in a free market scenario where everyone will work
for his/her own scenario.
• Invisible Hand – Invisible market force helping demand and supply to reach equilibrium.

2. Theory of Perfect Competition

• Adam Smith’s invisible hand backed by Professor Milton Friedman is presented on the
assumption of Perfect Competition.
• Features –
Large number of buyers and sellers – no transportation costs; Homogenous goods; Free
entry and exit; Single price; Absence of monopoly; Seller is a price-taker; Perfect
knowledge of prices and technology; No artificial restrictions
• According to Neo-Classical Theory, social welfare is maximized in conditions of perfect
competition.
• Basic virtues of a perfect competition are –
- Allocative efficiency : Allocating economic resources equally and channeling resources to
where they are needed the most.
- Productive efficiency : Minimum resources to create maximum goods – when marginal
costsmeet marginal revenue.
- Dynamic efficiency : Adapting fast to changing economic circumstances; innovativeness.

• Examples of Perfect Competition - Agricultural markets; Free software; Street food vendors

- Questioning the Theory of Perfect Competition

- Theoretical analysis of perfect competition does not adequately explain business behavior in
the real world.
- The model is based on assumptions unlikely to be achieved – it is not even a desirable
theoretical outcome.
- Nobel Laureate F.A. Hayek argued that perfect competition had no claim to be called
“competition”. He pointed out that the model removed all competitive activities and reduced
all buyers and sellers to mindless price-takers.
- Joseph Schumpeter noted that research, development and innovations are undertaken by firms
that experience economic profits, rendering perfect competition less efficient than imperfect
competition in the long run.
- Even a perfect monopoly is rare to be observed, unless the State confers such a monopoly upon
any firm.
- Thus, most of the cases do not involve either cases of pure perfect competition or cases of pure
monopoly.

• Solution
- The solution of the problem is not found in any form of collectivism. Rather, it lies in
protecting the legitimate market activity so that it harmonizes with the rest of the community
and with other values.
- James Madison identified in Federalist No. 63 that “liberty may be endangered by the
abuses of liberty as well as by the abuses of power…”
- What is true of political liberty is also true of economic liberty. To protect the market system
against these destructive abuses, a commitment to permanent values is required by market
participants, both consumers and producers.
- The social market economy must be the servant of humanity and of trans-economic values.
This conclusion forms the basis for most of the world’s economic systems.
- The process of competition is seen as being of value and meriting protection. The primary
purpose of competition law is to remedy some of the situations in which the free market
system breaks down.
- The point was well made in the House of Lords debate during the passage of the Competition
Act, 1998 that ‘Competition law provides the framework for competitive activity. It
protects the process of competition – as such it is of vital importance.’

3. Questioning the competition itself

- Sometimes, competition may not yield the best outcome for society.
- Natural/statutory monopolies are good sometimes. Example – Railways, Postal
- Bidding/Public auction ( Periodical competition )
- Too much of competition can create huge and concentrated market share resulting in
monopolies, network effect and two sided markets.
- Example – Facebook
- If we do not take over today’s platform monopolies, we risk letting them own and control the
basic infrastructure of 21st century society.
- Therefore, Competition Law and Policy is required to streamline the process of comp etition in
order to protect the interest of the economy as a whole.
- It is significant to note that antitrust legal system is critical to the maintenance and development
of markets, considering its functionality that promotes wealth, with significant benefits at all
levels of the population economy.

4. Summary
Competition Law does 2 things :
1. Wherever competition already exists, it would deliver the goods by realizing the above
efficiencies.
2. Where competition does not already exist, it would be encouraged to , for example - by
providing structural remedies in a concentrated market.

History and Evolution of Competition law

• CL has grown enormously in recent years, especially post the 1990’s.
• The growth was tremendous in regions that have adopted competition law.
• The early implementation of competition law was out of a necessity and not as a luxury.
• In the 18 th Century, economic was centred around Adam Smith’s Wealth of nations concept
and mainly stressed on a free-markets without any restraint on trade.
• Modern economic theories from the late 19th Century however were based both on free as well
as fair markets. This thus led to the first Anti-trust legislation – The Sherman Act, 1890.
Anti-Trust Law in the US

• The US was the first country to introduce a coherent competition system.

• The main statutes in the US were:
a) The Sherman Act, 1890
b) Clayton Act, 1914
c) Federal trade commission Act, 1914
• These three legislations have been hailed as the “Charter of Freedom” – they protect the core
republican values regarding free and fair markets in America.
• These laws are a socio-economic statement.

a) Sherman Act, 1890

• Reason it came about – In the US, a small number of corporations had accumulated a large
amount of market share and wealth. These corporations were unconcerned with the interest of
the consumers. They grew into dangerous businesses known as “trusts”, which was all anti-
competitive in nature.
• The Act was brought in to sustain the competition in the market as well as curb the activities
of the Trusts. Any form of monopolies or activities that restrained trained was made illegal.
• The Act empowered the DoJ to institute legal proceedings in case of any violations of the Act.
• The two core sections of the Sherman Act are: (Heart and soul of the Act)
➢ Section 1: This has only civil application. Any contract which is in restraint of trade,
among the states in US or even with foreign states is declared to be illegal.
 ➢ Section 2: This has criminal application. Any person who monopolises trade or attempts
to do so either among the states of US or with other foreign nations is illegal. Therefore,
here the process of monopolisation has been declared as illegal if unfair means have been
adopted. If monopoly through fair means, it won’t be considered as illegal.
• Standard Oil Company v US (1912) –
▪ In this case, the SC toppled the Standard Oil company by applying the rule of reason.
▪ Restraint of trade would violate the Sherman Act only if they reduced competition to
an unreasonable extent.
▪ Standard Oil company and 65 companies under its control were charged with
monopolising the oil industry by using unfair means like railroad rebates, pipeline
monopoly, predatory pricing and so on.
▪ The court held that restraint of trade included the formation of monopolies and their
consequences.
▪ Standard Oil was ordered to be broken up into 33 different companies. Rockefeller
got 25% stock in each of these companies.
• Hartford Fire Insurance Co. v California (1993) –
▪ The court held that the Sherman Act has extra-territorial effect.
▪ It explicitly recognised the effect doctrine.
▪ The Act will have effect if that foreign conduct had a substantial effect on US markets.
• Hoffman La Roche Ltd v Empagram (2004) –
▪ A private plaintiff may not recover from independent foreign harm unless it is linked with
a corresponding domestic harm.
▪ Highlighted the effects doctrine.
• Even after the Sherman Act came about, there was a lot of business consolidation activities
in the US. Business were growing in size and were able to influence trade to a large extent.
• 45 Trusts were sued under the Sherman Act by Roosevelt.
• In 1902, Roosevelt stopped the formation of the Northern Securities Company which
threatened to monopolize transportation in the north west.
• The Sherman Act however was largely ineffective. Most of the anti-competitive activities
took place after the Act was passed.
• The reason for the failure of the Sherman Act was that it did not block unfair mergers or
acquisitions. It only illegalised monopolisation which was done through unfair means.
• There was a lot of uncertainty in the Act as the Congress didn’t clarify the meanings of
“restraint of trade” and “Attempts to gain monopoly”.

b) Claytons Act, 1914 –

• Reason for enactment – Too many loopholes in the Sherman Act, they wanted to stop the
creation of monopolies before it could even be conceived.
• The main purpose of the Act was the prevention of monopolies.
• The Act conferred more power on the Attorney General rather on the courts, which decided the
issue on a case-to-case basis.
• This Act was merely an extension to the Sherman Act. All those acts which were illegal under
the Sherman Act continued to be illegal under this Act.
• Certain other additions were made – Tying & Bundling, exclusive dealings, mergers and
acquisitions.
• The main test for prohibiting any activity – whether it reduced competition or not?”
• The Act however exempts both labour unions and agricultural organisations.
• It also provides for private enforcement.
• This Act, unlike the Sherman Act does not provide for criminal remedies. It provides for only
civil remedies.

c) Federal Trade Commission Act, 1914 –

• This Act provides for a blanket ban on unfair practices and methods of competition.
• A commission was instituted known as the Federal Trade commission (FTC). The FTC can
initiate action against persons, partnerships, corporations from using an y unfair means of
competition.
• The FTC could also initiate action for violations under both the Sherman and Clayton Act, as
well as any other means that it may deem as anti-competitive and which is not covered in either
of the Acts.
• The FTC thus has a wider jurisdiction when compared to the DoJ. It protects both the consumer
interests as well as ensure anti-trust law enforcement.

d) Robinson – Patman Act, 1936 –

• This Act is popularly known as the “anti-price discrimination law”.
• It amended the Clayton Act, 1914.
• This act made it illegal for companies to practice price discrimination.

e) Celler – Kefauver Act, 1950 –

• This Act further amended the Clayton Act.
• Its purpose was to restrict anti-competitive mergers resulting acquisition of assets.
• Even though mergers were included in the Claytons Act, it amended to cover all aspects – pure
stock acquisition to pure asset acquisition.
• The Act specifically defined different types of mergers and dealt with them differently.
• Horizontal mergers – occur in the same line of business
• Vertical mergers – occurs in different levels of the supply chain
• The Act empowers the government to stop vertical mergers that were anti-competitive.

f) The Hart – Scott – Rodino Anti-trust improvements Act, 1976 –

• It further amended the Claytons Act.
• Any company that were planning large mergers were to notify the same to the government in
advance.
• Established a pre-merger notification program with both the FTC and DOJ.
• Requires a filing fee.
 History of EU Competition Law (Focus on doc of restraint of trade)
Development of European Union (EU) – Competition Law
- The idea of using law to protect the competitive process emerged in Europe in the 1890s.
- In Austria, a group of scholars and administrators articulate the idea of using law to encourage
economic growth and competitiveness. The proposed legislation was discussed and almost
enacted, but political turmoil within the Empire in 1897 prevented its enactment.
- After the end of the Second World War, many European Governments turned to Competition
Law as means of encouraging economic revival.

The Initial Phase –

- The earliest ‘Community Competition Controls’ were introduced in the Treaty of Paris
(1951). They were for limited markets.
- The creation of European Economic Community also referred as “common market” in 1957
(Created by Treaty of Rome, 1957).
- The ‘European Economic Community’ (EEC) was established to create a European common
market and promote throughout the community a harmonious development of economic
activities, an increased stability, raising of the standard of living and promoting closer relations
between member states.
- To prevent a reoccurrence of a war in Europe, in order to unite the people, at least economically.
- The Common Market was intended to create interdependence between the States of
Europe. Hence, more competitive opportunities had to be created throughout this integrated
market. Accordingly, competition rules were included to assist in the creation of a unified
competitive environment and in an attempt to prevent companies from re-erecting trade
barriers.
- The companies and firms in European Union (EU) were under an obligation to treat the
Community Competition Law and National Competition Law on the same par.

Second Phase –
- The second phase saw the establishment of Directorate-General for Competition (DG-
Comp) in the mid 1980s. The supranational competition order suffered from various problems
such as long time taken to settle cases, lack of transparency, weak analysis of the facts, too
much room for politicization.
- Directorate-General for Competition initiated the first major review of the European Union
(EU) competition machinery in 1999.
- The Modern Regulation of 2004 : More powers to the investigators and the courts. Resulted
in decentralizing competition policies of European Union (EU).
- In order to co-ordinate National and European Union (EU) competition policies, the European
Competition Network was set up.

Four Main Pillars of European Union (EU) – Competition Law

1. Antitrust :
- Control of collusion and other anti-competitive practices which has an effect on the EU.
(Article 81 and 82 EC, now Article 101 and 102 of Treaty on the Functioning of the European
Union (TFEU, 2009)
- The thrust of the law is not on the structure but definitely on the behavior.
A.101 – Anti Competitive Agreements ; A. 102 – Abuse of dominant position
2. Mergers :
- Control of proposed mergers, acquisitions and joint ventures involving companies, which have
a certain defined amount of turnover in the European Union (EU).
- The Merger Regulation adopted in 1989 and replaced by the Merger Regulation of 2004.

3. State Aid :
- State aid pertains to control of direct and indirect aid given by European Union (EU) Member
States to companies. It is illegal if it distorts competition (Article 107-109 of Treaty on the
Functioning of the European Union (TFEU, 2009)

4. Enforcement :
- Primary competence for applying European Union (EU) Competition Law is with European
Commission and its Directorate-General for Competition.

Competition Law in UK
• During the 1980s, there was growing pressure within the Government and outside to
strengthen UK Competition Legislation and make it consistent with European Union
(EU) Law.
• In 1992, a Government Green Paper outlined alternative changes to the control of
monopolies to make UK Law more consistent.
• Competition Law in the UK remained essentially unchanged until the arrival of a
Labour Government in 1997. The new Competition Act received the Royal Assent on
9/11/1998.
• The Competition Commission was established in 1999; a new prohibition-based policy
aimed at outlawing anti-competitive behavior took effect from 2000.
• The Enterprise Act, 2002 : Office of Fair Trading (OFT) [Merger Control]
• The Competition and Markets Authority (CMA, 2014)

DOCTRINE OF RESTRAINT OF TRADE

• Common law doctrine – applicable to contracts
• Why such a clause? – in order to protect the interests of the employer from competition,
solicitation, sharing of trade secrets or confidential information after termination of
employment contract.
• Limited in nature – allows a party to escape a contract which unreasonably restrains his/her
ability to trade.
• All contracts whereby a person bound himself to abstain from the exercise of a particular trade,
business or vocation, were void, regardless of whether the restraint was general or special as
being against public policy.
• Such contracts were considered void because they were designed to destroy or stifle
competition, effect a monopoly and artificially maintain prices. To enforce such a contract was
to deny the tradesman the right to earn his living
• John Stuart Mill – believed that the doctrine was justified to preserve liberty and competition.
• Dyers Case (1414)
Facts: Mr John Dyer had given a promise to not exercise his trade in the same town as the
plaintiff for six months but the plaintiff had promised nothing in return.
Held: Hull J. – Obligation was void and illegal because according to the prevalent common
law, such contracts were prohibited.
This rule stayed for two centuries.
 MODERN DOCTRINE OF RESTRAINT OF TRADE
• If covenant is in partial restraint of trade and reasonable – valid.
• They are present in contracts for purchase of shares and businesses, employment agreements
and in covenants to protect confidential information, trade secrets and know-how.
• Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. (1894)

Facts: Thorsten Nordenfelt, a manufacturer specialising in armaments, had sold his business to
Maxim. They had agreed that Nordenfelt ‘would not make guns or ammunition anywhere in
the world, and would not compete with Maxim in any way for a period of 25 years’. He was in
breach of these terms.

Held: Lord McNaughton - House of Lords – Restraint was reasonable and enforceable in the
interest of the parties. It was found to be reasonably necessary for the protection of goodwill.

Therefore, General Rule - All interference with individual liberty of action in trading, and all
restraints of trade themselves, if there is nothing more, are contrary to public policy and
therefore void.

Exception - if justified because it is reasonable having regard to interests of the parties and
the public – generally ‘area of restriction should correspond with the area in which protection
is required’

Restraint of trade clauses may become valid if three conditions (special circumstances) are
satisfied-
1) Terms seek to protect a legitimate interest;
2) reasonable from the point of view of the parties involved; and
3) reasonable in public interest.

Analysis of Nordenfelt case – modern viewpoint, attempt to balance freedom of contract and
freedom of trade, justifies judicial interference where judicial interference where restraint is
unreasonable.
Protectionism was justified because monopolies were not good for a healthy competitive
market.

THE FRANCHISE MODEL

• This model provides an ideal example of the shift in the judicial interpretation of the restraint
of trade clauses.
• In franchise agreements, the purpose of the restraint of trade clause is to prevent a franchisee
from competing with the franchisor, in the event that their franchise agreement ends.
• Prontaprint PLC v. Landon Litho Ltd.

Facts: Plaintiffs operated a franchise system in association with a well-known trademark

“Prontaprint” – provided facility for high speed printing and copying – it was a nationwide
business.
 Defendant was a former franchisee who after the expiry of the franchise agreement had
continued in business in the same premises operating the same type of service but under a new
name.

The non-compete covenant covered the provision of the franchised service or anything similar
within a half-mile radius of the defendant franchisee's premises or within a radius of three miles
from any premises in the United Kingdom at which the service or anything similar was carried
on by any other franchisee or the franchisor.

(FOR READING - Clause 17 of the Agreement - The licensee agrees that he shall not at any
time within three years of the determination of this agreement engage in or be concerned or
interested directly or indirectly in the provision of the Service or anything similar thereto
within a radius of half a mile of the Premises or within a radius of three miles from any
Premises in the United Kingdom at which the Service or anything similar thereto is carried
on by any other licensee of the licensor or by the licensor itself.)

Held: Covenant enforceable and interim injunction was granted to enforce the covenant. The
relationship of franchisor and franchisee was described as being closer to that of vendor and
purchaser of a business rather than of employer and employee. The franchisor has every right
to protect their business interests by way of a reasonable restraint of trade clause.

HISTORY AND EVOLUTION OF INDIAN COMPETITION LAW

1) CONSTITUTION TO MRTP ACT 1969

- India has had a history of competitive markets. Kautilya’s Arthashastra, deals with statecraft
and economic policy.
- Articles 38 and 39 of the Constitution of India mandate that the government shall secure and
protect the society where people will get social, economic and political justice and the State
shall direct its policy as - The ownership and control of material resources are so distributed as
best to assist the common good & The economic system does not operate as it creates a
concentration of wealth and means of common detriment.
- India chose centrally planned economic structure – also referred to as Nehruvian Socialism
model – mixed economy

Industrial (Department and Regulation) Act, 1951

- It empowered the government to regulate almost every aspect of the functioning of the private
sector.
- The private sector was allowed with limited licensed capacity.
- Public sector was patronized to achieve growth and development of core industries like coal,
oil & natural gas, iron & steel, power & energy etc.
- Lack of competitors in the market.
- Free competition in the market suffered a lot mainly because of Govt. policies: High tariff &
no proper license regime.
- Resulted in monopolies and License Raj.
 2) MRTP ACT, 1969

- Act was brought about as a consequence of the Report of the Monopolies Inquiry Commission
(1965) - Govt. inquiry into the private sector concentration
- Report stated that over 85% of the industrial areas had a “high concentration of economic
power”
- Ultimately bill was passed with the goal of limiting market concentration by industry.
- The MRTP Commission was established – to investigate the conduct of entities engaging in
monopolistic, restrictive and unfair trade practices.
Highlights of the MRTP Act, 1969
- Prohibited three types of trade practices –
1) Unfair Trade Practices
2) Restrictive Trade Practices
3) Monopolistic Trade Practices
- Large Companies (Assets exceeded INR 20 Cr.) & Dominant Companies (Assets exceeded
INR 1 Cr. And whose share of the market exceeded 25%) had to mandatorily obtain licenses
or permits before engaging in mergers or takeovers, establishing new ventures, or substantially
expanding old ones.
- Firms with assets of more than INR 100 Cr. were prohibited from expanding into sectors not
selected by the government.
High Powered Expert Committee (Sachar Committee) 1977
- 1997, Unfair Trade Practices such as false or misleading advertisements were included in the
prohibited activities list.
- 1984 - MRTP Act was amended to prohibit monopolistic trade practices, which were defined
quite broadly.
- 1991 – Amendment to remove licensing requirement.
3) REASONS FOR FAILURE OF MRTP ACT, 1969
- Licensing requirement and strict regulation of growth punished efficiency.
- MRTP Commission lacked power to impose substantial penalties for violations – could
only issue cease and desist orders which were often ignored.
- The Act was excessively vague. It failed to define many of the anti-competitive acts: eg. unfair
trade practices.
- MRTP Commission was not interested in pursuing cartels. Only seven cartel cases were
resolved from 1991 to 2007, and almost all resulted in dismissals because of a lack of evidence
of an agreement.
4) RAGHAVAN COMMITTEE
- Economic crisis in led to formulation of New Economic Policy (NEP) and New Industrial
Policy (NIP) in 1991.
- The shift from “command and control” culminated in an overhaul of the competition laws.
- India became a party to two important agreements of the WTO: GATT & TRIPS
- In his 1999 budget speech, the finance minister explained, “The MRTP Act has become
obsolete in certain areas in the light of international economic developments relating to
competition laws. We need to shift our focus from curbing monopolies to promoting
competition”.
 - A High Level Committee on Competition Policy and Law, known as the Raghavan
Committee to evaluate the MRTP Act.
- Committee found that the MRTP Act was inadequate for fostering competition in the
market…and reducing…anti-competitive practices…
- Committee recognized that substantial expertise would be necessary to institute an effective
competition regime.

MAJOR RECOMMENDATIONS OF THE RAGHAVAN COMMITTEE

- To repeal the MRTP Act and to enact a new Competition Act for the regulation of Anti-
competitive agreements and to prevent the abuse of dominance and combinations including
mergers.
- To eliminate reservation of products in a phased manner for the Small-scale Industries and the
Handloom Sector.
- To divest the shares and assets of the government in state monopolies and privatize them.
- To bring all industries together, i.e., the private as well public sector within the proposed
legislation.
Thus, the Indian Parliament enacted the Competition Act in December 2002 and it received
Presidential assent in January 2003.
COMPETITION ACT, 2002
Basic concepts – market, open market, regulated market
1) Market
- It is the sum total of all the buyers and sellers in the area or region under consideration.
- The value, cost and price of items traded are as per forces of supply and demand in a
market.
- The market may be a physical entity, or may be virtual. It may be local or global, perfect
and imperfect.
2) Open Market
- An open market is an economic system with no barriers to free market activity.
- An open market is characterized by the absence of tariffs, taxes, licensing requirements,
subsidies, unionization and any other regulations or practices that interfere with a
naturally functioning free market.
- Anyone can participate in an open market.
- There may be competitive barriers to entry, but there are no regulatory barriers to entry.
- According to the OECD (Organization for Economic Co-operation and Development),
open markets enjoy stronger economic growth, higher productivity, a superior standard
of living, more innovations, and stronger institutions and infrastructure than closed
markets.
3) Regulated Market
- A regulated market is a market over which government bodies exert a level of oversight
and control.
- The main objective with which the regulated markets are formed is to eliminate illegal
and unhealthy marketing practices, to lessen marketing charges and to ensure fair prices
both to producers and consumers .
 Harvard and Chicago Schools of thought
- These two economic theories have battled for dominance during the modern economic era.
- These economic theories have been used in the interpretation of anti-trust law.
- Harvard school – From Sherman Act to 1970.
- Chicago School – From 1980’s.
I. The Harvard School
- Often referred as the “Structural approach” or the “Rule per se”.
- Economists responsible – Edward Chamberlain, Edward Mason, Joe Bain.
- Basis of theory – when markets are concentrated, less in number, they hold a greater share of
the market power, in such a situation firms are more likely to engage in anti-competitive
practices. Ex:- Oligopolistic market
- This school assumes that if any monopoly exists, it employed anti-competitive practices to do
so. It does not look into the process as to how a firm became dominant in the market.
(presumption of illegality). Even if such a monopoly benefitted consumers, it was deemed
illegal as it was presumed to have used illegal and unfair means.
- By this School, both the Sherman and Clayton Act must be interpreted in such a manner so as
to protect individual or the small competitors in the market. The interest of the consumers was
not looked into.
- This theory gave a lot of protection to small competitors and protected them from
discriminatory pricing from large sellers.
- Most of the cases till the 1970’s applied this understanding.

a) United States v Aluminium Co. of America (1945) –

▪ Alcoa company was involved in the manufacturing of aluminium. It had 3 different
segments, and each were involved in different operations.
▪ With the growth of the company, it opened up a subsidiary company in Canada.
▪ In 1931, Alcoa entered into an agreement with the Germany, France and the UK which
essentially determined the demand and import of aluminium into the US.
▪ It thus became a global company with markets in the EU as well.
▪ It started producing at a large scale and thus was able to bring down the cost of
production by a great extent. Consumers were benefitted with the supply of cheap, high
quality goods.
▪ In 1939, the DOJ instituted a suit against Alcoa for violation Section 1 and 2 of the
Sherman Act. The district court however disregarded their claim and thus the
Government went on appeal.
▪ Judge Hand conducted a study of the various market segments Alcoa operated in:
i. Fabricated Al – 92% market share
ii. Secondary Al – 33% market share
iii. Both fabricated and secondary – 64% market share
▪ Therefore, only in one segment, did they have a large market share – 92%.
▪ Judge Hand however did not separately consider the sections and because Alcoa had a
monopoly in one of the markets, considered as anti-competitive as per the Harvard
School theory and hence ordered for Alcoa to be dissolved.
▪ This ruling was criticised by Federal Chairman Greenspan – anti trust law should only
condemn coercive monopolies.
b) U.S v Philadelphia National Bank (1963) –
▪ PNB merged with Girard Trust Corn Exchange Bank, which was a small local bank.
▪ It was a friendly merger, which created 30% of the market share in the banking sector.
▪ The DOJ were against this merger and were successful in their suit.
▪ From this case, 30% became the limit beyond which it was considered as anti-
competitive.

c) Brown Shoe Co. v US –

▪ The court held that the Clayton Act was to protect competition through th e protection
of viable, small, locally owned businesses.
▪ Big is bad, small is good.

• The main disadvantages of the Harvard approach are:

1. Harvard School jurists were too quick to find fault with aggressive competition.
2. The courts and agencies prevented large firms from engaging in competitive conduct
that could have benefited consumers and would have been perfectly permissible for
firms with lower market shares.
3. The Harvard School prohibited innovative forms of competition that could have
enhanced economic efficiency.
II. The Chicago School

• It is also known as the “Rule of reason”.

• Main economists – Robert Bork, Frank Easterbrook, Richard Posner.
• These economists felt that the Congress had no real intent of protecting the interest of
small competitors through their anti-trust laws. Their main intent was to increase the
efficiency of the American economy.
• Economic efficiency could be achieved through the maximisation of wealth, which
according to these economists meant – consumer welfare. This should be the only
legitimate goal of Anti-trust law according to Bork.
• The Chicago school theorists believed that the Harvard school theorists misjudged the
ways in which firms continue to compete, even when they have relatively few
competitors.
• According to the Chicago school, markets were to be left free without any intervention.
Anti-trust law intervention is justified only when consumer welfare was effected.
• This school considered that just because a firm has monopoly power, it does should not
be penalised for being anti-competitive. The burden of proof was now shifted on the
DOJ and agencies to show that the firm employed anti-competitive practices to achieve
monopoly.
• Therefore, this school certainly benefitted both businesses as well as consumers.

a) Broad Music Inc v CBS (1979) –

▪ This case highlighted the shift of the Courts from the Harvard to the Chicago school.
▪ In this case, 40K authors, composers entered into an agreement with a music society where
the society got non-exclusive rights over their work. In return, the society fixed the prices
 and blanket licenses were given to broadcasters. This benefitted a lot o f authors and
composers who were often exploited by the broadcasters.
▪ The DOJ considered this as anti-competitive because it was a contract in restraint of trade
and also was a price-fixing agreement.
▪ The court however looked into each clause of the contract. It did not consider it a restraint
of trade as the society had only a non-exclusive right. Furthermore, the price fixed by the
society was a reasonable price.
▪ Hence, the contract is valid and not anti-competitive.

b) In re Boeing Co. (1997-2000) –

▪ Boeing merged with Mcdonnell Douglas Corp – with this merger, Boeing gained a 64% + 6%
market share. Not that much.
▪ Airbus, an EU company had 30% market share in the aircraft manufacturing industry.
▪ This merger between Boeing and McDonnell was under the scanner of the DOJ. They felt it
was anti-competitive.
▪ In 1997, the FTC and DOJ – applied Chicago school – went through the details of the merger.
Understood that this merger was actually necessary as without which McDonnell would not
have survived in the market. This merger is more of a business revival plan rather than anti-
competitive.
▪ Boeing in this case was however blocked for this merger because of the political pretext as
Airbus would be affected in the EU.
Harvard – Chicago school conflict

• Plaintiffs usually could prevail under a Harvard School approach because they were excused
from proving complex economic facts, while defendants usually could win under the Chicago
School approach because plaintiffs were unable to meet their burd en of proving the adverse
economic effects of particular types of conduct.
• As the courts and agencies moved between the divergent approaches of the Chicago and
Harvard Schools, business executives became confused as to the applicable rules of
competitive conduct.

➢ Vertical restraint cases (Non-price agreements):

a) US v Arnold Schwinn (1967) –
▪ Schwinn was a bicycle manufacturer and holds 22% of the market share.
▪ Schwinn sold to wholesalers and distributors in bulk. He didn’t deal with customers
directly.
▪ However, as his business was decreasing, he came up with a business revival plan. He
came up with a territorial requirement for each wholesaler and the wholesale rs were
allowed to sell with the franchisees chosen only by him.
▪ This contract was challenged as it was in restraint of trade.
▪ The court applied the Harvard approach and held that non-price vertical restrictions are
per se illegal, provided that the transaction in question involved a passage of title.
▪ In this case, the wholesalers were not acting as agents but were buyers and hen ce there was
actual sale. They were being restricted by this agreement. Hence, per se illegal.
▪ Per se = Harvard approach.
b) Continental TV Inc v GTE Sylvania Inc (1977) –
▪ The SC reversed the decision in the Schwinn case and held that non -price vertical
restrictions should be judged by the rule of reason.
▪ Sylvania – TV manufacturer – wanted to revamp its business model -depended on the
franchisee model – no longer dealt with wholesalers but directly with retailers. A territory
clause was also included in this agreement.
▪ One of the Franchisee filed a case as they felt this agreement was in restraint of trade and
as per the Schwinn case was per se illegal.
▪ The court analysed that the benefits of the Franchise model was that whenever non -price
competition was imposed, it reduced intra-brand competition. The brand value increased.
▪ The court stated that every vertical restriction will have its own economic utility, if it
increased consumer welfare – then such agreements by reason would be legal.
▪ The rule of reason presumes the legality – burden shifts on DOJ to prove otherwise.

➢ Merger and Joint venture cases:

a) Brown shoe co. v US (1956) –

▪ Brown shoe – leading shoe manufacturer – held 4% of the market share and was the
4 th largest shoe manufacturer.
▪ Brown shoe merged with kenny’s shoe which had only 1.25% of the market share.
▪ Harvard school was in place – did not look into the details of the merger and
disallowed this merger.
b) US v General Dynamics corp (1974) –
▪ General dynamics merged with another company – gained 34% market share in coal
mining industry.
▪ As per earlier cases, anything more than 30% was per se illegal.
▪ However, the court conducted an enquiry – looked into the nature of the industry,
nature of the market – court found that the competition in the market was not reduced
by this acquisition.
▪ By rule of reason, this acquisition was legal.
New approach – Quick look analysis
California Dental Association v FTC (1999) –

• The “quick look analysis” came about in this case.

• Entirely changed the approach to anti-trust law.
• CDA – non profit association of local dentists – provided insurance and marketing facilities to
its members. Members in return had to oblige by a code of conduct of the CDA.
• Two main rules in the form of restrictions:
1. Dentists were prohibited from advertising wrt price or discounts in their services.
2. Dentist were prohibited from advertising on the quality of service.
• FTC objected to these guidelines – considered it to be anti-competitive. The dental industry
has a lot of information asymmetry so such ads are necessary for consumer benefit and will
increase their choice. Just because of a few dentists indulging in malpractice, all can’t be
banned.
• The case went before the 9 th circuit bench.
• Court refused to conduct a rule of reason approach. It would involve a lot of time and resources.
• Hence, the court came about with a quick look approach – quick look of rule of reason.
• This approach stated that – When any observer with even a rudimentary understanding of
economics could conclude that the arrangements in question have an anti-competitive effect on
customers and markets – then illegal.
• This approach will be adopted when the likelihood of anti-competitive effects can be easily
determined. The 9 th Circuit bench considered these restrictions as anti-competitive.
• On Appeal to the SC, the SC said that this approach was a perfect balance between the Harvard
and Chicago schools.
• However, in this case, the merits of the case have to be looked into. Allowed these restrictions
as it benefitted the customers.

UNIT 2 – COMPETITION ACT, 2002

Introduction
• The CLA was passed with a lot of rush and was improperly implemented.
• It was implemented in various stages and different sections came into force at different times.
• Section 7,8 and 9 came about to establish the CCI in 2003.
• In 2009, Section 3 and 4 – the core sections of the Act – heart of the Act – was implemented –
dealt with anti-competitive agreements and abuse of dominant powers.
• In 2011, provisions regarding mergers and acquisitions came about.
• This Act was passed in a rush to align India with the foreign markets and investment. However,
there was a huge gap and delay in setting about the main provisions of the Act.
• Only post 2010, important cases regarding competition law came about.
Brahm Dutt v. UOI (2005) –

• This case has become significant in regard to Section 7 and 8 of the CLA.
• Section 7,8 and 9 deal with the institution of the CCI. Section 9 provides for the selection
committee – as to how and who to be appointed to the CCI.
• The issue was who was to appoint the selection committee.
• Under Rule 3, the CG was to constitute a committee consisting of a person who has been a
retired judge of the SC or HC or a retired chairperson of a Tribunal or a distinguished jurist or
a senior advocate of 5 years of experience or any person who has spec ial knowledge of 25 years
or more. These rules came about in 2003.
• When these rules were passed, a writ petition was filed by Brahm Dutt challenging the
constitutionality of Rule 3. He prayed for the following:
i. Strike down Rule 3 – as it was a violation of doctrine of separation of powers as the C.G
was appointing a judicial body – CCI.
ii. Issue a writ of mandamus directing the UOI to appoint a person who is or has been a Chief
Justice of HC or senior judge of HC in terms of the guidelines of the S.P Sampath Kumar
v UOI.
• Brahm Dutt contented that on a bare look at the provisions of the CLA provides that the CCI
has some adjudicatory powers and functions. Hence, it is a judicial body and the Chairperson
 should be a judicial officer. Furthermore, this post of Chairperson should be appointed by the
Chief Justice of the SC and not any government official.
• According to Brahm Dutt, Rule 3 was violating the principle of Separation of powers.
• The UOI however claimed that the CCI is not entirely a judicial body. It has limited
adjudicatory functions. It is largely a regulatory body. Such bodies are generally headed by
persons who are experts in the field and not a judicial officer.
• The UOI also claimed that as long as the power of judicial review of the HC and SC are present,
the right of the Government to appoint the CCI chairperson could not be challenged on ground
of separation of powers. Moreover, even in foreign countries which have regulatory bodies, the
chairperson is an expert and not necessarily a judicial officer.
• The UOI of India however went on to file two affidavits before the SC – the promised the Court
that the appointments of chairman and members would be done by a committee that is headed
by the Chief Justice of India. However, the Chairperson would be a person who is an expert in
the field. They thus promised to comply with the demands of the petitioner – except for the
prayer regarding the Chairman.
• On account of these affidavits, the SC declined to pass an order.
• The SC however observed that:
a. CCI is an expert body – requires an expertise in this domain.
b. CCI performs both adjudicatory and regulatory functions. Hence it would be better for the
CCI to have two components to it – one primarily for adjudication and another for
regulation/advisory. The former headed by a judicial officer and the latter by an expert.
• Following this case, the CL (Amendment) bill, 2006 was passed – this however did not conform
with the affidavit made by the C.G and neither the guidelines of the SC.
• The Bill however conferred the power to award compensation and penalties on the COMPLAT
from the CCI. Thus the adjudicatory power was effectively taken away from the CCI.
DEFINITIONS
1) RELEVANT MARKET
Need for Defining Relevant Market
- Drawing the parameters of malfeasance in the relevant market.
- Assessment of dominance and the possibility of unilateral conduct.
- Limiting the boundaries of the Commission jurisdiction in assessing the anti-competitive
outcomes.

- Section 19(5) – duties of the Commission with regard to Inquiry into certain agreements and
dominant position of enterprise refers to – for determining whether a market constitutes the
“relevant market” for the purposes of this Act, the Commission shall have due regard to the
“relevant geographic market” and “relevant product market”.

- In order to check relevant market, interchangeability or substitutability to be looked into.

- Market = independent business area where competitive relationships can be effected or
destroyed.
- The relevant market is the area of effective competition, where supply and demand interact.

- The Act defined relevant market in Sections 2(r), 2(s) and 2(t),
- 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;

- 2(t) “RELEVANT PRODUCT MARKET” 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;
• It is defined in terms of interchangeability or substitutability.
• Interchangeability of a product with other products or with the same product elsewhere.
• Therefore, relevant market has both product aspect and market aspect.
• Three points to be considered (physical characteristics, price and purpose-intended use)
• Direct substitute goods (eg. Starbucks with Barista; pepsi with coke, therefore dynamic)
• Just because two products are used for similar purposes does not imply that they are in the
same “antitrust” market. Eg. Merely because price of a car increases, does not mean people
will shift to bicycle.
• Determining Factors – Section 19(7)
1) Physical characteristics
2) End use
3) Price of goods/services
4) Consumer preferences
5) Exclusion of in-house production
6) Existence of specialised producers.
CL: United states v E.I. Du Pont De Nemours & Co. (1956) -

• Also regarded as the “cellophane case” – important for understanding relevant market.
• US Supreme Court.
• Dupont Co. – Manufacturing cellophane used for the purpose of packing – Dupont Co. only
manufactures cellophane, no other flexible material.
• During 1923-1947, controlled 75% of the market share, However, if considered among all the
other flexible material – has only 20% market share. Therefore, only in the cellophane industry
does it have a 75% market share.
• FTC alleged that it is monopolistic – based on Harvard school of thought – hence 75% was a
monopoly.
• The SC went on to identify the relevant product market – relevant market is where products
can be reasonably interchangeable by the customers.
• Hence, the cellophane industry can’t be looked at separately, has to be looked along with other
flexible packing material.
• The US SC thus defined the relevant market widely to be the market of all flexible material
and not only in the cellophane industry – and as Dupont Co. held only 20% - not a monopoly.
Furthermore, it was held that Dupont co. does not have the power to increase the price and
control the market – even if it increases the price, it won’t make a profit out of it as there are
enough competitors in the market.
This case has been criticised a lot. Also known as the “cellophane fallacy”. The main criticism
are as follows:
a. The courts only considered the cross-elasticity of demand but did not consider that Dupont Co.
is already in a profitable position. The price that Dupont Co. was charging was much higher
than its cost of production.
b. The courts failed to consider Dupont Co’s already existing monopoly. However, the court only
stated that Dupont Co. will not increase the price further as it would not be profitable.
c. According to economists’ the relevant product market should have solely been the cellophane
market. There are other co’s which manufacture only cellophane – it has a monopoly in that
market.
Therefore, the entire analysis of anti-trust depends on how the relevant market is defined.

• Tests adopted to identify the relevant product market are:

1. Reasonable Interchangeability of Use or Demand Substitute – by reason of
characteristics of product, their prices, and intended use.
2. Cross Elasticity of Demand: SSNIP – Small but Significant Non-transitory Increase in
Price
Hypothetical Monopolist/SSNIP Test – Whether a small but Significant Non-transitory
Increase in Price one product (A) will cause buyers to buy sufficient of another product
(B) instead. The most commonly used price increase threshold is 5-10%. Hence, this test
may also be known as the 5-10% test. In order to understand the applicability of the SSNIP
test, one must first understand the meaning of a hypothetical monopolist – it is a producer
that can profitably increase prices without fearing that his product be substituted by the
consumer or replaced by another producer. The SSNIP test seeks to identify the smallest
market within which a hypothetical monopolist could profitably impose a small but
significant non transitory increase in price. SSNIP is usually defined as a price increase of
5% for at least 12 months.
• Step by Step application of the SSNIP test:
a. Start with the smallest possible market and ask if 5% price increase in price is
profitable
b. If not, then firm does not have sufficient market power to raise price
c. Next closest substitute is added to the relevant market and the test is applied.
d. Process continues until the point s reached where a hypothetical monop olist
could profitably impose a 5% price increase.
e. Relevant market is then defined.
• Therefore, the Hypothetical Monopolist Test is the standard approach to defining relevant
market.
• First officially recognised in the 1982 US Horizontal Merger Guidelines issued jointly by
the DoJ and FTC.
• Ensures that markets are not defined too narrowly.
CL: United States v E. I. Du Pont de Nemours & Co. (1957) –
• Civil suit filed by the Federal Government under Section 7 of the Clayton Act, in 1949.
• Du Pont had purchased 23% stock interest in General motors (1917-1919).
• Suit was challenging this purchase – Du Pont had obtained an illegal preference over
competitors in the sale of automotive finishes and fabrics to General Motors – thus leading to
the creation of a monopoly in a line of commerce.
• The court held that prior to the 1950 amendment Section 7 of the Claytons Act deals only with
vertical and horizontal stock acquisitions.
• Automotive finishes and fabrics have sufficient peculiar and characteristics and uses to
constitute them products sufficiently distinct from all other finishes and fabrics to make them
a “line of commerce”.
• Therefore, the relevant market are not co-extensive with the total market for finishes and
fabrics, but are co-extensive with the automobile industry.
• Du Pont had a substantial share of the relevant market as it was the largest supplier to General
motors for finishes and fabrics.
• To bring an action under Section 7 – it had to be proved such an acquisition reduced
competition.
• It was proved that it was anti-competitive via this stock acquisition. Not required to prove that
restraint or monopoly was intended.
CL: United States v Continental Can Co. (1964) -

• Suit filed under Section 7 of the Clayton’s Act – for divestiture – Continental Can company
(CCC) had acquired assets of Hazel-Atlas Glass company in 1956.
• CCC is the second largest producer of metal containers.
• HAG is the third largest producer of glass containers.
• CCC produced no glass containers but after this acquisition shipped 33% of all metal containers
sold in the country.
• HAG produced no metal containers but went on to ship 9.6% of the all the glass containers
following the acquisition.
• The court defined the relevant market based on the end use of the product or container.
• The court identified 3 markets:
i. Metal containers
ii. Glass containers
iii. Glass beer containers
• The court held that there was inter-industry competition, yet considered them to be separate
lines of commerce.
• The competition protected by § 7 is not limited to that between identical products.
• No cross elasticity or relative minimum cross elasticity.
• Though there is an effective and substantial end-use competition between both, but the
interchangeability of the use may not be so complete and cross-elasticity of demand not
immediate, the long-run results bring the competition between them within § 7.
• There is a large area of effective competition between metal and glass containers, which implies
one or more other lines of commerce encompassing both industries.
• Based on the present record, the inter-industry competition between glass and metal containers
warrants treating the combined glass and metal container industries and all end u ses for which
they compete as a relevant product market.
• On the basis of the evidence so far presented, the merger between CCC and HAG violates § 7
because it will have a probable anticompetitive effect within the relevant line of commerce.
 CL: Hoffman La Roche v Commission (1979) –

• HLR – leading manufacturer of vitamins.

• Allegation by the EU commission – HLR abused its dominant position as HLR used to give
certain discounts to its distributors, there were conditional discounts – the distributors had to
buy vitamins exclusively from HLR in order to avail the discounts.
• For example, if the distributor wanted to buy vitamin C, they provided discounts as long as
Vitamin E was also bought. Hence, they tied both the products in the market.
• HLR appealed – whether Vitamin C is a substitute for Vitamin E?
• HLR claimed that tying happens when products belong to two separate markets, both are inter-
changeable.
• The court analysed that Vitamin C and Vitamin E each were inter-changeable for their technical
uses such as antioxidant and fermentation agent in food additives but for their bio -nutritive use,
each constituted a separate market and no sufficient degree of inter-changeability existed.
• Hence, upheld the decision of the commission.
CL: Hoffman La Roche and Novartis v AMOI (2018) –

• HLR manufactured Avastin.

• Novartis manufactured Lucentis.
• In 2005, HLR got the license to manufacture avastin, which was a cancer treatment drug.
• Per injection, Avastin cost 81 Euros.
• In 2007, Lucentis received market authorisation for treating eye ailments. Per injection, it cost
900 Euros. In the same year, Novartis got the license to commercially exploit the drug.
• The issue: Since 2005, doctors have also been prescribing avastin for treating eye-ailments –
“off label practice”. The doctors are of the opinion that avastin does the same as lucentis with
regard to eye-ailments. Also, Avastin is more cost-effective.
• Because of this practice, Novartis was suffering a loss.
• HLR and Novartis came to an understanding – disseminated the information to the public that
this “off-label” practice has serious health consequences that Avastin if use for eye -ailments
would lead to cardiac issues.
• This agreement was a profit-sharing agreement with Novartis – happens a lot in such
oligopolistic markets.
• The reason HLR agreed to this agreement is because one of its subsidiary, Genetech was
involved in the manufacture of both the drugs. Hence, disseminated inform ation to retain
profits.
• In 2014, the Italian commission penalised HLR and Novartis for this anti-competitive
collusion.
• On appeal, went to the EU court of Justice.
• The main issue – whether they fall under the same relevant product market?
• HLR and Novartis claimed it was a separate market, not substitutable and hence, not
competitors.
• The court held – both belong to the same relevant market – this off-label practice has not been
termed as illegal, both products are thus inter-changeable and belong to the same relevant
product market.
• Based on the price and end use, the court held it to be part of the same relevant market.
• Issues regarding judgment ---- slides
CL: United brands Co. v Commission (1978) –
• UB is a leading manufacturer of bananas – entered into a restrictive agreement with its
distributors – it also fixed the price – the price was discriminatory in nature, in a few markets
it was very high.
• This arrangement was considered as an abuse of dominant position as UB had acquired 45%
market power.
• Before the EU court of Justice, UB claimed that they do not hold a monopoly – banana is a part
of fresh fruit – in whole fresh fruit market, they are not a monopoly, market share drops to
12%.
• The issue – what is the relevant product market and whether bananas are interchangeable with
other fresh fruits?
• The court observed that the production of bananas is not seasonal.
• The court looked at the features of the banana – taste, softness, seed lessness, easy handling.
Held that availability of another fruit does not affect the demand and supply of bananas.
• This case has often been referred as the “False definition of relevant market” – as this method
of separating banana from other fruit products, if applied to other fruits would make each fruit
product a separate market all together.
• Lot of jurisdictions have not accepted this definition.
CL: Nestle – Perrier case (1993) –

• Characteristics and end use may not be the only factors for defining the relevant product
market.
• This case broadened the factors for determining the relevant product market. – Quality of
products, the brand and so on. These factors must also be considered in determining the RM.
• Whether mineral water can be substitutable for fresh juice or soft drinks? Whether part of the
same market?
• By functionality, they are not interchangeable to quench thirst.
• Water is thus unique.
CL: Shamsher Kataria v. Honda Siel Cars & Ors. –
Facts & Allegation:
Shamsher Kataria (Informant) filed information against Honda, VW, Fiat India under S.
19(1)(a) of the CA, 2002 alleging anti-competitive practices by abusing their dominant position
by charging higher prices for spare parts and maintenance services than th eir counterparts
abroad through agreements with Original Equipment Suppliers. Further, there was complete
restriction on availability of technological information, diagnostic tools and software programs
required for servicing and repairing the automobiles to independent repair shops.

Laws Involved:
RM, S. 3, 4
19(1)(a)

Definition of Relevant Market and Investigation by DG:

 - After a prima facie case was made out, DG was directed to make an inquiry and submit
report. He investigated all car manufacturers in India. DG concluded that activities of
OEMs were in violation of sections 3 and 4 of the Act.
- Two relevant products markets were identified:
o Primary – manufacture and sale of passenger vehicles
o Secondary/Aftermarket – supply of spare parts and after sales services
o Because once you purchase a car, you are locked into that market.
- DG analyzed the appreciable adverse effect on competition (“AAEC”) by examining
vertical agreements that OEMs had with:
o local OESs who manufacture spare parts for OEMs for their assembly line or to
be sold in the aftermarket through authorized dealers,
o overseas suppliers who supply OEMs with spare parts, and,
o dealers, through whom cars are sold and who provide after sales services.
- DG observed that OEMs were able to substantially mark-up prices for spares. Hence,
DG concluded that vertical agreements entered into between OEMs and their authorized
dealers cause AAEC in terms of conditions set forth under section 19(3) of the Act.

Decision & Reasoning:

- CCI substantially concurred with the DG that the relevant market would be related to spares.
CCI concluded that OEMs were unable to demonstrate that they could, or consumers could,
compute life-span costs and hence, rejected the systems market contention.
- The Commission examined the agreements and its effect on competition based on factors set
out in Section 19(3) of the Act. If an agreement engendered efficiency but eliminated
competition in the market, the Commission would strike it down.
- Consequently, the Commission held that OEMs were in violation of Sections 3(4)(b), 3(4)(c),
3(4)(d, 4(2)(a)(i), 4(2)(c) and 4(2)(e) of the Act and subsequently imposed penalty
- The OEMs were found to be dominant in the markets for their respective brands and had abused

Analysis:

- Rejection of ‘systems market’ has led to an incongruous situation where the consumption of
spares has been analyzed independent of how consumers purchase cars.
- The Commissions emphasis on open access of spares and diagnostic tools would seem
misplaced since it ignores the technical nature of cars and its components and the special role
of authorized dealers.
- The Competition Appellate Tribunal has emphasized the need for reasons while imposing
penalty and has acknowledged that penalty should be imposed on ‘relevant turnover’ in Excel
Crop Care Limited v. Competition Commission of India &Ors. but penalty was imposed in a
blanket manner on 2% of total turnover.
- Parties have approached the high courts challenging this.

• CCI in 2014.
• Whether the after-sales market is a separate market from the primary market? How is the
Relevant market to be defined in such a situation?
• The DG made it clear that the relevant product market – which is the secondary market is a
separate relevant market from the primary market.
• The secondary market is the after-sales market.
• The reason: once a purchase has been made, the secondary market immediately comes into
operation for servicing and maintenance. There are technical differences present within the
same car manufacturer for different cars as well. Due to these differences – once you purchase
a car from a particular manufacturer, the customer is locked into the market. Only years later
does the buyer approach an independent garage owner rather than the authorised sales dealer.
• Therefore, in the secondary market, these car manufacturers have 100% domination – due to
this lock in caused by technical differences in the product.
• The car manufacturers however contended against the report of the DG – they contended that
the primary and secondary market cannot be divided. A customer makes a “life cost analysis”
before a purchase – price of the products + cost of maintenance and services.
• A customer is therefore analysing the secondary market as well. Hence the primary and
secondary market form the same relevant market. Even the customer considers it the same
market.
• They also contended that no lock in takes place, this only exists during the period of warranty.
After that, the customer is free to approach any independent dealer.

• Order of the commission –

• Did not accept the “life-cost analysis” – customers are primarily driven by the price of the
product in the primary market. No one’s analysing the secondary price. People are driven by
low prices. Customers know nothing about the secondary market – In India, owning a car is a
matter of prestige.
• The commission thus defined the RM as the after sales market – and hence 100% dominant
position and abuse of that position was prevalent.
• Furthermore, the lock-in period continues even after warranty due to lack of availability of
spare parts in the open market. Therefore, customers have no choice but to approach OEM’s.
• The CCI accepted the report of the DG. INR 2544 crore penalty was imposed – highest penalty
imposed as per vertical agreements are concerned. Generally presumed that vertical agreements
benefit consumers however this agreement restricted supply and increased price.

• Implications –
• Attracted a lot of criticisms – WP filed before madras and Delhi HC – challenged on basis of
violation of natural justice.
• Many economists felt that the way the RM has been defined in the case is incorrect – the two
markets cannot be separated.
• There is a reason as to why such restricted covenants are entered into – the technical differences
require special training, hence effective services are to be given in order to maintain the brand
value. It is done to protect their brand, not any independent garage owner can use these spare
parts.
• There are also around 300K plus garage owners in India – no one is locked in with these brands.
This is why there is no lock-in.
• Also, while imposing penalty, they have taken both primary and secondary markets together
but to penalise, they have only looked into the secondary market. Hence, the relevant turnover
was not taken into consideration while penalising.
 CL: Michelin v Commission (1983) –

• Two important criteria when examining the after sales market:

i. The importance of the after-market products compatibility with the primary market, and
ii. The characteristics of the primary market and in particular, its price and lifetime.
• The secondary market should be treated differently.
• People never do a proper cost-analysis.
• It can be separated.
• Shamsher Kataria stands in line with this case.

• 2(s) – “RELEVANT GEOGRAPHIC MARKET” means a market comprising the area in

which the conditions of competition for supply of goods or provision of services or demand of
goods or services are distinctly homogenous and can be distinguished from the conditions
prevailing in the neighbouring areas;
- Identifying effective alternative sources for supply for customer needs.
- An area in which sellers of a particular product or services operate.
- Interchangeability with the same product from elsewhere defines relevant geographic
market.
- Determining factors
1. Nature of alternative
2. Price disadvantages arising from transport costs, tariffs, degree of
inconvenience in obtaining the goods.
3. Presence and absence of barriers to entry.
4. It could be local, national or international depending upon the product in
question.
5. Thus it is the area in which the reasonable consumer or buyer usually covers his
demands.

• 2(b) – “AGREEMENT” includes any arrangement or understanding or action in concert,—

- (i) whether or not, such arrangement, understanding or action is formal or in writing; or
- (ii) whether or not such arrangement, understanding or action is intended to be enforceable
by legal proceedings;
- Inclusive in nature.
- Covers every mode of behaviour which has economic relevance such as informal
agreements, imposed agreements, agreements declared to be nothing.
CL: Baguelim Import v G L import (1971) –
- Whether co. belonging to a single economic entity can enter into agreements between them
or not?
- The control factor is taken into account.
- If the subsidiary has no real freedom to determine its course of action in the open market,
even though it’s a separate entity from the parent, there can be no agreement.
- Every agreement is covered, whatever its form is.

• 2(h) - “ENTERPRISE” means a person or a department of the Government, who or which is,
or has been, engaged in any 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, either directly or through one or
more of its units or divisions of subsidiaries, whether such unit or division or subsidiary is
located at the same place where the enterprise is located or at a different place or at different
places,

• but does not include any activity of the Government relatable to the sovereign functions of the
Government including all activities carried on by the departments of the Central Government
dealing with atomic energy, currency, defence and space.
 Anti-competitive agreements – Section 3
• Anti-Competitive Agreements under the CA. 2002 are in nature of Restrictive Trade practise.;
under the extant MRTP Act, 1969
• Ambit: agreements, which may have the potential of' restricting, distorting, suppressing,
reducing, or lessening competition.
• Sec. 3 deals with economic regulation of the market power. Prohibits agreements in respect of
goods & services which causes or likely to cause AAE on competition in India.
• Such agreements are void.
3. Anti-competitive agreements.—
(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.
(2) Any agreement entered into in contravention of the provisions contained in sub-section (1)
shall be void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons
or associations of persons or between any person and enterprise or practice carried on, or
decision taken by, any association of enterprises or association of persons, including cartels,
engaged in identical or similar trade of goods or provision of services, which —
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development, investment or
provision of services;
(c) shares the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the market
or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have
an appreciable adverse effect on competition: Provided that nothing contained in this sub -
section shall apply to any agreement entered into by way of joint ventures if such agreement
increases efficiency in production, supply, distribution, storage, acquisition or control of goods
or provision of services. Explanation.—For the purposes of this sub-section, "bid rigging"
means any agreement, between enterprises or persons referred to in sub -section (3) engaged
in identical or similar production or trading of goods or provision of services, which has the
effect of eliminating or reducing competition for bids or adversely affecting or manipulating
the process for bidding.
Anti- Competitive Agreements- Prohibitions

• Sec.3(1) prohibits an enterprise or person or their associations from entering into an agreement
(in respect of production, supply, distribution, storage, acquisition or con trol of goods or
services), which causes or likely to cause AAE on competition in India.
• Such shall be void.
• What is prohibited is the agreement or the arrangement to control and dominate trade &
commerce in a commodity coupled with power & intent to exclude competitors to a substantial
extent.
• It is not the form or a particular means used, but the results to be achieved is the target of law.
Two types of Anti-Competitive Agreements
• Those which are per se void and those which are void if found on investigation by applying the
Rule of Reason as affecting the competition in a manner provided under Sec. 3 (1).
• These are Horizontal and Vertical agreements
i. Horizontal : between two or more enterprises that are at the same stage of the
production/supply chain & in the same market. Ex: agreements btn producers, btn retailers
dealing in similar kind of products : sec. 3(3) Agreements fixing purchase or sale prices,
limiting or controlling the production. For sharing the markets by territory, type , size of
customers, collusive tendering etc.
ii. Vertical : btn enterprises that are at different level or stages of production / supply chain.,
in different markets. Ex : btn producer and a distributor, Tie-in agreements, exclusive
supply/distribution agreements, refusal to deal, resale price maintenance.
Tests Applied

• Horizontal are per se void, vertical are treated more leniently & are subject to Rule of
Reason : Raghavan Committee.
• Agreements under section 3(3) of the competition act 2002, or Horizontal agreements
are considered to be illegal and anti competitive ab-initio.
• Vertical agreements, which are subject to the rule of reason and parameters under
section 19(3) for ascertaining their true nature and legal validity.
• Horizontal agreements are outright anticompetitive and thus prohibited without
considering any criteria.
Interpretation of anti-competitive agreements : Per Se and Rule of Reason

• Sec. 3 (3) of the CA, 2000 deals with agreements in which per se rule is applied.
• Sec. 3 (4) deals with agreements, where Rule of Reason is applied.
• Agreements between enterprises or persons engaged in similar trade of goods or
provision of services. (Horizontal) Agreements including cartels that: (a) fix prices, (b)
limit or control production, (c) allocates markets or customers, and (d) rig bids/collusive
bidding (explosive manufacturers) are presumed to have an appreciable adverse effect
on competition (AAEC)
CCI v Co-ordination committee of Artists and Technicians of W.B Film and television and
Ors. (2017) –
• In this case, the SC confirmed the findings of Competition Commission of India
("CCI") in an analysis of anti-competitive agreements enshrined in section 3.
• held that while conducting an analysis of anti-competitive agreements, the first and
foremost aspect that needs to be determined is the relevant market.
• The judgment has magnified the burden of proof on the CCI to define the relevant
market, which is not only difficult to determine, but also has an element of subjectivity
in its determination.
• Facts: A T.V. serial, Mahabharat, originally produced in Hindi was dubbed in Bengali
and was to be telecast in West Bengal through two channels, i.e., channel 10 and CTVN
Plus. Eastern india Motion picture Association (EIMPA) and Committee of Artists and
Technicians of West Bengal Film and Television Investors ("Coordination
Committee") opposed this telecast as the entry of dubbed serials may deter production
of Bengali serials. Thereafter, they wrote letters to the two channels asking them to stop
the telecast of the dubbed serial. They also threatened them with conseq uences for
failure to stop the telecast which included non-cooperation, agitation, demonstration
and strike.
• The informant was a distributor of video cinematographic TV serials and telecaster of
regional serials in eastern India who was assigned the right to prepare the dubbed
version of the serial and telecast it. He executed a revenue sharing agreement with the
two channels for its telecast. EIMPA issued a letter to the informant asking him to stop
the telecast, while the two channels notified him about the pressure put by the
Coordination Committee. As a consequence, he complained to CCI about their
concerted actions and requested action.
• Upon receipt of the complaint, the CCI found that channel 10 stopped the telecast of
the serial directly due to the pressures exerted by the two bodies and formed a prima
facie opinion that their actions were anti-competitive. The CCI instructed the Director
General ("DG") to conduct a detailed investigation under section 26 of the Act.
• DG’s views: - The relevant market is the film and TV Industry of West Bengal.
Secondly, the Bodies consisted of persons or association of persons dealing with
identical market of film-making and hence Section 3(3). Thirdly, the agitations against
the threat restricted commercial exploitation and hence violative under Section 3(3)(b).
Lastly, even though it was a trade union, they along with their associated organisation
tried to impose restrictions on the commercial exploitation of the dubbed serial. Hence,
anti-competitive in nature.
• Contentions of the opposite parties – first, the co-ordination committee was a trade
union of artists and not an enterprise, hence not a person or association of persons.
Secondly, the artists and technicians sold their labour against remuneration given by
the producers. Hence, no control over supply and so on – hence not anti-competitive.
Lastly, Article 19(1) – their agitations to stop the dubbed versions were protected under
the freedom of speech and expression.
• CCI - i) whether the two bodies imposed or attempted to impose restrictions on the
telecast of dubbed serial, (ii) whether the act and conduct of imposing restrictions on
the intended telecast was violative of section 3(3)(b). for the first issue it was held in
the affirmative. Further, the Coordination Committee comprised of five organizations
(association of enterprises) which, in turn, consisted of artists, technicians and other
professionals associated with the film and television industry whose actions fell within
section 3(3) and, in fact, adversely effected competition. Although they were a trade
union; yet their action was not exempt from section 3(3) of the Act.
• COMPAT - Coordination Committee alone preferred an appeal before COMPAT.
EIMPA chose to do nothing and accepted the majority decision. The main ground of
 challenge was that the Act did not apply as the Coordination Committee was a trade
union and not engaged in the business of production, supply and distribution. COMPAT
held that section 3(3)(b) applied to competitors engaged in the same line of commercial
activity and when their agreement restricted competition. Since the two bodies were not
active in the relevant market of broadcast of dubbed serials, it took the view that the
actions of the Coordination Committee did not violate section 3(3)(b).
• Ruling of SC:
i. The SC held that the word market in section 3 refers to relevant market and
COMPAT took a myopic view by ignoring the most important aspect i.e., the
intended effect of the agitation was not confined to telecast of dubbed serial on TV
in West Bengal, but on the entire film and TV industry. Hence, relevant market was
the entire TV and Film industry.
ii. The SC gave a broad interpretation to the terms agreement, person and enterprise
in section 3 and observed that action in concert amounted to an agreement and
Coordination Committee would be covered by the definition of person.
iii. Thus, the SC upheld CCI's view that the impugned acts deprived the consumers
from watching the dubbed serials and hindered competition in the market by barring
them from getting telecast. This amounted to creating barriers to the entry of new
content and, therefore, violated section 3(3)(b).
Causes or Likely to cause AAE on competition : Section 3(1)
Components:
1. Affect should be appreciable, not minimal
2. It should affect Competition within India
3. It should either actually affect or is expected to affect the competition
4. The affect on the competition should be result of the agreement
5. The consequential affect may be unintentional
U.S v Griffith – Specific intent to restrain trade is not required under the Sherman Act. The
monopoly power if used to gain competitive advantage irrespective of how legally it was
obtained, is illegal.
Appreciable adverse effect

• Law lexicon: Capable of being estimated, weighed, judged or recognised by the mind
or senses, but not synonym of significant.
• While determining whether an agreement has an AAE on competition, CCI has to look
into the following factors - Sec.19 (3) –
• Anti-Competitive factors:
i. Creation of barriers to new entrants in the market;
ii. Driving existing competitors out of the market;
iii. Foreclosure of competition by hindering entry into the market;
• Pro-Competitive factors:
i. Accrual of benefits to consumers;
ii. Improvements in production or distribution of goods or provision of services;
iii. Promotion of technical, scientific and economic development by means of
production or distribution of goods.
Ajay Devgan Films v Yash Raj Films (2012) –

• Measurement of AAE.
• Ajay Devgan – informant – that YRF is abusing his dominant position.
• YRF’s film – “ek Thaa Tiger” – was supposed to be released on Eid. YRF through his
distributors entered into agreements with exhibitors (Single-theatre owners) – based on
the agreement, condition that if they were exhibiting “ek thaa tiger” on eid, they had to
broadcast “jab tak hai jaan” as well, which was to be released on Diwali.
• The claim of Ajay Devgan was that YRF was attempting to block the release with these
theatres – that were single theatre owners and not multiplexes.
• Ajay Devgan’s production house was to release the movie “son of Sardar” but realised
that these theatres have been blocked for Eid and Diwali. However, all single theatre
owners had not agreed to the agreement of YRF.
• Ajay Devgan claimed it was an abuse of dominant position and it is also a tying
agreement. The CCI observed that it was a common practice that such agreements were
entered into to release films on special occasions. Furthermore, only few single-theatre
owners have entered into the agreement with YRF. There is still an option for Ajay
Devgan to approach the multiplexes and other single-theatre owners to release his films.
He can also pre-pone and post-pone the release of his film. There is no restriction.
• Hence, there is no AAE.
CL: M.P Mehrotra v K.F Airlines (2012) –

• “Accrual of benefits to consumers”.

• Information regarding agreement between Jet Airways and K.F Airlines.
• Lot of concentration of market power because of take-overs of Air Sahara by Jet and
Deccan Airways by KF.
• Hence, Jet and KF appeared to be dominant players in the market.
• Totally market share of Jet and KF combined was 59%.
• Jet and KF entered into an agreement regarding fuel surcharge (Increase or decrease
uniformly), Inter-line traffic agreement for both domestic and international flights,
joint-fuel management, common-ground handling and cross utilisation of crew
members, cross selling of flight inventories and lastly offering multiple tickets at cheap
prices.
• The informant claimed that this agreement is an abuse of dominant position, anti-
competitive.
• Furthermore, the fuel surcharge agreement was arbitrarily charged at 4 00 rupees
irrespective of the destination and miles, which was the common trend.
• Jet and KF didn’t decrease the price of surcharge despite the increase in International
price of surcharge.

• Commission findings –
• Horizontal agreement
• However, their market share has remained the same. KF has been facing losses.
• All the agreements entered into are common practices in the airline industry and
followed world over for the benefit of customers.
• Air India also has such agreements.
 • These agreements are not price controlling or output controlling agreements.
• The commission held that these agreements have been entered into for the benefit of
consumers and the consumers are the ones who accrue the benefits.
• On the ground of consumer welfare, not an anti-competitive agreement. Accrual of
benefits to consumers is an important consideration.
• However, only on the ground of fuel surcharge is anti-competitive. Therefore, they were
are directed to increase / decrease the fuel surcharge as and when fuel prices go up and
come down.
TO WHOM DOES THE PROVISION OF ANTI- COMPETITIVE AGREEMENTS
APPLY? (Effects doctrine)
• The provisions of Anti-competitive agreements apply to any enterprise or person.
• All the commercial activities of the Union and states and their statutory bodies are
within the ambit of the Act.
• Exception: sovereign functions relating to Atomic energy, Space research, Defence and
Currency
Anti-competitive Agreement – Competition within India
• Trade is a wider concept covering all cross border economic activity.
• The Agreements are considered illegal only if they result in unreasonable restrictions
on Competition.
• The Adverse effect on competition in India should be the result of anti –competitive
agreement.
• While assessing whether an agreement has an appreciable adverse effect on
competition, both harmful and beneficial effects are to be considered.
• Furthermore, visible effect of the agreement is to be seen.
• If it is in India, then the competition in India is affected.
• It is irrespective of where the agreement or the understanding has been arrived at.
• This is known as “effects doctrine”.
• Effects doctrine means, domestic competition laws are applicable to foreign firms - but
also to domestic firms located outside the state’s territory, when their behaviour or
transactions regarding supply of goods and provisions of services, produce an "effect"
within the domestic territory.
Effects Doctrine: Extraterritorial Application of the Competition Act

• Under Section 32 of the Act CCI is empowered to take cognisance of an act taking
place outside India but having an adverse effect on competition within India.
• Section 32 states that notwithstanding the event/ violation/act taking place outside
India, the CCI shall have the power to inquire into any such agreement(s) or abuse of
dominant position or combination if such agreement(s) or dominant position or
combination has, or is likely to have, an appreciable adverse effect on competition in
the relevant market in India.
U.S v Aluminium Co. of America –

• Alcoa case
 • Introduced the effects doctrine
• May a state impose liabilities even upon persons not within its allegiance, for the
conduct outside its borders that has consequences within its borders?
• the U.S. Court of Appeals held “that any State may impose liabilities, even upon
persons not within its allegiance, for conduct outside its borders that has consequences
within its borders”
• US gave statutory recognition in the US in 1994 by the International Anti-trust
enforcement assistance Act.
• This case was one where foreign co.’s pricing strategies were affecting American
aluminium co’s.
• The effects doctrine was applied – any agreement which affects directly or indirectly –
will be brought within the jurisdiction of the US anti-trust law.
Timberlane Lumber Co. v Bank of America –
• Laid down a test for the effects doctrine:
i. There must be some effect – actual or intended – on American commerce.
ii. This effect must be sufficient or capable of inflicting a cognizable injury to the U.S
market
iii. Interest of the U.S Economy should be effected (principle of comity). The foreign
entities must also co-operate and respect the decisions of the US authorities and
vice-versa. Authorities should respect and co-operate with each other.
Effects doctrine in the EU –
• Treaty of Rome or the competition law of European Commission is silent on the extra
territorial jurisdiction.
• absence of formal recognition by the ECJ.
• In the sixth report on Competition Policy in 1977 the Commission restated its view,
“the authorities can act against restrictions of competition whose effects are felt within
the territory under their jurisdiction, even if companies involved are locating And doing
business outside the territory”.
• Similarly, the UK enacted the Protection of Trading Interests Act, 1980 which
recognises this concept.
Wood Pulp case (1985) –

• First precedent on the effects doctrine in the EU.

• Finnish, American and Canadian wood pulp producers outside the EC jurisdiction
formed a price cartel and EC members were charged with inflated price.
• From 1997 to 1985, the test applied was – immediate, reasonably foreseeable and
substantial.
• The court however disregarded this test and held that each case would be determined
based on the facts and circumstances.
• No straight-jacket formula to prove the effects doctrine.
The Gencor case (1999) –

• Two foreign co’s merged in South Africa – had an effect on EU.

 • The court of first instance – went back to the immediate, reasonably foreseeable and
substantial test.
No proper precedent in the EU.
Effects doctrine in India -
Haridas Exports v All India Float Glass Mfrs (2002) -
• This case involves two petitions that were clubbed by the SC. Pointed out the lacunae
in the MRTP Act and the need to incorporate the effects doctrine in the CL Act.
Currently, under Section 32 of the CL Act.
• First petition – manufacturing of Soda ash – the Alkali Manufacturing association filed
a complaint against American Natural Soda Ash corp claiming that they were running
a cartel of 6 american co’s outside India but had an effect on Indian markets due to their
predatory pricing system.
• The American Co’s were selling and producing below the cost of production and hence
no Indian company could compete against them. At the time, the MRTP act was in force
and the MRTP commission passed a temporary injunction against the American
companies from selling in India. However, the American Co’s had no direct set-up
India, they used to sell their products indirectly to India. They claimed that the MRTP
has no jurisdiction in their case and hence appealed to the SC.
• Second Petition – similar complaint against a foreign cartel by the All India Float Glass
manufacturers. The MRTP commission passed a temporary injunction against the three
Indonesian companies. As these companies also operated indirectly with india with no
direct business set-up, they claimed that the MRTP had no jurisdiction.
• Issues: Whether the principle of “effects doctrine” has any application in India? And
Whether the MRTP commission has any jurisdiction?
• The SC observed that under Explanation 1 to Section 35 of MRTP Act – “Any party to
the agreement carries on Business in india” – one party has to be an Indian party.
• Hence, the Act does not give jurisdiction to the MRTP commission – no extra-territorial
jurisdiction.
• The court held that the doctrine of effect can be recognised only when it is proved that
any restrictive trade practice is prejudiced to the public at large. Very restricted view.
• The appeal was allowed and the order was set-aside as public interest was not harmed.
Consumers would benefit from the low prices.
Horizontal Agreements – Section 3(3)
The Anti- competitive agreements under the Competition Act are of two categories:
(a) Horizontal Agreements and (b) Vertical Agreements
• Horizontal Agreements : Section 3(3) - These agreements are btn competitors
operating at the same level in the economic process, i.e, enterprises engaged or
operating in broadly similar activity. These agreements are presumed to be anti-
competitive. And presumed to have appreciable adverse effect on competition. Hence,
these agreements are subject to per se rule and
Section 3(3)
 • Any agreement entered into between enterprises or association of enterprises or
persons or associations of persons or btn any person or enterprise or practice carried
on or decision taken by any enterprise or person including cartels engaged in identical
or similar trade of goods or provision of services, which :-
• a) Directly or indirectly determines purchase or sale price
• b) Limits or controls production, supply, markets, technical development, investment
or Provision of services
• c) Shares the market or source of' production or provision of services by way of
allocation of geographical area of market, or type of goods or services or number of
customers in the market or any other similar way
• d) Directly or indirectly results in bid rigging or collusive bidding shall be presumed
to have adverse effect on the competition : “Per se rule”.
• Agreements btwn enterprises or persons engaged in trade of identical or similar
products (including cartels) are presumed to have AAEC if they:
i. fix prices
ii. Limit output
iii. Share markets/customers
iv. Indulge in bid-rigging or collusive bidding
v. if the cooperation enables the parties to maintain gain or increase market power
and thereby causes negative market effects with respect to prices, output, innovation
or the variety and quality of products.
vi. When agreement is meant only for maximizing the profits for the parties involved
at the expenses of the consumers.
• They are per se void.
• There is no scope of investigation or enquiry.
Northern Pacific Railway Co. vs. United States , 1958 –

• “There are certain agreements or practices which, because of their harmful effect on
competition and lack of any redeeming virtue, are conclusively presumed to be
unreasonable and therefore, illegal without elaborate enquiry as to the precise harm
they have caused or the business excuse for their use”.
• Every horizontal arrangement among competitors poses some threat to the free market
even if the participants do not themselves have the power to control market prices.
Exceptions –

• It is noteworthy that prohibition contained here is not absolute and it can be dis-applied
to a joint venture agreement, if such agreement increases efficiency in production,
supply, distribution, storage, acquisition or control of goods or provision of services
• A joint venture agreement shall not foul of the provisions of the Act if the parties to
the joint venture are able to show that there have been efficiency gains due to the joint
venture.
• The burden of proof to show that the joint venture agreement has resulted in efficiency
gains is on the joint venture partners.
Types of Horizontal Agreements
• The horizontal agreements are of the following four types:
i. Agreements That Directly or Indirectly Determine Purchase or Sale Prices
- Agreements that are done to fix, directly or indirectly purchase or sale prices.
- The power to regulate the market and to fix arbitrary and unreasonably high prices.
- Agreements that create such potential powers may well be held within themselves
unreasonable or unlawful restraints, without the necessity of detailed inquiry whether a
particular price is reasonable or unreasonable
ii. Limits or Controls Production, Supply, Markets, Technical Development,
Investment or Provision of Services
- Production limiting agreements may lead to price rise of the concerned product.
- Similarly, technical development limiting agreements may affect consumer’s interest.
- They are anticompetitive for two reasons; I. artificial scarcity is created by limiting
production . II. the competition is restricted between the parties so that the better firm
cannot go ahead and dislodge the less efficient from the market.
iii. Shares the Market or Source of Production or Provision of Services By Way
of Allocation of Geographical Area of Market, or Type of Goods or Services,
or the Number of Customers in the Market or any Other Similar Way
- Market sharing agreements
- These agreements may be either to share markets geographically or in respect of
consumers or particular categories of consumers or types of goods or services in any
other way.
- They are considered to be anti-competitive as they limit the choice available to
consumers in a competitive market.
- They also reduce competition between the parties to agreement.

iv. Directly or Indirectly Results in Bid-Rigging or Collusive Bidding

- Section 3(3) defines Bid -Rigging provided in the means
- “Any agreement between the enterprises or persons referred to in sub -section 3 engaged
in identical or similar production or trading of goods or provision of serv ices, which
has the effect of eliminating or reducing competition for bids or adversely affecting or
manipulating the process for bidding”.
- Bidding, as a practice, is intended to enable the procurement of goods or services on
the most favourable terms and conditions
- bid rigging contravenes the very purpose of inviting tenders and is inherently anti-
competitive.
- Bid rigging takes place when bidders collude and keep the bid amount at a pre -
determined level.
- Such pre-determination is by way of intentional manipulation by the members of the
bidding group.
- Bidders could be actual or potential ones, but they collude and act in concert.
- The OECD Glossary pinpoints about two common types of bid rigging. Bid rigging
agreement is a combination of dealers who agree inter alia, not to bid in conjunction
with one another. Another instance may be where a group of firms agree to file bids in
such a way that one of them wins the bid.
- It is clear that a bid rigging agreement hinders the process of competitive bidding as the
winner of the bid to be submitted is already decided amongst the parties.
BID RIGGING IS ANTI-COMPETITIVE

• bid rigging contravenes the very purpose of inviting tenders and is inherently anti-
competitive.
• bid rigging may occur in various ways. Some of the most commonly adopted ways are:
a. agreements to submit identical bids,
b. agreements as to who shall submit the lowest bid,
c. agreements not to bid against each other,
d. agreements on common norms to calculate prices or terms of bids
e. agreements to squeeze out outside bidders
f. agreements designating bid winners in advance on a rotational basis, or on a
geographical or customer allocation basis
g. agreement as to the bids which any of the parties may offer at an auction for the sale
of goods or any agreement through which any party agrees to abstain from bidding for
any auction for the sale of goods, which eliminates or distorts competition.
• Inherent in some of these agreements, is a compensation system to the unsuccessful
bidders by dividing a certain percentage of profits of successful bidders.
FORMS OF BID RIGGING
1. Bid Suppression: one or more competitors who otherwise would be expected to bid, or who
have previously bid, agree to refrain from bidding or withdraw a previously submitted bid so
that the designated winning competitor’s bid will be accepted.
2. Complementary Bidding: Complementary bidding (‘cover’ or ‘courtesy’ bidding) occurs
when some competitors agree to submit bids that are either too high to be accepted or contain
special terms that will not be acceptable to the buyer. They defraud purchasers by creating the
appearance of competition to conceal secretly inflated prices.
3. Bid Rotation: In bid rotation schemes, all conspirators submit bids but take turns to be the
lowest bidder. The terms of the rotation may vary; A strict bid rotation pattern defies the law
of chance and suggests that collusion is taking place.
4. Subcontracting: Subcontracting arrangements are often part of a bid rigging scheme.
Competitors, who agree not to bid or to submit a losing bid, frequently receive subcontracts or
supply contracts in exchange from the successful bidder.
Common: an agreement among some or all of the bidders, which predetermines the winning
bidder and limits or eliminates competition among the conspiring vendors.
SOME SUSPICIOUS BEHAVIOUR PATTERNS
1) The bid offers by different bidders contain same or similar errors and irregularities. This
may indicate that the designated bid winner has prepared all other bids (of the losers).
2) Bid documents contain the same corrections and alterations indicating last minute changes.
3) A bidder seeks a bid package for himself/herself and also for the competitor.
4) A bidder submits his/her bid and also the competitor’s bid.
5) A party brings multiple bids to a bid opening and submits its bid after coming to know who
else is bidding.
6) A bidder makes a statement that the bidders have discussed prices and reached an
understanding
Delhi Jal Board vs Grasim Industries Ltd. & Others ... on 5 October, 2017

• Aditya Birla Chemicals India Limited, Grasim Industries Limited, Punjab Alkalies and
Chemicals Limited, Kanoria Chemicals and Industries Limited (Opposite Parties ) for
bid rigging tenders of Delhi Jal Board.
• The Opposite Parties are engaged in manufacturing of water purification chemicals
including Poly Aluminium Chloride.
• The Informant has been procuring PAC from the Opposite Parties for purification of
water through tendering process.
• The Informant alleged that the Opposite Parties were bidding collusively by quoting
similar prices with a difference of INR 200-400 for certain quantity of PAC from the
year 2006-07, till the year 2012.
• The CCI held that - such an action resulted in bid rigging/ collusive bidding in terms
of provisions contained in Section 3(3)(d) of the Act. The CCI stated that price
competition is the keystone of an effective and well-functioning market. Any
agreement that restricts such activity is bound to come under the scrutiny of the Act.
An enterprise’s conduct in the market should be a reflection of its independent
commercial decision by intelligently adapting to the market conditions and
understanding the conduct of its competitors.
Jupiter Gaming Solutions Private Limited Vs. Government of Goa and Anr. reported in
(2012) 106 CLA 339 (CCI)
• Bid rigging is difficult to detect since it is executed in secrecy with only the participants
privy to the scheme of conspiracy.
• Therefore, its detection can be made only by way of assessing the suspicious conduct,
patterns of abnormal activities in the bidding process, exception to the normal
procedures and loss to the Government department
M/s Excel Corp Care Ltd. v CCI -
• Whether an act of boycotting tenders by all applicants is bid rigging?
• CCI claimed it amounted to bid rigging.
• Aluminium phosphide tablets – only 5 players in the market for manufacturing – used
for storing food grains.
• Food corporation of India – called for tenders to purchase aluminium phosphide.
However, on the day of the bid, all boycotted.
• The COMPLAT – Any act of boycotting – never is a mere co-incidence – always a pre-
concerted act. Boycotting can never occur without this prior meeting of minds.
• FCI was in acute need of these tablets, any delay would have caused huge loss to FCI.
• Therefore, the players would have been aware of FCI’s position and jointly decided to
boycott the tenders – to force FCI to enter into a negotiated price.
• Also, by boycotting tenders, they created limited supply – amounts to bid-rigging.
 Exclusive Motors Pvt. Ltd. v Automobili Lamborghini S.P.A
❖ Informant: Exclusive Motors Pvt. Ltd.
❖ Opposite party: Automobili Lamborghini S.P.A
❖ Equivalent citation: Case No. 52 of 2012
❖ Date of order: 06/11/12 (6 th November, 2012)
❖ Adjudicating authority: Competition commission of India (comprising of Mr. H. C
Gupta, Mr. R. Prasad, Ms. Geeta Gouri, Mr. Anurag Goel, Mr. M. L. Tayal, Retd.
Justice Dhingra and Chairperson Mr. Ashok Chawla)
I. INTRODUCTION AND BACKGROUND
The framework of the Competition law in India is largely in tune with International
Competition Law (EU and US competition law) in order to develop a modern competition law
for India. One such concept that has been adopted is the concept of “Single economic entity”.
This is a concept that has developed first in the EU in the case of Viho Europe BV, Commission
of European Communities and Parker Pen Ltd C1997/009/10, where the Sixth Chamber of the
Court laid down that companies that are part of the same ‘undertaking’ will not be considered
as competitors for the purposes of competition law. On a similar note, in the US case of United
States in American Needle Inc v National Football League et al, the US Supreme Court laid
down the single economic entity doctrine to hold that companies that are under the same
ownership cannot be termed as competitors under the Competition law.
Under Section 2(h) of the Competition Act, 2002, this concept has been enshrined due to the
wide ambit of the term “enterprise” to mean and include a parent company and a subsidiary as
well. This therefore establishes that they are one entity and any agreement between such
companies are to be considered as internal agreements of the same entity for the purposes of
Competition law.
The case below is one such instance where this doctrine has been applied by the Competition
Commission of India in upholding an agreement between two subsidiary companies of a single
group company as not anti-competitive under Section 3 of the Competition Act, 2002.
II. CASE ANALYSIS
(A) BRIEF FACTS

• The informant, Exclusive Motors Pvt. Ltd (Hereinafter referred as “EM”) filed an information
before the Competition Commission of India (Hereinafter referred as “CCI”) under Section
19(1)(a) of the Competition Act, 2002 alleging that the Opposite Party, Automobili Lamborhini
S.P.A (Hereinafter referred as “AL”) violated Section 3 and Section 4 of the Competition Act,
2002.

• EM is a company that is involved in the business of importing and selling of “super sports cars”
in the territory of Delhi. AL is a well-acclaimed car manufacturer that is part of the Volkswagen
group based in Germany. The Volkswagen Group owns various luxury car brands such as
AUDI, SEAT, Lamborghini, Skoda, Bentley, Bugatti, Porshe and Volkswagen.
• In 2005, EM entered into a Dealership Agreement with AL to import and sell the sports cars
manufactured by AL in India. This agreement paved the way for the influx of AL’s super sports
cars which previously had no market in India. EM was solely responsible for developing the
market for AL’s cars in India and had invested a huge sum for the same.

• Conflict of interest arose between EM and AL in 2011 when AL appointed Volkswagen India
(part of the same Volkswagen Company) as its exclusive importer of AL products in Mumbai.
By doing so, AL intended to change the status of EM as its exclusive importer to a dealer of
AL’s sports cars. AL notified EM to terminate the agreement with AL and enter into a fresh
dealership agreement with Volkswagen India.

• The fresh dealership agreement with Volkswagen India was not agreeable to EM as this
changed their status from the exclusive importer and dealer to that of a dealer.

• In response, AL terminated their Dealership Agreement with EM by giving a 12-month notice

as required by their Agreement.
• It was alleged that during the notice period AL had offered its products to EM at a much higher
price than Volkswagen India, thereby, adopting a discriminatory and anti-competitive
agreement against EM.
(B) CONTENTIONS OF THE INFORMANT

• EM contended that the Agreement between AL and Volkswagen India were violative of
Section 3(3)(a) of the Competition Act, 2002 as they fix the sale and purchase prices of the
cars.

• Furthermore, that the Agreement between AL and Volkswagen India were violative of Section
3(4)(c) as it amounted to an exclusive dealership agreement and prevented EM from importing
any products of AL into India.

• EM also contended that in the relevant product market (The market for distribution of sports
cars in India), AL held a market share of 52%. Furthermore, the Volkswagen Group also
collectively held a share of 60% in the relevant product market. This thus established that AL
had a dominant position and abused this position by imposing unfair and discriminatory prices
on EM for the purchase of the sports cars AL. These discriminatory prices further denied the
market access to EM.
• Hence, EM contended that the AL’s agreement with Volkswagen India was in violation of
Section 3(3)(a), Section 3(4)(c), Section 4(2)(a)(i), Section 4(2)(a)(ii) and Section 4(2)(c) of
the Competition Act, 2002.
(C) MAJOR LEGAL ISSUES

• Whether the agreement between AL and Volkswagen India is an “agreement” within the ambit
of Section 3 of the Competition Act, 2002?
• Whether an agreement entered between two business belonging to the same entity fall under
the purview of the Competition Act, 2002?

• Whether the Opposite Party holds a dominant position in the relevant market and has abused
such a dominant position?
 (D) LAW INVOLVED

• Section 2(b) of the Competition Act, 2002 – It defines an “Agreement” to include any
arrangement or understanding or action, irrespective of it is informal or in writing and covers
every mode of behaviour which has an economic relevance such as inf ormal agreements,
imposed agreements and agreements declared to be non-binding.
• Section 2(h) of the Competition Act, 2002 – It defines an “Enterprise” as a person or a
department of the Government, who has been engaged in an economic activity.
• Section 3(3)(a) of the Competition Act, 2002 – It provides that those horizontal agreements
entered between enterprises which directly or indirectly fixes the purchase or sale prices is an
anti-competitive agreement. It is necessary for the two enterprises involved to be engaged in
an identical or similar trade of goods or services.

• Section 3(4)(c) of the Competition Act, 2002 – It provides that those vertical agreements
entered into between enterprises at different levels of the production chain which constitute an
“exclusive distribution agreement” are anti-competitive agreements.

• Section 4(2)(a)(i) and (ii) of the Competition Act, 2002 – It provides that if an enterprise has a
dominant position in the relevant market and uses this position to directly or indirectly impose
unfair or discriminatory prices it will amount to an abuse of dominant position.

• Section 4(2)(c) of the Competition Act, 2002 – Any enterprise that uses its dominance in the
relevant market to deny market access to other enterprises amounts to an abuse of dominant
position.

• Section 19(4) of the Competition Act, 2002 – It provides for the various factors that the CCI
may take into consideration to establish whether a particular agreement between persons or
enterprises has an appreciable adverse effect on competition in India. Some of the factors
include – market share, size of the enterprise, dependence of consumers on the enterprise, entry
barriers present for consumers and competitors, market structure and size of market, economic
power of the enterprise etc.
(E) OBSERVATIONS OF THE CCI
• The CCI noted that for an agreement to fall under the ambit of Section 3 of the Act, it must be
between two enterprises.
• In this case, AL and Volkswagen cannot be termed as two different enterprises as per Section
2(h) of the Competition Act, 2002 and hence is an inter-agreement between the same entity
itself. Thereby, such an agreement will not fall under the ambit of Section 3 of the Competition
Act.

• The CCI made reference to the Internationally accepted doctrine of “single economic entity”
to establish as to how agreements within the same entity do not attract the provisions of the
Competition law. Albeit, AL and Volkswagen India are two separate companies but as they
belong the same group, under Competition law they are treated as one single entity.
• The CCI also laid down that the relevant market was the market for the “distribution of Super
sports cars in India”. This is so as these cars are distinct in their features, end use and overall
price and hence cannot be substituted with other cars.

• The CCI analysed the various factors provided under Section 19(4) and held that the Opposite
party is a dominant player in the relevant market. Even though the informant had claimed that
the Opposite party held more than 50% of the market share, the CCI remarked that the other
factors under Section 19(4) had a balancing effect on this market share. Furthermore, the nature
of the market is such that these sports cars are made ready only on the orders of the customers
and there is no entry-barriers for other competitors.

• The CCI also made comparisons to other competitors that had a presence in India like Aston
Martin, Bugati, Mascrati and Apolo and held that economic strength wise, all the competitors
had a similar footing and no special advantage. The reason for this is that the size of the market
itself is miniscule and hence, no competitor has any real advantage.
(F) DECISION OF THE CCI

• The CCI applied the Internationally accepted doctrine of “single economic entity” and held
that the agreement between AL and Volkswagen India is not an “agreement” under the ambit
of Section 3 and therefore, will not be under the scanner of competition law.

• Furthermore, the CCI held that the informant has not established the necessary dominance of
the opposite party in the relevant market, which is a pre-condition for attracting liability under
Section 4 and hence does not amount to abuse of dominance in any manner.

• The CCI further noted that there is nothing in law that bars a company to enter into a dealership
agreement with another company which is part of the same group. This cannot be the sole
ground for alleging abuse of dominance in the market by the entity. Moreover, AL did not
completely deny EM from distributing their cars in India. Instead they merely changed offered
to change EM’s status from an importer to that of a distributor while retaining the importer
status to Volkswagen India. This according to the CCI was a fair practice and could not amount
to abuse of dominant position.

• Hence, the CCI found no prima facie case and declined to order an inquiry by the Director
General and closed the case under Section 26(2) of the Act.
(G) APPEAL TO THE COMPAT

• Aggrieved by the decision of the CCI, the Informant, EM appealed before the Competition
Appellate Tribunal (“COMPLAT”).
• The COMPLAT made similar observations to that of the CCI and upheld the defence of
“single economic entity”.

• It was held that an internal agreement between subsidiaries of a single group company cannot
be considered as an “agreement” for the purposes of Section 3 of the Competition Act, 2002.
• Accordingly, the appeal was denied.
III. COMMENTS AND OPINION
This case highlights a disturbing precedent that may further be exploited by companies to gain
a stronghold over the market and gain monopoly. This decision of the CCI directly affirms faith
in the practice of owners of one company acquiring a majority stake in another company and
entering into favourable agreements with such companies, thereby increasing their market
power and destroying all competition whatsoever. The main issue is that although under
Company law, the parent/holding company and the subsidiary company are two different legal
entities, but by virtue of Section 2(h) read with Section 3 of the Competition Act, 2002, an
enterprise is defined to include both its parent and subsidiary company. Thus, any internal
agreement between a parent and subsidiary company will not be an “agreement” for the
purposes of Section 3.
The CCI has not made any error in analysing the facts and applying the law as the Competition
Act, 2002 has incorporated the doctrine of “single economic entity”. Therefore, the jud gement
is right in its sense and no criticism can be made of the CCI. They have acted in accordance to
law. However, the criticism may need to be directed against the framers of the law and the
policy makers in failing to oversee the dangerous outcome of leaving out internal agreements
between subsidiaries from the purview of the Competition Act. By not considering them as
potential competitors but merely a single entity, a clever company may acquire stake in various
companies and entirely take over the market indirectly. Competition law as a whole would be
redundant if such a practice is further upheld in future cases.
INQUIRY INTO BID RIGGING

• In exercise of powers vested under Section 19 of the Act, the Commission may inquire
into any alleged contravention under subsection (3) of Section 3 of the Act that
proscribes bid rigging.
• The Commission has the powers vested in a Civil Court under the Code of Civil
Procedure in respect of certain matters besides powers to conduct ‘search and seizure’.
POWERS OF THE COMMISSION

• After the inquiry, the Commission may pass inter- alia any or all of the following orders
under section 27 of the Act:
• 1) direct the parties to discontinue and not to enter such agreement;
• 2) direct the enterprise concerned to modify the agreement.
• 3) direct the enterprises concerned to abide by such other orders as the Commission
may pass and comply with the directions, including payment of costs, if any; and
• 4) pass such other orders or issue such directions as it may deem fit. 58
PENALTY – SECTION 27(b)

• The Commission may impose such penalty as it deems fit.

• The penalty can be up to 10% of the average turnover for the last three preceding
financial years upon each of such persons or enterprises which are parties to bid -
rigging
• In case the bid-rigging agreement has been entered into by a cartel, the Commission
may impose upon each producer, seller, distributor, trader or service provider included
in that cartel, a penalty of up to 3 times of its profit for each year of the continuance of
 such agreement or 10% of its turnover for each year of the continuance of such
agreement, whichever is higher.
APPEALS

• NCLAT (As per the amendment brought to Section 410 of the Companies Act, 2013
by Section 172 of the Finance Act, 2017, with effect from 26th May, 2017).
• Section 53B to hear and dispose of appeals against any direction issued or decision
made or order passed by the Commission under specified sections of the Act.
• An appeal has to be filed within 60 days of receipt of the order / direction / decision of
the Commission.

CARTELS

• Cartelisation is one of the horizontal agreements that shall be presumed to have

appreciable adverse effect on competition under Section 3 of the Act.
• Cartel is defined in sec.2 (c) of the Act: “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’
• Cartels are agreements between enterprises not to compete on price, product (including
goods and services) or customers.
• A cartel is said to exist when two or more enterprises enter into an explicit or implicit
agreement to fix prices, to limit production and supply, to allocate market share or to
engage in bid-rigging in one or more markets.
• An important dimension in the definition of a cartel is that it requires an agreement
between competing enterprises not to compete or to restrict competition
• The Supreme Court of USA has referred to cartels as “the supreme evil of anti-trust The
1998 OECD Recommendation has proclaimed that “Cartels are the most dangerous
violations of competition law.
• The objective of a cartel is to raise price above competitive levels, resulting in injury to
consumers and to the economy.
• For the consumers, cartelisation results in higher prices, poor quality and less or no
choice for goods or/and services.
• Indian markets evidence cartels mainly in the cement, steel, tyre sectors at the domestic
level and in petrol, soda ash, bulk vitamins etc at the international level.
CONDITIONS CONDUCIVE TO FORMATION OF CARTELS

• a high concentration - few competitors

• a high entry and exit barriers
• a homogeneity of the products (similar products)
• a high dependence of the consumers on the product
• a history of collusion
• a active trade association
Categories of Cartels

• Customer Cartels
• Specialization Cartels: members of the cartel assign lines of product or production
techniques among themselves. This is basically a non-price oriented strategy involving
division of labour.
• Territorial Cartels:
• Quota Cartels: limit the production output, thus artificially creating supply constraint.
This leads to price fluctuations
• Price Cartels
• Syndicates: Syndicates usually pose a more united front against firms entering the
market and also punish wayward firms.
COMMON CHARACTERISTICS OF CARTELS

• Usually cartels function in secrecy.

• The members of a cartel, by and large, seek to hide their activities to avoid detection
• If any member cheats, the cartel members retaliate through temporary price cuts to take
business away or can isolate the cheating member.
• compensation scheme, is resorted to in order to discourage cheating. if a member of a
cartel is found to have sold more than its allocated share, it would have to compensate
the other members.
Lord Denning in the case of RRTA Vs. W.H.Smith and Sons Ltd., (1969) inferred that :

• “People who combine together to keep up the prices do not shout it from the housetops.
They keep 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.”
Basic Formats of Cartels
1. Price Fixing : Vitamin Cartel -price fixing by the leading producers of vitamins including
Roche AG and BASF of Germany, Rhone-Poulenc of France, Takeda Chemical of Japan
2. Sharing Markets: Builders Association of India vs Cement Manufacturers (2010)
3. Bid Rigging : M/s Excel Crop Care Limited Vs. Competition Commission of India & Ors.
reported in 2013 Comp LR 799 (CompAT), Aluminium Phosphide (ALP) tablets case.
4. Quota: Controlling the output or limiting the number of goods and services available to
buyers

• While considering such agreements, the CCI examines the evidence at hand and
determines whether a cartel exists.
• Once a cartel is found to exist, it is presumed to cause an AAEC.
National Insurance Company Limited v CCI, : the presumption under section 3(3) of the
Competition Act takes away the applicability of ‘rule of reason’ once the CCI establishes an
anticompetitive agreement Presumption in a substantive law is ‘irrefutable and conclusive’.
FACTORS
 ITC Ltd. v MRTP Commission (1996) 46 Comp Cas 619) - Three essential factors have been
identified to establish the existence of a cartel:
1. agreement by way of concerted action suggesting conspiracy;
2. the fixing prices, controlling production, distribution, supply and
3. the intent to gain a monopoly or restrict or eliminate competition. Parities of prices coupled
with a meeting of minds has to be established to prove cartel.

• The test for concerted practice is that the parties have co-operated to avoid the risks of
competition and this has culminated in a situation which does not correspond with the
normal conditions of the market.
• Existence of cartels depends on the peculiarities of the dynamics of each market.
• Two things are important in this regard,
• 1. adverse effect : U.S v. Griffith
• 2. the intention of the parties to the agreement, but alone intention is not enough, there
should be some overt act to give effect to that specific intention Ashton v. CIR
• Cartels are per se bad. It not only includes acts preventing or restraining the trade or
competition, but also any attempt to do such type of restrains.
• In India cartels have been alleged in various sectors namely cement, steel, tyres,
trucking etc.
• India is also believed to be victim of oversees cartel in soda ash, bulk vitamins, petrol
etc.
Evolving nature of the evidentiary standard to establish an ‘agreement’ under the Act

• The CCI’s early cartel decisions : ‘beyond reasonable doubt’ approach used in criminal
and other penal proceedings.
• In the Deutsche Bank case,(2009) the CCI held that the existence of an agreement must
be established and cannot be circumstantially adduced.
• The CCI adopted a ‘but for’ test of evidence in the Tyre Cartel case,(2009) : held that
the existence of an explicit agreement is not required and this can be inferred from the
intention or conduct of the parties, where such conduct cannot be explained.
• Soda Ash Cartel case: CCI observed that in the absence of a plausible alternative
explanation, coincidences may constitute evidence of the existence of an agreement and
civil standard of ‘preponderance of probabilities’. Two type of evidences relied upon
by CCI
I. Economic evidence : nature of the industry, number of players in the market, the
level of market concentration, parallel movement of prices, trends in production &
dispatches, capacity utilisation, cost structures, & variations in profit margins across
firms, while carrying out cartel inquiries.
II. conduct-based evidence : evidence of meetings btn competitors, similar or identical
bidding prices, membership of trade associations, any history of cartelisation and
suspicious information exchange.
The conflict
 • The COMPAT has found several decisions of the CCI to be not complying with due
process requirements.
• In the Cement Cartel case, (2013), the Airline Fuel Surcharge case (2016) & the Air
Cargo case(2015) : without examining the substantive merits of the matters, it
remanded the cases & directed the CCI to reconsider its respective decisions afresh due
to procedural improprieties at the time the cases were being heard by it.
• Shoe Cartel case,(2013) the COMPAT held that merely quoting similar or identical
rates by shoe manufacturers with respect to the tender did not amount to cartelisation.
M/S Faiveley Transport (India) Pvt Ltd,(2016) :

• the COMPAT observed that in an oligopolistic market, the identity of price quoted by
the bidder was not an unusual feature, since the players in a limited market are aware
of the price quoted by other players. It was, therefore, a normal practice to quote the
same price in response to the tender and consequently, there was no evidence of
collusion.
GlaxoSmithKline case (2015) : one of the factors that the CCI relied on was the DG’s finding
that the parties had signed a register with a black pen and simultaneously visited the office of
the Government. but the COMPAT set aside the decision noting that this cannot lead to an
inference of collusion. COMPAT : no evidence of any direct or indirect meeting between the
two appellants. bids and the quantities quoted by them were not identical. there was insufficient
evidence of collusion. COMPAT is inclined to apply a more robust approach, even while the
CCI use largely circumstantial evidence
• Accordingly, these developments suggest that in addition to adhering to the principles
of natural justice, the COMPAT requires the CCI to apply a stricter burden of proof to
establish the existence of a cartel agreement, and ‘fragmentary and sparse’ evidence
alone might not be sufficient for a finding of guilty conduct
Cartels: Penalty Provisions under the Act
• Section 27 (b)
• Cartel formation is a pernicious offence under the Act.
• The Commission is empowered to inquire into any cartel, and to impose upon each
person or enterprise included in that cartel, a penalty of up to 3 times of its profit for
each year of the continuance of such agreement or 10% of its turnover for each year of
continuance of such agreement, whichever is higher 78
• In addition, the Commission has the power to pass inter-alia any or all of the following
orders (section 27):
i. direct the parties to a cartel agreement to discontinue and not to re -enter such
agreement;
ii. direct the enterprises concerned to modify the agreement.
iii. direct the enterprises concerned to abide by such other
iv. orders as the Commission may pass and comply with the directions, including
payment of costs, if any; and
v. a pass such other order or issue such directions as it may deem fit.
Leniency programme
• What is Leniency Programme:
➢ It is an effective tool to detect, investigate and combat cartel cases.

➢ It is a type of whistle-blower protection

➢ It is a protection to those who come forward and submit information honestly, who would
otherwise have to face stringent action by the Commission if existence of a cartel is detected
by the Commission on its own.
• Leniency Provisions:
➢Section 46: If the Commission is satisfied that any producer, seller, distributor, trader
or service provider included in any cartel has made a full and true disclosure in respect
of the alleged violations and such disclosure is vital, impose a lesser penalty as it may
deem fit.
• The Act provides for imposition of lesser penalty by the CCI where a person makes
FULL, TRUE and VITAL disclosure of a cartel to the CCI;
• The Leniency System is targeted at cartel participants and seeks to induce participants
to break rank and turn approver against other cartel members.
• A first, second and third applicants can avail the benefit of a reduction in penalty of up
to 100% or 50% or 30% respectively.
• Confidentiality is the bed rock of an effective leniency regime.
To effectuate the leniency programme, the Commission has made Competition Commission of
India (Lesser Penalty) Regulations, 2009.
• These Regulations provide the framework in which the Commission can give lower
punishment than statutorily provided in the case of cartel membership.
• However, no protection under lesser penalty regulations shall be granted in the
following cases:
i. If the DG Report has been received before making of such disclosure.
ii. If the person making the disclosure does not continue to cooperate till the completion
of the proceedings.
iii. If the Commission, during the course of proceedings finds that the party:
(a) had not complied with the condition on which the lesser penalty was imposed; or
(b) had given false evidence; or
(c) the disclosure made is not vital,
The reduction in monetary penalty will depend upon following situations:-

• the stage at which the applicant comes forward with the disclosure
• the evidence already in possession of the Commission
• the quality of the information provided by the applicant
• the entire facts and circumstances of the case
Quantum of Immunity under Leniency Provisions
 • Up to or equal to 100% is available to the applicant if he is the first to ma ke a vital
disclosure.
• If, no other applicant has been granted such benefit by the Commission.
• The second or third applicant in the priority status may also be granted benefit of
reduction in penalty to the tune of 50% and 30%
Confidentiality
• Identity of the applicant as well as information obtained from it shall be treated as
confidential and it shall not be disclosed save under the three situations stated below:-
i. when the disclosure is required by law; or
ii. when the applicant has agreed to such disclosure in writing; or
iii. when there has been a public disclosure by the applicant
Brushless DC fans (Case No. 03 od 2014) –

• cartelisation between the manufacturers and the suppliers of brushless fans, in relation
to tenders floated by the Indian Railways and Bharat Earth Movers Limited for the
supply of brushless fans and other electrical items.
• complete immunity was not granted to the applicant and penalty reduction was capped
at 75%. This is because the CCI was already in possession of evidence.

In Carbon Dry-Cell Batteries (Case No. 02 of 2016 and Case Nos. 02 and 03 of 2017).
• A leniency application filed by Panasonic Energy India Co Ltd (Panasonic) triggered
an investigation by the CCI into cartelisation of dry-cell batteries between Panasonic,
Eveready and Nippo.
• Subsequently, the Association of Indian Dry Cell Manufacturers (AIDCM) was also
included within the scope of the investigation.
• The DG is reported to have conducted search and seizure operations on the premises of
Panasonic, Eveready and Nippo and examined fax and email communications and other
documents.
• The CCI granted Panasonic full immunity Cartelisation in the flashlights market (Case
No. 01 of 2017).
Pune Municipal Corporation (Case No. 50 of 2015 and Case Nos. 03 and 04 of 2016).
• "information" filed by Nagrik Chetna Manch, alleging bid- rigging by six parties in
tenders issued by Pune Municipal Corporation (PMC) for municipal organic and
inorganic solid waste processing plants.
• one applicant applied for leniency and subsequently five other parties applied at
different stages.
• The parties at the outset raised issues of due process breach by the DG, arguing that
confidentiality was not granted to their statements as recorded by the DG, resulting in
reputational harm.
• Lesser Penalty Regulations did not extend to evidence collected by the DG as part of
its investigation
Cartelisation in relation to tenders for broadcasting rights of sporting events (Case No. 02
of 2013).
• Leniency application was filed by Globecast India Pvt Ltd and Globecast Asia Pvt Ltd
(Globecast) disclosing a cartel with Essel Shyam Communication Limited (ESCL) to
rig tenders for procurement of broadcasting services of various sporting events in India.
• Globecast submitted that there was an exchange of commercially sensitive information
between Globecast and ESCL resulting in bid rigging
• Globecast : 100% immunity
Fuel surcharge cartel (2008) –

• The express industry council of India – informant – that Indigo, Air India, Spice Jet and
Go Air – have formed a Cartel regarding levying of fuel surcharge.
• The pricing of the fuel surcharge is pre-determined by these players and uniform across
these players.
• Accepted practice in the Airline industry – but in this case – increased fuel surcharge
when the Air Turbine fuel price decreased worldwide and they continued to levy the
increased fuel surcharge, irrespective of the miles travelled.
• The DG was instructed to conduct an inquiry and realised that there was no evidence to
prove the existence of the Cartel, as it was a common practice in the airline industry.
• The CCI however, did not accept this report.
• The CCI conducted its own investigation.
• Initially what was considered to be an industrial practice has turned into a profit making
practice.
• If all 4 players have acted independently, proof must be provided by the parties –
however, none of the parties could prove that they acted independently and unilaterally,
hence would amount to a cartel. – presumption of collusion.
• All 4 players were penalised.
• Criticism: DG had stated no evidence of a cartel but the CCI concluded the case on
circumstantial evidence and presumption of collusion between the parties.
• The parties thus appealed before the COMPLAT, stating that audi alterum partem was
not adhered to by the CCI. Hence, COMPLAT rejected the order of the CCI and called
for a fresh investigation in the case.
All India tyre dealers Federation v Tyre Manufacturers (2013) –

• Very similar facts to the above case.

• Informant – Ministry of Corporate affairs – claimed that there was a cartel in the tyre
market – Apollo Tyres, MRF, CEAT tyres, JK Tyres, and Birla tyres – cartel – 83% of
market share.
• DG inquiry – from 2012 to 2014, the price of their tyres moved in tandem. Furthermore,
the cost of input/raw materials had reduced and cost of production went down.
• However, despite this fall in the price, the price of the tyre products continued to
increase and all of them had a similar price and supply.
• Hence, price fixing agreement was established by the DG – that they were a cartel as
well as fixed a price quota. The DG report was based entirely on circumstantial
economic evidence.
 • The CCI did not accept the report of the DG – on the ground that “Price parallelism”
and “conscious parallelism” are different.
• The CCI did not accept the circumstantial economic evidence of the DG. CCI stated
that the tyre market is oligopolistic in nature and hence, is not a pre -determined
agreement to co-ordinate and fix the prices.
• In price parallelism, homogenous products are priced in a very similar manner. The
general aspect of a market – where competitors price it at the same level for
homogeneous products.
• In conscious price parallelism, players do so – prefix the price, if done with the intention
to monopolise a line of commerce.
Price parallelism

• Conscious parallelism : price-fixing between competitors that occurs without an actual

spoken agreement between the parties.
• one competitor will take the lead in raising prices. The others will then follow suit,
raising their prices by the same amount, with the unspoken mutual understanding that
all will reap greater profits from the higher prices so long as none attempts to undercut
the others.
• Difficult to prove & to distinguish between situations in which strategic coordination
implies some sort of illicit collusion and when it merely corresponds to spontaneous
coordination resulting from the rational response of each member of the oligopoly to
the perceived interdependencies.
• However, observation of similar prices or changes of prices at the same time does not
always indicate price fixing.For instance, in a highly competitive market, prices can be
similar or move in tandem because of market forces.
• Such price parallelism is more likely if:
a) Products sold are homogeneous or are very similar, which makes it difficult for
businesses to charge different prices to customers.
b) The products share similar sources of inputs, which means that competitors are subject
to similar cost fluctuations when setting their product prices.
c) Prices are highly visible, which allows businesses to monitor each other’s prices closely
and match competitors’ price movements.
So in such cases,
• The plaintiff must prove that the price increase was the result of an agreement
• coordinated nature of the increase could be used as circumstantial evidence of an
agreement.
• without additional economic circumstantial evidence referred as “plus factors”, proof
of consciously parallel behaviour is not enough to establish a violation.

Plus factors
• Plus factors are economic actions and outcomes, above and beyond parallel conduct by
oligopolistic firms
• The chief plus factors have included: Richard A. Posner
a) The firm’s participation in past collusion related offences.
 b) Evidence that firm created the opportunity for regular communication.
c) Industry performance data, such as extraordinary profits, that suggest successful
coordination.
d) Industry characteristics (product homogeneity, frequent transactions, readily observed
price adjustments, high entry barriers, and high concentration) that are conducive to
successful coordination.
Evaluation of plus factors
• Ad hoc approach
• The basic problem is courts have failed to establish an analytical framework that
explains why specific plus factors have stronger or weaker evidentiary value or to
present a hierarchy of such factors.
• It is not possible to determine which plus factor has adverse implication on economy
and which might not.
• Courts cannot give hierarchy to that effect of the plus factors involved
• This makes judgments about the resolution of future cases problematic.
• The most important element of proof is showing how the defendants communicate their
intentions and confirm their commitment to a proposed course of action.
EU

• Article 81 and the Chapter I prohibition apply to concerted practices as well as to

agreements. Factors in establishing a concerted practice :
a) Whether the parties knowingly entered into practical co-operation
b) Whether behaviour in the market is influenced as a result of direct or indirect contact
between undertakings .
c) Whether parallel behaviour is a result of contact between undertakings leading to
conditions of competition which do not correspond to normal conditions of the market
d) The structure market and the nature of the product, number of undertakings
WOOD PULP CASE
• The system of quarterly price announcements by all firms quoting prices in the same
currency was adopted by the wood pulp producers so as to increase the transparency of
the market,
• purchasers who, after World War II, demanded the introduction of that system of
announcements, in order to better estimate their costs.
• It was found out to be the normal market features: oligopoly
• ECJ arrives at the conclusion that ―concentration is not the only plausible explanation
for the parallel conduct.
• standard of proof is high, as one should prove that communication or coordination of
some kind among the firms must be the only plausible explanation for parallelism.
US
• Theatre Enterprises (1954) : introduced additional facts, often termed ―plus factors
to justify an inference of agreement.
 • Monsanto Co. v. Spray-Rite Service Corp : there must be direct or circumstantial
evidence that reasonably tends to prove that the parties had a conscious commitment to
a common scheme designed to achieve an unlawful objective.
• The ruling in most recent case, Bell Atlantic Corp. v. Twombly (2007) , makes presence
of ―plus factors a necessary element to determine collusion .
• It is far unclear from the analysis of the cases treated by US DoJ that up to what extent
evidentiary standard should be robust where direct evidence is lacking.
India
• Raghavan’s Report on Competition Law ; distinction needs to be made between what
could be called an illegal practice of price cartelisation and what could be described as
price leadership position.
• For concentration, therefore, it has to be established that some f orm of communication
or shared knowledge of business decisions has taken place among enterprises leading
to concerted action.

Vertical Agreements- Section 3(4)

(4) Any agreement amongst enterprises or persons at different stages or levels of the
production chain in different markets, in respect of production, supply, distribution, storage,
sale or price of, or trade in goods or provision of services, including —
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance, shall be an agreement in contravention of sub -section (1) if such
agreement causes or is likely to cause an appreciable adverse effect on competition in India.
Explanation.—For the purposes of this sub-section,—
(a) “tie-in arrangements” includes any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods;
(b) “exclusive supply agreement” includes any agreement restricting in any manner the
purchaser in the course of his trade from acquiring or otherwise dealing in any goods other
than those of the seller or any other person;
(c) “exclusive distribution agreement” includes any agreement to limit, restrict or withhold
the output or supply of any goods or allocate any area or market for the disposal or sale of the
goods;
(d) “refusal to deal” includes any agreement which restricts, or is likely to restrict, by any
method the persons or classes of persons to whom goods are sold or from whom goods are
bought;
(e) “resale price maintenance” includes any agreement to sell goods on condition that the
prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller
unless it is clearly stated that prices lower than those prices may be charged.
Production- distribution chain:
Firm A (Suppliers) - Manufacturer A- Wholesalers- Retailers- Consumers
Firm B (Suppliers)- Manufacturer B- Wholesalers- Retailers- Consumers

Vertical agreements- S 3(4)- Any agreement amongst enterprises or persons at different

stages or levels of the production chain in different markets, in respect of production supply,
distribution, storage, sale or price of or trade in goods or provisions of services including:
• Tie – in agreement
• Exclusive supply agreement
• Exclusive distribution agreement
• Refusal to deal
• Resale price maintenance
shall be anti- competitive if such agreement causes or is likely to an AAEC in India.
(Rule of Reason Approach)
I. Tie-in Agreements
Explanation (a) to sub-section (4) of section 3 of CA’02. Any agreement requiring a purchaser
of goods, as a condition of such purchase, to purchase some other goods. Simply stated, it
includes any agreement required a purchaser of goods (tying good), as a condition of such
purchase, to purchase some other goods (tied good). Tying takes place simpliciter when a
seller conditions the sale of a desirable product (tying) upon the sale of a not so desirable one
(tied), thereby abusing the need of a consumer for the desirable product in order to facilitate
sales of the not so desirable one.
Two perspectives:

• Restraint u/s. 3(4) (a) wherein it can be perpetrated by any other entry irrespective of
its standing in the market (dominance is not a prerequisite).
• Tying has also been prescribed as an abuse of one’s dominance u /s. 4(2) of CA’02,
wherein it can only be perpetrated by a dominant entity and as a vertical.

Assessing vertical agreements:

Assessed u/s. 3(4). Subject to rule of reason analysis u/s. 3(4) of CA’ 02. Such an agreement
would be in contravention of CA’o2 only if it causes or is likely to cause an AAEC in India.
The factors that would determine such a finding are listed u/s.19 (3) of CA’02.
Factors for assessment u/s.19 (3)-
1. Foreclosure, barriers to entry;
2. Driving away existing competition;
3. Accrual benefits to consumers;
4. Improvement in production or distribution of goods/services;
5. Promotion of technical, scientific and economic development;
If the negative effect outweighs the positive, the agreement is declared void.
Section 4(2) (d) - making the conclusion of contracts subject to acceptance of supplementary
obligations which, by their nature or according to commercial wage have no connection of the
subject of such contracts.
Assessment- Tie in as a unilateral abusive act by a dominant firm? has been prescribed under
section- 4(2)
1. There should be inexistence to two products in order for conditioning the sale of
one upon the other.
2. Consumer must be dependent upon the seller for the desirable product and the seller
must be in a position of superiority (dominance) to that of the consumer by virtue
of latters need for the formers product.
3. And that such dependence or position of superiority is abuse.

Tying and Bundling

Tie- in sales ties the sales of one product to the purchase of another. Tying may be
contractual or technological. IBM computer card machines and computer cards. Kodak tie
service to sales of large-scale photocopies. Tie computer printer and cartridges.
Microsoft bundles Windows and Explorer. Office bundles, Word Excel, Power Point, Access.
Bundled package is usually offered at a discount. Bundling may increase market power.
3- Part test for illegal tying:
1. The seller must possess power in the tying product market: leveraging a dominant
position in the tying product market to achieve a dominant position in the tied product
market.
2. The tying arrangement is likely to enter significant barrier to entry into the tied product.
3. There must be a coherent basis for treating the tying and tied product as distinct.

Microsoft Case

Microsoft’s attorney claimed that Windows and Explorer were functionally integrity. In fact,
they shared files so that if you uninstalled Explorer, Windows wouldn’t function properly. But
Princeton computer scientist, William Felton, (a prosecution witness) showed this problem
could be easily corrected. He demonstrated Windows would run just fine without Explorer.
Certainly Microsoft had monopoly over in the tying product market (test 1). Also if threatened
to close off a substantial share of the browser segment (test 2). So, the remaining issue was:
were Windows and Internet Explorer “distinct products?”
Court: Yes.
India
Tying has been prescribed as an abuse of owes dominance u/s. 4(2) of Act wherein it can
only be perpetrated by a dominant entity and as a vertical restraint u/s.3 (4) (a), wherein it can
be perpetrated by any entity irrespective of its standings in the market (dominance is not a
prerequisite). However this statutory distinction has been blurred by the CCI by introducing
the prerequisite of dominance in an enquiry u/s.3 (4) (a).
Shri Sonam Sharma v. Apple Inc and Ors.
Apple agreement with Airtel and Vodafone (only purchase network with iPhone) - vertical
agreement- challenging as tying agreement. CCI: accepted the fact that tying arrangement
u/s.3(4)- but Apple is not a dominant player, even Airtel and Vodafone not dominant- this
dismissed the case criticism- dominance is not a pre- requisite.
Ramakaut Kini v. Dr. LH Hiranandani Hospital (2017)
Dr Hiranandani Hospital in agreement with Cyrobank Intl. for stem-cells services (if required
for maternity care). An informant approached Lifestyle India Pvt. Ltd. (another stem cell
bank) for a pvt. arrangement. She came to Hiranandani for delivery but asked Lifestyle to act
as stem-cell bank but hospital only offered Cyrobank. Complained that there was a tying
arrangement between hospital and Cyrobank.
CCI: Hiranandani= dominant position, anti-competitive agreement u/s. 19(3) and ignored s.3
(4)- no mention of s.4.
Same criticism as Apple India’s case.

II. Exclusive Supply Agreements

Explanation (b) and (c) to subsection (4) of 3.3 of CA’02.
Exclusive supply arrangements includes any agreement restricting in any manner the
purchases in the course of his trade from acquiring or otherwise dealing in any goods other
than those of the seller any other person. Wholesaler’s forces retailer to procure all its
supplies from the wholesaler
Viniyoga Darula Sangh v. Hindustan Coca Cola Beverages (2011)
Coca- Cola had an agreement with theatre to sell only Coke and not any other brand
beverages. Darula Saugh informed CCI, claimed it to be an exclusive su pply agreement.
CCI: Spoke about the theatre and Coca-Cola not being dominant players- agreement was for
a short duration (only 4 months) - also theatre had option to terminate with month notice-
there was no imposition, thus not anti-competition and not an exclusive supply agreement.
Criticism: 19(3) lays clear conditions for s.3 (4) and there is no need to establish
dominance/monopoly for conviction.
Jindal Steel and Power Ltd. v. Steel Authority of India Ltd (2012)
Exclusive supply government between SAIL and Indian Railways. Jindal challenged as anti-
competitive and contended that there was no scope to compete for private players.
CCI: Whether exclusive supply agreement was commercially rational (for the Indian
Railways)? Cause with twofold reasoning-
1. Steadiness in supply as huge demand and frequent use- only SAIL is efficient
2. Safety standards by SAIL cannot be matched by any other competitors
Such exclusive supply agreement for huge supply and security are pro -competition as
required for national interest. Jindal and other pvt. players can still compete in rest 25%
market which is not for Railways.
Criticism: Promotion of state run companies and barriers for pvt. Sectors.
III. Exclusive Distribution Agreements
Whereas distribution agreements 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. Single distributed for a territory.
IV. Refusal to Deal
A dealer is disallowed from dealing in competing trades.
RRTA v. Bata India Ltd. (1976)
(Registrar of Restrictive Trade Agreements)
Bata engaged in the manufacture of leather and rubber canvas footwear, entered into
agreements with small sale manufacturers for purchase of footwear to be sold by it under its
own brand. The agreements prohibited these manufacturers from purchasing raw material and
components from parties other than those approved by Bata. It also required them to use the
moulds sold/supplied by Bata exclusively for manufacturing for Bata’s requirement. The
commission held that these conditions imposed by Bata is restrictive trade practices and
prejudicial to public interests. But later, contrary jurisprudence is evolving considering the
brand quality and other factors which matter a lot to the customers.
TELCO v. RRTA (1977)
Tata motors entered into an agreement with retailers for exclusive sale of their motorvehicles.
Even for customers, a condition for warranty was imposed that it will only be valid if service
done by TATA dealers. For this, TATA even set up mobile service stations in rural areas.
This agreement was challenged as refusal to deal. The Supreme Court observed that,
“Exclusive dealership in this case did not impede competition rather promoted it because they
led to specialization and improvement in after sales services, and by specializing in each
make of vehicle and providing the best possible service, the competition between the various
makes was enhanced”.

V. Resale Price Maintenance

Section 3(4) - explanation (e) - any agreement to sell goods on condition that the prices to be
charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is
clearly stated that prices lower than those prices may be charged. Wholesaler dictating prices
to retail seller. From a competition policy viewpoint specifying the minimum price is of
concern. It has been argued that through price maintenance, a supplier can exercise some
control over the product market. Resale price maintenance is in some countries treated of the
per-se rule, example in the US.
Until the US SC decided in Leegin Creative Leather Products Inc. v. PSKS Inc. (Kays
Closet) in 2007, these agreements were per-say anti-trust violations. The SC in Leegin
reversed course and held that courts will typically analyze the agreements instead under rule
of reason.
Impact:
Exclusive contracts between manufacturers and suppliers, or between manufacturers and
dealers are generally lawful because they improve competition among the brands of different
manufacturers (inter brand competition).
Reasonable in the context of the particular trade and business, and where the restriction is
required to enhance the level of service to the customers and efficiently manage the sale of
products. However, when the firm using exclusive contracts is a monopolist, the focus shifts
to whether those contracts impede efforts of the new firms to break into the market or of
smaller existing firms to expand their presence.
CCI’S adjudication on RPM
M/S FX Enterprise Solutions India Pvt. Ltd. v. M/S Hyundai Motor India Ltd. (2014)

• Various vertical agreements challenged against Hyundai. Allegations as per 3(4) of

the Act as follows-
The dealership agreement required dealers to seek consent prior to taking up
dealership with a competing brand and to procure spare parts either directly from
Hyundai or through its pre-approved vendors and this amounted to an ‘exclusive
supply agreement’ and ‘refusal to deal’.
• The enforcement of the ‘Discount Control Mechanism” under the Dealership
Agreement by Hyundai resulted in RPM. It was alleged that Hyundai forces its
customers to purchase passenger cars tied with CNG kits, lubricants and oils and
insurance services from specified vendor and cancellation of warranty for not using
recommended lubricants and oil engines. (Tie-in agreements).
• With regards to the allegation of the exclusive supply and refusal to deal, the CCI
observed that merely 6/c, the requirement of prior consent before entering into a
dealership for a competitor brand, did not amount to exclusivity.
• On tie-in agreements, purchasers of Hyundai cars with CNG kits were not anti-
competitive. But lubricant and oil tie-in was anti-competitive. With regards to
insurance- common practice, customers were not forced.
• Hyundai’s DCM didn’t ultimately benefit customers who ended up paying a higher
price for the cars and price competition was affected.
• CCI has imposed a penalty of Rs. 87 Cr. for this violation. It was overturned by the
NCLAT on count that no independent appreciation of evidence.
Does RPM require ‘resale’ anymore?
Jasper Infotech, Snapdeal Case
Snapdeal sold JI products at lower prices, a notice was severed by Jasper Infotech. Snapdeal
approached the CCI with RPM complaint. CCI dwelled into the meaning of ‘resale’-
Snapdeal etc. serve as intermediaries and not resellers-thus no RPM-dismissed complaint.
RPM doesn’t require ‘resale’ anymore
Deepak Verma v. Clues Network Online Pvt. Ltd. (2016)
Idea of ‘resale’ need not be strictly interpreted in the conventional sense of a brick and mortar
sale. The idea of a ‘resale price maintenance’ may actually take place without the act of
‘resale’ itself.
Ola and Uber case (2019)
Ola/Uber through its vertical agreement with its drivers imposes a floor price (RPM). Drivers
have no liberty with regard to these prices and offer prices lower than this. CCI has said that,
the pricing was different for each rider and trip “owing to the interplay of large data sets
based on algorithms”.
Samir Agarwal vs. ANI Technologies Pvt. Ltd. (2018)
Allegation on Ola and Uber of being Hub and Spoke Cartels. Since Ola and Uber work on
price algorithms and the drivers do not act in the capacity of employees, they aren’t acting as
a hub and spoke and thus concluded that there is no cartelization.

Hub and Spoke Cartels

A hub and spoke cartel is one where market players at the horizontal level (spokes) enter into
an agreement, tacit or explicit, to share sensitive information through a vertical common
player referred to as ‘hub’. Although not directly involved in its activities, the hub act as a
medium to facilitate the cartel. These 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.
India has not recognised hub and spoke cartels so far. However, in 2008, in the case of Samir
Agarwal v ANI Technologies Pvt. LTd – this was a case regarding Ola and Uber – forming a
Hub and Spoke Cartel – regarding how the drivers were at a vertical level to Ola and Uber. The
CCI 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 cartel and thus concluded that
there is no cartelisation.
In the 2020 Competition (amendment) Bill, hub and spoke cartels have been recognised –
vertical agreements can also be anti-competitive.

Section 3(5) – Exceptions

1. Intellectual property protection with reasonable conditions:
- Right of any person to prevent infringement of his IPR or to protect the same.
- The bundle of rights that are subsumed in IPR should not be disturbed in the interests
of creativity and intellectual innovative power of the human mind.
- The Act seeks to protect under Section 3(5)(i) only those IPR’s that are registered in
India and not any other IPR subject to the jurisdiction of any other regime.
- However, any unreasonable condition forming part of protection or exploitation of IPR
is not covered under this.
- The determination of what conditions are unreasonable is left to the discretion of the
CCI.
- They have listed some of the unreasonable conditions as follows:
a) Patent pooling wherein two or more companies come together – cross licence their
technology and restrict other competitors from acquiring it.
b) Tie-in agreements
c) Prohibiting licensee to use technology from rival companies.
d) Prohibiting the licensee from challenging the validity of the IPR.
e) Price fixation for the licensee to sell the licensed product
f) Prohibiting licensees to use competing technology.
g) An agreement to continue paying royalty even after the patent has expired.
- Such clauses imposed in the ‘technology agreements’ by the IPR holder or licensee are
called anti-competitive for the market, and hence shall be void.
- Thus, any licensing arrangement likely to adversely affect the prices, quantities,
qualities of variety of goods and services will fall withing the contours of the
Competition Act as long as they are not unreasonable.
- United States v Leow’s (1962) – Block booking – popular movies were bundled with
unpopular movies – condition was imposed on the buyers. This was claimed to be done
to protect against piracy. However, such an arrangement was challenged - the Court
held that in disguise of protecting IPR, one cannot enforce such unreasonable
conditions.
- Illinois Tool Works v Independent Ink (2006) – Tying arrangements of a patented
product to a non-patented product. Illinois Tool Works tied its un-patented ink to its
patented print heads. The sale of a patented product is conditioned on the sale of a
unpatented product in a tying arrangement. The SC went into the jurisprudence of
patents – and held that patent does not mean market monopoly. There are other factors
to be looked into to decide if other have access to the market or not. The US supreme
Court dismissed the case. Any agreement including technology transfer – as long as
consistent with competition are valid.
- Aamir Khan Productions Pvt Ltd v Union Of India (2010) – FICCI filed information
against United Producers and distributors Forum (UPDF). UPDF had 100% dominance.
Before the CCI – the Bombay HC held that the CCI has jurisdiction to hear all the
matters vis-a-vis competition law and IPR. The CCI also held that IPR related rights
are not sovereign in nature but merely a statutory right granted under a law.
- Entertainment Network Limited v SCIL – The SC observed that even though the
copyright holder has full monopoly but the same is limited in the sense that if such
monopoly creates disturbance in smooth functioning of the market, it will be in
violation of competition law. Undoubtedly, IPR owners can enjoy the fruits of their
labours via royalty issuing licences but the same is not absolute.
- UOI v Cynamide India Ltd – Charging excessive prices on life saving drugs is within
the ambit of price control and the CCI has jurisdiction over such matters.
- Shamsher Kataria v Honda/VW/Fiat India and ors. – The IPR’s claimed by the
Original Equipment Manufacturers are territorial in nature and the particular right is
vested upon the holder of such IPR only in a given jurisdiction. Such rights in those
territories where such rights were originally granted, the same cannot be granted upon
the OEM’s operating in India by entering into a TTA, unless such rights have been
granted upon the OEM’s pursuant to the provisions of the statutes specified under
Section 3(5)(i).

2. Export cartels – Section 3(5)(ii) – Right of any persons to export goods from India to
the extent if agreement relates exclusively to the production, supply, and distribution of
goods.
 Abuse of dominant position – Section 4

4. Abuse of dominant position.—

(1) No enterprise shall abuse its dominant position.
(2) There shall be an abuse of dominant position under sub-section (1), if an enterprise,—
(a) directly or indirectly, imposes unfair or discriminatory—
(i) condition in purchase or sale of goods or services; or
(ii) price in purchase or sale (including predatory price) of goods or serv ice; or
Explanation.—For the purposes of this clause, the unfair or discriminatory condition
in purchase or sale of goods or services referred to in sub -clause (i) and unfair or
discriminatory price in purchase or sale of goods (including predatory price) or service
referred to in sub-clause (ii) shall not include such discriminatory conditions or prices
which may be adopted to meet the competition; or
(b) limits or restricts—
(i) production of goods or provision of services or market therefor; or
(ii) technical or scientific development relating to goods or services to the prejudice
of consumers; or
(c) indulges in practice or practices resulting in denial of market access; or
(d) makes conclusion of contracts subject to acceptance by other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection
with the subject of such contracts; or
(e) uses its dominant position in one relevant market to enter into, or protect, other relevant
market.
Explanation .—For the purposes of this section, the expression—
(a) “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant
market, in India, which enables it to—
(i) operate independently of competitive forces prevailing in the relevant market; or
(ii) affect its competitors or consumers or the relevant market in its favour;
(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, of production of the goods or provision of
services, with a view to reduce competition or eliminate the competitors.
 • Very serious threat to free markets
• Dominance is never considered as a per se offence in most jurisdictions around the
world. It is the abuse of dominance that is considered as an offence as it leads to
monopolisation by unfair means.
• It is necessary to establish the existence of a dominant position in a given relevant
market which presupposes that such a market has already been defined.
• In the EU, Hoffmann la Roche, and the Michelin cases: it is essential to define the RM
both from the geographical and the product market perspectives.
• In the US, abuse of dominance is tested seriously with the first consideration of the RM
– Brown Shoe Co case, Du Pont De Nemours case.
Section 4
• It deals with the abuse to dominant position by an enterprise or group.
• There are two situations of abuse – It prohibits the use of market-controlling position
to prevent enterprises from driving out competing businesses from the market as well
as from dictating prices.
• Section 4(2) lists out the instances of abuse of dominance –
a. An enterprise directly or indirectly, imposes unfair or discriminatory conditions
in the purchase or sale of goods or services, or Price in purchase or sale (including
predatory price) of goods or services,
b. Limits or restricts – production of goods or services in the market; technical or
scientific development relating to goods or services to the prejudice of the
consumers.
c. Indulges in practices resulting in denial of market access.
d. Makes conclusion of contract subject to acceptance of supplementary obligations
which no connection with the subject of the contracts (Tying and bundling).
e. Denying market access in any manner
f. Uses its dominance in one market to make an entry into another relevant market.
• It is important to note that if the discrimination is to meet competition, it is of ten
excused – For example, reduced price for penetrating a market – introductory prices.
What is dominance?
• It is defined in the Act qualitatively.
• Position of strength enjoyed by an enterprise which enables it to, in the RM: operate
independently of the competitive forces prevailing in the RM, affect its competitors or
the RM in its favour. (Section 4)
• Further factors are provided under Section 19(4):
▪ Market share
▪ Size and resources of enterprise
▪ Size and importance of competitors
▪ Economic power of the enterprise
▪ Vertical integration
▪ Dependence of consumers on the enterprise
▪ Extent of entry and exit barriers in the market
▪ Countervailing buying power
▪ Market structure and size of the market
 ▪ Source of dominant position viz. whether obtained due to statute
▪ Social costs and obligations and contribution of enterprise enjoying dom inant
position to economic development.
▪ Final discretion with the courts and CCI.
Dominance defined in the EU

• ECJ: very large market share are in themselves, save in exceptional circumstances,
evidence of the existence of dominant position.
• In Hoffman La Roche, 75-85% market share – so high that it required no further
examination and held as dominance.
• Market share over 50% strong prime facie evidence of dominance and creates a
presumption of dominant position held over time.
• Market share under 40% - indicative of a firm not holding a dominant position.
• Market share of 25 – 40% - dominant position unlikely unless very less number of
competitors.
• Less than 25% market share – very unlikely dominant position.
• AKZO case – the ECJ held that the market share is the only indicator of dominance
however it has to be quantitively established. 50% market share is very high, that is
only a presumption, not necessary that the enterprise will have the market power. It
depends on the market share of the competitors as well.

In South Africa – more than 45% is considered as dominance. In Israel – more than 50%. In
India, market share is not the only factor – other qualitative factors are present. This is evident
from two important orders passed by the CCI relating to abuse of dominance – The MCS Stock
exchange v National Stock exchange, The DLF case – determination of dominance is
dependent on the definition of the RM.

What is abuse of dominance?

• Dominance is not considered bad per se but its abuse is. Abuse is stated to occu r when
an enterprise or a group of enterprises uses its dominant position in the relevant market
in an exclusionary or/ and an exploitative manner.
• Abuse of dominance is judged in terms of the specified types of acts committed by a
dominant enterprise.
• Such acts are prohibited under the law. Any abuse of the type specified in the Act by a
dominant firm shall stand prohibited.
• The kinds of exclusionary abuse are as follows: (affect competitors)
a. Refusal to deal
b. Raising competitors costs
c. Cross subsidization
d. Structural abuses – practices that produce immediate changes in the structure of
the market to the detriment of the competition.
• The kinds of exploitative abuse are as follows: (affect consumers)
a. Excessive pricing
 b. Price squeezing and discrimination
c. Imposing unfair trading conditions
d. Limiting production, markets or technical development
Section 4(2)
Unfair and discriminatory pricing (Includes predatory pricing)
Bellaire owner’s association v DLF Ltd (2010) –

• Unfair and abusive

• Conditions of the apt buyers agreement imposed by DLF were alleged to be unfair and
discriminatory and violative of Section 4(2)(a)(i)
• Some of these conditions were:
1. Unilateral changes can be made to the agreement by DLF without the consent of
the purchaser
2. DLF also unliterally increased the size of its building from 19 floors to 29 floors
without informing the buyers
3. The builders could increase or decrease the super carpet area without the consent of
the buyers
4. Once the initial payment was made by the allotees, they could not exit from the
contract. If they were to exit from the contract, a refund would be available only if
a third party purchases the same plot. This refund amount had no interest on it.
5. No penalty would be imposed on DLF if they could not deliver the flats within the
stipulated time.
• Hence, bel air owners challenged the agreement before the CCI
• On the face of it, CCI realised it was an unfair and discriminatory agreement and
imposed a penalty of 630 crore on DLF. DLF was dominant – exploitative abuse.
Pragati Maidan case (2012) –

• It was filed against the Indian Trade Promotion organisation (ITPO) – ITPO holds a
dominance in its RM which was to provide. a venue for hosting national and
international trade fairs in Delhi. Pragati maidan was used for such fairs.
• This maidan was the only venue available for this purpose in Delhi – ITPO provides
the venue out for third parties.
• ITPO came up with a time restriction gap in respect of the trade fairs having similar
products – a time gap of 90 days between such similar trade fairs. This is applicable to
ITPO and any third party event planner.
• However, this time gap was not followed by ITPO strictly – would even take up last
minute bookings. However, third party event managers had to strictly adhere to this
time gap.
• Furthermore, ITPO made its exhibitors avail its services compulsorily if they were
hosting a fair at Pragati maidan. The second part of the contract was exploitative as it
forced one to purchase the services.
• The CCI held that this was a clear case of abuse as Pragati Maidan was the only venue
available and this was considered as an exclusionary abuse against other competitors.
Predatory pricing

• The “predatory price” under the Act means “the sale of goods or provision of services,
at a price which is below the cost, as may be determined by regulations, of production
of goods or provision of services, with a view to reduce competition or eliminate the
competitors” [Explanation (b) of Section 4].
• Predation is exclusionary behaviour and can be indulged in only by enterprises(s)
having dominant position in the concerned relevant market.
• The major elements involved in the determination of predatory behaviour are:
a. Establishment of dominant position of the enterprise in the relevant market
b. Pricing below cost for the relevant product in the relevant market by the
dominant enterprise
c. Intention to reduce competition or eliminate competitors. This is traditionally
known as the predatory intent test
d. Able to recoup the losses after the exclusion of the competitors or foreclosing
the coopetition.
• Re: Johnson And Johnson Ltd(1988). said that “the essence of predatory pricing is
pricing below one’s cost with a view to eliminating a rival.”

MCS Stock exchange v National Stock Exchange –

• Deals with predatory pricing, eliminating market access, using dominant position to
enter into a new market.
• MCS is a multi-commodity stock exchange which is used for trading purposes.
• In 2009, MCS complained before CCI – practices which have been adopted by NSE
has abused it dominant position.
• 3 allegations were made:
a. NSE – from August 2008, it announced transaction fee waiver from any
currency derivatives on NSE platform.
b. NSE stopped charging any admission for its membership or any subscription
fee in its currency derivative segment – but used to charge in debt or equity
segment.
c. NSE did not collect the advance minimum charges in the currency derivative
market.
• MCS alleged that since NSE is doing the above, MCS would have to do the same to
compete with NSE – no choice but to survive in the market. MCS operates only in the
currency derivative market – NSE operates in all types and since NSE has done the
above, MCS is suffering huge losses. NSE however can easily waive off such costs as
they can get revenue from the debt or equity derivative markets where it is a dominant
player. They thus claimed that it is predatory pricing and a case of exclusionary abuse.
• Before the CCI – first to define the RM and then establish the dominance of NSE in
the RM. The CCI noted that in the currency derivative market, NSE held only 33.17%
while MCS held a bigger market share. NSE had dominance in other markets like equity
and debt.
 • The CCI defined the RPM as the currency derivative market – this product is not inter-
changeable with that of equity or debt. The currency derivative market has its own
features which is distinct from equity or debt.
• Regarding dominance – NSE obtained undeniable advantages from its operations in
other markets, thus allowing them to provide stock exchange services for free in the
currency derivate market and thereby occupying a dominant position in the market.
(This has been criticised as the CCI defined the RPM correctly but established
dominance in other markets and not specifically in the RPM). The CCI held that the
acts of NSE amounted to leveraging its position in other markets to its benefit to capture
this market.
• Regarding abuse: Zero pricing adopted by NSE is a case of predation – done to
leveraging with the intention to impede future market access to potential competitors
and foreclose existing competition.
• Held: abuse of dominance in currency derivative market – using its dominance in one
market to enter into another. The method of assessment used by CCI – Areeda Turner
Test or the Average variable cost test to arrive at the cost of production. This test is
based on the economic concept that a firm cannot price its product below the marginal
cost of production. In case it does, it would prefer to shut down – to reduce losses in
the short run. Therefore, in case a firm sells below the MC and incurs losses but still
continues to operate in the market and is able to survive – this hints at predatory pricing.
• CCI imposed a fine of 55.5 Crore on NSE. NSE challenged before the COMPAT.
• The COMPAT held that the CCI has erred in defining the dominance but upheld the
decision of CCI by the changing the RPM to be the entire stock exchange market.
ESSENTIAL FACILITIES DOCTRINE
When a dominant enterprise in the relevant market controls an infrastructure or a facility that
is necessary for accessing the market and which is neither easily reproducible at a reasonable
cost in the short term nor interchangeable with other products/ services, the enterprise may not
without sound justification refuse to share it with its competitors at reasonable cost.
Any application of the EFD should satisfy the following:
• The facility must be controlled by a dominant firm in the relevant market
• Competing enterprises/persons should lack a realistic ability to reproduce the facility
• Access to the facility is necessary in order to compete in the relevant market; and
• It must be feasible to provide access to the facility.
Section 4 (2) (c) of the Act (relating to denial of market access by a dominant enterprise) pass
a remedial order under which the dominant enterprise must share an essential facility with its
competitors in the downstream markets.
This arises when a firm, which is a natural monopolist in one market refuses to provide access
to the monopolised input to a competitor in the market.
Ex: Indian Patent Act, 1970 : Sec 84, Compulsory Licencing
Ericson case : Issue of standard essential patent
VST industries Case (2009) SC : Private bodies possessing dominant position in the market
are under an implied duty to act in the public interest.
IPRs AND ABUSE OF DOMINANCE
• While reasonable use of IPRs stand exempted from the rigours of section 3 related to anti-
competitive agreements, no such derogation is available in case of abuse of Intellectual
Property Rights by right holders, in respect of specified abusive acts.
• section 4 relating to abuse of dominance on account of holding of IPRs considers all the
factors under the framework of competition harm before arriving at any conclusion.

COLLECTIVE/JOINT DOMINANT POSITION

• Article 102 of the TFEU
• The concept
• 'collective abuse' refers to when two or more undertakings which are connected in
some way (Economic link) abuse their concentrated market dominance.
• Anti-competitive effects : collusion and exclusion
The concept : three elements
1) The entities must be independent economic entities - If they constitute a single economic
unit they are regarded as one undertaking
2) The undertakings must be united through economic links
• Contractual links, structural links
• The links should unite the undertakings in such a way that they adopt the same
conduct on the market
• The Commission: The undertakings in question must have the same position
vis-à-vis their customers and competitors as a single company with a dominant
position would have
• There must be no effective competition between the companies
3) By virtue of the economic links the undertakings must together hold a dominant position
Indian Position
Absence of the concept of ‘collective dominance’ in the Indian Competition Act, 2002.
• CCI, by its recent order in Sanjeev Rao vs. Andhra Pradesh Hire Purchase Association
[Order dated February 07, 2013 in Case no 49/ 2012] admitted its failure to penalise the parties
implicated in the case due to the absence of possibility of collective/ joint dominance u nder §
4 of the Competition Act
Meru Travel Solutions Pvt. Ltd. (“Informant”) v. M/S ANI Technologies Pvt. Ltd (“Ola”),
M/S Uber India Systems Pvt. Ltd., Uber B.V., and Uber Technologies Inc.(“Uber”) :
Commission observed that Section 4 does not contemplate in its fold the concept of collective
dominance.
CONCEPT OF GROUP DOMINANCE
• 2007 amendment to the Competition Act, 2002 introduced the concept of group dominance.
• Abuse of dominant position by an enterprise or a group of enterprises stand
• prohibited under the Act to mean; ‘two or more enterprises which, directly or indirectly, are
in a position to,;
i. Exercise 26 percent , or more of the voting rights in the other enterprise; or
ii. Appoint more than fifty percent of the members of the board of directors in the other
enterprise or
iii. Control the management or affairs of the other enterprise’.
INQUIRY INTO ABUSE OF DOMINANCE
• Under section 19 of the Act, the Commission may inquire into any alleged contravention of
section 4 (1) of the Act that proscribes abuse of dominance.
• After inquiry the Commission may pass an orders under section 27 of the Act
• INTERIM ORDER Under section 33 of the Act, during the pendency of an inquiry into abuse
of dominant position, the Commission may temporarily restrain any party from continuance
with the alleged offending act .
• An appeal to NCLAT
Dhanraj Pillai & Ors v. M/S Hockey India (2011)
Background:
Former hockey players Dhanraj Pillay, GS Grewal and V.Baskaran filed information against
Hockey India, the apex governing body, national sports federation for Hockey affiliated to
IOA, AHF and FIH for abusing dominant position.
IHF, former governing body and Nimbus Sport, in 2010, envisioned a professional hockey
league in India called World Series Hockey (“WSH”) League and started negotiating with
players.
Later, FIH (Intl Hockey Fed) notified Regulations on Sanctioned and Unsanctioned events
applying prospectively from 31/4/2011. HI adopted it and modified its Code of Conduct
Agreement with players to include disciplinary action in case of participation in unsanctioned
events including disqualification from selection to Indian national team. HI soon announced
plans for starting their own professional hockey league similar to WSH.
Allegations by Informants:
HI misused its regulatory powers by promoting its own hockey league excluding WSH by
engaging in practices resulting in denial of market access to rivals & entering the market of
conducting a domestic event contravening Sections 4(2)(c)&(e) of the Act.
The CoC Agreement between HI and players is an exclusive supply agreement and imposes
restrictive conditions on participation in unsanctioned private leagues thus anti-competitive
under S.3(4) of the Act.
Arguments of Hockey India:
Disputed the Commission’s jurisdiction contending that HI was not an enterprise being the
custodian of sport, which is a public good, and its organizational, governance and regulatory
roles are not an economic activity. It didn’t provide any product/service as defined in the Act,
and that the hockey players cannot be considered as consumers, thus hence no relevant market
could be identified.
Pyramid structure for governance, rules & regulations – cannot be considered as dominance. It
would be unable to sanction the WSH, as such an event such involved players from different
continents and their own national association will also have to provide sanction.
Commission’s Analysis:
Jurisdiction: Surinder Singh v. BCCI (2010) – where a regulatory body is involved, its
institutional aspects should not be considered but rather its functional aspects. For HI, all
functions like granting of image broadcast, tickets were commercial and hence an enterprise
under the Act.
Relevant Market: the market for organization of private professional hockey leagues in India.
Abuse of dominant position:
The regulatory powers of HI and its recognition by international forums gives it power to
penalise, sanction, select players, hence dominant. Therefore, along with FIH it can create entry
barriers for private professional leagues through mandatory sanctions and requiring players to
obtain No-Objection-Certificates (“NOCs”) from HI for participation.
The CCI concluded that,
1) FIH, an international body, has full authority to come up with such Regulations and all
national associations are bound to abide the same to maintain the integrity and prevention of
free riding on investments of national associations. This is exactly what HI did and hence not
an abuse.
2) HI’s CoC Agreement doesn’t stop one from playing in unsanctioned leagues, however, NOC
must be obtained national & intl tournaments are to be given preference. This being a common
regulatory practice cannot be considered as a case of abuse.
Analysis:
Crucially, the Commission found that no approval had been sought by the WSH as per the FIH
Regulations. In a similar case against CCI penalised BCCI. However, in this case, there was
no penalty imposed as CCI did not address the actual problem wherein HI came up with its
own league, while players have already signed up for the WSH. Thus, it reflected a sort of
ignorance in dealing with the issue.
Umar Javeed and ors. v Google LLC – a case of self-preferencing
• On April 16, 2019, CCI ordered an investigation into the information filed by three
consumers of Android based smartphones in India, namely Mr. Umar Javeed, Ms.
Sukarma Thapar and Mr. Aaqib Javeed ('Informants') against Google LLC and Google
India Private Limited.
• The allegations in the information were under Section 4 of the Act and related to
Google's Android operating system, which is an open-source, mobile operating system
('Android OS') installed by original equipment manufacturers of smartphones and
tablets ('OEMs').
• he key allegations in the information related mainly to two agreements, i.e., the Mobile
Application Distribution Agreement ('MADA'), and the Anti Fragmentation Agreement
('AFA'), which were entered into by the OEMs of Android OS with Google.
• Under the AFA, OEMs were restricted from developing and marketing the
incompatible modified version of Android OS, Android forks, on other devices, which
is alleged to restrict access to potentially superior versions of Android OS. AFA is a
pre-condition to signing the MADA.
• It was further alleged that while signing the MADA is optional, OEMs are required to
pre-install Google's own applications in order to get any part of Google Mobile Services
('GMS'), i.e., Google applications like Maps, Gmail and Youtube, thereby hindering
development of rival applications.
• For the purpose of assessment, CCI prima facie delineated the following relevant
markets: 'market for licensable smart mobile device operating systems in India', 'app
stores for android mobile operating systems' and 'general web search service' and found
Google to be prima facie dominant in these markets.
• CCI issued an order under Section 26(1) of the Act, instructing the Director General
('DG') to investigate Google on the allegations made in the information, based on the
following factors:
a. AFA: According to CCI, conditions under the AFA, prima facie seem to reduce
the ability and incentive of OEMs to develop and sell alternative versions of
Android OS, in contravention of Section 4(2)(b) of the Act, i.e., limiting
technical or scientific development relating to goods and services to the
prejudice of consumers; and
b. MADA: According to CCI, conditions under the MADA, i.e., mandatory pre-
installation of GMS suite, prima facie seem to amount to imposition of unfair
condition on the OEMs in contravention of Section 4(2)(a)(i) of the Act.
 REGULATION OF COMBINATIONS
I. Supervision of Mergers
Why should mergers and acquisitions be supervised?
• As it creates unusual economic power resulting in market concentration
• it tends to reduce competitors in the relevant market and can result in the merged business
having dominance in the relevant market‘.
• This may lead to an abuse of dominance and suppression of consumer rights.
• Sec. 5 and 6 of the CA, 2002
• The provisions have been enforced with effect from 1st June, 2011
Scope of CA, 2002
• Creation of enterprises through any structural combinations (merger, amalgamation,
acquisition) productising anti-competitive effect is under the ambit of CA,2002.
• Indian Law does not define anti-competitive combinations, but provides quantitative
thresholds in terms of assets and turnover.
What is a combination?
• Broadly, combination under the Act means:
A. Acquisition of control, shares, voting rights or assets,
B. Acquisition of control by a person over an enterprise where such person has direct or
indirect control over another enterprise engaged in competing businesses, and
C. Mergers and amalgamations between or amongst enterprises when the comb ining
parties exceed the thresholds set in the Act.
• Section 5: An acquisition, merger or amalgamation which meets the relevant asset or turnover
thresholds stipulated under the Competition Act is a “combination”.
A. Acquisition of control, shares, voting rights or assets.
• Sec.5 (a) • Acquiring shares, voting rights, assets of another enterprise to enable to exercise
control. • If as a result, the value of assets or turn over of the combined enterprises exceeds the
prescribed thresholds then the combination is deemed to have an AAE on competition in India.
B. Acquisition of control by a person over an enterprise engaged in competing businesses.
• The term ‗control‘ has been defined, in explanation (a) to section 5, and includes controlling
the affairs or the management by one or more enterprises.
• Controlling the affairs of the management : doesn't mean that controlling the company by
means of voting rights but control in relation to the company‘s business.
• Affairs : which are relevant or having relation to the business of the enterprise.
• Acquiring of Control : De Jure (Legal) / De Facto Factual) factors.
• EU Merger guidelines : control means having the ―possibility of exercising decisive
influence‖ rather than the actual exercise of such influence
• However, the Act does not specify the degree of influence that would trigger the requirement
to notify a transaction.
• Some of the rights that the CCI has considered amounting to control include: appointment or
removal of key managerial personnel, changing the number of directors on the board,
approving, adopting or amending the annual budget and business plan or plans to enter a new
line of business, the right to block special resolutions, alteration of charter documents, and the
appointment of auditors.
C. Merger and Amalgamation
• M & A has the potential of affecting the competition, if their total assets and turn over exceeds
the prescribed thresholds.
• National Philadelphia Case: Even if the M & A is approved by the shareholders and courts
under the company's Act, it can still be examined under the CA, 2002.
Combination: market dominance of a group in and outside India.
• Combination of Non-Indian enterprises, business carried and merger completed and approved
outside India, can be subject to CA, 2002 if it meets the quantitative jurisdictional test.
• Then the notice of the same to be given to CCI
• Boeing/MdDonnel Douglas Case (1997) – FTC approved combination but blocked by
European Commission in EU.
• Gencor Case (1999) – Combination between South African firms – approved in SAF but
blocked by the EC citing that their entry may adversely effect business in Europe.
Combinations – Prescribed Thresholds: 2016 notification

Thresholds in Competition Act increased by notification (Section 54 gives the CCI the central
government the power to do this)
• Based on the changes in Wholesale Price Index (WPI) or fluctuations in exchange rates of
rupee or foreign currencies.
• Consider the consolidated, audited financial statements of the previous financial year
MERGER REVIEW PROCESS : When to notify
Obligation to file the notification within 30 days of:
• Mergers/Amalgamation: final approval of scheme of amalgamation by the boards of directors
of the amalgamating companies
• Acquisitions: execution of a final binding agreement or other document conveying an intent
to acquire--- communication to statutory body
• Aditya Birla/Pantaloons: Sufficient finality required in the trigger document—MoU missing
several important terms of the transaction.
• Tesco/Trent: fine of INR 3 crores for delayed filing
• Thomas Cook and ZFCL: Fined INR 1 crore for implementing part of a notifiable transaction
Factors to be considered
In analyzing a transaction, the CCI will evaluate the possibility of unilateral effects,
coordinated effects and conglomerate effects of the combination to see if it causes an AAEC
in the relevant market in India
Factors considered by the CCI:– Section 20 (4) − Extent of barriers to entry into the market −
Level of combination in the market − Degree of countervailing power in the market −
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.
− Market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination
- Extent to which substitutes are available or are likely to be available in the market
- Likelihood that the combination would result in the removal of a vigorous and effective
competitor or competitors in the market
- Nature and extent of vertical integration in the market
- Nature and extent of innovation
- Whether the benefits of the combination outweigh the adverse impact of the
combination, if any

Scope of Merger Control

− Mandatory requirement of prior notification and approval
− Suspensory effect: Cannot give effect to any part of the transaction till clearance is
received or 210 days pass from notification
− Covers both domestic and international transactions
− Penalties for failure to file/belated filings: Up to 1% of combined assets or turnover of
the Combination
− Combinations causing or likely to cause an AAEC will be void
− Modifications may be ordered by the CCI or offered by the Parties.
CCI Combination Division – Organizational Structure and Role
The case team plays the largest role in the assessment of M&A filings

Which Form to file

• Form I: Short Form and Default Form
• Form II: Detailed form requiring much more information: CCI ―prefers‖ that this form be
used when transactions involve parties that have:
• A horizontal with market shares over 15%
• Vertical relationships with market shares of over 25%
• Material change to combination: File again (restart clock)
• Form III: Intimation after transaction: Section 6(4)
Review Timelines
• Phase I: Prima Facie view within 30 days - Meeting with the CCI to explain the case
• Phase II: • Show cause notices • Publication and third party comments • DG Report
Combinations—Statutory Exemptions
• Section 6(4):
• Acquisitions by public financial institutions, banks, venture capital funds a nd foreign
institutional investors pursuant to an investment agreement or a loan agreement are excluded
from the prior notification requirement
• A post facto intimation under Form III is required to be made within 7 days of the acquisition.
De-minimus exemption
• Acquisitions and mergers / amalgamations, where the value of assets being acquired,merged
or amalgamated is not more than 350 Crores in India or turnover is not more than INR 1000
crores are exempted from the provisions of Section 5 of the Competition Act
• 2017 De-minimus Financial Thresholds.
• Exemption in such cases is for a period of 5 years

SunPharma/Ranbaxy (2014)
Facts:
Sun Pharmaceutical Industries Ltd. and Ranbaxy Laboratories Limited, two leading
pharmaceutical companies engaged in the business of manufacture, sale and marketing of
pharmaceutical products applied through a notice under Section 6(2) of the CA, 2002 to the
CCI intending to merge together through the scheme of arrangement.
Determination of the “relevant market”:
Sun Pharma and Ranbaxy are pharmaceutical companies engaged in the manufacture and sale
of active pharmaceutical ingredients (hereinafter “APIs”) and other formulations. Initially, the
CCI found that there were significant horizontal overlaps between the two companies and
determined the relevant market at the molecule level. Thus, the CCI focused its investigation
in 49 relevant markets.
Laws Involved:
The Indian Competition Act, 2002

• Section 2 definition clause - “relevant market”, “relevant geographic market”, “relevant

product market”, “acquisition” and “enterprise”.
• Section 5 essentially states that an acquisition, merger or amalgamation, which meets
the relevant thresholds of either assets or turnover provided under the Act are
“combinations” which are hence required to be governed according to the Act.

• Section 6 deems that combinations entered into which cause or are likely to cause
AAEC in India are treated as void. An entity which proposes to enter into a combination
is mandated to send a notice to the CCI disclosing required details in the prescribed
manner (Section 6(2)).

• Section 20 which empowers the CCI to conduct an inquiry into combinations upon
receipt of notice under Section 6(2) on whether it has an AAEC in India. It also
enumerates the factors to be considered by the CCI in determining the same.

• Section 29 deals with the procedure to be adopted by the CCI in order to investigate
combinations, including issuing notices to the parties concerned for providing
additional information as well as justify why no investigation must be conducted and
to the general public seeking responses in the form of objections to the proposed
transactions.
 • Section 30 specifically provides for the procedure to be followed in cases where the
CCI received a notice by a party under Section 6(2). The procedure contemplated under
Section 29 is to be followed.

• Section 31 allows the CCI to make orders on the proposed combinations, either to
approve or not if in its opinion there is no current or potential AAEC in India or if
certain modifications.
Competition Commission of India (Procedure in regard to the transaction of Business
relating to Combinations) Regulations, 2011 (“Competition Regulations”)

• Regulation 5 prescribes the form of notice for the proposed combination.

• Regulation 19 deals with the prima facie opinion of the CCI on the notice filed as to
whether or not the proposed combination is likely to cause AAEC in India.

• Regulations 5(4) & 19(2) mandate the parties that seek for approvals from the CCI to
submit additional information in order clarify certain queries that CCI deems fit to be
answered.

• Regulation 22 mandates the publication of the combination in case the CCI is under a
prima facie opinion that the combination has or is likely to cause AAEC in India.
• Regulation 25 gives the necessary power to the CCI to propose modifications in the
combination which can be made in order to ensure that even if the proposed
combination is likely to cause AAEC in India, they same can be avoided.
• Regulation 26 deals with compliance of the parties for carrying out the modifications
suggested by the CCI.
Decision:
The CCI approved the merger transaction between the Parties with modifications. A divestiture
plan was set up for seven formulations in a phased manner. Therefore, in terms of Section
31(3) of the CA, 2002 through letters sent to the parties. Sun Pharma was tasked to divest all
products which the trade name Tamlet and Lupride. On the other hand, Ranbaxy had to divest
its products under the following brands: Terlibax, Rosuvas EZ, Olanex F, Raciper L,
Triolvance. The divestiture process had to be completed within a period of six months from the
date of the order.
With respect to the market for APIs, the CCI held that the horizontal overlap between the two
parties is not significant in order to trigger any competition concern, however, regarding
vertical integration, it observed that there is a possibility of raw materials of one party being
used by another which has the potential of input foreclosure as well as customer foreclosure.
However, many APIs were imported by the parties hence, there was no scope for vertical
foreclosure.
Regarding pipeline products of Ranbaxy to be launched later, the CCI observed that the
proposed merger might not have any significant AAEC in India since there is a likelihood of
more players entering the market of the upcoming pipeline products since it is in the stages of
patent approvals and registrations and litigation.
Reasoning:
The CCI had considered forty-nine relevant markets including formulations and APIs for the
purpose of investigation in order to determine in which of them there is a likelihood of AAEC
in India. In determining the AAEC in India of the seven relevant markets, the d ecision of the
CCI was based on the fact that the merged entity would be having majority share in the market
and would effectively bring down competitors or eliminate them.
1) For Tamlet, Rosuvas EZ – the merged entity would be having 90-95 percent of the market
share and would result in bringing down the competitors from 3 to 2, thereby eliminating a
competitor.
2) For Lupride – the merged entity would be having 85-90 percent of the market share and
would result in bringing down the competitors from 3 to 2, thereby eliminating a competitor.
3) For Terlibax, Olanex F, Raciper L – the merged entity would be having 65-70 percent of
the market share and would result in bringing down the competitors from 3 to 2, thereby
eliminating a competitor.
4) For Triolvance – the merged entity would be having 40-45 percent of the market share and
would result in bringing down the competitors from 4 to 3, thereby eliminating a competitor.
Analysis:
The CCI’s stand of narrow definition of the relevant market and additional splitting of the two
broad markets of APIs and formulations into numerous relevant markets reflect its inability to
promote innovation and access in the pharmaceutical sector.
Merger Control is defined as one of the four pillars of competition law regimes. Mergers are
commonly depicted as a means to increase and substantiate the control and augment
concentration within a particular market(s) but, this is not the case always. Mergers also have
significant positive impact on all concerned stakeholders which have been ignored by the
Commission.

Transnational Combinations
• Sec. 32 • Boeing/MdDonnel Douglas Case (1997) • Gencor Case (1999)
PROPOSED CHANGES TO CCI’s MERGER CONTROL REGIME BY THE DRAFT
COMPETITION AMENDMENT BILL, 2020
1. Central Government‘s Power to Notify new Thresholds for Merger Control :
• Section 6(a) of the Draft Amendment Bill seeks to add a provision to Section 5(c) of the Act
which gives power to the central government (in consonance with the CCI) to notify new
criteria of determining thresholds which can be defined as a combination under the Act in
addition to the existing ones under Section 5(a), 5(b), and 5(c).
• Similarly, Section 6 of the Draft Amendment Bill also gives the Central Government the
power to notify transactions that would not count as combination under the Act.
2. Change in the definition of control
• Currently, the definition of control under Explanation proviso (a) of Section 5 of the Act is
the ability of a group or an enterprise to control the management or affairs of the company.
• The Section 6(b) of the Draft Amendment Bill seeks to completely replace the existing
definition of control by replacing Explanation proviso (a) to define control as the
• ―singular or joint ability of an enterprise or a group to exercise material influence over the
management or affairs or strategic commercial decisions.
• However, the term material influence has not been defined in the Draft Amendme nt Bill or
the Act.
 3. Change in the definition of group
• The definition of group under Explanation proviso (b) of Section 5 of the Act is the ability of
two or more enterprises are in a position to either, exercise more than 26% of voting rights, or
appoint more than 50% of members of the board of directors in the other enterprise, or control
the management or affairs of the other enterprise.
• The significant change made by the Draft Amendment Bill is to allow the Central Government
to prescribe any other percentage than 26%
4. Speedier Process of Approval
• Section 31(11) provided that the review or assessment of the combination can extend up to
210 calendar days. Under this review process, the CCI is required to give its prima facie opinion
on a combination as a result of its notification.
• The Draft Amendment Bill seeks to decrease the assessment timeline from 210 days to 150
days, with an extension of up to 30 days in case the parties concerned need to provide additional
information or address certain defects.
5. The green channel approval process given a statutory recognition
• The green channel approval process was introduced by Regulation 5A by an amendment
2019.
• The Bill seeks to give statutory recognition to the green channel approval process in the Act.
• This Bill recognizes the green channel by empowering the Central Government to allow in
consonance with CCI, certain non-contentious transactions, classified in Schedule III of the
Bill, to use the green channel or the deemed approval process through a notification.
What are the eligibility criteria for Green Channel notifications?
• The transacting parties do not have any
• Horizontal overlaps (i.e., they must not be already producing any similar, identical or
substitutable products/services); or
• Vertical overlaps (i.e., they must not be engaged in activities at different stage or level of the
production chain); or
• Complementary overlaps (i.e., products/services when combined and used together enhance
the value of the combined good/service).
6. Inclusion of Technology and New Age Markets
• The Bill purposes to expand the scope of the act to include within its scope the digital markets
And the inclusion of hub and spoke arrangement.

7. Changes in the enforcement functions

• The bill intends to introduce wide range of powers to the DG as well as the CCI
• The bill introduces a provision as to which any person who fails to produce any
documents, information or record; or did not appear before the DG; or sign the note of
cross-examination, shall be punishable for a term of imprisonment which ranges from 6
months to 5 years + 1 crore fine.
 • In the case of formation of cartels, the bill introduces a maximum cap of penalty of 10%
of the income in the preceding 3 financial years of the individual.

8. Extension of IPR Safe Harbour to Dominance Cases

• At present, the Act provides a safe harbour if anti-competitive restrictions are imposed
to protect any registered (or in the process of being registered) intellectual property
right (IPR) in India.
• However, such an IPR safe harbour is not available in case of abuse of dominance
cases. Given that there was no reasonable basis for such a distinction, the Bill now
proposes to allow IPR safe harbour in all cases of enforcement actions (i.e., not just in
respect of anti-competitive agreements but also in respect of abusive practices of a
dominant enterprise).

9. Leniency Plus
• A ‘leniency plus’ regime is proposed to be introduced (i.e., offering further reduction
in penalties to a leniency applicant for its activities in one market if it is the first to
disclose anti-competitive practices / cartel in another market). This would further
encourage whistle-blowers to come forward and disclose anti-competitive conduct to
the CCI.

10. Settlement Mechanism, not for cartels.

• The Bill has come out with a new mechanism for settlement and commitments by
investigated persons / entities for contraventions related to vertical agreements and
abuse of dominance. However, this mechanism would not be available in case of
cartels.

11. Introduction of Size of the Transaction Test: income criteria also included now.
• The Bill proposes to enable the Government, in consultation with the CCI, to introduce
novel criteria for triggering the requirement of making a merger filing in India in
addition to the existing merger filing thresholds. Such a measure is intended to allow
the CCI jurisdiction to review transactions involving non-conventional businesses such
as M&A involving big data and innovation-driven digital markets by introducing more
suitable merger filing thresholds such as deal size thresholds.

12. Control conundrum – for mergers

The Bill proposes to clarify that the test for assessing control would be based on the ability
to exercise ‘material influence’ over the management and affairs or strategic commercial
decisions.
Competition commission of India – composition, powers and duties (include
Brahm Dutt case in answer, case has been done earlier)
• The validity of CCI was questioned in the case of Brahm Dutt v. UOI (2005)
Facts: Brahm Dutt filed a WP in Supreme Court against UOI regarding composition of CCI.
CCI performs a judicial function so the chairman needs to be a “judge”.
Contention of UOI: CCI is a Regulatory body and requires ‘expertise’ which the judiciary
cannot supply. Power of judicial review against the decision of CCI is still there. India is not
the first country to having non-judicial members in a regulatory body like CCI.
UOI, amended the the Act during pendency of the case in the following manner – “Chairman
and members of CCI will be selected by the Committee presided by the CJI” also, the
Amendment paved way for COMPAT – Competition Appllate Tribunal.
Decision of SC – Declared that Amendment is valid because now the regulatory body will have
a “judicial touch”.
Composition of the Commission
• Chapter III of the Competition Act, 2002 provides for the establishment of
Competition Commission of India (CCI).
• According to the Act, the Commission shall comprise of Chairperson and not less
than two and not more than six other members to be appointed by the Central
Government.
• The statutory provision further entails that the Chairperson and other members of the
Commission shall possess special knowledge and professional experience of not less
than 15 years in international trade, economics, business, commerce, law, finance,
accountancy etc.
• Under the provisions of the Act, the Chairperson and other Members shall be selected
in the manner and in accordance to the Rules prescribed by the Central Government.
• Accordingly, the members are recommended by a selection committee consisting of:
(Brahm dutt case)
f. The Chief Justice of India or his nominee
g. Secretaries in MCA and the Law & Justice.
h. Two experts of repute having knowledge and professional experience in
International trade, economics, business, commerce, law and finance,
accountancy, management, public affairs or competition matters include
corporate law and policy in International trade, economics, business,
commerce, law, finance and industry.
i. RBI Governor

The powers, duties and functions of the commission has been provided under Chapter IV of
the Act – Section 18 to 40.

Duties of the commission – Section 18

• The commission has the duty to eliminate practices having adverse effect on
competition and to promote and sustain competition in the market.
 • To protect the consumer interests and to ensure freedom of trade carried on by other
participants in the market in India.
• For the purpose of discharging its duties or performing its functions, the commission
may enter into any memorandum or agreement without the prior approval of the
central government.

Powers and functions of the commission

1. To eliminate practices having adverse effect on competition, promote and sustain

competition, protect interests of consumers and ensure freedom of trade by other
participants
2. Inquire into certain agreements and dominant position of enterprise– Section 19 -
It provides that the Commission may either suo moto or on receipt of any information
of alleged contravention of Section 3 (prohibits anti-competitive agreements) may
inquire into the same.
3. Inquiry into combinations– Section 20 of the Act entrusts the Commission with the
power to inquire into any information relating to acquisition and determine whether
such combination or acquisition may have an appreciable adverse effect on competition
(AAEC).
4. Reference of an issue by a statutory authority to the Commission– Section 21 of the
Act enumerates that in the course of a proceeding if any issue is raised that any decision
of a statutory authority will be in conflict with the provisions of the Competition Act,
2002, the statutory authority shall make a reference in this regard to the Commission.
5. Reference by Commission– Section 21A of the Act provides that if in the course of
proceeding an issue is raised by any party that any decision taken by the Commission is
in contravention of the provisions of Competition Act, whose authority is entrusted to a
statutory authority then the Commission may make a reference in respect of the issue to
the statutory authority.
6. Power to pass orders after enquiry into agreements or abuse of dominant position
– Section 27.
7. Power to order for the division of any enterprise which is enjoying a dominant
position – Section 28.
8. Power to pass orders on combinations depending on whether such combinations
have an appreciable adverse effect or not – Section 31.
9. Power to issue interim order– Section 33 of the Act empowers the Commission to issue
interim orders in cases of anti-competitive agreements and abuse of dominant position,
thereby temporarily restraining any party from carrying on such an act.
10. Power of the commission to regulate its own procedure – Section 36 - the Commission
shall be guided by the principles of natural justice and, subject to the other provisions of
this Act and of any rules made by the Central Government, the Commission shall have
the powers to regulate its own procedure. The Commission shall have, for the purposes
of discharging its functions under this Act, the same powers as are vested in a Civil
Court under the Code of Civil Procedure, 1908.
11. Section 38 – power to rectify its orders and corrects errors.
12. The Commission is also empowered to levy penalty on the offenders. The amount of
penalty can range up to 10 per cent of the average turnover of the company during the
last three financial years upon all those enterprises or the individuals that are parties to
13. Competition Advocacy– Section 49 of the Act provides for competition advocacy and
enumerates that the Central or the State Government may while formulating any policy
on Competition or any other matter may make reference to the Commission for its
 opinion on possible effect of such policy on Competition. However, the opinion given
by the Commission is not binding on the Central Government. The Commission shall
also take suitable measures for the promotion of competition advocacy, creating
awareness and imparting training about competition issues.

Inquiry and investigation – process flow under Section 3 and 4

1. Case initiation – Section 19:
a. Information received under Section 19(1)(a) from any person, consumer, trade
association, or
b. Reference received from the Central or State Government under Section 19(1)(b),
or
c. Suo moto investigation on its own motion – Section 19(1).
2. Prima facie case – Section 26(1):
a. If prima facie case made out – Sent to DG for investigation. DG investigates and
sends a report to the commission. In case of contravention, final order under
Section 27. If no contravention, case is dismissed.
b. If a prima facie case not made out – case closed under Section 26(2). Option of
appeal is available.

Duties of the Director General – Chapter V, Section 41

• The Director General shall, when so directed by the Commission, assist the
Commission in investigating into any contravention of the provisions of this Act or any
rules or regulations made thereunder.
• The Director General shall have all the powers as are conferred upon the Commission
under subsection (2) of section 36 - while trying a suit, in respect of the following
matters, namely:- (a) summoning and enforcing the attendance of any person and
examining him on oath; (b) requiring the discovery and production of documents; (c)
receiving evidence on affidavit; (d) issuing commissions for the examination of
witnesses or documents; (e) requisitioning, subject to the provisions of sections 123 and
124 of the Indian Evidence Act, 1872 (1 of 1872), any public record.
 Google Case (Abuse of Dominant Position)
Facts & Allegations:
The Informants viz. Matrimony.com Limited and Consumer Unity and Trust Society alleged
that Google runs its core business of search engine and advertising in a discriminatory manner
causing harm to advertisers by creation of entry barriers etc. and indirectly to consumers.
Laws:

• Section 4 – Abuse of “dominant position” – ‘a position of strength, enjoyed by an enterprise,

in the RM, in India, which enables it to operate independently of competitive forces prevailing
in the relevant market; or affect its competitors or consumers or the RM in its favour’
Investigation by DG & Relevant Market: Two RMs (they are complementary but not part of
the same relevant product market)
1) Google’s Search Engine Services - Google was alleged to promote its own vertical search
services viz. YouTube, Google News and Google Maps and manipulating its search and quality
score algorithm leading to only their own sites appearing prominently on the search results,
irrespective of relevance.
2) Google’s Advertising Services - Google’s dominant position in the search advertising market
has allowed it to saddle advertising clients and consumers with unfair and discriminatory
conditions.
Decision & Reasoning:
The CCI held in consonance with the DGs report & investigation regarding the definition of
relevant market and that Google enjoys dominant position in specified product market in India
and has abused its dominant position by favouring Google’s own verticals in its search engine
in contravention of Section 4 of the Competition Act, 2002 and imposed monetary penalty. It
also directed Google to not enforce any restrictive clauses on third party websites for hosting
Google search bars and ads.
CCI based its decision on the following grounds:
1) Search Bias
2) Limited Disclosure of Information and unfair/discriminatory conditions imposed on
Advertisers
3) Unfair Conditions on Trademark Owners
4) Distribution Agreements & Unfair conditions in Syndication / Intermediation Agreements
Conclusion & Analysis:
The CCI in this decision has recognized the pace at which innovation, technology and big data
is transforming the economic landscape globally and locally. Appreciating the crucial role that
market drivers like Google play in driving India into the future, CCI has iterated that, “public
intervention in such markets should be targeted and proportionate. Such a calibrated approach
in technological markets ensures that intervention remains effective; it does not restrain
innovation and helps the market to regulate itself.” Thus, it’s a welcome step towards
spreading internet equality and digital economy in the coming days.