Competition Law : Background

Dr. Rajesh Kumar

Lecture-1
Competition: A thought Process
 Darwinian theory of evolution and competition : Living organisms
are in competition for food resources, for mates, for nesting sites,
competition for survival ; lots of different things.
 Darwin wrote down this idea as natural selection, survival of the
fittest, microevolution and macroevolution. In Darwin’s theory on
the mechanism of evolution, competition among living things is
viewed as a major part of the “struggle for existence” and
therefore as a basis for natural selection.
 Successful firms (Natural selection and competition) survive while
unsuccessful ones dies. Schumpeter (1961 ), Friedman (1976),
Ferguson and Stiglitz
 Adam smith in his book wealth of nation highlighted the
importance of self interest and competition and its importance in
market and economy .
 Other economists also highlighted importance of competition.
 Capitalism and Competition
• Liberty and true
• Intelligent use of capital,
democracy with
Natural Resources and least state
Labor to generate more interference
capital • Capacity and
• New capital and value freedom to enter
can be produced by into the contract
optimum use of labor • Legal mechanism
• Private property Rights of contract
All natural Resources enforcement
are capable of owing Freedom
and commercial use • Social and
political freedom
is key to
economic
freedom

Adam Smith’s Invisible

Self interest hand
• Profit oriented approach (Competition) • Free and fair
• Return on equity is in competition
key focus • Risk and failure
• Market to cater self are the part and
interest parcel
• Promoting
entrepreneurship
• Promoting
innovation and
scientific
development
 Background

 Capitalism is based on ideas like ; freedom and capacity to enter

into contract with maintaining its sanctity
 Partnership and company emerged
 Features are added to make company as most successful entity
 Courts supported the corporations becoming larger ( Salomon
case , Lee case etc.)
 Massive industrialization of U.S. and western economies and
emergence of big corporations due to great transformation in
the economy, government, and technology.
 Contd.
 The influx resulted in the rapid expansion of industrialization, with the railroad
industry experiencing the largest growth. The rapid growth resulted in ruthless
competition, as large enterprises became bigger, while the small entities
struggled to maintain their profit margins.
 The uneven business ground led to discussions about controlling large entities to
ensure a level playing field for everyone.
 Although the word “trust” has evolved to mean entities that hold wealth for a
third party, it was initially used to mean collusive behaviour that made
competition unfair.
 Railroad companies, oil company , steel companies and others started becoming
monopolist.
 Misuse by Trusts

• After acquiring big size, it started misusing its market power then some restrictions were placed on their
power to enter into an agreement with competing enterprise .
• Most of the business activities are controlled by trusts .
• These monopolists started exploitation of the people .
• While the rich, trust-owning businessmen got richer and richer, the public got angry and demanded the
government take action
 Contd.
 The public outcry against the trusts led US politicians to speak against monopoly and
such trusts . All political parties were unison in raising their voices against such trusts.

 The legislative history of the Sherman act began July 10, 1888, when the Senate
adopted without debate a resolution directing its Finance Committee to “inquire into
and report … such measures as it may deem expedient” to restrain or prohibit trusts
or other combinations designed to prevent free competition, foster monopoly, or
artificially advance prices. That resolution and successive bills were introduced by
Senator John Sherman, veteran Ohio Republican. The measure finally enacted July 2,
1890, was of composite authorship.
 So, In U.S., it is known as antitrust laws. Firstly, Sherman Act, 1890 then Clayton act,
1914 and Federal trade commission act, 1914, which was followed by other legislations.
 Contd.
 Sherman Act ,Sec 1. Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States, or with
foreign nations, is declared to be illegal. Every person who shall make any contract
or engage in any combination or conspiracy hereby declared to be illegal shall be
deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not
exceeding one million dollars if a corporation, or, if any other person, one hundred
thousand dollars or by imprisonment not exceeding three years, or by both said
punishments, in the discretion of the court.
 2. Every person who shall monopolize, or attempt to monopolize, or combine or
conspire with any other person or persons to monopolize any part of the trade or
commerce among the several States, or with foreign nations shall be deemed guilty
of a felony, and, on conviction thereof, shall be punished by fine not exceeding one
million dollars if a corporation, or, if any other person, one hundred thousand dollars
or by imprisonment not exceeding three years, or by both said punishments, in the
discretion of the court.
 Continued
 Language of the provisions are aimed towards misuse of contract,
combination and conspiracy to restrain freedom of trade and commerce
and monopoly power. For example Sec 1 and sec 2 of Sherman act and
the provisions of the clayton act. However, the clayton act was enacted
to ease the strictness imposed by provisions of Sherman act.
 Initially, the courts have started interpreting the law literally but later
on adopted two rules of interpretations : Per se rule and Rule of reasons
to differentiate between reasonable and unreasonable restraints
 However, stricter interpretations were made till 1970 , after which
Chicago school jurisprudence was emerged.
 Important cases: Northern pacific R. Company v U.S., Goldfarb v Virginia
Bar Association, FTC v Indiana federation of dentist , Board of trade
Chicago v U.S. , Standard Oil company v U.S.
 Competition Law In Europe
 Capitalism was adopted by the European countries from the very
beginning. Any unfair trade practices or manipulative trading was
considered as prohibited activity with penalty.
 Hitler created the exception by permitting the cartels to support the
war expense . After the second world war, in ministers conference,
economic integration and defence integration was considered first,
followed by establishment of ECSC(1951), European economic
community( 1957),EU( 1991).
 Presently, Art 101 and Art 102 of TEFU of EU provides the competition
law of European union.
 Art 101 is focussed on agreements and Art 102 deals with abuse of
dominance
 Art 101

 1. The following shall be prohibited as incompatible with the internal market: all agreements
between undertakings, decisions by associations of undertakings and concerted practices which
may affect trade between Member States and which have as their object or effect the prevention,
restriction or distortion of competition within the internal market, and in particular those which:
 (a) directly or indirectly fix purchase or selling prices or any other trading conditions;
 (b) limit or control production, markets, technical development, or investment;
 (c) share markets or sources of supply;
 (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby
placing them at a competitive disadvantage;
 (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection with the
subject of such contracts.
 Contd.
 2. Any agreements or decisions prohibited pursuant to this Article shall be
automatically void.
 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
 - any agreement or category of agreements between undertakings,
 - any decision or category of decisions by associations of undertakings,
 - any concerted practice or category of concerted practices,
 which contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a fair share of
the resulting benefit, and which does not:
 (a) impose on the undertakings concerned restrictions which are not indispensable to
the attainment of these objectives;
 (b) afford such undertakings the possibility of eliminating competition in respect of a
substantial part of the products in question
 Art 102
 article 102 (ex Article 82 TEC)
 Any abuse by one or more undertakings of a dominant position within the internal
market or in a substantial part of it shall be prohibited as incompatible with the
internal market in so far as it may affect trade between Member States.
 Such abuse may, in particular, consist in:
 (a) directly or indirectly imposing unfair purchase or selling prices or other unfair
trading conditions;
 (b) limiting production, markets or technical development to the prejudice of
consumers;
 (c) applying dissimilar conditions to equivalent transactions with other trading
parties, thereby placing them at a competitive disadvantage;
 (d) making the conclusion of contracts subject to acceptance by the other parties of
supplementary obligations which, by their nature or according to commercial usage,
have no connection with the subject of such contracts.
 Competition Law in India
 Policy of command and control and license raj was adopted post 1947.
Government played both the role of a businessman and a regulator , which
prohibited the development of competition in India.
 Constitution provides for economic justice, existence of public and private
enterprises and Decentralisation of resources
 MRTP Act was enacted with exempting government entities, providing for
restrictive trade practices, Monopolist trade practices and Unfair Trade
practices
 Discrimination between public and private enterprises, Prohibition of
monopoly( Acquiring 25 percent or more) and different types of Restrictive
and Unfair trade practices
 MRTP Act,1969
 An Act to provide that the operation of the economic system does not result in
the concentration of economic power to the common detriment, for the control
of monopolies, for the prohibition of monopolistic and restrictive trade practices
and for matters connected therewith or incidental thereto.
 As per Sec 2d "dominant undertaking" means-
 (iii) an undertaking which, by itself or along with inter-connected undertakings,
produces, supplies, distributes or otherwise controls not less than one-fourth of
the total goods that are produced, supplied or distributed in India or any
substantial part thereof; or
 (iv) an undertaking which provides or otherwise controls not less than one-fourth
of any services that are rendered in India or any substantial part thereof.
 Contd.
 Sec 31. Investigation by Commission of monopolistic trade practices .-(1) Where it appears to the
Central Government that [the owners of one or more undertakings are indulging in any
practice, which is, or, may be, a monopolistic trade practice] or that, monopolistic trade
practices prevail in respect of any goods or services, that Government may refer the matter
to the Commission for an inquiry and the Commission shall, after such hearing as it thinks fit,
report to the Central Government its finding thereon:
 (2) If as a result of such inquiry, the Commission makes a finding to the effect that, having
regard to the economic conditions prevailing in the country and to all other matters which
appear in particular circumstances to be relevant, the trade practice operates or is likely to
operate against the public interest, [it shall make a report to the Central Government as to its
findings thereon and on receipt of such report,] the Central Government may,
notwithstanding anything contained in any other law for the time being in force, pass such
orders as it may think fit to remedy or prevent any mischiefs which result or may result from
such trade practice.
 Contd.
 RTP ; (a) any agreement which restricts, or is likely to restrict, by any method the persons or
classes of persons to whom goods are sold or from whom goods are bought;
 (b) any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase
some other goods;
 (c) any agreement restricting in any manner the purchaser in the course of his trade from
acquiring or otherwise dealing in any goods other than those of the seller or any other person;
 (d) any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at
prices or on terms or conditions agreed upon between the sellers or purchasers;
 (e) any agreement to grant or allow concessions or benefits, including allowances, discount,
rebates or credit in connection with, or by reason of, dealings;
 (f) any agreement to sell goods on condition that the prices to be charged on re-sale by the
purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower
than those prices may be charged;
 Contd.
 g) any agreement to limit, restrict or withhold the output or supply of any goods or
allocate any area or market for the disposal of the goods;
 (h) any agreement not to employ or restrict the employment of any method, machinery
or process in the manufacture of goods;
 (i) any agreement for the exclusion from any trade association of any person carrying on
or intending to carry on, in good faith the trade in relation to which the trade association
is formed;
 (j) any agreement to sell goods at such prices as would have the effect of eliminating
competition or a competitor;
 [(ja) any agreement restricting in any manner, the class or number of wholesalers,
producers or suppliers from whom any goods may be bought;
 (jb) any agreement as to the bids which any of the parties thereto may offer at an auction
for the sale of goods or any agreement whereby any party thereto agrees to abstain from
bidding at any auction for the sale of goods];
 Contd.
 (k) any agreement not hereinbefore referred to in this section which the Central
Government may, [by notification], specify for the time being as being one
relating to a restrictive trade practice within the meaning of this sub-section
pursuant to any recommendation made by the Commission in this behalf;
 (l) any agreement to enforce the carrying out of any such agreement as is
referred to in this sub-section.
 Above said agreements restricting, distorting or eliminating the competition
would be seen as violation of MRTP Act.
 36-A. Definition of unfair trade practice .-In this Part, unless the context otherwise
requires, "unfair trade practice" means a trade practice which, for the purpose of
promoting the sale, use or supply of any goods or for the provision of any
services, [adopts any unfair method or unfair or deceptive practice including any
of the following practices], namely:-
 (1) the practice of making any statement, whether orally or in writing or by visible
representation which,-
 (i) falsely represents that the goods are of a particular standard, quality,
[quantity,] grade, composition, style or model;
 (ii) falsely represents that the services are of a particular standard, quality or
grade;
 (iii) falsely represents any re-built, second-hand, renovated, re-conditioned or old
goods as new goods;
 Contd.
 (iv) represents that the goods or services have sponsorship, approval,
performance, characteristics, accessories, uses or benefits which such goods or
services do not have;
 (v) represents that the seller or the supplier has a sponsorship or approval or
affiliation which such seller or supplier does not have;
 (vi) makes a false or misleading representation concerning the need for, or the
usefulness of, any goods or services;
 (vii) gives to the public any warranty or guarantee of the performance, efficacy or
length of life of a product or of any goods that is not based on an adequate or
proper test thereof
 Contd.

 However, the supreme court gave some respite from the restrict and oppressive law in the
following cases:
 Mahindra and Mahindra v Union of India the Supreme Court deliberated upon the utility of the Rule of
Reason vis-à-vis MRTP Act, and held that such an analysis has to be made before deciding whether a particular
trade practice is restrictive or not. 
 M/S Pieco electronics v Union of India
 Colgate Palmolive v MRTP Commission : Held it was not unfair trade practice and the
case was moved to the consumer forum
 Hindustan Lever Limited v Union of India
 Continued
 Following the silent outcry and under the influence of globalisation and
liberalisation, Raghvan Committee was appointed , which recommended for
competition law of the country. These are the recommendations.
 Three would be covered, anti competitive agreement, abuse of dominance and
regulation of combination.
 Certain anti competitive agreement should be presumed to be illegal.
 Certain agreements may be exempted.( IPR related)
 Market should be clearly defined.
 Detailed provision related to use of dominance not acquiring of dominance.
 Mergers and acquisitions : Certain threshold be fixed for it operations.
 CCI establishment with all the powers
 Competition Advocacy
 Salient Features of Competition Act,2002

 Accordingly, Competition Act, 2002 was enacted . It has

following features .
 Sec 7-17 Deals with the establishment of the CCI .
 Sec 64 of the Act deals with the quasi legislative power of CCI
to make the regulations
 Sec 19 and 20 of the act provides executive powers to
investigate and inquire into anticompetitive practices
 Contd.

 Sec 33 and sec 42-48 empowers CCI to adjudicate and impose penalty for
violation of competition law and regulations
 Sec 49 of the Act provides for competition advocacy
 Sec 53 A provides for establishment, power and functions of Competition
Appellate tribunal
 Sec 3 deals with the anticompetitive agreements, sec 4 with abuse of
dominance and sec 5 deals with regulation of combinations.