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Anti-competitive Agreements and the Competition Act, 2002

Competition Act, 2002, was enacted by Parliament of India to establish a commission, to protect the interest of the consumers and guarantee freedom of trade in markets in India-
· To prohibit the agreements or practices that restricts free trading and also the competition between two business entities,
· To ban the abusive situation of the market monopoly,
· To provide the opportunity to the entrepreneur for the competition in the market,
· To have the international support and enforcement network across the world,
· To prevent from anti-competition practices and to promote a fair and healthy competition in the market.

But before Competition Act there was MRTP Act, The Monopolies and Restrictive Trade Practices Act, 1969 which ensure that concentration of economic power in hands of few rich. The act was there to prohibit monopolistic and restrictive trade practices. It extended to all of India except Jammu & Kashmir.

The aims and objectives of this act were:
# To ensure that the operation of the economic system does not result in the concentration of economic power in hands of few rich.
# To provide for the control of monopolies, and
# To prohibit monopolistic and restrictive trade practices.

Difference between MRTP Act and Competition Act:-
1. Meaning- MRTP Act is the first competition law made in India, which covers rules and regulations relating to unfair trade practices. Whereas, Competition Act, is implemented to promote and keep up competition in the economy and ensure freedom of business.
2. Nature- MRTP Act is reformatory in nature. Whereas, competition Act is punitive in nature.
3. Penalty- No penalty for offence under MRTP Act. Whereas, in Competition Act, penalty is present.
4. Objective- MRTP Act controlled monopoly in the market. Whereas objective of Competition Act is to promote competition.

Agreement Under Competition A
Section 3[1] of the Competition Act states about anti-competitive agreement, there are two kinds of agreement under the Act-
1. Vertical
2. Horizontal

Agreement is defined under Section 2(b) of the Competition Act[2]. Agreement is relating to production, supply, distribution, storage, acquisition or control of goods or services which causes or is likely to cause an appreciable adverse effect on competition in India shall be void. Agreement widely defined – even a nod or a wink can suffice. It need not be written, covers oral understandings as well. Direct proof of agreement not required, may be conditional from facts, circumstantial evidence is enough.

Cartel is very important part of the same. Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services. Cartel is a secret and not public, they work under the skin.

In the case of Indian Foundation of Transport Research and Training v. Shri Bal Malkait Singh and Ors[3]- AIMTC had directed its members to uniformly increase the truck freight (by -15%) due to increase in price of diesel, thereby harming consumers and causing an AAEC in the market. CCI Order: Held that the similarity of the press reports by the AIMTC’s President and its spokesperson respectively indicated that there was a meeting of minds amongst the members of the AIMTC to fix/increase the freight rates consequent upon the hike in diesel prices. The CCI additionally held that the agreement had an appreciable adverse effect on competition.

Horizontal Agreement
Section 3(3) of the Act states that- 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.[4]

There is direct or indirect determination of prices, it is between competitiors presumed and anti-competitive. Sharing of
• Prices,
• Input costs,
• Price/cost components,
• Profit margins,
• Cost structure and price calculation,

Atypical cartel- also known as HUB and SPOKE- is the exchange of sensitive information between competition and third party. There is no direct cartel and they channelize themselves through hub.

Adverse effect on Competition Commission of India-
· Price signalling- wherein there is signal from a cartel to another.
· Oligopoly Market- there is Tacit Collusion, which means price signalling with the knowledge that competitor, is likely to follow similar trend.

For instance, exchange of prices between two suppliers through a common distributor.

Cases of cartel that are considered worst form of anticompetitive conduct also fall under Section 3(3) of the Act. Direct evidence in the form of a specific agreement in terms of fixing the prices etc. would not be available, therefore the authorities rely upon circumstantial and indirect evidence to come to a conclusion on the existence of an agreement between parties, In the Cement Cartel Case, the Hon’ble CCI has held that existence of the agreement can be inferred from the intention and conduct of the parties ad that the parallel behaviour in price is indicative of a coordinated behaviour amongst the participants in the market.

The Hon’ble CCI has identified but for test in the Cement Cartel Case wherein it held that but for: some anticompetitive conduct between the parties the action and conduct of the parties cannot be explained. CCI has also viewed that price parallelism amongst the price of cement across the country is not reflective of the oligopolistic market and in light of the fact that the details relating to the cement companies was facilitated through the association, the price parallelism was indicative if a co-ordinated behaviour under Section 3(3) of the Act.

California produces 60% of wine in the entire United States, in case there is bad growth of grapes the State intervene in order to regulate the price of the same. It is also known as Political Doctrine.

Exchange of other types of information (apart from prices) may also be problematic, such as:
v Strategic information,
v Business plans,
v Production /sales details,
v Capacity details, and
v Expansion plans.
v Information exchange is especially problematic in oligopolistic and concentrated markets.

Exchange of sufficiently historic data is unlikely to create anticompetitive effects. Exchange of genuinely aggregated data, i.e. where recognition of company level information is difficult, should not raise concerns.

Noerr–Pennington doctrine, private entities are immune from liability under the antitrust laws for attempts to influence the passage or enforcement of laws, even if the laws they advocate for would have anticompetitive effects. Petitioning is immune from liability even if there is an improper purpose or motive. The doctrine is grounded in the First Amendment protection of political speech, and upon recognition that the antitrust laws, 'tailored as they are for the business world, are not at all appropriate for application in the political arena.'

There is exception for the same which has been stated under Section 19(3) of the Competition Act:-
The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors, namely:[5]
(a) Creation of barriers to new entrants in the market;
(b) Driving existing competitors out of the market;
(c) Foreclosure of competition by hindering entry into the market;
(d) Accrual of benefits to consumers;
(e) Improvements in production or distribution of goods or provision of services;
(f) Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.

Certain Key Issues under Horizontal Agreements:
1. Limiting production or supply
All decisions on increase or decrease of production, sales or capacity, entry into new markets, capacity utilization etc. should be taken independently. Any agreement/understanding on the above between competitors may raise concerns. It is best to keep a record of independent business reasons for any decisions regarding the same.

2. Market sharing
There should not be any formal or informal agreement or understanding with competitors in relation to sharing of territories / products. Competitors must not agree not to target each other’s customers (regardless of the size of these customers).

3. Bid-rigging
Any agreement…which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. Common forms of bid rigging:
• Bid suppression,
• Complementary bidding,
• Bid rotation,
• Agreements not to bid against each other or squeeze other bidders,
• Agreements on common terms or pricing formulae.

A.R. Polymers Case[6] - the COMPAT overturned the CCI decision on the grounds that CCI and the DG failed to give due weightage to the nature of the market for jungle boots, manner in which the tender is conducted, and execution of the rate contract to arrive at finding of bid rigging solely on the grounds of identical pricing.

Factors which may not mitigate liability:
• Success or failure of a cartel.
• Normal practice in the industry.
• Ignorance of the law.
• The agreement /understanding between parties not being in writing.
• The practice occurring through a trade association.
• Remaining silent in a meeting where an anti-competitive practice took place.
• Not leading but merely following others in the practice.

Vertical Agreements
Vertical agreements are agreements that are entered amongst enterprise or persons at different stages of the production chain say for e.g. an agreement between an input supplier and a manufacturer of a product using the input or agreements between principals and dealers etc. These are agreements that operate at different levels of trade.

Section 3 of the Clayton Act governs inter-brand restraints involving the sale of goods. And, Section 2 of the Sherman Act governs restraints entered by monopolists.

The difference between Horizontal and Vertical Agreements is that in Horizontal Agreements there is same level of competition whereas in Vertical Agreement there is different level of competition.

Section 3(4) states that 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.[7]

Essential ingredients of Section 3(4) are:-
# There must exist an agreement amongst enterprises or persons,
# Parties to such agreement must be at different stages or levels of production chain, and
# The agreement should cause or should be likely to cause an AAEC( adverse effect on competition).

Different kinds of vertical agreements:
A. Tie-In Arrangement-
it includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods. It involves wherein there exists a seller who agree to sell desirable product or service which are tying the product only on pre-condition that buyer shall purchase a less desirable second product or service, i.e. the tied product irrespective of the fact that whether the buyer wants the second product or not. It is a agreement with a condition that party will sell the product only on the condition that buyer will also buy another product. In re. Godrej and Boyce Mfg. Co. Pvt. Ltd.[8], the burden of proof is one the plaintiff who institutes the claim per se violation to prove that:-

· The seller conditioned the sale of ne product or service on the purchase of second.
· That the two products or services are two separate products that they are not parts of the same product.
· That the seller has sufficient position on the market for tying the product to enforce it.

In Apple Case: Necessary Ingredients-
Presence of two separate products or services capable of being tied,
Seller: sufficient economic power in tying good to restrain competition in tied good, and
Tying arrangement affects a not insubstantial amount of commerce.

Fx Enterprises v. Hyundai Motor India Limited[9]
Allegations: Hyundai entered into exclusive supply agreements and refusal to deal arrangements with its distributors. Further, by prescribing maximum permissible discounts to its dealers, it was alleged that it was engaging in resale price maintenance. Additionally, it was alleged that it tied sale of CNG kits, lubricants, oils and car insurance.

CCI Order:
No exclusive supply or refusal to deal since the agreement only required dealers to take prior permission from Hyundai prior to dealing with competitors. Hyundai had never refused permission as no one had approached.

The Discount Control Mechanism amounted to RPM. AAEC found as it restricted intra-brand and inter-brand competition. CCI also noted that RPM could be used as a mechanism to monitor cartels and hub-and-spoke arrangements
Tying found in the case of oil/lubricants

B. Exclusive Supply Agreements- 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. For instance, if a dealer/distributor is prohibited from dealing with goods of the suppliers’ competitors. Exclusive supply agreements have been held to be permissible, where objectively justified - such as to protect from free riding, to ensure safety of investment and ensure quality of supplies.

In the Intel Case - the CCI held that a requirement to inform the supplier when the distributor deals with products belonging to the supplier’s competitors cannot amount to an exclusive supply arrangement.

C. Exclusive Supply Agreements- 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.

Bajaj Case: Bajaj was allocating areas of business to all its dealers – found to be an exclusive dealership agreement under Section 3(4)(c) of the Act – however, no AAEC found, therefore, no violation.

Spare Parts Case: Agreement between OEM and local OESs preventing latter from supplying to the aftermarket – found to violate Section 3(4)(c).

D. Refusal To Deal- 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.

Spare Parts Case: agreement between OEM and local OESs preventing latter from supplying to the aftermarket – also held to amount to a refusal to deal.

Fx/Hyundai Case: No case of refusal to deal where distributor only had to take prior permission from supplier, before dealing with competitor’s products, and permission had never been denied.

E. Resale Price Maintenance- 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.

Fx/Hyundai Case: restrictions imposed on maximum permissible discount that could be given by a dealer to customers – held to be RPM.

Intel: where a supplier merely provided a suggested price to the distributor as a guideline, and distributors were thereafter free to decide the resale price, no case of

Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors[10] - Violations of Section 3 and 4
Allegations: Car manufacturers had entered into anti-competitive agreements with their Original Equipment Suppliers (OESs) and authorised dealers, restricting sale of spare parts and tools in the open market. It was further alleged that the car manufacturers were abusing their dominant position by restricting the OESs from supplying their spare parts in the open market.

CCI Order on Section 3:
# Car manufacturers restrict OESs from supplying the parts they manufacture using car manufacturer designs/drawings.
# Car manufacturers prevent unauthorised dealers from sourcing spare parts from OESs.
# CCI held that where enterprises are dominant, it would adopt a stricter approach while assessing vertical agreements.
# Penalty: 2% of average turnover for the last three years, which amounted to approximately USD 422 million. Also ordered onerous behavioral remedies.

Leniency Programme-
It gives incentive to people who tell about cartel. Leniency programme is a type of whistle-blower protection, i.e. an official system of offering lenient treatment to a cartel member who reports to the Commission about the cartel. Competition authorities have framed various leniency programmes to encourage and incentivize various actors connected with the commission of such competition infringements to come forward and disclose such anticompetitive agreements and assist the competition authorities in lieu of immunity or lenient treatment.

A Leniency programme 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. It is based on the principle of fair competition for greater good.

United States India/ United Kingdom
Only the first entity can avail leniency programme. Anyone of the entities can avail the leniency programme.
First entity gets immunity. They may get immunity.
The other face prosecution, i.e. damages, which is three times the damages caused in the market. Penalty is charged.

Conclusion
The Act aims to prevent practices by parties that are anti-competitive or harmful for the market. It can ensured when there is freedom of trade and protect the interest of all the parties. This aim cannot be followed unless cartels are removed and all the principles in the Act is followed. It is important for the parties while doing business in India to keep a check on retaining any anti-competitive element in the agreements between them. Enterprises should be proactive and diligent to identify the existing anti-competitive elements from their current agreements. There must be training programme for better understanding of the implications of anti-competitive agreements and how to avoid that.

Bibliography
Books:
· Competition Law in India- Abir Ro and Jayant Kumar

Websites:
· http://www.ssrana.in/Intellectual%20Property/Competition%20Law/Anti-Competitive-Agreements-in-India.aspx
· http://www.mondaq.com/india/x/250048/Trade+Regulation+Practices/AntiCompetitive+Agreements+Tests+And+Tribulation

Acts:
· The Monopolies and Restrictive Trade Practices Act, 1969
· Competition Act, 2002

End-Notes
[1] http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012
[2] http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012
[3] No. 61 of 2012, 16 February 2015
[4] http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012
[5] http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012
[6] Appeal No. 34 of 2013, 12 April 2016
[7] http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012
[8] RTP Enquiry 6/1978
[9] Case No. 36 and 82 of 2014, 14 June 2017
[10] Case No 60 of 2014, 9 December 2016

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