COMPITITON LAW

CUTS Institute for Regulation & Competition, World Trade Centre, Mumbai & Institute of Company Secretaries of India

– Centre for Corporate Training & Research

Presents

Competition Policy and Law in a Liberalising Economy

by

Prof. H D. Pithawalla, Advocate & Solicitor

Thursday, 7th December 2006

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Competition LawCompetition Law

A myth or a reality in India ?A myth or a reality in India ?

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ContentsContents

Background of the Competition ActBackground of the Competition Act Unfair Trade PracticesUnfair Trade Practices Restrictive Trade PracticesRestrictive Trade Practices Protection of Intellectual Property RightsProtection of Intellectual Property Rights Abuse of Dominance and CombinationsAbuse of Dominance and Combinations Case StudiesCase Studies

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BackgroundBackground

““Competition” (L – “compete”) is an age-Competition” (L – “compete”) is an age-old phenomenonold phenomenon

In olden days, competitionIn olden days, competition existed amongst cave-men is also reflected in the Mahabharat

In modern times, competition has become a global phenomenon starts right from Kindergarten & Nursery

classes

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Benefits of Competition….Benefits of Competition….

Companies : Efficiency, cost-saving operations, better utilization of resources, etc.

The Consumer : Wider choice of goods at competitive prices

The Government : Generates revenue

BUT…………………………

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…….Benefits of Competition.Benefits of Competition

………all these benefits are lost if Competition is UNFAIR or NON-EXISTANT Choice of CARS in the olden days MTNL Monopoly : The position today Airlines : INDIAN AIRLINES : JET :

SAHARA Mobiles : Price Wars Indian Railways : The monopoly

continues….

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Perfect Competition – A Myth Perfect Competition – A Myth

“PERFECT COMPETITION” is an ideal situation which exists only on paper. It implies: A large number of Sellers A large number of Buyers Free entry Free exit Manufacturers are “price-takers” and

not “price-makers” No single manufacturer can influence

the market

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Evaluation of Country’s Evaluation of Country’s Competition Regime Competition Regime

Competition Policy & Philosophy of the Government

Trade Agreements & Practices which are RESTRICTIVE

Trade Agreements & Practices which are UNFAIR

Abuse of dominance Combines : Mergers, amalgamations and take-

overs Protection (or lack of it) of Intellectual Property

Rights Competition at the international level : Trade

Blocs Consumer activism : NGOs and Consumer

Associations

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Evolution of Competition LawEvolution of Competition Law

Before MRTP Act came into force (1970), limited provisions existed under : The Indian Contract Act The Law of Torts Directive Principles of State Policy (Non-

enforceable) The MRTP Act brought in a four-pronged

thrust : Concentration of economic power ( - Repealed

in 1991 - ) Restrictive Trade Practices Monopolistic Trade Practices ( - Almost a dead

letter - ) Unfair Trade Practices ( - Added in 1984 - )

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Competition Act - “Still in Incubator”

Raghwan CommitteeRaghwan Committee Two Writ Petitions – as soon as Two Writ Petitions – as soon as

Act was notifiedAct was notified Observations of the Hon'ble Observations of the Hon'ble

Supreme CourtSupreme Court The position on dateThe position on date

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Unfair Trade Practices Unfair Trade Practices

Many competition regimes do NOT consider Many competition regimes do NOT consider this as part of Competition Lawthis as part of Competition Law

BUT, it BUT, it doesdoes affect competition – directly or affect competition – directly or indirectlyindirectly

Consumer protection provisions made Consumer protection provisions made for the for the first time in India first time in India by 1984 Amendments in the by 1984 Amendments in the MRTP ActMRTP Act

The Consumer Protection Act came only 2 The Consumer Protection Act came only 2 years later years later

How Consumer Courts were hurriedly How Consumer Courts were hurriedly constitutedconstituted

After 1986, MRTP Commission and Consumer After 1986, MRTP Commission and Consumer Courts had parallel jurisdictionCourts had parallel jurisdiction

Consumer Courts v MRTP Commission : Pros Consumer Courts v MRTP Commission : Pros & Cons& Cons

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Unfair Trade PracticesUnfair Trade Practices

HOW UTPs affect competition :HOW UTPs affect competition : Warranties Warranties notnot based on lab tests based on lab tests After sales guarantees not honouredAfter sales guarantees not honoured Contests & CompetitionsContests & Competitions

View of the MRTP CommissionView of the MRTP Commission View of the Supreme CourtView of the Supreme Court

Disparagement of competing productsDisparagement of competing products Godrej v KelvinatorGodrej v Kelvinator Colgate v PepsodentColgate v Pepsodent Rulings in RIDAKE (India) & XENICAL (USA)Rulings in RIDAKE (India) & XENICAL (USA)

Misleading sales adsMisleading sales ads ““UPTOUPTO 60% OFF” 60% OFF” Guptaji’s SalesGuptaji’s Sales Ads of CURRYS (U.K.’s biggest electrical chain) Ads of CURRYS (U.K.’s biggest electrical chain)

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UTPs vis-à-vis Competition ActUTPs vis-à-vis Competition Act

Under the Competition Act :Under the Competition Act : No provision for Unfair Trade PracticesNo provision for Unfair Trade Practices Only Consumer Courts will have Only Consumer Courts will have

jurisdictionjurisdiction Pending cases will be continued by Pending cases will be continued by

MRTPC for 2 yearsMRTPC for 2 years After 2 years :After 2 years :

All cases (except Disparagement Cases) will All cases (except Disparagement Cases) will be transferred to National Commission under be transferred to National Commission under CPACPA

All Disparagement Cases will be transferred All Disparagement Cases will be transferred to Competition Commissionto Competition Commission

Q. : After 2 years, WHERE can a Q. : After 2 years, WHERE can a Company file Disparagement Cases ? Company file Disparagement Cases ?

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Restrictive Trade PracticesRestrictive Trade Practices

MRTP ActMRTP Act Today, the Act contains a two-pronged Today, the Act contains a two-pronged

approach to RTPsapproach to RTPs RTPs (except one) are NOT declared RTPs (except one) are NOT declared

void. Only registration formalities are to void. Only registration formalities are to be complied withbe complied with

MRTP Commission can issue Notice of MRTP Commission can issue Notice of Enquiry – followed by Cease-&-Desist Enquiry – followed by Cease-&-Desist Order if RTP proved to be against public Order if RTP proved to be against public interest : No jail, no fineinterest : No jail, no fine

““Gateways” are availableGateways” are available

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Restrictive Trade PracticesRestrictive Trade Practices

Competition ActCompetition Act 9 “Anti-competitive Agreements” 9 “Anti-competitive Agreements”

are declared voidare declared void ““Per Se Rule” applied to 4 Per Se Rule” applied to 4

Horizontal AgreementsHorizontal Agreements ““Rule of Reason” applied to 5 Rule of Reason” applied to 5

Vertical AgreementsVertical Agreements

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Anti-competitive Agreements Anti-competitive Agreements

Horizontal AgreementsHorizontal Agreements

Persons engaged in identical or similar goods or Persons engaged in identical or similar goods or services enter into an agreement :services enter into an agreement :

to determine purchase or sales pricesto determine purchase or sales prices to limit / control production, supply, technological to limit / control production, supply, technological

developments, etc.developments, etc. to share the market, allocate geographical to share the market, allocate geographical

markets or number of customers markets or number of customers for bid rigging or collusive tenderingfor bid rigging or collusive tendering

All the above 4 Agreements “shall be All the above 4 Agreements “shall be presumed to have an appreciable adverse presumed to have an appreciable adverse effect on competition”effect on competition”

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Anti-competitive Agreements Anti-competitive Agreements

Vertical AgreementsVertical Agreements

““Tie-in” ArrangementsTie-in” Arrangements Exclusive Supply AgreementsExclusive Supply Agreements Exclusive Distribution AgreementsExclusive Distribution Agreements Refusal to dealRefusal to deal Resale price maintenanceResale price maintenance

Such an Agreement will be contravention of Such an Agreement will be contravention of the Act the Act IF IF the Agreement causes – or is the Agreement causes – or is likely to cause – an appreciable adverse likely to cause – an appreciable adverse effect on competitioneffect on competition

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Powers of Competition Commission as Powers of Competition Commission as Regards AgreementsRegards Agreements

After the inquiry into the Agreement, After the inquiry into the Agreement, Competition Commission can:Competition Commission can: direct parties to discontinue the direct parties to discontinue the

agreementagreement prohibit parties from re-entering such prohibit parties from re-entering such

agreementagreement direct modification of the agreementdirect modification of the agreement impose penalty upto 10% of average impose penalty upto 10% of average

turnover of the enterprise turnover of the enterprise

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PROTECTION OF INTELLECTUAL PROTECTION OF INTELLECTUAL PROPERTY RIGHTS PROPERTY RIGHTS

MRTP ActMRTP Act FirstlyFirstly, the MRTP Commission cannot pass , the MRTP Commission cannot pass

Orders which restrictOrders which restrict the right of any person to restrain the infringement the right of any person to restrain the infringement

of a patent granted in India, orof a patent granted in India, or any person as to the condition he attaches to a any person as to the condition he attaches to a

licence to do anything, the doing of which, but for licence to do anything, the doing of which, but for the licence, would be an infringement of a patent the licence, would be an infringement of a patent granted in Indiagranted in India

Secondly, Secondly, Section 39, which declares resale Section 39, which declares resale price maintenance to be void, does not affect price maintenance to be void, does not affect the validity of a licence granted by the proprietor the validity of a licence granted by the proprietor of a patent or trade-mark, so far as it regulates of a patent or trade-mark, so far as it regulates the price at which articles produced by the the price at which articles produced by the licensee may be sold by him.licensee may be sold by him.

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PROTECTION OF INTELLECTUAL PROTECTION OF INTELLECTUAL

PROPERTY RIGHTSPROPERTY RIGHTS

Competition ActCompetition Act The prohibition on horizontal and The prohibition on horizontal and

vertical agreements do not restrict vertical agreements do not restrict the right of any person to impose the right of any person to impose reasonable restrictions to protect reasonable restrictions to protect any of his rights under the any of his rights under the Copyright Act, the Patents Act, the Copyright Act, the Patents Act, the Trade and Merchandise Marks Trade and Merchandise Marks Act, Designs ActAct, Designs Act

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Abuse of DominanceAbuse of Dominance

Mandate of the Act : “No enterprise Mandate of the Act : “No enterprise shall abuse its dominant position.”shall abuse its dominant position.”

5 categories of “abuse” are listed in 5 categories of “abuse” are listed in the Act, as for instance, -the Act, as for instance, - Imposing discriminatory conditions in Imposing discriminatory conditions in

purchase or sale of goodspurchase or sale of goods Predatory pricingPredatory pricing Limiting production or scientific or Limiting production or scientific or

technical developmenttechnical development Using dominant position in one market Using dominant position in one market

to enter another market, etc.to enter another market, etc.

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Abuse of DominanceAbuse of Dominance

““Dominant position” is defined as a Dominant position” is defined as a position of strength which enables position of strength which enables the enterprisethe enterprise to operate independently of competitive to operate independently of competitive

forces in the market, orforces in the market, or to affect its competitors or consumers in to affect its competitors or consumers in

its favour.its favour. No mathematical or statistical No mathematical or statistical

formula is adopted to “measure” formula is adopted to “measure” dominance – as under the repealed dominance – as under the repealed provisions of the MRTP Act ( - 25% provisions of the MRTP Act ( - 25% of market share - )of market share - )

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Abuse of Dominance Abuse of Dominance

Power of the Competition Power of the Competition CommissionCommission After inquiry into abuse of After inquiry into abuse of

dominant position, the dominant position, the Competition Commission can Competition Commission can order:order: discontinuance of abuse of dominant discontinuance of abuse of dominant

positionposition impose a penalty upto 10% of the impose a penalty upto 10% of the

average turnover of the enterpriseaverage turnover of the enterprise

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CombinationsCombinations

MRTP ActMRTP Act Provisions of the MRTP Act regarding Provisions of the MRTP Act regarding

registration of undertakings, registration of undertakings, establishment of new undertakings, establishment of new undertakings, take-overs, mergers and amalgamation take-overs, mergers and amalgamation were criticized on the ground that they were criticized on the ground that they were based on an impractical and were based on an impractical and untenable proposition that “BIG is BAD”untenable proposition that “BIG is BAD”

Ultimately, these provisions were Ultimately, these provisions were repealed in 1991repealed in 1991

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CombinationsCombinations

Competition ActCompetition Act NOW, the Competition Act seeks to regulate NOW, the Competition Act seeks to regulate

any “acquisition”, “acquiring of control”, any “acquisition”, “acquiring of control”, “mergers or amalgamations” if it results in “mergers or amalgamations” if it results in assets or turnover exceeding specified assets or turnover exceeding specified monetary limitsmonetary limits

Concept of Concept of voluntary noticevoluntary notice is introduced. On is introduced. On receipt of such notice, Competition receipt of such notice, Competition Commission can inquire – andCommission can inquire – and

approve the combination, orapprove the combination, or direct that the combination shall not take effect, direct that the combination shall not take effect,

oror propose modificationspropose modifications

If no such Order is passed within a time-If no such Order is passed within a time-bound frame, the combination is DEEMED TO bound frame, the combination is DEEMED TO HAVE BEEN APPROVED. HAVE BEEN APPROVED.

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CombinationsCombinations

Powers of Competition CommissionPowers of Competition Commission It can :It can :

issue a Show Cause Notice to the partiesissue a Show Cause Notice to the parties direct the parties to publish details of the direct the parties to publish details of the

combinationcombination invite members of the public to file written invite members of the public to file written

objectionsobjections pass appropriate Orderspass appropriate Orders

Two questions are worth considering :Two questions are worth considering : Is this just a back-door entry of earlier Is this just a back-door entry of earlier

provisions of the MRTP Act ?provisions of the MRTP Act ? Will monetary limits fixed five years ago Will monetary limits fixed five years ago

remain relevant five years hence ?remain relevant five years hence ?

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Case StudiesCase Studies

ColumbiaColumbia AVIANCA, Columbia’s largest airline planned a AVIANCA, Columbia’s largest airline planned a

merger with the country’s second largest airline, merger with the country’s second largest airline, ACE. ACE.

Justifications given for the merger were :Justifications given for the merger were : AVIANCA had huge accumulated losses, and the AVIANCA had huge accumulated losses, and the

merger would be a potential answer to its financial merger would be a potential answer to its financial problemsproblems

The merged airline could effectively compete with The merged airline could effectively compete with foreign carriers in the international marketforeign carriers in the international market

HELD : Merger would be anti-competitive : The HELD : Merger would be anti-competitive : The merged airline would be FOUR times the size of merged airline would be FOUR times the size of its nearest domestic rival.its nearest domestic rival.

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Case StudiesCase Studies

IndiaIndia The JET take-over of SAHARA : A damp squib ?The JET take-over of SAHARA : A damp squib ?

AustraliaAustralia Co X with 75% of domestic biscuit market Co X with 75% of domestic biscuit market

proposed a merger with Co Y, which had 15% proposed a merger with Co Y, which had 15% market share of Australia’s biscuit market.market share of Australia’s biscuit market.

Justification given for the merger : “Snacks” and Justification given for the merger : “Snacks” and NOT “Biscuits” is the relevant market. In the NOT “Biscuits” is the relevant market. In the snacks market, Co X had a 10% share of the snacks market, Co X had a 10% share of the market and Co Y, a mere 1%.market and Co Y, a mere 1%.

HELD : The relevant market was “Biscuits” and HELD : The relevant market was “Biscuits” and not “Snacks”. Merger NOT ALLOWED.not “Snacks”. Merger NOT ALLOWED.

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Thank Thank You!You!