Essay: Competition legislation

The term ‘Renaissance’ can be traced back to a cultural movement that characterised the period from 14th century to 17th century, and it was during this period that international trade started booming. However, much of this trade and wealth were illicit and illegal and authorities saw a need to regulate this in order to imbibe a spirit of free and fair competition. In 1623, the Parliament of England passed statute of monopolies. This law can be seen as a basis of modern patent and competition laws. Prior to passing of this law, patent laws were subject to abuse by authorities. In following years, various attempts were made to break monopolies and set laws to encourage competition and free trade. Other laws which led to development of competition law can be seen in form of laws relating to restraint of trade. As the term suggests, the term restraint of trade prevents parties from setting up, or engaging in, similar activities in opposition to one another. Modern competition law finds its roots in the Sherman Act (1890) and the Clayton Act (1914) both instituted in United States. At the same time, European countries had various forms of rules and laws in order to regulate monopolies and competition. However, due to certain incidents and more particularly, after World War II and the fall of Berlin Wall in 1990, the European countries started to adopt elements from Sherman Act and Clayton Act as a foundation for their own laws.
With the dawn of 21st century, there was rapid industrialisation and development of international trade. So, there emerged a need for anti-trust laws to keep pace with the growing competition. After World War I other countries started to implement competition policies along the lines of those introduced by United States. Many regulators of competition were formed in order to ensure that competition and anti-trust policies and laws were properly adhered to. After the Second World War, many ally countries went forward to enact laws to break monopolies and introduced regulations to dismantle the monopolies created within these years. Most of these laws were prominent in Germany and Japan.
In Germany, it was the apprehension among small entrepreneurs that large industry cartels were manipulated in such manner that it gave total economic control in the hands of Nazi Regime. On the other hand in Japan, nepotism among big businesses led to formation of big conglomerates which started to control Japanese economy. But after the surrender of these powers after World War II tighter economic regulations were imposed which were based on the principles of anti-trust laws of United States. Though anti- trust laws are different from consumer protection laws even then a proper consumer protection is provided through these laws in form of protection from unscrupulous suppliers who seek to monopolise a market sector. All mergers and acquisition are thoroughly scrutinised under these anti-trust laws before being given a go-ahead. Since independence, India adopted and followed policies of command and control laws, rules, regulations and executive orders. One such law was Monopolies and Restrictive Trade Practices Act, 1969. However, in 1991 there was a policy shift from command and control economy to an economy based more on free market principles. Article 38 and Article 39 were the major inspiration behind passing of competition law of India. These articles are part of directive principles of state policy. So, first competition law was enacted in 1969. However, due to certain discrepancies in these laws, the Government of India appointed a High Level Committee on Competition policy and competition law to advise a modern competition law for the country in line with international developments and to suggest legislative measures which can plug the loopholes of earlier legislations. The committee presented its report to Government in May, 2000 and the draft competition law was drafted and presented to government in November 2000. After some discussions and deliberations, and consultations with all the stakeholders, the Parliament passed in December 2002 the new law called Competition act, 2002.
 
CHAPTER 1: STATUS OF COMPETITION LAWS IN INDIA
India enacted the Competition Act, 2002 to counter the evil effects of competition due to rapid and unbridled industrialisation. There are three main elements which are intended to be controlled by implementation of the provisions of the Act, which have been specifically dealt with under Sections 3, 4 and 6 read with Sections 19 and 26 to 29 of the Act. They are anti- competitive agreements, abuse of dominant position and regulation of combinations which are likely to have an appreciable adverse effect on competition.
The objectives of the act were proposed to be achieved through an instrumentality competition commission of India established by the Central Government. The commission has been given authority regulate anti-competitive activities thereby promoting promotion. Thus, the act never intends to promote competition by adopting direct measures but by regulating the competition. Also, the competition commission of India is entrusted with the tasks of :
– Making the markets work for the benefit and welfare of consumers.
– Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of economy.
– Implement competition policies with an aim to effectuate the most efficient utilization of economic resources.
– Develop and nurture effective relations and interactions with sectoral regulators to ensure smooth alignment of sectoral regulatory laws in tandem with the competition law.
– Effectively carry out competition advocacy and spread the information on benefits of competition among all stakeholders to establish and nurture competition culture in Indian economy.
The act has included in its ambit the four most important factors:
– Anti- Competitive Agreements
– Abuse of Dominance
– Combinations Regulations
– Competition Advocacy
ANTI-COMPETITIVE AGREEMENTS IN INDIA
The present Act is quite contemporary to the laws presently in force in the United States of America as well as in the United Kingdom. In other words, the provisions of the present Act and Clayton Act, 1914 of the United States of America, The Competition Act, 1988 and Enterprise Act, 2002 of the United Kingdom have somewhat similar legislative intent and scheme of enforcement. However, the provisions of these Acts are not quite pari materia to the Indian legislation. In United Kingdom, the Office of Fair Trading (OFT) is primarily regulatory and adjudicatory functions are performed by the Competition Commission and the Competition Appellate Tribunal. The U.S. Department of Justice Antitrust Division in United States deals with all jurisdictions in the field. The competition laws and their enforcement in those two countries are progressive, applied rigorously and more effectively. The deterrence objective in these anti-trust legislations is clear from the provisions relating to criminal sanctions for individual violations, high upper limit for imposition of fines on corporate entities as well as extradition of individuals found guilty of formation of cartels. This is so, despite the fact that there are much larger violations of the provisions in India in comparison to the other two countries, where at the very threshold, greater numbers of cases invite the attention of the regulatory/adjudicatory bodies.
The term anti-competitive agreements as such has not been defined by the Act, however, Section 3 prescribes certain practices which will be anti-competitive and the Act has also provided a wide definition of agreement under section 2 (b). Section 3(1) is a general prohibition of an agreement relating to the production, supply, distribution, storage, acquisition or control of goods or provision of services by enterprises, which causes or is likely to cause an AAEC within India.
Section 3(2) simply declares agreement under section 3(1) void. Section 3(3) deals with certain specific anti-competitive agreements, practices and decisions of those supplying identical or similar goods or services, acting in concert for example agreement between manufacturer and manufacturer or supplier and supplier, and also includes such action by cartels. Section 3(4) deal with restraints imposed through agreements among enterprises in different stages of production or supply etc. for example agreement amongst manufacturer and supplier. Section 3 (5) provides for exceptions, it saves the rights of proprietor of any intellectual property right listed in it to restrain the infringement of any of those rights regardless of section 3.
ABUSE OF DOMINANT POSITION
There are primarily three stages in determining whether an enterprise has abused its dominant position. The first stage is defining the relevant market. The second is determining whether the concerned undertaking/enterprise/firm is in a dominant position/ has a substantial degree of market power/ has monopoly power in that relevant market. The third stage is the determination of whether the undertaking in a dominant position/ having substantial market power/monopoly power has engaged in conducts specifically prohibited by the statute or amounting to abuse of dominant position/monopoly or attempt to monopolize under the applicable law.
The Indian Competition Act, 2002 expressly provides in Section 19 (5) that the Competition Commission shall have due regard to the relevant product market and the relevant geographical market in determining whether a market constitutes a relevant market for the purposes of the Act.
The definition of relevant market provided by Section 2(r) of the Act also states that the relevant market means the market that may be determined by the Commission with reference to the relevant product market or the relevant geographical market or with reference to both. ―relevant product market‖ and ―relevant geographic market‖ have been specifically defined in the Indian Competition Act. Section 2(t) defines the relevant product market as a market comprising all those products or services which are regarded as interchangeable or substitutable by the customer, by reason of the characteristics of the product or service, the prices and the intended use. Section 2(s) defines the relevant geographic market as a market comprising the area in which the conditions of competition for supply of goods or provision of services are sufficiently homogeneous and can be distinguished from the conditions prevailing in neighbourhood areas.
Section 4 of the Competition act, 2002 talks of dominant position and it contains a definition of dominant position that takes into account whether the concerned enterprise is in such a position of economic strength that it can operate independently of competitive forces or can affect the relevant market in its favour.
Explanation (a) to Section 4 of the Indian Competition Act defines dominant position to mean “dominant position”, 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.
The Indian Act states under Section 19(4) that the Competition Commission of India may have regard to certain factors for determining whether an enterprise is in a dominant position including market share of the enterprise, size and resources of the enterprise; size and importance of competitors; economic power of the enterprise including commercial advantages over competitors, vertical integration of the enterprises or sale or service network of such enterprise; dependence of consumers on such enterprise, monopoly or dominant position whether acquired as a result of any statute or by virtue of being a government company or public sector undertaking or otherwise; entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers; countervailing buying power; market structure and size of market; social obligations and social costs; relative advantage by way of the contribution to the economic development by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition; or any other factor which the commission may consider relevant for the inquiry.
The market share that a particular undertaking has in the relevant market is one of the most important factors to be taken into account to determine whether it is in a dominant position and under the laws of some jurisdictions, the existence of a market share of or above a specified level gives rise to a presumption of existence of a dominant position (although rebuttable) the Indian Act also does not define abuse of dominance. According to Section 4(2) of the Indian Competition Act, ―There shall be an abuse of dominant position under sub-section: One difference between the UK Act, EC Law and the Indian Act is that according to the UK and EC laws, the conducts specified may amount to abuse dominant position whereas according to the Indian Act the conducts specified shall amount to abuse of dominance‖. While the Indian Act specifically enumerates practices resulting in denial of market access and using dominant position in one market to enter into or protect, other relevant markets‘ as conducts amounting to the abuse of dominance, they have not been mentioned in the UK and EU laws. Applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a comparative disadvantage‖, is mentioned in the UK and EU law but has not been included in the Indian Act.
CHAPTER 2: STATUS OF COMPETITION LAW IN US & UK
The US enacted Sherman Act in 1890 which declared illegal all contracts, combinations or conspiracies in restraint of trade or commerce among the states or territories or with foreign nations. The basic requirement is that there should be an agreement or mutual commitment to engage in a common course of anticompetitive conduct.
MONOPOLIZE AND CONSPIRACY TO MONOPOLIZE:
Section 229 of the Sherman Act ousts and makes illegal any act of monopolization, attempt to monopolize and conspiracies to monopolize
This section has two basic elements
1.) Possession of monopoly power in relevant market
2.) The willful acquisition or maintenance of the power.
A person is not guilty of monopolization unless he has monopoly power i.e. power to control prices and exclude competition. Therefore offence of monopolization requires monopoly power and intention to monopolize, but there is no monopolization if the defendant‘s monopoly power grows as a consequence of superior product, business acumen or historical accident.
The competition act has included monopolization but it has not included conspiracy to monopolize. Sherman Act proscribes even attempt to monopolize. The difference between “actual monopolization” and “attempt to monopolization” is that in actual monopolization general intent to do act is required but in attempt to monopolize specific intent, which can be established by evidence of unfair tactics on part of defendant, is required.
PRICE FIXING
Competition Act has included the term association of price i.e. price fixing but it hasn‘t elaborated the vertical and the horizontal price fixing. If a manufacturer, by using his dominant position, fixes the price with retailer then it is vertical price fixing but if manufacturer fixes price with other manufacturer then it is horizontal price fixing. Vertical price fixing is also knows as price maintenance e.g. agreement between a film distributor and exhibitor is illegal. A patentee cannot control its resale price through price maintenance agreements. Generally prices are fixed when they are agreed upon.
Section 132 of Sherman Act also mentions that dissemination or exchange of price information does not itself establish a violation of section 1 rather price information coupled with criminal intent to fix the price violates section 1 of Sherman act. However a combination or conspiracy within section 1 is established where an agreement exists between competitors to furnish price information upon request.
TYING AGREEMENT
The Competition Act, 2002 has not elaborated the various sorts of tying agreement. It has only defined tie-in agreements as “tie-in arrangement” includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods. But in the Sherman Act it has been very well explained. Sherman Act defines Tying Agreements as an agreement by a party to sell one product but only on the condition that the buyer also purchase a different product or agree that he will not buy that product from another supplier.34 Tying agreements are not illegal per se. An illegal tying agreement takes place when a seller requires a buyer to purchase another, less desired or cheaper product, in addition to the desired product, so that the competition in the tied product would be lessened. Sherman act also pointed out that there should be separateness of products which are tied because if the products are identical and market is same then there is no unlawful tying agreement.
GROUP BOYCOTT
Sherman Act has a special category under refusal to deal called as Group Boycott. Under the Competition Act, 2002 refusal to deal is defined in section 3(4)(d) as “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.35 However Sherman Act has explained various conditions of Group Boycott. In case of Horizontal restraints per se rule is applicable but in case of Vertical restraints majority court view is that per se rule is not applicable. There are many sorts of Group Boycott:
AMALGAMATION
Competition Act has used the word amalgamation many times but it hasn‘t explained much about it. As per the Sherman Act an Amalgamation is unlawful in two ways firstly if the amalgamation eliminates substantial competition and secondly if it created a monopoly.37 Basically there are two types of amalgamation horizontal and vertical. In Horizontal amalgamation for example two companies are major competitive factors in a relevant market a merger or consolidation between them violates the Sherman Act if such action ends competition. However if a company is losing money and has decided to wind up then its horizontal amalgamation is not illegal. In vertical amalgamation it is not illegal unless its illegality turns on:
(a) The purpose or intent with which it was conceived
(b) The power it creates in the relevant market.
After the Sherman Act to supplement the Sherman Act there was another act enacted in 1914 named as Federal Antitrust Laws: Clayton Act. This act has defined vertical and horizontal mergers. Vertical merger is a merger of buyer and seller and Horizontal merger is a merger which is of direct competitors. A merger which is neither vertical nor horizontal is conglomerate merger. Competition Act has not mentioned about the conglomerate mergers. As per the Clayton Act a pure Conglomerate merger is one in which there is no relationship between the acquiring and the acquired firm.
Clayton Act has also defined the horizontal and vertical, amalgamations, product extension mergers and joint ventures. Amalgamations between firms performing similar functions in the production or sale of comparable goods and services are known as the Horizontal Amalgamation. Now Clayton Act has also mentioned about the burden of proof in Horizontal Amalgamation. It points out that by showing that a horizontal acquisition will lead to undue concentration in the market for a particular product in a particular market; the government establishes a presumption that the transaction will lessen the competition. The burden of producing evidence to rebut this presumption then lies with the defendants. Clayton Act does not outlaw all vertical amalgamations but it forbids those whose effect may be substantially to lessen competition or tend to create monopoly in any line of commerce in any section of the country. The acquisition of the largest producer, in product extension mergers, by a firm dominant in positioning producing other products violates the Clayton Act because it reduces the competitive structure of the industry by raising entry barriers and dissuading the smaller firms from aggressive competition and because it eliminates the potential competition of the acquiring firm.
Competition Act, 2002 holds that joint ventures are legal as far as they increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. In Clayton Act it is given consideration whether the joint venture eliminated the potential competition of the corporation that might have remained at the edge of the market continually threatening to enter.
INTENTION
Competition Act, 2002 has not given any place to intention or motive whereas both Sherman Act and Clayton Act has mentioned about the intention of the parties. As per Sherman Act good intentions of parties is no defence to a charge of violating the act and thus will not validate an otherwise anticompetitive practice. Similarly according to Clayton Act it is not required to show that lessening of competition or a monopoly was intended.
THE FAIR TRADING ACT, 1973
This act was passed in England with a view to provide an environment for free competition. This act basically focused on the restriction of monopoly.
There is monopoly when a person or group of persons to secure the sole exercise of any known trade throughout the country. However there are certain monopolies authorized by the statute e.g. Post office with respect to carrying of letters. If there is an agreement which gives control of trade to an individual or group of individuals then it creates a monopoly calculated to enhance prices to an unreasonable extent. It is no monopoly if the control is lawfully obtained by particular persons on particular places or kinds of articles for which a substitute is available. The Competition Act, 1998
The competition Act of 1998 repealed the Fair Trading Act, 1973. This act was divided into two parts firstly as the Chapter I prohibitions and secondly as the Chapter II prohibitions. Chapter I tends to prohibit the agreements which fix prices, control production, share market or sources of supply, apply dissimilar conditions to equivalent transactions and make the conclusion of contracts subject to acceptance by other parties of supplementary obligations which by nature of commercial usage have no connection with the subject of such contracts. All such agreements are unlawful. Chapter II aims at prohibiting certain activities of undertaking which amount to the abuse of dominant position:
– Imposing unfair purchase or selling prices
– Limiting production, market or technical development
– Applying dissimilar conditions to equivalent transactions with other trading parties.
– Making the conclusion of contracts subject to acceptance by other parties of supplementary obligations having no connection with the subject of contracts.‖
Further, the Director General of fair trading may conduct an investigation if he has reasonable grounds to believe that chapter I and chapter II prohibitions are infringed. However, no such power is given to director of competition commission of India but we have sectoral regulators as well as Competition law enforcement authorities. Now it raises a serious concern as to the fact of handling of affairs of cross sectoral issues. For example undertaking may be regulated by one agency on a certain aspect and by CCI on the competition aspects. In such situations businesses are afraid that in such instances there may be conflicting directions from different regulators. There are also fear that they need to comply with double regulations will result in increased business costs. In India there is no framework for coordination between the sectoral regulations and the Competition Commission of India. On the other hand in U.K a number of sectoral regulators have power to apply the Competition Act concurrently with other legislations. The Competition Act 1998 (Concurrency) Regulations 2000 have been made for the purpose of coordinating the exercise of the concurrent powers and the procedures to be followed.46 For example in U.K they have concurrence party, where all regulators and the competition authority sit and decide on the best agency to deal with the case.
 
CHAPTER 2: COMPARATIVE ANALYSIS
The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts.
In its purest form, the per se rule inquires to whether the defendants engaged in a contract, combination or conspiracy‖ and whether the agreement falls into a recognized per se‖ category such as price fixing or market division. Once such an agreement is proved, the anticompetitive effect is presumed under the per se rule. At that point, all defenses i.e. attempts to demonstrate reasonableness‖, are precluded. One way to look at the per se‖ rule, therefore, is a rule of evidence, as opposed to one of substantive antitrust law. When sufficient indicia of anticompetitive potential are present, they can give rise to an irrefutable presumption of unreasonableness. The per se‖ rule reflects a judgment that costs of identifying exceptions to the general rule so far outweigh the costs of occasionally condemning conduct that might upon further inspection prove to be acceptable, that is it is preferable not to entertain defenses to the conduct at all. Hence per se rules have long been justified on the ground that certain kinds of conduct are so likely to prove to be unreasonably anticompetitive that time spent considering defenses would be time wasted. Finally, it was argued that ―per se‖ rules provided unambiguous guidance to courts and the business community.
Section 3 (3) undertakes presumption through the words shall be presumed to have AAEC‖. On one side where certain jurisdictions have expressly criminalised cartels and applied the per se rule with regard to bid, rigging, price fixing etc. the question remains whether this can be done with regard to anti -competitive practices in India where rule of reason is enforced.
Section 4 Competition Act talks about abuse of dominance position. In contrast the Sherman Act talks about monopolization and the attempt to monopolize. Attempt to monopolize is difficult to prove as intention plays a primal part. Where developed countries are treating such anti-competitive behaviour as a felony, the question remains can the same be applied to India. For this, certain legislations like the Competion Act, Indian Penal Code, Evidence Act etc. Have to be harmonised successfully. Sectoral overlaps may happen in case of conflict between CCI & other regulators. For e.g. – under the Electricity Act, 2003, the power is with the Central Electricity Regulatory Commission to issue directions to a licensee or generating company if it enters into any agreement or abuse of their dominant position or enter into a combination, likely to cause an adverse effect on competition in electricity industry. This has been an ongoing debate since the advent of the Competition Act. However the question still remains unanswered. The Combination Regulations do not provide for an ability to withdraw a filing, once made, should the conditions affecting the combination change.
Suggestive Analysis
A few amendments that could be added to Competition Act can be as follows:
– Abbreviated rule of reason can be developed especially with regard to cartel cases
– Outer limit of 210 days is given to the CCI under the Competition Act 2002. However the CCI aims at clearing at notices within 180 days. This may lead to unnecessary delays and back logs.
– Threshold limits for triggering Competition Act
– are very high especially with regard to a country like India where small industries are prevalent. Hence, it should be taken into consideration that there might be many small enterprises entering into mergers which may have AAEC but may not trigger the combination regulations under section.
– Leniency provisions have been prevalent in India since the beginning of the act but there has been no instance of anyone coming to claim them. The penalties under the act should be hiked in this case so that a deterrent effect is created and leniency provisions are made attractive. While the basic principles of competition law remain the same the objectives or the results cannot be the same for all jurisdictions. In essence, a progressive realisation of competition policy goals would be the answer to an effective competition law regime in developing countries. While the implementation of competition law even at the early stages of economic development is not bad per se its blind implementation following the path of the developed countries can kill its very objectives.
Thus, competition law is a complex creation of law-makers which the Indian Government and the Competition Commission should take time to understand in light of the special needs and requirements of the Indian economy and implement it accordingly.
 
CONCLUSION
Competition Law is a complex mixture of a country’s law, economics and administrative action intended to favour competition in the economy. Since competition is seen as critical to economic development, competition law seeks to protect this competitiveness in the economy. The underlying theory behind competition law is the positive effect of competition in an economy’s market, acting as a safeguard against misuse of economic power. The link between competition law and economic development emphasized over and over again seems rather undeniable and the need for competition law seems like the order of the day. The operation of competition law by prevention of anti-competitive agreements, prohibiting abuse of dominant position by firms and regulation of combinations which might adversely affect competition in the economy, thus seems crucial for India. It is therefore keeping that in mind that the Indian Parliament enacted the Competition Act, 2002. The preamble and the statement of objects and reasons of the Act, also evidence that the broad economic development objectives were a consideration to adopting the Act. During the past years, the number of jurisdictions with a competition law has exploded from approximately 25, of which few were seriously enforced, to some 100 today. With economic activity increasingly transcending national borders, and jurisdictions applying competition laws to firms and conduct outside their borders, achieving at least a reasonable degree of coherence and convergence in the application of competition laws is important for both competition agencies and firms. Even though the Indian competition law is modelled along the lines of EC law, the Commission is in no way bound to interpret similar provisions in the Indian law in the manner interpreted under the EC law. The Commission on the other hand is bound by the Preamble of the Act to interpret it in a fashion that promotes economic development of the country. This is because the conditions that exist in India are remarkably different than those that exist in the EC and to come to the level where there can be talk of similar interpretation of laws in the two jurisdictions, similar development level would necessarily be a condition precedent.