A. MEANING AND DEFINITION
- Anti-competitive agreements are agreements between enterprises that cause or are likely to cause an appreciable adverse effect on competition (AAEC) within India [Competition Act, 2002, Section 3(1)].
- Such agreements shall be void [Section 3(2)].
B. TYPES OF ANTI-COMPETITIVE AGREEMENTS
- Horizontal Agreements (Section 3(3)):
- Between enterprises engaged in identical or similar trade of goods or services.
- Deemed to have AAEC if they:
a) Directly or indirectly determine purchase or sale prices.
b) Limit or control production, supply, markets, technical development, investment, or provision of services.
c) Share the market or source of production or provision of services by way of allocation of geographical area, type of goods or services, or number of customers.
d) Directly or indirectly result in bid rigging or collusive bidding. - Exception: Efficiency-enhancing joint ventures.
- Vertical Agreements (Section 3(4)):
- Between enterprises at different stages or levels of the production chain.
- AAEC has to be proved based on:
a) Creation of barriers to new entrants.
b) Driving existing competitors out of the market.
c) Foreclosure of competition.
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. - Specific vertical agreements mentioned in the Act:
a) Tie-in arrangement: Purchaser of goods required to purchase some other goods as a condition.
b) Exclusive supply agreement: Restricting purchaser from acquiring or dealing in goods other than those of the seller.
c) Exclusive distribution agreement: Limiting/restricting output/supply of goods or allocate any area/market for disposal/sale of goods.
d) Refusal to deal: Restricting by any method persons/classes to whom goods are sold or from whom goods are bought.
e) Resale price maintenance: Selling goods on condition that prices on resale shall be prices stipulated by the seller (unless clearly stated that lower prices can be charged).
C. PER SE RULE VS RULE OF REASON
- Per Se Rule:
- Horizontal agreements under Section 3(3) are presumed to have AAEC.
- The burden of proof is on the defendant to prove there is no AAEC.
- Rule of Reason:
- Vertical agreements under Section 3(4) are not presumed to have AAEC.
- AAEC has to be determined based on factors mentioned in Section 19(3).
- The burden of proof is on the Competition Commission of India (CCI) to prove there is AAEC.
D. APPRECIABLE ADVERSE EFFECT ON COMPETITION (AAEC)
- No definition of AAEC in the Act.
- Factors to determine AAEC under Section 19(3):
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. - CCI shall have due regard to “all or any of” the above factors [Section 19(3)].
Automobiles Dealers Association v. Global Automobiles Limited & Anr (2012):
- Facts: Complaint against automobile companies for anti-competitive discount control practices.
- Issue: Whether there was an AAEC.
- Held: The CCI will examine the action considering all the factors mentioned in Section 19(3). The factors in Section 19(3)(a)-(c) should be prioritized over Section 19(3)(d)-(f) if an agreement allows an enterprise to eliminate competition and become dominant.
E. CARTEL REGULATION
- Cartel includes an association of producers, sellers, distributors, traders, or service providers who limit, control, or attempt to control production, distribution, sale or price of, or trade in goods or provision of services [Section 2(c)].
- Cartels are considered a type of horizontal agreement.
- Cartels are presumed to have an AAEC [Section 3(3)].
Suo Moto case of Alleged Cartelisation in Supply of LPG Cylinders (HPCL) (2019):
- Facts: Bid rigging in tenders by LPG cylinder suppliers by quoting identical prices and withdrawing bids.
- Issue: Whether suppliers formed a cartel.
- Held: Price parallelism along with plus factors like identical bid withdrawal letters, common IP addresses for bid uploads, meetings between suppliers, etc. proved bid rigging cartel. Penalties imposed.
Nagrik Chetna Manch v. Fortified Securities Solutions & Ors (2018):
- Facts: 6 bidders engaged in bid rigging in a tender.
- Issue: Whether bid rigging proved even though bidders were in different trades.
- Held: If parties are considered as not competitors because they are in different businesses, it would defeat the purpose of Section 3(3)(d). Bid rigging established, and lesser penalty allowed for leniency applicants.
F. EXEMPTIONS AND DEFENSES
- Intellectual Property Rights [Section 3(5)]:
- Reasonable conditions for protecting IPRs like copyright, patents, trademarks, geographical indications, designs, etc., can be imposed.
- Agreements exclusively related to exports are allowed.
- Efficiency Enhancing Joint Ventures [Proviso to Section 3(3)]:
- Agreements increasing efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services are exempt from Section 3(3).
- There should be a direct nexus between efficiencies and benefits to consumers to compensate for any likely negative impact.
Ashok Kumar Sharma v. Agni Devices Pvt. Ltd (2015):
- Facts: Restriction on use of trademark in an agreement.
- Issue: Whether the restriction was anti-competitive.
- Held: A mere restriction on the use of trademark would not violate Sections 3 or 4 of the Act. It would be covered under the IPR exemption.
A fortiori, the Competition Act prohibits anti-competitive agreements that cause or are likely to cause an AAEC in India. Horizontal agreements are presumed to have an AAEC, while vertical agreements are judged by the rule of reason. Cartels are considered a type of horizontal agreement and are strictly prohibited. Reasonable restrictions to protect IPRs and efficiency-enhancing joint ventures are exempt from Section 3. The CCI determines AAEC based on the factors in Section 19(3).
