Legal

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This Blog is written by Asmita Arora from Guru Nanak Dev University, Amritsar. Edited by Debargha Mukherjee.

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INTRODUCTION

Initially, India had Monopolistic and Restrictive Trade Practices Act of 1969, was enacted to prevent the concentration of economic power to common detriment, control of monopolies, and prohibition of monopolistic and restrictive trade practices. This legislation, based on principles of a “command and control” economy, was designed to put in place a regulatory regime in the country which did not allow concentration of economic power in a few hands that was prejudicial to public interest and therefore prohibited any monopolistic and restrictive trade practices. Consequently, in 2002, the Indian Parliament approved comprehensive competition legislation- The Competition Act, 2002 which replaced the MRTP Act. It is basically the Anti-trust law of India which monitors any economic activity that monopolizes competition within the market.  Moreover, it protects consumers and small enterprises and ensures the freedom of trade. Since the inception of the 20^th century, competition law has become global. The two largest and most influential systems of competition regulation are United States Antitrust law and European Union competition law. India has taken the law from statutory provisions of developed countries. The competition act also regulates acquisitions, mergers and combination in India. Under this act, there is prohibition on any business arrangements that could a form a nexus within the chain of supply, distribution, storage, acquisition, control of goods, or provisions of services. The Competition Act primarily seeks to regulate three types of conduct: anti-competitive agreements, abuse of a dominant position and combinations (i.e., mergers, acquisitions and amalgamations). The Competition Act, which was amended by the Competition (Amendment) Act 2007, later came into force on 20 May 2009, when the Government of India notified the provisions related to anti-competitive agreements and abuse of dominant position of the Competition Act.

MEANING

Anti-trust is basically derived from the word “trust”. A trust was an agreement by which stakeholders in several companies transferred their shares to a single set of trustees.  These laws are supposed to promote and protect competition. Most states have anti-trust laws and essentially, these laws prohibit business practices that unreasonably deprive consumers of the benefits of competition, resulting in higher prices for inferior products and services. On the contrary, anti-trust laws are intended to promote market economics and healthy competition in every market, while checking the abuses that sometimes arise in different markets. According to this theory, competition brings forth the best in each of us, keeping each of us on our toes, mindful that if we do not perform well, we will be cast aside for someone else who can perform better. To paraphrase Adam Smith, the baker does not ask himself whether you might wish to enjoy some of his excellent bread this evening with your meal. No, he wants you to give him money, and thus he strives to make excellent bread so that you will be persuaded to purchase your bread from him and not from some other baker.

Antitrust laws are meant to ensure that these incentives and the resulting excellence and low prices flourish in every market. We want to have many bakers competing for your business. If you happen to be a baker, we want you to compete against your rivals for our business. We do not want one baker, or a group of bakers, to destroy competition in their local market so that they can then force the customers to submit to higher prices, less responsive service or poorly baked bread. Statistic shows us the real picture of how the few companies have takeover in the market like Tata Motors having approx. 68.4 shares in the Vehicle Market Share. Other examples are like Chinese Companies MI (Redmi, Xiaomi), Oppo and Vivo started to take over the mobile market of India. By this, Anti-Competitive Activities are prevalent in India. India did not have any statutory provisions for regulating these practices that’s why foreign markets dumping Indian Market. Many consumers have never heard of antitrust laws, but when these laws are effectively and responsibly enforced, they can save consumers millions and even billions of dollars a year in illegal overcharges. Antitrust laws protect competition. The worst antitrust offenses are price fixing and bid rigging. Price fixing occurs when two or more sellers agree that they will increase prices a certain amount, or that they won’t sell below a certain price. Bid rigging most commonly occurs when two or more firms agree not to bid against each other to supply products or services to local, state or federal government agencies, or when they agree on the level of their individual bids. The antitrust laws serve to check and redress the improper acquisition and abuse of market dominance. In particular, these laws forbid two categories of conduct: monopolization and unlawful restraints of trade. These are charter principles of anti-trust laws.

ORIGIN

The history of competition law reaches back to the Roman Empire. There are three major federal antitrust laws: The Sherman Antitrust Act of 1890, the Clayton Act and the Federal Trade Commission Act. In addition, the laws allow companies, organizations, or persons who are adversely affected by actions that violate the antitrust acts to sue for damages. The Sherman Antitrust Act has stood since 1890 as the principal law expressing our national commitment to a free market economy in which competition free from private and governmental restraints leads to the best results to the consumers. The Clayton Act is a civil statute (it carries no criminal penalties) that was passed in 1914 and significantly amended in 1950. The Clayton Act prohibits mergers or acquisitions that are likely to lessen competition. Under the Act, the government challenges those mergers that a careful economic analysis shows are likely to increase prices to consumers. The Federal Trade Commission Act prohibits unfair methods of competition in interstate commerce, but carries no criminal penalties. It also created the Federal Trade Commission to police violations of the Act. The Department of Justice also often uses other laws to fight illegal activities, including laws that prohibit false statements to federal agencies, perjury, obstruction of justice, conspiracies to defraud the United States and mail and wire fraud.

ENFORCEMENT

There are three main ways in which the federal antitrust laws are enforced: criminal and civil enforcement actions brought by the Antitrust Division of the Department of Justice, civil enforcement actions brought by the Federal Trade Commission and lawsuits brought by private parties asserting damage claims.

States have their own anti-trust laws and regulations that can be applied to mergers of organization such as hospitals. State can also outlaw anti-competitive practices, which include the following: Attempts of licensing boards and professional societies to limit new entries; Colluding to set prices for services. States do also legislate against specific anticompetitive practices. A foreign company seeking entry into India through an acquisition or merger will have to abide by the country’s competition laws.

COMPETITION COMMISSION OF INDIA

The Competition Act has also created a new enforcement authority, the Competition Commission of India (CCI), which is solely responsible for the enforcement and administration of the Competition Act.  The CCI comprises of a chairperson and not fewer than two and not more than six other members to be appointed by the Government of India.  Under Competition Commission of India (CCI) purviews all the assets and furthermore, its approval is necessarily required within 30 days. CCI plays very vital part in implementation of competitive laws state. CCI and representative bodies of other countries have signed several MoU’s to uphold competitive laws. CCI can penalize or shutdown the operations which violates the policies of act or anyone founds guilty for breaching the act, can be imposed fines up to 10 percent of the average turnover of the preceding three years.  Under the Competition Act, there is a provision for appeal to the Competition Appellate Tribunal (COMPAT) against certain orders of the CCI. The CCI is India’s competition regulator and anti-trust watchdog for smaller organizations that are unable to defend themselves against large corporations. Based on the recommendations of the expert committee, the government introduced the Competition Amendment Bill, 2012 (Bill) in the lower house of the Indian Parliament, the Lok Sabha. Most notably, the Bill seeks to introduce the concept of “joint dominance” under section 4 of the Competition Act.

CASE LAWS

1• In the case, Competition Commission of India v. Honda Siel Cars India Ltd., it was filed under section 19(1) (a) of the Competition Act in which it was alleged that anti-practices on the part of three car manufacturers (respondents), whereby the genuine spare parts of automobiles manufactured by them were not made freely available in the open market. Therefore, court held liable respondents for contravening the provisions of the Act. Additionally, they were directed to immediately cease and desist from indulging in conduct which has been found to be in contravention of the provisions, to put in place an effective system to make spare parts and diagnostic tools easily available through an efficient network. Moreover, they were penalised under section27 of the Act.

2• In Arjun Gopal v Union of India, stated that in certain branches of Law there is a direct impact of Economics and economic considerations play predominant role, which are even recognised as legal principles. Monopoly laws (popularly known as “Antitrust Laws” in USA) have been transformed by Economics. The issues arising in competition laws (which have replaced monopoly laws) are decided primarily on economic analysis of various provisions of the Competition Commission Act.

3• In Jupiter Gaming Solutions Private v Government of Goa & Ors., It was observed that lottery had came under scanner of anti-trust laws as in the case of Deutscher Lotto in Germany wherein the monopoly of such enterprise was held to be anti-competitive by the German Federal Cartel office. Therefore, the contention by the opposite party was that the activity of lottery as organized by State Governments cannot be made subject matter of the inquiry under Competition Act, 2002,

The Anti-trust Laws all over the world focus both on multilateral activity and unilateral activity i.e. abuse of dominant position in the market. Any form of monopolization or attempts to monopolize is prohibited under the Anti-trust Laws.

Competition Laws prohibit all activities which damage true competition between firms and those which exploit the consumers. In the present case the action of Government of Goa in keeping high turnover and net worth has resulted in restriction and elimination of competition in the relevant market for the goods or services in question and thus its action is found to be in contravention to the provisions of Section 4(2) (a) (b) & (c) of the Competition Act, 2002.

4• In one of case M/s. Madhya Pradesh Power Generating Company Limited v. M/s. South Eastern Coalfields Ltd. & Anr., Here, the SECL being the monopoly supplier in the market was neither willing to negotiate the terms of the coal supply agreement nor ensuring the supply obligations and therefore the terms and conditions of SECL were not just and fair, according to the object for which the informant was acquiring coal. It was held that while CCI worked to regulate the framework and formulation of the policy, CCI did not exempt the applicability of the Act to SOEs. Additionally, although cases relating to FSAs and Coal India are in appeal, it does not look like CCI would be changing its approach towards the other

5• In Vijay Gopal v Inox Leisure Ltd & Ors, Appellant party went to watch movie INOX at GVK situated at Banjara Hills. There they purchased a water bottle from ground floor of the mall. When they entered the cinema hall, security officer asked him to leave the water bottle and could take it at the time of exit. Therefore, he contended that he purchased the bottle from ground floor of mall at Rs- 50 whereas the MRP was rs-20. After 30 minutes of argument with manager, they allow him to take the bottle. And inside the cinema they did not get free water. Regarding the prices of bottle, he filed complaint at INOX movies management but got no reply to his email. The opposite party contended that the security officer did not enter him with water bottle because of safety purposes. People used to mix sodium and potassium in water to make explosive. That’s why they didn’t allow anyone with outside foods. They also provide free purified water at cinema hall in paper cups. Further he contended that the purchase of water bottle after knowing the price was voluntarily purchase. There was no coercion or unfair trade practice imposed on him to buy the water bottle. The price of water bottle was fixed at Rs. 50 taking into consideration its maintenance cost, ambience, capital investment, amenities provided in the mall. There was no unfair practice on part of them. District forum directed the opposite party to sell the water bottle at same cost of MRP in same quantity and quality. Moreover, it was held that respondent liable for paying Rs. 5000 for mental agony + cost of Rs. 1000. Counsel for the opposite party argued that the matter is relating to Legal Metrology Act and Legal Metrology Rules framed there-under and the Consumer Forum which has no jurisdiction to entertain the complaint. The Union Ministry of consumer affairs decided to ban the ‘dual’ MRP policy, a practice through which sellers charge a higher MRP for their products in certain spaces like malls, airports and hotels etc. The CCI noted that purchase of beverages was not a prerequisite for watching movies at Inox, Coca-Cola’s market share was not significant enough to restrict competition and that Pepsi Co had also entered into similar agreements with large number of multiplexes thereby ensuring intense competition between suppliers of non-alcoholic beverages, and finally that there were no exit barriers as the agreement could be terminated by either of the parties by giving a 60-day notice. Consequently, the CCI held that no violation of the provisions of the Act was made out against the parties as they did not have the potential to cause any appreciable adverse effect on competition.

6• In Maharashtra State Power Generation Company Ltd. V M/s. Mahanadi Coalfields Ltd. & Another, the information in this case was filed under section 19(1)(a) of the Act by two state owned power generation companies in Maharashtra and Gujarat against CIL and its subsidiaries alleging contravention of the section 4 of the Act. They alleged that OP was dominant in the market and were abusing this dominance primarily through their terms and conditions imposed in the Fuel Supply Agreements.

The court in this case provided the constitutional mandate for state monopoly was raised by Opposite Parties placing reliance on Hon’ble Supreme Court’s ruling in Ashoka Smokeless Coal (P) Ltd. v. Union of India.

In the Alcoa case of 1945, Alcoa was found innocent of monopolistic practices by the district court, but an appeals court reversed this decision and found him guilty. Justice Learned Hand explained in the decision:

“It was not inevitable that it [Alcoa] should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.” There are clearly cases in which antitrust laws move the economy closer to a competitive state. There also seems to have been times when antitrust actions were misguided, when antitrust actions did not result in lower prices and higher quantities for consumers.

COMPETITION POLICY AND INTELLECTUAL PROPERTY

These two systems are to a great extent complementary in their efforts to promote innovation and consumer welfare. The interdependency of the competition policy and intellectual property regimes is becoming more apparent as the significance of high technology. When international cooperation and convergence activities involving CP and IP policy have grown more intense in recent years, therefore, they intended to be intra-disciplinary.

CP and IP Interdependency: -The operation of CP and IP regimes features substantial interdependencies. Imperfections in the design and implementation of policy can frustrate the attainment of valuable economic objectives that each regime is intended to achieve. Poorly conceived CP rules can have correspondingly adverse effects on the operation of the IP regime. Unwise anti-trust rules can diminish incentives to create certain forms of property and the capacity to use such property efficiently. Judicial equilibrium could occur in two ways that illuminate the interdependency of the CP and IP regimes. The decisions of CP enforcers and courts in anti-trust disputes may reflect their impressions of the efficacy of an IP system. An important ingredient of cooperation between CP and IP regimes is a greater commitment of resources by CP and IP agencies to perform research concerning issues.

Differential point of view between CP systems across jurisdictions is that there has been more cooperation and greater convergence has occurred towards what are recognised to be superior practices, and enforcement standards in CP whereas the antitrust/IP belongs to the areas where convergence has limited. As a result, jurisdictions take different views in considering how CP and competition law enforcement can best contribute to innovation and efficient dissemination of technologies. This applies even to mainstream anti-trust jurisdictions. Despite a number of common features, competition systems feature important differences in substantive commands, procedure, institutional design and the capability of enforcement authorities.

CONCLUSION

Competition Law is known as anti-trust law in many countries like India, U.S for historical reasons. The law promotes or seeks to maintain competition by promoting anti- competitive conduct by companies. These laws are essential in almost every country to stand in this competitive globalised world. For the last forty years, India had its own version of competition law which was enacted by legislation.  Governments have a number of policies that affect monopoly and market power. Two that are intended to reduce monopoly are regulation and antitrust policy. The economic case for antitrust policy is based on efficiency. It is possible that antitrust laws can be used to attack behaviour that is economically efficient and socially desirable.  Indian government needs to make enhanced legislation for a wider and faster judicial decision.