competition act

COMPETITION ACT:

COMPETITION ACT PRESENTED BY: MUNNA KUMAR 10KB038

Contents:

2 Contents Background of the Competition Act Unfair Trade Practices Restrictive Trade Practices Protection of Intellectual Property Rights Abuse of Dominance and Combinations Case Studies

Background:

3 Background “Competition” (L – “compete”) is an age-old phenomenon In 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

Benefits of Competition….:

4 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…………………………

….Benefits of Competition:

5 ….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….

Perfect Competition – A Myth :

6 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

Evaluation of Country’s Competition Regime :

7 Evaluation of Country’s 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

Evolution of Competition Law:

8 Evolution 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of State Policy (Non-enforceable) The MRTP Act brought in a four-pronged thrust : Concentration of economic power ( - Repealed in 1991 - ) Restrictive Trade Practices Monopolistic Trade Practices ( - Almost a dead letter - ) Unfair Trade Practices ( - Added in 1984 - )

Unfair Trade Practices :

9 Unfair Trade Practices Many competition regimes do NOT consider this as part of Competition Law BUT, it does affect competition – directly or indirectly Consumer protection provisions made for the first time in India by 1984 Amendments in the MRTP Act The Consumer Protection Act came only 2 years later How Consumer Courts were hurriedly constituted After 1986, MRTP Commission and Consumer Courts had parallel jurisdiction Consumer Courts v MRTP Commission : Pros & Cons

Unfair Trade Practices:

10 Unfair Trade Practices HOW UTPs affect competition : Warranties not based on lab tests After sales guarantees not honoured Contests & Competitions View of the MRTP Commission View of the Supreme Court Disparagement of competing products Godrej v Kelvinator Colgate v Pepsodent Rulings in RIDAKE (India) & XENICAL (USA) Misleading sales ads “UPTO 60% OFF” Guptaji’s Sales Ads of CURRYS (U.K.’s biggest electrical chain)

UTPs vis-à-vis Competition Act:

11 UTPs vis-à-vis Competition Act Under the Competition Act : No provision for Unfair Trade Practices Only Consumer Courts will have jurisdiction Pending cases will be continued by MRTPC for 2 years After 2 years : All cases (except Disparagement Cases) will be transferred to National Commission under CPA All Disparagement Cases will be transferred to Competition Commission Q. : After 2 years, WHERE can a Company file Disparagement Cases ?

Restrictive Trade Practices:

12 Restrictive Trade Practices MRTP Act Today, the Act contains a two-pronged approach to RTPs RTPs (except one) are NOT declared void. Only registration formalities are to be complied with MRTP Commission can issue Notice of Enquiry – followed by Cease-&-Desist Order if RTP proved to be against public interest : No jail, no fine “Gateways” are available

Restrictive Trade Practices:

13 Restrictive Trade Practices Competition Act 9 “Anti-competitive Agreements” are declared void “Per Se Rule” applied to 4 Horizontal Agreements “Rule of Reason” applied to 5 Vertical Agreements

Anti-competitive Agreements :

14 Anti-competitive Agreements Horizontal Agreements Persons engaged in identical or similar goods or services enter into an agreement : to determine purchase or sales prices to limit / control production, supply, technological developments, etc. to share the market, allocate geographical markets or number of customers for bid rigging or collusive tendering All the above 4 Agreements “shall be presumed to have an appreciable adverse effect on competition”

Anti-competitive Agreements :

15 Anti-competitive Agreements Vertical Agreements “Tie-in” Arrangements Exclusive Supply Agreements Exclusive Distribution Agreements Refusal to deal Resale price maintenance Such an Agreement will be contravention of the Act IF the Agreement causes – or is likely to cause – an appreciable adverse effect on competition

Powers of Competition Commission as Regards Agreements:

16 Powers of Competition Commission as Regards Agreements After the inquiry into the Agreement, Competition Commission can: direct parties to discontinue the agreement prohibit parties from re-entering such agreement direct modification of the agreement impose penalty upto 10% of average turnover of the enterprise

PROTECTION OF INTELLECTUAL PROPERTY RIGHTS :

17 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS MRTP Act Firstly , the MRTP Commission cannot pass Orders which restrict the right of any person to restrain the infringement of a patent granted in India, or any person as to the condition he attaches to a licence to do anything, the doing of which, but for the licence, would be an infringement of a patent granted in India Secondly, Section 39, which declares resale price maintenance to be void, does not affect the validity of a licence granted by the proprietor of a patent or trade-mark, so far as it regulates the price at which articles produced by the licensee may be sold by him.

PROTECTION OF INTELLECTUAL PROPERTY RIGHTS :

18 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS Competition Act The prohibition on horizontal and vertical agreements do not restrict the right of any person to impose reasonable restrictions to protect any of his rights under the Copyright Act, the Patents Act, the Trade and Merchandise Marks Act, Designs Act

Abuse of Dominance:

19 Abuse of Dominance Mandate of the Act : “No enterprise shall abuse its dominant position.” 5 categories of “abuse” are listed in the Act, as for instance, - Imposing discriminatory conditions in purchase or sale of goods Predatory pricing Limiting production or scientific or technical development Using dominant position in one market to enter another market, etc.

Abuse of Dominance:

20 Abuse of Dominance “Dominant position” is defined as a position of strength which enables the enterprise to operate independently of competitive forces in the market, or to affect its competitors or consumers in its favour. No mathematical or statistical formula is adopted to “measure” dominance – as under the repealed provisions of the MRTP Act ( - 25% of market share - )

Abuse of Dominance :

21 Abuse of Dominance Power of the Competition Commission After inquiry into abuse of dominant position, the Competition Commission can order: discontinuance of abuse of dominant position impose a penalty upto 10% of the average turnover of the enterprise

Combinations:

22 Combinations MRTP Act Provisions of the MRTP Act regarding registration of undertakings, establishment of new undertakings, take-overs, mergers and amalgamation were criticized on the ground that they were based on an impractical and untenable proposition that “BIG is BAD” Ultimately, these provisions were repealed in 1991

Combinations:

23 Combinations Competition Act NOW, the Competition Act seeks to regulate any “acquisition”, “acquiring of control”, “mergers or amalgamations” if it results in assets or turnover exceeding specified monetary limits Concept of voluntary notice is introduced. On receipt of such notice, Competition Commission can inquire – and approve the combination, or direct that the combination shall not take effect, or propose modifications If no such Order is passed within a time-bound frame, the combination is DEEMED TO HAVE BEEN APPROVED.

Combinations:

24 Combinations Powers of Competition Commission It can : issue a Show Cause Notice to the parties direct the parties to publish details of the combination invite members of the public to file written objections pass appropriate Orders Two questions are worth considering : Is this just a back-door entry of earlier provisions of the MRTP Act ? Will monetary limits fixed five years ago remain relevant five years hence ?

Case Studies:

25 Case Studies Columbia AVIANCA, Columbia’s largest airline planned a merger with the country’s second largest airline, ACE. Justifications given for the merger were : AVIANCA had huge accumulated losses, and the merger would be a potential answer to its financial problems The merged airline could effectively compete with foreign carriers in the international market HELD : Merger would be anti-competitive : The merged airline would be FOUR times the size of its nearest domestic rival.

Case Studies:

26 Case Studies India The JET take-over of SAHARA : A damp squib ? Australia Co X with 75% of domestic biscuit market proposed a merger with Co Y, which had 15% market share of Australia’s biscuit market. Justification given for the merger : “Snacks” and NOT “Biscuits” is the relevant market. In the snacks market, Co X had a 10% share of the market and Co Y, a mere 1%. HELD : The relevant market was “Biscuits” and not “Snacks”. Merger NOT ALLOWED.

Supreme Court of India delivers its first judgment under the Indian Competition Act:

27 Supreme Court of India delivers its first judgment under the Indian Competition Act On September 9, 2010, the Supreme Court of In dia delivered its first judgment under the In dian Competition Act 2002 on an appeal brought by the Competition Commissi on of In dia (“CCI”) aga in st an Order of the Competition Appellate Tribunal of In dia (the “Tribunal”). The Supreme Court’s judgment is an important and welcome development in the evoluti on of In dian competition law

Slide 28:

28 In October 2008, J in dal Steel, on e of the largest steel manuf act urers in In dia, compla in ed to the CCI that its competitor, the Steel Authority of In dia (“SAIL”), had abused its dom in ant positi on by enter in g in to a l on g-term exclusive supply agreement with an important customer, In dian Railways. The CCI found that there was a prima facie case and recommended that an in vestigati on be in itiated. SAIL requested an extensi on to comment on the CCI’s f in d in gs, which the CCI refused The Supreme Court Judgment addressed five pr in cipal questi on s of law: Appealable decisi on s. The judgment held that on ly CCI decisi on s under Secti on 53 of the Competition Act 2002 are appealable to the Tribunal. Secti on 53 of the Competition Act 2002 sets out a list of appealable decisi on s (e.g., an in fr in gement decisi on ) but a decisi on to in itiate an in vestigati on is not part of that list.

Slide 29:

29 Right to be heard at an in itial stage. The Supreme Court held that neither parties under in vestigati on nor third parties have a right to be heard dur in g the in itial stages (i.e., while the CCI is formulat in g its op in i on ). Tribunal proceed in gs. The Supreme Court held that the CCI ought to be a “necessary party” in Tribunal cases where the proceed in gs c on cern a CCI decisi on or in other appropriate cases.

Slide 30:

30 Interim relief . The Supreme Court c on firmed that the CCI has the power to grant in terim relief (e.g., to issue an order temporarily restra inin g an undertak in g from carry in g out an act ) but noted that these powers were to be used spar in gly and under “excepti on al and compell in g circumstances.” Reasoned decisions. The Supreme Court also held that it was in cumbent on CCI to reas on its decisi on s, regardless of whether they are appealable decisi on s or not. However, the Supreme Court did not require the CCI to produce substantiated and/or fully reas on ed decisi on s at an in terim stage.

Slide 31:

31 Thank You!