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CUTS Institute for Regulation &Competition, World Trade Centre, Mumbai

& Institute of Company Secretaries of India

Centre for Corporate Training &

ResearchPresents

Competition Policy and Law in aLiberalisingEconomy

by

Prof. H D. Pithawalla, Advocate & Solicitor

Thursday, 7th December 2006

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Competition Law

A myth or a reality in India ?

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Contents

Background of the Competition Act

Unfair Trade Practices

Restrictive Trade Practices

Protection of Intellectual Property Rights

Abuse of Dominance and Combinations

Case Studies

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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

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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

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 monopolycontinues.

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Perfect Competition A Myth

PERFECT COMPETITION is anideal situation which exists only onpaper. It implies: A large number of Sellers

A large number of Buyers

Free entry

Free exit

Manufacturers are price-takers andnot price-makers

No single manufacturer can influencethe market

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Evaluation of Countrys

Competition Regime

Competition Policy & Philosophy of theGovernment

Trade Agreements & Practices which areRESTRICTIVE

Trade Agreements & Practices which are

UNFAIR Abuse of dominance

Combines : Mergers, amalgamations and take-overs

Protection (or lack of it) of Intellectual PropertyRights

Competition at the international level : TradeBlocs

Consumer activism : NGOs and ConsumerAssociations

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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 - )

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Competition Act - Still in

Incubator

Raghwan Committee

Two Writ Petitions as soon as

Act was notified

Observations of the Hon'bleSupreme Court

The position on date

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Many competition regimes do NOT consider thisas part of Competition Law

BUT, it doesaffect competition directly orindirectly

Consumer protection provisions made for the

first time in Indiaby 1984 Amendments in the

MRTP Act

The Consumer Protection Act came only 2years later

How Consumer Courts were hurriedlyconstituted

After 1986, MRTP Commission and ConsumerCourts had parallel jurisdiction

Consumer Courts v MRTP Commission : Pros& Cons

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HOW UTPs affect competition : Warranties notbased 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

Guptajis Sales

Ads of CURRYS (U.K.s biggest electrical chain)

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UTPs vis--vis Competition Act

Under the Competition Act : No provision for Unfair Trade Practices

Only Consumer Courts will havejurisdiction

Pending cases will be continued byMRTPC for 2 years

After 2 years : All cases (except Disparagement Cases) will

be transferred to National Commission underCPA

All Disparagement Cases will be transferredto Competition Commission

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

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MRTP Act

Today, the Act contains a two-pronged

approach to RTPs

RTPs (except one) are NOT declaredvoid. Only registration formalities are to

be complied with

MRTP Commission can issue Notice of

Enquiry followed by Cease-&-DesistOrder if RTP proved to be against public

interest : No jail, no fine

Gateways are available

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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

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Anti-competitive Agreements

Horizontal Agreements

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

to determine purchase or sales prices

to limit / control production, supply, technologicaldevelopments, etc.

to share the market, allocate geographicalmarkets or number of customers

for bid rigging or collusive tendering

All the above 4 Agreements shall bepresumed to have an appreciable adverseeffect on competition

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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 contraventionof the Act IF the Agreement causes or islikely to cause an appreciable adverseeffect on competition

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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 averageturnover of the enterprise

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PROTECTION OF INTELLECTUAL

PROPERTY RIGHTS

MRTP Act Firstly, the MRTP Commission cannot pass

Orders which restrict

the right of any person to restrain the infringementof a patent granted in India, or

any person as to the condition he attaches to alicence to do anything, the doing of which, but forthe licence, would be an infringement of a patentgranted in India

Secondly, Section 39, which declares resaleprice maintenance to be void, does not affect the

validity of a licence granted by the proprietor of apatent or trade-mark, so far as it regulates theprice at which articles produced by the licenseemay be sold by him.

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PROTECTION OF INTELLECTUAL

PROPERTY RIGHTS

Competition Act

The prohibition on horizontal and

vertical agreements do not restrict

the right of any person to imposereasonable restrictions to protect

any of his rights under the

Copyright Act, the Patents Act, the

Trade and Merchandise Marks

Act, Designs Act

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Abuse of Dominance

Mandate of the Act : No enterpriseshall 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 ortechnical development

Using dominant position in one marketto enter another market, etc.

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Abuse of Dominance

Dominant position is defined as aposition of strength which enablesthe enterprise to operate independently of competitive

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

its favour.

No mathematical or statisticalformula is adopted to measure

dominance as under the repealedprovisions of the MRTP Act ( - 25%of market share - )

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Abuse of Dominance

Power of the Competition

Commission

After inquiry into abuse of

dominant position, theCompetition Commission can

order:

discontinuance of abuse of dominant

position

impose a penalty upto 10% of the

average turnover of the enterprise

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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

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Combinations

Competition Act NOW, the Competition Act seeks to regulate

any acquisition, acquiring of control,mergers or amalgamations if it results inassets or turnover exceeding specifiedmonetary limits

Concept of voluntary notice is introduced. Onreceipt of such notice, CompetitionCommission 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 TOHAVE BEEN APPROVED.

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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 agoremain relevant five years hence ?

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Case Studies

Columbia AVIANCA, Columbias largest airline planned a

merger with the countrys second largest airline,ACE.

Justifications given for the merger were :

AVIANCA had huge accumulated losses, and themerger would be a potential answer to its financialproblems

The merged airline could effectively compete withforeign carriers in the international market

HELD : Merger would be anti-competitive : Themerged airline would be FOUR times the size ofits nearest domestic rival.

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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 Australias biscuit market.

Justification given for the merger : Snacks andNOT Biscuits is the relevant market. In thesnacks market, Co X had a 10% share of themarket and Co Y, a mere 1%.

HELD : The relevant market was Biscuits andnot Snacks. Merger NOT ALLOWED.

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Thank

You!

Documents

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