Competition Law

Table of Contents

M1 – INTRODUCTION TO COMPETITION LAW...........................................................4

HISTORICAL DEVELOPMENT OF COMPETITION LAW...............................................4
COMMON LAW & COMPETITION LAW..................................................................6
SOCIALISM & COMPETITION LAW.......................................................................8
CLASSICAL AND NEOCLASSICAL COMPETITION......................................................9
GOALS OF COMPETITION LAW...........................................................................10
NEO-CLASSICAL ECONOMIC THEORY.................................................................12
COURNOT MODEL....................................................................................................12
BERTRAND MODEL...................................................................................................12
STACKELBERG MODEL..............................................................................................13
DIFFERENT SCHOOLS OF THOUGHT...................................................................13
HARVARD SCHOOL: STRUCTURE, CONDUCT, PERFORMANCE PARADIGM.......................13
CHICAGO SCHOOL OF THOUGHT................................................................................14
POST CHICAGO – GAME THEORY................................................................................14
EVOLUTION OF COMPETITION LAW IN INDIA......................................................16
MONOPOLIES & RESTRICTIVE TRADE PRACTICES (MRTP) ACT, 1969.................17
OBJECTIVE OF MRTP ACT........................................................................................17
BRAHM DUTT V UNION OF INDIA..............................................................................19
DIFFERENCE BETWEEN MRTP & COMPETITION ACT..................................................21
DEVELOPMENT OF COMPETITION LAW IN THE UNITED STATES............................22
DEVELOPMENT OF COMPETITION LAW IN THE EUROPEAN UNION.........................24

M2 – PROHIBITION OF ANTI-COMPETITIVE AGREEMENTS.......................................25

SYNOPSIS & INTRODUCTION:............................................................................25
SECTION 3(1), COMPETITION ACT....................................................................25
SCOPE OF APPLICATION OF SECTION 3(1)..................................................................30
SHERMAN ANTITRUST ACT, 1890.............................................................................33
PER SE VIOLATION...................................................................................................35
VERTICAL PRICE FIXING...........................................................................................36
PER SE VIOLATION TO RULE OF REASON IN VERTICAL PRICE FIXING – MAXIMUM PRICE
FIXING CASES..........................................................................................................36
PER SE VIOLATION TO RULE OF REASON IN VERTICAL PRICE FIXING – MINIMUM PRICE
FIXING CASES..........................................................................................................37
EUROPEAN COMPETITION ACT..................................................................................40
DIFFERENT TYPES OF AGREEMENTS..........................................................................43
SECTION 3(2), COMPETITION ACT....................................................................44
SECTION 3(3), COMPETITION ACT....................................................................44
CARTELS.................................................................................................................46
BID RIGGING...........................................................................................................49
LENIENCY (LESSER PENALTY)...................................................................................52
LENIENCY PLUS (LESSER PENALTY PLUS)..................................................................53
SECTION 3(4) OF THE COMPETITION ACT, 2002................................................55

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M4 – ABUSE OF DOMINANCE...............................................................................60
WHAT IS RELEVANT MARKET?..........................................................................61
EXISTENCE OF DOMINANT POSITION.................................................................63
ABUSE OF DOMINANT POSITION.......................................................................64
PREDATORY PRICING................................................................................................64
USA.............................................................................................................. 64
EUROPE......................................................................................................... 64
INDIA............................................................................................................. 65

M5 – CONTROL OF COMBINATIONS......................................................................68
SECTION 5 – COMBINATIONS............................................................................68
S 6 – REGULATION OF COMBINATIONS..............................................................71

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 What is Competition Law?
 Law relating to competition.
 What is Competition? Competition is usually a rivalry. This course talks about
Competition from an economic perspective. It is a law which regulates
competition in the marketplace.
 Comp Law is inherently intermingled with Economics.
 Justice LD Brandis: A lawyer who has not studied economics and sociology is apt
to become an enemy of the public.
 2 schools of thought: Harvard Model and Chicago Model.
 From 26 May, 2017: NCLAT also hears CCI Appeals. Till then, the Competition
Appellate Tribunal used to hear appeals.
 CCI not only investigates but also decides punishments etc. Modelled on EU Civil
Law Model.
 Indian Comp Law, as of today is not of nascent origin but is still not in a very
developed state. There is no international competition law. Normally, US and EU
are compared to when it comes to comp law.
 In USA, Sherman Antitrust Act of 1890 was the most comprehensive act on
competition law.
 In EU, Article 101 and 102, TFEU.

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M1 – INTRODUCTION TO COMPETITION LAW

 Ancient Origin
 Common Law and Comp Law
 Socialism and Comp Law
 Economics Rationale of Comp Law according to classical and neoclassical schools
 Goals of Comp Law
 Evolution of Comp Law in the US and EU.

HISTORICAL DEVELOPMENT OF COMPETITION LAW

 In India, it is not very elaborate and hence not effective.

 50th Century BC: Common law provided for some features of competition law.
Lex Julia de Annona (Law relating to Corn). But this was not corn in its literal
sense. It means foodstuff since corn was not introduced in Europe till the 15 th
Century. Corn was introduced in Europe in 1493 by Columbus. Even at such
times, traders buy foodstuff on the way to the market before they reach it. They
would then hoard such products. At such time, the supply went down, and the
demand went up. Now, when such demand went up, these middlemen would sell
the stuff at an inflated price. This was known as forestalling. These Lex Julia were
criminal laws that penalised this forestalling.
 Some sort of record can be seen in the 3rd Century AD, where for around 49 to 50
years, the Roman Empire fell into an economic crisis. The administration
responsible for maintaining a better market became the centrepiece of selling
monopoly rights in order to get some income since the treasury was almost empty.
Many of the most important branches of industrial trade came to be on a state
monopoly protection basis.
 Diocletian, in 301 AD, brought a law with a view to protect consumers. This was
a rigorous law to prevent such monopolistic prices, known as the Edict on
Maximum Prices. This was prevalent till 305 AD when he abdicated his throne
that year. Here, this law mandated that the products were to be sold at a price
fixed by the government. Additionally, a tariff was to be paid to the government,
and whoever did not pay such a tariff was even liable for the death penalty. Not
only the sellers in the black market but also the buyers from such black markets
were punished. However, the administration and conviction under this Edict were
difficult. After him, the same condition continued.
 In 483 AD, during the time of Zeno (emperor of the Eastern Roman
Empire), the Edict/Constitution of Zeno was brought forth. He also brought a
very powerful law which not only cancelled the imperial privileges (monopolistic
rights) but also prohibited the future sale of such rights. This is one of the high
watermarks of anti-monopolistic legislation at that time. One of the features of
this Edict was that it contained a provision bearing closely on the lines of the
modern concept of Resale Price Maintenance (RPM). Provisions say that
merchandise cannot be sold at a rate lower than the rate at which they agreed to
buy the goods.
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 Justinian attempted to codify the anti-monopolistic law from 539 to 534 AD. It
was a little stringent but not too strict. He basically incorporated Zeno’s Edict and
the Lex Julia de Annona.
 Around 1066, Edward the Confessor tried to control the act of foresteeling. The
only punishment used there was forfeiture of trading rights and even exile.
 After 200 years, during the time of Henry III, 1266 AD, he attempted to fix the
maximum price of bread and ale. He also fixed the prices in correspondence with
the prices of the foodstuff fixed by Assizes.
 In 1349, at the time of Edward the Third, the Statute of Labourers was passed.
This legislation mandated that all traders must not sell products, including
foodstuffs, at an unreasonable price. This statute was brought after the period of
the Black Death (a 7-year disease that killed lakhs in Europe). Because of the
Black Death, the economy fell down. Because of this, the statute was passed
mandating the sale of goods at reasonable prices. He also prescribed a law for the
traders. Here, the overcharging merchants must pay the injured party twice the
amount they sold the goods for. This became a sort of bedrock for the Sherman
Act (US) for deciding the penalty, which is the treble amount in the Sherman Act.
 In 1553, Henry VIII reintroduced tariffs for foodstuffs, designed to stabilise prices
in the face of fluctuations in the supply from overseas.
 1561, Industrial Monopoly Licenses. Queen Elizabeth the First brought a
particular system called IML. This system was a sort of modern patent right. It
was found throughout the UK that the system was abused more than it was used.
This was used exclusively to grant royal privileges. This led to the filing of
Edward Darcy v Thomas Allen, 1603 (Case of Monopolies): One officer of the
household of the Queen called Edward Darcy was granted an exclusive right by
the Queen herself to make playing cards and import them. Allen was also
producing such cards. Hence, Darcy filed the case.
Court: Grant of an exclusive right to a particular individual is void since it would
create a monopoly. Three reasons were given:
1. Granting such exclusive rights to an individual would result in a decrease in
the quality of the products.
2. It will lead to an increase in the prices of the product
3. It will lead to a tendency leading the people, especially the artisans, to beggary
and extreme poverty.
Although the intention of the Queen was noble, such a law resulted in the person
with the exclusive right exploiting it, and this led to the idleness of other
individuals.
 1684 AD, East India Company v Sandys, (King’s Bench) (Great Case of
Monopolies) it was decided that exclusive rights to trade only outside the realm
were legitimate on the grounds that only large and powerful concerns could trade
in the conditions prevailing overseas. One Mr Thomas Sandys sailed to East India.
When he was returning from this area, he was sailing on the River Thames when
he was caught by the EIC.
EIC Argument: EIC was chartered by Queen Elizabeth the First in 1600 in order
to allow the company to operate overseas. Since we were chartered, we were only
competent to deal with the East Indies and to trade with them. Sandys had not
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taken any authorisation and hence did not have the authority to trade with the
East Indies. The King’s Bench accepted this argument. It was a belief that only the
companies authorised by the King or Queen could trade with infidels.
King’s Bench: Exclusive Rights, therefore, were granted only to large and
powerful concerns who could trade with the East Indies.
Compared to the Case of Monopolies, the Court made certain changes in the law
of the time.
Granting exclusive rights was not allowed, but since it was outside Her Majesty’s
Land, it was valid.
 1710, Newcastle Coal Monopoly. A new law was passed due to the Newcastle Coal
Monopoly to deal with high coal prices.

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COMMON LAW & COMPETITION LAW

 There is no common law of competition law as such. With a view to protect

consumer interests, the Common Law Courts used to deal with monopolistic
practices indirectly by way of application of tort law.
 From the 15th Century onwards, things started changing. Common Law Courts
started dealing with what we now call competition-related cases.
 Doctrine of Restraint of Trade: If either party to a contract is restrained in terms
of his/her identical business, it is considered to be a restraint on his/her ability to
trade. Courts, hence, started to go through each contract and see if any right was
restrained. If it were, the contract was struck down by the Common Law Court.
 John Dyer’s Case (1414) appears to be the first case of restraint of trade.
John had bought a business, and the seller had promised that he would not carry
out a dyeing business for a period of six months. But after a few weeks, he broke
the promise. Hence, the case was brought before the court.
John had sought to enforce a writ against a colleague who had covenanted not to
practise the craft of dyeing in the same town as John Dyer for half a year.
Common Law Court struck it down on the Doctrine of Restraint of Trade, even
commenting: If the plaintiff were here, he should go to prison unless he pays a
fine.
This case was in force for around 200 years.
 At the beginning of the 17th Century, around 1613, business considerations
changed. For the first time, the Common Law Courts introduced the Rule of
Reasonableness in the form of a leeway.
 Rogers v Parry (1613).
A joiner (Carpenter) sold the business to another and promised that he would not
compete with the buyer from his house for a period of the next 21 years. After a
few years, he started the business from elsewhere.
Court: Since the time and place were certain, the seller joiner started the same
business from elsewhere, so the contract need not be struck down.
The court looked into the circumstances and took a liberal view.
 Mitchel v Reynolds (1711): oft-cited case in US Courts.
For the first time, the Common Law Court demarcated the restraint of trade
between Reasonable Restraint of Trade and Unreasonable Restraint of Trade.
Ms Reynolds was running a baking shop in a parish in London. One day, he rented
the shop to Mitchel for the next 5 years. Through the agreement, Reynolds would
not compete with Mitchel for a period of 5 years.
The court upheld the promise given by the rentee, and such a contract cannot be
struck down. It said that such a promise by Reynolds was reasonable to protect
Renter's interest (Mitchel). The rationale was to protect the value of the rented
business. The Court said that whenever there is such a rent agreement, the public
goes with the renter for at least some time.
 Later on, Public Policy considerations also came into force.
 Horner v Graves (1831): Employer and Employee relationship.
Took place in York.

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A moderately skilled dentist agreed with an employer (Senior dentist) that he
would be working under his guidance and receiving instructions and a salary. The
employer wanted the employee not to do the same profession in this very district
over a distance of 200 miles in diameter once he left.
The court upheld the restriction. If the restrictions are more than necessary to
protect the interest of the party (Employer), then it is void since it is
unreasonable. But otherwise, if it is necessary to protect the interest of the party,
it is valid.
Whatever restraint is larger than necessary protection of the party can be of no
benefit to either; it can be oppressive; and if oppressive, it is, in the eyes of law,
unreasonable. Whatever is injurious to the interest of the public is void on the
grounds of public policy.
In further due course of time, the reasonableness test became the overriding
consideration in determining the validity of contracts.
 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co. Ltd. (1894).
One Mr Thorsten Nordenfelt, a Swedish inventor and gunmaker, sold his business
to an American-born British national, Hiram Stevens Maxim for a consideration of
200,000 Pounds.
Nordenfelt promised Maxim that “Nordenfelt would not make guns and
ammunition anywhere in the world and would not compete with Maxim in any way
around the world for a period of 25 years.”
Nordenfelt figured out a technicality, saying that if I cannot make guns, I can at
least trade in them.
House of Lords introduced a Doctrine called the Blue Pencil Doctrine. Copyeditors
used that pencil to make corrections to the manuscript.
Blue Pencil Doctrine: Similar to Article 13 of the Constitution (Severability
Doctrine): Such kind of restraints cannot be held invalid but if the contract has
some reasonable restraint, it must be upheld. It was possible to sever the
unreasonable restraint clause from the contract.
Specifically, unreasonable restraint can be held to be invalid and can also tell
them to make changes in the contract.
Now the parties changed it and now it read: “Nordenfelt, for the next 25 years,
would not make guns and ammunitions anywhere in the world.”
In this way, flexibility was introduced by the House of Lords.

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SOCIALISM & COMPETITION LAW

 Shall be studying:
 Joseph Proudhon
 Karl Marx
 Vladimir Lenin

A. Joseph Proudhon
 Strict critic of Capitalism. He said Capitalism gives rise to a monopoly on the
means of production.
 Socialism gave rise to the free association of small landowners, but because of
capitalism, the bankers and rich people controlled the economy. Hence, it turned
the small landowners into slaves.
 Competition cannot be ignored because it is inherent in human nature. It is
socialism that provides a synthesis between competition and

B. Karl Marx
 Went on the lines of Proudhon.
 Throughout history, capitalist society was never competitive, but it was always
monopolistic and only with the advent of modern industry did competition find a
place in the monopolistic society, but then it again became monopolistic.
 This is because the aim of capitalism is capital accumulation. Capitalism led to the
cannibalism of smaller enterprises.
 Hence, Competition is the seed for future centralisation.
 He argued that competition is a core part of capitalism. When competition became
cut-throat, the bigger ones grew more and more, and the smaller ones died.
 Essentially, he blamed competition for capital accumulation.

C. Lenin
 He was more pragmatic in understanding the value of competition.
 He criticised and said: It is socialism and not capitalism as such which is the first
economic system which created an opportunity for the masses to include the
majority of workers into a task within which they shall be able to prove their best
ability.
 Finally, he said that the vehemently growing monopolisation and cartelisation
became the reasons for the socialist revolution.

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CLASSICAL AND NEOCLASSICAL COMPETITION

Classical and neo-classical competition differs in their taxonomy and functioning. For
classical economists, competition meant both rivalry and freedom from constraints.
Just as one could give up some liberty by entering into a contract, so also one could
bargain away the right to compete.
Classical political economists were concerned expressly with public policy, much
more than their neo-classical followers. They did rest their arguments in the spirit of
common law principles.
First traceable event of competition can be found in The Wealth of Nations by Adam
Smiths.
Adam Smith- He viewed competition as a struggle of all to maximise wealth. Those
who seek health by following their individual self-interest inadvertently stimulate the
economy and assist the society as a whole. Individual xself interest becomes an
important factor for Smith. Every person is a self-interested individual and in striving
this, the individual is led by invisible hands. He was focused on individual self-
interest that drives people to work to better the economy. He is led to propagate this
theory by invisible hands. This term is not defined by him, but later economists
attempt to understand it. It means unseen market forces that set the economy. He
believed that there must be unstrained freedom with the self-interested individual
while deciding what job to take up, what prices to charge, whom to deal with and
other such market decisions. Individuals are concerned with augmenting its wealth
due to which they inadvertently stimulate the economy. AS’s view was critiqued by-
Kenneth Arrow and Gerald Debreu- Criticised AS’s view. They propagated that it
is not possible to achieve such a market condition because the initial distribution of
wealth and resources is not appropriate. To achieve desirable market conditions,
equitable distribution of wealth and income needs to be appropriate.
Any socially desirable market can be achieved if the distribution of rights is
appropriated. Social equality is always desirable.
For neo-classicists, perfect competition is a state of affairs in which price is driven to
marginal cost and firms are forced to minimise their costs through innovation and
growth to the optimal size.
In a perfect market, the price is always equal to the marginal cost. Marginal cost is
the cost of each additional unit of output. Eg- if there are a batch of 10 units- cost for
which is 100, and for 11 units cost is 105, then here MC- is 5.
Perfect Competition-
1. For neo-classicists, perfect competition is a state of affairs in which price is
driven by marginal cost, and firms are forced to minimize their costs through
innovation and growth to the original size.
2. Large number of sellers and buyers
3. Homogenous products: They act as perfect substitutes. Example: 22 Carat gold
will not differ from shop to shop. Regardless of where you go to buy it, it will
remain 22 Carat Gold. Perfect competition not possible if such homogeneity
absent.
4. Seller is price taker not price setter: If you set a price that becomes an
imperfect market and tend towards a monopolistic market.
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5. No externalities: No negative or positive cost. It basically means any cost that
is either incurred by a third party or any benefit gained by the third party. In a
perfect market, this is absent.
6. Zero Transaction Cost
7. Perfect information with regards to price and quality of production: Perfect
information for both, sellers and buyers.
8. No entry or exit barrier.
9. Dynamis efficiency
10. Operates on market equilibrium. This is a situation where no more seller
is ready to sel their product at a lower price. No more buyer is ready to buy it
at a higher price.
If any of these factors are absent, then it becomes an imperfect market.

 Types of imperfect competition:

1. Monopolistic competition:
You can see a large number of sellers with a large number of buyers. In perfect
competition, products must be homogenous. Here, the goods being sold in such
a market are heterogeneous. This can be a brand difference or any other
difference. Coke and Pepsi, although both are drinks, are not perfect
substitutes, but imperfect substitutes. Sellers are price takers here, not setters.
2. Oligopoly competition:
An oligopoly is a market situation in which, to what extent, a small number of
players are able to account for a relatively large portion of the market share. It
need not be a small number of players. A market consisting of a large number
of players can also display characteristics of oligopoly. Even if there are 100
players, but 8 players hold 90% of the market share, it will be called an
oligopoly.
Cement Cartel Case (to be discussed in detail later). The case was brought by
the Builders Association of India along with the Cement Manufacturers
Association. CCI held: Though there are a large number of cement producers,
these first 12 players held a market share of 75% in the Indian Cement
Industry. First 22 held more than 90% of the market share. This shows
oligopolistic characteristics.
CCI held in another judgment that five opposite parties showed huge market
size accumulation, meaning that the Indian Tyre Industry also has oligopolistic
characteristics.
3. Monopoly (Different from monopolistic competition in terms of
economics):
Mono means Single. Poly means player, where a single player controls a chain
of supply.

 During the 1950s, 60s, and 70s, the question was: What would be the basis of
competition? Will it be “efficiency”?
 J Dirlam, American Economist: Efficiency cannot be the basis of competition.
Distrust of power is the basis for competition. This means I don’t believe in

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government intervention or government ownership of resources. Essentially, these
were capitalists.
 McChesney, American Economist: Agrees with Dirlam. Any society that values
efficiency does not need a competition system. He gives an example of America
and praises it for being a free market and not having government ownership of
property, etc. We do not believe in government allocation of resources.
 Prof Eleanor Fox, Professor of Law: Supported the above viewpoint and further
expanded it. Not only distrust of power but concern for consumers and
commitment to opportunities for entrepreneurs have been the basis of
competition law. Competition is the preferred governor of the market.

GOALS OF COMPETITION LAW

 Can be broadly divided into 2:

 Classical goals
 Specific goal

Classical Goals
1. Enhancement of efficiency of market goal.
2. Promoting consumer welfare.
3. Avoidance of conglomeration of economic power.
4. Protection of smaller firms from anti-competitive agreements. At one time, EU
was more worried for smaller firms. Since its inception, it believed in
maintaining the competitive landscape.
Specific Goal
 Create a single market that helps bring lower prices, better consumer welfare,
and liberty to sellers and buyers. EU is a perfect example of a single market.

 Efficiency: It is all about maximum utilisation and best possible management of

scarce resources in a society. There are three types of efficiency:
1. Allocative efficiency
Optimal (optimal means best according to requirement while optimum means
maximum) allocation of economic resources. It can be understood to mean: to
what extent the resources accordingly allocated are able to meet the quality
demand of the consumers. It primarily lies in the fact that to what extent the
resources allocated are able to meet the qualitative demand of the consumers.
Are they able to achieve the optimal utility from the product they buy? Whether
a particular product seems to be worth its price. This cannot be understood in
view of a single or a few consumers. An average is to be considered. It reflects
perfect competition. Price should be equal to marginal cost.

2. Productive efficiency
Refers to optimal use of resources in the stream of production. Productive
efficiency refers to the use of the most cost-effective combination in a stream of

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production, which should ensure no wastage. The maximum output possible
from the minimum amount of input. This is the peak level of performance.

 Allocative and Productive efficiency combine to be static efficiency. This shows a

market equilibrium. This is a situation in which no more buyers are willing to buy
the product at a higher price, and no more sellers are ready to sell at a lower
price. However, in static efficiency, there is not much scope for further
improvement.

3. Dynamic efficiency
Refers to the qualitative improvement of the products. It includes a huge
investment on Research n Development and innovation. It requires a huge
investment to incentivise and encourage investments. Where does this
particular cost go and how may we set it off? This amount has to be reflected in
the price of the product. This may be a higher price but the consumer gets a
better product.
Here, the price=marginal cost does not follow since the product is now sold on
a higher price.
This should be prudently applied to improve the quality of goods and services.

 Efficiency refers to a peak or maximum level of performance in relation to the

amount of input vis a vis the amount of output. The maximum output you receive
with a given or least amount of input.

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NEO-CLASSICAL ECONOMIC THEORY

 Static Models of Oligopoly.

1. Cournot Model
2. Bertrand Model
3. Stackelberg Model

 In a perfect competition, the participants interact with the market as such,

whereas in a monopoly (imperfect competitive state), the participant doesn’t
interact with anyone. In an oligopoly, however, participants interact with each
other. Most markets are oligopolies in nature.
 Since perfect competition is not possible, the Clerk said it is always possible to
have absent any characteristics of perfect competition. We need to see what a
workable competition is. Since perfect competition is not possible, workable
competition is the best option we have.
 The analysis of oligopoly markets becomes quintessential.
COURNOT MODEL
 Augustine Cournot, French Economist: In 1838, developed this model. In his
model, he sets out a bipoly or duopoly model. Only two players. In this duopoly
model, two firms, A and B, compete with each other by producing output and
quantity. They are not competing by setting prices but by producing output. When
the quantity produced by the firm in the market reaches the demand that exists in
the market. When the demand is met, the price will not fall. Price would not be
equal to marginal cost.
 He brought this theory considering the market of spring water. He assumed that
the production cost would be zero here.
 Needed the following:
 Two firms
 Products must be homogeneous
 Zero/identical production cost
 Each firm chooses its output to maximise its own profits and takes the output
of the rival firms as given (i.e., to maximise the profit, it changes production).
 These assumptions were very imaginary. Another issue was that it relied on
actions of the players being simultaneous. Once the market demand is fulfilled,
competition stops for the time being.

BERTRAND MODEL
 Joseph Bertrand, French Mathematician: Proposed in 1883, the players
compete not by way of production but by way of setting price.
 The following assumptions are taken:
 Two firms
 Products are homogeneous (perfect substitutes)
 No change in technology of production
 Identical cost (marginal costs are constant)
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 Set price simultaneously to maximise profit
 Unlimited production capacity.
 Both the firms at each level try to undercut each other using competitive pricing.
 This undercutting will continue till one cost reaches the marginal cost.
 It was criticised to be too idealistic.
 It gives a false assumption for us that products are always perfectly
substitutable.
 It gives another false assumption that marginal costs for both the firms are
constant and equal. Marginal costs cannot be equal for two firms since it varies
even on the number of products produced.
 It gives an assumption that both the firms are not subject to any production
capacity restraints.
 This was called an action-based model.

STACKELBERG MODEL
 Stackelberg, German Economist: Based this model on Cournot Model, on the basis
of quantity.
 The following assumptions were employed:
 Two firms
 Homogenous Products
 Face the same demand and cost function for both the firms
 Leader decides output first and follower decides output later.
 Stackelberg laid down that one firm is a Leader. Another is a Follower. If both
firms choose to be leaders, then it is called Stackelberg Warfare. There is severe
non-cooperation here.

DIFFERENT SCHOOLS OF THOUGHT

Study of market structure is very important in case of competition.

1. Harvard School of Thought (S-C-P Paradigm)
2. Chicago School of Thought.

HARVARD SCHOOL: STRUCTURE, CONDUCT, PERFORMANCE PARADIGM.

 Developed by ES Mason. Developed
 JS Bain also contributed. Also known as Bailean Model.
 This was an empirical model.
 Nearly 20 different industries in the USA were investigated.
 The analysis found that the structure of the market determines the Conduct of the
Firm, and the Conduct of the firms determines the Performance of the Firm in the
market.
 Therefore, market structure directs market conduct of the firm and this conduct
dictates performance.
 They found that in most industries, economics of scale was very rare. Reiterated
that the market structure is important.
 The higher the market concentration, the greater the arrest of competition.

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 Market Concentration is the aggregate of the percentage of the market of top
players of any industry.
 Market Concentration was criticised.
 This became the most important anti-trust policy for the USA during the late
1950s and 1960s.
 According to Bain- in economies of scale the market structure determined
everything about the players (ex- entry barriers)- therefore known as
‘structuralism’.
 The analysis found that the structure of the market determines the Conduct
of the Firm, and the Conduct of the firms determines the Performance of the
Firm in the market.
 Therefore, market structure directs market conduct of the firm and this
conduct dictates performance.
 They found that in most industries, economics of scale was very rare.
Reiterated that the market structure is important.
 The higher the market concentration, the greater the arrest of competition.
 Market Concentration is the aggregate of the percentage of the market of
top players of any industry.
 Market Concentration was criticised. This became the most important anti-
trust policy for the USA during the late 1950s and 1960s.

CHICAGO SCHOOL OF THOUGHT

 Developed as a reaction to the S-C-P Paradigm. Efficiency is the main goal as per
this theory (Allocative efficiency). Developed primarily by Robert Bark. They
disagreed with structuralists- according to them economies of scale were very less
and entry barriers were not high.
 They placed reliance on efficiency of firms- stated that concentration of firms
didn’t matter as much as efficiency did. Further stated that individual consumers
are rational human beings who made rational choices- they did not buy any good
at any price. They believed markets to be self-correcting systems (through
invisible hand) which did not require government interference.
 They also stated that firms cannot adopt monopolistic pricing as consumers being
rational would go for cheaper alternatives. Believed that winners and losers in
market are irrelevant as long as efficiency is achieved. Did not discard
structuralism altogether- believed it was important too but not the main
determinant.

POST CHICAGO – GAME THEORY

 Influenced by static models
 Game theory was developed by two economists in 1944 – John Von Neumann –
Hungarian American and Oskar Morgenstern – German American. But in 1944,
not much attention was received. When Chicago was in limelight in 1970, this
swiftly developed.
 Game theory refers to market games and strategies. Game Theory involves a
combination of best strategies. Eg. – Firm A’s best strategy against Firm B’s and
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vice versa. Co-op game theory ends with co-operation/interaction. Game theory
can be can be divided into two
 With cooperative gains (it’s a part of collusion)
 With non-co-operative games - here is no co-operation between players
(economists are more interested in this)- can be divided in two more
- Static games (Prisoner’s dilemma)
- Repeated games

STATIC GAMES
 Involves two firms both of whom move at once and do not interact with each
other. They employ the best strategy. Similar to Prisoner’s Dilemma –Two
villains were caught in stolen car after robbing bank. Kept in 2 separate cells.
Prosecutor needed proof to charge them. They couldn’t interact with each other at
all – 2 options were given – a) confess, b) deny. Both were asked separately and
didn’t know what the other would answer.
i. If A confesses, B denies – A will get 10-year jail term.
ii. If B confesses, A denies – B will get 10-year jail term.
iii. Both confess – 6 years.
iv. Both deny – acquitted from bank robbery, 1 year for car stealing.
 Prosecutor got them to confess as (iii) was the optimal answer and the best
strategy.
 Price variable- firms don’t know the price set by the other firm- Firm A would
think price has increased from 100 to 105- while Firm B may (or may not)
decrease his prices.
 A therefore would reduce to 95 to tilt demand to his side, until when they both
reduce to the level that they have no incentive to derail from the strategy- this
called Nash equilibrium. It reflects Pareto efficiency but not pareto optimacy.

REPEATED GAINS
 They are not short games. They are played again and again. There are two types
1. With finite horizon- The number of games played by players in the market is
known- studied through the backward induction theory. In Prisoner’s Dilemma
– both players know the best-case scenario – not to co-operate.
In repeated games, both players know the last game. When they feel that is
rational not to co-operate in the last game, it becomes irrational for them to
compete in the penultimate game. They compete but do not co-operate. Eg – 6
games. Players A & B won’t co-operate in any of the 6 games but will compete.
2. With infinite horizon- The last period to play the game is unknown
(therefore, the total number of games is not known)
- The period of games is unlimited (since the number of games is not
known)
- with a combination of various equilibrium and strategies a collusion is
possible.
- players are discouraged from not cooperating and compromising – they
are asked to cooperate to protect their interests

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- economists argued- it is easy to reach the terms and conditions of
collusion- however it is difficult to police/ monitor. This can lead to
collusion and cartelisation. However, it is very difficult to regulate these
terms and conditions.
- Games are not played only once- repeated at every level according to the
criteria
- These are also called super games since the number of games is not
known.

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EVOLUTION OF COMPETITION LAW IN INDIA

 Competition Law started in India with the 1969 MRTP Act.

 Post 15 Aug 1947 onwards, India embraced a planned economy model in terms
of an economic sector. We recognised both public and private sector with more
focus on Public Sector.
 Till 1973, the Command-and-Control Economic Policy based on the Planned
Economic Model under the Mixed Economic System
 1948: India introduced the public and private sector distinction with most of the
industries being in the public sector while only few were allowed in private sector
 Purposes:
 Check concentration of economic power. Not to allow concentration of
economic power within private sector.
 Eliminate or remove the regional imbalances. If not eliminate, at least reduce.
 Then the Constitution came. Some provisions in Part IV of the Constitution. Article
38(2) provides for reducing inequalities. In a sense it says that state shall strive to
reduce inequalities in income. Article 39B and 39C.
 Important milestones in the year 1951.
1. First five-year plan – 1951 to 1956
2. Enactment of Industries (Development and Regulation) Act, 1951 : This Act
provided for a compulsory industrial licensing system for the first time. This
applied only to the private sector. This mandated new entrants to obtain
licenses before opening any industry. Preexisting players also had to do the
same for further development. This gave rise to License Raaj in India. The
License Raaj continued till 1991. Led to corruption as well. This was a big
hurdle for smaller firms and big firms became bigger while small ones shrunk.
3. Import Substitution Policy: The government of India introduced an import
substitution policy. The raw materials required for production in India would
not be allowed to be imported from foreign markets if it was possible to
produce the same in India.
All of these things led to the Indian economy being a closed one. The objective
behind these provisions was good.

 1959: India’s private sector saw a lot of criticism and frustration, especially from
smaller firms. It was difficult for them to operate. In 1960, a committee called the
Mahalanobis Committee was headed by Prakash Chandra Mahalanobis. This
committee was called the High-Level Committee on Distribution of Income
and Levels of Living.

Mahalanobis Committee
The committee submitted its report in 1964. The top 10% of the population cornered
40% of the income, and the 20 largest firms in India owned 38% of the total built-up
capital of the private sector.
This meant that the original objectives were somewhat unsuccessful. The committee
did not criticise the Industrial License Policy. It criticised the Planned Economic
Model
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Monopoly Inquiry Commission

April 1964: the Monopoly Inquiry Commission was set up. It sent its report in
1965 with a draft copy of the MRTP. It studied the operation of Indian Economic
System. It was given two objectives:
1. To investigate the nature and extent of the concentration of economic power in
the private sector
2. To suggest economic and legislative remedial measures, if any.

Commission concluded that:

1. Around 85% of the total products in various sectors and segments were under
the monopoly by top few firms.
2. There is an unusual distribution of income and levels of living.
3. Not only larger firms but also smaller firms started entering into restrictive
practices.
 The Commission Report analysed on the basis of the Market Concentration Model.
 The Commission came up with the following parameters:
1. If top 3 enterprises have come to obtain more than 75% of the market share.
Then that sector is called sector with High Concentration.
2. If top 3 enterprises have less than 75% but more than 60% of the market
share, then that sector is called Medium Concentration.
3. If top 3 enterprises have less than 60% of market share, then that sector is
called Low Concentration.
4. If top 3 enterprises have less than 50% of market share, then that sector is
called Nil Concentration.

 The Commission then suggested the passing of the MRTP Act but it was not
passed yet.

1966: Hazari Committee

Studied operation and working of industrial licensing system. They showed that the
disproportionate growth due to the failure of the licensing system, the objective
failed as it led to concentration.

1967: ILPIC
Stated that it is expedient to pass the MIC suggested bide to restrict monopoly which
was passed in 1969 in the form of MRTP Act i.e., MRTP Commission started working
in August of 1970.

1977: Sachar Committee

 Recommended that public sector be brought under the MRTP Act.
 Control and regulate also unfair methods of trade.

1984: MRTP Amendments

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 Government of India amended the MRTP Act. Public Sector was not brought
within MRTP but Unfair Methods of Computation as Unfair Trade Practice was
added in the MRTP Act.

MONOPOLIES & RESTRICTIVE TRADE PRACTICES (MRTP) ACT, 1969

OBJECTIVE OF MRTP ACT

 MRTP Act based on 4 principles:
1. Social justice with economic growth
2. Welfare state
3. Regulating Concentration of Economic power to the common detriment, and
4. Controlling monopolistic, unfair (term added in 1984) and restrictive trade
practices.
 Initial exclusions that the MRTP tried to impose
1. MRTP Act was not applied to the agriculture sector
2. MRTP Act was not applied to cooperative sector
3. MRTP Act was not applied to public sector
This is why it was considered to be a draconian law.
Same was the case with FERA.

Regulatory Features
1. Provided for monopolistic trade practice control:
 MTP: Deteriorating the quality of any goods produced, supplied or distributed and
increasing unreasonably;
 The cost of production of any good; or
 Charges for the provision, or maintenance, of any services; or
 The prices for sale and resale of goods; or
 The profits derived from the production of supply or distribution of any goods or
services.

2. Provided for restrictive trade practice control.

 RTP: This is a trade practice which Prevents, Distorts or restricts competition in
any manner; or obstructs the flow of capital or resources into the stream of
production; or which tends to bring about manipulation of prices or conditions of
delivery or affected the flow of supplies in the market of any goods or services,
imposing on the consumers unjustified cost or restrictions.

1977 – Sachar Committee: Recommended that public sector be brought under the
MRTP Act. Control and regulate also unfair methods of trade.

1984 – Government of India amended the MRTP Act. Public Sector was not brought
within MRTP but Unfair Methods of Computation as Unfair Trade Practice was added
in the MRTP Act.

Focus of MRTP Act

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 An Unfair Trade Practice has been defined under the Act to mean the trade
practice which for the purpose of promoting sales, use or supply of any goods or
for the provision of any services, adopts any unfair method or unfair or deceptive
practice including:
 Bargain sales
 Bail and switch selling
 Offering gifts or prizes with the intention of not providing them and conducting
promotional contests etc.
 This was not the feature of the act as originally enacted. It was added in 1984
because around 1974-76, it was felt that certain other types of practices were
being carried on by firms with a view to promote sales in the form of false
advertisements, misrepresentations, deceptive practices. These were unfair
methods of business which had to be curbed. This was suggested by the Sachar
Committee in its report. The report pointed out some loopholes and recommended
that the public sector must be brought into the purview of the MRTP Act. Further,
it was also suggested that in order to curb promotion of shares by hook or crook,
the Act must be amended and a third type of practice can be brought within the
MRTP Act. So, in 1984, UTP under Chapter 36A was added which provided for
regulation of competition in form of UTP.
 Later all UTP Cases were transferred to Consumer Protection Act, 2019.

Failure of MRTP Act, 1969

 Since 1948, India was a closed economy. FERA in 1973 added to this closeness.
We did not have enough foreign currency to import. At this time, Government of
India (with Manmohan Singh as the finance minister) was compelled, in 1991, to
introduce LPG (globalisation started specifically in 1991). Introduction of the 1991
New Economic Policy led to a lot of fiscal and industrial policy measures. In 1992,
they also brought the Foreign Trade (Development and Regulation) Act,
1992. This gave power to the Government of India to bring forth an Ex-Im
(Export-Import) policy in 1992. Liberalised Exchange Rate Management
System, 1993 (LERMS) also came wherein it allowed for partial convertibility of
currency.
 Under Section 5 of the Foreign Trade DnR Act, the government had to make 5
year foreign policies under which it brought forth the ExIm policy for both
private and public sector.
 In September 1991, Government of India effected a series of amendments to the
MRTP Act. These amendments brought the public sector into its purview as well.
 Through another set of amendments around the same time, Part A of Chapter 3 of
the MRTP Act was omitted.
 Part A (Section 22-26). This provided yardsticks for measuring market
concentration. 25% of the total assets of the company would mean that the
government would interfere.
 Section 21, 22 and 23 provided for requirement of pre-approval for
substantial expansion, entry into a new sector or merger and acquisition
respectively. All these provisions were omitted.
 Part B (Section 27).
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 Part C (Section 28-30).
 Some economists saw this as a new wine in the old bottle. The structure was the
same while there were a lot of changes inside it. However, this Act was still
extremely short for what was provided by sister legislations in EU and USA.
 1995 – The WTO came into force.
 Then there were many changes in other laws as well such as FERA becoming
FEMA in 1999.
 While reaching 2000, government of India set up a committee called High Power
Committee on Competition Law and Policy headed by SVS Raghavan. Also known
as Raghavan Committee. The Committee submitted its report in 1999.
 Relying on this Committee Report, the new Competition Act came in.
 Now Economists called it New Wine in a New Bottle.
 After a few months, a bureaucrat by the name of Mr Deepak Chatterjee on 14
October 2003.After a few months, a bureaucrat by the name of Mr Deepak
Chatterjee IAS on 14 October 2003 was appointed as a chairperson of the CCI
since the Central Government was appointed to appoint the Chairperson or a
Member on its own as per the Competition Rules notified. The Central
government, however, was required to select one through a Selection
Committee. However, this was not followed. This appointment was challenged
before the Supreme Court in Brahm Dutt v Union of India.

BRAHM DUTT V UNION OF INDIA

 The Constitutional Validity of the appointment as well as the removal of the
jurisdiction of the High Court.
 The reason for such exclusion was to the expedite the proceedings.
 CCI (Appointment of Chairpersons and Other Persons) Rules, 2003 were enacted
on 4th April 2003.
 Rule 3 laid down the criteria for the selection committee:
1. A retired judge of a HC or a member or chairperson of a tribunal
2. Any member having any experience in law, commerce, trade etc
 There was an issue that since CCI is a quasi-judicial body taking on an
adjudicatory function, the exclusion of the Chief Justice from such selection
committee was undesirable.
 In 2005, the AGI laid down a formula before the Supreme Court saying that since
its an expert body, it does not need to refer to the Chief Justice.
 And there will be an amendment making an appeal lie before an appellate
tribunal.
 Post the amendment, CCI would be an expert body, regulatory body and advisory
body but not an adjudicatory body although it does adjudicate matters.
 Supreme Court disposed of the matter without going into the merits.

Facts:
 The Competition Act came into force in 2003. In April of the same year, the
Government of India enacted rules for the appointment of the Chairperson and
other members of the Competition Commission of India (CCI). As per Section 9 of
the Competition Act, the Government of India was empowered to establish rules
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for the constitution of a selection committee responsible for appointing members
of the commission. Rule 3 of the 2003 Rules authorized the central government to
constitute this selection committee, which had the authority to appoint a member
of the commission. Consequently, the Central Government appointed a retired
bureaucrat as the Chairperson of CCI.
 Following this appointment, Senior Advocate Brahm Dutt challenged the act and
filed a writ of mandamus, arguing that Rule 3 of the CCI Rules violated the
doctrine of separation of powers. He contended that the Chairperson should be a
retired judge and not a bureaucrat.

Issues:
1. Sections 8 and 9 of the Competition Act, along with Rule 3 of the 2003 Rules,
were challenged.
2. The Selection Committee was tasked with selecting three candidates, one of
whom would be appointed by the Central Government (as per the 2003 Rules).
3. One member of the committee had to be a retired judge of the Supreme Court
or High Court, a retired judge of a tribunal, a distinguished jurist, or a senior
advocate with at least five years of experience.
4. Another member was required to have a minimum of 25 years of expertise in
international trade, commerce, or industry.
5. A third member needed to have 25 years of experience in finance,
administration, management, or a related field.

Petitioner’s Contentions:
1. The absence of an appeal from the CCI to the High Court was contrary to
established trends, as jurisdiction is typically vested in the High Court.
2. The CCI performed adjudicatory rather than executive functions. According to
standard practice, any quasi-judicial body should be headed by a retired
Supreme Court judge or a retired Chief Justice of a High Court. Moreover, the
selection committee should be chaired by a retired Supreme Court or High
Court judge, which was not the case.
3. The appointment of members should be made by the Chief Justice of India (CJI)
or a committee constituted by nominees of the CJI. The existing process
violated the doctrine of separation of powers.
4. The petitioner cited Sampat Kumar v. Union of India, which held that appeals
from the Central Administrative Tribunal (CAT) should be made directly to the
Supreme Court. However, this was later overruled in Chandrashekhar v. Union
of India, which established that appeals must first go to the High Court and
then to the Supreme Court.

Government’s Contentions:
1. Competition law is a specialized field requiring domain expertise. Accordingly,
only individuals with relevant experience were appointed to the CCI, and a
judicial member was not necessary to lead it.
2. Appeals from the CCI would be directed to the Competition Appellate Tribunal
(COMPAT) and subsequently to the Supreme Court.
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3. The CCI was primarily an advisory body rather than an adjudicatory body.
4. Section 9 was to be amended to expand the selection committee to five
members, including:
i. The Chief Justice of India or a nominee as the head.
ii. Two ex-officio positions: the Secretary to the Ministry of Law and Justice
and the Secretary to the Ministry of Corporate Affairs.
iii. Two experts with professional experience in the relevant fields.

Held:
 The Supreme Court did not stay the operation of the act, but as a result of the
ongoing legal challenge, the CCI remained non-functional for a period. The Court
ultimately disposed of the writ petition, expressing satisfaction with the
assurances provided by the Central Government while leaving all questions open
for future challenges.

Legislative Developments:
 The Competition (Amendment) Bill, 2006 was passed in 2007, leading to the
Competition (Amendment) Act, 2007.
 On May 20, 2009, the Competition Act was formally enforced, excluding eight
provisions related to combinations (Sections 5, 6, 20, 8, 43A, etc.).
 On March 4, 2011, a notification brought six combination-related provisions into
effect.
 By the end of May 2011, Sections 43A and 44 were enforced.
 By June 2011, all eight combination provisions had come into force.

Subsequent Amendments:
 Section 53 established COMPAT. However, in May 2017, it was replaced by the
National Company Law Appellate Tribunal (NCLAT) through an amendment via
the Finance Act of 2017.
 The proposed 2020 Amendment seeks to formally include Hub and Spoke cartels.
 The writ jurisdiction of the High Court remains intact and cannot be removed.
Appeals, however, go to NCLAT and subsequently to the Supreme Court.
DIFFERENCE BETWEEN MRTP & COMPETITION ACT
MRTP Competition Act
Relied on Economic Size Relied on conduct of players
Frowned upon dominance Does not frown upon dominance rather
abuse of such dominance (s 4)
Behavioural in Approach Primitive in its approach. Lays down
heavy penalties (s 42(2)) for violation
of CCI Order (penalty rainging from 1
Lakh/Day to 10 crores), sections 26, 27
(for abuse of dominance. Penalty is
higher if cartel present), 28, 31, 32.
Section 33 – interim orders
Section 42(3) – Even if the penalty is

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given under 42(2) is also not complied
with then as per this provision,
penalise by way of either imprisonment
upto 3 years or fine upto 25 crores as
epr Chief Metropolitan Magistrate
Delhi. The application has to be
forwarded by CCI or Police Officer.
Section 43(A) – 1% of your asset value
or transaction or turnover, whichever
is higher.
Section 44 – Omission in combination.
Maximum 1 crore (now 5 crores after
2023 amndmnt)
Section 45 – Did not provide
documents under Section 3 – Section 4
or wrong documents.
Rule of law approach Rule of Reason approach
No extra territorial application Provides for extra territorial operation
No competition advocacy Section 49 – Competition Advocacy.
Advisory to CG within 6 days.

Objectives of the MRTP Act:

 According to the Preamble and Section 18 – anti-competitive combination; abuse
of dominance.
 The 2007 Amendment established the Appellate Tribunal (COMPAT) which was for
functioning and working of CCI.
 Under Section 1(3), there was a phased notification of the Act.
 2009 Amendment notified all provisions and hence on 20 May 2009, functioning
started barring combination agreements. However, it did not notify sections
5,6,20,29,30,31,43A,44
 4 March 2011 Amendment notified the penal provisions (to stop gun jumping).
 1 June 2011 Amendment noted the other 6 provisions.

DEVELOPMENT OF COMPETITION LAW IN THE UNITED STATES

 After the US Civil War, from 1861-65, US Federal Commerce expanded.

 1776: 75-80 years after independence, USA saw economic development taking
place in concentrated form. USA was protectionist till 1860.
 1861-1865: there was civil war between seven southern states with northern
states as seven states wanted to free itself from the USA. These civil wars ended
in May 1865.
 In 1870, a standard oil company was established by John D Rockefeller, and others
to trade in oil and petroleum products.
 1882: A trust was set up, names Standard Oil Company Trust. While forming the
board of the Trust, he invited trustees from all corporations in the sector. All

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companies were asked to submit share certificates to the board of trustees. Thus,
the board got all details for all corporations in the oil sector.

1. Sherman Antitrust Act, 1890.

 In 1882, a trust named Standard Oil Company Trust was set up. The trust
members, in its name, started acquiring stocks of all companies working in the
backward and forward sectors of oil and petrol companies. This is how they went
to a formidable consolidation. By the end of the 1980s, they controlled a major
segment of oil and petrol in all of US Federal Commerce.
 In all segments, these high companies formed trusts and controlled a formidable
market share. This led to monopoly-type situations with high prices.
 In 1889, a new president, Benjamin Harrison, came to power, and under this
leadership, Ohio Senator John Sherman put an effort to table a bill in both houses,
which was passed and came to be known as the Sherman Antitrust Act of 1890.
 The purpose of this bill was that they should not endure a single head to control
all production, supply, etc, of all necessary items/products, and compared to
political power, it is not a monarchy.
Names were used so that everything was concealed from people by trusts. This
law was primarily against trusts.
Sections 1 – Anti competitive agreements.
Section 2 – Monopolisation – act of abuse.
Shortcomings
 Enriched activities for corporates. They prohibited only anti-trust
activities, prohibited abuse of dominance, and stopped monopolization
but did not control mergers and acquisitions, which led to many midnight
mergers. So, this consolidation now did what was prohibited to the trust.
Senator John said that “If a king is not endured as political power, a king can’t be
endured for production of essential commodities, transportation, sale of necessities
of life.” It was a law against trust activities, and hence, it is called as Anti- Trust Law.

2. Clayton Antitrust Act, 1914.

President Wudrow Wilson brought forth Clayton’s Antitrust Act, 1914.
Under s 7 of the Act, anti-competitive mergers were covered.
Under s 2, limited discriminatory practices.
This Act was mainly meant to plug the loopholes of the 1890 Act.

3. Federal Trade Commission Act, 1914.

FTC was established to look into anti-competitive acts, the Commission has
civil powers and has a specific merger division.
Dept of Justice is the only body with 2 authorities – civil action and damages or
penalty plus prosecution and invoke criminal cases against members of the
company.

4. Webb-Pomerene Export Trade Act.

This was an exemption act.
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The companies which played an important role in WWI sought exemptions and
these firms were exempted.

5. 1930-1950s: Two amendment legislations.

i. Robinson Patman Amendment Act, 1936: Amended s 2 of Clayton Act.
Added provisions to regulate price discriminatory practices and
punishment in s 2. Proffered practices (different prices for different
buyers) were prohibited.
ii. Celler Kefauver Act, 1950: Amended s 7 of Clayton Act. S 7 was
applicable only to stock acquisitions (direct competitors, that is, a cement
company merging with a cement company, the airline with the airline,
etc.)
This Act provided for the prohibition of anti-competitive stock
acquisitions. It prohibited any merger or acquisition if such transaction
would lessen the competition substantially. The shortcoming was that the
companies started acquiring assets, and so the Act was amended, and it
brought other forms of corporate restructuring under it as well.

6. Hart Scott Rodino Antitrust Improvements Act, 1976

Mandatory premerger filing requirements present. In India, we have CCI that
approaches rearrangement schemes.
[The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires large
companies to file a report before completing a merger, acquisition or tender
offer. Enacted by President Ford as a set of amendments to existing U.S.
antitrust laws, such as the Clayton Antitrust Act, the Hart-Scott-Rodino Act
requires parties to notify the Federal Trade Commission and Department of
Justice of large mergers and acquisitions before they occur with the filing of an
HSR Form, also called a "Notification and Report Form for Certain Mergers
and Acquisitions," and generally known as a "premerger notification report."
The report is meant to alert regulators to the intent of companies to merge so
they may perform a review of the action based on antitrust laws.]

DEVELOPMENT OF COMPETITION LAW IN THE EUROPEAN UNION

 Treaty of Paris – Belgium, Luxembourg, Italy, France, the Netherlands, and

Western Germany began steel supply and subsidies (reduced tariff values between
these countries). This treaty established the European Steel & Coal Community
aimed at reducing tariffs. Continued for 6 to 7 years.
 1951: The above countries established European Coal and Steel Community.
 1957: Treaty of Rome – Established the following:
 European Economic Community: EEC was larger and encompassed all
products of trade across these countries.
 European Atomic Energy Community.
 So now there is EEC, EAEC, and ECSC
 1965: Merger Treaty – The bodies started functioning and states wanted to bring
other countries under the same umbrella under EEC.
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 Bodies in EU:
 Council of Ministers – Highest treaty making body represented by
ministers.
 European Parliament – Was a weak body till 1979 as parliamentary
members were nomiunated by member states. In 1979, parliamentary
elections were conducted.
 European Commission – Executive wing. It implements all the laws of the
council and the parliament. They work according to the law. They have
inquisitorial powers and preliminary adjudicatory powers.
 ECJ – Principal judicial organ of the European Community. The decision
of ECJ cannot be disregarded by any court of any country.
 1987: Single European Treaty – To revitalize the functions of the four organs.
Establish a cohesive economic market. Introduced the Court of First Instance to
address the problem of ECJ being overburdened. Since 1989, questions of fact
have been settled at CFI, and questions of law could be appealed from CFI to ECJ.
 1992: In the Netherlands, countries made the Maastricht Treaty. In 2004, 10
more countries joined and were informally called the EU.
 December 2007, Lisbon Treaty – Entered into and rechristened names. Lisbon
Treaty revised and renamed:
 Rome Treaty was renamed to Treaty on the Functioning of the European
Union (TFEU).
 Maastricht Treaty was renamed to the Treaty of European Union (TEU).
 ECJ became CJEU, and CFI became EGC.

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M2 – PROHIBITION OF ANTI-COMPETITIVE AGREEMENTS

SYNOPSIS & INTRODUCTION:

1. Module provides for prohibition of anti-competitive agreement.

2. Section
3. Interpretation
4. Dissections
5. Case Laws

6. Scheme of: Section 3 of the Competition Act, 2002 provides for prohibition of
Anti-Competitive agreements. It has 5 subsections
(1)General prohibition of anti-competitive agreements.
(2)Nullity provision: Possibly inspired by EU Law Arti 101, para 2 of the TFEU.
(3)Horizontal agreements causing horizontal restraints. One distinctive change is
the inclusion of Habet’s
Proviso: Joint Venture
Proviso 2: Exception granted to Hub & Spokes Cartels
(4)Prohibition of 5 types of Vertical Agreements causing Vertical Restraint
(5)2 particular exemptions
i. IPR Exemptions
ii. Export Cartel Exemptions

SECTION 3(1), COMPETITION ACT.

No enterprise or association of enterprises or person or association of persons shall

enter into any agreement in respect of production, supply, distribution, storage,
acquisition or control of goods or provision of services, which causes or is likely to
cause an appreciable adverse effect on competition within India.

Method of studying this

1. At the outset, the general nature will be analysed.
2. Next, we will analyse the meaning of: i) Enterprise, ii) person, iii) agreement.
3. Next, we analyse the phrase “appreciable adverse effect on competition.”
4. Next, answering the question “whether section 3(1) has any independent
application from that of section 3(3) or 3(4) of the act.” 5 cases will be studied
for this.
5. Then we will see US and EU.

Analysis:
1. this subsection appears to prohibit an enterprise or an association of persons
from entering into any of the six types of anti-competitive agreements. These
agreements aren’t prohibited in general. Only those which are likely to cause
adverse competition are concerned.
2. There are four key elements under s 3(1):

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i. Enterprise (defined in s 2(h))

“enterprise” means a person or a department of the Government, who or which is, or
has been, engaged in any activity, relating to the production, storage, supply,
distribution, acquisition or control of articles or goods, or the provision of services,
of any kind, or in investment, or in the business of acquiring, holding, underwriting
or dealing with shares, debentures or other securities of any other body corporate,
either directly or through one or more of its units or divisions or subsidiaries,
whether such unit or division or subsidiary is located at the same place where the
enterprise is located or at a different place or at different places, but does not
include any activity of the Government relatable to the sovereign functions of the
Government including all activities carried on by the departments of the Central
Government dealing with atomic energy, currency, defence and space.
Explanation. -For the purposes of this clause,— (a) “activity” includes profession or
occupation; (b) “article” includes a new article and “service” includes a new service;
(c) “unit” or “division”, in relation to an enterprise, includes
(i) a plant or factory established for the production, storage, supply,
distribution, acquisition or control of any article or goods;
(ii) any branch or office established for the provision of any service;

 This is an exhaustive definition which refers to a person (s 2(a)) or government

dept including its units, divisions and subsidiaries.
 There needs to be engagement in any or every type of the 6 agreements. This also
includes engagement in investment or show dealing of any other body corporate
directly or through divisions or subsidiaries.
 This definition focuses on a functional approach – i.e., it depends on what you do
and how.
 It does not include any activity of government related to sovereign functions of
government, including dealing with functions of atomic energy, currency, defence
and space.

UoI v CCI & Minerals Enterprise

Union of India v CCI & Ors, 2012, Del HC.
&
M/s Minerals Enterprises Ltd v Railway Board, 2012, CCI.

Facts:
 A was engaged in mining activities of Iron Ore and also sorted logistics for supply
for domestic and export of it.
 It used to get these activities done through the railway contained system.
According to S 31 of the Indian Railways Act, 1989 – railway board has the power
to classify and reclassify freight goods requiring a container system.
 In 2003, it made a change in policy – if supplying iron ore for domestic produce,
freight rate applied was at lower rate and iron ore for export had higher freight
rate.
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 Ministry of Railway was alleged to have violated S 4 of the Competition Act as it
was the sole body to regulate the freight.
 Railway then challenged CCI’s jurisdiction saying that the 2002 Act was not
applicable as it is not an enterprise under section 2(h) – this was filed under writ
jurisdiction.

Delhi HC:
 Ministry of Railway including Railway Board was enterprise under s 2(h) and
subject to CCI’s jurisdiction.
 Railway Ministry argued that since it was a government dept and freight rate was
to be decided under the Railway Act, the action to determine the rate was a
statutory act and fell under sovereign function.
 Referred to Kasturilal Case, 1965 and Bangalore Water Supply Case, 1978,
Common Cause Case, 1999 and Nagendra Rao Case, 1994 to identify what
Sovereign Function was.
 Finally held – sovereign function to be non-delegated primary state function,
which are inalienable. Your functions are not sovereign but economic functions of
freight rate fixing.
 CCI then head matter.

CCI:
 No abuse of power by the Railway Board even though act was economic activity.
Rate fixed was a statutory power of the Board.

Surinder Singh Burmi v BCCI, CCI 2013

Facts:
 Barmi went to CCI against BCCI claiming that it has a dominant position in
cricket and abuses this.
 BCCI was the sole body for regulating cricket on match referee and umpire
appointment, player selection etc. Also gets media rights, television rights etc. It
controls all acts about cricket.
 It used this position to suppress another league of ICL.

CCI:
 Found BCCI abused and imposed a penalty of Rs 54.24 cr.
 BCCI had agreed to be a registered society with its HQ at Kolkata and a non-profit
organisation.
 CCI rejected this and found that BCCI has complete access to the cricket market
and they are the sole body with media rights.
 BCCI acts as a custodian of cricket and each and every act has economic
dimension to it. Hence, it is an economic activity and falls under s 2(h), and you
have violated the Competition Act by abusing dominance.
 BCCI Appealed to COMPAT.
 COMPAT: Asked CCI to hear it afresh under S 36(1), CA and PNJ.
 CCI, 2017: Again imposed a penalty after reconsideration.

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M/S Shivam Enterprise v Kiratpur Sahib Truck Operators Cooperative
Transport Society Ltd, CCI 2015.
Facts:
 Barapind village, Kiratpur Sahib. The respondent is the truck union of the place.
 Appellant wanted to transport cement from one place at village to a consumer.
Respondent didn’t allow the Appellant before it became a member of the
respondent union. Appellant went ot CCI.

CCI:
 Found Respondent to be in a dominant position as most drivers were part of this
organisation and transport was possible conveniently only via trucks.
 Hence, found that respondent, a registered society was dominant. It also found
that respondent isn’t a mere platform/forum or association as you are conducting
an economic activity that you take direct orders of customers for transport of
goods.
 You take orders and allot lorries accordingly and kept some amount out of this
transaction. This amounts to economic activity and hence fall under section 2(h).

Reliance Entertainment v Karnataka Film Chamber of Commerce

 CCI didn’t find KFCC to be an enterprise u/s 2(h).

Question:
1. Whether the associations in questions could be considered as ‘enterprise’ within
the definition stated in Section 2(h) of the Act and consequently would their acts be
violative of Section 4 of the Act? 2. Whether the rules and regulation of the
associations could be subject-matter for a Section 3 scrutiny. 3. Could the acts of the
associations be said to be anti-competitive in terms of Section 3(3) and Section 3(1)
of the Act?
 It was merely an association but no economic activity or no fees for activities done
by the members.
Held:
 Enterprise under S. 2(h) focuses on functional front and not institutional front. To
treat any entity as an enterprise, it must be engaged in commercial activities.
KFCC and Ors. are an association of film producers, distributors, exhibitors and
theatre owners. They are doing commercial activities but KFCC is a platform but
themselves don’t carry out any economic activity.
 Therefore, KFCC and others are not enterprise and do not fall under S. 2(h) and
accordingly cannot be in violation of S. 4(1). All enterprises are persons but not
vice versa – not all persons are enterprises. If associations start doing economic
activity, then they will fall under the definition of enterprise. AOA, MOA and rules
for KFCC show that they are running non-commercial activities.
 With regard to the issue of violation of Section 4, the CCI held that associations
could not be termed as “enterprise” as understood under Section 2(h) of the Act
and thus could not be held to be in contravention of Section 4.

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 On the other hand, the CCI order held that the agreement was indeed anti-
competitive and thus contravened Section 3. [“Person” is applicable only to S. 3
and not to S.4. “Enterprise” is applicable to both S. 3 and S.4]

Hemant Sharma v Union of India

 Here, AZCF was held to be an enterprise since it obtained fees from members to
play and for competitors.

ii. Person (Section 2(l))

“person” includes—
(i) an individual;
(ii) a Hindu undivided family;
(iii) a company;
(iv) a firm;
(v) an association of persons or a body of individuals, whether incorporated or
not, in India or outside India;
(vi) any corporation established by or under any Central, State or Provincial Act
or a Government company as defined in section 617 of the Companies Act,
1956(1 of 1956);
(vii) any body corporate incorporated by or under the laws of a country outside
India;
(viii) a co-operative society registered under any law relating to co-operative
societies;
(ix) a local authority;
(x) every artificial juridical person, not falling within any of the preceding sub-
clauses

 This doesn’t have an independent function and does not mention any economic
activity or function.
 This definition is meant to build a connection with what falls within economic
activity under s 2(h). It is only if you fall under 2(l) that you will be considered as
an enterprise under s 2(h) for application of s 3, 4 and other provisions of the act.
 For application of s 2(l), there has to be an economic activity carried out by an
enterprise to invoke competition act.
 A person under s 2(l) should carry out an economic activity to fall under s 2(h).

iii. Agreement (section 2(b))

“agreement” includes any arrangement or understanding or action in concert,—
(i) whether or not, such arrangement, understanding or action is formal or in
writing; or
(ii) whether or not such arrangement, understanding or action is intended to be
enforceable by legal proceedings;

 This is an inclusive definition.

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 It need not be in writing or formal compulsorily. It can be a gentleman’s
agreement – oral mutual decision. It need not be legally enforceable in the court
of law hence need not have all essentials of a contract.
 What is included in this? A plan, cooperation, conspiracy, management,
coordination, design and association.
 However, an agreement may be difficult to find with direct evidence, and hence, it
is needed to prove existence based on some specific circumstances and economic
activities.

iv. Appreciable adverse effect on Competition

 Not defined in the Act.
 Adverse effects must be appreciable. The informant needs to prove an appreciable
effect, and CCI has to be convinced.
 Appreciable meaning – understood in terms of measurability.
 This is to be read with s 19(3), which lays down factors to be considered for
AAEC. The factors are:
a. Creation of barriers to new entrants in the market;
This can be
i. Regulatory barriers
ii. Strategic barriers
iii. Natural barriers
It is needed to be identified if the agreement invokes this. If it is regulatory or
natural, it cannot be said to be AAE.
b. Driving existing competitors out of the market;
Horizontal agreement – with some group of competitors.
c. Foreclosure of competition;
Agreement foreclosing vertical agreement – leads to suffocation or exit of
players either upstream or downstream under the agreement.
d. Benefits or harm to consumers
Earlier, it was “accrual of benefits to consumer”. It was a completely pro-
consumer clause. Now, it is pro and anti-competition with the inclusion of harm
to consumers, which needs to be proved by the informant.
If pro-competitive factors are higher than anti-competitive ones, parties can be
permitted to continue with the agreement.
e. Improvements in the production or distribution of goods or provision of
services;
An agreement which leads to improvement in goods or services provided
f. Promotion of technical, scientific and economic development by means of
production or distribution of goods or provision of services;
SEPs, Patent Protection.

These aren’t grounds of AAE but consequences emanating from AAE.

CCI conducts an examination through these factors to identify AAE.
a, b and c are negative considerations – they are anti-competitive.
d, e and f are positive considerations – they are pro-competitive.
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The presence of d, e, and f indicates positive competition and would be considered as
against any AAE by CCI as it shows positive market consequences.
D, e, f are factors influenced from EU Competition Law wherein paras 101 to
105 provide for exemption to an anti-competitive agreement when consequences are
positive,
These are efficiency defences; even if the agreement is understood to cause harm,
the presence of these defences can help the market improve with consumer-oriented
benefits. Those would have higher pro-competitive elements, thereby promoting its
implementation, and hence they won't be considered anti-competitive under section
3 even if there is some element of anti-competitiveness.

SCOPE OF APPLICATION OF SECTION 3(1)

 Can it be applied independently even if no violation of 3(3) or 3(4)?
 Normally, agreements are of 2 types:
Horizontal – substitute goods and services
Vertical – complimentary – seller and producer, wholesaler and retailer, etc.
Conglomerate – new type – 2 different markets which are not related.

Neeral Malhotra v Deutsche Post Bank Home Finance Ltd & Ors, CCI 2010.
Facts:
 Petitioner took a home loan from respondent. Petitioner then wanted to go and
foreclose the loan. Respondent agreed but said that they needed to pay some
penalty for foreclosing the account/pre payment penalty.
 4:2 majority: an agreement between a consumer and an enterprise cannot be
scrutinised as being anti-competitive and cannot be analysed on the touchstone of
factors u/s 19(3) as having/not having AAEC.
 Minority: IBA – all banks association conducted the meetings and issued a circular
on pre-payment penalty. Such a circular was an agreement anti-competitive in
nature.
 The bank defended, saying that the meeting was for asset management by banks.
 Majority: Conscious and Congress act for 3(1). However, the pre-payment
discussion was a consequence of 2 two-day meetings, and it can't be understood
as a conscious act, meaning that the intent to collude cannot be established.

An agreement that does not fall u/s 3(3) as horizontal or 3(4) as vertical, 3(1) can't be
invoked independently.
The discussion in 2 meetings of banks under IBA was for Asset Liability Management
and not pre payment penalty. There was no proof of an anti-competitive agreement.
Moreover, agreement between customer and bank isn’t a supply side agreement but
demand side one. Hence, it can’t be classified as a horizontal or vertical u/s 3(3) or
(4).
ICICI Bank, Citi Bank & Ors., CCI, 2011.
Facts:
 There are a total of six institutions. Gulshan Kumar took a home loan at a floating
rate of interest of 11.75%.

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 After some time, he came to know that the bank is going to give home loans to
customers at tbe rate of 10.25%.
 He requested a change in his loan rate but the bank rejected. They said that it
applies only prospectively. He decided to switch to another bank but was asked to
pay switch over charge. Matter went to CCI.
CCI:
 Agreement not fit under s 3(3) or (4) as it needs there to be a supply side
agreement between some group or 2 difference stream gaps. Hence, this is not
covered under 3(1).
 Under s 3(1) agreement between competitors or between enterprises upstream or
downstream.

 Case of AAEC applies only if enterprise conspire with each other horizontally or
vertically.

Consumer Online Foundation v Tata Sky ltd & Ors, CCI, 2011
Facts:
 Appellant moved CCI against DTH operators saying that these DTH Operators had
entered into an agreement with the respective set up box manufacturers. It was
an exclusive supply agreement making inter-operability impossible.
 These DTH operators require a setup box manufacturer to not supply box to
anyone else except authorised dealers.
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 This led to the non-availability of box in open market and in one DTH operator
box, that DTH operator control is not possible leading to impossibility of inter-
operability.
 This violates s 3(4)(b) r/with s4.

CCI:
 “A manufacturer/service provider and consumer cannot ever be said to be part of
any production chain or even operating in different markets because a consumer
does not participate in production and at the same time, the market for any good
or service must include the producer and the consumer. There cannot be any
market that only has the producer or the consumer.”
 Therefore, both are, by definition, part of the same relevant market. Any
agreement between the producer/service provider and consumer occurs after
inter brand or intra brand competition has already played out and therefore such
agreements with the end consumers do not have any competition aspect.
Economic theory supports the view that if any such restraint is imposed by a
manufacturer/service provider on the end consumer, it would be resolved over
time since the consumers would start shifting to competitors who do not impose
such restricting conditions.

Ramakant Kini v Dr L H Hiranandani Hsospital, Powai, CCI 2014.

 Petitioner approached CCI u/s 91 against respondent.
 Respondent had a collaboration with a stem cell bank which was violative of s3(1)
and s 4.
 Mrs Jain went to the respondent for stem cell preservation. She informed the
hospital to add Life Care as the stem cell bank. However, the hospital denied entry
of Life Care saying that they have entered into an agreement with Crio Bank and
she cannot avail any other services.
 Respondent then went to another hospital and availed Life Care Services.
 Mr Kini then approached CCI. DG found that Respondent was in dominant
position of up to 12 km radius and it also offered special services.
CCI
 S 3(1) has independent application even if it doesn’t fit within 3(3) and (4). Its aim
is to protect and promote interest of consumers and trade welfare, as intended by
preamble of the act.
 S 3(3) and (4) are expansions of s 3(1) and the latter doesn’t only comprise these
2 subsections. It also has an independent application.
 There can be various kinds of agreements among enterprises which may fall
under section 3(1) including agreements which are against the interest of
consumers, affect freedom of trade and cause or are likely to cause appreciable
adverse effect on competition in India.

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 S 3(1) can be invoked independently.

COMPAT:
 Overturned and asked CCI to be cautious especially when party approaching is a
3rd party. They should not have any hidden agenda before approaching CCI.
 Further, no anti competition as the agreement does not bar or affect consumers to
avail facilities of 13 other stem cell banks.

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SHERMAN ANTITRUST ACT, 1890.
Section 1: Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several states, or with
foreign nations, is declares to be illegal. Every person who shall make any contact or
engage in any combination or conspiracy hereby declared to be illegal shall be
deemed guilty of a felony and on conviction thereof, shall be punished by fine not
exceeding 100,000,000 if a corporation or if any other person, 1,000,000 or by
imprisonment not exceeding 10 years or by both said punishments, in the discretion
of the court.

 This was a criminal legislation. It was earlier a misdemeanour but was later
converted to a felony where the sentence exceeds a year.
 Earlier, the penalty was 1 year, but now it is 10 years.
 Criminal Fines Improvements Act (Applied along with the Sherman Act).
 Treble damages – 3 times the gain or 4 times the loss suffered. It can cost more
than even 10 million dollars.
 In the USA, the amount is governed under the Sherman Act.
 In India, the amount is governed under CA.
 In the USA, Civil Damage to individuals under CFIA (Applied separately).
 In India, compensation is to be applied separately under CA.
 In the USA, disposal is fast and effective for private litigation for a civil penalty.
 Section 1 of the Sherman Act imposes heavy penalties post-2004.
 3 levels of analysis:
i. Appreciation of the nature of the provisions and their application intra-
state and with foreign nations.
ii. Treatment of the phrase “restraint of trade and commerce”
iii. Analysis of 3 terms: Contract, combination and conspiracy.

A) NATURE OF PROVISION.
 Prohibition of anticompetitive contract, combination or conspiracy u/s 1.
 First level analysis is that of 3 terms: Contract, Combination and Conspiracy.
 For the Competition Act, contract and agreement are used simultaneously. There
has to be a restraint of trade among several states, i.e., at least more than 1 state
or foreign states.
i) To violative S 1, restraint must be among several states.
This gives the Act a federal nature.
If the restraint is local in nature, the competition law of that state applies.
Both of the parties have to be from 2 different states is not necessary. They can be
from the same state. What is to be proven is the impact on the second state.
Every contract, combination or conspiracy is declared illegal if that contract or
combination or conspiracy restraints trade or commerce among the several states
or with foreign nations. This is the overall nature of the provision. [If two
individuals are dealing in cement bags, if they enter into a contract in New York
State, Their contract merely affects some supply. If this leads to restraint of trade
within the state, the Federal Law will not apply. Only if it leads to restraint of
trade across states will federal law apply].
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ii) Restraint with foreign nations – interpreted from 1945 onwards

Application to extraterritorial jurisdiction.
A Federal Court of Appeals in 1945 – developed the Effects Doctrine in the
ALCOVA Case.
Any conduct beyond USA borders but has an impact on the USA market, this act
shall apply.
Effects Doctrine was applied to understand the term “or with foreign nations” in
the US v Alcova Case by Judge Learned Hand.
In the 1977 Timberlay Case, the United States Federal Supreme Court applied the
Effects Doctrine.
1993, the Hartford Fire Insurance and Reinsurance Case also applied this Effects
Doctrine.
The provision is directed at the joint conduct of at least 2 or more companies.

B) ANALYSIS OF “RESTRAINT OF TRADE.”

 Section 1 is directed at joint conduct i.e.; it requires existence of 2 or more
persons. This is the prohibitive phrase which is comparable to “appreciable
adverse effect on competition in India”. So, this is what an individual or
association should not cause.
 In the initial years, till 1898, the interpretation of the US Federal Courts was
literal and plain. In the case of United State v Addyston Pipe and Steel Co., a
Court of Appeals judge, Judge W H Taft.

United States v Addyston Pipe & Steel Co., 1898, Federal Court of Appeals
Facts:
 Certain makers of cast iron pipes entered into an agreement to fix the prices and
divide the market.
Decision:
 Justice Taft introduced flexibility.
 No conventional restraint of trade can be enforced(.) unless the covenant
embodying it is merely ancillary to the main purpose of a lawful contract and
necessary to protect the covenantee in the enjoyment of the legitimate fruits of
the contract or to protect him from the dangers of an unjust use of those fruits by
the other party.
 He said that restraint of trade cannot be held legal because only legal things can
be enforced. However, he mentioned that if such a promise is ancillary to the main
purpose of a lawful contract.
 This decision carves an exception where the main purpose of the contract is not to
restrain trade. So if to protect the interest of buyers, any form of restraint
introduced and to let buyers enjoy the fruits, in those cases, ancillary restraint
and agreement need not be struck down.
 Although this agreement was struck down here since the contract was one of
price regulation.

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Standard Oil Co. v United States, 1911, SCOTUS
Rule of Reason was introduced in this case.
Facts:
 Case filed under Sections 1 and 2 of the Sherman Act.
 The Petitioner was founded in 1872 and by 1882, the Company had established a
trust called the Standard Oil Company Trust. It then started acquiring different
companies in oil fields.
 This trust controlled prices and divided markets across the nation.
Held:
 The Supreme Court found a formidable and clear violation of the above sections
by Standard Oil Co. Hence, they offered a structural remedy.
 This remedy meant that the company would be divided into 34 pieces. A similar
remedy was given in another case where a tobacco company was divided into 17
pieces.
 Now that the SCOTUS has laid down a principle, it becomes binding on every
other court.

Facts:
 Standard Oil Co. created a trust in 1882 and started consolidating more and more.
Within the next few years, either by invitation, influence, etc, got other oil
companies (backwards or forward) to submit their stock certificates to the trust.
 Now, in 1890, it controlled almost all the federal petroleum plants.
Supreme Court held:
 It is not appropriate to read plainly the provisions. The prohibitive ground must be
interpreted liberally, and therefore, it must be introduced, with certain
parameters, a standard known as the Rule of Reason test/standard.
 SCOTUS laid down four criteria for the application of the Rule of Reason
standard.
i. Specific information about the business.
ii. The history, nature and effect of the restraint that is embedded within the
contract.
iii. Applicable market power of both the manufacturers and distributors in a
given context.
Market power is the ability of the firm to control the supply and fix the
price of a commodity. By controlling these factors, they are able to obtain
higher market power and beat other companies. This also means that
they are able to influence the choices of individuals.
iv. Reasons for the restraint.
The purpose of this restraint can also be bona fide or with good
intentions. Restraint with a good purpose, however, would not validate an
unreasonable restraint of trade. Intention would act as a mitigating
factor but will not lead to absolving from duties.

 SCOTUS, however, felt that these would not prove to be a good basis in certain
circumstances.

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 Previously, the SCOTUS consistently held anti-competitiveness to violate section
1.

Problem with the Rule of Reason and New Test:

 Even though established with proper evidence, respondents had to be given an
opportunity to depose.
 After 20 years, there was no need felt to continue with this strict regulation of
restraint of trade under the Rule of Reason.
 The case settlement slowed down due to long proceedings.
 Here, SCOTUS held that where it has found a specific type of restraint of trade,
then there is no need to conduct a detailed inquiry but declare it anti-competitive.
 SCOTUS felt that all business practices are so anti-competitive and often lack
virtue – those shall be presumed to be unlawful without inquiry or examination.

PER SE VIOLATION
 The “Per se violation” test was later introduced.
 The SCOTUS approach moved from a literal approach to the per se violation
standard.
 The Courts, over time, designated certain conduct as being so damaging to
competition that it must be condemned as unreasonable regardless of what
justification may be proffered in a particular case.
 To engage in one of the types of conduct that has been so labelled is to commit a
“per se” violation of the antitrust laws.
 Certain agreements are so plainly anti-competitive and harmful while lacking any
kind of redeeming virtue, meaning that the loss that occurred due to the anti-
competitive nature cannot be recovered.
 Even horizontal price fixing arrests competition.
 The following are examples of anti-competitive agreements. SCOTUS consistently
declared the following agreements to be violative of the per se standard.
a. Price Fixing Agreements
b. Concerted refusal to deal with a particular participant/s (group boycotts)
c. Market division agreements.

Catalano Inc v Target Sales, 1980, SCOTUS

Price Fixing
Facts:
 In Catalano, a certified class of beer retailers alleged that the beer wholesalers
conspired against them with the beer manufacturers with a view to cut or stop the
trade credit (loan) subsequently. Before such action, manufacturers used to give
trade credit without interest for the period as approved by California Trade Law.
Held:
 An agreement to seize extending the credit terms is tantamount to an agreement
abolishing discounts.
 Trade credits have to be considered as an inseparable part of the final price.
 Hence, seizing the grant of trade credits was part of a price-fixing conspiracy.
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Palmer v BRG of Georgia, 1990, SCOTUS

Division of Market
Facts:
 Georgia Corp and Delaware Corp used to offer bar review courses.
 These companies came together and entered into an agreement according to
which Delaware Corp would not compete with Georgia Corp within the state of
Georgia in turn as a consideration that Georgia Corp pays some money to
Delaware Corp plus Georgia Corp would not compete with Delaware Corp
anywhere else.
 It was later observed that Georgia Corp tripled the prices of the courses.
Held:
 Horizontally, territorial restrictions are naked restraints of trade with the sole
purpose of stifling the competition.
 Whether you split the market or reserve/divide the market, all of these are plainly
anti-competitive.
 Hence, they violate Section 1 of the Sherman Act.

VERTICAL PRICE FIXING

 To be understood as Resale Price Maintenance Agreement. Its an agreement
between manufacturer and dealer or manufacturer and retailer or manufacturer
or distributor.
 Its an agreement where one member in a vertical division enters into an
agreement to fix a price below which no product shall be sold in the market or to
another member down in lane of vertical division at market i.e., manufacturer to
dealer set price for dealer to sell at price to retailer.
 There are two types of Vertical Price Agreement:
I) Maximum Price Agreement
Price Ceiling is put.
Maximum possible price set by manufacturer to retailer/dealer, wherein
they can sell the manufacturer’s product not greater than the set price.
Here, the person isn’t barred from giving discount but from inflating prices.
II) Minimum Price Agreement
Price floor where a price is set below which product cant be sold.

PER SE VIOLATION TO RULE OF REASON IN VERTICAL PRICE FIXING – MAXIMUM PRICE

FIXING CASES

Kiefer Stewart Co. v Joseph Seagrim & Sons, 1951 SCOTUS

Facts:
 The plaintiff filed a suit against the respondent since the respondent started
supplying liquor only to dealers who are ready to sell the liquor at a particular
price and not inflate it.
 The Respondent entered into agreements with dealers using per se literal
interpretation.
Decision:

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 Maximum RPM resulted in the supply of liquors only to certain advantageous
dealers ready to mend their ways as per Respondent.
 Agreement took away non-pricing competition, i.e., the brand image and led to
maximum pricing competition.

State Oil Co. v Khan, 1997 SCOTUS

Facts:
 Respondent used to take oil supply from Petitioner. Petitioner applied the
condition that Respondent can't sell products higher than a particular set limit.
Decision:
 It is counterintuitive against common business sense to per se consider RPM as a
violation of competition.
 Sale or Resale at the lowest price is the essence of the market to attain market
share.
 So long as the lowest price won't raise to the levels of predation, i.e., sell at below
the rate of cost of production, in those cases, RPM with a maximum price level
won't violate S 1 of the Act.

After this case, there was a shift from Per Se to Rule of Reason but in all subsequent
cases, it cant be held all maximum price RPM are lawful and need to be subjected to
RPM.

PER SE VIOLATION TO RULE OF REASON IN VERTICAL PRICE FIXING – MINIMUM PRICE

FIXING CASES
Dr Miles Medical Comp. v John D Park & Sons, 1911 SCOTUS
Facts:
 Petitioner set a minimum price at distributor and seller limit. A few distributors
like respondent started giving some discounts. Petitioner brough forth a litigation.
Decision:
 Manufacturer cant establish a minimum compulsory price level of goods to be sold
to consumers. It violates S 1 of the Sherman Act.
 This decision was in accordance with the Per Se Rule.

Leegin Creative Leather Products Inc v PSKS Inc, 2007 SCOTUS

Facts
 Leegin was a leather manufacturer making various types of leather products.
 He restricted the wholesellers and retailers from discounting the price of his
products by setting a floor price below which goods cannot be sold.
 But later PSKS started selling Leegin products after a discount. Leegin later
stopped supply of products to PSKS because it did not listen to Leegin. This led to
a loss for PSKS.
 PSKS moved courts and PSKS won cases at all ends leading to an appeal to the
SCOTUS by Leegin.
 SCOTUS overturned the earlier judgments.
SCOTUS:
 By a 5:4 majority held that vertical price fixing retail price maintenance
agreements have the ability to promote inter-brand competition.

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 SCOTUS reasoned that the restriction was not found invalid or violative of section
1.
 3 ways that RPM leads to promotion:
a. Minimum RPM promotes inter-brand competition by reducing intra-brand
competition.
Intra-brand competition is one between the retailers of the same brand of the
same product. Basically, between multiple gallas selling Coca-Cola. This is
intra-brand competition
Inter-brand competition is one between two or more different brands but of
different brands. Basically, between Pepsi and Coca-Cola. This happens at the
manufacturer level.
The reduction of intra-brand competition is healthier and beneficial to
consumers. Inter-brand competition promotes innovation and helps consumers
by forcing companies to make their products better or prices lower.
SCOTUS said if you don’t promote inter brand competition by curbing intra
brand competition, few retailers may get disincentivised to invest in the
promotional activities for the goods because some retailers may also gain
undue advantage by way of free riding.
A, B and C are retailers who sell the same product. A and B invest in
promotional activities for promotion of the goods. Now, retailer C does not
invest and tries to capitalise on the investments made by A and B. Ultimately, A
and B promote the image of the goods, they may also increase the price by a
small margin to recover such promotional cost, C can instead offer discounts to
the consumers of the product and hence will make more profits.
Hence, this will lead to A and B will be disincentivised to invest in promotional
activities.

b. Minimum RPMs allow entry of new brands and firms.

c. Minimum RPMs by guaranteeing a minimum profit margin and threatening to

eliminate the player from the market.
These RPMs can guarantee a minimum profit margin

 On these three grounds, SCOTUS made a paradigm shift from Per se violation to
rule of reason.

C) CONTRACTS, COMBINATIONS AND CONSPIRACIES.

 Very often, even in the USA, they applied these terms interchangeably.
 SCOTUS has consistently held:
 Contract refers to “an agreement entered into by two or more persons setting
forth the rights and obligations of each party.”
 Trust refers to “a union of activity between two or more persons.”
 Conspiracy is a combination designed to achieve an illegal purpose or to reach
a legal purpose but by illegal means.

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 The existence of any of the above can also be understood by way of business
conduct, but how do you identify such conduct? This can be understood by way of
the following cases:

The Eastern States Retail Lumber Dealers Association v United States, 1914
SCOTUS
Doctrine of Conscious Adherence
Facts:
 Certain associations of retail lumber dealers were alleged to have circulated a list
mentioning the names of wholesalers who were reportedly selling the lumber
products directly to consumers, not through retailers. Then, these retailers
stopped taking orders from these wholesalers.
 Then these wholesalers got a copy of the list.
 SCOTUS: very periodical circulation of a list containing the name of lumber
wholesalers amounted to blacklisting them and to refuse to deal with them, you
consciously adhered to what has been conspired. This blacklisting hence
amounted to a conspiracy to achieve an illegal purpose.
 This was a concerted refusal to deal or group boycott.
 Later on, in FTC v Cement Institute case, this doctrine of conscious adherence
was explained by SCOTUS.

FTC v Cement Institute, 1948 SCOTUS

Facts:
Cement manufacturers had entered into agreements related to price fixing and
increasing of cement prices.
SCOTUS:
 Yes, there was a conspiracy. While explaining conscious adherence, it said:
 It is enough to warrant the establishment of a combination if there is evidence
that there are persons having knowledge that an action was contemplated
(thought, planned) and have given conscious adherence to it.

Theatre Enterprises Inc v Paramount Film Distributing Corp, 1954 SCOTUS

Conscious Parallel Action. Whether such a conscious parallel action would suffice to
establish a conspiracy.
Facts:
 Certain theatres in Sububran area brought a suit alleging that these movie
distributors supplied first run movies in the downtown Baltimore area and then
these suburban area theatres are given these movies after a few days. This led to
the downtown theatres getting more public than the suburban ones.
 The opposite side said that it was just some conscious parallel action
 There was no agreement between these individual theatre owners. They
SCOTUS:
 Consciously parallel action is not enough to prove a conspiracy.
 An evidentiary plus fact-based hold must be proved to show that a common
conduct stemmed from a conspiracy.

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Lord Denning in RRDA v WH Smith and Sons, 1969:

When entering into a cartel, nobody would go to a rooftop or go to a seller, and a nod
or a blink would be sufficient to reach an agreement.

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EUROPEAN COMPETITION ACT

A> Article 101(1) of TFEU read with 81(1)

Under Article 101(1) of TFEU, the following shall be prohibited as incompatible with
the common market:
All agreements between undertakings, decisions by associations of undertakings
and concerted practices which may affect trade between Member States and
which have as their object or effect the prevention, restriction or distortion of
competition within the common market.
 Article 81(1) provides for
 Article 101(2) deals with a nullity provision
 Article 101(3) provides for certain exemptions in respect of some agreements
which then need not be examined. They cannot be held to violate anti-competitive
legislation.

Article 101(1) analysis will be in 3 parts:

a. Analysis of “Agreement, decision and concerted practice”
b. Analysis of “which may affect trade between member states”
c. Analysis of “which have as their object or effect the prevention, restriction or
distortion of competition within the common market”

A. Analysis of Agreement, Decision and Concerted Practice

 Meaning of undertakings to be understood first:
 The term “undertaking” includes an individual, a company, a corporation, LLP,
public bodies, etc. It is similar to section 2(h) of our Competition Act.
 It can also include any body or entity that is not registered, meaning that it
does not possess legal personality if the body carries on economic activity.
 Even public bodies, to the extent they perform economic activities, execute or
carry out economic activities, are public bodies. To the extent that it carries out
public functions, it is not undertaking (similar to sovereign function
exemption).
 A salaried person cannot be an undertaking since they are not economically
independent. Hence, the enjoyment of economic independence is paramount.
 Group Companies are considered to be a single economic entity (single
economic entity doctrine). They are under the common economic control. As
long as you are in common economic control, you are only one undertaking. So,
a parent company cannot be held in conspiracy with its wholly owned
subsidiary.
 Holding majority stake of a company by another company does not entitle the
companies to be considered one single entity.
 An agreement entered into a company and an independent distributor for
efficient distribution vs hiring of a distributor.
 Here, the independent distributor is an undertaking since he is economically
independent. In the latter case, the hiring means he is not economically
independent.

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i. Agreement

Sandoz Prodotti Farmaceutici v Commission, 1990 ECJ

Facts:
 Sandoz was supplying pharma products to distributors within Italy and other
member states.
 He told these Italian distributors: You are prohibited from exporting to other
states.
 The problem was the implementation of this condition: In the invoice, they used to
write “export prohibited”. They did this for years.
Commission:
 It was a violation of EC Law.
ECJ:
 The term “export-prohibited” meant that it was an agreement between Sandoz
and the distributors.
 So long as it reflects the will of the parties, an agreement can be covered by
Article 81(1) even if it is not a valid and binding contract under national law.
 Even though it is not an agreement under Italian law, it is an agreement for us.

Bayer AG v Commission, 2000 CFI

Facts:
 Bayer AG was a German multinational pharmaceutical. Used to supply pharma to
French and Spanish wholesalers.
 Bayer AG observed that these wholesalers used to supply these products
(commonly called “exported” but not for EU since it’s a single market) to the UK
Market. This is because generally the prices are fixed by National Health
Authorities. UK NHAs had set a higher value for medicines than Spain and
France. This was also an IPR violation since there was parallel importation.
 Bayer AG was understood to have suffered losses of 100 million DM (Deutsche
Mark).
 Bayer then had an internal policy change, restricting production and distribution.
They told Bayer France and Spain to produce and distribute only according to the
national needs of those countries.
 The UK public was aggrieved since they could no longer access cheaper goods.
 The Commission found a violation since there was an agreement.
CFI:
 For an agreement, acceptance or acquiescence on the part of the buyers
(wholesalers here) needs to be shown.
 Here, there was no agreement between the wholesalers. They were, by Bayer's
action, stopped from supplying goods to the UK market, and there was no
agreement.
 Acquiescence of the wholesalers in Bayer’s new policy has not been established
and the Commission has therefore failed to prove the existence of an agreement.

ii. Decision
 Decision means an expression of the will of the parties or a group of undertakings
with respect to following a particular conduct. However, that decision is not
binding upon an undertaking.

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 Even though something is not binding upon me, I am following it and have
contributed to making such a decision, and I follow it. It is enough for EC
 Even if one objects to such a decision, if they are a part of the meeting, it makes
them liable.

iii.Concerted Practices

ICI & Ors v Commission, 1972 ECJ

 Dyestuffs case
Facts:
 Around 10 manufacturers of dyestuffs were alleged to have entered into an
agreement in respect of pricing. After their meetings, they were found to have
issued three price increases. The three-time price increase was nearly identical
with respect to product coverage, price of products and timing of such increase.
 The Commission found them guilty.
ECJ:
 Commission is correct. There is a concerted practice.
 Concerted practice is a form of coordination between undertakings which while
lacking some of the elements of a true contract, “in practice consciously
substitutes a practical cooperation for the risk of competition.”
 The Commission made a very strong argument: Though this conduct is not
sufficient to constitute an agreement, such behaviour could constitute strong
circumstantial evidence leading to competition conditions that do not match
normal market conditions.

B. Analysis of “which may affect trade between member states.”

 In a sense, this is analogous to the US legislation.
 If any of the above three actions affect trade in any one country internally, this EU
law will not apply, and the domestic competition law will apply. So, if the actions
of a company in France affect inter-state trade, EC Law will not apply, and French
Competition Law will apply.
 What does “may” mean?
 In EU language, “may” does not show possibility; it shows probability.
 The term “may” was deliberately included, which means that proof of actual
trade effects is unnecessary. Even probable effect is acceptable for the
application of this Article.

C. Analysis of “which have as their object or effect the prevention,

restriction or distortion of competition within the common market.”
 Meaning of “object or effect”:
 This is called an object or effect test.

Consten & Grundig v Commission, 1966 ECJ

Facts:
 Case of vertical agreement
 Grundig was a German manufacturer that entered into an exclusive supply and
distribution agreement with a French distributor.
 Commission found a violation.
ECJ:
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 The terms and conditions in the vertical exclusive supply and distribution
agreement were anti-competitive. The very object of the agreement appeared to
be anti-competitive.
 When the object is plainly anti-competitive and is found to violate 81(1), there is
no need to analyse the agreement's effect on trade.
 When the object is not anti-competitive, then the effects of such an agreement
need to be analysed.

Reference drawn again to ICI v Commission: Object test not sufficient for concerted
practice and there was a need for an effects test.

Anic v Commission
Facts:
 Certain European Polypropylene manufacturers met in a meeting in Europe, and
one of them disclosed the pricing and other data. The other participants were not
involved and stated that they were not liable under any anti-competition law.
Decision:
 ECJ held that in such a situation, the object of the meeting is important, which
was anti-competitive. The purpose of the meeting was necessary and need not be
looked at effect even though no formal contract existed.
 Same as above for polypropylene. The object of the agreement was anti-
competitive.

T Mobile v Commission
 Sir took the name only. Didn’t discuss name.
DIFFERENT TYPES OF AGREEMENTS
These types must be tested under the provided parameters.
A) Directly or indirectly price fix, purchase or selling price or any other trading
condition
 Price fixing agreements – direct or indirect. Example: All limestone sellers agree
to force contractors to sell at a particular price.

B) Limit or control production, markets, technology, development or investment.

C) Share markets or sources of supply

D) Apply dissimilar conditions to equivalent transactions with other trading

parties, thereby placing them at a competitive disadvantage

E) Make conclusion of contracts subject to acceptance by other parties of

supplementary obligations which, by their nature or according to commercial
usage, have no connection with any of such contracts.
 Example: Create additional conditions not related to the subject matter to force
them to abide by the conditions to enforce the subject matter.
 Here, incentives are not part of this.

B> Article 101(2) of TFEU read with 81(2)

 Any agreement or decision prohibited pursuant to this Article shall be
automatically void.
 Antitrust bodies shall ideally take up cases suo moto.
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C> Article 101(3) read with 81(3)

 Exemptions for agreements falling under Article 101(1) if they follow the
conditions:
The provisions of para 1 may, however, be declared inapplicable in the case of:
Any agreement or category of agreements between undertakings,
Any decision or category of decision by associations of undertakings,
Any concerted practice or category of concerted practices,
Which contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a fair
share of the resulting benefit, and which does not:
a) Impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives;
b) Afford such undertakings the possibility of eliminating competition in
respect of a substantial part of the products in question.

 These are exemptions to anti-competitive agreements. If in consumer interest and

economic progress, then exempted.
 But there are 2 negative conditions to avail of these exemptions, which the person
claiming the exemption shall have to prove before ECJ. It mandates any conditions
which are unreasonable can’t be imposed.
 It is required that such an agreement allows benefit to have a fair share of the
benefit. It is mandatory and not optional. However, such development can be
technical in nature or also be related to production etc.
 However, if your agreement falls within a or b above, it cannot be exempted.
There cannot be a possibility of eliminating competition either.

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SECTION 3(2), COMPETITION ACT

Any agreement entered into in contravention of the provisions contained in

subsection (1) shall be void.

 This is a nullity provision. Sir says there is no need for this provision since 3(1)
already penalises such agreements so this subsection is a mere non application of
mind by the legislature.

SECTION 3(3), COMPETITION ACT

Any agreement entered into between enterprises or associations of enterprises or

persons or associations of persons or between any person and enterprise or practice
carried on, or decision taken by, any association of enterprises or association of
persons, including cartels, engaged in identical or similar trade of goods or provision
of services, which—

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development, investment
or provision of services;
(c) shares the market or source of production or provision of services by way of
allocation of geographical area of market, or type of goods or services, or number of
customers in the market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed
to have an appreciable adverse effect on competition:

Provided that nothing contained in this sub-section shall apply to any agreement
entered into by way of joint ventures if such agreement increases efficiency in
production, supply, distribution, storage, acquisition or control of goods or provision
of services.

Provided further that an enterprise or association of enterprises or a person or

association of persons though not engaged in identical or similar trade shall also be
presumed to be part of the agreement under this subsection if it participates or
intends to participate in the furtherance of such agreement [This proviso added by
2023 amendment]
Explanation.—For the purposes of this sub-section, “bid rigging” means any
agreement, between enterprises or persons referred to in sub-section (3) engaged in
identical or similar production or trading of goods or provision of services, which has
the effect of eliminating or reducing competition for bids or adversely affecting or
manipulating the process for bidding.

 Section 3(3) provides for methods to determine whether there is any horizontal
agreement or not.
 The term “engaged in identical or similar trade of goods or provision of services”
shows that the type of agreement is horizontal. The same is not expressly
mentioned anywhere.
 Horizontal agreement is an agreement entered into between players or persons
who operate in the same stage or level of the supply chain. They are individual of
each other i.e., they don’t supply or buy anything from each other. These members
are called horizontal members.
 If CCI has proof that the act is covered under 3(3)(a) to 3(3)(d), then it has no
option but to presume that there is AAEC.
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 There are four types of agreements:
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development,
investment or provision of services;
(c) shares the market or source of production or provision of services by way of
allocation of geographical area of market, or type of goods or services, or
number of customers in the market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding, shall be
presumed to have an appreciable adverse effect on competition.
 This subsection 3(3) does not mention 3(1) but the use of AAEC provides for
implicit connect with 3(1).
 “Shall be presumed” – Court/CCI shall have to presume AAEC and parties will
have an opportunity to refute the presumption. This is a refutable presumption.
 3(3) does not cover vertical agreements or a combo of horizontal and vertical
agreements.
 In case of cartels, if CCI can show that you are a part of a cartel then punishment
is possible.
 The penalty is given in the proviso of 27B in case of cartels. This is higher than
regular 3(3) and 3(4) violation.
 Regular Penalty – 10% of the turnover in the preceding 3 years.
 Cartel Penalty – upto 3 times the profit or 10% of turnover during continuance
of cartel.
 Criticism:
 While there is the greater penalty for cartels, there is no per se
distinguishment between regular agreement and cartel u/s 3(3), giving cartels
an opportunity to rebut the presumption.
 PS: Cartels are always in horizontal agreement with some vertical players.

 2nd Proviso of 3(3) talks about Hub & Spoke Agreements.

 A hub can't operate without a spoke.
 This provision retains hub and spoke agreements as core to 3(3) but includes
now under its ambit, vertical players and players assisting the players in
horizontal agreements.
 Hub, i.e., horizontal players, won’t be able to operate without spokes, i.e.,
vertical players’ assistance and hence it is accordingly included now.

MP Mehrotra v Jet Airways & Kingfisher Airlines Ltd, CCI 2011

Facts:
 One Mr MP Mehrotra moved CCI for finding information under section 19(1)
saying that these two airlines, via a joint media conference on 30 October 2008,
announced overall four agreements they would be entering into very soon. This
was claimed to increase efficiency for both the airlines.
 Particularly, Special Re-Protection Agreement, E-Ticketing Agreement, Technical
MOU amongst others were mentioned. These airlines had, by the time, a huge
fleet of planes. Jet had around 83 aircrafts and Kingfisher had around 75 aircrafts.
Total 158 crafts.
 Therefore, the market share of these companies was 59% in the air passenger
service market. Rest was shared by the remaining airlines.
 These 4 agreements caused AAEC and were violations of 3(3)(a)/(b)

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Meanwhile, Kingfisher had approached Bombay High Court saying that some of
these agreements took place before CCI even existed and before Competition Act
came into force. Hence questioning CCI’s jurisdiction.

Bombay High Court:

 Though the media conference and agreements were entered into before the
Competition Act got enforced, nevertheless, since the act was continuing (you
were still in the agreement) and the effect was also continuing, CCI shall have
jurisdiction. WP hence dismissed.

CCI:
 CCI had punished Kingfisher with the maximum penalty of Rs 1 Crore.
 CCI held: Kingfisher was not cooperating with the DG in the course of
investigation.
 But there was no violation on the merits of the case filed by Mr Mehrotra.
CCI’s Reasoning:
- The interlining traffic arrangement was not uncommon among the
airlines. Via this, airlines enter into port sharing agreements.
- On E-ticketing arrangement, it was again very common among airlines.
At that time, online booking was not so easy, individuals had to approach
booking agent and e-ticketing would provide ease.
- Reprotection Agreement provides for helping each other’s passengers.
Sometimes, due to weather or any other problems, planes could not take
off or land from/on airports and then they could allow each other to take
their passengers.
- Technical MOU was signed for the purpose of reducing the cost of flying.
This entailed cross-utilisation of cabin crew, on ground handling crew
etc. CCI said there is no problem here either.
- Although these agreements are horizontal agreements but this does not
lead to formation of a cartel.
 There can be horizontal agreements which are not anticompetitive in nature.

CARTELS
 The term cartel is defined under section 2(c). It is an inclusive definition.
The term “cartel” includes an association of producers, sellers, distributors, traders
or service providers who, by agreements amongst themselves, limit, control or
attempt to control the production, distribution, sale or price of or, trade in goods
or provision of services.

 The 2020 Amendment Bill proposed to add buyers to this definition to stop “cartel
of buyers” but it was never passed.
 The current text talks only about the supply side cartels.
 The term traders means that retailers can also be brought within this.
 Sir is not happy with this definition.
 Section 2(c) should be read with Section 3(3). 3(3) should not be read with 2(c).
Basically 2c to be dependent on 3(3) and not the reverse.
 The legal nature of 3(3) is horizontal only but it is not efficient that a supplier
creates a cartel but does not include the “spokes” or distributors in the
agreement. By its very nature, a cartel is horizontal but the spokes need to be
included too and the current definition under 2(c) in its current state cannot
include hub and spoke agreements.
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 Cartel is considered to be the worst sin you can do in any competition. Cartels are
entered into for longer periods of time. If there is anything for a smaller period of
time, it is usually called a compromise. In USA, cartelisation itself is an offence.
 What makes cartelisation conducive?
 Small number of firms in an industry
 Barriers to entry
 Low technological advancement
 Homogenous product
 Strong ability of competing firms to exchange information on price and other
terms of sale
 Uniformity in cost or efficiency,
 Severe punishment which can be inflicted on the cheater
 Effective trade association, etc.

Builders’ Association of India v Cement Manufacturers Association, CCI

2012
Imposed 630 cr penalty on DLF
Facts:
 Petitioner complained against the Respondent in 2010 and an investigation was
undertaken by the DG who finally submitted its report is 2011.
 The allegation was against 10 players that these 10 players were exchanging
information and were cooperating to fix prices over time. Allegations were also
levelled regarding the regulation of production.
 CCI’s report’s focus was rfom 20th May 2009 (cci’s enactment) to 30th March 2011.
 Respondent contended that the data used was of pre CCI period to identify a
cartel which was not permissible since CCI could not take retrospective action.
 CCI rejected this and said that the date used only to find if cartel existed and DG
clarified the date for which cartelisation effect was present.
 Respondent said the DG did not allow the cross examination of witnesses. CCI
said that since DG is not governed by procedural law and only Principles of
Natural Justice, which DG fllowed by giving notice to all parties.

CCI:
 CCI found that the cement market was an oligopoly with 12 companies holding
75% of the market share.
 Anotehr allegation that cartel was was without proper evidence. CCI said that
existence of cartel was not proved with diect evidence but they have
circumstantial evidence to prove so.
 CCI also held that section 3 does not require a delineation of the relevant market.
 2 members agreed that they did not participate in the Jan 2011 meeting. However,
CMA contradicted this over the High Power Committee Meeting.
 Soon after the meeting, a hike was seen in cement prices of all companies.
 Further, the CMA Constitution Document was also amended on 30th November
2009, which discussed shortcomings and contradictions of violations of a few
provisions of the Competition Act. Still n action was taken against this.
 Moreover, there was only a change in the Constitution after the notice was issued
by DG to abide by Competition Act.
 CCI found there to be price parallelism.
 It also found limited controlled collective production and supply, production and
dispatch parallelism and an increase in price, price leadership and high-profit
margins.
 CCI passed an order.

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 Respondent challenged it and said that the CCI Chair was absent for one hearing,
which violated principles of natural justice.
 COMPAT accepted Respondent’s argument and asked CCI to hear afresh.
 CCI heard it again and imposed some penalty.
 Order appealed before NCLAT, and it accepted CCI’s order.
 The Supreme Court stayed the NCLAT order and asked the Respondent to deposit
10% of the penalty.

All India Tyre Dealers’ Federation v Tyre Manufacturers, CCI 2012

Facts:
 Petitioner moved CCI against five manufacturers: Birla, CEAT, Apollo, MRF and
JK, claiming that they indulged in limited production and determined and
regulated prices.
DG:
 Concluded that it was a cartel based on economic evidence, including price
parallelism across manufacturers related to non-weighted average dealer price of
tyres and %age change in prices and price correlation of data involving
production, capacity utilisation, cost analysis, cost of sales, margins etc.
CCI:
 On a superficial basis, the industry displays some characteristics of a cartel, but
there has been no substantive evidence of the existence of the cartel.
 CCI first considered various structural factors conducive to cartelisation. These
included:
I. The highly concentrated market for tyre manufacturers where five
manufacturers control 95% of tyre production. This could give rise to
collusion but may also indicate rational conscious parallelism where
competing firms are conscious of each other’s activities
II. The cyclical and predictable nature of demand for tyres
III. Homogenous products
IV. Competitive constraints of re-treaded tyres and imports
V. Entry barrier caused by the requirement of substantial capital investment
VI. Existence of an active trade association.
Some of these factors support cartelisation while others mitigate it.

According to CCI, a conclusive determination was only possible based on

circumstantial evidence. In this regard, CCI found that:
I. DG had failed to study the price-cost trend
II. The price parallelism methodology was not sound since there was no
parallelism in absolute prices and price movement but only in the
directional change of prices.
III. Capacity utilisation showed mixed trends and suppression of capacity made
little sense in light of imports
IV. There was no uniformity in margin trends,
V. Excessive margins were absent and varied from 1% to 10%.
VI. Rise in market share of one of the manufacturers was inconsistent with
cartelisation, and
VII. Activities of trade association did not contravene the Act.
Based on these above findings, CCI held that the evidence was insufficient to
substantiate the claim of cartelisation among tyre manufacturers.

 Use of Circumstantial Evidence:

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 Circumstantial evidence can either be communication evidence or economic

evidence.
 Communication evidence proves that the cartel members met or otherwise
communicated (although the substance of the communication is not known
with surety).
 Economic Evidence can be of two types:
I. Evidence of conduct – includes parallel pricing, abnormally high profits,
stable market shares and a history of competition law violations. It also
includes “Facilitating Practices” – practices that make it easier for
competitors to reach or sustain an agreement. This includes information
exchanges, price signalling, freight equalisation, price protection, and so
on.
II. Structural Evidence

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BID RIGGING
 Section 3(3) Explanation

Explanation.—For the purposes of this sub-section, “bid rigging” means any

agreement, between enterprises or persons referred to in sub-section (3) engaged in
identical or similar production or trading of goods or provision of services, which has
the effect of eliminating or reducing competition for bids or adversely affecting or
manipulating the process for bidding.

 This is a very normal trend. Any public body that has to make a procurement has
to resort to tenders. These tenders have technical requirements which need to be
fulfilled by the bidders.
 Countries like South Korea have a better system of tenders and bidding. In the
Indian scenario, corruption leads to bid rigging. South Korean public bodies have
to submit all the documents to a commission.
 Sometimes CCI works in a very passive manner when it is not using the remedy
available in such cases.
 Here players are hence supplying the goods at a pre-determined level. This again
shows that the agreement is horizontal. Such agreements lead to 2 effects:
- Eliminating or reducing competition for bids.
- Adversely affecting or manipulating the process of bidding.
 Bid Rigging may take place in different forms
I. Bid suppression
II. Complementary bidding
III. Bid rotation
IV. Subcontracting
 Cases:
In Re Aluminium Phosphide Tablets Manufacturers (CCI, 2012 and COMPAT 2013
and Supreme Court 2017)
In Re Suo Motu Case against LPG Cylinder manufacturers (CCI, 2012 and
COMPAT 2013-14 and Supreme Court 2018)
A Foundation for Common Cause v PSE Installations Pvt Ltd & Ors (CCI 2012 and
COMPAT 2013)

In Re Aluminium Phosphide Tablets Manufacturers, CCI 2012

Facts:
 AlP Tablets Case.
 Somewhere in Feb 2011, CCI received a letter from CMD of Food Corporation of
India, New Delhi. In the letter, CMD informed CCI that around 4 AlP
Manufacturers have been rigging the tendering process while submitting the bids
for procurement of AlP Tablets. He mentioned 2009 incident. United Phosphorus
Ltd, Sandhya Organics Chemical Ltd, ECCL and ACL were the companies.
 FCI floats a tender in March for procurement of 600 million tonnes AlP tablets.
 08.05.2009 was the deadline for submitting the bid by 2PM.
 CCI Found a prima facie case and ordered an investigation.
CCI:
 UPL, SOCL, ECCL were found to have rigged the bid floated by FCI. A penalty of
9% of turnover was imposed being around Rs 317 crores. There was a violation of
3(3)(d) read with 3(1).
 During investigation, ACL urged to not be included as a part since it had not
participated in that specific bid.

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 One member of ECCL, Mr Basu, was questioned and asked: What time did you
enter the premises of FCI. Basu said: I had entered around 2 to 3 PM (while 2 PM
was the deadline).
 Further, CCI asked: Why did all office bearers from UPL, ECCL and SOCL meet
together? Basu said I am not aware of these individuals. Now CCI showed him the
entry register and said: all 4 (2 from UPL and rest from others) of you entered
together and you yourself wrote the names in the entry register for all of them?
 Further, the bid amount was also mentioned by hand and the amount was same in
the documents of all 3 companies.
 DG hence said that this was a clear case of bid rigging. After a thorough
investigation, there was a trend where in every bid where these 4 were
participating, two of them would always get the final tender. The prices they
would quote would almost every time be the same only.
 CCI Held: Bid rigging was there.
COMPAT:
 Upheld CCI’s decision. While upholding the order introduced a qualifying concept
called Relevant Turnover. While agreeing with bid rigging, COMPAT said: The
determination of the turnover by the CCI was incorrect. Turnover should be the
relevant turnover. Relevant Turnover is the turnover in which CCI has found
contravention of Section 3.
Supreme Court:
 Excel Crop Care Ltd v CCI
 Supreme Court upheld the decision of COMPAT and also clearly upheld the
relevant turnover concept of COMPAT.
 Penalty should be there but the penalty imposed by CCI cannot be so harsh so as
to kill the corporation.

A new Turnover Regulation was introduced in 2023 amendment to Section 27. Now,
there are two explanations. The second explanation now includes the global turnover
of any company. This is legislative overturning of the Supreme Court Decisions.

In Re Suo Motu Case Against LPG Cylinder Manufacturers, CCI 2012 and
Supreme Court 2018
Rajasthan Cylinders and Containers v CCI (SC)
Facts:
 Indian Oil Corp Ltd held major market share (48%) in cooking gas. IOCL floated a
tender for procuring 1.05 Lakh LPG cylinders of capacity 14.2kg. Around 50+
companies submitted their bids. Around 50 companies remained and 44
companies were ultimately there.
 CCI came to know that all these companies who remained had rigged the bid. DG
investigated.
CCI:
 There was bid rigging. These people had submitted via 6 to 7 agents just 2 days
before the deadline and in all these applications, these companies were found to
have quoted nearly identical prices. CCI found that in these applications, there
was a common typographical error. They had also mentioned these prices in
handwritten format.
 Few days prior to the last date for bidding, in a hotel in Mumbai, a meeting was
convened. In that meeting, around 12 Office Bearers representing 19 companies
out of the 44 had participated. And the bids were submitted after that.

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 CCI imposed a penalty at the rate of 7% of these firms’ turnover total amounting
to Rs 165 crores.
COMPAT:
 Agreed with the order but reduced the quantum from 7% to 5%.
Supreme Court:
 There was no bid rigging and CCI and COMPAT had erred. These are small
companies and since there are only 3 buyers, this was Oligopsony and it was IOCL
which decided the price and it had complete control. Additionally, IOCL was not
wrong in finalising all these small firms.
 Although 19 companies participated, it was not enough to show that there was bid
rigging.

A Foundation for Common Cause v PSE Installations Pvt Ltd & Ors
 Bid Rotation Case
Facts:
 Arose due to Commonwealth Games of 2012. Due to that, MoHFW wanted to
establish a Sports Injury Centre for the purposes of the Games in the Safdarjung
Hospital in Delhi. So they floated a tender for setting it up. Estimated cost was
1.5m USD.
 Three companies participated in it.
 PSE, MDD Medical Systems and Medical Products Service submitted their bids.
The tender was then given to MDD Medical Systems at 2.4m USD (0.9m USD
more than the cost).
 CCI was informed.
CCI:
 DGs investigation shows that there was bid rotation and bid rigging. How was this
found? There was another bid before this wherein all three participated and that
time PSE got it. It was a clear cut case of bid rotation.
 There were very common typographical errors in the tender bids of all these
companies.
 CCI finally decided that it was a clear case of violation of 3(3)(d)
COMPAT:
 Upheld the decision.

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LENIENCY (LESSER PENALTY)
 Section 46(1)
46. Power to impose lesser penalty.—
(1) The Commission may, if it is satisfied that any producer, seller, distributor, trader
or service provider included in any cartel, which is alleged to have violated
section 3, has made a full and true disclosure in respect of the alleged violations
and such disclosure is vital, impose upon such producer, seller, distributor, trader
or service provider a lesser penalty as may be specified by regulations, than
leviable under this Act or the rules or the regulations made under this Act:
Provided that lesser penalty shall not be imposed by the Commission in cases where
the report of investigation directed under section 26 has been received before
making of such disclosure:
Provided further that lesser penalty shall be imposed by the Commission only in
respect of a producer, seller, distributor, trader or service provider included in the
cartel, who has made the full, true and vital disclosures under this section: Provided
also that lesser penalty shall not be imposed by the Commission if the person making
the disclosure does not continue to co-operate with the Commission till the
completion of the proceedings before the Commission:
Provided also that the Commission may, if it is satisfied that such producer, seller,
distributor, trader or service provider included in the cartel had in the course of
proceedings,—
(a) not complied with the condition on which the lesser penalty was imposed by the
Commission; or
(b) had given false evidence; or
(c) the disclosure made is not vital, and thereupon such producer, seller, distributor,
trader or service provider may be tried for the contravention with respect to which
the lesser penalty was imposed and shall also be liable to the imposition of penalty to
which such person has been liable, had lesser penalty not been imposed.

(2) The Commission may allow a producer, seller, distributor, trader or service
provider included in the cartel, to withdraw its application for lesser penalty under
this section, in such manner and within such time as may be specified by regulations.

(3) Notwithstanding anything contained in sub-section (2), the Director General and
the Commission shall be entitled to use for the purposes of this Act, any evidence
submitted by a producer, seller, distributor, trader or service provider in its
application for lesser penalty, except its admission

(4) Where during the course of the investigation, a producer, seller, distributor,
trader or service provider who has disclosed a cartel under sub-section (1), makes a
full, true and vital disclosure under sub-section (1) with respect to another cartel in
which it is alleged to have violated section 3, which enables the Commission to form
a prima facie opinion under sub-section (1) of section 26 that there exists another
cartel, then the Commission may impose upon such producer, seller, distributor,
trader or service provider a lesser penalty as may be specified by regulations, in
respect of the cartel already being investigated, without prejudice to the producer,
seller, distributor, trader or service provider obtaining lesser penalty under sub-
section (1) regarding the newly disclosed cartel.

 This is basically a snitch benefit provision. I am part of a cartel; I will tell you all
the information about it, but please either exonerate me or be lenient in punishing
me.
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 This is generally called leniency but legally called “lesser penalty”.
 Competition Commission of India (Lesser Penalty) Regulations 2009. February 20,
2024, new CCI regulations on Lesser Penalty were introduced.
 Lesser Penalty has to be decided in accordance with S 46 read with the
Competition Commission of India (Lesser Penalty) Regulations, 2024 (hereinafter
referred to as “Regulations”).

Elements of Lesser Penalty

 Any member of any bid rigging cartel can come to CCI. The information provided
by the Leniency Applicant has to be a full, true, and vital disclosure. You cannot
hide facts that you are aware of. Regulation 2(1)(k) lays down what is vital
information. It means any information which enables the DG to establish a prima
facie case about the existence of the cartel.
 A leniency application can be filed at any stage before the final determination of
the case. Practically, before the investigation is completed, you should tell. Does
not make sense to make disclosures post investigation.

In Re: Cartelization in respect of tenders floated by Indian Railways for

supply of Brushless DC Fans and other electrical items, 18.01.2017 CCI
First case where CCI used leniency provision.
Facts:
 Suo motu cognisance taken by CCI based on an email from CBI.
 There were three opposite parties, M/s Pyramid Electronics, M/s Kanvar
Electricals Noida, M/s Western Electric and Trading Co Delhi.
 Allegation was that these three companies rigged the entire tender process in
respect of the tender for brushless DC Fans.
 CCI had initially Found a bid rigging cartel and the penalty was 3% turnover and
for office bearers, it was 10% turnover of the preceding three financial years.
 When investigation started, M/s Pyramid moved application to CCI under Section
46.
CCI:
 For the first time, CCI granted leniency for Pyramid and its office bearers in form
of reduction in penalty by 75%.
How to grant lesser penalty?
 Regulations say that there are certain ratios up to which CCI can grant leniency.
The first applicant gets the most, and then it whittles down.
 Firstly, there needs to be guilt i.e., there should be adjudication that you are guilty
in the first place.
 In the present case, the applicant moved the application at a later stage of
investigation. Additionally, by this time, they already had evidence in the form of
an email from CBI.

In Re: Tricell Battery Manufacturers

 There was a normal cartel. Not bid rigging.
 There are 3 opposite parties: Eveready Batteries, Nippo, and Panasonic Energy
India Pvt Ltd.
 Panasonic moved a voluntary application making true full and vital disclosure
saying that from 2008 onwards, we are in a cartel and have formed it to overcome
financial strain.

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Generally, disclosure is to be moved before CCI before you submit your application.
Both can be moved simultaneously also.
 Subsequently, first Eveready Batteries moved and then Nippo moved.
 CCI accepted all three applications and said this:
 Since Panasonic was the first applicant, 100% leniency was granted. To Eveready,
30% was granted. To Nippo, 20% was granted.

LENIENCY PLUS (LESSER PENALTY PLUS)

 Section 46(4)
(4) Where during the course of the investigation, a producer, seller, distributor,
trader or service provider who has disclosed a cartel under sub-section (1), makes a
full, true and vital disclosure under sub-section (1) with respect to another cartel
in which it is alleged to have violated section 3, which enables the Commission
to form a prima facie opinion under sub-section (1) of section 26 that there exists
another cartel, then the Commission may impose upon such producer, seller,
distributor, trader or service provider a lesser penalty as may be specified by
regulations, in respect of the cartel already being investigated, without prejudice
bidto the producer, seller, distributor, trader or service provider obtaining lesser
penalty under sub-section (1) regarding the newly disclosed cartel.

 While snitching on the cartel under investigation (first cartel), you voluntarily (not
expressly written but understood) talk about another cartel (second cartel) that
you are part of, then the snitch will be eligible to get an additional benefit of 30%
leniency in the first cartel. On the second cartel, you can get 100% leniency.
 However, such leniency in the first cartel does not affect the right of leniency of
such snitch in the second cartel.
 The issue is that if I am the first applicant snitching on my cartel, I am anyway
getting 100% leniency in the first cartel. Now I don’t have any incentive to snitch
on the second cartel.

 Regulation 5(1) of CCI (Lesser Penalty) Regulations, 2024.

5. (1) In terms of sub-section (4) of section 46 of the Act and subject to the
conditions laid down in regulations 3 and 4, an applicant, who had earlier made a
full, true and vital disclosure in respect of alleged contravention of provisions of
section 3 of the Act under regulation 6 (first cartel), makes a full, true and vital
disclosure in respect of existence of another cartel (second cartel) in which it is
alleged to have violated section 3 of the Act, which enables the Commission to
form a prima facie opinion regarding the existence of newly disclosed cartel
under sub-section (1) of section 26 of the Act, may be granted an additional
reduction in monetary penalty up to or equal to thirty per cent of the penalty
imposed with regard to the first cartel besides obtaining benefit of reduction in
penalty up to or equal to one hundred percent in respect of newly disclosed cartel
in terms of sub-section (1) of section 46 of the Act.

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SECTION 3(4) OF THE COMPETITION ACT, 2002.

 Section 3(4)
(4) Any other agreement [agreement other than 3(3)] amongst enterprises or
persons including but not restricted to agreement amongst enterprises or persons
at different stages or levels of the production chain in different markets, in
respect of production, supply, distribution, storage, sale or price of, or trade in
goods or provision of services, including—
(a) tie-in arrangement;
(b) exclusive dealing agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
shall be an agreement in contravention of sub-section (1) if such agreement causes
or is likely to cause an appreciable adverse effect on competition in India.

Provided that nothing contained in this sub-section shall apply to an agreement

entered into between an enterprise and an end consumer.
Explanation.—For the purposes of this sub-section,—
(a) “tie-in arrangement” includes any agreement requiring a purchaser of goods or
services, as a condition of such purchase, to purchase some other distinct goods
or services;
(b) “exclusive dealing agreement” includes any agreement restricting in any manner
the purchaser or the seller, as the case may be, in the course of his trade from
acquiring or selling or otherwise dealing in any goods or services other than those
of the seller or the purchaser or any other person, as the case may be;
(c) “exclusive distribution agreement” includes any agreement to limit, restrict or
withhold the output or supply of any goods 6 [or services] or allocate any area or
market for the disposal or sale of the goods 6 [or services];
(d) “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 6 [or services]
are sold or from whom goods 6 [or services] are bought;
(e) “resale price maintenance” includes, in case of any agreement to sell goods or
provide services, any direct or indirect restriction] that the prices to be charged
on the resale by the purchasershall be the prices stipulated by the seller unless it
is clearly stated that prices lower than those prices may be charged.

 Section 3(4) provides for vertical agreements causing vertical restraints.

 Any agreement means other than 3(3) agreements. Vertical agreement is defined
as any agreement which is not a horizontal agreement.
 Vertical Agreement is an agreement between enterprises or persons situated at
different levels or stages of the production chain in different markets. It also
includes a supply chain. The Act also ensures that conglomerate agreements can
also be tested. The definition is very wide in its nature in defining a vertical
agreement.
 All the agreements mentioned above (a to e) in the main text will be considered
against 3(1) if they cause AAEC.
 The interpretation here is that this section can apply even to agreements which
don’t fall under 3(1).

Tie In Arrangement

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Any agreement requiring a purchaser of goods or services, as a condition of such
purchase, to purchase some other distinct goods or services
 Here the second product required to be bought should be of a different market.
 Includes any agreement requiring a purchaser of goods, as a condition of such
purchase, to purchase some other goods. Eg - A manufactures a printer – it is the
producer. It supplies to distributors. Distributor is the customer/purchaser of the
printer. B is the purchaser and A is the supplier of printer. A is known for the
manufacture and supply of a highly usable printer for a decade. Off late, since the
last 6 months, A started manufacturing cartridges. A requires B from today
onwards also to purchase the cartridges from A along with the purchase of the
printer. It is a different product and falls under a different market. Both do not fall
within the same market. This means that in order to create a demand for his other
product, he is forcing the purchaser of printer to buy a certain amount of another
product. It is not indispensable for the functioning of the original product.
Cartridge produced by another cartridge manufacturer can be used for the use of
printer. [See Explanation 1 to 3(4)]

Exclusive Dealing Agreement

“exclusive dealing agreement” includes any agreement restricting in any manner the
purchaser or the seller, as the case may be, in the course of his trade from
acquiring or selling or otherwise dealing in any goods or services other than those
of the seller or the purchaser or any other person, as the case may be;
 If a player enters into an agreement with a distributor to ONLY supply their
goods, that agreement is considered to be an exclusive dealing agreement.

Exclusive Supply Arrangement (possibly under Exclusive Dealing Agreement)

 In case of ESA, one can find a vertical agreement entered into between a
producer and a distributor or a producer/seller and a retailer (assuming producer
is the seller).
 What does it indicate: It is an alternative to vertical integration. Generally, any
producer may prefer to enter into ESA as opposed to Vertical Integration. In case
of VI, the producer either opens up his own outlets across the country or
establishes a subsidiary of his own. Allows for the access of his goods across the
country. However, the producer may not be familiar with the market and might
have to incur extra costs due to market inexperience.
 As opposed to this, a more convenient route is to enter into an ESA with a
distributor. Exclusivity is found here. Also known as a "Requirement Contract" in
some jurisdictions. In this agreement, the seller requires the distributor to take
exclusive supply of the products from the seller. ESA is entered into between the
players for a long period of time (2, 3 years etc., generally not for months).
 Advantage of ESA: The seller doesn't have to worry about exploring the market - a
skilled distributor is taking care of that. Generally, an experienced, good
distributor is used. Transaction costs are reduced. Distributor on the other hand,
has an assured supply of the goods - does not need to worry about price
fluctuations for the time period of the contract (unless contractually mentioned in
the agreement). Generally, prices are fixed in the ESA.
 As a result of the ESA, there is a restriction - the distributor is bound to take
supply from the seller for the period of time set out in the agreement. Cannot take
supply from the seller's competitors.

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Consumer Guidance Society v Hindustan Coca Cola Beverages

Facts:
 Petitioners alleged that ESA between the two parties regarding supply of products
to the multiplex theatres owned by INOX. 4 month agreement - 1st Sep to 31st
Dec 2010.
CCI:
 Informant is a registered society that brought information to CCI – about
exclusive supply agreements between these two to supply in the multiplex
theatres owned by INOX across the country. Case came up before the CCI – CCI
found that the supply of the opposite party no. 1 to INOX multiplexes owned by
opposite party number 2 was only small in volume – there were 10,000 screens
across the country and 9100 were single screen theatres – 900 were multiplexes,
around 600 multiplexes were owned by another competitor of INOX – INOX owns
only 214 screens in such multiplexes across the country – CCI found that the
supply via such agreements to INOX was a very limited volume – amounted to only
less than 0.3% of the overall sales of the non alcoholic beverages across the
country by non alcoholic beverage suppliers. Therefore there was no appreciable
adverse effect on competition in India.

Exclusive Distribution Agreement

“exclusive distribution agreement” includes any agreement to limit, restrict or
withhold the output or supply of any goods 6 [or services] or allocate any area or
market for the disposal or sale of the goods 6 [or services];
 This means that the distributor is being told to ONLY supply goods within a
specific area. Distributor cannot sell outside that area.
 Another form of exclusivity. Also known as providing for territorial exclusivity.
Exclusivity should be understood in terms of the geographical area. A seller can
enter into both ESA and EDA. But they are slightly different. In EDA, the seller
compels distributor to sell its products in the limits of a particular geographical
area. Ex - in Gujarat. S. 3(4)(c) is area specific. Distributor is obligated to not
supply these products outside the stipulated territory. Thus, for example, the
distributor cannot supply these products in Maharashtra.
 When such EDA is for a short time, it may not be violated of S. 3, may not cause
an AAE on competition.
 Advantages: In EDA, Seller can compel to sell its products in an area. Distributors
can vigorously pursue selling of its products, create brand image.
 On the other hand, this may reduce inter-brand competition. Dealer is prevented
from selling outside the area. This is especially so where this is both an ESA and
EDA. Consumers are at the receiving end. Forced to purchase only a particular
product. Seller may also be incentivized to increase price.
 Litmus test: Dominant position of players - if there is no DP, may not be violative.
It depends on the factual circumstances.

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 6 [or services] are sold or from
whom goods 6 [or services] are bought;
 In case of RTD, there must be an agreement between two players. Eg - X is a
company producing lead, supplies lead to Y for many years. Y produces pencils.
Now, if there is an ESA between X and Y - another company Z comes into picture,
it also produces pencils. X may be interested to go with Z. Y might get deprived in
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such a case. If X is the main or dominant player, if it denies Y because of a new
agreement between X and Z, this becomes a refusal to deal situation with respect
to Y. This may be cause AAE to Y.
 3(4)(a) and (d) may go together. So can b and d.

Refusal to Deal
 Includes any agreement to sell goods on condition that the prices to be charged
on the resale by the purchaser shall be the prices stipulated by the seller unless it
is clearly stated that prices lower than those prices may be charged.

Shamsher Kataria v Honda Siel Cars India Ltd & Ors.

 An appeal was filed by Toyota Kirloskar Motor Private Limited (Toyota), Ford
India Private Limited (Ford) and Nissan Motor India Private Limited (Nissan)
against the common order of the Competition Commission of India
 Emphasising on clauses in relation to sale of automobile components only in the
aftermarket, the following are allegations raised by Mr Shamsher Kataria
(informant) in the form of information filed by him on 18-1-2011 before the
Commission and investigation report made by the Director General (DG):
 (i) The authorised dealers could source spare parts including diagnostic tools,
technical information, fault codes, repair manuals, etc. only from original
equipment manufacturers (OEMs) or their approved vendors. Thus, there are
restrictions on authorised dealers from sourcing spare parts from OEMs of other
vehicle manufacturers (VMs). Such agreements were therefore found by the DG
to be in the nature of exclusive supply agreements in terms of Section 3(4)(b) of
the Act.
 (ii) Also, not only purchase but there are restrictions imposed on the sale of spare
parts including diagnostic tools, technical information, fault codes, repair
manuals, etc., by the OEMs on their authorised dealers to independent repairers.
Such agreements were therefore found by the DG to be in the nature of exclusive
distribution agreement and refusal to deal in terms of Sections 3(4)(c) and 3(4)(d)
of the Act.

Facts:
 Kataria was the owner of Volkswagen, Honda and Fiat cars. He moved before CCI
informing that all three foreign car companies (mentioned in previous line), were
not making available the spare parts and after sale replacement parts of the car,
tools, technical info required for repairing, servicing or maintenance the car in
the open market. No information given to the independent service providers or
multi brand repairers/service providers – allegation was brought forward – DG
found that he needs to investigate so many other car companies – 17 car
companies were investigated – CCI gave decision comprising 14 car companies as
opposite parties – 3 car companies were not brought and an order was made
against Mahendra Rewa, Hyundai India and another company in 2015 separately
– Hyundai had gotten the stay from CCI proceedings before the Mad Hc – Mad HC
later lifted the stay and order was made against Hyundai India by the CCI.
 Original equipment Manufacturers (OEMs) – Original Equipment Suppliers (OESs)
or auto spare part manufacturers - Authorized Dealers (Ads) who are individual
dealers but have agreement with manufacturers and they have their own
showrooms and service centres. These are the three relevant entities.
 As per the basic allegation, the car manufacturers for OEMs entered into an
exclusive supply agreement (u/s 3(4)(b)) with OESs. OESs would manufacture the
spare parts required for the specific cars. OEM also entered into agreement with

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ADs. It prevented the availability of auto parts to independent repairers, multi
brand service providers and individual car owners in the open market. Owing to
this vertical agreement, and also an exclusive distribution agreement was there.
ADs are required to service the car within the areas that are allowed to them. This
therefore involved both 3(4)(b) and 3(4)(c) and Section 3(4)(d) also (refusal to
deal). He also alleged that the OEMs were dominant in the spare parts market
and they were in a position to refuse to deal with the owners, the independent
repairers and multi brand service providers. Therefore, he also alleged a Section
4 violation, which is abuse of dominance. Therefore no availability of spare parts,
technical information, diagnostic tools and software programs which are essential
for providing these services.
 On the basis of this, CCI directed investigation by the DG. The DG felt that this
investigation’s scope must be expanded. He felt that other car companies should
also be investigated. It was expended on request by the DG. It was later expanded
to 17 OEMs including the first 3. Almost all the car manufacturers were included
within the purview of this investigation.
(in between – as soon as Hyundai India recd. Notice by CCI, it moved the Mad. HC
seeking a stay on the proceedings. The court issued a stay on the notice issued by
the CCI on Hyundai. In respect of other car companies, the investigation was
going on. Out of 17, CCI could bring in its investigation net, 14 car companies at
the first instance and at the time of the first order (there are two decisions, first
decision is from August 2014 and the second one is from July 2015) in the second
decision, there was Hyundai India, Mahindra Rewa and another for whom the
decision came in 2015 – in the month of August 2014, the main decision came and
both are case No. 3 of 2011)

Issues:

1. Whether the automobile market as a whole is a single unified ‘systems

market’ or there exist separate relevant markets at different stages?

 Car manufacturers argued that this market for cars and spare parts and services
later on is an indivisible single unified market. CCI did not agree with this. It
reasoned that in the automobile industry in India, one car cannot be so easily
substitutable to another competing product. This is because the switch over costs
is very high. It is not easy for everybody. It is not interchangeable.
 Another argument brought by opposite parties – it is indivisible because there is a
whole care life costing – CCI rejected this argument because it is not possible to
have whole life/full life costing. This is also called lifespan costing. For this, data
must be available with the respective car manufacturers. If I go to buy Honda
Amaze, but the dealer cannot provide any other price other than the car selling
price. It is not a one time product. It is a durable product. Will be used it for a
long time maybe 10 years. For the value of services and parts etc. cannot be set
for the next 10 years. Cannot provide for every conceivable service in the next 10
years.
 For example, in the security service market – there are security cameras. Though
they are different products and services, they form part of one market. This can
be distinguished from the car and services markets.
 Therefore, this type of a market cannot operate in the automobile industry. There
exist separate markets at different stages. CCI said that there exist three separate
relevant market at different stages:
 Primary market for the manufacture and sale of cars
 Aftermarket (which is a spare parts market). Further divided into two:
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 Aftermarket for the sale of genuine auto spare parts, diagnostic tools etc
 Market for the sale of repair and maintenance services.
 Therefore, these three markets exist at two different stages.

2. Whether agreements entered into by the OEMs with OESs and ADs are
anti-competitive?

 The CCI found that they are anti-competitive in nature. It involved three
provisions of Section 3(4) mentioned above:
 Section 3(4)(b) – Exclusive supply agreement – between OEMs and OESs. They
are vertical agreements and are restrictive in nature. ADs are confined to service
along with the supply of genuine spare parts that they get from OEMs. ADs are
required to supply genuine spare parts and service vehicle within their areas.
Both 3(4)(b) and 3(4)(c) are covered.
 Independent service providers and multi brand service providers and repairers
are not able to get spare parts and other relevant diagnostic tools, technical know
how etc – they refuse to deal with these people – all are a result of the restrictive
agreements entered into between OEMs with OESs and ADs. Therefore, all three
are violated.

3. Is there any abuse of dominance by the OEMs on the spare parts market?

 CCI found that there was an abuse of dominance by the OEMs in the spare parts
markets (remember, this does not include the primary car sale market). This is
because of non-substitutability of cars and non-substitutability of genuine spare
parts. It was found by the CCI that all the car companies are dominant in their
respective aftermarkets for the supply of spare parts owing to exclusive supply
agreements. Therefore because of Section 3(4)(b), there is a violation of Section 4.
4(2)(a)(ii) – unfair pricing, 4(2)(c) – denial of market access and 4(2)(e). There is
100% dominance.
a. Section 4(2)(a)(ii) – discriminatory purchase/selling price. These spare part
costs are so high and as high as 5000% in some cases. Clear case of unfair
pricing
b. Section 4(2)(c) – CCI found that exclusive supply and distribution agreements
resulted in denial of market access for the independent service suppliers as
well as multi brand service suppliers – it leads to denial of market access- it
operates mostly in the third market, i.e. the service, repairs and maintenance
market. There is a refusal to deal. They don’t get parts and diagnostic tools
with softwares. This non availability also amounts to denial of market access
for these suppliers to the market for service, maintenance, and repair
services.
c. Section 4(2)(e) – deals with leveraging. Means using dominance in one
relevant market to enter into or to protect another relevant market. The OEM
is dominant in the spare parts market (100% dominant found by CCI). It tries
to gain and continue dominance in the third market, that is the service
market.

4. Whether the OEMs are entitled to the benefits of IPR exemptions provided
to agreements under Section 3(5)(i).

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 Spare parts, diagnostic tools, software programs and technological understanding
are all their IPR. OEMs argued that they are allowed to impose reasonable
restrictions to protect their IP rights. There is no international IP law. IP regime is
territorial in nature. None of the opposite parties have submitted any document to
DG indicating the protections that have been granted under the Indian IP regime.
‘have been or may be conferred rights’ under Section 3(5)(1) – at least you show
proof that you have applied for the IP protection. Section 3(5) exemption cannot
therefore apply to any of the companies
 CCI found that all 14 players abused their dominant position and violated various
parts of Section 3(4). It imposed on the 14 parties as huge as 2544.65 crores.
When the stay was vacated by Mad. HC, Hyundai was penalized with the penalty
of 420 crores. It has for now been stayed by the SC. CCI found 15 opposite parties
to have violated Section 3(4) and 4(1) of the Comp Act. on appeal, the COMPAT
upheld the decision and modified the quantum of penalty. CCI granted penalty at
2% of the total turnover but COMPAT considered only relevant turnover from the
market/product where the violation has been found. Turnover must be from the
auto spare parts and services and not, for instance, from the sale of cars.
Therefore, the penalty was reduced.

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M4 – ABUSE OF DOMINANCE

 Provided for in Section 4(1):

Abuse of dominant position.—

(1) No enterprise or group shall abuse its dominant position.
(2) There shall be an abuse of dominant position under sub-section (1), if an
enterprise or a group],—
(a) directly or indirectly, imposes unfair or discriminatory—
(i) condition in purchase or sale of goods or service; or
(ii) price in purchase or sale (including predatory price) of goods or service.

Explanation.—For the purposes of this clause, the unfair or discriminatory

condition in purchase or sale of goods or service referred to in sub-clause (i) and
unfair or discriminatory price in purchase or sale of goods (including predatory
price) or service referred to in sub-clause (ii) shall not include such condition or
price which may be adopted to meet the competition; or

(b) limits or restricts—

(i) production of goods or provision of services or market therefor; or
(ii) technical or scientific development relating to goods or services to the
prejudice of consumers; or

(c) indulges in practice or practices resulting in denial of market access in any

manner; or

(d) makes conclusion of contracts subject to acceptance by other parties of

supplementary obligations which, by their nature or according to commercial
usage, have no connection with the subject of such contracts; or

(e) uses its dominant position in one relevant market to enter into, or protect,
other relevant market.

Explanation.—For the purposes of this section, the expression—

(a) “dominant position” means 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;

(b) “predatory price” means the sale of goods or provision of services, at a

price which is below the cost, as may be determined by regulations, of production of
the goods or provision of services, with a view to reduce competition or eliminate the
competitors;

(c) “group” shall have the same meaning as assigned to it in clause (b) of the
Explanation to section 5.

 Similar provisions can be seen in Section 2 of the Sherman Act and Article 102 of
TFEU.
 However, these positions provide for joint dominance which is missing in India.
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 2012 amendment bill attempted to make this change in the Act but it wasn’t
converted to an Act.

What is Dominant Position?

“dominant position” means 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;
 Here, it is a position of economic strength in India’s relevant market under
consideration.
 The market should be in India.
 This dominant position should enable the enterprise to do (i) and (ii) above.

Conditions precedent to determine application of Section 4(1) and (2):

I. Description of relevant market
II. Establishment or determination of dominant position – determine whether
the concerned firm is in a dominant position or has a substantial degree of
market power and has monopoly power in that relevant market.
III. Examination of abuse of dominant position – determine whether the firm in
a dominant position or having substantial market power or monopoly power
has engaged in conducts specifically prohibited by the statute or amounting
to abuse of dominant position or monopoly or attempt to monopolise under
the applicable law.

WHAT IS RELEVANT MARKET?

 Defined in Section 2(r)

Relevant market means the market which may be determined by the Commission
with reference to the relevant product market or the relevant geographic market
or which reference to both the markets;

 CCI cannot proceed with inquiry u/s 4 without determining the relevant market.
 Relevant market is of two types:

Relevant Product Market Relevant Geographical Market

Section 2(t) Section 2(s)
“relevant product market” means a “relevant geographic market” means a
market comprising of all those market comprising the area in which
products or services— the conditions of competition for
(i) which are regarded as inter- supply of goods or provision of
changeable or substitutable services or demand of goods or
by the consumer, by reason of services are distinctly homogenous
characteristics of the products and can be distinguished from the
or services, their prices and conditions prevailing in the
intended use; or neighbouring areas;
(ii) the production or supply of,
which are regarded as inter-
changeable or substitutable
by the supplier, by reason of
the ease of switching
production between such

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products and services and
marketing them in the short
term without incurring
significant additional costs or
risks in response to small and
permanent changes in relative
prices;

Relevant Geographic Market

 The area must be part of the country.
 Conditions of competition should be distinctly homogenous
 Conditions should be distinguished from conditions prevailing in neighbouring
areas.
 Area to the extent of which supply or purchase of goods and services are distinctly
homogenous. Examination by CCI of sources or locations for which the public
would readily turn up to take the supply.
 CCI relies on Section 19(6) to determine the relevant geographic market:

The Commission shall, while determining the “relevant geographic market”, have
due regard to all or any of the following factors, namely:—
(a) regulatory trade barriers;
(b) local specification requirements;
(c) national procurement policies;
(d) adequate distribution facilities;
(e) transport costs;
(f) language;
(g) consumer preferences;
(h) need for secure or regular supplies or rapid after-sales services.
(i) characteristics of goods or nature of services;
(j) costs associated with switching supply or demand to other areas.

Relevant Product Market

“relevant product market” means a market comprising of all those products or
services—
(i) which are regarded as inter-changeable or substitutable by the consumer,
by reason of characteristics of the products or services, their prices and
intended use; or
(ii) the production or supply of, which are regarded as inter-changeable or
substitutable by the supplier, by reason of the ease of switching production
between such products and services and marketing them in the short term
without incurring significant additional costs or risks in response to small
and permanent changes in relative prices;
 CCI relies on Section 19(7) to determine relevant product market.

The Commission shall, while determining the “relevant product market”, have due
regard to all or any of the following factors, namely:—
(a) physical characteristics or end-use of goods or the nature of services;
(b) price of goods or service;
(c) consumer preferences;
(d) exclusion of in-house production;
(e) existence of specialised producers;
(f) classification of industrial products.

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(g) costs associated with switching demand or supply to other goods or services;
(h) categories of customers.

US v. E.I. Du Pont de Nemours & Co. (1956, US - Cellophane Case)

 Cellophane is a product used in packaging. Respondent used its dominant position

in the market of cellophane. Had 3/4th of market share.

US Supreme Court:
 Asked to reassess market share.
 After reassessment, the matter went back to SCOTUS.

SCOTUS:
 Cant define relevant product market solely on the enterprises product line. Need
to see other market product similar to product under consideration. There is a
need to see other market products similar to the product under consideration.
 SCOTUS found that the Respondent had only 17% of market share and hence was
not in a dominant position and hence there was no question of abuse.
 Cross price Elasticity on Demand – price on one increases so the demand of other.
(Read this up once, not sure what this means).
 SCOTUS held that cellophane and other flexible packaging materials were in the
same relevant product market because there was a high degree of cross-elasticity
of demand measures the extent to which consumers will switch from one product
to another in the event of a price or quality change in the first product.

 This judgement was criticized by economists and scholars. The Court only relied
on cross price elasticity of demand. This was impractical according to criticism.
 In 1959, three years later, US economists in reaction developed a test called the
Small But Significant and Non-Transitory Increase in Price Test. It was
mentioned in the 1982 merger guidelines by the DOJ. This was when the efficiency
doctrine was roaring and Chicago school was at peak. This is a reaction to the
cellophane case. It has three points
I. Increase in price should be non-transitory and should be for a long period of
time. But it should be a small increase. Usually around 5 to 10%.
 As a first element, it must be noted that the price increase must be a non
transitory increase (increase for a long period of time or permanent). For a
provisional/temporary increase, they may still continue to use the same product
and might not switch. They must not see that the increase will be taken back in a
short period of time. Eg – Butter and Margarine and cake baking biz. – bakers use
butter generally for baking the cake – say there is an increase in the price of
butter – if the bakers come to know that it would be an increase for a long period
of time, they will certainly switch over to using margarine which can be used in an
equivalent manner.
 Second, the price increase must be a small increase. A huge increase in price,
people will definitely switch over. That is not the purpose of the understanding.
Small increase would enable the competition authority to identify close
substitutes. Large increases would compel them to go for distant substitutes.
 Third, the small increase must be a significant increase. It may be a 2% increase.
An insignificant increase in price may not attract the reaction of purchasers.
Purchasers will not react at all. It doesn’t matter a lot. It has to be a significant
increase so as to enable a purchaser to react. Generally it is considered that 5%

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increase would be considered to be a significant increase. This is also called the
hypothetical monopolist test or 5-10% test.

II. Reaction of purchaser

 Because of this increase, the cake baker switch to margarine, they fall in the same
market and therefore it is in the same market

III. Small size requirement

 The market must be a small one. It enables the competition authority in not going
from bracketing non-substitutable products. Eg car and bake are absolutely
distant substitutes. Non substitute products must not be there in the same
relevant market. Small size requirement was there.
 This test was also criticized. It is not an end in itself. It is merely a means/tool to
delineate relevant market. It does not take care of the quality element. It talks
only about price increase. Even if 20% increase is there, they may buy the same
product because they are quality conscious people. Therefore, the SSNIP test will
fail. CCI also tried to apply this test in India in certain cases but it was not
successful.]

EXISTENCE OF DOMINANT POSITION

 Section 19(4) provides for factors for determining existence of Dominant Position.
The Commission shall, while inquiring whether an enterprise enjoys a dominant
position or not under section 4, have due regard to all or any of the following
factors, namely:—
(a) market share of the enterprise; (If homogenous product, product turnover and
prevalence and if heterogenous products, overall turnover)
(b) size and resources of the enterprise; (Larger the size, more the presumption of
dominance)
(c) size and importance of the competitors; (Larger the share of competitors, lesser
the presumption of dominance)
(d) economic power of the enterprise including commercial advantages over
competitors; (The long led position leading to economic stronghold)
(e) vertical integration of the enterprises or sale or service network of such
enterprises;
(f) dependence of consumers on the enterprise;
(g) monopoly or dominant position whether acquired as a result of any statute or by
virtue of being a Government company or a public sector undertaking or
otherwise; (Statutory Dominance)
(h) 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;
(i) countervailing buying power;
(j) market structure and size of market;
(k) social obligations and social costs;
(l) 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;
(m) any other factor which the Commission may consider relevant for the inquiry.

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ABUSE OF DOMINANT POSITION

 CCI examines 4(2) violation which provides for seven types of anti-competitive
behaviour.
 Abuses are of two types:
I. Exploitative: Excess prices, predatory prices.
II. Exclusionary: Denial of access

PREDATORY PRICING
 Below Cost of Production sale of goods/services with a view to reduce competition
or eliminate competitiors.
 Here, Section 4(Explanation B) is read with CCI (Cost of Production
Determination) Rules, 2009.
 This has two stages:
i. Investment stage: Incurring loss is an investment
ii. Recoupment state: Once loss has incurred, set a monopoly and
recover loss and earn increased profits.

USA

Brooke Group Ltd. v Brown & Williamson Tobacco Corporation

Facts:
 Initially, the main company was called Ligett, which was acquired by Brooke
Group.
 Ligett was one of the six tobacco manufacturers in the US. During the mid 80s,
Lidgett with a view to increase its market share decided to enter into an economy
segment and started making and selling generic cigarettes vis a vis branded
cigarettes (which are costlier). By the 80s, they acquired 4 percent of the market.
 Brown and Williamson (BW), a competitor who feared losing market share also
then entered the generic cigarette market. This started a price war between the
two, with BW selling it much much below the normal price. Brooke complained.
SCOTUS:
 SC here held that a plaintiff seeking to establish a competitive injury by reason of
a rival’s low pricing must prove that the prices complained of are below an
appropriate measure of the rivals costs.
 SC further reasoned that the above cost prices, if they are below the general
market levels, are not inflicting injury based on anti trust laws. SC stated that
pricing is predatory if it is below the ‘appropriate level of cost’. However, there is
no uniform cost benchmark that was prescribed.
 Even if S 2 – defendant’s prices are below general market levels or below
competitor’s prices, still not sufficient to prove abuse.
 To prove abuse, the investment stage should follow the recoupment stage, and the
petitioner has to prove the commencement of the recoupment stage.
 This is often criticised as the recoupment stage might never happen. After the exit
of others, once the company starts increasing prices and a new company comes,
forcing re-reduction of prices or some companies that were forced to exit come
again, especially during investment stage often very difficult.

EUROPE

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A2KO Chrime v Commissoin
 ECS – small producer of ECS compound to flour industry for bleach after husk
removal.
 AZKO started selling ECS at way lesser price directly to the consumers.
 ECS moved the Commission

ECJ:
 Case of abuse of dominant position – A2KO already dominant and this below cost
pricing further hurting the other companies.
 If selling prices are:
I – Below average variable cost then its cost of absolute predatory pricing.
II – Above average variable cost but lower than average total cost, its predatory
pricing but need to prove intention.

Tetra Pack International SA v Commission, 1996

 Appellant prepared cartons for pasteurised milk.
ECJ:
 Yes, supply of cartons was above AVC but below ATC for seven years. Such a long
period reflects intent of predatory pricing.
 No need to prove recoupment and practically recoupment might not be possible.
Injury caused during investment stage cannot be undone and hence no need to
compulsorily prove recoupment stage.

INDIA

 Predatory behaviour elements:

I. Establish dominant position of enterprise in relevant market.
II. ICWA determines CoP for abidance with CCI (Determination of PoC)
Regulations, 2009. Need to show price of goods/services is below CoP.

Cost Determination
Regulation 2(1)(c)(i): “Cost” as used in
“total cost” means the actual cost of production including items, such as cost of
material consumed, direct wages and salaries, direct expenses, work overheads,
quality control cost, research and development cost, packaging cost, finance and
administrative overheads attributable to the product during the referred period
“total variable cost” means the total cost referred to in clause (i) minus the fixed cost
and share of fixed overheads, if any, during the referred period;
Regulation 3: Determination of Cost
(1)“Cost” in the Explanation to section 4 of the Act shall, generally, be taken as
average variable cost, as a proxy for marginal cost:
Provided that in specific cases, for reasons to be recorded in writing, the
Commission may, depending on the nature of the industry, market and technology
used, consider any other relevant cost concept such as avoidable cost, long run
average incremental cost, market value.

MCX Stock Exchange Ltd v NSE & Ors

 Matter of 2008. MCX informed CCI against NSE that NSE is in a dominant
position and had the privilege of prior entry and it abused this position in the
Currency Derivative Segment (CDS).
 Alleged violation of Section 4(2)(a)(2), 4(2)(b)(1), 4(2)(b)(2), 4(2)(e).

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 28 August 2008 – NSE Circular said that they are going to waive transaction fee
on CDS plus waiver of admission fee and minimum deposit level plus data feed
charge.
 Waivers made to derive new entrant MCX from CDS.
 This was done to block all leverage as new entrant for NSE to expand dominance
in CDS. It was alleged that they had restricted market, predatory pricing etc.
DG:
 Question of Cost benchmark?
 Here, what will be AVC?
 In certain industries, a variable cost does not exist.
 NSE did not provide a product but facilitated a platform for trade.
CCI:
 What NSE did was zero pricing. This waiver amount is zero pricing and hence it is
unfair pricing.
 This is not predatory pricing as no AVC and no product is being produced. NSE is
a mere platform.
COMPAT:
 Upheld decision of CCI but modified turnover calculated for NSE to be considered
as relevant turnover expanding relevant market not just CDS but whole stock
market.

Mr Ashish Ahuja v Snapdeal.com, CCI 2014

 Relevant market – portable small sized consumer storage device.
 Ahuja was aggrieved with the Respondent. Appellant had entered into an
agreement with the respondent on 25 November 2013 for the sale of various
products like pendrive, flash drive, memory cards etc.
 After 2 months, Appellant’s products went off the Respondent’s website and
Appellant received a call from Respondent informing that now only channelled
partners of SanDisk were allowed to sell products on their website.
 On 10th Feb, 2014, Appellant received a call from Snapdeal and conveyed that if
trade was via our portal, Appellant had to seek an NOC from SanDisk.
 Appellant then moved CCI against both Snapdeal and SanDisk alleging violation
of Sections 3(4) and 4(2).

Here, relevant market was storage devices and relevant geographic market was
India.
Relevant market is not limited to online market but both offline and online.
2 are different channels of distribution of same product.
CCI:
 “The relevant geographic market would be India. Based on the above discussion,
the relevant market will be market for portable small sized consumer storage
devices such as USB pen drives, SD Memory Cards and Micro-SD cards in India”
 The insistence by SanDisk that the storage devices sold through the online portals
should be bought from its authorised distributors by itself cannot be considered as
abusive as it is within its rights to protect the sancitiy of its distribution channel.
 In a quality drive market, brand image and goodwill are important concerns and it
appears a prudent business policy that sale of products emanating from
unknown/unverified/unauthorised sources are not encourages/allowed.
 Dominance is not proved and hence no abuse could be established under S 4.

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M/s Fastrack Call Cab Pvt Ltd v ANI Tech Pvt Ltd
Facts:
 Appellant was a Chennai based hybrid platform worked in around 6 states only.
Respondent started taxi under the name Ola.
CCI:
 CCI found prima facie case and issued Order under Section 26(1) but after final
process u/s 26(6), CCI found no process.
 Relevant Market here was Bangalore.
 Ola did have 43% product market share. Operation share was 44%.
 By end of 2015, Ola merged with MaxCab and the share increased to 69%.
 Appellant said that taxi under Ola at Rs 7 to 8 per km when the Operational Cost
of Running minus profit was 13 to 14 per km
 CCI agreed that Ola’s practice was not predatory pricing but funded by different
investment management companies.
 CCI found that as per existing law, funding was not prohibited.

Shri Sonam Sharma v Apple Inc, CCI 2013

Facts:
 Petitioner moved CCI making allegations against Apple International, Apple India,
Airtel and Vodaphone alleging that secretive agreements between Apple and
Airtel/Vodaphone.
 As per this agreement, Airtel & Vodaphone will have exclusive right to sell Apple
products in their stores. The number of years was also not disclosed. Here, apple
would operate Vodaphone and Airtel network only.
 Now, Apple blocked services of all telecom except Vodaphone and Airtel. If
customer gets this lock removed through any external party, their warranty
services would end.
Allegation was of violation of S 3(4)(a) and 4(2)(b).
CCI:
 Held that there was no violation because:
 None of them individually have a market share of more than 30%.
 No market share of more than 6% in mobile smartphone market.
 Even if unlocked to switch from Vodaphone to Airtel or vica versa in iPhones, you
can unlock it by paying an unlock fee.
 Unlocked iPhone handset could be purchased from foreign market.

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M5 – CONTROL OF COMBINATIONS

 In the USA, this area is known as Merger Control.

 CCI now conducts an anti-trust assessment of any proposed merger or
amalgamation.
 S 6(1) – mandates that any merger, acquisition or amalgamation shouldn’t lead to
cause AAEC. If it does, then such a combination will not be allowed.
 This CCI examination is a prerequisite, and approval is needed to complete and
formalise the merger/acquisition/amalgamation.

What are the combinations to which this applies?

 Combinations (mergers, acquisitions, amalgamations) are a legitimate means by
which firms can grow and are generally as much part of the natural process of
industrial evolution and restructuring as new entry, growth and exit.
 It may be said that a merger leads to a bad outcome only if it creates a dominant
enterprise that subsequently abuses its dominance.
 The general principle, in keeping the overall goal, is that mergers should be
challenged only if they reduce or harm competition and adversely affect welfare.
 Mergers can be:
- Horizontal
- Vertical
- Conglomerate
There are 10 provisions that govern this part.

India

 The nodal ministry is the Ministry of Corporate Affairs.

 Combinations are part under CCI not enacted when the Act came into force.
 It was on 4th March 2011 that six provisions – 5, 6, 20, 31, 29, 30 relating to
combinations came into force on 1st June 2011.
 Gun Jumping– If about to merge, you need to inform about such merger and get it
examined from CCI. If not approved through CCI, it will be Gun Jumping and
punishable under S 43A.
 The 4th March 2011, notification didn’t enact S43A and 44 which stood as penal
provisions.
 Hence, another notification on 30th May 2011, the 2 provisions and came into
force.
 CA 2023 amendment, changes to combinations sections also. However, these
changes are updated in 2024 Regulations notified on 09/09/24 enforceable on
10/09/24.

SECTION 5 – COMBINATIONS

 To qualify as a recognised combination u/s 6(2), need to meet criteria u/s 5 i.e.,
trigger of S 5 necessary to be qualified u/s 6(2).
 S 5 provides for 5 types of transactions:
A – Acquisition
B – Acquisition of Control
C – Amalgamation
D – Additional financial limit established
E – De-minimis/Target Exemption

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Analysis:
5(a): Acquisition as a combination
Subsection 1 refers to acquisition of control, shares, voting rights or assets. Here,
acquirer and enterprise being acquired jointly have:
a. Assets of value more than Rs 1000 Crore or turnover of more than Rs 3000
Crore. This has to be in India, or;
b. One of the companies should have businesses or assets in foreign state – if
value of assets is more than 500 Million USD including Rs 500 Crore in
India or turnover of USD 1300 Million with USD 1500 Crore in India.
2. Enterprise joining group, post acquisition group and enterprise jointly have –
a. In India, assets of value – more than 4000 Crore
b. In India or outside India – more than 2 Billion USD including atleast Rs 5
Crores in India or turnover more than 6 Billion USD or atleast 1500 Crores
in India

 These amounts are mentioned in the provision and keep on changing owing to
inflation.
 The above provided threshold limit was of 2002. In 2011, on enactment of the
section, these thresholds were enhanced.

 Section 20(3) – permits the change in threshold limit
Notwithstanding anything contained in section 5, the Central Government shall, on
the expiry of a period of two years from the date of commencement of this Act and
thereafter every two years, in consultation with the Commission, 4 [enhance or
reduce by notification, or keep at the same level, on the basis of the wholesale price
index or fluctuations in exchange rate of rupee or foreign currencies, or such factors
that in its opinion are relevant in this matter, the value of assets or the value of
turnover or value of transaction], for the purposes of that section.

Under Section 20(3), notifications as follows:

I. 4th March 2011 – assets value and turnover value under s 5 was increased
by 50%.
II. 4th March 2016 – assets value and turnover value under s 5 was increased
by 100%.
III. 7th March 2024 – assets value and turnover value under s 5 was increased
by 150%.

Refer to Sir’s PPT

Section 5(e) – de minimis:

(e) notwithstanding anything contained in clause (a) or clause (b) or clause (c),
where either the value of assets or turnover of the enterprise being acquired, taken
control of, merged or amalgamated in India is not more than such value as may be
prescribed, such acquisition, control, merger or amalgamation, shall not constitute a
combination under section 5.

 If the threshold specifically issued via notification is not met, it is not to be

considered a combination.
 It is a target exemption.
 Example: 04th March 2011 – u/s 54(a) of Competition Act 2002 – centre exempted
an enterprise whose control, shares, rights or assets are being acquired has

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assets value of less than Rs 250 Crore or turnover value of less than Rs 750 Crore.
The exemption is from s 5, and this is for 5 years, i.e., 2011 to 2016.

 On 4th March 2016 – same notification where asset value exempt was 350 Crore
and turnover of Rs 1000 Crore was exempt from s 5 for 5 years value of enterprise
being acquired.

 On 27th March 2017 – asset and turnover value was same but was a development
to 4th March 2016 exemption.s Earlier, the 2011 and 2016 notification of de
minimis was limited to s 5(a) (acquisition).
 Now, with this notification, de-minimis notification is extended to s 5(b)
(acquisition) and s 5(c) (merger or amalgamation).

 Further, if a portion of business is being acquired or acquisition or merger, then
asset and turnover value of only that portion should be considered for de-minimis
exemption limit and not the whole business.

 07th March 2024 – de minimis exemption: asset value exemption – 450 crore and
turnover value exemption was 1250 crore.
 Section 5(d): Deal Value Threshold (DVT)
(d) value of any transaction, in connection with acquisition of any control, shares,
voting rights or assets of an enterprise, merger, or amalgamation exceeds Rs 2000
Crores

Provided that the enterprise which is being acquired, taken control of, merged or
amalgamated has such substantial business operations in India as may be specified
by regulations.

 This is a new transaction limit if the conditions under s5(a), (b) & (c) are not met.
 This is driven by the deal value, i.e., if the deal value is more than 2k Crore, then
it is a combination.
 However, one condition is that the company being acquired, taken control of or
amalgamated must have substantial operation in India.
 This is, in a way, an exception to S 5(e).

Substantial Competition in India

 Regulation 4 (Value of transaction and substantial business operations in India) of
the CCI (Combinations) Regulations, 2024.

For the purpose of proviso to clause (d) of section 5 of the Act, the enterprise
referred therein shall be deemed to have substantial business operations in India, if:
(a) for digital services provided, the number of its business users or end users in
India is 10% or more of its total global number of such users; or
(b) its gross merchandise value for the period of twelve months preceding the
relevant date in India is:
(i)10% or more of its total global gross merchandise value, and
(ii) more than rupees five hundred crores; or
(c) its turnover during the preceding financial year in India is:
(i)10% or more of its total global turnover derived from all the products and services,
and
(ii) more than rupees five hundred crores.

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Explanation 1.─ Sub-clause (ii) of clause (b) and sub-clause (ii) of clause (c) of this
sub-regulation shall not apply to digital services.

S 5(b) – acquisition of control

For purpose of horizontal contracts, the same threshold is given on s 5(a)/

S 5(c) – Merger of amalgamation

Threshold same as 5(a).

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S 6 – REGULATION OF COMBINATIONS

(1) No person or enterprise shall enter into a combination which causes or is likely to
cause an appreciable adverse effect on competition within the relevant market in
India and such a combination shall be void.
(2) Subject to the provisions contained in sub-section (1), any person or enterprise,
who or which proposes to enter into a combination, 1 [shall] give notice to the
Commission, in the form as may be specified, and the fee which may be determined,
by regulations, disclosing the details of the proposed combination, 2 [after any of the
following, but before consummation of the combination]—
(a) approval of the proposal relating to merger or amalgamation, referred to in
clause (c) 3 [and clause (d)] of section 5, by the board of directors of the enterprises
concerned with such merger or amalgamation, as the case may be;
(b) execution of any agreement or other document for acquisition referred to in
clause (a) 3 [and clause (d)] of section 5 or acquiring of control referred to in
clause(b) of that section.

S 6(1) – Combination u/s 5 of Competition Act 2002 should not create AAEC in a
relevant market.

S 6(2) – Notice and Inquiry by Commission

Any proposal of combination needs to be notified to the CCI.
All such combinations which qualify u/s 5(a)(b)(c) and (d) become notified
combinations.

In a merger, both companies are to notify such combination to CCI jointly.

In acquisition of control or acquisition, the acquirer has to notify.

For a merger, The companies must notify before the consummation of such a
combination.
Notify after BoD approves the merger or execution of agent for acquisition or
acquiring control of.

Basically, you need to notify CCI after the Board of Directors approves the
merger/acquisition but before such combination is consummated. If you don’t notify
CCI before consummation, it amounts to gun jumping.

Trigger Exemption:
From 1st June 2011 to 29th June 2017 – you need to notify within 30 days of BoD
permission or agreement execution. On 29th June 2017, exemption to all combination
from 30 days rule for 5 years subject to s 6(2) and s 43A.

Titan International and PLC Acquisition Case

Titan makes wheels, machines, etc.
PLC (Titan Europe) created similar products, so Titan International acquired Titan
Europe.

Titan PLC had 31.9% in Wheels India.

Titan International’s acquisition leads to an indirect acquisition of Wheels India.
This was challenged by India, although the acquisition was approved by CCI.

2 Orders were passed by CCI

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S 31(1) – CCI said that since there is no AAEC and Titan International is not present
in India,
S 43A – Challenged that these companies didn’t notify CCI, and hence, it amounted
to gun jumping. Although this didn’t have much merit or substantial impact on AAE,
a 1 Crore Penalty was imposed.

Section 6(2A)
No combination shall come into effect until 150 days have passed from the day on
which the notice has been given to the Commission under subsection 2 or the
Commission has passed orders under Section 31, whichever is earlier.

This makes India – suspensory juris – combination suspended till the investigation by
CCI is complete or a maximum of up to 150 days, within which CCI to complete the
investigation. If not complete, it is a deemed approval u/s 31(6).

Section 6(3)
The Commission shall, after receipt of notice under subsection 2, deal with such
notice in accordance with the provisions contained in sections 29, 29A, 30 and 31

[Refer to the Sections mentioned above]

CCI – after receipt of notice – makes prima facie opinion if there is AAE – S 29(1B)

Prima facie opinion shall be given within 15 days.

If CCI doesn’t make an opinion here, directly move to Phase II.
The company then has the remedy to make changes – S 29A or S 31.
This amendment can be proposed only by parties and then submitted to CCI. CCI has
the option ot either accept or reject such remedy.
If they reject it, CCI can cancel the combination.

Section 29 – Procedure for investigation.

(1) Where the Commission is of the prima facie opinion that a combination is
likely to cause, or has caused an appreciable adverse effect on competition
within the relevant market in India, it shall issue a notice to show cause to the
parties to combination calling upon them to respond within fifteen days of the
receipt of the notice, as to why investigation in respect of such combination
should not be conducted.
(1A) After receipt of the response of the parties to the combination under sub-
section (1), the Commission may call for a report from the Director General
and such report shall be submitted by the Director General within such time as
the Commission may direct.]
(1B) The Commission shall, within thirty days of receipt of notice under sub-
section (2) of section 6, form its prima facie opinion referred to in sub-section
(1).]
(2) The Commission, if it is prima facie of the opinion that the combination has,
or is likely to have, an appreciable adverse effect on competition, it shall, 6
[within seven days] from the date of receipt of the response of the parties to
the combination, or the receipt of the report from Director General called
under sub section (1A), whichever is later] direct the parties to the said
combination to publish details of the combination 7 [within seven days] of such
direction, in such manner, as it thinks appropriate, for bringing the
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combination to the knowledge or information of the public and persons
affected or likely to be affected by such combination.
(3) The Commission may invite any person or member of the public, affected or
likely to be affected by the said combination, to file his written objections, if
any, before the Commission 1 [within ten days] from the date on which the
details of the combination were published under sub-section (2).
(4) The Commission may, within seven days] from the expiry of the period
specified in sub-section (3), call for such additional or other information as it
may deem fit from the parties to the said combination.
(5) The additional or other information called for by the Commission shall be
furnished by the parties referred to in sub-section (4) 3 [within ten days] from
the expiry of the period specified in sub-section (4).
(6) After receipt of all information, the Commission shall proceed to deal with
the case in accordance with the provisions contained in section 29A or section
31, as the case may be.
(7) Notwithstanding anything contained in this section, the Commission may
accept appropriate modifications offered by the parties to the combination or
suo motu propose modifications, as the case may be, before forming a prima
facie opinion under sub-section (1).]

Green Channel
S 6(4), (5) and (6)
Parties were in a conglomerate merger, and quick approval was sought through S
6(4) to (6).

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