Table of Contents:

Why Competition?
The New Regime Background &
Introduction
The Competition Act, 2002 - Key
Provisions
Impact of competition law in
distributorship model.
Risk Mitigation - Critical Steps
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Competition in market is
BENIGN:

Reduces prices

Improves quality

Boosts choice

Facilitates better governance

Promotes efficiency

Encourages innovation

Punishes THE LAGGARDS

Ensures AVAILABILITY OF GOODS in abundance of acceptable

quality at affordable price (AAA)
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Five Dimensions of the Act:

Anti-competitive Agreements (ACAs)

[Sec. 3]
Abuse of Dominance (AOD) [Sec. 4]
Combinations, include acquisition of shares,
voting rights, assets/control, mergers,
amalgamations and takeovers [Secs. 5 & 6]
Advising, on a reference, to Government in
respect to its policies/law

Advocacy creating awareness

(All these dimensions of law are in force)
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Powers of the CCI:

Issue directions to discontinue or not to re-enter (Cease
& Desist orders) in relation to ACA/AOD);
Grant interim relief during enquiry;
Impose penalty on producers, distributors, suppliers of
up to three times of average profits or up to ten percent
of average turnover for each year of continuance of
agreement, whichever is higher, in case of cartel like
behavior;

Impose penalty which shall be not more than ten percent

of the average of the turnover for the last years , for
other violations.
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Contd
Impose penalty on delinquent directors and functionaries
who are delegated with requisite powers;
Declare anti-competitive agreements void;
Order division of dominant enterprise or groups;
Approve/approve
combinations;

with

modifications

Any other orders which the CCI may deem fit.

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or

block

Institutional Framework:
The CCI Primary body to implement the law;

Office of the DG to assist the CCI in carrying out investigation

The COMPAT- For appeals against CCI Orders and to

adjudicate Claims for Compensation.
Supreme Court of India For appeals against orders
of COMPAT.
Central Government Vested with power to supersede
the CCI; issue directions; grant exemptions from
applicability of the Act.
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Powers of the DG:

Requisition of information from the parties
Requisition of information from ex-employees,
distributors etc.
The DG can summon and record evidence
during investigation.
DG can exercise the powers of Search and
Seizure (Dawn Raids).
DG are vested with the powers of a Civil Court
to aid Inquiry/Investigations

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Relevant Market
Relevant Market includes relevant product market
and relevant geographic market.
Relevant Product Market comprises all those
products
or
services
which
are
regarded
as
interchangeable or substitutable by the consumer.
United Brands v. Commission It was argued that bananas
were in the same market as other fruit. The ECJ held that the
banana constitutes a separate market since it has special
features distinguishing it from other fruits, like it is the only
fruit which can be consumed by infants and the elderly.

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Contd

Relevant Geographic Market refers to market

comprising the area in which the conditions of
competition are distinctly homogenous.
This could be a small town, state, across the nation or
even global.
For instance, relevant geographic market in the DLF
case has been considered as Gurgaon on the basis that
the conditions of competition between Delhi and
Gurgaon and distinctly homogenous and they cannot be
treated as the same (pending appeal). Further, in the
cement cartel case, the relevant geographic market is
considered as India since the same conditions are
prevalent pan-India regarding sale of cement.
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Anti-Competitive Agreements
(ACAs):
Section 3 prohibits agreements 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
(AAEC) within India.
The Act declares that agreements entered into
in contravention of the above prohibition shall
be void.
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Horizontal and Vertical Agreements

Raw Material
Supplier

Raw Material
Supplier

Raw Material
Supplier

Manufacturer

Manufacturer

Manufacturer

Wholesaler

Wholesaler

Wholesaler

Retailer

Retailer

Retailer

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Horizontal Agreements
(Presumption of AAEC):
Agreements between enterprises or persons engaged in
similar trade of goods or provision of services.
Agreements including cartels that:
(a) fix prices,
(b) limit or control production,
(c) allocates markets or customers, and
(d) rig bids/collusive bidding
are presumed to have an appreciable adverse effect on
competition (AAEC)
The prosecutor needs to prove existence and not the
harm caused.

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e.g. DISCUSS ABOUT PRICE INCREASE, TIMING OF PRICE

INCREASE WITH COMPETITORS

Retail price is too

cheap. Why dont
we increase the
wholesale price
by 5%?

Medtronics
Sales Person

I agree. Lets
implement the
price increase
next month.

Competitors Sales
Person
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e.g. DISCUSS ABOUT CUSTOMERS AND

TERRITORY WITH COMPETITORS
West district of A
city is our territory.
Do not sell your
products in our
territory.

Medtronics Sales Person

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Okay. East district is

our territory.
Promise to us that
you will not sell your
products at our
territory.

Competitors Sales Person

Contact with former boss

(Fictional Case)
Long time no see. I did not
know you were working to
get this business for
Medtronic. Why dont we
keep in touch and exchange
information?

Medtronic sales
person

Ex Medtronic Sales
Person working at
Competitor

What should you say? Think of a script.

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Answer
" I agree. Give me your contact details so that we can
exchange information.
" It is really nice to see you again. Why dont we go
out for dinner tonight. There are lots of things that we
should talk.
Leave the place after saying "It is nice meeting you
again. But we are competitors now, and competing
with each other for this deal. It is against our
companys policy to interact with competitors. I am
afraid I will have to say I have to go.
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Vertical Agreements
(Rule of Reason)
Agreements between enterprises at different stages
or levels of the production chain.
What is the Rule of reason analysis?
A rule of reason analysis involves determining
whether conduct can be justified on the basis that
its pro-competitive gains outweigh its anticompetitive effects.
Agreements are not deemed anti-competitive
unless if they cause or are likely to cause AAEC in
India.
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Examples of Competition issues in

vertical relationships
Vertical agreements include:
(a)tie-in arrangements any agreement requiring a
purchaser of goods, as a condition of such purchase,
to purchase some other goods.
(b)exclusive supply- any agreement restricting in any
manner the purchaser in the course of his trade from
acquiring or otherwise dealing in any goods other
than those of the seller or any other person.
(c) exclusive distribution agreement- any agreement
to limit, restrict or withhold the output or supply of
any goods or allocate any area or market for the
disposal or sale of goods.
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Contd
(d) refusal to deal- any agreement which restricts, or
is likely to restrict, by any method the person or
classes of persons to whom goods are sold or from
whom goods are bought;
(e) resale price maintenance- any agreement to sell
goods on condition that the prices to be charged on
the resale by the purchaser shall be prices stipulated
by the seller unless it clearly stated that prices lower
than those prices may be charged.
The scope and ambit of above concepts is broad as the
definition has been made inclusive.

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Factors for Determination of

AAEC:
Creation of barriers to entry;
Driving existing competitors out of market;
Foreclosure of competition by hindering entry
into market;
Accrual of benefits to consumers;
Improvements in production or distribution of
goods or supply of services;
Promotion of technical, scientific and economic
development;

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Risks The Leniency Provision

The Act provides for imposition of lesser penalty by the
CCI in cases of violation of Section 3 where a person
makes FULL, TRUE and VITAL disclosure of a cartel to
the CCI; for e.g. Samsung Electronics received full
immunity (100%) from fines under the Commission's
leniency programme in the LCD Cartel case. LG got a
50% reduction.
The Leniency System is targeted at cartel participants
and seeks to induce participants to break rank and turn
approver against other cartel members.
A successful applicant can avail the benefit of a reduction
in penalty in the range of up to 100% or 50% or 30%
keeping in view the first mover advantage.
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Exclusions:
Section 3 does not:
- restrict right of IPR holder to prevent
infringement of IPR or impose
Reasonable Conditions on use of such
IPR;
- restrict right of a person to export
goods from India.

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Abuse of Dominant Position

The Act does not prohibit dominant position it only
frowns upon the abuse thereof.
Dominant Position refers to a position of strength
enjoyed by an enterprise or group in the relevant
market, in India, which enables it to Operate
independently
of
competitive
forces
prevailing in the relevant market; or
Affect its competitors or consumers or the relevant
market in its favor.
Group is open ended.
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Contd
Determination of
Position involves:

Abuse

of

Dominant

Identifying the relevant market

Establishing the dominant status of the
enterprise or group; and

Evaluation of the conduct to determine

whether it falls within abuses listed under
the Act.
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Types of Abuses

EXPLOITATIVE ABUSES i.e., conduct which results in

exploitation of others in the value chain, for e.g.,
- imposition of unfair or discriminatory conditions
- imposition of unfair or discriminatory prices e.g.,
predatory pricing.
EXCLUSIONARY ABUSES conduct which interferes with the
competitive process, for e.g.,
- Denial of market access;
- Making conclusion of contract subject to acceptance of
supplementary obligations
- Limiting production of goods, provision of services;
scientific development;
- Using dominance in one relevant market to enter into or
protect other relevant market ;
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Determination of Dominant
Position - Factors
Market share of the enterprise
Size and resources of the enterprise

Size and importance of the competitors

Economic power of the enterprise

Vertical integration of the enterprises

Dependence of consumers on the enterprise
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Contd

Dominant position as a result of statute

Barrier to entry

Countervailing buyer power

Market structure and size of market

Social obligations and social costs

Contribution to the economic development

Any other factor (residuary factor)

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Regulation of Combinations
Merger Control:
The Act regulates combinations (merger
control) which involves an ex ante assessment
of changes in the structure of the relevant
market.
No combination can take effect unless the
transaction is approved by the CCI.
Combination Regulations sets out the
procedure of filing notice, fee payable and
timelines.
Failure to file notice of a reportable transaction
attract penalty. www.luthra.com
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Contd
Combinations include:
-

Acquisition of control, shares, voting rights, or assets

of another enterprise; or

Acquisition of control where the acquirer already has

control over a similar/identical business or

Merger or amalgamation of enterprises

where such transactions cross the asset or

turnover thresholds set out in the Act.
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Risks Impact on Companies

High penalties/liability for compensation;
Possible extra fine and/or imprisonment for
breach of CCI orders;
Legal Expenses;
Loss of Reputation;
Agreements rendered null and void;
Division of dominant enterprise;
Loss of business from the harmed parties;

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A word of caution in
communication?
Email, SMS, FAX, Communication in any e-mode are
admissible evidence.
Skillful communication is imperative.
Do not sound guilty .
Do not use expression like destroy after reading.
Avoid the exaggerated use of power words(e.g.
well destroy them, we will nail them to the
wall)
Avoid giving the false impression that a customer is
being given favored treatment( e.g. None of our
other customers is getting this special
discount).
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Contd
Do not give false impression that some action is
being taken as a result of an agreement between
competitors ( e.g. Everyone in the industry
agrees that prices are too low).
Be carful with the use of the word market (e.g.
we are dominant).
Marking a document personal and confidential
or keeping it in your personal files or home
office or computer does not mean that it wont be
discovered.
Do not use the term market when referring to
distribution channels.
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