Published on November 23, 2010
Slide 1: 23.11.2010 gyan agnihotri 1 Competition Policy and Law in a Liberalising Economy Competition Law : 23.11.2010 gyan agnihotri 2 Competition Law A myth or a reality in India ? Contents : 23.11.2010 gyan agnihotri 3 Contents Background of the Competition Act Unfair Trade Practices Restrictive Trade Practices Protection of Intellectual Property Rights Abuse of Dominance and Combinations Case Studies Background : 23.11.2010 gyan agnihotri 4 Background “Competition” (L – “compete”) is an age-old phenomenon In olden days, competition existed amongst cave-men is also reflected in the Mahabharat In modern times, competition has become a global phenomenon starts right from Kindergarten & Nursery classes Benefits of Competition…. : 23.11.2010 gyan agnihotri 5 Benefits of Competition…. Companies : Efficiency, cost-saving operations, better utilization of resources, etc. The Consumer : Wider choice of goods at competitive prices The Government : Generates revenue BUT………………………… ….Benefits of Competition : 23.11.2010 gyan agnihotri 6 ….Benefits of Competition ………all these benefits are lost if Competition is UNFAIR or NON-EXISTANT Choice of CARS in the olden days MTNL Monopoly : The position today Airlines : INDIAN AIRLINES : JET : SAHARA Mobiles : Price Wars Indian Railways : The monopoly continues…. Perfect Competition – A Myth : 23.11.2010 gyan agnihotri 7 Perfect Competition – A Myth “PERFECT COMPETITION” is an ideal situation which exists only on paper. It implies: A large number of Sellers A large number of Buyers Free entry Free exit Manufacturers are “price-takers” and not “price-makers” No single manufacturer can influence the market Evaluation of Country’s Competition Regime : 23.11.2010 gyan agnihotri 8 Evaluation of Country’s Competition Regime Competition Policy & Philosophy of the Government Trade Agreements & Practices which are RESTRICTIVE Trade Agreements & Practices which are UNFAIR Abuse of dominance Combines : Mergers, amalgamations and take-overs Protection (or lack of it) of Intellectual Property Rights Competition at the international level : Trade Blocs Consumer activism : NGOs and Consumer Associations Evolution of Competition Law : 23.11.2010 gyan agnihotri 9 Evolution of Competition Law Before MRTP Act came into force (1970), limited provisions existed under : The Indian Contract Act The Law of Torts Directive Principles of State Policy (Non-enforceable) The MRTP Act brought in a four-pronged thrust : Concentration of economic power ( - Repealed in 1991 - ) Restrictive Trade Practices Monopolistic Trade Practices ( - Almost a dead letter - ) Unfair Trade Practices ( - Added in 1984 - ) Competition Act - “Still in Incubator” : 23.11.2010 gyan agnihotri 10 Competition Act - “Still in Incubator” Raghwan Committee Two Writ Petitions – as soon as Act was notified Observations of the Hon'ble Supreme Court The position on date Unfair Trade Practices : 23.11.2010 gyan agnihotri 11 Unfair Trade Practices Many competition regimes do NOT consider this as part of Competition Law BUT, it does affect competition – directly or indirectly Consumer protection provisions made for the first time in India by 1984 Amendments in the MRTP Act The Consumer Protection Act came only 2 years later How Consumer Courts were hurriedly constituted After 1986, MRTP Commission and Consumer Courts had parallel jurisdiction Consumer Courts v MRTP Commission : Pros & Cons Unfair Trade Practices : 23.11.2010 gyan agnihotri 12 Unfair Trade Practices HOW UTPs affect competition : Warranties not based on lab tests After sales guarantees not honoured Contests & Competitions View of the MRTP Commission View of the Supreme Court Disparagement of competing products Godrej v Kelvinator Colgate v Pepsodent Rulings in RIDAKE (India) & XENICAL (USA) Misleading sales ads “UPTO 60% OFF” Guptaji’s Sales Ads of CURRYS (U.K.’s biggest electrical chain) UTPs vis-à-vis Competition Act : 23.11.2010 gyan agnihotri 13 UTPs vis-à-vis Competition Act Under the Competition Act : No provision for Unfair Trade Practices Only Consumer Courts will have jurisdiction Pending cases will be continued by MRTPC for 2 years After 2 years : All cases (except Disparagement Cases) will be transferred to National Commission under CPA All Disparagement Cases will be transferred to Competition Commission Q. : After 2 years, WHERE can a Company file Disparagement Cases ? Restrictive Trade Practices : 23.11.2010 gyan agnihotri 14 Restrictive Trade Practices MRTP Act Today, the Act contains a two-pronged approach to RTPs RTPs (except one) are NOT declared void. Only registration formalities are to be complied with MRTP Commission can issue Notice of Enquiry – followed by Cease-&-Desist Order if RTP proved to be against public interest : No jail, no fine “Gateways” are available Restrictive Trade Practices : 23.11.2010 gyan agnihotri 15 Restrictive Trade Practices Competition Act 9 “Anti-competitive Agreements” are declared void “Per Se Rule” applied to 4 Horizontal Agreements “Rule of Reason” applied to 5 Vertical Agreements Anti-competitive Agreements : 23.11.2010 gyan agnihotri 16 Anti-competitive Agreements Horizontal Agreements Persons engaged in identical or similar goods or services enter into an agreement : to determine purchase or sales prices to limit / control production, supply, technological developments, etc. to share the market, allocate geographical markets or number of customers for bid rigging or collusive tendering All the above 4 Agreements “shall be presumed to have an appreciable adverse effect on competition” Anti-competitive Agreements : 23.11.2010 gyan agnihotri 17 Anti-competitive Agreements Vertical Agreements “Tie-in” Arrangements Exclusive Supply Agreements Exclusive Distribution Agreements Refusal to deal Resale price maintenance Such an Agreement will be contravention of the Act IF the Agreement causes – or is likely to cause – an appreciable adverse effect on competition Powers of Competition Commission as Regards Agreements : 23.11.2010 gyan agnihotri 18 Powers of Competition Commission as Regards Agreements After the inquiry into the Agreement, Competition Commission can: direct parties to discontinue the agreement prohibit parties from re-entering such agreement direct modification of the agreement impose penalty upto 10% of average turnover of the enterprise PROTECTION OF INTELLECTUAL PROPERTY RIGHTS : 23.11.2010 gyan agnihotri 19 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS MRTP Act Firstly, the MRTP Commission cannot pass Orders which restrict the right of any person to restrain the infringement of a patent granted in India, or any person as to the condition he attaches to a licence to do anything, the doing of which, but for the licence, would be an infringement of a patent granted in India Secondly, Section 39, which declares resale price maintenance to be void, does not affect the validity of a licence granted by the proprietor of a patent or trade-mark, so far as it regulates the price at which articles produced by the licensee may be sold by him. PROTECTION OF INTELLECTUAL PROPERTY RIGHTS : 23.11.2010 gyan agnihotri 20 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS Competition Act The prohibition on horizontal and vertical agreements do not restrict the right of any person to impose reasonable restrictions to protect any of his rights under the Copyright Act, the Patents Act, the Trade and Merchandise Marks Act, Designs Act Abuse of Dominance : 23.11.2010 gyan agnihotri 21 Abuse of Dominance Mandate of the Act : “No enterprise shall abuse its dominant position.” 5 categories of “abuse” are listed in the Act, as for instance, - Imposing discriminatory conditions in purchase or sale of goods Predatory pricing Limiting production or scientific or technical development Using dominant position in one market to enter another market, etc. Abuse of Dominance : 23.11.2010 gyan agnihotri 22 Abuse of Dominance “Dominant position” is defined as a position of strength which enables the enterprise to operate independently of competitive forces in the market, or to affect its competitors or consumers in its favour. No mathematical or statistical formula is adopted to “measure” dominance – as under the repealed provisions of the MRTP Act ( - 25% of market share - ) Abuse of Dominance : 23.11.2010 gyan agnihotri 23 Abuse of Dominance Power of the Competition Commission After inquiry into abuse of dominant position, the Competition Commission can order: discontinuance of abuse of dominant position impose a penalty upto 10% of the average turnover of the enterprise Combinations : 23.11.2010 gyan agnihotri 24 Combinations MRTP Act Provisions of the MRTP Act regarding registration of undertakings, establishment of new undertakings, take-overs, mergers and amalgamation were criticized on the ground that they were based on an impractical and untenable proposition that “BIG is BAD” Ultimately, these provisions were repealed in 1991 Combinations : 23.11.2010 gyan agnihotri 25 Combinations Competition Act NOW, the Competition Act seeks to regulate any “acquisition”, “acquiring of control”, “mergers or amalgamations” if it results in assets or turnover exceeding specified monetary limits Concept of voluntary notice is introduced. On receipt of such notice, Competition Commission can inquire – and approve the combination, or direct that the combination shall not take effect, or propose modifications If no such Order is passed within a time-bound frame, the combination is DEEMED TO HAVE BEEN APPROVED. Combinations : 23.11.2010 gyan agnihotri 26 Combinations Powers of Competition Commission It can : issue a Show Cause Notice to the parties direct the parties to publish details of the combination invite members of the public to file written objections pass appropriate Orders Two questions are worth considering : Is this just a back-door entry of earlier provisions of the MRTP Act ? Will monetary limits fixed five years ago remain relevant five years hence ? Case Studies : 23.11.2010 gyan agnihotri 27 Case Studies Columbia AVIANCA, Columbia’s largest airline planned a merger with the country’s second largest airline, ACE. Justifications given for the merger were : AVIANCA had huge accumulated losses, and the merger would be a potential answer to its financial problems The merged airline could effectively compete with foreign carriers in the international market HELD : Merger would be anti-competitive : The merged airline would be FOUR times the size of its nearest domestic rival. Case Studies : 23.11.2010 gyan agnihotri 28 Case Studies India The JET take-over of SAHARA : A damp squib ? Australia Co X with 75% of domestic biscuit market proposed a merger with Co Y, which had 15% market share of Australia’s biscuit market. Justification given for the merger : “Snacks” and NOT “Biscuits” is the relevant market. In the snacks market, Co X had a 10% share of the market and Co Y, a mere 1%. HELD : The relevant market was “Biscuits” and not “Snacks”. Merger NOT ALLOWED. Slide 29: 23.11.2010 gyan agnihotri 29 Thank You!