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Published by Enhelion, 2019-11-20 12:23:35

Module 6

Module 6

MODULE 6
COMPETITION LAW

6.1 INTRODUCTION

Competition laws promote economic efficiency and social welfare by prohibiting
restrictive business practices and creating a level playing field for firms. Competition
law is defined as a set of rules that govern the way that businesses interact with each
other in the marketplace. The Model Law on Competition put forward by the United
Nations Conference on Trade and Development (UNCTAD) outlines the aim of
competition policy:
“To control or eliminate restrictive agreements or arrangements among enterprises, or
merger and acquisitions or abuse of dominant positions of market power, which limit
access to markets or otherwise unduly restrain competition, adversely affecting
domestic or international trade or economic development (UNCTAD 2000)”.1
Competition deals with market failures on account of restrictive trade practices in the
market place. The history of competition law is usually traced back to the enactment
of Sherman Act in 1890 in the US.2 This act was directed against the power and
predations of the large trusts formed in the wake of the Industrial Revolution where a
small control group acquired and held the stock of competitors, usually in asset, and
controlled their business. Gradually, competition law came to be recognized as one of
the key pillars of a market economy. This recognition led to enactment of competition
law in many countries, including many developing countries.
Competition in the market means competing for quality, price and resources, leading
to a market oriented towards consumer rights, fair trade, and efficient resource
allocation, development of small businesses, incentives for innovation and dispersion
of economic power. It is precisely for the benefits emanating out of competitive
markets that they have been perceived to promote economic development.



1 Ping Lin, The Evolution of Competition Law in East Asia,
http://books.google.co.in/books?id=ZNhmNB2SGicC&pg=PA16&lpg=PA16&dq
2 Paul Cook,”Competition and its Regulation: Key Issues”, accessed at http://www.competition
regulation.org.uk/publications/working_papers/wp2.pdf.

Massimo Motta defines of the term ‘competition policy’ as “the set of policies and
laws which ensure that competition in the marketplace is not restricted in a way that is
detrimental to society”.3

6.2 EVOLUTION OF COMPETITION LAW

6.2.1 Laissez- Faire Policy:
According to history this phrase was derived from a meeting held in 1680 between the
powerful French finance minister Jean-Bapuste Colbert and a group of French
businessmen led by a certain M. Le Gendre. The question asked by the
mercantilist minister as to how the French state could be of service to the merchants
and help promote their commerce, Le Gendre replied simply "Laissez-nous faire"
("Leave us be", lit. "Let us do").4
The first time that the phrase appeared in print was in an article in 1751 in the
Oeconomique by the French minister and champion of free trade, Rene de Voyer,
Marquis d’Argenson.5
Argenson himself had used the phrase earlier (1736) in his own diaries, in a famous
outburst:6
"Leave it be, that should be the motto of all public powers, as the world is civilized ...
That we cannot grow except by lowering our neighbours is a detestable notion! Only
malice and malignity of heart is satisfied with such a principle and our (national)
interest is opposed to it. Leave it be, for heaven's sake! Leave it be!”7
The policy of laissez-faire received strong support in classical economics as it
developed in Great Britain under the influence of economist and philosopher Adam
Smith. Belief in laissez-faire was a popular view during the 19th century; its
proponents cited the assumption in classical economics of a natural economic order as



3 Massimo Mota, Competition Policy: theory and Practice 30 (2004).
4 Journal Oeconomique 1751, Article by the French minister of finance.
5 M. d'Argenson, "Lettre au sujet de la dissertation sur le commerce du marquis de Belloni', Avril
1751, Journal Oeconomique p.111. See A. Oncken, Die Maxime Laissez faire et laissez passer, ihr
Ursprung, ihr Werden, 1866.
6 Laissez faire, telle devrait être la devise de toute puissance publique, depuis que le monde est
civilisé ... Détestable principe que celui de ne vouloir grandir que par l'abaissement de nos voisins! Il
n'y a que la méchanceté et la malignité du coeur de satisfaites dans ce principe, et l’intérêt y est opposé.
Laissez faire, morbleu! Laissez faire!! .
7 As quoted in J.M. Keynes, 1926, "The End of Laissez Faire". Argenson's Mémoirs were published
only in 1858, ed. Jannet, Tome V, p.362. See A. Oncken (Die Maxime Laissez faire et laissez passer,
ihr Ursprung, ihr Werden, 1866).

support for their faith in unregulated individual activity. The British economist John
Stuart Mill was responsible for bringing this philosophy into popular economic usage
in his Principles of Political Economy (1848), in which he set forth the arguments for
and against government activity in economic affairs.
The period from the 14th to the 17th centuries was known as the ‘Renaissance’ period.
Though this term originally referred to the cultural movement it also came to be
referred to as an historic era affecting other aspects of daily life, including that of
trade and competition. The 16th century in particular had major significance as
international trade started booming. Though much of the trade and wealth received for
it was illicit the concerned authorities still felt the need to regulate trade in the spirit
of fairness and free competition. The statute of monopolies which is a precursor to
modern day patent laws was passed by England’s Parliament in the year 1623.8 Prior
to this Statute the patent laws were subject to abuse by authorities. History suggests
that Queen Elizabeth I was known to have granted patents for everyday household
commodities such as salt and starch, thereby creating monopolies on necessities. In
the following years, various attempts were made to break monopolies and set laws to
encourage competition and free trade.9
Those who maintained good intentions often figured that those maintaining
monopolies often had the kind of wealth that could influence the concerned
authorities. Soon legal developments regarding restraint of trade started to take place
which led to developments of modern competition law.
If one has to consider the evolution of modern day competition law it has been a
general belief that it has its foundations in the Sherman Act (1890) and the Clayton
Act (1914) both instituted in the United States of America.10 Following World War I
other countries started to implement some Competition Policies on the lines of United
States. European countries had at that time various rules and laws to regulate
monopolies and Competition but developments after World War II plays a significant
role as after the fall of the Berlin Wall (1990) have elements of Sherman Act and
Clayton Act as their foundation. With the change in developments in the 21st century
Competition and Anti- trust laws have to be kept in sync. Post World War II, the



8 www.britannica.com.
9 Scott, Andrew (2009) The evolution of competition law and policy in the United Kingdom. LSE law,
society and economy working papers, 09-2009, accessed at www.eprints.lse.ac.uk
10 www.ftc.gov

allies formed regulations to break up cartels and monopolies that were formed during
the war years. In U.S the term ‘antitrust’ is generally used when referring to laws
preventing the formation of cartels also known as ‘business trusts’.11
Although antitrust laws are generally separate from consumer protection laws but
antitrust laws do protect the consumers from unscrupulous suppliers who seek to
monopolise the market. Mergers and acquisitions undergo an extremely strict
screening process in lines of antitrust and competition laws before given a go ahead.
India has made important advancements since the enforcement of reform program in
1991 and has ever since been one of the fastest growing economies in the world. The
liberalization program in India has been an evolutionary one rather than a
revolutionary one. But considering that India faced virtual bankruptcy in 1991 its
economic performance has been underappreciated. The negative aspect to this would
be that in comparison to China and other East Asian countries which has accepted
multilateral trading and had welcomed FDI much earlier (around 1970s to 1980s)
India had not accepted this till the 1990s. While “open door” policies should not be
intentionally biased towards foreign investors at the expense of domestic investors,
they do not necessarily imply taking a laissez faire attitude towards FDI. The rather
listless response by foreign direct investors to the first decade of India’s reforms is not
inconsistent with the experience of China which experienced an acceleration in FDI
flows only after 1986, despite the reforms being initiated in 1979 (Huang and Shirai,
1994).12
India, after attaining independence in the year 1947, for the better part of the half
century thereafter adopted and followed Command and Control laws, rules,
regulations and executive orders. The Monopolies and Restrictive Trade Practices
Act, 1969 (MRTP Act) was one such enactment. It was in 1991 that wide spread
economic reforms took place, and thereafter there was a progress form Command and
Control economy to free market trade principles commenced. Competition Law for
India was triggered by Articles 3813 and 3914 of the Constitution of India. These
Articles are a part of the Directive Principles of State Policy.15



11 Srishti Dutt, COMPETITION LAW IN INDIA, US & UK: A COMPARITIVE ANALYSIS.
12 Ramkishen S. Rajan; Rahul Sen, Trade Reforms In India Ten Years On: How Has It Fared
Compared To Its East Asian Neighbours?
13 38. State to secure a social order for the promotion of welfare of the people.-

Based on the Directive Principles, the first Indian Competition Act was enacted in

1969 which came to be known as the Monopolies and Restrictive Trade Practices,

1969 (MRTP Act). The Government of India in the year 1999 appointed a High Level

Committee on Competition Policy and Competition Law to advise a modern

competition law for the country in line with international developments and to suggest

a legislative framework, which may entail a new law or appropriate amendments to

the MRTP Act. The committee submitted the policy report to the Government on May

2000. After some discussions and refinements the Parliament passed a new law in
December 2002 which came to be known as the Competition Act, 2002. 16

As a general proposition, competition law consists of rules that are intended to protect

the process of competition in order to maximise consumer welfare. The basic purpose

of competition law is to promote competition through the control of restrictive

business practices. It is assumed that competition between firms will enhance the

overall efficiency of the economy, first, by encouraging price competition, resulting

in lower prices for consumers, and second, by forcing firms to produce more

efficiently so as to compete on price with their rivals. The systems of competition law

are concerned with practices that are harmful to the competitive process.

6.3 COMPETITION LAW IN INDIA:



(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively
as it may a social order in which justice, social, economic and political, shall inform all the institutions
of the national life.
(2) The State shall, in particular, strive to minimize the inequalities in income, and endeavour to
eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also
amongst groups of people residing in different areas or engaged in different vocations.
14 39. Certain principles of policy to be followed by the State:-
The State shall, in particular, direct its policy towards securing-
(a) that the citizens, men and women equally, have the right to an adequate means to livelihood;
(b) that the ownership and control of the material resources of the community are so distributed as best
to subserve the common good;
(c) that the operation of the economic system does not result in the concentration of wealth and means
of production to the common detriment;
(d) that there is equal pay for equal work for both men and women;
(e) that the health and strength of workers, men and women, and the tender age of children are not
abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age
or strength;
(f) That children are given opportunities and facilities to develop in a healthy manner and in conditions
of freedom and dignity and that childhood and youth are protected against exploitation and against
moral and material abandonment.
15 Vijay Kumar Singh, ―Competition Law & Policy in India: The Journey in a Decadeǁ, accessed at
www.nujslawreview.org
16 Ibid

6.3.1 THE MRTP ACT, 1969: (NOW ABOLISHED)

There were essentially three enquiries/studies, which acted as the lodestar for the

enactment of the MRTP Act.

Committee Research topic Conclusion/Recommendation

Committee chaired by The Committee studied The report of this Committee

Mr. the concluded that the working of

Hazari Industrial Licensing the licensing system had

procedure under the resulted in disproportionate

Industries (Development growth of some of the big

and business houses in India

Regulation) Act, 1951

Committee set up in The Committee studied The Committee, in its report

October 1960 under the the distribution and presented in February 1964,

chairmanship levels of noted that the top 10 percent

of Professor income in the country of

Mahalanobis the population of India

cornered

as much as 40 percent of the

income (Mahalanobis, 1964)

and that the big business

houses

were emerging because of the

‘planned economy’ model

practiced by the Government

in

the country

The Monopolies Inquiry The Committee studied The Committee presented its

Commission (MIC), the report in October 1965, noting

which monopoly practice and therein that there was

was appointed by the its impact. concentration of economic

Government in April, power in the form of product

1964 wise and industry-wise

under the Chairmanship Concentration. The

of Commission
Mr. Das Gupta
also noted that a few

industrial

houses were controlling a

large

number of companies and

there

existed in the country large

scale restrictive and

monopolistic trade practices

As a corollary to its findings, the MIC drafted a Bill and amended by a Committee of
the Parliament, became the Monopolies and Restrictive Trade Practices Act, 1969
(MRTP Act) and was enforced from June 01, 1970.17
The objectives of the MRTP Act was to curb monopolistic, restrictive and unfair trade
practices which disturbs the competition and trade in the industry and harms the
consumer interest. Its aim was to provide fair play in the market, fair dealings and to
promote healthy competition. The regulatory provisions in the MRTP Act used to
apply to almost every area of business production, distribution, pricing, investment,
purchasing, packaging, advertising, sales promotion, mergers, and amalgamations and
take-over of undertakings (provisions relating to mergers, amalgamations and take-
over’s were deleted in the MRTP Act by the 1991 amendments to it). The various
economic Reforms and impact it had on MRTP was in 1991 India took the initiative
in favour of economic reforms consisting essentially of liberalisation and de-
regulation. India embarked on what may be described as the LPG regime, an acronym
for Liberalization, Privatisation, and Globalisation. For instance, Licensing had been
abolished in six industries. Industries including Iron and Steel, Heavy Electrical
Equipment, Aircraft, Air Transport, Shipbuilding, Telecommunication Equipment and
Electric Power were made open for private sector investments. The monopoly of the
public sector industries was abolished in 1991 except for those, where security and
strategic concerns still dominated. As a result of liberalisation of regulatory controls,



17 S. H. Bathiya & Associates, Background and Basics of Competition Law, 21st September, 2012,
http://www.shbathiya.com/FC6.pdf, 10th June, 2013.

rationalisation and mergers, there was more effective competition in the banking
sector.

6.4 NEED FOR COMPETITION ACT

The government realised that based on a number of experiences and difficulties
arising out of the MRTP Act, there was a need for a new legislation. Some of the
major difficulties of the act were

Lack of clarity on various definitions and interpretations :
A large number of judgements by the Supreme Court of India and that of the Bench
decisions by the MRTP were binding and these judgements had interpreted the Act
differently from time to time thus, where the wordings of the existing law had been
considered inadequate by the Judiciary, this called for necessary steps to redraft the
existing law in the spirit of law and in the correct intentions of the lawmakers. On
further scrutiny it was noticed that certain terms such as Bid Rigging, Cartels, and
Price Fixing etc which were offending trade practices were not defined in the Act.
The absence of specification of identifiable anti-competition practices gave room to
different interpretations by different Courts of Law, with the result that the spirit of
the law often escaped being captured and enforced. (Sh. Surinder Singh Barmi vs.
BCCI18).

Discrimination Between Public and Private:
The MRTP Act, though a competition law, could not be effective in the absence of
other governmental policies inhering the element of competition. For instance, the
protection offered to State Owned Enterprises in the form of price and purchase
preferences distorted competition in the market, where the private sector was also
operating. This resulted in the State Owned Enterprises not attempting to be efficient
and price competitive. Many of them did not even bother to upgrade their
technologies and processes, in spite of the Government providing them preference
protection. In the absence of such policies, competition law, by itself, cannot exist in a
vacuum and act as an effective tool to foster competition in the market.


18 Case no. 61/ 2010.

Legalization, Privatization and Globalization:
When the MRTP Act was drafted in 1969, the economic and trade environment
prevalent at that time constituted the premise for its various provisions. The law
needed to yield to the changed and changing scenario on the economic and trade
front. This was one important reason why a new competition law had to be framed.
Many countries including UK, Australia and the European Community has repealed
their old laws relating to Competition to give room to new Competition Laws.
The need for a new law has its origin in Finance Minister’s budget speech in
February, 1999.

6.5 ESSENTIAL FACTORS TO CONSTITUTE A CARTEL:

Brief details: In Director General of Investigation and Registration [DG (IR)] vs.
Modi Alkali and Chemicals Ltd, an anonymous complaint was received alleging that
some of the leading undertakings in Northern India have formed a cartel for hiking
the prices of their products. The prices of chlorine gas and hydrochloric acid had an
increase of 277 percent and 200 percent within six and four months respectively in the
year 1992. The same were contended to be a result of an agreement amongst the
parties to create artificial scarcity, in order to raise prices of their products. Since the
prices of raw materials namely sodium chloride and electricity had more or less
remained the same, it was stated to be a fictitious crisis created to take advantage of
the market and increase the prices of their products.
Investigation: The MRTPC directed the DG (IR) to carry out the preliminary
investigation. The DG submitted its preliminary investigation report (PIR) which said
that no case of cartel has been found and recommended that no action should be
taken. However, the MRTPC after considering the PIR was of the view that the case
needed enquiry and directed the issuance of a Notice of Enquiry. The respondents
raised an objection on the ground that the notice of enquiry lacked a concise statement
of material fact on which the notice was based, not meriting to cognisance based upon
an anonymous complaint. The DG (IR) contended that the present notice of enquiry
had been issued under Section 10 (a) (iv) of the MRTP Act, which empowers the

MRTPC to inquire into restrictive trade practice upon its own knowledge or on a
complaint or information. Information can be derived from an invalid/irregular
complaint or from any anonymous letter as held by the Calcutta High Court in the
case of ITC Limited vs. MRTPC & Ors. (1996) 46 Comp. Case. 619. Thus, it was
held that the objection with regard to the anonymous complaint was not valid.
Order: The Commission then looked into the allegation of formation of a cartel.
“Cartel” was not defined in the MRTP Act; however, the Commission referred to a
preceding judicial pronouncements – “cartel is an association of producers who by an
agreement among themselves attempt to control production, sale and prices of the
product to obtain a monopoly in any particular industry or commodity”. Three
essential factors were identified to establish the existence of a cartel, namely

(i) Fixing of prices,
(ii) Agreement by way of concerted action suggesting conspiracy and
(iii) Intent to gain monopoly or restrict/eliminate competition.

Thus, keeping in mind the definition of cartels and the necessary elements, the
Commission was of the view that, except for the use of the expression ‘cartel’, there
was no material evidence to suggest parity of prices or meeting of minds. The
Commission observed that the notice of enquiry and the subsequent investigation
lacked relevant and necessary information with regard to the parties forming a cartel
leading to distortion and restriction of competition in the market. With the essential
factors not proved, the Commission agreed with the respondents that prima facie there
was no case of a cartel.

6.5.1 EMERGING ISSUES
Cartels were not defined in the MRTP Act, 1969, but the meaning of cartels could
possibly be drawn only from Section 2(o) i.e. restrictive trade practice Key factors
required to establish the existence of a cartel were:

a) fixing of prices,
b) agreement by way of concerted action suggesting conspiracy, and
c) intent to gain monopoly or restrict/eliminate competition,

Commission initiated the enquiry on the basis of an anonymous complaint.19

6.6 INDIAN COMMUNITY

6.6.1 EXTRA-TERRITORIAL JURISDICTION- CASE LAW RELATING
TO FLOAT GLASS

M/S HARIDAS EXPORTS Vs. ALL INDIA FLOAT GLASS MFRS. ASSN. &
ORS.20
Summary of the Case: In September 1998 the All India Float Glass Manufacturers
Association filed a complaint in the MRTP Commission against three Indonesian
companies manufacturing float glass alleging that the latter in association with the
Indian importers were resorting to restrictive and unfair trade practices, and in
particular selling float glass at predatory prices in India. They further alleged that the
sale of float glass b the Indonesian manufacturers at predatory prices would restrict,
distort, and prevent competition by pricing out Indian producers from the market.
The MRTP Commission issued an injunction against the Indonesian companies from
exporting float glass to India. This matter was appealed to the Supreme Court. During
the hearing of the case, the extra-territorial jurisdiction of the MRTP commission
came up for consideration by the Supreme Court. The Supreme Court while observing
that “ A competition law like the MRTP act is a mechanism to counter cross border
economic terrorism”, ruled that the MRTP Commission had no extra-territorial
jurisdiction in the float glass case. The court further stated that allowing challenge to
the actual import would tantamount to giving the MRTP Commission jurisdiction to
adjudicate upon the legal validity of the provisions relating to import and that the
Commission did not have Jurisdiction. It is observed that the Commission’s
jurisdiction would commence after the import was completed and any restrictive trade
practice took place subsequently. To quote the Supreme Court: “The action of an
exporter to India when performed outside India would not be amenable to jurisdiction
of the MRTP commission. The MRTP Commission cannot pass an order determining



19 S. H. Bathiya & Associates, Background and Basics of Competition Law, 21st September, 2012,
http://www.shbathiya.com/FC6.pdf, 10th June, 2013, http://www.indiankanoon.org/doc/1518938/
20 2002 (6) SCC 600.

the export price of an exporter to India or prohibiting him to export to India at a low
or predatory price.”
This decision of the Supreme Court, led to arming the Competition Commission of
India under the Competition Act 2002 with the power to take extra-territorial action
by restraining imports, on the ground that the imports would contravene the
substantive provisions of the law.
6.6.2 EUROPEAN COMMUNITY

WOOD PULP CASE:21
Summary of Case: A number of Finnish, Swedish, American and Canadian wood
pulp producers established outside the EC created a price cartel, eventually charging
their customers based within the EC. On 19 December 1984, the Commission issued a
decision22 establishing several infringements of Article 85 of the Treaty by the said
agreements and concerted practices and imposing fines. The basic arguments
justifying the community’s jurisdiction to apply their competition rules to an
undertaking outside the Community were that the producers involved were exporting
and selling directly to customers in the EC or were doing business within the
Community through branches, subsidiaries other agents.
The alleged restrictive practices had affected not less than two-thirds of the total
shipment and 60% of the consumption of wood pulp in the community. Eleven of the
forty parties who were affected by the Community decision brought an action of
annulment of the decision.
Article 81 of the EC Treaty (ex Article 85)

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, and in particular those
which:

Ø directly or indirectly fix purchase or selling prices or any other trading
conditions;



21 1 EJIL (1990) 365.
22 Commission Decision 85/202 of 19 December 1984 relating to a procedure under Article 85 of
the EEC Treaty, OJ (1985) L 85/1.

Ø limit or control production, markets, technical development, or

investment;
Ø share markets or sources of supply;
Ø apply dissimilar conditions to equivalent transactions with other

trading parties, thereby placing them at a competitive disadvantage;
Ø make the conclusion of contracts subject to acceptance by the other

parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the subject of
such contracts.
Any agreements or decisions prohibited pursuant to this Article shall be
automatically void.
The provisions of paragraph 1 may, however, be declared inapplicable in the
case of:
Ø any agreement or category of agreements between undertakings;
Ø any decision or category of decisions by associations of undertakings;
Ø 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.

They had two main arguments, one based on Community law, the other on

international law.

Article 82 of the EC Treaty (ex Article 86)

Any abuse by one or more undertakings of a dominant position within the common

market or in a substantial part of it shall be prohibited as incompatible with

the common market insofar as it may affect trade between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other

unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of

consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading

parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties

of supplementary obligations which, by their nature or according to
commercial usage, have no connection with the subject of such contracts.
On Community Law: The Commission's construction of Article 85 of the Treaty
was challenged.
On International Law: Even if the conditions of Article 85 were fulfilled, it would
be contrary to international law to regulate conduct restricting competition adopted
outside the territory of the Community merely by reason of the "economic
repercussions" produced within the EC.
The American and Canadian applicants further claimed that the application of EC
competition rules in these circumstances would constitute a breach of the general
principle of non-interference and that the Community, by imposing fines, had
infringed Canada's sovereignty and had breached international comity. Finally, the
Finnish undertakings raised the special argument of the Free Trade Agreement
concluded between the Community and Finland which by virtue of its Articles 23 and
27 would preclude the Community from applying EC competition law.23
The Court rejected the submission relating to the incorrect assessment of the
territorial scope of Article 85 of the Treaty and the incompatibility of Commission
decision IV/29.725 of 19 December 1984 with public international law. It further
declared the Commission Decision IV/29.725 of 19 December 1984 void in so far as
it concerns the Pulp, Paper and Paperboard Export Association of the United States. It
further rejected the submission relating to the exclusive application of the competition
rules in the Free Trade Agreement between the Community and Finland and assigned
the case to the Fifth Chamber for consideration of the other submissions.
The Wood Pulp decision is one of the rare examples of the "state" practice exercised
by the Community and its relevant organs pertaining to general public international
law. The Courts reasoning is that international law generally applies to the
Community as an international organization. No doubt for the court as well as the


23 Christoph Vedder, A Survey of Principal Decisions of the European Court of Justice Pertaining to
International Law, http://www.ejil.org/pdfs/1/1/1142.pdf, 17th June 2013.

Commission that EC like a state is bound by the rules of customary international law,
at least, "mutatis mutandis." While the effects of customary international law on
international organizations have been mostly neglected by the literature, the conduct
of the EC can be deemed a clear evidence of a practice confirming that international
organizations are subject to customary international law.24

6.6.3 UNITED STATES OF AMERICA:
Brooke Group Ltd. v. Brown & Williamson Tobacco, 25
This case involves a price war between rival cigarette manufacturers. The plaintiff,
Liggett, contended that the competition had “cut prices on generic cigarettes below
cost to force Liggett to raise its own generic cigarette prices and introduce oligopoly
pricing in the economy segment.” The contention of the plaintiff was that volume
rebates by its competitor amounted to price discrimination under the Robinson-
Patman Act and that the rebates were integral to a predatory pricing scheme
ultimately designed to preserve supra-competitive profits on branded cigarettes.
Though the case was not a Sherman Act, Section 2, proceeding but established that
there are “two prerequisites to recovery” where the claim alleges predatory pricing
under Section 2. The Robinson Patman Act, by its terms, condemns price
discrimination only to the extent that it threatens to injure competition. A claim of
primary line competitive injury under the Act is of the same general character as a
predatory pricing claim under Section 2 of the Sherman Act. An example to this
would be if a business rival has priced its products in an unfair manner with an object
to eliminate or retard competition and thereby gain and exercise control over prices in
the relevant market. 26
The test therefore lies as to if the plaintiff can prove the following:

that the prices complained of are below an appropriate measure of its rival's
costs and
that the competitor had a reasonable prospect of recouping its investment in
below cost prices.
If the predatory pricing causes the target painful a loss without recoupment it
produces low aggregate prices in the market and thereby enhances consumer welfare.


24 Ibid.
25 509 U.S. 209 (1993).
26 Utah Pie Co. v.Continental Baking Co., 386 U.S. 685

For recoupment to occur, the pricing must be capable, as a threshold matter, of
producing the intended effects on the firm's rivals. This requires an understanding of
the extent and duration of the alleged predation, the financial strength of the predator
and its victim, and their respective incentives. The inquiry is whether, given the
aggregate losses caused by the below cost pricing, the intended target would likely
succumb. If so, then there is the further question whether the below cost pricing
would likely injure competition in the relevant market. The plaintiff must demonstrate
that there is likelihood that the scheme alleged would cause a rise in prices above a
competitive level sufficient to compensate for the amounts expended on the predation,
including the time value of the money invested in it. Evidence of below cost pricing is
not alone sufficient to permit an inference of probable recoupment and injury to
competition. The determination requires an estimate of the alleged predation's cost
and a close analysis of both the scheme alleged and the relevant market's structure and
conditions. Although not easy to establish, these prerequisites are essential
components of real market injury.27
Analysis: In M/S Haridas Exports Vs. All India Float Glass Mfrs. Assn. & Ors, “trade
practice” as per section 2(u)(i) covers a chain of events/series of transactions that
affects the price charged or methods of trading. Therefore part of the trade practice is
occurring outside India but the prices may be affected within India. Import of goods
and sale in India which is a link of trade practice of predatory pricing when read with
Section 14 clearly gives jurisdiction in the appropriate cases to the MRTP
Commission. If the effect of restrictive trade practices is felt in India then the MRTP
Commission would have jurisdiction just like the appropriate authoritative counter
parts in the US and the UK. Therefore the law in India is similar to the laws in the EC
and the USA. Many of the provision of the MRTP act is taken from the Sherman Act,
1890, the Clayton Act 1914,- USA MRTP( Inquiry and Control) Act, 1948, Resale
Prises Act,1964, RTP Act, 1964,- UK , Combines Investigation Act,1910,- Canada
and some of the legislations from Japan Germany and others.
The main idea behind this is to clothe the MRTP with jurisdiction to pass orders even
though the transaction which is in question has taken place outside India but has
affected the pricing in India. This is similar to the effect that where the effect of
restrictive trade practice carried outside the territory of EEC or USA is felt within



27 Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.

EEC or USA the authorities enforcing competition law in the EEC or the USA
exercise jurisdiction in regard to such conduct.
Even while a regime for imposition of anti-dumping duties has been present in the
EEC right from 1968, it was never suggested before the European Commission or the
European Court of Justice that its jurisdiction stood ousted or that the provisions of
Article 85 stood impliedly repealed by the anti- dumping code in respect of imports.
In the USA, the Antitrust Enforcement Guidelines for International Operations issued
by the U.S. Department of Justice enunciated that the State Department will exercise
jurisdiction under the Sherman Act over foreign conduct which had direct, substantial
and reasonably foreseeable effects on U.S. domestic or import commerce.

In Wood Pulp the Court does not take into account the fact that several of the
applicants are acting through subsidiaries or agents based within the Community.
That line of reasoning would not, in any event, be sufficient, as some of the
undertakings were selling directly to their customers based in the Community without
the intermediary of subsidiaries. Thus the Court does not rely on any kind of
relationship between foreign enterprises and their possible intra-Community
representatives and bases its reasoning upon the distinction between the formation of
agreements or concerted practices taking place outside the Community and the
implementation thereof without going into further details.

6.7 COMPETITION ACT 2002:

On the basis of the Competition Policy report presented by the High Level Committee
on Competition Policy and Competition Law, a draft competition law was drafted and
presented to the Government in November 2000. The various provisions of the Act
deal with the establishment, powers and functions as well as discharge of adjudicatory
functions by the Commission. Under the scheme of the Act, this Commission is
vested with inquisitorial, investigative, regulatory, and adjudicatory and to a limited
extent even advisory jurisdiction. Keeping in view the nature of the controversies
arising under the provisions of the Act and larger public interest, the matters should
be dealt with and taken to the logical end of declaration of final orders without any
undue delay. In the event of delay, the very purpose and object of the Act is likely to

be frustrated and the possibility of great damage to the open market and resultantly,
country's economy cannot be ruled out. The implementations of the act are governed
mainly by three major factors which are specifically dealt in with section 3, 4, 5 and 6
read with sections 19 and 26 to 29. They are anti-competitive agreements, abuse of
dominant position, combination and regulation of combination which are read with
Inquiry into certain agreements and dominant position of enterprise and also deals
with procedure of inquiry into these agreements.28
The Central Government which established the Competition Commission of India
aims to achieve the objective of the act through the said Commission. Therefore the
CCI has the following objectives that it endeavours to achieve:

Make the markets work for the benefit and welfare of consumers.
Ensure fair and healthy competition in economic activities in the country for
faster and inclusive growth and development of economy.
Implement competition policies with an aim to effectuate the most efficient
utilization of economic resources.
Develop and nurture effective relations and interactions with sectoral
regulators to ensure smooth alignment of sectoral regulatory laws in tandem
with the competition law.
Effectively carry out competition advocacy and spread the information on
benefits of competition among all stakeholders to establish and nurture
competition culture in Indian economy.

The developing world is slowly waking up to reality, those impediments to the
development of an enabling environment for investment is the need of the hour in
order to welcome in economic growth and development. An environment for entry of
new firms and allowing them to compete with domestic firms on a level playing field
seems to be the focus of such measures. Some of the measures are:

Reforming policies that deter free entry and exist of players (competition) in
the market;
Political environment for promoting competition as a means to attract
potential investors;


28 The Competition act, 2002, as Amended by the competition Amendment act, 2007.

Developing effective institutions;
Stakeholder sensitisation for supporting the reforms agenda;

Competition reforms integrated in investment climate improvement
programmes;
Coordination among agencies having convergent responsibilities.

The Act presumes that the following four types of agreements between enterprises,
involved in the same or similar manufacturing or trading of goods or provision of
services have an appreciable adverse effect on competition :

ANTI COMPETITIVE AGREEMENTS IN INDIA: (SECTION 3)

The Competition Act, 2002 is quite similar to that of the competition laws that are
enforced in US and UK. This is to say that the legislative intent and the scheme of
enforcement of the Present Act are in sync with the Clayton Act, 1914(US), The
Competition Act, 1988 (UK) and the Enterprise Act, 2002(UK). In United Kingdom,
the Office of Fair Trading (OFT) is primarily regulatory and adjudicatory functions
are performed by the Competition Commission and the Competition Appellate
Tribunal. The U.S. Department of Justice Antitrust Division in United States deals
with all jurisdictions in the field. The competition laws and their enforcement in those
two countries are progressive, applied rigorously and more effectively. The anti-trust
legislations are clear from the provisions relating to criminal sanctions for individual
violations, high upper limit for imposition of fines on corporate entities as well as
extradition of individuals found guilty of formation of cartels. Now even though there
are far more violations of these provision’s in India in comparison to these other two
countries where at the very threshold, greater numbers of cases invite the attention of
the regulatory/adjudicatory bodies.

SECTION 3- ANTI COMPETITIVE AGREEMENTS- (1) 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 AAEC
within India.
(2) Any agreement entered into in contravention of the provisions contained in
subsection (1) shall be void.

(3) 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. 29

Explanation.-For the purposes of this sub-section, ―bid riggingǁ 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


29 Ibid.

the effect of eliminating or reducing competition for bids or adversely affecting or
manipulating the process for bidding. 30

(4) Any 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 supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,

The term anti-competition agreement has not been defined in the act however, the act
under section 3 prescribes certain practices which will be anti-competitive and the Act
has also provided a wide definition of agreement under section 2 (b). Section 3(1) is a
general prohibition of an agreement relating to the production, supply, distribution,
storage, acquisition or control of goods or provision of services by enterprises, which
causes or is likely to cause an AAEC within India. Section 3(2) simply declares
agreement under section 3(1) void. Section 3(3) deals with certain specific anti
competitive agreements, practices and decisions of those supplying identical or
similar goods or services, acting in concert for example agreement between
manufacturer and manufacturer or supplier and supplier, and also includes such action
by cartels. Section 3(4) deal with restraints imposed through agreements among
enterprises in different stages of production or supply etc. for example agreement
amongst manufacturer and supplier. Section 3 (5) provides for exceptions, it saves the
rights of proprietor of any intellectual property right listed in it to restrain the
infringement of any of those rights regardless of section 3.31
Agreement among competitors: The Act itself does not distinguish among types of
agreements, but the courts soon recognized that agreements between competitors (so
called –‘horizontal’ agreements) required different forms of analysis than did
agreements between firms performing different economic functions (‘vertical
agreements’). Horizontal agreements (often referred to as ‘cartels’) have been a focus


30 Ibid.
31 Ibid.

of enforcement during the most periods of the antitrust history. One reason is that they
are readily amenable to traditional forms of judicial analysis. Where two competitors
agree not to compete with respect to an element of existing or potential competition
between them, judges have had little difficulty in labeling such an agreement ‘anti-
competitive’. The law relating to vertical agreements unlike horizontal agreements
has been far more contested and has varied significantly over time. It is however,
central to the future of international antitrust, because it is the locus of a fundamental
disjuncture between US antitrust law (and, recently European law), on one hand, and
most other competition law systems, on the other hand. In analyzing the vertical
agreements, the courts used reasoning similar to that employed in horizontal restraints
cases. They conceptualized competition in static terms as kind of quantity, so that if
an agreement eliminated some element of competition, it was viewed as
anticompetitive. For e.g., where a distributor agrees to sell a product only at the price
set by the manufacturer (so-called ‘resale price maintenance’) the courts viewed the
elimination of the distributor’s right to compete on price as anticompetitive. Based on
this type of reasoning, the courts established a number of per se categories for vertical
agreements also, often analogizing them to horizontal cases.32

Exceptions:33
The provisions relating to anti-competition agreements will not restrict the right of
any person to restrain any infringement of intellectual property rights or to impose
such reasonable conditions as may be necessary for the purposes of protecting any of
his rights which have been or may be conferred upon him under the following
intellectual property right statutes;

the Copyright Act, 1957;
the Patents Act, 1970;
the Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999;
the Geographical Indications of Goods (Registration and Protection) Act, 1999
the Designs Act, 2000;
The Semi-conductor Integrated Circuits Layout-Design Act, 2000.



32 Ibid.
33 The Competition Act, 2002.

The rationale for this exception is that the bundle of rights that are subsumed in
intellectual property rights should not be disturbed in the interests of creativity and
intellectual/innovative power of the human mind. No doubt, this bundle of rights
essays an anti-competition character, even bordering on monopoly power. But
without protecting such rights, there will be no incentive for innovation, new
technology and enhancement in the quality of products and services. However, it may
be noted, that the Act does not permit any unreasonable condition forming a part of
protection or exploitation of intellectual property rights. In other words, licensing
arrangements likely to affect adversely the prices, quantities, quality or varieties of
goods and services will fall within the contours of competition law as long as they are
not in reasonable juxtaposition with the bundle of rights that go with intellectual
property rights. 34
Yet another exception to the applicability of the provisions relating to anti-
competition agreements is the right of any person to export goods from India, to the
extent to which, an agreement relates exclusively to the production, supply,
distribution or control of goods or provision of services for such export. In a manner
of speaking, export cartels are outside the purview of competition law. In most
jurisdictions, export cartels are exempted from the application of competition law. A
justification for this exemption is that most countries do not desire any shackles on
their export effort in the interest of balance of trade and/or balance of payments.
Holistically, however, exemption of export cartels is against the concept of free
competition. 35
The Central Government has power under the Act to exempt from the application of
the Act, or any provision thereof, a class of enterprises, a practice, an agreement etc.

36

6.7.1.2 ANTI-TRUST LAWS AND AGREEMENTS IN US

The Sherman Antitrust Act prohibits monopolies and restraint of trade. For example,
several suppliers of widgets get together and agree they will all sell widgets for $1.00
to stores, and no less. This hurts competition.


34 Ibid.
35 Ibid.
36 Ibid.

This Act prohibits:

a conspiracy by two or more persons to unreasonably restrain trade (i.e., to

unreasonably limit competition;

an unlawful monopoly or an attempt to monopolize an industry; and

price fixing.

Price fixing between competitors is prohibited. This is called horizontal price fixing.

Vertical price fixing is also prohibited. This is when a manufacturer and an

independent retailer agree on a resale price of a product. The Sherman Act doesn't

regulate how big a company may get unless company continues to buy up other

companies in such a way as to substantially lessen competition; and tend to create a

monopoly. The breakup of AT&T is an example of breaking up a monopoly in order
to create more competition.37

The Robinson-Patman Act prohibits price discrimination between buyers of a product
if discrimination substantially hurts competition.38

For example, ABC, Inc., can't sell widgets to XYZ Corp. for $1.00 each and to Acme
for $1.50 each if this drives Acme out of business. There are exceptions such as
difference in quantity. For example, XYZ might get a favoured price if it buys
1,000,000 widgets and Acme only buys 100,000.

The Clayton Act prohibits a corporation from acquiring an interest in the stock or
assets of another corporation if doing so substantially lessens competition or may
create a monopoly. A Federal Court may enter a divestiture order making the guilty
party give up the property it acquired. Mergers of large companies may have to be
approved by FTC and Antitrust Division of U.S. Justice Department.39

There must be some sort of interstate commerce for federal laws to apply. With regard
to Sherman Act jurisdiction, there is a very broad standard. Even intrastate activities
can be covered if they affect interstate commerce. Jurisdiction under the Clayton Act
is about the same. The Robinson-Patman Act has the strictest jurisdiction standards


37 http://definitions.uslegal.com/a/antitrust/
38 Ibid.
39 Ibid.

regarding the interstate activities necessary. Under this Act, the seller must actually be
engaged in interstate commerce and the sales that are being complained about must be
across state lines. Firms are not subject to this Act if they only sell to persons in the
same state.40
Horizontal restraints of trade are designed to lessen competition among a firm’s
competitors. For example, if Ford and GM get together and fix prices to drive
Chrysler out of business, that would be a horizontal restraint of trade.
Monopolizing is prohibited by section 2 of the Sherman Act. However, some
monopolies are permitted. For example, newspapers can be a monopoly in a town that
can’t support but one. Also, a monopoly which is the result of superior skill, foresight,
and industry will be permitted. West Publishing Company had a monopoly for a long
time regarding the publishing of legal opinions. They were the first publishing
company, to my knowledge, to publish state and federal appellate court opinions on a
large scale basis. They are still the best in the business, although they do have a little
competition. The Internet is eventually going to hurt their business, since court
opinions are now being put on the web.
The elements of monopolization are twofold, possession of monopoly power in a
relevant market; and wilfully acquiring or maintaining that power.41
Monopoly power is the power to control prices or exclude competition in the relevant
market. A court will examine a firm’s market power to see whether or not the firm’s
product has an inelastic demand curve, i.e., people or not willing to take substitutes.
This would be evidence of monopolization. An elastic demand curve means that there
is significant competition. Also, a firm’s percentage share of the market will be
examined. There is no magic percentage. A court will also examine the relevant
market to determine market share. This will involve both the geographic market as
well as the product. As far as the geographic market, national sales of a product may
be 50% while local sales may be only being 20% in an area. There would therefore be
no monopoly in the local market. As far as the product is concerned, courts will look
at the cross-elasticity of demand --- are customers willing to substitute goods?



40 Ibid.
41 Ibid.

For example, will consumers substitute Hershey’s chocolate chip cookies for Nestle’s
chocolate cookies? If so, this would be evidence that there was no monopoly. The
decision on the relevant market can control whether there is monopolization.
In order to prove monopolization, one must show that the defendant did the acts in
question on purpose. For example, one must show that the monopoly has resulted
from something other than superior skill, foresight, and industry or one must
show predatory pricing, pricing below cost for a temporary period to drive others out
or one must show exclusionary conduct, conduct that would prevent a competitor
from entering the market.42

An example would be interfering with a competitor’s purchase of a factory that would
have promoted more competition.

The Sherman Act can be violated by attempts to monopolize. The plaintiff must show
the dangerous probability of monopolization. The Sherman Act prohibits price-fixing.
This is some type of collaboration among competitors for the purpose of raising,
depressing, fixing, or stabilizing the price of a commodity. Price fixing is a per se
violation of the Sherman Act. This type of conduct is considered unreasonable and
illegal, and there is no defence. Setting minimum prices is unlawful since it
discourages competition even if the prices are reasonable. Setting maximum prices is
also illegal since this has a tendency to stabilize prices. An agreement of competitors
to use list prices as a guideline is an exchange of price information that hurts the
market and is therefore unlawful.43

6.7.2 ABUSE OF DOMINANT POSITION:

Section 4 (1) of the Indian Competition Act states, ―No Enterprise shall abuse its
dominant position.

There are primarily three stages in determining whether an enterprise has abused its
dominant position. The first stage is defining the relevant market. The second is
determining whether the concerned undertaking/enterprise/firm is in a dominant


42 Ibid.
43 Ibid.

position/ has a substantial degree of market power/ has monopoly power in that
relevant market. The third stage is the determination of whether the undertaking in a
dominant position/ having substantial market power/monopoly power has engaged in
conducts specifically prohibited by the statute or amounting to abuse of dominant
position/monopoly or attempt to monopolize under the applicable law.

The Indian Competition Act, 2002 expressly provides in Section 19 (5) that the
Competition Commission shall have due regard to the relevant product market and the
relevant geographical market in determining whether a market constitutes a relevant
market for the purposes of the Act. The definition of relevant market provided by
Section 2(r) of the Act also states that the relevant market means the market that may
be determined by the Commission with reference to the relevant product market or the
relevant geographical market or with reference to both relevant product market and
relevant geographic market have been specifically defined in the Indian Competition
Act. Section 2 (t) defines the relevant product market as a market comprising all those
products or services which are regarded as interchangeable or substitutable by the
customer, by reason of the characteristics of the product or service, the prices and the
intended use. Section 2 (s) defines the relevant geographic market as a market
comprising the area in which the conditions of competition for supply of goods or
provision of services are sufficiently homogeneous and can be distinguished from the
conditions prevailing in neighbourhood areas.

The Indian Competition Act contains a definition of dominant position that takes into
account whether the concerned enterprise is in such a position of economic strength
that it can operate independently of competitive forces or can affect the relevant
market in its favour. Explanation (a) to Section 4 of the Indian Competition Act
defines dominant position as 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.

The Indian Act states under Section 19 (4) that the Commission may have regard to
certain factors for determining whether an enterprise is in a dominant position

including market share of the enterprise, size and resources of the enterprise; size and
importance of competitors; economic power of the enterprise including commercial
advantages over competitors, vertical integration of the enterprises or sale or service
network of such enterprise; dependence of consumers on such enterprise, monopoly
or dominant position whether acquired as a result of any statute or by virtue of being a
government company or public sector undertaking or otherwise; 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; countervailing buying power; market
structure and size of market; social obligations and social costs; 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; or any other factor which the commission may consider relevant for the
inquiry.
The act does not define abuse of dominant position.
According to Section 4 (2) of the Indian Competition Act, ―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 discriminatory 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 therefore; 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; 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.

One difference between the UK Act, EC Law and the Indian Act is that according to
the UK and EC laws, the conducts specified may amount to abuse dominant position
whereas according to the Indian Act the conducts specified shall amount to abuse of
dominance. While the Indian Act specifically enumerates practices resulting in denial
of market access and using dominant position in one market to enter into or protect
other relevant markets as conducts amounting to the abuse of dominance, they have
not been mentioned in the UK and EU laws. Applying dissimilar conditions to
equivalent transactions with other trading parties, thereby placing them at a
comparative disadvantage, is mentioned in the UK and EU law but has not been
included in the Indian Act.

6.7.2.1 COMBINATIONS:

One of the most significant provisions of Competition Act, Section 5, which defines
'combination' by providing threshold limits in terms of assets and turnover is yet to be
notified. There is no clarity as to when it will be made effective. At present, any
acquisition, merger or amalgamation falling within the ambit of the thresholds
constitutes a combination. Section 5 states that:

The acquisition of one or more enterprises by one or more persons or merger or
amalgamation of enterprises shall be a combination of such enterprises and persons or
enterprises, if-

(a) any acquisition where
(i) the parties to the acquisition, being the acquirer and the enterprise,
whose control, shares, voting rights or assets have been acquired or are
being acquired jointly have,-

(A) either, in India, the assets of the value of more than rupees one

thousand crores or turnover more than rupees three thousand crores;
or
(B) in India or outside India, in aggregate, the assets of the value of
more than five hundred million US dollars or turnover more than
fifteen hundred million US dollars; or

(ii) the group, to which the enterprise whose control, shares, assets or voting
rights have been acquired or are being acquired, would belong after the
acquisition, jointly have or would jointly have,
(A) either in India, the assets of the value of more than rupees four
thousand crores or turnover more than rupees twelve thousand crores;
or
(B) in India or outside India, in aggregate, the assets of the value of more
than two billion US dollars or turnover more than six billion US
dollars; or

(b) acquiring of control by a person over an enterprise when such person has already
direct or indirect control over another enterprise engaged in production,
distribution or trading of a similar or identical or substitutable goods or provision
of a similar or identical or substitutable service, if-
(i) the enterprise over which control has been acquired along with the enterprise
over which the acquirer already has direct or indirect control jointly have,-
(A) either in India, the assets of the value of more than rupees one thousand
crores or turnover more than rupees three thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more
than five hundred million US dollars or turnover more than fifteen
hundred million US dollars; or
(ii.) the group, to which enterprise whose control has been acquired, or is being
acquired, would belong after the acquisition, jointly have or would jointly have,-
(A) either in India, the assets of the value of more than rupees four
thousand crores or turnover more than rupees twelve thousand crores;
or

(B) in India or outside India, in aggregate, the assets of the value of more

than two billion US dollars or turnover more than six billion US
dollars; or
(c) any merger or amalgamation in which-
(i) the enterprise remaining after merger or the enterprise created as a result
of the amalgamation, as the case may be, have,-

(A) either in India, the assets of the value of more than rupees one
thousand crores or turnover more than rupees three thousand crores;
or

(B) in India or outside India, in aggregate, the assets of the value of
more than five hundred million US dollars or turnover more than
fifteen hundred million US dollars; or

(ii) the group, to which the enterprise remaining after the merger or the
enterprise created as a result of the amalgamation, would belong after the
merger or the amalgamation, as the case may be, have or would have,-
(A) either in India, the assets of the value of more than rupees four
thousand crores or turnover more than rupees twelve thousand
crores; or
(B) in India or outside India, the assets of the value of more than two
billion US dollars or turnover more than six billion US dollars.

For Example: If two different companies A and Z, which were once competitors, get
merged, the new Company AZ may monopolize the market, eliminating competition.
If the product or services of Company AZ would be only available in the market, so
consumers would have no choice but to buy the product. This may reduce competition
and also the consumers are at loss. For this reason, such anticompetitive combinations
are prohibited.

6.7.2.2. REGULATION OF COMBINATIONS:

Essentially, a transaction must satisfy two conditions before Section 6 is triggered:

(i) It must involve total assets or turnover, with separate criteria for domestic and
international entities; and
(ii) It must have a territorial nexus with India.

Under the originally enacted CA 2002, the reporting of a combination was optional.
However, the act now mandates notification within 30 days of the decision of the
parties' boards of directors or of execution of any agreement or other document for
effecting the combination. The general industry perception is that a memorandum of
understanding or a letter of intent will qualify as an 'agreement'. However, these are
generally executed to spell out a basic understanding among the transacting parties
and to enable the acquirer to conduct due diligence, based on which further
negotiations are carried out. Going forward, execution of such a document shall
trigger merger filings. This will increase compliance costs at a premature stage when
it is uncertain whether the transaction will close. It will also add to the bulk of
notification applications submitted to the Competition Commission. It remains to be
seen whether the Competition Commission will have adequate internal capacity to
handle and dispose of such applications efficiently. If it does not have the resources,
the delay will potentially have a cascading effect and affect the ability of parties to
close on time. Therefore, it would be prudent to insert a clause in all future transaction
documents stating that closing will be subject to any prior regulatory clearance that
may be required from the Competition Commission.

6.8 COMPETITION LAW IN THE UNITED STATES OF AMERICA AND
UNITED KINGDOM

The end of the 19th Century saw a number of laws being enacted in the United States
(US) to restrict monopolistic practices, known as the antitrust laws, which in turn had
considerable influence on the development of European Community competition laws
after the Second World War as stated above. Interestingly the focus has moved to
international competition enforcement in a globalized economy. On the surface, there
seems to be much in common between the Competition Laws in US and UK. Article

85 of the Treaty of Rome44 which prohibits agreements that distort competition
and

accordingly agreements that fix prices, is roughly comparable to section 1 of the US

Sherman Act which prohibits agreements in restraint of trade. Article 86 prohibits

abuse of dominant position and seems roughly comparable to Section 2 of the

Sherman Act, which prohibits which prohibits monopolization and attempts and

combination to monopolize.

6.8.1 US ANTITRUST LAW:
The antitrust laws comprise what the U.S. Supreme Court calls a "charter of
freedom", designed to protect the core republican values regarding free enterprise in
America. Although "trust" had a technical legal meaning, the word was commonly
used to denote big business, especially a large, growing manufacturing conglomerate
of the sort that suddenly emerged in great numbers in the1880s and 1890s. The
Interstate Commerce Act of 1887 began a shift towards federal rather than state
regulation of big business. It was followed by the Sherman Antitrust Act of 1890, the
Clayton Antitrust Act and the Federal Trade Commission Act of 1914. The Robinson
Patman Act of 1936, an amendment to the Clayton Antitrust Act, was enacted to
prohibit anticompetitive practices by producers, specifically price discrimination.45

6.8.2 SHERMAN ACT, 1890

The basics of Sherman Act were to declare all contracts in the restraint of trade and
commerce among the states or territories or with foreign nations to be illegal. The
important requirement was to have an existing agreement or mutual commitment to
engage in anticompetitive conduct.

6.8.2.1 MONOPOLIZATION AND ATTEMPTS AND CONSPIRACIES TO
MONOPOLIZE
Section 246 of the Sherman Act outlawed:



44 This is the treaty establishing the European Economic Community, 25 March 1957, Article 85. The
treaty on the European Union adopted in 1993, did not alter the Competition Provisions in the treaty of
Rome.
45 S. H. Bathiya & Associates, Background and Basics of Competition Law, 21st September, 2012,
http://www.shbathiya.com/FC6.pdf, 10th June, 2013.
46 Section 2. Monopolizing trade a felony; penalty

Monopolization
Attempt to monopolize
Conspiracies to monopolize

This section has two basic elements:
Possession of monopoly power in relevant market.

The wilful acquisition or maintenance of the power.

A person is not guilty of monopolization unless he has monopoly power i.e. power to
control prices and exclude competition. Therefore offence of monopolization requires
monopoly power and intention to monopolize, but there is no monopolization if the
defendant‘s monopoly power grows as a consequence of superior product, business
acumen or historical accident.
The difference between actual monopolization and attempt to monopolization is that
in actual monopolization general intent to do act is required but in attempt to
monopolize specific intent, which can be established by evidence of unfair tactics on
part of defendant, is required. To establish conspiracy to monopolize three basic
things are to be proved:

Proof of conspiracy
Specific intent to monopolize
An overt act in furtherance of conspiracy and there is no need to establish the
market power.

The act has included the term association of price i.e. price fixing but has not

elaborated n horizontal and vertical price fixing. For example, if a manufacturer, by

using his dominant position, fixes the price with retailer then it is vertical price fixing

but if manufacturer fixes price with other manufacturer then it is horizontal price

fixing. Vertical price fixing is also knows as price maintenance e.g. Agreement

between a film distributor and exhibitor is illegal.


Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other
person or persons, to monopolize any part of the trade or commerce among the several States, or with
foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by
fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment
not exceeding three years, or by both said punishments, in the discretion of the court.

6.8.2.2 TIE-IN AGREEMENT

The act does not elaborate on various kinds of tie-in agreement but it defines tie-in
agreement as “tie-in arrangement” which includes any agreement requiring a
purchaser of goods, as a condition of such purchase, to purchase some other goods.47
Interestingly the Sherman Act defines Tie-in agreement as an agreement by a party to
sell one product but only on the condition that the buyer also purchase a different
product or agree that he will not buy that product from another supplier. A tie-in
agreement is not legal per se but an illegal tie-in agreement takes place when a seller
requires a buyer to purchase another, less desired or cheaper product, in addition to
the desired product, so that the competition in the tied product would be lessened.
Sherman act also pointed out that there should be separateness of products which are
tied because if the products are identical and market is same then there is no unlawful
tying agreement.

6.8.2.3 GROUP BOYCOTT

Sherman Act has a special category under refusal to deal called as Group Boycott.
Under the Competition Act, 2002 refusal to deal is defined in section 3(4)(d) as
"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 are sold or from whom
goods are bought. 48However Sherman Act has explained various conditions of Group
Boycott. In case of Horizontal restraints per se rule is applicable but in case of
Vertical restraints majority court view is that per se rule is not applicable. There are
many sorts of Group Boycott:49

Group Boycott of competitor i.e. joint effort by a firm with dominant market
position to disadvantage competitors violates section 1 of Sherman Act.
An agreement among competitors to stop selling to certain customers is
illegal.
Boycott by physicians, doctors, advocates of a particular customer is unlawful.


47 As per Section 3 Explanation of the Competition Act.
48 The Competition Act,2002.
49 www.justice.gov.

Customer boycott of supplier may or may not, on the basis of circumstances,
violate Sherman Act.

6.8.2.4 IN RE: CARDIZEM CD ANTITRUST LITIGATION. LOUISIANA
WHOLESALE DRUG CO. (PLAINTIFF) V. HOECHST MARION ROUSSEL,
INC. AND ANDRX PHARMACEUTICALS, INC. (DEFENDANT) 332 F.3D
89650

Summary of Facts: This antitrust case arises out of an agreement entered into by the
defendants, Hoescht Marion Roussel, Inc. ("HMR"), the manufacturer of the
prescription drug Cardizem CD, and Andrx Pharmaceuticals, Inc. ("Andrx"), then a
potential manufacturer of a generic version of that drug. The agreement provided, in
essence, that Andrx, in exchange for quarterly payments of $ 10 million, would
refrain from marketing its generic version of Cardizem CD even after it had received
FDA approval (the "Agreement"). The plaintiffs are direct and indirect purchasers of
Cardizem CD who filed complaints challenging the Agreement as a violation of
federal and state antitrust laws.

Procedural History: The first complaint challenging the legality of the Agreement
was filed in August 1998, shortly after the FDA issued its final approval for Andrx's
generic version of Cardizem CD. That complaint, and the other complaints that were
subsequently filed, have been consolidated by the Judicial Panel on Multidistrict
Litigation for coordinated or consolidated pre-trial proceedings in the Eastern District
of Michigan. For all of the plaintiffs, the foundation for their claims is the allegation
that but for the Agreement, specifically the payment of $ 40 million per year, Andrx
would have brought its generic product to market once it received FDA approval and
at a lower price than the patented Cardizem CD sold by HMR. They further allege
that the Agreement protected HMR from competition from both Andrx and other
potential generic competitors because Andrx's delayed market entry postponed the
start of its 180-day exclusivity period, which it had agreed not to relinquish or
transfer. The Sherman Act Class Plaintiffs and the Individual Sherman Act Plaintiffs
bring claims under the federal antitrust laws, specifically section 1 of the Sherman


50 United States Court of Appeals for the Sixth Circuit.

Act; they seek treble damages under section 4 of the Clayton Act. The State Law
Class Plaintiffs bring claims under various state antitrust laws. Of relevance to the
present appeal, the defendants argued that all of the plaintiffs had failed to allege and
could not allege an "antitrust injury" cognizable under section 1 of the Sherman Act
or under the respective state antitrust statutes. The district court concluded that the
plaintiffs had adequately alleged "antitrust injury." In reaching its conclusion, the
district court first considered whether the plaintiffs' allegations satisfied the test
articulated by the Supreme Court in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.51
In Brunswick, the Supreme Court defined "antitrust injury" as "injury of the type the
antitrust laws were intended to prevent and that flows from that which makes
defendants' acts unlawful." Accordingly, the district court denied the defendants'
motions to dismiss for failure to allege antitrust injury. The plaintiffs then moved for
partial summary judgment on the issue of whether the Agreement was a per se illegal
restraint of trade. The district court concluded that the
Agreement, specifically the fact that HMR paid Andrx $ 10 million per quarter not to
enter the market with its generic version of Cardizem CD, was a naked, horizontal
restraint of trade and, as such, per se illegal.

Issues before the Appellant Court:

In determining whether plaintiffs properly pleaded antitrust injury, did the
language of two appellate decisions 52require dismissal of plaintiffs' antitrust
claims at the pleading stage if plaintiffs could not allege facts showing that
defendants' alleged anticompetitive conduct was a "necessary predicate" to
their antitrust injury; and

In determining whether Plaintiffs' motions for partial judgment were properly
granted, whether the Defendants' September 24, 1997 Agreement constitutes a
restraint of trade that is illegal per se under section 1 of the Sherman Antitrust
Act, 15 U.S.C. § 1, and under the corresponding state antitrust laws at issue in
this litigation.


51 429 U.S. 477.
52 4 Valley Products Co. v. Landmark, 128 F.3d 398, 404 (6th Cir. 1997) and Hodges v. WSM, Inc., 26
F.3d 36, 39 (6th Cir. 1994).

Answer to First Issue:

As framed, the certified question was not susceptible to a yes or no answer because it
incorporated a definition of "necessary predicate" that was rejected. Hodges and
Valley Products stand for the proposition that in order to survive a motion to dismiss
for failure to allege antitrust injury, a plaintiff must allege that the antitrust violation is
either the "necessary predicate" for its injury or the only means by which the
defendant could have caused its injury. Under the "necessary predicate" option,
dismissal is warranted only where it is apparent from the allegations in the complaints
that the plaintiffs' injury would have occurred even if there had been no antitrust
violation. Here, Andrx could have made a unilateral and legal decision to delay its
market entry, but the plaintiffs have alleged it would not have done so but for the
Agreement and HMR's payment to it of $ 40 million per year. The plaintiffs'
allegations satisfy the "necessary predicate" test. The defendants' claim that Andrx's
decision to stay off the market was motivated not by the $ 40 million per year it was
being paid by HMR, but by its fear of damages in the pending patent infringement
litigation, merely raises a disputed issue of fact that cannot be resolved on a motion to
dismiss. Accordingly, the district court properly denied the defendants' motions to
dismiss for failure to allege antitrust injury.

Answer to Second Issue:

Yes. The Agreement whereby HMR paid Andrx $ 40 million per year not to enter the
United States market for Cardizem CD and its generic equivalents is a horizontal
market allocation agreement and, as such, is per se illegal under the Sherman Act and
under the corresponding state antitrust laws. Accordingly, the district court properly
granted summary judgment for the plaintiffs on the issue of whether the Agreement
was per se illegal.

Conclusion: The court answered both questions as follows: the district court properly
resolved the questions it put to the appellate court in the course of denying defendants'

motions to dismiss and granting the plaintiffs' motions for summary judgment that the
defendants had committed a per se violation of the antitrust laws.

6.8.2.5 CLAYTON ACT

The drafters of the Sherman Act did not include merger control in that legislation, but
it was added in 1914 in response to pressure to ‘do something’ about the influence of
‘big businesses’ on US economic and political developments. This second major
piece of antitrust legislation, the ‘Clayton Act’, recognized the problem, but there had
been no experience using law to combat the harms of economic concentration, and for
decades the legislation was easily avoided by structuring acquisitions in particular
ways that did not fall within the statute. This weakness in the scope of the provision
as corrected in 1950, so that virtually all mergers became subject to the legislation.
Enforcement efforts were hampered, however, because officials did not learn about
mergers until after they had been completed, at which point imposing a remedy was
often difficult and costly. The Hart-Scott-Rodino Pre-merger Notification Act 1976
responded to this problem by requiring that information about large mergers be
provided to the Federal government before the merger agreement becomes effective.
During the classical period, there were relatively few international mergers. The focus
was on what was appropriate for the US economy and polity, with little regard to
consequences outside the US.
Mergers:
This act has defined vertical as well as horizontal mergers. Vertical mergers is
between the buyer and the seller where as horizontal merger is between direct
competitors. A merger which is neither vertical nor horizontal is a conglomerate
merger. The Competition Act does not speak about conglomerate mergers. As per the
Clayton Act a pure conglomerate merger is when there is no relationship between the
acquiring firm and acquired firm.53
Amalgamation:
This act also speaks about vertical and horizontal amalgamation. An amalgamation
between firms performing similar functions between production or sale of comparable
goods or services is known as horizontal amalgamation. It further goes on to state that



53 www.cci.gov.in

horizontal amalgamation will lead to undue concentration of that particular product in
that particular market. Such a transaction will reduce competition. As such vertical
amalgamation is not outlawed, but if there is a sense of a creation of monopoly or the
lessening of competition then vertical amalgamation is forbidden. Competition Act,
2002 holds that joint ventures are legal as far as they increase efficiency in
production, supply, distribution, storage, acquisition or control of goods or provision
of services. In Clayton Act it is given consideration whether the joint venture
eliminated the potential competition of the corporation that might have remained at
the edge of the market continually threatening to enter. 54
As far as intention is concerned the Competition act has not mentioned it but both the
Sherman act and the Clayton Act talks about it. As per Sherman Act good intentions
of parties is no defence to a charge of violating the act and thus will not validate an
otherwise anticompetitive practice. Similarly according to Clayton Act it is not
required to show that lessening of competition or a monopoly was intended.55
Concentration of economic power may result from merger, amalgamation or takeover.
The MRTP Act does not prohibit merger, amalgamation or take-over, but seeks to
ensure that the arrangement sub serves public interest.
Before the 1991 amendments, the MRTP Act frowned upon expansion of giant
undertaking so as to permit them to acquire power to put a stranglehold both on the
market as well as on consumers, and further industrial expansion of the country.
After the 1991 amendments, the MRTP Act has been restructured and pre-entry
restrictions with regard to prior approval of the government for amalgamation, merger
or take-over have been removed. However the MRTP act still has power under the
provisions relating to restrictive trade practices and monopolistic trade practices to
take action against mergers that are anti-competitive. This was the position by the
Supreme Court of India in the Hindustan Lever Limited- Tomco merger case, 1994.56
The Supreme Court Observed that the MRTP act, after the 1991 amendments, did not
empower the central government to pre-emptively stop a merger, because it is likely
to affect competition. Thus the 1991 amendments to the MRTP Act removed the ex
ante power of the said statute to block merger deals. This vacuum has been plunged
by the Competition Act, 2002, which gives ex ante power to the Competition


54 Ibid.
55 Ibid.
56 Hindustan Lever Ltd vs Tata Oil Mills Co., Ltd, SLP 11006/94 , 24 October 1994.

Commission of India to block certain combinations, if found to adversely affect
competition.57

6.8.3 UNITED KINGDOM

A modern, statutory competition regime emerged in Britain only after the Second
World War, developing somewhat haphazardly thereafter. From today’s vantage, this
policy was tentative, partial, and under-enforced. Only by the passing of the
Competition Act 1998 and the Enterprise Act 2002 did the United Kingdom achieve a
regulatory scheme that evinces a coherent design and an orthodox underpinning
rationale. The relative tardiness of this development is a perplexing fact. For decades,
the UK had been a primary exponent of the neoliberal philosophy that places faith in
markets as the most efficient means of allocating societal resources. Yet the
introduction of the necessary corollary - an effective policy designed to police newly
competitive markets - did not emerge until recent years. The United Kingdom has
only relatively recently introduced a coherent competition regime is a perplexing fact.
Since the advent of the government of Prime Minister Margaret Thatcher in 1979, the
United Kingdom has been a primary exponent of the neoliberal philosophy that places
faith in markets as the most efficient means of allocating societal resources.
Privatisation, liberalisation, deregulation, and the ‘contracting out’ of public
competences all quickly became mainstays of British economic policy.58

6.8.3.1 THE FAIR TRADING ACT, 1973

The basic principle of this act was to promote fair trading and thereby providing an
environment for free competition. It mostly focused on restriction of monopoly. There
is monopoly when a person or group of persons to secure the sole exercise of any
known trade throughout the country. However there are certain monopolies
authorized by the statute e.g. Post office with respect to carrying of letters. If there is
an agreement which gives control of trade to an individual or group of individuals
then it creates a monopoly calculated to enhance prices to an unreasonable extent. It is


57 www.cci.gov.in
58 While recent Labour governments have dallied with the concept of ‘The Third Way’, their aspiration
to promote social justice has been underpinned by implicit faith in markets.

no monopoly if the control is lawfully obtained by particular persons on particular
places or kinds of articles for which a substitute is available.

6.8.3.2 THE COMPETITION ACT, 1998

This act repealed the fair trading act of 1973. It was divided into two chapters.

Chapter 1 Prohibitions: Chapter 1 prohibitions prohibits the agreements which fix
prices, control production, share market or sources of supply, apply dissimilar
conditions to equivalent transactions and make the conclusion of contracts subject to
acceptance by other parties of supplementary obligations which by nature of
commercial usage have no connection with the subject of such contracts. All such
agreements are unlawful.59

Chapter 2 Prohibitions: Chapter 2 prohibitions: Any undertaking which amounts to
the abuse of dominant position is prohibited if it consists in:

Imposing unfair purchase or selling prices
Limiting production, market or technical development
Applying dissimilar conditions to equivalent transactions with other trading
parties.
Making the conclusion of contracts subject to acceptance by other parties of
supplementary obligations having no connection with the subject of
contracts.60

Investigation under this act Director General of fair trading may conduct an
investigation if he has reasonable grounds to believe that Chapter 1 and 2 prohibitions
are infringed. However no such power is given to director of CCI. The concept of
privileged communication as provided under Section 30 of the U.K Competition Act
is also not included in the Indian Competition Act. This non inclusion can affect the



59 www.legislation.gov.uk
60 Ibid.

right of the undertakings or legal or natural persons who are undergoing
investigation.61

In India we have sectoral regulators as well as Competition law enforcement
authorities, now it raises a serious concern as to the fact of handling of affairs of cross
sectoral issues. For example undertaking may be regulated by one agency on a certain
aspect and by CCI on the competition aspects. In such situations businesses are afraid
that in such instances there may be conflicting directions from different regulators.
There are also fear that they need to comply with double regulations will result in
increased business costs.

6.8.3.3 THE CASE OF MONOPOLIES: EDWARD DARCY ESQUIRE V
THOMAS ALLEIN OF LONDON HABERDASHER62

A statute was passed for bidding the importation of playing cards. A monopoly was
granted to Ralph Bowes to manufacture and sell playing cards, or to license others to
sell them, in England, for twelve years. At the end of Bowes’ monopoly, the queen
gave it, and the right to stamp his cards as legal, to Edward Darcy then for twenty-one
years, in return for an annual payment of 100 marks. T. Allein, a London haberdasher,
sold 180 gross of playing cards, without paying Darcy for the privilege or for the use
of his stamp.

Darcy sued Allein. The Attorney General was appointed to defend the queen’s
privilege in granting monopolies (and in reaping their revenues). The King’s Bench
ruled that the grant was void, because monopolies are against the Common Law,
which protects the freedom of trade and liberty of the subject, and against the statutes
of Parliament.

“Edward Darcy, Esquire, a Groom of the Chamber to Queen Elizabeth, brought an
Action on the Case against Thomas Allein, Haberdasher of London, and declared,
that, intending that her subjects being able men to exercise Husbandry, should apply
themselves there-unto, and that they should not employ themselves to the making of


61 Ibid.
62 (1599) 74 ER 1131.

playing Cards, which had not been any ancient manual Occupation within this Realm;
and that the making of such a multitude of cards, Card playing was become very
frequent, and chiefly amongst servants and apprentices and poor Artificers; and to the
end her subjects might apply themselves to more faithful and necessary Trades, by her
Letters Patents under the Great Seal of the same did grant unto Ralph Bowes, full
power, license and authority by himself, his servants, factors and deputies, to provide
and buy in any parts beyond the Sea, all such playing Cards as he thought good, and
to bring them within this Realm; and to sell and utter them within the same, and that
he, his servants, factors and deputies should have and enjoy the whole Trade, Traffic
and Merchandize of all playing Cards: And by the said Letters Patents further |[85 a]
granted to the said Ralph Bowes, That the said Ralph Bowes his servants, factors, and
deputies, and no other should have the making of playing Cards within the Realm, to
have and to hold for twelve years; and by the said Letters Patents the Queen charged
and commanded, That no person or persons besides the said Ralph &c. should bring
any Cards within the Realm during those twelve years; Nor should buy, sell, or offer
to be sold within the said Realm, within the said term any playing Cards, nor should
make, or cause to be made any playing Cards within the said Realm, upon pain of the
Queens gracious displeasure, and of such fine and punishment as Offenders in the
Case of voluntary contempt deserve. And afterwards the Queen, on 11 August
announced by her Letters Patents reciting the former grants made to Ralph Bowes,
granted the Plaintiff, his Executors, Administrators, and their deputies, the same
privileges, authorities, and other the said premises for one and twenty years after the
end of the former time, rendering to the Queen hundred marks per annum; And
further granted to him a Seal for to mark the Cards. And further declared that after the
end of the said term of twelve years, as on 30 June, the Plaintiff caused to be made
four hundred grosses of Cards for the necessary uses of the subjects, to be sold within
this Realm, and had spent in the working of them and that the Defendant knowing the
said grant and prohibition in the Plaintiff’s Letters Patents, and other the premises
without the Queens License or the Plaintiffs, at Westminster did cause eighties
grosses of playing Cards to be made and as well those, as 100 other grosses of playing
Cards, of which many were made within the Realm, or brought within the Realm by
the Plaintiff, or his servants, factors or deputies, &c. nor marked with his Seal; he had
imported within the Realm, and had sold and uttered them to sundry persons

unknown, and showed some in certain, for which the Plaintiff could not utter his
playing Cards, & Contra formam praedict’ literar’ patentium, et in contemptum dictae
Dominae Reginae, whereby the Plaintiff was disabled to pay his farm rent, to the
Plaintiffs damages.”63
The Queen's Bench court determined that the Queen's grant of a monopoly was
invalid, for several reasons:

Such a monopoly prevents persons who may be skilled in a trade from
practising their trade, and therefore promotes idleness.
Grant of a monopoly damages not only tradesman in that field, but everyone
who wants to use the product, because the monopolist will raise the price, but
will have no incentive to maintain the quality of the goods sold.
The Queen intended to permit this monopoly for the public good, but she must
have been deceived because such a monopoly can be used only for the private
gain of the monopolist.
It would set a dangerous precedent to allow a trade to be monopolized -
particularly because the person being granted the monopoly in this case knew
nothing about making cards himself, and where there was no law that
permitted the creation of such a monopoly.
This was a revelation to the Competition Act which came to be known as the Case of
Monopolies and the arguments that were set forth therein have served as a basis for
antitrust and competition Law. It was for the first time a definitive statement made by
the court that state-established monopoly are inherently harmful and therefore
contrary to law.

6.9 PROPOSED AMENDMENTS IN THE COMPETITION ACT 2002

6.9.1 INTRODUCTION

The Competition Commission of India, which is an active regulatory body, has in its
short span made its presence felt across the industry. The substantive provisions of the
Competition act, 2002 for “anti-competitive agreements” and “abuse of dominant
position” came into existence in the year 2009 and as far as merger control is


63 Ibid.

concerned, it was implemented on 1st of June, 2011. The CCI has in its short
span,

analyzed and ruled on various provisions of the Act and passed several orders and in

that process has identified the lacunae where the Act could be amended.

The Competition (Amendment) Bill was introduced by the Indian Government in the
parliament on December 10, 2012. Keeping in mind the evolving needs of the
industry the Bill aims to modify certain provisions of the Act and also introduce new
provisions as and when required.

6.9.2 PROPOSED AMENDMENTS

The amendments are divided into two sub headings namely:
Substantive Amendments
Procedural Amendments

6.9.2.1 SUBSTANTIVE AMENDMENTS

VERTICAL AGREEMENTS
Present law: As per Section 3(4)64 refers to agreements between enterprises or
persons at different stages of the production chain in different markets, in respect of
production, distribution, storage, sale or price of, or trade in goods or provision of
services. It states that if such vertical agreements cause or are likely to cause any
appreciable adverse effect on competition, they shall be deemed void. Though section
3(4) speaks about provision of services, but the illustrations so provided by the
provision such as tie-in agreements, exclusive supply agreements etc only make
reference to sale of goods and provision of services.
Proposed law: the Proposed Bill now aims to include “provision of services” in the
explanation for all the illustrations under vertical agreement. Though this does not
have any major impact on the interpretation of Section 3(4) but once the main clause
includes reference to “provision of services”, it ensures that there is no dichotomy
between the text of the main clause and the explanation provided for its illustrations.



64 The Competition Act, 2002.

For example: The definition for “tie- in agreements” includes “any agreement
requiring a purchaser of goods, as a condition of such purchase, to purchase some
other goods." The amendment Bill proposes that the definition be modified as "any
agreement requiring a purchaser of goods or recipient of services, as a condition of
such purchase or provision of such services, to purchase some other goods or availing
of some other services."

COLLECTIVE DOMINANCE
Present law: Section 4(1) 65states that "No enterprise or group shall abuse its
dominant position." The CCI had to explore the scope of the word “group” used in the
section. As per the case Consumer Online Foundation vs. Tata Sky Ltd. & Others 66
where the Informant had alleged that all direct- to- home operators were “individually
dominant” in their “relevant market.” The CCI did not accept this contention and
stated that “the word "group" referred to in section 4 of the Act does not refer to
group of different and completely independent corporate entities or enterprises. It
refers to different enterprises belonging to the same group in terms of control of
management or equity." The CCI further held that "the concept of dominance does
centre on the fact of considerable market power that can be exercised only by a single
enterprise or a small set of market players. Every single player in any relevant market
cannot be said to possess such dominance..." the CCI reiterated the same principle in
Royal Energy Ltd. vs. Indian Oil Corporation Limited & Others. 67
Proposed law: the amendment proposes to replace section 4(1) with “enterprise or
group, jointly or singly shall abuse its dominant position.” This amendment intents to
include enterprises or groups, related or unrelated, whether within the same
management or not, to fall within the ambit of section 4. As per this amendment
independent and unrelated parties could be held “dominant” under section 4
explanation (a).68



65 Ibid.
66 Case No. 2 of 2009 dated March 24, 2011.
67 MRTP Case No. 1/28 (C-97/2009/DGIR) dated May 09, 2012. This case was filed before the
Monopolies and Restrictive Trade Practices Commission and then, post its dissolution, transferred to
the CCI.
68 According to section 4 explanation (a), "dominant position" means a position of strength which
enables an enterprise to operate independent of competitive forces prevailing in the relevant market, or
affect its competitors/consumers in its favour.

This is a positive amendment to the Act since it regulates instances where if for
example a particular industry may collectively abuse its position but a single industry
cannot qualify as a dominant player under section 4.
DLF Limited in Belaire Owner's Association vs. DLF Limited and Others.69
The CCI in its landmark judgment imposed a penalty of US$ 114 million on the
ground that DLF had abused its dominant position in the relevant market by imposing
unfair and discriminatory condition in its builder contracts. DLF filed an appeal
against the order of the CCI with the Competition Appellate Tribunal. The
Competition Appellate Tribunal stayed the payment of penalty and directed the CCI
to amend the terms of DLF's builder contract to ensure that it is in conformity with the
Act. On January 03, 2013, the CCI passed a supplementary order modifying the
relevant clauses of the contract.
Other real estate enterprises, which also, perhaps, indulged in similar practices, were
not reprimanded since they did not singly stand out as "dominant" in the relevant
market. With the proposed amendment, if all (or at least more than one) real estate
companies indulge in practices similar to that of DLF, they could collectively be held
in contravention of the Act.
Further, unlike cartels, there is no requirement for the parties to have intent to
be collectively dominant.
For better understanding, it may not be necessary for the real estate enterprises to
have a common intent to collectively dominate in the relevant market. Conduct
without intent would be sufficient for them to fall within the ambit of section 4 on
account of collective dominance. This can have serious ramifications on small and
mid-size companies, who, under the present Act, may not be deemed dominant.

TURNOVER
Present law: “Turnover” as per section 2(y)70 states that it includes value of sale of
goods or services. This definition is however, not clear about whether any applicable
taxes would for a part the turnover when it is calculated under section 5,7127,7243A73.



69 Case No. 19 of 2010 dated August 12, 2011.
70 The Competition Act, 2002.
71 Section 5 deals with "combinations" and specifies the various financial thresholds based on (i) asset
value and (ii) turnover, which once crossed, require the parties to seek an approval from the CCI for the
proposed combination.
72 Under section 27, penalties are levied for any contravention of section 3 or 4 of the Act

As per section 5, turnover is used to meet the financial threshold which triggers the
need for seeking the approval of CCI before a proposed combination. Section 27 and
43A uses turnover to ascertain the amount on which penalty may be levied.
Proposed law: The modification so proposed by the Bill is to state that turnover
will include value of sale of goods or services excluding the taxes, if any levied on
the sale of goods or provisions of services. The requisite form that is filed with
the CCI to seek an approval of proposed "combinations," specifically states that "the
turnover shall be computed in accordance with section 2(y) of the Act, excluding
indirect taxes, if any." The amendment proposes that the Act will statutorily clarify
that taxes will be excluded, not only for the purpose of seeking a combination
approval, but also when "turnover" has to be ascertained for imposing penalties under
section 27 and 43A. Therefore, it is critical that the definition of "turnover" is
unambiguous to ensure a correct estimation of values.
Even if this amendment is made computation of "turnover" for determining the
thresholds under section 5, as well as penalties, continues to be a grey area.
Ambiguity at this point can have harsh repercussions while calculation penalties.

GROUP
Present law: Under section 5 explanation (b)(i), group is defined as two or more
enterprises which, directly or indirectly, are in a position to exercise 26% or more of
the voting rights in other enterprises. This definition is significant when it is read with
section 4 which stipulates that "no enterprise or group shall abuse its dominant
position.” It also assumes significance in cases pertaining to sections 5 and 6 for
ascertaining whether a proposed "combination" ought to seek a CCI approval or not.
On March 02, 2011, the Indian government released a notification74 ("Notification")
which increased the 26% threshold to 50%. The Notification specifically stated that
"groups exercising less than 50% voting rights in other enterprises" were exempt
from any approvals under section 5. This implied that even 50-50 joint ventures fell
within the definition of group.
Proposed law: The Bill now aims to synchronize the Act with the Notification and
further wants to revise the definition of group to include "two or more enterprises


73 Under section 43A, penalties are levied in cases where information is not furnished to the CCI under
section 6 of the Act for seeking a combination approval.
74 S.O. 481(E) dated March 04, 2011 issued by the Ministry of Corporate Affairs.

which, directly or indirectly, are in a position to exercise 50% or more of the voting
rights in the other enterprise." After which 50-50 joint ventures continue to fall within
its scope.
Even though the interpretation of “group” does not change but it brings the Act in
conformity with the Notification.

6.9.2.2 PROCEDURAL AMENDMENTS
DUTIES OF THE DIRECTOR GENERAL -DAWN RAIDS TO BE
SIMPLIFIED

Present law: Section 41(3)75 has empowered the Director General (DG) to conduct
search and seizure in accordance with sections 240 and 240A of the Companies Act,
1956. As per these provisions the DG has to procure an order from a Magistrate for
undertaking a search and seizure. This procedure is consistent with how raids are
conducted in any other civil/criminal proceeding in India.
The effectiveness of this provision has gone untested as till date there has been no
case in front of the CCI where any search and seizure order has been obtained by the
Director General.
Proposed law: As per the Bill, under section 41(3), the DG can now seek an order
from the Chairperson of the CCI instead of seeking permission from the Magistrate to
conduct any search and seizure. If this amendment is implemented, dawn raids would
become unchecked and managed internally by the CCI. As competition issues get
more complicated and high-value search and seizure raids would become a productive
tool for the DG to conduct investigations and o enforce a strict competition regime.

Orders of the CCI during the stage of inquiry
Present law: Pankaj Gas Cylinders Ltd. vs. Indian Oil Corporation Limited,76
The CCI for the first time examined a peculiar concern, where once a complaint is
filed and a prime facie case is established the CCI orders the DG to conduct its
investigations. 77 If the DG submits a report that there is a contravention of the Act,
the CCI has to invite objections/suggestions from the parties. After hearing the



75 The Competition Act, 2002.
76 Case No. 10 of 2010 dated June 22, 2011.
77 Such orders are passed under section 26(1) of the Act.


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