Competition Law Newsletter April 2013 :
INFORMATION; UPDATES AND ANALYSIS
laya Legal introduces its Competition Law Newsletter. The objective is to present in a systematic, organized and comprehensive manner, the
developments in the field of ‘competition law’ in certain jurisdictions across the globe, including the Republic of India.
From time to time we propose to share issues arising in this field as borne from Alaya Legal’s experience.
Enacted in 1889, The Competition Act of Canada is the oldest antitrust statute in the western world, one year before the American Sherman
The American Sherman Act, 1890 is considered to be the starting point of modern competition (antitrust) law. Competition law concerns intervention in the market place when there is some problem with the competitive process or when there is ‘market failure’. In common parlance, competition in the market means sellers striving independently for buyers’ patronage to maximize profit (or other business objectives). A buyer prefers to buy a product at a price that maximizes his benefits whereas the seller prefers to sell the product at a price that maximizes his profit. ‘Fair Competition’ as contemplated by Competition or Antitrust
Authorities globally aids consumers, producers and distributors, thus benefiting society at large which results in total welfare. The main aim of any antitrust or competition legislation or authority is to strive for total welfare wherein the consumers, manufactures, distributors etc. each attain their objective of maximum utility without negatively affecting the other party for surplus gain. However, various adverse practices such as reduction in output in order to increase prices, creation of barriers to entry, allocation of markets, tie in sales, predatory pricing etc. are present in the market and hence the concept of total welfare exists only in books and rarely seen, if not never in operating markets across the globe .
The economic and industrial globalization has increased international competition and has given rise to the need for an increasingly integrated and evolving legal system. A number of trends have contributed to the accelerated globalization of industry and the integration of international economies. For instance, the growing similarity in available infrastructure, distribution channels, and marketing approaches has enabled companies to introduce products and brands to a universal marketplace. Therefore, our understanding about the competition law would remain incomplete if we are not updated about the evolvement and role of countries across the globe in the development of the competition law.
The three most important jurisdictions to understand the concept of global competition law are United States of America (USA), European
Union (EU) and United Kingdom (UK).
United States of America
USA was the first jurisdiction to introduce a coherent competition system, known as ‘antitrust’. The substantive provisions of US law are notable for their brevity. Legislative provisions are contained in The Sherman Act, 1890, the Clayton Act and the Federal Trade Commission Act both of 1914. The Sherman Act is the most important. The core provisions of the Sherman Act are in Sections 1 and 2. There has been intense debate throughout the history of the Sherman Act as to the role of antitrust policy and the ensuing implications for the interpretation of those provisions.
The history and traditions of US antitrust law form an essential backdrop to the continuing debate over its role and purpose. The political consensus reflected in the law during the early years of antitrust and for a considerable period thereafter, was that high concentration of industry lessened competition. This
mainstream antitrust tradition was also sceptical of the notion that the competitive process adequately controls
The earliest community competition controls were introduced in the Treaty of Paris 1951, which established the European Coal and Steel Community. However, these were specialized rules pertaining only to limited markets. The main competition provisions were introduced in the Treaty of Rome 1957. This established the European Economic Community (‘EEC’). This is now known as the Economic Community, following the adoption of the Treaty of European Union in 1992. Community law is a separate legal order which applies throughout the European Community. Accordingly, both governments and private citizens including companies which operate within the Community are required to comply with the legal rules
established by Community law.
Competition law in the UK is essentially statute based. The most notable feature of the development of the common law was its abstinence from competition issues . Although the UK has a rich history of competition law, there is a clean break up between earlier laws, and the post-war system of competition control. The post-war system has itself been almost completely replaced by two key statutes, the Competition Act, 1998 and the Enterprise Act, 20023.
Republic of India
Prior to the enforcement of Competition Act, 2002, the competition law in India was covered under the provisions of the Monopolies and Restrictive Trade Practices Act, 1969 (‘MRTP’). Antitrust legislations have always been an integral part of the economic life of developed and developing countries. But MRTP, in comparison with competition laws of other countries, was inadequate for fostering competition in the market and trade and for reducing, if not eliminating, anti-competitive practices in the country’s domestic and international trade.
The new economic policies progressively widened the scope for market forces and reduced the role for government in business. It was recognized that a new competition law was also called for because the MRTP Act had become obsolete in certain respects and there was a need to shift the focus from curbing monopolies to promoting competition. In the 1990s India saw substantial increases in the value and volume of international trade in goods and services, in foreign direct investments (‘FDI’), and in cross border mergers and acquisitions (‘M&A’). Over a period of time, trade barriers fell and restrictions on FDI were reduced. In 1999, a high level committee was appointed to suggest a modern competition law in line with international developments to suit Indian conditions. Thus, the Competition Act, 2002 was enacted in October 2003 with the purpose of providing a
competition law regime that meets and suits the demands of the changed economic scenario in India and abroad.
The Competition Act has repealed the MRTP and has dissolved the Monopolies and Restrictive Trade Practices Commission. The cases pending before the MRTP Commission have been transferred to the Competition Commission of India (‘CCI’ or ‘Commission’), barring those which are related to unfair trade practices and the same are proposed to be transferred to the National Commission constituted under the Consumer Protection Act, 1986.
Republic of India – The Competition Act, 2002 (the ‘Act’)
The legislature in the preamble of the Act clearly explains its objective behind the enactment of the Act. The preamble of the Act reads as follows:
‘An Act to provide, keeping in view the economic development of the country, for the establishment of a commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters
connected therewith or incidental thereto.’
The legislature with intent to prevent practices having adverse effect on competition in the market has sought to control and regulate;
a) Anti-competitive agreements including cartels (Section 3 of the Act)
b) Abuse of dominant position (Section 4 of the Act)
c) Certain Combinations (Sections 5 and 6 of the Act)
The legislature under Section 7 of the Act has also formed a commission known as the ‘Competition Commission of India’ to regulate the aforementioned practices to ensure fair and healthy competition in economic activities of the country for faster and inclusive growth and development of the economy and make the markets work for the benefit and welfare of consumer.
United States of America
Anheuser-Busch In Bev SA/NV sealed the acquisition of Grupo Modelo SAB in a $20.1 billion deal.
The U.S., Department of Justice, Antitrust Division has initiated civil action, against the ‘BUDS’, under the antitrust laws of the United States of America. The said action has been taken against the proposed acquisition by Anheuser-Busch in Bev SA/NV of the remainder of Grupo Modelo S.A.B. de C.V.
As per the Department, the transaction threatens the competition by combining the largest and third-largest brewers of beer in the United States of America. The Department of Justice has initiated the said proceedings under the Section 7 of the Clayton Act. Allegedly, the proposed acquisition is in violation of Section 7 of the Clayton Act, 1914 and would affect the competition in the market. The matter is yet to be decided.
Antitrust: Commission fines Telefónica and Portugal Telecom € 79 million for illegal non-compete contract clause
The European Commission has imposed fines of € 66 894 000 on Telefónica and of € 12 290 000 on Portugal Telecom for agreeing not to compete with each other on the Iberian telecommunications markets. As per the Commission, the said agreement is in breach of Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’) which prohibits anti-competitive agreements. In July 2010, the parties inserted a clause in the contract indicating they would not compete with each other in Spain and Portugal as from the end of September 2010. The parties terminated the non-compete agreement in early February 2011, after the Commission opened antitrust proceedings.
The fines were set on the basis of the Commission’s 2006 Guidelines on fines. In setting the level of fines, the Commission took into account the duration of the infringement and its gravity, including the fact that the agreement was not kept secret by the parties. The early termination of the agreement was also taken into account by the Commission as a mitigating circumstance.
Commission sends second statement of objections to ENI and Versalis in synthetic rubber cartel after General Court judgment
In November 2006 the Commission levied a fine of €272.25 million on ENI and Versalis for participating in the synthetic rubber cartel (also known as the Butadiene Rubber and Emulsion Styrene Butadiene Rubber, ‘BR/ESBR’, cartel). The Commission imposed the fine jointly and severally on ENI and Versalis. This fine included a 50% increase of the basic amount of the fine, amounting to €90.75 million, due to the aggravating circumstance of recidivism, as foreseen in the then applicable Commission 1998 guidelines on fines.
In January 2010, the Office of Fair Trading (‘OFT’) launched a formal investigation into suspected breaches of Chapter I prohibition of the Competition Act 1998 in the distribution of Mercedes-Benz commercial vehicles (trucks and vans). On June 28, 2012, the OFT issued a statement of objections to Mercedes-Benz and five dealers of Mercedes-Benz commercial vehicles who are mainly active within areas in the North of England and parts of Wales and Scotland.
On February 21, 2013, the OFT announced that Mercedes-Benz and three of the dealers, Ciceley, Road Range and Enza, had admitted infringing competition law and agreed to pay fines totalling £2.6 million.
Republic of India
Anti-competitive agreements including cartels
In Vedant Bio – Sciences, Baroda versus Chemists & Druggists Association of Baroda, the Commission observed that the guidelines of the Chemist & Druggist Association appear not to be in line with the public programs that supply medicines to common man at an affordable rate. The Commission also observed that the Chemist & Druggist Association limits and controls the supply of drugs in the market through a system of seeking mandatory Product Information Service (‘PIS’) approvals. Further, the number of players is limited and controlled by insisting on obtaining its ‘No Objection Certificate’ for appointment of stockiest. The Chemist & Druggist Association by way of its guidelines also fixes trade margins for the wholesalers and retailers which, in turn, determine the sale price of drugs in the market. The Commission thus held that the Chemist & Druggist Association had violated the provisions of Section 3(3) (a) (b) and Section 3(3) (b) of the Act. The Commission directed the Chemist & Druggist Association and its members to cease and desist from indulging in anti-competitive practices. The Order further directed the Chemist & Druggist Association to file an Undertaking that the Guidelines and MOUs with respect to various aspects of supply of medicines shall be done away within 60 days
from the date of receipt of the Order.
In re: Alleged Cartelization by Cement Manufacturers, the Commission found the cement manufacturers to be in violation of the provisions of the Competition Act, 2002 which deals with anticompetitive agreements including cartels. The Order was passed pursuant to investigation carried out by the Director General (‘DG’) upon information filed by the Builders Association of India. The Commission has imposed penalty on eleven cement manufacturers named in the information at the rate of 0.5 times of their profit for the years 2009-10 and 2010-11. The penalty so worked out amounts to more than INR 6000 crore. The Commission has also imposed penalty on the Cement Manufacturers Association.
In Principal Chief Engineer, South Eastern Railway vs. M/s Orissa Concrete and Allied Industries Ltd &Ors., contravention of the provisions of Section 3 of the Act was alleged, suspecting cartelization by the bidders in fixing the price and distributing the tender quantity of the materials amongst themselves. A tender notice was floated by South Eastern Railway for procurement of Anti-Theft Elastic Rail Clips with Circlips from RDSO approved firms. In response, 29 approved firms submitted offers. The rate quoted by most of the firms was INR 66.50 (all inclusive). The quantity quoted by each of the firms was far less than 50% of the total tender quantity. The Commission observed that conduct of the opposite parties amounts to bid rigging within the meaning of the said expression as given in explanation to Section 3(3) of the Act as the impugned agreement being an agreement between enterprises or persons engaged in identical or similar production or trading of goods or provision of services, had the effect of eliminating or reducing competition for bids adversely affecting or manipulating the process for bidding. Thus, the opposite parties have contravened the provisions contained in Section 3(3) (d) read with Section 3(1) of the Act.
The Commission directed the opposite parties to cease and desist from indulging in such anti-competitive conduct in future which resulted in bid rigging. The Commission further observed that the facts as projected in the present reference reveal a complete lack of awareness by the opposite parties which are small and micro enterprises and therefore, the Commission was of the opinion that this is a fit case where imposition of penalty is not warranted.
Abuse of dominant position
In Ajay Devgan Films vs. Yashraj films private limited & Ors. the informant contended that the opposite parties due to their dominant position in the market entered into agreements with the film exhibitors for exhibition of the two films together and thus were in violation of Section 3(4)(a), 3(4)(b) and 3(4)(d) as well as Section 4(2)(a) of the Act. The Commission rejected the allegations of the informant and held that “No enterprise can be considered dominant on the basis of big name. Dominance has to be determined as per law on the basis of market share, economic strength and other relevant factors stated under Section 19(4) of the Act. The Commission is unable to accept such a narrow approach while determining the relevant market. A large number of movies are released in India every year.” The Commission also held that the agreement entered between opposite party and the exhibitors have neither created entry barriers for new entrants nor drove existing competitors out of the market, nor is there any appreciable effect on the benefits accruing to the ultimate consumer viz. the viewers.
In Surinder Singh Barmi vs. Board of Control for Cricket in India , the allegations leveled by the informant centred around the organization of IPL and irregularities in the sale of various rights associated with IPL viz. Franchise Rights, Media Rights and Other Sponsorship Rights. Board of Control for Cricket in India (‘BCCI’) while refuting the allegations claimed that its actions do not come under the purview of the Act as it is a not for profit making body involved in promotion and development of the sport of cricket in India. The Commission however concluded that BCCI is a de facto regulator of sport of cricket in India. It is an enterprise for the purpose of the Act and within the jurisdiction of the
The Commission also analyzed the ‘relevant market’ that is the Organization of Private Professional Cricket Leagues/Events in India. Considering the regulatory role, monopoly status, control over infrastructure, control over players, ability to control entry of other leagues, historical evidences, BCCI is concluded to be in a dominant position in the market for organizing private professional league cricket events in India. On examination of the IPL media rights agreement in 2007, the Commission found that BCCI has clearly bound itself not to organize, sanction, and recognize any other private professional domestic league/event which could compete with IPL. Clause 9.1(c)(i) of the agreement clearly and unambiguously amounts to a practice through a binding agreement resulting in denial of market access to any potential competitor, and is decidedly a violation of Section 4(2)(c) of the Act.
Therefore, the Commission directed BCCI to cease and desist from any practice in future denying market access to potential competitors. Further, the BCCI was directed to resist from using its regulatory powers in any way in the process of considering and deciding on any matters relating to its commercial activities. A penalty of INR 52.24 crore was imposed by the Commission on the BCCI.
Tetra Laval BV filed a notice under Section 6(2) of the Act regarding its acquisition of shares in Alfa Laval AB through a series of share purchases on the Stockholm Stock Exchange during August – December, 2011. The acquisition increased its shareholding in Alfa Laval AB from 18.8 per cent to 26.1 per cent. The Commission observed that notice was given to the Commission not only belatedly but also after the combination had already taken effect i.e. after the acquisition of shares of Alfa Laval AB by Tetra Laval BV. The Commission approved the said combination. However, it emphasized strongly that under the Act, notice should be mandatorily given prior to entering into a combination.
European Union urged to file case, not to settle charges in Google Antitrust case
In March 2013, eleven companies with grievances against Google urged EU antitrust regulators to formally charge the world’s No. 1 search engine of anti-competitive practices instead of pursuing settlement talks. The European Commission is now examining proposals put forward by Google in January aimed at ending a two-year investigation and averting a possible fine that could reach $5 billion or 10 percent of the company’s 2012 revenues. EU regulators believe that Google may have violated antitrust rules by favoring its own services over those of rivals, copying travel and restaurant reviews from competing sites without their permission, and placing restrictions on advertisers using its services.
Memorandum of Understanding with the US Antitrust agencies
A Memorandum of Understanding (‘MOU’) between India and the United States on competition law cooperation was signed on September 27, 2012 in Washington DC. The MOU establishes a framework for voluntary cooperation between the US antitrust agencies and the Indian competition authorities. The signing of MOU is recognition on both the sides that the two countries can effectively cooperate for mutual benefit in the field of competition law enforcement and policy.
MOU is expected to strengthen the existing friendly relations between the Indian competition authorities and the US antitrust agencies by further facilitating cooperation on policy and enforcement. The Indian competition authorities and the US antitrust agencies also plan to evaluate the effectiveness of the cooperation under the MOU on a regular basis to ensure that their expectations and needs are being met.
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