Anti-Competitive Agreements

Introduction In the pursuit of globalization, India opened up its economy by removing controls, and restoring liberalization. ‘The Competition Act, 2002′ was the first step towards the transformation from old obsolete laws to the neo-liberal economic condition suited to competition law. This Act replaced the MRTP Act. The Competition Act changed the focus from curbing monopolies to promoting competition.

Aim of this Act is to create a business environment where the business entities can compete with each other, and also provide enough opportunities for the new entity to join the competition with the existing market players. Further, it aims at protecting consumer interest and corroborating freedom of trade and business.

About Competition Act, 2002 The main problem of a competition friendly market arises when some firms start to collude with their competitors or force the competitors to go out of the market or buy out the competitors. We can find all these activities in the Competition Act, 2002. The Competition Act prohibits or regulates-

1. Anti-Competitive Agreements (u/s 3 of the Act)

2. Abuse of Dominant Position (u/s 4 of the Act)

3. Combinations, by way of an acquisition of an enterprise or merger of enterprises (u/s 5 & 6 of the Act).
   

Anti-Competitive Agreements under Competition Act

In general terms, Anti-Competitive Agreements are agreements that substantially prevent, restrict, or lessen competition; having an appreciable adverse effect on it. Section 3 of the Competition Act, 2002 prohibits any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or services which causes, or is likely to cause an appreciable adverse effect on the competition.

Essential Ingredients of Anti-Competitive Agreements

A. Agreement The term agreement has been defined under Section 2 (b) of the Competition Act, 2002 in the following way – It includes any arrangement or understanding or action in concert-

Whether or not, such arrangement, understanding or action is formal or in writing; or Whether or not, such arrangement, understanding or action is intended to be enforceable by legal proceeding.

What is included in the Anti-Competitive Agreement?

1. Agreement to limit production and/or supply;

2. Agreement to allocate markets;

3. Agreement to fix price;

4. Bid rigging or collusive bidding;

5. Conditional purchase/sale (tie in arrangement)

6. Exclusive supply/distribution arrangement,

7. Resale price maintenance; and

8. Refusal to deal.
   

B. Appreciable adverse effect The term appreciable adverse effect has not been defined in the Act. In the case of Haridas Exports vs. All India Float Glass Manufacturers Associations [(2002) 111 Comp. Cas.617 (SC)] Supreme Court observed that the words appreciable adverse effect on competition embraces acts, contracts, agreements or combinations which operate to the prejudice of the public interests by unduly restricting competition or unduly obstructing the due course of the trade.

Types of Anti-Competitive Agreements: Types of Anti-competitive agreements are mentioned under section 3(3) and 3(4) of the Competition Act,2002.

a) Horizontal Agreement [Section 3(3)]– It is an agreement between two manufacturers, two distributors or two retailers or ones dealing in similar kinds of product at the same stage. Thus, they are void per se. The horizontal agreements are further divided into four kinds– ● Price fixation ● Output control/Production control ● Market sharing ● Bid Rigging b) Vertical Agreements [Section 3(4)] – It is an agreement between two or more firms, each of which operates at a different level of production or distribution chain. These generally are not treated as anti-competitive per se but are to be judged under the ‘rule of reason’ test. The following are the vertical arrangements- ● Tie-in arrangement ● Exclusive supply agreement ● Exclusive distribution agreement ● Refusal to deal ● Resale price maintenance Remedies to Anti-competitive Agreements-

If agreement in question falls within the category of Section 3 as Anti Competitive Agreement, it can pass any of the below mentioned orders: 1. Directing person, enterprise or association involved in the agreement to discontinue or re-enter agreement. 2. Directing for amendment of the agreement to the extent and in the manner as may be specified in the order. 3. Imposing any such penalties on person, enterprise or association, as it deems fit. But Penalties shall not exceed ten percent of the average turnover for the preceding three financial years. 4. In cases of cartels the penalties mentioned above shall extend to each producer, seller, distributor, trader or service provider included in that cartel and the amount of penalty could extend upto either three times of its profit for each year of the agreement’s continuance or ten percent, whichever is higher. 5. Issuing directions to the enterprise to comply with the orders. 6. Payment of cost connected therewith. 7. Pass any such order or direction as it may deem fit.

Intellectual Property Rights- An exception Section 3(5)(i) of the Act provides an exemption, from the adverse effect of Section 3 to the right of any person, to restrain any infringement , or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been conferred upon him under:- 1. The Copyrights Act, 1957 2. The Patents Act, 1970 3. The Trade and Merchandise Marks Act, 1958 4. The Geographical Indications of Goods ( Registration and Protection) Act, 1999 5. The Designs Act, 2000 6. The Semiconductor and Integrated Circuits Layout-Design Act, 2000 The effect of Section 3(5) is that entire Section 3 dealing with prohibition of anti-competitive agreements will not apply where the owner of any intellectual property rights under the enactments provided above, does anything in the exercise of his right to restrain the infringement of any of those rights, or imposes reasonable conditions as may be necessary for the protection of any of those rights.

Indian Contract Act, 1872 The Indian Contract Act is based on the general principle of common law regarding agreements restricting trade or profession or business and declares all agreements in restraint of trade as null and void to that extent subject to an exception. All agreements in restraint of trade will be valid provided they are reasonable in the interests of the parties and in the public interest.

Conclusion Competitive agreements are not always injurious to business and at times such agreement may result in consumer welfare. It ensures fair and healthy competition in economic activities in the country for faster and inclusive growth and development of the economy. The Competition law not only bridges the gap between the consumer and the market but also it gives a platform to the new entrant in the market. Therefore, it must be ensured that there should be a fair and ethical market with healthy competition. Disclaimer- This article is based on the relevant provisions and as per the information existed at the time of preparation; and in no event writer shall be liable for any direct and indirect result from this article. This is only a knowledge sharing initiative, it should not be construed as legal advice.

About the Author - Advocate Gazal Daga LL.M. , LL.B. (Gold Medalist) (Founder, Legal Gazal & Associates) (gazal.daga1@gmail.com)