INTERNATIONAL SEMINAR ON COMPETITION LAW, NUALS,KOCHI.

ANTI-TRUST ISSUES INVOLVING AGENCY AGREEMENTS AN INDIAN

PERSPECTIVE.

Balaji A.P and Sonali Jain

Balaji A.P is a Fifth-year undergraduate law student at School of Excellence in Law, Chennai and Sonali Jain is
a fourth-year undergraduate law student at School of Excellence in Law, Chennai.
ANTI-TRUST ISSUES INVOLVING AGENCY AGREEMENTS AN INDIAN
PERSPECTIVE.

Balaji A.P and Sonali Jain1

ABSTRACT

This Article examines the antitrust treatment of agency agreements that harms consumer
welfare and competition. Although high prices of goods and services due to agency
agreements in India have been roundly condemned, they have not been seen as a target of
antitrust enforcement unless they are the result of collusion. This is because of the
conventional wisdom that Section 3 of the Competition Act, 2002 does not forbid an agent
from working for his principal. This Article takes issue with that conventional wisdom. After
exploring the general problem of how agency agreements facilitates collusion with an
example of how price parity clauses in agency agreements facilitate sharing of prices, the
Article critiques the legal and policy arguments that have been made for why Section 3 does
not apply to agency agreements. The Article then examines how CCI and NCLAT have
handled agency agreements and how competition authorities outside India are now tackling
the issue of agency agreements and Doctrine of Single Economic Entity. The Article also
looks at several examples of agency agreements facilitating a hub and spoke conspiracy,
arguing that the collusion in such case could be the basis of antitrust liability under Section 3.
The Article concludes with some suggestions for how an antitrust enforcement program in
this area might proceed.

1
Balaji A.P is a Fifth-year law student at School of Excellence in Law, Chennai and Sonali Jain is a fourth-year
law student at School of Excellence in Law, Chennai.
INTRODUCTION

The Rule of agency is expressed in the maxim qui tacit per alium, facit per se. Generally,
what a person has power to do himself; he may do by appointing an agent.2 Conversely, what
a person cannot do himself he cannot do by means of his agent.3 An Agent as a person who is
employed to do any act for another or to represent another in dealings with third persons. 4 It
includes a factor, broker, commission agent, del credere agent, an auctioneer or any other
mercantile agent, who carries on the business of supply or receipt of goods or services or both
on behalf of another.5 Whatever a person may do himself as a ‘Principal’, he may authorise
another to do it for him6 and as in accordance with the maxim, qui facit per alium facit per
se, to fix him with the same liability as if he had done it himself.7 Agency and wholesale
agreements differ from one another in the following way. Under wholesale, the upstream firm
(say, a publisher) charges a wholesale price for the good to the downstream retailer who then
sets a final price for the good. By contrast, under agency, the retailer sets a percentage
commission that it will collect from sales of the good, and the upstream firm is free to set the
good’s final price. The Single Economic Doctrine lays down that irrespective of the legal
status of two or more enterprises can be said to form a single entity for the purposes of
competition law”. The concept of the Single Economic Doctrine was enumerated by the
European Commission in 1960s and now it has been accepted in India also. The main reason
behind the evolution of the Doctrine is that a subsidiary does not take a decision
independently, and when its parent company is involved in a particular business it is a normal
course of business that they would decide together,” in fact it is the parent company that
decides and the subsidiary follows and thus when they both agree together, they should not be
treated differently but rather they should be treated as a single economic entity, as such an
agreement cannot be said to be anticompetitive.8 In the present paper, This paper takes issue
with that conventional wisdom. After exploring the general problem of how agency
agreements facilitates collusion with an example of how price parity clauses in agency
agreements facilitate sharing of prices, the Article critiques the legal and policy arguments
that have been made for why Section 3 does not apply to agency agreements. The Article

2
Bateman v. Mid-Wales Rly Co., (1866) LR 1 CP 499
3
A. ThangalKunjuMusaliar v. M. VenkatachalamPotti, (1955) 2 SCR 1196
4
The Contract Act, 1872, No.9, Acts of Parliament, 1872 (India), Section 182.
5
The Central Goods and Services Tax Act, No. 12, Acts of Parliament, 2017 (India)Section 2 (5).
6
QamarShaffiTyabji v. CEPT, AIR 1960 SC 1269: (1960) 3 SCR 546: (1960) 39 ITR 611.
7
Keighley, Maxsted& Co. v. Durant, 1901 AC 240: (1900-03) All ER Rep 40).
8
https://blog.scconline.com/post/2018/02/06/curtailing-cartelisation-single-economic-entity-doctrine/
then examines how CCI and NCLAT have handled agency agreements and how competition
authorities outside India are now tackling the issue of agency agreements and Doctrine of
Single Economic Entity. The Article also looks at several examples of agency agreements
facilitating a hub and spoke conspiracy, arguing that the collusion in such case could be the
basis of antitrust liability under Section 3. The Article concludes with some suggestions for
how an antitrust enforcement program in this area might proceed.

GENUINE AGENCY AGREEMENTS AND DOCTRINE OF SINGLE ECONOMIC

ENTITY

EUROPEAN REGIME

The EC Guidelines on Vertical restraints9 dictate that in terms of determining whether an

online retailer qualifies as a ‘genuine agent’, a number of factors need to be taken into
account, one of which is the degree of commercial or financial risk borne by an online
retailer. If an online retailer bears material risks in relation to the activities for which he has
been appointed,for instance, the electronic reading device in this case, the online retailer
cannot be regarded as forming part of a ‘single economic unit’ with the supplier.10 Where an
agreement is a genuine agency agreement, certain restrictions under Article 101(1) TFEU11
will not apply. This is because, as articulated in the seminal case of Daimler Chrysler AG, 12 a
genuine agent working for the benefit of his principal ‘may in principle be treated as an
auxiliary organ forming an integral part of the latter’s undertaking, who must carry out his
principal’s instructions and thus, like a commercial employee, forms an economic unit with
his undertaking’13.

Electronic platforms in principle were not to be qualified as agents of the sellers (publishers
or hotels) as they made substantial market specific investments that precluded finding of a

9
European Commission Guidelines on Vertical Restraints (“Vertical Guidelines”),Official Journal of the
European Union, [2010] OJ C 130/01, Para 15, OJ C 130, 19.5.2010, 1–46.
10
Supra note 29, Para 12-21. (European Commission Guidelines on Vertical Restraints (“Vertical
Guidelines”),Official Journal of the European Union, [2010] OJ C 130/01, OJ C 130, 19.5.2010, 1–46.) Under
Section 60 of the UK’s Competition Act 1998 (the Act), the OFT must ensure that so far as is possible questions
arising under the relevant provision of the Act are dealt with in a manner which is consistent with the treatment
of corresponding questions arsing under EU competition law
11
European Union, Consolidated version of the Treaty on the Functioning of the European Union, 2008/C
115/01,Dec. 13, 2007. https://www.refworld.org/docid/4b17a07e2.html [accessed 27 January 2019].
12
DaimlerChrysler AG v. Commission of the European Communities, ECLI:EU:T:2005:322.
13
The Competition Act, 2002, No.12, Acts of Parliament, 2003 (India), Section 2 (h).
genuine agency relationship.14 Moreover, in the online travel agents case,15 it was found that
the Price Parity clause was actually requested by the platform and that it was unreasonable
that an agent dictates an essential element of the principal’s pricing policy.

The relevant question for the purposes of assessing pricing restrictions remains whether
supplier and online retailer can be regarded as forming part of a ‘single economic unit’.16 In
circumstances where the online retailer bears material market-specific investment risks, for
instance investing in advertisement without adequate reimbursement, pricing restrictions are
likely to remain subject to competition law, in particular where other factors also point to a
lack of unity of conduct between online retailer and supplier.17

One such factor may be the existence of a retail-price MFN18. Where an online retailer
imposes a retail price MFN on the supplier, the online retailer has influence over the
supplier’s commercial strategy relating to the pricing of its goods or services. As such, the
imposition of a retail-price MFN may be at odds with the concept of ‘commercial employee’
and therefore may be indicative of the online retailer not qualifying as a ‘genuine agent’.19 In
light of this, it is submitted that the defense of Single Economic Entity doctrine cannot be
brought up to defend the genuineness of the Agency Agreement.

AMERICAN REGIME

Commercial agency agreements also benefit from a specific regime with respect to the
application of Section 1 of the Sherman Act against collusive anticompetitive practices under
U.S. antitrust law. In its seminal decisions in Dr. Miles20 and U.S. v. General Electric Co.,21
the Supreme Court stated that the per se prohibition of resale price maintenance by Section 1
of the Sherman Act did not apply to price fixing restrictions in commercial agency
agreements (consignment exception). The U.S. Supreme Court held in these cases that
“genuine contracts of agency do not constitute resale price maintenance because the owner of
an article is permitted to fix the price by which his agents transfer the title from him directly

14
United States v. Apple Inc., et al., Civil Action n. 12-cv-2826 (DLC) (SDNY); Case COMP/C-2/39.847.
15
OFT issues Statement of Objections against Booking.com, Expedia and Intercontinental Hotels Group,
OFTPressrelease, The national Archives, (July, 31, 2012).
16
Such that the online retailer’s position is equivalent to being a ‘commercial employee’ of the supplier.
17
Market-specific investments are specifically required for the type of activity for which the agent has been
appointed by the principal. They are usually sunk, meaning that upon leaving that particular field of activity the
investment cannot be used for other activities or sold other than at a significant loss, see Supra note, Para 14.
18
MFN or Most Favored Nation clause is otherwise called as Price Parity Condition or Parity Clause.
19
OECD, Roundtable on Vertical Restraints for On-line Sales, DAF/COMP(2013)13.
20
Dr. Miles Medical Co. v. John D. Park & Sons, 220 U.S. 373, 404–406 (1911)
21
United States v. General Electric, 272 U.S. 476 (1926)
to the consumer.”22 If the manufacturer therefore retains title and bears substantial risks of
loss, he should not be prevented from fixing retail prices. The per se rule against resale price
maintenance, recently overuled by the Supreme Court in Leegin,23 did not apply if nothing
was resold.24 Subsequent case law emphasized the importance of the allocation of risks
between the manufacturer and his agent to determine the scope of the consignment
exception,25 but also held that, if the agency agreement were used to cover a “vast”
distribution system “fixing prices through many retail outlets,” the agreement would not
benefit from the exception.26 However, the theoretical basis for the nonapplication of Section
1 of the Sherman Act to price fixing clauses included in agreements between the principals
and their agents has never been clear.

INDIAN REGIME

In India whether a particular arrangement is a genuine agency agreement27 or not depends

upon, as indicated in Section 182 of the Indian Contract Act, the representative character and
derivative authority of agent. In various cases of RTP enquiry, agent-principal relationship
was considered to be outside the purview of Section 33(1) of the MRTP Act.28

But However, Section 3 of the Competition Act, which deals with anti-competitive
agreements, is based on the foundation that such agreements can be between rivals or
potentially rival parties. The Raghavan Committee29 noted that agreements are considered to
be illegal only if they result in unreasonable restrictions on competition and that the parties to
the agreement are engaged in rival or potentially rival activities.

22
Id., at 488
23
Leegin Creative Leather Products, Inc v. PSKS, Inc, 551 U.S._(2007) (vertical price restraints are to be
judged by the rule of reason)
24
Ryko Manufacturing Co. V. Eden Services, 823 F.2d 1215, 1222–1223 (8th Cir. 1987)
25
D.L. Day v. John Taylor, 400 F.3d 1272, 1276 (11 Cir. 2005).
26
Simpson v Union Oil Co., 377 U.S. 13 (1964); Ryko Manufacturing above n 12, at 1230. See however,
Illinois Corporate Travel, Inc. v. American Airlines, Inc., 806 F.2d 722, 725 (7th Cir. 1986) [the consignment
exception applied despite the existence of a large distribution network].
27
The EC Guidelines on Vertical Restraints dictate certain factors such as commercial or market risk borne by
the agent, to determine whether an online retailer qualifies as a ‘genuine agent’. European Commission
Guidelines on Vertical Restraints (“Vertical Guidelines”), Official Journal of the European Union, OJ C 130,
19.5.2010, 1–46 Para 15,[2010].
28
Every agreement falling within one or more of the following categories shall be deemed, for the purposes of
this Act, to be an agreement relating to restrictive trade practices.
29
Report of the High Level Committee on Competition Policy and Law, Government of India (Chairman S.V.S.
Raghavan) 2000.
The decisions of the Competition Commission in various cases show its reliance on the
internationally accepted doctrine30 of “Single Economic Entity”.31The CCI observed that "an
internal agreement/arrangement between an enterprise and its group/parent company is not
within the purview of the mischief of section 3(4) of the Act.”

So, it is clear from the aforesaid cases that the Doctrine of Single Economic Entity is
recognized in India by the CCI and that ‘Single Economic Entities is exempt from the
purview of anti-competitive agreements32 . Though most of the decisions recognized the
parent and subsidiary companies as a single economic entity, there is only one instance where
the CCI had the opportunity to discuss about single economy entity in relation to agency
relationships and it rightly held that drivers were agents of Ola/Uber and an anti-competitive
agreement (Price Fixing) cannot exist between them since they are a Single Economic
Entity.33

Applying the Doctrine of Single Economic Entity to the agency relationship between
Principal and Agent it is clear that they should be considered as One Single Enterprise

AGENCY AGREEMENTS FACILITATES HORIZONTAL COLLUSION:

It has been argued in various economic literature34 that agency agreements facilitate
Horizontal Collusion among suppliers.35 The mere mention of commission in a contract of
sale as signed where the seller imports the commodity from the manufacturer and sells to the
buyer is not inconsistent with the relation between the seller and buyer being one between
principals.36,37 Where an intermediary acts as both an agent and an independent distributor of

30
Cemented initially in Viho Europe BV v Commission of the European Communities, ECLI:EU:C:1996:405;
in Shamsher Kataria v. Honda Siel Cars India Ltd., 2015 SCC OnLine CCI 114 : [2015] CCI 133 : (2015) 3
CPJ 56 (Comp AT).
31
Exclusive Motors Pvt. Ltd. v. Automobili Lamborghini SPA Via Modena, 2014 SCC OnLine Comp AT 1.
32
Justickets Pvt. Ltd. v. Big Tree Entertainment Pvt. Ltd., 2017 SCC OnLine CCI 14.
33
SamirAgrawal v. ANI Technologies Pvt. Ltd. and Others, 2018 SCC OnLine CCI 86.
34
Hino, Yoshifumi et al., Do Agency Contracts Facilitate Upstream Collusion?, Working Paper, SSRN
3174264,(Feb., 8, 2019). https://ssrn.com/abstract=3174264; http://dx.doi.org/10.2139/ssrn.3174264.
35
Bernheim, B., et al.,Common Marketing Agency as a Device for Facilitating Collusion, The RAND Journal of
Economics, 16(2), 269-281, (1985). http://14.139.186.70:2051/stable/2555414.
36
Ganesh Export and Import Co. v. MahadeolalNathmal, 1956 SCC OnLine Cal 17 : AIR 1956 Cal 188 194.
37
Re Vardhaman Spinning & General Mills Ltd., RTP Enquiry No. 310/1988; Balthazar and Son v. E.M.
Abowath, 1919 SCC OnLine PC 42 : (1921) 13 LW 537 : AIR 1919 PC 166 : AIR 1921 PC 129 at page 537
products on the same market, the intermediary will not be treated as a genuine agent for the
purposes of the agency agreement38.

Even where the necessary requirements to establish horizontal collusion are satisfied, the
vertical nature of the arrangement, and thus the involvement of the platform operator,
remains relevant to liability. Specifically, where an online platform operator functions as a
“cartel facilitator”,39 with knowledge or reasonable foresee of the anticompetitive objectives,
it can be found to have participated in the establishment of horizontal collusion and thus
liable for breach of Article 101(1).40 In AC-Treuhand,41 those requirements were satisfied
where the defendant, with full knowledge, provided administrative services such as
organizing cartel meetings and collecting data on adherence, with the purpose of achieving
the anticompetitive objectives underpinning the cartel.42 Such reasoning is also reflected in
the injunction issued against Apple in the US E-Book case, preventing it, inter alia, from
entering into agreements with the relevant publishers that restricted its own ability to set retail
prices for e-books.43 Vertical Guidelines44 recognizes situations in which Article 101(1)
might be infringed – one of which being the agency agreement facilitating collusion where a
number of principals use the same agents whilst collectively excluding others from using
these agents; or where they use agents for collusion on marketing strategy or to exchange
sensitive market information between the principals.

CONCLUSION

Parallel price movements45 could arise simply through independent rational behavior or
concerted practice.46 To deduce if parallel behavior has arisen through some kind of
agreement47 rather than merely resulting from oligopolistic interdependence, establishing the

38
SuikerUnie v. Commission, Joint cases 40-48/73 :[1975] ECR 1663.
39
‘Eturas’ UAB and Others v. Lietuvos Respublikos konkurencijos taryba, ECLI:EU:C:2015:493, Para.42.
40
AC-Treuhand AG v. European Commission, ECLI:EU:C:2015:717.
41
Ibid.
42
Ibid, para.30.
43
OECD, Implications of E-commerce for Competition Policy - Background Note,DAF/COMP(2018)3 (May, 4,
2018).
44
European Commission Guidelines on Vertical Restraints, (“Vertical Guidelines”), Official Journal of the
European Union, [2010] OJ C 130/01, Para 20.
45
Coordinated action by competitors who, with or without agreement, increase prices in tandem, or at very short
intervals, UNCTAD Competition Law Glossary.
46
Raghavan’s Report on Competition Law observes as follows in paragraph 4.3-3 - “However distinction needs
to be made between what could be called an illegal practice of price cartelisation and must, therefore, be curbed
and punished and a perfectly legitimate economic and business behaviour in responding to a situation in which a
given competitor is placed in what could be described as price leadership position.”
47
OECD, Roundtable on Oligopoly held by the Committee on Competition Law and Policy Report,
DAFFE/CLP(99)25, May 1999.
existence of one or more "plus factors" (“parallelism plus48, ) is necessary49. These are
basically forms of conduct that would not be economically rational without some agreement
among competitors.50The concept of concerted practices refers to reciprocal communications
between the competitors with the aim of giving each other assurance as to their conduct on
the market.51 Actual communication is also the requirement to prove that the parallel increase
in price was a result of cartelization.52 Circumstantial evidence can establish the needed plus
factors. Some of the recognized plus factors53 are evidence that the defendants had the
opportunity to communicate, phenomena that can be explained rationally only as the result of
concerted action, the motive with which competing rivals entered into anti-competitive
agreements, existence of correspondence54, meetings among competitors, customary
indications of traditional conspiracy55, market share of the competitors56.The frequent
communications among Principal’s and a common retailer Agent, who acted as the Hub
player and facilitated Rim connection among the spokes i.e. the Principal’s, the common
motive of the Principal’s to arrest the falling prices of commodities and make them tied to the
prices of some factor constitute Plus Factors and firmly establish that the increase in price of
commodities is not a case of parallel increase in prices and could not have been caused by
anything but concerted action among the Principal’s . By Applying Plus Factors the menace
of Anti-competitive effects of Agency Agreements can be curtailed.

48
Circumstantial evidence of consciously parallel behaviour may have made heavy inroads into the traditional
judicial attitude toward conspiracy; but ‘conscious parallelism’ has not read conspiracy out of the Sherman Act
entirely.Theatre Enterprise, Inc. v. Paramount Film Distribution.Corporation., 346 U.S. 537, 541 (1954). See
also, American Tobacco Co. v. United States 328 U.S. 781 (1946); United States v. Paramount Pictures Inc. 334
U.S. 131 (1948).
49
All India Distillers Association, New Delhi v. Haldyn Glass Gujarat Ltd. Baroda & Ors., UTPE Case No.
30(146)/ 2008: The Alkali and Chemical Corporation of India Ltd. Calcutta and Bayer (I) Ltd., Bombay, RTPE
20 of 1981: Hindustan Lever Ltd. and TATA Oils Mills Co. Ltd., RTPE 4 of 1978.
50
In Cement Cartel case &The Alkali Manufacturers Association of India(AMAI) v American Natural Soda
Ash Corporation, it was observed that it is appropriate, logical and correct to inquire into cases on the basis of
existence of evidences which establish that a particular set of act and conduct of the market participants cannot
be explained but for some sort of anti-competitive agreement and action in concert among them (Para 6.5.7).
51
Monsanto Co. v Spray- Rite Service Corp., 465 U.S. 752, 764, 104. S. Ct. 1464, 79 L. Ed. 2d 775 (1984).
52
Shatakshi Johri, Attribution of Price Parallelism as Cartels under Competition Act, 2002, 26.
53
Phillip Areeda & Herbert Hovenkamp, Antitrust Law(2d ed., 2003) 68-101, ISBN-13: 978-0735526945;
Gregory J. Werden, Economic Evidence on the Existence of Collusion: Reconciling Antitrust Law with
Oligopoly Theory, Vol.71 Issue 719, Antitrust L.J.(2004).
54
Blomkest Fertilizer v. Potash Corp. of Saskatchewan Ic, 203 F3d 1028 (8 th Circuit 2002).
55
Petruzzi’s IGA v. Darling-Delaware, [1993] 998 F2d 1224.
56
. All India Tyre Dealers Federation v Tyre Manufacturers, RTPE No. 20/2008.