Dr.

SHAKUNTALA MISRA NATIONAL REHABILITATION

UNIVERSITY

Lucknow

Faculty of Law

RESEARCH PROJECT ON

Role of Anti-Competitive Agreement

For

COURSE ON ‘’Competition Law”

Submitted by

Anamika yadav

B.ComLL.B/15-16/26

Academic Session: 2017-18

Under the Guidance of

Ms. Shipra Dubey

Faculty of Law
Dr. Shakuntala Misra National Rehabilitation University

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 ACKNOWLEDGEMENT

This is not just a customary acknowledgement of help that I received but a sincere
expression of gratitude to all those who have helped me complete this project and made it
seem apparently more readable than otherwise it would have been.

I am in debt to my faculty advisor Ms. Shipra Dubey for giving such an interesting
and amazing topic ‘Role of Anti-Competitive agreement’ and making it seem easy by
lucidly explaining its various aspects. I would like to thank her for guiding me in doing all
sorts of researches, suggestions and having discussions regarding my project topic by
devoting his precious time.

I thank DSMNRU for providing Library, Computer and Internet facilities. And lastly I
thank my friends and all those persons who have given valuable suggestions pertaining to the
topic and have been a constant source of help and support.

Anamika Yadav

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 TABLE OF CONTENTS

1. Introduction…………………………………………………………………04
2. Entities covered under anti-competitive agreement…………………….…04
3. Agreements………………………………………………………………….05
4. Horizontal agreement……………………………………………………….05
 Price fixing
 Bid rigging
 Market sharing
 Production control
5. Vertical agreement……………………………………………………….…07
 Tie in arrangement
 Exclusive supply agreement
 Exclusive distribution
 Refusal to deal
 Resale price maintenance
6. Determination of anti-competitive agreement……………………………..08
 Rules of reason
 Per se rule
7. Categories of anti-competitive agreement………………………………….09
8. Remedies to anti-competitive agreement……………………………………11
9. Conclusion- Summing up…………………………………………………….12

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Introduction
With dynamic trends in the new economic market scenario, there was an enactment of new
Competition law regime in India. One of the major objectives of this law was to change
Indian economic policies, removal of trade barriers and enforce pro-trade changes. All this
would ensure fair competition in the market which would benefit both the consumer and
ensure smooth functioning of the market at the same time not proving to be arbitrary. In
furtherance of the same, it was necessary to ensure that the agreements entered by trading
entities do not acquire an anti-competitive nature.

Therefore, while engaging in a business activity in India, the parties to an agreement although
has the freedom of trade are prohibited from entering into agreements that are anti-
competitive in nature. Anti- Competitive Agreements are those agreements that have their
object in furtherance of or prevent, restrict or distort competition in India. Competition Act of
2002 defines the kind of anti-competitive agreements that cannot be made in India.
According to Section 3 of the Competition Act, any agreements entered into are deemed to be
anti-competitive if it falls into any of the categories as mentioned in the section. Agreements
that can have an appreciable adverse effect on competition could include those that directly or
indirectly fix purchase or selling prices or any other trading conditions, limit or control production,
markets, technical development or investment, share markets or sources of supply, apply dissimilar
conditions to equivalent transactions with other trading parties, thereby placing them at a
competitive disadvantage, or 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.1

Anti-competitive agreements are agreements among competitors to prevent, restrict or distort

competition. Section 34 of the Competition Act prohibits agreements, decisions and practices
that are anti-competitive.

Entities Covered under the Anti-competitive Agreements

Subsection (1) identifies the entities that are included in this section. These include
agreements between:

1. Association of Enterprises
2. Enterprise and Association of Enterprises
3. Persons
4. Association of persons
5. Person and Association of Persons
6. Person and enterprise
7. Association of person and enterprise

1
Competition law,Dr. S C Tripathi Central law publication

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 8. Association of enterprise and persons
9. Association of persons and association of enterprises

The Competition Act Expressly prohibits any agreement that falls within any of the
mentioned categories. Sub-section (2) expressly prohibits the entities mentioned above from
entering into any agreements about production, supply, distribution, acquisition or control of
goods or services which have the potential to cause harm or are likely to cause Appreciable
Adverse Effect on Competition (AAEC) within India. AAEC can be defined as a
phenomenon which is observed in the case of any of the provisions of this Act is
contravened. It includes the negative effect that it creates on the market players and healthy
competition in the market. The ambit of Section 3 is wide enough because it not only
includes those agreements that are expressly stated but also implied agreements that come
under its purview.

Agreements:
The term agreement finds a detailed mention under the Competition Act under section 2(b),
which provides
“Agreement includes any arrangement or understanding or action in concert:–
(i) Whether or not, such arrangement, understanding or action is formal or in writing; or
(ii) Whether or not such arrangement, understanding or action is intended to been force able
by legal proceedings;”

The competition Act does not specifically use the terminology, but section 3(3) and 3(4)
indirectly classifies agreements into two forms, for the purpose of ascertaining the anti-
competitive nature.

Horizontal Agreements
Section 3(3) discusses about a specific class of agreements including cartels which are to be
presumed to be anti-competitive. Horizontal agreements are agreements between enterprises,
group of enterprises, persons or group of persons, engaged in trade of identical or similar
products. Horizontal agreements are entered between two or more competitors at same level
of activity, for example- producers, distributers, manufacturers. Usually the essence and
purpose of horizontal agreements is to generate policies regarding production, distribution
and price fixation. Also such agreements provide a channel for sharing of information which
can usually be price sensitive and may influence the market. Such practices adversely affect
competition by prompting antitrust law violations. Horizontal agreements also affect prices
and quality of products in the market.

Section 3(3) broadly provides for the restriction of following as being anti-competitive in
nature- Agreements, practices, and decisions. Cartels are also brought under the purview of
being anti-competitive under this section.

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 The types of horizontal agreements which are considered to be anti competitive under
section 3(3) are:2

i. Agreements that directly or indirectly determine purchase or sale prices.

ii. Limits or controls production, supply, markets, technical development, investment or
provision of services.
iii. 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 the number of customers in the
market or any other similar way.
iv. Directly or indirectly results in bid-rigging or collusive bidding.

Price Fixing

Price fixing involves competitors agreeing to fix, control or maintain the prices of goods or
services. It can be ‘direct’ fixing of prices, where there is an agreement to increase or
maintain actual prices.3 Price fixing activities can also take the form of ‘indirect’ fixing of
prices, for example, where competitors agree to offer the same discounts or credit terms.
Price fixing agreements do not have to be in writing, a verbal understanding at, for instance a
trade association meeting or at a social event, may be sufficient to show that there was a price
fixing agreement. It does not matter how the agreement was reached or whether it has been
carried out. What matters is that the competitors have agreed to collude.

Bid rigging

Bid rigging occurs when competitors agree on who should win a tender. To support the cartel
member that has been designated to ‘win’ the tender bid, other cartel members may refrain
from bidding, withdraw their bid, or submit bids with higher prices or unacceptable terms.
The cartel members may agree amongst themselves to take turns to be the designated
‘winner’ or to reward ‘supporters’ of the winning bid, for example, by giving sub-contracts to
them. As a result of bid rigging, the party inviting the tender is likely to pay more than it
would if the tender was competitive.

Market Sharing

In a market sharing agreement competitors divide up markets in various ways, such as

geographical area or size or type of customer (e.g. business/non-business) and agree to sell
only to their allotted segment of the market. As a result they do not compete for each other’s

2
Competition law by
3
https://blog.ipleaders.in/anti-competitive-agreements/

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allotted market. Customers are affected as they would not be able to shop around for the best
deals.4

Production Control

Production control involves an agreement between competitors to limit the quantity of goods
or services available in the market. By controlling the supply or production of goods or
services, the cartel is able to, indirectly, increase prices to maximise their profits.

Competition in a market can be restricted in various other ways other than those set out
above. For instance, there may be other types of agreements among competitors such as price
guidelines or recommendations, joint purchasing or selling, setting technical or design
standards, and agreement to share business information. CCS will take action in cases where
there is an appreciable adverse effect on competition, that is, where competition is harmed
considerably. In the case of price guidelines or recommendations, CCS has found price
recommendations and fee guidelines, mandatory or voluntary, to be generally harmful to
competition, and encourages all businesses to set their prices independently.

Vertical Agreements
Vertical agreements are the agreements at different stages or different levels of market chain.
The section provides for various types of vertical agreements under sub clauses (a) to (e). If
AAEC is found to have been or is likely to have been caused by such agreements, then it
would be considered to be in contravention to section 3(1); i.e. Such agreements shall be
considered as agreements in respect of production, supply, distribution, storage, acquisition
or control of goods or provision of services, which causes or is likely to cause an appreciable
adverse effect on competition within India.5

The most common vertical agreements are:

Tie-in- Arrangement [sec.3(4)(a)]

It means imposing a condition on the purchaser of goods, to purchase some other goods and
thus selling goods which is not of purchaser’s choice.

Exclusive supply agreement [sec.3(4)(b)]

4
Competition law ,S C Tripathi
5
https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?referer=https://search.yahoo.com/&httpsredir=1&ar
ticle=1108&context=clsops_papers

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Exclusive supply means that there is only one buyer inside the Community to which the
supplier may sell a particular final product. Exclusive supply agreement includes any
agreement restricting in any manner the purchased goods and then those of seller or any other
person. It may also refer as exclusive dealing or arrangement. Generally in such a case the
dealer usually agrees not to deal in the product of other suppliers who compete with the
dealer. In case of Telco v. RRTA6, the SC held that exclusive dealership did not amount to
restriction an competition because other manufactures could appoint different dealer to dal in
the commercial vehicles and it was in public interest that vehicles of other manufacturer
works saled in the same territory by other dealer. So, that there was competition between
manufactures of different commercial vehicles. Thus exclusive dealership of Telko
commercial vehicle was in public interest and was not a restriction on competition.

Exclusive distribution [sec.3(4)(c)]

In an exclusive distribution agreement, the supplier agrees to sell his products only to one
distributor for resale in a particular territory. It also includes any agreement to restrict, limit
or withhold the output or supply of any goods or allocate any area or market for the disposal
or sale of goods.

Refusal to Deal [sec.3(4)(d)

It means any agreement which restrict by any method the persons or classes of persons to
whom goods are sold or whom the goods are brought.It also includes any agreement which
restrict any method of persons or classes of persons to whom the goods are sold or from the
goods are brought. An agreement or arrangement where seller agrees to sell only to defined
buyers and vice-versa falls under this catagory.7

Resale Price Maintenance [sec.3(4)(e)]

It means any agreement to sell goods on condition that the prices to be charged on the re-sale
by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that
prices lower than those prices may be charged shall be deemed re-sale price maintenance
agreement.

While determining whether the agreement falls within the category of anti-competitive one or
not, the competition Commission can employ the yardstick of the rule of reason. According
to the rule of reason as explained by the United States Supreme Court in the case of Board
of Trade of City of Chicago v. The US,8 any restraint is of an essence until it merely

6
7
http://www.ssrana.in/Intellectual%20Property/Competition%20Law/Anti-Competitive-Agreements-in-
India.aspx

8
(1918)246 US 231

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regulates and promotes competition. To determine this question, the Court must ordinarily
consider the facts peculiar to the business to which restraint is applied, its condition before
and after the restraint was imposed, the nature of restraining and its actual or probable effect.

Determination Of Anti Competitive Nature of Agreements

Various courts around the world and in India have formulated the following rules to
determine the anti competitive nature and effect of the agreements:

 Rule of Reason
 Per Se Rule

Rule of reason

The doctrine of Rule of reason was first stated and applied by the Supreme Court of

U.S.A. in its interpretation of the Sherman Act in the case of Standard Oil Co. of New Jersey
v. United States9. Under this judgment, the supreme court of United States observed that any
restraint on the market or competition under the then applicable Sherman Act would be anti
competitive until it is for promotional and pro-competitive purposes. Also the positions
before and after the agreement came into force must be ascertained to evaluate the true nature
of the agreement, whether it has actually caused any harm to the competition or not. Apart
from this, the future probabilities of a negative effect upon the competition, is also to be
considered to adjudge the agreement as anticompetitive.

In formal terms: The Rule of reason is a legal approach by competition authorities or the
courts where an attempt is made to evaluate the pro-competitive features of a restrictive
business practice against its anticompetitive effects in order to decide whether or not the
practice should be.10

Rule of reason is however only applicable over the class of Vertical agreements,
theagreements mentioned under section 3(4) of the competition act 2002. It has been
observed that some market restrictions which prima facie seem to be anticompetitive may on
further examination be found to have valid efficiency-enhancing benefits.

Per Se Rule

The per se rule, as defined by the Merriam-Webster’s legal dictionary is- “A rule that
considers a particular restraint of trade to be manifestly contrary to competition and so does
not require an inquiry into precise harm or purpose for an instance of it to be declared
illegal”.

9
221 U.S. 1 (1911)
10
http://stats.oecd.org/glossary/detail.asp?ID=3305 Khemani R.S., Shapiro D.M. Glossary of
IndustrialOrganisation Economics and Competition Law, 1993.

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Agreements under section 3(3) of the competition act 2002, or Horizontal agreements are
considered to be illegal and anti competitive ab-initio, i.e. from the very beginning.

Agreements leading to collective boycotting, market division, price fixation and tying in
arrangements are subjected to be adjudged as anti competitive per se. such restraints falling
under the category of horizontal agreements, cause an irredeemable harm to the market
competition.

The Per se rule, as a concept was originated by the US supreme court in 1898, the case
Addyston Pipe & Steel Co. v. U.S.11. This was also a rule formulated at the time of sherman
act being in force in the United States. The agreement in question under this case was for the
outright purpose of BID RIGGING by formation of a CARTEL. The court opined that the
agreement had a direct economic impact and was of such nature that it could not be
considered for a partial or limited restraint.

Categories of Anti-Competitive Agreements

These categories broadly include the following agreements, between two entities, engaged in
trade of similar or identical goods or services:

1. That directly or indirectly leads to determination of purchase or sale prices;

2. That limits or controls production, supply, markets, technical development,
investment or provision of services;
3. That 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;
4. That directly or indirectly results in bid rigging or collusive bidding, shall be
presumed to have an appreciable adverse effect on competition. Whether an
agreement has an anti-competitive effect on the competition in India is to be
decided by the Competition Commission of India. According to Section 19 of the
Act, the parameters for judging or determining whether the agreement can have
appreciable adverse impact on the competition include the following:
5. Creation of barriers to new entrants in the market;
6. Driving existing competitors out of the market;
7. Foreclosure of competition by hindering entry into the market;
8. Accrual of benefits to consumers;
9. Improvements in production or distribution of goods or provision of services;
10. Promotion of technical, scientific and economic development utilizing production
or distribution of goods or provision of services.

11
175 U.S. 211 (1898)

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However, an exception can be created to this rule. If the nature of agreements is that of
increasing efficiency regarding production, supply, distribution, storage, acquisition or
control of goods or services. In the case where the agreement has a direct nexus between cost
and quality efficiencies and it benefits the consumers or compensates them for any actual or
negative impact that the agreement is likely to cause, then such an agreement does not fall
within this category.

Also the Competition Act, 2002 does not recognize those agreements which impose
reasonable restrictions that restrict or protect infringement of rights as guaranteed under the
Intellectual Property laws. In the case of Shri Ashok Kumar Sharma v. Agni Devices Pvt.
Ltd it was held that a mere restriction on the use of the trademark would not be held as anti –
competitive within the meaning of Section 3 or 4 of the Act.

Section 19(3) requires that the Competition Commission of India should give due regard to
the factors as mentioned above while deciding whether it causes appreciable adverse effect or
not. However, in the case of Automobiles Dealers Association v. Global Automobiles
Limited & Anr.CCI held that while examining the said matter, it shall work on the principles
of prudence in light of the factors as mentioned in Section 19 (3).

Remedies to Anti-competitive Agreements

After an inquiry if the commission finds that the agreement in question falls within the
category of Section 3, it can pass any of the following orders as the case may be:

1. Direct the person, enterprise or association involved in the agreement to

discontinue or re-enter such agreement.
2. Impose such penalties on person enterprise or association, as it deems fit. Such
penalties shall not exceed ten percent of the average turnover for the preceding
three financial years
3. 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.
4. Direct for modification of the agreement to the extent and in the manner as may be
specified in the order of the commission.
5. Payment of cost and issuing of directions to the enterprise to comply with the
orders.
6. Pass any such order or direction as it may deem fit.

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Conclusion

Competition law is the principal legislative instrument for furthering competition policy
and combating anti-competitive agreements. Market deregulation is complementary to
competition law i.e. it is not the absence of regulation but the elimination of excessive
government regulation in particular sectors of the economy. Both competition law and
market deregulation are together called as competition policy. The policy as is evident in
the newly notified Section 3 of the Indian Competition Act, 2002 is concerned is such
that the researcher has drawn suitable analogies with U.S. and EU law to successfully
establish that it is much more beneficial for the CCI to apply differentiated rules instead
of deciding each dispute that comes before it on a case-by-case basis. Generally, even
application of more sophisticated economic models to the decision-making process is not
indicative of a case-specific analysis but rather evolving an optimal set of (more or less)
optimally differentiated rules. A full-scale analysis of all positive and negative welfare
effects is warranted and is desirable only in the rarest of rare cases whereas in respect of
the millions of daily transactions, simpler rules are preferable, which can be monitored,
enforced and complied with much more easily. Simple, robust, optimally differentiated
rules can be accomplished if the marginal reduction of error costs equals the marginal
increase in error costs through the application of additional differentiation criteria. These
criteria shall vary from case to case. The factors that determine the optimal degree of
differentiation include frequency distribution of welfare effects, regulation costs, rent-
seeking behavior, etc. These determinants shall also vary from case to case and the
competition rules can range from simple per se rules to (more or less) optimally
differentiated rules to a full-scale market analysis, presumably in exceptional
circumstances. In conclusion, the CCI would fare well to apply (more or less) optimally
differentiated rules to cases that would come before it for adjudication instead of a
blanket application of either per se rules or the rule of reason across the board, ensuring
that cost of regulation is also kept within limits.

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 BIBLIOGRAPHY

BOOKS

 Competition law by S. C. Tripathi ,Central law publication

Cases
 Telco v RRTP
 United States Supreme Court in the case of Board of Trade of City of
Chicago v. The US
 Standard Oil Co. of New Jersey v. United States
Websites
 https://blog.ipleaders.in/anti-competitive-agreements/

 http://www.ssrana.in/Intellectual%20Property/Competition%20Law/Anti
-Competitive-Agreements-in-India.aspx

 https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?referer=https://se
arch.yahoo.com/&httpsredir=1&article=1108&context=clsops_papers

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