PER SE ILLEGALITY IN RESPECT OF ANTI

TRUST AGREEMENT

INTRODUCTION:
Competition law has become an important aspect for the growth of economy and efficiency,
to eliminate concerted practices, monopolization and thereby promote and sustain
competition in the market. European Union (EU) is an amalgamation of 27 countries. EU
focuses on economic integration of all its member-states and strives to achieve a healthy
common market which offers free movement of goods and services and a wide variety of
choices for consumer's benefit.[1]

Similarly, US aims to promote a free market and consumer welfare. It can be rightly said that
EU and US both share common goals within their areas of operation under their respective
legislations namely under Art.101 and 102 of Treaty on the Functioning of the European
Union (TFEU) and under Ss.1 and 2 of Sherman Act, 1890, S.5 of Federal Trade
Commission Act, 1914. It is worth noting that the Court functions within a different
institutional framework in EU than the Supreme Court does within US.

An undertaking, involved into price-fixing, bid rigging, market division and other such
concerted practices that results into prevention, restriction or distortion of competition in the
market are considered to be in violation of the aforesaid legislation in their respective
jurisdictions with or without a justification. One can argue that EU laws prohibiting certain
anti-competitive acts, in a manner implies 'per-se' illegality.

However, instead of the term 'Per-Se' the terms used are 'Restriction by Object'. It can be
rightly said that competition laws of EU and US have significant roles to play and a specific
agenda to maintain the competitiveness in their respective markets. In this essay I will argue
about how EU laws have a similar yet different approach over anti-competitive conduct by
undertakings. Firstly, by understanding what are cartels. Secondly by evaluating the
difference between per-se and restriction by object. Thirdly, I will argue about its
viability/feasibility in the real world and fourthly, conclude that EU does have a per-se
illegality comparable to US antitrust laws.
What is a Per Se Rule?
Firstly, in the class, after finishing the vertical agreements under Section 3(4) of the
Competition Act, 2002, Per Se Rule was taught. Per Se Rule is simply when one person on
whom are the offences or the allegations which pertain to a specific issue is alleged in front
of any Court of Law, such alleged person has the onus to prove that such allegation is a
falsified one. In regular cases, should there be an allegation filed against a person, the Courts
would demand conclusive evidence to prove and hold the accusation as admitted.

In these cases, the accused person need not prove anything unless some form of conclusive
proof is held against them. Wherein, in the Per Se Rule, the accused person, from the moment
of alleging, the burden to claim innocence falls on them. This rule will be employed only in
the horizontal agreements as admitted under Section 3(3) of the Competition Act, 2002. This
is also called the Rule of Presumption as the defendant party must prove that there is no such
arrangements made by them in the first place.

The use of the words “shall be presumed” gives rise to a “presumption” against the opposing
parties. The principle of ‘shall presume’, used in section 3(3) has been explained by courts in
India in numerous cases such as in Sodhi Transport Co. v. State of Uttar Pradesh[36] and R.S.
Nayak v. A.R. Antulay[37]. In Sodhi Transport Co., the court observed that:

‘The words “shall presume” have been used in the Indian judicial lore for over a century to
convey that they lay down a rebuttable presumption in respect of matters with reference to
which they are used…and not lying down a rule of conclusive proof.’

The court also observed that

‘A presumption is not itself evidence but only makes a prima facie case for the party in
whose favour it exists. It indicates the person on whom the burden of proof lies. But when the
presumption is conclusive, it obviates the production of any other evidence. But when it is
rebuttable, it only points it the party on which lies the duty of going forward on the evidence
on the fact presumed, and when that party has produced evidence fairly and reasonably
tending to show that the real fact is not as presumed, the purpose of presumption is over’.[38]

Per Se Rule and Restriction By Object/Effect:

Per se rule is a method of analyzing the legality of an alleged agreement between the market
competitors/rivals. In US, it is addressed as naked Cartel, such anti-competitive acts are
considered illegal per se i.e., they are conclusively presumed that such acts are distorting
competition and restraining trade in the market. It includes all concerted practices by
competitors (explicit or tacit) involving price-fixing, market division, output restriction, bid
rigging, etc. Often horizontal agreements fall under per se rule while vertical agreements fall
under Rule of Reason (i.e. a cartel like behavior but there are justifications for that behavior).

A naked cartel prima facie restraints trade, distorts competition and the court refuses to
entertain any justification or waste time on hearing such matters, they are directly penalized
for their unlawful acts either by way of imprisonment, fines or both once the facts are
established.[3] Compensation for damages is also awarded for the losses sustained by the
complainant/victim.

In EU, it can be argued that the rule of Restriction by Object is similar to that of per se rule. It
is a test to evaluate the true object behind an arrangement/agreement between the
competitors. It is pertinent to note that intention of the parties here is immaterial while the
resulting consequence of such agreement is given more consideration.

In the case of Consten SaRL and Grundig GmbH v Commission, it was observed by the CJ
that there is no need to take account of the effects of an agreement if its object is to restrict
competition.[4] Therefore, it shows that restriction by object is as good as per se illegality.
All such agreements that are sufficiently injurious to the proper functioning of the market are
prohibited by law and the defaulting parties are subjected to heavy fines/penalties.[5]

The EU laws have a key feature that varies from that of US laws such as EU under Art.101(3)
offers exemption (individual and block) to those agreements and concerted practices that
distort competition but also contributes to production/distribution and benefits the consumers.
[6] Such cartels/agreements are excused from bearing the repercussions of unlawful collusive
acts.

This exemption is however absent in the US laws. US has adopted the 'Rule of Reason'
instead wherein certain agreements are not assumed to be restraining trade/competition but
are assessed on its legal and economic context under rule of reason[7]. It can be said that
under Art.101(3) and Rule of Reason, the court weighs the anti and pro-competitive effects of
such concerted practices to determine its legality.

Therefore, when comparing the two competition systems/laws it can be rightly said that there
exist common objectives and are similar to an extent but EU offers some
relaxation/exemption for valid purposes and valid cooperation. This is mainly because as
mentioned earlier EU places key importance on integration of member states and sustaining a
healthy competition within the markets of these member states posing as one big single-
market.

It monitors/regulates anti-competitive behavior of undertakings that are likely to deter

competition in Europe. Whereas, US often considered as the father of competition law owing
to its early origin adopts a very straight forward approach. There is no grey area when it
comes to unlawful anti-competitive conduct. Per-se rule certainly is a conducive tool to

Viability:
It has been observed that the meaning of Art.101(1) is extremely broad and thus it becomes
challenging to ascertain which acts will be considered anti-competitive and which not.
Especially the producers/market players are under constant fear with regards to what might
bring them under radar for restrictive practices.

In the case of STM, the CJ clarified that the words object or effect in Article 101(1) are not
cumulative but are alternative conditions. There is a need to evaluate the precise purpose of
the agreement in the economic context, whether all or some clauses are likely to
deter/distort/prevent/restrain competition in the market. Only if these clauses shows its
detrimental effects on the market sufficiently, the agreements are called restrictive by object.
The court reiterates that to identify the agreements restrictive by object, one needs to read its
provisions carefully to assess its object.[9]

Often the viability of Art.101(1) is questioned for it turns blind-eye even to those
arrangements with pro-competitive effects. In a famous case of Consten v. Grundig (1966),
an exclusive distribution agreement (vertical agreement) between the parties for Grundig
electronic products was held to be unlawful and restrictive.

The parties disagreed that the agreement had any restrictive element and claimed that it
boosted competition in the market instead. Though it was argued that the Commission must
take into account the effects of such arrangement rather than jumping to conclusion, the
Commission refused to take note of these arguments and maintained its stand that Grundig
gave a monopoly to Consten in France and its object itself was restricting the competition, an
assessment of effect was unnecessary.
It can be seen from above, the decision was more or less similar to per-se illegality, wherein
the court refused a pro-competitive justification. The ambiguity of competition laws has led
to serious apprehensions with what is permissible and what is not. Often the associations of
market players try to create bylaws explicitly and time and again communicates the same
with the authority to keep a check if they are in conformity with the laws to avoid
uncertainties.

There are a number of possibilities wherein the market players are permitted to come and
operate together provided their aggregate market share is below a permissible percentage. If
the arrangement is likely to cause monopolization the same is then prohibited under law.

Thus, it's important for the competitors to play by the rules or face the consequences. Lately,
the per se rule has also been critiqued by many scholars and economists stating that though it
saves time and resources, at times it becomes essential to understand/evaluate the true nature
of an agreement before labelling it per-se illegal or restricted by object.

In landmark cases of Standard Oil Co. v. United States (1911) and United States v. American
Tobacco Co. (1969), the court was of the view that the broad interpretation of Sherman Act
would only lead to a ruckus that there would hardly be any agreement or contract among the
businessmen that does not directly or indirectly affect or possibly restrain commerce. There
were some strong apprehensions with regards to application of reasonableness for
adjudicating some cases under S.1 of Sherman Act. Therefore, Supreme Court cemented this
idea that at least some agreements would not be found automatically in violation of Sherman
Act but now would be assessed under some sort of reasonable standard.[10]

In Continental TV, Inc. v. GTE Sylvania (1977), the Supreme Court held that location
restrictions were widely used and had no deleterious effect on competition. The application of
per se rule was the incorrect standard and thereby reversed the order by stating it should have
been assessed under rule of reason.[11]

It's important to note that mere mimicking the actions/decisions of market competitors does
not imply collusion/concerted practice. To remain competitive in the market it is the most
basic rule to change its stance and act according to its competitors so that consumers do not
choose competitors' products over its own. These are unilateral conduct often observed in
oligopoly markets and it would be highly unsatisfactory to label it per-se illegal.
Conclusion:
To conclude, it can be rightly said that EU does have a system of per-se illegality that can be
compared to US antitrust laws i.e., the Restriction by Object. This is by far the closest
comparison that could be found between the two jurisdictions. Once the cartel's anti-
competitive object is established the undertakings/all members of the cartel are held liable to
bear the consequences and pay hefty fines.

Per-se rule and Restriction by Object undoubtedly serves to be a time-saver, where the naked
cartels (prima-facie) can be cornered and the guilty can be held accountable, thereby saving
court's time and effort.

To reiterate, the EU as well as US laws play a significant role in conserving a free market and
promote competition for the benefit of the consumers at large. Although their goals align,
their modus operandi slightly differs with regards to available exemptions. It can be said that
even US is now shifting from its rigid stand of per-se rule to the rule of reason to validate
certain acts which cannot be overlooked for the sake of competitors and other rationale. The
competition laws are little ambiguous, it could certainly use better clarity and timely update
for better enforcement.determine the anti-competitive conduct and saves time and
resources[8].