s- 4 competact (mktga x201) 2 dec 09

8/9/2019 S- 4 CompetAct (MktgA X201) 2 Dec 09

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BUSINESS LAWS

SYMBIOSIS INSTITUTE

OF BUSINESSMANAGEMENT

PUNE


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BUSINESS LAWS

Prof. Bala

------------------------------------------------------------------

Session 4

Competition Act 2002

Presentation on 2.12.2009

11.45 to 13.00 Hr.

Marketing A X-201


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Rapport buildingRapport buildingHelping factors Hindering factorsSmile

Conversation

Listening Straight to Point

- Feelings Distractions

- Concerns Absence of nonVerbal

- Problems

Posture

Eye Contact


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BUSINESS LAWSAgenda

1 Recap

board related matters, accounts, audit etc.Classification of offences, Prevention &Adjudication of offences InvestigationCompounding of offences and consent

orders2 Todays TopicCompetition Act 2002 and amendments of2007


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What is com

petitionWhat is com

petitionWhat is competition?

- an economic rivalry amongst economic

enterprises

- Global scenario competition has become greatpractical importance

- Ultimately consumer interest needs to beprotected

Is the concept of competition

is new for us?


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Quote fromQuote from

ArthashastraArthashastrawritten 321written 321--296 Bc296 BcDisplayed the lack of trust in traders.

There was of tendency to form cartelsin order to fix prices, following wereprescribed:-

- heavy fines- to discourage such offences

- with a view to protect consumers.

.Chanakya in his Arthashastra


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COMPETITION POLICYCOMPETITION POLICYCompetition Policy

- preservation and promotion of the competitive

process- Encourages efficiency in production of goods

and services

- Effects on innovation and adjustment of

technological change- Sustained economic growth

- Rivals have equal opportunities to compete


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COMPETITIONCOMPETITION FAIRFAIRCompetition policy & competition law

-Competition policy can be genus

-Competition law provides necessary teeth

for enforcement the policy

-Competition fair and unfair

-Fair two enterprises adopt fairmeans ofproduction of fair goods / services, investment

in research and development etc


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COMPETITIONCOMPETITION UNFAIRUNFAIRUnfair

- Enterprise adopts Restrictive Trade

Practices (RTP)

- Predatory pricing

- Exclusive dealing

- Resale-pricemaintenance- Cartel (RTP have an appreciable

adverse effect on competition)


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Competition lawCompetition law

Global HistoryGlobal History RomanRepublicAround 50BC we can trace an

early example of competition law is the Lex Julia deAnnona, enacted during the - AdamSmith s -

Wealth of Nations France:

- Chaplier Law of 1791 which contained aprovision that barred members of the same

trade from

assem

bling for the purpose ofpromoting their common interest.

Canada:

- introduced Competition Law in 1889 Act forthe Prevention and suppression of

Combinations in Restraint of Trade.


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Global HistoryGlobal History Unites State of America:

- introduced Sherman Act in 1890, Clayton

Act in 1914, Robinson Patm

an Act in 1936,Hart Scott- Rodino Anti-Trust Improvement Act in1976.

Collusive behaviour ofmerchants engaged intrading/distribution of farm goods played important

role in the decision to enact these laws. (Merchantsacted as buyers Cartel).

Collusive alliances were named as trusts and thusthe term anti-trust was coined.


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Global HistoryGlobal History Victims of collusive behaviour were

farmers and small agrarian business

firm

s.S

ince they were large in num

ber,laws were framed to protect them.

Till 1991 40 countries had introducedCompetition Laws in one form or other.

After 1991 more than 110 countrieshave Competition Laws.


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REGULATORY ACTS ONREGULATORY ACTS ON

COMPETITIONCOMPETITION -- INDIAINDIA

1 Restrictive Trade practices (RTPs) Act

19562 Monopolistic Trade Practices (MTPs)

Act 1969

3 Unfair Trade Practices (UTPs)4 Division of undertakings, in certain

cases


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RESTRICTED TRADERESTRICTED TRADE

PRACTICESPRACTICESDeemedRTPs

1 Refusal to deal

2 Tie in sales (A tie-in sale results from a contractual arrangement

between a consumer and a producer whereby the consumer can obtainthe desired good (tying good) only if he agrees also to purchase adifferent good (tied good) from the producer.)

3 Exclusive dealings

4 Collective price fixation

5 Discrimination in granting benefits

6 Resale pricem

aintenance (Resale price maintenance is thepractice whereby a manufacturer and its distributors agree that thelatter will sell the former's product at certain prices (resale pricemaintenance), at or above aprice floor(minimum resale pricemaintenance) or at or below a price ceiling (maximum resale pricemaintenance). If a reseller refuses to maintain prices, either openly orcovertly (see grey market), the manufacturer will stop doing business

with it.)7 Restricted output /supply / allocation


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RESTRICTED TRADERESTRICTED TRADE

PRACTICESPRACTICES8 Restriction on manufacturing process

9 Exclusion / boycott agreement

10 Predatory pricing

11 Restriction in buying

12 Collusive bidding

13 Agreements prohibited by Govt.14 Any agreement enforcing any of the

above


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UNFAIR TRADE PRACTICES

UNFAIR TRADE PRACTICES

UTP

- Misleading advertisement

- Bargain sales

- Gift schemes and promotional contests

- Violation of prescribed standards- Hoarding and destruction of goods


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MONOPOLY TRADEMONOPOLY TRADE

PRACTICESPRACTICES

MTPs

- High price control of supply

- Unreasonably preventing competition

- Limiting technical development

MRTP comm

ission could investigate undersection 31 of the Act as per procedure in

regulation 29


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Competition lawCompetition law IndiaIndia

1970 - MRTP ACT 1969 came into effect was thefirst enactment in India to deal with competition issues.

1991 - a Committee was formed to examine the

existing MRTP Act with shift in focus from curbingmonopolies to promoting competition after thecommencement of New Economic Policy in 1991

Upon Committees recommendations and afterdetailed deliberations, Competition Act, 2002 wasenacted.

Notified in January, 2003,

enforcement delayed due to certain legal issues raisedin courts.


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Com

petition lawCom

petition law IndiaIndia 2007 - Competition (Amendment ) Act, 2007

was enacted (Sep.07)

Based on international norm

s, the act hasbeen called close to state-of-the-art (OECD,

Economic Survey of India Report 2007).

It is broadly comparable to those of other

jurisdictions with effective laws in this area

and, for the most part, embodies a modern

economics-based approach (WTO Trade

Policy Review of India, 2007).


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Competition Act Vs MRTP ActCompetition Act Vs MRTP Act

Competition conceptsexpressly defined; major

role for economic analysis

Provides for regulation of

combinations

Provides for advocacy

Power to impose penalty

Statutory authority can

seek CCIs(competition

commission of India)

Opinion

Government Departments

within its ambit.

Based on liberalized

Competition concepts notexpressly defined

No regulation of combinations

Has no advocacy role

No power to impose penalty

No provision for statutoryauthorities to seek opinion

Government Departmentsoutside its ambit.

Based on command

and control regime


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The competition (Amendment)The competition (Amendment)

Act 2007Act 20071 Composition of the Competition

Commission of India (CCI)

2 Interface with other regulators

3 Establishment of Competition Appellate

Tribunal (The three-member Competition Appellate Tribunal

(CAT) became operational last October to hear cases against Indias

competition regulator, the Competition Commission of India (CCI).

The government also ordered it to hear cases that the Monopolies and

Restrictive Trade Practices Commission (MRTPC) had failed to

resolve when it was wound up last year. )

4 Leniency provision specific relief (The fourth major flaw is the

leniency provision, which had earlier read as a special relief to the first

party who spills the beans in a case of collusion (for instance, cartels),

and before the enquiry begins.)


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ObjectivesObjectivesAct enacted, keeping in view economicdevelopment of the country, for the establish-ment of a commission to prevent practices

having adverse effect on competition, topromote and sustain competition in markets,

to protect the interest of consumers and toensure freedom of trade carried on by other

participants in the markets in India and formatters connected therewith or incidentalthereto


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BenefitsBenefits

Economic Efficiencies

ConsumerWelfare (Both Price & Non-Price

determinants of consumer satisfaction) Lower prices, wider choice and better services

Fair Trading.

Prevention of excessive concentration

Efficientmarket system Accelerates economic Growth; higher productivity.

Generates innovation; dynamic efficiency.

Provides level playing field, re-dressal against anti-

com

petitive practices.


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Legislative developmentsLegislative developments

Sections 3 and 4 containing provisions as regardsprohibition of anti-competitive agreements andabuse of dominant position have been notified inMay 2009.

Section 66 relating to repeal of existing MRTP Actnotified with effect from 1st September 2009.

Ordinance issued as regards dissolution of MRTPCommission w.e.f. 14.10.2009.

Regulations on general working, business ofCommission, engagement of experts, determinationof costs, leniency provisions notified;

Sections 5 and 6 relating to combinations are yet tobe notified.


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Amendments under IndianAmendments under Indian

Com

petition Act 2002Com

petition Act 2002 The Indian Competition Act prohibits any agreement

which causes, or is likely to cause, appreciableadverse effect on competition in markets in India.

Any such agreement is void.As perSection 2(b) agreement has an inclusive

definition and includes any arrangement orunderstanding or action in concert whether or not;.

Such agreement, understanding or action is formalor in writing.

Such agreement, understanding or action isintended to be enforceable by legal proceedings.


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CERTAIN IMPORTANTCERTAIN IMPORTANT

PROVISIONSPROVISIONSFactors to be looked into while inquiringdominant position - Section 19(4) such asmarket share, size, resources, consumer,integration etc.Relevant Geographical marketRelevant Product MarketProvision on abuse of dominanceProvision on Horizontal agreements andCartelsProvision on Vertical agreementsSafeguard of IPR Commission & its power


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Provisions on Abuse ofProvisions on Abuse ofDominanceDominance

As perSection 4 of Indian Competition Act, enterprises orgroups are prohibited from abusing their dominant position.

The Act defines dominant position as a position of strength,enjoyed by an enterprise, in the relevant market in India ,which enables it to

Operate independently of the competitive forces prevailing inthe relevant market

Affect its competitors or consumers or the relevant market inits favour.

It is the ability of the enterprise to behave/act independently of

the market forces that determines dominant position. Dominance per se is not bad. However, its abuse has been

considered bad.

Abuse is stated to occur when an enterprise or a group usesits dominant position in the relevant market in an exclusionary

(e.g. denial ofmarket access) or/and an exploitative mannere. . excessive or discriminator ricin .


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Provisions on Abuse ofProvisions on Abuse of

DominanceDominance Act provides that there shall be an abuse of dominant

position if an enterprise or group ;

i) Directly or indirectly , imposes unfair or discriminatory

Condition in purchase or sale of goods or services; or

Price in purchase or sale (including predatory price) of goodsor services

{However, discriminatory conditions/ price adopted to meetthe competition are not covered within the ambit of abuse }.

ii) limits or restricts ;


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DominanceDominance Production of goods or provision of services ormarket;

or

Technical or scientific development relating to goodsor services to the prejudice of customers; or

iii) indulges in practice or practices resulting in denialofmarket access in any manner; or

iv) Makes conclusion of contracts subject to

acceptance by other parties of supplementaryobligations which, by their nature or according tocommercial usage, have no connection with thesubject of such contracts; or

v) Uses its dominant position in one relevant market toenter into, or protect, other relevant market.


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DominanceDominance Relevant Market has been defined in Section 2 (r) as market

which may be determined by the Commission with reference tothe relevant product market or the relevant geographic marketor with reference to both the markets.

Relevant Geographic Market has been defined in act as amarket comprising the area in which the conditions ofcompetition for supply of goods or provision of services ordemand of goods or services are distinctly homogeneous andcan be distinguished from the conditions prevailing in theneighbouring areas.

Relevant Product market has been defined in act as a marketcomprising all those products or services which are regarded asinterchangeable or substitutable by the consumer, by reason ofcharacteristics of the product or services, their price andintended use.


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Provisions on HorizontalProvisions on Horizontal

Agreements and CartelsAgreements and Cartels Cartels are in the nature of prohibited horizontal

agreements and are presumed to have appreciable

adverse effect on com

petition. Section 2 (c) defines Cartel to include an association

of producers, sellers, distributors, traders or serviceproviders who, by agreement amongst themselves,limit, control or attempt to control the production,distribution, sale or price of, or , trade in goods orprovisions of services.

In case of cartels/horizontal agreements , burden ofproof is on the defendant.


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Prohibition of AntiProhibition of Anti--CompetitiveCompetitive

agreements and Cartelsagreements and Cartels Section 3 of Competition Act deals with anti-

competitive agreements

- both horizontal and

- vertical. No enterprise or associations of enterprises or person

or associations of persons shall enter into anyagreement in respect of production , supply,distribution, storage, acquisition or control of goods orprovision of services:-- which causes or

- is likely to cause an appreciable adverse effect

- on competition within India.


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Prohibition of AntiProhibition of Anti--CompetitiveCompetitiveagreements and Cartelsagreements and Cartels

PROVISIONS AS REGARDS HORIZONTAL AGREEMENTS Any agreement entered into between enterprises or

associations of enterprises or persons or associations ofpersons or between any person and enterprises or practicecarried on, or decisions taken by, any association of enterprises

or association of persons , including cartels, engaged inidentical or similar trade of goods or provision of services, shallbe presumed to have appreciable adverse effect on competitionand therefore void if it :

directly or indirectly determines purchase or sales prices.

lim

its or controls production, supply,m

arkets, technicaldevelopment, investment or provision of services.

shares the market or source of production or provision ofservices by way of allocation of geographical area ofmarket, ortype of goods or services, or number of customers in themarket or any other similar way.

directly or indirectly results in bid rigging or collusive bidding.


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Provisions on HorizontalProvisions on Horizontal

Agreements and CartelsAgreements and Cartels Exceptions in the case of Horizontal agreements

Provisions ofSection 3 on prohibition of anti-competitiveagreements shall not apply to any agreement entered into by

way of joint ventures if such agreement increases efficiency inproduction, supply, distribution, storage , acquisition or controlof goods or provision of services.

CARTELS

Cartels are agreem

ents between enterprises not to com

pete onprice, product or customers.

Objective of cartel is to raise price above competitive levels,resulting in injury to consumers and to economy.

Cartel formation impacts consumers as it results in higher

prices, poor quality and restricted choice.


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ProvisionsProvisions -- vertical Agreementsvertical Agreements Any agreement amongst enterprises or persons at different

stages or levels of the production chain in different markets ,in respect of production , supply, distribution, storage, sale orprice of, or trade in goods or provision of services, including

Tie-in agreement

Exclusive supply agreement Exclusive distribution agreement

Refusal to deal

Resale price maintenance

Shall be anti-competitive agreement if such agreementscauses or is likely to cause an appreciable adverse effect oncompetition in India.

Rule of Reason approach in case of vertical agreementsunlike presumptions in case of horizontal agreements.


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Factors to be looked into in ACAFactors to be looked into in ACA --Section 19(3)Section 19(3)

The Commission shall , while determining whether anagreement has an appreciable adverse effect on

competition have due regard to all or any of the following

factors;

Creation of barriers to new entrants in the market Driving existing competitors out of the market

Foreclosure of competition by hindering entry into the market

Accrual of benefits to the consumers

Im

provem

ents in the production or distribution of goods orprovisions of services

Promotion of technical, scientific and economic development bymeans of production or distribution of goods or provisions ofservices


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Exceptions to Section 3Exceptions to Section 3 Section 3 shall not restrict ; the right of any person to restrain any infringement of, or to

impose reasonable conditions as may be necessary forprotecting any of his following Intellectual Property Rights

as under; Copyright Act,1857

Patents Act, 1970

Trade and Merchandise Marks Act, 1958 or Trade Marks

Act, 1999 Geographic Indications of Goods ( Registration and

Protection) Act, 1999

Designs Act, 2000

Semi-conductor Integrated Circuits Lay Design Act, 2000


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Intellectual Property RightsIntellectual Property Rights

under Indian CA , 2002under Indian CA , 2002 IPRs provide exclusive rights to the holders to perform a

productive or commercial activity.

However, this does not automatically include the right to exert

restrictive orm

onopoly power in am

arket. An intellectual property right generates market power; thus, a

check is required to see whether there is abuse ofmarketpower.

There is , however, also a need for protection of property

holders rights to encourage investment in new ideas,innovations which may benefit the consumers

Balance between abuse ofmarket power and protection ofpropertys holders right is, therefore, required.

Intellectual Property Right lessens competition while

competition law ensures and encourages competition


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Intellectual Property RightsIntellectual Property Rightsunder Indian CA , 2002under Indian CA , 2002

Indian Competition law provides for scrutiny andexamination of all those acts during the exercise ofProperty Rights, which may be detrimental tocompetition in the market or interest of consumers.

Reasonable conditions as may be necessary forprotecting IPRs during their exercise would not beof the nature of anti-competitive agreements.

However, conditions which are not reasonable withreference to bundle of rights that go with IPRs andwhich are likely to affect adversely the prices,quantities, quality or varieties of goods or serviceswill fall within the contour of competition law.


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under Indian CA , 2002under Indian CA , 2002Few practices which may be termed as restrictive andimposing unreasonable conditions;

Licensing arrangement which includes restraints thatadversely affect competition in markets by dividing the

markets among firms that would have competed usingdifferent technologies.

Arrangement that effectively merges the R&D activities oftwo or only a few entities that would plausibly engage inR&D in the relevant fields might harm competition fordevelopment of new goods and services.

Exclusive licensing including cross licensing by partiescollectively possessing market power

Patent Pooling by firms and agreement not to grant licensesto third parties while fixing quotas and prices at the sametime


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under Indian CA , 2002under Indian CA , 2002 Tie-in arrangements a licensee may be required to acquire

particular goods (e.g.raw materials or intermediate goodswhich are unpatented) from patentee foreclosing theopportunities of other producers.

Payment of royalty even after the patent has expired orpayment even for unpatented know-how as well.

Conditions not to challenge the validity of IPR in question.

Requirement of granting back to the licensor any know-how or

IPR acquired and not to anyone else. Fixing prices by licensor at which licensee should sell.

Restriction of territory or categories of customers by licensor.


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under Indian CA , 2002under Indian CA , 2002 Taking package licensing , not only one license, as

may be required.

Undue restriction on licensees business. Limiting the maximum amount of use of license

Conditions of using employees or staff of licensoror designated employees or staff of licensor.

An enterprise , which enjoys dominant position byvirtue of IPR , if it engages in conduct consideredabuse in terms of Section 4 , shall not enjoy any

immunity.


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Exception to Section 3Exception to Section 3 --ExportExport

CartelsCartels Section 32 of Indian Competition Act also takes into account

cartel related activities taking place outside India having effecton competition in India extra-territorial reach.

Export Cartels are made up of enterprises based in one countrywith an agreement to cartelise markets in other countries.

However, export cartels are out of the purview ofSection 3 .

Section 3 (5) (ii) of the Competition Act, 2002 contains asunder;

Nothing contained in this section shall restrict-

(ii) the right of any person to export goods from India to theextent to which the agreement relates exclusively to theproduction, supply, distribution or control of goods or provisionof services for such export


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Remedies and PenaltiesRemedies and Penalties Commission is empowered to inquire into cases of

anti-competitive agreements, cartels and abuse ofdominant position

either on its ownm

otion or on receipt of inform

ationor on reference made to it by the CentralGovernment orState Govt. or statutory authority.

In case the Commission is convinced that primafacie case exists , it shall direct the Director General

to inquire and furnish report. Director General for the purpose of inquiries is

vested with the powers of civil court besides powersto conduct search and seizure.


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Enquiry and order by theEnquiry and order by the

commissioncommission After inquiry if contravention is established, the

Commission may pass all or any of the following orders; direct any enterprise or associations of enterprises or person or

associations of persons to discontinue and not to re-enter suchagreement or discontinue abuse of dominant position

impose such penalty as it may deem fit not exceeding 10% ofthe average of the turnover for the last three preceding financialyears upon each of person or enterprise

(if any anti-competitive agreement was entered into by cartel, itmay impose upon each producer, seller, distributor, trader, or

service provider included in that cartel, a penalty of up to threetimes of its profit for each year of the continuance of suchagreement or ten percent of its turnover for each year of thecontinuance of such agreement, which ever is higher.)

Direct that agreements shall stand modified to the extent and in

the manner as may be specified in the order of theCommission.


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Power of the comm

issionPower of the comm

ission Direct the enterprises concerned to abide by such other orders

as the Commission may pass and comply with the directions,including payment of costs, if any.

Pass any other order or issue directions as it may deem fit. Order for division of an enterprise enjoying dominant position .

Ordermay provide for all or any of the following matters;

Transfer or vesting of property, rights, liabilities or obligations

Adjustment of contracts either by discharge or reduction of any

liability or obligation or otherwise Creation, allotment, surrender, or cancellation of any shares,

stocks or securities


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Power of the comm

issionPower of the comm

ission Formation or winding up of an enterprise oramendment ofmemorandum or articles ofassociation or any other instruments regulating thebusiness of any enterprise

extent to which, and the circumstances in which,provisions of the ordermay be altered by theenterprise and registration thereof

Any othermatter which may be necessary to give

effect to the division of the enterprise. Commission also could issue any interim order

Commission could levy lesser penalty


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Threshold LimitsThreshold LimitsThe Act also provides for threshold limits and accordingto which an enterprise ( No group) could be of 1000crores asset with 3000 crores turnover in IndiaIn case of group the limits are 4000 crores and 12000crores

In case the enterprise or group is having business inIndia and outside India, the limits would be

For No group

- Assets $ 500 Million and 500 crores- Turnover $ 1500 Million and 1500 croresFor Group

- Assets $ 2000 Million and 500 crores- Turnover $ 6000 Million and 1500 crores

The above limits are subject to revision every 2 years


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Competition Policy andCompetition Policy and

AdvocacyAdvocacy Competition Policy goes beyond mere Competition

Laws. Competition Advocacy has been defined as

.. those activities conducted by the competitionauthority related to the promotion of a competitiveenvironment for economic activities by means of non-enforcementmechanisms,mainly through its

relationships with other governm

ental entities and byincreasing public awareness of the benefits ofcompetition.

(AdvocacyWorking Group of the International

Competition Network ).


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Competition Policy andCompetition Policy and

AdvocacyAdvocacy Section 49 of Indian CA contains specific

provisions of competition advocacy.

Central Govt. orState Govt. while formulatingmaymake a reference to the Commission,

and the Commission shall within sixty days

give its opinion .

The Commission is also empowered to takesuitable measures for the promotion of

competition advocacy on its own.


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Further reference on this subjectFurther reference on this subject

Indian Competition Act, Rules and

Regulations are at the

website

www.cci.gov.in


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WHENWE MEET NEXTWHENWE MEET NEXT

TIMETIMENEXT SESSION ON

WEDNESDAY 9 DECEMBER 2009

TOPICS

Presentation by you

in groups for internal assessments

on topics agreed upon

(15m

arks)


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THANK YOU

s- 4 competact (mktga x201) 2 dec 09

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