COMPETITION LAW: A SYSTEMATIC REVIEW
Competition is a branch of economic law to control the performance of market participants and to secure that producer of goods and services compete equitably. It increases efficiency, customer service and satisfaction, high quality product at reasonable prices, helps for greater accountability. Competition Law is a unique attribute to new reign. It is brawny in view of remedying cartels and bid rigging. The law prohibits the appreciable adverse effect on competition, protects the interest of the consumers, maintains a healthy competition in the market and to ensure the freedom of trade. The main aim of the Competition Act 2002 is to prevent the market from anti competitive practices.
In recent time, eminent sports organisations have become monopolistic and have been alleged of taking undue advantage in the relevant market. Section 3 and 4 of the Competition Act 2002 provides for the prohibition of anti competitive agreements and abuse of dominant position held by sports organisations which are frequently questioned.
This manuscript aims to analyse the abuse of dominant position and its regulations by the authorities appointed under Indian Competition Act, 2002, i.e. Competition Commission of India and Competition Appellate Tribunal. The method of study used in this work is the study of Literature, case study etc. Indian Competition Act, 2002 was introduced to overcome the shortcomings of Monopolistic and Restrictive Trade Practices Act, 1969 with an objective to maintain competition in the society for their welfare.
Competition in any field is considered to be a healthy practice for nourishing the opportunities and working as a motivating factor, provided it is followed in a legitimate manner. Perfect competition can be defined as a market outcome in which all firms sell a homogeneous and perfectly divisible product, all producers and consumers are price takers, all firms have a relatively small market share, buyers and sellers have all the relevant information about the market including the price and quality of the product, the industry is categorized by freedom of entry and exit and there are no externalities.
Competition is defined as a process of economic rivalry in view of attracting customers and making profits. Competition Law is a tool which helps in implementing the competition in the market for the welfare of the citizens and to prevent anti–competitive practices and reducing the interference of Government in the market. It’s main objective is to protect the interest of the consumers, providing freedom of trade and commerce, efficient allocation and production of resources by means of innovation and development of new products.
Articles 38 and 39 of Indian Constitution embodies the principle of distributive justice ( in which there is just allocation of goods and efficiency of goods and a society where there are no inequalities) which connote the removal of economic inequalities rectifying the injustice resulting from transactions between unequals in society.
Before Competition Act, 2002, there was Monopolies Restrictive Trade Practices Act, 1969 under which MRTP Commission was appointed. But with the passage of time, it was noticed that the objectives of MRTP Act could not be achieved to the desired extent. Due to the shortcomings over the period of time, the MRTP Commission went under sea changes and there was the emergence of a new competition law. Taking in view all the shortcomings, Government appointed a High-level Committee known As Raghavan Committee which proposed the enactment of Indian Competition Act with the authority known as Competition Commission of India. So the Competition Act, 2002 was passed to overcome the shortcomings of MRTP Act, 1969.
The Competition Act, 2002 provides for the establishment of a quasi-judicial body to be called the Competition Commission of India. The Commission is vested with inquisitorial, investigative, regulatory, adjudicatory and to a limited extent advisory jurisdiction. It has the authority to inquire on its own motion, on information or on a reference made by the central government, state government, or statutory authorities, or upon receiving a complaint. On 15 May, 2009 the Competition Appellate Tribunal was established to hear the appeals against any direction passed by the Commission, to adjudicate on claim for compensation that may arise from the findings of the Commission etc.
The focus of the Competition Law must be in three areas: anti-competitive agreements, abuse of dominant position, mergers and regulation of combination. Anti-competitive agreements are those agreements which interfere with the freedom of either to the party of agreement or to the third party by not allowing them to trade freely as they want. Competition law puts a check on this so that no such agreements could come into force which has an appreciable adverse effect on competition. Abuse of Dominant position means when an undertaking is in a position to behave independently irrespective of its consumers, suppliers, competitors etc. Combination includes mergers, acquisitions, takeovers, so the objective of Competition Law is to ensure that the persons or enterprises which are merging do not hamper the structure of competition.
Evolution of Competition Law in India
India embraced its first competition law as Monopolies and Restrictive Trade Practices Act in 1969. It relied on the socio economic philosophy expressed in Directive Principles of State Policy under Indian Constitution. The Sachar Committee constituted under the chairmanship of Justice Rajinder Sachar in year 1977 provides certain recommendations. The Committee pointed out that it is the obligation of the seller to come out with truth while advertising preventing false and misleading advertisements.
Due to introduction of new economic policy, opening up of Indian markets globally, the MRTP Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. There was a need to shift the focus from curbing monopolies to promoting competition. The Government has decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions. The MRTP Act was a precursor to the Competition Act.
A High level Committee, i.e. Raghavan Committee was constituted by the Government of India in October 1999 under the chairmanship of Mr. SVS Raghavan to recommend a suitable legislative framework for competition law in India and opined that every market participant have a equal opportunity to compete in the relevant market. On the basis of the suggestions of the Raghavan Committee, a draft competition bill was made which was referred to Standing Committee which in result was passed by Parliament in December 2002. the Competition Act provides for the establishment of Competition Commission of India which is a quasi judicial body bound by the principles of rule of law.
Major Elements in Competition Act
(1) Anti Competitive Agreements - The term ‘agreement’ as defined provides that the agreement does not necessarily have to be in the form of a formal document executed by the parties. It may or may not be in writing. Clearly, the definition so provided is inclusive in nature and not exhaustive and is a wide one. Section 3 of the Act states that every agreement which causes appreciable adverse effect on competition is anti competitive. Section 19(3) of the Act specifies certain actions in determining appreciable adverse effect on competition, i.e. 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 consumers; improvements in production or distribution of goods or provision of services; promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services. 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).
Anti competitive agreements are classified into two types, i.e. Horizontal and Vertical Anti competitive agreements. Section 3(3) of the Act defines horizontal agreements as agreements between two or more enterprises operating at same level of business. They directly or indirectly determine purchase or sale price. Section 3(4) of the Act defines vertical agreements as agreements between two or more enterprises operating at different level of business like an agreement between a producer and a seller. The vertical anti competitive agreements are further classified, i.e. tie in arrangements, exclusive supply agreement, exclusive distribution agreement, refusal to deal.
The Supreme Court in Sodhi Transport Co. v. State Of U.P. as interpreted ‘shall be presumed’ as a presumption and not evidence itself, but merely indicative on whom burden of proof lies. Vertical agreements relating to activities referred to under Section 3(4) of the Competition Act on the other hand have to be analyzed in accordance with the rule of reason analysis under the Competition Act. In essence these arrangements are ant-competitive only if they cause or are likely to cause an AAEC in India.
Remedies available against Anti-competitive Agreements - Section 27: Competition Commission of India has the following powers in this regard:
· Passing an interim order during the pendency of inquiry
· Serve a cease and desist notice directing the offending parties to a cartel to discontinue and not to repeat such agreements in future
· Order the offending parties to modify the agreement
· Impose on each member of the cartel a hefty pecuniary penalty
(2) Abuse of Dominant Position - Dominance means acquisition of significant market power, which enables the enterprise to increase the price or limit production independently of competitors or customers. In other words dominant may be defined as having power and influence over others or commanding or supreme whereas predatory has been defined as seeking to exploit others. Dominant position has been defined under Section 4 of the Competition Act, 2002. A firm is said to be in a dominant position if it has the ability or the power to behave independently irrespective of its customers, suppliers, competitors. In other words, it can be said that the firm which has the position of strength and has the power to set the prices of the inferior goods over the competitive level in the market.
Section 4(1) of Competition Act, 2002 prohibits abuse of its dominant position by an enterprise. The concept of abuse of dominant position differs from country to country. The general definition of dominant position and market power in countries like Germany, India, European Commission, United Kingdom, Australia takes into consideration the ability of any firm to behave independently irrespective of its competitors, reduce the competition in the market making an appreciable adverse effect on competition. Competition Authorities appointed under the United Kingdom Competition Act relies on the definition of dominant position given by European Court of Justice. It can be noticed that Indian Competition Law follows the EU model of Competition Law. The provisions of the Competition Act of 2002 exist to intervene in situations where the size of the enterprise stifles competition.
In United States v. International Harvester Co., the court citing the case of United States v. United States steel Corp. observed that law does not make mere size of corporation, however impressive, or the existence of unexpected power on its part, an offence when accompanied by unlawful conduct in the exercise of its power. The laws of most jurisdictions prohibit the abuse of dominant position/misuse of market power by enterprises.
When a dominant enterprise in the relevant market controls an infrastructure or a facility that is necessary for accessing the market and which is neither easily reproducible at a reasonable cost in the short term nor interchangeable with other products/ services, the enterprise may not without sound justification refuse to share it with its competitors at reasonable cost. This has come to be known as the essential facility doctrine (EFD). It has been recognized that any application of the EFD should satisfy the following:
· The facility must be controlled by a dominant firm in the relevant market
· Competing enterprises/persons should lack a realistic ability to reproduce the facility
· Access to the facility is necessary in order to compete in the relevant market; and
· It must be feasible to provide access to the facility.
Subject to such conditions being satisfied and consistent with established competition law principles applicable to the specific case, the Commission may under the provisions of Section 4 (2) (c) of the Act (relating to denial of market access by a dominant enterprise) pass a remedial order under which the dominant enterprise must share an essential facility with its competitors in the downstream markets.
For example, A is a businessman and he keeps cereals in a large stock and many of the retailers get supplies from him as result he is in a dominant position in the market. One day he purchases almost all stock of cereals and refused to sell it to retailers due to which in absence of cereals their demand increases and then he sold that stock at a higher prices making a huge amount of profit. This is known as abuse of dominant position.
(3) Predatory Pricing - The theory of predatory pricing says that the firm which is in a dominant position set a lower rates of goods which compel the other competitors to either leave the market or to close their business and also restricts the entry of new enterprises. It is just like an investment and the loss occurred by lowering down the prices will be recovered as a future gains. The dominant enterprise which sets the low prices of goods is known as predator.
It is an Exclusionary pricing conduct in which the predator sacrifices the short term profits in order to gain long term profits. The revenues and the profits that will generate in future will be definitely more than the offset losses incurred during the predatory period. This is known as recoupment. It may be implicit or explicit.
Predation is an exploitative behaviour which is carried on by the dominant enterprises by; Eliminating the competitor from the market; Prohibiting or preventing the entry of new competitor in the market; Restricting the other competitors to enter into the competitive practices.
Predatory pricing is a short term strategy. The predator undergoes short-term pain for long-term gain. Predatory pricing is a long term strategy in which businesses can be engaged. It is an irrational theory. In other words, it can be said that predatory pricing is sale of goods at a lower price below its cost of production in order to eliminate the competition in the market and to prevent or restrict the entry of new competitors. It is a monopolist’s strategy. Even the zero pricing is also considered as an unfair price or predatory price.
In Brooke Group Ltd v. Brown and Williamson Tobacco Corp., it has been said that “the requirement for a claimant seeking to establish competitive injury resulting from a rival’s low prices was to prove that the prices complained of were below an appropriate measure of its rival’s costs.
In addition, to establish predatory pricing, it should be necessary to look for an element of mala fide, i.e., of eliminating competition by creating transitory phase of low pricing which a competition may not be able to withstand. Price reduction, which may have to be resorted to survive in the competition market, or to meet the predatory pricing policy pursued by other competitors, would not be a restrictive trade practice liable to be struck down.
There are certain elements for construction of Predatory Pricing, i.e. the enterprise which is predating the prices must be in a dominant position in a relevant market; setting up of lower prices below the cost of production in a relevant market; intention of eliminating the competitors and reducing the competition or prohibiting the entry of new competitors in the market.
(4) Combinations - Section 5 of Competition Act 2002 states that combination is an acquisition of one or more enterprises or merger or amalgamation of enterprises. The Government regulates the combinations as the combinations of reputed enterprises will reduce competition in the market and the merger of big companies makes it difficult for the smaller businesses to grow and make profits.
There are various types of combinations, i.e. Horizontal, Non-Horizontal Combinations. Horizontal combination is the merging of two or more enterprises which have identical level of production process and are competitors. It helps in financial gains, staff cost cutting, enhancing performance of business, cost efficiency etc. On the other hand it also reduces the competition which is against the consumers as they have to face higher prices due to lack of substitutes. Non-Horizontal combination is divided into vertical and conglomerate combination. Vertical combination is the merging of two firms operating at different phases of manufacturing and distribution of a product. It helps in increasing competitiveness in the market, provides a wide share market and a good supply chain. Conglomerate combination involves the enterprises which are involved in unrelated business. It is a merger of two enterprises that provides different services and goods and operate at different levels of business.
The regulation of combinations in a broad sense has two expressions. The first one being the procedural format to be followed by the parties and the CCI , starting off from the point of notifying the Commission proceeding to the dispensation of the final order. The transactions presented to the Commission through notification maybe countenanced , countenanced with modification or held null in accordance with the concerned provisions of the Act. At the centre of any resolution made by the Commission is the, Competition Appraisal, markedly pertaining to vertical and horizontal combinations. Further in the challenge of steadying the competition market what helps is the careful and erudite assessment of the unilateral and coordinated effects both quantitatively and qualitatively owing to specific cases. A number of factors come and go while assessing combinations but the overall guiding notion is a barter between the anti-competitive effects and the pro-competitive effects.
(5) Cartels - According to Section 2(c) of the Competition Act 2002, a cartel is an association of persons, enterprises, organisations who by themselves enter into an agreement to limit, control or attempts to control the supply, production, distribution of goods and services. Cartel is an unfair trade practice in the relevant market and it prevents competition. The formation of cartels shows the intention to create a monopoly market. The agreement which is the essence of cartel will unreasonably restrains the trade in the market which depends on the nature of agreement and the circumstances.
Cartels are usually cartels function in secrecy; the members of a cartel, by and large, seek to camouflage their activities to avoid detection by the Commission; a perpetuation of cartels is ensured through retaliation threats, if any member cheats, the cartel members retaliate through temporary price cuts to take business away or can isolate the cheating member; a Another method, known as compensation scheme, is resorted to in order to discourage cheating. Under this scheme, if a member of a cartel is found to have sold more than its allocated share, it would have to compensate the other members.
In Builders Association of India v. Cement Manufacturers and Association & Ors., the Commission came up with the concept of parallelism-plus. The Commission observed that parallel behaviour in prices, dispatch, supply accompanied with some other factors indicating coordinated behaviour among firms may become a basis for finding contravention or otherwise of the provisions relating to the anti competitive agreements of the Act.
Role of Competition Law in Sports Commercialisation
“Competition is the spice of sports, but if you make spice the whole meal, you will be sick” – George Leonard.
The major goal of Competition law is to protect the market from anti competitive practices. Nowadays, certain prominent sports organisations have become monopolistic and gaining undue advantage and these organisations have been imposing various economic restraints. various esteemed organisations like Board for Control of Cricket in India (BCCI), All India Chess Federation (AICF) and Athletics Federation of India (AFI) have been found involving in anti competitive agreements, abuse of dominant position.
The double forces of globalisation and commercialisation have curved sports into a worldwide business. Yet there are number of ways in which sports entities remain considerably different than other business entities. The monopolistic nature of sports organisations and the inherent need for maintaining competitive stability between teams have resulted in emergence of many forms of economic restraints like revenue-sharing, spending caps, drafts, non-tampering clauses.
In Hemant Sharma & Ors v. Union of India and Ors., All India Chess Federation was considered to be an enterprise because it levied an entrance fee. In the case it was held that since the body was engaged in revenue generating economic activities such organization of sporting events involving grant of media rights and sale of tickets etc should be considered as an enterprise as per Competition Act, 2002. It can be securely be deduced from the interpretation of Competition Commission of India (CCI), that the measure is the ‘nature of activity’ to decide whether entity is an enterprise or not.
Sports governing bodies are considered as commercial enterprises and they fall within the ambit of the said Act. In the game of cricket, BCCI holds a supreme positions and enjoys a dominant position in the market. A complaint was filed against BCCI by a cricket fan alleging that the organisation has infringed Section 4 of Competition Act 2002. In 2008 BCCI introduced a new T-20 cricket tournament, namely IPL. The issue arose when the new entrant, i.e. ICL was introduced by Zee Group which was likely to harm or jeopardize the dominant position enjoyed by them. So for maintaining its position, BCCI resorted to many unfair practices against the players who are participating in ICL. Moreover, they were also not allowed to play in Indian cricket team as well as domestic matches. ICL was denied the access of stadiums and it was held by the Commission that BCCI had abused it dominant position.
International Perspective of Competition Law
· United Kingdom
Material provisions of EC treaty are:
a) Art 45 on the treaty on the functioning of the European Union (TFEU), The EU rules on the free movement of workers
b) Art 101 TFEU, prohibiting anti-competitive agreement and decision of an “association of undertakings” (which includes sporting bodies such as UEFA); and
c) Article 102 TFEU, prohibiting anti-competitive abuse of a dominant market position by a sporting organisation controlling a major sport.
In addition to EU law, UK law could also apply to sporting rules – in particular:
a) the Chapter I and II prohibitions of the Competition Act 1998, the domestic equivalent to Articles 101 and 102 TFEU;
b) the common law doctrine of restraint of trade, which makes restrictive provisions of an agreement unenforceable unless they can be justified as reasonable both between the parties and as a matter of public policy; and
c) Public law requirements requiring UK bodies to follow fair procedures.
· United States of America
The literal wording of section 1 of the Sherman Act condemns every Agreement in restraint of trade. However, decisions in United States v. Addyston Pipe & Steel Co. and Standard Oil Co. v. United States recognized a non-literal interpretation of section 1 as barring only "unreasonable" restraints. Addyston Pipe states that restraints amongst competitors are reasonable only when "ancillary to the main and lawful purpose of the contract and necessary to protect the covenanted in the pleasure of the lawful fruits of the contract." Applying these principles to sports, the Supreme Court held in National Collegiate Athletic Association v. Board of Regents that the organization of a sports league is a "lawful" contract, but a restraint is unreasonable if it is shown that, as a result of the restraint, prices are higher, output is lower, or output is impassive to consumer demand compared to what "would otherwise be." Courts have held that player restraints that affect stars and ordinary players alike are overbroad. In the US, broadcasting issues in popular sport are governed by the Sports Broadcasting Rights Act, 19618. Competition issues relating to professional sport have arisen primarily under section 1 of the Sherman Act.
The purpose of the Danish Competition Act is to encourage competition and thus build up the efficiency of production and distribution of goods and services through the transparency of competitive conditions and through measures against restraints of the leeway of trade and other harmful effects of anti-competitive practices. Decisions and agreements which may result in a dominant influence being exerted on the market concerned are subject to notification to the Competition Council (Section 5 of the Danish Competition act). An Act can be taken against such decisions if they entail or may entail detrimental effects on competition and therefore on the effectiveness of production and revenue (Section 11 & 12).
Most competitive regimes aims to prevent anti competitive agreements, prohibits organisations from abuse its dominant position and to promote competition in the relevant market. The Competition Act is a big step in India’s competition law framework from MRTP regime focused on ‘curbing of monopolies’ to promote competition in market by proscribing practices that have ‘appreciable adverse effect on competition’. The CCI has to be cautious and consistent with respect to its approach in terms of its operations and advocacy exercise. A consistency in CCI’s approach in will go long way in enabling the industry in planning pro-competitive business strategy within the framework of the Competition Act.
No legislation is perfect. It evolves through time. History is witness to the fact that competitive pressure has always done wonders for the economy of any country and we hope that the CCI will also be able to do the same in India by fostering the culture of competition in business practices. Competition law analysis entail complex legal and economic considerations. The nitty-gritty focus of the Act is to shift the focus from curbing monopolies to promoting competition both in domestic and the international field.
While several advanced economies had foster competition policies and consequential competition laws in place, India has joined the club only a few years ago. Therefore, this law is still emerging in the Indian context. In the United States and Europe, the competition law has emerged through a series of discussions, debates and analysis between various entities like the policy makers, the judiciary, academia, and the industry over a extended period of time. For the Indian law to be efficient, and for its contribution towards holistic development, such thoughts are essential.
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Author Details: Nikhil Mittal (Amity Law School, Amity University, Noida, U.P.)