PROJECT REPORT ON

THE COMPETITION ACT, 2002

SUBMITTED BY:

PRAKHAR SINHA

UID NO: 16047

TYBMS SEMESTER V (C.BMS.5.08)

ACADEMIC YEAR 2018-2019

PROJECT GUIDE:

PROF. SANJAY PARAB

ST. XAVIER’S COLLEGE - AUTONOMOUS

5, MAHAPALIKA MARG,

MUMBAI, MAHARASHTRA, 400001

 CERTIFICATE

This is to certify that Mr PRAKHAR SINHA , a third year student of Bachelor of

Management Studies of St. Xavier’s College (Autonomous) - Mumbai has
completed the project report titled " The Competition Act, 2002" submitted
during the academic year 2018-2019

____________ ____________ ______________

Prof. Sanjay Parab Dr. Rajendra shinde

Project guide Principal External examiner

 DECLARATION

I, PRAKHAR SINHA, a student of TYBMS, UID Number: 163047 of St. Xavier’s

College (Autonomous) - Mumbai hereby declare that i have completed the
project report on " The Competition Act, 2002" in the academic year 2018-2019.
This information submitted by me is true and original to the best of my
knowledge.

________________

Signature of the Student

PRAKHAR SINHA

TYBMS

UID Number: 163047

 Index

1) The MRTP Act, 1969

2) The Competition Act, 2002

3) Competition Commission of India

4) Anti Competitive Agreements

5) Abuse of Dominance

6) Mergers and Combinations

7) Intellectual Property

8) Chinese Competition Law

9) Review Committee and Conclusion

The MRTP Act, 1969

The act was first brought in because of the imperfect knowledge of the customers
about the products present in the market. Considering india's literacy rate, the
parliament deemed it necessary to have a competent competition regime. The
inputs of monopolies inquiry commission and hazari formed the bedrock on which
this foundation was built. The former researched about the extent and effect of
concentration of power in private sector while the latter reviewed the existing
industrial licensing system. Both the commissions came up with the same
conclusion, there was a clear cut concentration of economic power, and the
system was skewed towards the big players. Hence the MRTP Act was proposed.

Monopolies and restrictive trade practices act 1969

Objectives -

Social justice with economic growth

Welfare state

Regulating concentration of economic power to common detriment

Controlling monopolistic, unfair and restrictive trade practices

The premise of the act is to allow unrestrained interaction of competitive forces,

maximum material progress, rational allocation of resources, and availability of
goods and services of quality at reasonable prices. The act enumerates the
following -

1) Restrictive trade practice - it is a practice which has, or may have the effect of
prevention, distortion, or restricting competition in any manner and in particular
the ones that obstruct the flow of capital or resources into the stream of
production.

Some examples would be- refusal to deal, exclusive dealings, price discrimination,
manipulation of prices etc.
2) Unfair trade practice- The act lists out certain practices that are deemed unfair
but the definition is not exhaustive.

Some examples would be- misleading advertising, inadequate product safety

standard, hoarding of goods etc.

3) Monopolistic trade practice- This came as an amendment in 1984. Any trade

practice the leads to the following will come under this-

- maintaining the prices of goods at an unreasonable level by controlling

production, supply, or distribution. Limiting technical development or capital
investment which leads to the quality of goods to deteriorate. Etc.

Failure

Unfortunately, the act was deemed obsolete by 1999. One of reasons for the
inadequate performance of the act was that there was an absence of proper
definitions in the act. Definitions of predatory pricing, cartel, collusion, bid rigging
etc weren't present. In 1991, due the balance of payment crisis, the Goi brought in
a lot of reforms including removing the industrial licensing system, freedom of
business investment, and gradually opening key areas of business to private
sectors. In the Light of these changes, the MRTP Act was considered inadequate.
The act was restrictive in nature, when the need is to promote healthy
competition. Soon after, the Raghavan committee was established to advise for a
new competition Law for the country.. On the basis of the report submitted by the
committee, the new act was brought in place in 2002.
Major differences

MRTP Act Competition act

Premised on size Premised on conduct
Procedure oriented Result oriented
Reformist and behaviourial approach Punitive approach

All offenses are not defined properly All offenses are properly defined

Against dominance Against abuse of dominance

Rule of law approach Rule of reason approach
No forgien trade regulation Present here
No combination regualtion Present here
No penalties for offense Penalties are present
Important quotations

"“The MRTP Act has become obsolete in certain areas in the light of
international economic developments relating to competition laws. We need to
shift our focus from curbing monopolies to promoting competition.”

- The finance minister in his budget speech, February 1999.

The Competition Act, 2002

There are three key areas of enforcement that provide the focus for most
competition laws in the world today-

1)Agreements among companies

2)Abuse of Dominance

3)Mergers of two or more entities

However, different countries lay emphasis on different factors. All these factors
are not mutually exclusive, they overlap with each other to a considerable
extent.Actions that lead to abuse of dominance could also be in contravention of
laws related to agreements

The cause might be different even though the actions are the same. The same
action could be taken by a company in collusion with other companies, or by one
strong company with a dominant position. Mergers, in the end lead to an increase
in business power, which in one way can lead to the abuse of dominant position.
Still, these cases are treated separately. This is probabaly done, even though there
is duplication, it still provides a good framework to work within.

The new law, Competition Act, 2002 (Act, for brief) has essentially four
compartments:

1)Anti - Competition Agreements

2)Abuse of Dominance

3)Combinations Regulation

4)Intellectual property

ANTI COMPETITION AGREEMENTS

Agreements are entered into by firms, which can to the restriction of competition.
If we care fully scrutinize the various competition laws of different countries, we
will find that there major differences between vertical agreements and horizontal
agreements.

We find out that vertical agreements are mainly between competitors that come
together to increase their market share. On the other hand horizontal agreements
are mainly concerned with the buying and selling of goods between the two
players.

Horizontal agreements, if they happen between dominant players on the market,

can lead to the formation of a cartel, which can have a adverse effect on
competition.

Vertical agreements are less likely to reduce competition, and hence are read
linently. On the other hand, the law is strict while dealing with horizontal
agreements as there are more chances of abuse.

This is divided into horizontal and vertical agreements.

ABUSE OF DOMINANT POSITION

Under the Act, dominant position has been described as the position of strength,
in the relevant market , that enables it to (i) operate independently of competitive
forces prevailing within the relevant market; or (ii) affect its competitors or
consumers or the relevant market, in its favour.

We see that the law may be open to Interpretation here by various authorities,
mainly because the law here is ambiguous.

What we need to keep in mind is that the ambiguity is justified, as a company with
20% share in the market and the rest diffused amongst the other competitors is in
a better to position to abuse its power than a company with 60% of the market
and the rest with one company, due to the key rivalry between them.

If we decide on a exact percentage of market share to define what is the

threshold, it can lead to two problems. Beacause of that, the actual offenders may
get a free ticket out of jail, or could lead to a unnecessary proceeding in the
second case above.

Hence, in a environment that keeps changing, having a fixed percentage would be

doing a disservice to competition in the country.

The broad definition enables the Regulatory Authority to have the freedom to
correct those undertakings which are in contravention to the law and encourage
healthy competition, even if one strong player is present in the market. For this,
the abuse of dominance is present in the market.

This is divided into product or geographical market.

ACQUISITIONS AND MERGERS

Combinations, in terms of the meaning given to them within the Act, include
mergers, amalgamations, acquisitions and acquisitions of management, except for
the needs of the discussion that follows, mergers regulation has been reckoned.
Just like in agreements, a combination too can be vertical or horizontal. If the
combination happens between companies which are present in a lot of different
markets, it would be termed as a conglomerate merger. New entry, growth, and
exit are seen as legitimate strategy moves while playing in a market. Similar
legitimacy is given to combinations and mergers. They form a part of business
restructuring and evolution. Seen from the Pov of Competition law, attention is
given more to horizontal agreements. As in the case of horizontal agreements,
such mergers have a potential for reducing competition. Rarely does it ever
happen that a company merges with a vertical entity and because of this leads to
unfair competition environment. Conglomerate mergers should typically be
beyond the range of any law on mergers.

A combination can be considered unlawful only if it leads to the accumulation of

power in the hands of a few players, ie leads to a dominant player amd then the
player abuses its dominance.we can see that the problem is very similar to that of
vertical agreements, and hence we can say that the law overlaps here. Any
agreement between two strong players can come under unfair agreements and
abuse of dominance. This might make us feel that we dont need a separate law for
both. The explanation that such a provision exists in most laws is to pre-empt the
potential abuse of dominance wherever it's probable, as subsequent unbundling
may be both troublesome and socially expensive.

From the discussion, we can conclude that the law should declare only those
combinations as illegal, which lead to the abuse of power and lead to a uneven
playing field.

Intellectual property

We might think that intellectual property law and competition law are in
loggerheads with each other, but the truth is that both laws are actually
complimentary. IP law helps to stimulate competition by increasing dynamic
competition and reducing static competition IP rights help the holder to corner a
market for a period of time to exploit the fruits of his labour.this is done for only a
specific period of time so that the market does not stagnate.

It is a proven fact that any IP holder can easily gain a large share of the market and
create a monopoly and so gain a position of dominance.

Competition law does not state that it is against monopolistic behaviour, but if the
position is abused, it can lead to the violation of anti-trust law.

During the present times, both laws can be seen to be in sync with each other, and
are now almost complimentary in nature. They don't tend to conflict anymore.

The law of various other countries needs to be watched to gain a clearer

perspective on the difficulties of applying competition law and IPR. The way both
the laws are framed is the key to making it work.
COMPETITION COMMISSION OF INDIA (CCI)

Objectives

The act came into place when there was a requirement to ignite the economic
development of the country. The following Objectives were decided upon-
(a) Promote and sustain competition in markets;

(b) Prevent practices having adverse effect on competition;

(c) Protect consumer interest;

(d) guarantee freedom of trade carried on by participants in Indian markets.

The Commission can hold property and dispose it in its Name. it has perpetual
succession and a common seal. It can sue and be sued. It can form a contract. A
chairperson along with minimum two and maximum six members together form
the Commission.

Powers and functions

The Commission aims to protect the consumers, promote and sustain competition
in the market, eliminate any wrongdoing, and protect any of trades carried on by
different participants within the markets in india.

For the purpose of performing its functions, it can enter into any agreement or
memorada after having prior approval from the central government with any enity
including those ones which are forgien.

The Commission, with its powers and functions, can do the following while in the
course of doing its duty -

(a) Inquire into certain agreements and dominant position of an enterprise;

(b) Conduct such inquiry and

(c) Pass certain orders which must meet the administrative law standards of
reasonableness, fairness, proportionality and being consistent with the parent
statute.

Penalty

The Commission can impose financial penalty on the parties which it finds guilty
of misconduct. If the fine is not paid, the Commission has the right to refer the
case to the income tax department. If the fine is not paid, the income tax
department can declare the person a assesse in default under the income tax act.

If the entity does not comply with the orders of the commission, a fine of one lakh
rupees per day can be put up. This can only be subjected to a maximum of ten
crore rupees.

If the entity is still not read to comply with the orders of the commission and also
fails to pay the fine put up, the person can be punished with imprisonment for a
term of 3 years and can also include a fine amounting to 25 crores. The chief
metropolitan magistrate will have to take the decision under this case.

The request is to be taken into consideration by the cmm of Delhi only on the
basis of a written complaint by the Commission. Penalty which is similar can be
imposed if any order of the DG is not complied with.The Commission is
empowered to:

(a) Impose a penalty similar to one percent of total turnover or assets, whichever
is higher, of a combination if parties to the combination fail to give mandatory
notice in

terms of Section 6(2)40;

(b) Impose a penalty which shall not be but Rs.50 lacs but which may extend Rs.1
crore upon an individual to the mix if such person makes a press release that is
false and knowing it's false or omits to state any material explicit

knowing it be material;
(c) Impose a fine which can be Rs 1 crore if an individual makes a false statement;
omits to state a material fact or alters, suppresses or destroys any document
which is needed to be furnished.

Competition Appellate tribunal

The amendment act which came in 2002, lead to the establishment of the
competition Appellate Tribunal.

If any party is not happy with the orders of the competition committee, they can
approach the Tribunal. It hears and disposes of judgements related to the orders
of the competition commission of India.

The Appellate Tribunal can also scrutinise the amount of compensation given to
an entity based on the orders of the competition commission or the orders of the
Appellate Tribunal in an appeal against any findings of the Competition
Commission of India. The Commission can also pass orders regarding the
discharge of compensation.

It consists of the chairperson, an ex or current judge of Supreme Court or the

Chief Justice of a High Court, and two other persons with a professional
experience of not less than twenty-five years in, competition matters, including
competition law and policy, international trade, economics, business, commerce,
law, finance, accountancy, management, industry, public affairs, administration or
in any other matter which in the opinion of the Central Government, may be
useful to the Appellate Tribunal, appointed by the central government of India.

The Chairperson or member can hold the position for a maximum of five years.
After that, a re-appointment may be done.. No Chairperson can hold the position
after 68 years of age and no member can do so after 65 years of age. .
Anti-competitive Agreement

Anti-competitive agreements amongst enterprises are of two types

• Horizontal

• Vertical

The Bill enumerates the following kinds of horizontal agreements which are
presumed to be anti-competitive:-

1)Agreements regarding prices: agreement that directly/indirectly fix

purchase/sale price (Sub-clause (3)(a) of clause 3);

2)Agreements regarding quantities: agreement aimed at limiting/controlling

3)production, supply, markets, technical development and investment (Sub-clause
(3)(b) of clause 3);

4)Agreements regarding market sharing: agreements for sharing of markets by

geographical area, types of goods/services and number of customers (Sub-clause
(3)(c) of clause 3); and

5)Agreements regarding bids (collusive tendering and bid rigging): tenders

submitted as a result of joint activity or agreement (Sub-clause (3)(d) of clause 3)

Such agreements may lead to cartel which is pernicious. Further the aforesaid
agreements are considered to be illegal per se and do not require any test of “rule
of reason”. Barring these agreements all other would be subject to the ‘rule of
reason’ test.

The MRTP Act enlists 14 types of agreements per-se illegal under section 33 as
compared to four in the Bill. RTPs in the form of vertical agreements can also have
appreciable anti-competitive effect on competition. Following are the varieties of
vertical agreements enumerated in sub-clause (4) of clause 3:-

"(a) Accession Agreement: includes any agreement requiring the buyer of the
goods, as a condition of such purchase, the purchase of other assets;

(b) exclusive supply agreement: includes any agreement that in any way restricts
the purchaser in the course of his business to purchase or otherwise market other
goods in addition to those of the seller or any other person;

(c) exclusive distribution agreement: includes any agreement to limit, restrict or

maintain the exit or supply of any goods or assign an area or market for the
disposal or sale of the goods;

(d) refusal to negotiate: includes any agreement which limits or may limit, by any
method, to the persons or categories of persons to whom the products are sold or
to whom they are purchased;

(e) maintenance of the resale price: includes any sale agreement of goods
provided that the prices charged for reselling by the buyer are the prices set by
the seller, unless it is clearly indicated that prices may be charged lower than
those prices. "

Vertical agreements are generally not treated as strictly as the horizontal

agreements. Rule of reason decides whether they are anti competitive in nature
or not. Laws, facts and the six factors under clause 19 if the bill are taken into
consideration. These agreements often perform pro-competitive-function but can
be considered anti competitive when lead to the abuse of the same power.

It was recommended by the high level committee that IP should be kept out of the
domain if competition law.

Any agreement concluded through a joint venture, if such an agreement increases

efficiency in the production, supply, distribution, storage, acquisition or control of
goods or the provision of services, is not considered an anti-competitive
agreement.

offer

Bid rigging means any agreement between companies or persons engaged in the
production or marketing of identical or similar products or services, which has the
effect of eliminating or reducing competition for tenders or negatively influencing
or manipulating the bidding process.

In determining whether an agreement has an AAEC according to Section 3, the JRC

also takes into account all or one of the following factors set out in Section 19 (3)
of the Act:

"1) Creation of barriers for new market participants;

2) expel existing competitors from the market;

3) The exclusion of competitors who prevent entry into the market;

4) accumulation of benefits for consumers;

5) improvements in the production or distribution of goods or provision of

services;

6) Promotion of technical, scientific and economic development through the

production or distribution of goods or the provision of services "

Case study

Shamsher kataria vs Honda seil cars ltd

The case was filed by Mr shamsher kataria against Honda seil cars India Ltd, and it
involved other major players of the automobile market too, for example,
mercedes, maruti suzuki etc. Each of them were termed as opposition part or OP.
The informat alleged that the company, did not make available freely the spare
parts it manufactured.it was alleged that diagnostic tools, information,
technology, and softwares needed to repair, service and maintain automobiles
that are advanced and manufactured by the OPs were not available freely to
independent workshops. Another allegation was made that the availability of
genuine spare parts and its restriction along with restriction on how to repair
maintain and serve the cars manufactured by the respective OPs is not a
phenomenon that can be considered localised. . The respective dealers and the
OPs, had created an unfair policy, under which they refused to supply genuine
spare parts and tech in the open market that was needed to maintain and service
vehicles. They wanted to keep it out if the hands of independent repairers. To
support his allegation, the informat also supplied letters written by a various
independent service stations, in which they clearly stated that they were unable
to service specific car parts as they did not have proper access to genuine spare
parts The cost of getting a car repaired would be less by almost 35-50% in
comparison to an authorized service provider. As only they have access to spare
parts they charge high and arbitrary prices and the consumer cannot do anything
about it as he or she has no other option available to him. They cannot go to
independent workshops as the technical know-how is not available to them. The
price that is charged is often even higher than what is prevalent in the markets of
Europe. Beaches if these malpractices it costs a significant amount of money to
keep your car functional when in truth it should cost really less.

Relief sought

1) Hold an enquiry exploring the practice and examine similar cases

2) Desist the OPs from indulging in the regressive trade practice.

3)Provide local repair shops with the required spare parts

4) provide reasonable amount towards legal fees

Results of the investigation -

The OP's were found to have contravened sections 3(4)(b), 3(4)(c), 3(4)(d), 4(2)(a)
(i) and (ii), 4(2)(c) and 4(2)(e) of the Act. Keeping in mind, the following actions
were asked to Be under taken-

i) To immediately cease and desist from activities that were contravention to the
law. Any further conduct could be liable for prosecution under the law

ii) An efficient system had to be created to make spare parts and diagnostic tools
easily available to the open market. An network was to be created.

iii) original equipment suppliers were now allowed to trade in the open market
without any restrictions. This included the prices. They could sell the parts under
their own brand name if they wanted to. If the OPs had IP rights over various
parts, they could charge a fee or royalty through contracts. These contracts cannot
violate the competition act, 2002..

iv) No OP can place restrictions to impair the working of independent garages and
repairers.

v) The OP's can operate and develop systems for the training of independent
repairers and garages and also make diagnostic tools freely available to them.
Technical support and training certificates may he provided on payment basis.

vi) An increasing number of parts would be now standardized. Different brands

would be able to use parts from other brands. Tyers, batteries, etc all included in
this. This will lead to a reduction in prices and also lead to more choice to the
consumer regarding repair and Service provider.

vi) the ops have been ordered not to impose a general condition that the
guarantees would be canceled if the consumer uses the services of an
independent repairer. While the necessary protections can be implemented from
the point of view of safety and responsibility, POs can only void the warranty to
the extent that they caused damage due to faulty repair work outside their
authorized network and circumstances clearly justify said action.

viii) The ops have been ordered to be available in the public domain, and also to
host on their websites, information on spare parts, their MRPs, availability
agreements without prescriptions and details on quality alternatives, costs of
provisions maintenance and warranty, including those mentioned above, and any
other information that may be relevant for the full exercise of consumer choice
and to facilitate fair competition on the market.

The OP's were directed to pay a sum of two percent of their Turnover as
compensation.
Abuse of Dominance

Subsection (1) prohibits abuse of a dominant position by any company or group.

There must be abuse of a dominant position if a company or a group,

(a) directly or indirectly imposes unfair or discriminatory conditions: (i) conditions

in the purchase or sale of goods or services; or (ii) the purchase or sale price
(including the predatory price) of goods or services, or ["predatory price": the sale
of goods or the provision of services, at a price lower than the cost, as determined
by the rules, of the production of goods or the provision of services, in order to
restrict competition or eliminate competitors.] The unfair or discriminatory
condition in the purchase or sale of goods or services referred to in point (i) and
the unfair or discriminatory price in the purchase or sale of goods (including the
abusive price) or the service mentioned in the sub-item (ii) will not include the
discriminatory conditions or prices that can be promulgated to comply with the
competition.

(b) limits or restrictions: (i) production of goods or provision of services or their

market (ii) technical or scientific development relating to goods or services to the
detriment of consumers; or (c) is satisfied with the practice or practices leading to
denial of access to the market in any way; or (d) ensures that the conclusion of
contracts is subject to acceptance by other parties of supplementary obligations
which, by their nature or according to their commercial use, have no relation to
the subject matter of such contracts; or (e) uses its dominant position in a
relevant market to enter or protect another market. Dominant position: a position
of strength, enjoyed by an entity, in the relevant market, in India, which allows:
(i) operate independently of the competitive forces prevailing in the relevant
market; or (ii) affects its competitors or consumers or the relevant market in its
favor;

The abuse of power is determined by taking into account two factors according to
the competition commission-

Geographical Market

The Competition Act defines the relevant market as ‘with the reference to the
relevant product market or the relevant geographic market or with reference to
both the markets’. The relevant geographic market is defined as “a market
comprising the area in which the conditions of competition for supply of goods or
provision of services or demand of goods or services are distinctly homogenous
and can be distinguished from the conditions prevailing in the neighboring
areas”.The Competition Act further provides that the competition commission
shall determine the relevant geographic market having due regard to all or any of
the following factors-"i. regulatory trade barriers; ii. local specification
requirements; iii. national procurement policies; iv. adequate distribution
facilities;v. transport costsvi. language"

Product market

The relevant product market is defined in as ‘a market comprising all those

products or services which are regarded as interchangeable or substitutable by
the consumer, by reason of characteristics of the products or services, their prices
and intended use’.61 The Competition Act provides that the competition
commission shall determine the relevant geographic market having due regard to
all or any of the following factors-"i. physical characteristics or end-use of goodsii.
price of goods or service

iii. consumer preferences iv. exclusion of in-house production

v. existence of specialized producers vi. classification of industrial products"

The list of abuses provided in the Competition Act is meant to be exhaustive,
and not merely illustra-tive.

Case study 1

i. MCX Stock Exchange v/s National Stock Exchange

This was one of the first and amongst the most important cases that was brought
before the competition commission in its little over 3 year existence. The
informants alleged that the opposite parties abused their dominant position in
respect of the following four measures contravening the sec 4 of the Act:"i.
Transaction fee waiver by NSE;ii. Admission fee and deposit level waivers;iii. Data
feed fee waiver; andiv. Exclusionary denial of “integrated market watch” facility."
The competition commission found that – i. NSE has abused its dominant position
in terms of sec 4(2)(a)(ii) and 4(2)(e) of the Com-petition Act. ii. The intention of
NSE was to gain a dominant position in the CD segment by cross subsi-dizing this
segment of business from the other segments where it enjoyed virtual
monopoly.iii. It also camouflaged its intentions by not maintaining separate
accounts for the CD seg-ments.

vi NSE created a facade of the nascent position of the market for not charging any
fees on ac-count of transactions in the C.D. segment. Competitors with small
pockets would be thrown out of the market as they follow the zero transaction
cost method adopted by the NSE and therefore in the long run they will incur
huge losses”.

Existence of dominanceThe competition commission order identifies only three

market players, NSE, MCX and USE in the relevant market. The report submitted
by NSE indicates following market share of each of the market players. It is
important to note here that NSE started with 100% market share in August, 2008.

According to the competition commission in the Indian context, dominant position

is a “position of strength”; such strength should enable it to operate
independently of the other competitive forces in the market or to affect its
competitors or the relevant market itself in its favour.The

evaluation of this ‘strength’ is to be done not merely on the basis of the market
share. Evaluation should also consider host of other factors such as size and
importance of competitors, economic power of the enterprises, entry barriers
etc., as provided in sec 19 (4) of the Act. The competition commission is required
to take a holistic approach while inquiring into the dominant position of any
enterprise. In context with the analysis of NSE’s dominant position, the
competition commission observes that –“it would be wrong to conclude that NSE
does not enjoy such a position of strength as one of the only three players in the
relevant market delineated as above… We can first ascertain whether NSE has a
position of strength which enables it to affect MCX-SX as a competitor in its
favour”.

1) Zero Pricing PolicyThe competition commission questioned the zero pricing

policy of NSE for such a long period considering the objective of any business is to
make profit, competition commission finds that “No enterprise would spend an
eternity on selfless development of any market without any prospects of making
profit. The greater the financial and commercial strength of an enterprise, the
longer it can wait and the greater risks it can take… It cannot be argued that the
capacity of NSE to defer profits or to bear long term risk of possible market failure
is lesser than that of MCX-SX in the relevant market. This is clearly a position of
strength”.

2) NSE’s knowledge of the effect of zero pricing policyThe competition

commission, having not found any acceptable justification for why a professionally
managed enterprise like NSE would not want to keep any track of the commercial
viability of its operations or does not have any concerns about the desire of its
shareholders to earn higher dividends, the competition commission concluded the
following that. i. It was unthinkable that a professionally managed modern
enterprise can afford such financial complacency in the face of competition unless
ii. It was it is part of a bigger strategy of waiting for the competition to die out. iii.
This complacence can only point to awareness of its own strength and the
realisation that sooner or later, it would be possible to start generating profits
from the business, once the competition is sufficiently reduced.3) Structure of
Stock Exchange business in IndiaThe competition commission also looked into the
structure and functioning of the stock exchanges in India since independence. It is
a historical fact that post-independence several stock exchanges had gone out of
business. In this context the competition commission observed that had NSE not
gotten the undeniable advantages arising out of its operations in other markets, it
would not have been able to or would not have wanted to charge zero price for
providing stock exchange services for the Currency Derivatives market. In this
regard, MCX-SX, or indeed any other current or future competitor that does not
have similar advantages is clearly in a weaker position.After analyzing these three
points the competition commission concluded that NSE enjoyed a position of
strength in the relevant market which enabled it to affect its competitors in its
favour. “To conclude otherwise would not only be turning a blind eye to the facts
available but also to the provisions of the Competition Act and to the intent and
spirit of this economic legislation.”

Abuse of Dominance by NSEThe competition commission having concluded that

NSE enjoyed a position of strength found that NSE found following violations of
the sec 4 of the Competition Act – i. Violation of sec 4 (2) (ii) of the Competition
Act- waivers of transaction fees, admission fees or data feed fee waiver because
the zero price policy in the relevant market is unfair sec 4 (2) (a) (ii) deals with
unfair or discriminatory price in purchase or sale (including Predatory price) of
goods or service. The competition commission finds that from the wording of the
provisions, it can be concluded that predatory price” is considered as a subset of
“unfair price”. Interestingly the term ‘unfair’ is not defined in the Competition Act.
The competition commission therefore observes that the fairness has to be
determined from case to case basis. The competition commission lays down that
‘unfairness’ will have to be determined in relation to a customer or in relation to a
competitor. competition commission concludes that inthe context of this case,
unfairness of pricing cannot be determined by selecting cost benchmark. Since
MCX-SX has no other source of income, the NSE’s zero price policy cannot be
termed anything but unfair as far as the informant is concerned.

ii. Violation of sec secs 4 (2) (b) (i) and (ii); 4 (2) (c) and 4 (2) (d) - denying APIC to
ODIN and putting FTIL on watch listThe competition commission on this issue
found that software applications such as NOW and ODIN are essential facilities.
The trading on stock exchanges is being done extensively on electronic
applications. There is an aftermarket for market watch and data feed services.
Since ODIN and NOW are competing in the aftermarket, the competition
commission concluded that denial of APIC for CD segment foreclose competition
of electronic platform for the CD segment for NSE traded derivatives and was
tantamount to exclusionary conduct in the main relevant market.iii. Violation of
sec 4 (2) (e) – Use of the position of strength in the non CD segment to protect its
position in the CD segment.The competition commission identified two distinct
relevant markets to examine the provisions of sec 4 (2) (e) to assess the charge of
NSE leveraging its dominant position in one relevant market to enter into, or
protect, another relevant market. The competition commission observed that the
Act doesn’t indicate that there has to be a high degree of associational link
between the two markets being considered for this sub sec because competition
concerns are much higher in India due to historical lack of competition policy and
regula-tion. The competition commission found in the present case that the
relevant market for the clauses (a) to (d) of sec 4 (2) is the stock exchange services
for currency derivatives in India, whereas the relevant market for clause (e) of the
sec 4 (2) is the stock exchange services for the non CD segment.The competition
commission concluded that “the two relevant markets have associational links and
that NSE has used its position of strength in the non CD segment to protect its
position in the CD segment. Further the Denial of APIC for ODIN and distribution
of NOW for free are clear acts of protecting its position in the CD segment

Mergers and combinations

Combination (Section 5)
Section 5 deals with combination of enterprises and persons. The acquisition of
one or more enterprises by one or more persons or merger or amalgamation of
enterprises shall be a combination of such enterprises and persons or enterprises,
if—

(a) any acquisition where—

"(i) the parties to the acquisition, being the acquirer and the enterprise, whose
control, shares, voting rights or assets have been acquired or are being acquired
jointly have,—

(A) either, in India, the assets of the value of more than rupees one thousand
crores or turnover more than rupees three thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than five
hundred million US dollars, including at least rupees five hundred crores in India,
or turnover more than fifteen hundred million US dollars, including atleast rupees
fifteen hundred crores in India; or

(ii) the group, to which the enterprise whose control, shares, assets or voting
rights have been acquired or are being acquired, would belong after the
acquisition, jointly have or would jointly have,—

(A) either in India, the assets of the value of more than rupees four thousand
crores or turnover more than rupees twelve thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than two
billion US dollars, including at least rupees five hundred crores in India or turnover
more than six billion US dollars including at least rupees fifteen hundred crores in
India; or (b) acquiring of control by a person over an enterprise when such person
has already direct or indirect control over another enterprise engaged in
production, distribution or trading of a similar or identical or substitutable service,
if:-
(i) the enterprise over which control has been acquired along with the enterprise
over which the acquirer already has direct or indirect control jointly have,-

(A) either in India, the assets of the value of more than rupees one thousand
crores or turnover more than rupees three thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than five
hundred million US dollars including at least rupees five hundred crores in India or
turnover more than fifteen hundred million dollars, including at least rupees
fifteen hundred crores in India; or

(ii) the group, to which enterprise whose control has been acquired, or is being
acquired, would belong after the acquisition, jointly have or would jointly have

(A) either in India, the assets of the value of more than rupees four thousand
crores or turnover more than rupees twelve thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than two
billion US dollars, including at least rupees five hundred crores in India or turnover
more than six billion US dollars, including at least rupees fifteen

hundred crores in India; or

(c) any merger or amalgamation in which—

(i) the enterprise remaining after merger or the enterprise created as a result of
the amalgamation, as the case may be, have,—

(A) either in India, the assets of the value of more than rupees one thousand
crores or turnover more than rupees three thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than
fivehundred million US dollars, including at least rupees five hundred crores in
India or turnover more than fifteen hundred million US dollars, including at least
rupees fifteen hundred crores in India; or
(ii) the group, to which the enterprise remaining after the merger or the
enterprise created as a result of the amalgamation, would belong after the merger
or the amalgamation, as the case may be, have or would have,—

(A) either in India, the assets of the value of more than rupees four-thousand
crores or turnover more than rupees twelve thousand crores; or

(B) in India or outside India, the assets of the value of more than two billion US
dollars, including at least rupees fifteen hundred crores in India or turnover more
than six billion US dollars, including at least rupees fifteen hundred crores in
India."

Regulation of combinations (Section 6)

As per this section, no person or enterprise shall enter into a combination which
causes or is likely to cause an appreciable adverse effect on competition within
the relevant market in India and such a combination shall be void. (Sub-section 1).

Any person or enterprise, who or which proposes to enter into a combination

shall give notice to the Commission, in the form as may be specified, and the fee
which may be determined, by regulations, disclosing the details of the proposed
combination, within 30 days of—

(a) approval of the proposal relating to merger or amalgamation, referred to in

section 5(c), by the board of directors of the enterprises concerned with such
merger or amalgamation, as the case may be;

(b) execution of any agreement or other document for acquisition referred to in

section 5(a) or acquiring of control referred to in section 5(b).[Sub-section 2]

No combination shall come into effect until 210 days have passed from the day on
which the notice has been given to the Commission or the Commission has passed
orders under section 31, whichever is earlier.[Sub-section 2A]

The Commission shall, after receipt of notice, deal with such notice in accordance
with the
provisions contained in sections 29, 30 and 31. (Sub-section 3). The provisions of
this section shall not apply to share subscription or financing facility or any
acquisition, by a public financial institution, foreign institutional investor, bank or
venture capital fund, pursuant to any covenant of a loan agreement or investment
agreement. (Sub-section 4). The public financial institution, foreign institutional
investor, bank or venture capital fund, shall, within seven days from the date of
the acquisition, file, in the form as may be specified by regulations, with the
Commission the details of the acquisition including the details of control,the
circumstances for exercise of such control and the consequences of default arising
out of such loan agreement or investment agreement, as the case may be. (Sub-
section 5).

Case study 1

It shall be pertinent to take note of the Mahindra-CIE Combination as so approved

by the CCI. On July 12, 2013, CIE Group of Companies (hereafter, CIE) and certain
Mahindra Group of Companies (hereafter, Mahindra) filed a notice under Section
6(2) of the Act with regards to a proposed combination. As a consequence of the
combination, CIE would control approximately 45-52% stake in the post-resultant
entity, Mahindra CIE Automotive Limited.

Mahindra & Mahindra (M&M) would also hold approximately 20% stake in
Mahindra-CIE.
The transaction involved multiple agreements and stages but the trigger
documents, i.e. documents whose execution triggers a Section 6(2) pre-merger
notification requirement, were executed on June 15, 2013.

CCI examined the proposed combination in light of the criteria given in Section
20(4) of the Act and made the following observations-

(i) CIE had no presence or investment in India, either directly or indirectly, and was
not engaged in any activity that either competed with, or was vertically related to,
the business proposed to be acquired by way of the proposed combination.

(ii) The proposed combination is not between two existing players in the relevant
market.

(iii) Post-combination, M&M would still hold 20% of the equity in Mahindra CIE
and,

(iv) Technologies used by Mahindra would continue to be used by Mahindra CIE

postcombination.

Based on the aforementioned observations, CCI found no likelihood of any

appreciable adverse effect on competition within the relevant market in India and
approved the proposed combination under Section 31(1) of the Act.

Case 2

Also, in May 2012, the CCI approved the RIL’s stake buy in Network 18.34 A notice
was filed by Independent Media Trust relating to a series of inter-connected and
inter-dependent acquisitions intended to acquire control over Network18 Group
companies by Reliance Industries Limited.

The Commission observed that the subscription to Zero Coupon Optionally

Convertible Debentures (ZOCDs) (which could be converted into equity shares of
the target enterprises, at any time before the expiry of ten years from the date of
acquisition) confers the acquirer with the ability to exercise decisive influence
over the management and affairs of each of the target enterprises.
This amounted to control for the purposes of the Act. It was also held that since
the acquisition of ZOCDs entitled the holder to receive equity shares of the target
enterprises, the ZOCDs are shares within the meaning of Section 2 (i) (v) of the
Act.

The subscription to ZOCDs amounted to acquisition of shares of the target

enterprises. CCI held that subscription to optionally convertible debentures
enabling the acquirer to exercise decisive influence over the management and
affairs of a company would amount to acquisition of control.The Commission
assessed the effect of the combination on the businesses for supply of televisions
channels, event management services and broadband internet services using 4G
technologies and content accessible through such services. It was concluded that
the combination was not likely to give rise to any appreciable adverse effect on
competition and was cleared.

Intellectual property and competition act

Intellectual Property (IP) law fosters innovation and creativity by awarding limited
monopolies.

Competition law seeks to provide consumer benefit by providing a free and fair
market. There is an inherent tension, when the grantee of the intellectual
property right (IPR) monopoly seeks to engage in abuse of this monopoly. In a
landmark consent agreement Google Inc. has agreed to change some of its busi-
ness practices related to how it dealt with its patented technologies in response to
the United States FTC complaint and subsequent investigations. Companies in the
information technology and telecommunications industries frequently ensure in-
teroperability of their products through voluntary standard setting organizations
(SSOs). The SSOs publish technology standards which encourage adoption of
common platforms among rival producers which in turn benefits consumers by
increasing competition, innovation, product quality and choice. Problems arise
when a patented technology is adopted by a SSO as a technology standard. Before
a standard is adopted, several players are competing to get their technology
accepted as a standard. However, once a particular technology is accepted as a
standard, most of the other players will have to necessarily make substantial
investments to adopt the standard. This may at times also include a significant
switching cost from their own technology to the standard. Entire industries may
get locked in to a particular technology. If this technology is patented, it gives the
patent holder massive market power and the ability to demand excessive
royalties, where the royalties do not reflect the actual market value of the
technology, but the opportunity cost and switching cost of moving away from the
standard technology. The high royalties are eventually passed on to the end
consumers. The increased value that can be extracted by the patentee due to
switching costs on its patents is known as “hold-up value”. Besides harming
competition, hold-up value undermines the entire institution of SSOs and decreases the
incentive to participate in the standard-setting process.

It is for this reason that when SSOs designate a particular technology as

"standard", it is necessary that the patent holder grants a license of its standard
essential patents (SEP) on fair, reasonable and non-discriminatory terms (FRAND)
to any voluntary licensee , thus renouncing its right to exclude a licensee willing to
use its patented technology. The SSOs in determining which technology to
designate as a standard take into consideration whether the patent holder
commits to grant licenses of its SEPs in FRAND terms. If the patent holder refuses
to license his patent under the terms FRAND, the SSO will not include this
technology in a standard. Google is a global technology company and, through its
subsidiary, Motorola owns a broad patent portfolio that includes patents that
encompass technology standards in wireless voice and cellular communications,
local wireless LAN, and video compression. Google is actively participating in
several SSOs and Motorola has been a member of SSO for a long time.
Manufacturers of mobile phones, tablets and other "smart devices" that provide
access to the Internet, such as gaming systems, laptops, set-top boxes, must
comply with one or more technology standards.
The FTC claimed that Motorola, after having promised the license of its SEPs in
FRAND terms, has unjustly requested injunctions and exclusion orders against the
voluntary licensees of its SEPs. Google continued to practice Motorola after the
acquisition of Motorola in May 2012.

According to the FTC, Motorola / Google enjoyed a monopoly power because the
inclusion of Motorola / Google patents in technology standards eliminated any
possible alternative for Google / Motorola competitors. To determine if a
company has monopoly power, it is essential to determine the relevant market in
which this power is valued. According to the FTC, the relevant product market in
this case was the technology covered by any Google SEP and all substitutes for this
technology. Such monopolistic behavior would probably have anti-competitive
effects such as the deprivation of final consumers of competing products at lower
costs, undermining the efficiency of the standard-setting process, increasing the
costs of competing products and decreasing competition. The FTC found no
competitive advantage or justification for overcoming the anti-competitive effects
of the Google product. To remedy this, Google has accepted a consent order that
limits Google to requesting SEP information from potential licensees who are
willing to license under FRAND terms. As a result, it is prohibited for Google to
request precautionary measures or to obtain or claim existing claims for
precautionary measures on behalf of SEP against FRAND.

On the other side of the Atlantic, the European Commission has launched a formal
investigation against Samsung and Motorola to assess whether companies have
used some of their SEPs to distort competition in an abusive way and in violation
of a commitment to the 'SSO. This case highlights the inherent tension between
the competition law and the intellectual property law and is a case in which
antitrust law intervenes when social welfare is at risk due to the conduct of the
owner of intellectual property. Furthermore, this case highlights the international
and cross-border effects of the law on competition / competition. It has been a
constant reason in most investigations and prosecutions, that when a particular
company or industry is being investigated in a jurisdiction, similar investigations
are likely to start in other jurisdictions around the world.

Aamir Khan Productions Pvt. Ltd. v. Union of India 59 is a historical ruling issued by
the Bombay High Court in which the Court, in dealing with a matter relating to the
issue of intellectual property rights, stated that the ICC has jurisdiction to deal
with all cases relating to competition law and of intellectual property rights. In
Kingfisher v. Even the Indian Competition Commission60, the Court reiterated that
the JRC has jurisdiction to deal with all issues before the Copyright Council. Such
cases list the fact that Indian courts are ready to deal with emerging cases of
competition laws involving intellectual property rights.

In the case of FICCI Multiplex Association of India v. The United Producers /

Distributors Forum (UPDF), the petitioner (FICCI) filed a complaint against UPDF
for the formation of market cartels in the film industry. This was deliberately done
by UPDF to increase its revenue and thus refused to reach an agreement with
multiplex owners. This has a direct and drastic effect on multiplexes, since their
activity depends totally on the film industry.

As a result, this has led to an anti-competitive practice of refusing treatment that

leads to a distortion of competition negatively to obtain profits. In addition, the
defendants had a 100% share in the sector and, therefore, allowed to limit the
supply of films on the market, which qualifies as an anticompetitive practice. It is
qualified as a violation of S. 3 (3) also of the law of competition. The parties in the
delivery of the notification of the established cause lodged a petition to the
Bombay High Court on the pretext of the ICC's lack of jurisdiction to decide a
matter relating to intellectual property rights. The Court which quoted point 3 (5)
of the 2002 Competition Act, read by S. 3 (1), stated that the latter section can not
limit the right to bring proceedings for infringement of intellectual property rights,
and in addition CCI is competent to consider all issues that may be submitted to
the Copyright Council.
Chinese competition act Vs Indian competition act

The laws apply equally to forgien and domestic companies, and have the same
goal, reduce protectionism. Review body and review procedures help to give
additional clarity to the issues. Predictability, accountability, and transparency
improves, leading to ease of business and inflow of forgien
investments.Antimonpoly is provided by both the laws. However, on paper, the
Chinese laws state that they don't discriminatebetween forgien and Chinese
enterprises, but the ground reality seems to different. It remains to be seen how
practically the laws are implemented.

We can take the example of article 7 in the Chinese law, which states that that the
State shall defend the legitimate operating activities of the industries dominated
by ‘state owned economy’ and which are important to the Chinese economy
and/or national security.

Also, article 31 states that if a enterprise is being taken over by a forgien investor,
and can have implications for national security, will not only be have to reviewed
under competition law, but also under national security law. There is concern that
the laws favour large Chinese state owned corporations, and they act as
monopolists, power, rock, oil industries under their control. Of the same was to be
done by a forgien company, the standards would be set really high.

Article 32 of Indian competition act gives the Commission to independently

review any combination or merger that happens abroad, even if the parties
involved are not directly playing in the Indian market. This can lead to the abuse
of power by the Commission and lead to a disadvantage to the forgien players.The
same power, even if not expressly recognized to the Anti-monopoly enforcement
Authority, are often implicitly recognized by the relevant provisions of the Chinese
Competition Law. Each law aims to establish a sole general framework for
operation. There are still definitions that are not proper, and work needs to be
done on apart of both countries to bring in a law that stimulates competition in
the best way.

Government constitutes Competition Law Review Committee to review the

Competition Act

In accordance with its goal of ensuring that the legislation is in line with the
requirements of solid economic fundamentals, the government. has recognized a
competition law review committee to review the competition law.

The Competition Law was passed in 2002 and the Indian Competition Commission
was created in accordance with it.

The Commission has started to operate seriously since 2009 and has contributed
significantly to competition and fair practices in the Indian market.

In the past nine years, the size of the Indian economy has grown enormously and
India is now among the five major economies in the world and is ready to move
forward.

In this context, it is essential to strengthen and recalibrate the competition law to

promote the best practices that lead the citizens of this country to reach their
aspirations and value for money.

The terms of reference of the committee are as follows:

1) review the competition law / rules / rules, in order to adapt the business
environment and make the necessary changes, if necessary;
2) examine best international practices in the areas of competence, in particular
antitrust laws, merger guidelines and the management of cross-border
competition issues;

3) Study of alternative regulatory regimes / institutional mechanisms /

government policies that overlap with the Competition Law;

4)Any other matters associated with competition issue and considered necessary
by the Committee.

The Committee shall complete its work and submit its report at intervals 3 months
of the date of its 1st meeting.

Periodic reviews of the Competition Act are important.

There has been no review of the present Act (2002) since its enactment.

The Raghavan Committee that developed the requirement for a proactive

competition law in lieu of the Monopolies and Restrictive Trade Practices Act
(MRTP), 1969, is of 1999 vintage.

In fact, the review is overdue if the Act needs to stay relevant.

Network economies, platforms, virtual markets, the internet of things, the

increasing importance of non-tangible capital like patents—these involve a
contemporary regulatory framework “in read of adjusting business environment”
as the press release points out.

A few illustrations of the constraints imposed by the Act would help show how the
prevailing legal framework will be a barrier once it comes to applying the
economics of modern business to antitrust abuse.

It is a serious concern for the sort of globalized knowledge-based economy that

india desires to be.
At the beginning, the clarity in objectives that necessitated the replacement of the
MRTP by the Competition Act has been diluted.

While the Raghavan Committee had highlighted competition and consumer

welfare as the twin objectives of the Act, the preamble, in asserting competition
and consumer interest, includes the rider, ‘keepingin view the economic
development of the country”.

Innocuous as the statement is, it's open to interpretation in a way that protects
domestic producers.

This is reinforced by the definition of consumer in section 2(f) of the Act.

The section includes each producer and the end consumer in the category of
‘consumer’ when a purchase is “either for business use or for private use”.

Consequently, most cases of antitrust abuse—roughly over 500th, in fact—have

been filed by producers.

To claim that these filings are on behalf of the end consumer is stretching the
definition.

A wide definition of consumer has had 2 outcomes.

Firstly, it's encouraged producers to ‘fire from the shoulders of the Commission’ as
a method for meeting competition.

Secondly, it has led to the emergence of perverse situations wherever

‘maximization of producer welfare’ is equated with maximization of total welfare.

This is against the well-established tenet of competition economics, maximization

of consumer welfare.

As a result, pricing schemes, be they predatory or unfair pricing, (MCX-SX Vs NSE),

are viewed from the perspective of a producer rather than that of the
benefits/harm accruing

to end consumers.
The optimum pricing solution is best arrived at by the interaction of demand and
supply.

The revenue model for an aggregator is from advertising.

Conclusion

Intervention in market pricing structures by the authority could end up protecting

the competitor at the cost of competition.

The gains from network economies for advertisers in search of sustainable

business models rely upon innovation, including innovative pricing mechanism.

This conjointly imply redefining dominance, which is now measured by standard

metrics of market share.

To associate market power with dominance rather than look for the presence of
entry barriers is a sure way to kill the emergence of business on platforms.

Domination needn't be related to anti-competitive behaviour given the quickly

changing nature of technology wherever new innovation could disrupt the whole
existing ecosystem.Thus, the prevailing discussion is on networks and lock-in
effects, observing new entry barriers like access to data—and on the sustainability
of those barriers during a competitive setting.