Anti-Competitive Agreements under Competition Law

By | April 23, 2018

Section 3 of the Act is the substantive provision in the Indian Competition Law dealing with anti-competitive agreements and arrangements. An anti-competitive agreement is an agreement having an appreciable adverse effect on the competition. Section 3 prohibits any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or services which causes, or is likely to cause an appreciable adverse effect on the competition in India.

Section 3(1) reads as follows:

No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition, or control of goods or provisions of services, which causes or is likely to cause an appreciable adverse effect on the competition within India.

Essential Ingredients

Thus there are two essential requirements to bring into operation section 3(1)-

  1. There should be an agreement.
  2. The agreement should cause an appreciable adverse effect on competition in the market in India.

The term agreement has been defined under Section 2 (b) of the Competition Act, 2002 in the following way –

It includes any arrangement or understanding or action in concert-

  1. Whether or not, such arrangement, understanding or action is formal or in writing; or
  2. Whether or not, such arrangement, understanding or action is intended to be enforceable by legal proceeding

The parties of agreement should be independent of each other.

An agreement is anti-competitive if it causes or is likely to cause an adverse effect on the competition. The term appreciable adverse effect has not been defined in the Act. In the case of Haridas Exports vs. All India Float Glass Manufacturers Associations [(2002) 111 Comp. Cas.617 (SC)], the SC observed that the words appreciable adverse effect on competition embraces acts, contracts, agreements or combinations which operate to the prejudice of the public interests by unduly restricting competition or unduly obstructing the due course of the trade.

Factors determining that whether an agreement has an appreciable adverse effect on the competition –
  1. Creating of barriers to the new entrants
  2. Driving existing competitors out of the market
  3. Foreclosure of competition by hindering entry into the market
  4. Improvements in production or distribution of goods or provision of services
  5. Accrual of benefits to the consumers
  6. Promotion of technical, scientific and economic developments

Types of Anti-Competitive Agreements

Anti-competitive agreements are basically of two types– horizontal and vertical agreements.  The phraseology of types is being mentioned under section 3(3) and 3(4) of the Act.

Horizontal Agreements [Section 3(3)] – Horizontal Agreement is an agreement for the co-operation between two or more competing businesses operating at the same stage of production chain in the same market. These agreements are between two manufacturers, two distributors or two retailers or ones dealing in similar kinds of products. These agreements have a direct negative impact on effective competition and prices of commodities in the market. Thus, they are void per se.

The horizontal agreements are further divided into four kinds –
  1. Price fixation
  2. Output control/Production control
  3. Market sharing
  4. Bid Rigging

Vertical Agreements [Section 3(4)] – Vertical Agreement is an agreement between two or more firms, each of which operates at a different level of production or distribution chain. These agreements generally are not treated as anti-competitive per se but are to be judged under the ‘rule of reason’ test. The following are the vertical arrangements which, if found to have an appreciable adverse effect on the market are considered to be anti-competitive-

  1. Tie-in arrangement
  2. Exclusive supply agreement
  3. Exclusive distribution agreement
  4. Refusal to deal
  5. Resale price maintenance
IPR – An exception

But then comes the exemptions in subsection (5). Section 3(5)(i) of the Act provides an exemption, from the adverse effect of Section 3 to the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been conferred upon him under:-

  1. The Copyrights Act, 1957
  2. The Patents Act, 1970
  3. The Trade and Merchandise Marks Act, 1958
  4. The Geographical Indications of Goods ( Registration and Protection) Act, 1999
  5. The Designs Act, 2000
  6. The Semi-conductor and Integrated Circuits Layout-Design Act, 2000

The effect of Section 3(5) is that entire Section 3 dealing with prohibition of anti-competitive agreements will not apply where the owner of any intellectual property rights under the enactments provided above does anything in the exercise of his right to restrain the infringement of any of those rights, or imposes reasonable conditions as may be necessary for the protection of any of those rights.

In the case of FICCI – Multiplex Association of India vs. United Producers/Distributors Forum and Others, [Case No.1/2009 decided on 25.5.2011] it was held that the extent of non-obstante clause in Section 3(5) of the Act is not absolute as is clear from the language used therein and it exempts the right holder from the rigors.

Contributed By – Lakshay Anand

Sources:

  1. SCC Online
  2. T. Ramappa, Competition Law in India, Oxford Publication, 2013

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