Introduction
Anti-competitive agreements are most often entered into among competitors in standard commodity markets like sugar, cement and steel, where price is the principal criterion for competition, and which are important constituents of a nation’s economy. This is chiefly because (unlike in the cases of other forms of anti-competitive conduct) the possibility that government intervention may itself have anti-competitive effects is foreclosed. Simply stated, competitors in any market are supposed to compete for the business of their customers, not secretly co-operate to distort market forces and competition.
Having rendered two entirely different judgments in two substantially similar cases - the Cement and Tyre cases – the Commission has introduced an element of uncertainty in the application of Section 3 in the future. Focusing chiefly on the ambiguity resulting from these and related cases, the authors have excluded from the scope of this article other kinds of agreements covered by Section 3, specifically, vertical agreements and cases of bid rigging.
Richard Whish has offered countries with relatively new competition regimes a way forward in enforcing their government’s competition policies. The development of an effective competition culture, he suggests, must begin with cartel enforcement, particularly in the contemporary era in which cartelisation is a force that operates on a global scale. While competition law in India took the form of the Monopolies and Restrictive Trade Practices Act, 1969, initiative for reform began to be considered seriously only in 1999, when the Raghavan Committee found this statute lacking in its ability to address anti-competitive
1. Supra note 6, at 141.
2. R. Whish, Control of Cartels and other Anti-Competitive Agreements COMPETITION LAW TODAY – CONCEPTS, ISSUES AND THE LAW IN PRACTICE 40, 40-1 (V. Dhall ed., New Delhi: Oxford University Press, 2008) at 42.
3. Order No. 1/9/99-CL-V of 25th October 1999.
practices in the contemporary era of Indian liberalisation. The publication of this Report led to the enactment of the 2002 Act, which, heeding the advice of the Committee, aimed more ambitiously to prevent anti-competitive practices that adversely impact economic welfare. The procedure for enforcement under the new statute involves a rule of reason analysis, limiting the use of the more limited per se rule to hard-core anti-competitive behaviour, including cartelisation.
Anti-Competitive Agreements under Section 3
Anti-competitive agreements are prohibited under Section 3 of the Act, providing that any agreement in its contravention shall be void. The term ‘agreement’ has been clarified in Section 2(b), which adopts a broad definition, offering competition authorities a degree of ease in prosecuting anti-competitive behaviour like cartelisation, in line with more advanced competition regimes in other parts of the world. This definition shall be evaluated in greater detail in the next part of this article, in comparison with equivalent provisions under US and EU law. The Act defines the term ‘cartel’ as follows, characterising it as a form of anti-competitive conduct that harms both consumers and the economy:
“cartel” includes an association of producers, sellers, distributors, traders or service providers who, by agreement among themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.
The application of Section 3 involves the determination of whether an agreement has an appreciable adverse effect on competition, a term that is not defined in the Act. Section 19(3) provides some assistance, offering a number of factors that consider both beneficial and
4. A. Kumar, The Evolution of Competition Law in India COMPETITION LAW TODAY – CONCEPTS, ISSUES AND THE LAW IN PRACTICE 479, 480 (V. Dhall ed., New Delhi: Oxford University Press, 2008).
5. Ibid. at 495.
6. Supra note 12, at 496.
7. S. 3(2), Competition Act, 2002 [hereinafter ‘2002 Act’].
8. Section 2(b) states: ‘”agreement” includes any arrangement or understanding or action in concert,-(i) whether or not, such arrangement, understanding or action is formal or in writing; or (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings. See T. Ramappa, COMPETITION LAW IN INDIA: POLICY, ISSUES AND DEVELOPMENTS (New Delhi: Oxford University Press, 2006) at 51.
9. Section 2(c), 2002 Act.
10. Section 19(3) states: ‘The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under Section 3, have due regard to all or any of the following factors, namely:-(a) creation of barriers to new entrants in the market; (b) driving existing competitors out of the market; (c) foreclosure of competition by hindering entry into the market; (d) accrual of benefits to consumers; (e) improvements in production or distribution of goods or provision of services; (f) promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.
harmful effects on competition. Commentators have compared this approach to the rule of reason analysis in the US, however, as we shall discuss in the next Part, its application by the Commission has been far from unproblematic.
The Act carves out exceptions for certain categories of horizontal agreements, including those entered into for the purpose of research and development, standard setting and specialisation. Yet, under Section 3(3), horizontal agreements (as in most jurisdictions) are presumed to have an appreciable adverse effect on competition. This clause includes cartels that undertake a number of anti-competitive practices, and is comparable to the per se rule used by US competition authorities. Anti-competitive agreements may also be vertical, involving a different approach.
Inconsistencies in the Cement and Tyre Cases
In Builders Association of India (hereinafter “the Cement case”), decided in June 2012, the Commission came to the conclusion that a group of cement manufacturers under the umbrella organisation of the Cement Manufacturers Association (hereinafter “CMA”) had indulged in cartelisation, in contravention of Section 3(3) of the Act. Since the cement industry was de-controlled in 1989, and the subsequent consolidation of cement manufacturers during 2001-02, the cement industry has been widely characterised as an oligopolistic market, operating through anti-competitive collusion. Attempts have been made since 1991 to hold liable cement manufacturers for collusive price setting under the MRTP Act. However, these efforts were largely unsuccessful.
In 2012, the DG inter alia found that there had been a significant rise in cement prices over the time period under investigation, and such price increases were attributed to more than just natural reasons, such as rise in cost of raw materials. Relying heavily on circumstantial evidence, it concluded that market forces alone did not determine price, with prices moving “in the same manner and same direction” pursuant to regular meetings held by members of
11. V. Dhall, The Indian Competition Act, 2002 COMPETITION LAW TODAY – CONCEPTS, ISSUES AND THE LAW IN PRACTICE 499, 507 (V. Dhall ed., New Delhi: Oxford University Press, 2008).
12. See Section 3(3), 2002 Act.
13. Supra note 19, at 505.
14. Section 3(4), 2002 Act.
15. CCI, 29/2010.
16. P. S. Mehta ed., TOWARDS A FUNCTIONAL COMPETITION POLICY FOR INDIA – AN OVERVIEW (New Delhi: CUTS International and Academic Foundation, 2005) at 157-9.
the CMA. Consequently, the Commission imposed a hefty cumulative fine of Rs. 6,300 crore on the parties.
In stark contrast to this decision, in October 2012, in All India Tyre Dealers’ Federation (hereinafter “the Tyre case”) the Commission found that since the tyre manufacturing market is highly concentrated and oligopolistic in nature (thereby making it ordinary for each party to know what the other is doing) meetings held by the manufacturers did not amount to cartelisation under Section 3(3) of the Act.
It is settled law in a variety of jurisdictions, including India, that price parallelism between parties is not enough to prove a claim for cartelisation. Indian law, like the law of the European Union and the United States, requires “plus factors” in addition to just similarity in pricing to be punishable for cartelisation under Section 3(3) of the Act. For this reason, even a superficial examination of the Cement and Tyre cases paints a perplexing picture.
In both cases, active industry trade associations conducted regular meetings. Though plant capacities were much higher than what was being produced by both cement and tyre manufacturers, they still refrained from cutting costs, with Tyre manufacturers even being accused informally of not passing on the benefit of excise duty reduction to consumers. In the Cement case specifically, the Commission found that in addition to likeness in pricing due to prior consultations between the parties, there was also capacity under-utilisation and production and dispatch parallelism amongst them. Yet, considering similar facts in the Tyre case, the Commission was of the view that in the absence of a more “specific pattern” between the parties, such evidence was, by itself, not enough to infer guilt.
Some analysts have argued that in spite of the Cement and Tyre cases appearing similar on facts, the clinching difference between the two lies in that cement manufacturers were guilty for their post meeting conduct in price fixing, whilst it was the case of the tyre manufacturers that India’s open door policy of tyre imports ensured that domestic players could not indulge
17.Available at http://indiatoday.intoday.in/story/competition-commission-of-india-slaps-penalty-on-cement-cartel/1/201872.html.
18. CCI (MRTP), 20/2008.
19. Supra note 24, at 157.
20. A. Jones and B. Suffrin, EU COMPETITION LAW: TEXTS, CASES AND MATERIALS (4th edn., Oxford: Oxford University Press, 2011) at 121.
21. Matsushita Electric v. Zenith Radio, 475 U.S. 574 (1986).
22. A. C. Matthews, The Case of Mixed Signals (December 24, 2012), available at http://www.businessworld.in/en/storypage/-/bw/the-case-of-mixed-signals/693187.37489/page/-1.
in anti-competitive pricing conduct. However, in making a comparative analysis of these cases, it is crucial to recognise the Commission’s rationale, specifically, its reliance on circumstantial evidence in both cases to evaluate whether the diametrically opposite treatment in these two cases is justifiable.
The OECD Report and Circumstantial Evidence
Members of a cartel realise that their conduct is unlawful and that in the event that they are caught, the penalty is likely to be significant. It is not surprising for cartel participants to try and hide their anti-competitive conduct, forcing investigative authorities to resort to circumstantial communication and economic evidence to build and prove their case. Perhaps it is in recognition of this reality that the 2002 Act defines “agreement” broadly, bringing within its ambit informal, unwritten arrangements and similar forms of concerted action.
The Organisation for Economic Co-Operation and Development (hereinafter “OECD”) has published a paper in 2006, which argues that, in the likely event that direct evidence is not available, a better practise is to use circumstantial evidence: “holistically, giving its cumulative effect, rather than on an item-by-item basis.” The Report observes, however, that the risk associated with the subjective application of circumstantial evidence - such as mere proof of information exchange - is not in itself enough to prove “agreement” between parties. Circumstantial evidence may be relied on, but has to conclusively exclude the possibility that the acts were independent decisions of competitors.
Remarkably, the Commission cites this Report in both the Cement and Tyre Cartel cases, but seems to apply its recommendations selectively. An analysis of the reasoning in these cases suggests that the Commission has failed to set a uniform threshold to establish cartelisation. The difficulty or inability to accurately measure whether market forces of demand and supply caused companies to respond in prices in similar ways cannot directly lead to the inference that such market forces did not facilitate the determination of price. Communication evidence is evidence that cartel operators met or otherwise communicated, but does not describe the
23. Ashok Chawla, available at http://www.businessworld.in/en/storypage/-/bw/the-case-of-mixed-signals/693187.37489/page/-1.
24. Organisation of Economic Co-operation and Development, Prosecuting Cartels Without Direct Evidence of Agreement (February 2006).
25. S. 2(b), 2002 Act.
26. Organisation of Economic Co-operation and Development, Prosecuting Cartels Without Direct Evidence of Agreement (February 2006).
27. Matsushita Electric v. Zenith Radio, 475 U.S. 574 (1986) (Supreme Court of the United States).
substance of their communications. Providing pricing information to a third party trade association is often inadequate circumstantial evidence. Yet, in the Cement case, the Commission found that examples of such communication were sufficient, in spite of signs explaining that the conduct of Cement manufacturers was consistent with their self-interests. Moreover, the oligopolistic market type and similarity in demand and pricing of almost identical products was seen as a sufficient justification in the Tyre case, but discarded in the Cement case. In another case, All India Distillers’ Association v. Haldyn Glass Gujarat and Others, the Commission did not even send the matter for further investigation by the DG in circumstances nearly identical to the facts in the Cement case. The allegation in this case was also of simultaneous price increase by glass bottle manufacturers, which could not prima facie be explained by price fluctuations of raw materials, and where the market was homogeneous and oligopolistic in nature.
Unreasonable Fines
The 2002 Act empowers the Commission, upon the discovery of a contravention of Section, to pass “cease and desist” orders, impose civil penalties, modify agreements or pass any other order as it may deem fit. For contraventions by cartels the Commission may impose a maximum penalty of three times the profit or 10% of the turnover, whichever is higher, for every year of such contravention. In this context, the imposition of a Rs. 6,300 Crore fine in the Cement case has raised its own concerns, namely, the appropriateness of imposing a uniform penalty on all stakeholders, the lack of guidelines or regulations for such imposition, and the absence of a speaking order. Some analysts have argued, for example, that the benchmark of the 3 times of profit under the legislative mandate indicates that the ceiling of the penalty on the basis of profits is 300%. Yet, in the Cement case, the Commission has imposed 0.5 times or 50% of the profit as penalty, which is way below the ceiling. Curiously, however, for the benchmark of penalty related to turnover, the Commission has mistakenly
28. Supra note 34.
29. In Re Flat Glass Antitrust Litigation, 385 F. 3d 350, 2004 (United States Court of Appeal, Third Circuit).
30. CCI, 30(146)/2008.
31. Section 27(a), 2002 Act.
32. Section 27(b), 2002 Act.
33. Section 27(d), 2002 Act.
34. Section 27(f), 2002 Act.
35. Section 27(b) proviso, 2002 Act.
36. Z. Mody, The Competition Commission of India’s Approach to Penalties: The Need for Guidelines (October 3, 2012), available at http://xbma.org/forum/indian-update-the-competition-commission-of-indias-approach-to-penalties-the-need-for-guidelines/.
interpreted the absence of discretion and computed the imposition of penalty on the basis of turnover to be at the rate of 10% and not lesser. Yet, in other cases such as Film and Television Producers Guild of India v. Multiplex Association of India, the Commission found that since the contravention was “not extreme”, a symbolic Rs. 1 Lac penalty was imposed on each of the multiplex owners. Similarly, weighing the mitigating factors, a comparable decision was arrived at by the Commission in FICCI Multiplex Association v. United Producers/Distributers Forum. Considering the number of cases in which the Commission has imposed penalties in itself suggests the need for the Commission to formulate guidelines for their computation.
Ultimately, recognizing the nascent stage of the development of competition law that India is in, the inconsistencies in the Cement and Tyre cases raise larger questions about the role of the Commission, and the foundations required to arrive at its decisions. In the absence of direct proof in the investigation of cartels, going forward, the Commission needs to address issues of uniformity and clarity in the application of a relatively new law. Poor investigation by the DG, coupled with uncertainty in the appreciation of evidence and imposition of penalty by the Commission has left industry leaders and legal experts confused. The next Part of this article seeks to juxtapose Indian law with cartel law from the United States and European Union, which whose competition law jurisprudence is significantly more developed.
Appreciating US and EU Law
Unlike Section 3 of Indian Act, Section 1 of the US Sherman Act is a single sentence, which states: “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal”. Judicial interpretation over the decades has read into this provision the entire gamut of American anti-trust law as it is known today. In the specific context of anti-competitive conduct, American courts have held that only those restraints that are “unreasonable” would be hit by this legislation, and have broadly categorised investigations
37. R. Singh, Analysing the Impact of CCI’s Order Against Cement Companies (June 29, 2012), available at http://indiacorplaw.blogspot.in/2012/06/analyzing-impact-of-ccis-order-against.html.
38. CCI, 37/2011.
39. CCI, 2011CompLR0079.
40. Supra note 45.
41. S. 1, Sherman Act 1890.
into four types. First, is what is often referred to as per se illegal, where the evidence is so strong that it is clear even without a detailed examination that the parties involved are guilty of impeding competition. Second, a short cut “quick look analysis” which involves a rudimentary appreciation of proof so as to create a rebuttable presumption that competition has been affected. Third, a situation where anti-competitive conduct is not obvious, but there still exists significant direct evidence such as price increase and output decrease which, when scrutinized, could establish liability. Fourth, a “rule of reason” analysis, where the court undertakes a detailed study of the facts involved. This analysis may first require a market to be defined, market power to be demonstrated and then to determine whether competition has been harmed.
In United States v. Socony-Vacuum Oil Co. Inc., the Court found that parties stabilised prices by establishing a restriction on supply in such a manner that the purpose of their collaboration was to raise prices, and that they acted together solely to fulfil that purpose, thereby making it a per se violation of the Sherman Act. On the other hand, in Chicago Board of Trade v. United States, the U.S. Supreme Court laid out the rule of reason test, taking the view that since every contract in some way restrains trade, one needs to punish only those restraints on trade which harm competition. In the absence of direct price fixing, the Court in this case probed the nature and scope of harm to competition and found that since the restriction applied only a small part of the goods and since the directive in question had the overall effect of improving market conditions, the parties were not punished for cartelisation.
The relevant provision under EU law, Article 101 of the Treaty on the Functioning of the EU (hereinafter “TFEU”), as in the 2002 Act, recognises different types of agreements that may be anti-competitive, including both horizontal and vertical agreements. The structuring of these two provisions is considerably similar, warranting a discussion of the manner of their implementation. Article 101(1) prohibits collusion between undertakings which have as their object or effect the prevention, restriction or distortion of competition within the common European market, and which may adversely affect trade between Member States (an
42. Alcoa Steamship Co. v. Nordic Regent 326 U.S. 310 (1945).
43. 310 U.S. 150 (1940).
44. 246 U.S. 231 (1918).
additional factor not relevant in the Indian context). For this prohibition to apply, then, the following need to be established:
- The existence of undertakings;
- Collusion in the form of an agreement, decision or concerted practice;
- An appreciable effect on competition; and
- An appreciable effect on trade between Member States.
Once these are established, the agreement is declared void to the extent that its prohibited clauses cannot be severed from the remainder of the agreement. This is unlike its Indian counterpart which states that any agreement in contravention of Section 3(1) shall be void in its entirety.
Article 101(3) provides for exceptions to the application of the Article 101(1) prohibition. This envisages cases in which the beneficial aspects of the agreement outweigh its restrictive effects. The agreement may contribute to improving production or distribution, or to technical or economic progress. It may result in an improvement in consumer welfare. Most importantly, the agreement must be indispensible to the attainment of these benefits, and must not afford undertakings the opportunity to eliminate competition in the concerned market. Initially, this provision was used by the Commission to issue individual exemptions to undertakings. However, subsequently, this exclusive discretion afforded to the Commission was discarded, and national competition authorities and courts have now been afforded a comparable power.
The initial burden of proof lies on the complainant or authority to establish a case under Article 101(1), following which the burden shifts to the concerned undertaking to prove the criteria for exemption under Article 101(3). The standard of proof required by the Commission to confirm an infringement is ‘sufficiently precise and coherent proof’. The primary problem faced by competition authorities in the prosecution of cartels in the EU, as in India, has been in the collection of evidence. Until the 1980s, the European Commission
45. C.F. supra note 28, at 120-1.
46. Section 3(2), 2002 Act.
47. L. F. Pace, EUROPEAN ANTITRUST LAW (Cheltenham: Edward Elgar, 2007) at 83.
48. Supra note 28, at 121.
49. Supra note 28, at 123.
was largely unsuccessful in detecting and prosecuting cartels despite the allocation of substantial resources, leading to a change of strategy in the 1990s.
Defining the Scope of ‘Agreement’
As is the case under Indian law, American anti-trust law requires the establishment of an “agreement” between the parties before any claim of cartelisation can be investigated and penalised. As has already been discussed, the Indian 2002 Act has adopted an inclusive definition of “agreement”, and looks at it in the broadest possible terms. An appreciation of the decisions in the Cement and Tyre cases, in light of American case law, better highlights the conditions under which tacit arrangements between parties could amount to agreement for the purposes of cartel law.
In Interstate Circuit, Inc. v. United States, a group of film distributers and exhibitors agreed to take uniform action and impose restrictions on other licensees, thereby forcing them to raise admission ticket prices and depriving those unwilling to accept the said restrictions from exhibiting the most popular new releases. The U.S. Supreme court came to the conclusion that acceptance by competitors of an invitation to participate in a plan, the necessary consequence of which, if carried out, is restraint of interstate commerce, is sufficient to establish an unlawful conspiracy.
However, in Theatre Enterprises v. Paramount Distributing, the Court opined that though parties acting in unanimity may imply conspiracy, inferences must be subject to business behavior. Parallel business behavior is not conclusive by itself, because each of the parties may have independent and sound business reasons for acting similarly to one another. Though the DG found circumstantial evidence of apparent conspiracy in both the Cement and Tyre cases, the Commission failed to appreciate that though market conditions might have forced all the players to respond to prices like one another, this did not automatically exclude the possibility that they might have been acting independently. This is especially true in markets for homogenous commodities, where price movements are similar under competitive conditions.
50. Supra note 6, at 141.
51. 306 U.S. 208 (1939).
52. 346 U.S. 537 (1954).
The Commission found support of meetings between parties in the Cement case, which on facts it concluded was enough to show agreement. However, reference may be made to Todd v. Exxon Corp., where the U.S. court of Appeal, 2nd Circuit, dealt with sensitive pricing information being exchanged between parties, similar to the Cement and Tyre cases. In the Cement case, the Commission found that the exchange of pricing information within the association was sufficient to prove complicity, without going into the actual nature of the information exchanged. In effect, it failed to consider three crucial factors related to such information, as laid down by the court in Todd. First, one ought to consider the time frame of the data, with current data having greater potential to affect future prices and facilitate price conspiracies. For example, in a case like Blomkest Fertilizer Inc. v. Potash Corporation of Saskatchewan, the Court found that price verification merely involved discussion as to past prices and did not therefore imply an agreement to fix prices in the future. Second, the specificity of the data, because the greater the specificity, the greater the possibility of its use in tacit conspiracy to stabiles prices. Third, the public availability of the data, because public data may create a pro-competitive effect of facilitating transparency in the market by allowing buyers to compare products.
Article 101 of the TFEU prohibits collusion between undertakings, concerted practices, and decisions taken by associations of undertakings. It is important to note that, in spite of this distinction, what this provision punishes is joint and not individual action. Section 3(1) of the 2002 Act makes mention of agreements only, but Section 3(3) applies the presumption of collusion to agreements and decisions, and specifically includes cartels. The principle underlying this interpretation of Article 101 is the fact that every economic operator in a market must independently frame its policy. As a result, while the degree of collusion among entities may differ, the element of collusion is essential to a determination under Article 101. The provision’s inclusion of three seemingly different forms of collusion does not affect its application. Thus, as observed by the Commission in the Anic Partecipazioni case there is no requirement that a particular agreement fall under one of these three categories.
53. 275 F.3d 191 (2d Cir. 2001).
54. 203 F.3d 1028 (8th Cir. 2000).
55. Supra note 28, at 141.
56. Supra note 28, at 141.
57. [1999] ECR I-4125.
What is interesting about the application of Article 101 is that, unlike competition laws in other countries, the existence of the agreement is not difficult to establish – it is the process of identifying the terms that restrict competition. In any case, large undertakings which become susceptible to huge penalties are more likely to conceal the existence of collusion altogether, instead of using Article 101(3) to defend their actions as having beneficial effects. As a result, the burden often falls on the Commission to establish that the market behaviour of concerned undertakings is a reflection of anti-competitive agreement, in one form or another. The Commission thus faces the challenge of maintaining a clear distinction between agreements, concerted practice and decisions that are unlawful and anti-competitive on the one hand, and policies that have been adopted independently by each undertaking, on the other.
Expectedly, the term ‘agreement’ itself has been given a broad definition, as in the Indian context. The definition adopted by the Commission was laid down in Bayer AG v. Commission, and is worthy of mention:
‘the existence of of the subjective element that characterises the very concept of the agreement, that is to say a concurrence of wills between economic operators on the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market’.
This definition, and the EU’s approach in general, suggests that as long as direct or indirect evidence is suggestive of a concurrence of wills and the intentions of parties, the form that such agreement takes is irrelevant. Even an agreement that is no longer in operation can result in the prosecution of a cartel if its negative effects continue to be felt in the concerned market.
In addition to explicit agreements among undertakings, the scope of Article 101(1) has been expanded by the use of the term concerted practice – which effectively captures informal agreements among undertakings. Thus, even if a form of collusion falls short of the definition of an anti-competitive agreement, undertakings can be reprimanded for concerted practice.
58. Supra note 28, at 141.
59. Case T-41/96, [2000] ECR II-3383.
60. Case T-41/96, [2000] ECR II-3383.
61. Supra note 28, at 142-3.
62. T. Soames, An Analysis of the Principles of Concerted Practice and Collective Dominance: A Distinction without a Difference? 415 (2nd Series, R. Greaves ed., Aldershot: Ashgate Dartmouth 2003) at 422.
As early as 1972, in ICI v. Commission (Dyestuffs), the European Court of Justice explained the inclusion of this term in Article 101(1), stating that it was meant to avoid:
co-ordination between undertakings which, without having reached the stage where an agreement, properly so called, has been concluded, knowingly substitutes practical co-operation between them for the risks of competition’.
In this view, then, it is not necessary for the Commission to establish the existence of an agreement or plan among undertakings. It is simply necessary to prove that there existed reciprocal co-operation or contact intended to influence the conduct of competitors in such manner as to make it anti-competitive. Perhaps the most important distinction between an anti-competitive agreement and concerted practice lies in the different standard of proof attached to each. While the mere existence of an agreement is sufficient to prosecute under Article 101(1), the nature of a concerted practice is such that it must be implemented in the market for the competition authority to act. Thus, as was clarified in the Polypropylene Case, there can be no case of concerted practice if the undertakings concerned only planned to co-ordinate their conduct but did not actually execute this intention. However, as a result of this characterisation of concerted practice, there is no clarity as to where the conceptual line between agreements and concerted practice lies.
Section 3 of the 2002 Act does not include this catch-all phrase to overcome the difficulties associated with proving the existence of an agreement – contributing to problematic decisions, such as that rendered by the Commission in the Cement case. While Indian law has, equally, interpreted the scope of “agreement” broadly, the absence of the term “concerted practice” and the understanding of how collusion takes place absent direct evidence, may have created a considerable hurdle in addressing these forms of collusion.
Appreciable Adverse Effect and Plus Factor Analysis
Once the hurdle of establishing agreement has been crossed, Indian law creates a presumption of an “appreciable adverse effect on competition”. Though this may prima facie appear to echo the per se test under US law, given the Commission’s decisions in Cement and Tyre, the
63. Cases 48, 49 and 51-7|69, ICI v. Commission [1972] ECR 619.
64. Cases 48, 49 and 51-7|69, ICI v. Commission [1972] ECR 619.
65. Supra note 28, at 161.
66. Polypropylene [1986] OJ L230/1.
67. Supra note 28, at 161.
position is not as clear as one would hope. Had this presumption meant that cartels are guilty in all cases, as a plain reading of Section 3(3) suggests, the Commission ought to have found in favour of the existence of cartels in both Cement and Tyre as soon as they concluded the existence of agreements in each case. However, given that it undertook an analysis of price parallelism and plus factors, it appears that the presumption for cartels under Indian law may still be amenable to a U.S. “rule of reason” investigation. This idea has also been echoed by the Indian Supreme Court in R.S. Nayak v. A.R. Antulay and Sodhi Transport Co. v. State of Uttar Pradesh, where it held that “the presumption is not in itself evidence but only makes a prima facie case for the party in whose favour it exists. It is not laying down a rule of conclusive proof.”
Given the understanding that the Indian presumption is not the same as the per se rule, perhaps the Commission failed to appropriately balance the pro-competitive and anti-competitive effects before reaching its decision in both the Cement and Tyre cases, as mandated by section 19(3) of the Act. Unlike a per se case like Palmer v. BRG of Georgia Inc., where the Court came to the conclusion that in facts involving two firms allocating markets to one another, the revenue sharing formula arrived at by them was for the purpose of raising the price and hence was a per se violation, all cases needing a “rule of reason” investigation ought to consider pro-competitive effects as well. In Broadcast Music, Inc. v. CBS, Inc., for instance, the court found that the granting of blanket licenses would not be illegal because the principal purpose was to give a practical and pro-competitive solution to manage copyrights. In short, in this case the license scheme was acceptable because it was unavoidable for the activity. In Addyston Pipe and Steel Co. v. United States, the Court held that a restraint might be justified where it is ancillary to a primary pro-competitive purpose of an agreement, and is worth it to bring about the pro-competitive purpose.
In NCAA v. Board of Regents of the University of Oklahoma, horizontal restraints on competition were essential to an industry if the product was to be available at all. However, the Court found that this arrangement had anti-competitive consequences insofar as
68. Supra note 3, at 40.
69. AIR 1986 SC 2045.
70. AIR 1980 SC 1099.
71. 498 U.S. 46 (1990).
72. 441 U.S. 1 (1979).
73. 175 U.S. 211 (1899).
74. 468 U.S. 85 (1984).
individual competitors lost their freedom to compete, prices were higher and output was lower than they would otherwise be. It was ultimately held to be illegal under a “rule of reason” analysis. It is submitted that in both the Cement and Tyre cases, the Commission took into account plus factors apart from price parallelism to examine anti-competitive conduct, but failed to evaluate whether any pro-competitive justifications such as the manufacturers’ association’s concern of anti-dumping, taxation and import prices outweigh such anti-competitive conduct. Whilst in Cement, the Commission wholly ignored the possibility of pro-competitive benefits, in Tyre, parties were let off on other grounds.
Evidentiary Standards
Whether in an attempt to prove the existence of an anti-competitive agreement or concerted practice, investigative authorities in the EU most often utilises documentary evidence that supports the assertion that parties: (a) agreed to behave in a particular way in the market, and (b) that information was exchanged about their future intentions, allowing for coordinated market behaviour (suggesting concerted practice). The standard of proof in both cases is low; the Commission has only to prove the participation of an undertaking at a meeting where the impugned anti-competitive activities were discussed. Regulation 1/2003 has provided the Commission substantial powers of investigation in obtaining necessary evidence, however, there has developed a body of case law that has effectively restricted its powers in protecting the fundamental rights of concerned undertakings.
In many cases, however, the Commission is challenged by a lack of sufficient or any documentary evidence. In these cases, the existence of an agreement may be inferred by market behaviour coupled with other factors. It is important to note that in these cases, neither sparse evidence nor mere inference from market behaviour is alone sufficient, but together, they furnish an inference of collusion. This analysis is similar to the plus factor analysis discussed in the context of US law. For example, in the Sugar Cartel case, wherein the Commission proved the existence of a cartel during the 1970s with reference to a concerted practice to protect the Dutch market (based on the conduct of Dutch producers) and the correspondence between Belgian producers and distributors forbidding export to the
75. Available at http://thefirm.moneycontrol.com/story_page.php?autono=777173.
76. G. Monti, EC COMPETITION LAW (Cambridge: Cambridge University Press, 2007) at 330.
77. Supra note 85, at 331.
Netherlands. In this case, as in the Cement case, there was no direct evidence of the existence of a cartel, but it was prosecuted as concerted practice nevertheless.
More interesting are cases in which no documentary evidence is available whatsoever to prove the existence of the cartel. These are the cases in which the inclusion of concerted practice in Article 101 becomes significant. In the Dyestuffs Case, for example, the Commission inferred the existence of an agreement using only the behaviour of undertakings. The only evidence presented suggested that undertakings met and discussed prices, increased prices simultaneously by similar percentages, and used similar language in their instructions to subsidiaries. Upon appeal, the Court reiterated this position, clarifying that when the behaviour of firms does not reflect their expected behaviour in conditions of competition, an inference of collusion may be made. What makes this case problematic is that the Court also, separately, referred to evidence of collusion. It must also be kept in mind that in circumstances of this sort, the concerned undertakings must be afforded the opportunity to offer alternate explanations for their parallel conduct, making the precedent value of this case suspect.
This position was clarified subsequently in the Wood Pulp Case wherein the Commission inferred the existence of concerted practice using only similar prices, similar price announcements and a common system of regular price announcements by firms. The Court in this case clarified that where collusion is the only possible explanation for price parallelism, an inference of express collusion may be made by the Commission. In this case, the Court considered the opinions of economic experts, who alluded to the possible operation of other factors – price announcements could have been a reaction to consumers’ needs in an oligopolistic market.
Joint Ventures: The Efficiency Exception
The proviso to Section 3(3) of the Indian Act provides an exemption to agreements entered into by way of joint ventures, in the event that such joint ventures increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of
78. Suiker Unie [1975] ECR 1663.
79. Cases 48-57/69 ICI v. Commission (Dyestuffs) [1972] ECR 619.
80. Supra note 85, at 332.
81. Woodpulp [1993] ECR I-1307.
82. Supra note 85, at 332.
services. In Yogesh Ganeshlaji Somani v. Zee Turner Ltd., for example, the Commission came to the conclusion that based on the nature of the market structure and the circumstances under which the join venture was formed, efficiency reasons justify it in the facts of the case. U.S. anti-trust law does not provide for a blanket efficiency justification for joint ventures, and they are dealt with as ordinary agreements that may or may not be anti-competitive. For instance, in United States v. Topco, the U.S. Supreme court found the joint venture to be per se illegal because it involved an agreement between competitors at the same level of the market structure to allocate territories in order to minimize competition. Similarly, in Rothery Storage and Van Co. v. Atlas Van Lines, Inc., the court came to the conclusion that joint ventures should be penalized in cases where they decrease output rather than increasing efficiency. In the facts of the case the court found that the policy was an ancillary restraint to achieve efficiency and therefore could not be held to be a violation of Section 1 of the Sherman Act.
Given the specific exemption under Indian law, what is important in all joint venture cases is that the Commission ought to ensure that cartels do not escape liability by creating and shielding themselves behind a single corporate form. This means that if separate decision makers get together and agree to make the same decision, the market place is deprived of independent centres of decision-making, and cannot be permitted. However, genuine circumstances of single entity joint ventures promoting efficiency in the market must be acceptable. Thus, it is submitted that even before the Commission inquires into and decides on efficiency of the joint venture, it must first decide whether or not the alleged venture is a genuine single entity deserving the benefit of the exemption. In American Needle v. NFL for example, football teams formed “NFL Properties” to jointly manage their intellectual property and granted an exclusive license to Reebok for their merchandising needs. The American court investigated whether or not there was a loss of “centres of decision-making” after the venture was formed. On facts it found that actors in the case had sufficient separate economic interests to justify treating their agreement as a contract between them instead of as a joint venture because the teams continued to compete with each other even after it was formed.
83. CCI, 31/2011.
84. 405 U.S. 596, 608 (1972).
85. 792 F.2d 210, 229 (D.C. Cir. 1986).
86. 130 S. Ct. 2201 (2010).
Leniency and Whistleblower Provisions
The marked trend towards greater prosecution of cartels in the EU during the second half of the 1990s was largely a result of the leniency policy that was adopted following the Cartonboard Case. During the period 1982 – 1991, the market shares and prices of competitors in the manufacture of carton-board remained relatively stable, as a result of concerted practice among twenty-three companies in Europe, which met regularly to discuss market shares and production quotas, and to exchange confidential information. As a consequence, prices rose to higher levels than they would have under conditions of competition. The Commission’s ability to take action against this anti-competitive activity was supported crucially by the participation of Stora, one of the members of the cartel, which provided the requisite evidence necessary to prosecute from an early stage.
It was following this case that the Commission issued a Notice in 1996, officially bringing into effect the whistleblower policy it had only informally adopted until then. The underlying logic was that, much like collusion, leniency was in the best economic interest of colluding firms. It recognised three levels of co-operation:
- The first undertaking to provide full documentary evidence of a cartel before an investigation has been commenced, and which, upon such disclosure, immediately ceases such activities, is entitled to 75-100% reduction in fines;
- An undertaking which provides full documentary evidence of a cartel once the investigation has commenced is entitled to 50-75% reduction in fines;
- Other undertakings which co-operate at a later stage are entitled to 10-50% reduction in fines.
What made the use of this policy all the more successful was the fact that many cartels involving companies operating on a global scale would immediately volunteer as whistleblowers upon the discovery of their anti-competitive behaviour in a jurisdiction outside the EU (particularly in the US).
Despite the apparent success of this policy, it was not perfect. While cases have reiterated the Commission’s exercise of discretion in applying these reductions in fines subjectively in
87. [1994] 5 CMLR 547.
88. Supra note 85, at 333.
89. Supra note 6, at 148.
90. Supra note 6, at 148.
individual cases, many undertakings were of the opinion that it resulted in an unacceptable degree of uncertainty in the relief afforded to them in their capacity as whistleblowers. As a result, a revised notice was issued in 2002, which offered even larger rewards to chief whistleblowers in its provisions. In order to ensure greater clarity as to the relationship between the information provided and the leniency offered, the revised policy provided that the evidence would need to be sufficient to allow the Commission to carry out an investigation (motivating it to undertake a dawn raid, perhaps), and to discover a case of collusion.
Another issue addressed in the revised policy is the immunity offered to a cartel’s ringleader. The Commission clarified that immunity would be equally available to the primary participants in the cartel, as long as there was no evidence of coercion in ensuring the participation of other undertakings in the agreement. While this provision affords greater clarity on the issue, due to evidentiary difficulties in establishing this fact one way or another, it is likely to continue to pose a problem in the future.
Section 46 of the 2002 Act offers undertakings involved in a cartel an opportunity to provide ‘full and true disclosure’, provided that such disclosure is vital to the prosecution of the cartel. This provision offers the Commission considerable discretion in making offers of leniency to whistleblowers, providing that lesser penalty may be imposed ‘as it may deem fit’. In light of the EU experience with its own leniency guidelines, it is evident that the objective underlying Section 46 is unlikely to be fulfilled. Whistleblowers will only be willing to extend their co-operation to investigative authorities when there is certainty as to the amount of fine reduction that will become available to them. Additionally, this reduction must be so substantial as to create an economic incentive for whistleblowers to choose to approach the Commission instead of continuing to engage in anti-competitive behaviour. Moreover, unlike in the EU, Section 46 does not specifically provide immunity to the ringleaders of cartels – the position on this point is yet to be clarified.
Critique
91. Supra note 6, at 148.
92. [2002] OJ C45/3.
93. Supra note 6, at 149.
94. Supra note 6, at 149.
95. S. Rab, INDIAN COMPETITION LAW: AN INTERNATIONAL PERSPECTIVE (Gurgaon: Wolters Kluwer (India) Pvt. Ltd., 2012) at 97.
The Cement and Tyre cases are landmark decisions in cartel jurisprudence in India. Whilst we must recognise that cartel enforcement in India is relatively new, the manner in which the Commission has used circumstantial evidence in these cases has created a problematic jurisprudence.
In the absence of direct evidence, as in most cases dealing with cartels, collusion is required to be proved in more creative ways. Given prima facie evidence of price parallelism in both the Cement and Tyre cases, the Commission conducted an analysis of various plus factors from which it could be inferred that parties acted in concert to raise prices. The fact that such agreement was inferred from circumstantial evidence is in keeping with competition jurisprudence in the US and EU, and is itself not problematic. Yet, both these jurisdictions have set clearer standards that offer predictability in their application.
As a result of the vastly different conclusions reached in the Cement and Tyre cases, the problem really seems to be the lack of a well-defined evidentiary standard to be applied by the Commission in the future when dealing with cartels that operate without adopting explicit agreements. By lowering its standard in relying on circumstantial evidence, it is submitted that the Commission perhaps failed to take into account situations where natural market conditions might cause firms, operating independently, to act in similar ways. In US law, attention is paid to the substance of the information exchanged, rather than the mere fact of information exchange. In such cases, EU law recognises the importance of conducting an economic analysis of this possibility – a cartel can only be punished where the possibility of factors other than anti-competitive motivations may cause undertakings to behave similarly in the market.
Though borrowed from EU law, the expression “appreciable adverse effect” under Section 3 of the 2002 Act creates a unique presumption under Indian law that does not seem to reflect comparable provisions under either US or EU jurisprudence. Where commentators on the Indian statute seem to suggest that this presumption demands the use of the per se rule (as in the US), the manner in which analysis has been carried out in the Cement and Tyre cases illustrates a lack of clarity in the Commission’s use of the rule of reason even in cases where this presumption should technically apply.
To compound the difficulties created by the reasoning of the Commission in the Cement and Tyre cases, India’s weak whistleblower and leniency provisions fail to provide adequate incentive to firms to provide stronger and more reliable circumstantial evidence on the basis of which the Commission could reach more legally sound conclusions. Not only is India’s leniency scheme under Section 46 of the Act discretionary at the hands of the Commission, but the law as it stands today also fails to provide any sort of guidelines to assist the Commission when exercising such discretion.
There exists a widespread consensus today that anti-competitive agreements, particularly hard-core cartel agreements, are a threat to consumer welfare and the economy. This effect has extended beyond national limits, owing to the globalisation of cartels. As a result, the prosecution of cartels has become the subject of international policy, led chiefly by the OECD. In this larger context, the improvement in the success of the detection and prosecution of cartels in one jurisdiction has a significant and positive effect on their prosecution under other competition regimes, particularly in the context of multinational corporations that operate on a global scale, and are able to escape detection of their anti-competitive behaviour owing to the scale of their operations.
At a policy level, it is incumbent upon the State to evolve a comprehensive framework for the implementation of competition law within India. Based on this policy, it is the responsibility of the Commission to give effect to relevant provisions in a manner that is consistent and predictable. Most recently, the imposition of the Rs. 6,300 Crore fine in the Cement case has currently been stayed and as the matter is pending before the Competition Appellate Tribunal, the outcome of this proceeding will have far-reaching consequences for the prosecution of cartels in India, and the manner in which the Commission will investigate similar cases in the future.
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