Competition Commission of India – Anti-competitive practices - Recent trends
03 Feb 2014
The fair trade regulator has been in existence for over a decade, quietly shaping the commercial market, still the questions being dealt by the commission continue to grow ever more complex. The nature of commercial enterprise is such that at times it becomes difficult to predict, without sound legal advice, what would be deemed anti-competitive and what actions would be adjudged to have no appreciable effect on competition.
This article aims to provide the reader a brief insight on the recent rulings of the commission. This brief overview will help the reader discern between anti-competitive practices and practices having no adverse effect on competition.
Anti-Competitive Trade practices of Chemist Associations:
The following activities undertaken by various chemist associations were adjudged to be anti-competitive by the Commission;
i. Issuance of No Objection Certificate or letter of consent by such associations for opening chemist shop/being appointed stockists/distributor/whole-seller.
ii. Compulsory payment of PIS charges by pharmaceutical firms/manufacturers to associations for release of new drug/new formulation.
iii. Fixation of trade margins at different levels of sale of drugs/medicines.
iv. Issuance of instructions to chemists/druggists/shops/stockists/wholesellers/manufacturers restricting discounts on sale of drugs in retail or wholesale.
v. Issuance of boycott calls by the associations to their members against any enterprise for not following the instructions of associations.
Anti-Competitive; Tie-in agreements, in Film Industry
In a recent order the competition commission dealt with Tie – in agreements prevalent in the film industry. In the film industry a film has three stages production, distribution& exhibition. Many times big production houses tie the exhibitors in by forcing them to accept exhibition of two films at once. In the instant case it was alleged by the informant (‘Ajay Devgn Films Pvt. Ltd.’) that ‘Yash RajFilms Pvt. Ltd.’ had put a condition on single screen theatres that if theywanted to exhibit the film ‘Ek Tha Tiger’ they would have to simultaneously agree to exhibit another film ‘Jab Tak Hai Jaan’. It was contended that such a conditionis anti-competitive as it restricts the market available to other producers and thus adversely impacts competition.
The reasoning given by the commission was that; a. the exhibitors were at full liberty to either accept or reject the offer, b. No exhibitor had come-forth complaining against this condition, and c. No injury/loss was caused to the informant as he was able to procure for himself a reasonable number of singe screen theatres for exhibiting it’s release ‘Son of Sardar’. Hence upon consideration the Commission did not find such an agreement to be contravening the Competition Act.
Abuse of Dominant position – Coal India Limited
The Commission while dealing with a case involving non-coking coal, used in power generation and which has no viable substitute, came down heavily on Coal India Limited. The Commission determined that Coal India Limited enjoys a near monopoly and there is extraordinary dependence of thermal power plants on Coal India Limited for supply of fuel to run the power plants. It was observed by the commission that the Fuel Supply Agreements were drafted by Coal India Limited in an arbitrary manner without any meaningful discussion with the other stakeholders.
Coming down heavily on Coal India Limited the commission in para 254 of the order issued the following directives:
“(i) The opposite parties are directed to cease and desist from indulging in the conduct which has been found to be in contravention of the provisions of the Act.
(ii) The fuel supply agreements are ordered to be modified in light of the observations and findings recorded in the present order. For effecting these modifications in the agreements, CIL is further directed to consult all the stakeholders. CIL is also directed to ensure parity between old and new power producers as well as between private and PSU power producers, as far as practicable. Though varying needs of different classes of producers may require different treatment, yet to pass muster the embargo placed by section 4 of the Act, the differentiation or classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and the differentia must have a rational nexus with the object sought to be achieved by such classification.
(iii) CIL is further directed to incorporate suitable modifications in the fuel supply agreements to provide for a fair and joint sampling and testing procedure.
(iii) CIL may also consider and examine the feasibility of sampling at the unloading-end in consultation with power producers besides adopting international best practices. CIL may also hasten the process of installing Augur Sampling Machines and washeries to help improve the coal supplied.”
The Competition Commission in thus actively ensuring fair competition. The market dynamics are sought to be kept in equilibrium and no single player should be able to acquire a position where he is able to operate independently of market forces and in the process adversely affect competition.
Thus, there arises a strong need for the Business Organisations today to remain vigilant and not be in contravention of competition laws. As is apparent from few of the cases discussed above many of the conducts and clauses which were regarded as industry standard earlier are drawing heavy flak from the Competition watchdog, for being anti-competitive.
In case you wish to get detailed insights into the latest Competition Commission orders and what it may imply for your company. Please feel free to contact us at [email protected].