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NEW DELHI.
IN THE MATTER OF
Manufacturer of Essential Oils Association (MEOA) . (APPELLANTS)
VERSUS
Competition Commission of India. (RESPONDENTS)
TABLE OF CONTENT
LIST OF ABBREVIATIONS..4
INDEX OF AUTHORITIES4
STATEMENT OF JURISDICTION................................................................................................9
QUESTIONS PRESENTED..10
STATEMENT OF FACT..11
SUMMARY OF PLEADINGS.14
ARGUMENT ADVANCED.17
1. The Arrangement is Not a Cartel Arrangement and Hence Not Violative of Section 3 of
Competition Act, 2002...17
A. Presence of agreement was not conclusively established17
B. There is inadequate evidence to conclude the existence of collusive price fixing or
territorial allocation20
C. Mere formation of MEOA is insufficient to conclude the existence of a cartel...24
2. The Case Requires to be Tested Under Section 19 of Competition Act, 2002 and The CCI and
Appellate Commission Exercised Jurisdiction Improperly...26
3. Lotus India Cannot be Offered Full Immunity Against Punishment or Penalty Since it is One
of The Biggest Manufacturers of Essential Oils and was an Important Member of The MEOA27
4. Lotus India has Acted in Violation of The Non-Compete Agreement..29
5. Lotus India is Not Entitled to Unilaterally Terminate the License Agreement and is Also Not
Entitled to Damages and Lotus India is Required to Compulsory License the Technology to
Others Manufacturers.... 32
LIST OF ABBREVIATIONS
AIR
Annex.
Annexure.
Art.
Article.
CAT
CBI
CCI
DG(IR)
DNA
FTC
GATT
Govt.
Government.
Honble
Honourable.
ICA
ICN
MRTP
MRTPC
OECD
OPEC
RBI
S.
Section.
SCC
u/s
under section.
UNCTAD
v.
versus
Vol.
Volume.
INDEX OF AUTHORITIES
LEGISLATIONS
The Competition Act, 2002 [Act No.12 of 2003] as amended by The Competition
(Amendment) Act, 2007 dt 24-90-2007.
Belaire Owners' Association v DLF Limited, HUDA & Ors Competition Commission Of
India Case No. 19 of 2010.
Central Inland Water Transport Corporation Limited and Anr. v Brojo Nath Ganguly
and Anr1986 (3) SCC 156.
Dlf Park Place Residents v Dlf Limited Competition Commission Of India Case No. 18
Of 2010.
Jupiter Gaming Solutions Private Ltd. v Government Of Goa & Ors, Competition
Commission of India Case No. 15 / 2010.
Kshitij Ranjan v Indian Newspaper Society, Competition Commission Of India Case No.
341/ 2011.
M/s Mineral Enterprises Limited v Ministry of Railways, Union of India & Ors,
Competition Commission Of India (Case No. 47 of 2012).
M/S Oswal Agro Furane Ltd. & Anr v Oswal Agro Furance Workers Union
2005(3)SCC224.
Niranjan Shankar Golikari v The Century Spinning and Mfg. Co. Ltd., AIR 1967 SC
1098.
United States v Jellico Mountain Coal & Coke Co. (46 Fed. Rep. 432). 247. 603.
Vedant Bio Sciences v Chemists & Druggists Association, In Re: MRTP Case No. C87/2009/DGIR.
Wrap Knits Pvt. Ltd. and Anr. v Ms. Anju Sharma @ Anu Sharma and Anr IA No.
6867/2008 in CS (OS) No. 1071/2008
6
GUIDE TO COMPETITION, SM Dugar and U P Mathur, Nexis Lexis, 5th Ed. (2010).
COMPETITION LAW IN INDIA, Abir Roy & Jayant Kumar, Eastern Law House
Kolkatta, 2008 pg 68-87, 98-121, 170-206.
CONTRACT AND SPECIFIC RELIEF ACT, Avtar Singh, 10 th Ed., Eastern Book
Company.
GUIDE TO COMPETITION LAW, S.M. Duggar, 5th Ed. 2010, Lexis Nexis
Butterworths Wadhwa, Nagpur.
7
ARTICLES
OECD
(2005):
Competition
law
and
Policy
in
the
European
Union
http://www.oecd.ord/dataoecd/7/41/35908641.pdf
WEBSITES
http://cci.gov.in/images/media/ResearchReports/TathagataChoudhuryInternshipRe
port.pdf
http://indiankanoon.org/
http://www.lawyersclubindia.com/articles/Non-Compete-Clauses-and-The-IndianContract-Act-1972-4621.asp#.UPsGBR2TzHh
http://en.wikipedia.org
http://www.wisegeek.com/what-is-a-non-compete-agreement.htm
http://www.cci.gov.in
http://www.drugs-forum.com/forum/showthread.php?t=155333
http://www.lalaessentialoils.com/industries-pharmaceuiticals.html
http://forbesindia.com/printcontent/29302
http://indiacorplaw.blogspot.in/2008/09/non-compete-and-non-disclosure.html
http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=264fdfb0-bb02416b-9eed-4ca76ca1ee46&txtsearch=Subject:%20Contract
STATEMENT OF JURISDICTION
The Counsels for the Appellants most humbly submit that the Honble Supreme Court of
India, at New Delhi has the jurisdiction to try this present matter under Section 53T of The
Competition Act, 2002.
QUESTION PRESENTED
1. Whether the Arrangement is a Cartel Arrangement and Hence violative of Section 3 of
Competition Act, 2002.
2. Whether the Case requires to be Tested under Section 19 of Competition Act, 2002 and
whether the CCI and Appellate Commission Exercised Jurisdiction Improperly.
3. Whether Lotus India Can be Offered Full Immunity Against Punishment or Penalty Since
it is One of The Biggest Manufacturers of Essential Oils and was an Important Member
of The MEOA.
4. Whether Lotus India has acted in violation of the Non-Compete agreement.
5. Whether Lotus India is entitled to unilaterally terminate the License Agreement and is
also entitled to Damages and whether Lotus India is required to Compulsory License the
Technology to Others Manufacturers. Whether it would have made any difference if lotus
India would have been a Pharmaceutical Company.
10
STATEMENT OF FACTS
BACKGROUND
1. The appellants are manufacturers of essential oils. Essential oil is a vital ingredient for
perfumes, soaps, room fresheners and many other cosmetic products. It plays a vital role to the
cosmetic industry which is growing at exponential rates in India ushering in high revenues and
better job prospects to the entire nation.
2. The manufacturers of essential oils in India were having turbulent times and were losing a
large chunk of market share to imported essential oil, soon after India reduced the steep import
tariffs on such imported essential oil, in keeping with its GATT commitments.
3. The manufacturers of essential oils formed themselves into an association known as
Manufacturers of Essential Oils Association (MEOA). As part of its practices, the MEOA
organized monthly meetings for its members to exchange information on advances in
technology, technical know-how, market related information for streamlining production
process, output, product pricing to avoid losses. Also, any manufacturer who identified and
patented new technology was obliged to license the technology to other association members by
entering into an irrevocable license agreement with each of the members, for a royalty which was
decided by MEOA. This ensured that the patent holder earns adequate royalty and at same time
keeping with the basic premise, the members have access to new technology.
MERITS
1. The large scale distributors and buyers of such essential oil were required to purchase essential
oil only from manufacturers who were certified by MEOA and in-turn such buyers/distributors
were provided certain discounts in prices. This way MEOA ensured quality control through the
certification process. Any buyer/distributor buying essential oil from any non-MEOA member
was boycotted from future supply by any of the MEOA members, as penalty.
2. In 2008, global recession resulted in losses to the essential oil manufacturers; attributed largely
to excess production on account of reduced demand from buyers.
3. In order to streamline and evenly match the supply and demand in line with prevailing market
conditions and ensure reduction in losses, the MEOA divided the market for the members and
11
CONCLUSION
The appellants have now filed an appeal before the Supreme Court against the decision of the
CCI and Appellate Commission. The Supreme Court has decided to also club with this appeal
the issue pertaining to the violation of the non-competition agreement and license agreement and
hear the case in its entirety and has asked the parties to present final arguments based on national
and international precedents, logical analysis and cogent reasoning.
PROCEDURE
The appellants have approached the Supreme Court under Section 53T of the Competition Act,
2002.
13
SUMMARY OF PLEADING
1. THE ARRANGEMENT IS NOT A CARTEL ARRANGEMENT AND HENCE NOT
2002
AND
THE CCI
AND
IMPROPERLY.
Appellant submits that this case requires to be tested under Section 19 of the Competition Act
and therefore the Commission an Appellate Tribunal have improperly exercised their
jurisdiction.
An important comment that needs to be made about horizontal agreements is that there may be
circumstances in which competitors cooperate with one another in a way that delivers economic
benefits, not just for themselves but for consumers as well. Hard core cartels are always bad for
consumers welfare, but other horizontal agreements- for example between pharmaceutical
companies to combine their research and development efforts in order to develop new and better
drugs, or between two small or medium sized businesses to produce products on a joint basis,
thereby achieving economies of scale- may be beneficial. This would be the case where an
agreement contributes to an improvement in the production or distribution of goods or in
technical or economic progress, provided that various conditions- that consumer get a fair share
of the resulting benefit, that the agreement does not contain any restrictions that are dispensable,
14
15
16
ARGUMENTS ADVANCED
1. THE ARRANGEMENT
IS
NOT
CARTEL ARRANGEMENT
AND
HENCE NOT
1
2
COMPETITION LAW IN INDIA, Abir Roy and Jayant Kumar,1st Edition, Eastern Law House, 2008.
495 US 328 (1990).
18
19
20
21
10
22
23
cartel.
The term cartel is defined under section 2(c) 11 as:
"cartel" includes an association of producers, sellers, distributors, traders or service providers
who, by agreement amongst themselves, limit, control or attempt to control the production,
distribution, sale or price of, or, trade in goods or provision of services
A simple reading of the above definition with the facts of this case would show that there is
nothing to adduce the existence of any agreement for controlling or attempting to control
conditions of sale or prices of essential oil by the members. The basic objective of MEOA is to
promote the common interest of its members. It is fact that the manufacturers of essential oils in
India were having turbulent times and were losing a large chunk of market share to imported
essential oil, soon after India reduced the steep import tariffs on such imported essential oil, in
keeping with its GATT commitments. The competition got very fierce and many manufacturers
in India had to close down their business establishments. Also, this would vastly help in
improving the outlook of buyers towards essential oils produced in India and help regain lost
market share and on a macro-picture, also help the countrys internal economic policies by
ensuring that it is not depending excessively on foreign suppliers for such essential items.
Further, it is a fundamental right 12 of an industry to constitute an association whether they are
traders, manufacturers, retailers, residents, shopkeepers etc. It is an accepted fact that the
associations play a positive role in development of the society and, have collective bargain
power to take up issues concerning its members with government or other authorities. The mere
fact that Petrol Companies formed an association does not imply that the said association was
formed to indulge in any activity which is against the law.
It is also evident that the appellants are not the only players in market. The customers still have
option to purchase essential oils from other players in the market. Further, after the Lotus India
has left the membership of MEOA and it terminated the license agreement, it became the sole
owner of the patented technology. Also, it was already a big manufacturer of essential oils and
11
12
24
25
AND
TO BE
THE CCI
OF
COMPETITION
JURISDICTION IMPROPERLY.
Appellant submits that this case requires to be tested under Section 19 of the Competition Act
and therefore the Commission an Appellate Tribunal has improperly exercised their jurisdiction.
An important comment that needs to be made about horizontal agreements is that there may be
circumstances in which competitors cooperate with one another in a way that delivers economic
benefits, not just for themselves but for consumers as well. Hard core cartels are always bad for
consumers welfare, but other horizontal agreements- for example between pharmaceutical
companies to combine their research and development efforts in order to develop new and better
drugs, or between two small or medium sized businesses to produce products on a joint basis,
thereby achieving economies of scale- may be beneficial. 13 The OECDs 1998 Recommendation
stated that the definition of hardcore cartel does not include agreements, concerted practices, or
arrangements that...are reasonably related to the lawful realization of cost-reducing or output
enhancing efficiencies.
This would be the case where an agreement contributes to an improvement in the production or
distribution of goods or in technical or economic progress, provided that various conditions- that
consumer get a fair share of the resulting benefit, that the agreement does not contain any
restrictions that are dispensable, and that the agreement does not substantially eliminate
competition- are satisfied. 14 Therefore, it is proper for the Competition authorities to test the case
under section 19 of the Act on account of lack of evidence of any horizontal agreement formed
herein. It can construed from the language of the section 3 as discussed above that there is a
presumption with regard to cartels that there is an appreciable adverse effects on competition
provided an agreement to that effect is proved. Such an agreement must be proved beyond all
13
Richard Whish, CONTROL OF CARTELS AND OTHER ANTI COMPETITIVE AGREEMENTS, Vinod Dhall, Competition Law
Today, Oxford University Press.
14
Ibid.
26
BE
15
Fact sheet 9
The Competition Commission of India (Lesser Penalty) Regulations, 2009, No.L-3(4)/Reg-L.P./2009-10/CCI
17
Fact sheet 7
16
27
28
See, for example, Amritsar Rayon & Silk Mills Ltd v. Amin Chand Sajdeh, (1987)
Fact sheet 7
29
20
30
21
22
31
AGREEMENT
REQUIRED
AND IS
TO
COMPULSORY LICENSE
TO
DAMAGES
THE
AND
LOTUS INDIA
TECHNOLOGY
TO
IS
OTHERS
MANUFACTURERS.
A. Lotus India is not entitled to unilaterally terminate the License Agreement.
It is humbly submitted that Lotus India is not entitled to unilaterally terminate the license
agreement signed by the manufacturers of essential oils who identified or patented new
technology to license the technology for a royalty, which was decided by MEOA. The agreement
was signed by Lotus India with full knowledge and consent and therefore terminating the same
agreement before the completion of the contract is a breach of contract wherein contractual
principles have been condoned by the Respondents. This was done in the interest of the patent
holders for an adequate royalty and at same time keeping with the basic premise of
evenhandedness so that the members have access to new technology. The MEOA agreements
and deliberations24 were constituted because of the prevailing situation in order to protect the
share in Indian market and fend off foreign competition, it was important for them to have best
technology and production process, and quality control, be abreast of prevalent market
conditions and for such purpose form a collective arrangement to share information among
themselves. The principles of Section 27 of the Contract Act, 1872 were aptly summarized by
this Honble Court in landmark judgment of Percept DMark (India) Pvt. Ltd vs. Zaheer Khan25
in which the Supreme Court observed that under Section 27 of the Act a restrictive covenant
23
Niranjan Shankar Golikari vs. The Century Spinning and Manufacturing Company Ltd. 1967 AIR 1098, 1967
SCR (2)378
24
Fact sheet 3.
25
AIR 2006 SC 3426.
32
B. MEOA is not entitled to Damages for breach of the Agreement and the
Loss of Profits.
The scope of section 27 include a combined test of reasonableness and restraint, conditioned of
course, by commercial realities and trends, which would render some clauses more suspect than
others. It is humbly submitted that the determination whether an agreement unreasonably
restrains the trade depends on the nature of the agreement and on the surrounding circumstances
that give rise to an inference that the parties intended to restrain the trade and monopolize the
same. In the general course of business in order to carry on business a license is required, any
refusal to give license or cancellation or revocation of license would affect the business as it
cannot be carried on without the license which would also affect the livelihood of the person.
The Supreme Court of the United States in Business Electronics Corp. vs. Sharp Electronics
Corp.26 observed that the term restraint of trade in the Sherman Act and in Common law, does
not refer to a particular lists of agreements, but to a particular economic conditions and
consequences, which may be produced by quite different sorts of agreements in varying times
and circumstances. Thus the minimum principle of natural justice should be considered with
respect to the Appellants case.
26
485 US 717
Fact sheet 7
28
Perceptron, Inc. v. Sensor Adaptive Machines, Inc., 221 F.3d 913, 2000-2 Trade Cas. (CCH) 72975, 2000 FED
App. 247P (6th Cir. 2000)
27
33
monopolization over or full control of the market because of existence of fierce competition and
availability of various options of imported essential oils for buyers to consider. Therefore, by this
arrangement, the MEOA members cannot either ways threaten to limit production or control
price, to their long term benefit. It is of great suspicion that Lotus India after reviving from the
period of recession in 2008 to becoming one of the biggest manufacturers and suppliers of
essential oil, holding various technology patents decided to flout the terms of contract in the year
2011. Lotus India being a part of the MEOA and its agreements which have been in the general
welfare, prematurely terminated the license agreement to ensure lesser competition and in order
to deny access to patented technology of Lotus India. It is adumbrated that Lotus India now
being the only one with access to the latest technology of production by terminating the licenses,
could be a single player having full and unbridled control over the essential oil market, which
may threaten exercise of greater market control, output fixing and abuse of its dominant position,
which is prohibited under Section 4 of Competition Act, 200229. It is humbly submitted that
MEOA is rightfully entitled to damages for the loss of profits because of the termination of
license agreement and practices of anti-competitive nature to ensure lesser competition by Lotus
India30.
29
30
Fact Sheet 15
Fact Sheet 8
34
31
See ss. 83 and 94. For parallel provision see s. 39(1) of the U.K. Act of 1949; and s. 23C of the Indian Act of 1911.
Section 27(2)(proviso) of the U.K. Act of 1907 contained a somewhat similar provision.
32
PATENT LAW. P. NARAYANAN, 4th Edition, Eastern Law House, pg. 316.
33
For parallel provisions see ss. 37-45 of the U.K. Act of 1949 and ss. 44-45 of the U.K. Patents Act 1977.
34
The words abuse of monopoly are not used in the present act or in the act of U.K. act of 1949 or in the Indian
act of 1911. But the expression was used in s.7 of the U.K. Act of 1907.
35
See ss. 99-103.
36
Ayyangars Report, 172, page 73.
37
Section 2(r) of The Competition Act, 2002.
38
The Patents Act, 1970.
35
39
40
36
PRAYER
Wherefore, may it please this Honourable Court, in the light of facts and circumstances of the
case, issues raised, arguments advanced and authorities cited, the Respondent prays that this
Honourable Tribunal may be pleased to adjudge and determine the following:
That the arrangement is not a Cartel Arrangement and hence not violative of Section 3 of
The Competition Act, 2002.
That the case requires to be tested under section 19 of The Competition Act, 2002 and the
CCI and Appellate Tribunal Exercised jurisdiction improperly.
That Lotus India cannot be offered full immunity against Punishment or Penalty.
That Lotus India is not entitled to unilaterally terminate the license agreement and also it
should not be entitled to damages from other manufacturers for unautho rised use of its
technology and Lotus India be required to compulsorily license the technology to other
manufacturers.
(Signed)
Counsels for Respondent
Date:
37