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) tie-in arrangement - includes any agreement requiring a purchaser of goods, as a condition
of such purchase, to purchase some other goods;

(b) exclusive supply agreement - includes any agreement restricting in any manner the
purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than
those of the seller or any other person;

(c) exclusive distribution agreement- includes any agreement to limit, restrict or withhold the
output or supply of any goods or allocate any area or market for the disposal or sale of the
goods;

(d) refusal to deal - includes any agreement which restricts, or is likely to restrict, by any method
the persons or classes of persons to whom goods are sold or from whom goods are bought;

(e) resale price maintenance - includes any agreement to sell goods on condition that the prices
to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it
is clearly stated that prices lower than those prices may be charged."

These agreements generally are not treated as anti- competitive per se as in the case of
horizontal agreements. These agreements have to be judged under the rule of reason test
deciding the matter on the basis of law, facts, etc. on the basis of any of six factors enlisted
under clause 19(3) of the Bill. Such agreements often have to perform pro-competitive-function
and considered anti-competitive when one or more firm which are party to agreement have
market power.

The High Level Committee had recommended that the provisions relating to anti-competitive
agreements would not apply to Intellectual Property.

However, any agreement entered into by way of joint ventures, if such agreement increases
efficiency in production, supply, distribution, storage, acquisition or control of goods or
provision of services, shall not be considered to be an anti-competitive agreement.
Bid-rigging

"Bid rigging" means any agreement, between enterprises or persons engaged in identical or
similar production or trading of goods or provision of services, which has the effect of
eliminating or reducing competition for bids or adversely affecting or manipulating the process
for bidding.

While determining whether an agreement has an AAEC under section 3, the CCI also gives due
regard to all or any of the following factors provided under section 19(3) of the Act –

"1)Creation of barriers to new entrants in the market;

2)Driving existing competitors out of the market;

3)Foreclosure of competition by hindering entry into the market;

4)Accrual of benefits to consumers;

5)Improvements in production or distribution of goods or provision of services;

6)Promotion of technical, scientific and economic development by means of production or

distribution of goods or 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. The Informant has also alleged, that
even the technological information, diagnostic tools and software programs required to
maintain, service and repair the technologically advanced automobiles manufactured by each of
the aforesaid OPs were not freely available to the independent repair workshops. The Informant
further alleged that the restriction on the availability of genuine spare parts and the technical
information/know–how required to effectively repair, maintain or service the automobiles
manufactured by the respective OPs is not a localized phenomenon. The OPs and their
respective dealers, as a matter of policy, refuse to supply genuine spare parts and technological
equipment for providing maintenance and repair services in the open market and in the hands
of the independent repairers. In support of his allegations, the Informant has submitted letters
from some independent service stations, where they have expressed their inability to service
the Informant’s vehicle due to the lack of access of such independent repairers to genuine spare
parts and other technological information required to service /maintain the automobiles
manufactured by the respective OPs. The Informant has stated that the cost of getting a car
repaired in an independent workshop is cheaper by 35-50% as compared to the authorized
service centers of the OPs. The Informant alleged that the OPs charge arbitrary and high prices
to the consumers who are forced to avail the services of the authorized dealers of the OPs for
repairing and maintaining their automobiles since the genuine spare parts, diagnostic tools and
the technological information required to service their cars are not made available by the OPs to
independent repair workshops. It was also stated that the prices charged for the genuine spare
parts and for repair and maintenance services by the authorized dealers of the OPs are even
higher than what they charge in other markets in Europe. The Informant alleged that such
practices which allow the OPs to charge arbitrary and high prices result in significant increase in
the maintenance cost to car owners.

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) The parties were directed to immediately cease and desist from indulging in conduct which
has been found to be in contravention of the provisions of the Act.

ii) OPs were directed to put in place an effective system to make the spare parts and diagnostic
tools easily available through an efficient network.

iii) OPs were directed to allow original equipment Suppliers to sell spare parts in the open
market without any restriction, including on prices. OESs should be allowed to sell the spare
parts under their own brand name, if they so wish. Where the OPs hold intellectual property
rights on some parts, they may charge royalty/fees through contracts carefully drafted to ensure
that they are not in violation of the Competition Act, 2002.

iv) OPs cannot place restrictions or impediments on the operation of independent

repairers/garages.

v) The OPs may develop and operate appropriate systems for training of independent
repairer/garages, and also facilitate easy availability of diagnostic tools. Appropriate
arrangements may also be considered for providing technical support and training certificates
on payment basis.

vi) The OPs may also work for standardization of an increasing number of parts in such a
manner that they can be used across different brands, like tyres, batteries etc. at present, which
would result in reduction of prices and also give more choice to consumers as well as
repairers/service providers.

vii) OPs were directed not to impose a blanket condition that warranties would be cancelled if
the consumer avails of services of any independent repairer. While necessary safeguards may be
put in place from safety and liability point of view, OPs may cancel the warranty only to the
extent that damage has been caused because of faulty repair work outside their authorized
network and circumstances clearly justify such action.

viii) OPs were directed to make available in public domain, and also host on their websites,
information regarding the spare parts, their MRPs, arrangements for availability over the
counter, and details of matching quality alternatives, maintenance costs, provisions regarding
warranty including those mentioned above, andany such other information which may be
relevant for full exercise of consumer choice and facilitate fair competition in the market.

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