Competition Law: Shaping Tomorrow Roundtable Booklet - 2017

p r e s e n t s
I nternational R oundtable
on
ISSUES IN INDIAN COMPETITION LAW:
REFLECTIONS & PERSPECTIVES
Date: 11th February 2017 (Saturday)
Venue: India International Center
(Main Building Annexe)
Seminar Hall 2 & 3, New Delhi
Research Solution by
Anurag Goel, IAS (Retd)
Founder
Shaping Tomorrow
Former Secretary, Ministry of Corporate Affairs
Former Member, Competition Commission of India
WELCOME
As the Founder of the futuristic think-tank Shaping Tomorrow, it is my proud privilege to welcome
the distinguished dignitaries, speakers and delegates, including those from other jurisdictions, to this
International Roundtable on Issues in Indian Competition Law : Reflections & Perspectives, as part
of Indias 2nd Spring Event on Competition Regulation.
Indias Annual Spring Event was launched by Shaping Tomorrow Consultants LLP last year, to cater
to the need felt by decision-makers, as also stakeholders like business & law firms, both in India and
abroad, for a top-quality Annual Event where all competition law and policy related issues are delib-
erated upon critically with an open mind, between all stakeholders. The two-day event comprises of
an International Conference on Competition Regulation & Competitiveness on the first day, and an
International Roundtable on Issues in Indian Competition Law: Reflections & Perspectives on the
second day. I would like to thank all the stakeholder for the success of the Event.
The Conference on the first day seeks to bring all stakeholders together to analyze and discuss the legal,
economic, management and institutional dimensions of competition regulation in India, and to think
of the way forward for supporting a robust institutional and jurisprudential framework, to unleash the
huge potential of competition regulation for catalyzing innovation, enhancing consumer welfare and
facilitating economic growth.
The Roundtable on the second day seeks to bring together a smaller group of past/ present regulators,
international global experts, representatives of other agencies and lawyers in an informal ambience,
to reflect and share perspectives on legal issues, to consider key developments in India and put forth
various options and implications.
As regards competition regulation in India, its importance is now widely recognized and jurisprudence
development is at a critical stage. However, while the stakeholders are beginning to appreciate the
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productive potential of the law to facilitate innovation and spur economic growth, they are far more
concerned about some of the legal uncertainties yet to be resolved. Development of jurisprudence in
the right direction is, therefore, of utmost importance so as to balance the requirements of due legal
process and the primary economic objectives of the law.
This challenging task is rendered even more difficult by the transformational changes in the nature of
markets themselves, with certain markets growing exponentially, certain products acquiring huge value,
Start-ups successfully challenging the might of established market giants, defying understanding within
the traditional market framework. It is evident that in the next 5-10 years, a significant part of the
markets would comprise two-sided e-platforms, recognizing no boundaries, with producers, suppliers,
vendors and buyers all over the world. Some thinkers go beyond this, and are already talking of an
emerging zero marginal cost society , and the great paradigm shift from market capitalism to the
Collective Commons (The Zero Marginal Cost Society, by Jeremy Rifkin).
We in the competition community have to take note of these developments and deliberate on whether
the time has come for new initiatives to start thinking of the future world and future markets, as many
of the present day regulatory tools may be inadequate to even fully understand these markets, what to
say of regulating them effectively. I am sure that this Conference, being a congregation of some of the
most knowledgeable competition law experts in the world, would illuminate the rest of us on these and
similar key architectural and contextual issues.
This is the backdrop in which we have made a modest effort to provide concise background papers for
each of the Sessions in the Roundtable. Saikrishna & Associateshave literally burned the midnight oil
to craft this document, which we hope will become useful reference material for all those interested in
competition regulation in India. My sincere compliments and thanks to Saikrishna & Associates com-
petition team for this.
Shaping Tomorrow is totally committed to taking forward the key take-aways and recommendations of
this Event, and be available to support the regulatory authorities in any manner they deem fit. We have
set up a Competition Law in India Forum (CLIF), as a knowledge body of all interested stakeholders in
India and abroad, to facilitate independent high quality objective knowledge creation in the vital sun-rise
area of competition law and regulation in India. I would like to invite each person in this distinguished
gathering to become an active member of this Forum, by simply indicating interest through a mail to
team@shapingtomorrow.in.
We look forward to active participation and deliberations in the Conference, and continued association
till we meet again next year in February, 2018 for Indias 3rd Spring Event on Competition Regulation.
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A G ENDA
AGENDA
REGISTRATION
(8.45 A.M. -09.15 A.M.)
INAUGURAL SESSION
(9.15 A.M. -10.30 A.M.)
THEME
Efficient competition regulation: addressing the challenges of due process
One of the significant issues to be discussed at the roundtable is setting the future of efficient competition
regulation and to get global perspectives and an informed view on current issues in competition regulation
in India. This session would focus on the following sub-themes:
The basis for due process rules in CCI proceedings
The contribution of the COMPAT and the courts
Avoiding abuse of due process
Striking a balance.
Chairperson, CCI**/VC NLU / RAMJI*

Mr. Rajeev Kher, Member, COMPAT*
Prof. Frederic Jenny, Chairman OECD Competition Committee, ESSEC
Panelists
Paris Business School
Anurag Goel, Founder, Shaping Tomorrow
Moderation by Nick Franczyk, US Federal Trade Commission (FTC)
Q&A and Roundtable Deliberation
Tea / Coffee Break

(10:30 A.M. 10.45 A.M.)
1
International Roundtable
SESSION I
(10.45 A.M. 12.00 P.M.)
How effective has cartel regulation been in India?
Standards of proof and rules of evidence
Cartels International cartels
Leniency: how to make it work
The role of compliance
Panel Reflection and Perspectives
Prof. Richard Whish QC (Hon.), Emeritus Professor, Kings College,

London.
Panelists **
Shyam Khemani, Special Adviser, SKP Group
Subodh Prasad Deo, Partner, Saikrishna & Associates
Moderation by Amitabh Kumar, Partner, JSA
SESSION II
(12.00 P.M. 01.15 P.M.)
The effects-based approach
Vertical Theories of harm: foreclosure and the rest
Agreements Vertical agreements and dominant undertakings
Various issues: market partitioning and resale price maintenance
Is there a need for safe harbours?
S.L. Bunker, Member, CCI*

Prof. Spencer Weber Waller, Director, Institute for Consumer Antitrust
Panelists Studies, Loyola University, Chicago
Mr. Marc Reysen, Partner, RCAA Brussels
Dr. Geeta Gouri, Former Member, Competition Commission of India
John Handoll, Senior Adviser European and Competition Law, Shardul

Moderation by
Amarchand Mangaldas
LUNCH BREAK
2 (1.15 P.M. 2.00 P.M.)
A G ENDA
SESSION III
(2.00 P.M. 3.15 P.M.)
The state of play

Penalties Aggravating and mitigating factors
and other Enterprises and individuals
Remedial Proportionality v. retribution: achieving the right balance
Measures Guidelines on penalties: is the time right?
Justice G.P. Mittal (Retd.), Member, CCI*

Jyoti Jindgar, Adviser, CCI*
Panelists
Manas Choudhury, Khaitan**
Ruchit Patel, Partner, Ropes & Gray, London
Moderation by Dr. Vijay K. Singh, Associate Prof. IICA
VALEDICTORY SESSION
(03:15 P.M. 04:30P.M.)
Problems of Market Definition

Abuse of Abuse of dominance and PSUs: Structural Remedies
Dominance Addressing excessive pricing
Addressing dominance concerns in high-tech markets
Tembinkosi Bonakele, South African Competition Commission*

Augustine Peter, Member, CCI*
Panelists
Prof. D. Daniel Sokol, University of Florida, Levin College of Law
Anurag Goel, Founder, Shaping Tomorrow
Moderation by Naval Chopra, Partner, Shardul Amarchand Mangaldas (TBC)
3
PROLOGUE...
Saikrishna & Associates is privileged to have been assigned the task of writing the background papers
on five important topics on Competition Law by Mr. Anurag Goel, Founder Shaping Tomorrow and
former Member, Competition Commission of India and former Secretary, Ministry of Corporate Affairs,
Government of India.
Ever since the commencement of the Competition Act 2002, the CCI has been relentlessly pursuing
both the enforcement and the advocacy routes to inform all the stakeholders, such as the businesses,
the bureaucracy, consumers and the legal fraternity, about the merits of free market principles and the
perils associated with any violation of the law. Further, with the judicial review of several orders of the
CCI, the law has taken deep roots and important points of law have emerged in the field.
The articles enclosed in this booklet are intended to facilitate the further development of competition
law jurisprudence in India and to enable the participants of the think tank, Shaping Tomorrow, to have
incisive deliberations on the selected topics for this years Roundtable and to share their perspectives
for the benefit of all.
I look forward to your valued comments and criticisms on the articles.
(Subodh Prasad Deo)

Partner
Saikrishna &Associates
Former Additional Director General
Competition Commission of India
4
DUE PRO C ESS AND T H E C C I PRO C EED I N G S
DUE PROCESS AND

THE CCI PROCEEDINGS
Wherever, this Court has dealt with the matters relating to complaint of violation of principles of natural justice, it has
always kept in mind the extent to which such principles should apply. The application, therefore, would depend upon the nature
of the duty to be performed by the authority under the statute.
-Supreme Court of India in Competition Commission of India vs. SAIL & Anr.1
1. Section 36 of the Competition Act, 2002 (the Act) states that in the discharge of its functions, the
Competition Commission of India (the Commission) shall be guided by the principles of natural jus-
tice and subject to other provisions of the Act and of any rules made by the Central Government, shall
have the powers to regulate its own procedures. Therefore, by directing the Commission to observe the
principles of natural justice, Section 36 prevents miscarriage of justice on the one hand and on the other,
provides flexibility to the Commission to regulate its own procedure in discharge of its duties. Its duties,
as enshrined in Section 18 of the Act, are to eliminate practices having adverse effect on competition,
protect the interests of consumers, and ensure freedom of trade carried on by other participants, in the
market of India.
2. However, the extent to which the principles of natural justice should apply to the proceedings under
various sections of the Act has been a subject of controversy in various cases. Based on the decision-
al practices of the Commission and the guidelines provided in the various orders of the Competition
Appellate Tribunal (COMPAT), High Courts and the Supreme Court, there has been a significant
growth of competition law jurisprudence in India, as under.
Locus standi
3. A party can file an Information before the Commission under Section 19 (1) (a) of the Act which states,
The Commission may inquire into any alleged contravention of the provisions contained in sub-sec-
tion (1) of section 3 or sub-section (1) of section 4 either on its own motion or on- (a) receipt of any
information, in such manner and accompanied by such fee as may be determined by regulations from
any person, consumer or their association or trade association; or (b) . This Section was amended
and the words any information, in such manner and were inserted as a replacement to the words a
complaint.2 This change was introduced to enable the Commission to inquire into any information of
contravention of the provisions of the Act, rather than only on receipt of a complaint.3 Further, by the
use of the words any person in Section 19, the Act provides amplitude to the Commission to accept
Information from any person whether affected by the alleged anticompetitive conduct or not.
4. In the case of Motion Pictures Association vs. Reliance Big Entertainment Pvt. Ltd., the COMPAT held
that since the Informant (a movie producer) was impacted by the decisions of the association of film
distributors, which was alleged to have indulged in anti-competitive conduct despite itself not being a
member of the association and not being subject to the alleged anticompetitive rules, he shall have the
locus standi to file Information before the Commission.4 In the case of Shree Jeetender Gupta vs. Com-
petition Commission of India & Ors., the COMPAT held, the legal machinery under the CCI cannot
be moved by a person who has no concern whatsoever with the subject.5 The COMPAT observed that
though the Informant was an employee of the consumer company, he had no nexus with the alleged acts
1 Civil Appeal No. 7779 of 2010
2 Competition (Amendment) Act, 2007
3 44th Report of the Standing Committee on Finance on Competition (Amendment) Bill, 2006
4 Motion Pictures Association vs. Reliance Big Entertainment Pvt. Ltd., Appeal No. 69 of 2012, dated 17.05.2013
5 Jeetender Gupta vs. Competition Commission of India & Ors., Appeal No. 30/2014, dated 04.07.2014 5
of contravention because he was neither a party to the transaction between the alleged dominant entity
and the consumer company nor was he a consumer of the product. Accordingly it was held that he did
not have a locus standi to file the Information.
5. In the subsequent case of L.H. Hiranandani Hospital vs. CCI & Ors., the COMPAT held that though
the Act does not prescribe any qualification to identify the locus standi of an Informant, the Commission
should act with caution where the Informant is a third party or a busy body, who may be espousing the
cause of someone-else with ulterior motive.6 The COMPAT even imposed penalty upon the Informant
for not disclosing certain vital facts at the time of filing of the Information, which could have aided the
Commission to form a prima facie opinion of no contravention of the Act.7 Nonetheless, such malicious
intent cannot be inferred from conjectures or surmises. In the case of Surendra Prasad vs. CCI & Ors.
(Electricity Order), the COMPAT rejected the argument of the appellant that the Informant had no
locus standi to file the Information. The appellant had contended that the Informant was working as an
advocate with a counsel representing respondents rival in a number of cases and that he was espousing
the cause of the rival with ulterior motive. The COMPAT observed that the given fact was not sufficient
to draw the dubious inference of mala-fide on the part of the Informant.8
6. On the issue of locus standi of an appellant, the COMPAT has held in the case of Jitender Bhargava vs.
CCI & Ors. that the scope of filing an appeal is confined only to the person aggrieved.9
7. As regards an enquiry under Section 42 of the Act which deals with contravention of the orders of the
Commission, it has been held by the Commission in the case of Magnolia Flat Owners & Anr. vs. DLF
Universal Ltd. & Ors., that the inquiry envisaged under Section 42 of the Act may be initiated by the
Commission either suo moto or on an application moved by any member of the public irrespective of the
fact that such a member of the public was a party to the initial proceedings or not.10
Right to withdraw
8. On the issue of right of an Informant to withdraw the Information filed, the Commission has held, It is
to be noted that the mandate of the Commission is not to act as a platform for parties to negotiate set-
tlement of their disputes. Rather its responsibility is to eliminate practices having appreciable effect on
competition in markets in India. This is the precise reason why the Act does not include any provision
for withdrawal/settlement mechanism.11 Similar observations have been made by the Commission
and the COMPAT in a plethora of cases.12
Right to be heard
9. In the case of CCI vs. SAIL (supra), the Supreme Court observed that formation of prima facie opinion
and direction to the Director General (DG) under Section 26 (1) to carry out investigation are ad-
ministrative functions and do not affect the right of any party. It further held that the application of
the principle of audi alteram partem is not called for in proceedings under Section 26 (1) of the Act. Even
with regards to an order passed under Section 26 (2) of the Act which puts an end to the right of the In-
formant, the Supreme Court observed that though an order under that section is an adjudicatory order,
the Commission is not duty bound to give an oral hearing to the Informant. The remedy is available in
the form of an appeal and the Informant does not have a right to notice before passing of an order under
Section 26 (2) of the Act as well.13 Further, the apex court has observed that under Regulation 17 of the
6 L.H. Hiranandani Hospital vs. CCI & Ors., Appeal No. 19 of 21014, dated 18.12.2015
7 Deepak Kumar Jain and Manoj Kumar Jain vs. Ors., Appeal No. 79 of 2014, dated 08.11.2016
8 Surendra Prasad vs. CCI & Ors. Appeal No. 43 of 2014, dated 15.09.2015
9 COMPAT- Jitender Bhargava vs. CCI & Ors., Appeal No. 44 of 2013, dated 27.03.2014, para 11
10 Magnolia Flat Owners & Anr. vs. DLF Universal Ltd. & Ors., Case no. 67/2010, order under Section 42 of the Act, dated 26.03.2014
11 M/s Royal Agency vs. Chemists & Druggists Association, Goa & Anr., Case No.63 of 2013, dated 27.10.2015
12 COMPATs decision in Yogesh Ganeshlaji Somani vs. Zee Turner Ltd. & Anr., Appeal no. 31/2011, dated 21.03.2013); CCIs decisions in
M/s Royal Agency vs. Chemists & Druggists Association, Goa & Anr., Case No.63 of 2013, dated 27.10.2015, Rohit Medical Store vs. Aas-
hish Enterprises & Ors., Case No. 11/2010, dated 16.12.2010, Jupiter Gaming Solutions Pvt. Ltd. vs. Government of Goa & Anr., Case No.
15/2010, dated 12.05.2011, etc.
6 13 Supreme Court, CCI vs. SAIL, Civil Appeal No. 7779/2010, dated 09.09.2010
DUE PRO C ESS ANDT H E C C I PRO C EED I N G S
CCI (General) Regulation, 2009, the Commission has exclusive discretion to hold preliminary confer-
ence and invite the Informant or such other person as may be necessary to form a prima facie opinion.14
10. In the case of South Asia LPG Company vs. CCI & Ors. (LPA No. 857/2013, dated 03.09.2014), the
Division Bench of the Delhi High Court held that in cases where the DGs investigation report rec-
ommends that there is no contravention of the provisions of the Act, the Commission is empowered to
order further investigation without giving a notice of hearing in this regard to the alleged party.15 The
court further observed that such an order is purely an administrative order which does not affect the
rights of any of the parties and therefore the rules of audi alteram partem are not applicable for passing
such order.
Formation of prima facie opinion

11. The Commissions scope of enquiry to reach a prima facie finding has been defined by the Supreme Court
in the CCI vs. SAIL case (supra) and in a number of judgments of the COMPAT. In the case of CCI vs.
SAIL (supra), the Supreme Court held that the threshold required to reach a prima facie finding is lower
than that of passing an interim order under Section 33 of the Act. In yet another case, though not in
the context of the Act, the Supreme Court held, A prima facie case does not mean a case proved to the
hilt but a case which can be said to be established if the evidence which is led in support of the case were
[to be] believed. While determining whether a prima facie case had been made out or not, the relevant
consideration is whether on the evidence led it was possible to arrive at the conclusion in question and
not whether that was the only conclusion which could be arrived at on that evidence.16
12. In a number of cases, the COMPAT has held that while making a prima facie opinion, the Commission
is only required to take cognizance of the averments contained in the Information/Reference and the
documents supplied along with it17. It has further held that the Commission cannot make detailed
examination of the allegations contained in the Information/Reference and record its findings on the
merits of the issue relating to violation of provisions of the Act because that exercise can be done only
after receiving the investigation report.18 At this stage, the Commission can also not rely upon any
material not disclosed in the Information/Reference.19 While scrutinizing the allegations contained in
the Information, the Commission should not confuse the formation of prima facie opinion with the final
determination of the issues raised by the Informant.20 The COMPAT has also observed that the Com-
mission should reach a prima facie finding on each of the allegations made therein.21
13. COMPAT has held, time and again, that where the set of evidence on record point to two different
possibilities- one reaching a prima facie finding of contravention of the provisions of the Act and the
other to the contrary, the Commission cannot lean in favor of the latter and that it should initiate an
investigation. For example, in the case of K Sera Sera vs. DCI & Ors., the COMPAT held that the an
allegation of potential of standards in cinema technology to foreclose the market was a good enough
ground to initiate an investigation and the Commission should not have closed the case by relying on
the submission of the alleged parties to conclude that the alleged standards have improved the overall
quality of cinema industry and therefore have no appreciable adverse effect on competition.22 Similarly,
in the case of Meru Travels Solutions Private Ltd. vs. CCI and Uber, the COMPAT held that the Com-
mission erred in closing the case on a prima facie consideration by discarding the two different market
reports, one produced by the Informant indicating that the alleged party had a dominant market share
14 Also see the judgment of COMPAT in Gujarat industries Power Company Ltd. vs. CCI & GAIL, Appeal No. 03 of 2016, dated 28.11.2016,
for a similar discussion on the scope of Regulation 17.
15 Delhi High Court, Division Bench- South Asia LPG Company vs. CCI & Ors., LPA No. 857/2013, dated 03.09.2014
16 Nirmala J. Jhala v. State of Gujarat, (2013) 4 SCC 301
17 Gujarat Industries Power Company Ltd. vs. CCI & GAIL (supra); Surendra Prasad s. CCI, & Ors., Appeal No. 43 of 2014, dated 15.09.2015;
North East Petroleum Dealers Association vs. CCI & Ors., Appeal No. 51 of 2015, dated 26.11.2015
18 Gujarat industries Power Company Ltd. vs. CCI & GAIL, Appeal No. 03 of 2016, dated 28.11.2016;
19 North East Petroleum Dealers Association vs. CCI & Ors., Appeal No. 51 of 2015, dated 26.11.2015
20 North East Petroleum Dealers Association vs. CCI & Ors., Appeal No. 51 of 2015, dated 26.11.2015
21 Gujarat Industries Power Company Ltd. vs. CCI & GAIL (supra); Surendra Prasad s. CCI, & Ors., Appeal No. 43 of 2014, dated 15.09.2015
22 K Sera Sera vs. DCI & Ors., Appeal No. 79/2015, dated 08.12.2015 7
and the other produced by the opposite party indicating to the contrary. As per the COMPAT, this con-
fusion in facts demanded a detailed investigation by the DG, as the dominant position of the opposite
party could only be ascertained after the fact finding exercise.23
Right to seek review

14. In its judgment, in the case of Google vs. Competition Commission of India, the Delhi High Court
allowed a writ against the order of the Commission refusing to admit a review application against its
order passed under Section 26 (1). In that case, the Commission had refused to entertain a review appli-
cation on the grounds inter alia that the Act does not permit any review and that the scope of Section 38
was limited to rectification of any mistake apparent from the record. Observing that an investigation by
the DG causes hardship and prejudice to the alleged party, as the DG can record evidence on oath, allow
cross-examination of witnesses and keep the documents of the parties under his custody, the Delhi High
Court held that an order under Section 26 (1) cannot be immune to review. The Court further clarified
that the right to review is not absolute and can only be allowed sparingly where the Information/Ref-
erence does not disclose a prima facie contravention of the provisions of the Act. The Court further cau-
tioned that the review applications should be disposed off very quickly and a review shall not become a
fact finding exercise, otherwise the Commission would unduly enter the stage of Section 26 (8)24 which
could only be allowed after the DG has submitted the investigation report. On the issue of staying the
investigation by the DG during review proceedings, the Court held that the Commission shall have a
discretion to decide, on a case to case basis, whether to stay the investigation or not.25
Injunction
15. As already discussed, the test for granting an injunction under Section 33 of the Act is more stringent
than that of reaching a prima facie contravention of the provisions of the Act and the possibility of irrep-
arable loss and the balance of convenience in the favor of applicant needs to be proven. In the case of
Fast Track Call Cab Pvt. Ltd. vs. ANI Technologies Pvt. Ltd., the Commission held that mere monetary
loss to the applicant cannot be considered as irreparable loss.26
Scope of Investigation by the Director General

16. In the case of Grasim Industries Ltd. vs. CCI, the Delhi High Court held that the scope of investiga-
tion by the DG is limited to the information considered by the Commission while forming a prima facie
opinion and the scheme of the Act does not permit investigation by DG into any information
which was not considered by the Commission. The Court further clarified that if the Commission
in its prima facie consideration had directed the DG to carry out an investigation into the violation of a
particular provision of the Act and the DG, while carrying out investigation limited to the information
considered by the Commission while passing the prima facie order, also concludes in his investigation
report that there has been a contravention of some other provision of the Act then such investigation
report will not be contrary to the provisions of the Act. The Court also clarified that in cases where the
DG has carried out investigation based on an information which was not considered by the Commission
while forming a prima facie opinion, though such part of the investigation report cannot be relied upon
to pass orders under Section 27, the Commission may very well consider it as a fresh information and
may initiate a suo moto enquiry under Section 19 of the Act by relying upon it.27 The Grasim judgment
has been appealed and is under consideration before the Division Bench of the Delhi High Court in LPA
No. 137/2014.
17. With regards to the right of the party to be represented by an advocate before the DG, the Delhi High
23 Meru Travels Solutions Private Ltd. vs. CCI and Uber, Appeal no. 31/2016, dated 07.12.2016
24 Section 26 (8)- If the report of the Director General referred to in sub-section (3) recommends that there is contravention of any of the
provisions of this Act, and the Commission is of the opinion that further inquiry is called for, it shall inquire into such contravention in ac-
cordance with the provisions of this Act.
25 Delhi High Court- Google Inc. & Ors. vs. Competition Commission of India & Anr., LPA No. 733/2014, dated 27.04.2015
26 Fast Track Call Cab Pvt. Ltd. vs. ANI Technologies Pvt. Ltd., Case No. 06 of 2015, Order under Section 33 of the Act, dated 03.09.2015
8 27 Delhi High Court- Grasim Industries vs. CCI, W.P. (C) No. 4159 of 2013
Court has held, in the case of Oriental Rubber Industries vs. CCI & Anr., that since the procedure re-
quired to be followed by the DG while conducting investigation is akin to the provisions to be followed
by a Civil Court in deciding a civil suit and that the DG is empowered to summon persons and take ev-
idence on record, parties have a right under the Advocates Act, 1961 to be represented by an advocate
and this right cannot be taken away by an order of the DG or the Commission.28
Compliance of principles of natural justice at the stage of final adjudication

18. It has been held, time and again, by various courts and tribunals that the CCI is a quasi-judicial body
and shall be bound by the principles of natural justice.
19. It is a well-recognized facet of natural justice that one who hears must decide. In the case of Lafarge
India Ltd. vs. CCI & Ors.29, the COMPAT quashed the order of the Commission passed under Section
27 of the Act penalizing a number of cement manufacturers for cartel conduct and remanded it back to
the Commission on the sole ground that the Chairperson of the Commission who took a part in passing
the final order under Section 27 was not present for hearing on three occasions when the advocates of
the charged parties made their submissions. Rejecting the argument raised by the Commission that the
absence of the Chairperson did not have any substantial effect on the proceedings as the other members
of the Commission who had signed the final order were present during the course of hearing and that
the order was based on examination of documents and submissions of the charged parties on record, the
COMPAT, relying on the judgment of the Supreme Court in the case of A.K. Kraipak vs. Union of India
(1969 (2) SCC 262), observed that the Chairpersons participation in the decision making process must
have had salutary effect on the final verdict as the views of the Chairperson must have influenced other
six Members of the Commission. Therefore, the order was in breach of the principles of natural justice.
Similar views have been taken by the COMPAT in a number of other cases.30
20. Similarly, the COMPAT has held that not giving the charged party an opportunity to be heard before
passing the final judgment would violate the principles of natural justice. Such an opportunity should
not be merely technical but be made effective by serving a speaking notice to the charged party before
hearing. In the case of Surinder Singh Barmi vs. BCCI, the DG in its investigation report had concluded
that BCCI had abused its dominant position, which was forwarded to BCCI by the Commission. While
passing the final order holding the BCCI guilty of abuse of its dominant position, the Commission relied
on such evidence which was neither relied upon by the DG in the investigation report nor was commu-
nicated by the Commission to the charged party before reaching the final conclusion.31 Moreover, the
Commission relied upon a definition of the relevant market which was different from that given in the
investigation report and the same was not disclosed to the charged party in advance. In appeal, the
COMPAT held that the approach taken by the Commission violated the principles of natural justice as
in the absence of such disclosure, the charged party was denied an effective opportunity to defend itself.
The COMPAT observed that the person against whom an action is proposed to be taken must have
a fair chance of convincing the authority that the grounds on which the action is proposed are either
non-existent or even if they exist they do not justify the proposed action.32 Similarly, in the case of Shri
Sunil Bansal vs. Jaiprakash Associates, the Commission exonerated the charged party by relying on a
market definition which was different from that given by the DG and was not conveyed to the Infor-
mant. As per the COMPAT, the approach taken by the Commission violated the principles of natural
justice as it did not provide an effective opportunity to the Informant to rebut the market definition
upon which the Commission relied to pass the final order.33 The COMPAT further held that while pass-
ing a final order, if the Commission is in disagreement with any of the findings/recommendations given
in the DGs investigation report then the Commission is required to record the reasons for the same in
28 Delhi High Court- Orient Rubber Industries vs. CCI & Anr., W.P. (C) 11411/2015, dated 22.04.2016
29 COMPAT- Lafarge India Ltd. vs. CCI & Ors., Appeal No. 105 of 2015, dated 11.12.2015
30 COMPAT- AIOCD vs. CCI & Ors., Appeal No. 21 of 2013, dated 09.12.2016, Coal India Ltd. vs. CCI, Appeal No. 01 of 2014, dated
17.05.2016
31 CCI- Surinder Singh Barmi vs. BCCI, Case No. 61/2010, dated 28.02.2013
32 COMPAT- BCCI vs. CCI & Anr., Appeal no. 17 of 2013, dated 23.02.2015
33 COMPAT- Sunil Bansal vs. Jaiprakash Associates, Appeal No. 21 of 2016, dated 28.09.2016 9
the final order, otherwise the order would become arbitrary.

21. Another important facet of natural justice is a well-reasoned order. In the case of Excel Corp Care vs.
CCI, the COMPAT held that the penalty imposed should be proportional to the harm caused and that
the Commission should give reasons for the quantum of penalty to be imposed.34
Section 48 proceedings
22. Section 48 (1) seeks to hold any person liable who was responsible to the company and under whose
charge, the anti-competitive conduct by the company took place and Section 48 (2) holds vicarious
liability upon any director, manager, secretary, or other officer of the company under whose charge
the anti-competitive act was committed by the company. Pertinently, the Commission while passing a
prima facie order under Section 26 (1) mostly directs that the DG shall also investigate the role of the
persons who at the time of such contraventions were in-charge of and responsible for the conduct of the
business of the contravening entity/entities. In this regard, it is relevant to state that the High Courts35
and the COMPAT36 have held that in the absence of a finding of contravention of the provisions of the
Act by the company under Section 27 of the Act, such persons as mentioned in Section 48 (1) and (2)
cannot be held liable. However, there is some ambiguity as to whether the Commission is first required
to reach a finding of contravention by the company under Section 27 of the Act and then only initiate
proceedings, including investigation by the DG under Section 48 of the Act, or as to whether both the
processes could be simultaneously undertaken.
23. In the case of Pran Mehra vs. CCI & Anr., the Delhi High Court held that since the scheme of the Act
does not contemplate two different procedures, there cannot be two separate proceedings in respect
of the company and the key-persons. The High Court further observed that in the course of the pro-
ceedings qua a company, it would be open to the key-persons to contend that the contravention, if any,
was not committed by them, and that, they had in any event employed due diligence to prevent the
contravention. These arguments can easily be advanced by key-persons without prejudice to the main
issue, as to whether or not the company had contravened, in the first place, the provisions of the Act.37
24. Similar view has also been held by the Kerala High Court in the case of B. Unnikrishna vs. CCI. The
Kerala High Court held that the scheme of the Act does not contemplate two separate proceedings
against the company under Section 27 and against the office bearers under Section 48 of the Act. The
proceedings under the Act, going by its scheme, are a composite one. As such, the guilt, if any, of the
persons who come under Section 48 of the Act also needs to be examined simultaneous to the guilt of
the company.38
25. However, the COMPAT has held a different view on the issue. In the related cases of A.N. Mohana
Kurup vs. CCI & Ors. 39 and M/s Alkem Laboratories Limited vs. Competition Commission of India and
Another40, the COMPAT held that since Section 48 raises a presumption of guilt, the same deserves to
be construed strictly and the deeming provisions contained in the two sub-sections of Section 48 can be
invoked only after it is determined that the company has contravened the provisions of the Act under
34 COMPAT- Excel Corp. Care vs. CCI, Appeal No. 79 of 2012, dated 29.10.2013
Also see for similar discussion, the judgments of COMPAT in- Lupin Ltd. & Ors. vs. CCI & Ors. Appeal No. 40 of 2016, dated 07.12.2016; ECP
Industries Ltd. vs. CCI, Appeal No. 47 of 2015, L.H. Hiranandani vs. CCI, Appeal No. 19 of 2014, dated 18.12.2015; National insurance Co.
& Ors. vs. CCI, Appeal No. 94 to 97/2015, dated 09.12.2016
35 Delhi High Court- Pran Mehra vs. Competition Commission of India & Anr., W.P. (C) 6258/2014, dated 26.02.2015
36 COMPAT- EIMPA vs. Manju Tharad & Ors., Appeal No. 17 of 2012, dated 14.12.2012; Nandu Ahuja vs. CCI & Anr., Appeal No. 11 of
2011, dated 17.01.2014; Chemists & Druggists Association [Ferozpur] vs. CCI & Ors., Appeal Nos. 21/2014 to 28/2014, dated 30.10.2015;
Swapan Kumar Karak vs. CCI & Ors., Appeal No. 42 of 2014, dated 07.12.2015; Shib Sankar Nag Sarkar & Anr. vs. CCI & Anr., Appeal No.
34/2014, dated 10.05.2016; A.N. Mohana Kurup vs. CCI & Ors., Appeal No. 05 of 2016, dated 10.05.2016; Alkem Laboratories & Ors. vs.
CCI & Ors., Appeal Nos 09,14 and 15 of 2016, dated 10.05.2016; Bengal Chemists & Druggists Association vs. CCI & Ors., Appeal No. 37
of 2014, dated 10.05.2016; Lupin Ltd. & Ors. vs. CCI & Ors., Appeal No. 40/2016, dated 07.12.2016
37 Delhi High Court, Pran Mehra vs. Competition Commission of India & Anr., W.P. (C) 6258/2014, dated 26.02.2015
38 Kerala High Court- B. Unnikrishnan vs. Competition Commission of India, W.P. (C) 22534/2016, dated 23.09.2016
39 A.N. Mohana Kurup vs. CCI & Ors., Appeal No. 05 of 2016, dated 10.05.2016
10 40 M/s Alkem Laboratories Limited vs. Competition Commission of India and Another, Appeal No. 09/ 2016, dated 10.05.2016
Section 27 of the Act.

26. Incidentally, the Commission in the case of Ministry of Agriculture and Farmers Welfare vs. Mahyco
Monsanto41, with due reverence to the aforesaid order of the COMPAT, has held that the same cannot
be taken as a precedent. The Commission has held that the DG can initiate investigation against the
key persons in terms of the prima facie order under Section 26 (1) and that there is no prior need that
the Commission record a finding of contravention by the company under Section 27 of the Act. In its
decision, the Commission has relied inter alia on the judgment of the Delhi High Court in Pran Mehra
(supra) and several other judgments of the Supreme Court as well as various High Courts wherein pari
materia provisions contained in other statutes have been discussed.
Need for effective Regulations

27. On account of judicial review and experiences gained over the years, the Commission would consider
refinement and updation of procedures to be followed at various stages of the development of a case.
Though the COMPAT has reversed several orders of the Commission on grounds of violation of the
principles of natural justice and for observing incorrect procedures, the Commission is yet to incorporate
the required changes in the General Regulations, perhaps because the issues are sub-judice before the
apex court in appeal.
28. H owever, based on the discussion in the previous paragraphs, it might be worth considering
following:
(i) Providing an opportunity to be heard to the alleged party at the time of formation of
prima facie opinion- Though, in the case of CCI vs. SAIL (supra), the Supreme Court has
stated that the Commission has discretion to provide an opportunity to be heard to the parties
or not, it is observed that of-late the Commission has generally been conducting a preliminary
conference wherein both the Informant and the opposite parties are heard. Such an approach
is desirable as the possibility of litigation by way of writs, which may result in review of its pri-
ma-facie order (in terms of the Google order of the Delhi High Court (supra)) or may result in
stay of the investigation by the DG by the writ court, could be pre-empted to a large extent.
(ii) Providing a speaking notice to the Informant and the Opposite Party after the DG has
submitted its investigation report- It has generally been observed that the Commission for-
wards the investigation report of the DG to the Informant and the charged parties for their
objections and suggestions, without informing them about its own opinion on various findings
and recommendations of the DG in its investigation report. After considering their objections
and suggestions, the Commission passes the final order. At times it has been observed that the
final order of the Commission is based upon such evidence/considerations which were either not
a part of the DGs report or were not relied upon by the DG to reach the findings/recommen-
dations. In various cases, as discussed in previous paragraphs, the COMPAT has held that such
an approach violates the principles of natural justice as in the absence of the knowledge regard-
ing the evidence/consideration being relied upon by the Commission, the parties do not get an
effective opportunity to put forward their views or defense, as the case may be, for the consid-
eration of the Commission. Accordingly, the COMPAT has stated that the Commission should
provide an effective notice to the parties. In light of the above, it would be appropriate for the
Commission to first record its opinion and reasons for agreeing/disagreeing with each and every
finding/recommendation given in the DGs investigation report and then to provide the same
to the parties concerned. Adopting such a procedure would go a long way in safeguarding the
final orders of the Commission in judicial review on grounds of procedural unfairness and vi-
olation of the principles of natural justice. It would also reduce the burden of litigation at the
appellate stage. Hence, adoption of such a procedure may be desirable both for the Commission
and the parties to the proceedings.
41 CCI- Ministry of Agriculture and Farmers Welfare vs. Mahyco Monsanto, Ref. Case No. 02/2015, dated 26.07.2016 11
(iii) Provide hearing on the issue of penalty post the finding of contravention- The issues
regarding determination of the contravention of the Act and the quantum of penalty to be
imposed, though related require separate considerations as the factors considered for the latter
are distinct from the former. While the former requires merely the establishment of the offense
or otherwise, the latter requires consideration of variety of factors, including aggravating and
mitigating factors, specific to the case at hand. A conjoint proceeding for the determination of
violation of the Act and the quantum of penalties to be imposed forestalls a proper consider-
ation of such factors which may have a bearing on the issue of quantum of penalty and may
result in miscarriage of justice. It may therefore be appropriate for the Commission to consider
the issue of penalty after hearing the parties on the same in a separate proceeding after determi-
nation of the issue of contravention or otherwise. It may also be desirable for the Commission
to specify how the different aggravating and mitigating factors have been assigned weightage
in the quantum of penalty being imposed.
Conclusion
29. In the light of the discussion in the previous paragraphs, it is clear that the principles of natural justice
form the fulcrum of the procedure to be adopted by the Commission for discharging its functions. In
the last seven years or so, Indian Competition Law jurisprudence has come a long way, still a number
of procedural issues remains unanswered which require final determination, which may happen after
adjudication by the apex court on such issues. Be that as it may, for effectively discharging its duties,
the Commission may also seek to amend its Regulations from time to time to reflect the developments
taking place through orders of the courts and the COMPAT.
12
C ARTELS
CARTELS
1. Collusion amongst competing firms is designed to limit or eliminate competition between them, with
the objective of increasing prices and profits of the participating companies and without producing any
objective countervailing benefits. In practice, this is generally achieved by fixing prices, limiting output,
sharing markets, allocating customers or territories or a combination of these. When such collusion
becomes organized and takes the form of a cartel, the effects are cascading- increase in prices of goods
and services, artificial scarcity, decreased innovation, artificial barriers to entry, etc., causing significant
dead-weight loss to the society.
2. Firms that collude and form a cartel reach a consensus on (i) pricing or output structures or such similar
terms of the trade, (ii) design allocation structure or mechanism to divide collusive gains, and (iii) put
enforcement structures in place to monitor compliance, detect & deter potential cheating and use retal-
iatory price war or compensation mechanism. Since cartels are regarded as the supreme evil of antitrust,
the highest penalties are awarded against such conduct in almost all the antitrust jurisdictions, with
many treating it as a criminal offence.
Legal standard
3. The Competition Act, 2002 (Act) prohibits anti-competitive agreements by association of enterprises
or persons including practices carried on, or decision taken by, any association of enterprises or associa-
tion of persons, including cartels, engaged in identical or similar trade of goods or provision of services
which has the purpose of (a) directly or indirectly fixing prices, (b) limiting or controlling production,
supply, markets, technical development, investment or provision of services (c) sharing markets or
customers (d) resulting in bid rigging or collusive bidding. Once the existence of the prohibited agree-
ment, practice or decision is established, a (rebuttable) presumption arises that such conduct has an
appreciable adverse effect on competition. As a consequence, the charged parties are then required to
demonstrate that the impugned agreement(s) does not result in an appreciable adverse effect (AAEC)
on competition. Further, the definition of cartel under the Act is wide and 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.
4. In order to establish the existence of a cartel, it is necessary to prove that the parties have entered in to
an agreement and that there is a meeting of mind or concurrence of will, to indulge in one or more of
the conduct prohibited under the Act. Since cartels are normally hatched overtly and operate in secrecy,
direct evidence of an agreement is very hard to find and, more often than not, reliance is placed on
indirect / circumstantial evidence. Pertinently, the term agreement has also been widely defined under
the Act, as can be inferred from practice carried on or decision taken, having regard to economic
and other circumstantial facts of a case. However, not every instance of parallel conduct can be said to
constitute an agreement unless it is clearly demonstrated that the conduct prohibited by the law is the
result of negotiation that concludes when the firms convey mutual assurances that the understanding
they reached will be carried out. Particularly in oligopolistic markets, this parallel conduct may result
from an intelligent response to the conduct of the competitors. Accordingly, the existence of plus factors
is required to prove and tilt the preponderance of probability to establish collusion. Such plus factors
may include:1
Actions contrary to each players self-interest unless pursued as part of a collective plan.
Phenomena that can be explained rationally only as the result of concerted action.
1 Kovacic et. al., Plus Factors and Agreement in Antitrust Law, accessed at http://capcp.psu.edu/papers/2011/plusfactors.pdf 13
Evidence that players created the opportunity for regular communication. Industry performance data, such
as extraordinary profits, that suggest successful coordination.
The absence of a plausible, legitimate business rationale for suspicious conduct (such as certain communica-
tions with rivals), or the presentation of contrived rationales for certain conduct.
5. In considering such plus factors to infer agreement, the CCI has adopted the preponderance of proba-
bility as the standard since offences under the Act, including cartel conduct, is only a civil offence; thus,
this standard is in contradistinction to the proof beyond reasonable doubt standard, which is required
to establish a criminal offence.
6. Various orders of the CCI shed significant light about the legal standard that it has applied. In Neeraj
Malhotra vs Deustche Post Bank Home Finance Ltd. & Ors .case, the CCI held that the existence of an agree-
ment must be unequivocally established.2 Further, in the All India Tyre Dealers Federation v. Tyre Manufactur-
ers, the CCI held that the concurrence of parties or consensus amongst them can be gathered from their
common motive and concerted conduct based on the available circumstantial evidence.3 Similarly, in Shailesh
Kumar vs M/s Tata Chemicals Limited & Ors, the CCI held that the Commission has to find sufficiency
of evidence on the basis of benchmark of preponderance of probabilities.4 In the matter of Alleged
cartelization by Steel Producers, the CCI held that price parallelism alone is not sufficient proof of a cartel
agreement and Facilitating or plus factors are needed in addition to parallel pricing evidence
to conclude about any possibility of a cartel.5 While dealing with the issue of circumstantial evidence, the
CCI has stated in the suo-motu case against LPG cylinder manufacturers, that existence of circumstantial
evidence that tends to exclude the possibility of independent action would be sufficient to give rise
to an inference of an agreement. It further observed that cartelization not being a criminal offence, the test of
proof will be only balance of probability and liaison of intention which can be established
with the support of indirect or circumstantial evidence.6 It appears from the above decisions, that the
benchmark for deciding a case on the basis of economic and conduct related circumstantial evidence, in
the absence of smoking gun evidence, is the unequivocal establishment of an agreement and exclu-
sion of the possibility of independent action.
7. However, by looking at the CCIs orders imposing penalties in the two cases of alleged pure play cartel
conduct,7 as distinguished from the bid rigging and the Association related cases wherein the evidence
was mostly well documented, it appears that the CCI has exercised a very broad discretion in applying
the balance of probability standard in establishing both the agreement unequivocally and excluding
the possibility of independent action sufficiently or and with certainty. 8
8. For instance, in the Cement case, the CCI concluded cartel conduct on the basis of certain plus factors
related inter alia to price parallelism that could not be explained by cost commonalities, timing of price
increases immediately after two meetings of the Cement Manufacturers Association (CMA) as well as
parallelism in capacity utilization, production and dispatches. However, its not clear from the analysis
to why the prices ought to have been explained by costs alone, as this could be influenced by a variety
of factors. Further, the CCI noticed parallelism in capacity utilization, production and dispatches based
on the coefficient of correlation. However, by only showing relative direction of the movement of the
prices, without even considering the magnitude of change, its unclear as to how such data could be
2 Case No. 5 of 2009 decided on 02.12.2012 -Neeraj Malhotra vs Deustche Post Bank Home Finance Ltd. & Ors.
3 MRTP Case RTPE No. 20/2008 decided on 16.1.2013 -All India Tyre Dealers Federation vs Tyre Manufacturers.
4 Case No. 66 of 2011 decided on 16.4.2013 - Shailesh Kumar vs M/s Tata Chemicals Limited & Ors.
5 RTPE 9 of 2008 decided on 9.1.2014 - Alleged cartelization by steel producers
6 Suo-Moto Case no. 03/2011 decided on 6.8.2014 - Against LPG cylinder manufacturers
7 Case No. 29/2010 decided on 20.6.2012 & 31.8.2016 - - Builders Association of India vs Cement Manufacturers Association & Ors. (The
order dated 31.8.2016 has been passed by the CCI upon remand by the COMPAT for violation of natural justice. The COMPAT has yet to
examine the substantive arguments of the parties / merits of the case); Case No. 30 of 2013 decided on 17.11.2015 - Express Industry Council
of India vs. Jet Airways (India) Ltd. & Others which has also been remanded by COMPAT to the CCI for violation of natural justice.
8 Saikrishna & Associates & its counsels state that they have not been associated with any of the aforesaid two cartel cases either before the CCI
14 or the COMPAT.
C ARTELS
relied upon to conclude that an agreement to fix prices or control output was in place. Further, its also
unclear as to how reliance could be placed on increases in average price to allege that prices were fixed
by the cartel members without showing the manner in which such averages related to the individual
prices. Certain other issues are also unclear. For instance, the manner in which the 11 charged parties,
having a combined market share of approximately 58% in a market comprising of over 50 players, were
in a position to control either the output or the price was not explained. Further, it is also not clear as to
how it could be concluded that the parties were using the platform of Cement Manufacturers Associa-
tion (CMA) to exchange commercially sensitive information and fix prices. The relationship between
the two meetings of CMA and price rise are rather vague and do not establish a cause and effect rela-
tionship between such meetings and price revisions. In sum, the circumstantial economic and conduct
related evidence relied upon appears to be sparse, sketchy and, at times speculative, as may be inferred
from the use of words like possibility and apparently by the CCI in its order.
9. The Airlines Fuel Surcharge (FSC) case, the only other pure play cartel case, in which the CCI has
imposed penalties on certain airlines alleged to have colluded in fixing the FSC, is also based on cir-
cumstantial evidence. Pertinently, the Director General (DG) had concluded that the FSC movement
did not show any concerted practice amongst the airlines. However, in this case, the CCI seems to have
ignored the correlation coefficient analysis based on percentage change, which indicated a weak rela-
tionship between the firms, and instead relied upon the absolute changes, which indicated a positive
correlation, to conclude collusion. Pertinently, in the cement case, the CCI had relied upon the correla-
tion coefficient analysis and ignored the absolute changes. It seems that the inability of the parties to
show documentary evidence in support of their FSC pricing conduct appears to have weighed heavily
in inferring an anti-competitive agreement amongst the parties. However, the CCI did not sufficiently
discuss as to why the impugned conduct could not be seen as an independent conduct borne out of an
oligopolistic market structure and why the same evidence could not lead to any different conclusion.
Thus, by inferring an agreement, the CCI seems to have put the burden on the charged parties to show
that there was no agreement between them, rather than itself having unequivocally established such
agreement. Further, the evidence on record appears to be sparse and sketchy.
10. Be that as it may, the rigor with which the balance of probability standard has been applied in each
case would eventually be scrutinized by the appellate judicial forums. However, a low threshold for
inference, such as where each fact on record has not been fully accounted for or explained to fit into the
mosaic of the cartel conduct, may lead to false condemnation which may be counter-productive. Fur-
ther, adverse inference based on sparse and sketchy evidence would amount to reversing the principles
of burden of proof and presumption of innocence, which may in turn negate the entire time and effort
devoted to the case. Thus, to establish a case of cartel conduct entirely on the basis of circumstantial
evidence, it appears from international case laws9 that it is absolutely necessary that: i) the facts must
be sufficiently proven; ii) there must be a causal link between such facts and the allegedly infringing
conduct; and iii) there must be no other rational interpretation for the observed behaviour. Pertinently,
it seems from CCIs decisions that while these principles are well recognised by the CCI, the rigor with
which actual analysis has been carried out do not reflect the same.
11. The Competition Appellate Tribunal (COMPAT) has thus far not examined the aforesaid two cases
on merits and has remanded the cases back to the CCI on grounds of the breach of principles of natural
justice. Accordingly, it is yet to be seen whether the standard and the burden of proof envisaged in the
orders of the CCI would stand the test of judicial scrutiny.
9 Imperial Chemical Industries Ltd. vs. Commission, Case 48/69 ECJ, [1972] ECR 619;Suiker Unie v Commission, 1975 ECR 1663;Ahlstrm
and others v. Commission, C-89, [1988] E.C.R. 5193, (Woodpulp II - 1993);Monsanto Co. v. Spray-Rite Service Corp. 465 U.S. at 768 (1984);
Matsushita Electrical Industrial Co. v. Zenith Radio Corp. 475 U.S. 574 (1986) 15
Leniency:
12. In line with the international best practices, the Act also provides for grant of leniency to a party to a
cartel which has voluntarily made full, true and vital disclosures. In the case of Brushless DC Fans Car-
tel10, the CCI reduced the penalty on one of the opposite parties by 75% since upon initiation of the
DGs investigation, at its own volition, it disclosed vital evidence which aided the DG to unearth the
cartel. However, the CCI further opined that if the party would have made voluntary disclosure before
the commencement of the DGs investigation, it would have enjoyed a further reduction in the quan-
tum of penalty.
13. Firms will have an incentive to confess only if not confessing may no longer be profitable11. When firms
see the probability of the CCI uncovering the infringement as relatively high, they may enter into a
race to confess as the firm first to confess wins the greatest reduction. In view of the same, it is ab-
solutely necessary that each potential cartel case is vigorously pursued over a sustained period of time to
rule out the possibility of a cartel or to alternatively instil a sense of fear amongst the cartel members of
being apprehended or result in creating distrust between them, making leniency provisions attractive
and economically a wise proposition. Thus, to make the leniency provisions work effectively, it is neces-
sary to commit sufficient time and resources to cartel investigations.
14. At the same time, it is extremely important that leniency benefits are made more certain. As of now, it
is provided that leniency may12 be granted by the CCI subject to disclosure of information in respect
of the cartel. Thus, the grant of leniency is subject to the CCI being satisfied that the disclosure made
was full, true and vital and there is no clarity for the potential leniency applicant to anticipate such
satisfaction. Accordingly, it seems important that the words full, true and vital are properly explained
and the circumstances under which leniency would not be given clearly stated. Such circumstances may
include where the firm has used the leniency application only as a strategic move, waiting for the right
time to confess, in light of the cartel not being profitable any longer or where it has been the ring leader
of the cartel or threatened other participants from disclosing the existence of the cartel, or as may be
considered appropriate by the CCI.
15. It may also help to clarify whether the leniency provisions would apply in cases where the cartel conduct,
amongst the entities operating at the same level of the market, has been facilitated by such entities who
operate in a different market, such as vertical / adjacent or a totally different market. Pertinently, in the
LPG case (supra), the CCI noted that the 44 bidders had used the services of six agents to submit their
bids. However, such agents were not impleaded and thus not penalized. Further, such conduct facilitat-
ing or orchestrating cartels could also be present in hub and spoke cartels. Be that as it may, in several
cartel cases in the US as well as in the European Union, entities who do not operate at the same level of
the market but facilitate cartel conduct, amongst enterprises operating at one level of the market, have
been found guilty and penalised.13 Accordingly, it may be helpful for the CCI to state whether such
facilitators and co-conspirators would be eligible for leniency so as to assist in dealing with cartels. The
fact that such facilitators operate at a different level of the market and have different motivations may
not be decisive as long as such conduct could fall within the ambit of the inclusive definition of cartel
and relate to one or more of the prohibited conduct.
16. A fundamental challenge to the success of leniency programme lies in the fact that while a successful
leniency application made to the CCI will result in immunity or reduction of fines, there is absolutely no
certainty as to whether the grant of confidentiality to an Applicant would hold good even at the stage
of appeal or before the High courts. Without such certainty, leniency applicants may find it unattractive
10 Brushless DC Fansi, Suo Moto Case No. 03 of 2014, decided on 18.01.2017

11 Giorgio Monti, EC Competition Law, 2007 pp. 333-334
12 See Section 46 of the Competition Act, 2002 and Regulation 4 of the CCI (Lesser Penalty) Regulations, 2009
13 Case T-99/04, AC-Treuhand vs. Commission 2008, ECR II-1501, Paras119-122; Case COMP/AT.39847 - eBooks case decided on
16 12.12.2012;United States Court of Appeals For The Second Circuit decision in the eBook case,12 Civ 2826 (DLC), dated 30th June 2015.
C ARTELS
to apply for leniency if such application exposed them to increased risks of claims of civil damages and
/ or breach of contract claims from those adversely affected by the cartel. To encourage applicants for
grant of (potential) leniency, it is necessary to prevent disclosure of leniency applications to (potential)
cartel victims in order to minimise the risk of damages actions. It is unclear as to whether each and
every victim of a cartel could seek damages from each and every cartelist and whether all the cartelists,
who took part in the infringement which caused the damage, would be held jointly and severally liable.
Perhaps, limiting civil liability of leniency applicants only to its own sales to the victims while keeping
the co-cartelists bound to jointly and severable liability for damages may increase the attractiveness of
leniency programme.
17. Further, to create a race for the door to leniency, companies that secretly colluded to fix prices or rig
bids should also be charged for committing fraud on taxpayers and the government exchequer by
falsely creating the appearance of competition.14 Since the CCI does not have power to bring criminal
charges, other law enforcement agencies (like the CBI, the economic offences wing of the police, etc.)
could bring in criminal charges against the cartelists under the various provisions of the Indian Penal
Code, wherein the leniency applicants could be given the benefit of an approver. Further, by treating
cartelisation and bid rigging as misdemeanours under the provisions of the Companies Act, 2013, the
Registrar of Companies could cancel the Director Identification Numbers (DIN) of officials, who did
not apply for leniency, for a certain period of time making it difficult for them to run the affairs of any
company. Since the provisions of the Competition Act15 are in addition to, and not in derogation of, the
provisions of any other law for the time being in force, this may not be infeasible.
18. Thus, a multi-pronged action plan against firms and individuals engaged in cartel conduct could prove
to be the real stick in cartel enforcement, making the leniency provisions more attractive and effec-
tive.
Competition compliance:
19. Since collusion is perhaps a more natural state for the competitors than competition, the role of compe-
tition compliance cannot be overstated. Competition compliance programs that are robust and effective
facilitate in educating employees about competition law and assist firms in detecting unlawful employee
conduct and in monitoring compliance.
20. To make such programs more effective, it is necessary that credit by the CCI is only given to such efforts
that reflect genuine efforts to change a companys culture. Pre-existing compliance programmes or per-
functorily implemented compliance programmes that fail to deter cartel behaviour should not be given
any credit by the CCI. Compliance programmes must be contextual, based on specific risk assessment
and tailored to the specific needs and dynamics of the relevant business.
21. A company exists only on paper and it is the people in a company who actually take the actions that
violate the law, and in the course of so doing may expose themselves and the company to serious legal
trouble. Accordingly, in order to ensure the effectiveness of compliance programmes it is important that
the management of a company unequivocally conveys to all its employees that there is no commercial
objective that is more important than obeying the law. As a part of institutionalizing an effective com-
pliance culture, employees who show exemplary compliance conduct and assist firms in steering clear of
antitrust-violation must be suitably motivated, recognised and awarded. On the other hand, enterprises
must declare in advance that the employment of officials in senior positions with pricing / production
/ sales responsibilities would be terminated if their complicity in violating the Act is established. Fur-
ther, it should also be stipulated in the employment contracts that delinquent officials would have to
personally bear the consequences for any compensation claim that may arise against the company for
14 Cartel Enforcement in IndiaA Recap of the ABA Antitrust In Asia Conference and a Look Forward by Robert E. Connolly, as published
in Cartel & Criminal Practice Committee Newsletter, Spring 2013.
15 Section 62 of the Competition Act, 2002 17
their complicity in the cartel conduct. The cost of conspiracy has to be high enough to deter the natural
tendency for people to seek collusion as the easier way to profit than competition. Compliance programs
must also make it clear that the company is committed to competition, and such commitment must be
clearly and effectively communicated to all employees.
Cartel Penalties:
22. As cartels constitute the supreme evil of anti-trust and have serious consequence for the market and
the economy, it carries the highest penalties in comparison to other forms of anti-competitive conduct.
Proviso to Section 27 (b) of the Act specifically provides for imposition of a penalty of up to three times
of its [i.e. party to the cartel] profit for each year of the continuance of such agreement or ten per cent of
its turnover for each year of the continuance of such agreement, whichever is higher.
23. At times, the discovery of a single act of conspiracy may point to the existence of a deep rooted cartel
spanning many years. Imposition of penalties for each year of continuance of agreement would thus
imply that the CCI has to clearly and unequivocally state the scope and duration of the infringement
including the individual culpability of all the parties involved in the cartel, failing which such decisions
may run the risk of being set aside in appeal.
24. In the matter of fixation of surcharges for cargo transport, the General Court of the European Union
annulled the decision of the European Commission on the issue of (single and) continuous infringe-
ment. The General Court held that there was no evidence to prove that all the 21 airlines had indulged
in (single and) continuous infringement from 1999 to 2006 as only 11 of the 21 airlines to whom
the EC decision was addressed were found to be involved in all the four periods of alleged collusion.
The remaining 10 airlines had featured in some but not all. Since the ECs decision was not clear and
unequivocal, the General Court held that the same infringed the right of the defence of the parties as
it was not possible for the airlines to ascertain with certainty the scope of the infringement for which
they had been held liable. Accordingly, the total penalty of 799 million Euros imposed by the EC was
not justified.16 Given the fundamental procedural flaw, the GC did not consider it necessary to address
arguments on substance.
25. In sum, while the CCI has been relentlessly investigating and prosecuting cartels, it is clear that dealing
with cartels and imposing penalties on delinquent firms and individuals would require a multi-pronged
approach that encompasses rigorous analysis of circumstantial economic and conduct related facts,
a robust leniency program that instils confidence and provides certainty to the potential applicants,
explores the feasibility of launching parallel prosecutions under various applicable civil and criminal
statutes and which promotes effective and credible compliance program.
18 16 Case T-39/11, Cargolux Airlines International vs. Commission

V Vertica Ve Vertical
Vertical Agreements
Introduction
1. When a manufacturer of a good or provider of a service enters into an agreement with another entity
for the supply or distribution of the good or service, or for such intermediary activities, the purpose of
which is to make the good or the service finally reach the end consumer, it may in the process restrict
competition in the market. The agreements through which such relationship is established between
entities operating at different stages or levels of the production chain in different markets in respect of
production, supply, distribution, storage, sale or price of or trade in goods or provisions of services are
commonly called vertical agreements in competition law parlance. Agreements or arrangements be-
tween manufacturers and their distributors or retailers are examples of vertical agreements. In contrast,
agreements between entities operating in the same market are called horizontal agreements. Compe-
tition Act, 2002 (Act) deals with both types of agreements with the former being subject to rule of
reason analysis and the latter analysed as being presumptively anti-competitive. Although, it may be
straight forward to determine whether entities are competitors or vertically related, these boundaries
can become blurred when firms operate across more than one functional level of a supply chain, requir-
ing a detailed assessment of competition in the relevant markets.
2. The provisions of Section 3(4) of the Act, under which vertical agreements are assessed, do not get
attracted where the parent and the wholly owned subsidiary, operating at different stages or levels of
the market, have a complete unity of interest and are pursuing common and not disparate economic
objectives. Similarly, Section 3(4) may also not be applicable to agency agreements where the title to
the goods and risks remain with the supplier and not the agent. However, where stringent conditions
are imposed on the agents, such as exclusive supply agreement, which restrict agents from dealing in
competitors products it may cause restrictions in inter-brand competition and will be looked into by
competition authorities.1 Agreements with end consumers are also not covered under Section 3(4) since
the Act regulates only supply side restrictions of competition.2
Competition concerns in vertical agreements

3. In various markets, vertical agreements are necessary to conduct business efficiently. They can improve
economic efficiency in production or distribution by facilitating better coordination between the partic-
ipating undertakings. In particular, they can lead to a reduction in the transaction and distribution costs
of the parties and to an optimization of their sales and investments levels.3 They are therefore, by their
very nature, not necessarily anti-competitive. However, they are prohibited if their harmful effects on
competition outweighs the efficiencies aimed or claimed to be achieved by such agreements.
4. Vertical agreements, entered into by entities having market power, may result in the creation, mainte-
nance or strengthening of that market power, which restrict competition. Thus, such agreements are
prohibited under the Act if they cause or are likely to cause an appreciable adverse effect on competi-
tion (AAEC). For example, the seller of a patented technology, say a machine, may put a condition
on the buyers of the machine operating in the vertical market that the raw materials to be fed into the
machine will also have to be purchased from the seller. Such a condition may impact the competition
in the market of sale of raw materials for the machine if the seller has considerable market power in
the market of sale of machines. While such stipulations may promote certain efficiencies, like reduction
in the maintenance cost of the machine achieved through better compatibility between the producers
1 Richard Whish & David Bailey; Application of Article 101(1) to agency agreements; Page 660
2 Shri Ram Niwas Gupta (Informant-1) & Mrs. Priyanka Gupta (Informant-2) v. M/S Omaxe Ltd.(OP-1) & M/S Shanvi Estate Management
Service (OP-2); Case No. 74/2011; Decided on: 18/10/2012; M/s Financial Software and System Private Limited And M/s ACI Worldwide
Solutions Private Limited; Case No.52 of 2013; Decided on: 04/09/2013
3 European Commission Guidelines on Vertical Restraints 19
machine and raw materials, the same may also result in foreclosure of market of a competitor of such
raw materials or impair their ability to develop into effective competitors. The competition authorities
may examine whether the seller had less restrictive ways of achieving those efficiencies or whether the
tie-in was intended to damage equally efficient competitors. Thus, vertical agreements are not per se
prohibited but are subject to what is called a rule of reason analysis i.e. the pro-competitive benefits
and the anti-competitive effects are carefully weighed to determine whether the impugned conduct
causes or is likely to cause an AAEC.
Types of vertical agreements

5. The Act specifically defines five types of vertical agreements namely tie-in arrangement, exclusive sup-
ply agreement, exclusive distribution agreement, refusal to deal and resale price maintenance, but the
definition is an inclusive one meaning thereby that the feasibility of including any other type of vertical
agreement is not precluded. For example, non-compete clauses in distribution agreements, especially
involving transfer of know-how, may be considered to be anti-competitive if the restriction is for an
unreasonably long period of time.
Tie-in Arrangement: In a tying arrangement, a seller requires buyers of a product over which
it has market power - the tying product - also to purchase a product over which it seeks to
gain market power - the tied product.4 Tied sales of machines and complementary products
or maintenance services as well as technological ties are some of the examples of tie-in-arrange-
ments.
Exclusive Supply Agreement: An exclusive supply agreement includes an agreement which restricts
the purchaser from acquiring any goods or services other than those of the seller or any other
person. It is an agreement in which restrictions are placed on the buyer in favour of the seller,
prohibiting it to deal in the goods of any competitor of the seller. Such restrictions are most
commonly placed by the producer of a product, such as motor vehicles, on its distributors or
retail showrooms not to deal in any vehicle other than that of the said manufacturer.
Exclusive Distribution Agreement: An exclusive distribution agreement includes an agreement that

limits, restricts or withholds output or supply of any goods or allocates any area or market for
the disposal or sale of the goods. Such a restriction is, for example, resorted to by producers to
demarcate the areas or customers for the operation of their distributors. Exclusive distribution
agreements cause concern because they could dilute intra-brand competition and partition the
market. The concern is aggravated if inter-brand competition, between the supplier and its
competitors, is weak; where this competition is robust, the dilution of intra-brand competition
may be outweighed by the robust and vigorous nature of inter-brand competition.
Refusal to deal: Refusal to deal includes any agreement that restricts, or is likely to restrict, by
any method the persons or classes of persons to whom goods may be sold or from whom goods
may be bought. Refusal to deal by a firm having high market power could have a damaging
effect on the business of the distributor and also limit the number of suppliers.
Resale price maintenance: Resale price maintenance (RPM) includes any agreement to sell goods
on the condition that the prices charged for resale by the downstream dealer or distributor shall
be the prices stipulated by the supplier/seller of the product. When inter-brand competition is
vigorous and the consumers have the ability to substitute for the relevant product, RPM may
not cause any AAEC. The competition concern in RPM could be of collusion, either a retail
cartel for stabilization of a collusive equilibrium or a manufacturers cartel by enhancing price
transparency undermining their ability to undercut prices, foreclosure of rivals by impairing
rivals access to dealers and harm to consumers by increased prices.
20 4 Collins Inkjet Corp. v. Eastman Kodak Co.; Case No. 14-3306; Decided on: 16/03/2015
Analysis of the effect on competition or AAEC

6. In determining whether the vertical agreement between the entities operating at different levels of the
market causes an AAEC or not, the CCI is required to give due regards to all or any of the following
factors as given in the Act, 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. While the
first three factors deal with anti-competitive effects, the latter three factors deal with pro-competitive
effects, making it evident that vertical agreements and restraints are not presumptively anti-competi-
tive but are subject to an evaluation as to whether the anti-competitive effects outweigh the pro-com-
petitive benefits of the challenged conduct or not.
Decisional practices of the CCI

7. Market share of the entities involved in the agreement play an important role in the assessment of the
impact on competition in the market. However, the market share of the parties is assessed in the context
of the market structure, the nature of restrictions imposed, etc. to test the likely effect on the market.
In the case involving Apple, Airtel and Vodafone, the CCI observed inter alia that Airtel and Vodafone
each had less than 30% market share and that Apple iPhone had less than 3% share in the smartphone
market in India, to conclude that it is highly improbable that there would be an AAEC in the Indian
market.5 However, in Ashish Ahuja And Snapdeals case, despite Sandisk being the market leader with
35% market share, the CCI closed the case at the prime facie stage as it found that the Informant had
placed no evidence on record in support of the allegation of RPM6. Importantly, the CCI held that
a manufacturer is within its rights to protect its distribution channel and sanctity of its distribution
channel to protect the sale of goods from unverified or unauthorised sources. In another case filed by
Snapdeal against Kaff Appliances, the CCI initiated an investigation despite Kaff having a market share
of only around 28% in the presence of evidence of RPM & denial of warranty on sale of its product on
Snapdeals website.7 Pertinently, the CCI did not consider the issue of inter-brand competition in the
market of supply of kitchen appliances at the prima facie stage and ensued the investigation. Where the
entities in question have very little market share it is unlikely that the CCI will ensue an investigation
even if the restrictions imposed are stringent. In Prime Mag. Subscription Services Pvt. Ltd. v. Wiley
India Pvt. Ltd. (OP-1) & John Wiley & Sons Ltd. (OP-2)8, a mandatory stipulation by the publishers to
the distribution agents not to give more than 3% discount was not considered to be anti-competitive
since the market share of the book publisher was negligible. Interestingly, the CCI did not consider the
market share of Hyundai and the intensity of inter-brand competition while prima facie finding Hyun-
dais conduct to be anti-competitive in imposing RPM and tie-in of complimentary products such as
CNG kits along with exclusive supply restrictions9. The CCI observed that restrictions on distributors
regarding the price may facilitate cartel between the suppliers or a hub and spoke conspiracy between
the distributors with the manufacturer.
8. As aforesaid, vertical agreements are prohibited only if they cause or are likely to cause an AAEC, par-
ticularly in light of the nature of inter-brand competition in the market. In Re: Shri Ghanshyam Dass
Vij And Bajaj Corp. Ltd10., Bajaj Corp. selling FMCG products had imposed RPM and exclusive distri-
bution conditions on its distributor. Even though the CCI ordered an investigation, which concluded
violation of the Act, the CCI decided: It is not conclusively borne out that the arrangements have either created
5 Sonam Sharma v. Apple Inc. USA, Apple India Pvt. Ltd., Vodafone Essar Ltd., Bharat Airtel LTD; Case No. 24/2011; Decided on 19/03/2013
6 Ashish Ahuja vs Snapdeal.com and Sandisk; Case No 17 of 2014; Decided on 19.5.2014.
7 In Re: M/s Jasper lnfotech Private Limited (Snapdeal) And M/s Kaff Appliances (India) Pvt. Ltd.; Case No. 61 of 2014; Decided on:
29/12/2014
8 Case No. 07 of 2016; Decided on: 28/06/2016
9 In Re: M/s Fx Enterprise Solutions India Pvt. Ltd And M/s Hyundai Motor India Limited; Case No. 36 of 2014; Decided on: 12/09/2014
10 Case No. 68 of 2013 21
entry barriers for new entrants or drove existing competitors out of the market, nor is there any appreciable effect on
the benefits accruing to the ultimate consumers. It further observed that the fact remains that there is no
dearth of products of other equally and better brands in the market. The fact that consumers can purchase
other brands in the market without incurring costs reduces the harmful impact of vertical restraints.11
9. The same is true for franchise agreements where the franchisor lays down the manner in which the fran-
chisee would conduct business in the market such as by tie-in of purchase of material from Franchisors
affiliate entities or by deciding an entity from whom the franchisee would have to purchase the goods.
The competitive harm of tying includes sellers building power in the market for tied product based on
their power in the market of the tying product rather than the tied products prices or product quality.
In a case against Subway, wherein Subway had stipulated in the franchise agreement that the franchisee
had to purchase the beverages from an approved distributor, the CCI observed that since the market
share is very less and the competition in the food chain business is huge, the stipulation is not likely to
cause any AAEC.
10. Analysing the harmful effects of vertical agreements in the case of Shri Shamsher Kataria vs. Honda
Siel Cars India Ltd. & Ors.12, which pertained to the after sales market of complex durable equipment,
automobiles in this case, wherein the customers are unable to carry out life time cost analysis and each
competing manufacturer is a dominant entity in the respective after sales markets, the CCI observed
that since all the Original Equipment Manufacturers (OEMs) had restricted the Original Equipment
Suppliers (OESs) from supplying spare parts to independent repairers, the customer do not have any
option but to pay very high prices for the spare parts or to shift to the grey market of spare parts. Per-
tinently, one of the common rationale advanced by the parties that such restrictions were necessary to
check counterfeit products from entering into the market and that they were entitled for exemption
under Section 3(5) of the Act, which carves out an exemption for reasonable restrictions imposed to
protect their IPR, was also rejected by the CCI inter alia on the ground of harmful effects of such agree-
ments on consumers and competition in the market of independent repairers. It further observed that in
situations where an agreement providing apparent efficiencies allow the enterprises to create structural
entry barriers and consequently eliminate the competitive process, the Commission must look beyond
the immediate short term efficiency goals of such alleged anti-competitive agreements.
11. The CCI also observed that Article 101(3) of the TFEU is para material to section 19(3) of the Act and
relied on GlaxoSmithKline Services Unlimited v Commission13 where the European Commission held that
the task under Article 101(3) is weighing up the advantages expected from the implementation of the agreement
and the disadvantages which the agreement entails for the final consumer owing to its impact on competition, which
takes form of a balancing exercise carried out in the light of the general interest appraised at Community level.
12. While examining the foreclosure effect, the CCI cited the court ruling in United States v. Arnold, Schwinn
& Co., 388 U.S. 365, 376 (1967), as follows: [a] manufacturer of a product other and equivalent brands of
which are readily available in the market may select his customers, and, for this purpose, he may franchise cer-
tain dealers to whom, alone, he will sell his goods. If the restraint stops at that point -- if nothing more is involved
than vertical confinement of the manufacturers own sales of the merchandise to selected dealers, and if competitive
products are readily available to others, the restriction, on these facts alone, would not violate the Sherman Act.
Relying upon the aforesaid case, CCI analysed the exclusive distribution agreements to hold that the
consumers do not have access to any competitive products because the exclusive dealers are only selling
the specific OEMs brand of spare parts and diagnostic tools which are unique and not substitutable
with spare parts made by other OEMs. Since other equivalent brands or interchangeable products were
not available in the market, it was held that such policies of the OEMs is likely to cause an AAEC.
11 Ibid at 10
12 Case No. 03/2011; Decided on 25/08/2014
22 13 [(Case T-168/01) [2006] CMLR 1623
Treatment of vertical agreements in the EU and the USA

13. Courts, in international jurisdictions, often find restrictive provisions in the vertical agreements to be
pro-competitive on balance because of their potential to stimulate intra-brand competition and pre-
clude other distributors from free-riding on the effort and investment of others.14 Further, it can be
difficult to show that these agreements are detrimental to market-wide competition, rather than only
to the complainant, as is required in an antitrust inquiry. Further, since antitrust authorities mostly do
not view single brand as a separate market, the courts are receptive to business justifications for the
challenged arrangements, such as benefits to the consumers, or for maintaining a particular standard
for the brand, which can outweigh the allegations of anticompetitive effects.15 However, cases involv-
ing series of unilateral vertical agreements are existing in the market, are generally viewed as having
a dampening effect on competition. In Metro v. Commission (No.2)16, it was observed that even where
vertical selective distribution agreements comply with the conditions set forth in the E.U. Guidelines
on Vertical Restraints, they may still infringe Article 101(1) of the TFEU if the market is tied up with
a network of similar agreements.
14. In the EU, vertical restraints have to be assessed in its economic context in order to determine whether
it could have an effect on competition in the relevant market. The EU Vertical Guidelines states that the
market position of the supplier and its competitor is of major importance, since the loss of intra-brand
competition is problematic only if inter brand competition is limited. 17 The stronger the position of the
supplier, the more serious is the loss of intra-brand competition.
15. The US follows a broader approach while analysing vertical restraints as they are mostly prohibited if
they lead to attempt to monopolisation. After the Colgate decision, it is well established that a firm is
free to refuse to sell goods to a customer as long as its decision is unilateral. The US Supreme Court held
that assuming that there are no facts suggesting monopolisation or attempted monopolisation, a refusal
to deal raises no antitrust issues because there is no combination or conspiracy18. In a recent case, where
the market share of the manufacturer was 90%, the court of appeals for the eighth circuit held that a
purely unilateral termination of the distributorship does not amount to prohibited restraint of trade.19
In cases of exclusive distribution, courts in the USA rely upon the standard laid down in the Colgate
case and hold that unilateral termination of the distributorship state no claim under the Act, since an
individuals refusal to deal or sell to anyone does not amount to prohibited restraint of trade.20 The US
Supreme Court held in Leegin, a case of RPM, that such agreements are not per se illegal but subject
to the rule of reason standard.21 As regards tie-in arrangements, the courts in the US do not interfere
unless the tied product is being sold below the sellers cost.22 In the USA, vertical agreements are valid
till the time competitive products are available to the consumers23 and are considered presumptively
legal unless facts are present to show that a dominant firm barred competitors from entire modes of
distribution, or from nearly all cost effective means of distribution.24 Courts have held that there could
be no liability unless the probable effect is to substantially lessen competition, rather than merely to dis-
advantage rivals. For a successful claim against vertical restraints, 1) the plaintiff must show substantial
foreclosure of the relevant market 2) the court must analyse the likely or actual anticompetitive effects
of the arrangement, including whether it resulted in reduced output, increased price or reduced quality.25
14 ABA Section of Antitrust Law, Antitrust Law Devs. at 159 7th Ed. 2012
15 Mozart Co. v Mercedes-Benz of N. Am., Inc., 833 F. 2d 1342 (9th Cir. 1987)
16 [1986] ECR 3021
17 Vertical Guidelines, paragraph 153
18 United States v Colgate & Co., 250 U.S. 300 (1919)
19 797 F.3d 538 (8th Cir. 2015)
20 130 F. Supp. 2d at 770, quoting Dior v. Milton, 9 Misc. 2d 425, 442 (NY Sup. Ct.), aff d, 2 A.D. 2d 878 (1st Dept 1956)
21 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 US 877 (2007): In 2007
22 Eastman Kodak Co. v. Image Technical Servs., Inc., 781 F.3d 264 (6th Cir. 2015)
23 United States v. Arnold, Schwinn & Co, 388 US 365 (1967)
24 2016 U.S. Dist. LEXIS 6826
25 2016 U.S. App. LEXIS 8148 23
The treatment of vertical restraints in the USA is thus different from that of India.
Vertical Agreements & Dominant Undertakings

16. When an entity enjoys undisputed position of strength, such that it can act independent of the market
forces, it is called a dominant player26. It is observed from various cases that the CCI has been examining
the issue of vertical restrictions imposed by a dominant entity not only under the provisions of Section 4
of the Act but also under Section 3(4) of the Act.27 Pertinently, a dominant entity can impose vertical re-
straints to indulge in exploitative abuse or to maintain or bolster its position of dominance or to leverage
its position of dominance in one market to enter into or protect other relevant market. Such restrictions
when imposed by a dominant player thus amount to abuse of dominant position under Section 4 of the
Act. Use of the provision of Section 3(4) in a case of abuse of dominant position, given that the facts are
same, seems to suggest that the firm is not dominant so as to act independent of the market. By con-
trast, the need to enter in to a vertical agreement, as opposed to imposition of such agreements in case
of dominance, arises only when a firm needs the active and voluntary support of the vertical entity or
vice versa to acquire a position of strength in either of the markets which create anti-competitive effects.
It thus seems that use of the provisions of Section 4 and Section 3(4) in the same facts of a case militates
against the very concept of dominance as enshrined under the Act.
17. Since allegation of violation of both Section 3 and Section 4 are made in most of the Information filed
before the CCI, it would be incumbent upon the CCI to examine both. Restrictions imposed by an enti-
ty which has a strong position in the market, but is not a dominant player, can still impact the level of
competition in the market. However, in a case of violation of Section 3(4) both parties to the agreement
should be culpable and liable for penalty while in case of agreement executed under the coercive power
of the dominant entity, its only the dominant entity which can be held guilty whereas the other as its
victim.
18. While it is clear that in Section 3(4) cases, AAEC is to be demonstrated; it seems from the language of
Section 4 that an AAEC is not required to be shown if the dominance of a player is established and abuse
demonstrated. In that sense, an analysis under Section 4 may be akin to a per se analysis. Accordingly,
once the dominance of an entity and abuse, as stipulated under Section 4, is established, there may
not be any need to show the actual effect on the market28. Resultantly, the charged party has to offer
its justifications for the CCI to consider AAEC, if any, caused by such conduct. Where the restriction
falls under the agreements defined under Section 3(4), it has to be demonstrated that the agreement
has caused or is likely to cause an AAEC. The test is to see whether the efficiency is actually achieved
through the restriction imposed and, if so, whether the restriction imposed is limiting competition only
till the time the efficiency is achieved. If the restriction imposed is way more than the benefits aimed to
be achieved then the effect and object of the vertical restrictions imposed is foreclosure of competition.
Conclusion
19. The decisional practices of the CCI indicate that it considers all or any of the factors mentioned under
Section 19(3) to decide as to whether an impugned vertical agreement has caused or is likely to cause
an AAEC in the market. Thus, availability of the competitors/substitutable products for the consum-
ers, market conditions and the level of competition in the market, reasonableness and stringency of the
restraints, seem to be important considerations in such determination. For instance, while analysing an
exclusive agreement between online portals and sellers of mobile phones wherein sellers chose only one
online platform which would sell their products online, the CCI weighed most of the factors mentioned
under Section 19(3) while analysing the AAEC from the agreements. The fact that the agreements were
26 Explanation (a) to Section 4 of the Act

27 For example, Shri Shamsher Kataria vs. Honda Siel Cars India Ltd. & Ors - Case No. 03/2011 - Decided on 25/08/2014; Department of
Agriculture, Cooperation & Farmers Welfare Ministry Case No. 2 of 2015 and Case No. 107 of 2015 of Agriculture & Farmers Welfare Gov-
ernment of India and Ors. Vs. Mahyco Monsanto Biotech (India) Limited (MMBL) and Ors.
28 Kapoor Glass Private Ltd. vs Schott Glass India Ltd.- Case No. 22 of 2010, para 9.2.5, page 71 of the CCI order dated 29.3.2012; now under
24 appeal by the CCI before the Supreme Court.
not capable of causing any entry barrier for new entrants, were not trodden by monopoly or dominance
of the online players, that the agreements were not adversely affecting the retail market and that with
new e-portals entering into the market the competition was growing led to the conclusion that the
impugned agreements were not likely to cause an AAEC in the market29. For vertical restraints to neg-
atively impact price, choice, quality etc., it is necessary that the parties to such agreement have market
power vis a vis their competitors. Factors such as lesser number of players with high entry barriers, high
switching costs, information asymmetry and the like are catalysts to increasing the negative effects of a
vertical restriction. However, for markets characterised by robust inter-brand competition, the concerns
may be largely alleviated and there may not be any necessity to intervene against vertical restrictions.
Terminated distributors typically allege that manufacturers conspired with the replaced distributor, or
other market participants, and effectuated the termination and that such conduct infringe the provi-
sions of the Act as they cause or are likely to cause an AAEC. The CCI views such cases with an under-
standing that manufacturers have the freedom to choose their distributors and choose with whom they
will do business, unless some proof of anti-competitive effect is present to show that the termination
was guided with the intention to harm competition.
20. Since an effect or likely adverse effect on competition has to be proved in every case of vertical restraints,
such cases are difficult to prosecute as entities generally have a business justification for having a par-
ticular condition in their agreement, which may be difficult to overlook. Thus, even though vertical
restraints are endemic in such agreements, which may not always be in the best interest of consumers,
their treatment has eluded any straight jacketed analytical formulation as they require a detailed and
situation specific analysis of the associated benefits and detriments to the competitive process.
29 In Re: Mr. Mohit Manglani And M/s Flipkart India Private Limited & Ors.; Case No. 80 of 2014; Decided on: 23/04/2015 25
Penalties by the CCI:

Objectives, Reasons & Methodology
Importance of Penalties
1. The imposition of monetary penalties upon entities that violate competition laws is one of the most notable
aspect of the functioning of an antitrust authority as it plays a significant role in enforcing and deterring
competition law violations. Since the decision to participate in an illegal act is premised on the profits from
the illegal activity less the expected cost of punishment, offences can be deterred if the amount of fines suf-
ficiently exceedsthe illicit gains.1 If a fine is large enough to put a company into financial difficulties thereby
reducing competitors and the stimulus of competition in the market, it could have a larger impact on the
overall economic growth of a nation.2 At the same time, a fine which fails to deter the infringing entity
would make the antitrust enforcement regime ineffective. Imposing sufficient fines and achieving the right
balance between adequate deterrence and putting the financial standing of a company in jeopardy is, how-
ever, a daunting task.
2. As in other jurisdictions, the Competition Commission of India (CCI) is vested with a discretion in the
matter of imposition of penalty. In terms of Section 27 of the Competition Act, 2002 (Act), the CCI may
impose penalty of up to a maximum of 10% of the average turnover of the last three preceding years on each
of such persons or enterprises who are parties to an anti-competitive agreement, or are in abuse of dominant
position. In case of cartels, CCI may impose a penalty of up to three times the profit; or 10% of turnover
for each year of the continuance of a cartel, whichever is higher on each of the relevant parties.3The CCI also
has powers to impose penalties in merger cases and can impose penaltyup to 1% of the total turnover or the
assets, whichever is higher, of the combination. Further, Chapter VI of the Act also provides for certain con-
tingencies where the CCI may impose significant amount of penalties upon enterprises and individuals. The
Act does not prescribe how the exact quantum of penalty shall be determined and states that the CCI may
impose such penalty as it may deem fit. This article deals with the method adopted by the CCI in exercise
of such discretion under Section 27 only.
Method of Setting the Fines

3. The penalties by CCI have grabbed attention of the stakeholders for being perceived as high and diverse on
the ground of the alleged lack of transparency & consistency in approach. The CCI has stated in several cases
as under:
It is evident that the legislature has conferred wide discretion upon the Commission in the matter of imposition of penalty
as can be noticed from the phraseology employed in the provision noted above.4
4. While imposing penalties, the CCI has stated that it is guided by two sets of principles, viz. to impose penalties
on infringing undertakings which reflect the seriousness of the infringement; and to ensure that the threat of penalties will
deter both the infringing undertakings and other undertakings that may be considering anti-competitive activities from
engaging in them.5Further, in order to quantify the penalty, the CCI considers the aggravating and mitigating
1 Criteria for Setting Fines for Competition Law Infringements, Background Note by the OECD Secretariat, 3-4 September 2013
2 Ibid
3 See Section 27 of the Competition Act, 2002. For Section 4 and Section 3(4) violations, the maximum limit is 10% of the average turnover
of the three preceding years.
4 In Indian Foundation of Transport Research and Training And Shri Bal Malkait Singh, President All India Motor Transport Congress &Anr.,
Case No. 61 of 2012, Decided on: 16/02/15, while interpreting Section 27
5 Indian Foundation of Transport Research and Training And Shri BalMalkait Singh, President All India Motor Transport Congress &Anr., Case
No. 61 of 2012, Decided on: 16/02/15. Similar view has been taken in In Re SUO MOTO: National Insurance Co. Ltd. & Others, Case No. 02
of 2014, Decided on: 10/07/15; Express Industry Council of India And Jet Airways (India) Ltd. &Ors., Case No. 30 0f 2013, Decided on:
26 17/11/15; Builders Association of India Bangalore And Cement Manufacturers Association, Case No. 29 of 2010, Decided on: 31/08/16
P Penaltie P P e P Pen Pena l t P e nalti e s P en Penalt P e na Penalties P
circumstances/ factors. After weighing the aggravating and mitigating factors, the CCI reaches an appropri-
ate finding on the quantum of penalty.6
5. The penalty guidelines of various jurisdictions such as those of the EU and the US prescribe the setting of
fines in various steps. For example in the EU, first, a base fine is set depending upon general factors such as the
type of violation (whether cartel or abuse, etc.), the volume of sales in the relevant market and the duration
of the infringement, nature and extent of violation and the actual impact on the market.7 Once the base fine
based on general factors is set, the aggravating and mitigating factors which pertain to the circumstances
related to the violation and the offender are taken into account.They are mostly used to adjust the fine with
the situation & conduct of the infringing party in order to create the desired and appropriate deterrent effect.
For instance, a repeated infringement attracts a higher penalty since the desired deterrent effect could not
be created the first time.
6. The common aggravating and mitigating factors seen in various regimes as enlisted in the OECD paper are8:
Aggravating Circumstances Mitigating Circumstances

Recidivism Effective compliance policy
Leading role or instigate in infringement Minor role

Coercion or retaliatory measures to ensure Pressure exercised by other companies
continuation of the infringement
Refusal to co-operate Co-operation with competition authority (except
for leniency applications)
Continuation of the infringement after Immediate termination of the infringement
start of competition authoritys investiga-
tion
Awareness of the illegal nature of the con- Uncertainty as to existence of an infringement
duct(committed Intentionally)
Institutionalised nature of the infringe- Motivated by Public authorisation/encourage-
ment ment
Significance of the industry influenced Non-implementation of the infringement

Involvement of director or high-level exec- Slow reaction/excessive length of procedures
utives before the competition authority
Violation of an injunction or condition of Compensation of injured parties
probation
7. By comparison, the steps taken by the CCI in arriving at penalty and considering the aggravating and
mitigating factors have neither been delineated in its decisional practices norhas it been published in any
guidance paper. The decisional practisesof the CCI reveal that the general factors showing the nature of vi-
olation, the impact of violation are taken together with the factors depicting the circumstances of the party
i.e. the mitigating and aggravating factors of the type enlisted above. Further, same factors are also applied
differently in different cases depending on the peculiarities of the case. Thus, it becomes unclear whether
factors pertaining to the specific standing or conduct of the parties has impacted the quantum of fines or not.
Decisional Practices
8. In line with the concept of seriousness of infringement, also referred to as gravity of offences, the CCI views
6 M/s HT Media Limited And M/s Super Cassettes Industries Limited, Case No. 40 of 2011; Decided on: 01/10/2014
7 Criteria for Setting Fines for Competition Law Infringements, Background Note by the OECD Secretariat, 3-4 September 2013
8 Refer footnote 2 27
cartels and bid rigging offences with more seriousness than other cases of anticompetitive conduct. Cartels
are viewed to have a larger dampening impact on the functioning of the market and are also harder to de-
tect9.The profits earned out of cartels are higher due to elongated periods of violation as they are harder to
detect.10For example, in cases involving the Chemists & Druggists Associations where the pharmaceutical
distributors/wholesalers were found to be engaged in anticompetitive agreement of limiting the supply of
pharmaceuticals in the market, the CCI inflicted a penalty of 10%of the average income of the associations
of the last three years.11 In the Cement Cartel case, the CCI imposed a penalty of US$1 billion on 10 ce-
ment companies and on the industry association cumulatively, which was approximately 0.5 times of their
net profit. While imposing such penalties, the CCI adverted to the pernicious effect emanating out of the cartel
and its impact on the economy and the consumers.12However, in other cartel cases the CCI has imposed much
lesser penalty in view of the specific facts of the case, where various other mitigating factors were present.13
By comparison, in abuse of dominance cases, the CCI has never imposed a penalty of 10% and has instead
inflicted a range of penalties. For instance, the CCI imposed penalties of 8% in M/s HT Media Limited And
M/s Super Cassettes Industries Limited Case, 7% in the DLF case, 4% in Kapoor Glass case, 5% in the NSE
case, 2% in Auto Spare parts case, etc14. While imposing one of the highest penalties, the CCI has held in
the HT Media case that penalties must deter enterprises which indulge in activities that not only lead to
consumer harm but also retard economic development.
9. Impact on the final prices of products which directly affect the common man has been considered as an
aggravating factor by the CCI. The CCI is of the view that anti-competitive increase in price for goods and
services consumed by common man have a cascading and inflationary impact and is seen with much more
seriousness as it ultimately impacts the common man besides distorting the competitive process in the mar-
ket.15 In a case involving GlaxoSmithKline Pharmaceutical Limited and M/s Sanofi, the CCI observed that
these companies indulged in bid rigging while quoting to the government for sale of vaccines required by
Hajj pilgrims16. The CCI took into account the fact that the conduct had effect upon public exchequer and
public health. It pegged the penalty @ 3% taking into consideration other factors such as the small size
of the tender, extent of anticompetitive effect on the market, nature of contravention as also the revenues
generated from the product under consideration. In another case, involving bid rigging done in public pro-
curement for social welfare scheme for BPL families the CCI considered the collective, anti-competitive con-
ducts of the national insurance companies affecting the State of Kerala and the beneficiaries of governmental
schemes for BPL and other poor families to be aggravating circumstances17.
9 Refer footnote 1
10 Refer footnote 1
11 Varca Druggist & Chemist &Ors. And Chemists and Druggists Association, Goa Case no. MRTP C-127/2009/DGIR4/28, Order Date:
11/06/2012; In Re: Bengal Chemist and Druggist Association And Reference Case No. 01 of 2013 Suo moto Case No. 02 of 2012 and Ref.
Case No. 01 of 2013, Order Date: 11/03/2014;
In Re: M/s Arora Medical Hall, Ferozepur And Chemists &Druggists Association, Ferozepur (CDAF) and others Case No. 60 of 2012, Order
Date: 05/02/2014;
M/s Santuka Associates Pvt. Ltd. And All India Organization of Chemists and Druggists, Organization of Pharmaceutical Producer of India,
Indian Drug Manufacturers Association , USV Ltd., Mumbai Case No. 20/2011, Order Date: 19.02.2013;
In re: Collective boycott/refusal to deal by the Chemists & Druggists Association, Goa (CDAG), M/s Glenmark Company and, M/s Wock-
hardt Ltd. Suo-Moto Case No. 05 of 2013, Order Date: 27/10/2014Similarly, in
12 Builders Association of India Bangalore And Cement Manufacturers Association, Case No. 29 of 2010, Decided on: 31/08/16
13 Refer In Re: M/s Bio-Med Private Limited And Union of India, Case No. 26 of 2013, Decided on: 04/06/2015; In Re: Express Industry
Council of India And Jet Airways (India) Ltd. &Ors., Case No. 30 of 2013, Decided on: 17/11/2015; In Re: Express Industry Council of India
And Jet Airways (India) Ltd. &Ors., Case No. 30 of 2013, Decided on: 17/11/2015
14 Belaire Owners Association vs DLF Limited, HUDA &Ors. Case no--- 19/2010, Order Date: 12/08/2011;
Kapoor Glass Private Limited vs Schott Glass India Private Limited, Case no 22/2010, Order Date: 29/03/2012;
MCX Stock Exchange Ltd. and Ors. And National Stock Exchange of India Ltd. and Ors. Case No.- 13/2009, Order Date: 23/06/201;
Case No. 40 of 2011; M/s HT Media Limited And M/s Super Cassettes Industries Limited, decided on 1st October, 2014; Sh. Surinder
Singh Barmi And Board for Control of Cricket in India (BCCI), Case No. 61/2010, Decided on: 08/02/2013
15 Indian Foundation of Transport Research and Training And Shri Bal Malkait Singh, President All India Motor Transport Congress &Anr.,
Case No. 61 of 2012, Decided on: 16/02/15
16 In Re: M/s Bio-Med Private Limited And Union of India, Case No. 26 of 2013, Decided on: 04/06/2015
28 17 In Re SUO MOTO: National Insurance Co. Ltd. & Others, Case No. 02 of 2014, Decided on: 10/07/15
10. One of the risks of inflicting higher penalties is jeopardizing the financial standing of an enterprise. Where
an entity is imposed a penalty beyond its capacity to pay then there are chances that the entity may go
bankrupt. While imposing penalties upon Jet Airways (India) Ltd., IndiGo Airlines and SpiceJet Ltd. for
the cartel conduct of fixing the Fuel Surcharges, a component of the total price of the airlines for carrying
cargo18, the CCI observed that the overcharging of cargo freight results in adversely affecting the con-
sumers beside stifling economic development of the country. It further observed that Such cartels in the
air cargo industry particularly undermine economic development in a developing country. However, despite noting
the same, the CCI levied a penalty of only 1 % of their average turnover in consideration of the fact that
airlines were incurring losses besides groaning under accumulated debts. In another case, relating to bid
rigging in public procurement for social welfare schemes for BPL families, the CCI observed that the col-
lective anti-competitive conduct of the national insurance companies affected the State of Kerala and the
beneficiaries of governmental schemes19. However, in view of the peculiarities of the insurance sector which
include importance of insurers solvency for the consumers, the CCI imposed a penalty of 2% of their aver-
age turnover of the last three financial years.
11. The impact on economic development is another factor that is very often considered by the CCI. In the
Cement cases, the CCI has noted that fixing cement prices is detrimental not only to the interests of the
consumers but also deprives the economy from exploiting the optimal capacity utilization and thereby
reducing prices. The act of the cement companies was considered detrimental to the whole economy since
cement is a critical input in construction and infrastructure industry which is vital for economic develop-
ment of the country. 20However, the airline and the insurance cases (supra) show that even where there is
perceived to be an impact on the economic development, other factors such as the financial health of the
entity, the size of the tender or the amount of sales are considered as important factors in the determination
of fine. In another Cement case of bid rigging, the CCI held that while qualifying penalties, a distinction has
to be made between the agreements which actually cause an appreciable adverse effect on competition and the agreements
which are likely to cause such effects. Thus, the CCI imposed a penalty of 0.3% of the average turnover of the
last three financial years on the seven cement manufacturers.21
12. The CCI has inflicted the upper limit of 10% in cases of repeat offences. Such penalties have been imposed
by the CCI in the drug cases and cases pertaining to the film distribution industry.22 The CCI did not
consider being a first time offender as a mitigating factor argued by the parties in M/s Bio-Med Private
Limited And Union of India23. However, the Competition Appellate Tribunal (COMPAT) held in Coal
India Limited v. GOCL Hyderabad & Ors., that the same has to be considered as a mitigating factor and
should be taken into consideration24. Accordingly, the COMPAT reduced the overall penalty imposed by
the CCI by 10%.
13. The CCI considers the high economic power/strength of the entity, which increases its ability to fore-
close the market, while deciding the quantum of penalty25. In the automobile spare parts case, the CCI
has observed that the the nature of barriers created and whether such barriers can be surmounted by the
competitors and the type of hindrances by the dominant enterprise against entry of competitors into the
market are important factors to be kept in mind while creating the desired deterrence effect. It has further
18 In Re: Express Industry Council of India And Jet Airways (India) Ltd. &Ors., Case No. 30 of 2013, Decided on: 17/11/2015
19 In Re SUO MOTO: National Insurance Co. Ltd. & Others, Case No. 02 of 2014, Decided on: 10/07/15
20 Builders Association of India Bangalore And Cement Manufacturers Association, Case No. 29 of 2010, Decided on: 31/08/16
21 Director, Supplies & Disposals, Haryana vs. Shree Cement Ltd. & Ors, Ref. Case No. 05 of 2013, decided on 19.01.2017
22 For example, the chemists and druggists associations of various states which were found to be indulging in cartelization by way of imposing
conditions on distributors/manufacturers of medicinal drugs in the market of distribution of pharmaceutical drugs, were levied a penalty @
10%. The CCI stated that the associations were repeated offenders; In Re: M/s Rohit Medical Store And Macleods Pharmaceutical Limited;
Case No 42 of 2012, Decided on: 29/01/15; Mr. P. K. Krishnan Proprietor, Vinayaka Pharma And Mr. Paul Madavana, Divisional Sales
Manager M/s Alkem Laboratories Limited &Ors., Case No. 28 of 2014, Decided on: 1/12/15; M/s Maruti& Company, Bangalore And
Karnataka Chemists & Druggists Association &Ors., Case No. 71 of 2013, Decided on: 28/07/16
23 Case No. 26 of 2013, Decided on: 04/06/2015; MCX Stock Exchange Ltd. and Ors. And National Stock Exchange of India Ltd. and Ors.
Case No.- 13/2009, Order Date: 23/06/201; Case No. 40 of 2011
24 Appeal No. 82 of 2012; Decided on: 18/04/2013
25 Sh. Surinder Singh Barmi And Board for Control of Cricket in India (BCCI), Case No. 61/2010, Decided on: 08/02/2013 29
observed that the Commission has also to keep in mind the economic power of enterprise, which is nor-
mally leveraged to create such barriers and the impact of these barriers on the consumers and on the other
persons affected by such barriers. The Automobile case attracted the attention of many on account of the
anticipated consumer friendly impact of the same and also on account of the fact that a total fine of Rs.
2,545 crores was imposed on several companies, which amounted to 2% of their respective turnovers. The
CCI has stated that while arriving at the penalty, it has considered the fact there was willingness on the
part of the infringers to voluntarily discontinue the anti-competitive practices and offer greater choice and
freedom to the consumers, repairers and dealers in future. However such willingness to discontinue the an-
ti-competitive practice, made by the Bengal Chemist and Druggist Association at the time of investigation
by the Director General itself, was not assigned any weightage and a penalty of 10% of the income was
inflicted on the office bearers of the Association and of 7% of the income on the executive committee of the
BCDA for the infringing conduct26. Even though the CCI has not stated, it is feasible that the CCIwanted
to deal sternly in such cases as they impact the life and well-being of consumers and thus hold different
position of importance in the society.
14. Thus, the discussion of the various penalty orders as above, reveals that the CCI considers a variety of
factors in determining the quantum of penalty in each case and it is difficult to assess which factors play
a greater role in the determination of penalties. The CCI has observed seriousness of the offence to be an
important factor, with offences having more serious ramifications on the market deserving higher penalties.
In M/s Santuka Associates Pvt. Ltd. And All India Organization of Chemists and Druggists &Ors., the
CCI observed that Proportionality requires that the level of punishment should be scaled relative to the severity of
violation.27 The diverse range of penalties imposed above shows that the amount gets reduced or increased
when other factors play a more important role. However, it is unclear as to how such factors play their role
in the determination of the quantum of penalty in the absence of express weightage assigned to such fac-
tors. Size of the tender, impact on competition, repeated offenders are some of the factors which were the
distinguishing factors listed by the CCI in the above cases.
COMPATs VIEW:
15. Most of the penalty orders passed by the CCI have been challenged before the COMPAT. While most of
them have either been quashed on account of the violation of the principles of natural justice, the COM-
PAT has also reduced such penalties in few cases having regard to certain factors specific to each case. The
COMPAT has been stressing upon the importance of citing reason by the CCI while imposing penalties. In
M/s. Excel Crop Care Limited V. Competition Commission of India &Ors.28, it stressed upon the principles
of proportionality and deterrence and observed that The Supreme Court has time and again relied on the
doctrine of proportionality while at the same time emphasizing on the aspect of deterrence. Generally the
award of penalty should be in proportion to the wrong done. It also stressed upon taking the mitigating
and aggravating circumstances in to consideration. In M/s ECP Industries Ltd v. CCI29 , the COMPAT
opined that CCI had not given due weightage to the mitigating factors pleaded by many of the LPG manu-
facturers for reduction of penalties, such as nature of anticompetitive agreement, appreciable adverse effect
on competition, financial health of the enterprise and market condition which should have been done. It
also stresses upon the need to follow principles laid down by the Supreme Court and various High Courts
on the issue of penalty imposition by a decision making body.30
16. While hearing the contention of the parties that the CCI should have given them the opportunity to argue
26 Suo moto Case No. 02 of 2012 and Ref. Case No. 01 of 2013
27 Case No. 20/2011, Decided on: 19/02/2013
28 Appeal No. 79/2012 and 81/2012;Decided on: 29/10/2013
29 Appeal No. 47/2014; Decided on: 01/03/2016
30 In Hyderabad Cylinders Pvt. Ltd. Vs. Competition Commission of India it held thus:
Since the legislature has not laid down any criteria for imposing penalty, the Commission is duty bound to consider all the relevant factors like - nature of industry, the
age of industry, the nature of goods manufactured by it, the availability of competitors in the market and the financial health of the industry etc. and also take note
30 of the law laid down by the Supreme Court, the High Courts and the Tribunal.
on the question of penalty, the COMPAT in the Excel Crop case has observed as follows: Time and again
we have been reiterating the necessity of the reasons while ordering the penalty. We hope that the CCI take serious note of
that factor. This is particularly true as the CCI is an adjudicatory body as declared by two Supreme Court judgments.
The role as an adjudicatory body would cover all the aspects of hearing and deciding.31 Pertinently, the CCI had
heard National Stock Exchange on the question of penalties separately after determining and conveying
that it had infringed the Act. However, the same has not been continued even though it is seen from various
orders that the CCI considers the submission of the parties on the issue of penalties, wherever advanced.32
Affected vs Gross Turnover:

17. It is relevant to state that CCI imposes penalties on the basis of the total turnover of an infringing enter-
prise as shown in the account statements of the entity, irrespective of the fact that it might include revenue
from other products in respect of which no infringement is found. Section 27(b) employs the word turn-
over which has not been defined in the Act. The COMPAT, on the other hand, has held in the Excel Crop
case (supra) that there is no reason to penalize the parties on the overall turnover when the other products
bear no connection with the infringed conduct.33
18. In the NSE decision, the COMPAT rejected the contention that the turnover should be taken only from the
CD segment since the contravention was made only in the provision of those services and not the overall
revenue from stock exchange services. The COMPAT held that the concept of relevant turnover i.e. turn-
over arising only from the CD segment cannot be applied since the relevant market delineated in the NSE
case was the services of stock exchange in all the segments. It distinguished the NSE case from the Excel
Crop case observing that there were well defined distinct markets and Excel Crop was a multi commodity
company.34
19. In another case, adopting the principle of contextual interpretation, the COMPAT held that the term turn-
over used in Section 27(b) and its proviso will necessarily relate to the goods, products or services qua which finding of
violation of Section 3 and/or Section 4 is recorded and while imposing penalty, the Commission cannot take average of
the turnover of the last three preceding financial years in respect of other products, goods or services of an enterprise or
associations of enterprises or a person or associations of persons.35 The CCI has been levying penalties on the overall
turnover, which the COMPAT has held to be legally unsustainable and commitment of grave error by
the CCI.36 The issue as to whether penalty should be imposed on the total turnover or relevant turnover is
pending before the Apex court for adjudication and pending the same CCI has continued with its practice
of imposing penalties on the basis of the total turnover.
20. Most jurisdictions use the relevant turnover arising from the infringement to set the base fines such as the
EU uses the value of sales in the relevant market; the US uses the volume of affected commerce; the Ger-
many, Korea, The Netherlands, Portugal, Spain and the UK, among others, use relevant sales turnover
which refers to the sale of relevant goods or service affected from violation during a period of violation.
Individual Liability:
21. With regards to individual liability upon persons who were in-charge of and responsible for the conduct of
the business of the contravening entity/entities, the CCI mostly directs the DG in its prima facie orders to
also investigate therole of such persons.37 In this regard, the COMPAT has held that the deeming provision
of presumption of guilt in cases of individual liability, contained in the two sub-sections of Section 48, can
31 The Competition Appellate Tribunal in the matter of Excel Crop Care Limited vs. Competition Commission of India &Ors., Appeal No. 79
OF 2012, highlighted the importance of giving reasons, especially while inflicting higher penalties.
32 MCX Stock Exchange Ltd. And National Stock Exchange of India Ltd., Case No. 13/2009, Decided on: 23/6/2011
33 Appeal No. 79 of 2012 tagged with Appeal No. 81 of 2012 and Appeal No. 80 of 2012, Decided on: 29/10/2013
34 Para 123, NSE Case supra
35 M/s. ECP Industries Ltd. vs. Competition Commission of India; Appeal No. 47 of 2015
36 Hyderabad Cylinders Pvt. Ltd. Vs. Competition Commission of India; Appeal No. 54/2015 and I.A. Nos. 76/2016, 91, 92, 93 of 2015, De-
cided on: 02/05/2016
37 Section 48 deals with individual liability arising from contravention by companies 31
only be invoked after it is determined that the company has contravened the provisions of the Act.38 The
views of Delhi High court in the case of Pran Mehra39 and that of Kerala High Court in A.N. MohanaKu-
rup vs. CCI &Ors. is however different from that of COMPAT. The Kerala High court has observed thus:
The scheme of the Act does not contemplate two separate proceedings against the opposite parties as also against the office
bearers of the opposite parties who are liable to be proceeded under Section 48 of the Act. The proceedings under the Act,
going by its scheme, is a composite one. As such, the guilt, if any, of the persons who come under Section 48 of the Act also
needs to be examined simultaneous to the guilt of the opposite parties.
22. The CCI seems to be following the view taken by the High Courts as can be seen from its decision in
Ministry of Agriculture and Farmers Welfare vs. Mahyco Monsanto, wherein it observed that the DG can
initiate investigation against the key persons as soon as the prima facie order under Section 26 (1) is passed
and there is no need of the Commission to have reached a finding of contravention by the company under
Section 27 of the Act for the DG to initiate such investigation.
23. Be that as it may, it has generally been observed that the quantum of penalty imposed upon the company
and the individuals in percentage terms may vary. Further, the rate of penalty varies depending upon the
degree of involvement of the individual.40
Leniency
24. Section 46 of the Act provides power to the CCI to impose lesser penalty if it is satisfied that a participant
of cartel has made a full and true disclosure in respect of the alleged violations and such disclosure is vital in
unearthing the cartel. In the recent case of Brushless DC Fans Cartel, the CCI reduced the penalty on one of
the opposite parties by 75% since upon initiation of the DGs investigation, at its own volition, it disclosed
vital evidence which aided the DG to unearth the cartel. In its order, the CCI further opined that if the
party would have made voluntary disclosure before the commencement of the DGs investigation, it would
have enjoyed a further reduction in the quantum of penalty.41
Conclusion
25. The penalty imposed by the CCI has been a subject of controversy for its lack of clarity, transparency, pre-
dictability and want of objectivity. The overview of penalties imposed by the CCI, discussed above, shows
that the CCI, has been considering various factors in imposing penalties such as the nature or seriousness of
the offence, the aggravating and mitigating circumstances, and creation of the desired deterrence effect and
so on. However, how exactly these factors interplay and impact the calculation of the specific penalties is
largely uncertain. Even though the CCI is not obliged to devise mathematical formulae, and there is bound
to be subjectivity in calculating the penalties, they must be sufficiently reasoned. In line with guidelines /
policies published by the mature jurisdictions, which aim to reduce subjectivity in assessment of penalty by
defining the methodology for calculation of injury caused by the anti-competitive conduct of the infringing
parties, assigning weightage to different aggravating and mitigating factors, and the impact that the pen-
alty would have on the enterprise, such as bankruptcy of the entity or shaking the financial position of the
entity in the long run, advantage that would be caused to its competitors, etc, would go a long way in de-
veloping the penalty jurisprudence in India. It would also assist the appellate forums in judicially reviewing
penalties imposed by the CCI. The same would also facilitate the general public and practitioners to offer
their comments / critique on the penalties imposed by the CCI, which would contribute in the evolution of
a robust penalty jurisprudence in the country.
38 A.N. MohanaKurup vs. CCI &Ors. and M/s Alkem Laboratories Limited vs. Competition Commission of India and Another, Appeal No.
05 of 2016, Decided on: 10/05/2016
39 Pran Mehra vs. Competition Commission of India &Anr., W.P. (C) 6258/2014, dated 26.02.2015; A.N. MohanaKurup vs. CCI &Ors. and
M/s Alkem Laboratories Limited vs. Competition Commission of India and Another, Appeal No. 05 of 2016, Decided on: 10/05/2016
40 Refer Suo moto Case No. 02 of 2012, In Re: Bengal Chemist and Druggist Association And Reference Case No. 01 of 2013 Re: Reference
Case No. 01 of 2013: A 10% penalty was imposed on the office bearers who were directly responsible for the running of the affairs and play
lead role in decision making and 7% on the executive committee members
32 41 Brushless DC Fansi, Suo Moto Case No. 03 of 2014, decided on 18.01.2017
A Abus A Ab A Abuse of
ABUSE OF DOMINANCE
1. A firm is in a dominant position if it has the ability to behave independently of its competitors, cus-
tomers, suppliers and, ultimately, the final consumer. A dominant firm holding such market power
would have the ability to set prices above the competitive level, to sell products of an inferior quality or
to reduce the rate of innovation below the level that would exist in a competitive market. Dominance
requires market power to be substantial as well as durable. If the exercise of market power is only tem-
porary and can be remedied by market forces or competitive discipline imposed by rivals in a reasonable
time, a firm is not dominant.
2. Under Competition Act 2002 (Act), it is not illegal to hold a dominant position, since a dominant
position can be obtained by legitimate means of competition, for example by inventing and selling a
better product, but it is illegal for enterprises to abuse their dominant position.
3. Section 4 (2) of the Act specifies certain practices by a dominant enterprise or group as abuses: (i) di-
rectly or indirectly imposing unfair or discriminatory condition in purchase or sale of goods or service;
(ii) directly or indirectly imposing unfair or discriminatory price in purchase or sale (including predatory
price) of goods or service; (iii) limiting or restricting production of goods or provision of services or mar-
ket; (iv) limiting or restricting technical or scientific development relating to goods or services to the
prejudice of consumers; (v) denying market access in any manner; (vi) making conclusion of contracts
subject to acceptance by other parties of supplementary obligations which, by their nature or according
to commercial usage, have no connection with the subject of such contracts; (vii)using its dominant
position in one relevant market to enter into, or protect, other relevant market.
4. Pertinently, a conduct that may constitute an abuse, when performed by a dominant firm, can be pro-
competitive or competitively neutral when performed by firms that are not dominant, as they are not
likely to succeed in harming the competitive process through that conduct. Assessment of dominance
is therefore intended to serve as a filter to focus on conduct that may possibly harm an effective compet-
itive process and impede goals of consumer welfare and economic efficiency, among others.
5. Assessment of dominance is however a demanding task which requires analytical discipline and certain
determinations based on considered and developed judgment. In making such assessment, certain types
of evidence may be more useful than others. For example, when entry is easy, market power is likely not
durable; this explains why entry barrier analysis is considered one of the most important steps in the
assessment of dominance (or the absence thereof). Before concluding that a firm possesses dominance
in a market, it is necessary to carry out a comprehensive consideration of all relevant factors, as enu-
merated under Section 19(4) of the Act as they affect competitive conditions in that market. Market
shares, entry conditions, and other market factors all affect a firms ability to exercise market power.
Both behavioural and structural elements are required to be tested to conclude whether a firms market
power reaches the level of dominance.
The problem of market definition:

6. Defining a relevant market is considered to be a good starting point for the assessment of dominance,
as it helps in understanding the scope of competition and the competitive constraints that limit a firms
ability to exercise market power. It also helps in understanding the respective positions of rival firms,
competitive interactions among them, and the constraints a firms customers impose. It is also highly
useful in assessing the effects on competition from the alleged abuse.
7. Market definition is however a highly contested issue in competition cases. In general, the more nar-
rowly the market is defined, the more likely a firm or firms will be found to have market power. Not
surprisingly, firms tend to advocate wider market definitions than those adopted by competition au-
thorities.
33
8. Market definition involves classifying a candidate product as inside or outside of the relevant market
depending upon the extent of demand side substitutability between the candidate product and the
product under investigation. The decision to include or exclude a candidate product depends on the
decision-makers belief concerning the relative odds that a candidate product is a close substitute and
the evidence considered in a market definition exercise include a variety of both quantitative and qual-
itative evidence. A variety of sources may be required to be looked in to in the process of considering
demand-side substitution, such as, evidence on characteristics and usage of the products (e.g., consumer
surveys, market research, and trade publications), internal documents (e.g., market studies or strategy
documents) of the firm or its competitors, patterns in price changes of the products, in particular price
changes and switching patterns before the alleged anti-competitive conduct started, the ability to price
discriminate, which can suggest a relevant product market defined in part by users of the product, etc.
9. The most commonly used method of assessing demand-side substitution is the hypothetical monopolist
test (HMT). Starting with the alleged dominant firms product, this test asks whether, in response
to a small but significant and non-transitory increase in price (SSNIP) for this product, a sufficient
number of customers would switch to other products such that the dominant firm would not impose
the price increase. If so, the product market must be expanded to include one or more additional sub-
stitutes. This iterative process continues until a group of products is identified for which a hypothetical
monopolist selling those products could profitably raise the price significantly. An important caveat in
this regard is to consider whether the alleged dominant firm is already selling its product at or near the
monopoly price. In such situation, the fact that a further price increase might not be profitable does
not indicate that demand-side substitution is constraining prices at a competitive level. Mistakenly
concluding that it does, is commonly called the Cellophane fallacy.
10. The hypothetical monopolist test is however difficult to operationalize, as the economic notion of price
constraint and substitutability is quite broad. Apart from the conceptual problems, market definition
also faces serious empirical challenges. Consumer surveys, evidence on consumer behaviour and econo-
metric models, providing price elasticity estimates, which are the most direct tools for carrying out
HMT analysis, are not generally available especially in developing market contexts. Even when data is
available, time constraints may not permit sophisticated econometric models. The practical problems of
time, availability and equal weights to different forms of evidence motivate the use of a wide range of
tools for market delineation. The more data we receive from the duelling teams of economists, the more
the boundaries of the market recede into fog as opposed to clear lines. Market definition therefore faces
type-I error, excluding a substitute from the relevant market that would have constrained the market
power of the firm(s) under investigation, and type II error, including a substitute in the relevant market
that would not constrain the market power of the firm(s) under investigation.
11. Some markets are characterised by substantial differences between consumers for example concerning
their willingness to pay, their location with respect to suppliers or their ability to substitute. Such differ-
ences may enable the seller to engage in price discrimination, i.e. charge different price-cost margins to
different groups of buyers. This has to be taken into account when applying the HMT. If a profit max-
imising hypothetical monopolist was able to increase the price charged to a specific group of consumers
by 5% to 10% and to continue charging that price for a considerable period of time, the relevant mar-
ket would have to be defined not only by the products and regions but also by the group of consumers
in question. However, such price discrimination is feasible only if several conditions are satisfied. First
of all, arbitrage between the various groups of buyers has to be excluded as this would render price
discrimination impossible. In addition, the hypothetical monopolist must be able to identify the various
groups of consumers, the price difference between groups should be substantial and these groups should
be of important size. Price discrimination could also be an issue with respect to geographic market defi-
nition if the hypothetical monopolist could charge customers different prices according to their location.
In this case, the geographic market would have to be defined with respect to the location of customers.
In practice, it is often difficult to establish whether these conditions, in particular the hypothetical mo-
nopolists ability to identify the different groups, are met.
34
12. Market definition could become more complex where products are used only in combination with other
goods such as printer cartridges or spare parts for cars. Typically, the consumer buys a primary product,
such as a car or a printer, and subsequently purchases another, secondary good without which the first
is of little or no use, i.e. the primary and secondary products are complements and form a system that
works properly only if it comprises both products. Often, a consumer who has bought a certain primary
product is extremely restricted in the choice of a secondary product. This may be the case for reasons
of compatibility, technical specifications or intellectual property rights. For instance, only certain car-
tridges will be compatible with a particular type of printer. As a result, the consumers are locked in.
In such situations the question arises whether the markets for primary and secondary products can be
defined in isolation or whether a combined market comprising the two complementary products, i.e. a
systems market should be considered.
13. In markets where several goods are jointly demanded and supplied, referred to as cluster markets, the
concept of substitutability or exchangeability applies to the bundle rather than to its separate compo-
nents. A market definition that is based on an isolated component of the bundle, ignoring transaction
complementarities, would be too narrow. The concept of cluster markets has been subject to criticism,
since such bundles contain goods and services between which there is no supply or demand substitut-
ability. Therefore, cluster markets may merely serve to simplify the analysis.
14. Market definition is appreciably more difficult for differentiated goods. Such products are viewed by
consumers as close, but not perfect, substitutes, as compared with homogeneous products that are
covered in a more standard analysis. The first type of differentiation occurs with respect to the attributes
of the product, including design, colour, brand or any other specific feature that may appeal to the
differing tastes and preferences of consumers. The second type of differentiation refers to the location
of the product or service. In defining relevant markets characterized by differentiated products, the
principal challenge is evaluating the degree to which particular firms and their products act as com-
petitive constraints on each other. The smaller a relative price change between the allegedly dominant
firms price and the price of another product needed to cause significant consumer switching, the more
that product acts as a competitive constraint. Among the factors that affect product substitutability are
brand loyalty and reputation. Differentiated products can lead to especially narrow product markets,
and several incumbent firms may be able to exercise market power within a single market even though
none is dominant. Accordingly, investigation into other significant factors constraining the exercise of
market power, including supply-side substitution and entry, is important before concluding that a par-
ticular firm is dominant.
15. The HMT is mainly based on the static concept of demand substitution. It considers to what extent
the products that are currently available are substitutes. In industries with rapid technological change,
however, new products become available by definition, thereby increasing the substitution possibilities.
Therefore, defining markets in highly dynamic industries raises some conceptual difficulties. Industries
such as the media industry, telecommunications, biotech or medical technology are characterised by
rapid technological progress. New products are developed, formerly separate functionalities are inte-
grated into one product and process innovations lead to the entry of firms from other industries thereby
increasing the competitive pressure on incumbent firms. These developments are often unpredictable,
leading to the creation of new markets or the convergence of formerly separate markets. As a result,
market boundaries may shift rapidly. In such industries it is not the price that is the main competitive
parameter but innovation or the introduction of a new superior product. Competition does not take
place in the market but for the market. In such markets one firm may serve the entire market or at
least a large portion of it for a period of time, only to be displaced by another firm with a leapfrogging
technological innovation that delivers dramatically improved performance or dramatically lower cost.
Hence, even a market share of 100% would not necessarily imply substantial market power. In these
markets an efficient player, constrained by overall market demand and the threat of entry, will often
charge quality-adjusted prices that, while above marginal cost, are still below the prices that would be
charged by a group of less efficient competitors. To an economist, the competitive process is working in
these markets, even if it results in only one firm serving the entire market for some period of time. One 35
could argue that the analysis of market power should not be based upon the market outcome but on
the capabilities of firms to compete in the market.
16. The ability of a firm to exercise substantial market power also can be constrained by substitution on the
supply side of the market, which refers to switching existing capacity from the production of another
product to the production of the allegedly dominant firms product or a close substitute in response
to an increase in the alleged dominant firms prices. It is particularly relevant to determine whether
firms would find it profitable to respond to a dominant firms price increase by quickly, and without
significant costs or risk, providing new or additional production into the relevant market. If so, that
capacity should be included in the relevant market, and those firms should be considered market par-
ticipants. Supply-side substitution may require evaluation through interviews with potential suppliers,
as to whether substitution is technically possible, the costs involved (including revenue forgone by
redeploying facilities used for other purposes), and the time needed to provide additional supply. In
addition, evidence of actual shifts in capacity in response to price changes in the past may demonstrate
whether supply-side substitution by other firms is likely.
Determining abuse:
17. The policing of marker power or dominance remains one of the hotly debated areas in competition law.
While the two leading systems, namely of US and the EU, have converged on policing in exclusionary
conduct cases, a number of fundamental differences remain, in as far as policing exploitative abuses
cases are concerned. For example, in the EU and unlike the US, charging of excessive prices by a dom-
inant entity, although only in handful of cases, may constitute exploitative abuse and fall foul of the
competition law. 1
18. Pertinently, determining excessive pricing is not easy. The United Brands test2, which sets out a two-
pronged test to determine whether prices are excessive: the difference between the costs incurred and
the price charged must be excessive, and additionally, the price charged must be either unfair in itself or
in comparison with competing products, is difficult to administer as they require analysis of the actual
price and profit, benchmarked against the likely outcome under competitive conditions in addition to
several other methodological problems. Thus, determining whether prices are excessive is itself a very
daunting task. Even where the question of excessiveness can be assessed, remedies are difficult to
devise. Moreover, many competition authorities have reservations about the quasi-price regulator role
considered to be unavoidable in excessive price cases. The most obvious remedy to excessive prices is to
lower prices directly by means of a price or profit cap. Designing and implementing a remedy of this
nature, in particular if a particular maximum price or profit is specified, may require the competition
authority to perform tasks and assessments usually undertaken only by sector specific regulators. Such
remedies also require continuous monitoring and possible adjustments to the cap. This is one of the
reasons that competition authorities generally prefer to let specialized sector regulators address the
problem instead of becoming active themselves. However, where the regulator is captured or there is
regulatory failure, competition enforcement may be appropriate insofar as neither the regulatory re-
gime nor the market can self-correct. While Section 2 of the Sherman Act could theoretically extend
to excessive pricing, the hurdles are very high as has been emphatically reaffirmed by the U.S. Supreme
Court in Trinko, and accordingly no excessive pricing cases have been brought in ages. 3
19. The theory underpinning the US approach is that in a number of circumstance, it is beneficial for the
economy and for consumers if firms holding monopoly power compete hard with other firms thereby
causing less efficient firms to exit the market. In certain circumstances, the conduct of those firms can
be exclusionary as well. However, since it is hard to distinguish between competitive and exclusionary
conduct, it is better to allow firms to compete hard and put the burden upon authorities, in exception-
al circumstances, to show that the conduct was in fact exclusionary and in breach of Section 2 of the
Sherman Act. In Trinko and Linkline, the U.S. Supreme Court reaffirmed this stance forcefully. In Lin-
1 Article 102(2)a) TFEU: directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions.
2 Case 27/76 United Brands Company and United Brands Continental BV v EC Commission [1978] ECR 207, [267].
36 3 Verizon Communications v. Trinko, 540 U.S. 398 (2004).
kline, after having cited Colgate, the Court presented the scope of Section 2 of the Sherman Act in the
following terms: But there are rare instances in which a dominant firm may incur antitrust liability for purely
unilateral conduct.4 In other words, dominance is praised as efficient and innovation enhancing. This
justifies the reluctance in the US to intervene in markets, especially in abuse of dominance cases, by fear
that vivid competition would be chilled.5
20. Europe, on the other hand, seems to be more concerned with concentration of economic power and its
potential effects on competition. This justifies the special responsibility put on dominant firms not to
foreclose competition. The Courts in Europe, in their decisional practices on Article 102 TFEU, con-
stantly and consistently refer to the special responsibility of the dominant firm not to allow its conduct to impair
genuine undistorted competition on the common market.6
21. In the US, there is a notion that some means of competition are allowable, and others will breach the
Act. Under EU law, that distinction is drawn more sharply. Dominant firms are allowed to enter into
competition on the merits, but they must abstain from other forms of competition, which are presum-
ably unmeritorious. In Post Denmark, the ECJ summed up the case-law as follows:
It is in no way the purpose of Article [102 TFEU] to prevent an undertaking from acquiring, on its own mer-
its, the dominant position on a market. [] Competition on the merits may, by definition, lead to the departure
from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers
from the point of view of, among other things, price, choice, quality or innovation. [] Article [102 TFEU]
applies, in particular, to the conduct of a dominant undertaking that, through recourse to methods different from
those governing normal competition on the basis of the performance of commercial operators, has the effect, to the
detriment of consumers, of hindering the maintenance of the degree of competition existing in the market or the
growth of that competition.
22. Thus, while US authorities are reserved towards active enforcement, out of recognition of the practical
difficulty in telling anti- from pro-competitive conduct, EU law entertains a firm belief in the distinc-
tion between competition on the merits / performance competition and other forms of competition, and
this distinction is enforced unreservedly.
23. In mainstream economics, the majority opinion is that antitrust and competition law should focus on
aggregate welfare, with some authors finding that seeking to maximize consumer welfare is the best
way to maximize total welfare in practice.7 The case-law under Article 102 TFEU follows a different
path. When dominant firms inflict injury on the competitive process as such, this is already sufficient
to trigger the application of Article 102 TFEU, even in the absence of concrete evidence of consumer
harm. As the Court of Justice repeatedly stated, Article 102 TFEU must be interpreted as referring not only
to practices which may cause damage to consumers directly, but also to those which are detrimental to them through
their impact on competition.8
24. In the eyes of many critics, especially from the USA, EU competition law is then protecting compet-
itors, not competition. In US law, as the Supreme Court put it, [i]t is axiomatic that the antitrust
laws were passed for the protection of competition, not competitors.9 Indeed, the US now has by all
accounts a strong focus on consumer welfare as the ultimate objective, whereas the EU still protects
the competitive process, irrespective of consumer welfare considerations. Thus, while in the US a show-
ing of actual consumer harm triggers competition law application, in the EU courts have rejected such
a requirement. Showing consumer harms is not a prerequisite for finding restriction of competition. In
4 US v. Colgate, 250 US 300 at 307 (1919); Trinko, supra, note 5 at 407; Pacific Bell Telephone v. Linkline Communications, 129 S.Ct. 1109 at 1118
(2009).
5 Eleanor Fox, Comment: abuse of a dominant position: the Americanization of European competition law? The critical role of perspective, in
Hanns Ullrich (ed.), The Evolution of European Competition Law: whose Regulation, which Competition? (Cheltenham and Northampton, MA, Edward
Elgar, 2006) p. 235.
6 ECJ, Case 322/81, Michelin v.Commission [1983] ECR 3461 at para. 57 and repeated ever since.
7 Farrell and Katz, 2006; Martin, 2007
8 ECJ, Case C-52/09 TeliaSonera Sverige [2011] ECR I-527 at para 24 and to earlier cases.
9 Brooke Group v. Browne-Williamson Tobacco, 509 US 209, 224 (1993), 37
the EU, the goal of protecting the competition process as an institution guides the application of com-
petition law.10
25. The US approach puts strong trust in the self-correcting mechanisms of the market. Dominance is not
regarded with suspicions. Dominance is considered a sign of a healthy competition in the market. It
may have innovation incentives. Antitrust authorities are concerned with too much antitrust interven-
tion. Too much intervention would lead to controlling dominance and protecting less efficient firms
from competition. Europe has a different perspective on account of the legacy of Ordo-liberalism, which
underlines the fragility of markets, as being vulnerable to both public and private economic power.
There is a scepticism towards the robustness of markets, a lack of confidence in their ability to self-heal.
It is therefore more concerned with keeping the market open and protecting the competition process;
the structure of the market. This is reflected in the special responsibility of dominant firms not to fore-
close competition or to use leverage to obtain advantages over rivals.
26. The US thinking, which seems to be influenced by the Chicago School, rests on the assumption that
authorities do not and cannot possess all the information required to fully understand and analyze the
practices at stake in the cases before them. Acquiring that information, if at all possible, might involve
an excessive expense of time and resources, in relation to the expected gain from the application of com-
petition law. Accordingly, competition law should be implemented with a view to minimize the error
costs and the costs of the enforcement system. To the extent that trade-offs are made, it is preferable to
err on the side of allowing anticompetitive practices (Type II error) than of prohibiting innocuous ones
(Type I error). Other things equal, the error of tolerating questionable conduct, which imposes losses
over a part of the range of output, should be preferred over the error of condemning beneficial conduct,
which imposes losses over the whole range of output. It is further the assumption that market forces
are sufficiently strong to overcome monopoly power, so that Type II mistakes are self-correcting in the
long run.11 EU competition policy, by contrast is based on the assumption that markets are not always
self-correcting, and hence that competition policy can be needed to address the consequences of monop-
oly power. If monopoly power is considered not to be self-correcting, then the cost of Type II errors are
likely to be substantial, and the trade-off between Type I and Type II errors is not so simple to make.
Accordingly, the competition authorities take interventionist stance, while still minimizing error costs,
given information deficiencies on its part.
Addressing dominance concerns in high tech markets:

27. As regards the concern of dominance in high tech markets, those who are influenced by the Schumpete-
rian vision of innovation as a gale of creative destruction, hold the view that the application of antitrust
law must not undermine the ex post rewards to innovators, for fear of undermining the ex-ante incentives
to innovate. For instance, the Chicago schools typical concern for productive efficiency implies that in
a high-tech sector where fixed costs (including R&D) are high and marginal costs low, competition on
the market could be replaced by competition for the market. The US Supreme Court seems to espouse
a view of dynamic efficiency, wherein innovation is seen as a linear, stand-alone process (production
function): resources are invested and innovation results as a function thereof. Such investment must
offer sufficient ex ante perspectives of reward if it is to be undertaken to start with. Since investment is a
crucial element of dynamic efficiency, the law must be careful not to undermine these ex ante incentives.
In Trinko, for example, Scalia J. famously wrote for the US Supreme Court:
The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful;
it is an important element of the free-market system. The opportunity to charge monopoly prices at least for a
short period is what attracts business acumen in the first place; it induces risk taking that produces innovation
and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found
10 Josef Drexl, Consumer welfare and consumer harm: adjusting competition law and policies to the need of developing jurisdictions, op. cit.
(note 59), pp
11 The idea being that monopoly profits attract entry (as endorsed by the Supreme Court in Trinko). Alternatively, if market forces do not suffice
to dissolve monopoly power, intervention can always take place at a later point in time, when more information is available on the consequenc-
38 es of the impugned conduct.
unlawful unless it is accompanied by an element of anticompetitive conduct.

28. Even though, there is no comparable statement in the EU as the European competition authorities are
still building up case-law and decision practice in matters where innovation plays a central role, such as
the Microsoft and Intel cases, it is important to note that innovation cannot just be reduced to an invest-
ment. An innovation is merely an idea till it is brought to the market. This broader view of innovation
sits well with the goal of protection of the competitive process and competition on the merits.
29. Ex post, of course, a linear, stand-alone narrative can always be put forward but ex ante, it is more realistic
to envision that a number of firms will be vying for the next innovative step. Since it cannot be predict-
ed which idea will successfully be brought to market (and increase welfare), all firms need to be incen-
tivized to innovate. While firms are certainly incentivized by the prospect of innovation rents if they
succeed, they also need to perceive that, among all firms competing to innovate, they stand a chance
of succeeding. In this sense, it is sensible to protect the competitive process as a value in and of itself. If
innovation by its nature cannot be predicted by the authorities, and cannot even reliably be produced
by the most skilled and focused firms, the best that competition policy can realistically achieve is to
maximize the innovation rate by ensuring that potentially innovative firms deploy their efforts.
30. While competition authorities are hardly in a position to rule on the validity or promise of R&D ef-
forts, there is nonetheless an outer bound: firms that are merely seeking to copy or clone the products,
processes or business methods of existing firms (copycat firms) do not and cannot innovate. As such,
claims by copycat firms are not deserving, from a dynamic perspective. This view may explain why, in
the law on refusal to deal under Article 102 TFEU, for instance, the plaintiff must show that it is seek-
ing to bring a new product on the market, as is exemplified by the Magill, IMS and Microsoft cases.12 In
contrast to this line of case-law, however, in the Deutsche Telekom price squeeze case13, the ECJ enshrined
a principle of equality of opportunity between firms under Article 102 TFEU, which it read as a re-
quirement that competitors be able to replicate the business strategy and methods of the dominant firm
and allow copycats to invoke Article 102 TFEU in their favour.
31. Bringing the idea to the market is also not strictly linked to investment. Other factors such as, the
inability to gain access to the market (on the supply side) or rejection by prospective customers (on the
demand side) are other important factors in converting idea to innovation. In order to provide appro-
priate incentives for competing firms to innovate, it is crucial that these firms have the ability to put
forward new products and services to potential customers and have customers decide whether these new
products and services meet their preferences. Thus, competition policy must focus on keeping the com-
petitive process open, including the ability to seek customers. From a dynamic perspective, competition
on the merits can be seen as the ability to present new products and services to customers and have
customers decide whether these products and services, as opposed to what is already on the market or
to alternative novelties, find their favour. This is the essence of dynamic competition; if new products
and services cannot find their way to the market, there is no innovation. Fostering competition on the
merits would imply that the law is applied so as to protect the competitive process and keep markets
open for potential innovators. In short, when innovation and dynamic effects are taken seriously and
integrated into competition analysis, the protection of the competitive process and competition on the
merits are infused.
12 ECJ, Case C-241/91 P, RTE [1995] ECR I-743; ECJ, Case C-418/01, IMS [2004] ECR I-5039; GC, Case T-201/04, Microsoft [2007] ECR II-3601
13 C-280/08 P Deutsche Telekom AG versus the European Commission and others decided on 14.10.2010.
All the articles have been jointly penned by:

Tanveer Verma Associate
Radhika Seth Associate
Ajay Goel Partner
Subodh Prasad Deo Partner
39
NOTES
40
NOTES
NOTES
41
NOTES
42
NOTES
43
MISSION
To catalyze and assist governments, corporates and civil society in inventing a future India
as a people oriented economic powerhouse, through citizen-centric good governance,
consumer-centric competitive markets, technology-centric individual innovation and
productivity-centric corporate strategies, in sync with the Sustainable Development Goals.
A-2E, CMA Tower, Sector -24

NOIDA-201301, India
Tel: +91-120-4633900 (100 lines)
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E-58 (GF), G K ENCLAVE II, NEW DELHI - 110048

E-58 (GF), G K ENCLAVE II, NEW DELHI - 110048

Chairperson, CCI**/VC NLU / RAMJI*

Moderation by Nick Franczyk, US Federal Trade Commission (FTC)

Q&A and Roundtable Deliberation

Tea / Coffee Break

Prof. Richard Whish QC (Hon.), Emeritus Professor, Kings College,

Moderation by Amitabh Kumar, Partner, JSA

Q&A and Roundtable Deliberation

S.L. Bunker, Member, CCI*

John Handoll, Senior Adviser European and Competition Law, Shardul

Q&A and Roundtable Deliberation

The state of play

Panel Reflection and Perspectives

Justice G.P. Mittal (Retd.), Member, CCI*

Moderation by Dr. Vijay K. Singh, Associate Prof. IICA

Problems of Market Definition

Panel Reflection and Perspectives

Tembinkosi Bonakele, South African Competition Commission*

Moderation by Naval Chopra, Partner, Shardul Amarchand Mangaldas (TBC)

Panel Reflection and Perspectives

I look forward to your valued comments and criticisms on the articles.

(Subodh Prasad Deo)

DUE PROCESS AND

Formation of prima facie opinion

Right to seek review

Scope of Investigation by the Director General

Compliance of principles of natural justice at the stage of final adjudication

the final order, otherwise the order would become arbitrary.

Section 27 of the Act.

Need for effective Regulations

10 Brushless DC Fansi, Suo Moto Case No. 03 of 2014, decided on 18.01.2017

18 16 Case T-39/11, Cargolux Airlines International vs. Commission

Competition concerns in vertical agreements

Types of vertical agreements

Exclusive Distribution Agreement: An exclusive distribution agreement includes an agreement that

Analysis of the effect on competition or AAEC

Decisional practices of the CCI

Treatment of vertical agreements in the EU and the USA

Vertical Agreements & Dominant Undertakings

26 Explanation (a) to Section 4 of the Act

Penalties by the CCI:

Method of Setting the Fines

Aggravating Circumstances Mitigating Circumstances

Significance of the industry influenced Non-implementation of the infringement

Affected vs Gross Turnover:

The problem of market definition:

Addressing dominance concerns in high tech markets:

unlawful unless it is accompanied by an element of anticompetitive conduct.

All the articles have been jointly penned by:

A-2E, CMA Tower, Sector -24

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