Anti-competitive agreements: Horizontal and Vertical

Introduction:

It is unimaginable in this day and age for any market economy to sustain itself in the absence of fair & free competition. Today, it has become imperative for any market economy in a bid to ensure that resources are effectively allocated, to ensure that its market is free of anti-competitive practices that might potentially hamper the achievement of the aforementioned objective.

Thereby, nation-states across the globe have enacted laws to ensure fair & free competition in the marketplace and so as to keep the marketplace bereft of practices that are either injurious to market competition, or practices that are injurious to the interests of various market stakeholders – such as, businesses, consumers, etc. Furthermore, such laws are also enacted to curb practices that are violative of market ethics.

The Competition Act, 2002:

India too has enacted a legislation with a view to govern competition in the marketplace – The Competition Act, 2002, (hereinafter referred to as “the Act” or “the enactment”). This enactment ensures that market competition in India is conducted in a free & fair manner and that it is not impacted negatively by dominant business entities employing unfair means to affect the market competition in their favour. Furthermore, this enactment also ensures that the interests of the various market stakeholders are also protected.

Agreements that cause AAEC:

Perusal of Section 3 of this Act suggests that this Act is essentially aimed at curbing anti-competitive agreements, i.e., agreements that cause or could potentially cause appreciable adverse effect on competition (“AAEC”) in India. However, according to sub-section (5) under this Section, the Act does not extend its scope to agreements entered into between exporters as exports do not negatively impact Indian markets. Further perusal of the aforementioned sub-section makes it apparent that the Act also facilitates the safeguarding of intellectual property rights (“IPR”) by extending due recognition to them and providing leeway to IPR holders to restrain infringement or impose reasonable restrictions. However, Section 4 of the Act concurrently proscribes IP holders from abusing their dominance.

Section 27 of the Act has vested the Competition Commission of India (“CCI”) with the authority to give directions to modify, discontinue as well as refrain from re-entering into agreements that cause AAEC in India. Further, sub-section (b) of this Section, vests the CCI with the authority to impose such penalty, as it may deem fit which can be 10 per cent of the average of the turnover for the last three financial years.

Horizontal anti-competitive agreements:

These anti-competitive agreements are entered into between competitors that operate at the same level in the production chain. These anti-competitive agreements are usually entered into between two or more competitors for the following reasons:

  • Price fixing;
  • Imposing limitations on production or supply;
  • Market sharing;

It is important to note that the presumption of AAEC is carried by the Act in respect of all such aforementioned agreements. By far the most salient embodiment of such anti-competitive arrangements are Cartels. These are generally entered into between two more competitors (either manufacturers of products or service providers) for price fixing, or imposing limitations on manufacture or supply, or market sharing, and are thereby held to be a form of anti-competitive agreement having the most AAEC in India.

Vertical anti-competitive agreements:

These anti-competitive agreements are entered into between competitors that operate at different levels or stages in the production chain. An example of this would be an anti-competitive agreement entered into between a manufacturer and a distributor of products or service provider.

It is important to note that the presumptive rule applicable in respect of horizontal anti-competitive agreements is not applicable in respect of vertical anti-competitive agreements. Further, the determination of the issue as to whether a vertical anti-competitive agreement causes an AAEC in Indian market is to be determined through application of reasoning. While applying the principles of reasoning, an analysis of both the positive as well as the negative effects of the vertical agreement is to be conducted. In order to assess as to whether any vertical agreement is violative of sub-section (4) read with sub-section (1) of Section 3 of the Act, the following are the essential ingredients that have to be satisfied:

  • There must be an agreement amongst enterprises or persons;
  • The parties to such an agreement must be at different stages or levels of production chain, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services;
  • The parties to such an agreement must be in different markets;
  • Such an agreement must show cause or portend the likelihood of AAEC in India.

Further, sub-section (4) of the Act enumerates an exhaustive list of various kinds of vertical agreements that may be subject to prohibition if, upon conducting an investigation, the CCI has reason to believe that they cause or have the potential of causing AAEC in India. These agreements include:

  • Tie-in arrangements: this includes any agreement whereby; purchaser of goods is required to purchase any other goods as a condition of purchase;
  • Exclusive supply agreements: this includes any agreement which restricts, in any manner, the purchaser from acquiring or otherwise dealing with the goods of the seller or any person;
  • Exclusive distribution agreements: this includes any agreement which limits, restricts or withholds the supply of goods or allocates any area or market for the disposal or sale of goods;
  • Refusal to deal: this includes any agreement which restricts, or is likely to restrict, by any method, the person or persons from or to whom goods are bought and sold; and
  • Resale price maintenance: this includes any agreement wherein goods are sold on the condition that the resale price shall be the price stipulated by the seller, unless expressly stated that prices lower than those prices may be charged.

Conclusion:

The Competition Act, 2002, is the main enactment that protects the competitiveness of the Indian market. The enactment acts as a sentinel against agreements or arrangements reached between persons or business entities that injures or has the potential to injure market competition in India. Thereby, not only ensuring that competition in the Indian market is conducted in a free and fair manner but also ensuring the long-term sustainability of the free market in India. Notwithstanding this, it is imperative that the present enactment is periodically reviewed and/or suitably amended so as to ensure that it continues to remain an efficacious enactment for effectively governing market competition in India.   

Sources:

  1. The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India).
  2. India: Anti-Competitive Agreements: Tests And Tribulation, Mondaq.com (Mar. 03, 2022, 07:43 PM), https://www.mondaq.com/india/trade-regulation-practices/250048/anti-competitive-agreements-tests-and-tribulation
  3. Rahul Rai, Cases and Precedents: Vertical Restraints, azbpartners.com (Mar. 03, 2022, 07:43 PM), https://www.azbpartners.com/bank/cases-and-precedents-vertical-restraints/

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

IF YOU ARE INTERESTED IN PARTICIPATING IN THE SAME, DO LET ME KNOW.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at secondinnings.hr@gmail.com

In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.