Validity of Anti-Competitive Agreement

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Introduction

As per section 3 of the Competition Act, 2002, Anti-competitive agreements are void agreement which causes appreciable adverse effect on competition (“AAEC”) within India. Agreement which are entered between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels which is causing restrain on  production, supply, distribution, storage, acquisition or control of goods or provision of services for other competition in the market are known as Anti- Competitive Agreement.

As per Competition Act, 2002: Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, trade in goods or provision of services”.

Types of Anti- Competitive Agreement

  1. Horizontal Agreement

  2. Vertical Agreement

Horizontal Agreement: Horizontal agreements are set of promises between two or more parties which are at the same level of production chain and that is generally between rival organization to curb the competition in the market by fixing of prices and supply of product or services provided by them, this also includes cartel.

As per section 3(3) of the act provides that if any agreement is entered between the parties mentioned above including cartel for following purposes:

  1. Directly or indirectly determines purchase or sale prices;
  2. Limits or controls production, supply, markets, technical development, investment or provision of services;
  3. Shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;
  4. Directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition. bid rigging is referred to as effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.

Then such agreement will be void as it will be presumed to cause AAEC under the act. But there is an exception to this rule, any agreement entered by parties to form the joint venture to increase the production, supply, distribution, storage, acquisition or control of goods or provisions of services then it will not be covered under AAEC and will be a valid agreement.

Vertical Agreement: Vertical agreement are set of promises between two or more parties which are different stages of the production chain such as agreement between producer and distributer. For determining whether an agreement between a producer and distributer is causing AAEC under section 3 of the act following conditions have to satisfied:

  1. Tie-in arrangement: any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods.
  2. Exclusive supply agreement: Agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods
  3. Exclusive distribution agreement: agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods
  4. Refusal to deal: Agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought.
  5. Resale price maintenance, shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India. 

Anti-Competitive Agreement in Case of Intellectual Property

As per section 3(5) of the Competition Act, 2002 there is a right to put reasonable restraint on use of intellectual property for protecting the same from the competition when entering into the agreement with other party. The intellectual property should be registered in following acts to covered in this section:

  1. The Copyright Act, 1957 (14 of 1957);
  2. The Patents Act, 1970 (39 of 1970);
  3. The Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999);
  4. The Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999);
  5. The Designs Act, 2000 (16 of 2000);
  6. the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000);
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In context of the term ‘reasonable care’ CCI states that for protection of IPR would not attract Section 3, however, imposition of ‘unreasonable condition’ to protect IPR would contravene Section 3 of the Act. Any condition which is written in the agreement to protect the IPR is termed is a termed as reasonable condition only if IPR is recognized as per Section 3(5) and will not attract any Section 3(1) as per judgment in the case of Shamsher Kataria v. Honda Siel Cars India Ltd.  and others.

Conclusion

The regulation of Anti-Competitive Agreements by the Act has many loopholes and could be strengthened further by implementing the procedures of the act properly and in a fair way CCI. The provisions of section 3 are positive step towards establishing fair and just trade practices in the country. It is also important for the parties doing business to be diligent and proactive in their practices to avoid implications of Anti-Competitive Agreements.

References

Section 3 in the Competition Act, 2002- Indian Kanoon

India: Anti-Competitive Agreements: Tests And Tribulation

Anti-Competitive Agreements under the Competition Act

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