Competition

Concerted Action vs Unilateral Conduct in Competition Law: A Critique – PART II

by Prerna Raturi
This is the second part of a two part series. The first part can be found here.

Flawed Approach of Competition Commission of India

The distinction in the scope and operation of Section 3 and 4 of the Competition At, 2002 is continuously blurring and this is an upshot of CCI’s flawed conceptual approach towards the same. Let us examine this with the help of the case of Department of Agriculture, Cooperation & Farmers Welfare v. M/s Mahyco Monsanto Biotech (India) Limited. It was alleged that Monsanto (MMBL), inter alia, entered into sub-licensing agreements, for the procurement of its Bt cotton technology, with the Indian seed manufacturing companies and imposed such conditions on the manufacturing companies that the agreements fell squarely into the category of anti-competitive agreements. CCI, on scrutinizing the agreements and the conditions stipulated under it, observed that the agreements were in the nature of refusal to deal and exclusive supply agreements within the meaning of Section 3(4)(b) and 3(4)(d) of the Act. It is vital to analyze how acutely CCI has failed to realize that these agreements were not actually a result of concerted action between MMBL and the manufacturing companies but rather an implementation of MMBL’s unilateral conduct.

It was asserted by the Informants, and subsequently recognized by the CCI as well, that the sub-license agreements were one-sided, arbitrary and onerous. The covenants under the agreement not only made the manufacturing companies pay a really high trait value (cost of technology charges) but also restricted them deal with a new technology provider despite being available at a cheaper cost. Furthermore, the trait value was unilaterally fixed and was decided without any negotiations between the parties. On the other hand, the subsidiaries of MMBL were not subjected to the similar unfair conditions and were not required to pay such trait value to MMBL. What is more important is how MMBL leveraged its dominant position in the market to attain huge consumer dependence as even the CCI opined that the agreements not only desisted the sub-licensees from dealing with the competitors, but also caused hinderance to the development of alternate Bt cotton technologies.

All the above-mentioned findings go on to substantiate that the sub-licensing agreements were nothing short of a unilateral attempt on the part of MMBL to restrain trade in the cotton seeds market coupled with the denial of market access to other competitors. Instead of evaluating these agreements in the light of Section 4, CCI fouled up by assessing them under Section 3. Section 3 prohibits any agreement which causes or is likely to cause an appreciable adverse effect on competition within India. Section 2(b) of the Act defines an agreement as “any arrangement or understanding or action in concert”. The word of importance here is “concert”. This means that unless the impugned agreement is not a concerted action, it cannot be called an anti-competitive agreement. Moreover, an agreement cannot be said to be entered into in concert if one of the parties adopt and execute a practice with the knowledge of the other party, resulting in restriction of the competition in the marketplace, but the other party reluctantly acquiesces to it. Hence, the CCI erred in regulating the sub-licensing agreements on the touchstone of Section 3.

This is suggestive of the fact that despite the presence of an element of concurrence of wills or meeting of minds in Section 3, CCI has neglected this requirement causing the risk of mystifying the specific roles and scope of Section 3 and 4.

Conclusion

To the extent a unilaterally imposed arrangement has been employed on the basis of an unwilling compliance, it cannot constitute a concerted action. However, this does not mean that such unilateral conduct when affecting the competition adversely can escape the antitrust scrutiny. If such conduct is fraught with anti-competitive effects, because of firm’s position in the market, it can always be regulated in the name of abuse of dominance under Section 4. But in order to punish the perpetrators, we cannot afford to make this distinction and its scope elastic as in case of a unilateral adoption of measures, only the parties associated and their trade are affected. Whereas, in case of a concerted behavior between two competitors, competition in the whole marketplace gets affected and diminished. It is of the essence that Section 3 of the Act must be made applicable in those cases where the parties have consciously agreed to commit an action having an adverse effect on the competition, not similar to Section 4, where the liability arises on unilateral enforcement of the practices diminishing trade.

Views are personal.

Image credits: The Economic Times

ABOUT THE AUTHOR

Prerna Raturi is currently pursuing law from Symbiosis Law School, Pune.

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