Competition

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

by Prerna Raturi

Introduction

Section 3 of the Competition Act, 2002 (the Act) prohibits any concerted agreement or action that causes or is likely to cause an appreciable adverse effect on competition. Any such agreement entered into between the enterprises either working in similar or identical market or engaged in different levels of supply chain in the market, are considered void under this section. Section 4 of the Act defines the term “dominance” and lays down the conditions under which the unilateral behavior of a dominant entity is abusive in the relevant market. It requires to first ascertain whether the alleged abusive conduct of a firm is in a market where it enjoys the dominance. If the answer to this is not in the affirmative, the firm is not dominant and thus, there arises no question of establishing the abuse.

It is thus significant that the concerted action (involving more than one firm) is rather different from the unilateral behavior of a firm. Therefore, whether an action is treated under Section 3 or 4 has its practical consequences because each section employs different standards and threshold for liability. However, when the Competition Commission of India (CCI) overlooks the relevant standards under the two Sections and apply them with rather uncertainty, the issue of blurring distinction in the scope and operation of Section 3 and 4 arises.

Approaches of Other Jurisdictions

Before delving into the issue of CCI’s tendency to conflate the paradigms used to assess anti-competitive agreements with those relating to the abuse of dominance, it is imperative to comprehend the differential treatment of concerted action and unilateral behavior by competition watchdogs of comparative jurisdictions.

Legislations governing competition in EU and US are founded on a two-front approach to anti-competitive conduct. Article 101 of TFEU and Section 1 of the Sherman Act addresses the anti-competitive conduct resulting from those agreements and concerted practices which distort the competition and restrict trade. On the other hand, while Section 2 of the Sherman Act considers both acquiring and maintaining a monopoly by engaging in an abusive conduct a felony, Article 102 of TFEU imposes a social responsibility on a dominant firm and refrains it from adopting any practice that could impair the competition in the relevant market. It is therefore apparent that both the antitrust legislations distinguish a concerted action from unilateral behavior and evaluate them under different standards. However, unlike India, the same is mirrored in the approach of their judicial authorities as well.

In the EU, it was first in the case of Bayer AG v. Commission of the European Communities that the Court of Justice held that the unilateral conduct of a firm cannot fall within Article 85(1) of the EC Treaty (now Article 101(1) of the TFEU), as an agreement or a concerted practice. In Bayer AG/Adalat it was alleged that Bayer entered into an anti-competitive agreement with its wholesalers in France and Spain to thwart them from supplying its pharmaceutical product, Adalat, to parallel exporters to UK. The Commission observed that the prices of pharmaceutical in France and Spain were 40% lesser than what it was in UK, providing an exemplary opportunity for parallel trading of Adalat to UK but, in order to export Adalat, the wholesalers in France and Spain were mandated to first satisfy its domestic demand. That is why, the Commission opined that Bayer calculatingly reduced its supply of Adalat to the wholesalers in Spain and France so that the exports from them to UK do not meddle with its own pricing strategy in UK.

However, the General Court annulled the decision of the Commission on the ground that in order to establish an agreement, one must first prove the existence of “concurrence of wills” between the alleged parties. The Court stated an anti-competitive agreement must be found upon the finding that both the parties necessarily and explicitly agreed to adopt a practice which would attain them a common goal. It is essential that both the parties are aware of the intent behind the adoption of such a practice and are willingly working in furtherance of the same. Two elements are therefore fundamental to the notion of an anti-competitive agreement under Article 101: (i) the existence of a concurrence of wills between at least two parties and (ii) the manifestation, implicit or explicit, of such concurrence. It was for the same reason that even ECJ upheld the General Court’s decision.

Similarly, in General Motors Nederland BV v. Commission the Commission held that Opel Nederland, a subsidiary of General Motors, had implemented a business strategy to restrain export sales by its dealers. This was allegedly executed through a series of individual measures as part of the dealership contracts between Opel and dealers. However, the General Court annulled Commission’s finding and stated that since measures were never communicated to dealers, it cannot be rightly concluded that the measure had entered into the contractual relations between Opel and its dealers. Therefore, it would be erroneous to deem that Opel sought to establish a single market not through its unilateral conduct but through an anti-competitive agreement.

Similar to the requirement of concurrence of wills, Sherman Act also mandates presence of mutual intent to impair the competition between parties to an anti-competitive agreement. It is necessary that the parties benefit from the restraint in trade. This element of intent helps in distinguishing cases of concerted action from those involving unilateral conduct. In Borg-Warner Protective Services Corp. v. Guardsmark Inc. when a security firm made its employees sign a covenant, before employing them, stating that they will not compete, the Supreme Court reasoned that the covenant could not be one in restraint of trade as the employees neither intend to restrain the trade nor did they benefit from such restraint. Thus, an agreement in the absence of meeting of minds and deriving benefit from the same, is not an agreement facilitating restraint of trade.

The most significant case on the matter is that of United States v. Parke, Davis & Co. wherein Parke, Davis & Co. announced a resale price policy advocating a minimum price beyond which the products were not to be sold. Since Parke, Davis &Co. expressed its refusal to deal with those wholesalers and retailers who either declined to observe the minimum resale prices or advertised discounted prices, the wholesalers and retailers had to eventually adhere to the announced policy. The Supreme Court, however, ruled that it was Parke, Davis & Co. who actively induced unwilling retailers to comply with its policy which in turn restrained the trade. Therefore, even though the wholesalers and retailers continued to trade with Parke, Davis & Co., it cannot be said that they also consented to restraint the trade. The decision was obviously based on the requirement of element of mutual intent to determine a concerted action.

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

Views are personal.

Image credits: The Economic Times

ABOUT THE AUTHOR

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

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