-by Samriddha Gooptu
The Indian competition regulator – Competition Commission of India (CCI) had on April 19, 2020, released its “Advisory to Businesses in Time of COVID-19”.
As per the advisory, one primary pointer by the regulator had been its emphasis upon the well-equipped position of the Competition Act, 2002 to deal with competition-related concerns in times of crisis. The advisory clearly points out certain provisions of the legislation and allied corollary interpretations to the same, to substantiate its argument of preparedness for addressing competition-related concerns during this pandemic crisis.
The probable competition-related concerns during this time of pandemic may be in the form of excessive pricing, collusive bidding or abuse of dominant position by enterprises leading to a contravention under Section 3 and Section 4 of the Competition Act, 2002. Off-late, even before this pandemic situation came up, e-commerce platforms like Amazon and Flipkart had attracted the attention of the CCI with regard to their collusive preferential practices with their respective subsidiaries. Alongside, a market study specifically pertaining to the e-commerce sector had also been conducted by the CCI. Therefore, it would be very important to see how the CCI would view the practices of these e-commerce platforms and to what extent would they be exempted while catering to essential goods and services keeping in view the role played by other brick and mortar players in the essential commodities and services supply chain.
Section 19(3) of the Competition Act, 2002 lays down the factors looked into by the CCI while determining whether an agreement has an appreciable adverse effect on competition (AAEC) under Section 3 of the Act. The factors looked into are in the nature of both anti-competitive and pro-competitive factors.
This advisory from the competition regulator was much awaited after similar advisories by competition and market regulators across other jurisdictions were notified to deal with competition-related concerns in times of this global pandemic. Prior to this advisory of the competition regulator, the Ministry of Consumer Affairs, Food and Public Distribution through its notification dated March 21, 2020, regulated price of masks, raw materials required for the production of such masks and hand sanitizers as a precautionary measure to prevent excessive pricing of such commodities falling under the purview of the Essential Goods and Services Act, 1955.
It is important to note that the nature of advisory towards permission of coordination among competitors is largely sector-specific. As a measure of clarity, the CCI in the advisory has cited medical products like ventilators, face masks, gloves, vaccines, services like testing and logistics and essential commodities as examples likely to benefit from investigative liberation.
It is also important to note that although the CCI advisory to businesses has permitted certain sector-specific collaborations among competitors, the scope of such permission or rather exemption would be limited to entertaining only COVID-19 related needs. Enterprises seeking competitor collaborations would have to very cautiously exchange price-sensitive, strategic and cost-related information among themselves within the ring-fence of maintaining competition with each other.
Collaborations which are in the nature of horizontal agreements and falling under the purview of Section 3(3) of the Competition Act, are presumed to be anti-competitive in nature, and such collaborations during the COVID-19 are likely to attract more attention from the regulator and therefore such collaborations should be entered into with extra caution keeping in mind only to entertain COVID-19 related needs.
With respect to vertical agreements falling under the purview of Section 3(4) of the Competition Act, 2002, which are not per se regarded to be anti-competitive, should ensure that such collaborations do not involve an exchange of price-sensitive, strategic and cost-related information which might be detrimental to competition and consumer interest. Also, the collaborations should in no manner be exploitive of the crisis situation through collusive behaviour like increased prices, decreased output or reduced quality.
The advisory of the CCI specifically makes mention of collaborations in the nature of joint ventures in specific sectors. Such joint ventures will be permitted for the sole purpose of meeting COVID-19 needs keeping in mind the accrual benefits to consumers, improved efficiency in production, distribution and supply of essential goods and services.
The following illustration could help us understand as to how a joint venture arrangement could help improve and meet the demand needs of COVID-19 and consequently not be anti-competitive due to pro-competitive effects of such joint venture arrangement.
Illustration: Company A is an enterprise dealing with the production of ventilators having specialised technical know-how but with limited manpower. Company B is also a company producing low-cost ventilators having adequate manpower but with limited specialised technical knowledge. Now if Company A and Company B enter into a joint venture arrangement it would fall under the purview of Section 3(3) of the Competition Act, 2002 as a result of such horizontal agreement, and therefore liable to be held anti-competitive. However, if the nature of the joint venture is such that they only enter into the joint venture for the purpose of producing large scale specialised technical ventilators during this pandemic period, then in such a scenario the CCI may exempt such horizontal agreement falling under the purview of Section 3(3) to be anti-competitive owing to the pro-competitive impacts of the joint venture towards accrual benefits to consumers and improved capacity of production and distribution of ventilators.
Therefore, with respect to the investigative way forward towards such collaborations, the CCI is likely to individually analyse them in terms of a balancing equation weighing in the pro-competitive and anti-competitive factors enlisted under Section 19(3) of the Competition Act, 2002.
Alongside, looking into instances of anti-competitive practices, the other primary competition-related concern which the CCI is likely to look into with a birds-eye view is that of abuse of dominance. Although joint ventures entered into with the primary focus of catering to this pandemic situation may be looked into with a liberated approach, any activity entered into by dominant enterprises which may amount to be abusive in the long run is likely to face scrutiny from the CCI. Therefore, enterprises with significant market power who may attempt to capitalize upon excessive demand and supply shortfalls particularly with respect to essential goods and services or by making misleading claims about efficacy thereby influencing consumer preferences are likely to be strictly dealt with by the CCI, as such may be regarded to be an aggravating factor in light of the government’s attempt to cap retail prices of essential goods and services.
Position of other foreign competition regulators:
This advisory of the CCI with regard to the conduct of enterprises collaborating for increasing efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services is para materia to the advisories, directions and decisions of other competition and market regulators in other jurisdictions.
In the United States, a joint statement by the US Department of Justice (Antitrust Division) and the Federal Trade Commission (FTC) was made confirming permission to collaborations between competitors in respect of (i) R&D collaborations; (ii) sharing of technical know-how, standards of patient management developed to assist in the clinical decision-making process and; (iii) joint purchase agreements among healthcare providers as pro-competitive in nature in times of this crisis.
The European Commission (EC) also on April 8, 2020, released its “temporary framework for assessing antitrust issues to business cooperation in response COVID-19 crisis”. In its temporary framework, the EC has permitted cooperation in the health sector in order to ensure adequacy in the supply and distribution of medicines and allied medical equipment required for testing and treatment of COVID-19 cases.
In furtherance, the UK competition regulator – Competition and Markets Authority (CMA) on March 25, 2020, released its guidance towards the approach to be adopted by the CMA towards business cooperation in response to COVID-19. As per the guidance, the CMA has stated that it would not take action against coordination approaches undertaken by enterprises that are appropriate and necessary towards avoiding shortages and contributing to consumer welfare during this crisis period.
The South African Competition Commission on April 23, 2020, charged a national pharmaceutical wholesaler, distributor and retailer for inflating prices during the COVID-19 crisis. The enterprise in question was charged with conduct pertaining to excessive pricing on essential hygienic goods, detrimental to competition and consumer interests.
This investigation by the South African competition regulator towards anti-competitive conduct even during this period of crisis, is a major indicator of similar investigations by other competition regulators towards such anti-competitive conduct in other jurisdictions including the CCI.
The Probable Way Forward:
The CCI with this advisory mentioned above has laid down a definitive framework to deal with competition-related concerns during this pandemic crisis. In furtherance to this advisory, the CCI has previously through notifications, commenced partial operations. As an adaptive measure, the CCI has permitted electronic filings with respect to combinations, and cases pertaining to Section 3 and 4 of the Competition Act, 2002. Even pre-consultation services for parties to proposed combinations have been commenced by way of video-conferencing alongside also processing of new and pending cases before the CCI.
The investigative practice to be adopted by the CCI during this time of pandemic although imply a definitive framework, it would not be surprising if the CCI comes up with more robust mechanisms while examining instances of anti-competitive conduct. This is primarily because of the nascent stage of the competition regime in India. The CCI and other competition appellate authorities like the Supreme Court, NCLAT and COMPAT have previously relied upon the investigative and decision making modus operandi of other competition regulators in other jurisdictions, and therefore an evolutionist and dynamic approach may very well be on the investigative cards of the CCI.
With respect to merger control cases during this pandemic, the way forward may be to assess the probable financial position of the combining parties as a result of the crisis situation and provisionally approve the combination with certain modifications if necessary. It is unlikely, that the CCI would disapprove any proposed combination owing to the practice adopted by it in merger control cases so far. Wherein, the likelihood of anti-competitive adverse effect may be foreseen as a result of a proposed combination necessitated modifications may be suggested and concurrently made to such combination before their approval.
Views are personal.
Image Courtesy: Citizen Vox
ABOUT THE AUTHOR
Samriddha Gooptu is a 5th year undergraduate law student at Amity Law School, Noida.