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A Study of J. Sai Deepak's Comments on Competition Law in India

Posted by Aarushi Bansal at Nov 19, 2015 03:15 AM |
In his blog, 'The Demanding Mistress', J. Sai Deepak has commented on the competition law in India, using provisions of different acts, case judgments and amendments to these acts. He has also included a comment on India’s patent law. This review studies his comments to the Competition Act, 2002 (“Competition Act”) and the Patents Act, 1970 (“Patents Act”).

Read J. Sai Deepak - The Demanding Mistress[1]. Nehaa Chaudhari provided inputs and edited this blog post.


The Nexus Between the Competition Act and the Patents Act

Sai Deepak explains the nexus between the Competition Act and the Patents Act[2] using two positions. Firstly, by using two situations to explain which of these two acts will apply under different circumstances. Secondly, by explaining the overlap that is apparent in cases of abuse of power.

Under the first issue, the two situations are thus. In a case where a patentee's patent over a technology allows him to acquire a position of dominance, Competition Act will be applied if he abuses this dominance. In case a patentee imposes a high license fee on his product, many players cannot afford it and get ejected from the market. Here, both the acts would apply, thereby indicating an overlap.

Under the second issue, it is stated that abuse of power could also happen if a patentee sets an "unfair price". Therefore, Sai Deepak argues that for ensuring fair or affordable price, there should be harmony between Competition Act and Patents Act. He has derived harmonized interpretations of "unfair price" under the Competition Act and "reasonably affordable price" under the Patents Act. He explains that the price under each law is measured according to the price for the licensee and not the price demanded or the value of the licensed technology. He further, argues that such a harmonization is possible since "price" under these two acts is essentially used in the same context. It is necessary to harmonize the two acts since the overriding effect of Section 60 of the Competition Act can be effective only when an inconsistency is proved with the other provisions or laws.

Patents and Competition "Arrangements"

An arrangement[3] or collusion may exist between two market players if their activities can be foreseeably linked, even if there is no express act or formal arrangement between these parties. This has been explained through an example.

A sells a patented drug in the market. B sells another patented drug which is similar to the drug sold by A. A also has some share in B's company. When C introduces a similar drug at a much cheaper price, B is forced to reduce his the price of his drug. A follows suit.

It may be noted that since there were similarities between the drugs being sold by A and B, and, therefore the patent, it may have been possible for B to challenge A’s patent on prior art and eject A from the market, thereby reducing competition.

Since he did not challenge A's patent which was closest to that of B in terms of prior art, there may be an arrangement between A and B. This shows that A and B decided to divide the market and not encroach upon each other's trading space. In addition to this, the fact that A was a shareholder in B's company, points in the direction of a collusive activity.

Legality of Pay-for-Delay Settlement Payments

This post, as written by Amshula Prakash, refers to J. Sai Deepak's comments on the topic. She has described a Pay-For-Delay settlement [4] as a patent settlement wherein the patentee pharmaceutical company pays the generic manufacturer to remain ejected from the market for a certain period of time.

She justifies these agreements by relying on the case of Federal Trade Commission v. Actavis [5],which upheld that such agreements are lawful as long as their anti-competitive activities are covered under the exclusive patent granted to them. She opines that entering late into the market is better than not entering at all, and such a deal would anyway not go beyond the life of the patent. She concludes by reiterating J. Sai Deepak's statement that the exact impact of the agreement cannot be ascertained, as no such cases of Pay-For-Delay agreements have arisen in the Indian market yet.

Collective Bargaining

J Sai Deepak has addressed two issues under this post. Firstly, the relation between collective bargaining and cartel-like conduct. Secondly, whether any defense under S.3(3) [6] of the Competition Act is available against cartel-like conduct.

In first issue, [7] J. Sai Deepak suggests that collective bargaining is a joint venture as it increases efficiency of entities in providing services. Similarly, an agreement to reduce such efficiency is also a joint venture, since it may ensure competitiveness in the market and control over prices. He specifies grounds to determine the purpose of a collective act which helps ascertain whether it will be covered under "collective bargaining". These include the nature of business, parity between parties, past negotiations etc. He has relied on foreign sources to justify cartel-like behavior of smaller entities, like Australia's Dawson Committee  and Taiwan's efforts to integrate smaller enterprises into the mainstream market to increase efficiency and competitiveness. Hence he suggests that an amendment should be made in law to permit small businesses to make an exception to cartel-like conduct and collective bargaining.

Under the second issue, [9] he opines that a strict assumption of the presence of any anticompetitive nature or agreement is counter productive to the intention of the law. The available defenses under S.3(3) for parties accused of cartel-like conduct can be justified using the proviso[10] under this section. He explains that collective bargaining may be seen as a "joint venture" under the proviso of S.3 if it is not anti-competitive. He has further supported this argument by relying on FICCI - Multiplex Association of India v. United Producers/ Distributors Forum, [11] where "collective bargaining" was accepted as a valid defense to cartel-like behavior.

Power of Competition Commission with Respect to Abuse of Powers

J. Sai Deepak has explained the powers of the Competition Commission of India (CCI),[12] firstly, with respect to abuse of powers and secondly, in terms of imposing liability.

With Respect to Abuse of Powers

With respect to abuse of powers, he refers to Section 4 of the Competition Act. It refers to a situation wherein a dominant player in the market sets a discriminatory (including predatory price) or unfair price in the sale of his good. Predatory pricing is explained in this section and not discriminatory or unfair price. J. Sai Deepak argues that since they are capable of having different meanings, there might be different forms of abuse which a dominant entity can exercise.

He relies on a test laid down in a case on unfair price, namely United Brands Company v. Commission of the European Communities.[13] A question arising under this test was whether the regulator is expected to fix prices if they are found to be unfair. To show that the CCI has the power to fix prices, S.27 and 28 of the Act have been compared. Section 27(d) empowers the CCI to direct that agreements which are in contravention of Section. Furthermore, Section 27 (g) allows the CCI to pass orders 'it may deem fit'. Section 28(2)(a) empowers the CCI to vest property rights, which creates licenses for third parties. The CCI can set future commercial terms in agreements remove complexities of the market in the interest of equity and justice. This shows the abundant powers the Competition Commission of India has to set prices.

In Terms of Imposing Liability

To answer whether these decisions of the CCI are in rem [14], he explains that the CCI can regulate market transactions and the finding of an abusive practice would be applied to other enterprises with similar practices. This shows that CCI lays down rules prescribing acceptable practices in the market.

Review of the Competition Amendment Bill, 2012

This post discusses the proposed amendments in the Bill [15] regarding three issues. Firstly, in regards to joint dominance, i.e. position of dominance enjoyed by one or more enterprises, J. Sai Deepak argues that the Bill recognizes an oligopolistic market's collusive activities, thereby providing a legal method of identifying it. He argues that it is not yet time to introduce it into the Indian industrial arena, since S.3 which regards anti-competitive agreements, is too rigorous to harmonize the concept of joint dominance with it.

Secondly, another proposed change is to render the decision taken under S.21[16] appeal-able under S.53A of the Act. He criticizes this by saying that an appeal on S.21 while adjudicating on S.53A may lead to a multiplicity of legislations and jurisdiction issues.

Lastly, the amendment of S.5A, empowers the government to specify the values of any assets or turnovers based on the class of enterprises. The government may consult the CCI, but the consultation is not binding or of mandatory assent, which shows that the CCI might turn into a tool which furthers the powers of the executive.

Conclusion

On reading J. Sai Deepak's comments on the competition law in India, I have concluded that several provisions under legislations regulating competition in Indian markets might still not be comprehensive. This may be because many scenarios for which these provisions have been made have not yet arisen in India. Hence a few outcomes of these legislations remain to be mere speculations and as several developments in the market are still underway, laws like the Competition Act should adopt to these if and when they arise.


[1]. http://thedemandingmistress.blogspot.in/

[2]. http://thedemandingmistress.blogspot.in/2013/09/the-overlap-between-patents-and.html#links

[3]. http://thedemandingmistress.blogspot.in/2011/10/patents-and-competition-need-for.html#links

[4]. http://thedemandingmistress.blogspot.in/2013/06/legality-of-pay-for-delay-settlement.html#links

[5]. 570 U. S. ____ (2013)

[6]. Defines the type of agreements which would qualify as anti-competitive

[7]. http://thedemandingmistress.blogspot.in/2012/01/collective-bargaining-and-cartel-like.html#links

[8]. Committee of Inquiry for the Review of the Trade Practices Act of the Australian Parliament

[9]. http://thedemandingmistress.blogspot.in/2012/01/competition-act-is-collective.html#links

[10]. Refers to “any agreement entered into by way of joint ventures”.

[11]. Case No. 01 Of 2009

[12]. http://thedemandingmistress.blogspot.in/2015_01_01_archive.html

[13]. C-27/76 [1978]

[14]. http://thedemandingmistress.blogspot.in/2014/07/are-decisions-of-competition-commission.html#links

[15]. http://thedemandingmistress.blogspot.in/2015/03/a-review-of-competition-amendment-bill.html#links

[16]. Reference by Commission to statutory authority in case of contravention with the Act

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