Rule per se

Under per se rule, the acts or practices specified by the Act as deemed or presumed to have
an appreciable adverse effect on competition are by themselves prohibited. It is unnecessary,
under the per se rule, if they limit or restrict competition. This is on the basis of established
experience of their nature to produce anti-competitive effects.
The US Supreme Court explained in the case Northern Pacific Railway Co. v. United
States, the basis of per se rule. It was said that there are certain agreements or practices
which because of their pernicious effect on competition and lack of any redeeming virtue are
conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as
to the precise harm they have caused or business excuse for their use.
The principle of per se unreasonableness avoids the necessity for an incredibly complicated
and prolonged economic investigation into the entire history of the industry involved, as well
as related industries, to determine at large whether a particular restraint has been
unreasonable an inquiry so often wholly fruitless when undertaken. In State Oil Co. v Khan,
the US Supreme Court held that vertical price fixing is no longer considered a per se violation
of the Sherman Act, but horizontal price fixing is still considered a breach of the Sherman
Act.
Also in 2008, the defendants of United States v LG Display Co. , United States v. Chunghwa
Picture Tubes , and United States v. Sharp Corporation heard in the Northern District of
California, agreed to pay a total sum of $ 585 million to settle their prosecutions for
conspiring to fix prices of liquid crystal display panels, which was the second largest amount
awarded under the Sherman Act in history. Elaborate enquiry is not made in respect of such
activities. Only the involvements of the alleged parties in such activities are enough. In USA,
price fixation, group boycotts, tying arrangements are considered per se bad.
The efficacy of having per se rule in place can be explained with an example. In a jurisdiction
where tying arrangement is considered per se illegal, there only the question of the tied
product being tied with another product and the compulsion of the consumers in buying both
the products proves the allegation and accordingly the competition agency can take
appropriate action. In another jurisdiction, where it is treated with rule of reason, the
following things are supposed to be proved. First, the tying arrangement must involve two
different products. Manufactured products and their component parts, such as an automobile
and its engine, are not considered different products and may be tied together without
violating the law. Second, the purchase of one product must be conditioned on the purchase
of another product. A buyer need not actually purchase a tied product in order to bring a
claim. If a vendor refuses to sell a tying product unless a tied product is purchased, or agrees
to sell a tying product separately only at an unreasonably high price, a court will declare the
tying arrangement illegal. If a buyer can purchase a tying product separately on
nondiscriminatory terms, however, there is no tie. Third, a seller must have sufficient market
power in a tying product to restrain competition in a tied product. Market power is measured
by the number of buyers the seller has enticed to enter a particular tying arrangement. Sellers
expand their market power by enticing additional buyers to purchase a tied product.
However, sellers are prohibited from dominating a given market by locking up an
unreasonably large share of prospective buyers in tying arrangements. Fourth, a tying
arrangement must be shown to appreciably restrain commerce. Evidence of anticompetitive
effects includes unreasonably high prices for tied products and unreasonably low prices for
competing products in a tied market. So the example shows for establishing liability in cases
relating to anticompetitive activity, while treating the activity with rule of reason, the
procedure is longer, more elaborate, more expensive and more technical. If the competition
agencies can identify certain activities as more harmful than the other ones, those activities
can be broad under the per se rule scanner.

Rule of reason
Under Rule of Reason the effect of competition is found on the facts of the case, the market,
and the existing competition, the actual or probable restraint on competition. Tata
Engineering and Locomotive Co. Ltd v. Registrar of Restrictive Trade Agreement, was
the case where Supreme Court of India interpreted rule of reason.
It was held that to determine the question 3 matters are to be considered,
(a) What facts are peculiar to the business to which the restraint is imposed,
(b) what was the condition before and after the restraint is imposed,
(c ) what is the nature of the restraint and what is its actual and probable effect.
In case of rule of reason test, the pro-competitive effects are balanced with the anti-
competitive effects, and after that if the pernicious effect is considered higher the activity if
prevented by the competitive agency of the respective jurisdiction. In certain jurisdictions
where criminal sanctions are there, the competition agencies try most of the cases with rule of
reason approach because the criminal liability in cases like cartelization the evidence to be
adduced is measured by proof beyond reasonable doubt. Where doubt is raised before the
courts, the doubt goes in favour of the accused and the competition agencies don’t want to
take risk in losing cases before the respective courts for lack of collateral evidence.

India’s position on Rule per se and rule of reason

Indian Competition Act could have identified certain categories of anti-competitive activities
like bid-rigging or price-fixing, which could be considered to be per-se bad.
For others India had devised the appreciable adverse effect on competition test to determine
the liability of the alleged party. There are no separate categories of trade practices which are
examined by per se rule.

APPRECIABLE ADVERSE EFFECT ON COMPETITION IN INDIA

Under Section 19(3) of the Act, the CCI is required to have due regard to all or any of the
following factors
in determining whether or not a particular agreement is anticompetitive:

(a) creation of barriers to new entrants in the market;

(b) driving existing competitors out of the market;

(¢) foreclosure of competition by hindering entry into the market;

(d) accrual of benefits to consumers;

(f) promotion of technical, scientific and economic development by means of production or

In relation to abuse of dominance, it should be noted that the Act interestingly does not
specify any factors to determine whether or not conduct would amount to an abuse of
dominance, resulting in the interpretation that abuse of dominance is a per se offence and is
not determined by the ‘rule of reason’ approach.
However, the Act does specify a set of factors to determine whether or not an enterprise may
be considered dominant, in Section 19(4). It should be noted that the” CCI has, however, in
practice adopted a rule of reason approach in determining whether an enterprise has
abused its dominance in the relevant market in India, such as in DhanrajPillai v. Hockey
India®’ and Others and Arshiya Rail case.

Kapoor Glass Pvt Ltd v Schott Glass India Private Limited*®

The COMPAT overturned the CCTs finding of abuse of dominance by Schott Glass, holding
that a discriminatory discount policy was one where equivalent transactions are treated
differently and that charging different prices and conditions for different quantities does not
amount to imposing discriminatory conditions or prices, especially if the discrimination is on
the basis of quantity sold.

The COMPAT observed that granting more favourable terms to customers who purchase
large quantities is not an unfair practice, allowing manufacturers to incentivize customers to
provide the certainty of demand and recoup large capital investments. The CCI, on the other
hand, had imposed a minimal penalty of INR 566.6 million (approximately USD 9.16
million) on Schott Glass for abuse of dominance, based on the facts that Schott Glass was
offering higher and more favourable discounts to Schott Kaisha and required execution of the
trademark licensing agreement in relation to functional discounts, the terms of which were
heavily tilted in its favour.

Shubham Srivastava v. Department of Industrial Policy & Promotion (D1PP) Ministry

Where the CCI while considering foreign direct investment policy of the Central Government
which did not permit foreign airlines to invest in Air India, held that since the policy did not
appear to be hampering competition, there was no AAEC.

Maharashtra State Power Generation Ltd v. Coal India Ltd &Ors

The CCI imposed a hefty fine of INR 17730.5 million (approximately USD 286.51 million)
on Coal India Limited (CIL). This was the first decision in relation to an abuse of dominance
finding by a public sector undertaking. The CCI found that CIL had contravened Section 4 of
the Act, by imposing onesided and unfair conditions in relation to the supply of coal to power
companics, without any bilateral discussions.

The CCI restricted the definition of the relevant geographic market to India, based on the
reasoning that Section 4 of the Act defined a “dominant” position as a position of strength
enjoyed by an enterprise, in the relevant market, in India. Further, CIL's dominant position
finding was attributed to its market share of 63% in the relevant market and the
nationalization Acts and the government policy by virtue of which it had been was vested
with the ownership of coal mines. In addition to imposing a penalty, the CCT also directed
that CIL modify the fuel supply agreements in consultation with all stakeholders.

Surinder Singh Barmi v Board for Control of Cricket in India

The CCl imposed a penalty of INR 524 million (approximately USD 8.47 million) on the
Board of Control for Cricket in India (BCCI). The CCl investigated an alleged abuse of
dominance by BCCI in relation to irregularities while granting franchise rights for team
ownership, media rights for coverage of the league sponsorship rights and other local
contracts related to the organization of Indian Premier League (IPL). BCCl's dominance in
this case was established inter alia on the basis of BCCT's regulatory powers, the
infrastructure owned and controlled by BCCI and its role as an organizer of first
class/international cricket. The CCI found the BCCI to have abused its dominant position by
denying market access to potential competitors through agreements for 10 years duration,
where the BCCI undertook not to organize, sanction, recognize, or support any another
professional domestic Indian T20 competition that was competitive to the IPL.

DLF case

The CCl imposed a significant penalty of INR 6300 million (approximately USD 101.80
million) on DLF Limited (DLF) for abusing its dominant position in the relevant market for
‘highend residential apartments in Gurgaon’ by imposing unfair and unilateral terms and
conditions on the buyers in the apartment buyer's agreement and requiring them to make
substantial payments upfront. The CCI concluded that DLF had a dominant position on the
basis of DLF's large asset base, market share of over 55% in Gurgaon and 3040% all over
India, vertical integration, significant partnerships and joint ventures, vast experience in real
estate development in the relevant market. statements issued by DLF Limited in the public
domain (relating to its dominance in the market, in its red herring prospectus, annual report)
etc. It is pertinent to note that a supplementary order has recently been passed by the CCI in
this case based on direction received by the COMPAT to modify the agreement entered into
between the real estate developer (i.c. DLF) and the buyers (i.e. flat owners). This order will
have huge implications on the way agreements are drafted by real cstate developers, keeping
in mind the interests of the buyers.

Exclusive Motors Pvt. Limited v. Automobili Lamborghini S.P.A""

The COMPAT dismissed the appeal against CCl's order, holding that there was no prima
facie case against Automobili Lamborghini SPA (Lamborghini) and Volkswagen Group
Sales India Pvt Ltd for contravention of Sections 3 and 4 of the Act. With respect to abuse of
dominant position by Lamborghini. the COMPAT reiterated CCI's findings and observed that
since in the last 5 years, only 93 cars of all manufacturers of sports cars had been sold in
India, the relevant market was miniscule and as such. none of the super sports car
manufacturers in the Indian market could be said to be dominant as far as their market share
was concerned. The COMPAT further noted that every enterprise had the right to appoint its
own group company as an importer and this could not be a ground for alleging contravention.
The CCl's aggressive enforcement action in relation to abuse of dominance cases reflects a
lack of consistency with which the CCI defines the relevant market in abuse of dominance
cases. The same can also be said for CC's application of economic evidence while
determining the relevant market. Giver that the test of dominance is based on the relevant
market, it would be useful for the CCI to provide definitive guidance in the form of
guidelines, in addition to factors under Section 19(5) and (6) of the Act.