COMPETITION LAW

UNIT-II ANTI-COMPETITIVE
AGREEMENTS
Ms.DIVYA.K
Asst Professor(Contract Basis)
School of Excellence in law-TNDALU
 UNIT-II ANTI-COMPETITIVE
AGREEMENTS
Definition – Tie in Arrangement –
Exclusive supply Agreement –
Exclusive distribution Agreement –
Refusal to deal- Resale price
maintenance – Cartel – Bidrigging –
exceptions – protection of IPR
 ANTI COMPETITIVE AGREEMENTS-
OVERVIEW
One of the main objectives of Competition Act, 2002
is to promote a fair and healthy competition in the
market and prevent anti-competitive
practices/agreements that cause or are likely to cause
appreciable adverse effect on competition.
The Competition Act, 2002 prohibits such Anti-
Competitive Agreements relating to production,
supply, distribution, storage, acquisition or control of
goods or provision of services, which cause or are
likely to cause an Appreciable Adverse Effect on
Competition(AAEC) within India.
According to Section 32 of the Act even if an
agreement has been entered into outside India, the CCI
has power to enquire into such an arrangement if such
an agreement has an AAEC in India. These anti-
competitive agreements are declared void by Section
3(2) of the Act.
 CHAPTER II-SEC 3-6 PROHIBITION OF CERTAIN AGREEMENTS,
ABUSE OF DOMINANT POSITION AND REGULATION OF
COMBINATIONS
DEFINITION OF ANTI-COMPETITIVE AGREEMENTS
Sec 2(b) Competition Act,2002 defines Agreement
“Agreement” includes any arrangement or understanding or action in concert,
(i) whether or not, such arrangement, understanding or action is formal or in
writing; or
(ii) whether or not such arrangement, understanding or action is intended to be
enforceable by legal proceedings;
While engaging in a business activity in India, the parties to an agreement
although have the freedom of trade are prohibited from entering into
agreements that are anti-competitive in nature.
Anti- Competitive Agreements are those agreements that have their object
in furtherance of or prevent, restrict or distort competition in India.
Competition Act of 2002 defines the kind of anti-competitive agreements that
cannot be made in India. According to Section 3 of the Competition Act, any
agreements entered into are deemed to be anti-competitive if it falls into
any of the categories as mentioned in the section.
 ANTI-COMPETITIVE AGREEMENTS-SEC 3
Sec 3. Anti-competitive agreements
(1) No enterprise or association of enterprises or person or association of persons shall enter into any
agreement in respect of production, supply, distribution, storage, acquisition or control of goods
or provision of services, which causes or is likely to cause an appreciable adverse effect on
competition within India.
(2) Any agreement entered into in contravention of the provisions contained in subsection (1) shall be
void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or
associations of persons or between any person and enterprise or practice carried on, or decision
taken by, any association of enterprises or association of persons, including cartels, engaged in
identical or similar trade of goods or provision of services, which—
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development, investment or provision of
services;
(c)shares the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the
market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an
appreciable adverse effect on competition:
Provided that nothing contained in this sub-section shall apply to any agreement entered into
by way of joint ventures if such agreement increases efficiency in production, supply,
distribution, storage, acquisition or control of goods or provision of services.
 (4) Any agreement amongst enterprises or persons at different stages or levels
of the production chain in different markets, in respect of production, supply,
distribution, storage, sale or price of, or trade in goods or provision of
services, including—
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
shall be an agreement in contravention of sub-section (1) if such agreement
causes or is likely to cause an appreciable adverse effect on competition in
India.
Explanation.—For the purposes of this sub-section,—
(a) “tie-in arrangement” includes any agreement requiring a purchaser of
goods, as a condition of such purchase, to purchase some other goods;
(b) “exclusive supply agreement” includes any agreement restricting in any
manner the purchaser in the course of his trade from acquiring or otherwise
dealing in any goods other than those of the seller or any other person;
 (c) “exclusive distribution agreement” includes any agreement to limit, restrict or
withhold the output or supply of any goods or allocate any area or market for the
disposal or sale of the goods;
(d) “refusal to deal” includes any agreement which restricts, or is likely to restrict, by
any method the persons or classes of persons to whom goods are sold or from whom
goods are bought;
(e) “resale price maintenance” includes any agreement to sell goods on condition that
the prices to be charged on the resale by the purchaser shall be the prices stipulated by
the seller unless it is clearly stated that prices lower than those prices may be charged.
(5) Nothing contained in this section shall restrict—
(i) the right of any person to restrain any infringement of, or to impose reasonable
conditions, as may be necessary for protecting any of his rights which have been or
may be conferred upon him under—
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act,
1999 (47 of 1999);
(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of
1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000); (ii) the
right of any person to export goods from India to the extent to which the agreement
relates exclusively to the production, supply, distribution or control of goods or
provision of services for such export.
(ii) the right of any person to export goods from India to the extent to which the agreement
relates exclusively to the production, supply, distribution or control of goods or
provision of services for such export.
 Section 3(1) of the Act provides a general prohibition
on the following to enter into agreements which causes
or is likely to cause an AAEC in India:
 Enterprise and enterprise;
 Enterprise and association of enterprises;
 Two associations of enterprises;
 Two persons;
 Person and an association of persons;
 Between two association of persons;
 Person and an enterprise;
 Person and an association of enterprise;
 Association of persons and enterprises;
 Association of persons and association of enterprises
If an agreement is entered between any of the above, it
would be void under the Act
 ENTERPRISE-SEC 2(h)
“Enterprise” means a person or a department of the
Government, who or which is, or has been, engaged in
any activity, relating to the production, storage,
supply, distribution, acquisition or control of
articles or goods, or the provision of services, of any
kind, or in investment, or in the business of
acquiring, holding, underwriting or dealing with
shares, debentures or other securities of any other
body corporate, either directly or through one or more
of its units or divisions or subsidiaries, whether such
unit or division or subsidiary is located at the same
place where the enterprise is located or at a different
place or at different places, but does not include any
activity of the Government relatable to the sovereign
functions of the Government including all activities
carried on by the departments of the Central
Government dealing with atomic energy, currency,
 CATEGORIES OF ANTI-
COMPETITIVE AGREEMENTS
These categories broadly include the following agreements,
between two entities, engaged in trade of similar or
identical goods or services:
 That directly or indirectly leads to determination of purchase
or sale prices;
 That limits or controls production, supply, markets, technical
development, investment or provision of services;
 That shares the market or source of production or provision of
services by way of allocation of geographical area of market,
or type of goods or services, or number of customers in the
market or any other similar way;
 That directly or indirectly results in bid rigging or collusive
bidding, shall be presumed to have an appreciable adverse
effect on competition. Whether an agreement has an anti-
competitive effect on the competition in India is to be decided
by the Competition Commission of India.
 APPRECIABLE ADVERSE EFFECT ON COMPETITION-
AAEC
To bring in the application of Section 3, it is pertinent that the
effect on competition must be ‘appreciable’. The term
‘appreciable adverse effect on competition’, used in section
3(1) has not been defined in the Act. The determination of
‘appreciable’ has proved to be a main problem under the
Competition Act.
Any agreement which causes or is likely to cause an appreciable
adverse effect on competition within India shall be void.
Sec 19(3) The Commission shall, while determining whether an
agreement has an appreciable adverse effect on competition
under section 3, have due regard to all or any of the following
factors, namely:—
(a) creation of barriers to new entrants in the market;
(b) driving existing competitors out of the market;
(c) foreclosure of competition by hindering entry into the market;
(d) accrual of benefits to consumers;
(e) improvements in production or distribution of goods or
provision of services; or
(f) promotion of technical, scientific and economic development
 KINDS OF ANTI-COMPETITVE
AGREEMENTS
Anti-competitive agreements are further classified into

HORIZONTAL
AGREEMENTS-SEC 3(3)

VERTICAL
AGREEMENTS-SEC 3(4)
HORIZONTAL AGREEMENTS-Section 3(3)
 Horizontal agreements are agreements/arrangements between
enterprises/persons at the same stage of production and hence generally
take place between rivals.
 For example, agreement between two or more manufacturers of same
product or; between two or more service providers of same service.
 Section 3(3) of the Act provides that horizontal agreements are
agreements between enterprises/persons engaged in identical or similar
trade of goods or provision of services.
 Horizontal agreements are subject to the adverse presumption of being anti-
competitive. This is known as ‘per se rule’ which implies that the
agreements, acts or practices specified by the Competition Act as deemed or
presumed to have appreciable adverse effect on competition (AAEC) are
by themselves void.
VERTICAL AGREEMENTS -Section 3(4)
 Agreement between enterprises operating at different levels of production is
known as Vertical Agreement. These agreements operate at different levels of
trade.
 For example, agreement between supplier and manufacturer or; between
supplier and dealer.
 As per Section 3(4) of the Act Vertical Agreement is an agreement between
enterprises/persons at different stages of the production chain in different
markets.
 ‘Per se Rule’ does not apply in case of Vertical Agreements, that is, they are
not per se presumed to be anti-competitive. Legality of Vertical Agreement is
assessed on the basis of ‘Rule of Reason’. The Rule of Reason is a legal
approach where in order to decide whether or not a practice/agreement should
be prohibited an attempt is made to evaluate the pro-competitive features of
the practice/agreement against its anti-competitive effects.
 In short, a vertical agreement is declared void only if it causes or is likely
to cause AAEC.
 DIFFERENCE BETWEEN HORIZONTAL
AND VERTICAL AGREEMENTS
S.N HORIZONTAL ANTI- VERTICAL ANTI-COMPETITIVE
O COMPETITIVE AGREEMENTS AGREEMENTS
1. In Horizontal Agreements the parties In Vertical Agreements the parties to the
to the agreement are enterprises at agreements are non-competing enterprises
the same stage of the production at different stages of the production chain.
chain engaged in similar trade of For e.g. agreements essentially between
goods or provision of services manufacturers and suppliers i.e. between
competing in the same market. producers and wholesalers or between
For e.g. agreements between manufacturers and retailers etc.
producers or between wholesalers
etc.
2. Horizontal Anti-Competitive Vertical Anti-Competitive Agreements are
Agreements are entered into between entered into between parties having actual
rivals or competitors. or potential relationship of purchasing or
selling to each other
3. Horizontal Anti-Competitive Vertical Anti-Competitive Agreements are
Agreements are per se void. not per se void.
4. The ‘rule of presumption’ is applied to The ‘rule of reason’ is applied to vertical anti-
Horizontal anti-competitive agreement competitive agreements.

5. Horizontal Anti-Competitive Agreements Vertical Anti-Competitive Agreements are not

that determine prices or limit/control presumed to have an appreciable adverse effect on
production or share market/sources of competition and automatically prohibited. Whether a
production by market allocation or result in vertical agreement is anti-competitive or not is to be
bid rigging or collusive bidding are decided on a case by case basis considering the
presumed to have an appreciable adverse consequences of the agreement and whether they
effect on competition. substantially restrict competition or not.
6. The burden of proof is on the defendant to The burden of proof is on the party alleging the anti-
prove that the agreement is not competitive practice to prove that the agreement is
anticompetitive. anti-competitive.

7. Examples of Horizontal Anti-Competitive Examples of Vertical Anti-Competitive Agreements

Agreements are cartels, bid-rigging, are resale price maintenance, tiein agreements,
collusive tendering etc. exclusive supply and distribution agreements etc.
Are there anticompetitive agreements that are neither
horizontal nor vertical?
Mr. Ramakant Kini and Dr. L.H. Hiranandani Hospital
The CCI held that Section 3(1) is independent of Sec 3(3) and
3(4) of the Act.
This case was centred on deciding the legality of an exclusive
agreement between the Opposite Party (OP), a super speciality
hospital, and Cryobanks International India (Cryobanks), which
is the provider of stem cord banking facility. As per this
agreement, only Cryobanks was allowed to enter the premises of
the OP and collect stem cord right after the birth of a child. The
complainant, in this case, had entered into an agreement with
another provider of stem cord collection facility, namely Life
Cell. On being denied to let Life Cell collect stem cord, the
complainant brought a case under Sections 3(4), and 4(2) (a) (i)
and 4 (2) (c) of the Act.
Instead of treating the agreement between the OP party and
Cryobanks as a vertical agreement, the majority decision of the
CCI suggested that such an agreement was neither a vertical nor a
horizontal arrangement between the parties. The CCI developed
its reasoning to argue that horizontal and vertical agreements are
merely a sub-species of anticompetitive agreements under Section
3(1) of the Act and are in no way exhaustive of the scope of this
Section.20 It is contentious if the legislative scheme of Section 3
permits this interpretation In case an agreement that is neither
horizontal nor vertical, but still falls within the scope of Sec 3(1),
the legislative scheme does not make it clear as to who will
discharge the initial burden of proof.
The Commission, however, in its decisional practice, tests
agreements under Section 3(1) on a rule of reason basis. Also, the
theories of harm in such cases will not be very different from the
ones followed in the case of horizontal and vertical agreements.
Moreover, in the facts of the Hiranandani case, the CCI could
have treated the agreement between the hospital and the stem cord
collection bank as an exclusive dealing agreement
TYPES OF ANTI-COMPETITIVE VERTICLE AGREEMENTS

TIE-IN ARRANGEMENT

EXCLUSIVE SUPPLY
AGREEMENT

EXCLUSIVE DISTRIBUTION
AGREEMENT

REFUSAL TO DEAL

RESALE PRICE
MAINTENANCE

TYPES OF ANTI-COMPETITIVE HORIZONTAL AGREEMENTS

LIMITING PRODUCTION
PRICE FIXING OR SUPPLY
CARTEL
BID RIGGING/COLLUSIVE
MARKET SHARING BIDDING
 TIE-IN ARRANGEMENT-SEC 3(4)(a)
“Tie-in arrangement” includes any agreement requiring a purchaser of
goods, as a condition of such purchase, to purchase some other goods
Under this arrangement, the seller ties the desirable good that he is selling
with another good and makes a precondition that in order to purchase
the desired good the purchaser has to also purchase the second good (the
tied good) irrespective of the fact whether the purchaser wants to buy the
second good or not.
It is also referred to as tying agreement, tying arrangement, tie-in sale, tie-up
sale, or clubbed sale.
SHRI SONAM SHARMA V. APPLE INC 2013 CompLR 346 (CCI)
The CCI held that the following ingredients must be present in a Tie-in
Arrangement:
 Presence of two separate products or services capable of being tied.
 The seller must have sufficient market power with respect to the tying
product to appreciably restrain free competition in the market for the tied
product.
 The tying arrangement must affect a “not insubstantial” amount of
commerce.
 ILLUSTRATION
Hospital XYZ: Our new contract negotiation with ABC Enterprises is under
way. But they request for an additional clause specifying that if we want to buy
the medical device that only ABC Enterprises makes, we must buy other
medical supplies including medical masks, gloves, syringes etc. as well.
Employee XYZ: But our current suppliers of these equipment offer lower
prices and better quality. There's no reason for us to switch to ABC Enterprises.
Hospital XYZ: But if we do not agree, ABC Enterprises will not sell us their
medical device and we can't provide proper care without this device. That
leaves us no choice at all. Employee XYZ: Calm down. This tying clause
might contravene the Competition Law. ABC Enterprises cannot make such
request.
Inference: Tie-in agreement are anti-competitive as per Section 3 (4) of the
Competition Act and thereby punishable with penalty under Section 27.
1. R.P. Electronics-Requiring a customer to sign up
for a service contract while buying goods.
2. Chanakya & Siddharta Gas Co-Making it
mandatory for a customer to buy gas stove while
giving gas connection.
3. DGIR v. SBI –The Bank asking person to open a
fixed deposit with Bank while allotting him a
locker
4. Amar Jeevan Public School-School making it
compulsory to buy uniforms & books only from its
own shop
5. United Radio & Television Co –Requiring a
customer who is purchased a Television set to also
buy voltage stabiliser from the seller-were all held
to be anti-competitive agreements involving an
element of tie-in.
There are two products in this system. The ‘tying good’ and the
‘tied good.’
The tying good is the one the customer wants to procure and
The tied good is the one he is forced to purchase.
For example: The gas pipeline company insisting on the
purchase of a gas stove from them, barring which they would not
provide the gas pipeline in the first place.
In the above example obtaining the service of a gas pipeline is
the tying product while, the gas stove the company forces on to
buy is the tied product.
TYPES OF TIE-IN OR TYING ARRANGEMENTS
Tying can be classified into two types.
STATIC TYING DYNAMIC TYING
They are:-
1. Static Tying – Static tying can be thought of as an exclusive arrangement. In a
static tied-sale, the buyer who wants to buy product ‘A’ must also purchase
product ‘B’. It is possible to buy product ‘B’ without product ‘A’ which
explains why it is a tie. Thus, the items for sale are product ‘B’ alone or an ‘A-
B’ package.
For example: The video game Halo is exclusive to the Xbox format. A buyer
who wants to buy halo must also purchase the Xbox hardware. The tie could
arise from the manufacturer’s power in the market of the Xbox hardware.
2. Dynamic tying – In case of this type of tying, in order to purchase product
‘A’ the customer is also required to purchase product ‘B’. In dynamic
tying the quantity of product ‘B’ vary from customer to customer. Thus,
the item for sale are a package of ‘A-B’, ‘A-2B’, ‘A-3B’ etc.
For example: A seller of a photocopy machine (product A) may require
the purchaser of the machine to use a specific brand of paper i.e. (product
B). The paper sales occur over time and vary across users, based on their
demand for the copies. A customer would not need to determine how
much paper to buy at the time the machine was bought. But under the
tying contract, whatever paper was required would have to be bought from
the machine seller
 Tying arrangements are governed by the law of Unfair
Competition. Such arrangements tend to restrain competition
by requiring buyers to purchase inferior goods that they do
not want or more expensive goods that they could purchase
elsewhere for less.
 Every tying arrangement is not illegal under the law of unfair
competition.
Four elements must be proved to establish that a particular
tying arrangement is illegal.
1. 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. However, the
law does not permit a shoe manufacturer to tie the purchase of
promotional T-shirts to the sale of athletic footwear because
these items are considered unrelated.
2. 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 non discriminatory terms, however, there is
no tie.
3.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.
4.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. A plaintiff need not
establish that a business has actually controlled prices through a
tying arrangement, as is required to establish certain
monopolistic practices, but only that prices and other market
conditions have been significantly influenced.
A VISIBLE TREND IN TIE-IN ARRANGEMENT
A visible trend is that a large number of sellers are offering free products along
with one product.
 For example Colgate provides a small tube of toothpaste free with some of its
toothbrushes. This is a situation where even though Mr Santhosh wanted to
purchase only a toothbrush he got a toothpaste free. Since there was no
additional cost for him, he as a customer would normally just walk out feeling
happy, with a good deal. The truth however is that the cost of the toothpaste is
probably included in the package itself and it actually free.
 Now the case of Colgate would not amount to any sort of violation and in their
case, it is a product promotion more than anything else.
Several examples can be cited that are probably tie in arrangements, by their
very nature, but they are disguised under the veil of a free product.
For example
1. Free servicing of a car after purchase
2. Free router and modem with purchase of internet services
3. Free helmet and petrol locks with the purchase of a bike,
4. Free gas stove with a gas connection.
 TYING IN RELATION TO ABUSE OF DOMINANT POSITION
CAN TAKE THE FOLLOWING FORMS:
CONTRACTUAL TYING - A product may be tied with another product
because of a specific contractual stipulation by a dominant player in
the market, e.g., a gun supplier may require that cartridges are
purchased exclusively from it. Similarly, a multiplex may require that
beverages are purchased exclusively from it.
REFUSAL TO SUPPLY - In this case, a dominant undertaking refuses
to supply a product unless the tied product is purchased by the other
party.
WITHDRAWAL OR WITHHOLDING OF A GUARANTEE - A
dominant supplier may withdraw or withhold the benefit of a
guarantee unless the other party uses a supplier’s components as
opposed to those of a third party.
TECHNICAL TYING - In this case, a product is integrated into another
product in such a manner that it is impossible to take one product
without the other.
BUNDLING - In bundling, two or more products are sold in a single
package at a single price. There can be pure bundling where two
products are sold together or there can be mixed bundling in which
two products are sold separately but discounts are offered if the
products are sold together.
 TYING AND BUNDLING
BUNDLING:
A firm may sell two or more products together as a bundle and charge more attractive
prices for the bundle than for the constituent parts of it. Bundling may have the same
effect as a tie-in-agreement.
EXAMPLE:
1. An airplane ticket often includes a meal and the customer cannot buy the trip and the
meal separately.
2. A university offers a bundle of courses
3. Computer package complete with a monitor, mouse, keyboard, and preloaded computer
software
Bundling is not tying because “forcing is absent”. In "bundling" there are two or more
products and there are inducements to take the whole bundle, or more than one product.
The inducement is usually a discount that only applies when multiple products are
purchased.
The two products are available separately so there is no compulsion to buy product B
along with product A
Tying is a legal concept whereas bundling is primarily an economic concept and the
distinction between two is a technical one. Though „tying” and „bundling‟ are two
distinct concepts, the two terms are often used interchangeably by courts and
commentators, but in practice bundling and tying operates differently
 USA-TIE IN ARRANGEMENT
As per the U.S. jurisprudence, claims against tying
can be brought under any of the following provisions
of the relevant antitrust laws:
 Section 1 of the Sherman Act,1890 which
prohibits contracts ‘in restraint of trade’,
 Section 2 of the Sherman Act, 1890 which makes
it illegal to ‘monopolize’,
 Section 3 of the Clayton Act, 1914 which
prohibits exclusivity arrangements that may
‘substantially lessen competition’, and
 Section 5 of the FTC Act, 1914 which prohibits
‘unfair methods of competition’
EU-TIE IN ARRANGEMENT
Tying in the E.U. have been proscribed under the TFEU
both as an instance of vertical restraint under Article
101(1)(e) and an instance of abuse under Article 102(d).
Article 102 proscribes tying only when committed by a
dominant undertaking (in the tying market).‘Thus while
Article 81[now 101] prohibits anticompetitive tying
regardless of the undertaking's market power, Article
82[now 102] prohibits tying by an undertaking in a
dominant position regardless of actual anticompetitive
effect.’ Further under Article 101, tying is block
exempted when the market share of the supplier, on both
the market of the tied product and the market of the tying
product, and the market share of the buyer, on the
relevant upstream markets, do not exceed 30%.
 LANDMARK JUDGMENTS
1.Northern Pacific Railway Co. V. United States[
356 U.S. 1 (1958)]
The U.S Supreme Court observed that, “They (tying
arrangements) deny competitors free access to the
market for the tied product, not because the party
imposing the tying requirements has a better product or
a lower price but because of his power or leverage in
another market. At the same time, buyers are forced to
forgo their free choice between competing products”.
For these reasons, tying arrangements fare harshly
under the laws forbidding restraints of trade
2. Jefferson Parish Hospital Dist. No. 2 et al. v. Hyde,[ 466 U.S. 2 (1984)]
Jefferson Parish Hospital District No. 2 entered into an exclusive
contract with Roux & Associates, a firm of anesthesiologists, and
required that every patient undergoing surgery at the hospital use
the services of Roux & Associates. Due to the exclusive contract by
and between the Hospital and the anesthesiology firm, respondent
Edwin Hyde’s application for admission to the hospital's medical
staff was denied. Thereafter, Hyde, an anesthesiologist,
commenced an action in Federal District Court, claiming that the
exclusive contract violated Sec 1 of the Sherman Act, and sought
declaratory and injunctive relief.
The District Court denied relief, finding that the anticompetitive
consequences of the contract were minimal and outweighed by
benefits in the form of improved patient care. On appeal, the
Court of Appeals reversed, finding the contract illegal "per se."
The appellate court held that the case involved a "tying
arrangement" because the users of the hospital's operating
rooms (the tying product) were compelled to purchase the
hospital's chosen anesthesiological services (the tied product),
that the hospital possessed sufficient market power in the tying
market to coerce purchasers of the tied product, and that since the
purchase of the tied product constituted a "not insubstantial
amount of interstate commerce," the tying arrangement was
therefore illegal "per se." The hospital thereafter appealed.
The Court held that the exclusive contract in question did not
violate Sec 1 of the Sherman Act. The court found that, while the
hospital's arrangement involved the required purchase of two
services that would otherwise be purchased separately, such
finding did not necessarily make the contract illegal. The Court
concluded that the hospital did not have sufficient market power
to force patients to purchase the contracted anesthesiology
services as opposed to using services at a competing hospital.
According to the Court, there was not sufficient evidence in the
record to provide a basis for finding that the contract, as it actually
operated in the market, had unreasonably restrained competition
and the judgment was reversed, and the case was remanded for
further proceedings.
3. United States v. Microsoft Corp. - 346 U.S. App. D.C. 330,
253 F.3d 34 (2001)
In July 1994, officials at the Department of Justice ("DOJ"),
on behalf of the United States, filed suit against Microsoft
Corp., charging the company with, among other things,
unlawfully maintaining a monopoly in the operating system
market through anticompetitive terms in its licensing and
software developer agreements. The parties subsequently
entered into a consent decree, thus avoiding a trial on the merits.
Three years later, the Justice Department filed a civil contempt
action against Microsoft for allegedly violating one of the
consent decree's provisions.
On appeal from a grant of a preliminary injunction, the
Supreme Court held that Microsoft's technological bundling of
IE 3.0 and 4.0 with Windows 95 did not violate the relevant
provision of the consent decree. On May 18, 1998, the United
States and a group of State plaintiffs yet again filed separate
(and soon thereafter consolidated) complaints, asserting antitrust
violations by Microsoft and seeking preliminary and permanent
injunctions against the company's allegedly unlawful conduct.
The complaints also sought any other preliminary and
permanent relief as is necessary and appropriate to restore
competitive conditions in the markets affected by Microsoft's
unlawful conduct. The District Court ruled that Microsoft
had indeed violated § 1 and 2 of the Sherman Act and
analogous state antitrust provisions, and ordered various
remedies, including divestiture. Microsoft thereafter appealed
the legal conclusions and the resulting remedial order.
The Court held that exclusionary contracts with Internet access
providers violated the Sherman Act, but dealings with Internet
content providers, software vendors, and a computer
manufacturer did not, since there was no proof that these deals
substantially effected competition. The Court determined that
inter alia, the appellate court’s finding of monopoly power was
not error. Except for one license restriction prohibiting
automatically launched alternative interfaces, all the original
equipment manufacturer license restrictions were market power
uses unredeemed by legitimate justification. Exclusion of the
company's Internet browser from a program removal utility and
commingling of browser and operating system codes was
exclusionary conduct.
4. Eastman Kodak Company v. Image Technical Services, Inc 504 U.S.
451 (1992)
Kodak manufactures and sells photocopiers and micrographic equipment
and also sells replacement parts and service for its equipment.
Independent service organizations (ISOs) also provide service for Kodak
equipment, typically at a lower price than that offered by Kodak.
Customers of Kodak equipment could buy the replacement parts
themselves and hire the ISOs to service the machines or they could hire
the ISOs to provide both the replacement parts and the service. Or,
customers could use Kodak to obtain the replacement parts and service.
Kodak eventually instituted a policy of selling the replacement parts only
to those buyers of Kodak equipment who purchased Kodak services to
repair their machines. Kodak tried to limit the access the ISOs had to
replacement parts for Kodak machines. This effectively limited the ability
of the ISOs to repair Kodak machines for their customers. A number of
ISOs finally filed suit, claiming that Kodak unlawfully tied the sale of
service for Kodak machines to the sale of parts. Thus, the tying
arrangement was allegedly between Kodak's repair service and its parts.
The Supreme Court held that that Kodak has tied the sale of the two
products in light of evidence indicating that it would sell parts to third
parties only if they agreed not to buy service from ISOs.
EXCLUSIVE DEALING AGREEMENT
An exclusive dealing agreement or Dealing
restrictions arise when one firm agrees not to deal with
the competitors or some categories of competitors of
another firm which operates at a different stage of
production. They occur when a seller agrees to sell all or
most of its output of a product or service exclusively to a
particular buyer. It can also occur in the reverse situation.
When a buyer agrees to purchase all or most of its
requirements from a particular seller.
The Competition Act defines the two categories of these
exclusivity agreement, under section 3(4)(b) and 3(4)(c).
Section 3(4)(b) –Exclusive Supply Agreement
Section 3(4)(c)- Exclusive Distribution Agreement
 EXCLUSIVE SUPPLY AGREEMENT
SECTION 3(4)(b)
Definition-Sec 3(4)(b)
“Exclusive supply agreement” includes any agreement
restricting in any manner the purchaser in the course of his trade
from acquiring or otherwise dealing in any goods other than
those of the seller or any other person.
Exclusive supply is where the supplier is obliged or induced to
sell only or mainly to one buyer, either in general, or for a
particular use (known as ‘industrial supply’).
This can mean that competing buyers are denied access to the
supplier, limiting the degree of competition between buyers.
Exclusive supply arrangements may involve:
 An outright obligation to supply exclusively, or
 ‘Quantity forcing’-incentives which induce the supplier to
concentrate its sales on one buyer, eg higher pricing if the
supplier supplies most of its products to the buyer or a minimum
supply requirement
Exclusive Supply Agreements can be de jure as well as de facto.
• A de jure exclusive supply agreement operates as a direct
restriction on the buyer/distributor/supplier from procuring/buying
goods from a competing supplier or source.
• A de facto exclusive supply agreement is when the seller
manipulates the contract covenants in such a manner that the buyer
is induced to concentrate all its requirements from a single seller.
1.TATA ENGINEERING AND LOCOMOTIVE CO LTD VS REGISTRAR OF
RESTRICTIVE AGREEMENTS 1977 AIR 973, 1977 SCR (2) 685
Tata Engineering and Locomotive Co Ltd manufactures commercial
vehicles like trucks and buses. It entered into agreements of
exclusive supplies with its dealers. The exclusive supply
agreements came up before the Supreme Court of India. The Apex
Court observed that exclusive dealings led to specialisation and
improvement in after-sale service and that by specialising in each
make of the vehicle and providing the best possible service,
competition between the various makes was enhanced. The Court
observed that where the dealers were required to make a heavy
investment in the stocking of commercial vehicles and spare parts
and in the maintenance of service stations to provide after-sale
service, exclusive dealership did not impede competition but
promoted it
2. JINDAL STEEL & POWER LTD. V. STEEL AUTHORITY OF INDIA
LTD. AND ANR
Jindal Steel and Power Limited (JSPL) filed a complaint before the
Competition Commission of India alleging that SAIL had an exclusive supply
agreement with Indian Railways. SAIL was the biggest player in market of
manufacture of rail tracks thus had dominant position in market. It had created its
monopoly. This was anti competitive and abusive behavior. Thus, as Indian
railway is largest buyer of rail tracks, JSPL by necessary implications couldn’t
supply rails to them. SAIL used its position to keep other player out of market
and thus deprive others from fair competition.
CCI on receiving application, began the process, and issued notice to SAIL
to submit documents with certain information within 2 weeks from date of
receipt. But SAIL instead of complying asked for extension of time for upto 6
weeks. CCI did not accepted the same in its meeting and also formed a prima
facie opinion that there exist a case and asked DG to go ahead with inquiry under
Section 26 of the Act. This was challenged by SAIL as no hearing was provided
to them. Further, no reasons were recorded for such decision and the time given
to them was inadequate from beginning. COMPAT didn’t let CCI to implead as
either necessary party nor proper party and finally held that under Section
53A(1) of the Act, it had power to listen to appeal even on the CCI order of
investigation where no fair hearing was given and it can grant STAY order. Thus,
CCI appealed to Supreme Court.
This verdict of SC has effectively defined the limits of exercise of power by both
the CCI and COMPAT
3. TAMPA ELECTRIC V. NASHVILLE COAL [365 U.S. 320
(1961)]
In 1955 Tampa Electric signed a long-term contract (20 years) with
Nashville Coal for the delivery of bituminous coal to its power
plants. The contract included a restrictive covenant-i.e., Tampa
Electric agreed not to purchase coal from any supplier other than
Nashville Coal.Tampa Electric filed a breach of contract suit after
Nashville Coal reneged in 1960. Attorneys for Nashville Coal
argued the restrictive contract clause violated section 3 of the
Clayton Act and hence the Court should rule that the contract is
illegal and therefore unenforceable.
 EXCLUSIVE DISTRIBUTION AGREEMENT
SECTION 3(4)(c)
“Exclusive distribution agreement” includes any agreement to limit, restrict or
withhold the output or supply of any goods or allocate any area or market for
the disposal or sale of the goods.
An exclusive distribution agreement operates as a restriction on the seller.
An exclusive distribution agreement are of two kinds
 Territorial restriction: Where the supplier agrees to sell his products only to
one distributor for resale in a particular territory, or
 Customer restriction: Where the supplier is restricted to sales only to a
particular group of customers. It is quite popular in the pharmaceutical sector
where chemists are appointed exclusively for institutional sales to large buyers
like hospitals etc.
ILLUSTRATION:
Enterprise X is a producer of laptops who distributes throughout India through
its distributors. However, it gives only one distributorship for East, West, North
and South India and it does not allow distributors to sell in each other's territory.
Such an arrangement by enterprise X will prevent competition among
distributors.
Inference: Exclusive distribution agreement are considered to impinge on
competition
Exclusive distribution is another vertical restraint, which can
foreclose the market, if practiced by a sufficient proportion of
manufacturers. It is a particular form of selective distribution,
where the manufacturer supplies only one retailer in a particular
territory or allows only one retailer to supply a particular class of
customers such as businesses or consumers.
This kind of restraint therefore, forecloses markets to retailers. If
a manufacturer imposes an absolute restriction on the number of
retailers, the effect is likely to be more significant than if it sets
objective standards for all its retailers to meet. Even if objective
standards are set, they may still prevent entry of new retail
operators. The key factor in this practice is the market power of
the manufacturer imposing the restraint.
Yet another factor is likely to be the strength of the brands of the
manufacturers. The brands may enjoy market power even when
they are not market leaders. Retailers may find it difficult to
establish themselves, if they are unable to stock certain leading
brands which customers expect to find available. Exclusive
distribution agreements are resorted to for maintaining or
strengthening already established dominant or monopolistic
position. Such agreement may also effectively block the entry of
new comers. Exclusive agreement of this nature tends to
substantially lessen competition by limiting the challenge of
Registrar of Restrictive Trade Agreements vs Centron
Industrial Alliance Private Limited
Centron Industrial Alliance Private Limited is a manufacturer
of safety razor blades in India. It entered into agreement with
Home Products Marketing Agency for sale of its products on
exclusive distribution basis. This agreement came before the
Indian MRTP Commission to test if it constituted a restrictive
trade practice having an adverse effect on competition.
The Commission held that the agreement attracted the provisions
of the law, as it was restrictive in nature. However the
Commission observed that the exclusivity of the distributor did
not affect competition considering the basic features of the
industry. For instance, the distributor’s share was only 10 % as
against a couple of companies having a substantial share of
market. The exclusive arrangement was therefore considered as
imperative for the survival of Centron .
SHRI GHANSHYAM DASS VIJ VS BAJAJ CORP. LTD [2015] CCI 155
Business strategy by Bajaj Corporation for its product
‘Almond Drop Hair Oil’ was scanned by the competition
regulator on information received by one of the distributors of
Bajaj. CCI found that Bajaj had allocated area of business to
every dealer and there was a vertical restraint imposed on the
distributors to supply the products in the area limited by the
company and the arrangement was monitored and enforced by
Bajaj Corp. Such the practice of allocation of geographical area
to its distributors amounts to exclusive distribution agreement
(EDA) under section 3(4)(c) of the Competition Act. Bajaj had
also indulged in resale price maintenance (RPM) by
prescribing rate at which its products were to be re-sold by the
dealers to the retailers. It was alleged by the informant that in
order to ensure that there was no intra-brand competition or
price competition of its products, Bajaj imposed RPM type
vertical restrictions upon its dealers.
CCI observed that there are many players in the FMCG market
in India providing consumer products and services in the areas
of Health and Beauty, which indicates that the market of hair oil
is wide and consumers have various brands as options to choose
from.
Bajaj does not have position of strength in this sector in comparison
with other brands in market structure of FMCG products and
particularly the hair oil segment in India. CCI opined that in the
presence of several companies and considering the dynamic nature
of the sector, conducts of Bajaj are unlikely to affect the inter-brand
competition in the market.
After considering effect of the impugned conducts of Bajaj on the
touchstone of factors elucidated under section 19(3) of the Act,
CCI opined that vertical restraints imposed by Bajaj upon its
distributors have not been shown to have caused appreciable
adverse effect on competition (AAEC) nor is there any
appreciable effect on the benefits accruing to the ultimate
consumers. On RPM the Commission noted the price suggestion
was merely recommendatory in nature and that a bulk purchaser
was free to sell the product at lower price.
 REFUSAL TO DEAL
SECTION 3(4)(d)
Sec 3(4)(d) “refusal to deal” includes any agreement which
restricts, or is likely to restrict, by any method the persons or
classes of persons to whom goods are sold or from whom goods
are bought.
A refusal to deal is an agreement between competing
companies, or between a company and an individual or
business, that stipulates that they refuse to do business with
another.
Though in general, each business may decide with whom they
wish to transact, there are some situations when a refusal to
deal may be considered an unlawful anti-competitive practice, if
it prevents or reduces competition in a market.
The unlawful behaviour may involve two or more companies
refusing to use, buy from or otherwise deal with a person or
business, such as a competitor, for the purpose of inflicting
some economic loss on the target or otherwise force them out of
the market.
Types of Refusal to Deal Agreements
 Horizontal Refusal to deal
 Vertical Refusal to deal
There can be a horizontal refusal to deal, which is an
agreement between competitors not to compete; and
a vertical refusal to deal, which is an attempt to control or
leverage the market by only doing business with certain parties.
This does not mean that a business is always prohibited from
refusing to do business with another company. Businesses have
the right to use their discretion in choosing whom to do business
with. However, if this choice is made through a conspiracy
with another competitor, business, or individual, they will
likely be breaking the law.
A refusal to deal is a violation of the antitrust laws because it
harms the boycotted business by cutting them off from a facility,
product supply, or market. By harming the boycotted business in
this way, the competing businesses controls or monopolizes the
market by unreasonably restricting competition.
Example: Enterprise A is an enterprise in the market for lead used to make
pencils. Enterprise B is a major manufacturer of pencil in the market but its
production is dependent on supply of lead by enterprise A. Enterprise A
suddenly refuses to supply lead to B because a new company, C has entered
the pencil market in direct competition to B and though A can supply to both
B and C, A refuses to deal with B on entry of C in market. In such situation B
can approach the Commission with information filed under Section 3 (4).
Inference: Refusal to deal is Anti-competitive.

Sometimes the refusal to deal is with customers or suppliers, with the effect
of preventing them from dealing with a rival: "I refuse to deal with you if
you deal with my competitor."

For example, In United States of America a case from the 1950's, the only
newspaper in a town refused to carry advertisements from companies that
were also running ads on a local radio station. The newspaper monitored the
radio ads and terminated its ad contracts with any business that ran ads on the
radio. The Supreme Court found that the newspaper's refusal to deal with
businesses using the radio station strengthened its dominant position in the
local advertising market and threatened to eliminate the radio station as a
competitor.
CASE LAWS:
1. Sainik Service Station v.Dr.Badri Prasad Purohit
It was held that refusal to supply petrol by Service Station is injustice
towards the consumer and is an unfair trade practice. It is
anticompetitive practice and void.
2. NSTPL VS STAR AND SONY
The CCI initiated an investigation under sections 3 and 4 of the
Competition Act 2002 against Star India Pvt. Ltd. & Sony Pictures
Network India Pvt. Ltd. (“Star & Sony”) for their conduct in the
market for broadcasting television content.
Star & Sony hold a portfolio of television channels spanning the
sports and entertainment genres that are hugely popular across the
country. NSTPL (the informant) alleged that, in licensing this
content, Star & Sony discrimination against a certain category of
television distributors, called HITS operators, by offering them less
favorable terms than other distributors (like MSOs, DTH operators).
The CCI arrived at the prima facie conclusion that Star & Sony’s
discriminatory conduct violated section 3(4)(d) of the Act, because it
amounted to refusal to deal.
3. Raymond Woolen Mill vs. Director General, Investigation &
Registration (2008)
It was alleged that Raymond had indulged in restrictive trade
practices. The complainant M/s. Roop Milan stated that they
were an established retail dealer for Raymond since 1982 and
that were receiving regular supplies of blazers, suits, safaris,
trousers etc. till December 1986. In 1986 Raymond came up
with a scheme that material like suits/safaris/blazers etc. will be
supplied only if substantial orders were placed for readymade
trousers. This put tremendous pressure on the dealers to accept
higher quantity of trousers than required and when M/s Roop
Milan showed his unwillingness to accept the large quantity of
trousers, his dealership was terminated and the security deposit
was refunded to him.
 RESALE PRICE MAINTENANCE
SEC 3(4)(e)
Resale price maintenance (RPM) is a type of price fixing
arrangement whereby the manufacturer fixes the price at which the
retailer can sell the product to the end customers. The manufacturer
may fix the maximum or minimum price at which its product can be
sold and may also fix the maximum and minimum limits of discount
offered on its product to the end customers.
RPM is a vertical restraint as it is imposed by a player operating at a
higher level in the market chain on a player operating at a lower level
in the market chain. It is a form of Price fixing.
For example, Samsung Electronics adds a clause in distributorship
agreement that no distributor can offer a discount of more than 10%
to the end customers of Samsung’s products.
“Resale price maintenance” includes any agreement to sell goods on
condition that the prices to be charged on the resale by the purchaser
shall be the prices stipulated by the seller unless it is clearly stated
that prices lower than those prices may be charged. SEC 3(4)(e)
 Illustration: A manufacturer Y and its distributor Z may agree
that the distributor will sell Y’s products at certain prices, at or
above a price floor (Minimum RPM) or at or below a price
ceiling (Maximum RPM). If Z refuses to maintain prices due to
whatever reason, Y may stop doing business with it.
Advantages of RPM
 R. P. M. offers uniform, fixed retail prices and prevents
unhealthy price competition among dealers
 Absence of price competition offers protection to small volume
high cost retailers who are numerically strong even in advanced
countries. They have no fear from large retailers at least on the
price front.
 New firms can easily enter trade as there is no danger from price
war led by established retailers.
 Consumers have no problem of bargaining as we have uniform
fixed prices in all shops. Variable pricing creates risk of loss to
buyers. Incidentally they can get benefits of non-price
competition
Disadvantages of RPM
R. P. M. Practice kills competition. When a group of
sellers have common fixed price, it amounts to
collusive price fixing and leads to evils of monopoly.
Free price competition alone can safeguard consumer
interest.
As R. P. M. is on the basis of high cost low volume
retailers, it amounts to premium on inefficiency
Consumers cannot have benefits of price competition.
In absence of R. P. M. practice, large retailers can give
the benefit of lower prices to consumers due to their
lower operating costs. This advantage is denied to
consumers and they are penalized unnecessarily
whereas high cost retailers are literally subsidized and
they have no incentive to increase their efficiency.
CASE LAWS
1.Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S.
373, 409 (1911)
Dr. Miles Medical Company was a manufacturer of proprietary
medicines. It entered into an agreement with its distribution
agents that the medicines should be sold at not less than the
prices indicated by it. Likewise, it entered into agreements
with the retailers that they should not sell at prices less than
the full retail prices as printed on the packages. These
agreements went up to the US Supreme Court.
The Court observed that the system of interlocking restrictions
by which Dr. Miles sought to control the prices at which its
distributors and retailers may sell its medicines was
eliminating competition and that the agreements were in
restraint of trade. Furthermore, the agreements were designed
to maintain prices after Dr. Miles had parted with the title to
the medicines in favour of distributors and retailers and that
therefore competition was prevented among those who traded
in the medicines.
2. All India Tyre Dealers Federation vs. Tyre
Manufacturers
This case brought to light that the terms of the agreement
between Bridgestone and Tyre Dealers which puts a restriction
on the dealers that they would not sell products of Bridgestone
competitors. Under these agreements, Bridgestone also
reserved the right to control the retail price of its products. The
dealer was obliged not to sell the goods of the company above
or below the price fixed by Bridgestone. This amounts to
resale price maintenance
3. Calcutta Goods Transport Assn Vs Truck Owners
Operators Union
Association of lorry owners fixing fright rates and not
allowing members of association to charge price lower than
that fixed by associatinon is resale price maintenance.
 Fx Enterprise Solutions Pvt. Ltd. and Anr. v. Hyundai Motor
India Pvt. Ltd

• The CCI combined information filed against HMIL by

authorised HMIL dealers, Fx Enterprise Solutions India Private
Limited and St. Anthony’s Cars Private Limited (Informants),
alleging a contravention of Section 3 of the Act on the grounds
that:
• HMIL had restricted the informants from acting as dealers of
competing brands by virtue of clause 5 of their dealership
agreement, which required prior consent of HMIL for investing
in any new or existing business which was unrelated to the
Hyundai dealership.
• HMIL had fixed the maximum retail price of the cars (which
included the pre-fixed margin of the dealers) and the maximum
discount which could be offered by the dealers through its
Discount Control Mechanism (DCM).
• HMIL tied the purchase of popular cars to the sale of high-end
unwanted cars and also, designated certain companies as the
preferred suppliers of complementary goods.
• The CCI found a prima facie case against HMIL and directed
the Director General (DG) to specifically investigate the
alleged contravention of Section 3 of the Act. On investigation,
the DG concluded that HMIL had contravened the provisions
of Section 3(4) of the Act on account of the above, except in
respect of the allegation of tying in the sale of high end cars
with fast moving cars. In addition, the DG also concluded that
HMIL, being a dominant entity in the aftermarket for services
of its cars, had violated Section 4 (relating to abuse of a
dominant position) of the Act.
• In respect to the contravention of the provisions of Section
3(4) of the Act, the CCI’s findings were as follows:
• Exclusive Supply Agreement and Refusal to Deal: The CCI
observed that the requirement to get prior consent from HMIL
for dealing with competing brands was not a prohibition.
Hence, it did not amount to an exclusive supply agreement
under Section 3(4)(b) and/or refusal to deal under Section
Tie-in Arrangement:
• CNG Kits: The CCI held that cancellation of warranty for use
of non-designated CNG kits may be objectively justified. As
such, this did not amount to a contravention of Section 3(4)(a)
of the Act. Further, the CCI observed that HMIL may have a
legitimate interest in ensuring that alternative brands of CNG
kits are not used since ultimately HMIL would have to bear the
costs of warranty.
• Lubricants: HMIL mandated its dealers to purchase engine oil
only from its two designated vendors, at the price indicated by
HMIL in its circular. In case of non-compliance by the dealers,
HMIL threatened to terminate the dealership agreement. The
CCI noted that this practice resulted in price discrimination,
without accruing any benefit to the dealers or consumers,
thereby contravening Section 3(4)(a) of the Act.
• Car Insurance Services: The CCI noted that it was a business
norm to have a tie-up with insurance companies and, hence,
merely recommending that the dealers suggest designated
insurance companies to consumers does not amount to a tie-in
arrangement, since it is not mandatory for the consumer to
purchase the same.
• On the procedural front, the CCI was of the view that the DG’s
investigation into the contravention of Section 4 of the Act by
HMIL went beyond the scope of investigation as directed by
the CCI at the outset (since the DG was specifically directed to
investigate only a Section 3 violation) and therefore deserved
to be disregarded in entirety.
• In terms of penalty, the CCI, after considering factors such as
proportionality, absence of supra-normal profits, HMIL’s
voluntary introduction of a competition law compliance
programme into its business, and the penalty already imposed
in the Autoparts case, imposed a penalty of INR 87 crore (0.3
per cent. of the average turnover of the past three years of
HMIL which accrued from the sale of motor vehicles (i.e., the
relevant turnover)).
 CARTEL
Cartels are agreements between enterprises (including a person, a
government department and association of persons / enterprises) not
to compete on price, product (including goods and services) or
customers.
“Cartels are secret agreements between firms to fix prices or share
markets between them.”
The objective of a cartel is to raise price above competitive levels,
resulting in injury to consumers and to the economy. For the
consumers, cartelisation results in higher prices, poor quality and less
or no choice for goods or/and services.
Sec 2(c) “Cartel” includes an association of producers, sellers,
distributors, traders or service providers who, by agreement amongst
themselves, limit, control or attempt to control the production,
distribution, sale or price of, or, trade in goods or provision of
services
Union of India v. Hindustan Development Corporation, the cartel
was an association of producers who, by mutual agreement, attempted
to control the production, sale and prices of the product to obtain a
monopoly in a particular sector or commodity. This amounts to an
unfair commercial practice that is not in the public interest.
 An important dimension in the definition of a cartel is
that it requires an agreement between competing
enterprises not to compete or to restrict competition.
KINDS OF CARTEL:
International cartel is said to exist, when not all of
the enterprises in a cartel are based in the same
country or when the cartel affects markets of more
than one country.
Import cartel comprises enterprises (including an
association of enterprises) that get together for the
purpose of imports into the country.
Export cartel is made up of enterprises based in one
country with an agreement to cartelize markets in
other countries. In the Act, cartels meant exclusively
for exports from India have been excluded from the
provisions relating to anti-competitive agreements.
 Cartelisation is one of the horizontal agreements that shall be
presumed to have appreciable adverse effect on competition under
Section 3 of the Act.
CHARACTERISTICS OF CARTELS
 Usually cartels function in secrecy.
 The members of a cartel, by and large, seek to camouflage their activities to
avoid detection by the Commission.
 Perpetuation of cartels is ensured through retaliation threats. If any member
cheats, the cartel members retaliate through temporary price cuts to take
business away or can isolate the cheating member.
 Another method, known as compensation scheme, is resorted to in order to
discourage cheating. Under this scheme, if a member of a cartel is found to
have sold more than its allocated share, it would have to compensate the
other members
SOME OF THE CONDITIONS THAT ARE CONDUCIVE TO
CARTELIZATION ARE:
 High concentration – few competitors
 High entry and exit barriers
 Homogeneity of the products (similar products)
 Similar production costs
 Excess capacity
 High dependence of the consumers on the product
 History of collusion.
LANDMARK JUDGMENTS ON CARTEL
Cartels have been a subject of heavy litigation since the time
of Monopolies and Restriction of Trade Practices Act, 1969
and have been a major aspect of the Competition Act, 2002.
It has been ruled in Alkali Manufacturers Association of
India v. Sinochem International Chemicals Co. Ltd. that
in any economic field a greater dimension has to be given to
the word “cartel” to include all sort of combinations, which
are anti-competitive.
The Supreme Court has defined the word cartel in Union of
India v. Hindustan Development Corporation saying that
“cartel, therefore is an association of producers who by
agreement among themselves attempt to control production,
sale and price of the product to obtain a monopoly in any
particular industry or commodity. It may be any combination
the object of which is to limit or control trade or production,
distribution, sale or price of the goods or services.”
TYPES OF CARTEL CONDUCT

PRICE FIXING MARKET SHARING

OUTPUT RESTRICTING BID-RIGGING

PRICE FIXING
Agreements through which the companies mutually set the prices that they want
to charge in the market are called price fixing agreements. Imagine a market
where four firms manufacturing cement agree to sell their products at a fixed
price. Although, sometimes a slight increase in the price of each product hardly
matters to a consumer; such price fixing will ultimately generate huge profits for
the colluders.
Price fixing agreements can take various forms including the following:
 Agreement on price increase
 Agreement to adhere to published prices
 Agreement not to sell unless it is on the agreed price terms
 Agreement on a standard pricing formula
 Agreement regarding providing, eliminating or establishing method of
providing discounts
 MARKET SHARING
These are also called market allocation and market division agreements. Under
such agreement, the competitors agree to divide amongst themselves specific
territories, customers, or products. Such market allocating actions are restrictive
in nature because they leave no room for competition in the market.
An agreement amongst competitors to allot certain customers to particular
sellers and to allocate or divide sale territories would be anticompetitive.

ILLUSTRATION
Businessman 1: I didn't know that operating bus services for business units was
so lucrative.
Businessman 2: Smartly, We agreed among ourselves to send out quotations to
different business units respectively. Now they don't really have a choice. And
we will virtually monopolize the shuttle bus business. We can charge whatever
we like!
Businessman 1: Even if your clients ask me for quotation, I am not going to
reply.
Businessman 2: So, how are we going to share those estates this year?
Businessman 1: Same as usual, let's split the districts between us. I'll send you
the list when it's done. After a month:
Businessman 1: No wonder the bus fares are getting higher and higher. It's all
because of our agreement to share the market! Inference: Such agreement is in
contravention of the law and is considered as a serious anti-competitive conduct
under the Competition Law.
 CONTROLLING THE OUTPUT OR LIMITING THE NUMBER OF
GOODS AND SERVICES AVAILABLE TO BUYERS
Output restrictions may also be thought of as supply restrictions.
They occur when competitors agree to prevent, restrict or limit
the volume or type of particular goods or services available.
Producer 1: None of us have really been doing well recently. We
must think of something to boost the profit. I've been thinking to
reduce the supply together. When there's less supply, we can
raise the price. Things are only precious when they are rare.
Producer 2: Ok. You are right. Things are only precious when
they are rare. You're the industry leader. We'll take our cue from
you.
Producer 3: Have you considered the implication of such
agreement? This is an illegal act and in contravention of the
competition laws
Inference: Output restriction agreed between competitors is
serious anticompetitive conduct under the Competition Law.
Businesses should make independent commercial decisions and
never collude with each other to restrict output
 BID-RIGGING
Bid-rigging or collusive rigging is one of the horizontal agreements, it is an
illegal practice, occurs when two or more competitors or bidders collude and act
in concert to keep the bid amount at the pre-determined level and agrees that in
reality, they will not compete with each other for a particular tender.
The explanation to sub-section (3) of Section 3, of the Act defines “bid
rigging” as “any agreement, between enterprises or persons referred to in sub-
section (3) engaged in identical or similar production or trading of goods or
provision of services, which has the effect of eliminating or reducing competition
for bids or adversely affecting or manipulating the process for bidding.”
Collusive bidding or bid rigging may occur in various ways. Some of the most
commonly adopted ways are:
 Agreements to submit identical bids a agreements as to who shall submit the
lowest bid,
 Agreements for the submission of cover bids (voluntarily inflated bids)
 Agreements not to bid against each other, a agreements on common norms to
calculate prices or terms of bids
 Agreements to squeeze out outside bidders
 Agreements designating bid winners in advance on a rotational basis, or on a
geographical or customer allocation basis a
 Agreements as to the bids which any of the parties may offer at an auction for the
sale of goods or any agreement through which any party agrees to abstain from
bidding for any auction for the sale of goods, which eliminates or distorts
competition
FORMS OF BID RIGGING

COMPLIMENTARY
BID SUPPRESSION
BIDDING

BID ROTATION SUB CONTRACTING

BID SUPPRESSION
In bid suppression schemes, one or more competitors who otherwise would
be expected to bid, or who have previously bid, agree to refrain from bidding
or withdraw a previously submitted bid so that the designated winning
competitor’s bid will be accepted.
COMPLEMENTARY BIDDING
Complementary bidding also known as ‘cover’ or ‘courtesy’ bidding occurs
when some competitors agree to submit bids that are either too high to be
accepted or contain special terms that will not be acceptable to the buyer.
Such bids are not intended to secure the buyer’s acceptance, but are merely
designed to give the appearance of genuine competitive bidding.
Complementary bidding schemes are the most frequently occurring forms of
bid rigging, and they defraud purchasers by creating the appearance of
competition to conceal secretly inflated prices.
 BID ROTATION
In bid rotation schemes, all conspirators submit bids but take turns to be the lowest
bidder. The terms of the rotation may vary; for example, competitors may take turns
on contracts according to the size of the contract, allocating equal amounts to each
conspirator or allocating volumes that correspond to the size of each conspirator. A
strict bid rotation pattern defies the law of chance and suggests that collusion is
taking place.
Company XYZ: Let's invite bids. We need to procure pipes.
Employee XYZ: All the bids are in! It is so strange… They all have similar prices and
they're all very high too. We have compared all the tender submissions. Only ABC
Enterprises quoted the lowest price.
Company XYZ: Alright then, we'll go for ABC Enterprises! Employee XYZ calls ABC
Enterprises and informed that he had won the tender!
ABC Enterprises call other bidders: It is celebration time! We won the bid. Thanks
guys for jacking up your prices; we'll be making a huge profit from this contract.
Other bidders: Don't be silly! We are partners – we all win from this!
ABC Enterprises: That's right; it'll be your turn to win next time! I will not submit my
bid next time. We're in this together, and we'll all make profit from this!
Newspaper headlines: CCI Fined ABC Enterprises and other companies for Bid-
Rigging. Directors Disqualified.
Inference: Bid rigging is a violation of the Competition Law. Businesses might appear to
win by not competing with each other, but they too can become victims.
 SUBCONTRACTING
Subcontracting arrangements are often part of a bid rigging scheme. Competitors,
who agree not to bid or to submit a losing bid, frequently receive subcontracts or
supply contracts in exchange from the successful bidder. In some schemes, a low
bidder will agree to withdraw its bid in favour of the next low bidder in exchange
for a lucrative subcontract that divides the illegally obtained higher price between
them.
Almost all forms of bid rigging schemes have one thing in common: an agreement
among some or all of the bidders, which predetermines the winning bidder and
limits or eliminates competition among the conspiring vendors.
INQUIRY INTO BID RIGGING
In exercise of powers vested under Section 19 of the Act, the Commission may
inquire into any alleged contravention under subsection (3) of Section 3 of the
Act that proscribes bid rigging. The Commission, on being satisfied that there
exists a prima facie case of bid rigging, shall direct the Director General to cause
an investigation and furnish a report.
The Commission has the powers vested in a Civil Court under the Code of Civil
Procedure in respect of matters like summoning or enforcing attendance of any
person and examining him on oath, requiring discovery and production of
documents and receiving evidence on affidavit.
The Director General, for the purpose of carrying out investigation, is also
vested with powers of civil court besides powers to conduct ‘search and seizure’
POWERS OF THE COMMISSION
After the inquiry, the Commission may pass inter- alia any or all of the
following orders under section 27 of the Act:
1) Direct the parties to discontinue and not to re-enter such agreement;
2) Direct the enterprise concerned to modify the agreement.
3) Direct the enterprises concerned to abide by such other orders as the
Commission may pass and comply with the directions, including payment of
costs, if any; and
4) Pass such other orders or issue such directions as it may deem fit.

PENALTY
The Commission may impose such penalty as it deems fit.
The penalty can be up to 10% of the average turnover for the last three
preceding financial years upon each of such persons or enterprises which
are parties to bid-rigging or collusive bidding.
In case the bid-rigging or collusive bidding agreement referred to in sub-
section (3) of section 3 has been entered into by a cartel, the Commission
may impose upon each producer, seller, distributor, trader or service provider
included in that cartel, a penalty of up to 3 times of its profit for each year
of the continuance of such agreement or 10% of its turnover for each
year of the continuance of such agreement, whichever is higher.
The penalty can therefore be severe, and result in heavy financial and other
cost on the erring party.
CASE LAWS-BID RIGGING AND CARTEL
1. Western Coalfields Limited v. SSV Coal Carriers Private
Limited
The informant, Western Coalfields Limited, had approached the
CCI alleging bid-rigging by SSV Coal Carriers, Bimal Kumar
Khandelwal, Pravin Transport, Khandelwal Transport,
Khandelwal Earth Movers, Khanduja Coal Transport Co., Punya
Coal Road Lines, B. Himmatlal Agrawal, Punjab Transport Co.
and Avaneesh Logistics, upon noticing identical price quotes
given by them in four tenders floated for coal and sand
transportation. It was alleged that the conduct of submitting
identical bids at higher rates is a blatant act of bid rigging.
The case was investigated by the Director General, CCI who
found these parties in violation of the Competition law. The CCI
after hearing the parties concluded that they were in agreement
to fix prices resulting in bid-rigging in the tenders floated by the
Informant.
The Competition Commission of India (CCI) has imposed a
total penalty of ₹11.81 crore on 10 coal and sand transportation
companies after finding their conduct to be in contravention of
the Competition law.
2. Excel Crop Care Ltd. vs. Competition Commission of India
Food Corporation of India (FCI) wrote a letter to the Competition
Commission of India(CCI) alleging that the four companies namely-
 M/s Excel Crop Care Ltd.,
 M/s United Phosphorus Ltd.,
 M/s Sandhya Organics Chemicals Pvt. Ltd.,
 M/s Agrosynth Chemicals Ltd.,
engaged into an anti-competitive agreement, pertinent to the tenders issued
by the FCI for Aluminium Phosphide Tablets (APT) during the period of two
years from 2007 to 2009. The FCI alleged in the said complaint that the four
companies had formed a group by entering into an anti-competitive
agreement amongst themselves and thereon basis they had been submitting
their bids for the last eight years by quoting similar rates in the tenders
invited by the FCI for the purchase of APT.
On receipt of the complaint made by the FCI, the CCI initiated the inquiry by
entrusting the matter to the DG for investigation. The DG submitted his
report stating that there was an anti-competitive agreement between the
companies that contravened Sections 3(3)(a), 3(3)(b) and 3(3)(d) read with
Section 3(1)
After hearing the parties, the CCI passed the order stating that the
companies had entered into the anti-competitive agreement violating the
provisions of Section 3 of the Act. The CCI thereby imposed a penalty @
9% on the average total turnover of those companies for the preceding
three monetary years under section 27(b) of the Act.
Except for the M/s Agrosynth Chemicals Ltd., the other three companies
filed three separate appeals before COMPAT against the order of CCI under
section 53B of the Act. An extra question was raised relating to quantum of
penalty.
The COMPAT passed its order holding all the elements of the CCI order,
except for the one managing the penalty. The Appellate Tribunal was of the
view that the penalty @ 9% should not be imposed on the average turnover,
on the relevant turnover instead i.e., on the turnover of the product in
question.
The CCI decided to appeal against the order of the COMPAT and the three
companies decided to do the same. The case, thus appeared before the
Supreme Court.
 LANDMARK CASES ON CARTEL
1. FICCI – Multiplex Association of India Federation House v. United
Producers/ Distributors & Ors
In this case, the informants have alleged that the respondents were acting as a
cartel. They were said to produce and distribute almost hundred percent of the
films and thereby exercised almost complete control over the Indian film
industry. The informant alleges that the respondent issued a notice requiring their
members not to exhibit any new film of the members of the informant and in
case of. To comply with the notice a lifetime suspension was threatened. It was
also said that they being the major controller of the market, were acting in
concert to fix prices and also controlling the supply of the films by refusing to
release certain films.
The DG conducted an investigation and reported that most of the members of the
respondent associations had collectively decided not to release their films to the
multiplex owners till they could extract more favorable revenue. They attended
several meetings and conferences. There were several letters issued which
carried the threat of the suspension and boycotts. Thus, the DG had concluded
that these actions were in the nature of a cartel like conduct. On further
investigation, the DG also pointed out, that there was actual limit of supply of
films, and there was also increasing prices after the agreement came into effect.
All the factors given in section 19(3) were discussed and it was held that entry
barriers were created for prohibiting entry off multiplexes in the market.
Moreover, no benefits accrued to the consumer neither was there any
improvement in distribution of films or any economic development of the
industry. The Commission, came to the conclusion that there was indeed a cartel
like agreement and issued a “cease-and-desist order” and imposed a penalty of 1
2. In Re: Glass Manufacturers of India
MRTP Commission had taken cognizance by itself after an article was
published in the 'Outlook Business' magazine. It was alleged in that article
that some leading Indian manufacturers of float glass were indulging in
cartel like practices. The article said that the glass manufacturers were acting
as a cartel since 1990s and they have been increasing prices and controlling
supplies in the market.
These manufacturers have showed their concern about the cheaper imports
from China only because it would affect their control on the domestic prices.
It also quoted a magazine which said that, over the period of 7 months the
prices of glass had increased by Rs.10 due to the cartel like activities. The
DG in his inquiry, came to the conclusion that in view of the increase in the
market share of the new entrants in the markets can be taken to be a good
indicator of competition in the market. The increase in prices of glass appears
to be due to increasing prices of the raw material. The DG also concluded
that the players were not restricting this applies to select regions. Then there
was no evidence of cartels in terms of market allocation.
There was price parallelism, but it was not supported by other evidence of
any collaboration between the market players. so mere price parallelism was
not sufficient. The Commission did not find any evidence of cartelization,
hence, no violation was upheld.
3. All India Tyre Dealers’ Federation v. Tyre Manufacturers
In this case the information was given by all India Tyre dealers Federation
against the Tyre manufacturers. It claimed that the tyre manufacturers were
acting in collaboration with each other. The DG in the inquiry found that the
tyre companies were not passing off the benefit of reduced duties to the
customers, that there existed price parallelism among the tyre companies, the
companies were not utilizing their full capacity thereby limiting the supply,
they were operating on high margins.
The CCI noted that there were certain factors in this market made it more
conducive cartelization but it can be countered by other factors. The
Commission further, noted that even though a written agreement is not
necessary, even circumstantial evidence was not provided to establish
existence of an agreement.
Merely parallel prices are not sufficient evidence of agreement. Moreover the
price parallelism was justified by the company due to the peculiar features of
the tyre industry. It held that superficially it might seem that there exists a
cartel but the available evidence does not sufficiently prove that. Hence, it
said that no case of cartelization was made.
 CEMENT CARTEL CASE

Builders Association Of India vs Cement Manufacturers

 EXCEPTIONS TO ANTI-COMPETITVE
AGREEMENTS
The Act prohibits agreements that have AAEC on competition, but there have
been incorporated certain exceptions to this effect.
Section 3(5) provides for exception from the provisions of section 3.
Section 3(3), however, also provides for exception for joint ventures.
“Provided that nothing contained in this sub-section shall apply to any
agreement entered into by way of joint ventures if such agreement increases
efficiency in production, supply, distribution, storage, acquisition or control of
goods or provision of services” -Section 3(3)
Proviso attached to this section3 (3) exempts any agreement entered into by
way of joint ventures if such agreement increases efficiency in production,
supply, distribution, storage, acquisition or control of goods or provision of
services. The term joint venture has not been defined in the Act. In general
terms it means the cooperation of two or more individuals or businesses in
which each agrees to share profit, loss and control in a specific enterprise.A joint
venture can also be defined as an association of firms or individuals formed to
undertake a specific business project. It is similar to a partnership, but limited to
a specific project (such as producing a specific product or doing research in a
specific area
Exception for the protection of certain IPRs:-
Section 3(5)(i) provides, exemption from the application of
section 3, to the right of any person to restrain any infringement
of, or to impose reasonable conditions, as may be necessary for
protecting any of his rights which have been or may be
conferred upon him under–
(a) The Copyright Act, 1957 (14 of 1957);
(b) The Patents Act, 1970 (39 of 1970);
(c) The Trade and Merchandise Marks Act, 1958 (43 of 1958) or
the Trade Marks Act, 1999 (47 of 1999);
(d) The Geographical Indications of Goods (Registration and
Protection)Act,1999(48 of 1999),
(e) The Designs Act, 2000 (16 of 2000);
(f) The Semi-conductor Integrated Circuits Layout-Design Act,
2000 (37 of 2000).
The Act recognises the value of IPRs an incentive to creativity and
economic growth. However, for exemption under section 3 (5)
Exception to agreements related to export: Many
countries exempt anti-competitive agreements relating to
exports from the operation of law; this is presumably on the
ground that such anti-competitive agreements harm only
overseas consumers and are therefore of no concern to the
national authorities
Section 3(5) (ii) exempts the right of any person to export
goods from India up to the extent to which the agreement
relates exclusively to the production, supply, distribution or
control of goods or provision of services for such export. It
means export agreement relating only to the production,
supply, distribution or control of goods or provision of
services is exempted.
According to Meyerman ,in the course of reaching agreement
on export prices or terms of sale, for example, the participant
may exchange information about domestic prices or output,
that would permit them to reach an explicit or tacit
agreement affecting domestic market.