Introduction

The Competition Commission of India (‘CCI’) has by far adopted a mix of ‘effects-based’ and ‘objects-based’ approaches for cartel regulation in India. To establish a cartel contravention, it typically examines whether competitors have entered into an ‘agreement’ for the exchange of information that resulted in a collusive outcome in the market. And because cartels are often hard to detect, it often infers their existence from several ‘coincidences’ and ‘indicia’. CCI’s practice, however, varies in considering the implementation of a cartel as a necessary element for establishing a contravention. In this edition, we examine CCI’s practice on this aspect.

Competition Act, 2002 on Information Exchange

The Competition Act, 2002 (‘Act’) assumes ‘agreements’ among competitors that result in: (a) price-fixing; (b) limiting supply; (c) market allocation; and (d) bid-rigging as anti-competitive.  This presumption may be rebutted by the cartel participants by offering evidence to the contrary, e.g., establishing that the pro-competitive benefits of an arrangement are likely to outweigh the potential harm.

The Act, therefore, prescribes a three-step approach for establishing a cartel contravention. First, CCI must find that an anti-competitive agreement among competitors existed. Second, it must find that such exchange was acted upon by the companies and resulted in price determination or market limitation. Third, it should consider whether the parties have provided sufficient evidence to rebut the statutory presumption to show that the net market effects of the agreement were not, in fact, anti-competitive. That being said, the Act does not answer whether CCI must prove - or can it assume - that the information exchanged by firms was acted upon by the firms and affected the respective firms’ conduct in the market^[1].

CCI’s Practice on the Relevance of ‘Implementation’ for Establishing a Contravention 

CCI has had the opportunity to deal with the exchange of information between competitors that did not result in the fixation of price or market allocation etc., in a range of decisions.  It has often declined to find cartel violations where parties exchange competitively sensitive information but the information exchanged did not lead to the fixation of price etc.

In a 2016 decision (Ruchi Soya)^[2], CCI found certain competitors to have entered into an agreement to increase prices, accumulate stock, and create artificial scarcity in trading of some commodities in commodity exchanges in India.  It did not find a contravention because (among other reasons), there was no resultant determination of prices of the commodity or a limitation in supply.

Similarly, in a 2018 decision (Flashlights) ^[3], CCI found certain manufacturers of flashlights to have exchanged monthly information on prices, production, and sales, intending to increase prices of flashlights. CCI did not consider such an exchange to be a contravention of the Act because there was no evidence of its implementation or a resultant increase in the price of flashlights in the market.

A decision of CCI issued in June 2020 (Bearings)^[4], however, adopts a different approach. CCI found that five bearings manufacturers met to decide prices that were to be quoted to original equipment manufacturers in the automotive bearings market. The fact that parties met to decide the price revisions was considered sufficient by CCI to establish a cartel violation. CCI found that the information exchange compromised the parties’ independence to quote rates which they would have quoted absent their coordination. While CCI acknowledged that it was possible for the cartel to not have led to a collusive outcome in the market, it did not consider ‘implementation’ of the arrangement to be necessary for establishing a cartel violation. Instead, the decision implies that the mere establishment of an anti-competitive agreement (without implementation) would be sufficient to find the parties to have contravened the cartel provisions of the Act. In effect, CCI presumed (and conflated) both implementation and AAEC. This is a deviation from the previous standard established in Flashlights and Ruchi Soya

Implications of Assuming Implementation of Information Exchange

CCI’s varied approaches in these decisions bring out some important questions that it must address at a policy level. Once the exchange of anti-competitive information among competitors is established, (i) is there a requirement to show that the agreement was acted upon by the parties?; and (ii) if so, can CCI assume ‘implementation’ and find parties to have contravened the Act, basis the information exchange alone?

On the one hand, such an assumption would reduce the regulatory burden of CCI having to prove the implementation of cartels. This burden may especially be challenging in situations where proving price fixation, limiting supply, etc., is difficult to gauge due to factors such as the complex nature of the markets involved or the historic nature of the cartel.

On the other hand, such an assumption could create a stricter standard that sanctions all exchanges of competitively sensitive information among competitors unless demonstrably pro-competitive.  A per-se standard may also require firms to take a closer look at their intelligence-gathering exercises which are often adopted to benchmark their performance against their competitors.  For example, firms may need to ensure that any information exchanged with a competitor serves a documented legitimate business purpose; and consider hiring independent third-party aggregators to gather information in an aggregated form that could mask the competitively sensitive information completely.  Such a standard may also increase the number of leniency applicants that may come forward to report conduct with their competitors to CCI.  This may occupy wider regulatory resources of CCI for examining claims of cartel conduct that may not have resulted in a collusive outcome in the market.

Interestingly, the European Commission (‘EC’) prohibits agreements with either the object or effect of restricting competition^[5]. Restrictions ‘by object’ by their very nature have the potential to restrict competition. When analysing an information exchange as a concerted practice, the EC considers it sufficient for one party to disclose commercially sensitive information to a competitor and for the latter not to reject the information. Once concerted information exchange is established, there is a rebuttable presumption that the firms took the information into account when determining their conduct on the market.

In sum, CCI must adopt a consistent approach on whether the implementation of an agreement/acting on information exchanges is necessary to prove cartel contravention and on whom the burden of proving or disproving such a contravention would lie. This would aid firms in having legal certainty and ensure greater compliance with the antitrust laws in India.

[1] This is different from the presumption of appreciable adverse affect on competition (‘AAEC’) that the Act prescribes for horizontal arrangements. AAEC is presumed once Section 3(3) of the Act is satisfied.  Section 3(3) itself requires that a horizontal agreement between competitors should determine a purchase or sale price, limit market, result in bid rigging etc.

^[2]  Case no. 76 of 2012

^[3] Suo Motu Case No. 01 of 2017

^[4] Suo Motu Case No. 05 of 2017

[5] See Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements