1. Antitrust law: Supreme Court emphasises competition law should foster innovation to curb consumer harm

Antitrust law: Supreme Court emphasises competition law should foster innovation to curb consumer harm

There have only been a handful of Indian antitrust cases where the principles of Indian competition law have been finally decided by the country’s Supreme Court.

Published: June 12, 2017 6:02 AM
Antitrust law, Supreme Court, CCI, Competition Appellate Tribunal, COMPAT, National Company Law Appellate Tribunal, NCLAT The court has emphasised that one of the goals of competition law enforcement should be to foster innovation as a means of curbing consumer harm. (PTI)

There have only been a handful of Indian antitrust cases where the principles of Indian competition law have been finally decided by the country’s Supreme Court. Currently, the bulk of antitrust decisions are those of the Competition Commission of India (CCI) and the intermediate appellate forum, the Competition Appellate Tribunal (COMPAT)—which has now been replaced by the National Company Law Appellate Tribunal. The past eight years of the bureaucratically-managed CCI’s and COMPAT’s existence have had their respective members routinely hold contrasting opinions on various substantial and procedural provisions of the Competition Act, 2002 (Act), which have hitherto remained unclarified by the Supreme Court, thus leaving the industry and the antitrust fraternity in a state of legal doubt. Two factors have contributed to the situation—firstly, Supreme Court’s notorious backlog of cases and secondly, the fact that Indian antitrust cases cannot be voluntarily settled by parties. In a first, over this summer, the Supreme Court of India adjudicated upon two antitrust cases on substantive issues under the Act.

Both the decisions not only contribute towards Indian antitrust jurisprudence by settling substantive issues of law, but also provide valuable insights into the thought process of the country’s highest court, especially in relation to their understanding of the technical aspects of antitrust law.

In the first case, the Supreme Court, while deciding against the film and television artists’ trade union in the state of West Bengal, introduced the concept of ‘relevant market’ in the enforcement of cartel cases. The Supreme Court held that antitrust agencies and lower courts had to figure out if the firms alleged to be entering into anti-competitive agreements were operating in the same relevant market. This was a requirement that was not strictly necessary under the Act but was open to the interpretation of higher appellate authorities. In its second order, while upholding the CCI’s finding of cartelisation by three aluminium phosphide tablets manufacturers for tenders floated by the Food Corporation of India, the Court also finally settled the raging debate between CCI and COMPAT on the proper methodology of calculating penalties under the Act. It held that penalties under the Act must not be arbitrary, should be based on principles of proportionality and must be levied on the ‘relevant’ turnover of a contravening multi-product firm rather than on the firm’s entire turnover.

Beyond contributing to such technical aspects of Indian antitrust law, both the decisions also serve as a valuable harbinger of how India’s highest judiciary should think about antitrust. The Court greatly emphasises the need of ensuring that the provisions of the Act get implemented in line with the purpose for which the law was enacted. This has been clarified by the Supreme Court to include those which enhance consumer well-being or consumer welfare (a term in micro-economic theory that relates to allocative efficiency). This articulation by the Indian Supreme Court is akin to that of the US Supreme Court’s decision in 1979 (Reiter v. Sonotone Corp 442 U.S. 330 (1979)), where the US Supreme Court held that ‘consumer welfare’ is the only articulated goal of antitrust law in the United States. The Indian adoption of the same standard will now force the lower tribunals and courts to engage in robust economic reasoning to ensure and justify that their decisions stick to the consumer welfare prescription—reducing their ability to introduce protectionist, consumerist or equity policies within the Indian antitrust agenda. This move also will greatly help the campaign of the Indian antitrust bar to convince the CCI and COMPAT to adopt a ‘more economic approach’ to their antitrust decisions. Currently, the CCI and COMPAT seldom attempt to examine a theory of economic harm or those of anti-competitive effects within their proximate reasoning while imposing antitrust penalties.

The court readily quotes from several antitrust sources, authorities and decisions of mature competition law jurisdictions, especially while examining technical aspects of the law. This is a welcome bench-marking and will force the CCI to modernise its enforcement pedagogy. For example, the CCI in the past has been tempted to adopt an interpretation of the Act which imposes a strict liability standard for abuse of dominance cases, without engaging in an “effects-based analysis”. Such an enforcement standard, where certain business conducts of large firms are penalised without examining if such conduct effectively impairs competition in the affected markets, is in divergence from the approach taken in mature competition law jurisdictions. The Supreme Court’s ready reliance on such foreign jurisprudence will force the CCI not to attempt re-inventing the regulatory wheel.

The court has also emphasised that one of the goals of competition law enforcement should be to foster innovation as a means of curbing consumer harm. This articulation comes at a time when CCI’s misguided policy while dealing with high-tech firms could potentially harm India’s digital markets. Currently, CCI’s enforcement trends, especially in fast-moving tech markets (those against Ola, Ericsson, and Google) are often linked to subjective benchmarks, i.e., standards of fairness and equity, without engaging in a robust effects-based analysis which links an alleged business misconduct to identified anticompetitive effects. It protects weaker/inefficient firms and risks depriving consumers of innovations which would benefit them, even if they don’t benefit competitors. Given that the Supreme Court categorically mentions that the goal of competition enforcement should be to “protect the competition process itself rather than the competitors in the market”, CCI must analyse the potential effects of its actions on the innovation capacity of the firms and sectors they regulate/penalise. The “fining guideline”, one of the long-pending demands of the stakeholders, may have slowly emerged with the decisions of the Supreme Court.

The authors, Manas K Chaudhuri is partner (antitrust), Khaitan & Co.,  and Avirup Bose is assistant professor (competition law),  Jindal Global Law School

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