In an interview in 2013, Competition Commission of India (CCI) chairman Ashok Chawla was quoted as saying: “Rather than being party to a cartel, the trade associations should encourage their members and constituents to follow competition compliance norms at the corporate level.” The interview followed decisions by the CCI in 2012 against the Cement Manufacturers Association and the Chemists and Druggists Association of Baroda. These associations were found to be engaged in anti-competitive practices in contravention of section 3 of the Competition Act.
Section 3 provides that any agreements or decisions taken by associations of persons in identical or similar trades (i.e. horizontal arrangements) are presumed to have an appreciable adverse effect on competition in India and consequently void. In this connection, what can constitute an agreement is important and should not be construed narrowly. ”Agreement” is broadly defined under the Competition Act and includes any arrangement or understanding or action in concert, regardless of whether it is formal or in writing or whether it is intended to be enforceable by legal proceedings.
Recently, in two cases in December 2014 against the Film Distributors Association, Kerala (FDAK), the CCI held that FDAK was in violation of section 3 and in doing so, reiterated its position on the conduct expected from trade associations. In essence, there is heavy burden on trade associations to be cognizant of the wide ambit of anti-competitive practices owing to the high risk that such associations run of non-compliance with section 3. Therefore such associations need to be proactive and encourage members to operate within the ambit of competition law.
In the two cases filed against it, FDAK was found to be guilty of: (a) taking collective decisions against distribution of films of certain persons; (b) issuing directions to its members to boycott the films of such persons; and (c) initiating action against non-complying members. The CCI viewed these practices as anti-competitive and a limitation of the market for film distribution/exhibition business in the state of Kerala.
In defending its actions before the Director General and the CCI, FDAK contended that: (a) it is its fundamental right under article 19(1)(c) of India’s constitution to “form associations or unions”; and (b) an association such as FDAK, which was formed to protect the interest of film distributors and to bring uniformity in payment of royalties across Kerala without any discrimination towards any cinema theatre owner, deserved constitutional protection.
The CCI however rejected this defence (and in our view rightly so). The CCI reiterated its stance as cited in its order dated 1 July 2013 in the case of Advertising Agencies Guild v Indian Broadcasting Foundation & its members.
Key aspects of CCI’s views
(1) A trade association provides a forum for entities working in the same industry to meet and to discuss common issues. A trade association carries out many valuable and lawful functions which provide public benefit such as: (a) setting common technical standards for products or interfaces; (b) arranging education and training for potential entrants in the industry; (c) paying for, and encouraging, research into new techniques; and (d) developing a common response to changing government policy.
(2) Formation, membership and participation in the collective activities of a trade association does not by itself amount to violation of competition law. However, when such trade associations are used as a platform to aid illegitimate objectives contrary to the Competition Act, such as: (a) taking collective decisions which are anti-competitive; (b) issuing anti-competitive circulars/diktats; (c) facilitation of collusive or collective decision making with the intention of limiting or controlling the production, distribution, sale or price of or trade in goods or services, by its members, it will amount to violation of the provisions of the act.
(3) There is no dispute with the constitutionally recognized freedom of the right to form associations or unions within the prescribed limits. However, if the trade association’s conduct falls foul of the Competition Act, the conduct needs to be examined in terms of the act.
(4) Competition law is not an impediment to appropriate trade association activities. The members of a trade association should be fully aware of the conduct prohibited under the Competition Act (especially section 3) while carrying out their activities.
The message from the CCI couldn’t be clearer and trade associations ought to sit up and take notice. More so, since the CCI has not only penalized the associations but in recent cases, also officials (in their personal capacity) of such associations. Trade associations should not be deterred by decisions of the CCI. They should use their unique position to explore ways of enhancing competition among their members rather than stifling it.
Kunal Chandra is a counsel at Trilegal and Gautam Chawla is an associate. The views expressed herein are their personal views. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.
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