Rules of engagement

There are two different rulebooks for dealing with anti-competitive behaviour around the world. Respected legal academic Souvik Chatterji analyses the differences from an India perspective and explains how one makes for quicker and more effective enforcement against infringers

Competition agencies across the world examine anti-competitive agreements either through the lens of the per se rule or the rule of reason. Competition laws in most countries make this distinction because there is a consensus that hardcore activities like cartelisation have a pernicious effect and should be made illegal. In such cases, competition agencies are supposed to balance the pro-competitive benefits and anti-competitive effects in determining the allegations against parties. However, Indian law has not made any sharp distinctions between the two rules, and the liability is instead based on appreciable adverse effect on competition within India. Within this context, it is pertinent to examine the stand of India in respect of the per se rule and the rule of reason.

Competition authorities across the world are overburdened with determining the liability of alleged parties in respect of anti-competitive activities and abuse of dominant positions. So, to determine liability, the broad approach is either the per se rule or the rule of reason. In countries or jurisdictions where per se illegal activities are identified, competition agencies are only required to establish the anti-competitive activity, such as bid rigging, for example. But for rule of reason cases, the competition agency not only has to establish the activity, such as market allocation, but also establish the level of adverse effect caused in the economy and market of the jurisdiction.

Activities that have a more pernicious effect are examined by the per se rule, and the competition agencies can directly and immediately prevent them. Others are examined by the rule of reason, where pro-competitive effects are balanced with the anti-competitive effects, but the process is longer. Only when anti-competitive effects outweigh the pro-competitive effects do competition agencies issue preventive orders.

THE PER SE RULE

Under this rule, it is the actions or practices as specified by the act that are deemed or presumed to have an appreciable adverse effect on competition, which is prohibited. For example, price-fixing cartels or bid rigging are per se illegal offences in the US, UK and Japan, as they affect a huge number of people. In these cases, unless criminal sanctions or imprisonment are given, the economy will be harmed. However, in India there is a test of appreciable adverse effect on competition. For cases of bid rigging, the Competition Commission of India (CCI) has to establish not only that the bid rigging has taken place, but that the anti-competitive activity had more of an appreciable adverse effect on competition than a pro-competitive benefit. Here, the bidding company in defence has the scope to rebut the evidence before the appellate authority, the National Company Law Appellate Tribunal (NCLAT).

Under the per se rule, this is unnecessary if competition is limited or restricted. The reason for not showing how competition is restricted is natural. Let us say an LPG company has been engaged in tied selling of ovens with LPG cylinders. In this case, consumers have to buy the oven from the same company, even if they don’t want one, otherwise they will not get the LPG cylinder. By declaring the activity as per se illegal, jurisdictions like the US, UK and Japan reduced the time of court proceedings. In other countries where the rule of reason approach is applied, there is scope for rebuttal.

This view is based on established experience of the nature of the actions and practices that produce anti-competitive effects. In the case of Northern Pacific Railway Co v United States, the US Supreme Court explained the basis of per se rule. It said that there were certain agreements or practices which, due to their overtly pernicious effect on competition and lack of any redeeming virtue, were conclusively presumed to be unreasonable and therefore illegal, without elaborate inquiry as to the precise harm they had caused or business rationale for their use.

The principle of per se avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, to determine whether a particular restraint has been unreasonable, an inquiry which is so often wholly fruitless when undertaken.

In State Oil Co v Khan, the US Supreme Court held that vertical price fixing was no longer considered a per se violation of the Sherman Act, but horizontal price fixing was still considered a breach of the act. Also, in 2008, the defendants of United States v LG Display Co, United States v Chunghwa Picture Tubes, and United States v Sharp Corporation, all heard in the northern district of California, agreed to pay a total of USD585 million to settle their prosecutions for conspiring to fix prices of liquid crystal display panels, which was the second-largest amount awarded in the history of the act.

Competition Commission of India (CCI) stories

---

CCI in paralysis

Slow movement on appointment cripples functions of commission

---

Black & white

The Competition Amendment Bill contains commendable reforms, but there are also negatives

---

Don’t ignore CCI’s teeth

The competition regulator has taken an assertive enforcement stance in the post-pandemic era.

---

For more stories about CCI, visit law.asia.