Intellectual Property and Competition Law: HC examines competing considerations

Owners of Intellectual Property (IP) are under law permitted to restrict others from utilizing the IP for commercial benefit. This is directly at odds with the competition principle which obligates free market and no undue restriction. Whether patent holders (and the ensuing compulsory licence regime) can indirectly ensure against new players in the market was a question recently considered by the Delhi High Court. While it was essentially a dispute between Ericsson and Micromax, the issue attained very wide significance in view of the various competing considerations at play. 

Micromax had taken Ericsson before the Competition Commission of India (CCI) alleging abuse of dominant position in the wake of its insistence to pay higher royalty for using the Ericsson softwares etc. The indulgence granted by the CCI to Micromax was challenged before the High Court by Ericsson principally claiming that IP disputes cannot be determined at a competition forum as essentially IP represents a special law and is not amenable to competition law. This dispute has recently been adjudged by the High Court in favour of Micromax holding that IP principles cannot restrict a competition inquiry. 

It is a very crucial decision for it is perhaps a first of its kind in India and sets the stage for evolution of competition inquiry in the IP stage. Some important observations of the Delhi High Court in TELEFONAKTIEBOLAGET LM ERICSSON (PUBL) Vs. COMPETITION COMMISSION OF INDIA AND ANOTHER [Writ Petition (Civil) No. 464/2014, decision dated 30.03.2016] are reproduced below;

A. On the scope of intervention by High Court in Writ Petition against CCI preliminary orders;

78. In terms of Section 26(1) of the Competition Act, a direction to cause an investigation can be made by CCI only if it is of the opinion that there exists a prima facie case. Formation of such opinion is sine qua non for exercise of any jurisdiction under Section 26(1) of the Competition Act. Thus, in cases where the commission has not formed such an opinion or the opinion so formed is ex- facie perverse in the sense that no reasonable person could possibly form such an opinion on the basis of the allegations made, any directions issued under Section 26(1) of the Competition Act would be without jurisdiction and would be liable to be set aside.
79. Any direction under Section 26(1) of the Competition Act could also be challenged on the ground - as is sought to be contended in the present case - that the subject matter is outside the pail of the Competition Act. However, it must be added that a challenge to the jurisdiction of the CCI to pass such directions under Section 26(1) of the Competition Act must be examined on a demurrer; that is, the information received under Section 19 must be considered as correct; any dispute as to the correctness or the merits of the allegations - unless the falsity of the allegations is writ large and ex facie apparent from the record - cannot be entertained in proceedings under Article 226 of the Constitution of India. Equally, in cases where the direction passed is found to be malafide or capricious, interference by this Court under Article 226 of the Constitution of India would be warranted. 

B. On the issue whether CCI examine complaints for violation of IP terms;

106. The next issue to be addressed is whether the CCI would have the jurisdiction to entertain complaints regarding abuse of dominance in view of the specific provisions under the Patents Act enacted to address the issue of abuse of dominance by a patent holder. It is contended on behalf of Ericsson that the Patents Act provides for an adequate mechanism to prevent any abuse of patent rights granted under that Act. It is urged that any issues regarding abuse of patent rights including abuse of dominance as contemplated under Section 4 of the Competition Act, are required to be addressed under the provisions of the Patents Act and, thus, the applicability of the Competition Act in certain matters regarding patents is ousted. It is contended that the Patents Act is a special Act which contains comprehensive provisions relating to grant of patents rights as well as for remedying any abuse thereof; and, on the other hand, the Competition Act is a general law enacted with a view to ensure freedom of trade and to promote and sustain competition in the market. It is, thus, urged that the Patents Act would prevail over the Competition Act and the CCI would have no jurisdiction to entertain the complaints in question.

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110. Thus, whereas patent laws are concerned with grants of rights enabling the patent holder to exclude others from exploiting the invention, and in that sense promoting rights akin to a monopoly; the competition law is essentially aimed to promote competition and, thus, fundamentally opposed to monopolization as well as unfair and anticompetitive practices that are associated with monopolies.

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137. Insofar as the allegations contained in the complaints are concerned - that is, demand of excessive licence fee, unreasonable and anti-competitive licensing terms, and breach of FRAND obligations - the Patents Act does provide a remedy by way of compulsory grant of licences. The question is whether provision of such remedies excludes the applicability of the Competition Act to certain abuse of patent rights - such as demand for excessive royalty and imposition of unreasonable terms for grant of patent licences.

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148. Thus, in my view Section 60 of the Competition Act, which provides for the provisions of the said Act to have an effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, must be read harmoniously with Section 62 of the Competition Act and in the context of the subject matter of the Competition Act. As discussed earlier, the Competition Act is directed to prohibit certain anti-competitive agreements, abuse of dominant position and formation of combinations which cause or are likely to cause appreciable adverse effect on competition. Plainly, agreements which may otherwise be lawful and enforceable under the general law - such as the Indian Contract Act, 1872 - may still be anti-competitive and fall foul of Section 3 of the Competition Act. Similarly, a practice or conduct which may be considered as an abuse under Section 4 of the Competition Act may otherwise but for the said provision be legitimate under the general law. Equally, mergers and amalgamations that are permissible under the general law may result in aggregation of market power that may not be permitted under the Competition Act. Section 60 of the Competition Act must be read in the aforesaid context.

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172. It follows from the above that whilst an agreement which imposes reasonable condition for protecting Patent Rights is permissible, an anti competitive agreement which imposes unreasonable conditions would not be afforded the safe harbor of Section 3(5) of the Competition Act and would fall foul of Section 3 of the Competition Act. The question as to whether a condition imposed under the agreement is reasonable or not would be a matter which could only be decided by the CCI under the provisions of the Competition Act. Neither the Controller of Patents discharging his functions in terms of the Patents Act, nor a Civil Court would have any jurisdiction to adjudicate whether an agreement falls foul of Section 3 of the Competition Act. This is so because the Controller of Patents cannot exercise any powers which are not specifically conferred by the Patents Act and by virtue of Section 61 of the Competition Act, the jurisdiction of Civil Courts to entertain any suit or proceedings in respect of any matter which the CCI or the COMPAT is empowered to determine, stands expressly excluded. Thus, in so far as the scope of Section 3 of the Competition Act is concerned, there does not appear to be any overlap or inconsistency with the Patents Act.

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174. In my view, there is no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act. And, in absence of any irreconcilable conflict between the two legislations, the jurisdiction of CCI to entertain complaints for abuse of dominance in respect of Patent rights cannot be ousted.

Powers of Competition Commission of India: Supreme Court entails

In a recent decision [Competition Commission of India v. Steel Authority of India Ltd.] the Supreme Court of India, reversing the decision of the Competition Appellate Tribunal has declared that no opportunity of hearing was required to be given by the Competition Commission of India to any person before beginning to investigate a case or complaint. The Appellate Tribunal had declared that the principles of natural justice were inviolable and thus hearing opportunity was mandatory whereas the Commission of the opinion that if such opportunity was given the very basis of investigation would be eroded away, and thus appealed against the order of the Tribunal to the Supreme Court.

The Bench formulated for itself the issues required to be answered in terms of the powers of the Competition Commission and the procedure to be followed and thereon went to states answers of the same. We have taken the liberty to matching the issues posed and the answers provided for the benefit of our readers in the following terms;

Q1) Whether the directions passed by the Commission in exercise of its powers under Section 26(1) of the Act forming a prima facie opinion would be appealable in terms of Section 53A(1) of the Act?

A1) In terms of Section 53A(1)(a) of the Act appeal shall lie only against such directions, decisions or orders passed by the Commission before the Tribunal which have been specifically stated under the provisions of Section 53A(1)(a). The orders, which have not been specifically made appealable, cannot be treated appealable by implication. For example taking a prima facie view and issuing a direction to the Director General for investigation would not be an order appealable under Section 53A. 

Q2) What is the ambit and scope of power vested with the Commission under Section 26(1) of the Act and whether the parties, including the informant or the affected party, are entitled to notice or hearing, as a matter of right, at the preliminary stage of formulating an opinion as to the existence of the prima facie case? 

A2) Neither any statutory duty is cast on the Commission to issue notice or grant hearing, nor any party can claim, as a matter of right, notice and/or hearing at the stage of formation of opinion by the Commission, in terms of Section 26(1) of the Act that a prima facie case exists for issuance of a direction to the Director General to cause an investigation to be made into the matter. However, the Commission, being a statutory body exercising, inter alia, regulatory jurisdiction, even at that stage, in its discretion and in appropriate cases may call upon the concerned party(s) to render required assistance or produce requisite information, as per its directive. The Commission is expected to form such prima facie view without entering upon any adjudicatory or determinative process. The Commission is entitled to form its opinion without any assistance from any quarter or even with assistance of experts or others. The Commission has the power in terms of Regulation 17 (2) of the Regulations to invite not only the information provider but even ‘such other person’ which would include all persons, even the affected parties, as it may deem necessary. In that event it shall be ‘preliminary conference’, for whose conduct of business the Commission is entitled to evolve its own procedure.

Q3) Whether the Commission would be a necessary, or at least a proper, party in the proceedings before the Tribunal in an appeal preferred by any party? 

A3) The Commission, in cases where the inquiry has been initiated by the Commission suo moto, shall be a necessary party and in all other cases the Commission shall be a proper party in the proceedings before the Competition Tribunal. The presence of the Commission before the Tribunal would help in complete adjudication and effective and expeditious disposal of matters. Being an expert body, its views would be of appropriate assistance to the Tribunal. Thus, the Commission in the proceedings before the Tribunal would be a necessary or a proper party, as the case may be. 

Q4) At what stage and in what manner the Commission can exercise powers vested in it under Section 33 of the Act to pass temporary restraint orders?

A4) During an inquiry and where the Commission is satisfied that the act is in contravention of the provisions stated in Section 33 of the Act, it may issue an order temporarily restraining the party from carrying on such act, until the conclusion of such inquiry or until further orders without giving notice to such party, where it deems it necessary. This power has to be exercised by the Commission sparingly and under compelling and exceptional circumstances. The Commission, while recording a reasoned order inter alia should : (a) record its satisfaction (which has to be of much higher degree than formation of a prima facie view under Section 26(1) of the Act) in clear terms that an act in contravention of the stated provisions has been committed and continues to be committed or is about to be committed; (b) It is necessary to issue order of restraint and (c) from the record before the Commission, it is apparent that there is every likelihood of the party to the lis, suffering irreparable and irretrievable damage or there is definite apprehension that it would have adverse effect on competition in the market.  

The power under Section 33 of the Act to pass temporary restraint order can only be exercised by the Commission when it has formed prima facie opinion and directed investigation in terms of Section 26(1) of the Act, as is evident from the language of this provision read with Regulation 18(2) of the Regulations.

Q5) Whether it is obligatory for the Commission to record reasons for formation of a prima facie opinion in terms of Section 26(1) of the Act?

A5) In consonance with the settled principles of administrative jurisprudence, the Commission is expected to record at least some reason even while forming a prima facie view. However, while passing directions and orders dealing with the rights of the parties in its adjudicatory and determinative capacity, it is required of the Commission to pass speaking orders, upon due application of mind, responding to all the contentions raised before it by the rival parties.

Q6) What directions, if any, need to be issued by the Court to ensure proper compliance in regard to procedural requirements while keeping in mind the scheme of the Act and the legislative intent? Also to ensure that the procedural intricacies do not hamper in achieving the object of the Act, i.e., free market and competition.

A6) ... Certain procedural directions will help in avoiding prejudicial consequences, against any of the parties to the proceedings and the possibility of abuse of jurisdiction by the parties can be eliminated by proper exercise of discretion and for valid reasons. Courts have been issuing directions in appropriate cases and wherever the situation has demanded so. Administration of justice does not depend on individuals, but it has to be a collective effort at all levels of the judicial hierarchy, i.e. the hierarchy of the Courts or the fora before whom the matters are sub-judice, so that the persons awaiting justice can receive the same in a most expeditious and effective manner. The approach of the Commission even in its procedural matters, therefore, should be macro level rather than micro level. It must deal with all such references or applications expeditiously in accordance with law and by giving appropriate reasons. Thus, we find it necessary to issue some directions which shall remain in force till appropriate regulations in that regard are framed by the competent authority. 

The Bench also issued certain directions to the observed by the Commission;

A) Regulation 16 prescribes limitation of 15 days for the Commission to hold its first ordinary meeting to consider whether prima facie case exists or not and in cases of alleged anti-competitive agreements and/or abuse of dominant position, the opinion on existence of prima facie case has to be formed within 60 days. Though the time period for such acts of the Commission has been specified, still it is expected of the Commission to hold its meetings and record its opinion about existence or otherwise of a prima facie case within a period much shorter than the stated period.

B) All proceedings, including investigation and inquiry should be completed by the Commission/Director General most expeditiously and while ensuring that the time taken in completion of such proceedings does not adversely affect any of the parties as well as the open market in purposeful implementation of the provisions of the Act.

C) Wherever during the course of inquiry the Commission exercises its jurisdiction to pass interim orders, it should pass a final order in that behalf as expeditiously as possible and in any case not later than 60 days.

D) The Director General in terms of Regulation 20 is expected to submit his report within a reasonable time. No inquiry by the Commission can proceed any further in absence of the report by the Director General in terms of Section 26(2) of the Act. The reports by the Director General should be submitted within the time as directed by the Commission but in all cases not later than 45 days from the date of passing of directions in terms of Section 26(1) of the Act.

E) The Commission as well as the Director General shall maintain complete ‘confidentiality’ as envisaged under Section 57 of the Act and Regulation 35 of the Regulations. Wherever the ‘confidentiality’ is breached, the aggrieved party certainly has the right to approach the Commission for issuance of appropriate directions in terms of the provisions of the Act and the Regulations in force.

In our considered view the scheme and essence of the Act and the Regulations are clearly suggestive of speedy and expeditious disposal of the matters. Thus, it will be desirable that the Competent Authority frames Regulations providing definite time frame for completion of investigation, inquiry and final disposal of the matters pending before the Commission. Till such Regulations are framed, the period specified by us supra shall remain in force and we expect all the concerned authorities to adhere to the period specified.

The background to the enactment of the Competition Act, 2002 was discussed the Bench in the following terms; 

The decision of the Government of India to liberalize its economy with the intention of removing controls persuaded the Indian Parliament to enact laws providing for checks and balances in the free economy. The laws were required to be enacted, primarily, for the objective of taking measures to avoid anti-competitive agreements and abuse of dominance as well as to regulate mergers and takeovers which result in distortion of the market. The earlier Monopolies and Restrictive Trade Practices Act, 1969 was not only found to be inadequate but also obsolete in certain respects, particularly, in the light of international economic developments relating to competition law. Most countries in the world have enacted competition laws to protect their free market economies- an economic system in which the allocation of resources is determined solely by supply and demand. The rationale of free market economy is that the competitive offers of different suppliers allow the buyers to make the best purchase. The motivation of each participant in a free market economy is to maximize self-interest but the result is favourable to society. As Adam Smith observed: “there is an invisible hand at work to take care of this”.

As far as American law is concerned, it is said that the Sherman Act, 1890, is the first codification of recognized common law principles of competition law. With the progress of time, even there the competition law has attained new dimensions with the enactment of subsequent laws, like the Clayton Act, 1914, the Federal Trade Commission Act, 1914 and the Robinson-Patman Act, 1936. The United Kingdom, on the other hand, introduced the considerably less stringent Restrictive Practices Act, 1956, but later on more elaborate legislations like the Competition Act, 1998 and the Enterprise Act, 2002 were introduced. Australia introduced its current Trade Practices Act in 1974. The overall intention of competition law policy has not changed markedly over the past century. Its intent is to limit the role of market power that might result from substantial concentration in a particular industry. The major concern with monopoly and similar kinds of concentration is not that being big is necessarily undesirable. However, because of the control exerted by a monopoly over price, there are economic efficiency losses to society and product quality and diversity may also be affected. Thus, there is a need to protect competition. 

The primary purpose of competition law is to remedy some of those situations where the activities of one firm or two lead to the breakdown of the free market system, or, to prevent such a breakdown by laying down rules by which rival businesses can compete with each other. The model of perfect competition is the ‘economic model’ that usually comes to an economist’s mind when thinking about the competitive markets. As far as the objectives of competition laws are concerned, they vary from country to country and even within a country they seem to change and evolve over the time. However, it will be useful to refer to some of the common objectives of competition law. The main objective of competition law is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive to consumer preferences. The advantages of perfect competition are threefold: allocative efficiency, which ensures the effective allocation of resources, productive efficiency, which ensures that costs of production are kept at a minimum and dynamic efficiency, which promotes innovative practices. These factors by and large have been accepted all over the world as the guiding principles for effective implementation of competition law.

In India, a High Level Committee on Competition Policy and Law was constituted to examine its various aspects and make suggestions keeping in view the competition policy of India. This Committee made recommendations and submitted its report on 22nd of May, 2002. After completion of the consultation process, the Competition Act, 2002 (for short, the ‘Act’) as Act 12 of 2003, dated 12th December, 2003, was enacted. As per the statement of objects and reasons, this enactment is India’s response to the opening up of its economy, removing controls and resorting to liberalization. The natural corollary of this is that the Indian market should be geared to face competition from within the country and outside. The Bill sought to ensure fair competition in India by prohibiting trade practices which cause appreciable adverse effect on the competition in market within India and for this purpose establishment of a quasi judicial body was considered essential. The other object was to curb the negative aspects of competition through such a body namely, the ‘Competition Commission of India’ (for short, the ‘Commission’) which has the power to perform different kinds of functions, including passing of interim orders and even awarding compensation and imposing penalty. The Director General appointed under Section 16(1) of the Act is a specialized investigating wing of the Commission. In short, the establishment of the Commission and enactment of the Act was aimed at preventing practices having adverse effect on competition, to protect the interest of the consumer and to ensure fair trade carried out by other participants in the market in India and for matters connected therewith or incidental thereto.

Have a look at the decision.

Brawling Stock-exchanges knock CCI's door ...

A recent news update informs us that the actions of National Stock Exchange have been challenged as anti-competitive by a new stock exchange MCX-SX before the newly functional Competition Commission of India. This recent newspiece from the Finanal Express states that "The squabble between the country’s newest stock exchange, MCX-SX, and the dominant player, NSE, has reached the domain of the competition regulator, with MCX-SX lodging a compliant with the watchdog. The Competition Commission of India has embarked on an exercise to unravel the intentions of NSE through rigorous data collection and analysis".

It also informs us that this would be interesting to watch the brawl as "the regulator can take unprecedented steps to establish whether a market player is sacrificing returns now to cripple a rival so that it could gain later, say lawyers. CCI has the power to ask an accused to produce internal documents and communication that would reveal business plans adopted to ensure that there is no effective competition. Such documents can prove to be a smoking gun".

Regulatory Structure under Competition Laws: Case of EC and India

I. INTRODUCTION

Competition law differs from other branches of law for various reasons. It is not about the fairness or morality to be instilled in the actions which mark societal behaviour. Instead the rules of competition reflect economic principles, designed to render the operation of the markets in a manner beneficial to the common good. These rules are of immense importance as they not only vouchsafe against the monopolistic and exploitative tendencies of the bigger market players, they are also instrumental in providing the smaller and newer entrants in the markets to work towards achieving self-sustaining levels.

Their importance is noted well in by the US Supreme Court when it observed, “the antitrust laws … are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental freedoms”. [United States v. Topco Associates Inc., 405 US 596 at 610 (1972)]

To speak of the European Economic Communities (EEC), the rules relating to competition to be observed in the common markets of the EEC flow from Article 81-86 of the EC Treaty. From these are derived the three central legal provisions upon which this law operates;

• Article 81, prohibiting anti-competitive agreements,
• Article 82, prohibiting abuse of dominant positions, and
• The EC Merger Regulation (ECMR), prohibiting anti-competitive merges, acquisitions and joint ventures.

Each of these rules apply in different circumstances but the underlying purpose beneath them is one and the same: to prevent the problem of welfare loss that can arise when an undertaking or a coordinated group of undertakings exercise certain market power. To effectuate this legal framework, the EC Treaty also vests the powers and functions of regulation upon various bodies functioning under the EC and national member states. The aim of this paper is to examine the regulatory structure in vogue under the EC competition law and to identify the key traits which may as well be applicable for the recently formulated Competition Commission of India, in its quest towards rendering competition workable in the Indian markets.

II. REGULATORY STRUCTURE UNDER THE EC COMPETITION LAWS

The competition law framework, as originally envisaged under the EC Treaty concentrated upon the EU Commission as the sole benefactor and regulator of market actions pertaining to competition in the EEC markets. This framework underwent substantial reform (w.e.f. May 1, 2004) whereby the EC’s modernized competition regime took effect. Thereunder, devolving responsibility for enforcing competition law from the European Commission to national competition authorities (NCAs) and courts in the EU member states, an entirely new framework was given effect to. Known as the European Competition Network (ECN), the system was designed to effectuate a shift in policy. There was a move away from a system of advance clearance or exempting of agreements to a retrospective exception system.

Since the aim is to comparatively examine the EC Competition law structure, it is this new framework which forms the subject-matter of study of this project. With this background, let us proceed towards the attainment of our objectives.

(a) The legal regime for competition in the EC

As with other Community policy areas, EC Competition law is established and developed via a variety of legal sources. At the top of the legal hierarchy is the EC Treaty. By itself the Treaty does not provide sufficient detail to permit the existence of a fully and completely functioning legal order, and a considerable quantity of secondary legislation has been made. Article 249 of the Treaty lists the types of secondary legislation that may be adopted by the EC, which are, regulations, decisions, and directives. Thus EC competition law may be enforced by way of decisions made by the EC Commission and Article 249 provides that a ‘decision shall be binding in its entirely upon those to whom it is addressed’.

The legislations may further be interpreted by the European Court of Justice (ECJ) or the national courts. Thus these decisions serve as the third source of EC competition law. Further, the notices and guidance issued by the EC Commission are also binding instruments of state policy and thus serve as another important source of the competition law.

As noted above, Article 81 and 82 comprise the bulk of the substantive competition rules of the EC. However what is important as regards their implementation is the objective set forth in Article 2 of the EC Treaty, which includes ‘a high degree of competitiveness and converging economic performances.’ Further, Article 3(g) provides that the activities to be undertaken for the purpose of achieving the objectives of Article 2 include, the development of ‘a system ensuring that competition in the internal market is not distorted. In these one may find the broad objectives upon which the functioning of the EC competition law regime is based.

(b) The EC Regulatory Authorities

While Articles 81 and 82 form the bulk of the substantive rules, Articles 83 and 85 provide the mechanism for the implementation of these substantive rules. Article 83 makes a provision for the enactment of ‘any appropriate regulation or directives to give effect to the principles set out in Articles’ 81 and 82. Thereunder various regulations have been made, the major ones being Regulation 1 of 2003, block exemption regulations, etc.

In this framework, Article 85 confers upon the EC Commission the primary role in the enforcement of the EC Competition law by requiring it that it ‘shall ensure the application of the principles laid down in Article 81 and 82’. In this regard, the Commission is required to investigate infringements of law and in cases of breach, it is duty bound to ‘propose appropriate measures to bring it to an end’. Thus our study proceeds with the examination of the EC Commission.

(i) EC Commission

Given the importance of the institution and its pivotal role in rendering the EC competition law effective, the Commission has been described as the ‘guardian of the Treaty’, or the ‘watchdog of the Community’. Established under the Treaty itself, the rules relating to the Commission are set out in Articles 211-19 of the Treaty with Article 211 providing that the Commission should ensure compliance with the EC law, and exercise specific powers given to it by the Council of Ministers.

The Commission consists of 27 Commissioners, nominated by the Member States. Administratively the Commission is divided into Directorates General, with one Directorate General having responsibility for competition policy, which includes the contentious areas of state aids, and merger policy as well as ‘antitrust’.

The role of the Commission, as at present, is to supervise the operation of competition policy and to play the lead role in the formulation of that policy as change is needed. The Commission has the power to investigate infringements of the law, and to take appropriate action, on its own initiative, or in response to complaints. However, each Member state is also required to apply the law in specific areas with the use of the appropriate national procedures applied by the relevant national competition authority. The Commission is also required to submit an annual report to the European Parliament detailing its activities in competition law over the last year.

The change in the role of the Commission came with the EU Council of Ministers adopting Regulation 1/2003 in November 2002 (which came into force from May, 2004), replacing Regulation 17/62 which set out the hitherto existing procedural rules for enforcement of Articles 81 and 82. This Regulation introduced fundamental changes to the process by which EC competition law was enforced and also the roles of the various authorities.

Under the new regime, the Commission is not required to be notified in advance about their proposed actions whereas earlier the companies were required to notify agreements to the Commission in advance for clearance confirming that the arrangements do not infringe Article 81(1) or an exemption confirming that the arrangements infringe but are exempted under Article 81(3). Under the new regime, companies will now have to form their own view on whether the agreement is compliant and would survive an attack by a regulator or other third party during the life of the arrangements or even after they are concluded. Thus the market players have been vested with the power to declare that the conditions of Article 81(3) are satisfied so as to protect arrangements from attack; an instance of self-regulation.

Nonetheless, in order to assist the players in arriving at decisions regarding compatibility of their actions with the competition law, the Regulation does not formally prevent parties applying to court for a declaration as to the status of an agreement. Further, in respect of novel or unresolved questions on the application of Articles 81 and 82, the Commission retains the power to provide informal guidance.

It may also be noted that now the power of regulation is decentralized with the National Competition Authorities (NCAs) and the national courts of the Member states also allowed enforcing Articles 81 and 82. This may, depending on the geographical spread of the arrangements, give aggrieved parties a range of potential venues. Nonetheless the parental role of the Commission is retained with the Regulation requiring each NCA to send the Commission drafts of its intended decisions at least 30 days before the NCA intends to adopt the decision. This would allow the Commission to detect any inconsistency in the application of Articles 81 and 82 and, if necessary, take over the investigation.

It is now widely believed that under the aim of modernization the purpose is instead to allow the Commission to focus its attention on the enforcement of competition law; moving from being a regulator to a policeman, a belief which has been reinforced with present Competition Commissioner Mrs. Neelie Kroes’ handling of the Microsoft case. Under the new regime, the Commission deals only with complaints that have a sufficient ‘Community interest’. This is brought out by the draft Commission notice on the handling of complaints which may be only in cases wherein;

• One or more agreements or practices have effects on competition where there are cross-border markets covering more than three member states or several national markets; or
• Where a Community decision is required to develop Community competition policy or provide effective enforcement.

This emphasizes the Commission’s new role as dealing only with matters that are strategic or of EU-wide significance.

(ii) The Advisory Committee

Article 14 of Regulation 1/2003 makes provision for an Advisory Committee on Restrictive Practices and Dominant Positions, which must be consulted before the Commission takes various decisions, in particular those which have an adverse affect on those to whom they are addressed. It is the forum where experts from the various competition authorities discuss individual cases and general issues of Community competition law. It is consulted at the request of the Commission or a Member State and is composed of ‘representatives of the competition authorities of the Member States’. [Article 14(2) of Regulation 1/2003] Thus this Committee serves as an important link between the Commission and the Member States. The Commission is required to take an utmost account of the opinion delivered by the Committee. [Article 14(4) of Regulation 1/2003]

(iii) National Competition Authorities & European Competition Network

With the modernization in 2004, an important role was assigned to the National Competitions Authorities (NCAs) in the effectuation of the EC competition law regime. While earlier they had been responsible for giving effect to the national competition laws and the orders of the Commission in so far as they pertained to their states, now they also vested with the powers to apply Article 81 and 82 of the EC Treaty, a power which was hitherto vested solely with the EC Commission.

Towards this end, Article 5 of Regulation 1/2003 sets out the basic role of the national competition authorities. It states,

“The competition authorities of the Member States shall have the power to apply Articles 81 and 82 of the Treaty in individual cases. For this purpose, acting on their own initiative or on the complaint, they may take the following decisions:

- requiring that an infringement be brought to an end,

- ordering interim measures,

- accepting commitments,

- imposing fines, periodic penalty payments or any other penalty provided for in their national law.

They may also decide that there is no ground for action. However their importance in the EC competition law framework is derived from Article 11(1) of Regulation 1/2003 which provides that ‘the Commission and the competition authorities of the Member States shall apply the Community competition rules in close cooperation’. Thus from being independent observers and actors, the NCAs have been formally instituted as the lower tier of the EC competition regime, supplementing the functions of the Commission.

The purpose of this new system is the expected faster resolution of competition cases than it has been in the past where the Commission was the sole arbiter in such matters. In its zeal to maintain constant communication between the two tiers of regulators, Article 11 of the Regulation 1 of 2003 imposes upon the Commission the requirement to send the NCAs copies of important documents in its possession, and the NCAs in turn are required to tell the Commission whenever they commence formal investigative measures. Similarly, the NCAs intending to take infringement actions or accepting commitments etc., are required to inform the Commission and provide a summary of the case and a copy of the proposed decision. Thus it is seen that significant powers have been conferred upon the NCAs but nonetheless they are required to act in close coordination with the EC Commission. [To this effect, the Commission has also produced a Notice on cooperation with the Network of Competition Authorities (2004) OJ C101/43]

In order to maintain close coordination amongst the various authorities responsible for implementation of the EC competition law and to avoid inconsistencies in their actions, the Regulation 1 of 2003 also created a framework, known as the European Competition Network (ECN). This ECN consists of the European Commission and the competition authorities of the 25 Member States. It was established during the modernization reform of the EC antitrust rules as a forum for discussion and cooperation of Member States competition authorities in cases where Articles 81 and 82 of the EC Treaty are applied. The ECN ensures an efficient division of work and an effective and consistent application of EC competition rules.

This creates an effective mechanism to counter companies which engage in cross-border practices restricting competition. As European competition rules are applied by all members of the ECN, the ECN provides means to ensure their effective and consistent application. Through the ECN, the competition authorities inform each other of proposed decisions and take on board comments from the other competition authorities. In this way, the ECN allows the competition authorities to pool their experience and identify best practices.

(III) EC MODEL: LESSONS FOR INDIA

The above examination of the regulatory model for the implementation of competition law in the EC may serve some purpose in the re-evaluation of the competition model proposed for India. Let us analyze the same.

(a) Regulatory Structure under the Competition Act, 2002

Enacted on the lines of the recommendations of the Raghavan Committee, the Competition Act of 2002 marks a significant shift in the economic policy of India. It can broadly be stated as the second tier of reforms after the broad and swift changes in 1991 in the industrial policy of India. Repealing to a large extent the Monopolies and Restrictive Trade Practices Act of 1969, the Competition Act of India is in line with the international state of affairs as regards their attempts to regulate markets giving full effect to competitive positions.

Chapter III of the Act provides for a ‘Competition Commission of India’, which is the sole authority under the Act to give vigor to the substantive provisions and also to ensure its implementation. Of this, Sections 7 to 17 deal with the establishment, composition, conditions of membership etc. However what is relevant for our purposes is Chapter IV which entails the ‘duties, powers and functions of the Commission’.

Section 19 of the Act required the conducting of ‘inquiry into certain agreements and dominant position of enterprise’. This may be proceeded to upon the basis of a complaint alleging contravention of the provisions of the Act or by the Commission on its own motion. Similarly Section 20 requires ‘inquiry into combination by the Commission’. Section 22 provides for the Benches of the Commission and Section 23 provides for the ‘distribution of business of Commission amongst Benches’. Thereupon there are other provisions providing the procedure for investigation and its necessary fallouts.

This provisioning for the exercisal of the quasi-judicial functions of the Commission may as well be comparable with the various Tribunal operating in India. However the fact that that the Commission is entrusted with both investigative and adjudicatory powers is concomitant with its existence as a market regulatory, on the lines of SEBI. Similar positioning is also found of the various commissions under the competition laws of other nations.

It is noteworthy that the arrival of the Competition Act of 2002 of India coincides with the British reform of its competition law, also enacting the Competition Act of 2002, wherein the powers and functions of the Competition Commissions under the two enactments is largely the same.

(b) Lessons from the EC model for India

The EC Competition law model is a unique one as it envisages two tiers of regulatory structure (pursuant to the 2004 reform) and the situation is almost unparallel across the world. Even the United States, with 50 states to manage, operates with the Federal Trade Commission as the sole arbiter to manage the federal anti-trust statues. The coordination between the federal and state authorities is not that pronounced as in case of EC.

Given the existing situation, the Competition Commission of India (CCI) is at best comparable as a NCA of the EC framework, being required to administer the Competition Act of 2002 alone. However in my opinion it would be worthwhile to develop the CCI on the lines of the EC Commission as the first tier of regulator. This presupposes institution of the second tier of regulator, which may in case of India, may be best instituted as the various competition commissions of the states. This may not necessarily mean that there would be requiring a competition commission for each state but the jurisdiction could be divided on the basis of geographic lines and dominance of economic activities. However that is for the administration to decide.

What I propose is that in its quest for competition to spurt from the grass root levels and thereupon to gush up to the top, the aspect of regulation should be decentralized to these local commissions with the CCI to monitor their functioning and involved in the designing of the policy framework, being equipped with all the relevant information and filled with the experience of these commissions.

Thus I propose a second tier of competition commissions, initially divided on geographic lines (like one for north, south, east, and west regions each) and later on one for each state, which are primarily entrusted with the responsibility and functions of investigation, monitoring compliance etc., on the lines of the NCAs in the case of EC. They would act in close coordination with each other and with the CCI at the top to assist them and regulating their activities.

This would serve three fold purposes. Firstly, the CCI would be rendered divested from the investigative functioning and thus it can devote its resources towards designing of policy framework for competition in India and spearheading the litigation at the level of higher courts of India. Secondly, with the second tier of commissions being responsible with the investigative aspects and there being close coordination and sharing of information between these commissions, with a proper reporting system available with the CCI, the CCI would be able to monitor the competition scenario on a national and holistic level in India. This would also equip it with the necessary data for the formulation of guidelines and issuance of directions, a niche area with the capital market regulator SEBI has perfected well. Thirdly, with the localization of the regulatory functioning through the second tier of commissions, the markets in the India would be more closely monitored and the vastness of geographic markets would not be an issue which could arise in proper administration of the competition policy of India.

To this effect, I am aware that this may be termed as premature for India given the fact even the CCI has not yet come into full vigour even five years of the enactment. Nonetheless, keeping in line with the reform aspect of the Indian economy, I believe the germination of competition model requires such close regulatory supervision.

(IV) CONCLUSION

The position of EEC is unique in world economy history and continues to fascinate the researchers as to its efficient working despite divergent considerations posed by the member states. With the shift in policy approach and the redesigning of framework in 2004 owing to the joining of 10 more members, the EC competition law model has send signals to the world as regards the improvements that may be made in the existing state-of-affairs in regulation of competition.

In tandem with India's transition from a highly controlled to liberalized economy, the Competition Act 2002 has replaced the earlier focus on concentration of economic power with a focus on effects on competition, thereby bringing Indian competition law substantially in line with international practice. However the country is yet to witness an efficient competition regulator.

It is imminent that by the time a proper competition framework becomes operationalized in India, there may be yet other changes in the EC competition law regime. However we may fail in our commitments towards making the Indian economy self regulatory and providing means to all irrespective of the size if we are unable to incorporate the lessons learned from abroad in our system. The redesigning of the regulatory functions and the established of ECN in the EC regime marks the beginning of dual system of regulators in competition law frameworks. India would be tremendously benefited by incorporating such changes in it own system, definitely only when the correct time come for bringing such changes.