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Competition Act 2002: Anti-Competitive Agreements

Anti- Competitive Agreements

Anti-competitive agreements are those agreements that restrict competition. Section 3 of the Competition Act, 2002 prohibits any agreement with respect to production, supply, distribution, storage, and acquisition or control of goods or services which causes or is likely to cause an appreciable adverse effect on competition in India. The term ‘Agreement’ is broadly defined in section 2(b) of the Competition Act, 2002 and includes any arrangement or understanding or concerted action, whether or not it is formal, in writing or intended to be enforceable by legal proceedings. The agreements does not necessarily have to be a formal one and in writing or justifiable in a court of law and an informal agreement to fix prices will be hit by the provisions of the Competition Act, 2002.

Section 3(2) of the Competition Act, 2002 declares that any anti competitive agreement within the meaning of section 3(1) of the Competition Act, 2002 shall be void. The whole agreement is construed as void if it contains anti ā€“ competitive clauses having appreciable adverse effect on the competition. The term ‘appreciable adverse effect on competition’ used in section 3, is not defined in the Act. However, the Act specifies a number of factors which the Competition Commission of India must take into account while determining whether an agreement has an appreciable adverse effect on competition or not.

Agreement between rivals or competitors is termed as horizontal agreements. The most malicious form of an anti-competitive agreement is cartelization. When rivals or competitors agree to fix prices or share consumer or do both, the agreement termed as cartel. Besides horizontal agreements, there can be anti-competitive agreements between producers and suppliers or between producers and distributors. These are referred to as vertical agreements. Vertical agreements too can undermine competition in the market.

According to section 3(3) of the Act, the kind of agreements which would be considered to have an ‘appreciable adverse effect on competition’ would be those agreements which

  • Directly or indirectly determine sale or purchase prices;
  • Limits or control production, supply, markets, technical developments, investments or provision of services;
  • Share the market or source of production or provision of services by allocation of inter-alia geographical area of market, nature of goods or number of customers or any other similar way;
  • Directly or indirectly result in bid rigging or collusive bidding.

The agreements falling in section 3(3) of the Act shall be judged by ‘shall be presumed rule’ and onus to prove otherwise lies on the defendant.

Section 3(4) provides that any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including i) Tie-in agreement; ii) Exclusive supply agreement; iii) Exclusive distribution agreement; iv) Refusal to deal; v) Resale price maintenance, shall be presumed an anti-competitive agreement, if such agreements causes or is likely to cause an appreciable adverse effect on competition in India.

The agreements falling in section 3(4) of the Act shall be judged by ‘rule of reason’ and the onus lies on the prosecutor to prove its appreciable effect on competition in India.

The section 3(5) of the Act gives due recognition to the intellectual property rights, which provides that the prohibition against anti ā€“ competitive agreements shall not restrict the right of any person to restrain any infringement of, or to impose reasonable conditions as may be necessary for protecting, any rights under the Copyright Act, 1957, the Patents Act, 1970, the Trade Marks Act, 1999, the Geographical Indications of Goods (Registration and Protection) Act, 1999, the Designs Act, 2000 and the Semi-conductor Integrated Circuits Layout-Design Act, 2000.

Further the Competition Act, 2002 does not restrict any person’s right to export from India goods under an agreement which requires him to exclusively supply, distribute or control goods or provisions of services for fulfilling export contracts.

Thus any agreement for the purpose of restraining infringement of such Intellectual Property Rights or for imposing reasonable conditions for protecting such rights shall not be subject to the prohibition against anti-competitive agreements.

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