Section 3 of the Competition Act, 2002 - The Act provided for in Section 3(1) precludes any undertaking or organization from entering into any arrangement that causes or is likely to cause significant adverse effects on competition (AAEC) within India. The Act specifically provides for the nullity of an arrangement that is contrary to Section 3(1).
Any deal, including cartels, is provided for in the Act, which is:
Section 3 of the Act specifies that the above conditions shall not extend to joint ventures entered into with a view of enhancing the efficiency of the production, procurement, delivery, acquisition and control of products or services.
Horizontal agreements and vertical agreements are further categorized into anti-competitive agreements.
HORIZONTAL AGREEMENTS- Horizontal agreements are agreements signed between undertakings at the same stage of manufacture. Section 3(3) of the Act specifies that such arrangements involve cartels engaged in trade in goods or in the provision of services on an equal or similar basis, which :
Horizontal agreements are put in a particular category under the Act and are subject to the negative assumption that they are anti-competitive. This is regarded by law 'per se' as well. This means that if a horizontal arrangement occurs pursuant to Section 3(3) of the Act, it is assumed that such an agreement is anti-competitive and has a substantial adverse impact on competition.
VERTICAL AGREEMENTS- Vertical agreements are agreements signed between two or more undertakings operating at different production levels. Between manufacturers and distributors, for example. Other examples of vertical deals that are anti-competitive include:
For vertical agreements, the 'per se' rule as applicable for horizontal agreements does not apply. Accordingly, a vertical agreement is not anti-competitive per se or has no appreciable adverse impact on competition.
Under Section 3 of the Act, the Act also prohibits any arrangement between undertakings that materialize in:Tie-in arrangement
According to the Law, it requires any agreement requiring, as a condition of purchase, the purchaser of goods to purchase certain other goods. In the case of Sonam Sharma v. Apple & Ors., the CCI claimed that the following ingredients must be present in order to have a contractual arrangement:
The Act determines such agreements to include any arrangement that in any way prevents the buyer from purchasing or otherwise trading in any products other than those of the seller or any other person in the course of his trade.
This includes any arrangement to limit, restrict or withhold the production or supply of any products, or to delegate the disposal or selling of goods to any region or market.
The Act notes that this criterion requires an arrangement that limits the individuals or groups of persons to whom the products are marketed or from whom the products are purchased by any process.
Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors- Key Anti-Competitive Agreements Case Law
In the case of Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors, the Commission deliberated on the principle of vertical contracts, including exclusive supply agreements, exclusive distribution agreements and refusal to deal.
In the case, the informant claimed that the Opposite Parties (OPs) had anti-competitive practices whereby the genuine spare parts of cars produced by some of the OPs were not readily made available on the open market and most of the OEMs (original suppliers of equipment) and the authorized dealers had provisions in their agreements requiring the authorized dealers to supply spare parts on the open market.
The Commission found that such agreements were exclusive supply agreements, exclusive distribution agreements and refusal to deal pursuant to Section 3(4) of the Act, and it was therefore appropriate for the Commission to decide if such agreements in India would have an AAEC.
The Commission considered that the agreements at issue contravened Section 3 of the Act and noted that the network of such agreements allowed OEMs to become monopoly players in the aftermarket of their vehicle models, creating barriers to entry and removing competition from independent service providers.
Furthermore, the Commission claimed that such a distribution system allowed OEMs to obtain exploitative pricing from their locked-in buyers, to increase the revenue margin from the selling of automotive component parts relative to the cars themselves, in addition to having a possible long-term anti-competitive structural impact on the Indian automotive industry.
This involves any arrangement to sell the goods, given that the resale prices paid by the buyer are the prices stipulated by the seller, unless it is explicitly specified that prices below those prices can be charged.
In the case of Fx Enterprise Solutions India Pvt, the principle of resale price maintenance was explored by the Commission. Ltd. v. Hyundai Limited Motor India. In the case, the Informant claimed that, according to the Hyundai Agreement, dealers were forced to buy all automotive parts and accessories from Hyundai or through its suppliers only. "While collaborating on Hyundai's alleged anti-competitive practices, the Informant stated that Hyundai had imposed a "Discount Control System" whereby dealers were only permitted to provide a maximum permissible discount and dealers were also not permitted to give discounts beyond the recommended range, in contravention of Section 3(4)(e) of the Act, amounting to "resale price maintenance.”
In the event, the CCI noted that Hyundai had contravened provisions of Section 3(4)(e) by exclusive agreements and arrangements, read with Section 3(1) of the Act by arrangements that resulted in the preservation of resale prices. While imposing the penalty of INR 87 Crore on Hyundai, the CCI noted that Hyundai's infringing anti-competitive behavior in the case included putting in place arrangements that resulted in resale price maintenance through a discount control system and also a penalty mechanism for non-compliance with the discount scheme by means of tracking the maximum permissible discount amount.
Section 3(5) of the Competition Act provides that nothing contained in Section 3 (prohibition of anti-competitive agreements) shall limit any person's right to prevent infringement or to enforce fair conditions, such as copyright, trade marks, trademarks, designs and geographical indications, that may be appropriate for the defense of his/her intellectual property rights.
In the foregoing sense, CCI notes that Section 3 would not attract any 'fair condition' imposed for the security of IPR, but the imposition of 'unreasonable condition' to protect IPR would contravene Section 3 of the Act. An illustrative list of practices/agreements is issued by the CCI which, while entered into for IPR protection, can contravene Section 3 of the Act. Suchagreements/practices are:
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