ADDING MISSING SPOKES TO THE WHEEL: CARTELS UNDER DRAFT COMPETITION AMENDMENT BILL, 2020
Updated: Jul 29, 2020
[Authored by Mayank Kumar, a 2nd year B.B.A. LL.B. (Hons.) student at Chanakya National Law University, Patna.]
The Competition Amendment Bill, 2020[i] has proposed many structural as well as procedural changes in the Competition Act, 2000. Among other changes, the Bill has proposed amendments in the definition of Cartel under Section 2(c) of the act with an aim to bring in accountability for anti-competitive arrangements in the form of buyer’s cartel as well as Hub and Spoke[ii] cartel through proposed amendments in Section 3(3) of the Act.
The Bill by introducing word ‘buyers’ in the definition of cartels in Section 2 (c) of the Act broadened the scope of Cartels to include Buyer’s cartel. Buyers are said to indulge in cartel when they influence prices associated with their purchase or try to eliminate competition from the market through collusions or controlling the behavior of product in the market. Buyer’s cartel is considered at par with any other cartel when it comes to having an adverse effect on healthy competition. It may lead to effects ranging from predatory buying to causing entry barriers in the market. These cartels may also result in controlling the price of the purchase and may even control the conduct of the suppliers. Buyer’s cartel in extreme cases can even reduce the total output of the products in the market thereby affecting the elasticity of supply which will, in turn, increase the price of remaining stock in the market[iii].
In the United States of America (USA), Buyer's cartels are recognized and are examined on per se[iv] approach, applying the rule of reason. For instance, agreement among the buyers was held to be violative of antitrust laws when the buyers colluded to purchase rights of a motion picture at an auction and thereby decided to reallocate the goods among themselves through a second auction, therefore, monopolizing the exhibition of film in a particular area[v]. Similarly in the European Union (EU), the court has observed that agreement or decision on part of the buyer to fix the purchase price on a given market must be understood to have its object to restrict competition, which clearly shows that buyer’s cartel are presumed to be anti-competitive[vi].
In India, the allegation of Buyer’s Cartel was first recognised in Pandrol Rahee Technologies Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd. & Ors. [vii] , wherein it was observed that activities of the buyers vitiated the competition and had an appreciable adverse effect in the market. It is noteworthy that section 3(3), which deals with horizontal agreements, talks about agreements between persons “engaged in identical or similar trade.” Furthermore, the term “trade” under section 2(x) of the Act is defined in context to one relating to “production, supply, distribution, storage or control of goods,” and does not include or talks about any form of acquisition or procurement, clearly indicating that the buying activity is out of the preview of the Act under Section 3(3). Thus even though the existence of buyer’s cartel is recognized in decisional practice, it still lacks statutory backing. Therefore, the courts in India are not in line with the text of the statute while including anticompetitive collusions of the buyer which are deemed to be anti-competitive in other mature Antitrust Jurisdictions.
HUB AND SPOKE CARTEL
The Bill through the amendment made to Section 3(3), widened the scope of the definition of Cartel to include Hub & Spoke Cartel though the phrase is not mentioned specifically anywhere in the amendment. Hub and spoke cartels are agreements between suppliers or retailer at horizontal level (spokes) facilitated by a common entity at the vertical level (hub). For instance, cartel fixing minimum price of a ‘commodity X’, sold by two retailers ‘A’ & ‘B’ (spokes) fixed by a common dealer ‘Z’ (hub). It can be categorized as one level of a supply chain where a buyer or a supplier acts as the ‘hub’ of a wheel. Vertical relationships up or down the supply chain act as the “spokes” and, most importantly, a horizontal agreement among the spokes acts as the ‘rim’ of the wheel. The distinguishing feature of a hub and spoke conspiracy is the participation of the vertically aligned conspirator in the horizontal agreement[viii].
The concept of Hub & Spoke Cartel is well recognized in Mature Antitrust Jurisdictions like USA & EU among others. In the USA, it operates through Section 1 of the Sherman Act and has developed on a case by case basis. There, all the Participants of the Cartel are considered liable if the objective of the conspiracy is per se illegal restraint of trade[ix]. In EU, the Hub and Spoke cartel is referred to in both Horizontal and Vertical Guidelines and majorly deals with cases in which there is exchange of data between the spokes at horizontal level with the help of Hubs at vertical level[x].
In India, information against Hub & Spoke cartel had previously come up in the case of Samir Agrawal vs. ANI Technologies Pvt. Ltd. and Ors. [xi]. In this case, arguments were made against Uber & Ola in deciding prices of the ride for different drivers using algorithms in which the drivers do not have any say. Such an arrangement was alleged of restricting healthy competition in the market and affecting the interest of the consumers. The Commission, in this case, explained and elaborated the typical circumstance in which H&S Cartel exists, which are:-
· The spoke must use a third-party platform (or, the ‘hub’) for the exchange of information, including information on prices which can facilitate price-fixing;
· There needs to be a conspiracy to fix prices, which requires the existence of collusion.
However, the commission while deciding on the merits of Information under Section 3(3), held that Ola/Uber did not form a cartel in a conventional hub and scope pattern as it did not facilitate information exchange thus which did not tantamount to collusion for price fixation in any form whatsoever. Furthermore, in the case of Saturn Vehicles Private Limited vs. Hyundai Motor India Limited [xii] allegations were made against Hyundai for acting as Hub and restricting other dealers as scopes and forming a kind of horizontal agreement which restricts competition. But in want of provision of the third party facilitating cartel by actually not getting involved in it. The information was filed under various clauses of Section 3(4) precisely being, tie in agreements, resale price maintenance among others. However, the commission did not appreciate the charges of violating the said section.
In Indian regime, there are sufficient provisions to regulate and deal with cartel at the horizontal level between spokes but still, there is a conjecture that the hub may escape liability under the contours of analysis of anticompetitive agreement in Section 3 (3). To deal with this very conjecture and with a view of clarifying the scope of liability of Hubs under Section 3 (3) of the Competition Act amendment has been proposed to impute liability on such hubs based on the existing rebuttable presumption rule as envisaged under Section 3(3) and without an element of Intention[xiii] as it exists in the case of spokes in horizontal level.
The proposed changes are the need of the hour and should be a welcome step towards the growth of Indian Antitrust law regime at par with matured antitrust law regimes such as the USA or UK. The proposed amendments are pertinent in the backdrop of rapidly growing E-commerce market and the increasing involvement of third parties platforms, who are not the buyers or the sellers of goods or services but are just intermediaries facilitating the trade. Thus this widened definition will reduce the scope of any kind of anti-competitive practice which has the potential of having appreciable adverse effects on the market. Not to forget the fact that the proposed amendment will now have a grinding tooth to deal with the violation of the law from the buyer's side, which was very necessary and was much awaited statutory change in the Indian Anti-competitive regime.
[i] Hereinafter ‘Bill’. [ii] Hereinafter H& S Cartel. [iii] Peter C. Carstensen, Buyer Cartels Versus Buying Groups: Legal Distinctions, Competitive Realities, And Antitrust Policy, 1, William & Marry BLR, (2010). [iv] Section 1, Sherman Antitrust Act, 1890. [v] United States v. Crescent Amusement Co., 323 U.S. 173 (1944). [vi] AOK Bundesverband v Ichthyol-Gesellschaft Cordes, (2004) 4 C.M.L.R. 22. [vii] Pandrol Rahee Technologies Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd. & Ors, CASE No. 3/2010. [viii] Hub-and-spoke arrangements – Note by the United States, Directorate for Financial and Enterprise Affairs Competition Committee, OECD, https://one.oecd.org/document/D-AF/COMP/WD(2019)88/en/pdf. [ix] United States v. Apple, 791 F.3d 290, 322 (2d Cir. 2015). [x] Hub-and-spoke arrangements – Note by the European Union, Directorate for Financial and Enterprise Affairs Competition Committee, OECD, https://one.oecd.org/document/DAF/COMP/WD(2019)88/en/pdf. [xi] Samir Agrawal vs. ANI Technologies Pvt. Ltd. and Ors, 2018CompLR1114(CCI). [xii] Saturn Vehicles Private Limited vs. Hyundai Motor India Limited, Case No. 35 of 2017. [xiii] Report of Competition Law Review Committee, July 2019.