It should be noted that there are two rules of interpretation which are applicable in law relating to anticompetitive agreements The rule of Reason The per se rule Rule of Reason It is a legal approach where an attempt is made to evaluate the procompetition effect in order to decide whe ID: 935604
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Slide1
Rules for determining effect on competition
Slide2It should be noted that there are two rules of interpretation, which are applicable in law relating to anti-competitive agreements.
The rule of Reason
The
per se
rule
Slide3Rule of Reason
It is a legal approach where an attempt is made to evaluate the pro-competition effect in order to decide whether the practice should be prohibited or not.
Under this rule, the effect on competition is found in particular case and its effect on the market conditions and the present standard of competition in the market.
The rule of reason is the rule of construction wherein the investigating/prosecuting agency establishes existence of anti-competitive agreements by considering all the facts and features of the case.
Slide4In
Tata Engineering and Locomotive Co. Ltd. Vs. Registrar of Restrictive Trade Agreement
(1977) 2 SCC 55, the SC held that βto determine whether the restrain promoted or suppressed competition, it is necessary to consider
three
matters:
First
, what facts are peculiar to the business to which the restraint is applied;
Second
, what was the condition before and after the restraint was imposed;
Third
, what is the nature of restraint and what is its actual and probable effect.β
Slide5Per se
Rule
Per se rule means finding an illegality on the face of an agreement or practice. It is a rule of evidence.
This rule considers a particular restraint of trade to be manifestly contrary to competition and so does not require an inquiry into precise harm or purpose for an instance of it to be declared illegal.
This usually occurs during a joint venture between companies who get involved in price fixing and thereby distorting the true market price.
Slide6Rules and the Competition Act
The competition act has been ambivalent about the application of these rules.
Section 3(3) embodies the rule
per se
of evidentiary nature and Section 3(4) embodies the rule of reason.
Breaches under Section 3(3) by cartels or such groups and their effects set out in (a) to (d) of Section 3(3) are governed by the
per se
rule.
Agreements listed in Section 3(4) (a) (e) are governed by rule of reason.
Slide7Anti-Competitive Agreements
There are broadly two categories of anti-competitive agreements β
Horizontal Agreements
Vertical Agreements
Slide8Horizontal
(Between two or more enterprises that are at the same stage of production chain and, in the same market).
Agreements between producers, wholesalers, retailers, etc.
Vertical
(Between non-
competeting
undertakings at different levels of manufacture and distribution).
Agreement between a wholesaler and retailer or manufacturer or distributor.
Types of Agreements
Presumed to cause Appreciable Adverse Effect
(per se
void
)
Void only when they cause Appreciable Adverse Effect
(Rule of reason)
Slide9Horizontal and Vertical Agreements
Horizontal Agreements Vertical Agreements
Between enterprises or persons operating at the same level Between enterprises or persons operating at different level
in the supply chain. in the supply chain.
Cartels (fixing directly or indirectly, purchase or sale Tie-in Arrangements
price.)
Limiting, controlling production, supply, markets or Exclusive Supply
Technical development, investment or provision of service. Exclusive Distribution
Sharing markets or production source by allocating area, Refusal to deal
type of goods or services, no. of customers etc. Resale price maintenance
Bid rigging or collusive tendering.
Presumed to have an Appreciable Adverse Effect on Competition. Subject to Rule of reason-type approach(i.e. need to be assessed for
effect on the competition)