Historical Background of Competition Law - PowerPoint Presentation

1. Historical Background of Competition LawBy Dr Pramod Kumar

2. Historical Development of Competition LawSherman Act, 1890Clayton Act, 1914Monopolies and Restrictive Trade Practices Act (MRTP), 1969. The Competition Act, 2002

3. Sherman Act, 1890Sherman Antitrust Act, first legislation enacted by the U.S. Congress (1890) to reduce economic competition.It was named for U.S. Sen. John Sherman of Ohio, who was an expert on the regulation of commerce.

4. Sherman Act, 1890(1) It prohibits all combinations that restrain trade between states or with foreign nations. This prohibition applies not only to formal cartels but also to any agreement to fix prices, limit industrial output, share markets, or exclude competition.(2) It also says that all attempts to monopolize any part of trade or commerce in united states of America is illegal.These two provisions, which constitute the heart of the Sherman Act, are enforceable by the U.S. Department of Justice through litigation in the federal courts. Firms found in violation of the act can be ordered dissolved by the courts, and injunctions to prohibit illegal practices can be issued. Violations are punishable by fines and imprisonment. It could not be a successful enactment because of narrow judicial interpretations of what constitutes trade or commerce among states.

5. Clayton Act, 1914The Clayton Antitrust Act is a United States antitrust law that was enacted in 1914 with the goal of strengthening the Sherman Antitrust Act. Senator Henry Clayton of Alabama introduced the Clayton Antitrust Bill to the US Congress in 1914. The US Congress passed the bill in June 1914, and President Woodrow Wilson later signed it into law.The Clayton Antitrust Act sought to address the weaknesses in the Sherman Act by expanding the list of prohibited business practices that would prevent a level playing field for all businesses. Some of the practices that the law focuses on include price fixing, exclusive dealings, price discrimination, and unfair business practices.

6. Specifics of the Clayton Antitrust Act, 1914The Clayton Antitrust Act comprised 26 sections. Section 2: Price discrimination: It deals with price discrimination, where a company decides to offer different prices for the same product or service. Such a strategy attempts to maximize the price that each customer is willing to pay. Price discrimination is intended to lessen competition or create a monopoly.The section was later strengthened in 1936 through the Robinson-Patman Act, which was designed to protect small retailers from anti-competitive practices pursued by large business chains and discount stores. An example of the anti-competitive practices is fixing minimum prices for certain retail products.

7. Specifics of the Clayton Antitrust Act, 1914Section 3: Monopoly or attempts to create a monopoly: It deals with business practices that attempt to create a monopoly. The section prevents businesses from carrying out a sale, lease, contract for sale, or agreements that may reduce the competition or create a monopoly in its specific industry. Section 7: Mergers and acquisition: This section prevents companies from merging or acquiring other smaller entities with the goal of gaining too much power that lessens competition. The law extends to other antitrust laws where a merger transaction would essentially create a monopoly.The Clayton Act was strengthened by the Hart-Scott-Rodino Antitrust Act, which requires companies planning a merger or acquisition to notify the Federal Trade Commission and the Department of Justice. The agencies reserve the right to reject or approve a merger transaction depending on their findings. 

8. Enforcement of the Clayton Antitrust ActThe Clayton Antitrust Act allows parties injured through violations of the act to sue for damages. Individuals and corporations that violate the act can be sued for three times the amount of damages suffered by the victim. The provision is further reinforced by the injunctive relief in Section 16 that allows the court to force defendants to dispose of assets to pay off damages.For example, if a consumer suffered damages worth rs.10,000 through a false advertisement, the consumer can sue for damages for up to rs.30,000. The act gives the Federal Trade Commission the power to enforce damage claims.

9. Exemptions to the Clayton Act: Labor UnionsUnlike the Sherman Act, the Clayton Antitrust Act exempts labor unions and agricultural activities from their regulations. According to the law, the labor of a human being does not constitute a trade or a commodity, and should not be subject to the same regulations as companies engaging in trade.As such, the Clayton Act prohibits companies from preventing activities of labor unions such as strikes, boycotts, collective bargaining, and compensation disputes. Labor unions can negotiate for better employment benefits and better wages without being accused of price fixing.Courts can only issue injunctions against labor unions where their activities threaten to cause property damage.

10. MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT (MRTP), 1969.On recommendations of Subimal Dutt Committee, MRTP Act was enacted in 1969 to prohibit monopolistic and restrictive trade practices. It extended to all of India except Jammu & Kashmir.The aims and objectives of this act were:To ensure that the operation of the economic system does not result in the concentration of economic power in hands of few rich.To prohibit for the control of monopolies, andTo prohibit monopolistic and restrictive trade practices.

11. Non-Applicability of MRTP ActMRTP act is not applicable toGovernment Company and undertaking owned by Government. Company established by a Central or State Act.Trade Unions Companies which have been taken over by the central Government.Companies owned by registered Cooperative Societies.Any financial institution.

12. MRTP, Act 1969Following are the concepts addressed under the Act-Command and Control Approach – The Act made it mandatory for enterprises having assets exceeding Rs. 20 crores to take approval of the Central Government before any kind of corporate restructuring or takeover. Enterprises having assets of more than Rs. 1 crore were automatically considered as dominant.

13. Monopolistic Trade PracticesMonopolistic Trade Practices covered under the Chapter IV of the MRTP Act.These are the activities undertaken by Big Business Houses by abusing their market position that hamper or eliminate healthy competition in the market. Such practices are anti-consumer-welfare.

14. Restrictive Trade Practices(RTPs)RTPs are activities that block the flow of capital or profits in the market. Some firms tend to control the supply of goods or products in the market either by restricting production or controlling the delivery. MRTPA discourages and prevents the firms from indulging in RTPs.Examples of restrictive practices include Exclusive Dealing, Refusal to Supply, Tie-in Sales, Resale Price Maintenance, and Loss Leading.

15. Unfair Trade Practices UTP is basically an act of false, deceptive, misleading or distorted representation of facts pertaining to goods and services by the firms. Section 36-A of the MRTPA prohibits firms from indulging in Unfair Trade Practices (UTPs). This provision was inserted by the landmark 1984 Amendment to the MRTPA.Some examples of unfair trade methods are: the false representation of a good or service; false free gift or prize offers; non-compliance with manufacturing standards; false advertising; or deceptive pricing.

16. Why did MRTP, Act, 1969 fail1) Excessive Government Control – Under the MRTP Act, both small and big businesses were subjected to excessive government control. It was mandatory for the enterprises to take approvals from the government before carrying out any kind of corporate restructuring or takeover. The presence of such complex procedures, many firms found it difficult to survive, thereby affecting the final consumers.2) Vague and ambiguous law – Section 2(o) of the MRTP Act defined the term ‘restrictive trade practices’ which covered any activity that prevented, distorted or restricted competition. There was no specific provision that defined the various kinds of anti-competitive activities that would be termed as offences under the Act. Anti – competitive practices such as cartels, bid rigging, abuse of dominance, collusion, price-fixing, predatory pricing etc were nowhere defined. Section 2(o) thus included all types of possible offences within its ambit thereby leading to a large variety of interpretations by various courts wherein the core essence of the law was lost.

17. 3) Per se rule instead of Rule of Reason – In the MRTP Act there were as much as 14 offences that were considered as per se illegal. The concept of Rule of Reason was not applied. Though the Supreme Court in the Telco case recognized the Rule of Reason, but this development was again frustrated by the passage of the unfortunate 1984 Amendment which mandated that all listed RTPs under Section 33 shall be treated as per se illegal.4) Dominance per se bad – Under the MRTP Act, dominance was in itself considered as bad, it didn’t matter whether the party has abused it or not. There was a mathematical formula for determining dominance i.e, the undertaking as to have 25% or more control over market share of goods or services. However, the catch here was that that if a firm acquired 20% or 23% of the market share at a particular time; the same was not considered as dominant.

18. 5) Promotion of exports at any cost – Under Section 38 of MRTP Act, if any project enterprise had a high potential for exports in future, it would cause the authority to simply blindly approve all its applications under the Act without considering the any anti-competitive or monopolistic shadow that it might have. Due to its excessive stress on exports, it ignored all possible drawbacks that a project might have. In many cases, it led to more costs being incurred than the foreign exchange earned through exports.6) A Policy of Voluntary Disclosure – The MRTPA machinery was highly depended upon voluntary disclosures made the enterprises as there was no agency that could keep a 24*7 check on the market control and structuring of the companies. This proved as a big leeway to the companies leading to late registrations or sometimes no-registration of any change in the company structure. This acted as a means to keep the company out of the purview of the Act.

19. 7) Inefficiency of the MRTP Commission – MRTP Commission was set up to regulate the anti-competitive practices in the country. However, even though MRTPC had both administrative and judicial functions, the members of the Commission were appointed by the government itself which created a doubt upon the independence of its functioning. Moreover, the Commission was not able to perform its functions efficiently and effectively due to –Unnecessary delays in replacing the members of the Commission.Unwillingness of the government to appoint members promptly or in opening new branch offices.

20. 8) Obsolescence – With the dynamic movement of the Indian trade market towards an open and more globalised economy, especially after the New Economic Policy Reforms, led to the MRTP Act soon becoming obsolete. It could not stand the tests of time which required an overhauling of the competition law policies in India in consonance with the new issues arising due to the entry of the large scale foreign firms in India.9) No Extraterritorial Application – The MRTP Act, had no extraterritorial application i.e, it could not be applied to business undertakings outside India even if their anti-competitive conduct had a detrimental effect to the Indian market, unless one of the parties were of Indian origin. Thus, when it came to activities such as international cartels, MRTP Act was impotent.

21. 10) No penalties for offences – Section 12 of the MRTP Act dealt with the powers of MRTP Commission and the types of orders that it can issue in case of taking place of any anti-competitive activities. On a plain reading of the provision, we can infer that the Commission did not have the power to impose harsh penalties or fines on the defaulters. The best it can do is to issue ‘cease and desist’ orders or charge nominal fines. Jail terms, though provided for, were rarely imposed.11) Concurrent Jurisdiction under Consumer Protection Act – Post 1984 Amendment, Section 36A was inserted in the Act with the aim to protect the customers from UTPs. As a result, the Commission was soon piled up with consumer complaints for defective goods and inefficient services which were already provided for in the Consumer Protection Act. The consumers were thus left with an option whether to approach the Consumer Court or the MRTP Commission as they both had concurrent jurisdiction. The majority of the time of the Commission was spend resolving consumer disputes while in reality the primary purpose for which the Commission was set up was to regulate anti-competitive practices. A backlog of these cases was subsequently transferred to CCI.

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