India: Is A Relevant Market Mandatory To Be Delineated In Cartelization Cases?

The Preamble of the Competition Act, 2002 (Act) states that it is aimed at preventing practices having an 'adverse effect on competition'. Competition does not exist in a vacuum but in a marketplace. For the purpose of competition law, the 'marketplace' has to be defined with even more precision, in terms of a 'relevant market', a market where the effect of competition takes place.

The relevant market can be defined as an instrument to recognize and define the limitations of competition between companies and can be determined by defining the relevant product market or the relevant geographic market or with reference to both the markets.1 The relevant geographic market2 illustrates the locations of the producers or sellers of the product or service and whereas the relevant product market3 describes the market comprising of products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.

For the purpose of determining the relevant geographic market the Competition Commission of India (CCI) has to give due regard to the factors under section 19(6) of the Act, which are regulatory trade barriers, local specification requirements; national procurement policies; adequate distribution facilities; transport costs; language; consumer preference; and need for secure or regular supplies or rapid after-sales services. Further, to determine the relevant product market, the CCI has to give regard to the physical characteristics or end-use goods; price of goods or service; consumer preferences; exclusion of in-house production; existence of specialized producers and classification of industrial products.4

The need for defining the relevant market under the Act is for the purpose of drawing parameters of wrongdoing in the relevant market, the assessment of dominance and possibility of unilateral conduct and defining the boundaries of the CCI jurisdiction in assessing anti-competition conduct.

The question is whether a relevant market must be defined in cases falling under Section 3 of the Act, which deals with anti-competitive agreements.

CCI's holding

According to the CCI, the answer is 'no'. In the case of Mr. Ramakant Kini vs Dr. L.H. Hiranandani Hospital5 at para 25 the CCI held "It must be kept in mind that for the purpose of section 3, the Commission is not required to identify the relevant market but has to see if the agreement has anti-competitive effect in any market and this market may be the market of the product/ service of any party entering into the agreement."

Similarly, in Builder Association of India v. Cement Manufactures Association & ors6 at para 219 the CCI has held that "[t]here is no requirement under the provisions of Section 3 of the Act read with Section 19(3) thereof to determine and construct a relevant market, although the determination of relevant market for examining the contraventions under the provisions of Section 4 of the Act is prerequisite. Section 3 is concerned with the effect of anti-competitive agreements on markets in India. There is a distinction between 'market' as in Section 3 and 'relevant market' as defined in Section 4 of the Act. There is no need of determination of relevant product market or relevant geographic market for the purposes of establishing any anti-competitive agreement."

Though the CCI is accurate in stating that the term 'relevant market' has not been used in Section 3 whereas it has in Sections 4 and 6, the question is whether the conclusion drawn from that is correct.

A flawed approach

Competition can be said to exist only in a defined market and it cannot be said, to take an extreme example, that cartelization amongst cement manufacturer's affects competition in the market for mobile phones. Similarly, a ticket price fixing arrangement for the exhibition of English movies between multiplex operators in Delhi would not affect the market for Tamil movies (or even English movies) in Chennai.

Not defining the relevant market before undertaking a Section 3 analysis may be a substantive error that affects the validity of the analysis undertaken by CCI. Section 3(1) of the Act prohibits persons from entering into agreements that have an Appreciable Adverse Effect on Competition (AAEC) in India. Section 3(3) is a sub-set of Section 3(1) that permits the presumption of an AAEC in certain cases. The opening words of Section 3(3) state that it is only those agreements between enterprises or persons "engaged in identical or similar trade of goods or provision of services" that attract the presumption contained therein. For the purposes of determining whether goods or services are identical or similar to each other, it is necessary to examine their demand side substitutability, which again involves looking at the relevant product and geographical markets.

Moreover, an AAEC can only occur within a certain defined market. Section 19(3) of the Act makes it mandatory on the CCI to examine the listed factors while determining AAEC under Section 3 of the Act. Section 2(r) defines 'relevant market' to mean the market determined by the CCI with reference to both product and geographic markets. This is the same 'market' referred to in Section 3 and by reference to AAEC, in Section 19(3) of the Act. Since the very foundation of any analysis by the CCI depends upon defining the relevant market, i.e., the four corners within which the anti-competitive activity allegedly took place, without defining the relevant market, the findings of the CCI would be questionable.

In its first substantive decision on the merits of a case falling under the Act, while dealing with an matter falling under Section 3(3) of the Act, the Supreme Court of India in Competition Commission of India v. Co-ordination Committee of Artists and the Technicians of W.B. Film and Television and Ors7 highlighted the meaning of relevant market without expressly holding that there is a requirement of defining a relevant market in a Section 3 case. The Supreme Court at para 31 held:

"Market definition is a tool to identify and define the boundaries of competition between firms. It serves to establish the framework within which competition policy is applied by the Commission. The main purpose of market definition is to identify in a systematic way the competitive constraints that the undertakings involved face. The objective of defining a market in both its product and geographic dimension is to identify those actual competitors of the undertakings involved that are capable of constraining those undertakings behavior and of preventing them from behaving independently of effective competitive pressure. Therefore, the purpose of defining the 'relevant market' is to assess with identifying in a systematic way the competitive constraints that undertakings face when operating in a market."

This discussion of the relevant market by the Supreme Court is being construed by market participants to mean that there is a requirement of delineating a relevant market under all cases falling under section 3 of the Act.

With such uncertainty arising out of the said order, the CCI has moved a clarification application before the Supreme Court of India on the necessity of defining a relevant market under section 3 of the Act.8 The Supreme Court has issued notice on the application and listed the matter for hearing in December 2017.

A lot hovers upon the view that may be taken by Supreme Court on the clarification application filed by CCI and will affect many a pending as well as concluded CCI cases.

Nidhi Singh Prakash is a Managing Associate in the Competition Law Practice Group at Luthra and Luthra Law Offices. She graduated from NALSAR University of Law, Hyderabad and did her LLM from George Washington Law School, Washington DC. She has over eight years of experience in dealing with complex competition law litigations, as well leniencies across various sectors. She has represented clients engaged in various fields including real estate, cement, tyres, auto parts etc. before the Competition Commission of India, National Company Law Appellate Tribunal, High Court of Delhi, as well the Supreme Court of India. She can be reached at nidhis@luthra.com.

Footnotes

1. Section 2(r) of the Competition Act, 2002.

2. Section 2(s) of the Competition Act, 2002.

3. Section 2(t) of the Competition Act, 2002.

4. Section 19(7)

5. CCI order dated 05.012.2014 in Case No. 39/2012.

6. CCI order dated 31.08.2016 in Case No. 29/2010.

7.(2017) 5 SCC 17

8. M.A. no. 490/2017 in Civil Appeal no(s). 6691/2014

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