Overview of Competition Law

1
Overview of Competition Law Related Issues
Some ASIAN Jurisdictions by Manas Kumar
Chaudhuri, Additional Registrar Competition
Commission of India 28 August, 2005
2
Need for Competition Law

• Competition
• Increases efficiency
• Encourages innovation
• Enhances consumer welfare wider choice, lower
  prices, better quality
• Conducive to economic and political democracy
• Apprehension of market failure has prompted 100
  countries to enact modern competition laws

3
Competition Law

• Main features of Competition Act
• Prohibits Anti-Competitive Agreements
• Prohibits Abuse of Dominant Position
• Provides for Regulation of Combinations
• Mandates Competition Advocacy

4
Anti Competitive Agreements

• Horizontal Agreements including cartels, e.g.,
  price fixing, limiting production, sharing
  markets, bid-rigging
• Vertical Agreements e.g., tie-in, exclusive
  supply/ distribution, refusal to deal
• Cartel regarded most pernicious violation - heavy
  penalties - criminal offence (lysine, vitamins,
  graphite electrodes)

5
Abuse of dominance

• Not dominance, but abuse is illegal
• Dominance based, not on arithmetical formula, but
  on economic factors listed in Acts
• Abuse includes discriminatory pricing, limiting
  production, denying access
• Examples Microsoft (penalized Euro 497m)

6
Mergers

• Ex-post action
• Notification either compulsory or optional
• Strict time frame for decision
• Threshold limits
• Less than 5 merger applications are prohibited
  worldwide

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Overview of Asian Competition Authorities

• 42 Jurisdictions
• 12 Jurisdictions have the law in place
• 05 are in the process of having it in place soon
• Japan and Korea are leading Competition
  Authorities of Asia closely followed by Israel,
  Indonesia, India and Taiwan

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Where do authorities exist ?

• Azerbaijan
• India
• Indonesia
• Israel
• Japan
• Korea
• Singapore
• Sri Lanka
• Taiwan
• Bangladesh
• Pakistan
• Thailand
• Not modern Competition Law but MRTP Ordinance
  of 1970

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Where about to come up ?

• Bahrain
• Brunei Darussalam
• China
• Hong Kong
• Vietnam

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Japan

• Assures the interest of consumers
• Democratic and wholesome development of the
  nation
• Promote free and fair competition
• Prohibit cartel
• Prohibit private monopolization
• Prohibition of unfair trade practices

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Japan (contd. )

• Independent of Cabinet
• Chairman and Commissioners are appointed by the
  Prime Minister with the consent of both Houses of
  the Parliament
• JFTC is under the supervision of Diet
• Total staff 672
• Number of Investigators 331
• Budget in Billion Yen 7.82 (2004)

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Japan (contd. )

• Independent Administrative Agency
• Has quasi-judicial legislative power of enacting
  internal regulations
• Has quasi-judicial power of implementing hearing
  procedures
• Identical to Indian Law section 7(2), 50, 51, 64
  and Chapter IV

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Japan (contd. )

• Cartels
• JFTC implemented cartel investigation as a
  result of that from 1079 cases in 1966 it has
  dropped to 15 in 2000
• Detection by FTC Investigation commences
• Decision at JFTC after investigation
• Appeal by way of Law suits

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Japan (contd. )

• Merger Control
• Mergers are regulated by Antimonopoly Act of
  Japan (AMA)
• Threshold one partys assets/turnover of at
  least US 91.6 million and the other partys
  assets/turnover about US 9.2 million in Japan
• Notification is mandatory when thresholds are
  exceeded all parties to notify jointly

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Japan (contd. )

• Merger Control
• Time taken by JFTC 30 days
• During merger evaluation, the JFTC may conduct
  hearing with competitors
• JFTC may prohibit a merger, allow or modify
• Appeal lies within 30 days to Tokyo High Court
• Penalties up to US 18,313 and in breach in
  addition to penalty jail term up to 10 years

16
Japan (contd. )

• Joint ventures
• Under Anti Monopoly Act, the founding of a
  separate joint venture company is evaluated under
  the 2004 Merger Guidelines

17
Korea

• To promote fair and free competition, to protect
  consumers, to prevent abuse of market-dominating
  positions by enterprises and excess concentration
  of economic power
• Has all contours of modern Competition Law
• Has Chairman, Vice Chairman and Secretary
  General, 3 Standing Commissioners, 4 Non-standing
  Commissioners Article 37

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Korea (contd.)

• KFTC is Ministerial level Central Administrative
  Organization
• Quasi-judicial body functions under the authority
  of the Prime Minister
• Independent of outside intervention
• Promoting competition
• Strengthening consumer rights

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Korea (contd.)

• Case handling in two stages
• Examination
• Deliberation
• Examination
• Receipt a report of violation of the law
• Competition Bureau or Regional Office launches
  examination
• Includes investigation, taking statements of
  relevant parties, consultation with experts and
  conducting legal reviews

20
Korea (contd.)

• Opportunities are given to parties to voice
  view points
• Confidentiality is maintained
• If legal measures are decided to be taken
  examiner makes a report and copy of the same is
  sent to the examinee (opposite party) for
  objections/comments
• Examiner sends his/her report together with
  the objections comments of the examinee to
  the Commissioner

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Korea (contd.)

• Deliberations
• Commissioner reviews the report and the
  objections of the examinee
• Examinee is notified of the date, hour, venue of
  the legal proceedings
• Process involves review of investigation,
  findings
• Examiners statement
• Examinees statement
• Investigation in to evidence
• Examiners final opinion
• Examinees final statement

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Korea (contd.)

• Final Order passed by the Commission
• Can be cease and desist order
• Also fine
• Party aggrieved may file appeal before High Court

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Korea (contd.)

• Recent decision on Cartel
• On 25 May 2005 KFTC imposed a corrective order
  of approx. 114 million US as surcharge on three
  telecom operators KT, Hanaro Telecom and Dacom
  - for fixing price in local call market
• Hanaro received a 49 reduction in its surcharge
  for providing co-operation in cartel
  investigation

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Israel

• The Israeli Antitrust Authority
• Headed by Controller
• Appointed by the Government on the recommendation
  of the Israeli Minister of Trade and Industry
• Comprises a Legal Department, Economic Department
  and Criminal Investigation Department
• It has broad powers to initiate and conduct
  criminal investigations of alleged violations of
  the RTPs, as well as to initiate administrative
  inquires
• Tribunal acts a Court of Appeal

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Merger Control in Israel

• Mergers and Acquisitions are regarded as RTP
• All mergers are notified and are reviewed by the
  Authority
• Thresholds
• Notifications are mandatory

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Merger Control in Israel (contd.)

• Thresholds
• Acquisition of most of the assets of a company by
  another company
• More than 25 of the nominal value of the issued
  capital or voting power
• Right to appoint more than one-quarter of the
  directors or
• Right to participate in more than one-quarter of
  companys profit
• Aggregate sales turnover of merging companies in
  the fiscal year preceding merger in Israel
  exceeding US 33 million and sales turnover
  exceeding US 2.2 million

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Merger Control in Israel (contd.)

• Obligation to suspend The parties are globally
  barred from closing or implementing the merger
  until approval is obtained from the Authority
• Timetable Authority must review merger
  notifications within 30 days, commencing from the
  date of receipt by Authority failure to do so
  will constitute approval of the merger
  notification

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Merger Control in Israel (contd.)

• Remedies
• Criminal proceedings before District Courts
• Authority can initiate proceedings before
  Competition Tribunal for de-merger
• Aggrieved party may file appeal before Tribunal
• Tribunal may uphold the findings of the
  Authority, modify or set aside
• Appeal from Tribunal is available before the
  Supreme Court

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Merger Control in Israel (contd.)

• Penalties
• Failure to notify, delay in notifying or failure
  to observe condition constitutes a criminal
  offence
• Three years imprisonment may become five years
  in case aggravating circumstances
• Fine up to about US 443,312 for an individual
  and double for a body corporate

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Leniency Programme

• Section 46 of the Indian Law
• First information before commencement of
  investigation
• KFTC reduced surcharge to the tune of 49 in case
  shown in the previous slide is an act of
  leniency
• Cartels are secret understanding between and
  among competitors in the same level of business
  to fix price and make unlawful profits
• Japan is considering leniency up to 100 new
  amendment proposals of 2004

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Leniency concept

• Indian Evidence Act, 1872
• Sections 133 and 114 (b)
• Accomplices evidence, evidence of co-accused,
  corroboration with material particulars in
  criminal cases
• Pardon granted to such co-accused or accomplice
  by courts
• Same principle applies in case of leniency
  towards co-accused in cartels

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Quasi - judicial Body

• Statement of Objects and Reasons of the Indian
  Competition Act, 2002 at paragraph 3 states that
  the Commission will be a quasi-judicial body
• Japanese and Korean Commissions are also
  quasi-judicial bodies

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Quasi - judicial Body (contd.)

• Supreme Court of India in AIR (37) 1950 SC 185 at
  page 195 para 25 observed as to what constitutes
  a quasi-judicial body
• The Court held
• Existing disputes between parties and
  presentation of the same
• If dispute is a question of fact, ascertainment
  of fact by evidence/arguments
• If dispute is of law then submission of legal
  arguments by parties
• Decision on the dispute on the basis of facts,
  evidence and law of the land

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Quasi - judicial Body (contd.)

• A quasi-judicial decision equally presupposes
  an existing dispute between two or more parties
  and involves
• Existing disputes between parties and
  presentation of the same
• If dispute is a question of fact, ascertainment
  of fact by evidence/arguments
• May involve 3 of previous slide but never the 4th
• Stage all stages i.e., 1 4 are stages of
  Judicial Bodies

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Quasi-judicial body (contd.)

• All Competition Commissions receive complaint,
  reference, information etc. of a violation of
  some provisions of the Competition Act
• It immediately gives rise to a dispute between
  parties
• Parties submit respective facts in support of
  their contentions with supportive evidences
• Commission weighs facts, evidences and decides
  disputes
• The two basic ingredients, as decided by Supreme
  Court of India in 1950, are fulfilled

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Cross border issues

• International Co-operation
• Implementation of effects doctrine
• Membership of international bodies for
  implementing co-operation agreements/arrangements
• Exchange of concepts for minimizing cross border
  violations e.g. international cartels

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Need for professional manpower

• Competition issues mixtures of economics and
  law
• Investigation needs analysis of economic
  principles and tools, accounting methods, legal
  principles
• Japanese Competition Authority had over 1000
  professional manpower in 2004
• Associations of Indian Chambers of Commerce and
  Industry emphatically stress professional
  manpower for the Indian Competition Authority

38
Funding of Commissions

• Mostly through governments
• May affect autonomy and independents
• If affects, contradicts one of the basic
  ingredients of competition policy

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Some Important Cases

• Graphite Electrode
• UCAR International Inc in 1995 took part in
  international price fixing conspiracy. Graphite
  Electrodes are used in manufacturing of steel. A
  federal jury of the Philadelphia convicted the
  Company and paid fine of US 110 mn after being
  pleaded guilty of price fixing

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Some Important Cases

• Lysine Cartel
• All important Lysine producers of the world
  doubled the international price of Lysine for
  three years. Lysine is a feed additive for
  poultry. During the continuance of the
  conspiracy, the cartel raised prices on over US
  1.4 bn in global sales, which implied
  overcharging of US 140 mn

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Some Important Cases

• Vitamins Cartel
• Hoffmann-La Roche Lonza AG, BASF, Degussa-Huls
  Agand Merck KGAA of Germany and Rhone-Poulenc of
  France led a global conspiracy to fix price of
  vitamins, allocate markets, supply contracts and
  sales apart from bid-rigging on several
  occasions. Majority colluding firms admitted the
  conspiracy. Roche agreed to pay US 500mn. Five
  executives of Lonza agreed to cooperate in the
  investigation and paid fine of US 10.5 mn. BASF
  paid a fine of US 225 mn but Rhone-Poulenc
  through leniency programme escaped punishment
  because it supplied most of the evidence

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Important Observations

• Accountants have a very significant and major
  role in investigation
• Under Indian Law they have been statutorily
  allowed to present cases before Commission
• Their association, in a given case, would not end
  at the level of Commission but would continue
  till finally disposed of at the level of
  Appellate Court
• Accountants are eligible to become Members too
  a challenging career opportunity

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Thank youcci-manas_at_nic.in