Sunday, March 8, 2015

A Review of the Competition (Amendment) Bill, 2012- I

The Competition (Amendment) Bill, 2012 was introduced in the Lok Sabha on December 7, 2012 and a report on the Bill by the Standing Committee on Finance was submitted to the Lok Sabha on February 17, 2014. However, the Bill has since lapsed due to the dissolution of the 15th Lok Sabha.

The Bill proposes significant changes to the Competition Act, 2002. For instance, the applicability of the current Section 3(5), which permits an IP owner to impose any “reasonable condition” to restrain infringement of his rights, is restricted to copyrights, patents, trademarks, GIs and semi-conductor design layout. The Bill proposes to add an omnibus clause to Section 3(5) which extends its application to any other law for the time being in force which relates to the protection of other forms of intellectual property rights. On a reading of the proposed amendment, it appears that the said provision still does not apply to reasonable conditions applied for the protection of trade secrets for it refers to “any other law for the time being in force”. Perhaps, this is something the new dispensation can look into.

Also, for the sake of abundant clarity and to avoid mischievous interpretations, it would help to clarify that restrictive covenants which Section 140 of the Patents Act frowns upon do not enjoy the safe harbour under Section 3(5) of the Competition Act. That said, even in the absence of such a clarification, it could be reasonably argued that proscriptions under Section 140 of the Patents Act do not qualify as “reasonable restrictions” within the meaning of Section 3(5) of the Competition Act, and are therefore anti-competitive.

Yet another critical amendment proposed by the Bill is the recognition of the concept of joint dominance i.e. position of dominance enjoyed by one or more enterprises, or one or more groups of enterprises. Industry groups have pointed to the complications this concept may pose for it appears to impugn joint conduct even if it does not satisfy the requirements/standards of Section 3 of the Act. It has also been suggested that the introduction of this concept in Indian conditions may even be premature. The CCI and the Ministry of Corporate Affairs have however justified the introduction of joint dominance on grounds that it provides the CCI with the necessary legal tool to deal with collusion between players in an oligopolistic market where cartelization is otherwise difficult to establish. The Standing Committee has recommended that in addition to amending Section 4, consequential amendments must be undertaken to the explanation to Section 4 and to Section 19(4) as well. The Committee has also rightly recommended that the definition of “group” must be shifted to Section 2 so as to avoid confusion regarding the applicability of the definition to the rest of the Act.  That said, given that the nature, scope and rigour of Sections 3 and 4 are yet to be understood with a reasonable degree of certainty, it is my personal opinion that the time is not yet ripe to introduce the concept of joint dominance.

Another amendment which is of particular interest to me is the amendments proposed to Sections 21 and 21A for it has a bearing on the interplay between the CCI and sectoral regulators. Sector 21, as it reads currently, is set out below:

Reference by statutory authority 21. (1) Where in the course of a proceeding before any statutory authority an issue is raised by any party that any decision which such statutory authority has taken or proposes to take is or would be, contrary to any of the provisions of this Act, then such statutory authority may make a reference in respect of such issue to the Commission:

Provided that any statutory authority, may, suo motu, make such a reference to the Commission.

Under the current version, a statutory authority may, on its own or upon an issue being raised by a party to a proceeding before it, refer the mater or issue to the CCI if the decision the authority proposes to take or has taken is contrary to the scheme and provisions of the Competition Act. In a way, this reinforces the overriding effect of Competition Act as spelt out in Section 60 of the Act. That said, under the current version, the decision to refer the issue to the CCI is left to the discretion of the statutory authority. Consequently, if the authority opts not to refer to the matter to the CCI and takes a decision which contravenes the Competition Act, the affected party can only raise the issue in appeal (if available and applicable under the relevant legislation which governs the authority) or may file a writ before the appropriate High Court. Although this appears to be an adverse consequence of the current version, this version does justice to the inherent power of the statutory authority to decide on aspects of conflict of jurisdiction.

The Bill proposes to alter this position by replacing the words “is raised by any party” with “arises” and by substituting “may” in the provision with “shall”. The amendment also proposes to delete the proviso thereby making it mandatory on the part of the statutory authority to refer the matter to the CCI if an issues arises that the decision taken or sought to be taken by the authority runs counter to the Competition Act. Similar changes are proposed to be effected to Sections 21A and 27 as well. Another proposed change is to render the decision taken under Sections 21 and 21A appealable under Section 53A of the Act.

These proposed amendments could give rise to several complications. First, I am of the opinion that the impact of such proposed changes on Sections 21 and 21A cannot be the same in light of Sections 60 and 62 of the Competition Act which set out the position of the Act vis-à-vis other legislations. Therefore, it would be incorrect to mechanically apply the same set of changes to both Sections 21 and 21A. Second, the consequences of mandatory reference on the inherent jurisdiction of a statutory authority to deal with conflict of jurisdictions and to address issues relating to its governing legislation must be considered. Third, to provide for an appeal under Section 53A for a decision taken by the statutory authority under Section 21 could result in undermining the position of the appellate authority which supervises the functioning and decisions of the statutory authority, besides giving rise to multiplicity of litigation. Fourth, by replacing “is raised by any party” with “arises”, it appears that parties may not have the right to raise this as an issue and it is left to the sole discretion of the statutory authority to decide if a reference to the CCI is necessary. This also leads to the conclusion that every statutory authority must have regard to the Competition Act in addition to the specific legislation that applies to it, which does seem onerous. Perhaps, the current version is best left untouched until more instances of jurisdictional conflict surface.

I will deal with the rest of the proposed amendments in the next post. Look forward to comments and corrections from readers.

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