Overview of Competition Law & Related Issues

Some ASIAN Jurisdictions

by

Manas Kumar Chaudhuri,Additional Registrar

Competition Commission of India28 August, 2005

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

Competition Law Main features of Competition Act

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

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)

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)

Mergers

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

prohibited worldwide

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

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

Where about to come up ?

Bahrain Brunei Darussalam China Hong Kong Vietnam

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

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)

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]

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

Japan (contd. )

Merger Control Mergers are regulated by Antimonopoly Act of

Japan (AMA) Threshold – one party’s assets/turnover of at

least US $ 91.6 million and the other party’s assets/turnover about US $ 9.2 million in Japan

Notification is mandatory when thresholds are exceeded – all parties to notify jointly

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

Japan (contd. )

Joint ventures• Under Anti Monopoly Act, the founding of a

separate joint venture company is evaluated under the 2004 Merger Guidelines

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 ]

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

Korea (contd.)

Case handling in two stages Examination DeliberationExamination 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

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

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

Examiner’s statement Examinee’s statement Investigation in to evidence Examiner’s final opinion Examinee’s final statement

Korea (contd.)

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

Court

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

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

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

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

company’s 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

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

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

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

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]

Indian Evidence Act, 1872 Sections 133 and 114 (b) Accomplice’s 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

Leniency concept

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

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 1 Existing disputes between parties and presentation

of the same2 If dispute is a question of fact, ascertainment of fact

by evidence/arguments3 If dispute is of law then submission of legal

arguments by parties4 Decision on the dispute on the basis of facts,

evidence and law of the land

Quasi - judicial Body (contd.)

Quasi - judicial Body (contd.)

A quasi-judicial decision equally presupposes an existing dispute between two or more parties and involves

1 Existing disputes between parties and presentation of the same

2 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

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

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

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

Funding of Commissions

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

ingredients of competition policy

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

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

Some Important Cases

Vitamins CartelHoffmann-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

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

Thank you

cci-manas@nic.in