Author name: CBCL

[By Arjun Kapur & Akash Hogade] The authors are students of National Law University, Mumbai.   Introduction As airlines look to streamline operations and cut costs, mergers between airlines are becoming more frequent. However, as fewer competitors mean higher prices and poorer customer service for consumers, airline mergers can also raise concerns about the state of the market. The Competition Commission of India (CCI) enforces India’s competition law. When assessing an airline merger, the CCI considers various factors, such as how will it affect consumer demand, competition, and the aviation sector as a whole. This raises several potential competition issues, including decreased competition on domestic and international routes, the foreclosure of competitors, and increased airline coordination.  On September 1, 2023, the CCI approved the merger of Air India and Vistara, subject to a few conditions. The requirements address the concerns about competition that the merger and the market participants in the airline industry have raised. The effects of the merger on consumer welfare and airline industry competition in India are still being felt. However, the merger’s approval by the CCI is expected to significantly affect the Indian aviation industry. In this blog post, we’ll discuss the potential competition issues raised by the merger of Air India and Vistara. We’ll look further at the merger from a wider angle, considering what airline mergers mean for competition law and the global aviation sector. The aviation sector is at a critical juncture where it must carefully balance the benefits of market competition with the need for consolidation. The CCI’s decision will influence the industry’s future landscape and create a standard for similar mergers and acquisitions. Impact on Competition in the Indian Context The recent merger that the CCI has approved has certain complications that the competition watchdog should have considered. These complications include an adverse effect on competition in the aviation sector. The Competition Act, 2002 (The Act) under S.20 enumerates the factors the commission should consider while approving any combination. The factors determining the appreciable adverse effect on competition (AAEC) in the aviation sector were not considered by the CCI. This merger of two big giants owned by the same parent company (Tata Group) has the potential to affect the prices of air tickets and create barriers at the entry level of the market, which will be the second most significant player in the aviation industry after Indigo in terms of market share. The resulting merger will also have India’s leading airline with a fleet of 218 aircraft. S.20 lists factors which will affect the competition in the market. The merger has the potential to restrict rapid expansion and create entry barriers. The fact that there are very few players in the domestic aviation market leads to very restricted competition. In this close-knit competition, the merger is seen as a giant that stops new players from entering the market. The fact that the merger will acquire a large percentage of passengers and fleet will discourage players from entering the market. The domestic aviation industry has only ten players in the market after GoFirst declared bankruptcy. The aviation industry is also prone to many external factors that affect any airline’s stability. There have been many instances in the past where many airlines have declared insolvency and left the aviation industry. The merger will also have the possibility of other airlines failing, an apparent factor under S.20 that causes AAEC. The merger will acquire a significant share of the market, which affects other airlines and might affect the stability of other players. The CCI did not investigate these possibilities to allow the merger. The Competition watchdog invoked the doctrine of necessity to approve the merger. The doctrine has been invoked because there is no necessary quorum existing in CCI. These mergers, which potentially might affect the airline industry and the CCI by invoking the doctrine of necessity, also show an escapist attitude on their part. The competition watchdog also faltered by basing that there will be no entry barriers only on the example of Akasa Air. The assumption that the merger will not create entry barriers just because Akasa Air could manage to set foot right in the industry is also flawed. The merger has been approved, provided both companies have fulfilled their commitments. The commitments given by both companies have been enumerated in the annexures attached to the report. These commitments are also subject to certain limitations, which have been enumerated in the order. There are ten limitations listed by both companies wherein they won’t be able to fulfil the commitments. CCI has ignored the possibility of non-fulfilment of the commitments under limitations. There is no strict interpretation of these limitations; this gives the companies an enormous scope to have an ambiguous interpretation of them and not fulfil their commitments. The fact that CCI has approved this merger and overlooked the restrictions imposed on the conditions showcases the prematurity of the decision. A possible scenario would have been  if the companies falter and do not fulfil their obligations after the merger, it would be excruciatingly difficult for CCI to undo a herculean merger. A viable path that should have been taken by the CCI would be to see whether all commitments have been fulfilled by the companies first and then approve the merger. These possibilities had to be considered by the CCI, considering the ramifications of the merger showcasing that CCI has committed a grave error in approving the merger. Analyses of the Global Airline Merger Market The merger is likely to have a significant impact on the competitive environment and change how Indian airlines operate around the world. Globally, competition authorities are approaching airline mergers with more scepticism. This is a result of various factors, concerns about how mergers will affect prices, choice, and innovation are fueled by the airline industry’s growing concentration, the dominance of a small number of major airlines on specific routes and markets, and the growing dominance of these airlines. In several cases involving airline mergers in

[By Vrinda Gaur] The author is a student of Dr Ram Manohar Lohiya National Law University Lucknow.   INTRODUCTION The Competition Commission of India (CCI) has recently issued a warning to those using the Green Channel Route (GCR) for mergers and acquisitions. The Green Channel Route was created to make the merger process more efficient and faster and facilitate ease of doing business after Regulation 5A was added to the Combination Regulations, 2011 by the Competition Commission of India (Procedure regarding the Transaction of Business relating to Combinations) Amendment Regulations, 2019 (Combination Regulations). However, in light of the recent warning raised by the CCI with regard to its possible misuse and transparency concerns, it becomes imperative to delve into the plight of the parties opting for this route and evaluate the circumstances that challenge the ease of doing business landscape. The aim of this article is to delve into the intricacies of the present mechanism and provide solutions henceforth. UNDERSTANDING THE NORM GCR is a means by which parties opting for mergers will be granted automatic approval of the CCI subject to the condition that the transaction does not adversely affect the competition landscape. This principle was first put to deliberation by the Competition Law Review Committee. It was given effect by the insertion of a new Regulation 5A under the Combination Regulations vide an amendment dated 13 August 2019 (Amendment). Schedule III of the Amendment lays down certain qualifying conditions which require the parties to the transaction, their respective group entities and/or any entity in which they, directly or indirectly, hold shares and/or control to (a) not produce/provide similar or identical or substitutable product(s) or service(s) (Horizontal Overlaps)  (b) not engaged in any activity relating to production, supply, distribution, storage, sale and service or trade-in product(s) or provision of service(s) which are at different stage or level of the production chain (Vertical Overlaps) and (c) are not engaged in any activity relating to production, supply, distribution, storage, sale and service or trade-in product(s) or provision of service(s) which are complementary to each other (Complementary Overlaps). The provisions give the parties the liberty to conduct a self-assessment regarding the fulfilment of the above criteria and on the satisfaction of the same, file form I along with the declaration form in Schedule IV that the transaction in question will not cause any adverse impact on competition. If, to the satisfaction of the CCI, the transaction complies with all the pre-requirements for making a party eligible under Section 5A, it may pass an order deeming approval of the same under section 31(1) of the Competition Act, 2002. On the contrary, if the CCI is satisfied that the application made under section 5A  fails to meet any of the qualifying conditions, it may retract the approval granted and direct the combination to be dealt as per the old route. IS IT REALLY EASE OF DOING BUSINESS? Previously, parties had to go through a tedious application process under the competition regime, which took a total of 210 days before the transaction could be finalized and deemed approved. However, this mechanism was introduced to speed up economic transactions by relieving the parties from this lengthy process. However, progress in this direction has been unsustainable, and there are mainly two contentions. The Competition Act initially upheld a two-tier mechanism in sharp contrast to a three-tier qualification under Section 5A. The additional complementary overlap under section 5A has diluted the speed of application disposal as parties are imposed with an increased burden to assess their complementary patterns with each other and this so-called self-assessment is a mind-wrecking and resource-draining process. Further, there is a lack of consensus amongst experts on the connotation of the term “complementary” and interpretations, explicit or implicit, are absent in statutes and case laws. Though a clarification has been issued by the CCI regarding complementary overlaps, it does not adequately address the complexity of the matter. The clarification gave the example of ink and cartridge as goods that would fall within the transaction of Complementary overlaps. However, such an example is too simplistic for parties to understand as most corporations function in complex areas of operation and diversified investments. This would lead to subjective conclusions on the part of the parties opting to avail this route and authorities enforcing the same and it is likely that applications may get rejected due to this duality in the application of mind in interpreting the true connotation of the term. If the application is rejected due to non-compliance with the complimentary requirements, the parties involved will have to spend additional time filing under the previous system, in addition to the time already invested under the new mechanism. This goes against the original purpose of the GCR, which was to expedite the processing of applications. Subsequently, the provision fails to impose any strict time limitation on the CCI while disposing of the application. As a result, applications may languish in limbo and authorities may take more than reasonable time to dispose of the same leading to parties holding off on investments or other strategic operations while awaiting regulatory approvals. This would not only compromise the integrity of the review and approval process but also hinder economic growth and the ability of businesses to adapt to changing market conditions to their advantage. Moving forward, the scope of corporations likely to fall within the purview of this mechanism has been outlined in an extremely narrow sense. The Combination Rules give no regard to the fact that all large corporations and enterprises engage in maintaining a heterogeneous investment portfolio which caters to the long-term needs of risk mitigation, capital preservation and ensuring stability at times of market fluctuations. Due to such diversification of investments, they are more likely to fall within the complementary overlap category.  Hence, though it might be easier for small-scale enterprises to effectuate under such compact combinations, the same is unlikely for larger corporations, depriving them of the benefits of this route. Additionally, the overlaps are

[By Siddharth Chaturvedi] The author is a student of National Law University, Jabalpur.   Introduction Many airlines in India are increasingly relying on Code Sharing Agreements in order to run their businesses. Code Sharing Agreements refer to a unique understanding between airlines where one airline places its code on another airline ( the airline that operates) and then markets and sells tickets for that flight. Such an agreement helps to expand any airline’s presence, market reach, and competitive ability. In this piece, the author dissects the Code Sharing Agreements in India by taking note of how the European Union and USA have grappled with the same challenge and then moves to examine relevant provisions of the Competition Act in India. Lastly, it concludes that with the rise in India’s aviation sector, CCI is likely to deal with many cases that deal with Code-Sharing Agreements and it must assess those agreements on certain parameters that have been suggested in the piece. These parameters have been suggested by the author after taking into consideration the best  regulatory practices that emerge after referring to the existing jurisprudence in USA and Europe. View from Abroad Convention on International Civil Aviation  Chicago Convention forms one of the bedrocks of legal instruments concerning international aviation. India was one of the earliest signatories to the convention. It is important to note that Article 6 of the Chicago Agreement states that “no scheduled international air service may be operated over or into the territory of a contracting state, except with the special permission or authorisation from the state and in accordance with terms of such permission.” However, there is no explicit mention of the prohibition of code-sharing agreements. In the USA, it is at the discretion of the Department of Transport whether it wants to approve any application of code sharing agreement after taking into consideration economic concerns which also include anti-competitive concerns. In some instances, there has also has been an establishment of firewall by Department of Justice in order to ensure that there is no exchange of sensitive information between the two airlines. The European Union has been proactive in dealing with the issue of code-sharing agreements. In February 2011, the EU Commission launched an antitrust investigation into the code-sharing agreement between the Brussels and Lisbon route. The three primary concerns of the EU were a) capacity reduction b) unlimited rights to sell each other’ seats c) aligning fare structures as well as ticket prices. Such a decision was taken after taking into consideration empirical evidence that there was an elimination of competition in prices and capacity between the two airlines. In another case concerning Lufthansa Airlines and Turkish Airlines, it was noted by the EU Commission that there was no anti-competitive conduct since both the airlines did not have access to each other’s seat inventory. Thus, the EU Commission’s parameters are objectively defined in order to decide the issue on a case-to-case basis. India In India, Code Sharing Agreements can possibly be covered under the ambit of horizontal agreements and vertical agreements. Horizontal agreements are those that are entered into by parties which are operating at the same level in the market and are considered to have an appreciable adverse effect on the competition under Section 3(3) of the Competition Act.[i] For example- Any Code Sharing Agreement between two airlines gets covered under the ambit of a horizontal agreement since the airlines are operating at the same level in the market. However, in order to show there exists a horizontal agreement in India, various factors need to be fulfilled, such as price fixation, cartel, etc. In contrast, Vertical Agreements are those agreements which are entered amongst various enterprises or persons in actvities such as supply, distribution, storage, sale etc.[ii] Code Sharing Agreements can also be covered within Vertical Agreements since there is a restriction on marketing carrier’s ability to distribute the tickets. India’s National Aviation Civil Aviation Policy highlights various aspects related to code-sharing agreements. Under commercial operations, flight operators are permitted to enter into code-sharing agreements. Liberalised rules allow international airlines to enter into agreements, and there is only a single requirement to inform the  Ministry of Civil Aviation 30 per days  prior to starting the Code Sharing Agreement. Thus, there is no presumption that code-sharing agreements have any anti-competitive effects. For example- Air India and American Airlines recently entered into a code-sharing agreement, whereby a new service operated by American Airlines will be launched between New Delhi and New York. In turn, American Airlines’ code will appear on 29 domestic flights that are operated by Indigo Airlines. Prima facie, there appears to be no case of anti-competitive conduct. However, such issues may arise if there is a case of price fixation or the sharing of geographical markets, which is automatically prohibited by virtue of causing an appreciable adverse effect on competition. Thus, CCI can delve into this aspect while deciding on any issue considering price fixation.  It is interesting to note the view of CCI while deciding the case of the Jet-Etihad deal. CCI had taken a positive view of Code-Sharing Agreements in India and stated that code-share agreements allow customers in multiple cities of India to seamlessly travel across various destinations around the globe. However, in the above case, the issue concerning the code-sharing agreement was not a primary issue and thus CCI’s observation on the sharing Agreement cannot be taken to be final. Thus, it remains to be seen from the Indian Context how code-sharing agreements are executed. Conclusion After going through the above discussion, it becomes clear that Code Sharing Agreements can potentially cause anti-competitive conduct if they cause detrimental effects on market pricing and other factors such as the fixation of seats. It is recommended that India take into consideration other relevant factors such as access to each other’s seat inventory while deciding whether code-sharing agreements are causing anti-competitive conduct or not. With a rise in India’s aviation sector, there is a likely increase in the number of

[By Shubhankar Sharan & Soumyabrata Chakraborty] The authors are students of Gujarat National Law University, Gandhinagar.   Introduction Over the latter half of the previous decade, reasonable disputes have arisen concerning the jurisdictional overlap between the Patents Act 1970 (Patents Act) and the Competition Act 2002 (Competition Act). The instant ambiguity centers around the recent judgement of a Division Bench of the Delhi High Court in Tekefonaktiebolaget LM Ericsson v. Competition Commission of India (Ericsson-II), holding the Patents Act to have an edge over the Competition Act. Precisely, the judgement recorded questions about the Competition Commission of India’s (CCI) capacity to ascertain the validity or legality of Fair, Reasonable, and Non-Discriminatory (FRAND) terms in Patent Licensing Agreements (PLAs), however, left it unanswered. Even though the judgement has attempted to clear the jurisdictional overlap, it is fraught with unclear reasoning and has failed to consider several decisive factors. Given the same, this piece would try to outline how FRAND assurances come under the definition of “agreement” stated in the Competition Act. That moment forward, it aims to delineate the powers of the CCI to inquire into such agreements. The piece establishes how CCI needs to hold its ground in adjudicating matters related to FRAND agreements in the likely event of an appeal against Ericsson-II. What has changed? Delhi High Court’s Ericsson-II judgement is diametrically opposite to its single-judge decisions of 2016 and 2020 in similar matters. The Court has now ruled that the Patents Act would prevail over the Competition Act in issues involving a patentee’s abuse of a dominant position in exercising its rights under the Patents Act. The Judgement empowers the Controller of Patents (Controller) to have overriding jurisdiction over CCI in matters of anti-competitive agreements and abuse of dominant position in the domain of exercise of rights by a patentee. The Court adopted a method of examining the legislative intent behind the two statutes (and their amendments) to resolve the jurisdictional conflict. The Court’s reasoning can best be described as restrictive as it relied merely on legislative intent and the precedence of special law over general law or subsequent law over prior law and not a thorough examination of the scope of the two statutes to remedy or prevent anti-competitive practices. The Ericsson-II judgement lacks a thorough comparative analysis of the CCI’s and Controller’s powers to inquire into FRAND terms and their powers to remedy anti-competitive practices. Notably, FRAND assurances in PLAs and the question of them being anti-competitive formed a significant part of the factual matrix before the Court. The Judgement is marked by a lack of reasoning regarding examining and remedying anti-competitive practices in FRAND terms. Instead, it focuses merely on the conflict of jurisdiction. A reading of the two statutes clearly shows that the CCI is better equipped than the Controller to inquire into, remedy, and penalize for abuse of dominant position and anti-competitive agreements concerning FRAND terms. FRAND assurances are agreements by nature FRAND assurances are voluntary agreements that are enforceable in a court of law. Though it is unclear in the Indian jurisprudence, foreign jurisdictions have matured to recognise it. Such reliance on foreign jurisprudence is not detrimental but facilitator of the development of jurisprudence. The same was pointed out by the Delhi High Court in Intex Technologies (India) Ltd. v. Telefonaktiebolaget LM Ericsson (Intex judgement) in paragraph number 38. In the USA, for instance, several courts have observed that Standard Essential Patents (SEP)  implementers or licensees are third-party beneficiaries of agreements between SEP holders and the Standard Setting Organisations (SSOs) and have a right to enforce the SEP holders’ obligations in the Court of Law. Generally, SEPs are granted by the SSOs on specific conditions carried through voluntary agreements requiring the SEP Holder to grant licenses on FRAND terms to the prospective licensees. For instance, Article 6 of the European Telecommunications Standards Institute’s (ETSI) Intellectual Property Rights policy (Article 6 of the IPR Policy) requires the IPR holder or the Declarant to give an irrevocable written undertaking that it would be granting licenses on FRAND terms. Moreover, the Court of Justice of the European Union (CJEU) in Huawei Technologies Co. Ltd. v. ZTE Corp. held that the declaration given by Huawei to ETSI under Article 6 of the IPR Policy for negotiating FRAND terms is binding. The IPR Policy of ETSI, an SSO, has also gained prominence in Indian jurisprudence.  Its reference dates back to 2013 when the CCI touched on Clause 6.1 of the IPR Policy. Additionally, it ascertained the IPR Policy as the overarching framework for companies making a declaration. In furtherance of it, the CCI considered such statements to be binding. Though not the same but similarly, the Delhi High Court (¶36) has rightly recognised the essentiality of FRAND declaration for ensuring access to standardised technologies for SEP Implementers on FRAND terms. However, legislative acts have not recognised or included FRAND agreements in the statutory framework. FRAND agreements and the Competition Act Despite underlining reasonability and fairness, FRAND agreements have often come across as discriminatory. The telecom giants have regularly been hauled to courts for unreasonable terms in FRAND agreements. It must be noted that the Indian position rests possibly on Sections 3 (Anti-competitive Agreements), 4 (Abuse of Dominant Position), and 19 (Inquiry into certain agreements and dominant position of enterprise) of the Competition Act for adjudication over FRAND agreements. While the Competition Act is silent on FRAND Agreements, a cursory reading of the above-mentioned sections indicate their possible application on FRAND Agreements. Section 19(1) of the Competition Act empowers the CCI to inquire into any alleged contravention of Section 3(1) or Section 4(1). Section 3(1) of the Competition Act affirms restraint from entering into agreements causing an Appreciable Adverse Effect on Competition (AAEC). Section 3(2) in conjunction with Section 3(1) of the Competition Act renders such agreement void. Similarly, Section 4(1) proscribes abuse of dominance by an enterprise in the competition landscape of India. In furtherance, Section 3(4) and Section 4(2) list various instances when an enterprise