Competition Law

[By Swetha Somu] The author is a student of Gujarat National Law University. In 2015, a social worker filed a complaint to the Competition Commission of India [CCI] against Max Super Specialty Hospital and its disposable syringe supplier, Becton Dickinson India, an MNC. The complainant alleged that the in-house pharmacy of Max Hospital charges an excessive amount of Rs.19.50 (the printed MRP) for Becton Dickinson’s disposable syringe bought by its patient. This allegation was made because the same brand of disposable syringe had a cheaper MRP of Rs.11.50 when bought outside from a local pharmacy. On the basis of this 2015 complaint, the CCI in April 2022 sent a notice to Max Healthcare, Apollo Hospitals, and Fortis Healthcare for the furnishing of details on its suppliers of pharmaceutical products, its method of determining prices when selling in its in-house pharmacies, and other relevant details. The matter is slowly shaping towards an issue of excessive pricing. Now, this article aims to explore the grey area of excessive pricing predominantly in relation to the Indian pharmaceutical sector. It analyses excessive pricing in other international jurisprudence before suggesting how to mould and incorporate the same into the Indian landscape efficiently. How ‘excessive pricing’ is dealt with in other countries Firstly, excessive pricing can be defined as an antitrust violation in which a dominant firm charges an excessive price relative to an appropriate competitive benchmark in an unfair manner. It does not necessarily mean that there’s a threat to fair competition but rather an abuse of one’s dominant position for one’s own advantage. European Union [EU] The first EU case which took a full-fledged attempt to look into the aspect of excessive pricing was the prominent United Brands case (1978). The European Court of Justice [ECJ] laid down a standard two-fold test under erstwhile Article 82 of the Treaty of Functioning of European Union [TFEU] (now, Article 102 of TFEU) that states that a price shall be deemed excessive if (i) the difference between the dominant entity’s cost of production and the actual price charged by it must be excessive (cost-plus assessment test) and, (ii) the price in comparison to competitor’s price or market price is unfair or by itself unfair. Before the United Brands decision, the European Court of Justice [ECJ] in General Motors Continental NV v. Commission of the European Communities (1975) held that a price is to be termed excessive against the economic value of the provided service. The ECJ referred to and upheld the merits of this economic-value test in its British Leyland (1985) case. However, the European Commission in Scandlines Sverige AB v. Port of Helsingborg (2004) stated that this economic-value test of cost and price comparison is to be used only as a preliminary step in the determination process as it is inconclusive on its own in deeming an action violative. The Commission went on to say that the price could be compared with either (i) the price charged by that dominant undertaking for the same good/service in other relevant markets (cost-plus assessment test), or (ii) the prices charged by businesses providing similar goods/services in various relevant markets. Post the Scandlines decision, the topic on ‘excessive pricing’ was brought up again by the EC in the Aspen Pharma (2021) case. The EC concluded that Aspen’s prices for cancer-related products were unquestionably excessive in this particular circumstance as it routinely generated sizable profits. Aspen was easily able to charge these amounts since the market did not offer any substitutes for these specific cancer treatments. As a result, the national governments of the member states were unable to switch the products and eventually gave in to pressure to provide the necessary medications at whatever cost Aspen demanded. The court held that the two prongs of the test are not necessarily to be applied cumulatively but rather as an alternative. In the EU, the authorities don’t intervene in price wars unnecessarily and only to compelling needs. The Aspen case, which took four years to conclude, failed to use this opportunity to lay down general guidelines comprising accurate parameters and acceptable pricing behavior which could have allowed for a uniform application across all jurisdictions. Still, the Commission failed to seize the opportunity. United Kingdom The UK’s Competition Markets Authority [CMA] in Napp Pharmaceuticals case, stated that Napp’s prices and profit margins were much greater than those of its rivals, hence coming to the conclusion that it was charging unreasonable prices. Although the verdict made significant points about misuse of a dominating position and exorbitant pricing, it can be criticized because Napp’s rivals could profit from it and force Napp out of its dominant position. Moreover, there are a handful of notable, recent national cases as well. In particular, in Pfizer/Flynn Pharma (2020) case, both Pfizer and Flynn Pharma were fined by the CMA for charging exorbitant prices after applying the first part of the two-fold test. This was done by simply observing that sales return was above the determined threshold rather than comparing it against a benchmark. The decision was subsequently annulled by the Competition Appellate Tribunal for the incomplete application of the two-fold test laid down in United Brands case. However, the UK Court of Appeal found that the CMA was correct as it cannot be forced to go beyond the first prong (cost-plus assessment) to determine price excessiveness. Recently, in Auden Mckenzie/Actavis UK (2021) case, the CMA found that the prices charged were excessive and unfair under Chapter II prohibition in the Competition Act 1998 (the equivalent of Article 102 of TFEU). Other recent cases include the Essential Pharma case and the Advanz Pharma (2021) case. Interestingly, the CMA has applied the United Brands two-fold test with no strict adherence to the same. Unlike the EU, the UK authorities do not look at the two parts of the test as solid alternatives to each other. The authority is bound to accept other evidence submitted by the alleged company even if it is only under one prong of the test,

[By Samay Jain] The author is a student at Institute of Law, Nirma University. INTRODUCTION The merger of Zee and Sony was approved by the Competition Commission of India (CCI), subject to certain terms and conditions. These terms and conditions were levied to stop the merger, which would be operating more than 90 channels across the country, from misusing its dominating position in the market. In India, the Hindi language category draws the most viewership, and according to its pilot study, the merged company would have 45% of that market, with rival Walt Disney – Star coming in as a close second. The CCI stated in its initial study that due to its powerful negotiation strategy and access to unmatched resources, it could have the ability to raise the cost of advertising and channel subscriptions. After considering the company’s legal and financial arguments, Zee reported that the CCI approved the amalgamation of Zee and Sony. Some suitable remedies were also proposed to be provided by Zee in conformity with the regulators’ requirements.[i] In view of this, this article analyses the reasons behind the grant of approval for the proposed merger between Zee and Sony. The article further tries to allay possible concerns of the merger abusing its dominant market position. BACKGROUND For two businesses that rely on creating such leisure plots for their livelihood, the chain of events that culminated in the merger seems largely acceptable. Sony first tried to get in touch with Mr. Goenka in November 2020, but he declined. A few months later, KPMG (Klynveld Peat Marwick Goerdeler) approached him on behalf of Sony and provided an updated figure, which is when things got going. By August 2021, he had already joined the conflict. [ii] However, Invesco, which owns an 18% stake in Zee, lambasted the company for poor corporate governance and submitted a request for the nomination of 6 independent non-executive directors to the Board of Directors of Zee as well as the dismissal of Mr. Goenka as the CEO. Zee resisted the EGM’s attempt to be called, claiming that the intended Requisition was against Indian law.[iii] The proposed merger saw another twist when the Bombay High Court decided in Invesco’s favor, upholding Invesco’s request for an EGM (Extraordinary General Meeting)as being legally valid but reversing a previous single-judge Judgment. Following this ruling, Invesco decided to revoke the requisition notice that it had issued calling for Punit Goenka, MD, and CEO of Zee, to be removed from the Board.[iv] CONDITIONS IMPOSED BY CCI FOR THE MERGER TO TAKE PLACE: The prospective buyer should be unrelated to or independent of the resultant firm and its subsidiaries. The suggested buyers cannot be Star India Private Limited or Viacom18 Media Private Limited. The buyer must not have been an employee or director in the past or present. To sustain and expand the different channels as a successful enterprise and a vigorous rival to the resulting entity in the pertinent market, the buyer must possess the required funds, the necessary knowledge, and the motivation to do so. The divestiture should not put the CCI’s order at risk of being implemented late or with immediate concerns about competition. To buy and run the networks, the buyer should obtain the necessary regulating body permissions. DETERMINING THE DOMINANT MARKET POSITION Disney + Hotstar, which also has Star Sports in its possession, is well ahead of other OTT platforms in terms of market share and subscriptions. Disney + Hotstar is placed at the 1st position with 41% share, followed by Eros Now with 24% share, Amazon Prime Video (9%), Netflix (7%), ZEE5, and ALT Balaji (4% share each), and SonyLIV (3%).[v] In terms of subscribers as well, Disney + Hotstar is in the lead with 14 crore subscribers, followed by Amazon Prime Video with 6 crore subscribers, Netflix (4 crore subscribers), ZEE5 (3.7 crore subscribers), and SonyLIV (2.5 crore subscribers).[vi] Others have the highest market share of TV broadcasters with 35.7 % share, followed by Star + Disney with 18.6 % share, Zee (18.4 % share), Sun (10.4 % share), Viacom (8.6 % share), and Sony (8.3 % share).[vii] As per TRAI press release dated 17th Feb 2017, the Telecom market was led by Airtel holding a market share of 23.5% followed by Vodafone (18.1%), Idea (16.9%), BSNL (8.6%), Aircel (8%), RCOM (7.6%) and Jio (6.4%). Thus, having regard to a subscriber base, resources & economic power, it cannot be said that Jio enjoys a dominant position in the market and hence, its offers are only in nature of promotion rather than being predatory.[viii] Similarly, the merger of Zee and Sony despite being the 2nd largest conglomerate will not have the highest market share as it is held by Disney + Hotstar who have Star Sports as well. As of this year’s first quarter, the Broadcast Audience Research Council (BARC) India’s weekly networks’ combined viewing share has been progressively declining. According to BARC viewership data obtained from subscribers, in the Hindi General Entertainment Channel (GEC) genre, the two businesses’ combined share has declined from 49% in FY19 to 43% in FY21 and 41% in FY22. The percentage has decreased to 36% so far, this fiscal year (year to date FY23).[ix] Corresponding to this, the shares for FY22 and the first half of FY23 in the Hindi cinema genre are 38% and 33%, respectively. During the first half of FY23, the proportions in the Bengali GEC, as well as Marathi GEC categories, plummeted to 38% and 27%, respectively.[x] From the data presented above, it can be deduced that the merger of Zee5 and Sony will never be in a dominating market position since it lags behind Disney + Hotstar in the OTT market and Star + Disney and Other Broadcasters in the TV Broadcaster market. To further allay this fear of anti-competitive measures like being in a dominant position and abusing it, Sony and Zee voluntarily agreed to sell three Hindi channels – Big Magic, Zee Action, and Zee Classic. This would further contradict CCI’s

[By Tanvi Shetty] The author is a student at the O.P. Jindal Global University   Despite the Centre allowing for 100% FDI (i.e., A foreign carrier can invest up to 49% in an Indian firm)[1] and easing of pre-requisites for a carrier to operate on international routes[2], the airline industry is often in a slump given its dependency on the fuel prices and labour-intensive operations. Most Indian carriers fail to break even and many airlines such as Jet Airways have shut shop. With the onset of the pandemic and the general sag in the airline industry, firms have sought to combinations to increase efficiencies and break even. The Competition Commission of India (“CCI”) is likely to review such mergers in order to analyse the potential Appreciable Adverse Effects on Competition (“AAEC”) and a strong defence at the perusal of such airlines is the “failing firm defence”. The defence enunciates that in the absence of a merger, the assets of the failing firm would entirely exit the market thereby affecting market competition adversely. The failing firm defence was revisited in context of Covid-19 and the conversation opened up in different jurisdictions. Various anti-trust regulators acknowledged how mergers and consolidations may ensue in the market given the depleting state of economies globally. While the CCI issued an advisory note to businesses, there was no mention of facilitation of mergers. The note was limited to s.3(3) of the Act focusing on arrangement that would increase market efficiencies considering Covid-19[3]. Nevertheless, the Act under s.20(4)(k)[4] recognises it as a defence and the matter is often reviewed closely and linked to insolvency proceedings (IBC proceedings)[5]. On a global stage , the ‘failing firm’ defence has been used restrictively. In the EU, the commission’s rulings on the Aegean/Olympic II[6]shed light on how a previously declined acquisition of airline was approved amidst the plummet of the Greek Economy. In the present case, the two airlines had applied before the European Commission for sanctioning of their merger amidst the global financial crisis of 2008. They were refused on grounds of lack of sufficient evidence being provided to the commission to meet the requirements of a failing firm. The burden of proof was that the deterioration in market competition was not a direct result of the merger and even in the absence of the merger, the competitive structure was likely to deteriorate[7]. Stemming from this there are three criterions that the commission looked at in their assessment: 1) Failing the consummation of this merger, the firm would be incapable of existing; 2) It is the least anti-competitive measure available; 3) In the absence of the merger, the assets of the firm would exit the market[8]. Premised on these three defining factors, the assessment of the commission focused on the failing state of Greek economy which had made it non-viable for firms to break-even. They analysed if the parent group, Marfin Investment Group, and its subsidiaries could sustain the losses of Olympic Airlines . Furthermore they assessed if there were any other potential buyers who were willing to acquire assets of the airlines or the firm in general. Subsequent to such assessment, the ‘failing firm’ defence was upheld, and the transaction was allowed in 2013 by the commission.  In the recent acquisition of Asiana by Korean Air, however, the Korean Fair-Trade Commission (“KTFC”) did not accept the failing firm defence, despite the depleting financial health of the carrier and the prevailing pandemic. The idea was that the firm should be non-viable, meaning the company is one that is insolvent or expected to become so soon due to the serious deterioration of its financial structure[9]. This approach once again recapitulates the intersection between insolvency and anti-trust regulations as merely being in a “weak” financial state would not be alone effective. Considering the same, airline carriers looking to merge or be acquired must have to ensure that their perusal of the “failing firm” defence is substantially backed. A mere argument that the pandemic has affected the operations of a carrier alone may not be sufficient as the pandemic is a “temporary” economic occurrence[10] and economies have begun to heal in the aftermath of it. Nevertheless, various reports[11] portray how the airline industry may take a while to recover and carriers can broach the argument that the firm would not be able to sustain long enough to reap the benefits of the market recovery. It would be ideal for carriers approaching the commission to adopt an industry specific approach, wherein rather than arguing that their position is “weaker” with regards to other competitors, the inability of the firm to recover post the pandemic would have to be established. It would be ideal to show how there is an inability to make good on the debt in the long run and if the entity is being held by a company, further research supporting the poor financial state of the holding company must also be placed before the commission. In consonance with the Aegean/Olympic II order, the carriers can provide financial evidence to establish and fulfil the three criterions as has been adopted by the EU. However, a policy conundrum pops-up when it comes to whether thresholds for the failing firm defence are to be lowered or not. While the debate on the same is ongoing, this post argues how the aftermath of Covid-19 combined with the pre-existing state of the airline industry calls for the Indian regulator to reconsider the thresholds that have been set for the “failing firm defence”.. Airlines are capital extensive industries that often fail to break even and there runs a risk in suggesting a lowering of thresholds as the same may be the cause of various carriers consolidating and using the defence to their own benefit. What needs to be noticed here is that in crisis such as the pandemic and ongoing recession, the policymakers at the centre have two choices : 1) They can either increase state aid for financially unstable firms and redirect the tax-payers money

[By Pranay Agarwal] The author is a student at the Gujarat National Law University. Introduction The process of merger and acquisition is not consolidated in India and still remains a practical aspect influenced more by the business practices and the consensus between the entities. One of the important aspects of this process is the Share Purchase Agreements (SPAs) where the shares of the seller are legally transferred to the buyer to give effective control to the buyer over the target. Though the practice of drafting an SPA before any takeover is common in the country, the threat of gun jumping always prevails due to the exercise of control over the target before the transaction is complete. The threat of gun jumping becomes even larger from the inclusion of pre-closing covenants in the SPAs in which the buyer entity has decisive control over the various aspects of the operations of the target entity in the ordinary course of business before the merger transaction is completed. However,  at the same time, such pre-closing covenants ensure fair competition in the market balancing the rights of both the target and the buyer. In this article, the pre-closing covenants are given a legal explanation in light of the existing competition laws of the country and it is tried to separate them from the gun jumping and necessitates the need to understand the fine line between them to safeguard the interests of the entities and ensure healthy competition in the market. What are Pre-closing Covenants? Pre-closing covenants are signed during the time period ranging from the execution of the SPA to the actual transfer of the shares or closing of the takeover transaction in order to confer some control to the buyer over the actions and conduct of the target entity. In other words, the pre-closing covenants set out those actions which the seller entity is permitted to carry out in the ordinary course of business. The ordinary course of business, in this case, should be ascertained from the commercial perspective and not from a general perspective. Therefore, it is pertinent to look into the objects clause of the Memorandum of Association of the entity to get a clear picture of the activities conducted by the entity in the ordinary course of business. However, the Memorandum of Association should not only be the criteria to decide such activities and the term should be given a purposive construction depending on the policy or transactions of the entity with related parties. Nevertheless, due to the prevailing business practices on the pre-closing covenants, buyers are given rights on fixing the actions which can be freely carried on by the target entity, and such control is even extended to capping the monetary value of the transactions of the target. While this may seem to be giving effective control to the buyer over the conduct of the target before the actual takeover, the pre-closing covenants are included with the sole purpose of ensuring the position or image of the target entity in the market in the interim period does not differ from that at the time of the agreement in order to prevent unjust losses to the buyer due to conduct of the target meanwhile. Decisive influence in Pre-closing covenants The apprehension of gun jumping due to the pre-closing covenants is majorly influenced by the excessive control that it gives to the buyer over the conduct of the target. If seen from one perspective, the pre-closing covenants through conferring extensive control to the buyer over the target, at times transcend its boundaries to significantly influence the actions of the target entity before the closing of a merger or takeover transaction. ‘Decisive influence’ in this context has to be construed in the light of the gun jumping laws of the country. The test of ‘decisive influence’ was given in Hindustan Colas v. CCI, where the Competition Commission of India (CCI) held that the decisive influence by the buyer over the target constitutes the implementation of the combination, violative of section 43A of the Competition Act, 2002 (the Act). While the decisive influence test as was also reiterated in the Etihad Airways case properly defines the practice of gun jumping, the test has to be seen more from the perspective of ‘effective control’ than the decisive influence to practically fulfill the test. The term has been given a proper definition from the mergers and acquisitions perspective in Regulation 2(1)(c) of the SEBI Regulations, 1997 where the control has been given a broad definition of not only relating to the voting of the directors but also management or policy decisions of the entity. The definition though gives an enlarged view of the control of the company, it is possible that the pre-closing covenants are misused under the guise of preservation of the value of the target to exercise excessive control and thus, decisively influence the actions of the target; thus effecting the combination before the completion of stipulated time and procedure. Nonetheless, such presumption may do more harm than good by damaging the sacrosanct line between gun jumping and pre-closing covenants, making it necessary to clearly distinguish between them. The Dissonance between Gun Jumping and Pre-closing Covenants Gun jumping has been a major concern during the merger process. While the term has got its origins in the European competition laws, the CCI in Ultratech Cement case tried to give an indigenous view on the same. The important factor which has to be taken into account is the conduct of the parties to the combination which results in the consummation of the combination before the orders of CCI under section 31 of the Act or when the standstill obligation is still in force. The pre-closing covenants inherently confer powers to the buyer to exercise some control over the seller’s conduct, thus hinting toward the high chances of gun jumping in such agreements. However, the incidences of gun jumping have to be recognized in matters of pre-closing covenants on a case-to-case basis by the Indian watchdog in order

[By Manas Agrawal and Ritu Bhatia] The authors are students at the National Law School of India University, Bengaluru. Introductory Remarks The Competition Commission of India (‘CCI’) has time and again failed to harness the economic benefits of the regulatory landscape of mergers and acquisitions embodied in the Competition Act, 2002(‘the Act’). To prove this, we have used a test suite of Facebook-Jio. Through Facebook-Jio, the thesis of this paper is that ‘The duality of the fidelity towards the text of the statute and the implementation of some suggestions is required for achieving the goal of prevention of adverse effect on competition in cases of combination.’ On 24 June 2020, the CCI approved the Investment Agreement and the Master Services Agreement between enterprises related to Facebook and Jio (‘the order’).[1] This approval serves as a focal point to understand the intersection of three aspects, first, the goals of the Indian competition regime, second, the procedural requisites of combinations, and third, the substantive effects of the combination. This is the backdrop against which this article is set. Structurally, the article is divided into two parts. The article in the first part positively analyses the crystal-ball gazing procedure mentioned in sections 5 and 6 of the Act and the substantive grounds of ascertaining appreciable adverse effects on competition (‘AAEC’) mentioned under section 20 of the Act.[2] The article in the second part normatively analyses the existing – asset turnover dichotomy mentioned in section 5 and the meaning of ‘asset’ mentioned in explanation (c) to section 5. Unscrambling the egg problem: Ex-ante regulatory procedure Daniel A. Crane proposed two models of law enforcement for the antitrust landscape, regulatory (ex ante) and crime-tort (post facto).[3]India follows a hybrid system, which is crime-tort in sections 3 and 4 and regulatory in sections 5 and 6.[4] Both exclusive legal positivism (‘ELP’) and law and economics justify the regulatory nature of merger control. Firstly, section 6(2) of the Act has the requirement of pre-combination notification.[5] Hence legal validity of the ex-ante procedure is established through the source-based thesis. Secondly, both section 18 of the Act and the Preamble state that (a) promoting the interests of the consumers and (b) ensuring freedom of trade is the duty of the CCI and the goal of the Act respectively.[6]A combination of (a) and (b) proves that Blaire’s and Sokol’s conceptualization of total welfare is applicable here.[7] Here, total welfare is the summation of consumer welfare and producer welfare.[8] The rationale behind ex-ante control is to prevent unscrambling the egg problem. This is because once a combination is done, the transaction costs of undoing it are very high. Hence, consumer welfare should necessitate that ex- ante approval is required to protect against consumer harm due to AAEC. Furthermore, CCI has never passed an order under section 31(2) of the Act disallowing the combination.[9] Moreover, CCI has used its power under section 31(3) only in 2.6 percent of cases.[10]Therefore, there are insignificant/negligible transaction costs from the perspective of a producer and hence, Coase’s theorem will conclude that there is Pareto optimality.[11] Thus, ex-ante approval is conducive to producer welfare. Till now, it is established that if the CCI does not employ ELP (regulatory model) in its order, then according to law and economics, there will be insufficient outcomes. This underpinning of the importance of statutes using law and economics, better known as the Meld Model was proposed by Mr. Rahul Singh.[12] The next step is the application of this Meld Model approach to Facebook-Jio. In this vein, this paper argues that the order is erroneous in two respects. The percentage of acquisition of shares by Jhaadhu was 9.99 percent.[13] Hence, the correct approach would have been to assess whether the acquisition could have been exempted under Regulation 4 read with Item 1 of Schedule I of the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011. One might argue that proviso (B) to Item I is only applicable if the requirement of defenestration[14] (not a member of the board of directors and no intention to participate) is met. According to paragraph 6 of the order, Jaadhu has the entitlement to appoint a director on the Board of the target enterprise and hence exemption should not be granted.[15] However, the outcome should not precede the analysis and hence we are using an outcome agnostic approach to flag the error. This error can be understood by the prevention-elimination dichotomy and Meld Model. The Preamble of the Act mentions ‘prevention’ of certain activities whereas section 18 of the Act mentions ‘elimination’. The difference between the two is the extent of intrusiveness. Hence, to resolve the deadlock, we will be employing Singh’s three-fold lexical priority test.[16] The first step is to take the text of the statute seriously. Here, Section 18 starts with subject to the provisions of this Act.[17] The subsections of sections 29 and 31 of the Act are bombarded by sunset clauses for each stage of the procedure.[18] Furthermore, section 6(2A) implicitly places a ceiling period of 210 days on the CCI to give an order. These provisions prove that the intention of the Parliament is to strike a balance between the costs of enforcement and protection of competition. This is precisely why the CCI has first, the option of both modification and rejection present in section 31[19] and second, section 20(4) (n) mentions cost-benefit analysis as a factor for assessing AAEC.[20] For instance, when the costs of enforcement due to rejection exceed the benefits of protecting competition, then the CCI should not order annulment.  The second step is to follow Fuller’s advice of not restricting the assignment of meaning to a single word of the statute. This combined with the principle of noscitur socii means that the single word ‘eliminate’ should not be interpreted in isolation but according to the context in which it is used.[21] When one reads the whole paragraph of section 18, it will be evident that the Act mandates the CCI has to balance