UNIT 8

WTO AND ITS IMPACT ON COMPETITION LAWS WITH REFERENCE TO

UNCTAD

Q. WTO and its impacts on Competition Laws with reference to UNCTAD.

October/November 2018

Q. Explain the Competition Act, 2002, in the light of UNCTAD guidelines in the context
of the regulation and control of the market.

October/November 2018

Q. Critically evaluate Competition Law principles prescribed under the GATT and the
WTO and examine its application under the Competition Act, 2002.

1. Introduction

The evolution of competition law has been deeply influenced by globalization and the
emergence of multilateral trade institutions such as the World Trade Organization (WTO)
and UNCTAD (United Nations Conference on Trade and Development).
Both have shaped the internationalization of competition policy by promoting
convergence, cooperation, and harmonization among national regimes.

According to Richard Whish & David Bailey (Oxford University Press, Ch. 12), international
organizations like UNCTAD, OECD, and WTO have played critical roles in setting the
framework for competition regulation across borders.

2. UNCTAD’s Role in Global Competition Policy

(a) UNCTAD’s Initiatives

 UNCTAD has long promoted fair and competitive markets globally.

 In 1980, the UN General Assembly adopted the Set of Multilaterally Agreed
Equitable Principles and Rules for the Control of Restrictive Business Practices
(the “UNCTAD Code”), a non-binding code encouraging countries to develop
competition laws consistent with international norms.
 In 2004, UNCTAD adopted a Model Law on Competition, which acts as a reference
framework for developing countries introducing or reforming competition law
systems.

(b) Technical and Advisory Role

UNCTAD provides:

 Technical assistance and training for developing countries.

 Capacity building for newly established competition authorities.

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  Platforms for exchange of experience among countries (e.g., the Intergovernmental
Group of Experts on Competition Law and Policy).

Example:
Countries such as India, Kenya, and South Africa used the UNCTAD Model Law as
guidance while drafting or amending their competition statutes.

3. WTO and Competition Policy

(a) Historical Background

 The Havana Charter (1948) — which initially proposed an International Trade

Organization — contained a full chapter on restrictive business practices (Chapter
V). However, when the ITO failed, this antitrust element was excluded from the
GATT 1947, the predecessor to the WTO.
 The WTO, established in 1995, focuses on trade liberalization rather than direct
competition enforcement.

(b) Relationship Between Trade and Competition Policy

According to Whish & Bailey (Ch. 12):

“The WTO is predominantly concerned with issues of trade rather than competition policy.
However, the relationship between trade and competition policy is a major subject in its own
right.”

Despite not having direct jurisdiction over anti-competitive conduct, WTO agreements (such
as the TRIPS Agreement and the GATS) indirectly affect market competition by governing
intellectual property and services.

(c) WTO Working Group on Trade and Competition Policy

 Established to study the interaction between trade and competition.

 Aimed to explore whether a multilateral competition policy framework was feasible.
 However, by the Doha Ministerial Conference (2004), the WTO General Council
decided to exclude competition policy from the Doha Round negotiations.

Impact:
This means that WTO currently does not impose binding competition law obligations on
member states, though its dispute settlement mechanism could theoretically handle
competition-related trade issues (as seen in Japan – Measures Affecting Consumer
Photographic Film and Paper (WTO, 1999), the Kodak–Fuji case).

4. UNCTAD and WTO: Complementary Roles

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Aspect UNCTAD WTO

Advisory, developmental, voluntary

Nature Binding multilateral trade system
cooperation

Competition law and consumer Trade liberalization and market

Focus
protection access

Non-binding “Model Law” and Trade agreements with indirect

Approach
technical assistance competition effects

Developing and least developed

Beneficiaries Global member states
countries

Example of 1980 UNCTAD Code; 2004 Model 1999 Kodak–Fuji case, TRIPS and
Work Law GATS provisions

Both institutions influence the competition regimes of emerging economies, including

India, by promoting consistency with international practices.

5. Indian Perspective (as per S.M. Dugar)

According to S.M. Dugar, Guide to Competition Law (7th Ed., Ch. on Duties of Commission,
s.18):

“The Competition Commission of India has been proactively engaging with various
international organizations, such as the International Competition Network (ICN), OECD,
and UNCTAD.”

Section 18 of the Competition Act, 2002 empowers the CCI to:

“Enter into any memorandum or arrangement with the prior approval of the Central
Government with any agency of any foreign country.”

This statutory authorization allows India to:

 Collaborate with WTO, UNCTAD, and OECD.

 Participate in global competition initiatives.
 Adopt best international practices for enforcement and advocacy.

Example:
India’s advocacy and merger control practices mirror global trends, aligning with principles
promoted by UNCTAD and WTO cooperation frameworks.

6. Illustrative Case Example – The Kodak–Fuji Dispute (WTO)

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  The United States filed a complaint before the WTO’s Dispute Settlement Body
alleging that Japan’s market structure and restrictive practices prevented fair access
for U.S. photographic film (Eastman Kodak v. Fuji Photo Film Co.).
 Though the WTO ruled that Japan’s practices did not violate WTO rules, the case
highlighted how competition issues (vertical integration and market dominance) can
have trade implications.
 This case is discussed in Whish & Bailey (Ch. 12, p. 494) as an example of the
intersection between competition law and WTO principles.

7. Conclusion

 The WTO impacts competition law indirectly, by influencing trade openness, market
access, and the regulation of subsidies, IP, and services.
 UNCTAD, on the other hand, plays a direct and developmental role, fostering
capacity building, policy harmonization, and technical support for competition
regimes.
 Together, they promote convergence and cooperation, shaping the global
competition policy landscape without creating a single supranational authority.

Key Provisions Referenced

 Competition Act, 2002 – Section 18 (international cooperation).

 UNCTAD Model Law on Competition (2004).
 WTO Agreements – TRIPS, GATS, and GATT provisions relating to subsidies and
market access.

INTERNATIONAL ENFORCEMENT AND JUDICIAL ASSISTANCE IN

COMPETITION LAW.

1. Introduction

Globalization has led to the rapid internationalization of business, making competition law
enforcement a cross-border concern. Anti-competitive practices such as cartels, abuse of
dominance, and international mergers often involve multiple jurisdictions.
To address this, competition authorities require international enforcement cooperation and
judicial assistance mechanisms.

According to Whish & Bailey (Ch. 12, “The International Dimension of Competition Law”),
effective enforcement today depends on mutual assistance, exchange of information, and
recognition of foreign judgments, since purely national enforcement is inadequate in a
globalized economy.

2. Concept of International Enforcement

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(a) Meaning

International enforcement refers to cooperation among national competition authorities to

ensure effective application of competition laws across borders.
It covers:

 Mutual assistance in investigations

 Exchange of confidential information
 Coordination in merger control and cartel cases
 Recognition and enforcement of decisions abroad

Whish & Bailey (p. 490–491): “Enforcement refers not only to the imposition of penalties but
to all authoritative acts such as the service of summons, the gathering of evidence, and
carrying out investigations.”

3. Mechanisms of Judicial Assistance

Many legal systems allow States to assist each other through formal treaties or conventions.
Key instruments include:

(a) The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial
Matters (1970)

 Enables one State to assist another in collecting evidence for use in judicial or
administrative proceedings.
 Implemented in the UK via the Evidence (Proceedings in Other Jurisdictions) Act,
1975.

(b) Mutual Legal Assistance Treaties (MLATs)

 Provide for exchange of information and evidence between countries.

 Example: US–Australia Antitrust Mutual Assistance Agreement (1999) facilitates
cooperation in cartel enforcement.

Whish & Bailey, p. 491: “Requests for mutual assistance in criminal matters are the
responsibility of the Home Office.”

(c) Recognition and Enforcement of Foreign Judgments

 Generally, competition authorities may recognize decisions of other jurisdictions if

consistent with domestic law.
 However, penal judgments (like treble damage awards under US law) are often
excluded.
Example: British Airways Board v Laker Airways Ltd [1984] QB 142 – UK courts
refused to enforce multiple damages awarded in the US.

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4. Examples of International Enforcement and Cooperation

(a) United States

 International Antitrust Enforcement Assistance Act (1994) enables reciprocal

agreements to exchange confidential information.
 Cases such as US v Imperial Chemical Industries (ICI) (1952) show the
extraterritorial reach of US antitrust enforcement, requiring foreign firms to alter
behavior abroad.

(b) European Union

 EU has bilateral cooperation agreements with the US, Canada, Japan, and South
Korea for mutual enforcement.
 Article 12 of Regulation 1/2003 allows exchange of confidential information between
the European Commission and national authorities.

(c) India

 Under Section 18 of the Competition Act, 2002, the Competition Commission of

India (CCI) may enter into arrangements with foreign agencies with prior approval of
the Central Government.
 Section 32 extends CCI’s jurisdiction to anti-competitive acts taking place outside
India but having an effect within India — a form of extraterritorial enforcement.

S.M. Dugar (7th Ed., p. 12) notes that “the CCI’s powers include cooperation with
international bodies to ensure effective global competition law enforcement.”

5. Institutional Cooperation

(a) OECD and ICN

 The OECD promotes best practices in cross-border investigations and information

sharing.
 The International Competition Network (ICN), established in 2001, enables
informal cooperation among over 100 competition authorities to harmonize
enforcement techniques.

Whish & Bailey (p. 509): “The ICN’s achievements have led to soft harmonisation through
voluntary convergence in international merger control and cartel enforcement.”

(b) Regional and Bilateral Agreements

 EU–US Cooperation Agreement (1991)

 Australia–New Zealand Closer Economic Relations Agreement (1983)
 Nordic Cooperation Agreement (2003) among Denmark, Norway, Sweden, Iceland

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6. Judicial Assistance and Enforcement Challenges

Despite progress, several challenges persist:

 Jurisdictional conflicts: multiple authorities investigating the same conduct (e.g.,

Microsoft cases).
 Confidentiality concerns: exchange of sensitive data restricted by domestic laws.
 Divergence in penalties and procedures across jurisdictions.

The principle of comity (mutual respect for sovereignty) plays a vital role.

Whish & Bailey (p. 494–495): “Courts must balance their jurisdictional interests with respect
for other States, applying a ‘rule of reason’ to extraterritorial enforcement.”

7. Indian Perspective

 Section 32 of the Competition Act, 2002 allows CCI to investigate global cartels
affecting Indian markets.
Example: The CCI investigated international cartels in the Automotive Bearings and
Air Cargo cases.
 Section 18 authorizes cooperation with international agencies like UNCTAD and
OECD.
 Indian courts may use Letters Rogatory and mutual legal assistance under the Code
of Criminal Procedure when competition cases overlap with criminal conduct (e.g.,
bid-rigging).

8. Conclusion

International enforcement and judicial assistance are now essential pillars of modern
competition law.
While global anti-cartel enforcement and information sharing have improved significantly
through instruments like MLATs, ICN, and UNCTAD programs, full harmonization
remains a challenge due to jurisdictional differences.

As Whish & Bailey summarize:

“The internationalisation of competition law reflects a growing need for cooperation rather
than convergence.” (p. 509)

Thus, cross-border enforcement and judicial assistance ensure that competition policy keeps
pace with globalization, protecting markets and consumers worldwide.

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APPLICABILITY OF COMPETITION LAW INTO AGRICULTURAL SECTOR.

1. Introduction

The agricultural sector occupies a unique position in competition law.

Historically, agriculture has been partially exempted or specially regulated in most
jurisdictions due to its social, economic, and policy significance.

As Whish & Bailey note (Ch. 23 – Particular Sectors, Agriculture), agriculture is often
shielded from the “full discipline of the competitive process” because of concerns like food
security, rural livelihoods, and price stability.
Yet, with market liberalization, competition law is increasingly applied to agricultural
markets — including supply chains, cooperatives, marketing boards, and input markets.

2. Rationale for Special Treatment of Agriculture

(a) Public Interest Considerations

Agriculture is linked to:

 Food availability and safety

 Farmers’ income and rural development
 Market stability and fair prices for consumers

Because of these, governments traditionally intervene through subsidies, price supports,

and market organizations.

Whish & Bailey (p. 963): “Legislatures have tended to view agriculture as possessing special
features entitling it to protection from the potentially ruthless effects of competition.”

(b) Common Agricultural Policy (EU Context)

Under the EU’s Common Agricultural Policy (CAP), agricultural markets are subject to
Regulations 1184/2006 and 1234/2007, which limit the application of Article 101 TFEU to
certain agricultural products where competition rules could conflict with CAP objectives.

3. Competition Law Framework in the Agricultural Sector

(a) EU Position (Whish & Bailey, pp. 963–967)

1. Article 39 TFEU (ex Article 33 EC) defines objectives of agricultural policy:

o Increase productivity
o Ensure fair standard of living for farmers
o Stabilize markets
o Ensure availability of supplies
o Ensure reasonable consumer prices

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 2. Article 101(1) TFEU (prohibition of restrictive agreements) does not apply if
agreements form part of a national market organization or are necessary to achieve
the above CAP objectives.
(→ Regulation 1184/2006, Article 2)
3. Article 102 TFEU (abuse of dominance) still applies to agriculture — i.e., no blanket
exemption for dominant farmers’ cooperatives or marketing boards.
4. Case Laws:
o FRUBO v Commission (Case 71/74) – Court held that not all CAP objectives
being satisfied meant the exemption could not apply.
o Bloemenveilingen Aalsmeer (1975) – Exclusive dealing agreements in flower
auctions were not justified under CAP objectives.
o Coöperative Stremsel en Kleurselfabriek v Commission (1974) – Rennet
used in cheese production was fully subject to competition law, as it wasn’t
part of Annex I products.
o Milk Marque (UK, 1999) – The Monopolies and Mergers Commission
required splitting a milk cooperative to prevent market dominance;
confirmed competition law’s reach despite agricultural regulation.

Whish & Bailey (p. 965): “The existence of specific agricultural rules does not deprive
national competition authorities of their right to apply competition law, provided such
application does not undermine the objectives of the Common Agricultural Policy.”

(b) Indian Position (S.M. Dugar, 7th Ed., Ch. on Scope and Jurisdiction)

Under the Competition Act, 2002, no blanket exemption is given to agriculture — if

agricultural markets involve trade and commerce, competition law applies.

 Section 2(h) defines “enterprise” broadly — includes producers, traders, or service

providers engaged in economic activity, except sovereign functions.
 Hence, agricultural marketing boards, cooperatives, and processors fall within the
scope if they engage in trade.

Dugar (p. 41): “Agricultural and commodity boards, when engaging in commercial or
regulatory activities affecting market competition, are subject to the Competition Act.”

Relevant Provisions:

 Section 3 – Prohibits anti-competitive agreements (e.g., price fixing by agricultural

traders or cartels in fertilizers, seeds, etc.).
 Section 4 – Addresses abuse of dominance (e.g., monopoly of procurement agencies
or input suppliers).
 Section 19 – CCI can inquire suo motu or upon information from farmers or
consumers.

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4. Illustrative Cases and Examples

(a) India:

 Case: NAFED (2011) – Allegation that the National Agricultural Cooperative

Marketing Federation engaged in exclusive dealing and restrictive practices in the
procurement of pulses. CCI held that though NAFED operated under government
policy, it could still fall under competition law if its conduct affected the market.
 Case: APMC Market Practices – Agricultural Produce Market Committees
(APMCs) often create entry barriers by licensing restrictions, mandated trading
areas, and price controls — such practices can be reviewed under Section 3(3) and
Section 4.
 Case: Fertilizer Cartelization (CCI 2017) – Investigations into alleged cartel
behavior among fertilizer manufacturers impacting agricultural input costs.

(b) EU:

 Milk Marque Case (UK, 1999) – Dominant milk cooperative split for abuse of
market power.
 FRUBO v Commission – Derogation from Article 101 rejected because CAP
objectives weren’t fully satisfied.

5. Key Policy Concerns

Competition Concern Agricultural Example Law/Response

Farmer cooperatives setting minimum

Price Fixing Section 3(3), Article 101(1)
sale price

APMCs dividing geographical areas for

Market Sharing Section 3(3)(c)
sales

Large dairy cooperative controlling

Abuse of Dominance Section 4, Article 102
procurement

Merger of Seed or fertilizer companies combining Section 5–6, merger control

Agribusiness Firms to dominate provisions

Price transparency platforms for crops

Information Exchange Whish & Bailey, Ch. 13
enabling tacit collusion

6. Balancing Agriculture and Competition

Competition law must balance:

 Efficiency & consumer welfare (Competition policy objective)

 Equity & stability for farmers (Agricultural policy objective)

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Whish & Bailey (p. 966) emphasize: “The objectives of agricultural policy — ensuring fair
farmer income and market stability — may not always align with competition’s goal of free
pricing, requiring case-by-case assessment.”

7. Conclusion

Competition law applies to agriculture, though often with qualified exceptions:

 It covers all economic and trading activities in the sector, especially marketing,
processing, and input supply.
 EU provides limited exemptions under Article 39 TFEU and CAP regulations.
 India applies the Competition Act, 2002 universally, including agriculture, where
practices distort markets.

Hence, agricultural markets, though sensitive, are not immune from competition scrutiny —
the goal is coexistence of fair competition with agricultural welfare.

DUMPING

1. Introduction

“Dumping” is a form of unfair trade practice in international trade, whereby goods are
exported from one country to another at prices lower than their normal value—either
lower than the domestic selling price or the cost of production in the exporting country.
It is treated as predatory pricing at the international level, intending to capture foreign
markets and eliminate domestic competitors.

According to the GATT 1994 (Article VI) and the WTO Anti-Dumping Agreement
(1995), dumping is not prohibited per se, but actionable only if it causes or threatens
material injury to the domestic industry of the importing country.

2. Legal Framework

(A) International Level – GATT/WTO

 Article VI of GATT 1994 permits countries to impose anti-dumping duties if

dumping causes material injury.
 The WTO Agreement on Implementation of Article VI (Anti-Dumping
Agreement) provides detailed procedures for:
o Investigation of dumping,
o Determination of injury, and
o Calculation of “margin of dumping”.

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🔹 Case Example:
EC – Bed Linen (WT/DS141/AB/R, 2001)
India successfully challenged the EU’s anti-dumping duties on Indian bed linen exports; the
WTO held that EU’s calculation method violated the Anti-Dumping Agreement.

(B) Indian Law

 Section 9A of the Customs Tariff Act, 1975:

Allows the Central Government to impose anti-dumping duty not exceeding the
margin of dumping.
Dumping margin = Normal value – Export price.
 Rule 3, Anti-Dumping Rules, 1995:
DGTR (Directorate General of Trade Remedies) investigates dumping cases in India.
 Competition Act, 2002 (though not directly dealing with dumping):
o Section 2(i)(c) defines goods to include imported goods.
o Section 3 prohibits anti-competitive agreements (can apply if dumping is a
result of cartelization or collusive pricing).
o Section 4 applies if a foreign firm abuses dominance by dumping in India.
o Section 32 gives extraterritorial jurisdiction—allowing CCI to examine
effects of dumping that distort competition in India.

📚 S.M. Dugar (7th Ed., p. 56–58)

Notes that while anti-dumping duty under the Customs Tariff Act addresses trade injury,
the Competition Act addresses market distortion due to dominance or collusion.

3. Difference Between Dumping and Predatory Pricing

Aspect Dumping Predatory Pricing

Jurisdiction International trade context Domestic competition context

Regulator DGTR / Ministry of Commerce CCI (under Competition Act)

To penetrate or dominate a foreign

Objective To eliminate domestic competitors
market

Competition Act, 2002 (s.4 – abuse of

Law Customs Tariff Act, 1975 (s.9A)
dominance)

Example Chinese steel exports to India Reliance Jio pricing case (alleged)

🔹 Case: Rallis India Ltd. (MRTP Commission)

The firm sold products at prices drastically lower to governments, forcing out competitors.
The Commission held it as predatory pricing, akin to dumping practices harmful to fair
competition.

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4. WTO & Competition Policy Link

The WTO Working Group on Trade and Competition Policy (set up at the Singapore
Ministerial, 1996) examined anti-competitive effects of trade practices like dumping.
However, no binding multilateral competition framework emerged.

🔹 Doha (2001): Recognized need for a multilateral framework on competition.

🔹 Cancún (2003): Discussions stalled; competition was dropped from WTO’s “Singapore
Issues.”

Nevertheless, UNCTAD continues to assist developing countries in aligning anti-dumping

and competition policies.

5. Indian Institutional Mechanism

 DGTR (Directorate General of Trade Remedies): Investigates and recommends

anti-dumping duties.
 CCI (Competition Commission of India): Ensures dumping does not create
dominance or cartelization.
 Ministry of Finance: Imposes final anti-dumping duties based on DGTR findings.

Example: Anti-dumping duties on Chinese solar panels (2018) – to prevent destruction of

India’s domestic industry.

6. Relevant Case Laws

Citation /
Case Principle / Outcome
Authority

EC – Bed Linen Case WTO Appellate Dumping determination must follow fair
(2001) Body comparison; EU method invalidated.

Predatory pricing akin to dumping; aimed

Rallis India Ltd. Case MRTP Commission
at eliminating rivals.

Indian Paint & Coating Competition Anti-dumping duties on imports did not
Association Case (CCI, Commission of restrict competition; market remained
2012) India contestable.

United States – Softwood WTO Appellate Clarified rules on “injury” and “causation”
Lumber IV (2004) Body in dumping.

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7. Economic and Legal Significance

 Dumping harms domestic industries by displacing local firms and discouraging

investment.
 Anti-dumping measures protect domestic industry, but excessive use can impede
competition and raise consumer prices.
 Therefore, balance between trade remedy law (Customs Tariff Act) and
competition law (Competition Act) is crucial.

8. Conclusion

Dumping lies at the intersection of trade law and competition policy.

While the Customs Tariff Act, 1975 (s.9A) deals with unfair international trade, the
Competition Act, 2002 ensures that post-import conduct (e.g., predatory pricing, collusion)
does not distort the domestic market.
A harmonized approach—backed by WTO discipline and UNCTAD guidance—is essential
for India to safeguard both competition and consumer welfare.

✅ Quick Reference Summary

Key Statutes / Articles Provision / Purpose

Allows anti-dumping duties for injury caused by

Article VI, GATT 1994
dumping

WTO Anti-Dumping Agreement

Procedural and substantive framework
(1995)

Section 9A, Customs Tariff Act,

Domestic legal basis for anti-dumping duties
1975

Sections 3, 4, 32, Competition Act,

Address anti-competitive effects of dumping
2002

DGTR Rules (1995) Investigation and determination process

Rallis India Case (MRTP) Predatory pricing – akin to dumping

EC – Bed Linen (2001) WTO case — India vs EU

STATE AID

1. Introduction

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State aid refers to financial assistance granted by a government or public authority that
distorts or threatens to distort competition by favouring certain undertakings or the
production of certain goods within a market.

Under European Union law, State aid control forms a crucial pillar of competition policy,
ensuring that public funds do not confer unfair advantages on select enterprises, thereby
maintaining a level playing field in the internal market.

2. Legal Framework: Articles 107–109 of the TFEU

The primary provisions governing State aid in the EU are Articles 107 to 109 of the Treaty
on the Functioning of the European Union (TFEU).

Article Provision Summary Relevance

Declares any aid granted by a Member State or through State

Foundational
Article resources in any form whatsoever that distorts competition by
definition of State
107(1) favouring certain undertakings incompatible with the internal
aid.
market, insofar as it affects trade between Member States.

Lists automatically compatible aids — e.g., (a) social aid to

Article Exception
consumers, (b) aid for natural disasters, (c) aid to certain regions
107(2) clauses.
of Germany post-WWII.

Gives the European Commission discretion to permit aid for

Article Basis for
objectives like regional development, R&D, employment,
107(3) exemptions.
environment, or to remedy serious economic disturbances.

Article Provides procedural framework — notification, investigation, Enforcement

108 and recovery of unlawful aid. procedure.

Article Authorises the Council to make regulations for implementation, Rule-making

109 including group exemptions and de minimis aid rules. power.

📖 (Whish & Bailey, 9th ed., Ch. 6, pp. 245–248)

3. Key Features of State Aid

According to EU case law, four cumulative criteria must be met for a measure to constitute
State aid:

1. Intervention by the State or through State resources

(e.g., grants, loans, tax reliefs, guarantees, public equity injections)
2. Selective advantage — benefits conferred on specific firms or sectors.
3. Distortion of competition — must strengthen the position of the beneficiary relative
to rivals.
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 4. Effect on trade between Member States.

🔹 Case: Belgium v Commission (1984) – clarified that advantage can include tax reliefs
and guarantees.
🔹 Case: PreussenElektra (2001) – no “state aid” where payments are made by private
entities without State control.

4. Procedures under Article 108

 Prior Notification (Art. 108(3)):

All planned State aid must be notified to the European Commission before
implementation.
 Investigation (Art. 108(2)):
The Commission can require alteration or abolition of incompatible aid.
 Recovery:
Unlawful aid must be repaid by the beneficiary (e.g., France v Commission, British
Aerospace case).
 Direct Effect:
Article 108(3) has direct effect—national courts may prohibit implementation of
unnotified aid. (Case 120/73 Lorenz v Germany).

📚 (Whish & Bailey, p. 247; S.M. Dugar, Ch. 6 commentary)

5. Exemptions and Block Exemptions

 De minimis Regulation (Reg. 1407/2013):

Aid below €200,000 over three years is not considered to distort competition.
 General Block Exemption Regulation (Reg. 651/2014):
Exempts aid for SMEs, R&D, environmental protection, regional development, etc.
 Crisis Measures (2008 Financial Crisis):
Temporary framework allowed State recapitalization of banks — e.g., Commission
Communication (OJ 2008 C270/8).

6. Institutional Mechanism

 European Commission (DG COMP): Primary authority for monitoring and

enforcement of State aid rules.
 Directorate H – handles cohesion and enforcement issues related to State aid.
 National Courts: Ensure compliance with Article 108(3) and recovery orders.

(Whish & Bailey, p. 247; DG COMP organizational structure, ch. 7)

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7. Important Case Laws

Citation /
Case Principle
Year

Lorenz v Germany Article 108(3) is directly effective; domestic courts

Case 120/73
(1973) can enforce notification obligation.

British Aerospace v Case C- Member State must recover incompatible aid;

Commission (1992) 294/90 Commission has strong enforcement powers.

France v Commission Case C- Confirmed legality of Commission’s decisions on

(1998) 68/94 aid compatibility.

BUPA v Commission Case T- Member States can rely on Article 106(2) (services
(2008) 289/03 of general economic interest) to justify aid.

Commission v Case C- State aid must not affect intra-EU trade contrary to
Netherlands (1997) 157/94 Union interest.

8. Connection with Article 106(2) — Public Service Exemption

Under Article 106(2) TFEU, undertakings entrusted with services of general economic
interest (SGEI) may receive State compensation if necessary for performing those services.
However, such aid must be proportionate and not affect trade contrary to EU interests.

🔹 Case: BUPA v Commission (2008) — confirmed that compensation for public service
obligations can be compatible under Art. 106(2).

9. Policy and Reform Trends

 State Aid Action Plan (2005–2009): “Less and better targeted aid.”
 Modernization Initiative (2012–2014): Introduced transparency and efficiency in aid
approval.
 COVID-19 Temporary Framework (2020): Allowed targeted support for pandemic-
hit sectors.

10. Comparative Note – India

While India does not have a formal State aid regime, similar concerns arise where public
sector subsidies or government incentives distort market competition.
Under the Competition Act, 2002, such cases can be examined under:

 Section 4 (Abuse of Dominance by SOEs or PSUs), and

 Section 19(1)(b) (CCI inquiry based on government reference).

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Example: Coal India Case (CCI, 2014) – abuse of dominance by a state-owned monopoly;
though not termed “State aid,” it raised similar concerns of market distortion.

11. Conclusion

State aid regulation is an essential complement to antitrust law, ensuring competition

neutrality between public and private undertakings.
By controlling State subsidies, the EU prevents governments from disguising protectionism
as public policy.
India, while not following an explicit State aid doctrine, must ensure competitive neutrality
when granting fiscal incentives or subsidies through CCI’s oversight.

✅ Quick Summary Table

Article / Provision Purpose

Art. 107(1) TFEU Definition of incompatible State aid

Art. 107(2)-(3) Exemptions and Commission’s discretionary powers

Art. 108 Procedure, notification, recovery

Art. 109 Delegation of powers and regulations

Reg. 651/2014 &

Block and de minimis exemptions
1407/2013

Key Cases Lorenz, British Aerospace, France v Commission, BUPA

No express State aid law; similar control via Competition Act

Indian Context
sections 4 & 19

RECESSION AND COMPETITION LAW

1. Introduction

A recession is a period of economic contraction characterized by reduced demand, falling

prices, and financial instability. During such times, businesses may face declining profits,
overcapacity, or even bankruptcy.
The temptation often arises for firms to collude, fix prices, or limit output to survive the
downturn — practices that are normally prohibited under competition law.

However, the key issue is whether economic crises justify relaxation of antitrust
enforcement.
According to Whish & Bailey, “even in times of recession, competition authorities must
continue to pursue cartels and collusion with the same determination, since permitting them
only delays recovery.”

18
2. Legal Framework

(A) EU Law

Under Article 101(1) TFEU, agreements that restrict competition — including price-fixing,
output limitation, and market sharing — remain prohibited, regardless of economic
downturns.
However, Article 101(3) allows conditional exemptions for agreements that:

 Improve production or distribution,

 Promote technical/economic progress, and
 Allow consumers a fair share of resulting benefits.

Thus, while recession does not legalize anti-competitive conduct, temporary cooperation
for restructuring or survival may be permitted if justified under Article 101(3).

📖 Whish & Bailey, 9th Ed., p. 612

“Even when industries face severe problems due to recession or overcapacity, cooperation
agreements to overcome the crisis may be tolerated if they generate efficiencies.”

(B) Indian Competition Law

The Competition Act, 2002 does not provide for specific exemptions during economic
recessions.

 Section 3 prohibits anti-competitive agreements (including collusion or price fixing).

 Section 4 prohibits abuse of dominance, which may arise when large firms exploit
market vulnerability.
 Section 5–6 regulate mergers — failing firm defense may be invoked during recession
if acquisition prevents market exit.

📚 S.M. Dugar (7th Ed., Ch. 3, p. 177–178)

Notes that “recession and overcapacity create fertile conditions for cartelization,” but such
justifications cannot exempt firms from scrutiny under Section 3(3) unless clear efficiency
gains are shown.

3. Interaction Between Recession and Competition Policy

Recession
Typical Firm Behavior Competition Law Response
Effect

Demand Firms may coordinate production to Treated as cartelization under s.3(3) or

collapse maintain prices Art. 101(1)

19
 Recession
Typical Firm Behavior Competition Law Response
Effect

Excess Only allowed if approved as

Firms may agree to reduce output
capacity restructuring under Art. 101(3)

Entry barriers Dominant firms may exploit Monitored under s.4 (abuse of
rise position dominance)

CCI applies “failing firm defense” under

Failing firms Mergers or acquisitions for survival
s.6(2)

4. Notable Cases and Illustrations

(A) EU / UK Cases

1. BIDS (Beef Industry Development Society) Case, C-209/07 (2008)

o Irish beef processors agreed to reduce capacity by paying competitors to exit.
o The Court of Justice held this violated Article 101(1) — even if motivated by
crisis.
o Efficiency defenses could be examined only under Article 101(3).
2. Areva Cartel Case (2011)
o Firms in nuclear services sector colluded during economic downturn.
o The Commission reaffirmed that economic crisis is no defense for cartel
conduct.
3. Whish & Bailey (p. 514–515) — “Even in times of recession, competition authorities
continue to punish cartels with the same determination as in prosperous times.”

(B) Indian Context

1. ATMA & Tyre Manufacturers Case (CCI, 2014)

o Alleged price coordination among tyre producers during global slowdown
(2008–09).
o The CCI held that recession alone did not prove collusion; price parallelism
was partly explained by demand fluctuations and anti-dumping duties on
imports.
o However, the order reaffirmed that economic downturn does not justify
cartelization.
📖 S.M. Dugar, p. 47 – Tyre Cartel Case.
2. Cement Cartel Case (2012)
o CCI penalized cement firms for limiting production and controlling prices
during slowdown — finding that collusive practices worsened recessionary
effects.

20
5. OECD and Global Perspective

The OECD (Organisation for Economic Co-operation and Development) has emphasized
that:

“Economic recessions are no excuse for cartels or State protectionism; maintaining

competition discipline is critical to long-term recovery.” (OECD Competition Policy
Roundtable, 2009)

Both OECD and WTO advocate continued vigilance against crisis cartels, while allowing
temporary restructuring aid (subject to proportionality).

6. Policy Observations

 Competition law promotes market resilience, not protectionism.

 Recession may justify temporary cooperation for efficiency (Article 101(3)), but not
collusion.
 In India, Section 54 of the Competition Act empowers the government to exempt
certain sectors, but no such general exemption has been invoked during recessions.
 Instead, the CCI focuses on ensuring markets remain open, preventing large firms
from exploiting crises to eliminate rivals.

7. Conclusion

A recession tests the strength of a competition regime. While businesses may argue for
flexibility, crisis is no defense to collusion.
Courts and authorities worldwide — including the CCI, EU Commission, and OECD —
consistently affirm that competitive markets are essential to recovery, and that
anticompetitive conduct during downturns only deepens economic distress.

💡 In sum: Recession may influence enforcement strategy, but never suspends the rule of law
under competition policy.

✅ Quick Summary Table

Legal Source / Case Key Point

Prohibits crisis cartels; limited exemption for

Art. 101(1) & (3) TFEU
efficiency

21
 Legal Source / Case Key Point

Whish & Bailey, Ch. 13, p. 514–515, Recession cannot justify collusion; only restructuring
612 allowed

Recession often fosters cartel tendency; still

S.M. Dugar, p. 177–179
prohibited

BIDS Case (2008) Crisis cartel = violation of Art. 101(1)

ATMA Tyre Case (CCI, 2014) Recession not valid defense

OECD Guidelines (2009) Crisis cartels harmful to long-term recovery

Section 54, Competition Act, 2002 Govt may exempt in public interest (unused)

UNIT 7
WTO norms for investment

1. Introduction

The World Trade Organization (WTO), established in 1995, provides a global framework
for liberalizing trade and investment.
Although the WTO primarily governs trade in goods and services, several of its agreements
have direct and indirect implications for investment.

Investment and competition policy are closely linked — both aim to promote open, fair, and
non-discriminatory markets.
As Whish & Bailey note (Ch. 12, The International Dimension of Competition Law, p. 487–
489), globalization and liberalization have expanded the need for rules ensuring that
foreign investment does not distort competition.

2. WTO Agreements Influencing Investment

(A) The TRIMs Agreement (Trade-Related Investment Measures)

The Agreement on Trade-Related Investment Measures (TRIMs), annexed to the GATT

1994, is the principal WTO instrument dealing directly with investment-related measures.

Key Provisions:

 Article 2: Prohibits investment measures that are inconsistent with Articles III
(National Treatment) and XI (Elimination of Quantitative Restrictions) of GATT.
 Illustrative List: Prohibits measures such as:
o Local content requirements (forcing use of domestic goods),
o Trade-balancing requirements, and
o Foreign exchange restrictions linked to investment.

22
Objective: Ensure that foreign investors are not discriminated against and that host
countries do not impose measures that distort trade flows.

📖 S.M. Dugar (7th Ed., p. 128) notes that TRIMs “restrict discriminatory and trade-distorting
conditions attached to investment approvals,” promoting competition neutrality between
domestic and foreign enterprises.

(B) GATS (General Agreement on Trade in Services)

The GATS extends WTO principles to the services sector, covering Mode 3 – Commercial
Presence, which includes foreign direct investment (FDI).

Relevant Provisions:

 Article XVI (Market Access): Prevents members from restricting foreign service
suppliers.
 Article XVII (National Treatment): Requires equal treatment of domestic and
foreign service providers.

Thus, GATS indirectly regulates investment in services by ensuring fair competitive

opportunities for foreign firms.

(C) TRIPS (Trade-Related Aspects of Intellectual Property Rights)

While primarily focused on IP, the TRIPS Agreement (1995) affects investment by ensuring
protection of intellectual assets of foreign investors.

Example: Pharmaceutical or technology firms rely on TRIPS protections to safely invest in

developing countries.

3. WTO and Competition Policy Interface

The WTO Working Group on Trade and Investment (established during the Singapore
Ministerial, 1996) aimed to explore whether:

 Investment measures distort competition and trade,

 A multilateral investment framework was feasible.

However, due to resistance from developing countries, investment was dropped from the
Doha Development Agenda (2004).
Still, WTO principles indirectly influence investment-related competition conduct, such as:

23
  Abuse of dominance by multinational firms,
 State subsidies distorting competition, and
 Discriminatory market access barriers.

📖 Whish & Bailey (9th Ed., Ch. 12, p. 506–508) emphasize that “WTO liberalization and
competition law are complementary instruments promoting open markets.”

4. Relationship Between WTO, Investment, and Competition Law

WTO Instrument Investment Dimension Competition Implication

Restricts local content/trade Ensures level playing field for

TRIMs
balancing requirements foreign investors

Liberalizes foreign participation Prevents discriminatory licensing or

GATS
in service sectors access barriers

TRIPS Protects intellectual investments Prevents abuse of IP monopolies

Controls trade-distorting Prevents unfair state-aid or

SCM Agreement
subsidies protectionism

Agreement on Regulates domestic subsidies and Limits state-driven distortions in

Agriculture market access agricultural investment

5. Case References

1. Indonesia – Automobile Industry Case (1998)

o Facts: Indonesia’s local content requirement for car manufacturing favored
domestic inputs.
o Held: WTO held that it violated TRIMs and GATT Articles III & XI.
o Principle: Host countries cannot impose investment measures that distort trade
competition.
2. Canada – Foreign Investment Review Act (FIRA Case, 1983)
o Issue: Canada required performance-based commitments from foreign
investors.
o Held: GATT ruled such measures inconsistent with national treatment.
o Relevance: Early recognition that investment performance requirements
distort competition.
3. India – Quantitative Restrictions Case (1999)
o Finding: India’s restrictions on imports and foreign exchange measures were
inconsistent with WTO rules.
o Impact: Led to liberalization of Indian investment regime and modernization
of Competition Act, 2002.

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6. Indian Context

After joining the WTO in 1995, India aligned its domestic laws — especially on FDI and
competition — with WTO principles:

 New Industrial Policy (1991) liberalized foreign investment.

 Competition Act, 2002, enacted to prevent anti-competitive conduct by both
domestic and foreign investors.
 Section 32 – grants extraterritorial jurisdiction to the CCI over foreign entities
affecting Indian markets.
 Section 6 – regulates cross-border combinations and acquisitions.

📖 S.M. Dugar, p. 150–153: “The evolution of Indian competition law post-WTO reflects the
balancing of liberalization with protection against anti-competitive practices of global
investors.”

7. Interaction with OECD and UNCTAD

 OECD Guidelines for Multinational Enterprises encourage responsible investment

behavior and fair competition.
 UNCTAD’s Investment Policy Framework for Sustainable Development (2012)
integrates competition policy in investment regulation, complementing WTO norms.

8. Critical Evaluation

 WTO norms promote market liberalization but lack direct competition provisions.
 There is still no binding multilateral investment agreement under WTO.
 Developing countries fear that strict investment disciplines could limit policy space
for national development.
 Nonetheless, WTO norms have fostered greater transparency, reduced barriers,
and encouraged competition-compatible investment regimes globally.

9. Conclusion

The WTO framework shapes global investment patterns by ensuring non-discrimination,

transparency, and competition neutrality.
Through agreements like TRIMs, GATS, TRIPS, and SCM, it restricts protectionist
investment measures that distort trade.
In India, these principles are reflected in the Competition Act, 2002, which monitors
mergers, foreign investments, and cross-border anti-competitive conduct.

25
Thus, WTO norms, though not a direct investment code, have effectively laid the
groundwork for fair and competitive global investment practices.

OECD GUIDELINES IN INVESTMENT

Introduction

The Organisation for Economic Co-operation and Development (OECD) plays a key role
in promoting international cooperation and fair competition among its member countries.
The OECD Guidelines for Multinational Enterprises (MNEs), first adopted in 1976 and
last revised in 2011, provide voluntary principles and standards for responsible business
conduct.
These guidelines promote open, competitive, and transparent markets, ensuring that
investments do not distort competition or lead to anti-competitive practices.

Objective and Scope

The OECD Guidelines are part of the broader OECD Declaration on International
Investment and Multinational Enterprises.
Their objectives are:

 To encourage positive contributions by MNEs to economic, social, and

environmental progress.
 To ensure MNEs operate in harmony with competition policies of host countries.
 To provide a non-binding framework for responsible conduct consistent with
domestic and international laws.

OECD and Competition Policy

According to Whish & Bailey (Chapter 13: Internationalisation of Competition Law, pp. 507–
515), the OECD has:

 Encouraged harmonization of competition enforcement standards across nations.

 Advocated for strong sanctions against hard-core cartels and enhanced leniency
programs for whistleblowers.
 Supported international cooperation to address cross-border anti-competitive
practices, which often transcend national jurisdictions.

Relevant OECD Guidelines for Competition

The OECD Competition Committee has issued several reports and recommendations:

 OECD Recommendation on Hard-Core Cartels (1998) – urges members to

criminalize cartel conduct.

26
  OECD Guidelines for Fighting Bid Rigging in Public Procurement (2009) –
promotes transparency and integrity in public tenders.
 OECD Roundtables on Merger Remedies (2004) and Substantive Criteria in
Merger Assessment (2010) – emphasize best practices in merger control and
efficiency considerations (Whish & Bailey, pp. 823–824).
 OECD Guidelines on Corporate Governance and Competition – stress the need
for independence of competition authorities.

OECD Guidelines on Investment Conduct

The Investment Chapter of the OECD Guidelines instructs enterprises to:

 Refrain from entering into anti-competitive agreements or abusing dominant

positions (consistent with Articles 101 & 102 TFEU / Sections 3 & 4 of Competition
Act, 2002).
 Avoid collusion with competitors that could distort trade or investment.
 Respect host country competition law, and cooperate with regulatory authorities in
investigations.
 Promote transparency in mergers and acquisitions, ensuring fair disclosure and
competition-neutral practices.

Interaction between Investment and Competition

In investment policy, OECD ensures that:

 Foreign Direct Investment (FDI) operates under competitive neutrality – no undue

advantage to foreign or domestic firms.
 Competition advocacy is integrated into investment liberalization processes.
 Antitrust rules govern cross-border mergers to prevent monopolistic structures.
For instance, the GE/Honeywell Merger (2001) case illustrated the transatlantic
tension between EU and US competition approaches, a topic extensively discussed in
OECD Roundtables (Whish & Bailey, Ch. 20–21).

Indian Perspective (as per Dugar)

In S.M. Dugar (7th Ed., Chapter IX), the OECD principles indirectly guide India’s
investment policy:

 The Competition Commission of India (CCI) aligns its approach to international

standards recommended by the OECD.
 India, though not an OECD member, is an observer participant and integrates
OECD practices in reviewing FDI mergers and cross-border competition issues.
 Section 18 and Section 32 of the Competition Act, 2002 empower the CCI to address
effects doctrine and extraterritorial jurisdiction, consistent with OECD principles.

27
Case References

 GE/Honeywell Merger (EU–US, 2001): OECD’s merger assessment guidelines

cited as reference for evaluating cross-border effects.
 Microsoft Corp. v. Commission (2007): Demonstrated global convergence in abuse
of dominance principles encouraged by OECD cooperation.
 Intel Corp. Case (2009): Reflected OECD’s advocacy for fair market access and
consumer welfare in global investment practices.

Conclusion

The OECD Guidelines in Investment serve as a soft-law mechanism for promoting fair
competition, ethical conduct, and responsible investment.
By encouraging cooperation between competition authorities and investment regulators,
the OECD ensures that market liberalization aligns with competition principles.
Though non-binding, these guidelines have become normative standards influencing
global and Indian competition frameworks alike.

FDI POLICIES AND THEIR IMPACT ON COMPETITION IN THE DOMESTIC

MARKET

Introduction

Foreign Direct Investment (FDI) plays a crucial role in integrating domestic economies into
the global market. It promotes technology transfer, managerial skills, and international trade
linkages. However, FDI can also affect domestic competition — positively by enhancing
efficiency, and negatively by allowing foreign firms to gain dominant market positions.

According to Whish & Bailey (Ch. 13 & 21), investment liberalization must be accompanied
by strong competition policy to prevent concentration of economic power, cartelization, or
abuse of dominance by multinational enterprises (MNEs).

FDI Policy Framework in India

The FDI Policy in India is governed by:

 Foreign Exchange Management Act (FEMA), 1999

 Consolidated FDI Policy issued by the Department for Promotion of Industry and
Internal Trade (DPIIT)
 Competition Act, 2002 – ensures that FDI inflows do not cause Appreciable Adverse
Effect on Competition (AAEC).

28
FDI in India is permitted under:

 Automatic Route – no prior government approval.

 Government Route – prior approval required for sensitive sectors (defence, telecom,
etc.).

The Competition Commission of India (CCI) ensures that mergers and acquisitions
involving FDI comply with Sections 5 & 6 (Combinations) and do not distort competition.

Positive Impact of FDI on Competition

According to S.M. Dugar, Ch. IX (Investment and Competition):

1. Increased Market Efficiency: FDI enhances productivity by infusing technology,

innovation, and managerial expertise.
2. Consumer Benefits: Greater product variety and lower prices due to competition
between domestic and foreign players.
3. Employment and Infrastructure: FDI promotes employment, infrastructure
improvement, and supply chain development.
4. Competitive Neutrality: Promotes level playing field through transparent market
access.

Example:

 Entry of foreign e-commerce firms like Amazon and Walmart (Flipkart) brought
innovation and consumer benefits through price competition and logistics expansion.
 However, DPIIT’s 2018 FDI E-Commerce Guidelines prohibit inventory-based
models to prevent distortion of competition — ensuring that platforms like Amazon
act as intermediaries, not dominant retailers. (CCI observation in Flipkart–Amazon
case, 2020).

Negative Impact of FDI on Competition

1. Market Concentration and Dominance: Large foreign firms may acquire

significant market shares, driving out local competitors (abuse under Section 4,
Competition Act).
2. Predatory Pricing: MNCs may initially underprice products to eliminate small firms
— later increasing prices once competition is reduced.
o Example: Ola-Uber Case (ANI Technologies Pvt. Ltd., 2018) – Allegations
of predatory pricing through incentives and discounts.
3. Vertical and Horizontal Integration: Cross-border mergers may foreclose domestic
markets (review under Sections 5–6).
4. Dependence on Foreign Technology: Domestic industries risk losing autonomy in
critical sectors (e.g., telecom, defence).

29
CCI’s Role and Relevant Sections

 Section 18: Mandates CCI to eliminate anti-competitive practices, promote and

sustain competition, protect consumers, and ensure freedom of trade.
 Section 19(3): Lists factors for determining AAEC.
 Sections 5 & 6: Regulate mergers and acquisitions involving foreign firms
(threshold-based notification).
 Section 32: Grants extraterritorial jurisdiction — even foreign combinations affecting
Indian markets are reviewable.

Case References:

 Etihad Airways v. Jet Airways (Combination Case No. C-2013/05/122): CCI

approved FDI subject to conditions ensuring that the combination would not distort
competition in the Indian aviation sector.
 Walmart–Flipkart Deal (2018): CCI examined market concentration in online retail;
noted efficiencies outweighed anti-competitive risks.
 Jindal Steel & Power Ltd. v. SAIL (2011): Exclusive agreements in domestic
markets must not foreclose competition, even when foreign investment is involved.

Comparative Perspective (from Whish & Bailey)

 In the EU, FDI inflows are monitored under Articles 101 & 102 TFEU (agreements
and abuse of dominance) and EUMR (merger control).
 The US screens FDI for national interest and competition concerns through the Hart–
Scott–Rodino Act and CFIUS.
 The UK applies the Enterprise Act, 2002 – FDI subject to CMA review for
competition impact.

These systems reflect the global trend of integrating FDI screening with antitrust review to
balance openness and competition.

Policy and Judicial Trends in India

 The Raghavan Committee Report (2000) recommended synchronization between

FDI liberalization and competition enforcement.
 CCI regularly conducts market studies (e.g., ICT, agriculture, pharma) to monitor the
effects of FDI on domestic competition.
 India’s National Competition Policy also recognizes that trade, industrial, and FDI
policies must ensure “competitive neutrality.”

Conclusion

30
FDI can be both a catalyst for competition and a potential source of dominance.
The Competition Act, 2002, along with FDI policy and sectoral regulations, provides the
necessary checks to ensure that foreign investment strengthens, rather than suppresses,
domestic competition.

Thus, effective coordination between DPIIT (FDI regulator) and CCI (competition
watchdog) is essential to maintain a competitive, innovation-driven, and consumer-friendly
market structure.

✅ Summary Table

Aspect Positive Impact Negative Impact / CCI Concern

Entry of efficient global

Market Structure Market dominance of MNCs
firms

Consumer
Lower prices, better quality Price manipulation after dominance
Welfare

Technology Transfer of know-how Dependence on foreign tech

Promotes efficiency and Requires merger control & anti-abuse

Competition Law
choice vigilance

REGULATION OF FDI IN INDIA, USA, EU, UK, AND AUSTRALIA.

Introduction

Foreign Direct Investment (FDI) regulations determine how countries control foreign
participation in domestic markets while safeguarding national interests and competitive
structures.
Competition law plays a vital role in ensuring that FDI promotes efficiency and innovation
rather than leading to market dominance or anti-competitive behavior.

Each jurisdiction has developed a dual framework — one for investment screening and
another for competition regulation, often coordinated through merger control systems and
national security reviews.

FDI Regulation in India

Legal Framework:

 FEMA, 1999 and Consolidated FDI Policy (DPIIT) govern FDI.

 Competition Act, 2002, particularly Sections 5 & 6, regulates mergers and
acquisitions involving FDI (combinations likely to cause AAEC).

31
  Section 32 provides extraterritorial reach for foreign combinations affecting Indian
markets.
 Section 18 mandates the CCI to sustain competition and protect consumer interests.

Regulatory Authorities:

 DPIIT (under Ministry of Commerce)

 RBI – FEMA compliance
 CCI – merger and dominance review

Case Law:

 Jet–Etihad Airways (2013): CCI approved subject to non-control clauses ensuring

no adverse effect on competition.
 Walmart–Flipkart (2018): CCI evaluated market dominance and consumer welfare;
permitted under competitive neutrality.
 Bharti Airtel–Tata Teleservices (2019): FDI-backed merger approved on efficiency
grounds.

FDI Regulation in the United States

Key Laws:

 Hart–Scott–Rodino Antitrust Improvements Act (1976) – pre-merger notification.

 Clayton Act, 1914 (Section 7) – prohibits acquisitions substantially lessening
competition.
 Sherman Act, 1890 (Section 2) – prohibits monopolization.
 CFIUS (Committee on Foreign Investment in the United States) – reviews FDI for
national security.

Regulatory Authorities:

 Department of Justice (DOJ) and Federal Trade Commission (FTC) enforce

antitrust laws.
 CFIUS handles sensitive-sector FDI (e.g., defense, telecom).

Notable Cases:

 United States v. Microsoft Corp (253 F.3d 34, 2001) – technology dominance and
abuse.
 United States v. Grinnell Corp (384 U.S. 563) – market dominance principles in
mergers.

Key Principle:
The U.S. promotes open investment but blocks FDI that threatens competition or national
security.

32
FDI Regulation in the European Union

Legal Basis:

 Treaty on the Functioning of the EU (TFEU):

o Article 101 – prohibits anti-competitive agreements.
o Article 102 – prohibits abuse of dominance.
o Articles 107–109 – control state aid.
 EU Merger Regulation (EUMR, Regulation 139/2004) – applies to concentrations
with a “Community dimension.”
 Foreign Direct Investment Screening Regulation (EU) 2019/452 – enables member
states to review FDI for security and public order concerns.

Regulatory Body:

 European Commission (DG Competition) – merger review.

 National competition authorities coordinate through the European Competition
Network (ECN).

Cases:

 GE/Honeywell Merger (2001): EU blocked merger despite U.S. approval; showed

EU’s independent merger control.
 Wood Pulp Case (1984): affirmed EU’s jurisdiction under the implementation
doctrine (cross-border impact rule).

FDI Regulation in the United Kingdom

Post-Brexit Framework:

 Enterprise Act, 2002 governs merger control (Part 3).

 National Security and Investment Act, 2021 (NSI Act) – regulates foreign
takeovers affecting national interests.
 Competition and Markets Authority (CMA) – oversees merger and competition
reviews.

Key Concepts:

 CMA uses the substantial lessening of competition (SLC) test.

 NSI Act introduces mandatory notification for FDI in sensitive sectors (energy,
data, defence, etc.).

Case Example:

 NVIDIA–Arm Merger (2022): Blocked by CMA over potential harm to innovation

and market fairness.

33
FDI Regulation in Australia

Legal Framework:

 Foreign Acquisitions and Takeovers Act (FATA), 1975 – governs foreign

investments.
 Competition and Consumer Act, 2010 – enforces competition policy through
Australian Competition and Consumer Commission (ACCC).

Key Regulatory Authorities:

 Foreign Investment Review Board (FIRB) – screens investments based on “national

interest” test.
 ACCC – assesses competition implications.

Case Reference:

 Vodafone–TPG Merger (2020): ACCC opposed, fearing reduced competition;

Federal Court overturned, allowing merger citing efficiency and market strength.

Comparative Overview
Main Competition FDI Competition
Jurisdiction Screening Test
Law Regulator Regulator

India Competition Act, 2002 DPIIT, RBI CCI AAEC (Sections 5–6)

Clayton Act, Sherman Substantial Lessening

USA CFIUS FTC/DOJ
Act of Competition

TFEU + EUMR Member Community Dimension

EU EC DG Comp
139/2004 States Test

Enterprise Act, 2002 + BEIS SLC + National

UK CMA
NSI Act, 2021 Secretary Security

Australia FATA, 1975 FIRB ACCC National Interest Test

Key Provisions and Doctrines (from Whish & Bailey and Dugar)

 Effects Doctrine (EU & India): FDI transactions affecting domestic markets are
reviewable.
 Comity Principle: Jurisdictions cooperate to avoid overlapping enforcement.
 Section 32, Competition Act (India): Extraterritorial jurisdiction.
 EUMR, Art. 1(2): EU jurisdiction if turnover thresholds met.
 CFIUS and NSI Acts: Reflect national security overlay in competition reviews.

34
Conclusion

While the objectives of FDI regulation differ (security vs economic efficiency), modern
jurisdictions ensure coherence between investment policy and competition law.

 India aligns its policy with OECD and WTO investment principles.
 USA & UK emphasize security and fair competition.
 EU & Australia integrate national interest and consumer welfare into their review
systems.

Thus, effective FDI regulation requires balancing openness to investment with protection of
competitive market structures — a principle central to all these jurisdictions and reflected
in S.M. Dugar and Whish & Bailey.

UNIT 6
THEORETICAL BASIS OF IPR AND COMPETITION LAW

Introduction

The relationship between Intellectual Property Rights (IPR) and Competition Law
represents a classic “conflict and complementarity” dynamic.
While IPR law grants exclusive rights to innovators as a reward for creativity and
investment, Competition Law seeks to prevent monopolistic behavior and maintain market
fairness.

As noted by S.M. Dugar (7th Ed., p. 149),

“Intellectual Property provides exclusive rights to the holder, but this does not include the
right to exert restrictive or monopoly power in a market.”

Thus, both regimes pursue innovation and consumer welfare, but their methods and
instruments differ.

Theoretical Foundations

Theoretical foundations of IPR–Competition Law interaction arise from economic and legal
rationales:

a) Innovation-Incentive Theory

35
  IPR creates temporary monopolies as incentives for innovation and creative effort.
 Competition law complements this by preventing abuse of such monopoly and
ensuring dynamic efficiency (continued innovation).
 Example: Patents encourage R&D investment, but excessive control over licensing
may restrict future innovation.

b) Consumer Welfare and Market Efficiency Theory

 Both IPR and Competition Law aim to enhance consumer welfare:

o IPR rewards innovators → more innovation and variety.
o Competition Law ensures efficient pricing and market entry.
 Whish & Bailey (Ch. 19 – Technology Transfer Agreements) note that while IPRs
restrict competition ex ante, they promote greater competition ex post through
innovation.

c) Balance of Rights and Regulation

 The existence of IPRs is lawful; the exercise of these rights may attract competition
scrutiny.
 This distinction — existence vs. exercise — is central to resolving the theoretical
tension (Dugar, p. 150).

Areas of Intersection Between IPR and Competition Law

IPR Regime Competition Concern Relevant Section/Provision

Patents Refusal to license, excessive pricing Section 4 (Abuse of Dominance)

Copyright Exclusive distribution agreements Section 3(4)(c), 3(4)(d)

Trademarks Market foreclosure through branding Section 19(3) factors

Technology Licensing Tie-in or restrictive clauses Section 3(5) – Exemption clause

Legal Framework in India

a) Competition Act, 2002

 Section 3(5): Allows IPR holders to impose reasonable restrictions necessary to

protect their rights.
But the exemption is not absolute — conditions must be reasonable and
proportionate.
 Section 4: Prohibits abuse of dominant position — applicable to IPR owners if they
use their rights to unfairly exclude competitors.

b) Patent and Copyright Laws

36
  Grant exclusive rights over invention, artistic, or literary work.
 However, both recognize compulsory licensing or fair use, which align with
competition objectives.

Key Case Laws

1. Shamsher Kataria v. Honda Siel Cars India Ltd. (2014)

o OEMs claimed IPR exemption under Section 3(5).
o CCI held: Restrictive agreements with component suppliers were not
reasonable conditions necessary for IPR protection.
o Established that IPR cannot be a shield for anti-competitive conduct.
2. Telefonaktiebolaget LM Ericsson v. CCI (2016, Delhi HC)
o Ericsson argued patent rights exempted them from CCI scrutiny.
o Court held: No irreconcilable conflict between Patents Act and Competition
Act — CCI can intervene against abuse of patent dominance.
3. FICCI–Multiplex Association v. UPDF (2011)
o Film producers’ collective decision to restrict film release under copyright
claim held cartel-like behavior under Section 3(3).
o CCI affirmed its jurisdiction over IPR-linked restraints.
4. Bayer v. Union of India (2013)
o Compulsory licensing of life-saving drug justified on grounds of public
interest and anti-competitive pricing.

Global Theoretical Approach

 EU:
Articles 101 and 102 TFEU regulate IPR licensing and abuse.
Regulation 772/2004 (Technology Transfer Block Exemption) ensures that
technology agreements do not restrict competition disproportionately.
(Whish & Bailey, pp. 781–791)
 USA:
The Sherman Act, 1890 and Clayton Act, 1914 apply to anti-competitive licensing
or patent pooling.
Doctrine of “patent misuse” prevents IPR holders from extending monopolies
beyond intended scope.

Theoretical Conflict and Reconciliation

Competition Law
Aspect IPR Perspective
Perspective

Purpose Reward innovation Preserve market competition

Approach Monopoly incentive Market discipline

37
 Competition Law
Aspect IPR Perspective
Perspective

Duration Temporary exclusivity Continuous regulation

Economic Focus Dynamic efficiency (innovation) Static efficiency (allocation)

Policy Reasonable exercise of IPR under Prevent abuse under Section

Reconciliation Section 3(5) 4

The two systems thus complement each other — IPR spurs innovation, and competition law
ensures it benefits the market.

Judicial and Policy Interpretation

 Raghavan Committee Report (2000) – Recognized the need for balance between
encouragement of innovation and prevention of abuse.
 Dugar (p. 152): Notes that competition law “must not attack the right itself but its
exercise, when exercised in a manner detrimental to market competition or consumer
welfare.”

Conclusion

The theoretical basis of IPR and Competition Law lies in achieving synergy between
innovation and competition.
While IPR provides a temporary monopoly as a reward for creativity, Competition Law
ensures that such exclusivity is not abused.

Both aim for consumer welfare — IPR by fostering creativity and Competition Law by
preserving market access and choice.

Therefore, the key is harmonious coexistence:

Protect the inventor, but not the invention’s misuse.

✅ Summary Table

Theory IPR Focus Competition Focus Illustration

Prevent abuse of
Incentive Theory Reward innovation Patent licensing
monopoly

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 Theory IPR Focus Competition Focus Illustration

Consumer Welfare
Promote new products Prevent price fixing Pharma sector
Theory

Allow protection but not Curb unreasonable Shamsher Kataria

Balance of Rights
foreclosure restraints Case

TRIPS AND ITS IMPACT ON COMPETITION LAW REGIME

Introduction

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs),

concluded in 1994 as part of the Marrakesh Agreement establishing the World Trade
Organization (WTO), was a landmark in harmonizing intellectual property (IP) protection
globally.

TRIPs links IP protection with international trade and competition, ensuring that IPRs are
not abused to distort competition or restrict trade.

According to S.M. Dugar (7th Ed., p. 155) and Whish & Bailey (Ch. 19, “Technology
Transfer Agreements”), TRIPs recognizes that while intellectual property is essential for
innovation, excessive protection can lead to monopolistic abuses that undermine fair
competition.

Objectives of the TRIPs Agreement

TRIPs aims to:

 Set minimum standards for IPR protection across WTO members.

 Promote technological innovation and transfer of technology.
 Prevent abuse of IPRs that hinder trade and competition.
 Ensure balance between IPR protection and public interest, including access to
essential goods like medicines.

Article 7 (Objectives):

“The protection and enforcement of IPRs should contribute to the promotion of technological
innovation and to the transfer and dissemination of technology, to the mutual advantage of
producers and users, in a manner conducive to social and economic welfare.”

Article 8 (Principles):

Allows member countries to adopt measures necessary to prevent the abuse of IPRs by right-
holders and practices that adversely affect competition.

39
TRIPs Provisions Relevant to Competition Law

Article Provision Competition Relevance

Art. 7 & Balance between IPR protection and

Basis for competition intervention
8 competition/public interest

Art. 31 Compulsory Licensing Prevents abuse of patent monopoly

Control of Anti-Competitive Licensing Recognizes states’ rights to regulate anti-

Art. 40
Practices competitive agreements and practices

Art. Technology Transfer to Developing

Ensures equitable access to technology
66(2) Countries

Article 40: Anti-Competitive Licensing Practices

This article forms the core link between TRIPs and competition law.

Article 40(1):

Recognizes that certain licensing practices or conditions pertaining to IPRs may restrain
competition and have adverse effects on trade and transfer of technology.

Examples of restrictive licensing practices:

 Exclusive grant-back clauses

 Refusal to license
 Tie-in arrangements
 Territorial restrictions
 Price-fixing or output restrictions

Article 40(2):
Allows members to control or prohibit such practices through national competition laws and
to consult and cooperate with other WTO members in enforcement.

(Whish & Bailey, p. 782–784: TRIPs legitimizes the application of competition rules to IPR-
related restraints in technology markets.)

Impact of TRIPs on Competition Law Regime

(a) In India

 India amended its Patents Act, 1970 (via 2005 Amendment) to comply with TRIPs
— introducing product patents and compulsory licensing (Section 84).

40
  The Competition Act, 2002 was enacted with Sections 3(5) and 4 balancing IPR
protection with anti-monopoly principles.

Section 3(5):

Exempts reasonable restrictions imposed for protecting IPRs from the purview of anti-
competitive agreements, provided such conditions are necessary for IPR protection.

Section 4:

Applies to the abuse of dominant position — even when dominance arises from IPR
ownership.

Thus, TRIPs influenced Indian law to adopt a “coexistence model” — respecting IPR while
controlling anti-competitive behavior.

(b) In Other Jurisdictions

 EU: Uses Articles 101 & 102 TFEU and the Technology Transfer Block
Exemption Regulation (TTBER) to regulate IP licensing consistent with TRIPs Art.
40.
 USA: Applies Sherman Act (1890) and Clayton Act (1914) to patent misuse,
ensuring consistency with TRIPs competition provisions.

Judicial and Policy Illustrations (India)

1. Shamsher Kataria v. Honda Siel Cars India Ltd. (2014)

o CCI held that restrictive licensing and refusal to supply spare parts by OEMs
violated Sections 3(4) & 4 despite IPR claims.
o Established that TRIPs-consistent IP protection cannot justify anti-competitive
restraints.
2. Telefonaktiebolaget LM Ericsson v. CCI (2016)
o Allegation: Abuse of patent rights via discriminatory licensing and excessive
royalty rates (SEPs).
o Delhi HC recognized that CCI can intervene in IPR misuse consistent with
TRIPs Article 40 principles.
3. Bayer Corporation v. Union of India (2013)
o First compulsory license under Section 84, Patents Act.
o Grounded in TRIPs Article 31 — ensuring public access and curbing
excessive pricing.
o Reinforced that patent monopoly must serve public welfare.
4. Novartis AG v. Union of India (2013)
o Indian Supreme Court denied patent on “evergreening” drugs, aligning TRIPs
flexibility with competition and public health goals.

Positive Impacts of TRIPs on Competition Law

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Impact Explanation

Standardized IP protection systems globally, aiding cross-

Global Harmonization
border enforcement.

Recognition of Competition Articles 8 & 40 acknowledge need to control anti-

Principles competitive licensing.

Flexibility for Developing TRIPs permits measures like compulsory licensing for
Nations public interest.

Stimulus to National Encouraged creation of balanced regimes like India’s

Legislation Competition Act, 2002.

Challenges and Critiques

1. Monopoly Strengthening: Strong IPR protection under TRIPs may enhance

dominance of MNCs.
2. Developing Country Disadvantage: Implementation cost and weaker domestic
competition authorities.
3. Interpretation Ambiguity: “Reasonable” restrictions under Section 3(5) often
litigated.
4. Technology Transfer Gap: Developed nations often fail to fulfill Article 66(2)
obligations.

Synergy Between TRIPs and Competition Law

TRIPs Objective Competition Law Objective Common Outcome

Protect innovation Prevent market abuse Consumer welfare

Grant exclusivity Regulate exclusivity Fair trade & innovation

Encourage R&D Prevent entry barriers Efficient markets

Both systems thus complement each other — TRIPs encourages innovation, while
Competition Law ensures its benefits reach society.

Conclusion

The TRIPs Agreement represents a crucial bridge between intellectual property protection
and competition regulation.
It embeds competition safeguards within international IP law through Articles 8, 31, and
40, empowering nations to check IPR abuse and preserve consumer welfare.

42
In India, this synergy is reflected in the Patents Act (Sections 84–92) and the Competition
Act (Sections 3(5) & 4) — ensuring that innovation is rewarded but not monopolized.

As Whish & Bailey emphasize, TRIPs does not replace competition law — it reinforces its
necessity in a global IP-driven economy.

✅ Key References

 S.M. Dugar, Guide to Competition Law (7th Ed.), pp. 155–157 – TRIPs, Section
3(5) exemptions, IPR–competition interface.
 Richard Whish & David Bailey, Competition Law (OUP, 9th Ed.), Ch. 19 –
Technology Transfer Agreements and TRIPs Articles 8 & 40.
 Landmark Cases: Shamsher Kataria (2014), Ericsson (2016), Bayer (2013),
Novartis (2013).

ABUSE OF IPR AND COMPETITION LAW (AGREEMENTS, DOMINANCE &

COMBINATIONS)

Introduction

Intellectual Property Rights (IPRs) grant exclusive rights to inventors and creators as an
incentive for innovation.
However, excessive exercise or misuse of such rights can harm competition, restrict market
entry, or exploit consumers.

Thus, Competition Law, primarily under the Competition Act, 2002, intervenes to prevent
abuse of IPR, ensuring that innovation benefits the market and public welfare.

S.M. Dugar (7th Ed., p. 158) notes:

“Competition law does not attack the existence of IPRs but their abusive exercise that
adversely affects market freedom.”

Legal Framework in India

Relevant Provision
Aspect (Competition Act, Key Purpose
2002)

Allows reasonable restrictions necessary for

Agreements Section 3(5) protecting IPRs but prohibits anti-competitive
licensing.

43
 Relevant Provision
Aspect (Competition Act, Key Purpose
2002)

Dominant Prohibits abuse of dominance by IPR holders

Section 4
Position (e.g., unfair pricing, refusal to license).

Regulates mergers/acquisitions involving IPR

Combinations Sections 5 & 6 assets that may cause an AAEC (Appreciable
Adverse Effect on Competition).

Extraterritorial Applies to IPR-related conduct outside India that

Section 32
Effect affects domestic markets.

IPR and Anti-Competitive Agreements

Section 3(5), Competition Act, 2002:

Exempts agreements that impose “reasonable conditions” necessary for IPR protection.

However, this exemption does not cover unreasonable restraints such as:

 Tie-in arrangements
 Exclusive supply/distribution
 Refusal to deal
 Price-fixing in licensing agreements

These may constitute violations of Section 3(4) (vertical restraints) or Section 3(3)
(horizontal agreements).

Important Cases

1. Shamsher Kataria v. Honda Siel Cars India Ltd. (2014)

o Car manufacturers restricted sale of spare parts and diagnostic tools using IPR
claims.
o CCI held: Such restrictions were unreasonable and anti-competitive under
Sections 3(4) and 4.
o Landmark decision interpreting Section 3(5) limits.
2. FICCI–Multiplex Association v. United Producers/Distributors Forum (2011)
o Film producers collectively withheld new films under copyright claim.
o Held: Copyright cannot justify cartel-like behavior; found in contravention of
Section 3(3).
3. HT Media Ltd. v. Super Cassettes Industries (2011)
o Dispute over music licensing.
o CCI emphasized that refusal to license or imposing discriminatory terms
violates competition principles.

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4️⃣ IPR and Abuse of Dominant Position

Section 4, Competition Act, 2002 prohibits abuse of dominant position, including by IPR
holders.

Forms of Abuse (Section 4(2)):

 Unfair/discriminatory conditions or prices

 Limiting production or technical development
 Denial of market access
 Predatory pricing
 Leveraging dominance in one market to enter another

Key Cases

1. Telefonaktiebolaget LM Ericsson v. CCI (2016)

o Ericsson accused of charging excessive royalties on Standard Essential Patents
(SEPs) for mobile technology.
o CCI held: Refusal to license on FRAND (Fair, Reasonable, Non-
Discriminatory) terms = abuse of dominance under Section 4(2).
o Delhi HC upheld CCI’s jurisdiction, consistent with TRIPs Article 40.
2. Bayer Corporation v. Union of India (2013)
o Compulsory license issued under Section 84, Patents Act, 1970 for life-
saving drug Nexavar.
o Ground: Excessive pricing and non-working of the patent.
o Reinforced that monopoly must yield to public interest — aligned with
Competition Act’s consumer welfare objective.
3. Google India Pvt. Ltd. v. CCI (2018)
o Alleged abuse in online advertising and search algorithms.
o CCI found exclusionary and self-preferencing conduct violating Section 4(2)
(a)(i).
o Demonstrated that digital platforms can abuse IPR-backed dominance.

5️⃣ IPR and Combinations (Mergers and Acquisitions)

IPR portfolios are often core assets in mergers, acquisitions, or joint ventures.
Sections 5 and 6 of the Competition Act regulate combinations that may cause AAEC in
India.

Key Concepts

 Combination thresholds: Section 5(a)–(c) (based on assets/turnover).

 Section 6(1): Prohibits combinations that cause or are likely to cause AAEC.
 Section 31: CCI may approve, modify, or prohibit combinations.

Case Examples

1. Sun Pharma–Ranbaxy (2014)

45
 o Combination examined under Sections 5 & 6 for overlap in generic
pharmaceuticals.
o CCI approved with divestiture of overlapping products to prevent market
foreclosure.
2. Holcim–Lafarge (2015)
o Global merger; CCI imposed conditions to prevent concentration in cement
markets.
o Established that IPR-rich sectors (like pharmaceuticals or tech) require pre-
approval for M&A.
3. Walmart–Flipkart (2018)
o Involved acquisition of e-commerce platform with vast data/IPR assets.
o CCI analyzed competitive effects on digital markets and consumer choice
before approval.

Abuse Typology: Exploitative vs. Exclusionary

Type Definition (from Dugar & EU practice) Example (India)

Using dominance to exploit customers via

Exploitative
excessive pricing, unfair licensing, or restrictive Ericsson SEP Case
Abuse
clauses.

Exclusionary Practices excluding rivals, restricting access, or Shamsher Kataria Case,

Abuse leveraging dominance in adjacent markets. Google Search Case

Whish & Bailey explain that “abuse of IPR is often exclusionary rather than exploitative —
aimed at deterring competitors from entering the market.”

Comparative International Perspective

Jurisdiction Legal Basis Approach

Articles 101 & 102 TFEU; Controls anti-competitive licensing and abuse
EU
TTBER Regulation 772/2004 of IP-related dominance.

Addresses patent misuse, tying, and

Sherman Act (1890), Clayton
USA monopolization (e.g., Microsoft, Kodak
Act (1914)
cases).

India Competition Act, 2002 (Sections Balances IPR protection with competition;

46
Jurisdiction Legal Basis Approach

3, 4, 5–6) aligns with TRIPs Articles 7, 8, 40.

Role of CCI and Policy Framework

 Section 18: Empowers CCI to promote competition and protect consumer interests.
 Section 27: Enables CCI to issue “cease and desist” orders, impose fines, and direct
modifications.
 Section 28: Allows division of enterprise if dominance abused (e.g., Dugar, p. 42).

Policy Support:

 Raghavan Committee Report (2000): Recommended a balanced approach to IPR–

Competition conflicts.
 National IPR Policy (2016): Stresses harmony between innovation incentives and
competitive markets.

Conclusion

The abuse of IPR represents a critical area where competition law intervenes to prevent
monopoly abuse while preserving incentives for innovation.

 Agreements (Section 3): Only reasonable IPR conditions are exempt.

 Dominance (Section 4): IPR-based dominance cannot justify exploitative or
exclusionary conduct.
 Combinations (Sections 5–6): M&A involving IPRs must not cause AAEC.

As per Dugar (p. 160):

“Competition policy must protect IPRs as a tool for innovation but not permit them to
become weapons of market exclusion.”

Thus, Indian law, aligned with TRIPs Articles 7, 8, and 40, ensures that IPR protection and
competition enforcement operate in synergy, not in conflict.

✅ Quick Summary Table

Aspect Provision Key Case Impact

Anti-competitive Restrictive licensing not

Sec. 3(5) Shamsher Kataria
agreements protected

IPR cannot justify excessive

Abuse of dominance Sec. 4 Ericsson, Bayer
pricing

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 Aspect Provision Key Case Impact

Sun Pharma–Ranbaxy, IPR mergers under AAEC

Combinations Secs. 5–6
Holcim–Lafarge review

Secs. 27– CCI may penalize or divide

Enforcement —
28 enterprises

MODERN TRENDS TO THE CONFLICT IN IPR AND COMPETITION LAW

Introduction

The interaction between Intellectual Property Rights (IPR) and Competition Law has
evolved from conflict to co-existence.
Earlier, IPR was viewed as creating legal monopolies, while competition law sought to
break monopolies.
Today, both are understood as complementary regimes—IPR encourages innovation, and
competition law ensures those innovations benefit society.

📖 S.M. Dugar (7th Ed., p. 165):

“Modern competition policy recognizes that the grant of intellectual property does not confer
the right to abuse it; the conflict lies not in the existence but in the exercise of such rights.”

Classical conflict

The classical conflict manifests in several practical areas where the exercise of IPR overlaps
with market regulation:

1. Restrictive Licensing and Refusal to Deal:

IPR owners sometimes impose restrictive conditions in technology or patent licenses
— for example, preventing licensees from using competing technologies or refusing
to license altogether.
Such conduct may be justified under patent law but can violate Section 3(4) or
Section 4 of the Competition Act, 2002 if it forecloses market entry.
The case of Shamsher Kataria v. Honda Siel Cars India Ltd. (2014) illustrates this —
where automobile companies refused to supply spare parts to independent repairers
citing IPR, and the CCI held such conduct as anti-competitive.
2. Price Discrimination and Excessive Royalties:
Patent holders sometimes charge discriminatory or excessive royalties for access to
essential technologies, exploiting their dominant position.
This can harm downstream competitors and consumers, leading to intervention under
competition law.
For example, in Telefonaktiebolaget LM Ericsson v. CCI (2016), the CCI found that
unfair royalty demands on Standard Essential Patents (SEPs) violated Section 4(2)
(abuse of dominance).

48
 3. Tie-in and Exclusive Dealing Clauses:
IPR owners may require licensees to purchase complementary products or
technologies exclusively from them, known as tie-in arrangements.
Such clauses may be lawful under IP contracts but anti-competitive if they foreclose
rival suppliers, as seen in cases of vertical restraints under Section 3(4).
4. Technology Lock-in and Market Entry Barriers:
IPR-driven industries, especially in digital and software markets, often create lock-in
effects, where consumers or competitors are unable to switch to alternative
technologies.
This restricts market rivalry and innovation.
The Google Android Case (CCI, 2023) exemplifies this — Google used licensing
conditions to pre-install its own apps, restricting competing platforms.

Modern Trends Resolving the Conflict

Modern jurisprudence and policy reforms have moved from “conflict” to “coordination”
through several trends:

(A) Recognition of Complementarity

 IPR and competition are now viewed as two pillars of innovation policy.
 Competition authorities increasingly acknowledge that temporary monopoly is
essential to incentivize R&D.
 Courts adopt a “rule of reason” approach — examining whether IPR restrictions are
necessary or excessive.

Whish & Bailey, Ch. 19, p. 780:

“Modern competition analysis avoids automatic condemnation of IPR exclusivity; it
examines its proportionality and effects.”

(B) Incorporation of Competition Clauses in IPR Laws

 Patents Act 1970 – Sections 84 & 90: Compulsory licensing for non-working or
unreasonable pricing.
 Trade Marks Act 1999 – Section 30(3)-(4): Exhaustion doctrine prevents post-sale
control.
 Copyright Act 1957 – Section 31: Statutory licensing for public interest.
These provisions align with Articles 7, 8 & 40 of TRIPs, balancing IPR and
competition.

(C) Judicial Convergence: IPR Abuse under Competition Law

1. Shamsher Kataria v. Honda Siel (2014)

o OEMs restricted spare-part supply citing IPR.

49
 o CCI held: Restrictions unreasonable under §3(4); IPR exemption under §3(5)
not absolute.
2. Telefonaktiebolaget LM Ericsson v. CCI (2016)
o SEP licensing on unfair terms = abuse of dominance (§4).
o Delhi HC: Competition Act can coexist with Patent Act; consistent with
TRIPs Art. 40.
3. Bayer v. Union of India (2013)
o Compulsory license for life-saving drug Nexavar; justified to check excessive
pricing.
o Reflected public-interest control over patent monopoly.
4. Google LLC (Android Case, CCI 2023)
o Abuse of dominance through restrictive licensing and app bundling; heavy
penalty imposed.
o Demonstrates digital-era IPR conflicts — platform control vs. competition.

(D) Emergence of “Technology Market” Analysis

Competition authorities worldwide now treat technology licensing as a separate market:

 Assessing cross-licensing, patent pooling, and FRAND obligations.

 EU’s Technology Transfer Block Exemption Regulation (772/2004) allows
efficiency-enhancing collaborations but bans hard-core restrictions.
 CCI follows a similar effects-based approach under §19(3).

(E) Globalization & TRIPs Influence

 TRIPs Art. 8 & 40 empower members to control anti-competitive IP practices.

 Countries integrate competition norms in IP regimes—e.g., India, EU, USA.
 Promotes global consistency between innovation incentives and consumer welfare.

(F) Digital Economy & Data Monopolies

 Modern conflicts arise less from patents and more from data control, algorithms,
and platform ecosystems.
 Authorities examine:
o Self-preferencing (Google).
o Data exclusivity (Facebook/Meta cases).
o Network effects limiting market entry.
 IPR + Data = New Market Power.

Whish & Bailey, Ch. 22: “Competition law now faces hybrid monopolies—where IP
exclusivity, data control, and platform scale intersect.”

50
(G) Coordination between Agencies

 CCI cooperates with IP offices and sectoral regulators.

 Section 21 & 21A, Competition Act – mechanism for reference and consultation to
avoid conflict between CCI and other authorities (e.g., Controller of Patents).
 Promotes policy harmonization rather than jurisdictional overlap.

(H) Public Interest and Access to Essential Technologies

 Trend toward compulsory licensing and open standards for health, environment,
and digital infrastructure.
 Examples:
o COVID-19 vaccine patent-waiver debates (TRIPs Waiver 2022).
o Open-source software and interoperability standards in IT markets.

4️⃣ Comparative Modern Trends

Jurisdiction Modern Trend / Approach Illustration

Effects-based analysis under Arts 101 & Microsoft (2007) – compulsory

EU
102; TTBER (772/2004) interoperability

Patent-misuse doctrine; FRAND

USA FTC v. Qualcomm (2020)
enforcement

TRIPs-compliant balance; §3(5), §4, §5-6

India Ericsson, Google 2023
Competition Act

OECD / Advocate soft-law cooperation and OECD Competition Roundtable

UNCTAD capacity building (2021)

5️⃣ Current Policy Perspective in India

 National IPR Policy (2016): Harmonizes IPR and competition enforcement.

 Raghavan Committee (2000): Urged convergence to ensure innovation doesn’t
create anti-competitive barriers.
 CCI Market Studies (2019–2023): Examine digital markets, pharma, e-commerce
for IPR-related dominance.

6️⃣ Conclusion

51
The conflict between IPR and Competition Law has transformed into a relationship of
balance and cooperation.
Modern trends show that:

 IPR grants reward, not market power immunity.

 Competition Law regulates exercise, not existence, of IPR.
 The focus is now on innovation + consumer welfare, not mere monopoly control.

📘 Dugar (p. 167): “The modern approach is to harmonize exclusivity with accessibility so
that the inventor’s reward coexists with society’s right to competition.

UNIT 4

COMBINATIONS: CONCEPT, FORMS, REASONS, AND REGULATORY

FRAMEWORK IN INDIA.

1️⃣ Introduction

The term combination in competition law refers to mergers, amalgamations, and acquisitions
that bring together enterprises, assets, or control in a manner that may influence competition
within a market.
While combinations often serve as a legitimate means of achieving business efficiency and
growth, they can also lead to excessive concentration of economic power or creation of
monopolistic structures.
The Competition Act, 2002 regulates such transactions to prevent those that are likely to
have an Appreciable Adverse Effect on Competition (AAEC) in India.
According to S.M. Dugar (7th Ed., p. 210), “combination control ensures that industrial
consolidation promotes efficiency and innovation without impairing market
competitiveness.”

2️⃣ Concept of Combination

Under Section 5 of the Competition Act, 2002, a combination includes acquisition of

control, shares, voting rights, or assets; acquisition of control over another enterprise engaged
in similar or related business; and mergers or amalgamations meeting specific financial

52
thresholds.
In essence, any transaction that substantially alters the market structure by joining enterprises
or their assets is a combination under Indian law.
Whish & Bailey (p. 210) explain that merger control does not prohibit corporate consolidation
itself but regulates its effect on market competition.

3️⃣ Forms of Combinations

1️⃣ Horizontal Combinations

Meaning:
A horizontal combination occurs between enterprises that operate at the same level of the
production or distribution chain and produce or sell similar goods or services.
These mergers are often driven by the desire to achieve economies of scale, cost reduction,
and increased market share.

However, since such firms are direct competitors, horizontal combinations can significantly
reduce market competition by increasing concentration or creating dominant players.

Example – Sun Pharma–Ranbaxy Merger (2014)

This is one of India’s most notable horizontal mergers.
In this case, Sun Pharmaceutical Industries Ltd. proposed to acquire Ranbaxy
Laboratories Ltd., both of which were leading manufacturers of generic medicines in India.
The Competition Commission of India (CCI) examined the merger under Sections 5 and 6
of the Competition Act, 2002, focusing on overlaps in several product markets within the
pharmaceutical sector.

Findings:

 The merger was found likely to result in high market concentration in certain
therapeutic areas (e.g., cardiac and gastroenterology segments).
 To prevent an Appreciable Adverse Effect on Competition (AAEC), the CCI directed
the parties to divest seven overlapping drug brands to other firms before granting
approval.

Significance:
This case demonstrated the CCI’s “structural remedy approach”, ensuring efficiency gains
while preserving market competition.
It also established India’s capability to handle complex horizontal mergers comparable to
global antitrust authorities like the EU Commission.

2️⃣ Vertical Combinations

Meaning:
A vertical combination occurs between enterprises at different stages of production or
distribution in the same industry.

53
For instance, it may involve a manufacturer acquiring a supplier of raw materials or a
distributor of finished goods.
Vertical mergers can promote supply-chain efficiency and reduce transaction costs, but
they may also lead to market foreclosure, restricting competitors’ access to essential inputs
or distribution channels.

Example – Holcim–Lafarge Merger (2015)

This was one of the world’s largest mergers in the cement industry, involving global cement
giants Holcim Ltd. and Lafarge S.A.
In India, both companies had substantial presence in the cement market through subsidiaries
such as ACC, Ambuja, and Lafarge India.

CCI’s Analysis:

 The CCI examined the overlap in cement production and distribution across several
Indian states.
 Although largely horizontal globally, the merger had vertical elements in terms of
cement manufacturing and supply-chain integration.
 The Commission observed a risk of reduced inter-brand competition and potential
foreclosure in certain regions.

Decision:

 The merger was approved conditionally after the parties agreed to divest Lafarge’s
cement assets in eastern India (including plants and limestone mines).
 The remedy ensured the entry of new competitors and maintained regional
competition.

Significance:
This was the first Phase-II investigation by the CCI, showing its maturity in assessing both
horizontal and vertical aspects of global mergers affecting Indian markets.

3️⃣ Conglomerate Combinations

Meaning:
A conglomerate combination involves a merger between enterprises that operate in
unrelated or distinct lines of business.
Such combinations are generally pursued for diversification, financial synergy, or portfolio
expansion, rather than to eliminate competition.
While they rarely lead to direct anti-competitive concerns, they may raise issues of
leveraging market power from one sector to another or creating barriers for new entrants.

Example 1 – Tata–Corus Merger (2007)

The Tata Steel Limited acquisition of Corus Group plc (a UK-based steel manufacturer) is
a classic example of a conglomerate merger.
The two operated in different geographical markets, with Tata dominating India and Corus in
Europe.
The merger was aimed at global expansion, access to advanced technology, and brand

54
reputation.
Since there was minimal overlap in their product and geographic markets, no competition
concerns arose.

Example 2 – Aditya Birla–Grasim Combination

Here, the Aditya Birla Group integrated businesses from different sectors such as cement,
chemicals, and textiles under Grasim Industries.
The motive was diversification and synergy across unrelated sectors, with no adverse effect
on competition.

Significance:
Conglomerate combinations are typically seen as pro-competitive or neutral, as they
strengthen firms financially without directly affecting competition in any particular market.

4️⃣ Joint Ventures

Meaning:
A joint venture (JV) is a strategic partnership between two or more independent enterprises
formed to achieve a common commercial objective.
Unlike mergers, JVs do not always result in loss of corporate identity; instead, they involve
shared ownership, control, and risk.
They are common in sectors requiring technology collaboration, foreign expertise, or
capital investment.
Joint ventures can, however, raise competition concerns if they lead to information sharing,
price coordination, or market allocation between parent companies.

Example – Maruti–Suzuki Joint Venture

This is one of the most successful and long-standing joint ventures in India’s automobile
industry.
In 1982, Maruti Udyog Ltd. (India) partnered with Suzuki Motor Corporation (Japan) to
establish Maruti Suzuki India Ltd., aimed at modernizing India’s car manufacturing sector
and introducing advanced technology.

Impact:

 The JV led to massive technological advancement, employment growth, and enhanced

consumer choice in India’s automobile market.
 Over time, Suzuki gained a majority stake, but the collaboration continued to benefit
both companies.
 There were no anti-competitive concerns because the venture increased efficiency and
introduced new competition to the Indian car market, which was previously
dominated by Hindustan Motors and Premier Automobiles.

4️⃣ Reasons for Combinations

Combinations occur for multiple business and economic reasons:

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 1. Economies of Scale: Firms merge to reduce operational costs, enhance production
efficiency, and eliminate duplication of resources.
2. Market Expansion: Mergers allow access to new geographical or product markets,
thereby increasing market reach.
3. Technological Advancement: Acquiring innovative enterprises provides
technological capabilities and strengthens research and development.
4. Elimination of Inefficiency: Weaker or underperforming firms often merge with
stronger ones to improve productivity and profitability.
5. Global Competitiveness: Liberalization and globalization have compelled Indian
firms to merge or collaborate with international companies to survive in global
markets.
6. Financial and Tax Benefits: Mergers may yield tax advantages, better capital
utilization, and stronger financial structures.

As Dugar notes, in an open economy, combinations often arise from competitive necessity
rather than monopolistic intent.

5️⃣ Regulatory Framework in India

The Competition Act, 2002, particularly Sections 5, 6, 20, 29–31, and 43A, lays down the
legal framework governing combinations in India.

Section 5 defines what constitutes a combination based on asset and turnover thresholds.
Section 6(1) prohibits entering into any combination that causes or is likely to cause an
Appreciable Adverse Effect on Competition (AAEC) within the relevant market in India.
Section 6(2) makes it mandatory for parties to notify the Competition Commission of India
(CCI) within 30 days of board approval or agreement to the transaction.
Section 6(3) renders combinations that contravene the Act void.
Section 20 empowers the CCI to inquire into combinations either upon notification or suo
motu.
Sections 29 to 31 outline the procedure for inquiry, including the issuance of show-cause
notices, detailed investigation (Phase I and Phase II), and final orders approving, modifying,
or blocking the combination.
Section 43A prescribes penalties up to one percent of total turnover or assets for failure to
notify or for delayed notification.

6️⃣ Thresholds and Notification

Combination review is triggered when the financial thresholds prescribed under Section 5 are
met.
As per the MCA Notification (2023), the combined assets of the parties in India must exceed
₹2,000 crore or turnover must exceed ₹6,000 crore; globally, the combined assets must
exceed USD 1 billion or turnover must exceed USD 3 billion, provided each has a minimum
Indian presence.

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The notification process requires parties to file either Form I (short form) or Form II (long
form) depending on the complexity and market share involved.
Once notified, the CCI must reach a final decision within 210 days, failing which the
combination is deemed approved.

7️⃣ The AAEC Test under Section 20(4)

The CCI assesses combinations based on their actual or potential impact on competition.
Section 20(4) lists thirteen factors, including the level of market concentration, likelihood of
foreclosure of competition, countervailing buyer power, barriers to entry, innovation, and
efficiency gains.
If the efficiency benefits of the combination outweigh any potential adverse effects, the CCI
may approve it with or without conditions.

As Whish & Bailey note, merger control focuses not on the size of the transaction but on its
“effect on competitive dynamics.”

8️⃣ Procedure for Regulation of Combinations

The process for combination regulation in India involves several key stages:

1. Filing of Notice: The parties must file the combination notice with the CCI before
consummation.
2. Prima Facie Opinion (Phase I): The CCI forms an initial view under Section 29(1)
on whether the combination is likely to cause AAEC. If no issues arise, approval is
granted.
3. Detailed Investigation (Phase II): If competition concerns are identified, the CCI
conducts a detailed investigation and may call for modifications or additional
information.
4. Final Order (Section 31): The Commission may approve the combination, approve it
with modifications, or prohibit it if it is likely to harm competition.

If the Commission does not issue a decision within the statutory time frame of 210 days, the
combination is deemed to be approved.

9️⃣ Important CCI Decisions

Several major cases have shaped India’s merger control regime:

 Sun Pharma–Ranbaxy (2014): The CCI approved the merger subject to divestment
of certain drug brands to maintain competition in the pharmaceutical sector.

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  Holcim–Lafarge (2015): The first Phase II investigation by the CCI; approval was
conditional upon divestiture of overlapping cement plants.
 PVR–DT Cinemas (2016): The merger was approved with behavioral conditions to
avoid local dominance in Delhi’s multiplex market.
 Amazon–Future Retail (2021): The CCI suspended an earlier approval due to
misrepresentation, reinforcing the principle of full disclosure.
 Zee–Sony Merger (2023): Under review for potential market concentration in
broadcasting and advertising.

These cases demonstrate that the CCI follows a balanced, effects-based approach, focusing on
maintaining market structure and consumer choice rather than blocking consolidation
outright.

🔟 Remedies and Enforcement

The CCI can impose both structural remedies (such as divestiture of overlapping assets) and
behavioral remedies (such as restrictions on pricing, exclusivity, or supply conditions).
Failure to notify a combination attracts penalties under Section 43A.
The Commission’s powers under Section 31 also allow it to modify the terms of a merger to
mitigate anti-competitive harm rather than simply prohibiting it.

11️⃣ Comparative Perspective

The Indian test for assessing combinations — Appreciable Adverse Effect on Competition
(AAEC) — is conceptually aligned with international standards such as the Substantial
Lessening of Competition (SLC) test in the U.S. and the Significant Impediment to Effective
Competition (SIEC) test in the European Union.
The CCI’s merger control framework mirrors OECD principles and emphasizes an analytical,
economic approach over a formalistic one.

12️⃣ Conclusion

The regulation of combinations under the Competition Act, 2002 represents a progressive
and preventive approach.
It aims to balance economic efficiency with market fairness, allowing mergers that promote
productivity, innovation, and global competitiveness, while preventing those that could create
dominance or harm consumer welfare.
As Dugar (p. 222) summarizes:

“Merger regulation in India is not an obstacle to growth but a safeguard for competition —
ensuring that enterprise integration strengthens the economy without strangling the market.”

The CCI’s evolving jurisprudence thus maintains a fair, transparent, and internationally
harmonized merger control regime.

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DIFFERENT TESTS FOR STUDYING THE IMPACT OF COMBINATIONS IN THE
MARKET

Introduction

When enterprises merge or combine, it may significantly alter the structure of competition in
the market.
To ensure that such combinations do not harm consumer welfare or market efficiency,
competition authorities around the world apply various analytical tests to assess their likely
competitive impact.

In India, the Competition Commission of India (CCI) evaluates combinations under the
Competition Act, 2002, mainly through the “Appreciable Adverse Effect on Competition
(AAEC)” test prescribed in Sections 5, 6, and 20(4) of the Act.

📘 S.M. Dugar (7th Ed., p. 223):

“The real focus of merger control is not the size of enterprises but the effect of their union on
competition, efficiency, and consumer welfare.”

2️⃣ The Objective of Combination Review

The essential purpose of merger (combination) control is preventive, not punitive.

It ensures that combinations that could lead to market dominance, price control, or entry
barriers are scrutinized before completion.
The CCI, therefore, applies different economic and legal tests to determine whether a
proposed combination is likely to cause an Appreciable Adverse Effect on Competition
(AAEC) in India.

3️⃣ The AAEC Test (India)

The AAEC test under Section 20(4) of the Competition Act, 2002, is the principal
framework used by the CCI.
It requires an overall analysis of the structure, conduct, and performance of the market to
predict how a combination may affect competition.

While the term “AAEC” is not numerically defined, Section 20(4) provides thirteen
economic and structural factors that guide the CCI’s assessment.
These include:

1. Actual and potential level of competition in the market;

2. Extent of barriers to entry created by the combination;
3. Market share and concentration levels of the merged entity;
4. Countervailing buyer power;
5. Possibility of price increases or reduction in output;

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 6. Extent of effective competition sustained in the market;
7. Extent of vertical integration;
8. Impact on innovation, research, and technical development;
9. Extent of benefits to consumers; and
10. Whether efficiency gains outweigh adverse effects.

The Commission considers these factors holistically rather than individually.

Thus, even if a merger increases market share, it may still be approved if it generates
efficiency and consumer benefits.

Whish & Bailey (p. 214) note:

“Modern competition law does not prohibit concentration per se but focuses on whether it
appreciably distorts competitive conditions.”

4️⃣ Economic Tests for Assessing the Impact of Combinations

Competition authorities, including the CCI, employ several economic tests to assess whether
a combination will likely reduce competition.
These tests are derived from global antitrust practice, including the EU and U.S. merger
regimes.

(A) Market Concentration Test (Herfindahl–Hirschman Index – HHI)

The HHI test measures market concentration by summing the squares of the market shares
of all firms in the relevant market.

 HHI = (Market share₁)² + (Market share₂)² + ... + (Market shareₙ)²

 An HHI below 1,500 indicates an unconcentrated market.
 HHI between 1,500–2,500 suggests moderate concentration.
 HHI above 2,500 indicates a highly concentrated market.

If the merger increases the HHI by more than 150–200 points, it may raise competition
concerns.

In India, the CCI considers HHI as part of the overall analysis but does not rely on it
exclusively.
In the Sun Pharma–Ranbaxy merger (2014), for instance, HHI levels were analyzed to
identify high concentration in certain therapeutic markets, leading to conditional approval
with divestitures.

(B) Dominance or Market Power Test

This test evaluates whether the combined entity would acquire a dominant position enabling
it to operate independently of competitive forces or influence market outcomes.

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The assessment includes factors like market share, entry barriers, control over essential
facilities, and financial strength.

For example, in the Holcim–Lafarge merger (2015), the CCI examined whether the merged
firm would gain dominant power in specific regional cement markets and required
divestitures to ensure sufficient competition.

(C) Unilateral Effects Test

The unilateral effects test examines whether the merged firm could unilaterally increase
prices, reduce output, or limit innovation without coordinating with other competitors.
It is most relevant in horizontal mergers where the merging parties are close competitors.
The PVR–DT Cinemas merger (2016) is an example where the CCI applied this test,
identifying potential unilateral effects in Delhi’s cinema market and imposing behavioral
remedies.

(D) Coordinated Effects Test

The coordinated effects test considers whether the combination would make collusion or
tacit coordination among remaining firms more likely.
Post-merger, a reduction in the number of players or increased market transparency may
make it easier for firms to align pricing or production decisions.

In the Jet Airways–Etihad Airways combination (2013), the CCI analyzed whether the
partnership could facilitate coordinated behavior on routes or pricing but found adequate
competition from other airlines to prevent collusion.

(E) Efficiency Defence Test

A combination may still be permitted if it creates economic efficiencies that offset anti-
competitive effects.
Efficiencies may arise through economies of scale, improved technology, reduced costs, or
innovation.
Under Section 20(4)(m), the CCI explicitly considers whether such benefits outweigh
potential harm to competition.

In Holcim–Lafarge, the parties successfully argued efficiency gains in logistics and

production, which contributed to approval with conditions.

📖 Dugar (p. 225):

“Efficiency justifications are recognized as valid only when they are merger-specific,
verifiable, and likely to benefit consumers.”

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(F) Public Interest and Consumer Welfare Test

Finally, the CCI assesses whether the combination enhances consumer welfare through
lower prices, better quality, or innovation.
If consumer benefits outweigh structural concerns, approval may be granted.
This is consistent with the consumer welfare objective under the Preamble and Section 18
of the Act.
In the Zee–Sony Merger (2023), the Commission examined whether content diversity and
innovation benefits outweighed potential media concentration.

5️⃣ Comparative International Tests

Globally, jurisdictions apply similar but differently named standards:

 United States: Substantial Lessening of Competition (SLC) Test under the Clayton
Act, 1914.
 European Union: Significant Impediment to Effective Competition (SIEC) Test under
the EU Merger Regulation (139/2004).
 India: Appreciable Adverse Effect on Competition (AAEC) Test under Section 20(4)
of the Competition Act, 2002.

Though the terminology varies, the essence remains the same — to assess whether the merger
significantly harms market competition or consumer welfare.

6️⃣ Role of the CCI

The Competition Commission of India (CCI) acts as the regulatory authority for merger
control.
It employs both quantitative tools (like HHI) and qualitative analysis (like market
structure, innovation impact, and entry barriers) to reach a reasoned decision.
The CCI’s approach is effects-based, meaning it considers the actual economic impact rather
than simply the legal form of the transaction.
This ensures that only mergers that harm competition are restricted, while efficiency-
enhancing combinations are approved.

7️⃣ Conclusion

In conclusion, the impact of combinations on competition is studied through a multi-

dimensional framework combining legal, economic, and welfare-based analysis.
The primary test in India is the AAEC test, supported by market concentration, dominance,
and efficiency assessments.
These tests ensure that combinations that promote innovation and efficiency are allowed,
while those that may harm consumer interests or create monopolies are prevented.

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As S.M. Dugar (p. 230) aptly summarizes:

“The assessment of combinations is not a mechanical exercise; it is an economic prediction

guided by law — balancing the freedom of enterprise with the preservation of competition.”

UNILATERAL AND COORDINATED EFFECTS OF COMBINATIONS

Introduction

When two or more enterprises merge or combine, the resulting entity can alter the market
structure and competitive dynamics.
The Competition Commission of India (CCI), under Sections 5 and 6 of the Competition
Act, 2002, examines such combinations to ensure that they do not lead to an Appreciable
Adverse Effect on Competition (AAEC) in the relevant market.

To study the potential impact of combinations, competition authorities across the world —
including the CCI — primarily use two analytical concepts: the Unilateral Effects Test and
the Coordinated Effects Test.
These tests help determine how a merger may affect pricing, output, innovation, or collusion
after the combination.

📘 S.M. Dugar (7th Ed., p. 231) states:

“The competitive harm of a merger may arise from unilateral exercise of market power by the
merged firm or from coordinated interaction among remaining firms.”

2️⃣ Meaning of Unilateral and Coordinated Effects

 Unilateral Effects:
Arise when the merged entity itself gains sufficient market power to act independently
of its competitors — for example, by raising prices, reducing output, or limiting
innovation — without needing to coordinate with other firms.
 Coordinated Effects:
Occur when, after the merger, remaining competitors (including the merged firm) find
it easier to coordinate their behavior, either explicitly (cartel-like) or tacitly, to
increase prices, divide markets, or restrict production.

In short, unilateral effects focus on the merged entity’s own market power, while
coordinated effects focus on collective market behavior after the merger.

3️⃣ Unilateral Effects of Combinations

(A) Concept

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A merger is said to have unilateral effects when it significantly reduces competition because
one firm — the merged entity — can profitably increase prices, limit supply, or reduce
quality without fear of losing customers to rivals.

This typically arises in horizontal mergers, where the merging firms are close competitors
offering similar products or services.
The merger eliminates direct competition between them, leading to a loss of competitive
pressure.

📖 Whish & Bailey (p. 218):

“A merger may create unilateral effects where the new entity internalizes competition that
previously existed between merging firms and finds it profitable to raise prices.”

(B) How CCI Assesses Unilateral Effects

The CCI considers several factors, including:

1. Market shares and concentration levels post-merger;

2. Degree of substitutability between merging firms’ products;
3. Price elasticity of demand;
4. Potential for new entry or expansion by rivals; and
5. Countervailing buyer power (i.e., whether customers can resist price hikes).

The CCI uses quantitative tools such as the Herfindahl–Hirschman Index (HHI) and
qualitative market data to predict these effects.

(C) Illustrative Indian Case – PVR–DT Cinemas (2016)

In this case, PVR Ltd. sought to acquire DT Cinemas, a competing multiplex operator in
Delhi.
Both firms operated in the same geographic and product market — cinema exhibition
services.
The CCI observed that post-merger, PVR’s market share in Delhi would exceed 40%, giving
it the ability to increase ticket prices unilaterally.
However, the merger was approved with behavioral conditions, requiring PVR to refrain
from imposing unfair ticket pricing or restrictive film distribution practices.

Significance:
The case demonstrated how unilateral effects arise in local markets with limited competition
and high concentration.
The CCI allowed the merger but imposed safeguards to prevent unilateral price control.

4️⃣ Coordinated Effects of Combinations

(A) Concept

Coordinated effects occur when a merger changes the market structure in a way that
facilitates collusion or tacit coordination among firms.

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This can happen when the merger reduces the number of players, increases transparency, or
creates symmetry among competitors, making it easier to align prices or output.

Unlike unilateral effects, coordinated effects involve collective market behavior, not
individual dominance.

📘 S.M. Dugar (p. 233):

“Where post-merger conditions make it easier for firms to behave in a coordinated manner,
the competitive harm arises from collusive tendencies rather than individual dominance.”

(B) Key Factors Considered by CCI

The CCI examines:

1. Number of remaining competitors post-merger;

2. Market transparency and product homogeneity;
3. Barriers to entry and buyer power;
4. History of collusive behavior or price parallelism in the industry;
5. Market stability and demand elasticity.

When few firms remain and products are similar, coordination becomes easier, leading to
higher risk of coordinated effects.

(C) Illustrative Indian Case – Jet Airways–Etihad Airways (2013)

In this case, Etihad Airways acquired a 24% stake in Jet Airways, creating a strategic
alliance in India’s aviation sector.
The CCI examined whether the deal could lead to coordinated effects between the two
airlines and other international carriers on overlapping routes.
The Commission concluded that although the deal strengthened the parties’ cooperation,
competition remained due to the presence of other large players like Air India, Emirates, and
Qatar Airways.

Significance:
The case established that the CCI will carefully assess the potential for post-merger
coordination, especially in industries with high transparency (like airlines or telecoms).

5️⃣ Global Approach to Unilateral and Coordinated Effects

Globally, competition authorities apply similar tests:

 In the United States, the Substantial Lessening of Competition (SLC) test under
the Clayton Act captures both unilateral and coordinated effects.
 In the European Union, the Significant Impediment to Effective Competition
(SIEC) test under the EU Merger Regulation (139/2004) also evaluates both types of
effects.

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India’s AAEC test under Section 20(4) is conceptually aligned with these standards,
focusing on whether the merger is likely to result in either unilateral or coordinated harm to
market competition.

6️⃣ Comparative Insight

In simple terms:

 Unilateral Effects = One firm’s post-merger power to act independently of rivals

(e.g., raise prices).
 Coordinated Effects = Collective behavior of firms to align prices or restrict
competition due to increased symmetry and fewer players.

Both effects are not mutually exclusive — a merger may raise both types of concerns
simultaneously, as in oligopolistic markets with few large firms.

7️⃣ CCI’s Role and Remedies

When CCI detects potential unilateral or coordinated effects, it may:

 Approve the merger with structural remedies such as divestiture of assets (e.g.,
Holcim–Lafarge).
 Impose behavioral remedies such as commitments to maintain pricing independence
or non-discrimination (e.g., PVR–DT).
 Block the merger entirely if harm cannot be mitigated.

The CCI’s approach is effects-based, meaning it focuses on the economic outcome rather
than the form of the transaction.

📖 Whish & Bailey (p. 221):

“Merger control aims not at punishing firms for being large, but at preventing structural
changes that lessen rivalry.”

8️⃣ Conclusion

The unilateral and coordinated effects tests are central to modern merger analysis.
They help the CCI predict whether a proposed combination will diminish market rivalry,
increase prices, or reduce consumer welfare.

While unilateral effects concern a firm’s individual power, coordinated effects relate to
collective market behavior among remaining players.
The CCI’s balanced, effects-based methodology ensures that efficiency-driven mergers are
approved, while those threatening competition are modified or blocked

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FORECLOSURE IN THE CONTEXT OF COMBINATIONS

1️⃣ Introduction

In the field of competition and merger control, the term “foreclosure” refers to a situation
where a merger or combination restricts the ability of rivals to compete effectively in the
market — either by denying them access to essential inputs (supply) or restricting their
access to customers (demand).
Foreclosure can occur as a result of vertical mergers, exclusive dealing, or control over key
infrastructure, and it often raises serious concerns under Sections 3 and 4 (agreements and
dominance) and Sections 5 and 6 (combinations) of the Competition Act, 2002.

📘 S.M. Dugar (7th Ed., p. 236) defines foreclosure as:

“The denial of access to a market, supply, or customer base to competing undertakings as a
consequence of integration between enterprises.”

Foreclosure does not always imply illegality — it becomes problematic when it results in an
Appreciable Adverse Effect on Competition (AAEC), thereby harming consumers and
reducing market efficiency.

2️⃣ Meaning and Nature of Foreclosure

The word “foreclosure” literally means blocking the way.

In competition law, it describes the process where a firm or group of firms prevents
competitors from entering or remaining in the market.
In the context of mergers, foreclosure occurs when the combined firm gains control over key
inputs, distribution channels, or customers, and uses that position to disadvantage rivals.

There are two main forms of foreclosure recognized globally and by the CCI:

1. Input Foreclosure (Upstream Foreclosure)

2. Customer Foreclosure (Downstream Foreclosure)

These are typically associated with vertical mergers, where one firm operates upstream (as a
supplier) and the other downstream (as a distributor or manufacturer).

3️⃣ Types of Foreclosure

(A) Input Foreclosure (Upstream Foreclosure)

Input foreclosure arises when a merged firm with upstream operations (e.g., as a supplier or
producer of raw materials) restricts or denies supply to downstream competitors.
As a result, rival firms face higher costs, reduced input availability, or complete denial of
access to essential resources.
This weakens competition in the downstream market and can raise prices for consumers.

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Example:
Suppose a cement manufacturer merges with a limestone supplier. If, after the merger, the
supplier stops selling limestone to other cement producers, those rivals are foreclosed from
the input market.

📖 Whish & Bailey (p. 223) explain:

“Input foreclosure occurs where vertically integrated firms prevent rivals’ access to essential
inputs, increasing their costs or excluding them from the market altogether.”

(B) Customer Foreclosure (Downstream Foreclosure)

Customer foreclosure occurs when a merged firm with downstream operations restricts or
eliminates access to customers or distribution channels for upstream rivals.
This happens when the merged entity chooses to buy inputs only from its own upstream
division, or obliges its distributors to sell only its products.

Example:
If a car manufacturer merges with a dealership chain and the dealership agrees to sell only the
manufacturer’s cars, rival car makers lose access to retail customers — a case of downstream
foreclosure.

Impact:
Customer foreclosure reduces the market demand available to competitors and makes it
difficult for new entrants to survive.

4️⃣ Foreclosure in the Context of CCI and Indian Law

Under Indian merger control, foreclosure effects are explicitly considered as one of the
factors under Section 20(4) of the Competition Act, 2002, which requires the CCI to assess
the “foreclosure of competition by hindering entry into the market.”

This shows that the Indian legislature has directly recognized foreclosure as a critical element
in determining whether a combination causes an Appreciable Adverse Effect on
Competition (AAEC).

The CCI analyzes foreclosure effects primarily in vertical and conglomerate mergers
where control over supply or demand chains could distort competition.

5️⃣ Case Illustrations

(A) Holcim–Lafarge Merger (2015)

This global merger between two cement giants involved both horizontal and vertical overlaps
in India.
The CCI expressed concern that the merged entity could potentially foreclose regional
cement markets by controlling production capacity and distribution channels.

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To prevent this, the CCI required divestiture of certain cement plants and assets in eastern
India before approving the merger.
This ensured that sufficient independent producers remained in the market.

📘 Dugar (p. 238) notes:

“The Holcim–Lafarge decision marked the first instance of structural remedy in India to
prevent input and customer foreclosure.”

(B) Hindustan Coca-Cola Beverages–Parle Merger (2000, pre-CCI, MRTP context)

In this case, Coca-Cola’s acquisition of Parle’s soft drink brands (Thums Up, Limca, etc.)
raised concerns about potential foreclosure of bottling and distribution networks to rival
soft drink manufacturers.
Although it predated the Competition Act, it is often cited as an example of vertical
foreclosure through exclusive distribution control.

(C) Jet Airways–Etihad Airways (2013)

In this combination, Etihad acquired a 24% stake in Jet Airways.

The CCI examined whether the alliance could foreclose rival airlines from access to airport
slots and code-sharing arrangements.
Although concerns existed, the CCI found adequate competition from other carriers,
concluding that foreclosure effects were unlikely in this case.

(D) Google–Android Case (CCI, 2023)

While not a merger, this case provides a parallel example of digital foreclosure — where
Google leveraged its dominance in the Android ecosystem to restrict app developers and rival
browsers.
The principles applied are similar to merger-related foreclosure, showing how the concept
extends to digital markets.

6️⃣ Assessment Factors for Foreclosure by CCI

When assessing foreclosure risks, the CCI considers factors such as:

 The degree of control the merged firm has over critical inputs or customers;
 The importance of the input or distribution channel for competition;
 The ability and incentive of the merged firm to foreclose rivals;
 The extent to which foreclosure would harm competition and consumers; and
 The presence of countervailing buyer power or alternative suppliers.

Only if the CCI finds both ability and incentive to foreclose, and that foreclosure would have
a significant adverse effect, does it intervene or impose conditions.

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7️⃣ Remedies and Regulatory Approach

The CCI has adopted a balanced approach — it does not prohibit mergers solely because
they create integration, but intervenes when foreclosure is likely to reduce market access or
innovation.
To address foreclosure, the Commission may impose:

 Structural remedies, such as divestiture of overlapping assets (e.g., Holcim–

Lafarge).
 Behavioral remedies, such as commitments to maintain open access to supply
chains, distributors, or technology platforms.

This ensures that integration leads to efficiency, not exclusion.

Whish & Bailey (p. 225):

“Foreclosure analysis seeks to balance the efficiencies of integration with the risks of
exclusionary conduct.”

8️⃣ Conclusion

Foreclosure represents one of the most critical risks arising from mergers and combinations,
especially in vertically integrated markets.
While integration can lead to cost savings and efficiencies, it can also enable the merged
entity to block competitors’ access to essential inputs, customers, or technologies.
The CCI’s role is to ensure that such foreclosure does not lead to Appreciable Adverse
Effects on Competition (AAEC) or consumer harm.

As S.M. Dugar (p. 240) aptly concludes:

“Foreclosure analysis provides the key to distinguishing between benign integration and
exclusionary consolidation — it is the fine line between efficiency and market foreclosure
that competition law must vigilantly police.”

Thus, foreclosure control ensures that combinations enhance economic progress while
preserving open and fair markets.

THE FAILING FIRM DEFENCE UNDER COMPETITION LAW (ma’am didn’t

teach)

1️⃣ Introduction

The “Failing Firm Defence” (FFD) is a recognized principle in merger control which allows
an otherwise anti-competitive merger to be approved if one of the parties is a financially
failing firm that would otherwise exit the market.
In such cases, the merger is not seen as lessening competition because the failing firm’s exit
would itself lead to the same (or greater) reduction in competition.

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In other words, the defence argues that the merger causes no worse outcome for
competition than the firm’s inevitable exit.

📘 S.M. Dugar (7th Ed., p. 240) defines it as:

“A principle under which an anti-competitive merger may be permitted if one of the parties is
about to exit the market, and its exit, in any case, would have led to a similar loss of
competition.”

2️⃣ The Rationale Behind the Failing Firm Defence

The logic behind this defence is economic realism.

If a firm is financially unsustainable and would soon leave the market, preventing its merger
or acquisition serves no useful purpose.
Allowing a stronger competitor to acquire the failing firm may preserve assets, jobs, and
efficiency, and may even protect consumers from sudden supply disruptions.

Thus, while competition law normally prevents mergers that substantially lessen competition,
the failing firm defence acts as an exception — ensuring that efficiency and continuity
outweigh theoretical competition loss.

Whish & Bailey (p. 227) observe:

“The failing firm doctrine recognizes that where the market exit of a firm is inevitable, a
merger that preserves part of its competitive capacity may not be harmful to competition.”

3️⃣ Legal Basis and Recognition in India

Although the Competition Act, 2002 does not expressly mention the failing firm defence, it
is implicitly recognized within the AAEC test under Section 20(4).
When the CCI evaluates whether a combination causes an Appreciable Adverse Effect on
Competition (AAEC), it considers factors such as the level of competition, barriers to entry,
and potential market exit.

Under Section 20(4)(b) and (c), the CCI may take into account:

 “The extent of barriers to entry in the market,” and

 “The level of actual and potential competition through imports or entry.”

Thus, if a firm is about to exit, the loss of competition is seen as inevitable, and the merger
may be approved on that basis.

4️⃣ Conditions for Invoking the Failing Firm Defence

For the defence to be accepted, competition authorities (including the CCI) generally require
the merging parties to prove certain conditions.

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These are derived from international practice (U.S. Department of Justice Merger
Guidelines, EU Guidelines, and OECD principles) and applied consistently by the CCI and
global regulators:

(A) The firm is truly failing or insolvent

The firm must be facing severe financial distress, insolvency, or liquidation, with no
reasonable prospect of recovery.
It should be unable to meet financial obligations or sustain market operations independently.

(B) No less anti-competitive purchaser is available

There must be evidence that no other buyer (who would raise fewer competition concerns) is
willing and able to acquire the firm or its assets.

(C) Exit of the firm is inevitable in absence of the merger

The firm must be likely to exit the market in the near future if the merger is not approved.
This means the alternative to the merger is market exit, not continued competition.

(D) The assets would otherwise exit the market

If the failing firm’s assets (production facilities, brands, etc.) would otherwise disappear from
the market, the merger may be allowed to preserve them.

📖 Dugar (p. 241) emphasizes:

“The defence applies not because the merger is pro-competitive, but because the absence of
the merger would result in the same or worse loss of competition.”

5️⃣ The Role of the CCI in Applying the Defence

In India, the CCI applies this principle cautiously, since firms might misuse it to justify anti-
competitive mergers.
The CCI examines:

 The financial condition of the failing firm (e.g., audited statements, insolvency
filings);
 The possibility of other buyers; and
 Whether the combination is necessary to preserve market efficiency or consumer
supply.

The CCI’s evaluation is fact-intensive — requiring credible financial evidence, not mere
assertions of distress.

Whish & Bailey (p. 228) explain that “the burden of proof lies on the merging parties to
establish the inevitability of exit and the absence of less harmful alternatives.”

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6️⃣ Illustrative Cases

Although the CCI has not explicitly accepted a failing firm defence in India so far, similar
cases and reasoning can be observed in both Indian and international decisions.

(A) Jet Airways–Etihad Airways (CCI, 2013)

While not a pure failing firm case, Jet Airways was facing severe financial distress at the time
of the merger.
Etihad’s acquisition provided necessary capital infusion to sustain operations.
The CCI acknowledged the firm’s fragile condition but ensured that competition in the
aviation sector remained intact by examining route overlaps and slot access.
This case shows the CCI’s implicit acceptance of the failing firm rationale where public
interest and continuity were at stake.

(B) European Case – Kali und Salz (1993) [ECJ]

In this landmark EU case, two major potash producers proposed a merger that would have
created a dominant position.
However, the European Commission accepted the failing firm defence because one firm was
on the verge of collapse, and its exit would have led to the same market concentration
anyway.
The merger was therefore approved.

(C) U.S. Case – Citizen Publishing Co. v. United States (1969)

The U.S. Supreme Court established early limits to the doctrine.

It held that the failing firm defence applies only when the firm faces imminent business
failure and no less anti-competitive purchaser is available.
This principle was later refined in the International Shoe v. FTC and General Dynamics
cases.

7️⃣ Application in India – Future Scope

India’s growing exposure to distressed acquisitions under the Insolvency and Bankruptcy
Code (IBC), 2016) has made the failing firm concept increasingly relevant.
When a financially distressed company is acquired under IBC proceedings, such acquisitions
are often exempted from prior CCI notification under Section 6(2) provisos (as per MCA
notifications).

However, the CCI still retains the right to examine such combinations post facto if
competition concerns arise.
Thus, the failing firm defence is gaining significance in balancing competition law with
insolvency resolution policy.

8️⃣ Criticism and Limitations

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While the failing firm defence promotes business continuity, it faces certain limitations:

 It is prone to abuse, as firms may exaggerate financial distress to escape scrutiny.

 It can reduce deterrence against inefficient management if firms expect bailouts
through mergers.
 It is difficult to verify the absence of alternative buyers or the inevitability of exit.

Hence, the CCI and other regulators apply the defence only in exceptional circumstances,
after rigorous factual verification.

9️⃣ Conclusion

The Failing Firm Defence serves as a limited exception to the general rule against anti-
competitive mergers.
It recognizes that sometimes, market exit by a failing enterprise may harm competition and
consumers more than a merger would.
In such situations, allowing the merger may preserve assets, jobs, and supply continuity
without worsening competition.

However, the defence is narrowly interpreted — it applies only when exit is certain,
alternatives are absent, and efficiency gains are clear.
The CCI’s cautious approach ensures that the doctrine is not misused to justify anti-
competitive consolidation.

CREEPING ACQUISITIONS

1️⃣ Introduction

The term “Creeping Acquisition” refers to a gradual or incremental acquisition of shares

or control over an enterprise, carried out in small steps over time, so that each transaction
individually appears too minor to trigger competition scrutiny, but collectively results in
significant control or market concentration.

It is essentially a strategy to bypass merger notification thresholds or avoid detection by

the Competition Commission of India (CCI) while still achieving effective control over
another firm.

📘 S.M. Dugar (7th Ed., p. 244) defines it as:

“A process whereby an enterprise steadily increases its shareholding or control in another
undertaking through a series of small acquisitions that, when aggregated, may lead to
dominance or foreclosure of competition.”

2️⃣ Concept and Nature

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Creeping acquisitions occur when an acquirer buys shares or voting rights of a target
enterprise in successive tranches, each below the statutory thresholds prescribed under
Section 5 of the Competition Act, 2002.
Individually, each transaction may not appear notifiable, but when taken together, the
cumulative acquisition may confer substantial influence or control, effectively leading to a
merger in substance.

This practice can undermine merger regulation if not monitored, because it allows a firm to
consolidate power without formal review or remedy.

Whish & Bailey (p. 228) note:

“Competition authorities must guard against the danger that a series of incremental
acquisitions, though small in isolation, may cumulatively result in the lessening of
competition.”

3️⃣ Legal Framework in India

The Competition Act, 2002 deals with creeping acquisitions primarily under Section 5(a)(i)
(A) and Section 6:

 Section 5(a)(i)(A): Defines “acquisition of control, shares, voting rights, or assets” as

a combination if it crosses the prescribed asset/turnover thresholds.
 Section 6(1): Prohibits any combination that causes or is likely to cause an
Appreciable Adverse Effect on Competition (AAEC).
 Section 6(2): Requires prior notification to the CCI within 30 days of approval of a
proposed acquisition.

Thus, even if each individual acquisition is small, once the aggregate shareholding or
control exceeds the threshold, the acquirer must notify the CCI.
Failure to do so can attract penalties under Section 43A (up to 1 % of total turnover or
assets).

4️⃣ Purpose of Regulating Creeping Acquisitions

The regulation of creeping acquisitions serves several competition-law objectives:

1. Prevent Circumvention: It ensures that firms cannot avoid CCI scrutiny by splitting
large acquisitions into smaller parts.
2. Maintain Market Transparency: It allows the CCI to monitor gradual consolidation
of market power.
3. Protect Small Competitors: It prevents dominant firms from silently absorbing
smaller rivals.
4. Ensure Early Detection: It helps identify anti-competitive trends before they mature
into full dominance.

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Dugar (p. 246) remarks that creeping acquisitions “strike at the heart of merger control, for
they erode competition stealthily and without formal notice.”

5️⃣ CCI’s Approach and Interpretation

The CCI follows a “substance-over-form” approach — focusing on the real effect of the
acquisition, not merely its formal structure.
If the cumulative effect of incremental acquisitions results in significant control or
influence, the entire series may be treated as a single notifiable combination.

The CCI also distinguishes between:

 Passive investments (less than 10 % shareholding with no control or board rights) –

normally exempt, and
 Strategic acquisitions that give control or influence – not exempt.

Under Regulation 4 of the Combination Regulations (2011), even successive acquisitions

within a period of two years may be aggregated for the purpose of computing thresholds.

6️⃣ Illustrative CCI Cases

(A) Thomas Cook (India) Ltd. – Sterling Holidays (2014)

This case involved multiple transactions where Thomas Cook gradually acquired shares,
voting rights, and control over Sterling Holidays.
The CCI examined whether the acquisitions were structured to avoid notification.
It ruled that all interconnected steps of the deal must be viewed together as one
combination, since the ultimate objective was to acquire control.
Hence, prior notification was required.

The decision reaffirmed that the CCI looks at the substance and intention of transactions,
not their formal fragmentation.

(B) SCM Soilfert Ltd. / Deepak Fertilisers v. Mangalore Chemicals & Fertilisers (2015)

Deepak Fertilisers made successive open-market purchases of shares in Mangalore

Chemicals, each below the notification threshold.
The CCI held that the cumulative effect of these acquisitions amounted to a creeping
acquisition of control, and failure to notify violated Section 6(2).
A penalty under Section 43A was imposed, reinforcing that splitting transactions cannot be
used to bypass merger review.

(C) Tata Chemicals – Gujarat Heavy Chemicals (2016)

The CCI considered whether a series of step-by-step acquisitions constituted one

combination.

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It reaffirmed that the entire series of related steps must be treated as a single transaction
when assessing notifiability and impact on competition.

7️⃣ Economic Impact of Creeping Acquisitions

Creeping acquisitions can have several adverse competitive effects:

 Market Concentration: Gradual consolidation reduces the number of independent

competitors.
 Entry Barriers: Smaller firms find it difficult to enter markets dominated by a firm
acquiring multiple smaller rivals.
 Control without Oversight: The acquirer gains influence over pricing and output
decisions across sectors.
 Reduced Consumer Choice: Fewer competitors ultimately lead to higher prices and
less innovation.

However, not all creeping acquisitions are harmful — when they are purely financial or
efficiency-driven, they may even promote investment and stability.
The CCI’s task is to distinguish between legitimate strategic growth and anti-competitive
accumulation of control.

8️⃣ Penalties and Remedies

When creeping acquisitions are found to have breached merger-control obligations, the CCI
may:

1. Impose a penalty under Section 43A (up to 1 % of turnover or assets).

2. Declare the acquisition void under Section 6(3) if it causes an AAEC.
3. Order divestiture or structural separation of acquired assets.
4. Issue behavioural directions to ensure future compliance.

The Thomas Cook and SCM Soilfert cases demonstrate the CCI’s willingness to enforce
these measures where companies attempt to conceal stepwise control.

9️⃣ Global Perspective

Globally, regulators also address creeping acquisitions:

 In the U.S., the Hart–Scott–Rodino Act mandates pre-merger notification based on

cumulative shareholding thresholds.
 In the EU, the Merger Regulation (139/2004) allows the European Commission to
aggregate multiple transactions within a two-year period between the same
undertakings.

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 India’s framework under the Competition Act and Combination Regulations
mirrors these international best practices.

🔟 Conclusion

The concept of creeping acquisitions represents one of the most subtle forms of market
consolidation.
While each individual transaction may seem harmless, the cumulative effect can erode
market competition and consumer choice over time.
The Competition Commission of India, through its vigilant and substance-based approach,
ensures that such incremental acquisitions do not escape scrutiny.

📖 Dugar (7th Ed., p. 248) aptly concludes:

“Merger control must look beyond the arithmetic of shares; creeping acquisitions demand a
dynamic vigilance where intention and effect, not form, determine legality.”

Hence, the CCI’s scrutiny of creeping acquisitions maintains a balance between legitimate
business expansion and protection of competitive markets in India.

REGULATION OF CROSS-BORDER COMBINATIONS

1️⃣ Introduction

With globalization and liberalization, mergers and acquisitions increasingly involve

enterprises operating in multiple jurisdictions.
Such cross-border combinations — where at least one of the parties is a foreign enterprise
— can have significant effects on competition within India even though the transaction
occurs outside its borders.

The Competition Act, 2002 empowers the Competition Commission of India (CCI) to
regulate such cross-border mergers and acquisitions, ensuring they do not result in an
Appreciable Adverse Effect on Competition (AAEC) in the relevant Indian market.

📘 S.M. Dugar (7th Ed., p. 249) defines a cross-border combination as:

“A merger, acquisition, or amalgamation involving at least one enterprise situated outside
India that has a direct, substantial, and foreseeable effect on competition within India.”

2️⃣ Statutory Framework in India

The regulation of cross-border combinations in India is primarily governed by:

 Section 5 – Defines combinations (mergers, acquisitions, amalgamations) that cross

specified asset or turnover thresholds.
 Section 6(1) – Prohibits combinations that cause or are likely to cause an Appreciable
Adverse Effect on Competition (AAEC) in India.

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  Section 32 – Confers extra-territorial jurisdiction on the CCI to inquire into and
regulate anti-competitive conduct or combinations taking place outside India but
having an effect within India.
 Sections 29–31 – Lay down the procedure for CCI inquiry and approval of
combinations.

Thus, even if the merger is executed abroad, it must be notified to the CCI if it meets the
Indian threshold and affects Indian markets.

📖 Whish & Bailey (Ch. 12) observe:

“Modern competition regimes are built on the ‘effects doctrine’ — jurisdiction arises not
from where the act occurs, but where its competitive impact is felt.”

3️⃣ The “Effects Doctrine” – Basis of Jurisdiction

The effects doctrine is the legal principle that empowers a competition authority to assert
jurisdiction over conduct occurring outside its territory if such conduct has a direct,
substantial, and foreseeable effect on its domestic market.

India adopted this principle in Section 32 of the Competition Act, 2002, which states:

“The Commission shall have power to inquire into an agreement, abuse of dominant position,
or combination that has taken place outside India but has or is likely to have an appreciable
adverse effect on competition in the relevant market in India.”

This means that foreign mergers — even if executed entirely abroad — may still require
CCI approval if the merged entity sells, supplies, or competes in India.

4️⃣ Thresholds for Notification

To determine whether a cross-border merger must be notified, the Competition Commission

of India (Procedure in Regard to the Transaction of Business Relating to Combinations)
Regulations, 2011 and Ministry of Corporate Affairs (MCA) Notifications prescribe asset
and turnover thresholds.

A cross-border combination is notifiable if the combined assets or turnover of the parties

exceed the following thresholds (as per latest MCA notification, adjusted periodically):

 Combined assets in India: > ₹2,000 crore

 Combined turnover in India: > ₹6,000 crore
 Combined worldwide assets: > US$1 billion (including ≥ ₹1,000 crore in India)
 Combined worldwide turnover: > US$3 billion (including ≥ ₹3,000 crore in India)

Once these thresholds are met, the merging parties (including foreign firms) must file a
notice with the CCI under Section 6(2).

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5️⃣ Procedure for Review

When a cross-border combination is notified, the CCI undertakes a two-phase review

process similar to domestic mergers:

Phase I:

Preliminary assessment of whether the combination is likely to cause AAEC. If not, approval
is granted within 30 days.

Phase II:

If prima facie concerns exist, the CCI conducts a detailed investigation under Sections 29–
31, examining:

 Market concentration in India;

 Likelihood of price effects, foreclosure, or dominance; and
 Potential efficiency gains or consumer benefits.

The CCI may seek information from foreign competition authorities under Section 18
(international cooperation clause).

6️⃣ Key Case Examples

(A) Holcim–Lafarge Merger (2015)

This was a global merger between two leading cement multinationals headquartered in
Switzerland and France, respectively.
Even though the merger occurred abroad, both firms had extensive operations in India
through subsidiaries.
The CCI examined the merger under Sections 5 and 6, identifying high concentration in
several Indian cement markets.
To avoid foreclosure and dominance, the CCI approved the merger with conditions,
requiring divestiture of Lafarge’s assets in eastern India.

This case marked the first major cross-border merger review by the CCI, demonstrating
the Commission’s ability to align with global regulators (like the EU and U.S. FTC) through
coordinated assessment.

(B) Dow Chemical–DuPont Merger (2017)

This was another global merger of equals between two U.S.-based chemical giants.
The CCI reviewed the transaction due to their significant business presence in India.
It conducted detailed product market analysis and approved the merger with conditions
ensuring no AAEC in Indian agricultural chemicals and materials markets.

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(C) Bayer AG–Monsanto Co. (2018)

In this cross-border merger between German (Bayer) and U.S. (Monsanto) corporations, the
CCI expressed concerns over potential dominance in agrochemicals and seeds markets in
India.
After a Phase II investigation, the CCI approved the merger subject to divestiture of seed
brands and licensing of technology to Indian competitors.
This case showed the CCI’s application of global best practices and its coordination with
foreign regulators such as the U.S. DOJ and EU Commission.

7️⃣ Cooperation with Foreign Authorities

Under Section 18, the CCI is empowered to enter into memoranda of understanding
(MoUs) or arrangements with foreign competition agencies for mutual assistance,
information exchange, and case coordination.

India has engaged in cooperation with bodies such as:

 U.S. Federal Trade Commission (FTC),

 European Commission,
 OECD, and
 UNCTAD.

This helps in parallel review of cross-border transactions, ensuring consistency in decisions

and avoiding conflicting outcomes.

📖 Dugar (p. 253) notes:

“International cooperation has become essential as mergers transcend borders and affect
multiple jurisdictions simultaneously.”

8️⃣ Extra-Territorial Enforcement and Challenges

While Section 32 gives the CCI extra-territorial powers, practical enforcement is

challenging because:

 Foreign entities may not have a physical presence in India;

 Evidence collection across jurisdictions is complex;
 Coordination delays can affect merger timelines.

Nevertheless, the CCI uses its effects-based jurisdiction to require compliance from
multinational firms with Indian operations.
Failure to notify or concealment of relevant information can attract penalties under Section
43A, even for foreign entities.

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9️⃣ Global Comparisons

The Indian approach to cross-border mergers mirrors that of major jurisdictions:

 European Union:
Under the EU Merger Regulation (139/2004), the European Commission reviews
global mergers with “EU dimension” based on turnover thresholds.
 United States:
Under the Hart–Scott–Rodino Act, the DOJ and FTC review global mergers with U.S.
nexus, applying the substantial lessening of competition (SLC) test.
 India:
Applies the Appreciable Adverse Effect on Competition (AAEC) test under Sections 5
and 6, consistent with global standards but adapted to domestic markets.

Thus, India’s regime is harmonized with international practice, reflecting its growing
importance as a global investment destination.

🔟 Conclusion

The regulation of cross-border combinations under the Competition Act, 2002 represents
India’s commitment to maintaining fair competition in an increasingly globalized economy.
By adopting the effects doctrine and empowering the CCI with extra-territorial
jurisdiction (Section 32), Indian law ensures that mergers taking place anywhere in the
world cannot harm Indian consumers or markets.

Through decisions in Holcim–Lafarge, Bayer–Monsanto, and Dow–DuPont, the CCI has

demonstrated analytical sophistication, coordination with global regulators, and a pragmatic
balance between competition and efficiency.

📘 Dugar (p. 256) concludes:

“The CCI’s oversight of cross-border combinations ensures that globalization strengthens,
rather than subverts, the competitive order within India.”

Thus, cross-border merger regulation stands as a vital tool to safeguard domestic markets
from anti-competitive global consolidation while promoting India’s integration into the
international trade system.

TREATMENT OF COMBINATIONS UNDER USA, EU, UK, AND AUSTRALIA

1️⃣ Introduction

Competition law across jurisdictions shares a common objective — to prevent mergers and
acquisitions that substantially lessen competition or create market dominance.
However, the approach and legal framework differ based on each country’s economic
structure and regulatory philosophy.

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The United States, European Union, United Kingdom, and Australia have developed
advanced and influential systems for merger control that serve as global models.
India’s combination control regime under the Competition Act, 2002 is largely inspired by
these jurisdictions, especially the U.S. “Substantial Lessening of Competition” (SLC) and
EU “Significant Impediment to Effective Competition” (SIEC) tests.

📘 S.M. Dugar (p. 257) notes:

“The Indian combination law has evolved in consonance with the mature merger control
systems of the United States, European Union, and other developed jurisdictions.”

🇺🇸 2️⃣ Treatment of Combinations in the United States

(A) Legislative Framework

Merger control in the U.S. is governed primarily by:

1. Section 7 of the Clayton Act, 1914 – prohibits mergers and acquisitions where “the
effect may be substantially to lessen competition, or to tend to create a monopoly.”
2. Hart–Scott–Rodino Antitrust Improvements Act, 1976 (HSR Act) – provides for
mandatory pre-merger notification to the Federal Trade Commission (FTC) and
Department of Justice (DOJ).
3. Sherman Act, 1890 – prohibits monopolization and anti-competitive conduct post-
merger.

(B) Test Applied – Substantial Lessening of Competition (SLC)

The SLC test evaluates whether a proposed merger would substantially lessen competition in
any line of commerce or tend to create a monopoly.
Both horizontal and vertical mergers are assessed using this standard.

Authorities assess:

 Market concentration using the Herfindahl–Hirschman Index (HHI),

 Entry barriers, efficiencies, and innovation impact, and
 Potential unilateral or coordinated effects.

📖 Whish & Bailey (p. 229):

“The SLC test reflects a forward-looking economic prediction of whether a merger will
reduce rivalry and harm consumer welfare.”

(C) Enforcement Agencies

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  Federal Trade Commission (FTC) – administrative and investigative authority.
 Department of Justice (DOJ), Antitrust Division – litigation and enforcement.
The two agencies share jurisdiction and coordinate merger review.

(D) Landmark Cases

 Brown Shoe Co. v. United States (1962): The U.S. Supreme Court held that vertical
and conglomerate mergers could also lessen competition.
 United States v. Philadelphia National Bank (1963): Established that mergers
leading to a 30% market share create a presumption of illegality.
 FTC v. H.J. Heinz Co. (2001): Blocked merger of baby food manufacturers due to
high concentration and lack of sufficient efficiencies.

(E) Remedies

U.S. authorities frequently use structural remedies (divestitures) and behavioral remedies
(conduct restrictions).
Settlements (consent decrees) are common to resolve competitive concerns.

🇪🇺 3️⃣ Treatment of Combinations in the European Union

(A) Legislative Framework

The principal law is the EU Merger Regulation (EUMR) – Regulation (EC) No. 139/2004,
which governs mergers that have a “Community dimension.”
It replaced Regulation 4064/89 and applies to mergers where the combined turnover of
parties exceeds prescribed thresholds within the EU.

(B) Test Applied – Significant Impediment to Effective Competition (SIEC)

The SIEC test examines whether a merger would significantly impede effective
competition, particularly through the creation or strengthening of a dominant position.
It is broader than the old “dominance test,” covering both unilateral and coordinated
effects.

The test involves evaluating:

 Market definition and concentration (HHI, market shares),

 Barriers to entry,
 Efficiencies and consumer benefits.

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📘 Dugar (p. 259):
“The SIEC test represents a flexible and effects-based approach, balancing market efficiency
with prevention of dominance.”

(C) Enforcement Authority

 European Commission (DG Competition) – has exclusive competence for mergers

with EU dimension.
 National competition authorities handle mergers below the EU thresholds.

(D) Landmark Cases

 GE/Honeywell (2001): The EU blocked the merger due to vertical and conglomerate
effects, even though the U.S. approved it — a landmark case in transatlantic
divergence.
 Kali und Salz (1993): Accepted the failing firm defence.
 Dow/DuPont (2017): Approved with conditions including divestiture of R&D assets
to maintain innovation.

(E) Remedies

The EU Commission frequently uses structural remedies, such as divestitures (e.g.,

Holcim–Lafarge) and licensing commitments, to prevent market foreclosure.

🇬🇧 4️⃣ Treatment of Combinations in the United Kingdom

(A) Legislative Framework

The UK’s merger control system is governed by:

 Enterprise Act, 2002 – primary merger control statute.

 Competition and Markets Authority (CMA) – principal enforcement agency (post-
2014, replacing the OFT and Competition Commission).
The CMA conducts independent inquiries into mergers that may affect UK markets.

(B) Test Applied – Substantial Lessening of Competition (SLC)

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Similar to the U.S. model, the SLC test determines whether a merger may result in a
substantial lessening of competition within any UK market.
This test replaced the older “public interest” standard and focuses on economic impact and
consumer welfare.

📖 Whish & Bailey (p. 233):

“The SLC test under the UK Enterprise Act reflects a modern, economics-driven approach
akin to U.S. merger review.”

(C) Enforcement Authority and Process

The CMA undertakes a two-phase investigation:

 Phase I: Initial review and clearance or referral for further scrutiny.

 Phase II: In-depth investigation, with powers to block or impose remedies.

(D) Illustrative Cases

 BAA Airports (2009): The CMA ordered divestiture of certain airports to prevent
monopoly in airport services.
 Sainsbury’s/Asda (2019): The CMA blocked the merger between two major
supermarkets, citing potential price increases and reduced choice.

(E) Remedies

The CMA may order divestiture, behavioral commitments, or prohibition.

It can also review foreign-to-foreign mergers that affect UK consumers post-Brexit.

🇦🇺 5️⃣ Treatment of Combinations in Australia

(A) Legislative Framework

Merger control in Australia is governed by the Competition and Consumer Act, 2010
(CCA), administered by the Australian Competition and Consumer Commission
(ACCC).

(B) Test Applied – Substantial Lessening of Competition (SLC)

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Under Section 50 of the CCA, a merger is prohibited if it has the effect or likely effect of
substantially lessening competition in any market in Australia.
The test mirrors the U.S. and UK standards but emphasizes practical market outcomes
rather than dominance per se.

Dugar (p. 263):

“The Australian model combines strict enforcement with pragmatic negotiation, recognizing
efficiency-based justifications.”

(C) Enforcement Authority and Procedure

 ACCC reviews mergers and issues informal clearance or authorizations.

 Parties may also seek authorization directly from the Australian Competition
Tribunal if the merger’s public benefits outweigh competitive detriment.

(D) Landmark Cases

 ACCC v. Metcash (2011): The court allowed the merger of grocery wholesalers,
finding insufficient evidence of SLC.
 Qantas/Jetstar Alliance (2007): Approved due to consumer and efficiency benefits
despite potential market overlap.

(E) Remedies

The ACCC prefers behavioral undertakings and court-enforceable undertakings rather

than structural breakups, reflecting a cooperative enforcement style.

🌍 6️⃣ Comparative Overview and Observations

Though the statutory language differs, all jurisdictions share a common analytical framework
— an effects-based approach focused on consumer welfare.

Jurisdiction Legal Test Authority Key Focus

Substantial Lessening of Market concentration, entry

USA DOJ & FTC
Competition (SLC) barriers

Significant Impediment to European Commission Dominance, efficiency,

EU
Effective Competition (SIEC) (DG COMP) innovation

Substantial Lessening of Competition and Markets Consumer welfare,

UK
Competition (SLC) Authority (CMA) efficiency

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Jurisdiction Legal Test Authority Key Focus

Substantial Lessening of Balance of public benefits

Australia ACCC
Competition (SLC) and competitive harm

📖 Whish & Bailey (p. 238):

“Despite jurisdictional differences, merger control globally converges on an effects-based
assessment of how transactions shape competition, innovation, and consumer welfare.”

7️⃣ Conclusion

Across the USA, EU, UK, and Australia, merger control aims to balance efficiency with
competition.
While the tests vary in terminology (SLC/SIEC), the underlying philosophy is uniform —
preventing structural changes that undermine market rivalry.

India’s AAEC test under Sections 5 and 6 closely aligns with these international standards,
especially the SLC and SIEC approaches, but adapted to its own economic realities.

📘 S.M. Dugar (p. 266) aptly concludes:

“Merger control represents a universal convergence of competition policy — diverse in form,
unified in purpose.”

Thus, the regulation of combinations across these jurisdictions serves the twin goals of
economic growth and fair competition, ensuring that consolidation does not come at the
cost of consumer welfare.

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