The history and evolution of

Competition Law and policy

Introduction
 Competition law has grown enormously in recent years,
especially since the1990s.
 The growth has been tremendous in terms of
geographical regions that have adopted competition law,
as well as in the increasing range of economic activities
now subject to competition law.
 There has been increasing reliance on competition policy
& law to address market failures and distortions
 The early implementation of a competition law is, as, has
stressed, not a luxury but a real necessity.
Introduction

 The original concept of competition, dating from the 18th

century, and Adam Smith's Wealth of Nations (1776)
merely meant the absence of legal restraint on trade.
 Modem economic theory, however, which stems from the
late 19th century, and led to the first anti-trust legislation,
viz, the Sherman Act in the USA in 1890.
ANTI-TRUST LEGISLATION IN USA
 The U.S could be termed as the cradle of Antitrust Law.
 As was the first country to introduce coherent
competition system.
 The legislative framework in US is made in three Statures:
the Sherman Act of 1890, the Clayton Act of 1914 and the
Federal Trade Commission Act of 1914,
 The Antitrust Laws comprise what the Supreme Court
calls a "Charter of freedom," designed to protect the
core republican values regarding free enterprise in
America.
 It has been argued that 'American antitrust law is not only
"law“ but also a socio-political statement about its society
SHERMAN ACT, 1890-PRECISION AND
OVER INCLUSIVENESS
 Sherman Act, 1890 originated out of popular concern for
the U.S economy during a period when a small number
of corporations had accumulated a huge amount of
wealth.
 Unconcerned with public interests, they grew as
dangerous business establishments known as “Trusts”
 They were growing in number and suppressing
competition.
 In order to curb the business excess and abuse while
preserving the competitive nature of the U.S. economy,
the Sherman Act, I890 became one of the first modem
Competition Law statutes
 Trusts manages companies without owning them
 Many smaller , competing firms merged into one big
company
 Eliminated competition to control prices & profits
 State
Capitalists In a capitalist
social society, all
welfare is businesses have
maximised an equal
in opportunity to
conditions thrive based on
competition.
of perfect When
and free monopolies and
competitio trusts exist,
n. competition
FREE cannot.
MARKETS FAIR
MARKETS
SHERMAN ACT, 1890-PRECISION AND
OVER INCLUSIVENESS
 Shaman Act, 1890 attempts to sustain the competitive process
The Act makes it illegal to try to restrain trade, or to form a
monopoly.
 It gives DOJ the mandate to go to Federal Court for orders to stop
illegal behaviour or to impose remedies
 The Sherman Act, 1890 contains two broadly construed substantive
sections.
 Under Section 1 of the Sherman Act, 1890, "every contract,
combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several States, or with
foreign nations, is declared to be illegal.”
 Section 2 of Sherman, 1890 makes it a felony for “every person
who shall monopolize, or attempt to monopolize, or combine or
conspire with any other person or persons, to monopolize any part
of the trade or commerce among the several states or with foreign
nations.”
 Standard Oil Company v. United states (1912)
 “the intent of Congress was not to restrain the right
to make and enforce contracts, but to protect the
commerce resulting from contracts or combinations,
which would constitute an interference with, or an
undue restrain upon it”.
Extra Territorial Effect

 The Sherman Act had even jurisdiction outside the American shores.
 The U.S SC in Hartford Fire Insurance Co. V. California
(1993) had observed that:
 " it is well established by now that the Sherman Act applies to
foreign conduct that was meant to produce and did in fact produce
some substantial effect in the United Stales "
 Thus, the court in this case had explicitly recognized the 'effects
doctrine’.
 Hoffman-La Roche Ltd. V. Empagram (2004) : Global
Conspiracy
A private plaintiff may not recover from independent foreign harm
unless it is linked with domestic harm.
Post 1890 Developments
 By 1890s industrial capitalism emerged & resulted in
Economic issues.
 US witnessed structural transformation by the late 1880s.
 Railroad development had connected the most important
cities; new industries, such as mining and steel.
 The banking and financial services sector was quickly
adjusting to provide the funds necessary to finance this
phenomenal development.
 On the political side, this transformation raised serious
concerns over the extent to which businesses were able
to dominate interstate commercial trade and price.
Post 1890 Developments
 Business consolidation roared along in the 1890s and
1900s.
 As a result, the progressive era put Anti-trust high on the
agenda.
 Roosevelt sued 45 trusts under Sherman Act.
 In 1902 Roosevelt stopped the formation of the
Northern Securities Company which threatened to
monopolize transportation in the north west.
 Contd….

 Informal collusion, were allegedly rampant during this

period.
 In spite of Sherman Act, monopolies and trusts lasted
well into the early 1900s.
 Illegal financial dealings of many conglomerates, such as
Standard Oil, American Tobacco, were busted and put the
Sherman Act under rigorous test.

 STANDARD OIL CO.V. UNITED STATES (1911)

 https://www.youtube.com/watch?v=6MaJeW4XBxU
 https://www.youtube.com/watch?v=9saLsvWcppw
STANDARD OIL CO. V. UNITED STATES (1911)

 The Government alleged that Standard Oil did not solely benefit from the
development of the new trust formation and superior business practice but
from “immoral acts – rebate taking, local price-cutting, predatory pricing,
conspiracy etc.”
 Decision
 Chief Justice Edward White writing for the majority, the Court ruled that
Standard Oil was participating in “restrain of trade and commerce in
petroleum.”
 In reaching its decision, the SC determined that the term “restraint of
trade” had come to include the formation of monopolies and their
consequences
 Thus holding the practices of Standard Oil as unreasonable and illegal.
Impact
 Standard Oil was ordered to be broken into 33 different companies.
 Rockefeller received 25% of the stock in each of the 33 companies which
saw his wealth increase from $300 million to $900 million shortly after the
ruling.
Loopholes in the Sherman Act
 Many people perceived the Sherman Act, as ineffective because
the greatest merger activity of the period occurred after the
passage of the Sherman Act, between 1895 and 1904.
 Because It does not deal with anti-competitive mergers or
corporate amalgamations.
 It only forbids collusion and monopolization, including
predation.
 Further, in passing Sherman Act, the Congress did not give any
indication of its intention about what the expressions
"restraint of trade" and "attempts to gain monopoly,
mean and stand for.
 Uncertainty prevailed about what is legal.
 THE CLAYTON ACT, 1914
 In such a scenario, Stopping monopolies before they could
even be conceived was the main agenda.
 Again, regulation was seen as the answer.
 In 1912,WoodrowWilson won the elections.
 Democrats heavily favoured the passage of antitrust
legislation.
 The Clayton Act was enacted in the year 1914
 The Act was passed in response to the public outcry of the
period.
 Legislation aimed at the prevention of monopolies.
The effect
 Congress was concerned that the American Competition Law
would not be effective or consistent, if left up to judges to
decide on a case on a case basis whether restraints or actions
were "reasonable.“
 With Clayton Act, Congress increased the power of the
Attorney General and restricted the powers of the courts.
 monopolizing acts which were condemned under the Sherman
Act were further specified under the Clayton Act.
 It substantially addressed price discrimination, tying and
exclusive dealing, mergers and acquisition.
 The test for prohibition is "substantially to lessen competition
or to create a monopoly in any line of business".
Cntd…

 The Clayton Act, 1914 extended the prohibition of the

Shaman Act, 1890 to price discrimination, exclusive dealing
and mergers.

 Enforcement : Provides for private enforcement

 Exemptions
 The Act exempts labor unions and agricultural
organizations.
Difference btn Sherman Act,1980 and Clayton
Act, 1914
Sherman Act, 1980 Clayton Act, 1914
 Federal Law. General in nature.  An amendment to the Sherman
Act. Specific in nature.
 Prohibits contracts, trusts or  Prohibited specific actions that can
conspiracy in restrain of trade be anti-competitive such as
of interstate or foreign states exclusive dealing, tie-in, price
discrimination,
 It was meant to limit the
power of cartels & monopolies
 Did not expressly deal with  Specifically dealt with M& A
M&A  Provides only for civil remedies
 Provides for both civil &  Both DOJ and FTC
criminal remedies  Provides for detailed
mechanisms & detailed
 DOJ is authorised technically exemptions.
FEDERAL TRADE COMMISSION ACT,
1914
 In 1914. the Congress passed another Act, vlz., Federal Trade
Commission Act, 1914, to impose a general ban on "unfair'
acts, practices and methods of Competition
 Declares unlawful, unfair methods of competition, and
deceptive acts or practices, in or affecting commerce.
 It establishes a commission, known as FTC which is
empowered to take action against persons, partnerships, or
corporations from using those unfair methods or acts or
practices.
 It is also empowered to take action against conduct that
violates the Sherman and the Clayton Act as well as
anticompetitive practices that do not fall within the scope of
these Acts.
The Robinson-Patman Act of 1936

 The Clayton Act was amended by the Robinson-Patman

Act.
 The Robinson-Patman Act of 1936, also called the
Anti-Price Discrimination Act, made it illegal for
companies to engage in price discrimination.
 Price discrimination is a practice where a company will
charge two different customers different prices for the
same good.
CELLER-KEFAUVER ACT, 1950
 The Celler-Kefauver Anti-merger Act of 1950 is a U.S. federal
statute.
 This Act is an amendment to the Clayton Antitrust Act of
1914.
 The object of the Act is to restrict anticompetitive mergers
resulting in acquisition of assets.
 The Congress intended to close loophole in the original
section by broadening its scope so as to cover the entire range
of corporate amalgamations from pure stock acquisitions
to pure acquisitions of assets.
 It reformed and strengthened the Clayton Antitrust Act by
prohibiting buying up a competitor’s assets if the result of that
activity reduced competition.
 The Act empowers the government to prevent vertical
mergers and conglomerate mergers which could limit
competition.
 Thus it empowered the government to stop vertical
mergers and asset acquisitions that reduced the
competition.
The Hart-Scott-Rodino Antitrust
Improvements Act of 1976:
 This Act amends the Clayton Act
 Required that companies planning large mergers or
acquisitions to notify the government of their plans in
advance
 Established the Premerger Notification Program- with
FTC & DOJ.
 Provided for waiting period.
 requires a filing fee.
Conclusion
 The overview of the American competition law evidently
shows that it is the product of legal evaluation, informed by
changes in economic understanding.
 The antitrust agencies play critical roles not just by filing
lawsuits but also by participating in the antitrust conversation
by filing amicus briefs, delivering speeches, undertaking studies
and conducting hearings and workshops.
 Further, Private enforcement plays a critical role in shaping the
American competition Law.
 https://www.salon.com/2018/05/13/the-monopolization-of-
america-the-biggest-economic-problem-you-are-hearing-
almost-nothing-about_partner/
HISTORY OF EUROPEAN UNION’S
COMPETITION LAW
 Development of EU Competition Law

 The idea of using law to protect the competitive process

emerged in Europe in the 1890s.
 In Austria, a group of scholars and administrators articulate the
idea of using law to encourage economic growth and
competitiveness.
 The proposed legislation was discussed and almost enacted, but
political turmoil within the Empire in 1897 prevented its
enactment.
 After the end of the Second World War, many European
governments turned to Competition Law as means of
encouraging economic revival.
 The initial phase, which occurred in the late 1950s and early
1960s, is marked by the agreement of the six member state
governments to delegate powers in the competition arena to
the supranational level.
The initial phase

 The earliest 'Community Competition Controls' were

introduced in the Treaty of Paris (1951)
 They were for limited markets.
 The creation of the European Economic Community also
referred as “common market” in 1957 (created by treaty
of Rome,1957).
Development of EU Competition Law

 The 'European Economic Community' ("EEC"), was

established
 to create an European common market and
 to promote throughout the Community a harmonious
development of economic activities, an increased
stability, raising of the standard of living and closer
relations between member states.
 to prevent a re-occurrence of a war in Europe, in order to
unite the people, at least economically.
 The Common Market was intended to create
interdependence btn the States of Europe.
 Hence more competitive opportunities had to be created
throughout this 'integrated market'.
 Accordingly, competition rules were included to assist in the
creation of a unified competitive environment and in an
attempt to prevent companies from re-erecting trade
barriers.
 The companies and firms in European Union were under an
obligation to treat the Community Competition Law and the
national competition law on the same par.
Second Phase
 The second phase saw the establishment of DG COMP in the
mid 1980s.
 The supranational competition order suffered from various
problems such as long time taken to settle cases, lack of
transparency, weak analyses of the facts, too much room for
politicization.
 DG COMP initiated the first major review of the EU
competition machinery in 1999.
 The Modern Regulation of 2004 : more powers to the
investigators and the courts.
 Resulted in decentralising competition policies of EU.
 In order to coordinate national and EU competition policies,
the European Competition Network was set up.
Four main pillars of EU competition law

 Antitrust
 control of collusion and other anticompetitive practices
which has an effect on the EU. (Art.81 and 82 EC, now
Art. 101 & 102 of TFEU ).
 The thrust of the law is not on the structure but
definitely on the behaviour.
 Mergers
 control of proposed mergers, acquisitions and joint
ventures involving companies, which have a certain,
defined amount of turnover in the EU.
 The Merger Regulation adopted in 1989 and replaced by
the Merger Regulation of 2004
 State aid
 State aid pertains to control of direct and indirect aid
given by EU Member States to companies.
 It is illegal, if it distorts competition Art. 107-109 of TFEU
.

 Enforcement
 Primary competence for applying EU Competition Law is
with European Commission and its DG for Competition,
COMPETITION LAW IN UK
 During the 1980s there was growing pressure within government
and outside to strengthen UK competition legislation and make it
consistent with EU law.
 In 1992 a government Green Paper outlined alternative changes to
the control of monopolies to make UK law more consistent.
 Competition law in the UK remained essentially unchanged until the
arrival of a Labour Government in 1997.
 The new Competition Act received the Royal Assent on 9
November 1998.
 The Competition Commission was established in 1999;
 a new prohibition-based policy aimed at outlawing anti-competitive
behaviour took effect from 2000.
 The EnterpriseAct 2002 : OFT (Merger Control)
 The Competition and Markets Authority (CMA) : 2014
DOCTRINE OF RESTRAINT OF TRADE
 A common Law Doctrine
 Applies to contacts
 Restrictive covenants are vital to protect the interests of the
employer as there are no implied terms that provide protection
from competition, solicitation and sharing of trade secrets or
confidential information after the contract of employment is
terminated.
 Limited doctrine which allows a party to escape a contract which
unreasonably restrain their ability to trade.
 The Doctrine : Under the early common law of England. all
contracts whereby a person bound himself to abstain from the
exercise of a particular trade, business or vocation, were void,
regardless of whether the restraint was general or special. as being
against public policy.
 John Stuart Mill believed the restraint of trade doctrine
was justified to preserve liberty and competition
 Why Void ?????
• contracts in restraint of trade are designed, to destroy or
stifle competition, effect a monopoly, artificially maintain
prices.
• to enforce such a contract was to deny the tradesman the right
to earn his living.
 Dyer’s Case (1414) : Dyer, had entered into a bond not to do
the trade of dyer in a certain town for six months.
 Hull J held that the obligation was illegal and void.
 as the common law at that time prohibited all contracts in
restraint of trade
 Any contract which tended to strengthen this natural monopoly
was void.
 This rule continued through successive decisions for two
hundred years.
Modern Doctrine
 Under the more recent rule, covenants in partial restraint of trade, are
generally upheld as valid when they are reasonable.
 this type of clause is de rigueur in contracts for the purchase of shares
and businesses, employment agreements and in covenants to protect
confidential information, trade secrets and know-how.
 Nordenfelt v Maxim Nordenfelt Guns and Ammunition
Company (1894)
• The covenant was held to be reasonable and enforceable.
• It was found to be reasonably necessary for protection of goodwill.
 The remedy lies on three parte tests :
 the terms seek to protect a legitimate interest
 Reasonableness as btn the parties
 Reasonableness in the public interest.
 Courts label them ‘void’ and ‘contrary to public policy’ and will not
enforce them unless ‘special circumstances’ show them to be
Modern Doctrine

 Lord McNaughton:
 The general rule.
• The public have an interest in every person’s carrying on
his trade freely: so has the individual.
• All interference with individual liberty of action in trading
are all restraints of trade.
• They are contrary to public policy, and therefore void.
• Exceptions:
• Restraints of trade and interference with individual
liberty of action may be justified by special circumstances
of a particular case
 Nordenfelt represents the modern articulation of the
doctrine: rather than prohibiting clauses outright.
 An attempt to balance freedom of contract and the
freedom of trade.
 it justifies judicial interference with freedom of contract
where a restraint is unreasonable.
 B’coz Monopolies were prima facie bad, even if the
economics of protectionism justified them.
 reasonableness began to find favour.
THE FRANCHISE MODEL
 The franchise model provides an example of the ideal
approach to restrictive clauses, illustrating the paradigm shift
which is necessary in respect of restraint of trade.
 The traditional approach has been to view franchise
agreements as ‘very different to an agreement by the owner of
a business.
 Prontaprint PLC v Landon Litho Ltd,(1987):
 the relationship of franchisor and franchisee was described as
being closer to that of vendor and purchaser of a business
rather than of employee and employer.
 the franchisor has every right to protect their business
interests by way of a reasonable restraint of trade clause
Conclusion
 the public interest component of the common law rules
has been deemed an economic efficiency criterion
 Commercial life depends upon the existence of such
clauses.
 The competition policy assumes that valid clauses are
essential exceptions.
 On the ground of strong commercial demand for valid
clauses, the doctrine can be reviewed to make modern
commercial and economic sense.
THE HISTORY AND EVOLUTION OF
INDIAN COMPETITION LAW
 Provision of Constitution Leading to the Enactment of
MRTP Act 1969

 India has had a history of competitive markets.

 Kautilya‟s Arthashastra, deals with statecraft and economic policy.
 Articles 38 and 39 of the Constitution of India mandate that the
government shall secure and protect the society where people will get
social, economic and political justice and the State shall direct its policy as-
 The ownership and control of material resources are so distributed as best
to assist the common good.
 The economic system does not operate as it creates a concentration of
wealth and means of common detriment.
 India chose a centrally planned economic structure also referred to as the
Nehruvian socialism model. The Nehruvian model was a mixed economy
model
Industrial (Department and Regulation)
Act (IDRA), 1951
 It empowered the government to regulate almost every aspect
of the functioning of the private sector.
 The private sector was allowed with limited licensed capacity.
 Public sector were patronized to achieve growth and
development of core industries like coal, oil & natural gas , iron
& steel, power & energy etc.
 No competitors in the market.
 Free competition in the market suffered a lot mainly because
of Govt. policies : High tariff & no proper license regime.
 Resulted in monopolies and License Raj
MRTP Act,1969
 The Act in 1969 following a government inquiry into
private sector concentration : Report of the Monopolies
Inquiry Commission (1965).
 The inquiry produced a report demonstrating that over
85% of industrial areas had a “high concentration of
economic power.”
 The Committee ultimately passed MRTP Bill with the
goal of limiting market concentration by industry.
 The MRTP Commission was established.
 It was charged with investigating the conduct of entities
suspected of engaging in monopolistic, restrictive, or
unfair trade practices.
Highlights of MRTP Act
 Three types of prohibited trade practices – namely, Restrictive
Trade Practices (RTP), Unfair Trade Practices (UTP), and
Monopolistic Trade Practices (MRTP).
 All large companies were required (whose assets exceeded
INR 20 Cr.) or “dominant” companies (whose assets exceeded
INR 1Cr. and whose share of the market exceeded 25%) to
obtain licenses or permits before engaging in mergers or
takeovers, establishing new ventures, or substantially expanding
old ones.
 Firms with assets of more than INR 100 Cr. were prohibited
from expanding into sectors not selected by the government.
Highlights of MRTP Act
 High Powered Expert (Sachar) Committee : 1977
 In 1977, unfair trade practices, such as false or misleading
advertising, were included in the list of prohibited activities.
 The MRTP Act was amended in 1984 to prohibit monopolistic
trade practices, which were defined quite broadly.
 1991, the MRTP Amendment : Removal of licencing
requirement
Reasons for its failure
 MRTP Act’s licensing requirement and strict regulation of
growth punished efficiency.
 The MRTP Commission lacked the power to impose
substantial penalties for violations. Its primary tools were
cease and desist orders, which were often ignored.
 The Act was also excessively vague. It failed to define many of
the anti-competitive acts :“unfair trade practices”
 the MRTP Commission was not interested in pursuing cartels.
Only seven cartel cases were resolved from 1991 to 2007, and
almost all resulted in dismissals because of a lack of evidence
of an agreement.
Raghavan Committee
 The economic crisis faced by the country led to economic reforms and
initiation of the New Economic Policy (NEP) 1991 and the New Industrial
Policy (NIP) 1991.
 This move away from “command and control” culminated in an
overhaul of the competition laws.
 India became a party to two important agreements of the WTO :
GATT & TRIPS
 In his 1999 budget speech, the finance minister explained,
“The MRTP Act has become obsolete in certain areas in the light of
international economic developments relating to competition laws. We
need to shift our focus from curbing monopolies to promoting
competition.”
 A High Level Committee on Competition Policy and Law, known as
the Raghavan Committee to evaluate the MRTPAct.
 The Committee found that the MRTP to be inadequate
“for fostering competition in the market…and
reducing…anti-competitive practices…”
 Committee recognized that substantial expertise would
be necessary to institute an effective competition regime.
 The Indian Parliament enacted the Competition Act in
December 2002 and it received Presidential assent in
January 2003.
Major recommendations of the committee

 To repeal the MRTP Act and to enact a new Competition

Act for the regulation of Anti-competitive agreements and to
prevent the abuse of dominance and combinations including
mergers.
 To eliminate reservation of products in a phased manner
for the Small Scale Industries and the Handloom Sector.
 To divest the shares and assets of the government in state
monopolies and privatize them.
 To bring all industries , the private as well public sector
within the proposed legislation
Competition Act, 2002 : Basic concepts
and definitions

Concept of market, Open market- Regulated market.

 Market : It is the sum total of all the buyers and sellers
in the area or region under consideration.
 The value, cost and price of items traded are as per
forces of supply and demand in a market.
 The market may be a physical entity, or may be virtual. It
may be local or global, perfect and imperfect.
 Open Market :
 An open market is an economic system with no barriers to free market
activity.
 An open market is characterized by the absence of tariffs, taxes, licensing
requirements, subsidies, unionization and any other regulations or practices
that interfere with a naturally functioning free market.
 Anyone can participate in an open market.
 There may be competitive barriers to entry, but there are no
regulatory barriers to entry.
 According to the OECD (Organization for Economic Co-operation and
Development), open markets enjoy stronger economic growth, higher
productivity, a superior standard of living, more innovations, and stronger
institutions and infrastructure than closed markets.
 Regulated Market:
 A regulated market is a market over which government
bodies exert a level of oversight and control.
 The main objective with which the regulated markets are
formed is to eliminate illegal and unhealthy marketing
practices, to lessen marketing charges and to ensure fair
prices both to producers and consumers.