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Overview ofCompetition Law & Related

Issues

Some ASIAN Jurisdictions

byManas Kumar Chaudhuri,

Additional RegistrarCompetition Commission of India

28 August, 2005

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Need for Competition Law

Competition:

Increases efficiency

Encourages innovation

Enhances consumer welfare wider choice,lower prices, better quality

Conducive to economic and political democracy

Apprehension of market failure has prompted 100 countries to enact modern competition laws

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Competition Law

Main features of Competition Act

Prohibits Anti-Competitive Agreements

Prohibits Abuse of Dominant Position Provides for Regulation of Combinations

Mandates Competition Advocacy

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AntiCompetitive Agreements

Horizontal Agreements including cartels, e.g., pricefixing, limiting production, sharing markets, bid-rigging

Vertical Agreements e.g., tie-in, exclusive supply/

distribution, refusal to deal Cartel regarded most pernicious violation - heavy

penalties - criminal offence (lysine, vitamins, graphiteelectrodes)

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Abuse of dominance

Not dominance, but abuse is illegal

Dominance based, not on arithmetical formula,but on economic factors listed in Acts

Abuse includes : discriminatory pricing, limitingproduction, denying access

Examples : Microsoft (penalized Euro 497m)

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Mergers

Ex-post action

Notification either compulsory or optional

Strict time frame for decision

Threshold limits

Less than 5% merger applications areprohibited worldwide

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Overview of Asian Competition

Authorities

42 Jurisdictions

12 Jurisdictions have the law in place

05 are in the process of having it in place

soon

Japan and Korea are leading CompetitionAuthorities of Asia closely followed by Israel,

Indonesia, India and Taiwan

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Where do authorities exist ?

Azerbaijan India Indonesia Israel Japan

Korea Singapore Sri Lanka Taiwan Bangladesh* Pakistan*

Thailand* Not modern Competition Law but MRTP Ordinance of 1970

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Where about to come up ?

Bahrain

Brunei Darussalam

China

Hong Kong

Vietnam

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Japan

Assures the interest of consumers

Democratic and wholesome development ofthe nation

Promote free and fair competition

Prohibit cartel

Prohibit private monopolization

Prohibition of unfair trade practices

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Japan (contd. )

Independent of Cabinet

Chairman and Commissioners are appointedby the Prime Minister with the consent of both

Houses of the Parliament JFTC is under the supervision of Diet

Total staff 672

Number of Investigators 331 Budget in Billion Yen 7.82 (2004)

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Japan (contd. )

Independent Administrative Agency

Has quasi-judicial legislative power ofenacting internal regulations

Has quasi-judicial power of implementinghearing procedures

[Identical to Indian Law section 7(2), 50, 51, 64

and Chapter IV]

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Japan (contd. )

Cartels

JFTC implemented cartel investigation as aresult of that from 1079 cases in 1966 it has

dropped to 15 in 2000 Detection by FTC Investigation commences

Decision at JFTC after investigation

Appeal by way of Law suits

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Japan (contd. )

Merger Control

Mergers are regulated by Antimonopoly Actof Japan (AMA)

Thresholdone partys assets/turnover of atleast US $ 91.6million and the other partysassets/turnover about US $ 9.2 million inJapan

Notification is mandatory when thresholds areexceeded all parties to notify jointly

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Japan (contd. )

Merger Control

Time taken by JFTC 30 days

During merger evaluation, the JFTC may conduct

hearing with competitors JFTC may prohibit a merger, allow or modify

Appeal lies within 30 days to Tokyo High Court

Penalties up to US $ 18,313 and in breach in addition

to penalty jail term up to 10 years

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Japan (contd. )

Joint ventures

Under Anti Monopoly Act, the founding of aseparate joint venture company is evaluated

under the 2004 Merger Guidelines

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Korea (contd.)

KFTC is Ministerial level CentralAdministrative Organization

Quasi-judicial body functions under the

authority of the Prime Minister Independent of outside intervention

Promoting competition

Strengthening consumer rights

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Korea (contd.)

Case handling in two stages

Examination

Deliberation

Examination Receipt a report of violation of the law

Competition Bureau or Regional Officelaunches examination

Includes investigation, taking statements ofrelevant parties, consultation with experts andconducting legal reviews

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Korea (contd.)

Opportunities are given to parties to voiceview points

Confidentiality is maintained

If legal measures are decided to be takenexaminer makes a report and copy of thesame is sent to the examinee (oppositeparty) for objections/comments

Examiner sends his/her report together withthe objections & comments of the examineeto the Commissioner

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Korea (contd.)

Deliberations

Commissioner reviews the report and theobjections of the examinee

Examinee is notified of the date, hour, venue ofthe legal proceedings

Process involves review of investigation, findings

Examiners statement

Examinees statement

Investigation in to evidence

Examiners final opinion

Examinees final statement

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Korea (contd.)

Final Order passed by the Commission

Can be cease and desist order

Also fine

Party aggrieved may file appeal before HighCourt

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Korea (contd.)

Recent decision on Cartel

On 25 May 2005 KFTC imposed a correctiveorder of approx. 114 million US$ as

surcharge on three telecom operators KT,Hanaro Telecom and Dacom - for fixing pricein local call market

Hanaro received a 49% reduction in itssurcharge for providing co-operation in cartelinvestigation

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Israel

The Israeli Antitrust Authority

Headed by Controller

Appointed by the Government on therecommendation of the Israeli Minister of Trade andIndustry

Comprises a Legal Department, EconomicDepartment and Criminal Investigation Department

It has broad powers to initiate and conduct criminalinvestigations of alleged violations of the RTPs, aswell as to initiate administrative inquires

Tribunal acts a Court of Appeal

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Merger Control in Israel

Mergers and Acquisitions are regarded asRTP

All mergers are notified and are reviewed by

the Authority Thresholds

Notifications are mandatory

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Merger Control in Israel (contd.)

Thresholds Acquisition of most of the assets of a company by

another company

More than 25% of the nominal value of the issued

capital or voting power Right to appoint more than one-quarter of the directors;

or

Right to participate in more than one-quarter ofcompanys profit

Aggregate sales turnover of merging companies in thefiscal year preceding merger in Israel exceeding US$33 million and sales turnover exceeding US $ 2.2million

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Merger Control in Israel (contd.)

Obligation to suspend The parties areglobally barred from closing or implementingthe merger until approval is obtained from the

Authority Timetable Authority must review merger

notifications within 30 days, commencingfrom the date of receipt by Authority; failure to

do so will constitute approval of the mergernotification

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Merger Control in Israel (contd.)

Remedies

Criminal proceedings before District Courts

Authority can initiate proceedings before

Competition Tribunal for de-merger Aggrieved party may file appeal before

Tribunal

Tribunal may uphold the findings of the

Authority, modify or set aside

Appeal from Tribunal is available before theSupreme Court

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Merger Control in Israel (contd.)

Penalties

Failure to notify, delay in notifying or failure toobserve condition constitutes a criminal

offence Three years imprisonment may become five

years in case aggravating circumstances

Fine up to about US$ 443,312 for an individual

and double for a body corporate

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Leniency Programme

Section 46 of the Indian Law

First information before commencement ofinvestigation

KFTC reduced surcharge to the tune of 49% in caseshown in the previous slide is an act of leniency

Cartels are secret understanding between andamong competitors in the same level of business tofix price and make unlawful profits

Japan is considering leniency up to 100% [newamendment proposals of 2004]

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Indian Evidence Act, 1872

Sections 133 and 114 (b)

Accomplices evidence, evidence of co-

accused, corroboration with materialparticulars in criminal cases

Pardon granted to such co-accused or

accomplice by courts Same principle applies in case of leniency

towards co-accused in cartels

Leniency concept

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Quasi - judicial Body

Statement of Objects and Reasons of theIndian Competition Act, 2002 at paragraph 3states that the Commission will be a quasi-

judicial body Japanese and Korean Commissions are also

quasi-judicial bodies

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Supreme Court of India in AIR (37) 1950 SC 185 atpage 195 para 25 observed as to what constitutesa quasi-judicial body

The Court held

1 Existing disputes between parties and presentationof the same

2 If dispute is a question of fact, ascertainment of factby evidence/arguments

3 If dispute is of law then submission of legal

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

evidence and law of the land

Quasi - judicial Body (contd.)

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Quasi - judicial Body (contd.)

A quasi-judicial decision equallypresupposes an existing dispute betweentwo or more parties and involves

1 Existing disputes between parties andpresentation of the same

2 If dispute is a question of fact, ascertainmentof fact by evidence/arguments

May involve 3 of previous slide but never the 4th

Stage all stages i.e., 1 4 are stages ofJudicial Bodies

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Quasi-judicial body (contd.)

All Competition Commissions receive complaint,reference, information etc. of a violation of someprovisions of the Competition Act

It immediately gives rise to a dispute between parties

Parties submit respective facts in support of theircontentions with supportive evidences

Commission weighs facts, evidences and decidesdisputes

The two basic ingredients, as decided by SupremeCourt of India in 1950, are fulfilled

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Cross border issues

International Co-operation

Implementation of effects doctrine

Membership of international bodies for

implementing co-operationagreements/arrangements

Exchange of concepts for minimizing crossborder violations e.g. international cartels

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Need for professional manpower

Competition issues mixtures of economics and law

Investigation needs analysis of economic principlesand tools, accounting methods, legal principles

Japanese Competition Authority had over1000professional manpower in 2004

Associations of Indian Chambers of Commerce andIndustry emphatically stress professional manpowerfor the Indian Competition Authority

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Funding of Commissions

Mostly through governments

May affect autonomy and independents

If affects, contradicts one of the basicingredients of competition policy

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Some Important Cases

Graphite Electrode

UCAR International Inc in 1995 took part ininternational price fixing conspiracy. Graphite

Electrodes are used in manufacturing ofsteel. A federal jury of the Philadelphiaconvicted the Company and paid fine of US$110 mn after being pleaded guilty of price

fixing

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Some Important Cases

Lysine Cartel

All important Lysine producers of the worlddoubled the international price of Lysine for

three years. Lysine is a feed additive forpoultry. During the continuance of theconspiracy, the cartel raised prices on overUS $ 1.4 bn in global sales, which implied

overcharging of US $ 140 mn

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Some Important Cases

Vitamins Cartel

Hoffmann-La Roche & Lonza AG, BASF, Degussa-Huls Agand Merck KGAA of Germany and Rhone-Poulenc of France led a global conspiracy to fix price

of vitamins, allocate markets, supply contracts andsales apart from bid-rigging on several occasions.Majority colluding firms admitted the conspiracy.Roche agreed to pay US$ 500mn. Five executives ofLonza agreed to cooperate in the investigation and

paid fine of US$ 10.5 mn. BASF paid a fine of US $225 mn but Rhone-Poulenc through leniencyprogramme escaped punishment because it suppliedmost of the evidence

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Important Observations

Accountants have a very significant andmajor role in investigation

Under Indian Law they have been statutorilyallowed to present cases before Commission

Their association, in a given case, would notend at the level of Commission but wouldcontinue till finally disposed of at the level of

Appellate Court

Accountants are eligible to become Memberstoo a challenging career opportunity

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Thank you

cci-manas@nic.in