Combinations and their anticompetitive effects under the Competition Law

Introduction

Competition is present in every business where one entity needs to strive hard to get clients or customers while competing with its competitor. The presence of healthy competition makes it possible for all business entities to carry out fair trade practices in the market.

The phrase “combination” refers to the purchase, merger, or amalgamation of more than one business by one or more people. The purpose of the defining combinations under the Act is because of the abuse of dominant power by dominant enterprises in the market, according to solicitors in Dublin. The Competition Act, 2002 binds the parties to the combination and sends the mandatory notification to the Competition Commission of India (CCI).

Hereinafter, the article also discusses the anti-competitive effects of combination which leads to monopolization in the market. Business entities always strive hard to reduce the competition in the market as high competition reduces individual entity market share, customer base, and growth of a particular company.

History and Evolution of Combinations in India

Near the turn of the 20^th century, business enterprises found it very difficult to survive initially. Foreign investment made it easy for Multinational companies to carry out business in India. Also, the two international agreements called the General Agreement on Tariffs and Trade (GATT)[i] and The Trade-related Aspects of Intellectual Property Rights (TRIPS) [ii]contributed to including the concept of combinations under the Competition Law. The period of liberalization, globalization, and privatization brought the idea and application of combination in India as it was not familiar to Indian companies initially.

Based on these two agreements, the Government of India formulated a committee known as the Raghavan Committee. This committee recommended the Government concentrate on the areas of Combinations while reviewing the Competition Law.

The objective behind such a recommendation is to prevent the abuse of dominant power by dominant companies that aims to reduce competition and carry out unfair trade practices in the market. In this way, the concept of Combinations was introduced and was focused on under the Act.

Combinations Defined

Combinations are described as “the acquisition of one or more firms by one or more persons or merger or amalgamation of enterprises”[iii] in Section 5 of the Competition Act, 2022.

Section 2 (a) says that “Acquisition” refers to the act of directly or indirectly obtaining or agreeing to obtain any enterprise’s shares, voting rights, or assets; any enterprise’s control over management or control over its assets.[iv]

An illustration of this would be Elon Musk, the CEO of Tesla, who recently acquired Twitter for

$44 billion through this acquisition, Mr. Musk holds a majority stake of 9.2 % in Twitter.

The Competition Act, 2002, does not define the term ‘merger’ and ‘amalgamation’. However, a merger basically means two or more enterprises merge to carry out business with the objective expand their business. In the case of a merger, one enterprise will have control over a specific part of assets, voting rights, and decision-making power over the other enterprise.

An example of this would be the recent Zee- Sony merger where Sony Pictures Networks India, one of the biggest media and entertainment entities will hold a majority stake i.e 52.93% and 47.07% stake by Zee Corp through its merger. The Sony Group will now be able to nominate the majority of the board of directors as a result of this merger. 75 TV stations, 2 movie studios, 2 online video streaming services, and a digital content studio are all owned by these amalgamated businesses.

The Combination also includes amalgamation which means two or more companies merge to carry out business forming a new entity by destroying the older one. A strong or large company

takes over the weak company and becomes the transferee. Here, the merged entity shares the profit and loss of the company.

Need for Combinations

What is the need for merger, acquisition, and amalgamation? Why is it performed by big corporations in the market? What is the use of merging two or more companies while carrying out business?

The answer to the above questions provides the objective of the concept of combinations in the market. A combination is performed mainly to increase the:

• Market share of a particular
• Process control by the
• The supply chain of the
• Profit of the
• Potential Consumers.

It is also performed to reduce competition and compete in the global market. The threshold for a combination in case of combined assets would be Rupees 1500 crores in India and combined turnover to be Rupees 4500 crores.[v]

Kinds of Combinations

Conglomerate or Lateral: Any enterprises carrying out different kinds of business perform combinations with the same

Eg: eBay and Pay Pal merger in 2002 [vi]e-Bay is an e-commerce industry carrying out business to consumers and consumer-to-consumer activities in the form of sales of products.

Meanwhile, Paypal is a payment platform that provides digital payment services. These corporations merged to enhance their business.

Horizontal: Enterprises carrying out similar kinds of business combined with a common intent for the growth of the business is called a horizontal

Eg: a) Disney accepts to pay $7.4 billion to acquire Pixar in 2006[vii]. Disney is a multinational media and entertainment business based in the United States. Pixar is also a

US-based animation company. In addition to giving Pixar’s CEO Steven P. Jobs a

Significant role in Hollywood, the agreement raises hopes that Disney may revive its longstanding legacy of animated storytelling.

1. Acquisition of Instagram by Facebook in 2012 for $1 billion. As everyone are aware that these two entities carry out the same kind of business i.e social media services. Around $20 billion income is generated by Instagram after its
2. Vodafone- Idea Merger

This deal depicts the merger in the Indian Telecom business. Vodafone India is a UK – based telecom company having one of its branches in India. Idea is also a telecom MNC company which is established under the Aditya Birla Group. The merger was performed for $24 billion.

Vertical: It is the fusion of businesses in the same industry at different stages of development like raw materials, manufacturing, distribution, and retail

Eg: Amazon, which has its own distribution network, products, and services[viii]. This enables it to vertically combine with its dealers, manufacturers, or business.

How combinations affect competition in the market

When two or more entities are merged or acquire other entities then it leads to monopolization in the market. In addition, fewer possibilities for customers to purchase products will result from combinations. It reduces competition in the market and the Competition Act, 2002 mainly aims to prohibit those acts and agreements which are anti-competitive in nature. [ix]

Combinations also prevent the entry of new entities into the market which also leads to unfair trade practices. Combinations also support the business in a positive way like an increase in market share, profit, etc.

In a recent case of Google v. CCI, 2015 [x]where CCI fines Google Rs. 1337.76 crores for engaging in anti-competitive practices with regard to Android mobile devices for abusing its dominant position in the market.

Facts of the Case

Smartphones need an operating system to function properly and Android is one of the operating systems which is used in every smart phone. In 2005, Google acquired Android. Google mandated that mobile manufacturing owners enter into Mobile Application Distribution Agreement (MADA), Anti-fragmentation Agreement (AFA), Android Compatibility Commitment Agreement (ACC), Revenue Sharing Agreement (RSA), etc. to grant permission for use of the Android operating system in their smartphones. Also, Google posed a condition to pre-install all the google apps in every smartphone as in-built apps.

Issue

These practices by Google indicated abuse of its dominant position in the market which prohibited other app owners to enter the market. Other competitors’ products were not used and installed by the mobile manufacturing owners due to their agreements with Google.

Held

The CCI imposed a penalty of Rs. 1337.76 crores with cease and desist order against google for their anti-competitive practices in the market. Therefore, CCI has all the powers to prohibit those practices that are anti-competitive in nature.

The objective of including Combination related provisions under Competition Law

The Act regulates mergers, acquisitions, and amalgamation with the intent to prevent adverse anti-competitive effects on competition in the market. When the combinations resulted in monopoly and unfair trade practices in the market then the relevant authority felt the necessity of a provision under the Act.

Section 6 of the Act [xi]provides that a combination performed by any person or enterprise which causes an adverse effect on competition in the Indian market is said to be void. So, this provision limits the business entities to perform the combinations reasonably.

The parties to the combinations need to send mandatory notice to the Competition Commission of India to seek approval for the proposed combinations. CCI is the regulatory body that governs the combinations across the country as per the governing law.

Conclusion

As a result of the aforementioned discussion, Combinations are necessary and at the same time need to be regulated by governing law which helps to prevent monopoly and unfair trade practices in the Indian market.

The CCI [xii]prohibits any acts, agreements, or combinations that are mainly anti-competitive in nature which is the basic test being put forth by the commission. Additionally, if the parties fail to notify the commission then CCI has full power under the act to impose a penalty of 1% out of final assets or turnover of the proposed combination[xiii]

End Notes

[i] Pradeep Gulrajani, Regulation of combinations in India, Indian Journal of Law, Polity and Administration, https://www.ijlpa.com/_files/ugd/006c7e_dff182d8434f49d49d5944e2d7dac35e.pdf?index=true (last visited Nov.26, 2022).

[ii] Pradeep Gulrajani, Regulation of combinations in India, Indian Journal of Law, Polity and Administration, https://www.ijlpa.com/_files/ugd/006c7e_dff182d8434f49d49d5944e2d7dac35e.pdf?index=true (last visited Nov.27, 2022).

[iii] The Competition Act, 2002, No. 12, Acts of Parliament, S. 5 (India).

[iv] The Competition Act, 2002, No. 12, Acts of Parliament, S. 2(a) (India).

[v] Provisions relating to combinations, 5, Advocacy Series, 5 (2002),

https://www.cci.gov.in/public/images/publications_booklet/en/provisions-relating-to-combinations1652177374.pdf.

[vi] Dr.R.Geetharamani, Business Organisation, government arts college autonomous Coimbatore, 3, https://gacbe.ac.in/pdf/ematerial/18BBA14C-U5.pdf (last visited Nov.27, 2022).

[vii] Dr.R.Geetharamani, Business Organisation, government arts college autonomous Coimbatore, 2, https://gacbe.ac.in/pdf/ematerial/18BBA14C-U5.pdf. (Last visited Nov.27, 2022).

[viii] PAUL BOYCE, Vertical Integration  Definition, Boyce Wire (28^th Nov, 2022,1.00 PM),

https://boycewire.com/vertical-integration-definition/.

[ix] The Competition Act, 2002, S. 6, No. 12, Acts of Parliament, 2002(India).

[x] Google Inc. & Ors vs Competition Commission Of India, 2015.

[xi] The Competition Act, 2002, S. 6, No. 12, Acts of Parliament, 2002 (India).

[xii] The Competition Commission of India, 2009.

[xiii] The Competition Act, 2002.

By: Bindu. R, a 4th-year law student at Presidency University, Bangalore.