Mere information exchange isn’t cartelization, says CCI

By Karan Singh Chandhiok, Shruthi Rao and Salman Qureshi, Chandhiok & Mahajan
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The Competition Commission of India (CCI)’s 6 November 2018 decision in the Flashlights case achieved a few firsts, it lays down the treatment of information under the Competition Act, 2002, and did so despite two leniency applications filed before it.

It was the first time that the CCI expressly assessed the applicability of the concept of “single continuous infringement” and how it fits in with cartel enforcement.

Karan-Singh-Chandhiok,-Chandhiok-&-Mahajan
Karan Singh Chandhiok
Chandhiok & Mahajan

It was also the first time that the CCI found no contravention despite investigated parties coming forward with leniency applications, thereby, signalling that it will not blindly accept leniency applications but judge on the merits of the evidence. The CCI has taken a stand that information exchange on its own is not enough to prove a cartel.

Following dawn raids in the Dry Cell Batteries case, Eveready Industries (Eveready) disclosed the existence of a cartel in the flashlights market, which operated through the Association of Indian Dry Cell Manufacturers (AIDCM) and involved Panasonic Energy India (PECIN), Indo National (Nippo), and Geep. PECIN, which Chandhiok & Mahajan represented in this matter, also submitted a leniency application out of abundant caution stating that the conduct stemmed from the conduct in Dry Cell Batteries case and should be covered under that investigation.

The CCI then directed an investigation by Director General (DG), which concluded that the opposite parties (except Geep) had operated a cartel by sharing commercially sensitive information, which amounted to an “agreement”. These conclusions were based on three categories of evidence: a) sharing of production and sales data of flashlights; b) e-mail exchanges in relation to a proposed press release (draft press release), and c) sharing of commercially sensitive information.

Shruthi Rao, Chandhiok & Mahajan
Shruthi Rao
Chandhiok & Mahajan

Eveready agreed with the findings of the DG, but the opposite parties including PECIN contested it. Here are the findings of the CCI:

Data sharing: AIDCM collected and circulated monthly production and sales data between the parties, which according to the DG allowed them to monitor their market shares. Disagreeing, PECIN, Nippo, and AIDCM argued that the purpose of sharing this data was to assess the consumption of batteries used in flashlights and to monitor the dry cell batteries cartel.

The CCI agreed with the DG with respect to the intention of monitoring market shares, but held that the exchange of commercially sensitive information to be only a “plus factor”. According to the CCI, in the absence of any evidence that indicates actual price increase or implementation of discussions, the plus factor only indicates a possibility of a cartel.

Draft press release: The draft press release referred to an intention to increase prices of batteries and flashlights, but it was withdrawn on competition law concerns.

PECIN and Nippo argued that any discussion on methodology to increase prices or a determinate future price was missing. PECIN submitted that in the absence of price fixing or implementation of an unlawful agreement, there cannot be a contravention, with which the CCI agreed.

Commercially sensitive information: The third set of evidence contained notes on margins, schemes, and emails that pointed to entry of a new player. Here again, the CCI did not find any discussion to fix prices. Accordingly, it decided to close the case.

Single continuous infringement: One of the arguments of PECIN was that the conduct amounts to, at best, a single continuous infringement stemming from the conduct in the Dry Cell Batteries case; the leniency granted to PECIN should extend to flashlights. However, the CCI rejected this argument on the basis that the single continuous infringement argument cannot be applied to complementary products.

The CCI laid down the essential ingredients for this concept to be applied in a suitable case. The single continuous infringement concept may apply: a) when the conduct in both cartels relates to the same product; b) the conduct for the product should have been considered by the CCI in the earlier matter from where such continuous infringement arises; and c) the leniency applicant must admit to the conduct amounting to a cartel.

The decision demonstrates a great level of maturity and judicial forbearance and shows that the CCI is willing to consider and apply market realities, rather than blindly apply the letter of the law. It has taken nearly a decade to achieve this; and comes at a time when the government is reviewing the Competition Act and the structure of the CCI. This begs the question: why fix something that isn’t broken?

Karan Singh Chandhiok is a partner and head of competition law and disputes. Shruthi Rao and Salman Qureshi are associates.

Chandhiok-&-Mahajan

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