COMPETITION LAW

1. COMPETITION LAW BY T.K.VISWANATHAN SECRETARY , MINISTRY OF LAW & JUSTICE LEGISLATIVE DEPARTMENT

2. Changing Role of Legal Scholarship • “In the beginning there was only law. Then came law and society, law and history, law and economics and so on. These developments have transformed the vocation of the legal scholar from that of a Priest to that of a Theologian.” ----Ms Kathleen Sullivan Dean of Stanford Law School

3. Law as Epi-phenomenon • Legal scholar’s interests in exploring the relationship between law and economics was triggered by Marxist theory of law.

4. Karl Renner • Building upon the foundation laid by Karl Marx the Austrian jurist Karl Renner expounded in his book “Institutions of Private Law and their Social Function” the theory that in spite of stability of legal concepts like property and contract, their social functions have undergone transformation. • According to Renner, to expound a legal concept one has to penetrate its economicbase.

5. Economic Analysis of Legal Concepts • To begin with, ownership was synonymous with land. • The power of control resided in the same person who owned the land which is the subject matter of ownership. • Advent of industrial revolution and emergence of stock markets gave birth to new forms of intangible property like shares.

6. Modern Corporation & Private Property- Adolf Berle and Gardiner Means the first interdisciplinary study between law and economics • Stock markets led to divorce of ownership from control. • This change was highlighted by Berle and Means study which pointed out that due to widespread dispersal of stock holdings through stock markets it was impossible for any person to own 51% of shares in any company to exercise control over it. • On the contrary, he was able to exercise control with lesser percentage of shares.

7. Constitutional Dimensions of Contract Law • Contract law which was strictly private law till the end of 19th Century ceased to be private and assumed constitutional dimensions. • Thus economic analysis of ownership revealed that how legal institutions under went radical transformation while outwardly the conceptual shell remains intact.

8. Need to apply legal limitations on the Market Forces • As trade liberalisation progresses and the state is gradually withdrawing from the expanded role it has assumed during the collectivist era, focus of legal scholarship also has to shift away from its obsession with the constitutional doctrines of limitations of the state action to the actors in the market place

9. Incredients of Competition Law • It is against this background of liberalisation Competition law assumes great importance • To understand the basics of competition law it is necessary to have a good idea about the actors in the market and how the market operates. • Lawyers cannot afford ignore this rapidly emerging fertile discipline which requires a little bit knowledge of- • Micro economics ( price theory) • Industrial Organisation ( dealing with how firms behave in the market ) and • Principles of Contract Law.

10. Anti Trust laws are Magna Carta of free enterprise • Competition laws known more popularly as Antitrust laws in the United States, • “ . . . are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms." -United States v. Topco Associates, Inc. 1972 U.S Supreme Court

11. What is prohibited? • Competition law prohibits the deliberate exploitation of a dominant market position by a firm. • Generally any agreement, arrangement or understanding between enterprises that has the effect of substantially lessening or limiting access to market is prohibited by Competition law. • This prohibition applies not only to written agreements but also to oral and informal agreements.

12. Methods of Analysis • To determine whether an agreement unreasonably restrains competition, courts have applied one of two methods of analysis, depending on the type of agreement at issue

13. Per se offences • Certain agreements (called "per se" offenses") are deemed to be so inherently anticompetitive that they are always illegal, • regardless of the intent of the parties or • the actual effect of the agreements on competition.

14. Agreements constituting per se offences • These agreements include agreements between competitors • A) to fix prices or the terms and conditions of credit and sales, • B) to allocate customers or territories; • C) Not to deal with any person or persons ("group boycotts"), and, in certain circumstances, • D) to sell one product conditioned on an agreement by the buyer to purchase a second, distinct product ("tying"). • E) Resale price maintenance

15. Exceptions to Prohibited Practices- • Apart from the above anti-competitive agreements there are other types of agreements between suppliers and distributors and members of trade associations which enhance economic efficiency, even though they may result in anti-competitive effects. • Such agreements, though anti-competitive, in effect can be exempted by the competitive authorities after weighing the anticipated gain in efficiency from such agreements vis-à-vis any adverse effect on competition

16. Rule of Reason & Block Exemption • Such exemption can be on a case to case basis or can assume the form of block exemption. • This approach is known as the Rule of Reason and requires an in-depth analysis of the effect on competition in the relevant market. • In rule of reason analysis, competitive intent and effect are weighed along with the business justification of the challenged activities to determine their legality. • Potentially anticompetitive practices which do not fall into the per se category are analyzed under a "rule of reason" standard.

17. Types of anti-Competitive Agreement Anti-competitive agreements which fall foul of competition law which are per se offences includes- • price fixing; • fixing of output by cartel; • collusive tendering; and • market sharing

18. Unlawful Monopolization • Unlawful monopolization is an offence under competition law and consists of the following two elements namely:- • (a) possession of market power in the relevant market; and • (b) the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

19. Market power • Market power has been defined as the power to control prices or exclude competition, • market share is the most important factor in measuring market power, with • shares exceeding 70 percent usually considered sufficient for a finding of market power, and • shares of less than 40 percent generally insufficient.

20. Wilful acquisition of market power • For the second element, courts have required a showing of anticompetitive or predatory conduct -- efforts to exclude rivals on some basis other than efficiency. • Examples of such conduct include • i) below cost-pricing; • ii) filing of baseless litigation against competitors, or • iii) denial of access to an essential facility.

21. Attempt to gain Unlawful Monopolization • Attempt to gain monopolization is also an offence under competition law and consists of three elements:- • (a) specific intent to control prices or destroy competition; • (b) predatory or anticompetitive conduct directed at the unlawful objective; and • (c) a dangerous probability of success in achieving a monopoly in the relevant market.

22. Horizontal Agreements • Horizontal agreements are between independent enterprises or enterprises potentially competing in the same market. • Many horizontal agreements relating to • prices, discounts, output or the sharing of the markets often restrain the competitors and directly or indirectly limit access to market. • Such agreements are prohibited by competition law as per se offences.

23. Vertical Agreements • Vertical agreements are between independent enterprises • at different stages of production or distribution process like exclusive dealing etc • which can be exempted from the purview of competition law by the rule of reason approach by the competition law authorities.

24. VERTICAL RESTRIANTS –ANTI COMPETITIVE EFFECTS • Concerns regarding vertical ‘restraints’ stem from the perception that anti-competitive effects might flow from restrictions imposed on firms in the downstream position in such a relationship, whether they be related to price (eg, resale price maintenance) or non-price related (eg, territorial restrictions, customer restrictions

25. Collusive Tendering Agreements between enterprises to submit identical bids for one or more contracts are called collusive tendering. • Collusive tendering may also assume a more sophisticated forms. • tenderers may agree among themselves and choose the businesses for which the chosen tenderer will bid for the deal. • Sometime this is backed up by a system which ensures that each firm in turn becomes a successful bidder. • a part of the profit earned by the successful bidder will be shared with other bidders to compensate for the loss incurred by the parties. Collusive bidding is recognized as a per se offence.

26. Price fixing • A collective agreement to fix prices is regarded as a per se offence. • However this is subject to two exemptions:- • (a) a list of recommended prices issued by the trade associations to its small business members may not be regarded as an infringement of competition law, if the prices are only recommendatory in nature and individual enterprises are free to charge what they like. • (b) cartels which seek to fix export prices for certain commodities are exempted from competition law because competition law is generally concerned with the effects of anti- competitive practices on the domestic market alone.

27. Output quotas • Cartels normally fix an output quota for each participating firm as an alternative to fixing the prices at which the goods can be sold. • The effect of this is to prevent the other firms less efficient or less vigorous form . • The result is lessening of competition and higher prices to consumers. • The collective agreement to set output quotas for the individual participants in a cartel is usually regarded as a per se infringement of the competition law.

28. Sports & Competition law • The European Court of Justice has ruled on several occasions that sport, in its economic aspect is subject to Community law, but again, recognising at the same time certain special characteristics of the sector.

29. Sports as economic Activity • The European Court of Justice's ruling in the Walrave case[ C-36/74 Walrave and Koch [1974] ECR 1405.] established that European Union Law applies to sports, insofar as the practice constitutes an economic activity within the Union.

30. Exclusive Joint Selling Rights • Joint selling on an exclusive basis restricts competition - be it in the sports or in any other sector - because it has the effect of reducing output and limiting price competition. • The sale of the entire rights on an exclusive basis and for a long period of time has the effect of reinforcing the position of the incumbent television companies as the only ones with the financial strength to win the bids.

31. This, in turn, leads to unsatisfied demand from broadcasters and a lesser ability to make an attractive offer to customers. • Sports and films are two key ingredients for television and for pay-TV channels in particular. • They are also proving increasingly critical for the development of new technologies.

32. Declaration on the specific characteristics of sport and its social function in Europe, of which account should be taken in implementing common policies. • Annex IV to the Presidency conclusions, Nice, 7-9 December 2000.

33. The application of the EU's competition rules to sports • The declaration on the specificity of sport adopted by the European Council in Nicestresses the need to take account, in all action by the Community, of "the social, educational and cultural functions inherent in sport and making it special, in order that the code of ethics and the solidarity essential to the preservation of its social role may be respected and nurtured".

34. Sport and free movement - Bosman case • Background situation on the European court's decision in the Bosman case

35. The facts of the case Jean-Marc Bosman is a Belgian professional football player, who played for R.C. Liege, which was then a Belgian first division club. • The Bosman case arose out of a dispute in 1990 between him and his club. • Mr Jean-Marc Bosman claimed that the Belgian Football Federation and UEFA-FIFA transfer rules had prevented his transfer to a French club, US Dunkerque.

36. C-415/93 Bosman [1995] ECR I-4921 • However, it was only in mid 1990s, after the judgement in the Bosman case ;and • the increasing money being paid for broadcasting rights to major sporting events, that the economic aspects of sporting activities became an issue of major importance.

37. The questions asked to the European Court were: • "Are Articles 48, 85 and 86 of the Treaty of Rome of 25 March 1957 to be interpreted as: • prohibiting a football club from requiring and receiving payment of a sum of money upon the engagement of one of its players who has come to the end of his contract by a new employing club?

38. He brought an action against RC Liege and later against the Belgian Football Federation and the UEFA. • Mr Bosman sought a declaration from the national court that the transfer rules and nationality clauses were not applicable to him on the grounds that they were incompatible with both the Treaty of Rome rules on competition and the free movement of workers. • The national Court referred the issue to the European Court

39. Point 1: If a professional football player's contract with his club expires and if that player is a citizen of one of the Member States of the European Union, this club cannot prevent the player from signing a new contract with another club in another Member State or making it more difficult, by asking this new club to pay a transfer, training or development fee

40. Point 2: Limitations concerning the nationality of professional players who are citizens of a Member State of the European Union (within competitions between football clubs organised by sporting associations), are not allowed.

41. Point 3: The Court has decided to exclude, exceptionally, any retroactive effect of its interpretation on the temporal effects of the judgment as regards the transfer system, except for persons, such as Mr. Bosman, who have taken steps in good time to safeguard their rights.

42. UEFA Chaqmpion League case • The Champions League is a tournament organised every year between the top European football clubs -- 72 clubs participate from both European Union and non-EU countries. • The last stage, which begins in September, comprises the 32 qualifying clubs. • The Champions League season ends in May the following year.

43. UEFA (Union des Associations Européennes de Football) notified its Regulations concerning the joint selling of the commercial rights(1) to the UEFA Champions League to the Commission in 1999, requesting clearance under European Union competition rules.

44. Until now UEFA sold all the TV rights to the final stages of the UEFA Champions League on behalf of the clubs participating in the league. • The rights were sold as a bundle on an exclusive basis for up to four years to a single broadcaster in each Member State, in general a free-to-air television company which would normally sub-licence some rights to a pay-TV player. • One of the drawbacks of the system is that some of the rights, including live footage, were unexploited.

45. The Commission originally objected to the joint selling arrangements, which were notified in 1999, because UEFA sold all Champions League TV rights in one package to a single broadcaster on an exclusive basis for up to four years at a time. • The buyers were often free-TV broadcasters that could sub-licence some rights to pay-TV broadcasters. • This was not in the interest of broadcasters, clubs, fans and consumers.

46. One of the important drawbacks of the original joint selling arrangement was that not all matches were seen live on TV while Internet and phone operators were simply denied access to the rights. • UEFA's joint selling arrangement therefore had the negative effect of restricting competition between broadcasters. • By barring access to key sport content it also stifled the development of sport services on the Internet and of the new generation of mobile phones.

47. The Commission had objected to the current rules, which had been notified for regulatory clearance, on the grounds that if a group of people join forces to sell a given product then that restricts competition. • The rules distorted competition between broadcasters, encouraged media concentration and stifled the development of Internet sport services and the new generation of mobile phones by barring access to key content, which is not in the broad interest of fans and consumers generally.

48. Therefore, joint selling of football TV rights can only allowed if it is beneficial to the consumer and if certain safeguards are taken, as foreseen in Article 81(3) of the EU treaty, which allows the Commission to exempt restrictive agreements if they contribute to "improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit".

49. One effect of joint selling is that only bigger media groups are able to afford the acquisition and exploitation of the bundle of rights. • Those groups are typically dominant incumbent broadcasters. • It also leads to unsatisfied demand from those broadcasters who are unable to obtain the rights and slows down the use of new technologies, because of a reluctance of the parties to embrace new ways of presenting sound and images of football.

50. Nearly a third of all current media competition cases, dealt with under anti-trust, i.e. agreements or • abuse of dominant positions, concern now sports rights, and the selling and buying of those rights.