Analyzing the Changing Standard of Proof with respect to Commercially Sensitive Information in Cartel Cases

Nayan Mittal, Law Graduate, Symbiosis Law School, Pune

Introduction

Recently, in the case of In Re: Cartelization in Industrial and Automotive Bearings (“Automotive Bearings Case”) the Competition Commission of India (“the Commission” or “CCI”) held that the discussion with respect to a commercially sensitive price related information amongst the competitors points out to cartelization under the Competition Act, 2002 (“Competition Act”). This decision marks a noted departure from the exiting approach established in Re: Cartelization in Flashlights Market in India(“Flashlights Case”) wherein it was held that discussion on commercially sensitive information is not anti-competitive even if it is meant to increase prices and the parties must actually act upon the information in order to constitute a violation. The present article analyses the changing standard of proof requirement with respect to commercially sensitive information in the Commission’s decisional practice.

Meaning and scope of Commercially Sensitive Information

Commercially Sensitive Information is not defined in the Competition Act. Generally, commercially sensitive information is perceived to be information which is capable of reducing the degree of uncertainty with respect to the prevailing competition in the market. For example, communication of information related to future prices, quantities etc.

As per the Competition Act, Section 3(3) governs the practice of cartelization. The Act does not provide any guidance on how to deal with the flow or communication of commercially sensitive information in cartels. As a result, the information needs to be looked from the broad contours of Section 3(3) only. Also, there are no specific guidelines formulated by the Commission unlike some of the other jurisdictions (for example US and EU), therefore the decisional practice of the Commission is the only means to clear the air of uncertainty regarding the exchange of commercially sensitive information as a standard of proof.

Analysis of the Standard of Proof From the Commission’s Decisional Practice

Automotive Bearings Case

In this case, a leniency application was filed wherein it was stated that the competitors were involved in a cartel in the domestic market of industrial and automotive bearings. The Director General (“DG”), based on the e-mail communications with respect to the meetings where commercially sensitive information was discussed came to the conclusion that there was cartelization amongst competitors. Interestingly, DG during his investigation noted that there was no concerted price increase amongst the competitors.

The Commission concurring with the findings of the DG observed that exchange of commercially sensitive information related to price during meetings of the alleged competitor point out to cartelization under Section 3(3) read with Section 3(1) of the Competition Act. Also, the Commission opined that actual harm in form of price coordination need not be shown once an agreement stands established amongst the competitors. However, in what is considered to be a landmark development only cease and desist orders were passed and no penalty was imposed on the competitors for engaging in cartel in the domestic market of industrial and automotive bearings.       

Flashlights Case

In this case, the Commission took a suo motu cognizance based on a leniency application wherein it was stated that various information with respect to sales and production of flashlights were exchanged amongst competitors. This included information pertaining to intended price increase. The DG examined the information pertaining to announcement of price increase in the flashlights market and came to conclusion that there is cartelization amongst the competitors in the flashlights market.

However, the Commission differed from the DG’s findings. The Commission observed that even though there is an agreement to increase prices amongst the competitors by way of sharing commercially sensitive price related information; however, the agreement did not categorically led to determination of prices. Furthermore, it was observed that since the information is not acted upon by the parties, therefore there is no contravention of Section 3(3) of the Competition Act.

Other Important Observations by the Commission

In the case of Builders Association of India v CMA(“Cement Cartel Case”), the Commission observed that sharing of price sensitive information makes coordination easier and it provides for a coordinated behavior. However, various economic evidences like price parallelism were also considered to eventually hold the participants guilty of cartelization in the cement manufacturing market. This was affirmed by the National Company Law Appellate Tribunal (NCLAT) in the case of Ambuja Cement v. CCI. Even in the case of In Re: Cartelization in respect of zinc carbon dry cell batteries market in India (“Dry Cell Batteries Cartel Case”), market coordination amongst the participants along with sharing of commercially sensitive information through various personal and association meetings were held to be relevant factors to hold the participants guilty of cartelization. In the case of All India Tyres Dealers Federation v. Tyre Manufacturers (“Tyre Cartel Case”), the exchange of commercially sensitive information to reach an agreement was considered merely a plus factor and nothing more.

Analysis of the Standard of Proof in European Union (EU)

In the European Union (EU), sharing of commercially sensitive information is assessed under Article 101 of Treaty of Functioning of the European Union (TFEU) along with the Guidelines on horizontal cooperation agreements. It is seen that the European Competition authorities take a very strict view towards the exchange of commercially sensitive information amongst the market competitors and when commercially sensitive information with respect to price and quantity is disseminated, it is considered to be invariably anti competitive. 

T-Mobile v. Raand van Bestur 

In the case of T-Mobile Netherlands v. Raad van Bestur, it was observed that ‘an exchange of information which is capable of removing uncertainties between participants as regards the timing, extent and details of the modifications to be adopted by the undertaking concerned must be regardedas pursuing an anti-competitive object.’

Guidelines on Horizontal Cooperation Agreements

The Guidelines on Horizontal Cooperation Agreements states that the test for assessing whether the exchange of information has a collusive object for assessment under Article 101 is based on the premise as to whether the flow of information reduces the strategic uncertainty amongst competitors. The Guidelines also provides that exchange of information invariably leads to anticompetitive collusion if it involves sharing of commercially sensitive information (esp. with respect to price and quantity) on ex-ante basis.  Even mere attendance at a meeting can have anticompetitive implications where the company divulges its future pricing plans, market strategies etc. It is considered that such a conduct runs foul on the competition even in absence of any express agreement to cartelize among competitors. The rationale for the same is that when a company receives commercially sensitive information from a competitor, it is deemed to have accepted that information and thereby has adapted its market strategy in terms with the competitor’s information. However, the company can prevent itself by issuing a clear statement that it does not wish to receive such information.  In a recent decision of Balmoral Tanks Ltd. v CMA, a single exchange of pricing and strategic information was regarded as infringement ‘by object’ of the competition law.

Conclusion

From an in-depth analysis of the above-stated propositions, it can be concluded that the Automotive Bearings Case is an important case with respect to the exchange of commercially sensitive information as a factor for pointing out cartelization. In the decision, the Commission has diverted from the approach wherein actual coordination amongst the competitors was required to be shown even if there was evidence pertaining to sharing of commercially sensitive information and a deemed agreement there-from. Since, CCI draws its decisional practice from EU’s decisions and guidelines; therefore it would be interesting to see if it adopts the very strict approach with respect to sharing of commercially sensitive information like EU. Even though in some of the decisions the Commission has placed allegiance to the very strict approach of EU, however, it has never been able to follow it in the truest of sense. One way to answer the unanswered is by way of soft law/guidelines like the one adopted in EU which could make the travel through murky territory of information exchange in cartel cases a little easier. Even the Competition Law Review Committee (CLRC) recommended a pro-active role to be adopted by the Commission for devising appropriate guidelines on horizontal co-operation which can include information exchange in cartel investigations. However, it lies at the discretion of the Commission how it wants to pursue this topic and it would be interesting to see the Commission’s future approach towards the same.

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