People of the same trade seldom meet together, even for merriment and diversion but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices observed ADAM SMITH in the WEALTH OF NATIONS in 1776.

As markets become more international and the pace of technological change quickens, because of liberalization and globalization the challenges become more complex. Sound economic analysis is necessary to take the right cases and the right decisions. It is crystal clear that sound economic analysis is central to competition policy. It is equally true that competition policy shapes fundamental economic decisions on investment, on consolidation and most significantly on pricing. Understanding the laws that affect you is an important part of running successful business. In plain simple terms, competition law aims to promote healthy competition; it bans competitive agreements, such as agreements to fix prices and makes it illegal to abuse a dominant market position and to protect interests of consumers. It is of significance that though the Competition Act, 2002, provides definition of various expressions, it does not define “competition”. The preamble of the Act states that it is enacted to prevent practices having adverse effect on competition, to promote and sustain competitions in markets.

The Word Bank, in 1990 adopted the following definition of Competition.

“Competition is a situation in a market in which firms or sellers independently strive for the buyers’ patronage in order to achieve a particular business objective for example, profits, sales or market share.”

In 1980, less than 40 countries had Competition Laws. However today more than 100 countries have competition laws and the number is increasing.

In the celebrated anti-trust case, United States vs. Topco Associates. Inc. 405 US 596, it was held that “Antitrust Laws are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprises system as the Bill of Rights is to the protection of our fundamental personal freedoms”.

In the pursuit of globalization, India has opened its economy primarily removing controls and resorting to liberalization. Consequently, the market in India should be geared to face competition from within the country and outside to take care of the needs of the trading, industry and business associations. When the Central Government decided to enact a law on competition, the need to have a strong legal system was highlighted and it was stated that a world class legal system is absolutely essential to support an economy that aims to be world class. India needs to take a hard look at its commercial laws and the system of dispensing justice in commercial matters. Recently the idea of having courts dealing with commercial disputes expeditiously was discussed. With this idea in the background, the Competition Act, 2002 came to be enacted.

All over the world, it was found that private monopolies can be detrimental to national economy and control is required. It was therefore felt that fair and free competition is required for growth of healthy economy. Hence, need was felt to make provisions to ensure that there is free and fair competition and there is no abuse of dominant position. Competition Act was enacted in 2002 with this view. Some people are under a wrong impression that the Monopolies and Restrictive Trade Practices Act, 1969 and Competition Act 2002 have same basic features. But the basic difference between the MRTP Act and the Competition Act is not in the contents of the provisions but the outlook of the Statute. The MRTP Act was considering the problems of monopoly and anti-competitive practices as a legal issue to be considered from legal angle while Competition Act considers these issues as economic issues to be considered from the economic point of view in addition to the legal issues involved. Competition Commission is conceived as a regulatory body of experts in economic affairs looking at the issue from economy impact of business action. Of course a judge cannot ignore legal aspects, and an economist cannot ignore legal aspects; but the point is of emphasis and basic outlook towards economic activity. To ensure that legal issues are not sidetracked, appeal to the Competition Appellate Tribunal and further appeal to the Supreme Court have been provided.

The aims of competition (anti-trust) laws are to ensure that consumers pay the lowest possible price, commonly called ‘the most efficient price’ coupled with the highest quality of the goods and services which they consume. This, according to current economic theories, can be achieved only through effective competition. Competition not only reduces particular prices of particular goods and services - it also tends to have a deflationary effect by reducing the general price level.

It pits consumers against producers, producers against other producers (in the battle to win the heart of consumers) and even consumers against consumers (for example in the healthcare sector in the USA).

This everlasting conflict does the miracle of increasing quality with lower prices.

Competition is an instrument of national, economic and social transformation. It awakens incumbents, spurs innovation and boosts entrepreneurship thus making markets work equitably for everyone.

The Competition Act is a modern competition law based on International norms. It is grounded in sound economy prices, and in most matters is very similar to EC Law. According to WTO the law is broadly comparable to those of other jurisdictions with effective laws in this area and for the most part embodies the modern economics best approach. Basically modern “Competition Law aims to bust the trusts” in terms of the United State’s Sherman Act.

It is sometimes doubted whether competition policy has a sensible role for government in developing, particularly low-income countries. In these countries the markets are usually very small and fragmented so that developing scale sufficient to raise competitiveness and engage in international markets is a major challenge.

The bigger problem is however poor governance. In societies with widespread corruption, inadequate public finances, and weak judiciary and oversight institutions, competition policy may become another tool for capture by vested interests - becoming in itself a barrier to entry.

The history of competition law goes back to the Roman Empire. The business practices of market traders, guilds and governments have always been subject to scrutiny, and sometimes severe sanctions.

Since the twentieth century, competition law has become global. The two largest and most influential systems of competition regulation are believed to be United States antitrust law and European Community competition law. National and regional competition authorities across the world have received international support and enforcement networks.

Then in middle ages legislation in England to control monopolies and restrictive practices were in force well before the Norman Conquest. The Domesday Book recorded that “foresteel” (i.e., forestalling, the practice of buying up goods before they reach market and then inflating the prices) was one of three forfeitures that King Edward the Confessor could carry out through England. But concern for fair prices also led to attempts to directly regulate the market. Under Henry Ill an act was passed in 1266 to fix bread and ale prices corresponding to corn prices laid down by the assizes. Penalties for breach included amercements, pillory and tumbrel. A fourteenth century statute significantly labelled forestallers as “oppressors of the poor and the community at large and enemies of the whole country.” Under King Edward Ill the Statute of Labourers of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum he received, an idea that has been replicated in punitive treble damages under US antitrust law. Also under Edward Ill, the following statutory provision outlawed trade combinations.

“...we have ordained and established, that no merchant or other shall make Confederacy, Conspiracy, Coin, Imagination, or Murmur, or Evil Device in any point that may turn to the Impeachment, Disturbance, Defeating or Decay of the said Staples, or of anything that to them pertaineth, or may pertain.”

Examples of legislation in mainland Europe include the constitutiones juris metallici by Wenceslaus II of Bohemia between 1283 and 1305, condemning combinations of ore traders increasing prices; the Municipal Statutes of Florence in 1322 and 1325 followed Zeno’s legislation against state monopolies; and under Emperor Charles V in the Holy Roman Empire a law was passed “to prevent losses resulting from monopolies and improper contracts which many merchants and artisans made in the Netherlands.” In 1553 King Henry VIII reintroduced tariffs for foodstuffs, designed to stabilise prices, in the face of fluctuations in supply from overseas. So the legislation read here that whereas, “it is very hard and difficult to put certain prices to any such things... [it is necessary because] prices of such victuals be many times enhanced and raised by the Greedy Covetousness and March of the Professional – Speech by Hon’ble Dr. Justice Arijit Pasayat ...

Appetites of the Owners of such Victuals, by occasion of ingrossing and regrating the same, more than upon any reasonable or just ground or cause, to the great damage and impoverishing of the King’s subjects.”

The next significant stage of developments are the “Renaissance developments”.

Elizabeth I assured monopolies would not be abused in the early era of globalisation.

Europe around the 16th century was changing quickly. The new world had just been opened up, overseas trade and plunder was pouring wealth through the international economy and attitudes among businessmen were shifting. In 1561 a system of Industrial Monopoly Licences, similar to modern patents had been introduced in England. But by the reign of Queen Elizabeth I, the system was reputedly much abused and used merely to preserve privileges, encouraging nothing new in the way of innovation or manufacture. When a protest was made in the House of Commons and a Bill was introduced, the Queen convinced the protesters to challenge the case in the courts. This was the catalyst for the Case of Monopolies or Darcy vs. AII (77 Eng. Rep. 1260). The plaintiff, an officer of the Queen’s household, had been granted the sole right of making playing cards and claimed damages for the defendant’s infringement of this right. The court found the grant void and that three characteristics of monopoly were (1) price increases (2) quality decrease (3) the tendency to reduce artificers to idleness and beggary. This put a temporary end to complaints about monopoly, until King James I began to grant them again. In 1623 Parliament passed the Statute of Monopolies, which for the most part excluded patent rights from its prohibitions, as well as guilds. From King Charles I, through the civil war and to King Charles II, monopolies continued, especially useful for raising revenue. Then in 1684, in East India Company vs. Sandys (90 ER 62), it was decided that exclusive rights to trade only outside the realm were legitimate, on the grounds that only large and powerful concerns could trade in the conditions prevailing overseas. In 1710 to deal with high coal prices caused by a Newcastle Coal Monopoly the new Law was passed. Its provisions stated that “all and every contract or contracts, covenants and agreements, whether the same be in writing or not in writing.., are hereby declared to be illegal.” When Adam Smith wrote the Wealth of Nations in 1776 he was somewhat cynical of the possibility for change.

“To expect indeed that freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that Oceana or Utopia should ever be established in it. Not only the prejudices of the public, but what is more unconquerable, the private interests of many individuals irresistibly oppose it. The Member of Parliament who supports any proposal for strengthening this Monopoly is seen to acquire not only the reputation for understanding trade, but great popularity and influence with an order of men whose members and wealth render them of great importance.”

Judge Coke in the 17th century thought that general restraints on trade were unreasonable.

The English law of restraint of trade is the direct predecessor to modern competition law. Its current use is small, given modern and economically oriented statutes in most common law countries. Its approach was based on the two concepts of prohibiting agreements that ran counter to public policy, unless the reasonableness of an agreement could be shown.

A restraint of trade is simply some kind of agreed provision that is designed to restrain another’s trade.

For example, in Nordenfelt vs. Maxim, Nordenfelt Gun Co. (1891-94) AII.E.R. Rep. 1), a Swedish arm inventor promised on sale of his business to an American gun maker that he “would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way.”

To consider whether or not there is a restraint of trade in the first place, both parties must have provided valuable consideration for their agreement. In Dyer’s case a dyer had given a bond not to exercise his trade in the same town as the plaintiff for six months but the plaintiff had promised nothing in return. On hearing the plaintiff’s attempt to enforce this restraint, Hull J exclaimed, “per Dieu, if the plaintiff were here, he should go to prison until he had paid a fine to the King.”

The common law has evolved to reflect changing business conditions. So in the 1613 case of Rogers vs. Parry (1613) 2 Bulstr. 136 a court held that a joiner who promised not to trade from his house for 21 years could have this bond enforced against him since the time and place was certain. It was also held that a man cannot bind himself to not use his trade generally by Chief Justice Coke. This was followed in Broad vs. Jolyffe (1620) Cro.Jal 596 and Mitchell vs. Reynolds (1711) 1 P.Wms 181 where Lord Macclesfield asked, “What does it signify to a tradesman in London what another does in Newcastle?” In times of such slow communications, commerce around the country it seemed axiomatic that a general restraint served no legitimate purpose March of the Professional – Speech by Hon’ble Dr. Justice Arijit Pasayat ...

for one’s business and ought to be void. But already in 1880 in Roussillon vs. Roussillon Lord Justice Fry stated that a restraint unlimited in space need not be void, since the real question was whether it went further than necessary for the promisee’s protection.

So in the Nordenfelt case Lord McNaughton ruled that while one could validly promise to “not make guns or ammunition anywhere in the world” it was an unreasonable restraint to “not compete with Maxim in any way.” This approach in England was confirmed by the House of Lords in Mason vs. The Provident Supply and Clothing Co. (1911 (13) All lE.R Rep.400).

Modern competition law begins with the United States legislation of the Sherman Act of 1890 and the Clayton Act of 1914. While other, particularly European, countries also had some form of regulation on monopolies and cartels, the US codification of the common law position on restraint of trade had a widespread effect on subsequent competition law development. Both after World War II and after the fall of the Berlin wall competition law has gone through phases of renewed attention and legislative updates around the world. Basically, modern competition law is modeled on the United States’ Sherman Act, which aimed to “bust the trusts”.

It is sometimes doubted whether competition policy is a sensible role for government in developing, particularly low-income countries. In these countries the markets are usually very small and fragmented so that developing scale sufficient to raise competitiveness and engage in international markets is a major challenge.

The bigger problem is however poor governance - in societies with widespread corruption, inadequate public finances, and weak judiciary and oversight institutions, competition policy may become another tool for capture by vested interests - becoming in itself a barrier to entry.

John Stuart Mill believed the restraint of trade doctrine was justified to preserve liberty and competition The classical perspective on competition was that certain agreements and business practice could be an unreasonable restraint on the individual liberty of trades people to carry on their livelihoods. Restraints were judged as permissible or not by courts as new cases appeared and in the light of changing business circumstances. Hence the courts found specific categories of agreement, specific clauses, to fall foul of their doctrine on economic fairness, and they did not contrive an overarching conception of market power.

Earlier theorists like Adam Smith rejected any monopoly power by observing:

“A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural
rate.”

Neelie Kroes, the European Commissioner for Competition Policy on 28th April, 2009 said that “Regulation and competition policy are very close relatives”. In a lighter vein, it was added that relationship between close relatives can be quite complicated and it is so with regulation and competition. A part of the speech which is very illuminating needs to be quoted. It reads as follows:

“If the current financial and economic crisis has taught us anything, it is that there is a high price to pay when regulation fails, and that competition policy is essential for keeping our economy working well.

The wider lesson for all policymakers and public authorities is that those who share common goals must work together. For example, competition authorities and central banks cannot afford to operate in their own little worlds — we must work together on issues like bank recapitalisations and restructures.

The current financial crisis is a good illustration of one of the ways regulation and competition law are connected.”

Competition Policy refers to the measures that are taken in order to ensure that economy players in a market compete with each other, innovate and charge fair prices from consumers for their products and services. It includes specific competition legislations, laws against unfair competition, enforcement mechanism, policies that encourage investment and development in particular industries as well as IPR. As Pope Paul VI said “if you want peace, work for justice”

Competition law is essentially an instrument that helps us to achieve that elusive goal.

[Source : Speech delivered at the National Tax Conference, 2010 held on 10th & 11th April, 2010 at Cuttack]