INTRODUCTION
Many a times, the Competition Commission of India (“CCI”) while reviewing a combination transaction, requires a party to provide a merger remedy, when it believes that such a combination may cause an appreciable adverse effect on competition (“AAEC”). It will do by issuing a show cause notice under Section 29 of the Competition Act, 2002.[1] The parties can either (1) propose remedies along with detailed information of the conditions for the implementations while showing suitability to remove AAEC concerns given under Regulations 19(2) and 19(3) of the Combination Regulations[2], before the CCI passes an order in Phase I or, (2) wait until the Phase II like the Holcim v. Lafarge and Sun Pharmaceutical v. Ranbaxy Laboratories orders, where the CCI directs modifications.[3] After discussions and back and forth modifications between the CCI and the parties, the CCI can accept the proposal by amending the combination or reject the combination in its entirety[4].
The purpose of any remedy must be appropriate, effective and proportionate while focusing on specific facts tailoring the remedies.[5] The remedies that the CCI and the parties often resort to being categorized as Structural and Behavioral Remedies.
STRUCTURAL REMEDIES
Structural Remedies are intended to influence the competitive structure of the market in order to improve the conditions for competition by creating a new player or enhanced competitor player.[6] The classic example is a divesture, especially in horizontal mergers.[7] Holcim v. Lafarge and Sun Pharmaceutical v. Ranbaxy Laboratories are such cases. In the former, the CCI observed that divestment of two specific plants could eliminate unilateral and coordinated effects in the grey cement market in Eastern India[8] and in the latter case, by one party divesting seven products that caused an overlap, would help to prevent an elimination of a competitor.[9] Other examples of structural remedies are exitsfrom a joint venture or divesting a shareholding in a competitor like in the case of Agrium v. Potash where Potash divested its shareholding in three Potash selling companies. [10]
BEHAVIORAL REMEDIES
Whereas Behavioral Remedies are designed to address and regulate the ongoing conduct of the combination concerned, which takes place over time.[11] These can be both positive (where a certain conduct is required) and negative (where a kind of conduct is prohibited).[12] These remedies can vary from capping prices to introducing a new pricing system.[13] CCI in Larsen & Toubro Limited(“L&T”) v. Schneider Electric India Pvt. Ltd & MacRitchie Investments Pte. Ltd.[14] for the first time, issued a purely behavioral remedy to offset foreclosure effects and asked the parties to commit to long term white labelling, price caps, and exclusive licensing of technology, etc. [15] Before this case, the CCI has had the opportunity to consider cases with a hybrid remedy proposal consisting of both behavioral and structural remedies, but never a purely behavioral remedy proposal. There have been instances, where the parties have offered to enter into a hybrid model like in the case of PVR v. DT Cinemas[16] where the parties offered divesture of certain screens in the relevant geographical market (structural remedy) and price caps and quality commitments, etc. (behavioral remedy), but were rejected by the majority.
THE FAVOURED REMEDY
Nevertheless, the CCI has time and again preferred Structural Remedies in merger cases which is also evident from its practice.[17] Such preference is not only seen in India but also in the European Union, United States, Germany, United Kingdom. [18] The preference can be dated back to the Harvard School that introduced the Structure Conduct Performance (“SCP”) paradigm which stated that structure of market determines firms conduct which determines performance in the market.[19] This was brought into motion because it was the post-World War II period where little government control was needed in the market to avoid a situation like that of Germany, where an oil company dominated the market and formed connections with the Nazis.[20] The aim was to promote small businesses which can be seen till date in India with the Holcim v. Lafarge[21] order where Lafarge sold two plants to Nirma who was a small player in the market at the time of the combination.[22]
The benefit of having a structural remedy is that they are designed to have an immediate and durable market impact.[23] It is irreversible in nature and being self- policing in nature, does not require continuous monitoring by the regulatory authorities or third parties.[24] It is more effective because it is not individualistic in nature, it affects the entire market. By the regulation or rule passed, it aims to change the very basis on which people were acting in an anti- competitive and monopolistic way to an efficient competitive one. The advantage of this remedy is that it takes lesser time than behavioural and can be more cost efficient as it does not require creating reports to third parties or placing price caps on the products.[25] It is readily enforceable and is less market distorting.[26] However, the downfall of having a structural remedy is that it may not always be prudent in nature. Each industry needs to be analysed individually before providing a structural remedy. There is the possibility of a divesture risk where the divesture may not be feasible or no longer attractive, for the parties to enter the transaction. Suitable purchasers to buy the divested business or product may not found at times. Also, in some vertical mergers, structural remedies may result in significant foregone efficiencies such as increased quality, choice, innovation.[27]
In such cases, behavioural remedies may be effective because it can be flexible and tailored to address a specific combination and are proportionate to the harm caused.[28] The dangers of having this remedy supersede its advantages as the regulatory authorities are left with the gamble to trust the parties to do or not to do a certain activity, which may not always work. For example, if Party A enters into a transaction with Party B to merge for X Dollars and the regulatory authorities place behavioural remedies, that will make the deal X-2 Dollars, it is highly unlikely that the parties will perform such remedies, only to incur a loss. To prevent this, there is continuous monitoring required by authorities or third parties, which is time consuming and increases costs. Also, they are difficult to craft and enforce and provide for only a temporarily fix. [29] The Holcim/ Lafarge[30] order did not issue behavioural remedies because the authorities were hesitant to monitor the divesting of the plants from East India to West Bengal.[31] Hence, highlighting the importance of Structural over Behavioural Remedies.
THE FUTURE OF THE BEHAVIORAL REMEDY
Yet, the behavioural commitments can address a range of anti- competitive harms.[32] There have been instances, where the CCI has realized the difficulty in implementing divestures, such as the L&T order[33], and has resorted to behavioural remedies. Even on the global side, behavioural remedies have been considered. The European Union (“EU”) Commissioner for Competition Policy, Margrethe Vestager has said that in digital markets, the parties to the combination may not always be straightforward competitors and the issue may not always be removing a competitor but how does the market interact which highlight the importance of behavioural remedies.[34] For example, even though the digital sector in India is governed by the traditional competition laws and regulations, this sector works on completely different methods and features. The market power is determined by the amount and scope of data stored and not by the price of the goods or services or market shares. While there is a gap to be plugged to in relation to this sector, the CCI can play its role and issue behavioural remedies in such cases.
CONCLUSION
Since its inception, the Competition Commission of India has analysed a large number of cases varying from anti-competitive to merger transactions.[35] While from the above discussion it is evident that structural remedies are favoured for merger cases, yet it has to be taken into consideration that structural remedies were suggested to encourage small businesses in the olden times.[36] With the coming of new and complex industries, there is a need to shift from structural to a behavioural one or even a hybrid model, on a case to case basis. The structural remedy may seem as the easier remedy to use yet, may not be the best at times. Therefore, there is a need to carefully consider the remedy applied for each case.
This article has been authored by Anushka Agarwal, fourth year student at Jindal Global Law School, Haryana.
[1] The Competition Act, 2002, § 29. (Per this, If the CCI is of the opinion that the combination is likely to cause an AAEC, it shall issue a show cause notice to the parties of the combination to respond within 30 days as to why the investigation in respect of the combination should not take place).
[2] Shilpa Singh, Merger Remedies in India: Having an Upper Hand , April 1, 2019, available at http://competitionlawblog.kluwercompetitionlaw.com/2019/04/01/merger-remedies-in-india-having-an-upper-hand/ (Last visited on December 10, 2020).
[3] Competition Commission of India, Holcim v. Lafarge, Case No. 2014/07/190; Competition Commission of India, Sun Pharmaceutical v. Ranbaxy Laboratories, Case No. 2014/05/170.
[4] The Competition Act, 2002, § 31.
[5]Singh, supra note 2.
[6]Thomas Wilson, Merger Remedies – Is It time to go more Behavioral?, February 21, 2020, available at http://competitionlawblog.kluwercompetitionlaw.com/2020/02/21/merger-remedies-is-it-time-to-go-more-behavioural/#_ftn2 (Last visited on December 10, 2020);Richard Whish & David Bailey, Competition Law, 253-254 (7th ed., 2011).
[7] John Handoll, India; Remedies in merger cases, Concurrences L. Rev. 1-2019 (2019).
[8] Competition Commission of India, Holcim v. Lafarge, Case No. 2014/07/190.
[9] Competition Commission of India, Sun Pharmaceutical v. Ranbaxy Laboratories, Case No. 2014/05/170.
[10] Competition Commission of India , Agrium Inc. v. Potash Corporation of Saskatchewan, Inc. Case No. 2016/10/443; Frank Meier-Rigaud & Benjamin Loertscher, Structural v. Behavioral Remedies, April 2020, available at https://www.nera.com/content/dam/nera/publications/2020/PUB_CPI_Remedies.pdf (Last visited on December 10, 2020).
[11] Id.
[12] Richard Whish & David Bailey, Competition Law, 253-254 (7th ed., 2011).
[13] Id.
[14] Competition Commission of India, Larsen & Toubro Limited v. Schneider Electric India Pvt. Ltd & MacRitchie Investments Pte. Ltd, Case No. 2018/07/586.
[15] Id.
[16] Competition Commission of India, PVR v. DT Cinemas, Case No. 2015/07/288.
[17] Frank Meier-Rigaud & Benjamin Loertscher, Structural v. Behavioral Remedies, April 2020, available at https://www.nera.com/content/dam/nera/publications/2020/PUB_CPI_Remedies.pdf (Last visited on December 10, 2020).
[18] Thomas Wilson, Merger Remedies – Is It time to go more Behavioral?, February 21, 2020, available at http://competitionlawblog.kluwercompetitionlaw.com/2020/02/21/merger-remedies-is-it-time-to-go-more-behavioural/#_ftn2 (Last visited on December 10, 2020).
[19] Einer Elhauge, Harvard, Not Chicago: Which Antitrust School Drives Recent U.S. Supreme Court Decisions? 3 Competition Policy International (2007).
[20] Id.
[21] Competition Commission of India, Holcim v. Lafarge, Case No. 2014/07/190.
[22] Id.
[23] International Competition Network (Icn) Merger Working Group, Merger Remedies Guide, (2016), available at https://www.internationalcompetitionnetwork.org/wp-content/uploads/2018/05/MWG_RemediesGuide.pdf (Last visited on December 10, 2020).
[24]Elhauge, supra note 19.
[25] International Competition Network (Icn) Merger Working Group, Merger Remedies Guide, (2016), available at https://www.internationalcompetitionnetwork.org/wp-content/uploads/2018/05/MWG_RemediesGuide.pdf (Last visited on December 10, 2020).
[26] Id.
[27] Id.
[28] AZB, Revisiting Behavioral Remedies in Merger Control, November 13, 2020, available at https://www.azbpartners.com/bank/revisiting-behavioural-remedies-in-merger-control/#_ftn13 (Last visited on December 10, 2020); Icn Merger Working Group, supra note 23.
[29] Id.
[30] Competition Commission of India, Holcim v. Lafarge, Case No. 2014/07/190.
[31] Id.
[32] Icn Merger Working Group, supra note 23.
[33] Competition Commission of India, Larsen & Toubro Limited v. Schneider Electric India Pvt. Ltd & MacRitchie Investments Pte. Ltd, Case No. 2018/07/586.
[34] Elhauge, supra note 19.
[35] Wilson, supra note 18.
[36] Id.
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