A Suggestion For The CCI

The European Commission recently released a brochure entitled “Compliance matters: What companies can do better to respect EU competition rules.”

Though to be honest, I haven’t been able to find the time to read the brochure therefore I cannot comment on its utility, but perhaps the Competition Commission of India can also release a similar brochure on the Competition Act in combination with the ministry of Corporate Affairs. Such a brochure could serve a two fold purpose:

1. Clarify the Commission’s and the Ministry’s stand regarding specific competition law issues, i.e., resolve the debate regarding the various conflicts between the Competition Act and other laws.

2. Help companies and law firms understand competition law in India and the Commission better.

A comment on Pradeep S. Mehta’s Article in The Financial Express

An article by P. S. Mehta, Secretary General, CUTS International, appeared today in The Financial Express titled “Should Dominant Companies Be split?”

In it, to summarise, he submits the following:

1. The post 1991 economic reforms threw all MRTP concepts relating to control of mergers and acquisitions out the window resulting in large scale cartelisation by both foreign and Indian companies across various industries, particularly the cement industry.

2. Under section 28 (1) of the Competition Act, the CCI has the express power to direct that a dominant enterprise be split up to ensure that such an enterprise does not continue to abuse its dominant position.

3. Although breakups have been less favoured than conduct remedies and access remedies, they are more effective in correcting the identified anti-competitive conduct. He contends that conduct remedies are generally favoured simply because the defendants would likely be more willing to accept them as compared to breakups and also feels that courts and competition agencies are also reluctant to break up what has been a successful firm because once broken up the firms might cease to be successful and they would get the blame.

There is little to debate upon regarding the first two points but the third must be questioned in light of the reality of practical experience. I would like to respectfully submit that I feel breakups are a less effective remedy in the long run to control abuse of dominance as compared to conduct or access remedies. This is so because any company/conglomerate which manages to build up a dominant position through acquisitions and expansions, if broken, shall always find the means and the intellect to re-merge, one way or the other. Mr. Mehta’s own examples can be cited in favour of this contention. He has cited the examples of Standard Oil and AT&T as examples of the effectiveness of breakups. But the fact remains that these companies haven’t remained broken at all !! Many of Standard Oil’s then broken subsidiaries have since merged into a single multinational corporation to form Exxon Mobil, whereas five of the seven broken subsidiaries of AT&T have since merged to become AT&T Incorporated, which is now the 14^th largest company in the world. Compare this to the conduct remedies/conditions which were imposed by the EC on Boeing during the Boeing/McDonnell Douglas Merger Investigation, which the company appears to be still committed to upholding, and one clearly gets the impression that between breakups and regulation of conduct, the latter are definitely more effective, especially in the long run. It is also noteworthy that it would be far easier for the Commission to monitor companies upon whom conduct or access punishments have been imposed rather than companies which have been broken up into various subsidiaries. A re-merger, in the manner as already cited above, will not only render the previous punishment of breakup pointless but shall also result in an extra burden for the Commission as in order to take action against the new re-merged corporation, the Commission shall have to once again conduct a fresh investigation and prove an abuse of dominant position.

Competition Surfing: Part 2

Building a tradition on this blog, I have found an excellent online journal of competition law, titled “The Comeptition Law Review”. It contains some excellent articles by some very well known names in the European and British competition law circuit.

While most non – Indian readers of this blog would be aware of this Journal, there are few in India who would be aware of it, so here you go.

Famous U.S. Anti-Trust Cases

We finally have our first guest post on ICAB!! Judy Leeson has been a practicing lawyer for twelve years and also own the site www.lawdegree.net. Here she outlines and summarizes three of the most landmark judgements in U.S. anti-trust history. A detail discussion on them can also be found in the book The Master Switch by Timothy Wu. (A review of the book can be found on this blog itself.)

Standard Oil

Standard Oil was founded in 1870, when kerosene cost 30 cents per gallon. By 1897, the company had driven the price down to 6 cents a gallon, which put many of its competitors out of business. Although the trust was broken up in the state of Ohio in 1892, Standard simply separated the Ohio branch and kept control of the company.

A few years later, a law change in New Jersey allowed a company to hold shares in other companies, even those in other states. Thus, in 1899 Standard Oil Trust became a holding company based in New York which owned stock in Standard Oil of Ohio and 41 other companies – many of which owned stock in companies themselves. Standard Oil effectively became the largest company in the world.

In 1906, the U.S. government filed suit against Standard Oil for violating the Sherman Antitrust Act. The company was found guilty in 1909 and the decision was affirmed by the U.S. Supreme Court in 1911. Standard was forced to break up into 34 independent companies, some of which have since merged into the multinational corporation, ExxonMobil.

AT&T

AT&T was granted “natural monopoly” status by the U.S. government for many years in the first half of the 20^th century, but even after new competitors the market it was frequently challenged it as a monopoly. Finally in 1974, the U.S. Attorney General filed suit against the company for violating antitrust laws. The case took seven years before a settlement was reached to split the company into seven new companies, each serving a different region of the U.S. However, five of the seven have since merged to become AT&T Incorporated, which is now the 14^th largest company in the world.

Microsoft

In 1991 the FTC began to investigate whether Microsoft was abusing its monopoly on the market for PC operating systems. They closed the investigation in 1993 but the U.S. Department of Justice opened a new investigation later that year. In a 1994 settlement, Microsoft consented not to tie other Microsoft products to the sale of Windows but could still integrate new features into the operating system.

When Internet Explorer was introduced in 1995, Microsoft insisted that it was a feature rather than a new Windows product. The U.S. Department of Justice did not agree and filed suit against Microsoft for illegally discouraging competition to protect extend its software monopoly. In 2000, the court ordered Microsoft to break into two separate units, one for the operating system and another to produce software.

Following court appeals, a new settlement ordered less severe penalty that required Microsoft to share application programming interfaces with third-party companies. Nine states did not agree with the settlement, calling it a mere “slap on the wrist,” that was not severe enough.