Comprtition law

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

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

Legal scholars interests in exploring the relationship between law and economics was triggered by Marxist theory of law.

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 economic base.

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.

Stock marketsled to divorce of ownership from control.

This change was highlighted byBerle and Meansstudy 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.

Contract law which was strictly private law till the end of 19th Century ceased to be private and assumed constitutional dimensions.

Thus economic analysis ofownership revealed that how legal institutions under went radical transformation while outwardly theconceptual shell remains intact.

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

It is against this backgroundof 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 requiresa little bit knowledge of-

Micro economics ( price theory)

Industrial Organisation ( dealing with how firms behave in the market ) and

Principles of Contract Law.

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. 1972U.SSupreme Court

Competition law prohibitsthe deliberate exploitation of a dominant market position by a firm.

Generally any agreement, arrangement or understanding between enterprises that has theeffectof substantially lessening or limiting access to market is prohibited by Competition law.

Thisprohibition applies not only to written agreements but also to oral and informal agreements.

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

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.

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

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--vis any adverse effect on competition

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.

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

Unlawful monopolization is an offence under competition law and consists of the followingtwo 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.

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.

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.

Attempt to gainmonopolization is also an offence under competition law and consists ofthree 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.

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 competitorsand directly or indirectly limit access to market.

Such agreements are prohibited by competition law as per se offences.

Vertical agreements are between independent enterprises

at different stages ofproduction 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.

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

Agreements between enterprises to submit identical bids for one or more contracts are called collusive tendering.

Collusive tenderingmay also assume a more sophisticated forms.

tenderersmay agree amongthemselvesand choose the businesses for which the chosen tenderer will bid for the deal.

Sometime this is backed up by a system whichensures that each firm in turn becomes a successful bidder.

a part of theprofit 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 .

A collective agreement to fix prices is regarded as a per se offence.

However this issubject to two exemptions:-

(a)a list of recommended prices issued by the trade associations to its small business members maynot 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) cartelswhich 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.

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 firmsless 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 .

The EuropeanCourt 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.

The European Court of Justice's ruling in theWalravecase [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.

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.

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.

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.

The declaration on the specificity of sport adopted by the European Council in Nice stresses 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".

Sport and free movement - Bosman case

Background situation on the European court's decision in the Bosman case

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.

However, it was only in mid 1990s, after the judgement in theBosmancase ;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 .

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?

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

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

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.

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.

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.

UEFA (Union des Associations Europennes 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.

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.

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.

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 .

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.

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".

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.

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.

These cases demonstrate that the agenda of an effective and modern media policy and anti-trust

action is now largely dominated by rights to content issues.

More specifically, in recent years, arrangements for the central marketing of TV rights, i.e. the sale of

TV broadcasting rights to sporting events for a fixed period by the organizer of a competition rather

than the individual participating clubs, have attracted increasing attention from many competition

authorities.

Telefnica Media S.A. and Sogecable S.A. regarding the pooling of their broadcasting rights in particular to the Spanish 'Liga' and 'Copa'.

Audiovisual Sport II agreement of 17 June 1999.

Audiovisual Sport II agreement of 17 June 1999. In the Audiovisual Sport agreement, Sogecable (through Gestsport), Antena 3 de Televisin (through GMAF) acquired later by Telefnica Media- and Televisin de Catalua set up the joint venture Audiovisual Sport SL to exploit the broadcasting rights to the Spanish 'Liga' and 'Copa' during the 1998/1999 to 2002/2003 seasons

The Commission has received various formal complaints, both from competitors in the pay-TV market and from a Spanish football club, after it published a summary of the notification in the EU's Official Journal.

After its preliminary analysis, the Commission considers that the notified agreement may represent an infringement of EC competition rules, the object and effect of which would be price fixing as well as the sharing, among the parties, of the relevant markets.

The price, as well as other conditions for the exploitation of the broadcasting rights, would be imposed by Audiovisual Sport SL on third operators which obtain a license to broadcast the Spanish 'Liga' and 'Copa' matches in pay-per-view

In particular, the Commission considers that serious restriction of competition exist in the market for the acquisition of rights to broadcasting of football events.

The parties would share this market through a joint buying system.

Likewise, the Commission considers that the parties would establish a system of joint selling and price fixing on the downstream market for the wholesale of such rights, that is, the market in which the undertakings who have obtained the broadcasting rights from the football clubs grant licenses to operators in all modalities of broadcasting (free to air, pay-TV and pay-per-view).

Such restriction of competition would cause serious anti-competitive effects in the downstream market for pay-TV and pay-per-view, in particular the foreclosing of the market to the new entrants and the elimination of potential competitors.

This fact is aggravated by the strong position that the parties have on all relevant markets.

It would also have negative effects for consumers, who might see reduced coverage of the rights to broadcasting. Furthermore, the joint exploitation by the parties of such rights would lead to an increase in the prices that subscribers must pay for watching the Spanish 'Liga' and 'Copa' on pay-per-view.

One effect of joint selling, especially when coupled with exclusivity, is that only big media groups can afford the acquisition and exploitation of the bundle of rights. This leads to higher prices and shuts out competitors from key content. Football fans are also potentially harmed since they are offered less football on TV, or no coverage at all in those cases where they do not subscribe to pay-TV as there are no live matches on free TV.

The lack of competition may also limit the packages of rights available for new media and new technologies, in particular the third-generation of mobile phones, which could see their introduction slowed down as a result

All these anti-competitive effects do not mean, however, that joint selling is to be banned outright.

Article 81(3) requires the Commission to assess whether agreements, which at prima facie are anti-competitive could bring benefits, including to the consumer, in which case they could be exempted.

the sheer size of football rights acquired and exploited jointly by the two largest pay-television platforms in Spain

The case relates to the notification by Telefnica and Sogecable, which is owned by Canal+ of France and the Spanish media group Prisa, of an agreement whereby they commit to jointly acquire and exploit the broadcasting rights to Spanish First League football matches for 11 seasons ending in 2009 through their joint venture Audiovisual Sport.

The Commission took the view that the agreement presented serious breaches of competition law since it would have had the effect of foreclosing the Spanish pay-TV market whose success depends heavily on the broadcasting of football matches like in many other countries.

It therefore sent the parties a Statement of Objections on 11 April 2000

After the Commission's intervention, in June the parties granted access to the relevant football rights to new cable and digital terrestrial television entrants in Spain.

They also modified their agreements and formally guaranteed competitors that they are free to set the prices of the pay-per-view football matches

It is only relatively recently that sporting organisations have embarked on the complex task of adjusting their sporting regulations to bring them into line with today's sporting, economic and legal requirements.

UEFA Broadcasting

In 2001, the Commission cleared revised UEFA broadcasting regulations allowing national football associations to block the broadcasting on television of football during two and a half hours either on Saturday or Sunday to protect stadium attendance and amateur participation in the sport. The regulations originally submitted to the Commission were highly complex and very broad in scope. The broadcasting of football matches was prohibited throughout the weekend. A balance was found between the interests of the broadcasters to maximise the rights they paid for and those of clubs throughout the game. (3)

After long negotiations, the Fdration Internationale d'Automobile (FIA) agreed to change its rules to bring them into line with EU law.

The modifications ensure that the role of FIA is limited to that of a sports regulator, with no commercial conflicts of interest.

FIA rules will not be used to prevent or impede new competitions unless justified on grounds related to the safe, fair or orderly conduct of motor sport. Appeal procedures against FIA have also been strengthened.

Football player transfer rules

After substantial negotiation, on 5 March 2001, Commissioners Monti, Reding and Diamantopoulou and the Presidents of FIFA and UEFA finalised discussions on international footballer transfers. FIFA and UEFA undertook to adopt new transfer rules on the basis of a number of principles, (5)including three main ones which seek to promote the training of young players and to ensure the stability of teams as well as the integrity, regularity and proper functioning of competitions, in the context of the specific features of football, so as to safeguard the interests of fans and spectators of the sport. New regulations were adopted in July, and in August 2001, FIFA and FIFPro the players union, reached an agreement about FIFPro's participation in the implementation of the new rules

Grants to French professional football clubs

In a case dealt with under the state aid rules, in 2001 the Commission authorised the award of state grants by France for the financing of training centres for young players in view of their educational and integrative objective and the little impact they had on competition between the leading clubs.

Comprtition law

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