“Appreciable Adverse Effect on Competition needs to be proved in case of vertical anti competitive agreements, however the absence of statutory requirement of proving AAEC in case of horizontal anti-competitive agreements has defeated the objective of the Competition Act, 2002”- Do you agree? Give Reasons

Q. “Appreciable Adverse Effect on Competition needs to be proved in case of vertical anti

competitive agreements, however the absence of statutory requirement of proving AAEC in 

case of horizontal anti-competitive agreements has defeated the objective of the Competition 

Act, 2002”- Do you agree? Give Reasons

 Yes, I agree with the statement that the absence of the statutory requirement of proving Appreciable Adverse Effect on Competition (AAEC) in the case of horizontal anti-competitive agreements has, to some extent, defeated the objective of the Competition Act, 2002. Below is a point-wise discussion:

Point-wise Explanation (600+ words)

1. Understanding AAEC and its Significance

• The term Appreciable Adverse Effect on Competition (AAEC) is a key determinant under the Competition Act, 2002.

• It refers to any agreement, practice, or conduct that significantly reduces competition in the market.

• Under Section 3 of the Act:

  • Vertical agreements (Section 3(4)) require proof of AAEC.

  • Horizontal agreements (Section 3(3)), such as cartels or price-fixing, are presumed to have AAEC.

2. Presumption in Horizontal Agreements (Section 3(3))

• The law presumes that horizontal agreements such as:

  • Price fixing,

  • Market allocation,

  • Bid rigging,

  • Output restriction,
    cause AAEC.

• The burden of proof shifts to the accused parties to rebut this presumption.

• No actual evidence of AAEC is needed initially by the Competition Commission of India (CCI).

3. Justification Behind the Presumption

• Horizontal agreements are inherently more harmful.

• They are often secretive and hard to detect.

• Presumption facilitates quicker and stricter enforcement.

• Aligns with global antitrust standards (e.g., US Sherman Act, EU Competition Law).

4. Issue with Over-reliance on Presumption

• The automatic presumption of AAEC may lead to:

  • Over-penalization without assessing market realities.

  • Ignoring potentially benign or efficiency-enhancing collaborations.

• It compromises the rule of reason principle which is essential for fair adjudication.

5. Impact on Innovation and Collaboration

• Businesses may avoid collaborative R&D or joint ventures fearing prosecution.

• This discourages innovation, particularly in tech and pharmaceutical sectors where cooperation can benefit consumers.

6. Contradiction with Objective of Competition Act

• The preamble of the Competition Act, 2002 emphasizes:

  • Preventing practices having AAEC,

  • Promoting competition,

  • Protecting consumer interests.

• Presumption-based approach undermines this objective by punishing without evidence of harm to consumers or market.

7. Comparatively Balanced Approach in Vertical Agreements

• Vertical agreements (like exclusive supply or resale price maintenance) do not carry a presumption.

• The CCI must evaluate market structure, barriers to entry, foreclosure effects, and consumer impact.

• This ensures a more evidence-based and balanced decision.

8. Need for Uniformity in Evaluation

• There is an inconsistency in legal treatment:

  • Vertical agreements → burden on regulator.

  • Horizontal agreements → burden on accused.

• This may result in arbitrary outcomes, especially in cases with marginal or no competitive harm.

9. Recommendations for Reform

• Amend Section 3(3) to require prima facie proof of AAEC before shifting the burden.

• Encourage a rule of reason approach over per se illegality, particularly for non-hardcore horizontal agreements.

• CCI should issue guidelines on interpreting AAEC to reduce ambiguity.

10. Conclusion

• While the presumption simplifies enforcement against cartels, a blanket rule without considering market context risks unjust penalization.

• A nuanced approach ensuring economic harm is proven aligns better with the Act’s goals of promoting fair competition and protecting consumers.

• Hence, absence of statutory requirement to prove AAEC in horizontal agreements does defeat the purpose of the Act to a certain degree.