Special Report – India – Predatory Hiring and Cartel Like Price Fixing In the Airline Industry.

 

 

9 June, 2016

 

 

In the past 12 months, the Competition Commission of India (“CCI”) has had a number of cases involving the country’s most popular airlines before it, tackling issues of predatory hiring and whether the line is fine or far apart between whether it is a true competition or employment issue and also possible cartel-like price fixing.  We had a chance to speak with AZB & Partners about these recent cases and how businesses may interpret these decisions moving forward, and here is what they had to say.

 

Conventus Law:  In February 2016, the Competition Commission of India (“CCI”) rejected a complaint by Air India against IndiGo’s parent company InterGlobe Aviation based on allegations of predatory hiring under the Competition Act, 2002.   CCI observed that the predatory hiring allegation seems more of an employment issue than a competition issue. Does this mean that CCI will continue to reject such claims without examining the possible effect on the competitive conditions in the market?
 
AZB & Partners: CCI’s dismissal of Air India’s allegations on ‘predatory hiring’ of Air India’s pilots was in line with its approach in an earlier case (Kapoor Glass v. Schott Glass, 2012), wherein it had summarily dismissed similar allegations of ‘predatory hiring’. In both cases, CCI’s dismissal of the ‘predatory hiring’ allegations appears to flow from: (i) lack of an express provision in the Competition Act, 2002 (Competition Act) dealing with ‘predatory hiring’; and (ii) lack of any evidence suggesting anti-competitive effects emanating from those specific allegations.
 
While it may appear, so far, that CCI is not disposed towards entertaining allegations of ‘predatory hiring’, we cannot possibly conclude that the CCI’s default position is to categorically refuse to treat ‘predatory hiring’ as an antitrust issue.  In both the relevant cases, the CCI did not explicitly rule out ‘predatory hiring’ as an antitrust issue. Moreover, other major jurisdictions, such as the United States, have considered ‘predatory hiring’ to be a valid antitrust issue.  For example, in Universal Analytics, Inc. v. MacNeal-Schwendler Corp., the U.S. Federal Court (9th Circuit) recognized predatory hiring as a potential antitrust issue.  Although, on the facts of the case it did not return a finding of infringement of US antitrust rules.
 
CL: What would it take to sustain a claim of predatory hiring as an anti-competitive practice under the Competition Act, 2002?
 
AZB: In India, to establish ‘predatory hiring’ as an abuse of dominant position, one would need to convince the CCI that the hiring of competitors’ employees by a dominant enterprise: (i) results in foreclosing those competitors from the market; and (ii) that such a hiring has no legitimate business justification.  If the two elements are established, the CCI can consider such conduct as resulting in ‘denial of market access’- a type of conduct recognized under the Competition Act as abuse of a dominant position.
 
Notably, the treatment of ‘predatory hiring’ in the U.S. is slightly different from the position in Indian law.  In the U.S., to establish ‘predatory hiring’ as an antitrust violation, it is critical to establish ‘predatory intent’. However, under the Competition Act, ‘intention’ would not necessarily be a relevant fact to establish ‘predatory hiring’ as an abuse of dominance.  If the hiring of competitors’ employees results in a denial of market access and lacks business justification, the CCI need not examine the intent behind such hiring.  
 
CL: On 18 April 2016, the Competition Appellate Tribunal set aside the CCI’s order imposing significant penalty on certain domestic airline operators for alleged cartelization regarding the fixing of cargo fuel surcharges, and remanded the case to the CCI, directing it to issue a new order.  What was the technical basis for the setting aside of the order? 
 
AZB: The Competition Appellate Tribunal (COMPAT) set aside CCI’s order and remanded the matter back to CCI based on, primarily, procedural grounds, i.e. violations of principles of natural justice by CCI.  Notably, the CCI’s decision to penalize the airlines followed an investigation report from the Office of the Director General (DG Report) which was favourable to the airlines.
 
According to the COMPAT, the airlines had been penalised without being afforded an opportunity to present their case properly by: (i) denying the airlines an opportunity to file objections against the reasons for CCI’s disagreement with the DG Report (which had found no instance of cartelisation by the Airlines); and (ii) further denying the airlines an oral hearing to argue their case that the DG Report was right in dismissing the allegations of cartelisation.
 
CL: What will happen next in relation to the remanding of the case to the CCI, and how long will it take before we can expect the new order from the CCI? 
 
AZB: COMPAT directed the CCI to reconsider the DG Report and, in case of any disagreement with the DG’s findings, indicate the reasons for such disagreement. Further, COMPAT directed CCI to communicate the reasons for such disagreement to the airlines and allow them the opportunity to file written objections/replies as well as make oral arguments, before issuing any final order.
 
Accordingly, the proceedings before the CCI are set to restart in the manner directed by the COMPAT and, upon their completion, the CCI will have to issue its final order. It is difficult to guess how much time this whole process would take – an educated estimate would be 6-8 months.

 

 

 

For further information, please contact: 

 

Rahul Rai, AZB & Partners

rahul.rai@azbpartners.com

19 August, 2015

 

 

Conventus Law: How liberal is Section 27 of the Competition Act when determining the appropriate enforcement measures in the event there is a violation of it?

AZB: Section 27 of the Competition Act, 2002 (Act) lists the enforcement measures that the CCI can impose for violation of Section 3 (anti-competitive agreements) and Section 4 (abuse of dominance) of the Act. The measures identified in Section 27 of the Act include simple "cease and desist" orders to orders imposing penalties and in cases of abuse of dominance, possible order for division of the dominant enterprise. Moreover, Section 27 of the Act offers almost a carte blanche to the CCI to “pass such other order or issue such directions, as it may deem fit”. The text of Section 27 of the Act is broad enough to offer CCI with sufficient flexibility to design and direct an enforcement measure that would be both punitive and corrective. For example, imposition of penalty up to the higher of 3 times the profits or 10% of the turnover of the enterprises who are party to a cartel for the entire duration of the agreement is aimed as much at penalising a conduct as deterring companies for engaging in cartel agreements. The order to divide up a dominant enterprise found guilty of abusing its position of dominance would help change the market structure in such a manner that the possibility of abuse by a dominant enterprise is minimised. 

In sum, Section 27 of the Act is broad enough to help CCI determine the optimum enforcement measure to address any instance of anti-competitive agreement or abuse of dominance. 

Conventus Law: In Tamil Nadu Film Exhibitors Association v. CCI & Ors. (Film Exhibitors Decision), the High Court addressed for the first time the issue of whether private parties could enter into a settlement, thereby closing the door to an active investigation or inquiry by the CCI. Did the holding resolve the issue, and what kind of impact will the holding in this case have on businesses who find themselves involved in an ongoing investigation or inquiry by the CCI?

AZB: The Act is not designed to provide a forum for settling disputes between two or more individuals. Rather, the Act is aimed at and seeks to examine and prosecute instances of anti-competitive conduct in general, irrespective of whether the CCI initiates an investigation on its own (suo motu) or on the receipt of a reference from the Central Government or State Governments or on the basis of "information" provided by an enterprise against another. Once the CCI has decided to initiate an investigation, the continued participation of the enterprise providing "information" or the Central/State Government making the reference is not necessary. Moreover, once the CCI has formally initiated an investigation, the process can not be rolled back only because the enterprise providing "information" or the Central/State Government making the reference is not interested in pursuing it any further. In other words, even if the enterprise providing "information" to the CCI settles its dispute with the alleged infringer, the CCI investigation would run its course. The scheme of the Act does not expressly contain any mechanism to accommodate settlements between parties and the Madras High Court's decision in the Film Exhibitors case appears to recognise this. The decision though paves way for the CCI to at least consider the fact of the information provider settling its dispute with the alleged infringer as a relevant fact in reaching its conclusion on whether the alleged infringer has indeed violated any of the provisions of the Act. A settlement between the private parties may well indicate that the dispute in question is private in nature and does not necessarily involve a larger competition law issue. 

Conventus Law: In that case, the High Court directed Tamil Nadu Film Exhibitors Association to file their settlement with the CCI, who then may either accept, modify or reject it so long as it meets the factors listed by the High Court. Are the factors specific enough to give CCI the guidance they need to make a decision on a proposed inter-party settlement?

AZB:  The Madras High Court directed the CCI to consider (a) whether public interest would continue to suffer; and (b) whether the object of the inquiry would stand defeated by the acceptance of the compromise. The Madras High Court's decision recognises the fact that the Act does not expressly provide a mechanism for settling private disputes. Although broad, the two factors listed by Madras High Court offer the framework within which the CCI may accommodate private settlements while conducting its independent investigation, irrespective of the information provider's inclination to press on with its initial claims. 

Conventus Law: This case focused on the issue of inter-party settlements. However, the HC did not address the issue of commitments or settlements made unilaterally with the CCI. Will these be allowed moving forward?

AZB: The Madras High Court stated that the CCI has not been created as an adjudicatory body to resolve private disputes arising out of agreements between two people. The Madras High Court did not expressly address the issue of commitments or settlement offers made unilaterally by an enterprise which is being investigated or has been found guilty of infringement. Notably, the Act does not contain any provision empowering the CCI to consider and accept commitments or settlements offered by parties to an investigation. The Act merely empowers the CCI to penalise enterprises found guilty of infringement and impose other enforcement measure. Unlike its peers in the USA and other jurisdictions, the CCI does not have the power to settle an antitrust case with an enterprise. Therefore, unless the Act is amended by the Indian parliament, it is unlikely that the CCI will be able to close an investigation on the basis of unilateral commitments offered by a party to an investigation. In case of cartels though, the CCI has and would continue to retain the power to waive penalty for such parties that approach the CCI under leniency mechanism and satisfy the requirements for penalty waiver. 

 

 

 

For further information, please contact: 

 

Rahul Rai, AZB & Partners

rahul.rai@azbpartners.com