Per Se Rule and Rule of Reason
What is a Per Se Rule?
Firstly, in the class, after finishing the vertical agreements under Section
3(4) of the Competition Act, 2002, Per Se Rule was taught. Per Se Rule is simply
when one person on whom are the offences or the allegations which pertain to a
specific issue is alleged in front of any Court of Law, such alleged person has
the onus to prove that such allegation is a falsified one. In regular cases,
should there be an allegation filed against a person, the Courts would demand
conclusive evidence to prove and hold the accusation as admitted.
In these cases, the accused person need not prove anything unless some form of
conclusive proof is held against them. Wherein, in the Per Se Rule, the accused
person, from the moment of alleging, the burden to claim innocence falls on
them. This rule will be employed only in the horizontal agreements as admitted
under Section 3(3) of the Competition Act, 2002. This is also called the Rule of
Presumption as the defendant party must prove that there is no such arrangements
made by them in the first place.
Rule of ReasonThe rule of reason is exactly opposite to the Per Se Rule, that is, the
informant holds the onus of proving the information alleged by them or any
anti-competitive agreement claimed by them. Section 3 (1) of the act might cause
or likely may cause an appreciable adverse effect.
The reason being the
application of Rule of Reason where the onus on the informant to prove the
facts, it causes an appreciable adverse effect, as there is the preponderance of
probability as applied by the Competition Commission of India. So, in Section 3
(1), Rule of Reason is applied and not Per Se Rule. Similarly, in Section 3 (4),
in the vertical agreements, as there are different stages or levels or
production chain, it may cause an appreciable adverse effect. Consequently, the
Rule of Reason is applied.
Differentiating Between the Horizontal and Vertical AgreementsThere is a fine line difference between the horizontal agreements and the
vertical agreements. If there is an exclusive agreement between two products
that decide to sell together exclusively, will this be cartel? For example, PVR
Cinemas and Coca Cola enter into an agreement to sell Coca Cola and its
associated beverages in PVR premises. Would this constitute a competition
concern as the business of other similar companies are being restricted or a
consumer concern as the customer's right to choose similar companies' products
is being fettered? The answer to this would be to test the levels of the
comparable market of the two products.
Cinema market is completely irrelevant to
the beverage market. One's presence will not affect the other. So, these
different level market players join hands to present both of their products to
form one experience. So, this qualifies under Section 3 (4) and thus for
anybody claiming against these issues will have the onus to prove the
accusation. This was the case in Shamsher Kataria v. Honda. Thus, the Rule of
Reason is applied.
Similarly, in the case of a provisional store chain like 7-Eleven cannot agree
to sell Coca Cola products alone as his market is to sell general goods as the
consumers wish to purchase and there should be no restriction felled at that
end. Therefore under Section 3 (3), if such agreements happen and someone
becomes an informant, then the other person holds the onus to prove the
accusation wrong, that is, Per Se Rule is applied.
Unlike the vertical agreements, the agreements made by the same level of players
of a market, it becomes illegal and is called as the Cartel. There is a general
presumption that the horizontal agreements are per se wrong but it is rebuttable.
Not every horizontal agreement qualifies as cartel. Citing example to the WB
Film Producers' Case, where the consortium of members of the local TA, consult
and announce that only local made serials will be telecasted but not any other
language serials which usually have higher demand. This was in cause to protect
the regional producers and promote language-based serials. This does not qualify
If there is an agreement made by two players of the market who sit in the same
chain, that is, if the products are similar but not identical, then such
agreements are horizontal agreements and are illegal under Section 3 (3).
Examples would be, if the onion wholesale dealers of one same market discreetly
agree among themselves to hold the onions for a while, so that the demand for
the onions would increase, thereby subsequently increasing their price, then
this is illegal to do so.
Sometimes similar pricing between two players to
determine the market price can also be considered under this. Such agreement
need not be in writing but mere understanding of two parties will suffice to
qualify as cartel. So there need not be any reason for the informant to prove
but it falls on the other person.
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