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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 Reason

The 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 Agreements

There 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.

Understanding Cartel

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 as cartel.

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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