When is a Company Too Big?
Competition law regulates deals that can have an 'appreciable adverse effect on competition.' Why?
This week, the US Federal Trade Commission (‘FTC’) accused Facebook of buying up its rivals to illegally squash competition. The FTC prayed for a number of Facebooks acquisitions to be unwound.
The regulator has demanded that Instagram and Whatsapp be hived off. Can this be done? Under US law, probably. But, hey, we aren’t American anti-trust lawyers. So, let’s look at how this would be addressed in India, shall we?
What does Indian law say?
Competition Law in India is regulated by the Competition Act, 2002 (‘Competition Act’). The Competition Act was designed with a few very clear objectives -
(a) to establish a Commission to prevent practices having adverse effect on competition;
(b) to promote and sustain competition in markets; and,
(c) to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets in India, all while balancing these interests with the economic development of the country.
Assume that large Indian conglomerate A, wants to acquire small Indian startup B. They both work in the same space. In fact, B is a competitor to A (similar to how you could argue that Instagram was a competitor to Facebook).
What does Indian law say? For one, it is possible that this deal would require the approval of the Competition Commission of India (‘CCI’). But not all deals need these approvals. Only certain ‘combinations’ require approvals.
The CCI sets out transaction limits (which get revised often). When a deal size is below these thresholds (de minimis), it’s presumed to be okay. So, if both parties to the deal are small, odds are that you won’t need an approval.
The CCI also recognises that deals may take place through investment vehicles. It’s not just the companies that are a party to the deal that can be examined, but also the group that they form a part of. The CCI has group thresholds i.e. it can also look at the turnover/assets of the ultimate parent company if it think there’s a risk.
How does that affect you?
If your deal is above these thresholds, you need to make filings with the CCI. These transactions cannot be consummated without the CCI’s approval.
But when does the CCI actually step in? The test is that of an ‘AAEC,’ i.e. appreciable adverse effect on competition. The CCI steps on only if it feels that the deal is likely to have such an affect. And if the CCI concludes that there is an AAEC, it has the power to unwind a deal.
It can also propose structural and behavioural modifications to deals. A structural remedy is one that is intended to restore the market to its previous stage of competition. On the other hand, a behavioural change is one that prohibits parties from engaging in certain behaviour post the combination.
In the example of conglomerate A acquiring startup B, the CCI is well within its powers to: (a) leave out certain geographies (a structural change); or (b) ask the parties to not bundle their products together (a behavioural change).
A competition regulator has many tools in its arsenal. As technology changes how we do business, it’s only natural to expect laws to adapt. A lot will happen in this space (both in India and abroad). We will keep a close eye on this. You should too.
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