Antitrust

Anti-trust – ‘Single Economic Entity’ Defense

Competition laws in various jurisdictions aim at curbing practices that restrict or distort the competition. In this regard, the market participants often avail ‘single economic entity’ defence whereby the participants forming part of one economic unit are regarded as incapable of posing certain anti-trust dangers. Article 101 of the EC Guidelines[1] applicable in European Union and Section 1 of Sherman Act applicable in the United States do not regard companies forming a part of one undertaking, for instance, parent company and its subsidiaries, sister companies and network of joint ventures etc., as competitors.

Thus, the existence of impossibility of competition between the participants and exertion of single competitive force on the market by them are prerequisites to successfully avail this defence against allegations of collusive practice between them.[2]  It has been observed by the United States Supreme Court in Copperweld[3] case that the parent and subsidiary always have a ‘unity of purpose or a common design.’ The identity of interests arises because any profit ultimately accrues to the same person and the owner is entitled to transfer all of the subsidiary’s profits to itself. For this reason there is a complete coincidence of interests between the parent company and its wholly-owned subsidiary.[4]

However, an alternative view was taken by the United States Supreme Court in its recent judgment in American Needle, Inc. v. National Football League.[5] The case dealt with the question “whether the National Football League may act as a single entity or if licensing activities for individual teams’ intellectual property, conducted through a corporation separate from the teams and within its own management, constituted concerted action”.  The Court noted that necessity of co-operation between the network of joint ventures does not automatically transform concerted action into independent action. The Court rejecting the defence noted that mere members’ interest in co-operation does not justify treating them as a single entity.[6]

The application of this defence in the context of Indian jurisprudence has been limited. This is so because the enactment of the Act has been rather recent and this defence so borrowed from foreign jurisprudence has been selectively applied. The Raghvan Committee Report which was instrumental in enactment of Indian Competition Act, 2002  indicates that the firms that are under common ownership or control are not to be considered as potentially competitive rivals under the ambit of Section 3 of the Act.[7]

It has been concluded by the Indian Competition Commission in the case of Exclusive Motors[8] recently that since the subsidiaries of the Volkswagen group did not enjoy real autonomy in determining their course of action, they are to be seen in the rubric of single economic entity. However, the Commission came to a materially differing conclusion in Insurance Companies Cartelization Case.[9] It was observed that though the overall supervision of the insurance companies was with Indian Government, each of them placed a separate bid in response to the tenders floated by the Government indicating the presence of independent decisive control. And, since the Ministry of Finance did not exercise stringent control over the insurance companies’ decisions, the defence of single economic entity stands rejected.

It can be reasonably concluded that the sole purpose of this defence is to identify legal entities that are capable of exerting a single competitive force on the market and are unable to compete inter se. The aforementioned jurisprudence indicates that this defence is successful when parent companies are capable of exerting decisive influence over their subsidiaries. Since the key managerial personnel of companies could be implicated in breach of competitive laws, companies should ensure greater compliance with such laws especially with respect to their subsidiaries as this defence is not absolute.

[1] Guidelines on the applicability of Article 101 of the Treaty on the functioning of the European Union to horizontal co-operation agreements (2011).

[2] O. Odudu and David Bailey, The Single Economic Entity Doctrine in EU Competition Law, Common Law Market Review 51 (2014).

[3] Copperweld v. Independence Tube, 467  US 752 (1984).

[4] Akzo Nobel v. Commission, ECR I-8237 (2009).

[5] 560 US 183 (2010).

[6] American Needle, Inc. v. National Football League, 26 Berkeley Technology Law Journal 911 (2011).

[7] Report of the High Level Committee on Competition Policy & Law (SVS Raghavan Committee Report)  accessible at  http://www.competitioncommission.gov.in/Act/acts.htm

[8] Exclusive Motors Pvt. Ltd. v. Automobili Lamborghini S.P.A, Case No. 52 of 2012, Order dated 06.11.2012

[9] In re: cartelization by public sector insurance companies in rigging the bids submitted in response to the tenders floated by the Government of Kerala for selecting insurance service provider for Rashtriya Swasthya Bima Yojna, Suo Moto Case No. 02 of 2014, Order dated 10.07.2015

 

Author: Vatsla Singh

Vatsla Singh is an eighth semester B.A. LLB student of Army Institute of Law, Mohali, India. Her areas of interest include Anti-trust/Competition, Banking & Finance and Intellectual Property. She has participated in the International Criminal Court Moot Competition organized by the International Criminal Court, Hague in 2016. She was also awarded ‘Best Oralist’ in the national round of the competition. She is interested in legal writing, debating, calligraphy and poetry.