Agreement (Competition Law)

Agreements in general refer to a harmony of opinion, an arrangement as to a course of action, or a contract duly executed. In competition law, an agreement is refers to such an arrangement or harmony of opinion between competitors in a market.

Official Definitions

'Agreement' is defined in Section 2(b) of the Competition Act, 2002. It is defined as a 'arrangement or understanding or action in concert.' It is immaterial whether this is in writing or not, or whether this is intended to be enforceable by law or not. Any communication can establish an agreement, like email, phone, telex. It is common parlance in competition law that 'even a wink or a nod is an agreement.' It has been defined in a very broad and expansive manner, and is to be given a liberal interpretation. Further, the CCI has noted that even coercive conduct can create an inference of an agreement—coercion to impose a unilateral policy in combination with the number of distributors that are actually implementing the unilateral policy can establish a tacit acquiescence to an agreement.

Section 3 of the Competition Act prohibits 'anti-competitive agreements.' According to the section, no enterprise, person or association may enter into an agreement (on a variety of subjects) which is likely to cause an 'appreciable adverse effect on competition' within India. Section 3(2) provides that any such agreement shall be void. Section 3(3) further defines the term 'appreciable adverse effect on competition'—where it determines or controls sale or purchase prices, limits or controls production, supply or the market, shares or allocate a market in terms of geographical area or consumers, or results in bid rigging.

Types of Agreements

There are broadly two types of agreements in competition law: horizontal agreements and vertical agreements.

Horizontal agreements are agreements between enterprises at the same level in the production or distribution chain. For example, an agreement between several producers, several wholesalers, or several retailers. This includes agreements to fix prices, agreements to limit or control output, to share or divide markets, or to engage in bid rigging. This is defined in Section 3(3) of the Act.

Vertical agreements are agreements between enterprises at different levels in production or distribution chain, such as between a producer and a wholesaler. Section 3(4) has given examples of vertical agreements. This includes tie-in arrangements (forcing consumers to buy goods from a different market as a tie-in), exclusive supply agreements (agreement making a distributor receive only from only one supplier), exclusive distribution agreement (agreement to sell to only one distributor), refusal to deal (restricting the class of persons to which a good or service is sold) and resale price maintenance (selling goods with a condition to resell at a certain price).

The Act treats horizontal and vertical agreements slightly differently. Horizontal agreements of the types mentioned above have a presumption that they have an adverse effect on competition. Vertical agreements do not have this same presumption. In other words, for horizontal agreements, the burden of proof is on the companies to prove that there was no adverse effect on competition, whereas for vertical agreements, an analysis of the positive and negative effects on competition have to be taken into account through a 'rule of reason analysis.'