Revisiting Behavioural Remedies in Merger Control

Introduction

Competition agencies across the world use structural remedies (i.e., one-time remedies intended to maintain or restore the competitive structure of the market)[1] and behavioural remedies (i.e., remedies affecting the future behaviour of a merged entity)[2] to address anti-competitive harm from transactions. Traditionally, competition agencies and merging parties have favoured structural remedies over behavioural remedies, since the latter are difficult to craft and enforce,[3] involve time and cost to monitor and may only temporarily ‘fix’ the market conditions by changing the conduct of a merged entity. That said, behavioural remedies can be flexible, tailored to address the specific conduct of an entity,[4] and are arguably ‘proportionate’ to the harm caused. Also, behavioral remedies are more appropriate when structural remedies to address anti-competitive harm may result in significant loss of efficiencies from the transaction.[5] In the past few years, the Competition Commission of India (‘CCI’) has increasingly used behavioural remedies, as standalone measures and in conjunction with structural remedies. We analyse the CCI’s jurisprudence to demonstrate that behavioural remedies can be successful tools even in complex transactions to remedy the harm caused to the competition in the market.

The CCI’s cases so far

The CCI’s early cases involving behavioral commitments from parties were related to assessing non-compete covenants in transactions. Notifying parties typically addressed the CCI’s concerns by reducing the duration of the non-compete transactions[6].

In later cases, the CCI has used a combination of structural and behavioural remedies to minimize the post-combination unilateral and coordinated effects in transactions between competitors. The CCI accepted a hybrid structural and behavioural remedy for the first time in PVR/DT[7] where the parties offered to leave out certain screens in a geographic market from the transaction’s scope (structural remedy) and provided undertakings to not expand organically or acquire new screens (behavioural remedy). The CCI has also used behavioural remedies to address concerns of bundling and other portfolio effects arising due to the parties’ complementary products and services (i.e., a conglomerate merger). In Bayer/Monsanto[8], while divestments of overlapping businesses addressed the unilateral and coordinated effects, the CCI required parties to commit to a number of obligations including non-bundling of products, non-exclusive distribution channels, licensing of certain products on fair, reasonable, and non-discriminatory terms, etc. to offset the transaction’s portfolio effects. Similarly, in ChinaChem/Syngenta[9], the CCI accepted parties’ commitment to divest certain crop protection products along with the commitment that the parties’ Indian entities would operate as competitors for 7 years. It appears that the CCI has used behavioral remedies in conjunction with the structural remedies in these cases since structural remedies alone would not sufficiently address the purported anti-competitive concerns.

The CCI has also used behavioral remedies to allay any concerns of post-transaction collusion between the competitors. In Northern TK[10], the CCI was concerned that the acquirer group’s joint venture (‘JV’) with a competitor could become a platform for coordination between the JV and its parents. Parties offered to have “firewalls” to avoid exchange of commercially sensitive information and a commitment to avoid common directors between the companies. Similar commitments were offered in the Nippon[11] and Valkyrie[12] cases to address concerns with respect to potential collusive behavior. The CCI’s acceptance of behavioral commitments in these cases demonstrates that these can be used effectively to strike a balance between addressing the anti-competitive concern and preserving the efficiencies of a transaction that could be lost if structural remedies were used.

Equally, behavioral remedies have proved effective in allaying customer and input foreclosure concerns in transactions between companies at different levels of a production chain (i.e., a vertical merger). In Schneider/L&T[13], the CCI accepted behavioural remedies to offset foreclosure effects without seeking any structural remedy. The CCI asked the parties to commit to long term white labelling, price caps, non-exclusive licensing of technology, non-exclusive distribution networks, etc.

In the past few years, the CCI has required behavioral commitments to address any adverse effects on customers. In Hyundai/Ola[14], the parties had to ensure that Ola’s algorithms would not prefer/discriminate between drivers based on the brands of their cars. Similarly, in Videocon/Dish[15] and Jio[16] cases, parties undertook to bear the cost of change in technology, technical realignment, etc., to obviate the transaction’s effects on end customers.

Conclusion

The CCI’s decisional practice demonstrates that behavioural commitments can effectively address a range of anti-competitive harms. In the CCI’s early days in PVR/DT, it had initially rejected the behavioural remedies offered by the parties because of the difficulty in implementing and monitoring them. However, in Schneider/L&T, the CCI recognized the difficulty in implementing the proposed divestments (due to integrated production plants, common personnel, etc.) and ultimately accepted the behavioural remedies offered by the parties. The CCI’s more recent approach appears to be that behavioural commitments are a good option where they are reasonable to formulate, implement and monitor. Notifying parties may need to consider the CCI’s renewed flexibility towards behavioural commitments while planning their remedy proposal.

 

[1] International Competition Network- Merger Remedies Guide 2016 (available at https://www.internationalcompetitionnetwork.org/wp-content/uploads/2018/05/MWG_RemediesGuide.pdf)

[2] Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 , para 17 (available at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52008XC1022(01)&from=EN)

[3] Merger Remedies Manual, Antitrust Division U.S. Department Of Justice, September 2020 (available at https://www.justice.gov/atr/page/file/1312416/download)

[4] Supra, note 1

[5] Supra, note 3

[6] Orchid Chemicals and Pharmaceuticals Limited and Hospira Healthcare India Pvt. Ltd., Combination No. C-2012/09/79; Mylan Inc. , Combination No. C-2013/04/116

[7] PVR Limited, Combination No. C-2015/07/288

[8] Bayer AG, Combination No. C-2017/08/523

[9] China National Agrochemical Corporation, Combination No. C-2016/08/424

[10] Northern TK Venture, Combination No. C-2018/09/601

[11] Nippon Yusen Kabushiki Kaisha Ltd., Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha, Ltd, C-2016/11/459

[12] TRIL Urban Transport Private Limited, Valkyrie Investment Pte. Limited and Solis Capital (Singapore) Pte. Limited, Combination No. C-2019/07/676

[13] Schneider Electric India Pvt. Ltd. and MacRitchie Investments Pte. Ltd , Combination No. C-2018/07/586

[14] Hyundai Motor Company and Kia Motors Corporation, Combination No. C-2019/09/682

[15] Dish TV India Limited, Videocon D2h Limited, Combination No. C-2016/12/463

[16] Jio Futuristic Digital Holdings Pvt. Ltd., Jio Digital Distribution Holdings Pvt. Ltd. and Jio Television Distribution Holdings Pvt. Ltd, Combination No. C-2018/10/609; Jio Content Distribution Holdings Pvt. Ltd., Jio Internet Distribution Holdings Pvt. Ltd., and Jio Cable and Broadband Holdings Pvt. Ltd, Combination No. C-2018/10/610

Published In:Inter Alia Special Edititon - Competition Law - November 2020 [ English
Date: November 13, 2020