Conflict between govt policies and competition law

Many in the government often fail to consider the benefits of competition on the economy and consumers

The civil aviation ministry is reportedly seeking to mediate an informal anti-poaching agreement between airlines. Though this is aimed at addressing a shortage of trained employees, especially in the case of Air India, such a pact might well distort free competition in the labour market.

Globally, competition authorities have frowned at anti-poaching or non-solicitation agreements between competitors, as these reduce competition in the market; though this is in contrast to non-compete/customer non-solicitation covenants in contracts between employers and employees, which are assessed under the 'rule of reason' and are largely acceptable under competition law.

In 2009, the US Department of Justice (DoJ) investigated allegations of such agreements between some California-based companies, including Adobe Systems, Apple and Google. These companies had entered into agreements that prohibited recruiters from 'cold calling', or soliciting each other's employees. According to the DoJ, these agreements adversely affected the labour market by restricting competition among companies to attract skilled employees and decreasing employees' access to more lucrative job opportunities. Civil complaints and a federal class action suit against these companies resulted in settlement agreements; the federal judge has tentatively approved a $415-million settlement proposed by the companies and the case is sub judice.

In 2013, the US Federal Trade Commission (FTC) said, a provision in the Music Teachers National Association's code of ethics was preventing members from soliciting customers of competing member music teachers. It said this was anti-competitive, as it restricted competition among teachers and, consequently, did away with the benefits consumers would have secured from competition among teachers. Similarly, in a complaint against the California Association of Legal Support Professionals, the FTC observed, denying association members the ability to solicit legal support professionals for employment distorted competition among these professionals. Under section 3 (3) (b) of the Indian Competition Act, 2002, agreements between competitors are considered to be anti-competitive per se. Accordingly, an anti-poaching agreement proposed by the aviation ministry could be contrary to the principles of the Act, as it is likely to not only restrict competition between airlines but also distort competition in the downstream labour market.

Though the Act has been in place for about five years, it appears while formulating policies, many in the government are still not fully conscious of its objectives and often fail to consider the benefits of competition in the market for the economy and consumers. This lack of awareness is reflected in some of the past policies and directives of the government, which go against the fundamental principles of competition law. For instance, in 2013, the finance ministry had issued a directive preventing public sector insurance companies from bidding for each other's businesses. Similarly, though sharing commercially-sensitive information between competitors is prohibited under competition law, the Department of Industrial Policy and Promotion had instructed cement manufacturers to share data regarding retail prices of cement, the details of production, capacity addition, etc. Allegedly, cement manufacturers used this as an opportunity to run a cartel. The CCI imposed a penalty of Rs 6,316 crore on the cement manufacturers and said sharing of information between competitors even when under the instruction of the government was anti-competitive, per se. The broad lack of awareness about the Competition Act seems to pervade some public sector enterprises, too. Being in a monopoly position, these companies have abused their dominance in the market. Recently, the CCI imposed penalties on Coal India for entering into unfair and one-sided agreements with its customers, primarily private power producers.

The CCI has been carrying on competition advocacy to, among other things, create greater awareness about the competition law and the benefits of pro-competition policies by the government. Pro-competition policies are also pro-efficiency and more transparent. The recent auction of telecom spectrum and coal blocks, which have resulted in huge revenues to the government (central and states), besides being clean and transparent, is an instance. This was in stark contrast to the previous processes used to allocate spectrum and coal blocks, which led to controversies and had an adverse impact on the telecom and energy sectors.
The author is former head of the Competition Commission of India; currently, he practises competition law