Memorial on Behalf of Appellant

8/10/2019 Memorial on Behalf of Appellant

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BEFORE HONBLESUPREME COURT OF INDIA

NEW DELHI.

UNDER SECTION 53T OF COMPETITION ACT, 2002.

IN THE MATTER OF

Manufacturer of Essential Oils Association (MEOA) . (APPELLANTS)

VERSUS

Competition Commission of India. (RESPONDENTS)

MEMORIAL ON BEHALF OF APPELLANTS

MANUFACTURER OF ESSENTIAL OILS IN INDIA


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MMEEMMOORRIIAALLOONNBBEEHHAALLFFOOFFAAPPPPEELLLLAANNTT

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TABLE OF CONTENT

LIST OF ABBREVIATIONS..4

INDEX OF AUTHORITIES4

STATEMENT OF JURISDICTION................................................................................................9QUESTIONS PRESENTED..10

STATEMENT OF FACT..11

SUMMARY OF PLEADINGS.14

ARGUMENT ADVANCED.17

1. The Arrangement is Not a Cartel Arrangement and Hence Not Violative of Section 3 of

Competition Act, 2002... 17

A. Presence of agreement was not conclusively established17

B. There is inadequate evidence to conclude the existence of collusive price fixing or

territorial allocation20

C. Mere formation of MEOA is insufficient to conclude the existence of a cartel...24

2. The Case Requires to be Tested Under Section 19 of Competition Act, 2002 and The CCI and

Appellate Commission Exercised Jurisdiction Improperly...26

3. Lotus India Cannot be Offered Full Immunity Against Punishment or Penalty Since it is One

of The Biggest Manufacturers of Essential Oils and was an Important Member of The MEOA27

4. Lotus India has Acted in Violation of The Non-Compete Agreement..29

5. Lotus India is Not Entitled to Unilaterally Terminate the License Agreement and is Also Not

Entitled to Damages and Lotus India is Required to Compulsory License the Technology to

Others Manufacturers....32

A. Lotus India is not entitled to unilaterally terminate the License Agreement32


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B. MEOA is not entitled to Damages for breach of the Agreement and the Loss of

Profits33

C. Lotus India is required to Compulsorily License the technology to other

Manufacturer......................................................................................................................35

C.1 STATUTORY REMEDIES FOR ABUSE OF PATENT RIGHTS..36

PRAYER............................37


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INDEX OF AUTHORITIES

LEGISLATIONS

The Constitution Of India, 1950. Indian Contract Act, 1872.

The Competition Act, 2002 [Act No.12 of 2003] as amended by The Competition

(Amendment) Act, 2007 dt 24-90-2007.

The Competition Commission of India (Lesser Penalty) Regulations, 2009, No.L-

3(4)/Reg-L.P./2009-10/CCI.

The Patents Act, 1970.

The Essential Commodities Act, 1955.

The Drugs and Cosmetic Act, 1955.

The patents Rule, 2003.

INTERNATIONAL TREATIES AND AGREEMENTS

General Agreement On Tariff And Trade, 1994

LIST OF CASES REFERRED

Belaire Owners' Association v DLF Limited, HUDA & Ors Competition Commission Of

India Case No. 19 of 2010.

BRTA v Inchek Tyres Ltd1 RTPI 7 (MRTPC).

Central Inland Water Transport Corporation Limited and Anr. v Brojo Nath Ganguly

and Anr1986(3) SCC 156.

Competition Commission of India v Steel Authority of India Limited and another

2010 SC 737; 2010 (10) SCC 744; 2010 (9) Scale 291; 2010 (11) SCR 112; 2010 (10) JT

26; 2010 (5) All MR 934.

Dlf Park Place Residents v Dlf Limited Competition Commission Of IndiaCase No. 18

Of 2010.


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Yashoda Hospital And Research v Indiabulls Financial Services, Competition

Commission Of India Case No. 12 Of 2010

BOOKS AND DIGESTS

199th Report, Law Commission of India, 2006, page 25.

NATURE AND CAUSES OF WEALTH OF NATIONS, (1776) (book 1, Chap X) 82.

COMPETITION LAW IN INDIA-POLICY, ISSUES AND DEVELOPMENT,

T.Ramappa, Oxford India Paperbacks,2nd Ed (2009).

COMMENTARY ON THE MRTP LAW, COMPETITION LAW & CONSUMER

PROTECTION LAWLAW, PRACTICES AND PROCEDURES, S M. Dugar, Volume

1 (2006), p.757.

GUIDE TO COMPETITION, SM Dugar and U P Mathur, Nexis Lexis, 5th Ed. (2010).

PATENT FOR CHEMICALS, PHARMACEUTICALS and BIO TECHNOLOGY,

Fundamentals of Global law, practice strategy, 4thEd., Philip W. Grabb. Oxford. Page

230-244, 440-472.

INTELLECTUAL PROPERTY AND COMPETETIVE STRATEGIES IN THE 21ST

CENTUARY, Shahid Ali Khan & Raghunath Mashelkan, 2nd

Ed., Walter Kluwer Law

and Business, pg. 31-51.

LAW RELATING TO INTELLECTUAL PROPERTY, Dr. Raghbir Singh, Vol.,

Universal Co. Pvt. Ltd.

COMPETITION LAW IN INDIA, Abir Roy & Jayant Kumar, Eastern Law House

Kolkatta, 2008 pg 68-87, 98-121, 170-206.

COMPETITION LAW TODAY, CONCEPT ISSUES AND LAW IN PRACTICE,

Vinod Dhall, Oxford University Press, pg 39-58, 129-148.

CONTRACT AND SPECIFIC RELIEF ACT, Avtar Singh, 10 th Ed., Eastern Book

Company.

INTERPRETATION OF CONTRACT, M.A. Sujan, 2nd

Ed., Universal Law Publishing

Co. Pvt. Ltd.

GUIDE TO COMPETITION LAW, S.M. Duggar, 5th Ed. 2010, Lexis Nexis

Butterworths Wadhwa, Nagpur.


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QUESTION PRESENTED

1. Whether the Arrangement is a Cartel Arrangement and Hence violative of Section 3 of

Competition Act, 2002.

2. Whether the Case requires to be Tested under Section 19 of Competition Act, 2002 and

whether the CCI and Appellate Commission Exercised Jurisdiction Improperly.

3. Whether Lotus India Can be Offered Full Immunity Against Punishment or Penalty Since

it is One of The Biggest Manufacturers of Essential Oils and was an Important Member

of The MEOA.

4. Whether Lotus India has acted in violation of the Non-Compete agreement.

5. Whether Lotus India is entitled to unilaterally terminate the License Agreement and is

also entitled to Damages and whether Lotus India is required to Compulsory License the

Technology to Others Manufacturers. Whether it would have made any difference if lotus

India would have been a Pharmaceutical Company.


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STATEMENT OF FACTS

BACKGROUND

1. The appellants are manufacturers of essential oils. Essential oil is a vital ingredient for

perfumes, soaps, room fresheners and many other cosmetic products. It plays a vital role to the

cosmetic industry which is growing at exponential rates in India ushering in high revenues and

better job prospects to the entire nation.

2. The manufacturers of essential oils in India were having turbulent times and were losing a

large chunk of market share to imported essential oil, soon after India reduced the steep import

tariffs on such imported essential oil, in keeping with its GATT commitments.

3. The manufacturers of essential oils formed themselves into an association known asManufacturers of Essential Oils Association (MEOA). As part of its practices, th e MEOA

organized monthly meetings for its members to exchange information on advances in

technology, technical know-how, market related information for streamlining production

process, output, product pricing to avoid losses. Also, any manufacturer who identified and

patented new technology was obliged to license the technology to other association members by

entering into an irrevocable license agreement with each of the members, for a royalty which was

decided by MEOA. This ensured that the patent holder earns adequate royalty and at same time

keeping with the basic premise, the members have access to new technology.

MERITS

1. The large scale distributors and buyers of such essential oil were required to purchase essential

oil only from manufacturers who were certified by MEOA and in-turn such buyers/distributors

were provided certain discounts in prices. This way MEOA ensured quality control through the

certification process. Any buyer/distributor buying essential oil from any non-MEOA member

was boycotted from future supply by any of the MEOA members, as penalty.

2. In 2008, global recession resulted in losses to the essential oil manufacturers; attributed largely

to excess production on account of reduced demand from buyers.

3. In order to streamline and evenly match the supply and demand in line with prevailing market

conditions and ensure reduction in losses, the MEOA divided the market for the members and


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offered exclusivity for manufacture and supply of essential oils in a particular territory for each

member.

4. As required by MEOA, each member also signed a non-compete agreement with the other

members agreeing not to compete in other territories by supplying essential oils in such other

territories. This arrangement considerably helped the essential oil manufacturers avoid any losses

by planning production output, production costs etc. in line with the amount required to be

supplied in their relevant geographical territory.

5. In 2011, one of the members, Lotus India, which is one of the biggest manufacturers and

suppliers of essential oil, also holding various technology patents, found it of great

inconvenience and loss to continue to adhere to the norms and territorial restrictions imposed by

MEOA. Lotus India consciously decided to flout the terms agreed to it under the non-

competition agreement with the other members and proceed to selling and supplying its product

to buyers across the country.

6. Further, to ensure lesser competition, Lotus India prematurely terminated the license

agreements executed with other manufacturers in order to deny access to patented technology of

Lotus India.

7. However, despite termination of the license, the other manufacturers continued to use the

patented technology and process of Lotus India, claiming that they had already expended

considerable efforts, time and amounts in setting up production units to produce essential oil

using the technology earlier licensed by Lotus India.

8. On account of this, the other members filed a petition before the court seeking for temporary

and permanent injunction against violation of the non-compete arrangements as well as

termination of the technology license. Further, the other manufacturers claimed damages for loss

of profit suffered on account of violation of the non-compete agreement.

9. On the other hand, Lotus India filed a petition seeking injunction against use of its technology

and also alleged before the court that the non-competition arrangement is either ways void since

it falls within the restraint of trade arrangement which is strictly prohibited under section 27 of

Indian Contract Act.

10. In addition, Lotus India filed a complaint with the Director General (DG) of Competition

Commission of India stating that the MEOA arrangement is a pure cartel arrangement in clear

violation of Section 3 of Competition Act, 2002.


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11. The DG conducted investigation and submitted the case with sufficient information and

evidence to CCI. The DG has submitted to CCI that the arrangement by MEOA members was

one of horizontal price fixing, horizontal arrangement for output fixing, facilitating practices,

group boycott arrangement, abuse of dominant position .

12. The appellants on the other hand contended before the CCI that, none of their activities or

collaboration resulted in cartelization. Only information pertaining to price points, market factors

and technology were exchanged for general welfare and the MEOA members did not have

monopolization over or full control of the market because of existence of fierce competition and

availability of various options of imported essential oils. Also, the act of geographical division

was not to suppress competition or effect output, but instead to achieve more streamlined

production and as a result increased output.

13. The CCI, upon hearing the case arrived at the conclusion that this is a case of pure

cartelization and aper se violation of Section 3 of Competition Act, without having to carry any

further in-depth analysis under Section 19. The CCI ordered the appellants to pay penalty to the

tune of One Thousand Five Hundred Crore rupees collectively, except Lotus India. Upon appeal

by the other manufacturers the Appellate Commission upheld the decision of CCI.

CONCLUSION

The appellants have now filed an appeal before the Supreme Court against the decision of theCCI and Appellate Commission. The Supreme Court has decided to also club with this appeal

the issue pertaining to the violation of the non-competition agreement and license agreement and

hear the case in its entirety and has asked the parties to present final arguments based on national

and international precedents, logical analysis and cogent reasoning.

PROCEDURE

The appellants have approached the Supreme Court under Section 53T of the Competition Act,

2002.


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and that the agreement does not substantially eliminate competition- are satisfied. Therefore, it is

proper for the Competition authorities to test the case under section 19 of the Act on account of

lack of evidence of any horizontal agreement formed herein. It can construed from the language

of the section 3 as discussed above that there is a presumption with regard to cartels that there is

an appreciable adverse effects on competition provided an agreement to that effect is proved.

3. LOTUS INDIA CANNOT BE OFFERED FULL IMMUNITY AGAINST PUNISHMENT

OR PENALTY SINCE IT IS ONE OF THE BIGGEST MANUFACTURERS OF ESSENTIAL

OILS AND WAS AN IMPORTANT MEMBER OF THE MEOA.

It is humbly submitted that it is not justifiable to give full immunity to Lotus India as it was one

of the biggest manufacturers and essential member of MEOA. Lotus India was part of MEOA

since it was first formed and only broke the contract in 2011. It used its membership with MEOA

to grow and broke off the agreement prematurely when it stopped suiting its convenience.

The non-compete agreement was broken by Lotus India after it followed its terms from 2008 to

2011. Lotus India suffered loss of membership from MEOA but Lotus India was comparatively

unaffected by it, because it had sufficient technology and production capacity to ensure unabated

supply and also ensured to have buyers on account of offering steeper discounts. Lotus was

successful in offering lesser price to its customers.

Hence, it is humbly submitted that Lotus

India, was a willing and significant member of MEOA and therefore cannot be granted complete

immunity.

4. LOTUS INDIA HAS ACTED IN VIOLATION OF THE NON-COMPETE AGREEMENT.

It is humbly submitted that Lotus India has violated the non-compete agreement which was

signed by the all the members of MEOA with each other. The non-compete agreement was

signed by the members of MEOA as it was in everyones interest. This agreement helped the

essential oil manufacturers avoid any losses by planning production output, production costs etc.

in line with the amount required to be supplied in their relevant geographical territory. This was

a reasonable restraint and one that was made keeping in mind the interests of members.


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The object of the agreement was not unlawful as it was held the if the intention is merely to

regulate an act by prescribing certain terms and conditions and formalities, a contract to do the

act without fulfilling the statutory requirements may not itself be void.

5. LOTUS INDIA IS NOT ENTITLED TO UNILATERALLY TERMINATE THE LICENSE

AGREEMENT AND IS ALSO NOT ENTITLED TO DAMAGES AND LOTUS INDIA IS

REQUIRED TO COMPULSORY LICENSE THE TECHNOLOGY TO OTHERS

MANUFACTURERS.

It is humbly submitted that Lotus India is not entitled to unilaterally terminate the license

agreement signed by the manufacturers of essential oils who identified or patented new

technology to license the technology for a royalty, which was decided by MEOA. The agreement

was signed by Lotus India with full knowledge and consent and therefore terminating the same

agreement before the completion of the contract is a breach of contract

It is humbly submitted that the determination whether an agreement unreasonably restrains the

trade depends on the nature of the agreement and on the surrounding circumstances that give rise

to an inference that the parties intended to restrain the trade and monopolize the same.

It is humbly submitted that such a breach of contract is not just unfavorable for the other

manufacturers but also adverse for the society. Thus it is humbly submitted that there was an

infraction on part of Lotus India and should be liable for the same.

Patent are not merely granted to enable patentee to enjoy a monopoly for the importation of the

patented articles. An obligation is, therefore, imposed on a patentee to work the patent in India

on the commercial scale to the fullest extent.

However it is well established that Essential Oils, owing to their medicinal properties, play a

significant role in the pharmaceutical industry as well and hence is an essential commodity.


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ARGUMENTS ADVANCED

1. THE ARRANGEMENT IS NOT A CARTEL ARRANGEMENT AND HENCE NOT

VIOLATIVE OF SECTION 3OF COMPETITION ACT,2002.

The Appellants submit that neither did they enter into any anti-competitive agreement, nor

indulged in behavior that may be adduced to be anti-competitive in nature. The conduct of the

appellants was wrongly assumed to have an appreciable adverse effect on competition as there

was no violation of Section 3(3) of the Competition Act, 2002 on their part. In order to support

the assertion that CCI erred in penalizing the appellants, it is imperative to make a detailed

assessment of the following. Firstly, that the presence of an agreement was not conclusively

established; secondly, that there is inadequate evidence to conclude the existence of collusive

price fixing or territorial allocation and thirdly, that mere formation of MEOA is insufficient to

conclude the existence of a cartel.

A. Presence of agreement was not conclusively established

The appellants submit that it is well-settled that the existence of an agreement is the first step

which needs to be taken in order to proceed with any investigation into the anti-competitive

nature thereof. Any agreement which is alleged to have appreciable adverse effect on

competition needs to be explicitly established for finding contravention under section 3 of the

Act. The DG had failed to adduce any direct and cogent evidence to satisfy this primary

criterion. As the threshold for establishing the most basic requirement, i.e., the existence of an

agreement had not been met in the present case.

In the Competition Act, 2002, the term agreement has been defined under section 2 (b) as

follows:

"agreement" includes any arrangement or understanding or action in concert,

(i) whether or not, such arrangement, understanding or action is formal or in writing; or

(ii) whether or not such arrangement, understanding or action is intended to be enforceable by

legal proceedings.


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A plain reading of the facts at hand would show that neither clause of the above definition is

satisfied as there was no proof of the existence of any arrangement, understanding or action in

concert to conclusively establish the presence of an agreement. The report of DG is based upon

surmises and conjectures and ought to be rejected.

Not only has the DG failed to produce any direct evidence suggesting that the appellants entered

into any illegal agreement, but has also committed a fundamental error in failing to establish the

timeframe in which the alleged anti-competitive agreement operated. This shows arbitrariness on

the part of the DG.

The finding of cartelization can result in very serious penal, commercial and reputational

consequences and when such harsh penal consequences are provided, the degree of proof

applicable should be stringent and beyond all reasonable doubt. Mere suspicion of collusive

behavior, or of a "tacit agreement", or "collusive price leadership" cannot be the basis for talking

steps under Section 3 of the Act. The Appellants contend that their conduct was guided by the

market forces and any direction to stop intelligently responding to the market conditions would

have been counterproductive keeping in mind established business practices.

It has to be noted that in actions undertaken under the ambit of anti-competitive agreements it is

needed that the plaintiff must prove injury, which is connected to an antitrust action which is

protected by the relevant statute.1No other players in the market have complained of any losses

caused to them due to the appellants conduct. InAtlantic Richfield Company v USA Petroleum

Company,2 where the court observed that private plaintiff may not recover damages under

Clayton Act merely by showing injury casually linked to illegal presence in market; instead,

plaintiff must prove existence of antitrust injury which is to say injury of type anti-trust laws

intended to prevent and that flows from that which makes defendants acts unlawful.

An agreement or understanding under Section 3 read with Section 2 (b) is the sine-qua-non for

initiating action or even for requiring cause to be shown before taking action. In order to buttress

1COMPETITIONLAW ININDIA, Abir Roy and Jayant Kumar,1st Edition, Eastern Law House, 2008.2495 US 328 (1990).


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its point on the issue, the appellants have also relied on the cases of Consumer Online

Foundation v Tata sky3andNeeraj Malhotra v Deutsche Post Bank & Ors.

4decided by the CCI.

InITC Ltd v MRTP Commission24, it was held that three essential factors have to be identified to

establish the existence of a cartel, namely agreement by way of concerted action suggesting

conspiracy, the fixing of prices, and the intent to gain a monopoly or restrict/eliminate

competition. The first element itself was missing in this case, thus there was no need to proceed

with the investigation. It is settled law that in the absence of an agreement being conclusively

established based on the facts of the case, the question of inferring an anticompetitive practice

within the meaning of section 3 of the Act does not arise. Therefore, the CCA erred in relying

upon an erroneous DG Report which was inconclusive on the existence of an agreement; no

question arises with respect to the said agreement being anti-competitive.

Even if we accept the existence of an agreement, the prohibition that has been imposed is on

anti-competitive agreements. Relevant portions of section 3 read as follows:

3. (1) No enterprise or association of enterprises or person or association of persons shall

enter into any agreement in respect of production, supply, distribution, storage, acquisition or

control of goods or provision of services, which causes or is likely to cause an appreciable

adverse effect on competition within India.

(2) Any agreement entered into in contravention of the provisions contained in subsection (1)

shall be void.

(3) Any agreement entered into between enterprises or associations of enterprises or persons or

associations of persons or between any person and enterprise or practice carried on, or decision

taken by, any association of enterprises or association ofpersons, including cartels, engaged in

identical or similar trade of goods or provision of services, which

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development,

investment or provision of services;

3Case No. 2/2009; dated March 24, 2011.4[2011] 102 CLA 181.


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(c) shares the market or source of production or provision of services by way of allocation of

geographical area of market, or type of goods or services, or number of customers in the market

or any other similar way;...

...shall be presumed to have an appreciable adverse effect on competition.

Neither of the above subsections has adequately been satisfied to prove the existence of a

horizontal agreement resulting in price fixing or controlling production or supply.

B. There is inadequate evidence to conclude the existence of collusive price

fixing or territorial allocation.

The Appellants contend that cartelization is a serious allegation and it is tantamount to gross

injustice to impute the same against any person or association on surmises and conjectures alone.

There was insufficient evidence, both direct and circumstantial, to implicate the appellants in the

present case.

In the absence of any direct evidence imputing the existence of any anti-competitive agreement,

reliance was placed by the CCI on indirect economic evidence and circumstantial evidence to

prove meeting of minds via coordinated activity. It is well-settled that when a case rests on

circumstantial evidence, one of the most important tests such evidence must satisfy is that the

circumstances, taken cumulatively, should form a chain so complete that there is no escape from

the conclusion sought to be established.5This burden has not been adequately discharged by the

CCI in the impugned order.

Even if it is conceded for the sake of argument that indirect economic evidence can be admitted

for the purpose of speculating the existence of an agreement, it is indisputable that such evidence

must be unimpeachable. In the present case, even the indirect economic evidence produced by

the DG was highly vague and suffered from numerous infirmities. The Appellants contend that

their conduct was guided by the market forces and any direction to stop intelligently responding

to the market conditions would have been counterproductive keeping in mind established

business practices.

5S.D. Soni v. State of Gujarat, AIR 1991 SC 917


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It has also been contended that only information pertaining to price points, market factors and

technology were exchanged for general welfare and improvement of technique and quality of

production, while each manufacturer had the liberty of independently choosing the product price.

There was no form of horizontal pricing arrangement or re-sale price maintenance imposed by

MEOA members on any of their distributors, which directly or indirectly determined prices. In

Maple Flooring Manufacturers Association v United States6it was observed that trade

associations or combinations of individuals or corporations, which, as in this case, openly and

fairly gather and disseminate information as to the cost of their product, the actual prices it has

brought in past transactions, stocks on hand, and approximate cost of transportation from the

principal point of shipment to points of consumption, and meet and discuss such statistics

without reaching or attempting to reach any agreement or concerted action respecting prices,

production, or the restraining of competition, do not thereby engage in an unlawful restraint of

commerce.

When the judgment in Theatre Enterprises v paramount Film Distribution7had given a jolt to

American antitrust jurisprudence in declaring in most unambiguous terms that even conscious

parallelism would not be enough to prove the case, the focus was shifted on what thesomething

more should be.8 The court required plaintiffs who relied on parallel conduct to introduce

additional facts, often termed plus factors to justify an inference of agreement.

The decisions following the Theatre Enterprise ruling have considered various plus factors to

eliminate and distinguish the cases which alleged involved in parallel or concerted action. In

First National Bank of Arizona v. Cities Service Co.,9the court introduced motive to conspire

and contrary to self interest factors. Cases have been asked whether defendants had a rational

motive to engage in a conspiracy. Further, other decisions considered whether the disputed

conduct would have contradicted the defendants self interest if pursued unilaterally.

6268 U.S. 563 (1925)7346 U.S. 537 (1954).8Murtuza Bohra, Research Paper on The Increasing Role of Economic Evidences in Prosecution of Cartels.

Available at 9391 US 253 (1968).


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In one of the earliest enquiries of the alleged conspiratorial cartelisation, Alkali & Chemical

Corporation of India Ltd. and Bayer (India) Ltd.10

were engaged in the manufacture and sale of

rubber chemicals and among themselves commanded a dominant share of around 75%-82% of

the total market in the product. They were charged with making identical increase in prices on

five to six occasions on or around same dates. There was, however, no direct evidence of the

existence of concert behind the rapid increase in the price. While dismissing the charges leveled

against the respondents, the MRTP commission observed that in the absence of any direct

evidence of cartel, and the circumstantial evidence no going beyond price parallelism, without

there being even a shred of evidence in proof of any plus factor to bolster the circumstances on

price parallelism, we find it unsafe to conclude that respondents indulged in any cartel for

raising the prices. The Commission held that there was no price collusion since DG (IR) failed

to provide circumstantial evidences beyond price parallelism. The crux to be seen from here is

that some additional factors or circumstances in the direction of concerted activity should be

proved to distinguish between price parallelism and tacit collusion. The Commission held that

like price parallelism, price leadership too is a common feature of an oligopolistic market and

cannot be considered as concerted effort. Unless and until something more than mere similarly of

price movements is produced, a cartel can in no case be established.

Further, the MEOA members did not have monopolization over or full control of the market

because of existence of fierce competition and availability of various options of imported

essential oils for buyers to consider. Therefore, by this arrangement, the MEOA members cannot

either ways threaten to limit production or control price, to their long term benefit.

It was also contended that the act of geographical division was not to suppress competition or

effect output, but instead to achieve more streamlined production and as a result increased

output, quick and easy delivery to buyers of a particular region at competitive prices. This did

not suppress competition but improved output. It was wrongful on part of CCI to presumption

that such an arrangement will cause any appreciable adverse effect on the competition.

Preamble to the Competition Act states- An Act to provide, keeping in view of the economic

development of the country, for the establishment of a Commission to prevent practices having

10RTPE No. 21 of 1981; Order dated July 3, 1984.


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adverse effect on competition, to promote and sustain competition in markets, to protect the

interests of consumers and to ensure freedom of trade carried on by other participants in

markets, in India, and for matters connected therewith or incidental thereto.

On a bare perusal of above it can be construed that while deciding a case on ant-competitive

behaviour, the Commission needs to keep in view the economic development of the country.

Also, Commission is obliged to protect the interests of consumers. Facts of the case clearly

points out that the geographical division was done when there was a period of rescission and the

essential oil companies were suffering losses. It was better for a customer of a particular area to

purchase essential oil from the manufacturer to whom that area is assigned. In White Motor Corp

v United States White Motor Corp. Contended that In the instant case, it is both reasonable and

necessary that the distributors (except for sales to approved dealers) and direct dealers and

dealers be limited to selling to the purchasing public, in order that they may be compelled to

develop properly the full potential of sales of White trucks in their respective territories, and to

assure The White Motor Company that the persons selling White trucks to the purchasing public

shall be fair and honest, to the end of increasing and perpetuating sales of White trucks in

competition with other makes of trucks... US Supreme Court held that the limitations on the

classes of customers to whom distributors or dealers may sell White trucks are not only not

illegal per se,as the plaintiff must prove to succeed on its motion for summary judgment, but

these limitations have proper purposes and effects and are fair and reasonable, and not violative

of the antitrust laws as being in unreasonable restraint of competition or trade and commerce.

Further, the boycott practice conducted by MEOA was never complained by any customer

because of the steeper discounts provided to them. Also, they were having an opportunity to buy

essential oil from foreign manufacturers which is more or less equivalent in the prices after the

occurrence of steep reduction in tariff imports in tune with the GATT commitments. Therefore,

in absence of any real harm to the customers it does not attract section 3 of the Act.


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has the ability to drive the customers in its favor. Reliance has to be placed on the fact that it

offered steeper discounts thereby encouraging the buyers to move from their current seller (being

a member of the MEOA) to buying from Lotus India. Thus it has abused its dominant position

attracts the bar under section 4 of the Competition Act. Relevant portion of section 4 is

reproduced below-

4. [(1)No enterprise or group] shall abuse its dominant position.]

(2) There shall be an abuse of dominant position 4[under sub-section (1), if an enterprise or a

group].-

(b) limits or restricts

(i) production of goods or provision of services or market therefor; or

(ii) technical or scientific development relating to goods or services to the prejudice of

consumers; or....

On comparison of the above provision with the facts it becomes clear that Lotus India has abused

its dominant position by limiting the access to the latest technology which is prejudicial to the

consumer benefit. Explanation (a) to the section 4 provides that

(a) "dominant position" means a position of strength, enjoyed by an enterprise, in the relevant

market, in India, which enables it to

(i) operate independently of competitive forces prevailing in the relevant market; or

(ii) affect its competitors or consumers or the relevant market in its favour.

It is evident from the facts that Lotus India is a big manufacturer of essential oils and has access

to the latest technology which will drive the consumers in its favour, thus having a dominant

position.


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2. THE CASE REQUIRES TO BE TESTED UNDER SECTION 19 OF COMPETITION

ACT, 2002 AND THE CCI AND APPELLATE COMMISSION EXERCISED

JURISDICTION IMPROPERLY.

Appellant submits that this case requires to be tested under Section 19 of the Competition Act

and therefore the Commission an Appellate Tribunal has improperly exercised their jurisdiction.

An important comment that needs to be made about horizontal agreements is that there may be

circumstances in which competitors cooperate with one another in a way that delivers economic

benefits, not just for themselves but for consumers as well. Hard core cartels are always bad for

consumers welfare, but other horizontal agreements- for example between pharmaceutical

companies to combine their research and development efforts in order to develop new and better

drugs, or between two small or medium sized businesses to produce products on a joint basis,

thereby achieving economies of scale- may be beneficial.13

The OECDs 1998Recommendation

stated that the definition of hardcore cartel does not include agreements, concerted practices, or

arrangements that...are reasonably related to the lawful realization of cost-reducing or output

enhancing efficiencies.

This would be the case where an agreement contributes to an improvement in the production or

distribution of goods or in technical or economic progress, provided that various conditions- that

consumer get a fair share of the resulting benefit, that the agreement does not contain any

restrictions that are dispensable, and that the agreement does not substantially eliminate

competition- are satisfied.14

Therefore, it is proper for the Competition authorities to test the case

under section 19 of the Act on account of lack of evidence of any horizontal agreement formed

herein. It can construed from the language of the section 3 as discussed above that there is a

presumption with regard to cartels that there is an appreciable adverse effects on competition

provided an agreement to that effect is proved. Such an agreement must be proved beyond all

13Richard Whish, CONTROL OF CARTELS AND OTHERANTI COMPETITIVEAGREEMENTS, Vinod Dhall, Competition Law

Today,Oxford University Press.14Ibid.


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reasonable doubts through direct or circumstantial evidence. Since CCI has failed to do so, it

would be prejudicial to presume appreciable adverse effect on competition, without going on in

detailed analysis under section 19.

3. LOTUS INDIA CANNOT BE OFFERED FULL IMMUNITY AGAINST PUNISHMENT

OR PENALTY SINCE IT IS ONE OF THE BIGGEST MANUFACTURERS OF ESSENTIAL

OILS AND WAS AN IMPORTANT MEMBER OF THE MEOA.

It is humbly submitted that it is not justifiable to give full immunity to Lotus India as it was one

of the biggest manufacturers and essential member of MEOA. Lotus India was part of MEOA

since it was first formed and only broke the contract in 2011. It used its membership with MEOA

to grow and broke off the agreement prematurely when it stopped suiting its convenience.

The non compete agreement was broken by Lotus India after it followed its terms from 2008 to

2011. Lotus India suffered loss of membership from MEOA but Lotus India was comparatively

unaffected by it, because it had sufficient technology and production capacity to ensure unabated

supply and also ensured to have buyers on account of offering steeper discounts. Lotus was

successful in offering lesser price to its customers15. Hence, it is humbly submitted that Lotus

India, was a willing and significant member of MEOA and therefore cannot be granted complete

immunity.

The Lesser Penalty Regulations 200916

provide that the Competition Commission has the

discretion to give lesser penalty up to one hundred percent if certain conditions are satisfied.

Thus the minimum principle of natural justice should be considered with respect to the

Appellants case. The MEOA meetings benefitted the members and they continued to share

information pertaining to market conditions, pricing, technological improvements and

opportunities to supply to foreign markets, within the four corners of law17.

The Section 46 of The Competition Act, 2002 provides that:

15Fact sheet 916The Competition Commission of India (Lesser Penalty) Regulations, 2009, No.L-3(4)/Reg-L.P./2009-10/CCI17Fact sheet 7


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The Commission may, if it is satisfied that any producer, seller, distributor, trader or service

provider included in any cartel, which is alleged to have violated section 3, has made a full and

true disclosure in resp ct of the alleged violations and such disclosure is vital, impose upon such

producer, seller, distributor, trader or service provider a lesser penalty as it may deem fit, than

leviable under this Act or the rules or the regulations: Provided that lesser penalty shall not be

imposed by the Commission in cases where proceedings for the violation of any of the provisions

of this Act or the rules or the regulations have been instituted or any investigation has been

directed to be made under section 26 before making of such disclosure: Provided further that

lesser penalty shall be imposed by the Commission only in respect of a producer, seller,

distributor, trader or service provider included in the cartel, who first made the full, true and

vital disclosures under this section: Provided also that the Commission may, if it is satisfied that

such producer, seller, distributor, trader or service provider included in the cartel had in the

course of proceedings,-

(a) not complied with the condition on which the lesser penalty was imposed by the Commission;

or

(b) had given false evidence; or

(c) the disclosure made is not vital, and thereupon such producer, seller, distributor, trader or

service provider may be tried for the offence with respect to which the lesser penalty was

imposed and shall also be liable to the imposition of penalty to which such person has been

liable, had lesser penalty not been imposed.

It is humbly submitted that there is no violation of Section 3 and that MEOA is not a Cartel. The

Lesser Penalty Provision stands only in the event of a Cartel agreement and in its absence it

cannot be applied.

The real and primary breach has been on part of Lotus India and granting Lesser Penalty up tohundred percent would be like awarding the Lotus India for breaking a valid agreement. Section

46(c) provides that in case the information provided is not vital the informer may be tried for the

offence with respect to which the lesser penalty was imposed and shall also be liable to the

imposition of penalty to which such person has been liable, had lesser penalty not been imposed.


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costs in line with the amount required to be supplied in their relevant geographical territory.

Lotus India consciously flouted the terms agreed to it under the non-competition agreement with

the other members and proceeded to selling and supplying its product to buyers across the

country against the non-compete agreement.

Thus it is humbly submitted that there was an infraction on part of Lotus India and should be

liable for the same. It is interesting to note that Lotus India complied with the Non Compete

Agreement for three years i.e. from 2008 to 2011. Later, it decided it was no more convenient

and consciously decided to flout the terms agreed to it under the non-competition agreement with

the other members and proceed to selling and supplying its product to buyers across the country.

The Supreme Court of India in Ni ranjan Shankar Goli kari v. The Centur y Spinning and

Manufacturing Company Ltd.20 observed that restraints or negative covenants in the

appointment or contract may be valid if they are reasonable.The court held that a person may be

restrained from carrying on his trade by reason of an agreement voluntarily entered into by him

with that object. In such a case the general principle of freedom of trade must be applied with

due regard to the principle that public policy requires the utmost freedom to the competent

parties to enter into a contract. Where an agreement is challenged on the ground of its being in

restraint of trade, the onus is upon the party supporting the contract to show that the restraint is

reasonably necessary to protect his interests. Once, this onus is discharged by him, the onus of

showing that the restrain is nevertheless injurious to the public is upon the party attacking the

contract.

It is humbly submitted that in the present case the restraint placed by the non compete agreement

was one which was reasonable as it was made keeping in mind the best interests of all the

members of the association. The members agreed to this agreement and in fact were saved from

losses from the recession. For the acceptance of the non-compete agreement in the factual

situation it should been professed with certain reliant factors like duration, period,reasonableness, nature of industry etc. given the commercial necessity of incorporating a

reasonableness inquiry.

201967 AIR 1098, 1967 SCR (2)378


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Supreme Court of India in Percept D' Mark (I ndia) Pvt. L td v Zaheer Khan21 observed that

under Section 27 of the Act a restrictive covenant extending beyond the term of the contract is

void and not enforceable. The court also noted that the doctrine of "restraint of trade" is not

confined to contracts of employment only, but is also applicable to all other contracts with

respect to obligations after the contractual relationship is terminated.

It is humbly submitted that this judgment clearly says that a restrictive covenant would not be

enforceable after the term of the contract has expired. However, in the present case the

agreement was still subsisting when Lotus India flouted its terms.

In the case of Gujarat Bottli ng Co. L td. and others v. Coca Cola Co. and others22, an

agreement for grant of franchise by Coca Cola to Gujarat Bottling Company to manufacture,

bottle, sell and distribute beverages under trademarks held by the franchisor contained the

negative stipulation restraining the franchisee to manufacture, bottle, sell, deal or otherwise be

concerned with the products, beverages of any other brands, or trademarks/ trade names during

subsistence of this agreement including the period of one years notice. It was held that the

negative stipulation was intended to promote the trade. Moreover, operation of the stipulation

was confined only to subsistence of the agreement and not after termination thereof. Hence,

stipulation could not be regarded as in restraint of trade.

It is humbly submitted that in the present case also, the non-compete agreement was in intended

to promote trade for the members of the association and in fact, it did help the members to avoid

the losses.

It is humbly submitted before this Honble Court that the object of the Non Compete Agreement

was to prevent losses due to recession in which it was successful. The object or consideration

was not unlawful as they were done with everyones consent in everyones interest. Hence, the

agreement is not in violation of Section 23 of The Indian Contract Act, 1872.

21AIR 2006 SC 342622AIR 1995 SC 2372.


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A person may be restrained from carrying on his trade by reason of an agreement voluntarily

entered into by him with that object23. Hence, the agreement cannot be said to be in violation of

Section 27 of The Indian Contract Act, 1872.

5. LOTUS INDIA IS NOT ENTITLED TO UNILATERALLY TERMINATE THE LICENSE

AGREEMENT AND IS ALSO NOT ENTITLED TO DAMAGES AND LOTUS INDIA IS

REQUIRED TO COMPULSORY LICENSE THE TECHNOLOGY TO OTHERS

MANUFACTURERS.

A. Lotus India is not entitled to unilaterally terminate the License Agreement.

It is humbly submitted that Lotus India is not entitled to unilaterally terminate the license

agreement signed by the manufacturers of essential oils who identified or patented new

technology to license the technology for a royalty, which was decided by MEOA. The agreement

was signed by Lotus India with full knowledge and consent and therefore terminating the same

agreement before the completion of the contract is a breach of contract wherein contractual

principles have been condoned by the Respondents. This was done in the interest of the patent

holders for an adequate royalty and at same time keeping with the basic premise of

evenhandedness so that the members have access to new technology. The MEOA agreements

and deliberations24

were constituted because of the prevailing situation in order to protect the

share in Indian market and fend off foreign competition, it was important for them to have best

technology and production process, and quality control, be abreast of prevalent market

conditions and for such purpose form a collective arrangement to share information among

themselves. The principles of Section 27 of the Contract Act, 1872 were aptly summarized by

this Honble Court in landmark judgment of Percept DMark (India) Pvt. Ltd vs. Zaheer Khan25

in which the Supreme Court observed that under Section 27 of the Act a restrictive covenant

23Niranjan Shankar Golikari vs. The Century Spinning and Manufacturing Company Ltd. 1967 AIR 1098, 1967

SCR (2)37824Fact sheet 3.25AIR 2006 SC 3426.


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extending beyond the term of the contract is void and not enforceable. However Lotus India

consciously flouting of the agreement should be held liable for breach of contract under the act.

B. MEOA is not entitled to Damages for breach of the Agreement and the

Loss of Profits.

The scope of section 27 include a combined test of reasonableness and restraint, conditioned of

course, by commercial realities and trends, which would render some clauses more suspect than

others. It is humbly submitted that the determination whether an agreement unreasonably

restrains the trade depends on the nature of the agreement and on the surrounding circumstances

that give rise to an inference that the parties intended to restrain the trade and monopolize the

same. In the general course of business in order to carry on business a license is required, any

refusal to give license or cancellation or revocation of license would affect the business as it

cannot be carried on without the license which would also affect the livelihood of the person.

The Supreme Court of the United States in Business Electronics Corp. vs. Sharp Electronics

Corp.26

observed that the term restraint of trade in the Sherman Act and in Common law, does

not refer to a particular lists of agreements, but to a particular economic conditions and

consequences, which may be produced by quite different sorts of agreements in varying times

and circumstances. Thus the minimum principle of natural justice should be considered with

respect to the Appellants case. The MEOA meetings benefitted the members and they

continued to share information pertaining to market conditions, pricing, technological

improvements and opportunities to supply to foreign markets, within the four corners of law27

.

The arrangement of the non-compete agreement was not unlawful. The object of the agreement

streamlined production and the members agreed to not compete in each others territories for a

joint advantage. In case of non-compete agreements, due to the nature of the interests protected,

the test of reasonablenessis a very dominant28

This arrangement considerably helped the essential oil manufacturers avoid any losses by

planning production output and production costs in line with the amount required to be supplied

26485 US 71727Fact sheet 728Perceptron, Inc. v. Sensor Adaptive Machines, Inc., 221 F.3d 913, 2000-2 Trade Cas. (CCH) 72975, 2000 FED

App. 247P (6th Cir. 2000)


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in their relevant geographical territory. Lotus India consciously flouted the terms agreed to it

under the non-competition agreement with the other members and proceeded to selling and

supplying its product to buyers across the country. It is humbly submitted that such a breach of

contract is not just unfavorable for the other manufacturers but also adverse for the society. Thus

it is humbly submitted that there was an infraction on part of Lotus India and should be liable for

the same.

It is humbly submitted that MEOA introduced a slew of reforms with an efficient marketing

strategy reinvigorating the supply of essential oil by Indian manufacturers accounted for nearly

85% of all essential oils sold and sourced in India. The MEOA members did not have

monopolization over or full control of the market because of existence of fierce competition and

availability of various options of imported essential oils for buyers to consider. Therefore, by this

arrangement, the MEOA members cannot either ways threaten to limit production or control

price, to their long term benefit. It is of great suspicion that Lotus India after reviving from the

period of recession in 2008 to becoming one of the biggest manufacturers and suppliers of

essential oil, holding various technology patents decided to flout the terms of contract in the year

2011. Lotus India being a part of the MEOA and its agreements which have been in the general

welfare, prematurely terminated the license agreement to ensure lesser competition and in order

to deny access to patented technology of Lotus India. It is adumbrated that Lotus India now

being the only one with access to the latest technology of production by terminating the licenses,

could be a single player having full and unbridled control over the essential oil market, which

may threaten exercise of greater market control, output fixing and abuse of its dominant position,

which is prohibited under Section 4 of Competition Act, 200229

. It is humbly submitted that

MEOA is rightfully entitled to damages for the loss of profits because of the termination of

license agreement and practices of anti-competitive nature to ensure lesser competition by Lotus

India30

.

29Fact Sheet 1530Fact Sheet 8


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C. Lotus India is required to Compulsorily License the technology to other

Manufacturer.

Patent are not merely granted to enable patentee to enjoy a monopoly for the importation of thepatented articles.

31An obligation is, therefore, imposed on a patentee to work the patent in India

on the commercial scale to the fullest extent. The patent may be worked by the patentee himself

or through licensees. Failure to fulfill this obligation will entail in the granting of compulsory

license or the revocation of patent itself.32

Section 82 to 94 deal with the circumstances and the

ground under which the compulsory license may be granted.33 The object of these elaborate

provision is to prevent the abuse of monopoly granted by the patent.34By these provisions in

conjunction with the provision relating to use of invention for the purpose of Government35

patent monopolies will be made to subserve national interest and will cease to be a handicap to

industrial progress.36

The agreement signed by the members of the MEOA by controlling the patented technologies

and granting patents to only the members is not causing appreciable adverse effect on the market.

Patents are granted to encourage innovation and not cast monopoly status over the relevant

market37

by exclusive supply; the same has been provided u/s 8338

and Lotus India has violated

the terms by uni laterally terminating the license agreement. Lotus India by terminating the

license agreement and thereby lowering the cost is trying to create the monopoly over the

market.

Essential oils though are primarily used in the manufacture of perfumes, room fresheners,

cosmetic product and soaps is not essential commodity under The Essential Commodities Act,

1955.

31See ss. 83 and 94. For parallel provision see s. 39(1) of the U.K. Act of 1949; and s. 23C of the Indian Act of 1911.

Section 27(2)(proviso) of the U.K. Act of 1907 contained a somewhat similar provision.32

PATENT LAW. P. NARAYANAN, 4th

Edition, Eastern Law House, pg. 316.33

For parallel provisions see ss. 37-45 of the U.K. Act of 1949 and ss. 44-45 of the U.K. Patents Act 1977.34

The words abuse of monopoly are not used in the present act or in the act of U.K. act of 1949 or in the Indian

act of 1911. But the expression was used in s.7 of the U.K. Act of 1907.35

See ss. 99-103.36

Ayyangars Report, 172, page 73.37Section 2(r) of The Competition Act, 2002.38The Patents Act, 1970.


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PRAYER

Wherefore, may it please this Honourable Court, in the light of facts and circumstances of the

case, issues raised, arguments advanced and authorities cited, the Respondent prays that this

Honourable Tribunal may be pleased to adjudge and determine the following:

That the arrangement is not a Cartel Arrangement and hence not violative of Section 3 of

The Competition Act, 2002.

That the case requires to be tested under section 19 of The Competition Act, 2002 and the

CCI and Appellate Tribunal Exercised jurisdiction improperly.

That Lotus India cannot be offered full immunity against Punishment or Penalty.

That Lotus India has acted in violation of the non-compete agreement.

That Lotus India is not entitled to unilaterally terminate the license agreement and also it

should not be entitled to damages from other manufacturers for unauthorised use of its

technology and Lotus India be required to compulsorily license the technology to other

manufacturers.

Al l of which is most respectfu ll y prayed and humbly submi tted.

(Signed)

Counsels for Respondent

Date:

Documents

Memorial on Behalf of Appellant