Does Competition Ordinance Result In Consumer
Protection
By
Qaiser Javed Mian
(Director Research/Faculty member Punjab Judicial Academy)
There can be “prohibited” anti-competitive behaviour and there can
be “permitted” anti-competitive behaviour. In U.SA, what is called Anti-Trust
Law, in other Countries, it is called Competition Law and/or Anti-Monopoly Law
and/or Consumer Protection Law.1 According to Philip Areeda, U.S. Anti-Trust
Law, “…contains a basic distinction between concerted and “independent”
action”2, which in other words refers to distinction between “single – firm”
and “multi-firm” conduct in the context of “encouraging competition”, and save
the “businesses” and/or “consumers”. Antitrust law seeks fair competition on the
belief that “free trade” benefits not only the consumer, but also the economy and
business. The restraints imposed by this law can be divided into four categories: (i)
agreements between competitors (ii) contractual arrangements between sellers and
buyers (iii) creating and maintaining of monopoly power, and (iv) mergers.
While U.S.A has “The Sherman Antitrust Act” (1890)” named for Senator
Johan Sherman as a first measure passed by the U.S. Congress to “regulate
interstate commerce” as well, Clayton Act, 1914) and “Robinson Patman Act
(1936)”, Pakistan had “Monopolies And Restrictive Trade Practices (Control And
Prevention) Ordinance, (V of 1970)”, Competition Ordinance (LII of 2007)” as
amended from time to time and “The Punjab Consumer Protection Act (Pb. Act II
of 2005)” while the other Provinces have not yet started applying Consumer
Protection Law. India promulgated “The Consumer Protection Act, 1986” and
Rules 1987 which includes “goods” as well as “services”. The present exercise is
aimed at comparative study of the aforesaid laws with particular reference to
U.S.A., European Union, India and Pakistan.
The Sherman Antitrust Act (1890)3
It is interesting to note that the Sherman Act does not restrain or condemn
monopoly per se, but it condemns the monopoly which has been obtained and
kept through prohibited conduct of business. One obvious example of
1
The Term “antitrust” originated from the process of combating “business trusts” which used to create
monopoly or unequal bargaining power presently called “Cartels”. Such laws deal with, inter alia, illegal
monopoly, unfair business practices such as, but not limited to, cartels, hoarding, undue financial &
stock controls, malafide connivance etc. European Union has provisions under the Treaty of Rome while
Australia deals with it under “Trade Practices Act, 1974”.
2 P. Areeda, Antitrust Law, 1436 (1986).
3 The other U.S Laws on the subject are, FTC ACT; Hart – Scott-Rodino Act; Merger guidelines; Essential
facilities doctrine. Noerr – Pennington doctrine; Parker immunity doctrine.
anticompetitive conduct is overt price fixing which falls under per se category of
conduct detrimental to competition requiring detailed analysis. The most
important principle of prohibited conduct, in this context, is that the method(s) of
business are not aimed at making consumers the sufferers.4 Whether as a “singlefirm” or “multi-firm”,5 the “conduct” can be anti competition per se or can be so
proved after analysis. It is very important to note that, Monopoly Power alone
without anti competition conduct, is not unlawful. Rather, Mr. Learned Hand
stated that, “[t] he successful competitor, having been urged to compete, must not
be turned on when he wins.”6 Therefore, the U.S Law does not prohibit monopoly
power through “Superior skill, foresight and industry”7 Under U.S law,
the “prohibition” is limited to those arrangements or agreements which amount to
unreasonable restraint of trade. It has been held by U.S. Court that,
“Every agreement concerning trade, every regulation
of trade, restrains. To bind, to restrain, is one of their
very essence. The true test of legality is whether the
restraint imposed is such as merely regulates and
perhaps thereby promotes competition or whether it
is such as may suppress or even destroy
competition.”8
The following are generally subject to antitrust test:● Price fixing
● Bid rigging
● Geographic market allocation
● Fraud of “Patent”9
Consumer Protection
Consumer Protection Laws are aimed at regulating, inter-alia, the following
subject/topics:
● Minimum standards of product quality.
● Disclosure of certain details of the product and/or service.
● Cost of the product/service.
● Express or Implied Warranty.
● Prohibition of misleading advertisement.
4
See e.g. “Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 379 (7th Cir.
1986) (Posmer,J.).
5 The single-firm prohibition is contained in “15 U.S.C. Section-2”; and multi-firm prohibition is contained
in “15 U.S.C. Sect.1). It prohibits “[e] very contract, combination in the form of Trust or otherwise, or
conspiracy, in restraint of trade or commerce”.
6 See e.g. “United States v. Aluminum Corp. of America (“Alcoa”), 148 f.2D 416, 430 (1945) (l.Hand, J.)
7 Id.
8 See e.g. Board of Trade of the City of Chicago v. United States, 246 U.S. 231, 244 (1918) (“Chicago
Board of Trade”).
9 See e.g. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965) .
Product liability including any possible present or future side after
effects.
Thus, Consumer Protection Laws are, in certain respects, distinct from
Antitrust or Ant Competition Laws. The approach of U.S Supreme Court has
shifted since 1970s and is now focused solely on what is best for the consumer
rather than the Company’s practices10.
The ultimate rationale behind Antitrust, Anti-Competition and/or Anti-monopoly
laws is to restrain trade practices amounting to or resulting in or attempting
towards direct or indirect monopolization, anti-competitive mergers including but
not limited to, price discrimination in the sale of commodities, market allocations,
quotas and resale price maintenance by manufacturers. Unreasonable exclusionary
practices and “predatory pricing” is also prohibited.11
Enforcement:
In U.S.A., there are both state and federal anti-trust laws and the
enforcement of these laws takes three forms:i.
Federal Government via the Department of Justice or Federal Trade
Commission can bring civil law suits. The Department of Justice
alone may bring criminal antitrust suit.
ii.
State attorneys, general/law officers may file suits to enforce both
state and federal antitrust laws.
iii.
Private civil suits may be brought in both state and federal courts for
damages etc. If it is decided that by monopolizing, the consumer was
overcharged $200,000, that amount will automatically tripled, so
the injured consumer will receive $600,000.12 There are two federal
enforcement agencies in U.S., the Federal Trade Commission (FTC)
and the U.S. Department of Justice’s Antitrust Division. Violations
of the Sherman Act are felonies carrying fines upto $10 million
for corporations and upto $ 35,000 and upto three years prison for
individual persons.
The U.S Antitrust law kept on developing in the late 1980s and early
1990s. U.S. Supreme Court supported the efforts of Government’s attacked
mergers and restraints.13 After the era of Ronald Reagan, antitrust attitudes
became more severe in Washington, DC. President George Bush also adopted an
activist approach. Under President Clinton, the most important case of
Antitrust law was that involving AT & T and IBM. Competitors complained
that Microsoft used illegal arrangements with buyers to ensure that its risk
●
10
See, David Frum, “How we got here: The 70s, New York(2000): Basic Books. P.327. ISBN
0465041957.
11 In “predatory pricing” big enterprises sell their products and services at a loss for a time pushing smaller
enterprises out of business. See, “David Frum”, Id.
12 The U.S Supreme Court summarized why Congress authorized private antitrust law suits in the
case,”Hawai vs. Standard oil Co. of Cal., 405 U.S. 251, 262 (1972).
13 See, “ California vs. American Stores Co., 495 U.S.271, 110 S.Ct. 1853, 109 L.Ed.2d 240 (1990).
operating system would be installed in nearly 80 percent of the world’s computers.
In-depth investigation by the FTC and the Department of Justice followed. In mid1994, under threat of a federal lawsuit, Microsoft entered a consent decree
designed to increase competitors’ access to the market. All the parties involved i.e.
the original complainants, Microsoft , and the government expressed relative
satisfaction. But in early 1995, a federal judge rejected the agreement, citing
evidence of other monopolistic practices by Microsoft. In a highly unusual move,
the Justice Department and Microsoft together appealed the decision. The
uncertain future of the case carried the threat of further action against the nation’s
fifth-largest industry.
Anti competition Law in the U.K.
United Kingdom being a member state of the European Union is bound by
the consumer protection laws, rules and directives of the European Union. The
Anti Competition Law and/or the Consumer Protection Law of the U.K itself
developed from the ambit of “contract” and “tort”. Now due to the influence of the
European Union, an independent body of law is emerging in this area.
The United Kingdom has also a lot to share with the other common wealth
countries such as Australia and Newzeland etc. In Australia, there is the
Australian Competition And Consumer Commission. In Newzeland, the
correspondence agency is the ministry of consumer affairs. The U.K itself has
been following the laws given as under:● Unfair Contract Terms Act 1977
● Sale of Goods Act 1979
● Consumer Protection Act 1987
● Unfair Terms in Consumer Contracts Regulations 1999
● Consumer Protection (Distance Selling) Regulations 2000
● Electronic Commerce Regulations 2002
● Enterprise Act 2002
● General Product Safety Regulations 2005
European Union Law
In the year 1957, six Western European countries signed the Treaty of
Rome, now called the Treaty of the European Community. Over the years, the
members of the European Union have become very closely knit and integrated in
their business rules and laws and particularly with regard to import and export of
goods within the European Union countries and with outside countries. The first
provision about the competition law is Article-81EC which reads as follows:“(1)…all agreements between undertakings, decisions by associations of
undertakings and concerned practices which may affect trade between Member
States and which have as their object or effect, the prevention, restriction or
distortion of competition within the common market…”
Article-82, 86 and 87 also regulate the role of the market with regard to goods as
well as services. According to Article-81, to subsidize the private parties by the
Government is considered as distortion of competition, however, it does grant
exceptions to charities, natural disasters and particular regional development.
INDIAN CONSUMER PROTECTION LAW
Chapter-IV of the Indian Constitution contains the “directive principles”
while Chapter-III contains fundamental rights of citizens. Chapter-IV directly
directs the State in the matters of concentration of wealth, welfare of consumers
vis-à-vis fundamental rights under Chapter-III. From this general mandate,
government enacted MRTP ACT, Consumer Protection Act, Competition Act,
Company Act and few other Statutes. Prior to these Statutes, there existed
different enactments like Code of Civil Procedure (1908), the Indian Contracts
Act (1872), the Sale of Goods Act (1930), the Indian Penal Code 91860), the
Standards of Weights and Measures Act (1976) and the Motor Vehicle Act, 1988,
but very little could be achieved in the area of consumer protection. However, the
Monopolies and Restrictive Trade Practices Act, 1969 and the Prevention of Food
Adulteration Act, 1954 provided some relief to the consumers. But the fast
developing world of goods & services projected through high technical media, all
the aforesaid laws proved to be extremely naïve in upholding the principle of
consumer sovereignty”. Therefore, the Consumer Protection Act of 1986 was
promulgated with the following:
(Quote) “STATEMENT OF OBJECTS AND REASONS
The Consumer Protection Bill, 1986 seeks to provide for better protection
of the interest of consumers and for the purpose, to make provisions for the
establishment of Consumer councils and other authorities for the settlement of
consumer disputes and for matters connected therewith.
2.
It seeks, inter-alia, to promote and protect the rights of consumers such as a)
The right to be protected against marketing of goods which are
hazardous to life and property.
b)
The right to be informed about the quality, quantity, potency, purity,
standard and price of goods to protect the consumer against unfair
trade practices;
c)
The right to be assured, wherever possible, access to an authority of
goods at competitive prices;
d)
The right to be heard and to be assured that consumers interest will
receive due consideration at appropriative forums;
e)
The right to seek redressal against unfair trade practices or
unscrupulous exploitation of consumers; and
f)
Right to consumers education.
3.
These objects are sought to be promoted and protected by Consumer
Protection Council to be established Central and State level,
4.
To provide speedy and simple redressal to consumer disputes, quasi-
judicial machinery is sought to be set up at the District, State and Central levels.
These quasi-judicial bodies will observe the principles of natural justice and have
been empowered to give relief of a specific nature and to award, wherever
appropriate, compensation to consumers. Penalties for non-compliance of the
orders given by quasi-judicial bodies have also been provided.(Unquote)14
PAKISTANI ANTI-MONOPOLY LAW.
Pakistan passed “Monopolies and Restrictive Trade Practices (control &
Prevention) Ordinance, 1970 (V of 1970) with the Preamble that,
“An Ordinance to provide for measures against undue
concentration of economic power, growth of unreasonable
monopoly power and unreasonably restrictive trade
practices.”
“Whereas the undue concentration of economic power,
growth of unreasonable monopoly power and unreasonably
restrictive trade practices are injurious to the economic wellbeing, growth and development of Pakistan:And whereas it is expedient to provide for measures against
such concentration, growth and practices and for matters
connected therewith or incidental thereto;”
This Ordinance, under its definition clause, i.e. section 2 with the
heading “Definitions” has defined seventeen terms and but has not used or
defined the term “consumer” in the definition clause. There appears to be no
express direct intention of the legislature to benefit the end consumers. It is
interesting to note that no provision of this Law connects with consumers
directly.
In subsection (j) of Section-2 (Definition Clause), the term “service”
has been defined as, “service” means provision of board, lodging, transport,
entertainment or amusement, or of facilities in connection with the supply of
electrical or other energy, purveying or news, banking, insurance or investment.”
Interestingly the term, “good or goods” and/or its definition
regarding which ninety percent of the subject law is all about is
conspicuously missing. However, in sub-clause(i) a retailer has been defined
as “Retailer”, in relation to the sale of goods, means a person who sells the goods
to any other person otherwise than for re-sale. (emphasis added). Thereafter, in the
entire law the term, “goods and services” has been used dozens of times because
this is what the law is all about, inspite of the fact that the term “goods” is not
included in the definition clause. Whether human body parts can be termed
as “goods” is a food for thought.15
14
15
See. Consumer Protection Act, 1986 (India).
See, the Law of Diyat, and Chapter XVI containing sections from 299 to 338, Pakistan Penal Code.
Undue Concentration of Economic Power
Undue Concentration of Economic Power has been dealt with in
Chapter-II of Monopolies & Restrictive Trade Practices Ordinance, 1970. The
yardstick used in the Sherman Antitrust Act, is that monopoly per se is not
prohibited, it is the “prohibited conduct of the business”, which makes it illegal.
It is said that Monopoly Power alone without anti-competition conduct, is not
unlawful. It appears that this concept is not adopted by our Pakistani
antimonopoly law, rather, the emphasis is laid on the “existence” of monopoly
irrespective of its roots. Under the Pakistani Law, however, exceptions have been
created with regard to “unreasonable monopoly power” and Sub-section (2) of
Section-5 reads as follows”“No such relationship, acquisition, merger or loan as is referred to in
sub-section (1) shall be deemed to have the effect of bringing about, maintaining
or continuing, unreasonable monopoly power if it is shown—
a.
that it contributes substantially to the efficiency of the
production or distribution of goods or of the provision of
services or to the promotion of technical progress or export of
goods;
b.
that such efficiency or promotion could not reasonably have
been achieved by means less restrictive of competition; and
c.
that the benefits of such efficiency or promotion clearly
outweight the adverse effect of the absence or lessening of
competition.
Furthermore, in Pakistani Law, a distinction has been made between “undue
concentration of economic power” and “unreasonable monopoly power” and
the third term which is used is “unreasonably restrictive trade practices”.
COMPETITION ORDINANCE (LII of 2007)16
Recital
(Quote) “An Ordinance to provide for free competition in all spheres of
commercial and economic activity to enhance economic efficiency and to protect
consumers from anti competitive behaviour” (Unquote) (emphasis added).
(Quote): “Whereas it is expedient to make provisions to ensure free competition in
all spheres of commercial and economic activity to enhance economic efficiency
and to protect consumers from anti competitive behaviour and to provide for
the establishment of the Competition Commission of Pakistan, to maintain and
enhance competition; and for matters connected therewith or incidental thereto;
(emphasis added).
16
Under Section 59 of the Competition Ordinance, 2007, the Restrictive Trade Practices (Control and
Prevention) Ordinance, 1970 (V of 1970), stands repealed. The term “Monopolies” has been intentionally
or unintentionally or due to inherent incompetence has been omitted/not mentioned and thus, the complete
name of the repealed enactment has not been given in Section-59. Furthermore, it is either the principle
or at least it is customary to state in the Recital the complete name of the repealed enactment and the
promulgation of the new enactment with its full name.
So, three objectives are clearly given in the above quoted Recital:
i.
to ensure free competition.
ii.
To protect consumers from anti-competitive behaviour.
iii.
To establish “Competition Commission of Pakistan”
Before doing any legal analysis, we should note that this
Competition Ordinance, 2007 neither repeals partly or wholly
or in any way amends or adds to the already existing Consumer
Protection Laws being practiced in the provinces such as, “ The
Punjab Consumer Protection Act, 2005 (Pb. Act II of 2005).
First And The Second Objectives.
As far as ensuring of free competition is concerned, according to Black’s Law
Dictionary:“… In brief a monopoly is the practical suppression of effective business
competition which thereby creates a power to control prices to the public
harm.”17 In other words the term “monopoly” is converse, opposite, against &
contrary to the term “competition” and the same is true if it is vice-versa.
Third Objective
However, the third objective of establishing a “Competition
Commission of Pakistan” seems to be the dominating purpose of this
Ordinance. While the appeal against the orders of the “Authority”
established under the Monopolies And Restrictive Trade Practices, 1970 lied
with the High Court, Competition Ordinance, 2007 has done away with the
High Court and now any appeal against the orders of the “Competition
Commission” shall lie directly in the Supreme Court.
However, the Competition Ordinance, 2007 did address the grievance of
this author by defining “goods” which was not done in the Monopolies Ordinance,
1970 and by redefining “services”. Goods are defined in Sect 2(f) as, “goods
include any item raw material, product or by-product which is sold for
consideration.” What is missing in this definition is that whether “things” which
are not sold or capable of selling “for consideration” are outside the ambit
of “goods”.
Chapter two of this Ordinance deals with “abuse of dominant position”
through certain agreements, deceptive marketing practices and approval of
mergers. Whereas, the Monopolies And Restrictive Trade Practices Ordinance
(1970) in its Chapter two has prohibited, “Undue Concentration of economic
power”. One fails to understand as to what is the difference between the
objectives of the two Ordinances except the lack of consumer protection
provisions which are already covered in the Punjab and Sindh Consumer
17
Quoted from, Bryan A. Garner (Chief Editor), Black’s Law Dictionary (7th. Edn)p.1023; 54A Am. Jur.
2nd Monopolies Restraints of Trade and Unfari Trade Practices Sect.781, at 107(1996). See also, “United
States v. Aluminium Co. of Am. 148 2nd 416(2d Cir. 1945) (Hand, J).
Protection Acts and the Rules thereto. Due to presence of the Consumer
Protection Ordinance, we do not see any benefit provided towards Consumer
protection by the Competition Ordinance except for giving the maximum power
to the blue eyed members of the Competitions Commission for fool proof safety
& security to the dealers/hoarders/investors dealing in any commodity without
which a common man cannot survive.
Other Legal Roots
The roots of the anti-monopoly law, anti-competition law and consumer
protection law stems from Article-18 of the Constitution of the Islamic Republic
of Pakistan, 1973 which deals with “Freedon of Trade, business or profession”,
Article-37 deals with “Promotion of Social Justice and eradication of social
evils” Article-38 deals with “Promotion of social and economic well being of
the people”. It is understood that these articles also apply to the Government,
particularly in the matters of Petroleum, Gas, Electricity, Water, Food and
the scope of the matter further widens when we talk of basic human rights in
which the Government has monopoly, controlling power, blackmailing
power, Coercing power and no question can be raised because it is fully
covered by the law mad normally by the Deaf & Dumb, uneducated and
corrupt, so called, representatives of people.
Offences Relating to Weights & Measures
Such offences are narrated in Sections 364, 265, 266 and 267 of Pakistan
Penal Code (1860). Weights & Measures may look a small factor in protecting the
rights of the consumers, but if looked on a larger canvass, if the electricity meters,
the supply of which is monopolized, are engineered to run faster by those who are
in power, it results in ripping off the entire society.
The Essential Commodities Act (III of 1957) (6th, March, 1957)
This law starts with the recital “ An Act to provide for price control
and regulation of trade and commerce between provinces. In the schedule of
the “essential commodities” given at the end of this law, the items like,
foodstuff, petroleum & petroleum products and “Sugar” is specifically included in
addition to the general item of “foodstuff”. Should it be construed that
according to the intent of legislature, “Sugar” is not to be treated
as “foodstuff”.18
Concise Comparison Between Anti-Monopoly Law of 1970
And The Competition Ordinance of 2007
It appears that our great legal minds have found it convenient to change the
term, “Monopoly Power” used in the, “Restrictive Trade Practices (Control &
Prevention) Ordinance, 1970 (V of 1970) with the term “DOMINENT
18
Besides there are other laws such as Sugar Factories Control Act (Act XXII of 1950), the Hoarding And
Black Market Order (XIV of 1956).
POSITION” as defined in clause (e) of sub-article-1 of Section-2 (definition
clause) of Competition Ordinance, 2007. It is defined as follows:“dominant position” of one undertaking or several
undertakings in a relevant market shall be deemed to
exist if such undertaking or undertakings have the
ability to behave to an appreciable extent
independently of competitors, customers, consumers
and supplies and the position of an undertaking shall
be presumed to be dominant if its share of the relevant
market exceeds forty percent;
The “RELEVANT MARKET” has been defined as
follows:“relevant market” means the market which shall be
determined by the Commission with reference to a
product market and a geographic market and a
product market comprises all those products or
services which are regarded as interchangeable or
substitutable by the consumer by reason of the
products, characteristics, prices and intended uses. A
geographic market comprises the area in which the
undertakings concerned are involved in the supply of
products or services and in which the conditions of
competition are sufficiently homogeneous and which
can be distinguished from neighboring geographic
areas because, in particular, the conditions of
competition are appreciably different in those areas;
Section-3 of the Competition Ordinance deals with the instances of abuse
of dominant position. The most significant example is narrated in section-4 under
the heading of “Prohibited Agreements”. However, in the very next section-5
with the heading Individual exemptions, it states that, “the Commission may
grant an exemption from section-4…”. So, in other words, the effect of “Abuse
Of Dominant Position” through “Prohibited Agreements” has been set at
naught and the powers have been concentrated and accumulated in the
Commission. Was it the real spirit for switching from Anti-Monopoly law of
1970 to The Competition Ordinance, 2007.
A great deal of emphasis has been laid on “EXEMPTIONS” which are
contained in sections-5,6,7,8 and 9 and it has been very discretely made sure that
it is the Commission which decides everything. As already stated above even
the appeal from the decisions of the Commission has been taken away from
the High Court and now, the appeal against the decision of the Commission
directly lies with the Supreme Court of Pakistan.
Dejure And Defacto Monopolies(Coercive Monopoly)
De jure monopolies are protected from competition by government actions
and de facto monopolies are not protected by law/government but are simply the
only supplier of goods or services. While discussing and analyzing the merits and
demerits of the de jure and de facto monopolies the test of “coercive monopoly”
is to be used. Coercive Monopoly creates control of a vitally needed resource,
good or service putting the community under the mercy of the controller. In such a
monopoly, there is a free hand as to supply, non-supply, timing of supply, pricing
and quality of the good and/or service. Coercive Monopolies are created by
government, corporation, government owned or controlled legal entities, bodies
corporate, departments, authorities etc.19 However, even disagreeing with the
Nobel Economist, Milton Friedman there can be some fair exemption from
antitrust laws, such as, but not limited to, sports, educational,
agricultural “development” bodies.
19
Free market economist Milton Friedman initially agreed with the breaking up of all kind of monopolies
and later came to the conclusion that they do more harm than good. See generally, Milton Friedman, “The
Business Community’s Suicidal Impulse” (U.S.A).