Memorial on Behalf of Appellant

BEFORE HON’BLE SUPREME 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

MEMORIAL ON BEHALF OF APPELLANT

TABLE OF CONTENT LIST OF ABBREVIATIONS………………………..……………………………………………4 INDEX OF AUTHORITIES………………………………………………………………………4 STATEMENT OF JURISDICTION................................................................................................9 QUESTIONS 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 established……………………………17 B. There is inadequate evidence to conclude the existence of collusive price fixing or territorial allocation………………………………………………………………………20 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 Agreement……32

2

MEMORIAL ON BEHALF OF APPELLANT B. MEOA is not entitled to Damages for breach of the Agreement and the Loss of Profits……………………………………………………………………………………33 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

3


LIST OF ABBREVIATIONS 

AIR

All India Reporter.



Annex.

Annexure.



Art.

Article.



CAT

Competition Appellate Tribunal



CBI

Central Bureau of Investigation



CCI

Competition Commission of India.



DG(IR)

Director General of Investigation and Registration



DNA

Daily news & Analysis



FTC

Federal Trade Commission



GATT

General Agreement on Tariffs and Trade, 1994.



Govt.

Government.



Hon’ble

Honourable.



ICA

Indian Contract Act, 1872.



ICN

International Competition Network



MRTP

Monopolies & Restrictive Trade Practices Commission



MRTPC

Monopolies & Restrictive Trade Practices Commission.



OECD

Organization of Economic Cooperation & Development



OPEC

Organization for Petroleum Exporting Countries



RBI

Reserve Bank of India



S.

Section.



SCC

Supreme Court Cases.



u/s

under section.



UNCTAD

United Nation Conference on Trade & Conference



v.

versus



Vol.

Volume.

4


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.L3(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 Ltd 1 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 India Case No. 18 Of 2010.

5

MEMORIAL ON BEHALF OF APPELLANT 

FICCI-Multiplex Association of India v United Producers/Distributors Forum, Case No.01/2009 order dated 25-5-2011 (CCI).



Godrej v Boyce Mfg. Co. Ltd. (1976) Tax L.R. 1241.



Jupiter Gaming Solutions Private Ltd. v Government Of Goa & Ors, Competition Commission of India Case No. 15 / 2010.



Klor’s Inc. v Broadway-Hale Stores Inc 359 U.S. 207 (1959).



Kshitij Ranjan v Indian Newspaper Society, Competition Commission Of India Case No. 341/ 2011.



Madkub Chunder v Rajcoomar Doss, [1874] Beng L.R. 76.



Monsanto v Sprayrite Service Corp, 465 U.S. 752 (1984).



M/s Mineral Enterprises Limited v Ministry of Railways, Union of India & Ors, Competition Commission Of India (Case No. 47 of 2012).



M/S Oswal Agro Furane Ltd. & Anr v Oswal Agro Furance Workers Union 2005(3)SCC224.



Niranjan Shankar Golikari v The Century Spinning and Mfg. Co. Ltd., AIR 1967 SC 1098.



RRTA v Indian Sugar Mills Association, AIR 1962 All 551.



R.R.T.A v Amar Dye-Chem Ltd. 2R.T.P.I. 290.



Shri Kaushal K. Rana v DLF Commercial Complexes Ltd., Competition Commission Of India Case No. 50 Of 2012.



Standard Oil Co. v United States, 337 US 293, 314 (1949)



Superintendence Company of India (P) Ltd. v Sh. Krishan Murgai, AIR1980SC1717.



United States v Jellico Mountain Coal & Coke Co. (46 Fed. Rep. 432). 247. 603.



United States v New Wrinkle, Inc 342 U.S. 371 (1952).



United States v Topco Associates, 405 U.S. 596 (1972).



United States v Trenton Potteries Co., 273 U.S. 392 (1927).



Vedant Bio Sciences v Chemists & Druggists Association, In Re: MRTP Case No. C87/2009/DGIR.



Wrap Knits Pvt. Ltd. and Anr. v Ms. Anju Sharma @ Anu Sharma and Anr IA No. 6867/2008 in CS (OS) No. 1071/2008 6


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 LAW—LAW, 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, 4th Ed., Philip W. Grabb. Oxford. Page 230-244, 440-472.



INTELLECTUAL PROPERTY AND COMPETETIVE STRATEGIES IN THE 21 ST CENTUARY, Shahid Ali Khan & Raghunath Mashelkan, 2 nd 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. 7


COMMENTORY ON INTELLECTUAL PROPERT LAWS, Rama Sarma, 1 st Ed., Vol. 1, (2007), Wadhwa and Co. Nagpur, pg. 214-222.



Black's Law Dictionary: A Dictionary of Modern Legal Usage by Bryan A. Gar.

ARTICLES 

OECD

(2005):

“Competition

law

and

Policy

in

the

European

Union”

http://www.oecd.ord/dataoecd/7/41/35908641.pdf 

Scrutinizing Non-Compete Agreements under the Indian Competition Regime, by Tathagata Choudhury.



Jetro, Indian Intellectual Property Report, 2011 Vol.4, Licensing of Patented Technologies in India.



Control of Cartel and other Anti Competitive Agreement- Richard Whish.

WEBSITES 

http://cci.gov.in/images/media/ResearchReports/TathagataChoudhuryInternshipRe port.pdf



http://indiankanoon.org/



http://www.lawyersclubindia.com/articles/Non-Compete-Clauses-and-The-IndianContract-Act-1972-4621.asp#.UPsGBR2TzHh



http://en.wikipedia.org



http://www.wisegeek.com/what-is-a-non-compete-agreement.htm



http://www.cci.gov.in



http://www.drugs-forum.com/forum/showthread.php?t=155333



http://www.lalaessentialoils.com/industries-pharmaceuiticals.html



http://forbesindia.com/printcontent/29302



http://indiacorplaw.blogspot.in/2008/09/non-compete-and-non-disclosure.html



http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=264fdfb0-bb02416b-9eed-4ca76ca1ee46&txtsearch=Subject:%20Contract

8


STATEMENT OF JURISDICTION The Counsels for the Appellants most humbly submit that the Hon’ble Supreme Court of India, at New Delhi has the jurisdiction to try this present matter under Section 53T of The Competition Act, 2002.

9


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.

10


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 as Manufacturers of Essential Oils Association (“MEOA”). As part of its practices, the 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 11

MEMORIAL ON BEHALF OF APPELLANT 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 noncompetition 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. 12

MEMORIAL ON BEHALF OF APPELLANT 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 a per 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 the CCI 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.

13


SUMMARY OF PLEADING 1. THE ARRANGEMENT IS NOT A CARTEL ARRANGEMENT AND HENCE NOT

VIOLATIVE OF SECTION 3 OF COMPETITION ACT, 2002. The Appellants submit that neither did they enter into any anti-competitive agreement, nor indulged in behaviour 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.

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 have 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. 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,

14

MEMORIAL ON BEHALF OF APPELLANT 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 everyone’s 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.

15

MEMORIAL ON BEHALF OF APPELLANT 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.

16


ARGUMENTS ADVANCED

1. THE ARRANGEMENT

IS

NOT

A

CARTEL ARRANGEMENT

AND

HENCE NOT

VIOLATIVE OF SECTION 3 OF 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.” 17

MEMORIAL ON BEHALF OF APPELLANT 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.1 No other players in the market have complained of any losses caused to them due to the appellants’ conduct. In Atlantic 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 defendant’s 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

1 2

‘COMPETITION LAW IN INDIA’, Abir Roy and Jayant Kumar,1st Edition, Eastern Law House, 2008. 495 US 328 (1990).

18

MEMORIAL ON BEHALF OF APPELLANT its point on the issue, the appellants have also relied on the cases of Consumer Online Foundation v Tata sky3 and Neeraj Malhotra v Deutsche Post Bank & Ors. 4 decided by the CCI. In ITC 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 of persons, 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; 3 4

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

19

MEMORIAL ON BEHALF OF APPELLANT (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. 5 This 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.

5

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

20

MEMORIAL ON BEHALF OF APPELLANT 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 States 6it 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 Distribution7 had 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 the something 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.,9 the 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.

6

268 U.S. 563 (1925) 346 U.S. 537 (1954). 8 Murtuza Bohra, “Research Paper on The Increasing Role of Economic Evidences in Prosecution of Cartels.” Available at 9 391 US 253 (1968). 7

21

MEMORIAL ON BEHALF OF APPELLANT 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

10

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

22

MEMORIAL ON BEHALF OF APPELLANT 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.

23

MEMORIAL ON BEHALF OF APPELLANT C. Mere formation of MEOA is insufficient to conclude the existence of a

cartel. The term “cartel” is defined under section 2(c) 11 as: “ "cartel" includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services” A simple reading of the above definition with the facts of this case would show that there is nothing to adduce the existence of any agreement for controlling or attempting to control conditions of sale or prices of essential oil by the members. The basic objective of MEOA is to promote the common interest of its members. It is fact that 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. The competition got very fierce and many manufacturers in India had to close down their business establishments. Also, this would vastly help in improving the outlook of buyers towards essential oils produced in India and help regain lost market share and on a macro-picture, also help the country’s internal economic policies by ensuring that it is not depending excessively on foreign suppliers for such essential items. Further, it is a fundamental right 12 of an industry to constitute an association whether they are traders, manufacturers, retailers, residents, shopkeepers etc. It is an accepted fact that the associations play a positive role in development of the society and, have collective bargain power to take up issues concerning its members with government or other authorities. The mere fact that Petrol Companies formed an association does not imply that the said association was formed to indulge in any activity which is against the law. It is also evident that the appellants are not the only players in market. The customers still have option to purchase essential oils from other players in the market. Further, after the Lotus India has left the membership of MEOA and it terminated the license agreement, it became the sole owner of the patented technology. Also, it was already a big manufacturer of essential oils and 11 12

Competition Act, 2002. Article 19 (1) (c) - The Constitution of India.

24

MEMORIAL ON BEHALF OF APPELLANT 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 below4. [(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.

25


2. THE CASE REQUIRES ACT, 2002

AND

TO BE

THE CCI

TESTED UNDER SECTION 19 AND

OF

COMPETITION

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 OECD’s 1998 Recommendation 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 13

Richard Whish, CONTROL OF CARTELS AND OTHER ANTI COMPETITIVE AGREEMENTS, Vinod Dhall, Competition Law Today, Oxford University Press. 14 Ibid.

26

MEMORIAL ON BEHALF OF APPELLANT 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 OR

BE

OFFERED FULL IMMUNITY AGAINST PUNISHMENT

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 2009 16 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 Appellant’s 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 law 17. The Section 46 of The Competition Act, 2002 provides that:

15

Fact sheet ¶ 9 The Competition Commission of India (Lesser Penalty) Regulations, 2009, No.L-3(4)/Reg-L.P./2009-10/CCI 17 Fact sheet ¶ 7 16

27

MEMORIAL ON BEHALF OF APPELLANT 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 to hundred 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.

28

MEMORIAL ON BEHALF OF APPELLANT Lotus India has made false allegations against MEOA and is trying to benefit from its own wrongs. It is humbly submitted that as the information provided by Lotus India was incorrect and false, it should be penalized for the same. It is against the basic principles of our Constitution that guarantees equality before law and equal protection of law to grant lesser penalty up to one hundred when Lotus India has been such a significant part of MEOA for so many years. It is humbly submitted that granting Lesser Penalty to Lotus India would not only be violative of Section 46 but would also amount to injustice to the other members of MEOA who sincerely worked hard and suffered a loss of profit suffered on account of violation of the non-compete agreement by Lotus India.

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 everyone’s 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. 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”.18 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 law 19. 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 other’s territories for a joint advantage. This arrangement considerably helped the essential oil manufacturers avoid any losses by planning production output and production 18 19

See, for example, Amritsar Rayon & Silk Mills Ltd v. Amin Chand Sajdeh, (1987) Fact sheet ¶ 7

29

MEMORIAL ON BEHALF OF APPELLANT 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 Niranjan Shankar Golikari v. The Century 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.

20

1967 AIR 1098, 1967 SCR (2)378

30

MEMORIAL ON BEHALF OF APPELLANT Supreme Court of India in Percept D' Mark (India) Pvt. Ltd v Zaheer Khan 21 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 Bottling Co. Ltd. and others v. Coca Cola Co. and others 22, 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 year’s 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 Hon’ble 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 everyone’s consent in everyone’s interest. Hence, the agreement is not in violation of Section 23 of The Indian Contract Act, 1872.

21 22

AIR 2006 SC 3426 AIR 1995 SC 2372.

31

MEMORIAL ON BEHALF OF APPELLANT A person may be restrained from carrying on his trade by reason of an agreement voluntarily entered into by him with that object 23. 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 REQUIRED

AND IS TO

ALSO NOT ENTITLED

COMPULSORY LICENSE

TO

DAMAGES

THE

AND

LOTUS INDIA

TECHNOLOGY

TO

IS

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 Hon’ble Court in landmark judgment of Percept D”Mark (India) Pvt. Ltd vs. Zaheer Khan25 in which the Supreme Court observed that under Section 27 of the Act a restrictive covenant

23

Niranjan Shankar Golikari vs. The Century Spinning and Manufacturing Company Ltd. 1967 AIR 1098, 1967 SCR (2)378 24 Fact sheet ¶ 3. 25 AIR 2006 SC 3426.

32

MEMORIAL ON BEHALF OF APPELLANT 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 Appellant’s 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 law 27. 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 other’s territories for a joint advantage. In case of non-compete agreements, due to the nature of the interests protected, the test of reasonableness‟ is a very dominant 28 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

26

485 US 717 Fact sheet ¶ 7 28 Perceptron, Inc. v. Sensor Adaptive Machines, Inc., 221 F.3d 913, 2000-2 Trade Cas. (CCH) ¶72975, 2000 FED App. 247P (6th Cir. 2000) 27

33

MEMORIAL ON BEHALF OF APPELLANT 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.

29 30

Fact Sheet ¶ 15 Fact Sheet ¶ 8

34


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 the patented articles.31 An 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.34 By these provisions in conjunction with the provision relating to use of invention for the purpose of Government 35 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 83 38 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.

31

See 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 Ayyangar’s Report, ¶ 172, page 73. 37 Section 2(r) of The Competition Act, 2002. 38 The Patents Act, 1970.

35

MEMORIAL ON BEHALF OF APPELLANT However it is well established that Essential Oils, owing to their medicinal properties, play a significant role in the pharmaceutical industry as well. These oils produce specific pharmacological effects through skin absorption and inhalation that medicinally benefits physical and psychological health and overall well being. Section 3(b)(i) 39 defines drugs as:“all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes;” Thus essential oils are covered within the definition of drugs and drug is an Essential Commodity under section 2(a)(iva). Hence it is humbly submitted that essential oil is an essential commodity under The Essential Commodities Act, 1955.

C.1 STATUTORY REMEDIES FOR ABUSE OF PATENT RIGHTS. The remedies adopted under the present act against abuse of patent rights consist in defining the purpose of patent grants and providing for a system of compulsory licensing by the controller under specified circumstances and revocation of the patent for non- working. Patentees sometimes makes their patent rights an instrument of monopoly wider in scope or longer in duration than that afforded under the patent by the statute. Section 140 and 141 are designed to remedy this evil to some extent.40

39 40

The Drugs and Cosmetic Act, 1940. See Ayyangar’s Report, ¶s 823-829.

36


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 unautho rised use of its technology and Lotus India be required to compulsorily license the technology to other manufacturers.

All of which is most respectfully prayed and humbly submitted.

(Signed) Counsels for Respondent

Date:

37

Memorial on Behalf of Appellant

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