The Competition Commission of India is struggling to find consistency around whether parallel conduct can form the basis for finding an agreement. This helpful post by attorney Avinash Amarnath of Vinod Dhall and TT&A explains the latest CCI decision. I imagine the Competition Appellate Tribunal and Supreme Court of India will eventually weigh in and Mr. Amarnath will keep us posted when they do. Here is Mr. Amarnath’s latest post:
CCI imposes penalty of USD 38.6 million on airlines for fixing fuel surcharge
Just when one almost thought that the year 2015 would go by without a major cartel fine, the Competition Commission of India (CCI) published a decision on 17 November 2015 imposing penalties of USD 38.6 million (approx.) in total on three airlines, Jet Airways, InterGlobe Aviation (which operates under the brand ‘Indigo’) and Spice Jet. The CCI found the three airlines guilty of fixing the rates of fuel surcharge (FSC) charged on the carriage of cargo. The FSC is a component of the cargo freight charge whose primary purpose is to cover fluctuations in global crude oil prices.
The complaint was filed by the Express Industry Council of India, an industry body representing cargo companies such as DHL and FedEx. The CCI had found prima facie merit in the complaint and directed the Director General (the DG, the investigative arm of the CCI) to conduct a detailed investigation into the matter. On investigation, the DG found that although the behaviour of the airlines was not in accordance with market conditions, no evidence was found of collusion between the airlines. However, the CCI disagreed with the DG’s conclusions and found that a pattern of parallelism existed in the FSC increases by the three airlines. In particular, the CCI found that during certain periods, the three airlines had increased the FSC even when global crude oil prices had been falling. The CCI observed that no rational explanation had been offered by the parties for this parallel behaviour. Further, the CCI found that data about intended price increases may have been exchanged among airlines through common agents and other sources which reduced uncertainty about their commercial conduct. The CCI also found that although the airlines claimed that internal meetings had taken place to discuss and decide on FSC increases, no data on costs or any documentary proof was placed on record by any of the airlines to prove that such meetings had taken place. Based on the above factors, the CCI concluded that the only possible explanation for such parallel movement was that a cartel existed between the three airlines.
The most significant takeaway from the CCI’s decision seems to be a change in the evidentiary standard in cartel cases involving price parallelism and circumstantial evidence. In previous cases, the CCI has observed that mere price parallelism would constitute insufficient evidence to establish a cartel and that certain ‘plus factors’ would be needed to corroborate the price parallelism. However, in this case, the CCI seems to suggest that price parallelism alone can constitute sufficient evidence of a cartel if there is no other possible explanation for such parallelism other than a cartel This seems to be in line with the evidentiary standard established by the European Court of Justice for a ‘concerted practice’ in Woodpulp II. Although the Indian legislation does not contain a separate concept of a ‘concerted practice’ as applied in the European Union, the definition of agreement under the legislation covers any ‘arrangement or understanding or action in concert’ and it appears that the CCI’s intention is to interpret the term ‘agreement’ broadly enough to include ‘concerted practices’. It is difficult to comment on whether the test was correctly applied in this case, i.e. whether there was in fact a pattern of parallelism and no other possible explanation for such parallelism without knowledge of the complete facts of the case. The parties did argue that the parallelism was a result of oligopolistic market conditions. While the CCI notes that parallel behaviour of competitors can be a result of intelligent market adaptation in an oligopolistic market, the CCI rejected this argument in the present case by simply making a general conclusion that the only possible explanation for parallel conduct in this case was collusion without assigning any specific reasons as to why this parallelism was not the result of oligopolistic market conditions.
Whilst the principles enunciated by the CCI in this case seem to be sound, the CCI must be cautious in evaluating parallel conduct and possible explanations for the same in future cases to avoid the risk of false positives.
The full decision of the CCI is available here.
Mr. Amarnath can be reached email@example.com.