- Shobhit Shukla
Traversing Hub and Spoke Cartels through an Inconsistent Information Exchange Framework
[Shobhit is a student at Maharashtra National Law University, Mumbai.]
The President on 12 April 2023 gave her assent to pass the Competition (Amendment) Act 2023 (Amendment Act). One of the amendments in the Amendment Act widens the scope of ‘cartels’ by bringing hub and spoke cartels within the ambit of competition scrutiny. This is in line with the landmark Samir Agrawal v Competition Commission of India (Samir Agarwal) case, wherein a matter regarding hub and spoke cartels came up for consideration before the Competition Commission of India (CCI) for the first time.
In a hub and spoke cartel, there are exchanges of information from the spokes to the hub, which is then used by other spokes; hence, an effective information exchange mechanism is necessary to create a consistent framework for hub and spoke cartels. While the Amendment Act and various judgments acknowledge the need for a solid framework for hub and spoke cartels, lack of precedents, in addition to a conflicting approach on information exchanges, pose an issue which highlight the interpretive struggles of the court. Hence, this article seeks to not only appreciate the notable strides made by the Amendment Act but also highlight the considerable scope for improvement for the judiciary, by discussing some case laws and foreign perspectives related to such aspects. The article also reviews the effect of ‘information exchange’ with respect to a hub and spoke cartel, and concludes with a recommendation for a clearer regime in this aspect in accordance with the objectives of the Amendment Act.
Tracing the Gradual Limitation of the Scope of Information Exchange
In Anticompetitive Conduct in the Dry-Cell Batteries Market in India, the CCI held that even a unilateral exchange of information, can implicate the participants. The CCI in Builders Association held that an exchange of information which can remove uncertainties between participants must be regarded as pursuing an anti-competitive object, and therefore, mere exchange of commercially sensitive information is anti-competitive. However, in Re: Sugar Mills, the CCI seemed to dilute this stance and create exceptions, where it held that only active exchange is prohibited under the Competition Act 2002 (Act) and that “exchange of information on issues of operations in the matter of rendering of services in the market, is not uncommon.” In Re: Alleged Cartelisation for Increasing Pulse Prices in India, it held that in a situation where there exists a buyer–seller relationship between companies, any exchange of information needs to be analysed keeping in mind the multi-faceted relation. Against this backdrop, sporadic communications between enterprises exchanging information, which is already available in public domain, cannot be construed as ant-competitive. Further, in Film & Television Producers Guild of India, it was held that trade associations could be used as platforms for the exchange and mere exchange of information is not sufficient to prove anti-competitive conduct; it should also enable the conspirators to act upon the common scheme. To carry this uncertainty further, the CCI in the Flashlights case concluded that “even though there is evidence of exchange of information, there is hardly any evidence to show that such activities resulted in determining the prices. Therefore, it cannot be established that the agreement depicted was acted upon.: The CCI in Bearings, however, adopted another approach, different from its precedents. The fact that parties met to decide the price revisions was considered sufficient by CCI to establish a violation. CCI found that the information exchanged compromised the parties’ independence. While the CCI acknowledged that it was possible for the cartel to not have led to a collusive outcome in the market, it did not consider ‘implementation’ of the arrangement necessary for establishing a cartel violation.
CCI’s varied approaches in these decisions bring out some important issues. Once the exchange of anti-competitive information among competitors is established, (i) is there a requirement to show that the agreement was acted upon by the parties?; and (ii) if so, can CCI assume ‘implementation’ and find parties to have contravened the Act, basis the information exchange alone? In sum, CCI must adopt a consistent approach which would aid enterprises in having legal certainty and be act as the basic framework for a solid hub and spoke regime.
Laying the Framework for an Unassailable Hub and Spoke Regime
Initially in Fx Enterprise Solutions India Private Limited v. Hyundai Motor India Limited, Hyundai was alleged to have facilitated a hub-and-spoke cartel among its dealers. However, CCI while finding a prima-facie case of collusion, did not address the issue in its entirety. Finally, in Samir Agrawal, CCI decided that the use of cab aggregator platforms by individual drivers with similar algorithms for price discovery does not amount to a hub and spoke cartel. CCI held that “a hub and spoke arrangement generally requires the spokes to use a hub for exchange of sensitive information. For a cartel to operate as a hub and spoke, there needs to be an existence of collusion.” The matter went on appeal wherein the court held that since aggregators work on price algorithms and the drivers do not act in the capacity of employees, they are not acting as a hub and spoke. The author argues that the courts have taken a narrow view of hub and spoke cartels, due to a distortion in the fundamental understanding because of the varied stances taken by CCI regarding information exchanges. Although hub and spoke cartels operating with different price algorithms appear to be free, similar price algorithms owing to factors like purchasing the same algorithm from the same company may end up in a concerted action. Since wide arrays of sectors are similarly placed in terms of their operations, an inapt precedent like the one discussed above must be revisited to accommodate future instances. Since the post-COVID-19 era is likely to be marked by newer business models and an increased exchange of information through internet platforms, such a view only restricts the ability of the CCI to look beyond and poses a challenge in applying the available jurisprudence in practice.
An exploration of other jurisdictions’ approaches on similar issues offers a bird’s eye view of the widely accepted practices and help determine methods suited to India. As in line with Imperial Chemical Industries Limited v Commission of the European Communities, the UK follows the ‘concerted practice’ model, which is “a form of coordination of information between undertakings which, without having reached the stage where an agreement has concluded, knowingly substitutes practical cooperation between them”. In the Replica Football Kit case and the Toys case, the UK courts established a criterion for the finding of a concerted practice. According to this criterion, the future pricing intentions need to be linked to each other by circumstances that allow the conclusion that a concerted action has taken place, and named it as the “state of mind” test.
In VM Remonts, the European Court of Justice (ECJ) highlighted it was unnecessary for a spoke to have complete information of anti-competitive conduct. Instead, the mere awareness could be sufficient to distinguish a hub-and-spoke cartel. In Eturas case, ECJ held that since the travel agencies had knowledge and did not attempt to distance themselves, they could be held liable for indulging in a hub-and-spoke cartel. While, it is presumed that information exchanged between parties is used to determine their market conduct, if an entity can however display the lack of a cause-effect relationship, it can be acquitted. To charge the hub, the commission of acts was necessary.
The US has followed an ‘inference standard’ in cases such as Interstate Circuit, Toys “R” Us, and the Parke, Davis & Co. Such a standard is based on establishing a ‘rim’ around the unconnected spokes. Due to the lack of direct communication under such agreements, they give due credence to circumstantial evidence and the presence of ‘plus factors’ to conclude the formation of a hub and spoke cartel. These plus factors are simply additional factors that the authorities investigate to reach a conclusion and include factors such as the type of information shared, the effects of sharing, and the market structure.
It is important to understand that hub and spoke cartel may go unrecognized if not detected with a consistent approach. Therefore, it becomes imperative that a broader view is taken while considering various business structures. A cue may be taken from the US and the UK since their largely successful framework may be tested in the Indian context. No matter what approach is taken by the CCI in deciding upcoming cartel matters, it remains a question of academic debate as to where the line for anti-competitive information exchanges separating it from positive exchanges lies in competition law. The author believes that regardless of where the line lies, it begins with a more consistent approach. Therefore, it is essential for India to have greater clarity in its information exchange jurisprudence in order to ensure robust enforcement against hub and spoke cartels as envisioned in the Amendment Act.