1. RESALE PRICE MAINTENANCE IN INDIAN COMPETITION SCHEME VIS A VIS
IMPACT OF EU AND US JUDGEMENTS
INTRODUCTION
Suspicions regarding the use of resale price maintenance (“RPM”) in vertical agreements, i.e.,
agreements between a supplier and its distributors, have long existed in competition law. The
European Commission (“Commission”) defines RPM as “agreements or concerted practices having as
their direct or indirect object the establishment of a fixed or minimum resale price or a fixed or
minimum price level to be observed by the buyer.”
In Indian scenario the Resale Price Maintenance (“RPM”) are considered anti-competitive in
almost all jurisdictions—both developed and developing—because of their perceived ability
to distort price competition at the retailers’ level. Although there have been a shift in the
standard of evaluation applicable to such agreements, they remain to be one among the
most pernicious activity under any country’s competition regime.
A resale price maintenance (RPM) agreement is a contract in which a manufacturer and downstream
distributor agree to a minimum or maximum price that the retailer will charge its customers.
BACKGROUND
Resale price agreement can be any of the four mentioned type’s minimum, maximum,
recommended, fixed. A price is said to be a minimum resale price when the agreement disallows a
resale at a price below the price stipulated in the agreement between manufacturer and
downstream distributor. The purpose generally is to avoid price competition between retailers
beyond a certain price. This kind of price flooring also occurs in case of agricultural produce when
the government sets a price floor to ensure minimum revenues to the farmers. Maximum resale
price maintenance, on the other hand, imposes restriction on resale at a price above the prescribed
price. The maximum resale price works as a price ceiling and is often imposed to protect the
consumer from over pricing by retailers. Generally all consumable products have a maximum retail
price (MRP) printed on it.
The retailer cannot charge above that price. The price agreement is termed as recommended (orsug
gested) price when the retailer is not bound by the price stipulated by the manufacturer because the

2. price is only recommended price and not a binding price generally. The intention is to help
standardizing prices among locations. This, however, may be against the principles of
competition where collusion or parallelism of any sort is considered to adversely affect the efficiency
in the markets. The last category is “fixed‟ resale price. Under this category, the manufacturer
imposes a price at which the product can be resold neither above nor below that price. In practice,
however, even the minimum resale price has the same effect as the fixed resale price unless the
retailers collude to collectively charge a higher than the minimum prescribed price. This is so
because in the absence of any such collusion, the retailers will not be able to charge a higher price
except at a risk of losing out on customers, because if others charge the minimum resale price (as
stipulated) the customers of the former will approach the latter. Therefore, although, retailers are at
a liberty to sell above the minimum RPM, it is not economically viable to do that. Therefore,
competition authorities around the world have a stricter view on price fixing and minimum RPMs
because they are perceived to have more severe effect on the competition process. They, firstly,
destroy the price competition between the retailers dealing in a product i.e. intra-brand price
competition and, secondly, makes the pricing policy very transparent that might facilitate collusion
and conscious parallelism. Notable, the maximum and recommended resale prices are generally not
punishable. Indian competition law also exempts maximum resale prices from the application. Sec
3(4) Explanation (e) states that
“Resale price maintenance”
Includes any agreement to sell goods on condition that the prices to be charged on the resale by the
purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than
those prices may be charged.
This clearly indicates that a maximum or recommended price is allowed under the Indian Act as long
as the agreement between the parties allows the charging of a price below the stipulated price.
It is quite interesting to note that, while most countries apply different standards of
evaluation to horizontal and vertical agreements, Indian law applies rule of reason standard
throughout Section 3 violations—whether horizontal or vertical. In India, even the most
pernicious and atrocious of activities, cartels, are capable of escaping the anti-competitive
charge if the offenders successfully prove that there was no appreciable effect on the
competition in the relevant market in India. The only difference between the approaches
followed in these two categories of violation, horizontal and vertical, is in the attribution of
the initial burden of proof.

3. World over there are two types of evaluation standards—Per se and Rule of reason. Though
these approaches to evaluate the anti-competitive agreements were evolved by the US
Supreme Court while interpreting different provisions of the US Antitrust Act (The Sherman
Antitrust Act, 1890), most countries today follow one/both of these standards while
evaluating anti-competitive agreements in their jurisdiction. A ‘per se’1 violation requires no
further inquiry into the practice's actual effect on the market or the intentions of those
individuals are who engaged in the practice. Once the conduct falling under per se rule is
established, the conduct is illegal without any inquiry into its actual competitive or anti-
competitive effects. Juxtaposed to this is ‘rule of reason’ approach. Under this approach,
along with the requirement of proving the existence of the alleged conduct (agreement), the
complainant is also required to prove that anti-competitive effects of such conduct are more
than its pro-competitive effects.
Therefore, under the rule of reason approach, the alleged agreement can be allowed if the
pro-competitive benefits arising from such conduct outdo the anti-competitive effects. The
very reason of rendering some conducts as per se unlawful is the adverse effect of such
conduct on free market economy and competition. Per se unlawful activity is characterized
by its clear probability of anticompetitive effects and the improbability of adequate
compensating competitive virtues.2 Therefore, in case of ‘per se’ violations, the complainant
only needs to prove the existence of the alleged anti-competitive conduct. The motive or
intention or the possible efficiency consideration are not of any value because the conduct is
prohibited ‘per se’. Cases that do not fit the generalization may arise, but a per se rule
reflects the judgment that such cases are not sufficiently common or important to justify the
time and expense necessary to identify them.
Therefore, it is also because of economic reasons (i.e. to minimize the administrative costs)
that the inquiry into such cases was excused in the US. So, if the case involves ‘price fixing’,
for example, there might be a probability that 1 out of every 100 cases does involve efficient
outcome. But to find out that one case, inquiry into 100 cases might not be economically
justifiable.
1Per se is a Latin phrase which means ‘in itself’.
2Federal Trade Commission, Determining What is Per Se Unlawful, available at
http://www.ftc.gov/opp/jointvent/2Persepap.shtm.

4. These standards, though do not find place (i.e. exact words do not appear in the statutes) in
the formal statutes but most jurisdictions use these approaches to deal with violations of
their respective competition laws. India, however, follows a different approach. As already
noted before, none of the activities in India is per se prohibited. Even the cartels, which are
per se prohibited in almost all jurisdictions, are subject to rule of reason under the Indian
Competition Act, 2002. It may be important at this juncture to analyze the approaches
woven in the Indian Competition Act for dealing with different anti-competitive agreements.
Section 3 of the Competition Act, 2002, prohibits certain agreements as anti-competitive
which cause or likely to cause appreciable adverse effect on competition. It clearly requires
the fulfilment of four conditions before a conduct is considered to be anti-competitive under
the competition law in India. The conduct should be one listed under Section 3; it should
have an effect on the competition in the relevant Indian market; such effect should be
adverse; and it should be appreciable.
However, a cursory look at Section 3 of the Indian Competition Act indicates that there is an
apparent distinction that is instilled in the Act while dealing with horizontal agreements
envisaged under Section 3(3) and vertical agreements listed under Section 3(4). While
Section 3(3) lays down certain agreements to be ‘presumed’ to have an appreciable adverse
effect on competition, Section 3(4) states that the type of agreements listed under that
section will be prohibited only if such agreements cause or are likely to cause appreciable
adverse effect on competition. Many a times this distinction is perceived to be same as ‘per
se’ vs. ‘rule of reason’ approach as is prevailing in the US jurisprudence3. This, however, is
not correct. The words “shall presume” appear in Sec 3(3) which leads to confusion. Many a
times this ‘shall presume’ phrase is confused to indicate application of a per se rule, which is
not true.
A presumption is a rule of law by virtue of which, where a party proves one fact (the primary
fact) a second fact (the presumed fact) will also be taken to have been proved, in the
absence of evidence to the contrary. Sec 4 of the Evidence Act divides presumptions into 3
3Pavan Vijay Kumar, Competition Law: Promoting Competition, ASSOCHAM Seminar, available at
http://www.assocham.org/events/recent/event_649/session1/Pavan_Vijay-CCI.pdf.
Also see, Suchitra Chtale, India: Overview, The Asia-Pacific Antitrust Review 2011, available at
http://www.globalcompetitionreview.com/reviews/33/sections/118/chapters/1218/india-overview/.

5. categories—may presume, shall presume and conclusive proof. The ‘may presume’ and
‘shall presume’ are rebuttable presumptions. ‘May presume’ leaves it to the discretion of
the court to make the presumption according to the circumstances of the case. ‘Shall
presume’ leaves no option with the court not to make the presumption.
The court is bound to take the fact as proved until evidenced is given to disprove it.
Therefore, it is rebuttable even if court at the first instance has to presume the existence of
a fact. A per se approach on the other hand does not require inquiry into the effects of the
alleged practice. Once the existence of practice is established it is per se prohibited. The only
defense to such per se probation is to establish that such a practice or agreement does not
exist. Therefore, Indian law, which evaluates all agreements falling under Sec 3 on the
grounds listed under Sec 19(3), cannot be said to have per se rule’s application in India.
Nevertheless, the approach to be followed while dealing with agreements falling under the
purview of Section 3(3) and those falling under Section 3(4) would be different, even if the
difference is not of the same degree as has evolved in the US antitrust law.
Therefore, the difference between the two sub-sections, as it appears while taking the literal
interpretation into account, is only that of the initial burden of proof. In the case of
horizontal agreements [Section 3(3)], the conduct is presumed to have an appreciable
adverse effect on competition which means that the complainant only has to prove the
existence of the conduct in the first place which will be sufficient to shift the burden
automatically on the alleged party to the agreement or conspiracy. But in the case of vertical
agreements [Section 3(4)], the informant has to prove two things—firstly, that the conduct
mentioned in the information exists and, secondly, that the conduct is likely to have an
appreciable adverse effect on competition.
Every conduct falling under Section 3, once established, have to be evaluated under Section
19(3) which lays down six factors to gauge the whether the conduct has appreciable adverse
effect on competition or not. The first 3 factors stated under Section 19(3), namely, (a)
creation of barriers to new entrants in the market; (b) driving existing competitors out of the
market; and (c) foreclosure of competition by hindering entry into the market, assess the
anti-competitive impact of the alleged activity. And the remaining 3 factors, namely, (d)

6. accrual of benefits to consumers; (e) improvements in production or distribution of goods or
provision of services; (f) promotion of technical, scientific and economic development by
means of production or distribution of goods or provision of services, assess the pro-
competitive effects of the alleged practice..
Therefore, every alleged practice which might have anti-competitive effects falling within
the purview of Section 3 is gauged on the parameters set in Section 19(3). Only those
activities whose net effect is anti-competitive i.e. anti-competitive effects exceed the pro-
competitive effects, will be prohibited by the Competition Act. However, if words of the Act
are to be interpreted literally, another ambiguity can be pointed out in Section 19(3). The
opening words of the said sub-section states that Commission shall , while determining
whether an agreement has an appreciable adverse effect on competition under Section 3,
have due regard to all or any of the factors stated under that sub-section. That,
undoubtedly, means that Commission is not bound to consider all factors and might use its
discretion while deciding which factors should be considered for evaluating a particular
agreement or practice. The future orders and directions of CCI while dealing with different
cases are expected to provide greater clarity on this issue.
The procedure regarding the alleged RPM agreement starts with the initiation of the inquiry
of the CCI into the said practice. As stated earlier that the Commission can initiate inquiry
into any alleged violation either on the basis of the information received by a person
(informant) or reference made by the government/statutory authority or on its own motion
as per Sec 19(1). Once the information is received, the procedure for inquiry by the CCI,
mentioned under Section 26 of the Act, is followed. Section 26 contains 8 sub-Sections
which lay down steps in inquiry procedure. The steps lay down different permutations based
on the path a particular case might follow during investigation. Section 26(1) states that if
CCI is convinced that a prima facie case exists, it shall direct the Director General
(Investigations)[DG (I)] to undertake an investigation into the matter. Alternatively, if the
Commission is convinced that no prima facie case exists on the basis of information received
by it, the case is closed [Sec 26(2)]. Thereafter, the DG (I) submit a report on his findings
within the period prescribed by the Commission [26(3)].On submission of DG’s report under
Section 26(3), the commission may forward the copy of the report to the parties concerned

7. [Section 26(4)]. If the report of the DG suggests that there is no contravention of the
provisions of the Competition Act, CCI shall invite objections or suggestions from the
government (Central or State depending on who have referred the matter to CCI) or the
parties concerned [Section 26(5)]. If after considering the objections, CCI is convinced that
no contravention has taken place, then it can pass an order to that effect under Section
26(6). However, if after considering the objections, CCI is of the opinion that contravention
has taken place, then it may direct further investigation under Section 26(7). Finally the last
sub-section [Section 26(8)] lays down that if the DG’s report indicates that there is a
contravention, the Commission may direct further investigation if it is required. Appeal to
the Competition Appellate Tribunal under Section 53A and B lies against Section 26(2) and
(6). Notably both these sections pertain to closure of a case pursuant to the finding of no
contravention of the provisions of the Competition Act.
Once the Commission is convinced that a contravention under the Competition Act has
taken place, it may pass all or any of the orders mentioned under Section 27 which include,
inter alia, cease and desist, penalty ten percent of the average of the turnover for the last
three preceding financial years etc.
After dealing with the substantive and procedural provisions under the Competition Act, it
may be meaningful to move to a larger policy question which has kept many antitrust
scholars busy in the US. The question pertains to the very righteousness of prohibiting
minimum resale price maintenance agreements. The following part will explain the kind and
gravity of distortion caused by RPMs and then move to its justifiability in any competition
law regime.
COMPETITION DISTORTIONS BY RESALE PRICE MAINTENANCE AGREEMENTS
Before coming to the question of ‘how and whether competition is distorted by imposition
of resale price maintenance agreements’, it will be worthwhile to know the types of
competition. Only then it will be possible to assess whether such imposition serves any
purpose or is pernicious in totality.

8. One of the economic rationales for competition law is ‘production efficiency’ which ensures
that a firm has the requisite incentive to find newer and better ways of reducing cost. Two
most important desired outcomes of a sound competition policy is lowest cost and best
quality. Competition can be price competition or non-price competition. The price
competition focusses mainly on cost reduction so that the product can be available to the
final consumer at the lowest possible cost. Such low cost not only result in increasing sales
for the manufacturer but also in higher consumer welfare. Non-price competition, on the
other hand, can be achieved by focusing more on the non-price factors e.g. better pre-sale
services, better promotional schemes, better quality products, improved post-sales support
etc. While price competition between market participants results in cost effectiveness, non-
price competition ensures better quality. Therefore, an optimum mix of both competitions
may indicate the best solution. Many a times, however, the worth of non-price competition
is undermined and overshadowed by the aim to instill price competition at all levels. The
purpose of competition law is the protection of competition on the market as a means of
enhancing consumer welfare and of ensuring an efficient allocation of resources.”4 This
makes it undoubtedly clear that the protection of competition is a means to meet the
‘greater end’ which is ‘Consumer Welfare Maximization’. Therefore, it is clear that
competition law seeks to protect competition and not only ‘price’ competition and as long
as the protection of competition is not leading to welfare maximization, there should be a
room for deviation.
The competition at the retailer’s level can be divided into inter-brand and intra-brand price
competition. When the dealers are reselling (competing) different brand, they are said to be
competing inter-brand. However, when the dealers are selling (competing) the same brand,
they are said to be competing intra-brand. If they compete on the price, the competition
becomes inter-brand price competition and intra-brand price competition, depending upon
whether they are dealing in different brands or same brand respectively.
Resale price maintenance agreements allegedly destroy the intra-brand price competition
because the manufacturer fixes the minimum price beyond which his products cannot be
resold. This inevitably renders the price competition amongst such retailers impossible
4Economic Foundations of Competition Law, ASIAN DEVELOPMENT BANK TOOLKIT, available at
http:/www.adb.org/Documents/others/OGC_Toolkits/Competition-Law/documents/Chap1.pdf

9. because they cannot sell below a certain price; otherwise sanctions (as stated in the RPM
agreement) will be attracted. Such apprehension of the perceived ability of minimum RPM
to eliminate intra-brand price competition has instigated the competition authorities in
different jurisdiction to prohibit and punish such conduct.
However, it is important to understand that competition law is not an end in itself but a
means to reach the larger objectives. Competition law seeks to protect competition and not
only ‘price’ competition and as long as the protection of competition is not leading to
welfare maximization, there should be a room for deviation. Therefore, if the prohibition of
RPM agreements leads to reduced consumer welfare, they should be allowed to achieve
enhanced consumer welfare.
The following sub-parts will shed light on the problems that emerge as a result of not
allowing the imposition of minimum RPMs. The following arguments may also provide an
insight into probable arguments while dealing with the competition commission’s probe into
any alleged practice relating to minimum RPM.
FOREIGN JUDGEMENTS AND THEIR IMPACT
Until 2007, antitrust enforcers and scholars on both sides of the Atlantic appeared to share a broad
consensus that RPM in vertical agreements constituted a serious restriction of competition that
could never be justified. Indeed, one of the U.S. Supreme Court’s earliest decisions in the area of
antitrust law, Dr. Miles,5
ruled that RPM was a per se violation of Section 1 of the Sherman Act.
Similarly, the European Court of Justice (“Court of Justice”) and the Commission considered for
decades that RPM constituted a restriction of competition “by object,” i.e., a serious restriction of
competition that would invariably infringe Article 101(1) of the Treaty on the Functioning of the
European Union (“TFEU”)—the EU competition law provision corresponding to Section 1 of the
Sherman Act. Thus, RPM was, in principle, not subject to any justification.6
5
Dr. Miles Medical Co. V John D. Park & Son Co., 220 US 393 (1911).
6
In EU competition law, any restriction of competition within the meaning of Article 101(1) TFEU, whether by
“object” or “effect”, can theoretically escape the prohibition contained in that Article if it cumulatively satisfies
the four conditions laid down in Article 101(3), i.e., if such restriction: (i) produces efficiencies, (ii) the
efficiencies are passed on the consumers, (iii) is proportionate to achieve the efficiencies, and (iv) does not
completely eliminate competition. The burden of proof in demonstrating that these conditions are
cumulatively satisfied is on the parties to the agreement containing the restriction. In reality, however,
restrictions of competition by object are very unlikely to satisfy these conditions. The author is unaware of any

10. This scenario changed in 2007 when the U.S. Supreme Court overruled Dr. Miles, holding in Leegin7
that RPM should no longer be considered a per se violation of antitrust law, but should be subject to
a “rule of reason” approach. Leegin triggered a heated debate on both sides of the Atlantic with
respect to the treatment of RPM in vertical agreements.
A key initial impact of Leegin in the EU is reflected in a 2008 judgment of the Court of Justice in the
CEPSA case8
, where the Court held that:
[when] there is an agreement between undertakings within the meaning of Article [101 TFEU], as
regards the sale of goods to third parties, the fixing of the retail price of those goods constitutes a
restriction of competition expressly provided for in Article [101(1)(a) TFEU] which brings that
agreement within the scope of the prohibition laid down in that provision to the extent to which all
the other conditions for the application of that provision are satisfied, namely that that agreement
has as its object or effect to restrict appreciably competition within the common market and is
capable of affecting trade between Member States. The Court also held that: If [a distributor is]
required to charge the fixed or minimum sale price imposed by [a supplier], that contract […] will be
caught by the prohibition provided for in [101(1) TFEU] only if its object or effect is to restrict
appreciably competition within the common market and it is capable of affecting trade between
Member States.
In the above passages, the Court of Justice clearly indicated that a vertical agreement containing a
RPM obligation does not necessarily fall within the scope of Article 101(1) TFEU. This implicitly
overruled the Court’s 1985 precedent in Binon9
, where it had previously held that RPM constituted,
by its very nature, a restriction of competition pursuant to Article 101(1) TFEU. The Court affirmed
this new approach to assessing RPM in its 2009 judgment in Pedro IV Servicios10
.
case where the Commission or the European Courts, after qualifying an agreement as restricting competition
by “object”, has subsequently held that such agreement escaped the prohibition of Article 101(1) TFEU
because it satisfied all four conditions of Article 101(3) TFEU.
7
Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007).
8
Case C-279/06 CEPSA Estaciones de Servicio SA [2008] ECR I-6681, ¶ 42,
9
Case C-243/83 Binon [1985] ECR 201, ¶ 44, where the Court of Justice held that “provisions which fix the
prices to be observed in contracts with third parties constitute, of themselves, a restriction on competition
within the meaning of [Article 101 (1)] which refers to agreements which fix selling prices as an example of an
agreement prohibited by the Treaty”
10
C-260/07 Pedro IV Servicios [2009] ECR-2437, ¶ 82

11. So today RPM is no more a hard core restriction under the US Antitrust Law and is subject to „rule of
reason‟ approach, meaning thereby that the alleged agreement can be allowed if the pro-
competitive benefits arising from such an agreement outdo the anti-competitive effects. In EU, the
competition law, though adopts a lenient approach while dealing with the maximum resale price
agreements, categorically presumes minimum resale price as a hard core restriction. An agreement
imposing maximum resale price can be exempted from the applicability of Art 101(1) if the market
share cap of 30% is not exceeded.
Even the “New EU Vertical Restraint Regulations” make it clear that resale price maintenance is a
hard-core restriction and the exemptions and safe harbour provisions introduced in other vertical
restraint agreements will not apply to vertical agreements that establish a fixed or minimum resale
price. However, the new regulations recognize certain situations where RPM agreements could
generate efficiencies.