“Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity.”- Nancy Pearcey
According to various business experts, competition in business helps one to push their boundaries and work harder for the things that they initially found out of their reach. Recently, the United Kingdom’s Competition and Market Authority (CMA), issued a guide for startups.
So, do you think the competition law affects startups?
According to a report by CMA, the startup industry reflects very low standards of awareness about the conducts that are prohibited under the competition law. Many UK startups seem to believe that sharing information with competitors is a totally legal act, as against how it usually is.
Competition Commission of India (CCI), a body similar to CMA, believes that the Indian competition law aims to promote fair competition and consumer welfare. It achieves the same by making sure that ethical business practices are being employed by the companies dispensing the services or producing the products or doing both.
The Competition Act, 2002 strives to fulfil its aim by (i) prohibiting anti-competitive horizontal and vertical agreements, including cartels; (ii) prohibiting abuse of a dominant position; and (iii) regulating mergers and acquisitions, referred to as “combinations” under the Act.
It is important to note that even startups have to duly comply by rules listed under the Competition Act. This is mainly because legal scrutiny under the act has significant chances of reputational risks. Further, the company found breaching the Competition Act can be charged with significant penalties by the CCI.
What all a startup should know?
In order to duly comply with the Competition Act, the Startups should have a general idea of all the rights at their disposal and all the possible antitrust risks that may arise from the Act.
Here are a few key situations that a startup enterprise might consider for ensuring complete compliance with the Competition Act.
Usage of unfair, discriminatory and unilateral practices at the hands of a dominant entity is tagged as an anti-competitive practice. Please note, that you being a startup, doesn’t save you from being termed as a dominant entity for a significant time period. Let us taken an example of WhatsApp, which is one of the most popular messaging mobile app available nowadays. WhatsApp had managed to capture a user base of 56 percent Indian mobile internet users within a short span of 3-4 years and climb the top of the market ladder. This gives us enough pretext that startups driven by technology need to take care of all the legalities and checks, right from the very beginning of their startup journey.
As a new kid on the block, you might have to face predatory pricing from dominant competitors. If you’re stuck in a similar situation, the best thing for you to do is to discuss your issue and possible legal actions with your competition law counsel.
Similarly, you will also have to keep a watch-out for any possible cartelisation attempt by the well-established players in the market to lower the prices, in an effort to run you dry.
According to Section 3(4) of the Competition Act, the act of an eCommerce startup being directed by a manufacturer not to sell its products below a particular dictated price is referred to as “resale price maintenance” and is considered as a totally anti-competitive act.
Any startup having technology and innovation at heart, might have to register patents, trademarks and copyrights on a time-to-time basis in India. According to the Competition Act, an enterprise can impose reasonable conditions in an agreement in its efforts to protect its intellectual property rights. Mostly, these agreements do not fall under the radar of anti-competitive agreements, unless the intellectual property rights are registered in India.
An agreement typically includes any arrangement, understanding or concerted action. Further, an anti-competitive agreement doesn’t necessarily need to be reduced to writing or be legally enforced or formalised.