Special Report
India - Predatory Hiring and Cartel Like Price Fixing In the Airline Industry.

June, 2016

 

Special Report - India - Predatory Hiring and Cartel Like Price Fixing In the Airline Industry.

 

In the past 12 months, the Competition Commission of India (“CCI”) has had a number of cases involving the country’s most popular airlines before it, tackling issues of predatory hiring and whether the line is fine or far apart between whether it is a true competition or employment issue and also possible cartel-like price fixing.  We had a chance to speak with AZB & Partners about these recent cases and how businesses may interpret these decisions moving forward, and here is what they had to say.

 

Conventus Law:  In February 2016, the Competition Commission of India (“CCI”) rejected a complaint by Air India against IndiGo’s parent company InterGlobe Aviation based on allegations of predatory hiring under the Competition Act, 2002.   CCI observed that the predatory hiring allegation seems more of an employment issue than a competition issue. Does this mean that CCI will continue to reject such claims without examining the possible effect on the competitive conditions in the market?
 
AZB & Partners: 
CCI’s dismissal of Air India’s allegations on ‘predatory hiring’ of Air India’s pilots was in line with its approach in an earlier case (Kapoor Glass v. Schott Glass, 2012), wherein it had summarily dismissed similar allegations of ‘predatory hiring’. In both cases, CCI’s dismissal of the ‘predatory hiring’ allegations appears to flow from: (i) lack of an express provision in the Competition Act, 2002 (Competition Act) dealing with ‘predatory hiring’; and (ii) lack of any evidence suggesting anti-competitive effects emanating from those specific allegations.
 
While it may appear, so far, that CCI is not disposed towards entertaining allegations of ‘predatory hiring’, we cannot possibly conclude that the CCI’s default position is to categorically refuse to treat ‘predatory hiring’ as an antitrust issue.  In both the relevant cases, the CCI did not explicitly rule out ‘predatory hiring’ as an antitrust issue. Moreover, other major jurisdictions, such as the United States, have considered ‘predatory hiring’ to be a valid antitrust issue.  For example, in Universal Analytics, Inc. v. MacNeal-Schwendler Corp., the U.S. Federal Court (9th Circuit) recognized predatory hiring as a potential antitrust issue.  Although, on the facts of the case it did not return a finding of infringement of US antitrust rules.
 
CL: What would it take to sustain a claim of predatory hiring as an anti-competitive practice under the Competition Act, 2002?
 
AZB: In India, to establish ‘predatory hiring’ as an abuse of dominant position, one would need to convince the CCI that the hiring of competitors’ employees by a dominant enterprise: (i) results in foreclosing those competitors from the market; and (ii) that such a hiring has no legitimate business justification.  If the two elements are established, the CCI can consider such conduct as resulting in ‘denial of market access’- a type of conduct recognized under the Competition Act as abuse of a dominant position.
 
Notably, the treatment of ‘predatory hiring’ in the U.S. is slightly different from the position in Indian law.  In the U.S., to establish ‘predatory hiring’ as an antitrust violation, it is critical to establish ‘predatory intent’. However, under the Competition Act, ‘intention’ would not necessarily be a relevant fact to establish ‘predatory hiring’ as an abuse of dominance.  If the hiring of competitors’ employees results in a denial of market access and lacks business justification, the CCI need not examine the intent behind such hiring.  
 
CL: On 18 April 2016, the Competition Appellate Tribunal set aside the CCI’s order imposing significant penalty on certain domestic airline operators for alleged cartelization regarding the fixing of cargo fuel surcharges, and remanded the case to the CCI, directing it to issue a new order.  What was the technical basis for the setting aside of the order? 
 
AZB:
 The Competition Appellate Tribunal (COMPAT) set aside CCI’s order and remanded the matter back to CCI based on, primarily, procedural grounds, i.e. violations of principles of natural justice by CCI.  Notably, the CCI’s decision to penalize the airlines followed an investigation report from the Office of the Director General (DG Report) which was favourable to the airlines.
 
According to the COMPAT, the airlines had been penalised without being afforded an opportunity to present their case properly by: (i) denying the airlines an opportunity to file objections against the reasons for CCI’s disagreement with the DG Report (which had found no instance of cartelisation by the Airlines); and (ii) further denying the airlines an oral hearing to argue their case that the DG Report was right in dismissing the allegations of cartelisation.
 
CL: What will happen next in relation to the remanding of the case to the CCI, and how long will it take before we can expect the new order from the CCI? 
 
AZB: COMPAT directed the CCI to reconsider the DG Report and, in case of any disagreement with the DG’s findings, indicate the reasons for such disagreement. Further, COMPAT directed CCI to communicate the reasons for such disagreement to the airlines and allow them the opportunity to file written objections/replies as well as make oral arguments, before issuing any final order.
 
Accordingly, the proceedings before the CCI are set to restart in the manner directed by the COMPAT and, upon their completion, the CCI will have to issue its final order. It is difficult to guess how much time this whole process would take – an educated estimate would be 6-8 months.

 

AZB

 

 

For further information, please contact: 

 

Rahul Rai, AZB & Partners

rahul.rai@azbpartners.com