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BEFORE HONBLE SUPREME COURT OF INDIA

NEW DELHI.

UNDER SECTION 53T OF COMPETITION ACT, 2002.

IN THE MATTER OF
Manufacturer of Essential Oils Association (MEOA) . (APPELLANTS)

VERSUS
Competition Commission of India. (RESPONDENTS)

MEMORIAL ON BEHALF OF APPELLANTS


MANUFACTURER OF ESSENTIAL OILS IN INDIA

MEMORIAL ON BEHALF OF APPELLANT

TABLE OF CONTENT
LIST OF ABBREVIATIONS..4
INDEX OF AUTHORITIES4
STATEMENT OF JURISDICTION................................................................................................9
QUESTIONS PRESENTED..10
STATEMENT OF FACT..11
SUMMARY OF PLEADINGS.14
ARGUMENT ADVANCED.17

1. The Arrangement is Not a Cartel Arrangement and Hence Not Violative of Section 3 of
Competition Act, 2002...17
A. Presence of agreement was not conclusively established17
B. There is inadequate evidence to conclude the existence of collusive price fixing or
territorial allocation20
C. Mere formation of MEOA is insufficient to conclude the existence of a cartel...24
2. The Case Requires to be Tested Under Section 19 of Competition Act, 2002 and The CCI and
Appellate Commission Exercised Jurisdiction Improperly...26
3. Lotus India Cannot be Offered Full Immunity Against Punishment or Penalty Since it is One
of The Biggest Manufacturers of Essential Oils and was an Important Member of The MEOA27
4. Lotus India has Acted in Violation of The Non-Compete Agreement..29

5. Lotus India is Not Entitled to Unilaterally Terminate the License Agreement and is Also Not
Entitled to Damages and Lotus India is Required to Compulsory License the Technology to
Others Manufacturers.... 32

A. Lotus India is not entitled to unilaterally terminate the License Agreement32

MEMORIAL ON BEHALF OF APPELLANT


B. MEOA is not entitled to Damages for breach of the Agreement and the Loss of
Profits33
C. Lotus India is required to Compulsorily License the technology to other
Manufacturer......................................................................................................................35

C.1 STATUTORY REMEDIES FOR ABUSE OF PATENT RIGHTS..36


PRAYER............................37

MEMORIAL ON BEHALF OF APPELLANT

LIST OF ABBREVIATIONS

AIR

All India Reporter.

Annex.

Annexure.

Art.

Article.

CAT

Competition Appellate Tribunal

CBI

Central Bureau of Investigation

CCI

Competition Commission of India.

DG(IR)

Director General of Investigation and Registration

DNA

Daily news & Analysis

FTC

Federal Trade Commission

GATT

General Agreement on Tariffs and Trade, 1994.

Govt.

Government.

Honble

Honourable.

ICA

Indian Contract Act, 1872.

ICN

International Competition Network

MRTP

Monopolies & Restrictive Trade Practices Commission

MRTPC

Monopolies & Restrictive Trade Practices Commission.

OECD

Organization of Economic Cooperation & Development

OPEC

Organization for Petroleum Exporting Countries

RBI

Reserve Bank of India

S.

Section.

SCC

Supreme Court Cases.

u/s

under section.

UNCTAD

United Nation Conference on Trade & Conference

v.

versus

Vol.

Volume.

MEMORIAL ON BEHALF OF APPELLANT

INDEX OF AUTHORITIES
LEGISLATIONS

The Constitution Of India, 1950.

Indian Contract Act, 1872.

The Competition Act, 2002 [Act No.12 of 2003] as amended by The Competition
(Amendment) Act, 2007 dt 24-90-2007.

The Competition Commission of India (Lesser Penalty) Regulations, 2009, No.L3(4)/Reg-L.P./2009-10/CCI.

The Patents Act, 1970.

The Essential Commodities Act, 1955.

The Drugs and Cosmetic Act, 1955.

The patents Rule, 2003.

INTERNATIONAL TREATIES AND AGREEMENTS

General Agreement On Tariff And Trade, 1994

LIST OF CASES REFERRED

Belaire Owners' Association v DLF Limited, HUDA & Ors Competition Commission Of
India Case No. 19 of 2010.

BRTA v Inchek Tyres Ltd 1 RTPI 7 (MRTPC).

Central Inland Water Transport Corporation Limited and Anr. v Brojo Nath Ganguly
and Anr1986 (3) SCC 156.

Competition Commission of India v Steel Authority of India Limited and another


2010 SC 737; 2010 (10) SCC 744; 2010 (9) Scale 291; 2010 (11) SCR 112; 2010 (10) JT
26; 2010 (5) All MR 934.

Dlf Park Place Residents v Dlf Limited Competition Commission Of India Case No. 18
Of 2010.

MEMORIAL ON BEHALF OF APPELLANT

FICCI-Multiplex Association of India v United Producers/Distributors Forum, Case


No.01/2009 order dated 25-5-2011 (CCI).

Godrej v Boyce Mfg. Co. Ltd. (1976) Tax L.R. 1241.

Jupiter Gaming Solutions Private Ltd. v Government Of Goa & Ors, Competition
Commission of India Case No. 15 / 2010.

Klors Inc. v Broadway-Hale Stores Inc 359 U.S. 207 (1959).

Kshitij Ranjan v Indian Newspaper Society, Competition Commission Of India Case No.
341/ 2011.

Madkub Chunder v Rajcoomar Doss, [1874] Beng L.R. 76.

Monsanto v Sprayrite Service Corp, 465 U.S. 752 (1984).

M/s Mineral Enterprises Limited v Ministry of Railways, Union of India & Ors,
Competition Commission Of India (Case No. 47 of 2012).

M/S Oswal Agro Furane Ltd. & Anr v Oswal Agro Furance Workers Union
2005(3)SCC224.

Niranjan Shankar Golikari v The Century Spinning and Mfg. Co. Ltd., AIR 1967 SC
1098.

RRTA v Indian Sugar Mills Association, AIR 1962 All 551.

R.R.T.A v Amar Dye-Chem Ltd. 2R.T.P.I. 290.

Shri Kaushal K. Rana v DLF Commercial Complexes Ltd., Competition Commission Of


India Case No. 50 Of 2012.

Standard Oil Co. v United States, 337 US 293, 314 (1949)

Superintendence Company of India (P) Ltd. v Sh. Krishan Murgai, AIR1980SC1717.

United States v Jellico Mountain Coal & Coke Co. (46 Fed. Rep. 432). 247. 603.

United States v New Wrinkle, Inc 342 U.S. 371 (1952).

United States v Topco Associates, 405 U.S. 596 (1972).

United States v Trenton Potteries Co., 273 U.S. 392 (1927).

Vedant Bio Sciences v Chemists & Druggists Association, In Re: MRTP Case No. C87/2009/DGIR.

Wrap Knits Pvt. Ltd. and Anr. v Ms. Anju Sharma @ Anu Sharma and Anr IA No.
6867/2008 in CS (OS) No. 1071/2008
6

MEMORIAL ON BEHALF OF APPELLANT

Yashoda Hospital And Research v Indiabulls Financial Services, Competition


Commission Of India Case No. 12 Of 2010

BOOKS AND DIGESTS

199th Report, Law Commission of India, 2006, page 25.

NATURE AND CAUSES OF WEALTH OF NATIONS, (1776) (book 1, Chap X) 82.

COMPETITION LAW IN INDIA-POLICY, ISSUES AND DEVELOPMENT,


T.Ramappa, Oxford India Paperbacks,2nd Ed (2009).

COMMENTARY ON THE MRTP LAW, COMPETITION LAW & CONSUMER


PROTECTION LAWLAW, PRACTICES AND PROCEDURES, S M. Dugar, Volume
1 (2006), p.757.

GUIDE TO COMPETITION, SM Dugar and U P Mathur, Nexis Lexis, 5th Ed. (2010).

PATENT FOR CHEMICALS, PHARMACEUTICALS and BIO TECHNOLOGY,


Fundamentals of Global law, practice strategy, 4th Ed., Philip W. Grabb. Oxford. Page
230-244, 440-472.

INTELLECTUAL PROPERTY AND COMPETETIVE STRATEGIES IN THE 21 ST


CENTUARY, Shahid Ali Khan & Raghunath Mashelkan, 2 nd Ed., Walter Kluwer Law
and Business, pg. 31-51.

LAW RELATING TO INTELLECTUAL PROPERTY, Dr. Raghbir Singh, Vol.,


Universal Co. Pvt. Ltd.

COMPETITION LAW IN INDIA, Abir Roy & Jayant Kumar, Eastern Law House
Kolkatta, 2008 pg 68-87, 98-121, 170-206.

COMPETITION LAW TODAY, CONCEPT ISSUES AND LAW IN PRACTICE,


Vinod Dhall, Oxford University Press, pg 39-58, 129-148.

CONTRACT AND SPECIFIC RELIEF ACT, Avtar Singh, 10 th Ed., Eastern Book
Company.

INTERPRETATION OF CONTRACT, M.A. Sujan, 2nd Ed., Universal Law Publishing


Co. Pvt. Ltd.

GUIDE TO COMPETITION LAW, S.M. Duggar, 5th Ed. 2010, Lexis Nexis
Butterworths Wadhwa, Nagpur.
7

MEMORIAL ON BEHALF OF APPELLANT

COMMENTORY ON INTELLECTUAL PROPERT LAWS, Rama Sarma, 1 st Ed., Vol.


1, (2007), Wadhwa and Co. Nagpur, pg. 214-222.

Black's Law Dictionary: A Dictionary of Modern Legal Usage by Bryan A. Gar.

ARTICLES

OECD

(2005):

Competition

law

and

Policy

in

the

European

Union

http://www.oecd.ord/dataoecd/7/41/35908641.pdf

Scrutinizing Non-Compete Agreements under the Indian Competition Regime, by


Tathagata Choudhury.

Jetro, Indian Intellectual Property Report, 2011 Vol.4, Licensing of Patented


Technologies in India.

Control of Cartel and other Anti Competitive Agreement- Richard Whish.

WEBSITES

http://cci.gov.in/images/media/ResearchReports/TathagataChoudhuryInternshipRe
port.pdf

http://indiankanoon.org/

http://www.lawyersclubindia.com/articles/Non-Compete-Clauses-and-The-IndianContract-Act-1972-4621.asp#.UPsGBR2TzHh

http://en.wikipedia.org

http://www.wisegeek.com/what-is-a-non-compete-agreement.htm

http://www.cci.gov.in

http://www.drugs-forum.com/forum/showthread.php?t=155333

http://www.lalaessentialoils.com/industries-pharmaceuiticals.html

http://forbesindia.com/printcontent/29302

http://indiacorplaw.blogspot.in/2008/09/non-compete-and-non-disclosure.html

http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=264fdfb0-bb02416b-9eed-4ca76ca1ee46&txtsearch=Subject:%20Contract

MEMORIAL ON BEHALF OF APPELLANT

STATEMENT OF JURISDICTION
The Counsels for the Appellants most humbly submit that the Honble Supreme Court of
India, at New Delhi has the jurisdiction to try this present matter under Section 53T of The
Competition Act, 2002.

MEMORIAL ON BEHALF OF APPELLANT

QUESTION PRESENTED
1. Whether the Arrangement is a Cartel Arrangement and Hence violative of Section 3 of
Competition Act, 2002.
2. Whether the Case requires to be Tested under Section 19 of Competition Act, 2002 and
whether the CCI and Appellate Commission Exercised Jurisdiction Improperly.
3. Whether Lotus India Can be Offered Full Immunity Against Punishment or Penalty Since
it is One of The Biggest Manufacturers of Essential Oils and was an Important Member
of The MEOA.
4. Whether Lotus India has acted in violation of the Non-Compete agreement.
5. Whether Lotus India is entitled to unilaterally terminate the License Agreement and is
also entitled to Damages and whether Lotus India is required to Compulsory License the
Technology to Others Manufacturers. Whether it would have made any difference if lotus
India would have been a Pharmaceutical Company.

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MEMORIAL ON BEHALF OF APPELLANT

STATEMENT OF FACTS
BACKGROUND
1. The appellants are manufacturers of essential oils. Essential oil is a vital ingredient for
perfumes, soaps, room fresheners and many other cosmetic products. It plays a vital role to the
cosmetic industry which is growing at exponential rates in India ushering in high revenues and
better job prospects to the entire nation.
2. The manufacturers of essential oils in India were having turbulent times and were losing a
large chunk of market share to imported essential oil, soon after India reduced the steep import
tariffs on such imported essential oil, in keeping with its GATT commitments.
3. The manufacturers of essential oils formed themselves into an association known as
Manufacturers of Essential Oils Association (MEOA). As part of its practices, the MEOA
organized monthly meetings for its members to exchange information on advances in
technology, technical know-how, market related information for streamlining production
process, output, product pricing to avoid losses. Also, any manufacturer who identified and
patented new technology was obliged to license the technology to other association members by
entering into an irrevocable license agreement with each of the members, for a royalty which was
decided by MEOA. This ensured that the patent holder earns adequate royalty and at same time
keeping with the basic premise, the members have access to new technology.

MERITS
1. The large scale distributors and buyers of such essential oil were required to purchase essential
oil only from manufacturers who were certified by MEOA and in-turn such buyers/distributors
were provided certain discounts in prices. This way MEOA ensured quality control through the
certification process. Any buyer/distributor buying essential oil from any non-MEOA member
was boycotted from future supply by any of the MEOA members, as penalty.
2. In 2008, global recession resulted in losses to the essential oil manufacturers; attributed largely
to excess production on account of reduced demand from buyers.
3. In order to streamline and evenly match the supply and demand in line with prevailing market
conditions and ensure reduction in losses, the MEOA divided the market for the members and
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MEMORIAL ON BEHALF OF APPELLANT


offered exclusivity for manufacture and supply of essential oils in a particular territory for each
member.
4. As required by MEOA, each member also signed a non-compete agreement with the other
members agreeing not to compete in other territories by supplying essential oils in such other
territories. This arrangement considerably helped the essential oil manufacturers avoid any losses
by planning production output, production costs etc. in line with the amount required to be
supplied in their relevant geographical territory.
5. In 2011, one of the members, Lotus India, which is one of the biggest manufacturers and
suppliers of essential oil, also holding various technology patents, found it of great
inconvenience and loss to continue to adhere to the norms and territorial restrictions imposed by
MEOA. Lotus India consciously decided to flout the terms agreed to it under the noncompetition agreement with the other members and proceed to selling and supplying its product
to buyers across the country.
6. Further, to ensure lesser competition, Lotus India prematurely terminated the license
agreements executed with other manufacturers in order to deny access to patented technology of
Lotus India.
7. However, despite termination of the license, the other manufacturers continued to use the
patented technology and process of Lotus India, claiming that they had already expended
considerable efforts, time and amounts in setting up production units to produce essential oil
using the technology earlier licensed by Lotus India.
8. On account of this, the other members filed a petition before the court seeking for temporary
and permanent injunction against violation of the non-compete arrangements as well as
termination of the technology license. Further, the other manufacturers claimed damages for loss
of profit suffered on account of violation of the non-compete agreement.
9. On the other hand, Lotus India filed a petition seeking injunction against use of its technology
and also alleged before the court that the non-competition arrangement is either ways void since
it falls within the restraint of trade arrangement which is strictly prohibited under section 27 of
Indian Contract Act.
10. In addition, Lotus India filed a complaint with the Director General (DG) of Competition
Commission of India stating that the MEOA arrangement is a pure cartel arrangement in clear
violation of Section 3 of Competition Act, 2002.
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MEMORIAL ON BEHALF OF APPELLANT


11. The DG conducted investigation and submitted the case with sufficient information and
evidence to CCI. The DG has submitted to CCI that the arrangement by MEOA members was
one of horizontal price fixing, horizontal arrangement for output fixing, facilitating practices,
group boycott arrangement, abuse of dominant position .
12. The appellants on the other hand contended before the CCI that, none of their activities or
collaboration resulted in cartelization. Only information pertaining to price points, market factors
and technology were exchanged for general welfare and the MEOA members did not have
monopolization over or full control of the market because of existence of fierce competition and
availability of various options of imported essential oils. Also, the act of geographical division
was not to suppress competition or effect output, but instead to achieve more streamlined
production and as a result increased output.
13. The CCI, upon hearing the case arrived at the conclusion that this is a case of pure
cartelization and a per se violation of Section 3 of Competition Act, without having to carry any
further in-depth analysis under Section 19. The CCI ordered the appellants to pay penalty to the
tune of One Thousand Five Hundred Crore rupees collectively, except Lotus India. Upon appeal
by the other manufacturers the Appellate Commission upheld the decision of CCI.

CONCLUSION
The appellants have now filed an appeal before the Supreme Court against the decision of the
CCI and Appellate Commission. The Supreme Court has decided to also club with this appeal
the issue pertaining to the violation of the non-competition agreement and license agreement and
hear the case in its entirety and has asked the parties to present final arguments based on national
and international precedents, logical analysis and cogent reasoning.

PROCEDURE
The appellants have approached the Supreme Court under Section 53T of the Competition Act,
2002.

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MEMORIAL ON BEHALF OF APPELLANT

SUMMARY OF PLEADING
1. THE ARRANGEMENT IS NOT A CARTEL ARRANGEMENT AND HENCE NOT

VIOLATIVE OF SECTION 3 OF COMPETITION ACT, 2002.


The Appellants submit that neither did they enter into any anti-competitive agreement, nor
indulged in behaviour that may be adduced to be anti-competitive in nature. The conduct of the
appellants was wrongly assumed to have an appreciable adverse effect on competition as there
was no violation of Section 3(3) of the Competition Act, 2002 on their part. In order to support
the assertion that CCI erred in penalizing the appellants, it is imperative to make a detailed
assessment of the following. Firstly, that the presence of an agreement was not conclusively
established; secondly, that there is inadequate evidence to conclude the existence of collusive
price fixing or territorial allocation and thirdly, that mere formation of MEOA is insufficient to
conclude the existence of a cartel.

2. THE CASE REQUIRES TO BE TESTED UNDER SECTION 19 OF COMPETITION ACT,

2002

AND

THE CCI

AND

APPELLATE COMMISSION EXERCISED JURISDICTION

IMPROPERLY.
Appellant submits that this case requires to be tested under Section 19 of the Competition Act
and therefore the Commission an Appellate Tribunal have improperly exercised their
jurisdiction.
An important comment that needs to be made about horizontal agreements is that there may be
circumstances in which competitors cooperate with one another in a way that delivers economic
benefits, not just for themselves but for consumers as well. Hard core cartels are always bad for
consumers welfare, but other horizontal agreements- for example between pharmaceutical
companies to combine their research and development efforts in order to develop new and better
drugs, or between two small or medium sized businesses to produce products on a joint basis,
thereby achieving economies of scale- may be beneficial. This would be the case where an
agreement contributes to an improvement in the production or distribution of goods or in
technical or economic progress, provided that various conditions- that consumer get a fair share
of the resulting benefit, that the agreement does not contain any restrictions that are dispensable,

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MEMORIAL ON BEHALF OF APPELLANT


and that the agreement does not substantially eliminate competition- are satisfied. Therefore, it is
proper for the Competition authorities to test the case under section 19 of the Act on account of
lack of evidence of any horizontal agreement formed herein. It can construed from the language
of the section 3 as discussed above that there is a presumption with regard to cartels that there is
an appreciable adverse effects on competition provided an agreement to that effect is proved.
3. LOTUS INDIA CANNOT BE OFFERED FULL IMMUNITY AGAINST PUNISHMENT
OR

PENALTY SINCE IT IS ONE OF THE BIGGEST MANUFACTURERS OF ESSENTIAL

OILS AND WAS AN IMPORTANT MEMBER OF THE MEOA.


It is humbly submitted that it is not justifiable to give full immunity to Lotus India as it was one
of the biggest manufacturers and essential member of MEOA. Lotus India was part of MEOA
since it was first formed and only broke the contract in 2011. It used its membership with MEOA
to grow and broke off the agreement prematurely when it stopped suiting its convenience.
The non-compete agreement was broken by Lotus India after it followed its terms from 2008 to
2011. Lotus India suffered loss of membership from MEOA but Lotus India was comparatively
unaffected by it, because it had sufficient technology and production capacity to ensure unabated
supply and also ensured to have buyers on account of offering steeper discounts. Lotus was
successful in offering lesser price to its customers. Hence, it is humbly submitted that Lotus
India, was a willing and significant member of MEOA and therefore cannot be granted complete
immunity.
4. LOTUS INDIA HAS ACTED IN VIOLATION OF THE NON-COMPETE AGREEMENT.
It is humbly submitted that Lotus India has violated the non-compete agreement which was
signed by the all the members of MEOA with each other. The non-compete agreement was
signed by the members of MEOA as it was in everyones interest. This agreement helped the
essential oil manufacturers avoid any losses by planning production output, production costs etc.
in line with the amount required to be supplied in their relevant geographical territory. This was
a reasonable restraint and one that was made keeping in mind the interests of members.

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MEMORIAL ON BEHALF OF APPELLANT


The object of the agreement was not unlawful as it was held the if the intention is merely to
regulate an act by prescribing certain terms and conditions and formalities, a contract to do the
act without fulfilling the statutory requirements may not itself be void.

5. LOTUS INDIA IS NOT ENTITLED TO UNILATERALLY TERMINATE THE LICENSE

AGREEMENT AND IS ALSO NOT ENTITLED TO DAMAGES AND LOTUS INDIA IS


REQUIRED TO COMPULSORY LICENSE THE TECHNOLOGY TO OTHERS
MANUFACTURERS.
It is humbly submitted that Lotus India is not entitled to unilaterally terminate the license
agreement signed by the manufacturers of essential oils who identified or patented new
technology to license the technology for a royalty, which was decided by MEOA. The agreement
was signed by Lotus India with full knowledge and consent and therefore terminating the same
agreement before the completion of the contract is a breach of contract
It is humbly submitted that the determination whether an agreement unreasonably restrains the
trade depends on the nature of the agreement and on the surrounding circumstances that give rise
to an inference that the parties intended to restrain the trade and monopolize the same.
It is humbly submitted that such a breach of contract is not just unfavorable for the other
manufacturers but also adverse for the society. Thus it is humbly submitted that there was an
infraction on part of Lotus India and should be liable for the same.
Patent are not merely granted to enable patentee to enjoy a monopoly for the importation of the
patented articles. An obligation is, therefore, imposed on a patentee to work the patent in India
on the commercial scale to the fullest extent.
However it is well established that Essential Oils, owing to their medicinal properties, play a
significant role in the pharmaceutical industry as well and hence is an essential commodity.

16

MEMORIAL ON BEHALF OF APPELLANT

ARGUMENTS ADVANCED

1. THE ARRANGEMENT

IS

NOT

CARTEL ARRANGEMENT

AND

HENCE NOT

VIOLATIVE OF SECTION 3 OF COMPETITION ACT, 2002.


The Appellants submit that neither did they enter into any anti-competitive agreement, nor
indulged in behavior that may be adduced to be anti-competitive in nature. The conduct of the
appellants was wrongly assumed to have an appreciable adverse effect on competition as there
was no violation of Section 3(3) of the Competition Act, 2002 on their part. In order to support
the assertion that CCI erred in penalizing the appellants, it is imperative to make a detailed
assessment of the following. Firstly, that the presence of an agreement was not conclusively
established; secondly, that there is inadequate evidence to conclude the existence of collusive
price fixing or territorial allocation and thirdly, that mere formation of MEOA is insufficient to
conclude the existence of a cartel.
A. Presence of agreement was not conclusively established
The appellants submit that it is well-settled that the existence of an agreement is the first step
which needs to be taken in order to proceed with any investigation into the anti-competitive
nature thereof. Any agreement which is alleged to have appreciable adverse effect on
competition needs to be explicitly established for finding contravention under section 3 of the
Act. The DG had failed to adduce any direct and cogent evidence to satisfy this primary
criterion. As the threshold for establishing the most basic requirement, i.e., the existence of an
agreement had not been met in the present case.
In the Competition Act, 2002, the term agreement has been defined under section 2 (b) as
follows:
"agreement" includes any arrangement or understanding or action in concert,
(i) whether or not, such arrangement, understanding or action is formal or in writing; or
(ii) whether or not such arrangement, understanding or action is intended to be enforceable by
legal proceedings.
17

MEMORIAL ON BEHALF OF APPELLANT


A plain reading of the facts at hand would show that neither clause of the above definition is
satisfied as there was no proof of the existence of any arrangement, understanding or action in
concert to conclusively establish the presence of an agreement. The report of DG is based upon
surmises and conjectures and ought to be rejected.
Not only has the DG failed to produce any direct evidence suggesting that the appellants entered
into any illegal agreement, but has also committed a fundamental error in failing to establish the
timeframe in which the alleged anti-competitive agreement operated. This shows arbitrariness on
the part of the DG.
The finding of cartelization can result in very serious penal, commercial and reputational
consequences and when such harsh penal consequences are provided, the degree of proof
applicable should be stringent and beyond all reasonable doubt. Mere suspicion of collusive
behavior, or of a "tacit agreement", or "collusive price leadership" cannot be the basis for talking
steps under Section 3 of the Act. The Appellants contend that their conduct was guided by the
market forces and any direction to stop intelligently responding to the market conditions would
have been counterproductive keeping in mind established business practices.
It has to be noted that in actions undertaken under the ambit of anti-competitive agreements it is
needed that the plaintiff must prove injury, which is connected to an antitrust action which is
protected by the relevant statute.1 No other players in the market have complained of any losses
caused to them due to the appellants conduct. In Atlantic Richfield Company v USA Petroleum
Company,2 where the court observed that private plaintiff may not recover damages under
Clayton Act merely by showing injury casually linked to illegal presence in market; instead,
plaintiff must prove existence of antitrust injury which is to say injury of type anti-trust laws
intended to prevent and that flows from that which makes defendants acts unlawful.
An agreement or understanding under Section 3 read with Section 2 (b) is the sine-qua-non for
initiating action or even for requiring cause to be shown before taking action. In order to buttress

1
2

COMPETITION LAW IN INDIA, Abir Roy and Jayant Kumar,1st Edition, Eastern Law House, 2008.
495 US 328 (1990).

18

MEMORIAL ON BEHALF OF APPELLANT


its point on the issue, the appellants have also relied on the cases of Consumer Online
Foundation v Tata sky3 and Neeraj Malhotra v Deutsche Post Bank & Ors. 4 decided by the CCI.
In ITC Ltd v MRTP Commission24, it was held that three essential factors have to be identified to
establish the existence of a cartel, namely agreement by way of concerted action suggesting
conspiracy, the fixing of prices, and the intent to gain a monopoly or restrict/eliminate
competition. The first element itself was missing in this case, thus there was no need to proceed
with the investigation. It is settled law that in the absence of an agreement being conclusively
established based on the facts of the case, the question of inferring an anticompetitive practice
within the meaning of section 3 of the Act does not arise. Therefore, the CCA erred in relying
upon an erroneous DG Report which was inconclusive on the existence of an agreement; no
question arises with respect to the said agreement being anti-competitive.
Even if we accept the existence of an agreement, the prohibition that has been imposed is on
anti-competitive agreements. Relevant portions of section 3 read as follows:
3. (1) No enterprise or association of enterprises or person or association of persons shall
enter into any agreement in respect of production, supply, distribution, storage, acquisition or
control of goods or provision of services, which causes or is likely to cause an appreciable
adverse effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in subsection (1)
shall be void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or
associations of persons or between any person and enterprise or practice carried on, or decision
taken by, any association of enterprises or association of persons, including cartels, engaged in
identical or similar trade of goods or provision of services, which
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development,
investment or provision of services;
3
4

Case No. 2/2009; dated March 24, 2011.


[2011] 102 CLA 181.

19

MEMORIAL ON BEHALF OF APPELLANT


(c) shares the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the market
or any other similar way;...
...shall be presumed to have an appreciable adverse effect on competition.
Neither of the above subsections has adequately been satisfied to prove the existence of a
horizontal agreement resulting in price fixing or controlling production or supply.
B. There is inadequate evidence to conclude the existence of collusive price

fixing or territorial allocation.


The Appellants contend that cartelization is a serious allegation and it is tantamount to gross
injustice to impute the same against any person or association on surmises and conjectures alone.
There was insufficient evidence, both direct and circumstantial, to implicate the appellants in the
present case.
In the absence of any direct evidence imputing the existence of any anti-competitive agreement,
reliance was placed by the CCI on indirect economic evidence and circumstantial evidence to
prove meeting of minds via coordinated activity. It is well-settled that when a case rests on
circumstantial evidence, one of the most important tests such evidence must satisfy is that the
circumstances, taken cumulatively, should form a chain so complete that there is no escape from
the conclusion sought to be established. 5 This burden has not been adequately discharged by the
CCI in the impugned order.
Even if it is conceded for the sake of argument that indirect economic evidence can be admitted
for the purpose of speculating the existence of an agreement, it is indisputable that such evidence
must be unimpeachable. In the present case, even the indirect economic evidence produced by
the DG was highly vague and suffered from numerous infirmities. The Appellants contend that
their conduct was guided by the market forces and any direction to stop intelligently responding
to the market conditions would have been counterproductive keeping in mind established
business practices.

S.D. Soni v. State of Gujarat, AIR 1991 SC 917

20

MEMORIAL ON BEHALF OF APPELLANT


It has also been contended that only information pertaining to price points, market factors and
technology were exchanged for general welfare and improvement of technique and quality of
production, while each manufacturer had the liberty of independently choosing the product price.
There was no form of horizontal pricing arrangement or re-sale price maintenance imposed by
MEOA members on any of their distributors, which directly or indirectly determined prices. In
Maple Flooring Manufacturers Association v United States 6it was observed that trade
associations or combinations of individuals or corporations, which, as in this case, openly and
fairly gather and disseminate information as to the cost of their product, the actual prices it has
brought in past transactions, stocks on hand, and approximate cost of transportation from the
principal point of shipment to points of consumption, and meet and discuss such statistics
without reaching or attempting to reach any agreement or concerted action respecting prices,
production, or the restraining of competition, do not thereby engage in an unlawful restraint of
commerce.
When the judgment in Theatre Enterprises v paramount Film Distribution7 had given a jolt to
American antitrust jurisprudence in declaring in most unambiguous terms that even conscious
parallelism would not be enough to prove the case, the focus was shifted on what the something
more should be. 8 The court required plaintiffs who relied on parallel conduct to introduce
additional facts, often termed plus factors to justify an inference of agreement.
The decisions following the Theatre Enterprise ruling have considered various plus factors to
eliminate and distinguish the cases which alleged involved in parallel or concerted action. In
First National Bank of Arizona v. Cities Service Co.,9 the court introduced motive to conspire
and contrary to self interest factors. Cases have been asked whether defendants had a rational
motive to engage in a conspiracy. Further, other decisions considered whether the disputed
conduct would have contradicted the defendants self interest if pursued unilaterally.

268 U.S. 563 (1925)


346 U.S. 537 (1954).
8
Murtuza Bohra, Research Paper on The Increasing Role of Economic Evidences in Prosecution of Cartels.
Available at <http://cci.gov.in/images/media/ResearchReports/MURTUZAIntn240211.pdf>
9
391 US 253 (1968).
7

21

MEMORIAL ON BEHALF OF APPELLANT


In one of the earliest enquiries of the alleged conspiratorial cartelisation, Alkali & Chemical
Corporation of India Ltd. and Bayer (India) Ltd.10 were engaged in the manufacture and sale of
rubber chemicals and among themselves commanded a dominant share of around 75%-82% of
the total market in the product. They were charged with making identical increase in prices on
five to six occasions on or around same dates. There was, however, no direct evidence of the
existence of concert behind the rapid increase in the price. While dismissing the charges leveled
against the respondents, the MRTP commission observed that in the absence of any direct
evidence of cartel, and the circumstantial evidence no going beyond price parallelism, without
there being even a shred of evidence in proof of any plus factor to bolster the circumstances on
price parallelism, we find it unsafe to conclude that respondents indulged in any cartel for
raising the prices. The Commission held that there was no price collusion since DG (IR) failed
to provide circumstantial evidences beyond price parallelism. The crux to be seen from here is
that some additional factors or circumstances in the direction of concerted activity should be
proved to distinguish between price parallelism and tacit collusion. The Commission held that
like price parallelism, price leadership too is a common feature of an oligopolistic market and
cannot be considered as concerted effort. Unless and until something more than mere similarly of
price movements is produced, a cartel can in no case be established.
Further, the MEOA members did not have monopolization over or full control of the market
because of existence of fierce competition and availability of various options of imported
essential oils for buyers to consider. Therefore, by this arrangement, the MEOA members cannot
either ways threaten to limit production or control price, to their long term benefit.
It was also contended that the act of geographical division was not to suppress competition or
effect output, but instead to achieve more streamlined production and as a result increased
output, quick and easy delivery to buyers of a particular region at competitive prices. This did
not suppress competition but improved output. It was wrongful on part of CCI to presumption
that such an arrangement will cause any appreciable adverse effect on the competition.
Preamble to the Competition Act states- An Act to provide, keeping in view of the economic
development of the country, for the establishment of a Commission to prevent practices having

10

RTPE No. 21 of 1981; Order dated July 3, 1984.

22

MEMORIAL ON BEHALF OF APPELLANT


adverse effect on competition, to promote and sustain competition in markets, to protect the
interests of consumers and to ensure freedom of trade carried on by other participants in
markets, in India, and for matters connected therewith or incidental thereto.
On a bare perusal of above it can be construed that while deciding a case on ant-competitive
behaviour, the Commission needs to keep in view the economic development of the country.
Also, Commission is obliged to protect the interests of consumers. Facts of the case clearly
points out that the geographical division was done when there was a period of rescission and the
essential oil companies were suffering losses. It was better for a customer of a particular area to
purchase essential oil from the manufacturer to whom that area is assigned. In White Motor Corp
v United States White Motor Corp. Contended that In the instant case, it is both reasonable and
necessary that the distributors (except for sales to approved dealers) and direct dealers and
dealers be limited to selling to the purchasing public, in order that they may be compelled to
develop properly the full potential of sales of White trucks in their respective territories, and to
assure The White Motor Company that the persons selling White trucks to the purchasing public
shall be fair and honest, to the end of increasing and perpetuating sales of White trucks in
competition with other makes of trucks... US Supreme Court held that the limitations on the
classes of customers to whom distributors or dealers may sell White trucks are not only not
illegal per se, as the plaintiff must prove to succeed on its motion for summary judgment, but
these limitations have proper purposes and effects and are fair and reasonable, and not violative
of the antitrust laws as being in unreasonable restraint of competition or trade and commerce.
Further, the boycott practice conducted by MEOA was never complained by any customer
because of the steeper discounts provided to them. Also, they were having an opportunity to buy
essential oil from foreign manufacturers which is more or less equivalent in the prices after the
occurrence of steep reduction in tariff imports in tune with the GATT commitments. Therefore,
in absence of any real harm to the customers it does not attract section 3 of the Act.

23

MEMORIAL ON BEHALF OF APPELLANT


C. Mere formation of MEOA is insufficient to conclude the existence of a

cartel.
The term cartel is defined under section 2(c) 11 as:
"cartel" includes an association of producers, sellers, distributors, traders or service providers
who, by agreement amongst themselves, limit, control or attempt to control the production,
distribution, sale or price of, or, trade in goods or provision of services
A simple reading of the above definition with the facts of this case would show that there is
nothing to adduce the existence of any agreement for controlling or attempting to control
conditions of sale or prices of essential oil by the members. The basic objective of MEOA is to
promote the common interest of its members. It is fact that the manufacturers of essential oils in
India were having turbulent times and were losing a large chunk of market share to imported
essential oil, soon after India reduced the steep import tariffs on such imported essential oil, in
keeping with its GATT commitments. The competition got very fierce and many manufacturers
in India had to close down their business establishments. Also, this would vastly help in
improving the outlook of buyers towards essential oils produced in India and help regain lost
market share and on a macro-picture, also help the countrys internal economic policies by
ensuring that it is not depending excessively on foreign suppliers for such essential items.
Further, it is a fundamental right 12 of an industry to constitute an association whether they are
traders, manufacturers, retailers, residents, shopkeepers etc. It is an accepted fact that the
associations play a positive role in development of the society and, have collective bargain
power to take up issues concerning its members with government or other authorities. The mere
fact that Petrol Companies formed an association does not imply that the said association was
formed to indulge in any activity which is against the law.
It is also evident that the appellants are not the only players in market. The customers still have
option to purchase essential oils from other players in the market. Further, after the Lotus India
has left the membership of MEOA and it terminated the license agreement, it became the sole
owner of the patented technology. Also, it was already a big manufacturer of essential oils and
11
12

Competition Act, 2002.


Article 19 (1) (c) - The Constitution of India.

24

MEMORIAL ON BEHALF OF APPELLANT


has the ability to drive the customers in its favor. Reliance has to be placed on the fact that it
offered steeper discounts thereby encouraging the buyers to move from their current seller (being
a member of the MEOA) to buying from Lotus India. Thus it has abused its dominant position
attracts the bar under section 4 of the Competition Act. Relevant portion of section 4 is
reproduced below4. [(1)No enterprise or group] shall abuse its dominant position.]
(2) There shall be an abuse of dominant position 4[under sub-section (1), if an enterprise or a
group].(b) limits or restricts
(i) production of goods or provision of services or market therefor; or
(ii) technical or scientific development relating to goods or services to the prejudice of
consumers; or....
On comparison of the above provision with the facts it becomes clear that Lotus India has abused
its dominant position by limiting the access to the latest technology which is prejudicial to the
consumer benefit. Explanation (a) to the section 4 provides that
(a) "dominant position" means a position of strength, enjoyed by an enterprise, in the relevant
market, in India, which enables it to
(i) operate independently of competitive forces prevailing in the relevant market; or
(ii) affect its competitors or consumers or the relevant market in its favour.
It is evident from the facts that Lotus India is a big manufacturer of essential oils and has access
to the latest technology which will drive the consumers in its favour, thus having a dominant
position.

25

MEMORIAL ON BEHALF OF APPELLANT

2. THE CASE REQUIRES


ACT, 2002

AND

TO BE

THE CCI

TESTED UNDER SECTION 19


AND

OF

COMPETITION

APPELLATE COMMISSION EXERCISED

JURISDICTION IMPROPERLY.

Appellant submits that this case requires to be tested under Section 19 of the Competition Act
and therefore the Commission an Appellate Tribunal has improperly exercised their jurisdiction.
An important comment that needs to be made about horizontal agreements is that there may be
circumstances in which competitors cooperate with one another in a way that delivers economic
benefits, not just for themselves but for consumers as well. Hard core cartels are always bad for
consumers welfare, but other horizontal agreements- for example between pharmaceutical
companies to combine their research and development efforts in order to develop new and better
drugs, or between two small or medium sized businesses to produce products on a joint basis,
thereby achieving economies of scale- may be beneficial. 13 The OECDs 1998 Recommendation
stated that the definition of hardcore cartel does not include agreements, concerted practices, or
arrangements that...are reasonably related to the lawful realization of cost-reducing or output
enhancing efficiencies.
This would be the case where an agreement contributes to an improvement in the production or
distribution of goods or in technical or economic progress, provided that various conditions- that
consumer get a fair share of the resulting benefit, that the agreement does not contain any
restrictions that are dispensable, and that the agreement does not substantially eliminate
competition- are satisfied. 14 Therefore, it is proper for the Competition authorities to test the case
under section 19 of the Act on account of lack of evidence of any horizontal agreement formed
herein. It can construed from the language of the section 3 as discussed above that there is a
presumption with regard to cartels that there is an appreciable adverse effects on competition
provided an agreement to that effect is proved. Such an agreement must be proved beyond all
13

Richard Whish, CONTROL OF CARTELS AND OTHER ANTI COMPETITIVE AGREEMENTS, Vinod Dhall, Competition Law
Today, Oxford University Press.
14
Ibid.

26

MEMORIAL ON BEHALF OF APPELLANT


reasonable doubts through direct or circumstantial evidence. Since CCI has failed to do so, it
would be prejudicial to presume appreciable adverse effect on competition, without going on in
detailed analysis under section 19.

3. LOTUS INDIA CANNOT


OR

BE

OFFERED FULL IMMUNITY AGAINST PUNISHMENT

PENALTY SINCE IT IS ONE OF THE BIGGEST MANUFACTURERS OF ESSENTIAL

OILS AND WAS AN IMPORTANT MEMBER OF THE MEOA.


It is humbly submitted that it is not justifiable to give full immunity to Lotus India as it was one
of the biggest manufacturers and essential member of MEOA. Lotus India was part of MEOA
since it was first formed and only broke the contract in 2011. It used its membership with MEOA
to grow and broke off the agreement prematurely when it stopped suiting its convenience.
The non compete agreement was broken by Lotus India after it followed its terms from 2008 to
2011. Lotus India suffered loss of membership from MEOA but Lotus India was comparatively
unaffected by it, because it had sufficient technology and production capacity to ensure unabated
supply and also ensured to have buyers on account of offering steeper discounts. Lotus was
successful in offering lesser price to its customers15. Hence, it is humbly submitted that Lotus
India, was a willing and significant member of MEOA and therefore cannot be granted complete
immunity.
The Lesser Penalty Regulations 2009 16 provide that the Competition Commission has the
discretion to give lesser penalty up to one hundred percent if certain conditions are satisfied.
Thus the minimum principle of natural justice should be considered with respect to the
Appellants case. The MEOA meetings benefitted the members and they continued to share
information pertaining to market conditions, pricing, technological improvements and
opportunities to supply to foreign markets, within the four corners of law 17.
The Section 46 of The Competition Act, 2002 provides that:

15

Fact sheet 9
The Competition Commission of India (Lesser Penalty) Regulations, 2009, No.L-3(4)/Reg-L.P./2009-10/CCI
17
Fact sheet 7
16

27

MEMORIAL ON BEHALF OF APPELLANT


The Commission may, if it is satisfied that any producer, seller, distributor, trader or service
provider included in any cartel, which is alleged to have violated section 3, has made a full and
true disclosure in resp ct of the alleged violations and such disclosure is vital, impose upon such
producer, seller, distributor, trader or service provider a lesser penalty as it may deem fit, than
leviable under this Act or the rules or the regulations: Provided that lesser penalty shall not be
imposed by the Commission in cases where proceedings for the violation of any of the provisions
of this Act or the rules or the regulations have been instituted or any investigation has been
directed to be made under section 26 before making of such disclosure: Provided further that
lesser penalty shall be imposed by the Commission only in respect of a producer, seller,
distributor, trader or service provider included in the cartel, who first made the full, true and
vital disclosures under this section: Provided also that the Commission may, if it is satisfied that
such producer, seller, distributor, trader or service provider included in the cartel had in the
course of proceedings,(a) not complied with the condition on which the lesser penalty was imposed by the Commission;
or
(b) had given false evidence; or
(c) the disclosure made is not vital, and thereupon such producer, seller, distributor, trader or
service provider may be tried for the offence with respect to which the lesser penalty was
imposed and shall also be liable to the imposition of penalty to which such person has been
liable, had lesser penalty not been imposed.
It is humbly submitted that there is no violation of Section 3 and that MEOA is not a Cartel. The
Lesser Penalty Provision stands only in the event of a Cartel agreement and in its absence it
cannot be applied.
The real and primary breach has been on part of Lotus India and granting Lesser Penalty up to
hundred percent would be like awarding the Lotus India for breaking a valid agreement. Section
46(c) provides that in case the information provided is not vital the informer may be tried for the
offence with respect to which the lesser penalty was imposed and shall also be liable to the
imposition of penalty to which such person has been liable, had lesser penalty not been imposed.

28

MEMORIAL ON BEHALF OF APPELLANT


Lotus India has made false allegations against MEOA and is trying to benefit from its own
wrongs. It is humbly submitted that as the information provided by Lotus India was incorrect and
false, it should be penalized for the same.
It is against the basic principles of our Constitution that guarantees equality before law and equal
protection of law to grant lesser penalty up to one hundred when Lotus India has been such a
significant part of MEOA for so many years. It is humbly submitted that granting Lesser Penalty
to Lotus India would not only be violative of Section 46 but would also amount to injustice to the
other members of MEOA who sincerely worked hard and suffered a loss of profit suffered on
account of violation of the non-compete agreement by Lotus India.

4. LOTUS INDIA HAS ACTED IN VIOLATION OF THE NON-COMPETE AGREEMENT.


It is humbly submitted that Lotus India has violated the non-compete agreement which was
signed by the all the members of MEOA with each other. The non-compete agreement was
signed by the members of MEOA as it was in everyones interest. This agreement helped the
essential oil manufacturers avoid any losses by planning production output, production costs etc.
in line with the amount required to be supplied in their relevant geographical territory. This was
a reasonable restraint and one that was made keeping in mind the interests of members.
The object of the agreement was not unlawful as it was held the if the intention is merely to
regulate an act by prescribing certain terms and conditions and formalities, a contract to do the
act without fulfilling the statutory requirements may not itself be void.18
The MEOA meetings benefitted the members and they continued to share information pertaining
to market conditions, pricing, technological improvements and opportunities to supply to foreign
markets, within the four corners of law 19. The arrangement of the non-compete agreement was
not unlawful. The object of the agreement streamlined production and the members agreed to not
compete in each others territories for a joint advantage. This arrangement considerably helped
the essential oil manufacturers avoid any losses by planning production output and production
18
19

See, for example, Amritsar Rayon & Silk Mills Ltd v. Amin Chand Sajdeh, (1987)
Fact sheet 7

29

MEMORIAL ON BEHALF OF APPELLANT


costs in line with the amount required to be supplied in their relevant geographical territory.
Lotus India consciously flouted the terms agreed to it under the non-competition agreement with
the other members and proceeded to selling and supplying its product to buyers across the
country against the non-compete agreement.
Thus it is humbly submitted that there was an infraction on part of Lotus India and should be
liable for the same. It is interesting to note that Lotus India complied with the Non Compete
Agreement for three years i.e. from 2008 to 2011. Later, it decided it was no more convenient
and consciously decided to flout the terms agreed to it under the non-competition agreement with
the other members and proceed to selling and supplying its product to buyers across the country.
The Supreme Court of India in Niranjan Shankar Golikari v. The Century Spinning and
Manufacturing Company Ltd.20 observed that restraints or negative covenants in the
appointment or contract may be valid if they are reasonable. The court held that a person may be
restrained from carrying on his trade by reason of an agreement voluntarily entered into by him
with that object. In such a case the general principle of freedom of trade must be applied with
due regard to the principle that public policy requires the utmost freedom to the competent
parties to enter into a contract. Where an agreement is challenged on the ground of its being in
restraint of trade, the onus is upon the party supporting the contract to show that the restraint is
reasonably necessary to protect his interests. Once, this onus is discharged by him, the onus of
showing that the restrain is nevertheless injurious to the public is upon the party attacking the
contract.
It is humbly submitted that in the present case the restraint placed by the non compete agreement
was one which was reasonable as it was made keeping in mind the best interests of all the
members of the association. The members agreed to this agreement and in fact were saved from
losses from the recession. For the acceptance of the non-compete agreement in the factual
situation it should been professed with certain reliant factors like duration, period,
reasonableness, nature of industry etc. given the commercial necessity of incorporating a
reasonableness inquiry.

20

1967 AIR 1098, 1967 SCR (2)378

30

MEMORIAL ON BEHALF OF APPELLANT


Supreme Court of India in Percept D' Mark (India) Pvt. Ltd v Zaheer Khan 21 observed that
under Section 27 of the Act a restrictive covenant extending beyond the term of the contract is
void and not enforceable. The court also noted that the doctrine of "restraint of trade" is not
confined to contracts of employment only, but is also applicable to all other contracts with
respect to obligations after the contractual relationship is terminated.
It is humbly submitted that this judgment clearly says that a restrictive covenant would not be
enforceable after the term of the contract has expired. However, in the present case the
agreement was still subsisting when Lotus India flouted its terms.
In the case of Gujarat Bottling Co. Ltd. and others v. Coca Cola Co. and others 22, an
agreement for grant of franchise by Coca Cola to Gujarat Bottling Company to manufacture,
bottle, sell and distribute beverages under trademarks held by the franchisor contained the
negative stipulation restraining the franchisee to manufacture, bottle, sell, deal or otherwise be
concerned with the products, beverages of any other brands, or trademarks/ trade names during
subsistence of this agreement including the period of one years notice. It was held that the
negative stipulation was intended to promote the trade. Moreover, operation of the stipulation
was confined only to subsistence of the agreement and not after termination thereof. Hence,
stipulation could not be regarded as in restraint of trade.
It is humbly submitted that in the present case also, the non-compete agreement was in intended
to promote trade for the members of the association and in fact, it did help the members to avoid
the losses.
It is humbly submitted before this Honble Court that the object of the Non Compete Agreement
was to prevent losses due to recession in which it was successful. The object or consideration
was not unlawful as they were done with everyones consent in everyones interest. Hence, the
agreement is not in violation of Section 23 of The Indian Contract Act, 1872.

21
22

AIR 2006 SC 3426


AIR 1995 SC 2372.

31

MEMORIAL ON BEHALF OF APPELLANT


A person may be restrained from carrying on his trade by reason of an agreement voluntarily
entered into by him with that object 23. Hence, the agreement cannot be said to be in violation of
Section 27 of The Indian Contract Act, 1872.

5. LOTUS INDIA IS NOT ENTITLED TO UNILATERALLY TERMINATE THE LICENSE

AGREEMENT
REQUIRED

AND IS
TO

ALSO NOT ENTITLED

COMPULSORY LICENSE

TO

DAMAGES

THE

AND

LOTUS INDIA

TECHNOLOGY

TO

IS

OTHERS

MANUFACTURERS.
A. Lotus India is not entitled to unilaterally terminate the License Agreement.
It is humbly submitted that Lotus India is not entitled to unilaterally terminate the license
agreement signed by the manufacturers of essential oils who identified or patented new
technology to license the technology for a royalty, which was decided by MEOA. The agreement
was signed by Lotus India with full knowledge and consent and therefore terminating the same
agreement before the completion of the contract is a breach of contract wherein contractual
principles have been condoned by the Respondents. This was done in the interest of the patent
holders for an adequate royalty and at same time keeping with the basic premise of
evenhandedness so that the members have access to new technology. The MEOA agreements
and deliberations24 were constituted because of the prevailing situation in order to protect the
share in Indian market and fend off foreign competition, it was important for them to have best
technology and production process, and quality control, be abreast of prevalent market
conditions and for such purpose form a collective arrangement to share information among
themselves. The principles of Section 27 of the Contract Act, 1872 were aptly summarized by
this Honble Court in landmark judgment of Percept DMark (India) Pvt. Ltd vs. Zaheer Khan25
in which the Supreme Court observed that under Section 27 of the Act a restrictive covenant

23

Niranjan Shankar Golikari vs. The Century Spinning and Manufacturing Company Ltd. 1967 AIR 1098, 1967
SCR (2)378
24
Fact sheet 3.
25
AIR 2006 SC 3426.

32

MEMORIAL ON BEHALF OF APPELLANT


extending beyond the term of the contract is void and not enforceable. However Lotus India
consciously flouting of the agreement should be held liable for breach of contract under the act.

B. MEOA is not entitled to Damages for breach of the Agreement and the
Loss of Profits.
The scope of section 27 include a combined test of reasonableness and restraint, conditioned of
course, by commercial realities and trends, which would render some clauses more suspect than
others. It is humbly submitted that the determination whether an agreement unreasonably
restrains the trade depends on the nature of the agreement and on the surrounding circumstances
that give rise to an inference that the parties intended to restrain the trade and monopolize the
same. In the general course of business in order to carry on business a license is required, any
refusal to give license or cancellation or revocation of license would affect the business as it
cannot be carried on without the license which would also affect the livelihood of the person.
The Supreme Court of the United States in Business Electronics Corp. vs. Sharp Electronics
Corp.26 observed that the term restraint of trade in the Sherman Act and in Common law, does
not refer to a particular lists of agreements, but to a particular economic conditions and
consequences, which may be produced by quite different sorts of agreements in varying times
and circumstances. Thus the minimum principle of natural justice should be considered with
respect to the Appellants case.

The MEOA meetings benefitted the members and they

continued to share information pertaining to market conditions, pricing, technological


improvements and opportunities to supply to foreign markets, within the four corners of law 27.
The arrangement of the non-compete agreement was not unlawful. The object of the agreement
streamlined production and the members agreed to not compete in each others territories for a
joint advantage. In case of non-compete agreements, due to the nature of the interests protected,
the test of reasonableness is a very dominant 28
This arrangement considerably helped the essential oil manufacturers avoid any losses by
planning production output and production costs in line with the amount required to be supplied

26

485 US 717
Fact sheet 7
28
Perceptron, Inc. v. Sensor Adaptive Machines, Inc., 221 F.3d 913, 2000-2 Trade Cas. (CCH) 72975, 2000 FED
App. 247P (6th Cir. 2000)
27

33

MEMORIAL ON BEHALF OF APPELLANT


in their relevant geographical territory. Lotus India consciously flouted the terms agreed to it
under the non-competition agreement with the other members and proceeded to selling and
supplying its product to buyers across the country. It is humbly submitted that such a breach of
contract is not just unfavorable for the other manufacturers but also adverse for the society. Thus
it is humbly submitted that there was an infraction on part of Lotus India and should be liable for
the same.
It is humbly submitted that MEOA introduced a slew of reforms with an efficient marketing
strategy reinvigorating the supply of essential oil by Indian manufacturers accounted for nearly
85% of all essential oils sold and sourced in India.

The MEOA members did not have

monopolization over or full control of the market because of existence of fierce competition and
availability of various options of imported essential oils for buyers to consider. Therefore, by this
arrangement, the MEOA members cannot either ways threaten to limit production or control
price, to their long term benefit. It is of great suspicion that Lotus India after reviving from the
period of recession in 2008 to becoming one of the biggest manufacturers and suppliers of
essential oil, holding various technology patents decided to flout the terms of contract in the year
2011. Lotus India being a part of the MEOA and its agreements which have been in the general
welfare, prematurely terminated the license agreement to ensure lesser competition and in order
to deny access to patented technology of Lotus India. It is adumbrated that Lotus India now
being the only one with access to the latest technology of production by terminating the licenses,
could be a single player having full and unbridled control over the essential oil market, which
may threaten exercise of greater market control, output fixing and abuse of its dominant position,
which is prohibited under Section 4 of Competition Act, 200229. It is humbly submitted that
MEOA is rightfully entitled to damages for the loss of profits because of the termination of
license agreement and practices of anti-competitive nature to ensure lesser competition by Lotus
India30.

29
30

Fact Sheet 15
Fact Sheet 8

34

MEMORIAL ON BEHALF OF APPELLANT

C. Lotus India is required to Compulsorily License the technology to other


Manufacturer.
Patent are not merely granted to enable patentee to enjoy a monopoly for the importation of the
patented articles.31 An obligation is, therefore, imposed on a patentee to work the patent in India
on the commercial scale to the fullest extent. The patent may be worked by the patentee himself
or through licensees. Failure to fulfill this obligation will entail in the granting of compulsory
license or the revocation of patent itself. 32 Section 82 to 94 deal with the circumstances and the
ground under which the compulsory license may be granted. 33 The object of these elaborate
provision is to prevent the abuse of monopoly granted by the patent.34 By these provisions in
conjunction with the provision relating to use of invention for the purpose of Government 35
patent monopolies will be made to subserve national interest and will cease to be a handicap to
industrial progress.36
The agreement signed by the members of the MEOA by controlling the patented technologies
and granting patents to only the members is not causing appreciable adverse effect on the market.
Patents are granted to encourage innovation and not cast monopoly status over the relevant
market37 by exclusive supply; the same has been provided u/s 83 38 and Lotus India has violated
the terms by uni laterally terminating the license agreement. Lotus India by terminating the
license agreement and thereby lowering the cost is trying to create the monopoly over the
market.
Essential oils though are primarily used in the manufacture of perfumes, room fresheners,
cosmetic product and soaps is not essential commodity under The Essential Commodities Act,
1955.

31

See ss. 83 and 94. For parallel provision see s. 39(1) of the U.K. Act of 1949; and s. 23C of the Indian Act of 1911.
Section 27(2)(proviso) of the U.K. Act of 1907 contained a somewhat similar provision.
32
PATENT LAW. P. NARAYANAN, 4th Edition, Eastern Law House, pg. 316.
33
For parallel provisions see ss. 37-45 of the U.K. Act of 1949 and ss. 44-45 of the U.K. Patents Act 1977.
34
The words abuse of monopoly are not used in the present act or in the act of U.K. act of 1949 or in the Indian
act of 1911. But the expression was used in s.7 of the U.K. Act of 1907.
35
See ss. 99-103.
36
Ayyangars Report, 172, page 73.
37
Section 2(r) of The Competition Act, 2002.
38
The Patents Act, 1970.

35

MEMORIAL ON BEHALF OF APPELLANT


However it is well established that Essential Oils, owing to their medicinal properties, play a
significant role in the pharmaceutical industry as well. These oils produce specific
pharmacological effects through skin absorption and inhalation that medicinally benefits physical
and psychological health and overall well being. Section 3(b)(i) 39 defines drugs as:all medicines for internal or external use of human beings or animals and all substances
intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or
disorder in human beings or animals, including preparations applied on human body for the
purpose of repelling insects like mosquitoes;
Thus essential oils are covered within the definition of drugs and drug is an Essential
Commodity under section 2(a)(iva). Hence it is humbly submitted that essential oil is an essential
commodity under The Essential Commodities Act, 1955.

C.1 STATUTORY REMEDIES FOR ABUSE OF PATENT RIGHTS.


The remedies adopted under the present act against abuse of patent rights consist in defining the
purpose of patent grants and providing for a system of compulsory licensing by the controller
under specified circumstances and revocation of the patent for non- working. Patentees
sometimes makes their patent rights an instrument of monopoly wider in scope or longer in
duration than that afforded under the patent by the statute. Section 140 and 141 are designed to
remedy this evil to some extent.40

39
40

The Drugs and Cosmetic Act, 1940.


See Ayyangars Report, s 823-829.

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MEMORIAL ON BEHALF OF APPELLANT

PRAYER
Wherefore, may it please this Honourable Court, in the light of facts and circumstances of the
case, issues raised, arguments advanced and authorities cited, the Respondent prays that this
Honourable Tribunal may be pleased to adjudge and determine the following:

That the arrangement is not a Cartel Arrangement and hence not violative of Section 3 of
The Competition Act, 2002.

That the case requires to be tested under section 19 of The Competition Act, 2002 and the
CCI and Appellate Tribunal Exercised jurisdiction improperly.

That Lotus India cannot be offered full immunity against Punishment or Penalty.

That Lotus India has acted in violation of the non-compete agreement.

That Lotus India is not entitled to unilaterally terminate the license agreement and also it
should not be entitled to damages from other manufacturers for unautho rised use of its
technology and Lotus India be required to compulsorily license the technology to other
manufacturers.

All of which is most respectfully prayed and humbly submitted.

(Signed)
Counsels for Respondent

Date:

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