Does Ordinance Result In Consumer Protection

By Qaiser Javed Mian (Director Research/Faculty member Punjab Judicial Academy)

There can be “prohibited” anti-competitive behaviour and there can be “permitted” anti-competitive behaviour. In U.SA, what is called Anti-Trust Law, in other Countries, it is called and/or Anti- Law and/or Consumer Protection Law.1 According to Philip Areeda, U.S. Anti-Trust Law, “…contains a basic distinction between concerted and “independent” action”2, which in other words refers to distinction between “single – firm” and “multi-firm” conduct in the context of “encouraging competition”, and save the “businesses” and/or “consumers”. Antitrust law seeks fair competition on the belief that “free trade” benefits not only the consumer, but also the economy and business. The restraints imposed by this law can be divided into four categories: (i) agreements between competitors (ii) contractual arrangements between sellers and buyers (iii) creating and maintaining of monopoly power, and (iv) mergers. While U.S.A has “The Sherman Antitrust Act” (1890)” named for Senator Johan Sherman as a first measure passed by the U.S. Congress to “regulate interstate commerce” as well, Clayton Act, 1914) and “Robinson Patman Act (1936)”, Pakistan had “ And Restrictive Trade Practices (Control And Prevention) Ordinance, (V of 1970)”, Competition Ordinance (LII of 2007)” as amended from time to time and “The Punjab Consumer Protection Act (Pb. Act II of 2005)” while the other Provinces have not yet started applying Consumer Protection Law. India promulgated “The Consumer Protection Act, 1986” and Rules 1987 which includes “goods” as well as “services”. The present exercise is aimed at comparative study of the aforesaid laws with particular reference to U.S.A., European Union, India and Pakistan. The Sherman Antitrust Act (1890)3 It is interesting to note that the Sherman Act does not restrain or condemn monopoly per se, but it condemns the monopoly which has been obtained and kept through prohibited conduct of business. One obvious example of

1 The Term “antitrust” originated from the process of combating “business trusts” which used to create monopoly or unequal bargaining power presently called “”. Such laws deal with, inter alia, illegal monopoly, unfair business practices such as, but not limited to, cartels, hoarding, undue financial & stock controls, malafide connivance etc. European Union has provisions under the Treaty of Rome while Australia deals with it under “Trade Practices Act, 1974”. 2 P. Areeda, Antitrust Law, 1436 (1986). 3 The other U.S Laws on the subject are, FTC ACT; Hart – Scott-Rodino Act; ; Essential facilities doctrine. Noerr – Pennington doctrine; . anticompetitive conduct is overt which falls under per se category of conduct detrimental to competition requiring detailed analysis. The most important principle of prohibited conduct, in this context, is that the method(s) of 4 business are not aimed at making consumers the sufferers. Whether as a “single- firm” or “multi-firm”,5 the “conduct” can be anti competition per se or can be so proved after analysis. It is very important to note that, Monopoly Power alone without anti competition conduct, is not unlawful. Rather, Mr. Learned Hand stated that, “[t] he successful competitor, having been urged to compete, must not 6 be turned on when he wins.” Therefore, the U.S Law does not prohibit monopoly power through “Superior skill, foresight and industry”7 Under U.S law, the “” is limited to those arrangements or agreements which amount to unreasonable restraint of trade. It has been held by U.S. Court that, “Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is one of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.”8

The following are generally subject to antitrust test:- ● Price fixing ● ● Geographic market allocation ● Fraud of “Patent”9 Consumer Protection Consumer Protection Laws are aimed at regulating, inter-alia, the following subject/topics: ● Minimum standards of product quality. ● Disclosure of certain details of the product and/or service. ● Cost of the product/service. ● Express or Implied Warranty. ● Prohibition of misleading advertisement.

4 th See e.g. “Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 379 (7 Cir. 1986) (Posmer,J.). 5 The single-firm prohibition is contained in “15 U.S.C. Section-2”; and multi-firm prohibition is contained in “15 U.S.C. Sect.1). It prohibits “[e] very contract, combination in the form of Trust or otherwise, or conspiracy, in restraint of trade or commerce”. 6 See e.g. “ v. Aluminum Corp. of America (“Alcoa”), 148 f.2D 416, 430 (1945) (l.Hand, J.) 7 Id. 8 See e.g. Board of Trade of the City of Chicago v. United States, 246 U.S. 231, 244 (1918) (“Chicago Board of Trade”). 9 See e.g. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965).

● Product liability including any possible present or future side after effects. Thus, Consumer Protection Laws are, in certain respects, distinct from Antitrust or Ant Competition Laws. The approach of U.S Supreme Court has shifted since 1970s and is now focused solely on what is best for the consumer rather than the Company’s practices10. The ultimate rationale behind Antitrust, Anti-Competition and/or Anti-monopoly laws is to restrain trade practices amounting to or resulting in or attempting towards direct or indirect , anti-competitive mergers including but not limited to, price discrimination in the sale of commodities, market allocations, quotas and by manufacturers. Unreasonable exclusionary practices and “” is also prohibited.11 Enforcement: In U.S.A., there are both state and federal anti-trust laws and the enforcement of these laws takes three forms:- i. Federal Government via the Department of Justice or can bring civil law suits. The Department of Justice alone may bring criminal antitrust suit. ii. State attorneys, general/law officers may file suits to enforce both state and federal antitrust laws. iii. Private civil suits may be brought in both state and federal courts for damages etc. If it is decided that by monopolizing, the consumer was overcharged $200,000, that amount will automatically tripled, so the injured consumer will receive $600,000.12 There are two federal enforcement agencies in U.S., the Federal Trade Commission (FTC) and the U.S. Department of Justice’s Antitrust Division. Violations of the Sherman Act are felonies carrying fines upto $10 million for and upto $ 35,000 and upto three years prison for individual persons. The U.S Antitrust law kept on developing in the late 1980s and early 1990s. U.S. Supreme Court supported the efforts of Government’s attacked mergers and restraints.13 After the era of Ronald Reagan, antitrust attitudes became more severe in Washington, DC. President George Bush also adopted an activist approach. Under President Clinton, the most important case of Antitrust law was that involving AT & T and IBM. Competitors complained that Microsoft used illegal arrangements with buyers to ensure that its risk

10 See, David Frum, “How we got here: The 70s, New York(2000): Basic Books. P.327. ISBN 0465041957. 11 In “predatory pricing” big enterprises sell their products and services at a loss for a time pushing smaller enterprises out of business. See, “David Frum”, Id. 12 The U.S Supreme Court summarized why Congress authorized private antitrust law suits in the case,”Hawai vs. Co. of Cal., 405 U.S. 251, 262 (1972). 13 See, “ California vs. American Stores Co., 495 U.S.271, 110 S.Ct. 1853, 109 L.Ed.2d 240 (1990). operating system would be installed in nearly 80 percent of the world’s computers. In-depth investigation by the FTC and the Department of Justice followed. In mid- 1994, under threat of a federal lawsuit, Microsoft entered a consent decree designed to increase competitors’ access to the market. All the parties involved i.e. the original complainants, Microsoft , and the government expressed relative satisfaction. But in early 1995, a federal judge rejected the agreement, citing evidence of other monopolistic practices by Microsoft. In a highly unusual move, the Justice Department and Microsoft together appealed the decision. The uncertain future of the case carried the threat of further action against the nation’s fifth-largest industry. Anti competition Law in the U.K. United Kingdom being a member state of the European Union is bound by the consumer protection laws, rules and directives of the European Union. The Anti Competition Law and/or the Consumer Protection Law of the U.K itself developed from the ambit of “contract” and “tort”. Now due to the influence of the European Union, an independent body of law is emerging in this area. The United Kingdom has also a lot to share with the other common wealth countries such as Australia and Newzeland etc. In Australia, there is the Australian Competition And Consumer Commission. In Newzeland, the correspondence agency is the ministry of consumer affairs. The U.K itself has been following the laws given as under:- ● Unfair Contract Terms Act 1977 ● Sale of Goods Act 1979 ● Consumer Protection Act 1987 ● Unfair Terms in Consumer Contracts Regulations 1999 ● Consumer Protection (Distance Selling) Regulations 2000 ● Electronic Commerce Regulations 2002 ● Enterprise Act 2002 ● General Product Safety Regulations 2005

European Union Law In the year 1957, six Western European countries signed the Treaty of Rome, now called the Treaty of the European Community. Over the years, the members of the European Union have become very closely knit and integrated in their business rules and laws and particularly with regard to import and export of goods within the European Union countries and with outside countries. The first provision about the competition law is Article-81EC which reads as follows:- “(1)…all agreements between undertakings, decisions by associations of undertakings and concerned practices which may affect trade between Member States and which have as their object or effect, the prevention, restriction or distortion of competition within the common market…” Article-82, 86 and 87 also regulate the role of the market with regard to goods as well as services. According to Article-81, to subsidize the private parties by the

Government is considered as distortion of competition, however, it does grant exceptions to charities, natural disasters and particular regional development.

INDIAN CONSUMER PROTECTION LAW

Chapter-IV of the Indian Constitution contains the “directive principles” while Chapter-III contains fundamental rights of citizens. Chapter-IV directly directs the State in the matters of concentration of wealth, welfare of consumers vis-à-vis fundamental rights under Chapter-III. From this general mandate, government enacted MRTP ACT, Consumer Protection Act, Competition Act, Company Act and few other Statutes. Prior to these Statutes, there existed different enactments like Code of Civil Procedure (1908), the Indian Contracts Act (1872), the Sale of Goods Act (1930), the Indian Penal Code 91860), the Standards of Weights and Measures Act (1976) and the Motor Vehicle Act, 1988, but very little could be achieved in the area of consumer protection. However, the Monopolies and Restrictive Trade Practices Act, 1969 and the Prevention of Food Adulteration Act, 1954 provided some relief to the consumers. But the fast developing world of goods & services projected through high technical media, all the aforesaid laws proved to be extremely naïve in upholding the principle of consumer sovereignty”. Therefore, the Consumer Protection Act of 1986 was promulgated with the following: (Quote) “STATEMENT OF OBJECTS AND REASONS The Consumer Protection Bill, 1986 seeks to provide for better protection of the interest of consumers and for the purpose, to make provisions for the establishment of Consumer councils and other authorities for the settlement of consumer disputes and for matters connected therewith. 2. It seeks, inter-alia, to promote and protect the rights of consumers such as - a) The right to be protected against marketing of goods which are hazardous to life and property. b) The right to be informed about the quality, quantity, potency, purity, standard and price of goods to protect the consumer against unfair trade practices; c) The right to be assured, wherever possible, access to an authority of goods at competitive prices; d) The right to be heard and to be assured that consumers interest will receive due consideration at appropriative forums; e) The right to seek redressal against unfair trade practices or unscrupulous exploitation of consumers; and f) Right to consumers education. 3. These objects are sought to be promoted and protected by Consumer Protection Council to be established Central and State level, 4. To provide speedy and simple redressal to consumer disputes, quasi- judicial machinery is sought to be set up at the District, State and Central levels. These quasi-judicial bodies will observe the principles of natural justice and have been empowered to give relief of a specific nature and to award, wherever appropriate, compensation to consumers. Penalties for non-compliance of the orders given by quasi-judicial bodies have also been provided.(Unquote)14 PAKISTANI ANTI-MONOPOLY LAW. Pakistan passed “Monopolies and Restrictive Trade Practices (control & Prevention) Ordinance, 1970 (V of 1970) with the Preamble that, “An Ordinance to provide for measures against undue concentration of economic power, growth of unreasonable monopoly power and unreasonably restrictive trade practices.” “Whereas the undue concentration of economic power, growth of unreasonable monopoly power and unreasonably restrictive trade practices are injurious to the economic well- being, growth and development of Pakistan:- And whereas it is expedient to provide for measures against such concentration, growth and practices and for matters connected therewith or incidental thereto;”

This Ordinance, under its definition clause, i.e. section 2 with the heading “Definitions” has defined seventeen terms and but has not used or defined the term “consumer” in the definition clause. There appears to be no express direct intention of the legislature to benefit the end consumers. It is interesting to note that no provision of this Law connects with consumers directly. In subsection (j) of Section-2 (Definition Clause), the term “service” has been defined as, “service” means provision of board, lodging, transport, entertainment or amusement, or of facilities in connection with the supply of electrical or other energy, purveying or news, banking, insurance or investment.” Interestingly the term, “good or goods” and/or its definition regarding which ninety percent of the subject law is all about is conspicuously missing. However, in sub-clause(i) a retailer has been defined as “Retailer”, in relation to the sale of goods, means a person who sells the goods to any other person otherwise than for re-sale. (emphasis added). Thereafter, in the entire law the term, “goods and services” has been used dozens of times because this is what the law is all about, inspite of the fact that the term “goods” is not included in the definition clause. Whether human body parts can be termed as “goods” is a food for thought.15

14 See. Consumer Protection Act, 1986 (India). 15 See, the Law of Diyat, and Chapter XVI containing sections from 299 to 338, Pakistan Penal Code.

Undue Concentration of Economic Power Undue Concentration of Economic Power has been dealt with in Chapter-II of Monopolies & Restrictive Trade Practices Ordinance, 1970. The yardstick used in the Sherman Antitrust Act, is that monopoly per se is not prohibited, it is the “prohibited conduct of the business”, which makes it illegal. It is said that Monopoly Power alone without anti-competition conduct, is not unlawful. It appears that this concept is not adopted by our Pakistani antimonopoly law, rather, the emphasis is laid on the “existence” of monopoly irrespective of its roots. Under the Pakistani Law, however, exceptions have been created with regard to “unreasonable monopoly power” and Sub-section (2) of Section-5 reads as follows”- “No such relationship, acquisition, merger or loan as is referred to in sub-section (1) shall be deemed to have the effect of bringing about, maintaining or continuing, unreasonable monopoly power if it is shown— a. that it contributes substantially to the efficiency of the production or distribution of goods or of the provision of services or to the promotion of technical progress or export of goods; b. that such efficiency or promotion could not reasonably have been achieved by means less restrictive of competition; and c. that the benefits of such efficiency or promotion clearly outweight the adverse effect of the absence or lessening of competition. Furthermore, in Pakistani Law, a distinction has been made between “undue concentration of economic power” and “unreasonable monopoly power” and the third term which is used is “unreasonably restrictive trade practices”.

COMPETITION ORDINANCE (LII of 2007)16 Recital (Quote) “An Ordinance to provide for free competition in all spheres of commercial and economic activity to enhance economic efficiency and to protect consumers from anti competitive behaviour” (Unquote) (emphasis added). (Quote): “Whereas it is expedient to make provisions to ensure free competition in all spheres of commercial and economic activity to enhance economic efficiency and to protect consumers from anti competitive behaviour and to provide for the establishment of the Competition Commission of Pakistan, to maintain and enhance competition; and for matters connected therewith or incidental thereto; (emphasis added).

16 Under Section 59 of the Competition Ordinance, 2007, the Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 (V of 1970), stands repealed. The term “Monopolies” has been intentionally or unintentionally or due to inherent incompetence has been omitted/not mentioned and thus, the complete name of the repealed enactment has not been given in Section-59. Furthermore, it is either the principle or at least it is customary to state in the Recital the complete name of the repealed enactment and the promulgation of the new enactment with its full name.

So, three objectives are clearly given in the above quoted Recital: i. to ensure free competition. ii. To protect consumers from anti-competitive behaviour. iii. To establish “Competition Commission of Pakistan”

Before doing any legal analysis, we should note that this Competition Ordinance, 2007 neither repeals partly or wholly or in any way amends or adds to the already existing Consumer Protection Laws being practiced in the provinces such as, “ The Punjab Consumer Protection Act, 2005 (Pb. Act II of 2005).

First And The Second Objectives. As far as ensuring of free competition is concerned, according to Black’s Law Dictionary:- “… In brief a monopoly is the practical suppression of effective business competition which thereby creates a power to control prices to the public harm.”17 In other words the term “monopoly” is converse, opposite, against & contrary to the term “competition” and the same is true if it is vice-versa. Third Objective However, the third objective of establishing a “Competition Commission of Pakistan” seems to be the dominating purpose of this Ordinance. While the appeal against the orders of the “Authority” established under the Monopolies And Restrictive Trade Practices, 1970 lied with the High Court, Competition Ordinance, 2007 has done away with the High Court and now any appeal against the orders of the “Competition Commission” shall lie directly in the Supreme Court. However, the Competition Ordinance, 2007 did address the grievance of this author by defining “goods” which was not done in the Monopolies Ordinance, 1970 and by redefining “services”. Goods are defined in Sect 2(f) as, “goods include any item raw material, product or by-product which is sold for consideration.” What is missing in this definition is that whether “things” which are not sold or capable of selling “for consideration” are outside the ambit of “goods”. Chapter two of this Ordinance deals with “abuse of dominant position” through certain agreements, deceptive marketing practices and approval of mergers. Whereas, the Monopolies And Restrictive Trade Practices Ordinance (1970) in its Chapter two has prohibited, “Undue Concentration of economic power”. One fails to understand as to what is the difference between the objectives of the two Ordinances except the lack of consumer protection provisions which are already covered in the Punjab and Sindh Consumer

17 th Quoted from, Bryan A. Garner (Chief Editor), Black’s Law Dictionary (7 . Edn)p.1023; 54A Am. Jur. nd 2 Monopolies Restraints of Trade and Unfari Trade Practices Sect.781, at 107(1996). See also, “United States v. Aluminium Co. of Am. 148 2nd 416(2d Cir. 1945) (Hand, J).

Protection Acts and the Rules thereto. Due to presence of the Consumer Protection Ordinance, we do not see any benefit provided towards Consumer protection by the Competition Ordinance except for giving the maximum power to the blue eyed members of the Commission for fool proof safety & security to the dealers/hoarders/investors dealing in any commodity without which a common man cannot survive. Other Legal Roots The roots of the anti-monopoly law, anti-competition law and consumer protection law stems from Article-18 of the Constitution of the Islamic Republic of Pakistan, 1973 which deals with “Freedon of Trade, business or profession”, Article-37 deals with “Promotion of Social Justice and eradication of social evils” Article-38 deals with “Promotion of social and economic well being of the people”. It is understood that these articles also apply to the Government, particularly in the matters of , Gas, Electricity, Water, Food and the scope of the matter further widens when we talk of basic human rights in which the Government has monopoly, controlling power, blackmailing power, Coercing power and no question can be raised because it is fully covered by the law mad normally by the Deaf & Dumb, uneducated and corrupt, so called, representatives of people.

Offences Relating to Weights & Measures Such offences are narrated in Sections 364, 265, 266 and 267 of Pakistan Penal Code (1860). Weights & Measures may look a small factor in protecting the rights of the consumers, but if looked on a larger canvass, if the electricity meters, the supply of which is monopolized, are engineered to run faster by those who are in power, it results in ripping off the entire society. The Essential Commodities Act (III of 1957) (6th, March, 1957) This law starts with the recital “ An Act to provide for price control and regulation of trade and commerce between provinces. In the schedule of the “essential commodities” given at the end of this law, the items like, foodstuff, petroleum & petroleum products and “Sugar” is specifically included in addition to the general item of “foodstuff”. Should it be construed that according to the intent of legislature, “Sugar” is not to be treated as “foodstuff”.18 Concise Comparison Between Anti-Monopoly Law of 1970 And The Competition Ordinance of 2007

It appears that our great legal minds have found it convenient to change the term, “Monopoly Power” used in the, “Restrictive Trade Practices (Control & Prevention) Ordinance, 1970 (V of 1970) with the term “DOMINENT

18 Besides there are other laws such as Sugar Factories Control Act (Act XXII of 1950), the Hoarding And Black Market Order (XIV of 1956).

POSITION” as defined in clause (e) of sub-article-1 of Section-2 (definition clause) of Competition Ordinance, 2007. It is defined as follows:-

“dominant position” of one undertaking or several undertakings in a shall be deemed to exist if such undertaking or undertakings have the ability to behave to an appreciable extent independently of competitors, customers, consumers and supplies and the position of an undertaking shall be presumed to be dominant if its share of the relevant market exceeds forty percent;

The “RELEVANT MARKET” has been defined as follows:-

“relevant market” means the market which shall be determined by the Commission with reference to a product market and a geographic market and a product market comprises all those products or services which are regarded as interchangeable or substitutable by the consumer by reason of the products, characteristics, prices and intended uses. A geographic market comprises the area in which the undertakings concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighboring geographic areas because, in particular, the conditions of competition are appreciably different in those areas;

Section-3 of the Competition Ordinance deals with the instances of abuse of dominant position. The most significant example is narrated in section-4 under the heading of “Prohibited Agreements”. However, in the very next section-5 with the heading Individual exemptions, it states that, “the Commission may grant an exemption from section-4…”. So, in other words, the effect of “Abuse Of Dominant Position” through “Prohibited Agreements” has been set at naught and the powers have been concentrated and accumulated in the Commission. Was it the real spirit for switching from Anti-Monopoly law of 1970 to The Competition Ordinance, 2007.

A great deal of emphasis has been laid on “EXEMPTIONS” which are contained in sections-5,6,7,8 and 9 and it has been very discretely made sure that it is the Commission which decides everything. As already stated above even the appeal from the decisions of the Commission has been taken away from the High Court and now, the appeal against the decision of the Commission directly lies with the Supreme Court of Pakistan.

Dejure And Defacto Monopolies() De jure monopolies are protected from competition by government actions and de facto monopolies are not protected by law/government but are simply the only supplier of goods or services. While discussing and analyzing the merits and demerits of the de jure and de facto monopolies the test of “coercive monopoly” is to be used. Coercive Monopoly creates control of a vitally needed resource, good or service putting the community under the mercy of the controller. In such a monopoly, there is a free hand as to supply, non-supply, timing of supply, pricing and quality of the good and/or service. Coercive Monopolies are created by government, , government owned or controlled legal entities, bodies corporate, departments, authorities etc.19 However, even disagreeing with the Nobel Economist, Milton Friedman there can be some fair exemption from antitrust laws, such as, but not limited to, sports, educational, agricultural “development” bodies.

19 economist Milton Friedman initially agreed with the breaking up of all kind of monopolies and later came to the conclusion that they do more harm than good. See generally, Milton Friedman, “The Business Community’s Suicidal Impulse” (U.S.A).