The RFMLR Editorial Board recently interviewed Ms. Aparna Mehra, Partner, Shardul Amarchand Mangaldas and Mr. Aman Singh, Partner, Shardul Amarchand Mangaldas on the topic, "Unraveling the Deal Value Threshold (DVT) in Competition Law and Exploring New Frontiers."
Aparna Mehra is a Partner at Shardul Amarchand Mangaldas with rich and multi-faceted experience across various areas of corporate and commercial laws, and is highly reputed for her special expertise in competition law.
Aman Singh Sethi is a Partner, in Shardul Amarchand Mangaldas' Competition Law Practice. Aman has advised clients in high-tech/ disruptive industries, agrochemicals and agricultural traits, cement, petrochemicals, and telecommunication sectors.
Q1. To begin with, please share your experience as a competition law lawyer in the early years and your motivations. A decade back, competition law was a relatively smaller field in law. So, how did competition law become a passion for you?
Aparna Mehra: I was a corporate lawyer who switched practice areas during the advent of the modern Indian competition law, and became a competition specialist.
Back in 2009, when I was a senior associate with the corporate team at AZB & Partners, there were a series of competition law related conferences that were taking place in India before the introduction of the (then new) competition law. Enamoured by this new law, I actively attended and participated in these conferences. These conferences sparked my interest in competition law, and were my first steps towards this new, dynamic field. However, I was still part of AZB’s corporate team and a heavy workload kept me busy during the time the enforcement provisions of the Competition Act, 2002 (Competition Act) got notified in 2009. In the backdrop, there was impetus towards notification of the merger control provisions of the Competition Act as well.
Then one sudden day in 2010, Mrs. Zia Mody (co-founder, AZB & Partners) asked me to accompany her to the Ministry of Corporate Affairs’ office to work on the merger regulations. You could say that this was the formal start to my 14-year journey of being a competition lawyer. For the next 10 days (and nights), I along with Mrs. Pallavi Shroff, Mrs. Shweta Shroff Chopra and Mr. Naval Satarawala Chopra, drafted and finalised the regulations governing the Indian merger control regime, working closely with the Government of India and the regulator, the Competition Commission of India (CCI). We played a particularly important role in the drafting of the various exemptions under these regulations, which we today call the ‘Combination Regulations’. That’s how my journey in this ever-evolving and dynamic practice area started and I’m happy to say that the last 14 years have been super-challenging yet exciting.
Aman Singh Sethi: Competition Law was not a subject taught at Symbiosis Law School while I was there. During internships in 2008-09, there was a lot of buzz about a new practice area and this first drew my attention to Competition Law. Over time, my interest in the subject grew and I was fortunate enough to intern with Mr. Samir Gandhi and Mr. Rahul Rai (then at Economic Law Practice), who at the time were involved in drafting the competition law for Afghanistan. This gave me a crash course on competition law, and there has been no looking back since. An LLM in the subject guided by stalwarts such as Professors Richard Whish, Allison Jones and David Bailey cemented my desire to be a Competition Lawyer.
The thrill of contributing in small ways to the evolution of a new law has been exhilarating. Over the 10 years that I have practiced competition law, the fraternity of exclusive competition practitioners in India has grown from a handful to nearly 100. At the same time, the quality of analysis and decisions passed by the competition regulator, the CCI, has also matured tremendously. A case in point is the evolution of the CCI’s approach to promotional pricing in new markets. In 2011, with the NSE case, that I have been fortunate to work on, the CCI found zero pricing to contravene the Competition Act, 2002 (Competition Act) in contrast, since 2015, the CCI has demonstrated a mature understanding of platform markets and the need to price below costs in order achieve economies of scale ‘in its decisions involving radio taxis / e-commerce platforms.
It is heartening to ‘see competition law becoming more of a mainstream subject in law schools as well as to meet passionate students who are eager to enter this field.
Q2. Is the Competition Act currently equipped with adequate provisions to effectively regulate instances of algorithmic tacit collusion, or does it require additional measures to comprehensively address emerging challenges in the market?
Algorithmic tacit collusion, i.e., collusion which takes place solely through the operation of algorithms that function on machine learning and without any human intervention, has been predicted in theory but is yet to be seen in practice. There has not been a single finding of algorithmic collusion by a competition authority anywhere in the world. Therefore, we should be measured in expressing concerns around it.
In any case, assuming such a situation were in fact possible, the Competition Act is well-equipped to deal with such tacit collusion. Additionally, the CCI has set up a Digital Markets Unit within the Commission which will have the technical manpower, tools and expertise to examine such issues within the existing legal and organizational framework.
Q3. In light of the increasing influence of artificial intelligence, how do you anticipate the market will navigate and address the challenges posed to hub-and-spoke arrangements?
Traditionally, companies would compete vigorously with each other on price as well as non-price (for instance, through innovation and better quality) to the benefit of the consumer. Artificial Intelligence certainly adds a degree of complexity as far as competition law is concerned.
It has been argued that different companies (let us call them spokes) centralize their pricing decisions through a common artificial intelligence-based algorithmic offering (let us call this the hub). The concern is that the common/ centralized hub could ‘manage’ signals to prevent this competition and allow these companies to achieve a ‘collusive balance’, maximizing profits at the expense of the consumer.’
However, in this scenario, in order to be treated as a hub-and-spoke arrangement, every company must knowingly and actively choose to delegate its pricing decision to the hub with full knowledge that its competitors have done the same. Therefore, even if the companies did not themselves arrive at an anti-competitive agreement, it is evident that they acted in a manner that would help establish and facilitate a hub-and-spoke arrangement. Such implicit arrangements are caught within the wide definition of ‘agreement’ under the Competition Act.
Businesses using artificial intelligence based algorithms for pricing should take active steps to ensure that the algorithm operates independently, with adequate firewalls, and does not rely on the prices (or other commercially sensitive information) of its competitors.
Q4. Do you think that the introduction of the Deal Value Threshold will effectively counter killer acquisitions in the Indian scenario? Is there a need to introduce ex-post assessment of acquisitions to effectively tackle killer acquisitions?
Let us take a step back and track this legislative development.
Last year, the Government of India passed the Competition (Amendment) Act, 2023 (Amendment Act) which introduces wide-ranging changes to the Competition Act. The Amendment Act has substantially revised both the existing merger control and the enforcement provisions of the Competition Act and is the most significant overhaul of the competition law regime in India since its inception.
On the merger control front, some key changes include: (a) the introduction of a deal value threshold (DVT), as an additional screen to the existing asset and turnover based thresholds; (b) derogation of standstill obligations for certain on-market purchases; (c) codifying the definition of control to the “material influence” standard; and (d) the introduction of expedited merger review timelines.
Background to the DVT:
Previously, the Competition Act only prescribed asset and turnover based thresholds. The CCI expressed concerns that by relying solely on these thresholds a number of important transactions (especially in the digital and infrastructure space) would fall outside the CCI’s jurisdictional net. The assets and / or turnover values were below the jurisdictional thresholds or, more importantly, the transactions benefited from the de minimis target-based exemption (which is also based on the asset and turnover values of the target).
The Amendment Act has introduced an additional threshold, requiring notification of transactions where: (a) the deal value is in excess of INR 2,000 crores (approx. USD 252 million); and (b) where the target has “substantial business operations in India”. Critically, the de minimis target exemption shall not be applicable to transactions caught under this threshold.
Now, to address your query, at the outset, it is important to treat DVT as merely an additional screen to notify transactions to the CCI. The CCI’s assessment of transactions notified to it on satisfying the DVT will be no different to the assessment of transactions that would otherwise be notifiable to the CCI. The CCI has never blocked a transaction or directed the unwinding of a transaction notified to it.
The DVT provisions are sector-agnostic. That said, the CCI’s stated concerns have been with not having sufficient transactions in the digital and infrastructure space notified to it. Interestingly, in Germany, where deal value thresholds have been in place longer, a number of transactions notified to the competition authority on the basis of deal value do not even pertain to these targeted sectors. Rather, a majority of these deals involved sectors such as pharmaceuticals and chemicals (see here and here).
The effectiveness of the DVT provisions will depend on the extent and number of transactions that are required to be notified to the CCI. If a large number of transactions are required to be notified, the DVT will become a cumbersome procedural requirement that hinders M&A activity without any commensurate public benefit. At the end of the day, the CCI will have to find balance and further tweaks to the DVT thresholds to manage the flood of anticipated notifications cannot be ruled out.
Separately, it will be important to highlight that the term ‘killer acquisitions’ may be misleading. There is no conclusive evidence, at least in the Indian context, to indicate that the acquisition of smaller players by larger players has an adverse effect on competition. In any event, the potential anti-competitive threat of ‘killer acquisitions’ does not warrant a reconsideration of the existing legal framework, or a departure from the current practice of the CCI.
Q5. In continuance of the previous question, should a referral system along with the DVT be introduced in India, wherein the CCI can review even those acquisitions that fall below the notifiable requirement as per the DVT?
A referral system, similar to Article 20 of the EU Merger Regulation, (which allows any member state of the European Union to request the European Commission (EC) to review a transaction, irrespective of whether it meets the EC’s own jurisdictional thresholds) is not suitable in the Indian context.
Firstly, the jurisdictional thresholds in India coupled with DVT (as and when it becomes applicable) are sufficient to catch all transactions that are likely to have a material impact on competition in markets in India.
Secondly, such a proposal is likely to lead to more stress on the CCI’s manpower capacity to review transactions.
Thirdly, the incorporation of such a provision in Indian law would effectively render the jurisdictional thresholds redundant since the CCI would be empowered to review transactions that do not meet the jurisdictional thresholds. Under such an approach, it would be difficult for parties to assess whether the transaction would require notification to the CCI. Such regulatory uncertainty would adversely affect the time taken for M&A activity and would operate as an undue hurdle to the ease of doing business in India.
Q6. Should a gatekeeper-like approach, similar to that of the European Union (EU) be considered, in which all the acquisitions done by any entity that has been categorised as gatekeeper, would be reviewed by the CCI, irrespective of whether the DVT thresholds are met or not?
The Parliamentary Standing Committee on Finance, in its December 2022 Report on Anti-competitive practices by Big Tech Companies, has identified the acquisition of smaller players by large technological companies as a competition concern.
In February 2023, the Government of India constituted a Committee on Digital Competition Law (CDCL) to evaluate the need for a separate competition law for digital markets. The CDCL was tasked to review whether the existing Indian competition law regime was sufficient to deal with the challenges emerging from the digital economy. Importantly, the CDCL was required to: (a) examine whether there was need for a separate legislation providing for ex-ante regulation in digital markets; (b) study the practices of leading players/ Systemically Important Digital Intermediaries (SIDIs) that limit or have the potential to cause harm in digital markets; and (c) to study the international best practices on regulation in the field of digital markets. The CDCL has received a number of extensions, however, the report of the CDCL has not yet been published. It will be interesting to see what they have to say on the subject. For now, it may be prudent to reserve comments for later.
Q7. Do you think concerns about “killer acquisitions” are exaggerated, considering that large tech companies often acquire startups to innovate and stay competitive, ultimately benefiting markets and consumers?
At the same time, these acquisitions are used to improve existing products or services, or to enter new markets altogether, thereby increasing the competition in those markets or allowing the platforms to develop better services.
As mentioned above, there is no evidence to indicate that large players have acquired smaller competitors with a view to entrenching their position.
The inorganic growth of companies through the acquisition of start-ups by larger players is an inherent part of the start-up ecosystem. We cannot have every start-up become a unicorn. Founders of start-ups focus on developing technological products or software typically with the aim to sell the company to larger and more established players. While some of these acquisitions may have anti-competitive effects, branding all acquisitions of small start-ups by larger players tech companies as “killer acquisitions” is overly alarmist and should be avoided.