There IS a Better Way to Call India: A Quick Comment On Competition Law And Advertising.

In all the chaotic hullabaloo which arose on Airtel’s VoIP Data charges issue (detailed article on the issue currently in progress), another protest which drew comparatively little attention (probably due to the substantially lesser individuals/entities it affected) was the protest by International Long distance(I.L.D.) Operators against the Company’s practice of advertising it’s own VoIP Application Airtel Talk over long distance calls. Specifically, a few seconds before connecting the call.

I am a total outsider to the precise details of the case, and the facts are also disputed (I.L.D. Operators claim the advertisement was run selectively only on those networks with whom Airtel had not entered into collaboration agreements. Airtel denies this and claims that the advertisement was played on all networks equally without any discrimination.) But it did get me thinking on the issue of Advertising in Competition Law.

Prima-facie, one would consider advertising and competition law as congruous to each other. After all, advertising is an essential part of the competitive process in any economy. If a consumer is not aware as to what goods and services are on offer and at what price they are on offer, he or she will be unable to choose between the suppliers of the goods or services, and therefore, competition between suppliers may get diminished. But in this imperfect and admittedly anti-competitive world that we live in, it never is that simple. There are two different scenarios which need to be considered while addressing the issue of advertising and competition law.:

Individual Advertising

Individual Advertising is what I referred  to above, i.e., an individual entity choosing to advertise it’s products with the aim to grab market share from competitors in the same sector. This would generally not be subject to perceived anti-competitive harm. Misleading and false advertising, including comparative advertising, may be concerns, but in India they would dealt before other fora. There is however some literature which suggests that advertising paradoxically carries with it an inherent anti-competitive effect as advertising costs act as a serious barrier to the entry of new entities wishing to enter a market which is already dominated by a few relatively large competitors, especially in markets which inherently require enormous amounts to be spent in building up a brand name for the product/company. In fact, Bork has even gone so far as to state that it should be considered as a Barrier to trade !! (See Robert H. Bork, The Antitrust Paradox.)

Horizontal Agreements on Advertising

This refers to agreements among competitors in a market, and needless to say, these are a bit problematic. Any agreement among entities which restricts advertising would generally be considered as an anti-competitive agreement.

However, the reaction of the European Commission (E.C.) has been mixed depending upon the facts and circumstances of each case. While in the case of Belgian Roofing Felt, OJ [1986] L 232/15 (later upheld on Appeal in Belasco v. Commission, [1989] ECR 2117) the Commission ruled against joint advertising which led to a uniform image of products in a market wherein individual advertising would have facilitated differentiation, and consequently competition, on the other hand, in Re CECIMO, OJ [1969] L 69/13 and UNIDI, OJ [1984] L 322/10 (later upheld on Appeal in ANCIDES v. Commission, [1987] ECR 3131), it was accepted that it is sometimes desirable to rationalise and coordinate advertising efforts while imposing certain conditions on such coordination.

Post Script: The Advertising Market

As a post script, other than the above, an important area where competition needs to be maintained is the advertising market itself. It is important that the advertising media itself should function in a competitive manner free from any anti-competitive practices, including (but not limited to) any practice which might lead to reduction of advertising space in the market. This has been affirmed in the U.S. as far back as 1951 in Lorain Journal Co. v. United States, 342 US 143 (1951). One such allegation has already arisen before the C.C.I. is the case of Advertising Agencies Guild v. Indian Broadcasting Foundation, Case No. 35 of 2013. Though that particular Information was closed, the currently running Google Investigation before the C.C.I. involves similar issues (among others) and one will have to wait and watch for further competition law developments in this area.

 

Famous U.S. Anti-Trust Cases

We finally have our first guest post on ICAB!! Judy Leeson has been a practicing lawyer for twelve years and also own the site www.lawdegree.net. Here she outlines and summarizes three of the most landmark judgements in U.S. anti-trust history. A detail discussion on them can also be found in the book The Master Switch by Timothy Wu. (A review of the book can be found on this blog itself.)

Standard Oil

Standard Oil was founded in 1870, when kerosene cost 30 cents per gallon. By 1897, the company had driven the price down to 6 cents a gallon, which put many of its competitors out of business. Although the trust was broken up in the state of Ohio in 1892, Standard simply separated the Ohio branch and kept control of the company.

A few years later, a law change in New Jersey allowed a company to hold shares in other companies, even those in other states. Thus, in 1899 Standard Oil Trust became a holding company based in New York which owned stock in Standard Oil of Ohio and 41 other companies – many of which owned stock in companies themselves. Standard Oil effectively became the largest company in the world.

In 1906, the U.S. government filed suit against Standard Oil for violating the Sherman Antitrust Act. The company was found guilty in 1909 and the decision was affirmed by the U.S. Supreme Court in 1911. Standard was forced to break up into 34 independent companies, some of which have since merged into the multinational corporation, ExxonMobil.

AT&T

AT&T was granted “natural monopoly” status by the U.S. government for many years in the first half of the 20^th century, but even after new competitors the market it was frequently challenged it as a monopoly. Finally in 1974, the U.S. Attorney General filed suit against the company for violating antitrust laws. The case took seven years before a settlement was reached to split the company into seven new companies, each serving a different region of the U.S. However, five of the seven have since merged to become AT&T Incorporated, which is now the 14^th largest company in the world.

Microsoft

In 1991 the FTC began to investigate whether Microsoft was abusing its monopoly on the market for PC operating systems. They closed the investigation in 1993 but the U.S. Department of Justice opened a new investigation later that year. In a 1994 settlement, Microsoft consented not to tie other Microsoft products to the sale of Windows but could still integrate new features into the operating system.

When Internet Explorer was introduced in 1995, Microsoft insisted that it was a feature rather than a new Windows product. The U.S. Department of Justice did not agree and filed suit against Microsoft for illegally discouraging competition to protect extend its software monopoly. In 2000, the court ordered Microsoft to break into two separate units, one for the operating system and another to produce software.

Following court appeals, a new settlement ordered less severe penalty that required Microsoft to share application programming interfaces with third-party companies. Nine states did not agree with the settlement, calling it a mere “slap on the wrist,” that was not severe enough.