Confidentiality Rings under Competition Law: Need for Ironing out Wrinkles

[Amritesh Anand and Krishnanunni U are penultimate year students at Nalsar University of Law, Hyderabad]

Antitrust investigations, by their very nature, involve extensive access to commercially sensitive information of entities being investigated, some of which is inherently ‘confidential’. Hence, it becomes imperative for competition authorities to institute sufficient checks and balances in order to accord due protection to such information. Pursuant to this objective, the principle of confidentiality, which also found mention in the erstwhile Monopolies and Restrictive Trade Practices Act, 1969, has been enshrined in the Competition Act, 2002 (the ‘Act’). However, this statutory protection is occasionally at loggerheads with the equally important right of the other party to be afforded access to certain information in order to effectively prepare its defence. Thus arises the challenge for the fair market regulator to strike the right balance between the two often conflicting rights.

Extant Provisions

Section 57 of the Act is the principal provision governing confidentiality, which lays down that “no information relating to any enterprise, which has been sought by the Competition Commission of India or the Appellate Tribunal can be disclosed without prior written permission of the parties, or any other law for the time being in force.” Furthermore, Regulation 35 of the Competition Commission of India (General) Regulations, 2009 prescribes the method of claiming confidentiality over information being disclosed during the course of investigation, wherein such information can be filed under two versions – either confidential or non-confidential, after registering a request for the same with the Director General (‘DG’) or the Competition Commission of India (‘CCI’). This request can only be made if making the document public will result in disclosure of trade secrets, destruction or appreciable diminution of the commercial value of any information or can be reasonably expected to cause serious injury. Additionally, section 36 of the Act casts a duty on the CCI to comply with principles of natural justice while discharging its functions.

Need for Overhaul

The CCI, as part of its observations regarding the extant confidentiality regime, has succinctly pointed out its inefficient and burdensome nature. The practice of filing confidential or non-confidential versions along with an application seeking confidentiality before the DG or the CCI engenders the cumbersome requirement of a clause-by-clause disposal of such confidentiality claims. Additionally, if such applications are filed before the DG, the aggrieved party can file an appeal before the CCI challenging cases wherein the DG denies confidentiality claims, which again requires a clause-by-clause examination of such claims in appeal by the CCI. What has also been observed on many occasions is that parties seeking access to information declared confidential, on grounds of their right to defense, also end up filing appeals which lead to further litigation and delay. The antitrust regulator noted how, considering the dynamic nature of markets and requirement for swift correction, such protracted litigation tends to defeat the purpose of proceedings.

Salient Features of the Proposed Revamp

With the objectives of mitigating lengthy legal proceedings and institutionalizing the framework, the CCI has proposed an overhaul of the confidentiality regime. For instance, the General Amendment Regulations, 2021 (the ‘Draft Regulations’), propose under regulation 2(2) to expedite the filing of confidential or non-confidential document versions during investigation by shifting the onus on the concerned party to self-certify the nature of such documents. This mechanism, the regulator claims, will result in swifter disposal of cases.

Another prominent proposition is regulation 2(6), which envisages the setting up of ‘confidentiality rings’, which will essentially be bodies comprising authorized representatives (internal and external) of parties who wish to secure access to confidential and commercially sensitive information. Such access will be granted subject to appropriate non-disclosure agreements. Further, regulation 2(8) lays down the requirement for internal representatives to be from commercially non-operational streams, as far as practicable, and regulation 2(9) imposes penal consequences in cases of violation. The draft regulations also provide for instituting a similar set-up at the DG’s level, if required, for the purposes of investigation. This concept – borrowed from the European Commission (EC) and prevalent in mature antitrust jurisdictions – appears to be an encouraging addition to India’s competition regime. The idea of setting up confidentiality rings is not completely novel to this draft regulation and has previously been discussed in a few instances, one such instance being the TLM Ericsson v Xiaomi Technology case, wherein the Delhi High Court ordered for instituting a confidentiality ring comprising a specified number of lawyers and expert witnesses. But institutionalizing such a mechanism also engenders the possibility of misuse at the hands of parties solely intending to gain access to rival confidential data, which would compromise with the latter’s right to confidentiality.

Analysing the Introduction of ‘Confidentiality Rings’

The introduction of confidentiality rings has come at a time when antitrust cases have been languishing in courts on account of confidentiality claims. While the draft regulations are a huge step in the right direction, there are several concerns that are concomitant with the overhaul of the extant regime. Confidentiality rings could very well help the regulator mitigate protracted litigation, but it could pose new challenges in striking a balance between principles of natural justice and confidentiality. The CCI should be wary of the available avenues within the draft regulations that are vulnerable to exploitation by parties.

Regulation 2(6) of the draft regulations vests discretionary powers on the CCI to set up confidentiality rings. However, the specific grounds that can be invoked to trigger the formation of these rings have not been delineated. This can lead to potential difficulties in the future when such confidential rings are employed in practice. The draft regulations are also silent as to whether the power to constitute confidential rings will be restricted to the CCI. If the regulator affords parties the power to make a reasoned application for setting up a confidentiality ring, it should be made explicit under the envisioned scheme. The authors feel that involving the parties will draw more sanctity to the process and will also help in retaining the confidence of the parties.

Under the proposed regime, the party whose information is being disclosed is not provided with an opportunity to object to the formation of a confidentiality ring. It is certainly possible that parties can exploit the remedy of confidential rings to extract sensitive information. To mitigate such exploitative practices, it is imperative that all stakeholders are provided an opportunity to express their opinion. Further, according to regulation 2(7) of the draft regulations, the members of the confidentiality ring are obligated to use the obtained information only for preparing their defence. They are also expected to ensure that the information is not disseminated to the public. However, there is no boilerplate undertaking template prescribed by the CCI and this can extirpate harmony and uniformity.

Regulation 2(11) of the draft regulations precludes the presence of the informant in the confidentiality ring. However, the proviso to the regulation does provide for the inclusion of the informant, if deemed appropriate by the CCI or the DG. There is no threshold prescribed by the CCI for such inclusions and it is mentioned that a case-by-case analysis will be conducted. The process can be strenuous for the CCI that can also lead to arbitrary actions. This is further compounded by the lack of an opportunity for the disclosing party to object the inclusion of the informant in the confidentiality ring.

The penal consequences attached to the members of the confidentiality rings needs further clarification. As of now, there is ambiguity with regard to the nature of penalty attendant with breach of the undertaking. Moreover, the draft regulations specify that the confidentiality rings can be set up at the level of the DG. Further explanation is also required to clarify whether the inspection of records can happen simultaneously with the investigation of the DG.

Suggestions and Conclusion

Confidentiality rings are a welcome addition to the competition regime in India but, as elucidated in the previous section, there are problems that could hamper its efficacy. Mature regulators like the European Commission have set out explicit grounds to invoke the formation of confidentiality rings. The European Commission permits disclosure through confidentiality rings only when such disclosure is instrumental in proving infringement or safeguarding the rights of defence of the parties. Further, the European Commission has also clearly laid down the procedure to be followed while employing confidentiality rings. The relevant guidance note mentions that confidentiality rings could be formed either by the DG or upon a request from the informant. However, the ultimate discretion to accept or reject the proposal put forth by the informant rests on the DG. Hence, it is important for India to assimilate practices from mature jurisdictions to successfully employ confidentiality rings.

Providing disclosing parties an opportunity to object the formation of a confidentiality ring and securing consent from both parties can enable the CCI to appraise the situation effectively. This will aid the CCI in deciding whether a confidential ring is required for a particular case. The CCI should ideally create a template for undertakings and should also explicitly mention the nature of penal consequences and against whom claims of compensation will lie in case of aberrations.

Confidentiality rings are a potential game changer in fast-tracking anti-trust disputes in India. However, it should not be practised at the cost of confidentiality, which is indispensable in competition law cases. If sufficient focus is diverted towards bridging gaps in the proposed confidentiality scheme, confidentiality rings could be the answer to competition cases mired in confidentiality claims.

Amritesh Anand & Krishnanunni U

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