How to Assess Whether an AI Pricing Tool Risks a Section 3 Contravention

A client buys a repricing tool, points it at competitors' public prices and lets it run. Nobody has spoken to a competitor and nothing has been signed. Whether an AI pricing tool creates exposure under section 3 of the Competition Act, 2002 is not answered by asking whether anyone agreed to anything in the ordinary sense. It is answered by working through what the Act counts as an agreement.

Step 1: Start With the Definition, Not With the Conduct

Clause (b) of section 2 defines an agreement to include any arrangement or understanding or action in concert, whether or not it is formal or in writing, and whether or not it is intended to be enforceable by legal proceedings.

That definition is the reason the usual client answer, that there was no contract and no meeting, settles nothing. The question is whether there was an arrangement, an understanding or action in concert, and all three can exist without a document and without a conversation.

Step 2: Separate the Four Architectures Before Advising on Any of Them

The label on the tool settles nothing. What matters is where the coordination, if any, would sit.

• Independent tool, public inputs: Each firm runs its own tool on publicly visible prices. There is no shared input and no common supplier.

• Shared tool or shared provider: Competitors use the same product, and the provider's logic or data pool touches more than one of them.

• Pooled non-public data: The tool is fed inputs that competitors do not publish, whether contributed by them or assembled by the provider.

• Tool used to implement something already agreed: The coordination exists first and the software executes it.

Only the last of these is straightforward. The first is ordinarily the weakest case against the client, and the two in the middle are where the analysis actually has to be done.

Step 3: Ask Whether Clause (a) of Section 3(3) Is Engaged

Sub-section (3) of section 3 reaches agreements between enterprises, associations or persons, or between a person and an enterprise, or a practice carried on or a decision taken by an association, including cartels, engaged in identical or similar trade of goods or provision of services. Clause (a) covers an agreement which directly or indirectly determines purchase or sale prices.

Two words in that clause do the work. Indirectly means the agreement does not have to set a price; it is enough that it determines one. Determines is stronger than influences, and it is the line a client who merely observes public prices will usually be arguing on. Where it applies, the consequence is a presumption of an appreciable adverse effect on competition, which moves the burden rather than merely raising a question.

Step 4: Run the Provider Through the Second Proviso

Section 4(a) of the Competition (Amendment) Act, 2023 inserted a further proviso into sub-section (3). An enterprise, association or person not engaged in identical or similar trade is also presumed to be part of the agreement if it participates, or intends to participate, in the furtherance of that agreement. The proviso is in force.

For an AI pricing deployment this is the provision to read first, because the software provider is by definition not in the client's trade. If competitors coordinate through a common tool, the question whether the provider is inside or outside the agreement no longer turns on whether it sells what they sell. It turns on participation in furthering the arrangement.

Step 5: Look at the Inputs, Because That Is Where Exposure Is Built

The single most useful question to put to a client is what the tool is fed. Public list prices scraped from competitors' own storefronts sit at one end. Non-public inputs sit at the other, and their character does not improve because an algorithm rather than a person handled them.

Where the provider pools inputs across customers who compete with one another, the arrangement has a shape worth examining closely, because the pooling is a connection between competitors that exists whether or not any of them intended one.

Step 6: Read the Contract and the Configuration as Evidence

The provider's terms, the configuration the client chose and the instructions given to the tool are the documents a regulator would read. A configuration that tracks a named competitor, or an instruction to hold a position relative to rivals rather than to optimise against demand, reads differently from one that does not.

These are also the documents the client controls. Reviewing them before deployment costs very little, and changing them afterwards changes nothing about the period under examination.

Step 7: Keep the Record That Shows Independence

If the defence is that pricing was set independently, that is a factual case, and it is built from material that is contemporaneous and perishable: what inputs the tool used, what objective it was given, who configured it, when the configuration changed, and whether any input originated with a competitor.

None of that survives in a file of prices. A short record kept as the deployment proceeds is the only material that would be available later, and it is the difference between an argument and an assertion.

Step 8: Test the Joint Venture Proviso Only If It Actually Fits

Sub-section (3) carries a proviso excepting an agreement entered into by way of joint ventures if the agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

A shared software subscription is not made a joint venture by the fact that the parties share a supplier. Where the proviso is reached for in an opinion, the joint venture has to be real and the efficiency has to be shown, and if neither is true the better course is to say so rather than to leave the client with a defence that will not hold.

Common Pitfalls to Avoid

• Asking whether there was a contract: An agreement includes an arrangement, an understanding or action in concert, formal or not, written or not, enforceable or not.

• Treating the provider as outside the frame: The second proviso reaches a person not engaged in identical or similar trade who participates, or intends to participate, in furthering the agreement.

• Ignoring what the tool is fed: Non-public competitor inputs do not change character because software consumed them.

• Reading determines as influences: Clause (a) of section 3(3) catches an agreement that directly or indirectly determines purchase or sale prices, and the presumption that follows shifts the burden.

• Leaving the configuration unexamined: The instructions given to the tool are evidence, and they are the part the client chose.

• Reaching for the joint venture proviso: It excepts joint ventures that increase efficiency, not competitors who happen to buy the same product.

Key Statutory Provisions

• Section 2(b) of the Competition Act, 2002: Defines agreement to include any arrangement or understanding or action in concert, whether or not such arrangement, understanding or action is formal or in writing, and whether or not it is intended to be enforceable by legal proceedings.

• Section 3(1) and 3(2) of the Competition Act, 2002: 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, and any agreement entered into in contravention of that sub-section shall be void.

• Section 3(3) of the Competition Act, 2002: Agreements between enterprises, associations of enterprises, persons or associations of persons, or between a person and an enterprise, or a practice carried on or decision taken by an association, including cartels, engaged in identical or similar trade of goods or provision of services, which directly or indirectly determine purchase or sale prices; limit or control production, supply, markets, technical development, investment or provision of services; share the market or source of production or provision of services; or directly or indirectly result in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition. A proviso excepts an agreement entered into by way of joint ventures if it increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

• Second proviso to section 3(3), inserted by section 4(a) of the Competition (Amendment) Act, 2023: An enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of the agreement under that sub-section if it participates or intends to participate in the furtherance of such agreement. In force.

Sources and References

• The Competition Act, 2002, as published by the Competition Commission of India

• The Competition (Amendment) Act, 2023, as published by the same authority

• Independent account placing the section 3(3) expansion among the provisions notified

• Competition Act, 2002, sections 2(b) and 3; Competition (Amendment) Act, 2023, section 4(a)

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.