Abusing Dominance In The Market; Analysing Competition Act, In Connection With Section 4
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Category: Competition Law
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ABUSING DOMINANCE IN THE MARKET; ANALYSING
COMPETITION ACT, IN CONNECTION WITH SECTION 4
Aiswarya Thulasi, B.A. LL.B., Kerala Law Academy Law College, Thiruvananthapuram
ABSTRACT
Competition Act, of 2000 gives essential guidelines to determine the misuse of dominance by market entities that hinder healthy completion. It also gives elaborate powers to the Competition Commission of India to enquire and decide upon cases of abuse of dominance. In a plethora of cases, the honourable courts have laid out that dominance per se is not an offence. This means possessing dominance in the market and taking steps for the protection of that position is not an offence. It becomes an offence when the steps taken by the dominant entities directly or indirectly hinder health competition in the market. In this paper, various phases of dominance abuse and measures to tackle the same are discussed in detail.
INTRODUCTION
The theme abusing dominance by market players has been explained in the Competition Act
2002.1 It is elucidated as the act of misusing status of the enterprises that hold a strong position
in the market. 2 The Act provides an overview of the section as, a dominant firm may be accused of abusing its market position by imposing unreasonable or discriminatory terms, prices, or practices on customers or suppliers, thereby harming competition and consumer welfare. 3 There exist three different stages to ascertain if a firm is liable for abusing its position or not. 4 The first stage would be defining what a relevant market is. 5 The second stage is evaluating if they actually plays a dominant role within the applicable market. 6 The final stage is examining whether or not the act of the enterprise amounts to abuse of its dominant position. In this article, we'll explore the concept of dominance and its abuse in the India and how it's impacted by various court decisions and interpretations. What S. 4 disallows is abuse of dominance and not dominance per se.
In Its true meaning, an enterprise is allowed to enter into anti-competitive acts until it gains dominance in the market. 7 Reliance Jio, a newcomer in the telecom industry, gained significant market share by offering three months of free services, which sparked a controversy. Bharti Airtel, a major competitor, raised concerns about predatory pricing, claiming that this strategy violated Section 4 of the Act. 8In this case, CCI held that offering service for free to its customers does comes under anticompetitive practice as it is initiated by a body that is seldom dominant in the economy. Similarly In Fast Track Call Cab Ltd V Ani Technologies Ltd. 9 The CCI rejected the allegations as to dominance abuse against OLA, concluding that the company's presence in the market is not dominant due to the presence of numerous other taxi aggregators. All India Online Vendors Assn.
stood against Amazon and Flipkart, alleging that their relatively high discount sale and special treatment towards specific sellers amounts to violation of S4 of the Competition Act. 10 After examining the virtual market space, the CCI concluded that online
1 Competition Act., 2002., S. 4, (12 of 2003)., Acts of Parliament., 2002 (India)
2 Anvesha Paandey, Checking -Abuse of Dominance under Competition Law - A Fading Reality., SCC OnLine, 64.,64, (2020)
3 S.M. Dhugar, - Guide to Competition Law and Policy 765 (5th end., 2010)
4 D.P. Mitthal, Competition Law and Practice 334. (3rd end., 2011)
5 Ibid.
6 Anshul Industries v. Shivaa Tobacco Co. 2007 SCC OnLine. Del. 74.
7 Anvesha Paandey, Checking -Abuse of Dominance under Competition Law - A Fading Reality., SCC OnLine, 64.,64, (2020)
8 Bharthi Airtel Ltd. v. Reliance, Industries Ltd, 2017. SCC OnLine CCI 25.
9 Fast -Track Call Cab (P) Ltd. V. Ani -Technologies (P) Ltd ,2017 SCC OnLine CCI 36
10 All India Online Venders Assn. v. Flipkaart India (P) Ltd, 2018 SCC OnLine CCI 97
market platforms are new ventures where no single platform can claim dominance. It was further held that these players possess high potential and should be promoted accordingly. These rulings demonstrate that initial evidence of dominance can result in overlooking enterprises that are not yet dominant but have the potential to become so in the future, or those currently transitioning towards the dominance. Purpose of this research paper would be restricting the upcoming firms from blocking market competition and health market environment. Online market platforms are yet to be considered as entities having dominant position. But in the current scenario, as these online competitors are getting larger in number, they will definitely evolve to be entities with dominant position.
1. THE DOCTRINE OF ESSENTIAL FACILITY
Doctrine of essential facility is a key component of antitrust law, requiring a company that owns a crucial resource or infrastructure, which competitors cannot viably operate without, to give access to that facility on appropriate terms to both existing and competitive competitors, thereby promoting fair competition.11The doctrine establishes that the owner of a facility that is essential that the obligation to provide access of such facility to its competitors at a price that is reasonable for boosting innovations in the market space. M.C.I Communications Corp. v American Telephone and Telegraph Co.12 is the first case where this doctrine has been recognized. On the other end The European Court of Justice recognized the concept of essentiality in the Magill’s case.13 II.
INTERCONNECTION OF DOMINANCE AND DEMOCRACY
The core idea of democracy and dominance in marketspace is one and the same. It is the freedom to choose from available options.14 Catalysing public good by giving them the freedom of choice is the principal methodology followed by democrats as well as market dominators. In many countries, the law of competition is the bible of economic growth. While referring to the Sherman Act, read along with Pittsman Act of U.S., Law of competition has the position that can be addressed as economic constitution.15 11 Aly A. Masadeh, “The Essential Facilities Doctrine under Scrutiny: EU and US Perspective”, SCC OnLine, 62,63.
12 MCI Communication Corpn. v. American Telephone and Telegraph Co 708 F 2d 1081
13Magill v Porter (1995) 4 CMLR 718 (European Court of Justice).
14 B.S. Chauhaan, INDIAN COMPETITION LAW: GLOBAL CONTEXT 54 Journal of the Indian Law
Institute, 315,315, 2012
15 Ibid
The Competition Act establishes CCI, vested with power for monitoring and investigate irregular practices that slows down competition. Irregular practices specifically include dominance abuse under S.4 and agreements that is anti-competitive in nature.16 In India, if a merger is found to have a significant adverse impact on competition within the country. CCI will conduct an investigation that may involve collaborating with foreign authorities to find a solution that safeguards competitive interests. Similarly, if a company contravenes Indian competition laws exterior of India, the CCI will take enforcement actions that extend beyond borders.17 II.
THE OLIGOPOLY IN THE MARKET
Since anti-trust laws were created, fighting the oligopoly entities in the market has been the problem almost all countries face. Ever since the inception of anti-trust laws, combating the dominance of a few powerful players in the market has posed a significant challenge for most countries. Another complex issue has been the presence of tacit coordination, where companies exploit market conditions to align their actions on pricing and output without direct communication, potentially leading to monopolistic control. This behaviour is a clear violation of antitrust laws. 18 The Competition Act of 2002 in India was implemented in 2009, following economic reforms. Economists suggested that this was a step towards international recognition for India, as it aimed to address the issue of tacit coordination.
This was particularly important due to the presence of secret oligopolies in various industries such as brewing and automobile manufacturing. 19 Certainly, here's a rephrased version: The approach to dealing with tacit collusion has lacked consistency, leading to conflicting opinions and judgments. To determine the existence of tacit collusion, additional factors can be considered:20 (a) analysing economic factors such as price fluctuations and firm behaviour through a market study, (b) identifying parallel conduct by oligopolistic firms as part of coordinated action, and (c) considering the conduct of the firms in question, as proposed by the EU in the Eturas case. 21
16 S.18
17Supra Note 14 at 2
18 Tomas A. Piraaino, Jr, "Regulating Oligopoly Conduct under the Antitrust Laws" 89 Minn
LRev 9(2004)
19 Avinash B. Amarnaath, THE OLIGOPOLY PROBLEM: STRUCTURAL AND BEHAVIOURAL
SOLUTIONS UNDER INDIAN COMPETITION LAW, 55, JOURNAL OF THE INDIAN LAW INSTITUTE,
281,281, (2013).
20 Builders Association v. CMA, CCI, Case No. 29 of 2010
The complete prohibition of dominance abuse, as outlined in Sec.4(1) of the Act, is in line with the criteria outlined in Sec.19(4) of the Act. This assessment of dominant position must take into account the market power, scale, and resources of the enterprise and their competitors, consumer reliance, hurdles to entry (such as high capital costs), and the size of the market.22 The idea of a dominance in position suggests an enterprise is considered to have a position of dominance in the market if there are no competitors or few significant competitors. This is primarily related to economic power, which is the ability to exert remarkable effect on the functioning of market, generally, a foreseeable influence.23 III.
COLLECTIVE DOMINANCE IN INDIAN COMPETITION LAW
The current legal situation acknowledges the dominance of a single entity, but does not acknowledge the dominance of two or more entities in a market as a whole. 24 Section 4 the act makes it illegal for an enterprise or entity with significant market power to engage in abusive behaviour. The expression "dominant position," explained in sec. 4, deal with a position of power an enterprise can operate autonomously from competitive forces, exerting influence over competitors, consumers, or the market for its own advantage. This specific section implies that only one enterprise can dominate a market. Therefore, it does not acknowledge the idea of collective dominance through cartels or other groups. In the past, there have been situations where necessary measures taken against a collective of entities. was not possible because of the loopholes and inadequacies that the law contains.
In Neeraj Malhothra v. Deutsche Post Bank Home Finance,25 the honourable CCI dismissed allegations of abusing power by certain non banking institutions and banks regarding the practice of imposing Standardized penalties on early repayments of home loans. It was argued that Section 4 was not relevant because no single bank or financial institution held a dominating position individually. This case emphasized the need for the law to recognize collective dominance and highlighted a loophole in the existing legislation. In the case of Delhi Vyaapar Mahaasangh v Flipkart International Pvt. Ltd. & Amazon Seller Services Pvt. Ltd. 26, the honourable CCI observed that the Act seldom acknowledges 22 Swapnil Singh & Srijan Jha, CCI Overlooking the Real Estate: Is Rera the Answer, PL February 74, 76 (2019)
23 Belaire Owners' Assn. v. DLF Ltd., Case No. 19 of 2010, order dated 12-8-2011.
24 RFMLR RGNUL, ABUSE OF COLLECTIVE DOMINANCE: NEED FOR RECOGNISING THE
CONCEPT IN INDIA, REGNUL FINANCIAL AND MERCANTILE LAW REVIEW, (2022).
25 Neeraj Malhothra v. Deutsche Post Bank Home Finance (Case no. 5/2009)
26 Delhi Vyaapar Mahaasangh v Flipkaart International Private Limited and Amazon Sellers Services Private Limited, CCI, Case No. 40 of 2019 In Re.
joint or collective dominance. Consequently, it rejected the accusations in opposition to Amazon & Flipkart under Sec. 4 of the Act, refusing to conduct the necessary evaluation to determine if the companies were exploiting their dominance in market. These cases demonstrate the latitude with which major market players engage in unfair practices without facing consequences. In a recent case, Asok Kumaar Vallabaneni v. Geeta SP Entertainment LLP,27 the honourable CCI noted which is not recognized by the Indian legal system. The idea of "collective dominance" as alleged. In its conclusion, the CCI stated that the defendants did not breach Section 3 and 4. An additional instance of collective dominance highlighted the necessity for legislation to prevent abusing collective dominance.
To address the gap in the law, the Competition (Amendment) Bill, 2012 was introduced with the aim of expanding the scope of Section 4. The bill sought to address situations where parties are collectively dominant in the market by adding the terms "jointly or singly" after the words "or group" in Section 4(1) of the Act. Unfortunately, the bill faced strong opposition in parliament and did not succeed in becoming a law. Therefore, the current position remains that the Act does not recognize Collective Dominance. 28 IV.
BEYOND THE COUNTRY DISCUSSIONS
The concept of Collective Dominance holds significant recognition within the European Union (EU). Article 102 of the Treaty on the Functioning of the European Union ("TFEU") addresses the notion of abuse of dominance, allowing for the possibility of such abuse by "one or more undertakings. " The Italian Flat Glass Case marked the initial acknowledgment of this concept, with the court affirming that it is not inherently prohibited for two or more independent economic entities to hold a dominant position together in a specific market due to economic links. The Court of Justice clarified that the existence of economic links alone is insufficient to establish collective dominance, yet it was understood to fall within the scope of Article 82 of the Treaty (now Article 102).
Subsequently, this concept has been widely applied in the EU and has been acknowledged in numerous cases, including Compagnie, Maritime Belge - Transports a. o. v Commission29 & Atlantic Container Line & Ors v Commission. 30in the
27 Asok Kumaar Vallabaneni v. Githa SP Entertainment LLP, 2019 SCC OnLine CCI 27
28 RFMLR RGNUL, ABUSE OF COLLECTIVE DOMINANCE: NEED FOR RECOGNISING THE
CONCEPT IN INDIA, REGNUL FINANCIAL AND MERCANTILE LAW REVIEW, (2022).
29 Compagniew Maritime -Belge Transports a.o. v Commission, ECR. [2000] I-1365.
30 Atlantic Container Line and Others v. Commission, European Court Reports 2003 II-03275.
merger control context, the same concept has been acknowledged in cases like Bertelsman and Sonny Corporation of America v Impala31, & Air-tours PLC v. the Commission32. The court noted that collective dominance is encompassed within Art. 2 of the EU Merger Regulations in both of these cases. Along with the discussions mentioned earlier, It is crucial to highlight the importance of addressing abuse of dominance and related provisions within the current market landscape. It is essential to prevent entities holding dominant positions from undermining healthy competition. The fundamental objective that the Competition Act pots forward is to foster a conducive environment and diminish entry barriers for the optimal functioning of the economy. Mitigating the potential for abuse of dominance will undoubtedly accelerate economic growth.
However, simply abolishing the dominant position of dominant entities is not the solution to the issue. Dominance itself is not inherently offensive, and imposing general restrictions on dominance in the market may blur the line between abusive dominance and constructive dominance. Abusive dominance can stifle healthy competition, while constructive dominance can enhance competition in a positive way. Moreover, dominance without abusive practices can actually drive innovation and development. If an entity holding a position of dominance in a market sector and, instead of creating high entry barriers, welcomes competitors, it can lead to rapid economic growth through increased market competition. The eradication of unethical practices by dominant entities that hinder new market entries is crucial. The honourable CCI is well-prepared for this task.
However, it is essential to establish effective parameters to differentiate between abusive and constructive dominance. While judicial interpretations provide insight, the implementation of standardized parameters would effectively discourage abuse and promote fair competition.
CONCLUSION
The increasing abuse of dominant market positions has made it necessary to enforce statutory laws related to the Competition Act. These laws are designed to promote fair competition and prevent one business from dominating the market. The objective is to guarantee that every business has an equitable chance to thrive without fear of being overshadowed by larger
31 Bertelsman and Sonny Corporation of America v Impala, European Court Reports 2008 I-04951
32 Airtours PLC v. the Commission, European Court Reports 2002 II-02585
competitors. Healthy competition is beneficial for society as a whole, but when one business begins to overpower others, it can have disastrous consequences. The law prohibits companies from abusing their dominant, but it can be quite challenging to prove abuse of dominance cases, as it requires a comprehensive legal and economic analysis. The limited number of established abuses of dominance cases and the extensive evidence required for such findings demonstrate the complexity of the process. Firstly, in order to substantiate claims of abuse of dominance, it is crucial to establish that the party in question holds a dominant position. Dominance is defined by the law based on both market share and market power. Market power refers to a company's ability to make decisions without taking into account the reactions of its competitors, customers, or suppliers, or to control prices.
Secondly, the evidence must demonstrate that the party is indeed exploiting its dominant position. For addressing potential issues, it's important to have effective mechanisms in place to adapt to changing circumstances and market conditions. When a company dominates a market, it often signifies strong performance; however, it's essential to establish limits on their practices to prevent them from stifling competition and innovation, and to create opportunities for new players to enter the market.