Consentia on Business Laws and Constitutional Laws

ABUSE OF DOMINANCE UNDER THE COMPETITION ACT, 2002

“Circumstances are beyond one’s control, but conduct is within our power” -Jesus Christ

Introduction

Competition is not defined in law but is generally understood to mean the process of rivalry to attract more customers or enhance profit or both, it deals with market failures on account of restrictive business practices in the market.[1] Preamble and Section 18 of Competition Act, states that “this law has been enforced to prevent practices which have adverse effect on competition and to protect the interest of the consumers and to ensure freedom of trade carried on by the other participants, in markets, in India”[2] clearly defines the role of competition law in India. India liberalising economy and bringing economic reforms, it was necessary to review the existing competition law. The result of this was the enforcement of new Competition Act, 2002. Section 4 (1) of the Indian Competition Act, 2002 (as amended by the Amending Act of 2007) refers to the topic of abuse of dominant position in the market. The Competition Commission of India has simplified this definition in many of its working papers to mean:

The Act defines dominant position (dominance) by an enterprise over the market in terms of the strength enjoyed by an enterprise, in the relevant market in India, which enables it to:

  • Operate independently of the competitive forces prevailing in the relevant market or;
  • Affect its competition or consumers in the relevant market in its favor

It is a common misconception that only a single entity can become a dominant enterprise. In the West, there are many companies which form groups can have a dominant position in the relevant market. It was after considering this approach; the term “group” was added to Section 4 (1) of the Competition Act. Under this concept a single undertaking need not hold a dominant position. Separate undertakings may be found to hold a dominant position together where certain conditions are met. After this amendment the conducts of such undertakings enjoying collective dominance also comes under the purview of section 4 of the Act.
It is important to understand the fact that it is per se not illegal to be in a position of dominance in a market and such enterprises are entitled to receive the same benefits as other enterprises in the market. There are various natural monopolies which still exist in the market even today. However, after many decisions given by the courts, it is sufficiently established that it is the responsibility of the enterprise that is in the dominant position to not let its position affect and impair the genuine competition in the market. To establish the position that an enterprise in abusing its dominant position in the relevant market there are various factors which need to be considered, the most important of which are as follows:

  • What is the relevant market for the enterprise and the scope of such markets?
  • Whether the enterprise enjoys a position of dominance in the relevant market?
  • Whether the enterprise is abusing its dominant position in the market?

If the questions can be answered in the affirmative, then the enterprise is abusing its dominant position in the market and thus can be brought under S. 4 of the Competition Act.

The authors in this paper will attempt to answer the above given questions and will refer to cases to supplement the points made in this paper.

1) Relevant Market

The term “relevant market” has been defined in the Competition Act, 2002 under Section 2 (r) and Section 19(5) to mean “the market which may be defined by the Commission with reference to the relevant product market or the relevant geographic market”[3] The Supreme Court of the United States of America defines the “relevant market” to be that area of effective competition in which the enterprise operates.[4]

As the definition suggests, the term relevant market can further be sub-divided into two parts:

  • The Relevant Product Market
  • The Relevant Geographic Market

The Competition Act provides for definitions on both these types of markets. The “relevant product market” has been defined to mean “a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use”[5], while the relevant geographic market means “a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighboring areas”[6] The Competition Commission can refer to either of these markets for determining the relevant market. [7]

Understanding what constitutes the relevant market for the product or the service in question helps us in answering the nature and the dominance of the enterprise in the market. It is also critical to understand the meaning of the term relevant market, because the dominance of an enterprise in the market is always calculated vis-à-vis the relevant market in which the enterprise is operating.[8] There are per se not set of rules that can be used for determining which market would be the relevant market, hence the Competition Commission of India deals with this issue on a case-to-case basis.

One of the most recent cases, which had the CCI discussing on the issue of the relevant market in the particular case is the case of the NSE vs. MCX-SX[9]. In this case, the Competition Commission of India (CCI) had to determine whether the stock exchange services in respect of the Currency Derivative (CD) segment in India was a distinct and relevant market. The CCI in this case, relied on the Report of the Internal Working Committee at RBI which stated that there must be a clear distinction made between the CD segments from the other segments in any other stock exchange. The CCI, during the course of its findings also observed that as currencies, equities are different; thus the consequently traded derivatives are also different. Thus, on the basis of the RBI report and the findings during its investigation, the CCI came to the conclusion that a product which was traded in the CD segments would be entirely different from any other product which would be traded in any other segments of the stock exchange. The CCI in this case thus observed that the stock exchange services in respect of the CD segment is a distinct and relevant market all by itself and it cannot be interlinked with any other segment.

Another case which can be referred to better understand the concept of relevant market would be the case of “Mr. Ashish Ahuja vs. Snapdeal & Ors.”[10] This case was considered extremely important because it took into consideration the growing demand for online shopping in our country and the CCI had to determine whether the online marketplace would constitute the same relevant market or different relevant markets.[11]

The CCI in this case held that the online market and the offline market differed in the way they offered discounts, shopping experiences and the consumers would take into account the characteristics of each market and then would go on to make an informed choice. If the online market offered more discounts, the consumer would prefer the online market and vice-versa. Thus, this was held by the CCI to mean that these two markets were simply different channels for distribution of products and was not two different, distinct, relevant markets.[12] “Shri Shamsher Kataria vs. Honda Siel Cars and Ors”[13] is also another relevant case which comes to mind.

2) Position of Dominance in the Relevant Market

Section 4 (b) of the Competition Act, 2002 defines the term “dominant position”. It has been defined to mean:

“A position of strength, enjoyed by an enterprise in the relevant market in India which enables it to:

  • Operate independently of the competitive forces operating in the market or;
  • Affect its competitors or consumers in the relevant market in its favor.”[14]

Under European law a dominant market position is a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors customers and ultimately of consumers.[15] The traditional yardstick for measuring the dominance of an enterprise in the relevant market has always been the market share of the enterprise. There was a provision in the MRTP Act, 1969 which basically specified that an enterprise had to be in possession of a certain percentage of market shares to be considered as a dominant enterprise. However, on a closer examination, the CCI observed that the market share of the enterprise was not the only factor which could determine dominance. There have been cases where a small firm could be considered dominant in a particular market, while a firm which had a large amount of market share was found to be non-dominant because of the sheer competition in the market. Thus after the report by the High Level Committee on Competition Law and Policy, the drafters of the Competition Act, 2002 left this percentage of shares out and included the requisites for an enterprise to be considered dominant, in the definition itself[16].

Thus, we can safely establish that having a large or minuscule market share is not the only criteria which we can use to determine the dominance of an enterprise. There exist various other factors such as[17]:

  • “The resources and the size of the enterprise
  • Any commercial advantage over its competitors
  • Dependence of the consumers on the products
  • Entry Barriers
  • Dominant Position as a result of a statute, govt-law etc.
  • Countervailing buying power
  • Relevant market structure
  • Size and importance of the competitors
  • The economic capacity of the enterprise over its competitors”

The above given factors are a mixture of the enterprise’s ability to influence the market, the structure and size of the market in which the enterprise operates. A mixture or a singular possession of these qualities can assert the position of dominance. The being in a dominant position isn’t harmful at all, what is harmful is the abuse of dominance which stifles the growth of healthy competition in the market. The firm which is in a dominant position has a special responsibility of not letting its dominant position come in the way of healthy competition present in the market.[18]

Having understood the concepts of relevant markets and position of dominance, we shall now seek to understand the concept of abuse of dominance. Abuse of dominance is what is harmful for the economy, for it is this abuse of the dominant position which stifles competition and can lead to a singular firm which has a monopoly over the entire market, thus creating inequalities in the forces of demand and supply, which further lead to problems like price discrimination, inflationary prices etc.

 

3) Abuse of Dominant Position in the relevant market

The Competition Act, 2002 expressly forbids such conduct which amounts to abuse of dominant position in the market, which may or may not have an appreciable effect on the healthy competition in the market.[19] Although what may be considered as abuse of dominant position has not been expressly defined in the Competition Act, there is an exhaustive list of certain practices that may constitute abuse of the dominant position in the market mentioned in the Competition Act, 2002. [20] Any of these practices which are enumerated under clauses (a) to (e) of sub-section 2 to Section 4 of the Competition Act, shall constitute dominance and these acts of dominance shall be prohibited in India.[21]

These practices are as follows:

  • “Unfair or discriminatory condition or price;
  • Limiting or restricting production of goods, or provision of services or market;
  • Limiting or restricting technical or scientific development to the prejudice of consumers;
  • Denying market access in any manner;
  • Making conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts
  • Using its dominant position in one relevant market to enter into, or protect, other relevant market”.

Reiterating the point made above, it is not an offence if a firm is in a dominant position in the market. The main purpose behind setting out these practices which would constitute abuse of the dominant position is only to dissuade the dominant enterprises from abusing their position of dominance in the market.

 

RELEVANT CASES WHICH have helped in shaping competition law

The authors shall now be referring to certain landmark cases that have set the tone for the punishment dished out to the enterprises which abuse their dominant position in the market. The cases the authors shall be referring to are as follows:

  • DLF Case
  • NSE vs. MCX-SX
  • Microsoft case
  • BCCI case

The author shall be explaining these cases in brief focusing on how the court adjudged these enterprises to be abusing their dominant position in the market and the quantum of the punishment directed by the courts.

1) BELAIRE OWNERS ASSOCIATION vs. DLF Ltd & HUDA[22]

In this case, the plaintiffs alleged that the defendant was abusive of its dominant position in the real-estate market in Gurgaon. DLF had included various arbitrary and inequitable clauses in its contract with Belaire Owners Associations who are the apartment allottees of a housing complex in an association.

The CCI in this case observed that while assessing the dominant nature of an enterprise, its market share isn’t the sole concern. There are a host of factors which are given under Section 19(4) of the Competition Act, 2002. The CCI determined that the relevant market for this case was the high-end residential accommodation market in Gurgaon. After a careful perusal of the facts, circumstances and evidences presented in front of the CCI, it held that DLF was a dominant player in the relevant market in Gurgaon and that DLF had in fact abused its position of dominance by including various one-sided and arbitrary clauses in the agreement it had with Belaire Owners Association. Some of the clauses on which CCI found DLF guilty of abusing its dominant position are as follows:

  • “DLF’s right to alter the layout plan without taking into consideration the concerns of the apartment allottees and without their consent:
  • DLF’s right to use areas which are owned by the apartment allottees, commercial or residential;
  • No rights of the allottees with regards to the community’s recreational facilities;
  • DLF’s right to increase or decrease the super-built up are with the consent of the allottees who had to bear the increase in cost as when DLF decided;
  • DLF’s right to forfeit amounts paid by the allottees as earnest money etc.
  • Penalty for default on payment of money by the allottees would 15% for the first three months after which it would increase to 18% per annum.”[23]

These are just a few of the 16 grounds on which CCI adjudged DLF guilty of abusing its dominant position in the market and fined it Rs. 630 crores for having imposed unreasonable and arbitrary clauses in the agreement with Belaire Owners Association Ltd. DLF was also ordered to “cease and desist” from including such arbitrary clauses in the agreement with buyers in Gurgaon within 3 months of the receipt of the CCI order.

The fine imposed by the CCI was also upheld by the decision of the COMPAT on 19th May, 2014.[24]

2) NSE vs. MCX-SX[25]

The informant (MCX-SX) alleged that NSE was violating Section 3 and Section 4 of the Competition Act and was abusing its dominant position in the stock market.

The CCI examined the market share of NSE and its operations in other segments of the stock market and observed the presence of a high vertical integration from the trading platforms, index services etc. On the basis of the observations made by the CCI, it determined that NSE was indeed in a dominant position envisaged under Section 19(4), read along with Section 4 of the Competition Act, 2002.

The main question that CCI had to answer was that whether NSE was abusing its dominant position in the Currency Derivative Segment (CD) market as alleged by MCX-SX. NSE had been offering its customers a zero-price policy and that there was nothing in the behavioral patterns of NSE which suggested that it was normal practice for NSE to offer its consumers a zero-price policy. NSE argued that it used to grant its consumers this policy, but the Commission adjudged that there were too many inconsistencies in the behavior of NSE to actually infer this. The Commission thus adjudged that this zero-price policy of NSE was an abuse of its dominant position in the market, because this zero-price policy meant that NSE would be wiping out its competition who could not afford to offer to its customers such a policy. Such behavior was akin to predatory pricing and this was a clear abuse of its dominant position in the market. The CCI also ordered NSE to modify this zero-price policy and to cease and desist from offering such policies, indulge in predatory pricing or unfairly using its dominant position in the market to protect the relevant market again.

The COMPAT also upheld the order of the CCI in the NSE vs. MCX-SX case.

3) Microsoft vs. Commission of the European Communities [26]

This case was brought against Microsoft by the European Commission (Commission) of the European Union (EU) alleging abuse of its dominant position in the software market. The EU demanded that Microsoft release a version of Windows without the iconic Windows Media Player. The main focus of the case however was on the interoperability of Microsoft.

The Commission had taken a preliminary decision against Microsoft for having abused its dominant position in the software market on the following two counts:

  • Refusal by Microsoft to supply its competitors with “interoperability information” and its failure to authorize the competition to develop and sell products which would compete with Microsoft’s own products
  • Sale of the operating system of Windows along with the compulsory sale of the Windows Media Player which according to the Commission affected competition in the multimedia player market.

The European Commission fined Microsoft 497 million pounds and ordered Microsoft to undertake corrective action for its misdemeanors.

Microsoft appealed against this decision in the Court of First Instance in which Microsoft cited various arguments to prove its innocence, it also brought about claims of protection of its intellectual property and the sheer disregard by the European Commission for the principle of proportionality. It alternatively asked for a reduction in the amount of the fine.

The Court of First Instance however rejected the claims of Microsoft and upheld the order of the European Commission which was passed in 2004 without a reduction in the amount of the penalty which Microsoft paid in full to the European Commission.

.

4) BCCI- CCI CASE[27]

This case is filed by the informant – Shri. Surinder Singh Barmi against the BCCI under Section 19(1)(a) of the Competition Act, 2002 on the 2nd November 2010. The informant alleged that were irregularities present in the conducting of the IPL, Twenty20 by the BCCI with respect to grant of franchise rights for team ownership, grant of media rights for the coverage of the tournament and the award of sponsorship rights etc.

The first thing the CCI looked at was whether the BCCI, which was a society registered under the Tamil Nadu Societies Act could be brought under the ambit of the Competition Act. The second issue which the CCI looked at was whether BCCI in a dominant position in the sorts market and the third issue was that whether BCCI was abusing its position of dominance.

The Directorate General (DG) on the first issue observed that BCCI was a society registered under the Tamil Nadu Societies Act and it was a non-profit organization. However, he contended that when it came to tournaments like the IPL, Twenty20 it involved huge sums of money and the fact that BCCI was organizing this tournament which generated huge revenue; these activities of the BCCI fell in the commercial sector. The DG relied on various decisions[28] to prove that BCCI was an enterprise under the Competition Act, 2002.

The second issue in front of the court was that whether BCCI was in a dominant position in the sports regulation market. BCCI agreed that it had a monopoly, but it argued that this monopoly needed to be treated differently owing to different nature of the market for professional sports leagues. The DG submitted that BCCI was in a monopoly and that it had repeatedly tried to oust its competitor, ICL out of this market. This proves that BCCI was in a position of strength and dominance in the market.

With regard to the third issue of whether BCCI was abusing its dominant position in the market, the DG found that there were arbitrary terms with regard to grant of franchise rights to organizations and that there were terms which favored the BCCI completely. Further, the DG also found evidence of the fact that the BCCI was guilty under Section 4 of the Competition Act for abusing its dominant position in the market with regards to grant of media rights and sponsorship rights as well.

The CCI passed the order stating that BCCI was guilty of having abused its dominant position in the market because of the repeated efforts to oust and completely eliminate its competitor, ICL. The order further on stated that BCCI has to stop denying access to the market to potential competitors or make such anti-competitive agreements in the future. It thus found BCCI guilty under Section 4(2)(c) and thus levied a penalty of 6% of the total revenues of BCCI for the years 2007-2008, 2008-2009, 2009-2010, thus amounting  52.24 crores.

Having completed the analysis of the cases at hand, it is crystal clear that the Competition Commission and the COMPAT have cracked down on those enterprises which abuse their dominant position in the market for their selfish gains and thus end healthy competition.

CCI’s powers in cases of abuse of dominance[29]

The CCI has been granted certain powers which it can exercise in cases of abuse of dominant position by enterprises. These are as follows:

  1. “to grant interim relief during the enquiry
  2. to award compensation
  3. to impose penalty on the guilty
  4. to recommended division of undertaking
  5. issue “cease & desist” order, which means- an order from an administrative agency to refrain from a method of competition or a labor practice found by the agency to be unfair
  6. It can impose a penalty of not more than 10% of the turnover of the enterprise.
  7. It can also recommend to the Central Government for “division of dominant enterprise” thus, the Competition Commission of India would have the power to inter alia direct the enterprise to disclose information to its competitors (as has been directed by the European Competition Commission) or it can recommend division of an enterprise (as had been ordered initially by the US trial court in 2000), if these are considered appropriate to the case.”

Conclusion

“Power corrupts and absolute power corrupts completely” is a saying which can actually be applied in this context. The Competition Act, 2002 includes various checks and measures for preventing this abuse of dominance by companies and to promote healthy competition in the Indian markets. The courts have taken strict measures against those enterprises which have already abused their position of dominance in order to set an example and to deter any enterprises from doing so in the near future. This is a positive trend and it is extremely encouraging to see that measures have been taken to ensure that the competition in the Indian markets is kept free of such abuse.

Bibliography

cASES rEFERRED TO:

  1. NSE vs. MCX-SX
  2. BELAIRE OWNER’S ASSOCIATION VS. DLF LTD. & HUDA
  3. MICROSOFT VS. THE EUROPEAN COMMISSION
  4. BCCI CASE
  5. ASHISH AHUJA VS. SNAPDEAL & ORS.
  6. SHRI SHAMSHER KATARIA VS. HONDA SIEL CARS & ORS.

ARTICLES USED:

  1. R. Bhatia, Abuse of Dominance In Fact and In Law
  2. Apurv SarDeshmukh, Abuse of Dominant Position by the BCCI-CCI Decision
  3. Augustine Peter, Treatment of Abuse of Dominance
  4. R Bhatia, Assessment Of Dominance
  5. Cyril Shroff & Nisha Kaur Uberoi, India: Abuse of Dominance
  6. Avinash Tripathi, Abuse Of Dominance
  7. Sristi Dutt, Competition Law at Glance

[1] Sristi Dutt, Competition Law at Glance, competition commission of India, http://cci.gov.in/images/media/ResearchReports/Competition%20Law%20in%20India%20US%20%20UK_A%20Comparative%20Analysis.pdf

[2]Competition act, art. 18.

[3]Competition act., art. 2(r).

[4]Avinash Tripathi, Abuse Of Dominance, astreal legal, http://www.astrealegal.com/abuse-of-dominance-under-the-indian-competition-regime/ .

[5] Ibid.

[6] Ibid.

[7] Ibid at 2.

[8]Cyril Shroff & Nisha Kaur Uberoi, India: Abuse of Dominance, Global Competition Review, http://globalcompetitionreview.com/reviews/69/sections/235/chapters/2749/.

[9] NSE vs. MCX-SX: Case Study, C.I.R.C., http://circ.in/pdf/Case_Study_05.pdf.

[10]Ashish Ahuja vs. Snapdeal & Ors., Case No. 17 of 2014.

[11] Cyril Shroff & Nisha Kaur Uberoi, India: Abuse of Dominance, Global Competition Review, http://globalcompetitionreview.com/reviews/69/sections/235/chapters/2749/.

[12] Ibid.

[13] Shri Shamsher Kataria vs. Honda Siel Cars and Ors, Case No. 03 of 2011.

[14]Competition act., art. 4(b).

[15] G.R Bhatia, Abuse of Dominance In Fact and In Law, competition commission of India, http://www.competition-commission-india.nic.in/competition_forum/ABUSE%20OF%20DOMINANCE.pdf .

[16] G.R Bhatia, Assessment Of Dominance, manupatra, http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=8de19f8a-5bbd-42b6-a96a-692a0f376625&txtsearch=Subject:%20Commercial.

[17] Augustine Peter, Treatment of Abuse of Dominance, competition commission of India, http://cci.gov.in/images/media/presentations/peter_15may_20080522152546.pdf.

[18] Ibid.

[19] Competition Law, kochhar, http://www.kochhar.com/pdf/Rationale%20For%20Competition%20Laws.pdf.

[20] Abuse Of Dominance, competition commission of india, http://www.cci.gov.in/images/media/Advocacy/Awareness/Abuse_Dominance.pdf.

[21] Ibid.

[22] Real Estate Analysis, competition commission of India, http://cci.gov.in/images/media/ResearchReports/A%20Review%20Of%20The%20Competition%20Issues%20In%20The%20Real%20Estate%20Sector%20An%20Analysis%20Of%20The%20Position%20Post%20DLF%20Case..pdf.

[23] Ibid at 22

[24] DLF Case, compact, http://compat.nic.in/upload/PDFs/mayordersApp2014/19_05_14.pdf .

[25] NSE vs. MCX-SX, CASE NO. 13/2009.

[26] Microsoft Corp. v Commission of the European Communities T-201/04, ec europa, http://ec.europa.eu/dgs/legal_service/arrets/04t201_en.pdf.

[27] Apurv SarDeshmukh, Abuse of Dominant Position by the BCCI-CCI Decision , Indian law journal , http://www.indialawjournal.com/volume6/issue_1/article5.html.

[28]Competition act., art. 2(h)

[29] G. R. Bhatia, Abuse of Dominance In Fact and In Law, competition commission of India, http://www.competition-commission-india.nic.in/competition_forum/ABUSE%20OF%20DOMINANCE.pdf.

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