The Precondition of Dominance Under Section 4
Updated: Sep 1, 2022
The authors are Tanvi Agrawal & Shirin Suri, third year and second year student, respectively, at National Law Institute University, Bhopal.
Dominance refers to an enterprise’s state of financial strength, allowing it to preclude effective competition from being retained in a relevant market by granting it the ability to act independently of its competitors and, ultimately, its consumers.
The premise of abuse is an empirical issue relating to the behaviour of a dominant undertaking impacting the structure of an economy where the level of competition is undermined due to the very presence of the enterprise. By identifying the relevant market, dominance in that relevant market, and the type of abuse of dominance, it can be determined if a firm is abusing its dominant position.
a. Identifying the relevant market
The relevant market is bifurcated into two, i.e., the Relevant Geographic market (RGM) and the Relevant Product market (RPM).
RGM is where competitiveness exists for the supply of commodities, the provision of services, and the desire for goods or services.
RPM is a market consisting of products or services that the consumers evaluate as interchangeable or replaceable for many reasons, including product and service characteristics, costs, and intended purpose. Section 19(7) declares the factors that the CCI must consider while ascertaining the RPM.
b. Identifying the dominance in the relevant market
After classifying the market, it becomes essential to deduce the dominance in such a market. To establish the existence of the dominant position of an organization in the identified market, all the connected facets must be accommodated. Section 19(4) envisages the factors that the CCI considers in ascertaining the dominance of an enterprise. These factors include market share, size and resources of the enterprise, economic power, commercial advantages over competitors, sale or service network, and vertical integration of the enterprise. Furthermore, the size and importance of competitors must also be accorded due consideration in the process.
c. Identifying the type of abuse of dominance
Section 4(2) offers a list of abusive enterprise practices that constitute abuse of a dominant position. Accordingly, the abuse is categorized into exploitative and exclusionary practices. When the firm employs price discrimination techniques and intends to manipulate the consumers, all such actions are labelled under exploitative practices. On the other hand, when the firm indulges in practices to exclude the competitors, such practice is considered exclusionary.
1. CCI biting the apple for alleged abuse of dominance
The launch of the iPhone in 2007 signalled a generational shift in software development, albeit in two stages. Apple and Google drastically transformed software development and have already been on the radars of decision-makers and competition regulators in other countries.
Lately, an antitrust inquiry into Apple’s abuse of its dominant position was opened based upon the information submitted by a non-profit organization called Together We Fight Society (TWFS). It claims that Apple has mandated that software developers pay an in-app fee for allocating paid media content and using its payment system. This allegedly harmed competition in the marketplace by discouraging new competitors. Apple dismissed the claims based on its market share. According to the former position of the CCI, an entity can be held liable for abusive practices only if it is the sole dominant entity in the relevant market. Findings in Shri Sonam Sharma v. Apple Inc. support this where CCI failed to define a unique, relevant market for Apple iPhones.
Apple may not have a sizable market share in India’s licensed operating systems. However, it does have a significant presence among the non-licensable operating systems. The claim of “proxy filing” by Apple implies that TWFS is acting in collaboration with organizations with whom Apple has ongoing commercial and contractual problems. In contrast to situations in other nations, Apple might take a position in the Indian case. Under the competition law, the misuse of unfair pricing can only be considered if the alleged offending firm holds a dominating position. The latter is not a simple monopoly but rather the result of several factors, with market share acting as the primary one.
2. Zomato and Swiggy under the radar
Recently, the two food-delivery giants faced severe allegations of indulging in anti-competitive practices and were brought under the strict scrutiny of the fair marketing watchdog.
The National Restaurants Association of India (NRAI) allegations against Zomato and Swiggy were that they had hampered the payment cycle, forced biased clauses, and charged outrageous commissions from restaurants. The infringement of the competition laws by opposing parties by masking the available consumer data is another serious claim by NRAI in a string of allegations. This is not the first time such allegations have surfaced against the parties.
It becomes crucial at this stage to consider the analysis through which the CCI concluded to direct an investigation against the aggregators. In toto, the association put forth eight allegations, out of which the CCI is convinced that three allegations, namely, cloud kitchen, platform neutrality and price parity restrictions, mandate a prima facie investigation. The reasoning given by the CCI for the allegation of cloud kitchen was based on the existence of revenue interests and the minimum guarantee obligation in favour of Zomato. Further, the CCI found merit in investigating the issue of platform neutrality. It felt that it might also be seen during the investigation whether exclusivity in conjunction with minimum guarantee obligation further accentuates the structure, which may come in the way of the platform operating neutrally. The CCI believed that rule of reason analysis comes into the frame because the allegation of bundling services is an infringement under Section 3(4)(d).
The onerous conditions placed by these platforms and the harsh hit of the pandemic have led to several businesses shutting down permanently. The contention made was that the giants hampered the platform neutrality as they inclined towards prioritizing selected contractors. The association alleged that the aggregators set out an “exclusive supply agreement” with the contractors offering them heavy discounts to prioritize their listing on their service interface. This thereby disrupted the small businesses, which drowned in losses.
3. Judicial stand on abuse of market dominance
The interpretations delivered by the learned judiciary over the years to determine when dominance would be considered illegal have helped strengthen the laid down legislations. Several CCI judgments testify that anti-competitive practices are nurtured in the presence of abuse of dominance and not otherwise. Cases including Trend Electronics v. Hewlett Packard India Sales, Competition Commission of India v. Bharti Airtel Ltd. and Ors., and Fast Track Call Cab Pvt. Ltd. & Anr. v. ANI Technologies Pvt. Ltd have time and again established the same.
The chances that the struggle might weigh against the association can rise if the food delivery giants successfully brush off the allegations against them and prove themselves as non-dominant. However, taking into consideration the judgment of the Supreme Court in Uber India Systems Pvt. Ltd. v. CCI, which provided that “predatory pricing is prima facie indicative of abuse, as well as dominance”, can swing the decision of the competition watchdog in favour of the NRAI and can cause serious trouble to Zomato and Swiggy despite them claiming that they do not have any substantial control on the prices of the listed restaurants.
4. The loophole analysis
Even the availability of ample jurisprudence on the subject matter of dominance cannot spare it from the wrath of scrutiny. The subjectivity of the CCI has taken the front seat in the majority of the decisions, and this can be primarily attributed to the presence of vague language used by the drafters in Section 19(4) of the Act. To be precise, Section 19(4) provides that while inquiring about the existence of the dominant position of an enterprise, the CCI should consider “all or any of the following factors”. Further, the list mentioned under the Section is not exhaustive and broadens the way for CCI to let its subjectivity be the driving force to bring ambiguity to the surface instead of the expected objectivity.
Additionally, when a law, such as the Act, particularly specifies the mode of taking notice of accusations regarding direct violation of relevant provisions to certain anti-competitive agreements and abuse of dominant position by an organization in a particular way and at the instance of a person apart from other modes, upon a referral from the competent governmental authority, reference to receipt of any knowledge from any person in Section 19(1) should be taken into consideration.
Conclusion and way forward
Since 2011, the Competition Law has been in its final shape, ensuring legitimate competition in the market and the abolition of unethical behaviours. Competition-related legislation is currently being implemented. It is advised that CCI should be tasked with raising market awareness of these rules, mainly through educating small vendors and business centers. The corporate structure has been successfully penetrated by competition law, and the underlying people responsible for anti-competitive behaviours have been held accountable in the past. It is, however, essential to remember that there are some ambiguities in this Act. It is unclear what variables should be considered to determine the dominant position while considering the particular clauses of abuse of dominance stated above under this Act. The list provided under Section 19 is not all-inclusive, and different criteria may yield different results once applied. This clause frequently serves as a benefit to avoid liability for abuse of a strong position. Furthermore, clarity and transparency in the CCI’s method would allow businesses to establish a healthy corporate strategy within the confines of the Act.