I. ABUSE OF DOMINANT POSITION
The company that acts with negative intention to dominate the competitors in the market. Such kind of business practice is considered to be anti-competitive. The abusing position is prevented through section 4 of the Competition Act. Certain activities that imply the abuse of dominant position are: “impose of unfair or discriminatory condition or price in purchase or sale of goods, limits or restricts the production of goods or services or market therefore, technical or scientific development relating to goods or services to the prejudice of consumers, indulges in practices resulting in denial of market access makes conclusion of contract subject to acceptance by other parties of supplementary applications and related to the subject of such contracts, or uses its dominant position in one relevant market to protect another relevant market.(1)”
The dominant position of an enterprise can only be determined based on its position in the relevant market. Consequently, the relevant market shall be necessarily identified. The definition of the relevant market is defined in Section 2(r) of the Act: “the market which may be determined by the commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets.”
The relevant product market and the relevant geographic market has been defined in section 2(t) and 2(s) respectively. The case(2) stated that in order to determine the relevant product market and relevant geographic market the commission has to comply with the following factors.
Factors for relevant product market:
● Physical characteristics or end use of goods
● Price of goods or service
● Consumer preferences
● Exclusion of in-house production,
● Existence of specialised producers and
● Classification of industrial products
in terms of the provisions contained in section 19(7) of the Act.
Factors for relevant geographic market:
● Regulatory trade barriers
● Local specification requirements
● National procurement policies
● Adequate distribution facilities
● Transport costs
● Language
● Consumer preferences
● Need for secure a regular supplies for rapid after sale services
in terms of provisions contained in section 19(6) of the Act.
Case Law:
Google, a multinational tech Co., is ordered to have comply with the investigation procedure as ordered by the Competition Commission of India for violation of s.4 of the Act(3). i.e., abuse of dominant position. Under s.19(1)(a) of the Act, the case is filed as Google is believed to abuse its position in the OS market.
The allegation is that Google has entered into agreements of MADA and AFA which is Mobile Application Distribution Agreement and Anti-Fragmentation Agreement with majority of the manufacturers. This agreement resulted in the pre installation of Google related services in the android mobile phones. Microsoft Windows and iOS are excluded from the primary relevant market since they are highly secured products that pay attention to the developers who are strictly not third parties.
The pre-installation reduces the technological development as well as reduces the interest of the consumers to choose the relevant product of their choice. The mandatory tying up of the applications with the agreements is violation of s.4 of the Act. Google caused hindrance to the market in order to eliminate the competition by taking a dominant position.
The position of google has put denial of market access and the commission directed an investigation to be made appropriately with proper examinations to the pre-installation conditions. The investigation was ordered under s.26 (1) of the Act.
II. ANTI-COMPETITIVE AGREEMENTS
Any agreements that are likely to cause AAEC are anti-competitive agreements. Such agreements are prohibited to prevent disputes in the market. There are two types of anti-competitive agreements: horizontal and vertical. The classification between them is stated in section 3(3) & 3(4) respectively.
Horizontal agreements
The easy term of identification for the horizontal agreement is ‘cartel’(4) and it is defined as: “cartel is therefore an association of producers who by agreement among themselves attempt to control the production, sale and price of the product to obtain a monopoly in any particular industry or commodity. Analysing the object of formation of a cartel in other words, it amounts to ending the trip practice which is not in the public interest.” The enterprises with similar level of business enters into this agreement and they determine the sale and purchase price directly or indirectly; limited and controlled production; collusive bidding; by dint of geographical location the markets are shared.
When an enterprise acts in a collusive manner to obliterate the competition in the market and also does end up in exploiting the bidding process, it is considered to be a hard core cartel. When an agreement reaches a hard core cartel it is because it divides the market so that the matter shall be dealt with asperity(5). The commission imposed a fine which is twice its profit.
When it comes to bid rigging, the court expects to have a conclusive proof to prove there is a parallel pricing in bidding among the bidders(6). Failure to do so does not make it an agreement. The court has also laid down a test in this case which is called ‘test of standard of proof.’
Even though hard cartels are against the public interest, it raises a practice in the market to determine the price of sale and purchases. Such price fixation and collusion are very common elements of a cartel. It includes price recommendations and discounts(7).
The enterprises in the pharmaceutical market include the enterprises who are wholesalers, suppliers, chemists, druggists, distributors, sellers, stockists and also those involved in manufacturing of the medicines. In this case, the association of drug dealers, chemists and druggists, and distributors, sellers and stockists have adopted the abuse of dominant position that is in breaking with the provisions of the Competition Act. The allegations are that there has been a civil dispute when the enterprises along with others stopped the supply of the products and that these associations have been using their dominance to enjoy the position they are in for the distribution and supply of the drugs.
The court stated that there is a violation of s.3(3)(b) r/w s.3 (1) of the Act when the court found that limitation and controlling of drugs is a result of obtaining mandatory NOCs for stockists. This resulted the court to direct to cease the anti-competitive agreement practice(8). The agreement of limit and control will lower the resources with inflation in price and deflation in demand which is why the companies or association that works for the public interest and benefits try to keep market protected in any way possible(9).
Vertical agreements
The agreements entered between manufacturer-dealer, dealer-supplier or wholesaler-retailer, such level of agreement is vertical agreement. Tie-in arrangements, exclusive supply agreement, exclusive distribution agreement, refusal to deal and resale price maintenance are the agreements that are prohibited under the provision of competition act. Basically the vertical agreements are exclusionary in nature and not illegal.
The tie-in agreement or ‘contractual tying’ between Apple and Airtel/Vodafone to offer a packaged product to customers and this type of arrangement are very common in the telecommunication industry. The popular mobile devices are offered with these tying contracts. The answer to the question if these contracts or agreements are anti-competitive in this case is given by the directions and guidelines to determine the anti-competitiveness in an agreement. An agreement between two parties in a vertical chain to be anti-competitive essentially requires that the intention of such an agreement was foreclosure in both the relevant markets resulting in considerable consumer harm(10).
The vertical restraint placed by the company over the geographical area where the distributors of the product are allocated. The same has been monitored by the company and it is to be noted that such allocations lead to EDA/ Exclusive Distribution Agreement under s.3(4)(c) of the Act. The company also accommodated the Resale Price Maintenance for the product to the retailers. There is an allegation that there is no intra-band competition since the restraint is upon the dealers. CCI is of the opinion that the restraints have no adverse effect on competition and neither is against public interest. Bajaj does not have a position of strength in this sector in comparison with other brands. Such arrangement, in the presence of several companies and considering the dynamic nature of the sector, is unlikely to affect the Interbrand competition in the market(11).
OTHER LANDMARK JUDGMENTS OF COMPETITION LAW
Belgaum District Chemist and Druggist Association v. Abbott India Limited and Others(12)
The Karnataka Chemists and Druggists Association is found to be satiated in anti-competitive practices and also stands before the antitrust regulatory body for the second time. Generally the direction of the anti-trust regulator is not to insist on No objection certificate during the stockist. But, it is found that the members of the Association refuse the distribution of medicine from Abbott Pharmaceuticals as a result of non-obtaining NOC.
The Competition commission of India found the conditions while dealing with the issue of the association:
● The requirement of certificate for a new stockist
● The product information service charges for the introduction of new drugs and it has to be paid by pharmaceutical companies.
Both the above mentioned conditions are anti-competitive in nature and it results in exclusionary abuse.
The commission held that, “it is a welcoming effort if Chemists and Druggists Association offer PIS to facilitate compliance of the requirements of Drug Pricing Control Order, 1995. However, where PIS charge is collected as a mandatory prerequisite to launch a formal drug in a particular territory, it becomes stuck out for entry of the drug into the market.” Such limitation and restriction is violation of provisions of the act.
Fixing the trade margins by the Drug Association in an attempt to discipline the price competition and that amongst the wholesalers and retailers is not justifiable while usually the MRP of form of products is fixed by manufacturers. The CCI noted elimination of such competition restricts the freedom of wholesalers and retailers in deciding the price which they have to sell pharmaceutical products to their customers.
Reliance Big Entertainment Ltd vs. Karnataka Film Chamber of Commerce(13)
The anti-competitive acts like discrimination against film producers and the distributors that are foreign to the Karnataka State and compel the non-regional producers and distributors to the rules and regulations of unfair practices and making them join their association and instructing the members of the association to deal with the non-members. The anti-competitive regulations were followed to sign the operation to release the non-regional movie in the territory. Competition commission held that, “who is of MPA and other associations restricting their members not to deal with non-members, make in compulsory the registration of each film before release in the territories, restrictions regarding unfair holdback period for exploitation of Satellite, Video DTH and other rights.” This move is the dominant strength of the association which can contort the independent access to work in the market.
Hockey India is found to be non-anti-competitive in this case when it is charged with both anti-competitive practices and abuse of dominant position. It is when the regulation of sanctioned and unsanctioned is notified. Later the allegation of going against the disciplinary clause for the change in Code of Conduct agreement is also proven wrong. The promotion of its own league not considering the access of other leagues is not found as anti-competitive because of lack of circumstantial evidence.(14)
Cupid Limited v. Ministry of Health and Family Welfare & Others(15)
The informant in this case alleged that the opposite party abused its dominant position and made the informant and other manufacturers spend a long time which is unfair and abusive and also imposes vertical restraint and is subject to violation of section 3 and 4 of the act. Since one of the parties is a government body and is the central ministry under the government of India. The role of the ministry here is to procure the product by tenders and distribute them to various organisations and make it reach to the public at subsidised rates.
Petition commission observed that the Ministry of government of India is engaged in formulation of guidelines, regulations and policies for those matters that are incidental and ancillary to the health and public welfare sector in India. These activities are policy functions of the government and cannot be said to be commercial in nature. Hence, the commission is of the view that the ministry does not fall within the definition of ‘enterprise’ as defined in section 2(h) of the Act.
The first ever Foreign Direct Investment was made between Etihad Airways and Jet Airways and invested 49% cap investment in India. When this combination is proposed to be for the competition commission, the CCI approved this combination and held it is not likely to have any AAEC/appreciable adverse effect on the competition while it is also the only issue that is in question before the CCI. There is an allegation on the appeal filed under section 53B of COMBAT order that the CCI has failed to assess the possible factors and place proposed combinations at risk of competition and is supposed to have AAEC leaving the entire airline industry at risk. There is no possibility to verify every independent detail of the parties to be examined to an entirety or satisfaction.
When the nature of sovereign functions of an organization are generally inalienable, then it is not an enterprise, while any organization/govt entity which performs the functions that are alienable, then it is an enterprise(16). Delhi High Court on a question to if federation is an enterprise held that, “the defining feature of the concept of enterprise is that whether it engages in economic activity within the ambit of section 2(h) of the Act. If a person is engaged in any such activity, whom I talk with or without profit motive, it would be considered as an enterprise, as it interfaces with the market and hence, with other alternatives for the product or service in question.”
Mr. Mohit Manglani v. M/s/ Flipkart India Private Limited(17)
Four e- companies were investigated for indulging in anti-competition practices stating the companies are forming exclusive agreements with the sellers of goods and services. The complaint was filed under s.19(1) of the Act. The allegation is that the goods sold in e-commerce results in control and supply of the same and it creates the foreclosure of the physical market. This also is a reason to have their own T&Cs that is not in favor of the public interest. If these exclusive agreements are violative of the Competition Act provisions? The exclusive agreement used by the e-commerce party is definitely not being in dominant position but out of not being product specific of the relevant market. The Commission found that the e-commerce industry did not use its position to create any kind of barrier in the relevant market and it did not affect the interests of the consumer. Hence, no AAEC.
REFERENCES:
1. Section 4(2) of The Competition Act, 2002.
2. M/s Saint Gobain Glass India Ltd v. M/s. Gujrat Gas Company Ltd., MANU/CO/0029/2013
3. In Re Google LLC, Case No. 39 of 2018
4. Union of India v. Hindustan Development Corporation, (1993) 3 SCC 499
5. Surendra Prasad v. Mahagenco and Others, (2013) SCC OnLine CCI 86
6. Rajasthan Cylinders and Containers Limited v. Union of India, (2018) Indlaw SC 907
7. Imperial Chemical Industries Ltd v. Commission (I), 1972 ECR 619
8. In Re: Sandhya Drug Agency, (2013) Indlaw CCI 62
9. Varca Druggist and Chemist & Ors v. Chemists and Druggists Association, Goa (2012)
10. Sonam Sharma v. Apple Inc., 2013 SCC OnLine CCI 25
11. In re Ghanshyam Dass Vij, 2015 SCC OnLine CCI 174
12. (2017) Indlaw CCI 24
13. (2012) Indlaw CCI 49
14. Sh Dhanraj Pillay and Others v. Hockey India, Case No. 73 of 2011
15. (2018) SCC OnLine CCI 91
16. India Trade Promotion Organization v CCI & Ors, (COMPAT), (2016) SCC Comp AT 143
17. Case no. 80 of 2014 decided on 23.04.2015
Authors:
1. Ms. Roohi Babu, B.SC., B.L., (Hons), Advocate practicing at Madras High Court, with 5 years of experience in IPR and Family matters.
2. Angujanani. G, 4th Year student of BBA, LLB (Hons) at Saveetha School of Law, SIMATS, Chennai.