Competition Law and Abuse of Dominance

The Competition Commission of India (“CCI”) has been repeatedly called upon to adjudicate on disputes involving allegations of abuse of dominance. Some of these decisions highlight a significant departure from global trends and to that extent ought to be of interest to corporates.

Abuse of Dominance
Section 4 of the Competition Act, 2002 (“Competition Act”) deals with abuse of dominance. This section provides that no enterprise or group shall abuse its dominant position. In considering whether an enterprise or group is abusing its dominant position, the CCI considers various factors, including:

(a) directly/indirectly imposing unfair or discriminatory condition in the purchase or sale of goods or services;
(b) limiting or restricting the production of goods or services;
(c) indulging in practices that would lead to denial of market access;
(d) using its dominant position in one relevant market to enter into, or protect another relevant market.

One of the key provisions in Section 4 is with respect to using its dominant position in one relevant market to enter into or protect another relevant market. The dominant position is defined to mean a position of strength, in the relevant market, (a) which enables it to operate independently of competitive forces prevailing in the relevant market; or (b) affect its competitors or consumers or the relevant market in its favor. 1 The CCI, while inquiring whether an enterprise enjoys a dominant position, would consider the factors mentioned in Section 19 (4) of the Competition Act, including:

(a) market share;
(b) size and resources;
(c) the economic power of the enterprise including commercial advantages over competitors;
(d) dependence of consumers on the enterprise;
(e) size and importance of the competitors;
(f) social obligations and social costs. 2

The assessment of dominance depends on the delineation of the correct relevant market in which the dominance of the enterprise under consideration is to be assessed. 3

The following are the conditions for the violation of Section 4:
1. Section 4 (e) of the Competition Act
2. Section 19 (4) of the Competition Act
3. GKB Hi-Tech Lenses Private Ltd v Transitions Optical India Private Ltd., Case No. 01/2010, decided on 16 May

(a) Determination of the relevant market-relevant product or geographic market;
(b) Determination of ‘dominance’ in the relevant market; and
(c) Determination of ‘abuse’ of its dominant position.
‘Relevant Market’ has been defined under the Competition Act as ‘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’. Especially in the market between offline and online players, determining the ‘relevant market’ is important. This was elaborated in the case of Shri Vinod Kumar Gupta, Chartered Accountant Vs. WhatsApp Inc., 4 which is discussed below.

Time and again, the CCI has decided that “mere dominance is not void, rather the abuse of dominance is required.” In the CCI order in Poonam Gupta v. Unitech Limited, 5 it was observed that the Competition Act did not prohibit dominance per se, but rather its abuse. Even in the Meru Travels case, 6 the CCI observed that dominance was per se not bad, however, abuse of the dominant position was against the Competition Act.

Judicial Guidance
In the case of Shri Vinod Kumar Gupta, Chartered Accountant Vs. WhatsApp Inc., 7 as discussed below. where Whatsapp was alleged to have abused their dominant market in the market of ‘free messaging apps available for various smartphones globally’. This was alleged on the ground of predatory pricing and by mandating users to share information with its parent company Facebook. However, CCI stated that there was a difference between the markets for ‘traditional electronic communication services such as text messaging’ and that of ‘instant modes of communications’ and dismissed the petition. The following were the key differences as observed by the CCI:

(a) Instant communication apps were internet-based and provided additional functionalities such
as the ability to see when contacts are online and when they last accessed the app;
(b) Instant communications can only be used through smartphones; and
(c) The pricing conditions between instant communication apps and traditional modes were different. Whatsapp was free to download and does not charge any specific fees.

4 Shri Vinod Kumar Gupta, Chartered Accountant Vs. WhatsApp Inc Case No. 99/2016
5 Poonam Gupta v. Unitech Limited, Case No.04/2012
6 Meru Travels Solutions Private Limited v. Competition Commission of India and Ors., 2017CompLR43(CompAT)
7 Shri Vinod Kumar Gupta, Chartered Accountant Vs. WhatsApp Inc Case No. 99/2016

The CCI also stated that the relevant geographic market would be ‘India’ although CCI noted the importance of the ‘digital economy’. This becomes important with technological innovations and the cross-border functionality of apps.

CCI, in this case, considered the relevant market to be the ‘market for instant messaging services using consumer communication apps through smartphones in India’. With respect to ‘dominance’, CCI noted that India has a number of other players, such as Apple, Blackberry, etc and each of these service providers was also not charging any subscription price and therefore there was no predatory pricing. For the allegation of ‘abuse of dominance’ due to ‘data sharing’, the CCI held that there was an ‘opt-out’ option that was given by Facebook and therefore Whatsapp was abusing its dominance.

In Poonam Gupta v. Unitech Limited, 8 the informant’s grievance was that Unitech had failed to fulfill its obligation by not handing over the possession of the purchased apartment, as promised in time and therefore, violated Section 4 of the Competition Act, by abusing its dominant position. The informant alleged that Unitech had a huge market capitalization than its competitors and was, therefore, was in a dominant position. The relevant market was determined by CCI as commercial space on sale and residential units on sale in and around Noida. However, it was held that in this particular case, Unitech had several other competitors and the informant had a lot of choice at the time of booking of commercial and residential units; therefore,
Unitech’s lack of fulfilling its obligation did not amount to an abuse of dominance. Further, since the informant had only given the market capitalization of Unitech in India and not Noida specifically (which was the relevant market), the CCI did not find any abuse of dominance. Another observation was that an enterprise may enjoy a dominant position in one geographic market, but may not be dominant in another geographic market and therefore relevant market becomes important to determine abuse of dominance. This case highlighted the importance of multiple competitors in the market and how there would not be an abuse of dominant position if the consumer had the option to shift between service providers.

The CCI in Limited and Ors. v. Google and Ors. 9, held that Google enjoyed a dominant position in the specified product market in India and had abused its dominance. The CCI ruled that Google enjoys a dominant position in Online General Web Search and Web Search Advertising Services in India which was the relevant market. The prominent placement of Google’s flight unit displaying flight offers directed users to Google’s own specialized flight search options as opposed to third-party websites depriving users of additional choices and imposing unfair conditions. The CCI was of the opinion that a search engine functioned differently and was distinguishable from a direct search option by typing in the URL which requires users to be aware of the specific websites which offer relevant information, the user is seeking. Also, the CCI observed that Google was dominant in the relevant market based on its market share fueled by

8 Poonam Gupta v. Unitech Limited, Case No.04/2012 –
9 Limited and Ors v. Google and Ors., Case No.07/2012 –

the presence of high entry barriers and scale advantage which limited the ability of users to switch to competitors of Google. The majority view held that Google was using its dominance in the market for online general web search to impose restrictive conditions in online syndicate search the agreement, in violation of Section 4 (2) (e) of the Competition Act. In another case of Transpole Logistics Pvt. Ltd v. Barclays Bank Plc, 10 the informant filed information against Barclays Bank Plc, alleging that non-disbursement of credit facility despite agreeing for the same and collecting processing fees from the informant, led to the opposing party abusing its dominant position. It was further alleged by the informant that the respondent bank was in a position of strength which enabled it to operate independently and negatively affect the customers. The CCI looked at the market position of the different entities that provided working capital loans. The market research showed that Barclays Bank had a very small or insignificant market share and was therefore not in a position to operate independently in the relevant market or affect consumers in its favor. The CCI also looked at the factors under
Section 19 (4) and found that Barclays Bank did not enjoy a dominant position in the relevant market. The CCI also went on to hold that the issue of the practice of banks was in the nature of individual consumer dispute and Competition Act would not apply to this case. In this case, market share was an important indicator to show that there was no dominance.

In the Meru Travels case, 11 its was alleged by the informant Meru, that Ola and Uber had entered into agreements with drivers and employed a lucrative incentive model, which led to the drivers locked into one network. The informant further alleged that Ola’s incentive of minimum business guarantee induced drivers to stay on its network and was therefore anti-competitive and that Ola and Uber were collectively in the market for ‘radio taxi services in the city of Hyderabad’ and that they had abused their dominant position. In another case No.27 of 2017, where Meru alleged Uber and in case No. 28 of 2017, where Meru alleged Ola to abuse their dominant position due to the market share, the CCI had held that high market share in itself might not be indicative of dominance and the factors under Section 19(4) of the Competition Act will also need to be met. Though the market share is theoretically an important indicator for lack of competitive constraints, it is not a conclusive indicator of dominance, and the CCI rejected the arguments of Meru based on this and held that neither Uber nor Ola abused their dominant position.

In Sonam Sharma V. Apple and Ors. 12 it was alleged by the informant that the opposite party was taking advantage of its dominant position by entering into tie-in agreements with the other opposition parties – which would lock iPhones with a certain carrier. The informant stated that by offering expensive subscription services and compulsorily locking the handsets to their respective networks and by threatening to void the warranty terms of such iPhones that have been unlocked and/or jailbroken by the users in order to use the same on the networks of their GSM competitors or to use unapproved third-party applications on their iPhones constituted an abuse of

10 Transpole Logistics Pvt. Ltd v. Barclays Bank Plc., Case No. 38/2010 –
11 Meru Travels Solutions Private Limited v. Competition Commission of India and Ors., 2017CompLR43(CompAT)
12 Sonam Sharma V. Apple and Ors., Case No. 24/2011

dominance. However, such lock-in exists in other countries and can be exited through the payment of a fee. The question before the CCI was whether the opposite parties were guilty of abuse of dominance. In order to check for dominance, the CCI held that the relevant market has to be defined in terms of product-substitutability from a demand perspective and that it has two dimensions – product and geography. In the absence of any specific finding that Apple iPhone constituted a distinct market, the CCI held that the relevant market was the market of smartphones in India and that the other relevant market was the market for GSM mobile services in India. The CCI stated that at the time of the launch of iPhones in India, Apple did not have its own retail stores and that it might have been a conscious decision of Apple to sell the iPhones through existing mobile network operators (MNOs) in a locked state. Further, the customers were given the option to unlock the phone and that such practice was present in many other countries as well. The CCI noted that the following conditions were necessary for an anti-competitive tying since tie-in agreements are not per se anti-competitive:

(a) presence of two separate products or services capable of being tied (ie) there must be a requirement that the purchase of a commodity is conditional upon the purchase of another commodity;
(b) the party must enjoy sufficient market power with respect to the tying product to appreciably restrain free competition in the market for the tied products
(c) the tying arrangement must affect a substantial amount of commerce. Thus, CCI held that there was no abuse of dominance as Apple was not dominant, nor was there an anti-competitive agreement executed between the parties.

The CCI’s decisions reflect a tendency to adopt a very commercial approach to competition law, in general, and abuse of dominance, in particular. This approach is welcome from the rather pedantic approach adopted by the CCI, in various other matters. The CCI also gives importance to the number of competitors in the market to determine whether there has been any ‘abuse’ under the Competition Act.

Do reach out to us if you have any comments or questions.

Leave a Comment

Your email address will not be published. Required fields are marked *