Abuse of dominanceDefinition of abuse of dominance
How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?
Section 4(2) of the (Indian) Competition Act 2002 (the Act) provides that there shall be an abuse of a dominant position if an enterprise or a group:
- directly or indirectly imposes unfair or discriminatory conditions or prices in the purchase or sale of goods or services;
- restricts or limits production of goods or services in the market;
- restricts or limits technical or scientific development relating to goods or services to the prejudice of consumers;
- indulges in practices resulting in a denial of market access;
- makes the 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; or
- uses its dominance in one market to enter into or protect its position in other relevant markets (ie, leveraging).
In the absence of dominance, there can be no abuse; therefore, as a first step, dominance of an enterprise in a relevant market needs to be established.
In Uber India Systems Private Limited v CCI (2019), the Supreme Court held that the losses made by Uber per trip were prima facie indicative of abuse (through predatory pricing) as well as of dominance itself.
As to the requirement to show anticompetitive effects, in some older cases, the Competition Commission of India (the CCI) considered and applied an object-based approach while finding abuse (for example, the National Stock Exchange case).
In more recent cases, however, the CCI and COMPAT/NCLAT have deployed an effects-based approach while evaluating abusive conduct. The following cases are illustrative.
In the Schott Glass appeal (2014), the COMPAT found that unlawful price discrimination required showing of both ‘(1) dissimilar treatment to equivalent transactions; and (2) harm to competition or likely harm to competition in the sense that the buyers suffer a competitive disadvantage against each other leading to competitive injury in the downstream market’. The COMPAT found the CCI had wrongly ignored the second limb and that the evidence showed there was ‘no effect on the downstream market and ultimate consumer did not suffer’ as a result of the alleged conduct. The matter is under appeal before the Supreme Court. Recently, in Tata Power Delhi Distribution Limited v Competition Commission of India (2018), the CCI observed that the seminal issue in an abuse of dominance case is harm to consumers; however, given that the electricity tariffs were fixed by a regulator (Central Electricity Regulatory Commission), the issue of harm to consumer did not arise. The case was appealed to the NCLAT; the parties negotiated a settlement during the pendency of the appeal, and the NCLAT accordingly disposed of the case.
In XYZ v REC Power Distribution Company Ltd (2016), the CCI noted that establishing a denial of access meant proving ‘anticompetitive effect/distortion in the market in which denial has taken place’.
In Dhanraj Pillay & Ors v Hockey India (2013), the CCI balanced anticompetitive effects against Hockey India’s justifications. The CCI held that the Act was not violated where allegedly abusive contractual restrictions were not disproportionate to a sporting organisation’s legitimate regulatory goals.
In ESYS Information Technologies Pvt Ltd v Intel Corporation & Ors (2014) (Intel case), the CCI dismissed section 4 claims based on Intel’s distribution agreements in part because ‘the distributors of intel products are not precluded from dealing in the products of its competitors and in fact they were found dealing in the competing products’ and therefore ‘there is no question of foreclosure of market for the competitors of Intel’.
In summary, the more recent CCI and COMPAT/NCLAT jurisprudence reflects a move away from a rigid form-based analysis. Instead, the CCI is increasingly requiring proof of anticompetitive effects in its enforcement action.Exploitative and exclusionary practices
Does the concept of abuse cover both exploitative and exclusionary practices?
Although not expressly stated as such, section 4 is drafted widely enough to cover both exploitative and exclusionary practices. The CCI, in HT Media Ltd v Super Cassettes Ltd (2014) (HT Media case), observed that pricing abuses may be ‘exclusionary’ (ie, pricing strategies adopted by dominant firms to foreclose competitors) or ‘exploitative’ (ie, which cover instances where a dominant firm is accused of exploiting its customers by setting excessive prices). In this case, the CCI held the minimum commitment charges (MCC) imposed by Super Cassettes Industries Limited to be both exploitative and exclusionary.
Exploitative abuses, such as excessive pricing and unfair terms of contract, have been considered in various cases by the CCI. In Shri Shamsher Kataria v Honda Siel Cars India Ltd & Ors (2014) (Auto Parts case), the CCI considered the passenger vehicle market and the after markets comprising spare parts, diagnostic tools and provision of after-sales repair and maintenance services. It found that 14 car companies had abused their dominant positions in their respective after markets by requiring customers to purchase spare parts and diagnostic tools solely from the respective car manufacturer or its authorised dealers. The CCI held that this amounted to a denial of market access to competitors, applying the essential facilities doctrine. The CCI also found that the car manufacturers had engaged in excessive pricing of their spare parts. This finding has been confirmed by the COMPAT (2016). On appeal by three of the car manufacturers, the Supreme Court has stayed operation of the COMPAT’s judgment.
In the Coal India case (2014), the CCI found that Coal India, which had a state-sanctioned monopoly on coal supplies, had imposed unfair terms and conditions in its contracts relating to supply of coal to customers. On appeal, this was upheld by the COMPAT (2016) and is currently under appeal in the Supreme Court. Separately, following the setting aside and remand of another finding of abuse of dominant position against Coal India, the CCI re-examined the agreements entered into by Coal India and again found a contravention. However, largely on the basis of remedial measures taken by Coal India, the CCI reduced its earlier penalty from US$273 million to US$91 million. This case is also under appeal in the Supreme Court.
In Google (2018), the CCI held that the pre-determined and prominent display of Google’s own products in the search results was an unfair/discriminatory condition in the provision of services. The case is currently under appeal in the NCLAT.Link between dominance and abuse
What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?
The CCI is not required to demonstrate the link between abusive conduct and dominant position. It appears that any particular conduct could amount to an abuse if committed by a dominant enterprise.
It is also not necessary for the dominance to exist in the same market where the effects of the anticompetitive conduct are felt. Section 4(2)(e) of the Act provides that there shall be an abuse of a dominant position if the dominant enterprise uses its dominant position in one relevant market to enter or protect another relevant market.Defences
What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?
The only explicit defence that is listed in the Act is the ‘meeting competition’ defence for discriminatory prices or conditions. This defence enables enterprises in dominant positions to respond to moves made by their competitors. For example, in Dhruv Suri v Mundra Port & Special Economic Zone Ltd (2010), the CCI allowed the discounts charged by a port operator, noting that they were designed to meet the competition from other port operators in the relevant market.
The Act does not provide for an objective justification defence; however, the CCI has considered justifications in limited circumstances. In the Schott Glass case (2012), the CCI held that Schott Glass was within its rights to cease supplies to a customer to protect its trademarks and that its refusal to supply to such customer was objectively justified. In the Schott Glass appeal (2014), the Competition Appellate Tribunal (the COMPAT) also observed that the grant of more favourable target discounts to a customer who provides more business may not be anticompetitive, provided no harm is caused to competition in the market. However, where conditions for granting such discounts were dissimilar for equivalent transactions, then it would cause anticompetitive effects in the market. Though target discounts, coupled with fidelity rebates (discounts offered as a counterpart of a commitment from the purchaser to place all or most of its orders with the seller) can be a persuasive horizontal exclusionary device aimed at foreclosing competition, in this case they were justified as Schott Glass offered the discount to an entity that was purchasing a larger quantity of the product and, thus, did not qualify as an equivalent transaction. Further, the discount policies and agreements were aimed at ensuring better quality in the face of competitive pressures from Chinese counterparts. The rationale for granting such favourable terms was based on efficiency and economies of scale.
In Faridabad Industries Association (FIA) v M/s Adani Gas Limited (AGL) (2014) (Adani Gas case), the CCI held that a restriction imposed by a dominant enterprise may not be abusive if the dominant enterprise is imposing the restriction because it is subject to the same restriction by a third party.
In Auto Parts (2016), the COMPAT refused to accept that the car manufacturers’ limited distribution of their spare parts was justified to prevent counterfeiting and their installation by unskilled independent repairers. The COMPAT held that, although this was a legitimate concern, consumers would be better served if inexpensive spare parts were made readily available on the open market, reducing the potential demand for counterfeits. The COMPAT required the government to intervene and develop quality standards for repairers. On appeal, the Supreme Court has stayed the COMPAT’s judgment.
In Anand Parkash Agarwal v Dakshin Haryana Bijli Vitran Nigam and Ors (2017), the COMPAT held that while discriminatory pricing is not permissible under section 4(2) of the Act, if there are any objective justifications or a ‘redeeming virtue’ for different prices being charged from different consumers, it may not amount to discriminatory pricing. The CCI held that the variation in pricing was authorised by virtue of section 62(4) of the Electricity Act, based on the objective criteria of consumption.
Specific forms of abuseTypes of conduct
The (Indian) Competition Act 2002 (the Act) does not specifically cover discounts and rebate schemes. However, rebate schemes may be looked at from the perspective of unfair or discriminatory prices and conditions, or other exclusionary practices (eg, that limit or control production of goods and supply of services or are practices that result in the denial of market access), and, therefore, may be covered under the Act.
In the Intel case (2014), the Competition Commission of India (the CCI) found that Intel’s incentive and target schemes did not foreclose competitors, and that this was reflected in the distribution of competing microprocessors by Intel’s distributors and OEMs. The complainant’s allegation that distributors were restricted from dealing in competing products was found to be unsubstantiated. Further, the CCI observed that Intel’s incentive schemes were targeted at increasing sales of low-demand products and offered non-predatory discounts to meet competition, all of which were found to constitute reasonable business practices.
Tying and bundling
Unilateral tying and leveraging are considered abusive under section 4(2)(d) and section 4(2)(e) of the Act.
In Sonam Sharma v Apple (2013), the CCI set out the conditions for prohibited tie-in arrangements under section 3(4) of the Act (which deals with anticompetitive vertical agreements, but has some bearing on tying under section 4):
- the presence of two separate products or services capable of being tied. The purchase of a commodity must be conditioned upon the purchase of another commodity;
- the seller must have sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product; and
- the tying arrangement must affect a ‘not insubstantial’ amount of commerce: a tie-in arrangement is only considered to be abusive if a ‘substantial’ portion of the market is affected.
The Competition Appellate Tribunal (the COMPAT) in the Schott Glass appeal (2014) held that, for an abusive tie-in arrangement under section 4(2)(d) of the Act to be made out, the tied product and tying product must be entirely different and have no connection to each other in their application. The CCI in Khemsons Agencies v Mondelez India Foods Private Limited (2018) held that, given that the coolers to store chocolates were provided free of cost on a voluntary basis, there was no tying of coolers with the sale of chocolates.
Exclusive dealing, non-compete provisions and single branding restrictions could constitute abuses of dominant position, as they would all be characterised as practices that result in the denial of market access as covered by section 4(2)(c) or limiting production or technical development as covered by section 4(2)(b). The CCI is increasingly analysing the foreclosure effect of such conduct as a requirement under section 4 of the Act.
Explanation (b) to section 4 of the Act sets out a two-step test for assessing whether a dominant enterprise’s conduct is predatory. First, the price must be below cost (as determined on the basis of CCI regulations) and second, the dominant enterprise must have the intention to reduce competition or eliminate competitors.
The CCI has published regulations on determining the cost of production, which state that the default cost benchmark is average variable cost (as a proxy for marginal cost). However, the CCI and the Director General (DG) may consider other cost measures such as avoidable cost, long-run average incremental cost and market value, depending on the nature of the industry, market and technology used, with reasons provided in writing.
In the National Stock Exchange case (2011), the CCI found zero pricing by the National Stock Exchange (NSE) in the currency derivatives segment of stock exchange services to be unfairly low pricing. In appeal, the COMPAT determined that the zero pricing by NSE was predatory. However, neither the CCI nor the COMPAT provided any guidance on the relevant cost benchmark to be applied in predatory pricing cases. The NSE has filed an appeal against the COMPAT’s decision before the Supreme Court.
In two subsequent cases involving predatory bidding, M/s Transparent Energy Systems Pvt Ltd v TECPRO Systems Ltd (2013) and HLS Asia Limited, New Delhi v Schlumberger Asia Services Ltd, Gurgaon & Ors (2013), the CCI held that predatory pricing had to be assessed on the basis of an appropriate cost benchmark (ie, average variable cost), as a reduction of prices in itself was actually the essence of competition. The CCI also observed that the abuse of predatory pricing had to be assessed on the basis of actual prices and not projected prices.
In July 2017, the CCI dismissed allegations that Ola Cabs (Ola) had engaged in predatory pricing by giving discounts to passengers and incentives to drivers on a scale such that it was operating at a loss in Bengaluru. The CCI held that Ola did not hold a dominant position in the relevant market as Ola and Uber posed competitive constraints on each other. The CCI also decided not to interfere with a new and evolving market, noting that any interference at this nascent stage would disturb market dynamics and risk prescribing a sub-optimal solution. The appeal is being heard by the NCLAT.
Price or margin squeezes
Price squeezes, although not specifically referred to in the Act, would be covered where they amount to unfair or discriminatory pricing terms under section 4(2)(a)(ii) of the Act and denial of market access under section 4(2)(c) of the Act.
In 2020, the CCI passed its only infringement order of the year in the case of In Re: XYZ v Association of Man Made Fibre Industry of India (2020) (GIL case) finding Grasim Industries (GIL) to have abused its dominant position in the market for ‘supply of viscose staple fibre (VSF) to spinners in India.’ While not a margin squeeze assessment, the CCI held that GIL had abused its dominant position by engaging in a discriminatory pricing strategy by charging higher prices to its downstream and domestic customers compared to its international customers. The matter is now under appeal before the NCLAT.
Refusals to deal and denied access to essential facilities
A refusal to deal has been defined in the context of a vertical arrangement under section 3(4)(d) of the Act as ‘any agreement which restricts, or is likely to restrict, by any method, the persons or classes of persons to whom goods are sold or from whom goods are bought’. In the Auto Parts case (2014), a fine of 25.44 billion rupees was imposed on 14 car manufacturers for restricting the sale of car spare parts in the open market. This conduct was held to be both an abuse of dominance, as being a denial of market access under section 4(2)(c) of the Act, and a refusal to deal, on account of imposing restrictions through agreements, under section 3(4)(d) of the Act. On appeal (2016), the COMPAT upheld the substantive findings of the CCI but reduced the overall level of penalty. The COMPAT’s judgment was stayed by the Supreme Court on appeal.
Access to essential facilities would be covered under practices resulting in a denial of market access under section 4(2)(c) and possibly section 4(2)(b), which prohibits limitations or restrictions on the production of goods or provision of services or technical or scientific development relating to goods or services to the prejudice of consumers.
In Arshiya Rail Infrastructure Ltd v Ministry of Railways (2013), the complainants had alleged that railway infrastructure was an essential facility and that the Ministry of Railways’ refusal to provide access to this rail infrastructure amounted to an abuse of dominance. The CCI found that the essential facility doctrine could be invoked upon an appraisal of the technical feasibility to provide access, the possibility of replicating the facility in a reasonable period of time, the distinct possibility of lack of effective competition if such access was denied and the possibility of providing access on reasonable terms. Only if these legal conditions were satisfied could a refusal to deal constitute an abuse under section 4. In this case, in relation to access to railway infrastructure, the CCI found that there were no technical, legal or even economic reasons why container train operators could not create their own terminals or similar facilities. The CCI, therefore, dismissed the complainants’ allegations of abuse.
Further, in the BCCI case (2013), the CCI provided interesting insights into the interpretation of the essential facilities doctrine in India. The CCI found that BCCI had misused its role as the regulator of cricket in India to restrict economic competition in sporting events. The CCI appeared to suggest that a restriction of access by a dominant enterprise to necessary infrastructure (which might be considered as an essential facility) to the detriment of competitors could amount to refusal to deal. This case was remanded by the COMPAT to the CCI for reconsideration on certain procedural grounds. Consequently, the CCI passed its order (2017) in the matter after re-examining the issues before it and found a contravention by the BCCI.
In Air Works India (Engineering) Private Limited v GMR Hyderabad International Airport (GMR) and Another (2019), the CCI declared the Rajiv Gandhi International Airport (RGIA) to be an essential facility, and found a prima facie violation of section 4 of the Act by GMR, directing an investigation by the DG. The CCI held that as:
- GMR controlled access to the RGIA;
- the RGIA was not a facility that could be duplicated by a competitor;
- GMR had denied access by a competitor to the RGIA;
- there was no alternative means of entering the relevant market (of line maintenance services at the RGIA) at a reasonable cost without having access to the RGIA; and
- there was spare capacity in the RGIA for providing line maintenance services, the RGIA was an essential facility.
The CCI’s order directing the DG to investigate was subsequently stayed by the Telangana High Court.
In Fastway (2018), the Supreme Court held that an illegal termination of an agreement amounted to a denial of market access. However, on the facts of the case, it decided not to levy any penalty.
Predatory product design or a failure to disclose new technology
Although reasonable conditions for the protection of intellectual property rights (IPRs) are not restricted by the Act with respect to anticompetitive agreements, there is no such explicit mention of IPRs in the abuse of dominant position provisions of the Act. An unreasonable unilateral refusal to license an IPR or discriminatory price between two enterprises can constitute an abuse of dominant position if these actions result in the imposition of an unfair condition or price, denial of market access, limiting production, technical or scientific development or price discrimination, or a combination of any of these.
In the Auto Parts case (2014), the CCI held that an unreasonable denial of market access by a dominant company could not be defended on the basis of holding IP rights and would be considered abusive under section 4.
In the HT Media case (2014), the minimum commitment charges (MCC) imposed by SCIL were considered exploitative and an abuse of SCIL’s intellectual property rights by the CCI because private FM radio stations had to pay the MCC irrespective of their actual play-out, which could be lower than the MCC. The matter is on appeal to the NCLAT.
The CCI is currently investigating the potential abuse of a dominant position by Ericsson, on the basis that as the holder of a standard essential patent, it was bound by the commitments to license on fair, reasonable and non-discriminatory terms it had entered into while participating in the standard-setting process. Failure to abide by those commitments could amount to an abuse of dominance, as has been found in other jurisdictions.
Section 4(2)(a)(i) of the Act prohibits non-price discrimination and section 4(2)(a)(ii) prohibits price discrimination.
The COMPAT, in the Schott Glass appeal (2014), found that the abuse of price discrimination involved the satisfaction of two ingredients: (1) dissimilar treatment of equivalent transactions; and (2) harm/likely harm to competition by which buyers suffered disadvantage against each other. The COMPAT provided further guidance on conduct that might be considered as discriminatory by noting that ‘[t]he price and conditions could be said to be discriminatory if, and only if, they were different for the same quantities of the same product’. The COMPAT’s approach to discriminatory conduct has been followed by the CCI in the Intel case, where the CCI observed that:
[i]t appears to be a common business practice to give better discount to the bulk purchase and unless it impedes the ability of the reseller to compete any competition may not probably arise . . . the alleged pricing policy of Intel does not amount to secondary line price discrimination and has not resulted in foreclosure of any of its downstream customers.
Further, in Singhania & Partners LLP v Microsoft Corporation (I) Pvt Ltd & Ors (2011), the CCI (and, on appeal, the COMPAT in 2012) found that the prices imposed by Microsoft for different types of licences (OEM licences, volume licences and retail licences) granted to different categories of customers did not amount to price discrimination as the different licences giving customers different rights of use were, in fact, different products. Similarly, in Travel Agents Federation of India v Lufthansa Airlines (2010), where the prices of Lufthansa tickets on its official website were different from the fares made available to appointed travel agents, the CCI found that the sale of airline tickets through travel agents and through Lufthansa’s official website constituted two distinct markets and mediums and, consequently, the different fares did not amount to price discrimination.
In opening its investigation against Ericsson (2015), the CCI prima facie found that the licences charged by Ericsson were, as well as being a breach of its commitments to license on fair, reasonable and non-discriminatory terms, also discriminatory. The royalty rate being charged by Ericsson had no link to the functionality of the patented product; rather it was based on the final price of the manufactured product in which the patent was being used. Accordingly, the charging of two different licence fees per phone for use of the same technology was held to be discriminatory by the CCI and an investigation was ordered into Ericsson’s conduct.
In the GIL case (2020), the CCI also imposed a penalty on GIL for indulging in discriminatory pricing by offering lower prices to manufacturers who were exporting their products and higher prices to those selling VSF in India.
Exploitative prices or terms of supply
Exploitative abuses, such as excessive pricing and unfair terms of contract, have been considered in various cases by the CCI. In the Auto Parts case (2014), the CCI found that 14 car companies had abused their dominant positions by requiring customers to purchase spare parts and diagnostic tools solely from the respective car manufacturer or their authorised dealers. The COMPAT, while deciding the appeal, agreed with the CCI’s analysis that the margins from spares business substantially exceed the margins from the business of selling cars and held that the car companies were charging an unfair price in the spare-parts market. On appeal, the Supreme Court has stayed the COMPAT’s judgment.
On the contrary, the COMPAT’s decision in the Orissa Steel Federation case (2016) follows the approach of the EU courts to excessive pricing: it is not enough for the CCI to argue that a price is excessive, but it must also show unfairness. Besides the costs, the CCI should also consider the difference between what the dominant firm and other firms can charge, what different customers pay, whether customers can still be profitable, and whether there is a shortage of supply (in which case high prices may be an efficient method of allocating the product).
In the HT Media case, which is now under appeal before the NCLAT, the CCI considered the minimum commitment charges imposed by SCIL as exploitative.
In Meet Shah v Ministry of Railways and Another (2020), the CCI held the Indian Railway Catering and Tourism Corporation’s (IRCTC) practice of rounding up the base fare of e-tickets sold through the IRCTC website to the next highest multiple INR 5 tranche does not amount to imposing unfair conditions because it was established that rounding up was intended to help bridge the cost/income deficit, that there was no discrimination between passengers and it also reflected the long standing policy of Ministry of Railways.
In Indian Chemical Council v General Insurance Corporation (GIC) of India (2019), the CCI, while rejecting an allegation of excessive pricing against GIC, held that a pure pricing decision would cause no competition concern, unless it showed an abuse of dominant position. The pricing decision that was upheld pertained to a GIC circular amending the method of calculating reinsurance premiums for the fire insurance segment with general insurance companies, leading to substantially increased premiums. Since the circular neither prevented general insurance companies from offering premiums at lower rates to a primary insurer, nor precluded them from opting for an alternate reinsurer other than GIC, the pricing decision was not found to be abusive.
Abuse of administrative or government process
Section 4 of the Act may cover abuses in the nature of sham litigation that result in denial of market access and limiting production, technical or scientific development.
In the case of Bulls Machines v JCB India Ltd (JCB) (2014), Bulls Machines filed a complaint before the CCI alleging abuse of judicial process by JCB to exclude competitors. The complaint was filed owing to proceedings initiated by JCB before the High Court of Delhi alleging infringement of the design registrations and copyright of JCB by Bulls Machines in developing the backhoe loader ‘Bull Smart’; JCB obtained an ex parte injunction against Bulls Machines on the basis of alleged design infringements. The interim order was later suspended by the High Court of Delhi. The CCI found there was a prima facie case that JCB had abused its dominant position in the manufacture and sale of backhoe loaders in India by initiating these proceedings and directed the DG to proceed with the investigation.
Mergers and acquisitions as exclusionary practices
Although structural abuses are not specifically dealt with under the abuse of dominance provisions in the Act, the merger control provisions of the Act require mandatory pre-notification of combinations that cross certain financial thresholds contained in section 5 of the Act. Combinations that cause or are likely to cause appreciable adverse effect on competition (AAEC) in India are void.
Mergers and acquisitions that do not meet these financial thresholds may be assessed under section 3 of the Act for entering into anticompetitive agreements or under section 4 of the Act for an abuse of dominance; however, no transaction has been reviewed under these provisions to date. Section 4(2)(c) of the Act may be wide enough to capture any form of denial of market access, including through mergers and acquisitions, if they are exclusionary.
Section 4(2) appears to set out an exhaustive list. However, the provisions dealing with abuse of dominance under the Act are fairly broad and the abuses listed under section 4(2) of the Act could, in fact, cover almost all types of abuse.
Law stated dateCorrect as of
Give the date on which the information above is accurate.
2 February 2021.