Antitrust: restrictive agreements and dominance
As mentioned above, vertical agreements causing AAEC within India or likely to cause AAEC within India are prohibited under the CA. As per the CA, vertical agreements include:
- tie-in arrangements: any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;
- exclusive supply agreements: any agreement restricting in any manner the purchaser in course of his or her trade from acquiring or otherwise dealing in any goods other than those of the seller or of any other person;
- exclusive distribution agreements: any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods;
- refusal to deal: any agreement that 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; and
- resale price maintenance: any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.
As for unilateral conduct, the now repealed Monopolistic and Restrictive Trade Practices Act, 1969 viewed large enterprises negatively. The CA does not view the large size of an enterprise as a negative factor, but it prohibits abuse of a dominant position by an enterprise. The law provides 13 factors listed in the CA that the CCI must examine to conclude whether an enterprise alleged to be abusing its position of dominance is actually a 'dominant' enterprise within the 'relevant market'. The relevant market test includes the examination of statutory factors related to the relevant product market and relevant geographical market tests. The CA provides several factors for assessing the relevant product market and geographical market tests, and the CCI must examine each of the factors, as the case may be, to ascertain whether the dominant enterprise could affect the relevant product or geographical markets.
A dominant position has been explained in the CA as a position of strength enjoyed by an enterprise in the relevant market, in India, that enables it to operate independently of competitive forces prevailing in relevant market or affect its competitors or consumers or the relevant market in its favour. As mentioned above, the CA only prohibits an 'abuse of a dominant position'. The CA prescribes the following as abuse:
- directly or indirectly imposing unfair or discriminatory conditions in the purchase or sale of goods and services or prices in the purchase or sale (including predatory pricing) of goods or services;
- limiting or restricting production of goods or the provision of services or market therefor or technical or scientific development relating to goods or services to the detriment of customers;
- indulging in a practice or practices resulting in the denial of market access in any manner;
- making conclusion of contracts subject to acceptance by other parties of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of such contracts; and
- using a dominant position in one relevant market to enter into, or protect, another relevant market.
It is generally believed (but not yet decided) that the above list is exhaustive, rather than descriptive.i Significant cases
In the past year, the CCI and the NCLAT have decided certain important cases relating to vertical agreements and abuse of dominant position.
In one of the most important technology market investigations, the CCI in the First Google case investigated allegations of abuse of dominant position by Google Inc and Google India Private Limited (collectively referred to as Google) in relation to the markets for online general web search services and online search advertising services in India. To determine whether Google was in a dominant position in the relevant markets, the CCI analysed the market share of Google in the relevant markets and considered the factors mentioned under Section 19(4) of the CA. The CCI held that Google was holding a dominant position in the relevant markets as it consistently held a market share that was exponentially greater than its nearest competitor, was vertically well integrated and had a scale advantage in a market where entry barriers existed. The CCI also took note of high dependence of users and advertisers on Google and lack of countervailing buyer power of an average user or advertiser before Google.
As regards abuse of dominant position, the CCI held that Google:
- had violated Section 4(2)(a)(i) of the CA (provision on unfair condition by a dominant enterprise) by predetermining the 'universal search' ranking results to trigger at the first, fourth or tenth position on the Google search engine results page;
- had violated Section 4(2)(a)(i) of the CA by prominently displaying and placing its commercial flight search box with links to Google's specialised search options and services, thereby depriving users of additional choices; and
- had violated Section 4(2)(a)(i), 4(2)(e) (using a dominant position in the online general web search market to strengthen its position in the market for online syndicate search services) and 4(2)(c) (limiting provision of services) of the CA by imposing prohibitions under the negotiated search intermediation agreements on website owners from using similar services from competing search engines.
It is important to note that two members of the CCI wrote a dissent note to the decision of the majority, as according to them there was no infringement of the CA by Google. Among other things, the dissenting members opined that the Google Flight commercial unit was visually distinguishable and there was no cogent evidence to assess how the mere presence of the commercial unit amounted to imposition of an unfair condition. In the dissenting members' opinion, user preferences should have been taken into account in the investigation but the same was completely disregarded. Regarding the finding of the majority on search intermediation agreements, the dissenting members found that an infrigement was not established because delineation of the relevant market was a legal requirement under the CA and the same was not done by the DG during the investigation. The dissenting members also opined that it was imperative for the DG to obtain a testimony of the direct partners with whom Google had negotiated the search intermediation agreements in India and conduct a competitive analysis of the effect of the impugned clause on competition in India before finding a contravention. Lastly, with regard to the contravention found by the majority in connection with universal results, the dissenting members were of the opinion that as Google brought a change in the system on its own, even before the information was filed, there was no need for any regulatory intervention.
In the past year, the CCI has decided another abuse of dominant position case against Google. The Second Google case dealt with Google AdWords. It was alleged that Google's User Safety and AdWords Policies and the bidding process for AdWords were extremely arbitrary, vague and one-sided. It was also alleged that Google arbitrarily and without any notice suspended the AdWords account of the complainants with a view to reduce or eliminate competition for its own product, Google Helpout and a close associate, iYogi. The CCI defined the relevant market as the 'market for online search advertising services in India' and found Google to be in dominant position due to 'consistently high market shares' and 'Google's insurmountable scale'. As for abuse of dominant position the CCI did not find any contravention. The CCI, after conducting a thorough investigation of Google's policies and conduct, came to a conclusion that there was no contravention of the provisions of Section 4 of the CA. The CCI in reaching this conclusion acknowledged that an online advertising platform like AdWords could not be left without any mechanism that ensured safety of end consumers and prevented unscrupulous advertisers from making false and misleading claims and representations. Importantly, in respect of imposition of certain standard terms and conditions by Google, the CCI held that inviting customers to accept standard terms and conditions was a conventional and commercial practice, followed by businesses around the world. According to the CCI, there were certain terms and conditions (such as a clause allowing Google to modify terms at any time) that were uniform among online businesses around the world and could not be practically negotiated with millions of customers. In fact, in the CCI's view such standard terms and conditions reduced the potential for discrimination and uncertainty among users and businesses. The Second Google case provides valuable guidance to technology companies providing internet-related services in relation to crafting their user safety and other policies. The CCI has clarified that certain seemingly onerous terms and conditions in these policies may in fact be necessary, and hence justified, having regard to the facts and circumstances of the case.
In the Esaote S.p.A. case it was alleged that the Esaote group (Esaote), manufacturer of standing/tilting MRI machines or G-Scan machines, had abused its dominant position by unilaterally modifying terms of contractual conditions and using its dominant position in one relevant market to enter into another relevant market. Having regard to the physical characteristics, end-use, price and consumer preferences the CCI defined the relevant product market in the instant case as the narrower market for 'dedicated standing/tilting MRI machines' as opposed to a broader product market including all types of MRI machines. In view of the majority of members of the CCI, 'dedicated standing/tilting MRI machines' had several advantages over conventional MRI machines because of which conventional MRI machines were not a true substitute. The advantages recorded by the CCI were the ability to image the changes that occured in brain, cerebrospinal fluid, spine and joints when the patient was in a standing position with the effect of gravity on these structures, ability to diagnose ailments of specific portions of body (joints or spine, etc.) pertaining to weight-bearing posture of the body and ability to cause less claustrophobia. As Esaote had patent rights over the technology of G-Scan machines and was the only seller of G-Scan machines in India, the CCI found Esaote to be in a dominant position. As for determination of abuse of dominant position by Esaote, the CCI found several counts of infringement of Section 4 of the CA by Esaote. The CCI found that contrary to the contractual conditions, the machines supplied by Esaote were not new and did not perform to the level assured by Esaote and Esaote also failed to provide head coils and perforated radio frequency cages. These conducts, according to the CCI, constituted a clear contravention of the provisions of Section 4(2)(a)(i) of the CA (unfair condition/business practice). The CCI found contravention of Section 4(2)(a)(ii) of the CA (unfair and discriminatory price) as well, as contrary to contractual conditions Esaote unilaterally provided cheaper alternatives and raised arbitrary and discriminatory charges for maintenance. Lastly, the CCI also found that Esaote had restricted supply services and caused denial of market access, in contravention of Section 4(2)(b) and (c) of the CA, respectively, by giving exclusive rights to its group company for supply of spare parts and providing aftersales services to the consumers of its G-Scan MRI machines. It is pertinent to note that the chairperson of the CCI wrote a dissent note, finding no contravention, as he did not agree with the majority of members on delineation of a narrower relevant market. In the chairperson's view the relevant product market was the market for MRI machines because, among other things, the demand for G-Scan machines was insignificant in India and weight-bearing imaging features could be added to a conventional MRI machine by adding a device at a fractional cost.
In the GAIL cases, complaints had been filed against GAIL (India) Limited (Gail) by some of its regasified liquified natural gas customers (complainants). Broadly, the allegations pertained to: (1) the terms of the long-term gas supply agreement (GSA) between GAIL and the complainants; and (2) the manner in which GAIL performed its obligations under the GSA. One of the allegations against GAIL was that its GSAs were a standard contract whose minimum duration was 20 years. Such duration was alleged to have resulted in foreclosure of the market for 'supply and distribution of natural gas to industrial consumers'. The CCI held that projects in the energy sector were characterised by significant and continuous up-front investments made by sellers of energy, and therefore, the duration of the GSA was justified to guarantee sellers a steady stream of revenue and render operations viable. The CCI also observed that existence of such GSAs did not result in the denial of market access to new entrants or competing enterprises, as there was evidence to suggest that competitors of GAIL had entered the market during the subsistence of the GSA and were presently active. The CCI in this case also assessed the manner in which GAIL imposed the 'take or pay' liability on its customers. 'Take or pay' liability is an obligation on the buyer to pay for the quantities of gas not taken but agreed to be taken. It was alleged that GAIL failed to make certain 'nominations' under the GSA, which made it impossible for the complainants to calculate their 'take or pay' liability. The CCI held that when determining abuse arising out of a contract, the conduct of both parties was relevant for examination. Accordingly, the Commission analysed: (1) the degree of adherence to the terms of the GSA by the complainants; and (2) the extent of acquiescence of the complainants. The investigation revealed that neither GAIL nor the complainants had strictly adhered to their obligations to make 'nominations' and also that the Complainants had never raised objections in this regard before GAIL. Objections were raised by the complainants only when the 'take or pay' liability was imposed on them. The CCI also took into account the fact that GAIL had imposed only a fraction of the 'take or pay' liability in order to mitigate the losses it suffered because of reduced offtake of gas by the complainants. In view of the above, the CCI did not find any violation of the CA due to imposition of 'take or pay' liability. Importantly, the CCI in these cases has clarified that where a party has consciously negotiated and entered into an agreement with a dominant enterprise then it is not appropriate to impugn such agreements under the CA unless it is evident that the aggrieved party has been considerably prejudiced or the competition in the market has been impeded.
In the AICF case the CCI was investigating allegations of abuse of dominant position by All India Chess Federation (AICF), a national sports federation for the sport of chess in India, recognised by and affiliated to the Federation Internationale des Echecs (FIDE), the apex international body governing the sport of chess. A preliminary objection was raised by AICF that allegations of abuse of dominant position could not be sustained as Section 4 of the CA applies only to 'enterprises' and AICF was not an enterprise because, among other things, it performed its functions without any motive to earn profits. In the CCI's view a person engaged in economic activity, no matter with or without profit motive, was an enterprise, as such a person interfaces with the market. Having regard to the nature of allegations against AICF and the factors mentioned in Section 19(4) and (5) of the CA, the CCI defined the relevant markets as the 'market for organisation of professional chess tournaments/events in India' and 'market for services of chess players in India'. As regards determination of dominant position, the CCI held that by virtue of having sole regulatory powers in India and being the predominant buyer of the services provided by professional chess players in India, AICF was a dominant enterprise. In its analysis of infringement of the CA, the CCI found that the blanket ban on chess players from participating in tournaments not authorised by AICF was an absolute restriction with very harsh consequences and without any reasonable justification. The CCI found this blanket ban to be in contravention of Section 4(2)(b)(i) (unfair condition), Section (4)(2)(c) (denial of market access), Section 3(4)(c) (exclusive distribution) and Section 3(4)(d) (refusal to deal).
Apart from the decisions of the CCI, 2018 also witnessed two important decisions at the appellate level. The NCLAT set aside a 2017 decision of the CCI penalising Hyundai Motor India Limited (Hyundai) for imposing vertical restraints causing AAEC. The reasons for setting aside of the decision of the CCI was primarily procedural irregularities rather than substantive legal issues. The setting aside of the CCI decision was mainly on the ground that in imposing a penalty on Hyundai the CCI relied solely upon the report of the DG without conducting any inquiry of its own. Apart from this, the NCLAT decision also pointed out several crucial shortcomings in the decision of the CCI. For instance, the NCLAT found that the CCI in its decision had recorded that Hyundai had appointed mystery shopping agencies for enforcing resale price maintenance which penalised the erring dealers. But in its decision the CCI failed to record any evidence to establish that the erring dealers were in fact penalised. This was the first substantive decision of the CCI relating to the issue of resale price maintenance and it has now been set aside by the NCLAT.
The Fast Way Transmission case involved allegations of abuse of dominant position against a dominant multi-channel operator (a multi-channel operator is an entity that carries television channels to persons who watch cable television) which terminated its channel placement agreement with a broadcaster using a unilateral clause in the agreement. The CCI found the impugned action to be an abuse of dominant position due to denial of market access but the erstwhile COMPAT set aside the decision of the CCI on the ground that denial of market access can only be caused by one competitor against another. The Supreme Court was hence faced with the question of whether abuse of dominant position by denial of market access in contravention of Section 4(2)(c) of the CA can only be caused by one competitor against another. Section 4(2)(c) of the CA states that 'There shall be an abuse of dominant position . . . if an enterprise or a group . . . indulges in practice or practices resulting in denial of market access in any manner'. In the Supreme Court's view, the phrase 'in any manner' was one of wide import which must be given its natural meaning. Accordingly, the reasoning that denial of market access in contravention of Section 4(2)(c) of the CA can only be caused by one competitor against another was not sustainable. Surprisingly, despite finding infringement of the CA, the Supreme Court set aside the penalty imposed by the CCI as it found that reasonable justification (very low TRP) was provided by the multi-system operators for terminating its agreement with the complainant broadcaster company.ii Trends, developments and strategies
In the past year, the CCI has provided the much-needed clarification as regards what types of contractual non-compliances would constitute abuse of dominant position. The test, it appears, is whether contractual non-compliances cause prejudice to the aggrieved party or impedes competition. If no prejudice is caused and the competition is not impeded then a mere contractual or technical non-compliance would not constitute abuse of dominant position.
With the NCLAT decision in the Hyundai case, the only stand-alone final decision of the CCI in a Section 3(4) case stands vitiated for largely procedural reasons. A prominent school of thought suggests that if the NCLAT found the CCI's decision to be deficient for want of separate inquiry, it could have simply remanded the matter for re-adjudication by the CCI instead of simply setting aside the entire order.
On the Supreme Court front, the landmark cases of DLF Limited and National Stock Exchange of India Limited continue to await final judgment.iii Outlook
The guidance provided by the Supreme Court on 'denial of market access' in the Fast Way Transmission case was an essential clarification. However, the trend of setting aside the penalty, despite a finding of contravention of Section 4 of the CA on the grounds that there was a valid justification to the impugned conduct, has generally not found a place in the CCI's decisional practice. It needs to be seen whether the CCI will pick up on this trend.