An extract from The Dominance and Monopolies Review - 7th edition

Abuse

i Overview

Under Section 4(2) of the Act, an enterprise (or a group) abuses its dominant position if it:

  1. directly or indirectly imposes unfair or discriminatory conditions in the purchase or sale of goods or services or price in purchase or sale (including predatory price) of goods or services (exclusion: discriminatory conditions or prices that may be adopted to meet competition);
  2. limits or restricts:
    • production of goods or provision of services or markets therefor; or
    • technical or scientific development relating to goods or services to the prejudice of consumers;
  3. indulges in conduct resulting in denial of market access in any manner;
  4. makes the 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; or
  5. uses its dominant position in one relevant market to enter into or protect another relevant market.

Section 4(2) of the Act appears to contain an exhaustive list of conduct that may constitute abuse of dominance, unlike Article 102 of the Treaty on the Functioning of the European Union (TFEU). The list of 'abuses' in Section 4(2) is sufficiently broad and could cover most exploitative and exclusionary conduct that could be characterised as an abuse of dominance. Section 4(2)(c), in particular, which prohibits any conduct by a dominant enterprise resulting in 'denial of market access in any manner', is frequently used by complainants or informants to cover exclusive dealing, refusal to supply and other theories of anticompetitive harm that do not explicitly fall within any of the other categories in Section 4(2).

It is notable that, unlike Article 102 of the TFEU as interpreted by the EU courts, the Act does not provide for objective justifications as defences to the anticompetitive conduct of dominant enterprises. Under the Act, the only defence recognised for abusive conduct of a dominant enterprise is the 'meeting competition' defence. To date, the Commission has not provided any published guidance, including in its decisions, on the scope of this defence.

ii Exploitative abuses

In Google, while assessing Google's conduct, the Commission placed emphasis on the special responsibilities and obligations of dominant enterprises in digital markets. Digital markets are often characterised by network effects and are capable of creating virtual hegemony of players with strong market positions (due to the 'winner takes all' phenomenon). While acknowledging that network effects promote innovation, the Commission observed that '. . . it cannot be disputed that network effects can raise switching costs for users and barriers to entry for potential competitors. As a consequence, market entries become less likely and users switch less frequently to other suppliers, which has a market power enhancing effect'. The Commission stated that Google, being the gateway to the internet for a vast majority of internet users due to its dominance in the online web search market, is under an obligation to discharge its special responsibility. The Commission also stated that Google's 'special responsibility' is critical in ensuring not only the fairness of the online web search and search advertising markets, but also the fairness of all online markets, given that these are primarily accessed through search engines. The Commission found the following conduct of Google abusive:

  1. Ranking of universal results: prior to 2010, these were pre-determined to appear at the first, fourth or 10th position on the SERP and were not generated based on their relevance. The Commission found that this practice of Google was unfair to users and was in contravention of the provisions of Section 4(2)(a)(i) of the Act. However, since Google had modified its practice from October 2010 onwards, thus ensuring that the search results were displayed on a free-floating basis, the Commission did not issue any cease-and-desist order and only directed Google to desist from engaging in such practices in the future.
  2. Prominent display of commercial flight unit: the Commission found the prominent display and placement of Google's commercial flight unit, with links, on the SERP, which led the users of search services to Google's specialised search options and services (Google Flight), to be an infringement of Section 4(2)(a)(i) of the Act. Through its search design, Google had not only placed its commercial flight unit at a prominent position on the SERP, it had also allocated disproportionate space to such units to the disadvantage of non-Google website verticals trying to gain market access.
  3. Prohibitions under the negotiated search intermediation agreements: prohibitions on the publishers under the negotiated search intermediation agreements were found to be an unfair imposition under Section 4(2)(a)(i) of the Act, restricting the choice of these partners and preventing them from using the search services provided by competing search engines.

In Coal India, the Commission, following the Competition Appellate Tribunal's directions, conducted fresh hearings and passed orders against Coal India. Notably, the Competition Appellate Tribunal had also assessed the Commission's findings against Coal India in a case concerning the e-auction scheme. Both the Commission (in the recent orders) and the Competition Appellate Tribunal have found that Coal India abused its dominant position by taking advantage of being the lone producer and supplier of coal in India, which is the most important raw material for power generation. The Commission found the terms and conditions imposed by Coal India through the fuel supply agreements, particularly those relating to the grading of coal, sampling process, sampling and supply of ungraded coal and force majeure, to be unfair. The Competition Appellate Tribunal found that the conditions in the e-auction schemes were onerous and one-sided.

In GDA, the Commission noted that the conduct of GDA in arbitrarily raising the prices of low-cost residential apartments (under affordable housing schemes for economically weaker sections) from the initial price of the apartments without any enabling provision (either in the brochure or allotment letter) on the pretext of miscalculation of cost of the project (as well as increase in cost over the years due to other extraneous factors) can only be explained by an abuse of its dominance.

In Esaote, the Commission found that despite entering into an agreement for supplying new G-Scan MRI machines, Esaote chose to supply G-Scan MRI machines that were already in its possession for over a year. The G-Scan MRI machines supplied by Esaote broke down frequently and remained unused at the installed sites, namely Hargovind Enclave and Apollo Hospital, for 58 per cent and 76.1 per cent of the time, respectively. The Commission also noted that Esaote imposed unfair prices and conditions in terms of its dealings by supplying a lower-priced opaque cage in place of a 'see-through, perforated radio-frequency cage'; or by refusing to supply the European Conformity-approved head coils, as agreed by the parties. Upon a review of the purchase order placed with Esaote, the Commission also noted that the company had tried to impose arbitrary charges to fulfil its obligations under the contract on the basis of a selective reading of the purchase order. Esaote's overall conduct was found to be in contravention of Section 4 of the Act.

The past year saw a continuation of the unfortunate trend of the Commission continuing to focus more on exploitative abuse cases rather than exclusionary abuse cases, highlighting the fact that complainants (informants) prefer the faster proceedings and decision process of the CCI over the protracted breach of contract civil proceedings in a court of law, and the Commission is willing to entertain such allegations with alacrity. For example, the Esaote matter appears to be a purely contractual dispute between two parties regarding terms of delivery and supply and yet, the Commission expended significant time and resources on this case.

iii Exclusionary abuses

In Google, the Commission found a clause in the negotiated search intermediation agreements, which required the publishers not to implement search technologies on their sites that are the 'same or substantially similar' to that of Google as restrictive of competition. The Commission also found that Google prevented partners, with whom it entered into negotiated search agreements, from implementing search services from a competitor providing similar or substantially similar search services. In addition, the Commission found that by restricting websites from partnering with competing search services, Google denied its competitors access to the search business and further marginalised them. These restrictions were found to be a de facto imposition of online search exclusivity in contravention of Section 4(2)(c) of the Act. The Commission took into account the effects of the exclusivity clauses of the negotiated intermediation agreements in light of the network effects in the online search and search advertising markets and Google's dominance in these markets. Therefore, although the number of intermediation agreements entered into with Indian partners was not substantial and the term of such agreements varied between two and three years, the Commission found that the exclusivity clauses created conditions for extending and preserving Google's dominance in search intermediation in perpetuity. Based on the evidence contained in the DG's report, the Commission held that Google leveraged its dominance in the online general web search market to impose restrictive conditions in the negotiated search intermediation agreements in contravention of Section 4(2)(e) of the Act.

In Vishal Gupta, however, the Commission dismissed an allegation against Google for suspension of the AdWords account operated by SGL for multiple violations of Google's policies, which were duly communicated via email to the advertisers. The Commission noted that Google's policies were accessible and pro-consumer and, therefore, did not infringe the Act.

In SALPG, the Commission found that SALPG was denying East India Petroleum Company access to its LPG terminal infrastructure at Visakhapatnam Port, which was deemed to be an essential facility by the Commission. SALPG submitted that it had certain safety and technical feasibility concerns. Rejecting SALPG arguments, the Commission stated that the justifications advanced by SALPG ignore the inefficiencies resulting from SALPG's conduct and the resulting foreclosure of competition. The Commission then concluded that the infrastructure operated by SALPG was indispensable and denial of the infrastructure amounted to an infringement of Section 4 of the Act.

In AICF, the Commission found that the restrictions imposed by AICF prevented chess players from participating in any tournaments not recognised by AICF. The evidence on record clearly established that AICF created hurdles for competing chess organisers (i.e., Chess Association of India) in the organisation of chess tournaments, as well as prevented chess players, who participated in these non-authorised tournaments, from playing in other chess tournaments. The Commission also noted that, in the absence of any guidelines governing the authorisation or sanctioning of chess tournaments by AICF, AICF could exercise absolute discretion in treating any tournament as unauthorised. In addition, the removal of ELO ratings (for chess players) as a consequence of participating in an unauthorised tournament without offering any opportunity of being heard was also found to be unjustified. The Commission then concluded that AICF had not been able to demonstrate how such a blanket ban was necessary to preserve the integrity and promotion of the sport.