Abuse of dominance in India

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 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.

As to the requirement to show anticompetitive effects, in some older cases, the CCI has considered and applied an object-based approach while finding abuse (for example, National Stock Exchange case).

In more recent cases, however, the CCI and COMPAT have deployed an effects-based approach while evaluating abusive conduct. The following cases are illustrative.

In the Schott Glass case the COMPAT found that unlawful price discrimination required a showing of both ‘(i) dissimilar treatment to equivalent transactions; and (ii) 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. As the COMPAT has been merged with the National Company Law Appellate Tribunal (the NCLAT) with effect from 26 May 2017, subsequently, the case was appealed before the NCLAT. Notably, 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 the defendant’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.

Finally, 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 jurisprudence reflects a move away from rigid form-based analysis. Instead, the CCI is increasingly requiring proof of anticompetitive effects in its enforcement action.

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 (SCIL) 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.

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 conduct, as set in response to question 11 above, 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.

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 in order to protect its trademarks and that its refusal to supply to such customer was objectively justified. In the Schott Glass appeal (2014), 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 in 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.