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Abuse of Dominant Position in Indian Competition Law: A Brief Guide

Posted by Sarthak Sood at Dec 09, 2015 01:20 PM |
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Every car owner would give a knowing nod when spoken to about the struggle of finding reasonably priced spare parts for their cars. While original parts can only be found at limited dealerships (which would invariably be miles away from home), once found, a small block of plastic would be worth a proverbial fortune.

In a path breaking judgment delivered by the Competition Commission of India (hereinafter ‘CCI’ or ‘the Commission’), fourteen car manufacturers were penalised, the amount adding up to INR 2544.65 crores, for anti-competitive practices which included grossly marking-up the prices of original car parts. They (the manufacturers) found to have abused their dominant position in the market of car parts.

In this post, the issue of ‘abuse of dominant’ position as per S.4 of the Competition Act (‘the Act’) shall be analysed. The three steps to determine a contravention of S.4 shall be discussed in terms of factors considered by the Commission to assess each, and lastly, penalising powers of the Commission will be looked into.

1. Relevant Market

The first thing to be determined in cases of alleged abuse of dominant position is the 'relevant market' in which the accused party has a dominant position. The purpose served by delineating a relevant market is to define the scope within which the position of an enterprise is to be tested for dominance and abuse thereof. The 'relevant market' is defined in terms of 'product' and 'geography', that is to say, the relevant market identifies the particular product/service or class of products produced or services rendered by an enterprise(s) in a given geographic area. Identification also includes identification of enterprises that compete to supply those products or services.

A. Product Market

Both the dimensions of the relevant market are governed by several factors. For example, product market has been defined to comprise all those products or services that are regarded as interchangeable or substitutable by the consumer, because of characteristics of the products or services, their prices and intended use.[1]The CCI held that relevant product market is to be looked at form both demand and supply perspectives based on the characteristics of the product, its price and intended use.[2] So, in the BCCI case, the relevant market was decided on the consideration of demand substitutability of various forms of entertainment. It was held that a cricket match could not be held to be substitutable by any other sport based on neither characteristics nor the intention of the viewer to watch a cricket match.[3] Substitutability of products was in question again in Schott glass case where transparent and amber tubes made of the same type of glass and for the same purpose (storing chemicals), were held to be unsubstitutable because light sensitive chemicals could not be stored in transparent tubes.

The relevance of defining a relevant product market is made clear by this hypothetical used by the CCI- "Simply because many wholesale traders of grains also do wholesale trading of vegetables does not imply that grains and vegetables are substitutable or that grains and vegetable mandis are interchangeable."[4]

B. Geographical Market

Relevant geographic markets could be local or national depending upon the facts in each case, but it cannot be global. [5] These are areas where demand and supply of goods of services can be said to be homogenous and distinguishable from markets in neighbouring areas.[6] Naturally, several factors then, like regulatory trade barriers, local specification requirements, national procurement policies, adequate distribution facilities, transport costs come under the purview of consideration. Therefore, if all such factors were uniform throughout the country vis-à-vis a product, the whole country would be the relevant geographical area.[7] If not, then areas displaying uniformity would be. The intention of the consumer may also be used in defining the relevant geographical boundary. In a case of purchase and allocation of apartments, the Commission upheld "geographic region of Gurgaon" to be the relevant market because it observed that it was the intention of the buyer to buy an apartment in Gurgaon because it had developed a unique brand image over the years, a characteristic which other regions did not share. [8]

2. Determination of dominant position

Having determined the relevant market, the second step lies in determining whether the enterprise holds a dominant position in that market. Under the provisions of the Act, dominance refers to the ability of an enterprise to operate independently of market forces, and its position of strength, which enables it to affect competitors or consumers or the relevant market in its favour.[9]

Various factors to be taken into account for determination of dominance are listed under S. 19(4) of the Act. Consequently, it might be said that market share, though a major factor, is not the sole yardstick in determination of dominance. This viewwas reaffirmed in Mr.RamakantKini v Dr L H Hiranandani Hospital, Powai, Mumbai.[10] The Commission was assessing the dominance of the Hiranandani hospital. The relevant market was for provision of maternity services by super specialty and high-end hospitals within a distance of 12 kilometers from the Hiranandani Hospital. The Commission, in the case, clarified that the market shares of an entity is 'only one of the factors that decides whether an enterprise is dominant or not, but that factor alone cannot be decisive proof of dominance'.

In other cases, the Commission has adopted the practice of looking at the facts in totality to determine dominance. The case in point being In Re M/s ESYS Information Technologies Pvt LtdvIntel Corporation (Intel Inc) &Ors.[11] Along with the market share commanded by Intel, the Commission recognized various other factors- like consumer preference owing to the brand name, the existence of strong entry barriers in the relevant market, the significant intellectual property rights of Intel and the scale and scope enjoyed by Intel.

In Pankaj Kumar, the Commission opined that dominant position would be one in which the enterprise would have the ability to operate independently of competitive forces in the relevant market. In Sheil, the OEMs were held to be dominant in light of the fact that they had entered agreements with overseas equipment suppliers (OES) which effectively made the OEMs the sole proprietors of equipment of their companies, thereby, shielding themselves from competition.

3. Abuse, assessment of

The mere fact of dominance is inconsequential in so far as attracting the Act is concerned. What has to be shown is the abuse of the said dominance. An enterprise or a group is said to be abusing its dominant position if its activities, on perusal, are found to be fit any of the activities listed under S. 4(2).

Such activities may be divided into two categories- Exclusionary activities and exploitative activities.

Exclusionary activities are those in which the dominant entity uses its dominance to restrict entry of competition into the relevant market. For example, in Re Shri ShamsherKataria v Seil Honda[12], where there existed agreements between the dominant entities and the Overseas Suppliers of original car parts which prevented the Overseas Suppliers from supplying parts to independent repairers, such agreements were held to be anti-competitive as they restricted entry of new firms.

Exploitative activities, meanwhile, are those where the dominant entity exploits its dominance by imposing discriminatory and/or unjust conditions on other firms or consumers. A case in point would be Pankaj Agarwal, where, in a case pertaining to allotment of apartments, the contracts drafted unilaterally by DLF enabled them to be arbitrary about allotment of super-area, secretative about information relevant to the purchaser, like, the number of apartments on a floor, and to cancel allotments and forfeit booking amounts. The Commission held the contracts to be exploitative against buyers, and thus, abusive.

A. The issue of per se violations

An issue at hand while discussing what amounts to abuse is whether commission of any act falling within S. 4(2) is per se violative of competition law. To elaborate, if an act by a dominant power, say, unjustly exploits the consumer, but is in pursuance of some policy or rule, would the dominant entity be held to be abusing its position? No such distinction or characterisation appears in the Act, but was introduced by the Commission in its decision in Dhanraj Pillay v Hockey India[13]. In that case, Hockey India, a dominant entity in the market for organisation of private professional hockey activities in India and for services of hockey players, decided against adding World Hockey Series in the list of sanctioned events, thus, disincentivising players from participating in the same. The Commission noted that sanctioning of events was a regulatory function of Hockey India, and could not be found, per se, of violation of competition laws. Creating a further distinction between means and ends, the Commission noted that it had to proven that the clause in contention was applied by Hockey India in a discriminatory/unjust manner.[14] So, what is left somewhat in the grey is whether the activity is in contravention of the Act if it results in abuse, or if it is done in a discriminatory manner.

4. Penalties and Sanctions

To an enterprise held to be abusing its dominant position, the Commission can do several things-

  • Direct the enterprise to discontinue such acts that amounted to abuse. (S.27(a)). Examples of use of this power by the Commission can be found in cases likeIn Re Shamsher Kataria[15] and Atos[16], where the dominant parties were ordered to cease and desist from indulging in activities that had been found to be in contravention of S.4.
  • Impose penalties of up to ten percent of the average of the turnover for the last three preceding financial years. (S.27(b)).

There has been some concern about this provision for though it provides the upper limit, it gives no guidelines for the calculation of penalties. The Commission, too, is yet to come up with guidelines of its own. So, as of now, the Commission has complete discretion in calculation of penalties to be imposed upon each of such person or enterprises which are parties to such abuse. However, the COMPAT has put some conditions on the Commission so far as awarding penalties is concerned. In a case, COMPAT admonished CCI for CCI's practice of awarding large penalties without providing any reasoning for the same. Furthermore, in the same judgment, COMPAT held that penalties are to be calculated on the basis of the 'relevant turnover'. [17] So, in a case of abuse against a multi-product company, the turnover used to calculate the penalty would be the turnover from the particular product(s) in contention, and not the overall turnover.

However, irregularity is rampant in this sphere of the functioning of the Commission and the Appellate Authority, for the COMPAT itself failed to follow its precedent of 'relevant turnover' in M/s DLF Limited v Competition Commission of India &Ors[18]. COMPAT did not restrict the calculation of the penalty on the basis of DLF Limited's turnover arising only from the residential segment, despite the relevant market in that case being the market for 'high-end residential accommodation'. COMPAT upheld the penalty levied by the CCI, which was calculated on the basis of DLF's turnover pertaining to its entire business (i.e., the development of residential, office and commercial properties). [19]

  • Lastly, the Commission can pass an order to cause the division of the dominant enterprise such that does not abuse its dominant position. (S.28)

Conclusion

The Competition Act, 2003 is the successor of the Monopolistic and Restrictive Trade Practices Act, 1969. It underwent great changes in 2007. Thus, the prevalent competition law jurisprudence in India has ages barely seven years, and may not be as thorough as the US jurisprudence, which has been evolving since 1901. In spite of that, it is a progressive bit of legislation which, unlike the MRTP Act which had little tolerance for any dominance, recognizes the changing market conditions and does not have problems with dominance per se, but it does not veer away from its objective of keeping the market competitive.


[1] Atos Worldline v Verifoneindia, Case No. 56 of 2012, ¶6.3

[2] Surinder Singh Barmi v BCCI, Case 61 of 2010; Kapoor GlassPvt Ltd v Schott Glass, Case 22 of 2010.

[3] BCCI, id. at ¶8.34.

[4] MCX Stock Exchange v NSE, Case 13 of 2009, ¶10.24.

[5] BijayPoddar v Coal India Ltd., Case 59 of 2013.

[6] Atos, supra note 1 at ¶6.3.

[7] BijayPoddar, supra note 5 at ¶40

[8] Pankaj Agarwal v. DLF, C. Nos. 13 & 21 of 2010 and 55 of 2012, ¶6.23.

[9] In Re Shri Shamsher Kataria v. Honda Siel Cars India Ltd. &Ors, Case No. 03 of 2011¶¶8.1.7, 8.1.8

[10] Case No. 39 of 2012.

[11] Case 48 of 2011.

[12] Supra note note 9 at ¶8.1.11.

[13] Case 73 of 2011.

[14] Id., ¶10.13.5(a)

[15] Supra note 9 at ¶11.

[16] Supra note 1 at ¶6.32.

[17] M/s Excel Crop Care Limited v Competition Commission of India, Appeal 79 of 2012, ¶62.

[18] M/s DLF Limited v Competition Commission of India &Ors, Appeal No. 20 of 2011, Appeal No. 22 of 2011, Appeal No. 19 of 2012, Appeal No. 23 of 2011, Appeal No. 12 of 2012, Appeal No. 20 of 2012, Appeal No. 29 of 2013, Appeal No. 8 of 2013, Appeal No. 9 of 2013, Appeal No. 11 of 2013

[19] Cyril Shroff & Nisha Oberoi, India: Abuse of Dominance, Global Competition Review. Available at http://globalcompetitionreview.com/reviews/69/sections/235/chapters/2749/india-abuse-dominance/ (last visited on 18/11/2015).

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