Decartelization of Cartels - India

PROJECT WORK ON

“Abuse OF Dominance: The Indian Approach ”

Submitted To: Ms.Tulika Shree(FACULTY COMPETITION LAW)

Submitted By : Anshul Rathi Semester- IX Sec. – C Roll No. – 27 Batch- XI

Date of Submission: 8thof October 2015

HIDAYATULLAH NATIONAL LAW UNIVRSITY, RAIPUR, {C.G.}

Table of ContentsAcknowledgement.................................................................................................................................1

BACKGROUND...................................................................................................................................4

The Legal Framework...........................................................................................................................5

Determination of Relevant Market....................................................................................................7

Establishing Dominance....................................................................................................................8

Determination of ‘abuse’ and the resultant sanctions.........................................................................8

Division of Enterprise enjoying a Dominant Position – yet to be tested in India.............................10

Takeaways from Global trends............................................................................................................11

Conclusion...........................................................................................................................................12

BIBLIOGRAPHY.......................................................................................................................................v

BOOKS.............................................................................................................................................v

Websites:...........................................................................................................................................v

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ABUSE OF DOMINANCE: INDIAN APPROACH

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Acknowledgement

I am highly elated to carry out my research on the topic, Abuse of Dominance: The Indian

Approach”. I would like to give my deepest regard to our course teacher Ms. Tulika Shree,

who held me with her immense advice, direction and valuable assistance, which enabled me

to march ahead with this topic. I am thankful to her for providing such important and

interesting topics for project report which are not only helpful but also encouraging from

future perspective.

I would like to thank my friends, who gave me their precious time for Discussion and helped

me a lot in completing my project by giving their helpful suggestion and assistance. I would

like thanks to my seniors for their valuable support. I would also like to thank the library

staff and computer lab staff of our university for their valuable support and kind cooperation.

ANSHUL RATHI

Sec. C Roll no.- 27

Batch XI

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RESEARCH METHODOLOGY

STATEMENT OF PROBLEM

In order to assess the concept of Abuse of Dominance and the penalties levied thereby, the

approach of Competition Commission of India and its evolution with the mature jurisdictions.

AIMS AND OBJECTIVES

The primary aim of this research work is to highlight the concept of Abuse of Dominance

under Competition Act, 2002 in India. Research paper will first look to the framework of

Abuse of Dominance cases in India and the way Competition Commission of India and

COMPAT are dealing with the situation

OBJECTIVES

1. To study the meaning of “Abuse of Dominnce” as understood across different

jurisdictions and to arrive at a definition for the purpose of this research work.

2. To analyse the concept of ‘Relative turnover’ and response of Competition

Commission of India and COMPAT with comparission to other mature Jurisdictions

HYPOTHESIS

It is hypothesized by the researcher that the existing concept for Abuse of Dominance under

Competition Law in India is capable to avoid such problems and the penalties levied are

justifiable. Also that Competition Commission of India has already evolved into a mature

framework.

RESEARCH QUESTIONS

1. How is Abuse of Dominance determined and understood in light of the provisions

under the Competition Act, 2002?

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2. What is the legal framework pertaining to determination of Abuse of Dominane in

India and the same under the jurisdiction of EU and USA?

3. Whether there is a reasonability among the penalties levied by the commission and whether it has grown into a matured framework ?

METHODOLOGY

“Doctrinal (Non-Empirical) Method of Research” has been relied upon for conducting the

research. For the purpose of research Encyclopedias’, Books, Reports of Competition

Commission of India, research projects related to Relevant Market have been relied upon.

MODE OF CITATION

A uniform system of Bluebook citation has been adopted throughout the project.

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BACKGROUND

India began its journey of transformation from a closed economy to a liberalized market

economy in 1991. India has since 1991, grown tremendously as a market and economic

powerhouse but when competition law was introduced in india in the form of the Competition

Act 2002 there were severe resistance from the Indian industry which claimed that indian

market hhad not achieved the scale ad dynamics which merit a modern competitive law

regime being enfrced – although, the number of complaints and investigatons under the

Indian competition regime since 2009 has provided the conntrary.

The Act finally came into effect in a phased manner, with significant ammendments in 2007.

The provisions relating to anti-competitive agreements and abuse of dominance came into

effect in May 2009 and the provisions in relation to merger control came into effect in June

2011.

The Competition Commiccion of India ( CCI ) is the regulatoy body is the regulatory body

established under the Act to administer theprovisions of the Act and the Competition

Appellate Tribunal in the appellate body. The substantive test and the benchhmark for

analysis under the Act is to prohibit practices which have an appreciable adverse effect on

competition in India.

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The Legal Framework

The regulations of abuse of dominance is the important pillar in India’s competition law

policy. Section 4 of the Act deal with the regulation of abuse of dominance i.e. the regulation

of unilateral conduct. The Act prohibits the abuse of a dominant position by any ‘enterprise’

or group and defines a dominant position as a position of strength enjoyed by an enterprise in

the relevant market in India, which enables it to operate independently of the competitive

forces prevailing in the relevant market or affect its competitors or consumers or the relevant

market in its favour. Therefore, in India, determination of ‘dominance’ is not a function of

arithmetical formulae but a qualitative assessment of the prevalent market dynamics and the

relative position of strength enjoyed by the market participants. The Act is equally applicable

to both: private enterprises and the government bodies and their departments acting in their

commercial capacity. The CCI’s ruling, where it imposed a penalty of INR17,730 million on

Coal India Ltd1. For abusing its dominance by imposing unfair terms in its fuel supply

agreements2, has given a further fillip to the non-discriminatory of the Act.

The Act covers in its ambit both, exclusionary as well as exploitative abuses and Section 4(2)

of the Act provides of a list of prohibited abuses, including predatory pricing, unfair pricing,

leveraging etc. Further, barring a limited defence of meeting competition in relation to

imposition of unfair or discriminatory prices or conditions, the Acts allows for no other

exceptions to an abuse of dominance violation. This approach is in stark contradiction to the

European Union competition law, where the objective justification or the efficiencies has

been held to be a valid defence for a dominant enterprise to engage in abusive conduct.

The ingredients to establish a section 4 violation are: (a) defining the relevant market (b)

determining whether the entity under investigation commands a dominant position in the

1 Coal India Limited is a state-owned enterprise which enjoys a monopolistic position due to national legislation in the sector.2 Maharashtra State Power Generation Company Ltd v. Mahanadi Coalfields Ltd. and Coal India Limited, Case No.3,11 & 59 of 2012.

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relevant market and (c) determining whether such dominant entity has indulged in any

activity which amounts to abuse of its dominance.

While determining dominance, the CCI is required to consider the factors listed in Section

19(4) of the Act, including market share of the enterprise, size and resources of the enterprise,

size and importance of the competitors, economic power of the enterprise, vertical integration

of the enterprise or sale or service network of such enterprises, dependence of consumers on

the enterprise, etc.

Section 4 of the Act imposes strict liability and the Act is silent on whether there is a

requirement to assess the actual appreciable effect on competition in the market. However, an

analysis of the abuse of dominance cases adjudicated by the CCI to date reveals that’s the

CCI has set fairly high standards embarked upon a detailed analytical approach I determining

the relevant market and establishing dominance. As a result, the CCI undertakes a market

effect analysis before coming to its conclusion on whether the conduct complained about

amounts to an ‘abuse’.

Determination of Relevant Market

The small but significant Non-transitory increase in price (SSNIP) test has been traditionally

used by the competition law regulators for delineating the boundaries of the product market.

However, its application has often been questioned on account of an inherent price distortion

in markets dominated by single or a handful of enterprises. There are also limitations on the

application of the SSNIP test in abuse of dominance cases. In India, the SSNIP test has been

used by CCI on multiple occasions but its approach has not been uniform. The Indian market

particularly poses intrinsic issues which make the application of the SSNIP test difficult. For

instance, lack of market data, difficulties in conducting consumer surveys and determining an

appropriately representative sample group, extreme price sensitivity of the consumers etc.

Furthermore, the characteristics of certain sectors do not permit the application of the SSNIP

test, particularly in those areas where quality of service, and not price, exerts a greater

influence on customer’s choice.

In the absence of economic tests applicable in the Indian market, determination of ‘relevant

market’ are often guided by pure public perception and the wisdom of CCI members, without

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statistical data to support the same. Therefore, while in the DLF order case, the CCI restricted

the relevant market to a mere suburb of the National Capital Region, in the Coca Cola Case3,

the CCI held that relevant geographical market cannot be confined to the closed market inside

the premises of multiplexes and considered the relevant market to be the market of all

multiplex theatres across India. In the BCCI Case4, the BCCI was alleged to be abusing its

dominant position in relation to grant of franchise rights, media rights, sponsorship rights,

and commercial contracts related to the organization of the Indian Premier League. However,

the CCI arrived at a simplistic definition of the relevant market as the ‘ market for the

organization of private professional cricket leagues/events in India’. By contrast, in the

Hockey India Case5, the CCI undertook a far more detailed analysis and considered it

appropriate to define the relevant market on the basis of each specific allegation against the

association. It is notable that in the BCCI Case, although the CCI’s order states that it has

employed the SSNIP test for the determination of the relevant market, the decision did not

present any empirical analysis to indicate how the SSNIP test was applied and what the

conclusions of its analysis were.

Establishing Dominance

The Act does not prescribe any bright line market share test for the determination of

dominance. In the cases heard by the CCI till date, there has been no guidance as to the

percentage of market shares that may indicate the likelihood of being dominant. Asian

antitrust jurisdiction such as Singapore and Malaysia follow the approach where an enterprise

enjoying a market share over 60% I likely to be dominant in the relevant market.

While market shares of dominant enterprises are considered as an important factor in CCI’s

assessment, none of the cases decided so far specify a ‘magic number’ tat can led to a

determination of dominance. Market shares of an enterprise constitutes only one amongst the

several factors that the CCI is required to take into consideration to assess dominance under

Section 19(4) of the Act. While in the Shri Sonam Sharma v. Apple Inc. USA and Ors6, The

3 Consumers guidance Society v. Hindustan Coca Cola Beverages Ltd. and INOX Leisure Pvt Ltd. Case No. 99 of 2009.4 Surinder Singh Barmi v. Board for Control of Cricket in India, Case No.61of 20105 Dhanraj Pillay and others v. M/s Hockey India, Case No. 73 of 2011.6 Case No 24 of 20111

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CCI regarded market shares to be the ‘screening criterion’, CCI’s initial decisions in the DLF

Order Case establish the market shares are not the sole criterion for assessing dominance.

While a magic number is not pre-requisite, in terms of allocating burden of proof and

allowing enterprises an opportunity of being prepared and aware of their increased

obligations as ‘dominant’ enterprises, it would be useful for the CCI to prescribe a several

mature antitrust jurisdictions

Determination of ‘abuse’ and the resultant sanctions

PENALTY GUIDELINES:

Competition jurisdiction in India suffers from the absence of penalty guidelines which are

intended to elucidate and provide guidance as to how the CCI ought to calculate penalties for

abusive conduct. The CCI has the power to impose highest economic penalties in India – a

penalty upto 10% of the average turn over of infringing enterprise for the preceding three

financial years for breach of provisions relating to abuse of dominance. The trend so far has

been that the CCI has applied differential standards for imposing penalties, without providing

any coherent reasons and justification related to the process or formulae adopted to calculate

the penalties imposed. For instance, the CCI imposed a penalty of 7% in the DLF order Case

while it imposed a penalty of 3% in the Cal India case. Therefore, for companies in India, the

calculation of penalties remains a highly contentious issue.

Asian antitrust jurisdiction such as Pakistan and Singapore have guidelines on the imposition

of financial penalties. Most recently, Malaysia has also issued draft penalty guidelines which

are presently undergoing a public review process. However in India, contrary to the

International norms, the penalties imposed by the CCI are completely at its own discretion.

Notably, the COMPAT has attempted to provide the guidance on the manner in which the

penalties ought to be calculated, but its guidance does not find any basis in the legal

provision. Pertinently, in several instance, while upholding the decisions of the CCI. The

COMPAT has significantly reduced the quantum of penalty imposed on the parties and also

cited reasons for such reductions in penalties. This reiterates the grave necessity for the CCI,

firstly to have the benefit of lucid and standard methodology guiding the imposition of

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penalties and secondly, give detailed reasoning in its orders for arriving at a particular penalty

amount.

CONCEPT OF TURNOVER:

Following from the discussion above, a related topic of connection hs been the ‘turnover’

which ought to be taken into account while levying financial penalties under the Act.

Companies in India that are active across multiple product lines are often housed under a

single entity and such companies lack clarity as to how CCI calculates penalties for infringing

conduct, this is a matter of grave concern and uncertainty.

The Act provides that a maximum of 10% of the average turnover for the preceding three

years can be levied but fails to clarify whether ’turnover’ for such imposition of penalty is

only the relevant turnover i.e. the turnover that can be attributed to the business in which the

abuse of dominance takes place or the general overall turnover of the contravening enterprise.

The concept of relevant turnover emerged in India for the first time by COMPAT in the

Aluminium Phosphide tablets case7. The opportunity came before the COMPAT in an appeal

against the decision of the CCI punishing three alluminium phosphide tablets manufacturers

for bid rigging under section 3(3) of the Act. The CCI has levied a total penalty of Rs. 3170

million in this case but this penalty was significantly reduced by the COMPAT. In its

analysis, the CCI did not give any reasons while imposing the penalty and clculated the

penalty on the total turnover of the enterprise. The COMPAT held that CCI shold only have

considered the ‘relevant turnover’, while calculating the penalty since infringing enterprises

in this case were multi-product companies. Further the COMPA reprimanded the CCI for

lack of formal reasoning in it formal orders and elucidated that the CCI must consider the

doctrine of proportionality while imposing penalties. The COMPAT also observed that the

adjudicatory role of the CCI necessitates that it considers necessary factors such as the

financial health of the company, its reputation and the likelihood of the company being

closed down due to harsh penalty, before coming to a particular amount which is linked to the

enterprise turnover. The COMPAT’s order was then challenged at Supreme Court, which

upheld the decision of the COMPAT.

7 Appeal No. 79 ,80,81 of 2012

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Division of Enterprise enjoying a Dominant Position – yet to be tested in India

The Act does not seek to prohibit the existence f dominance but only the abuse of dominance;

however, the CCI does have the power to order division of dominant enterprise under section

28 of the Act, to ensure that such dominant enterprise will not abuse its dominant position.

While the CCI has not yet used this power either as a curative or a preventive meassure, it is

interesting that such a measure find a place in the Act. Unlike mature antitrust jurisdictions,

European Union and United States, there is extremely limited guidance as to how the CCI

may order and implement a division of a dominant enterprise. Given the complex regulatory

environment in India, such an approach remains untested and will undoubtedly be

accompanied by a host of other regulatory issues, for instance, uncertainly in the approach

that the SEBI ( Securities and Exchange Board of India ) is likely to adopt to

disinvestments/division of public listed enterprises.

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Takeaways from Global trends

Mature antitrust jurisdictions have assessed abuse of dominance across a varied spectrum of

abusive conduct across sectors but the provisions relating to abuse of dominance in India are

in a state of evolution. There is much for the CCI to learn in terms of a focal point and

enforcement priorities from landmark precedents globally.

The decision in the Astra Zeneca Case8, wherein Astra Zeneca was found guilty of abusing its

dominating position by misleading patent authorities and manipulating the regulatory system

to prevent generic competition against its anti-ulcer medicine, holds significant value in India

given the CCI’s special focus towards the pharmaceutical sector and its quest to ensure that

generic manufacturers are not illegally kept away from the markets.

Rebates and discounts are type of abuses which the CCI is yet to deal with in detail as abuse

of dominance cases relating to rebates have not been tested in India so far – the CCI has

much to imbibe from the decision in Intel Case9 where Intel was found guilty of abusing its

dominant position by implementing a series of conditional rebates to computer manufacturers

and European dealers by taking measures aimed at preventing or delaying the launch of

computers based on competing products.

8 Case C-457/10 P.9 COMP/C-3/37.990

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Conclusion

In the years to come, abuse of dominance in technology, emerging industries and intellectual

property pose challenging competition law concerns which will mandate the use of flexible

competition policy to adapt to the manner in which companies compete and conduct their

business practices. Given the global nature of these sectors with national territories not

constituting significant trade barriers, competition policy is required to address these aspects

as a cohesive body of principles which found reflection in each jurisdiction’s national

competition law. For instance, the CCI has recently ordered an investigation against the

Ericsson group10 ( a global player in telecommunications sector) on the basis of two

complaints claiming that the Ericsson Group, contrary to its obligation to grant licenses for its

Standard Essential Patents on FRAND terms, has been imposing unfair terms for licensing its

patents and demanding exorbitant royalties. Any decision by CCI in this regard will

undoubtedly cause a ripple effect and will affect the way other competition regulators

approach the Ericsson Group’s business practices in their respective jurisdictions – it is

therefore imperative that the CCI’s approach to these sectors and their specific issues

develops in a manner which is harmonious with the approach of other mature jurisdictions.

The CCI would therefore need to develop competition concerns arising from abuse of

dominance cases in a way, harmonious with the global precedents.

10 Case No. 50 of 2013 and 76 of 2013

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BIBLIOGRAPHY

BOOKS

1. T Ramappa, Competition Law in India: Policy, Issues and Developments,

OxfordUniversity Press 2006.

2. D.P. Mittal, Competition Law, Taxmann’s 2003.

3. VinodDhall, Competition Law Today: Concepts, Issues and the law in Practice,Oxford

University Press, 2007.

.

Websites:

1. http://www.cci.gov.in/ 2. http://www.internationalcompetitionnetwork.org/

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http://www.cci.gov.in/

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Decartelization of Cartels - India