[The Viewpoint] Abuse of dominant position in digital markets

Anti-competitive practices like anti-competitive agreements, abuse of dominant position and combinations can result in disruption of physical as well as digital markets worldwide. The effects of such practices can have implications on both consumers and producers due to increased prices and increased barriers to entry in the market.

The Competition Act was introduced in 2002, repealing the The Monopolies and Restrictive Trade Practices Act, 1969, to prevent such anti-competitive practices that have an appreciable adverse effect on competition in India

Dominant position generally means an enterprise having the ability to exert dominance upon other competitors in the market and act independently of the market forces. A dominant position is not considered illegal per se. However, the abuse of dominant position is illegal as per Section 4 of The Competition Act, 2002.

Digital markets act as digital middlemen for consumers and producers to efficiently do transactions through online mode. With the growing prominence of digital markets in India due to various factors like advanced technology, wider reach, ease in doing transactions etc, enterprises involved in digital markets have expanded exponentially. However, some of the enterprises have also indulged in anti-competitive practices, disrupting the markets and causing hindrances to both the consumers and producers.

The Competition Commission of India has been actively involved to prevent such anti-competitive practices and has recently directed investigations against search engines and food delivery apps, amongst others, for abuse of their dominant position in the relevant market.

Factors to determine abuse of dominant position in a digital market

Abuse of dominant position occurs when an enterprise uses its dominant position and behaves in an exclusionary and/or an exploitative manner in the relevant market. Exploitative practices are those adopted by an enterprise that uses excessive or discriminatory pricing with the intent to exploit the consumers. Enterprises indulge in exclusionary practices when they effect denial of market access to other competitors. Factors to determine abuse of dominant position are:

1. Relevant Market

Relevant market is defined under Section 2(r) of the Act as “the market that may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets”. A dominant position under the Act has significance only when the relevant market has been defined.

2. Dominant Position

Dominant position is defined under Explanation of Section 4 of the Act as a position of strength enjoyed by an enterprise, in the relevant market in India, which enables it to:

1. operate independently of the competitive forces prevailing in the relevant market; or

2. affect its competitors or consumers or the relevant market in its favour.

As per Section 19(4) the Act, the factors determining the dominant position are:

1. market share of the enterprise,

2. size and resources of the enterprise;

3. size and importance of competitors;

4. economic power of the enterprise including commercial advantages over competitors;

5. vertical integration of the enterprises or sale or service network of such enterprises;

6. dependence of consumers on the enterprise;

7. monopoly or dominant position whether acquired as a result of any statute or by virtue of being a government company or a public sector undertaking or otherwise;

8. entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;

9. countervailing buying power;

10. market structure and size of market;

11. social obligations and social costs;

12. relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition;

13. any other factor which the Commission may consider relevant for the inquiry.

Section 4 of the Act gives an exhaustive list of the following practices that shall constitute abuse of dominant position by an enterprise:

1. directly or indirectly imposing unfair or discriminatory condition in purchase or sale of goods or service;

2. directly or indirectly imposing unfair or discriminatory price in purchase or sale (including predatory price) of goods or service;

3. limiting or restricting production of goods or provision of services or market;

4. limiting or restricting technical or scientific development relating to goods or services to the prejudice of consumers;

5. denying market access in any manner;

6. making 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;

7. using its dominant position in one relevant market to enter into, or protect, other relevant market.

The Competition Commission of India (CCI), on being satisfied that there exists a prima facie case of abuse of dominance, shall direct the Director General to investigate and furnish a report. The Commission has the powers vested in a civil court under the Code of Civil Procedure, 1908. The Director General, for the purpose of carrying out investigation, is also vested with powers of a civil court besides the power to conduct ‘search and seizure’.

Abuse of dominant position and Intellectual Property Rights

Intellectual Property Rights and Competition laws are generally considered as contradictory to each other, as the former grant exclusivity to the owner, which can hinder competition in the market. However, it is an established principle that both the laws are complementary to each other and focus on same goals: innovation and general welfare of the public.

Therefore, Intellectual Property Rights are covered under Section 4 of the Act, which considers all the factors before arriving at any conclusion relating to abuse of dominant position on account of holding of Intellectual Property Rights. However, Intellectual Property Rights are given special treatment in assessment by the CCI as Section 3(5) of the Act, relating to anti-competitive agreements, explicitly exempts reasonable conditions imposed for protecting Intellectual Property Rights.

Lucy Rana (Managing Partner) and Nihit Nagpal (Associate Partner) at S.S. Rana & Co.