ABUSE OF DOMINANT POSITION IN THE COMPETITION ACT, 2002

4.1 WHAT IS DOMINANCE AND ITS ABUSE? 

Explanation of Section 4 of the Competition Act, 2002 defines dominant position as a position  of strength enjoyed by an enterprise in the relevant market in India, which enables it to— 

(i) Operate independently of competitive forces prevailing in the relevant market  Porter’s 5 Force Analysis can determine this 

• Three forces from the horizontal competition:  

– the threat of substitutes to products/services  

– the threat of established rivals  

– the threat of new entrants 

• Two forces from the vertical competition:  

– bargaining power of suppliers  

– bargaining power of customers 

When an enterprise is in such a position that is unaffected by these forces, it is considered  dominant. 

(ii) Affect its competitors or consumers or the relevant market in its favour. 

An enterprise may be capable of operating independently of competitive forces. Still, it may be in a position to influence its competitors or consumers or the relevant market itself in its  favour. In a sense, it is a higher degree of strength, where an enterprise may freely adopt a price  or non-price strategy to overcome downward pressure on its profit from its competitors to  capture or buy customers or to create a market environment that would deter new competitors  both in terms of competing enterprise or rival products. 

Therefore, dominant Position is the power of one or more undertakings in a particular market  to determine economic parameters such as price, supply, production, and distribution by acting  independently of their competitors and customers. 

Being in a dominant position is not illegal per se, and such enterprises are entitled to receive  the same benefits as other enterprises in the market. Various natural monopolies exist in the  market even today.

Simply put, the enterprise can act or behave independently of the market forces to determine  its dominant position. Such a dominant position can be achieved due to i) Deep pockets, ii)  Large market share, iii) Technology, etc. 

The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969. The provisions of this Act  were targeted at “dominant undertakings”, and as a result, firms were being hit merely due to  their size. 

The term “dominant undertaking” was defined under Section2(d) which is as an undertaking  which by itself or along with inter-connected undertaking produces, supplies, distributes or  otherwise controls not less than one-fourth of the total goods that are made, supplied or  distributed in India or any substantial part thereof; or 

An undertaking that provides or otherwise controls at least one-fourth of any services rendered  in India or any other substantial part thereof. 

Dominant position is not defined based on arithmetical parameters or market share, as in the  MRTP Act 1969. On the other hand, the dominance of an enterprise is to be judged by its power  to operate independently of competitive forces or to affect its competitors or consumers in its  favour in the Competition Act 2002 

Thus, an enterprise with a share of, say, less than 25% of the market could be determined to be  the “dominant” if it satisfies the above criteria; on the other hand, an enterprise with a higher  market share may not be considered as “dominant” if it does not meet the requirements mentioned in the Act. 

The Act also lays down several factors that the Commission needs to take into consideration in  determining whether an enterprise enjoys a dominant position or not, such as market share, size  and resources of the enterprise, scope and importance of competitors, economic power of the  enterprises, vertical integration of the enterprises, entry barriers, etc. which would involve a  fair amount of financial analysis. 

The concept of abuse is an objective concept relating to the behaviour of an undertaking in a  dominant position, which is such as to influence the structure of a market where, as a result of  the very presence of the undertaking in question, the degree of competition is weakened and  which, through recourse to methods different from those which condition average competition in products or services based on the transactions of commercial operators, has the effect of  hindering the maintenance of the degree of competition still existing in the market or the growth  of that competition.  

There are two types of abuses, which are defined under Section 4 

EXPLOITATIVE EXCLUSIONARY  [SECTION 4(a)] [SECTION 4(b), 4(c), 4(d), 4(e)] 

4.2 SECTION 4 OF THE BARE ACT 

(1) No enterprise or group shall abuse its dominant position. 

(2) There shall be an abuse of dominant position 4  

(a) Directly or indirectly, imposes unfair or discriminatory— 

i. Condition in purchase or sale of goods or services; or 

ii. Price in purchase or sale (including predatory price) of goods or services.  

Belaire Apartment Owners’ Association v. DLF Ltd & HUDA, In this case, CCI held that  DLF had contravened section 4 (2) (a) (i) and (ii), directly and indirectly, imposing unfair or  discriminatory conditions in the sale of services. CCI found DLF guilty of abusing its dominant  position in the market and imposed a penalty of Rs. 630 crores on DLF. The CCI further  directed DLF to cease formulating and assessing such unfair conditions in its Agreement with  buyers in Gurgaon and to suitably modify unfair conditions imposed on its buyers as referred  to above within three months of receiving the order on DLF. 

Indian Trade Promotion Organization V. CCI & Ors Another case of unfair and  discriminatory conditions imposed by a dominant player relates to the Pragati Maidan in Delhi.  This case was against the Indian Trade Promotion Organization (ITPO) for abusing its  dominant position in the relevant market for “provision of venue for organising international  and national exhibitions, trade fairs (events) in Delhi”. It was held in this case that Pragati  Maidan is the only established venue for holding international and national trade  fairs/exhibitions (events) in Delhi, and ITPO, as venue provider for holding events in Delhi, has absolute control and dominance. It was further found that ITPO has abused its dominant position by imposing unfair and discriminatory conditions on the third-party event organisers.  For example, the time gap restriction between two “third party events” was 15 days before and  after the event.  

In contrast, in the case of TPO’s organised events/exhibitions, the time gap restriction was 90  days before and 45 days after the event (which was amended to 90 days before and after the  event in 2011). This was held to be unfair and discriminatory by CCI. A penalty of 2% of the  average turnover of the preceding three years was imposed on ITPO, which amounted to Rs.  6.75 crores. The COMPAT held that both the DG and the Commission committed grave  illegality by not considering the economic rationale submitted by the parties, especially since  ITPO has a choice of utilising its asset to its advantage vis-à-vis third parties, though the DG  admitted the cause. Relying upon a landmark judgment of the European Court of Justice in  Oscar Bronner GmbH Co. KG v. Media print ECJ, [1998] ECR I-7791, COMPAT agreed that  a person/entity cannot be compelled to part with, permanently or temporarily, his/its assets for  the benefit of others, which may, at times detrimental to his/its interest, provided it can produce  an objective justification for such refusal. As per COMPAT, the economic rationale offered by  the appellant ITPO justified the difference.  

Meru Travels Solutions Private Limited V. Competition Commission Of India Hindustan  Times House & Anr. The SC Bench found that Uber lost substantial money per journey, Rs.  204. Providing clients with significant discounts and monetary rewards made no economic or  business sense. According to the report, Uber’s goal was to remove competitors in the market. 

The Court went on to say that if a trip loss is made, as in this case, Explanation (a)(ii) would  be attracted, such a loss would undoubtedly damage existing competitors in the market and  shift the relevant market in favour of the Appellant. The appeal was dismissed by the Supreme  Court, which also refused to tamper with the previous COMPAT order. 

In, M/S. Mega Cabs Pvt. Ltd. V. M/S Ani Technologies Pvt. Ltd. Competition Commission of India was of the prima facie view that providing more incentives and discounts to customers  and drivers compared to the revenue earned amounted to predatory pricing as it resulted in  ousting the existing players out of the market and created entry barriers for the potential players  against provisions of Section 4 of the Act. 

(b) Limits or restricts— 

i. Production of goods or provision of services or market therefor; or

ii. Technical or scientific development relating to goods or services to the prejudice of  consumers 

Shivam Enterprises V. Kiratpur Sahib Truck Operators Co-Op Society Ltd The Informant  alleged that OP 1 allows only the trucks owned by its members to engage in freight transport  of goods from the Kiratpur region. The Informant has submitted that it has obtained an order  for providing freight transport services to M/s. Ambuja Cements Ltd. will transport cement  from their warehouse in the Kiratpur region for distribution in the State of Punjab. The said  order was stated to be awarded based on quoting considerably lower rates than the rates fixed  by OP 1. However, the members of OP 1 have been forcibly obstructing the Informant on  various occasions in executing its transportation contract. The Informant also alleged that a  member of OP 1 is not allowed to negotiate rates with any customer and is forced to abide by  the rates decided by OP 1. This was held as an abuse of the dominant position by CCI. 

In Hemant Sharma V. All India Chess Federation, AICF, by its authority, imposed arbitrary  requirements on its registered players to fulfil. These players had to sign a declaration  document with restrictions, such as Refrain entirely from participating in unsanctioned events.  As a consequence of their inability to abide by the above rule, three outcomes would follow.  Firstly, they would be barred from taking part in any event organised by AICF for a period of  one year; secondly, in the event of them gaining any monetary reward through their  participation in the unsanctioned event, they should hand half the income to AICF, and lastly,  they would lose their significant ELO ratings. 

The findings of the Authority disclosed AICF having abused its dominant position. The  reasonings accounted for an outright prohibition on the players from participation lacking any  criteria, absence of any explanation or definition to the expression “unsanctioned events”,  giving AICF the leeway to make decisions arbitrarily and no option for the aggrieved players  to prefer an appeal. 

(c) Indulges in practice or practices resulting in a denial of market access [in any manner];  

Shri Surinder Singh Barmi V. Board Of Control Of Cricket In India (BCCI), the CCI  concluded that BCCI was abusing its dominant position in violation of section 4(2)(c) of the  act and imposed a penalty @six per cent of the average turnover of the BCCI in 2007-08,2008- 09 and 2009-10 amounting to Rs.52.24 crores.

Arshiya Rail Infrastructure Ltd. Vs Ministry Of Railway (Mor) & Ors, CCI refused to  invoke the ‘essential facility doctrine’ observing as follows: “The essential facility doctrine is  invoked only in certain circumstances, such as the existence of technical feasibility to provide  access, the possibility of replicating the facility in a reasonable period, the distinct possibility  of lack of effective competition if such access is denied and the possibility of providing access  on reasonable terms. In the present case, we believe there are no technical, legal or even  economic reasons why other CTOs should not be creating their terminals or similar facilities.  As set out in the Indian Railways (Permission for operators to move container trains on Indian  Railways) Rules, the Model Concession Agreement (MCA) and Gazette Notification No 458  dated 26/09/2006, CTOs are obligated to build their terminals at their cost.” 

(d) makes a 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 

Microsoft Corp V. Commission gave the five steps for determining this abuse:  

1. Dominance in the tying market 

2. The tying and tied goods must constitute two different products 

3. Coercion customers have no choice of obtaining the linked product without the linked product 

4. Foreclosure effect on competition 

5. No objective justification 

M/S. Schott Glass India Pvt. Ltd. Vs. CCI, The CCI had held that Schott India had insisted  upon the purchase of an amber variety of “neutral USPI borosilicate glass tubes” with any  purchase of clear variety tubes and, thus, violated Section 4(2)(d) of the Competition Act. The  COMPAT rejected the CCI’s finding because (i) clear and amber tubes cannot be said to be  unconnected to each other as the two products are not entirely different from each other; (ii)  Schott India had no reason to push the sales of amber tubes where it had a market share of 90%;  and (iii) lack of any documentary evidence establishing such tying-in and over-reliance on  untested oral testimonies of interested parties. 

(e) It uses its dominant position in one relevant market to enter into or protect another relevant  market.

National Stock Of India Ltd V. CCI gave conditions for the breach of section 4 (2) (e) 

1. That the enterprise has a dominant position in one market 

2. The enterprise is dealing not only with the market in which it is dominant but also in some  other markets also 

3. It wants to enter into an entirely new market or protect the same 

In Bharti Airtel Ltd V. Reliance Industries Ltd, Airtel alleged violations of Section  4(2)(a)(ii) for predatory pricing and Section 4(2)(e) for entering a market using dominance in  another market. The informant argued that RIL had allowed unfettered access of its significant funds and resources to RJIL to maintain a low price in the relevant market of 4G services in  India to cause an Appreciable Adverse Effect on Competition (AAEC). It was stated that under Section 19(4)(b) & 19(4)(d), RJIL was also dominant in the 4G market. But, the CCI held that  RJIL did not indulge in predatory pricing. It reasoned that RJIL was not a dominant player in  the market because it had a 6.4% market share in the 4G market in 2016. The CCI figured that  other players with a much larger market share had equal economic or financial strength. Due  to this, consumers were not dependent on any enterprise. Thus, as dominance was not  established, the abuse of power or predatory pricing was invalid. The CCI observed no  hindrance in the competitive market. Thus, RIL & RJIL was freed of all allegations. 

4.3 DETERMINATION OF ABUSE OF DOMINANT POSITION  

Dominance has been traditionally defined in terms of the enterprise’s market share or group of  enterprises concerned. However, several other factors play a role in determining the influence  of an enterprise or a group of enterprises in the market. These include: 

• Market share, 

• The size and resources of the enterprise; 

• Scope and importance of competitors; 

• The economic power of the enterprise; 

• Vertical integration; 

• Dependence of consumers on the enterprise; 

• The extent of entry and exit barriers in the market, countervailing buying power; • Market structure and size of the market;

• Source of dominant position viz. Whether obtained due to statute, etc.; a social costs and  obligations and contribution of enterprise 

• She is enjoying a dominant position in economic development. 

But before this, one has to determine the relevant market under section 19 of the Competition  Act 2002.  

Section 19 (5) says that the Commission shall have due regard to the “relevant geographic  market” and “relevant product market”. 

Section 2 (r) defines Relevant Market as the market that may be determined by the commission  concerning the relevant product market, the relevant geographic market, or both markets.  

Section 2 (s) Relevant Geographic Market means a market comprising the area where the  conditions of competition for supply of goods or provision of services or demand of goods or  services are distinctly homogenous and can be distinguished from the conditions prevailing in  the neighbouring areas. 

Section 2 (t) Relevant Product Market means a market comprising all those products or services  regarded as interchangeable or substitutable by the consumer because of characteristics of the  products or services, their prices and intended use. 

There are primarily three stages in determining whether an enterprise has abused its dominant  position they are 

1. Relevant Market 

2. Degree of Market Power/Monopoly Power in that relevant market 

3. Determining whether the undertaking in a dominant position has engaged in conduct prohibited by the statute or applicable law.  

The first stage in determining whether an undertaking is dominant is to determine the relevant  product market under section 19 (7) based on the interchangeability and substitutability of  products.

Where products are regarded as interchangeable or substitutable from a consumer’s standpoint,  they are considered to belong to the same product market. Interchangeability is measured based  on the intended use of the products, the price of the products and their physical characteristics. 

• physical characteristics or end-use of goods; · price of goods or service; • consumer preferences; 

• exclusion of in-house production; 

• existence of specialised producers;  

• classification of industrial products. 

Once the relevant product market is defined, the relevant geographical market can be analysed under section 19 (6). The relevant geographic market is the area in which the undertakings  concerned are involved in the supply of appropriate products or services, in which the  conditions of competition are sufficiently homogenous and that can be distinguished from new geographic areas because conditions of competition are appreciably different in those areas. 

• regulatory trade barriers; 

• local specification requirements; 

• national procurement policies; 

• adequate distribution facilities; 

• transport costs; 

• language; 

• consumer preferences; 

• need for secure or regular supplies or rapid after-sales services. 

In a recent case, Fast Track Call Cab Pvt. Ltd. And Meru Travel Solutions Pvt. Ltd V.  ANI Technologies Pvt. Ltd., the CCI, while determining whether the OP (OLA) held a  dominant position in the relevant market or not, remarked that abuse of dominant position  under Section 4 would be attracted only when the entity under scrutiny has a dominant position  in the relevant market. CCI also elaborated on the concept of dominant position and stated  dominant position as a position of economic strength enjoyed by the enterprise in the relevant  market, which enables it to operate independently of competitive forces prevailing in the  relevant market or affect its competitor or consumer or the relevant market in its favour. Such  ability of the enterprise to behave independently of competitive forces needs to be assessed in light of all appropriate circumstances and the factors enlisted under Section 19(4) of the Act.  The CCI, in the case while determining the dominance of OLA, considered the following  elements: 

1. Market shares of OLA; 

2. Its competitors in relevant markets; 

3. Annual and monthly number of trips in the relevant market during the period of  investigation;