CCI Dismisses Allegations of Abuse of Dominance and Anti-Competitive Vertical Agreements against Amazon

On September 11, 2020, CCI passed an order dismissing the information filed by Lifestyle Equities C.V (‘Lifestyle’) against Amazon Seller Services Private Limited (‘Amazon’) and Cloudtail India Private Limited (‘Cloudtail’) alleging contravention of provisions of Section 3(4) and Section 4 of the Act.[1]

Lifestyle, which owns the clothing brand Beverly Hills Polo Club (‘BHPC’) had filed the information alleging abuse of dominance and entering into anti-competitive exclusive agreements by Amazon. Lifestyle alleged that Amazon was dominant in the market for ‘online fashion retail in India’ and abused its dominant position by selling counterfeit/unauthorized products of the BHPC brand on its marketplace at extremely low prices, resulting in predatory pricing. Notably, Lifestyle by itself did not sell any of its products on Amazon’s website. The effect of such low pricing has resulted in consumers shifting their purchase of BHPC products from Lifestyle’s website to Amazon’s website, where BHPC’s products (allegedly counterfeit) are available at extremely low prices. Lifestyle alleged that such practices of Amazon have resulted in an appreciable reduction in its brand appeal.

Lifestyle also alleged that Amazon had appointed Cloudtail as a preferred seller on its marketplace. It was alleged that Cloudtail sells products at highly discounted prices, which created high entry barriers in the online retail space. Further, instead of acting as a neutral marketplace, Amazon favoured its preferred sellers/labels by giving them higher search ranking and positive customer reviews which disadvantaged the other sellers. As a result, Lifestyle (or any such apparel manufacturer) that intends to sell products through Amazon’s website is constrained to sell through Amazon’s preferred sellers (such as Cloudtail).

CCI noted that Amazon operated a marketplace that facilitates trade between buyers and sellers. Such markets are characterized by cross-side network effects since sellers would want to sell products on a marketplace that has a high number of buyers and vice versa. Accordingly, CCI defined the relevant market from the viewpoint of a seller as the ‘market for service provided by online platforms for selling fashion merchandise in India’. CCI noted that while this market comprised of large players such as Amazon and Flipkart collectively occupying around 35% of the market, more than 50% of market share was held by dedicated fashion marketplaces such as Myntra, Ajio, Koovs, etc. Further, Flipkart is Amazon’s close competitor with comparable market position and resources. Accordingly, it was concluded that Amazon was not dominant in this market.

Regarding the alleged anti-competitive exclusive agreements between Amazon and fashion brands such as Allen Solly, US Polo Association, and Adidas, CCI noted that: (a) none of their contracts was exclusive; and (b) there were plenty of online intermediation channels available for such brands to reach consumers. CCI also rejected the informant’s reliance on another case involving similar issues of vertical agreements concerning preferential listing, discounts, etc., in the online smartphone market[2]. CCI held that the market dynamics of smartphones and fashion products in India are different, with fashion being more diverse and dispersed. Further, unlike the case concerning the smartphones, there was no allegation of platform-specific exclusive launch of fashion products by brands, accordingly, there was no concern of the consumer’s choice being affected and inter-platform competition. CCI concluded that since Amazon was not dominant in the market for service provided by online platforms for selling fashion merchandise in India, no case was made out under Section 3(4) of the Act.

Regarding the allegation of online sale of counterfeit products on Amazon, CCI noted that since Amazon was not dominant in this market the issue of online sale of counterfeit products would not attract antitrust scrutiny. However, Lifestyle could raise the issue of counterfeit products through other regulatory instruments due to the adverse implications that it otherwise has on sellers and buyers.

Accordingly, in the absence of any appreciable adverse effect on competition that could have been caused by Amazon’s conduct, CCI passed a closure order under Section 26(2) of the Act.

 

[1] Case No. 09 of 2020, Order dated September 11, 2020.

[2] Case No. 40 of 2019, Order dated January 13, 2020.

Published In:Inter Alia Special Edititon - Competition Law - October 2020 [ English
Date: October 19, 2020